Form 8-K FLAGSTAR BANCORP INC For: Apr 23
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 23, 2019
(Exact name of registrant as specified in its charter)
Michigan | 1-16577 | 38-3150651 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. 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)) |
Item 2.02 | Results of Operations and Financial Condition |
On April 23, 2019, 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, 2019. The text of the press release is furnished as Exhibit 99.1 to this report. The Company will include final financial statements and additional analyses for the three months ended March 31, 2019 as part of its Quarterly Report on Form 10-Q.
On April 23, 2019, the Company will hold a conference call to review first quarter 2019 earnings. A copy of the slide presentation to be used by the Company on the conference call is furnished as Exhibit 99.2 to this Current Report on Form 8-K.
Item 9.01 | Financial Statements and Exhibits |
Exhibits | ||||
99.1 | Press release of Flagstar Bancorp, Inc. dated April 23, 2019 | |||
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 23, 2019 | By: | /s/ James K. Ciroli | ||||
James K. Ciroli | |||||||
Executive Vice President and Chief Financial Officer |
Exhibit Index
EXHIBIT 99.1
NEWS RELEASE
For more information, contact:
Kenneth Schellenberg
(248) 312-5741
Flagstar Bancorp Reports First Quarter 2019 Net Income of $36 million, or $0.63 Per Diluted Share
Key Highlights - First Quarter 2019
• | Adjusted net income of $37 million, or $0.64 per diluted share, excluding costs related to the Wells Fargo branch acquisition. |
• | Successfully completed the integration of the 52 Wells Fargo branches acquired in December while experiencing only 4.9 percent deposit attrition. |
• | Adjusted net interest income grew $3 million to $126 million, reflecting full quarter benefit from acquired deposits and continued growth in LHFI portfolio. |
• | Mortgage revenues increased $11 million from prior quarter, led by an increase in fallout-adjusted locks and margin expansion of 12 basis points, partially offset by lower net return on MSRs. |
• | Total serviced accounts increased 13 percent from last quarter to 962,000. |
• | Exceptional asset quality with minimal net charge-offs, low delinquencies, no nonperforming commercial loans and strong allowance for loan loss coverage. |
TROY, Mich., April 23, 2019 - Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported first quarter 2019 net income of $36 million, or $0.63 per diluted share, compared to fourth quarter 2018 net income of $54 million, or $0.93 per diluted share. On an adjusted basis, Flagstar reported net income of 37 million, or $0.64 per diluted share, for the first quarter 2019, compared to net income of $42 million, or $0.72 per diluted share, for the fourth quarter 2018. For the first quarter 2018, Flagstar reported net income of $35 million, or $0.60 per diluted share.
First Quarter 2019 Highlights:
"In the first quarter, we took another step in the continued transformation of our company. Thanks to our success in executing our business plan, we were pleased to initiate a quarterly dividend and a $50 million share buyback to return value to our shareholders,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “These actions, coupled with our strong first quarter results, demonstrate the progress we have made to diversify our franchise and deliver strong results.
“Our banking and mortgage servicing businesses had another solid quarter. Deposit costs were 3 basis points lower, reflecting a full quarter of lower cost deposits from the Wells Fargo branch acquisition. We are also pleased that four months after conversion, we have experienced deposit attrition of only 4.9 percent,
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substantially better than our 10 percent target and the 17 percent we modeled. Net interest margin expanded 10 basis points to 3.09 percent compared to an adjusted fourth quarter net interest margin of 2.99 percent. Total serviced accounts increased 13 percent to 962,000, continuing growth in a segment that provides both a stable source of fee income and liquidity.
“Our mortgage team delivered for the quarter, maintaining pricing and expense discipline in a very competitive mortgage environment, and then when the market turned favorable late in the quarter, our team was well positioned to take advantage of the opportunity. Fallout-adjusted locks increased 25 percent to $6.6 billion and gain on sale margin expanded for the second consecutive quarter. The improvement in net gain on loan sales more than offset lower net return on MSRs.
"Overall, I am pleased with our first quarter results and feel we are well positioned to continue to produce value for our shareholders."
Income Statement Highlights | |||||||||||||||
Three Months Ended | |||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net interest income | $ | 126 | $ | 152 | $ | 124 | $ | 115 | $ | 106 | |||||
Provision (benefit) for loan losses | — | (5 | ) | (2 | ) | (1 | ) | — | |||||||
Noninterest income | 109 | 98 | 107 | 123 | 111 | ||||||||||
Noninterest expense | 191 | 189 | 173 | 177 | 173 | ||||||||||
Income before income taxes | 44 | 66 | 60 | 62 | 44 | ||||||||||
Provision for income taxes | 8 | 12 | 12 | 12 | 9 | ||||||||||
Net income | $ | 36 | $ | 54 | $ | 48 | $ | 50 | $ | 35 | |||||
Income per share: | |||||||||||||||
Basic | $ | 0.64 | $ | 0.94 | $ | 0.84 | $ | 0.86 | $ | 0.61 | |||||
Diluted | $ | 0.63 | $ | 0.93 | $ | 0.83 | $ | 0.85 | $ | 0.60 |
Adjusted Income Statement Highlights (Non-GAAP) (1) | |||||||||||||||
Three Months Ended | |||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net interest income | $ | 126 | $ | 123 | $ | 124 | $ | 115 | $ | 106 | |||||
Provision (benefit) for loan losses | — | (5 | ) | (2 | ) | (1 | ) | — | |||||||
Noninterest income | 109 | 98 | 107 | 123 | 111 | ||||||||||
Noninterest expense | 190 | 175 | 172 | 177 | 173 | ||||||||||
Income before income taxes | 45 | 51 | 61 | 62 | 44 | ||||||||||
Provision for income taxes | 8 | 9 | 12 | 12 | 9 | ||||||||||
Net income | $ | 37 | $ | 42 | $ | 49 | $ | 50 | $ | 35 | |||||
Income per share: | |||||||||||||||
Basic | $ | 0.65 | $ | 0.73 | $ | 0.86 | $ | 0.86 | $ | 0.61 | |||||
Diluted | $ | 0.64 | $ | 0.72 | $ | 0.85 | $ | 0.85 | $ | 0.60 |
(1) | See Non-GAAP Reconciliation for further information. |
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Key Ratios | |||||||||||||
Three Months Ended | Change (bps) | ||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Seq | Yr/Yr | |||||||
Net interest margin | 3.09 | % | 3.70 | % | 2.93 | % | 2.86 | % | 2.76 | % | (61) | 33 | |
Adjusted net interest margin (1) | 3.09 | % | 2.99 | % | 2.93 | % | 2.86 | % | 2.76 | % | 10 | 33 | |
Return on average assets | 0.8 | % | 1.2 | % | 1.0 | % | 1.1 | % | 0.8 | % | (40) | — | |
Return on average common equity | 9.2 | % | 14.0 | % | 12.8 | % | 13.5 | % | 9.9 | % | (480) | (70) | |
Efficiency ratio | 81.3 | % | 75.7 | % | 74.6 | % | 74.4 | % | 79.7 | % | 560 | 160 | |
HFI loan-to-deposit ratio | 71.0 | % | 74.7 | % | 78.3 | % | 80.5 | % | 79.9 | % | (370) | (890) | |
Adjusted HFI loan-to-deposit ratio (2) | 77.0 | % | 77.3 | % | 77.8 | % | 78.1 | % | 83.9 | % | (30) | (690) |
(1) | The three months ended December 31, 2018, excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. See Non-GAAP Reconciliation for further information. |
(2) | Excludes warehouse loans and custodial deposits. |
Average Balance Sheet Highlights | |||||||||||||||||||
Three Months Ended | % Change | ||||||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Seq | Yr/Yr | |||||||||||||
(Dollars in millions) | |||||||||||||||||||
Average interest-earning assets | $ | 16,294 | $ | 16,391 | $ | 16,786 | $ | 15,993 | $ | 15,354 | (1 | )% | 6 | % | |||||
Average loans held-for-sale (LHFS) | 3,266 | 3,991 | 4,393 | 4,170 | 4,231 | (18 | )% | (23 | )% | ||||||||||
Average loans held-for-investment (LHFI) | 9,164 | 8,916 | 8,872 | 8,380 | 7,487 | 3 | % | 22 | % | ||||||||||
Average total deposits | 12,906 | 11,942 | 11,336 | 10,414 | 9,371 | 8 | % | 38 | % |
Net Interest Income
Net interest income decreased $26 million to $126 million for the first quarter 2019, as compared to the fourth quarter 2018. However, the fourth quarter included the recognition of $29 million of hedging gains in conjunction with the Wells Fargo branch acquisition. Excluding hedging gains, the Company's net interest income rose $3 million. This reflected the full quarter benefit of using lower cost deposits from the acquisition to reduce Federal Home Loan Bank advances. This action was partially offset by seasonal declines in loans held-for-sale and warehouse loans. Net interest margin rose 10 basis points to 3.09 percent for the first quarter 2019 as compared to adjusted net interest margin for the fourth quarter 2018.
Loans held-for-investment averaged $9.2 billion for the first quarter 2019, increasing $248 million from the prior quarter. During the first quarter 2019, average commercial real estate and commercial and industrial loans rose $328 million, or 9 percent. This increase was partially offset by a $162 million drop in warehouse loans due to anticipated seasonal factors. Average consumer loans rose $82 million, or 2 percent, driven primarily by growth in non-auto indirect loans and the full quarter impact from consumer loans acquired as part of the Wells Fargo branch acquisition.
Average total deposits were $12.9 billion in the first quarter 2019, increasing $964 million, or 8 percent from the fourth quarter 2018, driven by the full quarter impact of Wells Fargo branch deposits and higher custodial deposits, which rose $402 million, or 19 percent, driven by a 13 percent increase in serviced accounts.
Provision for Loan Losses
The Company had no provision for loan losses for first quarter 2019, as compared to a benefit of $5 million for the fourth quarter 2018. The lack of provision expense reflected strong asset quality and a low level of net charge-offs in the quarter.
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Noninterest Income
Noninterest income increased $11 million, or 11 percent, to $109 million in the first quarter 2019, as compared to $98 million for the fourth quarter 2018. The increase was primarily driven by higher net gain on loan sales, net loan administration income and deposit fee income, partially offset by lower net return on MSRs and seasonally lower fee income.
First quarter 2019 net gain on loan sales increased $15 million, or 44 percent, to $49 million, versus $34 million in the fourth quarter 2018. The results reflected improvement in the mortgage environment late in the quarter which drove fallout-adjusted locks higher and an expansion of gain on sale margin. Fallout-adjusted locks increased 25 percent to $6.6 billion. The net gain on loan sale margin increased 12 basis points to 0.72 percent for the first quarter 2019, as compared to 0.60 percent for the fourth quarter 2018.
Mortgage Metrics | |||||||||||||||||||
Change (% / bps) | |||||||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Seq | Yr/Yr | |||||||||||||
(Dollars in millions) | |||||||||||||||||||
For the three months ended: | |||||||||||||||||||
Mortgage rate lock commitments (fallout-adjusted) (1) | $ | 6,602 | $ | 5,284 | $ | 8,290 | $ | 9,011 | $ | 7,722 | 25 | % | (15 | )% | |||||
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2) | 0.72 | % | 0.60 | % | 0.51 | % | 0.71 | % | 0.77 | % | 12 | (5) | |||||||
Net gain on loan sales | $ | 49 | $ | 34 | $ | 43 | $ | 63 | $ | 60 | 44 | % | (18 | )% | |||||
Net return on the mortgage servicing rights (MSR) | $ | 6 | $ | 10 | $ | 13 | $ | 9 | $ | 4 | (40 | )% | 50 | % | |||||
Gain on loan sales + net return on the MSR | $ | 55 | $ | 44 | $ | 56 | $ | 72 | $ | 64 | 25 | % | (14 | )% | |||||
At the end of the period: | |||||||||||||||||||
Loans serviced (number of accounts - 000's) (3) | 962 | 851 | 627 | 543 | 476 | 13 | % | 102 | % | ||||||||||
Capitalized value of MSRs | 1.27 | % | 1.35 | % | 1.43 | % | 1.34 | % | 1.27 | % | (8) | — | |||||||
(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) Gain on sale margin is based on net gain on loan sales (excludes net gain on loan sales of $2 million from loans transferred from LHFI during both the three months ended March 31, 2019 and December 31, 2018) to fallout-adjusted mortgage rate lock commitments. | |||||||||||||||||||
(3) Includes loans serviced for own loan portfolio, serviced for others, and subserviced for others. |
Net return on mortgage servicing rights decreased $4 million, resulting in a net gain of $6 million for the first quarter 2019, as compared to a net gain of $10 million for the fourth quarter 2018. The decrease from the prior quarter reflected an increase in runoff due to lower interest rates and smaller benefit from the collection of contingencies related to MSR sales in prior periods.
