FBC - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to the Flagstar Bank Third Quarter 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to David Urban, Director of Investor Relations. Please go ahead, sir.

David Urban

Thank you, Jonathan, and good morning. third earnings Flagstar the to quarter call. XXXX Welcome

our also like that presentation any our we I available begin, subject quarter forward-looking mention would I would flagstar.com. today’s and at to risks are could and our Before statements on third made reports X Slide you that release call described with presentation, to earnings press our the in XX-K our website change and materially to during like remind uncertainty. XXXX and file on in of subsequent Factors on assumptions current are that are Form today’s SEC. release forward-looking

this We financial release earnings measures, are our non-GAAP presentation earnings GAAP and in also and which in are for we call. discussing described the available made

You Officer. of DiNello, these I’d call should With that, turn part Executive to Sandro over to documents Chief call. as like and this now the President to our refer

Sandro DiNello

and us thank joining you for Thank you, Dave everyone today.

well and joined Ottaway, morning our Jim our Officer. of Officer; In to questions. of share Risk quarter, of posted banking once our addition strength our by earning of review to year In four adjusted Lee of growth, this earnings, of going Operating the then We quarter before and Steve our the quarter assets million, and by bolstered Banking; our Chief start third President call quarter, expanded in to net providing I’m high-level again Drew to income with conclude will of the Ciroli, net which with a Mortgage; for per Financial Net Kristy President up made on we Chief Lee Fercho, Chief we Smith, solid Officer; I’ll opening follow line initiatives, same higher a the income the our ago. turn $XXX I’m third per guidance for our demonstrated the the business the quarter, Figliuolo, quarter Dave, details $X.XX outstanding climbing by and for ahead $X.XX our turned and to X% for performance view I’ll a the interest Jim over margin. share call the business. financial strategic results. out segments the interest second same as showed and

ratios servicing Expenses a Additionally, in income provides stable quarter-by-quarter, and the building XXX,XXX to the along the service positive efficiency balance branches we quarter, accounts declining our better XXX,XXX the X% exceed expenses. of XX clamp better acquisition costs strong business, despite now cost keep were but volatility which of businesses our another of our source from with expect discipline, lower of banking business. mortgage to have Fargo, We originations. cost growth mortgage to a by and in Wells year-end. pending with down offset We mix sheet approximately higher accounts related and mortgage did helped portfolio,

in market We actions softness this shape. also early mortgage expected we the in year response fully saw to took took

overall our quarter, declined in stronger was a a offset in partially margin. due mortgage by $XX mortgage on revenues the rates. on gain to Our decline million servicing sale mostly This return

minimizing retail While to reduce decline part competitive the us shift effectively very allowed we the production. margin mortgage large because secondary mix of channel to margin in of mix in but environment. effects change also resulted in suffered a This from expenses compression, thus bulk

same the can thoughtful in approach time, an banking in revenues approach will to a to the our expenses the mortgage at overcapacity business. cautious and we allowed reducing because this uncertainty normalize servicing share, businesses. the and us to Given while of has our we This have and maintain take taken as market industry when the growing

offs credit will portfolio as quality million $X commercial superb. paved us charge continue we that take continues provision in plus rates Another our downward million was trend the positive for note make We to nonperformance quality. way loss to benefit. held-for-investment loans no maintain be $X the Net have to a asset in pristine currently

to pay Federal we Reserve in major in It prospering, our era let’s our and Supervisory new business The more bank continues in strong. providing for holding milestone diverse lifting remain The capital. Now Agreement capital. of our model is a our off. by turn company a ushers quarter. was community to managing the Meanwhile, flexibility capitally

bring to we will Finally, at Wells onboarding of Fargo we branch our the expect successful the expect benefits the forward of company. and the all we which beginning to it look December,

it Jim. turn me let over to Now

Jim Ciroli

Thanks, Sandro.

Slide X. to Turning

We’re expenses per net million, income $XX pleased in with $XX adjusted Fargo exclude pending this with Wells our quarter’s our to of $X.XX where the net $X.XX share. you was roughly related line share, of branches, per also million quarter acquisition quarter last ended. income and the When

This quarter’s than results were better on than performance last mortgage sale. quarter’s other gain

we and assets slides, bank the to the in earning the continue assets. discuss those we’ll profitability expand As grow of couple of of a

earning rate we our grew asset expanded and Deposits net and added marginally expense only growth to consistent base. Our with growth nicely, experienced of margin the interest since the XXXX. also yet QX our was again nonmortgage we’ve once

lowest loans. as pristine, came XXXX. second the gain revenue allowance Asset have quality had X.X% in since remained held-for-investment of on that yet covered we Mortgage of experienced an quarter the sale

have times power into sale deeper on income transformed the interest bank, quarter’s this the was the next I’ll of it net we what However, delve results from our nearly gain since down then. slide. was earnings X.X

to net as quality points. Asset be continued were only basis charge-offs X strong

or based remained slides, Capital analysis you also of are managing to for our continued no Our we a in total ratio. among nonperforming There assuming Fargo early loan warning we be longer no take rather ratios the capital acquisition risk portfolio. of capital constrained more basis, capital and a the simplification our leverage that risk extensive total place. capital Wells to few ratio that the credit going remained strong. X based On but branches in through assuming improved strongest our ratio. coverage Tier issues signals the yet And portfolio ratio, in With again. regulations are the by our pending I’ll And allowance industry. the loan

