TFS Financial CORP

Previous wording

Since being organized in 1938, we grew to become, at the time of our initial public offering of stock in 2007, and continue to be, the nation’s largest mutually-owned savings and loan association based on total assets. We credit our success to our continued emphasis on our primary values: “Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun.” Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where we've been the developer of a community of 40 homes, intended to serve the low- to moderate income home owner. We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our customers, our communities, our associates and our shareholders.

Current wording

Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where we've been the developer of a community of 40 homes, intended to serve the low- to moderate income home owner. We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our customers, our communities, our associates and our shareholders.

Previous wording

The unprecedented implications of the prolonged period of inversion in the yield curve, influenced by the FRS's restrictive monetary policy resulted in a heightened exposure of certain risks inherent in the banking industry. The yield curve is currently positive, normalizing in mid-September just prior to the FRS's 100 basis point rate cuts between September and December 2024. Taking all of this into consideration, we remain committed to our mission, business model, and strategic approach. Specifically, (1) our capital ratios remain a primary source of financial strength; (2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits; (3) we maintain adequate access to contingent sources of liquidity; and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity.

Current wording

Consumers, businesses, and governments alike are navigating an elevated level of economic uncertainty as a new perspective on global trade policy is being deliberated by the markets. For their part, the Federal Reserve has maintained interest rates near 20-year highs in the hope that inflation continues its lower trajectory. The yield curve is currently positive, after a prolonged period of inversion, normalizing just prior to the FRS's 100 basis point rate cuts between September and December 2024. There is some probability that the easing cycle will continue in the back half of 2025, however, uncertainty can lead to volatility in interest rates and spreads, creating a challenging operating environment for us. Taking all of this into consideration, we remain committed to our mission, business model, and strategic approach. Specifically, (1) our capital ratios remain a primary source of financial strength; (2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits; (3) we maintain adequate access to contingent sources of liquidity; and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity.

Previous wording

Capital ratios remain a source of financial strength for the Company and the Association as all capital ratios, including the Company's Common Equity Tier 1 Capital ratio of 18.32%, exceed the regulatory requirement to be considered "Well Capitalized". Additional details on our capital ratios are reported in the Liquidity and Capital Resources section of this Item 2.

Current wording

Capital ratios remain a source of financial strength for the Company and the Association as all capital ratios, including the Company's Common Equity Tier 1 Capital ratio of 18.13%, exceed the regulatory requirement to be considered "Well Capitalized". Additional details on our capital ratios are reported in the Liquidity and Capital Resources section of this Item 2.

Previous wording

The Company maintains high-quality core deposits distributed primarily across our Ohio and Florida branch network in products tailored toward consumers seeking non-transactional savings. As of December 31, 2024, 95.9% of our $9.11 billion retail deposit base consists of accounts structured under the FDIC insured limit of $250,000. The Company has the ability to fund 100% of all uninsured deposit balances through sources described later in this Item 2 under the heading Liquidity and Capital Resources.

Current wording

The Company maintains high-quality core deposits distributed primarily across our Ohio and Florida branch network in products tailored toward consumers seeking non-transactional savings. As of March 31, 2025, 96.0% of our $9.37 billion retail deposit base consists of accounts structured under the FDIC insured limit of $250,000. The Company has the ability to fund 100% of all uninsured deposit balances through sources described later in this Item 2 under the heading Liquidity and Capital Resources.

Previous wording

The Company retains ample and diverse sources of liquidity and funding, beyond deposits. At December 31, 2024, our combined additional borrowing capacity under the Association's blanket pledge arrangements with the FHLB of Cincinnati and the FRB Cleveland along with our ability to purchase Fed Funds through arrangements with other institutions totaled $3.12 billion. We also hold marketable securities that could be sold and converted to cash. Further details about liquidity and funding are described in the section labelled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth of this Item 2.

Current wording

The Company retains ample and diverse sources of liquidity and funding, beyond deposits. At March 31, 2025, our combined additional borrowing capacity under the Association's blanket pledge arrangements with the FHLB of Cincinnati and the FRB Cleveland along with our ability to purchase Fed Funds through arrangements with other institutions totaled $3.06 billion. We also hold marketable securities that could be sold and converted to cash. Further details about liquidity and funding are described in the section labelled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth of this Item 2.

