FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG) FY 2023 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

At December 31, 2023, total assets were $114.1 billion, up $23.9 billion compared to December 31, 2022. Total deposits were $81.5 billion at December 31, 2023, up $22.8 billion from December 31, 2022. These year-to-date increases were primarily due to our March 20, 2023, assumption of a substantial amount of the deposits and certain identified liabilities and the acquisition of certain assets and lines of business of Signature Bridge Bank, from the FDIC as receiver for Signature Bridge Bank (the “Signature Transaction”). See Note 3 - Business Combinations to the Consolidated Financial Statements for further information regarding the Signature Transaction.

For the year ended December 31, 2023, net loss was $79 million as compared to net income of $650 million for the year ended December 31, 2022. Net loss available to common stockholders for the year ended December 31, 2023 was $112 million, compared to net income $617 million for the year ended December 31, 2022. Diluted (loss) earnings per share totaled $(0.16) for the year ended December 31, 2023 compared to $1.26 for the year ended December 31, 2022.

The net loss for 2023 primarily reflects a goodwill impairment of $2.4 billion recorded in the fourth quarter partially offset by a $2.1 billion bargain gain on the Signature Transaction. During the fourth quarter of 2023, management also took decisive actions to build capital, reinforce our balance sheet, strengthen our risk management processes, and better align ourselves with the relevant bank peers. We significantly built our reserve levels by recording a $552 million provision for loan losses, bringing our allowance for credit losses to $992 million at December 31, 2023, reflecting our actions to build reserves during the quarter to address weakness in the office sector, potential repricing risk in the multi-family portfolio and conditions leading to increases in classified assets, which better aligns the Company with its relevant bank peers, including Category IV banks. In addition, we added on-balance sheet liquidity as we prepare for the enhanced prudential standards that apply to banks with $100 billion or more in total assets.

Loan Portfolio

At December 31, 2023, total C&I loans were $25.3 billion compared to $12.3 billion at December 31, 2022. The majority of the increase is attributable to the $9.9 billion of C&I loans acquired in the Signature Transaction along with continued growth through new originations.

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The multi-family loan portfolio was $37.3 billion at December 31, 2023, down slightly compared to $38.1 billion at December 31, 2022. At December 31, 2023, multi-family loans represented 44 percent of total loans, compared to 55 percent at December 31, 2022, further demonstrating the reduction of our concentration in this asset class.

Commercial loans (commercial real estate and acquisition, development and construction loans) increased $2.9 billion at December 31, 2023 to $13.4 billion compared to $10.5 billion at December 31, 2022 largely attributable to the Signature Transaction and growth in our home builder finance portfolio.

One-to-four family residential loans totaled $6.1 billion at December 31, 2023, representing 7 percent of total loans compared to $5.8 billion or eight percent of total loans at December 31, 2022. Other loans totaled $2.7 billion at December 31, 2023 compared to $2.3 billion at December 31, 2022. The other loan portfolio consists mostly of HELOC and other consumer loans.

Loans held-for-sale at December 31, 2023 totaled $1.2 billion, up from $1.1 billion at December 31, 2022.

Deposit Base

Deposits at December 31, 2023 totaled $81.5 billion, up $22.8 billion compared to $58.7 billion at December 31, 2022 primarily driven by the Signature Transaction.

Our deposit base includes $29.3 billion of uninsured deposits at December 31, 2023, up $12.9 billion as compared to December 31, 2022 largely due to the Signature Transaction. This represents 35.9 percent of our total deposits. These amounts were determined based on the same methodologies and assumptions used for regulatory reporting purposes and exclude internal accounts. At December 31, 2023 total liquidity (cash and cash equivalents, unpledged securities, and FHLB and FRB borrowing capacity) was $27.9 billion.

Net Interest Income

For the year ended December 31, 2023, net interest income totaled $3.1 billion, up $1.7 billion or 120 percent compared to the year ended December 31, 2022. The increase was primarily the result of the Flagstar acquisition, which closed in late 2022, and the Signature transaction, which closed in late March of 2023.

For the year ended December 31, 2023, net interest margin was 2.99 percent, up sixty-four basis points compared to the year ended December 31, 2022. The year-over-year increase was primarily the result of a larger balance sheet driven by both the Flagstar acquisition and the Signature transaction, and due to organic loan growth, along with the impact of higher interest rates.

Asset Quality

At December 31, 2023, NPA to total assets equaled 0.39 percent compared to 0.17 percent at December 31, 2022 while NPL to total loans equaled 0.51 percent compared to 0.20 percent at December 31, 2022. The increase in NPLs was primarily driven by a $125 million increase in multi-family loans and a $108 million in commercial real estate loans. Repossessed assets of $14 million were slightly higher compared to $12 million in the prior year.

Recent Events

Declaration of Dividend on Common Shares

On January 30, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.05 per share on the Company's common stock. The dividend is payable on February 28, 2024 to common stockholders of record as of February 14, 2024.

Appointment of Executive Chairman

On February 6, 2024, the Company appointed Alessandro (Sandro) DiNello as Executive Chairman, effective as of February 7, 2024. In this capacity, Mr. DiNello serves as the most senior executive officer of the Company.

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RESULTS OF OPERATIONS

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.

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 not as sensitive to 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. This impact is most prevalent in our multi-family and CRE portfolios, and to a lesser extent in our C&I and ADC portfolios. 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. The impact of prepayments on the current quarter and year was minimal.

