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Flagstar Reports Second Quarter 2018 Net Income of $50 million, or $0.85 per Diluted Share

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Flagstar Reports Second Quarter 2018 Net Income of $50 million, or $0.85 per Diluted Share

Company posts solid earnings with positive operating leverage

PR Newswire

TROY, Mich., July 24, 2018 /PRNewswire/ --

Key Highlights - Second Quarter 2018

  • Net interest income rose $9 million, or 8 percent from first quarter 2018, driven by earning asset growth and net interest margin expansion.
  • Mortgage revenues increased $8 million, or 13 percent from the prior quarter, led by a seasonal increase in mortgage originations and higher net return on MSR.
  • Total revenue increased $21 million, or 10 percent, while noninterest expense rose a modest $4 million, or 2 percent from last quarter, benefiting from expense discipline and variable cost model.
  • Strong asset quality with minimal net charge-offs and no commercial delinquencies.
  • Pending acquisition of 52 Wells Fargo branches accelerates banking transformation.

Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2018 net income of $50 million, or $0.85 per diluted share, compared to first quarter 2018 net income of $35 million, or $0.60 per diluted share. For the second quarter 2017, the Company reported net income of $41 million, or $0.71 per diluted share.

"I'm pleased with our financial results this quarter," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "We produced solid earnings with positive operating leverage, despite a challenging mortgage environment. Earnings rose on both a sequential and year-over-year basis, achieving a level we haven't seen since the third quarter 2012 when we had $334 million of net gain on loan sales as compared to only $63 million in the second quarter 2018.

"Our banking business performed well, boosted by the acquisitions of the Desert Community Bank (DCB) branches and a warehouse business at the end of the first quarter 2018. Net interest income for the second quarter 2018 rose 8 percent to $115 million, led by a 4 percent rise in average earning assets and a 10 basis point increase in net interest margin. The core banking business delivered consistent growth with average commercial loans (excluding the impact of the DCB branch and warehouse business acquisitions) increasing 8 percent.

"We continued to build scale and profitability within our servicing business -- a segment that brings fee income, as well as ancillary benefits like deposits that fuel our loan growth. During the second quarter, we sold $6.4 billion of mortgage servicing rights with 100 percent of the servicing retained. Since the beginning of 2018, we've increased the number of loans serviced by 93,000 or 21 percent and are well positioned to add more scale later this year.

"Our mortgage business was softer than expected with fallout-adjusted locks and gain on sale margin coming in below our expectations. Locks rose 17 percent to $9 billion while the GOS margin fell 6 basis points to 0.71 percent due to the impact of wider spreads on the outcome of a securitization late in the quarter.

"A key highlight of the second quarter was our announcement of the pending acquisition of 52 Wells Fargo branches in Indiana, Michigan, Wisconsin and Ohio. This transaction will significantly expand our banking business, enhance our franchise value and provide compelling financial benefits -- all without the need to raise capital. Bringing these branches on board later this year will accelerate our banking transformation. Meanwhile, we will continue to leverage our strong asset generation capability, abundant liquidity and strong capital for the benefit of our shareholders."

Second Quarter 2018 Highlights:

Income Statement Highlights






Three Months Ended


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017


(Dollars in millions)

Net interest income

$

115


$

106


$

107


$

103


$

97


Provision (benefit) for loan losses

(1)



2


2


(1)


Noninterest income

123


111


124


130


116


Noninterest expense

177


173


178


171


154


Income before income taxes

62


44


51


60


60


Provision for income taxes (1)

12


9


96


20


19


Net income (loss)

$

50


$

35


$

(45)


$

40


$

41








Income (loss) per share:






Basic

$

0.86


$

0.61


$

(0.79)


$

0.71


$

0.72


Diluted

$

0.85


$

0.60


$

(0.79)


$

0.70


$

0.71


(1)      The three months ended December 31, 2017 included an $80 million, or $1.37 per diluted share, non-cash charge to the provision for income taxes, resulting from the revaluation of the Company's net deferred tax asset at a lower statutory rate as a result of the Tax Cuts and Jobs Act. 

Key Ratios








Three Months Ended

 Change (bps)


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

Seq

Yr/Yr

Net interest margin

2.86

%

2.76

%

2.76

%

2.78

%

2.77

%

10

9

Return on average assets

1.1

%

0.8

%

(1.1)

%

1.0

%

1.0

%

30

10

Return on average equity

13.5

%

9.9

%

(12.1)

%

11.1

%

11.6

%

360

190

Efficiency ratio

74.4

%

79.7

%

77.1

%

73.5

%

72.0

%

(530)

240

 

 

Balance Sheet Highlights








Three Months Ended

% Change


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

Seq

Yr/Yr


(Dollars in millions)



Average Balance Sheet Data








Average interest-earning assets

$

15,993


$

15,354


$

15,379


$

14,737


$

14,020


4

%

14

%

Average loans held-for-sale (LHFS)

4,170


4,231


4,537


4,476


4,269


(1)

%

(2)

%

Average loans held-for-investment (LHFI)

8,380


7,487


7,295


6,803


6,224


12

%

35

%

Average total deposits

10,414


9,371


9,084


9,005


8,739


11

%

19

%


 

Net Interest Income

Net interest income rose $9 million to $115 million for the second quarter 2018, as compared to the first quarter 2018. The results reflected a 4 percent increase in average earning assets, led by continued solid growth in commercial loans. The net interest margin rose 10 basis points to 2.86 percent for the second quarter 2018 as higher yields on earning assets more than offset a modest increase in deposit costs.

