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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): April 23, 2019

 397608904_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 April 23, 2019, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended March 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 three months ended March 31, 2019 as part of its Quarterly Report on Form 10-Q.

On April 23, 2019, the Company will hold a conference call to review first 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 April 23, 2019
 
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides - Earnings Presentation First 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:
April 23, 2019
 
 
 
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


397608904_flagstara43.jpg                397608904_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
FBCInvestorRelations@flagstar.com
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports First Quarter 2019 Net Income of $36 million, or $0.63 Per Diluted Share

Key Highlights - First Quarter 2019

Adjusted net income of $37 million, or $0.64 per diluted share, excluding costs related to the Wells Fargo branch acquisition.
Successfully completed the integration of the 52 Wells Fargo branches acquired in December while experiencing only 4.9 percent deposit attrition.
Adjusted net interest income grew $3 million to $126 million, reflecting full quarter benefit from acquired deposits and continued growth in LHFI portfolio.
Mortgage revenues increased $11 million from prior quarter, led by an increase in fallout-adjusted locks and margin expansion of 12 basis points, partially offset by lower net return on MSRs.
Total serviced accounts increased 13 percent from last quarter to 962,000.
Exceptional asset quality with minimal net charge-offs, low delinquencies, no nonperforming commercial loans and strong allowance for loan loss coverage.

TROY, Mich., April 23, 2019 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported first quarter 2019 net income of $36 million, or $0.63 per diluted share, compared to fourth quarter 2018 net income of $54 million, or $0.93 per diluted share. On an adjusted basis, Flagstar reported net income of 37 million, or $0.64 per diluted share, for the first quarter 2019, compared to net income of $42 million, or $0.72 per diluted share, for the fourth quarter 2018. For the first quarter 2018, Flagstar reported net income of $35 million, or $0.60 per diluted share.

First Quarter 2019 Highlights:

"In the first quarter, we took another step in the continued transformation of our company. Thanks to our success in executing our business plan, we were pleased to initiate a quarterly dividend and a $50 million share buyback to return value to our shareholders,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “These actions, coupled with our strong first quarter results, demonstrate the progress we have made to diversify our franchise and deliver strong results.

“Our banking and mortgage servicing businesses had another solid quarter. Deposit costs were 3 basis points lower, reflecting a full quarter of lower cost deposits from the Wells Fargo branch acquisition. We are also pleased that four months after conversion, we have experienced deposit attrition of only 4.9 percent,

1


substantially better than our 10 percent target and the 17 percent we modeled. Net interest margin expanded 10 basis points to 3.09 percent compared to an adjusted fourth quarter net interest margin of 2.99 percent. Total serviced accounts increased 13 percent to 962,000, continuing growth in a segment that provides both a stable source of fee income and liquidity.

“Our mortgage team delivered for the quarter, maintaining pricing and expense discipline in a very competitive mortgage environment, and then when the market turned favorable late in the quarter, our team was well positioned to take advantage of the opportunity. Fallout-adjusted locks increased 25 percent to $6.6 billion and gain on sale margin expanded for the second consecutive quarter. The improvement in net gain on loan sales more than offset lower net return on MSRs.

"Overall, I am pleased with our first quarter results and feel we are well positioned to continue to produce value for our shareholders."

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
 
(Dollars in millions)
Net interest income
$
126

$
152

$
124

$
115

$
106

Provision (benefit) for loan losses

(5
)
(2
)
(1
)

Noninterest income
109

98

107

123

111

Noninterest expense
191

189

173

177

173

Income before income taxes
44

66

60

62

44

Provision for income taxes
8

12

12

12

9

Net income
$
36

$
54

$
48

$
50

$
35

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.64

$
0.94

$
0.84

$
0.86

$
0.61

Diluted
$
0.63

$
0.93

$
0.83

$
0.85

$
0.60

Adjusted Income Statement Highlights (Non-GAAP) (1)
 
 
 
 
 
Three Months Ended
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
 
(Dollars in millions)
Net interest income
$
126

$
123

$
124

$
115

$
106

Provision (benefit) for loan losses

(5
)
(2
)
(1
)

