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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): January 21, 2021
 
406665443_fbc-20210121_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 January 21, 2021, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended December 31, 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 year ended December 31, 2020 as part of its Annual Report on Form 10-K.

On January 21, 2021, the Company will hold a conference call to review fourth 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:January 21, 2021  By: /s/ James K. Ciroli
   James K. Ciroli
   Executive Vice President and Chief Financial Officer

Exhibit Index
 
Exhibit No.  Description
99.1  
99.2  

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Section 2: EX-99.1 (EX-99.1)

Document



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EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
FBCInvestorRelations@flagstar.com
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports Fourth Quarter 2020 Net Income of $154 million, or $2.83 Per Diluted Share

Key Highlights - Fourth Quarter 2020

Net interest income grew by $9 million with lower deposit costs and higher warehouse balances.
Mortgage revenue was $232 million as fallout adjusted lock volume and gain on sale margins stayed strong.
Asset quality remained solid with low levels of nonperforming loans and an industry-leading coverage ratio.
Tangible book value per share reached $38.80 at year-end, representing a 36 percent increase for 2020.

TROY, Mich., Jan. 21, 2021 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, today reported fourth quarter 2020 net income of $154 million, or $2.83 per diluted share, compared to third quarter 2020 net income of $222 million, or $3.88 per diluted share and fourth quarter 2019 net income of $58 million, or $1.00 per diluted share.

"It was yet another outstanding quarter, capping off an exceptionally successful year for Flagstar,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "All of our business segments contributed to produce earnings of $2.83 per share—75 percent of what we earned for the full year of 2019."

"Banking was once again a standout, as net interest income climbed $9 million to $189 million. And once again, our warehouse business led the way, as we continued to grow the low-risk balances this business generates. Our impressive performance in warehouse, coupled with a concerted effort to reduce funding costs, resulted in a flat net interest margin. In fact, net interest margin actually expanded 4 basis points when excluding those loans with government guarantees where we have the right to repurchase.

"We closed the quarter servicing and subservicing approximately 1.1 million loans, consistent with the prior quarter, despite the ongoing pressure of elevated prepayments. This is a testament to our business model, the quality of the service delivered, and the strength of the relationships we have developed with our subservicing partners.

"Our mortgage team continues to deliver, achieving revenues of $232 million for the quarter. While gain on sale margins did compress, we were pleased with how well they held up, finishing at 1.93 percent for the quarter. The team's all-out efforts—coupled with our diverse, multi-channel mortgage platform—made it possible for us to deliver a quality experience to customers all year long in the face of unprecedented volumes.

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"Overall, 2020 was one for the record books. The performance of our mortgage and warehouse businesses was extraordinary, supported by the consistent results we have come to expect from servicing. Thanks to this success, we were positioned not only to secure an investment grade rating from Moody's rating agency, but were also able to execute a $150 million stock buyback.

"But the real story of the year was our employees. I could not be more proud of the way they responded, and continue to respond, to COVID-19. First, we had a business continuity plan in place and ready to go, and second, our employees did a masterful job of executing it. We've adapted to the change in our workplace and our success is written in our results. With the momentum of a strong year behind us and the power of a diversified franchise carrying us forward, we believe we are well positioned for continued success in 2021."

Income Statement Highlights
Three Months Ended
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
(Dollars in millions, except per share data)
Net interest income $189 $180 $168 $148 $152 
Provision for credit losses 32 102 14 — 
Noninterest income 337 452 378 157 162 
Noninterest expense 319 305 296 235 245 
Income before income taxes 205 295 148 56 69 
Provision for income taxes 51 73 32 10 11 
Net income$154 $222 $116 $46 $58 
Income per share:
Basic$2.86 $3.90 $2.04 $0.80 $1.01 
Diluted$2.83 $3.88 $2.03 $0.80 $1.00 

Key Ratios
Three Months Ended
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
Net interest margin 2.78 %2.78 %2.86 %2.81 %2.91 %
Adjusted net interest margin (2)2.98 %2.94 %2.88 %2.81 %2.91 %
Return on average assets2.1 %3.1 %1.8 %0.8 %1.0 %
Return on average common equity 27.6 %41.5 %23.5 %9.8 %12.7 %
Efficiency ratio60.8 %48.3 %54.3 %77.1 %78.2 %
HFI loan-to-deposit ratio74.5 %75.9 %76.7 %74.9 %76.5 %
Adjusted HFI loan-to-deposit ratio (1)69.8 %74.8 %85.4 %86.3 %84.6 %
(1)Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.
(2)Excludes loans with government guarantees available for repurchase. See Non-GAAP Reconciliation for further information.