Previous wording

A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve where short-term rates exceed long-term rates, both of which occurred in the past two years. Although the yield curve became positive in early September 2024, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our home equity line of credit portfolio, indexed to the prime rate, reprice more quickly than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity. These economic environments may result in decreases in our net interest income and our net interest margin.

Current wording

A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve where short-term rates exceed long-term rates, both of which occurred in the past three years. Although the yield curve became positive in early September 2024, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our home equity line of credit portfolio, indexed to the prime rate, reprice more quickly than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity. These economic environments may result in decreases in our net interest income and our net interest margin.

Previous wording

At December 31, 2024, the Company’s Tier 1 (leverage) capital totaled $1.85 billion, or 10.89%, of net average assets and 18.32% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.70 billion, or 9.96%, of net average assets and 16.74% of risk-weighted assets. Each of these measures is in excess of the requirements in effect for the Association at December 31, 2024, for designation as “well capitalized” under regulatory prompt corrective action provisions. Beginning this fiscal year, the Company entered into the final year of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021. Refer to the Liquidity and Capital Resources section of this Item 2 for additional discussion regarding regulatory capital requirements.

Current wording

At March 31, 2025, the Company’s Tier 1 (leverage) capital totaled $1.86 billion, or 10.89%, of net average assets and 18.13% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.71 billion, or 10.04%, of net average assets and 16.72% of risk-weighted assets. Each of these measures is in excess of the requirements in effect for the Association at March 31, 2025, for designation as “well capitalized” under regulatory prompt corrective action provisions. Beginning this fiscal year, the Company entered into the final year of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021. Refer to the Liquidity and Capital Resources section of this Item 2 for additional discussion regarding regulatory capital requirements.

Previous wording

Promotion of Adjustable-Rate Loans and Shorter-Term Fixed-Rate Loans

Current wording

Adjustable-Rate Loans and Shorter-Term Fixed-Rate Loans

Previous wording

At December 31, 2024 and September 30, 2024, 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 $0.8 million and $17.8 million, respectively.

Current wording

At March 31, 2025 and September 30, 2024, 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 $5.8 million and $17.8 million, respectively.

Previous wording

We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile. Increasing our investments in loans with variable rates of interest help to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. We strive to grow the home equity line of credit portfolio through offering competitive rates, marketing efforts and by utilizing partners to attract more home equity line of credit customers. At December 31, 2024, the principal balance of home equity lines of credit (including those in repayment) that are structured to reset with each prime rate adjustment totaled $3.51 billion. Our home equity lending is discussed in the Lending Activities section of this Item 2.

Current wording

We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile. Increasing our investments in loans with variable rates of interest help to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. We strive to grow the home equity line of credit portfolio through offering competitive rates, marketing efforts and by utilizing partners to attract more home equity line of credit customers. At March 31, 2025, the principal balance of home equity lines of credit (including those in repayment) that are structured to reset with each prime rate adjustment totaled $3.67 billion. Our home equity lending is discussed in the Lending Activities section of this Item 2.

Previous wording

We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and certain loans purchased through our correspondent lending partner) are originated under Fannie Mae guidelines and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. Currently, certain types of loans (i.e. our Smart Rate adjustable-rate loans, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our proprietary underwriting and closing process and are not eligible for sale to Fannie Mae. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions may be limited to loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral. Additionally, sales to private investors are dependent upon favorable market conditions, including motivated buyers, and involve more complicated negotiations and longer settlement timelines.

Current wording

We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and certain loans acquired through our correspondent lending partner) are originated under Fannie Mae guidelines and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. Certain types of loans (i.e. our Smart Rate adjustable-rate loans, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our proprietary underwriting and closing process and are not eligible for sale to Fannie Mae. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions may be limited to loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral. Additionally, sales to private investors are dependent upon favorable market conditions, including motivated buyers, and involve more complicated negotiations and longer settlement timelines.

