UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-33390

TFS FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)



United States of America		52-2054948
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7007 Broadway Avenue
Cleveland,	Ohio	44105
(Address of Principal Executive Offices)		(Zip Code)

(216) 441-6000

Registrant’s telephone number, including area code:

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act



Title of each class	Trading Symbol(s)	Name of each exchange in which registered
Common Stock, par value $0.01 per share	TFSL	The NASDAQ Stock Market, LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	o	Smaller Reporting Company	☐

Emerging Growth Company	☐

If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of ~~August 5, 2019,~~May 13, 2020, there were ~~279,980,695~~280,142,927 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, of which 227,119,132 shares, or 81.1% of the Registrant’s common stock, were held by Third Federal Savings and Loan Association of Cleveland, MHC, the Registrant’s mutual holding company.

Table of Contents

TFS Financial Corporation

INDEX



		Page

	Glossary of Terms	3

PART l – FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Condition
	~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019	4

	Consolidated Statements of Income
	Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

	Consolidated Statements of Comprehensive Income
	Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	6

	Consolidated Statements of Shareholders’ Equity
	Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	7

	Consolidated Statements of Cash Flows
	~~Nine~~Six Months Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	9

	Notes to Unaudited Interim Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3938

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68

Item 4.	Controls and Procedures	72

Part II — OTHER INFORMATION

Item 1.	Legal Proceedings	72

Item 1A.	Risk Factors	72

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7374

Item 3.	Defaults Upon Senior Securities	7374

Item 4.	Mine Safety Disclosures	7374

Item 5.	Other Information	7374

Item 6.	Exhibits	7475

SIGNATURES		7576

Table of Contents

GLOSSARY OF TERMS

TFS Financial Corporation provides the following list of acronyms and defined terms as a tool for the reader. The acronyms and defined terms identified below are used throughout the document.



ACT: Tax Cuts and Jobs Act	FHLB: Federal Home Loan Bank
AOCI: Accumulated Other Comprehensive Income	FICO: Financing Corporation
ARM: Adjustable Rate Mortgage	FRB-Cleveland: Federal Reserve Bank of Cleveland
~~AOCI:~~ASC: ~~Accumulated Other Comprehensive Income~~Accounting Standards Codification	Freddie Mac: Federal Home Loan Mortgage Corporation
~~ARM:~~ ASU: ~~Adjustable Rate Mortgage~~Accounting Standards Update	FRS: Board of Governors of the Federal Reserve System
~~ASC:~~Association: ~~Accounting Standards Codification~~Third Federal Savings and Loan	GAAP: Generally Accepted Accounting Principles
~~ASU:~~ ~~Accounting Standards Update~~ Association of Cleveland	Ginnie Mae: Government National Mortgage Association
~~Association:~~ BOLI:~~Third Federal Savings and Loan~~ Bank Owned Life Insurance	GVA: General Valuation Allowances
~~Association of Cleveland~~	~~HARP:~~ CARES Act: ~~Home Affordable Refinance Program~~
~~BOLI:~~ ~~Bank Owned Life Insurance~~Coronavirus Aid, Relief and Economic Security	HPI: Home Price Index
Act	IRR: Interest Rate Risk
CDs: Certificates of Deposit	~~IRR:~~IRS: ~~Interest Rate Risk~~Internal Revenue Service
CFPB: Consumer Financial Protection Bureau	~~IRS:~~IVA: ~~Internal Revenue Service~~Individual Valuation Allowance
CLTV: Combined Loan-to-Value	~~IVA:~~ LIHTC: ~~Individual Valuation Allowance~~Low Income Housing Tax Credit
Company: TFS Financial Corporation and its	~~LIHTC:~~LIP: ~~Low Income Housing Tax Credit~~Loans-in-Process
subsidiaries	~~LIP:~~LTV: ~~Loans-in-Process~~Loan-to-Value
DFA: Dodd-Frank Wall Street Reform and Consumer	~~LTV:~~ ~~Loan-to-Value~~
~~Protection Act~~	MGIC: Mortgage Guaranty Insurance Corporation
~~EaR:~~ ~~Earnings at Risk~~ Protection Act	OCC: Office of the Comptroller of the Currency
EaR: Earnings at Risk	OCI: Other Comprehensive Income
EPS: Earnings per Share	~~OCI:~~PMI: ~~Other Comprehensive Income~~Private Mortgage Insurance
ESOP: Third Federal Employee (Associate) Stock	~~OTS:~~PMIC: ~~Office of Thrift Supervision~~PMI Mortgage Insurance Co.
Ownership Plan	~~PMI:~~REMICs: ~~Private~~Real Estate Mortgage ~~Insurance~~Investment Conduits
EVE: Economic Value of Equity	~~PMIC:~~SEC: ~~PMI Mortgage Insurance Co.~~United States Securities and Exchange Commission
Fannie Mae: Federal National Mortgage Association	~~QTL:~~TDR: ~~Qualified Thrift Lender~~Troubled Debt Restructuring
FASB: Financial Accounting Standards Board	~~REMICs:~~ ~~Real Estate Mortgage Investment Conduits~~
~~FDIC:~~ ~~Federal Deposit Insurance Corporation~~	~~SEC:~~ ~~United States Securities and Exchange Commission~~
~~FHFA:~~ ~~Federal Housing Finance Agency~~	~~TDR:~~ ~~Troubled Debt Restructuring~~
~~FHLB:~~ ~~Federal Home Loan Bank~~	Third Federal Savings, MHC: Third Federal Savings
~~FICO:~~ FDIC: ~~Financing~~Federal Deposit Insurance Corporation	and Loan Association of Cleveland, MHC
FHFA: Federal Housing Finance Agency

Table of Contents

Item 1. Financial Statements

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except share data)


	June 30, 2019			September 30, 2018			March 31, 2020			September 30, 2019
ASSETS
Cash and due from banks	$	28,749		$	29,056		$	27,803		$	31,728
Interest-earning cash equivalents	242,599			240,719
Other interest-earning cash equivalents							284,678			243,415
Cash and cash equivalents	271,348			269,775			312,481			275,143
Investment securities available for sale (amortized cost $566,228 and $549,211, respectively)	564,945			531,965
Investment securities available for sale (amortized cost $532,812 and $550,605, respectively)							545,484			547,864
Mortgage loans held for sale, at lower of cost or market (none measured at fair value)	2,635			659			2,337			3,666
Loans held for investment, net:
Mortgage loans	13,023,209			12,872,125			13,571,200			13,189,516
Other consumer loans	2,878			3,021
Other loans							2,700			3,166
Deferred loan expenses, net	41,724			38,566			44,941			41,976
Allowance for loan losses	(39,313		)	(42,418		)	(44,387		)	(38,913		)
Loans, net	13,028,498			12,871,294			13,574,454			13,195,745
Mortgage loan servicing rights, net	8,289			8,840			7,194			8,080
Federal Home Loan Bank stock, at cost	99,647			93,544			135,858			101,858
Real estate owned	2,120			2,794
Real estate owned, net							2,728			2,163
Premises, equipment, and software, net	61,916			63,399			42,684			61,577
Accrued interest receivable	40,998			38,696			38,915			40,822
Bank owned life insurance contracts	215,909			212,021			219,768			217,481
Other assets	75,434			44,344			120,440			87,957
TOTAL ASSETS	$	14,371,739		$	14,137,331		$	15,002,343		$	14,542,356
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	8,714,469		$	8,491,583		$	9,087,811		$	8,766,384
Borrowed funds	3,833,600			3,721,699			4,082,951			3,902,981
Borrowers’ advances for insurance and taxes	57,531			103,005			93,225			103,328
Principal, interest, and related escrow owed on loans serviced	19,180			31,490			28,722			32,909
Accrued expenses and other liabilities	36,477			31,150			54,470			40,000
Total liabilities	12,661,257			12,378,927			13,347,179			12,845,602
Commitments and contingent liabilities
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding	—			—			—			—
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 279,989,323 and 280,311,070 outstanding at June 30, 2019 and September 30, 2018, respectively	3,323			3,323
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,139,970 and 279,962,777 outstanding at March 31, 2020 and September 30, 2019, respectively							3,323			3,323
Paid-in capital	1,731,329			1,726,992			1,739,523			1,734,154
Treasury stock, at cost; 52,329,427 and 52,007,680 shares at June 30, 2019 and September 30, 2018, respectively	(762,200		)	(754,272		)
Treasury stock, at cost; 52,178,780 and 52,355,973 shares at March 31, 2020 and September 30, 2019, respectively							(767,723		)	(764,589		)
Unallocated ESOP shares	(45,501		)	(48,751		)	(42,251		)	(44,417		)
Retained earnings—substantially restricted	829,508			807,890			853,155			837,662
Accumulated other comprehensive income (loss)	(45,977		)	23,222
Accumulated other comprehensive loss							(130,863		)	(69,379		)
Total shareholders’ equity	1,710,482			1,758,404			1,655,164			1,696,754
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	14,371,739		$	14,137,331		$	15,002,343		$	14,542,356

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(In thousands, except share and per share data)


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended					For the Six Months Ended
	June 30,						June 30,						March 31,					March 31,
	2019			2018			2019			2018			2020		2019			2020		2019
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	115,129		$	105,956		$	341,926		$	313,821		$	115,203	$	114,306		$	230,428	$	226,797
Investment securities available for sale	3,389			2,891			10,007			8,239			2,911		3,494			5,775		6,618
Other interest and dividend earning assets	2,525			2,271			7,841			6,467			1,412		2,643			3,375		5,316
Total interest and dividend income	121,043			111,118			359,774			328,527			119,526		120,443			239,578		238,731
INTEREST EXPENSE:
Deposits	37,159			26,310			104,998			72,934			37,483		35,077			75,799		67,839
Borrowed funds	18,366			14,535			53,685			43,634			17,005		17,605			34,556		35,319
Total interest expense	55,525			40,845			158,683			116,568			54,488		52,682			110,355		103,158
NET INTEREST INCOME	65,518			70,273			201,091			211,959			65,038		67,761			129,223		135,573
PROVISION (CREDIT) FOR LOAN LOSSES	(2,000		)	(2,000		)	(8,000		)	(9,000		)	6,000		(4,000		)	3,000		(6,000		)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES	67,518			72,273			209,091			220,959			59,038		71,761			126,223		141,573
NON-INTEREST INCOME:
Fees and service charges, net of amortization	1,773			2,018			5,344			5,577			2,119		1,795			4,265		3,571
Net gain on the sale of loans	543			2,529			1,105			3,072			3,138		451			6,063		562
Increase in and death benefits from bank owned life insurance contracts	1,703			1,538			5,124			4,601			2,461		1,874			4,022		3,421
Other	1,064			1,106			3,092			3,401			1,229		786			6,527		2,028
Total non-interest income	5,083			7,191			14,665			16,651			8,947		4,906			20,877		9,582
NON-INTEREST EXPENSE:
Salaries and employee benefits	26,149			27,199			77,665			76,509			27,216		26,152			53,101		51,516
Marketing services	6,063			5,284			17,579			16,338			4,029		6,719			8,490		11,516
Office property, equipment and software	6,806			7,135			20,053			20,514			6,534		6,261			12,980		13,247
Federal insurance premium and assessments	2,669			2,800			7,805			8,526			2,768		2,370			5,387		5,136
State franchise tax	1,265			1,176			3,809			3,586			1,191		1,282			2,323		2,544
Other expenses	6,916			7,835			21,664			21,420			7,820		7,943			14,597		14,748
Total non-interest expense	49,868			51,429			148,575			146,893			49,558		50,727			96,878		98,707
INCOME BEFORE INCOME TAXES	22,733			28,035			75,181			90,717			18,427		25,940			50,222		52,448
INCOME TAX EXPENSE	4,476			7,160			16,461			26,915			1,170		5,810			7,323		11,985
NET INCOME	$	18,257		$	20,875		$	58,720		$	63,802		$	17,257	$	20,130		$	42,899	$	40,463
Earnings per share - basic and diluted	$	0.06		$	0.07		$	0.21		$	0.23
Earnings per share—basic and diluted													$	0.06	$	0.07		$	0.15	$	0.14
Weighted average shares outstanding
Basic	275,384,635			275,468,237			275,373,426			275,647,589			275,835,243		275,359,201			275,706,011		275,367,821
Diluted	277,398,486			277,200,873			277,269,555			277,346,709			278,101,329		277,343,155			277,990,253		277,197,565

See accompanying notes to unaudited interim consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(In thousands)


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						March 31,						March 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Net income	$	18,257		$	20,875		$	58,720		$	63,802		$	17,257		$	20,130		$	42,899		$	40,463
Other comprehensive income (loss), net of tax:
Net change in unrealized loss on securities available for sale	4,133			(1,301		)	12,611			(7,560		)
Net change in unrealized gain (losses) on securities available for sale													9,253			3,381			12,176			8,478
Net change in cash flow hedges	(36,844		)	5,675			(82,602		)	33,487			(89,769		)	(18,936		)	(74,564		)	(45,758		)
Change in pension obligation	264			316			792			910
Net change in defined benefit plan obligation													452			264			904			528
Total other comprehensive income (loss)	(32,447		)	4,690			(69,199		)	26,837			(80,064		)	(15,291		)	(61,484		)	(36,752		)
Total comprehensive income	$	(14,190	)	$	25,565		$	(10,479	)	$	90,639
Total comprehensive income (loss)													$	(62,807	)	$	4,839		$	(18,585	)	$	3,711

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(In thousands, except share and per share data)


	For the Three Months Ended June 30, 2018																				For the Three Months Ended March 31, 2019
	Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity			Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at March 31, 2018	$	3,323	$	1,723,254		$	(746,645	)	$	(50,917	)	$	786,167		$	14,613		$	1,729,795
Net income	—		—			—			—			20,875			—			20,875
Other comprehensive income, net of tax	—		—			—			—			—			4,690			4,690
ESOP shares allocated or committed to be released	—		591			—			1,083			—			—			1,674
Compensation costs for equity incentive plans	—		1,104			—			—			—			—			1,104
Purchase of treasury stock (255,911 shares)	—		—			(3,960		)	—			—			—			(3,960		)
Treasury stock allocated to equity incentive plan	—		100			(568		)	—			—			—			(468		)
Dividends paid to common shareholders ($0.17 per common share)	—		—			—			—			(8,416		)	—			(8,416		)
Balance at June 30, 2018	$	3,323	$	1,725,049		$	(751,173	)	$	(49,834	)	$	798,626		$	19,303		$	1,745,294

	For the Three Months Ended June 30, 2019
	Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at March 31, 2019	$	3,323	$	1,729,499		$	(760,367	)	$	(46,584	)	$	823,644		$	(13,530	)	$	1,735,985
Balance at December 31, 2018																					$	3,323	$	1,727,909		$	(757,464	)	$	(47,667	)	$	815,918		$	1,761		$	1,743,780
Net income	—		—			—			—			18,257			—			18,257			—		—			—			—			20,130			—			20,130
Other comprehensive income (loss), net of tax	—		—			—			—			—			(32,447		)	(32,447		)	—		—			—			—			—			(15,291		)	(15,291		)
ESOP shares allocated or committed to be released	—		766			—			1,083			—			—			1,849			—		729			—			1,083			—			—			1,812
Compensation costs for equity incentive plans	—		1,116			—			—			—			—			1,116			—		1,146			—			—			—			—			1,146
Purchase of treasury stock (102,900 shares)	—		—			(1,707		)	—			—			—			(1,707		)
Purchase of treasury stock (146,000 shares)																					—		—			(2,432		)	—			—			—			(2,432		)
Treasury stock allocated to equity incentive plan	—		(52		)	(126		)	—			—			—			(178		)	—		(285		)	(471		)	—			—			—			(756		)
Dividends paid to common shareholders ($0.25 per common share)	—		—			—			—			(12,393		)	—			(12,393		)	—		—			—			—			(12,404		)	—			(12,404		)
Balance at June 30, 2019	$	3,323	$	1,731,329		$	(762,200	)	$	(45,501	)	$	829,508		$	(45,977	)	$	1,710,482
Balance at March 31, 2019																					$	3,323	$	1,729,499		$	(760,367	)	$	(46,584	)	$	823,644		$	(13,530	)	$	1,735,985

																					For the Three Months Ended March 31, 2020
																					Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at December 31, 2019																					$	3,323	$	1,736,322		$	(766,492	)	$	(43,334	)	$	849,929		$	(50,799	)	$	1,728,949
Net income																					—		—			—			—			17,257			—			17,257
Other comprehensive income (loss), net of tax																					—		—			—			—			—			(80,064		)	(80,064		)
ESOP shares allocated or committed to be released																					—		1,050			—			1,083			—			—			2,133
Compensation costs for equity incentive plans																					—		1,160			—			—			—			—			1,160
Purchase of treasury stock (1,000 shares)																					—		—			(19		)	—			—			—			(19		)
Treasury stock allocated to equity incentive plan																					—		991			(1,212		)	—			—			—			(221		)
Dividends paid to common shareholders ($0.28 per common share)																					—		—			—			—			(14,031		)	—			(14,031		)
Balance at March 31, 2020																					$	3,323	$	1,739,523		$	(767,723	)	$	(42,251	)	$	853,155		$	(130,863	)	$	1,655,164

Table of Contents


	For the Nine Months Ended June 30, 2018
	Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at September 30, 2017	$	3,323	$	1,722,672		$	(735,530	)	$	(53,084	)	$	760,070		$	(7,492	)	$	1,689,959
Net income	—		—			—			—			63,802			—			63,802
Other comprehensive income, net of tax	—		—			—			—			42			26,795			26,837
ESOP shares allocated or committed to be released	—		1,697			—			3,250			—			—			4,947
Compensation costs for equity incentive plans	—		3,629			—			—			—			—			3,629
Purchase of treasury stock (1,113,911 shares)	—		—			(16,994		)	—			—			—			(16,994		)
Treasury stock allocated to equity incentive plan	—		(2,949		)	1,351			—			—			—			(1,598		)
Dividends paid to common shareholders ($0.51 per common share)	—		—			—			—			(25,288		)	—			(25,288		)
Balance at June 30, 2018	$	3,323	$	1,725,049		$	(751,173	)	$	(49,834	)	$	798,626		$	19,303		$	1,745,294

	For the Nine Months Ended June 30, 2019																				For the Six Months Ended March 31, 2019
	Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity			Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at September 30, 2018	$	3,323	$	1,726,992		$	(754,272	)	$	(48,751	)	$	807,890		$	23,222		$	1,758,404		$	3,323	$	1,726,992		$	(754,272	)	$	(48,751	)	$	807,890		$	23,222		$	1,758,404
Net income	—		—			—			—			58,720			—			58,720			—		—			—			—			40,463			—			40,463
Other comprehensive income (loss), net of tax	—		—			—			—			—			(69,199		)	(69,199		)	—		—			—			—			—			(36,752		)	(36,752		)
ESOP shares allocated or committed to be released	—		2,076			—			3,250			—			—			5,326			—		1,310			—			2,167			—			—			3,477
Compensation costs for equity incentive plans	—		3,343			—			—			—			—			3,343			—		2,227			—			—			—			—			2,227
Purchase of treasury stock (491,400 shares)	—		—			(7,915		)	—			—			—			(7,915		)
Purchase of treasury stock (388,500 shares)																					—		—			(6,208		)	—			—			—			(6,208		)
Treasury stock allocated to equity incentive plan	—		(1,082		)	(13		)	—			—			—			(1,095		)	—		(1,030		)	113			—			—			—			(917		)
Dividends paid to common shareholders ($0.75 per common share)	—		—			—			—			(37,102		)	—			(37,102		)
Balance at June 30, 2019	$	3,323	$	1,731,329		$	(762,200	)	$	(45,501	)	$	829,508		$	(45,977	)	$	1,710,482
Dividends paid to common shareholders ($0.50 per common share)																					—		—			—			—			(24,709		)	—			(24,709		)
Balance at March 31, 2019																					$	3,323	$	1,729,499		$	(760,367	)	$	(46,584	)	$	823,644		$	(13,530	)	$	1,735,985


																					For the Six Months Ended March 31, 2020
																					Common stock		Paid-in capital			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at September 30, 2019																					$	3,323	$	1,734,154		$	(764,589	)	$	(44,417	)	$	837,662		$	(69,379	)	$	1,696,754
Net income																					—		—			—			—			42,899			—			42,899
Other comprehensive income (loss), net of tax																					—		—			—			—			—			(61,484		)	(61,484		)
ESOP shares allocated or committed to be released																					—		2,061			—			2,166			—			—			4,227
Compensation costs for equity incentive plans																					—		2,349			—			—			—			—			2,349
Purchase of treasury stock (20,500 shares)																					—		—			(378		)	—			—			—			(378		)
Treasury stock allocated to equity incentive plan																					—		959			(2,756		)	—			—			—			(1,797		)
Dividends paid to common shareholders ($0.55 per common share)																					—		—			—			—			(27,406		)	—			(27,406		)
Balance at March 31, 2020																					$	3,323	$	1,739,523		$	(767,723	)	$	(42,251	)	$	853,155		$	(130,863	)	$	1,655,164

See accompanying notes to unaudited interim consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)



		For the Six Months Ended March 31,
		2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	42,899		$	40,463
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense		6,576			5,704
Depreciation and amortization		14,488			10,618
Deferred income taxes		(182		)	438
Provision (credit) for loan losses		3,000			(6,000		)
Net gain on the sale of loans		(6,063		)	(562		)
Net gain on sale of commercial property		(4,257		)	—
Other net losses		(513		)	(108		)
Proceeds from sales of loans held for sale		27,392			13,516
Loans originated for sale		(25,577		)	(13,901		)
Increase in bank owned life insurance contracts		(3,128		)	(3,071		)
Net increase in interest receivable and other assets		(7,748		)	(2,772		)
Net increase (decrease) in accrued expenses and other liabilities	��	15,650			(1,174		)
Net cash provided by operating activities		62,537			43,151
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated		(1,969,056		)	(1,185,602		)
Principal repayments on loans		1,282,921			1,125,215
Proceeds from principal repayments and maturities of:
Securities available for sale		102,096			62,559
Proceeds from sale of:
Loans		300,042			45,319
Real estate owned		1,165			2,400
Premises, Equipment and Other Assets		23,512			—
Purchases of:
FHLB stock		(34,000		)	—
Securities available for sale		(86,962		)	(96,324		)
Premises and equipment		(1,484		)	(1,993		)
Other		494			(622		)
Net cash used in investing activities		(381,272		)	(49,048		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		321,427			241,207
Net decrease in borrowers' advances for insurance and taxes		(10,103		)	(14,166		)
Net decrease in principal and interest owed on loans serviced		(4,187		)	(1,929		)
Net increase(decrease) in short-term borrowed funds		163,176			51,887
Proceeds from long-term borrowed funds		250,000			—
Repayment of long-term borrowed funds		(233,206		)	(183,514		)
Cash collateral/settlements received from (provided to) derivative counterparties		(101,417		)	(66,360		)
Purchase of treasury shares		(414		)	(6,137		)
Acquisition of treasury shares through net settlement of stock benefit plans compensation		(1,797		)	(917		)
Dividends paid to common shareholders		(27,406		)	(24,709		)
Net cash provided by (used in) financing activities		356,073			(4,638		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		37,338			(10,535		)
CASH AND CASH EQUIVALENTS—Beginning of period		275,143			269,775
CASH AND CASH EQUIVALENTS—End of period		$	312,481		$	259,240
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest on deposits		$	74,937		$	67,122
Cash paid for interest on borrowed funds		36,312			38,125
Cash paid for income taxes		1,649			9,647
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned		1,751			2,531
Transfer of loans from held for investment to held for sale		295,790			45,102
Treasury stock issued for stock benefit plans		960			1,068

For the Nine Months Ended June 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,720
$ 63,802
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense 8,669
8,576
Depreciation and amortization 16,773
19,517
Deferred income taxes 514
4,565
Provision (credit) for loan losses (8,000 ) (9,000 )
Net gain on the sale of loans (1,105 ) (3,072 )
Other net losses 192
411
Principal repayments on and proceeds from sales of loans held for sale 29,786
15,697
Loans originated for sale (31,550 ) (17,032 )
Increase in bank owned life insurance contracts (4,619 ) (4,590 )
Net increase in interest receivable and other assets (3,102 ) (4,774 )
Net increase (decrease) in accrued expenses and other liabilities 6,353
(6,029 )
Net cash provided by operating activities 72,631
68,071
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated (2,166,159 ) (2,473,615 )
Principal repayments on loans 1,950,189
1,861,161
Proceeds from principal repayments and maturities of:
Securities available for sale 101,867
102,843
Proceeds from sale of:
Loans 55,710
356,350
Real estate owned 3,239
5,500
Purchases of:
FHLB stock (6,103 ) (3,554 )
Securities available for sale (121,752 ) (121,113 )
Premises and equipment (2,888 ) (6,716 )
Other 369
—
Net cash used in investing activities (185,528 ) (279,144 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 222,886
256,663
Net decrease in borrowers' advances for insurance and taxes (45,474 ) (39,950 )
Net decrease in principal and interest owed on loans serviced (12,310 ) (13,078 )
Net increase in short-term borrowed funds 411,308
173,557
Proceeds from long-term borrowed funds —
15,088
Repayment of long-term borrowed funds (299,407 ) (195,261 )
Cash collateral/settlements received from (provided to) derivative counterparties (1)
(116,396 ) 48,265
Purchase of treasury shares (7,940 ) (16,996 )
Acquisition of treasury shares through net settlement of stock benefit plans compensation (1,095 ) (1,598 )
Dividends paid to common shareholders (37,102 ) (25,288 )
Net cash provided by financing activities 114,470
201,402
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,573
(9,671 )
CASH AND CASH EQUIVALENTS—Beginning of period 269,775
268,218
CASH AND CASH EQUIVALENTS—End of period $ 271,348
$ 258,547
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest on deposits $ 103,999
$ 71,507
Cash paid for interest on borrowed funds 59,468
42,850
Cash paid for income taxes 9,686
25,092
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned 2,925
3,414
Transfer of loans from held for sale to held for investment —
149
Transfer of loans from held for investment to held for sale 55,364
356,562
Treasury stock issued for stock benefit plans 1,121
2,949

~~(1)~~ In accordance with ASC 230-10-45-27, cash flows from derivative instruments may be classified in the same category as items hedged. For the nine months ended June 30, 2018, $48,265 of cash collateral and settlement payments received from derivative counterparties were reclassified from Operating to Financing Activities to conform to this presentation.

See accompanying notes to unaudited interim consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands unless otherwise indicated)


1.	BASIS OF PRESENTATION

TFS Financial Corporation, a federally chartered stock holding company, conducts its principal activities through its wholly owned subsidiaries. The principal line of business of the Company is retail consumer banking, including mortgage lending, deposit gathering, and, to a much lesser extent, other financial services. As of ~~June 30, 2019,~~March 31, 2020, approximately 81% of the Company’s outstanding shares were owned by a federally chartered mutual holding company, Third Federal Savings and Loan Association of Cleveland, MHC. The thrift subsidiary of TFS Financial Corporation is Third Federal Savings and Loan Association of Cleveland.

Third Capital, Inc., an operating subsidiary of the Company, was formed to hold non-thrift investments and subsidiaries, which includes a partial ownership of a limited liability company that acquires and manages commercial real estate. On October 31, 2019, the limited liability company sold the remaining two commercial office buildings it owned, which had a net book value of $19,324 at September 30, 2019 included in premises, equipment and software, net and other assets. A $4,257 net gain on the sale of those properties was recorded for the quarter ended December 31, 2019, representing the Company's share of the gain on sale. Pending the outcome of various sale escrow reserves, which will not be resolved until later this year, the Company may record additional residual income in 2020.

The accounting and reporting policies followed by the Company conform in all material respects to U.S. GAAP and to general practices in the financial services industry. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses, the valuation of deferred tax assets, and the determination of pension obligations are particularly subject to change.

The unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial condition of the Company at ~~June 30, 2019~~March 31, 2020, and its results of operations and cash flows for the periods presented. Such adjustments are the only adjustments reflected in the unaudited interim financial statements.

In accordance with SEC Regulation S-X for interim financial information, these statements do not include certain information and footnote disclosures required for complete audited financial statements. The Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 contains audited consolidated financial statements and related notes, which should be read in conjunction with the accompanying interim consolidated financial statements. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2019~~2020 or for any other period.

Effective October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent amendments related to the ASU (collectively, “Topic 606”). The core principle of the guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The adoption did not have a significant impact to the Company's consolidated financial statements, as such, a cumulative effect adjustment to the opening balance of retained earnings at adoption was not necessary. Neither the new standard, nor any of the related amendments, resulted in a material change from our current accounting for revenue because a significant amount of the Company’s revenue streams such as interest income, are not within the scope of Topic 606. Two of the Company's revenue streams within scope of Topic 606 are the sales of REO and deposit account and other transaction-based service fee income. Both streams are immaterial and therefore quantitative information regarding these streams is not disclosed.


2.	EARNINGS PER SHARE

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. For purposes of computing basic earnings per share, ~~amounts,~~ outstanding shares include shares held by the public, shares held by the ESOP that have been allocated to participants or committed to be released for allocation to participants, and the 227,119,132 shares held by Third Federal Savings, ~~MHC, and, for~~MHC. For purposes of computing dilutive earnings per share, stock options and restricted and performance stock units

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with a dilutive ~~impact.~~impact are added to the outstanding shares used in the basic earnings per share calculation. Unvested shares awarded pursuant to the Company's restricted stock plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. Performance stock units, determined to be contingently issuable and not participating securities, are excluded from the calculation of basic EPS. At ~~June 30,~~March 31, 2020 and 2019, ~~and~~ ~~2018~~, respectively, the ESOP held ~~4,550,066~~4,225,061 and ~~4,983,406~~4,658,402 shares, respectively, that were neither allocated to participants nor committed to be released to participants.

~~Table of Contents~~

The following is a summary of the Company's earnings per share calculations.


	For the Three Months Ended June 30,										For the Three Months Ended March 31,
	2019					2018					2020					2019
	Income		Shares	Per share amount		Income		Shares	Per share amount		Income		Shares	Per share amount		Income		Shares	Per share amount
	(Dollars in thousands, except per share data)										(Dollars in thousands, except per share data)
Net income	$	18,257				$	20,875				$	17,257				$	20,130
Less: income allocated to restricted stock units	362					287					382					406
Basic earnings per share:
Income available to common shareholders	$	17,895	275,384,635	$	0.06	$	20,588	275,468,237	$	0.07	$	16,875	275,835,243	$	0.06	$	19,724	275,359,201	$	0.07
Diluted earnings per share:
Effect of dilutive potential common shares			2,013,851					1,732,636					2,266,086					1,983,954
Income available to common shareholders	$	17,895	277,398,486	$	0.06	$	20,588	277,200,873	$	0.07	$	16,875	278,101,329	$	0.06	$	19,724	277,343,155	$	0.07


	For the Nine Months Ended June 30,										For the Six Months Ended March 31,
	2019					2018					2020					2019
	Income		Shares	Per share amount		Income		Shares	Per share amount		Income		Shares	Per share amount		Income		Shares	Per share amount
	(Dollars in thousands, except per share data)										(Dollars in thousands, except per share data)
Net income	$	58,720				$	63,802				$	42,899				$	40,463
Less: income allocated to restricted stock units	1,124					829					798					536
Basic earnings per share:
Income available to common shareholders	$	57,596	275,373,426	$	0.21	$	62,973	275,647,589	$	0.23	$	42,101	275,706,011	$	0.15	$	39,927	275,367,821	$	0.14
Diluted earnings per share:
Effect of dilutive potential common shares			1,896,129					1,699,120					2,284,242					1,829,744
Income available to common shareholders	$	57,596	277,269,555	$	0.21	$	62,973	277,346,709	$	0.23	$	42,101	277,990,253	$	0.15	$	39,927	277,197,565	$	0.14

The following is a summary of outstanding stock options ~~and restricted and performance stock units~~ that are excluded from the computation of diluted earnings per share because their inclusion would be anti-dilutive. There were no restricted or performance stock units that are excluded because of anti-dilution for the periods presented.

For the Three Months Ended June 30, For the Nine Months Ended June 30,
2019 2018 2019 2018
Options to purchase shares 710,100
2,111,540
710,100
2,148,840
Restricted and performance stock units —
—
—
11,001



	For the Three Months Ended March 31,		For the Six Months Ended March 31,
	2020	2019	2020	2019
Options to purchase shares	—	710,100	—	710,100

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3.INVESTMENT SECURITIES

Investments available for sale are summarized as follows:

June 30, 2019

Amortized
Cost

Gross
Unrealized

Fair
Value
Gains Losses
REMICs $ 554,854
$ 2,206
$ (3,742 ) $ 553,318
Fannie Mae certificates 7,377
252
—
7,629
U.S. government and agency obligations 3,997
1
—
3,998
Total $ 566,228
$ 2,459
$ (3,742 ) $ 564,945



	March 31, 2020
	Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
REMICs	$	526,522	$	12,387	$	(6	)	$	538,903
Fannie Mae certificates	6,290		291		—			6,581
Total	$	532,812	$	12,678	$	(6	)	$	545,484

~~Table of Contents~~


	September 30, 2018									September 30, 2019
	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
REMICs	$	537,330	$	7	$	(17,338	)	$	519,999	$	544,042	$	1,384	$	(4,384	)	$	541,042
Fannie Mae certificates	7,906		237		(145		)	7,998		6,563		259		—			6,822
U.S. government and agency obligations	3,975		—		(7		)	3,968
Total	$	549,211	$	244	$	(17,490	)	$	531,965	$	550,605	$	1,643	$	(4,384	)	$	547,864

Gross unrealized losses on available for sale securities and the estimated fair value of the related securities, aggregated by the length of time the securities have been in a continuous loss position, at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, were as follows:


	June 30, 2019												March 31, 2020
	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Available for sale—
REMICs	$	19,317	$	23	$	340,121	$	3,719	$	359,438	$	3,742	$	2,019	$	4	$	2,069	$	2	$	4,088	$	6

September 30, 2018
Less Than 12 Months 12 Months or More Total
Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss
Available for sale—

REMICs $ 113,111
$ 1,799
$ 400,558
$ 15,539
$ 513,669
$ 17,338
Fannie Mae certificates —
—
4,337
145
4,337
145
U.S. government and agency obligations 3,968
7
—
—
3,968
7
Total $ 117,079
$ 1,806
$ 404,895
$ 15,684
$ 521,974
$ 17,490



	September 30, 2019
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Available for sale—
REMICs	$	95,751	$	488	$	292,643	$	3,896	$	388,394	$	4,384

We believe the unrealized losses on investment securities were attributable to market interest rate increases. The contractual terms of U.S. government and agency obligations do not permit the issuer to settle the security at a price less than the par value of the investment. The contractual cash flows of mortgage-backed securities are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. REMICs are issued by or backed by securities issued by these governmental agencies. It is expected that the securities would not be settled at a price substantially less than the amortized cost of the investment. The U.S. Treasury Department established financing agreements in 2008 to ensure Fannie Mae and Freddie Mac meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed.

