New York munity Bancorp(NYCB) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information This section provides an overview of the quarterly report, including filing details, registrant information, and a cautionary note on forward-looking statements Filing Information This document is a Quarterly Report on Form 10-Q for Flagstar Financial, Inc., covering the period ended June 30, 2025. The company is a large accelerated filer and has filed all required reports - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - Flagstar Financial, Inc. is classified as a large accelerated filer[4][5] - The number of common stock shares outstanding as of July 31, 2025, was 415,574,267 shares[6] Registrant Information Flagstar Financial, Inc. is incorporated in Delaware, with its principal executive offices in Hicksville, New York. Its common stock and certain preferred securities are registered on the New York Stock Exchange - Flagstar Financial, Inc. is incorporated in Delaware[3] - The company's principal executive offices are located at 102 Duffy Avenue, Hicksville, New York[3] Securities Registered on NYSE | Title of each class | Trading symbol(s) | Name of each exchange on which registered | | :------------------ | :------------------ | :---------------------------------------- | | Common Stock, $0.01 par value per share | FLG | New York Stock Exchange | | SM Bifurcated Option Note Unit Securities | FLG PRU | New York Stock Exchange | | Depositary Shares each representing a 1/40th interest in a share of Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock | FLG PRA | New York Stock Exchange | Forward-Looking Statements and Risk Factors The report contains forward-looking statements based on certain assumptions, and actual results may differ materially due to various factors beyond the company's control. These factors include general economic conditions, interest rate changes, market conditions, regulatory changes, and integration risks from acquisitions - Forward-looking statements are based on assumptions and describe future plans, strategies, and expectations, identified by words like 'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'plan,' 'project,' 'seek,' 'strive,' 'try,' or future/conditional verbs[13] - Key risk factors include: - General economic conditions, including higher inflation[15] - Conditions in securities and real estate markets or the banking industry[15] - Changes in real estate values, interest rates, and the quality/composition of loan or securities portfolios[15] - Changes in capital management policies, competitive pressures, and deposit flows[15] - Ability to maintain sufficient liquidity and funding[15] - Regulatory focus on commercial real estate and loan concentrations[15] - Risks related to the proposed holding company reorganization transaction, including timing, regulatory approvals, and anticipated benefits[16] - Ability to successfully integrate acquired assets, liabilities, customers, systems, and personnel, including those from Flagstar Bancorp and Signature Bridge Bank, N.A.[16] - Exposure to unknown or contingent liabilities of acquired companies[16] - More stringent regulatory framework and prudential standards as a Category IV banking organization[20] - Cybersecurity incidents and operational issues from technology changes[20] - Changes in legislation, regulation, policies, and accounting principles[20] - Geopolitical instability and unforeseen catastrophic events[20] PART I. FINANCIAL INFORMATION This section details the company's financial performance, condition, and risk management, along with condensed consolidated financial statements and their accompanying notes Management's Discussion and Analysis of Financial Condition and Results of Operations Flagstar Financial, Inc. is a regional bank undergoing a strategic transformation to become a diversified bank with a strong balance sheet and consistent earnings. The company reported a net loss for both the three and six months ended June 30, 2025, but showed improvement compared to the prior periods. Key financial metrics like Net Interest Income and Provision for Credit Losses saw changes influenced by strategic loan portfolio reductions and market conditions General Overview Flagstar Financial, Inc. is a regional bank focused on strategic transformation, aiming for a diversified banking model with a strong balance sheet and consistent earnings - Flagstar Financial, Inc. is the parent company of Flagstar Bank, N.A., a regional bank headquartered in Hicksville, New York[22] Company Financials as of June 30, 2025 | Metric | Amount (billions) | | :----- | :---------------- | | Assets | $92.2 | | Loans | $64.4 | | Deposits | $69.7 | | Stockholders' Equity | $8.1 | - The Bank operates approximately 360 locations across nine states, with strong presence in New York/New Jersey, the upper Midwest, Florida, and the West Coast[23] - Strategic priorities include: - Driving transformation and financial resilience[26] - Growing core operations[26] - Executing a disciplined commercial banking and lending strategy[26] - Enhancing operational efficiency[26] - Developing talent and leadership[26] - Aligning regulatory and risk management[26] Merger of Flagstar Financial, Inc. and Flagstar Bank N.A. The company plans to merge with its wholly-owned bank subsidiary, Flagstar Bank, N.A., to streamline its corporate structure, subject to regulatory and shareholder approvals - On July 24, 2025, Flagstar Financial, Inc. entered into an Agreement and Plan of Merger with its wholly-owned bank subsidiary, Flagstar Bank, N.A., to streamline its corporate structure[29] - The Company will merge into the Bank, with the Bank continuing as the surviving entity, subject to shareholder and OCC approval, expected before the end of 2025[29] - Post-merger, the Surviving Entity will be a publicly traded company on the NYSE under the ticker symbol 'FLG' and will have substantially the same consolidated assets, liabilities, and shareholders' equity[31][32] Results of Operations The company reported a net loss for the three and six months ended June 30, 2025, showing improvement from prior periods, with changes in net interest income and credit loss provisions Net Loss and EPS | Period | Net Loss (millions) | Net Loss Attributable to Common Stockholders (millions) | Diluted EPS | | :---------------------- | :------------------ | :------------------------------------------------------ | :---------- | | 3 Months Ended June 30, 2025 | $(70) | $(78) | $(0.19) | | 3 Months Ended March 31, 2025 | $(100) | $(108) | $(0.26) | | 6 Months Ended June 30, 2025 | $(170) | $(186) | $(0.45) | | 6 Months Ended June 30, 2024 | $(650) | $(668) | $(2.48) | Net Interest Income (NII) and Net Interest Margin (NIM) | Period | NII (millions) | NIM (%) | | :---------------------- | :------------- | :------ | | 3 Months Ended June 30, 2025 | $419 | 1.81 | | 3 Months Ended March 31, 2025 | $410 | 1.74 | | 6 Months Ended June 30, 2025 | $829 | 1.77 | | 6 Months Ended June 30, 2024 | $1,181 | 2.13 | - NIM increased 7 basis points and NII increased $9 million quarter-over-quarter (QoQ), primarily due to payoff of brokered CDs and pay down of wholesale borrowings, partially offset by lower average total loans[44] - NIM decreased 36 basis points and NII decreased $352 million year-over-year (YoY), primarily due to lower average total loans and leases from strategic reductions and the sale of Mortgage Operations, partially offset by lower average borrowed funds[45] Provision for Credit Losses | Period | Provision for Credit Losses (millions) | Change QoQ (%) | Change YoY (%) | | :---------------------- | :----------------------------------- | :------------- | :------------- | | 3 Months Ended June 30, 2025 | $64 | (19)% | N/A | | 3 Months Ended March 31, 2025 | $79 | N/A | N/A | | 6 Months Ended June 30, 2025 | $143 | N/A | (80)% | | 6 Months Ended June 30, 2024 | $705 | N/A | N/A | - QoQ decrease of $15 million in provision for credit losses, driven by strategic reduction in multi-family, CRE, and non-core C&I loan portfolios, reduced criticized assets, and improved credit reviews[47] - YoY decrease of $562 million in provision for credit losses, attributed to improving credit trends, stabilization in ACL, and lower net charge-offs in multi-family and CRE portfolios[48] Non-Interest Income | (in millions) | June 30, 2025 (3 Months) | March 31, 2025 (3 Months) | Change (%) | June 30, 2025 (6 Months) | June 30, 2024 (6 Months) | Change (%) | | :------------ | :----------------------- | :------------------------ | :--------- | :----------------------- | :----------------------- | :--------- | | Fee income | $22 | $22 | — % | $44 | $75 | (41)% | | Bank-owned life insurance | $10 | $10 | — % | $20 | $22 | (9)% | | Net return on mortgage servicing rights | $— | $— | — % | $— | $40 | NM | | Net gain on loan sales and securitizations | $6 | $13 | (54)% | $19 | $38 | (50)% | | Net loan administration income | $1 | $4 | (75)% | $5 | $11 | (55)% | | Bargain purchase gain | $— | $— | — | $— | $(121) | NM | | Other | $38 | $31 | 0 | $69 | $58 | 0 | | Total non-interest income | $77 | $80 | (4)% | $157 | $123 | 28 % | - QoQ decrease of $3 million in non-interest income due to insignificant items[51] - YoY increase of $34 million in non-interest income, primarily due to the non-recurrence of a $121 million reduction in the Signature Transaction bargain purchase gain, partially offset by lower MSRs fees, fee income, net gain on loan sales and securitizations, and net loan administration income due to the sale of Mortgage Operations[52] Non-Interest Expense | (in millions) | June 30, 2025 (3 Months) | March 31, 2025 (3 Months) | Change (%) | June 30, 2025 (6 Months) | June 30, 2024 (6 Months) | Change (%) | | :------------ | :----------------------- | :------------------------ | :--------- | :----------------------- | :----------------------- | :--------- | | Compensation and benefits | $237 | $244 | (3)% | $481 | $645 | (25)% | | FDIC insurance | $49 | $50 | (2)% | $99 | $141 | (30)% | | Occupancy and equipment | $53 | $55 | (4)% | $108 | $104 | 4 % | | General and administrative | $133 | $147 | (10)% | $280 | $369 | (24)% | | Total operating expense | $472 | $496 | (5)% | $968 | $1,259 | (23)% | | Intangible asset amortization | $27 | $28 | (4)% | $55 | $68 | (19)% | | Merger-related expenses | $14 | $8 | 75 % | $22 | $77 | (71)% | | Total non-interest expense | $513 | $532 | (4)% | $1,045 | $1,404 | (26)% | - QoQ decrease of $19 million in total non-interest expenses, primarily due to a decrease in general and administrative expenses[54] - YoY decrease of $359 million in total non-interest expenses, mainly due to lower compensation and benefits, reduced general and administrative expenses (from Mortgage Operations sale), lower FDIC insurance costs, and decreased merger-related expenses[55] Income Tax Benefit and Effective Tax Rate | Period | Income Tax Benefit (millions) | Effective Tax Rate (%) | | :---------------------- | :---------------------------- | :--------------------- | | 3 Months Ended June 30, 2025 | $(11) | 12.9 | | 3 Months Ended March 31, 2025 | $(21) | 17.8 | | 6 Months Ended June 30, 2025 | $(32) | 15.9 | | 6 Months Ended June 30, 2024 | $(155) | 19.3 | - QoQ decrease of $10 million in income tax benefit, primarily due to a reduction in pre-tax loss[57] - YoY decrease of $123 million in income tax benefit, mainly due to a reduction in pre-tax loss, partially offset by the tax impact of the adjustment to the bargain purchase gain in Q1 2024[58] Financial Condition The company's financial condition reflects strategic reductions in loan portfolios, an increase in debt securities, and a decrease in total deposits and borrowed funds Loan Portfolio Composition (Held for Investment) | Loan Type | June 30, 2025 (millions) | Percent of Total | December 31, 2024 (millions) | Percent of Total | | :-------------------------- | :----------------------- | :--------------- | :--------------------------- | :--------------- | | Multi-family | $31,932 | 49.8 % | $34,093 | 49.9 % | | Commercial real estate | $10,636 | 16.6 % | $11,836 | 17.4 % | | One-to-four family first mortgage | $5,445 | 8.5 % | $5,201 | 7.6 % | | Commercial and industrial | $14,426 | 22.5 % | $15,376 | 22.5 % | | Other loans | $1,682 | 2.6 % | $1,766 | 2.6 % | | Total loans and leases held for investment | $64,121 | 100.0 % | $68,272 | 100.0 % | | Allowance for credit losses | $(1,106) | | $(1,201) | | | Total loans and leases held for investment, net | $63,015 | | $67,071 | | - Total loans and leases held for investment decreased by $4.2 billion from December 31, 2024, to June 30, 2025[60] - This decrease is primarily due to the strategic reduction in multi-family, CRE, and non-core C&I loan exposure, partially offset by $2.0 billion in new C&I originations[60] Multi-Family Loan Portfolio Changes | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :-------------------------------- | :----------------------- | :--------------------------- | :---------------- | | Multi-family loan portfolio | $31,932 | $34,093 | $(2,161) | | Par payoffs since Dec 31, 2024 | N/A | N/A | $1,900 | | Multi-family loans with interest-only payments | $9,900 | N/A | N/A | | Weighted average interest-only period remaining | 19.3 months | N/A | N/A | - 55% of multi-family loans are secured by properties in New York State, with 88% of those subject to rent regulation laws[64] - The company is curtailing future originations of loans secured by