Previous wording

During the three months ended December 31, 2024, $72.0 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, to Fannie Mae on a servicing retained basis. Of these sold or committed loans, $56.6 million were originated as agency-compliant first mortgage loans, $4.5 million were purchased through a correspondent lending partnership, $10.3 million were originated under Fannie Mae's Home Ready initiative, and $0.6 million were originated through our mortgage banking brand, known as "Mortgage Passport." At December 31, 2024, loans classified as held for sale totaled $0.8 million. At December 31, 2024, we serviced $1.99 billion of loans we originated and later sold to investors.

Current wording

During the six months ended March 31, 2025, $147.2 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, to Fannie Mae on a servicing retained basis. Of these sold or committed loans, $119.3 million were originated as agency-compliant first mortgage loans, $11.0 million were acquired through a correspondent lending partnership, and $16.9 million were originated under Fannie Mae's Home Ready initiative. At March 31, 2025, loans classified as held for sale totaled $5.8 million. At March 31, 2025, we serviced $2.01 billion of loans we originated and later sold to investors.

Previous wording

We continue to consider liquidity and balance sheet management, as well as secondary market pricing, in evaluating the opportunity to sell loans. Additionally, we are using a proprietary approach to loan-level price adjustments in markets outside of Ohio and Florida using our "Mortgage Passport" brand to expand our ability to sell certain fixed-rate loans to Fannie Mae. Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 2.

Current wording

We continue to consider liquidity and balance sheet management, as well as secondary market pricing, in evaluating the opportunity to sell loans. Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 2.

Previous wording

In an effort to limit our credit risk exposure and keep it consistent with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed. Products that do not result in an effective mix of repayment ability are not offered. We use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated during the current quarter, the average credit score was 777 and the average LTV was 67% at origination. Our current delinquency levels reflect the higher credit standards to which we subject all new originations. As of December 31, 2024, loans originated or purchased had a balance of $15.41 billion, of which $36.2 million, or 0.2%, were delinquent.

Current wording

In an effort to limit our credit risk exposure and keep it consistent with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed. Products that do not result in an effective mix of repayment ability are not offered. We believe we use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated during the current quarter, the average credit score was 777 and the average LTV was 68% at origination. Our current delinquency levels reflect the higher credit standards to which we subject all new originations. As of March 31, 2025, loans originated or acquired had a balance of $15.44 billion, of which $31.6 million, or 0.2%, were delinquent.

Previous wording

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 December 31, 2024, approximately 58.2% and 17.3% of the combined total of our residential Core and construction loans were held for investment, and approximately 23.1% and 22.3% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively. In an effort to moderate the concentration of our credit risk exposure in individual states, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations. Currently, in addition to Ohio and Florida, we are actively lending in 25 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010, levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. Of the total mortgage loans originated in the three months ended December 31, 2024, 20.2% are secured by properties in states other than Ohio or Florida.

Current wording

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 March 31, 2025, approximately 58.3% and 17.1% of the combined total of our residential Core and construction loans were held for investment, and approximately 22.5% and 22.3% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively. In an effort to moderate the concentration of our credit risk exposure in individual states, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations. Currently, in addition to Ohio and Florida, we are actively lending in 25 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010, levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. Of the total mortgage loans originated in the six months ended March 31, 2025, 26.0% are secured by properties in states other than Ohio or Florida.

Previous wording

Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth. For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner. We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence. At December 31, 2024, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 9.96%. The Association's Tier 1 (leverage) capital ratio at December 31, 2024 included the negative impact of a $40 million cash dividend payment that the Association made to the Company, its sole shareholder, in December 2024. Because of its intercompany nature, this dividend payment did not impact the Company's consolidated capital ratios which are reported in the Liquidity and Capital Resources section of this Item 2. We expect to continue to remain a well capitalized institution.

Current wording

Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth. For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner. We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence. At March 31, 2025, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 10.04%. The Association's Tier 1 (leverage) capital ratio at March 31, 2025 included the negative impact of a $40 million cash dividend payment that the Association made to the Company, its sole shareholder, in December 2024. Because of its intercompany nature, this dividend payment did not impact the Company's consolidated capital ratios which are reported in the Liquidity and Capital Resources section of this Item 2. We expect to continue to remain a well capitalized institution.

