FLAGSTAR FINANCIAL INC

Note 1 -Description of Business, Organization and Basis of Presentation

Organization

Flagstar Financial, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company” or "we") was organized under Delaware law on July 20, 1993, and is the holding company for Flagstar Bank N.A. (hereinafter referred to as the “Bank”). The Company is headquartered in Hicksville, New York with regional headquarters in Troy, Michigan. Our Board of Directors approved and adopted an amendment to our Amended and Restated Certificate of Incorporation, changing our name to Flagstar Financial, Inc. Additionally, effective October 25, 2024, our common stock which was traded on the New York Stock Exchange ceased trading under the ticker symbol "NYCB" and commenced trading under the ticker symbol "FLG."

The Company is subject to regulation, examination and supervision by the Federal Reserve. The Bank is a National Association, subject to federal regulation and oversight by the Office of the Comptroller of the Currency.

Flagstar Bank, N.A. currently operates over 400 locations acrossten states, including strong footholds in the Northeast and Midwest and exposure to markets in the Southeast and West Coast. This includes approximately 80 private banking teams located in over ten cities in the metropolitan New York City region and on the West Coast, which serve the needs of high-net worth individuals and their businesses.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. The accompanying financial statements of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used primarily in connection with the determination of the allowance for credit losses, mortgage servicing rights and the acquisition method of accounting.

All inter-company accounts and transactions are eliminated in consolidation. The Company currently has certain unconsolidated subsidiaries in the form of wholly owned statutory business trusts, which were formed to issue guaranteed capital securities. See Note 12 - Borrowed Funds, for additional information regarding these trusts.

When necessary, certain reclassifications have been made to prior-year amounts to conform to the current-year presentation. On July 11, 2024, a previously announced reverse stock split of the Company's issued and outstanding shares of common stock at a ratio of 1-for-3 took effect. In accordance with ASC 260-10-55-12, the Company has adjusted the number of shares, per-share computations and the computations of basic and diluted earnings per share retroactively for all periods presented in the financial statements and related notes.

Adoption of New Accounting Standards

Accounting Standards Issued but Not Yet Adopted

Note 2 -Summary of Significant Accounting Policies

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents includes cash on hand, cash due from other banks, short term money market investments, and interest-bearing deposits.

Debt Securities and Equity Investments with Readily Determinable Fair Values

The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and equity securities. Securities that are classified as "available for sale" are carried at their estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities that the Company has the intent and ability to hold to maturity are classified as "held to maturity" and carried at amortized cost.

The fair values of our securities—and particularly our fixed-rate securities—are affected by changes in market interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of fixed-rate securities will decline. As interest rates fall and/or credit spreads tighten, the fair value of fixed-rate securities will rise.

The Company evaluates available-for-sale debt securities in unrealized loss positions at least quarterly to determine if an allowance for credit losses is required. The allowance for credit losses related to our available for-sale debt securities is de minimis.

The Company first assesses whether (i) it intends to sell, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, any previously recognized allowances are charged off and the security’s amortized cost basis is written down to fair value through income. If neither of the aforementioned criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale debt securities are placed on non-accrual status when the Company no longer expects to receive all contractual amounts due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.

Equity investments with readily determinable fair values are measured at fair value with changes in fair value recognized in net income.

Premiums and discounts on securities are amortized to expense and accreted to income over the remaining period to contractual maturity using the interest method and are adjusted for anticipated prepayments. Dividend and interest income are recognized when earned. The cost of securities sold is based on the specific identification method.

The Company also holds shares of FHLB-NY stock and FHLB-Indianapolis stock, which are carried at cost, and evaluated for impairment.

Loans Held for Sale

The Company classifies loans as Loans Held for Sale when we originate or purchase loans that we intend to sell. We have elected the fair value option for the majority of our loans held for sale. The Company estimates 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. Changes in fair value are recorded to other noninterest income on the Consolidated Statements of (Loss) Income. Loans held for sale that are recorded at the lower of cost or fair value may be carried at fair value on a nonrecurring basis when the fair value is less than cost. For further information, see Note 18 - Fair Value Measurement.

Loans that are transferred into the loans held for sale portfolio from the loans held for investment portfolio, due to a change in intent, are recorded at the lower of cost or fair value. Gains or losses recognized upon the sale of loans are determined using the specific identification method.

Loans Held for Investment

Loans and leases, net, are carried at unpaid principal balances, including unearned discounts, purchase accounting (i.e., acquisition-date fair value) adjustments, net deferred loan origination costs or fees, and the allowance for credit losses on loans and leases.

The Company recognizes interest income on loans using the interest method over the life of the loan. Accordingly, the Company defers certain loan origination and commitment fees, and certain loan origination costs, and amortizes the net fee or cost as an adjustment to the loan yield over the term of the related loan. When a loan is sold or repaid, the remaining net unamortized fee or cost is recognized in interest income.

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 the Company no longer expects to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, management ceases the accrual of interest owed, and previously accrued interest is reversed in interest income. A loan is generally returned to accrual status when the loan is current, and management has reasonable assurance that the loan will be fully collectible.

Loans with Government Guarantees

The Company originates government guaranteed loans which are pooled and sold as Ginnie Mae mortgage-backed securities. Pursuant to Ginnie Mae servicing guidelines, the Company has the unilateral right to repurchase loans securitized in Ginnie Mae pools that are due, but unpaid, for three consecutive months. As a result, once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, the Company accounts for the loans as if they had been repurchased. If the loan is repurchased, the liability is cash settled and the loan with government guarantee remains. Once repurchased, the Company, as an approved lender, works to cure the outstanding loans such that they are re-eligible for sale or may begin foreclosure and recover losses through a claims process with the government agency.

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses represents management’s estimate of expected credit losses over the remaining contractual terms of the related loans and leases, including those on unfunded commitments. The allowance for credit losses on loans and leases is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the Statement of Condition reflects the net amount the Company expects to collect. Amortized cost is the unpaid loan balance, net of deferred fees and expenses, and includes negative escrow.

Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. Subsequent changes in expected credit losses are recognized immediately in net income in the provision for credit losses. The allowance is reduced by charge-offs and increased by recoveries.

The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist and generally are estimated utilizing models. Portfolio segments primarily include multi-family, commercial real estate, specialty finance, commercial and industrial, and 1-4 family portfolio. These models estimate the probability of default and loss given default for individual loans and leases within each risk pool by leveraging economic forecasts, as well as loan-level borrower and collateral characteristics. The Company leverages economic projections including property market and prepayment forecasts from established independent third parties, as well as credit ratings for certain loans within the commercial and industrial portfolio, to inform loss drivers in the forecast. The Company estimates the exposure at default using prepayment models which forecasts prepayments over the life of the loans and leases. The economic forecast and the related economic parameters are developed using available information relating to past events, current conditions, multiple economic forecasts scenarios and related weightings, over the reasonable and supportable forecast period and macroeconomic assumptions. Management estimates the allowance by multiplying the probability of default, loss-given-default and exposure at default depending on economic parameters for each month of the remaining contractual term.

To address the inherent uncertainty in macroeconomic forecasts, the Bank utilizes baseline, upside, and downside macroeconomic scenarios and weights according to the Company’s expectation of economic conditions for the foreseeable future. The economic forecast scenarios and related economic parameters are sourced from independent third parties. The economic forecast reasonable and supportable period is 24 months, and afterwards the Company reverts to a historical average loss rate on a straight-line basis over a 12-month period. Historical credit loss experience over the historical loss observation period provides the basis for the estimation of expected credit losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The contractual term excludes potential extensions or renewals. The methodology used in the estimation of the allowance for credit losses on loan and leases is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Each quarter, the Company assesses the appropriateness of the economic forecasting period, the reversion period and historical mean at the portfolio segment level, considering any required adjustments for differences in underwriting standards, portfolio mix, and other relevant data shifts over time. Management considers the need for qualitative adjustments to reflect trends not captured within the models. These could address differences in underwriting standards, portfolio mix, current collateral valuations, delinquency levels and terms, or changes in environmental conditions, such as changes in legislation, regulation, policies, administrative practices or other relevant factors.

Loans that do not share risk characteristics are evaluated on an individual basis. These include loans that are in non-accrual status with balances above management-determined materiality thresholds depending on loan class and loans that are designated as Troubled Debt Modifications (“TDMs”). If a loan is determined to be collateral dependent or meets the criteria to apply the collateral-dependent practical expedient, expected credit losses are generally determined based on the fair value of the collateral at the reporting date, less costs to sell as appropriate.

The Company maintains an allowance for credit losses on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life.

Intangible Assets

We review our finite lived intangible assets for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Our largest intangible asset is the core deposit intangible recorded as a result of acquisitions.

Mortgage Servicing Rights

The Company purchases and originates mortgage loans for sale to the secondary market and sells the loans on either a servicing-retained or servicing-released basis. If the Company retains the right to service the loan, an MSR is created at the time of sale which is recorded at fair value. The Company uses an internal valuation model that utilizes an option-adjusted spread, constant prepayment speeds, costs to service and other assumptions to determine the fair value ofmortgage servicing rights.