Since the decline in value is attributable to changes in market interest rates and not credit quality and because the Company has neither the intent to sell the securities nor is it more likely than not the Company will be required to sell the securities for the time periods necessary to recover the amortized cost, these investments are not considered other-than-temporarily impaired. ~~At June 30, 2019, the amortized cost and fair value of U.S. government obligations, categorized as due in less than one year are $3,997 and $3,998, respectively.~~

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4.	LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans held for investment consist of the following:


	June 30, 2019			September 30, 2018			March 31, 2020			September 30, 2019
Real estate loans:
Residential Core	$	10,826,777		$	10,930,811		$	11,148,838		$	10,903,024
Residential Home Today	87,785			94,933			80,401			84,942
Home equity loans and lines of credit	2,085,853			1,818,918			2,316,519			2,174,961
Construction	47,650			64,012			52,569			52,332
Real estate loans	13,048,065			12,908,674			13,598,327			13,215,259
Other consumer loans	2,878			3,021
Other loans							2,700			3,166
Add (deduct):
Deferred loan expenses, net	41,724			38,566			44,941			41,976
Loans in process ("LIP")	(24,856		)	(36,549		)
Loans in process							(27,127		)	(25,743		)
Allowance for loan losses	(39,313		)	(42,418		)	(44,387		)	(38,913		)
Loans held for investment, net	$	13,028,498		$	12,871,294		$	13,574,454		$	13,195,745

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, respectively, $~~2,635~~2,337 and $~~659~~3,666 of loans were classified as mortgage loans held for sale.

A large concentration of the Company’s lending is in Ohio and Florida. As of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the percentage of aggregate Residential Core, Home Today and Construction loans held in Ohio was 57% ~~and~~ ~~56%~~ ~~respectively,~~as of both dates and the percentage held in Florida was 16% as of both dates. As of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, home equity loans and lines of credit were concentrated in Ohio (~~32%~~(30% and ~~36%~~31%), Florida (~~19%~~ ~~and~~ ~~20%~~)(19% as of both dates), and California (~~16%~~ ~~and~~ ~~15%~~)(16% as of both dates).

Home Today was an affordable housing program targeted to benefit low- and moderate-income home buyers and most loans under the program were originated prior to 2009. No new loans were originated under the Home Today program after September 30, 2016. Through this program the ~~Association~~Company provided the majority of loans to borrowers who would not otherwise qualify for the ~~Association’s~~Company’s loan products, generally because of low credit scores. Although the credit profiles of borrowers in the Home Today program might be described as sub-prime, Home Today loans generally contained the same features as loans offered to our Residential Core borrowers. Borrowers with a Home Today loan completed financial management education and counseling and were referred to the Association by a sponsoring organization with which the Association partnered as part of the program. Because the ~~Association~~Company applied less stringent underwriting and credit standards to the majority of Home Today loans, loans originated under the program have greater credit risk than its traditional residential real estate mortgage loans in the Residential Core portfolio. ~~As of June 30, 2019 and September 30, 2018, the principal balance of Home Today loans originated prior to March 27, 2009 was~~ ~~$84,604~~ ~~and~~ ~~$91,805, respectively.~~ Since loans are no longer originated under the Home Today program, the Home Today portfolio will continue to decline in balance, primarily due to contractual amortization. To supplant the Home Today product and to continue to meet the credit needs of customers and the communities served, since fiscal 2016 the ~~Association~~Company has offered Fannie Mae eligible, Home Ready loans. These loans are originated in accordance with Fannie Mae's underwriting standards. While the ~~Association~~Company retains the servicing to these loans, the loans, along with the credit risk associated therewith, are securitized/sold to Fannie Mae. The ~~Association~~Company does not offer, and has not offered, loan products frequently considered to be designed to target sub-prime borrowers containing features such as higher fees or higher rates, negative amortization, a LTV ratio greater than 100%, or pay-option adjustable-rate mortgages.

The Company currently offers home equity lines of credit that include monthly principal and interest payments throughout the entire term. Home equity lines of credit originated prior to June 2010 require interest only payments for ten years, with an option to extend the interest only and draw period another ten years. Once the draw period has expired the accounts are included in the home equity loan balance. The recorded investment in interest only loans comprised solely of equity lines of credit with balances of $1,211 and $8,231 at March 31, 2020 and September 30, 2019, respectively.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. FASB confirmed the foregoing regulatory agencies' view, that such short-term modifications (e.g., six months) made on a good-faith basis to borrowers who were current as of the implementation date of a relief program in response to COVID-19 are not TDRs. The regulatory agencies stated that performing loans granted payment deferrals due to COVID-19 in accordance with this interagency statement are not generally considered past due or non-accrual. The revised statement provides that eligible loan modifications related to COVID-19 may also be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. The Association has elected to apply the temporary suspension of TDR requirements provided by the revised interagency statement for eligible loan

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modifications. For loan modifications that are not eligible for the suspension offered by the revised interagency statement, the Association considers the CARES Act to evaluate loan modifications within its scope, or existing TDR evaluation policies if the modification does not fall within the scope of the CARES Act.

As of March 31, 2020, certain of our borrowers have experienced unemployment or reduced income as a result of the COVID-19 global pandemic and have requested some type of loan payment forbearance. Short-term forbearance plans offered to borrowers affected by COVID-19, which are not classified as troubled debt restructurings, totaled $35,954 at March 31, 2020, and is expected to increase in the future. Forbearance plans allow borrowers experiencing temporary financial hardship to defer a limited number of payments to a later point in time and are initially offered for a three-month period, which may be extended. Following a period of forbearance, missed payments are generally recovered through capitalization, portioning deferred payments over a number of months or extending the maturity date of the loan. Forbearance plans that are extended beyond six months will be evaluated for TDR classification. Per the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), none of these forbearance plans affect the delinquency, non-accrual, TDR or charge-off statistics as of March 31, 2020, however the potential for loan losses was considered in the determination of the allowance for loan losses as of March 31, 2020.

An aging analysis of the recorded investment in loan receivables that are past due at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 is summarized in the following tables. When a loan is more than one month past due on its scheduled payments, the loan is considered 30 days or more past due. Balances are adjusted for deferred loan fees, expenses and any applicable loans-in-process.


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
June 30, 2019
March 31, 2020
Real estate loans:
Residential Core	$	5,139	$	1,908	$	10,881	$	17,928	$	10,824,632	$	10,842,560	$	4,999	$	3,525	$	9,098	$	17,622	$	11,149,149	$	11,166,771
Residential Home Today	2,874		1,498		3,309		7,681		79,788		87,469		2,737		987		2,830		6,554		73,502		80,056
Home equity loans and lines of credit	3,844		1,450		6,773		12,067		2,100,315		2,112,382		2,872		1,592		4,838		9,302		2,334,965		2,344,267
Construction	—		—		—		—		22,522		22,522		—		—		—		—		25,047		25,047
Total real estate loans	11,857		4,856		20,963		37,676		13,027,257		13,064,933		10,608		6,104		16,766		33,478		13,582,663		13,616,141
Other consumer loans	—		—		—		—		2,878		2,878
Other loans													—		—		—		—		2,700		2,700
Total	$	11,857	$	4,856	$	20,963	$	37,676	$	13,030,135	$	13,067,811	$	10,608	$	6,104	$	16,766	$	33,478	$	13,585,363	$	13,618,841


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
September 30, 2018
September 30, 2019
Real estate loans:
Residential Core	$	7,539	$	2,335	$	10,807	$	20,681	$	10,926,294	$	10,946,975	$	6,824	$	4,030	$	7,674	$	18,528	$	10,900,173	$	10,918,701
Residential Home Today	2,787		1,765		3,814		8,366		86,383		94,749		2,629		1,685		2,623		6,937		77,677		84,614
Home equity loans and lines of credit	4,152		2,315		5,933		12,400		1,829,427		1,841,827		3,029		1,158		5,797		9,984		2,191,998		2,201,982
Construction	—		—		—		—		27,140		27,140		—		—		—		—		26,195		26,195
Total real estate loans	14,478		6,415		20,554		41,447		12,869,244		12,910,691		12,482		6,873		16,094		35,449		13,196,043		13,231,492
Other consumer loans	—		—		—		—		3,021		3,021
Other loans													—		—		—		—		3,166		3,166
Total	$	14,478	$	6,415	$	20,554	$	41,447	$	12,872,265	$	12,913,712	$	12,482	$	6,873	$	16,094	$	35,449	$	13,199,209	$	13,234,658

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, real estate loans include ~~$8,923~~$8,150 and ~~$8,501,~~$7,543, respectively, of loans that were in the process of foreclosure. Pursuant to the CARES Act, new foreclosure proceedings are not being initiated. Existing foreclosures are following the guidance set forth within the CARES Act.

Loans are placed in non-accrual status when they are contractually 90 days or more past due. The number of days past due is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment. Loans with a partial charge-off are placed in non-accrual and will remain in non-accrual status until, at a minimum, the impairment is recovered. Loans restructured in TDRs that were in non-accrual status prior to the restructurings remain in

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non-accrual status for a minimum of six months after restructuring. Loans restructured in TDRs with a high debt-to-income ratio at the time of modification are placed in non-accrual status for a minimum of 12 months. Additionally, home equity loans and lines of credit where the customer has a severely delinquent first mortgage loan and loans in Chapter 7 bankruptcy status where all borrowers have filed, and not reaffirmed or been dismissed, are placed in non-accrual status.

The recorded investment of loan receivables in non-accrual status is summarized in the following table. Balances are adjusted for deferred loan fees and expenses.


	June 30, 2019		September 30, 2018		March 31, 2020		September 30, 2019
Real estate loans:
Residential Core	$	38,696	$	41,628	$	32,960	$	37,052
Residential Home Today	13,085		14,641		11,231		12,442
Home equity loans and lines of credit	22,055		21,483		13,654		21,771
Total non-accrual loans	73,836		77,752		$	57,845	$	71,265

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At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, the recorded investment in non-accrual loans includes ~~$52,874~~$41,079 and ~~$57,197,~~$55,171 of loans which are performing according to the terms of their agreement, of which ~~$26,410~~$23,283 and ~~$29,439~~$25,895 are loans in Chapter 7 bankruptcy status, primarily where all borrowers have filed, and have not reaffirmed or been dismissed. The change in non-accrual from September 30, 2019 was partially impacted by the length of time TDRs with high debt-to-income ratios are retained in non-accrual status. TDRs with high debt-to-income ratios are placed in non-accrual status until they shown sustained payment performance.

Interest on loans in accrual status, including certain loans individually reviewed for impairment, is recognized in interest income as it accrues, on a daily basis. Accrued interest on loans in non-accrual status is reversed by a charge to interest income and income is subsequently recognized only to the extent cash payments are received. Cash payments on loans in non-accrual status are ~~first~~ applied to the oldest scheduled, unpaid payment first. Cash payments on loans with a partial charge-off are applied fully to principal, then to recovery of the charged off amount prior to interest income being recognized, except cash payments may be applied to interest capitalized in a restructuring when collection of remaining amounts due is considered probable. A non-accrual loan is generally returned to accrual status when contractual payments are less than 90 days past due. However, a loan may remain in non-accrual status when collectability is uncertain, such as a TDR that has not met minimum payment requirements, a loan with a partial charge-off, an equity loan or line of credit with a delinquent first mortgage greater than 90 days past due, or a loan in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed. ~~The number of days past due is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.~~

The recorded investment in loan receivables at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 is summarized in the following table. The table provides details of the recorded balances according to the method of evaluation used for determining the allowance for loan losses, distinguishing between determinations made by evaluating individual loans and determinations made by evaluating groups of loans not individually evaluated. Balances of recorded investments are adjusted for deferred loan fees, expenses and any applicable loans-in-process.


	June 30, 2019						September 30, 2018						March 31, 2020						September 30, 2019
	Individually		Collectively		Total		Individually		Collectively		Total		Individually		Collectively		Total		Individually		Collectively		Total
Real estate loans:
Residential Core	$	89,147	$	10,753,413	$	10,842,560	$	91,360	$	10,855,615	$	10,946,975	$	80,281	$	11,086,490	$	11,166,771	$	87,069	$	10,831,632	$	10,918,701
Residential Home Today	38,213		49,256		87,469		41,523		53,226		94,749		35,665		44,391		80,056		36,959		47,655		84,614
Home equity loans and lines of credit	48,141		2,064,241		2,112,382		47,911		1,793,916		1,841,827		44,095		2,300,172		2,344,267		46,445		2,155,537		2,201,982
Construction	—		22,522		22,522		—		27,140		27,140		—		25,047		25,047		—		26,195		26,195
Total real estate loans	175,501		12,889,432		13,064,933		180,794		12,729,897		12,910,691		160,041		13,456,100		13,616,141		170,473		13,061,019		13,231,492
Other consumer loans	—		2,878		2,878		—		3,021		3,021
Other loans													—		2,700		2,700		—		3,166		3,166
Total	$	175,501	$	12,892,310	$	13,067,811	$	180,794	$	12,732,918	$	12,913,712	$	160,041	$	13,458,800	$	13,618,841	$	170,473	$	13,064,185	$	13,234,658

An analysis of the allowance for loan losses at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 is summarized in the following table. The analysis provides details of the allowance for loan losses according to the method of evaluation, distinguishing

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between allowances for loan losses determined by evaluating individual loans and allowances for loan losses determined by evaluating groups of loans collectively.


	June 30, 2019						September 30, 2018						March 31, 2020						September 30, 2019
	Individually		Collectively		Total		Individually		Collectively		Total		Individually		Collectively		Total		Individually		Collectively		Total
Real estate loans:
Residential Core	$	6,799	$	11,921	$	18,720	$	6,934	$	11,354	$	18,288	$	7,077	$	10,290	$	17,367	$	7,080	$	12,673	$	19,753
Residential Home Today	2,435		943		3,378		2,139		1,065		3,204		2,428		2,642		5,070		2,422		1,787		4,209
Home equity loans and lines of credit	3,667		13,544		17,211		3,014		17,907		20,921		4,152		17,793		21,945		4,003		10,943		14,946
Construction	—		4		4		—		5		5		—		5		5		—		5		5
Total real estate loans	$	12,901	$	26,412	$	39,313	$	12,087	$	30,331	$	42,418	$	13,657	$	30,730	$	44,387	$	13,505	$	25,408	$	38,913

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~,2019, individually evaluated loans that required an allowance were comprised only of loans evaluated for impairment based on the present value of cash flows, such as performing TDRs, and loans with aan indication of further deterioration in the fair value of ~~collateral~~the property not yet ~~identified as uncollectible.~~supported by a full review and collateral evaluation. All other individually evaluated loans received a charge-off, if applicable.

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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. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, allowances on individually reviewed loans evaluated for impairment (IVAs) included those based on the present value of cash flows, such as performing TDRs, were ~~$12,648~~$13,580 and ~~$12,002;~~$13,399, and allowances on loans with further deteriorations in the fair value of ~~collateral~~the property not yet ~~identified as uncollectible~~supported by a full review were ~~$253~~$77 and ~~$85.~~$106.

Residential Core mortgage loans represent the largest portion of the residential real estate portfolio. ~~The~~While the Company believes overall credit risk is low based on the nature, composition, collateral, products, lien position and performance of the ~~portfolio.~~portfolio, it could be affected by the duration and depth of the impact from COVID-19 . The portfolio does not include loan types or structures that have experienced severe performance problems at other financial institutions (sub-prime, no documentation or pay-option adjustable-rate mortgages). The portfolio contains adjustable-rate mortgage loans whereby the interest rate is locked initially for mainly three or five years then resets annually, subject to various re-lock options available to the borrower. Although the borrower is qualified for its loan at a higher rate than the initial one, the adjustable-rate feature may impact a borrower's ability to afford the higher payments upon rate reset during periods of rising interest ~~rates. The principal amount~~rates while this repayment risk may be reduced in a declining or low rate environment. With limited historical loss experience compared to other types of loans in the portfolio, ~~that are~~judgment is required by management in assessing the allowance required on adjustable-rate mortgage loans. The principal amount of adjustable-rate mortgage loans included in the residential core portfolio was ~~$5,086,776~~$5,202,983 and ~~$5,166,282~~$5,063,010 at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively.

As described earlier in this footnote, Home Today loans have greater credit risk than traditional residential real estate mortgage loans. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, respectively, approximately ~~15%~~12% and ~~18%~~14% of Home Today loans include private mortgage insurance coverage. The majority of the coverage on these loans was provided by PMI Mortgage Insurance Co., which was seized by the Arizona Department of Insurance in 2011 and currently pays all claim payments at ~~74.5%~~76.5%. Appropriate adjustments have been made to the ~~Association’s~~Company’s affected valuation allowances and charge-offs, and estimated loss severity factors were adjusted accordingly for loans evaluated collectively. The amount of loans in the ~~Association's~~Company's total owned residential portfolio covered by mortgage insurance provided by PMIC as of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, respectively, was ~~$29,669~~$23,069 and ~~$39,367~~,$26,191, of which ~~$27,259~~$21,422 and ~~$36,075~~$24,198 was current. The amount of loans in the ~~Association's~~Company's total owned residential portfolio covered by mortgage insurance provided by Mortgage Guaranty Insurance Corporation as of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, respectively, was ~~$18,182~~$14,815 and ~~$20,912~~,$17,345, of which ~~$18,022~~$14,681 and ~~$20,792~~$17,232 was current. As of ~~June 30, 2019~~March 31, 2020, MGIC's long-term debt rating, as published by the major credit rating agencies, did not meet the requirements to qualify as "high credit quality"; however, MGIC continues to make ~~claims~~claim payments in accordance with its contractual obligations and the ~~Association~~Company has not increased its estimated loss severity factors related to MGIC's claim paying ability. NoNaN other loans were covered by mortgage insurers that were deferring claim payments or which were assessed as being non-investment grade.

Home equity loans and lines of credit, which are comprised primarily of home equity lines of credit, represent a significant portion of the residential real estate portfolio. ~~Post-origination~~On home equity lines of credit originated prior to 2012, subsequent deterioration in economic and housing market conditions may impact a borrower's ability to afford the higher payments required during the end of draw repayment period that follows the period of interest only payments, ~~on home equity lines of credit originated prior to 2012~~ or the ability to secure

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alternative financing. Beginning in ~~February~~ 2013, the terms on new home equity lines of credit included monthly principal and interest payments throughout the entire term to minimize the potential payment differential between the draw and after draw periods. The impact of COVID-19 on employment, the general economy and, potentially, housing prices may adversely affect credit performance within the home equity loans and lines of credit portfolio.

The ~~Association~~Company originates construction loans to individuals for the construction of their personal single-family residence by a qualified builder (construction/permanent loans). The ~~Association’s~~Company’s construction/permanent loans generally provide for disbursements to the builder or sub-contractors during the construction phase as work progresses. During the construction phase, the borrower only pays interest on the drawn balance. Upon completion of construction, the loan converts to a permanent amortizing loan without the expense of a second closing. The ~~Association~~Company offers construction/permanent loans with fixed or adjustable-rates, and a current maximum loan-to-completed-appraised value ratio of 70%. Prior to March 26, 2020 the maximum loan to completed-appraised value ratio was 85%.

Other ~~consumer~~ loans are comprised of loans secured by certificate of deposit accounts, which are fully recoverable in the event of non-payment, and forgivable down payment assistance loans, which are unsecured loans used as down payment assistance to borrowers qualified through partner housing agencies. The Company records a liability for the loans which are forgiven in equal increments over a pre-determined term, subject to residency requirements.

For all classes of loans, a loan is considered impaired when, based on current information and events, it is probable that the ~~Association~~Company will be unable to collect the scheduled payments of principal and interest according to the contractual terms of the loan agreement. Factors considered in determining that a loan is impaired may include the deteriorating financial condition of the borrower indicated by missed or delinquent payments, a pending legal action, such as bankruptcy or foreclosure, or the absence of adequate security for the loan.

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The recorded investment and the unpaid principal balance of impaired loans, including those reported as TDRs, as of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, are summarized as follows. Balances of recorded investments are adjusted for deferred loan fees and expenses.


	June 30, 2019						September 30, 2018						March 31, 2020						September 30, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related IVA recorded:
Residential Core	$	50,735	$	67,958	$	—	$	53,656	$	69,516	$	—	$	41,096	$	55,580	$	—	$	44,122	$	59,538	$	—
Residential Home Today	13,917		38,919		—		16,006		35,532		—		11,999		30,606		—		12,764		31,958		—
Home equity loans and lines of credit	20,366		25,733		—		22,423		28,504		—		15,718		20,616		—		18,528		23,935		—
Total	$	85,018	$	132,610	$	—	$	92,085	$	133,552	$	—	$	68,813	$	106,802	$	—	$	75,414	$	115,431	$	—
With an IVA recorded:
Residential Core	$	38,412	$	38,479	$	6,799	$	37,704	$	37,774	$	6,934	$	39,185	$	39,265	$	7,077	$	42,947	$	43,042	$	7,080
Residential Home Today	24,296		24,258		2,435		25,517		25,492		2,139		23,666		23,645		2,428		24,195		24,178		2,422
Home equity loans and lines of credit	27,775		27,800		3,667		25,488		25,519		3,014		28,377		28,379		4,152		27,917		27,924		4,003
Total	$	90,483	$	90,537	$	12,901	$	88,709	$	88,785	$	12,087	$	91,228	$	91,289	$	13,657	$	95,059	$	95,144	$	13,505
Total impaired loans:
Residential Core	$	89,147	$	106,437	$	6,799	$	91,360	$	107,290	$	6,934	$	80,281	$	94,845	$	7,077	$	87,069	$	102,580	$	7,080
Residential Home Today	38,213		63,177		2,435		41,523		61,024		2,139		35,665		54,251		2,428		36,959		56,136		2,422
Home equity loans and lines of credit	48,141		53,533		3,667		47,911		54,023		3,014		44,095		48,995		4,152		46,445		51,859		4,003
Total	$	175,501	$	223,147	12,901		$	180,794	$	222,337	$	12,087	$	160,041	$	198,091	13,657		$	170,473	$	210,575	$	13,505

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, the recorded investment in impaired loans includes ~~$160,658~~$148,259 and ~~$165,391~~$157,408 of loans restructured in TDRs of which ~~$10,694~~$8,211 and ~~$10,468 were~~$8,435 are 90 days or more past due.

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The average recorded investment in impaired loans and the amount of interest income recognized during the period that the loans were impaired are summarized below.


	For the Three Months Ended June 30,								For the Three Months Ended March 31,
	2019				2018				2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related IVA recorded:
Residential Core	$	49,397	$	430	$	53,559	$	609	$	42,456	$	375	$	49,934	$	341
Residential Home Today	14,487		50		16,927		154		12,118		52		15,287		52
Home equity loans and lines of credit	21,060		118		21,853		117		16,172		87		22,292		120
Total	$	84,944	$	598	$	92,339	$	880	$	70,746	$	514	$	87,513	$	513
With an IVA recorded:
Residential Core	$	41,861	$	306	$	38,952	$	313	$	38,781	$	305	$	42,446	$	397
Residential Home Today	24,378		295		26,830		324		23,910		277		24,690		297
Home equity loans and lines of credit	27,583		168		22,849		150		28,210		171		26,713		173
Total	$	93,822	$	769	$	88,631	$	787	$	90,901	$	753	$	93,849	$	867
Total impaired loans:
Residential Core	$	91,258	$	736	$	92,511	$	922	$	81,237	$	680	$	92,380	$	738
Residential Home Today	38,865		345		43,757		478		36,028		329		39,977		349
Home equity loans and lines of credit	48,643		286		44,702		267		44,382		258		49,005		293
Total	$	178,766	$	1,367	$	180,970	$	1,667	$	161,647	$	1,267	$	181,362	$	1,380

~~Table of Contents~~


	For the Nine Months Ended June 30,								For the Six Months Ended March 31,
	2019				2018				2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related IVA recorded:
Residential Core	$	52,196	$	1,231	$	50,348	$	2,369	$	42,609	$	740	$	50,857	$	801
Residential Home Today	14,962		174		17,583		1,126		12,382		100		15,531		124
Home equity loans and lines of credit	21,395		342		20,588		290		17,123		181		22,089		224
Total	$	88,553	$	1,747	$	88,519	$	3,785	$	72,114	$	1,021	$	88,477	$	1,149
With an IVA recorded:
Residential Core	$	38,058	$	1,008	$	43,388	$	1,268	$	41,066	$	601	$	41,507	$	1,156
Residential Home Today	24,907		888		27,307		1,280		23,931		558		24,989		593
Home equity loans and lines of credit	26,632		499		21,899		425		28,147		337		26,439		627
Total	$	89,597	$	2,395	$	92,594	$	2,973	$	93,144	$	1,496	$	92,935	$	2,376
Total impaired loans:
Residential Core	$	90,254	$	2,239	$	93,736	$	3,637	$	83,675	$	1,341	$	92,364	$	1,957
Residential Home Today	39,869		1,062		44,890		2,406		36,313		658		40,520		717
Home equity loans and lines of credit	48,027		841		42,487		715		45,270		518		48,528		851
Total	$	178,150	$	4,142	$	181,113	$	6,758	$	165,258	$	2,517	$	181,412	$	3,525

Interest on loans in non-accrual status is recognized on a cash basis. The amount of interest income on impaired loans recognized using a cash basis method was ~~$343~~$297 and ~~$1,082~~$573 for the three and ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~$565~~$347 and ~~$1,773~~$739 for the three and ~~nine months~~six ended ~~June 30, 2018.~~March 31, 2019, respectively. Cash payments on loans with a partial charge-off are applied fully to principal, then to recovery of the charged off amount prior to interest income being recognized, except cash payments may be applied to interest capitalized in a restructuring when collection of remaining amounts due is considered probable. Interest income on the remaining impaired loans is recognized on an accrual basis.

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Charge-offs on residential mortgage loans, home equity loans and lines of credit, and construction loans are recognized when triggering events, such as foreclosure actions, short sales, or deeds accepted in lieu of repayment, result in less than full repayment of the recorded investment in the loans.

Partial or full charge-offs are also recognized for the amount of impairment on loans considered collateral dependent that meet the conditions described below.

For residential mortgage loans, payments are greater than 180 days delinquent;

For home equity lines of credit, equity loans, and residential loans restructured in a TDR, payments are greater than 90 days delinquent;

For all classes of loans restructured in a TDR with a high debt-to-income ratio at time of modification;

For all classes of loans, a sheriff sale is scheduled within 60 days to sell the collateral securing the loan;

For all classes of loans, all borrowers have been discharged of their obligation through a Chapter 7 bankruptcy;

For all classes of loans, within 60 days of notification, all borrowers obligated on the loan have filed Chapter 7 bankruptcy and have not reaffirmed or been dismissed;

For all classes of loans, a borrower obligated on a loan has filed bankruptcy and the loan is greater than 30 days delinquent; and

For all classes of loans, it becomes evident that a loss is probable.

Collateral dependent residential mortgage loans and construction loans are charged off to the extent the recorded investment in athe loan, net of anticipated mortgage insurance claims, exceeds the fair value, less estimated costs to dispose of the underlying property. Management can determine if the loan is uncollectible for reasons such as foreclosures exceeding a reasonable time frame and recommend a full charge-off. Home equity loans or lines of credit are charged off to the extent the recorded investment in the loan plus the balance of any senior liens exceeds the fair value, less estimated costs to dispose of the underlying property, or management determines the collateral is not sufficient to satisfy the loan. A loan in any portfolio ~~that is~~ identified as collateral dependent will continue to be reported as impaired until it is no longer considered collateral dependent, is less than 30 days past due and does not have a prior charge-off. A loan in any portfolio that has a partial charge-off

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consequent to impairment evaluation will continue to be individually evaluated for impairment until, at a minimum, the impairment has been recovered.

~~Loans~~Residential mortgage loans and construction loans restructured in TDRs that are not evaluated based on collateral are separately evaluated for impairment on a loan by loan basis at the time of restructuring and at each subsequent reporting date for as long as they are reported as TDRs. The impairment evaluation is based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. Expected future cash flows include a discount factor representing a potential for default. Valuation allowances are recorded for the excess of the recorded investments over the result of the cash flow analysis. Loans discharged in Chapter 7 bankruptcy are reported as TDRs and also evaluated based on the present value of expected future cash flows unless evaluated based on collateral. We evaluate these loans using the expected future cash flows because we expect the borrower, not liquidation of the collateral, to be the source of repayment for the loan. Other ~~consumer~~ loans are not considered for restructuring. A loan restructured in a TDR is classified as an impaired loan for a minimum of one year. After one year, that loan may be reclassified out of the balance of impaired loans if the loan was restructured to yield a market rate for loans of similar credit risk at the time of restructuring and the loan is not impaired based on the terms of the restructuring agreement. NoNaN loans whose terms were restructured in TDRs were reclassified from impaired loans during the ~~nine~~six months months ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018.~~March 31, 2019.

Initial concessions granted by loans restructured as TDRs ~~can~~may include reduction of interest rate, extension of amortization period, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also ~~can~~may occur as a result of bankruptcy proceedings. Loans discharged in Chapter 7 bankruptcy are classified as multiple restructurings if the loan's original terms had also been restructured by the ~~Association.~~Company. The recorded investment in TDRs by category as of ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 is shown in the tables below.


June 30, 2019	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
March 31, 2020									Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	36,953	$	24,612	$	20,237	$	81,802	$	33,879	$	23,871	$	17,180	$	74,930
Residential Home Today	16,809		17,212		3,475		37,496		15,580		16,120		3,175		34,875
Home equity loans and lines of credit	34,970		2,886		3,504		41,360		32,453		3,223		2,778		38,454
Total	$	88,732	$	44,710	$	27,216	$	160,658	$	81,912	$	43,214	$	23,133	$	148,259

September 30, 2018 Initial Restructuring Multiple
Restructurings Bankruptcy Total
Residential Core $ 39,265
$ 23,116
$ 21,832
$ 84,213
Residential Home Today 18,243
18,483
3,683
40,409
Home equity loans and lines of credit 33,768
2,563
4,438
40,769
Total $ 91,276
$ 44,162
$ 29,953
$ 165,391
19

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September 30, 2019	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	35,829	$	24,951	$	19,494	$	80,274
Residential Home Today	16,233		16,868		3,234		36,335
Home equity loans and lines of credit	34,459		3,115		3,225		40,799
Total	$	86,521	$	44,934	$	25,953	$	157,408

TDRs may be restructured more than once. Among other requirements, a subsequent restructuring may be available for a borrower upon the expiration of temporary restructuring terms if the borrower cannot return to regular loan payments. If the borrower is experiencing an income curtailment that temporarily has reduced their capacity to repay, such as loss of employment, reduction of work hours, non-paid leave or short-term disability, a temporary restructuring is considered. If the borrower lacks the capacity to repay the loan at the current terms due to a permanent condition, a permanent restructuring is considered. In evaluating the need for a subsequent restructuring, the borrower’s ability to repay is generally assessed utilizing a debt to income and cash flow analysis.

For all loans restructured during the three and ~~nine~~six months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ (set forth in the tables below), the pre-restructured outstanding recorded investment was not materially different from the post-restructured outstanding recorded investment.

~~Table of Contents~~

The following tables set forth the recorded investment in TDRs restructured during the periods presented.

For the Three Months Ended June 30, 2019
Initial Restructuring Multiple
Restructurings Bankruptcy Total
Residential Core $ 1,822
$ 2,334
$ 174
$ 4,330
Residential Home Today 109
878
113
1,100
Home equity loans and lines of credit 974
299
81
1,354
Total $ 2,905
$ 3,511
$ 368
$ 6,784



	For the Three Months Ended March 31, 2020
	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	1,714	$	354	$	452	$	2,520
Residential Home Today	322		581		273		1,176
Home equity loans and lines of credit	447		72		35		554
Total	$	2,483	$	1,007	$	760	$	4,250


	For the Three Months Ended June 30, 2018								For the Three Months Ended March 31, 2019
	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total		Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	2,318	$	1,591	$	633	$	4,542	$	2,713	$	2,921	$	649	$	6,283
Residential Home Today	277		1,469		154		1,900		172		1,447		180		1,799
Home equity loans and lines of credit	4,226		317		172		4,715		2,121		700		73		2,894
Total	$	6,821	$	3,377	$	959	$	11,157	$	5,006	$	5,068	$	902	$	10,976



	For the Six Months Ended March 31, 2020
	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	2,513	$	2,024	$	779	$	5,316
Residential Home Today	587		1,330		311		2,228
Home equity loans and lines of credit	697		446		274		1,417
Total	$	3,797	$	3,800	$	1,364	$	8,961



	For the Six Months Ended March 31, 2019
	Initial Restructuring		Multiple Restructurings		Bankruptcy		Total
Residential Core	$	5,479	$	2,923	$	1,571	$	9,973
Residential Home Today	444		1,447		305		2,196
Home equity loans and lines of credit	5,655		700		273		6,628
Total	$	11,578	$	5,070	$	2,149	$	18,797

For the Nine Months Ended June 30, 2019
Initial Restructuring Multiple
Restructurings Bankruptcy Total
Residential Core $ 5,521
$ 4,893
$ 1,678
$ 12,092
Residential Home Today 427
2,105
384
2,916
Home equity loans and lines of credit 6,194
933
352
7,479
Total $ 12,142
$ 7,931
$ 2,414
$ 22,487

For the Nine Months Ended June 30, 2018
Initial Restructuring Multiple
Restructurings Bankruptcy Total
Residential Core $ 3,433
$ 3,676
$ 2,361
$ 9,470
Residential Home Today 724
2,818
582
4,124
Home equity loans and lines of credit 10,961
915
367
12,243
Total $ 15,118
$ 7,409
$ 3,310
$ 25,837

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Below summarizes the information on TDRs restructured within 12 months of the period presented for which there was a subsequent payment default, at least 30 days past due on one scheduled payment, during the period presented.


	For the Three Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019
TDRs That Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Residential Core	11	$	1,841	10	$	1,234	18	$	2,265	16	$	2,661
Residential Home Today	16	604		18	643		12	557		21	895
Home equity loans and lines of credit	10	861		6	393		7	640		11	731
Total	37	$	3,306	34	$	2,270	37	$	3,462	48	$	4,287


	For the Nine Months Ended June 30,						For the Six Months Ended March 31,
	2019			2018			2020			2019
TDRs That Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Residential Core	15	$	2,355	13	$	1,815	18	$	2,265	16	$	2,661
Residential Home Today	20	767		19	701		13	612		22	928
Home equity loans and lines of credit	11	890		11	418		8	664		11	731
Total	46	$	4,012	43	$	2,934	39	$	3,541	49	$	4,320

Residential loans are internally assigned a grade that complies with the guidelines outlined in the OCC’s Handbook for Rating Credit Risk. Pass loans are assets well protected by the current paying capacity of the borrower. Special Mention loans have a potential weakness, as evaluated based on delinquency status or nature of the product, that the ~~Association~~Company feels deserve management’s attention and may result in further deterioration in their repayment prospects and/or the ~~Association’s~~Company’s credit position. Substandard loans are inadequately protected by the current payment capacity of the borrower or the collateral pledged with a defined weakness that jeopardizes the liquidation of the debt. Also included in Substandard are performing home equity loans and lines of credit where the customer has a severely delinquent first mortgage to which the performing home equity loan or line of credit is subordinate and loans in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed. Loss loans are considered uncollectible and are charged off when identified. Loss loans are of such little value that their continuance as bankable assets is not warranted even though partial recovery may be effected in the future.

The following tables provide information about the credit quality of residential loan receivables by an internally assigned grade. Balances are adjusted for deferred loan fees, expenses and any applicable loans-in-process.


