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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, 2019
 
400531940_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 October 22, 2019, 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, 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 September 30, 2019 as part of its Quarterly Report on Form 10-Q.

On October 22, 2019, the Company will hold a conference call to review third 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 October 22, 2019
 
 
 
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:
October 22, 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


400531940_flagstara43.jpg                400531940_fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
[email protected]
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports Third Quarter 2019 Net Income of $63 million, or $1.11 Per Diluted Share

Key Highlights - Third Quarter 2019

Mortgage revenues increased $28 million from prior quarter, led by margin expansion of 31 basis points and a $0.9 billion increase in fallout-adjusted locks.
Net interest income increased $8 million, driven by diversified loan growth and a stable net interest margin.
Strong asset quality -- minimal net charge-offs, low delinquencies, and no nonperforming commercial loans.

TROY, Mich., Oct. 22, 2019 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported third quarter 2019 net income of $63 million, or $1.11 per diluted share, compared to second quarter 2019 net income of $61 million, or $1.06 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 and $49 million, or $0.85 per diluted share, for the third quarter 2018.

Third Quarter 2019 Highlights:

"The third quarter was a landmark quarter for Flagstar,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “Across the board, our businesses produced solid results, with mortgage banking taking advantage of market opportunities and our community banking and servicing segments again delivering strong, consistent earnings. The quarter also marked a milestone as the consent order with the CFPB expired, officially closing the book on our legacy regulatory matters.

"Community banking once again showed excellent growth, with net interest income climbing $8 million, or 6 percent, on an increase in earning assets of $1.2 billion, or 7 percent. Helping fuel the net interest income growth was a 12 percent increase in commercial loans, led by the continued success of our warehouse business. Also contributing to the growth were solid performances from our commercial real estate and homebuilder finance segments. Importantly, we achieved this growth while holding net interest margin nearly flat, despite two rate cuts, demonstrating strong margin management and the flexibility of our balance sheet.

“Our mortgage team had a strong quarter, with gain on sale rising to $110 million, a 47 percent increase over second quarter 2019 and a 156 percent increase over third quarter 2018. As a result of our continued focus on price discipline, combined with efforts to optimize volume and margin, gain on sale margin increased 31 basis points to 120 basis points in the third quarter 2019. Fallout-adjusted locks increased to $9.2 billion. These

1


results highlight the diligence of our mortgage team to provide value to our customers at returns that maximize revenue for the company.

“We ended the quarter servicing or subservicing nearly 994,000 loans. The significant growth in this business over the past two years is testament to the quality platform and one-stop shop we offer our clients, underpinned by our industry-leading oversight, monitoring and compliance framework. We also successfully closed the default servicing transaction and integrated the business, further strengthening our servicing offering."

"This quarter's results demonstrated the earnings potential of our unique business model. Looking forward, we are confident that our business is well positioned to continue to generate strong risk-adjusted returns and create significant value for our shareholders in a variety of environments."

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
 
(Dollars in millions)
Net interest income
$
146

$
138

$
126

$
152

$
124

Provision (benefit) for loan losses
1

17


(5
)
(2
)
Noninterest income
171

168

109

98

107

Noninterest expense
238

214

191

189

173

Income before income taxes
78

75

44

66

60

Provision for income taxes
15

14

8

12

12

Net income
$
63

$
61

$
36

$
54

$
48

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
1.12

$
1.08

$
0.64

$
0.94

$
0.84

Diluted
$
1.11

$
1.06

$
0.63

$
0.93

$
0.83

Adjusted Income Statement Highlights (Non-GAAP) (1)
 
 
 
 
 
Three Months Ended
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
 
(Dollars in millions)
Net interest income
$
146

$
138

$
126

$
123

$
124

Provision (benefit) for loan losses
1

17


(5
)
(2
)
Noninterest income
171

143

109

98

107

Noninterest expense
238

214

190

175

172

Income before income taxes
78

50

45

51

61

Provision for income taxes
15

9

8

9

12

Net income
$
63

$
41

$
37

$
42

$
49

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
1.12

$
0.72

$
0.65

$
0.73

$
0.86

Diluted
$
1.11

$
0.71

$
0.64

$
0.72

$
0.85

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


2


Key Ratios
 
 
 