Changes in the fair value of our mortgage servicing rights are reported on the Consolidated Statements of (Loss) Income in net return on mortgage servicing.

Servicing fee income, late fees and ancillary fees received on loans for which the Company owns the MSR are included in net return on mortgage servicing rights on the Consolidated Statements of (Loss) Income. The fees are based on the outstanding principal and are recorded when earned. Subservicing fees, which are included in loan administration income on the Consolidated Statements of (Loss) Income, are based on a contractual monthly amount per loan including late fees and other ancillary income.

During the year we sold the vast majority of our MSR portfolio. For further information, see Note 9 - Mortgage Servicing Rights and Note 18 - Fair Value Measurement.

Premises and Equipment, Net

Premises, furniture, fixtures, and equipment and leasehold improvements are carried at cost less accumulated depreciation computed on a straight-line basis over the estimated useful lives of the respective assets or the shorter of the related lease term or the estimated useful life of the improvement (generally 20 years for premises andthree toten years for furniture, fixtures, and equipment). In December 2024, management approved the closure of certain PCG locations and retail branches which was a triggering event for potential impairment. We determined the assets were not fully recoverable, determined the fair value and recorded an associated impairment of $46 million during the quarter. Additionally, the Troy and Cleveland operational centers were classified as held for sale during the quarter and recorded at fair value, resulting in a $31 million impairment expense included within general and administrative expenses on the Consolidated Statements of (Loss) Income.

Income Taxes

Deferred tax assets and liabilities are recorded to recognize the future tax impact attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company considers its expectation of future taxable income and establishes a valuation allowance when realization of a deferred asset is not considered to be “more likely than not.”

The Company estimates income taxes payable based on the amount it expects to owe the various federal, state and local tax authorities. In estimating income taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. In this process, management also relies on tax opinions, recent audits, and historical experience. Although the Company uses the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position.

Derivative Instruments and Hedging Activities

We utilize derivative instruments to manage the fair value changes in our MSRs, interest rate lock commitments and loans held for sale portfolio which are exposed to price and interest rate risk; facilitate asset/liability management; minimize the variability of future cash flows on long-term debt; and to meet the needs of our customers. All derivatives are recognized on the Consolidated Statements of Financial Condition as other assets and liabilities, as applicable, at their estimated fair value.

For those derivatives designated as qualified cash flow hedges, changes in the fair value of the derivatives, to the extent effective as a hedge, are recorded in accumulated other comprehensive income, net of income taxes, and reclassified into earnings concurrently with the earnings of the hedged item. For derivative instruments designated as qualified fair value hedges, which are used to hedge the exposure of fair value changes of an asset or liability attributable to a particular risk, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings during the period. For all other derivatives, changes in the fair value of the derivative are recognized immediately in earnings. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.

A majority of derivatives are subject to master netting agreements and cleared through a Central Counterparty Clearing House, which mitigates non-performance risk with counterparties and enables us to settle activity on a net basis.

For additional information regarding the accounting for derivatives, see Note 15 - Derivative and Hedging Activities and for additional information on recurring fair value disclosures, see Note 18 - Fair Value Measurement.

Earnings per Common Share (Basic and Diluted)

Basic earnings per common share is computed by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed using the same method as basic earnings per common share, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock. Diluted earnings per share is the amount of earnings available to each common share outstanding during the reporting periods adjusted to include the effects of potentially dilutive common shares. Potentially dilutive common shares include warrants, convertible preferred stock, stock options and other stock-based awards. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive. As the average common share price was above the $7.50 per share exercise price (on an as-converted common stock basis) of the warrants, the corresponding 105 million common shares underlying the shares of Series D NVCE Stock, par value $0.01 per share, underlying such warrants would have been included in the dilutive share count if the Company had positive earnings for the year. Additional information regarding the conversion of preferred shares and warrants is included in Note 19 - Mezzanine and Stockholders' Equity.

Unvested stock-based compensation awards containing non-forfeitable rights to dividends paid on the Company’s common stock are considered participating securities and therefore are included in the two-class method for calculating earnings per common share. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends on the common stock. The Company grants restricted stock to certain employees under its stock-based compensation plan. Recipients receive cash dividends during the vesting periods of these awards, including on the unvested portion of such awards. Since these dividends are non-forfeitable, the unvested awards are considered participating securities and therefore have earnings allocated to them.

The following table reflects basic and diluted weighted average shares and net income (loss) per share giving effect to the reverse stock split as if it had been effective for all periods presented giving effect to the July 11, 2024 reverse stock split:

Note 3 -Business Combinations

Signature Bridge Bank

On March 20, 2023, the Company’s wholly owned bank subsidiary, Flagstar Bancorp (the “Bank”), entered into a Purchase and Assumption Agreement (the “Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as receiver (the "FDIC Receiver") of Signature Bridge Bank, N.A. (“Signature”) to acquire certain assets and assume certain liabilities of Signature (the “Signature Transaction”). In connection with the Signature Transaction the Bank assumed all of Signature’s branches. The Bank acquired only certain parts of Signature it believed to be financially and strategically complementary that were intended to enhance the Company’s future growth.

Pursuant to the terms of the Agreement, the Company was not required to make a cash payment to the FDIC on March 20, 2023, as consideration for the acquired assets and assumed liabilities. Any items identified that affected the bargain gain were recorded in the period they were identified as a result of ongoing discussion that impacted the assets and liabilities acquired or assumed through the first quarter of 2024. Due to the complexity of the transaction that included only certain assets and liabilities of Signature and the servicing agreement, which ceased on March 20, 2024, the Company remains engaged with the FDIC regarding the net settlement of historical activity. This is expected to take time to resolve and may result in net settlement payments to or from the FDIC which could impact other income or expense which, although not expected, could be material to the financial statements in future periods.

In addition, as part of the consideration for the Signature Transaction, the Company granted the FDIC equity appreciation rights in the common stock of the Company under an equity appreciation instrument (the "Equity Appreciation Instrument"). On March 31, 2023, the Company issued 13,010,668 shares of Company common stock to the FDIC pursuant to the Equity Appreciation Instrument. On May 19, 2023, the FDIC completed the secondary offering of those shares.

The Company determined that the Signature Transaction constituted a business combination as defined by Accounting Standards Codification 805, Business Combinations ("ASC 805"). ASC 805 establishes principles and requirements as to how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. Accordingly, the assets acquired, and liabilities assumed were recorded based on their preliminary estimated fair values as of March 20, 2023, which were adjusted through March 20, 2024 based on changes to those preliminary estimates.

Under the Agreement, the Company provided certain services to the FDIC to assist the FDIC in its administration of certain assets and liabilities which were not assumed by the Company, and which remain under the control of the FDIC (the “Interim Servicing”). The Interim Servicing included activities related to the servicing of loan portfolios not acquired on behalf of the FDIC until March 20, 2024. The FDIC reimbursed the Company for costs associated with the Interim Servicing based upon an agreed upon fee which approximated the cost to provide such services. Based on the intent to reimburse the Company for the costs to service the loans, neither a servicing asset nor servicing liability was recognized.

The Company did not enter into a loss sharing arrangement with the FDIC in connection with the Signature Transaction.

A summary of the bargain purchase gain is as follows:

The assets acquired and liabilities assumed and consideration paid in the Signature Transaction were initially recorded at their estimated fair values based on management’s best estimates using information available at the date of the Signature Transaction, and were subject to adjustment for up to one year after the closing date of the Signature Transaction. The incremental changes are included as measurement period adjustments in the table below.

During the Measurement Period, the Company recorded adjustments to the estimated fair value of loans and leases acquired based on information received after the transaction date and to adjust other assets and accrued expenses and other liabilities for balances ultimately retained by the FDIC. The Company also recognized a net change in the deferred tax liability due to the measurement period adjustments and the secondary offering of shares completed by the FDIC.

Fair Value of Assets Acquired and Liabilities Assumed

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change.

The estimated fair value of cash and cash equivalents approximates their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Loans and leases

The fair value for loans was based on a discounted cash flow methodology that considered credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions were the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the date of the Signature Transaction.

Deposit Liabilities

The fair value of deposit liabilities with no stated maturity (i.e., non-interest-bearing and interest-bearing checking accounts) is equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Core Deposit Intangible

Core deposit intangible (“CDI”) is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI was determined using a discounted cashflow methodology which considered discount rate, customer attrition rates, and other relevant market assumptions. This method estimated the fair value by discounting the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the Signature Transaction will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.

PCD loans

Purchased loans that reflect a more than insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other loans and leases held for investment. The following table provides a summary of loans and leases purchased as part of the Signature Transaction with credit deterioration and the associated credit loss reserve at acquisition:

Unaudited Pro Forma Information – Signature Transaction

The Company’s operating results for the year ended December 31, 2023 include the operating results of the acquired assets and assumed liabilities of Signature subsequent to the acquisition on March 20, 2023. Due to the use of multiple systems and integration of the operating activities into those of the Company, historical reporting for the former Signature operations is impracticable and thus disclosures of the revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to acquisition.

