FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including Flagstar Bank N.A. (the “Bank”). 45.755.3

EXECUTIVE SUMMARY

For the twelve months ended December 31, 2022, net income was $650 million, an increase of $54 million or 9 percent compared to the $596 million the Company reported for the twelve months ended December 31, 2021. Net income available to common stockholders for the twelve months ended December 31, 2022 was $617 million, also up $54 million and 10 percent compared to the twelve months ended December 31, 2021. On a per share basis, this translates into diluted earnings per share of $1.26 in full-year 2022, up 5 percent compared to the $1.20 we reported in full-year 2021. In terms of profitability, our full-year 2022 results reflect a return on average assets of 1.01 percent compared to 1.04 percent in full-year 2021 and a return on average common stockholders' equity of 9.38 percent for the full-year 2022 versus 8.75 percent for the full-year 2021.

Loan Portfolio

At December 31, 2022, total loans and leases held for investment were $69.0 billion, up $23.3 billion or 51 percent compared to $45.7 billion at December 31, 2021. Of the $23.3 billion in growth this year, the Flagstar acquisition contributed $17.2 billion in loans, net of PAA. During the year, multi-family loans increased $3.5 billion or 10 percent to $38.1 billion, while the CRE portfolio increased $3.6 billion or 52 percent to $10.5 billion. The increase in the CRE portfolio was due to the Flagstar acquisition, while the increase in multi-family loans was primarily the result of organic growth.

Our specialty finance portfolio increased $912 million or 26 percent to $4.4 billion at December 31, 2022. Total commitments for the specialty finance portfolio stood at $7.4 billion at December 31, 2022. The remaining C&I portfolio, excluding specialty finance, totaled $7.9 billion at year-end 2022 compared to $526 million at year-end 2021 due primarily to the Flagstar acquisition.

One-to-four family residential loans held for investment totaled $5.8 billion at December 31, 2022. The vast majority of these loans were acquired in the Flagstar acquisition. Other loans totaled $2.3 billion at December 31, 2022 compared to only $6 million at year-end 2021. The increase was due to the Flagstar acquisition and is mostly comprised of consumer loans.

Loans held for sale were $1.1 billion at December 31, 2022, resulting from the Flagstar acquisition. These loans consisted of one-to-four family residential mortgage loans pending sale for which we have elected the fair value option.

At December 31, 2022, multi-family loans represented 55 percent of total loans, compared to 76 percent at December 31, 2021, commercial loans (including specialty finance and CRE loans) represented 33 percent compared to less than 25 percent at December 31, 2021, while residential loans represented 8 percent.

Deposit Base

Total deposits at December 31, 2022 were $58.7 billion, up $23.7 billion or 67 percent compared to $35.1 billion at December 31, 2021. Deposit growth was driven by the addition of $16.0 billion of deposits from the Flagstar acquisition and $7.6 billion growth in loan-related deposits and BaaS deposits. Non-interest-bearing deposits were $12.1 billion at December 31, 2022 and represented 21 percent of total deposits, compared to $4.5 billion, or 13 percent as of December 31, 2021. Excluding the impact of the Flagstar acquisition, deposits increased $7.6 billion or 22 percent during 2022. Loan-related deposits totaled $4.4 billion at December 31, 2022 up $389 million or 10 percent as compared to $4.0 billion at December 31, 2021.

45

In addition, our BaaS deposits totaled $11.5 billion at December 31, 2022, up $10.5 billion compared to $1.0 billion at December 31, 2021. Our BaaS deposits fall into three verticals: traditional BaaS, banking as a service for government agencies and states, which includes the U.S. Treasury's prepaid debit card program, and mortgage as a service, which caters to mortgage companies and consists primarily of escrow deposit accounts for principal, interest, and tax payments. The majority of the year-over-year growth was in the government banking as a service vertical and related to certain prepaid debit card programs.

Net Interest Income

During the twelve months ended December 31, 2022, our net interest income grew driven by our higher asset base. Net interest income for full-year 2022 was $1.4 billion, up $107 million or 8 percent compared to $1.3 billion for the twelve months ended December 31, 2021. Average interest-earning assets increased $7.0 billion or 13 percent over the course of the year to $59.3 billion primarily due to organic loan growth and the Flagstar acquisition. The average yield increased 30 basis points to 3.53 percent. Average interest-bearing liabilities totaled $51.4 billion, up $6.2 billion or 14 percent, while the average cost of funds rose 47 basis points to 1.35 percent.

For the twelve months ended December 31, 2022, the NIM declined 12 basis points to 2.35 percent compared to 2.47 percent for the twelve months ended December 31, 2021 primarily driven by the impact of higher interest rates on the liability sensitive balance sheet through November 30, 2022. With the Flagstar acquisition we remain slightly liability sensitive. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”. Prepayment income contributed eight basis points to the full-year NIM compared to 15 basis points during full-year 2021 as prepayments slowed due to rising interest rates.

Asset Quality

Asset quality remained strong during 2022 as increases in NPAs were substantially due to changes in asset mix related to the Flagstar acquisition and centered on non-performing one-to-four family residential and home equity loans. Total NPAs at December 31, 2022 were $153 million compared to $41 million at December 31, 2021, primarily driven by NPLs and assets acquired in the Flagstar acquisition. At December 31, 2022, NPAs to total assets equaled 0.17 percent and NPLs to total loans were 0.20 percent, compared to 0.07 percent for both metrics at December 31, 2021.

