FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community Bank (the “Bank”).

Executive Summary

New York Community Bancorp, Inc. is the holding company for New York Community Bank, with 237 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona. At December 31, 2021, we had total assets of $59.5 billion, including total loans of $45.7 billion, total deposits of $35.1 billion, and total stockholders’ equity of $7.0 billion.

Chartered in the State of New York, the Bank is subject to regulation by the FDIC, the CFPB, and the NYSDFS. In addition, the holding company is subject to regulation by the FRB, the SEC, and to the requirements of the NYSE, where shares of our common stock are traded under the symbol “NYCB” and shares of our preferred stock trade under the symbol “NYCB PA.” As a publicly traded company, our mission is to provide our stockholders with a solid return on their investment by producing a strong financial performance, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of their shares.

For the twelve months ended December 31, 2021, net income was $596 million, an increase of $85 million or 17% compared to the $511 million the Company reported for the twelve months ended December 31, 2020. Net income available to common stockholders for the twelve months ended December 31, 2021 was $563 million, also up $85 million and 18% compared to the twelve months ended December 31, 2020. On a per share basis, this translates into diluted earnings per share of $1.20 in full-year 2021, up 18% compared to the $1.02 we reported in full-year 2020. In terms of profitability, our full-year 2021 results reflect a return on average assets of 1.04% compared to 0.94% in full-year 2020 and a return on average common stockholders' equity of 8.75% versus 7.71%.

The key trends during 2021 were:

Strong Year-Over-Year Growth In Our Loan Portfolio

At December 31, 2021, total loans and leases held for investment were $46 billion, up $2.9 billion or 7% compared to December 31, 2020. The majority of this growth took place during the fourth quarter of the year, as total loans and leases held for investment increased $2.1 billion compared to September 30, 2021. Both the year-over-year and linked-quarter increase were driven by our multi-family and specialty finance portfolios, offset by modest declines in the CRE portfolio.

At year-end 2021, multi-family loans increased $2.4 billion or 7% compared to year-end 2020 with most of this growth occurring in the fourth quarter. Multi-family loans grew $1.8 billion during the fourth quarter of 2021 compared to the third quarter of 2021. The growth in the multi-family portfolio was driven by increased activity on the part of both existing and new borrowers prompted by the expectation of higher interest rates in 2022, a strong rebound in property transactions, and the Company's ability to service and meet our borrowers' needs.

The specialty finance portfolio totaled $3.5 billion at December 31, 2021, up $451 million or 15% compared to December 31, 2020 and up $337 million compared to September 30, 2021. The increase in specialty finance loans was the result of increased borrowers demand due to improved economic activity.

Our Deposit Base Continued to Show Solid Growth

Total deposits at December 31, 2021 were $35.1 billion, up $2.6 billion or 8% compared to December 31, 2020 and increased $438 million compared to September 30, 2021. Core deposits (total deposits excluding CDs) increased to $26.6 billion at year-end 2021, up $4.5 billion or 20% compared to year-end 2020 and $738 million compared to the third quarter of 2021.

44

The year-over-year growth was driven by higher levels of non-interest bearing accounts and savings accounts. Non-interest bearing accounts at December 31, 2021 totaled $4.5 billion, up $1.5 billion or 47% compared to December 31, 2020. Savings accounts totaled $8.9 billion at December 31, 2021, increasing $2.5 billion or 39% compared to the balance at December 31, 2020. This was offset by a $1.9 billion or 18% decrease in CDs, which totaled $8.4 billion at December 31, 2021. CDs at year-end 2021 represented 24% of total deposits compared to 32% at year-end 2020.

Total deposits at year-end 2021 also reflect the impact of various initiatives we undertook during the year: the launch of our Banking as a Service business and an increase in loan-related deposits. Loan-related deposits increased $475 million or 14% to $4 billion at year-end 2021 compared to year-end 2020. Loan-related deposits include business operating accounts, which increased 37% or $318 million to $1.2 billion, representing 30% of overall loan-related deposits. Banking as a Service-related deposits totaled $1 billion in its first year.

Continued Expense Discipline

For the twelve months ended December 31, 2021, total non-interest expenses were $541 million, up $30 million or 6% compared to the twelve months ended December 31, 2020. Included in the 2021 full-year results were $23 million of merger expenses related to our pending acquisition of Flagstar Bancorp, Inc. compared to no such expenses during full-year 2020. Excluding such merger-related expenses, total operating expenses during full-year 2021 were $518 million, up $7 million or 1% compared to full-year 2020. As a result of the modest increase in operating expenses and higher net income, the efficiency ratio in 2021 declined to 38.36% compared to 44.02% in 2020.

Continued Growth in our Net Interest Income and NIM Expansion

During the twelve months ended December 31, 2021, both our net interest income and the NIM continued to improve. Net interest income for full-year 2021 increased $189 million or 17% to $1.3 billion compared to full-year 2020. The year-over-year increase was primarily due to lower interest expense. Interest expense fell $208 million or 34% to $400 million for the twelve months ended December 31, 2021. Included in net interest income for the twelve months ended December 31, 2021 was $79 million of prepayment income, up $25 million or 46% compared to the twelve months ended December 31, 2020.

Our NIM also improved during full-year 2021. For the twelve months ended December 31, 2021, the NIM expanded 23 bp to 2.47% compared to the twelve months ended December 31, 2020. The improvement was driven by a decline in our cost of funding, which declined 51 bps to 0.88% in full-year 2021. Prepayment income added 15 bps to this year's NIM compared to 11 bps last year.

Our Asset Quality Metrics Remain Strong

NPAs at December 31, 2021 were $41 million or seven bps of total assets, down $5 million or 11% compared to $46 million or eight bps of total assets at December 31, 2020. Total NPLs also decreased $5 million or 13% to $33 million or seven bps of total loans compared to $38 million or nine bps of total loans at December 31, 2020.

Our CARES Act-related deferrals also improved. At December 31, 2021, deferred loans paying interest-only and escrow totaled $479 million, down $2.1 billion or 81% compared to year-end 2020. As of year-end 2021, the Company had zero full-payment deferrals.

Critical Accounting Policies

The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying conditions. On a quarterly basis, management evaluates its estimates, particularly those that involve the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. The most significant judgments and estimates relate to the accounting policy for the Allowance for Credit Losses that is discussed in more detail below.

45

The judgments used by management in applying these critical accounting policies may be influenced by adverse changes in the economic environment, which may result in changes to future financial results.