Signature was only in operation from March 12, 2023 to March 20, 2023 and does not have historical financial information on which we could base pro forma information. Additionally, we did not acquire all assets or assume all liabilities of Signature and the historical operations are not consistent with the transaction. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the Signature Transaction in accordance with ASC 805-10-50-2.

Flagstar Bancorp, Inc.

On December 1, 2022, the Company closed the acquisition of Flagstar Bancorp, Inc. (“Flagstar Bancorp”) in an all-stock transaction (“Flagstar Transaction”). Flagstar Bancorp was a savings and loan holding company headquartered in Troy, MI.

The acquisition of Flagstar Bancorp was accounted for as a business combination. The Company recorded the preliminary estimate of fair value of the assets acquired and liabilities assumed December 1, 2022.

The following table provides an allocation of consideration paid for the fair value of assets acquired and liabilities and equity assumed from Flagstar Bancorp as of December 1, 2022.

Fair Value of Assets Acquired and Liabilities Assumed

The estimated fair value of cash and cash equivalents approximates their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment Securities and Federal Home Loan Bank Stock

Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value. The fair value of FHLB-Indianapolis stock is equivalent to the redemption amount.

Loans

Fair values for loans were based on a discounted cash flow methodology that considered credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions were the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the merger date.

Core Deposit Intangible

CDI is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the Flagstar Bancorp acquisition will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.

Deposit Liabilities

The fair value of deposit liabilities with no stated maturity (i.e., non-interest-bearing and interest-bearing checking accounts) is equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities.

The estimated fair value of borrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities.

PCD loans

Purchased loans that reflect a more than insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other loans and leases held for investment. The following table provides a summary of loans and leases purchased as part of the Flagstar Bancorp acquisition with credit deterioration and the associated credit loss reserve at acquisition:

Unaudited Pro Forma Information

The Company’s results of operations for the year-ended December 31, 2022 include the results of operations of Flagstar Bancorp on and after December 1, 2022. Results for periods prior to December 1, 2022, do not include the results of operations of Flagstar Bancorp.

The following pro forma financial information presents the unaudited consolidated results of operations of the Company and Flagstar Bancorp as if the Flagstar Transaction occurred as of January 1, 2022 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the net discounts from the fair value adjustments of acquired loans, any change in interest expense due to the estimated net premium from the fair value adjustments to acquired time deposits and other debt, and the amortization of intangibles had the deposits been acquired as of January 1, 2022. The pro forma amounts for the year ended December 31, 2022 do not reflect the anticipated cost savings that have not yet been realized. Acquisition costs incurred by the Company during the year ended December 31, 2022 are reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Flagstar Transaction occurred at the beginning of 2022.

Note 4 -Accumulated Other Comprehensive Income

The following table provides the changes in accumulated other comprehensive income (loss) by component, net of tax, for the years ended December 31, 2024, 2023, and 2022:

The following table sets forth the components in accumulated other comprehensive income:

(1)Amounts in parentheses indicate expense items.

(2)See Note 21 - Employee Benefits for additional information.

Note 5 -Investment Securities

The following tables summarize the Company’s portfolio of debt securities available for sale and equity investments with readily determinable fair values:

(1)The amortized cost of investment securities is reported net of an allowance for credit losses of $3 million.

(2)The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.

(3)Excludes accrued interest receivable of $35 million included inother assets in the Consolidated Statements of Condition.

(1)The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.

(2)Excludes accrued interest receivable of $38 million included inother assets in the Consolidated Statements of Condition.

Gross realized gains and gross realized losses on sales of available-for-sale securities were less than $1 million for the year ended December 31, 2024. During the year ended December 31, 2023, gross realized gains were $2 million and gross realized losses were $3 million.

There wereno unrealized losses on equity securities recognized in earnings for the years ended December 31, 2024 and 2023. For the year ended December 31, 2022, there was $2 million of unrealized losses on equity securities recognized in earnings.

The following table summarizes, by contractual maturity, the amortized cost of securities at December 31, 2024:

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

The following table presents securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2024:

The following table presents securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2023:

The investment securities having a continuous loss position for twelve months or more at December 31, 2024 consisted oftwo hundred twenty-three agency collateralized mortgage obligations, five capital trusts notes, five asset-backed securities, eleven corporate bonds, thirty-three US government agency bonds, three hundred twenty-eight mortgage-backed securities, one mutual fund, one foreign debt, andone municipal bond. The investment securities designated as having a continuous loss position for twelve months or more at December 31, 2023 consisted ofeighty-four agency collateralized mortgage obligations, six capital trusts notes, eight asset-backed securities, twelve corporate bonds, thirty-seven US government agency bonds, three hundred two mortgage-backed securities, one mutual fund, one foreign debt andone municipal bond.

The Company evaluates available-for-sale debt securities in unrealized loss positions at least quarterly to determine if an allowance for credit losses is required. We also assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, any previously recognized allowances are charged off and the security’s amortized cost basis is written down to fair value through income. If neither of these criteria are met, we evaluate whether the decline in fair value has resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

None of the remaining unrealized losses identified as of December 31, 2024 or December 31, 2023 relate to the marketability of the securities or the issuers’ ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the positions before the recovery of their amortized cost basis, which may be at maturity.

The Company also holds shares of FHLB-NY stock and FHLB-Indianapolis stock, which are carried at cost, and evaluated for impairment:

Note 6 -Loans and Leases

The Company classifies loans that we have the intent and ability to hold for the foreseeable future or until maturity as loans held for investment. We report loans held for investment at their amortized cost, which includes the outstanding principal balance adjusted for any unamortized premiums, discounts, deferred fees or fair value adjustments for acquired loans:

(1)Includes specialty finance loans and leases of $3.9 billion and $5.2 billion at December 31, 2024 and December 31, 2023, respectively and warehouse loans of $5.1 billion at December 31, 2023.

(2)Excludes accrued interest receivable of $277 million and $423 million at December 31, 2024 and December 31, 2023, respectively, which is included inother assets in the Consolidated Statements of Condition.

Loans with Government Guarantees

Substantially all loans with government guarantees are insured or guaranteed by the Federal Housing Administration or the U.S. Department of Veterans Affairs. Nonperforming repurchased loans in this portfolio earn interest at a rate based upon the 10-year U.S. Treasury note rate from the time the underlying loan becomes 60 days delinquent until the loan is conveyed to HUD (if foreclosure timelines are met), which is not paid by the Federal Housing Administration until claimed. Certain loans within our portfolio may be subject to indemnifications and insurance limits which expose us to limited credit risk. The Bank also has a unilateral option to repurchase loans sold and serviced for the Government National Mortgage Association if the loan is due, but unpaid, for three consecutive months (typically referred to as 90 days past due) and can recover losses through a claims process from the guarantor. These loans are recorded in loans held for investment and the liability to repurchase the loans is recorded in other liabilities on the Consolidated Statements of Condition. As of December 31, 2024 and December 31, 2023, loans with government guarantees totaled $360 million and $541 million. The repurchase liability was $0 million as of December 31, 2024 due to the October 31, 2024 sale of substantially all of our mortgage servicing rights and $456 million as of December 31, 2023.

Repossessed assets and the associated net claims related to government guaranteed loans are recorded in other assets and was $14 million at December 31, 2024 and December 31, 2023.

Loans Held for Sale

Loans held for sale at December 31, 2024 totaled $0.9 billion, down from $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 or when we change our intent about holding for investment. Mortgage loans held for sale for which we have elected the fair value option are carried at fair value. Loans originally classified as held for investment for which we had changed our intent and are now classified as held for sale are carried at the lower of amortized cost or market. 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.

The following table is a summary of non-accrual loans held for sale:

Asset Quality

All asset quality information excludes loans with government guarantees that are insured by U.S government agencies. As of December 31, 2024, such loans totaled $360 million.

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 the Company no longer expects to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, management ceases recording interest income, and any previously accrued and uncollected interest is reversed against interest income. Interest received on non-accrual loans is recorded as a reduction to the principal outstanding. A loan is only returned to accrual status when the loan is current (typically a minimum ofsix months of payment performance) and management has reasonable assurance that the loan will be fully collectible. When management has reasonable assurance that the loan will be fully collectible, then interest payments may be recognized in interest income on a cash basis. During the years ended December 31, 2024, 2023 and 2022 there was no interest income recognized on non-accrual loans. At December 31, 2024 and December 31, 2023 we hadno loans that were 90 days or more past due and still accruing.

The following table presents information regarding the delinquency status of the Company’s loans held for investment at December 31, 2024:

(1)Includes lease financing receivables.

The following table presents information regarding the delinquency status of the Company’s loans held for investment at December 31, 2023:

(1)Includes lease financing receivables.

The following table presents the credit rating by vintage for our loans held for investment as December 31, 2024:

The following table presents the credit rating by vintage for out loans held for investment as of December 31, 2023:

The classifications in the preceding tables are the most currently available and generally have been updated within the last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close attention; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a possibility that the Company will sustain some loss); and non-accrual loans, which based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. One-to-four family loans are classified based on the duration of the delinquency.

