FLAGSTAR FINANCIAL INC

Previous wording

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.

Current wording

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 State law change. Concerns about the impact of these portfolio stresses led to significant declines in the Company’s stock price and customer deposit withdrawals in the first quarter 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, and grew substantially in the second and third quarters of 2024 as a result of private banking customers returning deposits to the Bank and through promotional programs for retail customers.

Previous wording

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.

Current wording

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, in the third quarter 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, which sale was completed on October 31, 2024. The warehouse lending sale provided significant increased liquidity, which allowed us to repay wholesale borrowings late in the third quarter of 2024. It also increased the Company's capital ratios approximately 70 basis points. We estimate the mortgage sale transaction will further increase the Company’s common equity Tier 1 capital ratio by approximately 60 basis points in the fourth quarter of 2024. The Company expects to incur impairment and severance charges during the fourth quarter 2024 related to the sale. These transactions 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.

Previous wording

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.

Current wording

The Company reported a third quarter 2024 net loss of $280 million compared to a net loss of $323 million for the second quarter 2024. The net loss attributable to common stockholders for the third quarter 2024 was $289 million, or $0.79 per diluted share, compared to a net loss of $333 million, or $1.14 per diluted share for the second quarter 2024. Included in the third quarter 2024 results are $37 million of merger-related expenses and certain items related to the sale of the mortgage warehouse business in July 2024, which aggregates to $0.10 per diluted share. Included in the second quarter 2024 results are $25 million of merger-related expenses or $0.09 per diluted share.

Previous wording

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.

Current wording

During the first nine months of 2024, the Company reported a net loss of $930 million compared to net income of $2.6 billion for the first nine months of 2023. The net loss attributable to common stockholders for the first nine months of 2024 was $957 million or $3.16 per diluted share compared to net income attributable to common stockholders of $2.6 billion for the first nine months of 2023 or $10.84 per diluted share. Included in the results for the first nine months of 2024 are a $121 million reduction in the bargain purchase gain arising from the Signature transaction, $94 million of merger-related expenses, and certain items related to the sale of the mortgage warehouse business in July 2024, which aggregate to $0.71 per diluted share. Included in the results for the first nine months of 2023 are a bargain purchase gain of $2.1 billion arising from the Signature transaction and $198 million of merger-related expenses, which aggregate to $8.10 per diluted share.

Previous wording

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.

Current wording

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 the majority of our cash balances, reset based on short-term market rates. However, a sizable portion of our held-for-investment loans have fixed rates and generally reset to intermediate-term market rates when they reach repricing dates.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

A substantial portion of our commercial real estate loan portfolio has a fixed rate through the repricing date, which can 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 "Loan Maturity and Repricing" below. Other factors affecting the amount of our net interest income for the third quarter 2024 include a $0.6 billion increase in nonaccrual loans and the associated reversal of previously accrued interest income on those loans.

Previous wording

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.

Current wording

During the first nine months of 2024, the net interest margin was 2.01 percent, down 104 basis points compared to the first nine months of 2023. The decrease was primarily from the impact of customer deposit withdrawals in the first quarter 2024 and the resulting shift in deposit mix to the promotional high-yield savings product, short-term certificates of deposit and wholesale borrowings.

Previous wording

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

Current wording

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

Previous wording

•A $1.7 billion increase in nonaccrual loans and the associated reversal of previously accrued interest income on those loans.

Current wording

•A $2.3 billion increase in nonaccrual loans and the associated reversal of previously accrued interest income on those loans.

Previous wording

•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.

Current wording

•A 48 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.

Previous wording

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.

Current wording

For the third quarter 2024, the provision for credit losses totaled $242 million compared to a $390 million provision for the second quarter 2024. The provision reflects lower charge-offs for the third quarter 2024, principally as a result of fewer larger-balance office property downgrades and charge-offs as a large portion of that portfolio was reviewed in the first and second quarters of 2024. The Company’s multi-family portfolio continues to be impacted by market conditions as higher interest rates and inflationary impacts of the previous two years persist. The Company expects continued elevated charge-offs as additional loans near their re-pricing dates and appraisals are received on those properties.

Previous wording

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.