	Pass		Special Mention		Substandard		Loss		Total		Pass		Special Mention		Substandard		Loss		Total
June 30, 2019
March 31, 2020
Real estate loans:
Residential Core	$	10,791,432	$	4,449	$	46,679	$	—	$	10,842,560	$	11,124,008	$	4,118	$	38,645	$	—	$	11,166,771
Residential Home Today	73,124		—		14,345		—		87,469		67,244		—		12,812		—		80,056
Home equity loans and lines of credit	2,083,851		3,429		25,102		—		2,112,382		2,323,289		4,815		16,163		—		2,344,267
Construction	22,522		—		—		—		22,522		25,047		—		—		—		25,047
Total real estate loans	$	12,970,929	$	7,878	$	86,126	$	—	$	13,064,933	$	13,539,588	$	8,933	$	67,620	$	—	$	13,616,141

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	Pass		Special Mention		Substandard		Loss		Total		Pass		Special Mention		Substandard		Loss		Total
September 30, 2018
September 30, 2019
Real estate loans:
Residential Core	$	10,898,725	$	—	$	48,250	$	—	$	10,946,975	$	10,869,597	$	4,348	$	44,756	$	—	$	10,918,701
Residential Home Today	78,180		—		16,569		—		94,749		70,631		—		13,983		—		84,614
Home equity loans and lines of credit	1,813,502		4,216		24,109		—		1,841,827		2,175,341		2,588		24,053		—		2,201,982
Construction	27,140		—		—		—		27,140		26,195		—		—		—		26,195
Total real estate loans	$	12,817,547	$	4,216	$	88,928	$	—	$	12,910,691	$	13,141,764	$	6,936	$	82,792	$	—	$	13,231,492

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, the recorded investment of impaired loans includes ~~$93,094~~$96,976 and ~~$95,916~~$90,295 of TDRs individually evaluated for impairment that have adequately performed under the terms of the restructuring and are classified as Pass loans. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, there were ~~$3,720~~$4,555 and ~~$4,051~~$2,614 of loans classified Substandard and ~~$7,878~~$8,933 and ~~$4,216~~$6,936 of loans designated Special Mention that are not included in the recorded investment of impaired loans; rather, they are included in loans collectively evaluated for impairment. Of the ~~$7,878~~$8,933 of loans classified Special Mention at ~~June 30, 2019, $4,449~~March 31, 2020, $4,118 are residential mortgage loans purchased ~~during the quarter ended December 31, 2018. The purchased loans~~which were current and performing at the time of ~~purchase, but~~purchase. These loans are ~~classified~~designated Special Mention due to the absence of mortgage insurance coverage and potentially weaker repayment prospects when compared with the Company's originated residential Core Portfolio.

Other ~~consumer~~ loans are internally assigned a grade of non-performing when they become 90 days or more past due. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018, no consumer~~2019, 0 other loans were graded as non-performing.

Activity in the allowance for loan losses is summarized as follows:


	For the Three Months Ended June 30, 2019												For the Three Months Ended March 31, 2020
	Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance		Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance
Real estate loans:
Residential Core	$	19,587	$	(865	)	$	(500	)	$	498	$	18,720	$	18,312	$	(837	)	$	(472	)	$	364	$	17,367
Residential Home Today	3,275		(25		)	(257		)	385		3,378		4,232		407			(229		)	660		5,070
Home equity loans and lines of credit	17,420		(1,110		)	(760		)	1,661		17,211		14,744		6,429			(612		)	1,384		21,945
Construction	4		—			—			—		4		4		1			—			—		5
Total real estate loans	$	40,286	$	(2,000	)	$	(1,517	)	$	2,544	$	39,313	$	37,292	$	6,000		$	(1,313	)	$	2,408	$	44,387


	For the Three Months Ended June 30, 2018												For the Three Months Ended March 31, 2019
	Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance		Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance
Real estate loans:
Residential Core	$	14,080	$	4,053		$	(156	)	$	506	$	18,483	$	19,165	$	(45	)	$	(299	)	$	766	$	19,587
Residential Home Today	3,740		(709		)	(214		)	555		3,372		3,748		(1,012		)	(85		)	624		3,275
Home equity loans and lines of credit	25,282		(5,344		)	(1,176		)	2,350		21,112		19,021		(2,943		)	(475		)	1,817		17,420
Construction	4		—			—			—		4		4		—			—			—		4
Total real estate loans	$	43,106	$	(2,000	)	$	(1,546	)	$	3,411	$	42,971	$	41,938	$	(4,000	)	$	(859	)	$	3,207	$	40,286

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	For the Nine Months Ended June 30, 2019												For the Six Months Ended March 31, 2020
	Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance		Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance
Real estate loans:
Residential Core	$	18,288	$	(1	)	$	(1,042	)	$	1,475	$	18,720	$	19,753	$	(2,603	)	$	(957	)	$	1,174	$	17,367
Residential Home Today	3,204		(720		)	(583		)	1,477		3,378		4,209		262			(588		)	1,187		5,070
Home equity loans and lines of credit	20,921		(7,278		)	(2,078		)	5,646		17,211		14,946		5,341			(1,357		)	3,015		21,945
Construction	5		(1		)	—			—		4		5		—			—			—		5
Total real estate loans	$	42,418	$	(8,000	)	$	(3,703	)	$	8,598	$	39,313	$	38,913	$	3,000		$	(2,902	)	$	5,376	$	44,387



	For the Six Months Ended March 31, 2019
	Beginning Balance		Provisions			Charge-offs			Recoveries		Ending Balance
Real estate loans:
Residential Core	$	18,288	$	864		$	(542	)	$	977	$	19,587
Residential Home Today	3,204		(695		)	(326		)	1,092		3,275
Home equity loans and lines of credit	20,921		(6,168		)	(1,318		)	3,985		17,420
Construction	5		(1		)	—			—		4
Total real estate loans	$	42,418	$	(6,000	)	$	(2,186	)	$	6,054	$	40,286


5.	LEASES

On October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), and all related amendments which require lessees to recognize operating leases on the Consolidated Statements of Condition as lease assets (a right-of-use asset) and lease liabilities (a liability to make lease payments), measured on a discounted basis. Prior to October 1, 2019, operating leases were not recorded on the Consolidated Statements of Condition. As permitted under ASC 842, the Company has made an accounting policy election to exempt leases with an initial term of twelve months or less from the Consolidated Statements of Condition recognition and to expense them over the lease term. As of March 31, 2020, the Company has no leases with an initial term of twelve months or less. The Company elected the practical expedient to account for lease and non-lease components as a single lease component for all classes of assets. The Company also elected the package of practical expedients that do not require reassessment of whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases. The Company also adopted ASU 2018-11, Leases (Topic 842) Targeted Improvements, and elected not to recast comparative periods in the period of adoption of ASU 2016-02. The adoption of ASU 2018-11 did not result in a cumulative effect adjustment to beginning retained earnings.

As a lessee, the Company enters into leases of buildings and land. The Company occupies certain banking branches and a disaster recovery site through non-cancellable operating leases with remaining terms ranging from less than one year to 17 years. The Company does not have financing leases. Most of the leases have fixed payment terms with annual fixed-escalation clauses. Certain leases have annual rent escalations based on subsequent year-to-year changes in the consumer price index. These year-to-year changes in the consumer price index are excluded from the calculation of right-of-use assets and lease liabilities and recognized as expense in the period in which they are incurred. Additionally, all variable lease costs that are not based on an index or rate, such as "common area maintenance" costs, are expensed as incurred. Most of the Company's leases include options to extend for periods that range from five to 10 years. The leases do not have early-termination options. The Company has not included term extensions in the calculation of the lease term, as the Company does not consider it reasonably certain that the options will be exercised. As the interest rate implicit in all of the Company's lease contracts is not readily determinable, the Company utilized its incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term on an amount equal to the total contractual lease payments in a similar economic environment. The incremental borrowing rate utilized for all the Company's leases is the FHLB Advance rate based on the lease term at commencement in determining the present value of lease payments.

Operating lease expenses for the three and six months ended March 31, 2020 totaled $1,274 and $2,569, respectively. Variable lease expenses for the three and six months ended March 31, 2020 totaled $316 and $653, respectively. During the three and six months ended March 31, 2020, the Company paid $1,268 and $2,532 in cash for amounts included in the measurement of lease liabilities. As of March 31, 2020, the Company has not entered into any material leases that have not yet commenced.

For the Nine Months Ended June 30, 2018

Beginning
Balance
Provisions Charge-offs Recoveries
Ending
Balance
Real estate loans:
Residential Core $ 14,186
$ 3,154
$ (743 ) $ 1,886
$ 18,483
Residential Home Today 4,508
(1,515 ) (1,177 ) 1,556
3,372
Home equity loans and lines of credit 30,249
(10,638 ) (4,331 ) 5,832
21,112
Construction 5
(1 ) —
—
4
Total real estate loans $ 48,948
$ (9,000 ) $ (6,251 ) $ 9,274
$ 42,971

23

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The following table summarizes information relating to the Company's operating leases as of March 31, 2020:



Right-of-use assets (a)	$	17,821
Lease liabilities (b)	$	18,174
Weighted Average Remaining Lease Term	6.24 years
Weighted Average Discount Rate	1.91		%

(a) Included in other assets in the Consolidated Statements of Condition

(b) Included in accrued expenses and other liabilities in the Consolidated Statements of Condition

The following table summarizes the maturities of lease liabilities as of March 31, 2020:



Maturing in:	Amount
12 months or less	$	4,918
13 to 24 months	3,885
25 to 36 months	3,127
37 to 48 months	2,239
49 to 60 months	1,581
over 60 months	3,672
Total minimum lease payments	19,422
Less imputed interest	1,248
Total lease liabilities	$	18,174

The following table summarizes the future minimum payments as of September 30, 2019, prior to the date of adoption and as defined by previous lease accounting guidance, ASC 840, with non-cancellable operating lease terms expiring after September 30, 2019:



Maturing in:	Amount
12 months or less	$	4,881
13 to 24 months	4,145
25 to 36 months	3,171
37 to 48 months	2,366
49 to 60 months	1,613
over 60 months	4,209
Total minimum lease payments	$	20,385


5.6.	DEPOSITS

Deposit account balances are summarized as follows:


	June 30, 2019		September 30, 2018		March 31, 2020		September 30, 2019
Checking accounts	$	888,728	$	913,525	$	899,729	$	862,647
Savings accounts	1,426,623		1,256,054
Savings accounts, excluding money market accounts					1,021,982		1,042,357
Money market accounts					483,127		441,843
Certificates of deposit	6,394,396		6,318,281		6,679,397		6,415,824
	8,709,747		8,487,860		9,084,235		8,762,671
Accrued interest	4,722		3,723		3,576		3,713
Total deposits	$	8,714,469	$	8,491,583	$	9,087,811	$	8,766,384

Brokered certificates of deposit (exclusive of acquisition costs and subsequent amortization), which are used as a cost effective funding alternative, totaled ~~$518,752~~$474,360 at ~~June 30, 2019~~March 31, 2020 and ~~$670,081~~$507,800 at September 30, ~~2018.~~2019. The FDIC places

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restrictions on banks with regard to issuing brokered deposits based on the bank's capital classification. As a well-capitalized institution at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the Association may accept brokered deposits without FDIC restrictions.

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6.7. BORROWED FUNDS

Federal Home Loan Bank borrowings at ~~June 30, 2019~~March 31, 2020 are summarized in the table below. The amount and weighted average rates of certain FHLB Advances maturing in 2412 months or less reflect the net impact of deferred penalties discussed below:


	Amount		Weighted Average Rate		Amount		Weighted Average Rate
Maturing in:
12 months or less	$	3,723,797	2.39	%	$	3,514,917	1.12	%
13 to 24 months	60,113		1.91	%	390		1.43	%
25 to 36 months	528		1.49	%	1,657		0.96	%
37 to 48 months	17,382		2.71	%	265,000		1.77	%
49 to 60 months	—		—	%	275,000		1.69	%
Over 60 months	23,663		1.66	%	20,010		1.67	%
Total FHLB Advances	3,825,483		2.38	%	4,076,974		1.20	%
Accrued interest	8,117				5,977
Total	$	3,833,600			$	4,082,951

For the six month periods ending ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ net interest expense related to Federal Home Loan Bank short-term borrowings was ~~$44,589~~$28,430 and ~~$30,644,~~$28,827, respectively.

Through the use of interest rate swaps discussed in Note ~~13.~~14. Derivative Instruments, ~~$2,400,000~~$3,000,000 of FHLB advances included in the table above as maturing in 12 months or less, have effective maturities, assuming no early terminations of the swap contracts, as shown below:


	Amount		Swap Adjusted Weighted Average Rate		Amount		Swap Adjusted Weighted Average Rate
Effective maturity:
12 months or less	$	50,000	1.23	%	$	225,000	1.28	%
13 to 24 months	400,000		1.21	%	675,000		1.58	%
25 to 36 months	825,000		1.79	%	650,000		1.92	%
37 to 48 months	400,000		2.12	%	200,000		1.97	%
49 to 60 months	175,000		2.25	%	450,000		1.54	%
Over 60 months	550,000		2.72	%	800,000		2.26	%
Total FHLB Advances under swap contracts	$	2,400,000	1.99	%	$	3,000,000	1.83	%

During fiscal year 2016, $150,000 fixed-rate FHLB advances with remaining terms of approximately four years were prepaid and replaced with new four- and five-year interest rate swap arrangements. The unamortized deferred repayment penalties of ~~$674~~$289 related to the $150,000 of restructuring are being recognized in interest expense over the remaining term of the swap contracts.

2425

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7.8. OTHER COMPREHENSIVE INCOME (LOSS)

The change in accumulated other comprehensive income (loss) by component is as follows:


	For the Three Months Ended												For the Three Months Ended												For the Three Months Ended											For the Three Months Ended
	June 30, 2019												June 30, 2018												March 31, 2020											March 31, 2019
	Unrealized Gains (Losses) on Securities Available for Sale			Cash flow hedges			Defined Benefit Plan			Total			Unrealized Gains (Losses) on Securities Available for Sale			Cash flow hedges			Defined Benefit Plan			Total			Unrealized Gains (Losses) on Securities Available for Sale		Cash flow hedges			Defined Benefit Plan			Total			Unrealized Gains (Losses) on Securities Available for Sale			Cash flow hedges			Defined Benefit Plan			Total
Balance at beginning of period	$	(5,146	)	$	6,156		$	(14,540	)	$	(13,530	)	$	(10,447	)	$	42,386		$	(17,326	)	$	14,613		$	758	$	(29,710	)	$	(21,847	)	$	(50,799	)	$	(8,527	)	$	25,092		$	(14,804	)	$	1,761
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(7,956) and $1,679	4,133			(34,055		)	—			(29,922		)	(1,301		)	7,266			—			5,965
Amounts reclassified, net of tax expense (benefit) of $(671) and $(413)	—			(2,789		)	264			(2,525		)	—			(1,591		)	316			(1,275		)
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(21,567) and $(3,282)																									9,253		(90,388		)	—			(81,135		)	3,381			(15,731		)	—			(12,350		)
Amounts reclassified, net of tax expense (benefit) of $285 and $(782)																									—		619			452			1,071			—			(3,205		)	264			(2,941		)
Other comprehensive income (loss)	4,133			(36,844		)	264			(32,447		)	(1,301		)	5,675			316			4,690			9,253		(89,769		)	452			(80,064		)	3,381			(18,936		)	264			(15,291		)
Balance at end of period	$	(1,013	)	$	(30,688	)	$	(14,276	)	$	(45,977	)	$	(11,748	)	$	48,061		$	(17,010	)	$	19,303		$	10,011	$	(119,479	)	$	(21,395	)	$	(130,863	)	$	(5,146	)	$	6,156		$	(14,540	)	$	(13,530	)

For the Nine Months Ended For the Nine Months Ended
June 30, 2019 June 30, 2018
Unrealized Gains (Losses) on Securities Available for Sale Cash flow hedges Defined Benefit Plan Total Unrealized Gains (Losses) on Securities Available for Sale Cash flow hedges Defined Benefit Plan Total
Accumulated other comprehensive income (loss) at beginning of period $ (13,624 ) $ 51,914
$ (15,068 ) $ 23,222
$ (2,915 ) $ 10,249
$ (14,826 ) $ (7,492 )
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(16,396) and $9,040 12,611
(74,286 ) —
(61,675 ) (7,560 ) 34,365
—
26,805
Amounts reclassified, net of tax expense (benefit) of $(2,000) and $64 —
(8,316 ) 792
(7,524 ) —
(878 ) 910
32
Other comprehensive income (loss) 12,611
(82,602 ) 792
(69,199 ) (7,560 ) 33,487
910
26,837
Adoption of ASU 2018-02 —
—
—
—
(1,273 ) 4,325
(3,094 ) (42 )
Balance at end of period $ (1,013 ) $ (30,688 ) $ (14,276 ) $ (45,977 ) $ (11,748 ) $ 48,061
$ (17,010 ) $ 19,303

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	For the Six Months Ended												For the Six Months Ended
	March 31, 2020												March 31, 2019
	Unrealized Gains (Losses) on Securities Available for Sale			Cash flow hedges			Defined Benefit Plan			Total			Unrealized Gains (Losses) on Securities Available for Sale			Cash flow hedges			Defined Benefit Plan			Total
Balance at beginning of period	$	(2,165	)	$	(44,915	)	$	(22,299	)	$	(69,379	)	$	(13,624	)	$	51,914		$	(15,068	)	$	23,222
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(16,545) and $(8,440)	12,176			(74,416		)	—			(62,240		)	8,478			(40,231		)	—			(31,753		)
Amounts reclassified, net of tax expense (benefit) of $201 and $(1,329)	—			(148		)	904			756			—			(5,527		)	528			(4,999		)
Other comprehensive income (loss)	12,176			(74,564		)	904			(61,484		)	8,478			(45,758		)	528			(36,752		)
Balance at end of period	$	10,011		$	(119,479	)	$	(21,395	)	$	(130,863	)	$	(5,146	)	$	6,156		$	(14,540	)	$	(13,530	)

The following table presents the reclassification adjustment out of accumulated other comprehensive income included in net income and the corresponding line item on the consolidated statements of income for the periods indicated:

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	Amounts Reclassified from Accumulated Other Comprehensive Income													Amounts Reclassified from Accumulated Other Comprehensive Income						Amounts Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components	For the Three Months Ended June 30,						For the Nine Months Ended June 30,						Line Item in the Statement of Income	For the Three Months Ended March 31,						For the Six Months Ended March 31,						Line Item in the Consolidated Statement of Income
	2019			2018			2019			2018				2020			2019			2020			2019
Cash flow hedges:
Interest (income) expense	$	(3,530	)	$	(2,108	)	$	(10,526	)	$	(1,164	)	Interest expense	$	784		$	(4,057	)	$	(187	)	$	(6,996	)	Interest expense
Net income tax effect	741			517			2,210			286			Income tax expense	(165		)	852			39			1,469			Income tax expense
Net of income tax expense (benefit)	(2,789		)	(1,591		)	(8,316		)	(878		)		619			(3,205		)	(148		)	(5,527		)

Amortization of pension plan:
Amortization of defined benefit plan:
Actuarial loss	334			420			1,002			1,259			(a)	572			334			1,144			668			(a)
Net income tax effect	(70		)	(104		)	(210		)	(349		)	Income tax expense	(120		)	(70		)	(240		)	(140		)	Income tax expense
Net of income tax expense (benefit)	264			316			792			910				452			264			904			528

Adoption of ASU 2018-02	—			—			—			(42		)	(b)
Total reclassifications for the period	$	(2,525	)	$	(1,275	)	$	(7,524	)	$	(10	)		$	1,071		$	(2,941	)	$	756		$	(4,999	)

(a) This item is included in the computation of net periodic pension cost. See Note 9.10. Defined Benefit Plan for additional disclosure.

~~(b) This item is a reclassification between Accumulated Other Comprehensive Income and Retained Earnings due to the adoption of ASU 2018-02 in fiscal year 2018.~~

8.9. INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various state and city jurisdictions. The Company is no longer subject to income tax examinations in its major jurisdictions for tax years prior to ~~2015.~~2016.

The Company recognizes interest and penalties on income tax assessments or income tax refunds, where applicable, in the financial statements as a component of its provision for income taxes.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. Among its numerous changes to the Internal Revenue Code, the Act reduced the federal corporate tax rate to 21% from 35% effective January 1, 2018. Because of the Company's September 30 fiscal year end, a blended federal tax rate of 24.53% was applied to the fiscal year ended September 30, 2018. The federal statutory rate of 21% is effective for the Company beginning with the fiscal year ending September 30, 2019.

The Company’s combined federal and state effective income tax rate was ~~21.9%~~14.6% and ~~29.7%~~22.9% for the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively. The decrease in the effective tax rate is primarily due to the passage of the CARES Act, which permits a ~~lower federal statutory~~carry back of net tax operating losses to years taxed at a higher rate and an increase in excess tax benefits associated with equity compensation during the ~~recent fiscal year period, and $34 and $4,644 of additional tax expense related~~six months ended March 31, 2020 compared to the ~~re-measurement of the Company's deferred tax asset during the nine~~six months ended ~~June 30, 2019 and June 30, 2018, respectively, as a result of the Act.~~March 31, 2019.

The Company makes certain investments in limited partnerships which invest in affordable housing projects that qualify for the Low Income Housing Tax Credit (LIHTC). The Company acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnership. The Company accounts for its interests in LIHTCs using the proportional amortization method. The impact of the Company's investments in tax credit entities on the provision for income taxes was not material during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018.~~March 31, 2019.

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9.10. DEFINED BENEFIT PLAN

The Third Federal Savings Retirement Plan (the “Plan”) is a defined benefit pension plan. Effective December 31, 2002, the Plan was amended to limit participation to employees who met the Plan’s eligibility requirements on that date. Effective December 31, 2011, the Plan was amended to freeze future benefit accruals for participants in the Plan. After December 31, 2002, employees not participating in the Plan, upon meeting the applicable eligibility requirements, and those eligible participants who no longer receive service credits under the Plan, participate in a separate tier of the Company’s defined contribution 401(k) Savings Plan. Benefits under the Plan are based on years of service and the employee’s average annual compensation (as defined in the Plan) through December 31, 2011. The funding policy of the Plan is consistent with the funding requirements of U.S. federal and other governmental laws and regulations.

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The components of net periodic cost recognized in other non-interest expense in the unaudited Consolidated Statements of Income are as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						March 31,						March 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Interest cost	$	808		$	774		$	2,422		$	2,322		$	700		$	807		$	1,399		$	1,614
Expected return on plan assets	(1,146		)	(1,036		)	(3,438		)	(3,107		)	(1,163		)	(1,146		)	(2,326		)	(2,292		)
Amortization of net loss	334			420			1,002			1,259			572			334			1,144			668
Net periodic cost (benefit)	$	(4	)	$	158		$	(14	)	$	474		$	109		$	(5	)	$	217		$	(10	)

There were no0 required minimum employer contributions during the ~~nine~~six months ended ~~June 30, 2019. However, the Company made a voluntary contribution of $2,000 during the three months ended June 30, 2019.~~March 31, 2020. There are ~~no other~~0 required minimum employer contributions ~~voluntary or required,~~ expected during the remainder of the fiscal year ending September 30, ~~2019.~~2020.

~~10.~~11. EQUITY INCENTIVE PLAN

In December ~~2018, 138,400~~2019, 73,700 restricted stock units were granted to certain directors and officers of the Company and ~~64,500~~51,800 performance stock units were granted to certain officers of the Company. The awards were made pursuant to the Amended and Restated 2008 Equity Incentive Plan, which was approved at the annual meeting of shareholders held on February 22, 2018.

The performance stock units vest in the form of Company common stock issued at the end of a three-year period, based on the pro-rata achievement of performance based metrics over a two-year period. The Company recognizes compensation expense for the fair value of performance stock units on a straight-line basis over the requisite service period.

~~The~~ following table presents share-based compensation expense recognized during the periods presented.


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2019		2018		2019		2018		2020		2019		2020		2019
Stock option expense	$	198	$	309	$	635	$	966	$	134	$	200	$	322	$	437
Restricted and performance stock units expense	918		795		2,708		2,663
Restricted stock units expense									799		946		1,659		1,790
Performance share units expense									227		$	—	368		—
Total stock-based compensation expense	$	1,116	$	1,104	$	3,343	$	3,629	$	1,160	$	1,146	$	2,349	$	2,227

At ~~June 30, 2019~~March 31, 2020, ~~4,640,179~~3,701,900 shares were subject to options, with a weighted average exercise price of $~~13.83~~13.77 per share and a weighted average grant date fair value of $~~2.64~~2.59 per share. Expected future expense related to the ~~857,714~~594,880 non-vested options outstanding as of ~~June 30, 2019~~March 31, 2020 is ~~$808~~$277 over a weighted average period of ~~1.2~~0.6 years. At ~~June 30, 2019~~March 31, 2020, ~~631,073~~541,225 restricted stock units and 116,300 performance stock units with a weighted average grant date fair value of $~~15.15~~15.60 and $17.42 per unit, respectively, are unvested. Expected future compensation expense relating to the ~~1,396,821~~1,306,973 restricted stock units and 116,300 performance stock units outstanding as of ~~June 30, 2019~~March 31, 2020 is $~~4,970~~3,139 over a weighted average period of ~~1.9~~1.5 ~~years.~~years and $1,245 over a weighted average period of 1.7 years, respectively. Each unit is equivalent to one share of common stock.

~~11.~~12. COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, the Company enters into commitments with off-balance sheet risk to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of

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any condition established in the contract. Commitments to originate loans generally have fixed expiration dates of 60 to 360 days or other termination clauses and may require payment of a fee. Unfunded commitments related to home equity lines of credit generally expire from five to 10 years following the date that the line of credit was established, subject to various conditions, including compliance with payment obligations, adequacy of collateral securing the line and maintenance of a satisfactory credit profile by the borrower. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Off-balance sheet commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated statements of condition. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The

Company generally uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Company since the time the commitment was made.

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At ~~June 30, 2019~~March 31, 2020, the Company had commitments to originate loans as follows:


Fixed-rate mortgage loans	$	170,388	$	469,041
Adjustable-rate mortgage loans	246,588		419,411
Equity loans and lines of credit	190,964		167,406
Total	$	607,940	$	1,055,858

At ~~June 30, 2019~~March 31, 2020, the Company had unfunded commitments outstanding as follows:


Equity lines of credit	$	2,109,213	$	2,386,619
Construction loans	24,856		27,127
Limited partner investments	11,541
Total	$	2,145,610	$	2,413,746

At ~~June 30, 2019~~March 31, 2020, the unfunded commitment on home equity lines of credit, including commitments for accounts suspended as a result of material default or a decline in equity, iswas $~~2,121,902~~2,397,219.

The above commitments are expected to be funded through normal operations.

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

~~12.~~13. FAIR VALUE

Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under current market conditions. A fair value framework is established whereby assets and liabilities measured at fair value are grouped into three levels of a fair value hierarchy, based on the transparency of inputs and the reliability of assumptions used to estimate fair value. The Company’s policy is to recognize transfers between levels of the hierarchy as of the end of the reporting period in which the transfer occurs. The three levels of inputs are defined as follows:



Level 1 –		quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 –		quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with few transactions, or model-based valuation techniques using assumptions that are observable in the market.
Level 3 –		a company’s own assumptions about how market participants would price an asset or liability.

As permitted under the fair value guidance in U.S. GAAP, the Company elects to measure at fair value mortgage loans classified as held for sale that are subject to pending agency contracts to securitize and sell loans. This election is expected to reduce volatility in earnings related to market fluctuations between the contract trade and settlement dates. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, there were no0 loans held for sale subject to pending agency contracts for which the fair value option was elected.

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Presented below is a discussion of the methods and significant assumptions used by the Company to estimate fair value.

Investment Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, this includes ~~$564,945~~$545,484 and ~~$531,965~~$547,864 of investments in U.S. government obligations including ~~U.S. Treasury notes and~~ highly liquid collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie ~~Mae. Both are~~Mae, measured using the market approach. The fair values of investment securities represent unadjusted price estimates obtained from third party independent nationally recognized pricing services using pricing models or quoted prices of securities with similar characteristics and are included in Level 2 of the hierarchy. Third party pricing is reviewed on a monthly basis for reasonableness based on the market knowledge and experience of company personnel that interact daily with the markets for these types of securities.

Mortgage Loans Held for Sale—The fair value of mortgage loans held for sale is estimated on an aggregate basis using a market approach based on quoted secondary market pricing for loan portfolios with similar characteristics. Loans held for sale are carried at the lower of cost or fair value except, as described above, the Company elects the fair value measurement option for mortgage loans held for sale subject to pending agency contracts to securitize and sell loans. Loans held for sale are

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included in Level 2 of the hierarchy. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, there were $~~2,635~~2,337 and $~~659~~3,666, respectively, of loans held for sale carried at cost.

Impaired Loans—Impaired loans represent certain loans held for investment that are subject to a fair value measurement under U.S. GAAP because they are individually evaluated for impairment and that impairment is measured using a fair value measurement, such as the fair value of the underlying collateral. Impairment is measured using a market approach based on the fair value of the collateral, less estimated costs to dispose, for loans the Company considers to be collateral-dependent due to a delinquency status or other adverse condition severe enough to indicate that the borrower can no longer be relied upon as the continued source of repayment. These conditions are described more fully in Note 4. Loans and Allowance for Loan Losses. To calculate impairment of collateral-dependent loans, the fair market values of the collateral, estimated using exterior appraisals in the majority of instances, are reduced by calculated estimated costs to dispose, derived from historical experience and recent market conditions. Any indicated impairment is recognized by a charge to the allowance for loan losses. Subsequent increases in collateral values or principal pay downs on loans with recognized impairment could result in an impaired loan being carried below its fair value. When no impairment loss is indicated, the carrying amount is considered to approximate the fair value of that loan to the Company because contractually that is the maximum recovery the Company can expect. The recorded investment of loans individually evaluated for impairment based on the fair value of the collateral are included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis. The range and weighted average impact of estimated costs to dispose on fair values is determined at the time of impairment or when additional impairment is recognized and is included in quantitative information about significant unobservable inputs later in this note.

Loans held for investment that have been restructured in TDRs, ~~and~~ are performing according to the restructured terms of the loan agreement and not evaluated based on collateral are individually evaluated for impairment using the present value of future cash flows based on the loan’s effective interest rate, which is not a fair value measurement. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, this included ~~$98,584~~$98,475 and $~~98,459~~98,875 in recorded investment of TDRs with related allowances for loss of ~~$12,648~~$13,580 and $~~12,002~~13,399.

Real Estate Owned—Real estate owned includes real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at the lower of the cost basis or fair value, less estimated costs to dispose. The carrying amounts of real estate owned at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 were ~~$2,120~~$2,728 and ~~$2,794,~~$2,163, respectively. Fair value is estimated under the market approach using independent third party appraisals. As these properties are actively marketed, estimated fair values may be adjusted by management to reflect current economic and market conditions. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, these adjustments were not significant to reported fair values. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively, ~~$760~~$2,275 and $~~1,238~~987 of real estate owned is included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis where the cost basis equals or exceeds the estimate of fair values, less estimated costs to dispose of these properties. Real estate owned, included in other assets in the Consolidated Statements of Condition, includes estimated costs to dispose of ~~$106~~$309 and $~~132~~146 related to properties measured at fair value and ~~$1,466~~$762 and $~~1,688~~1,322 of properties carried at their original or adjusted cost basis at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, respectively.

Derivatives—Derivative instruments include interest rate locks on commitments to originate loans for the held for sale portfolio ~~forward commitments on contracts to deliver mortgage loans,~~ and interest rate swaps designated as cash flow hedges. Derivatives not designated as cash flow hedges are reported at fair value in other assets or other liabilities on the Consolidated Statement of Condition with changes in value recorded in current earnings. Derivatives qualifying as cash flow hedges, when highly effective, are reported in other assets or other liabilities on the Consolidated Statement of Condition with changes in value recorded in OCI. The fair value of interest rate lock commitments is adjusted by a closure rate based on the estimated percentage of commitments that will result in closed loans. The range and weighted average impact of the closure rate is included in quantitative information about significant unobservable inputs later in this note. A significant change in the closure

~~Table of Contents~~

rate may result in a significant change in the ending fair value measurement of these derivatives relative to their total fair value. Because the closure rate is a significantly unobservable assumption, interest rate lock commitments are included in Level 3 of the hierarchy. ~~Fair value~~

Table of forward commitments is estimated using a market approach based on quoted secondary market pricing for loan portfolios with characteristics similar to loans underlying the derivative contracts. Forward commitments on contracts to deliver mortgage loans are included in Level 2 of the hierarchy.Contents

Assets and liabilities carried at fair value on a recurring basis in the Consolidated Statements of Condition at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019 are summarized below. There were no0 liabilities carried at fair value on a recurring basis at ~~June 30, 2019.~~either date.


			Recurring Fair Value Measurements at Reporting Date Using								Recurring Fair Value Measurements at Reporting Date Using
	June 30, 2019		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		March 31, 2020		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)				(Level 1)		(Level 2)		(Level 3)
Assets
Investment securities available for sale:
REMICs	$	553,318	$	—	$	553,318	$	—	$	538,903	$	—	$	538,903	$	—
Fannie Mae certificates	7,629		—		7,629		—		6,581		—		6,581		—
U.S. government and agency obligations	3,998		—		3,998		—
Derivatives:
Interest rate lock commitments	211		—		—		211		592		—		—		592
Total	$	565,156	$	—	$	564,945	$	211	$	546,076	$	—	$	545,484	$	592

Recurring Fair Value Measurements at Reporting Date Using
September 30, 2018 Quoted Prices in
Active Markets for
Identical Assets Significant Other
Observable Inputs Significant
Unobservable
Inputs
(Level 1) (Level 2) (Level 3)
Assets
Investment securities available for sale:
REMICs $ 519,999
$ —
$ 519,999
$ —
Fannie Mae certificates 7,998
—
7,998
—
U.S. government and agency obligations

3,968
—
3,968
—
Total $ 531,965
$ —
$ 531,965
$ —

Liabilities
Derivatives:
Interest rate lock commitments $ 2
$ —
$ —
$ 2
Total $ 2
$ —
$ —
$ 2

~~Table of Contents~~



			Recurring Fair Value Measurements at Reporting Date Using
	September 30, 2019		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Assets
Investment securities available for sale:
REMICs	$	541,042	$	—	$	541,042	$	—
Fannie Mae certificates	6,822		—		6,822		—
Derivatives:
Interest rate lock commitments	44		—		—		44
Total	$	547,908	$	—	$	547,864	$	44

The table below presents a reconciliation of the beginning and ending balances and the location within the Consolidated Statements of Income where gains (losses) due to changes in fair value are recognized on interest rate lock commitments which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).


	Three Months Ended June 30,					Nine Months Ended June 30,						Three Months Ended March 31,				Six Months Ended March 31,
	2019		2018			2019			2018			2020		2019		2020		2019
Beginning balance	$	141	$	(2	)	$	(2	)	$	58		$	54	$	77	$	44	$	(2	)
Gain (loss) during the period due to changes in fair value:
Included in other non-interest income	70		9			213			(51		)	538		64		548		143
Ending balance	$	211	$	7		$	211		$	7		$	592	$	141	$	592	$	141
Change in unrealized gains for the period included in earnings for assets held at end of the reporting date	$	211	$	7		$	211		$	7		$	592	$	141	$	592	$	141

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Summarized in the tables below are those assets measured at fair value on a nonrecurring basis.


			Nonrecurring Fair Value Measurements at Reporting Date Using								Nonrecurring Fair Value Measurements at Reporting Date Using
	June 30, 2019		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		March 31, 2020		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	June 30, 2019		(Level 1)		(Level 2)		(Level 3)		March 31, 2020		(Level 1)		(Level 2)		(Level 3)
Impaired loans, net of allowance	$	76,664	$	—	$	—	$	76,664	$	61,489	$	—	$	—	$	61,489
Real estate owned⁽¹⁾	760		—		—		760		2,275		—		—		2,275
Total	$	77,424	$	—	$	—	$	77,424	$	63,764	$	—	$	—	$	63,764


⁽¹⁾	Amounts represent fair value measurements of properties before deducting estimated costs to dispose.