Average Balance Sheet Highlights
Three Months Ended% Change
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
SeqYr/Yr
(Dollars in millions)
Average interest-earning assets $27,100 $25,738 $23,692 $21,150 $20,708 %31 %
Average loans held-for-sale (LHFS)5,672 5,602 5,645 5,248 5,199 %%
Average loans held-for-investment (LHFI)15,703 14,839 13,596 11,823 12,168 %29 %
Average total deposits 21,068 19,561 17,715 15,795 15,904 %32 %

Net Interest Income

Net interest income in the fourth quarter was $189 million, an increase of $9 million (5 percent) compared to the third quarter. The increase was primarily driven by warehouse loan growth and the impact of lower rates on deposit
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costs, which was partially offset by lower yields on earning assets. Average earning assets increased $1.4 billion, reflecting an increase of $1.3 billion in average total loans, primarily warehouse, partially offset by a $0.3 billion decrease in average investment securities.

The net interest margin in the fourth quarter was 2.78 percent, flat to 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 4 basis points to 2.98 percent in the fourth quarter, compared to adjusted net interest margin of 2.94 percent in the prior quarter. The increase in the adjusted net interest margin was primarily driven by an increase in higher yielding warehouse loans and lower rates on deposits. Retail banking deposit rates decreased 18 basis points driven by the expiration of promotional rates on some of our savings deposits and the maturity of higher cost time deposits. This improvement more than offset the impact of declining interest rates in certain other categories of loans held-for-investment.

Loans held-for-investment averaged $15.7 billion for the fourth quarter, increasing $0.9 billion (6 percent) from the prior quarter. The increase was primarily driven by $1.3 billion (22 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 $0.2 billion (5 percent) lower average consumer loans, primarily due to a decrease in our residential first mortgage portfolio and $0.2 billion (12 percent) lower commercial and industrial loans.

Average total deposits were $21.1 billion in the fourth quarter, increasing $1.5 billion (8 percent) from the third quarter. Average custodial deposits increased $1.2 billion (16 percent) due to higher prepayments from refinancing and average demand and savings deposits and government deposits increased $0.5 billion (6 percent).

Provision for Credit Losses

The provision for credit losses was $2 million for the fourth quarter, as compared to $32 million for the third quarter 2020. Our allowance for credit losses remained flat as compared to the balance as of September 30, 2020, due to continued economic uncertainty caused by COVID-19. We continue to believe the economic recovery will be challenged by the COVID-19 pandemic for an extended period of time and significant uncertainty remains related to distribution of the vaccines and government stimulus, especially as it affects consumer loan forbearance and the commercial real estate sector.
Noninterest Income

Noninterest income decreased $115 million to $337 million in the fourth quarter, as compared to $452 million for the third quarter, primarily due to lower mortgage revenues.

Fourth quarter net gain on loan sales decreased $114 million, to $232 million, as compared to $346 million in the third quarter 2020. The net gain on loan sale margin decreased 38 basis points, to 1.93 percent for the fourth quarter 2020, as compared to 2.31 percent for the third quarter 2020. Fallout-adjusted locks decreased $3 billion, or 20 percent, to $12.0 billion, reflecting seasonal holiday factors which were partially offset by the continued strength of the mortgage environment due to lower rates.

Lower mortgage rates continued to drive refinance activity causing prepayment speeds to be elevated, resulting in a $12 million decrease in the net return on mortgage servicing rights in the fourth quarter 2020, compared to a $12 million net return for the third quarter.

