TFS Financial (TFSL) - 2025 Q3 - Quarterly Report

Glossary of Terms This section provides a list of acronyms and defined terms used throughout the document to assist the reader in understanding the financial report PART I – FINANCIAL INFORMATION This part presents the unaudited interim consolidated financial statements and management's discussion and analysis of the company's financial condition and operating results Item 1. Financial Statements (unaudited) This section presents the unaudited interim consolidated financial statements of TFS Financial Corporation and its subsidiaries, including the Statements of Condition, Income, Comprehensive Income (Loss), Shareholders' Equity, and Cash Flows, along with detailed notes explaining the basis of presentation, key accounting policies, and financial instrument details Consolidated Statements of Condition This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time | Metric | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | ASSETS | | | | Cash and cash equivalents | $452,581 | $463,718 | | Investment securities available for sale | $525,212 | $526,251 | | Loans, net | $15,595,997 | $15,322,059 | | Total Assets | $17,375,666 | $17,090,785 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Deposits | $10,341,499 | $10,195,079 | | Borrowed funds | $4,882,993 | $4,792,847 | | Total Liabilities | $15,487,660 | $15,228,161 | | Total Shareholders' Equity | $1,888,006 | $1,862,624 | | Total Liabilities and Shareholders' Equity | $17,375,666 | $17,090,785 | Consolidated Statements of Income This statement details the company's revenues, expenses, and net income over specific reporting periods | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Nine Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Total interest and dividend income | $191,407 | $184,906 | $564,127 | $545,558 | | Total interest expense | $116,413 | $115,633 | $348,756 | $335,815 | | NET INTEREST INCOME | $74,994 | $69,273 | $215,371 | $209,743 | | Provision (release) for credit losses | $1,500 | $(500) | $1,500 | $(2,500) | | Total non-interest income | $7,048 | $6,245 | $20,619 | $18,282 | | Total non-interest expense | $53,185 | $50,788 | $152,214 | $153,263 | | INCOME BEFORE INCOME TAXES | $27,357 | $25,230 | $82,276 | $77,262 | | INCOME TAX EXPENSE | $5,844 | $5,277 | $17,316 | $15,889 | | NET INCOME | $21,513 | $19,953 | $64,960 | $61,373 | | Earnings per share—basic and diluted | $0.08 | $0.07 | $0.23 | $0.22 | Consolidated Statements of Comprehensive Income (Loss) This statement presents net income and other comprehensive income items, reflecting the total change in equity from non-owner sources | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Nine Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Net income | $21,513 | $19,953 | $64,960 | $61,373 | | Total other comprehensive income (loss) | $(16,797) | $196 | $(397) | $(42,598) | | Total comprehensive income | $4,716 | $20,149 | $64,563 | $18,775 | Consolidated Statements of Shareholders' Equity This statement tracks changes in the company's equity accounts, including net income, dividends, and other comprehensive income | Metric | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Balance at beginning of period (Sept 30, 2024) | $1,862,624 | $1,927,361 (Sept 30, 2023) | | Net Income | $64,960 | $61,373 | | Other comprehensive income (loss), net of tax | $(397) | $(42,598) | | Dividends declared to common shareholders | $(44,707) | $(44,173) | | Balance at end of period (June 30, 2025) | $1,888,006 | $1,915,064 (June 30, 2024) | Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities over a period | Metric | Nine Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash provided by operating activities | $93,522 | $147,280 | | Net cash used in investing activities | $(310,366) | $(12,839) | | Net cash provided by (used in) financing activities | $205,707 | $(40,752) | | NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | $(11,137) | $93,689 | | CASH AND CASH EQUIVALENTS—End of period | $452,581 | $560,435 | Notes to Unaudited Interim Consolidated Financial Statements These notes provide essential details and explanations for the figures presented in the interim consolidated financial statements 1. Basis of Presentation This section outlines the company's primary business activities and the accounting principles and estimates used in preparing the financial statements - TFS Financial Corporation operates primarily in retail consumer banking, including mortgage lending and deposit gathering, with Third Federal Savings, MHC owning approximately 80.9% of its outstanding shares as of June 30, 2025[21] - The financial statements adhere to U.S. GAAP, requiring management estimates and assumptions, particularly for the allowance for credit losses, deferred tax assets, and pension obligations[22] 2. Earnings Per Share This section details the calculation of basic and diluted earnings per share, including the