EX-99.1 2 pressrelease4q2017.htm EXHIBIT 99.1 Exhibit


flagstara43.jpg                fbcnyselisteda20.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Fourth Quarter 2017 Financial Results and Announces Regulatory Approval to Acquire Eight Branches in Southern California

Company posts solid, consistent operating earnings
Previously announced branch acquisition scheduled to close in the first quarter of 2018

Key Highlights - Fourth Quarter 2017

•
Net loss of $45 million, or $0.79 per diluted share, on non-cash charge from new tax legislation.
•
Adjusted net income of $35 million, or $0.60 per diluted share.
•
Net interest income grew $4 million, or 4 percent, from third quarter 2017, led by higher earning assets.
•
Average commercial loans up $344 million, or 9 percent, from last quarter.
•
Net gain on loan sales rose to $79 million, driven by an improved gain on sale margin.
•
Asset quality strong with a high allowance coverage ratio.
•
Strong capital position with Tier 1 leverage at 8.51 percent.

TROY, Mich., Jan. 23, 2018 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported a fourth quarter 2017 net loss of $45 million, or $0.79 per diluted share, and adjusted net income of $35 million, or $0.60 per diluted share, after adjusting for a non-cash charge to the provision for income taxes of $80 million, or $1.37 per diluted share. As previously announced, the charge resulted from the revaluation of the Company's net deferred tax asset under the new Tax Cuts and Jobs Act. The Company reported net income of $40 million, or $0.70 per diluted share, in the third quarter 2017, and $28 million, or $0.49 per diluted share, in the fourth quarter 2016.

"A key take-away from the quarter was the durability of our earnings,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "The continued growth of our banking and servicing businesses has reduced the impact of the swings in the origination business on our earnings, thus producing more predictable and consistent results.

"All three of our business lines strengthened during the quarter. Our community bank drove a 9 percent increase in commercial loans, which helped fuel earning asset growth of $642 million -- a 4 percent gain. Our mortgage acquisitions earlier in 2017 continued to pay dividends, producing a 14 percent increase in closings and a 42 percent increase in locks over the same quarter last year in the face of a smaller market. And our third

1

key business line, servicing, continued to gain scale and now has a book of business that exceeds 440,000 accounts."

"Finally, I am pleased to announce that we have received approval from the Office of the Comptroller of the Currency to acquire eight Desert Community Bank branches from East West Bank. With this franchise, we acquire $600 million in deposits and $70 million in loan relationships. We are looking forward to welcoming the Desert Community Bank branch team to Flagstar by the end of the quarter."

Full year 2017 net income was $63 million, or $1.09 per diluted share, as compared to full year 2016 net income of $171 million, or $2.66 per diluted share. Excluding the tax charge in the fourth quarter 2017, the Company had adjusted 2017 net income of $143 million, or $2.47 per diluted share, as compared to adjusted 2016 net income of $155 million, or $2.38 per diluted share. On an adjusted basis, the Company realized a 4 percent increase in diluted earnings per share for the full year 2017.

Fourth Quarter 2017 Highlights:

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
 
(Dollars in millions)
Net interest income
$
107

$
103

$
97

$
83

$
87

Provision (benefit) for loan losses
2

2

(1
)
3

1

Noninterest income
124

130

116

100

98

Noninterest expense
178

171

154

140

142

Income before income taxes
51

60

60

40

42

Provision for income taxes (1)
96

20

19

13

14

Net income (loss)
$
(45
)
$
40

$
41

$
27

$
28

 
 
 
 
 
 
Income (loss) per share:
 
 
 
 
 
Basic
$
(0.79
)
$
0.71

$
0.72

$
0.47

$
0.50

Diluted
$
(0.79
)
$
0.70

$
0.71

$
0.46

$
0.49

(1)
For the three months ended December 31, 2017 includes an $80 million non-cash charge to the provision for income taxes resulting from the revaluation of the Company's net deferred tax asset (DTA) at a lower statutory rate as a result of the Tax Cuts and Jobs Act.
Key Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
Seq
Yr/Yr
Net interest margin
2.76
 %
2.78
%
2.77
%
2.67
%
2.67
%
(2)
9
Return on average assets
(1.1
)%
1.0
%
1.0
%
0.8
%
0.8
%
N/M
N/M
Return on average equity
(12.1
)%
11.1
%
11.6
%
7.9
%
8.6
%
N/M
N/M
Return on average common equity
(12.1
)%
11.1
%
11.6
%
7.9
%
8.6
%
N/M
N/M
Efficiency ratio
77.1
 %
73.5
%
72.0
%
76.8
%
76.7
%
360
40
N/M - Not meaningful


2

Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average Balance Sheet Data
 
 
 
 
 


Average interest-earning assets
$
15,379

$
14,737

$
14,020

$
12,343

$
12,817

4
%
20
 %
Average loans held-for-sale (LHFS)
4,537

4,476

4,269

3,286

3,321

1
%
37
 %
Average loans held-for-investment (LHFI)
7,295

6,803

6,224

5,639

6,163

7
%
18
 %
Average total deposits
9,084

9,005

8,739

8,795

9,233

1
%
(2
)%

Net Interest Income

Net interest income rose $4 million, or 4 percent, to $107 million for the fourth quarter 2017, as compared to $103 million for the third quarter 2017. The results reflected a 4 percent increase in average earning assets, led by continued solid growth in commercial loans. The net interest margin decreased 2 basis points to 2.76 percent for the fourth quarter 2017, as compared to the third quarter 2017, on continued deposit price discipline.

Loans held-for-investment averaged $7.3 billion for the fourth quarter 2017, an increase of $492 million, or 7 percent, from the prior quarter. During the fourth quarter 2017, average commercial loans rose 9 percent with average commercial real estate loans increasing $220 million, or 13 percent, average commercial and industrial loans increasing $63 million, or 6 percent, and average warehouse loans increasing $61 million, or 6 percent.

Average total deposits were $9.1 billion in the fourth quarter 2017, increasing $79 million, or 1 percent from the third quarter 2017. The increase was led by higher company-controlled and government deposits. Average retail deposits were unchanged at $6.5 billion as higher retail certificates of deposit (up $215 million, or 18 percent) offset a decline in retail savings deposits (down $217 million, or 6 percent).


Provision (Benefit) for Loan Losses

The provision for loan losses totaled $2 million for the fourth quarter 2017, unchanged from the third quarter 2017. The low level of provision expense reflected continued strong asset quality and largely matched net charge-offs in the quarter.

