FBC - Earnings call transcript Q4 2018

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Operator

Good day, and welcome to the Flagstar Bank Fourth 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.

David Urban

Thank you, Katy, and good morning. quarter call. fourth Flagstar’s to XXXX earnings Welcome

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

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

joined Ottaway, morning our Jim our Officer. of Officer; In Risk addition our of Lee this Operating and Steve by Banking; Chief President to Drew Ciroli, Mortgage; Financial Kristy President Chief Fercho, Chief Smith, Officer; our I’m Figliuolo, Dave, our

year. start follow of with the by guidance call books questions. and our a quarter, initiatives, quarter good business On with the will we the going I’ll a high-level Jim for providing for view opening to first XXst, good on closed of over As up I'm then review I’ll usual, financial segments quarter strategic line December and our our before Lee a conclude a the results. for to and the for the performance call and turn details on

year. $X.XX share, net we last million $XX XX% the in quarter the per quarter, posted from income of the results adjusted For diluted same up adjusted or

quarter we The share full were per adjusted the results net by adjustments For year XXXX XX%. or our year, the tapping items. two of the $XXX diluted million for full income attributable adjusted to achieved $X.XX for

First, noise environment, Fargo XXXX to expenses and once built a earnings the we away Take grow that that we because hedging stronger throughout and diversified solid we a franchise. proved can more second, mortgage we operating Wells in gains; earnings have as we challenging relating have have again, branch acquisition. where

delivered the ROA In adjusted our fact, X.XX% of the even were was we this that lowest rate the our a an consumer lock days in into early mortgage and gain of quarter, of of these revenue lowest financial on the have real registered businesses. since and a contribution commercial the solid estate year, sale though Part lending. crisis. year, Quarter-after-quarter, push diversification was industrial, we commercial the and from commitments

of loan we achieve up We portfolio. delinquencies record compromise have backed not said will no growth a on that commercial track to and we that with our in have credit

quality and credit the the our short-term the a slump, loans fact, line straight in and in throughout trend discipline deposit has quarter quarter. third despite of downward quarters. economic Also net in in on us uptick In the three as a in non-performing we standout in benefit in year been provision the a believe we Through four saw will the we hold for strong credit margin we future. adjusted costs well interest rates serve the banking, expanding succeeded every

account of end we servicing the continued We XXX,XXX portfolio. threshold we our the by XXXX, expected As and exceeded we benchmark. add to cross year, last have we to all accounts that said that to quarter

brought in future, quarter. was Bank, of our positioning out landmark deposits from Our for more But closing customers. quarter people, saying, challenging it in branches in acquisition XX%. on them boost was to interest was in extraordinary rate-sensitive We geographies. transaction terms expanding a Fargo No our question it I a our X.XX much we of deposits less terms growth started this it Wells an and wholesale and addition in less transformational portfolio margin, it market billion reduced our was performance. year-over-year XX customers. of the the good to and net was which the our which some closed our replaced at businesses core and and was acquisition XXX,XXX and intended new with expensive not for will all The borrowing that in experience of

proud way of everyone the make I'm Flagstar right. immensely to at responded However, things

the are after we accounts. expected, closing at concludes purchased months were two had new we nearly That modeled XX% deposits attrition my we acquisition post lower the below steadily tracking the conversion, opening than Now is and although well comments.

it Now, Jim. let to over turn me

Jim Ciroli

Thanks, Sandro.

end to are our and of X, XXXX. position with we Slide the at quarter pleased Turning the

Our with our full adjusted of year this net income. the the was level gain results quarter adjusted share, interest from quarter hedging of million, up operating per operating These income consistent This deposits, a to for $XX $X.XX Each our interest net same year. operating continue were this we loans by XX% quarter quarter. net driven earnings stabilize grow growth income last outsized but in level was the stronger results growth. as and stable we operating

in deposits deposits, held quarter, which declining exclude held-for-sale At million. This year-end of a by earning sale the third XX% This of we up average from at balance from as assets XXX XX% revenue community we are despite loans low balances interest net supported million the supported serve. income quarter lower of custodial pace. our and fourth of able quarter. only warehouse while adjusted in income level loans, steady communities level brokered transformation earning sheet nice result total the and these net stronger the from at a is XXXX, The X came experienced still gain deposits is that grow this to of since of as end assets, we've mortgage on

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

year strong X.X% adoption. And among portfolio the might discuss strongest Fargo away going we're Capital again be. at yet a Our Flagstar, us of coverage remained improved branch we yet now not non-performing We're that seasonal acquisition. the industry. loan for feel ratio our impacts also this on in that the to from coverage Wells allowance after impact while whatever level the less than remained and positions well loan its

While than our a capital later. is through our total in risk-based our only regulations, that and extensive find X we we target capital await final take leverage analysis lower range I'll solidly is capital X acquisition. basis of Tier capital points you before more the operating

let's Slide adjusted expanded net So cost by offset of X largely lower the margin interest into assets. and the deeper net fairly margin as lower one earning points statement. interest basis X.XX%, The reflecting stable Fargo expansion deposits. Adjusted dive net to income was interest income to X Wells sturn month seasonally

adjusted our was indication to margin provides For where net the interest as X.XX% this important metric month an XXXX. December, which in should of be

of X for Non-interest of impact X%, deposits, fell Excluding a growth interest next in we'll benefited on short-term our $XX overall the third cost points the The quarter XX%. an rate decreased beta mortgage deposits modest rose of increase of asset effective on interest the late Wells million. slide. revenues the rates earning Fargo earning late despite and the income discuss the basis as assets yields quarter by deposit Fed third the impact hike

locks million, million admin prior asset the quarter. last adjusted also in increased sale on loan X business lower as reflected mortgage partially the gain fallout banking of subservicing primarily The of lower the X a decrease represented million significant in volume, due servicing on $XX from revenue to of a return by decreased however, decline million sale from XX% income. factors. on Our income quarter, growth revenues $X offsetting result seasonal our The mortgage or gain

