NEW YORK COMMUNITY BANCORP, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number:
001-31565
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
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Registrant’s telephone number, including area code:
(
516
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683-4100
Securities registered pursuant to Section 12(b) of the Act:
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Trading symbol(s)
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Name of each exchange on which registered | ||||||||||||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated Filer | ☐ | Smaller Reporting Company |
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| Non-Accelerated Filer | ☐ | Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No ☒
The number of shares of the registrant’s common stock outstanding as of April 30, 2025 was
415,079,910
shares
.
FLAGSTAR FINANCIAL, INC.
FORM 10-Q
| Item 2. | ||||||||
| Item 1. | ||||||||
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Condensed Consolidated Statements of Condition (unaudited)
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Condensed Consolidated Statements of (Loss) Income (unaudited)
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Condensed Consolidated Statement of Comprehensive (Loss) Income (unaudited)
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Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
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Condensed Consolidated Statements of Cash Flows (unaudited)
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Note 2 -
Computation of Earnings Per Common Share
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Note 3 -
Accumulated Other Comprehensive Loss
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Note 4 - I
nvestment Securities
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Note 5 -
Loans and Leases
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Note 6 - A
llowance for Credit Losses
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Note 13 - D
erivative and Hedging Activities
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Note 14 - I
ntangible Assets
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Note 15 - F
air Value Measures
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| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
For the purpose of this Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” and the “Company” are used to refer to Flagstar Financial, Inc. and our consolidated subsidiary, Flagstar Bank, N.A. (the “Bank”).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING LANGUAGE
This report, like many written and oral communications presented by Flagstar Financial, Inc. and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions, and expectations as reflected in these forward-looking statements are reasonable, we can give no assurance that they will be achieved or realized.
Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain. Accordingly, actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained in this report.
There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in our forward-looking statements. These factors include, but are not limited to:
•
general economic conditions, including higher inflation and its impacts, either nationally or in some or all of the areas in which we and our customers conduct our respective businesses;
•
conditions in the securities markets and real estate markets or the banking industry;
•
changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;
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changes in interest rates, which may affect our net income, prepayment penalty income, and other future cash flows, or the market value of our assets, including our investment securities;
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changes in the quality or composition of our loan or securities portfolios;
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changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others;
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heightened regulatory focus on commercial real estate and on commercial real estate loan concentrations;
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changes in competitive pressures among financial institutions or from non-financial institutions;
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changes in deposit flows and wholesale borrowing facilities;
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our ability to maintain sufficient liquidity and funding to fulfill cash obligations and commitments when they become due in the short-term and long-term;
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changes in the demand for deposit, loan, and investment products and other financial services in the markets we serve;
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our timely development of new lines of business and competitive products or services in a changing environment, and the acceptance of such products or services by our customers;
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our ability to obtain timely stockholder and regulatory approvals of any capital raise transactions, corporate restructurings or other significant transactions we may propose;
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our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations, and our ability to realize related synergies and cost savings within expected time frames, including those related to our recent acquisition of Flagstar Bancorp, Inc. ("Flagstar Bancorp") and the purchase and assumption of certain assets and liabilities of Signature Bridge Bank, N.A. ("Signature");
•
potential exposure to unknown or contingent liabilities of companies we have acquired, may acquire, or target for acquisition, including our recent acquisition of Flagstar Bancorp and the purchase and assumption of certain assets and liabilities of Signature;
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the ability to invest effectively in new information technology systems and platforms;
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the more stringent regulatory framework and prudential standards we are subject to, including with respect to reporting, capital stress testing, and liquidity risk management, as a result of our transition to a Category IV banking organization, and the expenses we will incur to develop policies, programs, and systems that comply with these enhanced standards;
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changes in future allowance for credit losses requirements under relevant accounting and regulatory requirements;
3
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the ability to pay future dividends, including as a result of the failure to receive any required regulatory approval to pay a dividend, or for any other reasons;
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recent turnover in our Board of Directors and our executive management team;
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the ability to hire and retain key personnel and qualified members of our Board of Directors;
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the ability to execute on our strategic plan, including the sufficiency of our internal resources, procedures and systems;
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the ability to achieve our strategic financial and other strategic goals;
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the ability to attract new customers and retain existing ones in the manner anticipated;
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changes in our customer base or in the financial or operating performances of our customers’ businesses;
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the potential for deposit attrition, including for reasons related to (i) the departure of private banking teams whose responsibilities include the acquisition and retention of customer deposits and (ii) the expected transfer of certain custodial deposits associated with our mortgage servicing business out of the Bank;
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any interruption in customer service due to circumstances beyond our control;
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our ability to successfully remediate our previously disclosed material weaknesses in internal control over financial reporting;
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the outcome of pending or threatened litigation, or of investigations or any other matters before regulatory agencies, whether currently existing or commencing in the future, including with respect to any litigation, investigation or other regulatory actions related to (i) the business practices of acquired companies, including our acquisition of Flagstar Bancorp and subsequent purchase and assumption of certain assets and liabilities of Signature, (ii) the capital raise transaction we completed in March of 2024, (iii) the previously disclosed material weaknesses in internal control over financial reporting, (iv) past cyber security breaches, and (v) recent events and circumstances involving the Company, including our full year 2023 earnings announcement, disclosures regarding credit losses, provisioning and goodwill impairment, and negative news and expectations about the prospects of the Company (and associated stock price volatility and changes);
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environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the Company;
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potential for deferred tax asset valuation allowance relating to Section 382 of the Internal Revenue Code arising from aggregation risk of new shareholder share issuances and warrant exercises related to our March 2024 $1.05 billion capital raise, the Flagstar Bancorp acquisition and additional potential market transactions not in the Company’s control;
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cybersecurity incidents, including any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems managed either by us or third parties;
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operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;
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the ability to keep pace with, and implement on a timely basis, technological changes;
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changes in legislation, regulation, policies, guidance, or administrative practices, whether by judicial, governmental, or legislative action, and other changes pertaining to banking, securities, taxation, rent regulation and housing (the New York Housing Stability and Tenant Protection Act of 2019), financial accounting and reporting, environmental protection, insurance, and the ability to comply with such changes in a timely manner;
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changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System;
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changes in accounting principles, policies, practices, and guidelines;
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changes in regulatory expectations relating to predictive models we use in connection with stress testing and other forecasting or in the assumptions on which such modeling and forecasting are predicated;
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changes to federal, state, and local income tax laws;
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changes in our credit ratings, or in our ability to access the capital markets;
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increases in our FDIC insurance premium or future assessments;
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the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts;
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the potential impact to the Company from climate change, including higher regulatory compliance, increased expenses, operational changes, and reputational risks;
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the effects of geopolitical instability and unforeseen or catastrophic events including natural disasters, war, conflicts, terrorist activities, civil unrest, pandemics, epidemics, and other health emergencies, and the potential impact, directly or indirectly, on our business;
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other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services;
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completing the diversification of the Company’s loan portfolio may be more difficult, costly or time consuming than expected;
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the ability to achieve anticipated expense reductions and enhanced efficiencies with respect to our previously announced strategic workforce reduction;
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the impact of the recent sale of our mortgage third party origination business, mortgage servicing business and mortgage warehouse business;
4
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the ability to successfully integrate branches and operations and to implement appropriate internal controls and regulatory functions relating to such activities;
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the ability to limit the outflow of deposits, and to successfully retain and manage any loans;
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the ability to attract new deposits, and to generate new interest-earning assets, in geographic areas that have not been previously served;
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our ability to effectively manage liquidity, including our success in deploying any liquidity arising from a transaction into assets bearing sufficiently high yields without incurring unacceptable credit or interest rate risk or to utilize available collateral to obtain funding;
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the ability to obtain cost savings and control incremental non-interest expense;
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the ability to retain and attract appropriate personnel;
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the ability to generate acceptable levels of net interest income and non-interest income, including fee income, from acquired operations;
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the diversion of management’s attention from existing operations;
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the ability to address an increase in working capital requirements; and
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limitations on the ability to successfully reposition our post-merger balance sheet when deemed appropriate.
In addition, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control.
See Part 1, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2024 for a further discussion of important risk factors that could cause actual results to differ materially from our forward-looking statements.
Readers should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise or update these forward-looking statements except as may be required by law.
5
PART I. FINANCIAL INFORMATION
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||||
RESULTS OF OPERATIONS
Background
Flagstar Financial, Inc. is the parent company of Flagstar Bank, N.A., one of the largest regional banks in the country. The Company is headquartered in Hicksville, New York. At March 31, 2025, the Company had $97.6 billion of assets, $67.1 billion of loans, deposits of $73.9 billion, and total stockholders’ equity of $8.2 billion.
Flagstar Bank, N.A. operates approximately 400 locations across nine states, with strong footholds in the greater New York/New Jersey metropolitan region and in the upper Midwest, along with a significant presence in fast-growing markets in Florida and the West Coast.
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.
On June 27, 2024, we announced a 1 for 3 reverse stock split, effective July 11, 2024. This reverse stock split is reflected retroactively in all periods presented in this report.
Net Loss
For the three months ended March 31, 2025, we reported a net loss of $100 million compared to a net loss of $188 million for the three months ended December 31, 2024. The net loss attributable to common stockholders, which includes the impact from preferred dividends, for the three months ended March 31, 2025 was $108 million, or $0.26 per diluted share compared to a net loss attributable to common stockholders of $196 million, or $0.47 per diluted share for the three months ended December 31, 2024 and a net loss attributable to common stockholders of $335 million, or $1.36 per diluted share for the three months ended March 31, 2024. The net loss for the three months ended December 31, 2024 included a gain on the sale of our mortgage third party origination business, and mortgage servicing business ("Mortgage Operations") of $89 million, long term asset impairment of $77 million, and severance cost of $31 million. The net loss for the three months ended March 31, 2024 included the reduction in the Signature Transaction bargain purchase gain of $121 million.
Net Interest Income
Net interest income is our primary source of income. The amount of our net interest income is a function of the amount of interest-earning assets we hold, the manner in which we fund these assets, including interest-bearing liabilities, and the spread between the interest rates we earn on assets and the interest rates we pay on liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee, and prevailing interest rates.
Our interest-bearing liabilities are comprised of customer deposits and funds we borrow. The average term of our fixed rate deposits is less than twelve months, therefore the cost of our deposits and most of our borrowed funds is largely based on short-term 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.
6
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.
| Three Months Ended, | |||||||||||||||||||||||||||||||||||
| March 31, 2025 | December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||||||||||
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(in millions)
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Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | ||||||||||||||||||||||||||
| ASSETS: | |||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
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Mortgage and other loans, net
(1)
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$ | 68,212 | $ | 860 | 5.06 | % | $ | 71,727 | $ | 948 | 5.28 | % | $ | 84,123 | $ | 1,193 | 5.68 | % | |||||||||||||||||
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Securities
(2)
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13,067 | 148 | 4.59 | % | 12,347 | 144 | 4.77 | % | 11,576 | 123 | 4.30 | % | |||||||||||||||||||||||
| Interest-earning cash and cash equivalents | 14,344 | 156 | 4.42 | % | 22,048 | 266 | 4.79 | % | 14,345 | 197 | 5.52 | % | |||||||||||||||||||||||
| Total interest-earning assets | $ | 95,623 | $ | 1,164 | 4.90 | % | $ | 106,122 | $ | 1,358 | 5.11 | % | $ | 110,044 | $ | 1,513 | 5.51 | % | |||||||||||||||||
| Non-interest-earning assets | 3,484 | 4,367 | 5,682 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 99,107 | $ | 110,489 | $ | 115,726 | |||||||||||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| Interest-bearing checking and money market accounts | $ | 21,023 | $ | 167 | 3.23 | % | $ | 23,007 | $ | 205 | 3.54 | % | $ | 26,428 | $ | 232 | 3.54 | % | |||||||||||||||||
| Savings accounts | 14,349 | 111 | 3.14 | % | 13,996 | 124 | 3.51 | % | 8,400 | 47 | 2.24 | % | |||||||||||||||||||||||
| Certificates of deposit | 26,355 | 308 | 4.74 | % | 28,573 | 362 | 5.04 | % | 24,711 | 291 | 4.74 | % | |||||||||||||||||||||||
| Total interest-bearing deposits | $ | 61,727 | $ | 586 | 3.85 | % | $ | 65,576 | $ | 691 | 4.19 | % | $ | 59,539 | $ | 570 | 3.85 | % | |||||||||||||||||
| Total borrowed funds | $ | 14,377 | $ | 168 | 4.71 | % | $ | 17,940 | $ | 206 | 4.56 | % | $ | 25,728 | $ | 319 | 4.99 | % | |||||||||||||||||
| Total interest-bearing liabilities | $ | 76,104 | $ | 754 | 4.02 | % | $ | 83,516 | $ | 897 | 4.27 | % | $ | 85,267 | $ | 889 | 4.19 | % | |||||||||||||||||
| Non-interest-bearing deposits | 13,068 | 15,959 | 19,355 | ||||||||||||||||||||||||||||||||
| Other liabilities | 1,732 | 2,440 | 2,563 | ||||||||||||||||||||||||||||||||
| Total liabilities | $ | 90,904 | $ | 101,915 | $ | 107,185 | |||||||||||||||||||||||||||||
| Stockholders’ and mezzanine equity | 8,203 | 8,574 | 8,541 | ||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 99,107 | $ | 110,489 | $ | 115,726 | |||||||||||||||||||||||||||||
| Net interest income/interest rate spread | $ | 410 | 0.88 | % | $ | 461 | 0.84 | % | $ | 624 | 1.32 | % | |||||||||||||||||||||||
| Net interest margin | 1.74 | % | 1.73 | % | 2.28 | % | |||||||||||||||||||||||||||||
| Ratio of interest-earning assets to interest-bearing liabilities | 1.26 | x | 1.27 | x | 1.29 | x | |||||||||||||||||||||||||||||
(1)
Comprised of Loans and leases held for investment, net and Loans held for sale.
(2)
Comprised of Debt securities available-for-sale at amortized cost, Equity investments with readily determinable fair values, at fair value and Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost.
7
The following table summarizes the change in net interest income attributable to changes in rate and volume:
| Three Months Ended, | ||||||||||||||||||||||||||
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March 31, 2025 compared to December 31, 2024
Increase/(Decrease) Due to:
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March 31, 2025 compared to March 31, 2024
Increase/(Decrease) Due to:
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| (in millions) |
Volume
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Rate
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Net |
Volume
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Rate
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Net | ||||||||||||||||||||
| INTEREST-EARNING ASSETS: | ||||||||||||||||||||||||||
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Mortgage and other loans, net
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$ | (46) | $ | (42) | $ | (88) | $ | (214) | $ | (119) | $ | (333) | ||||||||||||||
| Securities | 8 | (4) | 4 | 17 | 8 | 25 | ||||||||||||||||||||
| Interest earning cash & cash equivalent | (91) | (19) | (110) | — | (41) | (41) | ||||||||||||||||||||
| Total interest-earnings assets | $ | (129) | $ | (65) | $ | (194) | $ | (197) | $ | (152) | $ | (349) | ||||||||||||||
| INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||||||||
| Interest-bearing checking and money market accounts | $ | (17) | $ | (21) | $ | (38) | $ | (46) | $ | (19) | $ | (65) | ||||||||||||||
| Savings accounts | 2 | (15) | (13) | 40 | 24 | 64 | ||||||||||||||||||||
| Certificates of deposit | (27) | (27) | (54) | 20 | (3) | 17 | ||||||||||||||||||||
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Total borrowed funds
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$ | (41) | $ | 3 | $ | (38) | $ | (136) | $ | (15) | $ | (151) | ||||||||||||||
| Total interest-bearing liabilities | $ | (83) | $ | (60) | $ | (143) | $ | (122) | $ | (13) | $ | (135) | ||||||||||||||
| Change in net interest income | $ | (46) | $ | (5) | $ | (51) | $ | (75) | $ | (139) | $ | (214) | ||||||||||||||
Comparison to Prior Quarter
During the three months ended March 31, 2025, Net Interest Margin (“NIM”) stabilized compared to the three months ended December 31, 2024. Additionally, net interest income decreased $51 million compared to the three months ended December 31, 2024, primarily as a result of lower average mortgage and other loans due to the strategic reduction of our Multi-Family (“MF”), Commercial Real Estate (“CRE”) and non-core Commercial and Industrial ("C&I") loans that began in early 2024, lower overall market interest rates, and lower average interest earning cash and cash equivalents primarily due to the pay down of wholesale borrowings. The decrease in net interest income was partially offset by the payoff of brokered certificates of deposit reflecting our strategy to reduce higher cost funding, a reduction in custodial deposits associated with the sale of our Mortgage Operations during the three months ended December 31, 2024, and lower overall market interest rates.
Comparison to Prior Year to Date
During the three months ended March 31, 2025, NIM decreased by 54 basis points compared to the three months ended March 31, 2024. Additionally, net interest income decreased $214 million compared to the prior year, primarily as a result of lower average mortgage and other loans due to the sale of our Mortgage Operations during the three months ended December 31, 2024, and our warehouse lending portfolio during the three months ended September 30, 2024, the strategic reduction in MF, CRE, and C&I loans and lower interest rates. The decrease was partially offset by lower average borrowed funds driven by the pay down of wholesale borrowings during 2024.