Loan fees and charges increased $8 million, to $53 million for the fourth quarter, compared to $45 million for the third quarter, primarily due to higher loss mitigation and forbearance fee income on subserviced loans despite a 9 percent decrease in mortgage closings.
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Mortgage Metrics
As of/Three months endedChange (% / bps)
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
SeqYr/Yr
(Dollars in millions)
Mortgage rate lock commitments (fallout-adjusted) (1) (2)$12,000 $15,000 $13,800 $11,200 $8,200 (20)%47%
Mortgage loans closed (1)$13,100 $14,400 $12,200 $8,600 $9,300 (9)%41%
Net margin on mortgage rate lock commitments (fallout-adjusted) (2) 1.93 %2.31 %2.19 %0.80 %1.23 %(38)70
Net gain on loan sales$232 $346 $303 $90 $101 (33)%N/M
Net return (loss) on mortgage servicing rights (MSR)$— $12 $(8)$$(3)N/MN/M
Gain on loan sales + net return on the MSR$232 $358 $295 $96 $98 (35)%N/M
Loans serviced (number of accounts - 000's) (3)1,085 1,105 1,042 1,082 1,091 (2)%(1)%
Capitalized value of MSRs0.86 %0.85 %0.87 %0.95 %1.21 %1(35)
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 $319 million for the fourth quarter, compared to $305 million for the third quarter. This increase was primarily due to a $7 million loss recognized on the early redemption of senior notes due July 15, 2021 which will settle in January, $3 million due to hiring in the mortgage and servicing business to expand capacity, and an additional $2 million was contributed to the Flagstar Foundation during the quarter to further the community in light of the pandemic and ongoing economic conditions.

Mortgage expenses were $155 million for the fourth quarter, an increase of $7 million compared to the prior quarter. The ratio of mortgage noninterest expense to closings – our mortgage expense ratio – was 1.18 percent an increase of 16 basis points quarter over quarter, primarily driven by efforts to expand capacity and a higher retail channel mix.

The Company's efficiency ratio was 61 percent for the fourth quarter, as compared to 48 percent for the third quarter, primarily driven higher due to the extraordinary levels of gain on sale margin in the third quarter.

Income Taxes

The fourth quarter provision for income taxes totaled $51 million, with an effective tax rate of 24.8 percent, compared to $73 million and an effective tax rate of 24.7 percent for the third quarter. Our effective tax rate remained flat primarily due to a non-recurring tax impact of $2 million from final sale of stock by a shareholder that formerly held more than 50 percent of our outstanding shares.
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Asset Quality
Credit Quality Ratios
As of/Three Months EndedChange (% / bps)
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
SeqYr/Yr
(Dollars in millions)
Allowance for credit losses (2)$280 $280 $250 $152 $110 —%N/M
Credit reserves to LHFI1.73 %1.70 %1.69 %1.10 %0.91 %382
Credit reserves to LHFI excluding warehouse3.20 %3.07 %2.60 %1.54 %1.12 %13208
Charge-offs, net of recoveries$$$$$—%(33)%
Total nonperforming LHFI and TDRs$57 $45 $33 $29 $26 27%119%
Net charge-offs to LHFI ratio (annualized)0.04 %0.05 %0.11 %0.08 %0.10 %(1)(6)
Ratio of nonperforming LHFI and TDRs to LHFI0.34 %0.28 %0.22 %0.21 %0.21 %613
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
Residential first mortgage 0.11 %0.07 %0.26 %0.08 %0.08 %43
Home equity and other consumer0.06 %0.23 %0.28 %0.28 %0.49 %(17)(43)
Commercial real estate— %(0.01)%0.01 %(0.01)%— %1
Commercial and industrial 0.21 %0.06 %0.08 %0.09 %0.07 %1514
N/M - Not meaningful
    (1) Excludes loans carried under the fair value option.
(2) Includes the allowance for loan losses and the reserve on unfunded commitments.

The allowance for credit losses was $280 million and covered 1.73 percent of loans held-for-investment at December 31, 2020, a 3 basis point increase from September 30, 2020. Excluding warehouse loans, the allowance coverage ratio was 3.20 percent, a 13 basis point increase from September 30, 2020.

Net charge-offs in the fourth quarter 2020 remained low at $2 million, or 4 basis points of LHFI, compared to $2 million, or 5 basis points in the prior quarter.

Nonperforming loans were $57 million and our ratio of nonperforming loans to loans held-for-investment was 34 basis points at December 31, 2020, a 6 basis point increase compared to September 30, 2020. The increase was due to two commercial borrowers totaling $7 million in exposure that were placed on nonaccrual during the quarter. At December 31, 2020, early stage loan delinquencies totaled $36 million, or 22 basis points, of total loans, compared to $13 million, or 8 basis points, at September 30, 2020.

