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Section 1: 8-K (8-K)

fbc-20200728
false000103301200010330122020-07-282020-07-28

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2020
 
404762599_fbc-20200728_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 July 28, 2020, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended June 30, 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 June 30, 2020 as part of its Quarterly Report on Form 10-Q.

On July 28, 2020, the Company will hold a conference call to review second 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:July 28, 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



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EXHIBIT 99.1
NEWS RELEASE
For more information, contact:  
Kenneth Schellenberg
FBCInvestorRelations@flagstar.com
(248) 312-5741
               
                 
Flagstar Bancorp Reports Second Quarter 2020 Net Income of $116 Million, or $2.03 Per Diluted Share

Key Highlights - Second Quarter 2020

Posted best results in company history, validating strength of business model
Expanded net interest margin by 5 basis points and increased net interest income by $20 million
Achieved mortgage revenues of $295 million, driven by strong gain on sale margin
Increased the allowance for credit losses, driving the coverage ratio to 1.69 percent; 2.60 percent, excluding warehouse
Achieved stable capital ratios from balance sheet growth in low-risk asset categories

TROY, Mich., July 28, 2020 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, today reported second quarter 2020 net income of $116 million, or $2.03 per diluted share, compared to first quarter 2020 net income of $46 million, or $0.80 per diluted share and second quarter 2019 net income of $61 million, or $1.06 per diluted share.

“We posted outstanding results for the quarter, the best in the company’s history,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "All cylinders were firing in mortgage as we got a lift from a market that was super-charged and banking and servicing continued to provide stable and consistent earnings.

“Results were further bolstered by the strategic way we managed volume and sales channels to maximize revenue. Banking came in strong, too, with net interest margin up an impressive 5 basis points, and a $20 million increase in net interest income, despite a difficult interest rate backdrop. And we held our ground in servicing, despite high levels of prepayments.

“It’s important to note that we earned over $2.00 per share even while setting aside $100 million for loan losses, which raised our credit reserves to $250 million. This pushed our coverage ratio to 1.69 percent overall and 2.60 percent, excluding our warehouse business which has a history of virtually no losses. This was a provision largely driven by the uncertainty around the pandemic and the conservative approach we took within the CECL framework of modeling-in economic variables.

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“Our commercial customers are holding up well to this point and forbearance trends have been positive throughout the quarter. Also noteworthy is the growth in net interest margin in a challenging rate environment. Taken together, we believe these factors position us well for whatever COVID-19 may bring in the future.

"Mortgage took center stage with revenue of $295 million, largely on the strength of gain on sale margin which expanded 139 basis points, to 219 basis points and a 24 percent increase in fallout adjusted locks from the prior quarter. We capitalized on market opportunities, leveraged the diversity of our platform and shifted our product and channel mix to optimize results. This, along with stronger secondary market performance resulted in net gain on loan sales of $303 million.

“We closed the quarter servicing or subservicing slightly more than 1 million loans, which despite high prepayment activity, was generally consistent with the prior quarter. We did this by leveraging our ability to tap into our mortgage origination business to replace loans that prepaid.

"Additionally, our expense discipline contributed to $180 million of pre-provision net revenue growth compared to the prior quarter. The expense increases we did have this quarter were largely attributable to variable costs associated with the strong performance in mortgage leading to our efficiency ratio of 54 percent.

“Like the first quarter, our results in the second quarter reflect the power of our business model. Mortgage was a standout, but the contribution of our warehouse business, our net interest income and margin in banking, and the consistency of our servicing business and the related fee income highlight our unique and diversified business mix. The combination of these items drove strong capital generation, resulting in a tangible book value per share of $31.74 at quarter end.