Loans held-for-investment averaged $8.4 billion for the second quarter 2018, increasing $893 million, or 12 percent, from the prior quarter. Excluding the impact of the DCB branch and warehouse business acquisitions, average loans HFI rose 6 percent in the quarter. During the second quarter 2018, average commercial loans rose 19 percent with average warehouse loans increasing $647 million, or 76 percent, average commercial real estate loans rising $63 million, or 3 percent and average commercial and industrial loans increasing $40 million, or 3 percent. Average consumer loans rose $143 million, or 4 percent, driven by an increase in mortgage loans.

Average total deposits were $10.4 billion in the second quarter 2018, increasing $1 billion, or 11 percent from the first quarter 2018. Excluding the impact of the DCB branch acquisition, average deposits rose 6 percent in the quarter. Average retail deposits increased $780 million, or 12 percent, as higher demand deposits and certificates of deposit were partially offset by a drop in savings deposits. Average custodial deposits rose $149 million, or 10 percent, while average government deposits rose $21 million, or 2 percent.

Provision for Loan Losses

The Company experienced a provision benefit in the second quarter 2018, resulting primarily from a continued decline in loss rates in the held-for-investment portfolio. The provision benefit for loan losses totaled $1 million for the second quarter 2018, as compared to no provision expense for the first quarter 2018.

Noninterest Income

Noninterest income rose $12 million, or 11 percent, to $123 million in the second quarter of 2018, as compared to $111 million for the first quarter 2018. The increase was primarily due to an increase in net gain on loan sales, loan fees and charges and the net return on the mortgage servicing rights.

Second quarter 2018 net gain on loan sales increased $3 million, or 5 percent, to $63 million, versus $60 million in the first quarter 2018. Fallout-adjusted locks rose 17 percent to $9 billion primarily due to a seasonal increase in mortgage originations. The net gain on loan sale margin fell 6 basis points to 0.71 percent for the second quarter 2018, as compared to 0.77 percent for the first quarter 2018.

Mortgage Metrics









Change (% / bps)


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

Seq

Yr/Yr


(Dollars in millions)



For the three months ended:








Mortgage rate lock commitments (fallout-adjusted) (1)

$

9,011


$

7,722


$

8,631


$

8,898


$

9,002


17

%

%

Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)

0.71

%

0.77

%

0.91

%

0.84

%

0.73

%

(6)


(2)


Net gain on loan sales

$

63


$

60


$

79


$

75


$

66


5

%

(5)

%

Net (loss) return on the mortgage servicing rights (MSR)

$

9


$

4


$

(4)


$

6


$

6


125

%

50

%

Gain on loan sales + net (loss) return on the MSR

$

72


$

64


$

75


$

81


$

72


13

%

%

At the end of the period:








Residential loans serviced (number of accounts - 000's) (3)

535


470


442


415


402


14

%

33

%

Capitalized value of MSRs

1.34

%

1.27

%

1.16

%

1.15

%

1.14

%

7


20


N/M - Not meaningful








(1)    Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.

(2)    Gain on sale margin is based on net gain on loan sales (excludes net gain on loan sales of $1 million from loans transferred from HFI in the three months ended December 31, 2017) to fallout-adjusted mortgage rate lock commitments.

(3)    Includes loans serviced for own loan portfolio, serviced for others, and subserviced for others.

 

Loan fees and charges rose to $24 million for the second quarter 2018, as compared to $20 million for the first quarter 2018. The increase primarily reflected higher mortgage loan closings.

Net return on mortgage servicing rights (including the impact of hedges) increased $5 million, resulting in a net gain of $9 million for the second quarter 2018, as compared to a net gain of $4 million for the first quarter 2018. The increase from the prior quarter largely reflected lower sale-related costs, reduced runoff due to increasing interest rates and higher service fee income.

Noninterest Expense

Noninterest expense increased to $177 million for the second quarter 2018, as compared to $173 million for the first quarter 2018, primarily due to an increase in mortgage-related expense from higher mortgage closings. During the second quarter 2018, commissions increased $7 million and loan processing expense rose $1 million.

The Company's total efficiency ratio improved to 74 percent for the second quarter 2018, as compared to 80 percent for the first quarter 2018, led by strong, positive operating leverage. Revenue increased 10 percent while expenses rose a modest 2 percent in the second quarter 2018.