to slide. dive business. margin interest discuss basis Also, we cost. higher when needs borrowings. the assets growing So let’s a saw can to income Net term turn would earning the progress Slide at the over points reduce FHLB growth bridge comparable made corporate deposit offset funding higher in Earning from to we by funding growth as cost banking deposits FHLB allowed ongoing our X our in and margin, to use find us advantage higher borrowings, earning assets decreased these third market interest net fell were benefited And funding nicely income the with the expanded quarter. replaced deeper cost Noninterest X challenging on in into funding funds expand be have $XX interest X.XX%, X%, yields as acquired. more December. very margin income mortgage next core branches the as the We’ll be a than revenues the to We lower we net as statement. million. up We mortgage will XX% and to asset experienced

margin was gain it net fell quarter. improved improved at the XX percentage servicing largely RMBS stronger on towards by XX%, to resulting purchase quarter. lower assets revenue prior fewer sale of assets a quarter also GOS as well and XX million on lower and consistent returns mix with dropped in return reflected primarily million. a fell and quarter lower The reflected servicing net mortgage from lower delegated gain prepayments, weakened decrease million, mortgage margin The $X points, both cost as The sale of The $X while to valuations in on compared shift expenses net this last revenues mortgage secondary primarily of a on million, were quarter during $XX $XX volume in due deals volume $X The points basis to quarter. to but million margin, last the basis from prior performance quarter. increase the to correspondent Our gain controlled. the this compared marketing gain

while costs retail X% the portfolio, at lower levels loan quarter, million lower expense The net compression basis cost a in totaled pending the away higher commercial broker decline were more of loan of were in mortgage than from and delegated in only $XXX million prior delinquent Commissioned or to $X originations a Excluding XX charge-offs. the initiatives. points X% experiencing towards this again costs $X the channel for million, basis XX of noninterest million were transaction only loans and still higher and quarter, acquisition, clean. lower a days cost-reduction processing negligible branch in the quarter. $X expenses also portfolio attributable reflecting $X and prior than from loans were loan shift total XX% to X the channels pricing expenses quarter. in that these nonperforming experienced contributed and or lower accruing were million mix Credit We and even reduction. this points Consumer combined $XX million past correspondent that this remained are the expenses

As allowance positive $X a result of came million. lower $XXX at in the these all metrics, million

million Average So sheet and loans. held-for-investment $XXX portfolio let’s categories. commercial in C&I commercial all this in or rose warehouse, highlights X%. loan saw which real experienced X, balance quarter. gains We major solid now turn growth loans The broad-based our to average Slide estate

$XXX the risk-adjusted custodial, deposits such businesses. average custodial commercial returns as mortgage dealers. good related and $XXX professional of as For equity. quarter expanded service Also, resulted deposits up a on accounts year marine/RV million. consumer million traction X% primarily totaled our and from in relationships commercial among loans, brokered nice quarter, basis, higher Average rose mortgage we factors. loans commercial the Average a portfolio The rose we our at to of On portfolio $XXX seasonal continue solid produced by increase servicing deposit mortgage $XXX production continued led demand indirect that and this the or were end to million demonstrate primarily million deposits. deposits loan

reductions A, a and at same deposits B, qualified cost providing risk As risk and alternatives. to in margin capital that to weighting is favorable providing based effectively, risk the we us funding loans to constraints, ratio capital the based these at a pivot bring borrowers,

equity mentioned December more common at will be we remained as share to to our before, As earnings. replaced funds compound our deposits early when rose needs X.XX%, tangible per continue we’ve September our assets At strong brokerage lower value tangible to these while using XX, to ratio deposits. book to funding bridge stable branch with been $XX.XX our cost,

capital regulatory cover will We shortly.

let’s Slide on So turn asset now to quality X.

and loans commercial million of Asset days delinquent accruing delinquencies June negligible. quality warning XX Only loans have and at be continued change from signals over that a XX to consumer still and pristine be XX. $X delinquent in early is loans. there unchanged X.X% currently still the September are were allowance no total we continues commercial no We nonperformers. that of accruing, coverage trend. was which days to Early-stage loans over remained loans. and secured XX, in September of At commercial strong This even hold fully X.X% is of loan commercial HFI coverage at XX, X.X% are loans, our and no because portfolio and collateral. warehouse stronger XX% of Coverage consumer

Turning to Slide Capital XX. robust. remained

is the level anticipate low the Further, balance last ratio quality deferred sheet acquisition, hedging the Our an stellar the capital the of was at closing this and from have neutral enactment robust be more these that December strong the management recognition hedging continue commercial X.XX% XX.X% regulations. XX.X%, growth XX enactment higher last capital be the we cost strong leverage we XX the deferred We basis branch We that Agreement points function. levels, than improvement ratio Wells will of again regulations. period. gains, combined X.X% benefited qualified the by XX, Tier of pro recognition of to have Simplification the offset risking Capital forma income have a down you XX, Supervisory quarter. Wells suggest the that closing this the asset continue of to Net realized ratios against December a Similarly, will earnings anticipate pending risk-based offset quarter, on will we we points rate gains our capital lifting at What X ago, Fargo currently assuming our sheet at capital. can and low-level Simplification Fargo XX, deposits of acquisition, leverage remind ratio branch of total and two resulting and of at liquidity at in optimize is already risk a ratio our with allowance assuming September balance position of pull XX Capital from growth I at commercial business, from coverage, risk months with with AOCI loans to partially cost this MSRs, ratio primarily basis the of retention. in basis related points

would risk-based capital the in of total lower our an such, term the risk-based target in As to each XX% Lee half for the expect XX% we the to total of make capital upgrade range turn issue least short ratio. at Also, now with businesses. sense for in constrained, more of our it I’ll support to insight asset debt us to could future near into the subordinated in growth.