rent-regulated properties and diversifying its loan portfolio away from multi-family loans[65] - Approximately 36% of interest-only multi-family loans will enter their amortization period by the end of 2025, and 68% by the end of 2026[66] Commercial Real Estate (CRE) Loan Portfolio Changes | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :----------------------- | :----------------------- | :--------------------------- | :---------------- | | CRE loans | $10,636 | $11,836 | $(1,200) | - CRE loans decreased by $1.2 billion, primarily due to par payoffs, consistent with the strategy to diversify the loan portfolio[69] - Substantially all CRE loans are non-recourse and secured by income-producing properties (office, retail, industrial, mixed-use)[71] Commercial and Industrial (C&I) Loan Portfolio Changes | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :----------------------- | :----------------------- | :--------------------------- | :---------------- | | C&I loan portfolio | $14,426 | $15,376 | $(950) | | Reduction from strategic decisions | N/A | N/A | $(2,900) | | New originations | N/A | N/A | $2,000 | | Specialty finance loans and leases | $3,600 | $3,908 | $(308) | - C&I loan portfolio decreased by $950 million, reflecting a $2.9 billion reduction in non-core C&I loans, partially offset by $2.0 billion in new originations[73] - Specialty finance loans, a component of C&I, decreased by $308 million (8%), due to running off certain non-core loans[75] One-to-Four Family Loans and Other Loans Changes | Loan Type | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :-------------------------- | :----------------------- | :--------------------------- | :---------------- | | One-to-four family loans | $5,445 | $5,201 | $244 | | Other loans | $1,682 | $1,766 | $(84) | - One-to-four family loans increased by $244 million, driven by new originations[78] - Other loans decreased by $84 million, primarily due to payoffs at par[81] Loans Held for Sale Changes | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :---------------- | :----------------------- | :--------------------------- | :---------------- | | Loans held for sale | $319 | $899 | $(580) | - Loans held for sale decreased by $580 million, primarily due to the run-off of held-for-sale loans following the sale of Mortgage Operations, partially offset by retail mortgage originations[82] Allowance for Credit Losses (ACL) on Loans and Leases | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :------------------------------------ | :----------------------- | :--------------------------- | :---------------- | | ACL on loans and leases | $1,106 | $1,201 | $(95) | | ACL to total loans held for investment ratio | 1.72 % | 1.76 % | (0.04)% | | ACL on loans and leases to non-accrual loans | 34.78 % | 45.93 % | (11.15)% | - ACL decreased by $95 million, primarily due to improving credit trends and strategic reduction in multi-family, CRE, and non-core C&I portfolios, partially offset by negatively trending macro-economic conditions[85] Asset Quality Measures | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------- | :------------ | :---------------- | | Non-accrual loans to total loans held for investment | 4.96 % | 3.83 % | | Non-performing assets to total assets | 3.57 % | 2.62 % | Non-Accrual Loans by Type | (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Multi-family | $2,388 | $1,755 | $633 | | Commercial real estate | $563 | $564 | $(1) | | One-to-four family first mortgage | $81 | $70 | $11 | | Commercial and industrial | $123 | $202 | $(79) | | Other Loans | $25 | $24 | $1 | | Total non-accrual loans | $3,180 | $2,615 | $565 | - Total non-accrual loans increased by $565 million, primarily due to higher non-accrual multi-family loans from one borrower relationship[91] - Approximately 43% of non-accrual loans are current on their contractual payment terms[91] Loans 30 to 89 Days Past Due | (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Multi-family | $392 | $749 | $(357) | | Commercial real estate | $115 | $70 | $45 | | One-to-four family first mortgage | $30 | $25 | $5 | | Commercial and industrial | $38 | $110 | $(72) | | Other loans | $29 | $11 | $18 | | Total loans 30-89 days past due | $604 | $965 | $(361) | - Total loans 30-89 days past due decreased by $361 million[92] - Approximately 85% of multi-family 30-89 days past due loans were attributable to a single borrower relationship[93] Net Charge-offs (Annualized Percentage of Average Loans) | Loan Type | 3 Months Ended June 30, 2025 (%) | 3 Months Ended June 30, 2024 (%) | 6 Months Ended June 30, 2025 (%) | 6 Months Ended June 30, 2024 (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Multi-family | 1.17 | 0.83 | 1.05 | 0.47 | | Commercial real estate | 0.47 | 7.01 | 0.27 | 4.44 | | One-to-four family residential | 0.08 | 0.07 | 0.08 | 0.03 | | Commercial and industrial | 0.08 | 0.56 | 0.42 | 0.31 | | Other | 0.94 | 0.92 | 0.93 | 0.69 | | Total | 0.72 | 1.75 | 0.70 | 1.06 | Debt Securities Available-for-Sale | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :-------------------------------- | :----------------------- | :--------------------------- | :---------------- | | Debt Securities Available-for-Sale | $14,823 | $10,402 | $4,421 | | Mortgage-related securities | $12,100 | $8,600 | $3,500 | | Portfolio floating rate securities | 27 % | N/A | N/A | | Estimated weighted average life | 5 years | 6 years | (1) year | - Debt securities available-for-sale increased by $4.4 billion, primarily due to reinvestment of cash into higher earning assets[98] Deposits Composition and Changes | Deposit Type | June 30, 2025 (millions) | Percent of Total | Weighted Average Interest Rate (%) | December 31, 2024 (millions) | Percent of Total | Weighted Average Interest Rate (%) | | :------------------------------------ | :----------------------- | :--------------- | :------------------------------- | :--------------------------- | :--------------- | :------------------------------- | | Interest-bearing checking and money market accounts | $19,067 | 27 % | 3.03 | $20,780 | 27 % | 2.89 | | Savings accounts | $14,460 | 21 % | 3.06 | $14,282 | 19 % | 3.22 | | Certificates of deposit | $24,212 | 35 % | 4.47 | $27,324 | 36 % | 4.75 | | Non-interest-bearing accounts | $12,006 | 17 % | — | $13,484 | 18 % | — | | Total deposits | $69,745 | 100 % | 3.64 | $75,870 | 100 % | 3.12 | - Total deposits decreased by $6.1 billion, primarily due to the payoff of brokered CDs and custodial deposits from the sale of Mortgage Operations[101] - Brokered deposits decreased from $10.2 billion to $6.1 billion[102] - Uninsured deposits totaled $12.9 billion, representing 18% of the overall deposit base, with total bank liquidity exceeding this by $16.0 