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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM 10-K
________________________________
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from              to             
Commission File Number 001-33390
___________________________________________ 
TFS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 ___________________________________________ 
United States of America 52-2054948
(State or Other Jurisdiction of
Incorporation or Organization)		 (I.R.S. Employer
Identification No.)
7007 Broadway Avenue 
Cleveland,Ohio 44105
(Address of Principal Executive Offices) (Zip Code)
(216) 441-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange in which registered
Common Stock, par value $0.01 per shareTFSLThe NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None
___________________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer,” "smaller reporting company," and "emerging growth company" Rule 12b-2 of the Exchange Act:
 
Large accelerated filerx
Accelerated filer  o
Non-accelerated filer  o

Smaller reporting company
☐
Emerging growth company
☐
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  x   No ☐   

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ☐    No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on March 31, 2022, as reported by the NASDAQ Global Select Market, was approximately $868.43 million.
At November 18, 2022, there were 280,407,741 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, of which 227,119,132 shares, or 81.00% of the Registrant’s common stock, were held by Third Federal Savings and Loan Association of Cleveland, MHC, the Registrant’s mutual holding company.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III hereof to the extent indicated therein.


TFS Financial Corporation
INDEX
 
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.

2
GLOSSARY OF TERMS
TFS Financial Corporation provides the following list of acronyms and other terms as a tool for the reader. The acronyms and other terms identified below are used throughout the document.
ACL: Allowance for Credit Losses
FHFA: Federal Housing Finance Agency
ACT: Tax Cuts and Jobs Act
FHLB: Federal Home Loan Bank
AOCI: Accumulated Other Comprehensive Income
FICO: Fair Isaac Corporation
ARM: Adjustable-Rate Mortgage
FRB-Cleveland: Federal Reserve Bank of Cleveland
ASC: Accounting Standards Codification
Freddie Mac: Federal Home Loan Mortgage Corporation
ASU: Accounting Standards Update
FRS: Board of Governors of the Federal Reserve System
Association: Third Federal Savings and Loan
GAAP: Generally Accepted Accounting Principles
Association of Cleveland
Ginnie Mae: Government National Mortgage Association
BOLI: Bank Owned Life Insurance
GVA: General Valuation Allowance
CARES Act: Coronavirus Aid, Relief and Economic Security

Act
HOLA: Home Owners' Loan Act
CDs: Certificates of Deposit
HPI: Home Price Index
CECL: Current Expected Credit Losses
IRR: Interest Rate Risk
CET1: Common Equity Tier 1
IRS: Internal Revenue Service
CFPB: Consumer Financial Protection Bureau
IVA: Individual Valuation Allowance
CLTV: Combined Loan-to-Value
LIHTC: Low Income Housing Tax Credit
Company: TFS Financial Corporation and its
LIP: Loans-in-Process
subsidiaries
LTV: Loan-to-Value
COSO: Committee of Sponsoring Organizations of the
MMK: Money Market Account
       Treadway Commission
MGIC: Mortgage Guaranty Insurance Corporation
CRA: Community Reinvestment Act
OCC: Office of the Comptroller of the Currency
DFA: Dodd-Frank Wall Street Reform and Consumer
OCI: Other Comprehensive Income
Protection Act
OTS: Office of Thrift Supervision
EaR: Earnings at Risk
PMI: Private Mortgage Insurance
EPS:  Earnings per Share
PMIC: PMI Mortgage Insurance Co.
ESG: Environmental, Social and Governance
QTL: Qualified Thrift Lender
ESOP: Third Federal Employee (Associate) Stock
REMICs: Real Estate Mortgage Investment Conduits
Ownership Plan
SEC: United States Securities and Exchange Commission
EVE: Economic Value of Equity
TDR: Troubled Debt Restructuring
Fannie Mae: Federal National Mortgage Association
Third Federal Savings, MHC: Third Federal Savings
FASB: Financial Accounting Standards Board
and Loan Association of Cleveland, MHC
FDIC: Federal Deposit Insurance Corporation

3
PART I
Item 1.Business
Forward Looking Statements
     This report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include, among other things:
●statements of our goals, intentions and expectations;
●statements regarding our business plans and prospects and growth and operating strategies;
●
statements concerning trends in our provision for credit losses and charge-offs on loans and off-balance sheet exposures;
●
statements regarding the trends in factors affecting our financial condition and results of operations, including credit quality of our loan and investment portfolios; and
●estimates of our risks and future costs and benefits.
     These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:
●
significantly increased competition among depository and other financial institutions, including with respect to our ability to charge overdraft fees;
●
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. Government, including policies of the U.S. Treasury and the FRS and changes in the level of government support of housing finance;
●the continuing governmental efforts to restructure the U.S. financial and regulatory system;
●the ability of the U.S. Government to remain open, function properly and manage federal debt limits;
●changes in policy and/or assessment rates of taxing authorities that adversely affect us or our customers;
●changes in accounting and tax estimates;
●
changes in our organization, or compensation and benefit plans and changes in expense trends (including, but not limited to trends affecting non-performing assets, charge-offs and provisions for credit losses);
●the inability of third-party providers to perform their obligations to us;
●the effects of global or national war, conflict or acts of terrorism;
●
civil unrest;
●
cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; and
●the impact of wide-spread pandemic, including COVID-19, and related government action, on our business and the economy.
      Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Please see Item 1A. Risk Factors for a discussion of certain risks related to our business.
4
TFS FINANCIAL CORPORATION
TFS Financial Corporation (“we,” “us,” or “our”) was organized in 1997 as the mid-tier stock holding company for the Association. We completed our initial public stock offering in 2007 and issued 100,199,618 shares of common stock, or 30.16% of our post-offering outstanding common stock, to subscribers in the offering. Additionally, at the time of the public offering, 5,000,000 shares of our common stock, or 1.50% of our outstanding shares, were issued to the newly formed charitable foundation, Third Federal Foundation. Third Federal Savings, MHC, our mutual holding company parent, held and continues to hold, the remainder of our outstanding common stock (227,119,132 shares). Net proceeds from our initial public stock offering were approximately $886 million and reflected the costs we incurred in completing the offering as well as a $106.5 million loan to the ESOP related to its acquisition of shares in the initial public stock offering.
Our ownership of the Association remains our primary business activity. We also operate Third Capital, Inc. as a wholly-owned subsidiary. See THIRD CAPITAL, INC. below.
As the holding company of the Association, we are authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies, which include making equity investments and the acquisition of banking and financial services companies.
Our cash flow depends primarily on earnings from the investment of proceeds we retained from the initial offering, and any dividends we receive from the Association and Third Capital, Inc. All of our officers are also officers of the Association. In addition, we use the services of the support staff of the Association from time to time. We may hire additional associates, as needed, to the extent we expand our business in the future.
THIRD CAPITAL, INC.
Third Capital, Inc. is a Delaware corporation that was organized in 1998 as our wholly-owned subsidiary. At September 30, 2022, Third Capital, Inc. had consolidated assets of $9.1 million, and for the fiscal year ended September 30, 2022, Third Capital, Inc. had consolidated net income of $1.7 million. Third Capital, Inc. has no separate operations other than as the holding company for its operating subsidiaries, and as a minority investor or partner in other entities. 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. 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. The Association’s principal business consists of originating and servicing residential real estate mortgage loans and attracting retail savings deposits.
The Association’s business strategy is to originate mortgage loans with interest rates that are competitive with those of similar products offered by other financial institutions in its markets. Similarly, the Association offers checking accounts, savings accounts and certificate of deposit accounts, each bearing interest rates that are competitive with similar products offered by other financial institutions in its markets. The Association expects to continue to pursue this business philosophy. While this strategy does not enable the Association to earn the highest rates of interest on loans that it offers or to pay the lowest rates on its deposit accounts, the Association believes that this strategy is the primary reason for its successful growth in the past and will continue to be a successful strategy in the future.
The Association attracts retail deposits from the general public in the areas surrounding its main office and its branch offices. It also utilizes its internet website, direct mail solicitation and its customer service call center to generate loan applications and attract retail deposits. 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. In addition to residential real estate mortgage loans, the Association originates residential construction loans to individuals for the construction of their personal residences by a qualified builder. The Association also offers home equity loans and lines of credit subject to certain property and credit performance conditions. 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.
5
The Association’s revenues are derived primarily from interest on loans and, to a lesser extent, interest on interest-earning deposits in other financial institutions, deposits maintained at the FRS, federal funds sold, and investment securities, including mortgage-backed securities and dividends from FHLB of Cincinnati stock. The Association also generates revenues from fees and service charges. The Association’s primary sources of funds are deposits, borrowings, principal and interest payments on loans and securities and proceeds from loan sales.
The Association’s website address is www.thirdfederal.com. Filings of the Company made with the SEC are available, without charge, on the Association’s website. 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. 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 Florida, the Association maintains 16 full-service branches located in the counties of Pasco, Pinellas, Hillsborough, Sarasota, Lee, Collier, Palm Beach and Broward.
The Association also provides savings products in all 50 states and first mortgage refinance loans in 21 states and the District of Columbia. Home equity lines of credit are provided in 25 states and the District of Columbia. First mortgage loans and bridge loans to purchase homes are provided in 13 states while other equity loan products are provided in eight states. These products are provided through its branch network for customers in its core markets of Ohio, Florida, Kentucky and Indiana as well as its customer service call center and its internet site for all customers not served by its branch network.
Competition
The Association faces intense competition in its market areas both in making loans and attracting deposits. Its market areas have a high concentration of financial institutions, including large money centers and regional banks, community banks and credit unions, and it faces additional competition for deposits from money market funds, brokerage firms, mutual funds and insurance companies. Some of its competitors offer products and services that the Association currently does not offer, such as commercial business loans, trust services and private banking.
The majority of the Association’s deposits are held in its offices located in Cuyahoga County, Ohio. As of June 30, 2022 (the latest date for which information is publicly available), the Association had $5.1 billion of deposits in Cuyahoga County, and ranked fifth among all financial institutions with offices in the county in terms of deposits, with a market share of 4.97%. As of that date, the Association had $6.7 billion of deposits in the State of Ohio, and ranked tenth among all financial institutions in the state in terms of deposits, with a market share of 1.28%. As of June 30, 2022 (the latest date for which information is publicly available), the Association had $2.6 billion of deposits in the State of Florida, and ranked 36th among all financial institutions in terms of deposits, with a market share of 0.29%. This market share data excludes deposits held by credit unions, whose deposits are not insured by the FDIC.
Many financial institutions, including institutions that compete in our markets, have targeted retail deposit gathering as a more attractive funding source than borrowings, and have become more active and more competitive in their deposit product pricing. The combination of reduced demand for borrowed funds and more competition with respect to rates paid to depositors has created an increasingly difficult marketplace for attracting deposits, which could adversely affect future operating results.
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. For the same period, it also had the second largest market share of conventional purchase mortgage loans originated in the seven northeast Ohio counties which comprise the Cleveland and Akron metropolitan statistical areas. In addition, based on the same statistics, the Association has consistently been one of the twenty largest lenders in both Franklin County (Columbus, Ohio) and Hamilton County (Cincinnati, Ohio) since it entered those markets in 1999.
The Association’s primary strategy for increasing and retaining its customer base is to offer competitive deposit and loan rates and other product features, delivered with exceptional customer service, in each of the markets it serves.
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. At September 30, 2022, our ratio of shareholders’ equity to total assets was 11.7%. For the fiscal year ended September 30, 2022, our liquidity ratio averaged
6
5.64% (which we compute as the sum of cash and cash equivalents plus unpledged investment securities for which ready markets exist, divided by total assets). See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources.
We continue to utilize a multi-faceted approach to support our efforts to instill customer and marketplace confidence. First, we provide thorough and timely information to all of our associates so as to prepare them for their day-to-day interactions with customers and other individuals who are not part of the Company. We believe that it is important that our customers and others sense the comfort level and confidence of our associates throughout their dealings. Second, we encourage our management team to maintain a presence and to be available in our branches and other areas of customer contact, so as to provide more opportunities for informal contact and interaction with our customers and community members. Third, our CEO remains accessible to both local and national media, as a spokesman for our institution as well as an observer and interpreter of financial marketplace situations and events. Fourth, we periodically include advertisements in local newspapers and online that display our strong capital levels and history of service. We also continue to emphasize our traditional tagline—“STRONG * STABLE * SAFE”—in our advertisements, website, online presence and branch displays. Finally, for customers who adhere to the old adage of trust but verify, we refer them to the safety/security rankings of a nationally recognized, independent rating organization that specializes in the evaluation of financial institutions, which has awarded the Association its highest rating for more than one hundred consecutive quarters.

Lending Activities
The Company’s principal lending activity is the origination of fixed-rate and adjustable-rate, first mortgage loans to purchase or refinance residential real estate. Adjustable-rate and up to 30-year fixed rate first mortgage loans to refinance real estate are offered in 21 states and the District of Columbia. Also, the Company offers adjustable-rate and up to 30-year fixed rate first mortgage loans to purchase real estate in 13 states. Further, the Company originates residential construction loans to individuals (for the construction of their personal residences by a qualified builder) in Ohio and Florida. 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. Management’s Discussion and Analysis of Financial Condition and Results of Operation-Monitoring and Limiting Our Credit Risk for additional information regarding home equity loans and lines of credit. At September 30, 2022, residential real estate, fixed-rate and adjustable-rate, first mortgage loans totaled $11.59 billion, or 80.8% of our loan portfolio, home equity loans and lines of credit totaled $2.63 billion, or 18.4% of our loan portfolio, and residential construction loans totaled $121.8 million, or 0.8% of our loan portfolio. At September 30, 2022, adjustable-rate, residential real estate, first mortgage loans totaled $4.67 billion and comprised 32.5% of our loan portfolio.
7
Loan Portfolio Composition. The following table sets forth the composition of the portfolio of loans held for investment, by type of loan segregated by geographic location, at the indicated periods, excluding loans held for sale. The majority of our Home Today loan portfolio is secured by properties located in Ohio and the balances of other loans are immaterial. Therefore, neither was segregated by geographic location.
 September 30,
 20222021
 AmountPercentAmountPercent
 (Dollars in thousands)
Real estate loans:
Residential Core (1)
Ohio$6,432,780 $5,603,998 
Florida2,120,892 1,838,259 
Other2,986,187 2,773,018 
Total11,539,859 80.4%10,215,275 81.2%
Residential Home Today Total (1)53,255 0.463,823 0.6
Home equity loans and lines of credit
Ohio706,641 630,815 
Florida537,724 438,212 
California432,540 335,240 
Other956,973 809,985 
Total2,633,878 18.42,214,252 17.6
Construction
Ohio111,098 71,651 
Florida10,661 6,604 
Other— 2,282 
Total121,759 0.880,537 0.6
Other loans3,263 —2,778 —
Total loans receivable14,352,014 100.0%12,576,665 100.0%
Deferred loan expenses , net50,221 44,859 
Loans in process(72,273)(48,200)
Allowance for credit losses on loans(72,895)(64,289)
Total loans receivable, net$14,257,067 $12,509,035 
 ______________________
(1)Residential Core and Home Today loans are primarily one- to four-family residential mortgage loans. See the Residential Real Estate Mortgage Loans section which follows for a further description of Residential Core and Home Today loans.
8
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. The Company treats the FICO score information as demonstrating that underwriting guidelines reduce risk rather than as a credit quality indicator utilized in the evaluation of credit risk. Balances are adjusted for deferred loan fees, expenses and any applicable loans-in-process.
Revolving LoansRevolving Loans
By fiscal year of originationAmortizedConverted
September 30, 202220222021202020192018PriorCost BasisTo TermTotal
Real estate loans:
Residential Core
          <680$89,732 $66,810 $37,307 $24,482 $24,788 $165,224 $— $— $408,343 
          680-740571,629 261,568 199,400 75,883 80,813 368,962 — — 1,558,255 
          741+2,672,698 1,889,513 1,235,194 522,635 551,191 2,536,707 — — 9,407,938 
          Unknown (1)
15,141 34,671 20,050 7,340 10,671 96,872 — — 184,745 
Total Residential Core3,349,200 2,252,562 1,491,951 630,340 667,463 3,167,765 — — 11,559,281 
Residential Home Today (2)
          <680 — — — — — 27,632 — — 27,632 
          680-740— — — — — 11,607 — — 11,607 
          741+— — — — — 10,632 — — 10,632 
          Unknown (1)
— — — — — 2,937 — — 2,937 
Total Residential Home Today— — — — — 52,808 — — 52,808 
Home equity loans and lines of credit
          <6801,044 1,059 453 512 611 788 79,839 16,333 100,639 
          680-74018,096 3,742 868 1,379 1,205 1,502 391,272 22,187 440,251 
          741+79,681 25,852 7,871 6,146 5,055 8,377 1,911,717 50,864 2,095,563 
          Unknown (1)
84 152 65 20 113 707 21,160 7,378 29,679 
Total Home equity loans and lines of credit98,905 30,805 9,257 8,057 6,984 11,374 2,403,988 96,762 2,666,132 
Construction
          <680119 352 — — — — — — 471 
          680-7408,532 524 — — — — — — 9,056 
          741+ 29,159 9,792 — — — — — — 38,951 
Total Construction37,810 10,668 — — — — — — 48,478 
Total net real estate loans$3,485,915 $2,294,035 $1,501,208 $638,397 $674,447 $3,231,947 $2,403,988 $96,762 $14,326,699 
(1) Market data necessary for stratification is not readily available.
(2) No new originations of Home Today loans since fiscal 2016.
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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. Balances are adjusted for deferred loan fees, expenses and any applicable loans-in-process.
Revolving LoansRevolving Loans
By fiscal year of originationAmortizedConverted
September 30, 202220222021202020192018PriorCost BasisTo TermTotal
Real estate loans:
Residential Core
          <80%$2,029,067 $1,566,975 $809,302 $290,532 $353,297 $1,857,689 $— $— $6,906,862 
          80-89.9%1,086,531 635,815 620,482 306,956 291,649 1,208,559 — — 4,149,992 
          90-100%218,930 48,359 61,963 32,588 22,399 99,210 — — 483,449 
          >100%— — — — 118 660 — — 778 
          Unknown (1)
14,672 1,413 204 264 — 1,647 — — 18,200 
Total Residential Core3,349,200 2,252,562 1,491,951 630,340 667,463 3,167,765 — — 11,559,281 
Residential Home Today (2)
          <80%— — — — — 10,600 — — 10,600 
          80-89.9%— — — — — 17,068 — — 17,068 
          90-100%— — — — — 25,140 — — 25,140 
Total Residential Home Today— — — — — 52,808 — — 52,808 
Home equity loans and lines of credit
<80%93,697 29,966 9,218 7,721 6,395 7,942 2,229,937 63,322 2,448,198 
80-89.9%5,173 839 40 281 442 1,175 172,774 30,313 211,037 
90-100%— — — — 55 848 577 401 1,881 
>100%34 — — 54 92 1,402 422 499 2,503 
         Unknown (1)
— — — — — 7 279 2,227 2,513 
Total Home equity loans and lines of credit98,904 30,805 9,258 8,056 6,984 11,374 2,403,989 96,762 2,666,132 
Construction
<80%6,652 7,956 — — — — — — 14,608 
80-89.9%31,158 2,712 — — — — — — 33,870 
Total Construction37,810 10,668 — — — — — — 48,478 
Total net real estate loans$3,485,914 $2,294,035 $1,501,209 $638,396 $674,447 $3,231,947 $2,403,989 $96,762 $14,326,699 
(1) Market data necessary for stratification is not readily available.
(2) No new originations of Home Today loans since fiscal 2016.
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of the loan portfolio at September 30, 2022, according to each loan's final due date. Demand loans, loans having no stated repayment schedule or maturity, are reported as being due in the fiscal year ending September 30, 2023. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.
Due During the Years
Ending September 30,
Residential Real EstateHome Equity
Loans
and Lines of
Credit		Construction
Loans		Other
 Loans		Total
CoreHome
Today
 (In thousands)
2023$9,870 $3 $7,274 $— $1,797 $18,944 
2024-2027391,041 180 45,214 1,500 — 437,935 
2028-20372,265,157 38,562 136,792 8,588 1,466 2,450,565 
2038 and beyond8,873,791 14,510 2,444,598 111,671 — 11,444,570 
Total$11,539,859 $53,255 $2,633,878 $121,759 $3,263 $14,352,014 

10
The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2022 that are contractually due after September 30, 2023.
 Due After September 30, 2023
 FixedAdjustableTotal
 (In thousands)
Real estate loans:
Residential Core$6,862,138 $4,667,851 $11,529,989 
Residential Home Today53,184 68 53,252 
Home Equity Loans and Lines of Credit156,672 2,469,932 2,626,604 
Construction121,759 — 121,759 
Other Loans1,466 — 1,466 
Total loans receivable$7,195,219 $7,137,851 $14,333,070 
Residential Real Estate Mortgage Loans. 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 currently offers fixed-rate conventional mortgage loans with terms of 30 years or less that are fully amortizing with monthly loan payments, and adjustable-rate mortgage loans that amortize over a period of up to 30 years, provide an initial fixed interest rate for three or five years and then adjust annually, subject to rate reset options as discussed later in this section. 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. The loans originated for larger dollar amounts are generally referred to as “jumbo loans.” The Company generally underwrites jumbo loans in a manner similar to conforming loans. Jumbo loans are not uncommon in the Company’s market areas.
The Company offers “Smart Rate” adjustable-rate mortgage loan products secured by residential properties with interest rates that are fixed for an initial period of three or five years, after which the interest rate generally resets every year based upon a contractual spread or margin linked to the Prime Rate as published in the Wall Street Journal. As part of a loan retention program, these adjustable-rate loans provide the borrower with an attractive rate reset option, which allow the borrower to re-lock the rate an unlimited number of times at the Company’s then current lending rates, for another three or five years (which must be the same as the original lock period). "Smart Rate" adjustable-rate mortgage loans represent over 99% of the adjustable-rate mortgage loan portfolio, with the difference representing the remaining balance of legacy adjustable-rate mortgage loan products with slightly different interest rate reset terms. Many of the borrowers who select adjustable-rate mortgage loans have shorter-term credit needs than those who select long-term, fixed-rate mortgage loans. Adjustable-rate mortgage loans generally present different credit risks than fixed-rate mortgage loans primarily because the underlying debt service payments of the borrowers increase as interest rates increase, thereby increasing the potential for default. All of the Company’s adjustable-rate mortgage loans are subject to periodic and lifetime limitations on interest rate changes. All adjustable-rate mortgage loans have initial and periodic caps of two percentage points on interest rate changes, with a cap of five or six percentage points for the life of the loan. The Company has never offered “Option ARM” loans, where borrowers can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan.
The Company has always considered the promotion of home ownership a primary goal. In that regard, it has historically offered affordable housing programs in all of its market areas. These programs are targeted toward low- and moderate-income home buyers. The Company’s philosophy has been to provide borrowers the opportunity for home ownership within their financial means. During fiscal 2016, the Company began to market its Home Ready mortgage loan product for low- and moderate-income homeowners. Third Federal’s Home Ready product is designed to be saleable to Fannie Mae under its Home Ready program. Previously, the Company’s primary affordable housing program was referred to as "Home Today". The vast majority of loans originated under the Home Today program had higher risk characteristics than our Core residential real estate mortgage loan, but the Company attempted to mitigate that higher risk through the use of private mortgage insurance and continued pre- and post-purchase counseling. As of September 30, 2022, the Company had $53.3 million of loans outstanding that were originated through its Home Today program, most of which were originated prior to March 2009. At September 30, 2022, of the loans that were originated under the Home Today program, 5.6% were delinquent 30 days or more compared to 0.1% for the portfolio of Core loans as of that date. At September 30, 2022, $0.9 million, or 1.6%, of loans originated under the Home Today program were delinquent 90 days and over and $6.0 million of Home Today loans were non-accruing loans, representing 17.0% of total non-accruing loans as of that date. 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
The Company currently retains the servicing rights on all loans sold in order to generate fee income and reinforce its commitment to customer service. One- to four-family residential mortgage real estate loans that have been sold were underwritten generally to Fannie Mae guidelines. At the time of the closing of these loans the Company owns the loans and subsequently sells them to Fannie Mae and others providing normal and customary representations and warranties, including representations and warranties related to compliance, generally with Fannie Mae underwriting standards. At the time of sale, the loans are free from encumbrances except for the mortgages filed by the Company which, with other underwriting documents, are subsequently assigned and delivered to Fannie Mae and others. During the fiscal years ended September 30, 2022 and 2021, the Company recognized servicing fees, net of amortization, related to these servicing rights of $4.3 million and $3.3 million, respectively. As of September 30, 2022 and 2021, the principal balance of loans serviced for others totaled $2.05 billion and $2.26 billion, respectively. 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. 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. The Company also requires that borrowers maintain fire and extended coverage casualty insurance (and, if appropriate, flood insurance up to $250 thousand) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements. A majority of its residential real estate mortgage loans have a mortgage escrow account from which disbursements are made for real estate taxes and to a lesser extent for hazard insurance and flood insurance. The Company does not conduct environmental testing on residential real estate mortgage loans unless specific concerns for hazards are identified by the appraiser used in connection with the origination of the loan.
For home purchase loans with LTV ratios at origination in excess of 85% but equal to or less than 90%, the Company generally requires private mortgage insurance. The Company offers a loan product allowing up to 95% LTV with no mortgage insurance for superior credit borrowers. LTV ratios in excess of 85% are not available for refinance transactions except for adjustable-rate, first mortgage loans and Home Ready loans. The Home Ready product requires private mortgage insurance on purchase transactions between 80.01% and 97% LTV and refinance transactions between 80.01% and 95% LTV. As of September 30, 2022, the Company had a total of $225.7 million of loans outstanding that were originated through the high LTV program. This program involves loans originated with higher interest rates than the Company's other residential real estate loans, and to qualify for this program the loan applicant must satisfy more stringent underwriting criteria (credit score, income qualification, and other criteria).
Home Equity Loans and Home Equity Lines of Credit. The Company offers home equity loans and home equity lines of credit, which are primarily secured by a second mortgage on residences. The home equity product is offered in 25 states and the District of Columbia. Home equity lines of credit originated since 2013 require amortizing loan payments during the draw period. These offers were, and are, subject to certain property and credit performance conditions which, among other items, related to CLTV, geography, borrower income verification, minimum credit scores and draw period duration. At September 30, 2022 and 2021, home equity loans totaled $261.0 million, or 1.8%, and $244.9 million, or 1.9%, respectively, of total loans receivable (which included $97.0 million and $141.3 million, respectively, of home equity lines of credit which were in the amortization period and no longer eligible to be drawn upon and $12.2 million and $7.7 million of bridge loans), and home equity lines of credit totaled $2.37 billion, or 16.5%, and $1.97 billion, or 15.7%, respectively, of total loans receivable. 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. Bridge loans are originated for a one-year term, with no prepayment penalties. These loans have fixed interest rates, and are currently limited to a combined 80% LTV ratio (first and second mortgage liens). The Company charges a closing fee with respect to bridge loans.
The Company originates its home equity loans and home equity lines of credit without application fees (except for bridge loans) or borrower-paid closing costs. Home equity loans are offered with fixed interest rates, are fully amortizing and have terms of up to 30 years. 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
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. Home equity lines of credit in the draw period are reported according to geographical distribution.
Credit
Exposure		Principal
Balance		Percent
Delinquent
90 days or More		Mean CLTV
Percent at
Origination(2)		Current  Mean
CLTV
Percent(3)
 (Dollars in thousands)   
Home equity lines of credit in draw period (by
     state):
Ohio$2,003,950 $612,556 0.03 %60 %44 %
Florida1,138,697 468,569 0.04 %55 %40 %
California1,006,718 383,666 0.04 %60 %48 %
Other (1)2,308,394 908,125 0.05 %63 %49 %
Total home equity lines of credit in draw
     period		6,457,759 2,372,916 0.04 %60 %45 %
Home equity lines in repayment, home equity
     loans and bridge loans		260,962 260,962 0.49 %59 %37 %
Total$6,718,721 $2,633,878 0.09 %60 %45 %
______________________
(1)No other individual state has a committed or drawn balance greater than 10% of our total equity lending portfolio and 5% of total loans.
(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. Current Mean CLTV percent for home equity lines of credit in the draw period is calculated using the committed amount. Current Mean CLTV on home equity lines of credit in the repayment period is calculated using the principal balance.
At September 30, 2022, 36.9% of our home equity lending portfolio was either in a first lien position (20.4%), in a subordinate (second) lien position behind a first lien that we held (13.9%) or behind a first lien that was held by a loan that we originated, sold and now service for others (2.6%). At September 30, 2022, 13.7% of our home equity line of credit portfolio in the draw period was making only the minimum payment on the outstanding line balance.
13
The following table sets forth by calendar origination year, the 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. Home equity lines of credit in the draw period are included in the year originated: 
Credit
Exposure		Principal
Balance		Percent
Delinquent
90 Days or More		Mean CLTV
Percent at
Origination(1)		Current Mean
CLTV
Percent(2)
 (Dollars in thousands)   
Home equity lines of credit in draw period
2014 and Prior$68,140 $14,216 — %58 %29 %
201598,495 24,558 — %57 %30 %
2016257,607 76,933 — %59 %34 %
2017531,853 181,534 0.16 %58 %35 %
2018667,072 259,483 0.17 %58 %37 %
2019884,797 388,800 0.07 %61 %42 %
2020823,666 307,524 — %58 %42 %
20211,622,849 648,671 — %62 %52 %
20221,503,280 471,197 0.01 %61 %60 %
Total home equity lines of credit in
     draw period		6,457,759 2,372,916 0.04 %60 %45 %
Home equity lines in repayment, home equity (3)
     loans and bridge loans		260,962 260,962 0.49 %59 %37 %
Total$6,718,721 $2,633,878 0.09 %60 %45 %
______________________
(1)Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.
(2)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. Current Mean CLTV percent for home equity lines of credit in the draw period is calculated using the committed amount. Current Mean CLTV on home equity lines of credit in the repayment period is calculated using the principal balance.
(3)The principal balance of all home equity products no longer in the draw period is $97.0 million, a portion of which represents home equity lines of credit originated in 2009 or earlier which had delinquency levels comparatively higher than the years following 2010. Home equity lines of credit originated during those years also saw higher loan amounts, higher permitted LTV ratios, and lower credit scores.
The following table sets forth by fiscal year when the draw period expires, the principal balance of home equity lines of credit in the draw period as of September 30, 2022, segregated by the current combined LTV range. Home equity lines of credit with an end of draw date in the current fiscal year include accounts with draw privileges that have been temporarily suspended.
Current CLTV Category
Home equity lines of credit in draw period (by end of draw fiscal year):< 80%80 - 89.9%90 - 100%>100%Unknown (1)Total
(Dollars in thousands)
2022$45,943$—$—$—$—$45,943
20231,575 52 — — — 1,627 
20249,017 — — — — 9,017 
202524,616 — — — 13 24,629 
202640,855 — — — — 40,855 
2027153,472 — — — 122 153,594 
Post 20272,093,384 2,711 53 140 963 2,097,251 
   Total$2,368,862$2,763$53$140$1,098$2,372,916
______________________
(1) Market data necessary for stratification is not readily available.
14
As shown in the table above, the principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $4.1 million, or 0.2% at September 30, 2022. In recognition of previous past weakness in the housing market, we continue to conduct an expanded loan level evaluation of our home equity lines of credit which are delinquent 90 days or more.
Construction Loans. The Company originates construction loans to individuals for the construction of their personal single-family residence by a qualified builder (construction/permanent loans). The Company’s construction/permanent loans generally provide for disbursements to the builder or sub-contractors during the construction phase as work progresses. During the construction phase, the borrower only pays interest on the drawn balance. Upon completion of construction, the loan converts to a permanent amortizing loan without the expense of a second closing. The Company offers construction/permanent loans with fixed or adjustable rates, and a current maximum loan-to-completed-appraised value ratio of 85%. At September 30, 2022, construction loans totaled $121.8 million, or 0.8% of total loans receivable. At September 30, 2022, the unadvanced portion of these construction loans totaled $72.3 million.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. This is more likely to occur when home prices are falling.
Loan Originations, Purchases, Sales, Participations and Servicing. Lending activities are primarily conducted by the Company’s loan personnel (all of whom are non-commissioned associates) operating at our main and branch office locations and at our loan production offices. 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. The majority of loans, however, are originated using guidelines that are similar, but not identical to Fannie Mae processing and underwriting guidelines. The Company originates both adjustable-rate and fixed-rate loans and advertises extensively throughout its market area. Its ability to originate fixed- or adjustable-rate loans is dependent upon the relative consumer demand for such loans, which is affected by current market interest rates as well as anticipated future market interest rates. The Company’s loan origination and sales activity may be adversely affected by a rising interest rate environment or economic recession, which typically results in decreased loan demand. 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.
A vast majority of all loans originated are done so with the intent to hold. The Company later determines whether to sell or securitize the loans that it holds, after evaluating current and projected market interest rates, its interest rate risk objectives, its liquidity needs and other factors. 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. Those sales evidenced the saleability of our loans that are not originated in accordance with agency specified procedures, including adjustable-rate loans. As described in Item 7. 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.
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. The impact to the Company from the pilot program for this fiscal year is considered immaterial and therefore no breakout is provided.
Historically, the Company has retained the servicing rights on all residential real estate mortgage loans that it has sold, and intends to continue this practice into the future. At September 30, 2022, the Company serviced loans owned by others with a principal balance of $2.05 billion. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. The Company retains a portion of the interest paid by the borrower on the loans it services as consideration for its servicing activities.
15
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 loan approval process is intended to assess the borrower’s ability to repay the loan and the value of the property that will secure the loan. To assess the borrower’s ability to repay, the Company reviews the borrower’s employment and credit history and information on the historical and projected income and expenses of the borrower.
The Company’s policies and loan approval limits are established by its Board of Directors. The Company’s Board of Directors has delegated authority to its Executive Committee (consisting of the Company’s Chief Executive Officer and two directors) to review and assign lending authorities to certain individuals of the Company to consider and approve loans within their designated authority. 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. 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. There were also no delinquencies in the construction loan portfolio for the fiscal years presented.
Loans Delinquent For
 30-89 Days90 Days or MoreTotal
 (Dollars in thousands)
September 30, 2022
Real estate loans:
Residential Core
Ohio$2,862 $4,332 $7,194 
Florida1,009 1,066 2,075 
Other345 3,883 4,228 
Total Residential Core4,216 9,281 13,497 
Residential Home Today2,111 861 2,972 
Home equity loans and lines of credit
Ohio630 679 1,309 
Florida438 694 1,132 
California427 444 871 
Other900 504 1,404 
Total Home equity loans and lines of credit2,395 2,321 4,716 
Total$8,722 $12,463 $21,185 