8
Provision for Credit Losses
The following table summarizes our Provision for credit losses for the respective periods:
| Three Months Ended, |
March 31, 2025 compared to (%):
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| (in millions) | March 31, 2025 | December 31, 2024 | March 31, 2024 | December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||||
|
Provision for credit losses
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$ | 79 | $ | 145 | $ | 315 | (46) | % | (75) | % | ||||||||||||||||||||||
Comparison to Prior Quarter
For the three months ended March 31, 2025, the provision for credit losses decreased $66 million compared to the three months ended December 31, 2024. This decrease is primarily due to lower net charge-offs, our continued focus on credit reviews and the receipt of recent appraisals. Additionally, our Allowance for Credit Losses ("ACL") balance decreased since December 31, 2024, as result of the on-going strategic reduction of our MF, CRE and non-core C&I portfolios. The reduction in our ACL balance was partially offset by the negatively trending macro-economic environment.
Comparison to Prior Year to Date
For the three months ended March 31, 2025, the provision for credit losses decreased $236 million compared to the three months ended March 31, 2024. This decrease is primarily due to lower net charge-offs, our continued focus on credit reviews and the receipt of recent appraisals. Additionally, our ACL balance decreased since March 31, 2024, as result of the on-going strategic reduction of our MF, CRE and non-core C&I portfolios. The reduction in our ACL balance was partially offset by the negatively trending macro-economic environment.
Non-Interest Income
The following table summarizes our non-interest income for the respective periods:
| Three Months Ended, |
March 31, 2025 compared to (%):
|
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| (in millions) | March 31, 2025 | December 31, 2024 | March 31, 2024 | December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||||
| Fee income | $ | 22 | $ | 33 | $ | 34 | (33) | % | (35) | % | ||||||||||||||||||||||
| Net gain on mortgage/servicing sale | — | 89 | — |
NM
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NM
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| Net return on mortgage servicing rights | — | (1) | 21 |
NM
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NM
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| Bank-owned life insurance | 10 | 10 | 10 | — | % | — | % | |||||||||||||||||||||||||
| Net gain on loan sales and securitizations | 13 | 5 | 20 | 160 | % | (35) | % | |||||||||||||||||||||||||
| Net loan administration income (loss) | 4 | (1) | 16 |
NM
|
(75) | % | ||||||||||||||||||||||||||
| Other | 31 | 29 | 29 | 7 | % | 7 | % | |||||||||||||||||||||||||
| Bargain purchase gain | — | — | (121) |
NM
|
NM
|
|||||||||||||||||||||||||||
| Total non-interest income | $ | 80 | $ | 164 | $ | 9 | ||||||||||||||||||||||||||
Comparison to Prior Quarter
For the three months ended March 31, 2025, non-interest income decreased by $84 million compared to the three months ended December 31, 2024. The decline in non-interest income was primarily due to the non-recurrence of an $89 million gain and lower fee income as a result of the sale of our Mortgage Operations during the three months ended December 31, 2024, partially offset by net gains on MF and CRE loan sales.
Comparison to Prior Year to Date
For the three months ended March 31, 2025, non-interest income increased $71 million compared to the three months ended March 31, 2024. The increase in non-interest income was primarily due to the non-recurrence of the $121 million reduction in the Signature Transaction bargain purchase gain, partially offset by lower mortgage servicing rights fees, lower fee income, and lower net loan administration income as a result of the sale of our Mortgage Operations during the three months ended December 31, 2024.
9
Non-Interest Expense
The following table summarizes our non-interest expense for the respective periods:
| Three Months Ended, |
March 31, 2025 compared to (%):
|
|||||||||||||||||||||||||||||||
| (in millions) | March 31, 2025 | December 31, 2024 | March 31, 2024 | December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Compensation and benefits | $ | 244 | $ | 302 | $ | 333 | (19) | % | (27) | % | ||||||||||||||||||||||
| FDIC insurance | 50 | 74 | 50 | (32) | % | — | % | |||||||||||||||||||||||||
| Occupancy and equipment | 55 | 48 | 52 | 15 | % | 6 | % | |||||||||||||||||||||||||
| General and administrative | 147 | 252 | 186 | (42) | % | (21) | % | |||||||||||||||||||||||||
| Total operating expense | $ | 496 | $ | 676 | $ | 621 | ||||||||||||||||||||||||||
| Intangible asset amortization | 28 | 31 | 35 | (10) | % | (20) | % | |||||||||||||||||||||||||
| Merger-related and restructuring expenses | 8 | 11 | 43 | (27) | % | (81) | % | |||||||||||||||||||||||||
| Total non-interest expense | $ | 532 | $ | 718 | $ | 699 | (26) | % | (24) | % | ||||||||||||||||||||||
Comparison to Prior Quarter
Total non-interest expenses decreased $186 million compared to the three months ended December 31, 2024, primarily due to a decrease in general and administrative expenses primarily due to the non-recurrence of the asset impairment charges of $77 million, lower compensation and benefits costs stemming from the actions taken to optimize costs which continued in the three months ended March 31, 2025, lower FDIC insurance costs as a result of a lower asset base and lower brokered deposits due to the sale of our Mortgage Operations during the three months ended December 31, 2024, and the continued execution of our cost savings initiatives.
Comparison to Prior Year to Date
Total non-interest expenses decreased $167 million compared to the three months ended March 31, 2024, primarily due to lower compensation and benefits costs stemming from the actions taken to optimize costs which continued in the three months ended March 31, 2025, a $39 million decrease in general and administrative expenses primarily due to the sale of our Mortgage Business, the continued execution of our cost saving initiatives, and lower merger-related expenses.
10
Income Tax Benefit
The following table summarizes our income tax benefit and effective tax rate for the respective periods:
| Three Months Ended, |
March 31, 2025 compared to (%):
|
|||||||||||||||||||||||||||||||
| (in millions) | March 31, 2025 | December 31, 2024 | March 31, 2024 | December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||||
|
Income tax (benefit)
|
$ | (21) | $ | (50) | $ | (54) | (58) | % | (61) | % | ||||||||||||||||||||||
|
Effective tax rate
|
17.8 | % | 21.3 | % | 14.3 | % | ||||||||||||||||||||||||||
We compute our tax benefit for interim periods by applying the estimated annual effective tax to year-to-date (Loss) before income taxes and adjust for discrete items that occur in the quarter. For the three months ended March 31, 2025, we were unable to make a reliable estimate of our estimated annual effective tax rate as a result of our expected break-even results for 2025; therefore we used our actual effective tax rate to compute our income tax benefit for the three months ended March 31, 2025.
Comparison to Prior Quarter
Income tax benefit decreased $29 million compared to the three months ended December 31, 2024 primarily as a result of the reduction in our pre-tax loss.
Comparison to Prior Year to Date
Income tax benefit decreased $33 million compared to the three months ended March 31, 2024 primarily as a result of the reduction in our pre-tax loss, partially offset by the tax effect of the adjustment to the bargain purchase gain recorded net of tax during the three months ended March 31, 2024.
FINANCIAL CONDITION
Loans and Leases
The following table summarizes the composition of our loan portfolio:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
|
(in millions)
|
Amount | Percent of Loans Held for Investment | Amount | Percent of Loans Held for Investment | |||||||||||||
| Multi-family | $ | 33,437 | 50.2 | % | $ | 34,093 | 49.9 | % | |||||||||
|
Commercial real estate
(1)
|
11,510 | 17.3 | 11,836 | 17.4 | |||||||||||||
| One-to-four family first mortgage | 5,187 | 7.8 | 5,201 | 7.6 | |||||||||||||
|
Commercial and industrial
(2)
|
14,742 | 22.1 | 15,376 | 22.5 | |||||||||||||
| Other loans | 1,716 | 2.6 | 1,766 | 2.6 | |||||||||||||
| Total loans and leases held for investment | $ | 66,592 | 100.0 | % | $ | 68,272 | 100.0 | % | |||||||||
| Allowance for credit losses on loans and leases | (1,168) | (1,201) | |||||||||||||||
| Total loans and leases held for investment, net | $ | 65,424 | $ | 67,071 | |||||||||||||
| Loans held for sale | 531 | 899 | |||||||||||||||
| Total loans and leases, net | $ | 65,955 | $ | 67,970 | |||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
(2)
Includes Lease financing.
Total loans and leases held for investment decreased $1.7 billion at
March 31, 2025 compared to
December 31, 2024, primarily as a result of our continued strategy of diversifying our loan portfolio by reducing our MF, CRE and non-core C&I loan exposure, partially offset by $769 million in originations within our C&I portfolio.
11
Loan Maturity and Repricing
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:
| March 31, 2025 | |||||||||||||||||||||||||||||
|
(in millions)
|
Multi-Family | Commercial Real Estate | |||||||||||||||||||||||||||
|
Repricing / Contractual Maturity Year
|
Option Loans by Repricing Date
|
Non-Option Loans by Contractual Maturity
|
Option Loans by Repricing Date | Non-Option Loans by Contractual Maturity |
Total
(1)
|
||||||||||||||||||||||||
| 2025 | $ | 2,597 | $ | 1,530 | $ | 1,149 | $ | 829 | $ | 6,105 | |||||||||||||||||||
| 2026 | 4,072 | 1,079 | 804 | 626 | 6,581 | ||||||||||||||||||||||||
| 2027 | 7,513 | 1,166 | 939 | 705 | 10,323 | ||||||||||||||||||||||||
| 2028 | 3,775 | 2,060 | 382 | 943 | 7,160 | ||||||||||||||||||||||||
| 2029 | 2,313 | 1,877 | 242 | 636 | 5,068 | ||||||||||||||||||||||||
| 2030 | 75 | 1,576 | 11 | 210 | 1,872 | ||||||||||||||||||||||||
| 2031+ | 88 | 3,614 | 5 | 807 | 4,514 | ||||||||||||||||||||||||
| Total amounts due or repricing, gross | $ | 20,433 | $ | 12,902 | $ | 3,532 | $ | 4,756 | $ | 41,623 | |||||||||||||||||||
(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.
Option loans offer the borrower the ability to reprice to a fixed rate after the initial period. If not elected, the loan defaults to variable rate. Option loans in the table are shown as being due in the period the interest rate is subject to change. Non-Option loans are beyond the option date and are reflected by maturity. Risks associated with loan repricing are discussed in the Credit Risk section.
Multi-Family Loans
Our MF loan portfolio decreased $656 million at March 31, 2025 compared to December 31, 2024, primarily due to our strategic decision to continue to diversify our loan portfolio by reducing our exposure to MF loans.
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.
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.
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.
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.
12
The following table presents a geographical analysis of the multi-family loans in our held-for-investment loan portfolio:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
| Multi-Family Loans | Multi-Family Loans | ||||||||||||||||
|
(in millions)
|
Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| New York City: | |||||||||||||||||
| Manhattan | $ | 6,098 | 18 | % | $ | 6,246 | 18 | % | |||||||||
| Brooklyn | 5,187 | 16 | 5,375 | 16 | |||||||||||||
| Bronx | 3,201 | 10 | 3,272 | 10 | |||||||||||||
| Queens | 2,492 | 8 | 2,526 | 7 | |||||||||||||
| Staten Island | 78 | — | 98 | — | |||||||||||||
| Total New York City | $ | 17,056 | 52 | % | $ | 17,517 | 51 | % | |||||||||
| New Jersey | $ | 4,472 | 13 | % | $ | 4,509 | 13 | % | |||||||||
| Long Island | 461 | 1 | 484 | 1 | |||||||||||||
| Total Metro New York | $ | 21,989 | 66 | % | $ | 22,510 | 66 | % | |||||||||
| Other New York State | $ | 1,117 | 3 | % | $ | 1,188 | 3 | % | |||||||||
| Pennsylvania | 3,275 | 10 | 3,375 | 10 | |||||||||||||
| Florida | 1,549 | 5 | 1,555 | 5 | |||||||||||||
| Ohio | 1,011 | 3 | 1,007 | 3 | |||||||||||||
| All other states | 4,496 | 13 | 4,458 | 13 | |||||||||||||
| Total | $ | 33,437 | 100 | % | $ | 34,093 | 100 | % | |||||||||
Commercial Real Estate
At March 31, 2025, commercial real estate loans decreased $326 million compared to December 31, 2024, primarily due to our strategic decision to continue to diversify our loan portfolio by reducing our exposure to CRE loans.
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.
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.
The following table presents an analysis of the property types that collateralize the CRE loans in our held-for-investment portfolio:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
| Commercial Real Estate Loans | Commercial Real Estate Loans | ||||||||||||||||
|
(in millions)
|
Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Office non-owner occupied | $ | 2,245 | 20 | % | $ | 2,271 | 19 | % | |||||||||
| Retail (includes owner and non-owner occupied) | 1,899 | 16 | 1,934 | 16 | |||||||||||||
| Industrial | 4,655 | 40 | 4,984 | 42 | |||||||||||||
| Other | 2,711 | 24 | 2,647 | 23 | |||||||||||||
|
Total
(1)
|
$ | 11,510 | 100 | % | $ | 11,836 | 100 | % | |||||||||
(1)
Includes Acquisition, Development, and Construction loans.
13
The following table presents a geographical analysis of the CRE loans in our held-for-investment loan portfolio:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
| Commercial Real Estate Loans | Commercial Real Estate Loans | ||||||||||||||||
|
(in millions)
|
Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| New York | $ | 4,549 | 39 | % | $ | 4,634 | 39 | % | |||||||||
| Michigan | 1,147 | 10 | 1,220 | 10 | |||||||||||||
| New Jersey | 737 | 6 | 738 | 6 | |||||||||||||
| California | 774 | 7 | 737 | 6 | |||||||||||||
| Florida | 761 | 7 | 735 | 6 | |||||||||||||
| Pennsylvania | 299 | 3 | 301 | 3 | |||||||||||||
|
All other states
|
3,243 | 28 | 3,471 | 30 | |||||||||||||
|
Total
(1)
|
$ | 11,510 | 100 | % | $ | 11,836 | 100 | % | |||||||||
(1)
Includes Acquisition, Development, and Construction loans.
Commercial and Industrial
Our C&I loan portfolio decreased $634 million at March 31, 2025 compared to December 31, 2024, primarily due to a $1.4 billion reduction resulting from our strategic decision to continue to diversify our loan portfolio by reducing our exposure to non-core C&I loans, partially offset by new originations of $769 million.
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.
Included in our C&I portfolio at March 31, 2025, specialty finance loans and leases totaled $3.7 billion, or 5.5 percent of total loans held for investment, reflecting a decrease of $180 million or 5 percent compared to December 31, 2024. The decrease in specialty finance loans is a result of our decision to run off certain non-core loans as part of our overall loan portfolio strategy.
These loans are generally made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide.
The specialty finance loans and leases we fund fall into three categories: asset-based loans, dealer floor-plan lending and equipment loan and le
ase financing. Each of these credits is secured with a perfected first secur
ity interest in, or outright ownership of, the underlying collateral, and structured as senior debt or as a non-cancelable lease. As of March 31, 2025, 86 percent of specialty finance loan commitments are structured as floating rate obligations.
One-to-Four Family Loans
One-to-four family loans decreased $14 million at March 31, 2025 compared to December 31, 2024, primarily driven by payoffs at par.
One-to-four family loans include various types of conforming and non-conforming fixed and adjustable-rate loans underwritten using Fannie Mae and Freddie Mac guidelines for the purpose of purchasing or refinancing owner occupied and second home properties. The loan-to-value requirements on our residential first mortgage loans vary depending on occupancy, property type, loan amount, and FICO scores. Loans with loan-to-value ratios exceeding 80 percent are required to obtain mortgage insurance. As of March 31, 2025, excluding loans with government guarantees, loans in this portfolio had an average current FICO score of 743 and an average loan-to-value ratio of 50 percent.
14
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 the U.S. Department of Housing and Urban Development (if foreclosure timelines are met), which is not paid by the Federal Housing Administration until claimed.
Other Loans
At March 31, 2025, other loans decreased $50 million compared to December 31, 2024, primarily driven by payoffs at par.
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.
Loans Held for Sale
Loans held for sale at March 31, 2025 decreased $368 million compared to December 31, 2024, primarily due to the continued run-off of held for sale loans following the sale of our Mortgage Operations and sales of commercial loans, partially offset by mortgage originations during the three months ended March 31, 2025.
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.
Assets Quality Measures
The following table presents the Company's asset quality measures at the respective dates:
| March 31, 2025 | December 31, 2024 | ||||||||||
|
Non-accrual loans to total loans held for investment
|
4.93 | % | 3.83 | % | |||||||
| Non-performing assets to total assets | 3.37 | 2.62 | |||||||||
|
Allowance for credit losses on loans and leases to non-accrual loans
|
35.61 | 45.93 | |||||||||
|
Allowance for credit losses on loans and leases to total loans held for investment
|
1.75 | 1.76 | |||||||||
Asset quality information excludes loans with repurchased government guarantees that are insured by U.S. government agencies.
15
Non-accrual Loans
The following table presents our non-accrual loans held for investment by loan type:
|
(in millions)
|
March 31, 2025 | December 31, 2024 |
Change
|
||||||||||||||
| Multi-family | $ | 2,361 | $ | 1,755 | $ | 606 | |||||||||||
|
Commercial real estate
(1)
|
589 | 564 | 25 | ||||||||||||||
| One-to-four family first mortgage | 77 | 70 | 7 | ||||||||||||||
|
Commercial and industrial
|
231 | 202 | 29 | ||||||||||||||
|
Other Loans
|
22 | 24 | (2) | ||||||||||||||
|
Total non-accrual loans
(2)
|
$ | 3,280 | $ | 2,615 | $ | 665 | |||||||||||
| Repossessed assets | 12 | 14 | (2) | ||||||||||||||
| Total non-accrual loans and repossessed assets | $ | 3,292 | $ | 2,629 | $ | 663 | |||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
(2)
Excludes $21 million of non-accrual held for sale loans.
