FLAGSTAR BANK, NATIONAL ASSOCIATIONFLG

FLAGSTAR BANK, NATIONAL ASSOCIATION Income Taxes Disclosure

10-KFiled Feb 27, 20266 min read
Federal, State, and Local Taxes
    
The following table summarizes the components of our net deferred tax asset (liability):

December 31,
20252024
Deferred Tax Assets:
Allowance for credit losses on loans and leases$273 $314 
Acquisition accounting and fair value adjustments on securities (including OTTI)133177 
Right of use liability
113121 
Non-accrual interest 7011 
Compensation and related benefit obligations4754 
Other2927 
Unrealized gains and amortization of mortgage servicing rights
—26 
Accrued expenses
1516 
Net operating loss carryforwards812 
Gross deferred tax assets$688 $758 
Valuation allowance$(4)$(4)
Net deferred tax asset after valuation allowance$684 $754 
Deferred Tax Liabilities:
Leases$(281)$(315)
Fair value adjustments on loans(161)(198)
Right of use asset
(101)(109)
Amortizable intangibles(72)(95)
Prepaid pension cost(44)(37)
Premises and equipment(38)(29)
Other(22)(14)
Acquisition accounting and fair value adjustments on debt(7)(8)
Gross deferred tax liabilities$(726)$(805)
Net deferred tax liability$(42)$(51)

Our net deferred tax liability represents the anticipated federal, state, and local tax expenses or benefits that are expected to be realized in future years upon the utilization of the underlying tax attributes comprising said balances. As of December 31, 2025, a deferred tax asset of $22 million is reported in Other assets and a deferred tax liability of $64 million is reported in Other liabilities in the Consolidated Statements of Condition.
We evaluate the need for a deferred tax asset valuation allowance based on a more likely than not standard. Our evaluation is based on our history of reporting positive taxable income in all relevant tax jurisdictions, the length of time available to utilize the net operating loss carryforwards, and the recognition of taxable income in future periods from taxable temporary differences.
At December 31, 2025, we had a state deferred tax asset for net operating losses of $8 million (net of federal tax impact) related to total state net operating loss carryforwards of $172 million at December 31, 2025, that expire if unused by 2033. In connection with our ongoing assessment of deferred taxes, we analyzed each state net operating loss separately, determined the amount of net operating loss available and estimated the amount that we expected to expire unused. Based on this assessment, we maintained a valuation allowance of $4 million as of December 31, 2025 and 2024.
The following table presents our income tax (benefit)/expense:

Year Ended December 31,
202520242023
Federal – current$26 $126 $156 
State and local – current16 25 59 
Total current42 151 215 
Federal – deferred(45)(336)(137)
State and local – deferred(18)(75)(49)
Total deferred(63)(411)(186)
Income tax (benefit)/expense reported in net income
(21)(260)29 
Income tax impact reported in stockholders’ equity related to:
Securities available-for-sale66 (24)15 
Pension liability adjustments5 (2)6 
Cash flow hedge(17)12 (14)
Total income taxes$33 $(274)$36 

The following table presents a reconciliation of statutory federal income tax (benefit)/expense to income tax (benefit)/expense reported in net income for the periods indicated:
Year Ended December 31,
202520242023
Statutory federal income tax at 21%
$(42)21.0 %$(289)20.9 %$(10)21.0 %
State and local income taxes, net of federal income tax effect(1)
(2)1.1 %(39)2.9 %8 (16.5)%
Federal tax credits(7)3.4 %(14)1.0 %(31)63.8 %
Nontaxable or nondeductible items
Non-deductible FDIC deposit insurance premiums37 (18.8)%66 (4.8)%16 (33.0)%
Non-taxable or deductible bargain gain— — %25 (1.8)%(447)909.0 %
Non-taxable expense of bank-owned life insurance(10)5.2 %(9)0.7 %(9)18.5 %
Tax exempt income (8)4.2 %(8)0.6 %(6)11.3 %
Effect of tax deductibility of deferred compensation3 (1.4)%3 (0.2)%(3)6.2 %
Non-deductible executive compensation7 (3.5)%— — %— — %
Non-deductible goodwill impairment— — %— — %509 (1035.1)%
Other
— — %6 (0.5)%— (0.8)%
Other, net1 (0.6)%(1)0.1 %2 (4.0)%
Total income tax (benefit)/expense
$(21)10.6 %$(260)18.9 %$29 (59.6)%
(1)States taxes in the following states made up the majority of the category or greater than 50% of the tax effected category:
2025-New York State, New York City, New Jersey, California and Texas
2024-New York State and New York City
2023-New York State, New York City, New Jersey, California, Georgia, Illinois, Florida, Virginia and Arizona

