FLAGSTAR BANK, NATIONAL ASSOCIATION

Previous wording

We operate in a single reportable segment and have identified one reporting unit which is the same as our operating segment.

Current wording

We operate in a single reportable segment and have identified one reporting unit which is the same as our operating segment. In the future we plan to continue to assess our reportable segments and reporting units, which may result in a change to either or both in future reporting periods. Please refer to Note 18 - Segment Reporting.

Previous wording

Net interest income is our primary source of income. The amount of our net interest income is a function of the amount of interest-earning assets we hold, the manner in which we fund these assets, including interest-bearing liabilities, and the spread between the interest rates we earn on assets and the interest rates we pay on liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee, and market interest rates.

Current wording

Net interest income is our primary source of income. The amount of our net interest income is a function of the amount of interest-earning assets we hold, the manner in which we fund these assets, including interest-bearing liabilities, and the spread between the interest rates we earn on assets and the interest rates we pay on liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee, and prevailing interest rates.

Previous wording

Our interest-bearing liabilities are comprised of customer deposits and funds we borrow. The average term of our fixed rate deposits is less than twelve months, therefore the cost of our deposits and most of our borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the Federal Open Market Committee. The yields on our held-for-investment loans, and the majority of our cash balances, reset based on short-term market rates. However, a sizable portion of our held-for-investment loans have fixed rates and generally reset to intermediate-term market rates when they reach repricing dates.

Current wording

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

Previous wording

The following table sets forth certain information regarding our net interest income and average balance sheet for the periods indicated. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the periods are derived from average balances that are calculated daily.

Current wording

The following table sets forth information regarding our net interest income and average balance sheet for the periods indicated. The average balance is derived from daily calculations of average balances.

Previous wording

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

Current wording

The following table sets forth loans with adjustable rates ("Option Loans") by year of repricing and fixed rate loans ("Non-Option Loans") by year of contractual maturity:

Previous wording

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

Current wording

(1)Excludes Specialty Finance commercial real estate loans and multi-family loans serviced-by-others totaling $454 million and $96 million respectively. Amounts presented reflect unpaid principal balance; total amortized cost adjustments were $64 million.

Previous wording

The majority of our multi-family loans are non-recourse and are secured by rental apartment buildings. At September 30, 2024, $19.8 billion or 56 percent of the Company’s total multi-family loan portfolio was secured by properties in New York State, many of which are subject to rent regulation laws to varying degrees. The New York Housing Stability and Tenant Protection Act of 2019 (the "Act") significantly limits the ability to increase rents on regulated apartments upon vacancy. These limitations may reduce a borrower’s ability to generate additional revenues on those units to offset higher operating expenses due to inflation and the current interest rate environment. This could result in lower net operating income and could impact a borrower’s ability to satisfy repayment obligations during the term of the loan. In addition, the level of income generated by the property may be insufficient to qualify for refinancing at maturity. The impact on current and future cash flows has adversely impacted the value of properties with a high concentration of rent regulated units which has increased charge-offs in 2024.

Current wording

The majority of our multi-family loans are non-recourse and are secured by rental apartment buildings. At March 31, 2025, $18.6 billion or 56 percent of the Company’s total MF loan portfolio was secured by properties in New York State, many of which are subject to rent regulation laws to varying degrees. The New York Housing Stability and Tenant Protection Act of 2019 significantly limits the ability to increase rents on regulated apartments upon vacancy. These limitations may reduce a borrower’s ability to generate additional revenues on those units to offset higher operating expenses due to inflation and the current interest rate environment. This could result in lower net operating income and could impact a borrower’s ability to satisfy repayment obligations during the term of the loan. In addition, the level of income generated by the property may be insufficient to qualify for refinancing at maturity.