Income Taxes

The second quarter 2018 provision for income taxes totaled $12 million, as compared to $9 million in the first quarter 2018. The Company's effective tax rate was 20 percent for the second quarter 2018, unchanged from the prior quarter.

Asset Quality

Credit Quality Ratios








Three Months Ended

Change (% / bps)


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

Seq

Yr/Yr


(Dollars in millions)



Allowance for loan loss to LHFI

1.5

%

1.7

%

1.8

%

2.0

%

2.1

%

(20)


(60)


Charge-offs, net of recoveries

$

1


$

1


$

2


$

2


$


%

N/M

Total nonperforming loans held-for-investment

$

27


$

29


$

29


$

31


$

30


(7)

%

(10)

%

Net charge-offs to LHFI ratio (annualized)

0.02

%

0.06

%

0.12

%

0.08

%

0.04

%

(4)


(2)


Ratio of nonperforming LHFI and TDRs to LHFI

0.30

%

0.35

%

0.38

%

0.44

%

0.44

%

(5)


(14)


N/M - Not meaningful

 

The allowance for loan losses was $137 million at June 30, 2018, compared to $139 million at March 31, 2018. The allowance for loan losses covered 1.5 percent of loans held-for-investment at June 30, 2018, as compared to 1.7 percent of loans held-for-investment at March 31, 2018.

Net charge-offs in the second quarter 2018 were $1 million, or 2 basis points of HFI loans, compared to $1 million, or 6 basis points in the prior quarter.

Nonperforming loans held-for-investment were $27 million at June 30, 2018, compared to $29 million at March 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.30 percent at June 30, 2018, compared to 0.35 percent at March 31, 2018. At June 30, 2018, early stage consumer loan delinquencies totaled $3 million, or 0.08 percent of consumer loans, compared to $5 million, or 0.14 percent at March 31, 2018. There were no commercial loan delinquencies greater than 30 days at June 30, 2018.

Capital

Capital Ratios (Bancorp)

Three Months Ended

Change (% / bps)


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

Seq

Yr/Yr

Tangible common equity to assets ratio (1)

7.74

%

7.65

%

8.15

%

8.47

%

8.70

%

9


(96)


Tier 1 leverage (to adj. avg. total assets)

8.65

%

8.72

%

8.51

%

8.80

%

9.10

%

(7)


(45)


Tier 1 common equity (to RWA)

10.84

%

10.80

%

11.50

%

11.65

%

12.45

%

4


(161)


Tier 1 capital (to RWA)

12.86

%

12.90

%

13.63

%

13.72

%

14.65

%

(4)


(179)


Total capital (to RWA)

14.04

%

14.14

%

14.90

%

14.99

%

15.92

%

(10)


(188)


MSRs to Tier 1 capital

16.9

%

16.2

%

20.1

%

17.3

%

13.1

%

70


N/M


Tangible book value per share (1)

$

24.37


$

23.62


$

24.04


$

25.01


$

24.29


3

%

%





















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

N/M - Not meaningful

 

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At June 30, 2018, the Company had a Tier 1 leverage ratio of 8.65 percent, as compared to 8.72 percent at March 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth driven by the impact of the DCB branch and warehouse business acquisitions, largely 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 50 basis points and risk-based capital ratios by approximately 15-25 basis points at June 30, 2018 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's second quarter 2018 earnings call will be held Tuesday, July 24, 2018 at 11 a.m. (ET).

To join the call, please dial (800) 667-5617 toll free or (334) 323-0505 and use passcode 2373953. 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 2373953.

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 $18.1 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 107 branches in Michigan and California. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 88 retail locations in 31 states, representing the combined retail branches of Flagstar and its Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $120 billion of home loans representing over 535,000 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 and tangible common equity to assets 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 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.  

For more information, contact:                  

David L. Urban
david.urban@flagstar.com
(248) 312-5970

 

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(Dollars in millions)

(Unaudited)



June 30,
2018


March 31,
2018


December 31,
2017


June 30,
2017

Assets








Cash

$

139



$

121



$

122



$

80


Interest-earning deposits

220



122



82



103


Total cash and cash equivalents

359



243



204



183


Investment securities available-for-sale

1,871



1,918



1,853



1,614


Investment securities held-to-maturity

748



771



939



1,014


Loans held-for-sale

4,291



4,743



4,321



4,506


Loans held-for-investment

8,904



8,134



7,713



6,776


Loans with government guarantees

278



286



271



278


Less: allowance for loan losses

(137)



(139)



(140)



(140)


