Overview

Our business strategy is to operate as a well-capitalized and profitable financial institution dedicated to providing exceptional personal service to our customers. We cannot assure you that we will successfully implement our business strategy.

Since being organized in 1938, we grew to become, prior to 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 some Fun." Our values are reflected in our pricing of loan and deposit products, as well as our Home Today program, as described below. Our values are further reflected in the Broadway Redevelopment Initiative (a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office is located) and the education programs we have established and/or supported. We intend to continue to support our customers.

The financial services industry continues to suffer high volatility and adverse financial conditions. Regionally high unemployment, widespread sub-prime mortgage lending, slumping residential real estate values, illiquid capital and credit markets, and a general lack of confidence in the financial service sector of the economy as a result of recent bank failures present challenges for us.

More than 85% of our assets consist of residential real estate loans and equity loans and lines of credit, the overwhelming majority of which were originated to borrowers in the States of Ohio and Florida. We have increased these assets by offering competitive interest rates and product features to customers in our marketplace. Part of this strategy involves programs such as our Lowest Rate Guarantee program (in which we will offer a better interest rate than a competitor's interest rate for certain types of loans or give the loan applicant cash after they close a loan with another lender at a lower interest rate) and our Home Today program (where we provide our standard interest rates and flexible credit terms to borrowers who would not normally qualify for such loans). We also offer loan products and features such as high loan-to-value loans that do not require private mortgage insurance, and adjustable-rate mortgage loans that can convert to fixed-rate loans at no cost to the borrower.

We cannot control many aspects of the markets in which we compete but we do control the products we offer. We neither originate nor purchase any sub-prime or option ARM loans. However, through its Home Today program, the Association originates loans with standard terms to low- and moderate-income home buyers who might not qualify for such loans. Borrowers in the Home Today program are not charged higher fees or interest rates than non-Home Today borrowers. These loans are not interest only or negative amortizing and contain no low initial payment features or adjustable interest rates. Because the Association applies less stringent underwriting and credit standards to these loans, loans originated under the Home Today program have greater credit risk than traditional residential real estate mortgage loans.

Historically, we have tried to provide our customers with attractive rates of return on our deposit products. Our deposit products typically offer rates that are competitive with the rates on similar products offered by other financial institutions. We intend to continue this practice. Our high-yield checking and high-yield savings accounts, which represented 25% of our total deposits as of September 30, 2008, have provided us with funds that reprice in a manner similar to our equity lines of credit, which has assisted us in managing interest rate risk.

We continue to focus on managing operating expenses. Our ratio of non-interest expense to average assets was 1.45% for the fiscal year ended September 30, 2008, which was 58 basis points less than our ratio of 2.03% for the fiscal year ended September 30, 2007, with virtually all (53 basis points) of the decrease attributable to our $55 million contribution to form the Third Federal Foundation in the fiscal year ended September 30, 2007. As of September 30, 2008, our average assets per full-time employee and our average deposits per full-time

employee were $11 million and $9 million, respectively, each of which is significantly higher than the averages for our peer group. Our average deposits held at our branch offices (an average of $223 million per branch office as of September 30, 2008) contribute to our expense management efforts by limiting the overhead costs of serving our deposit customers. We will continue our efforts to control operating expenses as we use the capital we received in the stock offering to grow our business.

We expect to expand our branch office network. Our initial focus is in Broward County, Florida, where we opened a full-service branch in Plantation in September 2008 and expect to add up to three new locations in early 2009, which will reduce/eliminate gaps in our footprint in that market area.

Critical Accounting Policies

Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical 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, mortgage servicing rights, income taxes, pension benefits and stock-based compensation.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. The amount of the allowance is based on significant estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. At September 30, 2008 the allowance for loan losses was $43.8 million or 0.47% of total loans. An increase or decrease of 10% in the allowance would result in a $4.4 million charge or credit, respectively to income before income taxes.