Our total non-accrual loans increased $665 million at March 31, 2025 compared to December 31, 2024, primarily due to higher non-accrual MF loans as a result of one borrower relationship that was classified as non-accrual during the three months ended March 31, 2025.
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.
The following table sets forth the changes in non-accrual loans at March 31, 2025:
| (in millions) | |||||
|
Balance at December 31, 2024
|
$ | 2,615 | |||
|
New non-accrual loans
|
842 | ||||
| Charge-offs | (43) | ||||
|
Transferred to held for sale
|
(25) | ||||
| Loan payoffs, including dispositions and principal pay-downs | (102) | ||||
| Restored to performing status | (7) | ||||
|
Balance at March 31, 2025
|
$ | 3,280 | |||
Delinquencies
The following table presents our loans 30 to 89 days past due by loan type and the changes in the respective balances.
|
(in millions)
|
March 31, 2025 | December 31, 2024 |
Change
|
||||||||||||||
| Loans 30 to 89 Days Past Due: | |||||||||||||||||
| Multi-family | $ | 806 | $ | 749 | $ | 57 | |||||||||||
|
Commercial real estate
(1)
|
85 | 70 | 15 | ||||||||||||||
| One-to-four family first mortgage | 28 | 25 | 3 | ||||||||||||||
| Commercial and industrial | 92 | 110 | (18) | ||||||||||||||
| Other loans | 9 | 11 | (2) | ||||||||||||||
| Total loans 30-89 days past due | $ | 1,020 | $ | 965 | $ | 55 | |||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
16
Allowance for Credit Losses
The following table sets forth the allocation of the ACL on loans and leases at each period-end:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| (in millions) |
Allowance for credit losses
|
Allowance as a percent of loans in each portfolio
|
Loans in each portfolio as a percent of total loans
|
Allowance for credit losses
|
Allowance as a percent of loans in each portfolio
|
Loans in each portfolio as a percent of total loans
|
|||||||||||||||||||||||||||||
| Multi-family loans | $ | 609 | 1.82 | % | 50.2 | % | $ | 639 | 1.87 | % | 49.9 | % | |||||||||||||||||||||||
|
Commercial real estate loans
(1)
|
289 | 2.51 | 17.3 | 304 | 2.57 | 17.4 | |||||||||||||||||||||||||||||
| One-to-four family first mortgage loans | 37 | 0.71 | 7.8 | 39 | 0.75 | 7.6 | |||||||||||||||||||||||||||||
|
Commercial and industrial
|
167 | 1.13 | 22.1 | 151 | 0.98 | 22.5 | |||||||||||||||||||||||||||||
| Other loans | 66 | 3.85 | 2.6 | 68 | 3.85 | 2.6 | |||||||||||||||||||||||||||||
| Total loans | $ | 1,168 | 1.75 | % | 100.0 | % | $ | 1,201 | 1.76 | % | 100.0 | % | |||||||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
The ACL on loans and leases decreased $33 million from December 31, 2024 to March 31, 2025. This decrease is primarily due to lower net charge-offs, our continued focus on credit reviews and the receipt of recent appraisals. Additionally, our ACL balance decreased since December 31, 2024, as result of the on-going strategic reduction of our MF, CRE and non-core C&I portfolios. The reduction in our ACL balance was partially offset by the negatively trending macro-economic environment.
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.
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.
17
Charge-offs
The following table presents information on the Company's net charge-offs:
| Three Months Ended, | |||||||||||
| March 31, 2025 | March 31, 2024 | ||||||||||
|
(in millions)
|
|||||||||||
| Charge-offs: | |||||||||||
| Multi-family | $ | 80 | $ | 11 | |||||||
|
Commercial real estate
(1)
|
2 | 64 | |||||||||
| One-to-four family residential | 1 | — | |||||||||
| Commercial and industrial | 34 | 11 | |||||||||
| Other | 7 | 5 | |||||||||
| Total charge-offs | $ | 124 | $ | 91 | |||||||
| Recoveries: | |||||||||||
| Multi-family | $ | — | $ | (1) | |||||||
|
Commercial real estate
(1)
|
— | — | |||||||||
| Commercial and industrial | (6) | (7) | |||||||||
| Other | (3) | (2) | |||||||||
| Total recoveries | $ | (9) | $ | (10) | |||||||
|
Net charge-offs
|
$ | 115 | $ | 81 | |||||||
(1)
Includes Acquisition, Development, and Construction loans.
Securities
Debt Securities Available-for-Sale
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.
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.
At March 31, 2025, debt securities available-for-sale had an estimated weighted average life of 5 years compared to 6 years at December 31, 2024. Mortgage-related securities included in debt securities available-for-sale were $10 billion and $8.6 billion at March 31, 2025 and December 31, 2024, respectively.
The following table summarizes the weighted average yields of debt securities available-for-sale for the maturities at March 31, 2025:
|
Mortgage-
Related Securities |
U.S.
Government and GSE Obligations |
Corporate and Other Bonds
|
Asset-Backed Securities
|
||||||||||||||||||||
|
Debt Securities Available-for-Sale:
|
|||||||||||||||||||||||
| Due within one year | 3.52 | % | — | % | — | % | — | % | |||||||||||||||
| Due from one to five years | 3.06 | 4.13 | 5.28 | — | |||||||||||||||||||
| Due from five to ten years | 2.46 | 1.61 | 5.48 | — | |||||||||||||||||||
| Due after ten years | 4.50 | — | 6.42 | 5.74 | |||||||||||||||||||
| Total debt securities available for sale | 4.42 | 2.62 | 5.46 | 5.74 | |||||||||||||||||||
18
Deposits
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.
The following table sets forth the weighted average interest rates for each type of deposit:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
|
(in millions)
|
Amount
|
Percent of Total
|
Weighted Average Interest Rate
|
Amount
|
Percent of Total
|
Weighted Average Interest Rate
|
|||||||||||||||||||||||||||||
|
Interest-bearing checking and money market accounts
|
$ | 20,809 | 28 | % | 3.10 | % | $ | 20,780 | 27 | % | 2.89 | % | |||||||||||||||||||||||
|
Savings accounts
|
14,465 | 20 | % | 3.08 | % | 14,282 | 19 | % | 3.22 | % | |||||||||||||||||||||||||
|
Certificates of deposit
|
25,887 | 35 | % | 4.60 | % | 27,324 | 36 | % | 4.75 | % | |||||||||||||||||||||||||
|
Non-interest-bearing accounts
|
12,745 | 17 | % | — | % | 13,484 | 18 | % | — | % | |||||||||||||||||||||||||
|
Total deposits
|
$ | 73,906 | 100 | % | 3.09 | % | $ | 75,870 | 100 | % | 3.12 | % | |||||||||||||||||||||||
Total deposits at March 31, 2025 decreased $2.0 billion compared to December 31, 2024, primarily due to the payoff of brokered certificates of deposit reflecting our strategy to reduce higher cost funding and custodial deposits as a result of the sale of our Mortgage Operations during the three months ended December 31, 2024, partially offset by an increase in non-service custodial deposits.
The following table presents the composition of the Company's brokered deposits for the periods presented:
| (in millions) | March 31, 2025 | December 31, 2024 | ||||||||||||
| Brokered interest-bearing checking and money market accounts | $ | 244 | $ | 714 | ||||||||||
|
Brokered certificates of deposit
|
8,072 | 9,510 | ||||||||||||
|
Total Brokered Deposits
(1)
|
$ | 8,316 | $ | 10,224 | ||||||||||
(1) Excludes reciprocal deposits.
The following table indicates the amount of time deposits, by account, that are in excess of $250,000 per depositor by time remaining until maturity:
| (in millions) | March 31, 2025 | December 31, 2024 | |||||||||
| 3 months or less | $ | 3,042 | $ | 3,530 | |||||||
| Over 3 months through 6 months | 3,988 | 2,637 | |||||||||
| Over 6 months through 12 months | 1,390 | 4,329 | |||||||||
| Over 12 months | 2,669 | 2,099 | |||||||||
|
Total time deposits in excess of $250,000 per depositor
(1)
|
$ | 11,089 | $ | 12,595 | |||||||
(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.
19
The following table indicates the amount of custodial deposits by source:
| (in millions) | March 31, 2025 | December 31, 2024 | |||||||||
|
Custodial deposits from subservicing relationships
|
$ | 1 | $ | 947 | |||||||
|
Non-servicing custodial deposits
|
4,753 | 3,651 | |||||||||
| $ | 4,754 | $ | 4,598 | ||||||||
Uninsured Deposits
At March 31, 2025, our deposit base included $13.0 billion of uninsured deposits that are uninsured or not collateralized by securities or letters of credit. Our uninsured deposits are the portion of deposit accounts that exceed the FDIC insurance limit.
As of March 31, 2025 total bank liquidity represented 231 percent of our uninsured deposits.
Borrowed Funds
The following table summarizes the Company's borrowed funds:
| (in millions) | March 31, 2025 | December 31, 2024 | |||||||||
| Wholesale borrowings: | |||||||||||
| FHLB advances | $ | 13,150 | $ | 13,400 | |||||||
| Total wholesale borrowings | $ | 13,150 | $ | 13,400 | |||||||
| Junior subordinated debentures | 583 | 582 | |||||||||
| Subordinated notes | 445 | 444 | |||||||||
| Total borrowed funds | $ | 14,178 | $ | 14,426 | |||||||
At March 31, 2025 total borrowed funds decreased $248 million compared to December 31, 2024 primarily due to the repayment of $250 million of FHLB advances.
At March 31, 2025, and December 31, 2024 our wholesale borrowings had $250 million of callable features.
See Note 9 - Borrowed Funds, in Item 1, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, our junior subordinated debentures and subordinated debt.
Federal Reserve and Federal Home Loan Bank Stock
| (in millions) | March 31, 2025 | December 31, 2024 | |||||||||
|
Federal Home Loan Bank stock, at cost:
|
|||||||||||
|
FHLB-NY stock, at cost
|
$ | 587 | $ | 598 | |||||||
|
FHLB-Indianapolis stock, at cost
|
255 | 329 | |||||||||
|
Total Federal Home Loan Bank stock, at cost:
|
$ | 842 | $ | 927 | |||||||
| Federal Reserve Bank stock, at cost | 219 | 219 | |||||||||
| Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost | $ | 1,061 | $ | 1,146 | |||||||
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.
20
Bank-Owned Life Insurance (BOLI)
| (in millions) | March 31, 2025 | December 31, 2024 | |||||||||
|
Bank-owned life insurance
|
$ | 1,615 | $ | 1,605 | |||||||
At March 31, 2025, BOLI increased $10 million due to an increase in the cash surrender value of the underlying policies. Bank-owned life insurance is recorded at the total cash surrender value of the policies.
Risk Governance Framework
The Risk Management Division is responsible for formalizing the Company’s Risk Appetite Statement, which reflects the Board's and Management’s tolerance for risks and is set in alignment with the budget, strategic and capital plans. Internal controls and ongoing monitoring processes capture and address heightened risks that threaten our ability to achieve the Company’s goals and objectives, including the recognition of safety and soundness concerns and consumer protection. Additionally, key risk indicators are monitored against established risk warning levels and limits, as well as elevated risks escalated to the Chief Risk Officer.
To comprehensively manage our risk exposure, we focus on several critical areas outlined below, Credit Risk, Liquidity Risk, Interest Rate Risk and Regulatory Capital.
Credit Risk
To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent as described more fully in our Annual Report on Form 10-K for the year ended
December 31, 2024
.
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.
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.
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.
The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.
21
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.
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.
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.
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.
22
Liquidity Risk
We have established a liquidity risk management framework designed to ensure that the Company can meet its funding obligations in daily, business-as-usual and liquidity stress periods. We maintain a Liquidity Risk Policy that has been approved by the Board of Directors and is subject to review at least annually or if there are significant changes to our business activity. The Liquidity Risk Policy establishes the Company’s Risk Appetite and provides guidance for the roles and responsibilities of management and various oversight committees to oversee the liquidity risk management framework. The Company also maintains a Contingency Funding Plan (“CFP”) which has been approved by the Board of Directors. The CFP provides guidance to plan for potential periods of stress and to navigate actual periods of stress. The CFP specifies a series of Early Warning Indicators ("EWI") which we use to monitor funding or market conditions that may indicate a trend toward a period of stress and to provide guiding principles for the Company during a period of stress including identifying the operational steps needed to access available and contingent sources of liquidity.
Our funding primarily stems from a diverse combination of business activities. The primary source of funding is the Company’s retail and institutional deposit base. Customer deposits provide us with a relatively stable, low-cost source of funding. The majority of our customer deposits are covered by FDIC deposit insurance with $13.0 billion of deposits that are uninsured or not collateralized by securities or letters of credit, representing 18 percent of our overall deposit base. We also obtain funding through various wholesale funding channels, including $13.2 billion of secured borrowings from the FHLB and an active brokered certificates of deposit issuance program with $8.1 billion outstanding as of March 31, 2025.
Our Liquidity Policy defines a limit framework which ensures the Company maintains liquidity and funding within our risk appetite. The limits require, among other elements, the Company to maintain a diverse funding profile while limiting concentration of funding by source, counterparty and maturity tenor. The policy also requires us to maintain sufficient on-balance sheet liquidity to support funding obligations under a severe, but plausible 30-day liquidity stress scenario. The Company monitors and reports its overall funding and liquidity risk appetite metrics on a daily basis and its cash position on an intraday basis.
We maintain a liquidity buffer of on-balance sheet cash reserves and High-Quality Liquid Assets (“HQLA”). We also maintain access to secured borrowings from the FHLB and FRB Discount Window. The investment securities the Company considers HQLA are all unencumbered, held as available-for-sale, and are either issued by government sponsored entities or are explicitly guaranteed by the U.S. government. We pledge eligible loan collateral with the FRB Discount Window and FHLB New York to support borrowing capacity. The available borrowing capacity with the FRB Discount Window and the FHLB, net of credit utilization primarily in the form of advances and letters of credit, is included in our Total Liquidity.
| (in billions) | March 31, 2025 | December 31, 2024 | |||||||||
| Cash at Federal Reserve | $ | 12.0 | $ | 15.0 | |||||||
| High-quality Liquid Assets | 10.6 | 7.9 | |||||||||
| Total On-Balance Sheet Liquidity | $ | 22.6 | $ | 22.9 | |||||||
| FHLB Available Capacity | 5.8 | 6.6 | |||||||||
| Discount Window Available Capacity | 1.6 | 0.4 | |||||||||
| Total Liquidity | $ | 30.0 | $ | 29.9 | |||||||
Credit Ratings
We maintain credit ratings from three rating agencies: Moody’s, Fitch and Morningstar DBRS. Our credit ratings were as follows:
| March 31, 2025 | December 31, 2024 | ||||||||||
| Long-Term Issuer Rating: | |||||||||||
| Moody's | B1 | B2 | |||||||||
| Fitch | BB | BB | |||||||||
| Morningstar DBRS | BBB (low) | BBB (low) | |||||||||
| Short-Term Deposits Rating: | |||||||||||
| Moody's | NP | NP | |||||||||
During the three months ended March 31, 2025, Moody's upgraded our Long-Term Issuer rating from B2 to B1.
23
The primary mortgage loan agencies maintain standards that define the criteria that must be met for an institution to qualify as an eligible custodial depository for the deposits related to loans owned by those entities, including have an investment grade short-term issuer/deposit rating from Moody’s or S&P. We are currently not in compliance with that criteria. We have received a waiver of these criteria for all of our custodial deposits which could be revoked at any of the agencies' discretion. We have no other direct contractual relationships tied to further downgrades in our credit ratings, but may suffer reputational risk that could have an adverse effect on our business should that occur.
Parent Company Liquidity
The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. At March 31, 2025, the Parent Company held cash and cash equivalents of $535 million. In addition to operating expenses, debt interest expense, and tax expense/credits, the Parent Company is responsible for paying any dividends declared to our common and preferred stockholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
The Parent Company has two primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Parent Company by the Bank; and capital raised through the issuance of equity.
Various legal restrictions limit the extent to which the Company’s subsidiary bank can supply funds to the Parent Company and its non-bank subsidiaries without receiving a prior written determination of no supervisory objection from the OCC. In the three months ended March 31, 2025, there were no dividends paid by the Bank to the Parent Company.
At March 31, 2025, we believe the Parent Company has sufficient liquidity and capital resources to meet its cash flow obligations through 2028.
Contractual Obligations and Commitments
In the normal course of business, we enter into a variety of contractual obligations in order to manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
For example, we offer certificates of deposit with contractual terms to our customers and also borrow funds under contract from the FHLB. These contractual obligations are reflected in the Condensed Consolidated Statements of Condition under “Deposits” and “Borrowed funds,” respectively. At March 31, 2025, we had certificates of deposit of $25.9 billion and long-term debt (defined as borrowed funds with an original maturity one year or more) of $11.7 billion.
We also are obligated under certain non-cancelable operating leases on the buildings and land we use in operating our branch network and in performing our back-office responsibilities. These obligations are included within Other liabilities within the Condensed Consolidated Statements of Condition and totaled $465 million at March 31, 2025 and $463 million at December 31, 2024.