			Nonrecurring Fair Value Measurements at Reporting Date Using								Nonrecurring Fair Value Measurements at Reporting Date Using
	September 30, 2018		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		September 30, 2019		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	September 30, 2018		(Level 1)		(Level 2)		(Level 3)		September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Impaired loans, net of allowance	$	82,250	$	—	$	—	$	82,250	$	71,492	$	—	$	—	$	71,492
Real estate owned⁽¹⁾	1,238		—		—		1,238		987		—		—		987
Total	$	83,488	$	—	$	—	$	83,488	$	72,479	$	—	$	—	$	72,479


⁽¹⁾	Amounts represent fair value measurements of properties before deducting estimated costs to dispose.

The following provides quantitative information about significant unobservable inputs categorized within Level 3 of the Fair Value Hierarchy. The interest rate lock commitments ~~at June 30, 2019~~ include both mortgage origination applications and preapprovals. Preapprovals have a much lower closure rate than origination applications as reflected in the weighted average closure rate.


	Fair Value							Fair Value
	June 30, 2019	Valuation Technique(s)	Unobservable Input	Range			Weighted Average	March 31, 2020	Valuation Technique(s)	Unobservable Input	Range			Weighted Average
Impaired loans, net of allowance	$76,664	Market comparables of collateral discounted to estimated net proceeds	Discount appraised value to estimated net proceeds based on historical experience:					$61,489	Market comparables of collateral discounted to estimated net proceeds	Discount appraised value to estimated net proceeds based on historical experience:
Impaired loans, net of allowance	$76,664		• Residential Properties	0	-	28%	6.1%	$61,489		• Residential Properties	0	-	30%	6.3%

Interest rate lock commitments	$211	Quoted Secondary Market pricing	Closure rate	0	-	100%	60.6%	$592	Quoted Secondary Market pricing	Closure rate	0	-	100%	66.1%



	Fair Value
	September 30, 2019	Valuation Technique(s)	Unobservable Input	Range			Weighted Average
Impaired loans, net of allowance	$71,492	Market comparables of collateral discounted to estimated net proceeds	Discount appraised value to estimated net proceeds based on historical experience:
Impaired loans, net of allowance	$71,492		• Residential Properties	0	-	30%	6.1%

Interest rate lock commitments	$44	Quoted Secondary Market pricing	Closure rate	0	-	100%	65.6%

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Fair Value
September 30, 2018 Valuation Technique(s) Unobservable Input Range Weighted Average
Impaired loans, net of allowance $82,250 Market comparables of collateral discounted to estimated net proceeds Discount appraised value to estimated net proceeds based on historical experience:
• Residential Properties 0 - 28% 6.4%

Interest rate lock commitments $(2) Quoted Secondary Market pricing Closure rate 0 - 100% 50.0%

The following tables present the estimated fair value of the Company’s financial instruments and their carrying amounts as reported in the ~~Statement~~Consolidated Statements of Condition.


	June 30, 2019													March 31, 2020
	Carrying		Fair		Level 1			Level 2			Level 3			Carrying			Fair			Level 1			Level 2			Level 3
	Amount		Value				Amount							Value
Assets:
Cash and due from banks	$	28,749	$	28,749	$	28,749			$	—		$	—		$	27,803		$	27,803		$	27,803		$	—		$	—
Interest earning cash equivalents	242,599		242,599		242,599			—			—			284,678			284,678			284,678			—			—
Investment securities available for sale	564,945		564,945		—			564,945			—			545,484			545,484			—			545,484			—
Mortgage loans held for sale	2,635		2,710		—			2,710			—			2,337			2,434			—			2,434			—
Loans, net:
Mortgage loans held for investment	13,025,620		13,460,209		—			—			13,460,209			13,571,754			13,814,208			—			—			13,814,208
Other loans	2,878		2,966		—			—			2,966			2,700			2,717			—			—			2,717
Federal Home Loan Bank stock	99,647		99,647		N/A			—			—			135,858			135,858			N/A			—			—
Accrued interest receivable	40,998		40,998		—			40,998			—			38,915			38,915			—			38,915			—
Cash collateral received from or held by counterparty	26,736		26,736		26,736			—			—			51,508			51,508			51,508			—			—
Derivatives	211		211		—			—			211			592			592			—			—			592
Liabilities:
Checking and passbook accounts	$	2,315,351	$	2,315,351	$	—		$	2,315,351		$	—		$	2,404,838		$	2,404,838		$	—		$	2,404,838		$	—
Certificates of deposit	6,399,118		6,466,179		—			6,466,179			—			6,682,973			6,772,469			—			6,772,469			—
Borrowed funds	3,833,600		3,837,423		—			3,837,423			—			4,082,951			4,119,300			—			4,119,300			—
Borrowers’ advances for insurance and taxes	57,531		57,531		—			57,531			—			93,225			93,225			—			93,225			—
Principal, interest and escrow owed on loans serviced	19,180		19,180		—			19,180			—			28,722			28,722			—			28,722			—

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	September 30, 2018													September 30, 2019
	Carrying		Fair		Level 1			Level 2			Level 3			Carrying			Fair			Level 1			Level 2			Level 3
	Amount		Value				Amount							Value
Assets:
Cash and due from banks	$	29,056	$	29,056	$	29,056			$	—		$	—		$	31,728		$	31,728		$	31,728		$	—		$	—
Interest earning cash equivalents	240,719		240,719		240,719			—			—			243,415			243,415			243,415			—			—
Investment securities available for sale	531,965		531,965		—			531,965			—			547,864			547,864			—			547,864			—
Mortgage loans held for sale	659		661		—			661			—			3,666			3,706			—			3,706			—
Loans, net:
Mortgage loans held for investment	12,868,273		12,908,729		—			—			12,908,729			13,192,579			13,716,398			—			—			13,716,398
Other loans	3,021		3,045		—			—			3,045			3,166			3,328			—			—			3,328
Federal Home Loan Bank stock	93,544		93,544		N/A			—			—			101,858			101,858			N/A			—			—
Accrued interest receivable	38,696		38,696		—			38,696			—			40,822			40,822			—			40,822			—
Cash collateral received from or held by counterparty	13,794		13,794		13,794			—			—			44,261			44,261			44,261			—			—
Derivatives														44			44			—			—			44
Liabilities:
Checking and passbook accounts	$	2,169,579	$	2,169,579	$	—		$	2,169,579		$	—		$	2,346,847		$	2,346,847		$	—		$	2,346,847		$	—
Certificates of deposit	6,322,004		6,006,951		—			6,006,951			—			6,419,537			6,541,791			—			6,541,791			—
Borrowed funds	3,721,699		3,724,020		—			3,724,020			—			3,902,981			3,903,032			—			3,903,032			—
Borrowers’ advances for insurance and taxes	103,005		103,005		—			103,005			—			103,328			103,328			—			103,328			—
Principal, interest and escrow owed on loans serviced	31,490		31,490		—			31,490			—			32,909			32,909			—			32,909			—
Derivatives	2		2		—			—			2

Presented below is a discussion of the valuation techniques and inputs used by the Company to estimate fair value.

Cash and Due from Banks, Interest Earning Cash Equivalents, Cash Collateral Received from or Held by Counterparty— The carrying amount is a reasonable estimate of fair value.

Investment and Mortgage-Backed Securities— Estimated fair value for investment and mortgage-backed securities is based on quoted market prices, when available. If quoted prices are not available, management will use as part of their estimation process fair values which are obtained from third party independent nationally recognized pricing services using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

Mortgage Loans Held for Sale— Fair value of mortgage loans held for sale is based on quoted secondary market pricing for loan portfolios with similar characteristics.

Loans— For mortgage loans held for investment and other loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. The use of current rates to discount cash flows reflects current market expectations with respect to credit exposure. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for more information on the methodology used to estimate fair value. Impaired loans are measured at the lower of cost or fair value as described earlier in this footnote.

Federal Home Loan Bank Stock— It is not practical to estimate the fair value of FHLB stock due to restrictions on its transferability. The fair value is estimated to be the carrying value, which is par. All transactions in capital stock of the FHLB Cincinnati are executed at par.

Deposits— The fair value of demand deposit accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities.

Borrowed Funds— Estimated fair value for borrowed funds is estimated using discounted cash flows and rates currently charged for borrowings of similar remaining maturities.

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Accrued Interest Receivable, Borrowers’ Advances for Insurance and Taxes, and Principal, Interest and Related Escrow Owed on Loans Serviced— The carrying amount is a reasonable estimate of fair value.

Derivatives— Fair value is estimated based on the valuation techniques and inputs described earlier in this footnote.

~~13.~~14. DERIVATIVE INSTRUMENTS

The Company enters into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy. For hedges of the Company's borrowing program, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments. These derivatives are used to hedge the forecasted cash outflows associated with the Company's FHLB borrowings. At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018,~~2019, the interest rate swaps used in the Company's asset/liability management strategy have weighted average terms of ~~3.7~~3.5 years and ~~3.3~~3.7 years and weighted average fixed-rate interest payments of ~~1.99%~~1.83% and ~~1.75%~~1.92%, respectively.

Cash flow hedges are initially assessed for effectiveness using regression analysis. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in OCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Quarterly, a qualitative analysis is performed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially and continue to be highly effective at ~~June 30, 2019.~~March 31, 2020.

The Company enters into forward commitments for the sale of mortgage loans principally to protect against the risk of adverse interest rate movements on net income. The Company recognizes the fair value of such contracts when the characteristics of those contracts meet the definition of a derivative. These derivatives are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the statement of income. There were no0 forward commitments for the sale of mortgage loans at ~~June 30, 2019~~March 31, 2020 or September 30, ~~2018.~~2019.

In addition, the Company is party to derivative instruments when it enters into commitments to originate a portion of its loans, which when funded, are classified as held for sale. Such commitments are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the ~~statement~~Consolidated Statement of ~~income.~~Income.

The following tables provide the locations within the Consolidated Statements of Condition, notional values and fair values, at the reporting dates, for all derivative instruments.


	June 30, 2019				September 30, 2018					March 31, 2020				September 30, 2019
	Notional Value		Fair Value		Notional Value		Fair Value			Notional Value		Fair Value		Notional Value		Fair Value
Derivatives designated as hedging instruments
Cash flow hedges: Interest rate swaps
Other Assets	$	675,000	$	—	$	1,725,000	$	—		$	50,000	$	—	$	825,000	$	—
Other Liabilities	$	1,725,000	$	—	$	—	$	—		2,950,000		—		1,925,000		—
Total cash flow hedges: Interest rate swaps	$	2,400,000	$	—	$	1,725,000	$	—		$	3,000,000	$	—	$	2,750,000	$	—

Derivatives not designated as hedging instruments
Interest rate lock commitments
Other Assets	$	11,951	$	211	$	—	$	—		$	18,238	$	592	$	10,358	$	44
Other Liabilities	$	—	$	—	$	4,248	$	2
Total interest rate lock commitments	$	11,951	$	211	$	4,248	$	(2	)	$	18,238	$	592	$	10,358	$	44

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The following tables present the net gains and losses recorded within the Consolidated Statements of Income and the Consolidated Statements of Comprehensive Income relating to derivative instruments.


		Three Months Ended					Nine Months Ended							Three Months Ended						Six Months Ended
	Location of Gain or (Loss)	June 30,					June 30,						Location of Gain or (Loss)	March 31,						March 31,
	Recognized in Income	2019			2018		2019			2018			Recognized in Income	2020			2019			2020			2019
Cash flow hedges
Amount of gain/(loss) recognized	Other comprehensive income	$	(43,108	)	$	9,292	$	(94,033	)	$	46,233		Other comprehensive income	$	(114,416	)	$	(19,912	)	$	(94,198	)	$	(50,925	)
Amount of gain/(loss) reclassified from AOCI	Interest expense: Borrowed funds	3,530			2,108		10,526			1,164			Interest expense: Borrowed funds	(784		)	4,057			187			6,996

Derivatives not designated as hedging instruments
Interest rate lock commitments	Other non-interest income	$	70		$	9	$	213		$	(51	)	Other non-interest income	$	538		$	64		$	548		$	143

The Company estimates that ~~$175~~$36,116 of the amounts reported in AOCI will be reclassified as a debit to interest expense during the twelve months ending ~~June 30, 2020.~~March 31, 2021.

Derivatives contain an element of credit risk which arises from the possibility that the Company will incur a loss because a counterparty fails to meet its contractual obligations. The Company's exposure is limited to the replacement value of the contracts rather than the notional or principal amounts. Credit risk is minimized through counterparty margin payments, transaction limits and monitoring procedures. All of the Company's swap transactions are cleared through a registered clearing broker to a central clearing organization. The clearing organization establishes daily cash and upfront cash or securities margin requirements to cover potential exposure in the event of default. This process shifts the risk away from the counterparty, since the clearing organization acts as the middleman on each cleared transaction. For derivative transactions cleared through certain clearing parties, variation margin payments are recognized as settlements. The fair value of derivative instruments are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements.

~~14.~~15. RECENT ACCOUNTING PRONOUNCEMENTS

~~Adopted during the nine months ended June 30, 2019~~

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the core principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. The FASB issued several additional ASU's to clarify guidance and provide implementation support for ASU 2014-09. Topic 606 does not apply to revenue within the scope of other standards, such as revenue associated with financial instruments.

Effective October 1, 2018, the Company adopted ASU 2014-09 and all subsequent amendments related to the ASU (collectively, “Topic 606”). We elected to adopt this guidance utilizing the modified retrospective approach. The adoption did not have a significant impact to the Company's consolidated financial statements, as such, a cumulative effect adjustment to beginning retained earnings was not necessary. Neither the new standard, nor any of the related amendments, resulted in a material change from our current accounting for revenue because a significant amount of the Company’s revenue streams such as interest income, are not within the scope of Topic 606. Our services that fall within the scope of Topic 606 are recognized as revenue as we satisfy our performance obligation to the customer. The disaggregation of our revenue from contracts with customers in scope of Topic 606 is provided below:

~~Table of Contents~~

Three Months Ended June 30, Nine Months Ended June 30,
Location of Revenue 2019 2018 2019 2018
Net Gain/(Loss) from Sales of REO Non-Interest Expense (1) $ (333 ) $ (12 ) $ (359 ) $ (245 )
Deposit Account and Other Banking Income Non-Interest Income 235
221
678
677
Total $ (98 ) $ 209
$ 319
$ 432

~~____________________________~~

(1) Net gain/(loss) from sales of real estate owned (REO) is located in non-interest expense in the consolidated statements of income because the gains and losses from the sales of REO assets are netted together with real estate owned expenses (which includes associated legal and maintenance expenses).

~~Sales of REO:~~ The Company derecognizes the REO asset and fully recognizes a gain or loss from the REO sale when control of the property transfers to the buyer, which generally occurs at closing. Topic 606 does not significantly change the pattern of revenue recognition unless the Company finances the sale. When the Company finances the REO sale, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the Company will collect substantially all of the consideration to which it is entitled in exchange for the property. Once these criteria are met, the REO asset is derecognized and the Company fully recognizes the gain or loss upon transfer of control of the property to the buyer. There are no instances of the Company financing the sale of one of its REO properties during the nine months ended June 30, 2019.

~~Deposit Account and Other Banking Income~~: The Company charges depositors transaction-based service fees, which includes services such as stop-payments, wire transfers, check and checking account charges. The performance obligation of the transaction-based fees is satisfied, and related revenue is recognized, at the point in time we perform the requested service.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU changes the accounting for certain equity investments, financial liabilities under the fair value option and presentation and disclosure requirements for financial instruments. Equity investments not accounted for under the equity method of accounting will be measured at fair value with changes recognized in net income. If there are no readily determinable fair values, the guidance allows entities to measure investments at cost less impairment, whereby impairment is based on a qualitative assessment. The guidance eliminates the requirement to disclose the methods and significant assumptions used to estimate fair value of financial instruments measured at amortized cost. The guidance also requires financial assets and financial liabilities to be presented separately in the footnotes, grouped by measurement category (fair value, amortized cost) and form of financial assets. If an entity has elected the fair value option to measure liabilities, the new accounting guidance requires the portion of the change in fair value of a liability resulting from credit risk to be presented in OCI. ASU 2018-03 was issued in February 2018 as technical guidance to ASU 2016-01 to aid in clarification and presentation requirements. Both accounting and disclosure guidance are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years on a prospective basis, with a cumulative-effect adjustment to the balance sheet at the beginning of the fiscal year adopted. Early adoption is not permitted. The Company adopted this guidance effective October 1, 2018 utilizing the modified-retrospective transition method. The Company did not recognize a cumulative adjustment to equity upon implementation of the standard. The guidance solely impacted the Company's disclosures, and did not have a material impact on the Company's consolidated financial condition or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update address eight specific cash flow issues with the objective of reducing the existing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and Other Topics. Current guidance is either unclear or does not include specific guidance on these issues. Additionally, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash, which requires restricted cash or restricted cash equivalents be included in beginning-of-period and end-of-period cash totals and changes in this classification be explained separately. The amendments in both these Updates are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied using a retrospective transition method. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The Company adopted the guidance effective October 1, 2018. Adoption of this accounting guidance did not have a material impact on the presentation of the Consolidated Statements of Cash Flows.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. This Update clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value (or calculated intrinsic value,

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if those amounts are being used to measure the award under ASC 718), the vesting conditions, or the classification of the award (as equity or liability) change as a result of the change in terms or conditions. The guidance is effective prospectively for annual periods beginning on or after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company adopted the guidance effective October 1, 2018. The Update did not have a material impact on the Company's consolidated financial condition or results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This Update is intended to more closely align financial reporting of hedging relationships with risk management activities. This amendment expands hedge accounting for both nonfinancial and financial risk components, modifies the presentation of certain hedging relationships in the financial statements and eases hedge effectiveness testing requirements. The amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permissible in any interim period after the issuance of this Update. The Company early adopted the amendments effective October 1, 2018 and revised the disclosures included in footnote 13. Derivative Instruments, accordingly. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index SWAP (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit use of the Overnight Index Swap Rate (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate. Third Federal adopted ASU 2018-16 concurrently with ASU 2017-12. The Updates did not have a material impact on the Company's consolidated financial condition or results of operations.

Issued but not yet adopted as of ~~June 30, 2019~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance changes the accounting treatment of leases by requiring lessees to recognize operating leases on the balance sheet as lease assets (a right-to-use asset) and lease liabilities (a liability to make lease payments), measured on a discounted basis and will require both quantitative and qualitative disclosure regarding key information about the leasing arrangements. An accounting policy election to not recognize operating leases with terms of 12 months or less as assets and liabilities is permitted. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 required entities to adopt the new lease standard using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides entities with an additional (and optional) transition method to adopt the new lease standard. Under this new method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company intends to adopt this guidance effective October 1, 2019 utilizing the transition method described in ASU 2018-11. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient, which allows entities to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) Narrow-Scope Improvements, which addresses lessor stakeholder questions regarding sales tax, certain lessor costs and the recognition of variable payments for contracts with lease and non-lease components. In March 2019, the FASB issued ASU 2019-01, Leases Codification Improvements, which addresses stakeholder questions regarding presentation of cash flows for sales type and direct financing leases, determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, and transition disclosures related to Topic 250. An implementation team has been created to identify all leases, determine which, if any, practical expedients to utilize, and gather data required to comply. All leases have been identified. The Company selected a third-party vendor to assist in the implementation and subsequent accounting for leases under the ASUs. The Company expects to recognize a right-to-use asset and a lease liability for its operating lease commitments on the Consolidated Statements of Condition and is assessing any additional impact this new standard may have on its consolidated financial condition and results of operations. The Company also anticipates additional disclosures to be provided at adoption.31, 2020

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update replace the existing incurred loss impairment methodology with a methodology that reflects the expected credit losses for the remaining life of the asset. This will require consideration of a broader range of information, including reasonably supportable forecasts, in the measurement of expected credit losses. The amendments expand disclosures of credit quality indicators, requiring disaggregation by year of origination (vintage). Additionally, credit losses on available for sale debt securities will be recognized as an allowance rather than a write-down, with reversals permitted as credit loss estimates decline. An entity will apply the amendments in this Update through a modified-retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt this guidance effective October 1, 2020. In May 2019, the FASB issued ASU

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2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief, which addresses stakeholders' concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. Management has formed a working group comprised of associates from across the Company including accounting, risk management, and finance. This group has begun assessing the required changes to ~~our~~the credit loss estimation methodologies and systems, as well as additional data and resources that may be required to comply with this standard. ~~The~~Although the Company is ~~currently~~still evaluating CECL, adoption of the ~~impact that this~~standard is expected to increase the overall allowance for loan losses given the change from accounting ~~guidance may have on its consolidated financial condition or results~~for losses inherent in the loan portfolio to accounting for losses over the remaining life of ~~operations.~~the loans. The actual effect on ~~our~~the allowance for loan losses at the adoption date will be dependent upon the nature of the characteristics of the portfolio as well as the macroeconomic conditions and forecasts at that date.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update add, remove and modify the disclosure requirements on fair value measurements in Topic 820. The amendments in this Update are effective for all entities

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for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this Update. The Company intends to adopt the amendments effective October 1, 2020. The Update is not expected to have a material impact on the Company's consolidated financial ~~condition, results of operations,~~statements, or disclosures.

In August 2018, the FASB issued ASU 2018-15, Internal-Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. Current GAAP does not specifically address the accounting for implementation costs of a hosting arrangement that is a service contract. Accordingly, the amendments in this Update improve current GAAP because they clarify that accounting and align the accounting for implementation costs for hosting arrangements, regardless of whether they convey a license to the hosted software. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, for all entities. The Company intends to adopt the amendments effective October 1, 2020. Management is currently assessing the impact the Update will have on the Company's disclosures.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Updates 2016-01, 2016-13 and 2017-12. The Company early adopted the amendments related to Updates 2016-01 and 2017-12 ~~and 2016-01.~~effective July 1, 2019. The amendments related to Update 2016-13 clarify the scope of the credit losses standard and address issues related to accrued interest and recoveries. The amendments are not expected to have a material impact on the Company's consolidated financial statements or disclosures. The Company intends to adopt the credit loss standard amendments concurrently with Update 2016-13 on October 1, 2020.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments ~~related~~in this Update provide optional guidance to ~~Update 2017-12 address partial-term fair value hedges, fair value hedge basis adjustments~~ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance only applies to contracts, hedging relationships, and ~~certain transition requirements.~~other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments ~~related to~~in this Update ~~2016-01 address~~are effective for all entities as of March 12, 2020 through December 31, 2022. Management is currently evaluating the ~~scope of financial instrument recognition~~Update and ~~measurement guidance,~~determining the requirement for re-measurement under ASC 820 when using the measurement alternative and certain disclosure requirements. The Company intends to early adopt the amendments related to hedging and financial instruments effective July 1, 2019. ASU 2019-04 is not expected to have a material impact on the ~~Company’s~~Company's consolidated financial ~~condition, results of operation, or disclosures.~~statements.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on the Company's consolidated financial statements or do not apply to its operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward Looking Statements
This report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include, among other things:
●	statements of our goals, intentions and expectations;
●	statements regarding our business plans and prospects and growth and operating strategies;
●	statements concerning trends in our provision for loan losses and charge-offs;
●	statements regarding the trends in factors affecting our financial condition and results of operations, including asset quality of our loan and investment portfolios; and
●	estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:
●	significantly increased competition among depository and other financial institutions;
●	inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
●	general economic conditions, either globally, nationally or in our market areas, including employment prospects, real estate values and conditions that are worse than expected;
●	the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of our loans and other ~~assets;~~assets, and changes in estimates of the allowance for loan losses;
●	decreased demand for our products and services and lower revenue and earnings because of a recession or other events;
●	changes in consumer spending, borrowing and savings habits;
●	adverse changes and volatility in the securities markets, credit markets or real estate markets;
●	legislative or regulatory changes that adversely affect our business, including changes in regulatory costs and capital requirements and changes related to our ability to pay dividends and the ability of Third Federal Savings, MHC to waive dividends;
●	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board;
●	the adoption of implementing regulations by a number of different regulatory bodies, ~~under the DFA,~~ and uncertainty in the exact nature, extent and timing of such regulations and the impact they will have on us;
●	our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;
●	future adverse developments concerning Fannie Mae or Freddie Mac;
●	changes in monetary and fiscal policy of the U.S. Government, including policies of the U.S. Treasury and the FRS and changes in the level of government support of housing finance;
●	the continuing governmental efforts to restructure the U.S. financial and regulatory system;
●	the ability of the U.S. Government to remain open, function properly and manage federal debt limits;
●	changes in policy and/or assessment rates of taxing authorities that adversely affect us or our customers;
●	changes in accounting and tax estimates;
●	changes in our organization, or compensation and benefit plans and changes in expense trends (including, but not limited to trends affecting non-performing assets, charge-offs and provisions for loan losses);
●	the inability of third-party providers to perform their obligations to us;
●	a slowing or failure of the prevailing economic recovery; ~~and~~
●	cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our ~~systems.~~systems; and
●	the impact of any wide-spread pandemic, including COVID-19, on our business, our customers, and the economy.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Please see Part II - Other Information Item 1A. Risk Factors for a discussion of certain risks related to our business.

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Overview

Our business strategy is to operate as a well-capitalized and profitable financial institution dedicated to providing exceptional personal service to our customers.

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

~~Management~~COVID-19 Pandemic. During the current quarter, the COVID-19 pandemic had a significant impact on our customers, associates and communities, which collectively impacts our shareholders. Our primary values and mission mentioned above have driven our responses related to COVID-19 and are summarized below.

Customers

The majority of branches are open, lobby hours shortened and appointments available after hours

Designated branch hours have been made available for vulnerable customers

Customer Care team has been fielding 1,500+ calls per day

Production teams are fully operational and processing a record high pipeline of loan applications

Customer relief provided in the form of: forbearance plans available for three months with an option for another three months, with multiple repayment options; the suspension of foreclosure program; waiving of late fees, overdraft fees and ATM fees

Mobile banking features have been expanded, including mobile deposit limits

Associates

Excluding customer facing associates, such as tellers in branches and some customer care representatives using corporate phone systems, over 75% of associates are able to work remotely

All associates working at branches and operations center are safely distanced and working in contained areas for safety

Medical benefit plan enhancements have been made to ensure COVID-19 coverage

An additional 10 days provided to associates for COVID-19 related absences

$50,000 added to Rhonda’s Kiss Associate Fund for family hardships

Communities

Third Federal Foundation helped launch the Greater Cleveland COVID-19 Rapid Response Fund to support those most in need ($6 million in funds raised to date)

Providing emergency funding to Slavic Village P-16 partners

Donated 300 N95 masks and hazmat suits to local hospitals

Allocated $50,000 to fund COVID-19 Emergency small dollar loans for Seniors

Shareholders

We are committed to paying an attractive dividend

Continued serving and lending to our customers in a responsible way

Strong credit quality and capital levels to support potential loan performance issues

Staying true to the Third Federal Values that have guided us throughout history (love, trust, respect, commitment to excellence, and fun)

Beyond working through the challenges COVID-19 presents to the organization and society, management believes that the following matters are those most critical to our success: (1) controlling our interest rate risk exposure; (2) monitoring and limiting our credit risk; (3) maintaining access to adequate liquidity and diverse funding ~~sources;~~sources to support our growth; and (4) monitoring and controlling our operating expenses.

Controlling Our Interest Rate Risk Exposure. Although the significant housing and credit quality issues that arose in connection with the 2008 financial crisis had a distinctly negative effect on our operating results and, as described below, that experience made a lasting impression on our risk awareness, historically,Historically, our greatest risk has been our exposure to changes in interest rates. When we hold longer-term, fixed-rate assets, funded by liabilities with shorter re-pricing characteristics, we are exposed to potentially adverse impacts from changing interest rates, and most notably rising interest rates. Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits. This difference has been an important component of our net interest income and is fundamental to our operations. We manage the risk of

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holding longer-term, fixed-rate mortgage assets primarily by maintaining regulatory capital in excess of levels required to be well capitalized, by promoting adjustable-rate loans and shorter-term fixed-rate loans, by marketing home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate, and by opportunistically extending the duration of our funding sources. The decision to extend the duration of some of our funding sources through interest rate swap contracts over the past few years has also caused additional interest rate risk exposure, as the current historical low market interest rates are lower than the rates in effect when the swap contracts were executed. This rate difference is reflected in the level of cash flow hedges included in accumulated other comprehensive loss.

Levels of Regulatory Capital

At ~~June 30, 2019,~~March 31, 2020, the Company’s Tier 1 (leverage) capital totaled ~~$1.73~~$1.76 billion, or ~~12.18%~~11.78% of net average assets and ~~21.97%~~21.13% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.50 billion, or ~~10.54%~~10.11% of net average assets and ~~19.05%~~18.11% of risk-weighted assets. Each of these measures was more than twice the requirements currently in effect for the Association for designation as “well capitalized” under regulatory prompt corrective action provisions, which set minimum levels of 5.00% of net average assets and 8.00% of risk-weighted assets. Refer to the Liquidity and Capital Resources section of this Item 2 for additional discussion regarding regulatory capital requirements.

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

We market an adjustable-rate mortgage loan that provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan. Our “Smart Rate” adjustable-rate mortgage offers borrowers an interest rate lower than that of a 30-year, fixed-rate loan. The interest rate of the Smart Rate mortgage is locked for three or five years then resets annually. The Smart Rate mortgage contains a feature to re-lock the rate an unlimited number of times at our then-current interest rate and fee schedule, for another three or five years (which must be the same as the original lock period) without having to complete a full refinance transaction. Re-lock eligibility is subject to a satisfactory payment performance history by the borrower (current at the time of re-lock, and no foreclosures or bankruptcies since the Smart Rate application was taken). In addition to a satisfactory payment history, re-lock eligibility requires that the property continues to be the borrower’s primary residence. The loan term cannot be extended in connection with a re-lock nor can new funds be advanced. All interest rate caps and floors remain as originated.

We also offer a ten-year, fully amortizing fixed-rate, first mortgage loan. The ten-year, fixed-rate loan has a more desirable interest rate risk profile when compared to loans with fixed-rate terms of 15 to 30 years and can help to more effectively manage interest rate risk exposure, yet provides our borrowers with the certainty of a fixed interest rate throughout the life of the obligation.

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The following tables set forth our first mortgage loan production and balances segregated by loan structure at origination.


	For the Nine Months Ended June 30, 2019				For the Nine Months Ended June 30, 2018				For the Six Months Ended March 31, 2020				For the Six Months Ended March 31, 2019
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)								(Dollars in thousands)
First Mortgage Loan Originations:
ARM (all Smart Rate) production	$	523,078	44.8	%	$	840,504	49.0	%	$	600,249	45.2	%	$	320,738	48.2	%
Fixed-rate production:
Terms less than or equal to 10 years	60,468		5.2		192,960		11.2		115,289		8.7		40,143		6.0
Terms greater than 10 years	583,617		50.0		681,969		39.8		612,173		46.1		304,178		45.8
Total fixed-rate production	644,085		55.2		874,929		51.0		727,462		54.8		344,321		51.8
Total First Mortgage Loan Originations	$	1,167,163	100.0	%	$	1,715,433	100.0	%	$	1,327,711	100.0	%	$	665,059	100.0	%

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	June 30, 2019				September 30, 2018				March 31, 2020				September 30, 2019
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)								(Dollars in thousands)
Balance of Residential Mortgage Loans Held For Investment:
ARMs	$	5,086,776	46.6	%	$	5,166,282	46.9	%
ARM (primarily Smart Rate) Loans									$	5,202,983	46.3	%	$	5,063,010	46.1	%
Fixed-rate:
Terms less than or equal to 10 years	1,558,540		14.3		1,822,918		16.5		1,380,384		12.3		1,484,403		13.5
Terms greater than 10 years	4,269,246		39.1		4,036,544		36.6		4,645,872		41.4		4,440,553		40.4
Total fixed-rate	5,827,786		53.4		5,859,462		53.1		6,026,256		53.7		5,924,956		53.9
Total Residential Mortgage Loans Held For Investment	$	10,914,562	100.0	%	$	11,025,744	100.0	%	$	11,229,239	100.0	%	$	10,987,966	100.0	%

The following table sets forth the balances as of ~~June 30, 2019~~March 31, 2020 for all ARM loans segregated by the next scheduled interest rate reset date.


	Current Balance of ARM Loans Scheduled for Interest Rate Reset		Current Balance of ARM Loans Scheduled for Interest Rate Reset
During the Fiscal Years Ending September 30,	(In thousands)		(In thousands)
2019	$	62
2020	650,068		$	120,747
2021	1,214,370		1,081,995
2022	1,593,569		1,306,581
2023	1,043,261		1,062,874
2024	585,446		419,291
2025			1,211,495
Total	$	5,086,776	$	5,202,983

At ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019, 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 $~~2.6~~2.3 million and $~~0.7~~3.7 million, respectively.

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Loan Portfolio Yield

The following tables set forth the balance and interest yield as of ~~June 30, 2019~~March 31, 2020 for the portfolio of loans held for investment, by type of loan, structure and geographic location.


	June 30, 2019						March 31, 2020
	Balance		Percent		Yield		Balance		Percent		Yield
	(Dollars in thousands)						(Dollars in thousands)
Real Estate Loans:
Total Loans:
Fixed Rate
Terms less than or equal to 10 years	$	1,558,540	11.9	%	2.94	%	$	1,380,384	10.1	%	2.96	%
Terms greater than 10 years	4,269,246		32.7	%	4.09	%	4,645,872		34.2	%	3.99	%
Total Fixed-Rate loans	5,827,786		44.6	%	3.78	%	6,026,256		44.3	%	3.75	%

ARMs	5,086,776		39.0	%	3.16	%	5,202,983		38.3	%	3.16	%
Home Equity Loans and Lines of Credit	2,085,853		16.0	%	4.69	%	2,316,519		17.0	%	2.59	%
Construction and Consumer	50,528		0.4	%	4.01	%
Total Loans Receivable, net	$	13,050,943	100.0	%	3.68	%
Construction and Other Loans							55,269		0.4	%	3.59	%
Total Loans Receivable							$	13,601,027	100.0	%	3.33	%


	June 30, 2019								March 31, 2020
	Balance		Fixed Rate Balance		Percent		Yield		Balance		Fixed Rate Balance		Percent		Yield
	(Dollars in thousands)								(Dollars in thousands)
Residential Mortgage Loans
Ohio	$	6,167,810	$	4,276,870	47.3	%	3.70	%	$	6,409,755	$	4,525,701	47.1	%	3.67	%
Florida	1,752,059		699,425		13.4	%	3.48	%	1,783,099		695,838		13.1	%	3.45	%
Other	2,994,693		851,491		22.9	%	3.07	%	3,036,385		804,717		22.3	%	3.10	%
Total Residential Mortgage Loans	10,914,562		5,827,786		83.6	%	3.49	%	11,229,239		6,026,256		82.5	%	3.48	%
Home Equity Loans and Lines of Credit
Ohio	668,755		60,620		5.1	%	4.69	%	686,604		55,011		5.1	%	2.66	%
Florida	403,551		34,793		3.1	%	4.57	%	441,711		33,838		3.2	%	2.61	%
California	338,952		23,000		2.6	%	4.75	%	382,065		21,432		2.8	%	2.63	%
Other	674,595		17,779		5.2	%	4.73	%	806,139		15,597		6.0	%	2.49	%
Total Home Equity Loans and Lines of Credit	2,085,853		136,192		16.0	%	4.69	%	2,316,519		125,878		17.1	%	2.59	%
Construction and Consumer	50,528		50,528		0.4	%	4.01	%
Total Loans Receivable, net	$	13,050,943	$	6,014,506	100.0	%	3.68	%
Construction and Other Loans									55,269		55,269		0.4	%	3.59	%
Total Loans Receivable									$	13,601,027	$	6,207,403	100.0	%	3.33	%

Marketing Home Equity Lines of Credit

~~Since 2016, we have~~We actively ~~marketed~~market home equity lines of credit, which carry an ~~adjustable-rate~~adjustable rate of interest indexed to the prime rate, which provides interest rate sensitivity to that portion of our ~~assets. Prior to 2010, home equity lending also represented a meaningful strategy to manage our interest rate risk profile. Between 2010~~assets and 2015, the Association, in various steps, restricted and modified its home equity lending products and the markets where they were offered, in response to the 2008 financial crisis and the resulting regulatory environments that existed during that time. Through redesigned home equity products, we believe we have re-established home equity line of credit lending asis a meaningful strategy to manage our interest rate risk profile. At ~~June 30, 2019,~~March 31, 2020, the principal balance of home equity lines of credit totaled ~~$1.64~~$1.95 billion. Our home equity lending is discussed in the Allowance for Loan Losses section of the Critical Accounting Policies that follows this Overview.