Previous wording

To mitigate our exposure to rent regulated properties, we are curtailing future originations of such loans secured by rent-regulated properties. We are no longer utilizing mortgage brokers to refer loan origination opportunities to us. We are focusing originations and renewal retention on borrowers with whom we will have broader customer relationships beyond lending. Additionally, we are strategically diversifying our loan portfolio to shift from multi-family loans to other loan sectors. We have begun to add experienced commercial banking lenders and credit personnel which will impact our noninterest expense.

Current wording

To mitigate our exposure to rent regulated properties, we are curtailing future originations of such loans secured by rent-regulated properties. We are no longer utilizing mortgage brokers to refer loan origination opportunities to us. We are focusing originations and renewal retention on borrowers with whom we will have broader customer relationships beyond lending. Additionally, we are strategically diversifying our loan portfolio to shift from MF loans to other loan sectors.

Previous wording

Our multi-family loans may contain an initial interest-only period; however, they are underwritten on a fully amortizing basis, including the calculation of the debt service coverage ratio. Whether a borrower qualifies for an interest-only period is based on the individual credit profile of the borrower, particularly the loan-to-value of the property. At September 30, 2024, we had $14.0 billion of multi-family loans in their interest-only period. These loans were originated with an average interest-only period of approximately 36 months. As of September 30, 2024, there is a weighted average interest-only period of approximately 20 months remaining. Approximately 56 percent of these loans enter their amortization period by the end of 2025.

Current wording

Historically, our MF loans may have contained an initial interest-only period; however, they were underwritten on a fully amortizing basis, including calculation of the debt service coverage ratio. Whether a borrower qualified for an interest-only period was based on the individual credit profile of the borrower, particularly the loan-to-value of the property. Our multi-family loan portfolio had $11.5 billion outstanding with interest-only payments at March 31, 2025. The weighted average interest-only period remaining was 19.3 months as of March 31, 2025, with approximately 73 percent of these loans entering their amortization period by the end of 2025.

Previous wording

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

Current wording

We continue to monitor our loans held for investment portfolio and the related allowance for credit losses, particularly, given the economic pressures facing the commercial real estate and multi-family markets. Although occupancy levels, have historically tended to be stable due to below market rents, rent-regulated loans that are repricing are incurring debt service levels, by themselves, that when combined with inflationary pressure on operating costs and limits on the ability to increase rental rates, approach or exceed some properties’ net operating income and may require the borrower to support the loan from sources unrelated to the collateral until elevated interest rates subside.

Previous wording

Certain of our commercial real estate loans may contain an interest-only period; however, these loans are underwritten on a fully amortizing basis, including calculation of the debt service coverage ratio. Whether a borrower qualifies for an interest-only period is based on the individual credit profile of the borrower and the loan-to-value of the property.

Current wording

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

Previous wording

Substantially all commercial real estate loans we originate are non-recourse and are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. Occupancy levels for office space have declined substantially over the past three years which has had an impact on borrowers'

Current wording

Substantially all CRE loans we originate are non-recourse and are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. Declines in occupancy levels for office space continue to impact borrowers’ net operating income and their ability to cover debt service.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

A broad range of commercial and industrial loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of commercial and industrial loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. Commercial and industrial loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

Current wording

A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of C&I, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. C&I loans are often secured by business assets and personal guarantees of the borrower and include financial covenants to monitor the borrower’s financial stability. We continue to add experienced commercial, corporate and specialized industries banking professionals and credit underwriting and portfolio management personnel which will impact our noninterest expense as we continue to strategically diversify our loan portfolio to shift from multi-family loans to other portfolios, most notably C&I.

Previous wording

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

Current wording

Our home equity portfolio includes home equity loans, second mortgage loans, and home equity line of credits. As of March 31, 2025, loans in this portfolio had an average current FICO score of 751.

Previous wording

Loans held for sale at September 30, 2024 totaled $1.9 billion, an increase of $0.7 billion compared to $1.2 billion at December 31, 2023. We classify loans as held for sale when we originate or purchase loans that we intend to sell and when we change our intent for loans originated as held for investment. Our mortgage loans held for sale are carried at fair value. We estimate the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral.