billion[105][106] Borrowed Funds Changes | Borrowed Fund Type | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :------------------------- | :----------------------- | :--------------------------- | :---------------- | | Wholesale borrowings (FHLB advances) | $12,150 | $13,400 | $(1,250) | | Junior subordinated debentures | $584 | $582 | $2 | | Subordinated notes | $446 | $444 | $2 | | Total borrowed funds | $13,180 | $14,426 | $(1,246) | - Total borrowed funds decreased by $1.2 billion, primarily due to the repayment of $1.25 billion in FHLB advances[107] Federal Home Loan Bank and Federal Reserve Bank Stock | Stock Type | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :------------------------------------------ | :----------------------- | :--------------------------- | :---------------- | | FHLB-NY stock | $542 | $598 | $(56) | | FHLB-Indianapolis stock | $255 | $329 | $(74) | | Federal Reserve Bank stock | $220 | $219 | $1 | | Total FHLB and FRB-NY stock | $1,017 | $1,146 | $(129) | - Total FHLB and FRB-NY stock decreased by $129 million, primarily due to a reduction in borrowings[109] Risk Management The company employs a comprehensive risk management framework, monitoring credit, liquidity, market, and regulatory risks, while maintaining strong capital positions - The Risk Management Division formalizes the Company's Risk Appetite Statement, aligning it with budget, strategic, and capital plans, and monitors key risk indicators[110] - Credit Risk Management: - Underwrites loans according to prudent credit standards and continually reviews the loan portfolio risk[112] - Loans with DSCR less than 1.0 are evaluated for downgrade to substandard or non-accrual risk rating and are appraised annually[113] - Classified loans (substandard and non-accrual) decreased from $11.5 billion to $10.8 billion, primarily due to par payoffs of multi-family substandard loans[114] - Over 80% of multi-family loans that reached their repricing date since early 2024 remain current on payments[115] - Charge-offs of $207 million were recorded on multi-family and CRE loans during the six months ended June 30, 2025, driven by appraisals[118] - Liquidity Risk Management: - Maintains a liquidity risk management framework and a Liquidity Risk Policy approved by the Board of Directors[121] - Primary funding sources include retail and institutional deposit base, with $12.9 billion of uninsured deposits (18% of total)[122] - Utilizes wholesale funding channels, including $12.2 billion from FHLB and $6.1 billion in brokered CDs[123] - Maintains a liquidity buffer of on-balance sheet cash reserves and High-Quality Liquid Assets (HQLAs), and access to FHLB and FRB-NY Discount Window borrowings[124] Total Liquidity (billions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Cash at Federal Reserve | $7.6 | $15.0 | | High-Quality Liquid Assets | $12.8 | $7.9 | | Total On-Balance Sheet Liquidity | $20.4 | $22.9 | | FHLB Available Capacity | $6.9 | $6.6 | | Discount Window Available Capacity | $1.6 | $0.4 | | Total Liquidity | $28.9 | $29.9 | Credit Ratings as of June 30, 2025 | Rating Agency | Long-Term Issuer Rating | Short-Term Deposits Rating | | :------------ | :---------------------- | :------------------------- | | Moody's | B1 | NP | | Fitch | BB | N/A | | Morningstar DBRS | BBB (low) | N/A | - Moody's upgraded the Long-Term Issuer rating from B2 to B1 during Q1 2025[126] - The company is not in compliance with mortgage loan agencies' criteria for eligible custodial depository due to not having an investment grade short-term issuer/deposit rating from Moody's or S&P, but has received a waiver[127] - Parent Company Liquidity: - Parent Company held cash and cash equivalents of $502 million at June 30, 2025[128] - Primary funding sources for the Parent Company are dividends from the Bank and capital raised through equity issuance[129] - No dividends were paid by the Bank to the Parent Company in the six months ended June 30, 2025[130] - The Parent Company believes it has sufficient liquidity and capital resources to meet obligations through 2028[130] - Contractual Obligations: - Total liquidity position was $29 billion at June 30, 2025, expected to be sufficient for short-term and long-term cash obligations[132] - Contractual obligations include $24.2 billion in CDs and $11.2 billion in long-term debt[133] - Operating lease liabilities totaled $454 million at June 30, 2025[135] - Market Risk Management: - Manages assets and liabilities to reduce exposure to changes in market interest rates, which is the primary market risk[136] - Interest rate sensitivity is monitored using a model that estimates changes in Economic Value of Equity (EVE) and Net Interest Income (NII) under various interest rate scenarios[137] - EVE analysis at June 30, 2025, shows a 2.4% increase for a -200 bps shock and a (4.8)% decrease for a +200 bps shock[139][140] - NII simulation for the next twelve months shows a 0.8% increase for a -200 bps shock and a (2.6)% decrease for a +200 bps shock[144] - Regulatory Capital: - The Company is a bank holding company regulated by the Federal Reserve, and the Bank is a national bank regulated by the OCC[147] - Effective October 1, 2023, the company became subject to Category IV prudential standards, including heightened requirements for capital, liquidity, and risk management[148] - As of June 30, 2025, the company's and the Bank's capital measures exceeded minimum federal requirements for a bank holding company and a bank, respectively[151] - The Bank also exceeded the minimum capital requirements to be categorized as 'Well Capitalized'[152] Company Regulatory Capital Position (June 30, 2025) | Capital Type | Amount (millions) | Ratio (%) | Minimum for Adequacy (%) | Excess (millions) | Excess (%) | | :------------------- | :---------------- | :-------- | :----------------------- | :---------------- | :--------- | | Common Equity Tier 1 | $7,849 | 12.33 | 4.50 | $4,984 | 7.83 | | Tier 1 | $8,353 | 13.12 | 6.00 | $4,532 | 7.12 | | Total | $10,044 | 15.77 | 8.00 | $4,950 | 7.77 | | Leverage Capital | $8,353 | 8.61 | 4.00 | $4,472 | 4.61 | Bank Regulatory Capital Position (June 30, 2025) | Capital Type | Amount (millions) | Ratio (%) | Minimum for Adequacy (%) | Excess (millions) | Excess (%) | | :------------------- | :---------------- | :-------- | :----------------------- | :---------------- | :--------- | | Common Equity Tier 1 | $8,835 | 13.89 | 4.50 | $5,972 | 9.39 | | Tier 1 | $8,835 | 13.89 | 6.00 | $5,018 | 7.89 | | Total | $9,635 | 15.15 | 8.00 | $4,546 | 7.15 | | Leverage Capital | $8,835 | 9.11 | 4.00 | $4,957 | 5.11 | Other Recent Developments The company is actively addressing material weaknesses in internal controls and anticipates an immaterial impact from