Total loans held-for-investment and loans with government guarantees, net

9,045



8,281



7,844



6,914


Mortgage servicing rights

257



239



291



184


Federal Home Loan Bank stock

303



303



303



260


Premises and equipment, net

355



348



330



299


Net deferred tax asset

119



130



136



266


Goodwill and intangible assets

71



72



21



20


Other assets

711



688



670



705


Total assets

$

18,130



$

17,736



$

16,912



$

15,965


Liabilities and Stockholders' Equity








Noninterest-bearing

$

2,781



$

2,391



$

2,049



$

2,012


Interest-bearing

7,807



7,595



6,885



6,683


Total deposits

10,588



9,986



8,934



8,695


Short-term Federal Home Loan Bank advances

3,840



4,153



4,260



3,670


Long-term Federal Home Loan Bank advances

1,280



1,280



1,405



1,200


Other long-term debt

494



494



494



493


Other liabilities

453



396



420



499


Total liabilities

16,655



16,309



15,513



14,557


Stockholders' Equity








Common stock

1



1



1



1


Additional paid in capital

1,514



1,514



1,512



1,509


Accumulated other comprehensive loss

(32)



(30)



(16)



(9)


Accumulated deficit

(8)



(58)



(98)



(93)


Total stockholders' equity

1,475



1,427



1,399



1,408


Total liabilities and stockholders' equity

$

18,130



$

17,736



$

16,912



$

15,965


 

 

Flagstar Bancorp, Inc.

Condensed Consolidated Statements of Operations

(Dollars in millions, except per share data)

(Unaudited)




Second Quarter 2018 Compared to:


Three Months Ended


First Quarter

2018


Second Quarter

2017


June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017


Amount

Percent


Amount

Percent

Interest Income












Total interest income

$

167


$

152


$

148


$

140


$

129



$

15


10

%


$

38


29

%

Total interest expense

52


46


41


37


32



6


13

%


20


63

%

Net interest income

115


106


107


103


97



9


8

%


18


19

%

Provision (benefit) for loan losses

(1)



2


2


(1)



(1)


N/M



%

Net interest income after provision (benefit) for loan losses

116


106


105


101


98



10


9

%


18


18

%

Noninterest Income












Net gain on loan sales

63


60


79


75


66



3


5

%


(3)


(5)

%

Loan fees and charges

24


20


24


23


20



4


20

%


4


20

%

Deposit fees and charges

5


5


4


5


5




%



%

Loan administration income

5


5


5


5


6




%


(1)


(17)

%

Net (loss) return on the mortgage servicing rights

9


4


(4)


6


6



5


125

%


3


50

%

Other noninterest income

17


17


16


16


13




%


4


31

%

Total noninterest income

123


111


124


130


116



12


11

%


7


6

%

Noninterest Expense












Compensation and benefits

80


80


80


76


71




%


9


13

%

Commissions

25


18


23


23


16



7


39

%


9


56

%

Occupancy and equipment

30


30


28


28


25




%


5


20

%

Federal insurance premiums

6


6


5


5


4




%


2


50

%

Loan processing expense

15


14


16


15


14



1


7

%


1


7

%

Legal and professional expense

6


6


8


7


8




%


(2)


(25)

%

Other noninterest expense

15


19


18


17


16



(4)


(21)

%


(1)


(6)

%

Total noninterest expense

177


173


178


171


154



4


2

%


23


15

%

Income before income taxes

62


44


51


60


60



18


41

%


2


3

%

Provision for income taxes

12


9


96


20


19



3


33

%


(7)


(37)

%

Net income (loss)

$

50


$

35


$

(45)


$

40


$

41



$

15


43

%


$

9


22

%

Income (loss) per share












Basic

$

0.86


$

0.61


$

(0.79)


$

0.71


$

0.72



$

0.25


41

%


$

0.14


19

%

Diluted

$

0.85


$

0.60


$

(0.79)


$

0.70


$

0.71



$

0.25


42

%


$

0.14


20

%



N/M - Not meaningful


 


 

Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(Dollars in millions, except per data share)

(Unaudited)




Six Months Ended June 30, 2018


Six Months Ended


Compared to:

Six Months Ended June 30, 2017


June 30, 2018

June 30, 2017


Amount

Percent

Total interest income

$

319


$

239



$

80


33

%

Total interest expense

98


59



39


66

%

Net interest income

221


180



41


23

%

Provision (benefit) for loan losses

(1)


2



(3)


N/M

Net interest income after provision (benefit) for loan losses

222


178



44


25

%

Noninterest Income






Net gain on loan sales

123


114



9


8

%

Loan fees and charges

44


35



9


26

%

Deposit fees and charges

10


9



1


11

%

Loan administration income

10


11



(1)


(9)

%

Net (loss) return on the mortgage servicing rights

13


20



(7)


(35)

%

Other noninterest income

34


27



7


26

%

Total noninterest income

234


216



18


8

%

Noninterest Expense






Compensation and benefits

160


143



17


12

%

Commissions

43


26



17


65

%

Occupancy and equipment

60


47



13


28

%

Federal insurance premiums

12


7



5


71

%

Loan processing expense

29


26



3


12

%

Legal and professional expense

12


15



(3)


