Island Flood
Flooding occurs when normally dry land is inundated with:
- Overflowing of existing waterways to surrounding areas that can extend up to hundreds of miles and last for days or longer.
- Poor rainwater drainage in low areas where drainage systems may be antiquated, over-stressed, damaged, or poorly maintained.
- Flash floods that are shorter-term, localized, and incredibly fast with floating debris, such as trees, resulting from high-intensity rainfall, dam break, levee failure, rapid snowmelt, and ice jams.
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Overall Risk: Low to Medium
Geographically: Medium to High
More than 50% of our commercial properties are in the Midwest states of Michigan, Indiana, and Ohio, where inland floods are more prominent, and in New York and California, where storm-related floods are more frequent.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 1.42%, or approximately $4.6M.
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We respond to the ongoing threat of inland flooding by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for inland flooding and ensures consistent responses for recovery.
We have made or are considering making enhancements to properties exposed to inland floods, where applicable, including upgrading old pipes and drainage systems and improving drainage system maintenance.
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Hurricane Wind
Hurricanes move in a circular motion: anticlockwise in the Northern Hemisphere and clockwise in the Southern Hemisphere, deriving their energy from warm ocean surface water. The strong wind can cause severe damage to the destruction of structures.
- A tropical storm becomes a hurricane with sustained winds faster than 74 mph. Hurricanes can create destructive weather, resulting in catastrophic economic and human loss. In addition to releasing large volumes of water, potentially causing flooding, they can cause catastrophic damage due to their destructive winds.
- With climate change, there is high confidence that the frequency of severe hurricanes (category IV and V) will increase.
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Overall Risk: Medium
Geographically: Medium
More than 40% of our commercial properties are in the Northeast Coastal states of New York and New Jersey, followed by the Southeast Coastal state of Florida. Here, hurricane events are frequent, and their extreme severity can cause serious wind damage.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 2.25%, or approximately $7.2M.
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We respond to the ongoing threat of hurricane winds by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for hurricane winds and ensures consistent recovery responses.
We have made or are considering making enhancements to properties exposed to hurricane winds, where applicable. These include maintaining tree trimming (e.g., weak branches) or removing weak trees altogether, upgrading glass doors to tempered glass, and sealing exterior wall openings.
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Hurricane Storm Surge
Storm surge is an abnormal rise of water generated by a storm, much larger than predicted astronomical tides. Several factors affect the surge height and reach:
Hurricane extreme winds push shallow coastal waters in such a way that the sea level rises, causing extreme flooding in coastal areas. Powerful storms can cause up to 30 feet of storm surge. The frequency of severe hurricanes (category IV and V) will also likely increase under climate change.
Sea level rise will accelerate under future climate change as increasing temperatures melt ice sheets and warm the oceans, causing thermal expansion.
In addition, a regional rise due to changes in ocean circulation resulting from the input of freshwater and heat further raises the height of tides and allows storm surges to penetrate farther inland.
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Overall Risk: Medium
Geographically: Medium
Approximately 40% of our commercial properties are in the East Coast states of New York and Florida, where storm surge events resulting from severe hurricanes and low-elevation terrain subject to sea surges are relatively frequent.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 0.48%, or approximately $1.6M.
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We respond to the ongoing threat of hurricane storm surge by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for hurricane storm surges and ensures consistent responses for recovery.
We have made or are considering making enhancements to properties exposed to hurricane storm surge, where applicable, including sealing gaps and cracks in structures.
Furthermore, we strive for environmental improvement and share actions with the community, when possible, in creating and maintaining evacuation paths, shelters, and emergency supply kits.
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Severe Convective Storm
A severe convective storm is a weather phenomenon due to land surface heating, causing warm, moist air to rise into the atmosphere. The main types of storms are:
- Tornado: Tornadoes are one of the most devastating natural hazards worldwide. Tornadoes are violently rotating columns of air that tend to form with severe thunderstorms. They can last from a few seconds to more than an hour.
