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Business Combinations | 12 Months Ended
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Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | Business Combinations Signature Bridge Bank On March 20, 2023, the Company’s wholly owned bank subsidiary, Flagstar Bank N.A. (the “Bank”), entered into a Purchase and Assumption Agreement (the “Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as receiver (the "FDIC Receiver") of Signature Bridge Bank, N.A. (“Signature”) to acquire certain assets and assume certain liabilities of Signature (the “Signature Transaction”). Headquartered in New York, New York, Signature Bank was a full-service commercial bank that operated 29 branches in New York, seven branches in California, two branches in North Carolina, one branch in Connecticut, and one branch in Nevada. In connection with the Signature Transaction the Bank assumed all of Signature’s branches. The Bank acquired only certain parts of Signature it believes to be financially and strategically complementary that are intended to enhance the Company’s future growth. Pursuant to the terms of the Agreement, the Company was not required to make a cash payment to the FDIC on March 20, 2023 as consideration for the acquired assets and assumed liabilities. As the Company and the FDIC remain engaged in ongoing discussions which may impact the assets and liabilities acquired or assumed by the Company in the Signature Transaction. Any items identified that affect the bargain gain are recorded in the period they are identified. The Company may be required to make a payment to the FDIC or the FDIC may be required to make a payment to the Company on the Settlement Date, which will be one year after March 20, 2023, or as agreed upon by the FDIC and the Company. In addition, as part of the consideration for the Signature Transaction, the Company granted the FDIC equity appreciation rights in the common stock of the Company under an equity appreciation instrument (the "Equity Appreciation Instrument"). On March 31, 2023, the Company issued 39,032,006 shares of Company common stock to the FDIC pursuant to the Equity Appreciation Instrument. On May 19, 2023, the FDIC completed the secondary offering of those shares. The Company has determined that the Signature Transaction constitutes a business combination as defined by ASC 805, Business Combinations ("ASC 805"). ASC 805 establishes principles and requirements as to how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. Accordingly, the assets acquired and liabilities assumed have been recorded based on their preliminary estimated fair values as of March 20, 2023, which have been adjusted through December 31, 2023 based on changes to those preliminary estimates. Under the Agreement, the Company is expected to provide certain services to the FDIC to assist the FDIC in its administration of certain assets and liabilities which were not assumed by the Company and which remain under the control of the FDIC (the “Interim Servicing”). The Interim Servicing includes activities related to the servicing of loan portfolios not acquired on behalf of the FDIC for a period of up to one year from the date of the Signature Transaction unless such loans are sold or transferred at an earlier time by the FDIC or until cancelled by the FDIC upon 60-days’ notice. The Interim Servicing may include other ancillary services requested by the FDIC to assist in their administration of the remaining assets and liabilities of Signature Bank. The FDIC will reimburse the Company for costs associated with the Interim Servicing based upon an agreed upon fee which approximates the cost to provide such services. As the FDIC intends to reimburse the Company for the costs to service the loans, neither a servicing asset nor servicing liability was recognized as part of the Signature Transaction. The Company did not enter into a loss sharing arrangement with the FDIC in connection with the Signature Transaction. As the Company finalizes its analysis of the assets acquired and liabilities assumed, there may be adjustments to the recorded carrying values. In many cases, the determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. While the Company believes that the information available on December 31, 2023, provided a reasonable basis for estimating fair value, the Company may obtain additional information and evidence during the measurement period that may result in changes to the estimated fair value amounts. Fair values subject to change include, but are not limited to, those related to loans and leases, certain deposits, intangibles, deferred tax assets and liabilities and certain other assets and other liabilities. A summary of the preliminary net assets acquired and related estimated fair value adjustments resulting in the bargain purchase gain is as follows:
(in millions) | March 20, 2023
| (preliminary)
Net assets acquired before fair value adjustments | $ | 2,973 |
Fair value adjustments: |
Loans | (727) |
Core deposit and other intangibles | 464 |
Certificates of deposit | 27 |
Other net assets and liabilities | 39 |
FDIC Equity Appreciation Instrument | (85) |
Deferred tax liability | (690) |
Bargain purchase gain on Signature Transaction, as initially reported | 2,001 |
Measurement period adjustments, excluding taxes | 28 |
Change in deferred tax liability | 102 |
Bargain purchase gain on Signature Transaction, as adjusted | $ | 2,131 |
In connection with the Signature Transaction, the Company recorded a bargain purchase gain, as adjusted, of approximately $2.1 billion during the year ended December 31, 2023, which is included in non-interest income in the Company’s Consolidated Statement of Income and Comprehensive Income. The bargain purchase gain represents the excess of the estimated fair value of the assets acquired (including cash payments received from the FDIC) over the estimated fair value of the liabilities assumed and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirers bid, the FDIC may be required to make a cash payment to the Company and the Company may be required to make a cash payment to the FDIC. The assets acquired and liabilities assumed and consideration paid in the Signature Transaction were initially recorded at their estimated fair values based on management’s best estimates using information available at the date of the Signature Transaction, and are subject to adjustment for up to one year after the closing date of the Signature Transaction. The Company and the FDIC are engaged in ongoing discussions and settlement payments have been made that have impacted certain assets acquired or certain liabilities assumed by the Company on March 20, 2023 and are included as measurement period adjustments in the table below.
