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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 28, 2020
 
403762728_flagstarbancorpa18.jpg 
(Exact Name of Registrant as Specified in Charter)

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

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

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

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





Item 2.02
Results of Operations and Financial Condition

On April 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 March 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 March 31, 2020 as part of its Annual Report on Form 10-Q.

On April 28, 2020, the Company will hold a conference call to review first 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 9.01
Financial Statements and Exhibits
 
 Exhibits
 
 
 
 
 
99.1
  
Press release of Flagstar Bancorp, Inc. dated April 28, 2020
 
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides - Earnings Presentation First Quarter







SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
FLAGSTAR BANCORP, INC.
 
 
 
 
 
Dated:
April 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 (EXHIBIT 99.1)

Exhibit


403762728_flagstara57.jpg                403762728_fbcnyselisteda30.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
Kenneth Schellenberg
[email protected]
(248) 312-5741
                                
                                        
Flagstar Bancorp Reports First Quarter 2020 Net Income of $46 Million, or $0.80 Per Diluted Share

Key Highlights - First Quarter 2020

Transitioned smoothly to remote operations to protect the health of employees and ensure business continuity
Achieved mortgage revenues of $96 million, driven by strong refinance volume and higher return on MSRs
Effectively managed NIM compression through the challenging rate environment
Adopted CECL, increasing credit reserves to $152 million at March 31st
Ended the quarter in a solid financial position--ample capital and liquidity


TROY, Mich., April 28, 2020 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported first quarter 2020 net income of $46 million, or $0.80 per diluted share, compared to fourth quarter 2019 net income of $58 million, or $1.00 per diluted share and first quarter 2019 net income of $36 million, or $0.63 per diluted share.

“We posted strong results in the quarter,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “but the real story of the quarter was the last two weeks as our way of doing business changed and the health and safety of our employees and financial well-being of our customers took center stage. I couldn’t be more proud of the way our company has responded to the COVID-19 crisis. We executed on our business continuity plan, virtually overnight, without a hitch. Today, we are operating differently, but smoothly.

“On the business side, we’re supporting our customers by providing needed payment relief as we partner with them through this health crisis. On the community side, we have adjusted our giving priorities to support the fight against COVID-19, including nearly $1 million in financial support from the Flagstar Foundation. We are also participating in the SBA’s Paycheck Protection Program to support small business and nonprofit partners.

“Turning to our financial performance, we demonstrated the underlying strength of our diversified business model as our mortgage business was a standout, servicing was solid and banking held its own against headwinds. Compared to the fourth quarter 2019, net interest income fell $4 million, or 3 percent, reflecting only a 10 basis point decrease in net interest margin, despite a full quarter's impact from prior rate cuts and the partial impact of March rate cuts. Margin compression was partially cushioned by growth in interest earnings assets. We also adopted CECL during the quarter, which increased our credit reserves by almost 40% to $152 million.

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“We closed the quarter servicing or subservicing nearly 1.1 million loans, consistent with the prior quarter. Despite the high prepayment activity driven by lower interest rates, we held our ground in servicing which is a testament to our capability to leverage our mortgage origination business to replace loans that prepaid.

“Our mortgage team had a strong quarter, with mortgage revenues of $96 million, driven by a 36 percent increase in fallout adjusted locks and a $9 million increase in return on our mortgage servicing rights. Our gain on sale margin was 80 basis points, a strong first quarter performance despite the impact that the unprecedented Federal Reserve purchases of agency mortgage-backed securities had on our hedge effectiveness.

“Our results this quarter show the power of our business model and the reason we remain so committed to it. Thanks to our mortgage and warehouse businesses, we are uniquely positioned among banks to take advantage of the strong refinance market to carry us through what is likely to be a challenging credit and rate cycle. We understand that the rest of the year, and possibly beyond, may be like nothing we’ve ever experienced before. We are a strong company, with great people, a resilient business strategy, and an unerring commitment to do what is right, which will serve us well as we head into uncharted territory.”