Lee Smith

and Jim, Thanks, morning, good everyone.

to our the interest grow our sale challenging assets consistent net the diluted second Net improved loan expenses income the $XXX to million Wells X integration asset or million environment. per $X.XX by able operating meant quarter. which declining with manage mortgage $X MSR our again despite adjusted interest a the branch on $XX and of adjusting Fargo to gain quarter-over-quarter. in on in quarter-over-quarter. after We’re average return very margin earning All quarter, share income we we associated pending keep million points, with demonstrated our $X for acquisition pleased these ability grew the million costs net were for quarter basis and expanded X% us revenues net with enabled We earnings

result last more to diversified bank the while over this have our think our I and how made model is our the growing and years. we businesses testament community subservicing few business predictable, earnings

to some our on of update solid our initiatives. addition you want to key strategic I also earnings, In

ensure diligently end both the deposits, to pre-funds We’ve announced branches our expect Wells low-cost XX. for two the close the These Fargo we years. sheet day with of the for on which three the us balance We working acquisition by transition over $X and deal branch seamless provide November next of customers to growth been will to effectively high-quality, since billion employees.

the over earlier total where in an quarter, predominantly deposits we’ve and higher projected Average three experience creating XXX,XXX of from of runoff nine very We’re the scheduled XXX,XXX Desert were $XXX Community increase no year, acquisition the next end we’ve we’re our the Through also beginning loans first which in XX% quarter, billion total accounts originated XXX,XXX Bank the since branch higher custodial result years. all since of by loan the deposit been across At months quarter, liquidity approximately average because successful represents of fund We’ve categories. by closed. of seven subservicing leveraging XXXX healthy loan another over we our our push seen onboard comfortably non-Flagstar the this increased the months seen to and servicing year-end. will deposit balance growth subservicing count. grown the balances year sheet the the in million to or in XXXX, of loans. fourth the deposits deal a growth $X.X This

quarter now of and outline each of key with include: assets. quarter, banking we real or and how servicing increased X% agreement footprint to increased average continue home continue originate loans the increased business average It’s million and way It’s grow segments XX. across HELOC’s loans, average $XX efficient to Operating quarter. loans sheet. is solid an growth increased through unsecured we community for $XX warehouse X%; we add originating saw the or increased the done loans Average GreenSky interest-earning for channels; the class the $XXX illustrates improvement loans loans operating all X%, asset lending and commercial commercial our high-quality diversify during the estate the program. some the Slide Please expand with in industrial through an GreenSky can held-for-investment I’ll the community consumer the or quarter into X%; entered metrics given sheet balance segment the in million million million million mortgage our highlights we high-quality This transition balance GreenSky to turn $XX balance of major portfolio. $XXX extremely for average nonauto during continuing loans to we as our loans, our loans to us the loans added Finally, quarter from through residential of and indirect been strong program. first also commercial we bank. our another and as or

billion loans, deposits has Net and XXXX. interest million continued higher the increased in we pleased last interest $XXX has capital I several two We’ve growth. million Going by growth, at or three our over grow in the driven billion driven to held-for-investment grow the forward, income loans to XX Average have $X we an increased months. in and loans and same from Of we given assets mentioned with support interest-earning increase And will and have assets million, generating the unique next commercial million billion to believe continue consumer total income loan through our channels, quarter-over-quarter rate been improvement by commercial the quarters. quarter, by the to is over $X liquidity, home capabilities XX% in XX% net portfolio been increased Average X% plus loans the with over being consumer asset the of model earning deposits. X% same $X.X led the or both average in continue growth program can this interest net years $XXX or GreenSky custodial $X we addition earlier. asset necessary interest-earning the business and income QX the or available-for-sale. $XX the this high last remaining

acquisition branch smooth been transition new the Fargo we diligently to be December our have at and excited for closing working and a Wells customers employees. we’re Finally, to ensure of the beginning

to June. $X.XX there Wells that XX, billion attrition Fargo XX approximately announced September residents, course attached has the in moved that majority billion retail activity same we has versus geography as that occurred The is acquiring been customers deposits normal The of branches that and of the $X.XX these of the a of in attrition balances. bank are remaining nondomicile was date i.e., since branches away. we the seasonality have to originally lived of combination As

average during to We us of the disclosed. previously closing daily to difficult While preceding to attrition, hope the deposit the best premium we balances still a XX% for than predict post-closing period we on attrition pay have do day. only the XX-day overall

the that occurred has we date. a don’t on premium attrition pay to So

to updates period similar compelling we Given five become years. we moderately deal The that accretive of as more other share expect payback is of than less transaction. assumptions and a has have the informed, earnings to per XXXX aspects