"I would be remiss if I didn’t comment on the horrific events that gripped the nation during the quarter and how they have inspired us as a company to open a dialogue about social and racial inequities and be a catalyst for change. For starters, we realized that in order to create a work environment where employees could be themselves and do their best work we had to acknowledge what was happening in the outside world. So, we listened to our employees and did everything from pulling our advertising from Facebook in July to support the Stop Hate for Profit initiative, to holding “Let’s Talk About It” panel discussions about current events. We’re pledging $1 million dollars in grants to minority owned small businesses and another $1 million to nonprofits that support diversity, equity and inclusion. Additionally, our board of directors has approved adding two new directors to the board who will be women representing minority groups. Reversing decades of systemic inequities is a marathon and not a sprint, but we are committed to making our company and our communities fairer and more equitable for all. We’re off and running.

“As for our financial performance, we don’t know what lies ahead, but we continue to show the strength of our unique business model in a range of economic environments. This quarter was extraordinary, but it stands on the shoulders of many other quarters where we turned in solid, consistent results from a business model designed to do just that.”
Income Statement Highlights
Three Months Ended
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
(Dollars in millions)
Net interest income $168  $148  $152  $146  $138  
Provision for credit losses 102  14  —   17  
Noninterest income 378  157  162  171  168  
Noninterest expense 296  235  245  238  214  
Income before income taxes 148  56  69  78  75  
Provision for income taxes 32  10  11  15  14  
Net income$116  $46  $58  $63  $61  
Income per share:
Basic$2.04  $0.80  $1.01  $1.12  $1.08  
Diluted$2.03  $0.80  $1.00  $1.11  $1.06  

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Adjusted Income Statement Highlights (Non-GAAP) (1)
Three Months Ended
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
(Dollars in millions)
Net interest income$168  $148  $152  $146  $138  
Provision for credit losses 102  14  —   17  
Noninterest income 378  157  162  171  143  
Noninterest expense296  235  245  238  214  
Income before income taxes 148  56  69  78  50  
Provision for income taxes 32  10  11  15   
Net income $116  $46  $58  $63  $41  
Income per share:
Basic$2.04  $0.80  $1.01  $1.12  $0.72  
Diluted$2.03  $0.80  $1.00  $1.11  $0.71  
(1)See Non-GAAP Reconciliation for further information.
Key Ratios
Three Months Ended
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
Net interest margin 2.86 %2.81 %2.91 %3.05 %3.08 %
Return on average assets1.8 %0.8 %1.0 %1.2 %1.2 %
Return on average common equity 23.5 %9.8 %12.7 %14.7 %14.6 %
Efficiency ratio54.3 %77.1 %78.2 %75.2 %69.8 %
HFI loan-to-deposit ratio76.7 %74.9 %76.5 %74.2 %75.0 %
Adjusted HFI loan-to-deposit ratio (1)85.4 %86.3 %84.6 %82.0 %80.6 %
(1)Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.

Average Balance Sheet Highlights
Three Months Ended% Change
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
SeqYr/Yr
(Dollars in millions)
Average interest-earning assets $23,692  $21,150  $20,708  $18,997  $17,759  12 %33 %
Average loans held-for-sale (LHFS)5,645  5,248  5,199  3,786  3,539  %60 %
Average loans held-for-investment (LHFI)13,596  11,823  12,168  11,743  10,613  15 %28 %
Average total deposits 17,715  15,795  15,904  15,817  14,159  12 %25 %

Net Interest Income

Net interest income in the second quarter of 2020 was $168 million, an increase of $20 million (14 percent) compared to the first quarter 2020. The increase was primarily driven by loan growth, the impact of lower interest rates on deposits, and lower borrowing costs, partially offset by lower yields on earnings assets. Average earnings assets increased $2.5 billion, reflecting increases of $2.2 billion in average total loans and $0.4 billion in average investment securities.