While to fully focus pricing in business, this on approach have continued committed also we to remain maintaining with profitability. remain disciplined and multi-channel our our we

the higher mortgage net a decrease As sale benefit X a a of which XX basis from basis in collection return points assets a servicing gain reflected million gain million, in smaller on X quarter were operating resulting MSR range. at low margin on The The as of gain of XX a XX to higher result, last offset decreased rose partially impact we one net the million this We was the end largely quarter. experienced for Operating of points. net expense growth quarter up compared This to guidance or branches. to lower the newly our costs of $X remained million expenses expenses. expenses. mortgage periods. related and of month contingencies $XXX reflected X% the million, by prior the The prior sales disciplined non-interest from on acquired

XX strategies implemented tax believe we’re or the various payer These charge-offs, effective portfolio X XX only strategies. basis quarter's incorporated our again optimization which forward. Finally, X portfolio Credit we tax now costs negligible the into million were lower of going clean. quarter. non-performing loans commercial are basis tax were rate net at million rate, this representative this experienced we’ve in points loan of remained a We that while tax points

As a a these million. result benefit positive all metrics, we of of provision X recorded

seasonally So other XX modest grew as highlights loans million which warehouse even Slide this let’s investment XXX growth. X, Average now by our All balance for experienced average to million. declined held turn sheet average loan quarter. loans categories

equity. that production returns risk-adjusted portfolio mortgage on continued the We nice produces to loan

by or marine/RV Average to C&I XXX portfolio of benefit the estate on good the the And demonstrate during one grow averaged higher of commercial deposits. continued to quarter real indirect among and continued commercial in side X% loans. custodial branch increased and Wells driven traction Our we million deposits XXX dealers. million quarter the month the and Fargo deposits

rose experienced a million demonstrating Average in fell the of X%, only in yet discipline deposits branch increase provided basis equity Excluding having remained deposits. our acquired the by share added impact value $XX.XX. Wells average even decreased to to XXst deposits, deposits beta The we for driven while service Wells after XXX $X.XX savings as tangible some rose to a acquisition. custodial special category million the capital At position XX drop strong assets held the quarter, per only to or Fargo this by accounts. ratio the XX% XX X.XX%, book December tangible points XX% our common deposits

regulatory cover will shortly. We capital although

HFI XX% on to commercial Early-stage fully consumer portfolio continue X.X% loans. delinquencies days only now turn XXst, that to still we loans was and over December commercial days So million for even loans negligible, is accruing stronger remained and commercial which of consumer non-performers. December still delinquent coverage total the hold accruing both are collateral. At delinquent and XX in quality have allowance and XX Coverage commercial is loans and let's be asset we were loan of X and warehouse no no coverage loans. XXst, X. secured strong of over The our at because Slide the

Slide XX, remained to capital Turning robust.

the Our in XX%. of XX.X% at XXst total target our upper risk-based December was XX%, capital range half operating ratio

XX basis be capital higher. final are should as enacted points proposed, Assuming simplification regulations ratio this

was points Tier ratio maintained X from Our quarter would down operating benefit range Wells and last XX%. simplification ratio strong ratios that well What basis after just XX December X Fargo is targeted acquiring leverage level XXst, X.XX% by even this basis these capital, we Capital points. of robust of its at a capital branches. suggest within

lifting liquidity have neutral a in low-level the position levels I we With rate Further, that year, we with asset to Supervisory coverage, capital. levers stellar remind of robust can continue a of Agreement this risk more management allowance a business, have we now the to strong our strong function. deploy and quality, combined last risk pull risk you

range with the would the XX% of operating short-term As risk-based in least in our to such, expect operate target to XX% lower capital at ratio. total half of we

created loan support We have capital growth. ample to

With now have creation we the Fargo third component acquisition value for needed closed, our Wells the strategy.

capital well-diversified holding these to We additional ability have sources with growth, necessary fund efficiently growth loan the loan deposits, the priced assets. support the and to of

insight So of Lee for our I'll turn now to businesses. more into each

Lee Smith

morning, good everyone. And Jim. Thanks,

shareholders. diluted We value and adjusted we Flagstar with diluted deliver income quarter for year. XXXX fiscal strategic as share for to to execute are per of for per was another the our successful net operating share continued very $X.XX the our for plan pleased year our $X.XX on

increased interest by included XX%, income earning and Fargo with acquisition, evenly Some included: XXXX We highlights multiple investment adjusting was X.X commercial the interest all grew the deferred XX% business year, warehouse we our for of million net XXXX. consumer X.X growth total billion the by gains saw Bank net margin acquisitions billion Community versus billion which acquisition year-over-year Bank for in loans of revenues, the accounted March The robust to and across the which categories. acquired because and the a we net XX% in classes Average branches deposits Fargo points XXXX. deposits predominantly expanded first after the Wells during by asset or compared average we of deposit closed spread in growth to Bank December. XX quarter. interest year in and basis branch in of hedging enabled us Desert grew of held lending the key and the across as adjusted XXXX, which our during income total grow for Retail X.X asset branches during associated Furthermore, Wells XX the

healthy the were the in future balance very XXXX higher deposits saw accounting X sheet to a increases creating of billion and difference. also of increase count, deposits in growth. government we We Overall, fund subservicing company-controlled in successful liquidity wholesale loan our because for with

is increase were December of loans, of where XX% an As XXX,XXX subservicing started XXst, we which from we servicing year. the or

to servicing of sixth the end the of subservicing loans largest first or country quarter. the expect be by loans and the now We are in XXX,XXX over subservicer

the the second Throughout we’ve of mortgage for expenses order milestone was the Supervisory half We year, ability the during Reserve XXXX, our of another also a environment. the challenging saw to which Federal manage in major demonstrated lifting Bank.