Loans Delinquent For
 30-89 Days90 Days or MoreTotal
 (Dollars in thousands)
September 30, 2021
Real estate loans:
Residential Core
Ohio$3,217 $5,729 $8,946 
Florida874 1,093 1,967 
Other1,814 2,548 4,362 
Total Residential Core5,905 9,370 15,275 
Residential Home Today1,909 2,068 3,977 
Home equity loans and lines of credit
Ohio333 1,348 1,681 
Florida432 787 1,219 
California278 1,074 1,352 
Other195 1,022 1,217 
Total Home equity loans and lines of credit1,238 4,231 5,469 
Total$9,052 $15,669 $24,721 
16
 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. The percentage of seriously delinquent loans to total net loans decreased in the residential Core portfolio from 0.07% to 0.06%. Such loans in the residential Home Today portfolio decreased from 0.02% to 0.01%. Home equity loans and lines of credit portfolio also decreased from 0.03% to 0.02%.
Non-performing Assets and Restructured Loans. Within 15 days of a borrower’s delinquency, per the Company's collection procedures, it attempts personal, direct contact with the borrower to determine the reason for the delinquency, to ensure that the borrower correctly understands the terms of the loan and to emphasize the importance of making payments on or before the due date. 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. By the 90th day of delinquency, the Company may recommend foreclosure. The loan will be evaluated based on collateral prior to the 180th day of delinquency. For further discussion on evaluating collateral-dependent loans, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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. Home equity loans and lines of credit which are subordinate to a first mortgage lien where the customer is seriously delinquent, are placed in non-accrual status. Loans in Chapter 7 bankruptcy status where all borrowers have been discharged from their mortgage obligation or where all borrowers had filed, and had not reaffirmed or been dismissed, are placed in non-accrual status. For discussion on interest recognition and further discussion on non-accrual, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
The table below sets forth the amortized costs and categories of our non-performing assets and TDRs at the dates indicated. There were no construction loans reported as non-accrual for the fiscal years presented.
 September 30,
 20222021
 (Dollars in thousands)
Non-accrual loans:
Real estate loans:
Residential Core$22,644 $24,892 
Residential Home Today6,037 8,043 
Home equity loans and lines of credit6,925 11,110 
Total non-accrual loans(1)(2)35,606 44,045 
Real estate owned1,191 289 
Total non-performing assets$36,797 $44,334 
Ratios:
Total non-accrual loans to total loans0.25 %0.35 %
Total non-accrual loans to total assets0.23 %0.31 %
Total non-performing assets to total assets0.23 %0.32 %
TDRs (not included in non-accrual loans above):
Real estate loans:
Residential Core$43,101 $48,300 
Residential Home Today18,380 21,307 
Home equity loans and lines of credit22,060 24,941 
Total$83,541 $94,548 
____________________
(1) At September 30, 2022 and 2021, the totals include $21.9 million and $25.7 million, respectively, in TDRs: which are less than 90 days past due but included with non-accrual loans for a minimum period of six months from the restructuring date due to their non-accrual status prior to restructuring; because they have been partially charged off; or because all borrowers have filed Chapter 7 bankruptcy, and had not reaffirmed or been dismissed.
(2) At September 30, 2022 and 2021, the totals include $3.6 million and $6.9 million in TDRs that are 90 days or more past due, respectively.
Non-accrual loans continue to decline primarily due to a decrease in the population of TDRs in general and those moved to accruing after a sufficient period of demonstrated payment performance and, to a lesser extent, a decrease in loans 90 days or more past due. Since many of the accounts exiting the non-accrual population are TDRs paying as agreed or paid in full and closed, we do not expect any material impact to interest income or the allowance once the non-accrual population stabilizes.
Collateral-Dependent Loans. A loan is considered collateral-dependent when, based on current information and events, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral or foreclosure is probable. For discussion on collateral-dependent measurement, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The amortized cost of collateral-dependent loans includes accruing TDRs and loans that are returned to accrual status when contractual payments are less than 90 days past due. These loans continue to be individually evaluated based on collateral until, at a minimum, contractual payments are less than 30 days past due. Also, the amortized cost of non-accrual loans includes loans that are not included in the amortized cost of collateral-dependent loans because they are included in loans collectively evaluated for credit loss.
18
The table below sets forth a reconciliation of the amortized costs and categories between non-accrual loans and collateral-dependent loans at the dates indicated. The decrease in other accruing collateral-dependent loans at September 30, 2022 from September 30, 2021, was primarily related to forbearance plans that had been extended past 12 months that are now performing with no charge-off and no longer collateral-dependent.
For the Years Ended September 30,
20222021
(Dollars in thousands)
Non-Accrual Loans$35,606 $44,045 
Accruing Collateral-Dependent TDRs7,279 10,428 
Other Accruing Collateral-Dependent Loans6,426 31,956 
Less: Loans Collectively Evaluated(2,190)(2,575)
Total Collateral-Dependent Loans$47,121 $83,854 
In response to the economic challenges facing many borrowers, we continue to restructure loans. Loan restructuring is a method used to help families keep their homes and preserve neighborhoods. 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. Loans discharged through Chapter 7 bankruptcy are also reported as TDRs per OCC interpretive guidance. For discussion on TDR measurement, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. We had $109.0 million of TDRs (accrual and non-accrual) recorded at September 30, 2022, of which $58.6 million are Residential Core, $23.8 million are Home Today and $26.6 million are Home equity loans and lines of credit. This is a $18.1 million decrease in the amortized cost of TDRs from September 30, 2021.
19
The following table sets forth the amortized cost of accrual and non-accrual TDRs, by the types of concessions granted, as of September 30, 2022. Initial concessions granted by loans restructured as TDRs can include reduction of interest rate, extension of amortization period, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also can occur as a result of bankruptcy proceedings. Loans discharged in Chapter 7 bankruptcy are classified as multiple restructurings if the loan's original terms had also been restructured by the Company.
Initial RestructuringMultiple RestructuringsBankruptcyTotal
 (Dollars in thousands)
Accrual
Residential Core$27,503 $11,399 $4,199 $43,101 
Residential Home Today9,670 7,835 875 18,380 
Home equity loans and lines of credit20,725 907 428 22,060 
Total$57,898 $20,141 $5,502 $83,541 
Non-Accrual, Performing
Residential Core$1,687 $5,321 $5,826 $12,834 
Residential Home Today498 3,289 1,109 4,896 
Home equity loans and lines of credit1,601 1,752 840 4,193 
Total$3,786 $10,362 $7,775 $21,923 
Non-Accrual, Non-Performing
Residential Core$881 $863 $871 $2,615 
Residential Home Today191 361 11 563 
Home equity loans and lines of credit310 84 — 394 
Total$1,382 $1,308 $882 $3,572 
Total TDRs
Residential Core$30,071 $17,583 $10,896 $58,550 
Residential Home Today10,359 11,485 1,995 23,839 
Home equity loans and lines of credit22,636 2,743 1,268 26,647 
Total$63,066 $31,811 $14,159 $109,036 

TDRs in accrual status are loans accruing interest and performing according to the terms of the restructuring. To be performing, a loan must be less than 90 days past due as of the report date. 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, non-performing status includes loans that are not accruing interest because they are greater than 90 days past due and therefore not performing according to the terms of the restructuring.
Real Estate Owned. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until sold. When property is acquired, it is recorded at the estimated fair market value at the date of foreclosure, less estimated costs to sell, establishing a new cost basis. Estimated fair value generally represents the sale price a buyer would be willing to pay on the basis of current market conditions. Subsequent to acquisition, real estate owned is carried at the lower of the cost basis or estimated fair market value, less estimated costs to sell. Increases in the fair market value are recognized through income not exceeding the valuation allowance. Holding costs and declines in estimated fair market value result in charges to expense after acquisition. 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. An asset is considered substandard if it is inadequately protected by the current payment capacity of the borrower or the collateral pledged has a defined weakness that jeopardizes the liquidation of the debt. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. 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
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improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve management's attention and may result in further deterioration in their repayment prospects and/or the Company's credit position, are required to be designated as special mention.
When assets meet the classification criteria for either substandard or doubtful, they exhibit similar risk characteristics that result in expected credit losses through the model outputs or qualitative factors. As a result of the allowance analysis, a portion of the credit loss allowance is allocated to such assets. The allowance for credit losses is the amount estimated by management to represent the lifetime losses in our loan portfolio and off-balance sheet commitments. When we classify a problem asset as loss, we charge-off that portion of the asset that is uncollectible. Our determinations as to the classification of our assets and the amount of our credit loss allowances are subject to review by the Company's primary federal regulator, the OCC, which can require that we establish additional credit loss allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of assets at September 30, 2022, the amortized cost of classified assets consists of substandard assets of $50.9 million, including $1.2 million of real estate owned, and we also had $3.4 million of assets designated special mention. As of September 30, 2022, there were no individual assets with balances exceeding $1.0 million that were classified as substandard. Substandard assets at September 30, 2022 include $12.4 million of loans 90 or more days past due and $37.3 million of loans less than 90 days past due displaying a weakness sufficient to warrant an adverse classification. 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. We provide for credit losses based on a life of loan methodology. Accordingly, all credit losses are charged to, and all recoveries are credited to, the related allowance. Additions to the allowance for credit losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating lifetime credit losses. We regularly review the loan portfolio and off-balance sheet exposures and make provisions (or releases) for losses in order to maintain the allowance for credit losses in accordance with U.S. GAAP. Our allowance for credit losses consists of three components:
(1)individual valuation allowances (IVAs) established for any loans dependent on cash flows, such as performing TDRs;
(2)general valuation allowances (GVAs) for loans, which are comprised of quantitative GVAs, general allowances for credit losses for each loan type based on historical loan loss experience and qualitative GVAs, which are adjustments to the quantitative GVAs, maintained to cover uncertainties that affect the estimate of expected credit losses for each loan type; and
(3)GVAs for off-balance sheet credit exposures, which are comprised of expected lifetime losses on unfunded loan commitments to extend credit where the obligations are not unconditionally cancellable.
The qualitative GVAs expand our ability to identify and estimate probable losses and are based on our evaluation of the following factors, some of which are consistent with factors that impact the determination of quantitative GVAs. For example, delinquency statistics (both current and historical) are used in developing the quantitative GVAs while the trending of the delinquency statistics is considered and evaluated in the determination of the qualitative GVAs. Factors impacting the determination of qualitative GVAs include:
•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;
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•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.
When loan restructurings qualify as TDRs and the loans are performing according to the terms of the restructuring, we record an IVA based on the present value of expected future cash flows, which includes a factor for potential subsequent defaults, discounted at the effective interest rate of the original loan contract. Potential defaults are distinguished from multiple restructurings as borrowers who default are generally not eligible for subsequent restructurings. At September 30, 2022, the balance of such individual valuation allowances was $10.3 million. In instances when loans require multiple restructurings, additional valuation allowances may be required. The new valuation allowance on a loan that has multiple restructurings is calculated based on the present value of the expected cash flows, discounted at the effective interest rate of the original loan contract, considering the new terms of the restructured agreement. The estimated exposure for additional loss related to multiple loan restructurings is included as a component of our qualitative GVA.
Home equity loans and lines of credit generally have higher credit risk than traditional residential mortgage loans. These loans and credit lines are usually in a second lien position and when combined with the first mortgage, result in generally higher overall loan-to-value ratios. In a stressed housing market with high delinquencies and decreasing housing prices, these higher loan-to-value ratios represent a greater risk of loss to the Company. A borrower with more equity in the property has a vested interest in keeping the loan current when compared to a borrower with little or no equity in the property. In light of the past weakness in the housing market and uncertainty with respect to future employment levels and economic prospects, we conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more. This expanded evaluation is in addition to our traditional evaluation procedures. We have established an allowance for our unfunded commitments on this portfolio, which is recorded in other liabilities. Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs. At 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. Periodically, the carrying value of loans and factors impacting our credit loss analysis are evaluated and the allowance is adjusted accordingly. While we use the best information available to make evaluations, future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions.
For more information regarding the allowance for credit losses, see Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following table sets forth activity for credit losses segregated by geographic location for the periods indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio, and therefore was not segregated by state.
 At or For the Years Ended September 30,
 202220212020
 (Dollars in thousands)
Allowance balance for credit losses on loans (beginning of the year)$64,289 $46,937 $38,913 
Adoption of ASU 2016-13 for allowance for credit losses on loans— 24,095 — 
Charge-offs on real estate loans:
Residential Core
Ohio234 1,587 1,262 
Florida— 377 242 
Other13 1 21 
Total Residential Core247 1,965 1,525 
Total Residential Home Today249 552 897 
Home equity loans and lines of credit
Ohio625 1,112 891 
Florida154 784 1,191 
California29 168 19 
Other146 632 1,002 
Total Home equity loans and lines of credit954 2,696 3,103 
Total charge-offs1,450 5,213 5,525 
Recoveries on real estate loans:
Residential Core2,932 2,385 2,783 
Residential Home Today2,648 2,362 2,230 
Home equity loans and lines of credit5,352 5,621 5,509 
Construction175 20 27 
Total recoveries11,107 10,388 10,549 
Net recoveries9,657 5,175 5,024 
Provision (release) for credit losses on loans(1,051)(11,918)3,000 
Allowance balance for loans (end of the year)$72,895 $64,289 $46,937 
Allowance balance for credit losses on unfunded commitments (beginning of the year)$24,970 $— $— 
Adoption of ASU 2016-13 for allowance for credit losses on unfunded commitments— 22,052 — 
Provision for credit losses on unfunded commitments2,051 2,918 — 
Allowance balance for unfunded loan commitments (end of the year)27,021 24,970 — 
Allowance balance for all credit losses (end of the year)$99,916 $89,259 $46,937 
Ratios:
Allowance for credit losses to non-accrual loans at end of the year204.73 %145.96 %87.95 %
Allowance for credit losses to the total amortized cost in loans at end of the year0.51 %0.51 %0.36 %

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The following table sets forth additional information with respect to net recoveries (charge-offs) by category for the periods indicated.
For the Years Ended September 30,
202220212020
(Dollars in thousands)
Net recoveries (charge-offs) to average loans outstanding during the year
Real estate loans:
     Residential Core0.02 %— %0.01 %
Residential Home Today0.02 %0.02 %0.01 %
Home Equity loans and lines of credit0.03 %0.02 %0.02 %
Total net recoveries (charge-offs) to average loans outstanding0.07 %0.04 %0.04 %
We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses. We reported net recoveries in each quarter for the 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. Charge-offs are recognized on loans identified as collateral-dependent and subject to individual review when the collateral value does not sufficiently support full repayment of the obligation. Recoveries are recognized on previously charged-off loans as borrowers perform their repayment of the obligations or as loans with improved collateral positions reach final resolution.
Gross charge-offs decreased and delinquent loans continue to be evaluated for potential losses, and provisions are recorded for the estimate of potential losses of those loans. Subject to changes in the economic environment, a moderate level of charge-offs are expected as delinquent loans are resolved in the future and uncollected balances are charged against the allowance.
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 allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. This table does not include allowance for credit losses on unfunded loan commitments, which are primarily related to undrawn home equity lines of credit.
 At September 30,
 20222021
 AmountPercent of
Allowance
to Total
Allowance		Percent of
Loans in
Category to
Total Loans		AmountPercent of
Allowance
to Total
Allowance		Percent of
Loans in
Category to
Total Loans
 (Dollars in thousands)
Real estate loans:
Residential Core$53,506 73.4 %80.4 %$44,523 69.2 %81.2 %
Residential Home Today(997)(1.4)0.4 15 — 0.6 
Home equity loans and lines of credit20,032 27.5 18.4 19,454 30.3 17.6 
Construction354 0.5 0.8 297 0.5 0.6 
Allowance for credit losses on loans$72,895 100.0 %100.0 %$64,289 100.0 %100.0 %

During the fiscal year ended September 30, 2022, the total allowance for credit losses increased to $99.9 million, from $89.3 million at September 30, 2021. We recorded a $1.0 million provision for credit losses for the year, consisting of a $1.1 million release for credit losses on loans, and a $2.1 million provision for credit losses on off-balance sheet exposures, while recoveries exceeded loan charge-offs by $9.7 million. Refer to the "Activity in the Allowances for Credit Losses" and "Analysis of the Allowance for Credit Losses" tables in Note 5. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more information.
Because many variables are considered in determining the appropriate level of general valuation allowances, directional changes in individual considerations do not always align with the directional change in the balance of a particular component of the general valuation allowance. Changes during the fiscal year ended September 30, 2022 in the allowance for credit losses on loan balances are described below. During the fiscal year ended September 30, 2022, the total allowance for credit losses on
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off-balance sheet exposures increased to $27.0 million, from $25.0 million at September 30, 2021, which was primarily related to undrawn equity exposures. Other than the less significant construction and other loans segments, the changes related to the significant loan segments are described as follows:

•Residential Core – The amortized cost of this segment increased 13.0% or $1.3 billion, and its total allowance increased 20.2% or $9.0 million as of September 30, 2022 as compared to September 30, 2021. Total delinquencies decreased 11.6% to $13.5 million at September 30, 2022 from $15.3 million at September 30, 2021. Delinquencies greater than 90 days decreased 0.9% to $9.3 million at September 30, 2022 from $9.4 million at September 30, 2021. Net recoveries during the current year were $2.7 million as compared to net recoveries of $0.4 million during the year ended September 30, 2021. With some deterioration in the economic forecasts and new growth in the portfolio, the allowance increased.
•Residential Home Today – The amortized cost of this segment decreased 16.7% or $10.6 million, as we no longer originate loans under the Home Today program. The expected net recovery position for this segment was $1.0 million at September 30, 2022, while there was no allowance at September 30, 2021. Total delinquencies decreased 25.3% to $3.0 million at September 30, 2022 from $4.0 million at September 30, 2021. Delinquencies greater than 90 days decreased 58.4% to $0.9 million at September 30, 2022 from $2.1 million at September 30, 2021. There were net recoveries of $2.4 million and $1.8 million during the years ended September 30, 2022 and September 30, 2021, respectively. Under the CECL methodology, the life of loan concept allows for qualitative adjustments for the expected future recoveries of previously charged-off loans, which is driving the current allowance balance for Home Today loans negative.
•Home Equity Loans and Lines of Credit – The amortized cost of this segment increased 18.9% or $424.2 million to $2.67 billion at September 30, 2022 from $2.24 billion at September 30, 2021. The total allowance for this segment increased 3.0% to $20.0 million from $19.5 million at September 30, 2021. Total delinquencies for this portfolio segment decreased 13.8% to $4.7 million at September 30, 2022 as compared to $5.5 million at September 30, 2021. Delinquencies greater than 90 days decreased 45.1% to $2.3 million at September 30, 2022 from $4.2 million at September 30, 2021. Net recoveries for this loan segment during the current year were $4.4 million as compared to $2.9 million for the year ended September 30, 2021. The increase in allowance for this segment is primarily due to new portfolio growth, along with some deterioration in the economic factors.
Loan losses on home equity loans and lines of credit continued to comprise a large component of our gross charge-offs for 2022 and are expected to continue to represent a large portion of our charge-offs for the foreseeable future based on the relatively higher credit risk of this product when compared to a first mortgage loan.
The allowance for credit losses represents the estimate of lifetime loss in our loan portfolio and unfunded loan commitments. Our analysis for evaluating the adequacy of and the appropriateness of our allowance for credit losses is continually refined as relevant information, relating to past events, current conditions and supportable forecasts become available. During the years ended September 30, 2022 and 2021, no material changes were made to the allowance for credit losses.
Investments
The Association’s Board of Directors is responsible for establishing and overseeing the Association’s investment policy. The investment policy is reviewed at least annually by management and any changes to the policy are recommended to the Board of Directors, or a committee thereof, and are subject to its approval. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, the ability to provide collateral for pledging requirements, and consistency with our interest rate risk management strategy. The Association’s Investment Committee, which consists of the Association's chief operating officer, chief financial officer and other members of management, oversees the Association's investing activities and strategies. The portfolio manager is responsible for making securities portfolio decisions in accordance with established policies. The portfolio manager has the authority to purchase and sell securities within specific guidelines established in the investment policy, but historically the portfolio manager has executed purchases only after extensive discussions with other Investment Committee members. All transactions are formally reviewed by the Investment Committee at least quarterly. Any investment which, subsequent to its purchase, fails to meet the guidelines of the policy is reported to the Investment Committee, who decides whether to hold or sell the investment.
The Association’s investment policy requires that the Association invest primarily in debt securities issued by the U.S. Government, agencies of the U.S. Government, and government-sponsored entities, which include Fannie Mae and Freddie Mac. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as collateralized mortgage obligations and real estate mortgage investment conduits issued or backed by securities issued by these governmental agencies and government-sponsored
25
entities. The investment policy also permits investments in asset-backed securities, banker’s acceptances, money market funds, term federal funds, repurchase agreements and reverse repurchase agreements.
The Association’s investment policy does not permit investment in municipal bonds, corporate debt obligations, preferred or common stock of government agencies or equity securities other than the Association's required investment in the common stock of the FHLB of Cincinnati. 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. The Association’s investment policy permits the use of interest rate agreements (caps, floors and collars) and interest rate exchange contracts (swaps) in managing our interest rate risk exposure. The use of financial futures, however, is prohibited without specific approval from its Board of Directors.
FASB ASC 320, “Investments-Debt and Equity Securities,” requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or trading, depending on our ability and intent. Securities designated as available- for- sale are reported at fair value, while securities designated as held to maturity are reported at amortized cost. 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.
The fair value of our investment portfolio at September 30, 2022 consisted of $1.0 million in primarily fixed-rate securities guaranteed by Fannie Mae, $453.3 million of REMICs collateralized only by securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, and $3.6 million of U.S. Government obligations.
U.S. Government Obligations. While U.S. Government securities generally provide lower yields than other investment options authorized in the Association's and Company's investment policies, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and as an interest rate risk hedge in the event of significant mortgage loan prepayments.
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. Treasury Department has established financing agreements to ensure that Fannie Mae and Freddie Mac meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed.
Mortgage-backed securities are created by the pooling of mortgages and the issuance of a security with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities (generally Ginnie Mae, Fannie Mae and Freddie Mac) pool and resell the participation interests in the form of securities to investors such as the Association, and guarantee the payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. While there has been significant disruption in the demand for private issuer mortgage-backed securities, the U.S. Treasury support for Fannie Mae and Freddie Mac guarantees has maintained an orderly market for the mortgage-backed securities the Company typically purchases. In addition, mortgage-backed securities may be used to collateralize our specific liabilities and obligations. Investments in mortgage-backed securities involve a risk that the timing of actual payments will be earlier or later than the timing estimated when the mortgage-backed security was purchased, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modifications that could cause amortization or accretion adjustments.
REMICs are types of debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders.
Sources of Funds
General. Deposits traditionally have been the primary source of funds for the Association’s lending and investment activities. The Association also borrows, primarily from the FHLB of Cincinnati and the FRB-Cleveland Discount Window, to
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supplement cash flow, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage its cost of funds. Additional sources of funds are scheduled loan payments, maturing investments, loan prepayments, collateralized wholesale borrowings, Fed Fund purchases, income on other earning assets, the proceeds from loan sales, and brokered deposits. As a result of unfavorable market conditions, proceeds from loan sales decreased during fiscal year 2022, which resulted in an increase of borrowings from the FHLB of Cincinnati.
Deposits. The Association obtains deposits primarily from the areas in which its branch offices are located, as well as from its customer service call center, its internet website, and from brokered deposits. It relies on its competitive pricing, convenient locations, and customer service to attract and retain its non-brokered deposits. It offers a variety of retail deposit accounts with a range of interest rates and terms. Its retail deposit accounts consist of savings accounts, money market accounts, checking accounts, CDs, individual retirement accounts, and other qualified plan accounts.
Interest rates paid, maturity terms, service fees, and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements, interest rates paid by competitors, and our deposit growth goals.
At September 30, 2022, deposits totaled $8.92 billion. Checking accounts totaled $1.21 billion (including $1.10 billion of interest-bearing checking accounts) and savings accounts totaled $1.85 billion (including $1.75 billion of higher yield savings accounts and MMK). At September 30, 2022, the Association had a total of $5.86 billion in CDs (including $575.2 million of brokered CDs), of which $3.02 billion had remaining maturities of one year or less. Based on historical experience and its current pricing strategy, management believes the Association will retain a large portion of these accounts upon maturity.
The following table sets forth the distribution of the Association’s average total deposit accounts, by account type, for the fiscal years indicated. A deposit schedule by account type can be found in Note 9. DEPOSITS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 For the Years Ended September 30,
 202220212020
 Average
Balance		PercentWeighted
Average
Rate		Average
Balance		PercentWeighted
Average
Rate		Average
Balance		PercentWeighted
Average
Rate
 (Dollars in thousands)
Deposit type:
Checking$1,326,882 14.7 %0.32 %$1,079,699 11.8 %0.11 %$917,552 10.1 %0.16 %
Savings1,859,990 20.7 %0.24 %1,742,042 19.0 %0.17 %1,530,977 16.9 %0.51 %
Certificates of deposit5,826,286 64.6 %1.17 %6,339,412 69.2 %1.47 %6,621,289 73.0 %1.98 %
Total deposits$9,013,158 100.0 %0.85 %$9,161,153 100.0 %1.06 %$9,069,818 100.0 %1.55 %
The following table sets forth the distribution of the Association’s total deposit accounts, by account type, at September 30, 2022.
 At September 30, 2022
 BalancePercentWeighted Average Cost of Funds
 (Dollars in thousands)
Deposit type
Interest Bearing:
Checking$1,210,035 13.6 %0.81 %
Savings accounts, excluding money market accounts1,364,821 15.3 %0.79 %
Money market accounts481,650 5.4 %0.95 %
Certificates of deposit, including accrued interest5,864,511 65.7 %1.37 %
Total Deposits$8,921,017 100.0 %1.18 %
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As of September 30, 2022, the aggregate amount of the Association’s outstanding certificate of deposits in amounts greater than $250 thousand was approximately $247.6 million. The following table sets forth the maturity of those CDs as of September 30, 2022.
 At September 30, 2022
 (In thousands)
Three months or less$56,734 
Over three months through six months22,863 
Over six months through one year37,918 
More than one year 130,057 
Total$247,572 

Borrowings. At September 30, 2022, the Association had $4.79 billion of borrowings outstanding, consisting of $4.56 billion from the FHLB of Cincinnati, $225.0 million of Fed Funds purchased, and $6.5 million of accrued interest. 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. 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. At September 30, 2022, the Association had the capacity to borrow up to $168.0 million from the FRB-Cleveland. A maturity schedule and available borrowing capacity schedule can be found in Note 10. BORROWED FUNDS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The following tables sets forth information relating to a category of short-term borrowings for which the average balance outstanding during the period was at least 30% of shareholders' equity at the end of each period shown.
At or For the Fiscal Years Ended
 September 30,
202220212020
(Dollars in thousands)
Borrowings (30 days and under):
Balance at end of year$2,000,000 $— $— 
Maximum outstanding at any month-end$2,000,000 $— $440,000 
Average balance during year$682,487 $— $180,916 
Average interest rate during the fiscal year1.59 %— %1.38 %
Weighted average interest rate at end of year3.04 %— %— %
At or For the Fiscal Years Ended
 September 30,
202220212020
(Dollars in thousands)
Borrowings (90 days or more):
Balance at end of year$1,550,000 $2,450,000 $2,975,000 
Maximum outstanding at any month-end$2,425,000 $2,925,000 $3,075,000 
Average balance during year$2,000,323 $2,693,533 $2,893,540 
Average interest rate during the fiscal year0.77 %0.23 %1.12 %
Weighted average interest rate at end of year3.12 %0.23 %0.28 %



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Federal Taxation
General. The Company and the Association are subject to federal income taxation in the same general manner as other corporations, with certain exceptions. Prior to the completion of our initial public stock offering in 2007, the Company and the Association were included as part of Third Federal Savings, MHC’s consolidated tax group. However, upon completion of the offering, the Company and the Association were no longer a part of Third Federal Savings, MHC’s consolidated tax group because Third Federal Savings, MHC no longer owned at least 80% of the common stock of the Company. As a result of the Company's stock repurchase program which reduced the number of outstanding shares of the Company, at September 30, 2022, Third Federal Savings, MHC, owned 80.95% of the common stock of the Company and the Company and the Association can, again, be a part of Third Federal Savings, MHC’s consolidated tax group. Beginning on September 30, 2007 and for each subsequent fiscal year thereafter, the Company has filed consolidated tax returns with the Association and Third Capital Inc., its wholly-owned subsidiaries.
The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company or its subsidiaries.
Bad Debt Reserves. Historically, the Third Federal Savings, MHC consolidated group used the specific charge-off method to account for bad debt deductions for income tax purposes, and the Company has used and intends to use the specific charge-off method to account for tax bad debt deductions in the future.
Taxable Distributions and Recapture. Prior to 1996, bad debt reserves created prior to 1988 were subject to recapture into taxable income if the Association failed to meet certain thrift asset and definitional tests or made certain distributions. Tax law changes in 1996 eliminated thrift-related recapture rules. However, under current law, pre-1988 tax bad debt reserves remain subject to recapture if the Association makes certain non-dividend distributions, repurchases any of its common stock, pays dividends in excess of earnings and profits, or fails to qualify as a bank for tax purposes.
At September 30, 2022, the total federal pre-base year bad debt reserve of the Association was approximately $105.0 million.
State Taxation
Following its initial public stock offering in 2007, the Company converted from a qualified passive investment company domiciled in the State of Delaware to a qualified holding company in Ohio. The Third Federal Savings, MHC consolidated group is subject to the Ohio Financial Institutions Tax. The Financial Institutions Tax is based on total equity capital apportioned to Ohio using a single gross receipts factor. Ohio equity capital is taxed at a three-tiered rate of 0.8% on the first $200 million, 0.4% on amounts greater than $200 million and less than or equal to $1.3 billion, and 0.25% on amounts greater than $1.3 billion.

