# Flagstar Bank, National Association: Form 10-Q for the period ended Jun 30, 2024

- Company: [Flagstar Bank, National Association](/companies/flg.md) (CIK 910073)
- Form: 10-Q
- Filed: 2024-08-09
- Accepted by EDGAR: Aug 9, 2024, 17:08 ET
- Period: 2024-06-30
- Accession: 0000910073-24-000169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/910073/000091007324000169/fbc-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/910073/000091007324000169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | −$101.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | −$155.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$323.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$650.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$1.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$2.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$1.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$2.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 293,122,116 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 269,902,354 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $502.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $45.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-06-30 | $18.99bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-06-30 | $119.06bn | us-gaap:Assets |
| Total liabilities | at 2024-06-30 | $110.40bn | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $28.89bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-06-30 | $8.40bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 91,279 characters.

### Background

New York Community Bancorp, Inc. is a bank holding company (collectively with its subsidiaries the “Company”) whose principal operation is its subsidiary Flagstar Bank, N.A. (the “Bank”). The Company has experienced a number of events in the last 18 months that have significantly impacted its balance sheet, results of operations, credit losses, liquidity and funding, and regulatory capital. At the end of 2022, the Company acquired and merged with Flagstar Bancorp Inc. which increased assets by $26 billion and liabilities by $24 billion. In March 2023 the Company acquired $38 billion of assets and assumed $36 billion of liabilities from the FDIC related to the former Signature Bridge Bank. These transactions resulted in the Company exceeding $100 billion in total assets which results in being categorized as a Category IV institution for regulatory purposes, increasing requirements and expectations related to liquidity, risk management and governance. Beginning in late 2023, the Company’s loan portfolio began to experience stress, related principally to vacancy-driven declines in the office sector, and inflation and high interest rates in the multi-family sector, particularly for the sub-set of the Company’s loan portfolio comprised of majority rent-regulated collateral, a portion of which is impacted by a 2019 New York law change. Concerns about the impact of these portfolio stresses led to significant declines in the Company’s stock price and large customer deposit withdrawals in the first quarter of 2024. In response to these declines, the Company raised $1.05 billion in equity capital in March 2024 through the issuance of shares of the Company's common stock and preferred stock convertible to common stock, and raised liquidity through brokered deposits and wholesale funding. The result of these events and conditions has led to a significantly lower net interest margin and higher loan loss provisions in 2024. Subsequent to the March 2024 capital raise, the Company’s customer deposit base stabilized, grew substantially in the second quarter 2024 and has continued to increase subsequently.

To further simplify the Company’s operations, reduce operational risk, and begin transitioning to a more diversified regional bank, as well as enhance its regulatory capital ratios and liquidity, subsequent to the second quarter of 2024 the (i) Company completed the sale of its warehouse lending portfolio (approximately $6 billion in assets) and (ii) entered into a definitive agreement to sell its mortgage servicing, subservicing and third-party origination activities. These transactions will increase the Company’s common equity Tier 1 capital ratio by approximately 130 basis points in aggregate upon consummation, but will decrease interest income and fee income until the resulting capital has been redeployed by the Company in lending and investing activities. These decreases will be partially offset by decreases in expenses associated with the activities being sold.

### Results of Operations

The Company reported a second quarter 2024 net loss of $323 million compared to a net loss of $327 million in the prior quarter. Net loss attributable to common stockholders for the second quarter 2024 was $333 million, or $1.14 per diluted share, compared to a net loss of $335 million, or $1.36 per diluted share, in the prior quarter. As adjusted for merger-related expenses, the net loss for the second quarter 2024 was $298 million and net loss attributable to common stockholders was $308 million or $1.05 per diluted share. The prior quarter net loss and diluted earnings per share included a reduction to the bargain purchase gain of $121 million arising from the Signature Transaction. As adjusted for this item and for merger-related expenses, the net loss for the prior quarter was $174 million and the net loss attributable to common stockholders was $182 million, or $0.74 per diluted share.

For the first six months of 2024, the Company reported a net loss of $650 million compared to net income of $2.4 billion for the first six months of 2023. Net loss attributable to common stockholders for the first six months of 2024 was $668 million, or $2.48 per diluted share, compared to net income of $2.4 billion, or $10.10 per diluted share for the first six months of 2023. Net loss and diluted earnings per share for the first six months of 2024 included a reduction to the bargain purchase gain of $121 million arising from the Signature Transaction. As adjusted for this item and for merger-related expenses, the net loss for the first six months of 2024 was $472 million and the net loss attributable to common stockholders was $490 million, or $1.82 per diluted share. Net income and diluted earnings per share for the first six months of 2023 included a bargain purchase gain of $2.1 billion arising from the Signature Transaction. As adjusted for this item and for merger-related expenses, net income for the first six months of 2023 was $407 million and net income available to common stockholders was $391 million, or $1.64 per diluted share.

### Net Interest Income

Net interest income is our primary source of income. The amount of our net interest income is a function of the amount of interest-earning assets we hold, the manner in which we fund these assets, including interest-bearing liabilities, and the spread between the interest rates we earn on assets and the interest rates we pay on 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 Federal Open Market Committee, and market interest rates.

Our interest-bearing liabilities are comprised of customer deposits and funds we borrow. The average term of our fixed rate deposits is less than twelve months, therefore the cost of our deposits and most of our borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the Federal Open Market Committee. The yields on our held-for-investment loans and investment securities are generally more sensitive to intermediate-term market interest rates.

The following table sets forth certain information regarding our net interest income and average balance sheet for the periods indicated: 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.

*(dollars in millions)*

| ASSETS: Interest-earning assets: | Three Months Ended, June 30, 2024 Average Balance | Interest | Average Yield/Cost | March 31, 2024 Average Balance | Interest | Average Yield/Cost |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and other loans and leases , net (1) | $83,235 | $1,167 | 5.62% | $84,123 | $1,193 | 5.68% |
| Securities (2) (3) | 12,094 | 139 | 4.68% | 11,576 | 123 | 4.30% |
| Interest-earning cash and cash equivalents | 17,883 | 242 | 5.44% | 14,345 | 197 | 5.52% |
| Total interest-earning assets | $113,212 | $1,548 | 5.48% | $110,044 | $1,513 | 5.51% |
| Non-interest-earning assets | 5,141 |  |  | 5,682 |  |  |
| Total assets | $118,353 |  |  | $115,726 |  |  |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:** |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Interest-bearing checking and money market accounts | $23,000 | $214 | 3.73% | $26,428 | $232 | 3.54% |
| Savings accounts | 9,173 | 64 | 2.82% | 8,400 | 47 | 2.24% |
| Certificates of deposit | 27,434 | 337 | 4.95% | 24,711 | 291 | 4.74% |
| Total interest-bearing deposits | $59,607 | $615 | 4.15% | $59,539 | $570 | 3.85% |
| Total borrowed funds | $28,612 | $376 | 5.28% | $25,728 | $319 | 4.99% |
| Total interest-bearing liabilities | $88,219 | $991 | 4.52% | $85,267 | $889 | 4.19% |
| Non-interest-bearing deposits | 18,632 |  |  | 19,355 |  |  |
| Other liabilities | 2,521 |  |  | 2,563 |  |  |
| Total liabilities | $109,372 |  |  | $107,185 |  |  |
| Stockholders’ and mezzanine equity | 8,981 |  |  | 8,541 |  |  |
| Total liabilities and stockholders’ equity | $118,353 |  |  | $115,726 |  |  |
| Net interest income/interest rate spread |  | $557 | 0.97% |  | $624 | 1.32% |
| Net interest margin |  |  | 1.98% |  |  | 2.28% |
| Ratio of interest-earning assets to interest-bearing liabilities |  |  | 1.28 x |  |  | 1.29 x |

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

(2) Amounts are at amortized cost.

(3) Includes FHLB stock and FRB stock.

*(dollars in millions)*

| ASSETS: Interest-earning assets: | Six Months Ended, June 30, 2024 Average Balance | Interest | Average Yield/Cost | June 30, 2023 Average Balance | Interest | Average Yield/Cost |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and other loans and leases , net (1) | $83,679 | $2,360 | 5.65% | $77,481 | $2,028 | 5.25% |
| Securities (2) (3) | 11,835 | 262 | 4.46% | 10,313 | 206 | 4.01% |
| Reverse repurchase agreements | 0 | 0 | —% | 606 | 17 | 5.64% |
| Interest-earning cash and cash equivalents | 16,114 | 439 | 5.48% | 11,300 | 281 | 5.02% |
| Total interest-earning assets | $111,628 | $3,061 | 5.50% | $99,700 | $2,532 | 5.10% |
| Non-interest-earning assets | 5,411 |  |  | 8,271 |  |  |
| Total assets | $117,039 |  |  | $107,971 |  |  |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:** |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Interest-bearing checking and money market accounts | $24,714 | $446 | 3.63% | $26,894 | $389 | 2.91% |
| Savings accounts | 8,787 | 111 | 2.54% | 10,551 | 79 | 1.52% |
| Certificates of deposit | 26,072 | 628 | 4.85% | 16,159 | 256 | 3.19% |
| Total interest-bearing deposits | $59,573 | $1,185 | 4.00% | $53,604 | $724 | 2.72% |
| Total borrowed funds | $27,171 | $695 | 5.32% | $20,251 | $353 | 3.52% |
| Total interest-bearing liabilities | $86,744 | $1,880 | 4.36% | $73,855 | $1,077 | 2.94% |
| Non-interest-bearing deposits | 18,994 |  |  | 18,933 |  |  |
| Other liabilities | 2,540 |  |  | 5,145 |  |  |
| Total liabilities | $108,278 |  |  | $97,933 |  |  |
| Stockholders’ and mezzanine equity | 8,761 |  |  | 10,038 |  |  |
| Total liabilities and stockholders’ equity | $117,039 |  |  | $107,971 |  |  |
| Net interest income/interest rate spread |  | $1,181 | 1.14% |  | $1,455 | 2.16% |
| Net interest margin |  |  | 2.13% |  |  | 2.94% |
| Ratio of interest-earning assets to interest-bearing liabilities |  |  | 1.29 x |  |  | 1.35 x |

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

(2) Amounts are at amortized cost.

(3) Includes FHLB stock and FRB 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.