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Capital
Capital Ratios (Bancorp)Change (% / bps)
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
SeqYr/Yr
Tier 1 leverage (to adj. avg. total assets)7.71 %8.04 %7.76 %8.09 %7.57 %(33)14
Tier 1 common equity (to RWA)9.15 %9.21 %9.11 %9.17 %9.32 %(6)(17)
Tier 1 capital (to RWA)10.23 %10.31 %10.33 %10.52 %10.83 %(8)(60)
Total capital (to RWA)11.89 %11.29 %11.32 %11.18 %11.52 %6037
Tangible common equity to asset ratio (1)6.58 %6.90 %6.58 %6.25 %6.95 %(32)(37)
Tangible book value per share (1) $38.80 $35.60 $31.74 $29.52 $28.57 9%36%
(1)See Non-GAAP Reconciliation for further information.

The Company maintained a solid capital position with regulatory ratios 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-investment 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 10.77 percent and a total risk-based capital ratio of 14.00 percent at December 31, 2020.

Importantly, tangible book value per share grew to $38.80, up $3.20 from last quarter and an increase of $10.23, or 36 percent, in 2020.

Earnings Conference Call

As previously announced, the Company's fourth quarter 2020 earnings call will be held Thursday, January 21, 2021 at 11 a.m. (ET).

To join the call, please dial (888) 204-4368 toll free or (856) 344-9299 and use passcode 3619451. 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 3619451.

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 $31.0 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 158 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 103 retail locations in 28 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 almost 1.1 million borrowers. For more information, please visit flagstar.com.

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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. 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.
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Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
December 31,
2020
September 30,
2020
December 31,
2019
Assets
Cash$251 $194 $220 
Interest-earning deposits372 86 206 
Total cash and cash equivalents623 280 426 
Investment securities available-for-sale1,944 2,165 2,116 
Investment securities held-to-maturity377 440 598 
Loans held-for-sale7,098 5,372 5,258 
Loans held-for-investment16,227 16,476 12,129 
Loans with government guarantees2,516 2,500 736 
Less: allowance for loan losses(252)(255)(107)
Total loans held-for-investment and loans with government guarantees, net18,491 18,721 12,758 
Mortgage servicing rights329 323 291 
Federal Home Loan Bank stock377 377 303 
Premises and equipment, net392 410 416 
Goodwill and intangible assets157 160 170 
Other assets1,250 1,228 930 
Total assets$31,038 $29,476 $23,266 
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits$9,458 $9,429 $5,467 
Interest-bearing deposits10,515 10,516 9,679 
Total deposits19,973 19,945 15,146 
Short-term Federal Home Loan Bank advances and other3,900 2,226 4,165 
Long-term Federal Home Loan Bank advances1,200 1,200 650 
Other long-term debt641 493 496 
GNMA repurchase options1,851 1,783 70 
Other liabilities1,272 1,634 951 
Total liabilities28,837 27,281 21,478 
Stockholders’ Equity
Common stock
Additional paid in capital1,346 1,493 1,483 
Accumulated other comprehensive income47 46 
Retained earnings807 655 303 
Total stockholders’ equity2,201 2,195 1,788 
Total liabilities and stockholders’ equity$31,038 $29,476 $23,266 














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Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
Change compared to:
Three Months Ended3Q204Q19
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
AmountPercentAmountPercent
Interest Income
Total interest income$212 $206 $201 $201 $213 $%$(1)— %
Total interest expense23 26 33 53 61 (3)(12)%(38)(62)%
Net interest income189 180 168 148 152 %37 24 %
Provision for credit losses32 102 14 — (30)(94)%N/M
Net interest income after provision for credit losses187 148 66 134 152 39 26 %35 23 %
Noninterest Income
Net gain on loan sales232 346 303 90 101 (114)(33)%131 N/M
Loan fees and charges53 45 41 26 30 18 %23 77 %
Net return (loss) on the mortgage servicing rights— 12 (8)(3)(12)N/MN/M
Loan administration income25 26 21 12 (1)(4)%17 N/M
Deposit fees and charges10 — — %(2)(20)%
Other noninterest income19 15 14 14 16 27 %19 %
Total noninterest income337 452 378 157 162 (115)(25)%175 108 %
Noninterest Expense
Compensation and benefits125 123 116 102 102 %23 23 %
Occupancy and equipment44 47 44 41 43 (3)(6)%%
Commissions70 72 61 29 35 (2)(3)%35 N/M
Loan processing expense29 24 25 20 20 21 %45 %
Legal and professional expense11 22 %22 %
Federal insurance premiums(1)(17)%(1)(17)%
Intangible asset amortization— — %(1)(25)%
Other noninterest expense32 21 34 28 26 11 52 %23 %
Total noninterest expense319 305 296 235 245 14 %74 30 %
Income before income taxes205 295 148 56 69 (90)(31)%136 197 %
Provision for income taxes51 73 32 10 11 (22)(30)%40 N/M
Net income$154 $222 $116 $46 $58 $(68)(31)%$96 166 %
Income per share
Basic$2.86 $3.90 $2.04 $0.80 $1.01 $(1.04)(27)%$1.85 183 %
Diluted$2.83 $3.88 $2.03 $0.80 $1.00 $(1.05)(27)%$1.83 183 %
Cash dividends declared$0.05 $0.05 $0.05 $0.05 $0.04 $— — %$0.01 25 %
N/M - Not meaningful