Year-over-Year Comparison

For the year ended December 31, 2023, net interest income totaled $3.1 billion, up $1.7 billion or 120 percent compared to $1.4 billion for the year ended December 31, 2022. The year-over-year increase was primarily the result of the Flagstar acquisition, which closed late last year, and the Signature Transaction, which closed in late March of this year.

•Interest income on mortgages and other loans increased $2.7 billion driven by a $32.5 billion or 65.8 percent increase in average loan balances to $81.9 billion. This is primarily driven by the December 2022 acquisition of Flagstar and the March 2023 Signature Transaction. Additionally, we had a 177 basis point increase in the average loan yield to 5.5 percent in the current year primarily due to higher yields on acquired loans and the rising interest rate environment. Prepayments in 2023 were $9 million.

•Interest income on securities increased $244 million driven by a 149 basis point increase in the average yield to 4.2 percent from 2.7 percent along with a $3.2 billion or 42.5 percent increase in the average securities balance to $10.6 billion. The increase was driven by higher rates on new purchase and higher yields on acquired Flagstar securities.

•Interest-earning cash and cash equivalents increased $487 million reflecting a 367 basis point increase in the average yield to 5.1 percent driven by higher short-term market rates and an increase in the average balance driven by the Signature Transaction and bolstering our on-balance sheet liquidity.

•Interest expense on average interest-bearing deposits increased $1.4 billion to $1.8 billion during the year ended December 31, 2023, driven by a 206 basis point increase in the average cost of interest-bearing deposits due to rising interest rates. Average interest earning deposits grew $20.3 billion, or 56.4 percent, to $56.3 billion. The balance growth primarily reflects the December acquisition of Flagstar and the March Signature Transaction.

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•Interest expense on borrowed funds increased $343 million or 109.6 percent to $656 million driven by a 162 basis point increase in rates in addition to a $2.5 billion or 16.5 percent increase in the average balance to $17.9 billion.

Net Interest Margin

The following table sets forth certain information regarding our average balance sheet for the periods 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 periods 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.

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

(2)Amounts are at amortized cost.

(3)Includes FHLB stock and FRB stock.

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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 on each separate line.

For the year ended December 31, 2023, the net interest margin was 2.99 percent, up 64 basis points compared to the year ended December 31, 2022. The year-over-year increase was primarily the result of a larger balance sheet with loans at higher yields driven by both the Flagstar acquisition and the Signature Transaction along with the impact of higher interest rates. Average interest-earning assets increased $43.6 billion, or 74 percent, on a year-over-year basis to $102.9 billion for the year ended December 31, 2023, while the average yield rose 181 basis points to 5.34 percent.

Average loan balances rose $32.5 billion, or 66 percent, to $81.9 billion while the average loan yield rose 177 basis points to 5.51 percent on a year-over-year basis. Average cash balances increased $8.0 billion to $10.0 billion, while the average yield rose to 5.14 percent from 1.47 percent. Average securities increased $3.2 billion, or 42 percent, to $10.6 billion, while the average yield improved to 4.18 percent from 2.69 percent.

Average interest-bearing liabilities increased $22.9 billion, or 44 percent, to $74.3 billion while the average cost increased to 3.25 percent from 1.35 percent. Average interest-bearing deposits rose $20.3 billion, or 56 percent, while the average cost of deposits increased to 3.12 percent compared to 1.06 percent. Average borrowed funds increased $2.5 billion to $17.9 billion while the average cost rose to 3.66 percent from 2.04 percent. Average non-interest-bearing deposits rose $16.5 billion to $21.6 billion.

Provision for Credit Losses

Comparison to Prior Year to Date

The year ended December 31, 2023 provision for credit losses was $833 million compared to $133 million for the year ended December 31, 2022. The 2023 provision primarily reflects an initial $132 million provision for credit losses for acquired loans and related commitments from the Signature Transaction and a net $483 million increase in ACL and unfunded commitment reserves which reflects our actions to build reserves during the fourth quarter to address weakness in the office sector, potential repricing risk in the multi-family portfolio and conditions leading to increases in classified assets. Lastly, the Company recorded a net $10 million provision related to net charge-offs on AFS securities.

Total net loan charge-offs amounted to $208 million, including $112 million for a co-operative loan, $40 million for a CRE loan, and $30 million for commercial loans, mainly from two C&I loans in the fourth quarter. The charged-off co-

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operative loan was subsequently transferred to held-for-sale status. On February 29, the loan was sold, realizing a gain of $26 million from its previously written-down fair value estimate. This gain on sale will be recognized in the first quarter of 2024. For a more detailed discussion and analysis of the total allowance for credit losses, see the "Credit Quality" section of this MD&A and "Note 7 - Allowance for Credit Losses on Loans and Leases".

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); net return on our MSR asset; net gain on loan sales and securitizations, net loan administration income (including loan subservicing income); income from our investment in BOLI; and “other” sources, including the revenues produced through the sale of third-party investment products.