3

Noninterest Income

Noninterest income fell $6 million, or 5 percent, to $124 million in the fourth quarter of 2017, as compared to $130 million for the third quarter 2017. The decrease was primarily due to a net loss on the mortgage servicing rights, partially offset by an increase in net gain on loan sales.

Fourth quarter 2017 net gain on loan sales increased to $79 million, as compared to $75 million in the third quarter 2017. The increase from the prior quarter reflected an improved gain on sale margin. The net gain on loan sale margin increased 7 basis points to 0.91 percent for the fourth quarter 2017, as compared to 0.84 percent for the third quarter 2017. Fallout-adjusted locks fell 3 percent to $8.6 billion primarily due to anticipated seasonal factors, partially offset by stronger correspondent volume. Full year 2017 fallout-adjusted locks rose a strong 42 percent, boosted by the acquisition of Opes and Stearns.

Mortgage Metrics
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Mortgage rate lock commitments (fallout-adjusted) (1) 
$
8,631

$
8,898

$
9,002

$
5,996

$
6,091

(3
)%
42
 %
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)
0.91
%
0.84
%
0.73
%
0.80
%
0.93
%
7
(2)
Net gain on loan sales
$
79

75

$
66

$
48

$
57

5
 %
39
 %
Net (loss) return on the mortgage servicing rights (MSR)
$
(4
)
$
6

$
6

$
14

$
(5
)
N/M

(20
)%
Gain on loan sales + net (loss) return on the MSR
$
75

$
81

$
72

$
62

$
52

(7
)%
44
 %
 
 
 
 
 
 
 
 
Residential loans serviced (number of accounts - 000's) (3)
442

415

402

393

383

7
 %
15
 %
Capitalized value of mortgage servicing rights
1.16
%
1.15
%
1.14
%
1.10
%
1.07
%
1
9
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 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.

Net return on the mortgage servicing rights (including the impact of hedges) was a net loss of $4 million for the fourth quarter 2017, as compared to a net gain of $6 million for the third quarter 2017. The decrease from the prior quarter largely reflected a $4 million decrease in fair value driven by model changes as well as a $3 million charge associated with pending MSR sales with a fair value of $98 million expected to close in the first quarter 2018. Assuming the Capital Simplification NPR is finalized as proposed, taking this action gives the Company significant flexibility in managing the MSR asset in 2018.

The representation and warranty benefit was $2 million for the fourth quarter 2017, as compared to a $4 million benefit in the third quarter 2017. The representation and warranty reserve was reduced to $15 million at December 31, 2017, from $16 million at September 30, 2017, reflecting continued improvement in risk trends and a repurchase pipeline that was only $3 million at December 31, 2017.

4

Noninterest Expense

Noninterest expense rose to $178 million for the fourth quarter 2017, as compared to $171 million for the third quarter 2017. During the fourth quarter 2017, compensation and benefits increased $3 million due to incentive compensation. The Company also experienced a $2 million increase in expenses to support the investment in growth initiatives, included in compensation and benefits and other noninterest expense. The Company's efficiency ratio was 77 percent for the fourth quarter 2017, as compared to 74 percent for the third quarter 2017.

Income Taxes

The fourth quarter 2017 provision for income taxes totaled $96 million, including a one-time, non-cash charge of $80 million resulting from new tax legislation, as compared to $20 million in the third quarter 2017. Excluding this charge, the Company's adjusted effective tax rate was 32 percent for the fourth quarter 2017, unchanged from the third quarter 2017.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
1.8
%
2.0
%
2.1
%
2.4
%
2.4
%
(20)
(60)
Allowance for loan loss to LHFI and loans with government guarantees
1.8
%
1.9
%
2.0
%
2.3
%
2.2
%
(10)
(40)
 
 
 
 
 
 
 
 
Charge-offs, net of recoveries
$
2

$
2

$
—

$
4

$
2

—

—
 %
Charge-offs associated with loans with government guarantees
1

1

—

2

1

—

—
 %
Charge-offs associated with the sale or transfer of nonperforming loans and TDRs
—

—

—

1

—

—

—

Charge-offs, net of recoveries, adjusted (1)
$
1

$
1

$
—

$
1

$
1

$
—

—
 %
 
 
 
 
 
 
 
 
Total nonperforming loans held-for-investment
$
29

$
31

$
30

$
28

$
40

(6
)%
(28
)%
Net charge-offs to LHFI ratio (annualized)
0.11
%
0.08
%
0.04
%
0.27
%
0.13
%
3
(2)
Net charge-off ratio, adjusted (annualized)
0.06
%
0.06
%
0.02
%
0.07
%
0.07
%
—

(1)
Ratio of nonperforming LHFI to LHFI
0.38
%
0.44
%
0.44
%
0.47
%
0.67
%
(6)
(29)
N/M - Not meaningful
 
 
 
 
 
 
 
(1)
Excludes charge-offs associated with loans with government guarantees and charge-offs associated with the sale or transfer of nonperforming loans and TDRs.

The allowance for loan losses was $140 million at December 31, 2017, unchanged from September 30, 2017. The allowance for loan losses covered 1.8 percent of loans held-for-investment at December 31, 2017, as compared to 2.0 percent of loans held-for-investment at September 30, 2017.

Net charge-offs in the fourth quarter 2017 were $2 million, or 0.11 percent of HFI loans, compared to $2 million, or 0.08 percent of such loans in the prior quarter.

Nonperforming loans held-for-investment were $29 million at December 31, 2017, compared to $31 million at September 30, 2017. The ratio of nonperforming loans to loans held-for-investment was 0.38 percent at December 31, 2017, compared to 0.44 percent at September 30, 2017. At December 31, 2017, consumer loan delinquencies totaled $5 million, or 0.15 percent of consumer loans, unchanged from September 30, 2017.

5

Capital
Capital Ratios (Bancorp)
Three Months Ended
Change (% / bps)
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
Seq
Yr/Yr
Total capital (to RWA)
14.90
%
14.99
%
15.92
%
15.98
%
16.41
%
(9)
(151)
Tier 1 capital (to RWA)
13.63
%
13.72
%
14.65
%
14.70
%
15.12
%
(9)
(149)
Tier 1 leverage (to adjusted avg. total assets)
8.51
%
8.80
%
9.10
%
9.31
%
8.88
%
(29)
(37)
Mortgage servicing rights to Tier 1 capital
20.1
%
17.3
%
13.1
%
23.1
%
26.7
%
280
(660)
Tangible book value per share

$
24.04

$
25.01

$
24.29

$
23.96

$
23.50

(4
)%
2
%

The Company grew the average balance sheet $712 million in the fourth quarter 2017 while maintaining a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At December 31, 2017, the Company had a Tier 1 leverage ratio of 8.51 percent, as compared to 8.80 percent at September 30, 2017. The decrease in the ratio resulted primarily from balance sheet growth.