Noninterest income
109

98

107

123

111

Noninterest expense
190

175

172

177

173

Income before income taxes
45

51

61

62

44

Provision for income taxes
8

9

12

12

9

Net income
$
37

$
42

$
49

$
50

$
35

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.65

$
0.73

$
0.86

$
0.86

$
0.61

Diluted
$
0.64

$
0.72

$
0.85

$
0.85

$
0.60

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


2


Key Ratios
 
 
 
 
 
 
 
Three Months Ended
 Change (bps)
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Seq
Yr/Yr
Net interest margin
3.09
%
3.70
%
2.93
%
2.86
%
2.76
%
(61)
33
Adjusted net interest margin (1)
3.09
%
2.99
%
2.93
%
2.86
%
2.76
%
10
33
Return on average assets
0.8
%
1.2
%
1.0
%
1.1
%
0.8
%
(40)

Return on average common equity
9.2
%
14.0
%
12.8
%
13.5
%
9.9
%
(480)
(70)
Efficiency ratio
81.3
%
75.7
%
74.6
%
74.4
%
79.7
%
560
160
HFI loan-to-deposit ratio
71.0
%
74.7
%
78.3
%
80.5
%
79.9
%
(370)
(890)
Adjusted HFI loan-to-deposit ratio (2)
77.0
%
77.3
%
77.8
%
78.1
%
83.9
%
(30)
(690)
(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.
Average Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average interest-earning assets
$
16,294

$
16,391

$
16,786

$
15,993

$
15,354

(1
)%
6
 %
Average loans held-for-sale (LHFS)
3,266

3,991

4,393

4,170

4,231

(18
)%
(23
)%
Average loans held-for-investment (LHFI)
9,164

8,916

8,872

8,380

7,487

3
 %
22
 %
Average total deposits
12,906

11,942

11,336

10,414

9,371

8
 %
38
 %

Net Interest Income

Net interest income decreased $26 million to $126 million for the first quarter 2019, as compared to the fourth quarter 2018. However, the fourth quarter included the recognition of $29 million of hedging gains in conjunction with the Wells Fargo branch acquisition. Excluding hedging gains, the Company's net interest income rose $3 million. This reflected the full quarter benefit of using lower cost deposits from the acquisition to reduce Federal Home Loan Bank advances. This action was partially offset by seasonal declines in loans held-for-sale and warehouse loans. Net interest margin rose 10 basis points to 3.09 percent for the first quarter 2019 as compared to adjusted net interest margin for the fourth quarter 2018.

Loans held-for-investment averaged $9.2 billion for the first quarter 2019, increasing $248 million from the prior quarter. During the first quarter 2019, average commercial real estate and commercial and industrial loans rose $328 million, or 9 percent. This increase was partially offset by a $162 million drop in warehouse loans due to anticipated seasonal factors. Average consumer loans rose $82 million, or 2 percent, driven primarily by growth in non-auto indirect loans and the full quarter impact from consumer loans acquired as part of the Wells Fargo branch acquisition.

Average total deposits were $12.9 billion in the first quarter 2019, increasing $964 million, or 8 percent from the fourth quarter 2018, driven by the full quarter impact of Wells Fargo branch deposits and higher custodial deposits, which rose $402 million, or 19 percent, driven by a 13 percent increase in serviced accounts.

Provision for Loan Losses

The Company had no provision for loan losses for first quarter 2019, as compared to a benefit of $5 million for the fourth quarter 2018. The lack of provision expense reflected strong asset quality and a low level of net charge-offs in the quarter.

3


Noninterest Income

Noninterest income increased $11 million, or 11 percent, to $109 million in the first quarter 2019, as compared to $98 million for the fourth quarter 2018. The increase was primarily driven by higher net gain on loan sales, net loan administration income and deposit fee income, partially offset by lower net return on MSRs and seasonally lower fee income.

First quarter 2019 net gain on loan sales increased $15 million, or 44 percent, to $49 million, versus $34 million in the fourth quarter 2018. The results reflected improvement in the mortgage environment late in the quarter which drove fallout-adjusted locks higher and an expansion of gain on sale margin. Fallout-adjusted locks increased 25 percent to $6.6 billion. The net gain on loan sale margin increased 12 basis points to 0.72 percent for the first quarter 2019, as compared to 0.60 percent for the fourth quarter 2018.