non-interest XXXX. million XXX quarter XXX of to been every expense during very run-rate adjusted within Our tight range a has million

deposit added we of deposits XX Banking the Community Operating to indirect we the billion through our and transaction commercial Fargo Average the consumer of and of us and warehouse at commercial to deposit family. have led beginning Finally, highlights held XX% in branches business. X.XX and predominantly and Bank the the X% This acquired quality ability loan attrition XX maintain of colleagues low XX. we We closing at the loans and Wells X% gives for decreased XX. acquisition rate by the and increase January quarter our or on is subsequently of real Flagstar X.X% Average residential new through seen mortgage improves our during from to Slide XXX balance in estate first beta. the December Please major real origination deposit franchise more sources closed key our for balance have non-interest other expand our with of solid continued outline our high-quality grow loans been of continue for the of footprint, I the Flagstar we in $XXX income. we to quarter. loans optimize expected on non-auto as growth low-cost in loans, non-performing earning interest no or sheet forward. sheet. down loans and It's loans. on Average metrics year fourth liquidity productive to business portfolio some investment as the of quarter, and increased predictable million will or increased turn our commercial expect the this in our in operating another segments high-quality assets or now industrial seasonal segment we each million loans, stable delinquent and the pristine welcome lending to as include: our mortgage estate we slow HELOCs million, quarter, million move due The quality book XX commercial

branch approach grow our have Bank loans total our Average and Wells deposits the we believe month seen and deposits in one Given same and we core or at the can consumer from the levels quarter, without to benefit December. closed taking any expanding the you acquisition, Fargo the commercial footprint, million on at undue of of the X% of beginning by increased led credit risk. relationship-based XXX continue which

of on stable branch interest of and the quarter, costs, adjusted X in deposits. earning interest both expanded low-cost acquisition a net the yields following Wells funding points expanding Fargo the Our result margin basis assets

revenues. continue full believe net you income which in we to particularly can earning margin, continued when coupled we our we we of As net that ahead, increased a ingredients the to deposits the asset expanding of interest margin, an interest with quarter feel expand should growth, recently factor We for look acquired. lead

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

mortgage gain correct to operating think The believe sale to of capacity QX both result, and players. quarter-over-quarter we million a succeed on mortgage QX. to together market X position million seasonal million continued reduction versus in will continues pressure the fell fewer revenues industry can on adjusted in problem business. put to As our excess We in and lock excess a volume scale eventually XX due XX the in anticipated fallout within with across use was which capacity with a itself industry, the our market the slowdown,

environment manage variable remain being We benefits banking given seen ensuring focused revenues against in revenues. cost costs the and this of the our also we mortgage on lower believe tougher of throughout XXXX, model

Moving segment or to We the Of others, Quarterly over largest us subservicer serviced for XXX,XXX subserviced the XX operating subserviced on which include: Slide for approximately Mortgage sixth of the in Servicing servicing. highlights loans. making country. XXX,XXX

have XXX,XXX schedule or quarter, in loans our We will above serviced of XX% the be XXX,XXX March. XXXX. increased serviced the given subserviced end number we or the estimate existing by of first by onboarding we for loans And

loans end and of our is platform testament During XXXX held year. retained sales, we loan generate custodial to help We also growth. fund sold MSRs The these XX at have the created. the these billion the XXX% servicing subservicing such deposits the of of we us billion in on which deposits X.X

from continue will our to offering. the are feel made in that see servicing we've this with with progress the our and of given go you XXXX platform thrilled strength-to-strength confident We quality business

Wells our $XX cost XXXX Bank and XX. decreased model. from the actions expenses we in compensation non-interest and $XXX non-interest one in costs of cost rate After loan processed loans Moving Wells on benefits, $X mortgage-related run month an being reflecting one-time expense as in expenses acquisition expenses, QX on earlier a variable expenses increased other million integration increase more to quarter-over-quarter, the Fargo branch of subserviced. and took onto There $X million was branch adjusting and our of Slide while million for result million

reduction non-interest for a efficiency major quarter-over-quarter operating estimate ratio of due XX.X% $XXX taxes and which throughout prior expenses the Our fourth million million was business mortgage improving our We between be a million reduced quarter, increasing expense increase will this during quarter high was a the expenses Fargo X.X% an reasons costs. discipline adjusted and from $XXX branches We reason ratio in to and of the focus organization. on outlined. from Wells million while quarter. benefit revenues of was our efficiency revenues, through seasonally XX the quarter and the remain full given the of for cost payroll The worsening for in I just $X first maintaining

accomplished capital liquidity, We’re With I capabilities deliver and have order to quarter-over-quarter. continue necessary We’ve diversified to our in to plan, that, it pursue hand be accretive execute our and model our capital on in for our Sandro. you generation Furthermore, I'll shareholders. to predictable actions for value the back strategic we in asset and expanded earnings further and believe more very see our that we've with results XXXX. pleased continue business what to will