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
 
(Dollars in millions)
Net interest income
$
148

$
152

$
146

$
138

$
126

Provision for credit losses
14


1

17


Noninterest income
157

162

171

168

109

Noninterest expense
235

245

238

214

191

Income before income taxes
56

69

78

75

44

Provision for income taxes
10

11

15

14

8

Net income
$
46

$
58

$
63

$
61

$
36

Income per share:
 
 
 
 
 
Basic
$
0.80

$
1.01

$
1.12

$
1.08

$
0.64

Diluted
$
0.80

$
1.00

$
1.11

$
1.06

$
0.63

Adjusted Income Statement Highlights (Non-GAAP) (1)
 
 
 
 
 
Three Months Ended
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
 
(Dollars in millions)
Net interest income
$
148

$
152

$
146

$
138

$
126

Provision for credit losses
14


1

17


Noninterest income
157

162

171

143

109

Noninterest expense
235

245

238

214

190

Income before income taxes
56

69

78

50

45

Provision for income taxes
10

11

15

9

8

Net income
$
46

$
58

$
63

$
41

$
37

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.80

$
1.01

$
1.12

$
0.72

$
0.65

Diluted
$
0.80

$
1.00

$
1.11

$
0.71

$
0.64


2


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

Key Ratios
 
 
 
 
 
Three Months Ended
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Net interest margin
2.81
%
2.91
%
3.05
%
3.08
%
3.09
%
Return on average assets
0.8
%
1.0
%
1.2
%
1.2
%
0.8
%
Return on average common equity
9.8
%
12.7
%
14.7
%
14.6
%
9.2
%
Efficiency ratio
77.1
%
78.2
%
75.2
%
69.8
%
81.3
%
HFI loan-to-deposit ratio
74.9
%
76.5
%
74.2
%
75.0
%
71.0
%
Adjusted HFI loan-to-deposit ratio (1)
86.3
%
84.6
%
82.0
%
80.6
%
77.0
%
(1)
Excludes warehouse loans and custodial deposits. See Non-GAAP Reconciliation for further information.


Average Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average interest-earning assets
$
21,150

$
20,708

$
18,997

$
17,759

$
16,294

2
 %
30
%
Average loans held-for-sale (LHFS)
5,248

5,199

3,786

3,539

3,266

1
 %
61
%
Average loans held-for-investment (LHFI)
11,823

12,168

11,743

10,613

9,164

(3
)%
29
%
Average total deposits
15,795

15,904

15,817

14,159

12,906

(1
)%
22
%

Net Interest Income

Net interest income decreased $4 million, or 3 percent, to $148 million for the first quarter 2020 as compared to the fourth quarter 2019. The results reflect a 2 percent increase in average earning assets, primarily fueled by the acquisition of investment securities. Net interest margin decreased only 10 basis points, to 2.81 percent for the first quarter 2020 as compared to the fourth quarter 2019, as we effectively managed net interest margin compression through the full impact of the prior quarter rate cut and the partial impact of the March rate cuts.

Loans held-for-investment averaged $11.8 billion for the first quarter 2020, decreasing $345 million from the prior quarter. Average warehouse loans decreased $437 million, or 16 percent, consistent with the volume decline in the overall mortgage market and average residential mortgages decreased $153 million, or 5 percent, due to loan repayments.

Average total deposits were $15.8 billion in the first quarter 2020, decreasing $109 million, or 1 percent, from the fourth quarter 2019. Average time and brokered deposits decreased $282 million, or 10 percent, as these higher costs deposits matured and were replaced with less expensive funding.

Provision for Credit Losses

The Company had provision for credit losses and unfunded commitments of $14 million for the three months ended March 31, 2020. The provision was driven by our economic forecast, which included our estimate of the impact related to COVID-19 as of March 31st, partially offset by strong asset quality and low delinquencies.
 
Noninterest Income

Noninterest income decreased $5 million to $157 million in the first quarter 2020, as compared to $162 million for the fourth quarter 2019, primarily due to lower mortgage revenues.


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First quarter 2020 net gain on loan sales decreased $11 million, or 11 percent, to $90 million, as compared to $101 million in the fourth quarter 2019. Fallout-adjusted locks increased $3.0 billion, or 36 percent, to $11.2 billion, primarily driven by the robust refinance market. The net gain on loan sale margin decreased 43 basis points, to 0.80 percent for the first quarter 2020, as compared to 1.23 percent for the fourth quarter 2019 reflecting the negative impact the Federal Reserve’s purchases of agency mortgage-backed securities in the first quarter 2020 had on our hedge effectiveness.

Net return on mortgage servicing rights increased $9 million, to $6 million for the first quarter of 2020, compared to a $3 million net loss for the fourth quarter 2019 reflecting favorable hedge performance.