The following table summarizes our non-interest income for the respective periods:

Non-interest income increased $2.4 billion for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to the bargain purchase gain of $2.1 billion related to the Signature Transaction. Excluding bargain purchase gains, non-interest income for the year ended December 31, 2023 totaled $556 million as compared to $88 million for the year ended December 31, 2022. For the year ended December 31, 2023, net gains on loan sales, net return on mortgage servicing rights and net loan administration income totaled $274 million compared to $14 million for the year ended December 31, 2022, all driven by a full year of the Flagstar acquisition. The two acquisitions also drove higher fee income, loan administration income and other income driven by mortgage and FDIC loan servicing along with a higher volume of customer based fees.

Non-Interest Expense

Non-interest expense increased $4.3 billion for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by goodwill impairment in the fourth quarter totaling $2.4 billion. Additionally, merger related expenses increased $223 million due to the closing of the Signature transaction and ongoing integration costs. Excluding the goodwill impairment and merger related expenses, non-interest expense for the year ended December 31, 2023 totaled $2.2 billion as compared to $0.6 billion for the year ended December 31, 2022.

Total operating expenses for the year ended December 31, 2023 were up approximately $1.5 billion compared to the year ended December 31, 2022 primarily driven by a full-year of Flagstar activity and the Signature transaction, which closed in late March of 2023. Included in total operating expenses is a $49 million expense for the FDIC special assessment issued to certain banks nationally related to deposit insurance fund shortfalls, including the assessment issued by the FDIC in February 2024..

Income Tax Expense

For the year ended December 31, 2023, the Company reported a provision for income taxes of $29 million, compared to $176 million for the year ended December 31, 2022. Income tax expense for the current year was impacted by the bargain purchase gain arising from the Signature transaction.

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RESULTS OF OPERATIONS: 2022 AS COMPARED TO 2021

The results of operations comparison of 2022 compared to 2021 can be found in the Company’s previously filed Annual Report on Form 10-K for the year-ended December 31, 2022 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”- Results of Operations: 2022 As Compared to 2021.”

Signature Transaction - Certain Financial Information

In accordance with the guidance provided in Staff Accounting Bulletin Topic 1:K, “Financial Statements of Acquired Troubled Financial Institutions” (“SAB 1:K”) the Company has omitted certain financial information on the Signature Transaction required by Rule 3-05 of Regulation S-X and Article 11 of Regulation S-X. SAB 1:K provides relief from the requirements of Rule 3-05 and Article 11 of Regulation S-X under certain circumstances, including a transaction such as the Signature Transaction, in which the registrant engages in an acquisition of a troubled financial institution for which historical financial statements are not reasonably available or relevant and in which federal assistance is an essential and significant part of the transaction.

FINANCIAL CONDITION

Balance Sheet Summary

Total assets increased $23.9 billion to $114.1 billion as of December 31, 2023, compared to $90.1 billion at December 31, 2022 due to the Signature Transaction, which closed on March 20, 2023, and organic growth.

The Company acquired approximately $11.7 billion of loans, net of purchase accounting adjustments ("PAA"), $33.5 billion of deposits, net of PAA, and $2.1 billion of other liabilities related to the Signature Transaction.

Total loans and leases held for investment were $84.6 billion at December 31, 2023 compared to $69.0 billion at December 31, 2022. The increase was driven by the aforementioned loans acquired from the Signature Transaction and organic loan growth.

The securities portfolio totaled $9.2 billion at December 31, 2023, compared to $9.1 billion at December 31, 2022. As of December 31, 2023, the Company has no held-to-maturity securities portfolio and all of the Company’s securities were designated as “Available-for-Sale”, consistent with December 31, 2022.

Total deposits grew $22.8 billion, or 39 percent to $81.5 billion at December 31, 2023 compared to $58.7 billion at December 31, 2022 primarily driven by the deposits assumed in the Signature Transaction. Included in the December 31, 2023 balance are $247 million in non-interest-bearing custodial deposits related to the Signature Transaction.

Wholesale borrowings at December 31, 2023 remained flat at $20.3 billion when compared to December 31, 2022.

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Loans held-for-investment

The following table summarizes the composition of our loan portfolio:

Loan Maturity and Repricing Analysis

The following table sets forth the maturity or period to repricing of our portfolio of loans held for investment at December 31, 2023. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to change.

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The following table sets forth, as of December 31, 2023, the dollar amount of all loans held for investment that are due after December 31, 2024, and indicates whether such loans have fixed or adjustable rates of interest:

The following table summarizes our production of loans held for investment:

Multi-Family Loans

The multi-family 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.

The multi-family loan portfolio was $37.3 billion at December 31, 2023, down slightly compared to $38.1 billion at December 31, 2022 due to a combination of higher interest rates and our loan diversification strategy.

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

At December 31, 2023, $21.1 billion or 57 percent of the Company’s total multi-family loan portfolio is secured by properties in New York State, of which $18.3 billion are subject to rent regulation laws. Of the $18.3 billion properties subject to rent regulation, approximately 38 percent are currently in an interest only period. The weighted average LTV of the New York State rent regulated multi-family portfolio was 58 percent as of December 31, 2023 as compared to 57 percent at December 31, 2022.

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

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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 indexed to CME Term SOFR or Prime, 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 assessed to the borrower 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 recorded when the cash is received.

Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers and generational direct relationships, 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.

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. 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 percent on multi-family buildings at origination, 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 percent 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. Exceptions to these levels are made to borrowers on a case by case basis and approved by the joint authority of credit and lending officers and when necessary, the Board Credit Committee of the Board.