shares outstanding | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic EPS | $0.08 | $0.07 | $0.23 | $0.22 | | Diluted EPS | $0.08 | $0.07 | $0.23 | $0.22 | | Basic Weighted Average Shares Outstanding | 278,832,875 | 278,291,376 | 278,699,423 | 278,104,352 | | Diluted Weighted Average Shares Outstanding | 279,873,274 | 279,221,360 | 279,716,745 | 279,072,087 | - Outstanding shares for EPS calculation include public shares, allocated ESOP shares, and shares held by Third Federal Savings, MHC. Diluted EPS also accounts for dilutive stock options and restricted/performance share units[26] 3. Investment Securities This section provides a breakdown of the company's investment securities portfolio, including fair values and unrealized gains or losses | Category | Amortized Cost (June 30, 2025) | Fair Value (June 30, 2025) | Amortized Cost (Sept 30, 2024) | Fair Value (Sept 30, 2024) | | :--------------------------------- | :----------------------------- | :------------------------- | :----------------------------- | :------------------------- | | REMICs | $483,774 | $459,937 | $476,680 | $449,401 | | Fannie Mae certificates | $2,658 | $2,739 | $2,810 | $2,945 | | Freddie Mac certificates | $8,477 | $8,533 | $1,138 | $1,129 | | U.S. government and agency obligations | $54,129 | $54,003 | $72,931 | $72,776 | | Total | $549,038 | $525,212 | $553,559 | $526,251 | - The investment portfolio consists entirely of U.S. government entities and agencies securities. Unrealized losses are primarily due to increased market interest rates, not credit quality deterioration, and no allowance for credit losses was recorded as there is no intent to sell prior to recovery[35][36] 4. Loans and Allowance for Credit Losses This section details the composition of the loan portfolio and the methodology and balances of the allowance for credit losses Loan Portfolios This section provides a detailed breakdown of the company's loan portfolio by type and geographic concentration | Loan Type | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Residential Core | $10,969,930 | $11,385,142 | | Home equity lines of credit | $3,881,132 | $3,323,381 | | Home equity loans | $695,004 | $561,926 | | Construction | $14,506 | $21,701 | | Total Loans held for investment, net | $15,595,997 | $15,322,059 | - A significant portion of the Company's lending is concentrated in Ohio (59% of residential/construction loans) and Florida (17% of residential/construction loans). Home equity loans and lines of credit are also concentrated in Ohio, Florida, and California[39][40] - Adjustable-rate mortgage (ARM) loans, specifically 'Smart Rate' loans, constituted $4.06 billion at June 30, 2025, representing a key component of the residential real estate portfolio with inherent interest rate risk management features[41] Delinquency and Non-Accrual This section reports on the status of delinquent and non-accrual loans, including criteria for non-accrual classification and related interest income | Delinquency Status | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | 30-59 Days Past Due | $14,105 | $12,502 | | 60-89 Days Past Due | $4,363 | $5,452 | | 90 Days or More Past Due | $15,800 | $13,934 | | Total Past Due | $34,268 | $31,888 | | Total Non-accrual loans | $37,254 | $33,610 | - Loans are placed in non-accrual status when they are 90 days or more past due, or under specific conditions like partial charge-offs, high debt-to-income modifications, or Chapter 7 bankruptcy filings[47] - Interest income recognized on non-accrual loans was $757 thousand for the nine months ended June 30, 2025, an increase from $507 thousand for the same period in 2024[50] Allowance for Credit Losses This section details the methodology for estimating the allowance for credit losses and presents its components and changes over time - The allowance for credit losses (ACL) is estimated using loan-level regression models with forecasted economic data to determine probability of default and loss given default over a 24-month period, reverting to historical mean loss rates thereafter[51] - Qualitative adjustments are made to historical loss information for current loan-specific risk characteristics and expected changes in environmental conditions, resulting in a net reduction to ACL of $3.38 million at June 30, 2025, compared to $5.52 million at September 30, 2024[52] | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Beginning Balance (Nine Months) | $70,002 | $77,315 | | Provision (Release) for Credit Losses on Loans | $(520) | $(3,148) | | Charge-offs on real estate loans | $(817) | $(1,014) | | Recoveries on real estate loans | $3,875 | $4,638 | | Ending Balance (Loans) | $72,540 | $67,529 | | Ending Balance (Unfunded Commitments) | $29,831 | $28,163 | | Total Allowance for Credit Losses | $102,371 | $95,692 | Classified Loans This section categorizes loans based on internal credit risk grades and reports on the volume of home equity lines of credit