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Business Combinations | 3 Months Ended
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Mar. 31, 2024
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. The final settlement process between the Company and the FDIC concluded upon the one-year anniversary of the Signature Transaction. 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 Company recorded the estimated fair value of the assets acquired and liabilities assumed as of March 20, 2023, which was subject to adjustment for up to one year after March 20, 2023 (the “Measurement Period”). As of March 31, 2024 the Measurement period has concluded and the Company has finalized its review of the assets acquired and liabilities assumed. Under the Agreement, the Company provided 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 FDIC reimbursed 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 reimbursed 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 Interim Servicing was completed in March 2024. The Company did not enter into a loss sharing arrangement with the FDIC in connection with the Signature Transaction. 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. A summary of the net assets acquired and the estimated fair value adjustments resulting in the bargain purchase gain is as follows:
(in millions) | March 20, 2023
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 |
Adjustments related to items identified subsequent to the initial reporting period as of March 20, 2023: |
Measurement period adjustments, excluding taxes | (134) |
Change in deferred tax liability | 143 |
Bargain purchase gain on Signature Transaction, as adjusted | $ | 2,010 |
In connection with the Signature Transaction, the Company recorded a bargain purchase gain, as adjusted, of approximately $2.0 billion. This includes a $121 million reduction in the bargain purchase gain during the three months ended March 31, 2024 due to final adjustments to the fair value of assets received and liabilities assumed, including the in-transit and other shared accounts. This adjustment 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 was 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 recorded at their estimated fair values based on management’s best estimates using information available at the date of the Signature Transaction. The following table provides the purchase price allocation to the assets acquired and liabilities assumed at their estimated fair values as of the date of the Signature Transaction:
(in millions) | As Initially Reported | Measurement Period Adjustments | 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 |  | (266) |  | 413 |
Total assets acquired | 38,636 |  | (885) |  | 37,751 |
Fair value of liabilities assumed: |  |  |
Deposits | 33,568 |  | (61) |  | 33,507 |
Other liabilities | 2,982 |  | (833) |  | 2,149 |
Total liabilities assumed | 36,550 |  | (894) |  | 35,656 |
Fair value of net identifiable assets | 2,086 |  | 9 |  | 2,095 |
Bargain purchase gain | $ | 2,001 |  | $ | 9 |  | $ | 2,010 |
During the Measurement Period, the Company recorded 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. 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 approximately $236 million in acquisition costs related to the Signature Transaction primarily for legal, advisory, system conversion 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 cash flow 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 and the three months ended March 31, 2024 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.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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