RESULTS OF OPERATIONS: 2022 AS COMPARED TO 2021

Net Interest Income

Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such 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 FOMC, and market interest rates.

The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate (the rate at which banks borrow funds overnight from one another) as it deems necessary.

While the target federal funds rate generally impacts the cost of our short-term borrowings and deposits, the yields on our held-for-investment loans and other interest-earning assets are not as sensitive to intermediate-term market interest rates.

Another factor that impacts the yields on our interest-earning assets—and our net interest income—is the income generated by our multi-family and CRE loans and securities when they prepay. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our net interest income, our net interest rate spread, and our net interest margin.

46

It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.

For the twelve months ended December 31, 2022, net interest income totaled $1.4 billion, up $107 million or 8 percent compared to the twelve months ended December 31, 2021. The year-over-year improvement was driven by an increase in interest income partially offset by higher interest expense due to the rising rate environment.

Year-Over-Year Comparison

The following factors contributed to the year-over-year increase in net interest income:

•
Interest income on mortgage and other loans, net, totaled $1.8 billion, up $323 million compared to full-year 2021. Interest income also increased across all other categories with securities up $44 million and income on money market investments up $36 million compared to last year.

•
Interest income on mortgages and other loans, net was driven by a $6.2 billion or 14 percent increase in average loan balances to $49.4 billion. This is due to organic loan growth throughout the year and the December acquisition of Flagstar. Additionally, we had a 21 basis point increase in the average loan yield to 3.74 percent from 3.53 percent in 2021 due primarily to the rising interest rate environment.

•
Interest income on securities was positively impacted by a 34 bps increase in the average yield to 2.69 percent from 2.35 percent along with a $823 million or 12 percent increase in the average securities balance to $7.4 billion.

•
Interest-earning cash and cash equivalents were positively impacted by a 130 bps increase in the average yield to 1.47 percent driven by higher short term market rates while balances remained flat.

•
Interest expense on average interest-bearing deposits increased $269 million to $383 million during full-year 2022, driven by a 68 basis point increase in the average cost of interest-bearing deposits due to rising interest rates and competition for deposits. Additionally, our average deposits grew $6.5 billion, or 22 percent, to $36.0 billion. The balance growth reflects the December acquisition of Flagstar, as well as growth in the Company’s loan-related deposits and BaaS deposits. Loan-related deposits totaled $4.4 billion at December 31, 2022 up $389 million or 10 percent from to $4.0 billion at December 31, 2021. Our BaaS deposits totaled $11.5 billion at December 31, 2022, as compared to $1.0 billion at December 31, 2021.

•
Interest expense on borrowed funds increased $27 million or 9 percent to $313 million driven by a 22 basis point increase in rates partially offset by a $319 million or 2 percent decline in in the average balance to $15.4 billion, partially due to our shift to lower cost deposits.

Net Interest Margin

The Company’s net interest margin declined 12 basis points for the twelve months ended December 31, 2022, to 2.35 percent compared to 2.47 percent for the twelve months ended December 31, 2021. This decline was driven by our liability sensitive balance sheet in the rising rate environment. Prepayment income contributed eight basis points to the full-year net interest margin compared to 15 basis points during full-year 2021.

The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.

47

Net Interest Income Analysis

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

(2)
Amounts are at amortized cost.

(3)
Includes FHLB stock and FRB stock.

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

48

Rate/Volume Analysis

In connection with the Flagstar acquisition we have recorded certain assets and liabilities at fair value. The following table provides information regarding the discounts and premiums that are estimated to accrete or amortize into earnings in future periods using the estimated effective duration and methods shown below.

Provision for Credit Losses

For the twelve months ended December 31, 2022, the provision for credit losses totaled $133 million compared to $3 million for the twelve months ended December 31, 2021. The fourth-quarter and full-year provision for credit losses was impacted by the provision for credit losses related to the initial ACL measurement of non-PCD Flagstar acquired loans totaling $117 million. For additional information about our methodologies for recording recoveries of, and provisions for, loan losses, see the discussion of the loan loss allowance under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.

Non-Interest Income

We generate non-interest income through a variety of sources, including—among others—fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; net return on our MSR asset; gains on sales of securities; and “other” sources, including the revenues produced through the sale of third-party investment products and loan subservicing.

49

For the twelve months ended December 31, 2022, non-interest income totaled $247 million, which includes a bargain purchase gain of $159 million related to the Flagstar acquisition. Non-interest income increased an additional $27 million from the year-ended December 31, 2021, to $88 million for the year-ended December 31, 2022, a 44 percent increase due primarily to fee income generated in December from the Flagstar acquisition.

Non-Interest Income Analysis

The following table summarizes our sources of non-interest income:

Non-Interest Expense

For the twelve months ended December 31, 2022, total non-interest expenses were $684 million, up $143 million or 26 percent compared to the twelve months ended December 31, 2021. Excluding the impact of merger-related expenses totaling $75 million and intangible asset amortization of $5 million, total operating expenses were $604 million compared to $518 million last year, up $86 million or 17 percent. The increase was primarily due to one month of Flagstar in our results. The efficiency ratio for full-year 2022 was 40.72 percent compared to 38.36 percent for full-year 2021.

Income Tax Expense

Income tax expense includes federal, New York State, and New York City income taxes, as well as non-material income taxes from other jurisdictions where we operate our branches and/or conduct our mortgage banking business.