Mortgage Metrics
 
 
 
 
 
 
 
 
Change (% / bps)
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
For the three months ended:
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
6,602

$
5,284

$
8,290

$
9,011

$
7,722

25
 %
(15
)%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.72
%
0.60
%
0.51
%
0.71
%
0.77
%
12
(5)
Net gain on loan sales
$
49

$
34

$
43

$
63

$
60

44
 %
(18
)%
Net return on the mortgage servicing rights (MSR)
$
6

$
10

$
13

$
9

$
4

(40
)%
50
 %
Gain on loan sales + net return on the MSR
$
55

$
44

$
56

$
72

$
64

25
 %
(14
)%
At the end of the period:
 
 
 
 
 
 
 
Loans serviced (number of accounts - 000's) (3)
962

851

627

543

476

13
 %
102
 %
Capitalized value of MSRs
1.27
%
1.35
%
1.43
%
1.34
%
1.27
%
(8)

(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 $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 own loan portfolio, serviced for others, and subserviced for others.

Net return on mortgage servicing rights decreased $4 million, resulting in a net gain of $6 million for the first quarter 2019, as compared to a net gain of $10 million for the fourth quarter 2018. The decrease from the prior quarter reflected an increase in runoff due to lower interest rates and smaller benefit from the collection of contingencies related to MSR sales in prior periods.

Deposit fee income increased to $8 million for the first quarter 2019, as compared to $6 million for the fourth quarter 2018. The increase was driven by the full quarter benefit from the acquired Wells Fargo branches, despite continued fee waivers to assist customers during the Wells Fargo branch transition.
  

Noninterest Expense

Noninterest expense increased to $191 million for the first quarter 2019, as compared to $189 million for the fourth quarter 2018. Excluding acquisition costs of $1 million in the first quarter 2019 and $14 million in the fourth quarter 2018, adjusted noninterest expense in the first quarter 2019 was $190 million or $15 million higher than fourth quarter 2018. The increase is attributable to seasonally higher payroll taxes, employee benefits and a full quarter of expenses related to the 52 Wells Fargo branches acquired in December 2018.

4



The Company's efficiency ratio was 81 percent for the first quarter 2019, as compared to 76 percent for the fourth quarter 2018. Excluding hedging gains and expenses related to the acquisition of Wells Fargo branches, the adjusted efficiency ratio was 79 percent in the fourth quarter 2018.

Income Taxes

The first quarter 2019 provision for income taxes totaled $8 million, compared to $12 million for the fourth quarter 2018. The Company's effective tax rate was 18 percent for the first quarter 2019, consistent with our effective tax rate for the fourth quarter 2018.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
As of/Three Months Ended
Change (% / bps)
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
1.3
%
1.4
%
1.5
%
1.5
%
1.7
%
(10)
(40)
Charge-offs, net of recoveries
$
1

$
1

$
1

$
1

$
1

%
 %
Total nonperforming LHFI and TDRs
$
24

$
22

$
25

$
27

$
29

9
%
(17
)%
Net charge-offs to LHFI ratio (annualized)
0.05
%
0.04
%
0.05
%
0.02
%
0.06
%
1
(1)
Ratio of nonperforming LHFI and TDRs to LHFI
0.24
%
0.24
%
0.28
%
0.30
%
0.35
%
0
(11)

The allowance for loan losses was $127 million at March 31, 2019, compared to $128 million at December 31, 2018. The allowance for loan losses covered 1.3 percent of loans held-for-investment at March 31, 2019, as compared to 1.4 percent of loans held-for-investment at December 31, 2018.

Net charge-offs in the first quarter 2019 were $1 million, or 5 basis points of LHFI, compared to $1 million, or 4 basis points in the prior quarter.

Nonperforming loans were $24 million at March 31, 2019, compared to $22 million at December 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.24 percent at March 31, 2019, consistent with the ratio at December 31, 2018. At March 31, 2019, early stage loan delinquencies totaled $9 million, or 0.09 percent of total loans, compared to $7 million, or 0.08 percent at December 31, 2018. There were no commercial loan delinquencies greater than 90 days at March 31, 2019.