We continue to monitor our loans held for investment portfolio and the related allowance for credit losses, particularly given the economic pressures facing the commercial real estate and multi-family markets. In general, buildings that are subject to rent regulation have historically 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 generally exclude any short-term property tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.

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The following table presents a geographical analysis of the multi-family loans in our held-for-investment loan portfolio:

Commercial Real Estate

At December 31, 2023, CRE loans represented $10.5 billion, or 12 percent, of total loans held for investment, reflecting a $2.0 billion increase when compared to $8.5 billion at December 31, 2022. Approximately $1.9 billion of CRE loans were acquired in the Signature Transaction.

CRE loans represented $1.1 billion, or 5 percent, of the loans we originated for the year ended December 31, 2023 as compared to $1.1 billion, or 6 percent for the year ended December 31, 2022.

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, 2023, the largest concentration of CRE loans were secured by properties in the metro New York City area. Refer to the Geographical Analysis table included below for additional details.

Approximately $3.4 billion of the CRE portfolio are office properties with an average balance of approximately $10 million and located primarily in the New York metro area.

The terms of more than half of our CRE loans primarily feature a fixed rate of interest for the first five years of the loan that is generally based on intermediate-term interest rates plus a spread. In addition to customary fixed rate terms, we now also offer floating rates advances indexed to CME Term SOFR. These products are generally offered in combination with interest rate cap or swaps that provide borrowers with additional optionality to manage their interest rate risk. Following the initial fixed rate period, the loan resets to an adjustable interest rate that is indexed to CME Term SOFR or Prime, 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 certain of our CRE loans. 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.

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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.

We originate CRE loans in adherence with 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 primarily depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130 percent and a maximum LTV of 65 percent. 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, certain of 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.

The following table presents a geographical analysis of the CRE loans in our held-for-investment loan portfolio:

Acquisition, Development, and Construction Loans

At December 31, 2023, our ADC loans represented $2.9 billion, or 3 percent, of total loans held for investment, reflecting an increase of $916 million compared to December 31, 2022.

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. 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.

C&I Loans

At December 31, 2023 C&I loans totaled $25.3 billion or 30 percent of total loans held-for-investment. Included in this portfolio is $5.1 billion in warehouse loans that allow mortgage lenders to fund the closing of residential mortgage loans.

The non-warehouse C&I loans we produce are primarily made to small and mid-size businesses and finance companies. 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.

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Also included in our C&I portfolio is our national warehouse lending platform with relationship managers across the country. We offer warehouse lines of credit to other mortgage lenders which allow the lender to fund the closing of residential mortgage loans. Each extension, advance, or draw-down on the line is fully collateralized by residential mortgage loans and is paid off when the lender sells the loan to an outside investor or, in some instances, to the Bank.

Underlying mortgage loans are predominantly originated using the agencies' underwriting standards. The guideline for debt to tangible net worth is 15 to 1. At December 31, 2023, we had $5.1 billion outstanding warehouse loans to other mortgage lenders and have relationships in place to lend up to $11.8 billion at our discretion.

The interest rates on our C&I loans can be fixed or floating, with floating-rate loans being tied to SOFR, 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.

Specialty Finance

At December 31, 2023, specialty finance loans and leases totaled $5.2 billion or 6 percent of total loans held for investment, up $769 million or 17 percent compared to December 31, 2022.

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, 2023, 84 percent of specialty finance loan commitments are structured as floating rate obligations which will benefit in a rising rate environment.

As of December 31, 2023, the Company originated $7.3 billion of specialty finance loans and leases, representing 35 percent of total originations compared to $6.0 billion for the same period in 2022, representing 35 percent 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.

One-to-Four Family Loans

At December 31, 2023, one-to-four family loans represented $6.1 billion, including $996 million of LGG, or 7 percent, of total loans held for investment. As of December 31, 2023, the repurchase liability on LGG loans was $456 million. As of December 31, 2022 one-to-four family loans totaled $5.8 billion. These loans include various types of conforming and non-conforming fixed and adjustable rate loans underwritten using Fannie Mae and Freddie Mac guidelines for the purpose of purchasing or refinancing owner occupied and second home properties. We typically hold certain mortgage loans in LHFI that do not qualify for sale to the Agencies and that have an acceptable yield and risk profile. The LTV requirements on our residential first mortgage loans vary depending on occupancy, property type, loan amount, and FICO scores. Loans with LTVs exceeding 80 percent are required to obtain mortgage insurance. As of December 31, 2023, non-government guaranteed loans in this portfolio had an average current FICO score of 741 and an average LTV of 53.

Substantially all LGG are insured or guaranteed by the FHA or the U.S. Department of Veterans Affairs. Nonperforming repurchased loans in this portfolio earn interest at a rate based upon the 10-year U.S. Treasury note rate from the time the underlying loan becomes 60 days delinquent until the loan is conveyed to HUD (if foreclosure timelines are met), which is not paid by the FHA until claimed. The Bank has a unilateral option to repurchase loans sold to GNMA if the loan is due, but unpaid, for three consecutive months (typically referred to as 90 days past due) and can recover losses through a claims process from the guarantor. These loans are recorded in loans held for investment and the liability to repurchase the loans is recorded in other liabilities on the Consolidated Statements of Condition. Certain loans within our portfolio may be subject to indemnifications and insurance limits which expose us to limited credit risk. We have reserved for these risks within other assets and as a component of our ACL on residential first mortgages.