Allowance for Credit Losses

The Company’s January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the allowance since December 31, 2019. ASU No. 2016-13 replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet exposures not accounted for as insurance and net investments in leases accounted for under ASC Topic 842. At December 31, 2019, the allowance for credit losses on loans and leases totaled $148 million. On January 1, 2020, the Company adopted the CECL methodology under ASU Topic 326 and recognized an increase in the allowance for credit losses on loans and leases of $2 million as a “Day 1” transition adjustment from changes in methodology, with a corresponding decrease in retained earnings. Separately, at December 31, 2019, the Company had an allowance for unfunded commitments of $1 million. Upon adoption, the Company recognized an increase in the allowance for unfunded commitments of $13 million as a “Day 1” transition adjustment with a corresponding decrease in retained earnings.

The allowance for credit losses on loans and leases is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the unpaid loan balance, net of deferred fees and expenses, and includes negative escrow. Subsequent changes (favorable and unfavorable) in expected credit losses are recognized immediately in net income as a credit loss expense or a reversal of credit loss expense. Management estimates the allowance by projecting and multiplying together the probability-of-default, loss-given-default and exposure-at-default depending on economic parameters for each month of the remaining contractual term. Economic parameters are developed using available information relating to past events, current conditions, and economic forecasts. The Company’s economic forecast period is 24 months, and afterwards reverts to a historical average loss rate on a straight line basis over a 12 month period. Historical credit experience provides the basis for the estimation of expected credit losses, with qualitative adjustments made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels and terms, as well as for changes in environmental conditions, such as changes in legislation, regulation, policies, administrative practices or other relevant factors. Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The contractual term excludes potential extensions or renewals. The methodology used in the estimation of the allowance for loan and lease losses, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Each quarter the Company reassesses the appropriateness of the economic forecasting period, the reversion period and historical mean at the portfolio segment level, considering any required adjustments for differences in underwriting standards, portfolio mix, and other relevant data shifts over time.

The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist. The portfolio segment represents the level at which a systematic methodology is applied to estimate credit losses. Management believes the products within each of the entity’s portfolio segments exhibit similar risk characteristics. Smaller pools of homogenous financing receivables with homogeneous risk characteristics were modeled using the methodology selected for the portfolio segment. The macroeconomic data used in the quantitative models are based on a reasonable and supportable forecast period of 24 months. The Company leverages economic projections including property market and prepayment forecasts from established independent third parties to inform its loss drivers in the forecast. Beyond this forecast period, the Company reverts to a historical average loss rate. This reversion to the historical average loss rate is performed on a straight-line basis over 12 months.

Loans that do not share risk characteristics are evaluated on an individual basis. These include loans that are in nonaccrual status with balances above management determined materiality thresholds depending on loan class and also loans that are designated as TDR or “reasonably expected TDR” (criticized, classified, or maturing loans that will have a modification processed within the next three months). In addition, all taxi medallion loans are individually evaluated. If a loan is determined to be collateral dependent, or meets the criteria to apply the collateral dependent practical expedient, expected credit losses are determined based on the fair value of the collateral at the reporting date, less costs to sell as appropriate.

46

The Company maintains an allowance for credit losses on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life. The Company examined historical credit conversion factor (“CCF”) trends to estimate utilization rates, and chose an appropriate mean CCF based on both management judgment and quantitative analysis. Quantitative analysis involved examination of CCFs over a range of fund-up windows (between 12 and 36 months) and comparison of the mean CCF for each fund-up window with management judgment determining whether the highest mean CCF across fund-up windows made business sense. The Company applies the same standards and estimated loss rates to the credit exposures as to the related class of loans.

When applying this critical accounting policy we incorporate several inputs and judgments that may be influenced by changes period to period. These include, but are not limited to changes in the economic environment and forecasts, changes in the credit profile and characteristics of the loan portfolio, and changes in prepayment assumptions which will result in provisions to or recoveries from the balance of the allowance for credit losses.

While changes to the economic environment forecasts, and portfolio characteristics will change from period to period, portfolio prepayments are an integral assumption in estimating the allowance for credit losses on our mortgage loan portfolio, are subject to estimation uncertainty and changes in this assumption could have a material impact to our estimation process. Prepayment assumptions are sensitive to interest rates and existing loan terms and determine the weighted average life of the mortgage loan portfolio. Excluding other factors, as the weighted average life of the portfolio increases or decreases, so will the required amount of the allowance for credit losses on mortgage loans. A 20% decrease in prepayment assumptions would lead to an increase in the required allowance for credit losses on mortgage loans of approximately 6%.

FINANCIAL CONDITION

Balance Sheet Summary

At December 31, 2021, total assets were $59.5 billion, up $3.2 billion or 6% compared to December 31, 2020 and up $1.6 billion compared to the third quarter of 2021. The growth compared to both periods was driven by high-single digit loan growth funded primarily through deposits and a fourth-quarter increase in the level of whole sale borrowings.

Total loans and leases held for investment of $45.7 billion increased $2.9 billion or 7% compared to December 31, 2020 and rose $2.1 billion compared to September 30, 2021. Both the year-over-year and linked-quarter was due to growth in both the multi-family and specialty finance portfolios, offset by modest declines in the CRE portfolio.

Total deposits for the full year were $35.1 billion, up $2.6 billion or 8% compared to last year and increased $438 million compared to the previous quarter. Core deposits (total deposits excluding CDs) increased to $26.6 billion of year-end 2021, up $4.5 billion or 20% compared to year-end 2020 and $738 million compared to the third quarter of 2021.

Borrowed funds totaled $16.6 billion of year-end 2021, up $478 million or 3% compared to year-end 2020. Given the strong loan growth during the fourth quarter of 2021, the Company utilized borrowings of all which were FHLB-NY advances to fund some of this growth. Accordingly, borrowed funds during the fourth quarter increased $1.1 billion compared to the third quarter of 2021.

Loans Held for Investment

The majority of the loans we produce are multi-family loans. Our production of multi-family loans began several decades ago in the five boroughs of New York City, where the majority of the rental units currently consist of rent-regulated apartments featuring below-market rents. In addition to multi-family loans, our loan portfolio contains a large number of CRE credits, most of which are secured by income-producing properties located in New York City and on Long Island.

47

In addition to multi-family loans and CRE loans, our specialty finance loans and leases have become an increasingly larger portion of our overall loan portfolio. The remainder of our portfolio includes smaller balances of C&I loan, one-to-four family loans, ADC loans, and other loans held for investment. The majority of our C&I loans consist of loans to small- and mid-size businesses.

In 2021, we originated $13.1 billion of loans, a $276 million or a 2% increase from the prior year. The higher level of originations was largely driven by a 17% increase in specialty finance originations.

