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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): July 24, 2018

 394329184_flagstara09a01a06.jpg
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Michigan
 
1-16577
 
38-3150651
(State or other jurisdiction of
incorporation)
 
(Commission File
Number)
 
(I.R.S. 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))
 
 
 






Item 2.02
Results of Operations and Financial Condition

On July 24, 2018, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended June 30, 2018. 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 three months ended June 30, 2018 as part of its Quarterly Report on Form 10-Q.

On July 24, 2018, the Company will hold a conference call to review second quarter 2018 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 July 24, 2018
 
 
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides - Earnings Presentation Second Quarter 2018








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:
7/24/2018
 
 
 
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


394329184_flagstara43.jpg                394329184_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Second Quarter 2018 Net Income of $50 million, or $0.85 per Diluted Share

Company posts solid earnings with positive operating leverage

Key Highlights - Second Quarter 2018

Net interest income rose $9 million, or 8 percent from first quarter 2018, driven by earning asset growth and net interest margin expansion.
Mortgage revenues increased $8 million, or 13 percent from the prior quarter, led by a seasonal increase in mortgage originations and higher net return on MSR.
Total revenue increased $21 million, or 10 percent, while noninterest expense rose a modest $4 million, or 2 percent from last quarter, benefiting from expense discipline and variable cost model.
Strong asset quality with minimal net charge-offs and no commercial delinquencies.
Pending acquisition of 52 Wells Fargo branches accelerates banking transformation.

TROY, Mich., July 24, 2018 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2018 net income of $50 million, or $0.85 per diluted share, compared to first quarter 2018 net income of $35 million, or $0.60 per diluted share. For the second quarter 2017, the Company reported net income of $41 million, or $0.71 per diluted share.

“I’m pleased with our financial results this quarter," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “We produced solid earnings with positive operating leverage, despite a challenging mortgage environment. Earnings rose on both a sequential and year-over-year basis, achieving a level we haven't seen since the third quarter 2012 when we had $334 million of net gain on loan sales as compared to only $63 million in the second quarter 2018.

“Our banking business performed well, boosted by the acquisitions of the Desert Community Bank (DCB) branches and a warehouse business at the end of the first quarter 2018. Net interest income for the second quarter 2018 rose 8 percent to $115 million, led by a 4 percent rise in average earning assets and a 10 basis point increase in net interest margin. The core banking business delivered consistent growth with average commercial loans (excluding the impact of the DCB branch and warehouse business acquisitions) increasing 8 percent.


1


"We continued to build scale and profitability within our servicing business -- a segment that brings fee income, as well as ancillary benefits like deposits that fuel our loan growth. During the second quarter, we sold $6.4 billion of mortgage servicing rights with 100 percent of the servicing retained. Since the beginning of 2018, we've increased the number of loans serviced by 93,000 or 21 percent and are well positioned to add more scale later this year.

“Our mortgage business was softer than expected with fallout-adjusted locks and gain on sale margin coming in below our expectations. Locks rose 17 percent to $9 billion while the GOS margin fell 6 basis points to 0.71 percent due to the impact of wider spreads on the outcome of a securitization late in the quarter.

“A key highlight of the second quarter was our announcement of the pending acquisition of 52 Wells Fargo branches in Indiana, Michigan, Wisconsin and Ohio. This transaction will significantly expand our banking business, enhance our franchise value and provide compelling financial benefits -- all without the need to raise capital. Bringing these branches on board later this year will accelerate our banking transformation. Meanwhile, we will continue to leverage our strong asset generation capability, abundant liquidity and strong capital for the benefit of our shareholders.”

Second Quarter 2018 Highlights:

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
 
(Dollars in millions)
Net interest income
$
115

$
106

$
107

$
103

$
97

Provision (benefit) for loan losses
(1
)

2

2

(1
)
Noninterest income
123

111

124

130

116

Noninterest expense
177

173

178

171

154

Income before income taxes
62

44

51

60

60

Provision for income taxes (1)
12

9

96

20

19

Net income (loss)
$
50

$
35

$
(45
)
$
40

$
41

 
 
 
 
 
 
Income (loss) per share:
 
 
 
 
 
Basic
$
0.86

$
0.61

$
(0.79
)
$
0.71

$
0.72

Diluted
$
0.85

$
0.60

$
(0.79
)
$
0.70

$
0.71

(1)
The three months ended December 31, 2017 included an $80 million, or $1.37 per diluted share, non-cash charge to the provision for income taxes, resulting from the revaluation of the Company's net deferred tax asset at a lower statutory rate as a result of the Tax Cuts and Jobs Act.
Key Ratios
 
 
 
 
 
 
 
Three Months Ended
 Change (bps)
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
Seq
Yr/Yr
Net interest margin
2.86
%
2.76
%
2.76
 %
2.78
%
2.77
%
10
9
Return on average assets
1.1
%
0.8
%
(1.1
)%
1.0
%
1.0
%
30
10
Return on average equity
13.5
%
9.9
%
(12.1
)%
11.1
%
11.6
%
360
190
Efficiency ratio
74.4
%
79.7
%
77.1
 %
73.5
%
72.0
%
(530)
240



2


Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average Balance Sheet Data
 
 
 
 
 


Average interest-earning assets
$
15,993

$
15,354

$
15,379

$
14,737

$
14,020

4
 %
14
 %
Average loans held-for-sale (LHFS)
4,170

4,231

4,537

4,476

4,269

(1
)%
(2
)%
Average loans held-for-investment (LHFI)
8,380

7,487

7,295

6,803

6,224

12
 %
35
 %
Average total deposits
10,414

9,371

9,084

9,005

8,739

11
 %
19
 %

Net Interest Income

Net interest income rose $9 million to $115 million for the second quarter 2018, as compared to the first quarter 2018. The results reflected a 4 percent increase in average earning assets, led by continued solid growth in commercial loans. The net interest margin rose 10 basis points to 2.86 percent for the second quarter 2018 as higher yields on earning assets more than offset a modest increase in deposit costs.

Loans held-for-investment averaged $8.4 billion for the second quarter 2018, increasing $893 million, or 12 percent, from the prior quarter. Excluding the impact of the DCB branch and warehouse business acquisitions, average loans HFI rose 6 percent in the quarter. During the second quarter 2018, average commercial loans rose 19 percent with average warehouse loans increasing $647 million, or 76 percent, average commercial real estate loans rising $63 million, or 3 percent and average commercial and industrial loans increasing $40 million, or 3 percent. Average consumer loans rose $143 million, or 4 percent, driven by an increase in mortgage loans.

Average total deposits were $10.4 billion in the second quarter 2018, increasing $1 billion, or 11 percent from the first quarter 2018. Excluding the impact of the DCB branch acquisition, average deposits rose 6 percent in the quarter. Average retail deposits increased $780 million, or 12 percent, as higher demand deposits and certificates of deposit were partially offset by a drop in savings deposits. Average custodial deposits rose $149 million, or 10 percent, while average government deposits rose $21 million, or 2 percent.

Provision for Loan Losses

The Company experienced a provision benefit in the second quarter 2018, resulting primarily from a continued decline in loss rates in the held-for-investment portfolio. The provision benefit for loan losses totaled $1 million for the second quarter 2018, as compared to no provision expense for the first quarter 2018.

3


Noninterest Income

Noninterest income rose $12 million, or 11 percent, to $123 million in the second quarter of 2018, as compared to $111 million for the first quarter 2018. The increase was primarily due to an increase in net gain on loan sales, loan fees and charges and the net return on the mortgage servicing rights.

Second quarter 2018 net gain on loan sales increased $3 million, or 5 percent, to $63 million, versus $60 million in the first quarter 2018. Fallout-adjusted locks rose 17 percent to $9 billion primarily due to a seasonal increase in mortgage originations. The net gain on loan sale margin fell 6 basis points to 0.71 percent for the second quarter 2018, as compared to 0.77 percent for the first quarter 2018.
Mortgage Metrics
 
 
 
 
 
 
 
 
Change (% / bps)
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
Seq
Yr/Yr
 
(Dollars in millions)
 
 
For the three months ended:
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
9,011

$
7,722

$
8,631

$
8,898

$
9,002

17
%
 %
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.71
%
0.77
%
0.91
%
0.84
%
0.73
%
(6)
(2)
Net gain on loan sales
$
63

$
60

$
79

$
75

$
66

5
%
(5
)%
Net (loss) return on the mortgage servicing rights (MSR)
$
9

$
4

$
(4
)
$
6

$
6

125
%
50
 %
Gain on loan sales + net (loss) return on the MSR
$
72

$
64

$
75

$
81

$
72

13
%
 %
At the end of the period:
 
 
 
 
 
 
 
Residential loans serviced (number of accounts - 000's) (3)
535

470

442

415

402

14
%
33
 %
Capitalized value of MSRs
1.34
%
1.27
%
1.16
%
1.15
%
1.14
%
7
20
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) Gain on sale margin is based on net gain on loan sales (excludes net gain on loan sales of $1 million from loans transferred from HFI in the three months ended December 31, 2017) to fallout-adjusted mortgage rate lock commitments.
(3) Includes loans serviced for own loan portfolio, serviced for others, and subserviced for others.

Loan fees and charges rose to $24 million for the second quarter 2018, as compared to $20 million for the first quarter 2018. The increase primarily reflected higher mortgage loan closings.

Net return on mortgage servicing rights (including the impact of hedges) increased $5 million, resulting in a net gain of $9 million for the second quarter 2018, as compared to a net gain of $4 million for the first quarter 2018. The increase from the prior quarter largely reflected lower sale-related costs, reduced runoff due to increasing interest rates and higher service fee income.

Noninterest Expense

Noninterest expense increased to $177 million for the second quarter 2018, as compared to $173 million for the first quarter 2018, primarily due to an increase in mortgage-related expense from higher mortgage closings. During the second quarter 2018, commissions increased $7 million and loan processing expense rose $1 million.

The Company's total efficiency ratio improved to 74 percent for the second quarter 2018, as compared to 80 percent for the first quarter 2018, led by strong, positive operating leverage. Revenue increased 10 percent while expenses rose a modest 2 percent in the second quarter 2018.

4


Income Taxes

The second quarter 2018 provision for income taxes totaled $12 million, as compared to $9 million in the first quarter 2018. The Company's effective tax rate was 20 percent for the second quarter 2018, unchanged from the prior quarter.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
1.5
%
1.7
%
1.8
%
2.0
%
2.1
%
(20)
(60)
Charge-offs, net of recoveries
$
1

$
1

$
2

$
2

$

 %
N/M

Total nonperforming loans held-for-investment
$
27

$
29

$
29

$
31

$
30

(7
)%
(10
)%
Net charge-offs to LHFI ratio (annualized)
0.02
%
0.06
%
0.12
%
0.08
%
0.04
%
(4)
(2)
Ratio of nonperforming LHFI and TDRs to LHFI
0.30
%
0.35
%
0.38
%
0.44
%
0.44
%
(5)
(14)
N/M - Not meaningful

The allowance for loan losses was $137 million at June 30, 2018, compared to $139 million at March 31, 2018. The allowance for loan losses covered 1.5 percent of loans held-for-investment at June 30, 2018, as compared to 1.7 percent of loans held-for-investment at March 31, 2018.

Net charge-offs in the second quarter 2018 were $1 million, or 2 basis points of HFI loans, compared to $1 million, or 6 basis points in the prior quarter.

Nonperforming loans held-for-investment were $27 million at June 30, 2018, compared to $29 million at March 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.30 percent at June 30, 2018, compared to 0.35 percent at March 31, 2018. At June 30, 2018, early stage consumer loan delinquencies totaled $3 million, or 0.08 percent of consumer loans, compared to $5 million, or 0.14 percent at March 31, 2018. There were no commercial loan delinquencies greater than 30 days at June 30, 2018.

Capital

Capital Ratios (Bancorp)
Three Months Ended
Change (% / bps)
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
Seq
Yr/Yr
Tangible common equity to assets ratio (1)
7.74
%
7.65
%
8.15
%
8.47
%
8.70
%
9
(96)
Tier 1 leverage (to adj. avg. total assets)
8.65
%
8.72
%
8.51
%
8.80
%
9.10
%
(7)
(45)
Tier 1 common equity (to RWA)
10.84
%
10.80
%
11.50
%
11.65
%
12.45
%
4
(161)
Tier 1 capital (to RWA)
12.86
%
12.90
%
13.63
%
13.72
%
14.65
%
(4)
(179)
Total capital (to RWA)
14.04
%
14.14
%
14.90
%
14.99
%
15.92
%
(10)
(188)
MSRs to Tier 1 capital
16.9
%
16.2
%
20.1
%
17.3
%
13.1
%
70
N/M
Tangible book value per share (1)
$
24.37

$
23.62

$
24.04

$
25.01

$
24.29

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

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At June 30, 2018, the Company had a Tier 1 leverage ratio of 8.65 percent, as compared to 8.72 percent at March 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth driven by the impact of the DCB branch and warehouse business acquisitions, largely offset by earnings retention.


5


Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 50 basis points and risk-based capital ratios by approximately 15-25 basis points at June 30, 2018 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's second quarter 2018 earnings call will be held Tuesday, July 24, 2018 at 11 a.m. (ET).

To join the call, please dial (800) 667-5617 toll free or (334) 323-0505 and use passcode 2373953. 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 2373953.

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 an $18.1 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 107 branches in Michigan and California. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 88 retail locations in 31 states, representing the combined retail branches of Flagstar and its Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $120 billion of home loans representing over 535,000 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 and tangible common equity to assets 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 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.

6


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)
 
June 30, 2018
 
March 31,
2018
 
December 31,
2017
 
June 30,
2017
Assets
 
 
 
 
 
 
 
Cash
$
139

 
$
121

 
$
122

 
$
80

Interest-earning deposits
220

 
122

 
82

 
103

Total cash and cash equivalents
359

 
243

 
204

 
183

Investment securities available-for-sale
1,871

 
1,918

 
1,853

 
1,614

Investment securities held-to-maturity
748

 
771

 
939

 
1,014

Loans held-for-sale
4,291

 
4,743

 
4,321

 
4,506

Loans held-for-investment
8,904

 
8,134

 
7,713

 
6,776

Loans with government guarantees
278

 
286

 
271

 
278

Less: allowance for loan losses
(137
)
 
(139
)
 
(140
)
 
(140
)
Total loans held-for-investment and loans with government guarantees, net
9,045

 
8,281

 
7,844

 
6,914

Mortgage servicing rights
257

 
239

 
291

 
184

Federal Home Loan Bank stock
303

 
303

 
303

 
260

Premises and equipment, net
355

 
348

 
330

 
299

Net deferred tax asset
119

 
130

 
136

 
266

Goodwill and intangible assets
71

 
72

 
21

 
20

Other assets
711

 
688

 
670

 
705

Total assets
$
18,130

 
$
17,736

 
$
16,912

 
$
15,965

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Noninterest-bearing
$
2,781

 
$
2,391

 
$
2,049

 
$
2,012

Interest-bearing
7,807

 
7,595

 
6,885

 
6,683

Total deposits
10,588

 
9,986

 
8,934

 
8,695

Short-term Federal Home Loan Bank advances
3,840

 
4,153

 
4,260

 
3,670

Long-term Federal Home Loan Bank advances
1,280

 
1,280

 
1,405

 
1,200

Other long-term debt
494

 
494

 
494

 
493

Other liabilities
453

 
396

 
420

 
499

Total liabilities
16,655

 
16,309

 
15,513

 
14,557

Stockholders' Equity
 
 
 
 
 
 
 
Common stock
1

 
1

 
1

 
1

Additional paid in capital
1,514

 
1,514

 
1,512

 
1,509

Accumulated other comprehensive loss
(32
)
 
(30
)
 
(16
)
 
(9
)
Accumulated deficit
(8
)
 
(58
)
 
(98
)
 
(93
)
Total stockholders' equity
1,475

 
1,427

 
1,399

 
1,408

Total liabilities and stockholders' equity
$
18,130

 
$
17,736

 
$
16,912

 
$
15,965





8


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Second Quarter 2018 Compared to:
 
Three Months Ended
 
First Quarter
2018
 
Second Quarter
2017
 
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
167

$
152

$
148

$
140

$
129

 
$
15

10
 %
 
$
38

29
 %
Total interest expense
52

46

41

37

32

 
6

13
 %
 
20

63
 %
Net interest income
115

106

107

103

97

 
9

8
 %
 
18

19
 %
Provision (benefit) for loan losses
(1
)

2

2

(1
)
 
(1
)
N/M

 

 %
Net interest income after provision (benefit) for loan losses
116

106

105

101

98

 
10

9
 %
 
18

18
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
63

60

79

75

66

 
3

5
 %
 
(3
)
(5
)%
Loan fees and charges
24

20

24

23

20

 
4

20
 %
 
4

20
 %
Deposit fees and charges
5

5

4

5

5

 

 %
 

 %
Loan administration income
5

5

5

5

6

 

 %
 
(1
)
(17
)%
Net (loss) return on the mortgage servicing rights
9

4

(4
)
6

6

 
5

125
 %
 
3

50
 %
Other noninterest income
17

17

16

16

13

 

 %
 
4

31
 %
Total noninterest income
123

111

124

130

116

 
12

11
 %
 
7

6
 %
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
80

80

80

76

71

 

 %
 
9

13
 %
Commissions
25

18

23

23

16

 
7

39
 %
 
9

56
 %
Occupancy and equipment
30

30

28

28

25

 

 %
 
5

20
 %
Federal insurance premiums
6

6

5

5

4

 

 %
 
2

50
 %
Loan processing expense
15

14

16

15

14

 
1

7
 %
 
1

7
 %
Legal and professional expense
6

6

8

7

8

 

 %
 
(2
)
(25
)%
Other noninterest expense
15

19

18

17

16

 
(4
)
(21
)%
 
(1
)
(6
)%
Total noninterest expense
177

173

178

171

154

 
4

2
 %
 
23

15
 %
Income before income taxes
62

44

51

60

60

 
18

41
 %
 
2

3
 %
Provision for income taxes
12

9

96

20

19

 
3

33
 %
 
(7
)
(37
)%
Net income (loss)
$
50

$
35

$
(45
)
$
40

$
41

 
$
15

43
 %
 
$
9

22
 %
Income (loss) per share
 
 
 
 
 
 




 




Basic
$
0.86

$
0.61

$
(0.79
)
$
0.71

$
0.72

 
$
0.25

41
 %
 
$
0.14

19
 %
Diluted
$
0.85

$
0.60

$
(0.79
)
$
0.70

$
0.71

 
$
0.25

42
 %
 
$
0.14

20
 %
N/M - Not meaningful


9


Flagstar Bancorp, Inc.
Consolidated Statements of Operations
(Dollars in millions, except per data share)
(Unaudited)
 
 
 
Six Months Ended June 30, 2018
 
Six Months Ended
 
Compared to:
Six Months Ended June 30, 2017
 
June 30, 2018
June 30, 2017
 
Amount
Percent
Total interest income
$
319

$
239

 
$
80

33
 %
Total interest expense
98

59

 
39

66
 %
Net interest income
221

180

 
41

23
 %
Provision (benefit) for loan losses
(1
)
2

 
(3
)
N/M

Net interest income after provision (benefit) for loan losses
222

178

 
44

25
 %
Noninterest Income
 
 
 
 
 
Net gain on loan sales
123

114

 
9

8
 %
Loan fees and charges
44

35

 
9

26
 %
Deposit fees and charges
10

9

 
1

11
 %
Loan administration income
10

11

 
(1
)
(9
)%
Net (loss) return on the mortgage servicing rights
13

20

 
(7
)
(35
)%
Other noninterest income
34

27

 
7

26
 %
Total noninterest income
234

216

 
18

8
 %
Noninterest Expense
 
 
 
 
 
Compensation and benefits
160

143

 
17

12
 %
Commissions
43

26

 
17

65
 %
Occupancy and equipment
60

47

 
13

28
 %
Federal insurance premiums
12

7

 
5

71
 %
Loan processing expense
29

26

 
3

12
 %
Legal and professional expense
12

15

 
(3
)
(20
)%
Other noninterest expense
34

30

 
4

13
 %
Total noninterest expense
350

294

 
56

19
 %
Income before income taxes
106

100

 
6

6
 %
Provision for income taxes
21

32

 
(11
)
(34
)%
Net income
$
85

$
68

 
$
17

25
 %
Income per share
 
 
 
 
 
Basic
$
1.47

$
1.18

 
$
0.29

25
 %
Diluted
$
1.45

$
1.16

 
$
0.29

25
 %

10


Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Selected Mortgage Statistics:
 
 
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
9,011

 
$
7,722

 
$
9,002

 
$
16,734

 
$
14,998

Mortgage loans originated (2)
$
9,040

 
$
7,886

 
$
9,184

 
$
16,926

 
$
15,087

Mortgage loans sold and securitized
$
9,260

 
$
7,247

 
$
8,989

 
$
16,506

 
$
13,473

Selected Ratios:
 
 
 
 
 
 
 
 
 
Interest rate spread (3)
2.58
%
 
2.54
%
 
2.59
%
 
2.56
%
 
2.55
%
Net interest margin
2.86
%
 
2.76
%
 
2.77
%
 
2.81
%
 
2.72
%
Net margin on loans sold and securitized
0.69
%
 
0.82
%
 
0.73
%
 
0.75
%
 
0.84
%
Return on average assets
1.12
%
 
0.82
%
 
1.04
%
 
0.97
%
 
0.91
%
Return on average equity
13.45
%
 
9.94
%
 
11.57
%
 
11.73
%
 
9.77
%
Efficiency ratio
74.4
%
 
79.7
%
 
72.0
%
 
76.9
%
 
74.2
%
Equity-to-assets ratio (average for the period)
8.29
%
 
8.27
%
 
9.02
%
 
8.28
%
 
9.29
%
Average Balances:
 
 
 
 
 
 
 
 
 
Average common shares outstanding
57,491,714

 
57,356,654

 
57,101,816

 
57,424,557

 
57,012,208

Average fully diluted shares outstanding
58,258,577

 
58,314,385

 
58,138,938

 
58,286,327

 
58,106,070

Average interest-earning assets
$
15,993

 
$
15,354

 
$
14,020

 
$
15,675

 
$
13,187

Average interest-paying liabilities
$
13,164

 
$
12,974

 
$
11,804

 
$
13,069

 
$
11,066

Average stockholders' equity
$
1,475

 
$
1,414

 
$
1,418

 
$
1,445

 
$
1,382

(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)
Includes residential first mortgage.
(3)
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.
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
June 30, 2017
Selected Statistics:
 
 
 
 
 
 
 
Book value per common share
$
25.61

 
$
24.87

 
$
24.40

 
$
24.64

Tangible book value per share (1)
24.37

 
23.62

 
24.04

 
24.29

Number of common shares outstanding
57,598,406

 
57,399,993

 
57,321,228

 
57,161,431

Number of FTE employees
3,682

 
3,659

 
3,525

 
3,432

Number of bank branches
107

 
107

 
99

 
99

Ratio of nonperforming assets to total assets
0.19
%
 
0.19
%
 
0.22
%
 
0.24
%
Common equity-to-assets ratio
8.14
%
 
8.05
%
 
8.27
%
 
8.82
%
MSR Key Statistics and Ratios:
 
 
 
 
 
 
 
Weighted average service fee (basis points)
32.4

 
30.4

 
28.9

 
27.8

Capitalized value of mortgage servicing rights
1.34
%
 
1.27
%
 
1.16
%
 
1.14
%
Mortgage servicing rights to Tier 1 capital
16.9
%
 
16.2
%
 
20.1
%
 
13.1
%
(1)
Excludes goodwill and intangibles of $71 million, $72 million, $21 million, and $20 million at June 30, 2018, March 31, 2018, December 31, 2017, and June 30, 2017, respectively. See Non-GAAP Reconciliation for further information.




11


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
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
$
4,170

$
47

4.50
%
 
$
4,231

$
44

4.12
%
 
$
4,269

$
42

4.00
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
2,875

25

3.53
%
 
2,773

23

3.41
%
 
2,495

21

3.38
%
Home equity
679

8

5.05
%
 
668

9

5.21
%
 
439

6

4.91
%
Other
57

1

5.39
%
 
27


4.56
%
 
27


4.54
%
Total Consumer loans
3,611

34

3.85
%
 
3,468

32

3.76
%
 
2,961

27

3.61
%
Commercial Real Estate
2,017

26

5.09
%
 
1,954

24

4.87
%
 
1,477

16

4.16
%
Commercial and Industrial
1,257

17

5.30
%
 
1,217

16

5.21
%
 
936

11

4.77
%
Warehouse Lending
1,495

19

5.03
%
 
848

11

5.14
%
 
850

10

4.71
%
Total Commercial loans
4,769

62

5.13
%
 
4,019

51

5.03
%
 
3,263

37

4.48
%
Total loans held-for-investment
8,380

96

4.58
%
 
7,487

83

4.44
%
 
6,224

64

4.07
%
Loans with government guarantees
280

2

3.66
%
 
291

3

3.72
%
 
295

3

4.02
%
Investment securities
3,049

21

2.72
%
 
3,233

22

2.69
%
 
3,166

20

2.57
%
Interest-earning deposits
114

1

1.72
%
 
112


1.67
%
 
66


1.07
%
Total interest-earning assets
15,993

$
167

4.17
%
 
15,354

$
152

3.95
%
 
14,020

$
129

3.69
%
Other assets
1,791

 
 
 
1,736

 
 
 
1,690

 
 
Total assets
$
17,784

 
 
 
$
17,090

 
 
 
$
15,710

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
704

$
1

0.60
%
 
$
548

$

0.26
%
 
$
510

$

0.15
%
Savings deposits
3,412

8

0.86
%
 
3,490

7

0.81
%
 
3,933

8

0.75
%
Money market deposits
247


0.54
%
 
205


0.44
%
 
239


0.42
%
Certificates of deposit
2,006

8

1.63
%
 
1,619

6

1.45
%
 
1,094

3

1.08
%
Total retail deposits
6,369

17

1.06
%
 
5,862

13

0.92
%
 
5,776

11

0.75
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
243


0.47
%
 
241


0.55
%
 
200


0.39
%
Savings deposits
488

2

1.26
%
 
483

2

1.11
%
 
411

1

0.56
%
Certificates of deposit
380

1

1.35
%
 
401

1

1.19
%
 
291


0.68
%
Total government deposits
1,111

3

1.12
%
 
1,125

3

1.02
%
 
902

1

0.56
%
Wholesale deposits and other
264

1

1.96
%
 
171

1

1.91
%
 
4


0.48
%
Total interest-bearing deposits
7,744

21

1.10
%
 
7,158

17

0.96
%
 
6,682

12

0.72
%
Short-term Federal Home Loan Bank advances and other
3,646

17

1.85
%
 
4,032

15

1.53
%
 
3,429

8

0.98
%
Long-term Federal Home Loan Bank advances
1,280

7

2.25
%
 
1,290

7

2.10
%
 
1,200

6

1.91
%
Other long-term debt
494

7

5.60
%
 
494

7

5.37
%
 
493

6

5.06
%
Total interest-bearing liabilities
13,164

52

1.58
%
 
12,974

46

1.41
%
 
11,804

32

1.10
%
Noninterest-bearing deposits (1)
2,670

 
 
 
2,213

 
 
 
2,057

 
 
Other liabilities
475

 
 
 
489

 
 
 
431

 
 
Stockholders' equity
1,475

 
 
 
1,414

 
 
 
1,418

 
 
Total liabilities and stockholders' equity
$
17,784

 
 
 
$
17,090

 
 
 
$
15,710

 
 
Net interest-earning assets
$
2,829

 
 
 
$
2,380

 
 
 
$
2,216

 
 
Net interest income
 
$
115

 
 
 
$
106

 
 
 
$
97

 
Interest rate spread (2)
 
 
2.58
%
 
 
 
2.54
%
 
 
 
2.59
%
Net interest margin (3)
 
 
2.86
%
 
 
 
2.76
%
 
 
 
2.77
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
121.5
%
 
 
 
118.3
%
 
 
 
118.8
%
Total average deposits
$
10,414

 
 
 
$
9,371

 
 
 
$
8,739

 
 
(1)
Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.
(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.


12


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
4,201

$
90

4.31
%
 
$
3,780

$
74

3.94
%
Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage
2,824

49

3.47
%
 
2,447

41

3.35
%
Home equity
674

17

5.13
%
 
436

11

5.01
%
Other
42

1

5.12
%
 
26


4.52
%
Total Consumer loans
3,540

67

3.80
%
 
2,909

52

3.61
%
Commercial Real Estate
1,986

50

4.98
%
 
1,399

28

3.99
%
Commercial and Industrial
1,237

33

5.25
%
 
855

20

4.67
%
Warehouse Lending
1,173

30

5.07
%
 
770

18

4.62
%
Total Commercial loans
4,396

113

5.08
%
 
3,024

66

4.34
%
Total loans held-for-investment
7,936

180

4.51
%
 
5,933

118

3.98
%
Loans with government guarantees
285

5

3.69
%
 
318

7

4.34
%
Investment securities
3,140

43

2.71
%
 
3,090

39

2.54
%
Interest-earning deposits
113

1

1.69
%
 
66

1

0.97
%
Total interest-earning assets
15,675

$
319

4.06
%
 
13,187

$
239

3.63
%
Other assets
1,764

 
 
 
1,694

 
 
Total assets
$
17,439

 
 
 
$
14,881

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
626

$
1

0.46
%
 
$
509

$

0.17
%
Savings deposits
3,451

14

0.83
%
 
3,930

15

0.76
%
Money market deposits
226

1

0.49
%
 
258

1

0.44
%
Certificates of deposit
1,814

14

1.55
%
 
1,083

6

1.07
%
Total retail deposits
6,117

30

0.99
%
 
5,780

22

0.75
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
242

1

0.51
%
 
217


0.39
%
Savings deposits
485

3

1.18
%
 
435

1

0.54
%
Certificates of deposit
391

2

1.27
%
 
305

1

0.65
%
Total government deposits
1,118

6

1.07
%
 
957

2

0.54
%
Wholesale deposits and other
217

2

1.94
%
 
6


0.42
%
Total interest-bearing deposits
7,452

38

1.03
%
 
6,743

24

0.72
%
Short-term Federal Home Loan Bank advances and other
3,838

32

1.68
%
 
2,630

12

0.89
%
Long-term Federal Home Loan Bank advances
1,285

14

2.17
%
 
1,200

11

1.89
%
Other long-term debt
494

14

5.49
%
 
493

12

5.05
%
Total interest-bearing liabilities
13,069

98

1.50
%
 
11,066

59

1.08
%
Noninterest-bearing deposits (1)
2,443

 
 
 
2,024

 
 
Other liabilities
482

 
 
 
409

 
 
Stockholders' equity
1,445

 
 
 
1,382

 
 
Total liabilities and stockholders' equity
$
17,439

 
 
 
$
14,881

 
 
Net interest-earning assets
$
2,606

 
 
 
$
2,121

 
 
Net interest income
 
$
221

 
 
 
$
180

 
Interest rate spread (2)
 
 
2.56
%
 
 
 
2.55
%
Net interest margin (3)
 
 
2.81
%
 
 
 
2.72
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
119.9
%
 
 
 
119.2
%
Total average deposits
$
9,895

 
 
 
$
8,767

 
 
(1)
Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.
(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.


13


Flagstar Bancorp, Inc.
Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net income
50

 
35

 
41

 
85

 
68

Weighted average shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
57,491,714

 
57,356,654

 
57,101,816

 
57,424,557

 
57,012,208

Effect of dilutive securities