Capital

Capital Ratios (Bancorp)
 
Change (% / bps)
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Seq
Yr/Yr
Tangible common equity to assets ratio (1)
7.16
%
7.45
%
7.74
%
7.74
%
7.65
%
(29)
(49)
Tier 1 leverage (to adj. avg. total assets)
8.37
%
8.29
%
8.36
%
8.65
%
8.72
%
8
(35)
Tier 1 common equity (to RWA)
9.69
%
10.54
%
11.01
%
10.84
%
10.80
%
(85)
(111)
Tier 1 capital (to RWA)
11.51
%
12.54
%
13.04
%
12.86
%
12.90
%
(103)
(139)
Total capital (to RWA)
12.49
%
13.63
%
14.20
%
14.04
%
14.14
%
(114)
(165)
MSRs to Tier 1 capital
18.3
%
19.3
%
20.3
%
16.9
%
16.2
%
(100)
210
Tangible book value per share (1)
$
24.65

$
23.90

$
25.13

$
24.37

$
23.62

3
%
4
%
(1)
See Non-GAAP Reconciliation for further information.

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At March 31, 2019, the Company had a total risk-based capital ratio of

5


12.49 percent, as compared to 13.63 percent at December 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth and share buyback, 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 55 basis points and risk-based capital ratios by approximately 25-40 basis points at March 31, 2019 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's first quarter 2019 earnings call will be held Tuesday, April 23, 2019 at 11 a.m. (ET).

To join the call, please dial (800) 289-0438 toll free or (786) 789-4783 and use passcode 9789633. 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 9789633.

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 $19.4 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 72 retail locations in 22 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 $200 billion of loans representing 962,000 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, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted net income, adjusted basic and diluted earnings per share, adjusted noninterest expense, adjusted net interest income, adjusted net interest margin, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted HFI loan-to-deposit 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

6


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)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Assets
 
 
 
 
 
Cash
$
268

 
$
260

 
$
121

Interest-earning deposits
122

 
148

 
122

Total cash and cash equivalents
390

 
408

 
243

Investment securities available-for-sale
2,142

 
2,142

 
1,918

Investment securities held-to-maturity
683

 
703

 
771

Loans held-for-sale
3,874

 
3,869

 
4,743

Loans held-for-investment
9,936

 
9,088

 
8,134

Loans with government guarantees
470

 
392

 
286

Less: allowance for loan losses
(127
)
 
(128
)
 
(139
)
Total loans held-for-investment and loans with government guarantees, net
10,279

 
9,352

 
8,281

Mortgage servicing rights
278

 
290

 
239

Net deferred tax asset
90

 
103

 
130

Federal Home Loan Bank stock
303

 
303

 
303

Premises and equipment, net
414

 
390

 
348

Goodwill and intangible assets
182

 
190

 
72

Other assets
810

 
781

 
688

Total assets
$
19,445

 
$
18,531

 
$
17,736

Liabilities and Stockholders' Equity
 
 
 
 
 
Noninterest bearing deposits
$
4,016

 
$
2,989

 
$
2,391

Interest bearing deposits
9,437

 
9,391

 
7,595

Total deposits
13,453

 
12,380

 
9,986

Short-term Federal Home Loan Bank advances and other
3,101

 
3,244

 
4,153

Long-term Federal Home Loan Bank advances
250

 
150

 
1,280

Other long-term debt
495

 
495

 
494

Other liabilities
572

 
692

 
396

Total liabilities
17,871

 
16,961

 
16,309

Stockholders' Equity
 
 
 
 
 
Common stock
1

 
1

 
1

Additional paid in capital
1,476

 
1,522

 
1,514

Accumulated other comprehensive loss
(31
)
 
(47
)
 
(30
)
Retained earnings/(accumulated deficit)
128

 
94

 
(58
)
Total stockholders' equity
1,574

 
1,570

 
1,427

Total liabilities and stockholders' equity
$
19,445

 
$
18,531

 
$
17,736





8


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
First Quarter 2019 Compared to:
 
Three Months Ended
 
Fourth Quarter
2018
 
First Quarter
2018
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
180

$
181

$
183

$
167

$
152

 
$
(1
)
(1
)%
 
$
28

18
 %
Total interest expense
54

29

59

52

46

 
25

86
 %
 
8

17
 %
Net interest income
126

152

124

115

106

 
(26
)
(17
)%
 
20

19
 %
Provision (benefit) for loan losses

(5
)
(2
)
(1
)