Mortgage Metrics
 
 
 
 
 
 
 
As of/Three months ended
Change (% / bps)
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
11,154

$
8,179

$
9,197

$
8,344

$
6,602

36
 %
69
%
Mortgage loans closed
$
8,591

$
9,303

$
9,262

$
8,642

$
5,513

(8
)%
56
%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.80
%
1.23
%
1.20
%
0.89
%
0.72
%
(43)
8
Net gain on loan sales
$
90

$
101

$
110

$
75

$
49

(11
)%
84
%
Net return on mortgage servicing rights (MSR)
$
6

$
(3
)
$
(2
)
$
5

$
6

N/M

%
Gain on loan sales + net return on the MSR
$
96

$
98

$
108

$
80

$
55

(2
)%
75
%
Loans serviced (number of accounts - 000's) (3)
1,082

1,091

994

983

962

(1
)%
12
%
Capitalized value of MSRs
0.95
%
1.21
%
1.14
%
1.23
%
1.27
%
(26)
(32
)
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) Based on net gain on loan sales (excludes net gain on loan sales of $2 million from loans transferred from LHFI during the three months ended March 31, 2019 to fallout-adjusted mortgage rate lock commitments).
(3) Includes loans serviced for Flagstar's own loan portfolio, serviced for others, and subserviced for others.

Noninterest Expense

Noninterest expense decreased to $235 million for the first quarter 2020, as compared to $245 million for the fourth quarter 2019, primarily reflecting $9 million decrease in mortgage-related expenses--commissions and loan processing--due to lower closings.

The Company's efficiency ratio was 77 percent for the first quarter 2020, as compared to 78 percent for the fourth quarter 2019.

4


Income Taxes

The first quarter 2020 provision for income taxes totaled $10 million, compared to $11 million for the fourth quarter 2019. The effective tax rate was 18.4 percent for the first quarter 2020, compared to 16.7 percent for the fourth quarter 2019. The current economic environment has resulted in uncertainty about the timing of receiving tax benefits related to certain investments, causing the tax rate to increase.
 

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
As of/Three Months Ended
Change (% / bps)
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for credit losses and reserve for unfunded commitments
$
152

$
110

$
113

$
113

$
130

38
 %
17
 %
Credit reserves to LHFI
1.1
 %
0.9
%
0.9
 %
1.0
%
1.3
%
20
(20)
Charge-offs, net of recoveries
$
2

$
3

$
1

$
34

$
1

(33
)%
N/M

Total nonperforming LHFI and TDRs
$
29

$
26

$
26

$
63

$
24

12
 %
21
 %
Net charge-offs to LHFI ratio (annualized)
0.08
 %
0.10
%
0.02
 %
1.29
%
0.05
%
(2)

3

Ratio of nonperforming LHFI and TDRs to LHFI
0.21
 %
0.21
%
0.21
 %
0.54
%
0.24
%
0
(3)
 
 
 
 
 
 
 
 
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
 
 
Residential first mortgage
0.08
 %
0.08
%
0.07
 %
0.11
%
0.05
%

60

Home equity and other consumer
0.28
 %
0.49
%
0.27
 %
0.71
%
0.23
%
(43
)
22

Commercial real estate
(0.01
)%
%
 %
%
%
(1
)
(1
)
Commercial and industrial
0.09
 %
0.07
%
(0.22
)%
7.11
%
0.02
%
29

N/M

N/M - Not meaningful
 
 
 
 
 
 
 
(1) Excludes loans carried under the fair value option.

The allowance coverage for credit losses was $152 million and covered 1.1 percent of loans held-for-investment at March 31, 2020, a 20 basis point increase from December 31, 2019. The increase in the allowance coverage reflects the forecasted impact of the COVID-19 pandemic as of March 31st. Excluding warehouse loans, the allowance coverage ratio was 1.5 percent.

Net charge-offs in the first quarter 2020 were $2 million, or 8 basis points of LHFI, compared to $3 million, or 10 basis points in the prior quarter, reflecting continued strength in the credit quality of the loan portfolio.

Nonperforming loans were $29 million and our ratio of nonperforming loans to loans held-for-investment was 21 basis points at March 31, 2020, flat compared to December 31, 2019. At March 31, 2020, early stage loan delinquencies totaled $26 million, or 0.19 percent, of total loans, compared to $14 million, or 0.12 percent, at December 31, 2019.