Deposit fee income increased to $8 million for the first quarter 2019, as compared to $6 million for the fourth quarter 2018. The increase was driven by the full quarter benefit from the acquired Wells Fargo branches, despite continued fee waivers to assist customers during the Wells Fargo branch transition.
Noninterest Expense
Noninterest expense increased to $191 million for the first quarter 2019, as compared to $189 million for the fourth quarter 2018. Excluding acquisition costs of $1 million in the first quarter 2019 and $14 million in the fourth quarter 2018, adjusted noninterest expense in the first quarter 2019 was $190 million or $15 million higher than fourth quarter 2018. The increase is attributable to seasonally higher payroll taxes, employee benefits and a full quarter of expenses related to the 52 Wells Fargo branches acquired in December 2018.
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The Company's efficiency ratio was 81 percent for the first quarter 2019, as compared to 76 percent for the fourth quarter 2018. Excluding hedging gains and expenses related to the acquisition of Wells Fargo branches, the adjusted efficiency ratio was 79 percent in the fourth quarter 2018.
Income Taxes
The first quarter 2019 provision for income taxes totaled $8 million, compared to $12 million for the fourth quarter 2018. The Company's effective tax rate was 18 percent for the first quarter 2019, consistent with our effective tax rate for the fourth quarter 2018.
Asset Quality
Credit Quality Ratios | |||||||||||||||||||
As of/Three Months Ended | Change (% / bps) | ||||||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Seq | Yr/Yr | |||||||||||||
(Dollars in millions) | |||||||||||||||||||
Allowance for loan loss to LHFI | 1.3 | % | 1.4 | % | 1.5 | % | 1.5 | % | 1.7 | % | (10) | (40) | |||||||
Charge-offs, net of recoveries | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | — | % | — | % | |||||
Total nonperforming LHFI and TDRs | $ | 24 | $ | 22 | $ | 25 | $ | 27 | $ | 29 | 9 | % | (17 | )% | |||||
Net charge-offs to LHFI ratio (annualized) | 0.05 | % | 0.04 | % | 0.05 | % | 0.02 | % | 0.06 | % | 1 | (1) | |||||||
Ratio of nonperforming LHFI and TDRs to LHFI | 0.24 | % | 0.24 | % | 0.28 | % | 0.30 | % | 0.35 | % | 0 | (11) |
The allowance for loan losses was $127 million at March 31, 2019, compared to $128 million at December 31, 2018. The allowance for loan losses covered 1.3 percent of loans held-for-investment at March 31, 2019, as compared to 1.4 percent of loans held-for-investment at December 31, 2018.
Net charge-offs in the first quarter 2019 were $1 million, or 5 basis points of LHFI, compared to $1 million, or 4 basis points in the prior quarter.
Nonperforming loans were $24 million at March 31, 2019, compared to $22 million at December 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.24 percent at March 31, 2019, consistent with the ratio at December 31, 2018. At March 31, 2019, early stage loan delinquencies totaled $9 million, or 0.09 percent of total loans, compared to $7 million, or 0.08 percent at December 31, 2018. There were no commercial loan delinquencies greater than 90 days at March 31, 2019.
Capital
Capital Ratios (Bancorp) | Change (% / bps) | ||||||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Seq | Yr/Yr | |||||||||||||
Tangible common equity to assets ratio (1) | 7.16 | % | 7.45 | % | 7.74 | % | 7.74 | % | 7.65 | % | (29) | (49) | |||||||
Tier 1 leverage (to adj. avg. total assets) | 8.37 | % | 8.29 | % | 8.36 | % | 8.65 | % | 8.72 | % | 8 | (35) | |||||||
Tier 1 common equity (to RWA) | 9.69 | % | 10.54 | % | 11.01 | % | 10.84 | % | 10.80 | % | (85) | (111) | |||||||
Tier 1 capital (to RWA) | 11.51 | % | 12.54 | % | 13.04 | % | 12.86 | % | 12.90 | % | (103) | (139) | |||||||
Total capital (to RWA) | 12.49 | % | 13.63 | % | 14.20 | % | 14.04 | % | 14.14 | % | (114) | (165) | |||||||
MSRs to Tier 1 capital | 18.3 | % | 19.3 | % | 20.3 | % | 16.9 | % | 16.2 | % | (100) | 210 | |||||||
Tangible book value per share (1) | $ | 24.65 | $ | 23.90 | $ | 25.13 | $ | 24.37 | $ | 23.62 | 3 | % | 4 | % |
(1) | See Non-GAAP Reconciliation for further information. |
The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At March 31, 2019, the Company had a total risk-based capital ratio of
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12.49 percent, as compared to 13.63 percent at December 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth and share buyback, partially offset by earnings retention.
Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 55 basis points and risk-based capital ratios by approximately 25-40 basis points at March 31, 2019 (pro forma basis).
Earnings Conference Call
As previously announced, the Company's first quarter 2019 earnings call will be held Tuesday, April 23, 2019 at 11 a.m. (ET).
To join the call, please dial (800) 289-0438 toll free or (786) 789-4783 and use passcode 9789633. 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 9789633.
The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and available for replay and download. The slide presentation accompanying the conference call will be posted on the site.
About Flagstar
Flagstar Bancorp, Inc. (NYSE: FBC) is an $19.4 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 72 retail locations in 22 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 $200 billion of loans representing 962,000 borrowers. For more information, please visit flagstar.com.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as tangible book value per share, tangible common equity to assets ratio, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted net income, adjusted basic and diluted earnings per share, adjusted noninterest expense, adjusted net interest income, adjusted net interest margin, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted HFI loan-to-deposit ratio. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.
Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.
Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in
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conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s website at flagstar.com.
Forward-Looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company's actual results could differ materially from those described in the forward-looking statements depending upon various factors as described in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the Company’s website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov). Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.
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Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Assets | |||||||||||
Cash | $ | 268 | $ | 260 | $ | 121 | |||||
Interest-earning deposits | 122 | 148 | 122 | ||||||||
Total cash and cash equivalents | 390 | 408 | 243 | ||||||||
Investment securities available-for-sale | 2,142 | 2,142 | 1,918 | ||||||||
Investment securities held-to-maturity | 683 | 703 | 771 | ||||||||
Loans held-for-sale | 3,874 | 3,869 | 4,743 | ||||||||
Loans held-for-investment | 9,936 | 9,088 | 8,134 | ||||||||
Loans with government guarantees | 470 | 392 | 286 | ||||||||
Less: allowance for loan losses | (127 | ) | (128 | ) | (139 | ) | |||||
Total loans held-for-investment and loans with government guarantees, net | 10,279 | 9,352 | 8,281 | ||||||||
Mortgage servicing rights | 278 | 290 | 239 | ||||||||
Net deferred tax asset | 90 | 103 | 130 | ||||||||
Federal Home Loan Bank stock | 303 | 303 | 303 | ||||||||
Premises and equipment, net | 414 | 390 | 348 | ||||||||
Goodwill and intangible assets | 182 | 190 | 72 | ||||||||
Other assets | 810 | 781 | 688 | ||||||||
Total assets | $ | 19,445 | $ | 18,531 | $ | 17,736 | |||||
Liabilities and Stockholders' Equity | |||||||||||
Noninterest bearing deposits | $ | 4,016 | $ | 2,989 | $ | 2,391 | |||||
Interest bearing deposits | 9,437 | 9,391 | 7,595 | ||||||||
Total deposits | 13,453 | 12,380 | 9,986 | ||||||||
Short-term Federal Home Loan Bank advances and other | 3,101 | 3,244 | 4,153 | ||||||||
Long-term Federal Home Loan Bank advances | 250 | 150 | 1,280 | ||||||||
Other long-term debt | 495 | 495 | 494 | ||||||||
Other liabilities | 572 | 692 | 396 | ||||||||
Total liabilities | 17,871 | 16,961 | 16,309 | ||||||||
Stockholders' Equity | |||||||||||
Common stock | 1 | 1 | 1 | ||||||||
Additional paid in capital | 1,476 | 1,522 | 1,514 | ||||||||
Accumulated other comprehensive loss | (31 | ) | (47 | ) | (30 | ) | |||||
Retained earnings/(accumulated deficit) | 128 | 94 | (58 | ) | |||||||
Total stockholders' equity | 1,574 | 1,570 | 1,427 | ||||||||
Total liabilities and stockholders' equity | $ | 19,445 | $ | 18,531 | $ | 17,736 |
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Flagstar Bancorp, Inc. Condensed Consolidated Statements of Operations (Dollars in millions, except per share data) (Unaudited) | |||||||||||||||||||||||||||
First Quarter 2019 Compared to: | |||||||||||||||||||||||||||
Three Months Ended | Fourth Quarter 2018 | First Quarter 2018 | |||||||||||||||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | Amount | Percent | Amount | Percent | |||||||||||||||||||
Interest Income | |||||||||||||||||||||||||||
Total interest income | $ | 180 | $ | 181 | $ | 183 | $ | 167 | $ | 152 | $ | (1 | ) | (1 | )% | $ | 28 | 18 | % | ||||||||
Total interest expense | 54 | 29 | 59 | 52 | 46 | 25 | 86 | % | 8 | 17 | % | ||||||||||||||||
Net interest income | 126 | 152 | 124 | 115 | 106 | (26 | ) | (17 | )% | 20 | 19 | % | |||||||||||||||
Provision (benefit) for loan losses | — | (5 | ) | (2 | ) | (1 | ) | — | 5 | (100 | )% | — | N/M | ||||||||||||||
Net interest income after provision (benefit) for loan losses | 126 | 157 | 126 | 116 | 106 | (31 | ) | (20 | )% | 20 | 19 | % | |||||||||||||||
Noninterest Income | |||||||||||||||||||||||||||
Net gain on loan sales | 49 | 34 | 43 | 63 | 60 | 15 | 44 | % | (11 | ) | (18 | )% | |||||||||||||||
Loan fees and charges | 17 | 20 | 23 | 24 | 20 | (3 | ) | (15 | )% | (3 | ) | (15 | )% | ||||||||||||||
Net return on the mortgage servicing rights | 6 | 10 | 13 | 9 | 4 | (4 | ) | (40 | )% | 2 | 50 | % | |||||||||||||||
Loan administration income | 11 | 8 | 5 | 5 | 5 | 3 | 38 | % | 6 | 120 | % | ||||||||||||||||
Deposit fees and charges | 8 | 6 | 5 | 5 | 5 | 2 | 33 | % | 3 | 60 | % | ||||||||||||||||
Other noninterest income | 18 | 20 | 18 | 17 | 17 | (2 | ) | (10 | )% | 1 | 6 | % | |||||||||||||||