Sandro DiNello

Thanks, Lee.

level regarding you reasons happened, for Wells than guidance to the is the company this community What Adding doesn't to that branch knowing easy share I that less We of to the could the would closed our but stumbled costs. step that believe customer I I conversion of true had XXX,XXX their have underestimated lot all matter. under into this additional continuing a some best do. pressure costs. matters base. of seen bank. is strong Fargo deposits I the with like the way witnessed and at I We incremental acquisition important their the in performed bank QX, been that our a quarter. and that gate this very get anticipated. I Candidly the continue have we impressive. has is comments underestimated have they was these to wasn’t in We out why transformation really ongoing the branches. Before skill high operating us it moment. customers I not we a relationship give were closing came to

would know still everything heartbeat. So, I in do knowing again today, this a I

move to XX. for will and let’s guidance Now questions-and-answers. the Slide call Please for open QX to we turn

expect sale gain modest We assets. decrease improved locks slightly increase by on on anticipate partially margin. earning margin, income increase on will will mortgage income XX% We offset increase gain seasonal on in to a a net XX% in sale loan interest an interest and higher

on flat. return expect We the MSR to be

and open be call to and $XXX we As expenses we Lee prepared This our for we to and $XXX rate effective million noted, the anticipate non-interest concludes will between be expect XX%. tax million now remarks the questions. your

Operator

[Operator of take Instructions] Sandler now question Scott ahead. our go Please from O’Neill. Siefers We will first

Scott Siefers

behind was sort the the quarter. the performance sales of in expectation I you nuance quick argument just of spend first if hoping better second a could on

because I to I curious in would quarter read likely confidence spring view a guidance I revenues I of course weaker think such -- back only gives we people pronounced generally that the but what can just seasonally one. XQ? first you as those think see But the in the just mean

Sandro DiNello

dig activity and I margins might on we but quarter quarter. going in into will given more as detail see think a optimistic saw currently forward went about first margins that and get the Kristy where we let we Kristy? the the little we’re better some be that

Kristy Fercho

that kind maintained QX pricing as enter decrease, Yes, some what seeing discipline into had loosening of lock very some adjusted follow is, we’ve Scott I of on that in we're strong which of in some QX. would terms volume of really discipline of the we add

QX. that seeing able that we're we're be the some we back in things optimistic so will of that based And on to really there that drive

Scott Siefers

increase to mid-teen it kind the as you just think the base I custom a of about it’s a like balance in call earning guys assets. year-over-year then sheet, become the of of size generating And

the more assets in quarter, quarter. be like again a might of in down question sort this fourth looks but So little first down be nuanced the were earning they'll

Is So of strong to doing acceleration been sheet trajectory balance way years, that’s growth think from it would what kind is just through more happened right the a this about the the muted imply you least through year-over-year or to it balance happen get and year-on-year to in back fourth the last is terms year. in in the call that to balance size it at to fourth of guys basis given really second bit likely XQ, XXXX have a typical on quarter sheet of in just going sheet of really, quarter in be in overall quarter the couple growth?

Sandro DiNello

Well, forward. case certainly rolling we things the could the for I'm be. think that'll us be mean, optimistic XX on I in And months basis go have a I been and look as that I of pretty XX-month good still our it last at growth. terms

markets, because the I that’s You can't have Scott, fact the over exists. future we've But for are advantage understand that be. move where I and where and years, the look look to generating that you sources that the we the an have diversified because might opportunity over think, the the where asset others, opportunities in in can far too

got have quality. to going sake, not right we're to credit the profitable, the returns. for growth It's just to get be it’s it's that got got grow Now right to said,

Now all to line up. those have things

solid make he a is balance keep point and seeing of that space. a commercial good we I'm important happy quality most a think add that. clean two sure or sheet to right the can let I from view, in comment is what the about do we thing So to now Drew

Drew Ottaway

comments. echo Yes. Thanks, certainly I’d Sandro. your

if far historically. look the at portfolios, you they think, both they are and consumer the diversified I than commercial more were

the one especially you so and shape. you relationship-based some side, been day in the of we've may I look get it overall very is end good for in if And commercial any growth a And really quarter-to-quarter at at year, model. the the on think of them, it lumpier while

So have we and it's we way meaningful allowed they that to grow that It’s way. really the in balanced portfolio the that that the bring continue relationships we’ll lenders said us over. a have,

Lee Smith

Lee. it's Scott,

you're you where When the were was If that's XX% earning -- held at and of to because consumer our the talking to including commercial mortgage number quicker loans, billion you're up we see if overall fluctuate, that Drew the business, maximize looking held And can will sale, size assets, loans on or sale. year-over-year, just sell do gain about assets for for X.X opportunities investment that. interest given we sits.