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Extending the Duration of Funding Sources

As a complement to our strategies to shorten the duration of our interest earning assets, as described above, we also seek to lengthen the duration of our interest bearing funding sources. These efforts include monitoring the relative costs of alternative funding sources such as retail deposits, brokered certificates of deposit, longer-term (e.g. four to six years) fixed rate advances from the FHLB of Cincinnati, and shorter-term (e.g. three months) advances from the FHLB of Cincinnati, the durations of which are extended by correlated interest rate exchange contracts. Each funding alternative is monitored and evaluated based on its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements. The interest payment rate is a function of market influences that are specific to the nuances and market competitiveness/breadth of each funding source. Generally, early withdrawal options are available to our retail CD customers but not to holders of brokered CDs; issuer call options are not provided on our advances from the FHLB of Cincinnati; and we are not subject to early termination options with respect to our interest rate exchange contracts. Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts.

During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, the balance of deposits increased ~~$222.9~~$321.4 million, which was comprised of a ~~$373.9~~$354.8 million increase in the balance of customer retail deposits, partially offset by a ~~$151.0~~$33.4 million decrease in the balance of brokered CDs (which is inclusive of acquisition costs and subsequent amortization). Additionally, during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, we decreased the balance of our short-term advances from the FHLB of Cincinnati by ~~$266~~$85 million; and added $250 million of new, four- to five-year advances from the FHLB of Cincinnati; and we added ~~$675~~$250 million of new, shorter-term advances from the FHLB of Cincinnati that were matched/correlated to interest rate exchange contracts that extended the effective durations of those shorter-term advances to approximately ~~five~~four to ~~eight~~seven years at inception. Interest rate swaps are discussed later in Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~These~~During the six months ended March 31, 2020, these funding source modifications facilitated asset growth of ~~$234.4~~$460.0 million and funded stock repurchases of ~~$7.9~~$0.4 million, dividends of ~~$37.1~~$27.4 million and scheduled repayments of long-term borrowed funds of ~~$299.4~~$233.2 million.

Other Interest Rate Risk Management Tools

We also manage interest rate risk by selectively selling a small portion of our long-term, fixed-rate mortgage loans in the secondary market. Prior to fiscal 2010, this strategy was used to a greater extent to manage our interest rate risk. At ~~June 30, 2019,~~March 31, 2020, we serviced ~~$1.83~~$1.74 billion of loans for others, of which ~~$934~~$870 million ~~were~~was sold in the secondary market prior to fiscal 2010. While the sales of first mortgage loans remain strategically important for us, since fiscal 2010, they have played only a minor role in our management of interest rate risk. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions are dependent upon favorable market conditions, including motivated private investors, and involve more complicated negotiations and longer settlement timelines. Loan sales are discussed later in this Part 1, Item 2. under the heading Liquidity and Capital Resources, and in Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Notwithstanding our efforts to manage interest rate risk, should a rapid and substantial increase occur in general market interest rates, or an extended period of a flat or inverted yield curve market persists, it is expected that, prospectively and particularly over a multi-year time horizon, the level of our net interest income would be adversely impacted.

Monitoring and Limiting Our Credit Risk. While, historically, we had been successful in limiting our credit risk exposure by generally imposing high credit standards with respect to lending, the ~~confluence~~memory of ~~unfavorable regional and macro-economic events that culminated in~~ the 2008 housing market collapse and financial crisis ~~coupled with our pre-2010 expanded participation in the second lien mortgage lending markets, significantly refocused our attention with respect~~is a constant reminder to focus on credit risk. In response to the evolving economic landscape, we continuously revise and update our quarterly analysis and evaluation procedures, as needed, for each category of our lending with the objective of identifying and recognizing all appropriate credit impairments. Continuous analysis and evaluation updates will be important as we monitor the impact to our borrowers as a result of the COVID-19 global pandemic. At ~~June 30, 2019, 91%~~March 31, 2020, 90% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit, which were originated predominantly to borrowers in Ohio and Florida. Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as specific reviews of all first mortgage loans that become 180 or more days past due. We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status. Per the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, the COVID-19 related forbearance plans will not generally affect the delinquency status of the loan and therefore will not undergo a specific review. We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing. Loans where at least one borrower has been discharged of their

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obligation in Chapter 7 bankruptcy are classified as TDRs. At ~~June 30, 2019, $23.9~~March 31, 2020, $20.2 million of loans in Chapter 7 bankruptcy status with no other modification to terms were included in total TDRs. At ~~June 30, 2019,~~March 31, 2020, the recorded investment in non-accrual status loans included ~~$26.4~~$23.3 million of performing loans in Chapter 7 bankruptcy status, of which ~~$25.8~~$21.8 million were also reported as TDRs.

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In ~~response to the unfavorable regional and macro-economic environment that arose beginning in 2008, and in~~ an effort to limit our credit risk exposure and improve the credit performance of new customers, since 2009, we have tightened our credit ~~eligibility~~ criteria in evaluating a ~~borrower’s~~borrower's ability to successfully fulfill its repayment obligation, revised the design of many of our loan products to require higher borrower down-payments, limited the products available for condominiums and eliminated certain product features (such as interest-only, adjustable-rate loans and loans above certain LTV ratios)~~, and suspended home equity lending products with the exception of bridge loans between 2010 and 2012.~~. The delinquency level related to loan originations prior to 2009, compared to originations in 2009 and after, ~~reflect~~reflects the higher credit standards to which we have subjected all new originations. As of ~~June 30, 2019,~~March 31, 2020, loans originated prior to 2009 had a balance of ~~$876.9~~$718.1 million, of which ~~$27.4~~$21.0 million, or ~~3.1%~~2.9%, were delinquent, while loans originated in 2009 and after had a balance of ~~$12.19~~$12.90 billion, of which ~~$10.3~~$12.5 million, or 0.1%, were delinquent.

One aspect of our credit risk concern relates to high concentrations of our loans that are secured by residential real estate in specific states, particularly Ohio and Florida, in light of the difficulties that arose in connection with the 2008 housing crisis with respect to the real estate markets in those two states. At ~~June 30, 2019,~~March 31, 2020, approximately ~~56.4%~~57% and ~~16.1%~~16% of the combined total of our residential Core and construction loans held for investment and approximately ~~32.1%~~30% and ~~19.4%~~19% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively. In an effort to moderate the concentration of our credit risk exposure in individual states, particularly Ohio and Florida, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations. Currently, in addition to Ohio and Florida, we are actively lending in 23 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential, Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. Of the total mortgage and home equity loan originations for the ~~nine~~six months ended ~~June 30, 2019, 21.0%~~March 31, 2020, 26.1% are secured by properties in states other than Ohio or Florida.

Our residential Home Today loans are another area of credit risk ~~concern.~~concern as the majority of these loans were originated under less stringent underwriting and credit standards than our residential Core portfolio. Although we no longer originate loans under this program and the principal balance in these loans had declined to ~~$87.8~~$80.4 million at ~~June 30, 2019,~~March 31, 2020, and constituted only 0.6% of our total “held for investment” loan portfolio balance, they comprised ~~15.8%~~16.9% and ~~20.4%~~19.6% of our 90 days or greater delinquencies and our total delinquencies, respectively, at that date. At ~~June 30, 2019,~~March 31, 2020, approximately ~~95.4%~~95% and ~~4.4%~~5% of our residential Home Today loans were secured by properties in Ohio and Florida, respectively. At ~~June 30, 2019,~~March 31, 2020, the percentages of those loans delinquent 30 days or more in Ohio and Florida were ~~8.8%~~8.2% and ~~8.2%~~8.9%, respectively. ~~The disparity between the portfolio composition ratio and delinquency composition ratio reflects the nature of the Home Today loans.~~ We do not offer, and have not offered, loan products frequently considered to be designed to target sub-prime borrowers containing features such as higher fees or higher interest rates, negative amortization, or low initial payment features with adjustable interest rates. Our Home Today loans, the majority of which were entered into with borrowers that had credit profiles that would not have otherwise qualified for our loan products due to deficient credit scores, generally contained the same features as loans offered to our Core borrowers. The overriding objective of our Home Today lending, just as it is with our Core lending, was the creation of successful homeowners. We have attempted to manage our Home Today credit risk by requiring that borrowers attend pre- and post-borrowing financial management education and counseling and that the borrowers be referred to us by a sponsoring organization with which we have partnered. Further, to manage the credit aspect of these loans, inasmuch as the majority of these buyers did not have sufficient funds for required down payments, many loans included private mortgage ~~insurance.~~insurance for some loans. At ~~June 30, 2019, 15.0%~~March 31, 2020, 12.4% of Home Today loans included private mortgage insurance coverage. From a peak recorded investment of $306.6 million at December 31, 2007, the total recorded investment of the Home Today portfolio has declined to ~~$87.5~~$80.1 million at ~~June 30, 2019.~~March 31, 2020. Since the vast majority of Home Today loans were originated prior to March 2009 and we are no longer originating loans under our Home Today program, the Home Today portfolio will continue to decline in balance, primarily due to contractual amortization. To supplant the Home Today product and to continue to meet the credit needs of our customers and the communities that we serve, we have offered Fannie Mae eligible, Home Ready loans since fiscal 2016. These loans are originated in accordance with Fannie Mae's underwriting standards. While we retain the servicing rights related to these loans, the loans, along with the credit risk associated therewith, are securitized/sold to Fannie Mae.

Maintaining Access to Adequate Liquidity and Diverse Funding ~~Sources.~~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. Accordingly, we have managed the pace of our growth in a manner that reflects our emphasis on high capital levels. At ~~June 30, 2019,~~March 31, 2020, 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 ~~10.54%~~10.11%. The Association's Tier 1 (leverage) capital ratio is lower at ~~June 30, 2019~~March 31, 2020 than its ratio at September 30, ~~2018,~~2019, which was ~~10.87%~~10.54%, due primarily to ~~an $85~~a $57 million cash dividend payment that the Association made to the Company, its sole shareholder, in December ~~2018~~2019 that reduced the Association's Tier 1 (leverage) capital ratio by an estimated 6039 basis points. Because of its intercompany nature, this dividend payment did not

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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.

In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered CDs), borrowings from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. At ~~June 30, 2019,~~March 31, 2020, deposits totaled ~~$8.71~~$9.09 billion (including ~~$518.8~~$474.4 million of brokered CDs), while borrowings totaled ~~$3.83~~ $4.08

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billion and borrowers’ advances and servicing escrows totaled ~~$76.7~~$121.9 million, combined. In evaluating funding sources, we consider many factors, including cost, collateral, duration and optionality, current availability, expected sustainability, impact on operations and capital levels.

To attract deposits, we offer our customers attractive rates of interest on our deposit products. Our deposit products typically offer rates that are highly competitive with the rates on similar products offered by other financial institutions. We intend to continue this practice, subject to market conditions.

We preserve the availability of alternative funding sources through various mechanisms. First, by maintaining high capital levels, we retain the flexibility to increase our balance sheet size without jeopardizing our capital adequacy. Effectively, this permits us to increase the rates that we offer on our deposit products thereby attracting more potential customers. Second, we pledge available real estate mortgage loans and investment securities with the FHLB of Cincinnati and the FRB-Cleveland. At ~~June 30, 2019,~~March 31, 2020, these collateral pledge support arrangements provided the Association with the ability to immediately borrow an additional ~~$19.8 million~~$1.6 billion from the FHLB of Cincinnati and ~~$48.6~~$39.6 million from the FRB-Cleveland Discount Window. From the perspective of collateral value securing FHLB of Cincinnati advances, our capacity limit for additional borrowings beyond the balance outstanding at ~~June 30, 2019~~March 31, 2020 was ~~$4.61~~$4.37 billion, subject to satisfaction of the FHLB of Cincinnati common stock ownership requirement. To satisfy the common stock ownership requirement for the maximum limit of borrowing, we would need to increase our ownership of FHLB of Cincinnati common stock by an additional ~~$92.3~~$111.8 million. 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 ~~June 30, 2019,~~March 31, 2020, our investment securities portfolio totaled ~~$564.9~~$545.5 million. Finally, cash flows from operating activities have been a regular source of funds. During the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ cash flows from operations provided ~~$72.6~~$62.5 million and ~~$68.1~~$43.2 million, respectively.

Fannie Mae, historically the Association’s primary loan investor, implemented, effective July 2010, certain loan origination requirement changes affecting loan eligibility that we chose not to adopt until fiscal 2013. Since then, firstFirst mortgage loans (primarily fixed-rate, mortgage refinances with terms of 15 years or more, and ~~HARP II, and more recently~~ Home ~~Ready, loans) that are~~Ready) originated under ~~the revised~~Fannie Mae compliant procedures are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. ~~The HARP II program expired at December 31, 2018.~~ We expect that certain loan types (i.e. our Smart Rate adjustable-rate loans, home purchase fixed-rate loans and 10-year fixed-rate loans) will continue to be originated under our legacy ~~procedures.~~procedures, which are not eligible for sale to Fannie Mae. For loans that are not originated under ~~the revised (Fannie Mae)~~Fannie Mae procedures, the Association’s ability to reduce interest rate risk via loan sales is limited to those loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral values that meet the requirements of the FHLB's Mortgage Purchase Program or of private third-party investors. At ~~June 30, 2019, $2.6~~March 31, 2020, $2.3 million of agency eligible, long-term, fixed-rate first mortgage loans were classified as “held for sale.” During the ~~nine~~six months ended ~~June 30, 2019, $29.5~~March 31, 2020, $26.6 million of agency-compliant ~~HARP II and~~ Home Ready loans and ~~$36.6~~$197.6 million of long-term, fixed-rate, agency-compliant, ~~non-HARP II,~~ non-Home Ready first mortgage loans were sold to Fannie Mae. Additionally, $~~19.0~~99.0 million of fixed-rate loans were sold in a single bulk sale to a private investor.

Overall, while customer and community confidence can never be assured, the Company believes that its liquidity is adequate and that it has access to adequate alternative funding sources.

Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. Our ratio of annualized non-interest expense to average assets was 1.31% for the six months ended March 31, 2020 and 1.40% for the ~~nine~~six months ended ~~June 30, 2019 and 1.42% for the nine months ended June 30, 2018.~~March 31, 2019. As of ~~June 30, 2019,~~March 31, 2020, our average assets per full-time employee and our average deposits per full-time employee were ~~$13.7~~$14.9 million and ~~$8.3~~$9.0 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average of deposits (exclusive of brokered CDs) held at our branch offices ($~~221.5~~232.8 million per branch office as of ~~June 30, 2019)~~March 31, 2020) contributes to our expense management efforts by limiting the overhead costs of serving our customers. We will continue our efforts to control operating expenses as we grow our business.

Critical Accounting Policies

Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical

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accounting policies upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are our policies with respect to our allowance for loan losses, income taxes and pension benefits.

Allowance for Loan Losses. We provide for loan losses based on the allowance method. Accordingly, all loan losses are charged to, and all recoveries are credited to, the related allowance. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating probable losses.

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We regularly review the loan portfolio and make provisions (or recapture credits) for loan losses in order to maintain the allowance for loan losses in accordance with U.S. GAAP. Our allowance for loan losses consists of two components:


(1)	individual valuation allowances (IVAs) established for any impaired loans dependent on cash flows, such as performing TDRs, and IVAs related to a portion of the allowance on loans individually reviewed that represents further deterioration in the fair value of the collateral not yet identified as uncollectible; and


(2)	general valuation allowances (GVAs), which are comprised of quantitative GVAs, which are general allowances for loan losses for each loan type based on historical loan loss experience and qualitative GVAs, which are adjustments to the quantitative GVAs, maintained to cover uncertainties that affect our estimate of incurred probable losses for each loan type.

The qualitative GVAs expand our ability to identify and estimate probable losses and are based on our evaluation of the following factors, some of which are consistent with factors that impact the determination of quantitative GVAs. For example, delinquency statistics (both current and historical) are used in developing the quantitative GVAs while the trending of the delinquency statistics is considered and evaluated in the determination of the qualitative GVAs. Factors impacting the determination of qualitative GVAs include:

changes in lending policies and procedures including underwriting standards, collection, charge-off or recovery practices;

changes in national, regional, and local economic and business conditions and trends including treasury yields, housing market factors and trends, such as the status of loans in foreclosure, real estate in judgment and real estate owned, and unemployment statistics and trends;

changes in the nature and volume of the portfolios including home equity lines of credit nearing the end of the draw period and adjustable-rate mortgage loans nearing a rate reset;

changes in the experience, ability or depth of lending management;

changes in the volume or severity of past due loans, volume of non-accrual loans, or the volume and severity of adversely classified loans including the trending of delinquency statistics (both current and historical), historical loan loss experience and trends, the frequency and magnitude of multiple restructurings of loans previously the subject of TDRs, and uncertainty surrounding borrowers’ ability to recover from temporary hardships for which short-term loan restructurings are granted;

changes in the quality of the loan review system;

changes in the value of the underlying collateral including asset disposition loss statistics (both current and historical) and the trending of those statistics, and additional charge-offs on individually reviewed loans;

existence of any concentrations of credit; and

effect of other external factors such as the COVID-19 pandemic, competition, market interest rate changes or legal and regulatory requirements including market conditions and regulatory directives that impact the entire financial services industry.

As a result of the COVID-19 global pandemic, some of our borrowers have experienced unemployment or reduced income and have requested some type of loan payment forbearance. Active short-term forbearance plans offered to borrowers affected by COVID-19, which are not classified as troubled debt restructurings, totaled $36.0 million at March 31, 2020, or 0.26% of total loans receivable at March 31, 2020, and $231.4 million at May 12, 2020, or 1.70% of total loans receivable at March 31, 2020, of which $204.7 million was related to first mortgage loans and $26.7 million was related to home equity loans and lines of credit. Forbearance plans allow borrowers to defer payments to a later point in time and are initially offered for a three-month period, which may be extended. At the end of the forbearance period, borrowers are provided options, such as capitalization, portioning deferred payments over a number of months or extending the maturity date of the loan, to repay the forbearance amount. Per the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), none of these forbearance plans affect the delinquency, non-accrual, TDR or charge-off statistics as of March 31, 2020, however the potential for loan losses was considered in the determination of the allowance for loan losses as of March 31, 2020.

When loan restructurings qualify as TDRs and the loans are performing according to the terms of the restructuring, we record an IVA based on the present value of expected future cash flows, which includes a factor for potential subsequent defaults, discounted at the effective interest rate of the original loan contract. Potential defaults are distinguished from multiple restructurings as borrowers who default are generally not eligible for subsequent restructurings. At ~~June 30, 2019~~March 31, 2020, the balance of such individual valuation allowances was $~~12.6~~13.6 million. In instances when loans require multiple restructurings, additional valuation allowances may be required. The new valuation allowance on a loan that has multiple restructurings is calculated based on the present value of the expected cash flows, discounted at the effective interest rate of the original loan

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contract, considering the new terms of the restructured agreement. Due to the immaterial amount of this exposure to date, we continue to capture this exposure as a component of our qualitative GVA evaluation. The significance of this exposure will be monitored and, if warranted, we will enhance our loan loss methodology to include a new default factor (developed to reflect the estimated impact to the balance of the allowance for loan losses that will occur as a result of subsequent future restructurings) that will be assessed against all loans reviewed collectively. If new default factors are implemented, the qualitative GVA methodology will be adjusted to preclude duplicative loss consideration.

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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, ~~as arose beginning in 2008,~~ these higher loan-to-value ratios represent a greater risk of loss to the Company. A borrower with more equity in the property has a vested interest in keeping the loan current when compared to a borrower with little or no equity in the property. In light of the past weakness in the housing market and uncertainty with respect to future employment levels and economic prospects, we conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans, which are delinquent 90 days or more. This expanded evaluation is in addition to our traditional evaluation procedures. Considering the review process and our suspension program, no allowance is deemed necessary for our unfunded commitments on this portfolio. Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs. At ~~June 30, 2019,~~March 31, 2020, we had a recorded investment of ~~$2.11~~$2.34 billion in home equity loans and equity lines of credit outstanding, ~~$6.8~~of which $4.8 million, or ~~0.3%, of which~~0.2% were delinquent 90 days or ~~more past due.~~more.

We evaluate the allowance for loan losses based upon the combined total of the quantitative and qualitative GVAs and IVAs. We periodically evaluate the carrying value of loans and the allowance is adjusted accordingly. While we use the best information available to make evaluations, future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions.

The following tables set forth the allowance for loan losses allocated by loan category, the percent of allowance in each category to the total allowance, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.


	June 30, 2019						March 31, 2019						March 31, 2020						December 31, 2019
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)												(Dollars in thousands)
Real estate loans:
Residential Core	$	18,720	47.6	%	83.0	%	$	19,587	48.7	%	83.7	%	$	17,367	39.1	%	82.0	%	$	18,312	49.1	%	82.5	%
Residential Home Today	3,378		8.6		0.6		3,275		8.1		0.7		5,070		11.5		0.6		4,232		11.4		0.6
Home equity loans and lines of credit	17,211		43.8		16.0		17,420		43.2		15.2		21,945		49.4		17.0		14,744		39.5		16.5
Construction	4		—		0.4		4		—		0.4		5		—		0.4		4		—		0.4
Total allowance	$	39,313	100.0	%	100.0	%	$	40,286	100.0	%	100.0	%	$	44,387	100.0	%	100.0	%	$	37,292	100.0	%	100.0	%


	September 30, 2018						June 30, 2018						September 30, 2019						March 31, 2019
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)												(Dollars in thousands)
Real estate loans:
Residential Core	$	18,288	43.1	%	84.7	%	$	18,483	43.1	%	85.0	%	$	19,753	50.8	%	82.5	%	$	19,587	48.7	%	83.7	%
Residential Home Today	3,204		7.6		0.7		3,372		7.8		0.8		4,209		10.8		0.6		3,275		8.1		0.7
Home equity loans and lines of credit	20,921		49.3		14.1		21,112		49.1		13.7		14,946		38.4		16.5		17,420		43.2		15.2
Construction	5		—		0.5		4		—		0.5		5		—		0.4		4		—		0.4
Total allowance	$	42,418	100.0	%	100.0	%	$	42,971	100.0	%	100.0	%	$	38,913	100.0	%	100.0	%	$	40,286	100.0	%	100.0	%

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The following table sets forth activity in our allowance for loan losses segregated by geographic location for the periods indicated. The majority of our construction loan portfolio is secured by properties located in Ohio and the balances of other ~~consumer~~ loans are considered immaterial, therefore neither was segregated.


	As of and For the Three Months Ended June 30,						As of and For the Nine Months Ended June 30,						As of and For the Three Months Ended March 31,						As of and For the Six Months Ended March 31,
	2019			2018			2019			2018			2020			2019			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Allowance balance (beginning of the period)	$	40,286		$	43,106		$	42,418		$	48,948		$	37,292		$	41,938		$	38,913		$	42,418
Charge-offs:
Real estate loans:
Residential Core
Ohio	342			134			713			665			472			128			746			371
Florida	158			22			244			51			—			86			196			86
Other	—			—			85			27			—			85			15			85
Total Residential Core	500			156			1,042			743			472			299			957			542
Residential Home Today
Ohio	257			214			583			1,120			229			85			588			326
Florida	—			—			—			57
Total Residential Home Today	257			214			583			1,177			229			85			588			326
Home equity loans and lines of credit
Ohio	389			339			908			1,932			254			229			498			519
Florida	144			837			644			1,936			241			55			593			500
California	—			—			22			—			—			—			—			22
Other	227			—			504			463			117			191			266			277
Total Home equity loans and lines of credit	760			1,176			2,078			4,331			612			475			1,357			1,318
Total charge-offs	1,517			1,546			3,703			6,251			1,313			859			2,902			2,186
Recoveries:
Real estate loans:
Residential Core	498			506			1,475			1,886			364			766			1,174			977
Residential Home Today	385			555			1,477			1,556			660			624			1,187			1,092
Home equity loans and lines of credit	1,661			2,350			5,646			5,832			1,384			1,817			3,015			3,985
Total recoveries	2,544			3,411			8,598			9,274			2,408			3,207			5,376			6,054
Net recoveries (charge-offs)	1,027			1,865			4,895			3,023			1,095			2,348			2,474			3,868
Provision (Credit) for loan losses	(2,000		)	(2,000		)	(8,000		)	(9,000		)	6,000			(4,000		)	3,000			(6,000		)
Allowance balance (end of the period)	$	39,313		$	42,971		$	39,313		$	42,971		$	44,387		$	40,286		$	44,387		$	40,286
Ratios:
Net charge-offs (recoveries) to average loans outstanding (annualized)	0.03		%	0.06		%	0.05		%	0.02		%
Net recoveries (charge-offs) to average loans outstanding (annualized)													0.03		%	0.07		%	0.04		%	0.06		%
Allowance for loan losses to non-accrual loans at end of the period	53.24		%	60.24		%	53.24		%	60.24		%	76.73		%	52.14		%	76.73		%	52.14		%
Allowance for loan losses to the total recorded investment in loans at end of the period	0.30		%	0.34		%	0.30		%	0.34		%	0.33		%	0.31		%	0.33		%	0.31		%

~~The net~~Net recoveries ofcontinued, totaling $~~4.9~~2.5 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 ~~increased from $3.0~~compared to $3.9 million ~~for~~during the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2019,. We reported net recoveries for twelve out of the last thirteen quarters, 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 ~~credit quality continued~~collateral dependent and subject to ~~improve~~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.

Gross charge-offs increased slightly, but remained at relatively low levels, during the ~~current fiscal year. With the exception of the Residential Core portfolio, charge-offs decreased during the nine~~six months ended ~~June 30, 2019 in all portfolios~~March 31, 2020 when compared to the ~~nine~~six months ended June 30, 2018, reflecting the improving market conditions. The Residential Core portfolio experienced a slight increase in gross charge-offs as a result of an administrative change in the current quarter to fully charge off the balance of any loan that remains delinquent for 700 days, shortened from the previous 1,500 day threshold.March 31, 2019. We continue to evaluate loans becoming delinquent for potential ~~losses and record provisions for the estimate of potential losses~~

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losses and record provisions for the estimate of potential losses of those loans. WeSubject to the duration and depth of the impact from COVID-19, we expect a moderate level of charge-offs to continue as delinquent loans are resolved in the future and uncollected balances are charged against the allowance.

During the three months ended ~~June 30, 2019~~March 31, 2020, the total allowance for loan losses ~~decreased~~increased ~~$1.0~~$7.1 million, to ~~$39.3~~$44.4 million from $~~40.3~~37.3 million at ~~March~~December 31, 2019, as we recorded a ~~$2.0~~$6.0 million ~~credit~~provision for loan losses ~~while~~which reflected the estimated impact from the COVID-19 outbreak, with most of the increase occurring in the home equity loans and lines of credit portfolio. Home equity loans and lines of credit generally have greater exposure to charge-off loss since they are usually in a second lien position and face a greater percentage of loss during periods of high unemployment and potential foreclosure in a period of declining home values. During the three months ended March 31, 2020, we recorded net recoveries ~~exceeded loan charge-offs by $1.0~~of $1.1 million. The allowance for loan losses related to loans evaluated collectively ~~decreased~~increased by ~~$1.0~~$6.9 million during the three months ended ~~June 30, 2019~~March 31, 2020, and the allowance for loan losses related to loans evaluated individually ~~remained relatively flat.~~increased slightly. Refer to the "Activity in the Allowance for Loan Losses" and "Analysis of the Allowance for Loan Losses" tables in Note 4 of the Notes to the Unaudited Interim Consolidated Financial Statements for more information. Other than the less significant construction and other ~~consumer~~ loans segments, changes during the three months ended ~~June 30, 2019~~March 31, 2020 in the balances of the GVAs, excluding changes in IVAs, related to the significant loan segments are described as follows:

•

Residential Core – The recorded investment of this segment ~~of the loan portfolio~~ increased 0.2%, or ~~$23.2~~$18.0 million, ~~while the~~and its total allowance ~~for loan losses for this segment~~ decreased ~~4.4%~~5.2% or $0.9 million. The portion of ~~this loan segment’s~~ allowance for ~~loan losses~~this segment that was determined by evaluating groups of loans collectively (i.e. those loans that were not individually evaluated), decreased ~~$0.4~~$1.0 million, or ~~3.6%~~8.7%, from ~~$12.4~~$11.3 million at December 31, 2019, to $10.3 million at March 31, ~~2019, to $11.9 million at June 30, 2019.~~2020. The ratio of this portion of the allowance ~~for loan losses~~ to the total balance of loans in this ~~loan~~ segment that were evaluated collectively, decreased 0.01% to ~~0.11%~~0.09% at ~~June 30, 2019~~March 31, 2020 from ~~0.12%~~0.10% at ~~March~~December 31, 2019. Total delinquencies decreased ~~18.8%~~1.3% to ~~$17.9 million at June 30, 2019 from $22.1~~$17.6 million at March 31, ~~2019. Loans 90 or more days delinquent increased 2.3% to $10.9~~2020 from $17.9 million at ~~June 30, 2019 from $10.6~~December 31, 2019. Delinquencies greater than 90 days increased by 13.0% to $9.1 million at March 31, 2020 from $8.1 million at December 31, 2019. There were net charge-offs of ~~$2 thousand~~$0.1 million for the quarter ended ~~June 30, 2019~~March 31, 2020 compared to net recoveries of ~~$0.4~~$0.5 million during the quarter ended ~~June 30, 2018. Improved delinquencies and continued recoveries warrant the~~March 31, 2019. The decrease in the ~~allowance.~~ratio of the allowance reflected the improvement of total delinquencies and the decreased exposure to payment shock from rising interest rates for our adjustable-rate mortgage customers when compared to the prior period. The credit profile of this portfolio segment remained strong during the quarter due to the addition of high credit quality residential first mortgage loans.

•

Residential Home Today – The recorded investment of this segment ~~of the loan portfolio~~ decreased ~~2.9%~~2.4%, or ~~$2.7~~$2.3 million, as we are no longer originating loans under the Home Today program. The total allowance for ~~loan losses for~~ this segment increased ~~by $0.1~~to $5.1 million ~~or 3.1%. The~~at March 31, 2020, from $4.2 million at December 31, 2019. Similarly, the portion of ~~this loan segment’s~~ allowance ~~for loan losses~~ that was determined by evaluating groups of loans collectively ~~(i.e. those loans that were not individually evaluated), decreased by 14.9%~~increased to ~~$0.9~~$2.6 million during the quarter ended March 31, 2020, from $1.8 million at ~~June 30, 2019 from $1.1 million at March~~December 31, 2019. ~~Similarly, the~~The ratio of this portion of the allowance to the total balance of loans in this ~~loan~~ segment that were evaluated collectively, ~~decreased 0.3%~~increased to ~~1.9%~~6.0% at ~~June 30, 2019~~March 31, 2020 from ~~2.2%~~3.9% at ~~March~~December 31, 2019. Total delinquencies decreased to ~~$7.7~~$6.6 million at ~~June 30, 2019~~March 31, 2020 from ~~$7.9~~$7.3 million at ~~March~~December 31, 2019. Delinquencies greater than 90 days decreased ~~14.7%~~11.5% to ~~$3.3~~$2.8 million from ~~$3.9~~$3.2 million at ~~March~~December 31, 2019. ~~Net~~There were net recoveries of ~~$0.1~~$0.4 million ~~were slightly less~~recorded during the current quarter compared to ~~$0.3~~net recoveries of $0.5 million recorded during the quarter ended ~~June 30, 2018. The~~March 31, 2019. This allowance ~~for this portfolio fluctuates~~increased only slightly, reflecting increased COVID-19 exposure, but was tempered based on not only the generally declining portfolio balance, but also on the credit profile trends in this portfolio. ~~This portfolio's allowance increased slightly this quarter, even though there was a decrease in the Home Today balance, as we continue to be aware that risk~~Risk remains based on the generally less stringent credit requirements that were in place at the time that these borrowers qualified for their ~~loans and the continued depressed home values that remain in this portfolio.~~loans.

•

Home Equity Loans and Lines of Credit – The recorded investment of this segment ~~of the loan portfolio~~ increased ~~6.1%~~4.3%, or ~~$121.9~~$95.6 million, to ~~$2.11 billion at June 30, 2019 from $1.99~~$2.34 billion at March 31, 2020 from $2.25 billion at December 31, 2019. The total allowance for ~~loan losses for~~ this segment ~~decreased 1.20%~~increased 48.84% to ~~$17.2~~$21.9 million from ~~$17.4~~$14.7 million at ~~March~~December 31, 2019. During the quarter ended ~~June 30, 2019,~~March 31, 2020, the portion of ~~this loan segment's~~ allowance for ~~loan losses~~this segment that was determined by evaluating groups of loans collectively, ~~(i.e. those loans that were not individually evaluated) decreased~~increased by ~~$0.4~~$7.0 million, or ~~2.3%~~64.9%, from ~~$13.9~~$10.8 million to ~~$13.5 million during the quarter ended June 30, 2019.~~$17.8 million. The ratio of this portion of the allowance to the total balance of loans in this ~~loan~~ segment that were evaluated collectively ~~remained~~increased 0.3% to 0.8% at ~~0.7%~~March 31, 2020 from 0.5% at ~~June 30, 2019 and~~December 31, 2019. Total delinquencies for this portfolio segment increased 5.3% to $9.3 million at March 31, 2020 as compared to $8.8 million at December 31, 2019. Delinquencies greater than 90 days decreased 6.5% to $4.8 million at March 31, 2020 from $5.2 million at December 31, 2019. Net recoveries for this loan segment during the current quarter were less at ~~$0.9~~$0.8 million as compared to ~~$1.2~~$1.3 million for the quarter ended June 30, 2018. Total delinquencies for this portfolio segment increased 3.0% to $12.1 million at June 30, 2019 as compared to $11.7 million at March 31, 2019. Delinquencies greater than 90 days increased 6.9% to $6.8 million at June 30, 2019 from $6.3 million at March 31, 2019. The ~~reduction~~increase in the allowance is mainly supported by ~~a reduction~~the preliminary impact from the COVID-19 outbreak that has led to increased unemployment and deterioration in the ~~principal balance of home equity lines of credit coming to an end~~overall macro-economic environment. The allowance reflects our consideration of the ~~draw period. In recent years,~~adverse impact that the pandemic will have on our borrowers' ability to meet their required payments, and as a ~~large portion of~~result, the ~~overall~~ allowance has been allocated to the home equity loans and lines of credit portfolio to address exposure from customers whose lines of credit were originated without amortizing payments during the draw period and who could face potential increased payment shock at the end of the draw period. In general, home equity lines of credit originated prior to June 2010 were characterized by a ten-year draw period, with interest only payments, followed by a ten-year repayment period. However, a large number of those lines of credit approaching the end of draw period have been paid off or refinanced without significant loss. The principal balance of home equity lines of credit originated without amortizing paymentsfor this loan segment notably increased.