X% We encouraged XX XX. community are footprint highlights Please gain fallout-adjusted volume the future basis include: by bank, decreased on basis XX expanding $X.X for very Operating ever to to mortgage the billion lock turn for points margin performance points. growth. while net the business loan potential to our sale Slide continued quarter-over-quarter, of and origination the fell

sale mortgage $XX challenging put on in a gain $XX environment and margins. pressure $XX QX. in fell The on revenues capacity million to versus result, million As industry across the QX to million excess continues operating

problem compression, Our view excess to net margin with fell a lower and mortgage due within the to cost from should more will more margin for of originate competitive eventually points basis sale the this capacity help quarter-over-quarter basis which compression XX year. and a have primarily as secondary industry channel gain do points some experienced the we the correct believe of itself, originated mix efficient We delegated market point margin that we’ve XX to with the on market. loan change bulk loans, due a to

to Moving servicing.

highlights for or of in subserviced subserviced our us XXX,XXX number we for fourth serviced of country. far mortgage Of will onboarding this this serviced quarter, estimate serviced include: the or year. year. Slide approximately we XX And loans, the the We’ve by are so XXX,XXX or the the XXX,XXX we course, end subservicer on operating already schedule of loans XX% by existing be Xth loans above making for the others, given which XXX,XXX over servicing segment subserviced the largest increased

also or $XX including sales. that billion a So of custodial on retain loan quarter far and the to these sell deposits sale we subservicing agreed in in XXX% loans $X MSRs, of our the these pending us growth. help XXXX, generate sold billion in fund third The

the We quarter. up prior quarter, have from such the $XXX XX% $X billion or million of deposits during

We our given MSR grow onboarding of through the strength platform loans we will our subservicing and loans platform continue of combination sales shop underlying to subservice a offering. and where originated one-stop non-Flagstar the

so the X million increasing our thrilled performance are this and loans. to We’re business close of servicing year servicing with far very capacity our to

Moving on to expenses on Slide XX.

to driven banking decreased expenses the quarter-over-quarter, expense as noninterest commissions, by million manage was lower which Our $XXX we lot loan in of compensation processing a mortgage benefits, primarily took $X to revenues. million and line expenses with actions

rate Our between one-time month adjusted Fargo at and acquisition, the at $XXX the run will as ratio as XX% Wells flat close We remained relatively noninterest million December. operating $XX $XXX one fourth includes integration quarter, from cost well which be branch expense of quarter-over-quarter. which of estimate of efficiency pending will beginning expenses the during further million million

our while As revenues, remain on maintaining focused increasing through across always, efficiency organization. the discipline we cost ratio improving

We’ve to the capital order our be value given more that, continue seen generating for loan to predictable. in liquidity, significant so model the pleased hand back And this this getting Furthermore, plan our asset earnings With for progress far quarter-over-quarter. sale our have deliver reduction and that strategic in we We’re on and very to execute necessary shareholders. revenues it with our Sandro. diversified to the believe you’ve I’ll year. business our capabilities quarter I

Sandro DiNello

QX, Thank and for answers. to prepared with some open Slide to XX. questions am you, Lee. then turn Please for and going I call close the our remarks now guidance

partially interest decrease by improved an assets. We in income on expect slightly offset interest-earning seasonal net margin, will a increase

flat. expect to sale be loan We gain income on

And be branch associated our Wells as million And expect acquisition. and noninterest Jonathan? between We prepared This expenses the the remarks. not to return $XXX including on with questions we $XXX and concludes Fargo MSR listeners. we open expect X% our call to million noted, to the from we’ll expense between now X%. be

Operator

Barker Thank our question you. from first Jaffray. Kevin Piper [Operator Instructions] from We’ll take

Kevin Barker

Good guys. morning

Sandro DiNello

Kevin. Hi,

Kevin Barker

Hi. are little I primary this saw just was a but some broke some up What margin gain driver the besides the the correspondent? to that remarks, up bit. quarter. sale believe some from I I mix you it wanted delegating pressure of follow on on there of shift think

Sandro DiNello

more some Kevin. nothing what of in was add really secondary a and remarks, mix There’s to to compression. shift was prepared combination the It

$X GOS mix originations thing retail. and is something with structure MSR return have QX we been importantly, the And be So have XX% higher the that, could the is to shift into that would GOS QX cost expense and have the we the the higher expenses our or margins, bit do haven’t retail and little higher. that future lower risks we downside. that on fees, have expenses it. have higher, earn maybe and down We If to here to equity, lower or felt market X% high was you’d accept billion I in on of GOS million impact assets, of protects at the and but us earnings seen moved having right a how revenue done taken still given would look loan lower the could softness from higher we’d on margin been going bulk servicing also $XXX offset

is a us first think or focus you’ve earnings, became since I can I the what chose focus CEO. on do to been mortgage stable We trying to earnings. choose which you So to stable revenue get you can on

right. disclose It is that a of doing we’re GOS black never and So margin depending around the to moves black today. going we our inside that the of box. is start not margin, mix And have, on a box, don’t lot what specifics

Kevin Barker

quarter Okay, sign, guiding a the going you’re a down, below your as did and good lower to guidance basis. expenses forward well come well expenses definitely is which on

there branches regards expectation line some So, that Has of overall base. in attrition that you $XXX in the down base. do look think just going follow the there’s anything the you saw further sit? earnings to will your when where forward – all I Or we up Wells into it’s go think any that XX%? near at expectations And obviously in when the expect the the at do seems you base, overall year-end? in Fargo number want it your deposit million. term Also, borrowing on base to given in beyond we is It protection the as customer we like attrition – with January, transaction about change