For the twelve months ended December 31, 2022, total income tax expense was $176 million and the effective tax rate was 21.36 percent compared to income tax expense of $210 million and an effective tax rate of 26.09 percent for the twelve months ended December 31, 2021. The year-over-year decline in the effective tax rate primarily reflects the non-taxability of certain merger-related items including the bargain purchase gain. In addition, the effective tax rate in 2021 was negatively impacted by $2 million of income tax expense related to the revaluation of deferred taxes related to a change in the New York State tax rate.

RESULTS OF OPERATIONS: 2021 AS COMPARED TO 2020

The results of operations comparison of 2021 compared to 2020 can be found in the Company’s previously filed Annual Report on Form 10-K for the year-ended December 31, 2021 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”- Results of Operations: 2021 As Compared to 2020.”

50

FINANCIAL CONDITION

Balance Sheet Summary

At December 31, 2022, total assets were $90.1 billion, up $30.6 billion or 51 percent compared to December 31, 2021. The growth compared the prior period was primarily due to the Flagstar acquisition which added $25.8 billion of assets, net of PAA, while the remaining growth was driven by growth in our lending portfolios.

Total loans and leases held for investment were $69.0 billion at December 31, 2022 compared to $45.7 billion at December 31, 2021. The Flagstar acquisition added $18.0 billion of loans held for investment, net of PAA. Total loans held for sale were $1.3 billion at December 31, 2022, all of which were the result of the Flagstar acquisition.

At December 31, 2022, total deposits were $58.7 billion compared to $35.1 billion at December 31, 2021. The acquisition of Flagstar added $16.0 billion in deposits, net of PAA. Wholesale borrowings at December 31, 2022 totaled $20.3 billion compared to $15.9 billion at December 31, 2021. The acquisition of Flagstar added $6.4 billion of wholesale borrowings.

Borrowed funds totaled $21.3 billion as of year-end 2022, up $4.8 billion or 29 percent compared to year-end 2021. The acquisition of Flagstar added $6.7 billion of borrowings, net of PAA. The net decline was due to lower cost deposit growth.

Loans Held for Investment

The following table summarizes the composition of our loan portfolio:

51

The following table summarizes our production of loans held for investment:

Multi-Family Loans

Multi-family loans are our principal asset. The loans we produce are primarily secured by non-luxury residential apartment buildings in New York City that feature rent-regulated units and below-market rents—a market we refer to as our “primary lending niche.” Consistent with our emphasis on multi-family lending, multi-family loan originations represented $8.4 billion, or 49 percent, of the loans we produced for investment in 2022.

At December 31, 2022, multi-family loans represented $38.1 billion, or 55 percent, of total loans held for investment, reflecting a year-over-year increase of $3.5 billion, or 10 percent.

The majority of our multi-family loans were secured by rental apartment buildings.

At December 31, 2022, $22.2 billion or 58 percent of the Company’s total multi-family loan portfolio is secured by properties in New York State and, therefore, are subject to the new rent regulation laws. The weighted average LTV of the NYS rent regulated multi-family portfolio was 57.15 percent as of December 31, 2022, compared to a weighted average LTV of 60.48 percent for the entire multi-family loan portfolio at that date.

In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related documents.

While a percentage of our multi-family loans are ten-year fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread.

During the remaining years, the loan resets to an annually adjustable rate that is indexed to CME Term SOFR , plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY, plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-or seven-year term. As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight.

Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed-rate option, the prepayment penalties typically reset

52

to a range of five points to one point over years six through ten or eight through twelve. For example, a ten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.

Because prepayment penalties are recorded as interest income, they are reflected in the average yields on our loans and interest-earning assets, our net interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment income, as such income is recorded when the cash is received.

Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the cash flows produced by the properties. The process of producing such loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the expense incurred in sourcing such loans is substantially reduced.

We believe our underwriting quality of multi-family lending is distinctive. This reflects the nature of the buildings securing our loans, our underwriting process and standards, and the generally conservative LTV ratios our multi-family loans feature at origination. Historically, a relatively small percentage of the multi-family loans that have transitioned to non-performing status have resulted in actual losses, even when the credit cycle has taken a downward turn.

We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service; the DSCR, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the property.

In addition to requiring a minimum DSCR of 120 percent on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally represent no more than 75 percent of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of 30 years. In addition, our multi-family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing basis.

Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, the limited number of losses we have recorded, even in adverse credit cycles, suggests that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, they have been more likely to retain their tenants in adverse economic times. In addition, we exclude any short-term property tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.

53

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

Commercial Real Estate

At December 31, 2022, CRE loans represented $8.5 billion, or 12 percent, of total loans held for investment, reflecting a year-over-year increase of $1.8 billion compared to December 31, 2021 primarily driven by the Flagstar acquisition.

CRE loans represented $1.1 billion, or 6 percent, of the loans we originated in 2022, as compared to $893 million, or 7 percent, in the prior year.

The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. At December 31, 2022, the largest concentration of CRE loans were secured by properties in the metro New York City area, refer to the Geographical Analysis table included above for additional details.

The terms of more than half of our CRE loans are similar to the terms of our multi-family credits which primarily feature a fixed rate of interest for the first five years of the loan that is generally based on intermediate-term interest rates plus a spread. In addition to customary fixed rate terms, we now also offer floating rates advances indexed to CME Term SOFR. These products are generally offered in combination with interest rate cap or swaps that provide borrowers with additional optionality to manage their interest rate risk. Following the initial fixed rate period, the loan resets to an adjustable interest rate that is indexed to CME Term SOFR, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.

Prepayment penalties apply to certain of our CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve.

54

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130 percent and a maximum LTV of 65 percent. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents and/or leases. In addition, 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.