Total noninterest income | 109 | 98 | 107 | 123 | 111 | 11 | 11 | % | (2 | ) | (2 | )% | |||||||||||||||
Noninterest Expense | |||||||||||||||||||||||||||
Compensation and benefits | 87 | 82 | 76 | 80 | 80 | 5 | 6 | % | 7 | 9 | % | ||||||||||||||||
Occupancy and equipment | 38 | 36 | 31 | 30 | 30 | 2 | 6 | % | 8 | 27 | % | ||||||||||||||||
Commissions | 13 | 16 | 21 | 25 | 18 | (3 | ) | (19 | )% | (5 | ) | (28 | )% | ||||||||||||||
Loan processing expense | 17 | 16 | 14 | 15 | 14 | 1 | 6 | % | 3 | 21 | % | ||||||||||||||||
Legal and professional expense | 6 | 9 | 7 | 6 | 6 | (3 | ) | (33 | )% | — | — | % | |||||||||||||||
Federal insurance premiums | 4 | 4 | 6 | 6 | 6 | — | — | % | (2 | ) | (33 | )% | |||||||||||||||
Intangible asset amortization | 4 | 3 | 1 | 1 | — | 1 | 33 | % | 4 | N/M | |||||||||||||||||
Other noninterest expense | 22 | 23 | 17 | 14 | 19 | (1 | ) | (4 | )% | 3 | 16 | % | |||||||||||||||
Total noninterest expense | 191 | 189 | 173 | 177 | 173 | 2 | 1 | % | 18 | 10 | % | ||||||||||||||||
Income before income taxes | 44 | 66 | 60 | 62 | 44 | (22 | ) | (33 | )% | — | — | % | |||||||||||||||
Provision for income taxes | 8 | 12 | 12 | 12 | 9 | (4 | ) | (33 | )% | (1 | ) | (11 | )% | ||||||||||||||
Net income | $ | 36 | $ | 54 | $ | 48 | $ | 50 | $ | 35 | $ | (18 | ) | (33 | )% | $ | 1 | 3 | % | ||||||||
Income per share | |||||||||||||||||||||||||||
Basic | $ | 0.64 | $ | 0.94 | $ | 0.84 | $ | 0.86 | $ | 0.61 | $ | (0.30 | ) | (32 | )% | $ | 0.03 | 5 | % | ||||||||
Diluted | $ | 0.63 | $ | 0.93 | $ | 0.83 | $ | 0.85 | $ | 0.60 | $ | (0.30 | ) | (32 | )% | $ | 0.03 | 5 | % | ||||||||
Cash dividends declared | $ | 0.04 | $ | — | $ | — | $ | — | $ | — | $ | 0.04 | 100 | % | $ | 0.04 | 100 | % |
N/M - Not meaningful
9
Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Selected Mortgage Statistics: | |||||||||||
Mortgage rate lock commitments (fallout-adjusted) (1) | $ | 6,602 | $ | 5,284 | $ | 7,722 | |||||
Mortgage loans originated (2) | $ | 5,513 | $ | 6,340 | $ | 7,886 | |||||
Mortgage loans sold and securitized | $ | 5,170 | $ | 7,146 | $ | 7,247 | |||||
Selected Ratios: | |||||||||||
Interest rate spread | 2.69 | % | 3.52 | % | 2.54 | % | |||||
Adjusted interest rate spread (3) (4) | 2.69 | % | 2.63 | % | 2.54 | % | |||||
Net interest margin | 3.09 | % | 3.70 | % | 2.76 | % | |||||
Adjusted net interest margin (4) | 3.09 | % | 2.99 | % | 2.76 | % | |||||
Net margin on loans sold and securitized | 0.92 | % | 0.44 | % | 0.82 | % | |||||
Return on average assets | 0.79 | % | 1.17 | % | 0.82 | % | |||||
Adjusted return on average assets (4)(5) | 0.80 | % | 0.91 | % | 0.82 | % | |||||
Return on average common equity | 9.16 | % | 13.98 | % | 9.94 | % | |||||
Return on average tangible common equity (6) | 11.55 | % | 15.88 | % | 10.21 | % | |||||
Adjusted return on average tangible common equity (4) (5) (6) | 11.78 | % | 12.44 | % | 10.21 | % | |||||
Efficiency ratio | 81.3 | % | 75.7 | % | 79.7 | % | |||||
Common equity-to-assets ratio (average for the period) | 8.59 | % | 8.41 | % | 8.27 | % | |||||
Average Balances: | |||||||||||
Average common shares outstanding | 56,897,799 | 57,628,561 | 57,356,654 | ||||||||
Average fully diluted shares outstanding | 57,586,100 | 58,385,354 | 58,314,385 | ||||||||
Average interest-earning assets | $ | 16,294 | $ | 16,391 | $ | 15,354 | |||||
Average interest-bearing liabilities | $ | 12,505 | $ | 13,046 | $ | 12,974 | |||||
Average stockholders' equity | $ | 1,583 | $ | 1,548 | $ | 1,414 |
(1) | Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates. |
(2) | Includes residential first mortgage. |
(3) | Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period. |
(4) | The three months ended December 31, 2018 excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. |
(5) | Excludes acquisition-related expenses attributable to the Wells Fargo branch acquisition of $1 million and $14 million for the three months ended March 31, 2019 and December 31, 2018, respectively. |
(6) | Excludes goodwill, intangible assets and the associated amortization. |
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Selected Statistics: | |||||||||||
Book value per common share | $ | 27.86 | $ | 27.19 | $ | 24.87 | |||||
Tangible book value per share (1) | $ | 24.65 | $ | 23.90 | $ | 23.62 | |||||
Number of common shares outstanding | 56,480,086 | 57,749,464 | 57,399,993 | ||||||||
Number of FTE employees | 3,996 | 3,938 | 3,659 | ||||||||
Number of bank branches | 160 | 160 | 107 | ||||||||
Ratio of nonperforming assets to total assets (2) | 0.17 | % | 0.16 | % | 0.19 | % | |||||
Common equity-to-assets ratio | 8.09 | % | 8.47 | % | 8.05 | % | |||||
MSR Key Statistics and Ratios: | |||||||||||
Weighted average service fee (basis points) | 38.0 | 35.8 | 30.4 | ||||||||
Capitalized value of mortgage servicing rights | 1.27 | % | 1.35 | % | 1.27 | % | |||||
Mortgage servicing rights to Tier 1 capital | 18.3 | % | 19.3 | % | 16.2 | % |
(1) | Excludes goodwill and intangibles of $182 million, $190 million, and $72 million at March 31, 2019, December 31, 2018, and March 31, 2018, respectively. See Non-GAAP Reconciliation for further information. |
(2) | Ratio excludes LHFS. |
10
Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
Three Months Ended | ||||||||||||||||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||||||||||||||||||||
Average Balance | Interest | Annualized Yield/Rate | Average Balance | Interest | Annualized Yield/Rate | Average Balance | Interest | Annualized Yield/Rate | ||||||||||||||||||
Interest-Earning Assets | ||||||||||||||||||||||||||
Loans held-for-sale | $ | 3,266 | $ | 38 | 4.72 | % | $ | 3,991 | $ | 48 | 4.78 | % | $ | 4,231 | $ | 44 | 4.12 | % | ||||||||
Loans held-for-investment | ||||||||||||||||||||||||||
Residential first mortgage | 3,044 | 28 | 3.64 | % | 3,115 | 29 | 3.68 | % | 2,773 | 23 | 3.41 | % | ||||||||||||||
Home equity | 745 | 10 | 5.63 | % | 717 | 10 | 5.43 | % | 668 | 9 | 5.21 | % | ||||||||||||||
Other | 356 | 6 | 7.11 | % | 231 | 3 | 6.06 | % | 27 | — | 4.56 | % | ||||||||||||||
Total Consumer loans | 4,145 | 44 | 4.30 | % | 4,063 | 42 | 4.12 | % | 3,468 | 32 | 3.76 | % | ||||||||||||||
Commercial Real Estate | 2,250 | 33 | 5.66 | % | 2,171 | 31 | 5.52 | % | 1,954 | 24 | 4.87 | % | ||||||||||||||
Commercial and Industrial | 1,594 | 21 | 5.39 | % | 1,345 | 19 | 5.48 | % | 1,217 | 16 | 5.21 | % | ||||||||||||||
Warehouse Lending | 1,175 | 16 | 5.47 | % | 1,337 | 18 | 5.29 | % | 848 | 11 | 5.14 | % | ||||||||||||||
Total Commercial loans | 5,019 | 70 | 5.53 | % | 4,853 | 68 | 5.45 | % | 4,019 | 51 | 5.03 | % | ||||||||||||||
Total loans held-for-investment | 9,164 | 114 | 4.97 | % | 8,916 | 110 | 4.84 | % | 7,487 | 83 | 4.44 | % | ||||||||||||||
Loans with government guarantees | 455 | 3 | 2.96 | % | 350 | 2 | 2.72 | % | 291 | 3 | 3.72 | % | ||||||||||||||
Investment securities | 3,258 | 24 | 2.91 | % | 2,996 | 21 | 2.84 | % | 3,233 | 22 | 2.69 | % | ||||||||||||||
Interest-earning deposits | 151 | 1 | 2.77 | % | 138 | — | 1.55 | % | 112 | — | 1.67 | % | ||||||||||||||
Total interest-earning assets | 16,294 | $ | 180 | 4.43 | % | 16,391 | $ | 181 | 4.39 | % | 15,354 | $ | 152 | 3.95 | % | |||||||||||
Other assets | 2,144 | 2,022 | 1,736 | |||||||||||||||||||||||
Total assets | $ | 18,438 | $ | 18,413 | $ | 17,090 | ||||||||||||||||||||
Interest-Bearing Liabilities | ||||||||||||||||||||||||||
Retail deposits | ||||||||||||||||||||||||||
Demand deposits | $ | 1,220 | $ | 2 | 0.68 | % | $ | 1,072 | $ | 3 | 1.02 | % | $ | 548 | $ | — | 0.26 | % | ||||||||
Savings deposits | 3,089 | 7 | 0.95 | % | 3,075 | 7 | 0.91 | % | 3,490 | 7 | 0.81 | % | ||||||||||||||
Money market deposits | 778 | 1 | 0.27 | % | 446 | — | 0.41 | % | 205 | — | 0.44 | % | ||||||||||||||
Certificates of deposit | 2,488 | 13 | 2.13 | % | 2,274 | 11 | 1.88 | % | 1,619 | 6 | 1.45 | % | ||||||||||||||
Total retail deposits | 7,575 | 23 | 1.22 | % | 6,867 | 21 | 1.22 | % | 5,862 | 13 | 0.92 | % | ||||||||||||||
Government deposits | ||||||||||||||||||||||||||
Demand deposits | 305 | — | 0.63 | % | 269 | 1 | 0.67 | % | 241 | — | 0.55 | % | ||||||||||||||
Savings deposits | 568 | 3 | 1.75 | % | 602 | 3 | 1.69 | % | 483 | 2 | 1.11 | % | ||||||||||||||
Certificates of deposit | 297 | 1 | 1.94 | % | 313 | 1 | 1.76 | % | 401 | 1 | 1.19 | % | ||||||||||||||
Total government deposits | 1,170 | 4 | 1.51 | % | 1,184 | 5 | 1.48 | % | 1,125 | 3 | 1.02 | % | ||||||||||||||
Wholesale deposits and other | 387 | 2 | 2.23 | % | 625 | 3 | 2.08 | % | 171 | 1 | 1.91 | % | ||||||||||||||
Total interest-bearing deposits | 9,132 | 29 | 1.30 | % | 8,676 | 29 | 1.31 | % | 7,158 | 17 | 0.96 | % | ||||||||||||||
Short-term FHLB advances and other | 2,725 | 17 | 2.54 | % | 2,954 | 18 | 2.39 | % | 4,032 | 15 | 1.53 | % | ||||||||||||||
Long-term FHLB advances | 153 | 1 | 1.54 | % | 921 | (25 | ) | (10.65 | )% | 1,290 | 7 | 2.10 | % | |||||||||||||
Less: Swap gain reclassified out of OCI (1) | — | 29 | — | |||||||||||||||||||||||
Adjusted long-term FHLB advances (1) | 153 | 1 | 1.54 | % | 921 | 4 | 1.97 | % | 1,290 | 7 | 2.10 | % | ||||||||||||||
Other long-term debt | 495 | 7 | 5.90 | % | 495 | 7 | 5.65 | % | 494 | 7 | 5.37 | % | ||||||||||||||
Adjusted total interest-bearing liabilities (1) | 12,505 | 54 | 1.75 | % | 13,046 | 58 | 1.76 | % | 12,974 | 46 | 1.41 | % | ||||||||||||||
Noninterest-bearing deposits (2) | 3,774 | 3,266 | 2,213 | |||||||||||||||||||||||
Other liabilities | 576 | 553 | 489 | |||||||||||||||||||||||
Stockholders' equity | 1,583 | 1,548 | 1,414 | |||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 18,438 | $ | 18,413 | $ | 17,090 | ||||||||||||||||||||
Net interest-earning assets | $ | 3,789 | $ | 3,345 | $ | 2,380 | ||||||||||||||||||||
Net interest income (1) | $ | 126 | $ | 123 | $ | 106 | ||||||||||||||||||||
Adjusted interest rate spread (1) (3) | 2.69 | % | 2.63 | % | 2.54 | % | ||||||||||||||||||||
Adjusted net interest margin (1) (4) | 3.09 | % | 2.99 | % | 2.76 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to interest-bearing liabilities | 130.3 | % | 125.6 | % | 118.3 | % | ||||||||||||||||||||
Total average deposits | $ | 12,906 | $ | 11,942 | $ | 9,371 |
(1) | The three months ended December 31, 2018 excludes $29 million of hedging gains reclassified from AOCI in conjunction with the payment of long-term FHLB advances. |
(2) | Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others. |
