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Flagstar Reports Fourth Quarter 2018 Net Income of $54 million, or $0.93 Per Diluted Share

- Company delivers solid earnings reflecting stronger, more diversified franchise

TROY, Mich., Jan. 22, 2019 /PRNewswire/ --

Key Highlights - Fourth Quarter 2018

  • Completed Wells Fargo branch acquisition, providing low-cost, stable liquidity for continued banking growth.
  • Results include a $29 million pre-tax benefit for hedging gains recognized in conjunction with the acquisition and $14 million of pre-tax acquisition-related expenses.
  • Excluding the acquisition-related benefit and expenses, adjusted net income was $42 million, or $0.72 per diluted share, an increase of 20 percent from adjusted fourth quarter 2017 net income.
  • Strong capital position with total risk-based capital ratio at 13.6 percent.
  • Pristine asset quality with minimal net charge-offs, low consumer delinquencies and no commercial delinquencies.

Flagstar Bancorp, Inc. (FBC), the holding company for Flagstar Bank, FSB, today reported fourth quarter 2018 net income of $54 million, or $0.93 per diluted share, and adjusted net income of $42 million, or $0.72 per diluted share, excluding Wells Fargo branch acquisition-related benefit and expenses. The Company reported net income of $48 million, or $0.83 per diluted share, in the third quarter 2018, and a net loss of $45 million, or $0.79 per diluted share, in the fourth quarter 2017, due to a one-time, non-cash charge of $80 million from new tax legislation.

"Our fourth quarter results further reflect the transformation Flagstar has made," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "We reported adjusted net income of $0.72 per diluted share for the quarter, net income of $3.21 per diluted share for the year and adjusted net income of $3.02 per diluted share for the year, evidencing the stronger, more diversified franchise we've become. While this quarter's gain on sale revenue was the lowest since the early days of the financial crisis, we delivered solid earnings as reflected in an adjusted return on average assets of 0.91 percent.

"The most recent step in our transformation was the acquisition of 52 Midwest branches from Wells Fargo Bank, which closed this quarter and significantly increased our core customer base. While we experienced some initial challenges in the transition, the Flagstar team worked hard to take care of each customer's individual circumstances. I'm proud of how the team reacted to this challenge. Although the deposits we purchased at acquisition were lower than anticipated, at this point, nearly 2 months after the conversion, we've seen only 8.7 percent attrition (as of January 19) as compared to the 17 percent post-closing attrition we had projected. We remain confident in the benefits of the acquisition, which boosts our net interest margin and provides substantial, low-cost stable liquidity.

"Our banking and mortgage servicing businesses had another good quarter. Deposit costs were relatively unchanged, despite the increase in short-term rates at the end of the third quarter. The adjusted net interest margin expanded 6 basis points to 2.99 percent. Total serviced accounts increased a remarkable 34 percent to nearly 827,000, further growing an important source of fee income and liquidity.

"Our mortgage business was softer than we expected. Fallout-adjusted locks declined 36 percent to $5.3 billion, partially offset by a higher gain on sale margin, which rose 9 basis points to 0.60 percent. We remain focused on reinforcing mortgage profitability, and believe we can use our market position and scale to succeed in a mortgage market with fewer players.

"As we move into 2019, we like how our business model has evolved and we believe we are positioned for success. We have strong, diversified sources of revenue, a track record of expense discipline, and pristine credit quality, supported by a robust level of allowance coverage. Underlying this position is an abundant level of capital, giving us added flexibility and durability as we continue to execute on our growth strategies in 2019."

Overall, 2018 was a good year for the Company. Full year 2018 net income was $187 million, or $3.21 per diluted share, as compared to full year 2017 net income of $63 million, or $1.09 per diluted share. Excluding the Wells Fargo branch acquisition-related benefit and expenses in the fourth quarter 2018 and a tax charge in the fourth quarter 2017, the Company had adjusted 2018 net income of $176 million, or $3.02 per diluted share, as compared to adjusted 2017 net income of $143 million, or $2.47 per diluted share. On an adjusted basis, the Company realized a strong 23 percent increase in net income for the full year 2018.