Multi-Family Loans

Multi-family loans are our principal asset. The loans we produce are primarily secured by non-luxury residential apartment buildings in New York City that feature rent-regulated units and below-market rents—a market we refer to as our “primary lending niche.” Consistent with our emphasis on multi-family lending, multi-family loan originations represented $8.3 billion, or 63%, of the loans we produced for investment in 2021.

At December 31, 2021, multi-family loans represented $34.6 billion, or 76%, of total loans held for investment, reflecting a year-over-year increase of $2.4 billion, or 7%.

The majority of our multi-family loans were secured by rental apartment buildings.

At December 31, 2021, $22.1 billion or 64% of the Company’s total multi-family loan portfolio is secured by properties in New York State and, therefore, are subject to the new rent regulation laws. The weighted average LTV of the NYS rent regulated multi-family portfolio was 55.62% as of December 31, 2021, compared to a weighted average LTV of 59.29% for the entire multi-family loan portfolio at that date.

In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related documents.

While a percentage of our multi-family loans are ten-year fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread.

During the remaining years, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY, plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-or seven-year term. As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight.

Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed-rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. For example, a ten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.

Because prepayment penalties are recorded as interest income, they are reflected in the average yields on our loans and interest-earning assets, our net interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment income, as such income is only recorded when cash is received.

48

Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the cash flows produced by the properties. The process of producing such loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the expense incurred in sourcing such loans is substantially reduced.

Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been the comparative quality of the loans we produce. Reflecting the nature of the buildings securing our loans, our underwriting standards, and the generally conservative LTV ratios our multi-family loans feature at origination, a relatively small percentage of the multi-family loans that have transitioned to non-performing status have actually resulted in losses, even when the credit cycle has taken a downward turn.

We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service; the DSCR, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the property.

In addition to requiring a minimum DSCR of 120% on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally represent no more than 75% of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of 30 years. In addition, our multi-family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing basis.

Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, the limited number of losses we have recorded, even in adverse credit cycles, suggests that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, they have been more likely to retain their tenants in adverse economic times. In addition, we exclude any short-term property tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.

Commercial Real Estate Loans

At December 31, 2021, CRE loans represented $6.7 billion, or 15%, of total loans held for investment, reflecting a year-over-year decrease of $138 million or 2.0% compared to December 31, 2020.

CRE loans represented $893 million, or 7%, of the loans we originated in 2021, as compared to $958 million, or 7%, in the prior year.

The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. At December 31, 2021, 83.5% of our CRE loans were secured by properties in the metro New York City area, while properties in other parts of New York State accounted for 2.3% of the properties securing our CRE credits, while all other states accounted for 14.2%, combined.

49

The terms of our CRE loans are similar to the terms of our multi-family credits. While a small percentage of our CRE loans feature ten-year fixed-rate terms, they primarily feature a fixed rate of interest for the first five or seven years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through ten or eight through twelve, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.

Prepayment penalties apply to our CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. Our CRE loans tend to refinance within two to three years of origination, as reflected in the expected weighted average life of the CRE portfolio noted above.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130% and a maximum LTV of 65%. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents and/or leases. In addition, our CRE loans may contain an interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully amortizing basis.

Specialty Finance Loans and Leases

At December 31, 2021, specialty finance loans and leases totaled $3.5 billion or 8% of total loans held for investment, up $451 million or 15% compared to December 31, 2020.

We produce our specialty finance loans and leases through a subsidiary that is staffed by a group of industry veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned to them, by a select group of nationally recognized sources, and are generally made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide.

The specialty finance loans and leases we fund fall into three categories: asset-based lending, dealer floor-plan lending, and equipment loan and lease financing. Each of these credits is secured with a perfected first security interest in, or outright ownership of, the underlying collateral, and structured as senior debt or as a non-cancelable lease. As of December 31, 2021 NYCB Specialty Finance has $3.7 billion of loans outstanding versus $5.6 billion in loan commitments. Of the $5.6 billion in NYCB Specialty Finance commitments, 69% or $3.9 billion are structured as floating rate obligations which will benefit in a rising rate environment. All floating rate obligations are being transitioned from LIBOR to an appropriate LIBOR replacement index in accordance with the regulatory guidance provided around LIBOR cessation.

During 2021, the Company originated $3.2 billion of specialty finance loans and leases, representing 24% of total originations compared to $2.7 billion during 2020, representing 21% of total originations.

Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any of the loans or leases in this portfolio.

50

C&I Loans

In the twelve months ended December 31, 2021, C&I loans increased $132 million or 34% to $526 million, or 1% of total loans, and represented $536 million or 4% of the held for investment loans we originated.

In contrast to the loans produced by our specialty finance subsidiary, the C&I loans we produce are primarily made to small and mid-size businesses in the five boroughs of New York City and on Long Island. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.

A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

The interest rates on our C&I loans can be fixed or floating, with floating-rate loans being tied to prime or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of interest. The decision to require a floor on C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.

Acquisition, Development, and Construction Loans

At December 31, 2021, ADC loans represented $209 million, or 0.5%, of total loans held for investment, as compared to $90 million, or 0.2%, at the prior year-end. Originations of ADC loans totaled $119 million in 2021, up from $35 million at December 31, 2020.

Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the twelve months ended December 31, 2021 and 2020, we did not recover any losses against guarantees. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon completion of construction; the developer’s experience; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property.

When applicable, as a condition to closing an ADC loan, it is our practice to require that properties meet pre-sale or pre-lease requirements prior to funding.

One-to-Four Family Loans

At December 31, 2021, one-to-four family loans represented $160 million, or 0.3%, of total loans held for investment, as compared to $236 million, or 0.6%, at the prior year-end. These loan balances include certain mixed-use CRE loans with less than five residential units classified as one-to-four family loans. Other than these types of loans, we do not currently originate traditional one-to-four family loans.

Other Loans

At December 31, 2021, other loans totaled $6 million and consisted primarily of consumer loans, most of which were overdraft loans and loans to non-profit organizations. We currently do not offer home equity loans or lines of credit.

Lending Authority

The Board of Directors updated certain aspects of the Company's lending authority as detailed below. These changes were effective as of July 21, 2021.

51

Multi-family, CRE, ADC, and specialty finance loans less than or equal to $10 million and C&I loans less than or equal to $5 million are approved by the joint authority of lending officers. C&I loans in excess of $5 million and all multi-family, CRE, ADC, and specialty finance loans in excess of $10 million are required to be presented to the Management Credit Committee for approval. Multi-family, CRE, ADC, and specialty finance loans in excess of $50 million and C&I loans in excess of $10 million are also required to be presented to the Board Credit Committee of the Board, so that the Committee can review the loan’s associated risks and approve the credit. The Board Credit Committee has authority to direct changes in lending practices as they deem necessary or appropriate in order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.

