Toggle SGML Header (+)


Section 1: 8-K (8-K)

fbc-20201021
false000103301200010330122020-10-212020-10-21

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 21, 2020
 
405632144_fbc-20201021_g1.jpg 
Flagstar Bancorp, Inc.
(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:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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

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.

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading symbolName of each exchange on which registered
Common stockFBCNew York Stock Exchange



Item 2.02Results of Operations and Financial Condition
On October 21, 2020, 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, 2020. 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 quarter ended September 30, 2020 as part of its Quarterly Report on Form 10-Q.

On October 21, 2020, the Company will hold a conference call to review third quarter 2020 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 9.01Financial Statements and Exhibits
 
 Exhibits
99.1  
99.2  





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 21, 2020  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 (EX-99.1)

Document



405632144_flagstara571.jpg                405632144_fbcnyselisteda301.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
FBCInvestorRelations@flagstar.com
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports Third Quarter 2020 Net Income of $222 million, or $3.88 Per Diluted Share

Key Highlights - Third Quarter 2020

Surpassed record results from second quarter 2020 as all segments posted strong earnings
Grew net interest income by $12 million to $180 million
Achieved mortgage revenue of $358 million on strong gain on sale margin and volume growth
Increased the allowance for credit losses by $30 million, raising the coverage ratio to 1.7 percent, or 3.1 percent excluding warehouse loans
Generated tangible book value growth of 25 percent through the first nine months of 2020

TROY, Mich., Oct. 21, 2020 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, today reported third quarter 2020 net income of $222 million, or $3.88 per diluted share, compared to second quarter 2020 net income of $116 million, or $2.03 per diluted share and third quarter 2019 net income of $63 million, or $1.11 per diluted share.

“It was another quarter for the record books as we surpassed the high-water mark for earnings we set last quarter,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "We once again demonstrated the power of our business model as strong results across all of our primary business segments combined to produce record earnings of $3.88 per share. And while our performance in mortgage is a headline, it shares the space with outstanding results from our banking and servicing teams."

“Banking performed remarkably well during the quarter, growing net interest income $12 million to $180 million. Our warehouse business—and our success in safely growing low-risk balances without sacrificing yield—was a big contributor to our performance. Our solid performance in warehouse, combined with a concerted effort to reduce deposit funding costs, resulted in a 6-basis-point increase in net interest margin, excluding loans with government guarantees that have not been repurchased.

“We also were pleased to see commercial loan deferrals end the quarter at just $47 million. That’s less than 1 percent of our commercial loan portfolio, down significantly from their peak in the second quarter. Still, we felt it was prudent to increase our credit reserves to $280 million to reflect the continued uncertainty of COVID-19 and its ongoing economic impact. We believe our conservative approach to fortify the bank’s balance sheet positions us well in an unpredictable economy. Our coverage ratio is now 3.1 percent, excluding warehouse loans, which places it among the strongest in the industry.

1


“In Servicing, we closed the quarter with a 6 percent increase over the second quarter in loans serviced and subserviced, bringing our servicing book to a little more than 1.1 million loans. This growth is especially strong considering the headwinds from the continued pressure of elevated prepayments, and it’s a testament to our business model and the strength of the relationships we have developed with our subservicing partners.

"Our mortgage team was absolutely stellar, producing revenue of $358 million on a 12-basis-point expansion of gain on sale margin and an 9 percent increase in fallout adjusted locks over the prior quarter. While a robust mortgage market fueled our revenue growth in the business, it is our diverse, multi-channel mortgage platform that allowed us to maximize mortgage profitability by optimizing product and channel mix.

“Like prior quarters, our results in the third quarter show the power of our business model. Mortgage was once again a standout, but it shares the stage with our unique and diversified businesses that deliver solid net interest income and margin in banking—led by contributions from warehouse lending—and predictable fee income from Servicing. Combined, they generated the capital that produced a tangible book value of $35.60 per share at quarter end."