SUPERVISION AND REGULATION
General
The Company is a savings and loan holding company, and is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of, the FRS. The Company is also subject to the rules and regulations of the SEC under the federal securities laws.
The Association is a federal savings association that is currently examined and supervised by the OCC and the CFPB, and is subject to examination by the FDIC under certain circumstances. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market risk. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. The Association also is a member of and owns stock in the FHLB of Cincinnati, which is one of the eleven regional banks in the FHLB System. The Association is also regulated to a lesser extent by the FRS. The OCC will examine the Association and prepare reports for the consideration of the Association’s Board of Directors on any operating deficiencies. The CFPB has examination and enforcement authority over the Association with respect to consumer protection laws and regulations. The Association’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of the Association’s mortgage documents.
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Any change in these laws or regulations, whether by the FDIC, OCC, FRS, CFPB or Congress, could have a material impact on the Company, the Association, and their operations.
Certain statutes and regulations of the regulatory requirements that are applicable to the Association and the Company are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on the Association and the Company, and is qualified in its entirety by reference to the actual statutes and regulations.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended ("HOLA"), and federal regulations. Under these laws and regulations, the Association may invest in mortgage loans secured by residential real estate without limitations as a percentage of assets, and may invest in non-residential real estate loans up to 400% of capital in the aggregate. The Association may also invest in commercial business loans up to 20% of assets in the aggregate and consumer loans up to 35% of assets in the aggregate, and in certain types of debt securities and certain other assets. An association may also establish subsidiaries that may engage in certain activities not otherwise permissible for an association, including real estate investment and securities and insurance brokerage.
Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act, that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter. Among other things, the election allows a federal savings association to engage in commercial and commercial real estate lending without the aggregate limits applicable to federal savings associations. By exercising the election, the federal savings association also becomes subject to many of the same duties, restrictions, liabilities, conditions and limitations applicable to national banks, some of which are more restrictive than those applicable to federal savings associations. A federal savings association making the election retains its federal savings association charter and continues to be treated as a federal savings association for purposes of corporate governance. The election is available to federal savings associations that had total consolidated assets of $20 billion or less as of December 31, 2017. The Association has not exercised the election as of September 30, 2022.
Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets ratio, and a Tier 1 capital to total assets leverage ratio.
The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available for sale equity securities with readily determinable fair market values. 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.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four- family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
Federal savings associations must also meet a statutory “tangible capital” standard of 1.5% of total adjusted assets. Tangible capital is generally defined as Tier 1 capital for this purpose.
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In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% in addition to the minimum capital requirements. 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. 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. 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. As a federal savings association, the Association must satisfy the qualified thrift lender test. Under the QTL test, the Association must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “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.
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. At September 30, 2022, the Association satisfied the QTL test.
Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:
•the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;
•the savings association would not be at least adequately capitalized following the distribution;
•the distribution would violate any applicable statute, regulation, agreement or condition imposed by a regulator; or
•the savings association is not eligible for expedited treatment of its filings.
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.
The OCC and the FRS have established similar criteria for approving an application or notice, and may disapprove an application or notice if:
•the savings association would be undercapitalized following the distribution;
•the proposed capital distribution raises safety and soundness concerns; or
•the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if the institution would be undercapitalized after the distribution.
The Association, in compliance with the preceding requirements, paid a $56 million cash dividend to the Company during the fiscal year ended September 30, 2022, a $55 million cash dividend to the Company during the fiscal year ended September 30, 2021 and a $57 million cash dividend to the Company during the fiscal year ended September 30, 2020. There was a $16 million dividend paid to the Company by Third Capital, the Company's other wholly owned subsidiary, during the fiscal year ended September 30, 2020, but there were no dividends paid to the Company by Third Capital during the fiscal year ended September 30, 2021 or 2022.
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The Company's eighth stock repurchase program, for the repurchase of 10,000,000 shares of its common stock, was announced on October 27, 2016 and began on January 6, 2017. As of September 30, 2022, 5,553,820 shares remain to be purchased under the program.
Under current FRS regulations, Third Federal Savings, MHC is required to obtain the approval of its members (depositors and certain loan customers of the Association) every 12 months to enable Third Federal Savings, MHC to waive its right to receive dividends on the Company’s common stock that Third Federal Savings, MHC owns. Starting in 2014, Third Federal Savings, MHC has received this approval of its members at every meeting held. 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 waived its right to receive a $0.2825 per share dividend payment on September 20, 2022. As a result of the 2021, 2020, and 2019 approvals, Third Federal Savings, MHC previously waived its right to receive four separate $0.28 per share dividend payments during the four quarterly periods ended June 30, 2021, two separate $0.27 per share dividend payments, two separate $0.28 per share dividend payments during the four quarterly periods ended June 30, 2020, and four separate $0.25 per share dividend payments during the four quarterly periods ended June 30, 2019.
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. The Association maintains a liquid asset portfolio comprised of agency securities that are collateralized by mortgages, in addition to cash and cash equivalents, to maintain sufficient liquidity to fund business operations.
Community Reinvestment Act and Fair Lending Laws. 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. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. 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. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.
In March 2021, the Association received a "Needs to Improve" CRA rating in its most recent federal evaluation dated February 24, 2020.
In December 2021, the OCC issued amendments to its CRA regulations, effective January 1, 2022, with a separate compliance date of April 1, 2022 for the rules' public file and public notice requirements. In May 2022, the OCC, along with the FRB and FDIC, released a notice of proposed rule making to “strengthen and modernize” the CRA regulations and the related regulatory framework.
Transactions with Related Parties. 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. 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. 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. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must be provided by affiliates in order to receive loans from the savings association. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. Savings associations are required to maintain detailed records of all transactions with affiliates.
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. 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
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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.
In addition, extensions of credit in excess of certain limits must be approved by the Association’s Board of Directors.
Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has the authority to bring enforcement action against all “institution-affiliated parties,” including shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions. The maximum civil money penalties that can be assessed are generally based on the type and severity of the violation, unsafe and unsound practice or other action, and are adjusted annually for inflation. 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. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems, audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. 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. 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).
Generally, the banking regulator is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized” within specific time frames. 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. 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. 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. Failure by a holding
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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. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.
As of September 30, 2022, the Association exceeded all regulatory requirements to be considered “Well Capitalized” as presented in the table below (dollar amounts in thousands).
 ActualRequired 
(Well Capitalized)
 AmountRatioAmountRatio
Total Capital to Risk Weighted Assets$1,666,677 18.84 %$884,734 10.00 %
Tier 1 (Leverage) Capital to Net Average Assets1,614,615 10.33 %781,275 5.00 %
Tier I Capital to Risk-Weighted Assets1,614,615 18.25 %707,788 8.00 %
Common Equity Tier I to Risk-Weighted Assets1,614,615 18.25 %575,077 6.50 %

Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured depository institutions such as the Association. Deposit accounts in the Association are insured by the FDIC, generally up to a maximum of $250,000 per separately insured depositor.
The FDIC charges insured depository institutions assessments to maintain the Deposit Insurance Fund. The FDIC bases its assessments on each institution’s total assets less Tier 1 capital, with an assessment schedule based on perceived risk to the Deposit Insurance Fund. Institutions with over $10 billion of total assets, such as the Association, are classified for assessment purposes as "Large Institutions". Such Large Institutions are generally subject to a pricing system that includes a separate “scorecard” methodology designed to measure risk to the fund. The assessment range for Large Institutions (inclusive of adjustments specified by the FDIC) is 1.5 to 40 basis points.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Association does not believe that it is taking, or is subject to, any action, condition or violation that could lead to termination of its deposit insurance.
Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
Federal Home Loan Bank System. The Association is a member of the FHLB System, which consists of 11 regional FHLBs. The FHLB System provides a central credit facility primarily for member institutions. As a member of the FHLB of Cincinnati, the Association is required to acquire and hold shares of capital stock in the FHLB.
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. 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;
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•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 operations of the Association also are subject to:
•The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
•The Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;
•The Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from those images, the same legal standing as the original paper check;
•Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), which significantly expanded the responsibilities of financial institutions, including savings associations, in preventing the use of the U.S. financial system to fund terrorist activities. Among other provisions, the USA PATRIOT Act and the related regulations of the OCC require savings associations operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations; and
•The Gramm-Leach-Bliley Act, which placed limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.
Holding Company Regulation
General. Third Federal Savings, MHC, and the Company are non-diversified savings and loan holding companies within the meaning of the HOLA. As such, Third Federal Savings, MHC and the Company are registered with the FRS and subject to FRS regulations, examinations, supervision and reporting requirements. In addition, the FRS has enforcement authority over Third Federal Savings, MHC and the Company. Among other things, this authority permits the FRS to restrict or prohibit activities that are determined to be a serious risk to the Association. As federal corporations, Third Federal Savings, MHC and the Company are generally not subject to state business organization laws.
Permitted Activities. 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
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(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. If a mutual holding company acquires or merges with another holding company, the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities listed in (i) through (x) above, and has a period of two years to cease any nonconforming activities and divest any nonconforming investments.
The HOLA prohibits a savings and loan holding company, such as the Company, from directly or indirectly acquiring more than 5% of a class of voting securities of, or acquiring "control" as defined in FRS regulations of, another savings institution or savings and loan holding company, without prior written approval of the FRS. 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. 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.
The FRS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:
(i)the approval of interstate supervisory acquisitions by savings and loan holding companies; and
(ii)the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.
Capital. Savings and loan holding companies were historically not subject to specific regulatory capital requirements. The DFA, however, required the FRS to promulgate consolidated capital requirements for all depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to depository institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities could no longer be included as Tier 1 capital, as was previously permitted for bank holding companies.
Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions, including the capital conservation buffer, apply to savings and loan holding companies. We were in compliance with the holding company consolidated capital requirements and the capital conservation buffer as of September 30, 2022.
Dividends and Repurchases. The FRS has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization's capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company's net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend, the proposed dividend is not covered by earnings for the period for which it is being paid or the company's overall rate of earnings retention is inconsistent with the company's capital needs and overall financial condition. The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a company's common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized. The policy statement also provides for regulatory review prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
Source of Strength. The DFA extended the “source of strength” doctrine, which had traditionally been applicable to bank holding companies, to savings and loan holding companies. 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.
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Waivers of Dividends by Third Federal Savings, MHC. Federal regulations require Third Federal Savings, MHC to notify the FRS of any proposed waiver of its receipt of dividends from the Company. 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. In February 2008, the Company declared its first quarterly dividend and Third Federal Savings, MHC waived its right to receive each dividend paid by the Company. 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. However, on August 12, 2011, the FRS issued an interim final rule that added a requirement that a majority of the mutual holding company’s members eligible to vote must approve a dividend waiver by a mutual holding company within 12 months prior to the declaration of the dividend being waived. 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 previously received the approval of its members every calendar year beginning in 2014.
Conversion of Third Federal Savings, MHC to Stock Form. Federal regulations permit Third Federal Savings, MHC to convert from the mutual form of organization to the capital stock form of organization (a “Conversion Transaction”). There can be no assurance when, if ever, a Conversion Transaction will occur, and the Board of Directors has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction, a new stock holding company would be formed as the successor to the Company, Third Federal Savings, MHC’s corporate existence would end, and certain depositors of the Association would receive the right to subscribe for additional shares of common stock of the new holding company. In a Conversion Transaction, each share of common stock held by stockholders other than Third Federal Savings, MHC (“Minority Stockholders”) would be automatically converted into a number of shares of common stock of the new holding company determined pursuant to an exchange ratio that ensures that Minority Stockholders own the same percentage of common stock in the new holding company as they owned in the Company immediately prior to the Conversion Transaction. Under a provision of the DFA applicable to Third Federal Savings, MHC, Minority Stockholders should not be diluted because of any dividends waived by Third Federal Savings, MHC (and waived dividends should not be considered in determining an appropriate exchange ratio), in the event Third Federal Savings, MHC converts to stock form. Any such Conversion Transaction would require various member and stockholder approvals, as well as regulatory approval.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 and related regulations address, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. We have prepared policies, procedures and systems designed to ensure compliance with these regulations.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)
The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy. The law had several provisions relevant to depository institutions, including:
Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes;
The ability of a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance could be granted for up to 180 days, subject to extension for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, subsequently extended several times by federal mortgage-backing agencies. As of January 2, 2022 all COVID-19 restrictions have been lifted.


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Human Capital Resources
At September 30, 2022, we employed 1,025 associates, nearly all of whom are full-time and of which approximately 75% are women. At September 30, 2021, we employed 1,005 associates. As a financial institution, approximately 40% of our associates are employed at our branch and loan production offices, and another 12% are employed at our customer care call center. The success of our business is highly dependent on our associates, who provide value to our customers and communities through their dedication to our mission, helping customers achieve the American dream of home ownership and financial security. Our workplace culture is grounded in a set of core values – love (a genuine concern for others), trust, respect, a commitment to excellence and a little bit of fun – which is lived out daily in our work. We seek to hire well-qualified associates who are also a good fit for our value system. Our selection and promotion processes are without bias and include the active recruitment of minorities and women.
We encourage and support the growth and development of our associates and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through quarterly performance and development conversations between associates and their managers, internally developed training programs, customized corporate training engagements and educational reimbursement programs. Reimbursement is available to associates enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in compliance with Section 127 of the Internal Revenue Code, and for seminars, conferences, and other training events associates attend in connection with their job duties.
On an ongoing basis, we further promote the health and wellness of our associates by strongly encouraging work-life balance, offering flexible work schedules, keeping the associate portion of health care premiums to a minimum and sponsoring various wellness programs, whereby associates are compensated for incorporating healthy habits into their daily routines.
Associate retention helps us operate efficiently and achieve one of our business objectives, which is being a low-cost provider. During fiscal year 2022, we experienced an increase in voluntary associate turnover as was the case among the general workforce. However, our voluntary turnover rate, at 7.6% for the twelve months ending September 30, 2022, excluding retirements, remains one of the lowest in the industry. We believe our commitment to living out our core values, actively prioritizing concern for our associates’ well-being, supporting our associates’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing associates. In addition, nearly all of our associates are stockholders of the Company through participation in our Associate Stock Ownership Plan, which aligns associate and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost to our associates. At September 30, 2022, 36% of our current staff had been with us for fifteen years or more.

Item 1A.Risk Factors
The material risks and uncertainties that management believes affect us are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein, as well as in other documents we file with the SEC. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. 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.
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. 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. 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. We did not participate in, or offer loans, as part of the Payroll Protection Program.
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The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown. 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.
Risks Related to Laws and Regulations
Changes in laws and regulations and the cost of compliance with new laws and regulations may adversely affect our operations and our income.
We are subject to extensive regulation, supervision and examination by the FRS, the OCC, the CFPB and the FDIC. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine the adequacy of a bank’s allowance for credit losses and determine the level of deposit insurance premiums assessed. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change. Any change in these regulations and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums could have a material impact on our operations.
The potential exists for additional federal or state laws and regulations, or changes in policy, affecting lending and funding practices and liquidity standards. Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements. 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. 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. 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. 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. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a
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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.
The FRS may require the Company to commit capital resources to support the Association, and we may not have sufficient access to such capital resources.
Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the FRS may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to attempt to borrow the funds or raise capital. Thus, any borrowing of funds needed to raise capital required to make a capital injection becomes more difficult and expensive, and could have an adverse effect on our business, financial condition and results of operations. Moreover, it is possible that we will be unable to borrow funds when we need to do so.
Monetary policies and regulations of the FRS could adversely affect our business, financial condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the FRS. An important function of the FRS is to regulate the money supply and credit conditions. Among the instruments used by the FRS to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRS have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.
Risks Related to our Lending Activities
Our lending activities provide lower interest rates than financial institutions that originate more commercial loans.
Our principal lending activity consists of originating, and essentially all of our loan portfolio consists of, residential real estate mortgage loans. We originate our loans with a focus on limiting credit risk exposure and not necessarily to generate the highest return possible or maximize our interest rate spread. In addition, residential real estate mortgage loans generally have lower interest rates than commercial business loans, commercial real estate loans and consumer loans. 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.
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. A prolonged period of secondary market illiquidity could have a material adverse effect on our financial condition and results of operations.
If we are required to repurchase mortgage loans that we have previously sold, it would negatively affect our earnings.
We sell mortgage loans in the secondary market under agreements that contain representations and warranties related to, among other things, the origination, characteristics of the mortgage loans and subsequent servicing. We may be required to repurchase mortgage loans that we have sold in cases of borrower default or breaches of these representations and warranties, and we would be subject to increased risk of disputes and repurchase demands as our volume of loan sales increases. 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.
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Final regulations could restrict our ability to originate and sell loans.
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. A “qualified mortgage” must be made to a borrower whose total monthly debt-to-income ratio does not exceed 43%. 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. 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.
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. 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).
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. 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. 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.
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. 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. These 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.
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. Some of our competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Competitive factors driven by consumer sentiment or otherwise can also reduce our ability to generate fee income, such as through overdraft fees. Troubled financial institutions may not significantly increase the interest rates paid to depositors in pursuit of retail deposits when wholesale funding sources are not available to them. 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
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transfer funds directly without the direct assistance of banks. Our profitability depends upon our continued ability to successfully compete in our market areas. For additional information see PART 1 Item 1. Business-THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND-Competition.
We continually encounter technological change, and may have fewer resources than many of our larger competitors to continue to invest in technological improvements.
The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. 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 rely heavily on communications and information systems to conduct our business. We regularly collect, process, transmit and store significant amounts of data and confidential information regarding our customers, associates and others and concerning our own business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.
Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an on-going threat targeting the customers of popular financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to associate error, malfeasance or other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.
If this confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and financial loss.
Although we employ a variety of physical, procedural and technological safeguards to protect this confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur. If mishandling, misuse or loss of the information did occur, the Company would make all commercially reasonable efforts to detect and address any such event. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. As information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
We believe that we have not experienced any material breaches.
Customer or associate fraud subjects us to additional operational risks.
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. Misconduct by our associates could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent associate errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Associate errors could also subject us to financial claims for negligence. We have not experienced any material financial losses from associate errors, misconduct or fraud. 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.
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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.
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. 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.
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. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor's organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations. 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. 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.
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. Under these statutes and regulations, the Association is not permitted to pay dividends on its capital stock to the Company, its sole stockholder, if the dividend would reduce the stockholders' equity of the Association below the amount of the liquidation account established in connection with the mutual-to-stock conversion. Federal savings associations may pay dividends without the approval of its primary federal regulator only if they meet applicable regulatory capital requirements before and after the payment of the dividends and total dividends do not exceed net income to date over the calendar year plus its retained net income over the preceding two years. If in the future, the Company utilizes its available cash and the Association is unable to pay dividends to the Company, the Company may not have sufficient funds to pay dividends or fund stock repurchases.
Restrictions on our ability to pay dividends to stockholders could adversely affect the value of our common stock.
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. Moreover, our ability to pay dividends and the amount of such dividends is affected by the ability of Third Federal Savings, MHC, our mutual holding company, to waive the receipt of dividends declared by the Company.
Federal regulations require Third Federal Savings, MHC to notify the FRS of any proposed waiver of its receipt of dividends from the Company. In August 2011, the FRS issued an interim final rule pursuant to the DFA, providing that the FRS “may not” object to dividend waivers by grandfathered mutual holding companies, such as Third Federal Savings, MHC, under standards substantially similar to those previously required by the OTS. However, the interim final rule added a requirement that a majority of the mutual holding company’s members eligible to vote must approve a dividend waiver by a mutual holding company within twelve months prior to the declaration of the dividend being waived. 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. 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. 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.
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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.
Third Federal Savings, MHC, as our majority shareholder, is able to control the outcome of virtually all matters presented to our shareholders for their approval, including any proposal to acquire us. The same directors and officers who manage the Association also manage the Company and Third Federal Savings, MHC. The board of directors of Third Federal Savings, MHC must ensure that the interests of depositors of the Association (as members of Third Federal Savings, MHC) are represented and considered in matters put to a vote of stockholders of the Company. Therefore, Third Federal Savings, MHC may take action that the public stockholders believe to be contrary to their interests. For example, Third Federal Savings, MHC may exercise its voting control to defeat a stockholder nominee for election to the board of directors of the Company. Additionally, Third Federal Savings, MHC may prevent the sale of control or merger of the Company or its subsidiaries, or a second-step conversion of Third Federal Savings, MHC, even if such a transaction were favored by a majority of the public shareholders of the Company.
Risks Related to Accounting Matters
Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and on our financial condition and/or operating results.
In preparing periodic reports we are required to file under the Securities Exchange Act of 1934, including our consolidated financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for credit losses and the determination of pension obligations.
Changes in accounting standards could affect reported earnings.
The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our financial statements. 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.
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.
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. In this circumstance, a CD customer may determine that it is in his/her best interest to incur the existing penalty for early withdrawal, tender the certificate for cash and either reinvest the proceeds in a new CD with us, or withdraw the funds and leave us. As a result, we either establish a new, higher rate certificate (if the customer stays with us) or we must fund the customer’s withdrawal by: (1) reducing our cash reserves; (2) selling assets to generate cash to fund the withdrawal; (3) attracting deposits from another customer at the then-higher interest rate; or (4) borrowing from a wholesale lender like the FHLB of Cincinnati, again at the then-higher interest rate. 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. When that happens, either the yield that we earn on the customer’s loan is reduced (if the customer refinances with us) or the mortgage is paid off and we are faced with the challenge of reinvesting the cash received to repay the mortgage in a lower interest rate environment. This is frequently referred to as reinvestment risk, which is the risk that we may not be able to reinvest the proceeds of loan prepayments at rates that are comparable to the rates we earned on the loans prior to receipt of the repayment. Reinvestment risk also exists with the securities in our investment portfolio that are backed by mortgage loans.
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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. An example is our home equity lines of credit loan portfolio and our interest-bearing checking and savings deposit products. Interest rates charged on our home equity lines of credit loans are linked to the prime rate of interest, which generally adjusts in a direct relationship to changes in the FRS’s Federal Funds target rate. Similarly, our interest-bearing checking and savings deposit products are generally expected to adjust when changes are made to the Federal Funds target rate. However, to the extent that increases or decreases are made to the Federal Funds target rate, and those increases or decreases translate into increases or decreases of the prime rate and the rate charged on our home equity lines of credit loans, but do not extend to equivalent adjustments to our interest-bearing checking and savings deposit products, we can experience a reduction in our net interest income. 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. 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. Because the estimated life and estimated income to be derived from servicing the underlying mortgage loans generally increase with rising interest rates and decrease with falling interest rates, the value of mortgage servicing rights generally increases as interest rates rise and decreases as interest rates fall. 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. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Changes in interest rates can also have an adverse effect on our financial condition, as our available for sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available for sale securities, net of taxes. The declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.
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. To monitor our positions, we maintain an interest rate risk modeling system which is designed to measure our interest rate risk sensitivity. 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. 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. 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%. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
A worsening of economic conditions could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our results of operations.
Our performance is significantly impacted by the general economic conditions in our primary markets in Ohio and Florida, and surrounding areas. We also originate loans in other states which will be impacted by national or regional economic conditions. A deterioration in economic conditions is likely to result in high levels of unemployment, which would weaken local economies and could result in additional defaults of mortgage loans. Most of the loans in our loan portfolio are secured by real estate located in our primary market areas. Negative conditions, such as layoffs, in the markets where collateral for a mortgage loan is located could adversely affect a borrower’s ability to repay the loan and the value of the collateral securing the loan. Declines in the U.S. housing market, falling home prices and increasing foreclosures, as well as unemployment and under-employment, all negatively impact the credit performance of mortgage loans and can result in significant write-downs of asset values by financial institutions.
In response to a significant decline in general economic conditions, many lenders and institutional investors may reduce or cease providing funding to borrowers, including other financial institutions. This market turmoil and tightening of credit could lead to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of general business activity. The resulting economic pressure on consumers and lack of
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confidence in the financial markets could adversely affect our business, financial condition and results of operations. In response, we would expect to face the following risks in connection with these events:
•Increased regulation of our industry, heightened supervisory scrutiny related to the USA PATRIOT Act, Bank Secrecy Act, Fair Lending and other laws and regulations, along with enhanced monitoring of compliance with such regulation. Each aspect of amplified supervision and regulation will in all likelihood increase our costs, may be accompanied by the risk of unexpected fines, sanctions, penalties, litigation and corresponding management diversion and may limit our ability to pursue business opportunities and return capital to our shareholders.
•Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future behaviors.
•The processes we use to estimate losses inherent in our credit exposure require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of viable estimation and which may, in turn, impact the reliability of our evaluation processes, the comfort of our regulators with respect to the adequacy of our allowance for credit losses and who may require adjustments thereto, and ultimately could result in increased provisions for loan losses and reduced levels of earnings and capital.
•Our ability to engage in sales of mortgage loans to third parties (including mortgage loan securitization transactions with governmental entities) on favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events, including deteriorating investor expectations.
•Competition in our industry could intensify as a result of increasing consolidation of financial services companies in connection with current market conditions.
Other Risks Related to Our Business
Hurricanes or other adverse weather events could negatively affect the economy in our Florida market area or cause disruptions to our branch office locations, which could have an adverse effect on our business or results of operations.
A significant portion of our branch operations are conducted in Florida, a geographic region with coastal areas that are susceptible to hurricanes and tropical storms. Such weather events can disrupt our operations, result in damage to our branch office locations and negatively affect the local economy in which we operate. 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. These and other negative effects of future hurricanes or tropical storms may adversely affect our business or results of operations.
We are subject to environmental liability risk associated with lending activities or properties we own.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, which require us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
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. 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. 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.
Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.
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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. Consumers and businesses also may change their behavior on their own as a result of these concerns. We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, and the like. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance.
Our reputation is one of the most valuable components of our business and is critical to our success. The ability to attract and retain customers, investors, employees and advisors may depend upon external perceptions of the Company. Damage to the Company's reputation could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, compliance failures, unethical behavior and the misconduct of employees, advisors and counterparties. 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. Governments, investors, customers and the general public are increasingly focused on ESG practices and disclosures, and views about ESG are diverse and rapidly changing. These shifts in investing priorities may result in adverse effects on the trading price of the Company’s common stock if investors determine that the Company has not made sufficient progress on ESG matters. We could also face potential negative ESG-related publicity in traditional media or social media if shareholders or other stakeholders determine that we have not adequately considered or addressed ESG matters. 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.

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. 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. The 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.

Item 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.Mine Safety Disclosures
Not applicable.

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PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed and traded on the NASDAQ Global Select Market under the symbol “TFSL”. 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. Any requests for future regulatory authorizations to waive receipts of dividends will be submitted to the FRS. Please refer to the preceding discussion of dividend waivers presented in Part I, Item 1. Business-SUPERVISION AND REGULATION-Holding Company Regulation-Waivers of Dividends by Third Federal Savings, MHC. Regulatory non-objection is subject to periodic regulatory review and no assurances can be given regarding future regulatory non-objection. In addition, interim final rules issued by the FRS in 2011 require that a majority of the mutual holding company's members eligible to vote must approve a dividend waiver by a mutual holding company within 12 months prior to the declaration of the dividend being waived. There can be no assurance that a final rule will not require such a member vote.
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. 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.
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.
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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. 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.
tfsl-20220930_g1.jpg
 Measurement Date
Index (with base price at 9/30/2017)9/30/20179/30/20189/30/20199/30/20209/30/20219/30/2022
TFS Financial Corporation100.00 97.76 124.62 107.99 148.21 108.51 
S&P U.S. BMI Banks Index100.00 108.42 108.77 79.86 145.30 111.62 
S&P Composite 1500 Thrifts & Mortgage Finance Index100.00 98.18 111.54 80.62 131.86 107.52 
NASDAQ Composite Index100.00 125.17 125.82 177.36 231.30 170.38 
Source: S&P Global Market Intelligence

We did not sell any securities for the fiscal year ended September 30, 2022.