*(in millions)*

| INTEREST-EARNING ASSETS: | Three Months Ended, June 30, 2024 compared to March 31, 2024 Increase/(Decrease) Due to: Volume1 | Rate1 2 | Net | Six Months Ended, June 30, 2024 compared to June 30, 2023 Increase/(Decrease) Due to: Volume1 | Rate1 2 | Net |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and other loans and leases | $(13) | $(13) | $(26) | $167 | $165 | $332 |
| Securities | 6 | 10 | 16 | 32 | 24 | 56 |
| Reverse repurchase agreements | — | — | — | (8) | (9) | (17) |
| Interest earning cash & cash equivalent | 50 | (5) | 45 | 125 | 33 | 158 |
| Total interest-earnings assets | $43 | $(8) | $35 | $316 | $213 | $529 |
| **INTEREST-BEARING LIABILITIES:** |  |  |  |  |  |  |
| Interest-bearing checking and money market accounts | $(24) | $6 | $(18) | $(29) | $86 | $57 |
| Savings accounts | 4 | 13 | 17 | (15) | 47 | 32 |
| Certificates of deposit | 25 | 21 | 46 | 164 | 208 | 372 |
| Short term borrowed funds | 11 | 16 | 27 | (29) | (11) | (40) |
| Other borrowed funds | 16 | 14 | 30 | 144 | 238 | 382 |
| Total interest-bearing liabilities | $32 | $70 | $102 | $235 | $568 | $803 |
| Change in net interest income | $11 | $(78) | $(67) | $81 | $(355) | $(274) |

(1) The change in interest income or expense due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.

(2) Includes the impact of nonaccrual loans.

#### Comparison to Prior Quarter

The Company's net interest margin for the second quarter 2024 was 1.98 percent, down 30 basis points compared to the first quarter 2024. The 30 basis point reduction was mainly driven by an increase in the average cost of interest bearing liabilities, as well as an increase in borrowings to support a higher level of on-balance sheet liquidity associated with regulatory requirements. The increase in the cost of interest-bearing liabilities was driven by a full quarter of the change in funding mix following the deposit mix shift and increase in wholesale borrowings that occurred during the first quarter 2024. The first quarter 2024 decline in lower rate deposits and increase in certificates of deposits, along with the increase in borrowed funds, was primarily driven by customer withdrawals of uninsured deposits following the credit rating agency downgrades of our Company’s debt and deposit ratings by third-party credit rating agencies in February and March 2024. These elevated withdrawals resulted in the Company raising liquidity through brokered deposits and borrowings. Subsequent to the $1.05 billion capital investment in March 2024, our customer deposits stabilized and in the second quarter 2024, customer deposits grew approximately $3 billion. We expect to utilize liquidity from the second quarter 2024 deposit growth, continued deposit growth in the third quarter 2024, and asset sale transactions closing in the third quarter of 2024 to reduce short term and other borrowings.

A substantial portion of our loan portfolio have fixed rates through repricing dates which extend several years. Because most of these loans were originated when market rates were lower than present rates, they have a negative impact to our net interest margin. However, upon reaching repricing option dates, the resulting rate resets will increase our interest income if higher interest rates persist. See table under Loan Maturity and Repricing. Other factors affecting the amount of our net interest income for the second quarter 2024 include a $1.1 billion increase in nonaccrual loans and the associated reversal of previously accrued interest income on those loans.

#### Comparison to Prior Year to Date

For the first six months of 2024, net interest margin was 2.13 percent, down 81 basis points compared to the first six months of 2023. The decrease was primarily the result of the impact of the customer deposit withdrawals in the first quarter 2024 and the resulting shift in deposit mix to higher cost certificates of deposit and wholesale borrowings.

Other factors affecting net interest income for the first six months 2024 compared to the first six months 2023 include:

- A $1.7 billion increase in nonaccrual loans and the associated reversal of previously accrued interest income on those loans.
- A $6.2 billion increase in average loan balances driven by the assets acquired in the Signature Transaction that closed on March 20, 2023.
- An increase in the average loan yield primarily due to the impact of multi-family loans repricing to higher rates upon reaching the end of their initial fixed rate periods.
- A 45 basis point increase in the average yield on investment securities driven by lower rate securities maturing and being replaced with higher rate securities, consistent with the increase in market interest rates.

### Provision for Credit Losses

#### Comparison to Prior Quarter

For the second quarter 2024, the provision for credit losses totaled $390 million compared to a $315 million provision for the first quarter 2024. The provision reflects an increase in charge-offs, principally relating to larger-balance office loans, and the continuing impact of market conditions on the multi-family portfolio as higher rates and inflationary impacts persist.

Net charge-offs totaled $349 million for the second quarter 2024 compared with $81 million for the first quarter 2024 primarily driven primarily by an increase in classified office loans and receipt of appraisals on those loans.

#### Comparison to Prior Year to Date

For the first six months of 2024, the provision for credit losses totaled $705 million compared to a $219 million provision for the first six months of 2023. The provision reflects substantial increases in the allowance for credit losses on loans and leases and charge-offs during the current period, principally related to risk rating downgrades on commercial real estate and multi-family loans with upcoming maturities or repricing for which the estimated property net operating income would not be sufficient to fully cover pro-forma debt service when applying current market rates and terms, as well as underlying collateral value declines principally in the office portfolio.

Net charge-offs totaled $430 million for the first six months of 2024, compared with a net recovery of $1 million for the first six months of 2023 primarily driven by an increase in classified loans in the commercial real estate and multi-family portfolios and underlying collateral value declines.

### Non-Interest Income

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

*(in millions)*

|  | Three Months Ended, June 30, 2024 | March 31, 2024 | Six Months Ended, June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Fee income | $41 | $34 | $75 | $75 |
| Net return on mortgage servicing rights | 19 | 21 | 40 | 47 |
| Net gain on loan sales and securitizations | 18 | 20 | 38 | 45 |
| Other | 29 | 29 | 58 | 25 |
| Bank-owned life insurance | 12 | 10 | 22 | 21 |
| Net loan administration income (loss) | (5) | 16 | 11 | 46 |
| Net (loss) gain on securities | — | $— | — | (1) |
| Bargain purchase gain | — | (121) | (121) | 2,142 |
| Total non-interest income | $114 | $9 | $123 | $2,400 |

#### Comparison to Prior Quarter

The bargain purchase gain reduction recorded in the first quarter represented the final measurement period adjustment related to the fair value of assets acquired and liabilities assumed in the Signature Transaction.

Loss on loan administration activities was $5 million for the second quarter 2024 compared to income of $16 million for the first quarter 2024 driven by a $9 million increase in interest paid on subservicing custodial deposits and a $10 million decrease in servicing income that was driven by the conclusion of our servicing agreement with the FDIC related to the Signature Transaction in March 2024. As a result of the Company’s third quarter 2024 agreement to sell its mortgage servicing, subservicing and third-party origination activities, substantially all income associate with servicing rights, gain on loan sales, and loan administration income will cease upon consummation of the transaction, which is expected in early fourth quarter 2024.

#### Comparison to Prior Year to Date

The decrease in loan administration fee income was a result of an $11 million increase in interest paid on subservicing custodial deposits, and the conclusion of the FDIC servicing agreement, lower net gain on loan sales and securitizations reflected the impact of higher rates driving substantially lower mortgage loan production volume.

### Non-Interest Expense

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

*(in millions)*

| Operating expenses: | Three Months Ended, June 30, 2024 | March 31, 2024 | Six Months Ended, June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Compensation and benefits | $312 | $333 | $645 | $508 |
| FDIC insurance | 91 | 50 | 141 | 37 |
| Occupancy and equipment | 52 | 52 | 104 | 87 |
| General and administrative | 183 | 186 | 369 | 275 |
| Total operating expense | 638 | 621 | 1,259 | 907 |
| Intangible asset amortization | 33 | 35 | 68 | 54 |
| Merger-related and restructuring expenses | 34 | 43 | 77 | 176 |
| Total non-interest expense | $705 | $699 | $1,404 | $1,137 |

#### Comparison to Prior Quarter

Total operating expenses were $17 million higher in the second quarter 2024 than the first quarter 2024. Compensation and benefits expense decreased due to a reduction in employees and seasonal factors in the first quarter such as payroll taxes and, 401(k) matching. FDIC insurance expense increased during the period due to an increase in the amount of criticized and classified loans and other factors affecting the assessment rate.

#### Comparison to Prior Year to Date

Total operating expenses for the first six months of 2024 were up $352 million compared to the first six months of 2023. This increase was largely due to the Signature Transaction, including an increase in the number of employees, higher occupancy costs related to an increase in number of Company locations, and the higher regulatory costs described previously.

We expect our expenses will decrease approximately $100 million per quarter related to the sale of the mortgage servicing, subservicing and third-party origination activities upon consummation of those transactions.

### Income Tax Expense

#### Comparison to Prior Quarter

For the second quarter 2024, the Company reported an income tax benefit of $101 million compared to a benefit of $54 million for the first quarter 2024. The benefit for the second quarter 2024 was driven by the higher book loss for the quarter, primarily attributable to the provision for credit losses. Certain non-deductible items impact the Company's effective tax rate, including FDIC insurance expense, and the bargain purchase gain adjustment.

#### Comparison to Prior Year to Date

For the first six months of 2024, the Company reported an income tax benefit of $155 million compared to an income tax expense of $80 million for the first six months of 2023. The effective tax rate for the first six months of 2024 was 19.25 percent compared to 3.21 percent in the first six months of 2023.

### FINANCIAL CONDITION

### Balance Sheet Summary

Total assets increased $5.0 billion to $119.1 billion as of June 30, 2024, compared to $114.1 billion at December 31, 2023, principally related to increasing on-balance sheet liquidity in cash and cash equivalents.

Total loans and leases held for investment decreased $10.1 billion to $74.6 billion at June 30, 2024, compared to $84.6 billion at December 31, 2023. The decrease was primarily driven by the transfer of the warehouse loan portfolio from loans held for investment to loans held for sale and decreases in commercial real estate and multi-family loans as the Company decreases its concentration in these portfolios.

The securities portfolio increased $1.4 billion to $10.5 billion at June 30, 2024, compared to $9.2 billion at December 31, 2023. Our securities portfolio is classified as available-for-sale with low credit risk U.S. government agency bonds comprising over 90 percent of the total portfolio at June 30, 2024 and December 31, 2023. These instruments are recorded at fair value and interest rate driven unrealized gains and losses are recorded in other comprehensive income.

Total deposits decreased $2.5 billion, to $79.0 billion at June 30, 2024 compared to $81.5 billion at December 31, 2023. In February and March 2024, we experienced $9.7 billion customer deposit attrition following downgrades in our debt and deposit ratings by third-party credit rating agencies. On March 6, 2024 we announced a $1.05 billion capital raise, after which deposits stabilized for the remainder of the first quarter 2024. In response to the customer deposit attrition, we replaced the decline in deposits and increased our on-balance sheet liquidity, primarily through $4.1 billion in brokered certificates of deposit and $5.5 billion of wholesale borrowings. Subsequently in the second quarter 2024, targeted deposit gathering programs and customer engagement increased customer deposits $3 billion.