Income Statement Highlights
Three Months Ended
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
(Dollars in millions)
Net interest income $180 $168 $148 $152 $146 
Provision for credit losses 32 102 14 — 
Noninterest income 452 378 157 162 171 
Noninterest expense 305 296 235 245 238 
Income before income taxes 295 148 56 69 78 
Provision for income taxes 73 32 10 11 15 
Net income$222 $116 $46 $58 $63 
Income per share:
Basic$3.90 $2.04 $0.80 $1.01 $1.12 
Diluted$3.88 $2.03 $0.80 $1.00 $1.11 

Key Ratios
Three Months Ended
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
Net interest margin 2.78 %2.86 %2.81 %2.91 %3.05 %
Adjusted net interest margin (2)2.94 %2.88 %2.81 %2.91 %3.05 %
Return on average assets3.1 %1.8 %0.8 %1.0 %1.2 %
Return on average common equity 41.5 %23.5 %9.8 %12.7 %14.7 %
Efficiency ratio48.3 %54.3 %77.1 %78.2 %75.2 %
HFI loan-to-deposit ratio75.9 %76.7 %74.9 %76.5 %74.2 %
Adjusted HFI loan-to-deposit ratio (1)74.8 %85.4 %86.3 %84.6 %82.0 %
(1)Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.
(2)Excludes LGG loans available for repurchase. See Non-GAAP Reconciliation for further information.

Average Balance Sheet Highlights
Three Months Ended% Change
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
SeqYr/Yr
(Dollars in millions)
Average interest-earning assets $25,738 $23,692 $21,150 $20,708 $18,997 %35 %
Average loans held-for-sale (LHFS)5,602 5,645 5,248 5,199 3,786 (1)%48 %
Average loans held-for-investment (LHFI)14,839 13,596 11,823 12,168 11,743 %26 %
Average total deposits 19,561 17,715 15,795 15,904 15,817 10 %24 %

2


Net Interest Income

Net interest income in the third quarter 2020 was $180 million, an increase of $12 million (7 percent) compared to the second quarter 2020. The increase was primarily driven by warehouse loan growth and the impact of lower rates on deposit and borrowing costs, which was partially offset by lower yields on earning assets. Average earning assets increased $2.0 billion, reflecting increases of $2.5 billion in average total loans partially offset by a $0.6 billion decrease in average investment securities.

The net interest margin in the third quarter 2020 was 2.78 percent, an 8 basis point decrease from the prior quarter. Excluding the impact from the loans with government guarantees that have not been repurchased and do not accrue interest, adjusted net interest margin expanded 6 basis points to 2.94 percent in the third quarter, compared to adjusted net interest margin of 2.88 percent in the prior quarter. The increase in the adjusted net interest margin was primarily driven by a shift to higher yielding warehouse loans and lower rates on deposit and borrowing costs. Retail banking deposit rates decreased 22 basis points driven by the expiration of promotional rates on some of our savings deposits and the maturity of higher cost time deposits and a higher balance of noninterest bearing deposits. This improvement more than offset the impact of declining interest rates on the loans held-for-investment portfolio.

Loans held-for-investment averaged $14.8 billion for the third quarter 2020, increasing $1.2 billion (9 percent) from the prior quarter. The increase was primarily driven by $1.9 billion (51 percent) higher average warehouse loan balances as we grew this business and took advantage of the strong mortgage market. The result was partially offset by $0.5 billion (9 percent) lower average commercial loans, excluding warehouse, primarily due to a decrease in our home builder finance portfolio and the completion of the sale of the Paycheck Protection Program loans during the third quarter.

Average total deposits were $19.6 billion in the third quarter 2020, increasing $1.8 billion (10 percent) from the second quarter 2020. Average custodial deposits increased $1.1 billion (18 percent) due to higher prepayments from refinancing, average government deposits increased $0.3 billion (29 percent) and retail deposits increased $0.2 billion (2 percent) primarily due to the continued impact of COVID-19 on consumer behavior and spending patterns and higher cash balances being carried by commercial depositors.

Provision for Credit Losses

The provision for credit losses was $32 million for the third quarter 2020, as compared to $102 million for the second quarter 2020. We have continued to add to our reserve balance as we believe the economic recovery will continue to be challenged due to the COVID-19 pandemic for an extended period of time, especially as it relates to consumer loan forbearance and the commercial real estate sector.
Noninterest Income

Noninterest income increased $74 million to $452 million in the third quarter 2020, as compared to $378 million for the second quarter 2020, primarily due to higher mortgage revenues.

