On December 1, 2022, the Company closed the acquisition of Flagstar Bancorp, Inc. (“Flagstar Bancorp”) in an all-stock 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 Bancorp. 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 estimate of fair value based on initial valuations at December 1, 2022. Due to the timing of the transaction closing date and the Company’s annual report on Form 10-K, these estimated fair values are considered preliminary as of December 31, 2022, and subject to adjustment for up to one year after December 1, 2022. While the Company believes that the information available on December 1, 2022 provided a reasonable basis for estimating fair value, the Company expects that it may obtain additional information and evidence during the measurement

period that would result in changes to the estimated fair value amounts. Valuations subject to change include, but are not limited to, loans and leases, certain deposits, intangibles, deferred tax assets and liabilities and certain other assets and other liabilities.

The Company’s results of operations for the year-ended December 31, 2022, 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 table provides a preliminary 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)
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 real estate		3,891
Commercial and industrial		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.

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.

The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

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.

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.

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.

The fair values of deposit liabilities with no stated maturity (i.e., money market accounts, savings accounts, and non-interest-bearing and interest-bearing checking accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities.

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.

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 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

The following pro forma financial information presents the unaudited consolidated results of operations of the Company and Flagstar as if the Merger 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 twelve months ended December 31, 2022 and 2021 do not reflect the anticipated cost savings that have not yet been realized. Merger related expenses incurred by the Company during the twelve months 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 Company merged with Flagstar at the beginning of 2021.


		Twelve Months 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