### Loans held-for-investment

The following table summarizes the composition of our loan portfolio:

*(dollars in millions)*

|  | June 30, 2024 Amount | Percent of Loans Held for Investment | December 31, 2023 Amount | Percent of Loans Held for Investment |
| --- | ---: | ---: | ---: | ---: |
| Multi-family | $36,011 | 48.3% | $37,265 | 44.0% |
| Commercial real estate | 9,961 | 13.4 | 10,470 | 12.4 |
| One-to-four family first mortgage | 5,790 | 7.8 | 6,061 | 7.2 |
| Acquisition, development, and construction | 3,217 | 4.3 | 2,912 | 3.4 |
| Commercial and industrial | 17,819 | 23.8 | 25,254 | 29.9 |
| Other loans | 1,754 | 2.4 | 2,657 | 3.1 |
| Total loans and leases held for investment | $74,552 | 100.0% | $84,619 | 100.0% |
| Allowance for credit losses on loans and leases | (1,268) |  | (992) |  |
| Total loans and leases held for investment, net | $73,284 |  | $83,627 |  |
| Loans held for sale | 7,845 |  | 1,182 |  |
| Total loans and leases, net | $81,129 |  | $84,809 |  |

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

*(dollars in millions)*

|  | Three Months Ended, June 30, 2024 Amount | March 31, 2024 Amount | Six Months Ended, June 30, 2024 Amount | June 30, 2023 Amount |
| --- | ---: | ---: | ---: | ---: |
| Multi-family | $3 | $19 | $22 | $557 |
| Commercial real estate | 172 | 212 | 384 | 587 |
| One-to-four family first mortgage | 93 | 86 | 179 | 372 |
| Acquisition, development, and construction | 284 | 187 | 471 | 778 |
| Specialty finance | 740 | 1,083 | 1,823 | 3,240 |
| Commercial and industrial | 735 | 877 | 1,612 | 2,078 |
| Other | 132 | 104 | 236 | 650 |
| Total loans originated for investment | $2,159 | $2,568 | $4,727 | $8,262 |

#### Loan Maturity and Repricing

The following table sets forth option loans by year of repricing and non-option loans by year of contractual maturity for our multi-family and commercial real estate portfolios within loans held for investment at June 30, 2024. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to change. Risks associated with loan repricing are discussed in the Credit Quality section.

*(dollars in millions)*

| Repricing / Contractual Maturity Year | June 30, 2024 Multi-Family Option Loans by Repricing Date | Non-Option Loans by Contractual Maturity | Commercial Real Estate Option Loans by Repricing Date | Non-Option Loans by Contractual Maturity | Total(1) |
| --- | ---: | ---: | ---: | ---: | ---: |
| 2024 | $1,871 | $348 | $200 | $582 | $3,001 |
| 2025 | 3,716 | 1,353 | 399 | 1,153 | 6,621 |
| 2026 | 4,169 | 1,043 | 802 | 771 | 6,785 |
| 2027 | 7,628 | 1,206 | 1,034 | 1,111 | 10,979 |
| 2028 | 3,805 | 2,202 | 328 | 1,067 | 7,402 |
| 2029 | 2,326 | 1,138 | 291 | 524 | 4,279 |
| 2030+ | 165 | 4,959 | 9 | 1,228 | 6,361 |
| Total amounts due or repricing, gross | $23,680 | $12,249 | $3,063 | $6,436 | $45,428 |

(1) Excludes Specialty Finance commercial real estate loans and multi-family loans serviced-by-others totaling $544 million or 1% of the total balance.

#### Multi-Family Loans

The multi-family loan portfolio was $36.0 billion at June 30, 2024, down $1.3 billion compared to $37.3 billion at December 31, 2023, which is reflective of our continuing efforts to diversify our portfolio as borrowers without a deposit relationship seek more favorable loan terms with other lenders.

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, including calculation of the debt service coverage ratio. Whether a borrower qualifies for an interest-only period is based on the individual credit profile of the borrower, particularly the loan-to-value of the property.

The majority of our multi-family loans are secured by rental apartment buildings. At June 30, 2024, $20.4 billion or 57 percent of the Company’s total multi-family loan portfolio was secured by properties in New York State, many of which are subject to rent regulation laws to varying degrees. The New York Housing Stability and Tenant Protection Act of 2019 (the "Act") significantly limits the ability to increase rents on regulated apartments upon vacancy. These limitations may reduce a borrower’s ability to generate additional revenues on those units to offset higher operating expenses due to inflation and the current interest rate environment, which could result in lower net operating income and could impact a borrower’s ability to satisfy repayment obligations during the term of the loan. In addition, the level of income generated by the property may be insufficient to qualify for refinancing at maturity. The impact on current and future cash flows has adversely impacted the value of properties with a high concentration of rent regulated units which has increased charge-offs in 2024.

To mitigate our exposure to rent regulated properties, we are curtailing future originations of loans secured by rent-regulated properties and focusing originations and renewal retention on borrowers with whom we will have broader customer relationships beyond lending. Property values in this loan sector have decreased substantially since origination due to unfavorable market conditions. The appraised value used in our loan-to-value ratio is determined using an income approach to estimate the stabilized value of the collateral by applying a market driven capitalization rate to the stabilized cash flow of the property.

Our multi-family loan portfolio had $15.4 billion outstanding with an interest-only payment at June 30, 2024. The weighted average interest-only period remaining was 22 months as of June 30, 2024, with approximately 60 percent of these loans entering their amortization period by the end of 2025.

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. Although occupancy levels have historically tended to be stable due to below market rents, rent-regulated loans that are repricing are incurring debt service levels that, when combined with inflationary pressure on operating costs and limits on the ability to increase rental rates, approach or exceed some properties’ net operating income and may require the borrower to support the loan from sources unrelated to the collateral until elevated interest rates subside.

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

*(dollars in millions)*

| New York City: | At June 30, 2024 Multi-Family Loans Amount | Percent of Total |
| --- | ---: | ---: |
| Manhattan | $6,632 | 18% |
| Brooklyn | 5,677 | 16 |
| Bronx | 3,481 | 10 |
| Queens | 2,805 | 8 |
| Staten Island | 129 | — |
| Total New York City | $18,724 | 52% |
| New Jersey | 4,798 | 13% |
| Long Island | 498 | 1 |
| Total Metro New York | $24,020 | 67% |
| Other New York State | 1,213 | 3% |
| Pennsylvania | 3,542 | 10 |
| Florida | 1,614 | 4 |
| Ohio | 1,048 | 3 |
| Arizona | 431 | 1 |
| All other states | 4,143 | 12 |
| Total | $36,011 | 100% |

#### Commercial Real Estate

At June 30, 2024, commercial real estate loans represented $10.0 billion, or 13.4 percent, of total loans held for investment, reflecting a $509 million decrease compared to $10.5 billion at December 31, 2023 primarily due to payoffs.

Certain of our commercial real estate loans may contain an interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully amortizing basis, including calculation of the debt service coverage ratio. Whether a borrower qualifies for an interest-only period is based on the individual credit profile of the borrower, particularly the loan-to-value of the property.

The commercial real estate loans we originate are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. Occupancy levels for office space have declined substantially over the past three years which has had an impact on borrowers' net operating income and their ability to cover debt service. These unfavorable market conditions also lower the value of underlying collateral which has had a material impact on loan charge-offs in 2024.

The following table presents an analysis of the property types that collateralize the commercial real estate loans in our held-for-investment loan portfolio:

*(dollars in billions)*

|  | At June 30, 2024 Commercial Real Estate Loans Amount | Percent of Total | At December 31, 2023 Commercial Real Estate Loans Amount | Percent of Total |
| --- | ---: | ---: | ---: | ---: |
| Office non-owner occupied | $2,788 | 28% | $3,243 | 31% |
| Retail (includes owner and non-owner occupied) | 2,138 | 21 | 2,234 | 21 |
| Industrial | 3,062 | 31 | 2,995 | 29 |
| Other | 1,973 | 20 | 1,998 | 19 |
| Total | $9,961 | 100% | $10,470 | 100% |

14

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

*(dollars in millions)*

|  | At June 30, 2024 Commercial Real Estate Loans Amount | Percent of Total |
| --- | ---: | ---: |
| New York | $5,207 | 52% |
| Michigan | 1,141 | 11 |
| New Jersey | 598 | 6 |
| California | 518 | 5 |
| Florida | 447 | 4 |
| Pennsylvania | 319 | 3 |
| Virginia | 163 | 2 |
| All other states | 1,568 | 16 |
| Total | $9,961 | 100% |

#### Commercial and Industrial

The commercial and industrial 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, and revolving lines of credit.

A broad range of commercial and industrial 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 commercial and industrial loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. Commercial and industrial loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

#### One-to-Four Family Loans

At June 30, 2024, one-to-four family loans represented $5.8 billion, inclusive of $860 million of loans with government guarantees, or 7.8 percent of total loans held for investment, compared to $6.1 billion at December 31, 2023. As of June 30, 2024, the repurchase liability on loans with government guarantees was $374 million. The repurchase obligations and related assets will transfer to the buyer of our mortgage activities upon consummation of that sale. As of June 30, 2024, non-government guaranteed loans in this portfolio had an average current FICO score of 742 and an average LTV of 51 percent.

#### Other Loans

At June 30, 2024, other loans totaled $1.8 billion and consisted primarily of home equity lines of credit and other consumer loans, including overdraft loans.

Our home equity portfolio includes home equity loans, second mortgage loans and home equity line of credits. As of June 30, 2024, loans in this portfolio had an average current FICO score of 751.

### Loans Held for Sale

Loans held for sale at June 30, 2024 totaled $7.8 billion, an increase of $6.7 billion compared to $1.2 billion at December 31, 2023. We classify loans as held for sale when we originate or purchase loans that we intend to sell and when we change our intent with regard to loans originated as held for investment. Our mortgage loans held for sale are carried at fair value. 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.

During the second quarter 2024 we transferred all of our warehouse loans to held for sale. This balance was $6.4 billion at June 30, 2024. We completed the sale of the warehouse loan portfolio in the third quarter 2024.

### Securities

Total securities were $10.5 billion, or 9 percent of total assets, at June 30, 2024, compared to $9.2 billion, or 8 percent of total assets, at December 31, 2023. At June 30, 2024 and December 31, 2023, all of our securities were designated as “Available-for-Sale”. At June 30, 2024, 20 percent of our portfolio are floating rate securities.

As of June 30, 2024, the net unrealized loss on securities available for sale, net of tax, was $674 million, compared to $581 million at December 31, 2023, reflecting the higher interest rate environment.

At June 30, 2024, available-for-sale securities had an estimated weighted average life of six years. Included in the quarter-end amount were mortgage-related securities of $8.5 billion and other debt securities of $2.1 billion.

At the prior year-end, available-for-sale securities were $9.2 billion and had an estimated weighted average life of six years. Mortgage-related securities accounted for $6.6 billion of the year-end balance, with other debt securities accounting for the remaining $2.6 billion.

The following table summarizes the weighted average yields of debt securities for the maturities indicated at June 30, 2024:

| Available-for-Sale Debt Securities: (1) | Mortgage- Related Securities | U.S. Government and GSE Obligations | State, County, and Municipal | Other Debt Securities (2) |
| --- | ---: | ---: | ---: | ---: |
| Due within one year | 3.49% | 4.57% | —% | —% |
| Due from one to five years | 3.14 | — | — | 5.64 |
| Due from five to ten years | 2.61 | 1.61 | 3.16 | 5.31 |
| Due after ten years | 4.58 | — | — | 5.67 |
| Total debt securities available for sale | 4.49 | 1.88 | 3.16 | 5.24 |

(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.