On September 27, 2017, the federal banking agencies issued a notice of proposed rulemaking (“NPR”) regarding several proposed simplifications of the Basel III capital rules issued in 2013. This Capital Simplification NPR would accelerate capital formation for balance sheet growth. On a pro-forma basis at December 31, 2017, the proposal would have increased the Company's Tier 1 leverage ratio by approximately 70 bps and risk-based capital ratios by approximately 30-35 basis points.

At December 31, 2017, the Company had a common equity-to-assets ratio of 8.27 percent.

Earnings Conference Call

As previously announced, the Company's fourth quarter 2017 earnings call will be held Tuesday, January 23, 2018 at 11 a.m. (ET).

To join the call, please dial (800) 289-0517 toll free or (323) 794-2423 and use passcode 8848543. 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 8848543.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and available for replay and download. The slide presentation accompanying the conference call will be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is a $16.9 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 99 branches in the state. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 89 retail locations in 29 states, representing the combined retail branches of Flagstar and Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $98 billion of home loans representing over 442,000 borrowers. For more information, please visit flagstar.com.

6

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 estimated fully implemented Basel III capital levels and ratios, tangible book value per share, adjusted net income, and adjusted earnings per share. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s website at flagstar.com.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company's actual results could differ materially from those described in the forward-looking statements depending upon the impact of judicial and regulatory interpretations of the just-enacted tax legislation, as well as various other 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.



7

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
 
December 31, 2017
 
September 30,
2017
 
December 31, 2016
Assets
 
 
 
 
 
Cash
$
122

 
$
88

 
$
84

Interest-earning deposits
82

 
145

 
74

Total cash and cash equivalents
204

 
233

 
158

Investment securities available-for-sale
1,853

 
1,637

 
1,480

Investment securities held-to-maturity
939

 
977

 
1,093

Loans held-for-sale
4,321

 
4,939

 
3,177

Loans held-for-investment
7,713

 
7,203

 
6,065

Loans with government guarantees
271

 
253

 
365

Less: allowance for loan losses
(140
)
 
(140
)
 
(142
)
Total loans held-for-investment and loans with government guarantees, net
7,844

 
7,316

 
6,288

Mortgage servicing rights
291

 
246

 
335

Federal Home Loan Bank stock
303

 
264

 
180

Premises and equipment, net
330

 
314

 
275

Net deferred tax asset
136

 
248

 
286

Other assets
691

 
706

 
781

Total assets
$
16,912

 
$
16,880

 
$
14,053

Liabilities and Stockholders' Equity
 
 
 
 
 
Noninterest-bearing
$
2,049

 
$
2,272

 
$
2,077

Interest-bearing
6,885

 
6,889

 
6,723

Total deposits
8,934

 
9,161

 
8,800

Short-term Federal Home Loan Bank advances
4,260

 
4,065

 
1,780

Long-term Federal Home Loan Bank advances
1,405

 
1,300

 
1,200

Other long-term debt
494

 
493

 
493

Representation and warranty reserve
15

 
16

 
27

Other liabilities
405

 
394

 
417

Total liabilities
15,513

 
15,429

 
12,717

Stockholders' Equity
 
 
 
 
 
Common stock
1

 
1

 
1

Additional paid in capital
1,512

 
1,511

 
1,503

Accumulated other comprehensive loss
(16
)
 
(8
)
 
(7
)
Accumulated deficit
(98
)
 
(53
)
 
(161
)
Total stockholders' equity
1,399

 
1,451

 
1,336

Total liabilities and stockholders' equity
$
16,912

 
$
16,880

 
$
14,053





8

Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Fourth Quarter 2017 Compared to:
 
Three Months Ended
 
Third Quarter
2017
 
Fourth Quarter
2016
 
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
 
Amount
Percent
 
Amount
Percent
Interest Income
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
148

$
140

$
129

$
110

$
111

 
$
8

6
 %
 
$
37

33
 %
Total interest expense
41

37

32

27

24

 
4

11
 %
 
17

71
 %
Net interest income
107

103

97

83

87

 
4

4
 %
 
20

23
 %
Provision (benefit) for loan losses
2

2

(1
)
3

1

 
—

—
 %
 
1

100
 %
Net interest income after provision (benefit) for loan losses
105

101

98

80

86

 
4

4
 %
 
19

22
 %
Noninterest Income
 
 
 
 
 
 




 




Net gain on loan sales
79

75

66

48

57

 
4

5
 %
 
22

39
 %
Loan fees and charges
24

23

20

15

20

 
1

4
 %
 
4

20
 %
Deposit fees and charges
4

5

5

4

5

 
(1
)
(20
)%
 
(1
)
(20
)%
Loan administration income
5

5

6

5

4

 
—

—
 %
 
1

25
 %
Net (loss) return on the mortgage servicing rights
(4
)
6

6

14

(5
)
 
(10
)
N/M

 
1

(20
)%
Representation and warranty benefit
2

4

3

4

7

 
(2
)
(50
)%
 
(5
)
(71
)%
Other noninterest income
14

12

10

10

10

 
2

17
 %
 
4

40
 %
Total noninterest income
124

130

116

100

98

 
(6
)
(5
)%
 
26

27
 %
Noninterest Expense
 
 
 
 
 
 




 




Compensation and benefits
80

76

71

72

66

 
4

5
 %
 
14

21
 %
Commissions
23

23

16

10

15

 
—

—
 %
 
8

53
 %
Occupancy and equipment
28

28

25

22

21

 
—

—
 %
 
7

33
 %
Loan processing expense
16

15

14

12

15

 
1

7
 %
 
1

7
 %
Legal and professional expense
8

7

8

7

9

 
1

14
 %
 
(1
)
(11
)%
Other noninterest expense
23

22

20

17

16

 
1

5
 %
 
7

44
 %
Total noninterest expense
178

171

154

140

142

 
7

4
 %
 
36

25
 %
Income before income taxes
51

60

60

40

42

 
(9
)
(15
)%
 
9

21
 %
Provision for income taxes
96

20

19

13

14

 
76

N/M

 
82

N/M

Net income (loss)
$
(45
)
$
40

$
41

$
27

$
28

 
$
(85
)
N/M

 
$
(73
)
N/M

Income (loss) per share
 
 
 