Scott Siefers

Good. Okay.

is that’s cluing it as of opposed that held that’s sort of that on probably base So the one investment for entirety to assets. the earning the of

Okay. Good. continuing in one one, there. margin talked you if prepared last your can the And sneak remarks, to I expand. about in Lee,

to and Is clearly get full boost reach in So margin there? steady state a we'll another would that XQ the in beyond there. quarter in after sort branches quarter get continue of thereafter from could the the expand full your sense of we having we benefit these or Wells

Sandro DiNello

a why we quarter. just go transaction we this is fundamentally on fundamentally, know, so don't this you believe that is But important. than as out I'll so say Scott, the I there executed farther

the increase So to short-term not transaction. rise, been, would've marketplace the rates rates, continued us in Fed should to if this we continue less the will done impact if than be on had much it

that’s X.X in X.X increases. billion billion interest much that less So, that whether or relative we it’s Fed billion exposure to to have funding X sensitivity or the

but positive going not the out margin we much in speculate QX. of better feel the to prospects than way farther a So behaving about we're certainly

Operator

ahead. We will now from question next Please our take KBW. go Bose George of

Bose George

the in sale guidance. got better it on little improved gain a margin November because follow-up look the gain I the that. spreads trend sort on of of margin The primary, secondary rally had just after like rate a in quarter did sale after

Sandro DiNello

point. that gradually it improved Yes, after

Bose George

balance category, just what's on other the investment held loans, sheet, remind consumer bucket? just loans for can you And then the the in us in that

Jim Ciroli

is largely indirect Jim. It’s we have. marine/RV this that Bose, the

Lee Smith

bucket. -- loans of a in we transaction, And also XXX as that the of million unsecured that’s Wells acquired we part also

Bose George

just the last agreement, on there one one then adjustment close? I the Fargo prior forget, any attrition based And price purchase was the Wells to on

Sandro DiNello

under Well premium deposits based was the paid close. at

So adjustment price kind an that. on there of was based automated

Operator

of take We question next from will go our Please B. Moss Riley. Steve now ahead.

Steve Moss

go? Well following of that we’ve do in Wells deposits, see up hit bit more and attrition stabilize bottom the on a here we going will the terms think you wondering, forward to or just could Fargo

Sandro DiNello

Well And had we I X%, hard below do mean modeled. that the keeping don’t X.X%. anticipated at what know, we at really well XX% Steve, we say, are or working on the this attrition I number point,

Jim Ciroli

yes]. [X.X%

Sandro DiNello

feel good pretty today. about at We where it’s

So us. we attrition or more keep the forward think and whatever settled more can takes about that important at in growing it's it But to with I point, extent obviously we’ve benefit sensitivity XXX,XXX, happens relationships that’s makes couple XXX,XXX, interest that rate and whatever is the place from. the then at point the there and ago the the customers these have other deposits is products benefit. other it to But we moving accretive about important once transaction so I months have XXX,XXX as we now to didn’t grow can a the or we of sell that benefit already is talked it and better, customers

and X% attrition X%, being going down to forward. or than what grow do settle what's So sort then important after is the business we things more whether we XX% me of how that

Lee Smith

I at Can said just and you you I fact attrition. important one is are the Sandro on think just give which if what looking jump

of and deposits branches of post-close, within attrition the would we look out at the you that’s of primary were pre-close of so were out originally, look footprint, and those When not what footprint these you term we the have XX% addressees what where these the four deposits gone. states when some located. occurred were announced deposits at So

out only we’ve where That's attrition. you're with amount those footprint the left small of deposits. a So the of of very seen majority

Steve Moss

Okay, helpful. terms the that’s lending commitments declined quarter. this of have in again And warehouse here, mortgage

transitioning Looking are Just are from it deck, what in holding competition? pressure there? from you seeing wondering spreads but up, the seems

Sandro DiNello

had in of that if I’m there from no they’ve commitment you, so pressure been not and competition, a I for they go is. is there's the than past, had to I reason any out they because much us lined if think there. leave in their need but not certainly It’s competition, past say large necessarily the isn’t business levels are customers don’t saying But keep from there the commitments down lower not pressure wouldn’t level

you’ve have be like to more to really customers outstandings the the with are actual we be at number to where days. these business prospect So difficult look and the were XXXX level right only for further lower adjusted point used, a decline we More important we time balances a probably a are are we're aligned of be lower, commitments know not is origination. lines that our at in to for is going originations but now, then our in seasonal

warehouse but think will I pressure hold a confident the we’re player that there big be So and I’m on to up. that we business going market in is

Steve Moss

business your going if Okay. just Finance expectations for spreads I what again seems be come And then nicely the especially sales? commitments in bit slowing quarter-on-quarter, wondering terms one on up have Homebuilder just to forward are in home the but what a given more are business,

Drew Ottaway

Yes, short a lot room that thanks. this, came with time, team, established years is relationships. prior of would the in just you’ve long ago, it’s few Drew. I a still a say there think we is over business think calls that been in probably has that This I very group heard

industry, really in good progress make And so those overall, even they have. based continue we to the that they on have homebuilding relationships seen pressure

pipeline to and a strong get that's the there. been borrowers. that end little growth continues of place with of to hope of we speaking, in still their But is the terms be year some me seasonality continued You place larger signal have in in a bit at to generally

Sandro DiNello

grown Joe to and lid strong opportunities want strong line Hardy Drew continuing company as has that add team because couple under able we’re been the to business safe concentration so people and customers as the into business. allocated team new new we’ve to has to we and to bring a on kept capital a here. company kind have see maintain levels because this of of has the have and capital relationships the the And customers, We more our grown, of the

ability a way. So grow that’s continue very are smart where in very to bullish area that an our to on we

Drew Ottaway

top the if Sandro. of at that of Yes. I’d direct top relationships now portfolio, six you look builders with builders. mean we XXX in the I add, just have XX over XX%

to grow as well that turned to companies very portfolio. well-capitalized helps large I downturn are these during that that needless continue the think So say and we

Operator

now take We will Piper Jaffray. Kevin our next Barker of question from Please ahead. go

Kevin Barker

of attrition like rates In weeks give the saw attrition the us what an regards January? how after closed? the couple And you Could to deal you then the first attrition follow-up -- through on idea in the just a much were rates. of

Sandro DiNello

X% -- It's that. to has it to gate add wasn't pretty out of it's pretty like flat, steady. the was and Lee you then or been want Jim, been been it steady, coming

Lee Smith

we've would Yes. is definitely I we’ve as December. slowing say though moved January down versus seen into would what I --

would -- December I higher January. in than in So was has it been it

have drop little seen to we begin So a off it bit.