Third quarter 2020 net gain on loan sales increased $43 million, to $346 million, as compared to $303 million in the second quarter 2020. The net gain on loan sale margin increased 12 basis points, to 2.31 percent for the third quarter 2020, as compared to 2.19 percent for the second quarter 2020. The increase was primarily driven by improved execution in secondary marketing and the gain associated with the residential mortgage-backed securitization transaction we executed during the quarter. Fallout -adjusted locks increased $1.2 billion, or 9 percent, to $15.0 billion, as historically low interest rates continued to fuel a strong refinance market.

Net return on mortgage servicing rights increased $20 million, to a $12 million net return for the third quarter 2020, compared to an $8 million net loss for the second quarter 2020. The third quarter 2020 MSR return normalized following the MSR valuation decrease caused by rising prepayment speeds in the second quarter 2020 which did not reoccur.

3


Loan administration income increased $5 million, to $26 million for the third quarter 2020, compared to $21 million for the second quarter 2020, largely driven by an increase in the average number of loans being
subserviced and higher level of fees for loans in forbearance.

Loan fees and charges increased $4 million, to $45 million for the third quarter 2020, compared to $41 million for the second quarter 2020, resulting from a 19 percent increase in mortgage closings.
Mortgage Metrics
As of/Three months endedChange (% / bps)
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
SeqYr/Yr
(Dollars in millions)
Mortgage rate lock commitments (fallout-adjusted) (1) (2)$15,000 $13,800 $11,200 $8,200 $9,200 9%63%
Mortgage loans closed (1)$14,400 $12,200 $8,600 $9,300 $9,300 19%56%
Net margin on mortgage rate lock commitments (fallout-adjusted) (2) 2.31 %2.19 %0.80 %1.23 %1.20 %12111
Net gain on loan sales$346 $303 $90 $101 $110 14%N/M
Net return (loss) on mortgage servicing rights (MSR)$12 $(8)$$(3)$(2)N/MN/M
Gain on loan sales + net return on the MSR$358 $295 $96 $98 $108 21%N/M
Loans serviced (number of accounts - 000's) (3)1,105 1,042 1,082 1,091 994 6%11%
Capitalized value of MSRs0.85 %0.87 %0.95 %1.21 %1.14 %(2)(29)
N/M - Not meaningful
(1) Rounded to the nearest hundred million
(2) 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.
(3) Includes loans serviced for Flagstar's own loan portfolio, serviced for others, and subserviced for others.

Noninterest Expense

Noninterest expense increased to $305 million for the third quarter 2020, compared to $296 million for the second quarter 2020. This increase was primarily due to the capitalization of origination costs in the second quarter for the PPP loans and the accelerated vesting of certain components of executive compensation that resulted from the most recent secondary share offering. Despite increased volume, mortgage expenses were flat quarter over quarter as the ratio of mortgage noninterest expense to closings – our mortgage expense ratio – declined. This improvement was due to certain expenses in the second quarter that did not reoccur this quarter and are not expected to reoccur in the future, including certain performance-related incentives related to our Opes Advisors division.

The Company's efficiency ratio was 48 percent for the third quarter 2020, as compared to 54 percent for the second quarter 2020, primarily driven lower by extraordinary levels of gain on sale margin.

Income Taxes

The third quarter 2020 provision for income taxes totaled $73 million, with an effective tax rate of 24.7 percent, compared to $32 million and an effective tax rate of 21.5 percent for the second quarter 2020. Our effective tax rate increased due to the higher level of income, which is taxed at higher marginal tax rates. Additionally, we delayed certain tax planning strategies.
4


Asset Quality
Credit Quality Ratios
As of/Three Months EndedChange (% / bps)
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
SeqYr/Yr
(Dollars in millions)
Allowance for credit losses$280 $250 $152 $110 $113 12%N/M
Credit reserves to LHFI1.70 %1.69 %1.10 %0.91 %0.90 %180
Credit reserves to LHFI excluding warehouse3.07 %2.60 %1.54 %1.12 %1.16 %47191
Charge-offs, net of recoveries$$$$$(33)%100%
Total nonperforming LHFI and TDRs$45 $33 $29 $26 $26 36%73%
Net charge-offs to LHFI ratio (annualized)0.05 %0.11 %0.08 %0.10 %0.02 %(6)3
Ratio of nonperforming LHFI and TDRs to LHFI0.28 %0.22 %0.21 %0.21 %0.21 %67
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
Residential first mortgage 0.07 %0.26 %0.08 %0.08 %0.07 %(19)
Home equity and other consumer0.23 %0.28 %0.28 %0.49 %0.27 %(5)(4)
Commercial real estate(0.01)%0.01 %(0.01)%— %— %(2)(1)
Commercial and industrial 0.06 %0.08 %0.09 %0.07 %(0.22)%(2)28
N/M - Not meaningful
    (1) Excludes loans carried under the fair value option.