The net interest margin in the second quarter of 2020 was 2.86 percent, a 5 basis point increase from the prior quarter. The increase in the net interest margin was primarily driven by the expiration of promotional rates on some of our savings deposits and the maturity of higher cost time deposits, combined with lower short-term FHLB borrowing costs. This increase more than offset the impact declining interest rates and a lower yield curve had on the loans held-for-investment portfolio. Our cost of interest-bearing deposits in the second quarter of 2020 was 86 bps, which declined from 133 basis points in the prior quarter, representing a 47 basis point decrease.

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Loans held-for-investment averaged $13.6 billion for the second quarter of 2020, increasing $1.8 billion (15 percent) from the prior quarter, primarily driven by $1.5 billion (64 percent) higher average warehouse loan balances as we grew our business and took advantage of the strong mortgage market and $0.3 billion of paycheck protection program loans.

Average total deposits were $17.7 billion in the second quarter 2020, increasing $1.9 billion (12 percent) from the first quarter 2020. Average custodial deposits increased $1.4 billion (30 percent) due to higher prepayments from refinancing and average retail deposits increased $0.4 billion (4 percent) largely due to COVID-19 pandemic impact on the behavior and spending patterns for consumers and conservative commercial depositors carrying higher cash balances.

Provision for Credit Losses

The provision for credit losses was $102 million for the second quarter 2020, as compared to $14 million for the first quarter 2020. The increase was primarily driven by our forecast of economic conditions. These forecasts reflect our view that the economy will continue to be challenged by the response to the COVID-19 pandemic, especially in the commercial real estate sector, for an extended period of time.
Noninterest Income

Noninterest income increased $221 million to $378 million in the second quarter 2020, as compared to $157 million for the first quarter 2020, primarily due to higher mortgage revenues.

Second quarter 2020 net gain on loan sales increased $213 million, to $303 million, as compared to $90 million in the first quarter 2020. The net gain on loan sale margin increased 139 basis points, to 2.19 percent for the second quarter 2020, as compared to 0.80 percent for the first quarter 2020. The extraordinary gain on sale margin increase was primarily driven by our response to market conditions and higher originations in our retail channel. Fallout-adjusted locks increased $2.7 billion, or 24 percent, to $13.8 billion, as historically low interest rates fueled a strong refinance market and state re-openings brought the purchase market to life.

Net return on mortgage servicing rights decreased $14 million, to an $8 million net loss for the second quarter of 2020, compared to a $6 million net gain for the first quarter 2020, primarily driven by higher prepayments.

Loan fees and charges increased $15 million, to $41 million for the second quarter of 2020, compared to $26 million for the first quarter 2020, resulting from a 41 percent increase in mortgage closings.
Mortgage Metrics
As of/Three months endedChange (% / bps)
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
SeqYr/Yr
(Dollars in millions)
Mortgage rate lock commitments (fallout-adjusted) (1) $13,811  $11,154  $8,179  $9,197  $8,344  24 %66 %
Mortgage loans closed$12,156  $8,591  $9,303  $9,263  $8,641  41 %41 %
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) 2.19 %0.80 %1.23 %1.20 %0.89 %139130
Net gain on loan sales$303  $90  $101  $110  $75  N/MN/M
Net return on mortgage servicing rights (MSR)$(8) $ $(3) $(2) $ N/MN/M
Gain on loan sales + net return on the MSR$295  $96  $98  $108  $80  N/MN/M
Loans serviced (number of accounts - 000's) (2)1,042  1,082  1,091  994  983  (4)%%
Capitalized value of MSRs0.87 %0.95 %1.21 %1.14 %1.23 %(8)(36) 
N/M - Not meaningful
(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 loans serviced for Flagstar's own loan portfolio, serviced for others, and subserviced for others.
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Noninterest Expense

Noninterest expense increased to $296 million for the second quarter 2020, compared to $235 million for the first quarter 2020, primarily reflecting a $53 million increase in mortgage-related expenses due to higher mortgage volumes. Mortgage expense relative to closings increased during the quarter due to higher retail channel mix. Additionally, compensation and benefits expense increased $14 million from the prior quarter, primarily driven by higher variable compensation attributed to stronger financial results.