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Other Loans

At December 31, 2023, other loans totaled $2.7 billion and consisted primarily of home equity lines of credit, boat and recreational vehicle indirect lending, point of sale consumer loans and other consumer loans, including overdraft loans.

Our home equity portfolio includes HELOANs, second mortgage loans, and HELOCs. These loans are underwritten and priced in an effort to ensure credit quality and loan profitability. Our debt-to-income ratio on HELOANs and HELOCs is capped at 43 percent and 45 percent, respectively. We currently limit the maximum CLTV to 89.99 percent and FICO scores to a minimum of 700. Second mortgage loans and HELOANs are fixed rate loans and are available with terms up to 20 years. HELOC loans are primarily variable-rate loans that contain a 10-year interest only draw period followed by a 20-year amortizing period. As of December 31, 2023, loans in this portfolio had an average current FICO score of 751.

As of December 31, 2023, loans in our indirect portfolio had an average current FICO score of 743. Point of sale loans consist of unsecured consumer installment loans originated primarily for home improvement purposes through a third-party financial technology company who also provides us a level of credit loss protection.

Loans Held for Sale

Loans held-for-sale at December 31, 2023 totaled $1.2 billion, up from $1.1 billion at December 31, 2022. The Signature Transaction contributed $360 million of Small Business Administration ("SBA") loans to this increase. We classify loans as held for sale when we originate or purchase loans that we intend to sell. We have elected the fair value option for nearly all of this portfolio, except the SBA loans. We estimate the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral.

Credit Quality

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, 2023 and December 31, 2022, 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.

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 retain 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. advancing funds as needed; and seeking approval from the courts to appoint a receiver, when necessary to protect the Bank’s interests, including to collect rents, manage property operations, and ensure maintenance of the collateral properties.

It is our policy to order updated appraisals for all non-performing loans 90 days or more past due that are collateralized by multi-family buildings, CRE properties, or land, 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.

Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Board 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

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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. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers and staff, perform appraisals on collateral properties.

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.

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 percent for multi-family loans and 130 percent for CRE loans. At origination, we typically lend up to 75 percent of the appraised value on multi-family buildings and up to 65 percent on commercial properties. Exceptions to these DSCR and LTV limitations are minimal and approved by the joint authority of credit and lending officers and when necessary, the Board Credit Committee of the Board.

With regard to ADC loans, we typically lend up to 75 percent 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 percent. With respect to commercial construction loans, we typically lend up to 65 percent 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 generally represent loans to commercial businesses which meet certain desired client characteristics and credit standards. The credit standards for commercial borrowers are based on numerous criteria, including historical and projected financial information, strength of management, acceptable collateral, and market conditions and trends in the borrower’s industry. These loans are generally variable rate loans in which the interest rate fluctuates with a specified index rate.

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.

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 TDM, 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.

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Asset Quality Measures

The following table presents the Company's asset quality measures at the respective dates:

Non-Performing Loans

The following table presents our non-performing loans held for investment by loan type and the changes in the respective balances:

(1)Excludes LGG that are insured by U.S government agencies.

(2)Unpaid principal balance.

(3)Includes home equity, consumer and other loans.

The following table sets forth the changes in non-accrual loans for the year ended December 31, 2023:

At December 31, 2023 total non-accrual mortgage loans increased $238 million to $363 million, while commercial and industrial loans increased $40 million to $43 million and other non-accrual loans increased $9 million to $22 million compared to December 31, 2022.

At December 31, 2023, NPA to total assets equaled 0.39 percent compared to 0.17 percent at December 31, 2022 while NPL to total loans equaled 0.51 percent compared to 0.20 percent at December 31, 2022. The increase in NPLs was primarily driven by a $125 million increase in multi-family loans and a $108 million in commercial real estate loans, primarily office. Repossessed assets of $14 million were slightly higher compared to $12 million in the prior year.

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Delinquencies

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

(1)Excludes LGG that are insured by U.S government agencies.

Allowance for Credit Losses

The following table sets forth the allocation of the consolidated allowance for losses on loans, at each year-end:

(1)Percentages represent the percentage of each loan and lease category to total loans and leases

The allowance for credit losses on loans and leases increased $599 million from December 31, 2022 to December 31, 2023. The day 1 impact of the Signature Transaction that closed on March 20, 2023 added $127 million to the reserve. The remaining net increase of approximately $472 million primarily reflects our actions to build reserves during the fourth quarter to address weakness in the office sector, potential repricing risk in the multi-family portfolio and conditions leading to increases in classified assets, which better aligns the Company with its relevant bank peers, including Category IV banks. The allowance for credit losses on loans and leases represented 232 percent of non-performing loans at December 31, 2023, as compared to 279 percent at the prior year-end.

Based on the acceleration of asset quality metric deterioration and collateral value trends observed during 4Q23, predominantly in office, management employed its judgment and qualitative reserves were increased to the higher end of the range as of December 31, 2023. In applying this judgement, management also considered the severity of emerging risks such as feedback from regulators, market information, the impact of potential internal loan review weaknesses on the identification of emerging risks, deterioration in collateral values or borrower financial statements, trends or indications of degradation in asset quality metrics such as problem loans, charge-offs and nonaccruals, and market indications.

Charge-offs

For the year ended December 31, 2023, our gross charge-offs were $223 million and net charge-offs were $208 million, compared to gross charge-offs of $7 million and net recoveries of $4 million over the same period in 2022.