When management determines that foreclosure is probable for loans that are individually evaluated, the expected credit losses are based on the fair value of the collateral adjusted for selling costs. When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, the collateral-dependent practical expedient has been elected and expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For commercial real estate loans, collateral properties include office buildings, warehouse/distribution buildings, shopping centers, apartment buildings, residential and commercial tract development. The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral. Commercial real estate loans are impacted by fluctuations in collateral values, as well as the ability of the borrower to obtain permanent financing.

The following table summarizes the recorded investment of the Company’s collateral-dependent loans held for investment by collateral type:

At December 31, 2024 and December 31, 2023, the Company had $41 million and $81 million of residential mortgage loans in the process of foreclosure, respectively.

Included in loans held for investment at December 31, 2024 and December 31, 2023, were loans of $1 million and $9 million, respectively, to officers, directors, and their related interests and parties. There were no loans to principal shareholders.

Modifications to Borrowers Experiencing Financial Difficulty

When borrowers are experiencing financial difficulty, the Company may make certain loan modifications as part of loss mitigation strategies to maximize expected payment. Modifications in the form of principal forgiveness, an interest rate reduction, or an other-than-insignificant payment delay or a term extension that have occurred in the current reporting period to a borrower experiencing financial difficulty are disclosed along with the financial impact of the modifications.

The following table summarizes the amortized cost basis of loans modified during the reporting period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of modification:

The following table describes the financial effect of the modification made to borrowers experiencing financial difficulty:

The following table presents the amortized cost basis of the modifications for borrowers experiencing financial difficulty that subsequently defaulted during the periods presented and were within twelve months of the modification date:

The performance of loans made to borrowers experiencing financial difficulty in which modifications were made is closely monitored to understand the effectiveness of modification efforts.

The following table provides a summary of loan balances at December 31, 2024, which were modified during the prior twelve months, by class of financing receivable and delinquency status:

The following table provides a summary of loan balances at December 31, 2023, which were modified on or after January 1, 2023, the date the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt modifications, by class of financing receivable and delinquency status:

Note 7 -Allowance for Credit Losses on Loans and Leases

Allowance for Credit Losses on Loans and Leases

The following table summarizes activity in the allowance for credit losses for the periods indicated:

At December 31, 2024, the allowance for credit losses on loans and leases was $1.2 billion compared to $992 million at December 31, 2023, an increase of $209 million. 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 reasonable and supportable forecast period. Although the short-term interest rate reduction announced by the Federal Reserve during the third and fourth quarters of 2024 does alleviate some pressure on our borrowers, rates remain high, and uncertainty remains for future potential rate reductions. 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 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 office and multi-family loans and, most notably, rent-regulated multi-family loans.

As of December 31, 2024 and December 31, 2023, the allowance for unfunded commitments totaled $50 million and $52 million, respectively.

The allowance for credit losses on loans and leases to total loans held for investment ratio increased to 1.76 percent at December 31, 2024, compared to 1.17 percent at December 31, 2023. Excluding loans with government guarantees and warehouse loans, the allowance for credit losses was 1.77 percent at December 31, 2024, compared to 1.26 percent at December 31, 2023.

The Company charges-off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. For non-real estate-related consumer credits, the following past-due time periods determine when charge-offs are typically recorded: (1) closed-end credits are charged off in the quarter that the loan becomes 120 days past due; (2) open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days past the date the Company received notification that the borrower has filed for bankruptcy.

The following table presents additional information about the Company’s non-accrual loans at December 31, 2024:

The following table presents additional information about the Company’s non-accrual loans at December 31, 2023:

Note 8 -Leases, Premises and Equipment

Lessor Arrangements

The Company provides equipment leases through a subsidiary, mainly to large, investment-grade corporate clients. These qualify as direct financing leases which are recorded based upon the lease payments, estimated residual values and direct costs, excluding unearned income and uses the implicit interest rate to determine the value. Lease terms typically range from 24 to 120 months. The Company bases residual value estimates on asset life, market value, and lessee behavior using industry data and third-party appraisals. At the end, the lessee can return, renew, or purchase the equipment at its fair market value. Impairment of residual values occurs if the fair value is less than the carrying amount. The Company reviews its direct financing leases for impairment annually. We utilize residual value insurance for certain of our direct finance leases which, as of December 31, 2024 and 2023, insured residual assets were in place of $262 million and $280 million of our leased assets, respectively.

Interest income on lease financing recorded over the lease term and is recorded in interest income on the Consolidated Statements of (Loss) Income. Interest income of direct finance leases was $136 million, $119 million and $53 million for the years ended December 31, 2024, 2023, and 2022, respectively.

The components of our gross investment in direct financing leases are shown below:

The following table presents the remaining maturity analysis of the undiscounted lease receivables, as well as the reconciliation to the total amount of receivables recognized in the Consolidated Statements of Condition:

Lessee Arrangements

The Company has operating leases for offices, branches, equipment and other items, generally with terms of 20 years or less. Many of our leases contain options to extend or terminate early and we consider these options when evaluating the lease term to determine if they are reasonably certain to be exercised based on all relevant economic and financial factors.

At lease inception, lease liabilities are recognized in other liabilities based on the present value of remaining lease payments, discounted using the Company's incremental borrowing rate if no implicit rate in the lease is available. Right-of-use assets, recognized in other assets, represent the Company’s right to use an underlying asset for the lease term and are initially equal to the lease liability, adjusted for any payments made prior to lease commencement and any lease incentives.

Variable costs such as the proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. Operating lease costs were $75 million, $86 million, and $28 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Supplemental balance sheet information related to the Company’s operating lease arrangements is presented below for the following periods:

Supplemental cash flow information related to the leases for the following periods:

Premises and Equipment

Depreciation is included in occupancy and equipment in the Consolidated Statements of (Loss) Income and amounted to $48 million, $39 million, and $18 million, in the years ended December 31, 2024, 2023, and 2022, respectively. Accumulated depreciation as of December 31, 2024 and December 31, 2023 was $569 million and $526 million, respectively. The estimated useful lives for the principal classes of assets are as follows:

Note 9 -Mortgage Servicing Rights

The Company had investments in mortgage servicing rights that resulted from the sale of loans to the secondary market for which we retained the servicing. The Company accounted for mortgage servicing rights at their fair value. A primary risk associated with mortgage servicing rights is the potential reduction in fair value as a result of higher than anticipated prepayments due to loan refinancing prompted, in part, by declining interest rates or government intervention. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. The Company utilized derivatives as economic hedges to offset changes in the fair value of the mortgage servicing rights resulting from the actual or anticipated changes in prepayments stemming from changing interest rate environments. There is also a risk of valuation decline due to higher-than-expected default rates, which we do not believe can be effectively managed using derivatives. For further information regarding the derivative instruments utilized to manage our MSR risks, see Note 15 - Derivative and Hedging Activities.

At December 31, 2024, we have classified all remaining mortgage servicing rights as held for sale and completed the sale in 2025.

Changes in the fair value of residential first mortgage servicing rights ("MSRs") were as follows:

(1) Changes in fair value are included withinnet return on mortgage servicing rights on the Consolidated Statements of (Loss) Income.

(2) Represents estimated MSR value change resulting primarily from market-driven changes which we manage through the use of derivatives.

The following table summarizes the hypothetical effect on the fair value of servicing rights using adverse changes of 10 percent and 20 percent to the weighted average of certain significant assumptions used in valuing these assets as of December 31, 2023. The sensitivity disclosures for December 31, 2024 are inconsequential.

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. To isolate the effect of the specified change, the fair value shock analysis is consistent with the identified adverse change, while holding all other assumptions constant. In practice, a change in one assumption generally impacts other assumptions, which may either magnify or counteract the effect of the change. For further information on the fair value of mortgage servicing rights, see Note 18 - Fair Value Measurement.

Contractual servicing and subservicing fees, including late fees and other ancillary income are presented below. Contractual servicing fees are included within net return on mortgage servicing rights on the Consolidated Statements of (Loss) Income. Contractual subservicing fees including late fees and other ancillary income are included within loan administration income on the Consolidated Statements of (Loss) Income. Subservicing fee income is recorded for fees earned on subserviced loans, net of third-party subservicing costs.

The following table summarizes income and fees associated with owned mortgage servicing rights:

(1)Servicing fees are recorded on an accrual basis. Ancillary income and late fees are recorded on a cash basis.

(2)Changes in the derivatives utilized as economic hedges to offset changes in fair value of the mortgage servicing rights.

The following table summarizes income and fees associated with our mortgage loans subserviced for others:

(1)Servicing fees are recorded on an accrual basis. Ancillary income and late fees are recorded on a cash basis.

(2)Charges on subserviced custodial balances represent interest due to MSR owner.

For the years ended December 31, 2024, and December 31, 2023, we earned approximately $10 million and $95 million, respectively, in service fee income for loans serviced for the FDIC in connection with the Signature Transaction.

Note 10 -Variable Interest Entities

An entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

We haveno consolidated VIEs as of December 31, 2024 and December 31, 2023.