(in millions) | Preliminary as Initially Reported | Measurement Period Adjustments | Preliminary as Adjusted
Purchase Price consideration | $ | 85 |  |  | $ | 85 |
Fair value of assets acquired: |  |  |
Cash & cash equivalents | 25,043 |  | (142) |  | 24,901 |
Loans held for sale | 232 |  |  | 232 |
Loans held for investment: |  |  |
Commercial and industrial | 10,102 |  | (214) |  | 9,888 |
Commercial real estate | 1,942 |  | (262) |  | 1,680 |
Consumer and other | 174 |  | (1) |  | 173 |
Total loans held for investment | 12,218 |  | (477) |  | 11,741 |
CDI and other intangible assets | 464 |  | — |  | 464 |
Other assets | 679 |  | (169) |  | 510 |
Total assets acquired | 38,636 |  | (788) |  | 37,848 |
Fair value of liabilities assumed: |  |  |
Deposits | 33,568 |  | (61) |  | 33,507 |
Other liabilities | 2,982 |  | (857) |  | 2,125 |
Total liabilities assumed | 36,550 |  | (918) |  | 35,632 |
Fair value of net identifiable assets | 2,086 |  | 130 |  | 2,216 |
Bargain purchase gain | $ | 2,001 |  | $ | 130 |  | $ | 2,131 |
During the year ended December 31, 2023, the Company recorded preliminary measurement period adjustments to adjust the estimated fair value of loans and leases acquired and adjust other assets and accrued expenses and other liabilities for balances ultimately retained by the FDIC. Additionally, $449 million of loans were returned to the FDIC in accordance with the purchase and sale agreement. The Company also recognized a net change in the deferred tax liability due to the measurement period adjustments and the secondary offering of shares completed by the FDIC. The Company incurred $223 million in acquisition costs related to the Signature Transaction primarily for legal, advisory, and other professional services. These costs are recorded within Merger-related and restructuring expenses on the Consolidated Statements of Income and Comprehensive Income. Fair Value of Assets Acquired and Liabilities Assumed Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Signature Transaction. Cash and Cash Equivalents The estimated fair value of cash and cash equivalents approximates their stated face amounts, as these financial instruments are either due on demand or have short-term maturities. Loans and leases The fair value for loans was based on a discounted cash flow methodology that considered credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions were the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the date of the Signature Transaction. Deposit Liabilities The fair value of deposit liabilities with no stated maturity (i.e., non-interest-bearing and interest-bearing checking accounts) is equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. Core Deposit Intangible Core deposit intangible (“CDI”) is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI was determined using a discounted cashflow methodology which considered discount rate, customer attrition rates, and other relevant market assumptions. This method estimated the fair value by discounting the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the Signature Transaction will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists. CDI does not significantly impact our liquidity or capital ratios. PCD loans Purchased loans that reflect a more than insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the allowance for credit losses (“ACL”) on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the Signature Transaction with credit deterioration and the associated credit loss reserve at acquisition:
(in millions) | Total
Par value (UPB) | $ | 583 |
ACL at acquisition | (13) |
Non-credit (discount) | (76) |
Fair value | $ | 494 |
Unaudited Pro Forma Information – Signature Transaction The Company’s operating results for the year ended December 31, 2023 include the operating results of the acquired assets and assumed liabilities of Signature subsequent to the acquisition on March 20, 2023. Due to the use of multiple systems and integration of the operating activities into those of the Company, historical reporting for the former Signature operations is impracticable and thus disclosures of the revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to acquisition. Signature was only in operation from March 12, 2023 to March 20, 2023 and does not have historical financial information on which we could base pro forma information. Additionally, we did not acquire all assets or assume all liabilities of Signature and the historical operations are not consistent with the transaction. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the Signature Transaction in accordance with ASC 805-10-50-2. Flagstar Bancorp, Inc. On December 1, 2022, the Company closed the acquisition of Flagstar Bancorp, Inc. (“Flagstar”) in an all-stock transaction (“Flagstar Transaction”). Flagstar was a savings and loan holding company headquartered in Troy, MI. Pursuant to the terms of the Merger Agreement, each share of Flagstar common stock was converted into 4.0151 shares of the Company’s common shares at the effective time of the merger. In addition, the Company received approval from the Office of the Comptroller of the Currency (the “OCC") to convert Flagstar Bank, FSB to a national bank to be known as Flagstar Bank, N.A., and to merge New York Community Bank into Flagstar Bank, N.A. with Flagstar Bank, N.A. being the surviving entity. Flagstar Bank, FSB, provided commercial, small business, and consumer banking services through 158 branches in Michigan, Indiana, California, Wisconsin, and Ohio. It also provided home loans through a wholesale network of brokers and correspondents in all 50 states. The acquisition of Flagstar added significant scale, geographic diversification, improved funding profile, and a broader product mix to the Company. The acquisition of Flagstar has been accounted for as a business combination. The Company recorded the preliminary estimate of fair value of the assets acquired and liabilities assumed December 1, 2022, which was subject to adjustment for up to one year after December 1, 2022. As of December 31, 2023, the Company finalized its review of the assets acquired and liabilities assumed, and did not record any material adjustments. The following table provides an allocation of consideration paid for the fair value of assets acquired and liabilities and equity assumed from Flagstar as of December 1, 2022.