At March 31, 2025, we also had commitments to extend credit in the form of mortgage and other loan originations, as well as commercial, performance stand-by and financial stand-by letters of credit. These commitments consist of agreements to extend credit as long as there is no violation of any condition established in the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Condensed Consolidated Statements of (Loss) Income.
At March 31, 2025, our total liquidity position was $30 billion and we expect that our funding will be sufficient to fulfill our cash obligations and commitments when they are due both in the short term and long term.
For March 31, 2025, we did not engage in any off-balance sheet transactions that we expect to have a material effect on our financial condition, results of operations or cash flows.
24
Interest Rate Risk
We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given our business strategy, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with guidelines approved by the Boards of Directors of the Company and the Bank.
As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents our primary market risk. Changes in market interest rates represent the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Board of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.
The actual duration of held for investment mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may, in turn, be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the factors with the most significant impact on prepayments are market interest rates and the availability of refinancing opportunities.
Interest Rate Sensitivity Analysis
Interest rate sensitivity is monitored through the use of a model that generates estimates of the change in our Economic Value of Equity ("EVE") over a range of interest rate scenarios. EVE is defined as the net present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan and mortgage-backed securities prepayment rates, current market value spreads, and deposit decay rates and betas.
Based on the information and assumptions in effect at March 31, 2025, the following table sets forth our EVE, assuming the changes in interest rates noted:
| Change in Interest Rates (in basis points) | Estimated Percentage Change in Economic Value of Equity | |||||||
| -200 shock | 5.9% | |||||||
| -100 shock | 2.3% | |||||||
| +100 shock | (2.1)% | |||||||
| +200 shock | (5.1)% | |||||||
The net changes in EVE presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Bank.
Accordingly, while the EVE analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.
Interest Rate Risk is also monitored through the use of a model that generates Net Interest Income ("NII") simulations over a range of interest rate scenarios. Modeling changes in NII requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NII analysis presented below assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.
25
Based on the information and assumptions in effect at March 31, 2025, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:
|
Change in Interest Rates (in basis points)
(1)
|
Estimated Percentage Change in Future Net Interest Income | |||||||
| -200 shock | 0.5% | |||||||
| -100 shock | 0.1% | |||||||
| +100 shock | (1.3)% | |||||||
| +200 shock | (2.9)% | |||||||
(1)
In general, short- and long-term rates are assumed to increase in parallel instantaneously and then remain unchanged.
The net changes in NII presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Bank.
Future changes in our mix of assets and liabilities may result in greater changes to our EVE, and/or NII simulations.
In the event that our EVE and net interest income sensitivities were to breach our internal policy limits, we would undertake the following actions to ensure that appropriate remedial measures were put in place:
•
In formulating appropriate strategies, the Asset and Liability Management Committee would ascertain the primary causes of the variance from policy tolerances, the expected term of such conditions, and the projected effect on capital and earnings.
•
Our Asset and Liability Management Committee would inform the Board of Directors of the variance, and present recommendations to the Board regarding proposed courses of action to restore conditions to within-policy tolerances.
Where temporary changes in market conditions or volume levels result in significant increases in risk, strategies may involve reducing open positions or employing other balance sheet management activities including the potential use of derivatives to reduce the risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:
•
Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the asset mix over time to affect the maturity or repricing schedule of assets;
•
Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are employed to affect the maturity structure or repricing of liabilities;
•
Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods between assets and liabilities; and/or
•
Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and forward purchase or sales commitments.
At March 31, 2025, the estimated change in net interest income over the next twelve months for a 100 basis point reduction in short term interest rates with no change in long term interest rates is an increase of 1.4 percent and the estimated change for a 100 basis point increase in short term rates is a decrease of 2.4 percent.
26
Regulatory Capital
The Company is a bank holding company subject to regulation, examination and supervision by the Federal Reserve while the Bank is a national bank subject to regulation, examination, and supervision by the Office of the Comptroller of the Currency. Effective October 1, 2023, we became subject to Category IV prudential standards which included heightened requirements related to capital, liquidity and risk management, as follows:
•
As a Category IV firm we maintain a capital plan approved by the Board of Directors which includes analysis under various company-derived stress scenarios. The Company submitted its 2024 capital plan to the Federal Reserve as required by regulation and received written feedback on the plan and associated governance which it has begun to address as part of the capital planning activities for 2025 and subsequent periods. Category IV institutions are subject to a supervisory stress test every other year. The supervisory stress test will first be applicable to the Company in 2026.
•
Category IV institutions are required to perform liquidity stress tests that consider the potential impact of market and idiosyncratic stresses over various time horizons, and to maintain an on-balance sheet liquidity buffer at least equal to the 30-day stress horizon. The Company maintains the required liquidity buffer and has developed and continues to enhance its liquidity stress capabilities.
•
Category IV firms are required to prepare and maintain formal resolution plans for actions to be undertaken in the event of firm failure. The FDIC issued a final rule revising the resolution plan requirements effective October 1, 2024. The Company will submit its first resolution plan under the final rule in mid-2025. The Company has a program underway to develop the resolution plan and does not expect any material impact to the Company in developing the plan.
•
Under regulatory heightened standards, a risk governance framework (the "Risk Governance Framework") is required to be developed and maintained to manage and control the risk-taking activities of the firm. Management has developed a written framework and is implementing the various components in an integrated fashion as underlying business processes mature. Heightened standards also require risk limits, metrics, and analytics which monitor the size and direction of key risks in the organization. The Company has established risk limits which are monitored by the Board of Directors and continues to enhance related metrics and analytics.
The Bank is subject to the Prompt Corrective Action regulatory capital framework that establishes five categories of capital adequacy ranging from “well capitalized” to “critically undercapitalized.” An institution’s capital category affects various matters, including legal requirements for regulators to take prompt corrective action and the level of a bank’s Federal Deposit Insurance Corporation deposit insurance premium assessments. Capital amounts and classifications are also subject to the regulators’ qualitative judgments about the components of capital and risk weighting assets, among other factors, and the regulators have discretion to require that institutions maintain capital in excess of minimum levels.
The quantitative measures established to ensure capital adequacy require that banks and bank holding companies maintain minimum amounts and ratios of leverage capital to average assets and of common equity tier 1 capital, tier 1 capital, and total capital to risk-weighted assets (as such measures are defined in the regulations). As of March 31, 2025, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. The following tables set forth the common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios for the Company on a consolidated basis and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, as of the dates shown:
The following table presents the Company's regulatory capital position:
| Risk-Based Capital | |||||||||||||||||||||||||||||||||||
| March 31, 2025 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | |||||||||||||||||||||||||||||||
|
(in millions)
|
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
| Total capital | $ | 7,904 | 11.90 | % | $ | 8,408 | 12.65 | % | $ | 10,132 | 15.25 | % | $ | 8,408 | 8.45 | % | |||||||||||||||||||
| Minimum for capital adequacy purposes | 2,990 | 4.50 | 3,987 | 6.00 | 5,316 | 8.00 | 3,979 | 4.00 | |||||||||||||||||||||||||||
| Excess | $ | 4,914 | 7.40 | % | $ | 4,421 | 6.65 | % | $ | 4,816 | 7.25 | % | $ | 4,429 | 4.45 | % | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Total capital | $ | 7,997 | 11.83 | % | $ | 8,501 | 12.57 | % | $ | 10,238 | 15.14 | % | $ | 8,501 | 7.68 | % | |||||||||||||||||||
| Minimum for capital adequacy purposes | 3,043 | 4.50 | 4,057 | 6.00 | 5,409 | 8.00 | 4,428 | 4.00 | |||||||||||||||||||||||||||
| Excess | $ | 4,954 | 7.33 | % | $ | 4,444 | 6.57 | % | $ | 4,829 | 7.14 | % | $ | 4,073 | 3.68 | % | |||||||||||||||||||
27
The increase in our capital ratios from December 31, 2024 was primarily a result of lower risk-weighted assets due to a reduction in Loans and leases held for investment.
The following table presents the Bank's regulatory capital position:
| Risk-Based Capital | |||||||||||||||||||||||||||||||||||
| March 31, 2025 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | |||||||||||||||||||||||||||||||
|
(in millions)
|
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
| Total capital | $ | 8,857 | 13.36 | % | $ | 8,857 | 13.36 | % | $ | 9,691 | 14.62 | % | $ | 8,857 | 8.91 | % | |||||||||||||||||||
| Minimum for capital adequacy purposes | 2,984 | 4.50 | 3,978 | 6.00 | 5,305 | 8.00 | 3,977 | 4.00 | |||||||||||||||||||||||||||
| Excess | $ | 5,873 | 8.86 | % | $ | 4,879 | 7.36 | % | $ | 4,386 | 6.62 | % | $ | 4,880 | 4.91 | % | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Total capital | $ | 8,912 | 13.21 | % | $ | 8,912 | 13.21 | % | $ | 9,760 | 14.47 | % | $ | 8,912 | 8.05 | % | |||||||||||||||||||
| Minimum for capital adequacy purposes | 3,036 | 4.50 | 4,048 | 6.00 | 5,398 | 8.00 | 4,426 | 4.00 | |||||||||||||||||||||||||||
| Excess | $ | 5,876 | 8.71 | % | $ | 4,864 | 7.21 | % | $ | 4,362 | 6.47 | % | $ | 4,486 | 4.05 | % | |||||||||||||||||||
At March 31, 2025, our total risk-based capital ratio exceeded the minimum requirement for capital adequacy purposes by 725 basis points and the fully phased-in capital conservation buffer by 475 basis points.
At March 31, 2025, 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.
Other Recent Developments
We identified certain material weaknesses in management's report on internal control over financial reporting included within Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2024. Our progress toward remediation as of March 31, 2025 is discussed within Item 4 of this Form 10-Q. We do not expect the operational costs to remediate these material weaknesses to be material to the condensed consolidated financial statements.
| ITEM 1. | FINANCIAL STATEMENTS | ||||
28
Flagstar Financial, Inc.
Condensed Consolidated Statements of Financial Condition
(unaudited)
| March 31, 2025 | December 31, 2024 | ||||||||||
| (in millions, except per share data) | (unaudited) | ||||||||||
| ASSETS: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Securities: | |||||||||||
|
Debt Securities available-for-sale
|
|
|
|||||||||
| Equity investments with readily determinable fair values, at fair value |
|
|
|||||||||
|
Total securities
|
|
|
|||||||||
|
Loans held for sale
|
|
|
|||||||||
|
Loans and leases held for investment, net of deferred loan fees and costs
|
|
|
|||||||||
|
Less: Allowance for credit losses on loans and leases, held for investment
|
(
|
(
|
|||||||||
| Total loans and leases held for investment, net |
|
|
|||||||||
| Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost |
|
|
|||||||||
| Premises and equipment, net |
|
|
|||||||||
| Core deposit and other intangibles |
|
|
|||||||||
| Bank-owned life insurance |
|
|
|||||||||
| Other assets |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||
| Deposits: | |||||||||||
| Interest-bearing checking and money market accounts | $ |
|
$ |
|
|||||||
| Savings accounts |
|
|
|||||||||
| Certificates of deposit |
|
|
|||||||||
| Non-interest-bearing accounts |
|
|
|||||||||
| Total deposits |
|
|
|||||||||
| Borrowed funds: | |||||||||||
|
Wholesale borrowings
|
|
|
|||||||||
| Junior subordinated debentures |
|
|
|||||||||
| Subordinated notes |
|
|
|||||||||
| Total borrowed funds |
|
|
|||||||||
| Other liabilities |
|
|
|||||||||
|
Total liabilities
|
|
|
|||||||||
|
Commitment and contingencies (refer to Note 17)
|
|
|
|||||||||
| Mezzanine equity: | |||||||||||
|
Preferred stock - Series B
|
|
|
|||||||||
| Stockholders' equity: | |||||||||||
|
Preferred stock - Series A and D
|
|
|
|||||||||
|
Common stock at par
shares issued; and
|
|
|
|||||||||
| Paid-in capital in excess of par |
|
|
|||||||||
|
(Accumulated deficit)
|
(
|
(
|
|||||||||
|
Treasury stock, at cost (
|
(
|
(
|
|||||||||
|
Accumulated other comprehensive loss, net of tax
|
(
|
(
|
|||||||||
| Total stockholders’ equity |
|
|
|||||||||
|
Total liabilities, mezzanine and stockholders’ equity
|
$ |
|
$ |
|
|||||||
See accompanying notes to the consolidated financial statements.
29
Flagstar Financial, Inc.
Condensed Consolidated Statements of (Loss) Income
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in millions, except per share data) | 2025 | 2024 | |||||||||
| INTEREST INCOME: | |||||||||||
| Loans and leases | $ |
|
$ |
|
|||||||
| Securities and money market investments |
|
|
|||||||||
| Total interest income |
|
|
|||||||||
| INTEREST EXPENSE: | |||||||||||
| Interest-bearing checking and money market accounts |
|
|
|||||||||
| Savings accounts |
|
|
|||||||||
| Certificates of deposit |
|
|
|||||||||
| Borrowed funds |
|
|
|||||||||
| Total interest expense |
|
|
|||||||||
| Net interest income |
|
|
|||||||||
|
Provision for credit losses
|
|
|
|||||||||
| Net interest income after provision for credit loan losses |
|
|
|||||||||
| NON-INTEREST INCOME: | |||||||||||
| Fee income |
|
|
|||||||||
| Bank-owned life insurance |
|
|
|||||||||
| Net return on mortgage servicing rights |
|
|
|||||||||
| Net gain on loan sales and securitizations |
|
|
|||||||||
|
Net loan administration income
|
|
|
|||||||||
| Bargain purchase gain |
|
(
|
|||||||||
| Other |
|
|
|||||||||
| Total non-interest income |
|
|
|||||||||
| NON-INTEREST EXPENSE: | |||||||||||
| Operating expenses: | |||||||||||
| Compensation and benefits |
|
|
|||||||||
|
FDIC insurance
|
|
|
|||||||||
| Occupancy and equipment |
|
|
|||||||||
| General and administrative |
|
|
|||||||||
| Total operating expense |
|
|
|||||||||
| Intangible asset amortization |
|
|
|||||||||
| Merger-related and restructuring expenses |
|
|
|||||||||
| Total non-interest expense |
|
|
|||||||||
|
(Loss) before income taxes
|
(
|
(
|
|||||||||
|
Income tax (benefit)
|
(
|
(
|
|||||||||
|
Net (loss)
|
$ |
(
|
$ |
(
|
|||||||
| Preferred stock dividends |
|
|
|||||||||
|
Net (loss) attributable to common stockholders
|
$ |
(
|
$ |
(
|
|||||||
|
Basic (loss) per common share
(1)
|
$ |
(
|
$ |
(
|
|||||||
|
Diluted (loss) per common share
(1)
|
$ |
(
|
$ |
(
|
|||||||
(1)
On June 27, 2024, the Company announced a 1 for 3 reverse stock split, effective July 11, 2024. This reverse stock split is reflected retroactively in all periods presented. See Note 1 - Organization and Basis of Presentation.
See accompanying notes to the consolidated financial statements.
30
Flagstar Financial, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
| Three Months Ended March 31, | |||||||||||
|
(in millions)
|
2025 | 2024 | |||||||||
|
Net (loss)
|
$ |
(
|
$ |
(
|
|||||||
|
Other comprehensive (loss) income, net of tax:
|
|||||||||||
|
Debt securities available for sale
|
|
(
|
|||||||||
|
Pension and post-retirement obligations
|
|
|
|||||||||
|
Cash flow hedges
|
(
|
|
|||||||||
|
Total other comprehensive (loss) income, net of tax
|
$ |
|
$ |
(
|
|||||||
|
Total comprehensive (loss), net of tax
|
$ |
(
|
$ |
(
|
|||||||
|
Income tax expense (benefit) of items included in other comprehensive income:
|
|||||||||||
|
Debt securities available for sale
|
$ |
|
$ |
|
|||||||
|
Pension and post-retirement obligations
|
|
(
|
|||||||||
|
Cash flow hedges
|
(
|
(
|
|||||||||
See accompanying notes to the consolidated financial statements
31
Flagstar Financial, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
| (in millions, except share data) |
Shares Outstanding
|
Preferred Stock A (Par Value: $
|
Common Stock (Par Value: $
|
Paid-in Capital in excess of Par |
(Accumulated deficit)/Retained Earnings
|
Treasury Stock, at Cost | Accumulated Other Comprehensive Loss, Net of Tax | Total Stockholders’ Equity |
Preferred Stock Mezzanine (Par Value: $
|
||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
| Shares issued for restricted stock, net of forfeitures |
|
— | — |
(
|
— |
|
— |
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock awards | — | — | — |
|
— | — | — |
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Net (loss)
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends paid on common stock ($
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends paid on preferred stock ($
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common stock |
(
|
— | — | — | — |
(
|
— |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — |
|
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2023
(1)
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
|
Issuance of mezzanine preferred stock Series B, net (
|
— | — | — | — | — | — | — | — |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of mezzanine preferred stock Series C, net (
|
— | — | — | — | — | — | — | — |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of Common Shares for the Conversion of Series C preferred, net
(1)
|
|
— | — |
|
— | — | — |
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of Common Shares for March 2024 capital raise
(1)
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants to purchase common shares | — | — | — |
|
— | — | — |
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Shares issued for restricted stock, net of forfeitures
(1)
|
(
|
— | — |
(
|
— |
|
— |
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock awards | — | — | — |
|
— | — | — |
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Net (loss)
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends paid on common stock ($
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends paid on preferred stock ($
|
— | — | — | — |
(
|
— | — |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Purchase of common stock
(1)
|
(
|
— | — | — | — |
(
|
— |
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — |
(
|
(
|
— | ||||||||||||||||||||||||||||||||||||||||||||
|
Balance at March 31, 2024
(1)
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
(1)
On June 27, 2024, the Company announced a 1 for 3 reverse stock split, effective July 11, 2024. This reverse stock split is reflected retroactively in all periods presented. See Note 1 - Organization and Basis of Presentation.