recent tax reform legislation - The company is actively working to remediate previously disclosed material weaknesses in internal control over financial reporting[153] - The recently enacted One Big Beautiful Bill Act, which includes broad tax reform provisions, is expected to have an immaterial impact on the company's financial results[154] Condensed Consolidated Financial Statements The condensed consolidated financial statements provide a snapshot of Flagstar Financial, Inc.'s financial position, performance, and cash flows for the periods presented. These include the Statements of Financial Condition, (Loss) Income, Comprehensive (Loss) Income, Stockholders' Equity, and Cash Flows, all prepared in conformity with GAAP - The Condensed Consolidated Statements of Financial Condition show total assets of $92,237 million and total liabilities of $84,141 million as of June 30, 2025[157] - The Condensed Consolidated Statements of (Loss) Income report a net loss of $70 million for the three months ended June 30, 2025, and $170 million for the six months ended June 30, 2025[160] - The Condensed Consolidated Statements of Cash Flows indicate net cash used in operating activities of $(235) million and net cash used in financing activities of $(7,317) million for the six months ended June 30, 2025[171] Notes to the Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's accounting policies, financial instruments, and specific balance sheet and income statement items. They cover organization, earnings per share, comprehensive loss, investment securities, loans and leases, credit loss allowances, leases, variable interest entities, borrowed funds, pension benefits, taxes, stock-based compensation, derivatives, intangible assets, fair value measures, equity, commitments, and segment reporting Note 1 - Organization and Basis of Presentation This note describes Flagstar Financial, Inc. as a bank holding company, its regulatory oversight, and the basis for preparing its consolidated financial statements in conformity with GAAP - Flagstar Financial, Inc. is the holding company for Flagstar Bank N.A., headquartered in Hicksville, New York, with regional headquarters in Troy, Michigan[172] - The company is subject to regulation by the Federal Reserve, and the Bank by the OCC[173] - The financial statements are prepared in conformity with GAAP and include consolidated accounts of the company and its controlled entities[174] Note 2 - Earnings Per Common Share This note details the calculation of basic and diluted earnings per common share using the two-class method, considering unvested restricted stock units as participating securities - EPS is calculated using the two-class method, as unvested RSUs are considered participating securities due to non-forfeitable dividend rights[178] Basic and Diluted (Loss) Per Common Share | Period | Net (loss) attributable to common stockholders (millions) | Weighted average common shares outstanding | Basic (loss) per common share | Diluted (loss) per common share | | :---------------------- | :------------------------------------------------------ | :--------------------------------------- | :---------------------------- | :------------------------------ | | 3 Months Ended June 30, 2025 | $(78) | 415,125,228 | $(0.19) | $(0.19) | | 6 Months Ended June 30, 2025 | $(186) | 414,975,524 | $(0.45) | $(0.45) | Note 3 - Accumulated Other Comprehensive Loss This note outlines changes in accumulated other comprehensive loss, primarily related to debt securities available for sale and terminated cash flow hedges Changes in AOCL, Net of Tax | (in millions) | Debt Securities AFS | Cash Flow Hedges | Pension and Post-retirement Plans | Total | | :-------------------------- | :------------------ | :--------------- | :-------------------------------- | :---- | | Balance, beginning of period (June 30, 2025) | $(560) | $40 | $(33) | $(553) | | Other comprehensive income (loss) before reclassification, net of tax | $16 | $— | $— | $16 | | Amounts reclassified from AOCL, net of tax | $— | $(5) | $— | $(5) | | Other comprehensive income (loss), net of tax | $16 | $(5) | $— | $11 | | Balance, end of period (June 30, 2025) | $(544) | $35 | $(33) | $(542) | - At June 30, 2025, the company had $35 million (net-of-tax) of unrealized gains related to terminated cash flow hedges recorded in AOCL[184] - The company expects to recognize $28 million of lower interest expense over the next twelve months related to the reclassification of amounts from AOCL[185] Note 4 - Investment Securities This note provides details on the company's debt securities available for sale, including amortized cost, fair value, unrealized gains and losses, and pledged securities Debt Securities Available for Sale (June 30, 2025) | (in millions) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | | :------------------------------------ | :------------- | :-------------------- | :-------------------- | :--------- | | Mortgage-Related Debt Securities | $12,583 | $72 | $543 | $12,112 | | Other Debt Securities | $2,956 | $17 | $262 | $2,711 | | Total debt securities available for sale, net of allowance | $15,539 | $89 | $805 | $14,823 | - At June 30, 2025, the ACL for debt securities available for sale was $3 million[190] - The company pledged investment securities of $14.5 billion as collateral for certain borrowings at June 30, 2025[190] - No realized gains or losses on sales of available-for-sale securities were recorded during the three and six months ended June 30, 2025 and 2024[194] Debt Securities in Continuous Unrealized Loss Position (June 30, 2025) | (in millions) | Number of Debt Securities | Fair Value (Less than 12 Months) | Unrealized Loss (Less than 12 Months) | Fair Value (12 Months or Longer) | Unrealized Loss (12 Months or Longer) | Total Fair Value | Total Unrealized Loss | | :------------------------------------------ | :------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :--------------- | :-------------------- | | GSE CMOs | 219 | $2,012 | $8 | $2,800 | $394 | $4,812 | $402 | | U.S. Government agency and GSE obligations | 33 | $— | $— | $1,262 | $240 | $1,262 | $240 | | GSE certificates | 323 | $10 | $— | $949 | $141 | $959 | $141 | | Total debt securities in a continuous unrealized loss position | 595 | $2,047 | $8 | $5,377 | $797 | $7,424 | $805 | Note 5 - Loans and Leases This note details the composition and accounting treatment of the company's loan and lease portfolios, including delinquency status, non-accrual loans, and collateral-dependent loans - Loans held for investment are reported at amortized cost, while loans held for sale are carried at fair value or the lower of amortized cost or fair value[202][203] Loans and Leases Held for Investment (June 