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Section 1: 8-K (8-K)

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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 23, 2019
 
398848649_flagstarbancorpa09.jpg 
(Exact Name of Registrant as Specified in Charter)

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

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

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

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





Item 2.02
Results of Operations and Financial Condition

On July 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 June 30, 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 June 30, 2019 as part of its Quarterly Report on Form 10-Q.

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


398848649_flagstara43.jpg                398848649_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
[email protected]
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports Second Quarter 2019 Net Income of $61 million, or $1.06 Per Diluted Share

Key Highlights - Second Quarter 2019

Adjusted net income of $41 million, or $0.71 per diluted share, excluding Department of Justice ("DOJ") benefit of $25 million.
Positive operating leverage as total adjusted operating revenue increased $46 million, or 20 percent, while noninterest expense rose $23 million, or 12 percent from last quarter.
Mortgage revenues increased $25 million from prior quarter, led by margin expansion of 17 basis points and an increase in fallout-adjusted locks, partially offset by lower net return on MSRs.
Net interest income increased $12 million, driven by broad-based earning asset growth.

TROY, Mich., July 23, 2019 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2019 net income of $61 million, or $1.06 per diluted share, compared to first quarter 2019 net income of $36 million, or $0.63 per diluted share. On an adjusted basis, Flagstar reported net income of $41 million, or $0.71 per diluted share, for the second quarter 2019, compared to net income of $37 million, or $0.64 per diluted share, for the first quarter 2019. For the second quarter 2018, Flagstar reported net income of $50 million, or $0.85 per diluted share.

Second Quarter 2019 Highlights:

"Our solid second quarter results demonstrate the strength and durability of our franchise,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “Our commercial lending, mortgage banking and servicing teams executed well, fueling top-line growth and driving positive operating leverage and an improved efficiency ratio. The flexibility of our business model positioned us to quickly pivot during the quarter to take advantage of attractive market opportunities.

"The community banking and mortgage servicing businesses provided another quarter of stable earnings. Net interest income grew $12 million as earning assets grew $1.5 billion, or 9 percent during the quarter. Our commercial loan growth was 22 percent as we focused on growing our higher-yielding portfolios, such as our warehouse business. Total serviced accounts increased to 983,000, continuing growth in a segment that provides both a stable source of fee income and liquidity.

“Our mortgage team delivered a strong quarter as they maintained pricing discipline and grew gain on sale margin by 17 basis points compared to first quarter 2019 and 18 basis points compared to second quarter 2018.

1


It is also the third consecutive quarter that gain on sale margin expanded and we increased fallout-adjusted locks by 26 percent to $8.3 billion. The improvement in net gain on loan sales more than offset a lower net return on MSRs.

"During the quarter we recognized a $30 million partial charge-off related to the Live Well Financial loan we disclosed in our first quarter Form 10-Q. While we believe a recovery of some amount may be realized through legal remedies, we cannot quantify that at this time. We are confident this is an isolated situation as the credit quality of our loan portfolio remains strong.

"We were very pleased with the quality of earnings this quarter, as we realized earnings per share growth over prior quarter. This performance reflects the strength and flexibility of our unique business model to adapt to ever-changing market conditions and continue to improve profitability. Looking forward, we believe we are positioned well to continue to deliver positive results for our shareholders."

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
 
(Dollars in millions)
Net interest income
$
138

$
126

$
152

$
124

$
115

Provision (benefit) for loan losses
17


(5
)
(2
)
(1
)
Noninterest income
168

109

98

107

123

Noninterest expense
214

191

189

173

177

Income before income taxes
75

44

66

60

62

Provision for income taxes
14

8

12

12

12

Net income
$
61

$
36

$
54

$
48

$
50

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
1.08

$
0.64

$
0.94

$
0.84

$
0.86

Diluted
$
1.06

$
0.63

$
0.93

$
0.83

$
0.85

Adjusted Income Statement Highlights (Non-GAAP) (1)
 
 
 
 
 