Current wording

We classify loans as held for sale when we originate or purchase loans that we intend to sell and when we change our intent with regard to loans originated as held for investment. Our one-to-four family mortgage loans held for sale are carried at fair value. Other loans held for sale are carried at the lower of amortized cost or market. These loans are typically recorded based on recent appraisals less estimated disposal costs. We estimate the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral.

Previous wording

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

Current wording

Asset quality information excludes loans with repurchased government guarantees that are insured by U.S. government agencies.

Previous wording

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

Current wording

The following table presents our non-accrual loans held for investment by loan type:

Previous wording

(2)Excludes $189 million of non-accrual held for sale loans.

Current wording

(2)Excludes $21 million of non-accrual held for sale loans.

Previous wording

During the first nine months of 2024, the Company received updated financial information for a substantial portion of the commercial real estate and multi-family portfolio. Additionally a substantial number of appraisals on loans exhibiting credit weakness were received, which resulted in an increase in non-accrual loans from December 31, 2023. Approximately 68 percent of our non-accrual loans are current on their contractual payment terms. In determining whether to place a loan on non-accrual we have considered whether a borrower will be able to service its debt under terms expected within the next 18 months based on current collateral and net operating income. Where net operating income is below the projected debt service and the collateral value is below the loan amount, we place loans on non-accrual. Updated financial information from borrowers and appraisals received have led to an increase in non-accruals loans in 2024.

Current wording

Approximately 41 percent of our non-accrual loans are current on their contractual payment terms. In determining whether to place a loan on non-accrual we have considered whether a borrower will be able to service its debt under terms expected within the next 18 months based on current collateral and net operating income. Where net operating income is below the projected debt service and the collateral value is below the loan amount, we place loans on non-accrual.

Previous wording

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

Current wording

The following table sets forth the changes in non-accrual loans at March 31, 2025:

Previous wording

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

Current wording

The following table sets forth the allocation of the ACL on loans and leases at each period-end:

Previous wording

The allowance for credit losses on loans and leases to total loans held for investment ratio increased to 1.78 percent at September 30, 2024, compared to 1.17 percent at December 31, 2023. Excluding loans with government guarantees and warehouse loans, the allowance for credit losses was 1.80 percent at September 30, 2024, compared to 1.26 percent at December 31, 2023.

Current wording

The ACL on loans and leases to total loans held for investment ratio decreased to 1.75 percent at March 31, 2025, compared to 1.76 percent at December 31, 2024. Excluding loans with government guarantees, the allowance for credit losses was 1.76 percent at March 31, 2025, compared to 1.77 percent at December 31, 2024.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Debt securities available-for-sale increased $2.4 billion to $12.8 billion, or 13 percent of total assets, at March 31, 2025, compared to $10.4 billion, or 10 percent of total assets, at December 31, 2024. At March 31, 2025, 24 percent of our portfolio is comprised of floating rate securities.

Previous wording

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

Current wording

As of March 31, 2025, the net unrealized loss on securities available for sale, net of tax, was $560 million, compared to $653 million at December 31, 2024, a decrease of $93 million, reflecting changes in market interest rates.

Previous wording

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

Current wording

The following table summarizes the weighted average yields of debt securities available-for-sale for the maturities at March 31, 2025:

Previous wording

Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer and the attractiveness of their terms. The majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or retail deposits acquired through business combinations); however, we also utilize brokered deposits depending on their availability and pricing relative to other funding sources. From December 31, 2023 to March 7, 2024, we experienced $9.7 billion in core deposit attrition following the credit rating agency downgrades of our Company's credit and deposit ratings in February and March 2024. On March 6, 2024, we announced a $1.05 billion capital raise, after which deposits stabilized. We replaced the decline in deposits and increased our on-balance sheet liquidity, primarily through brokered certificates of deposit and wholesale borrowings in the first quarter of 2024. Subsequently, in the second and third quarters of 2024, targeted deposit gathering programs and customer engagement increased customer deposits over $7 billion.