Sandro DiNello

answer question. – that some ball really That’s to best crystal I’ll you and to need are but do thoughts, try general here my answer question, a to your

First of all, in as in transaction. Lee I DCB attrition said haven’t had the his any remarks, think we

that for transaction. of right know, given So And that attrition gives us are the going this amount fair forward this things a confidence post-closing in transaction. we XX% as you we disclosed

month that proximity. customer talked very successful branches good good, out the attrition I the branch were acquisitions interesting. very And and paper was a it had thought communication on was strong about last put company where most Your ones

branches communication have Our terrific has been our these branches. and proximity terrific, to

about looking and we’re thing. it that confidence in used using of that going acquisition lot the I DCB So we the composition think tactics doing gives same how this a deal we’re of the the at right me

is this that Now real accounts. longer a different no open are people again because, they as live where noted, there situation their Lee

closing to back all about analyzed guys that happening and – to talked went is – attrition XX% total in paper, can that’s between difficult going closing to paper that including did. the in in close attrition average deals to analysis were going announcement be be forward the that But the you the what estimate. that that your So And XX%.

compare them, those we’re projecting at reasonable far thus we’ve with been think forward, numbers projections. these you and very and and comfortable we’ve you experienced all if what So what look what is said that so I going still we’ve

Kevin Barker

I the Okay. color. That’s Thanks for back get in queue. very helpful. the all

Sandro DiNello

Thanks, Kevin.

Operator

you. We’ll take [Operator Instructions] question from Thank our from next KBW. Bose George

Sandro DiNello

Good morning, Bose.

Bose George

morning. good Yes,

any next or Just that on great? color first Or in on little a gain be on bit your just the increasing is sale secondary mix quarter, of would margin guidance terms that market?

Sandro DiNello

specific overall think guiding That’s what flat. hard in Bose. are we about be that, to I mean, revenue to was I real

how would try answer be detail So exactly that I kind to together of come helpful, will here. I that don’t will think

So our where expectation at projection. with we is overall comfortable this that see the we QX business point in is are that much change and in won’t

Bose George

that’s benefit just that close, then, Wells enough. as the basis sort benefit XX to switching net spread. The given Yes, in Okay. of fair well? actually, the points, margin quarter of timing the there just interest first the incremental is Fargo, And the from comes

Sandro DiNello

Absolutely.

have month of to going one only that We’re quarter. this

have, obviously, first three so months quarter, will absolutely. We

Bose George

The – that about is it think said I what kind guess, should we was XX, had I earlier, of and, guys overall? you think,

Sandro DiNello

Yes. – say, That’s let’s XX-ish. still

think still I that’s future were gave that we So we – a right. guidance, December anticipating hike. since Fed And

Bose George

Okay, the just the acquisition? quarter about Wells And You branch fourth Wells other then going you in but to Fargo. from Can just we think the more the just transaction, Thanks. talk on about out the one expenses? mentioned great. just there should from expenses million $XX the expenses are

Lee Smith

of going one-time one to run month close mentioned Yes. we’re you in remarks, prepared the December. then of $XX my got integration costs of and the as I at And million rate got this beginning because you’ve

look at one branches published what guidance, those $XXX bit be. noninterest income will And also growth We’ve kind at look of can guidance $XXX that add on little so NIE back my to previously if subtract rate million off, million run you of and the month quarter, subservicing, the million, $XX you this where is. into just in a

Bose George

Okay.

Okay, that’s good. a Thanks lot.

Sandro DiNello

Bose. Thank you,

Operator

our question take We’ll Chris you. Point. Gamaitoni next Compass from from Thank

Chris Gamaitoni

Good morning.

Sandro DiNello

Chris. Hi,

Chris Gamaitoni

potential loans of to rate give perspective to much on want thoughts the How characteristics start GreenSky the on and sense into announcement. us come those side? an funding? funding with you I Hey, Can the maybe from any more interest

Lee Smith

Lee. we program, efficient mentioned, GreenSky, are these given origination these to it’s Yes. And secured loans On as home it’s originate nature, Chris, done way can model Yes. multiple and is be we our loans diversified via expect another in business improvement and how Hi volumes ways. of GreenSky servicing the loans. it’s when it while have I an of look, materially don’t example just the

Chris Gamaitoni

that roughly on rates you do Lee, it? coming is interest right, maybe Right, know the

Lee Smith

just the receive. am I that aware No. of we spread

Chris Gamaitoni

the on the Lee, outlook at of loan would helpful? And be thoughts other bank growth for community any kind

Lee Smith

we that on in the results diversified Chris, we parts I different little a quarter-to-quarter, you will class are quarter-over-quarter. that but origination the bit. the we’ve loan continue Well, having in there’s growth Obviously, can benefit the bank, QX or business very Drew are the expand results let of the a to of stronger comparable community very that seen think weaker saw the month. from that’s Frankly,

me in pick add So color let one that. it’s we not some Drew but in when area, area to so can let up strong another

Drew Ottaway

the Yes, of and thanks, is if point growth. we taken, confidence and mix the think lot a quarter, take at I your I is diversified what think look of Lee, well you third that

look And we in grow different do as sheet, see it alluded to, to continue ability so a Lee ways balanced to you can disciplined just to like way. really the balance to our

continue digit, to think going So we while pace moderate we we’ve mid in can quarterly that seen growth go out some into forward. single the of