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during the draw period that are coming to the end of its draw period through fiscal 2020 is $16.7 million at June 30, 2019 as compared to $28.6 million at March 31, 2019. As this exposure decreases without incurring significant loss, the portion of the overall allowance allocated to the home equity loans and lines of credit category can be decreased. Originations after February 2013 require an amortizing payment during the draw period and do not face the same end-of-draw increased payment shock risk.

Loan Portfolio Composition

The following table sets forth the composition of the portfolio of loans held for investment, by type of loan segregated by geographic location at the indicated dates, excluding loans held for sale. The majority of our construction loan portfolio is secured by properties located in Ohio and the balances of other ~~consumer~~ loans are ~~considered~~ immaterial. Therefore, neither iswas segregated by geographic location.


	June 30, 2019					March 31, 2019					September 30, 2018					June 30, 2018					March 31, 2020					December 31, 2019					September 30, 2019					March 31, 2019
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)																				(Dollars in thousands)
Real estate loans:
Residential Core
Ohio	$	6,084,087				$	6,026,509				$	6,052,208				$	5,972,632				$	6,333,074				$	6,378,193				$	6,197,261				$	6,026,509
Florida	1,748,170					1,741,571					1,758,762					1,739,779					1,779,467					1,769,129					1,748,816					1,741,571
Other	2,994,520					3,035,470					3,119,841					3,093,342					3,036,297					2,984,566					2,956,947					3,035,470
Total Residential Core	10,826,777			83.0	%	10,803,550			83.7	%	10,930,811			84.7	%	10,805,753			85.0	%	11,148,838			82.0	%	11,131,888			82.5	%	10,903,024			82.5	%	10,803,550			83.7	%
Residential Home Today
Ohio	83,723					86,258					90,604					93,567					76,681					78,866					81,081					86,258
Florida	3,889					4,062					4,150					4,504					3,632					3,724					3,771					4,062
Other	173					175					179					181					88					89					90					175
Total Residential Home Today	87,785			0.6		90,495			0.7		94,933			0.7		98,252			0.8		80,401			0.6		82,679			0.6		84,942			0.6		90,495			0.7
Home equity loans and lines of credit
Ohio	668,755					662,068					652,271					632,740					686,604					676,085					677,212					662,068
Florida	403,551					392,651					369,252					359,401					441,711					426,479					415,849					392,651
California	338,952					305,042					268,230					252,935					382,065					365,474					357,550					305,042
Other	674,595					605,819					529,165					502,787					806,139					753,342					724,350					605,819
Total Home equity loans and lines of credit	2,085,853			16.0		1,965,580			15.2		1,818,918			14.1		1,747,863			13.7		2,316,519			17.0		2,221,380			16.5		2,174,961			16.5		1,965,580			15.2
Total Construction	47,650			0.4		47,783			0.4		64,012			0.5		60,715			0.5		52,569			0.4		51,404			0.4		52,332			0.4		47,783			0.4
Other consumer loans	2,878			—		2,793			—		3,021			—		3,040			—
Other loans																					2,700			—		2,900			—		3,166			—		2,793			—
Total loans receivable	13,050,943			100.0	%	12,910,201			100.0	%	12,911,695			100.0	%	12,715,623			100.0	%	13,601,027			100.0	%	13,490,251			100.0	%	13,218,425			100.0	%	12,910,201			100.0	%
Deferred loan expenses, net	41,724					40,177					38,566					38,080					44,941					43,785					41,976					40,177
Loans in process	(24,856		)			(25,089		)			(36,549		)			(39,350		)			(27,127		)			(28,972		)			(25,743		)			(25,089		)
Allowance for loan losses	(39,313		)			(40,286		)			(42,418		)			(42,971		)			(44,387		)			(37,292		)			(38,913		)			(40,286		)
Total loans receivable, net	$	13,028,498				$	12,885,003				$	12,871,294				$	12,671,382				$	13,574,454				$	13,467,772				$	13,195,745				$	12,885,003

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At ~~June 30, 2019,~~March 31, 2020, the unpaid principal balance of our home equity loans and lines of credit portfolio consisted of ~~$441.9~~$370.6 million in home equity loans (which included ~~$287.8~~$232.0 million of home equity lines of credit, which are in the amortization period and no longer eligible to be drawn upon, and ~~$28.5~~$19.9 million in bridge loans) and ~~$1.64~~$1.95 billion in home equity lines of credit. The following table sets forth credit exposure, principal balance, percent delinquent 90 days or more, the mean CLTV percent at the time of origination and the current mean CLTV percent of our home equity loans, home equity lines of credit and bridge loan portfolio as of ~~June 30, 2019.~~March 31, 2020. Home equity lines of credit in the draw period are reported according to geographic distribution.


	Credit Exposure		Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (2)		Current Mean CLTV Percent (3)		Credit Exposure		Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (2)		Current Mean CLTV Percent (3)
	(Dollars in thousands)										(Dollars in thousands)
Home equity lines of credit in draw period (by state)
Ohio	$	1,334,357	$	511,801	0.13	%	60	%	52	%	$	1,449,646	$	553,354	0.08	%	60	%	51	%
Florida	578,817		283,047		0.02	%	58	%	52	%	681,809		342,645		0.03	%	57	%	52	%
California	570,900		260,889		—	%	62	%	59	%	668,709		317,415		—	%	62	%	58	%
Other (1)	1,269,077		588,201		0.02	%	65	%	60	%	1,532,360		732,492		0.02	%	64	%	60	%
Total home equity lines of credit in draw period	3,753,151		1,643,938		0.05	%	61	%	55	%	4,332,524		1,945,906		0.03	%	61	%	55	%
Home equity lines in repayment, home equity loans and bridge loans	441,915		441,915		1.35	%	66	%	48	%	370,613		370,613		1.13	%	65	%	45	%
Total	$	4,195,066	$	2,085,853	0.32	%	62	%	54	%	$	4,703,137	$	2,316,519	0.21	%	61	%	53	%

_________________


(1)	No other individual state has a committed or drawn balance greater than 10% of our total equity lending portfolio ~~nor~~and 5% of total loans.


(2)	Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.

(3)

Current Mean CLTV is based on best available first mortgage and property values as of ~~June 30, 2019.~~March 31, 2020. Property values are estimated using HPI data published by the FHFA. Current Mean CLTV percent for home equity lines of credit in the draw period is calculated using the committed amount. Current Mean CLTV on home equity lines of credit in the repayment period is calculated using the principal balance.

At ~~June 30, 2019, 35.3%~~March 31, 2020, 34.3% of our home equity lending portfolio was either in a first lien position ~~(19.0%~~(18.6%), in a subordinate (second) lien position behind a first lien that we held (13.2%) or ~~in a subordinate (second) lien position~~ behind a first lien that was held by a loan that we ~~serviced~~originated, sold and now service for others ~~(3.1%~~(2.5%). ~~In addition, at June 30, 2019,~~At March 31, 2020, 13.7% of our home equity line of credit portfolio in the draw period was making only the ~~required~~ minimum payment on the outstanding line balance.

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The following table sets forth by calendar origination year, the credit exposure, principal balance, percent delinquent 90 days or more, the mean CLTV percent at the time of origination and the current mean CLTV percent of our home equity loans, home equity lines of credit and bridge loan portfolio as of ~~June 30, 2019.~~March 31, 2020. Home equity lines of credit in the draw period are ~~stratified by~~included in the ~~calendar~~ year ~~in which~~ originated:


	Credit Exposure		Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (1)		Current Mean CLTV Percent (2)		Credit Exposure		Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (1)		Current Mean CLTV Percent (2)
	(Dollars in thousands)										(Dollars in thousands)
Home equity lines of credit in draw period (3)
2009 and Prior	$	40,599	$	13,363	0.56	%	59	%	45	%
2010	11,415		3,462		3.02	%	59	%	41	%
2010 and Prior											$	4,992	$	1,211	—	%	48	%	39	%
2013	40		18		—	%	79	%	56	%	40		18		—	%	79	%	53	%
2014	126,780		41,813		0.12	%	60	%	42	%	90,502		26,765		—	%	59	%	40	%
2015	221,962		86,435		0.05	%	60	%	45	%	176,779		64,670		0.06	%	60	%	43	%
2016	408,491		168,768		0.21	%	61	%	50	%	369,139		144,638		0.19	%	61	%	47	%
2017	883,490		404,251		0.03	%	60	%	54	%	795,496		354,922		0.06	%	60	%	51	%
2018	1,222,443		582,145		0.01	%	61	%	59	%	1,095,604		534,847		0.01	%	61	%	56	%
2019	837,931		343,683		—	%	63	%	63	%	1,443,054		697,169		0.01	%	62	%	61	%
2020											356,918		121,666		—	%	62	%	62	%
Total home equity lines of credit in draw period	3,753,151		1,643,938		0.05	%	61	%	55	%	4,332,524		1,945,906		0.03	%	61	%	55	%
Home equity lines in repayment, home equity loans and bridge loans	441,915		441,915		1.35	%	66	%	48	%	370,613		370,613		1.13	%	65	%	45	%
Total	$	4,195,066	$	2,085,853	0.32	%	62	%	54	%	$	4,703,137	$	2,316,519	0.21	%	61	%	53	%

________________


(1)	Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.

(2)


(3)	There are no remaining principal balances of home equity lines of credit for years 2011 and 2012. Those years are excluded from the table above.

In general, the home equity line of credit product originated prior to June 2010 ~~(at which point new home equity lending was temporarily suspended)~~ was characterized by a ~~ten-year~~ten year draw period followed by a ~~ten-year~~ten year repayment period; however, there ~~was one type~~were two types of ~~transaction~~transactions that could result in a draw period that extended beyond ten ~~years, which~~years. The first transaction involved customer requests for increases in the amount of their home equity line of credit. When the customer’s credit performance and profile supported the increase, the draw period term was reset for the ~~ten-year~~ten year period following the date of the increase in the home equity line of credit amount. A second transaction that impacted the draw period involved extensions. If the account and customer met certain pre-established criteria, an offer was made to extend the otherwise expiring draw period by ten years from the date of the offer. If the customer chose to accept the extension, the origination date of the account remained unchanged but the account would have a revised draw period that was extended by ten years. As a result of ~~this program,~~these two programs, the reported draw periods for certain home equity ~~line~~lines of credit accounts ~~exceed~~exceeded ten years. In addition, as customers approach the end of the draw period and face the likelihood of an increased monthly payment during the amortization period, we continue to work with them to manage their loan payments, including the possibility of restructuring loans, in an attempt to help families keep their home.

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The following table sets forth ~~as of June 30, 2019,~~by fiscal year when the draw period expires, the principal balance of home equity lines of credit in the draw period as of March 31, 2020, segregated by the current combined LTV ~~range and by fiscal year in which the draw period expires.~~range.


	Current CLTV Category						Current CLTV Category
Home equity lines of credit in draw period (by end of draw fiscal year):	< 80%	80 - 89.9%	90 - 100%	>100%	Unknown (2)	Total	< 80%		80 - 89.9%		90 - 100%		>100%		Unknown (2)		Total
	(Dollars in thousands)						(Dollars in thousands)
2019 (1)	$33,024	$341	$50	$0	$92	$33,507
2020 (1)	90,148	19	14	—	77	90,258	$	55,157	$	460	$	—	$	—	$	38	$	55,655
2021	32,988	—	—	—	—	32,988	26,890		—		—		—		—		26,890
2022	31	—	—	—	—	31	27		—		—		—		—		27
2023	18	—	—	—	—	18	18		—		—		—		—		18
2024	17,272	—	—	5	—	17,277	16,996		71		—		1		—		17,068
Post 2024	1,451,079	17,525	308	271	676	1,469,859
2025							30,289		51		—		—		18		30,358
Post 2025							1,799,180		15,898		279		224		309		1,815,890
Total	$1,624,560	$17,885	$372	$276	$845	$1,643,938	$	1,928,557	$	16,480	$	279	$	225	$	365	$	1,945,906

_________________


(1)	Home equity lines of credit whose draw period ends in fiscal ~~years 2019 and~~year 2020 include ~~$7.5~~$1.1 million ~~and $9.2 million, respectively,~~ of lines where the customer has an interest only payment during the draw period. All other home equity lines of credit have an amortizing payment during the draw period.


(2)	Market data necessary for stratification is not readily available.

The following table sets forth the breakdown of current mean CLTV percentages for our home equity lines of credit in the draw period as of ~~June 30, 2019.~~March 31, 2020.


	Credit Exposure		Principal Balance		Percent of Total Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (2)		Current Mean CLTV Percent (3)		Credit Exposure		Principal Balance		Percent of Total Principal Balance		Percent Delinquent 90 Days or More		Mean CLTV Percent at Origination (2)		Current Mean CLTV Percent (3)
	(Dollars in thousands)												(Dollars in thousands)
Home equity lines of credit in draw period (by current mean CLTV)
< 80%	$	3,703,523	$	1,624,560	98.7	%	0.05	%	61	%	55	%	$	4,286,960	$	1,928,557	99.1	%	0.03	%	61	%	55	%
80 - 89.9%	46,245		17,885		1.1	%	0.42	%	80	%	81	%	43,318		16,480		0.8	%	0.13	%	79	%	81	%
90 - 100%	756		372		0.1	%	—	%	80	%	94	%	1,092		279		—	%	—	%	88	%	94	%
> 100%	720		276		—	%	—	%	77	%	121	%	482		225		—	%	—	%	93	%	124	%
Unknown (1)	1,907		845		0.1	%	—	%	44	%	(1	)	673		365		0.1	%	—	%	46	%	(1	)
	$	3,753,151	$	1,643,938	100.0	%	0.05	%	61	%	55	%	$	4,332,525	$	1,945,906	100.0	%	0.03	%	61	%	55	%

_________________


(1)	Market data necessary for stratification is not readily available.


(2)	Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.

(3)

Table of Contents

Delinquent Loans

The following tables set forth the recorded investment in loan delinquencies by type, segregated by geographic location and severity of delinquency atas of the dates indicated.

Loans Delinquent for
30-89 Days 90 Days or More Total
(Dollars in thousands)
June 30, 2019
Real estate loans:
Residential Core
Ohio $ 6,003
$ 7,632
$ 13,635
Florida 665
1,888
2,553
Other 379
1,361
1,740
Total Residential Core 7,047
10,881
17,928
Residential Home Today
Ohio 4,098
3,269
7,367
Florida 274
40
314
Total Residential Home Today 4,372
3,309
7,681
Home equity loans and lines of credit
Ohio 1,387
2,677
4,064
Florida 1,718
1,388
3,106
California 799
685
1,484
Other 1,390
2,023
3,413
Total Home equity loans and lines of credit 5,294
6,773
12,067
Total $ 16,713
$ 20,963
$ 37,676



	Loans Delinquent for
	30-89 Days		90 Days or More		Total
	(Dollars in thousands)
March 31, 2020
Real estate loans:
Residential Core
Ohio	$	6,519	$	5,639	$	12,158
Florida	847		1,796		2,643
Other	1,158		1,663		2,821
Total Residential Core	8,524		9,098		17,622
Residential Home Today
Ohio	3,505		2,732		6,237
Florida	219		98		317
Total Residential Home Today	3,724		2,830		6,554
Home equity loans and lines of credit
Ohio	998		1,932		2,930
Florida	1,260		684		1,944
California	520		492		1,012
Other	1,686		1,730		3,416
Total Home equity loans and lines of credit	4,464		4,838		9,302
Total	$	16,712	$	16,766	$	33,478

Loans Delinquent for
30-89 Days 90 Days or More Total
(Dollars in thousands)
March 31, 2019
Real estate loans:
Residential Core
Ohio $ 8,108
$ 7,015
$ 15,123
Florida 1,931
1,443
3,374
Other 1,407
2,174
3,581
Total Residential Core 11,446
10,632
22,078
Residential Home Today
Ohio 3,820
3,836
7,656
Florida 175
45
220
Total Residential Home Today 3,995
3,881
7,876
Home equity loans and lines of credit
Ohio 2,343
2,052
4,395
Florida 955
1,493
2,448
California 438
906
1,344
Other 1,644
1,885
3,529
Total Home equity loans and lines of credit 5,380
6,336
11,716
Total $ 20,821
$ 20,849
$ 41,670



	Loans Delinquent for
	30-89 Days		90 Days or More		Total
	(Dollars in thousands)
December 31, 2019
Real estate loans:
Residential Core
Ohio	$	6,919	$	6,437	$	13,356
Florida	1,997		852		2,849
Other	892		765		1,657
Total Residential Core	9,808		8,054		17,862
Residential Home Today
Ohio	4,003		3,038		7,041
Florida	111		158		269
Total Residential Home Today	4,114		3,196		7,310
Home equity loans and lines of credit
Ohio	1,358		2,121		3,479
Florida	776		627		1,403
California	569		506		1,075
Other	953		1,922		2,875
Total Home equity loans and lines of credit	3,656		5,176		8,832
Total	$	17,578	$	16,426	$	34,004

Table of Contents


	Loans Delinquent for						Loans Delinquent for
	30-89 Days		90 Days or More		Total		30-89 Days		90 Days or More		Total
	(Dollars in thousands)						(Dollars in thousands)
September 30, 2018
September 30, 2019
Real estate loans:
Residential Core
Ohio	$	7,622	$	7,392	$	15,014	$	8,519	$	5,503	$	14,022
Florida	906		2,455		3,361		930		1,305		2,235
Other	1,346		960		2,306		1,405		866		2,271
Total Residential Core	9,874		10,807		20,681		10,854		7,674		18,528
Residential Home Today
Ohio	4,483		3,756		8,239		4,155		2,586		6,741
Florida	69		58		127		159		37		196
Total Residential Home Today	4,552		3,814		8,366		4,314		2,623		6,937
Home equity loans and lines of credit
Ohio	2,117		2,286		4,403		1,746		1,950		3,696
Florida	2,011		2,085		4,096		1,065		1,260		2,325
California	302		255		557		187		552		739
Other	2,037		1,307		3,344		1,189		2,035		3,224
Total Home equity loans and lines of credit	6,467		5,933		12,400		4,187		5,797		9,984
Total	$	20,893	$	20,554	$	41,447	$	19,355	$	16,094	$	35,449


	Loans Delinquent for						Loans Delinquent for
	30-89 Days		90 Days or More		Total		30-89 Days		90 Days or More		Total
	(Dollars in thousands)						(Dollars in thousands)
June 30, 2018
March 31, 2019
Real estate loans:
Residential Core
Ohio	$	8,489	$	7,741	$	16,230	$	8,108	$	7,015	$	15,123
Florida	868		2,034		2,902		1,931		1,443		3,374
Other	1,258		148		1,406		1,407		2,174		3,581
Total Residential Core	10,615		9,923		20,538		11,446		10,632		22,078
Residential Home Today
Ohio	3,300		4,802		8,102		3,820		3,836		7,656
Florida	140		135		275		175		45		220
Total Residential Home Today	3,440		4,937		8,377		3,995		3,881		7,876
Home equity loans and lines of credit
Ohio	2,202		2,226		4,428		2,343		2,052		4,395
Florida	1,500		1,891		3,391		955		1,493		2,448
California	786		305		1,091		438		906		1,344
Other	1,408		1,491		2,899		1,644		1,885		3,529
Total Home equity loans and lines of credit	5,896		5,913		11,809		5,380		6,336		11,716
Total	$	19,951	$	20,773	$	40,724	$	20,821	$	20,849	$	41,670

~~Loans~~Total loans seriously delinquent (i.e. delinquent 90 days or ~~more~~more) were ~~0.2%~~0.12% of total net loans at ~~June~~March 31, 2020, December 31, 2019 and September 30, 2019 and were 0.16% at March 31, ~~2019, September 30, 2018 and June 30, 2018. Loans~~2019. Total loans delinquent (i.e. delinquent 30 ~~to 89~~ days or more) were ~~0.1%~~0.25% of total net loans at ~~June~~March 31, 2020 and December 31, 2019, 0.27% at September 30, 2019 and ~~0.2%~~0.32% at March 31, ~~2019, September 30, 2018 and June 30, 2018.~~2019.

Table of Contents

Non-Performing Assets and Troubled Debt Restructurings

The following table sets forth the recorded investments and categories of our non-performing assets and TDRs at the dates indicated.


	June 30, 2019			March 31, 2019			September 30, 2018			June 30, 2018			March 31, 2020			December 31, 2019			September 30, 2019			March 31, 2019
	(Dollars in thousands)												(Dollars in thousands)
Non-accrual loans:
Real estate loans:
Residential Core	$	38,696		$	41,126		$	41,628		$	39,618		$	32,960		$	33,310		$	37,052		$	41,126
Residential Home Today	13,085			14,202			14,641			14,799			11,231			11,551			12,442			14,202
Home equity loans and lines of credit	22,055			21,943			21,483			16,917			13,654			15,447			21,771			21,943
Total non-accrual loans (1)(2)	73,836			77,271			77,752			71,334			57,845			60,308			71,265			77,271
Real estate owned	2,120			2,898			2,794			3,191			2,728			2,813			2,163			2,898
Total non-performing assets	$	75,956		$	80,169		$	80,546		$	74,525		$	60,573		$	63,121		$	73,428		$	80,169
Ratios:
Total non-accrual loans to total loans	0.57		%	0.60		%	0.60		%	0.56		%	0.42		%	0.45		%	0.54		%	0.60		%
Total non-accrual loans to total assets	0.51		%	0.54		%	0.55		%	0.51		%	0.39		%	0.41		%	0.49		%	0.54		%
Total non-performing assets to total assets	0.53		%	0.56		%	0.57		%	0.53		%	0.40		%	0.43		%	0.50		%	0.56		%
TDRs: (not included in non-accrual loans above)
Real estate loans:
Residential Core	$	49,575		$	51,072		$	50,351		$	52,046		$	48,029		$	48,047		$	47,829		$	51,072
Residential Home Today	25,176			25,354			26,861			28,420			24,720			24,878			24,651			25,354
Home equity loans and lines of credit	25,444			26,005			25,604			27,299			29,906			29,192			24,438			26,005
Total	$	100,195		$	102,431		$	102,816		$	107,765		$	102,655		$	102,117		$	96,918		$	102,431

_________________

(1)

~~Totals at June 30, 2019,~~At March 31, 2020, December 31, 2019, September 30, ~~2018,~~2019, and ~~June 30, 2018,~~March 31, 2019, the totals include ~~$49.8~~$37.4 million, ~~$53.3~~$40.8 million, $52.1 million, and ~~$45.4~~$53.3 million, respectively, in TDRs, ~~that~~which are less than 90 days past due but included with non-accrual loans for a minimum period of six months from the restructuring date due to their non-accrual status prior to restructuring, because ~~they have been partially charged~~of a prior partial charge off, or because all borrowers have ~~been discharged of their obligation through a~~filed Chapter 7 ~~bankruptcy.~~bankruptcy, and not reaffirmed or been dismissed.


(2)	~~Includes $10.7~~At March 31, 2020, December 31, 2019, September 30, 2019, and March 31, 2019 the totals include $8.2 million, ~~$10.6~~$8.4 million, ~~$10.5~~$8.4 million and ~~$10.9~~$10.6 million in TDRs that are 90 days or more past due, ~~at June 30, 2019, March 31, 2019, September 30, 2018, and June 30, 2018,~~ respectively.

The gross interest income that would have been recorded during the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ on non-accrual loans, if they had been accruing during the entire period and TDRs if they had been current and performing in accordance with their original terms during the entire period, was ~~$6.8~~$4.0 million and ~~$7.1~~$4.6 million, respectively. The interest income recognized on those loans included in net income for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018 was $4.1 million and $6.9 million, respectfully.~~

~~At June 30, 2019,~~ March 31, 2019 ~~September 30, 2018~~was $2.6 million and ~~June 30, 2018, the~~$2.8 million, respectively.

The recorded investment of impaired loans includes accruing TDRs and loans that are returned to accrual status when contractual payments are less than 90 days past due. These loans continue to be individually evaluated for impairment until, at a minimum, contractual payments are less than 30 days past due. Also, the recorded investment of non-accrual loans includes loans that are not included in the recorded investment of impaired loans because they are included in loans collectively evaluated for impairment.

Table of Contents

The table below sets forth a reconciliation of the recorded investments and categories ~~of loans representing the difference~~ between non-accrual loans and impaired loans at the dates indicated.


	June 30, 2019			March 31, 2019			September 30, 2018			June 30, 2018			March 31, 2020			December 31, 2019			September 30, 2019			March 31, 2019
	(Dollars in thousands)												(Dollars in thousands)
Non-Accrual Loans	$	73,836		$	77,271		$	77,752		$	71,334		$	57,845		$	60,308		$	71,265		$	77,271
Accruing TDRs	100,195			102,431			102,816			107,765			102,655			102,118			96,917			102,431
Performing Impaired	5,190			4,537			3,982			5,583
Collectively Evaluated	(3,720		)	(2,211		)	(3,756		)	(3,020		)
Performing Impaired Loans													3,932			4,667			4,907			4,537
Less Loans Collectively Evaluated													(4,391		)	(3,844		)	(2,616		)	(2,211		)
Total Impaired loans	$	175,501		$	182,028		$	180,794		$	181,662		$	160,041		$	163,249		$	170,473		$	182,028

In response to the economic challenges facing many borrowers, we continue to restructure loans, resulting in $160.7 million of TDRs (accrual and non-accrual) recorded at June 30, 2019. There was a $5.7 million decrease in the recorded investment of TDRs from March 31, 2019, a $4.7 million decrease from September 30, 2018 and a $3.5 million decrease from June 30, 2018.

loans. Loan restructuring is a method used to help families keep their homes and preserve our neighborhoods. This ~~may involve~~involves making changes to the ~~borrowers’~~borrowers' loan terms through interest rate reductions, either for a specific period or for the remaining term of the loan; term extensions including those beyond that provided in the original agreement; principal forgiveness; capitalization of delinquent ~~payments;~~payments in special situations; or some combination of the above. Loans discharged through Chapter 7 bankruptcy are also reported as TDRs per OCC interpretive guidance. For discussion on impairment measurement, see Note 4 to the Unaudited Interim Consolidated Financial Statements: LOANS AND ALLOWANCE FOR LOAN LOSSES. We had $148.3 million of TDRs (accrual and non-accrual) recorded at March 31, 2020. This was a decrease in the recorded investment of TDRs of $3.0 million, $9.1 million and $18.0 million from December 31, 2019, September 30, 2019 and March 31, 2019, respectively.

The following table sets forth the recorded investment in accrual and non-accrual TDRs, by the types of concessions granted as of ~~June 30, 2019.~~March 31, 2020. Initial concessions granted by loans restructured as TDRs can include reduction of interest rate, extension of amortization period, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also can occur as a result of bankruptcy proceedings. Loans discharged in Chapter 7 bankruptcy are classified as multiple restructurings if the loan's original terms had also been restructured by the Company.


	Initial Restructurings		Multiple Restructurings		Bankruptcy		Total		Initial Restructurings		Multiple Restructurings		Bankruptcy		Total
	(In thousands)								(In thousands)
Accrual
Residential Core	$	28,298	$	14,252	$	7,025	$	49,575	$	27,376	$	14,476	$	6,177	$	48,029
Residential Home Today	14,732		9,458		986		25,176		13,746		9,726		1,248		24,720
Home equity loans and lines of credit	24,259		173		1,012		25,444		28,444		590		872		29,906
Total	$	67,289	$	23,883	$	9,023	$	100,195	$	69,566	$	24,792	$	8,297	$	102,655
Non-Accrual, Performing
Residential Core	$	4,988	$	8,683	$	12,488	$	26,159	$	3,614	$	8,172	$	10,245	$	22,031
Residential Home Today	1,644		5,698		1,991		9,333		1,244		4,949		1,745		7,938
Home equity loans and lines of credit	9,610		2,608		2,059		14,277		3,454		2,370		1,600		7,424
Total	$	16,242	$	16,989	$	16,538	$	49,769	$	8,312	$	15,491	$	13,590	$	37,393
Non-Accrual, Non-Performing
Residential Core	$	3,667	$	1,677	$	724	$	6,068	$	2,889	$	1,223	$	758	$	4,870
Residential Home Today	433		2,056		498		2,987		590		1,445		182		2,217
Home equity loans and lines of credit	1,101		105		433		1,639		555		263		306		1,124
Total	$	5,201	$	3,838	$	1,655	$	10,694	$	4,034	$	2,931	$	1,246	$	8,211
Total TDRs
Residential Core	$	36,953	$	24,612	$	20,237	$	81,802	$	33,879	$	23,871	$	17,180	$	74,930
Residential Home Today	16,809		17,212		3,475		37,496		15,580		16,120		3,175		34,875
Home equity loans and lines of credit	34,970		2,886		3,504		41,360		32,453		3,223		2,778		38,454
Total	$	88,732	$	44,710	$	27,216	$	160,658	$	81,912	$	43,214	$	23,133	$	148,259

Table of Contents

TDRs in accrual status are loans accruing interest and performing according to the terms of the restructuring. To be performing, a loan must be less than 90 days past due as of the report date. Non-accrual, performing status indicates that a loan

~~Table of Contents~~

was not accruing interest at the time of restructuring, continues to not accrue interest and is performing according to the terms of the restructuring, but has not been current for at least six consecutive months since its restructuring, has a partial charge-off, or is being classified as non-accrual per the OCC guidance on loans in Chapter 7 bankruptcy status, where all borrowers have filed and have not reaffirmed or been dismissed. Non-accrual, non-performing status includes loans that are not accruing interest because they are greater than 90 days past due and therefore not performing according to the terms of the restructuring.

Income Taxes. We consider accounting for income taxes a critical accounting policy due to the subjective nature of certain estimates, including the impact of tax rate changes, such as those implemented by the Tax Cuts and Jobs Act signed into law in December 2017, and the impact of other tax law changes, such as those implemented by the CARES Act signed into law in March, 2020, that are involved in the calculation. We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease existing valuation allowances, if any, are charged or credited, respectively, to income tax expense. At ~~June 30, 2019,~~March 31, 2020, no valuation allowances were outstanding. Even though we have determined a valuation allowance is not required for deferred tax assets at ~~June 30, 2019,~~March 31, 2020, there is no guarantee that those assets, if any, will be recognizable in the future.

Pension Benefits. The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts. Key assumptions used in the actuarial valuations include the discount rate and expected long-term rate of return on plan assets. Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions could materially affect future pension obligations and expense.

Comparison of Financial Condition at ~~June 30, 2019~~March 31, 2020 and September 30, ~~2018~~2019

Total assets increased ~~$234.4~~$460.0 million, or 2%3%, to ~~$14.37~~$15.00 billion at ~~June 30, 2019~~March 31, 2020 from ~~$14.14~~$14.54 billion at September 30, ~~2018.~~2019. This increase was primarily the result of new loan origination levels exceeding the total of ~~loans~~loan sales and principal repayments, as well as increases in ~~mortgage backed security investments~~cash and ~~prepaid expenses~~cash equivalents, FHLB stock and other ~~assets.~~assets, partially offset by a decrease in premises, equipment and software.

Cash and cash equivalents increased ~~$1.5~~$37.4 million, or 1%14%, to ~~$271.3~~$312.5 million at ~~June 30, 2019~~March 31, 2020 from ~~$269.8~~$275.1 million at September 30, ~~2018.~~2019. We manage cash to maintain the level of liquidity described later in the Liquidity and Capital Resources section.

Investment securities, all of which are classified as available for sale, ~~increased $32.9~~decreased $2.4 million, or 6%less than 1%, to ~~$564.9~~$545.5 million at ~~June 30, 2019~~March 31, 2020 from ~~$532.0~~$547.9 million at September 30, ~~2018.~~2019. Investment securities ~~increased~~decreased as ~~$121.8~~$87.0 million in purchases and a ~~$16.0~~$15.4 million reduction of unrealized losses were exceeded by the combined effect of ~~$101.9~~$102.1 million in principal paydowns and ~~$2.9~~$2.7 million of net acquisition premium amortization that occurred in the mortgage-backed securities portfolio during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. There were no sales of investment securities during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020.

Loans held for investment, net, increased ~~$157.2~~$378.7 million, or 1%3%, to ~~$13.03~~$13.57 billion at ~~June 30, 2019~~March 31, 2020 from ~~$12.87~~$13.20 billion at September 30, ~~2018. The~~2019. This increase was ~~caused by~~primarily from a ~~$266.9~~$241.3 million, or 2%, increase in residential mortgage loans to $11.23 billion at March 31, 2020 from $10.99 billion at September 30, 2019. Additionally, there was a $141.6 million increase in the balance of home equity loans and lines of credit during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, as new originations and additional draws on existing accounts exceeded repayments. ~~Residential mortgage loans decreased $111.2 million, or less than 1%, to $10.91 billion at June 30, 2019.~~ During the ~~nine~~six months ended ~~June 30, 2019, $523.1~~March 31, 2020, $600.2 million of three- and five-year “SmartRate” loans were originated while ~~$644.1~~$727.5 million of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated. These originations were offset by paydowns and fixed-rate loan sales. Between September 30, ~~2018~~2019 and ~~June 30, 2019,~~March 31, 2020, the total fixed-rate portion of the first mortgage loan portfolio ~~decreased $31.7~~increased $101.3 million and was comprised of an increase of $205.3 million in the balance of fixed-rate loans with original terms greater than 10 years partially offset by a decrease of ~~$264.4~~$104.0 million in the balance of fixed-rate loans with original terms of 10 years or ~~less, partially offset by an increase of $232.7 million in the balance of fixed-rate loans with original terms greater than 10 years.~~less. During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, we completed ~~$85.1~~$323.2 million in loan sales, which included a $~~19.0~~99.0 million long-term fixed-rate sale to a private investor, ~~$29.5~~$26.6 million of agency-compliant ~~HARP II and~~ Home Ready loans and ~~$36.6~~$197.6 million of long-term, fixed-rate, agency-compliant, ~~non-HARP II and~~ non-Home Ready first mortgage loans ~~that were~~ sold to Fannie Mae. During the six months ended March 31, 2020, $230.3 million of fixed-rate residential mortgage loans, originated and serviced by the Association and sold to an investor in a prior year, were purchased from that investor. Also, during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, we purchased long-term, fixed-rate first mortgage loans ~~that have~~which had a remaining unpaid principal balance of ~~$4.4~~$8.0 million.

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Commitments originated for home equity lines of credit and equity and bridge loans were ~~$1.28 billion~~$733.2 million for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$1.13 billion~~$718.6 million for the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. At ~~June 30, 2019,~~March 31, 2020, pending commitments to originate new home equity lines of credit were ~~$142.3~~$125.9 million and equity and bridge loans were ~~$48.6~~$41.5 million. Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information.

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The ~~total~~ allowance for loan losses ~~decreased $3.1~~increased $5.5 million, or 7%14%, to ~~$39.3~~$44.4 million at ~~June 30, 2019~~March 31, 2020 from ~~$42.4~~$38.9 million at September 30, ~~2018, primarily reflecting improved credit metrics, including continued~~2019. As a result of loan recoveries exceeding charge-offs, the Company reported net loan recoveries of $2.5 million for the six months ended March 31, 2020 as compared to net loan ~~amounts previously charged off, low levels~~recoveries of ~~current~~$3.9 million for the six months ended March 31, 2019. However, while actual loan charge-offs and delinquencies remained low at March 31, 2020, some borrowers have experienced unemployment or reduced ~~exposure from home equity lines of credit coming to the end~~income as a result of the ~~draw period.~~COVID-19 pandemic. While we continue to offer assistance to our borrowers which includes forbearance programs, factors related to potential loan performance as a result of COVID-19 triggered an increase in the provision for the most recent quarter. The provision for loan losses was $3.0 million for the six months ended March 31, 2020 as compared to a credit of $6.0 million for the six months ended March 31, 2019. Refer to Note 4. Loans and Allowance for Loan Losses for additional discussion.