 
 
Three Months Ended
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
Net interest margin
3.05
%
3.08
%
3.09
%
3.70
%
2.93
%
Adjusted net interest margin (1)
3.05
%
3.08
%
3.09
%
2.99
%
2.93
%
Return on average assets
1.2
%
1.2
%
0.8
%
1.2
%
1.0
%
Return on average common equity
14.7
%
14.6
%
9.2
%
14.0
%
12.8
%
Efficiency ratio
75.2
%
69.8
%
81.3
%
75.7
%
74.6
%
HFI loan-to-deposit ratio
74.2
%
75.0
%
71.0
%
74.7
%
78.3
%
Adjusted HFI loan-to-deposit ratio (2)
82.0
%
80.6
%
77.0
%
77.3
%
77.8
%
(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
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average interest-earning assets
$
18,997

$
17,759

$
16,294

$
16,391

$
16,786

7
%
13
 %
Average loans held-for-sale (LHFS)
3,786

3,539

3,266

3,991

4,393

7
%
(14
)%
Average loans held-for-investment (LHFI)
11,743

10,613

9,164

8,916

8,872

11
%
32
 %
Average total deposits
15,817

14,159

12,906

11,942

11,336

12
%
40
 %

Net Interest Income

Net interest income increased $8 million, or 6 percent, to $146 million for the third quarter 2019 as compared to the second quarter 2019. The results reflect a 7 percent increase in average earning assets, fueled by 12 percent growth in commercial loans. Net interest margin remained stable, decreasing only 3 basis points despite two rate cuts in the quarter, to 3.05 percent for the third quarter 2019 as compared to the second quarter 2019.

Loans held-for-investment averaged $11.7 billion for the third quarter 2019, increasing $1.1 billion from the prior quarter. During the third quarter 2019, average warehouse loans increased $511 million, or 26 percent, benefiting from growth in the overall mortgage market. We also had solid growth in our commercial real estate portfolio as average balances increased $200 million, or 8 percent. Average consumer loans increased $396 million, or 9 percent, driven evenly by loan growth in non-auto indirect, mortgage and HELOCs.

Average total deposits were $15.8 billion in the third quarter 2019, increasing $1.7 billion, or 12 percent, from the second quarter 2019. The increase primarily reflects $1.1 billion higher custodial deposits driven by refinance activity and $328 million higher wholesale deposits.

Provision for Loan Losses

The provision for loan losses was $1 million for the third quarter 2019, as compared to $17 million for the second quarter 2019 reflecting strong asset quality, low delinquencies and no nonperforming commercial loans.

3



Noninterest Income

Noninterest income increased $3 million, or 2 percent, to $171 million in the third quarter 2019, as compared to $168 million for the second quarter 2019. Excluding the $25 million DOJ benefit in the second quarter, noninterest income rose $28 million, or 20 percent, primarily due to higher mortgage revenue.

Third quarter 2019 net gain on loan sales increased $35 million, or 47 percent, to $110 million, versus $75 million in the second quarter 2019. The net gain on loan sale margin expanded 31 basis points to 1.20 percent for the third quarter 2019, as compared to 0.89 percent for the second quarter 2019. Fallout-adjusted locks increased 10 percent to $9.2 billion, primarily reflecting increased refinance activity due to the continuation of lower mortgage rates.

This increased refinance activity accelerated prepayments, creating a net loss on mortgage servicing rights (including hedging) of $2 million for the third quarter 2019, compared to a $5 million net return for the second quarter 2019.

Loan fees and charges increased $5 million, or 21 percent, to $29 million for the third quarter 2019, as compared to $24 million for the second quarter 2019, driven by $621 million of higher mortgage loan closings.