See accompanying notes to the consolidated financial statements.
32
Flagstar Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
|
Net (loss)
|
$ |
(
|
$ |
(
|
|||||||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|||||||||||
|
Provision for credit losses
|
|
|
|||||||||
| Amortization of intangibles |
|
|
|||||||||
| Depreciation |
|
|
|||||||||
| Amortization of discounts and premiums, net |
|
|
|||||||||
|
Net gain on sales of loans and securitizations
|
(
|
(
|
|||||||||
|
Bargain purchase gain adjustment
|
|
|
|||||||||
| Stock-based compensation |
|
|
|||||||||
| Deferred tax expense |
(
|
(
|
|||||||||
| Changes in operating assets and liabilities: | |||||||||||
|
Increase in other miscellaneous assets
|
(
|
(
|
|||||||||
|
Decrease in other miscellaneous liabilities
|
(
|
(
|
|||||||||
| Change in loans held for sale, net |
|
|
|||||||||
|
Net cash used in operating activities
|
(
|
(
|
|||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Proceeds from repayment of securities available for sale |
|
|
|||||||||
|
Proceeds from sales of securities available for sale including loans that have been securitized
|
|
|
|||||||||
| Purchase of securities available for sale |
(
|
(
|
|||||||||
| Redemption of Federal Home Loan Bank stock |
|
|
|||||||||
| Purchases of Federal Home Loan Bank and Federal Reserve Bank stock |
(
|
(
|
|||||||||
| Proceeds from bank-owned life insurance, net |
|
|
|||||||||
|
Net proceeds from sales of MSR's
|
|
|
|||||||||
|
Other changes in loans, net
|
|
|
|||||||||
|
Purchases of premises and equipment
|
(
|
(
|
|||||||||
|
Net cash (used in) provided by investing activities
|
(
|
|
|||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
|
Net decrease in deposits
|
(
|
(
|
|||||||||
|
Net decrease (increase) in short-term borrowed funds
|
(
|
|
|||||||||
| Proceeds from long-term borrowed funds |
|
|
|||||||||
| Repayments of long-term borrowed funds |
|
(
|
|||||||||
|
Net receipt of payments of loans serviced for others
|
|
|
|||||||||
| Cash dividends paid on common stock |
(
|
(
|
|||||||||
| Cash dividends paid on preferred stock |
(
|
(
|
|||||||||
|
Proceeds from common stock and warrants issued, net
|
|
|
|||||||||
|
Proceeds from preferred stock issued, net
|
|
|
|||||||||
| Payments relating to treasury shares received for restricted stock award tax payments |
(
|
(
|
|||||||||
|
Net cash used in financing activities
|
(
|
(
|
|||||||||
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
(
|
|
|||||||||
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
|||||||||
|
Cash, cash equivalents, and restricted cash at end of period
|
$ |
|
$ |
|
|||||||
| Supplemental information: | |||||||||||
| Cash paid for interest | $ |
|
$ |
|
|||||||
| Cash paid for income taxes |
|
|
|||||||||
| Non-cash investing and financing activities: | |||||||||||
| Transfers to repossessed assets from loans | $ |
|
$ |
|
|||||||
|
Securitization of loans to mortgage-backed securities available for sale
|
|
|
|||||||||
| Transfer of loans from held for investment to held for sale |
|
|
|||||||||
| Shares issued for restricted stock awards |
|
|
|||||||||
See accompanying notes to the consolidated financial statements.
33
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1 -
Organization and Basis of Presentation
Organization
Flagstar Financial, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”, "our" 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. Effective October 25, 2024, 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, our common stock which is 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. operates approximately
400
locations across
nine
states, with strong footholds in the greater New York/New Jersey metropolitan region and in the upper Midwest, along with a significant presence in fast-growing markets in Florida and the West Coast.
Basis of Presentation
The accompanying condensed 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 condensed 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.
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.
Note 2 -
Computation of Earnings per Common Share
Earnings per Common Share (Basic and Diluted)
Earnings per Common Share is calculated under the two-class method as the unvested restricted stock awards granted by the Company are considered participating securities due to the awards non-forfeitable rights to dividends paid on our common stock. Under the two-class method all earnings, distributed and undistributed, are allocated to common stock and participating securities based on their respective rights to receive dividends on our common stock.
Basic and diluted earnings per share are computed by dividing Net income attributable to common stockholders by the weighted-average common shares outstanding in the period. Diluted earnings per share is computed by giving effect to all potentially dilutive securities that are outstanding. The potential dilutive effect of our warrants and convertible preferred stock is determined using the if-converted method and the potential dilutive effect of our stock options and stock-based awards is
34
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
determined using the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in periods where the effect would be antidilutive.
The following table reflects basic and diluted weighted average shares and net income (loss) per share:
| Three Months Ended March 31, | |||||||||||
| 2025 |
2024
(1)
|
||||||||||
|
Net (loss) attributable to common stockholders
|
$ |
(
|
$ |
(
|
|||||||
|
Less: Income allocated to participating securities
|
|
|
|||||||||
|
(Loss) attributable to common stock
|
$ |
(
|
$ |
(
|
|||||||
|
Weighted average common shares outstanding
|
|
|
|||||||||
|
Basic (loss) per common share
|
$ |
(
|
$ |
(
|
|||||||
|
(Loss) attributable to common stock
|
$ |
(
|
$ |
(
|
|||||||
|
Weighted average common shares outstanding
|
|
|
|||||||||
|
Dilutive potential common shares
|
|
|
|||||||||
|
Total shares for diluted earnings per common share computation
|
|
|
|||||||||
|
Diluted (loss) per common share and common share equivalents
|
$ |
(
|
$ |
(
|
|||||||
(1)
On June 27, 2024, the Company announced a 1 for 3 reverse stock split, effective July 11, 2024. This reverse stock split is reflected retroactively in all periods presented. See Note 1 - Organization and Basis of Presentation.
35
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 3 -
Accumulated Other Comprehensive Loss
The table below summarizes the changes in Accumulated other comprehensive loss, net of tax:
|
Debt Securities AFS
|
Cash Flow Hedges
|
Pension and Post-retirement Plans
|
Total
|
||||||||||||||||||||
|
Balance as of December 31, 2024
|
$ |
(
|
$ |
|
$ |
(
|
(
|
||||||||||||||||
|
Other comprehensive income (loss) before reclassification, net of tax
|
|
|
|
|
|||||||||||||||||||
|
Amounts reclassified from AOCI, net of tax
|
|
(
|
|
(
|
|||||||||||||||||||
|
Other comprehensive income (loss), net of tax
|
|
(
|
|
|
|||||||||||||||||||
|
Balance as of March 31, 2025
|
$ |
(
|
$ |
|
$ |
(
|
(
|
||||||||||||||||
|
Debt Securities AFS
|
Cash Flow Hedges
|
Pension and Post-retirement Plans
|
Total
|
||||||||||||||||||||
|
Balance as of December 31, 2023
|
$ |
(
|
$ |
|
$ |
(
|
(
|
||||||||||||||||
|
Other comprehensive income (loss) before reclassification, net of tax
|
(
|
|
|
(
|
|||||||||||||||||||
|
Amounts reclassified from AOCI, net of tax
|
|
(
|
|
(
|
|||||||||||||||||||
|
Other comprehensive income (loss), net of tax
|
(
|
|
|
(
|
|||||||||||||||||||
|
Balance as of March 31, 2024
|
$ |
(
|
$ |
|
$ |
(
|
(
|
||||||||||||||||
The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax:
|
Amount Reclassified out of Accumulated Other Comprehensive Loss
(1)
|
Affected Line Item in the Condensed Consolidated Statements of (Loss) Income | |||||||||||||
| March 31, 2025 | March 31, 2024 | |||||||||||||
|
Cash Flow Hedges:
|
||||||||||||||
|
Realized gain on cash flow hedges
|
$ |
|
$ |
|
Interest expense - Borrowed funds
|
|||||||||
|
Tax benefit
|
(
|
(
|
Income tax (expense)
|
|||||||||||
| $ |
|
$ |
|
|||||||||||
|
Pension and Post-retirement Plans:
|
||||||||||||||
|
Amortization of actuarial losses
|
(
|
(
|
General and administrative
|
|||||||||||
|
Tax benefit
|
|
|
Income tax (expense)
|
|||||||||||
| $ |
(
|
$ |
(
|
|||||||||||
|
Amounts reclassified from AOCI, net of tax
|
$ |
|
$ |
|
||||||||||
36
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 4 -
Investment Securities
The following tables summarize the Company’s portfolio of debt securities available for sale and equity investments with readily determinable fair values:
| March 31, 2025 | |||||||||||||||||||||||||||||
|
|
Amortized Cost
|
Gross Unrealized Gain | Gross Unrealized Loss |
Cumulative Amount of Fair Value Hedging Adjustment
|
Fair Value | ||||||||||||||||||||||||
| Debt securities available-for-sale | |||||||||||||||||||||||||||||
| Mortgage-Related Debt Securities: | |||||||||||||||||||||||||||||
| GSE CMOs | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||
| GSE certificates |
|
|
|
— |
|
||||||||||||||||||||||||
| Private Label collateralized mortgage obligations |
|
|
|
— |
|
||||||||||||||||||||||||
| Total mortgage-related debt securities | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||
| Other Debt Securities: | |||||||||||||||||||||||||||||
| GSE debentures | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||
| U. S. Treasury obligations |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate bonds |
|
|
|
— |
|
||||||||||||||||||||||||
|
Asset-backed securities
(2)
|
|
|
|
— |
|
||||||||||||||||||||||||
| Capital trust notes |
|
|
|
— |
|
||||||||||||||||||||||||
| Foreign notes |
|
|
|
— |
|
||||||||||||||||||||||||
| Municipal bonds |
|
|
|
— |
|
||||||||||||||||||||||||
|
Total debt securities
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
|
Total debt securities available for sale, net of allowance
(1)(3)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
(1)
As of March 31, 2025, the allowance for credit losses was $
3
million.
(2)
At March 31, 2025, substantially all of our debt securities available-for-sale are comprised of securities issued by government sponsored entities or are explicitly guaranteed by the U.S. government.
(3)
Excludes accrued interest receivable of $
40
million included in
in the Condensed Consolidated Statements of Condition.
| December 31, 2024 | |||||||||||||||||||||||
|
|
Amortized Cost
|
Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||||||
| Debt securities available-for-sale | |||||||||||||||||||||||
| Mortgage-Related Debt Securities: | |||||||||||||||||||||||
| GSE CMOs | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| GSE certificates |
|
|
|
|
|||||||||||||||||||
| Private Label collateralized mortgage obligations |
|
|
|
|
|||||||||||||||||||
| Total mortgage-related debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other Debt Securities: | |||||||||||||||||||||||
| GSE debentures | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Corporate bonds |
|
|
|
|
|||||||||||||||||||
|
Asset-backed securities
(2)
|
|
|
|
|
|||||||||||||||||||
| Capital trust notes |
|
|
|
|
|||||||||||||||||||
| Foreign Notes |
|
|
|
|
|||||||||||||||||||
| Municipal bonds |
|
|
|
|
|||||||||||||||||||
|
Total debt securities
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Total securities available for sale, net of allowance
(1)(3)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
As of December 31, 2024, the allowance for credit losses was $
3
million.
(2)
At December 31, 2024, substantially all of our debt securities available-for-sale are comprised of securities issued by government sponsored entities or are explicitly guaranteed by the U.S. government.
37
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
At March 31, 2025, the Company had $
587
million of FHLB-NY stock, at cost and $
255
million of FHLB-Indianapolis stock, at cost. At December 31, 2024, the Company had $
598
million of FHLB-NY stock, at cost and $
329
million of FHLB-Indianapolis stock, at cost. The Company maintains an investment in FHLB stock partly in conjunction with its membership in the FHLB and partly related to its access to the FHLB funding it utilizes. In addition, at March 31, 2025, the Company had $
219
million of Federal Reserve Bank stock, at cost. The Company had $
219
million of Federal Reserve Bank stock, at December 31, 2024.
There were
no
realized gains and losses on sales of available-for-sale securities during the three months ended March 31, 2025 and 2024.
No
available-for-sale securities were sold during the three month periods ended March 31, 2025 and 2024.
The following table summarizes, by contractual maturity, the amortized cost of securities at March 31, 2025:
| Mortgage- Related Securities | U.S. Government and GSE Obligations | Corporate and Other Bonds |
Asset-Backed Securities
|
Total
|
|||||||||||||||||||||||||
|
(in millions)
|
|||||||||||||||||||||||||||||
| Available-for-Sale Debt Securities: | |||||||||||||||||||||||||||||
| Due within one year | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Due from one to five years |
|
|
|
|
|
||||||||||||||||||||||||
| Due from five to ten years |
|
|
|
|
|
||||||||||||||||||||||||
| Due after ten years |
|
|
|
|
|
||||||||||||||||||||||||
|
Total debt securities available for sale, net of allowance
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
The following table presents debt securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of March 31, 2025:
|
Number of Debt Securities
|
Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||||||||||||||||||
|
|
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||||||||||||||||||
|
Debt securities in a continuous unrealized loss position:
|
|||||||||||||||||||||||||||||||||||||||||
| GSE collateralized mortgage obligations |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| U.S. Government agency and GSE obligations |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| GSE certificates |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| U. S. Treasury obligations |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Corporate bonds |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Capital trust notes |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Private Label collateralized mortgage obligations |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Foreign notes |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Municipal bonds |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
Total debt securities in a continuous unrealized loss position
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
38
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table presents debt securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2024:
| Number of Debt Securities | Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||||||||
|
Debt securities in a continuous unrealized loss position:
|
|||||||||||||||||||||||||||||||||||||||||
| GSE collateralized mortgage obligations |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| U.S. Government agency and GSE obligations |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| GSE certificates |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Corporate bonds |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Capital trust notes |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Private Label collateralized mortgage obligations |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Foreign notes |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Municipal bonds |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
Total debt securities in a continuous unrealized loss position
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
39
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 5 -
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:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
|
|
Amount |
Percent of
Loans Held for Investment |
Amount |
Percent of
Loans Held for Investment |
|||||||||||||
| Loans and Leases Held for Investment: | |||||||||||||||||
| Multi-family | $ |
|
|
% | $ |
|
|
% | |||||||||
|
Commercial real estate
(1)
|
|
|
% |
|
|
% | |||||||||||
| One-to-four family first mortgage |
|
|
% |
|
|
% | |||||||||||
|
Commercial and industrial
|
|
|
% |
|
|
% | |||||||||||
|
Lease financing, net of unearned income of $
|
|
|
% |
|
|
% | |||||||||||
| Other |
|
|
% |
|
|
% | |||||||||||
|
Total loans and leases held for investment
(2)
|
$ |
|
|
% | $ |
|
|
% | |||||||||
| Allowance for credit losses on loans and leases |
(
|
(
|
|||||||||||||||
| Total loans and leases held for investment, net | $ |
|
$ |
|
|||||||||||||
| Loans held for sale, at fair value |
|
|
|||||||||||||||
| Total loans and leases, net | $ |
|
$ |
|
|||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
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 Condensed Consolidated Statements of Condition. As of March 31, 2025 and December 31, 2024, loans with government guarantees totaled $
373
million and $
360
million.
Loans Held for Sale
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.
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, we cease 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 the principal outstanding. A loan is only returned to accrual status when the loan is current (typically a minimum of
six months
of payment performance) and we have reasonable assurance that the loan will be fully collectible. When we have reasonable assurance that the loan will be fully collectible, then interest payments may be recognized in interest income on a cash basis. As of March 31, 2025 and December 31, 2024 there was no interest income recognized on
40
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
non-accrual loans classified as held for sale. At March 31, 2025 and December 31, 2024 we had
no
loans that were 90 days or more past due and still accruing interest.
The following table is a summary of non-accrual loans held for sale:
|
|
March 31, 2025 | December 31, 2024 | ||||||||||||
|
Non-accrual loans held for sale:
|
||||||||||||||
|
Multi-family
|
$ |
|
$ |
|
||||||||||
|
Commercial real estate
(1)
|
|
|
||||||||||||
| One-to-four family first mortgage |
|
|
||||||||||||
|
Commercial and industrial
|
|
|
||||||||||||
|
Total non-accrual loans held for sale
|
$ |
|
$ |
|
||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
Asset Quality
Asset quality information excludes loans with repurchased government guarantees that are insured by U.S. government agencies.
The following table presents information regarding the delinquency status of the Company’s loans held for investment at March 31, 2025:
|
|
Loans 30-89 Days Past Due |
Non-Accrual Loans
|
Remaining
|
Total Loans Receivable | ||||||||||||||||||||||
| Multi-family | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Commercial real estate
(1)
|
|
|
|
|
||||||||||||||||||||||
| One-to-four family first mortgage |
|
|
|
|
||||||||||||||||||||||
|
Commercial and industrial
(2)
|
|
|
|
|
||||||||||||||||||||||
| Other |
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
(2)
Includes lease financing receivables.
