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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 28, 2020
 
402468469_flagstarbancorpa09.jpg 
(Exact Name of Registrant as Specified in Charter)

Michigan
 
1-16577
 
38-3150651
(State or Other Jurisdiction
of Incorporation
 
(Commission File Number)
 
(IRS Employer
Identification No.)
 
5151 Corporate Drive, Troy, Michigan
 
48098
(Address of Principal Executive Offices)
 
(Zip Code)
(248) 312-2000
(Registrant's telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act (17 CFR 230.405) or Rule 12b-2 of the Exchange Act (17 CFR 240.12b-2).
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. o

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common stock
 
FBC
 
New York Stock Exchange





Item 2.02
Results of Operations and Financial Condition

On January 28, 2020, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended December 31, 2019. The text of the press release is furnished as Exhibit 99.1 to this report. The Company will include final financial statements and additional analyses for the year ended December 31, 2019 as part of its Annual Report on Form 10-K.

On January 28, 2020, the Company will hold a conference call to review fourth quarter 2019 earnings. A copy of the slide presentation to be used by the Company on the conference call is furnished as Exhibit 99.2 to this Current Report on Form 8-K.


Item 9.01
Financial Statements and Exhibits
 
 Exhibits
 
 
 
 
 
99.1
  
Press release of Flagstar Bancorp, Inc. dated January 28, 2020
 
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides - Earnings Presentation Fourth Quarter







SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
FLAGSTAR BANCORP, INC.
 
 
 
 
 
Dated:
January 28, 2020
 
 
 
By:
 
/s/ James K. Ciroli
 
 
 
 
 
 
 
James K. Ciroli
 
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer

Exhibit Index
 
Exhibit No.
  
Description
 
 
 
 
 
 
99.1
  
 
 
 
99.2
  



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


402468469_flagstara43.jpg                402468469_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
[email protected]
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports Fourth Quarter 2019 Net Income of $58 Million, or $1.00 Per Diluted Share

Key Highlights - Fourth Quarter 2019

Net interest income increased $6 million from last quarter, led by higher earning assets
Mortgage revenues totaled $98 million, driven by margin expansion of 3 basis points
Total serviced accounts increased 10 percent from last quarter to nearly 1.1 million loans
Return on equity was 12.7 percent for the quarter, compared to adjusted full year return on equity of 11.7%


TROY, Mich., Jan. 28, 2020 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported fourth quarter 2019 net income of $58 million, or $1.00 per diluted share, compared to third quarter 2019 net income of $63 million, or $1.11 per diluted share and fourth quarter 2018 net income of $54 million, or $0.93 per diluted share. On an adjusted basis, Flagstar reported net income of $42 million, or $0.72 per diluted share, for the fourth quarter 2018.

“We are very pleased to have earned net income of $1.00 per diluted share and a return on equity of 12.7 percent,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “I am particularly pleased with the consistency of our earnings and our success in taking much of the volatility associated with the mortgage business out of the equation.

"Both our banking and servicing businesses produced solid results for the quarter. Net interest income grew $6 million, or 4 percent, on an increase in earning assets of $1.7 billion, or 9 percent, compared to the third quarter 2019. This strong growth in earning assets reflected higher loans held-for-sale and warehouse loans as we continued to be opportunistic in a mortgage market that remained persistently strong. We ended the quarter servicing or subservicing 1.1 million loans -- a number that validates our investment in a high-quality servicing platform, and demonstrates the strong relationships we have fostered with our subservicing partners.

“Our mortgage team had another strong quarter, with mortgage revenues of $98 million, as our gain on sale margin expanded to 123 basis points resulting from optimizing production by focusing on profitable business versus volume.

"Overall, 2019 was a year where the results clearly demonstrated the earnings power of our company as our banking, mortgage and servicing businesses all delivered earnings growth that exceeded the prior year. For 2019, our net income per diluted share was $3.80 and our adjusted net income per diluted share was $3.46, up

1


15 percent from 2018. Our shareholders were rewarded for this performance with a 45 percent increase in our share price for the year, which was the best performance in 2019 of any bank with $10 billion to $100 billion in assets. That’s on top of our announcement early in the year that we were initiating a quarterly dividend of $0.04 per share, which just today we raised to $0.05. This proves our commitment to driving long-term performance and generating significant value for our shareholders. With the momentum of a strong year behind us and the power of a diversified franchise carrying us forward, we believe we are well positioned for continued success in 2020."