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The following table presents information on the Company's net charge-offs:

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The following table presents information on the Company's net charge-offs as compared to average loans held for investment outstanding:

Lending Authority

We maintain credit limits in compliance with regulatory requirements. Under regulatory guidance, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15 percent of Tier 1 plus Tier 2 capital and any portion of the ACL not included in Tier 2 capital. We have a tracking and reporting process to monitor lending concentration levels, and all new commercial real estate credit exposures to relationships that exceed $200 million and all other commercial credit exposures to relationships that exceed $100 million must be approved by the Board Credit Committee of the Board. Exceptions to these levels are made to borrowers on a case by case basis, with the approval of the Board Credit Committee of the Board. Relationships less than the aforementioned limits including those discussed throughout the loans held for investment section of this document, are approved by the joint authority of credit officers and lending officers. 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, including regulatory considerations, and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.

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At December 31, 2023 and December 31, 2022, the largest mortgage loan in our portfolio was a $329 million multi-family loan, which is collateralized by properties located in Brooklyn, New York. As of the date of this report, the loan has been current since origination.

Securities

Total securities were $9.2 billion, or 8 percent, of total assets at December 31, 2023, compared to $9.1 billion, or 10 percent of total assets at December 31, 2022. At December 31, 2023 and December 31, 2022, all of our securities were designated as “Available-for-Sale”. At December 31, 2023, 12 percent of our portfolio are floating rate securities.

As of December 31, 2023, the net unrealized loss on securities available for sale, net of tax, was $581 million as compared to $626 million at December 31, 2022, reflecting the rising interest rate environment.

At December 31, 2023, available-for-sale securities had an estimated weighted average life of six years. Included in the quarter-end amount were mortgage-related securities of $6.6 billion and other debt securities of $2.6 billion.

At the prior year-end, available-for-sale securities were $9.1 billion, and had an estimated weighted average life of six years. Mortgage-related securities accounted for $4.8 billion of the year-end balance, with other debt securities accounting for the remaining $4.3 billion.

The following table summarizes the weighted average yields of debt securities for the maturities indicated at December 31, 2023:

(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.

Federal Reserve and Federal Home Loan Bank Stock

At December 31, 2023 the Company had $861 million and $329 million of FHLB-NY stock, at cost, and FHLB-Indianapolis stock, at cost, respectively. At December 31, 2022, the Company had $762 million and $329 million of FHLB-NY stock, at cost and FHLB-Indianapolis stock, at cost, respectively. The Company maintains an investment in FHLB-NY stock and, as a result of the Flagstar acquisition, FHLB-Indianapolis stock, partly in conjunction with its membership in the FHLB and partly related to its access to the FHLB funding it utilizes. In addition, the Company had Federal Reserve Bank stock, at cost, of $203 million and $176 million at December 31, 2023 and December 31, 2022, respectively.

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 at December 31, 2023 rose $19 million to $1.6 billion compared to December 31, 2022.

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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. As of December 31, 2023, the Company identified a triggering event and applied a market approach using the end of day stock price. We evaluated those conditions known and knowable by the Company and how a market participant would view the control premium as confirmed by the subsequent confirming market evidence. This adjusted market capitalization was then compared to the carrying value to determine the extent of the shortfall which was calculated to be in excess of the goodwill balance. The Company’s assessment concluded that goodwill from historical transactions (2007 and prior) was fully impaired as of December 31, 2023. As a result, the Company recorded an impairment charge of the entire goodwill balance of $2.4 billion.

Parent Company Liquidity

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. At December 31, 2023 the Parent Company held cash and cash equivalents of $158 million. In addition to operating expenses, the Parent Company is responsible for paying any dividends declared to our common and preferred 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 has three 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 equity; and funding raised through the issuance of debt instruments.

Various legal restrictions limit the extent to which the Company’s subsidiary bank can supply funds to the Parent Company and its non-bank subsidiaries. The Bank would require the approval of the OCC if the dividends it declares in any calendar year were to exceed the total of its respective net profits for that year combined with its respective retained net profits for the preceding two calendar years, less any required transfer to paid-in capital. The term “net profits” is defined as net income for a given period less any dividends paid during that period. As a result of our acquisition of Flagstar, we are also required to seek regulatory approval from the OCC for the payment of any dividend to the Parent Company through at least the period ending November 1, 2024. In connection with receiving regulatory approval from the OCC for the Signature Transaction, the Bank has committed that (i) for a period of two years from the date of the Signature Transaction, it will not declare or pay any dividend without receiving a prior written determination of no supervisory objection from the OCC and (ii) it will not declare or pay dividends on the amount of retained earnings that represents any net bargain purchase gain that is subject to a conditional period that may be imposed by the OCC. In 2023, dividends of $580 million were paid by the Bank to the Parent Company.

At December 31, 2023, we believe the Company has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and for the foreseeable future.

Bank 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. The following table presents available sources of liquidity as of December 31, 2023:

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.

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CDs due to mature or reprice in one year or less from December 31, 2023 totaled $17.3 billion, representing 80 percent of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous factors, 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.

Deposits

Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer, and the attractiveness of their terms. 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).