The Company's efficiency ratio was 54 percent for the second quarter 2020, as compared to 77 percent for the first quarter 2020.

Income Taxes

The second quarter 2020 provision for income taxes totaled $32 million, with an effective tax rate of 21.5 percent, compared to $10 million and an effective tax rate of 18.4 percent for the first quarter 2020. The higher rate was the result of our higher level of income in the second quarter, which is taxed at higher marginal tax rates. Also contributing to the higher rate is a greater percentage of earnings in higher state tax jurisdictions, lower tax benefits for stock-based compensation and higher FDIC expenses, which are not deductible.
Asset Quality
Credit Quality Ratios
As of/Three Months EndedChange (% / bps)
June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
SeqYr/Yr
(Dollars in millions)
Allowance for credit losses$250  $152  $110  $113  $113  64%N/M
Credit reserves to LHFI1.69 %1.10 %0.91 %0.90 %0.97 %5972
Charge-offs, net of recoveries$ $ $ $ $34  50%(91)%
Total nonperforming LHFI and TDRs$33  $29  $26  $26  $63  14%(48)%
Net charge-offs to LHFI ratio (annualized)0.11 %0.08 %0.10 %0.02 %1.29 %3(118)
Ratio of nonperforming LHFI and TDRs to LHFI0.22 %0.21 %0.21 %0.21 %0.54 %1(32)
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
Residential first mortgage 0.26 %0.08 %0.08 %0.07 %0.11 %N/MN/M
Home equity and other consumer0.28 %0.28 %0.49 %0.27 %0.71 %(61)
Commercial real estate0.01 %(0.01)%— %— %— %N/MN/M
Commercial and industrial 0.08 %0.09 %0.07 %(0.22)%7.11 %(11)N/M
N/M - Not meaningful
        (1) Excludes loans carried under the fair value option.

The allowance for credit losses was $250 million and covered 1.69 percent of loans held-for-investment at June 30, 2020, a 59 basis point increase from March 31, 2020. The increase in the allowance coverage reflects our forecast of economic conditions and reflects our view that the economy will continue to be challenged by the response to the COVID-19 pandemic for an extended period of time. Excluding warehouse loans, the allowance coverage ratio was 2.60 percent, a 106 basis point increase from March 31, 2020.

Net charge-offs in the second quarter 2020 were negligible at $3 million, or 11 basis points of LHFI, compared to $2 million, or 8 basis points in the prior quarter.

5


Nonperforming loans were $33 million and our ratio of nonperforming loans to loans held-for-investment was 22 basis points at June 30, 2020, flat compared to March 31, 2020. There were no nonperforming commercial loans. At June 30, 2020, early stage loan delinquencies totaled $15 million, or 0.10 percent, of total loans, compared to $26 million, or 0.19 percent, at March 31, 2020.

Capital
Capital Ratios (Bancorp)Change (% / bps)
June 30, 2020March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
SeqYr/Yr
Tier 1 leverage (to adj. avg. total assets)7.76 %8.09 %7.57 %7.98 %7.94 %(33)(18)
Tier 1 common equity (to RWA)9.11 %9.17 %9.32 %9.25 %9.08 %(6)3
Tier 1 capital (to RWA)10.33 %10.52 %10.83 %10.81 %10.73 %(19)(40)
Total capital (to RWA)11.32 %11.18 %11.52 %11.54 %11.51 %14(19)
Tangible common equity to asset ratio (1)6.58 %6.25 %6.95 %7.08 %7.31 %33(73)
Tangible book value per share (1) $31.74  $29.52  $28.57  $27.62  $26.16  %21 %
(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 the end of the quarter, the balance sheet increased by $1.0 billion to include loans previously sold into GNMA securities. Although we have not repurchased these loans and they are not delinquent, they are in forbearance. At a certain point, the accounting rules require us to include these as “Loans with Government Guarantees” with an offsetting amount included in “Other Liabilities.” The Company does not have exposure to credit risk from these loans. Excluding these loans that are in forbearance, the Company had a Tier 1 common equity ratio of 10.52 percent, a total risk-based capital ratio of 11.52 percent, and a tangible common equity to assets ratio of 7.47 percent at June 30, 2020.