Three Months Ended
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
 
(Dollars in millions)
Net interest income
$
138

$
126

$
123

$
124

$
115

Provision (benefit) for loan losses
17


(5
)
(2
)
(1
)
Noninterest income
143

109

98

107

123

Noninterest expense
214

190

175

172

177

Income before income taxes
50

45

51

61

62

Provision for income taxes
9

8

9

12

12

Net income
$
41

$
37

$
42

$
49

$
50

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.72

$
0.65

$
0.73

$
0.86

$
0.86

Diluted
$
0.71

$
0.64

$
0.72

$
0.85

$
0.85

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


2


Key Ratios
 
 
 
 
 
Three Months Ended
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Net interest margin
3.08
%
3.09
%
3.70
%
2.93
%
2.86
%
Adjusted net interest margin (1)
3.08
%
3.09
%
2.99
%
2.93
%
2.86
%
Return on average assets
1.2
%
0.8
%
1.2
%
1.0
%
1.1
%
Return on average common equity
14.6
%
9.2
%
14.0
%
12.8
%
13.5
%
Efficiency ratio
69.8
%
81.3
%
75.7
%
74.6
%
74.4
%
HFI loan-to-deposit ratio
75.0
%
71.0
%
74.7
%
78.3
%
80.5
%
Adjusted HFI loan-to-deposit ratio (2)
80.6
%
77.0
%
77.3
%
77.8
%
78.1
%
(1)
The three months ended December 31, 2018, excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. See Non-GAAP Reconciliation for further information.
(2)
Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.

Average Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average interest-earning assets
$
17,759

$
16,294

$
16,391

$
16,786

$
15,993

9
%
11
 %
Average loans held-for-sale (LHFS)
3,539

3,266

3,991

4,393

4,170

8
%
(15
)%
Average loans held-for-investment (LHFI)
10,613

9,164

8,916

8,872

8,380

16
%
27
 %
Average total deposits
14,159

12,906

11,942

11,336

10,414

10
%
36
 %

Net Interest Income

Net interest income increased $12 million, or 10 percent, to $138 million for the second quarter 2019 as compared to the first quarter 2019. The results reflect a 9 percent increase in average earning assets, led by 22 percent growth in commercial loans. Net interest margin decreased 1 basis point to 3.08 percent for the second quarter 2019 as compared to the first quarter 2019. This was accomplished all while generating high quality loan and deposit growth despite falling interest rates.

Loans held-for-investment averaged $10.6 billion for the second quarter 2019, increasing $1.4 billion from the prior quarter. During the second quarter 2019, average warehouse loans increased $822 million, or 70 percent, due to actions taken to grow overall net interest income while also benefiting from seasonally higher volume. We also had broad-based commercial real estate and commercial and industrial loan growth as those portfolios rose $294 million, or 8 percent. Average consumer loans increased $333 million, or 8 percent, driven primarily by loan growth in non-auto indirect and mortgage.

Average total deposits were $14.2 billion in the second quarter 2019, increasing $1.3 billion, or 10 percent, from the first quarter 2019. The increase reflects $936 million higher custodial deposits and $332 million higher retail deposits.



3


Provision for Loan Losses

The provision for loan losses was $17 million for the second quarter 2019, as compared to no provision for the first quarter 2019. The higher provision was due to the $30 million Live Well Financial partial loan charge-off resulting from the borrower unexpectedly ceasing operations under unusual circumstances and $4 million of net charge-offs primarily on unsecured consumer loans. This was partially offset by $9 million from the payoff of substandard commercial loans and the continued strength of our consumer portfolio.

Noninterest Income

Noninterest income increased $59 million, or 54 percent, to $168 million in the second quarter 2019, as compared to $109 million for the first quarter 2019. Excluding the $25 million DOJ benefit, adjusted noninterest income rose $34 million, or 31 percent, primarily due to actions we took to increase gain on sale margin while also benefiting from increased refinance activity and the seasonality of our mortgage business. During the quarter, certain available for sale securities were sold, which resulted in a gain. These increases were partially offset by lower net loan administration income.

Second quarter 2019 net gain on loan sales increased $26 million, or 53 percent, to $75 million, versus $49 million in the first quarter 2019. The net gain on loan sale margin expanded 17 basis points to 0.89 percent for the second quarter 2019, as compared to 0.72 percent for the first quarter 2019. Fallout-adjusted locks increased 26 percent to $8.3 billion, reflecting seasonally higher volume and increased refinance activity due to the persistence of lower mortgage rates.