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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.
AverageTotal Number ofMaximum Number
Total NumberPriceShares Purchasedof Shares that May
of SharesPaid peras Part of PubliclyYet be Purchased
PeriodPurchasedShareAnnounced Plans (1)Under the Plans
July 1, 2022 through July 31, 202225,000 $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 $13.5925,000 
(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. Purchases under the program will be on an ongoing basis and subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses of capital, and our financial performance. Repurchased shares will be held as treasury stock and be available for general corporate use. 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]
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 April 2007, the nation’s largest mutually-owned savings and loan association based on total assets. We credit our success to our continued emphasis on our primary values: “Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun.” Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where the educational programs we have established and/or support are located. 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.
The following tables present select financial data of the Company for the five most recent fiscal years.
 At September 30,
 20222021202020192018
 (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 equivalents369,564 488,326 498,033 275,143 269,775 
Investment securities - available for sale457,908 421,783 453,438 547,864 531,965 
Loans held for sale9,661 8,848 36,871 3,666 659 
Loans, net14,257,067 12,509,035 13,103,062 13,195,745 12,871,294 
Bank owned life insurance304,040 297,332 222,919 217,481 212,021 
Prepaid expenses and other assets95,428 91,586 104,832 87,957 44,344 
Deposits8,921,017 8,993,605 9,225,554 8,766,384 8,491,583 
Borrowed funds4,793,221 3,091,815 3,521,745 3,902,981 3,721,699 
Shareholders’ equity1,844,339 1,732,280 1,671,853 1,696,754 1,758,404 
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 For the Years Ended September 30,
 20222021202020192018
 (In thousands, except per share amounts)
Selected Operating Data:
Interest income$409,333 $389,351 $455,298 $482,087 $443,045 
Interest expense141,937 157,721 213,030 216,666 162,104 
Net interest income267,396 231,630 242,268 265,421 280,941 
Provision (release) for credit losses on loans1,000 (9,000)3,000 (10,000)(11,000)
Net interest income after provision (release) for credit losses on loans266,396 240,630 239,268 275,421 291,941 
Non-interest income23,804 55,299 53,251 20,464 21,536 
Non-interest expenses198,146 195,835 192,274 193,673 192,313 
Earnings before income tax92,054 100,094 100,245 102,212 121,164 
Income tax expense17,489 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 
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 At or For The Years Ended September 30,
 20222021202020192018
Selected Financial Ratios and Other Data:
Performance Ratios:
  Return on average assets0.51 %0.56 %0.56 %0.56 %0.62 %
  Return on average equity4.14 %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 assets1.34 %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 assets0.23 %0.32 %0.37 %0.50 %0.57 %
  Non-accruing loans as a percent of total loans0.25 %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 loans0.51 %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 assets12.23 %11.72 %11.50 %12.30 %12.56 %
Other Data:
Association:
Number of full service offices37 37 37 37 38 
Loan production offices5 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.
(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.
(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.
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 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
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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. We manage the risk of holding longer-term, fixed-rate mortgage assets primarily by maintaining regulatory capital in excess of levels required to be well capitalized, by promoting adjustable-rate loans and shorter-term fixed-rate loans, by marketing home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate, by opportunistically extending the duration of our funding sources and selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market.
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. At September 30, 2022, the Company’s Tier 1 (leverage) capital totaled $1.82 billion, or 11.66% of net average assets and 20.59% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.61 billion, or 10.33% of net average assets and 18.25% of risk-weighted assets. 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. Refer to the Liquidity and Capital Resources section of this Item 7 for additional discussion regarding regulatory capital requirements.
Promotion of Adjustable-Rate Loans and Shorter-Term, Fixed-Rate Loans
We market an adjustable-rate mortgage loan that provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan. Our “Smart Rate” adjustable-rate mortgage offers borrowers an interest rate lower than that of a 30-year, fixed-rate loan. The interest rate of the Smart Rate mortgage is locked for three or five years then resets annually. The Smart Rate mortgage contains a feature to re-lock the rate an unlimited number of times at our then-current interest rate and fee schedule, for another three or five years (which must be the same as the original lock period) without having to complete a full refinance transaction. Re-lock eligibility is subject to a satisfactory payment performance history by the borrower (current at the time of re-lock, and no foreclosures or bankruptcies since the Smart Rate application was taken). In addition to a satisfactory payment history, re-lock eligibility requires that the property continues to be the borrower’s primary residence. The loan term cannot be extended in connection with a re-lock nor can new funds be advanced. All interest rate caps and floors remain as originated.
We also offer a ten-year, fully amortizing fixed-rate, first mortgage loan. 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 following tables set forth our first mortgage loan production and balances segregated by loan structure at origination.
For the Years Ended September 30,
20222021
AmountPercentAmountPercent
First Mortgage Loan Originations:(Dollars in thousands)
ARM (all Smart Rate) production$1,029,156 28.2 %$1,089,410 30.0 %
Fixed-rate production:
    Terms less than or equal to 10 years470,806 12.9 540,723 14.9 
    Terms greater than 10 years2,146,021 58.9 1,997,694 55.1 
        Total fixed-rate production2,616,827 71.8 2,538,417 70.0 
Total First Mortgage Loan Originations:$3,645,983 100.0 %$3,627,827 100.0 %
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September 30, 2022September 30, 2021
AmountPercentAmountPercent
Balances of First Mortgage Loans Held For Investment:(Dollars in thousands)
ARM (primarily Smart Rate) Loans$4,668,089 40.3 %$4,646,760 45.2 %
Fixed-rate Loans:
    Terms less than or equal to 10 years1,350,436 11.6 1,309,407 12.7 
    Terms greater than 10 years5,574,589 48.1 4,322,931 42.1 
        Total fixed-rate loans6,925,025 59.7 5,632,338 54.8 
Total First Mortgage Loans Held For Investment:$11,593,114 100.0 %$10,279,098 100.0 %
The following table sets forth the balances as of September 30, 2022 for all ARM loans segregated by the next scheduled interest rate reset date.
Current Balance of ARM Loans Scheduled for Interest Rate Reset
During the Fiscal Years Ending September 30,(in thousands)
2023$207,932
2024354,614 
2025708,993 
20261,525,895 
20271,770,027 
2028100,628 
     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.
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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.
September 30, 2022
BalancePercentYield
(Dollars in thousands)
Total Loans:
Fixed Rate
      Terms less than or equal to 10 years$1,350,436 9.4 %2.62 %
      Terms greater than 10 years5,574,589 38.8 %3.51 %
Total Fixed-Rate loans6,925,025 48.2 %3.34 %
ARMs 4,668,089 32.5 %2.75 %
Home Equity Loans and Lines of Credit2,633,878 18.4 %5.30 %
Construction and Other loans125,022 0.9 %3.32 %
Total Loans Receivable$14,352,014 100.0 %3.51 %

September 30, 2022
BalanceFixed Rate BalancePercentYield
(Dollars in thousands)
Residential Mortgage Loans
Ohio$6,483,740 $4,932,438 45.2 %3.30 %
Florida2,123,113 1,027,910 14.8 3.00 %
Other2,986,261 964,677 20.7 2.73 %
     Total Residential Mortgage Loans 11,593,114 6,925,025 80.7 3.11 %
Home Equity Loans and Lines of Credit
Ohio706,641 60,228 5.0 5.30 %
Florida537,724 39,968 3.7 5.25 %
California432,540 27,708 3.0 5.25 %
Other956,973 22,832 6.7 5.35 %
     Total Home Equity Loans and Lines of Credit2,633,878 150,736 18.4 5.30 %
Construction and Other loans125,022 125,022 0.9 3.32 %
Total Loans Receivable$14,352,014 $7,200,783 100.0 %3.51 %

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. We plan to enhance our ability to grow the home equity line of credit portfolio by utilizing partners to attract more home equity line of credit customers. At September 30, 2022, the principal balance of home equity lines of credit totaled $2.37 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 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 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. Each funding alternative is monitored and evaluated based on
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its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements. 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 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. Our funding sources are discussed in the Sources of Funds section of Item 1. Business in Part I. THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND.
Other Interest Rate Risk Management Tools
We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. At September 30, 2022, we serviced $2.05 billion of loans for others. In deciding whether to sell loans to manage interest rate risk, we also consider the level of gains to be recognized in comparison to the impact to our net interest income. We began expanding our ability to sell certain fixed rate loans to Fannie Mae in fiscal 2022 and beyond, through the use of more traditional mortgage banking activities, including risk-based pricing and loan-level pricing adjustments. This concept is being tested in markets outside of Ohio and Florida, and some additional startup and marketing costs have been incurred, but have not significantly impacted our financial results. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions are dependent upon favorable market conditions, including motivated private investors, and involve more complicated negotiations and longer settlement timelines. Loan sales are discussed later in this Part II, Item 7. under the heading Liquidity and Capital Resources, and in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Notwithstanding our efforts to manage interest rate risk, should a rapid and substantial increase occur in general market interest rates, or an extended period of a flat or inverted yield curve market persists, it is expected that, prospectively and particularly over a multi-year time horizon, the level of our net interest income would be adversely impacted.
Monitoring and Limiting Our Credit Risk. While, historically, we had been successful in limiting our credit risk exposure by generally imposing high credit standards with respect to lending, the memory of the 2008 housing market collapse and financial crisis is a constant reminder to focus on credit risk. In response to the evolving economic landscape, we continuously revise and update our quarterly analysis and evaluation procedures, as needed, for each category of our lending with the objective of identifying and recognizing all appropriate credit losses. At 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. Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as specific reviews of all first mortgage loans that become 180 or more days past due. We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status. We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing.
In an effort to align our credit risk exposure with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed. 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%. 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. 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.
One aspect of our credit risk concern relates to high concentrations of our loans that are secured by residential real estate in specific states, particularly Ohio and Florida, where a large portion of our historical lending has occurred. At September 30, 2022, approximately 56.1% and 18.3% of the combined total of our residential Core and construction loans held for investment and approximately 26.8% and 20.4% 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, 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. 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
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30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. 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. 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. 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.
To attract deposits, we offer our customers attractive rates of return on our deposit products. Our deposit products typically offer rates that are highly competitive with the rates on similar products offered by other financial institutions. We intend to continue this practice, subject to market conditions.
We preserve the availability of alternative funding sources through various mechanisms. First, by maintaining high capital levels, we retain the flexibility to increase our balance sheet size without jeopardizing our capital adequacy. Effectively, this permits us to increase the rates that we offer on our deposit products thereby attracting more potential customers. Second, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At September 30, 2022, these collateral pledge support arrangements provided the Association with the ability to borrow a maximum of $8.47 billion from the FHLB of Cincinnati and $168.0 million from the FRB-Cleveland Discount Window. Third, we have the ability to purchase overnight Fed Funds up to $595.0 million through various arrangements with other institutions. Fourth, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At September 30, 2022, our investment securities portfolio totaled $457.9 million. 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.
First mortgage loans (primarily fixed-rate, mortgage refinances with terms of 15 years or more and Home Ready) are originated under Fannie Mae procedures and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. Most of these agency-compliant loans are classified as held for investment because the Company has both the intent and ability to hold them in portfolio. At September 30, 2022, the principal balance of these agency-compliant loans classified as held for investment was $123.0 million. During fiscal 2022, we formed a mortgage banking division as part of our strategy to originate first mortgage loans for sale to Fannie Mae. Loans originated through this division are Fannie Mae compliant and have interest rates that closely align with secondary market pricing. At September 30, 2022, these loans are classified as held for sale totaling $9.7 million. During the fiscal year ended September 30, 2022, $28.8 million of agency-compliant Home Ready loans and $99.3 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans were sold to Fannie Mae. 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. 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.
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. Our ratio of non-interest expense to average assets was 1.34% for the fiscal year ended September 30, 2022 and 1.35% for the fiscal year ended September 30, 2021. The increase in average assets during the current fiscal year contributed to the decrease in the ratio. As of September 30, 2022, our average assets per full-time associate and our average deposits per full-time associate were $15.4 million and $8.7 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average deposits (exclusive of brokered accounts) held at our branch offices ($217.5 million per branch office as of September 30, 2022) contributes to our expense management efforts by limiting the overhead costs of serving our customers. We will continue our efforts to control operating expenses as we grow our business.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most
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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 allowance for credit losses is the amount estimated by management as necessary 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, 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.
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 LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and the Lending Activities section of Item 1. Business in Part I. for further discussion.
Actual loan losses may be significantly more than the allowances we have established, which would have a materially adverse effect on our financial results.
Income Taxes. Accounting for income taxes involves critical accounting policies and estimates due to the subjective nature of certain estimates that are involved in the calculation. We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease existing valuation allowances, if any, are charged or credited, respectively, to income tax expense. At September 30, 2022, no valuation allowances were outstanding. 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. Key assumptions used in the actuarial valuations include the discount rate and expected long-term rate of return on plan assets. Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions could materially affect future pension obligations and expense.
Comparison of Financial Condition at September 30, 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.
Cash and cash equivalents decreased $118.7 million, or 24.3%, to $369.6 million at September 30, 2022 from $488.3 million at September 30, 2021. This decrease was primarily attributable to the reinvestment of liquid assets into loan products. We manage cash to maintain the level of liquidity described later in the Liquidity and Capital Resources section of the Overview.
Investment securities, all of which are classified as available for sale, increased $36.1 million, or 8.6%, to $457.9 million at September 30, 2022 from $421.8 million at September 30, 2021. Investment securities increased as $250.0 million in
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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.
Loans held for investment, net, increased $1.75 billion, or 14.0%, to $14.26 billion at September 30, 2022 from $12.51 billion at September 30, 2021. Residential mortgage loans increased $1.31 billion, or 12.8%, to $11.59 billion at September 30, 2022. In addition, there was a $419.6 million increase in the balance of home equity loans and lines of credit during the year ended September 30, 2022, as new originations and additional draws on existing accounts exceeded repayments. During the fiscal year ended September 30, 2022, $1.03 billion of three- and five-year “SmartRate” loans were originated while $2.62 billion of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated. 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. During the fiscal year ended September 30, 2022, we completed $128.1 million in loan sales, which included $28.8 million of agency-compliant Home Ready loans and $99.3 million of other long-term, fixed-rate, agency-compliant, first mortgage loans that were sold to Fannie Mae.
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. 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. At September 30, 2021, the allowance for credit losses was $89.3 million, or 0.71% of total loans receivable and included a $25.0 million liability for unfunded commitments. During the fiscal year ended September 30, 2022, a $1.0 million provision to the allowance for credit losses was recognized compared to a $9.0 million release of provision from the allowance for the prior fiscal year. As a result of loan recoveries exceeding charge-offs, the Company recorded $9.7 million of net loan recoveries for the fiscal year ended September 30, 2022, compared to $5.2 million of net loan recoveries for the fiscal year ended September 30, 2021. Actual loan charge-offs and delinquencies remained low at September 30, 2022. 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 $49.5 million, or 30.4%, to $212.3 million at September 30, 2022 from $162.8 million at September 30, 2021. FHLB stock ownership requirements dictate the amount of stock owned at any given time.
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. The decrease in deposits resulted primarily from a $169.3 million decrease in CDs, partially offset by an $18.6 million increase in savings accounts (consisting of a $82.3 million decrease in money market accounts in the state of Florida and a $101.5 million increase in our higher yield savings accounts), and a $77.1 million increase in interest-bearing checking accounts.With our competitive rates, we believe that our savings and checking accounts provide a stable source of funds. In addition, our savings accounts are expected to reprice in a manner similar to our home equity lending products, and, therefore, assist us in managing interest rate risk. The balance of brokered CDs at September 30, 2022 was $575.2 million, which is an increase of $83.2 million from the balance of $492.0 million at September 30, 2021.
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. The total balance of borrowed funds at September 30, 2022, mainly from the FHLB, included $1.78 billion of overnight advances, $1.24 billion of term advances with a weighted average maturity of approximately 2.9 years, $1.55 billion of short-term advances, aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.7 years, and $225.0 million in fed fund purchases. Refer to the Extending the Duration of Funding Sources section of the Overview and Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for additional discussion regarding short-term borrowings and interest-rate swaps.
Borrowers' advances for insurance and taxes increased by $7.6 million, or 7%, to $117.2 million at September 30, 2022
from $109.6 million at September 30, 2021. This change primarily reflects the cyclical nature of real estate tax payments that
have been collected from borrowers and are in the process of being remitted to various taxing agencies.
Total shareholders’ equity increased $112.1 million, or 6.5%, to $1.84 billion at September 30, 2022 from $1.73 billion at September 30, 2021. Activity reflects $74.6 million of net income, a $91.0 million positive change in accumulated other
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comprehensive income and $9.7 million of positive adjustments related to our stock compensation and employee stock ownership plans, reduced by $58.2 million of quarterly dividends and $5.0 million in repurchases of common stock. The change in accumulated other comprehensive income is primarily due to a net positive change in unrealized gains and losses on swap contracts. During the fiscal year ended September 30, 2022, a total of 337,259 shares of our common stock were repurchased at an average cost of $14.97 per share. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,553,820 shares remaining to be repurchased at September 30, 2022. As a result of a mutual member vote, Third Federal Savings and Loan Association of Cleveland, MHC ("the MHC"), the mutual holding company that owns approximately 81% of the outstanding stock of the Company, was able to waive receipt of its share of each dividend paid. 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.

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 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,
 202220212020
 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 securities3,643 43 1.18%— — — %— — — %
  Mortgage-backed securities439,269 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 stock173,506 4,963 2.86%155,322 2,969 1.91 %120,011 2,985 2.49 %
Total interest-earning assets14,259,882 409,333 2.87%13,951,489 389,351 2.79 %14,321,555 455,298 3.18 %
Non-interest-earning assets482,501 532,786 540,421 
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 accounts1,859,990 4,553 0.24%1,742,042 2,992 0.17 %1,530,977 7,775 0.51 %
  Certificates of deposit5,826,286 68,204 1.17%6,339,412 93,187 1.47 %6,621,289 130,990 1.98 %
  Borrowed funds3,671,323 64,994 1.77%3,303,925 60,402 1.83 %3,785,026 72,788 1.92 %
Total interest-bearing liabilities12,684,481 141,937 1.12%12,465,078 157,721 1.27 %12,854,844 213,030 1.66 %
Non-interest-bearing liabilities255,388 321,958 298,520 
Total liabilities12,939,869 12,787,036 13,153,364 
Shareholders’ equity1,802,514 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 $1,466,711 
Net interest margin(4)1.88 %1.66 %1.69 %
Average interest-earning assets to
     average interest-bearing liabilities		112.42 %111.92 %111.41 %
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(1) Loans include both mortgage loans held for sale and loans held for investment.
(2)Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by total interest-earning assets.
Rate/Volume Analysis. The following table presents the effects of changing rates (yields) and volumes (average balances) on our net interest income for the fiscal years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
 For the Fiscal Years Ended September 30, 2022 vs. 2021For the Fiscal Years Ended September 30, 2021 vs. 2020
 Increase (Decrease)
Due to		Increase (Decrease)
Due to		 
 VolumeRateNetVolumeRateNet
 (In thousands)
Interest-earning assets:
  Interest-earning cash equivalents$(143)$2,648 $2,505 $944 $(2,180)$(1,236)
  Investment securities43 — 43 — — — 
  Mortgage-backed securities97 1,539 1,636 (1,566)(4,319)(5,885)
  Loans13,668 136 13,804 (18,112)(40,698)(58,810)
  Federal Home Loan Bank stock381 1,613 1,994 764 (780)(16)
Total interest-earning assets14,046 5,936 19,982 (17,970)(47,977)(65,947)
Interest-bearing liabilities:
  Checking accounts315 2,731 3,046 356 (693)(337)
  Savings accounts214 1,346 1,560 1,259 (6,042)(4,783)
  Certificates of deposit(7,106)(17,877)(24,983)(5,373)(32,430)(37,803)
  Borrowed funds6,419 (1,827)4,592 (8,923)(3,463)(12,386)
Total interest-bearing liabilities(158)(15,627)(15,785)(12,681)(42,628)(55,309)
Net change in net interest income$14,204 $21,563 $35,767 $(5,289)$(5,349)$(10,638)
Comparison of Operating Results for the Fiscal Years Ended September 30, 2022 and 2021
General. Net income of $74.6 million for the year ended September 30, 2022 decreased $6.4 million compared to $81.0 million for the year ended September 30, 2021. The decrease was primarily due to a larger credit loss provision required on the growing loan portfolio and a decrease in net gain on sale of loans.
Interest and Dividend Income. Interest and dividend income increased $19.9 million, or 5%, to $409.3 million during the year ended September 30, 2022 compared to $389.4 million during the prior year. Interest income on loans increased $13.8 million, or 4%, to $395.7 million for the year ended September 30, 2022 compared to $381.9 million for the year ended September 30, 2021. This increase was primarily attributed to a $458.0 million increase in the average balance of loans to $13.26 billion for the current year compared to $12.80 billion during the prior year.
Interest income on mortgage-backed securities increased $1.7 million, or 45%, to $5.5 million during the current year compared to $3.8 million during the year ended September 30, 2021. 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. During the fiscal year ended September 30, 2022, prepayment speeds of mortgage-backed securities were slowed due to the higher interest rate environment, which increased the principal balance of loans included in some of the mortgage-backed securities pools and hence the interest income generated from those bonds.
Interest Expense. Interest expense decreased $15.8 million, or 10%, to $141.9 million during the current year compared to $157.7 million during the year ended September 30, 2021. The decrease primarily resulted from a decrease in interest expense on certificates of deposits (CDs).
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Interest expense on CDs decreased $25.0 million, or 27%, to $68.2 million during the year ended September 30, 2022 compared to $93.2 million during the year ended September 30, 2021. The decrease was attributed primarily to a 30 basis point decrease in the average rate we paid on CDs to 1.17% during the current year from 1.47% during the prior year. Additionally, there was a $513.1 million, or 8%, decrease in the average balance of CDs to $5.83 billion from $6.34 billion during the prior year. 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. 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. 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. 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. The increase consisted of a $19.9 million increase in interest income and a $15.8 million reduction in interest expense.
Average interest-earning assets increased during the current year by $308.4 million, or 2%, when compared to the year ended September 30, 2021. Average interest-bearing liabilities increased by $219.4 million. 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 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. We recorded a provision to the allowance for credit losses of $1.0 million during the year ended September 30, 2022 compared to a $9.0 million release of provision from the allowance during the year ended September 30, 2021. 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. Future recoveries may continue if housing market conditions stay favorable and payment performance on previously charged-off loans continues. For the fiscal year ended September 30, 2022, we recorded net recoveries of $9.7 million, as compared to net recoveries of $5.2 million for the year ended September 30, 2021. The allowance for credit losses, including a $27.0 million liability for unfunded commitments under CECL, was $99.9 million, or 0.70% of the total amortized cost in loans receivable, at September 30, 2022. At September 30, 2021, the allowance, including a $25.0 million liability for unfunded commitments was $89.3 million, or 0.71% of the total amortized cost in loans receivable. Balances of amortized costs are net of deferred fees, expenses and any applicable loans-in-process. Refer to the Lending Activities section of the Overview and Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion.
Non-Interest Income. Non-interest income decreased $31.5 million, or 57%, to $23.8 million during the year ended September 30, 2022 compared to $55.3 million during the year ended September 30, 2021. The decrease in non-interest income was primarily due to a decrease in the net gain on sale of loans, which was $1.1 million during the year ended September 30, 2022, compared to $33.1 million during the year ended September 30, 2021. Loans sold during the fiscal year ended September 30, 2022 were $128.1 million compared to loan sales of $762.3 million during the year ended September 30, 2021. The decrease in loan sales was primarily due to the higher interest rate environment in 2022.
Non-Interest Expense. Non-interest expense increased $2.3 million, or 1%, to $198.1 million during the fiscal year ended September 30, 2022 compared to $195.8 million during the fiscal year ended September 30, 2021. This increase resulted primarily from increases in salary and employee benefits as well as marketing expenses, partially offset by a decrease in other expenses. The increase in salary and employee benefits was spread between associate compensation, group health insurance, and stock benefit plan expense.
Income Tax Expense. The provision for income taxes was $17.5 million during the year ended September 30, 2022 compared to $19.1 million during the year ended September 30, 2021. The change was a result of a higher deferred tax benefit compared to prior year. The provision for the current year included $17.1 million of federal income tax provision and $0.4 million of state income tax provision. The provision for the year ended September 30, 2021 included $17.5 million of federal
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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.
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. 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 Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of 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 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. 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, 2022, cash and cash equivalents totaled $369.6 million, which represented a decrease of 24% from September 30, 2021.
Investment securities classified as available for sale, which provide additional sources of liquidity, totaled $457.9 million at September 30, 2022.
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. 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, 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. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs, brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before September 30, 2023. 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, 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. We purchased $250.0 million of securities during the year ended September 30, 2022, and $297.5 million during the year
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ended September 30, 2021. Also, during the year ended September 30, 2022, we purchased long-term, fixed-rate first mortgage loans that had a remaining balance of $24.3 million at September 30, 2022.
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 decrease in total deposits of $72.6 million during the year ended September 30, 2022, which reflected the active management of the offered rates on maturing CDs compared to a net decrease of $231.9 million during the year ended September 30, 2021. 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, 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. 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. 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. 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. Existing advances and future advances with less than a one year term, including 90 day advances used to facilitate longer term interest rate swap agreements, will not be affected. We expect no impact to our ability to access funding.
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. Also, in evaluating funding alternatives, we may participate in the brokered deposit market. 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. 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.
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. 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 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard. In 2020, as part of its response to the impact of COVID-19, U.S. federal banking regulatory agencies issued a final rule which provides banking organizations that implement CECL during the 2020 calendar year the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period, which the Association and Company have adopted. During the two-year delay, the Association and Company 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. 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%. 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".
As of September 30, 2022, the Association exceeded 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
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strategies which encompass its share repurchase and dividend payment programs. The Company's primary source of liquidity is dividends received from the Association. The amount of dividends that the Association may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the FRB-Cleveland, cannot exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods. In December 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. 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.
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. 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. 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.
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.
Recent Accounting Pronouncements
Refer to Note 20. RECENT ACCOUNTING PRONOUNCEMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for pending and adopted accounting guidance.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk
General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk has historically been interest rate risk. In general, our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits and advances from the FHLB of Cincinnati. As a result, a fundamental component of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established risk parameter limits deemed appropriate given our business strategy, operating environment, capital, liquidity and performance objectives. Additionally, our Board of Directors has authorized the formation of an Asset/Liability Management Committee comprised of key operating personnel, which is responsible for managing this risk in a manner that is consistent with the guidelines and risk limits approved by the Board of Directors. 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. 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.
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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. At September 30, 2022, $9.7 million of agency-compliant, long-term, fixed-rate residential first mortgage loans were classified as "held for sale". 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.
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. 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. 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.
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. 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.
The Association evaluates funding source alternatives as it seeks to extend its liability duration. 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). 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. 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. 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. 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. The swap portfolio's weighted average fixed pay rate was 1.88% and the weighted average remaining term was 2.7 years. 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. 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. 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. The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumption that instantaneous changes (measured in basis points) occur at all maturities along the United States Treasury yield curve and other relevant market interest rates. A basis point equals one, one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 2% to 3% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The model is tailored specifically to our organization, which, we believe, improves its predictive accuracy. The following table presents the estimated changes in the Association’s EVE at September 30,
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2022 that would result from the indicated instantaneous changes in the United States Treasury yield curve and other relevant market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
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)
AmountPercent
 (Dollars in thousands)   
+300$698,469 $(629,633)(47.41)%5.18 %(390)
+200930,754 (397,348)(29.92)%6.71 %(237)
+1001,141,216 (186,886)(14.07)%8.01 %(107)
01,328,102 — — %9.08 %— 
-1001,479,861 151,759 11.43 %9.86 %78 
_________________
(1)Assumes an instantaneous uniform change in interest rates at all maturities.
(2)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)EVE Ratio represents EVE divided by the present value of assets.
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 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. By regulation, the Association must measure and manage its interest rate risk for interest rate shocks relative to established risk tolerances in EVE.
At September 30,
Risk Measure (+200 bp Rate Shock)20222021
     Pre-Shock EVE Ratio9.08 %12.97 %
     Post-Shock EVE Ratio6.71 %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. 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. 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.
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. 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. Factors contributing to this decline
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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. 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. While our core business activities, as described at the beginning of this paragraph, are generally intended to have a positive impact on our IRR profile, the actual impact is determined by a number of factors, including the pace of mortgage asset additions to our balance sheet (including consideration of outstanding commitments to originate those assets), in comparison to the pace of the addition of duration extending funding sources. 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. 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. 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. Changes to the methodology and/or assumptions used in the model will result in reported IRR profiles and reported IRR exposures that will be different, and perhaps significantly, from the results reported above.
Earnings at Risk. In addition to EVE calculations, we use our simulation model to analyze the sensitivity of our net interest income to changes in interest rates (the institution’s EaR). 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. 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. 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. 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. 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. 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.
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. In this regard, the interest rate risk information presented above assumes 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. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results. In addition to the preparation of computations as described above, we also formulate simulations based on a variety of non-linear changes in interest rates and a variety of non-constant balance sheet composition scenarios.
Other Considerations. The EVE and EaR analyses are similar in that they both start with the same month end balance sheet amounts, weighted average coupon and maturity. 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. EVE is a stochastic model using 150 different interest rate paths to compute market value at the account level for each of the categories on the balance sheet whereas EaR uses the implied forward curve to compute interest income/expense at the account level for each of the categories on the balance sheet.
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. It provides a long term view and helps to define changes in equity and duration as a result of changes in
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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. 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 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. In the event that there is a breach of policy limits that extends beyond two consecutive quarter end measurement periods, management is responsible for taking such action, similar to those described under the preceding heading of General, as may be necessary in order to return the Association's interest rate risk profile to a position that is in compliance with the policy. At September 30, 2022 the IRR profile as disclosed above was within our internal limits.

Item 8.Financial Statements and Supplementary Data
The Financial Statements are included in Part IV, Item 15 of this Form 10-K.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

Item 9A.Controls and Procedures
Disclosure Controls and Procedures
Under the supervision of and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report Regarding Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such terms are defined in Rule 13a-15(f) of the Exchange Act of 1934. Our system of internal controls is designed to provide reasonable assurance that the financial statements that we provide to the public are fairly presented.
Our internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Accordingly, absolute assurance cannot be provided that the effectiveness of the internal control systems may not become inadequate in future periods because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate.
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Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In making this assessment, the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) was utilized. Management concluded that the Company's internal control over financial reporting was effective as of September 30, 2022, based on those criteria.
The effectiveness of the Company's internal control over financial reporting as of September 30, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears therein.
The Sarbanes-Oxley Act Section 302 Certifications have been filed as Exhibit 31.1 and Exhibit 31.2 to this Annual Report on Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of TFS Financial Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of TFS Financial Corporation and subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our report dated November 22, 2022, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report Regarding Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Cleveland, Ohio
November 22, 2022

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Item 9B.Other Information
Not applicable.