Previous wording

In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions. At December 31, 2024, deposits totaled $10.21 billion (including $1.10 billion of brokered CDs), while borrowings totaled $4.66 billion and borrowers’ advances and servicing escrows totaled $179.4 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.

Current wording

In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions. At March 31, 2025, deposits totaled $10.40 billion (including $1.03 billion of brokered CDs), while borrowings totaled $4.59 billion and borrowers’ advances and servicing escrows totaled $127.5 million, combined. In evaluating funding sources, we consider many factors, including cost, collateral, duration and optionality, current availability, expected sustainability, impact on operations and capital levels.

Previous wording

While our retail deposit customers provide our primary source of funding, we maintain many alternative funding sources. First, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At December 31, 2024, the Association had the ability to borrow a maximum of $6.77 billion from the FHLB of Cincinnati and $594.0 million from the FRB-Cleveland Discount Window. As of December 31, 2024, our capacity for additional borrowing from the FHLB of Cincinnati was $2.13 billion. Second, we have the ability to purchase overnight Fed Funds up to $395.0 million through various arrangements with other institutions. Third, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At December 31, 2024, our investment securities portfolio totaled $507.7 million. Fourth, selling loans in the secondary market is a regular source of liquidity. During the three months ended December 31, 2024, we sold, or committed to sell $72.0 million in loans to Fannie Mae. Finally, cash flows from operating activities have been a regular source of funds. During the three months ended December 31, 2024 and 2023, cash flows from operations provided $45.5 million and $36.3 million, respectively.

Current wording

While our retail deposit customers provide our primary source of funding, we maintain many alternative funding sources. First, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At March 31, 2025, the Association had the ability to borrow a maximum of $6.67 billion from the FHLB of Cincinnati and $565.0 million from the FRB-Cleveland Discount Window. As of March 31, 2025, our capacity for additional borrowing from the FHLB of Cincinnati was $2.10 billion. Second, we have the ability to purchase overnight Fed Funds up to $395.0 million through various arrangements with other institutions. Third, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At March 31, 2025, our investment securities portfolio totaled $533.9 million. Fourth, selling loans in the secondary market is a regular source of liquidity. During the six months ended March 31, 2025, we sold, or committed to sell $147.2 million in loans to Fannie Mae. Finally, cash flows from operating activities have been a regular source of funds. During the six months ended March 31, 2025 and 2024, cash flows from operations provided $66.8 million and $50.5 million, respectively.

Previous wording

Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. We have successfully been able to reduce our operating expenses to help offset the pressure of margin compression resulting from until recently, the prolonged inverted yield curve. Our ratio of annualized non-interest expense to average assets was 1.13% for the three months ended December 31, 2024, and 1.19% for the three months ended December 31, 2023. As of December 31, 2024, our average assets per full-time employee and our average deposits per full-time employee were $18.4 million and $11.0 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($246.2 million per branch office as of December 31, 2024) contributes to our expense management efforts by limiting the overhead costs of serving our customers. We will continue our efforts to control operating expenses to help offset margin compression.

Current wording

Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. We have successfully been able to reduce our operating expenses to help offset the pressure of margin compression resulting from the immediate impact of substantial decreases in short-term rates and, until recently, the prolonged inverted yield curve. Our ratio of annualized non-interest expense to average assets was 1.16% for the six months ended March 31, 2025, and 1.20% for the six months ended March 31, 2024. As of March 31, 2025, our average assets per full-time employee and our average deposits per full-time employee were $18.2 million and $11.1 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices

Previous wording

Critical accounting policies and estimates are defined as those made in accordance with U.S. GAAP that involve significant judgments, estimates and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are those with respect to our allowance for credit losses, income taxes and pension benefits as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Current wording

Critical accounting policies and estimates are defined as those made in accordance with U.S. GAAP that involve significant judgments, estimates and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are those with respect to our allowance for credit losses, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Previous wording

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. Given the higher risk inherent in home equity loans and lines of credit and our experience during periods of weak housing markets and potential uncertainty with respect to future employment levels and economic prospects, we conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more. This expanded evaluation is in addition to our traditional evaluation procedures. We have established an allowance for our unfunded commitments on this portfolio, which is recorded in other liabilities. Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs. At December 31, 2024, we had an amortized cost of $3.55 billion in home equity lines of credit and $613.7 million in home equity loans outstanding, of which $5.1 million, or 0.12%, were delinquent 90 days or more.