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
 
(Dollars in millions)
Net interest income
$
152

$
146

$
138

$
126

$
152

Provision (benefit) for loan losses

1

17


(5
)
Noninterest income
162

171

168

109

98

Noninterest expense
245

238

214

191

189

Income before income taxes
69

78

75

44

66

Provision for income taxes
11

15

14

8

12

Net income
$
58

$
63

$
61

$
36

$
54

Income per share:
 
 
 
 
 
Basic
$
1.01

$
1.12

$
1.08

$
0.64

$
0.94

Diluted
$
1.00

$
1.11

$
1.06

$
0.63

$
0.93

Adjusted Income Statement Highlights (Non-GAAP) (1)
 
 
 
 
 
Three Months Ended
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
 
(Dollars in millions)
Net interest income
$
152

$
146

$
138

$
126

$
123

Provision (benefit) for loan losses

1

17


(5
)
Noninterest income
162

171

143

109

98

Noninterest expense
245

238

214

190

175

Income before income taxes
69

78

50

45

51

Provision for income taxes
11

15

9

8

9

Net income
$
58

$
63

$
41

$
37

$
42

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
1.01

$
1.12

$
0.72

$
0.65

$
0.73

Diluted
$
1.00

$
1.11

$
0.71

$
0.64

$
0.72

(1)
See Non-GAAP Reconciliation for further information.


2


Key Ratios
 
 
 
 
 
Three Months Ended
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Net interest margin
2.91
%
3.05
%
3.08
%
3.09
%
3.70
%
Adjusted net interest margin (1)
2.91
%
3.05
%
3.08
%
3.09
%
2.99
%
Return on average assets
1.0
%
1.2
%
1.2
%
0.8
%
1.2
%
Return on average common equity
12.7
%
14.7
%
14.6
%
9.2
%
14.3
%
Efficiency ratio
78.2
%
75.2
%
69.8
%
81.3
%
75.7
%
HFI loan-to-deposit ratio
76.5
%
74.2
%
75.0
%
71.0
%
74.7
%
Adjusted HFI loan-to-deposit ratio (2)
84.6
%
82.0
%
80.6
%
77.0
%
77.2
%
(1)
The three months ended December 31, 2018, excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. See Non-GAAP Reconciliation for further information.
(2)
Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.

Average Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average interest-earning assets
$
20,708

$
18,997

$
17,759

$
16,294

$
16,391

9
%
26
%
Average loans held-for-sale (LHFS)
5,199

3,786

3,539

3,266

3,991

37
%
30
%
Average loans held-for-investment (LHFI)
12,168

11,743

10,613

9,164

8,916

4
%
36
%
Average total deposits
15,904

15,817

14,159

12,906

11,942

1
%
33
%

Net Interest Income

Net interest income increased $6 million, or 4 percent, to $152 million for the fourth quarter 2019 as compared to the third quarter 2019. The results reflect a 9 percent increase in average earning assets, fueled by growth in loans held-for-sale, warehouse and commercial real estate loans. Net interest margin decreased 14 basis points, to 2.91 percent for the fourth quarter 2019 as compared to the third quarter 2019, as a result of the impact of rate cuts and balance sheet mix.

Loans held-for-investment averaged $12.2 billion for the fourth quarter 2019, increasing $425 million from the prior quarter. Average warehouse loans increased $239 million, or 10 percent, benefiting from the overall mortgage market. The Company also had solid growth in our commercial real estate and non-auto indirect portfolios as average balances increased $169 million, or 7 percent, and $84 million, or 18 percent, respectively.

Average total deposits were $15.9 billion in the fourth quarter 2019, increasing $87 million, or 1 percent, from the third quarter 2019. The increase primarily reflects $222 million higher custodial deposits driven by an increase in loans serviced, more than offsetting the $138 million decrease in government and wholesale deposits resulting from seasonal decreases and maturities.

Provision for Loan Losses

The Company had no provision for loan losses for the fourth quarter 2019, as compared to $1 million for the third quarter 2019, reflecting strong asset quality, low delinquencies and no nonperforming commercial loans.

Noninterest Income

Noninterest income decreased $9 million, or 5 percent, to $162 million in the fourth quarter 2019, as compared to $171 million for the third quarter 2019, primarily due to lower mortgage revenues.


3


Fourth quarter 2019 net gain on loan sales decreased $9 million, or 8 percent, to $101 million, versus $110 million in the third quarter 2019. The net gain on loan sale margin expanded 3 basis points to 1.23 percent for the fourth quarter 2019, as compared to 1.20 percent for the third quarter 2019. Fallout-adjusted locks decreased 11 percent to $8.2 billion, reflecting seasonal factors which were partially offset by the continued strength of the mortgage environment due to lower rates.