Depending on their availability and pricing relative to other funding sources, we also include brokered deposits in our deposit mix. Brokered deposits accounted for $9.5 billion of our deposits at December 31, 2023, compared to $5.1 billion at December 31, 2022. Brokered money market accounts represented $1.3 billion of total brokered deposits at December 31, 2023 and $2.8 billion at December 31, 2022; brokered interest-bearing checking accounts represented $1.6 billion and $1.0 billion, respectively. At December 31, 2023, we had $6.6 billion of brokered CDs, compared to $1.3 billion at December 31, 2022.

Our uninsured deposits are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000). These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes and excludes internal accounts. At December 31, 2023 our deposit base includes $29.3 billion of uninsured deposits, a net increase of $12.9 billion as compared to December 31, 2022 due to the Signature Transaction. This represents 36 percent of our total deposits.

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:

Borrowed Funds

The majority of our borrowed funds are wholesale borrowings (FHLB-NY and FHLB-Indianapolis advances), Bank Term Funding Program of the FRB of New York and, to a lesser extent, junior subordinated debentures and subordinated notes. At December 31, 2023, total borrowed funds decreased $65 million to $21.3 billion compared to the balance at December 31, 2022.

Wholesale Borrowings

Wholesale borrowings totaled $20.3 billion at December 31, 2023 and 2022.

FHLB-NY and FHLB-Indianapolis advances accounted for $19.3 billion and $20.3 billion at December 31, 2023 and December 31, 2022, respectively. Pursuant to blanket collateral agreements with the Bank, our FHLB-NY, FHLB-Indianapolis advances and overnight advances are secured by pledges of certain eligible collateral in the form of loans and securities. At December 31, 2023 and December 31, 2022, $2.0 billion and $6.8 billion of our wholesale borrowings had callable features, respectively.

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The Company’s wholesale borrowings also include the $1.0 billion drawn on the BTFP. The BTFP draw is secured by pledges of certain eligible collateral in the form of securities eligible for purchase by the Federal Reserve Banks in open market operations (for example, U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities).

We had no federal funds outstanding at December 31, 2023 and December 31, 2022.

Junior Subordinated Debentures

Junior subordinated debentures totaled $579 million at December 31, 2023 compared to $575 million at December 31, 2022.

Subordinated Notes

At December 31, 2023, the balance of subordinated notes was $438 million compared to $432 million at December 31, 2022.

See Note 12 - 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.

Contractual Obligations

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. These obligations include 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.

These 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 credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer.

Such letters of credit typically require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title. Fees collected in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of Income and Comprehensive Income.

For the year ended December 31, 2023, we did not engage in any off-balance sheet transactions that we expect to have a material effect on our financial condition, results of operations or cash flows.

At December 31, 2023, we had no commitments to purchase securities.

Regulatory Capital

The Bank is subject to regulation, examination, and supervision by the OCC and the Federal Reserve (the “Regulators”). The Bank is also governed by numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991, which established five categories of capital adequacy ranging from “well capitalized” to “critically undercapitalized.” Such classifications are used by the FDIC to determine various matters, including prompt corrective action and each institution’s FDIC deposit insurance premium assessments. Capital amounts and classifications are also subject to the Regulators’ qualitative judgments about the components of capital and risk weightings, among other factors.

The quantitative measures established to ensure capital adequacy require that banks maintain minimum amounts and ratios of leverage capital to average assets and of common equity tier 1 capital, tier 1 capital, and total capital to risk-weighted

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assets (as such measures are defined in the regulations). At December 31, 2023, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. The following table sets forth our common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios on a consolidated basis and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, at that date:

The following tables present the actual capital amounts and ratios for the Company:

The following tables present the actual capital amounts and ratios for the Bank:

At December 31, 2023, our total risk-based capital ratio exceeded the minimum requirement for capital adequacy purposes by 377 basis points and the fully phased-in capital conservation buffer by 127 basis points.

The Bank also exceeded the minimum capital requirements to be categorized as “Well Capitalized.” To be categorized as well capitalized, a bank must maintain a minimum common equity tier 1 ratio of 6.50 percent; a minimum tier 1 risk-based capital ratio of 8 percent; a minimum total risk-based capital ratio of 10 percent; and a minimum leverage capital ratio of 5 percent.

On July 27, 2023, the Federal Banking Agencies, the FDIC, the Federal Reserve, and the OCC, released a notice of proposed rulemaking that would make significant amendments to the Basel III Capital Rules applicable to both the Company and the Bank. In general, the proposed rule would align the regulatory capital calculation methodology for Category III and IV banking organizations with the methodology applicable to Category I and II banking organizations. In addition to calculating risk-weighted assets under the current U.S. standardized approach, the proposal introduces a new “Expanded Risk-Based Approach,” including standardized approaches for credit risk, operational risk and credit valuation adjustment risk, as well as a new approach for market risk that would be based upon internal models and standardized supervisory models. If adopted as proposed, the Company would be required to calculate its risk-based capital ratios under both the current U.S. standardized approach and the Expanded Risk-Based Approach and would be subject to the lower of the two resulting ratios for each risk-based capital ratio. In addition, the proposal would require banking organizations to recognize most elements of AOCI in regulatory capital, including unrealized gains and losses on available-for-sale securities, and lower thresholds for deductions from CET1 capital for mortgage servicing assets and deferred tax assets, among other things. The proposal, if enacted, would have an effective date of July 1, 2025, with certain elements, such as the recognition of AOCI in regulatory capital and changes in risk-weighted assets calculated under the Expanded Risk-Based Approach, having a three-year phase-in period. We are in the process of evaluating this proposed rulemaking and assessing its potential impact on the Company and the Bank if adopted as proposed.