converted to term loans | Loan Classification | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Pass | $15,603,677 | $15,336,689 | | Special Mention | $8,359 | $7,063 | | Substandard | $48,756 | $42,604 | | Total Real Estate Loans | $15,660,792 | $15,386,356 | - Loans are internally graded as Pass, Special Mention (potential weakness), or Substandard (inadequately protected). Loss loans are charged off when uncollectible[74] - Home equity lines of credit converted from revolving to term loans totaled $11.33 million for the nine months ended June 30, 2025, an increase from $6.56 million for the same period in 2024[73] Modifications to Borrowers Experiencing Financial Difficulty This section outlines the types of loan modifications offered to financially distressed borrowers and reports on subsequent default rates | Modification Type (Nine Months Ended June 30, 2025) | Total (in thousands) | % of Total Class | | :-------------------------------------------------- | :------------------- | :--------------- | | Term Extension | $1,068 | | | Significant Payment Delay | $2,381 | | | Combination-Rate Reduction & Term Extension | $1,274 | | | Other | $336 | | | Total Modifications | $5,059 | 0.03% | - The Company offers temporary and permanent loan modifications, such as term extensions and significant payment delays, to borrowers experiencing financial difficulty, but generally does not offer principal forgiveness[76][77] | Subsequent Default (Nine Months Ended June 30, 2025) | Total (in thousands) | | :--------------------------------------------------- | :------------------- | | Residential Core | $630 | | Residential Home Today | $46 | | Home equity lines of credit | $31 | | Total | $707 | 5. Deposits This section provides a breakdown of the company's deposit portfolio by type and details the use of brokered certificates of deposit | Deposit Type | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Checking accounts | $810,629 | $829,924 | | Savings accounts | $1,101,088 | $1,127,772 | | Money market accounts | $143,339 | $193,074 | | Certificates of deposit | $8,271,633 | $8,021,123 | | Total deposits | $10,341,499 | $10,195,079 | - Brokered CDs, used as a cost-effective funding alternative, totaled $977.5 million at June 30, 2025, down from $1.22 billion at September 30, 2024. The Association, as a well-capitalized institution, can accept brokered deposits without FDIC restrictions[90] 6. Borrowed Funds This section outlines the company's borrowing capacity and outstanding balances from various sources, including maturity profiles | Borrowing Source | Borrowing Capacity (June 30, 2025, in thousands) | Borrowings Outstanding (June 30, 2025, in thousands) | | :--------------------------------- | :--------------------------------------- | :------------------------------------- | | FHLB | $6,633,552 | $4,865,018 | | FRB Cleveland | $530,799 | — | | Fed Funds Purchased | $455,000 | — | | Total Borrowings | $7,619,351 | $4,882,993 | | Maturity Period | Amount (June 30, 2025, in thousands) | Weighted Average Rate | | :--------------------------------- | :----------------------------------- | :-------------------- | | 12 months or less | $1,435,163 | 3.43% | | 13 to 24 months | $950,000 | 3.14% | | 25 to 36 months | $926,162 | 3.76% | | 37 to 48 months | $600,870 | 3.53% | | 49 to 60 months | $951,090 | 3.43% | | Over 60 months | $1,733 | 1.40% | | Total Advances | $4,865,018 | 3.45% | 7. Other Comprehensive Income (Loss) This section details the components of other comprehensive income (loss) and their reclassification expectations | Component | Three Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2025 (in thousands) | | :--------------------------------- | :------------------------------------ | :----------------------------------- | | Net change in unrealized gain on securities available for sale | $2,918 | $2,686 | | Net change in cash flow hedges | $(19,715) | $(3,083) | | Total other comprehensive income (loss) | $(16,797) | $(397) | | Balance at end of period | $(16,005) | $(16,005) | - The Company estimates that $17.56 million of the amounts reported in Accumulated Other Comprehensive Income (AOCI) will be reclassified as a reduction to interest expense during the twelve months ending June 30, 2026[135] 8. Income Taxes This section reports on the company's effective income tax rate and the impact of Low Income Housing Tax Credit investments - The Company's combined federal and state effective income tax rate was 21.0% for the nine months ended June 30, 2025, up from 20.6% for the same period in 2024[97] - The impact of the Company's investments in Low Income Housing Tax Credit (LIHTC) entities on the provision for income taxes was not material during the nine months ended June 30, 2025 and 2024[99] 9. Defined Benefit Plan This section details the net periodic benefit cost of the company's defined benefit plan and its frozen status | Component of Net Periodic Cost | Three Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2025 (in thousands) | | :--------------------------------- | :------------------------------------ | :----------------------------------- | | Interest cost | $740 | $2,220 | | Expected return on plan assets | $(1,197) | $(3,590) | | Amortization of net loss | — | — | | Net periodic (benefit) cost | $(457) | $(1,370) | - The Plan was amended to freeze future benefit accruals for participants after December 31, 2011, with no required minimum employer contributions expected for the remainder of fiscal year 2025[100][101] 10. Equity Incentive Plan This section reports on stock-based compensation expenses and the grants made under the company's equity incentive plan | Expense Type | Three Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2025 (in thousands) | | :--------------------------------- | :------------------------------------ | :----------------------------------- | | Stock option expense | $28 | $84 | | Restricted stock units expense | $654 | $1,973 | | Performance share units expense | $265 | $745 | | Total stock-based compensation expense | $947 | $2,802 | - During the nine months ended June 30, 2025, the Company granted 178,700 restricted stock units, 135,300 performance share units, and 12,000 stock options under the Amended and Restated 2008 Equity Incentive Plan[102] 11. Commitments and Contingent Liabilities This section details the company's commitments to originate or acquire loans, unfunded commitments, and potential legal liabilities | Commitment Type | Commitment (June 30, 2025, in thousands) | Allowance (June 30, 2025, in thousands) | | :--------------------------------- | :--------------------------------------- | :-------------------------------------- | | Fixed-rate mortgage loans | $213,030 | $1,105 | | Adjustable-rate mortgage loans | $18,652 | $101 | | Home equity lines of credit | $123,772 | $1,267 | | Home equity loans | $70,989 | $1,490 | | Total Commitments to originate or acquire loans | $426,443 | $3,963 | | Unfunded Commitment Type | Commitment (June 30, 2025, in thousands) | Allowance (June 30, 2025, in thousands) | | :--------------------------------- | :--------------------------------------- | :-------------------------------------- | | Home equity lines of credit | $5,515,011 | $25,828 | | Construction loans | $6,771 | $40 | | Total Unfunded Commitments | $5,521,782 | $25,868 | - The Company is undergoing an escheat audit for Ohio, Kentucky, and Florida, with any potential loss not reasonably estimable as of June 30, 2025. Management believes other legal actions will not have a material adverse effect[109][110] 12. Fair Value This section defines fair value, outlines the three-level hierarchy for inputs, and presents fair value measurements for various assets and liabilities - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants. Assets and liabilities are grouped into a three-level hierarchy based on input transparency[111] | Asset/Liability | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Investment securities available for sale | $525,212 | $526,251 | | Mortgage loans held for sale | $29,303 | $10,713 | | Interest rate lock commitments | $597 | $395 | | Forward commitments for the sale of mortgage loans | $(160) | $(72) | - Collateral-dependent loans and real estate owned (REO) are measured at fair value on a nonrecurring basis, primarily using third-party appraisals, and are categorized as Level 3 due to significant unobservable inputs[115][116] 13. Derivative Instruments This section describes the company's use of interest rate swaps for cash flow hedging and other derivatives not designated as hedging instruments - The Company uses interest rate swaps as cash flow hedges to manage interest rate risk on borrowings and brokered CDs, aiming to stabilize interest expense. These derivatives are settled daily, bringing their fair value to $0[129][130] | Derivative Type | Notional Value (June 30, 2025, in thousands) | Notional Value (Sept 30, 2024, in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total cash flow hedges: Interest rate swaps | $3,650,000 | $3,650,000 | | Total derivatives not designated as hedging instruments | $85,737 | $28,878 | - Derivatives not designated as hedges, such as interest rate lock commitments and forward commitments for loan sales, have gains and losses recognized immediately in the Consolidated Statements of Income[131][132] 14. Recent Accounting Pronouncements This section discusses the adoption of new accounting standards and the assessment of their potential impact on the company's financial disclosures - The Company adopted ASU 2023-07, 'Segment Reporting,' effective for fiscal years beginning after December 15, 2023, which did not materially affect its financial statements[138] - ASU 2023-09, 'Income Taxes,' and ASU 2024-03, 'Expense Disaggregation Disclosures,' have been issued but not yet adopted, with the Company currently assessing their potential impact