### Borrowed Funds

The majority of our borrowed funds consist of wholesale borrowings, including Federal Home Loan Bank ("FHLB") advances, Discount Window advances and draws under the Bank Term Funding Program from the Federal Reserve Bank of New York ("FRB"), repurchase agreements, and, to a lesser extent, junior subordinated debentures and subordinated notes. At June 30, 2024, total borrowed funds increased $7.6 billion to $28.9 billion compared to the balance at December 31, 2023.

#### Wholesale Borrowings

Wholesale borrowings at June 30, 2024 were $27.9 billion compared to $20.3 billion at December 31, 2023.

FHLB advances increased to $22.8 billion at June 30, 2024 from $19.3 billion at December 31, 2023. FHLB advances are secured by eligible collateral in the form of loans and securities, under blanket collateral agreements with the FHLB. $750 million of our wholesale borrowings had callable features at June 30, 2024 and $2.0 billion had callable features at December 31, 2023. Additionally, $1.0 billion was drawn on the Bank Term Funding Program, secured by eligible securities. The increase in FHLB advances at June 30, 2024 compared to December 31, 2023 was driven by our actions to bolster on-balance sheet liquidity.

In the second quarter 2024 the Company borrowed $4.0 billion from the FRB, secured by various loan and investment security collateral. This discount window advance matures in September 2024. Additionally the Company has $1.0 billion drawn under the Bank Term Funding Program which matures in December 2024. Available liquidity from customer deposit growth and the sale of warehouse lending portfolio will be used to repay these borrowings.

Repurchase agreements outstanding at June 30, 2024 were $121 million. We did not have any repurchase agreements outstanding at December 31, 2023. These agreements primarily use government-sponsored enterprise ("GSE") obligations as collateral and were entered into with either the FHLB or specific brokerage firms.

See Note 11, “Borrowed Funds,” in Item 1, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, our junior subordinated debentures and subordinated debt.

### Federal Reserve and Federal Home Loan Bank Stock

At June 30, 2024, the Company had $1.0 billion of FHLB-NY stock, at cost, and $329 million of FHLB-Indianapolis stock, at cost. At December 31, 2023, the Company had $861 million of FHLB-NY stock, at cost, and $329 million of FHLB-Indianapolis stock, at cost. The Company maintains an investment in FHLB stock partly in conjunction with its membership in the FHLB and partly related to its access to the FHLB funding it utilizes. The increase in FHLB-NY stock was primarily related to increased borrowings in the first quarter of 2024. In addition, at June 30, 2024 and December 31, 2023, the Company had $218 million of Federal Reserve Bank stock, at cost.

### Credit Risk

To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent as described more fully in our Annual Report on Form 10-K for the year ended December 31, 2023.

### Credit Quality

It is our practice to continually review the risk in our loan portfolio. The Company receives financial information from borrowers annually, and most of the financial information is received in the second calendar quarter. At June 30, 2024, the Company had received updated financial information on approximately 80 percent of the multi-family loan portfolio. Upon receipt of updated borrower financial information, we perform an analysis to determine whether the cash flow from the underlying collateral is sufficient to meet the contractual loan payments, commonly referred to as the debt service coverage ratio. We consider the ability to cover debt service based upon the current contractual rate, or where a borrower’s initial fixed rate period expires within 18 months, the lowest contractual rate reset option available under the loan terms using the current level for referenced indices. Loans for which the collateral does not have a debt service coverage ratio of 1.0 or higher under this analysis are rated substandard. We order appraisals for all substandard loans. Where an appraisal does not support recovery of the loan carrying amount for collateral-dependent loans, we classify the loan as non-accrual, regardless of payment status, and charge the loan down to its recoverable amount. Once an appraisal is ordered it takes approximately two to three months to receive and appropriately review the results. Non-accrual loans are evaluated at least quarterly to determine if an adjustment to the amount of impairment is required. Loans that are on non-accrual and, separately, the largest individual non-accrual borrowers are reported and reviewed with the Credit Committee of the Board of Directors at least quarterly.

The Company conducted a thorough review of its largest 350 real estate loans at the end of the first quarter of 2024. This review continued in the second quarter of 2024 to cover approximately 75 percent of the unpaid principal balance of the commercial real estate and multi-family portfolio.

Classified loans increased $3.3 billion in the second quarter of 2024 and $2.3 billion in the first quarter of 2024. These downgrades were principally related to loans with upcoming maturities or repricing where the estimated net operating income of the property would not be sufficient to fully cover pro-forma debt service when applying current market rates and terms, or the underlying collateral values are estimated to have declined to at or below the loan carrying amount. Classified loans reflect the potential that a loss may occur if deficiencies in the primary source of repayment are unable to be corrected and borrowers are unwilling or unable to otherwise support the loans. Refer to Note 6 in Item 1, "Financial Statements and Supplementary Data" for additional details.

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.

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 in non-accrual, we cease recording interest income on the loan, previously accrued and uncollected interest is reversed against interest income, and any subsequent interest collected is recorded as a reduction in the loan carrying amount. A loan is returned to accrual status only when the loan is current and we have reasonable assurance that the loan will be fully collectible. At June 30, 2024, $1.1 billion of non-accrual loans were current based on their existing payment terms.

In accordance with our charge-off policy, collateral-dependent 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 support these efforts. Charge-offs of $388 million were recorded on commercial real estate and multi-family loans during the six months ended June 30, 2024, primarily driven by appraisals received on those loans.

It is our policy to order updated appraisals for non-accrual loans that are collateralized by multi-family buildings, commercial real estate properties, or land, if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered at least 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 that are not showing signs of credit weakness. 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, or when we determine an updated appraisal is needed as a result of our ongoing credit analysis. We evaluate loans that were previously placed on non-accrual at least quarterly to determine if additional charge-offs may be needed.

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 other real estate owned 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.

#### Asset Quality Measures

All asset quality information excludes loans with government guarantees that are insured by U.S. government agencies.

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

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Non-accrual loans to total loans held for investment | 2.60% | 0.51% |
| Non-performing assets to total assets | 1.65 | 0.39 |
| Allowance for credit losses on loans and leases to non-accrual loans | 65.31 | 231.51 |
| Allowance for credit losses on loans and leases to total loans held for investment | 1.70 | 1.17 |

18

#### Non-accrual Loans

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

*(dollars in millions)*

|  | June 30, 2024 | December 31, 2023 | Change from December 31, 2023 to June 30, 2024 Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Multi-family | $794 | $138 | $656 | 475% |
| Commercial real estate | 753 | 128 | 625 | 488 |
| One-to-four family first mortgage | 106 | 95 | 11 | 12 |
| Acquisition, development, and construction | 18 | 2 | 16 | 800 |
| Commercial and industrial | 247 | 43 | 204 | 474 |
| Other non-accrual loans(1) | 24 | 22 | 2 | 9 |
| Total non-accrual loans | $1,942 | $428 | $1,514 | 354% |
| Repossessed assets | 17 | 14 | 3 | 21 |
| Total non-accrual loans and repossessed assets | $1,959 | $442 | $1,517 | 343% |

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

During the second quarter 2024, the Company received updated financial information for a substantial portion of the commercial real estate and multi-family portfolio. Additionally a substantial number of appraisals on loans exhibiting credit weakness were received, which resulted in an increase in non-accrual loans during the quarter. Approximately 60 percent of our non-accrual loans are current on their contractual payment terms. In determining whether to place a loan on non-accrual we have considered whether a borrower will be able to service its debt under terms expected within the next 18 months based on current collateral and net operating income. Where net operating income is below the projected debt service and the collateral value is below the loan amount, we place loans on non-accrual. Updated financial information from borrowers and appraisals received have led to an increase in non-accruals loans in 2024.

The following table sets forth the changes in non-accrual loans over the first six months of 2024:

*(in millions)*

|  |  |
| --- | ---: |
| Balance at December 31, 2023 | $428 |
| New non-accrual, including acquired from acquisition | 1,788 |
| Charge-offs | (176) |
| Transferred to repossessed assets | (2) |
| Loan payoffs, including dispositions and principal pay-downs | (88) |
| Restored to performing status | (8) |
| Balance at June 30, 2024 | $1,942 |

19

#### Delinquencies

The following table presents our loans 30 to 89 days past due by loan type and the changes in the respective balances. Over $700 million of the loans categorized as delinquent at June 30, 2024 had subsequently cured and were current as of July 31, 2024, principally in the multi-family category.

*(dollars in millions)*

| Loans 30 to 89 Days Past Due: | June 30, 2024 | December 31, 2023 | June 30, 2024 compared to December 31, 2023 Amount |
| --- | ---: | ---: | ---: |
| Multi-family | $893 | $121 | $772 |
| Commercial real estate | 125 | 28 | 97 |
| One-to-four family first mortgage | 22 | 40 | (18) |
| Acquisition, development, and construction | 54 | 2 | 52 |
| Commercial and industrial | 100 | 37 | 63 |
| Other loans | 10 | 22 | (12) |
| Total loans 30-89 days past due | $1,204 | $250 | $954 |

### Allowance for Credit Losses

The following table sets forth the allocation of the consolidated allowance for credit losses on loans and leases at each period-end:

*(dollars in millions)*

|  | June 30, 2024 Allowance for credit losses | Allowance as a percent of loans in each portfolio | Loans in each portfolio as a percent of total loans | December 31, 2023 Allowance for credit losses | Allowance as a percent of loans in each portfolio | Loans in each portfolio as a percent of total loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Multi-family loans | $618 | 1.72% | 48.3% | $307 | 0.82% | 44.0% |
| Commercial real estate loans | 328 | 3.29 | 13.3 | 366 | 3.50 | 12.4 |
| One-to-four family first mortgage loans | 40 | 0.69 | 7.8 | 48 | 0.79 | 7.2 |
| Acquisition, development, and construction loans | 43 | 1.34 | 4.3 | 36 | 1.24 | 3.4 |
| Commercial and industrial | 172 | 0.97 | 23.9 | 132 | 0.52 | 29.9 |
| Other loans | 67 | 3.82 | 2.4 | 103 | 3.88 | 3.1 |
| Total loans | $1,268 | 1.70% | 100.0% | $992 | 1.17% | 100.0% |

20

At June 30, 2024, the allowance for credit losses on loans and leases was $1.3 billion compared to $1.0 billion at December 31, 2023, up $276 million. Market interest rates remain persistently high which will put pressure on the ability for certain borrowers with interest rates resetting at current levels to cover debt service. When combined with inflationary pressure on operating costs and limits on the ability to increase rental rates, debt service levels may approach or exceed some properties' net operating income, which increases the risk of loss. We believe that higher interest rates for a longer period of time will have a more significant impact on our loans that will reprice during the next 18 months. Therefore, we have incorporated a higher probability of default related to those loans as they approach their scheduled repricing date in the measurement of our allowance for credit losses.

