FLAGSTAR FINANCIAL INC

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 September 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. In the fourth quarter of 2023, management identified the following internal control deficiencies that constitute material weaknesses.

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 the deficiencies represent material weaknesses in our internal control over financial reporting.

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. The number of Audit Committee meetings held has increased substantially, and both Audit and Risk Assessment Committee meetings have dedicated sessions related to evaluating credit risk in the portfolio and the Company’s methodology and results in determining the allowance for credit losses. Additionally the Company has hired a new Chief Credit Officer and new Senior Director of Credit Review, obtained current financial information for the majority of the portfolio, and revised procedures and criteria for grading of loans.

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, during the third quarter of 2024, a new Senior Director of Credit Review with large bank commercial loan credit review experience.

•We are enhancing the current depth and breadth of our independent Credit Review program to make the necessary changes to the scoping approach, the risk assessment and identification processes, and to enhance the independence and stature of the independent Credit Review function. We have improved the framework being utilized by the independent Credit Review function and the level of experience of the personnel performing those reviews.

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

•Increased the frequency and nature of reporting from our independent Credit Review team and first line business units to the Risk Assessment Committee to support the Board of Directors' risk oversight role.

To address the material weakness related to independent Credit 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.

•Hired a new Senior Director of Credit Review, and increased 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 and credit review processes.

•Enhancing processes to identify and assess risks associated with determining the allowance for credit losses, including developing challenger approaches based on estimating collateral values using recent market and borrower property financial information.

While we believe our actions will be effective in remediating the material weaknesses, we are continuing to assess the need for additional remediation actions to ensure we have the controls in place to accurately disclose loan rating classifications, identify problem loans, and ultimately the recognition of the allowance for credit losses on loans and leases, which may include the continued enhancement of reserving calculations to supplement existing models as well as the development of new models. The material weaknesses will not be fully remediated until all aspects of the credit risk management and allowance for loan loss quantification weaknesses are addressed, 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 weaknesses in our control environment were not remediated as of September 30, 2024 and therefore management concluded the Company did not maintain effective internal control over financial reporting as of September 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.