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

Acquisition, Development, and Construction Loans

At December 31, 2022, our ADC loans represented $2.0 billion or 3 percent, of total loans held for investment, reflecting a year-over-year increase of $1.8 billion compared to December 31, 2021 primarily driven by the Flagstar acquisition.

Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the twelve months ended December 31, 2022 and 2021, we did not recover any losses against guarantees. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon completion of construction; the developer’s experience; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property.

When applicable, as a condition to closing an ADC loan, it is our practice to require that properties meet pre-sale or pre-lease requirements prior to funding.

C&I Loans

At December 31, 2022 C&I loans totaled $12.3 billion or 18 percent of total loans held-for-investment. Included in this portfolio is $3.5 billion in warehouse loans that allow mortgage lenders to fund the closing of residential mortgage loans.

The non-warehouse C&I loans we produce are primarily made to small and mid-size businesses and finance companies. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.

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,

55

and other general corporate needs. In determining the term and structure of C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

Also included in our C&I portfolio is our national warehouse lending platform with relationship managers across the country. We offer warehouse lines of credit to other mortgage lenders which allow the lender to fund the closing of residential mortgage loans. Each extension, advance, or draw-down on the line is fully collateralized by residential mortgage loans and is paid off when the lender sells the loan to an outside investor or, in some instances, to the Bank.

Underlying mortgage loans are predominantly originated using the Agencies' underwriting standards. The guideline for debt to tangible net worth is 15 to 1. We have $3.5 billion outstanding warehouse loans to other mortgage lenders and have relationships in place to lend up to $11.6 billion at our discretion.

The interest rates on our C&I loans can be fixed or floating, with floating-rate loans being tied SOFR, prime or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of interest. The decision to require a floor on C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.

At December 31, 2022, specialty finance loans and leases totaled $4.4 billion or 7 percent of total loans held for investment, up $912 million or 26 percent compared to December 31, 2021.

We produce our specialty finance loans and leases through a subsidiary that is staffed by a group of industry veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned to them, by a select group of nationally recognized sources, and 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 lending, dealer floor-plan lending, and equipment loan and lease financing. Each of these credits is secured with a perfected first security interest in, or outright ownership of, the underlying collateral, and structured as senior debt or as a non-cancelable lease. As of December 31, 2022, 78 percent of specialty finance loan commitments outstanding are structured as floating rate obligations which will benefit in a rising rate environment. All floating rate obligations are being transitioned from LIBOR to an appropriate LIBOR replacement index in accordance with the regulatory guidance provided around LIBOR cessation.

During 2022, the Company originated $6.0 billion of specialty finance loans and leases, representing 35 percent of total originations compared to $3.2 billion during 2021, representing 24 percent of total originations.

Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any of the loans or leases in this portfolio.

One-to-Four Family Loans

At December 31, 2022, one-to-four family loans represented $5.8 billion, including $1.1 billion of LGG or 8 percent, of total loans held for investment. As of December 31, 2021 total one-to-four family loans totaled $160 million, with the increase being driven by the Flagstar acquisition. These 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. We typically hold certain mortgage loans in LHFI that do not qualify for sale to the Agencies and that have an acceptable yield and risk profile. The LTV requirements on our residential first mortgage loans vary depending on occupancy, property type, loan amount, and FICO scores. Loans with LTVs exceeding 80 percent are required to obtain mortgage insurance. As of December 31, 2022, non-government guaranteed loans in this portfolio had an average current FICO score of 743 and an average LTV of 58 percent.

56

Substantially all LGG are insured or guaranteed by the FHA 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 FHA until claimed. The Bank has a unilateral option to repurchase loans sold to GNMA if the loan is due, but unpaid, for three consecutive months (typically referred to as 90 days past due) and can recover losses through a claims process from the guarantor. These loans are recorded in loans held for investment and the liability to repurchase the loans is recorded in other liabilities on the Consolidated Statements of Condition. Certain loans within our portfolio may be subject to indemnifications and insurance limits which expose us to limited credit risk. We have reserved for these risks within other assets and as a component of our ACL on residential first mortgages.

As of December 31, 2022, LGG loans totaled $1.2 billion and the repurchase liability was $0.3 billion.

Other Loans

At December 31, 2022, other loans totaled $2.3 billion and consisted primarily of home equity lines of credit, boat and recreational vehicle indirect lending, point of sale consumer loans and other consumer loans, including overdraft loans.

Our home equity portfolio includes HELOANs, second mortgage loans, and HELOCs. These loans are underwritten and priced in an effort to ensure credit quality and loan profitability. Our debt-to-income ratio on HELOANs and HELOCs is capped at 43 percent and 45 percent, respectively. We currently limit the maximum CLTV to 89.99 percent and FICO scores to a minimum of 700. Second mortgage loans and HELOANs are fixed rate loans and are available with terms up to 20 years. HELOC loans are primarily variable-rate loans that contain a 10-year interest only draw period followed by a 20-year amortizing period. As of December 31, 2022, loans in this portfolio had an average current FICO score of 752.

As of December 31, 2022, loans in our indirect portfolio had an average current FICO score of 750. Point of sale loans consist of unsecured consumer installment loans originated primarily for home improvement purposes through a third-party financial technology company who also provides us a level of credit loss protection.

Loans Held for Sale

At December 31, 2022, loans held for sale were $1.1 billion compared to zero at December 31, 2021 with the increase driven by the Flagstar acquisition. We classify loans as held for sale when we originate or purchase loans that we intend to sell. We have elected the fair value option for nearly all of this portfolio. 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.