In connection with our non-qualified mortgage securitization activities, we have retained afive percent interest in the investment securities of certain trusts. Although we have a variable interest in these securitization trusts, we are not their primary beneficiary. As a result, we have not consolidated the assets and liabilities of the VIE in our Consolidated Statements of Condition. The Bank’s maximum exposure to loss is limited to ourfive percent retained interest in the investment securities that had a fair value of $163 million as of December 31, 2024, as well as the standard representations and warranties made in conjunction with the loan transfers.

Note 11 -Deposits

The following table sets forth the weighted average interest rates for each type of deposit:

At December 31, 2024 and 2023, the aggregate amount of time deposit accounts (including certificates of deposit) that meet or exceed the insured limit was $12.6 billion and $7.9 billion, respectively.

At December 31, 2024 and 2023, the aggregate amount of deposits that had been reclassified as loan balances (i.e., overdrafts) was $33 million and $121 million, respectively.

The scheduled maturities of certificates of deposit at December 31, 2024 were as follows:

(1) Excludes purchase accounting adjustments

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

(1) Excludes reciprocal deposits.

The weighted average interest rate of brokered deposits was 4.5 percent and 3.7 percent at December 31, 2024 and 2023, respectively.

Note 12 -Borrowed Funds

The following table summarizes the Company’s borrowed funds:

Accrued interest on borrowed funds is included in other liabilities in the Consolidated Statements of Condition and amounted to $51 million and $50 million, respectively, at December 31, 2024 and December 31, 2023.

FHLB Advances

The contractual maturities and the next call dates of FHLB advances outstanding at December 31, 2024 were as follows:

(1)Does not include the effect of interest rate swap agreements. Represents current coupon rate; most advances are floating rate.

FHLB advances include straight fixed-rate advances, floating rate advances and advances under the FHLB convertible advance program, which gives the FHLB the option of either calling the advance after an initial lock-out period of up tofive years and quarterly thereafter until maturity, or a one-time call at the initial call date.

Total FHLB advances generated interest expense of $1 billion, $564 million and $251 million, in the years ended December 31, 2024, 2023, and 2022, respectively.

Junior Subordinated Debentures

The Company had $610 million and $609 million at December 31, 2024 and December 31, 2023, respectively, of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by statutory business trusts (the “Trusts”) that issued guaranteed capital securities, excluding purchase accounting adjustments.

The following table presents contractual terms of the junior subordinated debentures outstanding at December 31, 2024:

(1)Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.

(2)Callable at any time.

(3)Excludes Flagstar Bancorp Acquisition fair value adjustments of $28 million.

The Bifurcated Option Note Unit SecuritiESSM (“BONUSES units”) were issued by the Company on November 4, 2002, at a public offering price of $50.00 per share, with a total of 5,500,000 units sold, raising $275 million. Each BONUSES unit consisted of a capital security and a warrant to purchase shares of the Company's common stock. The capital securities offered a 6 percent coupon rate, with a maturity of 49 years, and were non-callable for the first five years, which ended on November 4, 2007.

The $275 million raised was allocated between the capital security and the warrant based on their relative values at issuance, with $92.4 million assigned to the warrants and $182.6 million to the capital securities. The $92.4 million discount on the capital securities is being amortized over the 49-year life unless converted. As of December 31, 2024, the outstanding principal was $212 million, and the remaining discount was $63 million.

Additionally, the Company issued other trust preferred securities to fund the creation of Capital Securities, which pay dividends either quarterly or semi-annually which can be deferred for up to 5 years. As of December 31, 2024, all dividends on these securities were current.

Interest expenses on junior subordinated debentures for the years ending December 31, 2024, 2023, and 2022 were $49 million, $48 million, and $22 million, respectively.

Subordinated Notes

At December 31, 2024 and December 31, 2023, the Company had a total of $444 million and $438 million subordinated notes outstanding; respectively, of fixed-to-floating rate subordinated notes outstanding:

(1)From and including the date of original issuance to, but excluding November 6, 2023, the Notes will bear interest at an initial rate of 5.90 percent per annum payable semi-annually. Unless redeemed from and including November 6, 2023 to but excluding the maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month Secured Overnight Financing Rate plus 304.16 basis points payable quarterly.

(2)From and including the date of original issuance, the Notes will bear interest at a fixed rate of 4.125 percent through October 31, 2025, and a variable rate tied to Secured Overnight Financing Rate thereafter until maturity. The Company has the option to redeem all or a part of the Notes beginning on November 1, 2025, and on any subsequent interest payment date.

Note 13 -Federal, State, and Local Taxes

The following table summarizes the components of the Company’s net deferred tax asset (liability) at December 31, 2024 and 2023:

The net deferred tax liability represents the anticipated federal, state, and local tax expenses or benefits that are expected to be realized in future years upon the utilization of the underlying tax attributes comprising said balances. The net deferred tax liability is included in other liabilities in the Consolidated Statements of Condition at December 31, 2024 and 2023.

The Company evaluates the need for a deferred tax asset valuation allowances based on a more likely than not standard. The Company’s evaluation is based on its history of reporting positive taxable income in all relevant tax jurisdictions, the length of time available to utilize the net operating loss carryforwards, and the recognition of taxable income in future periods from taxable temporary differences.

At December 31, 2024 and December 31, 2023, the Company had a state deferred tax asset for net operating losses of $12 million and $8 million, respectively (net of federal tax impact) related to total state net operating loss carryforwards of$262 million at December 31, 2024, that expire if unused in calendar years through 2033. In connection with our ongoing assessment of deferred taxes, we analyzed each state net operating loss separately, determined the amount of net operating loss available and estimated the amount which we expected to expire unused. Based on that assessment, we recorded a valuation allowance of $4 million and $5 million, respectively, at December 31, 2024 and 2023 to reduce the DTA to the amount which is more likely than not to be realized.

The following table summarizes the Company’s income tax expense for the years ended December 31, 2024,2023, and 2022:

The following table presents a reconciliation of statutory federal income tax expense (benefit) to combined actual income tax expense (benefit) reported in net income for the years ended December 31, 2024,2023, and 2022:

The Company invests in affordable housing projects through limited partnerships that generate federal Low Income Housing Tax Credits. The balances of these investments, which are included in other assets in the Consolidated Statements of Condition, were $335 million and $372 million, respectively, at December 31, 2024 and 2023, and included commitments of $139 million and $210 million that are expected to be funded over the next 3 years. The Company elected to apply the proportional amortization method to these investments. Recognized in the determination ofincome tax (benefit) expense from operations for the years ended December 31, 2024, 2023, and 2022 were $41 million, $34 million, and $11 million, respectively, of affordable housing tax credits and other tax benefits, and an offsetting $37 million, $30 million, and $10 million, respectively, for theamortization of the related investments. No impairment losses were recognized in relation to these investments for the years ended December 31, 2024, 2023, and 2022.

As of December 31, 2024 and 2023, the Company had $43 million and $42 million of unrecognized gross tax benefits, respectively. Gross tax benefits do not reflect the federal tax effect associated with state tax amounts. The total amount of net unrecognized tax benefits that would have affected the effective tax rate, if recognized, was $34 million at December 31, 2024 and 2023.

Interest and penalties related to the underpayment of income taxes are classified as a component of income tax expense in the Consolidated Statements of (Loss) Income. During the years ended December 31, 2024, 2023, and 2022, the Company recognized income tax expense attributed to interest and penalties of $8 million, $8 million, and $4 million, respectively. Accrued interest and penalties on tax liabilities were $42 million and $34 million, respectively, at December 31, 2024 and 2023.

The following table summarizes changes in the liability for unrecognized gross tax benefits for the years ended December 31, 2024,2023, and 2022:

The Company and its subsidiaries have filed tax returns in many states. Generally, the tax returns are open by statue for years 2021 through present, unless extended due to examination.

In addition to other state audits, the Company is currently under examination by the following taxing jurisdictions of significance to the Company:

•Federal 2019-2021

•New York State for the tax years 2010 through 2020; and

•New York City for the tax years 2011 through 2014, 2016 through 2020.

It is reasonably possible that there will be developments within the next twelve months that would necessitate an adjustment to the balance of unrecognized tax benefits, including decreases of up to $21 million due to the completion of tax authorities’ exams and the expiration of statutes of limitations.

The Bank is subject to a special federal tax provision regarding its frozen tax bad debt reserve. At December 31, 2024, the Bank’s federal tax bad debt base-year reserve was $62 million, with a related federal deferred tax liability of $13 million, which has not been recognized since the Bank does not expect that this reserve will become taxable in the foreseeable future. Events that would result in taxation of this reserve include redemptions of the Bank’s stock or certain excess distributions by the Bank to the Company.

Note 14 -Stock-Based Compensation

We issue stock-based compensation in the form of restricted stock units, performance-based stock units, and stock options. As of December 31, 2024, we have authorized 10,211,440 shares available for grant. Restricted stock units and performance-based stock units are granted at the closing market price on the date of the grant. Forfeitures of restricted stock units, performance-based stock units, and stock options are accounted for as they occur.

The following table presents total stock-based compensation expense and related tax benefit:

Restricted Stock

The Company granted 5,280,114 shares of restricted stock, with an average fair value of $10.23 per share on the date of grant, during the year ended 2024. The shares of restricted stock that were granted during the year ended December 31, 2024 and 2023, vest over aone tofive years period.