The amount of FHLB stock owned increased $34.0 million to $135.9 million at March 31, 2020 from $101.9 million at September 30, 2020, as a result of FHLB stock ownership requirements.

Prepaid expenses and other assets increased ~~$31.1~~$32.4 million to ~~$75.4~~$120.4 million at ~~June 30, 2019~~March 31, 2020 from ~~$44.3~~$88.0 million at September 30, ~~2018.~~2019. This increase included a $17.8 million right of use asset related ~~primarily from an $11.8~~to the Company's operating leases due to the adoption of the recently issued accounting guidance on the treatment of leases. Additionally, there was a $16.5 million increase in the deferred tax asset and a $7.0 million increase in the initial margin ~~requirements~~requirement posted on interest rate swap ~~contracts~~contracts. Partially offsetting these increases was a $5.0 million decrease in prepaid taxes and a ~~$17.9~~$2.5 million ~~increase~~decrease in receivable due to the ~~net deferred tax asset, mainly the result of fluctuations in unrealized gains and losses recognized through AOCI, during the current fiscal year.~~ESOP.

Deposits increased ~~$222.9~~$321.4 million, or 3%4%, to ~~$8.71~~$9.09 billion at ~~June 30, 2019~~March 31, 2020 from ~~$8.49~~$8.77 billion at September 30, ~~2018.~~2019. The increase in deposits resulted primarily from a ~~$177.7~~$263.6 million increase in CDs, a $33.4 million increase in our high-yield checking accounts and a $24.0 million increase in our savings accounts (which included a ~~$296.2~~$41.5 million increase in money market accounts in the state of Florida and a ~~$118.5~~$17.5 million decrease in high yield savings accounts)~~, and a $76.1 million increase in CDs, partially offset by a $29.2 million decrease in our high-yield checking accounts.~~. We believe that our savings and checking accounts provide a stable source of funds. In addition, our high-yield savings accounts are expected to reprice in a manner similar to our home equity lending products, and, therefore, assist us in managing interest rate risk. The balance of brokered CDs at ~~June 30, 2019~~March 31, 2020 was ~~$518.8~~$474.4 million, which was a decrease of ~~$151.3~~$33.4 million during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020.

Borrowed funds, all from the FHLB of Cincinnati, increased ~~$111.9~~$180.0 million, or 3%5%, to ~~$3.83~~$4.08 billion at ~~June 30, 2019~~March 31, 2020 from ~~$3.72~~$3.90 billion at September 30, ~~2018.~~2019. Activity included ~~$675.0~~$250.0 million of new 90-day advances that are hedged by equal notional amounts of new interest rate swaps with initial fixed-pay terms of ~~five~~four to ~~eight~~seven years and $250.0 million of new long-term advances with terms of four to five years, offset by scheduled principal repayments of long-term advances and ~~a $266.0~~an $85.0 million decrease in the balance of short-term advances. The total balance of borrowed funds of ~~$3.83~~$4.08 billion at ~~June 30, 2019~~March 31, 2020 consisted of overnight and short-term advances of ~~$934.0~~$415.0 million, long-term advances of ~~$492.2~~$662.3 million with a remaining weighted average maturity of approximately ~~one year~~two years and short-term advances of ~~$2.40~~$3.00 billion aligned with interest rate swap contracts with a remaining weighted average effective maturity of approximately ~~3.7~~3.5 years. Interest rate swaps have been used to extend the duration of short-term borrowings to approximately ~~five~~four to ~~eight~~seven years at inception, by paying a fixed rate of interest and receiving the variable rate. Refer to the Extending the Duration of Funding Sources section of the Overview and Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional discussion regarding short-term borrowings and interest-rate swaps.

Total shareholders’ equity decreased ~~$47.9~~$41.6 million, or 3%2%, to ~~$1.71~~$1.66 billion at ~~June 30, 2019~~March 31, 2020 from ~~$1.76~~$1.70 billion at September 30, ~~2018.~~2019. This net decrease primarily reflected the positive effect of ~~$58.7~~$42.9 million of net income ~~reduced~~offset by ~~$7.9~~a combination of a $61.5 million ~~of repurchases of outstanding common stock, $37.1 million of cash dividend payments and a $69.2 million unrealized loss recognized~~decrease in accumulated other comprehensive ~~income,~~loss, mainly the result of changes in market interest rates related to our interest rate ~~swaps.~~swaps, $0.4 million of repurchases of outstanding common stock and $27.4 million of cash dividend payments. Adjustments of ~~$8.7~~$6.6 million related to our stock compensation plan and ESOP further offset the decrease. As a result of a July ~~11, 2018~~16, 2019 mutual member vote, Third Federal Savings, MHC, the mutual holding company that owns approximately 81% of the outstanding stock of the Company, waived the receipt of its share of the dividends paid. Refer to Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional details regarding the repurchase of shares of common stock and the dividend waiver.

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Comparison of Operating Results for the Three Months Ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019

Average balances and yields. The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effects thereof were not material. Average balances are derived from daily average balances. Non-accrual loans are included in the computation of loan average balances, but only cash payments received on those loans during the period presented are reflected in the yield. The yields set forth below include the effect of deferred fees, deferred expenses, discounts and premiums that are amortized or accreted to interest income or interest expense.


	Three Months Ended								Three Months Ended								Three Months Ended								Three Months Ended
	June 30, 2019								June 30, 2018								March 31, 2020								March 31, 2019
	Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)
	(Dollars in thousands)																(Dollars in thousands)
Interest-earning assets:
Interest-earning cash equivalents	$	215,523		$	1,256		2.33	%	$	222,178		$	986		1.78	%	$	255,711		$	771		1.21	%	$	215,094		$	1,229		2.29	%
Investment securities	3,992			24			2.40	%	529			3			2.27	%	—			—			—	%	3,981			23			2.31	%
Mortgage-backed securities	562,877			3,365			2.39	%	542,308			2,888			2.13	%	549,254			2,911			2.12	%	565,256			3,471			2.46	%
Loans (2)	12,919,756			115,129			3.56	%	12,614,419			105,956			3.36	%	13,489,277			115,203			3.42	%	12,876,333			114,306			3.55	%
Federal Home Loan Bank stock	99,173			1,269			5.12	%	93,544			1,285			5.49	%	104,944			641			2.44	%	93,544			1,414			6.05	%
Total interest-earning assets	13,801,321			121,043			3.51	%	13,472,978			111,118			3.30	%	14,399,186			119,526			3.32	%	13,754,208			120,443			3.50	%
Noninterest-earning assets	425,132								370,488								508,440								400,061
Total assets	$	14,226,453							$	13,843,466							$	14,907,626							$	14,154,269
Interest-bearing liabilities:
Checking accounts	$	883,416		868			0.39	%	$	947,694		453			0.19	%	$	874,424		370			0.17	%	$	881,730		861			0.39	%
Savings accounts	1,409,334			3,191			0.91	%	1,335,837			1,106			0.33	%	1,506,254			2,540			0.67	%	1,379,163			2,898			0.84	%
Certificates of deposit	6,419,914			33,100			2.06	%	6,092,210			24,751			1.63	%	6,672,273			34,573			2.07	%	6,378,434			31,318			1.96	%
Borrowed funds	3,572,771			18,366			2.06	%	3,524,967			14,535			1.65	%	3,887,648			17,005			1.75	%	3,606,978			17,605			1.95	%
Total interest-bearing liabilities	12,285,435			55,525			1.81	%	11,900,708			40,845			1.37	%	12,940,599			54,488			1.68	%	12,246,305			52,682			1.72	%
Noninterest-bearing liabilities	192,553								188,723								232,089								147,975
Total liabilities	12,477,988								12,089,431								13,172,688								12,394,280
Shareholders’ equity	1,748,465								1,754,035								1,734,938								1,759,989
Total liabilities and shareholders’ equity	$	14,226,453							$	13,843,466							$	14,907,626							$	14,154,269
Net interest income				$	65,518							$	70,273							$	65,038							$	67,761
Interest rate spread (1)(3)							1.70	%							1.93	%							1.64	%							1.78	%
Net interest-earning assets (4)	$	1,515,886							$	1,572,270							$	1,458,587							$	1,507,903
Net interest margin (1)(5)				1.90		%						2.09		%						1.81		%						1.97		%
Average interest-earning assets to average interest-bearing liabilities	112.34		%						113.21		%						111.27		%						112.31		%
Selected performance ratios:
Return on average assets (1)				0.51		%						0.60		%						0.46		%						0.57		%
Return on average equity (1)				4.18		%						4.76		%						3.98		%						4.58		%
Average equity to average assets				12.29		%						12.67		%						11.64		%						12.43		%

_________________


(1)	Annualized.


(2)	Loans include both mortgage loans held for sale and loans held for investment.


(3)	Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(4)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


(5)	Net interest margin represents net interest income divided by total interest-earning assets.

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General. Net income decreased ~~$2.6~~$2.8 million, or ~~12%~~14%, to ~~$18.3~~$17.3 million for the quarter ended ~~June 30, 2019~~March 31, 2020 from ~~$20.9~~$20.1 million for the quarter ended ~~June 30, 2018.~~March 31, 2019. The decrease in net income was attributable to decreases in net interest income and ~~non-interest income,~~an increase in the provision for loan losses, partially offset by increases in non-interest income and decreases in non-interest expenses and income tax expense.

Interest and Dividend Income. Interest and dividend income ~~increased $9.9~~decreased $0.9 million, or 9%1%, to ~~$121.0~~$119.5 million during the current quarter compared to ~~$111.1~~$120.4 million during the same quarter in the prior year. The ~~increase~~decrease in interest and dividend income resulted primarily from decreases in interest income on FHLB stock, mortgage-backed securities and interest earning cash equivalents partially offset by an increase in interest income from ~~loans and~~loans.

Interest income on FHLB stock decreased $0.8 million, or 55% to $0.6 million during the current three months compared to $1.4 million for the three months ended March 31, 2019. This decrease was attributed to a ~~lesser extent,~~361 basis point decrease in the average yield on FHLB stock partially offset by an $11.4 million increase in the average balance of FHLB stock to $104.9 million from $93.5 million for the same three months in the prior year. The decrease in the average yield was a result of the FHLB lowering the dividend yield on its stock to 2.5% as of March 31, 2020, in response to decreased market interest rates.

Interest income on mortgage-backed securities ~~and~~decreased $0.6 million to $2.9 million during the current three months compared to $3.5 million for the three months ended March 31, 2019. This decrease was attributed to a 34 basis point decrease in the average yield on mortgage-backed securities as well as a $16.0 million decrease in the average balance of mortgage-backed securities to $549.3 million for the current three months compared to $565.3 million during the same three months in the prior year.

Interest income on other interest earning cash ~~equivalents.~~equivalents decreased $0.4 million or 37%, to $0.8 million during the current three months compared to $1.2 million for the three months ended March 31, 2019. The decrease was attributed to a 108 basis point decrease in the average yield partially offset by a $40.6 million increase in the average balance of other interest earning cash equivalents to $255.7 million from $215.1 million for the same three months in the prior year.

Interest income on loans increased ~~$9.1~~$0.9 million, or 9%1%, to ~~$115.1~~$115.2 million during the current quarter compared to ~~$106.0~~$114.3 million during the same quarter in the prior year. This change was partially attributed to a ~~$305.3~~$612.9 million, or a 2%5%, increase in the average balance of loans to ~~$12.92~~$13.49 billion for the quarter ended ~~June 30, 2019~~March 31, 2020 compared to ~~$12.61~~$12.88 billion during the same quarter last year as new loan production exceeded repayments and loan sales. ~~In addition to~~Partially offsetting the increase in the average balance was a 13 basis point decrease in the average yield ~~on loans increased 20 basis points~~ to ~~3.56%~~3.42% for the current quarter from ~~3.36%~~3.55% for the same quarter last year as market interest rate ~~increases~~decreases, particularly during March, 2020, have impacted loan yields, particularly home equity lending products that feature interest rates that reset based on the prime rate.

Interest Expense. Interest expense increased ~~$14.7~~$1.8 million, or ~~36%~~3%, to ~~$55.5~~$54.5 million during the current quarter compared to ~~$40.8~~$52.7 million during the quarter ended ~~June 30, 2018.~~March 31, 2019. The increase resulted primarily from an increase in interest expense on deposits ~~and to~~partially offset by a ~~lesser extent, an increase~~decrease in interest expense on borrowed funds.

Interest expense on CDs increased ~~$8.3~~$3.3 million, or ~~34%~~11%, to ~~$33.1~~$34.6 million during the current quarter compared to ~~$24.8~~$31.3 million during the quarter ended ~~June 30, 2018.~~March 31, 2019. The increase was attributed to a ~~$327.7~~$293.9 million, or 5%, increase in the average balance of CDs to ~~$6.42~~$6.67 billion during the current quarter from ~~$6.09~~$6.38 billion during the same quarter of the prior year combined with a 4311 basis point increase in the average rate paid on CDs to ~~2.06%~~2.07% for the current quarter from ~~1.63%~~1.96% for the same quarter last year. Rates were adjusted on deposits in response to changes in ~~general market rates as well as to changes in~~ the rates paid by our competition. Market interest rate decreases during March 2020 did not significantly impact the average rates paid on CDs during the quarter. The increase in deposits was used to fund our balance sheet growth and fund our capital management activities, ~~including share repurchases and~~mainly dividend payments.

Interest expense on borrowed funds, all from the FHLB of Cincinnati, ~~increased $3.9~~decreased $0.6 million, or ~~27%~~3%, to ~~$18.4~~$17.0 million during the current quarter compared to ~~$14.5~~$17.6 million during the quarter ended ~~June 30, 2018.~~March 31, 2019. This ~~increase~~decrease was mainly attributed to a 4120 basis point ~~increase~~decrease in the average rate paid on these funds to ~~2.06%~~1.75% for the current quarter from ~~1.65%~~1.95% for the same quarter last year as market ~~rates, particularly short-term~~interest rates have ~~increased~~decreased between the two ~~periods and longer duration funding sources were utilized that carried higher interest rates. In addition~~periods. Part of the decrease in the average rate was an unusual difference in the 90 day rate we pay to the ~~increase~~FHLB and the 90 day LIBOR based rate we receive in our swap transactions. Normally these two rates essentially offset each other, but for a good part of March 2020, the receive rate was much higher than the pay rate, helping to reduce the average rate. Partially offsetting the decrease in the rate paid on borrowed funds was a ~~$47.8~~$280.7 million, or 1%8%, increase in the average balance of borrowed funds to ~~$3.57~~$3.89 billion during the current quarter from an average balance of ~~$3.52~~$3.61 billion during the same quarter of the prior year. The use of interest rate swap contracts in prior periods to extend the duration and fix the interest rate cost of borrowed funds also limited the ability to further reduce interest expense on borrowed funds. Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion.

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Net Interest Income. Net interest income decreased ~~$4.8~~$2.8 million to ~~$65.5~~$65.0 million during the current quarter when compared to ~~$70.3~~$67.8 million for the three months ending ~~June 30, 2018.~~March 31, 2019. While the average balances ~~and yields~~ of interest-earning assets increased and the average cost of interest-bearing liabilities decreased when compared to the same periods last year, ~~the increases~~those factors were more than offset by a decrease in the yield on interest-earning assets and an ~~increased cost~~increase in the average balance of deposits and borrowings. Our average interest earning assets during the current quarter increased ~~$328.3~~$645.0 million, or 2%5%, when compared to the quarter ended ~~June 30, 2018.~~March 31, 2019. The increase in average interest-earning assets was attributed primarily to the growth of the loan portfolio and to a lesser extent ~~mortgage-backed securities,~~other interest earning cash equivalents and Federal Home Loan Bank stock, ~~and investment securities,~~ partially offset by a decrease in ~~other interest-earning cash equivalents. In addition to~~mortgage-backed and investment securities. Offsetting the increase in average interest earning assets was ~~a 21~~an 18 basis point ~~increase~~decrease in the yield on those assets to ~~3.51%~~3.32% from ~~3.30%~~3.50%. Our interest rate spread decreased 2314 basis points to ~~1.70%~~1.64% compared to ~~1.93%~~1.78% during the same quarter last year, reflecting the effect of the ~~flat yield curve.~~low interest rate environment. Our net interest margin decreased 1916 basis points to ~~1.90%~~1.81% in the current quarter compared to ~~2.09%~~1.97% for the same quarter last year.

Provision for Loan Losses. We recorded a provision for loan losses of $6.0 million during the quarter ended March 31, 2020, compared to a credit for loan losses of ~~$2.0~~$4.0 million during the quarter ended ~~June 30, 2019, as well as during the quarter ended June 30, 2018.~~March 31, 2019. The ~~credits~~provision for loan losses reflected ~~reduced levels of delinquent loans, lower charge-offs~~the preliminary economic impact from the COVID-19 outbreak that has led to increased unemployment and ~~continued elevated levels of recoveries of previously charged-off loans.~~deterioration in the overall macro-economic environment. We continue to monitor the effect unemployment will have on our ~~awareness of~~borrowers and the broader market, including the longer term impact to the relative values of residential ~~properties in comparison to their cyclical peaks.~~properties. As delinquencies in the portfolio have been resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan balance, uncollected balances have been charged against the allowance for loan losses previously provided. In the current quarter we recorded net recoveries of ~~$1.0~~$1.1 million compared to net recoveries of ~~$1.9~~$2.3 million in the quarter ended ~~June 30, 2018.~~March 31, 2019. Loan loss provisions (credits) are recorded with the objective of aligning our ~~overall~~ allowance for loan losses with our current estimates of loss in the portfolio. The allowance for loan losses was ~~$39.3~~$44.4 million, or ~~0.30%~~0.33% of total recorded investment in loans receivable, at ~~June 30, 2019,~~March 31, 2020, compared to ~~$43.0~~$40.3 million or ~~0.34%~~0.31% of total recorded investment in loans receivable at ~~June 30, 2018.~~March 31, 2019. Balances of recorded investments are net of deferred fees or expenses and any applicable ~~loans-in-~~

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~~process.~~loans-in-process. Refer to the Lending Activities section of the Overview and Note 4. Loans and Allowance for Loan Losses for further discussion.

Non-Interest Income. Non-interest income ~~decreased $2.1~~increased $4.0 million, or ~~29%~~82%, to ~~$5.1~~$8.9 million during the current quarter compared to ~~$7.2~~$4.9 million during the quarter ended ~~June 30, 2018~~March 31, 2019 mainly as a result of ~~a decrease~~an increase in the net gain on sale of ~~loans.~~loans as well as an increase in the proceeds and benefits from bank owned life insurance. Gains on the sale of loans ~~decreased $2.0~~increased $2.7 million to $3.1 million compared to $0.4 million for the same quarter in the prior year ~~which benefited from a bulk sale of $277.4 million of fixed rate loans to a private investor. There~~as there were ~~$26.3~~$114.7 million of loan sales during the current quarter as compared to ~~$305.5~~$38.1 million of loan sales during the quarter ended ~~June 30, 2018.~~March 31, 2019, and lower market interest rates drove larger percentage gains on those fixed-rate loan sales.

Non-Interest Expense. Non-interest expense decreased ~~$1.5~~$1.1 million, or 3%2%, to ~~$49.9~~$49.6 million during the current quarter compared to ~~$51.4~~$50.7 million during the quarter ended ~~June 30, 2018.~~March 31, 2019. The decrease resulted primarily from a decline in ~~salaries and employee benefits as well as other operating~~marketing expenses partially offset by an increase in ~~marketing expenses. Salaries~~salaries and employee benefits declined $1.1 million from the prior year mainly due to the non-recurrence of bonus payments awarded to all associates in the prior year in celebration of our 80th anniversary. Other operating expenses declined $1.0 million, primarily due to the non-recurrence of expenses related to the anniversary celebration, combined with lower professional services expense.benefits. Marketing expenditures ~~increased $0.8~~decreased $2.7 million during the current quarter as compared to the quarter ended ~~June 30, 2018~~March 31, 2019 and was attributed to the timing of media campaigns supporting our lending ~~activities.~~activities, as marketing was temporarily reduced following the COVID-19 outbreak. The $1.1 million increase in compensation expense was mainly due to an increase in associate salaries when compared to the same period in the prior year.

Income Tax Expense. The provision for income taxes was ~~$4.5~~$1.2 million during the current quarter compared to ~~$7.2~~$5.8 million during the quarter ended ~~June 30, 2018.~~March 31, 2019. The provision for the current quarter included ~~$4.8 million of federal income tax provision partially offset by $0.3 million of state income tax benefit. The provision for the quarter ended June 30, 2018 included $6.5~~$0.7 million of federal income tax provision and ~~$0.7~~$0.5 million of state income tax provision. The provision for the quarter ended March 31, 2019 included $5.3 million of federal income tax provision and $0.5 million of state income tax provision. Our effective federal tax rate was ~~20.7%~~3.6% during the current quarter and ~~23.6%~~20.9% during the quarter ended ~~June 30, 2018. As a result~~March 31, 2019. The decline in our federal tax expense and our federal effective rate is due to lower pre-tax income as well as the impact of the ~~passing~~CARES Act, which permits a carry back of ~~the Tax Cuts and Jobs Act~~net tax operating losses to years taxed at higher rates, resulting in ~~2017, the Company was required to use~~ a ~~blended maximum rate for the previous fiscal year. Our~~ current ~~effective income~~quarter tax ~~rate is below the federal statutory rate because~~benefit of ~~our ownership of bank-owned life insurance.~~$2.8 million.

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Comparison of Operating Results for the ~~Nine~~Six Months Ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019


	Nine Months Ended								Nine Months Ended								Six Months Ended								Six Months Ended
	June 30, 2019								June 30, 2018								March 31, 2020								March 31, 2019
	Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)		Average Balance			Interest Income/ Expense			Yield/ Cost (1)
	(Dollars in thousands)																(Dollars in thousands)
Interest-earning assets:
Interest-earning cash equivalents	$	218,789		$	3,743		2.28	%	$	231,034		$	2,641		1.52	%	$	242,849		$	1,720		1.42	%	$	220,421		$	2,487		2.26	%
Investment securities	3,981			71			2.38	%	176			3			2.27	%	—			—			—	%	3,976			47			2.36	%
Mortgage-backed securities	555,061			9,936			2.39	%	540,975			8,236			2.03	%	547,491			5,775			2.11	%	551,153			6,571			2.38	%
Loans (2)	12,889,286			341,926			3.54	%	12,572,328			313,821			3.33	%	13,365,570			230,428			3.45	%	12,874,052			226,797			3.52	%
Federal Home Loan Bank stock	95,420			4,098			5.73	%	92,196			3,826			5.53	%	103,401			1,655			3.20	%	93,544			2,829			6.05	%
Total interest-earning assets	13,762,537			359,774			3.49	%	13,436,709			328,527			3.26	%	14,259,311			239,578			3.36	%	13,743,146			238,731			3.47	%
Noninterest-earning assets	403,760								371,923								498,820								393,073
Total assets	$	14,166,297							$	13,808,632							$	14,758,131							$	14,136,219
Interest-bearing liabilities:
Checking accounts	$	887,980		2,477			0.37	%	$	958,256		903			0.13	%	$	871,198		853			0.20	%	$	890,262		1,609			0.36	%
Savings accounts	1,358,347			8,267			0.81	%	1,396,146			2,101			0.20	%	1,498,164			5,564			0.74	%	1,332,853			5,076			0.76	%
Certificates of deposit	6,383,562			94,254			1.97	%	5,906,826			69,930			1.58	%	6,589,024			69,382			2.11	%	6,365,386			61,154			1.92	%
Borrowed funds	3,597,994			53,685			1.99	%	3,630,208			43,634			1.60	%	3,816,909			34,556			1.81	%	3,610,605			35,319			1.96	%
Total interest-bearing liabilities	12,227,883			158,683			1.73	%	11,891,436			116,568			1.31	%	12,775,295			110,355			1.73	%	12,199,106			103,158			1.69	%
Noninterest-bearing liabilities	177,676								186,942								252,546								170,239
Total liabilities	12,405,559								12,078,378								13,027,841								12,369,345
Shareholders’ equity	1,760,738								1,730,254								1,730,290								1,766,874
Total liabilities and shareholders’ equity	$	14,166,297							$	13,808,632							$	14,758,131							$	14,136,219
Net interest income				$	201,091							$	211,959							$	129,223							$	135,573
Interest rate spread (1)(3)							1.76	%							1.95	%							1.63	%							1.78	%
Net interest-earning assets (4)	$	1,534,654							$	1,545,273							$	1,484,016							$	1,544,040
Net interest margin (1)(5)				1.95		%						2.10		%						1.81		%						1.97		%
Average interest-earning assets to average interest-bearing liabilities	112.55		%						112.99		%						111.62		%						112.66		%
Selected performance ratios:
Return on average assets (1)				0.55		%						0.62		%						0.58		%						0.57		%
Return on average equity (1)				4.45		%						4.92		%						4.96		%						4.58		%
Average equity to average assets				12.43		%						12.53		%						11.72		%						12.50		%

_________________


(1)	Annualized.


(2)	Loans include both mortgage loans held for sale and loans held for investment.


(3)	Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(4)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


(5)	Net interest margin represents net interest income divided by total interest-earning assets.

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General. Net income ~~decreased $5.1~~increased $2.4 million to ~~$58.7~~$42.9 million for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$63.8~~$40.5 million for the ~~nine~~six months ended ~~June 30, 2018. This decrease~~March 31, 2019. The increase in net income was attributable to ~~declines~~a gain from the sale of commercial properties as well as an increase in the gain on sale of loans combined with lower operating and income tax expenses. Partially offsetting the positive increases was a decline in net interest income and ~~non-interest income, a decrease in the credit for loan loss provision and~~ an increase in ~~non-interest expense, partially offset by a decrease in income tax expense.~~the provision for loan losses.

Interest and Dividend Income. Interest and dividend income increased ~~$31.3~~$0.9 million, or ~~10%~~less than 1%, to ~~$359.8~~$239.6 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$328.5~~$238.7 million during the same ~~nine~~six months in the prior year. The increase in interest and dividend income resulted primarily from an increase in interest income from loans ~~and to a lesser extent,~~partially offset by declines in interest income on ~~mortgage-backed securities and~~FHLB stock, interest earning cash ~~equivalents.~~equivalents and mortgage-backed securities.

Interest income on loans increased ~~$28.1~~$3.6 million, or 9%2%, to ~~$341.9~~$230.4 million for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$313.8~~$226.8 million for the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. This increase was attributed ~~partly~~mainly to a ~~$317.0~~$491.5 million increase in the average balance of loans to ~~$12.89~~$13.37 billion for the current ~~nine-month period~~six months compared to ~~$12.57~~$12.87 billion during the same ~~nine~~six months in the prior year as new loan production exceeded repayments and loan sales. The impact from the increase in the average balance of loans was ~~combined with~~partially offset by a 21seven basis point ~~increase~~decrease in the average yield on loans to ~~3.54%~~3.45% for the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 from ~~3.33%~~3.52% for the same ~~nine~~six months in the prior year. ~~Increases in~~Overall, market interest rate fluctuations during the ~~prime rate between the two periods benefited the yield~~year have reduced our loan yields, particularly on home equity ~~lines of credit~~lending products that feature interest rates that reset based on the prime rate.

Interest income on FHLB stock decreased $1.1 million, or 39%, to $1.7 million during the current six months compared to $2.8 million for the ~~nine~~six months ended ~~June 30, 2019, and contributed~~March 31, 2019. This decrease was attributed to a 285 basis point decrease in the ~~higher overall~~ average ~~yield.~~yield on FHLB stock partially offset by an $9.9 million increase in the average balance of FHLB stock to $103.4 million compared to $93.5 million for the same six months in the prior year.

Interest income on other interest earning cash equivalents decreased $0.8 million or 31%, to $1.7 million during the current six months compared to $2.5 million for the six months ended March 31, 2019. The decrease was attributed to a 84 basis point decrease in the average yield partially offset by a $22.4 million increase in the average balance of other interest earning cash equivalents to $242.8 million from $220.4 million for the same six months in the prior year.

Interest income on mortgage-backed securities ~~increased $1.7~~decreased $0.8 million, or ~~21%~~12%, to ~~$9.9~~$5.8 million during the current ~~nine~~six months compared to ~~$8.2~~$6.6 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. This ~~increase~~decrease was attributed to a 3627 basis point ~~increase~~decrease in the average yield on mortgage-backed securities ~~combined with~~as well as a ~~$14.1~~$3.7 million ~~increase~~decrease in the average balance of mortgage-backed securities to ~~$555.1~~$547.5 million for the current ~~nine-month period~~six months compared to ~~$541.0~~$551.2 million during the same ~~nine~~six months in the prior year.

Interest Expense. Interest expense increased ~~$42.1~~$7.2 million, or ~~36%~~7%, to ~~$158.7~~$110.4 million during the current ~~nine~~six months compared to ~~$116.6~~$103.2 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. The increase resulted primarily from an increase in interest expense on ~~both~~ deposits ~~and~~partially offset by a decline in interest expense on borrowed funds.

Interest expense on CDs increased ~~$24.4~~$8.2 million, or ~~35%~~13%, to ~~$94.3~~$69.4 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$69.9~~$61.2 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. The increase was attributed primarily to a 3919 basis point increase in the average rate we paid on CDs to ~~1.97%~~2.11% during the current ~~nine~~six months from ~~1.58%~~1.92% during the same ~~nine~~six months last year. In addition, there was a ~~$476.7~~$223.6 million, or 8%4%, increase in the average balance of CDs to ~~$6.38~~$6.59 billion from ~~$5.91~~$6.37 billion during the same ~~nine~~six months of the prior year. Interest expense on savings and checking accounts increased ~~$6.2~~$0.5 million and decreased $0.7 million, respectively, to $5.6 million and $0.9 million during the six months ended March 31, 2020, compared to $5.1 million and $1.6 million ~~respectively, to $8.3 million and $2.5 million during the nine months ended June 30, 2019, compared to~~for the same ~~nine~~six month period of the prior ~~year due to an increase in the average rates we paid on the deposits.~~year. Rates were adjusted on deposits in response to changes in ~~general~~ market interest rates as well as to changes in the rates paid by our ~~competition.~~competitors. The increase in deposits was used, in combination with an increase in borrowings, to fund our balance sheet growth and our capital management activities, including share repurchases and dividend payments.

Interest expense on borrowed funds, all from the FHLB of Cincinnati, ~~increased $10.1~~decreased $0.7 million, or ~~23%~~2%, to ~~$53.7~~$34.6 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 from ~~$43.6~~$35.3 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. The ~~increase~~decrease was attributed to a 3915 basis point ~~increase~~decrease in the average rate paid for these funds to ~~1.99%~~1.81%, during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 from ~~1.60%~~1.96% for the ~~nine~~six months ended ~~June 30, 2018, as market rates have increased between the two periods and longer duration funding sources were utilized that carried higher interest rates.~~March 31, 2019. Partially offsetting the ~~increase~~decrease in the rate paid on borrowed funds was a ~~$32.2~~$206.3 million, or 1%6%, ~~decrease~~increase in the average balance of borrowed funds to ~~$3.60~~$3.82 billion during the current ~~nine~~six months from ~~$3.63~~$3.61 billion during the same ~~nine~~six months of the prior year. Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion.

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Net Interest Income. Net interest income decreased ~~$10.9~~$6.4 million, or 5%, to ~~$201.1~~$129.2 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 from ~~$212.0~~$135.6 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. Average interest-earning assets increased during the current ~~nine-month period~~six months by ~~$325.8~~$516.2 million, or 2%4%, when compared to the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. The increase in average assets was attributed primarily to the growth of our loan portfolio and to a lesser extent ~~mortgage-backed securities. In addition to the~~FHLB stock and other interest earning cash equivalents. The increase in average interest earning assets was ~~a 23~~partially offset by an 11 basis point ~~increase~~decrease in the yield on those assets to ~~3.49%~~3.36% from ~~3.26%~~3.47%. However, average interest-bearing liabilities increased by ~~$336.4~~$576.2 million and experienced a 42four basis point increase in cost, as our interest rate spread decreased 1915 basis points to ~~1.76%~~1.63% compared to ~~1.95%~~1.78% during the same ~~nine~~six months last year reflecting the ~~flattening yield curve and general~~challenging interest rate environment. Our net interest margin was ~~1.95%~~1.81% for the current ~~nine-month period~~six months and ~~2.10%~~1.97% for the same ~~nine month period~~six months in the prior year. ~~Our interest rate spread and net interest margin narrowed as our overall funding costs increased more than our asset yields increased.~~

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Provision (Credit) for Loan Losses. We recorded a ~~credit~~provision for loan losses of ~~$8.0~~$3.0 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and a ~~$9.0~~$6.0 million credit for loan losses during the ~~nine~~six months ended ~~June 30, 2018. Continued strong~~March 31, 2019. In the current six months, we recorded net recoveries of $2.5 million, as compared to net recoveries of $3.9 million for the six months ended March 31, 2019. The provision for loan ~~amounts previously charged off, low levels of current loan charge-offs~~losses reflected the preliminary economic impact from the COVID-19 outbreak that has led to increased unemployment and ~~delinquent loans and reduced exposure from home equity lines of credit coming to the end of the draw period resulted~~deterioration in the ~~loan provision credit during~~overall macro-economic environment. We continue to monitor the ~~current period. Nevertheless, we continue~~effect unemployment will have on our ~~awareness of~~borrowers and the broader market, including the longer term impact to the relative values of residential ~~properties in comparison to their cyclical peaks.~~properties. As delinquencies in the portfolio have been resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan balance, uncollected balances have been charged against the allowance for loan losses previously provided. ~~In the current nine months, we recorded net recoveries of $4.9 million, as compared to net recoveries of $3.0 million for the nine months ended June 30, 2018.~~ The ~~credit~~provision for loan losses recorded for the current ~~nine~~six months ~~as partially offset by net recoveries,~~ resulted in ~~a decrease~~an increase in the balance of the allowance for loan losses. The allowance for loan losses was ~~$39.3~~$44.4 million, or ~~0.30%~~0.33% of the total recorded investment in loans receivable, at ~~June 30, 2019,~~March 31, 2020, compared to ~~$43.0~~$40.3 million, or ~~0.34%~~0.31% of the total recorded investment in loans receivable, at ~~June 30, 2018.~~March 31, 2019. Balances of recorded investments are net of deferred fees, expenses and any applicable loans-in-process. Refer to the Lending Activities section of the Overview and Note 4. Loans and Allowance for Loan Losses for further discussion.

Non-Interest Income. Non-interest income ~~decreased $2.0~~increased $11.3 million, or ~~12%~~118%, to ~~$14.7~~$20.9 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$16.7~~$9.6 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. The ~~decrease~~increase in non-interest income iswas primarily due to a ~~decrease~~$4.3 million gain, representing our share of the gain on the sale of the remaining commercial property held by a non-thrift, partially owned subsidiary of the Company. In addition, there was a $5.5 million increase in the net gain on sale of loans, which was ~~$1.1~~$6.1 million during the ~~nine~~six months ~~ended June 30, 2019~~ending March 31, 2020 compared to ~~$3.1~~$0.6 million during the ~~nine~~six months ending March 31, 2019. This increase was mainly due to an increase in activity as there were loan sales of $323.2 million at a net gain of 1.91% during the six months ended ~~June 30, 2018. The prior year period benefited from~~March 31, 2020, which included a bulk sale of ~~$277.4~~$99.0 million ~~of fixed-rate loans~~ to a private ~~investor. There were loan sales of $85.1 million during the nine months ended June 30, 2019,~~investor, compared to loan sales of ~~$374.0~~$58.8 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019.