Loan Maturity and Repricing Analysis: Loans Held for Investment

The following table sets forth the maturity or period to repricing of our portfolio of loans held for investment at December 31, 2022. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to change.

57

The following table sets forth, as of December 31, 2022, the dollar amount of all loans held for investment that are due after December 31, 2023, and indicates whether such loans have fixed or adjustable rates of interest:

Lending Authority

We maintain credit limits in compliance with regulatory requirements. Under regulatory guidance, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15 percent of Tier 1 plus Tier 2 capital and any portion of the ACL not included in Tier 2 capital. We have a tracking and reporting process to monitor lending concentration levels, and all new commercial real estate credit exposures to relationships that exceed $200 million and all other commercial credit exposures to relationships that exceed $100 million must be approved by the Board Credit Committee of the Board. Exceptions to these levels are made to strong borrowers on a case by case basis, with the approval of the Board Credit Committee of the Board. Relationships less than the aforementioned limits are approved by the joint authority of credit officers and lending officers. The Board Credit Committee has authority to direct changes in lending practices as they deem necessary or appropriate in order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.

At December 31, 2022 and 2021, the largest mortgage loan in our portfolio was a $329 million multi-family loan, which is collateralized by six properties located in Brooklyn, New York. As of the date of this report, the loan has been current since origination.

At December 31, 2022 and 2021, the largest mortgage loan in our portfolio was a $329 million multi-family loan, which is collateralized by six properties located in Brooklyn, New York. As of the date of this report, the loan has been current since origination.

Asset Quality

All asset quality information excludes LGG that are insured by U.S government agencies.

58

Delinquent and non-performing loans held for investment and Repossessed Assets

The following table presents our loans, 30 to 89 days past due by loan type and the changes in the respective balances:

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 we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At December 31, 2022 and 2021, all of our non-performing loans were non-accrual loans. A loan is generally returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.

We monitor non-accrual loans both within and beyond our primary lending area in the same manner. Monitoring loans generally involves inspecting and re-appraising the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and retain legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status. advancing funds as needed; and seeking approval from the courts to appoint a receiver, when necessary to protect the Bank’s interests, including to collect rents, manage property operations, and ensure maintenance of the collateral properties.

It is our policy to order updated appraisals for all non-performing loans 90 days or more past due, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan.

59

The following table presents our non-performing loans by loan type and the changes in the respective balances:

(1)
Includes Commercial and Industrial, Home Equity, Consumer and other loans.

The following table sets forth the changes in non-performing loans over the twelve months ended December 31, 2022:

Total non-accrual mortgage loans increased $98 million to $125 million, while other non-accrual loans increased $10 million to $16 million compared to $6 million at December 31, 2021. Included the December 31, 2022 amount were non-accrual home equity loans of $9 million acquired in the Flagstar acquisition.

Total NPAs were $153 million or 0.17 percent of total assets at December 31, 2022, up 273 percent or $112 million compared to $41 million or 0.07 percent of total assets at December 31, 2021, primarily driven by the Flagstar acquisition. Repossessed assets totaled $12 million, up $4 million compared to the balance at December 31, 2021. The Company’s repossessed assets includes repossessed taxi medallions of $4 million at December 31, 2022 compared to $5 million at December 31, 2021.

Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Board Credit Committee, and the Board of Directors of the Bank, as applicable. In accordance with our charge-off policy, collateral-dependent non-performing loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.

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

60

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 OREO before foreclosure, and to re-appraise the properties on an as-needed basis, and not less than annually, until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.

To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated by the property to determine its economic value using the “income approach,” and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.

The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers and staff, perform appraisals on collateral properties.

In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City, where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be charged on certain apartments are typically restricted under certain rent-control or rent-stabilization laws. As a result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic adversity.

Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of our non-performing multi-family loans have resulted in losses over time.

To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require minimum DSCRs of 120 percent for multi-family loans and 130 percent for CRE loans. Although we typically lend up to 75 percent of the appraised value on multi-family buildings and up to 65 percent on commercial properties, the average LTVs of such credits at origination were below those amounts at December 31, 2022. Exceptions to these LTV limitations are minimal and are reviewed on a case-by-case basis.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a CRE loan also depends on the borrower’s credit history, profitability, and expertise in property management. Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those applicable to our multi-family credits, the percentage of our non-performing CRE loans that have resulted in losses has been comparatively small over time.

Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated. Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit; in many cases, they reduce the likelihood of the borrower “walking away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status. Furthermore, in the case of multi-family loans, the cash flows generated by the properties are generally below-market and have significant value.

With regard to ADC loans, we typically lend up to 75 percent of the estimated as-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80 percent. With respect to commercial construction loans, we typically lend up to 65 percent of the estimated as-completed market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.

61

To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancellable lease. To further minimize the risk involved in specialty finance lending and leasing, we re-underwrite each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.

Other C&I loans generally represent loans to commercial businesses which meet certain desired client characteristics and credit standards. The credit standards for commercial borrowers are based on numerous criteria, including historical and projected financial information, strength of management, acceptable collateral, and market conditions and trends in the borrower’s industry. These loans are generally variable rate loans in which the interest rate fluctuates with a specified index rate.

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.

Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as either non-performing or as an accruing TDR, then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.

While we strive to originate loans that will perform fully, adverse economic and market conditions, among other factors, can negatively impact a borrower’s ability to repay. Historically, our level of charge-offs has been relatively low in downward credit cycles, even when the volume of non-performing loans has increased. In 2022, we recorded a net recovery of $4 million, as compared to net recovery of $2 million in the previous year.