The following table provides a summary of activity with regard to restricted stock units (RSUs):

As of December 31, 2024, unrecognized compensation cost relating to unvested restricted stock totaled $95 million. This amount will be recognized over a remaining weighted average period of 2.2 years.

Performance-Based Stock

The following table provides a summary of activity with regard to Performance-Based Restricted Stock Units (PSUs):

Performance-based restricted stock units are subject to adjustment or forfeiture, based upon the achievement by the Company of certain performance standards.

As of December 31, 2024, there was animmaterial amount of unrecognized compensation cost relating to unvested restricted stock that will be recognized over a remaining weighted average period of 1.3 years. As of December 31, 2024, the Company believes it is probable that the performance conditions will be met.

Stock Options

The following table summarizes the stock options granted and their respective vesting schedules:

(1)1,000 of the options granted on April 25, 2024 are expected to be forfeit during Q1 2025.

The Company generally utilizes the Black-Scholes option pricing model to measure the fair value of granted stock options at the grant date. The estimated grant date fair value of options granted during the year ended 2024 was $72 million, which will be recognized in compensation expense on a straight-line basis over the vesting period, of which $22 million was recognized in 2024. The remaining $50 million will be recognized over the vesting period.

The following table summarizes stock options activity for the period indicated:

Note 15 -Derivative and Hedging Activities

Derivative financial instruments are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Condition. The Company's policy is to present our derivative assets and derivative liabilities on the Consolidated Statement of Condition on a gross basis, even when provisions allowing for set-off are in place. However, for derivative contracts cleared through certain central clearing parties, variation margin payments are recognized as settlements. We are exposed to non-performance risk by the counterparties to our various derivative financial instruments. A majority of our derivatives are centrally cleared through a Central Counterparty Clearing House or consist of residential mortgage interest rate lock commitments further limiting our exposure to non-performance risk. We believe that the non-performance risk inherent in our remaining derivative contracts is minimal based on credit standards and the collateral provisions of the derivative agreements.

Derivatives not designated as hedging instruments. The Company maintained a derivative portfolio of interest rate swaps, foreign currency swaps, futures, swaptions and forward commitments used to manage exposure to changes in interest rates and mortgage servicing right asset values and to meet the needs of customers. The Company also enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward sale commitments and U.S. Treasury futures. Changes in the fair value of derivatives not designated as hedging instruments are recognized on the Consolidated Statements of (Loss) Income.

Derivatives designated as hedging instruments. The Company has historically designated certain interest rate swaps as cash flow hedges on overnight Secured Overnight Financing Rates-based variable interest payments on federal home loan bank advances. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income on the Consolidated Statements of Condition and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. At December 31, 2024, the Company had $48 million (net-of-tax) of unrealized gains related to terminated derivatives that had been in cash flow hedge relationships of forecasted interest payments classified as cash flow hedges recorded in accumulated other comprehensive loss. The Company had $10 million (net-of-tax) ofunrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss at December 31, 2023. There wereno designated hedging relationships as of December 31, 2024.

Fair Value of Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in interest rates. The Company previously used interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involved the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. For derivatives previously designated and that qualified as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk were recognized in interest income. The fair value basis adjustments remaining from discontinued hedges are recognized in interest income over the remaining life of the hedged items. As of December 31, 2024, we haveno derivatives designated in a fair value hedging relationship.

For the year ended December 31, 2024, interest income from loans and leases in the accompanying Consolidated Statements of (Loss) Income was increased $30 million due to the floating rate payments received on the swaps being greater than the fixed rate payments, as well as the accretion of the fair value basis adjustment subsequent to discontinuance of the hedges. As of December 31, 2023, interest income from loans and leases in the accompanying Consolidated Statements of (Loss) Income increased$24 million.

The fair value basis adjustment on our hedged real estate loans is included in loans and leases held for investment on our Consolidated Statements of Condition. The carrying amount of our hedged loans was $5.9 billion at December 31, 2024, of which unrealized gains of $18 million were due to the fair value hedge relationship. For December 31, 2023, thecarrying amount of our hedged loans was $6.1 billion.

The following tables setforth information regarding the Company’s derivative financial instruments:

The tables below present the gross derivative assets and liabilities, and the related cash pledged as collateral at December 31, 2024 and 2023. No amounts were netted in the Statement of Condition.

(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes.

(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $5.5 billion as of December 31, 2023, were designated as cash flow hedges of certain FHLB borrowings. There were no designated hedging relationships as of December 31, 2024.

The following table presents the effect of the Company’s cash flow derivative instruments on accumulated other comprehensive loss:

In 2024, the Company repaid $2.8 billion of FHLB advances that were associated with previously de-designated cash flow hedging relationships. As no future cash flows will occur as a result of the repayments, the Company reclassified the gain of approximately $28.2 million out of accumulated other comprehensive loss into interest expense during the year.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrow ings. We will recognize $30 million of lower interest expense over the next rolling twelve-month period related to the reclassification.

Derivatives not Designated as Hedging Instruments

The following table presents the net gain (loss) recognized in income on derivatives not designated as hedging instruments, net of the impact of offsetting positions:

(1) Includes customer-initiated commercial interest rate swaps.

Note 16 -Intangible Assets

Goodwill

We recorded goodwill in our consolidated statements of condition in connection with our historical business combinations. Goodwill is the difference between the purchases price and the fair value of the acquired company's assets, net of the liabilities assumed. Goodwill was tested at least annually for impairment. The Company’s 2023 assessment concluded that goodwill from historical transactions (2007 and prior) was fully impaired as of December 31, 2023. As a result, the Company recorded an impairment charge of the entire goodwill balance of $2.4 billion. The Company hasno goodwill at December 31, 2024.

Finite-lived Intangible Assets

At December 31, 2024, intangible assets consisted of the following:

As of December 31, 2024, the weighted average amortization period for core deposit intangible and other intangible assets is 8.2 years and 5.3 years, respectively.

The estimated amortization expense of CDI and other intangible assets for the next five years and beyond is as follows:

Note 17 -Capital

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

The quantitative measures established to ensure capital adequacy require that banks maintain minimum amounts and ratios of leverage capital to average assets and of common equity tier 1 capital, tier 1 capital, and total capital to risk-weighted assets (as such measures are defined in the regulations). At December 31, 2024, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. The following tables sets forth our common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios on a consolidated basis and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, at that date:

The following table presents the actual capital amounts and ratios for the Company:

The following table presents the actual capital amounts and ratios for the Bank:

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. At December 31, 2024, our total risk-based capital ratio exceeded the minimum requirement for capital adequacy purposes by 714 basis points and the fully phased-in capital conservation buffer by 464 basis points.

Note 18 -Fair Value Measurement

Fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is determined based on assumptions that market participants would use in pricing an asset or liability.

Valuation Hierarchy: U.S. generally accepted accounting principles establishes a three-tier fair value hierarchy, which prioritizes the significant inputs used in measuring fair value as follows:

•Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability.

A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2024 and December 31, 2023, and that were included in the Company’s Consolidated Statements of Condition at those dates:

A description of the methods and significant assumptions utilized in estimating the fair values of securities follows:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and exchange-traded securities.

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities.

Fair Value Measurements Using Significant Unobservable Inputs

The following tables include a roll forward of the Consolidated Statements of Condition amounts (including the change in fair value) for financial instruments classified by us within Level 3 of the valuation hierarchy:

(1)We utilized swaptions, futures, forward agency and loan sales and interest rate swaps to manage the risk associated with mortgage servicing rights and rate lock commitments. Gains and losses for individual lines do not reflect the effect of our risk management activities related to such Level 3 instruments.

(2)Rate lock commitments are reported on a fallout-adjusted basis. Transfers out of Level 3 represent the settlement value of the commitments that are transferred to loans held for sale, which are classified as Level 2 assets.

The following tables present the quantitative information about recurring Level 3 fair value financial instruments and the fair value measurements as of December 31, 2024 and December 31, 2023:

Assets Measured at Fair Value on a Non-Recurring Basis

The following tables present assets that were measured at fair value on a non-recurring basis as of December 31, 2024 and December 31, 2023:

(1)Represents the fair value of impaired loans, based primarily on the value of the collateral less costs to sell.

(2)Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets and equity securities without readily determinable fair values. These equity securities are classified as Level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

(1)Represents the fair value of impaired loans, based primarily on the value of the collateral less costs to sell.

(2)Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets and equity securities without readily determinable fair values. These equity securities are classified as Level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate and other market data.

Other Fair Value Disclosures

The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at December 31, 2024 and December 31, 2023:

(1)Carrying value and estimated fair value are at cost.

(2)Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)Certificates of deposit.

(1)Carrying value and estimated fair value are at cost.

(2)Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)Certificates of deposit.

The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow:

Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.

Securities

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturities and cash flow assumptions.

Federal Home Loan Bank Stock

Ownership in equity securities of the FHLB is generally restricted and there is no established liquid market for their resale. The carrying amount approximates the fair value.