The allowance for credit losses was $280 million and covered 1.70 percent of loans held-for-investment at September 30, 2020, flat compared to June 30, 2020. Excluding warehouse loans, the allowance coverage ratio was 3.07 percent, a 47 basis point increase from June 30, 2020. The increase in the allowance coverage reflects our forecast of economic conditions and our view that the economy will continue to be challenged for an extended period of time as a result of the COVID-19 pandemic.

Net charge-offs in the third quarter 2020 were negligible at $2 million, or 5 basis points of LHFI, compared to $3 million, or 11 basis points in the prior quarter.

Nonperforming loans were $45 million and our ratio of nonperforming loans to loans held-for-investment was 28 basis points at September 30, 2020, a 6 basis point increase compared to June 30, 2020. The increase was due to one commercial loan that was placed on nonaccrual during the quarter. At September 30, 2020, early stage loan delinquencies totaled $13 million, or 8 basis points, of total loans, compared to $15 million, or 10 basis points, at June 30, 2020.

5


Capital
Capital Ratios (Bancorp)Change (% / bps)
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
SeqYr/Yr
Tier 1 leverage (to adj. avg. total assets)8.04 %7.76 %8.09 %7.57 %7.98 %286
Tier 1 common equity (to RWA)9.21 %9.11 %9.17 %9.32 %9.25 %10(4)
Tier 1 capital (to RWA)10.31 %10.33 %10.52 %10.83 %10.81 %(2)(50)
Total capital (to RWA)11.29 %11.32 %11.18 %11.52 %11.54 %(3)(25)
Tangible common equity to asset ratio (1)6.90 %6.58 %6.25 %6.95 %7.08 %32(18)
Tangible book value per share (1) $35.60 $31.74 $29.52 $28.57 $27.62 12%29%
(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. The capital ratios are impacted by a 100 percent risk-weighting of the warehouse loan portfolio – the largest component of the Company’s held for sale portfolio. Adjusting the risk-weighting of warehouse loans to 50 percent, because of the historically low level of losses from this loan portfolio and the fact that the portfolio is fully collateralized with assets that would receive a 50 percent risk weighting, the Company would have had a Tier 1 common equity ratio of 10.9 percent and a total risk-based capital ratio of 13.4 percent at September 30, 2020.

Importantly, tangible book value per share grew to $35.60, up $3.86 from last quarter and $7.98 higher than the same quarter last year, an increase of 29 percent.

Earnings Conference Call

As previously announced, the Company's third quarter 2020 earnings call will be held Wednesday, October 21, 2020 at 11 a.m. (ET).

To join the call, please dial (800) 353-6461 toll free or (334) 323-0501 and use passcode 9179222. 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 9179222.

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 a $29.5 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 87 retail locations in 29 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 $227 billion of loans representing slightly over 1.1 million borrowers. For more information, please visit flagstar.com.

6


Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes certain non-GAAP financial measures. 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). The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.
7



Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
September 30,
2020
June 30,
2020
December 31,
2019
September 30,
2019
Assets
Cash$194 $204 $220 $234 
Interest-earning deposits86 23 206 119 
Total cash and cash equivalents280 227 426 353 
Investment securities available-for-sale2,165 2,348 2,116 1,697 
Investment securities held-to-maturity440 496 598 635 
Loans held-for-sale5,372 5,615 5,258 4,196 
Loans held-for-investment16,476 14,808 12,129 12,548 
Loans with government guarantees2,500 1,791 736 607 
Less: allowance for loan losses(255)(229)(107)(110)
Total loans held-for-investment and loans with government guarantees, net18,721 16,370 12,758 13,045 
Mortgage servicing rights323 261 291 285 
Federal Home Loan Bank stock377 377 303 303 
Premises and equipment, net410 410 416 417 
Goodwill and intangible assets160 164 170 174 
Other assets1,228 1,200 930 943 
Total assets$29,476 $27,468 $23,266 $22,048 
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits$9,429 $7,921 $5,467 $5,649 
Interest-bearing deposits10,516 9,9779,67910,096
Total deposits19,945 17,898 15,146 15,745 
Short-term Federal Home Loan Bank advances and other2,226 3,354 4,165 2,329 
Long-term Federal Home Loan Bank advances1,200 1,200 650 650 
Other long-term debt493 493 496 496 
Other liabilities3,417 2,552 1,021 1,094 
Total liabilities27,281 25,497 21,478 20,314 
Stockholders’ Equity
Common stock
Additional paid in capital1,493 1,488 1,483 1,481 
Accumulated other comprehensive income46 46 
Retained earnings655 436 303 247 
Total stockholders’ equity2,195 1,971 1,788 1,734 
Total liabilities and stockholders’ equity$29,476 $27,468 $23,266 $22,048 














8


Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
Change compared to:
Three Months Ended2Q203Q19
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
AmountPercentAmountPercent
Interest Income
Total interest income$206 $201 $201 $213 $203 $%$%
Total interest expense26 33 53 61 57 (7)(21)%(31)(54)%
Net interest income180 168 148 152 146 12 %34 23 %
Provision for credit losses32 102 14 — (70)(69)%31 N/M
Net interest income after provision for credit losses148 66 134 152 145 82 124 %%
Noninterest Income
Net gain on loan sales346 303 90 101 110 43 14 %236 N/M
Loan fees and charges45 41 26 30 29 10 %16 55 %
Net return (loss) on the mortgage servicing rights12 (8)(3)(2)20 N/M14 N/M
Loan administration income26 21 12 24 %21 N/M
Deposit fees and charges10 10 14 %(2)(20)%
Other noninterest income15 14 14 16 19 %(4)(21)%
Total noninterest income452 378 157 162 171 74 20 %281 164 %
Noninterest Expense
Compensation and benefits123 116 102 102 98 %25 26 %
Occupancy and equipment47 44 41 43 40 %18 %
Commissions72 61 29 35 38 11 18 %34 89 %
Loan processing expense24 25 20 20 22 (1)(4)%%
Legal and professional expense80 %50 %
Federal insurance premiums(1)(14)%20 %
Intangible asset amortization(1)(25)%— — %
Other noninterest expense21 34 28 26 26 (13)(38)%(5)(19)%
Total noninterest expense305 296 235 245 238 %67 28 %
Income before income taxes295 148 56 69 78 147 99 %217 278 %
Provision for income taxes73 32 10 11 15 41 128 %58 N/M
Net income$222 $116 $46 $58 $63 $106 91 %$159 252 %
Income per share
Basic$3.90 $2.04 $0.80 $1.01 $1.12 $1.86 91 %$2.78 248 %
Diluted$3.88 $2.03 $0.80 $1.00 $1.11 $1.85 91 %$2.77 250 %
Cash dividends declared$0.05 $0.05 $0.05 $0.04 $0.04 $— — %$0.01 25 %
N/M - Not meaningful

9


Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)