(20)

%

Other noninterest expense

34


30



4


13

%

Total noninterest expense

350


294



56


19

%

Income before income taxes

106


100



6


6

%

Provision for income taxes

21


32



(11)


(34)

%

Net income

$

85


$

68



$

17


25

%

Income per share






Basic

$

1.47


$

1.18



$

0.29


25

%

Diluted

$

1.45


$

1.16



$

0.29


25

%


 

 

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in millions, except share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2018


March 31, 2018


June 30, 2017


June 30, 2018


June 30, 2017

Selected Mortgage Statistics:










Mortgage rate lock commitments (fallout-adjusted) (1)

$

9,011



$

7,722



$

9,002



$

16,734



$

14,998


Mortgage loans originated (2)

$

9,040



$

7,886



$

9,184



$

16,926



$

15,087


Mortgage loans sold and securitized

$

9,260



$

7,247



$

8,989



$

16,506



$

13,473


Selected Ratios:










Interest rate spread (3)

2.58

%


2.54

%


2.59

%


2.56

%


2.55

%

Net interest margin

2.86

%


2.76

%


2.77

%


2.81

%


2.72

%

Net margin on loans sold and securitized

0.69

%


0.82

%


0.73

%


0.75

%


0.84

%

Return on average assets

1.12

%


0.82

%


1.04

%


0.97

%


0.91

%

Return on average equity

13.45

%


9.94

%


11.57

%


11.73

%


9.77

%

Efficiency ratio

74.4

%


79.7

%


72.0

%


76.9

%


74.2

%

Equity-to-assets ratio (average for the period)

8.29

%


8.27

%


9.02

%


8.28

%


9.29

%

Average Balances:










Average common shares outstanding

57,491,714



57,356,654



57,101,816



57,424,557



57,012,208


Average fully diluted shares outstanding

58,258,577



58,314,385



58,138,938



58,286,327



58,106,070


Average interest-earning assets

$

15,993



$

15,354



$

14,020



$

15,675



$

13,187


Average interest-paying liabilities

$

13,164



$

12,974



$

11,804



$

13,069



$

11,066


Average stockholders' equity

$

1,475



$

1,414



$

1,418



$

1,445



$

1,382



(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.










June 30, 2018


March 31, 2018


December 31, 2017


June 30, 2017

Selected Statistics:








Book value per common share

$

25.61



$

24.87



$

24.40



$

24.64


Tangible book value per share (1)

24.37



23.62



24.04



24.29


Number of common shares outstanding

57,598,406



57,399,993



57,321,228



57,161,431


Number of FTE employees

3,682



3,659



3,525



3,432


Number of bank branches

107



107



99



99


Ratio of nonperforming assets to total assets

0.19

%


0.19

%


0.22

%


0.24

%

Common equity-to-assets ratio

8.14

%


8.05

%


8.27

%


8.82

%

MSR Key Statistics and Ratios:








Weighted average service fee (basis points)

32.4



30.4



28.9



27.8


Capitalized value of mortgage servicing rights

1.34

%


1.27

%


1.16

%


1.14

%

Mortgage servicing rights to Tier 1 capital

16.9

%


16.2

%


20.1

%


13.1

%













(1)

Excludes goodwill and intangibles of $71 million, $72 million, $21 million, and $20 million at June 30, 2018, March 31, 2018, December 31, 2017, and June 30, 2017, respectively. See Non-GAAP Reconciliation for further information.

 

 

Average Balances, Yields and Rates

(Dollars in millions)

(Unaudited)