(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) | 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, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Net income | $ | 36 | $ | 54 | $ | 35 | |||||
Weighted average shares | |||||||||||
Weighted average common shares outstanding | 56,897,799 | 57,628,561 | 57,356,654 | ||||||||
Effect of dilutive securities | |||||||||||
Stock-based awards | 692,473 | 756,793 | 957,731 | ||||||||
Weighted average diluted common shares | 57,590,272 | 58,385,354 | 58,314,385 | ||||||||
Earnings per common share | |||||||||||
Basic earnings per common share | $ | 0.64 | $ | 0.94 | $ | 0.61 | |||||
Effect of dilutive securities | |||||||||||
Stock-based awards | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||
Diluted earnings per common share | $ | 0.63 | $ | 0.93 | $ | 0.60 |
Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
Tier 1 leverage (to adjusted avg. total assets) | $ | 1,520 | 8.37 | % | $ | 1,505 | 8.29 | % | $ | 1,475 | 8.72 | % | |||||
Total adjusted avg. total asset base | $ | 18,171 | $ | 18,158 | $ | 16,918 | |||||||||||
Tier 1 common equity (to risk weighted assets) | $ | 1,280 | 9.69 | % | $ | 1,265 | 10.54 | % | $ | 1,235 | 10.80 | % | |||||
Tier 1 capital (to risk weighted assets) | $ | 1,520 | 11.51 | % | $ | 1,505 | 12.54 | % | $ | 1,475 | 12.90 | % | |||||
Total capital (to risk weighted assets) | $ | 1,650 | 12.49 | % | $ | 1,637 | 13.63 | % | $ | 1,617 | 14.14 | % | |||||
Risk-weighted asset base | $ | 13,209 | $ | 12,006 | $ | 11,440 |
Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
Tier 1 leverage (to adjusted avg. total assets) | $ | 1,641 | 9.04 | % | $ | 1,574 | 8.67 | % | $ | 1,537 | 9.08 | % | |||||
Total adjusted avg. total asset base | $ | 18,155 | $ | 18,151 | $ | 16,926 | |||||||||||
Tier 1 common equity (to risk weighted assets) | $ | 1,641 | 12.44 | % | $ | 1,574 | 13.12 | % | $ | 1,537 | 13.42 | % | |||||
Tier 1 capital (to risk weighted assets) | $ | 1,641 | 12.44 | % | $ | 1,574 | 13.12 | % | $ | 1,537 | 13.42 | % | |||||
Total capital (to risk weighted assets) | $ | 1,771 | 13.42 | % | $ | 1,705 | 14.21 | % | $ | 1,679 | 14.66 | % | |||||
Risk-weighted asset base | $ | 13,193 | $ | 11,997 | $ | 11,449 |
12
Loans Serviced
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||||||||||||||
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) | $ | 170,476 | 814,248 | $ | 146,040 | 705,149 | $ | 77,748 | 360,396 | |||||||||||
Serviced for others | 21,925 | 90,622 | 21,592 | 88,434 | 18,767 | 77,426 | ||||||||||||||
Serviced for own loan portfolio (3) | 7,631 | 56,687 | 7,438 | 57,401 | 7,653 | 38,291 | ||||||||||||||
Total loans serviced | $ | 200,032 | 961,557 | $ | 175,070 | 850,984 | $ | 104,168 | 476,113 |
(1) | UPB, 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 loans held-for-investment (residential first mortgage, home equity and other consumer), loans-held-for-sale (residential first mortgage), loans with government guarantees (residential first mortgage), and repossessed assets. |
Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||||||||
Consumer loans | |||||||||||||||||
Residential first mortgage | $ | 3,100 | 31.2 | % | $ | 2,999 | 33.0 | % | $ | 2,818 | 34.6 | % | |||||
Home equity | 796 | 8.0 | % | 731 | 8.0 | % | 671 | 8.3 | % | ||||||||
Other | 433 | 4.4 | % | 314 | 3.5 | % | 25 | 0.3 | % | ||||||||
Total consumer loans | 4,329 | 43.6 | % | 4,044 | 44.5 | % | 3,514 | 43.2 | % | ||||||||
Commercial loans | |||||||||||||||||
Commercial real estate | 2,324 | 23.4 | % | 2,152 | 23.7 | % | 1,985 | 24.4 | % | ||||||||
Commercial and industrial | 1,651 | 16.6 | % | 1,433 | 15.8 | % | 1,228 | 15.1 | % | ||||||||
Warehouse lending | 1,632 | 16.4 | % | 1,459 | 16.0 | % | 1,407 | 17.3 | % | ||||||||
Total commercial loans | 5,607 | 56.4 | % | 5,044 | 55.5 | % | 4,620 | 56.8 | % | ||||||||
Total loans held-for-investment | $ | 9,936 | 100.0 | % | $ | 9,088 | 100.0 | % | $ | 8,134 | 100.0 | % |
Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
As of/For the Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Allowance for loan losses | |||||||||||
Residential first mortgage | $ | 35 | $ | 38 | $ | 47 | |||||
Home equity | 16 | 15 | 21 | ||||||||
Other | 4 | 3 | 1 | ||||||||
Total consumer loans | 55 | 56 | 69 | ||||||||
Commercial real estate | 36 | 48 | 44 | ||||||||
Commercial and industrial | 30 | 18 | 20 | ||||||||
Warehouse lending | 6 | 6 | 6 | ||||||||
Total commercial loans | 72 | 72 | 70 | ||||||||
Total allowance for loan losses | $ | 127 | $ | 128 | $ | 139 |
13
Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
For the Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Beginning balance | $ | 128 | $ | 134 | $ | 140 | |||||
Provision (benefit) for loan losses | — | (5 | ) | — | |||||||
Charge-offs | |||||||||||
Total consumer loans | (2 | ) | (2 | ) | (2 | ) | |||||
Total charge-offs | $ | (2 | ) | $ | (2 | ) | $ | (2 | ) | ||
Recoveries | |||||||||||
Total consumer loans | 1 | 1 | 1 | ||||||||
Total recoveries | 1 | 1 | 1 | ||||||||
Charge-offs, net of recoveries | (1 | ) | (1 | ) | (1 | ) | |||||
Ending balance | $ | 127 | $ | 128 | $ | 139 | |||||
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1): | |||||||||||
Residential first mortgage | 0.05 | % | 0.05 | % | 0.11 | % | |||||
Home equity and other consumer | 0.23 | % | 0.23 | % | 0.28 | % | |||||
Commercial real estate | — | % | (0.02 | )% | (0.01 | )% | |||||
Commercial and industrial | 0.02 | % | — | % | (0.01 | )% |
(1) | Excludes loans carried under the fair value option. |
Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
Nonperforming LHFI | $ | 14 | $ | 12 | $ | 14 | |||||
Nonperforming TDRs | 3 | 3 | 5 | ||||||||
Nonperforming TDRs at inception but performing for less than six months | 7 | 7 | 10 | ||||||||
Total nonperforming LHFI and TDRs (1) | 24 | 22 | 29 | ||||||||
Real estate and other nonperforming assets, net | 8 | 7 | 5 | ||||||||
LHFS | $ | 13 | $ | 10 | $ | 11 | |||||
Total nonperforming assets | $ | 45 | $ | 39 | $ | 45 | |||||
Ratio of nonperforming assets to total assets (2) | 0.17 | % | 0.16 | % | 0.19 | % | |||||
Ratio of nonperforming LHFI and TDRs to LHFI | 0.24 | % | 0.24 | % | 0.35 | % | |||||
Ratio of nonperforming assets to LHFI and repossessed assets (2) | 0.33 | % | 0.32 | % | 0.42 | % |
(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. |
14
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 Loans Held-for-Investment | |||||||||||||||
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 | |||||||||
December 31, 2018 | |||||||||||||||||||
Consumer loans | $ | 5 | $ | 2 | $ | 22 | $ | 29 | $ | 4,044 | |||||||||
Commercial loans | — | — | — | — | 5,044 | ||||||||||||||
Total loans | $ | 5 | $ | 2 | $ | 22 | $ | 29 | $ | 9,088 | |||||||||
March 31, 2018 | |||||||||||||||||||
Consumer loans | 4 | 1 | 29 | $ | 34 | $ | 3,514 | ||||||||||||
Commercial loans | — | — | — | — | 4,620 | ||||||||||||||
Total loans | $ | 4 | $ | 1 | $ | 29 | $ | 34 | $ | 8,134 |
(1) | Includes performing nonaccrual loans that are less than 90 days delinquent and for which interest cannot be accrued. |
Troubled Debt Restructurings
(Dollars in millions)
(Unaudited)
TDRs | |||||||||||
Performing | Nonperforming | Total | |||||||||
March 31, 2019 | |||||||||||
Consumer loans | $ | 43 | $ | 10 | $ | 53 | |||||
Commercial loans | — | — | — | ||||||||
Total TDR loans | $ | 43 | $ | 10 | $ | 53 | |||||
December 31, 2018 | |||||||||||
Consumer loans | $ | 44 | $ | 10 | $ | 54 | |||||
Total TDR loans | $ | 44 | $ | 10 | $ | 54 | |||||
March 31, 2018 | |||||||||||
Consumer loans | $ | 44 | $ | 15 | $ | 59 | |||||
Commercial loans | 5 | — | 5 | ||||||||
Total TDR loans | $ | 49 | $ | 15 | $ | 64 |
15
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 acquisition related expenses and hedging gains recognized in conjunction with the Well Fargo branch acquisition in 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 equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted net income, adjusted basic and diluted earnings per share, adjusted noninterest expense, adjusted net interest income, adjusted net interest margin, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted HFI loan-to-deposit ratio 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, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | |||||||||||||||
(Dollars in millions, except share data) | |||||||||||||||||||
Total stockholders' equity | $ | 1,574 | $ | 1,570 | $ | 1,518 | $ | 1,475 | $ | 1,427 | |||||||||
Less: Goodwill and intangible assets | 182 | 190 | 70 | 71 | 72 | ||||||||||||||
Tangible book value | $ | 1,392 | $ | 1,380 | $ | 1,448 | $ | 1,404 | $ | 1,355 | |||||||||
Number of common shares outstanding | 56,480,086 | 57,749,464 | 57,625,439 | 57,598,406 | 57,399,993 | ||||||||||||||
Tangible book value per share | $ | 24.65 | $ | 23.90 | $ | 25.13 | $ | 24.37 | $ | 23.62 | |||||||||
Total assets | $ | 19,445 | $ | 18,531 | $ | 18,697 | $ | 18,130 | $ | 17,736 | |||||||||
Tangible common equity to assets ratio | 7.16 | % | 7.45 | % | 7.74 | % | 7.74 | % | 7.65 | % |
Return on average tangible equity, adjusted return on average tangible equity and adjusted return on average assets.
Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
(Dollars in millions) | |||||||||||
Net income | $ | 36 | $ | 54 | $ | 35 | |||||
Less: Intangible asset amortization | 4 | 3 | — | ||||||||
Tangible net income | $ | 40 | $ | 57 | $ | 35 | |||||
Total equity | $ | 1,583 | $ | 1,548 | $ | 1,414 | |||||
Less: Average goodwill and intangible assets | 187 | 129 | 36 | ||||||||
Total tangible equity | $ | 1,396 | $ | 1,419 | $ | 1,378 | |||||
Return on average equity | 9.16 | % | 13.98 | % | 9.94 | % | |||||
Return on average tangible equity | 11.55 | % | 15.88 | % | 10.21 | % | |||||
Adjustment to remove Wells Fargo acquisition costs | 0.23 | % | 3.32 | % | — | % | |||||
Adjustment to remove hedging gains | — | % | (6.76 | )% | — | % | |||||
Adjusted return on average tangible equity | 11.78 | % | 12.44 | % | 10.21 | % | |||||
Return on average assets | 0.79 | % | 1.17 | % | 0.82 | % | |||||
Adjustment to remove Wells Fargo acquisition costs | 0.01 | % | 0.26 | % | — | % | |||||
Adjustment to remove hedging gains | — | % | (0.52 | )% | — | % | |||||
Adjusted return on average assets | 0.80 | % | 0.91 | % | 0.82 | % |
16
Adjusted income before taxes, net income, provision for income taxes, basic earnings per share, diluted earnings per share, net interest income, net interest margin, noninterest expense and efficiency ratio.
Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | |||||||||
(Dollars in millions) | |||||||||||
Income before income taxes | $ | 44 | $ | 66 | $ | 60 | |||||
Adjustment for Wells Fargo acquisition costs | 1 | 14 | 1 | ||||||||
Adjustment for hedging gains | — | (29 | ) | — | |||||||
Adjusted income before income taxes | $ | 45 | $ | 51 | $ | 61 | |||||
Provision for income taxes | $ | 8 | $ | 12 | $ | 12 | |||||
Tax impact on adjustment for Wells Fargo acquisition costs | — | 2 | — | ||||||||
Tax impact on adjustment for hedging gains | — | (5 | ) | — | |||||||
Adjusted provision for income taxes | $ | 8 | $ | 9 | $ | 12 | |||||
Net income | $ | 36 | $ | 54 | $ | 48 | |||||
Adjusted net income | $ | 37 | $ | 42 | $ | 49 | |||||
Weighted average common shares outstanding | 56,897,799 | 57,628,561 | 57,600,360 | ||||||||
Weighted average diluted common shares | 57,586,100 | 58,385,354 | 58,332,598 | ||||||||
Adjusted basic earnings per share | $ | 0.65 | $ | 0.73 | 0.86 | ||||||
Adjusted diluted earnings per share | $ | 0.64 | $ | 0.72 | 0.85 | ||||||
Total net interest income | $ | 126 | $ | 152 | 124 | ||||||
Hedging gains | — | (29 | ) | — | |||||||
Adjusted total net interest income | $ | 126 | $ | 123 | $ | 124 | |||||
Average interest earning assets | $ | 16,294 | $ | 16,391 | $ | 16,786 | |||||
Net interest margin | 3.09 | % | 3.70 | % | 2.93 | % | |||||
Adjusted net interest margin | 3.09 | % | 2.99 | % | 2.93 | % | |||||
Total noninterest expense | $ | 191 | $ | 189 | $ | 173 | |||||
Wells Fargo acquisition costs | 1 | 14 | 1 | ||||||||
Adjusted total noninterest expense | $ | 190 | $ | 175 | $ | 172 | |||||
Efficiency ratio | 81.3 | % | 75.7 | % | 74.6 | % | |||||
Adjustment to remove Wells Fargo acquisition costs | (0.5 | )% | (5.7 | )% | (0.5 | )% | |||||
Adjustment to remove hedging gains | — | % | 9.2 | % | — | % | |||||
Adjusted efficiency ratio | 80.8 | % | 79.2 | % | 74.1 | % |
Adjusted HFI loan-to-deposit ratio.
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | |||||||||||||||
(Dollars in millions, except share data) | |||||||||||||||||||
Average LHFI | $ | 9,164 | $ | 8,916 | $ | 8,872 | $ | 8,380 | $ | 7,487 | |||||||||
Less: Warehouse loans | 1,175 | 1,337 | 1,586 | 1,495 | 848 | ||||||||||||||
Adjusted average LHFI | $ | 7,989 | $ | 7,579 | $ | 7,286 | $ | 6,885 | $ | 6,639 | |||||||||
Average deposits | $ | 12,906 | $ | 11,942 | $ | 11,336 | $ | 10,414 | $ | 9,371 | |||||||||
Less: Custodial deposits | 2,535 | 2,133 | 1,971 | 1,604 | 1,456 | ||||||||||||||
Adjusted average deposits | $ | 10,371 | $ | 9,809 | $ | 9,365 | $ | 8,810 | $ | 7,915 | |||||||||
HFI loan-to-deposit ratio | 71.0 | % | 74.7 | % | 78.3 | % | 80.5 | % | 79.9 | % | |||||||||
Adjusted HFI loan-to-deposit ratio | 77.0 | % | 77.3 | % | 77.8 | % | 78.1 | % | 83.9 | % |
17
1st Quarter 2019 Flagstar Bancorp, Inc. (NYSE: FBC) Earnings Presentation 1st Quarter 2019 April 23, 2019
Cautionary statements 1st Quarter 2019 This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s business and performance, the economy and other future conditions, and forecasts of future events, circumstances and results. However, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies and other factors. Generally, forward-looking statements are not based on historical facts but instead represent our management’s beliefs regarding future events. Such statements may be identified by words such as believe, expect, anticipate, intend, plan, estimate, may increase, may fluctuate, and similar expressions or future or conditional verbs such as will, should, would and could. Such statements are based on management’s current expectations and are subject to risks, uncertainties and changes in circumstances. Actual results and capital and other financial conditions may differ materially from those included in these statements due to a variety of factors, including without limitation those found 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). Any forward-looking statements made by or on behalf of us speak only as to the date they are made, and we do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made, except as required under United States securities laws. In addition to results presented in accordance with GAAP, this presentation includes 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, which are not required to be uniformly applied. 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 these conference call slides. Additional discussion of the use of non-GAAP measures can also be found in the Form 8-K Current Report related to this presentation 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. 2
Executive Overview 1st Quarter 2019 Sandro DiNello, CEO
Strategic highlights 1st Quarter 2019 • Solid profitability driven by expanded net interest margin and increased mortgage revenues Unique - Adjusted net interest margin expanded 10bps(1) to 3.09%, reflecting full quarter benefit of Wells Fargo branch deposits relationship-based business model • Capital actions during 1Q19 underscore progress in strengthening franchise and diversifying business - Initiated $50 million share repurchase program and quarterly dividend, first since December 2007 • Successfully completed integration of the 52 acquired Midwest branches Grow community - 4.9% deposit attrition at March 31, 2019 compared to 8.7% previously disclosed; only 2.7% within branch footprint banking • Average CRE and C&I loans up $328mm vs. 4Q18; average consumer loans up $82mm vs. 4Q18 • Mortgage revenue up due to continued price and expense discipline plus improved mortgage market late in quarter Strengthen - Net gain on loan sales of $49mm; up 44% vs. 4Q18 mortgage revenues - Net return on MSRs of $6mm; down $4mm vs. 4Q18 • Adjusted net income(1) of $37mm, or $0.64 per diluted share; down 12% vs. adjusted 4Q18 net income(1) Highly profitable • Trailing 12 months adjusted ROA(1) 1.0%; trailing 12 months adjusted ROTCE(1) 13.2% operations • Built scale and profitability in servicing business; 962,000 loans serviced, up 13% vs. 4Q18 and 102% vs. 1Q18 • Strong credit metrics and low delinquency levels supported by 1.3% allowance coverage ratio Positioned to thrive in any market • Solid total risk based capital ratio of 12.5%; Capital Simplification NPR would improve total risk based capital ratio to 12.8%(1) 1) Non-GAAP number. Please see reconciliations on page 42 and 43. 4
Financial Overview 1st Quarter 2019 Jim Ciroli, CFO
Financial highlights 1st Quarter 2019 • Adjusted net income(1) of $37mm, or $0.64 per diluted share, in 1Q19, down 12% vs. 4Q18 net income Solid earnings - Adjusted net interest income of $126mm; up $3mm(1) driven by full quarter benefit from the Wells Fargo acquisition - Mortgage revenue(2) of $55mm; up $11mm driven by higher net gain on loan sales • Net interest margin expanded 10bps(1) to 3.09%, reflecting full quarter benefit of acquired branches Growth in • Average earning assets declined slightly; broad-based growth in CRE, C&I and consumer loans offset by anticipated community banking seasonal decline in loans HFS and warehouse loans • Mortgage revenue(2) up $11mm, or 25%, vs. 4Q18 Higher mortgage - Net gain on loan sales rose $15mm, or 44%; FOAL up $1.3bn, or 25%; GOS margin up 12 basis points revenue - Net return on MSRs decreased $4mm • Asset quality remains strong as net charge-offs were only 5bps Pristine asset • Nonperforming loan ratio was flat at 0.24%; low early stage delinquencies with no nonperforming commercial loans quality • Allowance for loan losses covered 1.3% of loans HFI, among the strongest in the industry • Total risk based capital ratio at 12.5% (12.8%(1) under Capital Simplification NPR) Robust capital - Represents stress buffer of $329mm of capital protection position • Tier 1 leverage ratio at 8.4% (8.9%(1) under Capital Simplification NPR) vs. target range of 8-9% 1) Non-GAAP number. Please see reconciliations on page 42 and 43. 2) Mortgage revenue is defined as net gain on loan sales HFS plus the net return on the MSRs. 6
Quarterly income comparison 1st Quarter 2019 $mm Observations 1Q19 4Q18 $ Variance % Variance A Net interest income Net interest income A $126 $123 (2) 3 2% (2) Provision (benefit) for loan losses ("PLL") - (5) 5 N/M • Net interest income up $3mm , or 2% Net interest income after PLL 126 128 (2) (2%) - Net interest margin rose 10 bps(2) to 3.09%, reflecting full quarter benefit of Wells Fargo Net gain on loan sales 49 34 15 44% deposits and reduction in FHLB borrowings Loan fees and charges 17 20 (3) (15%) - Broad-based growth in consumer and commercial Loan administration income 11 8 3 38% loans offset by anticipated seasonal decline in Net return on mortgage servicing rights 6 10 (4) (40%) loans HFS and warehouse loans Other noninterest income 26 26 - - % Total noninterest income B 109 98 11 11% B Noninterest income Compensation and benefits 87 79 (1) 8 10% Commissions and loan processing expense 30 32 (2) (6%) • Noninterest income increased $11mm, or 11% Other noninterest expenses 73 (1) 64 (1) 9 14% - Net gain on loan sales rose $15mm, or 44%, (1) (1) Total noninterest expense C 190 175 15 9% driven by a 25% increase in FOAL and a 12 basis (1) (1)(2) point increase in GOS margin Income before income taxes 45 51 (6) (12%) Provision for income taxes 8 (1) 9 (1)(2) (1) (11%) - Deposit fees and charges up $2mm, or 33%, led by full quarter benefit of acquired branches Net income $37 (1) $42 (1)(2) ($5) (12%) despite fee waivers to assist during transition Diluted income per share $0.64 (1) $0.72 (1)(2) (0.08) (11%) C Noninterest expense Profitability (1) Net interest margin 3.09% 2.99% (2) 10 bps • Adjusted noninterest expense up $15mm, or 9% (2) Total revenues 235 221 $14 6% - Higher costs reflect full quarter of operating Net gain on loan sales / total revenue 21% 15% 600 bps expenses for acquired branches Mortgage rate lock commitments, fallout adjusted $6,602 $5,284 $1,318 25% Mortgage closings $5,513 $6,340 ($827) (13%) - Seasonally higher payroll taxes and employee Net gain on loan sale margin, HFS 0.72% 0.60% 12 bps benefits of approximately $4mm 1) Non-GAAP number for 1Q19 and 4Q18. Number shown excludes expenses attributable to Wells Fargo branch acquisition. Please see reconciliations on page 42 and 43. 2) Non-GAAP number for 4Q18. Number shown excludes hedging gains reclassified from AOCI to net interest income in conjunction with payment of long-term FHLB. Please see reconciliations on page 42 and 43. N/M – not meaningful 7