 
 
 




 




Basic
$
(0.79
)
$
0.71

$
0.72

$
0.47

$
0.50

 
$
(1.50
)
N/M

 
$
(1.29
)
N/M

Diluted
$
(0.79
)
$
0.70

$
0.71

$
0.46

$
0.49

 
$
(1.49
)
N/M

 
$
(1.28
)
N/M

N/M - Not meaningful


9


Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)

 
 
 
 
 
For the Year Ended
 
Compared to:
Year Ended December 31, 2016
 
December 31,
2017
December 31,
2016
 
Amount
Percent
Total interest income
$
527

$
417

 
$
110

26
 %
Total interest expense
137

94

 
43

46
 %
Net interest income
390

323

 
67

21
 %
Provision (benefit) for loan losses
6

(8
)
 
14

N/M

Net interest income after provision (benefit) for loan losses
384

331

 
53

16
 %
Noninterest Income
 
 
 
 
 
Net gain on loan sales
268

316

 
(48
)
(15
)%
Loan fees and charges
82

76

 
6

8
 %
Deposit fees and charges
18

22

 
(4
)
(18
)%
Loan administration income
21

18

 
3

17
 %
Net (loss) return on the mortgage servicing rights
22

(26
)
 
48

N/M

Representation and warranty benefit
13

19

 
(6
)
(32
)%
Other noninterest income
46

62

 
(16
)
(26
)%
Total noninterest income
470

487

 
(17
)
(3
)%
Noninterest Expense
 
 
 
 
 
Compensation and benefits
299

269

 
30

11
 %
Commissions
72

55

 
17

31
 %
Occupancy and equipment
103

85

 
18

21
 %
Loan processing expense
57

55

 
2

4
 %
Legal and professional expense
30

29

 
1

3
 %
Other noninterest expense
82

67

 
15

22
 %
Total noninterest expense
643

560

 
83

15
 %
Income before income taxes
211

258

 
(47
)
(18
)%
Provision for income taxes
148

87

 
61

70
 %
Net income
$
63

$
171

 
$
(108
)
(63
)%
Income per share
 
 
 
 
 
Basic
$
1.11

$
2.71

 
$
(1.60
)
(59
)%
Diluted
$
1.09

$
2.66

 
$
(1.57
)
(59
)%
N/M - Not meaningful





10

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
For the Year Ended
 
December 31, 2017
 
September 30,
2017
 
December 31, 2016
 
December 31,
2017
 
December 31,
2016
Selected Mortgage Statistics:
 
 
 
 
 
 
 
 
 
Mortgage loans originated (1)
$
9,749

 
$
9,572

 
$
8,561

 
$
34,408

 
$
32,417

Mortgage loans sold and securitized
$
10,096

 
$
8,924

 
$
8,422

 
$
32,493

 
$
32,033

Mortgage rate lock commitments (gross)
$
9,476

 
$
9,878

 
$
7,611

 
$
37,544

 
$
36,869

Selected Ratios:
 
 
 
 
 
 
 
 
 
Interest rate spread (2)
2.56
 %
 
2.58
%
 
2.49
%
 
2.56
%
 
2.45
%
Net interest margin
2.76
 %
 
2.78
%
 
2.67
%
 
2.75
%
 
2.64
%
Net margin on loans sold and securitized
0.78
 %
 
0.84
%
 
0.68
%
 
0.82
%
 
1.03
%
Return on average assets
(1.05
)%
 
0.99
%
 
0.78
%
 
0.40
%
 
1.23
%
Return on average equity
(12.07
)%
 
11.10
%
 
8.60
%
 
4.41
%
 
11.69
%
Return on average common equity
(12.07
)%
 
11.10
%
 
8.60
%
 
4.41
%
 
13.03
%
Efficiency ratio
77.1
 %
 
73.5
%
 
76.7
%
 
74.8
%
 
69.2
%
Equity-to-assets ratio (average for the period)
8.73
 %
 
8.95
%
 
9.05
%
 
9.05
%
 
10.52
%
Average Balances:
 
 
 
 
 
 
 
 
 
Average common shares outstanding
57,186,367

 
57,162,025

 
56,607,933

 
57,093,868

 
56,569,307

Average fully diluted shares outstanding
57,186,367

 
58,186,593

 
57,824,854

 
58,178,343

 
57,597,667

Average interest-earning assets
$
15,379

 
$
14,737

 
$
12,817

 
$
14,130

 
$
12,164

Average interest-paying liabilities
$
12,939

 
$
12,297

 
$
10,222

 
$
11,848

 
$
9,757

Average stockholders' equity
$
1,497

 
$
1,471

 
$
1,312

 
$
1,433

 
$
1,464

 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
Selected Statistics:
 
 
 
 
 
Book value per common share
$
24.40

 
$
25.38

 
$
23.50

Tangible book value per share
24.04

 
25.01

 
23.50

Number of common shares outstanding
57,321,228

 
57,181,536

 
56,824,802

Number of FTE employees
3,525

 
3,495

 
2,886

Number of bank branches
99

 
99

 
99

Ratio of nonperforming assets to total assets
0.22
%
 
0.24
%
 
0.39
%
Common equity-to-assets ratio
8.27
%
 
8.60
%
 
9.50
%
MSR Key Statistics and Ratios:
 
 
 
 
 
Weighted average service fee (basis points)
28.9

 
28.2

 
26.7

Capitalized value of mortgage servicing rights
1.16
%
 
1.15
%
 
1.07
%
Mortgage servicing rights to Tier 1 capital
20.1
%
 
17.3
%
 
26.7
%
(1)
Includes residential first mortgage.
(2)
Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.