Current wording

For the first nine months of 2024, the provision for credit losses totaled $947 million compared to a $281 million provision for the first nine 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.

Previous wording

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.

Current wording

Net charge-offs totaled $670 million for the first nine months of 2024, compared to $23 million for the first nine months of 2023 primarily driven by an increase in nonaccrual loans in the commercial real estate and multi-family portfolios and underlying collateral value declines.

Previous wording

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.

Current wording

As a result of the Company’s October 31, 2024 sale of its mortgage servicing, subservicing and third-party origination activities, substantially all income associated with servicing rights, gain on loan sales, and loan administration income ceased upon the transaction close.

Previous wording

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.

Current wording

Total non-interest expenses for the first nine months of 2024 were $2.1 billion, up $271 million or 15 percent compared to the first nine months of 2023. This increase was driven primarily by a $183 million increase in FDIC insurance expense due to an increase in the amount of criticized and classified loans, sequential four-quarter loss position and other factors affecting the assessment rate. The nine month period ended September 30, 2024 also includes the full impact of the Signature transaction that closed in March 2023, including an increase in the number of employees, higher occupancy costs related to an increase in the number of Company locations, and the higher regulatory costs described previously.

Previous wording

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.

Current wording

For the third quarter 2024, the Company reported an income tax benefit of $55 million compared to a benefit of $101 million for the second quarter 2024. The effective tax rate for the third quarter 2024 was 16.34 percent compared to 23.69 percent for the second quarter 2024. The income tax benefit for the third quarter 2024 was lower than the second quarter 2024, primarily due to a lower book loss, primarily attributable to the lower provision for credit losses. Certain non-deductible items impacted the Company's effective tax rate, including the FDIC insurance expense and the bargain purchase gain adjustment.

Previous wording

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.

Current wording

For the first nine months of 2024, the Company reported an income tax benefit of $210 million compared to an income tax expense of $141 million for the first nine months of 2023. The effective tax rate for the first nine months of 2024 was 18.40 percent compared to 5.09 percent in the first nine months of 2023. The lower effective tax rate in 2023 is largely due to the tax impact of the Signature transaction being recorded as a reduction to the bargain gain and not included in income tax provision, consistent with purchase accounting requirements.

Previous wording

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.

Current wording

Total assets increased $0.3 billion to $114.4 billion as of September 30, 2024, compared to $114.1 billion at December 31, 2023. The Company increased on-balance sheet liquidity in cash and cash equivalents by $11.6 billion, which was offset by reductions in balances of loans held for investment, as discussed further below.

Previous wording

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.

Current wording

The securities portfolio increased $1.4 billion to $10.5 billion at September 30, 2024, compared to $9.1 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 September 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.

Previous wording

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.

Current wording

Total deposits increased $1.5 billion, to $83.0 billion at September 30, 2024 compared to $81.5 billion at December 31, 2023. In February and March 2024, we experienced $9.7 billion in 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 and third quarter 2024 our customer deposits increased substantially through targeted deposit gathering programs and private banking customer engagement which, along with the liquidity from the warehouse lending portfolio sale, allowed us to repay the wholesale borrowings from earlier in the year.

Previous wording

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

Current wording

(1)Excludes Specialty Finance commercial real estate loans and multi-family loans serviced-by-others totaling $408 million and $96 million respectively. Amounts presented reflect unpaid principal balance; total amortized cost adjustments were $96 million.

Previous wording

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.

Current wording

The multi-family loan portfolio was $35.1 billion at September 30, 2024, down $2.1 billion compared to $37.3 billion at December 31, 2023. This is reflective of our continuing efforts to strategically diversify our portfolio as borrowers without a deposit relationship seek more favorable loan terms with other lenders.

Previous wording

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.

Current wording

Our multi-family loans may contain an initial interest-only period; however, they are underwritten on a fully amortizing basis, including the 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. At September 30, 2024, we had $14.0 billion of multi-family loans in their interest-only period. These loans were originated with an average interest-only period of approximately 36 months. As of September 30, 2024, there is a weighted average interest-only period of approximately 20 months remaining. Approximately 56 percent of these loans enter their amortization period by the end of 2025.

Previous wording

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.