 
5

(100
)%
 

N/M

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

157

126

116

106

 
(31
)
(20
)%
 
20

19
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
49

34

43

63

60

 
15

44
 %
 
(11
)
(18
)%
Loan fees and charges
17

20

23

24

20

 
(3
)
(15
)%
 
(3
)
(15
)%
Net return on the mortgage servicing rights
6

10

13

9

4

 
(4
)
(40
)%
 
2

50
 %
Loan administration income
11

8

5

5

5

 
3

38
 %
 
6

120
 %
Deposit fees and charges
8

6

5

5

5

 
2

33
 %
 
3

60
 %
Other noninterest income
18

20

18

17

17

 
(2
)
(10
)%
 
1

6
 %
Total noninterest income
109

98

107

123

111

 
11

11
 %
 
(2
)
(2
)%
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
87

82

76

80

80

 
5

6
 %
 
7

9
 %
Occupancy and equipment
38

36

31

30

30

 
2

6
 %
 
8

27
 %
Commissions
13

16

21

25

18

 
(3
)
(19
)%
 
(5
)
(28
)%
Loan processing expense
17

16

14

15

14

 
1

6
 %
 
3

21
 %
Legal and professional expense
6

9

7

6

6

 
(3
)
(33
)%
 

 %
Federal insurance premiums
4

4

6

6

6

 

 %
 
(2
)
(33
)%
Intangible asset amortization
4

3

1

1


 
1

33
 %
 
4

N/M

Other noninterest expense
22

23

17

14

19

 
(1
)
(4
)%
 
3

16
 %
Total noninterest expense
191

189

173

177

173

 
2

1
 %
 
18

10
 %
Income before income taxes
44

66

60

62

44

 
(22
)
(33
)%
 

 %
Provision for income taxes
8

12

12

12

9

 
(4
)
(33
)%
 
(1
)
(11
)%
Net income
$
36

$
54

$
48

$
50

$
35

 
$
(18
)
(33
)%
 
$
1

3
 %
Income per share
 
 
 
 
 
 




 




Basic
$
0.64

$
0.94

$
0.84

$
0.86

$
0.61

 
$
(0.30
)
(32
)%
 
$
0.03

5
 %
Diluted
$
0.63

$
0.93

$
0.83

$
0.85

$
0.60

 
$
(0.30
)
(32
)%
 
$
0.03

5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$
0.04

$

$

$

$

 
$
0.04

100
 %
 
$
0.04

100
 %
N/M - Not meaningful


9


Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
Selected Mortgage Statistics:
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
6,602

 
$
5,284

 
$
7,722

Mortgage loans originated (2)
$
5,513

 
$
6,340

 
$
7,886

Mortgage loans sold and securitized
$
5,170

 
$
7,146

 
$
7,247

Selected Ratios:
 
 
 
 
 
Interest rate spread
2.69
%
 
3.52
%
 
2.54
%
Adjusted interest rate spread (3) (4)
2.69
%
 
2.63
%
 
2.54
%
Net interest margin
3.09
%
 
3.70
%
 
2.76
%
Adjusted net interest margin (4)
3.09
%
 
2.99
%
 
2.76
%
Net margin on loans sold and securitized
0.92
%
 
0.44
%
 
0.82
%
Return on average assets
0.79
%
 
1.17
%
 
0.82
%
Adjusted return on average assets (4)(5)
0.80
%
 
0.91
%
 
0.82
%
Return on average common equity
9.16
%
 
13.98
%
 
9.94
%
Return on average tangible common equity (6)
11.55
%
 
15.88
%
 
10.21
%
Adjusted return on average tangible common equity (4) (5) (6)
11.78
%
 
12.44
%
 
10.21
%
Efficiency ratio
81.3
%
 
75.7
%
 
79.7
%
Common equity-to-assets ratio (average for the period)
8.59
%
 
8.41
%
 
8.27
%
Average Balances:
 
 
 
 
 