Average balance sheet highlights 1st Quarter 2019 1Q19 ($mm) Observations Average Balance Sheet Interest-earning assets Incr (Decr)(1) $ $ % • AverageSolid gains loans in commercial HFI grew $248mm loan portfolio;; all loan warehouse categories loans excludingincreased warehouse$91mm, or 6experienced%, CRE loans modest increased growth; $88mm, Loans held-for-sale $3,266 ($725) (18%) warehouseor 4%, and C&Iloans loans declined increased seasonally $74mm, by $162mmor 6% (2) Consumer loans 4,145 82 2% • -ConsumerAverage commercialloans up $239mm, loans rose or 7%; $328mm focus, onor adding9%, Commercial loans(2) 5,019 166 3% residentialexcluding mortgage warehouse and loans indirect marine/RV loans with high risk adjusted returns Total loans held-for-investment 9,164 248 3% - Average consumer loans increased $82mm, or 2%, largely led by non-auto indirect lending portfolio Other earning assets(3) 3,864 380 11% Interest-earning assets $16,294 ($97) (1%) Interest-bearing liabilities Other assets 2,144 122 6% • AverageCustodial deposits deposits increased increased $964mm, $366mm ,or or 8%, 23%, driven on higher by Total assets $18,438 $25 - % fullsubserviced quarter of accounts Wells Fargo deposits and higher custodial deposits Deposits $12,906 $964 8% • Brokered deposits increased $273mm Short-term FHLB advances & other 2,725 (229) (8%) • Commercial- Average custodial demand deposits deposits rose increased $402mm $259mm,, or 19%, or 25% Long-term FHLB advances 153 (768) (83%) driven by 13% increase in serviced accounts Other long-term debt 495 - - % - Provides additional risk based capital and funding at - costBrokered favorable deposits to marginal decreased alternatives $237mm, or 38% Other liabilities 576 23 4% • FHLB advances decreased $997mm, or 26% Total liabilities $16,855 ($10) - % Stockholders' equity 1,583 35 2% Equity(4) Equity(4) Total liabilities and stockholders' equity $18,438 $25 - % • Tangible common equity to asset ratio of 7.16% (4) Tangible book value per common share $24.65 $0.75 3% • FBC closing share price of $35.87 on April 22, 2019 is 146% of tangible book value per share 1) Measured vs. the prior quarter. 2) Consumer loans include first and second mortgages, HELOC and other loans; commercial loans include commercial real estate, commercial & industrial and warehouse loans. 3) Other earning assets include interest earning deposits, investment securities and loans with government guarantees. 4) References a non-GAAP number. Please see reconciliations on page 42 and 43. 8
Asset quality 1st Quarter 2019 Delinquencies ($mm) Performing TDRs and NPLs ($mm) (1) Flagstar Acquired Loans Performing TDRs NPLs $34 $33 $30 $28 $29 4 $78 $70 $68 $66 $67 29 27 25 34 22 24 30 28 29 29 49 43 43 44 43 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 1) Includes loans acquired in conjunction with the Wells Fargo branch acquisition from 4Q18 Allowance coverage(2) (% of loans HFI) Nonperforming loan and asset ratios (3) (3) Total Consumer Commercial NPA/LHFI & OREOs NPL & TDRs/LHFI NPA/Total Assets 2.0% 0.42% 0.38% 1.7% 0.35% 1.7% 0.32% 0.33% 1.6% 1.5% 1.5% 1.4% 0.35% 1.4% 0.30% 1.5% 1.3% 0.28% 0.24% 0.24% 1.4% 1.4% 1.4% 1.3% 0.19% 0.19% 1.3% 0.17% 0.16% 0.17% 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 2) Excludes loans carried under the fair value option and loans with government guarantees. 3) Excludes loans held-for-sale 9
Robust capital 1st Quarter 2019 Flagstar Bancorp Capital Ratios Observations 4Q18 Balance sheet impact Net operating earnings contribution Change in MSR balance Share repurchases Tier 1 CET-1 Tier 1 Total RBC Leverage to RWA to RWA to RWA Proforma ratio under Capital Simplification proposal(1) 1Q19 Actual 8.4% 9.7% 11.5% 12.5% 4Q18 Actual 8.3% 10.6% 12.5% 13.6% Total Risk Based Capital 13.9% • Capital remains solid post the share repurchase 13.6% • Total risk based capital ratio ended quarter at 12.5% (12.8% under Capital Simplification proposal) (1) 12.8% - $329 million of capital protection -122 bps +8 bps 12.5% • Tier 1 leverage ratio ended quarter at 8.4% (8.9% under -38 bps +38 bps Capital Simplification proposal) (1) - Under Capital Simplification proposal, operating in upper half of target operating range of 8-9% Well Capitalized • Supporting value creation strategy, company has ample capital 10.0% to grow and hold additional interest earning assets. 12/31/2018 3/31/2019 1) Non-GAAP number. Please see reconciliations on page 42 and 43. 10
Business Segment Overview 1st Quarter 2019 Lee Smith, COO
Community banking 1st Quarter 2019 Average commercial loans ($bn) Quarter-end commercial loan commitments ($bn) Commercial and Industrial Commercial Real Estate Warehouse Commercial and Industrial Commercial Real Estate Warehouse $10.3 $5.0 $5.0 $4.8 $4.8 $9.1 $9.3 $9.2 $9.5 $4.0 1.2 1.6 1.3 3.9 1.5 3.8 0.8 4.3 4.2 4.0 2.2 2.0 2.1 2.2 3.8 2.0 3.4 2.9 3.0 3.2 1.6 1.2 1.3 1.3 1.3 1.9 2.1 2.0 2.3 2.6 1Q18 2Q18 3Q18 4Q18 1Q19 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 Average consumer loans ($bn) Average deposit funding(1) ($bn) Residential First Mortgages Other Consumer Loans Retail Government Custodial deposits Brokered deposits $4.1 $4.2 $3.9 $12.9 $11.9 $3.5 $3.6 $11.3 1.1 0.9 1.0 $10.4 2.5 0.7 0.7 $9.4 2.1 1.6 2.0 1.2 1.5 1.2 1.2 1.2 1.1 2.8 2.9 3.0 3.1 3.1 8.0 8.8 6.6 7.3 7.6 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 1) Includes custodial deposits which are included as part of mortgage servicing. 12
Mortgage originations 1st Quarter 2019 Closings by purpose ($bn) Fallout-adjusted locks ($bn) Purchase originations Refinance originations $9.0 $8.3 $9.0 $9.2 $7.7 $7.9 $6.6 2.6 2.4 $6.3 $5.3 3.4 $5.5 2.0 1.9 6.4 6.8 4.5 4.3 3.6 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 Purchase 59% 72% 71% 58% 63% Mix % Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin Conventional Government Jumbo Gain on loan sale ($mm) Gain on sale margin (HFS) $9.0 $9.2 $7.9 $63 2.2 2.2 $60 $6.3 1.9 $49 $5.5 $43 2.7 2.6 1.2 2.1 0.9 0.77% 0.71% $34 1.9 1.3 0.51% 0.72% 4.1 4.4 3.9 3.2 3.3 0.60% 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 13
Mortgage servicing 1st Quarter 2019 Quarter-end loans serviced (000’s) $ UPB of MSRs sold ($bn) Serviced for Others Subserviced for Others Flagstar Loans HFI Bulk Sales Flow Transactions 962 851 $12.0 628 542 476 $6.4 814 $5.9 705 $4.4 1.3 495 $3.6 361 424 4.6 3.9 2.9 77 79 89 88 91 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 1Q18 2Q18 3Q18 4Q18 1Q19 Average custodial deposits ($bn) MSR / regulatory capital (Bancorp) MSR to Tier 1 Common MSR to Tier 1 Capital $2.5 $2.1 $2.0 $1.6 24% $1.5 23% 22% 19% 20% 20% 19% 18% 16% 17% 1Q18 2Q18 3Q18 4Q18 1Q19 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 14
Noninterest expense and efficiency ratio 1st Quarter 2019 Quarterly noninterest expense ($mm) and efficiency ratio (1) (2) (1) Adjusted noninterest expense Acquired branch expenses Adjusted efficiency ratio $190 $177 $175 16 $173 $172 5 81% 80% 79% 74% 74% 1Q18 2Q18 3Q18 4Q18 1Q19 1) References non-GAAP number for 1Q19, 4Q18 and 3Q18; excludes acquisition costs of $1 million, $14 million and $1 million for 1Q19, 4Q18 and 3Q18, respectively, related to Wells Fargo branch acquisition. In addition, 4Q18 excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. Please see reconciliations on page 42 and 43. 2) Direct expenses and estimated back office costs related to operating the 52 branches acquired during 4Q18. 15
Closing Remarks / Q&A 1st Quarter 2019 Sandro DiNello, CEO
Earnings guidance(1) 1st Quarter 2019 2nd Quarter 2019 Outlook • Net interest income up 5-10% Net interest income - Seasonally higher interest earning assets - Net interest margin improves 5-10 basis points • Net gain on loan sales up 30-40% on seasonal increase in mortgage market - Fallout-adjusted locks (FOAL) up 25-30%; GOS margin improves slightly Noninterest income • Net return on mortgage servicing rights declines slightly • All other noninterest income up approximately 5-10% • Noninterest expense to increase to between $205-$210 million, due to variable costs to support higher Noninterest expense mortgage volume Effective tax rate • Effective tax rate approximately 18%, consistent with 4Q18 1) See cautionary statements on slide 2. 17
Appendix 1st Quarter 2019 Company overview 19 Financial performance 24 Community banking 27 Mortgage originations 36 Mortgage servicing 38 Capital and liquidity 39 Non-GAAP reconciliation 42
COMPANY OVERVIEW Flagstar at a glance 1st Quarter 2019 Corporate Overview • Traded on the NYSE (FBC) 160 72 Flagstar Retail home • Headquartered in Troy, MI Bank lending Branches Offices(1) • Market capitalization $2.0bn • Member of the Russell 2000 Index 99 Branches in Michigan Community banking • Leading Michigan-based bank with a balanced, diversified lending platform • $19.4bn of assets and $13.5bn of deposits • More than 235k household & 26k business relationships Mortgage origination • Leading national originator of residential mortgages ($30.1bn during twelve months ended March 31, 2019) • 72 retail home lending offices operating in 22 states with direct-to-consumer in all 50 states • More than 1,100 correspondent and nearly 1,000 broker relationships Mortgage servicing Operations center • 5th largest sub-servicer of mortgage loans nationwide • Servicing 962k loans as of March 31, 2019 • Efficiently priced deposits from escrow balances 1) Includes seven home lending offices located in banking branches. 19
COMPANY OVERVIEW Flagstar’s integrated business model 1st Quarter 2019 ● Illustrative case studies detailed below: Residential MBS Investor Home Builder Wholesale Originator Initial relationship Initial relationship Initial relationship • Bulk sale of MSRs with subservicing • Provided home builder line of credit • Established correspondent lending retained (2013 - 2014) (2016) relationship (2017) Expanded relationship - Secured real estate commitment of - Purchased nearly $310mm of $15mm (currently $53mm) mortgages since inception (2017) • Provided MSR lending facility (2016) Expanded relationship Expanded relationship - Commitments of $50mm collateralized by FNMA MSRs • Established 40 additional deposit • Warehouse line of credit (2017) accounts (2016-2018) - Subservice non-Flagstar mortgage - Commitments of $15mm accounts providing fee income - Average deposit balance of $7mm • Initiated subservicing agreement • Portfolio recapture services provided • Warehouse line of credit (2017) (2017) with direct-to-consumer refinancings of nearly $422mm since inception - Commitments of $10mm - Entire portfolio of newly originated (2016) mortgage loans are on-boarded with Flagstar • Additional bulk and flow sales of MSRs with subservicing retained (2017 - 2019) 20
COMPANY OVERVIEW Flagstar has a strong executive team 1st Quarter 2019 Board of Directors John Lewis Chairman Chief Audit Officer Sandro DiNello Brian Dunn President & CEO • CEO since 5/13 • Over 35 years of banking experience with Flagstar and its predecessors with a strong emphasis on community banking, including the management of retail operations and product strategy Chief Chief Mortgage Community Chief Risk General Operating Officer Financial Officer Banking Banking Officer Counsel Lee Smith Jim Ciroli Kristy Fercho Drew Ottaway Steve Figliuolo Patrick McGuirk • COO since 5/13 • CFO since 8/14 • Appointed • Executive Vice • CRO since 6/14 • General Counsel • Formerly a partner • More than 30 years President of President, • Over 35 years of since 6/15 of MatlinPatterson of banking and Mortgage effective President of financial services • Over 20 years of Global Advisors and financial services 9/17 Banking experience with financial services a Senior Director at experience with • Has 15 years • With Flagstar since Citizens Republic, legal experience Zolfo Cooper First Niagara, experience with 12/15 and has 30 Fleet Boston with the FDIC and • Extensive expe- Huntington and Fannie Mae in years of banking Financial, First Sidley Austin LLP rience in financial KeyCorp various executive and commercial Union and Chase management and and leadership lending experience Manhattan operations roles focused on in southeast building banking Michigan with • Chartered Accoun- relationships and Comerica and NBD tant in England and growth initiatives Wales 21
Risk management COMPANY OVERVIEW Best-in-class risk management platform with 277 FTEs(1) 1st Quarter 2019 Board of Directors Risk Committee Enterprise Sandro DiNello Risk Committee President & CEO Karen Sabatowski Steve Figliuolo Chief Compliance Chief Risk Officer Officer Chief QC / Financial Regulatory MFIU Fraud Loan Operational Vendor Credit Appraisal Crimes Compliance Affairs Investigations Review Risk Management Officer Review (BSA/AML) FTEs 5 70 49 12 7 12 47 15 30 1) Does not include 30 FTEs in internal audit as of 3/31/2019. 22