30, 2025) | Loan Type | Amount (millions) | Percent of Held for Investment | | :-------------------------- | :---------------- | :----------------------------- | | Multi-family | $31,932 | 49.8 % | | Commercial real estate | $10,636 | 16.6 % | | One-to-four family first mortgage | $5,445 | 8.5 % | | Commercial and industrial | $14,426 | 22.5 % | | Other | $1,682 | 2.6 % | | Total loans and leases held for investment | $64,121 | 100.0 % | - The company pledged $34.4 billion in loans as collateral for wholesale borrowings at June 30, 2025[206] - A loan is classified as non-accrual when it is 90 days or more past due or deemed impaired, with interest income ceasing and previously accrued interest reversed[208] Collateral-Dependent Loans Held for Investment (June 30, 2025) | Collateral Type | Amount (millions) | | :-------------------------- | :---------------- | | Multi-family | $2,422 | | Commercial real estate | $514 | | One-to-four family first mortgage | $76 | | Commercial and industrial | $13 | | Total collateral-dependent loans held for investment | $3,025 | Delinquency Status of Loans Held for Investment (June 30, 2025) | Loan Type | Current (millions) | 30-89 Days Past Due (millions) | Non-Accrual Loans (millions) | Total Loans Receivable (millions) | | :-------------------------- | :----------------- | :----------------------------- | :--------------------------- | :------------------------------ | | Multi-family | $29,152 | $392 | $2,388 | $31,932 | | Commercial real estate | $9,958 | $115 | $563 | $10,636 | | One-to-four family first mortgage | $5,334 | $30 | $81 | $5,445 | | Commercial and industrial | $14,265 | $38 | $123 | $14,426 | | Other | $1,628 | $29 | $25 | $1,682 | | Total | $60,337 | $604 | $3,180 | $64,121 | - Loans totaling $19 million were modified for borrowers experiencing financial difficulty during the three and six months ended June 30, 2025[225] - As of June 30, 2025, loans with government guarantees (LGG) totaled $369 million[231] Note 6 - Allowance for Credit Losses on Loans and Leases This note explains the activity and methodology for the allowance for credit losses on loans and leases, reflecting credit trends and portfolio changes Activity in ACL on Loans and Leases (Six Months Ended June 30, 2025) | (in millions) | Multi-Family | Commercial Real Estate | One-to-Four Family First Mortgage | Commercial and Industrial | Other | Total | | :---------------------------------------------------- | :----------- | :--------------------- | :-------------------------------- | :------------------------ | :---- | :---- | | Balance, beginning of period | $639 | $304 | $39 | $151 | $68 | $1,201 | | Charge-offs | $(185) | $(22) | $(2) | $(41) | $(14) | $(264) | | Recoveries | $9 | $7 | $— | $10 | $6 | $32 | | Provision for (recovery of) credit losses on loans and leases | $75 | $29 | $(4) | $40 | $(3) | $137 | | Balance, end of period | $538 | $318 | $33 | $160 | $57 | $1,106 | - The ACL to total loans and leases held for investment ratio was 1.72% at June 30, 2025, down from 1.76% at December 31, 2024[236] - Higher interest rates are expected to impact loans repricing during the forecast period, leading to a higher probability of default incorporated into ACL measurement[236] - The ACL is determined based on quantitative modeling incorporating economic forecast scenarios, with key inputs including projected debt service and collateral property values[237] Non-Accrual Loans and Related Allowance (June 30, 2025) | (in millions) | Non-accrual loans with no related allowance | Non-accrual loans with an allowance recorded | Total Non-accrual loans | Related Allowance | | :-------------------------- | :------------------------------------------ | :------------------------------------------- | :---------------------- | :---------------- | | Multi-family | $1,781 | $607 | $2,388 | $91 | | Commercial real estate | $377 | $186 | $563 | $64 | | One-to-four family first mortgage | $58 | $23 | $81 | $2 | | Commercial and Industrial | $72 | $51 | $123 | $37 | | Other | $— | $25 | $25 | $21 | | Total | $2,288 | $892 | $3,180 | $215 | Note 7 - Leases, Premises and Equipment This note details the company's equipment leases and operating leases for premises and equipment, including related assets, liabilities, and depreciation - The company provides equipment leases, mainly to large, investment-grade corporate clients, which qualify as direct financing leases[242] - Interest income on lease financing was $24 million for the three months and $48 million for the six months ended June 30, 2025[243] - The company has operating leases for offices, branches, equipment, and other items, with operating lease liabilities of $454 million and right-of-use assets of $397 million at June 30, 2025[244][246] Premises and Equipment, Net | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Premises and equipment | $1,011 | $1,131 | | Less: Accumulated depreciation | $(537) | $(569) | | Premises and equipment, net | $474 | $562 | Note 8 - Variable Interest Entities This note clarifies that the company had no consolidated variable interest entities and details its maximum exposure to loss from retained interests in securitization trusts - The company had no consolidated Variable Interest Entities (VIEs) as of June 30, 2025, and December 31, 2024[250] - The company retains a 5% interest in investment securities of certain securitization trusts, with a maximum exposure to loss limited to this retained interest, which had a fair value of $159 million at June 30, 2025[251] Note 9 - Borrowed Funds This note provides a breakdown of the company's borrowed funds, including wholesale borrowings, junior subordinated debentures, and subordinated notes, and their changes Borrowed Funds Summary | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Wholesale borrowings (FHLB advances) | $12,150 | $13,400 | | Junior subordinated debentures | $584 | $582 | | Subordinated notes | $446 | $444 | | Total borrowed funds | $13,180 | $14,426 | - Accrued interest on borrowed funds was $45 million at June 30, 2025[252] - FHLB advances decreased by $1.2 billion due to repayments, with available capacity of $6.9 billion at June 30, 2025[255][257] - The company had $610 million in outstanding junior subordinated debentures at June 30, 2025[260] - Total subordinated notes outstanding were $446 million at June 30, 2025, including fixed-to-floating rate notes[263] Note 10 - Pension Benefits This note presents the components of net periodic pension expense (income), reflecting interest cost, expected return on plan assets, and amortization of actuarial losses Components of Net Periodic Pension Expense (Income) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest cost | $1 | $1 | $3 | $2 | | Expected