 

Income Statement Highlights


Three Months Ended


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017


(Dollars in millions)

Net interest income

$

152


$

124


$

115


$

106


$

107


Provision (benefit) for loan losses

(5)


(2)


(1)



2


Noninterest income

98


107


123


111


124


Noninterest expense

189


173


177


173


178


Income before income taxes

66


60


62


44


51


Provision for income taxes

12


12


12


9


96


Net income (loss)

$

54


$

48


$

50


$

35


$

(45)








Income (loss) per share:






Basic

$

0.94


$

0.84


$

0.86


$

0.61


$

(0.79)


Diluted

$

0.93


$

0.83


$

0.85


$

0.60


$

(0.79)


 

Adjusted Income Statement Highlights (Non-GAAP) (1)


Three Months Ended


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017


(Dollars in millions)

Net interest income

$

123


$

124


$

115


$

106


$

107


Provision (benefit) for loan losses

(5)


(2)


(1)



2


Noninterest income

98


107


123


111


124


Noninterest expense

175


172


177


173


178


Income before income taxes

51


61


62


44


51


Provision for income taxes

9


12


12


9


16


Net income

$

42


$

49


$

50


$

35


$

35








Income per share:






Basic

$

0.73


$

0.86


$

0.86


$

0.61


$

0.61


Diluted

$

0.72


$

0.85


$

0.85


$

0.60


$

0.60




(1)

See Non-GAAP Reconciliation for further information.

 

Key Ratios


Three Months Ended

 Change (bps)


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

Seq

Yr/Yr

Net interest margin

3.70

%

2.93

%

2.86

%

2.76

%

2.76

%

77

94

Adjusted net interest margin (1)

2.99

%

2.93

%

2.86

%

2.76

%

2.76

%

6

23

Return on average assets

1.2

%

1.0

%

1.1

%

0.8

%

(1.1)

%

20

N/M

Return on average equity

14.0

%

12.8

%

13.5

%

9.9

%

(12.1)

%

120

N/M

Efficiency ratio

75.7

%

74.6

%

74.4

%

79.7

%

77.1

%

110

(140)

N/M - Not meaningful



(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.

 

Average Balance Sheet Highlights


Three Months Ended

% Change


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

Seq

Yr/Yr


(Dollars in millions)



Average interest-earning assets

$

16,391


$

16,786


$

15,993


$

15,354


$

15,379


(2)

%

7

%

Average loans held-for-sale
(LHFS)

3,991


4,393


4,170


4,231


4,537


(9)

%

(12)

%

Average loans held-for-
investment (LHFI)

8,916


8,872


8,380


7,487


7,295


%

22

%

Average total deposits

11,942


11,336


10,414


9,371


9,084


5

%

31

%

Net Interest Income

Net interest income rose $28 million to $152 million for the fourth quarter 2018, as compared to the third quarter 2018, due to the recognition of $29 million of hedging gains recognized in conjunction with the Wells Fargo branch acquisition. Excluding hedging gains, the Company's adjusted net interest income fell $1 million to $123 million in the fourth quarter 2018, reflecting seasonal declines in loans held-for-sale and warehouse loans, largely offset by an expanded net interest margin. The adjusted net interest margin rose 6 basis points to 2.99 percent for the fourth quarter 2018 as compared to third quarter 2018 as a significant drop in Federal Home Loan Bank advances and higher yields on interest-earning assets more than offset a modest increase in deposit costs.

Loans held-for-investment averaged $8.9 billion for the fourth quarter 2018, increasing $44 million from the prior quarter. During the fourth quarter 2018, average consumer loans rose $213 million, or 6 percent, driven primarily by mortgage (mainly jumbos) and non-auto indirect loans. Average commercial loans rose $80 million, or 2 percent, excluding a $249 million drop in warehouse loans due to anticipated seasonal factors.