Current wording

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. Given the higher risk inherent in home equity loans and lines of credit and our experience during periods of weak housing markets and potential uncertainty with respect to future employment levels and economic prospects, we conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more. This expanded evaluation is in addition to our traditional evaluation procedures. We have established an allowance for our unfunded commitments on this portfolio, which is recorded in other liabilities. Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs. At March 31, 2025, we had an amortized cost of $3.71 billion in home equity lines of credit and $649.3 million in home equity loans outstanding, of which $5.5 million, or 0.13%, were delinquent 90 days or more.

Previous wording

The following table sets forth activity for credit losses segregated by geographic location for the periods indicated. The majority of our Residential Core and Home Today loan portfolios is secured by properties located in Ohio, and therefore were not segregated by state. There were no charge-offs in the Home equity loan portfolio for the periods indicated.

Current wording

The following table sets forth activity for credit losses segregated by geographic location for the periods indicated. The majority of our Residential Core and Home Today loan portfolios is secured by properties located in Ohio, and therefore were not segregated by state.

Previous wording

We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses. We reported net recoveries in each quarter for the past six years, primarily due to improvements in the values of properties used to secure loans that were fully or partially charged off after the 2008 collapse of the housing market. Charge-offs are recognized on loans identified as collateral-dependent and subject to individual review when the collateral value does not sufficiently support full repayment of the obligation. Recoveries are recognized on previously charged-off loans as borrowers perform their repayment obligations or as loans with improved collateral positions reach final resolution. During the three months ended December 31, 2024 and December 31, 2023, recoveries exceeded loan charge-offs by $1.4 million and $1.0 million, respectively, and gross charge-offs decreased slightly. Delinquent loans continue to be evaluated for potential losses and provisions are recorded for the estimate of potential losses of those loans.

Current wording

We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses. We reported net recoveries in each quarter for the past six years, primarily due to improvements in the values of properties used to secure loans that were fully or partially charged off after the 2008 collapse of the housing market. Charge-offs are recognized on loans identified as collateral-dependent and subject to individual review when the collateral value does not sufficiently support full repayment of the obligation. Recoveries are recognized on previously charged-off loans as borrowers perform their repayment obligations or as loans with improved collateral positions reach final resolution. During the three months ended March 31, 2025 and March 31, 2024, recoveries exceeded loan charge-offs by $0.7 million and $1.3 million, respectively, and gross charge-offs increased slightly. Delinquent loans continue to be evaluated for potential losses and provisions are recorded for the estimate of potential losses of those loans.

Previous wording

During the three months ended December 31, 2024 and September 30, 2024, the total allowance for credit losses remained at $97.8 million. The total allowance for credit losses is comprised of the asset portion, which is applied to the loan portfolio and the liability portion, which is applied to off-balance sheet exposures, primarily related to undrawn equity exposures. During the three months ended December 31, 2024, the asset portion of the total allowance increased to $70.6 million from $70.0 million, and the liability portion of the total allowance decreased to $27.2 million from $27.8 million. We recorded a $1.5 million net release of allowance for credit losses for the period, consisting of a $0.9 million release of provision on loans and a $0.6 million reclassification to credit losses on off-balance sheet exposures.

Current wording

During the three months ended March 31, 2025, the total allowance for credit losses increased to $99.9 million, from $97.8 million at December 31, 2024. The total allowance for credit losses is comprised of the asset portion, which is applied to the loan portfolio and the liability portion, which is applied to off-balance sheet exposures, primarily related to undrawn equity exposures. During the three months ended March 31, 2025, the asset portion of the total allowance decreased to $70.5 million from $70.6 million, and the liability portion of the total allowance increased to $29.4 million from $27.2 million. We recorded a $1.5 million net provision for credit losses for the period, consisting of a $0.7 million release of provision on loans and a $2.2 million provision for credit losses on off-balance sheet exposures.