In addition, all loans of $50 million or more originated by the Bank continue to be reported to the Board of Directors.

In 2021, 251 loans greater than $10 million were originated by the Bank, with an aggregate loan balance of $7.0 billion at origination. In 2020, by comparison, 252 loans greater than $10 million were originated, with an aggregate loan balance at origination of $7.5 billion.

At December 31, 2021 and 2020, the largest mortgage loan in our portfolio was a $329 million multi-family loan, which is collateralized by six properties located in Brooklyn, New York. As of the date of this report, the loan has been current since origination.

Geographical Analysis of the Portfolio of Loans Held for Investment

The following table presents a geographical analysis of the multi-family and CRE loans in our held-for-investment loan portfolio at December 31, 2021:

At December 31, 2021, the majority of our other loans held for investment, excluding specialty finance loans and leases, were secured by properties and/or businesses located in Metro New York.

52

Loan Maturity and Repricing Analysis: Loans Held for Investment

The following table sets forth the maturity or period to repricing of our portfolio of loans held for investment at December 31, 2021. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to change.

The following table sets forth, as of December 31, 2021, the dollar amount of all loans held for investment that are due after December 31, 2022, and indicates whether such loans have fixed or adjustable rates of interest:

Loans Held for Sale

At December 31, 2021, loans held for sale were zero compared to $117 million at December 31, 2020. The balance at year-end 2020 consisted entirely of Paycheck Protection Program loans. During 2020 and the first half of 2021, the Company was a participant in the Small Business Administration Paycheck Protection Program, a loan program established to help consumers and small businesses during the COVID-19 pandemic. During the second quarter of 2021, the Company transferred the $94 million of PPP loans remaining on the balance sheet that were held for sale to the held for investment C&I portfolio.

53

Loan Origination Analysis

The following table summarizes our production of loans held for investment in the years ended December 31, 2021 and 2020:

Loan Portfolio Analysis

The following table summarizes the composition of our loan portfolio at each year-end for the three years ended December 31, 2021:

54

Asset Quality

Loans Held for Investment and Repossessed Assets

Total NPAs were $41 million or 0.07% of total assets at December 31, 2021, down 11% or $5 million compared to $46 million or 0.08% of total assets at December 31, 2020. Total non-accrual mortgage loans increased $9 million to $27 million, while other non-accrual loans, consisting mainly of taxi medallion-related loans, declined $14 million to $6 million compared to $20 million at December 31, 2020. Included in these amounts were non-accrual taxi medallion-related loans of $6 million and $19 million, respectively.

Repossessed assets totaled $8 million, unchanged compared to the balance at December 31, 2020. As is the case with other non-accrual loans, the majority of the Company’s repossessed assets consist of taxi medallions. Taxi medallions represented $5 million of total repossessed assets at December 31, 2021 compared to $7 million at December 31, 2020.

The following table presents our non-performing loans by loan type and the changes in the respective balances from December 31, 2020 to December 31, 2021:

(1)
Includes $6 million and $19 million of non-accrual taxi medallion-related loans at December 31, 2021 and 2020, respectively.

The following table sets forth the changes in non-performing loans over the twelve months ended December 31, 2021:

A loan generally is classified as a “non-accrual” loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At December 31, 2021 and 2020, all of our non-performing loans were non-accrual loans. A loan is generally returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.

55

We monitor non-accrual loans both within and beyond our primary lending area in the same manner. Monitoring loans generally involves inspecting and re-appraising the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and/or retained legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status and advancing funds as needed; and appointing a receiver, whenever possible, to collect rents, manage the operations, provide information, and maintain the collateral properties.

It is our policy to order updated appraisals for all non-performing loans, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is 90 days or more past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan. We do not analyze current LTVs on a portfolio-wide basis.

Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Mortgage Committee, the Credit Committee, and the Board of Directors of the Bank, as applicable. In accordance with our charge-off policy, collateral-dependent non-performing loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.

Properties and other assets that are acquired through foreclosure are classified as repossessed assets, and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property. Subsequent declines in the fair value of the assets are charged to earnings and are included in non-interest expense. It is our policy to require an appraisal and an environmental assessment of properties classified as OREO before foreclosure, and to re-appraise the properties on an as-needed basis, and not less than annually, until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.

To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated by the property to determine its economic value using the “income approach,” and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.

The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval, with a member of the Mortgage or Credit Committee participating in inspections on multi-family loans to be originated in excess of $7.5 million, and a member of the Mortgage or Credit Committee participating in inspections on CRE loans to be originated in excess of $4.0 million. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers and staff, perform appraisals on collateral properties. In many cases, a second independent appraisal review is performed.

In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City, where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be charged on certain apartments are typically restricted under certain rent-control or rent-stabilization laws. As a result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic adversity.

Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of our non-performing multi-family loans have resulted in losses over time.

To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require minimum DSCRs of 120% for multi-family loans and 130% for CRE loans. Although we typically lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties,

56

the average LTVs of such credits at origination were below those amounts at December 31, 2021. Exceptions to these LTV limitations are minimal and are reviewed on a case-by-case basis.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a CRE loan also depends on the borrower’s credit history, profitability, and expertise in property management. Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those applicable to our multi-family credits, the percentage of our non-performing CRE loans that have resulted in losses has been comparatively small over time.

Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated. Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit; in many cases, they reduce the likelihood of the borrower “walking away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status. Furthermore, in the case of multi-family loans, the cash flows generated by the properties are generally below-market and have significant value.

With regard to ADC loans, we typically lend up to 75% of the estimated as-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%. With respect to commercial construction loans, we typically lend up to 65% of the estimated as-completed market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.

To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancellable lease. To further minimize the risk involved in specialty finance lending and leasing, we re-underwrite each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.

Other C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly, personal guarantees are also a normal requirement for other C&I loans.

The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment, and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.

57

The following table presents our loans 30 to 89 days past due by loan type and the changes in the respective balances from December 31, 2021 to December 31, 2020:

Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as either non-performing or as an accruing TDR, then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.

While we strive to originate loans that will perform fully, adverse economic and market conditions, among other factors, can negatively impact a borrower’s ability to repay. Historically, our level of charge-offs has been relatively low in downward credit cycles, even when the volume of non-performing loans has increased. In 2021, we recorded a net recovery of $2 million, as compared to net charge-offs of $19 million in the previous year. Taxi medallion-related net charge-offs accounted for $2 million of this year's amount compared to $12 million of last year's amount.