COMPANY OVERVIEW Strong growth opportunities 1st Quarter 2019 Grow community banking Build mortgage subservicing business • Opportunistic team lift outs • Grow subservicing operations • Grow national lending platforms(1) - Retain subservicing on MSR sales - Expand warehouse lending (275bp spread) - Acquire new 3rd party subservicing relationships where Flagstar was not the originator - Grow home builder finance (400bp spread) - Cross-sell additional revenue capabilities - Build MSR lending (300bp spread; LTVs<60%) • Cultivate middle-market and business banking relationships, especially in acquired deposit footprint • Add specialty lending disciplines and teams - Grow consumer lending business (home equity and non-auto indirect) 1) Indicated spreads are targets and may not be reflective of actual spreads. 23
FINANCIAL PERFORMANCE Financial performance 1st Quarter 2019 ● Solid growth in banking and subservicing has created more stable earnings ● Heightened focus on efficiency and expense management Revenue Composition and Earnings Metrics 3/31/2018 3/31/2019 Percentage Percentage Revenue (millions) YTD YTD of Revenue Increase Community Banking $ 75 $ 109 47% 45% Mortgage Servicing 21 38 16% 81% Subtotal 96 147 63% 53% Mortgage Origination 112 94 40% (16%) Other 9 (6) (3%) N/M Total $ 217 $ 235 100% 8% Diluted Earnings per Share $ 0.60 $ 0.64 (1) 7% Return on Average Assets 0.8% 0.8% (1) Return on Average Tangible Common Equity 10.2% 11.8% (1) 1) Non-GAAP number for 1Q19. Number shown excludes acquisition costs of $1 million related to Wells Fargo branch acquisition. Please see reconciliations on page 42 and 43. 24
FINANCIAL PERFORMANCE Higher net interest income is stabilizing earnings 1st Quarter 2019 ● Achieving earning asset growth without diminishing net interest income growth - Growing and expanding net interest margin ● Transition to more stable net interest income Average earning assets and net interest income (1) Net interest income ($mm) Average earning assets ($bn) $16.8 $16.4 $16.3 CAGR 15% $16.0 $15.4 $15.4 $124 $123 $126 $14.7 $14.0 $115 CAGR 18% $107 $106 $12.8 $103 $12.3 $12.3 $97 $11.9 $11.6 $11.2 $87 $10.4 $10.7 $80 $83 $9.4 $76 $79 $77 $73 $73 $65 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 1) References non-GAAP number for 4Q18; excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long-term FHLB advances. Please see reconciliations on page 42 and 43. 25
FINANCIAL PERFORMANCE First Call consensus price target implies upside potential 1st Quarter 2019 Target price to actual price differential (%) Price return (%): Flagstar vs Bank Indices 60% 35% As of 4/22/2019 Flagstar Target Price: $38.31 SNL U.S. Bank and Thrift 32% Actual Price: $35.87 KBW Nasdaq Bank Index 30% 50% KBW Nasdaq Regional Bank 25% 40% 7 out of 8 analysts (88%) at Buy at 4/22/2019 20% 30% 15% 20% 10% 10% 5% 0% 0% Jan-19 Feb-19 Mar-19 Apr-19 Source: Analyst ratings and target price (consensus estimate) as reported by First Call as of 4/19/2019. Source: SNL Financial; as of 4/19/2019. 26
COMMUNITY BANKING Strong market position 1st Quarter 2019 ● Leading deposit share in Michigan, Fort Wayne, IN(1), and San Bernardino County, CA (High Desert Region) ● Provides access to markets with attractive demographics and low-cost, stable liquidity for continued balance sheet growth Michigan deposit share Key Markets Deposits as of Flagstar Deposits Deposit Median Proj HHI Proj pop Rank 6/30/18 ($mm) % YoY Market $mm % of total mkt share HHI grow th(4) grow th(4) Overall MI-based Institution Branches Total Share Change Oakland County, MI(3) 4,341 38.8% 8.0% 79,065 10.9% 2.6% 1 Chase 229 $43,637 20% 0% 2 Comerica 196 30,158 14% 2% Grand Rapids, MI MSA 435 3.9% 2.0% 65,403 11.5% 4.7% 3 Bank of America 106 19,225 9% 8% 4 PNC 185 17,234 8% -1% Ann Arbor, MI MSA 301 2.7% 3.4% 72,826 12.3% 4.3% 5 Fifth Third 208 16,451 8% -3% (1) 962 8.6% 8.7% 56,120 9.6% 2.5% 6 Huntington 316 15,767 7% 7% Fort Wayne, IN 7 1 Chemical 186 13,123 6% 13% Key Midwest Markets (5) 6,039 53.9% 6.3% 74,114 10.8% 2.8% 8 2 Flagstar(2)(3) 113 10,297 5% 7% 9 Citizens 89 5,641 3% 2% San Bernardino County, CA(6) 618 5.5% 20.0% 62,550 11.9% 4.0% 10 TCF 51 3,194 1% 6% Top 10 1,679 $174,726 81% 3% National aggregate 61,045 8.8% 3.6% Source: S&P Global Market Intelligence; Note: Deposit data as of June 30, 2018 and projections based on 2018 estimates; MI-based banks highlighted. 1) Fort Wayne, IN deposit data is based on Fort Wayne, IN Fed District. Fort Wayne, IN demographic data is based on counties within Fort Wayne, IN Fed District, deposit weighted based on Flagstar’s portfolio. 2) Reflects the acquisition of 14 Wells Fargo branches located in Michigan. 3) Oakland County data excludes $1.7bn of custodial deposits held at company headquarters. 4) 2019–2024 CAGR. 5) Key Midwest Markets Median HHI, projected HHI growth and projected population growth are deposit weighted based on Flagstar’s portfolio. 6) Deposit data is based on High Desert Region of San Bernardino County, CA. 27
Deposits COMMUNITY BANKING Portfolio and strategy overview 1st Quarter 2019 Total average deposits ($bn) Retail deposits (2) Other deposits $12.9 $11.9 $11.3 $10.4 • Flagstar gathers deposits from consumers, $9.4 4.1 3.7 3.9 3.1 businesses and select governmental entities 2.8 – Traditionally, CDs and savings accounts represented the bulk of our branch-based retail 8.0 8.8 6.6 7.3 7.6 depository relationships – Today, we are focused on growing DDA 1Q18 2Q18 3Q18 4Q18 1Q19 balances with consumer, business banking and commercial relationships 1Q19 total average deposits – We additionally maintain depository Savings 24% relationships in connection with our mortgage DDA origination and servicing businesses, and with 19% MMDA Michigan governmental entities 6% – Cost of total deposits(1) equal to 0.92%, down Government from 0.95% in 4Q18 9% CD 19% Custodial Brokered 20% 3% Total: $12.9bn 0.92% cost of total deposits(1) 1) Total deposits include noninterest bearing deposits. 2) Includes deposits from commercial and business banking customers. 28
COMMUNITY BANKING Deposit growth opportunities 1st Quarter 2019 Core Deposits(1) Other Deposits Retail Government • Average balance of $7.1bn during 1Q19 of which 57% are • Average balance of $1.2bn during 1Q19 demand & savings accounts • Michigan and Indiana deposits are not required to be • Average core deposits(1) of $55mm per branch collateralized • Flagstar’s branding is helping grow core deposits • Strong, long-term relationships across the state • Branch acquisitions significantly enhance core deposit base Commercial(2) Custodial • Average balance of $1.7bn during 1Q19 • Average balance of $2.5bn during 1Q19 on 962k loans serviced and subserviced • Increasing balances with growing lines of business, including home builder finance • Deposit balances increase along with the number of loans serviced and subserviced • Offer complete line of treasury management services • Provides risk-based capital by reducing risk-weighting on qualified loans to same borrowers 1) Core deposits = total deposits excluding government, custodial, and brokered deposits. 2) Includes deposits from commercial and business banking customers. 29
COMMUNITY BANKING Wells Fargo Branch Acquisition 1st Quarter 2019 Deposit balances ($mm) $1,762 $1,675 $1,608 11/30/2018 1/19/2019 3/31/2019 Deposit attrition ($mm) Balance at Closing Current Balance 1/19/2019 Attrition 12/1/2018 3/31/2019 Indiana $ 1,085 $ 1,001 $ 1,064 $ (21) -1.9% Michigan 412 395 401 (11) -2.7% Wisconsin 87 76 79 (8) -9.2% Ohio 62 57 58 (4) -6.5% Footprint $ 1,646 $ 1,529 $ 1,602 $ (44) -2.7% Out of Footprint 116 79 73 (43) -37.1% Total deposits $ 1,762 $ 1,608 $ 1,675 $ (87) -4.9% 30
Lending COMMUNITY BANKING Portfolio and strategy overview 1st Quarter 2019 Total average loans ($bn) Loans HFS Loans HFI Loans with government guarantees $13.6 $12.8 $13.3 $12.9 • Flagstar’s largest category of earning assets consists $12.0 of loans held-for-investment which averaged $9.2bn during 1Q19 8.9 7.5 8.3 8.9 9.2 – Loans to consumers consist of residential first and second mortgage loans, HELOC and other – C&I / CRE lending is an important growth strategy, 4.2 4.2 4.4 4.0 3.3 offering risk diversification and asset sensitivity 1Q18 2Q18 3Q18 4Q18 1Q19 – Warehouse lending to both originators that sell to Flagstar and those who sell to other investors 1Q19 average loans • Flagstar maintains a balance of mortgage loans held- 1st Mortgage 1st Mortgage for-sale which averaged $3.3bn during 1Q19 HFS HFI 25% 24% – Essentially all of our mortgage loans originated are sold into the secondary market Loans with – Flagstar has the option to direct a portion of the government 2nds, HELOC guarantees & other mortgage loans it originates to its own balance sheet 3% 9% Warehouse 9% CRE and C&I 30% 31
COMMUNITY BANKING Community banking growth model 1st Quarter 2019 Relationship-based growth platform New banker additions (past 2 years) • Primary focus is to build relationships # of Avg Years Line of Service Additions Experience(1) - Recruit experienced bankers from larger regional banks Business Banking 9 19 - Retain seasoned bankers within our organization Commercial Lending 6 24 • Leverage deep industry experience and client relationships CRE Lending 5 18 - Focus on moving relationships and credit facilities Equip Financing Group 2 20 to Flagstar Homebuilder Finance 3 16 • Low incremental efficiency ratio Indirect Lending 8 30 - Marginal cost of 15-30% that varies with type of loans underwritten Warehouse Lending 4 28 • Estimated pre-tax contribution of $5bn loan growth Grand Total 37 23 could contribute ~ $1.00 earnings per share 1) We focus on recruitment of bankers with larger, regional bank lending experience. 32
Commercial lending COMMUNITY BANKING Diversified relationship-based approach 1st Quarter 2019 Overview Warehouse - $1.6bn (3/31/19) • Warehouse lines with approximately 320 active % Advances sold to Flagstar relationships nationwide, of which approximately 78% Warehouse sell a portion of their loans to Flagstar • Collateralized by mortgage loans being funded which are paid off once the loan is sold ~95 borrowers • Diversified property types which are primarily income- ~165 sell >75% Commercial producing in the normal course of business borrowers Real Estate • Focused on experienced top-tier developers with sell <25% significant deposit and non-credit product opportunities ~60 borrowers • Lines of credit and term loans for working capital sell 25% - 75% Commercial needs, equipment purchases, and expansion projects & Industrial • Primarily Michigan based relationships or relationships with national finance companies Average 17% advances sold to Flagstar Commercial Real Estate - $2.3bn (3/31/19) Commercial & Industrial - $1.7bn (3/31/19) Property type Industry Manufacturing 18% Office Owner occupied Retail 11% 15% Healthcare 14% Services 6% 20% Distribution Multi- Hospitality 7% family 7% 17% Financial, Home insurance & Government & Other builder real estate education 6% finance 40% Other 8% 30% 1% 33
COMMUNITY BANKING Warehouse lending 1st Quarter 2019 ● National relationship-based lending platform ● Attractive asset class with good spreads and low credit risk ● Strong growth potential and scalable platform ● Flagstar is well positioned to gain market share, leveraging relationships in complementary lines of business, including home builder finance and mortgage originations ● Acquired Santander mortgage warehouse business on 3/12/2018 Warehouse lenders ranked by commitments ($mm) FBC warehouse loan commitments ($bn) YOY 4Q18 Outstandings Unfunded Commitments Rank Institution Growth Total Share $4.3 $4.2 1 JPMorgan Chase 8% $13,000 20% $4.0 $3.8 $3.9 2 Texas Capital 11% 5,877 9% 3 Wells Fargo -10% 5,300 8% 4 Flagstar Bancorp 36% 3,840 6% 2.4 2.9 2.4 2.3 2.3 5 BB&T -4% 3,630 6% 6 Comerica -5% 3,354 5% 7 TIAA FSB (Everbank) -14% 3,200 5% 8 First Tennessee 2% 3,181 5% 1.8 1.6 1.5 1.6 9 Customers Bank -11% 3,100 5% 1.4 10 U.S. Bancorp -7% 2,460 4% Top 10 1% $46,942 74% 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 Source: Inside Mortgage Finance as of March 1, 2019. 34