Previous wording

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. While the allowance for credit losses on loan balances remained consistent during the three months ended December 31, 2024, the home equity loans and line of credit portfolios increased primarily due to new growth. This was offset by decreases in the Core portfolio balances primarily due to aging.

Current wording

Because many variables are considered in determining the appropriate level of general valuation allowances, directional changes in individual considerations do not always align with the directional change in the balance of a particular component of the general valuation allowance. The decrease in the allowance for credit losses applied to the loan portfolio during the three months ended March 31, 2025, was primarily related to a lower net recovery forecast for total qualitative factors. This was offset by the net impact of increases in the home equity loan and line of credit portfolios and a slight increase in the mortgage loss dollars related to changes in macroeconomic factors considered in the loss analysis. The portion of the allowance for credit losses applied to off-balance sheet exposures increased due to an increase in those exposures, including both the undrawn portion of equity lines of credit and commitments to originate or acquire loans.

Previous wording

The amortized cost of the residential Core portfolio decreased 1.9%, or $214.0 million, and its total allowance decreased 4.3%, or $1.9 million, as of December 31, 2024, compared to September 30, 2024. The amortized cost of the home equity lines of credit portfolio increased 5.7%, or $190.0 million, and its total allowance increased 9.7% to $18.2 million, from $16.6 million at September 30, 2024. The amortized cost of the home equity loans increased 8.3%, or $46.8 million, and its total allowance increased 6.3% to $12.4 million, from $11.6 million at September 30, 2024. As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $2.5 million at December 31, 2024, and $2.7 million at September 30, 2024. Under the CECL methodology, the life of loan concept allows for qualitative adjustments for the expected future recoveries of previously charged-off loans, which is driving the allowance balance for the Home Today loans to be negative. Refer to the"Activity in the Allowance for Credit Losses" and "Analysis of the Allowance for Credit Losses" tables in Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more information.

Current wording

The amortized cost of the residential Core portfolio decreased 1.6%, or $175.3 million, and its total allowance decreased 4.3%, or $1.8 million, as of March 31, 2025, compared to December 31, 2024. The amortized cost of the home equity lines of credit portfolio increased 4.5%, or $158.8 million, and its total allowance increased 7.0% to $19.5 million, from $18.2 million at December 31, 2024. The amortized cost of the home equity loans increased 5.8%, or $35.6 million, and its total allowance increased 3.7% to $12.8 million, from $12.4 million at December 31, 2024. As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $2.4 million at March 31, 2025, and $2.5 million at December 31, 2024. Under the CECL methodology, the life of loan concept allows for qualitative adjustments for the expected future recoveries of previously charged-off loans, which is driving the allowance balance for the Home Today loans to be negative. Refer to the"Activity in the Allowance for Credit Losses" and "Analysis of the Allowance for Credit Losses" tables in Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more information.

Previous wording

The following table provides the amortized cost and an analysis of our real estate loans held for investment disaggregated by refreshed FICO score, year of origination and portfolio at December 31, 2024. FICO scores are updated quarterly as available. The Company treats the FICO score information as demonstrating that underwriting guidelines reduce risk rather than as a credit quality indicator utilized in the evaluation of credit risk. Revolving loans reported at amortized cost include home equity lines of credit currently in their draw period. Revolving loans converted to term are home equity lines of credit that are in repayment.

Current wording

The following table provides the amortized cost and an analysis of our real estate loans held for investment disaggregated by refreshed FICO score, year of origination and portfolio at March 31, 2025. FICO scores are updated quarterly as available. The Company treats the FICO score information as demonstrating that underwriting guidelines reduce risk rather than as a credit quality indicator utilized in the evaluation of credit risk. Revolving loans reported at amortized cost include home equity lines of credit currently in their draw period, therefore not by year of origination. Revolving loans converted to term are home equity lines of credit that are in repayment.