PART III
Item 10.Directors, Executive Officers and Corporate Governance
Incorporated by reference from the Notice of Annual Meeting and Proxy Statement for the 2023 Annual Meeting of Shareholders (the “Proxy Statement”) sections entitled “Proposal One: Election of Directors,” “Executive Compensation,” “Delinquent Section 16(a) Reports” and “Corporate Governance.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report.
The table below sets forth information, as of September 30, 2022, regarding our executive officers other than Mr. Stefanski and Ms. Weil.
NameTitleAge
Kathleen (Kitty) M. DanckersChief Risk Officer60
Russell C. HolmesChief Retail Officer, the Association59
Susanne N. MillerChief Accounting Officer57
Timothy W. MulhernChief Financial Officer56
Andrew J. RubinoChief Information Officer, the Association47
Bradley T. StefanskiChief Strategy Officer, the Association34
Gavin B. StefanskiChief Lending Officer, the Association34
Cathy W. ZbanekChief Synergy Officer, the Association49
On March 28, 2022, Bradley T. Stefanski was appointed as Chief Strategy Officer of the Association and Gavin B. Stefanski was appointed Chief Lending Officer of the Association. Paul J. Huml retired from his position as Chief Financial Officer of the Company, effective January 14, 2022. In connection with his retirement, the Board of Directors appointed Mr. Timothy W. Mulhern, who was a manager of Finance for the Association, to the position of Chief Financial Officer of the Company. Ben S. Stefanski III resigned from the Board of Directors of the Association and the Company and from his position as Chief Marketing Officer of the Association in January 2022. The executive officers of the Company and the Association are elected annually and hold office until their respective successors are elected or until death, resignation, retirement or removal by the Board of Directors.
The Business Background of Our Executive Officers
The business experience for the past five years of each of our executive officers other than Mr. Stefanski and Ms. Weil is set forth below. Unless otherwise indicated, executive officers have held their positions for the past five years.
Kathleen (Kitty) M. Danckers has been with the Association since 1997, and was named Chief Risk Officer in June 2020. During her time with the Association, Ms. Danckers has served in various management roles including as a Regional Manager of Retail Operations, Manager of Information Services and Operations Support, and continues to serve as the Chief Information Security Officer. Ms. Danckers holds a BA in Computer Science, Mathematics and German from St. Catherine University. Ms. Danckers is a Fulbright Scholar.
Russell C. Holmes has been with the Association since 2013 in retail delivery management and was named Chief Retail Officer in 2020. He most recently served as Ohio regional manager, managing all branch and loan production offices in the state. With 35 years in the banking business, Mr. Holmes joined Third Federal from Key Bank where he served as SVP District Retail Leader for Eastern Ohio. He holds a BBA in Business Administration from the University of Akron, and received a Distinguished Business Alumni Award in 2009, and a Distinguished Alumni Award from the University’s multicultural department in 2013.
Susanne N. Miller joined the Association in 1998 and was appointed Chief Accounting Officer in 2020. During her time with the Association, Ms. Miller has held various retail and accounting roles, and served on company-wide strategic project teams. Since 2007, she has worked as a manager in the Accounting Department, overseeing procedure implementation, corporate tax reporting and financial statement preparation. Ms. Miller holds a BS in Accounting from the University of Akron.
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Timothy W. Mulhern was named the Chief Financial Officer in January 2022. Mr. Mulhern joined the Association in 2003 as a project manager where he led key strategic business initiatives including a state loan expansion project, and IT projects to replace the company’s front-end servicing application, and implementation of an updated loan origination system. Mr. Mulhern moved to IT management, then to operations where he managed various departments including Loan Servicing, Default Servicing and Deposit Operations. He was named the Chief Credit Officer in August 2018, and Director of Internal Audit in June 2019, where he earned his CIA credentials. Mr. Mulhern joined the Finance Department in February 2021. He holds a Bachelor’s Degree in Accounting from John Carroll University and an MBA from the Weatherhead School of Management at Case Western Reserve University. Prior to joining Third Federal, Mr. Mulhern was in public accounting with Coopers & Lybrand where he earned his CPA credentials (no longer active), and more than a decade as a small business owner.
Andrew J. Rubino has been with the Association since 2000, joining the company as a business analyst. He was named Chief Marketing Officer in 2020 and served in that role until being named Chief Information Officer on September 30, 2021. Mr. Rubino has held a variety of leadership positions throughout the company, including manager of loan production, customer service, internet services, and operations support. Additionally, he served as Information Security Officer. Mr. Rubino joined the marketing department in 2016, presiding over strategic initiatives and continued expansion of service areas and product offerings. He holds both a BS in Management Information Systems and an MBA from the University of Akron.
Bradley T. Stefanski has been with the Association since 2014, and was named Chief Strategy Officer in March 2022. He began his career at Third Federal in the Risk Management Department, working on the development of the company’s Market Risk Management Program, including modeling and testing; before moving to Loan Production and the branch system, where he spent four years in roles in Underwriting, retail management, and Operations Support project development. Mr. Stefanski then joined the Finance Department in 2021 to help drive strategic initiatives. He holds a BA in Sociology and Economics from Colgate University.
Gavin B. Stefanski joined the Association in 2018 in the Management Training Program, supporting the company’s branch system in Southern and Northeast Ohio. Mr. Stefanski was named Underwriting Manager in 2019, became Loan Production Manager in 2021, and was named Chief Lending Officer in March 2022. Prior to Third Federal, he managed multi-billion dollar and strategic clients for ODW Logistics, a national supply chain solutions company in Hamilton, Ohio, where he was responsible for developing and maintaining customized total freight management solutions driving high revenue growth for ODW. Mr. Stefanski holds a BS in Business from the Farmer School of Business at Miami University.
Cathy W. Zbanek joined the Association in 2001 and was named the Chief Marketing Officer in 2013 and the Chief Synergy Officer in 2020, and also serves as the Human Resources Officer for the Association. Prior to her current role, she directed several key strategic business projects as well as systems design and development. She also managed several departments, including Customer Service. Before joining the Association, Ms. Zbanek served as a senior consultant with Waterstone Consulting, working in their Management Consulting Group. Her experience also includes working with the consulting group, Price Waterhouse Coopers.
The Company has adopted a policy statement entitled CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS that applies to our chief executive officer and our senior financial officers. A copy of the CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS is available on our website, www.thirdfederal.com.

Item 11.Executive Compensation
Incorporated by reference from the sections of the Proxy Statement entitled “Executive Compensation,” “Report of the Compensation Committee,” and “Director Compensation.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference from the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report.
The Company’s only equity compensation program that was not approved by shareholders is its employee stock ownership plan, which was established in conjunction with our initial stock offering completed in 2007.
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The following table provides information as of September 30, 2022 regarding our Amended and Restated 2008 Equity Incentive Plan that was approved by shareholders on February 22, 2018. The original plan was approved by shareholders on May 29, 2008.
Plan CategoryNumber of Shares to be
Issued Upon Exercise of
Outstanding Options,
Rights and Warrants		Weighted-Average
Exercise Price of
Outstanding Options,
Rights and Warrants		Number of Shares
Remaining Available
for Future Issuance
Under the Plan
Equity Compensation Plans
Approved by Stockholders3,789 $9.43 (1)7,418,782 
Equity Compensation Plans
Not Approved by StockholdersN/AN/AN/A
Total3,789 $9.43 (1)7,418,782 
 ______________________
(1)Weighted-Average Exercise Price of Outstanding Options, Rights and Warrants is calculated using 1,257,898 shares of restricted stock awards at $0.00, 169,954 shares of performance share units at $0.00, and 2,361,175 shares of stock option awards at $15.14.

Item 13.Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference from the sections of the Proxy Statement entitled “Certain Relationships and Related Transactions” and “Corporate Governance.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report.

Item 14.Principal Accounting Fees and Services
Incorporated by reference from the section of the Proxy Statement entitled “Fees Paid to Deloitte & Touche LLP (PCAOB ID No. 34).” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report.


PART IV
Item 15.Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following documents are filed as part of this Annual Report on Form 10-K:
a.The consolidated financial statements of TFS Financial Corporation and subsidiaries contained in Part II, Item 8 of this Annual Report on Form 10-K:
•Consolidated Statements of Condition as of September 30, 2022 and 2021;
•Consolidated Statements of Income for the years ended September 30, 2022, 2021 and 2020;
•Consolidated Statements of Comprehensive Income for the years ended September 30, 2022, 2021 and 2020;
•Consolidated Statements of Shareholders' Equity for the years ended September 30, 2022, 2021 and 2020;
•Consolidated Statements of Cash Flows for the years ended September 30, 2022, 2021 and 2020; and
•Notes to the Consolidated Financial Statements
b.    The exhibits listed in the Exhibits Index beginning on Page 122 of this Annual Report on Form 10-K.

Item 16.Form 10-K Summary
Not applicable.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of TFS Financial Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of condition of TFS Financial Corporation and subsidiaries (the "Company") as of September 30, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 22, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses in 2021 due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The allowance for credit losses (“ACL”) is management’s estimate of expected credit losses in the loan portfolio, including off-balance sheet commitments. As of September 30, 2022, the Company’s loan portfolio totaled $14.3 billion, and the related ACL was $72.9 million. The Company’s off-balance sheet commitments totaled $4.7 billion, and the related ACL was $27.0 million. As described in Note 1 of the consolidated financial statements, as of October 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a forward-looking expected loss model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the Company’s loan portfolio. As discussed in Notes 1 and 5 of the consolidated financial statements, the ACL is an amount which represents management’s best estimate of expected credit losses over the contractual life of the Company’s loan portfolio as of the balance sheet date. The ACL is established using relevant available information, relating to past events, current conditions and reasonable and supportable forecasts. The Company utilizes loan level regression models with forecasted economic data to derive the probability of default and loss given default factors. These factors are used to calculate the loan level credit loss over a 24-month reasonable and supportable period with an immediate reversion to historical mean loss rates
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for the remaining life of the loans. Qualitative adjustments are then made to account for factors that management does not believe are captured in the CECL quantitative models. The determination of the appropriate level of the allowance for the loan portfolio inherently involves a high degree of subjectivity and requires significant estimates of current credit risks using both quantitative and qualitative analyses.

Auditing certain aspects of the ACL, including the (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, (5) interpretation of the results, and (6) use of qualitative adjustments, involves especially subjective and complex judgment. Given the significant judgment in determining the ACL estimate, performing audit procedures to evaluate the reasonableness of management’s estimate of the ACL requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Allowance for Credit Losses included the following, among others:

• We tested the effectiveness of controls over the Company’s (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, (5) interpretation of the results, and (6) use of qualitative adjustments.

• With the assistance of our credit specialists, we evaluated the reasonableness of the (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, and (5) interpretation of the results.

• We evaluated trends in the total ACL for consistency with trends in loan portfolio growth and credit performance.

• We tested the accuracy and completeness of key risk characteristics input into the model by agreeing to source information.

• We assessed the Company's method for determining the qualitative factor adjustments and the effect of those factors on the ACL compared with relevant credit risk factors and credit trends.



/s/ Deloitte & Touche LLP

Cleveland, Ohio
November 22, 2022

We have served as the Company's auditor since 2000.




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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
As of September 30, 2022 and 2021
(In thousands, except share data)
 
20222021
ASSETS
Cash and due from banks$18,961 $27,346 
Other interest-earning cash equivalents350,603 460,980 
Cash and cash equivalents369,564 488,326 
Investment securities available for sale (amortized cost $501,597 and $420,542, respectively)
457,908 421,783 
Mortgage loans held for sale ($9,661 and $0 measured at fair value, respectively)
9,661 8,848 
Loans held for investment, net:
Mortgage loans14,276,478 12,525,687 
Other loans3,263 2,778 
Deferred loan expenses, net50,221 44,859 
Allowance for credit losses on loans(72,895)(64,289)
Loans, net14,257,067 12,509,035 
Mortgage loan servicing assets, net7,943 8,941 
Federal Home Loan Bank stock, at cost212,290 162,783 
Real estate owned, net1,191 289 
Premises, equipment, and software, net34,531 37,420 
Accrued interest receivable40,256 31,107 
Bank owned life insurance contracts304,040 297,332 
Other assets95,428 91,586 
TOTAL ASSETS$15,789,879 $14,057,450 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits$8,921,017 $8,993,605 
Borrowed funds4,793,221 3,091,815 
Borrowers’ advances for insurance and taxes117,250 109,633 
Principal, interest, and related escrow owed on loans serviced29,913 41,476 
Accrued expenses and other liabilities84,139 88,641 
Total liabilities13,945,540 12,325,170 
Commitments and contingent liabilities
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding
— — 
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,582,741 and 280,761,299 outstanding at September 30, 2022 and September 30, 2021, respectively
3,323 3,323 
Paid-in capital1,751,223 1,746,887 
Treasury stock, at cost; 51,736,009 and 51,557,451 shares at September 30, 2022 and September 30, 2021, respectively
(771,986)(768,035)
Unallocated ESOP shares(31,417)(35,751)
Retained earnings—substantially restricted870,047 853,657 
Accumulated other comprehensive income (loss)23,149 (67,801)
Total shareholders’ equity1,844,339 1,732,280 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$15,789,879 $14,057,450 
See accompanying notes to consolidated financial statements.
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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For each of the three years in the period ended September 30, 2022
(In thousands, except share and per share data)
 
202220212020
INTEREST AND DIVIDEND INCOME:
Loans, including fees$395,691 $381,887 $440,697 
Investment securities available for sale5,501 3,822 9,707 
Other interest and dividend earning assets8,141 3,642 4,894 
Total interest and dividend income409,333 389,351 455,298 
INTEREST EXPENSE:
Deposits76,943 97,319 140,242 
Borrowed funds64,994 60,402 72,788 
Total interest expense141,937 157,721 213,030 
NET INTEREST INCOME267,396 231,630 242,268 
PROVISION (RELEASE) FOR CREDIT LOSSES1,000 (9,000)3,000 
NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES266,396 240,630 239,268 
NON-INTEREST INCOME:
Fees and service charges, net of amortization9,934 9,602 8,798 
Net gain on the sale of loans1,136 33,082 28,443 
Increase in and death benefits from bank owned life insurance contracts9,984 9,961 7,153 
Other2,750 2,654 8,857 
Total non-interest income23,804 55,299 53,251 
NON-INTEREST EXPENSE:
Salaries and employee benefits109,339 108,867 104,008 
Marketing services21,263 19,174 16,512 
Office property, equipment, and software26,783 25,710 25,296 
Federal insurance premium and assessments9,361 9,085 10,625 
State franchise tax4,859 4,663 4,690 
Other expenses26,541 28,336 31,143 
Total non-interest expense198,146 195,835 192,274 
INCOME BEFORE INCOME TAXES92,054 100,094 100,245 
INCOME TAX EXPENSE17,489 19,087 16,928 
NET INCOME$74,565 $81,007 $83,317 
Earnings per share
Basic$0.26 $0.29 $0.30 
Diluted$0.26 $0.29 $0.29 
Weighted average shares outstanding
Basic277,370,762 276,694,594 275,859,660 
Diluted278,686,365 278,576,254 277,803,058 
See accompanying notes to consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For each of the three years in the period ended September 30, 2022
(In thousands)
202220212020
Net income$74,565 $81,007 $83,317 
Other comprehensive income (loss), net of tax:
Net change in unrealized (losses) gains on securities available for sale(34,860)(3,733)6,859 
Net change in cash flow hedges127,093 56,096 (69,391)
Net change in defined benefit plan obligation(1,283)11,801 (54)
Total other comprehensive income (loss)90,950 64,164 (62,586)
Total comprehensive income$165,515 $145,171 $20,731 

See accompanying notes to consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For each of the three years in the period ended September 30, 2022
(In thousands, except share and per share data)
 Common
stock		Paid-in
capital		Treasury
stock		Unallocated
common stock
held by ESOP		Retained
earnings		Accumulated other
comprehensive income (loss)		Total
shareholders'equity
Balance at September 30, 2019$3,323 $1,734,154 $(764,589)$(44,417)$837,662 $(69,379)$1,696,754 
Comprehensive income
Net income
— — — — 83,317 — 83,317 
Other comprehensive (loss), net of tax— — — — — (62,586)(62,586)
ESOP shares allocated or committed to be released— 3,033 — 4,333 — — 7,366 
Compensation costs for equity incentive plans— 4,751 — — — — 4,751 
Purchase of treasury stock (20,500 shares)
— — (377)— — — (377)
Treasury stock allocated to (from) equity incentive plan— 776 (2,683)— — — (1,907)
Dividends declared to common shareholders ($1.11 per common share)
— — — — (55,465)— (55,465)
Balance at September 30, 20203,323 1,742,714 (767,649)(40,084)865,514 (131,965)1,671,853 
Comprehensive income
Cumulative effect from changes in
accounting principle, net of tax1
— — — — (35,763)— (35,763)
Net income
— — — — 81,007 — 81,007 
Other comprehensive income, net of tax— — — — — 64,164 64,164 
ESOP shares allocated or committed to be released— 3,936 — 4,333 — — 8,269 
Compensation costs for equity incentive plans— 5,442 — — — — 5,442 
Treasury stock allocated to (from) equity incentive plan— (5,205)(386)— — — (5,591)
Dividends declared to common shareholders ($1.1225 per common share)
— — — — (57,101)— (57,101)
Balance at September 30, 20213,323 1,746,887 (768,035)(35,751)853,657 (67,801)1,732,280 
Comprehensive income
Net income
— — — — 74,565 — 74,565 
Other comprehensive income, net of tax— — — — — 90,950 90,950 
ESOP shares allocated or committed to be released— 2,729 — 4,334 — — 7,063 
Compensation costs for equity incentive plans— 3,946 — — — — 3,946 
Purchase of treasury stock (337,259 shares)
— — (5,049)— — — (5,049)
Treasury stock allocated to (from) equity incentive plan— (2,339)1,098 — — — (1,241)
Dividends declared to common shareholders ($1.13 per common share)
— — — — (58,175)— (58,175)
Balance at September 30, 2022$3,323 $1,751,223 $(771,986)$(31,417)$870,047 $23,149 $1,844,339 

1 Related to ASU 2016-13 adopted October 1, 2020.
See accompanying notes to consolidated financial statements.
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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years in the period ended September 30, 2022
202220212020
CASH FLOWS FROM OPERATING ACTIVITIES:(In thousands)
Net income$74,565 $81,007 $83,317 
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense11,009 13,711 12,117 
Depreciation and amortization27,035 32,568 32,820 
Deferred income taxes(26,876)(14,249)21,802 
Provision (release) for credit losses1,000 (9,000)3,000 
Net gain on the sale of loans(1,136)(33,082)(28,443)
Net gain on sale of commercial property(181)— (4,665)
Other net (gains) losses810 689 (955)
Proceeds from sales of loans held for sale41,495 63,913 62,398 
Loans originated and principal repayments on loans held for sale(66,162)(67,024)(60,256)
Increase in bank owned life insurance contracts(8,432)(7,979)(6,289)
Net (increase) decrease in interest receivable and other assets(13,043)7,697 (17,970)
Net (decrease) increase in accrued expenses and other liabilities(1,155)14,904 24,922 
Net cash provided by operating activities38,929 83,155 121,798 
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated(5,273,730)(4,874,761)(4,255,580)
Principal repayments on loans3,447,529 4,756,761 3,549,803 
Proceeds from sales, principal repayments and maturities of:
Securities available for sale163,568 317,066 268,565 
Proceeds from sale of:
Loans87,671 739,699 765,874 
Real estate owned429 206 3,679 
Premises, equipment and other assets389 — 23,920 
Purchases of:
Bank-owned life insurance— (70,000)— 
FHLB stock(49,507)(25,990)(34,935)
Securities available for sale(250,022)(297,466)(171,464)
Premises, equipment, and software, net(2,700)(1,337)(3,207)
Other1,278 3,178 921 
Net cash (used in) provided by investing activities(1,875,095)547,356 147,576 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits(72,511)(231,949)459,170 
Net increase (decrease) in borrowers' advances for insurance and taxes7,617 (1,903)8,208 
Net (decrease) increase in principal and interest owed on loans serviced(11,563)(4,419)12,986 
Net increase (decrease) in short-term borrowed funds875,000 (525,000)(281,126)
Proceeds from Fed Funds purchased225,000 — — 
Proceeds from long-term borrowed funds600,000 100,000 250,000 
Repayment of long-term borrowed funds(3,646)(4,689)(350,110)
Cash collateral/settlements received from (provided to) derivative counterparties162,094 89,970 (87,827)
Acquisition of treasury shares(6,290)(5,591)(2,320)
Dividends paid to common shareholders(58,297)(56,637)(55,465)
Net cash provided by (used in) financing activities1,717,404 (640,218)(46,484)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(118,762)(9,707)222,890 
CASH AND CASH EQUIVALENTS—Beginning of year488,326 498,033 275,143 
CASH AND CASH EQUIVALENTS—End of year$369,564 $488,326 $498,033 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest on deposits$76,558 $98,535 $140,887 
Cash paid for interest on borrowed funds37,120 16,043 53,676 
Cash paid for interest on interest rate swaps29,138 45,031 18,436 
Cash paid for income taxes39,602 25,772 1,673 
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned1,283 330 1,751 
Transfer of loans from held for investment to held for sale86,077 698,917 778,059 
Transfer of loans from held for sale to held for investment22,741 — — 
Treasury stock issued for stock benefit plans2,412 5,310 776 
See accompanying notes to consolidated financial statements.
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TFS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended September 30, 2022, 2021, and 2020
(Dollars in thousands unless otherwise indicated)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business—TFS Financial Corporation, a federally chartered stock holding company, conducts its principal activities through its wholly owned subsidiaries. The principal line of business of the Company is retail consumer banking, including mortgage lending, deposit gathering, and other financial services. Third Federal Savings and Loan Association of Cleveland, MHC, its federally chartered mutual holding company parent, owned 80.95% of the outstanding shares of common stock of the Company at September 30, 2022.
The Company’s primary operating subsidiaries include the Association and Third Capital, Inc. The Association is a federal savings association, which provides retail loan and savings products to its customers in Ohio and Florida, through its 37 full-service branches, five loan production offices, customer service call center and internet site. The Association also provides savings products, purchase mortgages, first mortgage refinance loans, home equity lines of credit, and home equity loans in states outside of its branch footprint. The Association also acquires first mortgage loans through a correspondent lending partnership. Third Capital, Inc. was formed to hold non-thrift investments and subsidiaries, which included a limited liability company that acquires and manages commercial real estate. On October 31, 2019, the limited liability company sold the remaining two commercial office buildings it owned, for which the Company recorded pre-tax income of $4,665 in 2020, representing its share of the gain on sale.
The accounting and reporting policies of TFS Financial Corporation and its subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices within the thrift industry.
No material subsequent events have occurred requiring recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
The following is a description of the significant accounting and reporting policies, which the Company follows in preparing and presenting its consolidated financial statements.
Basis of Consolidation and Reporting —The consolidated financial statements of the Company include the accounts of TFS Financial Corporation and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents—Cash and cash equivalents consist of working cash on hand, and demand and interest bearing deposits at other financial institutions with maturities of three months or less. For purposes of reporting cash flows, cash and cash equivalents also includes federal funds sold, when applicable. The Company has acknowledged informal agreements with banks where it maintains deposits. Under these agreements, service fees charged to the Company are waived provided certain average compensating balances are maintained throughout each month.
Investment Securities—Our fixed-maturity securities are accounted for on an available-for-sale basis. Securities held as available-for-sale are reported at fair value, with the corresponding unrealized gains and (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Management determines the appropriate classification of investment securities based on its intent and ability to hold at the time of purchase. Purchases of securities are accounted for on a trade-date or settlement-date bases, depending on the settlement terms.
Realized gains and (losses) on securities are computed on a specific identification basis. Realized gains and (losses) also include changes in fair value on derivatives not designated as hedging instruments. Sales of securities are accounted for on a trade-date or settlement-date basis, depending on the settlement terms.
A decline in the fair value of any available for sale security, below cost, is evaluated for credit loss. Credit loss is recognized in earnings if management intends, or will more likely than not be required, to sell the security before the recovery of its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, then a credit loss exists and an allowance would be recognized as a credit loss expense, limited to the difference
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between fair value and amortized cost. Non-credit related loss is recognized in other comprehensive income, net of applicable deferred income taxes.
To determine whether a credit loss exists, the Company considers, among other things, adverse conditions related to the security, industry, geographic area, the payment schedule of the debt security and likelihood that the issuer will be able to make payments that increase in the future, failure of the issuer to make scheduled payments and all available information relevant to the securities collectability, changes in ratings assigned by a rating agency, and other credit enhancements that affect the securities expected performance.
Investment income consist of interest and accretion (net of amortization). Interest is recognized on an accrual basis using the level-yield method. Premiums and discounts are amortized using the level-yield method.
Derivative Instruments—Derivative instruments are carried at fair value in the Company's financial statements. For derivative instruments that are designated and qualify as cash flow hedges, changes in the fair value of the derivative instrument are reported as a component of other comprehensive income, net of tax, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The earnings effect of the hedging instrument will be presented in the same income statement line item as the earnings effect of the hedged item. Accumulated other comprehensive income will be adjusted to a balance that reflects the cumulative change in the fair value of the hedging instrument. At the inception of a hedge, the Company documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured, an evaluation of hedge transaction effectiveness and the benchmark interest rate or contractually specified interest rate being hedged.
Hedge accounting is discontinued prospectively when (1) a derivative is no longer highly effective in offsetting changes in the fair value or cash flow of a hedged item, (2) a derivative expires or is sold, (3) a derivative is de-designated as a hedge, because it is unlikely that a forecasted transaction will occur, or (4) it is determined that designation of a derivative as a hedge is no longer appropriate. When hedge accounting is discontinued, the Company would continue to carry the derivative on the statement of condition at its fair value; however, changes in its fair value would be recorded in earnings instead of through OCI.
For derivative instruments not designated as hedging instruments, the Company recognizes gains and (losses) on the derivative instrument in current earnings during the period of change.
Mortgage Banking Activity—Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Mortgage loans included in pending agency contracts to sell and securitize loans are carried at fair value. Fair value is based on quoted secondary market pricing for loan portfolios with similar characteristics and includes consideration of deferred fees (costs). Net unrealized gains or losses on loans carried at fair value, are recognized in a valuation allowance by charges to income.
The Company retains servicing on loans that are sold and initially recognizes an asset for mortgage loan servicing rights based on the fair value of the servicing rights. Residential mortgage loans represent the single class of servicing rights and are measured at the lower of cost or fair value on a recurring basis. Mortgage loan servicing rights are reported net of accumulated amortization, which is recorded in proportion to, and over the period of, estimated net servicing revenues. The Company monitors prepayments and changes amortization of mortgage servicing rights accordingly. Fair values are estimated using discounted cash flows based on current interest rates and prepayment assumptions, and impairment is monitored each quarterly reporting period. The impairment analysis is based on predominant risk characteristics of the loans serviced, such as type, fixed- and adjustable-rate loans, original terms and interest rates. The amount of impairment recognized is the amount by which the mortgage loan servicing assets exceed their fair value.
Servicing fee income net of amortization and other loan fees collected on loans serviced for others are included in Fees and service charges, net of amortization on the CONSOLIDATED STATEMENTS OF INCOME.
Loans and Related Deferred Loan Expenses, net—Loans originated with the intent to hold into the foreseeable future are carried at unpaid principal balances adjusted for partial charge-offs, the allowance for credit losses and net deferred loan expenses. Interest on loans is accrued and credited to income as earned. Interest on loans is not recognized in income when collectability is uncertain.
Loan fees and certain direct loan origination costs are deferred and recognized as an adjustment to interest income using the level-yield method over the contractual lives of related loans, if the loans are held for investment. If the loans are held for sale, net deferred fees (costs) are generally not amortized, but rather are recognized when the related loans are sold.
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Loans are classified as TDRs when the original contractual terms are restructured to provide a concession to a borrower experiencing financial difficulty under terms that would not otherwise be available and the restructuring is the result of an agreement between the Company and the borrower or is imposed by a court or law. Concessions granted in TDRs may include a reduction of the stated interest rate, a reduction or forbearance of principal, an extension of the maturity date, a significant delay in payments, the removal of one or more borrowers from the obligation, or any combination of these.
Allowance for Credit Losses—The allowance for credit losses represents the estimate of lifetime losses in our loan portfolio and off-balance sheet commitments. The allowance for credit losses is assessed on a quarterly basis and provisions (releases) for credit losses are made accordingly. The allowance is established using relevant available information, relating to past events, current conditions and supportable economic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency status or likely recovery of previous loan charge-offs. The allowance for credit losses is increased by recoveries and decreased by charge-offs. Also, qualitative adjustments were made to reflect expected recovery of loan amounts previously charged-off, beyond what the model is able to project.
For further discussion on the allowance for credit losses, non-accrual, impairment, and TDRs, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES.
Real Estate Owned, net—Real estate owned, net represents real estate acquired through foreclosure or deed in lieu of foreclosure and is initially recorded at fair value, less estimated costs to sell. Subsequent to acquisition, real estate owned is carried at the lower of cost or fair value, less estimated selling costs. Management performs periodic valuations and a valuation allowance is established by a charge to income for any excess of the carrying value over the fair value, less estimated costs to sell the property. Recoveries in fair value during the holding period are recognized until the valuation allowance is reduced to zero. Costs related to holding and maintaining the property are charged to expense.
Premises, Equipment, and Software, net—Depreciation and amortization of premises, equipment and software is computed on a straight-line basis over the estimated useful lives of the related assets. Estimated lives are 31.5 years for office facilities and three to 10 years for equipment and software. Amortization of leasehold or building improvements is computed on a straight-line basis over the lesser of the economic useful life of the improvement or term of the lease, typically 10 years.
Leases—At inception, all contracts are evaluated to determine if the arrangement contains a lease based on the terms and conditions. As a lessee, the Company recognizes leases with terms greater than one year on the CONSOLIDATED STATEMENTS OF CONDITION as lease assets (a right-of-use asset) and lease liabilities (a liability to make lease payments), measured on a discounted basis. For further discussion on leases, see Note 8. LEASES.
Bank Owned Life Insurance Contracts—Life insurance is provided under both whole and split dollar life insurance agreements. Policy premiums were prepaid and the Company will recover the premiums paid from the proceeds of the policies. The Company recognizes death benefits and growth in the cash surrender value of the policies in other non-interest income.
Goodwill—The excess of purchase price over the fair value of net assets of acquired companies is classified as goodwill and reported in Other Assets. Goodwill was $9,732 at September 30, 2022 and 2021. Goodwill is reviewed for impairment on an annual basis as of September 30. No impairment was identified as of September 30, 2022 or 2021.
Taxes on Income—Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Additional information about policies related to income taxes is included in Note 12. INCOME TAXES.
Deposits—Interest on deposits is accrued and charged to expense monthly and is paid or credited in accordance with the terms of the accounts.
Treasury Stock—Acquisitions of treasury stock through stock repurchases are recorded at cost using the cost method of accounting. Repurchases may be made through open market purchases, block trades and in negotiated private transactions, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. Repurchased shares will be available for general corporate purposes.
Accumulated Other Comprehensive Income (Loss)—AOCI consists of changes in pension obligations, changes in unrealized gains (losses) on securities available for sale and cash flow hedges, each of which is net of the related income tax
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effects. The Company's policy is to release income tax effects from AOCI only when the entire portfolio to which the underlying transactions relate to is liquidated, sold or extinguished.
Revenue from Contracts with Customers— The core principle of the guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. Three of the Company's revenue streams within scope of Topic 606 are the sales of REO, interchange income and deposit account and other transaction-based service fee income. Those streams are immaterial and therefore quantitative information regarding these streams is not disclosed.
Pension Benefits—The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts. Key assumptions used in the actuarial valuations include the discount rate and expected long-term rate of return on plan assets. Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions could materially affect future pension obligations and expense.
Share-Based Compensation—Compensation expense for awards of equity instruments is recognized on a straight-line basis over the requisite service period based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718 “Compensation—Stock Compensation”. All vested equity instruments are settled in stock. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits in the CONSOLIDATED STATEMENTS OF INCOME. Tax benefits or deficiencies recognized for the difference between realized deductions and cumulative book compensation cost on share-based compensation awards are included in operating cash flows on the CONSOLIDATED STATEMENTS OF CASH FLOW.
The grant date fair value of stock options is estimated using the Black-Scholes option-pricing model using assumptions for the expected option term, expected stock price volatility, risk-free interest rate, and expected dividend yield. Due to limited historical data on exercise of share options, the simplified method is used to estimate expected option term.
Marketing Costs—Marketing costs are expensed as incurred.
Earnings per Share—Basic EPS is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Outstanding shares include shares sold to subscribers, shares held by the Third Federal Foundation, shares of the Employee Stock Ownership Plan which have been allocated or committed to be released for allocation to participants, and shares held by Third Federal Savings, MHC. Unvested shares awarded in the Company's share-based compensation plan are treated as participating securities for purposes of the two-class method when they contain nonforfeitable rights to dividends, but are not included in the number of shares in the computation of basic EPS. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
Diluted EPS is computed using the same method as basic EPS, but the weighted-average number of shares reflects the potential dilution, if any, of unexercised stock options, unvested shares of performance share units and unvested shares of restricted stock units that could occur if stock options were exercised and performance share units and restricted stock units were issued and converted into common stock. These potentially dilutive shares would then be included in the number of weighted-average shares outstanding for the period using the treasury stock method. At September 30, 2022, 2021 and 2020, potentially dilutive shares include stock options, restricted stock units and performance share units issued through share-based compensation plans.
2. STOCK TRANSACTIONS
TFS Financial Corporation completed its initial public stock offering on April 20, 2007 and sold 100,199,618 shares, or 30.16% of its post-offering outstanding common stock, to subscribers in the offering. Third Federal Savings, MHC, the Company’s mutual holding company parent, holds 227,119,132 shares of TFS Financial Corporation’s outstanding common stock. TFS Financial Corporation issued 5,000,000 shares of common stock, or 1.50% of its post-offering outstanding common stock, to Third Federal Foundation.
Pursuant to the eighth repurchase program for the repurchase of 10,000,000 shares authorized by the Board of Directors in October, 2016, 337,259 shares were repurchased during the year ended September 30, 2022, no shares were repurchased during the year ended September 30, 2021 and 20,500 shares were repurchased during the year ended September 30, 2020. At September 30, 2022, there were 5,553,820 shares remaining to be purchased under the eighth repurchase program. The Company previously repurchased 51,300,000 shares of the Company’s common stock as part of the previous seven Board of Directors-approved share repurchase programs. In total, the Company has repurchased 55,746,180 shares of the Company's common stock as of September 30, 2022.
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3. REGULATORY MATTERS
The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Association. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios (set forth in table below) of common equity Tier 1, Tier 1, and Total capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to net average assets (as defined). The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet assets to broad risk categories.
In 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard. In 2020, as part of its response to the impact of COVID-19, U.S. federal banking regulatory agencies issued a final rule which provides banking organizations that implement CECL during the 2020 calendar year the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period, which the Association and Company have adopted. During the two-year delay, the Association and Company added back to 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. Subsequent to the two-year delay, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period. At September 30, 2022, the Association exceeded all regulatory capital requirements and is considered “well capitalized” under regulatory guidelines.
The Association operates under the capital requirements for the standardized approach of the Basel III capital framework for U.S. banking organizations (“Basel III Rules”), which limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5% in addition to the minimum capital requirements. At September 30, 2022, the Association exceeded the fully phased-in regulatory requirement for the "capital conservation buffer".
The following table summarizes the actual capital amounts and ratios of the Association as of September 30, 2022 and 2021, compared to the minimum capital adequacy requirements and the requirements for classification as a well capitalized institution.
   Minimum Requirements
 ActualFor Capital
Adequacy Purposes		To be “Well Capitalized”
Under Prompt Corrective
Action Provision
 AmountRatioAmountRatioAmountRatio
September 30, 2022
Total Capital to Risk-Weighted Assets$1,666,677 18.84 %$707,788 8.00 %$884,734 10.00 %
Tier 1 (Leverage) Capital to Net Average Assets1,614,615 10.33 %625,020 4.00 %781,275 5.00 %
Tier 1 Capital to Risk-Weighted Assets1,614,615 18.25 %530,841 6.00 %707,788 8.00 %
Common Equity Tier 1 Capital to Risk-Weighted Assets
1,614,615 18.25 %398,130 4.50 %575,077 6.50 %
September 30, 2021
Total Capital to Risk-Weighted Assets$1,629,192 21.00 %$620,637 8.00 %$775,796 10.00 %
Tier 1 (Leverage) Capital to Net Average Assets1,585,124 11.15 %568,751 4.00 %710,939 5.00 %
Tier 1 Capital to Risk-Weighted Assets1,585,124 20.43 %465,478 6.00 %620,637 8.00 %
Common Equity Tier 1 Capital to Risk-Weighted Assets
1,585,124 20.43 %349,108 4.50 %504,268 6.50 %
The Association paid dividends of $56,000 and $55,000 to the Company during the years ended September 30, 2022 and 2021, respectively.