Average total deposits were $11.9 billion in the fourth quarter 2018, increasing $606 million, or 5 percent from the third quarter 2018, driven by the benefit of one month of Wells Fargo branch deposits and higher custodial deposits. Excluding the impact of the acquisition, average total deposits rose $22 million. Average retail deposits increased $371 million, or 5 percent, as acquired Wells Fargo deposits were partially offset by a drop in savings deposits. Average custodial deposits rose $162 million, or 8 percent, driven by a 34 percent increase in serviced accounts.

Provision for Loan Losses

The Company experienced a provision benefit in the fourth quarter 2018, resulting primarily from a continued decline in loss rates in the held-for-investment portfolio. The provision benefit totaled $5 million for the fourth quarter 2018, as compared to $2 million for the third quarter 2018.

Noninterest Income

Noninterest income decreased $9 million, or 8 percent, to $98 million in the fourth quarter 2018, as compared to $107 million for the third quarter 2018. The decrease was primarily due to lower net gain on loan sales, loan fees and charges and lower net return on mortgage servicing rights.

Fourth quarter 2018 net gain on loan sales fell $9 million, or 21 percent, to $34 million, versus $43 million in the third quarter 2018. The results reflected lower mortgage origination volume, partially offset by an improved gain on sale margin. Fallout-adjusted locks fell 36 percent to $5.3 billion, reflecting anticipated seasonal factors and lower mortgage volume. The net gain on loan sale margin rose 9 basis points to 0.60 percent for the fourth quarter 2018, as compared to 0.51 percent for the third quarter 2018.


Mortgage Metrics









Change (% / bps)


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

Seq

Yr/Yr


(Dollars in millions)



For the three months ended:








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

$

5,284


$

8,290


$

9,011


$

7,722


$

8,631


(36)

%

(39)

%

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

0.60

%

0.51

%

0.71

%

0.77

%

0.91

%

9


(31)


Net gain on loan sales

$

34


$

43


$

63


$

60


$

79


(21)

%

(57)

%

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

$

10


$

13


$

9


$

4


$

(4)


(23)

%

N/M

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

$

44


$

56


$

72


$

64


$

75


(21)

%

(41)

%

At the end of the period:








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

827


619


535


470


442


34

%

87

%

Capitalized value of MSRs

1.35

%

1.43

%

1.34

%

1.27

%

1.16

%

(8)


19


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 $2 million and $1 million, from loans transferred from
LHFI in the three months ended December 31, 2018 and December 31, 2017, respectively) 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 fell to $20 million for the fourth quarter 2018, as compared to $23 million for the third quarter 2018. The decrease primarily reflected lower mortgage loan closings.

Net return on mortgage servicing rights (including the impact of hedges) decreased $3 million, resulting in a net gain of $10 million for the fourth quarter 2018, as compared to a net gain of $13 million for the third quarter 2018. The decrease from the prior quarter largely reflected a smaller benefit from the collection of contingencies related to MSR sales in prior periods.

Noninterest Expense

Noninterest expense increased to $189 million for the fourth quarter 2018, as compared to $173 million for the third quarter 2018, primarily due to $14 million of expenses attributable to the Wells Fargo branch acquisition, partially offset by lower commissions reflecting lower mortgage volume. Excluding acquisition-related expenses in both quarters, the Company's adjusted noninterest expense was $175 million in the fourth quarter 2018 versus $172 million in the prior quarter.

The Company's efficiency ratio was 76 percent for the fourth quarter 2018, as compared to 75 percent for the third 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 versus 74 percent in the prior quarter.

Income Taxes

The fourth quarter 2018 provision for income taxes totaled $12 million, unchanged from the third quarter 2018. The Company's effective tax rate was 18 percent for the fourth quarter 2018, compared to 20 percent for the third quarter 2018. The lower tax rate in the fourth quarter reflects the implementation of tax management strategies and certain discrete benefits which reduced the full year 2018 effective tax rate to 19 percent. Going forward, we expect the effective tax rate in 2019 should be approximately 18 percent.