As a substantial percentage of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as a problem loan through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan. Specific allowances are established as required by this analysis. The general component is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the allowance for loan losses.

Actual loan losses may be significantly more than the allowances we have established which could have a material negative effect on our financial results.

Mortgage Servicing Rights. Mortgage servicing rights represent the present value of the estimated future servicing fees expected to be received pursuant to the right to service loans in our loan servicing portfolio. Mortgage servicing rights are recognized as assets for both purchased rights and for the allocated value of retained servicing rights on loans sold. The most critical accounting policy associated with mortgage servicing is the methodology used to determine the fair value of capitalized mortgage servicing rights. A number of estimates affect the capitalized value and include: (1) the mortgage loan prepayment speed assumption; (2) the estimated prospective cost expected to be incurred in connection with servicing the mortgage loans; and (3) the discount factor used to compute the present value of the mortgage servicing right. The mortgage loan prepayment speed assumption is significantly affected by interest rates. In general, during periods of falling interest rates, mortgage loans prepay faster and the value of our mortgage servicing assets decreases. Conversely, during periods of rising rates, the value of mortgage servicing rights generally increases due to slower rates of prepayments. The estimated prospective cost expected to be incurred in connection with servicing the mortgage loans is deducted from the retained (gross mortgage loan interest rate less amounts remitted to third parties-investor pass-thru rate, guarantee fee, mortgage insurance fee, etc.) servicing fee to determine the net servicing fee for purposes of capitalization computations. To the extent that prospective actual costs incurred to service the mortgage loans differ from the estimate, our future results will be adversely (or favorably) impacted. The discount factor selected to compute the present value of the servicing right reflects expected market place yield requirements.

The amount and timing of mortgage servicing rights amortization is adjusted monthly based on actual results. In addition, on a quarterly basis, we perform a valuation review of mortgage servicing rights for potential decreases in value. This quarterly valuation review entails applying current assumptions to the portfolio classified by interest rates and, secondarily, by prepayment characteristics.

Income Taxes. We consider accounting for income taxes a critical accounting policy due to the subjective nature of certain estimates that are involved in the calculation. We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. During the fiscal year ended September 30, 2008, we reduced the required deferred tax valuation allowance with respect to the expected carry forward portion of our $55 million charitable contribution expense incurred in conjunction with the formation of the Third Federal Foundation from $4.0 million to $3.2 million. Although we have determined a valuation allowance is not required for any other deferred tax assets, there is no guarantee that those assets, nor the portion of deferred tax asset associated with the carryforward of our charitable contribution not subject to a valuation allowance, 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, expected long-term rate of return on plan assets and rates of increase in compensation. 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.

Stock-based Compensation. We recognize the cost of associate and director services received in exchange for awards of equity instruments based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

We estimate the per share value of option grants using the Black-Scholes option-pricing model using assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate and expected

option term. These assumptions are subjective in nature, involve uncertainties, and therefore cannot be determined with precision.

The per share value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in expected dividend yield. For example, the per share fair value of options will generally increase as expected stock volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

Comparison of Financial Condition at September 30, 2008 and 2007

Total assets increased $508.4 million, or 5%, to $10.79 billion at September 30, 2008 from $10.28 billion at September 30, 2007. The growth in our assets was funded by a $498.0 million increase in borrowed funds along with a $119.9 million increase in deposits offset by a $142.0 million decrease in retained earnings.

Cash and cash equivalents decreased $697.3 million, or 84%, to $132.4 million at September 30, 2008 from $829.7 million at September 30, 2007, as we continued to redeploy our liquid assets into loan products that provide higher yields along with longer maturities.

Investment securities available for sale decreased $25.6 million, or 45%, to $31.1 million at September 30, 2008 from $56.7 million at September 30, 2007 as a result of normal principal repayments. No purchases of investment securities available for sale occurred in the current fiscal year. Investment securities held to maturity decreased $6.1 million, or less than 1% to $817.8 million from $823.8 million. Normal principal repayments and maturities more than offset purchases during the current fiscal year of $229.5 million. There were no sales of investment securities in the current fiscal year.