Loans and leases

The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan basis. The discount rates reflect current market rates for loans with similar terms to borrowers having similar credit quality on an exit price basis. For those loans where a discounted cash flow technique was not considered reliable, the Company used a quoted market price for each individual loan.

Mortgage servicing rights

The significant unobservable inputs used in the fair value measurement of the mortgage servicing rights are option adjusted spreads, prepayment rates and cost to service. Significant increases (decreases) in all three assumptions in isolation result in a significantly lower (higher) fair value measurement. Weighted average life (in years) is used to determine the change in fair value of mortgage servicing rights. For December 31, 2024, the weighted average life (in years) for the entire portfolio was 6.7.

Rate lock commitments

The significant unobservable input used in the fair value measurement of the rate lock commitments is the pull through rate. The pull through rate is a statistical analysis of our actual rate lock fallout history to determine the sensitivity of the residential mortgage loan pipeline compared to interest rate changes and other deterministic values. New market prices are applied based on updated loan characteristics and new fallout ratios (i.e. the inverse of the pull through rate) are applied accordingly. Significant increases (decreases) in the pull through rate in isolation result in a significantly higher (lower) fair value measurement.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a portion of the Company’s deposit base.

The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures.

Off-Balance Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at December 31, 2024 and December 31, 2023.

Fair Value Option

We elected the fair value option for certain items as discussed throughout the Notes to the Consolidated Financial Statements to more closely align the accounting method with the underlying economic exposure.

The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:

The following table reflects the difference between the aggregate fair value and aggregate remaining contractual principal balance outstanding for assets and liabilities for which the fair value option has been elected:

Note 19 -Mezzanine and Stockholders' Equity

On July 11, 2024, the reverse stock split of the Company's issued and outstanding shares of common stock at a ratio of 1-for-3 took effect. On the effective date, every three shares of common stock issued and outstanding or held by the Company in treasury were combined into one issued share of common stock. In addition, the aggregate number of equity-based awards that remain available to be granted under the Company’s equity compensation plans was decreased proportionately and proportionate adjustments were made to the per share exercise price, share-based vesting criteria and the number of shares issuable upon the exercise of outstanding stock options, as applicable, as well as to the number of shares that would be owned upon vesting and settlement of restricted stock units and other equity-based awards, as applicable. The impact of the reverse stock split on the Company's preferred stock and warrants is reflected in the table above. No fractional shares were issued as a result of the reverse stock split.

Series A Preferred stock

Each Series A preferred depositary share represents 1/40th interest in a share of the Company’s Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Dividends accrue on the shares at a fixed rate equal to 6.375 percent per annum until March 17, 2027, and a floating rate equal to three-month Secured Overnight Financing Rate plus 408.26 basis points per annum beginning on March 17, 2027. Dividends are payable in arrears on March 17, June 17, September 17, and December 17 of each year, which commenced on June 17, 2017. During each of the four quarters of 2024, we paid a quarterly cash dividend on our Series A preferred stock of $15.94 per share.

Series B Preferred Stock

As of December 31, 2024, following the partial exchanges of shares of Series B Noncumulative Convertible Preferred Stock (the “Series B Preferred Stock”) described in further detail below, the issued and outstanding shares of Series B Preferred Stock represented the right (on an as converted basis) to receive approximately 250,000 shares of our common stock. Series B Preferred Stock shareholders do not have voting rights, except in limited circumstances.

On June 5, 2024, shareholders approved (a) an amendment to the Amended and Restated Certificate of Incorporation of the Company to increase the number of authorized shares of our common stock from 300,000,000 to 666,666,666; and (b) the issuance of shares of our common stock in connection with the March 2024 capital raise pursuant to New York Stock Exchange listing rules (the “Stockholder Approvals”). In accordance with the Series B Preferred Stock Certificate of Designations, upon obtaining the Stockholder Approvals, the quarterly non-cumulative cash dividend (annual rate of 13 percent) and liquidation preference rights ceased to apply. Shares of Series B Preferred Stock (a) are now entitled to receive dividends, on an as-converted basis, at the same time and on the same terms as the holders of common stock, including for the dividend declared and paid by the Company on June 17, 2024, September 17, 2024 and December 17, 2024, and (b) rank as equal to the Common Stock in any liquidation of the Company.

August 2024 Series B Preferred Stock Exchanges

On August 12, 2024, the Company entered into separate exchange agreements with the following holders of the Series B Preferred Stock (a) affiliates of funds managed by Liberty 77 Capital L.P. (“Liberty”), (b) affiliates of funds managed by Hudson Bay Capital Management, LP (“Hudson Bay”) and (c) affiliates of funds managed by Reverence Capital Partners, L.P. (“Reverence” and, collectively with Liberty and Hudson Bay, the “Investors”, and each of the share exchange agreements entered into with each of the Investors on August 12, 2024, an “August 2024 Exchange Agreement,” and, collectively, the “August 2024 Exchange Agreements”).

Pursuant to the terms of each holder’s respective August 2024 Exchange Agreement, on August 12, 2024, (a) Liberty exchanged 29,000 shares of Series B Preferred Stock for the issuance by the Company of 9,666,665 shares of common stock of the Company, to Liberty; (b) Hudson Bay exchanged 22,500 shares of Series B Preferred Stock for the issuance by the Company of 7,499,998 shares of common stock to Hudson Bay; and (c) Reverence exchanged 11,857 shares of Series B Preferred Stock for the issuance by the Company of 3,952,332 shares of common stock to Reverence (each an August 2024 Exchange,” and, collectively, the “August 2024 Exchanges”). The number of shares of Series B Preferred Stock of each Investor so exchanged is an amount such that no Investor (together with its affiliates) would beneficially own in excess of 9.99 percent of the shares of the Company’s common stock outstanding immediately following the August 2024 Exchanges. All of the August 2024 Exchanges were consummated simultaneously.

Immediately following the August 2024 Exchanges, (a) Liberty held 114,355 shares of Series B Preferred Stock, which were (in the aggregate) convertible into approximately 38,118,329 shares of common stock; (b) Hudson Bay held 14,350 shares of Series B Preferred Stock, which were (in the aggregate) convertible into approximately 4,783,332 shares of common stock; and (c) Reverence heldno shares of Series B Preferred Stock.

September 2024 Series B Preferred Stock Exchanges

On September 23, 2024, the Company entered into separate share exchange agreements with each of Liberty and Hudson Bay (each of the share exchange agreements entered into with Liberty and Hudson Bay on September 23, 2024, a “September 2024 Exchange Agreement,” and, collectively, the “September 2024 Exchange Agreements”).

Pursuant to the terms of each respective September 2024 Exchange Agreement, on September 23, 2024, (a) Liberty exchanged 114,355 shares of Series B Preferred Stock for the issuance by the Company of 38,118,329 shares of common stock to Liberty; and (b) Hudson Bay exchanged 13,600 shares of Series B Preferred Stock for the issuance by the Company of 4,533,331 shares of common stock to Hudson Bay (each a “September 2024 Exchange,” and, collectively, the “September 2024 Exchanges”). The number of shares of Series B Preferred Stock of Hudson Bay so exchanged was an amount such that Hudson Bay (together with its affiliates) would not beneficially own in excess of 9.99 percent of the shares of the Company’s common stock outstanding immediately following the September 2024 Exchanges. All of the September 2024 Exchanges were consummated simultaneously.

Immediately following the September 2024 Exchanges, (a) Liberty heldno shares of Series B Preferred Stock; and (b) Hudson Bay held 750 shares of Series B Preferred Stock, which are (in the aggregate) convertible into approximately 250,000 shares of common stock.

March 2024 Investment Agreements

Each of the Investors acquired the shares of Series B Preferred Stock that were exchanged for shares of common stock in the applicable August 2024 Exchange and September 2024 Exchange on March 11, 2024 as part of the Company’s approximately $1.05 billion capital raise transaction pursuant to separate investment agreements entered into with each of the Investors on March 7, 2024, each of which was amended on March 11, 2024 (collectively, the “Investment Agreements”). Each share of Series B Preferred Stock is automatically convertible into shares of common stock (or, in limited circumstances, a share of Series C Noncumulative Preferred Stock of the Company) in a transfer by the holder thereof consistent with the rules and limitations of Regulation Y of the Bank Holding Company Act of 1956, as amended.

The remaining Series B Preferred Stock is classified in mezzanine equity as it is contingently convertible into shares of preferred stock that are redeemable for cash, contingent on events that are not solely in the control of the Company. The Series B Preferred Stock is not remeasured because it is currently not probable that it will become redeemable.

Series C Preferred Stock

As of December 31, 2024, all of the issued and outstanding shares of the Company's Series C Noncumulative Preferred Stock (the "Series C Preferred Stock") have converted into shares of common stock in accordance with the terms of the Certificate of Designations for the Series C Preferred Stock.