Our allowance for credit losses is determined based on quantitative modeling that incorporates and weighs various economic forecast scenarios. The key inputs to our quantitative allowance for credit losses models include borrowers' projected debt service based on the most recent financial information available and underlying collateral property values. Property values are particularly meaningful for our multi-family and commercial real estate portfolios. Our models consider the entire life of the loan, including both the interest only period of the loan, if applicable, and the amortization period, to assess the probability of default and the loss given default. For our multi-family portfolio, we obtain and utilize current and projected geography-specific market information in our forecasts. In estimating the qualitative component of our allowance for credit losses, we have adjusted key inputs used by the model on an average basis for certain loans, most notably net operating income and property values to reflect weaknesses in the underlying data, including the recency of appraisal values, and the lack of significant loss history in available data, particularly for multi-family loans.

The allowance for credit losses on loans and leases to total loans held for investment ratio increased to 1.70 percent at June 30, 2024, compared to 1.17 percent at December 31, 2023. Excluding loans with government guarantees and warehouse loans, the allowance for credit losses was 1.72 percent at June 30, 2024, compared to 1.26 percent at December 31, 2023.

### Charge-offs

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

*(dollars in millions)*

| Charge-offs: | For the Three Months Ended June 30, 2024 | March 31, 2024 | For the Six Months Ended June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Multi-family | $76 | $11 | $87 | $— |
| Commercial real estate | 237 | 64 | 301 | — |
| One-to-four family residential | 1 | — | 1 | 3 |
| Commercial and industrial | 35 | 11 | 46 | — |
| Other | 5 | 5 | 10 | 5 |
| Total charge-offs | $354 | $91 | $445 | $8 |
| **Recoveries:** |  |  |  |  |
| Multi-family | $— | $(1) | $(1) | $— |
| Commercial and industrial | (4) | (7) | (11) | (7) |
| Other | (1) | (2) | (3) | (2) |
| Total recoveries | $(5) | $(10) | $(15) | $(9) |
| Net charge-offs | $349 | $81 | $430 | $(1) |

21

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

*(dollars in millions)*

| Multi-family | Six Months Ended, June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| Net charge-offs (recoveries) during the period | $86 | $— |
| Average amount outstanding | $36,872 | $37,819 |
| Net charge-offs (recoveries) as a percentage of average loans | 0.23% | —% |
| Commercial real estate |  |  |
| Net charge-offs (recoveries) during the period | $301 | $— |
| Average amount outstanding | $10,370 | $9,619 |
| Net charge-offs (recoveries) as a percentage of average loans | 2.90% | —% |
| One-to-Four Family first mortgage |  |  |
| Net charge-offs (recoveries) during the period | $1 | $3 |
| Average amount outstanding | $5,876 | $5,881 |
| Net charge-offs (recoveries) as a percentage of average loans | 0.02% | 0.05% |
| Acquisition, Development and Construction |  |  |
| Net charge-offs (recoveries) during the period | $— | $— |
| Average amount outstanding | $3,186 | $2,219 |
| Net charge-offs (recoveries) as a percentage of average loans | —% | —% |
| Commercial and Industrial Loans |  |  |
| Net charge-offs (recoveries) during the period | $35 | $(7) |
| Average amount outstanding | $23,058 | $14,030 |
| Net charge-offs (recoveries) as a percentage of average loans | 0.15% | (0.05)% |
| Other Loans |  |  |
| Net charge-offs (recoveries) during the period | $7 | $3 |
| Average amount outstanding | $2,028 | $7,913 |
| Net charge-offs (recoveries) as a percentage of average loans | 0.35% | 0.04% |
| Total loans |  |  |
| Net charge-offs (recoveries) during the period | $430 | $(1) |
| Average amount outstanding | $81,390 | $77,481 |
| Net charge-offs (recoveries) as a percentage of average loans | 0.53% | —% |

22

### Liquidity Risk

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

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.

### Bank Liquidity and Sources of Funding

We monitor our liquidity daily, and more frequently during times of stress. Our most liquid assets are cash and cash equivalents. Additional liquidity stems from deposits, wholesale funding sources (including wholesale borrowings and brokered deposits) and approved lines of credit with various counterparties including the FHLB. These funding sources depend on the amount of mortgage loan collateral and available securities pledged. The Bank also has agreements with the Federal Reserve Bank to access the discount window, pledging certain loans and securities as collateral.

The following table summarizes our total liquidity from on-balance sheet and off-balance sheet funding sources:

*(in billions)*

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Cash at Federal Reserve | $19.0 | $11.5 |
| High-quality Liquid Assets | 7.1 | 6.3 |
| Total On-Balance Sheet Liquidity | 26.1 | 17.8 |
| FHLB Available Capacity | 2.1 | 8.4 |
| Discount Window Available Capacity | 5.7 | 1.7 |
| Total Liquidity | $33.9 | $27.9 |

At June 30, 2024, our total liquidity (cash and cash equivalents, high-quality liquid assets and borrowing capacity), was $33.9 billion. The $7.5 billion increase in cash and cash equivalents was driven by actions to further bolster our liquidity position. Subsequent to June 30, 2024, the Company completed the sale of its warehouse loan portfolio, further increasing available liquidity by approximately $6 billion.

### 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 majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or through business combinations); however, we also utilize brokered deposits depending on their availability and pricing relative to other funding sources. From December 31, 2023 to March 7, 2024, we experienced $9.7 billion in core deposit attrition following the credit rating agency downgrades of our Company's credit and deposit ratings in February and March 2024. On March 6, 2024, we announced a $1.05 billion capital raise, after which deposits stabilized. We replaced the decline in deposits and increased our on-balance sheet liquidity, primarily through brokered certificates of deposit and wholesale borrowings.

The following table presents the composition of the Company's brokered deposits:

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Brokered money market accounts | $233 | $1,258 |
| Brokered interest-bearing checking accounts represented | 1,532 | 1,599 |
| Brokered certificates of deposit | 11,343 | 6,605 |
| Total Brokered Deposits(1) | $13,108 | $9,462 |

(1) Excludes reciprocal 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:

*(in millions)*

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Portion of U.S. time deposits in excess of insurance limit | $6,402 | $7,893 |
| Time deposits otherwise uninsured with a maturity of: |  |  |
| 3 months or less | 2,243 | 1,675 |
| Over 3 months through 6 months | 1,828 | 1,623 |
| Over 6 months through 12 months | 1,959 | 2,325 |
| Over 12 months | 372 | 2,271 |
| Total time deposits otherwise uninsured | $6,402 | $7,894 |

The following table indicates the amount of custodial deposits by source:

*(in billions)*

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Custodial deposits from owned servicing | $0.9 | $0.7 |
| Custodial deposits from subservicing relationships | 2.7 | $2.2 |
| Non-servicing custodial deposits | 5.1 | 3.7 |
|  | $8.7 | $6.6 |

### Uninsured Deposits

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. As a result, we have total liquidity of $33.9 billion, which exceeds the balance of our uninsured deposits by $18.9 billion. 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 exclude internal accounts.

At June 30, 2024, our deposit base includes $15.0 billion of uninsured deposits. Uninsured deposits decreased following our earnings announcement in January 2024 and subsequent credit rating agency downgrades of our credit ratings in February and March 2024. Our customer deposits stabilized following the announcement of the $1.05 billion capital raise in March 2024, and subsequently increased $3 billion in the second quarter 2024.

### Credit Ratings

We maintain credit ratings from three rating agencies: Moody’s, Fitch and Morningstar DBRS. As of each of the dates indicated, our credit ratings were as follows:

|  |  |  |  |
| --- | --- | --- | --- |
|  | June 30, 2024 | December 31, 2023 | June 30, 2023 |
| Long-Term Issuer Rating: |  |  |  |
| Moody's | B2 | Baa3 | Baa3 |
| Fitch | BB | BBB | BBB |
| Morningstar DBRS | BBB (low) | BBB (high) | BBB (high) |
| Short-Term Deposits Rating: |  |  |  |
| Moody's | NP | P-2 | P-2 |

The primary mortgage loan agencies maintain standards that define the criteria that must be met for an institution to qualify as an eligible custodial depository for the deposits related to loans owned by those entities, including have an investment grade short-term issuer/deposit rating from Moody’s or S&P. We are currently not in compliance with that criteria. We have received a waiver of these criteria for all of our custodial deposits which could be revoked at any of the agencies' discretion. We have no other direct contractual relationships tied to further downgrades in our credit ratings, but may suffer reputational risk that could have an adverse effect on our business should that occur.

### Contractual Obligations and 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 certificates of deposit with contractual terms to our customers and borrow funds under contract from the FHLB. These contractual obligations are reflected in the Consolidated Statements of Condition under “Deposits” and “Borrowed funds,” respectively. At June 30, 2024, we had certificates of deposit of $28.8 billion and long-term debt (defined as borrowed funds with an original maturity one year or more) of $16.5 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 in other liabilities and totaled $436 million at June 30, 2024, a decrease of $10 million compared to $446 million at December 31, 2023.

At June 30, 2024, 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. 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 fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Based upon our current cash and cash equivalent balance of $19.0 billion and our total liquidity position of $33.9 billion, 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 second quarter 2024, 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 June 30, 2024 and December 31, 2023, we had no commitments to purchase securities.

### Parent Company Liquidity

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. At June 30, 2024, the Parent Company held cash and cash equivalents of $651 million. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to our common and preferred stockholders.

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 Office of the Comptroller of the Currency 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 Office of the Comptroller of the Currency 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 Office of the Comptroller of the Currency 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 Office of the Comptroller of the Currency 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 Office of the Comptroller of the Currency. In the first six months of 2024, dividends of $67 million were paid by the Bank to the Parent Company. We have reduced our quarterly cash dividends to common stockholders to $0.01 per common share and we do not anticipate material dividends from the Bank to the Parent Company in the near future until the Company is able to achieve a return to repeatable operating income.

At June 30, 2024, we believe the Company has sufficient liquidity and capital resources to meet its cash flow obligations through 2028.

### Interest Rate Risk

As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents our primary market risk. Changes in market interest rates represent the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Board of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.

The actual duration of held-for-investment mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may, in turn, be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the factors with the most significant impact on prepayments are market interest rates and the availability of refinancing opportunities.

### Interest Rate Sensitivity Analysis

Interest rate sensitivity is monitored through the use of a model that generates estimates of the change in our Economic Value of Equity ("EVE") over a range of interest rate scenarios. EVE is defined as the net present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan and mortgage-backed securities prepayment rates, current market value spreads, and deposit decay rates and betas.

Based on the information and assumptions in effect at June 30, 2024, the following table sets forth our EVE, assuming the changes in interest rates noted:

| Change in Interest Rates (in basis points) | Estimated Percentage Change in Economic Value of Equity |
| --- | ---: |
| -200 shock | 4.9% |
| -100 shock | 3.2% |
| +100 shock | (3.2)% |
| +200 shock | (7.0)% |

The net changes in EVE presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Bank.

During the second quarter of 2024, we terminated all of our derivatives that were designated in a cash flow or fair value hedge relationship. This action reduced our asset sensitivity resulting in a relatively neutral position.