Three Months Ended


June 30, 2018


March 31, 2018


June 30, 2017


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

$

4,170


$

47


4.50

%


$

4,231


$

44


4.12

%


$

4,269


$

42


4.00

%

Loans held-for-investment












Residential first mortgage

2,875


25


3.53

%


2,773


23


3.41

%


2,495


21


3.38

%

Home equity

679


8


5.05

%


668


9


5.21

%


439


6


4.91

%

Other

57


1


5.39

%


27



4.56

%


27



4.54

%

  Total Consumer loans

3,611


34


3.85

%


3,468


32


3.76

%


2,961


27


3.61

%

Commercial Real Estate

2,017


26


5.09

%


1,954


24


4.87

%


1,477


16


4.16

%

Commercial and Industrial

1,257


17


5.30

%


1,217


16


5.21

%


936


11


4.77

%

Warehouse Lending

1,495


19


5.03

%


848


11


5.14

%


850


10


4.71

%

  Total Commercial loans

4,769


62


5.13

%


4,019


51


5.03

%


3,263


37


4.48

%

  Total loans held-for-investment

8,380


96


4.58

%


7,487


83


4.44

%


6,224


64


4.07

%

Loans with government guarantees

280


2


3.66

%


291


3


3.72

%


295


3


4.02

%

Investment securities

3,049


21


2.72

%


3,233


22


2.69

%


3,166


20


2.57

%

Interest-earning deposits

114


1


1.72

%


112



1.67

%


66



1.07

%

  Total interest-earning assets

15,993


$

167


4.17

%


15,354


$

152


3.95

%


14,020


$

129


3.69

%

Other assets

1,791





1,736





1,690




  Total assets

$

17,784





$

17,090





$

15,710




Interest-Bearing Liabilities












Retail deposits












Demand deposits

$

704


$

1


0.60

%


$

548


$


0.26

%


$

510


$


0.15

%

Savings deposits

3,412


8


0.86

%


3,490


7


0.81

%


3,933


8


0.75

%

Money market deposits

247



0.54

%


205



0.44

%


239



0.42

%

Certificates of deposit

2,006


8


1.63

%


1,619


6


1.45

%


1,094


3


1.08

%

  Total retail deposits

6,369


17


1.06

%


5,862


13


0.92

%


5,776


11


0.75

%

Government deposits












Demand deposits

243



0.47

%


241



0.55

%


200



0.39

%

Savings deposits

488


2


1.26

%


483


2


1.11

%


411


1


0.56

%

Certificates of deposit

380


1


1.35

%


401


1


1.19

%


291



0.68

%

  Total government deposits

1,111


3


1.12

%


1,125


3


1.02

%


902


1


0.56

%

Wholesale deposits and other

264


1


1.96

%


171


1


1.91

%


4



0.48

%

  Total interest-bearing deposits

7,744


21


1.10

%


7,158


17


0.96

%


6,682


12


0.72

%

Short-term Federal Home Loan Bank advances and other

3,646


17


1.85

%


4,032


15


1.53

%


3,429


8


0.98

%

Long-term Federal Home Loan Bank advances

1,280


7


2.25

%


1,290


7


2.10

%


1,200


6


1.91

%

Other long-term debt

494


7


5.60

%


494


7


5.37

%


493


6


5.06

%

  Total interest-bearing liabilities

13,164


52


1.58

%


12,974


46


1.41

%


11,804


32


1.10

%

Noninterest-bearing deposits (1)

2,670





2,213





2,057




Other liabilities

475





489





431




Stockholders' equity

1,475





1,414





1,418




  Total liabilities and stockholders' equity

$

17,784





$

17,090





$

15,710




  Net interest-earning assets

$

2,829





$

2,380





$

2,216




  Net interest income


$

115





$

106





$

97



Interest rate spread (2)



2.58

%




2.54

%




2.59

%

Net interest margin (3)



2.86

%




2.76

%




2.77

%

Ratio of average interest-earning assets to interest-bearing liabilities



121.5

%




118.3

%




118.8

%

  Total average deposits

$

10,414





$

9,371





$

8,739






















(1)

Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.

(2)

Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.

(3)

Net interest margin is net interest income divided by average interest-earning assets.

 

 

Average Balances, Yields and Rates

(Dollars in millions)

(Unaudited)