Importantly, tangible book value per share grew to $31.74, up $2.22 from last quarter and $5.58 from one year ago, which represents a 21 percent increase.

Earnings Conference Call

As previously announced, the Company's second quarter 2020 earnings call will be held Tuesday, July 28, 2020 at 11 a.m. (ET).

To join the call, please dial (800) 458-4121 toll free or (323) 794-2597 and use passcode 8266062. 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 8266062.

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 $27.5 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 89 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 $214 billion of loans representing slightly over 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 non-GAAP financial measures for 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 noninterest income, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, and adjusted basic and diluted earnings per share. 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.
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Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
June 30,
2020
March 31,
2020
December 31,
2019
June 30,
2019
Assets
Cash$204  $216  $220  $268  
Interest-earning deposits23126206  51  
Total cash and cash equivalents227342426  319  
Trading securities—  2,058  —  —  
Investment securities available-for-sale2,3482,4462,116  1,718  
Investment securities held-to-maturity496554598  661  
Loans held-for-sale5,6154,3895,258  3,345  
Loans held-for-investment14,808  13,79512,129  11,655  
Loans with government guarantees1,791814736  507  
Less: allowance for loan losses(229) (132) (107) (110) 
Total loans held-for-investment and loans with government guarantees, net16,37014,47712,758  12,052  
Mortgage servicing rights261223291  316  
Federal Home Loan Bank stock377306303  303  
Premises and equipment, net410413416  415  
Goodwill and intangible assets164167170  178  
Other assets1,2001,430930  899  
Total assets$27,468  $26,805  $23,266  $20,206  
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits$7,921  $6,551  $5,467  $4,784  
Interest-bearing deposits9,977  9,5019,6799,632
Total deposits17,89816,052  15,146  14,416  
Short-term Federal Home Loan Bank advances and other3,3545,8414,165  2,550  
Long-term Federal Home Loan Bank advances1,2001,000650  500  
Other long-term debt493493496  495  
Other liabilities2,5521,5771,021  589  
Total liabilities25,49724,96321,478  18,550  
Stockholders’ Equity
Common stock11  
Additional paid in capital1,4881,4871,483  1,477  
Accumulated other comprehensive income (loss)4631 (8) 
Retained earnings436323303  186  
Total stockholders’ equity1,9711,8421,788  1,656  
Total liabilities and stockholders’ equity$27,468  $26,805  $23,266  $20,206  











8



Flagstar Bancorp, Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
Change compared to:
Three Months Ended1Q202Q19
June 30, 2020March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
AmountPercentAmountPercent
Interest Income
Total interest income$201  $201  $213  $203  $198  $—  — %$ %
Total interest expense33  53  61  57  60  (20) (38)%(27) (45)%
Net interest income168  148  152  146  138  20  14 %30  22 %
Provision for credit losses102  14  —   17  88  N/M85  N/M
Net interest income after provision for credit losses66  134  152  145  121  (68) (51)%(55) (45)%
Noninterest Income
Net gain on loan sales303  90  101  110  75  213  N/M228  N/M
Loan fees and charges41  26  30  29  24  15  58 %17  71 %
Net return (loss) on the mortgage servicing rights(8)  (3) (2)  (14) N/M(13) N/M
Loan administration income21  12      75 %15  N/M
Deposit fees and charges  10  10  10  (2) (22)%(3) (30)%
Other noninterest income14  14  16  19  48  —  — %(34) (71)%
Total noninterest income378  157  162  171  168  221  N/M210  N/M
Noninterest Expense
Compensation and benefits116  102  102  98  90  14  14 %26  29 %
Occupancy and equipment44  41  43  40  40   % 10 %
Commissions61  29  35  38  25  32  N/M36  N/M
Loan processing expense25  20  20  22  21   25 % 19 %
Legal and professional expense     (1) (17)%(1) (17)%
Federal insurance premiums      17 % 40 %
Intangible asset amortization      33 %—  — %
Other noninterest expense34  28  26  26  23   21 %11  48 %
Total noninterest expense296  235  245  238  214  61  26 %82  38 %
Income before income taxes148  56  69  78  75  92  164 %73  97 %
Provision for income taxes32  10  11  15  14  22  N/M18  N/M
Net income$116  $46  $58  $63  $61  $70  N/M$55  90 %
Income per share
Basic$2.04  $0.80  $1.01  $1.12  $1.08  $1.24  155 %$0.96  89 %
Diluted$2.03  $0.80  $1.00  $1.11  $1.06  $1.23  154 %$0.97  92 %
Cash dividends declared$0.05  $0.05  $0.04  $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)