Partially reflecting the net recoveries noted above, and the provision of $3 million for the allowance for loan losses, the allowance for losses on loans increased $5 million, equaling $199 million at December 31, 2021 from $194 million at December 31, 2020. Reflecting the decrease in non-performing loans cited earlier in this discussion, the allowance for credit losses represented 611.79% of non-performing loans at December 31, 2021, as compared to 513.55% at the prior year-end.

Based upon all relevant and available information at the end of this December, management believes that the allowance for losses on loans was appropriate at that date.

The following table presents information about our five largest non-performing loans at December 31, 2021:

(1)
There are no funds available for further advances on the five largest non-performing loans.

(2)
Loan is a Troubled Debt Restructure.

58

The following is a description of the five loans identified in the preceding table.

No. 1 - The borrower is an owner of real estate and is based in New York. The loan is collateralized by an 8,566 square foot, retail condo unit located in New York, New York.

No. 2 - The borrower is an owner of real estate and is based in New York. The loan is collateralized by a 6 story plus basement walk-up, mixed use building, containing 50 residential units and 5 commercial units, located in New York, NY.

No. 3 - The borrower is an owner of real estate and is based in New Florida. The loan is collateralized by retail property containing 8,490 square feet of gross leasable area, located in Miami, Fl.

No. 4 - The borrower is an owner of real estate and is based in New York. This loan is collateralized by one three (3) story walk-up building containing 6 residential units, 1 four (4) story walk-up building containing 8 residential units and 1 four (4) story mixed use building containing 6 residential units and 1 commercial unit located in Brooklyn, New York.

No. 5 - The borrower is an owner of real estate and is based in New York. This loan is collateralized by a 19,508 square foot commercial building in Woodhaven, New York.

Troubled Debt Restructurings

In an effort to proactively manage delinquent loans, we have selectively extended such concessions as rate reductions and extensions of maturity dates, as well as forbearance agreements, to certain borrowers who have experienced financial difficulty. In accordance with GAAP, we are required to account for such loan modifications or restructurings as TDRs.

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve management’s judgment regarding the likelihood that the concession will result in the maximum recovery for the Company.

Loans modified as TDRs are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured. This generally requires that the borrower demonstrate performance according to the restructured terms for at least six consecutive months.

At December 31, 2021, loans modified as TDRs totaled $29 million, including accruing loans of $16 million and non-accrual loans of $13 million. At the prior year-end, loans modified as TDRs totaled $34 million, including accruing loans of $15 million and non-accrual loans of $19 million.

Analysis of Troubled Debt Restructurings

The following table sets forth the changes in our TDRs over the twelve months ended December 31, 2021:

Loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $29 million and $18 million, respectively, at December 31, 2021 and 2020; loans in connection with which forbearance agreements were reached amounted to $0 million and $16 million at the respective dates.

59

Based on the number of loans performing in accordance with their revised terms, our success rate for restructured CRE loans was 100%; for one-to-four loans it was 0% at the end of this December; our success rate for other loans was 15%, at that date.

On a limited basis, we may provide additional credit to a borrower after the loan has been placed on non-accrual status or modified as a TDR if, in management’s judgment, the value of the property after the additional loan funding is greater than the initial value of the property plus the additional loan funding amount. In 2021, no such additional credit was provided. Furthermore, the terms of our restructured loans typically would not restrict us from cancelling outstanding commitments for other credit facilities to a borrower in the event of non-payment of a restructured loan.

For additional information about our TDRs at December 31, 2021 and 2020, see the discussion of “Asset Quality” in Note 5, “Loans and Leases” in Item 8, “Financial Statements and Supplementary Data.”

Except for the non-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans at December 31, 2021 that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and that would have resulted in such disclosure if that were the case.

Loan Deferrals

Under U.S. GAAP, banks are required to assess modifications to a loan’s terms for potential classification as a TDR. A loan to a borrower experiencing financial difficulty is classified as a TDR when a lender grants a concession that it would otherwise not consider, such as a payment deferral or interest concession. In order to encourage banks to work with impacted borrowers, the CARES Act and bank regulators have provided relief from TDR accounting. The main benefits of TDR relief include a capital benefit in the form of reduced risk-weighted assets, as TDRs are more heavily risk-weighted for capital purposes; aging of the loans is frozen, i.e., they will continue to be reported in the same delinquency bucket they were in at the time of modification; and the loans are generally not reported as non-accrual during the modification period.

Under the CARES Act, the Company made the election to deem that loan modifications do not result in TDRs if they are (1) related to the novel coronavirus disease (“COVID-19”); (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the COVID-19 national emergency declaration or (B) December 31, 2020. In December 2020, Congress amended the CARES Act through the Consolidated Appropriations Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending TDR relief under the CARES Act. The CARES Act expired on December 31, 2021.

During the second quarter of 2020, the Company implemented various loan modification programs with some of its borrowers, in accordance with the CARES Act and interagency regulatory guidance. These modifications were primarily full payment deferrals for an initial six month period, with the ability to extend again at the end of the deferral period, at the Bank’s discretion. Most of these deferrals were entered into during April and May, and were therefore, they were eligible to come off of their deferral period beginning in the fourth quarter of 2020, and the remaining were eligible to come off their deferral during the first quarter of 2021. Accordingly, at December 31, 2021, 100% of the Company's full-payment deferrals had returned to payment status.

In addition to the full-payment deferrals, the Company entered into certain modifications whereby the borrowers are paying interest and escrow only. At December 31, 2021, principal deferrals totaled $479 million, down $2.1 billion or 81% compared to $2.5 billion at December 31, 2020 and down $435 million or 48% compared to $914 million at September 30, 2021.

60

The following table reflects as of December 31, 2021, the aggregate amount of principal deferrals by various categories:

Additionally, the allowance for credit losses on accrued interest receivable on loans, including loans in the deferral program, was $1.0 million, as of December 31, 2021.

Asset Quality Analysis

The following table presents information regarding our asset quality measures at each year-end in the three years ended December 31, 2021.

61

The following table presents information on the Company's net charge-offs as compared to average loans outstanding for the three years ended December 31, 2021:

The following table sets forth the allocation of the consolidated allowance for losses on loans, at each year-end for the three years ended December 31, 2021:

Each of the preceding allocations was based upon an estimate of various factors, as discussed in “Critical Accounting Policies” earlier in this report, and a different allocation methodology may be deemed to be more appropriate in the future. In addition, it should be noted that the portion of the allowance for losses on loans allocated to each loan category does not represent the total amount available to absorb losses that may occur within that category, since the total loan loss allowance is available for the entire loan portfolio.