Six Months Ended


June 30, 2018


June 30, 2017


Average
Balance

Interest

Annualized

Yield/Rate


Average
Balance

Interest

Annualized

Yield/Rate

Interest-Earning Assets








Loans held-for-sale

$

4,201


$

90


4.31

%


$

3,780


$

74


3.94

%

Loans held-for-investment








Residential first mortgage

2,824


49


3.47

%


2,447


41


3.35

%

Home equity

674


17


5.13

%


436


11


5.01

%

Other

42


1


5.12

%


26



4.52

%

  Total Consumer loans

3,540


67


3.80

%


2,909


52


3.61

%

Commercial Real Estate

1,986


50


4.98

%


1,399


28


3.99

%

Commercial and Industrial

1,237


33


5.25

%


855


20


4.67

%

Warehouse Lending

1,173


30


5.07

%


770


18


4.62

%

  Total Commercial loans

4,396


113


5.08

%


3,024


66


4.34

%

  Total loans held-for-investment

7,936


180


4.51

%


5,933


118


3.98

%

Loans with government guarantees

285


5


3.69

%


318


7


4.34

%

Investment securities

3,140


43


2.71

%


3,090


39


2.54

%

Interest-earning deposits

113


1


1.69

%


66


1


0.97

%

  Total interest-earning assets

15,675


$

319


4.06

%


13,187


$

239


3.63

%

Other assets

1,764





1,694




  Total assets

$

17,439





$

14,881




Interest-Bearing Liabilities








Retail deposits








Demand deposits

$

626


$

1


0.46

%


$

509


$


0.17

%

Savings deposits

3,451


14


0.83

%


3,930


15


0.76

%

Money market deposits

226


1


0.49

%


258


1


0.44

%

Certificates of deposit

1,814


14


1.55

%


1,083


6


1.07

%

  Total retail deposits

6,117


30


0.99

%


5,780


22


0.75

%

Government deposits








Demand deposits

242


1


0.51

%


217



0.39

%

Savings deposits

485


3


1.18

%


435


1


0.54

%

Certificates of deposit

391


2


1.27

%


305


1


0.65

%

  Total government deposits

1,118


6


1.07

%


957


2


0.54

%

Wholesale deposits and other

217


2


1.94

%


6



0.42

%

  Total interest-bearing deposits

7,452


38


1.03

%


6,743


24


0.72

%

Short-term Federal Home Loan Bank advances and other

3,838


32


1.68

%


2,630


12


0.89

%

Long-term Federal Home Loan Bank advances

1,285


14


2.17

%


1,200


11


1.89

%

Other long-term debt

494


14


5.49

%


493


12


5.05

%

  Total interest-bearing liabilities

13,069


98


1.50

%


11,066


59


1.08

%

Noninterest-bearing deposits (1)

2,443





2,024




Other liabilities

482





409




Stockholders' equity

1,445





1,382




Total liabilities and stockholders' equity

$

17,439





$

14,881




Net interest-earning assets

$

2,606





$

2,121




  Net interest income


$

221





$

180



Interest rate spread (2)



2.56

%




2.55

%

Net interest margin (3)



2.81

%




2.72

%

Ratio of average interest-earning assets to interest-bearing liabilities



119.9

%




119.2

%

Total average deposits

$

9,895





$

8,767
















(1)

Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.

(2)

Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.

(3)

Net interest margin is net interest income divided by average interest-earning assets.

 

 

Flagstar Bancorp, Inc.

Earnings Per Share

(Dollars in millions, except share data)

(Unaudited)





Three Months Ended


Six Months Ended


June 30, 2018


March 31, 2018


June 30, 2017


June 30, 2018


June 30, 2017

Net income

50



35



41



85



68


Weighted average shares










Weighted average common shares outstanding

57,491,714



57,356,654



57,101,816



57,424,557



57,012,208


Effect of dilutive securities










May Investor warrants









24,575


Stock-based awards

766,863



957,731



1,037,122



861,770



1,069,287


  Weighted average diluted common shares

58,258,577



58,314,385



58,138,938



58,286,327



58,106,070


Earnings per common share










Basic earnings per common share

$

0.86



$

0.61



$

0.72



$

1.47



$

1.18


Effect of dilutive securities










May Investor warrants










Stock-based awards

(0.01)



(0.01)



(0.01)



(0.02)



(0.02)


  Diluted earnings per common share

$

0.85



$

0.60



$

0.71



$

1.45



$

1.16


 

 

Regulatory Capital - Bancorp

(Dollars in millions)

(Unaudited)



June 30, 2018


March 31, 2018


December 31, 2017


June 30, 2017


Amount

Ratio


Amount

Ratio


Amount

Ratio


Amount

Ratio

Tier 1 leverage (to adjusted avg. total assets)

$

1,525


8.65

%


$

1,475


8.72

%


$

1,442


8.51

%


$

1,408


9.10

%

Total adjusted avg. total asset base

$

17630




$

16,918




$

16,951




$

15,468



Tier 1 common equity (to risk weighted assets)

$

1,285


10.84

%


$

1,235


10.80

%


$

1,216


11.50

%


$

1,196


12.45

%

Tier 1 capital (to risk weighted assets)

$

1,525


12.86

%


$

1,475


12.90

%


$

1,442


13.63

%


$

1,408


14.65

%

Total capital (to risk weighted assets)

$

1,665


14.04

%


$

1,617


14.14

%


$

1,576


14.90

%


$

1,530


15.92

%

Risk-weighted asset base

$

11,855




$

11,440




$

10,579




$

9,610



 

 

Regulatory Capital - Bank

(Dollars in millions)

(Unaudited)



June 30, 2018


March 31, 2018


December 31, 2017


June 30, 2017


Amount

Ratio


Amount

Ratio


Amount

Ratio


Amount

Ratio

Tier 1 leverage (to adjusted avg. total assets)

$

1,594


9.04

%


$

1,537


9.08

%


$

1,531


9.04

%


$

1,590


10.26

%

Total adjusted avg. total asset base

$

17,637




$

16,926




$

16,934




$

15,504



Tier 1 common equity (to risk weighted assets)

$

1,594


13.44

%


$

1,537


13.42

%


$

1,531


14.46

%


$

1,590


16.49

%

Tier 1 capital (to risk weighted assets)

$

1,594


13.44

%


$

1,537


13.42

%


$

1,531


14.46

%


$

1,590


16.49

%

Total capital (to risk weighted assets)

$

1,734


14.62

%


$

1,679


14.66

%


$

1,664


15.72

%


$

1,712


17.75

%

Risk-weighted asset base

$

11,863




$

11,449




$

10,589




$

9,645



 

 


Loan Originations

(Dollars in millions)

(Unaudited)



Three Months Ended


June 30, 2018


March 31, 2018


June 30, 2017

Residential first mortgage

$

9,040


95.2

%


$

7,886


97.1

%


$

9,184


95.0

%

Home equity (1)

141


1.5

%


65


0.8

%


75


0.8

%

  Total consumer loans

9,181


96.7

%


7,951


97.9

%


9,259


95.8

%

Commercial loans (2)

317


3.3

%


169


2.1

%


400


4.2

%

  Total loan originations

$

9,498


100.0

%


$

8,120


100.0

%


$

9,659


100.0

%



















(1)

Includes second mortgage loans, HELOC loans, and other consumer loans.

