Flagstar's CEO Looks to the Future While Grappling with the Past

Michael Tierney's challenge next year at Flagstar Bancorp is twofold: find ways to go on the offensive while continuing to resolve lingering issues at the Troy, Mich., company.

Tierney became the company's chief executive in October, taking over for Joseph Campanelli. Flagstar returned to profitability this year, but it remains haunted by its past as it grapples with nonperforming assets and litigation tied to its past dealings in mortgage-backed securities.

Tierney, selected as one of American Banker's Community Bankers to Watch for 2013, said in an interview that his main goal for next year is to keep Flagstar profitable. If the $14.4 billion-asset company can secure positive returns, everything else should fall into place.

Here is an edited excerpt of the interview.

What is your top priority for 2013?

MICHAEL TIERNEY: The top priority is to maintain consistent profitability. We worked long and hard to get back to being profitable and we want to make sure we stay there.

How do you do that?

We've said that we are going to focus on some key areas. One is our mortgage business, where we are a national player, and the other is being a supercommunity bank here in Michigan, where we are very strong in personal financial services and we are building out our commercial capabilities.

We are working hard to reduce or eliminate uncertainty regarding our legacy issues. While we've made great progress there, we still need to continue to push on that as we go through 2013.

We won the J.D. Power [and Associates Retail Banking Satisfaction Study] award two years in a row. So we pride ourselves on great customer service across all of our lines of business and we want to make sure we maintain that.

Flagstar seems somewhat caught between two worlds. It is traveling down a new path with renewed vigor for community banking in Michigan, but it is still dealing with legacy issues. What steps do you need to take to end this bifurcated view of your company?

I think we've been taking all of the steps, we just need to continue on the path, right? As we focus on our key businesses, and as they grow and are profitable, that puts us in a better position to be able to deal with our legacy issues.

We have significantly decreased our delinquent loans and are continuing to do that. But it is just going to take time — particularly with a residential business where it takes so long to foreclose — to get control of a property and then get it sold.

Every bank in the country that is in the business is struggling with that. Nonperforming assets are sticky in the residential loan area. As home prices increase, that cycle will begin to move faster.

What is your biggest challenge or worry for 2013?

I think for everyone in the banking industry, it is going to be the fiscal cliff. We need Congress and the [Obama] administration to come together and find a way to raise some revenues and cut some costs and make sure that the economy doesn't take a nosedive. If it does, it is going be to the biggest problem for every banker in the country.

If we are talking this time next year, what do you think will be the year's highlights?

If we look back and say, hey, we met our earnings consistently, improved the strength of the balance sheet and were able to grow the business, we are going to be pretty happy.

Let's talk about your plans for growth.

We feel pretty good about where we are right now. We feel good about the level of where we are in the mortgage business. We want to maintain the volume levels and make sure we are doing that in a high-quality fashion. It is not so much about increasing what we are doing, but just making sure that we are doing it in the best possible way.

In retail, we are the fastest-growing bank in Michigan. We probably won't grow as fast, because we don't need to, but we will probably remain the fastest-growing bank in Michigan.

How do you plan to build shareholder value?

As you demonstrate progress on eliminating the uncertainty with the legacy issues, investors can focus on our strategy: mortgages and Michigan. It is a much simpler strategy. We are winding down our New England presence. We exited the Indiana and Georgia markets. A more focused business strategy is much easier to execute on.

Besides reducing credit costs, are there any particular areas of the income statement that you'd like to improve?

We think we have one of the strongest earnings engines in the banking industry right now. It is really not about increasing it. We have a great race car that can really go; we just have to make sure nothing knocks it off the tracks. Every time that car is on the track, we want it to perform consistently.