Lower rates drove continued refinance activity, creating a net loss on mortgage servicing rights (including hedging) of $3 million for the fourth quarter 2019, compared to a $2 million net loss for the third quarter 2019.
Mortgage Metrics
 
 
 
 
 
 
 
As of/Three months ended
Change (% / bps)
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
8,179

$
9,197

$
8,344

$
6,602

$
5,284

(11
)%
55
%
Mortgage loans closed
$
9,303

$
9,262

$
8,642

$
5,513

$
6,340

0.44
 %
47
%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
1.23
%
1.20
%
0.89
%
0.72
%
0.60
%
3
63
Net gain on loan sales
$
101

$
110

$
75

$
49

$
34

(8
)%
N/M

Net return on mortgage servicing rights (MSR)
$
(3
)
$
(2
)
$
5

$
6

$
10

50
 %
N/M

Gain on loan sales + net return on the MSR
$
98

$
108

$
80

$
55

$
44

(9
)%
N/M

Loans serviced (number of accounts - 000's) (3)
1,091

994

983

962

851

10
 %
28
%
Capitalized value of MSRs
1.21
%
1.14
%
1.23
%
1.27
%
1.35
%
7
(14
)
N/M - Not meaningful
 
 
 
 
 
 
 
(1) Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(2) Based on net gain on loan sales (excludes net gain on loan sales of $2 million from loans transferred from LHFI during both the three months ended March 31, 2019 and December 31, 2018) to fallout-adjusted mortgage rate lock commitments.
(3) Includes loans serviced for Flagstar's own loan portfolio, serviced for others, and subserviced for others.

Noninterest Expense

Noninterest expense increased to $245 million for the fourth quarter 2019, as compared to $238 million for the third quarter 2019, primarily reflecting $5 million of higher balance sheet clean-up and discretionary expenses, such as fixed asset write downs, costs related to the secondary offering and a donation to the Flagstar Foundation.

The Company's efficiency ratio was 78 percent for the fourth quarter 2019, as compared to 75 percent for the third quarter 2019.

4



Income Taxes

The fourth quarter 2019 provision for income taxes totaled $11 million, compared to $15 million for the third quarter 2019. The effective tax rate was 16.7 percent for the fourth quarter 2019, compared to 18.4 percent for the third quarter 2019. During 2019 the Company fully utilized its non-limited federal net operating losses and now expects to utilize most of the state net operating losses. Accordingly, the Company continues to make investments in areas which are expected to provide future tax benefits. The Company expects the effective tax rate in 2020 to be consistent with fourth quarter 2019 levels as benefits from these investments are recognized and expects to continue to make, and in certain cases increase, investments in a tax efficient manner. The Company will also continue to monitor its business structure and maintain appropriate tax planning measures to reduce the tax liability from on-going operations.
 

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
As of/Three Months Ended
Change (% / bps)
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
0.9
%
0.9
%
0.9
%
1.3
%
1.4
%
0
(50)
Charge-offs, net of recoveries
$
3

$
1

$
34

$
1

$
1

N/M
N/M

Total nonperforming LHFI and TDRs
$
26

$
26

$
63

$
24

$
22

0
18
%
Net charge-offs to LHFI ratio (annualized)
0.10
%
0.02
%
1.29
%
0.05
%
0.04
%
8
6

Ratio of nonperforming LHFI and TDRs to LHFI
0.21
%
0.21
%
0.54
%
0.24
%
0.24
%
0
(3)
N/M - Not meaningful

The allowance for loan losses was $107 million and covered 0.9 percent of loans held-for-investment at December 31, 2019, consistent with our coverage ratio as of September 30, 2019.

Net charge-offs in the fourth quarter 2019 were $3 million, or 10 basis points of LHFI, compared to $1 million, or 2 basis points in the prior quarter. Delinquencies in these portfolios remain low and consistent with the prior quarter.

Nonperforming loans were $26 million and our ratio of nonperforming loans to loans held-for-investment was 0.21 percent at December 31, 2019, flat compared to September 30, 2019. At December 31, 2019, early stage loan delinquencies totaled $14 million, or 0.12 percent, of total loans, compared to $12 million, or 0.10 percent, at September 30, 2019.

Capital

Capital Ratios (Bancorp)
 
Change (% / bps)
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Seq
Yr/Yr
Tier 1 leverage (to adj. avg. total assets)
7.57
%
7.98
%
7.86
%
8.37
%
8.29
%
(41)
(72)
Tier 1 common equity (to RWA)
9.32
%
9.25
%
9.08
%
9.69
%
10.54
%
7
N/M

Tier 1 capital (to RWA)
10.83
%
10.81
%
10.73
%
11.51
%
12.54
%
2
N/M

Total capital (to RWA)
11.52
%
11.54
%
11.51
%
12.49
%
13.63
%
(2)
N/M

Tangible common equity to asset ratio (1)
6.95
%
7.08
%
7.31
%
7.16
%
7.45
%
(13)
(50)

Tangible book value per share (1)
$
28.57

$
27.62

$
26.16

$
24.65

$
23.90

3
%
20
%
N/M - Not meaningful
 
 
 
 
 
 
 
(1)
See Non-GAAP Reconciliation for further information.