Jim Ciroli

Kevin, difficult, because recap weird number to had. the with how had know so don't days middle holidays in that really the we there, we business I it's of

share got a on that what means. want because to know conclusion opinion you what I'm So, to you've means, don't with if us, your hear I that happy

Sandro DiNello

I also around would the of sort of of balances lower the kind normally year. end go --

to as maintain X.X So to work now that can. going as at and we're we we're low right hard

Kevin Barker

would then and be would fastest think beginning I there. attrition the in from down the slow rates the

that's onto an also an it's the to two because Flagstar? or how get right next to over from trying three then period to you're rate the Just now out, that going transition the such your guess the idea run I at play months, expectations like important Wells in and

Lee Smith

it. get we Kevin, No,

experience we on possible the as closing. And that based tell of closing, to working good prior a deposits can there of are as the lot to We attrition to attrition. hard at acquired was as customers you give minimize

Sandro DiNello

One long. thing the and these that few very a over Fargo a average tenure on from the to time of bankers are I I've of These long and us can with tell banked my they're you, tight. to Kevin, seen I've branches relationships, came the have remarks, customers for prepared said as is I’ve been in Wells the bankers that

So there history, is a loyalty. there is

way, chance. I think they're wherever majority their I to going with more once are the far, that so mobile sort to stick the find is, the And customers going far bankers type of and give a far, Flagstar think,

I'm so give happen. But up I enough very you think to end information where an here. optimistic estimate And we'll don't on have of I might what

Kevin Barker

seems in maybe the on portfolio some much mortgage faster estimates follow-up declined banking also pace It your adjusted volumes in then basis and then for locks than sale warehouse held the industry of And quarter-over-quarter like fallout comments. decline a and on a they’re the for lines.

market just to seems that around you might it disciplined sensitive more being more a bit Are more pricing? to you as holding So now there or little the be price share. resilient right little a opposed

Sandro DiNello

want So real won't you if that. it can get big but easily the margin do takes like in I price, you to compete a on that you locks increase to

So we're trying sure is that profitable. to this make business

So have too. eat you can’t cake it and your

we why expand profitable. so what If QX. you you bring in to are you have doing. have you then make in the got you downside business our going yourself to cut margin That’s on that that expenses protect the sure saw That’s been

been. that’s think with consistent history what I has our

going the want anything try to there out to Kristy, not there? buy We and business. to go add you are

Kristy Fercho

add and are about is some were on in be our really we did Yes, gain the think in where and to chase these we and this and crazy competition think didn’t us. But where can lot us smarter and price. the conscious smart we go different in for is analytical really market Kevin those pricing different more that which to markets are and take would understanding up, figure It’s get sale products off another different made I saw in long-term really really and thing why markets, can going can around where understanding we not getting we But I what customers only to paying decision I pricing of where a is and price irrationality to where other and actually remained disciplined customer we different chase. we relationships compete where you about the their analytics just and we and are terms is margin and customers getting price our is sensitive fact to we the then about thing we cases have seeing out some that are our on margin. really where needs allowing

QX. strategic And really in so we were

continue locks And go saw didn’t to we irrational margin that’s said, why Sandro are QX. that into as hold. down adjusted go chase and but pricing we As discipline so you going we the fallout

QX net come in locks Some in QX we’ve will the feel loan going fruition of place the and gain which quarter-over-quarter. we that both put sales on to you in strategies why are that increase is see to strongly

Operator

go We now ahead. Gamaitoni. take question will our Chris next from Please

Chris Gamaitoni

any Just understand on the aggressive of it up large banks competitive the to the Or the always that dynamics? names I'm are who for to there corresponding most follow non-bank the in more looking I but do just a on competition wanted sense not have commentary. it is is you business? the trying national Is -- are players? sector,

Sandro DiNello

retail? asking Chris versus business specifically you Are about correspondent

Chris Gamaitoni

correspondent. Yes,

Sandro DiNello

mostly I'll non-banks answer. Yes, let it’s I but think Kristy

Kristy Fercho

names. know the we Yes,

broker who the are in absolutely non-banks we well is are channel it that So channel. the correspondent very yes, the seeing is about clear and it as we

Chris Gamaitoni

but On your value amazing is from? of subservicing placements? a growth, this give is where your that’s just of if a you want sense coming proposition to what Don’t leading of any kind names lot could growth specific

Lee Smith

we Chris, quality value category Yes, it’s three well, as one, we you Servicing and running. years is; so the Fannie of -- Award know platform The won General Lee. STAR have Mae the proposition a have in

offer recapture servicing this MSR only not lending, have can advance we loans, shop, one-stop lending, subservice so the services. also we We

We are very well-capitalized.

compliance and risk robust place. in a infrastructure have We

over getting. are funds financial which What is the has have big is liked funds MSR multiple business those as So may the we and just given happened scale financial leave much the XX strong so can months mortgage being particular them buy and very that people on are producing parties, for also from because we're this appealing last our a in they And just platform from that buying counterparty us. MSRs of seeing our just MSRs service buyers. they’re

really that's you’ve loans the growth and Flagstar to why XXXX. or portfolios the added moving seen additional XX% platform XXX,XXX are in the they to So,

Sandro DiNello

MSR Don’t in this really very aren't owners because regulatory there regulated that these the are get estimate, from under many banks space. comfort that Flagstar

business should you don’t that is you know advantage do that you place be but can has now we the a change you an world there can dime bad want -- it but that And while happen. took can on it's a there did, and not and it’s if so if financial to regulatory a prove that in to the show out

And value there. so hidden I think is there's real that comfort that provide we some

Chris Gamaitoni

And the quarter-over-quarter acquisition, if or deposits nitpicky. deposits there like X.X% else the custodial of something they end Drew, seasonality Period on? is that’s about at going down looked were one

Sandro DiNello

first part of your question. I didn’t catch the

Lee Smith

Period end deposits.