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Reportable Segment and Reporting Unit

In 2023, our chief operating decision maker assessed performance and allocated resources at the consolidated Company level. Following the acquisition of Flagstar Bank, N.A. and closing the Signature Transaction, we are currently in the process of operationalizing the financial reporting – both historical and prospective – for our reportable segments and reporting units, which may result in a change to either or both in future reporting periods.

Critical Accounting Estimates

Various elements of our accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain accounting policies that, due to the judgment, estimates and assumptions are critical to an understanding of our Consolidated Financial Statements and the Notes, are described in Item 1. These policies relate to: (a) the determination of our ACL, (b) fair value measurements and (c) the acquisition method of accounting. We believe the judgment, estimates and assumptions used in the preparation of our Consolidated Financial Statements and the Notes are appropriate given the factual circumstances at the time. However, given the sensitivity of our Consolidated Financial Statements and the Notes to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations and/or financial condition.

Allowance for Credit Losses

The allowance for credit losses on loans and leases represents our current estimate of the lifetime credit losses expected from our loan and lease portfolio and our unfunded lending commitments. 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, as well as credit ratings for certain loans within the commercial and industrial portfolio. The loss drivers for certain loans in the commercial and industrial portfolio are derived using credit ratings. The economic forecast and the related economic parameters are developed using multiple economic forecast scenarios, including related weightings, over the reasonable and supportable forecast period. The economic forecast scenarios and related economic parameters are sourced from independent third parties. Economic parameters are developed using available information relating to past events, current conditions, and economic forecasts. Historical credit loss experience over the historical loss observation period provides the basis for the estimation of expected credit losses, with qualitative adjustments made for differences in current loan-specific risk characteristics such as levels of and trends in delinquencies and performance of loans, levels of and trends in write-offs and recoveries collected, trends in volume and terms of loans, effects of any changes in reasonable and supportable economic forecasts, effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices, experience, ability, and depth of lending management and other relevant staff, available relevant information sources that support or contradict the registrant’s own forecast, effects of changes in prepayment expectations or other factors affecting assessments of loan contractual term, industry conditions; and effects of changes in credit concentrations. Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The methodology used in the estimation of the allowance for credit losses on loans and leases, 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.

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 Company leverages economic projections including property market and prepayment forecasts from established independent third parties to inform its loss drivers in the forecast, as well as credit ratings for certain loans within the commercial and industrial portfolio.

Loans that do not share risk characteristics are evaluated on an individual basis, including nonaccrual loans. 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.

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

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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 estimate 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, property valuations and changes in prepayment assumptions.

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 commercial real estate portfolio (multi -family, CRE and ADC) which comprises 60 percent of the loan portfolio at December 31, 2023. Portfolio prepayments 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 commercial 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 commercial real estate.

Valuation of Mortgage Servicing Rights

We purchase and originate mortgage loans for sale to the secondary market and often retain the right to service the loan at the time of sale upon which, a mortgage servicing right (MSR) is created. We have elected to report our MSR assets at fair value which is determined using an internal valuation model that utilizes an option-adjusted spread, constant prepayment rates, costs to service, and other assumptions. The assumptions used in the MSR valuation are unobservable in nature, involve a higher degree of judgment and are estimated based on our judgment regarding the value that market participants would assign to the asset. To corroborate this estimate, we obtain third-party valuations of the MSR portfolio on a quarterly basis from independent valuation services to assess the reasonableness of the fair value calculated by the internal valuation model.

For further information and sensitivity analysis regarding the valuation of the MSR asset, see "Note 9 - Mortgage Servicing Rights,” in Item 8. “Financial Statements and Supplementary Data."

Acquisition Method of Accounting

The acquisition method of accounting requires that acquired assets and liabilities in a business combination be recorded at their fair values as of the acquisition date. This method often involves estimates, all of which are inherently subjective. We have elected to hold the measurement period open to allow for potential adjustments for up to one year after the acquisition date, for new information that existed at the acquisition date but may not have been known or available at that time. For further information, refer to Note 3 - Business Combinations in Item 8, "Financial Statements and Supplementary Data".

Goodwill

The Company evaluates goodwill for impairment at least annually or when triggering events are identified. We utilize a market approach to calculate the fair value of our single reporting unit, which considers how a market participant would view a control premium, complemented by an income approach if deemed necessary. The resulting value is then compared to our book value and any shortfalls would be recorded as an impairment.

As of December 31, 2023, the Company identified a triggering event and applied a market approach using the end of day stock price, control premium for completed bank acquisitions, and an adjustment for Company-specific risk considerations based on subsequent confirming market evidence. This adjusted market capitalization was then compared to the carrying value to determine the extent of any shortfall which was calculated to be in excess of the goodwill balance. The Company’s assessment concluded that goodwill from historical transactions (2007 and prior) was fully impaired as of December 31, 2023, as confirmed by the Company’s current market capitalization. As a result, the Company recorded an impairment charge of the entire goodwill balance of $2.4 billion. Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 16 - Intangible Assets" in Item 8, "Financial Statements and Supplementary Data" for the methodologies and assumptions used in the goodwill impairment analysis.

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