5


Capital

Capital Ratios (Bancorp)
 
Change (% / bps)
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Seq
Yr/Yr
Tier 1 leverage (to adj. avg. total assets)
8.09
%
7.57
%
7.98
%
7.86
%
8.37
%
52
(28)
Tier 1 common equity (to RWA)
9.16
%
9.32
%
9.25
%
9.08
%
9.69
%
(16)
(53)

Tier 1 capital (to RWA)
10.51
%
10.83
%
10.81
%
10.73
%
11.51
%
(32)
(100)

Total capital (to RWA)
11.21
%
11.52
%
11.54
%
11.51
%
12.49
%
(31)
(128)

Tangible common equity to asset ratio (1)
6.25
%
6.95
%
7.08
%
7.31
%
7.16
%
(70)
(91)

Tangible book value per share (1)
$
29.52

$
28.57

$
27.62

$
26.16

$
24.65

3
%
20
%
(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 March 31, 2020, the Company had a total risk-based capital ratio of 11.2 percent, as compared to 11.5 percent at December 31, 2019.


Earnings Conference Call

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

To join the call, please dial (866) 575-6539 toll free or (323) 794-2551 and use passcode 2135884. 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 2135884.

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 $26.8 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 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 $225 billion of loans representing nearly 1.1 million borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as tangible book value per share, tangible common equity to assets ratio, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted HFI loan-to-deposit ratio, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, adjusted basic and diluted earnings per share, and adjusted net interest margin. 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

6


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)
 
March 31,
2020
December 31,
2019
March 31,
2019
Assets
 
 
 
Cash
$
216

$
220

$
268

Interest-earning deposits
126
206
122

Total cash and cash equivalents
342
426
390

Trading securities
2,058


Investment securities available-for-sale
2,446
2,116
2,142

Investment securities held-to-maturity
554
598
683

Loans held-for-sale
4,389
5,258
3,874

Loans held-for-investment
13,795
12,129
9,936

Loans with government guarantees
814
736
470

Less: allowance for credit losses
(132
)
(107
)
(127
)
Total loans held-for-investment and loans with government guarantees, net
14,477
12,758
10,279

Mortgage servicing rights
223
291
278

Federal Home Loan Bank stock
306
303
303

Premises and equipment, net
413
416
414

Goodwill and intangible assets
167
170
182

Other assets
1,430
930
900

Total assets
$
26,805

$
23,266

$
19,445

Liabilities and Stockholders’ Equity
 
 
 
Noninterest-bearing deposits
$
6,551

$
5,467

$
4,016

Interest-bearing deposits
9,501

9,679

9,437

Total deposits
16,052

15,146

13,453

Short-term Federal Home Loan Bank advances and other
5,841

4,165

3,101

Long-term Federal Home Loan Bank advances
1,000

650

250

Other long-term debt
493

496

495

Other liabilities
1,577

1,021

572

Total liabilities
24,963

21,478

17,871

Stockholders’ Equity
 
 
 
Common stock
1

1

1

Additional paid in capital
1,487

1,483

1,476

Accumulated other comprehensive income (loss)
31

1

(31
)
Retained earnings
323

303

128

Total stockholders’ equity
1,842

1,788

1,574

Total liabilities and stockholders’ equity
$
26,805

$
23,266

$
19,445





8



Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
First Quarter 2020 Compared to:
 
Three Months Ended
Fourth Quarter
2019
First Quarter
2019
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Amount
Percent
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
Total interest income
$
201

$
213

$
203

$
198

$
180

$
(12
)
(6
)%
$
21

12
 %
Total interest expense
53

61

57

60

54

(8
)
(13
)%
(1
)
(2
)%
Net interest income
148

152

146

138

126

(4
)
(3
)%
22

17
 %
Provision for credit losses
14


1

17


14

N/M

14

N/M

Net interest income after provision for credit losses
134

152

145

121

126

(18
)
(12
)%
8

6
 %
Noninterest Income
 
 
 
 
 








Net gain on loan sales
90

101

110

75

49

(11
)
(11
)%
41

N/M

Loan fees and charges
26

30

29

24

17

(4
)
(13
)%
9

53
 %
Net return (loss) on the mortgage servicing rights
6

(3
)
(2
)
5

6

9

N/M


 %
Loan administration income
12

8

5

6

11

4

50
 %
1

9
 %
Deposit fees and charges
9

10

10

10

8

(1
)
(10
)%
1

13
 %
Other noninterest income
14

16

19

48

18

(2
)
(13
)%
(4
)
(22
)%
Total noninterest income
157

162

171

168

109

(5
)
(3
)%
48

44
 %
Noninterest Expense
 
 
 
 
 