- Hail: When strong convective updrafts exceed 100 mph, substantial amounts of moisture and debris are brought into the storm and provide seed for raindrops to form. They grow as they travel upwards above the freezing point and eventually fall due to gravitational pull as hail. Hail develops in most mid-latitude thunderstorms, and depending on the hail size, it may ruin roofs, break windows, and cause other structural damage.
- Straight-line winds - Severe convective systems often produce straight-line winds with possible sustained winds of over 58 mph.
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Overall Risk: Low
Geographically: High
More than 60% of Flagstar’s commercial properties are in areas prone to severe convective storms, such as Indiana, Michigan, Ohio, and New York.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 0.19%, or approximately $0.65M.
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We respond to the ongoing threat of severe convective storms by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for severe convective storms and ensures consistent recovery responses.
We have also made or are considering making enhancements to properties exposed to severe convective storms, where applicable, including installing strong shutters, ensuring buildings with double-pane windows are in place, and maintaining tree trimming (e.g., weak branches) or removing weak trees altogether.
Furthermore, we strive for environmental improvement and share actions with the community, when possible, in creating and maintaining shelters and emergency supply kits.
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Winter Storm
From November to April, thousands of miles of winter storms form by mixing sufficiently chilly air with abundant moisture. The northern branch of the jet stream brings frigid air to the Midwest and Southern Great Plains states.
- Winter storm precipitation includes snow, sleet, freezing rain, and rain. Many types of weather-related damage can occur depending on the rate of precipitation and its composition.
- Winter storms can cause roof damage due to snow accumulation and frozen and ruptured pipes that flood the structure. Ice formation on roofs and gutters can prevent melting snow from draining and cause interior water damage.
- Climate extremes are expected to worsen, and precipitation rates are expected to increase as a warmer atmosphere can hold more moisture. This may make severe winter storms more likely for certain regions.
- Additionally, polar jet streams reaching farther south may bring severe winter storms as far as the Southern Great Plains.
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Overall Risk: Very Low
Geographically: Low
Our commercial properties are noticeably light in Midwest regions that may be affected by severe winter storms. There are no properties in the Great Plains or Northern states such as Maine or North Dakota.
Financially: Very Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 0.09%, or approximately $0.3M.
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We respond to the ongoing threat of winter storms by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for winter storms and ensures consistent recovery responses.
Our well-distributed geographical portfolio with a majority of properties outside affected areas of severe winter storms helps diversify risk.
We have also made or are considering making enhancements to properties exposed to winter storms, where applicable. These include improving and maintaining heating systems to prevent pipes from freezing, improving and maintaining roof and gutter systems to allow for melting snow drainage, and insulating outside pipes.
Furthermore, we strive for environmental improvement and share actions with the community, when possible, in creating and maintaining shelters and emergency supply kits.
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WILDFIRE
A wildfire is an unplanned, uncontrolled fire that spreads across the landscape in response to environmental fuel, weather, and topography.
- Wildfires are natural phenomena in California and much of the West; however, climate change increases their frequency and severity.
- Earlier spring snowmelt provides more vegetation, which lengthens fires and fire frequency, while increasing temperature and vapor dry the vegetation make it a better fuel.
Wildfire propagation depends on the available fuel, topography, and weather conditions, such as temperature, humidity, and winds.
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Overall Risk: Low
Geographically: Low
Our commercial properties in areas prone to wildfire events, such as the West Coast and Southwest, are quite low. A small number of properties, around 5%, are in California and Arizona.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 0.19%, or approximately $0.6M.
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We respond to the ongoing threat of wildfires by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for wildfires and ensures consistent recovery responses.
Our well-distributed geographical portfolio helps diversify risk, with most properties outside areas affected by severe wildfires.
We have also made or are considering making enhancements to properties exposed to wildfires, where applicable. These include replacing flammable outside surfaces with fire-resistant materials, such as concrete, and maintaining clean roofs and gutters.