Previous wording

At December 31, 2024, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $608.5 million in home equity loans (which included $11.6 million in bridge loans) and $3.51 billion in home equity lines of credit (which included $58.0 million of home equity lines of credit which are in repayment and no longer eligible to be drawn upon).

Current wording

At March 31, 2025, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $643.9 million in home equity loans (which included $12.1 million in bridge loans) and $3.67 billion in home equity lines of credit (which included $57.6 million of home equity lines of credit which are in repayment and no longer eligible to be drawn upon).

Previous wording

The principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $21.3 million, or 0.6%, at December 31, 2024. In recognition of the 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.

Current wording

The principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $17.5 million, or 0.5%, at March 31, 2025. In recognition of the past weakness in the housing market, we continue to conduct an expanded loan level evaluation of our home equity lines of credit which are delinquent 90 days or more.

Previous wording

At December 31, 2024, 24.0% of the home equity lending portfolio was either in a first lien position (12.1%), in a subordinate (second) lien position behind a first lien that we held (9.9%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (2.0%). At December 31, 2024, 12.5% of the home equity line of credit portfolio in the draw period were making only the minimum payment on the outstanding line balance. Minimum payments include both a principal and interest component.

Current wording

At March 31, 2025, 23.8% of the home equity lending portfolio was either in a first lien position (12.3%), in a subordinate (second) lien position behind a first lien that we held (9.5%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (2.0%). At March 31, 2025, 12.3% of the home equity line of credit portfolio in the draw period were making only the minimum payment on the outstanding line balance. Minimum payments include both a principal and interest component.

Previous wording

The following tables set forth the amortized cost in loan delinquencies by type, segregated by geographic location and duration of delinquency as of the dates indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio and there are no other loans with delinquent balances. There were no delinquencies in the construction loan portfolio as of the dates presented.

Current wording

The following tables set forth the amortized cost in loan delinquencies by type, segregated by geographic location and duration of delinquency as of the dates indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio, and therefore not segregated by state. There were no other loans with delinquent balances. There were no delinquencies in the construction loan portfolio as of the dates presented.

Previous wording

Core portfolio to 0.07% at December 31, 2024, from 0.06% at September 30, 2024. Serious delinquencies in the home equity lines of credit portfolio remained at 0.03% for both periods. Serious delinquencies in the Home Today and home equity loans portfolios at December 31, 2024 and September 30, 2024, respectively, are immaterial due to the low level of seriously delinquent loans as compared to the total net loans at each period.

Current wording

Total loans seriously delinquent (i.e. delinquent 90 days or more) were 0.10% of total net loans at March 31, 2025, and 0.09% at September 30, 2024. The percentage of loans seriously delinquent to total net loans decreased in the residential Core portfolio to 0.05% at March 31, 2025, from 0.06% at September 30, 2024. Serious delinquencies in the home equity lines of credit portfolio remained at 0.03% for both periods. Serious delinquencies in the Home Today and home equity loans portfolios at March 31, 2025 and September 30, 2024, respectively, are immaterial due to the low level of seriously delinquent loans as compared to the total net loans at each period.

Previous wording

Although delinquencies remain at or near historic lows, recent economic trends and elevated interest rates on home equity lines of credit have led to increased total delinquencies. Interest rates on home equity lines of credit are tied to the prime rate of interest which remains elevated, resulting in higher and less affordable monthly payments for some borrowers.

Current wording

Although delinquencies in most portfolios remain at or near historic lows, recent economic trends and elevated interest rates on home equity lines of credit led to an upward trend in delinquencies in that portfolio. Interest rates on home equity lines of credit are tied to the prime rate of interest which remains elevated, resulting in higher and less affordable monthly payments for some borrowers.

Previous wording

Total assets decreased $33.2 million, or less than 1%, to $17.06 billion at December 31, 2024, from $17.09 billion at September 30, 2024. This decrease was mainly the result of decreases in investment securities available for sale and mortgage loans held for sale.

Current wording

Total assets increased $20.9 million, or less than 1%, to $17.11 billion at March 31, 2025, from $17.09 billion at September 30, 2024. This increase was mainly the result of an increase in loans held for investment partially offset by a decrease in loans held for sale.