Loan fees and charges increased $7 million, or 41 percent, to $24 million for the second quarter 2019, as compared to $17 million for the first quarter 2019, driven by seasonally higher mortgage loan closings.

The DOJ settlement liability fair value adjustment was $25 million for the quarter, reducing the liability to $35 million at June 30, 2019. The lower value resulted from a change in the expectation as to the likelihood and timing of payments to the DOJ.

Mortgage Metrics
 
 
 
 
 
 
 
 
Change (% / bps)
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
For the three months ended:
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
8,344

$
6,602

$
5,284

$
8,290

$
9,011

26
 %
(7
)%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.89
%
0.72
%
0.60
%
0.51
%
0.71
%
17
18
Net gain on loan sales
$
75

$
49

$
34

$
43

$
63

53
 %
19
 %
Net return on the mortgage servicing rights (MSR)
$
5

$
6

$
10

$
13

$
9

(17
)%
(44
)%
Gain on loan sales + net return on the MSR
$
80

$
55

$
44

$
56

$
72

45
 %
11
 %
At the end of the period:
 
 
 
 
 
 
 
Loans serviced (number of accounts - 000's) (3)
983

962

851

627

543

2
 %
81
 %
Capitalized value of MSRs
1.23
%
1.27
%
1.35
%
1.43
%
1.34
%
(4)
(11
)
(1) Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(2) Based on net gain on loan sales (excludes net gain on loan sales of $2 million from loans transferred from LHFI during both the three months ended March 31, 2019 and December 31, 2018) to fallout-adjusted mortgage rate lock commitments.
(3) Includes loans serviced for own loan portfolio, serviced for others, and subserviced for others.


4


 
Noninterest Expense

Noninterest expense increased to $214 million for the second quarter 2019, as compared to $191 million for the first quarter 2019. The increase is primarily attributable to mortgage-related expenses driven by seasonally higher mortgage closings.

The Company's efficiency ratio was 70 percent for the second quarter 2019, as compared to 81 percent for the first quarter 2019. The adjusted efficiency ratio was 76 percent in the second quarter 2019. The results reflect positive operating leverage as adjusted total revenue increased 20 percent while expenses rose 12 percent during the second quarter of 2019.

Income Taxes

The second quarter 2019 provision for income taxes totaled $14 million, compared to $8 million for the first quarter 2019. The Company's effective tax rate was 19 percent for the second quarter 2019, compared to 18 percent for the first quarter 2019.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
As of/Three Months Ended
Change (% / bps)
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
0.9
%
1.3
%
1.4
%
1.5
%
1.5
%
(40)
(60)
Charge-offs, net of recoveries
$
34

$
1

$
1

$
1

$
1

N/M
N/M
Total nonperforming LHFI and TDRs
$
63

$
24

$
22

$
25

$
27

N/M
N/M
Net charge-offs to LHFI ratio (annualized)
1.29
%
0.05
%
0.04
%
0.05
%
0.02
%
N/M
N/M
Ratio of nonperforming LHFI and TDRs to LHFI
0.54
%
0.24
%
0.24
%
0.28
%
0.30
%
30
24
N/M - Not meaningful

The allowance for loan losses was $110 million at June 30, 2019, compared to $127 million at March 31, 2019. The allowance for loan losses covered 0.9 percent of loans held-for-investment at June 30, 2019, as compared to 1.3 percent of loans held-for-investment at March 31, 2019.

Net charge-offs in the second quarter 2019 were $34 million, or 129 basis points of LHFI, compared to $1 million, or 5 basis points in the prior quarter. Charge-offs in the second quarter included the $30 million loss mentioned above and $4 million in other net charge-offs primarily related to unsecured consumer credits acquired in the December branch acquisition.

Nonperforming loans were $63 million at June 30, 2019, compared to $24 million at March 31, 2019. Nonperforming loans at June 30, 2019 includes $37 million collateral dependent commercial loan noted above. The ratio of nonperforming loans to loans held-for-investment was 0.54 percent at June 30, 2019, compared to 0.24 percent at March 31, 2019. At June 30, 2019, early stage loan delinquencies totaled $8 million, or 0.07 percent, of total loans, compared to $9 million, or 0.09 percent, at March 31, 2019.