Loans, net, comprised primarily of mortgage loans held for investment increased $1.14 billion, or 14% to $9.21 billion at September 30, 2008 from $8.07 billion at September 30, 2007. This increase is attributed to the decision to retain more of our mortgage loan originations in our owned loan portfolio and thereby redeploying cash and cash equivalents into higher yielding assets and further utilizing the capital raised in the initial public stock offering to fund growth.

Our portfolio of real estate owned increased $4.2 million, or 42%, to $14.1 million at September 30, 2008, from $9.9 million at September 30, 2007. While the balance of real estate owned continues to comprise less than 0.2% of both our $10.79 billion of total assets as well as our $9.21 billion loan portfolio, the increase is nevertheless indicative of the current challenging economic environment and its negative impact on the residential housing market, which has been evidenced by increases in the balances of non-performing loans and loan charge-offs. Foreclosed properties are recorded at the lower of carrying value or fair value with charge-offs, if any, charged to the allowance for loan losses upon transfer to real estate owned. Fair value is monitored quarterly and any subsequent decline in fair value of real estate owned is recorded as a loss and reported in other non-interest expense. If unemployment in Ohio continues to rise in the future we expect the current high level of foreclosures will continue. As a result, it is possible the balance of real estate owned will increase.

Deposits increased $119.9 million, or 1%, to $8.26 billion at September 30, 2008 from $8.14 billion at September 30, 2007. The increase in deposits was the result of a $193.3 million increase in high-yield savings accounts (a subcategory of our savings accounts) along with a $282.7 million increase in certificates of deposit, offset by a $334.1 million decrease in our high yield-checking accounts combined with declines in other deposit products (other savings accounts and other NOW accounts) in the current fiscal year. Our high-yield savings account, the highest tier of which provides a competitive marketplace yield, was redesigned and actively marketed beginning in early March 2007. We have focused on promoting the high-yield savings accounts as well

as high-yield checking accounts as we believe that these types of deposit products provide a stable source of funds. In addition, our high-yield checking and high-yield savings accounts are expected to reprice in a manner similar to our equity loan products, and therefore assist us in managing interest rate risk.

The $498.0 million increase in Federal Home Loan Bank advances can be attributed to a cash position in which we are a borrower. That transition to the status of a borrower primarily reflected the growth in the amount of mortgage loans that we held in our portfolio which: (1) increased $1.14 billion; (2) absorbed $0.70 billion of our balance of cash and cash equivalents; and (3) was only partially funded by our $0.12 billion increase in savings deposits. We had no borrowed funds at the end of fiscal year 2007.

Borrowers' advances for insurance and taxes increased $8.0 million, or 20%, to $48.4 million at September 30, 2008 from $40.5 million at September 30, 2007. This increase can be attributed to the real estate taxes which are collected from borrowers and held until they are remitted to the appropriate taxing agencies.

The $2.8 million increase in principal, interest and related escrows owed on loans serviced, to $80.7 million at September 30, 2008 from $77.9 million at September 30, 2007, is related to the timing of when payments have been collected from borrowers for loans we service for other investors and when those funds are remitted to the investors and to the appropriate taxing agencies. This increase is the result of a $5.3 million increase in the retained tax payments collected from borrowers offset by a decrease of $2.5 million of principal and interest.

Accrued expenses and other liabilities increased $22.3 million to $54.6 million at September 30, 2008 from $32.2 million at September 30, 2007. This change reflects (1) the in-transit status of $7.4 million of real estate tax payments that have been collected from borrowers and are being remitted to various taxing agencies, (2) a $6.6 million payable related to the repurchase of common stock,
(3) a $3.5 million increase in deferred compensation and accrued retirement and pension and (4) a $3.3 million increase in loss reserves at our subsidiary.