Compensation and benefits
102

102

98

90

87


 %
15

17
 %
Occupancy and equipment
41

43

40

40

38

(2
)
(5
)%
3

8
 %
Commissions
29

35

38

25

13

(6
)
(17
)%
16

N/M

Loan processing expense
20

20

22

21

17


 %
3

18
 %
Legal and professional expense
6

9

6

6

6

(3
)
(33
)%

 %
Federal insurance premiums
6

6

5

5

4


 %
2

50
 %
Intangible asset amortization
3

4

3

4

4

(1
)
(25
)%
(1
)
(25
)%
Other noninterest expense
28

26

26

23

22

2

8
 %
6

27
 %
Total noninterest expense
235

245

238

214

191

(10
)
(4
)%
44

23
 %
Income before income taxes
56

69

78

75

44

(13
)
(19
)%
12

27
 %
Provision for income taxes
10

11

15

14

8

(1
)
(9
)%
2

25
 %
Net income
$
46

$
58

$
63

$
61

$
36

$
(12
)
(21
)%
$
10

28
 %
Income per share
 
 
 
 
 








Basic
$
0.80

$
1.01

$
1.12

$
1.08

$
0.64

$
(0.21
)
(21
)%
$
0.16

25
 %
Diluted
$
0.80

$
1.00

$
1.11

$
1.06

$
0.63

$
(0.20
)
(20
)%
$
0.17

27
 %
 
 
 
 
 
 
 
 
 
 
Cash dividends declared
$
0.05

$
0.04

$
0.04

$
0.04

$
0.04

$
0.01

25
 %
$
0.01

25
 %
N/M - Not meaningful
 
 
 
 
 
 
 
 
 






9


Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
March 31, 2020
December 31,
2019
March 31, 2019
Selected Mortgage Statistics:






Mortgage rate lock commitments (fallout-adjusted) (1)
$
11,154

$
8,179

$
6,602

Mortgage loans closed
$
8,591

$
9,303

$
5,513

Mortgage loans sold and securitized
$
7,487

$
8,135

$
5,170

Selected Ratios:






Interest rate spread (2)
2.31
%
2.39
%
2.69
%
Net interest margin
2.81
%
2.91
%
3.09
%
Net margin on loans sold and securitized
1.19
%
1.24
%
0.92
%
Return on average assets
0.78
%
0.99
%
0.79
%
Adjusted return on average assets (3) (4)
0.78
%
0.99
%
0.80
%
Return on average common equity
9.82
%
12.69
%
9.16
%
Return on average tangible common equity (4)
11.46
%
14.76
%
11.33
%
Adjusted return on average tangible common equity (3) (4)
11.46
%
14.76
%
11.56
%
Efficiency ratio
77.1
%
78.2
%
81.3
%
Common equity-to-assets ratio (average for the period)
7.92
%
7.83
%
8.59
%
Average Balances:






Average interest-earning assets
$
21,150

$
20,708

$
16,294

Average interest-bearing liabilities
$
14,480

$
14,208

$
12,505

Average stockholders' equity
$
1,854

$
1,803

$
1,583

(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 the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.
(3)
See Non-GAAP Reconciliation for further information.
(4)
Excludes goodwill, intangible assets and the associated amortization. See Non-GAAP Reconciliation for further information.

 
March 31,
2020
December 31,
2019
March 31,
2019
Selected Statistics:
 
 
 
Book value per common share
$
32.46

$
31.57

$
27.86

Tangible book value per share (1)
$
29.52

$
28.57

$
24.65

Number of common shares outstanding
56,729,789

56,631,236

56,480,086

Number of FTE employees
4,415

4,453

3,996

Number of bank branches
160

160

160

Ratio of nonperforming assets to total assets (2)
0.14
%
0.15
%
0.17
%
Common equity-to-assets ratio
6.87
%
7.68
%
8.09
%
MSR Key Statistics and Ratios:
 
 
 
Weighted average service fee (basis points)
38.8

39.7

38.0

Capitalized value of mortgage servicing rights
0.95
%
1.21
%
1.27
%
(1)
Excludes goodwill and intangibles of $167 million, $170 million and $182 million at March 31, 2020, December 31, 2019, and March 31, 2019, respectively. See Non-GAAP Reconciliation for further information.
(2)
Ratio excludes LHFS.