Mortgage Metrics
 
 
 
 
 
 
 
 
Change (% / bps)
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
For the three months ended:
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
9,197

$
8,344

$
6,602

$
5,284

$
8,290

10
%
11
%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
1.20
%
0.89
%
0.72
%
0.60
%
0.51
%
31
69
Net gain on loan sales
$
110

$
75

$
49

$
34

$
43

47
%
156
%
Net return on the mortgage servicing rights (MSR)
$
(2
)
$
5

$
6

$
10

$
13

NM

NM

Gain on loan sales + net return on the MSR
$
108

$
80

$
55

$
44

$
56

35
%
93
%
At the end of the period:
 
 
 
 
 
 
 
Loans serviced (number of accounts - 000's) (3)
994

983

962

851

619

1
%
61
%
Capitalized value of MSRs
1.14
%
1.23
%
1.27
%
1.35
%
1.43
%
(9)
(29
)
(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.
NM - Not meaningful

Noninterest Expense

Noninterest expense increased to $238 million for the third quarter 2019, as compared to $214 million for the second quarter 2019, primarily reflecting higher mortgage-related expenses driven by an increase in mortgage closings.

The Company's efficiency ratio was 75 percent for the third quarter 2019, as compared to the second quarter 2019 adjusted efficiency ratio of 76 percent. The results reflect positive operating leverage as total adjusted revenue increased 13 percent while expenses rose 11 percent during the third quarter of 2019.


4


Income Taxes

The third quarter 2019 provision for income taxes totaled $15 million, compared to $14 million for the second quarter 2019. The effective tax rate was 18 percent for the third quarter 2019, compared to 19 percent for the second quarter 2019.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
As of/Three Months Ended
Change (% / bps)
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
0.9
%
0.9
%
1.3
%
1.4
%
1.5
%
0
(60)
Charge-offs, net of recoveries
$
1

$
34

$
1

$
1

$
1

N/M
%
Total nonperforming LHFI and TDRs
$
26

$
63

$
24

$
22

$
25

N/M
4
%
Net charge-offs to LHFI ratio (annualized)
0.02
%
1.29
%
0.05
%
0.04
%
0.05
%
N/M
(3)

Ratio of nonperforming LHFI and TDRs to LHFI
0.21
%
0.54
%
0.24
%
0.24
%
0.28
%
(33)
(7)
N/M - Not meaningful

The allowance for loan losses was $110 million and covered 0.9 percent of loans held-for-investment at September 30, 2019, consistent with reserve and coverage ratios as of June 30, 2019.

Net charge-offs in the third quarter 2019 were $1 million, or 2 basis points of LHFI, compared to $34 million, or 129 basis points in the prior quarter. The current period results reflect low net charge-offs, including a $1 million Live Well recovery. Charge-offs in the second quarter included the $30 million Live Well credit loss and $4 million in other net charge-offs primarily related to unsecured consumer credits acquired in the December branch acquisition.

Nonperforming loans were $26 million at September 30, 2019, compared to $63 million at June 30, 2019. Nonperforming loans at June 30, 2019 included the $37 million Live Well loan. The ratio of nonperforming loans to loans held-for-investment was 0.21 percent at September 30, 2019, compared to 0.54 percent at June 30, 2019. At September 30, 2019, early stage loan delinquencies totaled $12 million, or 0.10 percent, of total loans, compared to $8 million, or 0.07 percent, at June 30, 2019.

Capital

Capital Ratios (Bancorp)
 
Change (% / bps)
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
Seq
Yr/Yr
Tangible common equity to assets ratio (1)
7.09
%
7.31
%
7.16
%
7.45
%
7.74
%
(22)
(65)
Tier 1 leverage (to adj. avg. total assets)
7.98
%
7.94
%
8.37
%
8.29
%
8.36
%
4
(38)
Tier 1 common equity (to RWA)
9.25
%
9.08
%
9.69
%
10.54
%
11.01
%
17
(176)
Tier 1 capital (to RWA)
10.80
%
10.73
%
11.51
%
12.54
%
13.04
%
7
(224)
Total capital (to RWA)
11.53
%
11.51
%
12.49
%
13.63
%
14.20
%
2
(267)
Tangible book value per share (1)
$
27.62

$
26.16

$
24.65

$
23.90

$
25.13

6
%
10
%
(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 September 30, 2019, the Company had a total risk-based capital ratio of 11.53 percent, as compared to 11.51 percent at June 30, 2019.