5


The Company maintained a solid capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At December 31, 2019, the Company had a total risk-based capital ratio of 11.52 percent, as compared to 11.54 percent at September 30, 2019.

Under the terms of the previously approved, and now in effect, regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 43 basis points and risk-based capital ratios would have increased by approximately 20 to 30 basis points at December 31, 2019 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's fourth quarter 2019 earnings call will be held Tuesday, January 28, 2020 at 11 a.m. (ET).

To join the call, please dial (800) 353-6461 toll free or (334) 323-0501 and use passcode 2146234. Please call at least 10 minutes before the conference is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820 and using passcode 2146234.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and available for replay and download. The slide presentation accompanying the conference call will be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is a $23.3 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 160 branches in Michigan, Indiana, California, Wisconsin and Ohio. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 88 retail locations in 27 states, representing the combined retail branches of Flagstar and its Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage and other consumer loans, handling payments and record keeping for $228 billion of loans representing nearly 1.1 million borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as tangible book value per share, tangible common equity to assets ratio, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted HFI loan-to-deposit ratio, adjusted net interest income, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, adjusted basic and diluted earnings per share, adjusted net interest margin, and adjusted efficiency ratio. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can

6


be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s website at flagstar.com.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company's actual results could differ materially from those described in the forward-looking statements depending upon various factors as described in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the Company’s website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov). Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.


7



Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
 
December 31,
2019
September 30,
2019
December 31,
2018
Assets
 
 
 
Cash
$
220

$
234

$
260

Interest-earning deposits
206

119

148

Total cash and cash equivalents
426

353

408

Investment securities available-for-sale
2,116

1,697

2,142

Investment securities held-to-maturity
598

635

703

Loans held-for-sale
5,258

4,196

3,869

Loans held-for-investment
12,129

12,548

9,088

Loans with government guarantees
736

607

392

Less: allowance for loan losses
(107
)
(110
)
(128
)
Total loans held-for-investment and loans with government guarantees, net
12,758

13,045

9,352

Mortgage servicing rights
291

285

290

Federal Home Loan Bank stock
303

303

303

Premises and equipment, net
416

417

390

Goodwill and intangible assets
170

174

190

Other assets
930

943

884

Total assets
$
23,266

$
22,048

$
18,531

Liabilities and Stockholders' Equity
 
 
 
Noninterest bearing deposits
$
5,467

$
5,649

$
2,989

Interest bearing deposits
9,679

10,096

9,391

Total deposits
15,146

15,745

12,380

Short-term Federal Home Loan Bank advances and other
4,165

2,329

3,244

Long-term Federal Home Loan Bank advances
650

650

150

Other long-term debt
496

496

495

Other liabilities
1,021

1,094

692

Total liabilities
21,478

20,314

16,961

Stockholders' Equity
 
 
 
Common stock
1

1

1

Additional paid in capital
1,483

1,481

1,522

Accumulated other comprehensive income (loss)
1

5

(47
)
Retained earnings
303

247

94

Total stockholders' equity
1,788

1,734

1,570

Total liabilities and stockholders' equity
$
23,266

$
22,048

$
18,531





8


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
Fourth Quarter 2019 Compared to:
 
Three Months Ended
Third Quarter
2019
Fourth Quarter
2018
 
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Amount
Percent
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
Total interest income
$
213

$
203

$
198

$
180

$
181

$
10

5
 %
$
32

18
 %
Total interest expense
61

57

60

54

29

4

7
 %
32

N/M

Net interest income
152

146

138

126

152

6

4
 %

 %
Provision (benefit) for loan losses

1

17


(5
)
(1
)
N/M

5

N/M

Net interest income after provision (benefit) for loan losses
152

145

121

126

157

7

5
 %
(5
)
(3
)%
Noninterest Income
 
 
 
 
 








Net gain on loan sales
101

110

75

49

34

(9
)
(8
)%
67

N/M

Loan fees and charges
30

29

24

17

20

1

3
 %
10

50
 %
Net return on the mortgage servicing rights
(3
)
(2
)
5

6

10

(1
)
50
 %
(13
)
N/M

Loan administration income
8

5

6

11

8

3

60
 %

 %
Deposit fees and charges
10

10

10

8

6


 %
4

67
 %
Other noninterest income
16

19

48

18

20

(3
)
(16
)%
(4
)
(20
)%
Total noninterest income
162

171

168

109

98

(9
)
(5
)%
64

65
 %
Noninterest Expense
 
 
 