Six Months Ended Change
June 30,
2020
June 30,
2019
AmountPercent
Interest Income
Total interest income$402  $378  $24  %
Total interest expense86  114  (28) (25)%
Net interest income316  264  52  20 %
Provision for credit losses116  17  99  N/M
Net interest income after provision for credit losses200  247  (47) (19)%
Noninterest Income
Net gain on loan sales393  124  269  N/M
Loan fees and charges67  41  26  63 %
Net return (loss) on the mortgage servicing rights(2) 11  (13) N/M
Loan administration income33  17  16  94 %
Deposit fees and charges16  18  (2) (11)%
Other noninterest income28  66  (38) (58)%
Total noninterest income535  277  258  93 %
Noninterest Expense
Compensation and benefits218  177  41  23 %
Occupancy and equipment85  78   %
Commissions90  38  52  N/M
Loan processing expense45  38   18 %
Legal and professional expense11  12  (1) (8)%
Federal insurance premiums13    44 %
Intangible asset amortization  (1) (13)%
Other noninterest expense63  45  18  40 %
Total noninterest expense532  405  127  31 %
Income before income taxes203  119  84  71 %
Provision for income taxes42  22  20  91 %
Net income$161  $97  $64  66 %
Income per share
Basic$2.85  $1.71  $1.14  67 %
Diluted$2.83  $1.69  $1.14  67 %
Cash dividends declared$0.10  $0.08  $0.02  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 EndedSix Months Ended
June 30, 2020March 31, 2020June 30, 2019June 30, 2020June 30, 2019
Selected Mortgage Statistics:
Mortgage rate lock commitments (fallout-adjusted) (1) $13,811  $11,154  $8,344  $24,965  $14,946  
Mortgage loans closed$12,156  $8,591  $8,641  $20,747  $14,154  
Mortgage loans sold and securitized$12,874  $7,487  $8,838  $20,361  $14,008  
Selected Ratios:
Interest rate spread (2)2.52 %2.31 %2.57 %2.41 %2.63 %
Net interest margin2.86 %2.81 %3.08 %2.83 %3.08 %
Net margin on loans sold and securitized2.35 %1.19 %0.84 %1.93 %0.87 %
Return on average assets1.77 %0.78 %1.22 %1.30 %1.01 %
Adjusted return on average assets (3) (4)1.77 %0.78 %0.81 %1.30 %0.81 %
Return on average common equity23.47 %9.82 %14.58 %16.86 %11.94 %
Return on average tangible common equity (4)26.16 %11.46 %17.14 %19.07 %14.33 %
Adjusted return on average tangible common equity (3) (4)26.16 %11.46 %11.69 %19.07 %11.63 %
Efficiency ratio54.3 %77.1 %69.8 %62.5 %74.8 %
Common equity-to-assets ratio (average for the period)7.53 %7.92 %8.35 %15.42 %16.93 %
Average Balances:
Average interest-earning assets$23,692  $21,150  $17,759  $22,421  $17,030  
Average interest-bearing liabilities $15,119  $14,480  $12,898  $14,800  $12,702  
Average stockholders' equity$1,977  $1,854  $1,668  $1,915  $1,626  
(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)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)See Non-GAAP Reconciliation for further information.
(4)Excludes goodwill, intangible assets and the associated amortization. See Non-GAAP Reconciliation for further information.
June 30,
2020
March 31,
2020
December 31,
2019
June 30,
2019
Selected Statistics:
Book value per common share $34.62  $32.46  $31.57  $29.31  
Tangible book value per share (1)
$31.74  $29.52  $28.57  $26.16  
Number of common shares outstanding 56,943,979  56,729,789  56,631,236  56,483,937  
Number of FTE employees 4,641  4,415  4,453  4,026  
Number of bank branches160  160  160  160  
Ratio of nonperforming assets to total assets (2)
0.14 %0.14 %0.15 %0.36 %
Common equity-to-assets ratio7.18 %6.87 %7.68 %8.19 %
MSR Key Statistics and Ratios:
Weighted average service fee (basis points)37.0  38.8  39.7  39.7  
Capitalized value of mortgage servicing rights0.87 %0.95 %1.21 %1.23 %
(1)Excludes goodwill and intangibles of $164 million, $167 million, $170 million and $182 million at June 30, 2020, March 31, 2020, December 31, 2019, and June 30, 2019, respectively. See Non-GAAP Reconciliation for further information.
(2)Ratio excludes LHFS.
11