10


Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
March 31, 2020
December 31, 2019
March 31, 2019
 
Average Balance
Interest
Annualized
Yield/Rate
Average Balance
Interest
Annualized
Yield/Rate
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
5,248

$
49

3.72
%
$
5,199

$
51

3.92
%
$
3,266

$
38

4.72
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
Residential first mortgage
3,062

27

3.51
%
3,215

30

3.60
%
3,044

28

3.64
%
Home equity
1,019

12

4.73
%
989

12

4.86
%
745

10

5.63
%
Other
816

12

5.77
%
728

11

5.97
%
356

6

7.11
%
Total consumer loans
4,897

51

4.14
%
4,932

53

4.20
%
4,145

44

4.30
%
Commercial real estate
2,949

34

4.61
%
2,763

34

4.91
%
2,250

33

5.66
%
Commercial and industrial
1,667

19

4.52
%
1,726

21

4.80
%
1,594

21

5.39
%
Warehouse lending
2,310

25

4.30
%
2,747

33

4.61
%
1,175

16

5.47
%
Total commercial loans
6,926

78

4.48
%
7,236

88

4.77
%
5,019

70

5.53
%
Total loans held-for-investment
11,823

129

4.34
%
12,168

141

4.54
%
9,164

114

4.97
%
Loans with government guarantees
811

3

1.38
%
678

4

2.16
%
455

3

2.96
%
Investment securities
3,060

19

2.47
%
2,511

16

2.49
%
3,258

24

2.91
%
Interest-earning deposits
208

1

1.75
%
152

1

2.26
%
151

1

2.77
%
Total interest-earning assets
21,150

$
201

3.78
%
20,708

$
213

4.04
%
16,294

$
180

4.43
%
Other assets
2,263

 
 
2,328

 
 
2,144

 
 
Total assets
$
23,413

 
 
$
23,036

 
 
$
18,438

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits
$
1,587

$
3

0.75
%
$
1,448

$
3

0.70
%
$
1,220

$
2

0.68
%
Savings deposits
3,384

9

1.07
%
3,335

10

1.19
%
3,089

7

0.95
%
Money market deposits
687

1

0.32
%
700


0.35
%
778

1

0.27
%
Certificates of deposit
2,254

12

2.24
%
2,459

15

2.37
%
2,488

13

2.13
%
Total retail deposits
7,912

25

1.28
%
7,942

28

1.39
%
7,575

23

1.22
%
Government deposits
1,131

3

1.15
%
1,192

4

1.39
%
1,170

4

1.51
%
Wholesale deposits and other
581

4

2.39
%
666

4

2.36
%
387

2

2.23
%
Total interest-bearing deposits
9,624

32

1.33
%
9,800

36

1.46
%
9,132

29

1.30
%
Short-term FHLB advances and other
3,566

12

1.35
%
3,262

15

1.74
%
2,725

17

2.54
%
Long-term FHLB advances
794

3

1.29
%
650

3

1.43
%
153

1

1.54
%
Other long-term debt
496

6

5.33
%
496

7

5.45
%
495

7

5.90
%
Total interest-bearing liabilities
14,480

53

1.46
%
14,208

61

1.65
%
12,505

54

1.75
%
Noninterest-bearing deposits
 
 
 
 
 
 
 
 
 
Retail deposits and other
1,395

 
 
1,332

 
 
1,242

 
 
Custodial deposits (1)
4,776

 
 
4,772

 
 
2,532

 
 
Total noninterest-bearing deposits
6,171

 
 
6,104

 
 
3,774

 
 
Other liabilities
908

 
 
921

 
 
576

 
 
Stockholders' equity
1,854

 
 
1,803

 
 
1,583

 
 
Total liabilities and stockholders' equity
$
23,413

 
 
$
23,036

 
 
$
18,438

 
 
Net interest-earning assets
$
6,671

 
 
$
6,500

 
 
$
3,789

 
 
Net interest income
 
$
148

 
 
$
152

 
 
$
126

 
Interest rate spread (2)
 
 
2.31
%
 
 
2.39
%
 
 
2.69
%
Net interest margin (3)
 
 
2.81
%
 
 
2.91
%
 
 
3.09
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
146.1
%
 
 
145.8
%
 
 
130.3
%
Total average deposits
$
15,795

 
 
$
15,904

 
 
$
12,906

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





11



Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
March 31, 2020
December 31,
2019
March 31, 2019
Net Income
$
46

$
58

$
36

Weighted average common shares outstanding
56,655,865

56,513,890

56,897,799

Stock-based awards
534,058

684,844

692,473

Weighted average diluted common shares
57,189,923

57,198,734

57,590,272

Basic earnings per common share
$
0.80

$
1.01

$
0.64

Stock-based awards

(0.01
)
(0.01
)
Diluted earnings per common share
$
0.80

$
1.00

$
0.63



Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
March 31, 2020
December 31, 2019
March 31, 2019
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,879