return on plan assets | $(4) | $(4) | $(8) | $(8) | | Amortization of net actuarial loss | $1 | $1 | $2 | $2 | | Net periodic expense (income) | $(2) | $(2) | $(3) | $(4) | Note 11 - Federal, State, and Local Taxes This note details the company's income tax benefit and effective tax rate, explaining the methodology used due to expected break-even results Income Tax Benefit and Effective Tax Rate | Period | Income Tax Benefit (millions) | Effective Tax Rate (%) | | :---------------------- | :---------------------------- | :--------------------- | | 3 Months Ended June 30, 2025 | $(11) | 12.9 | | 3 Months Ended June 30, 2024 | $(101) | 23.7 | | 6 Months Ended June 30, 2025 | $(32) | 15.9 | | 6 Months Ended June 30, 2024 | $(155) | 19.3 | - The company was unable to make a reliable estimate of its annual effective tax rate for the three and six months ended June 30, 2025, due to expected break-even results, and therefore used its actual effective tax rate[56] Note 12 - Stock-Based Compensation This note outlines the company's stock-based compensation plans, including RSUs, PSUs, and stock options, along with related expense and unrecognized costs - Stock-based compensation is issued in the form of RSUs, PSUs, and stock options, with 6,626,001 shares available for grant as of June 30, 2025[269] Stock-Based Compensation Expense and Tax Benefit | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Stock-based compensation expense | $14 | $15 | $29 | $22 | | Tax benefit | $3 | $2 | $5 | $4 | - The company granted 4,806,308 shares of restricted stock during the six months ended June 30, 2025, with an average fair value of $11.62 per share[271] - Unrecognized compensation cost for unvested restricted stock totaled $109 million, to be recognized over a weighted average life of 2.4 years[272] - Unamortized compensation expense for stock options totaled $36 million, to be recognized over a weighted average life of 1.8 years[273] Note 13 - Derivative and Hedging Activities This note describes the company's use of derivative financial instruments, such as interest rate swaps and caps, for managing interest rate and MSR asset value exposures - Derivative financial instruments are recorded at fair value and presented on a gross basis on the Condensed Consolidated Statements of Condition[275] - The company uses interest rate swaps, foreign currency swaps, futures, swaptions, and forward commitments to manage interest rate and MSR asset value exposure[276] - Certain interest rate caps are designated as cash flow hedges on SOFR-based variable interest payments on FHLB advances, with changes in fair value recorded in AOCL[277] - Fixed-rate to variable-rate interest rate swaps are designated as fair value hedges for certain debt securities available for sale, with changes in fair value recognized in Interest income[278] Derivative Financial Instruments (June 30, 2025) | (in millions) | Notional Amount | Fair Value (Other Assets) | Fair Value (Other Liabilities) | Expiration Dates | | :------------------------------------ | :-------------- | :------------------------ | :----------------------------- | :--------------- | | Derivatives designated as hedging instruments: | | | | | | Interest rate swaps (fair value hedge) | $2,993 | $— | $— | 2028-2029 | | Interest rate caps (cash flow hedge) | $2,000 | $— | $— | 2028 | | Derivatives not designated as hedging instruments: | | | | | | Rate lock commitments | $439 | $4 | $3 | 2025 | | Mortgage-backed securities forwards | $269 | $— | $5 | 2025 | | Interest rate swaps | $3,229 | $17 | $22 | 2025-2041 | Note 14 - Intangible Assets This note provides details on the company's intangible assets, primarily core deposit intangibles, including their gross carrying amount, accumulated amortization, and net carrying value Intangible Assets (June 30, 2025) | (in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | | :-------------------------- | :-------------------- | :----------------------- | :----------------- | | Core deposit intangible | $700 | $(282) | $418 | | Other intangible assets | $26 | $(11) | $15 | | Total other intangible assets | $726 | $(293) | $433 | Amortization Expense | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amortization expense | $27 | $33 | $55 | $68 | Note 15 - Fair Value Measures This note explains the company's fair value measurement hierarchy for assets and liabilities, distinguishing between recurring and non-recurring fair value measurements - Fair value is an 'exit' price, determined based on assumptions market participants would use, and categorized into a three-tier hierarchy (Level 1, 2, 3) based on input observability[288][289] Assets and Liabilities Measured at Fair Value on a Recurring Basis (June 30, 2025) | (in millions) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :------------------------------------ | :------ | :------ | :------ | :--------------- | | Assets: | | | | | | Total debt securities available for sale | $1,013 | $13,779 | $31 | $14,823 | | Total equity securities | $— | $14 | $— | $14 | | Loans held for sale | $— | $317 | $— | $317 | | Derivative assets | $— | $17 | $4 | $21 | | Total assets at fair value | $1,013 | $14,127 | $35 | $15,175 | | Liabilities: | | | | | | Derivative liabilities | $— | $27 | $3 | $30 | | Total liabilities at fair value | $— | $27 | $3 | $30 | Assets Measured at Fair Value on a Non-Recurring Basis (June 30, 2025) | (in millions) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :-------------------------- | :------ | :------ | :------ | :--------------- | | Loans held for investment | $— | $— | $2,977 | $2,977 | | Loans held for sale | $— | $2 | $— | $2 | | Other assets | $— | $— | $52 | $52 | | Total | $— | $2 | $3,029 | $3,031 | Carrying Values and Estimated Fair Values of Financial Instruments Not Carried at Fair Value (June 30, 2025) | (in millions) | Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :------------- | :------------------- | :------ | :------ | :------ | | Financial Assets: | | | | | | | Cash and cash equivalents | $8,094 | $8,094 | $8,094 | $— | $— | | FHLB and FRB-NY stock | $1,017 | $1,017 | $— | $1,017 | $— | | Loans and leases held for investment, net | $63,015 | $58,662 | $— | $— | $58,662 | | Financial Liabilities: | | | | | | | Deposits | $69,745 | $69,721 | $45,533 | $24,188 | $— | | Borrowed funds | $13,180 | $13,036 | $— | $13,036 | $— | - The fair value option has been elected for certain financial instruments to align accounting with economic exposure, resulting in a net gain of $6 million on loans held for sale for the three months ended June 30, 2025[317] Note 16 - Mezzanine and Stockholders' Equity This note details the company's preferred stock series, including shares outstanding, par value, liquidation