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As permitted under interim final rules issued by the FRS on August 12, 2011, a majority of Third Federal Savings, MHC's members eligible to vote approved Third Federal Savings, MHC waiving dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 month following the special meeting of members held on July 12, 2022. Unless the FRS amends its interim rule, a member vote will be required for Third Federal Savings, MHC to waive its right to receive dividends beyond July 12, 2023.
4. INVESTMENT SECURITIES
Available-for-sale securities are summarized in the tables below. Accrued interest in the periods presented is $1,122 and $852 as of September 30, 2022 and September 30, 2021, respectively, and is reported in accrued interest receivable on the CONSOLIDATED STATEMENTS OF CONDITION.
 September 30, 2022
 Amortized
Cost		Gross
Unrealized		Fair
Value
 GainsLosses
REMICs$496,529 $1 $(43,262)$453,268 
Fannie Mae certificates1,011 14 (4)1,021 
U.S. Government and agency obligations4,057 — (438)3,619 
Total$501,597 $15 $(43,704)$457,908 
 September 30, 2021
 Amortized
Cost		Gross
Unrealized		Fair
Value
 GainsLosses
REMICs$415,149 $2,420 $(1,328)$416,241 
Fannie Mae certificates5,393 149 — 5,542 
Total$420,542 $2,569 $(1,328)$421,783 
 The following is a summary of our securities portfolio by remaining period to contractual maturity and yield at September 30, 2022. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. There were no securities with a maturity of one year or less for either year presented. Weighted average yields are not presented on a tax-equivalent basis and are calculated by multiplying each carry value by its yield and dividing the sum of these results by the total carry values. We did not hold any tax-free securities.
September 30, 2022September 30, 2021
Amortized CostFair ValueWeighted Average YieldAmortized CostFair ValueWeighted Average Yield
One to five years15,476 14,775 2.06 %18,373 18,680 1.83 %
Five to ten years38,927 37,204 2.30 %34,904 35,364 1.22 %
Ten years or greater447,194 405,929 2.25 %367,265 367,739 0.90 %
Total$501,597 $457,908 2.25 %$420,542 $421,783 0.96 %
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Gross unrealized losses on available- for- sale securities and the estimated fair value of the related securities, aggregated by the length of time the securities have been in a continuous loss position, at September 30, 2022 and 2021, were as follows: 
 September 30, 2022
 Less Than 12 Months12 Months or MoreTotal
Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss
Available for sale—
REMICs$261,795 $17,260 $190,739 $26,002 $452,534 $43,262 
Fannie Mae certificates217 4 — — 217 4 
U.S. Government and agency obligations3,619 438 — — 3,619 438 
Total$265,631 $17,702 $190,739 $26,002 $456,370 $43,704 
 September 30, 2021
 Less Than 12 Months12 Months or MoreTotal
 Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss
Available for sale—
  REMICs$201,279 $1,290 $6,261 $38 $207,540 $1,328 
The unrealized losses on investment securities were primarily attributable to an increase in interest rates. The contractual cash flows of REMICs are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, and the U.S. Treasury Department established financing agreements in 2008 to ensure Fannie Mae and Freddie Mac meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed.
Since the decline in value is primarily attributable to an increase in interest rates, and the financing agreements established by the U.S. Treasury Department ensures contractual cash flows obligations will be met, we did not record an allowance for credit losses with respect to securities as of September 30, 2022.
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
LOAN PORTFOLIOS
Loans held for investment consist of the following:
 September 30,September 30,
 20222021
Real estate loans:
Residential Core$11,539,859 $10,215,275 
Residential Home Today53,255 63,823 
Home equity loans and lines of credit2,633,878 2,214,252 
Construction121,759 80,537 
Real estate loans14,348,751 12,573,887 
Other loans3,263 2,778 
Add (deduct):
Deferred loan expenses, net50,221 44,859 
Loans-in-process (72,273)(48,200)
Allowance for credit losses on loans(72,895)(64,289)
Loans held for investment, net$14,257,067 $12,509,035 
Loans are carried at amortized cost, which includes outstanding principal balance adjusted for any unamortized premiums or discounts, net of deferred fees and expenses. Accrued interest is $39,124 and $30,255 as of September 30, 2022 and September 30, 2021, respectively, and is reported in accrued interest receivable on the CONSOLIDATED STATEMENTS OF CONDITION.
A large concentration of the Company’s lending is in Ohio and Florida. As of September 30, 2022 and September 30, 2021, the percentage of aggregate Residential Core, Home Today and Construction loans secured by properties in Ohio was
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56% and 55%, respectively, and the percentage of loans secured by properties in Florida was 18% as of both dates. As of September 30, 2022 and September 30, 2021, home equity loans and lines of credit were concentrated in the states of Ohio (27% and 29%, respectively), Florida (20% as of both dates), and California (16% and 15%, respectively).
Residential Core mortgage loans represent the largest portion of the residential real estate portfolio. The Company believes overall credit risk is low based on the nature, composition, collateral, products, lien position and performance of the portfolio. The portfolio does not include loan types or structures that have experienced severe performance problems at other financial institutions (sub-prime, no documentation or pay-option adjustable-rate mortgages). The portfolio contains "Smart Rate" adjustable-rate mortgage loans whereby the interest rate is locked initially for three or five years then resets annually, subject to periodic rate adjustments caps and various re-lock options available to the borrower. Although the borrower is qualified for its loan at a higher rate than the initial rate offered, the adjustable-rate feature may impact a borrower's ability to afford the higher payments upon rate reset during periods of rising interest rates while this repayment risk may be reduced in a declining or low rate environment. With limited historical loss experience compared to other types of loans in the portfolio, judgment is required by management in assessing the allowance required on adjustable-rate mortgage loans. The principal amount of adjustable-rate mortgage loans included in the Residential Core portfolio was $4,668,089 and $4,646,760 at September 30, 2022 and September 30, 2021, respectively.
Home Today was an affordable housing program targeted to benefit low- and moderate-income home buyers. Most loans under the program were originated prior to 2009. No new loans were originated under the Home Today program after September 30, 2016. Home Today loans have greater credit risk than traditional residential real estate mortgage loans.
Home equity loans and lines of credit, which are comprised primarily of home equity lines of credit, represent a significant portion of the residential real estate portfolio and include monthly principal and interest payments throughout the entire term. Once the draw period on lines of credit has expired, the accounts are included in the home equity loan balance. The full credit exposure on home equity lines of credit is secured by the value of the collateral real estate at the time of origination.
The Company originates construction loans to individuals for the construction of their personal single-family residence by a qualified builder (construction/permanent loans). The Company’s construction/permanent loans generally provide for disbursements to the builder or sub-contractors during the construction phase as work progresses. During the construction phase, the borrower only pays interest on the drawn balance. Upon completion of construction, the loan converts to a permanent amortizing loan without the expense of a second closing. Construction/permanent loans have a fixed or adjustable-rate and a current maximum loan-to-completed-appraised value ratio of 85%.
Other loans are comprised of loans secured by certificate of deposit accounts, which are fully recoverable in the event of non-payment, and forgivable down payment assistance loans, which are unsecured loans used as down payment assistance to borrowers qualified through partner housing agencies. The Company records a liability for the loans which are forgiven in equal increments over a pre-determined term, subject to residency requirements.
Loans held for sale include loans originated within the parameters of programs established by Fannie Mae, for sale to Fannie Mae, and loans originated for the held for investment portfolio that are later identified for sale. During the years ended September 30, 2022 and September 30, 2021, reclassifications to the held for sale portfolio included loans that were sold during the period, including those in contracts pending settlement at the end of the period, and loans originated for the held for investment portfolio that were later identified for sale. At September 30, 2022 and September 30, 2021, respectively, mortgage loans held for sale totaled $9,661 and $8,848. During the years ended September 30, 2022 and September 30, 2021, respectively, the principal balance of loans sold was $128,118 and $762,332. During the year ended September 30, 2022, the amortized cost of loans originated as held for sale that were subsequently transferred to the held for investment portfolio was $22,741. This transfer was due to changes in market pricing, affected by the rise in long-term interest rates, and managements' intent to hold the loans in portfolio until maturity or for the foreseeable future. During the years ended September 30, 2021 and September 30, 2020, there were no transfers to the held for investment portfolio.
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DELINQUENCY and NON-ACCRUAL
An aging analysis of the amortized cost in loan receivables that are past due at September 30, 2022 and September 30, 2021 is summarized in the following tables. When a loan is more than one month past due on its scheduled payments, the loan is considered 30 days or more past due, regardless of the number of days in each month. Balances are adjusted for deferred loan fees and expenses and any applicable loans-in-process. 
30-59 Days
Past Due		60-89 Days
Past Due		90 Days
or More
Past Due		Total Past
Due		CurrentTotal
September 30, 2022
Real estate loans:
Residential Core$2,725 $1,491 $9,281 $13,497 $11,545,784 $11,559,281 
Residential Home Today1,341 770 861 2,972 49,836 52,808 
Home equity loans and lines of credit1,599 796 2,321 4,716 2,661,416 2,666,132 
Construction— — — — 48,478 48,478 
Total real estate loans5,665 3,057 12,463 21,185 14,305,514 14,326,699 
Other loans— — — — 3,263 3,263 
Total$5,665 $3,057 $12,463 $21,185 $14,308,777 $14,329,962 
 
30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or More
Past Due		Total Past
Due		CurrentTotal
September 30, 2021
Real estate loans:
Residential Core$3,642 $2,263 $9,370 $15,275 $10,218,347 $10,233,622 
Residential Home Today948 961 2,068 3,977 59,432 63,409 
Home equity loans and lines of credit938 300 4,231 5,469 2,236,449 2,241,918 
Construction— — — — 31,597 31,597 
Total real estate loans5,528 3,524 15,669 24,721 12,545,825 12,570,546 
Other loans— — — — 2,778 2,778 
Total$5,528 $3,524 $15,669 $24,721 $12,548,603 $12,573,324 
Loans are placed in non-accrual status when they are contractually 90 days or more past due. The number of days past due is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment. Loans with a partial charge-off are placed in non-accrual and will remain in non-accrual status until, at a minimum, the loss is recovered. Loans restructured in TDRs that were in non-accrual status prior to the restructurings and loans with forbearance plans that were subsequently modified are reported in non-accrual status for a minimum of six months after restructuring. Loans restructured in TDRs with a high debt-to-income ratio at the time of modification are placed in non-accrual status for a minimum of 12 months. Additionally, home equity loans and lines of credit where the customer has a severely delinquent first mortgage loan and loans in Chapter 7 bankruptcy status where all borrowers have filed, and not reaffirmed or been dismissed, are placed in non-accrual status.
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The amortized cost of loan receivables in non-accrual status is summarized in the following table. Non-accrual with no ACL describes non-accrual loans which have no quantitative or individual valuation allowance, primarily because they have already been collaterally reviewed and any required charge-offs have been taken, but may be included in consideration of qualitative allowance factors. Balances are adjusted for deferred loan fees and expenses. There are no loans 90 or more days past due and still accruing at September 30, 2022 or September 30, 2021.
September 30, 2022September 30, 2021
Non-accrual with No ACLTotal
Non-accrual		Non-accrual with No ACLTotal
Non-accrual
Real estate loans:
Residential Core$20,995 $22,644 $23,748 $24,892 
Residential Home Today5,753 6,037 7,730 8,043 
Home equity loans and lines of credit6,668 6,925 9,992 11,110 
Total non-accrual loans$33,416 $35,606 $41,470 $44,045 
At September 30, 2022 and September 30, 2021, respectively, the amortized cost in non-accrual loans includes $23,159 and $28,385 which are performing according to the terms of their agreement, of which $13,526 and $16,495 are loans in Chapter 7 bankruptcy status, primarily where all borrowers have filed, and have not reaffirmed or been dismissed. At September 30, 2022 and September 30, 2021, real estate loans include $9,833 and $2,296, respectively, of loans that were in the process of foreclosure.
Interest on loans in accrual status is recognized in interest income as it accrues, on a daily basis. Accrued interest on loans in non-accrual status is reversed by a charge to interest income and income is subsequently recognized only to the extent cash payments are received. The Company has elected not to measure an allowance for credit losses on accrued interest receivable amounts since amounts are written off timely. Cash payments on loans in non-accrual status are applied to the oldest scheduled, unpaid payment first. The amount of interest income recognized on non-accrual loans was $740, and $929 for the years ended September 30, 2022 and September 30, 2021, respectively. Cash payments on loans with a partial charge-off are applied fully to principal, then to recovery of the charged off amount prior to interest income being recognized, except cash payments may be applied to interest capitalized in a restructuring when collection of remaining amounts due is considered probable. A non-accrual loan is generally returned to accrual status when contractual payments are less than 90 days past due. However, a loan may remain in non-accrual status when collectability is uncertain, such as a TDR that has not met minimum payment requirements, a loan with a partial charge-off, a home equity loan or line of credit with a delinquent first mortgage greater than 90 days past due, or a loan in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed.
ALLOWANCE FOR CREDIT LOSSES
For all classes of loans, a loan is considered collateral-dependent when, based on current information and events, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral or foreclosure is probable. Factors considered in determining that a loan is collateral-dependent may include the deteriorating financial condition of the borrower indicated by missed or delinquent payments, a pending legal action, such as bankruptcy or foreclosure, or the absence of adequate security for the loan.
Charge-offs on residential mortgage loans, home equity loans and lines of credit, and construction loans are recognized when triggering events, such as foreclosure actions, short sales, or deeds accepted in lieu of repayment, result in less than full repayment of the amortized cost in the loans.
Partial or full charge-offs are also recognized for the amount of credit losses on loans considered collateral-dependent when the borrower is experiencing financial difficulty as described by meeting the conditions below.

•For residential mortgage loans, payments are greater than 180 days delinquent;
•For home equity loans and lines of credit, and residential loans restructured in a TDR, payments are greater than 90 days delinquent;
•For all classes of loans in a TDR COVID-19 forbearance plan, original contractual payments are greater than 150 days delinquent;
•For all classes of loans restructured in a TDR with a high debt-to-income ratio at time of modification;
•For all classes of loans, a sheriff sale is scheduled within 60 days to sell the collateral securing the loan;
•For all classes of loans, all borrowers have been discharged of their obligation through a Chapter 7 bankruptcy;
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•For all classes of loans, within 60 days of notification, all borrowers obligated on the loan have filed Chapter 7 bankruptcy and have not reaffirmed or been dismissed;
•For all classes of loans, a borrower obligated on a loan has filed bankruptcy and the loan is greater than 30 days delinquent;
•For all classes of loans, a COVID-19 forbearance plan has been extended greater than 12 months;
•For all classes of loans in a COVID-19 repayment plan, modified contractual payments are greater than 90 days delinquent; and
•For all classes of loans, it becomes evident that a loss is probable.
Collateral-dependent residential mortgage loans and construction loans are charged-off to the extent the amortized cost in the loan, net of anticipated mortgage insurance claims, exceeds the fair value, less estimated costs to dispose of the underlying property. Management can determine if the loan is uncollectible for reasons such as foreclosures exceeding a reasonable time frame and recommend a full charge-off. Home equity loans or lines of credit are charged-off to the extent the amortized cost in the loan plus the balance of any senior liens exceeds the fair value, less estimated costs to dispose of the underlying property, or management determines the collateral is not sufficient to satisfy the loan. A loan in any portfolio identified as collateral-dependent will continue to be reported as such until it is no longer considered collateral-dependent, is less than 30 days past due and does not have a prior charge-off. A loan in any portfolio that has a partial charge-off will continue to be individually evaluated for credit loss until, at a minimum, the loss has been recovered.
Residential mortgage loans, home equity loans and lines of credit and construction loans restructured in TDRs that are not evaluated based on collateral are separately evaluated for credit losses on a loan by loan basis at each reporting date for as long as they are reported as TDRs. The credit loss evaluation is based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. Expected future cash flows include a discount factor representing a potential for default. Valuation allowances are recorded for the excess of the amortized costs over the result of the cash flow analysis. Loans discharged in Chapter 7 bankruptcy are reported as TDRs and also evaluated based on the present value of expected future cash flows unless evaluated based on collateral. These loans are evaluated using expected future cash flows because the borrower, not liquidation of the collateral, is expected to be the source of repayment for the loan. Other loans are not considered for restructuring.
At September 30, 2022 and September 30, 2021, respectively, allowances on individually reviewed TDRs (IVAs), evaluated for credit losses based on the present value of cash flows were $10,284 and $12,073. All other individually evaluated loans received a charge-off, if applicable.
The allowance for credit losses represents the estimate of lifetime losses in the loan portfolio and unfunded loan commitments. An allowance is established using relevant available information relating to past events, current conditions and supportable forecasts. The Company utilizes loan level regression models with forecasted economic data to derive the probability of default and loss given default factors. These factors are used to calculate the loan level credit loss over a 24-month period with an immediate reversion to historical mean loss rates for the remaining life of the loans.
Historical credit loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency status or likely recovery of previous loan charge-offs. Qualitative adjustments for expected changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors, are recognized when forecasted economic data used in the model differs from management's view or contains significant unobservable changes within a short period, particularly when those changes are directionally positive. Identifiable model limitations may also lead to qualitative adjustments, such as those made to reflect the expected recovery of loan amounts previously charged-off, beyond what the model is able to project. The qualitative adjustments resulted in a negative ending balance on the allowance for credit losses for the Home Today portfolio, where recoveries are expected to exceed charge-offs over the remaining life of that portfolio.The net qualitative adjustment at September 30, 2022 was a net reduction of $7,085. Adjustments are evaluated quarterly based on current facts and circumstances.
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Activity in the allowance for credit losses by portfolio segment is summarized as follows. See Note 15. COMMITMENTS AND CONTINGENT LIABILITIES for further details on the allowance for unfunded commitments.
 For the Year Ended September 30, 2022
 Beginning
Balance		Provisions (Releases)Charge-offsRecoveriesEnding
Balance
Real estate loans:
Residential Core$44,523 $6,298 $(247)$2,932 $53,506 
Residential Home Today15 (3,411)(249)2,648 (997)
Home equity loans and lines of credit19,454 (3,820)(954)5,352 20,032 
Construction297 (118)— 175 354 
Total real estate loans
64,289 (1,051)(1,450)11,107 72,895 
Total Unfunded Loan Commitments (1)
24,970 2,051 — — 27,021 
Total Allowance for Credit Losses$89,259 $1,000 $(1,450)$11,107 $99,916 
 For the Year Ended September 30, 2021
 Beginning
Balance		Adoption of ASU 2016-13Provisions (Releases)Charge-offsRecoveriesEnding
Balance
Real estate loans:
Residential Core$22,381 $23,927 $(2,205) $(1,965) $2,385  $44,523 
Residential Home Today5,654  (5,217)(2,232) (552) 2,362  15 
Home equity loans and lines of credit18,898  5,258 (7,627) (2,696) 5,621  19,454 
Construction4  127 146  —  20  297 
Total real estate loans
46,937  24,095 (11,918) (5,213) 10,388  64,289 
Total Unfunded Loan Commitments (1)
$— $22,052 $2,918 $— $— $24,970 
Total Allowance for Credit Losses$46,937 $46,147 $(9,000)$(5,213)$10,388 $89,259 
(1) Total allowance for unfunded loan commitments is recorded in other liabilities on the CONSOLIDATED STATEMENTS OF CONDITION and primarily relates to undrawn home equity lines of credit.