8.09
%
$
1,720

7.57
%
$
1,520

8.37
%
Total adjusted avg. total asset base
$
23,212

 
$
22,724

 
$
18,171

 
Tier 1 common equity (to risk weighted assets)
$
1,639

9.16
%
$
1,480

9.32
%
$
1,280

9.69
%
Tier 1 capital (to risk weighted assets)
$
1,879

10.51
%
$
1,720

10.83
%
$
1,520

11.51
%
Total capital (to risk weighted assets)
$
2,005

11.21
%
$
1,830

11.52
%
$
1,650

12.49
%
Risk-weighted asset base
$
17,881

 
$
15,886

 
$
13,209

 



Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
March 31, 2020
December 31, 2019
March 31, 2019
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,900

8.19
%
$
1,752

7.71
%
$
1,641

9.04
%
Total adjusted avg. total asset base
$
23,194

 
$
22,727

 
$
18,155

 
Tier 1 common equity (to risk weighted assets)
$
1,900

10.63
%
$
1,752

11.04
%
$
1,641

12.44
%
Tier 1 capital (to risk weighted assets)
$
1,900

10.63
%
$
1,752

11.04
%
$
1,641

12.44
%
Total capital (to risk weighted assets)
$
2,026

11.33
%
$
1,862

11.73
%
$
1,771

13.42
%
Risk-weighted asset base
$
17,876

 
$
15,873

 
$
13,193

 

12


Loans Serviced
(Dollars in millions)
(Unaudited)
 
March 31, 2020
December 31, 2019
March 31, 2019
 
Unpaid Principal Balance (1)
Number of accounts
Unpaid Principal Balance (1)
Number of accounts
Unpaid Principal Balance (1)
Number of accounts
Subserviced for others (2)
$
193,037

916,989

$
194,638

918,662

$
170,476

814,248

Serviced for others
23,439

102,338

24,003

105,469

21,925

90,622

Serviced for own loan portfolio (3)
8,539

63,085

9,536

66,526

7,631

56,687

Total loans serviced
$
225,015

1,082,412

$
228,177

1,090,657

$
200,032

961,557

(1)
Unpaid principal balance, net of write downs, does not include premiums or discounts.
(2)
Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.
(3)
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)
 
March 31, 2020
December 31, 2019
March 31, 2019
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
2,964

21.5
%
$
3,154

26.0
%
$
3,100

31.2
%
Home equity
1,028

7.5
%
1,024

8.4
%
796

8.0
%
Other
858

6.2
%
729

6.0
%
433

4.4
%
Total consumer loans
4,850

35.2
%
4,907

40.4
%
4,329

43.6
%
Commercial loans

 

 

 
Commercial real estate
3,092

22.4
%
2,828

23.3
%
2,324

23.4
%
Commercial and industrial
1,880

13.6
%
1,634

13.5
%
1,651

16.6
%
Warehouse lending
3,973

28.8
%
2,760

22.8
%
1,632

16.4
%
Total commercial loans
8,945

64.8
%
7,222

59.6
%
5,607

56.4
%
Total loans held-for-investment
$
13,795

100.0
%
$
12,129

100.0
%
$
9,936

100.0
%


Other Consumer Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
March 31, 2020
December 31, 2019
March 31, 2019
Indirect Lending
$
620

72.3
%
$
578

79.3
%
$
270

62.4
%
Point of Sale
159

18.5
%
63

8.6
%
41

9.5
%
Other
79

9.2
%
88

12.1
%
122

28.2
%
Total other consumer loans
$
858

100.0
%
$
729

100.0
%
$
433

100.1
%

13


Allowance for Credit Losses
(Dollars in millions)
(Unaudited)
 
March 31, 2020
December 31, 2019
March 31, 2019
Residential first mortgage
$
46

$
22

$
35

Home equity
23

14

16

Other
16

6

4

Total consumer loans
85

42

55

Commercial real estate
28

38

36

Commercial and industrial
18

22

30

Warehouse lending 
1

5

6

Total commercial loans
47

65

72

Allowance for credit losses
132

107

127

Reserve for unfunded commitments
20

3

3

Total allowance for credit losses
$
152

$
110

$
130



Allowance for Credit Losses
(Dollars in millions)
(Unaudited)

Three Months Ended March 31, 2020

Residential First Mortgage
Home Equity (3)
Other Consumer
Commercial Real Estate
Commercial and Industrial
Warehouse Lending
Total LHFI Portfolio (2)
Unfunded Commitments
Balance as of December 31, 2019
$
22

$
14

$
6

$
38

$
22

$
5

$
107

$
3

Impact of adopting ASC 326
25

12

10

(14
)
(6
)
(4
)
23

7

Adjusted balance at January 1, 2020
47

26

16

24

16

1

130

10

Provision (benefit) for credit losses:








Loan volume
(2
)

1

2

2


3


Economic forecast and credit
4

2


2



8

10

Other (1)
(2
)
(4
)
(1
)



(7
)

Charge-offs
(1
)
(1
)
(1
)



(3
)

Recoveries


1




1


Ending allowance balance
$
46

$
23

$
16

$
28

$
18

$
1

$
132

$
20














(1) Includes changes in the individually evaluated reserve








(2) Excludes loans carried under the fair value option








(3) December 31, 2019 and January 1, 2020 balances include $4 million of individually evaluated reserves that were no longer needed as of March 31, 2020
 

14


Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
 
March 31,
2020
December 31,
2019
March 31,
2019
Nonperforming LHFI
$
19

$
16

$
14

Nonperforming TDRs
4

3

3

Nonperforming TDRs at inception but performing for less than six months
6

7

7

Total nonperforming LHFI and TDRs (1)
29

26

24

Other nonperforming assets, net
10

10

8

LHFS
5

5

13

Total nonperforming assets
$
44

$
41

$
45

 
 
 
 
Ratio of nonperforming assets to total assets (2)
0.14
%
0.15
%
0.17
%
Ratio of nonperforming LHFI and TDRs to LHFI
0.21
%
0.21
%
0.24
%
Ratio of nonperforming assets to LHFI and repossessed assets (2)
0.28
%
0.30
%
0.33
%
(1)
Includes less than 90 day past due performing loans placed on nonaccrual. Interest is not being accrued on these loans.
(2)
Ratio excludes LHFS.

Asset Quality - Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
30-59 Days Past Due
60-89 Days Past Due
Greater than 90 days (1)
Total Past Due
Total LHFI
March 31, 2020
 
 
 
 
 
Consumer loans
$
14

$
5

$
29

$
48

$
4,850

Commercial loans
7



7

8,945

Total loans
$
21

$
5

$
29

$
55

$
13,795

December 31, 2019
 
 
 
 
 
Consumer loans
$
9

$
5

$
26

$
40

$
4,907

Commercial loans




7,222

     Total loans
$
9

$
5

$
26

$
40

$
12,129

March 31, 2019
 
 
 
 
 
Consumer loans
$
6

$
2

$
24

$
32

$
4,329

Commercial loans

1


1

5,607

Total loans
$
6

$
3

$
24

$
33

$
9,936

(1)
Includes performing nonaccrual loans that are less than 90 days delinquent and for which interest cannot be accrued.













15


Troubled Debt Restructurings
(Dollars in millions)
(Unaudited)
 
TDRs
 
Performing
Nonperforming
Total
March 31, 2020
 
Consumer loans
$
37

$
10

$
47

Total TDR loans
$
37

$
10

$
47

December 31, 2019
 
 
 
Consumer loans
$
38

$
10

$
48

Total TDR loans
$
38

$
10

$
48

March 31, 2019
 
 
 
Consumer loans
$
43

$
10

$
53

Total TDR loans
$
43

$
10

$
53



Non-GAAP Reconciliation
(Dollars in millions)
(Unaudited)

In addition to analyzing the Company's results on a reported basis, management reviews the Company's results and the results on an adjusted basis. The non-GAAP measures presented in the tables below reflect the adjustments of the reported U.S.GAAP results for significant items that management does not believe are reflective of the Company's current and ongoing operations. The DOJ benefit and acquisition related expenses recognized in conjunction with the Well Fargo branch acquisition from 2018 are not reflective of our ongoing operations and, therefore, have been excluded from our U.S. GAAP results. The Company believes that tangible book value per share, tangible common equity to assets ratio, return on average tangible common equity, adjusted return on average tangible common equity, adjusted return on average assets, adjusted HFI loan-to-deposit ratio, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, and adjusted basic and diluted earnings per share and provide a meaningful representation of its operating performance on an ongoing basis.

The following tables provide a reconciliation of non-GAAP financial measures.

Tangible book value per share and tangible common equity to assets ratio.
 
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
 
(Dollars in millions, except share data)
Total stockholders' equity
$
1,842

$
1,788

$
1,734

$
1,656

$
1,574

Less: Goodwill and intangible assets
167

170

174

178

182

Tangible book value
$
1,675

$
1,618

$
1,560

$
1,478

$
1,392

 
 
 
 
 
 
Number of common shares outstanding
56,729,789

56,631,236

56,510,341

56,483,937

56,480,086

Tangible book value per share
$
29.52