62

The following table presents a geographical analysis of our non-performing loans at December 31, 2021:

Securities

Total securities were $5.8 billion, or 10%, of total assets at December 31, 2021, unchanged compared to December 31, 2020. At December 31, 2021 and December 31, 2020, all of our securities were designated as “Available-for-Sale”. At December 31, 2021, 26% of the securities portfolio was tied to floating rates, 25% of which are currently floating.

At December 31, 2021, available-for-sale securities had an estimated weighted average life of 6.9 years. Included in the year-end amount were mortgage-related securities of $2.8 billion and other debt securities of $3.0 billion.

At the prior year-end, available-for-sale securities were $5.8 billion, and had an estimated weighted average life of 4.9 years. Mortgage-related securities accounted for $3.0 billion of the year-end balance, with other debt securities accounting for the remaining $2.8 billion.

The investment policies of the Company and the Bank are established by the Board of Directors and implemented by the ALCO. ALCO meets monthly or on an as-needed basis to review the portfolios and specific capital market transactions. In addition, the securities portfolios and investment activities are reviewed monthly by the Board of Directors. Furthermore, the policy governing the investment portfolio activities is reviewed at least annually by the ALCO and ratified by the Board of Directors.

Our general investment strategy is to purchase liquid investments with various maturities to ensure that our overall interest rate risk position stays within the required limits of our investment policies. We generally limit our investments to GSE obligations and U.S. Treasury obligations. At December 31, 2021 and 2020, GSE obligations and U.S. Treasury obligations together represented 83% and 82% of total securities, respectively. The remainder of the portfolio at those dates was comprised of corporate bonds, foreign notes, capital trust notes, and municipal obligations.

The following table summarizes the weighted average yields of debt securities for the maturities indicated at December 31, 2021:

(1)
The weighted average yields are calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values and are not presented on a tax-equivalent basis.

(2)
Includes corporate bonds, capital trust notes, foreign notes, and asset-backed securities.

63

Federal Home Loan Bank Stock

As a member of the FHLB-NY, the Bank is required to acquire and hold shares of its capital stock. At December 31, 2021, the Bank held FHLB-NY stock in the amount of $734 million. At December 31, 2020, the Bank held FHLB-NY stock in the amount of $714 million. Dividends from the FHLB-NY to the Bank totaled $32 million and $36 million, respectively, in 2021 and 2020.

Bank-Owned Life Insurance

BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in “Non-interest income” in the Consolidated Statements of Income and Comprehensive Income. Reflecting an increase in the cash surrender value of the underlying policies, our investment in BOLI rose $20 million year-over-year to $1.2 billion at December 31, 2021.

Goodwill

We record goodwill in our consolidated statements of condition in connection with certain of our business combinations. Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed.

For more information about the Company’s goodwill, see the discussion of “Summary of Significant Accounting Policies” in the Footnote 2 of these consolidated statements.

Sources of Funds

The Parent Company has four primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Parent Company by the Bank; capital raised through the issuance of securities; funding raised through the issuance of debt instruments; and repayments of, and income from, investment securities.

On a consolidated basis, our funding primarily stems from a combination of the following sources: retail, institutional, and brokered deposits; borrowed funds, primarily in the form of wholesale borrowings; cash flows generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of securities.

In 2021, loan repayments and sales generated cash flows of $10.4 billion, as compared to $11.9 billion in 2020. Cash flows from repayments accounted for $10.4 billion and $11.9 billion of the respective totals, and cash flows from sales accounted for $37 million and $3 million in 2021 and 2020, respectively.

In 2021, cash flows from the repayment securities totaled $1.7 billion, while the purchase of securities amounted to $1.8 billion for the year. By comparison, cash flows from the repayment and sale of securities totaled $2.1 billion and $484 million, respectively, in 2020, and were offset by the purchase of securities totaling $2.5 billion.

In 2021, the cash flows from loans and securities were primarily deployed into the production of multi-family loans held for investment, as well as held-for-investment CRE loans and specialty finance loans and leases.

Deposits

Total deposits increased $2.6 billion or 8% on a year-over-year basis to $35.1 billion. Deposit growth was driven by growth in savings accounts and non-interest bearing accounts and offset by a decline in CDs. Compared to the fourth quarter of last year, CDs declined $1.9 billion or 18% to $8.4 billion, while savings accounts increased $2.5 billion or 39% to $8.9 billion and interest bearing checking and money market accounts increased over the same timeframe by $599 million or 5% to $13.2 billion. Non-interest-bearing accounts rose $1.5 billion or 47% to $4.5 billion at December 31, 2021.

64

While the vast majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or through business combinations), institutional deposits and municipal deposits are also part of our deposit mix. Retail deposits rose $2.4 billion year-over-year to $27.2 billion, while institutional deposits rose $161 million to $1.4 billion at year-end. Municipal deposits represented $751 million of total deposits at the end of this December, a $259 million decrease from the balance at December 31, 2020.

Included in total deposits at year-end 2021 were $4 billion in loan-related deposits compared to $3.5 billion at year-end 2020. Total deposits at December 31, 2021 also included $1 billion of deposits related to our Banking as a Service initiative, which was launched earlier in 2021.

Depending on their availability and pricing relative to other funding sources, we also include brokered deposits in our deposit mix. Brokered deposits accounted for $5.7 billion of our deposits at the end of this December, compared to $5.3 billion at December 31, 2020. Brokered money market accounts represented $2.9 billion of total brokered deposits at December 31, 2021 and $3.0 billion at December 31, 2020; brokered interest-bearing checking accounts represented $1.6 billion and $1.3 billion, respectively, at the corresponding dates. At December 31, 2021, we had $1.2 billion of brokered CDs, compared to $1.0 billion at December 31, 2020.

The following table indicates the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity as of December 31, 2021.

Our uninsured deposits, on an unconsolidated basis, are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $10.1 billion and $11.3 billion at December 31, 2021 and 2020, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Borrowed Funds

The majority of our borrowed funds are wholesale borrowings and consist of FHLB-NY advances, repurchase agreements, and federal funds purchased, and, to a lesser extent, junior subordinated debentures and subordinated notes. At December 31, 2021, total borrowed funds increased $478 million or 3% to $16.6 billion compared to the balance at December 31, 2020. The bulk of the year-over-year increase was driven by an increase in the balance of wholesale borrowings.

Wholesale Borrowings

Wholesale borrowings totaled $15.9 billion and $15.4 billion, respectively, at December 31, 2021 and 2020, representing 27% of total assets at both dates. FHLB-NY advances accounted for $15.1 billion of the year-end 2021 balance, as compared to $14.6 billion at the prior year-end. Pursuant to blanket collateral agreements with the Bank, our FHLB-NY advances and overnight advances are secured by pledges of certain eligible collateral in the form of loans and securities. (For more information regarding our FHLB-NY advances, see the discussion that appears earlier in this report regarding our membership and our ownership of stock in the FHLB-NY.) At December 31, 2021 and 2020, $8.3 billion of our wholesale borrowings had callable features.