(in millions) | December 1, 2022
Purchase Price consideration | $ | 2,010 |
Fair value of assets acquired: |
Cash & cash equivalents | 331 |
Securities | 2,695 |
Loans held for sale | 1,257 |
Loans held for investment: |
One-to-four family first mortgage | 5,438 |
Commercial and industrial | 3,891 |
Commercial real estate | 6,523 |
Consumer and other | 2,156 |
Total loans held for investment | 18,008 |
CDI and other intangible assets | 292 |
Mortgage servicing rights | 1,012 |
Other assets | 2,158 |
Total assets acquired | 25,753 |
Fair value of liabilities assumed: |
Deposits | 15,995 |
Borrowings | 6,700 |
Other liabilities | 889 |
Total liabilities assumed | 23,584 |
Fair value of net identifiable assets | 2,169 |
Bargain purchase gain | $ | 159 |
In connection with the acquisition, the Company recorded a bargain purchase gain of approximately $159 million. The Company incurred $99 million in acquisition costs related to the Flagstar Transaction primarily for legal, advisory, and other professional services. These costs are recorded within Merger-related and restructuring expenses on the Consolidated Statements of Income and Comprehensive Income. Fair Value of Assets Acquired and Liabilities Assumed Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Flagstar acquisition. Cash and Cash Equivalents The estimated fair value of cash and cash equivalents approximates their stated face amounts, as these financial instruments are either due on demand or have short-term maturities. Investment Securities and Federal Home Loan Bank Stock Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value. The fair value of FHLB-Indianapolis stock is equivalent to the redemption amount. Loans Fair values for loans were based on a discounted cash flow methodology that considered credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions were the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the merger date. Core Deposit Intangible CDI is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the Flagstar acquisition will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists. Deposit Liabilities The fair value of deposit liabilities with no stated maturity (i.e., non-interest-bearing and interest-bearing checking accounts) is equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. Borrowed Funds The estimated fair value of borrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities. PCD loans Purchased loans that reflect a more than insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the Flagstar acquisition with credit deterioration and the associated credit loss reserve at acquisition:
(in millions) | Total
Par value (UPB) | $ | 1,950 |
ACL at acquisition | (51) |
Non-credit (discount) | (33) |
Fair value | $ | 1,866 |
Unaudited Pro Forma Information The Company’s results of operations for the year-ended December 31, 2022 and 2023 include the results of operations of Flagstar on and after December 1, 2022. Results for periods prior to December 1, 2022, do not include the results of operations of Flagstar. The following pro forma financial information presents the unaudited consolidated results of operations of the Company and Flagstar as if the Flagstar Transaction occurred as of January 1, 2021 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the net discounts from the fair value adjustments of acquired loans, any change in interest expense due to the estimated net premium from the fair value adjustments to acquired time deposits and other debt, and the amortization of intangibles had the deposits been acquired as of January 1, 2021. The pro forma amounts for the years ended December 31, 2022 and 2021 do not reflect the anticipated cost savings that have not yet been realized. Acquisition costs incurred by the Company during the years ended December 31, 2022 and 2021 are reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Flagstar Transaction occurred at the beginning of 2021.
| For the Years Ended December 31,
| (unaudited)
(in millions) | 2022 |  | 2021
Net interest income | $ | 2,278 |  |  | $ | 2,208 |
Non-interest income | 650 |  |  | 1,105 |
Net income | 804 |  |  | 1,207 |
Net income available to common stockholders | $ | 771 |  |  | $ | 1,174 |

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