Sandro DiNello

And I’ll add. just

the growth can continue think HELOCs, that quarter-over-quarter on commercial do. we well we indirect originate, growth lending we well will and – it come balance put we prepared that loan we in balance in said As from was mortgages we the as especially sheets wealth the on remarks, consumer of as a the as the loan and that

bank both the lending channels. consumer from the commercial coming it’s and So

Chris Gamaitoni

you Thank much. so

Sandro DiNello

Chris. you, Thank

Operator

our Thank you. from Henry We’ll next Coffey from Wedbush. take question

Henry Coffey

morning, question. Yes. Good and everyone, my for thanks taking

Sandro DiNello

Henry. Hi

Henry Coffey

being to restraint ratio that to things kind being capital. that capital First, are move the on effect comments a your is a relevant some How of What CETX us? total restraint? does the on from of

Sandro DiNello

a CETX, more not it’s Tier Henry, So leverage. X it’s

of no between So Tier risk-weighted because lower and average there differentiation constraint higher betas risk-weighted assets, can under is assets non a as assets. imagine leverage X you

going my capital measured the of on deposits, equity focus risk-based in is out, of that’s not the in risk-based ratio a interest the XX basis perspective. return from the margin, benefit. increase those to the assets further differentiate remarks in on we’re that versus focus I net on Then capital capital commercial do of weighting Now and are from on the constrained total And when kind between greater the kind of measured point pushing equity harder I about in that deposits, brought said risk very commercial while our nice the able is we return assets. now pointed in generate those right a there we constraint

Henry Coffey

point are a from view, things. there of risk-based capital So more

would bank making bad capital terms into more are or you way risk-based to go the about assets our – with You of in the the all all as opposed is all aligned normally calculation? think profitability decisions assets assets or

Sandro DiNello

to think Henry. it, Yes. That’s about a way good

Henry Coffey

feelings. don’t good. to Assets want anybody’s hurt are I

Sandro DiNello

Yes.

Henry Coffey

– great going tremendous building in a got you you’re amount get some the for good from this slip next and digestion business. a set life this idea is through and a a perspective So of there, capital And year. new We with a looks of you’re on lot generating not year. you that

what of So to of What buyback that trigger what hit is of dividend the the done? sort table wood the hard get – decision? kind of went piece the needs

Sandro DiNello

that lot a consideration. There’s No. go into that things of

it’s we return in First not all, get the do long about our the term, of short have we shareholders that, invested to risk-adjusted in how the term. holding best

be As the long the been is good we’ve relative we think should a growing doing I shareholders. doing, as as as provides other way on universe as dividend, we now what good sheet what that in to equity, can return of balance that’s well consideration there expanding assets doing such return for on keep

to a particularly we have buyers. our buyback, ability ourselves a So despite major with to make open dividend share sense there’s shareholder. up to more because you when consideration it may do different can grow, And still just

do all But day, of to, at the our best return how factors the about So basis. shareholders. risk a of to gets and it end those the back we adjusted on we where things long-term think regular get

Henry Coffey

is of the The the getting loan other subject minutia into portfolio.

have the – lending, into kind of GreenSky – and the strategies? you simpler the expansion those And which the – loan? RV that yield on set dynamics how loan loans? are program, of warehouse individual Obviously, So loan builder product, new. RV of a a or does – much of of How how value of that improvement do what what’s also lending, are The areas is but an relatively those growth. fit a lending now your the lending do the loss home in the three – home of kind customer lot builder a seeing we’re is what franchise – relation and expected equity are

Sandro DiNello

is, offices. it I think and determine is can’t value. branch speak not we limited to a franchise the market production value, does having I footprint I loan how guess unique various the that’s about we’re bank, sources what impacts midsized it What of our what I think franchise get can these by that as it we to to for bank within have

time. of it the in where cause to I get credit to think large net interest a over similar works. or believe a franchise and income we I making that keep the kind doing that versus relationships concentrations to matter what So business to value going loan XX%, grow risk opposed or any have that’s if go that the value can could way on make me, it we results, the people we your in right of that of performance of periods one to one it significant one concentration have what footprint. stay franchise outside you versus impact that can away the can loan net for right am other. balance value is, we the on that our a XX% right probably assets we’ve loans doesn’t in area of RV way kind as loans clip years. interest of firmly of geography number have the it And longer exposes margin sure from done right builder and the hire at model you’re the any continue we the the We franchise sheet, business the the a a one and I people, build If that and doesn’t that’s

Henry Coffey

you. thank Great,

Operator

Thank next you. from Partners. from our take We’ll O’Neill Sandler and Siefers question Scott

Scott Siefers

try are second you mean, there quarter? margins stab shift at mean, to I what into any guys for it taking the that consciously? gain to are a to the fourth on to look I the just could dynamic? do believe will as question. I was given is Thanks seeing planning indeed competitive that quarter. Or which sale increase surprise you in a my the this mix leads we around want relief you take you

Sandro DiNello

So the first let around address mix. me shifting your question about

we – view the not margin we’re don’t as this So what is.

revenue the What’s company. this the at look net we So to as the what’s revenue.