5


Capital

Capital Ratios (Bancorp)
 
Change (% / bps)
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Seq
Yr/Yr
Tangible common equity to assets ratio (1)
7.31
%
7.16
%
7.45
%
7.74
%
7.74
%
15
(43)
Tier 1 leverage (to adj. avg. total assets)
7.96
%
8.37
%
8.29
%
8.36
%
8.65
%
(41)
(69)
Tier 1 common equity (to RWA)
9.13
%
9.69
%
10.54
%
11.01
%
10.84
%
(56)
(171)
Tier 1 capital (to RWA)
10.78
%
11.51
%
12.54
%
13.04
%
12.86
%
(73)
(208)
Total capital (to RWA)
11.56
%
12.49
%
13.63
%
14.20
%
14.04
%
(93)
(248)
MSRs to Tier 1 capital
20.2
%
18.3
%
19.3
%
20.3
%
16.9
%
190
330
Tangible book value per share (1)
$
26.16

$
24.65

$
23.90

$
25.13

$
24.37

6
%
7
%
(1)
See Non-GAAP Reconciliation for further information.

The Company maintained a solid capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At June 30, 2019, the Company had a total risk-based capital ratio of 11.56 percent, as compared to 12.49 percent at March 31, 2019. The decrease in the ratio resulted primarily from $1 billion of warehouse loan growth during the quarter which will naturally decline due to the seasonality of the mortgage business.

Under the terms of recently approved regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 63 basis points and risk-based capital ratios by approximately 40-50 basis points at June 30, 2019 (pro forma basis).

Earnings Conference Call

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

To join the call, please dial (888) 599-8686 toll free or (786) 789-4797 and use passcode 6186033. 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 6186033.

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 $20.2 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 78 retail locations in 21 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 $203 billion of loans representing 983,000 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 HFI loan-to-deposit

6


ratio, adjusted net interest income, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, adjusted basic and diluted earnings per share, adjusted net interest margin, and adjusted efficiency ratio. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

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

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s website at flagstar.com.

Forward-Looking Statements

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


7


Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
June 30,
2018
Assets
 
 
 
 
 
 
 
Cash
$
268

 
$
268

 
$
260

 
$
139

Interest-earning deposits
51

 
122

 
148

 
220

Total cash and cash equivalents
319

 
390

 
408

 
359

Investment securities available-for-sale
1,718

 
2,142

 
2,142

 
1,871

Investment securities held-to-maturity
661

 
683

 
703

 
748

Loans held-for-sale
3,345

 
3,874

 
3,869

 
4,291

Loans held-for-investment
11,655

 
9,936

 
9,088

 
8,904

Loans with government guarantees
507

 
470

 
392

 
278

Less: allowance for loan losses
(110
)
 
(127
)
 
(128
)
 
(137
)
Total loans held-for-investment and loans with government guarantees, net
12,052

 
10,279

 
9,352

 
9,045

Mortgage servicing rights
316

 
278

 
290

 
257

Net deferred tax asset
71

 
90

 
103

 
119

Federal Home Loan Bank stock
303

 
303

 
303

 
303

Premises and equipment, net
415

 
414

 
390

 
355

Goodwill and intangible assets
178

 
182

 
190

 
71

Other assets
828

 
810

 
781

 
711

Total assets
$
20,206

 
$
19,445

 
$
18,531

 
$
18,130

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Noninterest bearing deposits
$
4,784

 
$
4,016

 
$
2,989

 
$
2,781

Interest bearing deposits
9,632

 
9,437

 
9,391

 
7,807

Total deposits
14,416

 
13,453

 
12,380

 
10,588

Short-term Federal Home Loan Bank advances and other
2,550

 
3,101

 
3,244

 
3,840

Long-term Federal Home Loan Bank advances
500

 
250

 
150

 
1,280

Other long-term debt
495

 
495

 
495

 
494

Other liabilities
589

 
572

 
692

 
453

Total liabilities
18,550

 
17,871

 
16,961

 
16,655

Stockholders' Equity
 
 
 