Partially reflecting the net recoveries noted above, and the provision of $133 million for the allowance for loan losses, the allowance for credit losses increased $194 million, equaling $393 million at December 31, 2022 from $199 million at December 31, 2021. The majority of the increase is related to the initial provision for credit losses of $117 million and the adjustment for PCD loans acquired in the Flagstar acquisition. The allowance for credit losses on loans and leases represented 278.87 percent of non-performing loans at December 31, 2022, as compared to 611.79 percent at the prior year-end.

Based upon all relevant and available information at the end of this December, management believes that the allowance for losses on loans was appropriate at that date.

Troubled Debt Restructurings

In an effort to proactively manage delinquent loans, we have selectively extended such concessions as rate reductions and extensions of maturity dates, as well as forbearance agreements, to certain borrowers who have experienced financial difficulty. In accordance with GAAP, we are required to account for such loan modifications or restructurings as TDRs.

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve management’s judgment regarding the likelihood that the concession will result in the maximum recovery for the Company.

Loans modified as TDRs are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured. This generally requires that the borrower demonstrate performance according to the restructured terms for at least six consecutive months.

62

At December 31, 2022, loans modified as TDRs totaled $44 million, including accruing loans of $16 million and non-accrual loans of $28 million. At the prior year-end, loans modified as TDRs totaled $29 million, including accruing loans of $16 million and non-accrual loans of $13 million.

Analysis of Troubled Debt Restructurings

The following table sets forth the changes in our TDRs over the twelve months ended December 31, 2022:

Loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $38 million and $29 million, respectively, at December 31, 2022 and 2021; loans in connection with which forbearance agreements were reached amounted to $6 million and $0 million at the respective dates.

Based on the number of loans performing in accordance with their revised terms, at December 31, 2022, our success rate for restructured CRE loans was 100 percent, our success rate for one-to-four loans was 100 percent and our success rate for other loans was 35 percent.

On a limited basis, we may provide additional credit to a borrower after the loan has been placed on non-accrual status or modified as a TDR if, in management’s judgment, the value of the property after the additional loan funding is greater than the initial value of the property plus the additional loan funding amount. In 2022, no such additional credit was provided. Furthermore, the terms of our restructured loans typically would not restrict us from cancelling outstanding commitments for other credit facilities to a borrower in the event of non-payment of a restructured loan.

For additional information about our TDRs at December 31, 2022 and 2021, see the discussion of “Asset Quality” in Note 6, “Loans and Leases” in Item 8, “Financial Statements and Supplementary Data.”

Except for the non-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans at December 31, 2022 that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and that would have resulted in such disclosure if that were the case.

Asset Quality Analysis

The following table presents information regarding our asset quality measures:

63

The following table presents information on the Company's net charge-offs as compared to average loans outstanding:

The following table sets forth the allocation of the consolidated allowance for losses on loans, at each year-end:

Each of the preceding allocations was based upon an estimate of various factors, as discussed in “Critical Accounting Estimates”, and a different allocation methodology may be deemed to be more appropriate in the future. In addition, it should be noted that the portion of the allowance for losses on loans allocated to each loan category does not represent the total amount available to absorb losses that may occur within that category, since the total loan loss allowance is available for the entire loan portfolio.

64

Securities

Total securities were $9.1 billion, or 10 percent, of total assets at December 31, 2022, compared to $5.8 billion, or 10 percent of total assets at December 31, 2021. At December 31, 2022 and December 31, 2021, all of our securities were designated as “Available-for-Sale”. At December 31, 2022, 15 percent of our portfolio are floating rate securities.

At December 31, 2022, available-for-sale securities had an estimated weighted average life of 6 years. Included in the year-end amount were mortgage-related securities of $4.8 billion and other debt securities of $4.3 billion.

At the prior year-end, available-for-sale securities were $5.8 billion, and had an estimated weighted average life of 6.9 years. Mortgage-related securities accounted for $2.8 billion of the year-end balance, with other debt securities accounting for the remaining $3.0 billion.

The investment policies of the Company and the Bank are established by the Board of Directors and implemented by the ALCO. ALCO meets monthly or on an as-needed basis to review the portfolios and specific capital market transactions. In addition, the securities portfolios and investment activities are reviewed monthly by the Board of Directors. Furthermore, the policy governing the investment portfolio activities is reviewed at least annually by the ALCO and ratified by the Board of Directors.

Our general investment strategy is to purchase liquid investments with various maturities to ensure that our overall interest rate risk position stays within the required limits of our investment policies. We generally limit our investments to GSE obligations and U.S. Treasury obligations. At December 31, 2022 and 2021, GSE obligations and U.S. Treasury obligations together represented 86 percent and 83 percent of total securities, respectively. The remainder of the portfolio at those dates was comprised of asset-backed securities, corporate bonds, foreign notes, capital trust notes, and municipal obligations.

The following table summarizes the weighted average yields of debt securities for the maturities indicated at December 31, 2022:

(1)
The weighted average yields are calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values and are not presented on a tax-equivalent basis.

(2)
Includes corporate bonds, capital trust notes, foreign notes, and asset-backed securities.