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

Twelve Months Ended Change
December 31,
2020
December 31,
2019
AmountPercent
Interest Income
Total interest income$819 $794 $25 %
Total interest expense134 232 (98)(42)%
Net interest income685 562 123 22 %
Provision for credit losses149 18 131 N/M
Net interest income after provision for credit losses536 544 (8)(1)%
Noninterest Income
Net gain on loan sales971 335 636 N/M
Loan fees and charges165 100 65 65 %
Net return on the mortgage servicing rights10 67 %
Loan administration income84 30 54 N/M
Deposit fees and charges32 38 (6)(16)%
Other noninterest income63 101 (38)(38)%
Total noninterest income1,325 610 715 117 %
Noninterest Expense
Compensation and benefits466 377 89 24 %
Occupancy and equipment176 161 15 %
Commissions232 111 121 N/M
Loan processing expense98 80 18 23 %
Legal and professional expense31 27 15 %
Federal insurance premiums24 20 20 %
Intangible asset amortization13 15 (2)(13)%
Other noninterest expense117 97 20 21 %
Total noninterest expense1,157 888 269 30 %
Income before income taxes704 266 438 165 %
Provision for income taxes166 48 118 N/M
Net income$538 $218 $320 147 %
Income per share
Basic$9.59 $3.85 $5.74 149 %
Diluted$9.52 $3.80 $5.72 151 %
Cash dividends declared$0.20 $0.16 $0.04 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 EndedTwelve Months Ended
December 31, 2020September 30,
2020
December 31, 2019December 31, 2020December 31, 2019
Selected Mortgage Statistics (1):
Mortgage rate lock commitments (fallout-adjusted) (2) $12,000 $15,000 $8,200 $52,000 $32,300 
Mortgage loans closed$13,100 $14,400 $9,300 $48,300 $32,700 
Mortgage loans sold and securitized$12,000 $14,500 $8,100 $46,900 $30,300 
Selected Ratios:
Interest rate spread (3)2.44 %2.44 %2.39 %2.40 %2.52 %
Net interest margin2.78 %2.78 %2.91 %2.80 %3.05 %
Net margin on loans sold and securitized1.92 %2.39 %1.24 %2.07 %1.10 %
Return on average assets2.08 %3.15 %0.99 %2.00 %1.05 %
Adjusted return on average assets (4) (5)2.08 %3.15 %0.99 %2.00 %0.96 %
Return on average common equity27.58 %41.54 %12.69 %26.21 %12.84 %
Return on average tangible common equity (5)30.13 %45.42 %14.76 %29.00 %15.15 %
Adjusted return on average tangible common equity (4) (5)30.13 %45.42 %14.76 %29.00 %13.87 %
Efficiency ratio60.8 %48.3 %78.2 %57.6 %75.8 %
Common equity-to-assets ratio (average for the period)7.54 %7.57 %7.83 %7.63 %8.20 %
Average Balances:
Average interest-earning assets$27,100 $25,738 $20,708 $24,431 $18,453 
Average interest-bearing liabilities $13,782 $14,281 $14,208 $14,413 $13,130 
Average stockholders' equity$2,235 $2,141 $1,803 $2,052 $1,695 
(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.
December 31,
2020
September 30,
2020
December 31,
2019
Selected Statistics:
Book value per common share $41.79 $38.41 $31.57 
Tangible book value per share (1)
$38.80 $35.60 $28.57 
Number of common shares outstanding 52,656,067 57,150,470 56,631,236 
Number of FTE employees 5,214 4,871 4,453 
Number of bank branches158 160 160 
Ratio of nonperforming assets to total assets (2)
0.21 %0.17 %0.15 %
Common equity-to-assets ratio7.09 %7.45 %7.68 %
MSR Key Statistics and Ratios:
Weighted average service fee (basis points)34.335.0 39.7 
Capitalized value of mortgage servicing rights0.86 %0.85 %1.21 %
(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
December 31, 2020September 30, 2020December 31, 2019
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Interest-Earning Assets
Loans held-for-sale$5,672 $42 2.99%$5,602 $45 3.21%$5,199 $51 3.92%
Loans held-for-investment
Residential first mortgage2,353 19 3.23%2,584 21 3.24%3,215 30 3.60%
Home equity890 3.69%951 3.77%989 12 4.86%
Other1,001 13 5.15%950 13 5.28%728 11 5.97%
Total consumer loans 4,244 40 3.78%4,485 43 3.78%4,932 53 4.20%
Commercial real estate3,064 27 3.40%3,007 27 3.47%2,763 34 4.91%
Commercial and industrial1,447 13 3.55%1,650 14 3.25%1,726 21 4.80%
Warehouse lending6,948 71 3.99%5,697 56 3.92%2,747 33 4.61%
Total commercial loans11,459 111 3.78%10,354 97 3.68%7,236 88 4.77%