 
 
 
 
Common stock
1

 
1

 
1

 
1

Additional paid in capital
1,477

 
1,476

 
1,522

 
1,514

Accumulated other comprehensive loss
(8
)
 
(31
)
 
(47
)
 
(32
)
Retained earnings/(accumulated deficit)
186

 
128

 
94

 
(8
)
Total stockholders' equity
1,656

 
1,574

 
1,570

 
1,475

Total liabilities and stockholders' equity
$
20,206

 
$
19,445

 
$
18,531

 
$
18,130





8


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Second Quarter 2019 Compared to:
 
Three Months Ended
 
First Quarter
2019
 
Second Quarter
2018
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
198

$
180

$
181

$
183

$
167

 
$
18

10
 %
 
$
31

19
 %
Total interest expense
60

54

29

59

52

 
6

11
 %
 
8

15
 %
Net interest income
138

126

152

124

115

 
12

10
 %
 
23

20
 %
Provision (benefit) for loan losses
17


(5
)
(2
)
(1
)
 
17

N/M

 
18

N/M

Net interest income after provision (benefit) for loan losses
121

126

157

126

116

 
(5
)
(4
)%
 
5

4
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
75

49

34

43

63

 
26

53
 %
 
12

19
 %
Loan fees and charges
24

17

20

23

24

 
7

41
 %
 

 %
Net return on the mortgage servicing rights
5

6

10

13

9

 
(1
)
(17
)%
 
(4
)
(44
)%
Loan administration income
6

11

8

5

5

 
(5
)
(45
)%
 
1

20
 %
Deposit fees and charges
10

8

6

5

5

 
2

25
 %
 
5

100
 %
Other noninterest income
48

18

20

18

17

 
30

167
 %
 
31

182
 %
Total noninterest income
168

109

98

107

123

 
59

54
 %
 
45

37
 %
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
90

87

82

76

80

 
3

3
 %
 
10

13
 %
Occupancy and equipment
40

38

36

31

30

 
2

5
 %
 
10

33
 %
Commissions
25

13

16

21

25

 
12

92
 %
 

 %
Loan processing expense
21

17

16

14

15

 
4

24
 %
 
6

40
 %
Legal and professional expense
6

6

9

7

6

 

 %
 

 %
Federal insurance premiums
5

4

4

6

6

 
1

25
 %
 
(1
)
(17
)%
Intangible asset amortization
4

4

3

1

1

 

 %
 
3

N/M

Other noninterest expense
23

22

23

17

14

 
1

5
 %
 
9

64
 %
Total noninterest expense
214

191

189

173

177

 
23

12
 %
 
37

21
 %
Income before income taxes
75

44

66

60

62

 
31

70
 %
 
13

21
 %
Provision for income taxes
14

8

12

12

12

 
6

75
 %
 
2

17
 %
Net income
$
61

$
36

$
54

$
48

$
50

 
$
25

69
 %
 
$
11

22
 %
Income per share
 
 
 
 
 
 




 




Basic
$
1.08

$
0.64

$
0.94

$
0.84

$
0.86

 
$
0.44

69
 %
 
$
0.22

26
 %
Diluted
$
1.06

$
0.63

$
0.93

$
0.83

$
0.85

 
$
0.43

68
 %
 
$
0.21

25
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$
0.04

$
0.04

$

$

$

 
$

 %
 
$
0.04

100
 %
N/M - Not meaningful




9


Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
 
 
 
Six Months Ended June 30, 2019
 
Six Months Ended
 
Compared to:
Six Months Ended June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
Amount
Percent
Interest Income
 
 
 
 
 
 
Total interest income
$
378

 
$
319

 
$
59

18
 %
Total interest expense
114

 
98

 
16

16
 %
Net interest income
264

 
221

 
43

19
 %
Provision (benefit) for loan losses
17

 
(1
)
 
18

N/M

Net interest income after provision (benefit) for loan losses
247

 
222

 
25

11
 %
Noninterest Income
 
 
 
 
 