Nine Months Ended Change
September 30,
2020
September 30,
2019
AmountPercent
Interest Income
Total interest income$608 $581 $27 %
Total interest expense112 171 (59)(35)%
Net interest income496 410 86 21 %
Provision for credit losses148 18 130 N/M
Net interest income after provision for credit losses348 392 (44)(11)%
Noninterest Income
Net gain on loan sales739 234 505 N/M
Loan fees and charges112 70 42 60 %
Net return (loss) on the mortgage servicing rights10 11 %
Loan administration income59 22 37 168 %
Deposit fees and charges24 28 (4)(14)%
Other noninterest income44 85 (41)(48)%
Total noninterest income988 448 540 121 %
Noninterest Expense
Compensation and benefits341 275 66 24 %
Occupancy and equipment132 118 14 12 %
Commissions162 76 86 N/M
Loan processing expense69 60 15 %
Legal and professional expense20 18 11 %
Federal insurance premiums19 14 36 %
Intangible asset amortization10 11 (1)(9)%
Other noninterest expense84 71 13 18 %
Total noninterest expense837 643 194 30 %
Income before income taxes499 197 302 153 %
Provision for income taxes115 37 78 N/M
Net income$384 $160 $224 140 %
Income per share
Basic$6.76 $2.83 $3.93 139 %
Diluted$6.71 $2.80 $3.91 140 %
Cash dividends declared$0.15 $0.12 $0.03 25 %
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 EndedNine Months Ended
September 30, 2020June 30,
2020
September 30, 2019September 30, 2020September 30, 2019
Selected Mortgage Statistics (1):
Mortgage rate lock commitments (fallout-adjusted) (2) $15,000 $13,800 $9,200 $40,000 $24,100 
Mortgage loans closed$14,400 $12,200 $9,300 $35,200 $23,400 
Mortgage loans sold and securitized$14,500 $12,900 $8,200 $34,900 $22,200 
Selected Ratios:
Interest rate spread (3)2.44 %2.52 %2.48 %2.41 %2.57 %
Net interest margin2.78 %2.86 %3.05 %2.81 %3.07 %
Net margin on loans sold and securitized2.39 %2.35 %1.34 %2.12 %1.05 %
Return on average assets3.15 %1.77 %1.20 %1.97 %1.08 %
Adjusted return on average assets (4) (5)3.15 %1.77 %1.20 %1.97 %0.98 %
Return on average common equity41.54 %23.47 %14.72 %25.71 %12.90 %
Return on average tangible common equity (5)45.42 %26.16 %17.12 %28.58 %15.30 %
Adjusted return on average tangible common equity (4) (5)45.42 %26.16 %17.12 %28.58 %13.99 %
Efficiency ratio48.3 %54.3 %75.2 %56.4 %75.0 %
Common equity-to-assets ratio (average for the period)7.57 %7.53 %8.12 %7.66 %8.34 %
Average Balances:
Average interest-earning assets$25,738 $23,692 $18,997 $23,535 $17,693 
Average interest-bearing liabilities $14,281 $15,119 $12,893 $14,625 $12,767 
Average stockholders' equity$2,141 $1,977 $1,722 $1,991 $1,658 
(1)Rounded to nearest hundred million.
(2)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.
(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)See Non-GAAP Reconciliation for further information.
(5)Excludes goodwill, intangible assets and the associated amortization. See Non-GAAP Reconciliation for further information.
September 30,
2020
June 30,
2020
December 31,
2019
September 30,
2019
Selected Statistics:
Book value per common share $38.41 $34.62 $31.57 $30.69 
Tangible book value per share (1)
$35.60 $31.74 $28.57 $27.62 
Number of common shares outstanding 57,150,470 56,943,979 56,631,236 56,510,341 
Number of FTE employees 4,871 4,641 4,453 4,171 
Number of bank branches160 160 160 160 
Ratio of nonperforming assets to total assets (2)
0.17 %0.14 %0.15 %0.16 %
Common equity-to-assets ratio7.45 %7.18 %7.68 %7.88 %
MSR Key Statistics and Ratios:
Weighted average service fee (basis points)35.0 37.0 39.7 39.9 
Capitalized value of mortgage servicing rights0.85 %0.87 %1.21 %1.14 %
(1)Excludes goodwill and intangibles. See Non-GAAP Reconciliation for further information.
(2)Ratio excludes LHFS.
11