COMMUNITY BANKING Home builder finance 1st Quarter 2019 Overview Tightening housing supply(1) ● National relationship-based lending platform launched in 1Q16 Existing home sales (mm) Months supply of existing homes for sale (left axis) (right axis) - Attractive asset class with good spreads (~400 bps) 8 12 - Meaningful cross-sell opportunities including warehouse loans, 7 commercial deposits and purchase originations 10 6 ● Flagstar is well positioned to gain market share given builder and 8 5 mortgage relationships 4 6 - Focused on markets with strong housing fundamentals and 3 higher growth potential 4 - We have direct relationships with 6 of the top 10 and do 2 2 business with 53 of the top 100 builders nationwide 1 - We are well positioned to take advantage of supply/demand 0 0 imbalance in housing market 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1) Source: Bloomberg (through 2/28/19) Home builder finance footprint Home builder loan commitments(2) ($mm) Unpaid principal balance Unused $1,591 $1,364 $1,422 $1,271 $1,271 $812 $624 $704 $657 $604 $779 $614 $667 $740 $718 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 2) Commitments are for loans classified as commercial real estate and commercial & industrial. 35
MORTGAGE ORIGINATIONS National distribution through multiple channels 1st Quarter 2019 Residential mortgage originations by channel ($bn) Correspondent Broker Retail $7.0 $6.6 $5.8 $4.7 $4.2 $1.1 $1.1 $1.3 $1.2 $1.0 $1.0 $0.9 $0.8 $0.7 $0.5 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 (1) • 4.6% market share with #5 national ranking(1) • 2.1% market share with #11 national ranking • 72 retail locations in 22 states • More than 1,100 correspondent partners • Nearly 1,000 brokerage relationships • Direct Lending is 15% of retail volume • Top 10 relationships account for 13% of overall correspondent volume • Top 10 relationships account for 11% of overall • Warehouse lines with nearly 300 brokerage volume correspondent relationships 1) Data source: As reported by Inside Mortgage Finance for 12M18 published February 22, 2019. 36
Flagstar has restructured its operations to be profitable MORTGAGE ORIGINATIONS even at historical lows for the mortgage origination market 1st Quarter 2019 U.S. residential mortgage origination market (historical and projected volumes) 5.8 $ in in $ trillions 4.4 4.2 4.0 3.7 3.6 3.1 3.0 2.4 2.4 2.3 2.2 2.1 2.0 2.0 2.0 1.9 1.9 1.8 1.8 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.4 1.3 1.3 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F Nominal ($) 0.6 0.9 1.0 0.8 0.6 0.8 0.8 1.7 1.4 1.1 2.2 2.9 3.8 2.8 3.0 2.7 2.4 1.5 2.0 1.7 1.4 2.0 1.8 1.3 1.7 2.1 1.8 1.6 1.6 1.7 Real(1) ($) 1.0 1.6 1.8 1.3 1.1 1.2 1.3 2.5 2.1 1.7 3.2 4.0 5.2 3.7 3.9 3.4 2.9 1.8 2.3 2.0 1.6 2.2 2.0 1.4 1.8 2.1 1.8 1.6 1.6 1.7 Adjusted(2) ($) 1.3 2.0 2.2 1.6 1.3 1.5 1.5 3.0 2.4 1.9 3.6 4.5 5.8 4.0 4.2 3.7 3.1 1.9 2.5 2.0 1.7 2.3 2.0 1.4 1.8 2.1 1.8 1.6 1.6 1.7 Source: Mortgage Bankers Association for actual periods and a blended average of forecast by Fannie Mae, Freddie Mac and Mortgage Bankers Association. 1. Adjusted for historical inflation as reported by Bureau of Labor Statistics (2018 = 100). 2. Adjusted for population growth as reported by the U.S. Census Bureau (2016 = 100). 37
MORTGAGE SERVICING MSR portfolio 1st Quarter 2019 MSR portfolio statistics MSR portfolio characteristics (% UPB) 2013 & byBy VintageVintage Measure ($mm) 12/31/2018 3/31/2019 Difference prior; 5% Unpaid principal balance $21,592 $21,925 $333 Fair value of MSR $290 $278 ($12) 2014; Capitalized rate (% of UPB) 1.35% 1.27% (8 bps) 4% Multiple 3.709 3.277 (0.432) 2017 Note rate 4.379% 4.410% 3.1 bps 2015; 29% Service fee 0.360% 0.382% 2.2 bps 12% 2016 & prior Average Measure ($000) 2018 UPB per loan $244 $242 ($2) 2016 & 7% FICO 686 685 (1) 56% later; 79% Loan to value 88.18% 88.82% 64 bps 2019 8% Net (loss) return on mortgage servicing rights ($mm) By Investor $ Return 1Q18 2Q18 3Q18 4Q18 1Q19 Net hedged profit (loss) ($1) ($1) ($1) $0 ($1) Carry on asset 8 11 12 11 13 Run-off (5) (3) (4) (4) (7) Gross return on the GNMA $2 $7 $7 $7 $5 Private mortgage servicing rights 80% 3% Sale transaction & P/L 1 0 3 1 - Model changes 1 2 3 2 1 Fannie Freddie Net return on the 7% $4 $9 $13 $10 $6 10% mortgage servicing rights ($) Average mortgage $269 $224 $270 $336 $291 servicing rights ($) Net return on the 6.4% 15.4% 18.8% 12.4% 9.1% mortgage servicing rights (%) 38
CAPITAL AND LIQUIDITY Balance sheet composition 1st Quarter 2019 1Q19 average balance sheet (%) 1% Cash 18% Agency MBS ~62% of assets are in lower risk-content assets: cash, marketable 19% 56% securities, warehouse Mortgage loans Deposits excluding custodial deposits loans, loans held-for-sale held-for-investment and freshly-originated, high-FICO conforming 18% mortgages underwritten Loans held-for-sale by Flagstar 6% Warehouse loans 14% Custodial deposits Efficiently funds loans Attractive relationship 27% held-for-sale and lending with very low Commercial loans 16% warehouse loans delinquencies and Other LHFI (1) FHLB borrowings 3% Other long-term debt Primarily low risk, stable 2% MSR 2% Other liabilities assets (FHLB stock, BOLI, 9% 9% Equity premises & equipment, Other assets deferred tax asset, etc.) Assets Liabilities & Equity 1) Other LHFI includes home equity and other consumer loans. 39
CAPITAL AND LIQUIDITY Liquidity and funding 1st Quarter 2019 HFI loan-to-deposit ratio(1) Commentary 84% ■ Flagstar has invested significantly in building its 78% 78% 77% 77% Community Bank, which provides attractive core deposit funding for its balance sheet ■ These retail deposits are supplemented by custodial deposits from the servicing business 1Q18 2Q18 3Q18 4Q18 1Q19 ■ Much of the remainder of Flagstar’s balance sheet is self- (2) Liquidity ratio funding given it is eligible collateral for FHLB advances Cash & investment securities FHLB borrowing capacity (which provides significant liquidity capacity) 32% 31% 15% 15% 17% 16% 12/31/2018 3/31/2019 1) HFI loan-to-deposit ratio is total average loans HFI (excluding warehouse loans) expressed as a percentage of total average deposits (excluding custodial deposits). 2) Cash, investment securities and FHLB borrowing capacity expressed as a percentage of total assets. 40
CAPITAL AND LIQUIDITY Interest rate risk 1st Quarter 2019 • Flagstar maintains a relatively neutral interest rate risk profile Earnings at risk Economic value of equity -100 bps +100 bps -100 bps +100 6.0% 2.0% 4.0% 1.0% 0.0% 2.0% (1.0%) 0.0% (2.0%) (2.0%) (3.0%) (4.0%) (4.0%) (6.0%) (5.0%) 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 % Change % Change Scenario Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Scenario Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 +300 Shock 14.6% 13.7% 12.3% 9.1% 8.1% +300 Shock (5.5%) (15.8%) (13.6%) (12.1%) (4.7%) +200 Shock 9.8% 9.2% 8.3% 6.1% 5.5% +200 Shock (2.5%) (9.5%) (8.1%) (6.5%) (1.1%) +100 Shock 5.0% 4.7% 4.3% 3.1% 2.8% +100 Shock (0.3%) (4.1%) (2.9%) (2.5%) 0.7% Base - - - - - Base - - - - - -100 Shock (5.1%) (4.8%) (4.3%) (3.2%) (3.1%) -100 Shock (2.9%) 1.2% 0.4% 0.5% (3.4%) 41
NON-GAAP RECONCILIATION Non-GAAP reconciliation 1st Quarter 2019 $mm Adjusted Net Interest Income, Net Interest Margin, Total Revenues, Compensation and Benefits, Other Noninterest Expense, Noninterest Expense, Income before Income Taxes, Provision for Income Taxes, Net Income, and Diluted EPS 3 months ended 3 months ended 3 months ended March 31, 2019 December 31, 2018 September 30, 2018 Net Interest Income $ 126 $ 152 Adjustment to remove hedging gains - 29 Adjusted Net Interest Income $ 126 $ 123 Net Interest Margin 3.09% 3.70% Adjustment to remove hedging gains 0.00% 0.71% Adjusted Net Interest Margin 3.09% 2.99% Total Revenues $ 235 $ 250 Adjustment to remove hedging gains - 29 Adjusted Total Revenues $ 235 $ 221 Compensation and Benefits $ 87 $ 82 Adjustment to remove Wells Fargo acquisition costs - 3 Adjusted Compensation and Benefits $ 87 $ 79 Other Noninterest Expense $ 74 $ 75 $ 62 Adjustment to remove Wells Fargo acquisition costs 1 11 1 Adjusted Other Noninterest Expense $ 73 $ 64 $ 61 Noninterest Expense $ 191 $ 189 $ 173 Adjustment to remove Wells Fargo acquisition costs 1 14 1 Adjusted Noninterest Expense $ 190 $ 175 $ 172 Income before Income Taxes $ 44 $ 66 Adjustment to remove Wells Fargo acquisition costs 1 14 Tax impact on adjustment for hedging gains - (29) Adjusted Income before Income Taxes $ 45 $ 51 Provision for Income Taxes $ 8 $ 12 Adjustment to remove Wells Fargo acquisition costs - 2 Tax impact on adjustment for hedging gains - (5) Adjusted Provision for Income Taxes $ 8 $ 9 Net Income $ 36 $ 54 Adjustment to remove Wells Fargo acquisition costs (net of tax) 1 12 Adjustment to remove hedging gains (net of tax) - (24) Adjusted Net Income $ 37 $ 42 Diluted Earnings per Share $ 0.63 $ 0.93 Adjustment to remove Wells Fargo acquisition costs (net of tax) 0.01 0.21 Adjustment to remove hedging gains (net of tax) - (0.41) Adjusted Diluted Earnings per Share $ 0.64 $ 0.72 42
NON-GAAP RECONCILIATION Non-GAAP reconciliation (continued) 1st Quarter 2019 $mm Adjusted ROA, ROE, and Efficiency Ratio 3 months ended 3 months ended Last 12 Months ended March 31, 2019 December 31, 2018 March 31, 2019 Return on Average Assets 0.8% 1.2% 1.0% Adjustment to remove Wells Fargo acquisition costs (net of tax) 0.0% 0.2% 0.1% Adjustment to remove hedging gains (net of tax) 0.0% -0.5% -0.1% Adjusted Return on Average Assets 0.8% 0.9% 1.0% Return on Average Common Equity 9.2% 14.0% 12.3% Adjustment to remove Wells Fargo acquisition costs (net of tax) 0.2% 3.0% 0.9% Adjustment to remove hedging gains (net of tax) 0.0% -6.2% -1.6% Adjusted Return on Average Common Equity 9.4% 10.8% 11.6% Adjusted Return on Average Common Equity 9.4% 10.8% 11.6% Less: Intangible asset amortization expense 1.0% 0.6% 0.6% Less: Average goodwill and intangible asset balance 1.4% 1.0% 1.0% Adjusted Return on Average Tangible Common Equity 11.8% 12.4% 13.2% Adjusted Efficiency Ratio 3 months ended 3 months ended 3 months ended March 31, 2019 December 31, 2018 September 30, 2018 Efficiency Ratio 81% 76% 75% Adjustment to remove Wells Fargo acquisition costs (net of tax) 0% -6% -1% Adjustment to remove hedging gains (net of tax) 0% 9% 0% Adjusted Efficiency Ratio 81% 79% 74% Tangible Book Value per Share and Tangible Common Equity to Assets Ratio As of March 31, 2019 As of December 31, 2018 Total stockholders' equity $ 1,574 $ 1,570 Goodwill and intangible assets 182 190 Tangible book value $ 1,392 $ 1,380 Number of common shares outstanding 56,480,086 57,749,464 Tangible book value per share $ 24.65 $ 23.90 Total Assets $ 19,445 $ 18,531 Tangible common equity to assets ratio 7.16% 7.45% Regulatory Capital under Capital Simplification As of March 31, 2019 Total Risk-Based Capital Ratio Tier 1 Leverage Ratio Regulatory capital - Basel III to capital simplification Basel III $ 1,650 $ 1,520 Net change in deductions to DTAs, MSRs and other capital components 111 111 Basel III with capital simplification $ 1,761 $ 1,631 Risk-weighted assets – Basel III to capital simplification Basel III assets $ 13,209 $ 18,171 Net change in assets 603 111 Basel III with capital simplification $ 13,812 $ 18,282 Capital ratios Basel III 12.5% 8.4% Basel III with capital simplification 12.8% 8.9% 43
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