5


Under the terms of recently approved regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 46 basis points and risk-based capital ratios would have increased by approximately 20 to 30 basis points at September 30, 2019 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's third quarter 2019 earnings call will be held Tuesday, October 22, 2019 at 11 a.m. (ET).

To join the call, please dial (888) 254-3590 toll free or (786) 789-4797 and use passcode 2306380. 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 2306380.

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 $22.0 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 160 branches in Michigan, Indiana, California, Wisconsin and Ohio. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 88 retail locations in 26 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 $204 billion of loans representing 994,000 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 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.


6


Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
 
September 30,
2019
 
June 30,
2019
 
December 31,
2018
 
September 30,
2018
Assets
 
 
 
 
 
 
 
Cash
$
234

 
$
268

 
$
260

 
$
150

Interest-earning deposits
119

 
51

 
148

 
114

Total cash and cash equivalents
353

 
319

 
408

 
264

Investment securities available-for-sale
1,697

 
1,718

 
2,142

 
1,857

Investment securities held-to-maturity
635

 
661

 
703

 
724

Loans held-for-sale
4,196

 
3,345

 
3,869

 
4,835

Loans held-for-investment
12,548

 
11,655

 
9,088

 
8,966

Loans with government guarantees
607

 
507

 
392

 
305

Less: allowance for loan losses
(110
)
 
(110
)
 
(128
)
 
(134
)
Total loans held-for-investment and loans with government guarantees, net
13,045

 
12,052

 
9,352

 
9,137

Mortgage servicing rights
285

 
316

 
290

 
313

Net deferred tax asset
58

 
71

 
103

 
111

Federal Home Loan Bank stock
303

 
303

 
303

 
303

Premises and equipment, net
417

 
415

 
390

 
360

Goodwill and intangible assets
174

 
178

 
190

 
70

Other assets
860

 
828

 
781

 
723

Total assets
$
22,023

 
$
20,206

 
$
18,531

 
$
18,697

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Noninterest bearing deposits
$
5,649

 
$
4,784

 
$
2,989

 
$
3,096

Interest bearing deposits
10,096

 
9,632

 
9,391

 
8,493

Total deposits
15,745

 
14,416

 
12,380

 
11,589

Short-term Federal Home Loan Bank advances and other
2,329

 
2,550

 
3,244

 
3,199

Long-term Federal Home Loan Bank advances
650

 
500

 
150

 
1,280

Other long-term debt
496

 
495

 
495

 
495

Other liabilities
1,069

 
589

 
692

 
616

Total liabilities
20,289

 
18,550

 
16,961

 
17,179

Stockholders' Equity
 
 
 
 
 
 
 
Common stock
1

 
1

 
1

 
1

Additional paid in capital
1,481

 
1,477

 
1,522

 
1,519

Accumulated other comprehensive income (loss)
5

 
(8
)
 
(47
)
 
(42
)
Retained earnings
247

 
186

 
94

 
40

Total stockholders' equity
1,734

 
1,656

 
1,570

 
1,518

Total liabilities and stockholders' equity
$
22,023

 
$
20,206

 
$
18,531

 
$
18,697





7


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Third Quarter 2019 Compared to:
 
Three Months Ended
 
Second Quarter
2019
 
Third Quarter
2018
 
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
203

$
198

$
180

$
181

$
183

 
$
5

3
 %
 
$
20

11
 %
Total interest expense
57

60

54

29

59

 
(3
)
(5
)%
 
(2
)
(3
)%
Net interest income
146

138

126

152

124

 
8

6
 %
 
22

18
 %
Provision (benefit) for loan losses
1

17


(5
)
(2
)
 