 
Net gain on loan sales
124

 
123

 
1

1
 %
Loan fees and charges
41

 
44

 
(3
)
(7
)%
Net return on the mortgage servicing rights
11

 
13

 
(2
)
(15
)%
Loan administration income
17

 
10

 
7

70
 %
Deposit fees and charges
18

 
10

 
8

80
 %
Other noninterest income
66

 
34

 
32

94
 %
Total noninterest income
277

 
234

 
43

18
 %
Noninterest Expense
 
 
 
 
 
 
Compensation and benefits
177

 
160

 
17

11
 %
Occupancy and equipment
78

 
60

 
18

30
 %
Commissions
38

 
43

 
(5
)
(12
)%
Loan processing expense
38

 
29

 
9

31
 %
Legal and professional expense
12

 
12

 

 %
Federal insurance premiums
9

 
12

 
(3
)
(25
)%
Intangible asset amortization
8

 
1

 
7

N/M

Other noninterest expense
45

 
33

 
12

36
 %
Total noninterest expense
405

 
350

 
55

16
 %
Income before income taxes
119

 
106

 
13

12
 %
Provision for income taxes
22

 
21

 
1

5
 %
Net income
$
97

 
$
85

 
$
12

14
 %
Income per share
 
 
 
 
 
 
Basic
$
1.71

 
$
1.47

 
$
0.24

16
 %
Diluted
$
1.69

 
$
1.45

 
$
0.24

17
 %
 
 
 
 
 
 
 
Cash dividends declared
$
0.08

 
$

 
$
0.08

100
 %
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
 
Six Months Ended
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Selected Mortgage Statistics:
 
 
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
8,344

 
$
6,602

 
$
9,011

 
$
14,946

 
$
16,734

Mortgage loans originated (2)
$
8,641

 
$
5,513

 
$
9,040

 
$
14,154

 
$
16,926

Mortgage loans sold and securitized
$
8,838

 
$
5,170

 
$
9,260

 
$
14,008

 
$
16,506

Selected Ratios:
 
 
 
 
 
 
 
 
 
Interest rate spread (3)
2.57
%
 
2.69
%
 
2.58
%
 
2.63
%
 
2.56
%
Net interest margin
3.08
%
 
3.09
%
 
2.86
%
 
3.08
%
 
2.81
%
Net margin on loans sold and securitized
0.84
%
 
0.92
%
 
0.69
%
 
0.87
%
 
0.75
%
Return on average assets
1.22
%
 
0.79
%
 
1.12
%
 
1.01
%
 
0.97
%
Adjusted return on average assets (4) (5)
0.81
%
 
0.80
%
 
1.12
%
 
0.81
%
 
0.97
%
Return on average common equity
14.58
%
 
9.16
%
 
13.45
%
 
11.94
%
 
11.73
%
Return on average tangible common equity (6)
17.14
%
 
11.33
%
 
14.38
%
 
14.33
%
 
12.32
%
Adjusted return on average tangible common equity (4)(5)(6)
11.69
%
 
11.78
%
 
14.38
%
 
11.63
%
 
12.32
%
Efficiency ratio
69.8
%
 
81.3
%
 
74.4
%
 
74.8
%
 
76.9
%
Common equity-to-assets ratio (average for the period)
8.35
%
 
8.59
%
 
8.29
%
 
8.46
%
 
8.28
%
Average Balances:
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
17,759

 
$
16,294

 
$
15,993

 
$
17,030

 
$
15,675

Average interest-bearing liabilities
$
12,898

 
$
12,505

 
$
13,164

 
$
12,702

 
$
13,069

Average stockholders' equity
$
1,668

 
$
1,583

 
$
1,475

 
$
1,626

 
$
1,445

(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)
Excludes acquisition-related expenses attributable to the Wells Fargo branch acquisition of $1 million for the three months ended March 31, 2019 and the six months ended June 30, 2019.
(5)
Excludes DOJ benefit of $25 million during the three and six months ended June 30, 2019.
(6)
Excludes goodwill, intangible assets and the associated amortization.