Furthermore, we strive for environmental improvement and share actions with the community, when possible, to maintain varying degrees of separation between trees and shrubs and their distance from the structure and varying degrees of tree and shrub heights with respect to their distance from the structure.
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Earthquake
An earthquake is a sudden slip on a fault between tectonic plates. The plates move slowly but may get stuck at their edges due to friction, causing stress to build at the fault. When the stress overcomes the friction, a quake releases energy in waves that travel through the earth’s crust.
- Two major tectonic plates engage in the earthquakes that primarily afflict California: the North American Plate, comprising most of the North American Continent and parts of the Atlantic Ocean, and the Pacific Plate, comprising most of the Pacific Ocean floor and the California coastline. They meet primarily along the San Andreas fault over 650 miles with a depth of over 10 miles and other smaller faults (e.g., the Hayward in Northern California).
- Earthquakes can cause major structural damage due to shaking energy, especially to older buildings; water damage due to sprinkler leaks and broken pipes; and destruction due to fire from gas leaks or torn powerlines.
- The physical phenomenon of an earthquake is not expected to change due to climate change. However, the associated perils of fire following earthquakes and tsunamis may be exacerbated by climate change impacts to wildfire risk and rising sea levels.
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Overall Risk: Very Low
Geography: Very Low
Our commercial properties prone to earthquake events, such as those on the West Coast, are quite low. Less than 2% of properties are in California.
Financially: Low
Occurrence exceedance loss percentage of total portfolio value is estimated at 0.14%, or approximately $0.46M.
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We respond to the ongoing threat of earthquakes by carrying additional insurance coverage for properties exposed to protect against losses.
Our Enterprise Disaster Recovery/Business Continuity Strategy helps prepare our properties for earthquakes and ensures consistent recovery responses.
Our well-distributed geographical portfolio with a majority of properties outside of affected areas of severe earthquakes helps diversify risk.
We have made or are considering making enhancements to properties exposed to earthquakes, where applicable, including maintaining roofs and chimneys to prevent loose tiles and bricks.
Furthermore, we strive for environmental improvement and share actions with the community, when possible, in creating and maintaining evacuation paths, shelters, and emergency supply kits.
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Regulatory
Regulatory risks are earnings or capital arising from the violation of law, rule, or regulation or non-conformance with prescribed compliance practices or ethical standards that may expose the bank to fines, civil penalties, litigation costs, payment of damages, and voided contracts.
An increasing number of federal, state, and local climate- and ESG-related policies and regulations could result in increased operating and capital costs due to compliance impacts. These regulations and policies may relate to energy/water efficiencies for our properties, greenhouse gas accounting and reductions, climate-related reporting on bank operations, and other ESG-related policies, such as the SEC Climate Proposal or NYC’s Local Law 97.
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Overall Risk: Low
Geography: Portfolio-wide transitional risk exposure
Financially: Low
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We regularly monitor regulatory and industry developments to ensure compliance with federal, state, and local climate- and ESG-related policies.
We also participate in banking industry and peer benchmarking information-sharing events on ESG and climate topics and consult with sustainability and climate risk specialists.
As discussed throughout our ESG report, we have made numerous ESG and climate accomplishments to mitigate current and future regulatory pressure. Some of these accomplishments include launching the Green Team ERG, completing LED retrofits, making energy efficiency improvements, upgrades to insulation, reducing employee travel and commuting, managing water efficiencies, pursuing green building certifications, financing various green projects, improving waste efficiencies, conducting climate change scenarios, and conducting baseline assessments over our greenhouse gas inventory.
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Reputational
Risk that an action, transaction, investment, or event will reduce customer, counterparty, investor, regulator, employee, and public trust in the bank’s integrity and competence.
The reputational risk of not adopting sustainable and ESG business practices could result in adverse impacts on revenue, funding, or operations due to changes in stakeholder preferences.
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Overall Risk: Low
Geography: Portfolio-wide transitional risk exposure
Financially: Low
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We continuously strive to improve and implement sustainability and ESG initiatives throughout our operations to mitigate reputational risk.
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