Shareholders' equity decreased $142.5 million, to $1.84 billion at September 30, 2008 from $1.99 billion at September 30, 2007. This reflects $54.5 million of net income during the current fiscal year reduced by $192.7 million of repurchases of outstanding common stock and $13.8 million in dividends paid on our shares of common stock (other than the shares held by Third Federal Savings, MHC and unallocated ESOP shares) in the current fiscal year. The remainder reflects adjustments related to the allocation of shares of our common stock related to the ESOP and adjustments to our accumulated other comprehensive loss attributable primarily to the change in our pension obligation.

Analysis of Net Interest Income

Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the rates earned on such assets and paid on such liabilities.

Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the fiscal years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances for the current fiscal year are daily average balances while the two prior fiscal year average balances are monthly average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

                                                                             For the Fiscal Years Ended September 30,
                                                      2008                                      2007                                     2006
                                                       Interest                                 Interest                                 Interest
                                        Average         Income/      Yield/       Average        Income/      Yield/       Average        Income/      Yield/
                                        Balance         Expense       Cost        Balance        Expense       Cost        Balance        Expense       Cost
                                                                                      (Dollars in thousands)
Interest-earning assets:
Federal funds sold                    $    386,892     $  14,485       3.74 %   $   736,711     $  38,352       5.21 %   $    11,064     $     579       5.23 %
Other interest-bearing cash
equivalents                                 51,606         1,797       3.48 %        20,795         1,087       5.23 %        21,149           245       1.16 %
Investment securities                       37,925         1,333       3.51 %        54,365         2,191       4.03 %        40,370         1,516       3.76 %
Mortgage-backed securities                 883,795        43,635       4.94 %       429,244        23,161       5.40 %       112,543         5,306       4.71 %
Loans                                    8,706,421       486,940       5.59 %     7,775,810       469,755       6.04 %     8,056,105       474,100       5.88 %
Federal Home Loan Bank stock                34,575         1,993       5.76 %        52,334         3,179       6.07 %        70,739         4,058       5.74 %

Total interest-earning assets           10,101,214       550,183       5.45 %     9,069,259       537,725       5.93 %     8,311,970       485,804       5.84 %

Noninterest-earning assets                 344,725                                  332,323                                  388,936

Total assets                          $ 10,445,939                              $ 9,401,582                              $ 8,700,906

Interest-bearing liabilities:
NOW accounts                          $  1,283,387        31,231       2.43 %   $ 1,621,548        66,221       4.08 %   $ 1,465,382        52,051       3.55 %
Savings & subscription proceeds          1,261,396        37,571       2.98 %       649,414        17,605       2.71 %       380,876         3,545       0.93 %
Certificates of deposit                  5,638,716       259,997       4.61 %     5,495,449       259,685       4.73 %     5,360,232       219,595       4.10 %
Federal Home Loan Bank advances             70,218         1,522       2.17 %        20,274         1,012       4.99 %       341,759        13,946       4.08 %

Total interest-bearing liabilities       8,253,717       330,321       4.00 %     7,786,685       344,523       4.42 %     7,548,249       289,137       3.83 %

Noninterest-bearing liabilities            201,287                                  156,930                                  150,480

Total liabilities                        8,455,004                                7,943,615                                7,698,729
Shareholders' equity                     1,990,935                                1,457,967                                1,002,177

Total liabilities and Shareholders'
equity                                $ 10,445,939                              $ 9,401,582                              $ 8,700,906

Net interest income                                    $ 219,862                                $ 193,202                                $ 196,667

Interest rate spread(1)                                                1.45 %                                   1.51 %                                   2.01 %

Net interest-earning assets(2)        $  1,847,497                              $ 1,282,574                              $   763,721

Net interest margin(3)                                      2.18 %                                   2.13 %                                   2.37 %

Average interest-earning assets to
average interest-bearing
liabilities                                 122.38 %                                 116.47 %                                 110.12 %

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

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

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

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the fiscal years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

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