Average common shares outstanding
56,897,799

 
57,628,561

 
57,356,654

Average fully diluted shares outstanding
57,586,100

 
58,385,354

 
58,314,385

Average interest-earning assets
$
16,294

 
$
16,391

 
$
15,354

Average interest-bearing liabilities
$
12,505

 
$
13,046

 
$
12,974

Average stockholders' equity
$
1,583

 
$
1,548

 
$
1,414

(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.
(4)
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.
(5)
Excludes acquisition-related expenses attributable to the Wells Fargo branch acquisition of $1 million and $14 million for the three months ended March 31, 2019 and December 31, 2018, respectively.
(6)
Excludes goodwill, intangible assets and the associated amortization.
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
Selected Statistics:
 
 
 
 
 
Book value per common share
$
27.86

 
$
27.19

 
$
24.87

Tangible book value per share (1)
$
24.65

 
$
23.90

 
$
23.62

Number of common shares outstanding
56,480,086

 
57,749,464

 
57,399,993

Number of FTE employees
3,996

 
3,938

 
3,659

Number of bank branches
160

 
160

 
107

Ratio of nonperforming assets to total assets (2)
0.17
%
 
0.16
%
 
0.19
%
Common equity-to-assets ratio
8.09
%
 
8.47
%
 
8.05
%
MSR Key Statistics and Ratios:
 
 
 
 
 
Weighted average service fee (basis points)
38.0

 
35.8

 
30.4

Capitalized value of mortgage servicing rights
1.27
%
 
1.35
%
 
1.27
%
Mortgage servicing rights to Tier 1 capital
18.3
%
 
19.3
%
 
16.2
%
(1)
Excludes goodwill and intangibles of $182 million, $190 million, and $72 million at March 31, 2019, December 31, 2018, and March 31, 2018, respectively. See Non-GAAP Reconciliation for further information.
(2)
Ratio excludes LHFS.

10


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
March 31, 2019
 
December 31, 2018
 
March 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
$
3,266

$
38

4.72
%
 
$
3,991

$
48

4.78
 %
 
$
4,231

$
44

4.12
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,044

28

3.64
%
 
3,115

29

3.68
 %
 
2,773

23

3.41
%
Home equity
745

10

5.63
%
 
717

10

5.43
 %
 
668

9

5.21
%
Other
356

6

7.11
%
 
231

3

6.06
 %
 
27


4.56
%
Total Consumer loans
4,145

44

4.30
%
 
4,063

42

4.12
 %
 
3,468

32

3.76
%
Commercial Real Estate
2,250

33

5.66
%
 
2,171

31

5.52
 %
 
1,954

24

4.87
%
Commercial and Industrial
1,594

21

5.39
%
 
1,345

19

5.48
 %
 
1,217

16

5.21
%
Warehouse Lending
1,175

16

5.47
%
 
1,337

18

5.29
 %
 
848

11

5.14
%
Total Commercial loans
5,019

70

5.53
%
 
4,853

68

5.45
 %
 
4,019

51

5.03
%
Total loans held-for-investment
9,164

114

4.97
%
 
8,916

110

4.84
 %
 
7,487

83

4.44
%
Loans with government guarantees
455

3

2.96
%
 
350

2

2.72
 %
 
291

3

3.72
%
Investment securities
3,258

24

2.91
%
 
2,996

21

2.84
 %
 
3,233

22

2.69
%
Interest-earning deposits
151

1

2.77
%
 
138


1.55
 %
 
112


1.67
%
Total interest-earning assets
16,294

$
180

4.43
%
 
16,391

$
181

4.39
 %
 
15,354

$
152

3.95
%
Other assets
2,144

 
 
 
2,022

 
 
 
1,736

 
 
Total assets
$
18,438

 
 
 
$
18,413

 
 