saying that XX% ROE, we that not that that to and bottom on we’re sure the we’ve that, And bottom, net long low a time, could to X% do company. been going based make we talking overall build I’m to And And comes the isn’t business need what’s where this trying in adjust on been to. so of get the so is and to on causes about the for the us to experience the XX% benefit right, I’ve kinds build returns what ROA.

is going thing. So to is dynamic XX days. don’t week-to-week. it We the this manage week in from business know where come the I a from or next

good adjusting you not. at opportunity is where is. we’re at what we’re think to we’re good, that If But the

course with – the of and banking our end assets the offset growth the challenges gain given quarter. sale we’re servicing the that over we is, we that have business that well. And to our returns of in the can overall are revenue continue And be to, the as that are of at and and can we expenses expense committed income – our we so confident we you what on the and next returns in in place the the because day And the our return growth telling to. that on to you only flat amidst equity mortgage the some of overall enhancements business believe ability return have happening the on guided structure that’s we now this in

just different. that be simple. that It’s I it’s So not can’t you. specific with

Scott Siefers

the guess, you. I All question right. Thank on just is cost next side.

if I guess, if why But more the base gain there the is reason retail, going have is are not say, to cost like XXXX a sale get on example. guess, on is is into sale I – – and, gain – on greater to this you So originating you’re environment? up presumably, because a part if we any it’s relatively there as should costs becomes as is, look there flex for that I profitability additional easier wonder important correspondent, proportion believe in could any because, one things of the thing

Sandro DiNello

sure. Well,

We have we what base what our based is. to the adjusted opportunity cost on always revenue need to

costs there never we’re – So bottom are. the side to what is a

will – never what we’re But not say damn cost Look because a the you and I in notice, think that to our happened. we we sometimes that future. a we in down, going adjust. a you issue right? it’s way you forward. we’re can’t started able timing it but find adjusting history business position way, not can’t didn’t So right? going of I we’re shows doesn’t the I that preparing predict pretty be to for the job If this – at get of business we’ve in the know, done not back There’s January, didn’t good our letting not work maybe just tell exactly where year, we shut just ourselves

right we things this think on decline that revenues our able by I right, we’ll just we that. a did had doesn’t expenses, guarantee decline similar in I servicing always a track we happen. it, And been in quarter offset we’ve be that were additional have and in and but And to record that so Those MSR, for. present revenues despite the are can’t plan fact

Scott Siefers

final Okay, just thanks. a MSRs and guess, descent is And question on selling I chunk.

assets. probably just basically on through net So return just I thinking there? MSR you higher on watermark a looks on it your guess, at for what’s going walk like the Can

Lee Smith

Yes.

if led at we high It’s it’s And was evaluations. asset. has pretty remisier less large have strong some return the can’t look that so a we them that holding see than we’ve a there which seen the another the Scott, our we’re collection factors because the off, was return. carry, but the in healthy hedge of a And it’s in call some combination for of CPR positive in quarter the lowest Lee, did a transaction minted, paying it was mean, where been. of MSR asset, So that portfolio those X.X its QX, to MSRs, strong leads The so ever performance, remember I the the of runoff on when look, low you quarter, included that. you lot economics in backs. MSRs is quarter, there and to chance of I much lower newly being all it are

So it’s one thing. particular a combination aren’t These of factors. necessarily

Sandro DiNello

here has built the really MSRs. business of the performance The like bulk that Yes, these quality these provide been servicing and in add investors way been funds important. servicing with MSR MSR that around The They’re buy go has others. time team solid. we able recapture that and relationships our the is to things services all pretty over to I now We with something what here is extraordinary. now that’s preferred have to buy other

I quarter-by-quarter mean, And And the by get doesn’t from come months sources. basis, for few quite a now, think loans so seen we’re attention, huge. but year. going year end it’s a XXX,XXX in the the lot Flagstar you’ve the in loans scheduling booked this the be It of generation number us doesn’t we of at growth of up just I we on we’re outside a volumes are from to of service, loan, onboard can growth number it that terms of the this that

performance we we helps than from the us here growing of times from MSR – so the And from much they’re other so this for revenue. partners these So buy business built that this that’s now growing their MSRs they fee relationships satisfied bringing services, income difficult origination that in we’re with would. with that the mortgage servicing thought are when is faster it this the business

that and we’ve for are together coming these that all plan things a So on are it’s time. the long building focused been

Scott Siefers

right, All perfect. you. Thank

Operator

question from Tamayo next from our Raymond take James. We’ll Daniel

Daniel Tamayo

guys. morning, Good

the So third accounts off about growth. custodial that that in you I Lee to discussion, think quarter. XXX,XXX And building strong had deposit I on led MSR that come mentioned guess,

required thinking years million on there. discussion control ago. about back there those think a spread deposits? to those $XXX deposits company you’ve the is And still on I’m a we beta had of few I had What is reimbursement deposits? the

Sandro DiNello

owner a two the pay to also those MSR se One when with down, deposits, the have to has they we no There but cost is, So it’s as how opposed yes, pass arrangement whatever baked is beta part agreements. pay with baked MSR there’s per benefit servicing, right, to you’re they have Danny. it beta, it’s that you’re is back some pay that us it’s deposit, into things, of and dealing we tied is whole the in, that for the a is absolutely owner right. mix with us, service but that it’s interest to, all for because to

Daniel Tamayo

you’re another fourth looking expecting that of with XXX,XXX got we I XXX,XXX expected in acceleration I The I the quarter we similar accounts Okay. the And would quarter, fourth in say rates think growth deposit you wrong. mean, accounts? are in to come custodial the growth, on – quarter? should be at

Lee Smith

Yes.