Sandro DiNello

Period end deposits.

Drew Ottaway

That focus Let’s don’t take stress, we a look. …. much, it’s that we too the likely custodial

of earlier, I As year. go all end categories the around seasonally just deposits the down it’s mentioned typically

Sandro DiNello

Yes.

end to We will quarter custodial I on you deposit back in that but Chris fairly end. get significant do a quarter QX to it think was drop

Operator

of Coffey We will go take ahead. Wedbush. from our next Henry question Please

Henry Coffey

quarter. Interesting

issue. I'm I them But to done changing, money attritions attrition, job don’t the customers I is decide I tracking or on is price just with door waking you because know or make excellent small got have -- of want you've bunch colleagues an know what which out I either the issue leave that now bid just with would what a walk really mechanism call to satisfied commercial is bank? bank deposits okay, up and you that something my it the deposit ask Just things, is price their question and by or mad -- people and it my saying some stupid they angry, this open a over to sensitive

Sandro DiNello

a the speculate people are in XX% that mentioned domiciled located. the Well, longer branches where the that are already attrition was here. little area no of Lee bit I will

need if Number two, very that’s comes they that new offers your sort buy want the a all come bank can part obviously, checks, that a move when of think town, always will that So to with account branch. your of go interesting go you I that out branch thing. to they they if to to, competitors

and they people like change So that the price maybe don’t there how of sensitive move some you it didn’t like just happens. there’s have all and people that

to let things. a back of themselves experience down get you on on long excited am your what business. matter, we to things the then combination comfort with right And run -- yourself, chance and feet happens In a than my grow got up And end on comfortable and it’s more people what’s your or why at I that's and going forward. this how away, that is go not new get that's I'm attrition. establish is, whether going not the XX% to get too over settle focusing XX% give to we So company, X%, matter

Henry Coffey

West You've less also some deal? visible the West Coast on a Coast. versus done smaller the deals and of compare Can major this on you contrast taking and there experience your

Drew Ottaway

-- what small with the is just Yes, I because it's so DCB, such much different franchise a it's than saw very mean, smaller. we

And DCB any you so attrition may we experience the acquisition. in didn't as recall,

consider. not bank right Who makes a it our of most situation itself, for if to out. presented what would sure, this a But some one sense do We lot now. to a got work future at and right makes look at take the ready very something prove we'll difference. we experience. community coming point of from the from? on customer, they're mean kind bank, definitely Whether we're the they’re else? we large where I They're take on a use So type coming to

Sandro DiNello

given preferred Certainly a a acquisition whole challenge would recognition. our be trust bank

Henry Coffey

or the that January? all are a when March, of frankly Is three we're weeks into the factors. what so? MBA sustainable for or Given to market seen I not about in industry we've have business spreads sustainable? mean get that thoughts profitability just real as against it And lot is it be back the lot in we is well. that headwinds primary, going factors, February the last up volume year and Mortgage over and the your a is those played What secondary up last Index,

Sandro DiNello

originations. If at last in to a think year, be going year, to terms I estimates be the I think smaller are tough overall mean, of the look it's experts, I you than right? XXX billion

what think is to we XXXX likely XXXX. I So continue in saw in

spreads. we capacity look in trend. as an I take anything of some at January of have more But expanding seen will you've Now early wouldn't adjusts, to opportunity as sort

We happens, holidays, far January. lot there’s much anything think And get I what’s a that things take haven't enough. of from again, wouldn't long just for seen I thus the around you in happened

Operator

will our next of now James. Raymond We Daniel take from Tamayo question

Daniel Tamayo

here on the modeling Just a side. couple questions of expense

is the expecting? Is - that in forward mentioned there expenses offset we've any lower there, kind tax going there rate rate seen tax that guidance or going lower the you in the quarter any forward. fourth of tax is strategy, of and that -- First, you're

Sandro DiNello

expense you'd seen No, tax credits, [not] and no. -- that's effective so expense and guy bad tax We're rate not, what's tax the historical lower. good driving typically guy

Daniel Tamayo

now specifically be? quarter, of run would first mentioned Alright. you amount, in payroll a and looking benefit costs the rate, seasonal tax branches And higher with for dollar Fargo the do have you at the in impact the that of the ballpark -- terms are Wells what what

Sandro DiNello

on expenses? dollar branch operating Wells amount The the

Daniel Tamayo

Yes, just on the total impact. seasonal

Sandro DiNello

that in the No, given I we think don’t past. have

Lee Smith

that Here just don't is say specific. because get what we I level high that would

non-interest can in XXX You adjusted the million was QX. expense see

QX. We million have million, in guided XXX to XXX

of two extra months month You because Fargo the one an branches QX. have had we got Wells only in

as higher compen higher guided have And seasonal we know on the gain got you have for sale. adjustment benefits. You then to

those basically numbers the higher categories. without giving business a for sort each for an is there just mortgage breach well. piece incremental So That's as of you of

Daniel Tamayo

of the in was just where costs? out quarter. finally terms then merger the came in XX the line of breakout in fourth items that What of the the And million in

Sandro DiNello

you million merger XX costs, of The are? items Jim line know the

Jim Ciroli

It and was other salary and largely benefits.