 
$
17,090

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
1,220

$
2

0.68
%
 
$
1,072

$
3

1.02
 %
 
$
548

$

0.26
%
Savings deposits
3,089

7

0.95
%
 
3,075

7

0.91
 %
 
3,490

7

0.81
%
Money market deposits
778

1

0.27
%
 
446


0.41
 %
 
205


0.44
%
Certificates of deposit
2,488

13

2.13
%
 
2,274

11

1.88
 %
 
1,619

6

1.45
%
Total retail deposits
7,575

23

1.22
%
 
6,867

21

1.22
 %
 
5,862

13

0.92
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
305


0.63
%
 
269

1

0.67
 %
 
241


0.55
%
Savings deposits
568

3

1.75
%
 
602

3

1.69
 %
 
483

2

1.11
%
Certificates of deposit
297

1

1.94
%
 
313

1

1.76
 %
 
401

1

1.19
%
Total government deposits
1,170

4

1.51
%
 
1,184

5

1.48
 %
 
1,125

3

1.02
%
Wholesale deposits and other
387

2

2.23
%
 
625

3

2.08
 %
 
171

1

1.91
%
Total interest-bearing deposits
9,132

29

1.30
%
 
8,676

29

1.31
 %
 
7,158

17

0.96
%
Short-term FHLB advances and other
2,725

17

2.54
%
 
2,954

18

2.39
 %
 
4,032

15

1.53
%
Long-term FHLB advances
153

1

1.54
%
 
921

(25
)
(10.65
)%
 
1,290

7

2.10
%
Less: Swap gain reclassified out of OCI (1)
 

 
 
 
29

 
 
 

 
Adjusted long-term FHLB advances (1)
153

1

1.54
%
 
921

4

1.97
 %
 
1,290

7

2.10
%
Other long-term debt
495

7

5.90
%
 
495

7

5.65
 %
 
494

7

5.37
%
Adjusted total interest-bearing liabilities (1)
12,505

54

1.75
%
 
13,046

58

1.76
 %
 
12,974

46

1.41
%
Noninterest-bearing deposits (2)
3,774

 
 
 
3,266

 
 
 
2,213

 
 
Other liabilities
576

 
 
 
553

 
 
 
489

 
 
Stockholders' equity
1,583

 
 
 
1,548

 
 
 
1,414

 
 
Total liabilities and stockholders' equity
$
18,438

 
 
 
$
18,413

 
 
 
$
17,090

 
 
Net interest-earning assets
$
3,789

 
 
 
$
3,345

 
 
 
$
2,380

 
 
Net interest income (1)
 
$
126

 
 
 
$
123

 
 
 
$
106

 
Adjusted interest rate spread (1) (3)
 
 
2.69
%
 
 
 
2.63
 %
 
 
 
2.54
%
Adjusted net interest margin (1) (4)
 
 
3.09
%
 
 
 
2.99
 %
 
 
 
2.76
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
130.3
%
 
 
 
125.6
 %
 
 
 
118.3
%
Total average deposits
$
12,906

 
 
 
$
11,942

 
 
 
$
9,371

 
 
(1)
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.
(2)
Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.
(3)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by average interest-earning assets.

11


Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
Net income
$
36

 
$
54

 
$
35

Weighted average shares
 
 
 
 
 
Weighted average common shares outstanding
56,897,799

 
57,628,561

 
57,356,654

Effect of dilutive securities
 
 
 
 
 
Stock-based awards
692,473

 
756,793

 
957,731

Weighted average diluted common shares
57,590,272

 
58,385,354

 
58,314,385

Earnings per common share
 
 
 
 
 
Basic earnings per common share
$
0.64

 
$
0.94

 
$
0.61

Effect of dilutive securities
 
 
 
 
 
Stock-based awards
(0.01
)
 
(0.01
)
 
(0.01
)
Diluted earnings per common share
$
0.63

 
$
0.93

 
$
0.60


Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,520

8.37
%
 
$
1,505

8.29
%
 
$
1,475

8.72
%
Total adjusted avg. total asset base
$
18,171

 
 
$
18,158

 
 
$
16,918

 
Tier 1 common equity (to risk weighted assets)
$
1,280

9.69
%
 
$
1,265

10.54
%
 
$
1,235

10.80
%
Tier 1 capital (to risk weighted assets)
$
1,520

11.51
%
 
$
1,505

12.54
%
 
$
1,475

12.90
%
Total capital (to risk weighted assets)
$
1,650

12.49
%
 
$
1,637

13.63
%
 
$
1,617

14.14
%
Risk-weighted asset base
$
13,209

 
 
$
12,006

 
 
$
11,440

 


Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,641

9.04
%
 
$
1,574

8.67
%
 
$
1,537

9.08
%
Total adjusted avg. total asset base
$
18,155

 
 
$
18,151

 
 
$
16,926

 
Tier 1 common equity (to risk weighted assets)
$
1,641

12.44
%
 
$
1,574

13.12
%
 
$
1,537

13.42
%
Tier 1 capital (to risk weighted assets)
$
1,641

12.44
%
 
$
1,574

13.12
%
 
$
1,537

13.42
%
Total capital (to risk weighted assets)
$
1,771

13.42
%
 
$
1,705

14.21
%
 
$
1,679

14.66
%
Risk-weighted asset base
$
13,193

 
 
$
11,997

 
 
$
11,449

 

12


Loans Serviced
(Dollars in millions)
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
March 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)
$
170,476

 
814,248

 
$
146,040

 
705,149

 
$
77,748

 
360,396

Serviced for others
21,925

 
90,622

 
21,592

 
88,434

 
18,767

 
77,426

Serviced for own loan portfolio (3)
7,631

 
56,687

 
7,438

 
57,401

 
7,653

 
38,291

Total loans serviced
$
200,032

 
961,557

 
$
175,070

 
850,984

 
$
104,168

 
476,113

(1)
UPB, net of write downs, does not include premiums or discounts.
(2)
Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.
(3)
Includes loans held-for-investment (residential first mortgage, home equity and other consumer), loans-held-for-sale (residential first mortgage), loans with government guarantees (residential first mortgage), and repossessed assets.

Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
Consumer loans
 
 
 
 
 
 
 
 
Residential first mortgage
$
3,100

31.2
%
 
$
2,999

33.0
%
 
$
2,818

34.6
%
Home equity
796

8.0
%
 
731

8.0
%
 
671

8.3
%
Other
433

4.4
%
 
314

3.5
%
 
25

0.3
%
Total consumer loans
4,329

43.6
%
 
4,044

44.5
%
 
3,514

43.2
%
Commercial loans
 
 
 
 
 
 
 
 
Commercial real estate
2,324

23.4
%
 
2,152

23.7
%
 
1,985

24.4
%
Commercial and industrial
1,651

16.6
%
 
1,433

15.8
%
 
1,228

15.1
%
Warehouse lending
1,632

16.4
%
 
1,459

16.0
%
 
1,407

17.3
%
Total commercial loans
5,607

56.4
%
 
5,044

55.5
%
 
4,620

56.8
%
Total loans held-for-investment
$
9,936

100.0
%
 
$
9,088

100.0
%
 
$
8,134

100.0
%

Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
As of/For the Three Months Ended
 
March 31, 2019
December 31, 2018
March 31, 2018
Allowance for loan losses
 
 
 
 
 
Residential first mortgage
$
35

 
$
38

 
$
47

Home equity
16

 
15

 
21

Other
4

 
3

 
1

Total consumer loans
55

 
56

 
69

Commercial real estate
36

 
48

 
44

Commercial and industrial
30

 
18

 
20

Warehouse lending 
6

 
6

 
6

Total commercial loans
72

 
72

 
70

Total allowance for loan losses
$
127

 
$
128

 
$
139



13


Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
For the Three Months Ended
 
March 31, 2019
December 31, 2018
March 31, 2018
Beginning balance
$
128

 
$
134

 
$
140

Provision (benefit) for loan losses

 
(5
)
 

Charge-offs
 
 
 
 
 
 Total consumer loans
(2
)
 
(2
)
 
(2
)
Total charge-offs
$
(2
)
 
$
(2
)
 
$
(2
)
Recoveries
 
 
 
 
 
Total consumer loans
1

 
1

 
1

Total recoveries
1

 
1

 
1

Charge-offs, net of recoveries
(1
)
 
(1
)
 
(1
)
Ending balance
$
127

 
$
128

 
$
139

Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
 
 
 
 
 
Residential first mortgage
0.05
%
 
0.05
 %
 
0.11
 %
Home equity and other consumer
0.23
%
 
0.23
 %
 
0.28
 %
Commercial real estate
%
 
(0.02
)%
 
(0.01
)%
Commercial and industrial
0.02
%
 
 %
 
(0.01
)%
(1)
Excludes loans carried under the fair value option.

Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)