Asset Quality

Credit Quality Ratios








Three Months Ended

Change (% / bps)


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

Seq

Yr/Yr


(Dollars in millions)



Allowance for loan loss to LHFI

1.4

%

1.5

%

1.5

%

1.7

%

1.8

%

(10)


(40)


Charge-offs, net of recoveries

$

1


$

1


$

1


$

1


$

2


%

(50)

%

Total nonperforming LHFI and TDRs

$

22


$

25


$

27


$

29


$

29


(12)

%

(24)

%

Net charge-offs to LHFI ratio (annualized)

0.04

%

0.05

%

0.02

%

0.06

%

0.11

%

(1)


(7)


Ratio of nonperforming LHFI and TDRs to LHFI

0.24

%

0.28

%

0.30

%

0.35

%

0.38

%

(4)


(14)


The allowance for loan losses was $128 million at December 31, 2018, compared to $134 million at September 30, 2018. The allowance for loan losses covered 1.4 percent of loans held-for-investment at December 31, 2018, as compared to 1.5 percent of loans held-for-investment at September 30, 2018.

Net charge-offs in the fourth quarter 2018 were $1 million, or 4 basis points of LHFI, compared to $1 million, or 5 basis points in the prior quarter.

Nonperforming loans were $22 million at December 31, 2018, compared to $25 million at September 30, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.24 percent at December 31, 2018, compared to 0.28 percent at September 30, 2018. At December 31, 2018, early stage consumer loan delinquencies totaled $7 million, or 0.17 percent of consumer loans, compared to $3 million, or 0.08 percent at September 30, 2018. There were no commercial loan delinquencies greater than 30 days at December 31, 2018.

Capital

Capital Ratios (Bancorp)

Three Months Ended

Change (% / bps)


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

Seq

Yr/Yr

Tangible common equity to assets ratio (1)

7.45

%

7.74

%

7.74

%

7.65

%

8.15

%

(29)


(70)


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

8.29

%

8.36

%

8.65

%

8.72

%

8.51

%

(7)


(22)


Tier 1 common equity (to RWA)

10.54

%

11.01

%

10.84

%

10.80

%

11.50

%

(47)


(96)


Tier 1 capital (to RWA)

12.54

%

13.04

%

12.86

%

12.90

%

13.63

%

(50)


(109)


Total capital (to RWA)

13.63

%

14.20

%

14.04

%

14.14

%

14.90

%

(57)


(127)


MSRs to Tier 1 capital

19.3

%

20.3

%

16.9

%

16.2

%

20.1

%

(100)


(80)


Tangible book value per share (1)

$

23.90


$

25.13


$

24.37


$

23.62


$

24.04


(5)

%

(1)

%





















     (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 December 31, 2018, the Company had a total risk-based ratio of 13.63 percent, as compared to 14.20 percent at September 30, 2018. The decrease in the ratio resulted primarily from the Wells Fargo branch acquisition.

Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 60 basis points and risk-based capital ratios by approximately 30-45 basis points at December 31, 2018 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's fourth quarter 2018 earnings call will be held Tuesday, January 22, 2019 at 11 a.m. (ET).

To join the call, please dial (888) 204-4368 toll free or (786) 789-4783 and use passcode 2250616. 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 2250616.

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. (FBC) is an $18.5 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 160 branches in Michigan, Indiana, California, Wisconsin and Ohio. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 75 retail locations in 24 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 $175 billion of home loans representing nearly 827,000 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, adjusted net income, adjusted basic and diluted earnings per share, adjusted net interest margin, adjusted noninterest expense, adjusted net interest income, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted return on average assets. 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.