(16
)
N/M

 
3

N/M

Net interest income after provision (benefit) for loan losses
145

121

126

157

126

 
24

20
 %
 
19

15
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
110

75

49

34

43

 
35

47
 %
 
67

156
 %
Loan fees and charges
29

24

17

20

23

 
5

21
 %
 
6

26
 %
Net return on the mortgage servicing rights
(2
)
5

6

10

13

 
(7
)
(140
)%
 
(15
)
(115
)%
Loan administration income
5

6

11

8

5

 
(1
)
(17
)%
 

 %
Deposit fees and charges
10

10

8

6

5

 

 %
 
5

100
 %
Other noninterest income
19

48

18

20

18

 
(29
)
(60
)%
 
1

6
 %
Total noninterest income
171

168

109

98

107

 
3

2
 %
 
64

60
 %
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
98

90

87

82

76

 
8

9
 %
 
22

29
 %
Occupancy and equipment
40

40

38

36

31

 

 %
 
9

29
 %
Commissions
38

25

13

16

21

 
13

52
 %
 
17

81
 %
Loan processing expense
22

21

17

16

14

 
1

5
 %
 
8

57
 %
Legal and professional expense
6

6

6

9

7

 

 %
 
(1
)
(14
)%
Federal insurance premiums
5

5

4

4

6

 

 %
 
(1
)
(17
)%
Intangible asset amortization
3

4

4

3

1

 
(1
)
(25
)%
 
2

N/M

Other noninterest expense
26

23

22

23

17

 
3

13
 %
 
9

53
 %
Total noninterest expense
238

214

191

189

173

 
24

11
 %
 
65

38
 %
Income before income taxes
78

75

44

66

60

 
3

4
 %
 
18

30
 %
Provision for income taxes
15

14

8

12

12

 
1

7
 %
 
3

25
 %
Net income
$
63

$
61

$
36

$
54

$
48

 
$
2

3
 %
 
$
15

31
 %
Income per share
 
 
 
 
 
 




 




Basic
$
1.12

$
1.08

$
0.64

$
0.94

$
0.84

 
$
0.04

4
 %
 
$
0.28

33
 %
Diluted
$
1.11

$
1.06

$
0.63

$
0.93

$
0.83

 
$
0.05

5
 %
 
$
0.28

34
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$
0.04

$
0.04

$
0.04

$

$

 
$

 %
 
$
0.04

100
 %
N/M - Not meaningful




8


Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
 
 
 
 
 
Nine Months Ended
 
Compared to:
Nine Months Ended September 30, 2018
 
September 30, 2019
 
September 30, 2018
 
Amount
Percent
Interest Income
 
 
 
 
 
 
Total interest income
$
581

 
$
502

 
$
79

16
 %
Total interest expense
171

 
157

 
14

9
 %
Net interest income
410

 
345

 
65

19
 %
Provision (benefit) for loan losses
18

 
(3
)
 
21

N/M

Net interest income after provision (benefit) for loan losses
392

 
348

 
44

13
 %
Noninterest Income
 
 
 
 
 
 
Net gain on loan sales
234

 
166

 
68

41
 %
Loan fees and charges
70

 
67

 
3

4
 %
Net return on the mortgage servicing rights
9

 
26

 
(17
)
(65
)%
Loan administration income
22

 
15

 
7

47
 %
Deposit fees and charges
28

 
15

 
13

87
 %
Other noninterest income
85

 
52

 
33

63
 %
Total noninterest income
448

 
341

 
107

31
 %
Noninterest Expense
 
 
 
 
 
 
Compensation and benefits
275

 
236

 
39

17
 %
Occupancy and equipment
118

 
91

 
27

30
 %
Commissions
76

 
64

 
12

19
 %
Loan processing expense
60

 
43

 
17

40
 %
Legal and professional expense
18

 
19

 
(1
)
(5
)%
Federal insurance premiums
14

 
18

 
(4
)
(22
)%
Intangible asset amortization
11

 