The following table presents information regarding the delinquency status of the Company’s loans held for investment at December 31, 2024:
|
|
Loans 30-89 Days Past Due |
Non-Accrual Loans
|
Remaining
|
Total Loans Receivable | ||||||||||||||||||||||
| Multi-family | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Commercial real estate
(1)
|
|
|
|
|
||||||||||||||||||||||
| One-to-four family first mortgage |
|
|
|
|
||||||||||||||||||||||
|
Commercial and industrial
(2)
|
|
|
|
|
||||||||||||||||||||||
| Other |
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
41
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table presents the credit rating by vintage for our loans held for investment as of March 31, 2025:
|
Term Loans
|
Revolving
Loans |
Revolving
Loans Converted to Term Loans |
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
Amortized Cost Basis by Closing Year
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
2025
|
2024
|
2023
|
2022
|
2021
|
Prior To
2021
|
Total | ||||||||||||||||||||||||||||||||||||||||||||||
|
Multi-family:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Total Multi-family
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
|
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Commercial Real Estate:
(1)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Total Commercial Real Estate
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
|
|
(
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| One-to-Four Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total One-to-Four Family |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
|
|
(
|
|
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Commercial and Industrial
(2)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
(
|
|
(
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Other Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
(
|
|
(
|
(
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
(2)
Includes lease financing receivables.
42
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table presents the credit rating by vintage for our loans held for investment as of December 31, 2024:
|
Term Loans
|
Revolving
Loans |
Revolving
Loans Converted to Term Loans |
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
Amortized Cost Basis by Closing Year
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior To
2020
|
Total | ||||||||||||||||||||||||||||||||||||||||||||||
|
Multi-family:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Total Multi-family
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
|
(
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Commercial Real Estate:
(1)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Total Commercial Real Estate
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
(
|
(
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| One-to-Four Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total One-to-Four Family |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
|
|
(
|
|
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
|
Commercial and Industrial
(2)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Substandard |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
(
|
(
|
(
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Other Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-accrual
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Year to date gross charge-offs
|
(
|
(
|
(
|
(
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
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
43
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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 as of March 31, 2025:
|
|
Real Property | ||||
| Multi-family | $ |
|
|||
|
Commercial real estate
(1)
|
|
||||
| One-to-four family first mortgage |
|
||||
| Commercial and industrial |
|
||||
| Total collateral-dependent loans held for investment | $ |
|
|||
(1)
Includes Acquisition, Development, and Construction loans.
At March 31, 2025 and December 31, 2024, the Company had $
53
million and $
41
million of residential mortgage loans in the process of foreclosure, respectively.
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.
During the three months ended March 31, 2025 and 2024 there were an
immaterial
and $
26
million of loans modified to borrowers experiencing financial difficulty.
The following table describes the financial effect of the modification made to borrowers experiencing financial difficulty:
| Interest Rate Reduction | Term Extension | ||||||||||||||||
| Weighted-average contractual interest rate | |||||||||||||||||
| From | To | Weighted-average Term (in years) | |||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||
|
Commercial real estate
(1)
|
|
% |
|
% |
|
||||||||||||
| One-to-four family first mortgage |
|
% |
|
% |
|
||||||||||||
|
Other
|
|
% |
|
% | — | ||||||||||||
| Three Months Ended March 31, 2024 | |||||||||||||||||
| Multi-family |
|
% |
|
% | N/A | ||||||||||||
|
Commercial real estate
(1)
|
|
% |
|
% | N/A | ||||||||||||
| One-to-four family first mortgage |
|
% |
|
% |
|
||||||||||||
| Commercial and industrial |
|
% |
|
% |
|
||||||||||||
|
Other
|
|
% |
|
% |
|
||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
The following table presents the amortized cost basis of the modifications for borrowers experiencing financial difficulty that subsequently defaulted in the first three months of 2025 and were within twelve months of the modification date:
|
|
Term Extension | Principal Forgiveness | Combination - Interest Rate Reduction and Term/Payment Extension/Delay |
Total
|
||||||||||||||||||||||
|
Commercial real estate
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
One-to-four family first mortgage
|
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
44
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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.
| March 31, 2025 | ||||||||||||||||||||||||||
|
|
Current | 30 - 89 Past Due | 90+ Past Due | Total | ||||||||||||||||||||||
|
Commercial real estate
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| One-to-four family first mortgage |
|
|
|
|
||||||||||||||||||||||
| Commercial and industrial |
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
The following table provides a summary of loan balances at March 31, 2024, which were modified during the prior twelve months, by class of financing receivable and delinquency status:
| March 31, 2024 | ||||||||||||||||||||||||||
|
|
Current | 30 - 89 Past Due | 90+ Past Due | Total | ||||||||||||||||||||||
|
Multi-family
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Commercial real estate
(1)
|
|
|
|
|
||||||||||||||||||||||
| One-to-four family first mortgage |
|
|
|
|
||||||||||||||||||||||
| Commercial and industrial |
|
|
|
|
||||||||||||||||||||||
|
Other
|
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
45
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 6 -
Allowance for Credit Losses on Loans and Leases
The following table summarizes activity in the allowance for credit losses on loans and leases for the periods indicated:
|
Multi- Family
|
Commercial Real Estate
(1)
|
One-to-Four Family First Mortgage
|
Commercial and Industrial
|
Other | Total | ||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Charge-offs |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Provision for (recovery of) credit losses on loans and leases |
|
(
|
(
|
|
|
|
|||||||||||||||||||||||||||||
| Balance, end of period | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Charge-offs |
(
|
(
|
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Provision for (recovery of) credit losses on loans and leases |
|
|
(
|
|
(
|
|
|||||||||||||||||||||||||||||
| Balance, end of period | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
(1)
Includes Acquisition, Development, and Construction loans.
Interest rates remain high as compared to the interest rates in our existing portfolio, which continues to put pressure on the ability of certain borrowers with interest rates resetting 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.
The allowance for credit losses to total loans and leases held for investment ratio at March 31, 2025 and December 31, 2024 was
1.75
percent and
1.76
percent, respectively. 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. 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. Therefore, we have continued to incorporate 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 March 31, 2025 and December 31, 2024, the allowance for unfunded commitments totaled $
47
million and $
50
million, respectively.
The Company charges-off loans, or portions of loans, when they 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.
46
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table presents additional information about the Company’s non-accrual loans at March 31, 2025:
| Recorded Investment | Related Allowance | ||||||||||
|
Non-accrual loans with no related allowance:
|
|||||||||||
| Multi-family | $ |
|
$ | — | |||||||
|
Commercial real estate
(1)
|
|
— | |||||||||
| One-to-four family first mortgage |
|
— | |||||||||
|
Commercial and Industrial
|
|
— | |||||||||
|
Other
|
|
— | |||||||||
|
Total non-accrual loans with no related allowance
|
$ |
|
$ | — | |||||||
|
Non-accrual loans with an allowance recorded:
|
|||||||||||
| Multi-family | $ |
|
$ |
|
|||||||
|
Commercial real estate
(1)
|
|
|
|||||||||
| One-to-four family first mortgage |
|
|
|||||||||
| Commercial and Industrial |
|
|
|||||||||
|
Other
|
|
|
|||||||||
|
Total non-accrual loans with an allowance recorded
|
$ |
|
$ |
|
|||||||
|
Total non-accrual loans:
|
|||||||||||
| Multi-family | $ |
|
$ |
|
|||||||
|
Commercial real estate
(1)
|
|
|
|||||||||
| One-to-four family first mortgage |
|
|
|||||||||
| Commercial and Industrial |
|
|
|||||||||
|
Other
|
|
|
|||||||||
|
Total non-accrual loans
|
$ |
|
$ |
|
|||||||
(1)
Includes Acquisition, Development, and Construction loans.
The following table presents additional information about the Company’s non-accrual loans at December 31, 2024:
| Recorded Investment | Related Allowance | ||||||||||
|
Non-accrual loans with no related allowance:
|
|||||||||||
| Multi-family | $ |
|
$ | — | |||||||
|
Commercial real estate
(1)
|
|
— | |||||||||
| One-to-four family first mortgage |
|
— | |||||||||
| Commercial and Industrial |
|
— | |||||||||
| Other |
|
— | |||||||||
|
Total non-accrual loans with no related allowance
|
$ |
|
$ | — | |||||||
|
Non-accrual loans with an allowance recorded:
|
|||||||||||
| Multi-family | $ |
|
$ |
|
|||||||
|
Commercial real estate
(1)
|
|
|
|||||||||
| One-to-four family first mortgage |
|
|
|||||||||
| Commercial and Industrial |
|
|
|||||||||
| Other |
|
|
|||||||||
|
Total non-accrual loans with an allowance recorded
|
$ |
|
$ |
|
|||||||
|
Total non-accrual loans:
|
|||||||||||
| Multi-family | $ |
|
$ |
|
|||||||
|
Commercial real estate
(1)
|
|
|
|||||||||
| One-to-four family first mortgage |
|
|
|||||||||
| Commercial and Industrial |
|
|
|||||||||
| Other |
|
|
|||||||||
|
Total non-accrual loans
|
$ |
|
$ |
|
|||||||
(1)
Includes Acquisition, Development, and Construction loans.
47
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 7 -
Leases, Premises and Equipment
Lessor Arrangements
Interest income on lease financing is recorded over the lease term and recorded in Loans and leases interest income on the Condensed Consolidated Statements of (Loss) Income. Interest income from direct finance leases was $
24
million and $
38
million for the three months ended March 31, 2025 and March 31, 2024, respectively.
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.
Supplemental balance sheet information related to the Company’s operating lease arrangements is presented below:
| March 31, 2025 | December 31, 2024 | ||||||||||
| Operating Leases: | |||||||||||
|
|
$ |
|
$ |
|
|||||||
|
|
$ |
|
$ |
|
|||||||
| Weighted average remaining lease term |
|
|
|||||||||
| Weighted average discount rate % |
|
% |
|
% | |||||||
48
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Supplemental cash flow information related to the leases:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ |
|
$ |
|
|||||||
Premises and Equipment
The table below presents the Company’s Premises and equipment:
| March 31, 2025 | December 31, 2024 | ||||||||||
|
Premises and equipment
|
$ |
|
$ |
|
|||||||
|
Less: Accumulated depreciation
|
(
|
(
|
|||||||||
|
Premises and equipment, net
|
$ |
|
$ |
|
|||||||
Note 8 -
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 have
no
consolidated VIEs as of March 31, 2025 and December 31, 2024.
Note 9 -
Borrowed Funds
The following table summarizes the Company’s borrowed funds:
|
|
March 31, 2025 | December 31, 2024 | |||||||||
| Wholesale borrowings: | |||||||||||
| FHLB advances | $ |
|
$ |
|
|||||||
|
Federal Reserve Bank term funding
|
|
|
|||||||||
| Total wholesale borrowings | $ |
|
$ |
|
|||||||
| Junior subordinated debentures |
|
|
|||||||||
| Subordinated notes |
|
|
|||||||||
| Total borrowed funds | $ |
|
$ |
|
|||||||
Our FHLB available capacity has been expanded from overnight funding to
6-month
tenor on new and rollover of existing advances. Our FHLB available capacity was $
5.8
billion and $
6.6
billion at March 31, 2025 and December 31, 2024, respectively. On April 15th, 2025, our borrowing tender limit changed from a
6-month
tenor on new and rollover of existing advances to a
12-month
tenor.
Accrued interest on borrowed funds is included in Other liabilities in the Condensed Consolidated Statements of Condition and amounted to $
49
million and $
51
million, respectively, at March 31, 2025 and December 31, 2024.
49
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
FHLB Advances
The contractual maturities and the next call dates of FHLB advances outstanding at March 31, 2025 were as follows:
| Contractual Maturity | Earlier of Contractual Maturity or Next Call Date | ||||||||||||||||||||||
|
Year
|
Amount |
Weighted Average Interest Rate
|
Amount |
Weighted Average Interest Rate
|
|||||||||||||||||||
| 2025 | $ |
|
|
$ |
|
|
|||||||||||||||||
| 2026 |
|
|
|
|
|||||||||||||||||||
| 2027 |
|
|
|
|
|||||||||||||||||||
| 2028 |
|
|
|
|
|||||||||||||||||||
| 2032 |
|
|
|
|
|||||||||||||||||||
| Total FHLB advances | $ |
|
$ |
|
|||||||||||||||||||
Our FHLB advances include 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 to
five years
and quarterly thereafter until maturity, or a one-time call at the initial call date.
Junior Subordinated Debentures
The Comp
any had $
610
million at
March 31, 2025 and December 31, 2024, 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 March 31, 2025:
| Issuer | Interest Rate of Capital Securities and Debentures |
Junior Subordinated Debentures Amount Outstanding
|
Capital Securities Amount Outstanding | Date of Original Issue | Stated Maturity | ||||||||||||||||||||||||
|
New York Community Capital Trust V (BONUSES Units)
(1)
|
|
% | $ |
|
$ |
|
November 04, 2002 | November 01, 2051 | |||||||||||||||||||||
|
New York Community Capital Trust X
(2)
|
|
% |
|
|
December 14, 2006 | December 15, 2036 | |||||||||||||||||||||||
|
PennFed Capital Trust III
(2)
|
|
% |
|
|
June 02, 2003 | June 15, 2033 | |||||||||||||||||||||||
|
New York Community Capital Trust XI
(2)
|
|
% |
|
|
April 16, 2007 | June 30, 2037 | |||||||||||||||||||||||
|
Flagstar Statutory Trust II
(2)(3)
|
|
% |
|
|
December 26, 2002 | December 26, 2032 | |||||||||||||||||||||||
|
Flagstar Statutory Trust III
(2)(3)
|
|
% |
|
|
February 19, 2003 | April 7, 2033 | |||||||||||||||||||||||
|
Flagstar Statutory Trust IV
(2)(3)
|
|
% |
|
|
March 19, 2003 | March 19, 2033 | |||||||||||||||||||||||
|
Flagstar Statutory Trust V
(2)(3)
|
|
% |
|
|
December 29, 2004 | January 07, 2035 | |||||||||||||||||||||||
|
Flagstar Statutory Trust VI
(2)(3)
|
|
% |
|
|
March 30, 2005 | April 7, 2035 | |||||||||||||||||||||||
|
Flagstar Statutory Trust VII
(2)(3)
|
|
% |
|
|
March 29, 2005 | June 15, 2035 | |||||||||||||||||||||||
|
Flagstar Statutory Trust VIII
(2)(3)
|
|
% |
|
|
September 22, 2005 | October 7, 2035 | |||||||||||||||||||||||
|
Flagstar Statutory Trust IX
(2)(3)
|
|
% |
|
|
June 28, 2007 | September 15, 2037 | |||||||||||||||||||||||
|
Flagstar Statutory Trust X
(2)(3)
|
|
% |
|
|
August 31, 2007 | September 15, 2037 | |||||||||||||||||||||||
|
Total junior subordinated debentures
|
$ |
|
$ |
|
|||||||||||||||||||||||||
(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 acquisition fair value adjustments o
f $
27
million.
50
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Subordinated Notes
At March 31, 2025 and December 31, 2024, the Company had a total
of $
445
million
and $
444
million subordinated notes outstanding, respectively, of fixed-to-floating rate subordinated notes outstanding:
| Date of Original Issue | Stated Maturity | Interest Rate | Original Issue Amount | ||||||||||||||||||||
|
(1)
|
November 6, 2018 | November 6, 2028 |
|
$ |
|
||||||||||||||||||
|
(2)
|
October 28, 2020 | November 1, 2030 |
|
$ |
|
||||||||||||||||||
(1)
From and including the date of original issuance to, but excluding November
6, 2023, the Notes bore interest at an initial rate of
5.90
percent per annum payable semi-annually. 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.
Note 10 -
Pension Benefits
The following table sets forth certain disclosures for the Company’s pension plan for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Components of net periodic pension expense (income):
(1)
|
|||||||||||
| Interest cost | $ |
|
$ |
|
|||||||
| Expected return on plan assets |
(
|
(
|
|||||||||
| Amortization of net actuarial loss |
|
|
|||||||||
|
Net periodic expense (income)
|
$ |
(
|
$ |
(
|
|||||||
(1)
Amounts are included in General and administrative expense on the Condensed Consolidated Statements of (Loss) Income
Note 11 -
Federal, State, and Local Taxes
The applicable income tax benefit was $
21
million and $
54
million for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate for the three months ended March 31, 2025 and 2024 were
17.8
percent and
14.3
percent, respectively.
51
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 12 -
Stock-Based Compensation
We issue stock-based compensation in the form of restricted stock units, performance-based stock units, and stock options through the New York Community Bancorp, Inc. 2020 Omnibus Incentive Plan. As of March 31, 2025, we have authorized
7,000,659
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. The Company generally utilizes the Black-Scholes option pricing model to measure the fair value of stock options at the grant date. 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 the related tax benefit:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Stock-based compensation expense
|
|
|
|||||||||
|
Tax benefit
|
|
|
|||||||||
Restricted Stock
The Company granted
3,854,284
shares of restricted stock, with an average fair value of $
11.78
per share on the date of grant, during the three months ended March 31, 2025. The shares of restricted stock that were granted during the first three months of 2025 vest over a
to
three year
period.