on disclosures[139][140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operating results, discussing key trends, strategies, and critical accounting policies. It covers changes in assets, liabilities, equity, and income statement components for the reported periods, along with an overview of liquidity and capital resources Forward Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements regarding goals, business plans, growth strategies, credit loss trends, and financial condition, which are subject to significant risks and uncertainties[142][143] - Key risk factors include increased competition, inflation, interest rate changes, general economic conditions, real estate market strength, and regulatory changes[146] Overview This section outlines the company's business strategy, strong capital position, and key factors for managing financial risks and operations - TFS Financial Corporation's business strategy focuses on operating as a well-capitalized and profitable financial institution, emphasizing exceptional personal service and core values[145] - The Company's capital ratios remain strong, exceeding 'Well Capitalized' regulatory requirements, with a Common Equity Tier 1 Capital ratio of 17.75% at June 30, 2025[149][156] - Key success factors include controlling interest rate risk (through adjustable-rate loans, duration extension of funding, and interest rate swaps), monitoring credit risk, maintaining liquidity, and controlling operating expenses[153][160] Critical Accounting Policies and Estimates This section identifies the most critical accounting policies and estimates, emphasizing the significant judgment involved in their application - The most critical accounting policies and estimates involve significant judgments and uncertainties, with the allowance for credit losses being paramount to the Company's financial condition and results of operations[183] Allowance for Credit Losses This section explains the methodology for the allowance for credit losses and reports on its balance and key related ratios - The allowance for credit losses (ACL) is based on a life-of-loan methodology, comprising quantitative general valuation allowances (GVAs) for loans and off-balance sheet exposures, and qualitative adjustments for uncertainties[184] - The total allowance for credit losses increased to $102.4 million at June 30, 2025, from $99.9 million at March 31, 2025, driven by growth in home equity loan portfolios and higher mortgage loss dollars[193][194] | Ratio | June 30, 2025 | September 30, 2024 | | :--------------------------------- | :------------ | :----------------- | | Allowance for credit losses on loans to non-accrual loans | 194.72% | 190.93% | | Allowance for credit losses on loans to total amortized cost in loans | 0.46% | 0.44% | Lending Activities This section provides an overview of the company's loan portfolio, including composition, delinquency trends, and non-performing assets Loan Portfolio Composition This section details the breakdown of the loan portfolio by type and geographic concentration, including home equity lines of credit | Loan Type | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Residential Core | $10,969,930 | $11,385,142 | | Home equity lines of credit | $3,881,132 | $3,323,381 | | Home equity loans | $695,004 | $561,926 | | Construction loans | $14,506 | $21,701 | | Total loans receivable | $15,605,791 | $15,338,791 | - The Company's loan portfolio shows a high concentration in Ohio and Florida for residential and construction loans, and in Ohio, Florida, and California for home equity products[198] | Home Equity Lines of Credit in Draw Period (June 30, 2025) | Principal Balance (in thousands) | Percent Delinquent 90 Days or More | Mean CLTV Percent at Origination | Current Mean CLTV Percent | | :--------------------------------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | :------------------------ | | Ohio | $835,783 | 0.10% | 60% | 42% | | Florida | $826,838 | 0.12% | 56% | 45% | | California | $648,651 | 0.09% | 59% | 50% | | Other | $1,511,486 | 0.10% | 63% | 51% | | Total | $3,822,758 | 0.10% | 59% | 47% | Delinquent Loans This section reports on the trends in delinquent loans, particularly those 90 days or more past due, and attributes increases to economic factors | Delinquency Status | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Total 30-89 Days Delinquent | $18,468 | $17,954 | | Total 90 Days or More Delinquent | $15,800 | $13,934 | | Total Delinquent | $34,268 | $31,888 | - Total loans seriously delinquent (90 days or more) were 0.10% of total net loans at June 30, 2025, slightly up from 0.09% at September 30, 2024[214] - An upward trend in delinquencies in the home equity lines of credit portfolio is noted, attributed to recent economic trends and elevated interest rates tied to the prime rate, leading to higher monthly payments for some borrowers[217] Non-Performing Assets This section presents the company's