Federal Reserve and Federal Home Loan Bank Stock

At December 31, 2022, the Company had $762 million and $329 million of FHLB-NY stock, at cost and FHLB-Indianapolis stock, at cost, respectively. At December 31, 2021, the Company had $734 million of FHLB-NY stock, at cost. The Company maintains an investment in FHLB-NY stock and, as a result of the Flagstar acquisition, FHLB-Indianapolis 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 December 31, 2022, the Company had $176 million of Federal Reserve Bank stock, at cost. The Company had no Federal Reserve Bank stock, at December 31, 2021.

65

Bank-Owned Life Insurance

BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in “Non-interest income” in the Consolidated Statements of Income and Comprehensive Income. Reflecting an increase in the cash surrender value of the underlying policies, and $373 million acquired in the Flagstar acquisition our investment in BOLI rose $377 million year-over-year to $1.6 billion at December 31, 2022.

Goodwill

We record goodwill in our consolidated statements of condition in connection with certain of our business combinations. Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed.

For more information about the Company’s goodwill, see the discussion of “Summary of Significant Accounting Policies” in the Footnote 2 of these consolidated statements.

Sources of Funds

The Parent Company has four primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Parent Company by the Bank; capital raised through the issuance of securities; funding raised through the issuance of debt instruments; and repayments of, and income from, investment securities.

On a consolidated basis, our funding primarily stems from a combination of the following sources: retail, institutional, and brokered deposits; borrowed funds, primarily in the form of wholesale borrowings; cash flows generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of securities.

In 2022, loan repayments and sales generated cash flows of $10.7 billion, as compared to $10.4 billion in 2021.

In 2022, cash flows from the repayment of securities totaled $732 million, while the purchase of securities amounted to $2.2 billion for the year. By comparison, cash flows from the repayment of securities totaled $1.7 billion, in 2021, and were offset by the purchase of securities totaling $1.7 billion.

In 2022, the cash flows from loans and securities were primarily deployed into the production of multi-family loans held for investment, as well as held-for-investment CRE loans and specialty finance loans and leases.

Deposits

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. From time to time, we have chosen not to compete actively for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand. The vast majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or through business combinations).

Total deposits increased $23.7 billion or 67 percent on a year-over-year basis to $58.7 billion. Deposit growth was driven by the addition of $16.0 billion of deposits from the Flagstar acquisition and $7.6 billion growth in loan-related deposits and BaaS deposits. Loan-related deposits totaled $4.4 billion at December 31, 2022 up $389 million or 10 percent relative to $4.0 billion at December 31, 2021. Our BaaS deposits totaled $11.5 billion at December 31, 2022, as compared to $1.0 billion at December 31, 2021. In addition, the Company has institutional deposits and municipal deposits. Institutional deposits remained unchanged from the prior year end at $1.4 billion. Municipal deposits represented $488 million of total deposits at the end of this December, a $263 million decrease from the balance at December 31, 2021.

66

Depending on their availability and pricing relative to other funding sources, we also include brokered deposits in our deposit mix. Brokered deposits accounted for $5.1 billion of our deposits at the end of this December, compared to $5.7 billion at December 31, 2021. Brokered money market accounts represented $2.8 billion of total brokered deposits at December 31, 2022 and $2.9 billion at December 31, 2021; brokered interest-bearing checking accounts represented $1.0 billion and $1.6 billion, respectively, at the corresponding dates. At December 31, 2022, we had $1.3 billion of brokered CDs, compared to $1.2 billion at December 31, 2021.

The following table indicates the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity:

Our uninsured deposits, on an unconsolidated basis, are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), and were approximately $19.6 billion and $10.1 billion at December 31, 2022 and 2021, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Borrowed Funds

The majority of our borrowed funds are wholesale borrowings (FHLB-NY and FHLB-Indianapolis advances) and, to a lesser extent, junior subordinated debentures and subordinated notes. At December 31, 2022, total borrowed funds increased $4.8 billion or 29 percent to $21.3 billion compared to the balance at December 31, 2021. The year-over-year increase was primarily driven by the amounts assumed in the Flagstar acquisition of $6.7 billion

Wholesale Borrowings

Wholesale borrowings totaled $20.3 billion and $15.9 billion, respectively, at December 31, 2022 and 2021, representing 23 percent of total assets at both dates. FHLB-NY and FHLB-Indianapolis advances accounted for $20.3 billion of the year-end 2022 balance, as compared to $15.1 billion at the prior year-end. Pursuant to blanket collateral agreements with the Bank, our FHLB-NY, FHLB-Indianapolis advances and overnight advances are secured by pledges of certain eligible collateral in the form of loans and securities. (For more information regarding our FHLB advances, see the discussion that appears earlier in this report regarding our membership and our ownership of stock in the FHLB-NY). At December 31, 2022 and 2021, $6.8 billion and $7.5 billion of our wholesale borrowings had callable features, respectively.

Included in wholesale borrowings at December 31, 2021, was $800 million of repurchase agreements. There were no repurchase agreements outstanding at December 31, 2022. Repurchase agreements are contracts for the sale of securities owned or borrowed by the Bank with an agreement to repurchase those securities at agreed-upon prices and dates.

Our repurchase agreements were primarily collateralized by GSE obligations, and may be entered into with the FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing internal financial review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for each of the brokerage firms we use.

We had no federal funds purchased at both December 31, 2022 and 2021.

67

Junior Subordinated Debentures

Junior subordinated debentures totaled $575 million, including $214 million assumed from the Flagstar acquisition, net of purchase accounting adjustments at December 31, 2022.

Subordinated Notes

At December 31, 2022, the balance of subordinated notes was $432 million, including $135 million assumed from the Flagstar acquisition, net of purchase accounting adjustments.

See Note 12, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, our junior subordinated debentures and subordinated debt.