Current wording

The majority of our multi-family loans are non-recourse and are secured by rental apartment buildings. At September 30, 2024, $19.8 billion or 56 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. This 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.

Previous wording

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.

Current wording

At September 30, 2024, commercial real estate loans represented $9.2 billion, or 13.0 percent, of total loans held for investment, reflecting a $1.3 billion decrease compared to $10.5 billion at December 31, 2023, primarily due to payoffs, as well as charge-offs and loan sales.

Previous wording

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.

Current wording

Certain of our commercial real estate loans may contain an interest-only period; 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 and the loan-to-value of the property.

Previous wording

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.

Current wording

Substantially all commercial real estate loans we originate are non-recourse and 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'

Previous wording

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.

Current wording

At September 30, 2024, one-to-four family loans represented $5.2 billion, inclusive of $386 million of loans with government guarantees, or 7.4 percent of total loans held for investment, compared to $6.1 billion at December 31, 2023. As of September 30, 2024, non-government guaranteed loans in this portfolio had an average current FICO score of 743 and an average LTV of 51 percent.

Previous wording

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.

Current wording

At September 30, 2024, other loans totaled $1.8 billion and consisted primarily of home equity lines of credit and other consumer loans, including home equity loans, second mortgage loans and overdraft loans. As of September 30, 2024, loans in this portfolio had an average current FICO score of 751.

Previous wording

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.

Current wording

Loans held for sale at September 30, 2024 totaled $1.9 billion, an increase of $0.7 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 for 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.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

As of September 30, 2024, the net unrealized loss on securities available for sale, net of tax, was $468 million, compared to $581 million at December 31, 2023, reflecting changes in market interest rates.

Previous wording

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

Current wording

At September 30, 2024, available-for-sale securities had an estimated weighted average lifeof six years. Included in the quarter-end amount were mortgage-related securities of $8.5 billion and other debt securities of$2.0 billion.

Previous wording

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.

Current wording

The majority of our borrowed funds consist of secured wholesale borrowings, including Federal Home Loan Bank ("FHLB") advances, Discount Window loans from the Federal Reserve Bank of New York ("FRB"), and repurchase agreements. We also have outstanding unsecured borrowings consisting of junior subordinated debentures and subordinated notes. At September 30, 2024, total borrowed funds decreased $8.6 billion to $20.3 billion from $28.9 billion at June 30, 2024, and $0.9 billion from December 31, 2023. The linked quarter decrease was a result of deploying liquidity from the sale of the warehouse lending portfolio and increased customer deposits to pay down debt. We expect to further decrease wholesale borrowings in the fourth quarter 2024 by approximately $2 billion.

Previous wording

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

Current wording

Wholesale borrowings at September 30, 2024 were $19.3 billion compared to $20.3 billion at December 31, 2023.

Previous wording

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.

Current wording

FHLB advances decreased to $18.3 billion at September 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. $250 million of our wholesale borrowings had callable features at September 30, 2024 and $2.0 billion had callable features at December 31, 2023. In the first quarter 2024, we increased our borrowing from the FHLB. In the third quarter 2024, the Company repaid over $4.5 billion of FHLB advances. We reclassified $5 million to interest expense from Accumulated Other Comprehensive Loss in the third quarter 2024 related to previously terminated hedges of forecasted cash flows associated with the repaid advances.

Previous wording

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.

Current wording

In the third quarter 2024, the Company also repaid $4 billion it had drawn from the FRB discount window early in the second quarter 2024, with available liquidity from customer deposit growth and the sale of the warehouse lending portfolio. The Company had $1.0 billion drawn under the Bank Term Funding Program in 2023 that remained outstanding at September 30, 2024, scheduled to mature in December 2024. The Company repaid this advance in October 2024. See Note 20 - Subsequent Events.

Previous wording

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.

Current wording

Repurchase agreements outstanding at September 30, 2024 were $60 million. We did not have any repurchase agreements outstanding at December 31, 2023. These agreements primarily U.S. government and government-sponsored enterprise ("GSE") obligations as collateral and were entered into with either the FHLB or specific brokerage firms, in large part to ensure operational readiness of securities collateralized borrowing as a source of readily available funding.