11

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
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
$
4,537

$
46

4.07
%
 
$
4,476

$
45

3.99
%
 
$
3,321

$
29

3.55
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
2,704

23

3.37
%
 
2,594

22

3.32
%
 
2,215

18

3.25
%
Home equity
524

7

5.11
%
 
486

6

5.11
%
 
447

6

4.95
%
Other
26

—

4.49
%
 
26

—

4.52
%
 
29

—

4.47
%
Total Consumer loans
3,254

30

3.66
%
 
3,106

28

3.61
%
 
2,691

24

3.55
%
Commercial Real Estate
1,866

21

4.48
%
 
1,646

19

4.43
%
 
1,209

11

3.60
%
Commercial and Industrial
1,136

14

4.76
%
 
1,073

13

4.77
%
 
721

8

4.49
%
Warehouse Lending
1,039

13

4.82
%
 
978

12

4.82
%
 
1,542

16

4.12
%
Total Commercial loans
4,041

48

4.65
%
 
3,697

44

4.63
%
 
3,472

35

4.06
%
Total loans held-for-investment
7,295

78

4.21
%
 
6,803

72

4.16
%
 
6,163

59

3.84
%
Loans with government guarantees
260

3

3.90
%
 
264

3

4.58
%
 
389

4

4.23
%
Investment securities
3,204

21

2.61
%
 
3,101

20

2.58
%
 
2,845

18

2.53
%
Interest-earning deposits
83

—

1.33
%
 
93

—

1.23
%
 
99

1

0.51
%
Total interest-earning assets
15,379

$
148

3.81
%
 
14,737

$
140

3.77
%
 
12,817

$
111

3.46
%
Other assets
1,772

 
 
 
1,702

 
 
 
1,672

 
 
Total assets
$
17,151

 
 
 
$
16,439

 
 
 
$
14,489

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
547

$
—

0.26
%
 
$
489

$
—

0.14
%
 
$
521

$
—

0.21
%
Savings deposits
3,621

8

0.77
%
 
3,838

7

0.76
%
 
3,840

7

0.77
%
Money market deposits
231

—

0.52
%
 
276

—

0.57
%
 
256

—

0.43
%
Certificates of deposit
1,397

5

1.32
%
 
1,182

4

1.19
%
 
1,079

3

1.05
%
Total retail deposits
5,796

13

0.84
%
 
5,785

11

0.78
%
 
5,696

10

0.75
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
204

—

0.59
%
 
250

—

0.43
%
 
211

—

0.39
%
Savings deposits
394

1

0.94
%
 
362

1

0.71
%
 
470

1

0.52
%
Certificates of deposit
376

1

1.05
%
 
329

1

0.89
%
 
352

1

0.60
%
Total government deposits
974

2

0.91
%
 
941

2

0.70
%
 
1,033

2

0.52
%
Wholesale deposits and other
45

—

1.50
%
 
35

—

1.49
%
 
—

—

—
%
Total interest-bearing deposits
6,815

15

0.86
%
 
6,761

13

0.78
%
 
6,729

12

0.72
%
Short-term Federal Home Loan Bank advances and other
4,329

14

1.25
%
 
3,809

11

1.17
%
 
1,427

1

0.50
%
Long-term Federal Home Loan Bank advances
1,301

6

1.93
%
 
1,234

6

1.99
%
 
1,573

5

1.24
%
Other long-term debt
494

6

5.12
%
 
493

7

5.09
%
 
493

6

4.89
%
Total interest-bearing liabilities
12,939

41

1.25
%
 
12,297

37

1.19
%
 
10,222

24

0.97
%
Noninterest-bearing deposits (1)
2,269

 
 
 
2,244

 
 
 
2,504

 
 
Other liabilities
446

 
 
 
427

 
 
 
451

 
 
Stockholders' equity
1,497

 
 
 
1,471

 
 
 
1,312

 
 
Total liabilities and stockholders' equity
$
17,151

 
 
 
$
16,439

 
 
 
$
14,489

 
 
Net interest-earning assets
$
2,440

 
 
 
$
2,440

 
 
 
$
2,595

 
 
Net interest income
 
$
107

 
 
 
$
103

 
 
 
$
87

 
Interest rate spread (2)
 
 
2.56
%
 
 
 
2.58
%
 
 
 
2.49
%
Net interest margin (3)
 
 
2.76
%
 
 
 
2.78
%
 
 
 
2.67
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
118.9
%
 
 
 
119.9
%
 
 
 
125.4
%
Total average deposits
$
9,084

 
 
 
$
9,005

 
 
 
$
9,233

 
 
(1)
Includes noninterest-bearing company-controlled 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.


12

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
For the Year Ended
 
December 31, 2017
 
December 31, 2016
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
4,146

$
165

3.99
%
 
$
3,134

$
113

3.62
%
Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage
2,549

85

3.35
%
 
2,328

74

3.16
%
Home equity
471

24

5.06
%
 
475

24

5.17
%
Other
26

1

4.51
%
 
29

1

4.73
%
Total Consumer loans
3,046

110

3.62
%
 
2,832

99

3.52
%
Commercial Real Estate
1,579

68

4.25
%
 
1,004

35

3.46
%
Commercial and Industrial
981

47

4.73
%
 
631

27

4.22
%
Warehouse Lending
890

43

4.73
%
 
1,346

58

4.22
%
Total Commercial loans
3,450

158

4.51
%
 
2,981

120

3.97
%
Total loans held-for-investment
6,496

268

4.09
%
 
5,813

219

3.75
%
Loans with government guarantees
290

13

4.30
%
 
435

16

3.59
%
Investment securities
3,121

80

2.57
%
 
2,653

68

2.56
%
Interest-earning deposits
77

1

1.15
%
 
129

1

0.50
%
Total interest-earning assets
14,130

$
527

3.71
%
 
12,164

$
417

3.42
%
Other assets
1,716

 
 
 
1,743

 
 
Total assets
$
15,846

 
 
 
$
13,907

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
514

$
1

0.19
%
 
$
489

$
1

0.18
%
Savings deposits
3,829

29

0.76
%
 
3,751

29

0.78
%
Money market deposits
255

1

0.50
%
 
278

1

0.44
%
Certificates of deposit
1,187

14

1.18
%
 
990

10

1.05
%
Total retail deposits
5,785

45

0.78
%
 
5,508

41

0.76
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
222

1

0.45
%
 
228

1

0.39
%
Savings deposits
406

3

0.68
%
 
442

2

0.52
%
Certificates of deposit
329

2

0.82
%
 
382

2

0.40
%
Total government deposits
957

6

0.67
%
 
1,052

5

0.45
%
Wholesale deposits and other
23

—

1.35
%
 
—

—

—
%
Total interest-bearing deposits
6,765

51

0.77
%
 
6,560

46

0.71
%
Short-term Federal Home Loan Bank advances and other
3,356

37

1.09
%
 
1,249

5

0.44
%
Long-term Federal Home Loan Bank advances
1,234

24

1.92
%
 
1,584

27

1.72
%
Other long-term debt
493

25

5.08
%
 
364

16

4.34
%
Total interest-bearing liabilities
11,848

137

1.15
%
 
9,757

94

0.97
%
Noninterest-bearing deposits (1)
2,142

 
 
 
2,202

 
 
Other liabilities
423

 
 
 
484

 
 
Stockholders' equity
1,433

 
 
 
1,464

 
 
Total liabilities and stockholders' equity
$
15,846

 
 
 
$
13,907

 
 
Net interest-earning assets
$
2,282

 
 
 
$
2,407

 
 
Net interest income
 
$
390

 
 
 
$
323

 
Interest rate spread (2)
 
 
2.56
%
 
 
 
2.45
%
Net interest margin (3)
 
 
2.75
%
 
 
 
2.64
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
119.3
%
 
 
 
124.7
%
Total average deposits
$
8,907

 
 
 
$
8,762

 
 
(1)
Includes noninterest-bearing company-controlled 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.