Total loans held-for-investment15,703 151 3.78%14,839 140 3.71%12,168 141 4.54%
Loans with government guarantees2,478 0.73%2,122 0.89%678 2.16%
Investment securities 2,493 14 2.27%2,807 16 2.29%2,511 16 2.49%
Interest-earning deposits754 — 0.11%368 — 0.11%152 2.26%
Total interest-earning assets27,100 $212 3.09%25,738 $206 3.16%20,708 $213 4.04%
Other assets2,537 2,539 2,328 
Total assets$29,637 $28,277 $23,036 
Interest-Bearing Liabilities
Retail deposits
Demand deposits$1,842 $— 0.07%$1,824 $— 0.09%$1,448 $0.70%
Savings deposits3,847 0.20%3,675 0.34%3,335 10 1.19%
Money market deposits693 — 0.07%733 — 0.09%700 — 0.35%
Certificates of deposit1,415 1.18%1,672 1.62%2,459 15 2.37%
Total retail deposits7,797 0.33%7,904 11 0.53%7,942 28 1.39%
Government deposits1,579 0.26%1,403 0.35%1,192 1.39%
Wholesale deposits and other1,010 1.69%953 1.77%666 2.36%
Total interest-bearing deposits10,386 12 0.46%10,260 16 0.62%9,800 36 1.46%
Short-term FHLB advances and other1,598 0.20%2,328 0.20%3,262 15 1.74%
Long-term FHLB advances1,200 1.03%1,200 1.03%650 1.43%
Other long-term debt598 4.47%493 4.52%496 5.45%
Total interest-bearing liabilities13,782 23 0.65%14,281 26 0.72%14,208 61 1.65%
Noninterest-bearing deposits
Retail deposits and other2,155 1,954 1,332 
Custodial deposits (1)8,527 7,347 4,772 
Total noninterest-bearing deposits10,682 9,301 6,104 
Other liabilities 2,938 2,554 921 
Stockholders' equity2,235 2,141 1,803 
Total liabilities and stockholders' equity$29,637 $28,277 $23,036 
Net interest-earning assets$13,318 $11,457 $6,500 
Net interest income$189 $180 $152 
Interest rate spread (2)2.44%2.44%2.39%
Net interest margin (3)2.78%2.78%2.91%
Ratio of average interest-earning assets to interest-bearing liabilities196.6 %180.2 %145.8 %
Total average deposits$21,068 $19,561 $15,904 
(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)
Twelve Months Ended,
December 31, 2020December 31, 2019
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Interest-Earning Assets
Loans held-for-sale$5,542 $184 3.33 %$3,952 $170 4.30 %
Loans held-for-investment
Residential first mortgage2,704 92 3.36 %3,173 115 3.61 %
Home equity965 39 4.01 %871 46 5.31 %
Other912 49 5.38 %566 36 6.33 %
Total consumer loans4,581 180 3.90 %4,610 197 4.26 %
Commercial real estate3,030 116 3.77 %2,502 136 5.38 %
Commercial and industrial1,692 63 3.65 %1,708 88 5.10 %
Warehouse lending4,694 190 3.98 %2,112 107 4.99 %
Total commercial loans9,416 369 3.86 %6,322 331 5.17 %
Total loans held-for-investment13,997 549 3.87 %10,932 528 4.79 %
Loans with government guarantees1,571 15 1.04 %553 15 2.66 %
Investment securities2,943 70 2.37 %2,845 77 2.71 %
Interest-earning deposits378 0.33 %171 2.35 %
Total interest-earning assets$24,431 $819 3.33 %$18,453 $794 4.28 %
Other assets2,477 2,221 
Total assets$26,908 $20,674 
Interest-Bearing Liabilities
Retail deposits
Demand deposits$1,763 $0.27 %$1,345 $11 0.77 %
Savings deposits3,597 19 0.52 %3,220 36 1.13 %
Money market deposits707 0.15 %736 0.32 %
Certificates of deposit1,831 32 1.83 %2,536 59 2.31 %
Total retail deposits7,898 58 0.73 %7,837 108 1.37 %
Government deposits1,301 0.56 %1,186 17 1.46 %
Wholesale deposits and other821 16 1.94 %554 13 2.36 %
Total interest-bearing deposits10,020 81 0.81 %9,577 138 1.44 %
Short-term FHLB advances and other2,807 16 0.58 %2,633 59 2.23 %
Long-term FHLB advances1,066 12 1.10 %425 1.59 %
Other long-term debt520 25 4.80 %495 28 5.65 %
Total interest-bearing liabilities14,413 134 0.93 %13,130 232 1.76 %
Noninterest-bearing deposits
Retail deposits and other1,799 1,291 
Custodial deposits (1)6,725 3,839 
Total noninterest-bearing deposits8,524 5,130 
Other liabilities1,919 719 
Stockholders' equity2,052 1,695 
Total liabilities and stockholders' equity$26,908 $20,674 
Net interest-earning assets$10,018 $5,323 
Net interest income$685 $562 
Interest rate spread (2)2.40 %2.52 %
Net interest margin (3)2.80 %3.05 %
Ratio of average interest-earning assets to interest-bearing liabilities169.5 %140.5 %
Total average deposits18,544 14,708 
(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.
13


Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
Three Months EndedTwelve Months Ended
December 31,
2020
September 30
2020
December 31, 2019December 31,
2020
December 31, 2019
Net Income $154 $222 $58 $538 $218 
Weighted average common shares outstanding 53,912,584 57,032,746 56,513,890 56,094,542 56,584,238 
Stock-based awards431,382347,063684,844 411,271654,740 
Weighted average diluted common shares54,343,966 57,379,809 57,198,734 56,505,813 57,238,978 
Basic earnings per common share$2.86 $3.90 $1.01 $9.59 $3.85 
Stock-based awards(0.03)(0.02)(0.01)(0.07)(0.05)
Diluted earnings per common share$2.83 $3.88 $1.00 $9.52 $3.80 


Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
AmountRatioAmountRatioAmountRatio
Tier 1 leverage (to adjusted avg. total assets)$2,270 7.71 %$2,256 8.04 %$1,826 8.00 %
Total adjusted avg. total asset base$29,444 $28,069 $22,830 
Tier 1 common equity (to risk weighted assets)$2,030 9.15 %$2,016 9.21 %$1,586 9.62 %
Tier 1 capital (to risk weighted assets)$2,270 10.23 %$2,256 10.31 %$1,826 11.07 %
Total capital (to risk weighted assets)$2,638 11.89 %$2,471 11.29 %$1,936 11.74 %
Risk-weighted asset base$22,190 $21,882 $16,493 


Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
AmountRatioAmountRatioAmountRatio
Tier 1 leverage (to adjusted avg. total assets)$2,390 8.12 %$2,212 7.89 %$1,752 7.71 %
Total adjusted avg. total asset base29,437 $28,051 22,727 
Tier 1 common equity (to risk weighted assets)$2,390 10.77 %$2,212 10.11 %$1,752 11.04 %
Tier 1 capital (to risk weighted assets)$2,390 10.77 %$2,212 10.11 %$1,752 11.04 %
Total capital (to risk weighted assets)$2,608 11.75 %$2,427 11.09 %$1,862 11.73 %
Risk-weighted asset base22,194 $21,882 $15,873 
14