 
 








Compensation and benefits
102

98

90

87

82

4

4
 %
20

24
 %
Occupancy and equipment
43

40

40

38

36

3

8
 %
7

19
 %
Commissions
35

38

25

13

16

(3
)
(8
)%
19

N/M

Loan processing expense
20

22

21

17

16

(2
)
(9
)%
4

25
 %
Legal and professional expense
9

6

6

6

9

3

50
 %

 %
Federal insurance premiums
6

5

5

4

4

1

20
 %
2

50
 %
Intangible asset amortization
4

3

4

4

3

1

33
 %
1

N/M

Other noninterest expense
26

26

23

22

23


 %
3

13
 %
Total noninterest expense
245

238

214

191

189

7

3
 %
56

30
 %
Income before income taxes
69

78

75

44

66

(9
)
(12
)%
3

5
 %
Provision for income taxes
11

15

14

8

12

(4
)
(27
)%
(1
)
(8
)%
Net income
$
58

$
63

$
61

$
36

$
54

$
(5
)
(8
)%
$
4

7
 %
Income per share
 
 
 
 
 








Basic
$
1.01

$
1.12

$
1.08

$
0.64

$
0.94

$
(0.11
)
(10
)%
$
0.07

7
 %
Diluted
$
1.00

$
1.11

$
1.06

$
0.63

$
0.93

$
(0.11
)
(10
)%
$
0.07

8
 %
 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$
0.04

$
0.04

$
0.04

$
0.04

$

$

 %
$
0.04

100
 %
N/M - Not meaningful
 
 
 
 
 
 
 
 
 





9


Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
 
 
 
 
Twelve Months Ended
Compared to:
Year Ended December 31, 2018
 
December 31, 2019
December 31, 2018
Amount
Percent
Interest Income
 
 
 
 
Total interest income
$
794

$
683

$
111

16
 %
Total interest expense
232

186

46

25
 %
Net interest income
562

497

65

13
 %
Provision (benefit) for loan losses
18

(8
)
26

N/M

Net interest income after provision (benefit) for loan losses
544

505

39

8
 %
Noninterest Income
 
 
 
 
Net gain on loan sales
335

200

135

68
 %
Loan fees and charges
100

87

13

15
 %
Net return on the mortgage servicing rights
6

36

(30
)
(83
)%
Loan administration income
30

23

7

30
 %
Deposit fees and charges
38

21

17

81
 %
Other noninterest income
101

72

29

40
 %
Total noninterest income
610

439

171

39
 %
Noninterest Expense
 
 
 
 
Compensation and benefits
377

318

59

19
 %
Occupancy and equipment
161

127

34

27
 %
Commissions
111

80

31

39
 %
Loan processing expense
80

59

21

36
 %
Legal and professional expense
27

28

(1
)
(4
)%
Federal insurance premiums
20

22

(2
)
(9
)%
Intangible asset amortization
15

5

10

N/M

Other noninterest expense
97

73

24

33
 %
Total noninterest expense
888

712

176

25
 %
Income before income taxes
266

232

34

15
 %
Provision for income taxes
48

45

3

7
 %
Net income (loss)
$
218

$
187

$
31

17
 %
Income per share
 


 
 
Basic
$
3.85

$
3.26

$
0.59

18
 %
Diluted
$
3.80

$
3.21

$
0.59

18
 %
 
 
 
 
 
Cash dividends declared
$
0.16

$

$
0.16

N/M

N/M - Not meaningful
 
 
 
 



10


Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
Twelve Months Ended
 
December 31, 2019
September 30,
2019
December 31, 2018
December 31,
2019
December 31,
2018
Selected Mortgage Statistics:










Mortgage rate lock commitments (fallout-adjusted) (1)
$
8,179

$
9,197

$
5,284

$
32,322

$
30,308

Mortgage loans closed
$
9,303

$
9,262

$
6,340

$
32,720

$
32,465

Mortgage loans sold and securitized
$
8,135

$
8,186

$
7,146

$
30,330

$
32,076

Selected Ratios:










Interest rate spread
2.39
%
2.48
%
3.52
%
2.52
%
2.81
%
Adjusted interest rate spread (2)(3)
2.39
%
2.48
%
2.63
%
2.52
%
2.58
%
Net interest margin
2.91
%
3.05
%
3.70
%
3.05
%
3.07
%
Adjusted net interest margin (3)
2.91
%
3.05
%
2.99
%
3.05
%
2.89
%
Net margin on loans sold and securitized
1.24
%
1.34
%
0.44
%
1.10
%
0.62
%
Return on average assets
0.99
%
1.20
%
1.17
%
1.05
%
1.04
%
Adjusted return on average assets (3) (4)
0.99
%
1.20
%
0.91
%
0.96
%
0.98
%
Return on average common equity
12.69
%
14.72
%
14.29
%
12.84
%
12.58
%
Return on average tangible common equity (4)
14.76
%
17.12
%
15.96
%
15.15
%
13.61
%
Adjusted return on average tangible common equity (3) (4)
14.76
%
17.12
%
12.44
%
13.87
%
12.67
%
Efficiency ratio
78.2
%
75.2
%
75.7
%
75.8
%
76.0
%
Common equity-to-assets ratio (average for the period)
7.83
%
8.12
%
8.41
%
8.20
%
8.28
%
Average Balances:






 
 
Average interest-earning assets
$
20,708

$
18,997

$
16,391

$
18,453

$
16,136

Average interest-bearing liabilities
$
14,208

$
12,893

$
13,046

$
13,130

$
13,124

Average stockholders' equity
$
1,803

$
1,722

$
1,548

$
1,695

$
1,488

(1)
Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(2)
Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.
(3)
See Non-GAAP Reconciliation for further information.
(4)
Excludes goodwill, intangible assets and the associated amortization. See Non-GAAP Reconciliation for further information.

 
December 31,
2019
September 30,
2019
December 31,
2018
Selected Statistics:
 
 
 
Book value per common share
$
31.57

$
30.69

$
27.19

Tangible book value per share (1)
$
28.57

$
27.62

$
23.90

Number of common shares outstanding
56,631,236

56,510,341

57,749,464

Number of FTE employees
4,453

4,171

3,938

Number of bank branches
160

160

160

Ratio of nonperforming assets to total assets (2)
0.15
%
0.16
%
0.16
%
Common equity-to-assets ratio
7.68
%
7.88
%
8.47
%
MSR Key Statistics and Ratios:
 
 
 
Weighted average service fee (basis points)
39.7

39.9

35.8

Capitalized value of mortgage servicing rights
1.21
%
1.14
%
1.35
%
(1)
Excludes goodwill and intangibles of $170 million, $174 million and $190 million at December 31,2019, September 30, 2019, and December 31, 2018, respectively. See Non-GAAP Reconciliation for further information.
(2)
Ratio excludes LHFS.

11


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31, 2019
September 30, 2019
December 31, 2018
 
Average Balance
Interest
Annualized
Yield/Rate
Average Balance
Interest
Annualized
Yield/Rate
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
5,199

$
51

3.92
%
$
3,786

$
40

4.22
%
$
3,991

$
48

4.78
 %
Loans held-for-investment
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,215

30

3.60
%
3,282

29

3.58
%
3,115

29

3.68
 %
Home equity
989

12

4.86
%
934

13

5.37
%
717

10

5.43
 %
Other
728

11

5.97
%
658

10

5.99
%
231

3

6.06
 %
Total Consumer loans
4,932

53

4.20
%
4,874

52

4.24
%
4,063

42

4.12
 %
Commercial Real Estate
2,763

34

4.91
%
2,594

35

5.39
%
2,171

31

5.52
 %
Commercial and Industrial
1,726

21

4.80
%
1,767

22

4.97
%
1,345

19

5.48
 %
Warehouse Lending
2,747

33

4.61
%
2,508

32

5.00
%
1,337

18

5.29
 %
Total Commercial loans
7,236

88

4.77
%
6,869

89

5.14
%
4,853

68

5.45
 %
Total loans held-for-investment
12,168

141

4.54
%
11,743

141

4.77
%
8,916

110

4.84
 %
Loans with government guarantees
678

4

2.16
%
574

4

2.78
%
350

2

2.72
 %
Investment securities
2,511

16

2.49
%
2,713

17

2.63
%
2,996

21

2.84
 %
Interest-earning deposits
152

1

2.26
%
181

1

2.22
%
138


1.55
 %
Total interest-earning assets
20,708

$
213

4.04
%
18,997

$
203

4.27
%
16,391

$
181

4.39
 %
Other assets
2,328

 
 
2,200

 
 
2,022

 
 
Total assets
$
23,036

 
 
$
21,197

 
 
$
18,413

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits
$
1,448

$
3

0.70
%
$
1,388

$
3

0.88
%
$
1,072

$
3

1.02
 %
Savings deposits
3,335

10

1.19
%
3,262

10

1.20
%
3,075

7

0.91
 %
Money market deposits
700


0.35
%
722

1

0.34
%
446


0.41
 %
Certificates of deposit
2,459

15

2.37
%
2,583

15

2.40
%
2,274

11

1.88
 %
Total retail deposits
7,942

28

1.39
%
7,955

29

1.45
%
6,867

21

1.22
 %
Government deposits
1,192

4

1.39
%
1,253

4

1.45
%
1,184

5

1.48
 %
Wholesale deposits and other
666

4

2.36
%
744

5

2.42
%
625

3

2.08
 %
Total interest-bearing deposits
9,800

36

1.46
%
9,952

38

1.52
%
8,676

29

1.31
 %
Short-term FHLB advances and other
3,262

15

1.74
%
1,910

10

2.24
%
2,954

18

2.39
 %
Long-term FHLB advances
650

3

1.43
%
536

2

1.72
%
921

(25
)
(10.65
)%
Less: Swap gain reclassified out of OCI (4)
 