 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
June 30, 2018
Selected Statistics:
 
 
 
 
 
 
 
Book value per common share
$
29.31

 
$
27.86

 
$
27.19

 
$
25.61

Tangible book value per share (1)
$
26.16

 
$
24.65

 
23.90

 
$
24.37

Number of common shares outstanding
56,483,937

 
56,480,086

 
57,749,464

 
57,598,406

Number of FTE employees
4,147

 
3,996

 
3,938

 
3,682

Number of bank branches
160

 
160

 
160

 
107

Ratio of nonperforming assets to total assets (2)
0.36
%
 
0.17
%
 
0.16
%
 
0.19
%
Common equity-to-assets ratio
8.19
%
 
8.09
%
 
8.47
%
 
8.14
%
MSR Key Statistics and Ratios:
 
 
 
 
 
 
 
Weighted average service fee (basis points)
39.7

 
38.0

 
35.8

 
32.4

Capitalized value of mortgage servicing rights
1.23
%
 
1.27
%
 
1.35
%
 
1.34
%
(1)
Excludes goodwill and intangibles of $178 million, $182 million, $190 million and $71 million at June 30, 2019, March 31, 2019, December 31,2018 and June 30, 2018, respectively. See Non-GAAP Reconciliation for further information.
(2)
Ratio excludes LHFS.

11


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2019
 
March 31, 2019
 
June 30, 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
$
3,539

$
40

4.55
%
 
$
3,266

$
38

4.72
%
 
$
4,170

$
47

4.50
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,146

28

3.61
%
 
3,044

28

3.64
%
 
2,875

25

3.53
%
Home equity
814

11

5.54
%
 
745

10

5.63
%
 
679

8

5.05
%
Other
518

9

6.78
%
 
356

6

7.11
%
 
57

1

5.39
%
Total Consumer loans
4,478

48

4.33
%
 
4,145

44

4.30
%
 
3,611

34

3.85
%
Commercial Real Estate
2,394

35

5.65
%
 
2,250

33

5.66
%
 
2,017

26

5.09
%
Commercial and Industrial
1,744

23

5.26
%
 
1,594

21

5.39
%
 
1,257

17

5.30
%
Warehouse Lending
1,997

27

5.21
%
 
1,175

16

5.47
%
 
1,495

19

5.03
%
Total Commercial loans
6,135

85

5.40
%
 
5,019

70

5.53
%
 
4,769

62

5.13
%
Total loans held-for-investment
10,613

133

4.95
%
 
9,164

114

4.97
%
 
8,380

96

4.58
%
Loans with government guarantees
502

4

2.94
%
 
455

3

2.96
%
 
280

2

3.66
%
Investment securities
2,907

20

2.75
%
 
3,258

24

2.91
%
 
3,049

21

2.72
%
Interest-earning deposits
198

1

2.23
%
 
151

1

2.77
%
 
114

1

1.72
%
Total interest-earning assets
17,759

$
198

4.42
%
 
16,294

$
180

4.43
%
 
15,993

$
167

4.17
%
Other assets
2,207

 
 
 
2,144

 
 
 
1,791

 
 
Total assets
$
19,966

 
 
 
$
18,438

 
 
 
$
17,784

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
1,323

$
3

0.84
%
 
$
1,220

$
2

0.68
%
 
$
704

$
1

0.60
%
Savings deposits
3,191

9

1.16
%
 
3,089

7

0.95
%
 
3,412

8

0.86
%
Money market deposits
745

1

0.32
%
 
778

1

0.27
%
 
247


0.54
%
Certificates of deposit
2,611

15

2.34
%
 
2,488

13

2.13
%
 
2,006

8

1.63
%
Total retail deposits
7,870

28

1.42
%
 
7,575

23

1.22
%
 
6,369

17

1.06
%
Government deposits
1,128

5

1.51
%
 
1,170

4

1.51
%
 
1,111

3

1.12
%
Wholesale deposits and other
417

2

2.35
%
 
387

2

2.23
%
 
264

1

1.96
%
Total interest-bearing deposits
9,415

35

1.47
%
 
9,132

29

1.30
%
 
7,744

21

1.10
%
Short-term FHLB advances and other
2,633

17

2.53
%
 
2,725

17

2.54
%
 
3,646

17

1.85
%
Long-term FHLB advances
354

1

1.72
%
 
153

1

1.54
%
 
1,280

7

2.25
%
Other long-term debt
496

7

5.77
%
 
495

7

5.90
%
 
494

7

5.60
%
Total interest-bearing liabilities
12,898

60

1.85
%
 
12,505

54

1.75
%
 
13,164

52

1.58
%
Noninterest-bearing deposits
 
 
 