The following table provides a summary of activity with regard to restricted stock units (RSUs):
| Three Months Ended March 31, 2025 | |||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at beginning of year |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Forfeited |
(
|
|
|||||||||
| Unvested at end of period |
|
|
|||||||||
As of March 31, 2025, unrecognized compensation cost relating to unvested restricted stock totaled $
119
million. This amount will be recognized over a remaining weighted average period of
2.5
years.
Stock Options
The following table summarizes stock options activity for the period indicated:
| Three months ended March 31, 2025 | |||||||||||
|
Number of Options
|
Weighted-
Average
Exercise Price per Share
|
||||||||||
|
Unvested at beginning of year
|
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Forfeited |
(
|
|
|||||||||
| Unvested at end of period |
|
|
|||||||||
|
Exercisable at end of period
|
|
||||||||||
As of March 31, 2025, the remaining amount of unamortized compensation expense relating to stock options totaled $
41
million. This amount will be recognized over a remaining weighted average period of
2.1
years.
52
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 13 -
Derivative and Hedging Activities and Restricted Cash
Derivative financial instruments are recorded at fair value in Other assets and Other liabilities on the Condensed Consolidated Statements of Condition. The Company's policy is to present our derivative assets and derivative liabilities on the Condensed Consolidated Statements 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 Condensed 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 Accumulated other comprehensive loss on the Condensed Consolidated Statements of Condition and reclassified into interest expense in the same period in which the hedged transaction is recognized in e
arnings. At March 31, 2025, the Company had $
40
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 $
47
million (net-of-tax) of unrealized gains on derivatives previously classified as cash flow hedges recorded in Accumulated other comprehensive loss at December 31, 2024. There were
no
designated cash flow hedging relationships as of March 31, 2025.
Fair Value 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.
Interest rate swaps were previously used to hedge the changes in fair value of certain of our pools of prepayable fixed rate assets and beginning in the three months ended March 31, 2025, we began to use interest rate swaps to hedge the changes in fair value of certain debt securities available for sale.
For derivatives designated and that qualified as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in interest income within loans and leases or securities and money market investments. The fair value basis adjustments remaining from discontinued hedges are recognized in interest income over the remaining life of the hedged items.
53
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The fair value basis adjustment on our hedged real estate loans is included in Loans and leases held for investment on our Condensed Consolidated Statements of Condition.
The following table sets forth information regarding the Company's carrying amounts on our hedged loans:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Carrying Amount of Hedged Items | Cumulative Amount of Fair Value Hedging Adjustments | Carrying Amount of Hedged Items | Cumulative Amount of Fair Value Hedging Adjustments | ||||||||||||||||||||
|
Debt securities available-for-sale
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Loans and leases held-for-investment
(2)
|
|
(
|
|
(
|
|||||||||||||||||||
(1)
During the three months ended March 31, 2025, the amount recorded in Interest Income - Securities and money market investments was immaterial.
The following tables set forth information regarding the Company’s derivative financial instruments:
| March 31, 2025 | |||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||
| Notional Amount | Other Assets | Other Liabilities | Expiration Dates | ||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate swaps | $ |
|
$ |
|
$ |
|
2028-2029 | ||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
|||||||||||||||||||||||
|
Rate lock commitments
(1)
|
$ |
|
$ |
|
$ |
|
2025 | ||||||||||||||||
|
Mortgage-backed securities forwards
(1)
|
|
|
|
2025 | |||||||||||||||||||
|
Interest rate swaps
(2)
|
|
|
|
2025-2041 | |||||||||||||||||||
(1)
During the three months ended March 31, 2025 and 2024, the amount recorded in Net gain on loan sales and securitizations in the Condensed Consolidated Statement of Income was immaterial.
(2)
During the three months ended March 31, 2025 and 2024, the amount recorded in Non-interest income - Other was immaterial.
54
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| December 31, 2024 | |||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||
| Notional Amount | Other Assets | Other Liabilities |
Expiration Date
|
||||||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
|||||||||||||||||||||||
|
Rate lock commitments
|
$ |
|
$ |
|
$ |
|
2025 | ||||||||||||||||
|
Mortgage-backed securities forwards
|
|
|
|
2025 | |||||||||||||||||||
|
Interest rate swaps
|
|
|
|
2024-2041 | |||||||||||||||||||
The tables below present the gross derivative assets and liabilities, and the related cash pledged as collateral at March 31, 2025 and December 31, 2024. No amounts were netted in the Statement of Condition.
| March 31, 2025 | ||||||||||||||
|
Gross Amounts Not Offset in the Statements of Condition
|
Cash Collateral Pledged (Received) | |||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||
| Assets | ||||||||||||||
| Interest rate swaptions | $ |
|
$ |
|
||||||||||
| Total derivative assets | $ |
|
$ |
|
||||||||||
| Liabilities | ||||||||||||||
| Mortgage-backed securities forwards | $ |
|
$ |
|
||||||||||
|
Interest rate swaps
(1)
|
|
|
||||||||||||
| Total derivative liabilities | $ |
|
$ |
|
||||||||||
(1)
Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior day's fair value of open positions is considered settlement of the derivative position for accounting purposes.
| December 31, 2024 | ||||||||||||||
|
Gross Amounts Not Offset in the Statements of Condition
|
Cash Collateral Pledged (Received) | |||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||
| Assets | ||||||||||||||
| Mortgage-backed securities forwards | $ |
|
$ |
(
|
||||||||||
| Interest rate swaptions |
|
(
|
||||||||||||
| Total derivative assets | $ |
|
$ |
(
|
||||||||||
| Liabilities | ||||||||||||||
| Mortgage-backed securities forwards | $ |
|
$ |
|
||||||||||
|
Interest rate swaps
(1)
|
|
|
||||||||||||
| Total derivative liabilities | $ |
|
$ |
|
||||||||||
(1)
Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior day's fair value of open positions is considered settlement of the derivative position for accounting purposes.
55
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Cash Flow Hedges of Interest Rate Risk
The following table presents the effect of the Company’s cash flow derivative instruments on Accumulated other comprehensive loss:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Amount of gain (loss) recognized in accumulated other comprehensive loss
|
$ |
|
$ |
|
|||||||
|
Amount reclassified from accumulated other comprehensive loss to interest expense
|
$ |
(
|
$ |
(
|
|||||||
Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate borrowings. We will recognize $
28
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 on derivatives not designated as hedging instruments, net of the impact of offsetting positions:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Derivatives not designated as hedging instruments |
Income Statement Classification
|
|||||||||||||
| Futures | Net return on mortgage servicing rights | $ |
|
$ |
|
|||||||||
| Interest rate swaps and swaptions | Net return on mortgage servicing rights |
|
(
|
|||||||||||
| Mortgage-backed securities forwards | Net return on mortgage servicing rights |
|
(
|
|||||||||||
|
Rate lock commitments, MBS forwards, and US Treasury Futures
|
Net gain on loan sales |
(
|
|
|||||||||||
|
Interest rate swaps
(1)
|
Other non-interest income |
|
(
|
|||||||||||
| Total derivative (loss) gain | $ |
(
|
$ |
(
|
||||||||||
(1)
Includes customer-initiated commercial interest rate swaps.
The following table provides a reconciliation of cash, cash equivalents and restricted cash within the Condensed Consolidated Statements of Condition that sum to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows:
|
|
March 31, 2025 | ||||
|
Cash and cash equivalents
|
$ |
|
|||
|
Restricted cash included in other assets
|
|
||||
|
Total
|
$ |
|
|||
Note 14 -
Intangible Assets
Finite-lived Intangible Assets
At March 31, 2025, intangible assets consisted of the following:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||
| Core deposit intangible | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Other intangible assets |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total other intangible assets | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
56
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Amortization expense for the three months ended March 31, 2025 and the three months ended March 31, 2024 were $
28
million and $
35
million, respectively.
Note 15 -
Fair Value Measures
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.
57
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following tables present assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024, and that were included in the Company’s Condensed Consolidated Statements of Condition at those dates:
| March 31, 2025 | |||||||||||||||||||||||
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
Significant Other Observable Inputs
(Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total Fair Value | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Mortgage-related Debt Securities Available for Sale: | |||||||||||||||||||||||
|
GSE CMOs
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| GSE certificates |
|
|
|
|
|||||||||||||||||||
| Private label collateralized mortgage obligations |
|
|
|
|
|||||||||||||||||||
| Total mortgage-related debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other Debt Securities Available for Sale: | |||||||||||||||||||||||
| GSE debentures | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| U. S. Treasury obligations |
|
|
|
|
|||||||||||||||||||
| Corporate bonds |
|
|
|
|
|||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|||||||||||||||||||
|
Municipal bonds, foreign notes, and capital trust
|
|
|
|
|
|||||||||||||||||||
| Total other debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total debt securities available for sale | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Mutual funds and common stock | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total equity securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Loans held for sale | |||||||||||||||||||||||
|
Multi-family
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Commercial real estate
(2)
|
|
|
|
|
|||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
|
Interest rate swaps
|
|
|
|
|
|||||||||||||||||||
|
Rate lock commitments
|
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
|
Interest rate swaps
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Mortgage-backed securities forwards |
|
|
|
|
|||||||||||||||||||
|
Rate lock commitments
|
|
|
|
|
|||||||||||||||||||
| Total liabilities at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
The change in the fair value due to significant unobservable inputs was immaterial.
(2)
Includes Acquisition, Development, and Construction loans.
58
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| December 31, 2024 | |||||||||||||||||||||||
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
Significant Other Observable Inputs
(Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total Fair Value | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Mortgage-related Debt Securities Available for Sale: | |||||||||||||||||||||||
|
GSE CMOs
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| GSE certificates |
|
|
|
|
|||||||||||||||||||
| Private label collateralized mortgage obligations |
|
|
|
|
|||||||||||||||||||
| Total mortgage-related debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other Debt Securities Available for Sale: | |||||||||||||||||||||||
| GSE debentures | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Corporate bonds |
|
|
|
|
|||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|||||||||||||||||||
|
Municipal bonds, foreign notes, and capital trust
|
|
|
|
|
|||||||||||||||||||
| Total other debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total debt securities available for sale | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Mutual funds and common stock | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total equity securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Loans held for sale | |||||||||||||||||||||||
|
Multi-family
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Acquisition, development, and construction |
|
|
|
|
|||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
|
Interest rate swaps
|
|
|
|
|
|||||||||||||||||||
| Mortgage-backed securities forwards |
|
|
|
|
|||||||||||||||||||
|
Rate lock commitments
|
|
|
|
|
|||||||||||||||||||
| Mortgage servicing rights |
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Interest rate swaps and swaptions | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Rate lock commitments
|
|
|
|
|
|||||||||||||||||||
| Mortgage-backed securities forwards |
|
|
|
|
|||||||||||||||||||
| Total liabilities at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
A description of the methods and significant assumptions utilized in estimating the fair values of securities are as 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.
59
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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 March 31, 2025 and December 31, 2024:
|
Fair Value Measurements at March 31, 2025 Using
|
|||||||||||||||||||||||
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||
|
Loans held for investment
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Loans held for sale |
|
|
|
|
|||||||||||||||||||
|
Other assets
(2)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Represents the fair value of impaired loans, based primarily on the value of the collateral less costs to sell.
(2)
Primarily comprised of equity securities without readily determinable fair values.
|
Fair Value Measurements at December 31, 2024 Using
|
|||||||||||||||||||||||
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||
|
Loans held for investment
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Loans held for sale |
|
|
|
|
|||||||||||||||||||
|
Other assets
(2)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(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 market data.
Other Fair Value Disclosures
For the disclosure of fair value information about the Company’s on- and off-balance sheet financial instruments, when available, quoted market prices are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.
Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments.
60
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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 Condensed Consolidated Statements of Condition at March 31, 2025 and December 31, 2024:
| March 31, 2025 | |||||||||||||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
|
|
Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||
|
FHLB and FRB stock
(1)
|
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Loans and leases held for investment, net
(4)
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ |
|
$ |
|
$ |
|
(2)
|
$ |
|
(3)
|
$ |
|
|||||||||||||||||||||||
| Borrowed funds |
|
|
|
|
|
||||||||||||||||||||||||||||||
(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.
(4)
Carrying value and estimated fair value include the impaired loans held for
investment.
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
|
|
Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||
|
FHLB and FRB stock
(1)
|
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Loans and leases held for investment, net
(4)
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ |
|
$ |
|
$ |
|
(2)
|
$ |
|
(3)
|
$ |
|
|||||||||||||||||||||||
| Borrowed funds |
|
|
|
|
|
||||||||||||||||||||||||||||||
(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
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.
61
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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.
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.
Borrowed Funds
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
Fair Value Option
We elected the fair value option for certain items as discussed throughout the Notes to the Condensed 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:
|
|
Three Months Ended March 31, | ||||||||||
|
2025
|
2024
|
||||||||||
| Assets | |||||||||||
| Loans held for sale | |||||||||||
| Net gain on loan sales | $ |
|
$ |
|
|||||||
62
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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:
| March 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
|
|
Unpaid Principal Balance | Fair Value | Fair Value Over / (Under) UPB | Unpaid Principal Balance | Fair Value | Fair Value Over / (Under) UPB | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Non-accrual loans: | |||||||||||||||||||||||||||||||||||
| Loans held for sale | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Loans held-for-investment |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total non-accrual loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Accrual loans: | |||||||||||||||||||||||||||||||||||
| Loans held for sale | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Loans held-for-investment |
|
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Total accrual loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Total loans: | |||||||||||||||||||||||||||||||||||
| Loans held for sale | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Loans held-for-investment |
|
|
|
|
— |
|
(
|
||||||||||||||||||||||||||||
| Total loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
Note 16 -
Mezzanine and Stockholders' Equity
The following table and paragraphs summarize the Company's preferred stock as of March 31, 2025:
| Preferred Stock Series |
Amount Outstanding
|
Shares Authorized | Shares Issued |
Shares Outstanding
|
Par Value |
Liquidation Preference Per Share
|
||||||||||||||
|
|
$ |
|
|
|
|
$ |
|
$ |
|
|||||||||||
|
Fixed Rate Perpetual Noncumulative Convertible Series B
|
$ |
|
|
|
|
$ |
|
$ |
|
|||||||||||
|
|
$ |
|
|
|
|
$ |
|
$ |
|
|||||||||||
|
Non-Voting Common Equivalent Series D
|
$ |
|
|
|
|
$ |
|
$ |
|
|||||||||||
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. For the three months ended March 31, 2025, we paid an
immaterial
amount of dividends on our Series A preferred stock
63
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Series B Preferred Stock
As of March 31, 2025, Series B Noncumulative Convertible Preferred Stock (the "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.
The 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. For the three months ended March 31, 2025, we paid an
immaterial
amount of dividends on our Series B 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 Warrants, as a result of the dividend paid on shares of our common stock, the exercise price of the Warrants were reduced to $
2,486
as of March 31, 2025. 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 $
7.46
per share, as adjusted for dividends, as of March 31, 2025.
Note 17 -
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 $
12.5
billion and $
10.2
billion at March 31, 2025 and December 31, 2024, respectively. In addition, the Company had $
38
billion of loans pledged between the FHLB-NY and the Federal Reserve Bank to serve as collateral for its wholesale borrowings as of March 31, 2025, compared to $
44.6
billion of loans pledged at December 31, 2024.
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 Condensed Consolidated Statements of Financial Condition.
The following table summarizes the Company’s off-balance sheet commitments to originate loans and letters of credit:
|
|
March 31, 2025 | December 31, 2024 | |||||||||
|
Multi-family and Commercial real estate
(1)
|
$ |
|
$ |
|
|||||||
| One-to-four family including interest rate locks |
|
|
|||||||||
| Other loan commitments |
|
|
|||||||||
| Total loan commitments | $ |
|
$ |
|
|||||||
| Commercial, performance stand-by, and financial stand-by letters of credit |
|
|
|||||||||
| Total commitments | $ |
|
$ |
|
|||||||
(1)
Includes Acquisition, Development, and Construction loans.
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 Condensed Consolidated Statements of (Loss) Income.
These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized on the Condensed 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
64
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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.
Legal Proceedings
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 most recent Annual Report on Form 10-K, (iv) past cyber security breaches, and (v) recent events and circumstances involving the Company, including our full year 2023 earnings announcement, disclosures regarding credit losses, provisioning and goodwill impairment, and negative news and expectations about the prospects of the Company (and associated stock price volatility and changes).
We have established an accrual related to the legal actions where we believe that a loss is probable, and the amount can be reasonably estimated. When we can do so, we also determine estimates of reasonably possible losses or ranges of reasonably possible losses, whether in excess of any related accrued liability or where there is no accrued liability. We currently estimate the range of reasonably possible losses in excess of amounts accrued at March 31, 2025 is immaterial.
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, investigations or regulatory proceedings, (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 such 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.
Signature Bridge Bank
On March 20, 2023, the Company’s wholly owned bank subsidiary, Flagstar Bank, entered into a Purchase and Assumption Agreement (the “Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as 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, Flagstar Bank assumed all of Signature’s branches. Flagstar 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, Flagstar Bank 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 three months end March 31, 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, Flagstar Bank 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.