13

Flagstar Bancorp, Inc.
Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
For the Year Ended
 
December 31, 2017
 
September 30,
2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Net income (loss)
(45
)
 
40

 
28

 
63

 
171

Deferred cumulative preferred stock dividends (1)
—

 
—

 
—

 
—

 
(18
)
Net income (loss) applicable to common stockholders
$
(45
)
 
$
40

 
$
28

 
$
63

 
$
153

Weighted average shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
57,186,367

 
57,162,025

 
56,607,933

 
57,093,868

 
56,569,307

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
May Investor warrants
—

 
—

 
151,560

 
12,287

 
138,314

Stock-based awards (2)
—

 
1,024,568

 
1,065,361

 
1,072,188

 
890,046

Weighted average diluted common shares
57,186,367

 
58,186,593

 
57,824,854

 
58,178,343

 
57,597,667

Earnings (loss) per common share
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(0.79
)
 
$
0.71

 
$
0.50

 
$
1.11

 
$
2.71

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
May Investor warrants
—

 
—

 
—

 
—

 
(0.01
)
Stock-based awards (2)
—

 
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.04
)
Diluted earnings (loss) per common share
$
(0.79
)
 
$
0.70

 
$
0.49

 
$
1.09

 
$
2.66

(1)
Under the terms of the Series C Preferred Stock, we elected to defer dividends beginning with the February 2012 dividend. In July 2016, we ended the deferral and brought current our previously deferred dividends and redeemed the stock.
(2)
Three months ended December 31, 2017, excludes 1.2 million shares, or 2 cents per share, of unvested stock-based awards that are anti-dilutive due to net loss position.

Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
December 31, 2016
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,442

8.51
%
 
$
1,423

8.80
%
 
$
1,408

9.10
%
 
$
1,256

8.88
%
Total adjusted avg. total asset base
$
16,951

 
 
$
16,165

 
 
$
15,468

 
 
$
14,149

 
Tier 1 common equity (to risk weighted assets)
$
1,216

11.50
%
 
$
1,208

11.65
%
 
$
1,196

12.45
%
 
$
1,084

13.06
%
Tier 1 capital (to risk weighted assets)
$
1,442

13.63
%
 
$
1,423

13.72
%
 
$
1,408

14.65
%
 
$
1,256

15.12
%
Total capital (to risk weighted assets)
$
1,576

14.90
%
 
$
1,554

14.99
%
 
$
1,530

15.92
%
 
$
1,363

16.41
%
Risk-weighted asset base
$
10,579

 
 
$
10,371

 
 
$
9,610

 
 
$
8,305

 


Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
December 31, 2016
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted avg. total assets)
$
1,531

9.04
%
 
$
1,519

9.38
%
 
$
1,590

10.26
%
 
$
1,491

10.52
%
Total adjusted avg. total asset base
$
16,934

 
 
$
16,191

 
 
$
15,504

 
 
$
14,177

 
Tier 1 common equity (to risk weighted assets)
$
1,531

14.46
%
 
$
1,519

14.61
%
 
$
1,590

16.49
%
 
$
1,491

17.90
%
Tier 1 capital (to risk weighted assets)
$
1,531

14.46
%
 
$
1,519

14.61
%
 
$
1,590

16.49
%
 
$
1,491

17.90
%
Total capital (to risk weighted assets)
$
1,664

15.72
%
 
$
1,651

15.88
%
 
$
1,712

17.75
%
 
$
1,598

19.18
%
Risk-weighted asset base
$
10,589

 
 
$
10,396

 
 
$
9,645

 
 
$
8,332

 

14

Loan Originations
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
Residential first mortgage
$
9,749

96.1
%
 
$
9,572

96.4
%
 
$
8,561

97.2
%
Home equity (1)
111

1.1
%
 
94

0.9
%
 
58

0.6
%
Total consumer loans
9,860

97.2
%
 
9,666

97.3
%
 
8,619

97.8
%
Commercial loans (2)
283

2.8
%
 
265

2.7
%
 
191

2.2
%
Total loan originations
$
10,143

100.0
%
 
$
9,931

100.0
%
 
$
8,810

100.0
%
 
For the Year Ended
 
December 31, 2017
 
December 31, 2016
Residential first mortgage
$
34,408

95.7
%
 
$
32,417

97.4
%
Home equity (1)
336

0.9
%
 
195

0.6
%
Total consumer loans
34,744

96.6
%
 
32,612

98.0
%
Commercial loans (2)
1,215

3.4
%
 
687

2.0
%
Total loan originations
$
35,959

100.0
%
 
$
33,299

100.0
%
(1)
Includes second mortgage loans, HELOC loans, and other consumer loans.
(2)
Includes commercial real estate and commercial and industrial loans.

Residential Loans Serviced
(Dollars in millions)
(Unaudited)
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
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)
$
7,013

29,493

 
$
7,376

31,135

 
$
5,816

29,244

Serviced for others
25,073

103,137

 
21,342

87,215

 
31,207

133,270

Subserviced for others (3)
65,864

309,814

 
62,351

296,913

 
43,127

220,075

Total residential loans serviced
$
97,950

442,444

 
$
91,069

415,263

 
$
80,150

382,589

(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)
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
Consumer loans
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,754

35.7
%
 
$
2,665

37.0
%
 
$
2,327

38.3
%
Home equity
664

8.6
%
 
496

6.9
%
 
443

7.3
%
Other
25

0.3
%
 
26

0.4
%
 
28

0.5
%
Total consumer loans
3,443

44.6
%
 
3,187

44.3
%
 
2,798

46.1
%
Commercial loans
 
 
 
 
 
 
 