Loans Serviced
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
Unpaid Principal Balance (1)Number of accountsUnpaid Principal Balance (1)Number of accountsUnpaid Principal Balance (1)Number of accounts
Subserviced for others (2)$178,606 867,799 $180,981 893,559 $194,638 918,662 
Serviced for others (3)38,026 151,081 37,908 148,868 24,003 105,469 
Serviced for own loan portfolio (4)10,079 66,519 8,469 62,486 9,536 66,526 
Total loans serviced$226,711 1,085,399 $227,358 1,104,913 $228,177 1,090,657 
(1)UPB, net of write downs, does not include premiums or discounts.
(2)Loans subserviced for a fee for non-Flagstar owned loans or MSRs. Includes temporary short-term subservicing performed as a result of sales of servicing-released MSRs.
(3)Loans for which Flagstar owns the MSR.
(4)Includes LHFI (residential first mortgage, home equity and other consumer), LHFS (residential first mortgage), loans with government guarantees (residential first mortgage), and repossessed assets.

Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
Consumer loans
Residential first mortgage$2,266 14.0 %$2,472 15.0 %$3,154 26.0 %
Home equity856 5.3 %924 5.6 %1,024 8.4 %
Other1,004 6.1 %973 5.9 %729 6.0 %
Total consumer loans4,126 25.4 %4,369 26.5 %4,907 40.4 %
Commercial loans
Commercial real estate3,061 18.9 %2,996 18.2 %2,828 23.3 %
Commercial and industrial1,382 8.5 %1,520 9.2 %1,634 13.5 %
Warehouse lending7,658 47.2 %7,591 46.1 %2,760 22.8 %
Total commercial loans12,101 74.6 %12,107 73.5 %7,222 59.6 %
Total loans held-for-investment$16,227 100.0 %$16,476 100.0 %$12,129 100.0 %

Other Consumer Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
Indirect Lending$713 71.0 %$710 73.0 %$578 79.3 %
Point of Sale211 21.0 %20220.8 %63 8.6 %
Other80 8.0 %616.3 %88 12.1 %
Total other consumer loans$1,004 100.0 %$973 100.0 %$729 100.0 %
15


Allowance for Credit Losses
(Dollars in millions)
(Unaudited)
December 31, 2020September 30, 2020December 31, 2019
Residential first mortgage$49 $52 $22 
Home equity25 29 14 
Other39 38 
Total consumer loans113 119 42 
Commercial real estate84 89 38 
Commercial and industrial51 42 22 
Warehouse lending 
Total commercial loans139 136 65 
Allowance for loan losses252 255 107 
Reserve for unfunded commitments28 25 
Allowance for credit losses$280 $280 $110 


16


Allowance for Credit Losses
(Dollars in millions)
(Unaudited)
Three Months Ended December 31, 2020
Residential First MortgageHome EquityOther ConsumerCommercial Real EstateCommercial and IndustrialWarehouse LendingTotal LHFI Portfolio (1)Unfunded Commitments
Beginning balance$52 $29 $38 $89 $42 $$255 $25 
Provision (benefit) for credit losses:
Loan volume(2)(2)(2)— (4)
Economic forecast (2)(6)(6)(2)— — (1)(15)— 
Credit (3)(1)(2)(4)— — — 
Qualitative factor adjustments (4)(6)— 14 — 
Charge-offs(1)— (1)— (1)— (3)— 
Provision for charge-offs— — — — 
Recoveries— — — — — — 
Ending allowance balance$49 $25 $39 $84 $51 $$252 $28 
(1) Excludes loans carried under the fair value option.
(2) Includes changes in the lifetime loss rate based on current economic forecasts as compared to forecasts used in the prior quarter.
(3) Includes changes in the probability of default and severity of default based on current borrower and guarantor characteristics, as well as individually evaluated reserves.
(4) Includes $7 million of unallocated reserves attributed to various portfolios for presentation purposes.

Twelve Months Ended December 31, 2020
Residential First MortgageHome EquityOther ConsumerCommercial Real EstateCommercial and IndustrialWarehouse LendingTotal LHFI Portfolio (1)Unfunded Commitments
(Dollars in millions)
Beginning balance ALLL$22 $14 $$38 $22 $$107 $
Impact of adopting ASC 32625 12 10 (14)(6)(4)23 
Beginning allowance balance47 26 16 24 16 130 10 
Provision (benefit) for credit losses:
Loan volume(10)(4)(3)(4)
Economic forecast (2)(6)15 (3)(1)13 11 
Credit (3)(5)(3)(2)23 20 — 33 — 
Qualitative factor adjustments (4)12 11 19 21 74 — 
Charge-offs(6)(3)(5)— (1)— (15)— 
Provision for charge-offs—