Non-Interest Expense. Non-interest expense ~~increased $1.7~~decreased $1.8 million, or 1%2%, to ~~$148.6~~$96.9 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$146.9~~$98.7 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. This ~~increase~~decrease resulted primarily from ~~increases~~a $3.0 million decrease in ~~salaries and employee benefits and~~ marketing expenses partially offset by a ~~reduction in federal insurance premium and assessments. There was a $1.2~~$1.6 million increase in salaries and employee ~~benefits~~benefits. Marketing expenditures declined during the current ~~nine-month period~~six months compared to the nine-month period ended June 30, 2018, primarily related to both the timing and amount of health insurance for our employees, which can fluctuate based on the timing of claims. Marketing expenditures increased $1.2 million during the current period as compared to the prior periodsix months ending March 31, 2019 and was attributed to the timing of media campaigns supporting our lending ~~activities.~~activities, as marketing was temporarily reduced following the COVID-19 outbreak. The increase in compensation expense was mainly due to an increase in associate salaries when compared to the same period in the prior year.

Income Tax Expense. The provision for income taxes was ~~$16.5~~$7.3 million during the ~~nine~~six months ended ~~June 30, 2019 compared to $26.9~~March 31, 2020 and $12.0 million ~~during~~for the ~~nine~~six months ended June 30, 2018. The decrease in expense was caused mainly by the combination of a decrease in income before income taxes and by the impact of the Act, which further lowered our effective federal rate in the more recent period and required additional tax expense for the re-measurement of the deferred tax asset during the nine months ended June 30, 2018.March 31, 2019. The provision for the current ~~nine-month period~~six months included ~~$15.2~~$6.4 million of federal income tax provision and ~~$1.3~~$0.9 million of state income tax provision. The provision for the ~~nine~~six months ended ~~June 30, 2018~~March 31, 2019 included ~~$25.3~~$10.4 million of federal income tax provision and $1.6 million of state income tax provision. Our effective federal tax rate was ~~20.5%~~13.1% during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 and ~~28.4%~~20.4% during the ~~nine~~six months ended ~~June 30, 2018. Our expected~~March 31, 2019. The decline in our federal tax expense and our federal effective ~~federal~~rate is due to lower pre-tax income as well as the impact of the CARES Act, which permits a carry back of net tax ~~rate~~operating losses to years taxed at higher rates, resulting in ~~the~~a current ~~year is lower than the federal statutory rate because~~period tax benefit of ~~our ownership of bank-owned life insurance.~~$2.8 million.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB of Cincinnati, borrowings from the FRB-Cleveland Discount Window, proceeds from brokered CDs transactions, principal repayments and maturities of securities, and sales of loans.

In addition to the primary sources of funds described above, we have the ability to obtain funds through the use of collateralized borrowings in the wholesale markets, and from sales of securities. Also, debt issuance by the Company and

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access to the equity capital markets via a supplemental minority stock offering or a full conversion (second-step) transaction remain as other potential sources of liquidity, although these channels generally require up to nine months of lead time.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition. The Association’s Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of cash and cash equivalents plus unencumbered investment securities for which ready markets exist, divided by total assets). For

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the three months ended ~~June 30, 2019,~~March 31, 2020, our liquidity ratio averaged ~~5.61%~~5.41%. We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of ~~June 30, 2019.~~March 31, 2020.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities and the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At ~~June 30, 2019,~~March 31, 2020, cash and cash equivalents totaled ~~$271.3~~$312.5 million, which represented an increase of 1%14% from September 30, ~~2018.~~2019.

Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled ~~$564.9~~$545.5 million at ~~June 30, 2019.~~March 31, 2020.

During the ~~nine-month~~six-month period ended ~~June 30, 2019,~~March 31, 2020, loan sales totaled ~~$85.1~~$323.2 million, which included a $~~19.0~~99.0 million sale to a private investor and sales to Fannie Mae, consisting of ~~$36.6~~$197.6 million of long-term, fixed-rate, agency-compliant ~~non-HARP II~~ and non-Home Ready first mortgage loans ~~$0.1 million of loans that qualified under Fannie Mae's HARP II initiative~~ and ~~$29.4~~$26.6 million of loans that qualified under Fannie Mae's Home Ready initiative. Loans originated under the ~~HARP II and~~ Home Ready ~~initiatives~~initiative are classified as “held for sale” at ~~origination, though the HARP II program ended December 31, 2018.~~origination. Loans originated under ~~non-HARP II or~~ non-Home Ready, Fannie Mae compliant procedures are classified as “held for investment” until they are specifically identified for sale.

At ~~June 30, 2019, $2.6~~March 31, 2020, $2.3 million of long-term, fixed-rate residential first mortgage loans were classified as “held for sale,” all of which qualified under Fannie Mae's Home Ready initiative. There were no loan sale commitments outstanding at ~~June 30, 2019.~~March 31, 2020.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows (unaudited) included in the unaudited interim Consolidated Financial Statements.

At ~~June 30, 2019,~~March 31, 2020, we had ~~$607.9 million~~$1.06 billion in outstanding commitments to originate loans. In addition to commitments to originate loans, we had ~~$2.11~~$2.39 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of ~~June 30, 2019~~March 31, 2020 totaled ~~$3.30~~$3.27 billion, or ~~37.8%~~35.9% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs, brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before ~~June 30, 2020.~~March 31, 2021. We believe, however, based on past experience, that a significant portion of such deposits will remain with us. Generally, we have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are originating residential mortgage loans, home equity loans and lines of credit and purchasing investments. During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, we originated ~~$1.17~~$1.33 billion of residential mortgage loans, and ~~$1.28 billion~~$733.2 million of commitments for home equity loans and lines of credit, while during the ~~nine~~six months ended ~~June 30, 2018,~~March 31, 2019, we originated ~~$1.72 billion~~$665.1 million of residential mortgage loans and ~~$1.13 billion~~$718.6 million of commitments for home equity loans and lines of credit. Also during the six months ended March 31, 2020, we purchased $230.3 million of fixed-rate residential mortgage loans, which were originated and serviced by the Association and sold to an investor in a prior year. We purchased ~~$121.8~~$87.0 million of securities during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, and ~~$121.1~~$96.3 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019.

Financing activities consist primarily of changes in deposit accounts, changes in the balances of principal and interest owed on loans serviced for others, FHLB advances, including any collateral requirements related to interest rate swap agreements and borrowings from the FRB-Cleveland Discount Window. We experienced a net increase in total deposits of ~~$222.9~~$321.4 million during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, which reflected the active management of the offered rates on maturing CDs, compared to a net increase of ~~$256.7~~$241.2 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. Deposit flows are

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affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, there was a ~~$151.3~~$33.4 million decrease in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of ~~$518.8~~$474.4 million at ~~June 30, 2019.~~March 31, 2020. At ~~June 30, 2018~~March 31, 2019 the balance of brokered CDs was ~~$648.2~~$591.3 million. Principal and interest owed on loans serviced for others experienced a net decrease of ~~$12.3~~$4.2 million to ~~$19.2~~$28.7 million during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 compared to a net decrease of ~~$13.1~~$1.9 million to ~~$22.7~~$29.6 million during the ~~nine~~six months ended ~~June 30, 2018.~~March 31, 2019. During the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020 we increased our advances from the FHLB of Cincinnati by ~~$111.9~~$180.0 million to manage the funding of new loan originations and our capital initiatives, and actively manage our liquidity ratio. During the ~~nine~~six months ended ~~June 30, 2018,~~March 31, 2019, our advances from the FHLB of Cincinnati decreased by ~~$6.6~~$131.6 million. During the nine months ended June 30, 2019, collateral settlements paid to counterparties in connection with interest rate swap agreements was $116.4 million. During the nine months ended June 30, 2018, collateral settlements received from counterparties was $48.3 million.

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Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati and the FRB-Cleveland Discount Window, each of which provides an additional source of funds. Also, in evaluating funding alternatives, we may participate in the brokered CD market. At ~~June 30, 2019~~March 31, 2020 we had ~~$3.83~~$4.08 billion of FHLB of Cincinnati advances and no outstanding borrowings from the FRB-Cleveland Discount Window. Additionally, at ~~June 30, 2019,~~March 31, 2020, we had ~~$518.8~~$474.4 million of brokered CDs. During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, we had average outstanding advances from the FHLB of Cincinnati of ~~$3.60~~$3.82 billion as compared to average outstanding advances of ~~$3.63~~$3.61 billion during the ~~nine~~six months ended June 30, 2018. The decrease in net average balance in the current year reflects an increase in the use of deposits to fund balance sheet growth and our capital initiatives, and to manage our on-balance sheet liquidity.March 31, 2019. Refer to the Extending the Duration of Funding Sources section of the Overview and the General section of Item 3. Quantitative and Qualitative Disclosures About Market Risk for further discussion. At ~~June 30, 2019,~~March 31, 2020, we had the ability to immediately borrow an additional ~~$19.8 million~~$1.58 billion from the FHLB of Cincinnati and ~~$48.6~~$39.6 million from the FRB-Cleveland Discount Window. From the perspective of collateral value securing FHLB of Cincinnati advances, our capacity limit for additional borrowings beyond the outstanding balance at ~~June 30, 2019~~March 31, 2020 was ~~$4.61~~$4.37 billion, subject to satisfaction of the FHLB of Cincinnati common stock ownership requirement. To satisfy the common stock ownership requirement for the maximum limit of borrowing, we would have to increase our ownership of FHLB of Cincinnati common stock by an additional ~~$92.3~~$111.8 million.

The Association and the Company are subject to various regulatory capital requirements, including a risk-based capital measure. The Basel III capital framework for U.S. banking organizations ("Basel III Rules") includes both a revised definition of capital and guidelines for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.

The Association is subject to the "capital conservation buffer" requirement level of 2.5%. The requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the minimum capital requirements. At ~~June 30, 2019,~~March 31, 2020, the Association exceeded the regulatory requirement for the "capital conservation buffer".

As of ~~June 30, 2019,~~March 31, 2020, the Association exceeded all regulatory requirements to be considered “Well Capitalized” as presented in the table below (dollar amounts in thousands).


	Actual				Well Capitalized Levels				Actual				Well Capitalized Levels
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk-Weighted Assets	$	1,535,830	19.55	%	$	785,599	10.00	%	$	1,547,557	18.64	%	$	830,032	10.00	%
Tier 1 (Leverage) Capital to Net Average Assets	1,496,514		10.54	%	709,596		5.00	%	1,503,167		10.11	%	743,631		5.00	%
Tier 1 Capital to Risk-Weighted Assets	1,496,514		19.05	%	628,479		8.00	%	1,503,167		18.11	%	664,026		8.00	%
Common Equity Tier 1 Capital to Risk-Weighted Assets	1,496,500		19.05	%	510,639		6.50	%	1,503,153		18.11	%	539,521		6.50	%

The capital ratios of the Company as of ~~June 30, 2019~~March 31, 2020 are presented in the table below (dollar amounts in thousands).


	Actual				Actual
	Amount		Ratio		Amount		Ratio
Total Capital to Risk-Weighted Assets	$	1,771,840	22.47	%	$	1,799,719	21.66	%
Tier 1 (Leverage) Capital to Net Average Assets	1,732,527		12.18	%	1,755,332		11.78	%
Tier 1 Capital to Risk-Weighted Assets	1,732,527		21.97	%	1,755,332		21.13	%
Common Equity Tier 1 Capital to Risk-Weighted Assets	1,732,527		21.97	%	1,755,332		21.13	%

In addition to the operational liquidity considerations described above, which are primarily those of the Association, the Company, as a separate legal entity, also monitors and manages its own, parent company-only liquidity, which provides the source of funds necessary to support all of the parent company's stand-alone operations, including ~~our~~its capital distribution strategies which encompass ~~our~~its share repurchase and dividend payment programs. The Company's primary source of liquidity is

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dividends received from the Association. The amount of dividends that the Association may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the FRB-Cleveland, cannot exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods. In December ~~2018,~~2019, the Company received ~~an $85.0~~a $57.0 million cash dividend from the Association. Because of its intercompany nature, this dividend payment had no impact on the Company's capital ratios or its consolidated statement of condition but reduced the Association's reported capital ratios. At

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~~June 30, 2019,~~ March 31, 2020, the Company had, in the form of cash and a demand loan from the Association, ~~$168.7~~$217.3 million of funds readily available to support its stand-alone operations.

~~On October 27, 2016, the Company announced that the Board of Directors approved the~~The Company’s eighth stock repurchase program, which authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common ~~stock.~~stock was approved by the Board of Directors on October 27, 2016 and repurchases began on January 6, 2017. There were ~~4,024,421~~4,108,921 shares repurchased under that program ~~through June 30, 2019.~~between its start date and March 31, 2020. During the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, the Company repurchased ~~$7.9~~$0.4 million of its common stock. While share repurchases have recently declined as more emphasis has been placed on dividends, the share repurchase plan has been suspended as part of the response to COVID-19.

On July ~~11, 2018, at a special meeting of members of~~16, 2019, Third Federal Savings, MHC received the approval of its members ~~(depositors and certain loan customers of~~with respect to the ~~Association) of Third Federal Savings, MHC voted to approve Third Federal Savings, MHC's proposed~~ waiver of dividends, ~~aggregating up to $1.00 per share, to be declared on the Company’s common stock during the twelve months subsequent to the members’ approval (i.e~~., through July 11, 2019). The members approved the waiver by casting 63% of the eligible votes in favor of the waiver. Of the votes cast, 97% were in favor of the proposal. Third Federal Savings, MHC is the 81% majority shareholder of the Company. Following the receipt of the members’ approval at the July 11, 2018 special meeting, Third Federal Savings, MHC filed a notice with, and subsequently received the non-objection of the FRB-Cleveland, ~~for the proposed dividend waivers.~~

~~On July 16, 2019, at a special meeting of members of Third Federal Savings, MHC, the members (depositors and certain loan customers of the Association) of Third Federal Savings, MHC voted~~ to ~~approve Third Federal Savings, MHC's proposed waiver~~waive receipt of dividends ~~aggregating~~on the Company’s common stock the MHC owns up to a total of $1.10 per share, to be declared on the Company’s common stock during the ~~twelve~~12 months subsequent to the members’ approval (i.e., through July 16, 2020). The members approved the waiver by casting 62% of the eligible votes in favor of the waiver. Of the votes cast, 97% were in favor of the proposal. Third Federal Savings, MHC ~~is the 81% majority shareholder of the Company. Following the receipt of the members’ approval at the July 16,~~waived its right to receive a $0.27 per share dividend payment on September 17, 2019 ~~special meeting, Third Federal Savings, MHC filed a notice with,~~and December 17, 2019 and a ~~request for the non-objection of the FRB-Cleveland for the proposed~~$0.28 per share dividend ~~waivers. Both the non-objection from the FRB-Cleveland and the timing of the non-objection are unknown as of the filing date of this quarterly report.~~payment on March 24, 2020.

The payment of dividends, support of asset growth and, once the internal suspension has been lifted, strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~General.~~General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk has historically been interest rate risk. In general, our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits and advances from the FHLB of Cincinnati. As a result, a fundamental component of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established risk parameter limits deemed appropriate given our business strategy, operating environment, capital, liquidity and performance objectives.Additionally, our Board of Directors has authorized the formation of an Asset/Liability Management Committee comprised of key operating personnel, which is responsible for managing this risk in a ~~manner~~matter that is consistent with the guidelines and risk limits approved by the Board of Directors.Further, the Board has established the Directors Risk Committee, which, among other responsibilities, conducts regular oversight and review of the guidelines, policies and deliberations of the Asset/Liability Management Committee. We have sought to manage our interest rate risk in order to control the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk:


(i)	marketing adjustable-rate and shorter-maturity (10-year, fixed-rate mortgage) loan products;

(ii)

lengthening the weighted average remaining term of major funding sources, primarily by offering attractive interest rates on deposit products, particularly longer-term certificates of deposit, and through the use of longer-term advances from the FHLB of Cincinnati (or shorter-term advances converted to longer-term durations via the use of interest rate exchange contracts that qualify as cash flow hedges) and longer-term brokered certificates of deposit;


(iii)	investing in shorter- to medium-term investments and mortgage-backed securities;


(iv)	maintaining the levels of capital required for "well capitalized" designation; and


(v)	securitizing and/or selling long-term, fixed-rate residential real estate mortgage loans.

During the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020, ~~$66.1~~$224.2 million of agency-compliant, long-term, fixed-rate mortgage loans were sold to Fannie Mae on a servicing retained basis. Additionally, during the ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, $~~19.0~~99.0 million of fixed-rate loans were sold, on a servicing retained basis, in a single bulk sale to a private investor. At ~~June 30, 2019~~March 31, 2020, $~~2.6~~2.3 million of agency-compliant, long-term, fixed-rate residential first mortgage loans that qualified under Fannie Mae's Home

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Ready program, were classified as “held for sale.” Of the agency-compliant loan sales during the ~~nine~~six months ended ~~June 30, 2019~~March 31, 2020, ~~$29.5~~$26.6 million was comprised of long-term (15 to 30 years), fixed-rate first mortgage loans which were sold under Fannie Mae's ~~HARP II (the HARP II program ended December 31, 2018) or~~ Home Ready ~~programs,~~program, and ~~$36.6~~$197.6 million was comprised of long-term (15 to 30 years), fixed-rate first

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mortgage refinance loans which ~~had been originated under our revised procedures and~~ were sold to Fannie Mae, ~~under our reinstated seller contract,~~ as described in the next paragraph. At ~~June 30, 2019~~March 31, 2020, we did not have any outstanding loan sales commitments.

WeThe Association actively ~~market~~markets equity lines of credit, an adjustable-rate mortgage loan product and a 10-year fixed-rate mortgage loan product. Each of these products provides us with improved interest rate risk characteristics when compared to longer-term, fixed-rate mortgage loans. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and investments, as well as loans and investments with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes ~~in market interest rates. By following these strategies, we believe that we are better positioned to react to increases~~ in market interest rates.

The Association evaluates funding source alternatives as it seeks to extend its liability duration. Extended duration funding sources that are currently considered include: retail certificates of deposit (which, subject to a fee, generally provide depositors with an early withdrawal option, but do not require pledged collateral); brokered certificates of deposit (which generally do not provide an early withdrawal option and do not require collateral pledges); collateralized borrowings which are not subject to creditor call options (generally advances from the FHLB of Cincinnati); and interest rate exchange contracts ("swaps") which are subject to collateral pledges and which require specific structural features to qualify for hedge accounting treatment (hedge accounting treatment directs that periodic mark-to-market adjustments be recorded in other comprehensive income (loss) in the equity section of the balance sheet rather than being included in operating results of the income statement). The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment. The Association attempts to be opportunistic in the timing of its funding duration deliberations and when evaluating alternative funding sources, compares effective interest rates, early withdrawal/call options and collateral requirements.

The Association is a party to interest rate swap agreements. Each of the Association's swap agreements is registered on the Chicago Mercantile Exchange and involves the exchange of interest payment amounts based on a notional principal balance. No exchange of principal amounts ~~occurs~~occur and the notional principal amount does not appear on our balance sheet. The Association uses swaps to extend the duration of its funding ~~sources, add stability to interest expense and manage exposure to interest rate movements.~~sources. In each of the Association's agreements, interest paid is based on a fixed rate of interest throughout the term of each agreement while interest received is based on an interest rate that resets at a specified interval (generally three months) throughout the term of each agreement. On the initiation date of the swap, the agreed upon exchange interest rates reflect market conditions at that point in time. As market conditions and interest rates change, the fair value of the swap can fluctuate. Generally, if the current corresponding term interest rate is higher than at the time the swap was executed, the fair value of the swap would increase. If the current corresponding term interest rate is lower than at the time the swap was executed, the fair value of the swap would decrease. The change in fair value is recorded in OCI and is subsequently reclassified into earnings over the duration of the swap period. Swaps generally require counterparty collateral pledges that ensure the counterparties' ability to comply with the conditions of the agreement. The notional amount of the Association's swap portfolio at ~~June 30, 2019~~March 31, 2020 was ~~$2.40~~$3.00 billion. The swap portfolio's weighted average fixed pay rate was ~~1.99%~~1.83% and the weighted average remaining term was ~~3.7~~3.5 years. Concurrent with the execution of each swap, the Association entered into a short-term borrowing from the FHLB of Cincinnati in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap. Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with the ~~Association's~~Company's variable rate borrowings from the FHLB of Cincinnati.

Economic Value of Equity. Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off-balance sheet items (the ~~Association’s~~institution's economic value of equity or EVE) would change in the event of a range of assumed changes in market interest rates. The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under

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the assumption that instantaneous changes (measured in basis points) occur at all maturities along the United States Treasury yield curve and other relevant market interest rates. A basis point equals one, one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 2% to 3% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The model is tailored specifically to our organization, which, we believe, improves its predictive accuracy. The following table presents the estimated changes in the Association’s EVE at ~~June 30, 2019~~March 31, 2020 that would result from the indicated instantaneous changes in the United States Treasury yield curve and other relevant market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

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								EVE as a Percentage of Present Value of Assets (3)											EVE as a Percentage of Present Value of Assets (3)
Change in Interest Rates (basis points) (1)	Estimated EVE (2)		Estimated Increase (Decrease) in EVE					EVE Ratio (4)		Increase (Decrease) (basis points)		Estimated EVE (2)		Estimated Increase (Decrease) in EVE					EVE Ratio (4)		Increase (Decrease) (basis points)
Change in Interest Rates (basis points) (1)	Estimated EVE (2)		Amount			Percent		EVE Ratio (4)		Increase (Decrease) (basis points)		Estimated EVE (2)		Amount			Percent		EVE Ratio (4)		Increase (Decrease) (basis points)
	(Dollars in thousands)											(Dollars in thousands)
+300	$	1,404,990	$	(560,174	)	(28.51	)%	10.44	%	(284	)	$	1,143,308	$	(267,317	)	(18.95	)%	8.06	%	(120	)
+200	1,671,081		(294,083		)	(14.96	)%	11.97	%	(131	)	1,326,919		(83,706		)	(5.93	)%	9.08	%	(18	)
+100	1,875,650		(89,514		)	(4.56	)%	13.01	%	(27	)	1,429,969		19,344			1.37	%	9.55	%	29
0	1,965,164		—			—		13.28	%	—		1,410,625		—			—		9.26	%	—
-100	1,878,819		(86,345		)	(4.39	)%	12.48	%	(80	)	1,570,437		159,812			11.33	%	10.26	%	100

_________________


(1)	Assumes an instantaneous uniform change in interest rates at all maturities.


(2)	EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.


(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.


(4)	EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at ~~June 30, 2019~~March 31, 2020, in the event of an increase of 200 basis points in all interest rates, the Association would experience a ~~14.96%~~5.93% decrease in EVE. In the event of a 100 basis point decrease in interest rates, the Association would experience a ~~4.39%~~11.33% ~~decrease~~increase in EVE.

The following table is based on the calculations contained in the previous table, and sets forth the change in the EVE at a +200 basis point rate of shock at ~~June 30, 2019,~~March 31, 2020, with comparative information as of September 30, ~~2018.~~2019. The Association changed the software model used to measure its interest rate risk during the three months ended December 31, 2019, which included the use of different valuation approaches and assumptions inherent in the software. By regulation, the Association must measure and manage its interest rate risk for interest rate shocks relative to established risk tolerances in EVE.

Risk Measure (+200 Basis Points Rate Shock)


	At June 30, 2019		At September 30, 2018		At March 31, 2020		At September 30, 2019
Pre-Shock EVE Ratio	13.28	%	15.54	%	9.26	%	14.93	%
Post-Shock EVE Ratio	11.97	%	13.35	%	9.08	%	13.26	%
Sensitivity Measure in basis points	(131	)	(219	)	(18	)	(167	)
Percentage Change in EVE	(14.96	)%	(19.65	)%	(5.93	)%	(15.78	)%

Certain shortcomings are inherent in the methodologies used in measuring interest rate risk through changes in EVE. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE tables presented above assume:

no new growth or business volumes;

that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, except for reductions to reflect mortgage loan principal repayments along with modeled prepayments and defaults; and

that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.

Accordingly, although the EVE tables provide an indication of our interest rate risk exposure as of the indicated dates, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and will differ from actual results. In addition to our core business activities, which primarily sought to originate

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Smart Rate (adjustable), home equity lines of credit (adjustable) and 10-year fixed-rate loans funded by borrowings from the FHLB and intermediate term CDs (including brokered CDs), and which are intended to have a favorable impact on our IRR profile, the impact of several other items and events resulted in the ~~4.68%~~9.84% improvement in the Percentage Change in EVE measure at ~~June 30, 2019~~March 31, 2020 when compared to the measure at September 30, ~~2018.~~2019. Factors contributing to this improvement included changes in market rates, capital actions by the Association, assumption and modeling changes, including a change in the software model used, and changes due to business activity. Movement in market interest rates included a decrease of ~~106~~138 basis points for the two-year term, a decrease of ~~119~~116 basis points for the five-year term and a decrease of ~~106~~100 basis points for the ten-year ~~term, and which resulted in an improvement of 7.27% in~~term. Negatively impacting the Percentage Change in ~~EVE. Partially offsetting this improvement~~EVE was ~~the impact of an $85.0~~a $57.0 million cash dividend that the Association

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paid to the Company. Because of its intercompany nature, this payment had no impact on the Company's capital position, or the Company's overall IRR profile, but reduced the Association's regulatory capital and regulatory capital ratios and negatively impacted the Association's Percentage Change in EVE by approximately ~~0.78%~~0.44%. Additionally, modifications and enhancements to our modeling assumptions and methodologies, ~~which are continually challenged and evaluated, on~~as a ~~net basis, negatively~~result of the model software change, impacted the Association's Percentage Change in ~~EVE by 3.60%. Our~~EVE. While our core business activities, as described at the beginning of this paragraph, are generally intended to have a positive impact on our IRR profile, the actual impact is determined by a number of factors, including the pace of mortgage asset additions to our balance sheet (including consideration of outstanding commitments to originate those assets), in comparison to the pace of the addition of duration extending funding sources. ~~During the current fiscal year-to-date period, the net affect of mortgage asset accumulation and funding source extension resulted in 1.79% of improvement to our Percentage Change in EVE.~~ The IRR simulation results presented above were in line with management's expectations and were within the risk limits established by our Board of Directors.

Our simulation model possesses random patterning capabilities and accommodates extensive regression analytics applicable to the prepayment and decay profiles of our borrower and depositor portfolios. The model facilitates the generation of alternative modeling scenarios and provides us with timely decision making data that is integral to our IRR management processes. Modeling our IRR profile and measuring our IRR exposure are processes that are subject to continuous revision, refinement, modification, enhancement, back testing and validation. We continually evaluate, challenge and update the methodology and assumptions used in our IRR model, including behavioral equations that have been derived based on third-party studies of our customer historical performance patterns. Changes to the methodology and/or assumptions used in the model will result in reported IRR profiles and reported IRR exposures that will be different, and perhaps significantly, from the results reported above.

Earnings at Risk. In addition to EVE calculations, we use our simulation model to analyze the sensitivity of our net interest income to changes in interest rates (the institution’s EaR). Net interest income is the difference between the interest income that we earn on our interest-earning assets, such as loans and securities, and the interest that we pay on our interest-bearing liabilities, such as deposits and borrowings. In our model, we estimate what our net interest income would be for prospective 12 and 24 month periods using customized (based on our portfolio characteristics) assumptions with respect to loan prepayment rates, default rates and deposit decay rates, and the implied forward yield curve as of the market date for assumptions as to projected interest rates. We then calculate what ~~our~~the estimated net interest income would be for the same period under numerous interest rate scenarios.The simulation process is subject to continual enhancement, modification, refinement and adaptation, including a new software model implemented during the prior quarter, in order that it might most accurately reflect our current circumstances, factors and expectations. As of ~~June 30, 2019~~,March 31, 2020, we estimated that our EaR for the 12 months ending ~~June 30,~~ ~~2020~~March 31, 2021 would ~~decrease~~increase by ~~0.88%~~2.97% in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the 12 month measurement period to an aggregate increase ofin 200 basis points. ~~This~~The Association uses the "ramped" assumption ~~differs from~~in preparing the EaR simulation estimates for use in its public disclosures. In addition to conforming to predominate industry practice, the Association also believes that the ramped assumption ~~used to report our EaR estimates in reporting periods prior to March 31, 2017, when our EaR disclosures were determined under assumed~~provides a more probable/plausible scenario for net interest income simulations than instantaneous ~~changes in market interest rates. While that scenario is no longer used, the~~shocks which provide a theoretical analysis but a much less credible economic scenario. The Association continues to calculate instantaneous scenarios, and as of ~~June 30, 2019,~~March 31, 2020, we estimated that our EaR for the 12 months ending ~~June 30, 2020~~March 31, 2021, would ~~decrease~~increase by ~~4.53%~~1.73% in the event of an instantaneous 200 basis point increase in market interest rates.

Certain shortcomings are also inherent in the methodologies used in determining interest rate risk through changes in EaR. Modeling changes in EaR require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the interest rate risk information presented above assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results. In addition to the preparation of computations as described above, we also formulate simulations based on a variety of non-linear changes in interest rates and a variety of non-constant balance sheet composition scenarios.

Other Considerations. The EVE and EaR analyses are similar in that they both start with the same month end balance sheet amounts, weighted average coupon and maturity. The underlying prepayment, decay and default assumptions are also the

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same and they both start with the same month end "markets" (Treasury and Libor yield curves, etc.). From that similar starting point, the models follow divergent paths. EVE is a stochastic model using 100 different interest rate paths to compute market value at the ~~cohorted transaction~~account level for each of the categories on the balance sheet whereas EaR uses the implied forward curve to compute interest income/expense at the ~~cohorted transaction~~account level for each of the categories on the balance sheet.

EVE is considered as a point in time calculation with a "liquidation" view of the Association where all the cash flows (including interest, principal and prepayments) are modeled and discounted using discount factors derived from the current market yield curves. It provides a long term view and helps to define changes in equity and duration as a result of changes in interest rates. On the other hand, EaR is based on balance sheet projections going one year and two years forward and assumes

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new business volume and pricing to calculate net interest income under different interest rate environments. EaR is calculated to determine the sensitivity of net interest income under different interest rate scenarios. With each of these models, specific policy limits have been established that are compared with the actual month end results. These limits have been approved by the Association's Board of Directors and are used as benchmarks to evaluate and moderate interest rate risk. In the event that there is a breach of policy limits that extends beyond two consecutive quarter end measurement periods, management is responsible for taking such action, similar to those described under the preceding heading of General, as may be necessary in order to return the Association's interest rate risk profile to a position that is in compliance with the policy. At ~~June 30, 2019,~~March 31, 2020, the IRR profile as disclosed above was within our internal limits.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated

and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

~~No change~~

Changes in Internal Control over Financial Reporting

Except as noted below, no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In response to COVID-19, the Company has been following the recommendations of local authorities to minimize exposure risk for its associates, including reducing the number of associates reporting to their normal workplace while the Company established the ability for those associates to work remotely. In order to complete its review of this Quarterly Report, and in reliance on the order promulgated by the Securities and Exchange Commission on March 25, 2020 in Release No. 34-88465 relating to the Securities Exchange Act of 1934, as amended, the Company is filing this Quarterly Report within the allowed extended timeframe.

Part II — Other Information

Item 1. Legal Proceedings

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management as of March 31, 2020, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

~~There have been no~~In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material ~~changes in~~updates and additions to the ~~"Risk Factors"~~risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as filed with the SEC on November ~~27, 2018~~26, 2019 (File No. 001-33390). Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

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In December 2019, a coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, millions of individuals have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

demand for our products and services may decline, making it difficult to grow assets and income;

if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend,

our cyber security risks are increased as the result of an increase in the number of employees working remotely;

we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs;

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a)	Not applicable


(b)	Not applicable


(c)	The following table summarizes our stock repurchase activity during the quarter ended ~~June 30, 2019~~March 31, 2020.

Average Total Number of Maximum Number
Total Number Price Shares Purchased of Shares that May
of Shares Paid per as Part of Publicly Yet be Purchased
Period Purchased Share Announced Plans (1) Under the Plans
April 1, 2019 through April 30, 2019 82,000
$ 16.40
82,000
5,996,479
May 1, 2019 through May 31, 2019 7,900
16.58
7,900
5,988,579
June 1, 2019 through June 30, 2019 13,000
17.79
13,000
5,975,579
102,900
16.59
102,900



		Average		Total Number of	Maximum Number
	Total Number	Price		Shares Purchased	of Shares that May
	of Shares	Paid per		as Part of Publicly	Yet be Purchased
Period	Purchased	Share		Announced Plans (1)	Under the Plans
January 1, 2020 through January 31, 2020	—	$	—	—	5,892,079
February 1, 2020 through February 29, 2020	—	—		—	5,892,079
March 1, 2020 through March 31, 2020	1,000	19.02		1,000	5,891,079
	1,000	19.02		1,000

(1)

On October 27, 2016, the Company announced that the Board of Directors approved the Company’s eighth stock repurchase program, which authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock. Purchases under the program will be on an ongoing basis and subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses of capital, and our financial performance. Repurchased shares will be held as treasury stock and be available for general corporate use. The repurchase program commenced in January ~~2017.~~2017, and in response to COVID-19, was restricted significantly in March, 2020 and suspended in April, 2020.

On July 16, 2019, at a special meeting ~~of members~~ of Third Federal Savings, MHC, the members (depositors and certain loan customers of the Association) ~~of Third Federal Savings, MHC~~ voted to approve Third Federal Savings, MHC's proposed waiver of dividends, aggregating up to $1.10 per share, to be declared on the Company’s common stock during the four quarterly periods ending June 30, 2020. The members approved the waiver by casting 62% of the eligible votes in favor of the waiver. Of the votes cast, 97% were in favor of the proposal. Third Federal Savings, MHC is the 81% majority shareholder of the Company.

Following the receipt of the members’ approval at the July 16, 2019 special meeting, Third Federal Savings, MHC filed a notice with, and ~~a request for~~subsequently received the non-objection of the FRB-Cleveland for the proposed dividend waivers. ~~Both the non-objection from the FRB-Cleveland and the timing of the non-objection are unknown as of the filing date of this quarterly report.~~

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

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Item 6.

(a) Exhibits



31.1		~~Certificate~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section ~~305~~302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		The following unaudited financial statements from TFS Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019,~~March 31, 2020, filed on ~~August 7, 2019,~~May 15, 2020, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Consolidated Statements of Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Unaudited Interim Consolidated Financial Statements.



101.INS		Interactive datafile	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Interactive datafile	Inline XBRL Taxonomy Extension Schema Document

101.CAL		Interactive datafile	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Interactive datafile	Inline XBRL Taxonomy Extension Definition Linkbase Document
	��
101.LAB		Interactive datafile	Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Interactive datafile	Inline XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TFS Financial Corporation

Dated:	~~August 7, 2019~~May 15, 2020	/s/ Marc A. Stefanski
		Marc A. Stefanski
		Chairman of the Board, President and Chief Executive Officer

Dated:	~~August 7, 2019~~May 15, 2020	/s/ Paul J. Huml
		Paul J. Huml
		Chief Financial Officer

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		Three Months Ended June 30,						Nine Months Ended June 30,
	Location of Revenue	2019			2018			2019			2018
Net Gain/(Loss) from Sales of REO	Non-Interest Expense (1)	$	(333	)	$	(12	)	$	(359	)	$	(245	)
Deposit Account and Other Banking Income	Non-Interest Income	235			221			678			677
Total		$	(98	)	$	209		$	319		$	432