65

Also included in wholesale borrowings were repurchase agreements of $800.0 million at December 31, 2021 and 2020. Repurchase agreements are contracts for the sale of securities owned or borrowed by the Bank with an agreement to repurchase those securities at agreed-upon prices and dates.

Our repurchase agreements are primarily collateralized by GSE obligations, and may be entered into with the FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing internal financial review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for each of the brokerage firms we use.

We had no federal funds purchased at both December 31, 2021 and 2020.

Junior Subordinated Debentures

Junior subordinated debentures totaled $361 million at December 31, 2021, slightly higher than the balance at the prior year-end reflecting discount accretion.

Subordinated Notes

At December 31, 2021, the balance of subordinated notes was $296 million, relatively unchanged from December 31, 2020.

See Note 9, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, our junior subordinated debentures and subordinated debt.

Liquidity, Contractual Obligations and Off-Balance Sheet Commitments, and Capital Position

Liquidity

We manage our liquidity to ensure that our cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.

We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $2.2 billion and $1.9 billion, respectively, at December 31, 2021 and 2020. As in the past, our loan and securities portfolios provided meaningful liquidity in 2021, with cash flows from the repayment and sale of loans totaling $10.4 billion and cash flows from the repayment and sale of securities totaling $1.7 billion.

Additional liquidity stems from deposits and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. In addition, we have access to the Bank’s approved lines of credit with various counterparties, including the FHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the amount of available securities that may be pledged to collateralize our borrowings. At December 31, 2021, our available borrowing capacity with the FHLB-NY was $8.4 billion. In addition, the Bank had available-for-sale securities of $5.8 billion, of which, $4.6 billion is unpledged.

Furthermore, the Bank has agreements with the FRB-NY that enable it to access the discount window as a further means of enhancing their liquidity. In connection with these agreements, the Bank has pledged certain loans and securities to collateralize any funds they may borrow. At December 31, 2021, the maximum amount the Bank could borrow from the FRB-NY was $1.0 billion. There were no borrowings against these lines of credit at December 31, 2021.

Our primary investing activity is loan production, and the volume of loans we originated for investment totaled $13.1 billion in 2021. During this time, the net cash used in investing activities totaled $2.8 billion; the net cash provided by our operating activities totaled $290 million. Our financing activities provided net cash of $2.7 billion.

CDs due to mature or reprice in one year or less from December 31, 2021 totaled $7.5 billion, representing 88% of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous factors,

66

including, among others, the convenience of our branches and our other banking channels; our customers’ satisfaction with the service they receive; the rates of interest we offer; the types of products we feature; and the attractiveness of their terms.

Our decision to compete for deposits also depends on numerous factors, including, among others, our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to our stockholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

The Parent Company’s ability to pay dividends may also depend, in part, upon dividends it receives from the Bank. The ability of the Bank to pay dividends and other capital distributions to the Parent Company is generally limited by New York State Banking Law and regulations, and by certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial Services (the “Superintendent”), the FDIC, and the FRB, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations.

Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In 2021, the Bank paid dividends totaling $380 million to the Parent Company, leaving $469 million that it could dividend to the Parent Company without regulatory approval at year-end. Additional sources of liquidity available to the Parent Company at December 31, 2021 included $139 million in cash and cash equivalents. If the Bank was to apply to the Superintendent for approval to make a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no assurance that such application would be approved.

Contractual Obligations and Off-Balance Sheet Commitments

In the normal course of business, we enter into a variety of contractual obligations in order to manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.

For example, we offer CDs with contractual terms to our customers, and borrow funds under contract from the FHLB-NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of Condition under “Deposits” and “Borrowed funds,” respectively. At December 31, 2021, we had CDs of $8.4 billion and long-term debt (defined as borrowed funds with an original maturity one year or more) of $13.4 billion.

We also are obligated under certain non-cancelable operating leases on the buildings and land we use in operating our branch network and in performing our back-office responsibilities. These obligations are included in the Consolidated Statements of Condition and totaled $249 million at December 31, 2021.

At December 31, 2021, we also had commitments to extend credit in the form of mortgage and other loan originations, as well as commercial, performance stand-by, and financial stand-by letters of credit, totaling $3.1 billion. These off-balance sheet commitments consist of agreements to extend credit, as long as there is no violation of any condition established in the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee.

The letters of credit we issue consist of performance stand-by, financial stand-by, and commercial letters of credit. Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions, municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation. Performance stand-by letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. Performance letters of credit obligate us to make payments in the event that a specified third party fails to perform under non-financial contractual obligations. Commercial letters of

67

credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title. The fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of Income and Comprehensive Income.

Based upon our current liquidity position, we expect that our funding will be sufficient to fulfill these cash obligations and commitments when they are due both in the short term and long term.

For the year ended December 31, 2021, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

At December 31, 2021, we had no commitments to purchase securities.

Capital Position

As reflected in the following table, our capital measures continued to exceed the minimum federal requirements for a bank holding company at December 31, 2021 and 2020:

At December 31, 2021, the capital ratios for the Company and the Bank continued to exceed the levels required for classification as “well capitalized” institutions, as defined under the Federal Deposit Insurance Corporation Improvement Act of 1991, and as further discussed in Note 19, “Capital,” in Item 8, “Financial Statements and Supplementary Data.”

RESULTS OF OPERATIONS: 2021 AS COMPARED TO 2020

Net Interest Income

Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the FOMC, and market interest rates.

The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate (the rate at which banks borrow funds overnight from one another) as it deems necessary.

68

While the target federal funds rate generally impacts the cost of our short-term borrowings and deposits, the yields on our held-for-investment loans and other interest-earning assets are typically impacted by intermediate-term market interest rates.

Another factor that impacts the yields on our interest-earning assets—and our net interest income—is the income generated by our multi-family and CRE loans and securities when they prepay. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our net interest income, our net interest rate spread, and our net interest margin.

It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.

For the twelve months ended December 31, 2021, net interest income totaled $1.3 billion, up $189 million or 17% compared to the twelve months ended December 31, 2020. The year-over-year improvement was driven by a significant decline in interest expense due to lower funding costs, modestly offset by a yield-driven decline of $19 million in interest income.

Year-Over-Year Comparison

The following factors contributed to the year-over-year increase in net interest income:

•
Interest income on mortgage and other loans, net totaled $1.5 billion, down $17 million compared to full-year 2020, while interest income on securities declined $7 million to $156 million compared to last year. This was partially offset by a $5 million increase on interest income related to cash and cash equivalents.