Liquidity, Contractual Obligations and Off-Balance Sheet Commitments, and Capital Position

Liquidity

We manage our liquidity to ensure that our cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.

We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $2.0 billion and $2.2 billion, respectively, at December 31, 2022 and 2021. As in the past, our loan and securities portfolios provided meaningful liquidity in 2022, with cash flows from the repayment and sale of loans totaling $10.7 billion and cash flows from the repayment and sale of securities totaling $960 million.

Additional liquidity stems from deposits and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. In addition, we have access to the Bank’s approved lines of credit with various counterparties, including the FHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the amount of available securities that may be pledged to collateralize our borrowings. At December 31, 2022, our available borrowing capacity with the FHLB-NY was $11.3 billion. In addition, the Bank had available-for-sale securities of $9.1 billion, of which, $8.6 billion is unpledged.

Furthermore, the Bank has agreements with the FRB-NY that enable it to access the discount window as a further means of enhancing their liquidity. In connection with these agreements, the Bank has pledged certain loans and securities to collateralize any funds they may borrow. The maximum amount the Bank could borrow from the FRB-NY was $1.0 billion. There were no borrowings against these lines of credit at December 31, 2022.

Our primary investing activity is loan production, and the volume of loans we originated for investment totaled $17.1 billion in 2022. During this time, the net cash used in investing activities totaled $6.3 billion; the net cash provided by our operating activities totaled $1.0 billion. Our financing activities provided net cash of $5.2 billion.

CDs due to mature or reprice in one year or less from December 31, 2022 totaled $9.2 billion, representing 74 percent of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous factors, including, among others, the convenience of our branches and our other banking channels; our customers’ satisfaction with the service they receive; the rates of interest we offer; the types of products we feature; and the attractiveness of their terms.

Our decision to compete for deposits also depends on numerous factors, including, among others, our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to our 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.

68

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to the Company’s shareholders. 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.

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. The Bank would require the approval of the OCC if the dividends it declares in any calendar year were to exceed the total of its respective net profits for that year combined with its respective retained net profits for the preceding two calendar years, less any required transfer to paid-in capital. The term “net profits” is defined as net income for a given period less any dividends paid during that period. As a result of our acquisition of Flagstar, we are also required to seek regulatory approval from the OCC for the payment of any dividend to the Parent Company through at least the period ending November 1, 2024. In 2022, dividends of $335 million were paid by the Bank to the Parent Company. At December 31, 2022, the Bank could have paid additional dividends of $615 million to the Parent Company without regulatory approval.

Contractual Obligations and Off-Balance Sheet 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 CDs with contractual terms to our customers, and borrow funds under contract from the FHLB-NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of Condition under “Deposits” and “Borrowed funds,” respectively. At December 31, 2022, we had CDs of $12.5 billion and long-term debt (defined as borrowed funds with an original maturity one year or more) of $13.8 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 in the Consolidated Statements of Condition and totaled $122 million at December 31, 2022.

At December 31, 2022, 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, totaling $22.4 billion. These off-balance sheet 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 letters of credit we issue consist of performance stand-by, financial stand-by, and commercial letters of credit. Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions, municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation. Performance stand-by letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. Performance letters of credit obligate us to make payments in the event that a specified third party fails to perform under non-financial contractual obligations. Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title. The fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of Income and Comprehensive Income.

Based upon our current liquidity position, we expect that our funding will be sufficient to fulfill these cash obligations and commitments when they are due both in the short term and long term.

For the year ended December 31, 2022, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

At December 31, 2022, we had no commitments to purchase securities.

69

Capital Position

As reflected in the following table, our capital measures continued to exceed the minimum federal requirements for a bank holding company:

At December 31, 2022, the capital ratios for the Company and the Bank continued to exceed the levels required for classification as “well capitalized” institutions, as defined under the Federal Deposit Insurance Corporation Improvement Act of 1991, and as further discussed in Note 21, “Capital,” in Item 8, “Financial Statements and Supplementary Data.”

IMPACT OF INFLATION

The consolidated financial statements and notes thereto presented in this report have been prepared in accordance with GAAP, which requires that we measure our financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. As a result, the impact of interest rates on our performance is greater than the impact of general levels of inflation. Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Standards

In March 2022, the FASB issued ASU No. 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate TDR accounting for entities that have adopted ASU No. 2016-13, while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. The ASU also requires disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

RECONCILIATIONS OF SHAREHOLDERS’ EQUITY, COMMON STOCKHOLDERS’ EQUITY, AND TANGIBLE COMMON SHAREHOLDERS’ EQUITY; TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES

While stockholders’ equity, common stockholders’ equity, total assets, and book value per common share are financial measures that are recorded in accordance with U.S. GAAP, tangible common stockholders’ equity, tangible

70

assets, and tangible book value per common share are not. It is management’s belief that these non-GAAP measures should be disclosed in this report and others we issue for the following reasons:

1.
Tangible common stockholders’ equity is an important indication of the Company’s ability to grow organically and through business combinations, as well as its ability to pay dividends and to engage in various capital management strategies.

2.
Tangible book value per common share and the ratio of tangible common stockholders’ equity to tangible assets are among the capital measures considered by current and prospective investors, both independent of, and in comparison with, the Company’s peers.

Tangible common stockholders’ equity, tangible assets, and the related non-GAAP measures should not be considered in isolation or as a substitute for stockholders’ equity, common stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP measures may differ from that of other companies reporting non-GAAP measures with similar names.

Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:

71