 
11

N/M

Other noninterest expense
71

 
52

 
19

37
 %
Total noninterest expense
643

 
523

 
120

23
 %
Income before income taxes
197

 
166

 
31

19
 %
Provision for income taxes
37

 
33

 
4

12
 %
Net income
$
160

 
$
133

 
$
27

20
 %
Income per share
 
 
 
 
 
 
Basic
$
2.83

 
$
2.32

 
$
0.51

22
 %
Diluted
$
2.80

 
$
2.28

 
$
0.52

23
 %
 
 
 
 
 
 
 
Cash dividends declared
$
0.12

 
$

 
$
0.12

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
 
Nine Months Ended
 
September 30, 2019
 
June 30,
2019
 
September 30, 2018
 
September 30,
2019
 
September 30,
2018
Selected Mortgage Statistics:
 
 
 
 
 
 
 
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
9,197

 
$
8,344

 
$
8,290

 
$
24,143

 
$
25,024

Mortgage loans originated (2)
$
9,262

 
$
8,641

 
$
9,199

 
$
23,416

 
$
26,125

Mortgage loans sold and securitized
$
8,186

 
$
8,838

 
$
8,423

 
$
22,194

 
$
24,930

Selected Ratios:
 
 
 
 
 
 
 
 
 
Interest rate spread (3)
2.48
%
 
2.57
%
 
2.57
%
 
2.57
%
 
2.57
%
Net interest margin
3.05
%
 
3.08
%
 
2.93
%
 
3.07
%
 
2.85
%
Net margin on loans sold and securitized
1.34
%
 
0.84
%
 
0.51
%
 
1.05
%
 
0.66
%
Return on average assets
1.20
%
 
1.22
%
 
1.04
%
 
1.08
%
 
1.00
%
Adjusted return on average assets (4) (5)
1.20
%
 
0.81
%
 
1.05
%
 
0.95
%
 
1.00
%
Return on average common equity
14.72
%
 
14.58
%
 
12.80
%
 
12.90
%
 
12.10
%
Return on average tangible common equity (6)
17.12
%
 
17.14
%
 
13.67
%
 
15.30
%
 
12.78
%
Adjusted return on average tangible common equity (4)(5)(6)
17.12
%
 
11.69
%
 
13.67
%
 
13.54
%
 
12.78
%
Efficiency ratio
75.2
%
 
69.8
%
 
74.6
%
 
75.0
%
 
76.2
%
Common equity-to-assets ratio (average for the period)
8.12
%
 
8.35
%
 
8.13
%
 
8.34
%
 
8.23
%
Average Balances:
 
 
 
 
 
 
 
 
 
Average interest-earning assets
$
18,997

 
$
17,759

 
$
16,786

 
$
17,693

 
$
16,050

Average interest-bearing liabilities
$
12,893

 
$
12,898

 
$
13,308

 
$
12,767

 
$
13,150

Average stockholders' equity
$
1,722

 
$
1,668

 
$
1,514

 
$
1,658

 
$
1,468

(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 and nine months ended September 30, 2018 and the nine months ended September 30, 2019. See Non-GAAP Reconciliation for further information.
(5)
Excludes DOJ benefit of $25 million during the three months ended June 30, 2019 and the nine months ended September 30, 2019. See Non-GAAP Reconciliation for further information.
(6)
Excludes goodwill, intangible assets and the associated amortization. See Non-GAAP Reconciliation for further information.