(2)

Includes CRE and C&I loans that were net funded within the period.

 

 

Loan Originations

(Dollars in millions)

(Unaudited)



Six Months Ended


June 30, 2018


June 30, 2017

Residential first mortgage

$

16,926


96.0

%


$

15,087


95.0

%

Home equity (1)

206


1.2

%


131


0.8

%

  Total consumer loans

17,132


97.2

%


15,218


95.8

%

Commercial loans (2)

486


2.8

%


671


4.2

%

  Total loan originations

$

17,618


100.0

%


$

15,889


100.0

%













(1)

Includes second mortgage loans, HELOC loans, and other consumer loans.

(2)

Includes CRE and C&I loans that were net funded within the period.

 

 

Residential Loans Serviced

(Dollars in millions)

(Unaudited)



June 30, 2018


March 31, 2018


December 31, 2017


June 30, 2017


Unpaid
Principal
Balance
(1)

Number of
accounts


Unpaid
Principal
Balance (1)

Number of
accounts


Unpaid
Principal
Balance (1)

Number of
accounts


Unpaid
Principal
Balance (1)

Number of
accounts

Serviced for own loan portfolio (2)

$

7,303


32,012



$

7,629


32,185



$

7,013


29,493



$

7,156


30,875


Serviced for others

19,249


78,898



18,767


77,426



25,073


103,137



16,144


66,106


Subserviced for others (3)

93,761


424,331



77,748


360,396



65,864


309,814



63,991


304,830


Total residential loans serviced

$

120,313


535,241



$

104,144


470,007



$

97,950


442,444



$

87,291


401,811


























(1)

UPB, net of write downs, does not include premiums or discounts.

(2)

Includes loans held-for-investment (residential first mortgage and home equity), loans-held-for-sale (residential first mortgage), loans with
government guarantees (residential first mortgage), and repossessed assets.

(3)

Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed
assets.

 

 

Loans Held-for-Investment

(Dollars in millions)

(Unaudited)



June 30, 2018


March 31, 2018


December 31, 2017


June 30, 2017

Consumer loans












Residential first mortgage

$

2,986


33.5

%


$

2,818


34.6

%


$

2,754


35.7

%


$

2,538


37.5

%

Home equity

685


7.7

%


671


8.3

%


664


8.6

%


459


6.7

%

Other

88


1.0

%


25


0.3

%


25


0.3

%


27


0.4

%

  Total consumer loans

3,759


42.2

%


3,514


43.2

%


3,443


44.6

%


3,024


44.6

%

Commercial loans












Commercial real estate

2,020


22.7

%


1,985


24.4

%


1,932


25.1

%


1,557


23.1

%

Commercial and industrial

1,324


14.9

%


1,228


15.1

%


1,196


15.5

%


1,040


15.3

%

Warehouse lending

1,801


20.2

%


1,407


17.3

%


1,142


14.8

%


1,155


17.0

%

  Total commercial loans

5,145


57.8

%


4,620


56.8

%


4,270


55.4

%


3,752


55.4

%

  Total loans held-for-investment

$

8,904


100.0

%


$

8,134


100.0

%


$

7,713


100.0

%


$

6,776


100.0

%


 

 

Allowance for Loan Losses

(Dollars in millions)

(Unaudited)



As of/For the Three Months Ended


June 30,
2018


March 31,
2018


June 30,
2017

Allowance for loan losses






Residential first mortgage

$

45



$

47



$

56


Home equity

19



21



19


Other

1



1



1


Total consumer loans

65



69



76


Commercial real estate

45



44



37


Commercial and industrial

21



20



21


Warehouse lending

6



6



6


Total commercial loans

72



70



64


Total allowance for loan losses

$

137



$

139



$

140


Charge-offs






 Total consumer loans

(2)



(2)



(2)


 Total commercial loans






Total charge-offs

$

(2)



$

(2)



$

(2)


Recoveries






Total consumer loans

1



1



2


Total commercial loans






Total recoveries

1



1



2


Charge-offs, net of recoveries

$

(1)



$

(1)



$


Net charge-offs to LHFI ratio (annualized) (1)

0.02

%


0.06

%


0.04

%

Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):



Residential first mortgage

0.04

%


0.11

%


0.09

%

Home equity and other consumer

0.10

%


0.28

%