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(Dollars in millions)

(Unaudited)



December 31, 2018


September 30,
2018


December 31,
2017

Assets






Cash

$

260



$

150



$

122


Interest-earning deposits

148



114



82


Total cash and cash equivalents

408



264



204


Investment securities available-for-sale

2,142



1,857



1,853


Investment securities held-to-maturity

703



724



939


Loans held-for-sale

3,869



4,835



4,321


Loans held-for-investment

9,088



8,966



7,713


Loans with government guarantees

392



305



271


Less: allowance for loan losses

(128)



(134)



(140)


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

9,352



9,137



7,844


Mortgage servicing rights

290



313



291


Federal Home Loan Bank stock

303



303



303


Premises and equipment, net

390



360



330


Net deferred tax asset

103



111



136


Goodwill and intangible assets

190



70



21


Other assets

781



723



670


Total assets

$

18,531



$

18,697



$

16,912


Liabilities and Stockholders' Equity






Noninterest-bearing

$

2,989



$

3,096



$

2,049


Interest-bearing

9,391



8,493



6,885


Total deposits

12,380



11,589



8,934


Short-term Federal Home Loan Bank advances

3,244



3,199



4,260


Long-term Federal Home Loan Bank advances

150



1,280



1,405


Other long-term debt

495



495



494


Other liabilities

692



616



420


Total liabilities

16,961



17,179



15,513


Stockholders' Equity






Common stock

1



1



1


Additional paid in capital

1,522



1,519



1,512


Accumulated other comprehensive loss

(47)



(42)



(16)


Retained earnings/(accumulated deficit)

94



40



(98)


Total stockholders' equity

1,570



1,518



1,399


Total liabilities and stockholders' equity

$

18,531



$

18,697



$

16,912


 

Flagstar Bancorp, Inc.

Condensed Consolidated Statements of Operations

(Dollars in millions, except per share data)

(Unaudited)





Fourth Quarter 2018 Compared to:


Three Months Ended


Third Quarter

2018


Fourth Quarter

2017


December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017


Amount

Percent


Amount

Percent

Interest Income












Total interest income

$

181


$

183


$

167


$

152


$

148



$

(2)


(1)

%


$

33


22

%

Total interest expense

29


59


52


46


41



(30)


(51)

%


(12)


(29)

%

Net interest income

152


124


115


106


107



28


23

%


45


42

%

Provision (benefit) for loan losses

(5)


(2)


(1)



2



(3)


N/M



(7)


N/M


Net interest income after provision
(benefit) for loan losses

157


126


116


106


105



31


25

%


52


50

%

Noninterest Income












Net gain on loan sales

34


43


63


60


79



(9)


(21)

%


(45)


(57)

%

Loan fees and charges

20


23


24


20


24



(3)


(13)

%


(4)


(17)

%

Deposit fees and charges

6


5


5


5


4



1


20

%


2


50

%

Loan administration income

8


5


5


5


5



3


60

%


3


60

%

Net return (loss) on the mortgage servicing rights

10


13


9


4


(4)



(3)


(23)

%


14


N/M


Other noninterest income

20


18


17


17


16



2


11

%


4


25

%

Total noninterest income

98


107


123


111


124



(9)


(8)

%


(26)


(21)

%

Noninterest Expense












Compensation and benefits

82


76


80


80


80



6


8

%


2


3

%

Commissions

16


21


25


18


23



(5)


(24)

%


(7)


(30)

%

Occupancy and equipment

36


31


30


30


28



5


16

%


8


29

%

Federal insurance premiums

4


6


6


6


5



(2)


(33)

%


(1)


(20)

%

Loan processing expense

16


14


15


14


16



2


14

%



%

Legal and professional expense

9


7


6


6


8



2


29

%


1


13

%

Intangible asset amortization

3


1


1





2


N/M



3


N/M


Other noninterest expense

23


17


14


19


18



6


35

%


5


28

%

Total noninterest expense

189


173


177


173


178



16


9

%


11


6

%

Income before income taxes

66


60


62


44


51



6


10

%


15


29

%

Provision for income taxes

12


12


12


9


96




%


(84)


N/M


Net income (loss)

$

54


$

48


$

50


$

35


$

(45)



$

6


13

%


$

99


N/M


Income (loss) per share












Basic

$

0.94


$

0.84


$

0.86


$

0.61


$

(0.79)



$

0.10


12

%


$

1.73


N/M


Diluted

$

0.93


$

0.83


$

0.85


$

0.60


$

(0.79)