non-performing assets, including non-accrual loans and real estate owned, and their reconciliation | Non-Performing Asset | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Total non-accrual loans | $37,254 | $33,610 | | Real estate owned | $1,240 | $174 | | Total non-performing assets | $38,494 | $33,784 | | Reconciliation | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :-------------------------------- | | Non-Accrual Loans | $37,254 | $33,610 | | Accruing Collateral-Dependent Loans | $11,474 | $9,064 | | Less: Loans Collectively Evaluated | $(5,317) | $(3,097) | | Total Collateral-Dependent loans | $43,411 | $39,577 | Comparison of Financial Condition at June 30, 2025 and September 30, 2024 This section analyzes changes in the company's total assets, deposits, and shareholders' equity between the two reporting periods - Total assets increased by $284.9 million (1.7%) to $17.38 billion at June 30, 2025, primarily due to a $273.9 million increase in loans held for investment, net[223][226] - Deposits increased by $146.4 million (1.4%) to $10.34 billion, with a $250.5 million increase in certificates of deposit partially offset by decreases in other deposit types[230] - Total shareholders' equity increased by $25.4 million (1.4%) to $1.89 billion, reflecting $65.0 million in net income, offset by $44.7 million in dividends and a $0.4 million net decrease in AOCI[234] Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024 This section compares the company's net income, net interest income, and provision for credit losses for the three-month periods - Net income increased by $1.5 million (7.5%) to $21.5 million, driven by higher net interest income and non-interest income, partially offset by increased non-interest expense and provision for credit losses[239] - Net interest income rose by $5.7 million to $75.0 million, primarily due to a 14 basis point increase in the yield on interest-earning assets to 4.61%, while the net interest margin also increased by 14 basis points to 1.81%[246][248] - A provision for credit losses of $1.5 million was recorded, compared to a release of $0.5 million in the prior year, mainly due to growth in equity loan and line of credit portfolios[249] Comparison of Operating Results for the Nine Months Ended June 30, 2025 and 2024 This section compares the company's net income, net interest income, and non-interest income for the nine-month periods - Net income increased by $3.6 million to $65.0 million, primarily from higher net interest income and non-interest income, and lower non-interest expense, partially offset by an increased provision for credit losses[257] - Net interest income increased by $5.7 million (2.7%) to $215.4 million, with the yield on average interest-earning assets rising by 15 basis points to 4.55%. The net interest margin was 1.74% for the current nine months[264][265] - Non-interest income increased by $2.3 million (12.6%) to $20.6 million, mainly due to a $1.4 million increase in net gain on loan sales and a $1.2 million increase in loan fees and service charges[268] Liquidity and Capital Resources This section discusses the company's funding sources, liquidity management, and capital ratios, highlighting its well-capitalized status - Primary funding sources include deposit inflows, loan repayments, FHLB advances, FRB-Cleveland Discount Window borrowings, Fed Funds, brokered CDs, and sales of loans and securities[271][272] - The Company maintains a liquidity ratio averaging 5.50% for the three months ended June 30, 2025, and has sufficient liquidity to meet short- and long-term obligations[273] | Capital Ratio (Association) | Actual Ratio (June 30, 2025) | Well Capitalized Level | | :--------------------------------- | :--------------------------- | :--------------------- | | Total Capital to Risk-Weighted Assets | 17.37% | 10.00% | | Tier 1 (Leverage) Capital to Net Average Assets | 10.10% | 5.00% | | Tier 1 Capital to Risk-Weighted Assets | 16.51% | 8.00% | | Common Equity Tier 1 Capital to Risk-Weighted Assets | 16.51% | 6.50% | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the Company's management of market risk, primarily interest rate risk, through various strategies and analytical models like Economic Value of Equity (EVE) and Net Interest Income (NII) sensitivity analysis. It outlines the methodologies, assumptions, and estimated impacts of hypothetical interest rate changes on the Company's financial position General This section identifies interest rate risk as the company's most significant market risk, managed by the Asset/Liability Management Committee - The Company's most significant market risk is interest rate risk, managed by the Asset/Liability Management Committee and overseen by the Board of Directors, with established risk parameter limits[290] Economic Value of Equity This section explains the use of customized modeling software to estimate changes in Economic Value of Equity (EVE) under various interest