preferences, and warrants for non-voting common equivalent stock Preferred Stock Summary (June 30, 2025) | Preferred Stock Series | Amount Outstanding (millions) | Shares Authorized | Shares Issued | Shares Outstanding | Par Value | Liquidation Preference Per Share | | :------------------------------------ | :---------------------------- | :---------------- | :------------ | :----------------- | :-------- | :----------------------------- | | 6.375% Fixed-to-Floating Rate Perpetual Noncumulative Series A | $503 | 5,000,000 | 515,000 | 515,000 | $0.01 | $1,000 | | Fixed Rate Perpetual Noncumulative Convertible Series B | $1 | 267,062 | 192,062 | 750 | $0.01 | $— | | 13.00% Fixed Rate Perpetual Noncumulative Convertible Series C | $— | 523,369 | — | — | $0.01 | $2,000 | | Non-Voting Common Equivalent Series D | $— | 315,000 | 45 | 15 | $0.01 | $0.0001 | - Dividends of $16 million were paid on Series A preferred stock for the six months ended June 30, 2025[321] - Warrants to purchase Series D NVCE Stock were issued in March 2024, with an exercise price reduced to $2,483 per share as of June 30, 2025, convertible into 105,000,000 shares of common stock[325] Note 17 - Commitments and Contingencies This note outlines the company's off-balance sheet commitments, including loan commitments and letters of credit, and discusses various legal proceedings and their potential financial impact Off-Balance Sheet Commitments (June 30, 2025) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Multi-family and Commercial real estate | $988 | $2,478 | | One-to-four family including interest rate locks | $1,464 | $725 | | Other loan commitments | $10,112 | $9,837 | | Total loan commitments | $12,564 | $13,040 | | Stand-by letters of credit | $699 | $803 | | Total commitments | $13,263 | $13,843 | - The allowance for unfunded commitments was $56 million at June 30, 2025[328] - The company is involved in various legal actions, including shareholder class and derivative actions, and cyber breach litigations, with an estimated immaterial range of reasonably possible losses in excess of amounts accrued[331][334][369][370][371] - Flagstar Bank remains engaged with the FDIC regarding the net settlement of historical activity related to the Signature Transaction, which could impact future financial statements[338] Note 18 - Segment Reporting This note states that the company operates as a single reportable segment, with financial results reviewed on a consolidated basis by the Chief Executive Officer - The company operates in a single reportable segment, with financial results reviewed on a consolidated basis by the Chief Executive Officer[339] - The focus of the chief operating decision maker is on consolidated cost measures, realigning business operations for long-term profitability, and primary revenue sources like Net Interest Income[340] Critical Accounting Estimates The company's financial statements rely on critical accounting estimates, particularly for the Allowance for Credit Losses (ACL) and fair value measurements. These estimates involve significant judgment and assumptions, and actual results may differ, requiring future adjustments - Key critical accounting estimates include the determination of the Allowance for Credit Losses (ACL) and fair value measurements[341] - These estimates are subject to inherent uncertainties, and actual results could differ from original estimates, necessitating future adjustments[341] Quantitative and Qualitative Disclosures about Market Risk The company's most significant market risks are interest rate risk and market risk. There have been no material changes to the market risk disclosures since the Annual Report on Form 10-K for the year ended December 31, 2024 - The most significant risks include interest rate risk and market risk[342] - No changes have occurred regarding market risk disclosures since the Annual Report on Form 10-K for the year ended December 31, 2024[342] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting. These weaknesses relate to risk assessment, monitoring, and control activities, particularly concerning independent Credit Review processes. The company is actively implementing remediation actions, including leadership appointments and enhanced review programs Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in Internal Control over Financial Reporting[343] - Despite the material weaknesses, management concluded that the financial statements fairly present the company's financial position, results of operations, capital position, and cash flows in conformity with GAAP[343] Material Weaknesses in Internal Control over Financial Reporting This section details the identified material weaknesses in internal control over financial reporting, specifically concerning risk assessment, monitoring, and control activities related to independent Credit Review processes - Identified material weaknesses include: - Risk assessment: Lacked effective periodic risk assessment processes to identify and timely respond to emerging risks in financial reporting processes, including independent Credit Review[346] - Monitoring: Recurring monitoring activities over process level control activities, including independent Credit Review, were not operating effectively[347] - Control activities: Did not sufficiently maintain effective control activities related to independent Credit Review processes and certain loan data reconciliations, specifically lacking consistent application of an appropriate framework to validate loan ratings[348] - These deficiencies impact the company's ability to accurately disclose loan rating classifications, identify problem loans, and recognize the Allowance for Credit Losses[351] Remediation Status of Reported Material Weaknesses The company is actively implementing remediation actions to address identified material weaknesses, including leadership appointments and enhanced review programs - The company is actively working to remediate material weaknesses, including assessing additional steps and implementing measures to address underlying causes[353] - Remediation actions include: - Appointed new Board members with financial expertise and risk management backgrounds, including a new Lead Independent Director and Chairmen for the Audit and Risk Assessment Committees[354] - Increased frequency and nature of reporting from Independent Credit Review and First-Line Business Units to the Board's Risk Assessment Committee[355] - Appointed a Chief Risk Officer, Chief Credit Officer, and new Senior Director of Credit Review with large commercial bank credit experience[356] - Enhancing the depth and breadth of the Independent Credit Review program, improving personnel experience, and expanding the use of indepen