While the EVE analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.

Interest rate risk is also monitored through the use of a model that generates net interest income ("NII") simulations over a range of interest rate scenarios. Modeling changes in NII requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NII analysis presented below assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.

Based on the information and assumptions in effect at June 30, 2024, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:

| Change in Interest Rates (in basis points) (1) | Estimated Percentage Change in Future Net Interest Income |
| --- | ---: |
| -200 shock | (3.1)% |
| -100 shock | (1.1)% |
| +100 shock | 0.3% |
| +200 shock | 0.4% |

(1) *In general, short- and long-term rates are assumed to increase in parallel instantaneously and then remain unchanged.*

The net changes in NII presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Bank.

Future changes in our mix of assets and liabilities may result in greater changes to our EVE, and/or NII simulations.

In the event that our EVE and net interest income sensitivities were to breach our internal policy limits, we would inform the Board of Directors and undertake actions to remediate, generally through capital market transactions.

Where temporary changes in market conditions or volume levels result in significant increases in risk, strategies may involve reducing open positions or employing other balance sheet management activities including the potential use of derivatives to reduce the risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:

- Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the asset mix over time to affect the maturity or repricing schedule of assets;
- Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are employed to affect the maturity structure or repricing of liabilities;
- Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods between assets and liabilities; and/or
- Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and forward purchase or sales commitments.

In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the slope of the yield curve. At June 30, 2024, our analysis indicated that a further inversion of the yield curve would be expected to result in a 0.5 percent increase in net interest income; conversely, an immediate steepening of the yield curve would be expected to result in a 1.2 percent decrease in net interest income.

### Regulatory Capital

The Company is a bank holding company subject to regulation, examination and supervision by the Federal Reserve. The Bank is national bank subject to regulation, examination, and supervision by the Office of the Comptroller of the Currency. The Bank is subject to the Prompt Corrective Action regulatory capital framework that establishes five categories of capital adequacy ranging from “well capitalized” to “critically undercapitalized.” An institution’s capital category affects various matters, including legal requirements for regulators to take prompt corrective action and the level of a bank’s Federal Deposit Insurance Corporation ("FDIC") deposit insurance premium assessments. Capital amounts and classifications are also subject to the regulators’ qualitative judgments about the components of capital and risk weighting assets, among other factors, and the regulators have discretion to require that institutions maintain capital in excess of minimum levels.

The quantitative measures established to ensure capital adequacy require that banks and bank holding companies 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 assets (as such measures are defined in the regulations). At June 30, 2024, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. The following tables set forth the common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios for the Company on a consolidated basis and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, as of the dates shown:

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

*(dollars in millions)*

| June 30, 2024 | Risk-Based Capital Common Equity Tier 1 Amount | Ratio | Tier 1 Amount | Ratio | Total Amount | Ratio | Leverage Capital Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total capital | $8,187 | 9.54% | $8,948 | 10.43% | $10,965 | 12.78% | $8,948 | 7.53% |
| Minimum for capital adequacy purposes | 3,862 | 4.50 | 5,149 | 6.00 | 6,866 | 8.00 | 4,751 | 4.00 |
| Excess | $4,325 | 5.04% | $3,799 | 4.43% | $4,099 | 4.78% | $4,197 | 3.53% |
| **December 31, 2023** |  |  |  |  |  |  |  |  |
| Total capital | $8,009 | 9.05% | $8,512 | 9.62% | $10,415 | 11.77% | $8,512 | 7.75% |
| Minimum for capital adequacy purposes | 3,983 | 4.50 | 5,310 | 6.00 | 7,081 | 8.00 | 4,392 | 4.00 |
| Excess | $4,026 | 4.55% | $3,202 | 3.62% | $3,334 | 3.77% | $4,120 | 3.75% |

The increase in our capital ratios from December 31, 2023 was primarily driven by a $1.05 billion capital investment in the first quarter 2024. At the date of the investment, $413 million of the capital investment was recorded in common equity, with the remainder in mezzanine equity until the associated preferred stock is converted or exchanged into common stock. In the second quarter 2024, a portion of the preferred stock converted to common stock. At June 30, 2024, $258 million of the capital investment remains in mezzanine equity. The conversion or exchange of the remaining convertible preferred stock will increase our common equity tier 1 approximately 30 basis points. Refer to Note 17 - Mezzanine and Stockholders' Equity for additional details.

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

*(dollars in millions)*

| June 30, 2024 | Risk-Based Capital Common Equity Tier 1 Amount | Ratio | Tier 1 Amount | Ratio | Total Amount | Ratio | Leverage Capital Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total capital | $9,286 | 10.84% | $9,286 | 10.84% | $10,360 | 12.09% | $9,286 | 7.82% |
| Minimum for capital adequacy purposes | 3,855 | 4.50 | 5,140 | 6.00 | 6,854 | 8.00 | 4,749 | 4.00 |
| Excess | $5,431 | 6.34% | $4,146 | 4.84% | $3,506 | 4.09% | $4,537 | 3.82% |
| **December 31, 2023** |  |  |  |  |  |  |  |  |
| Total capital | $9,305 | 10.52% | $9,305 | 10.52% | $10,271 | 11.61% | $9,305 | 8.48% |
| Minimum for capital adequacy purposes | 3,980 | 4.50 | 5,307 | 6.00 | 7,076 | 8.00 | 4,389 | 4.00 |
| Excess | $5,325 | 6.02% | $3,998 | 4.52% | $3,195 | 3.61% | $4,916 | 4.48% |

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 22, 2024 the Company announced that it had closed on the sale of approximately $6 billion of mortgage warehouse loans to JP Morgan Chase Bank, N.A. The Company expects to close on an additional $200 million of mortgage warehouse loans in the near future. In total, these transactions will increase the common equity tier 1 ratio approximately 70 basis points.

On July 25, 2024, the Company announced that it had entered into a definitive agreement to sell its residential mortgage servicing business, including mortgage servicing rights and third-party origination platform to Mr. Cooper, a leading mortgage originator and servicer for approximately $1.4 billion. The transaction is expected to close during the fourth quarter of 2024. Upon closing, the Company expects that the transaction will increase the common equity tier 1 ratios approximately 60 basis points.

### Other Recent Developments

On November 16, 2023, the FDIC published in the Federal Register its final rule that imposes special assessments to recover the loss to the Deposit Insurance Fund. The FDIC continues to provide an updated estimate of each institution’s quarterly and total special assessment expense and while we expect this may result in an increase, we do not expect the increase to be material. The final rule calls for the FDIC to collect special assessments over eight quarterly assessment periods beginning with the first quarterly assessment period of 2024 which was paid in June 2024.

On July 27, 2023, the Federal Banking Agencies, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency, 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 and the Bank 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 accumulated other comprehensive income 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.

On August 29, 2023, the Federal Banking Agencies issued for public comment a proposal that would require large banks, or those with more than $100 billion in total consolidated assets, to maintain a minimum amount of long-term debt (“LTD”) that can be used, in the instance of a bank’s failure, to absorb losses and increase options to resolve the failed bank. Under the proposal, the required minimum amount of LTD would be the greater of 6 percent of an entity’s total risk-weighted assets, 3.5 percent of an entity’s average total consolidated assets, or 2.5 percent of an entity’s total leverage exposure if it is subject to the supplementary leverage ratio. Debt instruments issued to satisfy the minimum LTD requirement would need to be unsecured, have maturities greater than one year and have plain vanilla features (e.g., no structured notes or credit sensitive instruments). The proposal would further subject banks to certain “clean holding-company” requirements, such as a prohibition on entering into derivatives with external counterparties. The proposal would provide a three-year transition period with the incremental phase-in of the requirements during this period.

We identified certain material weaknesses in management's report on internal control over financial reporting included within Item 9A of our Annual Report on Form 10-K/A for the year ended December 31, 2023. Our progress toward remediation as of June 30, 2024 is discussed within Item 4 of this Form 10-Q. We do not expect the cost to remediate these material weaknesses to be material to the consolidated financial statements.

### Use of Non-GAAP Financial Measures

While diluted earnings per common share, net income, net income available to common stockholders, and total non-interest income are financial measures that are recorded in accordance with GAAP, financial measures that adjust these GAAP measures to exclude expenses and the bargain purchase gains related to our merger with Flagstar and the Signature transaction, and initial provision for credit losses are non-GAAP measures. Nevertheless, it is management’s belief that these non-GAAP measures should be disclosed in our earnings release and other investor communications because they are not considered part of recurring operations and are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.

*(dollars in millions, except per share data)*

|  | For the Three Months Ended June 30, 2024 | March 31, 2024 | For the Six Months Ended June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income - GAAP | $(323) | $(327) | $(650) | $2,419 |
| Merger-related and restructuring expenses, net of tax | 25 | 32 | 57 | 130 |
| Bargain purchase gain | — | 121 | 121 | (2,142) |
| Net (loss) income, as adjusted - non-GAAP | $(298) | $(174) | $(472) | $407 |
| Preferred stock dividends | 10 | 8 | 18 | 16 |
| Net (loss) income available to common stockholders, as adjusted - non-GAAP | $(308) | $(182) | $(490) | $391 |
| Diluted (loss) earnings per common share - GAAP | $(1.14) | $(1.36) | $(2.48) | $10.10 |
| Diluted (loss) earnings per common share, as adjusted - non-GAAP | $(1.05) | $(0.74) | $(1.82) | $1.64 |

### 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 allowance for credit losses, (b) valuation of mortgage servicing rights 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.

For further information on our critical accounting policies, please refer to our Form 10-K for the year ended December 31, 2023, which is available on our website, under the Investor Relations section, or on the website of the Securities and Exchange Commission, at sec.gov.

### 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.

### Reportable Segment and Reporting Units

We operate in a single reportable segment and have identified one reporting unit which is the same as our operating segment. We are currently in the process of reassessing our reportable segments and reporting units, which may result in a change to either or both in future reporting periods.

## Market risk

As filed, 230 characters.

A discussion regarding our management of market risk is included in "Market Risk" in this report in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" which is incorporated herein by reference.

## Controls and procedures

As filed, 9,074 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision, and with the participation, of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2024 because of the material weaknesses in internal control over financial reporting described below. Notwithstanding the material weaknesses, based on additional analyses and other procedures performed, management concluded that the financial statements included in this report fairly present in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

Per Rules 13a-15(e) and 15d-15(e), disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

### Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design or maintain an effective control environment commensurate with our financial reporting requirements. This deficiency in our control environment contributed to the following material weaknesses related to control activities and information and communication within our internal control over financial reporting:

*Control environment*: Our Board of Directors did not exercise sufficient oversight responsibilities which led to us lacking a sufficient complement of qualified leadership resources to conduct effective risk assessment and monitoring activities.

*Risk assessment*: We lacked effective periodic risk assessment processes to identify and timely respond to emerging risks in certain financial reporting processes and related internal controls, including internal loan review that were responsive to changes in the business operations and regulatory and economic environments in which the Company operates.

*Monitoring*: Our recurring monitoring activities over process level control activities, including internal loan review were not operating effectively.