 
 

 


29

 
Adjusted long-term FHLB advances (4)
 
3

1.43
%
 
2

1.72
%
921

4

1.97
 %
Other long-term debt
496

7

5.45
%
495

7

5.60
%
495

7

5.65
 %
Adjusted total interest-bearing liabilities (4)
14,208

61

1.65
%
12,893

57

1.79
%
13,046

58

1.76
 %
Noninterest-bearing deposits
 
 
 
 
 
 
 
 
 
Retail deposits and other
1,332

 
 
1,315

 
 
1,136

 
 
Custodial deposits (1)
4,772

 
 
4,550

 
 
2,130

 
 
Total Noninterest-bearing deposits
6,104

 
 
5,865

 
 
3,266

 
 
Other liabilities
921

 
 
717

 
 
553

 
 
Stockholders' equity
1,803

 
 
1,722

 
 
1,548

 
 
Total liabilities and stockholders' equity
$
23,036

 
 
$
21,197

 
 
$
18,413

 
 
Net interest-earning assets
$
6,500

 
 
$
6,104

 
 
$
3,345

 
 
Adjusted net interest income (4)
 
$
152

 
 
$
146

 
 
$
123

 
Adjusted interest rate spread (2)(4)
 
 
2.39
%
 
 
2.48
%
 
 
2.63
 %
Adjusted net interest margin (3)(4)
 
 
2.91
%
 
 
3.05
%
 
 
2.99
 %
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
145.8
%
 
 
147.3
%
 
 
125.6
 %
Total average deposits
$
15,904

 
 
$
15,817

 
 
$
11,942

 
 
(1)
Approximately 80 percent of custodial deposits from loans subserviced which pay interest that is recognized as an offset in net loan administration income.
(2)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(3)
Net interest margin is net interest income divided by average interest-earning assets.
(4)
The three months ended December 31, 2018, excludes $29 million of hedging gains reclassified from AOCI in conjunction with the payment of long-term FHLB advances.


12


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Twelve Months Ended
 
December 31, 2019
December 31, 2018
 
Average Balance
Interest
Annualized
Yield/Rate
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
3,952

$
170

4.30
%
$
4,196

$
190

4.52
 %
Loans held-for-investment
 
 
 
 
 
 
Residential first mortgage
3,173

115

3.61
%
2,949

105

3.56
 %
Home equity
871

46

5.31
%
690

36

5.21
 %
Other
566

36

6.33
%
111

6

5.73
 %
Total Consumer loans
4,610

197

4.26
%
3,750

147

3.93
 %
Commercial Real Estate
2,502

136

5.38
%
2,063

109

5.23
 %
Commercial and Industrial
1,708

88

5.10
%
1,288

69

5.32
 %
Warehouse Lending
2,112

107

4.99
%
1,318

69

5.14
 %
Total Commercial loans
6,322

331

5.17
%
4,669

247

5.23
 %
Total loans held-for-investment
10,932

528

4.79
%
8,419

394

4.65
 %
Loans with government guarantees
553

15

2.66
%
303

11

3.53
 %
Investment securities
2,845

77

2.71
%
3,094

86

2.76
 %
Interest-earning deposits
171

4

2.35
%
124

2

1.83
 %
Total interest-earning assets
18,453

$
794

4.28
%
16,136

$
683

4.21
 %
Other assets
2,221

 
 
1,844

 
 
Total assets
$
20,674

 
 
$
17,980

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
Demand deposits
$
1,345

$
11

0.77
%
$
764

$
7

0.93
 %
Savings deposits
3,220

36

1.13
%
3,300

29

0.87
 %
Money market deposits
736

2

0.32
%
288

2

0.49
 %
Certificates of deposit
2,536

59

2.31
%
2,015

34

1.70
 %
Total retail deposits
7,837

108

1.37
%
6,367

72

1.12
 %
Government deposits
1,186

17

1.46
%
1,149

14

1.23
 %
Wholesale deposits and other
554

13

2.36
%
401

8

2.02
 %
Total interest-bearing deposits
9,577

138

1.44
%
7,917

94

1.18
 %
Short-term FHLB advances and other
2,633

59

2.23
%
3,521

68

1.93
 %
Long-term FHLB advances
425

7

1.59
%
1,192

(4
)
(0.32
)%
Less: Swap gain reclassified out of OCI (4)
 

 
 
29

 
Adjusted long-term FHLB advances (4)
425

7

1.59
%
1,192

25

2.12
 %
Other long-term debt
495

28

5.65
%
494

28

5.56
 %
Adjusted total interest-bearing liabilities (4)
13,130

232

1.76
%
13,124

215

1.63
 %
Noninterest-bearing deposits
 
 
 
 
 
 
Retail deposits and other
1,291

 
 
1,066

 
 
Custodial deposits (1)
3,839

 
 
1,792

 
 
Total Noninterest-bearing deposits
5,130

 
 
2,858

 
 
Other liabilities
719

 
 
510

 
 
Stockholders' equity
1,695

 
 
1,488

 
 
Total liabilities and stockholders' equity
$
20,674

 
 
$
17,980

 
 
Net interest-earning assets
$
5,323

 
 
$
3,012

 
 
Adjusted net interest income (4)
 
$
562

 
 
$
468

 
Adjusted interest rate spread (2)(4)
 
 
2.52
%
 
 
2.58
 %
Adjusted net interest margin (3)(4)
 
 
3.05
%
 
 
2.89
 %
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
140.5
%
 
 
122.9
 %
Total average deposits
$
14,708

 
 
$
10,775

 
 
(1)
Approximately 80 percent of custodial deposits from loans subserviced which pay interest that is recognized as an offset in net loan administration income.
(2)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(3)
Net interest margin is net interest income divided by average interest-earning assets.
(4)
The twelve months ended December 31, 2018, excludes $29 million of hedging gains reclassified from AOCI in conjunction with thepayment of long-term FHLB advances



13




Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
Twelve Months Ended
 
December 31, 2019
September 30,
2019
December 31, 2018
December 31, 2019
December 31, 2018
Net income
$
58

$
63

$
54

$
218

$
187

Weighted average common shares outstanding
56,513,890

56,484,499

57,628,561

56,584,238

57,520,289

Stock-based awards
684,844

626,297

756,793

654,740

802,661

Weighted average diluted common shares
57,198,734

57,110,796

58,385,354

57,238,978

58,322,950

Basic earnings per common share
$
1.01

$
1.12

$
0.94

$
3.85

$
3.26

Stock-based awards
(0.01
)
(0.01
)
(0.01
)
(0.05
)
(0.05
)
Diluted earnings per common share
$
1.00

$
1.11

$
0.93

$
3.80

$
3.21



Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
December 31, 2019
September 30, 2019
December 31, 2018
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,720

7.57
%
$
1,668

7.98
%
$
1,505

8.29
%
Total adjusted avg. total asset base
$
22,724

 
$
20,901

 
$
18,158

 
Tier 1 common equity (to risk weighted assets)
$
1,480

9.32
%
$
1,428

9.25
%
$
1,265

10.54
%
Tier 1 capital (to risk weighted assets)
$
1,720

10.83
%
$
1,668

10.81
%
$
1,505

12.54
%
Total capital (to risk weighted assets)
$
1,830

11.52
%
$
1,781

11.54
%
$
1,637

13.63
%
Risk-weighted asset base
$
15,886

 
$
15,432

 
$
12,006

 



Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
December 31, 2019
September 30, 2019
December 31, 2018
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,752

7.71
%
$
1,747

8.35
%
$
1,574

8.67
%
Total adjusted avg. total asset base
$
22,727

 
$
20,914

 
$
18,151

 
Tier 1 common equity (to risk weighted assets)
$
1,752

11.04
%
$
1,747

11.33
%
$
1,574

13.12
%
Tier 1 capital (to risk weighted assets)
$
1,752

11.04
%
$
1,747

11.33
%
$
1,574

13.12
%
Total capital (to risk weighted assets)
$
1,862

11.73
%
$
1,860

12.06
%
$
1,705

14.21
%
Risk-weighted asset base
$
15,873

 
$
15,418

 
$
11,997

 

14


Loans Serviced
(Dollars in millions)
(Unaudited)
 
December 31, 2019
September 30, 2019
December 31, 2018
 
Unpaid Principal Balance (1)
Number of accounts
Unpaid Principal Balance (1)
Number of accounts
Unpaid Principal Balance (1)
Number of accounts
Subserviced for others (2)
$
194,638

918,662

$
171,145

826,472

$
146,040

705,149

Serviced for others
24,003

105,469

25,039

106,992

21,592

88,434

Serviced for own loan portfolio (3)
9,536

66,526

8,058

60,088

7,438

57,401

Total loans serviced
$