rate scenarios - The Company uses customized modeling software to estimate changes in the Economic Value of Equity (EVE) under various hypothetical market interest rate changes, using a discounted cash flow and option-based pricing approach[291] Net Interest Income This section describes the simulation model used to analyze the sensitivity of Net Interest Income (NII) to instantaneous interest rate changes - The simulation model also analyzes the sensitivity of Net Interest Income (NII) to interest rate changes for prospective 12 and 24-month periods, assuming instantaneous adjustments to market interest rates[293] Other Considerations This section differentiates between EVE and NII models and presents the estimated impact of hypothetical interest rate changes on both metrics - EVE is a stochastic model providing a long-term, liquidation view of the Company, while NII is based on flat balance sheet projections for one to two years, assuming static volume and pricing[296] | Change in Interest Rates (basis points) | Estimated EVE (Amount, in thousands) | Estimated EVE (Percentage Change) | Estimated NII (Amount, in thousands) | Estimated NII (Percentage Change) | | :-------------------------------------- | :----------------------------------- | :-------------------------------- | :----------------------------------- | :-------------------------------- | | +200 | $1,098,262 | (25.68)% | $372,089 | 9.40% | | +100 | $1,300,981 | (11.96)% | $356,656 | 4.86% | | 0 | $1,477,771 | —% | $340,127 | —% | | -100 | $1,590,301 | 7.61% | $317,343 | (6.70)% | | -200 | $1,635,863 | 10.70% | $289,144 | (14.99)% | - At June 30, 2025, a 200 basis point increase in interest rates would result in a 25.68% decrease in the Company's EVE, while a 200 basis point decrease would lead to a 10.70% increase[304] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recently completed fiscal quarter Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting of required information[309] Changes in Internal Control over Financial Reporting This section states that no material changes occurred in internal control over financial reporting during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[310] Part II — OTHER INFORMATION This part covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures Item 1. Legal Proceedings Management's opinion on legal actions indicates no expected material adverse effect on the Company's consolidated financial condition or results of operations - The Company and its subsidiaries are subject to various legal actions in the normal course of business, but management does not expect their resolution to have a material adverse effect on financial condition or results of operations[311] Item 1A. Risk Factors No material changes to the previously disclosed risk factors were identified during the quarter ended June 30, 2025 - There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024[312] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's stock repurchase activity and the mutual holding company's dividend waiver approval | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------------- | :------------------------------- | :--------------------------- | | June 1, 2025 through June 30, 2025 | 57,500 | $12.87 | - The Company's eighth stock repurchase program, approved on October 27, 2016, authorized the repurchase of up to 10,000,000 shares, with 5,134,451 shares remaining to be repurchased at June 30, 2025[314] - Third Federal Savings, MHC, the mutual holding company and 81% majority shareholder, approved a waiver of dividends aggregating up to $1.13 per share for the twelve months subsequent to July 8, 2025[315] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company - This section is marked as 'Not applicable'[317] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This section is marked as 'Not applicable'[317] Item 5. Other Information This section provides information on securities trading plans of directors and executive officers Securities Trading Plans of Directors and Executive Officers This section reports on the termination of Rule 10b5-1 trading plans for certain executive officers during the quarter - Two Rule 10b5-1 trading plans, for the Chief Financial Officer and Chief Synergy Officer, were terminated during the quarter ended June 30, 2025, with no new plans adopted[319][320] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including financial statements in Inline XBRL format and certifications - The report includes unaudited financial statements formatted in Inline XBRL, along with certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act[322][324] SIGNATURES This section contains the official signatures of the company's principal executive and financial officers, certifying the report - The report is signed by Marc A. Stefanski, Chairman of the Board, President and Chief Executive Officer, and Meredith S. Weil, Chief Financial Officer, on August 7, 2025[327]