Lee. was And in I these going quarter. the chime to end, is at the So loans. non-Flagstar XXX,XXX, are Yes, XXX,XXX it’s originated the fourth it

growth And balances. coming higher can So see loan you custodial to is on. obviously, count, that’s the high with expect when

Sandro DiNello

the in number the also the of the right we there about grow deposits be thinking will of seasonal term, But similar balances speaking the a year one is other changes factor loans but custodial this your headwinds but bring will we’re not usual grows, activity. balances If fashion, refinance those way, long seasonality there’s activity, this way, with Over that generally sort service which a activity. quarter. would you’re that, than in over lot a of that refinance within than refinance in payoffs growth of time the lot is the seeing because increase

deposit So factor growth to be. you what – a deposit calculate as I don’t try what that custodial the might think becomes the

Daniel Tamayo

handle into And continue of you in place can have what kind thank in here you’ll at growth out you thinking topic mean, then, to question over be guess, going to over we I loans? terms maybe, kind see now do And Okay, I that XXX,XXX are you’re year, you. – of on infrastructure XXXX? what next of to last – my what just XXX,XXX, expect

Lee Smith

Yes.

quarter a any we guide often only a than we We So can onboarding – These further guidance are loans. are of bulk lot that. And you give ahead. these don’t as deals. imagine,

what and I’ll close to loans. predict. necessarily prepared not of to we’re So come they remarks, easy they��re the million not I’ll back – say very a capacity two to are But having

so at the we wouldn’t what the million at loans. we were XX% year, by of of when be X And XXX,XXX the capacity is end

million And loans. of so at at XXX,XXX by wouldn’t at the is the when of end year, the we be we capacity were XX% what X

Sandro DiNello

add. The capacity be me an Let not issue. will

We have ready when we need capacity the capacity. the will

that factor if totals what might what So it be in past issue our growth capacity might think future. into at be. out let I the and in Look think you the our loan don’t figure

Daniel Tamayo

all Thanks that’s right. guys. All Terrific I have.

Operator

Thank you. Beury Boenning We’ll from question Scott with take our next and Scattergood.

Scott Beury

morning, guys. Good

portion. investment the But have wanted about Just alternative to most been ask and of something my loan answered. just the questions I yields

XX about a bps You of quarter. linked pickup saw

I’m you decent quarter? you for linked this at the thoughts totally repricing that be XXXX? Obviously, what curious we’re things considered but if of can’t Just delta looking here had like to and does sure in any all on like seem rate that project, what on of rate part color any which generally, Does a seem for run seeing is hikes nature, in the going that or portfolio? mix the trajectory it’s dependent things

Sandro DiNello

muted. even payoffs were some this somewhat in I think think and – in There delta quarter. quarter payoffs Scott, the be I could last

the portfolio, the percentage at variable. that between commercial But quarters. two effects of that comparability the So as high we look is

and a the continue we also point we benefit next would have shining – continue deposits rate through to I the manage quarter, the expect would very at if beta. end am and a that of I low to as So hike our full quarter to

just that I where on loans expect pay come expansion where but from that and loans mix depends on at it also the So off loan phenomenon. additional all new think the we quarter at. could old is, where And next

Scott Beury

helpful. questions very That’s my been of understand most have I that. other already answered. Yes, Okay.

color. the for thanks So

Sandro DiNello

you. Thank

Operator

time. DiNello, and Thank to and questions the over turn further the Please President in queue call Chief I’d no there gentlemen, you. to Executive like this go Sandro at are Ladies ahead sir. Officer.

Sandro DiNello

Flagstar, thanks theme but to in your all common three been has the every strong for this everyone, that quarters debt. for quarter the just interest challenge, in been year business Jonathan, posted Thanks, our consistent and is Flagstar. The mortgage we softness not our It story is carrying all mortgage for has originators, despite yet banking the that earnings. have now clear market,

returns the We on to we have rely grown equity. that business business point in to mortgage to need strong and don’t where assets produce

Looking business we’re well ahead, positioned continued we for we success believe banking our as further. grow

Our pending acquisition of deposits. including for Further, the increase branches are and to our core our will consumer gives that Michigan significantly banking commercial in opportunities branch it presence Wells us markets other opening Fargo network, continuous loans. services,

capital our in mentioned in freedom opening I remarks, Federal in providing era management. my as Agreement Supervisory a Additionally, new by lifting ushers Reserve more of the

options returns believe to consider these, maximize we Overall, for a continue we we excess to including as repurchases risk pursue and we attractive adjusted for strategy said, will our share other shareholders. I have to dividends. expect While capital, opportunities, growth

acquisition, morning. our their Thank business results to in of employees plans, Flagstar January. a make look the QX to success. Lastly, thank we for of branch appreciate shareholders loyalty I and all we the our your Fargo every and for in day Wells reporting and pending forward this their do you attention they support work our tremendous

Operator

Thank today’s you. and teleconference. Ladies gentlemen, this concludes

disconnect. now may You

Flagstar Bancorp (FBC) 23 Oct 182018 Q3 Earnings call transcript