 
September 30,
2019
 
June 30,
2019
 
December 31,
2018
 
September 30,
2018
Selected Statistics:
 
 
 
 
 
 
 
Book value per common share
$
30.69

 
$
29.31

 
$
27.19

 
$
26.34

Tangible book value per share (1)
$
27.62

 
$
26.16

 
$
23.90

 
$
25.13

Number of common shares outstanding
56,510,341

 
56,483,937

 
57,749,464

 
57,625,439

Number of FTE employees
4,171

 
4,147

 
3,938

 
3,496

Number of bank branches
160

 
160

 
160

 
108

Ratio of nonperforming assets to total assets (2)
0.16
%
 
0.36
%
 
0.16
%
 
0.17
%
Common equity-to-assets ratio
7.88
%
 
8.19
%
 
8.47
%
 
8.12
%
MSR Key Statistics and Ratios:
 
 
 
 
 
 
 
Weighted average service fee (basis points)
39.9

 
39.7

 
35.8

 
34.3

Capitalized value of mortgage servicing rights
1.14
%
 
1.23
%
 
1.35
%
 
1.43
%
(1)
Excludes goodwill and intangibles of $174 million, $178 million, $190 million and $70 million at September 30, 2019, June 30, 2019, December 31,2018 and September 30, 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
 
September 30, 2019
 
June 30, 2019
 
September 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
$
3,786

$
40

4.22
%
 
$
3,539

$
40

4.55
%
 
$
4,393

$
52

4.69
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,282

29

3.58
%
 
3,146

28

3.61
%
 
3,027

27

3.63
%
Home equity
934

13

5.37
%
 
814

11

5.54
%
 
695

9

5.12
%
Other
658

10

5.99
%
 
518

9

6.78
%
 
128

2

5.54
%
Total Consumer loans
4,874

52

4.24
%
 
4,478

48

4.33
%
 
3,850

38

3.96
%
Commercial Real Estate
2,594

35

5.39
%
 
2,394

35

5.65
%
 
2,106

29

5.37
%
Commercial and Industrial
1,767

22

4.97
%
 
1,744

23

5.26
%
 
1,330

18

5.28
%
Warehouse Lending
2,508

32

5.00
%
 
1,997

27

5.21
%
 
1,586

21

5.10
%
Total Commercial loans
6,869

89

5.14
%
 
6,135

85

5.40
%
 
5,022

68

5.26
%
Total loans held-for-investment
11,743

141

4.77
%
 
10,613

133

4.95
%
 
8,872

106

4.70
%
Loans with government guarantees
574

4

2.78
%
 
502

4

2.94
%
 
292

3

4.20
%
Investment securities
2,713

17

2.63
%
 
2,907

20

2.75
%
 
3,100

21

2.81
%
Interest-earning deposits
181

1

2.22
%
 
198

1

2.23
%
 
129

1

2.38
%
Total interest-earning assets
18,997

$
203

4.27
%
 
17,759

$
198

4.42
%
 
16,786

$
183

4.32
%
Other assets
2,200

 
 
 
2,207

 
 
 
1,825

 
 
Total assets
$
21,197

 
 
 
$
19,966

 
 
 
$
18,611

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
1,388

$
3

0.88
%
 
$
1,323

$
3

0.84
%
 
$
727

$
3

1.62
%
Savings deposits
3,262

10

1.20
%
 
3,191

9

1.16
%
 
3,229

7

0.90
%
Money market deposits
722

1

0.34
%
 
745

1

0.32
%
 
252


0.62
%
Certificates of deposit
2,583

15

2.40
%
 
2,611

15

2.34
%
 
2,150

10

1.78
%
Total retail deposits
7,955

29

1.45
%
 
7,870

28

1.42
%
 
6,358

20

1.27
%
Government deposits
1,253

4

1.45
%
 
1,128

5

1.51
%
 
1,174

4

1.28
%
Wholesale deposits and other
744

5

2.42
%
 
417

2

2.35
%
 
537

3

2.03
%
Total interest-bearing deposits
9,952

38

1.52
%
 
9,415

35

1.47
%
 
8,069

27

1.32
%
Short-term FHLB advances and other
1,910

10

2.24
%
 
2,633

17

2.53
%
 
3,465

18

2.10
%
Long-term FHLB advances
536

2

1.72
%
 
354

1

1.72
%
 
1,280

7

2.11
%
Other long-term debt
495

7

5.60
%
 
496

7

5.77
%
 
494

7

5.62
%
Total interest-bearing liabilities
12,893

57

1.79
%
 
12,898

60

1.85
%
 
13,308

59

1.75
%
Noninterest-bearing deposits
 
 
 