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CLASSIFIED LOANS
The following tables provide information about the credit quality of residential loan receivables by an internally assigned grade. Revolving loans reported at amortized cost include home equity lines of credit currently in their draw period. Revolving loans converted to term are home equity lines of credit that are in repayment. Equity loans and bridge loans are segregated by origination year. Loans, or the portions of loans, classified as loss are fully charged-off in the period in which they are determined to be uncollectible; therefore they are not included in the following table. No Home Today loans are classified Special Mention. All construction loans are classified Pass. Balances are adjusted for deferred loan fees and expenses and any applicable loans-in-process.
Revolving LoansRevolving Loans
By fiscal year of originationAmortizedConverted
20222021202020192018PriorCost BasisTo TermTotal
September 30, 2022
Real estate loans:
Residential Core
Pass$3,349,200 $2,251,075 $1,488,763 $629,090 $665,116 $3,141,907 $— $— $11,525,151 
Special Mention— 292 — 108 464 816 — — 1,680 
Substandard— 1,195 3,188 1,142 1,883 25,042 — — 32,450 
Total Residential Core3,349,200 2,252,562 1,491,951 630,340 667,463 3,167,765 — — 11,559,281 
Residential Home Today (1)
Pass— — — — — 45,408 — — 45,408 
Substandard— — — — — 7,400 — — 7,400 
Total Residential Home Today— — — — — 52,808 — — 52,808 
Home equity loans and lines of credit
Pass98,904 30,614 9,204 8,036 6,965 11,247 2,400,095 89,448 2,654,513 
Special Mention— 191 — — — — 898 640 1,729 
Substandard— — 54 20 19 127 2,996 6,674 9,890 
Total Home equity loans and lines of credit98,904 30,805 9,258 8,056 6,984 11,374 2,403,989 96,762 2,666,132 
Total Construction37,810 10,668 — — — — — — 48,478 
Total real estate loans
Pass3,485,914 2,292,357 1,497,967 637,126 672,081 3,198,562 2,400,095 89,448 14,273,550 
Special Mention— 483 — 108 464 816 898 640 3,409 
Substandard— $1,195 $3,242 $1,162 $1,902 $32,569 $2,996 $6,674 $49,740 
Total real estate loans$3,485,914 $2,294,035 $1,501,209 $638,396 $674,447 $3,231,947 $2,403,989 $96,762 $14,326,699 
(1) No new originations of Home Today loans since fiscal 2016.
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Revolving LoansRevolving Loans
By fiscal year of originationAmortizedConverted
20212020201920182017PriorCost BasisTo TermTotal
September 30, 2021
Real estate loans:
Residential Core
Pass$2,637,782 $1,807,652 $784,462 $860,150 $1,016,853 $3,042,398 $— $— $10,149,297 
Special Mention22,711 703 110 709 300 759 — — 25,292 
Substandard— 4,029 4,470 4,860 4,813 40,861 — — 59,033 
Total Residential Core2,660,493 1,812,384 789,042 865,719 1,021,966 3,084,018 — — 10,233,622 
Residential Home Today (1)
Pass— — — — — 53,076 — — 53,076 
Substandard— — — — — 10,333 — — 10,333 
Total Residential Home Today— — — — — 63,409 — — 63,409 
Home equity loans and lines of credit
Pass48,427 14,488 12,325 11,891 10,423 6,478 1,990,195 129,336 2,223,563 
Special Mention— — 13 — — 10 1,182 292 1,497 
Substandard— — 148 57 304 33 4,746 11,570 16,858 
Total Home equity loans and lines of credit48,427 14,488 12,486 11,948 10,727 6,521 1,996,123 141,198 2,241,918 
Construction
Pass26,587 3,890 — — — — — — 30,477 
Special Mention1,120 — — — — — — — 1,120 
Total Construction27,707 3,890 — — — — — — 31,597 
Total real estate loans
Pass2,712,796 1,826,030 796,787 872,041 1,027,276 3,101,952 1,990,195 129,336 12,456,413 
Special Mention23,831 703 123 709 300 769 1,182 292 27,909 
Substandard— 4,029 4,618 4,917 5,117 51,227 4,746 11,570 86,224 
Total real estate loans$2,736,627 $1,830,762 $801,528 $877,667 $1,032,693 $3,153,948 $1,996,123 $141,198 $12,570,546 
(1) No new originations of Home Today loans since fiscal 2016.
The home equity lines of credit converted from revolving to term loans during the years ended September 30, 2022 and September 30, 2021 totaled $436 and $6,088.
Residential loans are internally assigned a grade that complies with the guidelines outlined in the OCC’s Handbook for Rating Credit Risk. Pass loans are assets well protected by the current paying capacity of the borrower. Special Mention loans have a potential weakness, as evaluated based on delinquency status or nature of the product, that the Company deems to deserve management’s attention and may result in further deterioration in their repayment prospects and/or the Company’s credit position. Substandard loans are inadequately protected by the current payment capacity of the borrower or the collateral pledged with a defined weakness that jeopardizes the liquidation of the debt. Also included in Substandard are performing home equity loans and lines of credit where the customer has a severely delinquent first mortgage to which the performing home equity loan or line of credit is subordinate and all loans in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed. Loss loans are considered uncollectible and are charged-off when identified. Loss loans are of such little value that their continuance as bankable assets is not warranted even though partial recovery may be affected in the future.
At September 30, 2022 and September 30, 2021, respectively, $75,904 and $83,708 of TDRs individually evaluated for credit loss have adequately performed under the terms of the restructuring and are classified as Pass loans. At September 30, 2022 and September 30, 2021, respectively, $102 and $24,042 of loans classified as Special Mention are residential mortgage loans and home equity lines of credit identified, after origination, as being underwritten with altered income documentation, that have not yet demonstrated repayment performance over a minimum period. Substandard loans decreased between the periods presented primarily due to loans with forbearance plans extended greater than 12 months that are considered collateral dependent and classified substandard, for a minimum of one year, until a sustained period of repayment performance is satisfied. Loans classified substandard includes $5,381 and $28,029 of loans that had their forbearance term extended greater than 12 months regardless of forbearance plan status at September 30, 2022 and September 30, 2021, respectively.
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Other loans are internally assigned a grade of non-performing when they become 90 days or more past due. At September 30, 2022 and September 30, 2021, no other loans were graded as non-performing.
TROUBLED DEBT RESTRUCTURINGS
Initial concessions granted for loans restructured as TDRs may include reduction of interest rate, extension of amortization period, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also may occur as a result of bankruptcy proceedings. Loans discharged in Chapter 7 bankruptcy are classified as multiple restructurings if the loan's original terms had also been restructured by the Company. The amortized cost in TDRs by category as of September 30, 2022 and September 30, 2021 is shown in the tables below.
September 30, 2022Initial RestructuringMultiple
Restructurings		BankruptcyTotal
Residential Core$30,071 $17,583 $10,896 $58,550 
Residential Home Today10,359 11,485 1,995 23,839 
Home equity loans and lines of credit22,636 2,743 1,268 26,647 
Total$63,066 $31,811 $14,159 $109,036 
September 30, 2021Initial RestructuringMultiple
Restructurings		BankruptcyTotal
Residential Core$33,394 $20,499 $12,962 $66,855 
Residential Home Today12,640 13,409 2,556 28,605 
Home equity loans and lines of credit26,550 3,424 1,675 31,649 
Total$72,584 $37,332 $17,193 $127,109 
TDRs may be restructured more than once. Among other requirements, a subsequent restructuring may be available for a borrower upon the expiration of temporary restructuring terms if the borrower is unable to resume contractually scheduled loan payments. If the borrower is experiencing an income curtailment that temporarily has reduced their capacity to repay, such as loss of employment, reduction of work hours, non-paid leave or short-term disability, a temporary restructuring is considered. If the borrower lacks the capacity to repay the loan at the current terms due to a permanent condition, a permanent restructuring is considered. In evaluating the need for a subsequent restructuring, the borrower’s ability to repay is generally assessed utilizing a debt to income and cash flow analysis.
For all TDRs restructured during the years ended September 30, 2022 and September 30, 2021 (set forth in the tables below), the pre-restructured outstanding amortized cost was not materially different from the post-restructured outstanding amortized cost.
New TDRs decreased during recent periods as forbearance plan resolutions and subsequent modifications due to COVID-19 have become insignificant. The following tables set forth the amortized cost in TDRs restructured during the periods presented.
 For the Year Ended September 30, 2022
 Initial RestructuringMultiple
Restructurings		BankruptcyTotal
Residential Core$3,823 $1,533 $1,142 $6,498 
Residential Home Today202 1,071 45 1,318 
Home equity loans and lines of credit510 175 163 848 
Total$4,535 $2,779 $1,350 $8,664 
 For the Year Ended September 30, 2021
 Initial RestructuringMultiple
Restructurings		BankruptcyTotal
Residential Core$9,364 $1,981 $1,614 $12,959 
Residential Home Today362 1,432 103 1,897 
Home equity loans and lines of credit1,466 1,223 417 3,106 
Total$11,192 $4,636 $2,134 $17,962 
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 For the Year Ended September 30, 2020
 Initial RestructuringMultiple
Restructurings		BankruptcyTotal
Residential Core$4,334 $3,233 $1,831 $9,398 
Residential Home Today1,112 1,962 610 3,684 
Home equity loans and lines of credit1,984 815 454 3,253 
Total$7,430 $6,010 $2,895 $16,335 
The table below summarizes information about TDRs restructured within 12 months of the period presented for which there was a subsequent payment default, at least 30 days past due on one scheduled payment, during the periods presented.
 For the Year Ended September 30, 2022For the Year Ended September 30, 2021For the Year Ended September 30, 2020
TDRs That Subsequently DefaultedNumber of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment
Residential Core5 $780 6 $948 9 $1,394 
Residential Home Today5 90 7 194 9 441 
Home equity loans and lines of credit2 108 1 42 4 282 
Total12 $978 14 $1,184 22 $2,117 
6. MORTGAGE LOAN SERVICING RIGHTS
The Company sells certain types of loans through whole loan sales and through securitizations. In each case, the Company retains a servicing interest in the loans or securitized loans. Certain assumptions and estimates are used to determine the fair value allocated to these retained interests at the date of transfer and at subsequent measurement dates. These assumptions and estimates include loan repayment rates and discount rates.
Changes in interest rates can affect the average life of loans and mortgage-backed securities and the related servicing rights. A reduction in interest rates normally results in increased prepayments, as borrowers refinance their debt in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that the Company may not be able to reinvest the proceeds of loan and securities prepayments at rates that are comparable to the rates earned on the loans or securities prior to receipt of the repayment.
During 2022, 2021 and 2020, $128,118, $796,512 and $810,116, respectively, of mortgage loans were securitized and/or sold including accrued interest thereon. In these transactions, the Company retained residual interests in the form of mortgage loan servicing rights. Primary economic assumptions used to measure the value of the Company’s retained interests at the date of sale resulting from the completed transactions were as follows (per annum):
20222021
Primary prepayment speed assumptions (weighted average annual rate)11.9 %13.9 %
Weighted average life (years)24.122.9
Amortized cost to service loans (weighted average)0.12 %0.12 %
Weighted average discount rate12 %12 %
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Key economic assumptions and the sensitivity of the current fair value of mortgage loan servicing rights to immediate 10% and 20% adverse changes in those assumptions are as presented in the following table. The three key economic assumptions that impact the valuation of the mortgage loan servicing rights are: (1) the prepayment speed, or how long the mortgage servicing right will be outstanding; (2) the estimate of servicing costs that will be incurred in fulfilling the mortgage servicing right responsibilities; and (3) the discount factor applied to future net cash flows to convert them to present value. The Company established these factors based on independent analysis of our portfolio and reviews these assumptions periodically to ensure that they reasonably reflect current market conditions and our loan portfolio experience.
 September 30, 2022
Fair value of mortgage loan servicing rights$15,288 
Prepayment speed assumptions (weighted average annual rate)15.0 %
Impact on fair value of 10% adverse change$(567)
Impact on fair value of 20% adverse change$(1,083)
Estimated prospective annual cost to service loans (weighted average)0.12 %
Impact on fair value of 10% adverse change$(1,320)
Impact on fair value of 20% adverse change$(2,640)
Discount rate12.0 %
Impact on fair value of 10% adverse change$(528)
Impact on fair value of 20% adverse change$(1,017)
These sensitivities are hypothetical and should be used with caution. As indicated in the table above, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship in the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which could magnify or counteract the sensitivities.
Servicing rights are evaluated periodically for impairment based on the fair value of those rights. Twenty-two risk tranches are used in evaluating servicing rights for impairment, segregated primarily by interest rate stratum within original term to maturity categories with additional strata for less uniform account types.
Activity in mortgage servicing rights is summarized as follows: 
 Year Ended September 30,
 202220212020
Balance—beginning of year$8,941 $7,860 $8,080 
   Additions from loan securitizations/sales 657 3,836 1,613 
   Amortization (1)
(1,655)(2,764)(1,824)
   Net change in valuation allowance— 9 (9)
Balance—end of year$7,943 $8,941 $7,860 
Fair value of capitalized amounts$15,288 $17,454 $12,487 
(1) Year ended September 30, 2021 and 2020 amounts include $199 and $1,063 respectively, related to the repurchase of loans previously sold and serviced by the Company.
The Company receives annual servicing fees ranging from 0.02% to 0.98% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing rights, included in non-interest income, amounted to $4,251 in 2022, $3,260 in 2021 and $3,365 in 2020. The unpaid principal balance of mortgage loans serviced for others was approximately $2,051,110, $2,262,875 and $2,007,319 at September 30, 2022, 2021 and 2020, respectively. The ratio of capitalized servicing rights to the unpaid principal balance of mortgage loans serviced for others was 0.39%, 0.40%, and 0.39% at September 30, 2022, 2021 and 2020, respectively.
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7. PREMISES, EQUIPMENT AND SOFTWARE, NET
Premises, equipment and software at cost are summarized as follows: 
 September 30,
 20222021
Land$8,610 $8,688 
Office buildings61,312 60,661 
Furniture, fixtures and equipment39,899 39,266 
Software20,048 19,962 
Leasehold improvements11,071 10,768 
140,940 139,345 
Less: accumulated depreciation and amortization(106,409)(101,925)
Total$34,531 $37,420 
During the years ended September 30, 2022, 2021 and 2020, depreciation and amortization expense on premises, equipment, and software was $5,393, $5,422 and $5,435, respectively.
The Company, as lessor, previously leased certain commercial office buildings. The office buildings and land were sold during the year ended September 30, 2020. The Company's share of the gain on the sale was $4,665. During the year ended September 30, 2020, rental income was $5, and appears in other non-interest income in the accompanying statements. Depreciation expense on the buildings during fiscal 2020 was $48. There was no activity for 2022 and 2021.
8. LEASES
As a lessee, the Company enters into operating leases of buildings and land. The Company occupies certain banking branches, loan production and customer service offices and a disaster recovery site through non-cancellable operating leases with remaining terms from less than one year to 14 years. Most of the leases have fixed payment terms with annual fixed-escalation clauses. Certain leases have annual rent escalations based on subsequent year-to-year changes in the consumer price index. These year-to-year changes in the consumer price index are excluded from the calculation of right-of-use assets and lease liabilities and recognized as expense in the period in which they are incurred. Additionally, all variable lease costs that are not based on an index or rate, such as "common area maintenance" costs, are expensed as incurred. Most of the Company's leases include options to extend for periods that range from three to 10 years. The leases do not have early-termination options. The Company has not included term extensions in the calculation of the lease term, as the Company does not consider it reasonably certain that the options will be exercised. As the interest rate implicit in all of the Company's lease contracts is not readily determinable, the Company utilized its incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term on an amount equal to the total contractual lease payments in a similar economic environment. The incremental borrowing rate utilized for all the Company's leases is the FHLB Advance rate based on the lease term at commencement in determining the present value of lease payments.
Operating lease expense for the years ended September 30, 2022 and 2021, totaled $5,576 and $5,351, respectively. Variable lease expense for the years ended September 30, 2022 and 2021, totaled $1,479 and $1,374, respectively. During the years ended September 30, 2022 and 2021, the Company paid $5,572 and $5,354, respectively, in cash for amounts included in the measurement of lease liabilities. As of September 30, 2022 and 2021, the Company has not entered into any material leases that have not yet commenced.
The following table summarizes information relating to the Company's operating leases:
September 30,
20222021
Right-of-use assets (a)$30,189 $27,923 
Lease liabilities (b)$15,775 $18,461 
Weighted Average Remaining Lease Term5.06 years5.51 years
Weighted Average Discount Rate1.49 %1.51 %
(a) Included in Other assets in the CONSOLIDATED STATEMENTS OF CONDITION
(b) Included in Accrued expenses and other liabilities in the CONSOLIDATED STATEMENTS OF CONDITION
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The following table summarizes the maturities of lease liabilities at the periods presented:
September 30,
20222021
Maturing in:
12 months or less$4,953 $5,128 
13 to 24 months3,903 4,334 
25 to 36 months3,044 3,400 
37 to 48 months1,810 2,570 
49 to 60 months591 1,321 
over 60 months2,230 2,640 
Total minimum lease payments16,531 19,393 
Less imputed interest756 932 
Total lease liabilities$15,775 $18,461 
9. DEPOSITS
Deposit account balances are summarized by interest rate as follows: 
 Stated
Interest
Rate		September 30,
 20222021
AmountPercentAmountPercent
Checking accounts
0.00–1.00%
$1,210,035 13.6 %$1,132,910 12.6 %
Savings accounts, excluding money market accounts
0.00–1.05
1,364,821 15.3 1,263,309 14.0 
Money market accounts
0.00–1.05
481,650 5.4 563,931 6.3 
Subtotal3,056,506 34.3 2,960,150 32.9 
Certificates of deposit
0.00–0.99
3,157,495 35.4 3,335,102 37.1 
1.00–1.99
1,002,227 11.2 808,105 9.0 
2.00–2.99
1,320,579 14.8 1,574,939 17.5 
3.00 and above
381,973 4.3 313,457 3.5 
5,862,274 65.7 6,031,603 67.1 
Subtotal8,918,780 100.0 8,991,753 100.0 
Accrued interest2,237 — 1,852 — 
Total deposits$8,921,017 100.0 %$8,993,605 100.0 %
At September 30, 2022 and 2021, the weighted average interest rate was 0.81% and 0.09% on checking accounts; 0.79% and 0.12% on savings accounts; 0.95% and 0.19% on money market accounts; 1.37% and 1.26% on certificate of deposit, respectively; and 1.18% and 0.89% on total deposits, respectively.
The aggregate amount of CD's in denominations of $250 or more was $733,301 and $693,375 at September 30, 2022 and 2021, respectively. In accordance with the DFA, the maximum amount of deposit insurance is $250 per depositor.
Brokered CD's (exclusive of acquisition costs and subsequent amortization), which are used as an additional funding alternative, totaled $575,236 and $491,994 at September 30, 2022 and 2021, respectively. The FDIC places restrictions on banks with regard to issuing brokered deposits based on the bank's capital classification. As a well-capitalized institution at September 30, 2022 and September 30, 2021, the Association may accept brokered deposits without FDIC restrictions.
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The scheduled maturity of certificates of deposit is as follows:
 September 30, 2022
 AmountPercentWeighted
Average
Rate
12 months or less$3,015,505 51.5 %1.02 %
13 to 24 months1,015,842 17.3 %1.51 %
25 to 36 months814,248 13.9 %1.49 %
37 to 48 months476,759 8.1 %1.50 %
49 to 60 months510,856 8.7 %2.81 %
Over 60 months29,064 0.5 %1.32 %
     Total$5,862,274 100.0 %1.36 %
Interest expense on deposits is summarized as follows: 
 Year Ended September 30,
 202220212020
Certificates of deposit$68,204 $93,187 $130,990 
Checking accounts4,186 1,140 1,477 
Savings and Money Market accounts4,553 2,992 7,775 
     Total$76,943 $97,319 $140,242 
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10. BORROWED FUNDS
At September 30, 2022, the Association had a maximum borrowing capacity of $9,237,184, of which $4,793,221 was outstanding. 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. The Association also has the ability to purchase Fed Funds through arrangements with other institutions. Finally, the ability to borrow from the FRB-Cleveland Discount Window is available to the Association and is secured by a pledge of specific loans in the Association’s mortgage portfolio.
Total borrowings at September 30, 2022 are summarized in the table below:
Borrowing CapacityBorrowings AvailableBorrowings Outstanding
FHLB$8,474,183 $3,912,447 $4,561,736 
FRB Cleveland168,001 168,001 — 
Fed Funds Purchased595,000 370,000 225,000 
Subtotal$9,237,184 $4,450,448 4,786,736 
Accrued Interest6,485 
Total Borrowings$4,793,221 
Maturities of borrowings at September 30, 2022 are summarized in the table below:
AmountWeighted Average Rate
Maturing in:
12 months or less$2,225,182 2.93 %
13 to 24 months775,000 1.50 %
25 to 36 months625,000 1.42 %
37 to 48 months500,789 1.97 %
49 to 60 months
600,000 2.72 %
over 60 months60,765 2.93 %
Total Advances$4,786,736 2.38 %
Accrued interest6,485 
     Total$4,793,221 
All borrowings have fixed rates during their term ranging up to 240 months. Interest is payable monthly for long-term advances and at maturity for FHLB three-month advances and overnight advances. The table above reflects the effective maturities and fixed interest rates of the $1,550,000 of short-term FHLB advances that are tied to interest rate swaps discussed in Note 17. DERIVATIVE INSTRUMENTS.
For the years ended September 30, 2022, 2021 and 2020, net interest expense related to short-term borrowings was $49,828, $50,975 and $61,058, respectively.
In March 2021, the Association received a second consecutive “Needs to Improve” rating on its Community Reinvestment Act (CRA) examination covering the period ending December 31, 2019. The FHFA practice is to place member institutions in this situation on restriction. When this restriction is established, the Association will not have access to FHLB long-term advances (maturities greater than one year) until the rating improves. However, the Association has not received the notice of this restriction as of November 22, 2022. Existing advances and future advances with less than a one year term, including 90 day advances used to facilitate longer term interest rate swap agreements, will not be affected. The Association does not expect any impact to its ability to access funding.
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11. OTHER COMPREHENSIVE INCOME (LOSS)
The change in AOCI by component is as follows:
Unrealized Gains (Losses) on Securities Available for SaleCash Flow HedgesDefined Benefit PlanTotal
Fiscal year 2020 activity
Balance at September 30, 2019$(2,165)$(44,915)$(22,299)$(69,379)
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(22,316)
6,859 (88,948)(1,862)(83,951)
Amounts reclassified, net of tax expense (benefit) of $5,680
— 19,557 1,808 21,365 
Other comprehensive income (loss)6,859 (69,391)(54)(62,586)
Balance at September 30, 2020$4,694 $(114,306)$(22,353)$(131,965)
Fiscal year 2021 activity
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $8,656
(3,733)20,914 9,937 27,118 
Amounts reclassified, net of tax expense (benefit) of $9,907
— 35,182 1,864 37,046 
Other comprehensive income (loss) (3,733)56,096 11,801 64,164 
Balance at September 30, 2021$961 $(58,210)$(10,552)$(67,801)
Fiscal year 2022 activity
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $21,242
(34,860)109,452 (1,665)72,927 
Amounts reclassified, net of tax expense (benefit) of $5,212
— 17,641 382 18,023 
Other comprehensive income (loss) (34,860)127,093 (1,283)90,950 
Balance at September 30, 2022$(33,899)$68,883 $(11,835)$23,149 
The following table presents the reclassification adjustment out of AOCI included in net income and the corresponding line item on the CONSOLIDATED STATEMENTS OF INCOME for the periods indicated:
Details about AOCI ComponentsFor the Years Ended September 30,Line Item in the Statement of Income
202220212020
Cash flow hedges:
Interest (income) expense$22,740 $44,534 $24,757  Interest expense
Net income tax effect(5,099)(9,352)(5,200) Income tax expense
Net of income tax expense (benefit)$17,641 $35,182 $19,557 
Amortization of defined benefit plan:
Actuarial loss$495 $2,419 $2,288 (a)
Net income tax effect(113)(555)(480) Income tax expense
Net of income tax expense 382 1,864 1,808 
Total reclassifications for the period$18,023 $37,046 $21,365 
(a) These items are included in the computation of net period pension cost. See Note 13. EMPLOYEE BENEFIT PLANS for additional disclosure.
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12. INCOME TAXES
The components of the income tax provision are as follows: 
 Year Ended September 30,
 202220212020
Current tax expense (benefit):
Federal$41,812 $31,043 $(5,237)
State2,553 2,230 473 
Deferred tax expense (benefit):
Federal(24,691)(13,548)20,487 
State(2,185)(638)1,205 
Income tax provision$17,489 $19,087 $16,928 
Reconciliation from tax at the federal statutory rate to the income tax provision is as follows: 
 Year Ended September 30,
 202220212020
Tax at statutory rate21.0 %21.0 %21.0 %
State tax, net0.3 1.3 1.3 
Non-taxable income from bank owned life insurance contracts(2.3)(2.1)(1.5)
Non-deductible compensation1.4 0.9 1.1 
Equity based compensation(0.1)(1.3)(0.5)
NOL carryback claim rate benefit under CARES Act— — (3.6)
Other, net (1.3)(0.7)(0.9)
     Income tax provision19.0 %19.1 %16.9 %
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that gave rise to significant portions of net deferred taxes relate to the following: 
 September 30,
 20222021
Deferred tax assets:
Loan loss reserve$27,659 $25,728 
Deferred compensation4,198 4,159 
Lease liability3,599 4,227 
Property, equipment and software basis difference1,413 1,263 
Other2,220 2,259 
Total deferred tax assets39,089 37,636 
Deferred tax liabilities:
FHLB stock basis difference5,017 5,036 
Mortgage servicing rights1,551 1,699 
Pension 2,119 2,220 
Goodwill2,132 2,137 
Lease ROU asset3,514 4,142 
Deferred loan costs, net of fees13,371 11,606 
Other2,219 2,051 
Total deferred tax liabilities29,923 28,891 
Net deferred tax asset$9,166 $8,745 
In the accompanying CONSOLIDATED STATEMENTS OF CONDITION the net deferred tax asset is included in Other assets.
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A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. There was no valuation allowance required at September 30, 2022 or 2021.
Retained earnings at September 30, 2022 and 2021 included approximately $104,861 for which no provision for federal or state income tax has been made. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. However, recapture would not occur upon the reorganization, merger, or acquisition of the Association, nor if the Association is merged or liquidated tax-free into a bank or undergoes a charter change. If the Association fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income.
The provisions of Accounting for Uncertainty in Income Taxes, codified within FASB ASC 740 “Income Taxes,” prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Tax positions must meet a more-likely-than-not recognition threshold in order for the related tax benefit to be recognized or continue to be recognized. As of September 30, 2022 and 2021, the Company had no unrecognized tax benefits. The Company does not anticipate the total amount of unrecognized tax benefits to significantly change within the next twelve months.
The Company recognizes interest and penalties on income tax assessments or income tax refunds, where applicable, in the financial statements as a component of its provision for income taxes. The Company recognized $0, $9, and $0 interest expense or penalties on income tax assessments, and $34, $116, and $0 of interest on income tax refunds related to net operating loss carrybacks during the years ended September 30, 2022, 2021 and 2020, respectively. There was no interest related to income tax assessments accrued at September 30, 2022 or 2021.
The Company’s effective income tax rate was 19.0%, 19.1% and 16.9% for the years ended September 30, 2022, 2021 and 2020, respectively. The increase in the effective rate for the year ended September 30, 2021 compared to the same period during fiscal 2020 is primarily due to the impact of a CARES Act provision, which permitted a carry back of net tax operating losses to years taxed at higher rates, and resulted in a tax benefit of $3,607 during the year ended September 30, 2020. This is offset by an increase in permanent tax benefits from BOLI contracts.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and city jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations in its major jurisdictions for tax years prior to 2019.
The Company makes certain investments in limited partnerships which invest in affordable housing projects that qualify for the Low Income Housing Tax Credit ("LIHTC"). The Company acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnership. The Company accounts for its interests in LIHTCs using the proportional amortization method. The impact of the Company's investments in tax credit entities on the provision for income taxes was not material for the years ended September 30, 2022, 2021 and 2020.
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13. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan—The Third Federal Savings Retirement Plan (the “Plan”) is a defined benefit pension plan. Effective December 31, 2002, the Plan was amended to limit participation to employees who met the Plan’s eligibility requirements on that date. Effective December 31, 2011, the Plan was amended to freeze future benefit accruals for participants in the Plan. After December 31, 2002, employees not participating in the Plan, upon meeting the applicable eligibility requirements, and those eligible participants who no longer receive service credits under the Plan, participate in a separate tier of the Company’s defined contribution 401(k) Savings Plan. Benefits under the Plan are based on years of service and the employee’s average annual compensation (as defined in the Plan) through December 31, 2011. The funding policy of the Plan is consistent with the funding requirements of U.S. federal and other governmental laws and regulations. During the fiscal years ending 2022 and 2021, a settlement adjustment was recognized as a result of lump sum payments exceeding the interest costs for the year.
The following table sets forth the change in projected benefit obligation for the defined benefit plan: 
 September 30,
 20222021
Projected benefit obligation at beginning of year$88,276 $94,941 
Interest cost2,628 2,536 
Actuarial (gain) loss and other(19,783)(2,273)
Settlement(4,292)(5,112)
Benefits paid(1,814)(1,816)
Projected benefit obligation at end of year$65,015 $88,276 
The following table reconciles the beginning and ending balances of the fair value of Plan assets and presents the funded status of the Plan recognized in the CONSOLIDATED STATEMENTS OF CONDITION at the September 30 measurement dates. There were no employer contributions in the years ending September 30, 2022 and 2021.
 September 30,
 20222021
Fair value of plan assets at beginning of year$97,971 $89,275 
Actual return on plan assets(17,823)15,624 
Benefits paid(1,814)(1,816)
Settlement(4,292)(5,112)
Fair value of plan assets at end of year$74,042 $97,971 
Funded status of the plan—asset (liability)$9,027 $9,695 
The components of net periodic cost recognized in other non-interest expense in the CONSOLIDATED STATEMENTS OF INCOME are as follows: 
 Year Ended September 30,
 202220212020
Interest Cost$2,628 $2,536 $2,797 
Expected return on plan assets(4,987)(4,997)(4,652)
Amortization of net loss and other576 1,466 2,288 
Recognized net loss due to settlement882 792 1,174 
     Net periodic benefit (income) cost$(901)$(203)$1,607 
There were no contributions, required minimum or voluntary, made during the fiscal year ended September 30, 2022.
Plan assets consist of investments in mutual funds and pooled separate accounts that invest in fixed securities such as asset backed securities, commercial mortgage backed securities and corporate bonds, in addition to some short-term securities such as commercial paper. The Plan reallocated some of its investments to long duration fixed income mutual funds as a strategy to reduce risk in the portfolio as funded status remains elevated. As the mutual funds invested in are traded in active markets with readily available prices, these types of investments are included in level 1 of the fair value hierarchy. Pooled separate accounts
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are valued at net asset value per share at the reporting date. The fair values of the underlying investments used to determine net asset value of the pooled separate accounts are primarily based on pricing from an independent third party pricing source. In accordance with Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient are not classified in the fair value hierarchy described in Note 16. FAIR VALUE.
During fiscal years ending 2022 and 2021, the fair value of mutual funds were valued at $30,271 and $0, respectively, in level 1 of the fair value hierarchy. The following tables present the fair value of pooled separate account assets:
September 30,
20222021
 Fair Value
(in thousands)		Unfunded CommitmentsRedemption Frequency
(if currently eligible)		Redemption Notice PeriodFair Value
(in thousands)		Unfunded CommitmentsRedemption Frequency
(if currently eligible)		Redemption Notice Period
Pooled Separate Accounts$43,771 N/ADaily7 days$97,971 N/ADaily7 days
There are no redemption restrictions on Plan assets at September 30, 2022. Redemptions may be deferred for a longer period if conditions do not permit an orderly transfer or for certain investments of an illiquid nature.
The following additional information is provided with respect to the Plan: 
 September 30,
 202220212020
Assumptions and dates used to determine benefit obligations:
Discount rate5.35 %2.85 %2.65 %
Rate of compensation increasen/an/an/a
Assumptions used to determine net periodic benefit cost:
Discount rate4.60 %2.80 %3.20 %
Long-term rate of return on plan assets5.50 %5.50 %6.00 %
Rate of compensation increase (graded scale)n/an/an/a
The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions for the corresponding fiscal year end. Management evaluates the historical performance of the various asset categories, as well as current expectations in determining the adequacy of the assumed rates of return in meeting Plan obligations. If warranted, the assumption is modified.
The following table provides estimates of expected future benefit payments during each of the next five fiscal years, as well as in the aggregate for years six through ten. Additionally, the table includes the minimum employer contributions expected during the next fiscal year: 
Expected Benefit Payments During the Fiscal Years Ending September 30: 
2023$5,750 
20244,530 
20254,260 
20264,300 
20274,360 
Aggregate expected benefit payments during the five fiscal year period beginning October 1, 2028, and ending September 30, 203223,540 
Minimum employer contributions expected to be paid during the fiscal year ending September 30, 2023— 
For the fiscal years ended September 30, 2022, 2021, and 2020, AOCI includes pretax net actuarial losses of $15,255, $13,686, and $28,843, respectively, which have not been recognized as components of net periodic benefit costs as of the measurement date. The Company expects that $1,020 of net actuarial losses will be recognized as AOCI components of net periodic benefit cost during the fiscal year ended September 30, 2023.
401(k) Savings Plan—The Company maintains a 401(k) savings plan that is comprised of three tiers. The first tier allows eligible employees to contribute up to 75% of their compensation to the plan, subject to limitations established by the Internal
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Revenue Service, with the Company matching 100% of up to 4% on funds contributed. The second tier permits the Company to make a profit-sharing contribution at its discretion. The first and second tiers cover substantially all employees who have reached age 18 and have worked 1,000 hours in one year of service. The third tier permits the Company to make discretionary contributions allocable to eligible employees including those eligible employees who are participants, but no longer receiving service credits, under the Company’s defined benefit pension plan. Voluntary contributions made by employees are vested at all times whereas Company contributions and Company matching contributions are subject to various vesting periods which range from immediately vested to fully vesting upon five years of service.
The total of the Company’s matching and discretionary contributions related to the 401(k) savings plan for the years ended September 30, 2022, 2021 and 2020 was $4,295, $4,187 and $4,042, respectively.
Employee (Associate) Stock Ownership Plan—The Company established an ESOP for its employees effective January 1, 2006. The ESOP is a tax-qualified plan designed to invest primarily in the Company’s common stock and provides employees with an opportunity to receive a funded retirement benefit, based on the value of the Company’s common stock. The ESOP covers all eligible employees of the Company and its wholly-owned subsidiaries. Employees are eligible to participate in the ESOP after attainment of age 18, completion of 1,000 hours of service, and employment on the last day of the plan’s calendar year. Company contributions to the plan are at the discretion of the Board of Directors. The ESOP is accounted for in accordance with the provisions for stock compensation in FASB ASC 718. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants. The total compensation expense related to this plan in the 2022, 2021 and 2020 fiscal years was $7,063, $8,270 and $7,367, respectively.
The ESOP was authorized to purchase, and did purchase, 11,605,824 shares of the Company’s common stock at a price of $10 per share with a 2006 plan year cash contribution and the proceeds of a loan from the Company to the ESOP. The outstanding loan principal balance as of September 30, 2022 and 2021 was $41,927 and $46,454, respectively. Shares of the Company’s common stock pledged as collateral for the loan are released from the pledge for allocation to participants as loan payments are made. At September 30, 2022, 8,139,108 shares have been allocated to participants and 325,005 shares were committed to be released. Shares that are committed to be released will be allocated to participants at the end of the plan year (December 31). ESOP shares that are unallocated or not yet committed to be released totaled 3,141,711 at September 30, 2022, and had a fair market value of $40,842. Participants have the option to receive dividends on allocated shares in cash or leave the dividend in the ESOP. Dividends are reinvested in Company stock for those participants who choose to leave their dividends in the ESOP or who do not make an election. The purchase of Company stock for reinvestment of dividends is made in the open market on or about the date of the cash disbursement to the participants who opt to take dividends in cash. Dividends on unallocated shares held in the Employer Stock fund were paid to the trustee to be used to make payments on the outstanding loan obligation.
14. EQUITY INCENTIVE PLAN
The TFS Financial Corporation Amended and Restated 2008 Equity Incentive Plan, approved by shareholders in February 2018 and the 2008 Equity Incentive Plan, approved by shareholders in May 2008, are collectively referred to as the "Equity Plan”. The amended and restated plan is substantially similar to the previous plan, except that the number of future shares eligible to be granted has been reduced to 8,450,000 shares, of which 7,418,782 shares remain available for future award, and the term to grant shares has been extended to February 21, 2028.
The Company recorded excess tax benefits of $109, $1,331, and $485 related to share-based compensation awards for the years ended September 30, 2022, 2021 and 2020, respectively.
The following table presents share-based compensation expense and the related tax benefit recognized during the periods presented:
Year Ended September 30,
202220212020
Restricted stock units expense$3,206 $4,160 $3,303 
Performance share units expense739 1,214 917 
Stock option expense— 68 531 
Total stock-based compensation expense$3,945 $5,442 $4,751 
Tax benefit related to share-based compensation expense$677 $999 $824 
Restricted stock units vest over a one to 10 year service period. The product of the number of units granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock units under the Equity Plan. The
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Company recognizes compensation expense for the fair value of restricted stock units on a straight-line basis over the requisite service period.
The following is a summary of the status of the Company’s restricted stock units as of September 30, 2022 and changes therein during the year then ended:
Number of
Shares
Awarded		Weighted
Average
Grant Date
Fair Value
Outstanding at September 30, 20211,281,910 $14.21 
     Granted126,200 $17.80 
     Released(124,662)$17.53 
     Forfeited(25,550)$17.77 
Outstanding at September 30, 2022 (1)1,257,898 $14.17 
(1) Includes 765,748 shares with a weighted average grant date fair value of $11.87 that have vested but will not be issued until the recipients are no longer employed by the Company.
The weighted average grant date fair value of restricted stock units granted during the years ended September 30, 2022, 2021 and 2020 was $17.80, $17.77 and $19.76 per share, respectively. The total fair value of restricted stock units vested during the years ended September 30, 2022, 2021 and 2020 was $2,058, $6,981, and $1,676, respectively. Expected future compensation expense relating to the non-vested restricted stock units at September 30, 2022 is $3,598 over a weighted average period of 1.86 years.
Performance share units vest in the form of Company common stock issued at the end of a three-year period, based on the pro-rata achievement of performance based metrics over a two-year period. The range of payout is zero to 150% of the number of share units granted. For performance stock units, fair value is estimated as the product of the number of performance units granted, adjusted for the probability of achievement, and the grant date market price of the Company’s common stock. The Company recognizes compensation expense for the fair value of performance share units on a straight-line basis over the requisite service period, based on the performance condition that is probable of achievement. Probability of achievement is reassessed at each reporting period and the cumulative effect of a change in estimate, if any, is recognized in the period of change. Cash dividend equivalents are accrued and paid only if and when the underlying units become vested and payable.
The following is a summary of the status of the Company’s performance share units as of September 30, 2022 and changes therein during the year then ended. No awards were forfeited during the year ended September 30, 2022. 
Number of
Shares
Awarded		Weighted
Average
Grant Date
Fair Value
Outstanding at September 30, 2021182,069 17.46
     Granted53,100 17.80
     Released(71,692)15.54
     Performance adjustment6,477 19.76
Outstanding at September 30, 2022169,954 18.46
The weighted average grant date fair value of performance share units granted during the year ended September 30, 2022, 2021 and 2020 was $17.80, $17.77, and $19.76, respectively. The total fair value of performance share units vested during the years ended September 30, 2022, 2021 and 2020, respectively, totaled $1,112, $14, and $0. Expected future compensation expense relating to the non-vested performance share units at September 30, 2022 is $1,031 over a weighted average period of 1.83 years.
Stock options have a contractual term of 10 years and vest over a one to seven year service period. The Company recognizes compensation expense for the fair values of these awards, which have installment vesting, on a straight-line basis over the requisite service period of the awards.
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The following is a summary of the Company’s stock option activity and related information for the Equity Plan for the year ended September 30, 2022. There were no stock options granted during 2022, 2021 and 2020.
Number of
Stock Options		Weighted
Average
Exercise
Price		Weighted
Average
Remaining
Contractual
Life (years)		Aggregate
Intrinsic
Value
Outstanding at September 30, 20212,463,300 $14.98 4.25$10,095 
     Exercised(99,525)$11.16 $551 
     Forfeited(2,600)$15.82 $— 
Outstanding at September 30, 20222,361,175 $15.14 3.32$429 
Vested and exercisable, at September 30, 20222,361,175 $15.14 3.32$429 
Vested or expected to vest, at September 30, 20222,361,175 $15.14 3.32$429 
The total intrinsic value of options exercised during the years ended September 30, 2022, 2021 and 2020 was $551, $8,605 and $3,941. There were no non-vested options outstanding as of September 30, 2022. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.
15. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company enters into commitments with off-balance-sheet risk to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to originate loans generally have fixed expiration dates of 60 to 360 days or other termination clauses and may require payment of a fee. Unfunded commitments related to home equity lines of credit generally expire from five to 10 years following the date that the line of credit was established, subject to various conditions including compliance with payment obligation, adequacy of collateral securing the line and maintenance of a satisfactory credit profile by the borrower. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Off-balance sheet commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the CONSOLIDATED STATEMENTS OF CONDITION. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Company generally uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The allowance for credit losses related to off-balance sheet commitments is recorded in other liabilities in the CONSOLIDATED STATEMENTS OF CONDITION. Refer to Note 5. LOANS AND ALLOWANCES FOR CREDIT LOSSES for discussion on credit loss methodology. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Company since the time the commitment was made.
At September 30, 2022, the Company had commitments to originate loans and related allowances as follows: 
CommitmentAllowance
Fixed-rate mortgage loans$229,194 $930 
Adjustable-rate mortgage loans152,057 616 
Equity loans and lines of credit157,465 1,977 
Total$538,716 $3,523 