Previous wording

Cash and cash equivalents increased $2.2 million, or less than 1%, to $465.9 million at December 31, 2024, from $463.7 million at September 30, 2024. Cash is managed to maintain the level of liquidity described later in the Liquidity and Capital Resources section.

Current wording

Cash and cash equivalents decreased $0.1 million, or less than 1%, to $463.6 million at March 31, 2025, from $463.7 million at September 30, 2024. Cash is managed to maintain the level of liquidity described later in the Liquidity and Capital Resources section.

Previous wording

Investment securities available for sale decreased $18.6 million, or 4%, to $507.7 million at December 31, 2024, from $526.3 million at September 30, 2024. The decrease was due to the combined effect of cash flow from security repayments and maturities exceeding purchases during the three months ended December 31, 2024 as well as a decline in fair values, the result of interest rate changes between the periods compared. There were no sales of investment securities during the three months ended December 31, 2024.

Current wording

Investment securities available for sale increased $7.6 million, or 1%, to $533.9 million at March 31, 2025, from $526.3 million at September 30, 2024. The increase was due to the combined effect of purchases exceeding cash flow from security repayments and maturities during the six months ended March 31, 2025 as well as an increase in fair values, the result of market interest rate decreases between the periods compared. There were no sales of investment securities during the six months ended March 31, 2025.

Previous wording

Mortgage loans held for sale decreased by $17.0 million, or 96%, to $0.8 million at December 31, 2024, from $17.8 million at September 30, 2024 due to a decrease in both loans committed to forward sales and loans identified for future sale.

Current wording

Mortgage loans held for sale decreased by $12.0 million, or 67%, to $5.8 million at March 31, 2025, from $17.8 million at September 30, 2024 due to a decrease in both loans committed to forward sales and loans identified for future sale.

Previous wording

Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $20.9 million, or less than 1%, to $15.34 billion at December 31, 2024, from $15.32 billion at September 30, 2024. During the three months ended December 31, 2024, the home equity loans and lines of credit portfolio increased $236.2 million and residential core mortgage loans decreased $214.4 million.

Current wording

Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $38.1 million, or less than 1%, to $15.36 billion at March 31, 2025, from $15.32 billion at September 30, 2024. During the six months ended March 31, 2025, the home equity loans and lines of credit portfolio increased $430.0 million and residential core mortgage loans decreased $390.3 million.

Previous wording

The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, purchased and sold. During the three months ended December 31, 2024, total first mortgage loan originations were $176.5 million compared to $255.5 million for the three months ended September 30, 2024 and $273.0 million for the three months ended December 31, 2023. Of total residential mortgage loans originated during the current period, $146.3 million (83%) were purchase transactions and $23.8 million (14%) were adjustable rate loans. Commitments originated for home equity loans and lines of credit were $559.0 million for the three months ended December 31, 2024, compared to $655.4 million for the three months ended September 30, 2024 and $436.1 million for the three months ended December 31, 2023. Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information.

Current wording

The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, acquired and sold. During the six months ended March 31, 2025, total first mortgage loan originations were $376.0 million compared to $408.8 million for the six months ended March 31, 2024. Of total residential mortgage loans originated during the current period, $328.3 million (87%) were purchase transactions and $46.2 million (12%) were adjustable rate loans. Commitments originated for home equity loans and lines of credit were $1.20 billion for the six months ended March 31, 2025, compared to $915.4 million for the six months ended March 31, 2024. Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information.

Previous wording

Other assets, including prepaid expenses, decreased $15.8 million, or 14%, to $98.3 million at December 31, 2024, from $114.1 million at September 30, 2024. The decrease was primarily the result of a $12.6 million decrease in current and deferred income tax assets, which were liabilities at December 31, 2024, and a $2.2 million decrease in accounts receivable related to funds held by the benefit plan administrator for the employee stock ownership plan.

Current wording

Other assets, including prepaid expenses, decreased $10.2 million, or 9%, to $103.9 million at March 31, 2025, from $114.1 million at September 30, 2024. The decrease was primarily the result of a $4.9 million decrease in current and deferred income tax assets, as well as, a $4.9 million decrease in interest receivable from swaps.