Note 18 -
Segment Reporting
The Company’s chief operating decision maker is the Chief Executive Officer. The Company has evaluated its operating structure and determined that it operates in
one
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
65
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Critical Accounting Estimates
Various elements of our accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain accounting policies that, due to the judgment, estimates and assumptions are critical to an understanding of our Condensed Consolidated Financial Statements and the Notes, are described in detail in Note 2 of our Form 10-K for the year ended December 31, 2024. These policies relate to: (a) the determination of our allowance for credit losses and (b) fair value measurements. We believe the judgment, estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements and the Notes are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | ||||
Our most significant risks include interest rate risk and market risk. For more information regarding interest rate risk please refer to the "Interest Rate Risk" section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this Form 10-Q. There have been no changes with regard to our market risk disclosed in "Interest Rate Risk" in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
| Item 4. | Controls and Procedures | ||||
Evaluation of Disclosure Controls and Procedures
Under the supervision of our Chief Executive Officer and Chief Financial Officer, Management evaluated the effectiveness of design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Management concluded its disclosure controls and procedures were not effective as of March 31, 2025, due to the material weaknesses in its system of Internal Control over Financial Reporting, as described below. Notwithstanding the material weaknesses, Management evaluated its disclosure controls and procedures, and concluded the financial statements included in this report fairly present, in all material respects, the Company’s financial position, results of operations, capital position, and cash flows, for the periods presented, in conformity with U.S. generally accepted accounting principles.
Per Rules 13a-15(e) and 15d-15(e), disclosure controls and procedures are the controls and other procedures designed to ensure information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include activities designed to ensure information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in Internal Control over Financial Reporting, such that there exists a reasonable possibility a material misstatement in the annual or interim financial statements may not be prevented or detected on a timely basis. Management has previously identified the following material weaknesses in its system of Internal Control over Financial Reporting.
Risk assessment
: We lacked effective periodic risk assessment processes to identify and timely respond to emerging risks in certain financial reporting processes and related internal controls, including independent Credit Review, that were responsive to changes in the business operations and regulatory and economic environments in which the Company operates.
66
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Monitoring
: Our recurring monitoring activities over process level control activities, including independent Credit Review, were not operating effectively.
Control activities
: We did not sufficiently maintain effective control activities related to independent Credit Review processes and certain loan data reconciliations. Specifically, our independent Credit Review process controls were ineffective as the Company lacked the consistent application of an appropriate framework to validate that the ratings were accurate, timely, and appropriately challenged. These ineffective controls impact the Company's ability to accurately disclose loan rating classifications, identify problem loans, and ultimately recognize the allowance for credit losses on loans and leases.
As a result of these ineffective risk assessment, monitoring, and control activities, the Board of Directors were not able to exercise sufficient oversight.
These control deficiencies create a reasonable possibility that a material misstatement to the condensed consolidated financial statements may not be prevented or detected on a timely basis, and therefore we concluded that the deficiencies represent material weaknesses in our Internal Control over Financial Reporting.
Remediation Status of Reported Material Weaknesses
The Company continues actively working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes of the material weaknesses, including governance and oversight of its system of Internal Control over Financial Reporting.
In early 2024, the Company appointed several new members to the Board of Directors with extensive experience as financial experts in our industry and backgrounds in risk management, including a new Lead Independent Director, a new Chairman of the Audit Committee and a new Chairman of the Risk Assessment Committee. The frequency of Audit Committee meetings increased substantially during 2024, with both Audit and Risk Assessment Committees dedicating sessions to evaluating credit risk in the portfolio. In addition, the Audit Committee dedicates sessions to discuss the Company’s allowance for credit losses methodology and results.
Management has identified, and is implementing, the following actions to address the material weakness in our risk assessment processes:
•
Appointed a Chief Risk Officer, a Chief Credit Officer and a new Senior Director of Credit Review, all with large commercial bank credit experience.
•
Enhancing the depth and breadth of our Independent Credit Review program to make the necessary changes in scoping approach, risk assessment and related processes, and elevating the overall stature of the Independent Credit Review function. We have improved the experience-level of the personnel performing credit reviews.
Management has taken the following actions to address the material weakness in our monitoring activities:
•
Increased the frequency and nature of reporting from our Independent Credit Review function and First-Line Business Units to the Board’s Risk Assessment Committee in support of the Boards' risk oversight role.
Management has identified, and is implementing, the following actions to address the material weakness in our control activities:
•
Expanding the use of independent credit analysis and reducing the Company's reliance on tools and analyses prepared by First-line Business Units.
•
Increased the Credit Review team's ability and elevated its stature within the organization to independently challenge risk rating methodologies and results.
•
Assessed the adequacy of staffing levels and expertise within the Independent Credit Review function, considering the size, complexity, and risk profile of the loan portfolios. Management has enhanced the expertise and capacity of the Independent Credit Review function.
•
Providing comprehensive risk rating process training to all employees involved in the lending and credit review processes.
67
Flagstar Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
•
Enhancing processes to identify and assess risks associated with estimating the allowance for credit losses and improving data governance processes.
While we believe our actions will be effective in remediating the material weaknesses, we continually assess the need for additional remediation actions. The material weaknesses will not be remediated until the remediation activities are in place, with applicable procedures and evidence to support sustainability, and Management concludes, based on validation testing, the remedial efforts are effective.
Changes in Internal Control
over Financial Reporting
Except for the actions noted above related to remediation of the Company's material weaknesses, there have been no changes in the Company’s system of Internal Control over Financial Reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2025 to which this report relates, which materially affect, or are reasonably likely to materially affect, the Company’s system of Internal Control over Financial Reporting.
68
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings | ||||
The Company is involved in various legal actions arising in the ordinary course of its business. Except as set forth below, all such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.
The Company and certain former executive officers of the Company and certain current and former directors of the Company have been named as defendants in a consolidated purported shareholder class action captioned
Lemm, Jr. v. New York Community Bancorp, Inc., et al.
, Case No. 1:24-cv-00903, filed on February 6, 2024 in the United States District Court for the Eastern District of New York. This action, which seeks unspecified compensatory damages to be proven at trial, alleges violations of the federal securities laws, including Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5, with respect to disclosures concerning the Company’s business, operations and prospects, particularly regarding the impact of the Flagstar and Signature transactions and the Bank’s commercial real estate loan portfolio and related matters, that were made in the Company’s public SEC filings and press releases during the period beginning on July 27, 2022 and ending on February 29, 2024. On December 19, 2024, another purported shareholder of the Company filed an additional purported shareholder class action, captioned
Garfield v. Flagstar Financial, Inc. et al.,
Case No. 1:24-cv-08655, in the United States District Court for the Eastern District of New York
against the Company and certain current and former directors and executive officers of the Company. This additional purported class action alleges substantially the same claims as those set forth in the
Lemm
complaint and the plaintiff has filed a motion to consolidate this matter with the
Lemm
matter. The Company is vigorously defending the allegations set forth in the purported class action complaints and also intends to vigorously defend any related actions.
The Company and certain former executive officers of the Company and certain current and former directors of the Company have also been named as defendants in a consolidated shareholder class action captioned
In re New York Community Bancorp
filed in the Commercial Division of the Supreme Court of New York State. This matter relates to two separate actions brought by two different purported shareholders of the Company, which were consolidated into a single matter on October 8, 2024. The action seeks unspecified compensatory damages to be proven at trial and alleges substantially the same claims as those set forth in the
Lemm
complaint. The court has stayed this matter pending the resolution of the
Lemm
matter. The Company is vigorously defending this action and also intends to vigorously defend any related actions
.
The Company’s former President and Chief Executive Officer and former Senior Executive Vice President and Chief Financial Officer, as well as all of the Company’s directors as of January 31, 2024, have also been named as defendants in the following purported shareholder derivative actions:
Hauser v. Cangemi, et al.,
Case No. 1:24-cv-01207, filed on February 15, 2024 in the United States District Court for the Eastern District of New York;
Pierce v. Cangemi, et al.,
Case No. 1:24-cv-01408, filed on February 26, 2024 in the United States District Court for the Eastern District of New York;
Karp v. Cangemi et al.
, Case No. 1:24-cv-01421, filed on February 26, 2024 in the United States District Court for the Eastern District of New York;
Wang v. Cangemi et al.
Case No. 1:24-cv-01422, filed on February 26, 2024 in the United States District Court for the Eastern District of New York; and
Podems v. Cangemi, et al.
, Case No. 608697/2024, filed on May 17, 2024 in the Supreme Court of the New York State (Nassau County). These actions, which also name the Company as a nominal defendant and seeks unspecified compensatory damages and certain corporate governance and internal procedures reforms, alleges claims of breach of fiduciary duty, gross mismanagement, waste of corporate assets, unjust enrichment, aiding and abetting with respect to the director defendants, and violations of Sections 10(b) and 21D of the Exchange Act with respect to the officer defendants. The allegations in the complaint relate to disclosures concerning the Company’s business, operations and prospects, particularly regarding the impact of the Flagstar and Signature transactions and the Bank’s commercial real estate loan portfolio and related matters, that were made in the Company’s public SEC filings and press releases during the period beginning on March 1, 2023 and ending on January 31, 2024, as well as the defendants’ management of the Company during such period. The Company has filed a motion to consolidate the
Hauser
matter with the three other federal derivative actions and has filed a notice to remove the state derivative action to federal court. The Company and the named defendants are vigorously defending these actions and also intend to vigorously defend any related actions. On March 3, 2025, the federal magistrate granted Podems’ motion to remand the derivative case back to NY State court. Flagstar filed an objection. On April 9, 2025, the judge entered an order adopting the Magistrate Judge’s Report and Recommendation recommending that the Court grant Plaintiff’s motion to remand the case to state court. Therefore, the Podems matter will now proceed in the Supreme Court of New York, Nassau County.
69
The Company’s President and Chief Executive Officer, as well as all of the Company’s current directors, have also been named in a purported shareholder derivative action captioned
Siegel v. Otting, et al.
, Case No. 2:24-cv-07352, filed on October 21, 2024 in the United States District Court for the Eastern District of New York.
This action alleges breach of fiduciary duty and related claims and alleges that certain Company employment agreements and similar arrangements, and certain internal Company policies, violate the Dodd-Frank Act by failing to adequately inform employees of their right to report SEC rule violations and to receive eligible whistleblower protection and awards under the Dodd-Frank Act. The Company and the named defendants intend to vigorously defend this action and also intend to vigorously defend any related actions. Flagstar reached a settlement with Plaintiff's counsel, after Plaintiff's counsel agreed that remedial actions mooted his claims. After remediation, the parties filed a stipulation to dismiss due to mootness, which was entered by the court on March 19, 2025.
The Company has been named as a defendant in three different sets of purported class actions related to three separate cyber breach incidents. The Company is vigorously defending these actions and also intends to vigorously defend any related actions. The first set, captioned
Phillip Angus et al v. Flagstar Bank, Case No. 2:21-cv-10657-MFL-DRG,
filed in the United States District Court for the Eastern District of Michigan, relates to a data breach that occurred in January 2021, after threat actors exploited vulnerabilities in a File Transfer Appliance (FTA) used by Flagstar Bancorp, Inc. ("Flagstar Bancorp"), which was acquired by the Company is December 2022, to gain access to confidential customer information. The action seeks unspecified compensatory damages to be proven at trial and alleges breach of implied-in-fact contract, breach of confidence and public disclosure of private fact and also violations of various California consumer protection laws. On March 27, 2025, the court granted Flagstar’s motion to dismiss as to certain allegations and denied Flagstar’s motion to dismiss as to certain other allegations. On April 4, 2025, the court entered a stipulated Order to Stay Proceedings Pending Mediation. The matter is stayed for 90 days.
The second set, captioned
In re: Flagstar December 2021 Data Security Incident Litigation, Case No. 2:22-cv-11385
is comprised of twenty purported class action lawsuits that were consolidated into a single action filed on June 23, 2023, in the United States District Court for the Eastern District of Michigan, and relates to a cyber breach of Flagstar Bancorp’s information technology system that occurred in December 2021. The action seeks unspecified compensatory damages to be proven at trial and alleges common law and statutory claims associated with the exposure of customers’ Personally Identifiable Information (PII) as a result of the data breach and seeks class certification. On September 30, 2024, the court dismissed 17 of the 18 claims in the plaintiff’s consolidated complaint, allowing only the claim under the California Consumer Privacy Act to proceed, thereby limiting participation in the action to California class members. On April 4, 2025, the court entered a stipulated Order to Stay Proceedings Pending Mediation. The matter is stayed for 90 days.
The third set, captioned
In re: MOVEit customer data Security Breach Litigation, MDL No.1:23-md-03083-ADB-PGL,
In re: MOVEit customer data Security Breach Litigation, MDL No.1:23-md-03083-ADB-PGL, is comprised of four purported class action lawsuits filed in October 2023 that were consolidated with other MOVEit class action litigation involving other defendants and later transferred in December 2023 to the United States District Court for the District of Massachusetts for coordinated pretrial and trial proceedings. The class actions involving Flagstar allege claims of negligence, breach of contract and unjust enrichment, among others, and seek unspecified compensatory and punitive damages. Litigation involving Flagstar is currently stayed pending ongoing court proceedings against a representative group of the larger class actions and which are intended to address critical legal and factual issues common to the parties.
The outcome of the pending litigation described above is uncertain. 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 described above 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.
| Item 1A. | Risk Factors | ||||
Please see “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 for information regarding risk factors that could materially affect the Company’s business, financial condition, or future results of operations. There have been no changes with regard to the risk factors disclosed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
70
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||||
Shares Repurchased Pursuant to the Company’s Stock-Based Incentive Plans
Participants in the Company’s stock-based incentive plans may have shares of common stock withheld to fulfill the income tax obligations that arise in connection with the vesting of their stock awards. Shares that are withheld for this purpose are repurchased pursuant to the terms of the applicable stock-based incentive plan, rather than pursuant to the share repurchase program authorized by the Board of Directors, described below.
Shares Repurchased Pursuant to the Board of Directors’ Share Repurchase Authorization
On October 23, 2018, the Board of Directors authorized the repurchase of up to $300 million of the Company’s common stock. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions. As of March 31, 2025, the Company has approximately $9 million remaining under this repurchase authorization.
Shares that are repurchased pursuant to the Board of Directors’ authorization, and those that are repurchased pursuant to the Company’s stock-based incentive plans, are held in our Treasury account and may be used for various corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock awards.
The following table provides information relating to the Company’s repurchase of common stock for the three months ended March 31, 2025.
| (dollars in millions, except share data) | ||||||||||||||||||||
| Period |
Total Shares of Common Stock Repurchased
|
Average Price Paid per Common Share
|
Total Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs | |||||||||||||||||
| First Quarter 2025 | ||||||||||||||||||||
| January 1 - 31, 2025 | 171,892 | $ | 9.25 | $ | — | |||||||||||||||
| February 1 - 28, 2025 | 2,609 | 13.05 | — | |||||||||||||||||
| March 1 - 31, 2025 | 202,068 | 11.58 | — | |||||||||||||||||
| Total First Quarter 2025 | 376,569 | $ | 10.53 | — | ||||||||||||||||
| Item 3. | Defaults Upon Senior Securities | ||||
| Item 4. | Mine Safety Disclosures | ||||
None.
| Item 5. | Other Information | ||||
During the three months ended March 31, 2025, none of our directors or officers informed us of the
adoption
or
termination
of a “Rule 10b5-1 trading arrangement or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.
| Item 6. | Exhibits | ||||
| Exhibit No. | ||||||||
| 2.1 | ||||||||
| 2.2 | ||||||||
71
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 3.7 | ||||||||
| 3.8 | ||||||||
| 3.9 | ||||||||
| 3.10 | ||||||||
| 3.11 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 4.4 | ||||||||
| 4.5 | ||||||||
| 4.6 | Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries. | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Date File (formatted in Inline XBRL and contained in Exhibit 101) | |||||||
*Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
** Management plan or compensation plan arrangement.
(1)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 29, 2024 (File No. 1-31565)
(2)
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2001 (File No. 0-22278)
(3)
Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2003 (File No. 1-31565)
(4)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 27, 2016 (File No. 1-31565)
72
(5)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2024 (File No. 1-31565)
(6)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 16, 2024 (File No. 1-31565)
(7)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 15, 2024 (File No. 1-31565)
(8)
Incorporated herein by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form 8-A (File No. 333-210919), as filed with the Securities and Exchange Commission on March 16, 2017
(9)
Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on March 14, 2024 (File No. 1-31565)
(10)
Incorporated by reference to the Exhibits to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 28, 2025 (File No. 333-280398)
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
73
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DATE: |
May 9, 2025
|
Flagstar Financial, Inc.
|
|||||||||
| (Registrant) | |||||||||||
|
/s/ Bryan Marx
|
|||||||||||
|
Bryan Marx
|
|||||||||||
|
Executive Vice President and Chief Accounting Officer
|
|||||||||||
|
(Principal Accounting Officer and Authorized Signatory)
|
|||||||||||
74
TABLE OF CONTENTS
Part I. Financial InformationItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 1. Financial StatementsNote 1 - Organization and Basis Of PresentationNote 2 - Computation Of Earnings Per Common ShareNote 3 - Accumulated Other Comprehensive LossNote 4 - Investment SecuritiesNote 5 - Loans and LeasesNote 6 - Allowance For Credit Losses on Loans and LeasesNote 7 - Leases, Premises and EquipmentNote 8 - Variable Interest EntitiesNote 9 - Borrowed FundsNote 10 - Pension BenefitsNote 11 - Federal, State, and Local TaxesNote 12 - Stock-based CompensationNote 13 - Derivative and Hedging Activities and Restricted CashNote 14 - Intangible AssetsNote 15 - Fair Value MeasuresNote 16 - Mezzanine and Stockholders' EquityNote 17 - Commitments and ContingenciesNote 18 - Segment ReportingItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior Securities The Company Had No Defaults on Senior SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits