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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): October 22, 2018

 395436655_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 October 23, 2018, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended September 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 and nine months ended September 30, 2018 as part of its Quarterly Report on Form 10-Q.

On October 23, 2018, the Company will hold a conference call to review third 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 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.


Compensatory Arrangements for Certain Officers

On October 22, 2018, Flagstar Bancorp, Inc. (the "Company") and Flagstar Bank, FSB (the "Bank") entered into separate employment agreements with Alessandro DiNello (the “DiNello Employment Agreement”), to continue serving as President and Chief Executive Officer of the Bank and the Company, and with Lee Smith (the “Smith Employment Agreement”) to continue serving as Executive Vice President and Chief Operating Officer of the Bank and the Company. These employment agreements replace the employment agreements, as amended, that the Company and the Bank had with each of Mr. DiNello and Mr. Smith. Under their respective agreements, Mr. DiNello's annual base salary will be not less than $1,000,000 and Mr. Smith’s annual base salary will be not less than $750,000. The DiNello Employment Agreement and the Smith Employment Agreement continue until December 31, 2021 and December 31, 2020, respectively, and each will automatically renew at the end of their respective terms for successive 12 month periods thereafter unless any party to each such agreement gives notice otherwise at least 180 days in advance. As with their prior employment agreements with the Company and the Bank, these agreements also provide for their participation in the Company’s bonus program, Executive Long Term Incentive Program, and other Company equity programs. In addition, both the DiNello Employment Agreement and the Smith Employment Agreement contain non-compete and non-solicit requirements that apply during the term of employment and for one year thereafter. The agreements also provide that Mr. DiNello will receive three times, and Mr. Smith will receive two times, their respective base salary and targeted bonus if terminated due to a “change in control” as defined therein.




Item 9.01
Financial Statements and Exhibits
 
 Exhibits
 
 
 
 
 
99.1
  
Press release of Flagstar Bancorp, Inc. dated October 23, 2018
 
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides - Earnings Presentation Third 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:
10/23/2018
 
 
 
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


395436655_flagstara43.jpg                395436655_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Third Quarter 2018 Net Income of $48 million, or $0.83 per Diluted Share

Strong growth in earning assets and a widening of the net interest margin result in record net interest income levels

Key Highlights - Third Quarter 2018

Adjusted net income of $49 million, or $0.85 per diluted share, excluding costs for pending Wells Fargo branch acquisition.
Net interest income grew $9 million, or 8 percent from second quarter 2018, led by earning asset growth and net interest margin expansion.
Average loans held-for-investment rose 6 percent while average total deposits increased 9 percent from prior quarter.
Total serviced accounts increased 16 percent from last quarter to nearly 620,000 accounts.
Noninterest expense dropped $4 million, or 2 percent from prior quarter, driven by prudent expense management and lower mortgage expenses.
Pristine asset quality - minimal net charge-offs, very low delinquencies and strong allowance for loan loss coverage.

TROY, Mich., October 23, 2018 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported third quarter 2018 net income of $48 million, or $0.83 per diluted share, and adjusted net income of $49 million, or $0.85 per diluted share, excluding $1.2 million of pre-tax expenses related to the pending acquisition of Wells Fargo branches. The Company reported net income of $50 million, or $0.85 per diluted share, in the second quarter 2018, and $40 million, or $0.70 per diluted share, in the third quarter 2017.

"Our third quarter results once again demonstrated the strength of our banking business,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “Solid growth in banking along with disciplined cost control, helped us deliver an adjusted ROA of 1.1 percent.

"Our banking business provided a stable and growing source of income. Net interest income grew 8 percent from last quarter, as average earning assets increased 5 percent and the net interest margin expanded 7 basis points. Also, we saw total serviced accounts increase 16 percent in the quarter and we now service nearly 620,000 accounts. We expect this total to exceed 800,000 by year-end.

1



"Earnings were also helped by our expense discipline. In the third quarter 2018, total noninterest expense fell 2 percent to $173 million, despite strong growth in the balance sheet and increased mortgage originations, as we continued to scale businesses with a lower level of incremental expense, along with aggressively managing our mortgage expenses.

"Mortgage revenues declined in the quarter as fallout-adjusted locks decreased 8 percent to $8.3 billion and the net gain on loan sale margin fell 20 basis points to 0.51 percent. This decline was partially offset by a stronger MSR return.

"Looking ahead, we believe we are well positioned for continued success. Our pending acquisition of 52 Midwest branches of Wells Fargo, which we expect to close at the beginning of December 2018, will bring us low cost and low beta deposits. Additionally, with the lifting of our Federal Reserve Supervisory Agreement this quarter, we now have more flexibility in managing our capital to maximize risk-adjusted returns for our shareholders.”

Third Quarter 2018 Highlights:
Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
 
(Dollars in millions)
Net interest income
$
124

$
115

$
106

$
107

$
103

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

2

2

Noninterest income
107

123

111

124

130

Noninterest expense
173

177

173

178

171

Income before income taxes
60

62

44

51

60

Provision for income taxes (1)
12

12

9

96

20

Net income (loss)
$
48

$
50

$
35

$
(45
)
$
40

 
 
 
 
 
 
Income (loss) per share:
 
 
 
 
 
Basic
$
0.84

$
0.86

$
0.61

$
(0.79
)
$
0.71

Diluted
$
0.83

$
0.85

$
0.60

$
(0.79
)
$
0.70

(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)
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Seq
Yr/Yr
Net interest margin
2.93
%
2.86
%
2.76
%
2.76
 %
2.78
%
7
15
Return on average assets
1.0
%
1.1
%
0.8
%
(1.1
)%
1.0
%
(10)

Return on average equity
12.8
%
13.5
%
9.9
%
(12.1
)%
11.1
%
(70)
170
Efficiency ratio
74.6
%
74.4
%
79.7
%
77.1
 %
73.5
%
20
110



2


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


Average interest-earning assets
$
16,786

$
15,993

$
15,354

$
15,379

$
14,737

5
%
14
 %
Average loans held-for-sale (LHFS)
4,393

4,170

4,231

4,537

4,476

5
%
(2
)%
Average loans held-for-investment (LHFI)
8,872

8,380

7,487

7,295

6,803

6
%
30
 %
Average total deposits
11,336

10,414

9,371

9,084

9,005

9
%
26
 %

Net Interest Income

Net interest income rose $9 million to $124 million for the third quarter 2018, as compared to the second quarter 2018. The results reflected a 5 percent increase in average earning assets, led by balanced growth in loans held-for-sale, commercial and consumer loans. The net interest margin expanded 7 basis points to 2.93 percent for the third quarter 2018 as higher yields on interest-earning assets more than offset higher deposit costs.

Loans held-for-investment averaged $8.9 billion for the third quarter 2018, increasing $492 million, or 6 percent, from the prior quarter. During the third quarter 2018, average commercial loans rose $253 million, or 5 percent, with average warehouse loans increasing $91 million, average commercial real estate loans rising $89 million and average commercial and industrial loans increasing $73 million. Average consumer loans rose $239 million, or 7 percent, driven by an increase in mortgage loans (primarily jumbo).

Average total deposits were $11.3 billion in the third quarter 2018, increasing $922 million, or 9 percent from the second quarter 2018, led primarily by higher custodial and retail deposits. Average custodial deposits rose $366 million, or 23 percent, led by a 16 percent increase in serviced accounts. Average retail deposits increased $211 million, or 3 percent, as higher demand deposits and certificates of deposit were partially offset by a drop in savings deposits.

Provision for Loan Losses

The Company experienced a provision benefit in the third quarter 2018, resulting primarily from a continued decline in loss rates in the held-for-investment portfolio. The provision benefit totaled $2 million for the third quarter 2018, as compared to $1 million for the second quarter 2018.

3


Noninterest Income

Noninterest income fell $16 million, or 13 percent, to $107 million in the third quarter of 2018, as compared to $123 million for the second quarter 2018. The decrease was primarily due to lower net gain on loan sales, partially offset by an increase in the net return on mortgage servicing rights.

Third quarter 2018 net gain on loan sales fell $20 million, or 32 percent, to $43 million, versus $63 million in the second quarter 2018. Fallout-adjusted locks decreased 8 percent to $8.3 billion, due to softer mortgage volume. The net gain on loan sale margin fell 20 basis points to 0.51 percent for the third quarter 2018, as compared to 0.71 percent for the second quarter 2018. The lower margin was primarily due to secondary margin compression and a mix shift toward lower margin, but lower cost delegated correspondent business. Excluding the secondary performance, the net gain on loan sale margin was 66 basis points.

Mortgage Metrics
 
 
 
 
 
 
 
 
Change (% / bps)
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Seq
Yr/Yr
 
(Dollars in millions)
 
 
For the three months ended:
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
8,290

$
9,011

$
7,722

$
8,631

$
8,898

(8
)%
(7
)%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.51
%
0.71
%
0.77
%
0.91
%
0.84
%
(20)
(33)
Net gain on loan sales
$
43

$
63

$
60

$
79

$
75

(32
)%
(43
)%
Net (loss) return on the mortgage servicing rights (MSR)
$
13

$
9

$
4

$
(4
)
$
6

44
 %
117
 %
Gain on loan sales + net (loss) return on the MSR
$
56

$
72

$
64

$
75

$
81

(22
)%
(31
)%
At the end of the period:
 
 
 
 
 
 
 
Residential loans serviced (number of accounts - 000's) (3)
619

535

470

442

415

16
 %
49
 %
Capitalized value of MSRs
1.43
%
1.34
%
1.27
%
1.16
%
1.15
%
9
28
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.

Net return on mortgage servicing rights (including the impact of hedges) increased $4 million, resulting in a net gain of $13 million for the third quarter 2018, as compared to a net gain of $9 million for the second quarter 2018. The increase from the prior quarter largely reflected higher service fee income due to a larger MSR portfolio and a $1.9 million fair value gain associated with a pending MSR sale of $4.7 billion UPB expected to close in the fourth quarter 2018.

Noninterest Expense

Noninterest expense fell to $173 million for the third quarter 2018, as compared to $177 million for the second quarter 2018, primarily due to lower compensation and benefits and commissions, partially offset by acquisition costs related to the Company's pending acquisition of Wells Fargo branches. Excluding $1.2 million of transaction costs from pending acquisitions, the Company's adjusted noninterest expense was $172 million.

During the third quarter 2018, compensation and benefits declined $4 million, primarily due to cost reduction initiatives and lower incentive compensation, while commissions decreased $4 million, reflecting lower mortgage expenses.

4



The Company's total efficiency ratio rose slightly to 75 percent for the third quarter 2018, as compared to 74 percent for the second quarter 2018, resulting from the decline in mortgage revenue. Revenue decreased 3 percent while expenses fell 2 percent in the third quarter 2018.

Income Taxes

The third quarter 2018 provision for income taxes totaled $12 million, unchanged from the second quarter 2018. The Company's effective tax rate was 20 percent for the third quarter 2018, unchanged from the prior quarter.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
1.5
%
1.5
%
1.7
%
1.8
%
2.0
%
0
(50)
Charge-offs, net of recoveries
$
1

$
1

$
1

$
2

$
2

 %
(50
)%
Total nonperforming loans held-for-investment
$
25

$
27

$
29

$
29

$
31

(7
)%
(19
)%
Net charge-offs to LHFI ratio (annualized)
0.05
%
0.02
%
0.06
%
0.12
%
0.08
%
3
(3)
Ratio of nonperforming LHFI and TDRs to LHFI
0.28
%
0.30
%
0.35
%
0.38
%
0.44
%
(2)
(16)
N/M - Not meaningful

The allowance for loan losses was $134 million at September 30, 2018, compared to $137 million at June 30, 2018. The allowance for loan losses covered 1.5 percent of loans held-for-investment at September 30, 2018, unchanged from June 30, 2018.

Net charge-offs in the third quarter 2018 were $1 million, or 5 basis points of HFI loans, compared to $1 million, or 2 basis points in the prior quarter.

Nonperforming loans held-for-investment were $25 million at September 30, 2018, compared to $27 million at June 30, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.28 percent at September 30, 2018, compared to 0.30 percent at June 30, 2018. At September 30, 2018, early stage consumer loan delinquencies totaled $3 million, or 0.08 percent of consumer loans, unchanged from June 30, 2018.

Capital

Capital Ratios (Bancorp)
Three Months Ended
Change (% / bps)
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Seq
Yr/Yr
Tangible common equity to assets ratio (1)
7.74
%
7.74
%
7.65
%
8.15
%
8.47
%

(73
)
Tier 1 leverage (to adj. avg. total assets)
8.36
%
8.65
%
8.72
%
8.51
%
8.80
%
(29)
(44)
Tier 1 common equity (to RWA)
11.01
%
10.84
%
10.80
%
11.50
%
11.65
%
17
(64)
Tier 1 capital (to RWA)
13.04
%
12.86
%
12.90
%
13.63
%
13.72
%
18
(68)
Total capital (to RWA)
14.20
%
14.04
%
14.14
%
14.90
%
14.99
%
16
(79)
MSRs to Tier 1 capital
20.3
%
16.9
%
16.2
%
20.1
%
17.3
%
340
300
Tangible book value per share (1)
$
25.13

$
24.37

$
23.62

$
24.04

$
25.01

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 September 30, 2018, the Company had a Tier 1 leverage ratio of

5


8.36 percent, as compared to 8.65 percent at June 30, 2018. The decrease in the ratio resulted primarily from balance sheet growth and higher MSRs, partially offset by earnings retention.

Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 67 basis points and risk-based capital ratios by approximately 30-50 basis points at September 30, 2018 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's third quarter 2018 earnings call will be held Tuesday, October 23, 2018 at 11 a.m. (ET).

To join the call, please dial (877) 260-1479 toll free or (334) 323-0522 and use passcode 9173210. 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 9173210.

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 $18.7 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 108 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 81 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 loans, handling payments and record keeping for $136 billion of home loans representing nearly 620,000 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, tangible common equity to assets ratio, adjusted net income, adjusted diluted earnings per share, adjusted noninterest expense and adjusted return on average assets. 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

6


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)
 
September 30, 2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
Assets
 
 
 
 
 
 
 
Cash
$
150

 
$
139

 
$
122

 
$
88

Interest-earning deposits
114

 
220

 
82

 
145

Total cash and cash equivalents
264

 
359

 
204

 
233

Investment securities available-for-sale
1,857

 
1,871

 
1,853

 
1,637

Investment securities held-to-maturity
724

 
748

 
939

 
977

Loans held-for-sale
4,835

 
4,291

 
4,321

 
4,939

Loans held-for-investment
8,966

 
8,904

 
7,713

 
7,203

Loans with government guarantees
305

 
278

 
271

 
253

Less: allowance for loan losses
(134
)
 
(137
)
 
(140
)
 
(140
)
Total loans held-for-investment and loans with government guarantees, net
9,137

 
9,045

 
7,844

 
7,316

Mortgage servicing rights
313

 
257

 
291

 
246

Federal Home Loan Bank stock
303

 
303

 
303

 
264

Premises and equipment, net
360

 
355

 
330

 
314

Net deferred tax asset
111

 
119

 
136

 
248

Goodwill and intangible assets
70

 
71

 
21

 
21

Other assets
723

 
711

 
670

 
685

Total assets
$
18,697

 
$
18,130

 
$
16,912

 
$
16,880

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Noninterest-bearing
$
3,096

 
$
2,781

 
$
2,049

 
$
2,272

Interest-bearing
8,493

 
7,807

 
6,885

 
6,889

Total deposits
11,589

 
10,588

 
8,934

 
9,161

Short-term Federal Home Loan Bank advances
3,199

 
3,840

 
4,260

 
4,065

Long-term Federal Home Loan Bank advances
1,280

 
1,280

 
1,405

 
1,300

Other long-term debt
495

 
494

 
494

 
493

Other liabilities
616

 
453

 
420

 
410

Total liabilities
17,179

 
16,655

 
15,513

 
15,429

Stockholders' Equity
 
 
 
 
 
 
 
Common stock
1

 
1

 
1

 
1

Additional paid in capital
1,519

 
1,514

 
1,512

 
1,511

Accumulated other comprehensive loss
(42
)
 
(32
)
 
(16
)
 
(8
)
Retained earnings/(accumulated deficit)
40

 
(8
)
 
(98
)
 
(53
)
Total stockholders' equity
1,518

 
1,475

 
1,399

 
1,451

Total liabilities and stockholders' equity
$
18,697

 
$
18,130

 
$
16,912

 
$
16,880





8


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Third Quarter 2018 Compared to:
 
Three Months Ended
 
Second Quarter
2018
 
Third Quarter
2017
 
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
183

$
167

$
152

$
148

$
140

 
$
16

10
 %
 
$
43

31
 %
Total interest expense
59

52

46

41

37

 
7

13
 %
 
22

59
 %
Net interest income
124

115

106

107

103

 
9

8
 %
 
21

20
 %
Provision (benefit) for loan losses
(2
)
(1
)

2

2

 
(1
)
100
 %
 
(4
)
N/M

Net interest income after provision (benefit) for loan losses
126

116

106

105

101

 
10

9
 %
 
25

25
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
43

63

60

79

75

 
(20
)
(32
)%
 
(32
)
(43
)%
Loan fees and charges
23

24

20

24

23

 
(1
)
(4
)%
 

 %
Deposit fees and charges
5

5

5

4

5

 

 %
 

 %
Loan administration income
5

5

5

5

5

 

 %
 

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

9

4

(4
)
6

 
4

44
 %
 
7

117
 %
Other noninterest income
18

17

17

16

16

 
1

6
 %
 
2

13
 %
Total noninterest income
107

123

111

124

130

 
(16
)
(13
)%
 
(23
)
(18
)%
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
76

80

80

80

76

 
(4
)
(5
)%
 

 %
Commissions
21

25

18

23

23

 
(4
)
(16
)%
 
(2
)
(9
)%
Occupancy and equipment
31

30

30

28

28

 
1

3
 %
 
3

11
 %
Federal insurance premiums
6

6

6

5

5

 

 %
 
1

20
 %
Loan processing expense
14

15

14

16

15

 
(1
)
(7
)%
 
(1
)
(7
)%
Legal and professional expense
7

6

6

8

7

 
1

17
 %
 

 %
Other noninterest expense
18

15

19

18

17

 
3

20
 %
 
1

6
 %
Total noninterest expense
173

177

173

178

171

 
(4
)
(2
)%
 
2

1
 %
Income before income taxes
60

62

44

51

60

 
(2
)
(3
)%
 

 %
Provision for income taxes
12

12

9

96

20

 

 %
 
(8
)
(40
)%
Net income (loss)
$
48

$
50

$
35

$
(45
)
$
40

 
$
(2
)
(4
)%
 
$
8

20
 %
Income (loss) per share
 
 
 
 
 
 




 




Basic
$
0.84

$
0.86

$
0.61

$
(0.79
)
$
0.71

 
$
(0.02
)
(2
)%
 
$
0.13

18
 %
Diluted
$
0.83

$
0.85

$
0.60

$
(0.79
)
$
0.70

 
$
(0.02
)
(2
)%
 
$
0.13

19
 %
N/M - Not meaningful


9


Flagstar Bancorp, Inc.
Consolidated Statements of Operations
(Dollars in millions, except per data share)
(Unaudited)
 
 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended
 
Compared to:
Nine Months Ended September 30, 2017
 
September 30, 2018
September 30, 2017
 
Amount
Percent
Total interest income
$
502

$
379

 
$
123

32
 %
Total interest expense
157

96

 
61

64
 %
Net interest income
345

283

 
62

22
 %
Provision (benefit) for loan losses
(3
)
4

 
(7
)
N/M

Net interest income after provision (benefit) for loan losses
348

279

 
69

25
 %
Noninterest Income
 
 
 
 
 
Net gain on loan sales
166

189

 
(23
)
(12
)%
Loan fees and charges
67

58

 
9

16
 %
Deposit fees and charges
15

14

 
1

7
 %
Loan administration income
15

16

 
(1
)
(6
)%
Net return on the mortgage servicing rights
26

26

 

 %
Other noninterest income
52

43

 
9

21
 %
Total noninterest income
341

346

 
(5
)
(1
)%
Noninterest Expense
 
 
 
 
 
Compensation and benefits
236

219

 
17

8
 %
Commissions
64

49

 
15

31
 %
Occupancy and equipment
91

75

 
16

21
 %
Federal insurance premiums
18

12

 
6

50
 %
Loan processing expense
43

41

 
2

5
 %
Legal and professional expense
19

22

 
(3
)
(14
)%
Other noninterest expense
52

47

 
5

11
 %
Total noninterest expense
523

465

 
58

12
 %
Income before income taxes
166

160

 
6

4
 %
Provision for income taxes
33

52

 
(19
)
(37
)%
Net income
$
133

$
108

 
$
25

23
 %
Income per share
 
 
 
 
 
Basic
$
2.32

$
1.90

 
$
0.42

22
 %
Diluted
$
2.28

$
1.86

 
$
0.42

23
 %
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
 
Nine Months Ended
 
September 30, 2018
 
June 30,
2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Selected Mortgage Statistics:
 
 
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
8,290

 
$
9,011

 
$
8,898

 
$
25,024

 
$
23,896

Mortgage loans originated (2)
$
9,199

 
$
9,040

 
$
9,572

 
$
26,125

 
$
24,659

Mortgage loans sold and securitized
$
8,423

 
$
9,260

 
$
8,924

 
$
24,930

 
$
22,397

Selected Ratios:
 
 
 
 
 
 
 
 
 
Interest rate spread (3)
2.57
%
 
2.58
%
 
2.58
%
 
2.57
%
 
2.56
%
Net interest margin
2.93
%
 
2.86
%
 
2.78
%
 
2.85
%
 
2.74
%
Net margin on loans sold and securitized
0.51
%
 
0.69
%
 
0.84
%
 
0.66
%
 
0.84
%
Return on average assets
1.04
%
 
1.12
%
 
0.99
%
 
1.00
%
 
0.94
%
Return on average equity
12.80
%
 
13.45
%
 
11.10
%
 
12.10
%
 
10.23
%
Efficiency ratio
74.6
%
 
74.4
%
 
73.5
%
 
76.2
%
 
73.9
%
Equity-to-assets ratio (average for the period)
8.13
%
 
8.29
%
 
8.95
%
 
8.23
%
 
9.16
%
Average Balances:
 
 
 
 
 
 
 
 
 
Average common shares outstanding
57,600,360

 
57,491,714

 
57,162,025

 
57,483,802

 
57,062,696

Average fully diluted shares outstanding
58,332,598

 
58,258,577

 
58,186,593

 
58,301,920

 
58,133,296

Average interest-earning assets
$
16,786

 
$
15,993

 
$
14,737

 
$
16,050

 
$
13,709

Average interest-paying liabilities
$
13,308

 
$
13,164

 
$
12,297

 
$
13,150

 
$
11,481

Average stockholders' equity
$
1,514

 
$
1,475

 
$
1,471

 
$
1,468

 
$
1,412

(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.
 
September 30, 2018
 
June 30, 2018
 
December 31, 2017
 
September 30, 2017
Selected Statistics:
 
 
 
 
 
 
 
Book value per common share
$
26.34

 
$
25.61

 
$
24.40

 
$
25.38

Tangible book value per share (1)
25.13

 
24.37

 
24.04

 
25.01

Number of common shares outstanding
57,625,439

 
57,598,406

 
57,321,228

 
57,181,536

Number of FTE employees
3,496

 
3,682

 
3,525

 
3,495

Number of bank branches
108

 
107

 
99

 
99

Ratio of nonperforming assets to total assets (2)
0.17
%
 
0.19
%
 
0.22
%
 
0.24
%
Common equity-to-assets ratio
8.12
%
 
8.14
%
 
8.27
%
 
8.60
%
MSR Key Statistics and Ratios:
 
 
 
 
 
 
 
Weighted average service fee (basis points)
34.3

 
32.4

 
28.9

 
28.2

Capitalized value of mortgage servicing rights
1.43
%
 
1.34
%
 
1.16
%
 
1.15
%
Mortgage servicing rights to Tier 1 capital
20.3
%
 
16.9
%
 
20.1
%
 
17.3
%
(1)
Excludes goodwill and intangibles of $70 million, $71 million, $21 million, and $21 million at September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, 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
 
September 30, 2018
 
June 30, 2018
 
September 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
$
4,393

$
52

4.69
%
 
$
4,170

$
47

4.50
%
 
$
4,476

$
45

3.99
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,027

27

3.63
%
 
2,875

25

3.53
%
 
2,594

22

3.32
%
Home equity
695

9

5.12
%
 
679

8

5.05
%
 
486

6

5.11
%
Other
128

2

5.54
%
 
57

1

5.39
%
 
26


4.52
%
Total Consumer loans
3,850

38

3.96
%
 
3,611

34

3.85
%
 
3,106

28

3.61
%
Commercial Real Estate
2,106

29

5.37
%
 
2,017

26

5.09
%
 
1,646

19

4.43
%
Commercial and Industrial
1,330

18

5.28
%
 
1,257

17

5.30
%
 
1,073

13

4.77
%
Warehouse Lending
1,586

21

5.10
%
 
1,495

19

5.03
%
 
978

12

4.82
%
Total Commercial loans
5,022

68

5.26
%
 
4,769

62

5.13
%
 
3,697

44

4.63
%
Total loans held-for-investment
8,872

106

4.70
%
 
8,380

96

4.58
%
 
6,803

72

4.16
%
Loans with government guarantees
292

3

4.20
%
 
280

2

3.66
%
 
264

3

4.58
%
Investment securities
3,100

21

2.81
%
 
3,049

21

2.72
%
 
3,101

20

2.58
%
Interest-earning deposits
129

1

2.38
%
 
114

1

1.72
%
 
93


1.23
%
Total interest-earning assets
16,786

$
183

4.32
%
 
15,993

$
167

4.17
%
 
14,737

$
140

3.77
%
Other assets
1,825

 
 
 
1,791

 
 
 
1,702

 
 
Total assets
$
18,611

 
 
 
$
17,784

 
 
 
$
16,439

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
727

$
3

1.62
%
 
$
704

$
1

0.60
%
 
$
489

$

0.14
%
Savings deposits
3,229

7

0.90
%
 
3,412

8

0.86
%
 
3,838

7

0.76
%
Money market deposits
252


0.62
%
 
247


0.54
%
 
276


0.57
%
Certificates of deposit
2,150

10

1.78
%
 
2,006

8

1.63
%
 
1,182

4

1.19
%
Total retail deposits
6,358

20

1.27
%
 
6,369

17

1.06
%
 
5,785

11

0.78
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
283

1

0.59
%
 
243


0.47
%
 
250


0.43
%
Savings deposits
564

2

1.48
%
 
488

2

1.26
%
 
362

1

0.71
%
Certificates of deposit
327

1

1.52
%
 
380

1

1.35
%
 
329

1

0.89
%
Total government deposits
1,174

4

1.28
%
 
1,111

3

1.12
%
 
941

2

0.70
%
Wholesale deposits and other
537

3

2.03
%
 
264

1

1.96
%
 
35


1.49
%
Total interest-bearing deposits
8,069

27

1.32
%
 
7,744

21

1.10
%
 
6,761

13

0.78
%
Short-term Federal Home Loan Bank advances and other
3,465

18

2.10
%
 
3,646

17

1.85
%
 
3,809

11

1.17
%
Long-term Federal Home Loan Bank advances
1,280

7

2.11
%
 
1,280

7

2.25
%
 
1,234

6

1.99
%
Other long-term debt
494

7

5.62
%
 
494

7

5.60
%
 
493

7

5.09
%
Total interest-bearing liabilities
13,308

59

1.75
%
 
13,164

52

1.58
%
 
12,297

37

1.19
%
Noninterest-bearing deposits (1)
3,267

 
 
 
2,670

 
 
 
2,244

 
 
Other liabilities
522

 
 
 
475

 
 
 
427

 
 
Stockholders' equity
1,514

 
 
 
1,475

 
 
 
1,471

 
 
Total liabilities and stockholders' equity
$
18,611

 
 
 
$
17,784

 
 
 
$
16,439

 
 
Net interest-earning assets
$
3,478

 
 
 
$
2,829

 
 
 
$
2,440

 
 
Net interest income
 
$
124

 
 
 
$
115

 
 
 
$
103

 
Interest rate spread (2)
 
 
2.57
%
 
 
 
2.58
%
 
 
 
2.58
%
Net interest margin (3)
 
 
2.93
%
 
 
 
2.86
%
 
 
 
2.78
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
126.1
%
 
 
 
121.5
%
 
 
 
119.9
%
Total average deposits
$
11,336

 
 
 
$
10,414

 
 
 
$
9,005

 
 
(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)
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
4,265

$
142

4.44
%
 
$
4,014

$
119

3.96
%
Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage
2,893

76

3.52
%
 
2,497

62

3.34
%
Home equity
681

26

5.13
%
 
453

17

5.04
%
Other
71

3

5.37
%
 
26

1

4.52
%
Total Consumer loans
3,645

105

3.86
%
 
2,976

80

3.61
%
Commercial Real Estate
2,026

79

5.12
%
 
1,482

47

4.15
%
Commercial and Industrial
1,269

51

5.26
%
 
929

33

4.71
%
Warehouse Lending
1,312

51

5.08
%
 
840

30

4.70
%
Total Commercial loans
4,607

181

5.15
%
 
3,251

110

4.45
%
Total loans held-for-investment
8,252

286

4.58
%
 
6,227

190

4.05
%
Loans with government guarantees
288

8

3.86
%
 
300

10

4.41
%
Investment securities
3,127

64

2.74
%
 
3,093

59

2.55
%
Interest-earning deposits
118

2

1.95
%
 
75

1

1.08
%
Total interest-earning assets
16,050

$
502

4.15
%
 
13,709

$
379

3.68
%
Other assets
1,784

 
 
 
1,697

 
 
Total assets
$
17,834

 
 
 
$
15,406

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
660

$
4

0.89
%
 
$
502

$
1

0.16
%
Savings deposits
3,376

21

0.85
%
 
3,899

22

0.76
%
Money market deposits
235

1

0.54
%
 
264

1

0.49
%
Certificates of deposit
1,927

24

1.64
%
 
1,116

9

1.12
%
Total retail deposits
6,198

50

1.09
%
 
5,781

33

0.76
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
256

1

0.54
%
 
228

1

0.41
%
Savings deposits
512

5

1.29
%
 
410

2

0.59
%
Certificates of deposit
369

4

1.34
%
 
314

1

0.73
%
Total government deposits
1,137

10

1.14
%
 
952

4

0.59
%
Wholesale deposits and other
325

5

1.99
%
 
16


1.21
%
Total interest-bearing deposits
7,660

65

1.13
%
 
6,749

37

0.74
%
Short-term Federal Home Loan Bank advances and other
3,713

50

1.81
%
 
3,028

23

1.01
%
Long-term Federal Home Loan Bank advances
1,283

21

2.15
%
 
1,211

17

1.92
%
Other long-term debt
494

21

5.53
%
 
493

19

5.06
%
Total interest-bearing liabilities
13,150

157

1.58
%
 
11,481

96

1.12
%
Noninterest-bearing deposits (1)
2,721

 
 
 
2,098

 
 
Other liabilities
495

 
 
 
415

 
 
Stockholders' equity
1,468

 
 
 
1,412

 
 
Total liabilities and stockholders' equity
$
17,834

 
 
 
$
15,406

 
 
Net interest-earning assets
$
2,900

 
 
 
$
2,228

 
 
Net interest income
 
$
345

 
 
 
$
283

 
Interest rate spread (2)
 
 
2.57
%
 
 
 
2.56
%
Net interest margin (3)
 
 
2.85
%
 
 
 
2.74
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
122.1
%
 
 
 
119.4
%
Total average deposits
$
10,381

 
 
 
$
8,847

 
 
(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
 
Nine Months Ended
 
September 30, 2018
 
June 30,
2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Net income
48

 
50

 
40

 
133

 
108

Weighted average shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
57,600,360