We invest in affordable housing projects through limited partnerships that generate federal low income housing tax credits. The balances of these investments, which are included in Other assets in the Consolidated Statements of Condition, were $296 million and $335 million, respectively, at December 31, 2025 and 2024. We elected to apply the proportional amortization method to these investments. Recognized in the determination of income tax (benefit) expense from operations for the years ended December 31, 2025, 2024, and 2023 were $46 million, $41 million, and $34 million, respectively, of affordable housing tax credits and other tax benefits, and an offsetting $39 million, $37 million, and $30 million, respectively, for the amortization of the related investments. No impairment losses were recognized in relation to these investments for the years ended December 31, 2025, 2024, and 2023.
The amount of income taxes paid (net of refunds) is as follows:

Year Ended December 31,
202520242023
US Federal
$— $(8)$9 
US State and Local
State Taxes:
New York State
10 9 13 
New Jersey
(1)1 (2)
California
*1 8 
Illinois
*1 2 
Florida
*2 2 
Maryland
*1 *
Massachusetts
*1 *
Texas
2 2 *
Indiana
*1 1 
Other
— 4 11 
Local Taxes:
New York City
2 **
Total state and local
$13 $23 $35 
Total $13 $15 $44 
*The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.

At of December 31, 2025 and 2024, we had $43 million of unrecognized gross tax benefits. Gross tax benefits do not reflect the federal tax effect associated with state tax amounts. The total amount of net unrecognized tax benefits that would have effected the effective tax rate, if recognized, was $35 million and $34 million at December 31, 2025 and 2024, respectively.
Interest and penalties related to the underpayment of income taxes are classified as a component of Income tax (benefit)/ expense in the Consolidated Statements of (Loss) Income. During the years ended December 31, 2025, 2024, and 2023, we recognized income tax expense attributed to interest and penalties of $9 million, $8 million, and $8 million, respectively. Accrued interest and penalties on tax liabilities were $51 million and $42 million, respectively, as of December 31, 2025 and 2024.

The following table summarizes changes in the liability for unrecognized gross tax benefits:

Year Ended December 31,
202520242023
Uncertain tax positions at beginning of year$43 $42 $40 
Additions for tax positions relating to current-year operations1 1 1 
Additions for tax positions relating to prior tax years— — 2 
Subtractions for tax positions relating to prior tax years(1)— (1)
Uncertain tax positions at end of year$43 $43 $42 

We file tax returns in many states. Generally, the tax returns are open by statue for years 2022 through present, unless extended due to examination.
The following notable income tax filings are currently under examination:

Jurisdiction
Period
Federal income tax
2019-2021
New York State income tax
2010-2021
New York City income tax
2011-2014, 2016-2021
Illinois income tax
2018-2019, 2020-2023
California
2021-2022
We are subject to a special federal tax provision regarding our frozen tax bad debt reserve. At December 31, 2025, our federal tax bad debt base-year reserve was $62 million, with a related federal deferred tax liability of $13 million which has not been recognized since we do not expect that this reserve will become taxable in the foreseeable future. Events that would result in taxation of this reserve include redemptions of our stock or certain excess distributions by us.

Historical Timeline

Fiscal YearFiled
2025Feb 27, 2026Showing above
2024Mar 4, 2025
2023Mar 14, 2024

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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