*Control activities*: We did not sufficiently maintain effective control activities related to internal loan review. Specifically, our internal loan review processes lacked an appropriate framework to ensure that ratings were consistently accurate, timely, and appropriately challenged. These ineffective controls impact the Company’s ability to accurately disclose loan rating classifications, identify problem loans, and ultimately the recognition of the allowance for credit losses on loans and leases.

These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, and therefore we concluded that the deficiencies represent material weaknesses in our internal control over financial reporting and our internal control over financial reporting was not effective as of June 30, 2024.

### Remediation Status of Reported Material Weaknesses

The Company is continuing to actively work to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses, including governance and oversight to ensure an effective control environment.

To address the material weakness in our control environment, we have taken the following actions:

- Appointed several new members to the Board of Directors with extensive experience as financial experts in our industry and backgrounds in risk management, including a new Lead Independent Director, a new Chairman of the Audit Committee and a new Chairman of the Risk Assessment Committee.

While we believe our actions will be effective in remediating the material weakness in our control environment. The material weakness in our control environment will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that our efforts have been effective. Accordingly, the material weakness in our control environment was not remediated as of June 30, 2024.

To address the material weakness in our risk assessment processes, we have taken or are in the process of taking the following actions:

- Appointed a new Chief Risk Officer, a new Chief Credit Officer and we undertook a process that is currently underway of identifying and appointing a new Director of Internal Loan Review with prior large bank commercial loan experience.
- We are evaluating the current depth and breadth of our internal loan review program to determine necessary changes to the scoping approach and the risk assessment and identification processes.

While we expect to continue to make significant progress towards remediation of the material weakness in our risk assessment processes during 2024. We are also continuing to assess the need for additional remediation steps. Accordingly, the material weakness in our risk assessment process was not remediated as of June 30, 2024.

To address the material weakness in our monitoring activities, we have taken the following actions:

- Increased the frequency and nature of reporting from our internal loan review team and first line business units to the Risk Assessment Committee to support the Board of Director's risk oversight role.

While we expect to continue to make significant progress towards remediation of the material weakness in our monitoring activities during 2024. We are also continuing to assess the need for additional remediation steps. Accordingly, the material weakness in our monitoring activities was not remediated as of June 30, 2024.

To address the material weakness related to internal loan review control activities, we have taken or are in the process of taking the following actions:

- Expanding the use of independent credit analysis and reducing the Company's reliance on tools and analysis prepared by our lines of business.
- Improving the Credit Review team's ability and stature within the organization to independently challenge risk rating scorecard model methodologies and results.
- Assessing the adequacy of staffing levels and expertise within the Company’s internal loan review practices, considering, among other things, the size, complexity, and risk profile of the Company's loan portfolio and while in the hiring process are utilizing third parties to increase independent credit review capacity to deal with emerging risk and the pace of change in our portfolio.
- Providing additional risk rating process training for all employees involved in the lending process.

While we expect to continue to make significant progress towards remediation of the material weakness related to our loan review control activities during 2024, we are unable to confirm at this time a specific date for remediation. We are also continuing to assess the need for additional remediation steps. Accordingly, the material weakness related to our loan review control activities was not remediated as of June 30, 2024.

### Changes in Internal Control over Financial Reporting

Except for the actions noted above related to remediation of the Company's material weaknesses, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 30,060 characters.

Please see “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and below for information regarding risk factors that could materially affect the Company’s business, financial condition, or future results of operations. Other than as set forth below, there have been no other changes with regard to the risk factors disclosed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

### Liquidity Risk

***Failure to maintain an adequate level of liquidity could result in an inability to fulfill our financial obligations, could subject us to material reputational and compliance risk, and could lead to financial failure of the Company.***

Our primary sources of liquidity are the retail and institutional deposits we gather or acquire in connection with acquisitions, and the brokered deposits we accept; borrowed funds, primarily in the form of wholesale borrowings from the FHLB-NY and various Wall Street brokerage firms; cash flows generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of securities. In addition, and depending on current market conditions, we may have the ability to access the capital markets from time to time to generate additional liquidity. Deposit flows, calls of investment securities and wholesale borrowings, and the prepayment of loans and mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether actual or perceived; local and national economic conditions; and competition for deposits and loans in the markets we serve. Deposit outflows can occur for a number of reasons, including clients seeking higher yields, clients with uninsured deposits may seek greater financial security or clients may simply prefer to do business with our competitors, or for other reasons. The withdrawal of more deposits than we anticipate could have an adverse impact on our profitability as this source of funding, if not replaced by similar deposit funding, would need to be replaced with more expensive wholesale funding, the sale of interest-earning assets, other sources of funding, or a combination of them all. In extreme situations, withdrawals could exceed our capacity to fund the withdrawals and lead to financial failure of the Company. As of June 30, 2024, approximately 19 percent of our total deposits of $79.0 billion were not FDIC-insured.

In addition, large-scale withdrawals of brokered or institutional deposits could require us to pay significantly higher interest rates on our retail deposits or on other wholesale funding sources, which would have an adverse impact on our net interest income and net income. Furthermore, changes to the FHLB-NY’s underwriting guidelines for wholesale borrowings or lending policies may limit or restrict our ability to borrow, and therefore could have a significant adverse impact on our liquidity. A decline in available funding could adversely impact our ability to originate loans, invest in securities, and meet our expenses, or to fulfill such obligations as repaying our borrowings or meeting deposit withdrawal demands. Downgrades of the credit ratings of the Company and the Bank, such as those announced by certain credit rating agencies in February, March and May 2024, could result in an acceleration in deposit outflows and additional collateral needs, They could adversely affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or to purchase our securities. This could affect our growth, profitability, and financial condition, including our liquidity.

### Credit Risk

***Our allowance for credit losses might not be sufficient to cover our actual losses, which would adversely impact our financial condition, regulatory capital ratios and results of operations.***

In addition to mitigating credit risk through our underwriting processes, we attempt to recognize such risk through the establishment of an allowance for credit losses. The process of determining whether or not the allowance is sufficient to cover potential credit losses is based on the current expected credit loss model or current expected credit loss. Current expected credit loss may result in greater volatility in the level of the allowance for credit losses, depending on various assumptions and factors used in determining the allowance for credit losses principally through mathematical modeling. If the judgments and assumptions we make with regard to the allowance are incorrect, our allowance for losses on such loans might not be sufficient, and an additional provision for credit losses might need to be made.

Depending on the amount of such loan loss provisions, the adverse impact on our earnings could be material.

Furthermore, bank regulators have the authority to require us to make provisions for credit losses or otherwise recognize loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures, and our allowance for losses on such loans. Any increase in the loan loss allowance or in loan charge-offs as required by such regulatory authorities could have a material adverse effect on our financial condition and results of operations.

***Our concentration in multi-family loans and commercial real estate loans could expose us to increased lending risks and related loan losses.***

At June 30, 2024, $36.0 billion or 48.3 percent of our total loans and leases, held for investment portfolio consisted of multi-family loans and $10.0 billion or 13.4 percent consisted of commercial real estate loans. These types of loans generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the sale of such properties securing the loans. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential loans. Also, many of our borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential real estate loan. In addition, if loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.

The commercial real estate loans we make are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. At June 30, 2024, $2.8 billion, or 28.0 percent of our commercial real estate loan portfolio was secured by office buildings. We may incur future losses on commercial real estate loans due to declines in occupancy rates and rental rates in office buildings, which could occur as a result of less need for office space due to more people working from home or other factors.

***Our New York State multi-family loan portfolio could be adversely impacted by changes in legislation or regulation which, in turn, could have a material adverse effect on our financial condition and results of operations.***

On June 14, 2019, the New York State legislature passed the New York Housing Stability and Tenant Protection Act of 2019. This legislation represents the most extensive reform of New York State’s rent laws in several decades and generally limits a landlord’s ability to increase rents on rent regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments. As a result, the value of the collateral located in New York State securing the Company’s multi-family loans or the future net operating income of such properties could potentially become impaired which, in turn, could have a material adverse effect on our financial condition and results of operations.

***Economic weakness in the New York City metropolitan region, where the majority of the properties collateralizing our multi- family, commercial real estate, and acquisition, development and construction loans, and the majority of the businesses collateralizing our other commercial and industrial loans, are located could have an adverse impact on our financial condition and results of operations.***

Our business depends significantly on general economic conditions in the New York City metropolitan region, where the majority of the buildings and properties securing the multi-family, commercial real estate, and acquisition, development and construction loans we originate for investment and the businesses of the customers to whom we make our other commercial and industrial loans are located. Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in this region, including changes in the local real estate market. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism, extreme weather, or other factors beyond our control, could therefore have an adverse effect on our financial condition and results of operations. In addition, because multi-family and commercial real estate loans represent the majority of the loans in our portfolio, a decline in tenant occupancy or rents, due to such factors, or for other reasons, such as new legislation, could adversely impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative impact on our net income. Furthermore, economic or market turmoil could occur in the near or long term. This could negatively affect our business, our financial condition, and our results of operations, as well as our ability to maintain the level of cash dividends we currently pay to our stockholders.

### Legal and Regulatory Risk

***Inability to fulfill minimum capital requirements could limit our ability to conduct or expand our business, pay a dividend, or result in termination of our FDIC deposit insurance, and thus impact our financial condition, our results of operations, and the market value of our stock.***

We are subject to the comprehensive, consolidated supervision and regulation set forth by the Federal Reserve Board and the Office of the Comptroller of the Currency. Such regulation includes, among other matters, the level of leverage and risk-based capital ratios we are required to maintain. Depending on general economic conditions, changes in our capital position could have a materially adverse impact on our financial condition and risk profile, and also could limit our ability to grow through acquisitions or otherwise. Compliance with regulatory capital requirements may limit our ability to engage in operations that require the intensive use of capital and therefore could adversely affect our ability to maintain our current level of business or expand. Furthermore, it is possible that future regulatory changes could result in more stringent capital or liquidity requirements, including increases in the levels of regulatory capital we are required to maintain and changes in the way capital or liquidity is measured for regulatory purposes, either of which could adversely affect our business and our ability to expand. For example, federal banking regulations adopted under Basel III standards require bank holding companies and banks to undertake significant activities to demonstrate compliance with higher capital requirements. Any additional requirements to increase our capital ratios or liquidity could necessitate our liquidating certain assets, perhaps on terms that are unfavorable to us or that are contrary to our business plans. In addition, such requirements could also compel us to issue additional securities, thus diluting the value of our common stock. In addition, failure to meet established capital requirements could result in the Federal Reserve Board and/or Office of the Comptroller of the Currency placing limitations or conditions on our activities and further restricting the commencement of new activities. The failure to meet applicable capital guidelines could subject us to a variety of enforcement remedies available to the federal regulatory authorities, including limiting our ability to pay dividends; issuing a directive to increase our capital; and terminating our FDIC deposit insurance.