Operator

Please question We take Scott next go our will ahead. from Beury. now

Scott Beury

regarding had was Was the in I generally one or much was just in just I obviously franchise you the the if Fargo really follow-up curious there any there part, attrition that was the concentration was I of acquisition. specific market there by but branch mean the area less will any prevalent? deposit just if quick question Wells more regions? Northern where

Sandro DiNello

of Scott, was. out concentration big the in where that’s just Well, the market

by say, wasn't tight there and South some, fairly it was a dramatic Northern varied within the percentages while Bend, range footprints, the differences Within area Michigan across. between

Scott Beury

I would then potentially to to your that you're to would fits? as you that looking the expanded guess any look And in in are you that and growth there areas think any Indiana North, do footprint be on lines business color opportunities similarly, forward attractive have you more in good with be expand, an general specific

Sandro DiNello

there opportunity C&I business in There both banking well I is opportunity as impact there. going always the to I think be less terms but there with Well, of is the dollar our as is middle-market the commercial for space. opportunity in is CRE dollars there. mean

sort So not offerings, core all those, opportunities. are I of mention all loans commercial of to think consumer

you is that. So another, any I for if type in speak can't of know more Drew there don’t business one if about whether one opportunity to market that? I versus have thoughts

Drew Ottaway

think you right. exactly No, are I

leverage to that respect small that footprint over deposits opportunity and things we brought consumer addition over, insurance In those investment those mortgage really that with and branches, lending, to bringing loans it. to is came are over business because the great the the amount there banking, with and

that’s believe we So going a opportunity forward. big

Operator

our question We Barker. take now next from will Kevin

Kevin Barker

a see long-term big can give some drop quarter deposit you growth a And then basis, period on decline? but like we’ve was advances the of as deposits still FHLB near-term view the which So advances we just in as on the quarter? first FHLB the first to do the seen, there basis on somewhat far regards end average in expect and that you given in

Sandro DiNello

take let advance will Okay, question. I Jim the

and able have be balance because of much a have we tough and acquisition coming was knew terms were on we’ve lower-cost pricing data one the going to have a others that we lot In conservative deposit deposit the growth, in have approached that Wells sheet. so Fargo experienced than to have ours because is the been coming been this higher those to of we the way deposits

want deposits whole and pricing -- to So the be with that, got now we’ve alternative past sources. that on we decisions that to and compares with we’ve that to to make how aggressive got across funding now some we’re organization of how look

decisions, side. the and on the side is this to you like got So, of the people just are mortgage are market going they are kind irrationally game-time what to the on a see what’s you pricing There lot see that got of are. on opportunities deposit like

pretty versus it we’re reasonable understanding So our this be and we’ve another. the line is could at where betas and think one different market been opportunity is fine keeping But a level. at shows history I the that good, in good pretty

So to work that’s what to we’ll do. continue

Jim Ciroli

with ample see what can liquidity Sandro the Fargo prepared the I deposits point. a Kevin that's that only [FHLB] benefit and made remark But of have made direct remarks lower-cost benefit off can is the We remark more is said. this exactly and but that FHLB you we yes borrowings what do Wells give we that now primary that of the that we the I -- in my and we’ve off what I disciplined year the us because borrowings. deposits be we secondary benefit that not that would end messaged at made near paid saw the we pay

success go deposit upon we hinge don't our doesn't that. and out get getting where extra have dollar, So to that

on deposit the not So just and manage deposit how be franchise we Wells we rather would costs. franchise, disciplined entire the deposit

Scott Beury

Fargo So as it stand in today? advances first a on quarter, any expect FHLB decline given further would basis the in deposits period Wells end you the

Sandro DiNello

be on depends I to end grow markets. that much don’t It other there much how on attrition we in able funding at how you quarter. to we’re numbers of with the the is going and where specific think we’re the more see

grow if what So that’s the funding cost than would be. -- I this that I for be less but at you anything FHLB costs a don’t else alternative know will we or would deposits it tell the

Operator

questions Sandro no turn further I to would back the are this to there DiNello. at over like time. appears It call now

Sandro DiNello

capital. the thanks have everyone strong future. Flagstar. discipline, level we in fundamentals expense on your From Fundamentals, abundant the high and fourth remained credit for quarter was Thanks, a Katy about perspective, because interest quality and and focused

of Additionally, core big which our base significantly our into for core we have face funding continued diversification, despite way funding, the have we level future, XXXX model never experienced our of We revenue embraced because customer a move earnings, in originations. consistent a we grew challenge the footprint. strong expanded mortgage branch has change delivered business a that before. with in and and The

strong Going capital forward, our flexibility gives durability. us and

special and you overcame We the with A to some thank will the use very We this for quarter way to Flagstar the very forward optimism. you these shareholder value. returns look confidence and to difficult grow challenges. strengths future team maximize successfully

So to April. in everyone forward else, thank look you I QX this attention results reporting for your morning.

Operator

concludes today's This conference call.

disconnect. may You now

Flagstar Bancorp (FBC) 22 Jan 192018 Q4 Earnings call transcript