Warrants

Warrants to purchase shares of Series D NVCE Stock, par value $0.01 per share, for an initial exercise price of $2,500 per share (collectively, the "Warrants"), were issued in conjunction with the March 2024 capital raise. The warrants were not exercisable until September 10, 2024 and expire 7 years after issuance. Pursuant to the terms of the Warrant, as a result of the dividend paid on shares of our common stock, the exercise price of the Warrants was reduced to $2,488 as of December 31, 2024. At the time of issuance, the Warrants entitled the holders thereof to receive an aggregate of 315,000 shares of Series D NVCE Stock (subject to net settlement of shares) upon exercise of the Warrants. The 315,000 shares of Series D NVCE Stock are convertible into 105,000,000 shares of common stock at a strike price of $7.50 per share, adjusted for dividends. The exercise price was $7.47 as of December 31, 2024.

On September 30, 2024, a Warrant holder exercised its Warrant to purchase 45 shares of Series D NVCE Stock, at an exercise price of $2,489 per share, resulting in the issuance by the Company of 15 shares of Series D NVCE Stock after giving effect to provisions of the Warrant regarding the net settlement of shares. Accordingly, effective as of September 30, 2024,15 shares of Series D NVCE Stock were issued.

Treasury Stock Repurchases

On October 23, 2018, the Board of Directors approved the repurchase of up to $300 million of the Company’s outstanding common stock. As of December 31, 2024, the Company has repurchased a total of 10 million shares at an average price of $28.60 or an aggregate purchase of $286 million. The Company hadno repurchases during 2024 and 2023. Net of issuance costs, the Company has approximately $9 million remaining under this repurchase authorization.

Note 20 -Commitments and Contingencies

Pledged Assets

The Company pledges securities to serve as collateral for its repurchase agreements and Federal Reserve Bank borrowings, among other purposes. We had pledged investment securities of $10.2 billion and $2.8 billion at December 31, 2024 and December 31, 2023, respectively. In addition, the Company had $44.6 billion of loans pledged between the FHLB-NY and Federal Reserve Bank to serve as collateral for its wholesale borrowings as of December 31, 2024, compared to $43.1 billion of loans pledged at December 31, 2023.

Loan Commitments and Letters of Credit

In the normal course of business, we have various commitments outstanding 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, which are not included on our Consolidated Statements of Financial Condition.

The following table summarizes the Company’s off-balance sheet commitments to originate loans and 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.

These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized on the Consolidated Statements of Condition. Our exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The contractual amount of standby letters of credit represents the maximum potential amount of future payments the Company could be required to make and represents the Company’s maximum credit risk. We utilize the same credit policies in making commitments and conditional obligations as we do for balance sheet instruments.

At December 31, 2024, the Company hadno commitments to purchase securities.

The Company is involved in various legal actions arising in the ordinary course of its business, including stockholder class and derivative actions. The outcome of pending or threatened litigation, or of investigations or any other matters before regulatory agencies is uncertain, whether currently existing or commencing in the future, including with respect to any litigation, investigation or other regulatory actions related to (i) the business and disclosure practices of acquired companies, including our acquisition of Flagstar Bancorp and the purchase and assumption of certain assets and liabilities of Signature, (ii) the capital raise transaction we completed in March of 2024, (iii) the material weaknesses in internal control over financial reporting disclosed in our 2023 10-K/A and our current 10-K, (iv) past cyber security breaches, and (v) recent events and circumstances involving the Company, including our Q4 2023 earnings announcement, disclosures regarding credit losses, the credit loss provision and the 2023 goodwill impairment.

There can be no assurance (i) that we will not incur material losses due to damages, penalties, costs and/or expenses as a result of such litigation, (ii) that the reserves we have established will be sufficient to cover such losses, or (iii) that such losses will not materially exceed such reserves and have a material impact on our financial condition or results of operations. The Company may incur significant legal expenses in defending the litigation, or as a result of its involvement in such investigations or regulatory proceedings, during the pendency of these matters, and in connection with any other potential cases, including expenses for the potential reimbursement of legal fees of officers and directors under indemnification obligations.

Note 21 -Employee Benefits

Retirement Plan

The Flagstar Financial, Inc. Retirement Plan (the “Retirement Plan”) covers substantially all employees who had attained minimum age, service, and employment status requirements prior to the date when the individual plans were frozen by the banks of origin. Once frozen, the individual plans ceased to accrue additional benefits, service, and compensation factors, and became closed to employees who would otherwise have met eligibility requirements.

The following table sets forth certain information regarding the Retirement Plan as of the dates indicated:

In 2025 $4 million of unrecognized net actuarial loss for the Retirement Plan will be amortized from accumulated other comprehensive loss into net periodic benefit cost. The comparable amount recognized as net actuarial loss for the Retirement Plan in 2024 was $3 million. The discount rates used to determine the benefit obligation at December 31, 2024 and 2023 were 5.4 percent and 4.7 percent, respectively.

The discount rate reflects rates at which the benefit obligation could be effectively settled. To determine this rate, the Company considers rates of return on high-quality fixed-income investments that are currently available and are expected to be available during the period until the pension benefits are paid. The expected future payments are discounted based on a portfolio of high-quality rated bonds (AA or better) for which the Company relies on the Financial Times Stock Exchange (“FTSE”) Pension Liability Index that is published as of the measurement date.

The components of net periodic pension (credit) expense were as follows for the years indicated:

The following table indicates the weighted average assumptions used in determining the net periodic benefit cost for the years indicated:

The long-term objective for the Plan is to maintain assets at a level that will sufficiently cover future beneficiary obligations and to achieve long-term growth in assets.

To achieve the long-term investment objectives, the Trustee will invest the assets of the Plan in a diversified combination of asset classes, investment strategies, and pooled vehicles. The asset allocation guidelines in the table below reflect the plan sponsor’s risk tolerance and long-term objectives for the Plan:

The parameters for each asset class provide the Trustee with the latitude for managing the Plan within a minimum and maximum range. The Trustee will have full discretion to buy, sell, invest and reinvest in these asset segments based on these guidelines.

The following table presents information about the fair value measurements of the investments held by the Retirement Plan as of December 31, 2024:

Current Asset Allocation

The asset allocations for the Retirement Plan were as follows:

Determination of Long-Term Rate of Return

The long-term rate of return on Retirement Plan assets assumption was based on historical returns earned by equities and fixed income securities and adjusted to reflect expectations of future returns as applied to the Retirement Plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn long-term rates of return in the ranges of 6 percent to 8 percent and 3 percent to 5 percent, respectively, with an assumed long-term inflation rate of 2.5 percent reflected within these ranges. When these overall return expectations are applied to the Retirement Plan’s target allocations, the result is an expected rate of return of 5 percent to 7 percent.

Expected Contributions

The Company does not expect to contribute to the Retirement Plan in 2024.

Expected Future Annuity Payments

The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid by the Retirement Plan during the years indicated:

Qualified Savings Plan (401(k) Plan)

The Company maintains a defined contribution qualified savings plan in the form of a 401(k) plan in which all salaried employees are able to participate after one month of service and having attained age 21. The Company matches a portion of employee 401(k) plan contributions which totaled $28 million and $21 million for the year ended December 31, 2024 and 2023, respectively.

Post-Retirement Health and Welfare Benefits

The Company offers certain post-retirement benefits, including medical, dental, and life insurance (the “Health & Welfare Plan”) to retired employees, depending on age and years of service at the time of retirement. The costs of such benefits are accrued during the years that an employee renders the necessary service.

The Health & Welfare Plan is an unfunded plan and is not expected to hold assets for investment at any time. Any contributions made to the Health & Welfare Plan are used to immediately pay plan premiums and claims as they come due.

The estimated net actuarial loss and the prior service liability that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2024 are less than $1 million, respectively.

The net periodic benefit costs and all components thereof for the years-ended December 31, 2024 and 2023 were $2 million and less than $1 million, respectively.

Expected Contributions and Expected Future Payments for Premiums and Claims

The Company expects to contribute $1 million to the Health & Welfare Plan to pay premiums and claims in the fiscal year ending December 31, 2024. Future Payments for premiums and claims are expected to be $1 million or less per year through the life of the Health & Welfare Plan.

Note 22 -Segments

The Company’s chief operating decision maker is the Chief Executive Officer. The Company has evaluated its operating structure and determined that it operates inone reportable segment, which constitutes its only operating segment. The Company’s chief operating decision maker regularly evaluates the performance of the business as a whole, with financial results reviewed on a consolidated basis.

Given the current focus on the Company’s operations, products, and services, the chief operating decision maker does not assess performance or make operating decisions based on distinct geographic or product line divisions as the focus has been on consolidated cost measures and realigning business operations to ensure long-term profitability. A current focus of the chief operating decision maker is on the primary revenue sources and the costs of the organization. Therefore, the chief operating decision maker considers each element of noninterest expense in decision making about how to allocate the resources of the company. Additionally, the chief operating decision maker is focused on the key consolidated revenue sources, most notably net interest income, which led to the decision to sell certain portions of our business and certain loan portfolios. The Company's significant revenues and expenses are reported on the face of the Consolidated Statement of (Loss) Income. As a result, the Company’s financial performance is reviewed as a single operating segment.

Note 23 -Parent Company-Only Financial Information

The following tables present the condensed financial statements for Flagstar Financial, Inc. (Parent Company only):

Condensed Statements of Condition

Condensed Statements of Income

Condensed Statements of Cash Flows