$

0.10


12

%


$

1.72


N/M



N/M - Not meaningful

 

Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(Dollars in millions, except per data share)

(Unaudited)



Twelve Months Ended


Compared to:

Year Ended December 31, 2017


December 31, 2018

December 31, 2017


Amount

Percent

Total interest income

$

683


$

527



$

156


30

%

Total interest expense

186


137



49


36

%

Net interest income

497


390



107


27

%

Provision (benefit) for loan losses

(8)


6



(14)


N/M


Net interest income after provision (benefit) for loan losses

505


384



121


32

%

Noninterest Income






Net gain on loan sales

200


268



(68)


(25)

%

Loan fees and charges

87


82



5


6

%

Deposit fees and charges

21


18



3


17

%

Loan administration income

23


21



2


10

%

Net return on the mortgage servicing rights

36


22



14


64

%

Other noninterest income

72


59



13


22

%

Total noninterest income

439


470



(31)


(7)

%

Noninterest Expense






Compensation and benefits

318


299



19


6

%

Commissions

80


72



8


11

%

Occupancy and equipment

127


103



24


23

%

Federal insurance premiums

22


16



6


38

%

Loan processing expense

59


57



2


4

%

Legal and professional expense

28


30



(2)


(7)

%

Intangible asset amortization

5




5


N/M


Other noninterest expense

73


66



7


11

%

Total noninterest expense

712


643



69


11

%

Income before income taxes

232


211



21


10

%

Provision for income taxes

45


148



(103)


(70)

%

Net income

$

187


$

63



$

124


N/M


Income per share






Basic

$

3.26


$

1.11



$

2.15


N/M


Diluted

$

3.21


$

1.09



$

2.12


N/M



N/M - Not meaningful

 

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in millions, except share data)

(Unaudited)



Three Months Ended


Twelve Months Ended


December 31,
2018


September 30,
2018


December 31,
2017


December 31,
2018


December 31,
2017

Selected Mortgage Statistics:










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

$

5,284



$

8,290



$

8,631



$

30,308



$

32,527


Mortgage loans originated (2)

$

6,340



$

9,199



$

9,749



$

32,465



$

34,408


Mortgage loans sold and securitized

$

7,146



$

8,423



$

10,096



$

32,076



$

32,493


Selected Ratios:










Interest rate spread

3.52

%


2.57

%


2.56

%


2.58

%


2.56

%

Adjusted interest rate spread (3) (4)

2.63

%


2.57

%


2.56

%


2.58

%


2.56

%

Net interest margin

3.70

%


2.93

%


2.76

%


2.89

%


2.75

%

Adjusted net interest margin (4)

2.99

%


2.93

%


2.76

%


2.89

%


2.75

%

Net margin on loans sold and securitized

0.44

%


0.51

%


0.78

%


0.62

%


0.82

%

Return on average assets

1.17

%


1.04

%


(1.05)

%


1.04

%


0.40

%

Return on average equity

13.98

%


12.80

%


(12.07)

%


12.58

%


4.41

%

Efficiency ratio

75.7

%


74.6

%


77.1

%


76.0

%


74.8

%

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

8.41

%


8.13

%


8.73

%


8.28

%


9.05

%

Average Balances:










Average common shares outstanding

57,628,561



57,600,360



57,186,367



57,520,289



57,093,868


Average fully diluted shares outstanding

58,385,354



58,332,598



57,186,367



58,322,950



58,178,343


Average interest-earning assets

$

16,391



$

16,786



$

15,379



$

16,136



$

14,130


Average interest-bearing liabilities

$

13,046



$

13,308



$

12,939



$

13,124



$

11,848


Average stockholders' equity

$

1,548



$

1,514



$

1,497



$

1,488



$

1,433



(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 and twelve 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.