 
Commercial real estate
1,932

25.1
%
 
1,760

24.4
%
 
1,261

20.8
%
Commercial and industrial
1,196

15.5
%
 
1,097

15.2
%
 
769

12.7
%
Warehouse lending
1,142

14.8
%
 
1,159

16.1
%
 
1,237

20.4
%
Total commercial loans
4,270

55.4
%
 
4,016

55.7
%
 
3,267

53.9
%
Total loans held-for-investment
$
7,713

100.0
%
 
$
7,203

100.0
%
 
$
6,065

100.0
%

15

Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
As of/For the Three Months Ended
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
Allowance for loan losses
 
 
 
 
 
Residential first mortgage
$
47

 
$
52

 
$
65

Home equity
22

 
20

 
24

Other
1

 
1

 
1

Total consumer loans
70

 
73

 
90

Commercial real estate
45

 
42

 
28

Commercial and industrial
19

 
19

 
17

Warehouse lending 
6

 
6

 
7

Total commercial loans
70

 
67

 
52

Total allowance for loan losses
$
140

 
$
140

 
$
142

Charge-offs
 
 
 
 
 
 Total consumer loans
(3
)
 
(3
)
 
(4
)
 Total commercial loans
(1
)
 
—

 
—

Total charge-offs
$
(4
)
 
$
(3
)
 
$
(4
)
Recoveries
 
 
 
 
 
Total consumer loans
—

 
1

 
1

Total commercial loans
2

 
—

 
1

Total recoveries
2

 
1

 
2

Charge-offs, net of recoveries
$
(2
)
 
$
(2
)
 
$
(2
)
Net charge-offs to LHFI ratio (annualized) (1)
0.11
 %
 
0.08
 %
 
0.13
 %
Net charge-offs ratio, adjusted (annualized) (1)(2)
0.06
 %
 
0.06
 %
 
0.07
 %
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
 
 
Residential first mortgage
0.26
 %
 
0.12
 %
 
0.38
 %
Home equity and other consumer
0.39
 %
 
0.52
 %
 
0.20
 %
Commercial real estate
0.03
 %
 
—
 %
 
(0.05
)%
Commercial and industrial
(0.15
)%
 
(0.01
)%
 
(0.12
)%
(1)
Excludes loans carried under the fair value option.
(2)
There were no charge offs relating to the sale of nonperforming loans, TDRs and non-agency loans during the three months ended December 31, 2017, September 30, 2017, and December 31, 2016. Excludes charge-offs related to loans with government guarantees of $1 million, $1 million, and $1 million during the three months ended December 31, 2017, September 30, 2017, and December 31, 2016, respectively.




















16


Allowance for Loan Losses (continued)
(Dollars in millions)
(Unaudited)
 
 
For the Year Ended
 
 
December 31,
2017
 
December 31,
2016
Total allowance for loan losses
 
$
140

 
$
142

Charge-offs
 
 
 
 
 Total consumer loans
 
(13
)
 
(36
)
 Total commercial loans
 
(1
)
 
—

Total charge-offs
 
$
(14
)
 
$
(36
)
Recoveries
 
 
 
 
Total consumer loans
 
4

 
5

Total commercial loans
 
2

 
1

Total recoveries
 
6

 
6

Charge-offs, net of recoveries
 
$
(8
)
 
$
(30
)
Net charge-offs to LHFI ratio (annualized) (1)
 
0.12
 %
 
0.52
 %
Net charge-offs ratio, adjusted (annualized) (1)(2)
 
0.05
 %
 
0.15
 %
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
 
Residential first mortgage
 
0.26
 %
 
1.18
 %
Home equity and other consumer
 
0.31
 %
 
0.70
 %
Commercial real estate
 
—
 %
 
(0.02
)%
Commercial and industrial
 
(0.05
)%
 
(0.04
)%
(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $1 million and $8 million during the year ended December 31, 2017 and 2016, related to the sale of nonperforming loans, TDRs and non-agency loans. Also excludes charge-offs related to loans with government guarantees of $4 million and $13 million during the three months ended December 31, 2017 and 2016, respectively.

Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
Nonperforming loans
$
13

 
$
16

 
$
22

Nonperforming TDRs
5

 
4

 
8

Nonperforming TDRs at inception but performing for less than six months
11

 
11

 
10

Total nonperforming loans held-for-investment
29

 
31

 
40

Real estate and other nonperforming assets, net
8

 
9

 
14

Nonperforming assets held-for-investment, net (1)
$
37

 
$
40

 
$
54

 
 
 
 
 
 
Ratio of nonperforming assets to total assets
0.22
%
 
0.24
%
 
0.39
%
Ratio of nonperforming loans held-for-investment to loans held-for-investment
0.38
%
 
0.44
%
 
0.67
%
Ratio of nonperforming assets to loans held-for-investment and repossessed assets
0.48
%
 
0.58
%
 
0.90
%
Ratio of nonperforming assets to Tier 1 capital + allowance for loan losses
2.36
%
 
2.57
%
 
3.93
%
(1)
Does not include nonperforming loans held-for-sale of $9 million, $8 million, and $6 million at December 31, 2017, September 30, 2017, and December 31, 2016, respectively.

17

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
December 31, 2017
 
 
 
 
 
 
 
 
 
Consumer loans
$
3

 
$
2

 
$
29

 
$
34

 
$
3,443

Commercial loans
—

 
—

 
—

 
—

 
4,270

Total loans
$
3

 
$
2

 
$
29

 
$
34

 
$
7,713

September 30, 2017
 
 
 
 
 
 
 
 
 
Consumer loans
$
4

 
$
1

 
$
30

 
$
35

 
$
3,187

Commercial loans
—

 
—

 
1

 
1

 
4,016

     Total loans
$
4

 
$
1

 
$
31

 
$
36

 
$
7,203

December 31, 2016
 
 
 
 
 
 
 
 
 
Consumer loans
$
8

 
$
2

 
$
40

 
$
50

 
$
2,798

Commercial loans
—

 
—

 
—

 
—

 
3,267

Total loans
$
8

 
$
2

 
$
40

 
$
50

 
$
6,065

(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
December 31, 2017
 
Consumer loans
$
43

 
$
16

 
$
59

Commercial loans
—

 
—

 
—

Total TDR loans
$
43

 
$
16

 
$
59

September 30, 2017
 
 
 
 
 
Consumer loans
$
46

 
$
15

 
$
61

Commercial loans
—

 
—

 
—

Total TDR loans
$
46

 
$
15

 
$
61

December 31, 2016
 
 
 
 
 
Consumer loans
$
67

 
$
18

 
$
85

Commercial loans
—

 
—

 
—

Total TDR loans
$
67

 
$
18

 
$
85


18

Representation and Warranty Reserve
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
For the Year Ended
 