***Our results of operations could be materially affected by the imposition of restrictions on our operations by bank regulators, further changes in bank regulation, or by our ability to comply with certain existing laws, rules, and regulations governing our industry.***

We are subject to regulation, supervision, and examination by the following entities: (1) the Office of the Comptroller of the Currency; (2) the FDIC; (3) the Federal Reserve Board-NY; and (4) the Consumer Financial Protection Bureau, as well as state licensing restrictions and limitations regarding certain consumer finance products. Such regulation and supervision govern the activities in which a bank holding company and its banking subsidiaries may engage, and are intended primarily for the protection of the Deposit Insurance Fund, the banking system in general, and bank customers, rather than for the benefit of a company’s stockholders. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including with respect to the imposition of restrictions on the operation of a bank or a bank holding company, the imposition of significant fines, the ability to delay or deny merger or other regulatory applications, the payment of dividends, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses, among other matters. Failure to comply (or to ensure that our agents and third-party service providers comply) with laws, regulations, or policies, including our failure to obtain any necessary state or local licenses, could result in enforcement actions or sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, or results of operations. Penalties for such violations may also include: revocation of licenses; fines and other monetary penalties; civil and criminal liability; substantially reduced payments by borrowers; modification of the original terms of loans, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of or interest on loans provided by the Bank. Changes in such regulation and supervision, or changes in regulation or enforcement by such authorities, whether in the form of policy, regulations, legislation, rules, orders, enforcement actions, ratings, or decisions, could have a material impact on the Company, our subsidiary bank and other affiliates, and our operations, including restrictions on the operation of a bank or a bank holding company and changes in FDIC deposit insurance premium assessments. In addition, failure of the Company or the Bank to comply with such regulations could have a material adverse effect on our earnings and capital. See “Regulation and Supervision” in Part I, Item 1, “Business” earlier in this filing for a detailed description of the federal, state, and local regulations to which the Company and the Bank are subject.

***As a Category IV banking organization with over $100 billion in assets, we are subject to stringent regulations, including reporting, capital stress testing, and liquidity risk management. Non-compliance could result in regulatory risks and restrictions on our activities.***

As a result of the Signature Transaction, our total assets exceeded $100 billion and therefore we became classified as a Category IV banking organization under the rules issued by the federal banking agencies that tailor the application of enhanced prudential standards to large bank holding companies and the capital and liquidity rules to large bank holding companies and depository institutions under the Dodd-Frank Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act. As a Category IV banking organization we are subject to enhanced liquidity risk management requirements which include reporting, liquidity stress testing, a liquidity buffer and resolution planning, subject to the applicable transition periods. If we were to meet or exceed certain other thresholds for asset size, we would become subject to additional requirements. Failure to meet these requirements could expose us to compliance risks, higher penalties, increased expectations, and limitations on our activities. As a Category IV banking organization, we are required to implement and maintain an adequate liquidity risk management and monitoring process to ensure compliance with these requirements, and our failure to ensure compliance may have adverse consequences on our operations, reputation and future profitability. We anticipate incurring significant expenses to develop policies, programs, and systems that comply with the enhanced standards applicable to us.

***Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject, based upon the size, scope, and complexity of the Company.***

As a financial institution, we are subject to a number of risks, including interest rate, credit, liquidity, legal/compliance, market, strategic, operational, and reputational. Our Enterprise Risk Management framework is designed to minimize the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diverse set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited because they cannot anticipate the existence or development of risks that are currently unknown and unanticipated. For example, economic and market conditions, heightened legislative and regulatory scrutiny of the financial services industry, and increases in the overall complexity of our operations, among other developments, have resulted in the creation of a variety of risks that were previously unknown and unanticipated, highlighting the intrinsic limitations of our risk monitoring and mitigation techniques. As a result, the further development of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely impact our financial condition and results of operations. Furthermore, an ineffective Enterprise Risk Management framework, as well as other risk factors, could result in a material increase in our FDIC deposit insurance premium assessments.

***Legislative and regulatory focus on data privacy and risks can subject us to heightened scrutiny and reputational damage.***

Data privacy and cybersecurity risks have become a subject of heightened legislative and regulatory focus in recent years. Federal Banking Agencies have proposed regulations to enhance cyber risk management standards, which would apply to us and our third-party service providers. These regulations focus on areas such as cyber risk governance, management of dependencies, incident response, cyber resilience, and situational awareness. State-level legislation and regulations have also been proposed or adopted, requiring notification to individuals in the event of a security breach of their personal data. Examples include the California Consumer Privacy Act (CCPA) and other state-level privacy, data protection, and data security laws and regulations. We collect, maintain, and use non-public personal information of our customers, clients, employees, and others. The sharing, use, disclosure, and protection of this information are governed by federal and state laws. Compliance with these laws is essential to protect the privacy of personal information and avoid potential liability and reputational damage. Failure to comply with privacy laws and regulations may expose us to fines, litigation, or regulatory enforcement actions. It may also require changes to our systems, business practices, or privacy policies, which could adversely impact our operating results. Privacy initiatives have imposed and will continue to impose additional operational burdens on us. These initiatives may limit our ability to pursue desirable business initiatives and increase the risks associated with any future use of personal data. New privacy and data protection initiatives, such as the CCPA, may require changes to policies, procedures, and technology for information security and data segregation. Non-compliance with these initiatives may make us more vulnerable to operational

failures and subject to monetary penalties, litigation, or regulatory enforcement actions.

### We are subject to various legal or regulatory investigations and proceedings.

At any given time, we are involved with a number of legal and regulatory examinations as a part of reviews conducted by regulators and other parties, which may involve banking, securities, consumer protection, employment, tort, and numerous other laws and regulations. Proceedings or actions brought against us may result in judgments, settlements, fines, penalties, injunctions, business improvement orders, consent orders, supervisory agreements, ratings downgrades, restrictions on our business activities, changes in FDIC deposit insurance premium assessments or other results adverse to us, which could materially and negatively affect our business. If such claims and other matters are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for those products and services. Some of the laws and regulations to which we are subject may provide a private right of action that a consumer or class of consumers may pursue to enforce these laws and regulations. We are currently subject to stockholder class and derivative actions which seek significant damages and other relief, and may be subject to similar actions in the future. Any financial liability or reputational damage could have a materially adverse effect on our business and, in turn, on our financial condition and results of operations. Claims asserted against us can be highly complicated and slow to develop, making the outcome of such proceedings difficult to predict or estimate early in the process. As a participant in the financial services industry, it is likely that we will be exposed to a high level of litigation and regulatory scrutiny relating to our business and operations. Although we establish accruals for legal or regulatory proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, we do not have accruals for all legal or regulatory proceedings where we face a risk of loss. Due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal and regulatory proceedings, amounts accrued may not represent the ultimate loss to us from the legal and regulatory proceedings in question. As a result, our ultimate losses may be significantly higher than the amounts accrued for legal loss contingencies.

### Oversight and Operational Risk

***The Company recently experienced turnover in its Board of Directors and executive management team and is embarking upon a new strategic plan, which creates uncertainties and could harm its business.***

The Company has experienced significant changes in its Board of Directors and executive leadership during 2024. On or shortly after March 11, 2024, Thomas Cangemi, James Carpenter, Leslie Dunn, Lawrence Rosano Jr, Ronald Rosenfeld, Lawrence Savarese, David Treadwell and Robert Wann resigned as directors of the Board. Additionally, in February 2024, Toan C. Huynh and Hanif (Wally) Dahya resigned as directors of the Board. Four directors who were serving on the Board as of December 31, 2023 continue to serve on the Board: Alessandro P. DiNello, Marshall J. Lux, Peter Schoels, and Jennifer R. Whip. Additionally, on or shortly after March 11, 2024, five new directors were appointed to the Board: Former Treasury Secretary Steven Mnuchin, Joseph Otting, Milton Berlinski, Allen Puwalski and Alan Frank. Additionally, there have been a number of new appointments to the executive management team during the year.

On July 25, 2024, the Company announced five strategic objectives for the remainder of 2024: (1) bolster management and the Board; (2) ongoing execution of the operating plan; (3) achievable capital and earnings forecast; (4) improve funding profile; and (5) focus on credit risk. The Company is in the process of developing a 2025-2027 Strategic Plan and expects to obtain Board approval by year end 2024.

Changes to strategic or operating goals, which can often times occur with the appointment of new Board members and new executives, can create uncertainty, may negatively impact the Company's ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of the Company's operations. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. If the Company does not integrate new executives and Board members successfully, the Company may be unable to manage and grow its business, and its financial condition and profitability may suffer as a result.

In addition, the Company’s future success will depend on the ability of the Board and the executive management team to effectively develop, implement, and execute a strategic plan. There are risks and uncertainties associated with the creation, implementation and execution of a new strategic plan, including the investment of time and resources, the possibility that such strategic plan will ultimately be unprofitable or unsuccessful, and the risk of additional liabilities associated with such strategic plan. The Company’s successful execution of any strategic plan will require market conditions that will allow the Company to achieve its strategic goals. To the extent the Company is unable to successfully develop, implement, and execute a strategic plan, or if it experiences delays in the development, planning and implementation process, the Company’s business, financial condition, and results of operations may be adversely affected.

***Completing the diversification of the Company’s loan portfolio may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the plan may not be realized.***

The Company is pursuing a plan to diversify its loan portfolio, which contemplates reducing its commercial real estate concentration, and allow other non-strategic assets to be run off or sold. Implementing and completing this plan is expected to take a considerable amount of time and attention of management and staff as they work to identify, negotiate and execute upon opportunities to reposition the loan portfolio, divest certain assets and effect potential transactions.

It is possible that the process of diversifying the Company’s loan portfolio could result in substantial disruption of the Company's business and operations, as the Company may face the unexpected loss of key employees that it relies on to assist with the transition or to work on the Company’s continuing operations, disruption of its ongoing businesses, higher than anticipated costs, adverse impacts to its relationships with its customers and employees, or a failure to achieve the anticipated benefits and/or cost savings. If difficulties with diversifying the Company’s loan portfolio are encountered, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected. The process of diversifying the Company’s loan portfolio will also divert management attention and resources, and could have an adverse effect on the Company’s ability to operate efficiently as well as its results of operations and financial condition during the transition period and beyond.

The process of effecting the run off or sale of non-strategic or other assets of the Company could also result in substantial disruption of the Company's business and operations for similar reasons as stated above. Further, for any sales or divestitures of assets, the Company’s ability to effect such divestiture or sale will depend upon various factors, such as the Company’s ability to identify interested counterparties, counterparties’ willingness to negotiate and enter into transactions with the Company, the potential of required regulatory approvals associated with such divestitures, and the prices and other terms upon which any counterparty would be willing to transact with the Company. No assurances can be made that the Company will be able to enter into or complete any sale or divestiture of any assets or that the failure to do so may have a negative impact on the Company’s business, operations, liquidity and financial condition.

Filed Aug 9, 2024.
Source: SEC EDGAR, the filing index for accession 0000910073-24-000169. Last ingested by Listed: Nov 6, 2026, 16:58 ET. No prices; not investment advice.