 


December 31, 2018


September 30, 2018


December 31, 2017

Selected Statistics:






Book value per common share

$

27.19



$

26.34



$

24.40


Tangible book value per share (1)

23.90



25.13



24.04


Number of common shares outstanding

57,749,464



57,625,439



57,321,228


Number of FTE employees

3,938



3,496



3,525


Number of bank branches

160



108



99


Ratio of nonperforming assets to total assets (2)

0.16

%


0.17

%


0.22

%

Common equity-to-assets ratio

8.47

%


8.12

%


8.27

%

MSR Key Statistics and Ratios:






Weighted average service fee (basis points)

35.8



34.3



28.9


Capitalized value of mortgage servicing rights

1.35

%


1.43

%


1.16

%

Mortgage servicing rights to Tier 1 capital

19.3

%


20.3

%


20.1

%


(1)

Excludes goodwill and intangibles of $190 million, $70 million, and $21 million at December 31, 2018, September 30, 2018, and December 31, 2017, respectively. See Non-GAAP Reconciliation for further information.

(2)

Ratio excludes LHFS.

 

Average Balances, Yields and Rates

(Dollars in millions)

(Unaudited)



Three Months Ended


December 31, 2018


September 30, 2018


December 31, 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

$

3,991


$

48


4.78

%


$

4,393


$

52


4.69

%


$

4,537


$

46


4.07

%

Loans held-for-investment












Residential first mortgage

3,115


29


3.68

%


3,027


27


3.63

%


2,704


23


3.37

%

Home equity

717


10


5.43

%


695


9


5.12

%


524


7


5.11

%

Other

231


3


6.06

%


128


2


5.54

%


26



4.49

%

Total Consumer loans

4,063


42


4.12

%


3,850


38


3.96

%


3,254


30


3.66

%

Commercial Real Estate

2,171


31


5.52

%


2,106


29


5.37

%


1,866


21


4.48

%

Commercial and Industrial

1,345


19


5.48

%


1,330


18


5.28

%


1,136


14


4.76

%

Warehouse Lending

1,337


18


5.29

%


1,586


21


5.10

%


1,039


13


4.82

%

Total Commercial loans

4,853


68


5.45

%


5,022


68


5.26

%


4,041


48


4.65

%

Total loans held-for-investment

8,916


110


4.84

%


8,872


106


4.70

%


7,295


78


4.21

%

Loans with government guarantees

350


2


2.72

%


292


3


4.20

%


260


3


3.90

%

Investment securities

2,996


21


2.84

%


3,100


21


2.81

%


3,204


21


2.61

%

Interest-earning deposits

138



1.55

%


129


1


2.38

%


83



1.33

%

Total interest-earning assets

16,391


$

181


4.39

%


16,786


$

183


4.32

%


15,379


$

148


3.81

%

Other assets

2,022





1,825





1,772




Total assets

$

18,413





$

18,611





$

17,151




Interest-Bearing Liabilities












Retail deposits












Demand deposits

$

1,072


$

3


1.02

%


$

727


$

3


1.62

%


$

547


$


0.26

%

Savings deposits

3,075


7


0.91

%


3,229


7


0.90

%


3,621


8


0.77

%

Money market deposits

446



0.41

%


252



0.62

%


231



0.52

%

Certificates of deposit

2,274


11


1.88

%


2,150


10


1.78

%


1,397


5


1.32

%

Total retail deposits

6,867


21


1.22

%


6,358


20


1.27

%


5,796


13


0.84

%

Government deposits












Demand deposits

269


1


0.67

%


283


1


0.59

%


204



0.59

%

Savings deposits

602


3


1.69

%


564


2


1.48

%


394


1


0.94

%

Certificates of deposit

313


1


1.76

%


327


1


1.52

%


376


1


1.05

%

Total government deposits

1,184


5


1.48

%


1,174


4


1.28

%


974


2


0.91

%

Wholesale deposits and other

625


3


2.08

%


537


3


2.03

%


45



1.50

%

Total interest-bearing deposits

8,676


29


1.31

%


8,069


27


1.32

%


6,815


15


0.86

%

Short-term FHLB advances and other

2,954


18


2.39

%


3,465...