Current wording

We compete for deposits and customers through multiple channels, including our retail branch network, our private banking business and mobile and interest bank applications. Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer and the attractiveness of their terms. The majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or retail deposits acquired through business combinations); however, we also utilize brokered deposits depending on their availability and pricing relative to other funding sources.

Previous wording

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

Current wording

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

Previous wording

(1) Includes brokered certificate of deposit accounts of $11,559 million and $6,201 million at September 30, 2024 and December 31, 2023, respectively, each of which includes all funds gathered from a single issuance. While each brokered certificate of deposit account has balances in excess of $250,000, the funds are fully insured by the FDIC as each of the ultimate owners of the funds maintain balances below FDIC insurance limits.

Current wording

(1) Includes brokered deposit accounts. Each brokered deposit account has balances in excess of $250,000, the funds are fully insured by the FDIC as each of the ultimate owners of the funds maintain balances below FDIC insurance limits.

Previous wording

FHLB advances decreased to $18.3 billion at September 30, 2024 from $19.3 billion at December 31, 2023. FHLB advances are secured by eligible collateral in the form of loans and securities, under blanket collateral agreements with the FHLB. $250 million of our wholesale borrowings had callable features at September 30, 2024 and $2.0 billion had callable features at December 31, 2023. In the first quarter 2024, we increased our borrowing from the FHLB. In the third quarter 2024, the Company repaid over $4.5 billion of FHLB advances. We reclassified $5 million to interest expense from Accumulated Other Comprehensive Loss in the third quarter 2024 related to previously terminated hedges of forecasted cash flows associated with the repaid advances.

Current wording

At March 31, 2025, the total FHLB and FRB stock, decreased $85 million, primarily due to a reduction in borrowings in the three months ended March 31, 2025. FHLB advances are secured by eligible collateral in the form of loans and securities, under blanket collateral agreements with the FHLB.

Previous wording

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

Current wording

To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent as described more fully in our Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

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

Current wording

It is our practice to continually review the risk in our loan portfolio. We receive financial information from borrowers annually and in some cases more frequently. We most often receive updated borrower financial information in the second calendar quarter. Upon receipt of the borrower financial information, we perform an analysis to determine whether the cash flow from the underlying collateral is sufficient to meet the contractual loan payments, commonly referred to as the debt service coverage ratio. We consider the ability to cover debt service based upon the current contractual rate or, when a borrower’s initial fixed rate period expires in the near future, the lowest contractual rate reset option available under the loan terms using the current level for referenced indices. Loans that do not have a debt service coverage ratio of 1.0 or greater are evaluated for a potential downgrade to substandard or non-accrual risk rating. All substandard loans, including non-accrual loans, are appraised at the time of downgrade and are re-appraised annually. Based upon this appraisal the loan is evaluated to determine if an adjustment to the carrying amount is required. The largest substandard and non-accrual loans are reported and reviewed with the Risk Assessment Committee at least quarterly.

Previous wording

In the first nine months of 2024, $2.1 billion of multi-family loans reached their repricing date. Approximately one-third of these loans paid off, and over 80 percent of the remaining loans are current on their contractual payments at September 30, 2024.

Current wording

At March 31, 2025, $3.4 billion of multi-family loans reached their repricing date. Over 75 percent of the loans that repriced from December 31, 2024 to March 31, 2025 are current on their contractual payments.

Previous wording

Classified loans increased $1.2 billion to $11.4 billion in thethird quarter 2024, from $10.2 billion in the second quarter 2024. These downgrades were principally related to loans with upcoming maturities or repricing where the estimated net operating income of the property would not be sufficient to fully cover pro-forma debt service when applying current market rates and terms. Classified loans reflect the potential that a loss may occur if deficiencies in the primary source of repayment are unable to be corrected and borrowers are unwilling or unable to otherwise support the loans. Refer to Note 6 - Loans and Leases in Item 1, "Financial Statements and Supplementary Data" for additional details.