•
Interest income on mortgages and other loans, net was driven by a $1.2 billion or 3% increase in average loan balances to $43.2 billion, offset by a 14 bps decrease in the average loan yield to 3.53% from 3.67% in 2020.

•
Interest income on securities was negatively impacted by a 38 bps decline in the average yield to 2.35% from 2.73%, offset by a $660 million or 11% increase in the average securities balance to $6.6 billion.

•
Average interest-earning cash and cash equivalent balances more than doubled during full-year 2021 to $2.4 billion compared to $1.1 billion during full-year 2020, while the average yield rose four bps to 0.32%.

•
Interest expense on average interest-bearing deposits declined $192 million or 63% to $114 million during full-year 2021, driven by a 68 bps decrease in the average cost of interest-bearing deposits, while the average balance of interest-bearing deposits rose $638 million or 2% to $29.5 billion.

•
Interest expense on borrowed funds declined $16 million or 5% to $286 million, despite an $876 million or 6% increase in the average balance to $15.7 billion.

•
The average cost of borrowed funds declined 21 bps to 1.82% during full-year 2021.

69

Net Interest Margin

The direction of the Company’s net interest margin was consistent with that of its net interest income, and generally was driven by the same factors as those described above. Adjusted net interest margin is a non-GAAP financial measure, as more fully discussed below.

RECONCILIATION OF NET INTEREST MARGIN AND ADJUSTED NET INTEREST MARGIN

While our net interest margin, including the contribution of prepayment income and the impact from our recent subordinated notes offering, is recorded in accordance with GAAP, adjusted net interest margin, which excludes the contribution of prepayment income, is not. Nevertheless, management uses this non-GAAP measure in its analysis of our performance, and believes that this non-GAAP measure should be disclosed in this report and other investor communications for the following reasons:

1.
Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on our net interest margin. Prepayment income in any given period depends on the volume of loans that refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on external factors such as current market conditions, including real estate values, and the perceived or actual direction of market interest rates.

2.
Adjusted net interest margin is among the measures considered by current and prospective investors, both independent of, and in comparison with, our peers.

Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this non-GAAP measure may differ from that of other companies reporting a non-GAAP measure with a similar name.

The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.

70

Net Interest Income Analysis

(1)
Amounts are net of net deferred loan origination costs/(fees) and the allowances for loan losses and include loans held for sale non-performing loans.

(2)
Amounts are at amortized cost.

(3)
Includes FHLB stock.

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

71

Rate/Volume Analysis

Provision for Credit Losses

During 2021, the provision for credit losses totaled $3 million, down $59 million compared to the $62 million we reported during 2020. For additional information about our methodologies for recording recoveries of, and provisions for, loan losses, see the discussion of the loan loss allowance under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.

Non-Interest Income

We generate non-interest income through a variety of sources, including—among others—fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on sales of securities; and “other” sources, including the revenues produced through the sale of third-party investment products.

For the twelve months ended December 31, 2021, non-interest income totaled $61 million, unchanged compared to the twelve months ended December 31, 2020.

72

Non-Interest Income Analysis

The following table summarizes our sources of non-interest income for the years ended December 31, 2021, 2020, and 2019:

Non-Interest Expense

For the twelve months ended December 31, 2021 total non-interest expense was $541 million up $30 million or 6% compared to the twelve months December 31, 2020. Included in the 2021 amount are $23 million of merger-related expenses. Excluding this item, operating expenses for the twelve months ended December 31, 2021 were $518 million, up $7 million or 1% compared to the previous year.

Income Tax Expense

Income tax expense includes federal, New York State, and New York City income taxes, as well as non-material income taxes from other jurisdictions where we operate our branches and/or conduct our mortgage banking business.

For the twelve months ended December 31, 2021, income tax expense totaled $210 million and the Company's effective tax rate was 26.09% compared to $77 million and an effective tax rate of 13.05% for the twelve months ended December 31, 2020. The year-over-year increase was due to higher pre-tax income and the non-deductibility of certain merger-related expenses, and an increase in the New York State corporate tax rate. Our full-year 2020 income tax expense included a $68 million income tax benefit related to certain tax provisions related to corporations under the CARES Act versus no such benefit during full-year 2021.

RESULTS OF OPERATIONS: 2020 AS COMPARED TO 2019

The results of operations comparison of 2020 compared to 2019 can be found in the Company’s previously filed Annual Report on Form 10-K for the year-ended December 31, 2020 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”- Results of Operations: 2020 As Compared to 2019.”

IMPACT OF INFLATION

The consolidated financial statements and notes thereto presented in this report have been prepared in accordance with GAAP, which requires that we measure our financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of a bank’s assets and liabilities are monetary in nature. As a result, the impact of interest rates on our performance is greater than the impact of general levels of inflation. Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Standards

In January 2021, the FASB issued ASU No. 2021-01, an update to ASU 2020-04, which clarifies the scope of the optional relief for reference rate reform provided by ASC Topic 848. The ASU permits entities to apply certain of the optional practical expedients and exceptions in ASC 848 to the accounting for derivative contracts and hedging activities that may be affected by changes in interest rates used for discounting cash flows, computing variation margin

73

settlements and calculating price alignment interest (the “discounting transition”). These optional practical expedients and exceptions may be applied to derivative instruments impacted by the discounting transition even if such instruments do not reference a rate that is expected to be discontinued. The ASU was effective upon issuance and can generally be applied through December 31, 2022. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

RECONCILIATIONS OF SHAREHOLDERS’ EQUITY, COMMON STOCKHOLDERS’ EQUITY, AND TANGIBLE COMMON SHAREHOLDERS’ EQUITY; TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES

While stockholders’ equity, common stockholders’ equity, total assets, and book value per common share are financial measures that are recorded in accordance with U.S. GAAP, tangible common stockholders’ equity, tangible assets, and tangible book value per common share are not. It is management’s belief that these non-GAAP measures should be disclosed in this report and others we issue for the following reasons:

1.
Tangible common stockholders’ equity is an important indication of the Company’s ability to grow organically and through business combinations, as well as its ability to pay dividends and to engage in various capital management strategies.

2.
Tangible book value per common share and the ratio of tangible common stockholders’ equity to tangible assets are among the capital measures considered by current and prospective investors, both independent of, and in comparison with, the Company’s peers.

Tangible common stockholders’ equity, tangible assets, and the related non-GAAP measures should not be considered in isolation or as a substitute for stockholders’ equity, common stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP measures may differ from that of other companies reporting non-GAAP measures with similar names.

Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:

74