 
 
 
 
 
 
 
 
Retail deposits and other
1,315

 
 
 
1,275

 
 
 
1,298

 
 
Custodial deposits (1)
4,550

 
 
 
3,469

 
 
 
1,969

 
 
Total Noninterest-bearing deposits
5,865

 
 
 
4,744

 
 
 
3,267

 
 
Other liabilities
717

 
 
 
656

 
 
 
522

 
 
Stockholders' equity
1,722

 
 
 
1,668

 
 
 
1,514

 
 
Total liabilities and stockholders' equity
$
21,197

 
 
 
$
19,966

 
 
 
$
18,611

 
 
Net interest-earning assets
$
6,104

 
 
 
$
4,861

 
 
 
$
3,478

 
 
Net interest income
 
$
146

 
 
 
$
138

 
 
 
$
124

 
Interest rate spread (2)
 
 
2.48
%
 
 
 
2.57
%
 
 
 
2.57
%
Net interest margin (3)
 
 
3.05
%
 
 
 
3.08
%
 
 
 
2.93
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
147.3
%
 
 
 
137.7
%
 
 
 
126.1
%
Total average deposits
$
15,817

 
 
 
$
14,159

 
 
 
$
11,336

 
 
(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.






11



Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
3,532

$
119

4.48
%
 
$
4,265

$
142

4.44
%
Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage
3,158

85

3.61
%
 
2,893

76

3.52
%
Home equity
832

34

5.50
%
 
681

26

5.13
%
Other
512

25

6.51
%
 
71

3

5.37
%
Total Consumer loans
4,502

144

4.29
%
 
3,645

105

3.86
%
Commercial Real Estate
2,414

102

5.56
%
 
2,026

79

5.12
%
Commercial and Industrial
1,702

67

5.20
%
 
1,269

51

5.26
%
Warehouse Lending
1,898

74

5.17
%
 
1,312

51

5.08
%
Total Commercial loans
6,014

243

5.34
%
 
4,607

181

5.15
%
Total loans held-for-investment
10,516

387

4.89
%
 
8,252

286

4.58
%
Loans with government guarantees
511

11

2.88
%
 
288

8

3.86
%
Investment securities
2,957

61

2.77
%
 
3,127

64

2.74
%
Interest-earning deposits
177

3

2.38
%
 
118

2

1.95
%
Total interest-earning assets
17,693

$
581

4.37
%
 
16,050

$
502

4.15
%
Other assets
2,184

 
 
 
1,784

 
 
Total assets
$
19,877

 
 
 
$
17,834

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
1,311

$
8

0.80
%
 
$
660

$
4

0.89
%
Savings deposits
3,181

26

1.10
%
 
3,376

21

0.85
%
Money market deposits
748

2

0.31
%
 
235

1

0.54
%
Certificates of deposit
2,561

44

2.29
%
 
1,927

24

1.64
%
Total retail deposits
7,801

80

1.37
%
 
6,198

50

1.09
%
Government deposits
 
 
 
 
 
 
 
Government deposits
1,184

13

1.49
%
 
1,137

10

1.14
%
Wholesale deposits and other
518

9

2.35
%
 
325

5

1.99
%
Total interest-bearing deposits
9,503

102

1.44
%
 
7,660

65

1.13
%
Short-term FHLB advances and other
2,420

44

2.45
%
 
3,713

50

1.81
%
Long-term FHLB advances
349

4

1.71
%
 
1,283

21

2.15
%
Other long-term debt
495

21

5.76
%
 
494

21

5.53
%
Total interest-bearing liabilities
12,767

171

1.80
%
 
13,150

157

1.58
%
Noninterest-bearing deposits
 
 
 
 
 
 
 
Retail deposits and other
1,278

 
 
 
1,043

 
 
Custodial deposits (1)
3,524