Current wording

Classified loans reflect the potential that a loss may occur if deficiencies in the primary source of repayment are unable to be corrected and borrowers are unwilling or unable to otherwise support the loans. Classified loans at March 31, 2025 and December 31, 2024 were $11.6 billion and $11.5 billion, respectively. The increase in classified loans is primarily attributable to one large relationship that was placed on nonaccrual during the three months ended March 31, 2025. Excluding that relationship, the remaining classified loans decreased by $356 million.

Previous wording

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 there is significant uncertainty about whether we will be able to collect all amounts due according to the contractual terms of the loan agreement (principal and interest). When a loan is in non-accrual, we cease recording interest income on the loan, previously accrued and uncollected interest is reversed against interest income, and any subsequent interest collected is recorded as a reduction in the loan carrying amount. A loan is returned to accrual status only when the loan is current (minimum of six months of payment performance) and we have reasonable assurance that the loan will be fully collectible as to all contractual principal and interest. At September 30, 2024, $1.7 billion, or approximately 68 percent, of non-accrual loans were current based on their existing payment terms.

Current wording

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 there is significant uncertainty about whether we will be able to collect all principal and interest amounts due according to the contractual terms of the loan agreement. When a loan is in non-accrual, we cease recording interest income on the loan, previously accrued and uncollected interest is reversed against interest income, and any subsequent interest collected is recorded as a reduction in the loan carrying amount. A loan is returned to accrual status only when the loan is current (minimum of six months of payment performance), and we have reasonable assurance that all contractual principal and interest related to the loan will be fully collectible. At March 31, 2025, $1.3 billion, or approximately 41 percent, of non-accrual loans were current based on their existing payment terms.

Previous wording

In accordance with our charge-off policy, collateral-dependent loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to support these efforts. Charge-offs of $599 million were recorded on commercial real estate and multi-family loans during the nine months ended September 30, 2024, primarily driven by appraisals received on those loans.

Current wording

In accordance with our charge-off policy, collateral-dependent loans are written down to their current appraised values less costs to sell. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to support these efforts. Charge-offs of $82 million were recorded on MF and CRE loans at March 31, 2025, primarily driven by appraisals received on those loans.

Previous wording

It is our policy to order updated appraisals for all substandard and non-accrual loans that are collateralized by multi-family buildings, commercial real estate properties, or land, if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered at least annually until such time as the loan becomes pass rated. It is not our policy to obtain updated appraisals for performing loans that are not showing signs of credit weakness. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan, or when we determine an updated appraisal is needed as a result of our ongoing credit analysis. We evaluate loans that were previously placed on non-accrual at least quarterly to determine if additional charge-offs may be needed.

Current wording

It is our policy to order updated appraisals for all substandard and non-accrual loans that are collateralized by multi-family buildings, commercial real estate properties, or land, if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered at least annually until such time as the loan becomes pass rated. It is not our policy to obtain updated appraisals for performing loans that are not showing signs of credit weakness. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, an extension of a maturing loan, or when we determine an updated appraisal is needed as a result of our ongoing credit analysis. We evaluate loans that were previously placed on non-accrual at least quarterly to determine if additional charge-offs may be needed.

Previous wording

Properties and other assets that are acquired through foreclosure are classified as repossessed assets and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property. Subsequent declines in the fair value of the assets are charged to earnings and are included in non-interest expense. It is our policy to require an appraisal and an environmental assessment of properties classified as other real estate owned before foreclosure and to re-appraise the properties on an as-needed basis, and not less than annually, until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.

Current wording

Properties and other assets that are acquired through foreclosure are classified as repossessed assets and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property. Subsequent declines in the fair value of the assets are charged to earnings and are included in non-interest expense. It is our policy to require an appraisal, and an environmental assessment of properties classified as other real estate owned before foreclosure and to re-appraise the properties at least annually until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.