 
 
 
 
 
 
 
 
Retail deposits and other
1,275

 
 
 
1,241

 
 
 
1,067

 
 
Custodial deposits (1)
3,469

 
 
 
2,533

 
 
 
1,603

 
 
Noninterest-bearing deposits
4,744

 
 
 
3,774

 
 
 
2,670

 
 
Other liabilities
656

 
 
 
576

 
 
 
475

 
 
Stockholders' equity
1,668

 
 
 
1,583

 
 
 
1,475

 
 
Total liabilities and stockholders' equity
$
19,966

 
 
 
$
18,438

 
 
 
$
17,784

 
 
Net interest-earning assets
$
4,861

 
 
 
$
3,789

 
 
 
$
2,829

 
 
Net interest income
 
$
138

 
 
 
$
126

 
 
 
$
115

 
Interest rate spread (2)
 
 
2.57
%
 
 
 
2.69
%
 
 
 
2.58
%
Net interest margin (3)
 
 
3.08
%
 
 
 
3.09
%
 
 
 
2.86
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
137.7
%
 
 
 
130.3
%
 
 
 
121.5
%
Total average deposits
$
14,159

 
 
 
$
12,906

 
 
 
$
10,414

 
 
(1)
Approximately 80 percent includes custodial deposits from loans subserviced which pay interest that is recognized as an offset in net loan administration income.
(2)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(3)
Net interest margin is net interest income divided by average interest-earning assets.


12


 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
3,403

$
79

4.63
%
 
$
4,201

$
90

4.31
%
Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage
3,095

56

3.63
%
 
2,824

49

3.47
%
Home equity
780

22

5.58
%
 
674

17

5.13
%
Other
438

15

6.91
%
 
42

1

5.12
%
Total Consumer loans
4,313

93

4.32
%
 
3,540

67

3.80
%
Commercial Real Estate
2,322

66

5.66
%
 
1,986

50

4.98
%
Commercial and Industrial
1,669

45

5.32
%
 
1,237

33

5.25
%
Warehouse Lending
1,589

42

5.30
%
 
1,173

30

5.07
%
Total Commercial loans
5,580

153

5.46
%
 
4,396

113

5.08
%
Total loans held-for-investment
9,893

246

4.96
%
 
7,936

180

4.51
%
Loans with government guarantees
478

7

2.95
%
 
285

5

3.69
%
Investment securities
3,081

44

2.83
%
 
3,140

43

2.71
%
Interest-earning deposits
175

2

2.47
%
 
113

1

1.69
%
Total interest-earning assets
17,030

$
378

4.43
%
 
15,675

$
319

4.06
%
Other assets
2,176

 
 
 
1,764

 
 
Total assets
$
19,206

 
 
 
$
17,439

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
1,271

$
5

0.76
%
 
$
626

$
1

0.46
%
Savings deposits
3,140

17

1.06
%
 
3,451

14

0.83
%
Money market deposits
762

1

0.30
%
 
226

1

0.49
%
Certificates of deposit
2,550

28

2.24
%
 
1,814

14

1.55
%
Total retail deposits
7,723

51

1.32
%
 
6,117

30

0.99
%
Government deposits
1,149

9

1.51
%
 
1,118

6

1.07
%
Wholesale deposits and other
402

4

2.30
%
 
217

2

1.94
%
Total interest-bearing deposits
9,274

64

1.39
%
 
7,452

38

1.03
%
Short-term FHLB advances and other
2,679

34

2.53
%
 
3,838

32

1.68
%
Long-term FHLB advances
254

2

1.67
%
 
1,285

14

2.17
%
Other long-term debt
495

14

5.84
%
 
494

14

5.49
%
Total interest-bearing liabilities
12,702

114

%
 
13,069

98

1.50
%
Noninterest-bearing deposits
 
 
 
 
 
 
 
Retail deposits and other
1,258