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
Three Months Ended
September 30, 2020June 30, 2020September 30, 2019
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Interest-Earning Assets
Loans held-for-sale$5,602 $45 3.21%$5,645 $48 3.42%$3,786 $40 4.22%
Loans held-for-investment
Residential first mortgage2,584 21 3.24%2,822 24 3.41%3,282 29 3.58%
Home equity951 3.77%1,001 3.78%934 13 5.37%
Other950 13 5.28%881 12 5.42%658 10 5.99%
Total consumer loans 4,485 43 3.78%4,704 45 3.87%4,874 52 4.24%
Commercial real estate3,007 27 3.47%3,101 28 3.64%2,594 35 5.39%
Commercial and industrial1,650 14 3.25%2,006 17 3.34%1,767 22 4.97%
Warehouse lending5,697 56 3.92%3,785 38 3.88%2,508 32 5.00%
Total commercial loans10,354 97 3.68%8,892 83 3.67%6,869 89 5.14%
Total loans held-for-investment14,839 140 3.71%13,596 128 3.74%11,743 141 4.77%
Loans with government guarantees2,122 0.89%858 1.97%574 2.78%
Investment securities 2,807 16 2.29%3,417 21 2.42%2,713 17 2.63%
Interest-earning deposits368 — 0.11%176 — 0.11%181 2.22%
Total interest-earning assets25,738 $206 3.16%23,692 $201 3.38%18,997 $203 4.27%
Other assets2,539 2,569 2,207 
Total assets$28,277 $26,261 $21,204 
Interest-Bearing Liabilities
Retail deposits
Demand deposits$1,824 $— 0.09%$1,800 $0.22%$1,388 $0.88%
Savings deposits3,675 0.34%3,476 0.52%3,262 10 1.20%
Money market deposits733 — 0.09%716 — 0.12%722 0.34%
Certificates of deposit1,672 1.62%1,987 10 2.00%2,583 15 2.40%
Total retail deposits7,904 11 0.53%7,979 15 0.78%7,955 29 1.42%
Government deposits1,403 0.35%1,088 0.63%1,253 1.45%
Wholesale deposits and other953 1.77%738 2.07%744 2.42%
Total interest-bearing deposits10,260 16 0.62%9,805 21 0.86%9,952 38 1.52%
Short-term FHLB advances and other2,328 0.20%3,753 0.26%1,910 10 2.24%
Long-term FHLB advances1,200 1.03%1,068 1.13%536 1.72%
Other long-term debt493 4.52%493 4.99%495 5.60%
Total interest-bearing liabilities14,281 26 0.72%15,119 33 0.86%12,893 57 1.79%
Noninterest-bearing deposits
Retail deposits and other1,954 1,687 1,315 
Custodial deposits (1)7,347 6,223 4,550 
Total noninterest-bearing deposits9,301 7,910 5,865 
Other liabilities 2,554 1,255 717 
Stockholders' equity2,141 1,977 1,722 
Total liabilities and stockholders' equity$28,277 $26,261 $21,197 
Net interest-earning assets$11,457 $8,573 $6,104 
Net interest income$180 $168 $146 
Interest rate spread (2)2.44%2.52%2.48%
Net interest margin (3)2.78%2.86%3.05%
Ratio of average interest-earning assets to interest-bearing liabilities180.2 %156.7 %147.3 %
Total average deposits$19,561 $17,715 $15,817 
(1)Approximately 80 percent of custodial deposits from loans subserviced which pay interest 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


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
Nine Months Ended,
September 30, 2020September 30, 2019
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Interest-Earning Assets
Loans held-for-sale$5,499 $142 3.44 %$3,532 $119 4.48 %
Loans held-for-investment
Residential first mortgage2,822 72 3.40 %3,158 85 3.61 %
Home equity990 30 4.10 %832 34 5.50 %
Other882 36 5.47 %512 25 6.51 %
Total consumer loans4,694 138 3.94 %4,502 144 4.29 %
Commercial real estate3,019 90 3.90 %2,414 102 5.56 %
Commercial and industrial1,774 50 3.68 %1,702 67 5.20 %
Warehouse lending3,937 119 3.98 %1,898 74 5.17 %
Total commercial loans8,730 259 3.89 %6,014 243 5.34 %
Total loans held-for-investment13,424 397 3.91 %10,516 387 4.89 %
Loans with government guarantees1,267 12 1.23 %511 11 2.88 %
Investment securities3,094 56 2.40 %2,957 61 2.77 %
Interest-earning deposits251 0.56 %177 2.38 %
Total interest-earning assets23,535 608 3.42 %17,693 581 4.37 %
Other assets2,457 2,184 
Total assets$25,992 $19,877 
Interest-Bearing Liabilities
Retail deposits
Demand deposits$1,737 $0.33 %$1,311 $0.80 %
Savings deposits3,513 17 0.63 %3,181 26 1.10 %
Money market deposits712 0.17 %748 0.31 %
Certificates of deposit1,970 29 1.98 %2,561 44 2.29 %
Total retail deposits7,932 51 0.86 %7,801 80 1.37 %
Government deposits1,208 0.68 %1,184 13 1.49 %
Wholesale deposits and other758 12 2.03 %518