At September 30, 2022, the Company had unfunded commitments outstanding and related allowances as follows: 
CommitmentAllowance
Home equity lines of credit$4,084,843 $22,876 
Construction loans72,273 623 
Total$4,157,116 $23,499 
At September 30, 2022, the unfunded commitment on home equity lines of credit, including commitments for accounts suspended as a result of material default or a decline in equity, is $4,105,486.
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The above commitments are expected to be funded through normal operations.
The Company is undergoing an escheat audit covering Ohio and Kentucky. Any potential loss that may result from this matter is not reasonably estimable at September 30, 2022.
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.
16. FAIR VALUE
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under current market conditions. A fair value framework is established whereby assets and liabilities measured at fair value are grouped into three levels of a fair value hierarchy, based on the transparency of inputs and the reliability of assumptions used to estimate fair value. The three levels of
inputs are defined as follows:

Level 1 –  quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 –
  quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with few transactions, or model-based valuation techniques using assumptions that are observable in the market.
Level 3 –  a company’s own assumptions about how market participants would price an asset or liability.
As permitted under the fair value guidance in U.S. GAAP, the Company elects to measure at fair value mortgage loans classified as held for sale that are subject to pending agency contracts to securitize and sell loans. This election is expected to reduce volatility in earnings related to market fluctuations between the contract trade and settlement dates. At September 30, 2022 and September 30, 2021, respectively, there were no pending agency contracts held for sale. For the years ended September 30, 2022, 2021, and 2020, net gain (loss) on the sale of loans includes $0, $134 and $2,026, respectively, related to unrealized gains or losses during the period due to changes in the fair value of loans held for sale subject to pending agency contracts.
Presented below is a discussion of the methods and significant assumptions used by the Company to estimate fair value.
Investment Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis. At September 30, 2022 and 2021, respectively, this includes $457,908 and $421,783 of investments in U.S. government and agency obligations including U.S. Treasury notes and highly liquid collateralized mortgage obligations issued by Fannie Mae, Freddie Mac, and Ginnie Mae, both measured using the market approach. The fair values of investment securities represent unadjusted price estimates obtained from third party independent nationally recognized pricing services using pricing models or quoted prices of securities with similar characteristics and are included in Level 2 of the hierarchy. Third party pricing is reviewed on a monthly basis for reasonableness based on the market knowledge and experience of company personnel that interact daily with the markets for these types of securities.
Mortgage Loans Held for Sale—The fair value of mortgage loans held for sale is estimated on an aggregate basis using a market approach based on quoted secondary market pricing for loan portfolios with similar characteristics. Loans held for sale are carried at the lower of cost or fair value except, as described above, the Company elects the fair value measurement option for mortgage loans held for sale subject to pending agency contracts to securitize and sell loans. Loans held for sale are included in Level 2 of the hierarchy. At September 30, 2022 and 2021, there were $9,661 and $0, respectively, of loans held for sale measured at fair value and $0 and $8,848, respectively, of loans held for sale carried at cost. Interest income on mortgage loans held for sale is recorded in interest income on loans.
Collateral-dependent Loans—Collateral-dependent loans represent certain loans held for investment that are subject to a fair value measurement under U.S. GAAP because they are individually evaluated using a fair value measurement, such as the fair value of the underlying collateral. Credit loss is measured using a market approach based on the fair value of the collateral, less estimated costs to dispose, for loans the Company considers to be collateral-dependent due to a delinquency status or other adverse condition severe enough to indicate that the borrower can no longer be relied upon as the continued source of repayment. These conditions are described more fully in Note 5. LOANS AND ALLOWANCES FOR CREDIT LOSSES. To calculate the credit loss of collateral-dependent loans, the fair market values of the collateral, estimated using exterior appraisals in the majority of instances, are reduced by calculated estimated costs to dispose, derived from historical experience and recent market conditions. Any indicated credit loss is recognized by a charge to the allowance for credit losses. Subsequent increases in collateral values or principal pay downs on loans with recognized credit loss could result in a collateral-dependent loan being
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carried below its fair value. When no credit loss is indicated, the carrying amount is considered to approximate the fair value of that loan to the Company because contractually that is the maximum repayment the Company can expect. The amortized cost of loans individually evaluated for credit loss based on the fair value of the collateral are included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis. The range and weighted average impact of estimated costs to dispose on fair values is determined at the time of credit loss or when additional credit loss is recognized and is included in quantitative information about significant unobservable inputs later in this note.
Loans held for investment that have been restructured in TDRs, are performing according to the restructured terms of the loan agreement and are not evaluated based on collateral, are individually evaluated for credit loss using the present value of future cash flows based on the loan’s effective interest rate, which is not a fair value measurement. At September 30, 2022 and 2021, respectively, this included $76,692 and $84,594 in amortized costs of TDRs with related allowances for loss of $10,284 and $12,073.
Real Estate Owned—Real estate owned includes real estate acquired as a result of foreclosure, or by deed in lieu of foreclosure, and is carried at the lower of the cost basis or fair value, less estimated costs to dispose. The carrying amounts of real estate owned at September 30, 2022 and September 30, 2021 were $1,191 and $289, respectively. Fair value is estimated under the market approach using independent third party appraisals. As these properties are actively marketed, estimated fair values may be adjusted by management to reflect current economic and market conditions. At September 30, 2022 and 2021, these adjustments were not significant to reported fair values. At September 30, 2022 and 2021, respectively, $1,192 and $66 of real estate owned is included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis where the cost basis equals or exceeds the estimate of fair values less costs to dispose of these properties. Real estate owned includes estimated costs to dispose of $156 and $9 related to properties measured at fair value and $155 and $231 of properties carried at their original or adjusted cost basis at September 30, 2022 and 2021, respectively.
Derivatives—Derivative instruments include interest rate locks on commitments to originate loans for the held for sale portfolio, forward commitments on contracts to deliver mortgage loans, and interest rate swaps designated as cash flow hedges. Derivatives not designated as cash flow hedges are reported at fair value in Other assets or Other liabilities on the CONSOLIDATED STATEMENT OF CONDITION with changes in value recorded in current earnings. Derivatives qualifying as cash flow hedges are settled daily, bringing their fair value to $0. Refer to Note 17. DERIVATIVE INSTRUMENTS for additional information on cash flow hedges. The fair value of interest rate lock commitments is adjusted by a closure rate based on the estimated percentage of commitments that will result in closed loans. The range and weighted average impact of the closure rate is included in quantitative information about significant unobservable inputs later in this note. A significant change in the closure rate may result in a significant change in the ending fair value measurement of these derivatives relative to their total fair value. Because the closure rate is a significantly unobservable assumption, interest rate lock commitments are included in Level 3 of the hierarchy. Forward commitments on contracts to deliver mortgage loans are included in Level 2 of the hierarchy.
Assets and liabilities carried at fair value on a recurring basis in the CONSOLIDATED STATEMENTS OF CONDITION at September 30, 2022 and 2021 are summarized below. There are no liabilities carried at fair value at September 30, 2021.
  Recurring Fair Value Measurements at Reporting Date Using
 September 30,
2022		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets
Investment securities available for sale:
REMIC’s$453,268 $— $453,268 $— 
Fannie Mae certificates1,021 — 1,021 — 
              U.S. government and agency obligations3,619 $— 3,619 — 
Total$457,908 $— $457,908 $— 
Liabilities
Derivatives:
       Interest rate lock commitments333 — — 333 
Total$333 $— $— $333 
 
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  Recurring Fair Value Measurements at Reporting Date Using
 September 30,
2021		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets
Investment securities available for sale:
REMIC’s$416,241 $— $416,241 $— 
Fannie Mae certificates5,542 — 5,542 — 
Derivatives:
Interest rate lock commitments525 — — 525 
Total$422,308 $— $421,783 $525 
The table below presents a reconciliation of the beginning and ending balances and the location within the CONSOLIDATED STATEMENTS OF INCOME where gains (losses) due to changes in fair value are recognized on interest rate lock commitments which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Interest Rate Lock Commitments
Year Ended September 30,
202220212020
Beginning balance$525 $1,194 $44 
(Loss)/Gain during the period due to changes in fair value:
Included in other non-interest income(858)(669)1,150 
Ending balance$(333)$525 $1,194 
Change in unrealized gains for the period included in earnings for
  assets held at end of the reporting date		$(333)$525 $1,194 
Summarized in the tables below are those assets measured at fair value on a nonrecurring basis. 
  Nonrecurring Fair Value Measurements at Reporting Date Using
 September 30,
2022		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral-dependent loans, net of allowance$47,121 $— $— $47,121 
Mortgage loans held for sale9,661 — 9,661 — 
Real estate owned(1)
1,192 — — 1,192 
Total$57,974 $— $9,661 $48,313 
______________________
(1) Amounts represent fair value measurements of properties before deducting estimated costs to dispose.
  Nonrecurring Fair Value Measurements at Reporting Date Using
 September 30,
2021		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral-dependent loans, net of allowance$83,854 $— $— $83,854 
Real estate owned(1)
66 — — 66 
Total$83,920 $— $— $83,920 
 ______________________
(1)    Amounts represent fair value measurements of properties before deducting estimated costs to dispose. 
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The following provides quantitative information about significant unobservable inputs categorized within Level 3 of the Fair Value Hierarchy. The interest rate lock commitments can include commitments on both mortgage origination applications and preapprovals. Preapprovals generally have a much lower closure rate than origination applications which is reflected in the aggregate weighted average closure rates shown below when applicable.
Fair Value
September 30, 2022Valuation Technique(s)Unobservable InputRangeWeighted Average
Collateral-dependent loans, net of allowance$47,121Market comparables of collateral discounted to estimated net proceedsDiscount appraised value to estimated net proceeds based on historical experience:
  • Residential Properties0-28%4.7%
Interest rate lock commitments$(333)Quoted Secondary Market pricingClosure rate0-100%93.7%
Fair Value
September 30, 2021Valuation Technique(s)Unobservable InputRangeWeighted Average
Collateral-dependent loans, net of allowance$83,854Market comparables of collateral discounted to estimated net proceedsDiscount appraised value to estimated net proceeds based on historical experience:
• Residential Properties0-34%4.0%
Interest rate lock commitments$525Quoted Secondary Market pricingClosure rate0-100%66.1%

The following tables present the estimated fair value of the Company's financial instruments and their carrying amounts as reported in the CONSOLIDATED STATEMENTS OF CONDITION.
September 30, 2022
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
Assets:
  Cash and due from banks$18,961 $18,961 $18,961 $— $— 
  Interest earning cash equivalents350,603 350,603 350,603 — — 
  Investment securities available for sale457,908 457,908 — 457,908 — 
  Mortgage loans held for sale9,661 9,661 — 9,661 — 
  Loans, net:
Mortgage loans held for investment14,253,804 13,106,346 — — 13,106,346 
Other loans3,263 3,263 — — 3,263 
  Federal Home Loan Bank stock212,290 212,290 N/A— — 
  Accrued interest receivable40,256 40,256 — 40,256 — 
Cash collateral received from or held by counterparty26,045 26,045 26,045 — — 
Liabilities:
  Checking and passbook accounts$3,056,506 $3,056,506 $— $3,056,506 $— 
  Certificates of deposit5,864,511 5,733,418 — 5,733,418 — 
  Borrowed funds4,793,221 4,734,377 — 4,734,377 — 
  Borrowers’ advances for taxes and insurance117,250 117,250 — 117,250 — 
Principal, interest and escrow owed on loans serviced29,913 29,913 — 29,913 — 
  Derivatives333 333 — 333 
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September 30, 2021
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
Assets:
  Cash and due from banks$27,346 $27,346 $27,346 $— $— 
  Interest earning cash equivalents460,980 460,980 460,980 — — 
  Investment securities available for sale421,783 421,783 — 421,783 — 
  Mortgage loans held for sale8,848 8,982 — 8,982 — 
  Loans, net:
Mortgage loans held for investment12,506,257 12,777,375 — — 12,777,375 
Other loans2,778 2,778 — — 2,778 
  Federal Home Loan Bank stock162,783 162,783 N/A— — 
  Accrued interest receivable31,107 31,107 — 31,107 — 
Cash collateral received from or held by counterparty24,236 24,236 24,236 — — 
  Derivatives525 525 — — 525 
Liabilities:
  Checking and passbook accounts$2,960,150 $2,960,150 $— $2,960,150 $— 
  Certificates of deposit6,033,455 6,118,018 — 6,118,018 — 
  Borrowed funds3,091,815 3,106,277 — 3,106,277 — 
  Borrowers’ advances for taxes and insurance109,633 109,633 — 109,633 — 
Principal, interest and escrow owed on loans serviced41,476 41,476 — 41,476 — 
Presented below is a discussion of the valuation techniques and inputs used by the Company to estimate fair value.
Cash and Due from Banks, Interest Earning Cash Equivalents, Cash Collateral Received from or Held by Counterparty—The carrying amount is a reasonable estimate of fair value.
Investment Securities Available for Sale—Estimated fair value for investment and mortgage-backed securities is based on quoted market prices, when available. If quoted prices are not available, management will use as part of their estimation process fair values which are obtained from third party independent nationally recognized pricing services using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Mortgage Loans Held for Sale—Fair value of mortgage loans held for sale is based on quoted secondary market pricing for loan portfolios with similar characteristics.
Loans—For mortgage loans held for investment and other loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. The use of current rates to discount cash flows reflects current market expectations with respect to credit exposure. Collateral-dependent loans are measured at the lower of cost or fair value as described earlier in this footnote.
Federal Home Loan Bank Stock—It is not practical to estimate the fair value of FHLB stock due to restrictions on its transferability. The fair value is estimated to be the carrying value, which is par. All transactions in capital stock of the FHLB Cincinnati are executed at par.
Deposits—The fair value of demand deposit accounts is estimated as the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities.
Borrowed Funds—Fair value for borrowed funds is estimated using discounted cash flows and rates currently charged for borrowings of similar remaining maturities.
Accrued Interest Receivable, Borrowers’ Advances for Insurance and Taxes, and Principal, Interest and Related Escrow Owed on Loans Serviced—The carrying amount is a reasonable estimate of fair value.
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Derivatives—Fair value is estimated based on the valuation techniques and inputs described earlier in this footnote.
17. DERIVATIVE INSTRUMENTS
The Company enters into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy. For hedges of the Company's borrowing program, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments. These derivatives are used to hedge the forecasted cash outflows associated with the Company's FHLB borrowings. At September 30, 2022 and 2021, the interest rate swaps used in the Company's asset/liability management strategy have weighted average terms of 2.7 years and 2.5 years and weighted average fixed-rate interest payments of 1.88% for both periods.
Cash flow hedges are initially assessed for effectiveness using regression analysis. Changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in OCI and is subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a qualitative analysis is preformed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially and continue to be highly effective at September 30, 2022.
The Company enters into forward commitments for the sale of mortgage loans principally to protect against the risk of lost revenue from adverse interest rate movements on net income. The Company recognizes the fair value of such contracts when the characteristics of those contracts meet the definition of a derivative. These derivatives are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the CONSOLIDATED STATEMENTS OF INCOME.
In addition, the Company is party to derivative instruments when it enters into interest rate lock commitments to originate a portion of its loans, which when funded, are classified as held for sale. Such commitments are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the CONSOLIDATED STATEMENTS OF INCOME.
The following tables provide the locations within the CONSOLIDATED STATEMENTS OF CONDITION, notional values and fair values, at the reporting dates, for all derivative instruments.
September 30, 2022September 30, 2021
Notional ValueFair ValueNotional ValueFair Value
Derivatives designated as hedging instruments
Cash flow hedges: Interest rate swaps
Other Assets$1,550,000 $— $250,000 $— 
Other Liabilities— — 2,200,000 — 
Total cash flow hedges: Interest rate swaps$1,550,000 $— $2,450,000 $— 
Derivatives not designated as hedging instruments
Interest rate lock commitments
Other Assets$— $— $24,826 $525 
Other Liabilities9,170 (333)— — 
Total derivatives not designated as hedging instruments$9,170 $(333)$24,826 $525 
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The following tables present the net gains and losses recorded within the CONSOLIDATED STATEMENTS OF INCOME and the CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME relating to derivative instruments.
 Location of Gain or (Loss) 
Recognized in Income		Year Ended September 30,
 202220212020
Cash flow hedges
Amount of gain/(loss) recognizedOther comprehensive income$141,163 $27,848 $(115,396)
Amount of gain/(loss) reclassified from AOCIInterest expense: Borrowed funds(22,740)(44,534)(16,982)
Amount of gain/(loss) reclassified from AOCI-Due to discontinuance of cash flow hedgeInterest expense: Borrowed funds— — (7,775)
Derivatives not designated as hedging instruments
Interest rate lock commitmentsOther non-interest income$(858)$(669)$1,150 
Forward commitments for the sale of mortgage loansNet gain/(loss) on the sale of loans— 134 (134)
The Company estimates that $35,882 of the amounts reported in AOCI will be reclassified as a credit to interest expense during the fiscal year ending September 30, 2023.
The economic lockdowns precipitated by the COVID-19 pandemic of 2020 caused unprecedented economic conditions resulting in extended low rates across the entire maturity spectrum, in which the Company decided to take advantage of this market condition. In the 2020 fiscal year the Company terminated four high cost interest rate swaps prior to their maturity. For the early termination of these swaps, the Company incurred $7,775 in additional interest rate expense and $48 in prepayment penalties. This additional interest rate expense is loss reclassified from AOCI during the year ended September 30, 2020 as a result of the discontinuance of the cash flow hedges because it was probable that the original forecasted transactions would not occur. These selected swaps were deemed beneficial to terminate as the Company would lower interest rate expense for future periods.
Derivatives contain an element of credit risk which arises from the possibility that the Company will incur a loss because a counterparty fails to meet its contractual obligations. The Company's exposure is limited to the replacement value of the contracts rather than the notional or principal amounts. Credit risk is minimized through counterparty margin payments, transaction limits and monitoring procedures. All of the Company's swap transactions are cleared through a registered clearing broker to a central clearing organization. The clearing organization establishes daily cash and upfront cash or securities margin requirements to cover potential exposure in the event of default. This process shifts the risk away from the counterparty, since the clearing organization acts as the middleman on each cleared transaction. At September 30, 2022 and 2021, there was $26,045 and $24,236, respectively, included in other assets related to initial margin requirements held by the central clearing organization. For derivative transactions cleared through certain clearing parties, variation margin payments are recognized as settlements on a daily basis. The fair value of derivative instruments are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements.
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18. PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed financial statements for TFS Financial Corporation (parent company only) reflect the investments in, and transactions with, its wholly-owned subsidiaries. Intercompany activity is eliminated in the consolidated financial statements. 
 September 30,
 20222021
Statements of Condition
Assets:
Cash and due from banks$1,341 $5,357 
Investment securities - available for sale3,619 —
Other loans:
Demand loan due from Third Federal Savings and Loan184,772 185,076 
ESOP loan receivable41,927 46,454 
Investments in:
Third Federal Savings and Loan1,605,306 1,487,284 
Non-thrift subsidiaries8,104 6,381 
Prepaid federal and state taxes— 655 
Deferred income taxes296 285 
Accrued receivables and other assets9,158 9,397 
Total assets$1,854,523 $1,740,889 
Liabilities and shareholders’ equity:
Line of credit due non-thrift subsidiary$7,485 $5,836 
Accrued expenses and other liabilities2,532 2,773 
   Accrued federal and state income taxes167 — 
Total liabilities10,184 8,609 
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding
— — 
Common stock, 0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,582,741 and 280,761,299 outstanding at September 30, 2022 and September 30, 2021, respectively
3,323 3,323 
Paid-in capital1,751,223 1,746,887 
Treasury stock, at cost; 51,736,009 and 51,557,451 shares at September 30, 2022 and September 30, 2021, respectively
(771,986)(768,035)
Unallocated ESOP shares(31,417)(35,751)
Retained earnings—substantially restricted870,047 853,657 
Accumulated other comprehensive income (loss)23,149 (67,801)
Total shareholders’ equity1,844,339 1,732,280 
Total liabilities and shareholders’ equity$1,854,523 $1,740,889 
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 Years Ended September 30,
 202220212020
Statements of Comprehensive Income (Loss)
Interest income:
Demand loan due from Third Federal Savings and Loan$1,600 $164 $1,412 
ESOP loan1,400 1,732 2,548 
Other interest income6 1 43 
Investment securities available for sale43 — — 
Total interest income3,049 1,897 4,003 
Interest expense:
Borrowed funds from non-thrift subsidiaries97 7 291 
Total interest expense97 7 291 
Net interest income2,952 1,890 3,712 
Non-interest income:
Intercompany service charges30 85 77 
Dividend from Third Federal Savings and Loan56,000 55,000 57,000 
Dividend from non-thrift subsidiary— — 16,000 
Total other income56,030 55,085 73,077 
Non-interest expenses:
Salaries and employee benefits4,534 4,917 5,012 
Professional services1,456 1,566 1,323 
Office property and equipment13 3 10 
Other operating expenses223 176 254 
Total non-interest expenses6,226 6,662 6,599 
Income before income tax benefit52,756 50,313 70,190 
Income tax benefit (2,826)(3,848)(4,404)
Income before undistributed earnings of subsidiaries55,582 54,161 74,594 
Equity in undistributed earnings of subsidiaries (dividend in excess of earnings):
Third Federal Savings and Loan17,260 24,738 19,418 
Non-thrift subsidiaries1,723 2,108 (10,695)
Net income74,565 81,007 83,317 
Change in net unrealized gain (loss) on securities available for sale(34,860)(3,733)6,859 
Change in cash flow hedges127,093 56,096 (69,391)
Change in pension obligation(1,283)11,801 (54)
Total other comprehensive income (loss)90,950 64,164 (62,586)
Total comprehensive income$165,515 $145,171 $20,731 
118
 Years Ended September 30,
 202220212020
Statements of Cash Flows
Cash flows from operating activities:
Net income$74,565 $81,007 $83,317 
Adjustments to reconcile net income to net cash provided by operating activities:
(Equity in undistributed earnings of subsidiaries) dividend in excess of earnings:
Third Federal Savings and Loan(17,260)(24,738)(19,418)
Non-thrift subsidiaries(1,723)(2,108)10,695 
Deferred income taxes81 204 2,114 
ESOP and stock-based compensation expense1,543 1,843 1,893 
Net decrease (increase) in interest receivable and other assets908 12,593 (3,337)
Net increase (decrease) in accrued expenses and other liabilities48 (200)241 
Net cash provided by operating activities58,162 68,601 75,505 
Cash flows from investing activities:
Purchase of securities available for sale(4,071)— — 
Increase in balances lent to Third Federal Savings and Loan304 (12,222)(31,899)
Repayment of capital contributions from non-thrift subsidiaries— — 69,000 
Net cash provided by (used in) investing activities(3,767)(12,222)37,101 
Cash flows from financing activities:
Principal reduction of ESOP loan4,527 4,063 3,719 
Purchase of treasury shares(5,049)— (413)
Dividends paid to common shareholders(58,297)(56,637)(55,465)
Acquisition of treasury shares through net settlement(1,241)(5,591)(1,907)
Net increase (decrease) in borrowings from non-thrift subsidiaries1,649 1,787 (58,497)
Net cash used in financing activities(58,411)(56,378)(112,563)
Net increase (decrease) in cash and cash equivalents(4,016)1 43 
Cash and cash equivalents—beginning of year5,357 5,356 5,313 
Cash and cash equivalents—end of year$1,341 $5,357 $5,356 
19. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. For purposes of computing earnings per share amounts, outstanding shares include shares held by the public, shares held by the ESOP that have been allocated to participants or committed to be released for allocation to participants and the 227,119,132 shares held by Third Federal Savings, MHC. For purposes of computing dilutive earnings per share, stock options and restricted and performance share units with a dilutive impact are added to the outstanding shares used in the basic earnings per share calculation. Unvested shares awarded pursuant to the Company's restricted stock plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. Performance share units, determined to be contingently issuable and not participating securities, are excluded from the calculation of basic EPS. At September 30, 2022 and 2021, respectively, the ESOP held 3,141,711 and 3,575,051 shares, respectively that were neither allocated to participants nor committed to be released to participants.

119
The following is a summary of the Company’s EPS calculations. 
 For the Year Ended September 30, 2022
 IncomeSharesPer share
 amount
 (Dollars in thousands, except per share data)
Net income$74,565 
Less: income allocated to restricted stock units1,510 
Basic earnings per share:
Income available to common shareholders73,055 277,370,762 $0.26 
Diluted earnings per share:
Effect of dilutive potential common shares1,315,603 
Income available to common shareholders$73,055 278,686,365 $0.26 
 
 For the Year Ended September 30, 2021
 IncomeSharesPer share
 amount
 (Dollars in thousands, except per share data)
Net income$81,007 
Less: income allocated to restricted stock units1,555 
Basic earnings per share:
Income available to common shareholders79,452 276,694,594 $0.29 
Diluted earnings per share:
Effect of dilutive potential common shares1,881,660 
Income available to common shareholders$79,452 278,576,254 $0.29 
 
 For the Year Ended September 30, 2020
 IncomeSharesPer share
 amount
 (Dollars in thousands, except per share data)
Net income$83,317 
Less: income allocated to restricted stock units1,579 
Basic earnings per share:
Income available to common shareholders81,738 275,859,660 $0.30 
Diluted earnings per share:
Effect of dilutive potential common shares1,943,398 
Income available to common shareholders$81,738 277,803,058 $0.29 
The following is a summary of outstanding stock options and restricted and performance share units that are excluded from the computation of diluted EPS because their inclusion would be anti-dilutive.
 For the Year Ended September 30,
 202220212020
Options to purchase shares407,100 133,800 573,500 
Restricted and performance share units50,000 — 44,030 




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20. RECENT ACCOUNTING PRONOUNCEMENTS
Adopted in fiscal year ended September 30, 2022
In March of 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method. The amendments in this Update amend the guidance in ASU 2017-12 relating to the "last-of-layer" method and rename the method as the "portfolio layer" method. It expands the scope of existing guidance so that entities can apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. Additionally, the standards expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows a larger portion of the interest rate risk associated with such a portfolio to be hedged. The Update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted in any interim period after its issuance. The Company early adopted this Update effective April 1, 2022. This Update did not have a material impact on the Company's consolidated financial condition or results of operations.
Issued but not yet adopted as of September 30, 2022
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326). The amendments in this Update eliminate the accounting guidance for TDR by creditors in Subtopic 310-40, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when the borrower is experiencing financial difficulty. This will be done by applying the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, this amendment requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. This update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact that this accounting guidance may have on its consolidated financial condition or results of operations. The Company plans to adopt this guidance as of October 1, 2023.
The Company has determined that all other recently issued accounting pronouncements will not have a material impact on the Company's consolidated financial statements or do not apply to its operations.
21. RELATED PARTY TRANSACTIONS
The Company has made loans and extensions of credit, in the ordinary course of business, to certain directors and executive officers. These loans were originated with normal credit terms, including interest rate and collateralization, and do not represent more than the normal risk of collection. The aggregate amount of loans to such related parties at September 30, 2022 and 2021 was $0 and $64, respectively.
121
FORM 10-K EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
If Incorporated by Reference, Documents with
Which Exhibit was Previous Filed with SEC
Amendment No. 2 to Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on February 9, 2006; Exhibit 3.2 therein)
Current Report on Form 8-K No. 001-33390 (filed with the SEC on April 28, 2008; Exhibit 3.2 therein)
Current Report on Form 8-K No. 001-33390 (filed with the SEC on October 29, 2018; Exhibit 3 therein)
Current Report on Form 8-K No. 001-33390 (filed with the SEC on July 1, 2022; Exhibit 3 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 4 therein)
Annual Report on Form 10-K No. 001-33390 (filed with the SEC on November 24, 2020; Exhibit 4.2 therein)
10.1[Intentionally omitted]
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.2 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.3 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.4 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.5 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.6 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.7 therein)
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.8 therein)
10.9[Intentionally omitted]
Proxy Statement on Schedule 14A, No. 001-33390 (filed with the SEC on January 9, 2018)
Proxy Statement on Schedule 14A, No. 001-33390 (filed with the SEC on January 9, 2018)
122
Exhibit
Number
Description of Exhibit
If Incorporated by Reference, Documents with
Which Exhibit was Previous Filed with SEC
Current Report on Form 8-K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.1 therein)
Current Report on Form 8K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.2 therein)
Current Report on Form 8K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.3 therein)
14Code of EthicsAvailable on our website, www.thirdfederal.com
Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 21 therein)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
100XBRL related documentsThe following financial statements from TFS Financial Corporation’s Annual Report on Form 10-K for the year ended September 30, 2022 filed on November 22, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Consolidated Statements of Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.
101.INS  Interactive datafileXBRL Instance Document
101.SCHInteractive datafileXBRL Taxonomy Extension Schema Document
101.CALInteractive datafileXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInteractive datafileXBRL Taxonomy Extension Definition Linkbase Document
101.LABInteractive datafileXBRL Taxonomy Extension Label Linkbase Document
101.PREInteractive datafileXBRL Taxonomy Extension Presentation Linkbase Document
104Interactive datafileCover Page Interactive Datafile (embedded within the Inline XBRL document and included in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TFS Financial Corporation
 
Dated: November 22, 2022  /S/     MARC A. STEFANSKI        
  Marc A. Stefanski
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Dated: November 22, 2022  /S/     MARC A. STEFANSKI        
    Marc A. Stefanski
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Dated: November 22, 2022  /S/     TIMOTHY W. MULHERN        
  Timothy W. Mulhern
Chief Financial Officer
(Principal Financial Officer)
Dated:November 22, 2022/S/ SUSANNE N. MILLER
Susanne N. Miller
Chief Accounting Officer
(Principal Accounting Officer)
Dated:November 22, 2022/S/     BARBARA J. ANDERSON
Barbara J. Anderson, Director
Dated: November 22, 2022  /S/     ANTHONY J. ASHER        
  Anthony J. Asher, Director
Dated: November 22, 2022  /S/     MARTIN J. COHEN        
  Martin J. Cohen, Director
Dated: November 22, 2022  /S/     ROBERT A. FIALA        
  Robert A. Fiala, Director
Dated: November 22, 2022  /S/     WILLIAM C. MULLIGAN        
  William C. Mulligan, Director
Dated: November 22, 2022  /S/     TERRENCE R. OZAN        
  Terrence R. Ozan, Director
Dated: November 22, 2022  /S/     JOHN P. RINGENBACH       
  John P. Ringenbach, Director
Dated: November 22, 2022  /S/     MEREDITH S. WEIL
  Meredith S. Weil, Director
Dated:November 22, 2022/S/    DANIEL F. WEIR
Daniel F. Weir, Director
Dated:November 22, 2022/S/     ASHLEY H. WILLIAMS
Ashley H. Williams, Director

124
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