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
Three Months Ended
June 30, 2020March 31, 2020June 30, 2019
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Average BalanceInterestAnnualized
Yield/Rate
Interest-Earning Assets
Loans held-for-sale$5,645  $483.42 %$5,248  $49  3.72 %$3,539  $40  4.55 %
Loans held-for-investment
Residential first mortgage2,822  24  3.41 %3,062  27  3.51 %3,146  28  3.61 %
Home equity1,001   3.78 %1,019  12  4.73 %814  11  5.54 %
Other881  12  5.42 %816  12  5.77 %518   6.78 %
Total consumer loans 4,704  45  3.87 %4,897  51  4.14 %4,478  48  4.33 %
Commercial real estate3,101  28  3.64 %2,949  34  4.61 %2,394  35  5.65 %
Commercial and industrial2,006  17  3.34 %1,667  19  4.52 %1,744  23  5.26 %
Warehouse lending3,785  38  3.88 %2,310  25  4.30 %1,997  27  5.21 %
Total commercial loans8,892  83  3.67 %6,926  78  4.48 %6,135  85  5.40 %
Total loans held-for-investment13,596  128  3.74 %11,823  129  4.34 %10,613  133  4.97 %
Loans with government guarantees858   1.97 %811   1.38 %502   2.94 %
Investment securities 3,417  21  2.42 %3,060  19  2.47 %2,907  20  2.75 %
Interest-earning deposits176  —  0.11 %208   1.75 %198   2.23 %
Total interest-earning assets23,692  201  3.38 %21,150  $201  3.78 %17,759  $198  4.42 %
Other assets2,569  2,263  2,207  
Total assets$26,261  $23,413  $19,966  
Interest-Bearing Liabilities
Retail deposits
Demand deposits$1,800  $10.22 %$1,587  $ 0.75 %$1,323  $ 0.84 %
Savings deposits3,476   0.52 %3,384   1.07 %3,191   1.16 %
Money market deposits716  —  0.12 %687   0.32 %745   0.32 %
Certificates of deposit1,987  11  2.00 %2,254  12  2.24 %2,611  15  2.34 %
Total retail deposits7,979  16  0.78 %7,912  25  1.28 %7,870  28  1.42 %
Government deposits1,088   0.63 %1,131