December 31, 2017
 
September 30,
2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Balance at beginning of period
$
16

 
$
20

 
$
32

 
$
27

 
$
40

Provision (benefit)
 
 
 
 
 
 
 
 
 
Gain on sale reduction for representation and warranty liability
1

 
1

 
1

 
4

 
5

Representation and warranty provision (benefit)
(2
)
 
(4
)
 
(7
)
 
(13
)
 
(19
)
Total
(1
)
 
(3
)
 
(6
)
 
(9
)
 
(14
)
(Charge-offs) recoveries, net
—

 
(1
)
 
1

 
(3
)
 
1

Balance at end of period
$
15

 
$
16


$
27

 
$
15

 
$
27


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

Basel III (transitional) to Basel III (fully phased-in) reconciliation. On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We have transitioned to the Basel III framework beginning in January 2015 and are subject to a phase-in period extending through 2018. Accordingly, the calculations provided below are estimates. These measures are considered to be non-GAAP financial measures because they are not formally defined by GAAP and the Basel III implementation regulations will not be fully phased-in until January 1, 2019. The federal banking regulators have issued a series of new proposals regarding regulatory capital which may freeze or eliminate most of the transitional rules. The regulations are subject to change as clarifying guidance becomes available and the calculations currently include our interpretations of the requirements including informal feedback received through the regulatory process. Other entities may calculate the Basel III ratios differently from ours based on their interpretation of the guidelines. Since analysts and banking regulators may assess our capital adequacy using the Basel III framework, we believe that it is useful to provide investors information enabling them to assess our capital adequacy on the same basis.

December 31, 2017
Common Equity Tier 1 (to Risk Weighted Assets)
 
Tier 1 Leverage (to Adjusted Tangible Assets)
 
Tier 1 Capital (to Risk Weighted Assets)
 
Total Risk-Based Capital (to Risk Weighted Assets)
 
(Dollars in millions)
(Unaudited)
Flagstar Bancorp (the Company)
 
 
 
 
 
 
 
Regulatory capital – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III (transitional)
$
1,216

 
$
1,442

 
$
1,442

 
$
1,576

Increased deductions related to deferred tax assets, mortgage servicing rights and other capital components
(16
)
 
(1
)
 
(1
)
 
(2
)
Basel III (fully phased-in) capital
$
1,200

 
$
1,441

 
$
1,441

 
$
1,574

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
10,579

 
$
16,951

 
$
10,579

 
$
10,579

Net change in assets
(2
)
 
(1
)
 
(2
)
 
(2
)
Basel III (fully phased-in) assets
$
10,577

 
$
16,950

 
$
10,577

 
$
10,577

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
11.50
%
 
8.51
%
 
13.63
%
 
14.90
%
Basel III (fully phased-in adjusted for transition freeze)
11.35
%
 
8.50
%
 
13.62
%
 
14.88
%

19

December 31, 2017
Common Equity Tier 1 (to Risk Weighted Assets)
 
Tier 1 Leverage (to Adjusted Tangible Assets)
 
Tier 1 Capital (to Risk Weighted Assets)
 
Total Risk-Based Capital (to Risk Weighted Assets)
Flagstar Bank (the Bank)
(Dollars in millions)
(Unaudited)
Regulatory capital – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III (transitional)
$
1,531

 
$
1,531

 
$
1,531

 
$
1,664

Increased deductions related to deferred tax assets, mortgage servicing rights and other capital components
(1
)
 
(1
)
 
(1
)
 
—

Basel III (fully phased-in) capital
$
1,530

 
$
1,530

 
$
1,530

 
$
1,664

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
10,589

 
$
16,934

 
$
10,589

 
$
10,589

Net change in assets
(1
)
 
(1
)
 
(1
)
 
(1
)
Basel III (fully phased-in) assets
$
10,588

 
$
16,933

 
$
10,588

 
$
10,588

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
14.46
%
 
9.04
%
 
14.46
%
 
15.72
%
Basel III (fully phased-in adjusted for transition freeze)
14.45
%
 
9.04
%
 
14.45
%
 
15.71
%
    
    
Tangible book value per share, adjusted net income and adjusted earnings per share. 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. These non-GAAP measures 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 Company believes that tangible book value per share, adjusted net income and adjusted earnings per share provide a meaningful representation of its operating performance on an ongoing basis. Management uses these measures to assess performance of the Company against its peers and evaluate overall performance. The Company believes these non-GAAP financial measures provide useful information for investors, securities analysts and others because it provides a tool to evaluate the Company’s performance on an ongoing basis and compared to its peers.    

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

Tangible book value per share
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
(Dollars in millions, except share data)
Total stock holders' equity
$
1,399

 
$
1,451

 
$
1,408

 
$
1,371

 
$
1,336

Goodwill and intangibles
21

 
21

 
20

 
4

 
—

Tangible book value
$
1,378

 
$
1,430

 
$
1,388

 
$
1,367

 
$
1,336

 

 
 
 

 
 
 
 
Number of common shares outstanding
57,321,228

 
57,181,536

 
57,161,431

 
57,043,565

 
56,824,802

Tangible book value per share
$
24.04

 
$
25.01

 
$
24.29

 
$
23.96

 
$
23.50



20

Adjusted Net Income and Adjusted Earnings per Share
 
Three Months Ended
 
Year Ended
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
(Dollars in millions) (Unaudited)
Net income (loss)
$
(45
)
 
$
28

 
$
63

 
$
171

Adjustment to remove DOJ adjustment
—

 
—

 
—

 
(24
)
Tax impact of DOJ adjustment
—

 
—

 
—

 
8

Adjustment to remove tax reform impact
80

 
—

 
80

 
—

Adjusted net income
$
35

 
$
28

 
$
143

 
$
155

Deferred cumulative preferred stock dividends (1)
—

 
—

 
—

 
(18
)
Adjusted net income applicable to common stockholders
$
35

 
$
28

 
$
143

 
$
137

 
 
 
 
 
 
 
 
Weighted average diluted common shares
58,311,881

 
57,824,854

 
58,178,343

 
57,597,667

Adjusted diluted earnings per share
$
0.60

 
$
0.49

 
$
2.47

 
$
2.38

(1)
Under the terms of the Series C Preferred Stock, we elected to defer dividends beginning with the February 2012 dividend. In July 2016, we ended the deferral and brought current our previously deferred dividends and redeemed the stock.

 
 
 
 


21