FBC - Earnings call transcript Q1 2019

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Operator

Good day, and welcome to the Flagstar Bank First Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ken Schellenberg, Vice President Investor Relations. Please go ahead.

Ken Schellenberg

Thank you, Quena, and good morning. first earnings Flagstar the to quarter call. XXXX Welcome

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

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 to us earnings welcome to quarterly join to today. first in. Thank taking time you listening you, appreciate everyone Ken the your morning Good call. I

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

results. with call and As by and over and I'll initiation underscore value call to million of buyback, to solid shareholders. was the I'm line the a of a will franchise the usual, strategic for business in quarterly guidance quarter initiatives, going high-level with I'll to our delivering that on dividend opening It segments the follow the for of before turn of the second our actions progress for our Jim financial highlighted Flagstar announcement quarter diversifying another by $XX view our share quarter. our a our up questions. providing Lee start conclude a our and details Then performance review for for

year adjustment adjusted expenses share the income or to the the with net $X.XX posted quarter, the last of Wells per transaction. million diluted acquisition-related from attributable X% quarter up we For branch $XX Fargo from same

we business, We that the value. banking of saw deposits deposit deliver proved the benefit once have in a shareholder positive results X Fargo reflecting new branches. In of operating quarter and that results can priced we full our drive costs points basis transaction solid we where attractively from our were lower again Wells

a are who attrition conversion branch helped significant banking only We attrition deployed pleased only were the don't experienced footprint customers team of was from to the we our Indiana is by It's also deposits overall customers X.X%. resilient building expertise in Deposits consecutive and came after continued quarter. success X.X%. from the the service X% commercial in a earnings reside portfolios and brand that branch their which we us versus commercial lending for net also our within months of most that in deposit real bring margin Attrition actual four have interest government of that helped footprint. The These industrial, to growth estate our consumer high-touch cost stream. prior lower and expand to market. testament the quarter fifth in

the loans the will will growth before, strong serve well. in to in loan our not non-performing believe credit slump, of on proof credit record achieve compromise zero commercial economy we track discipline our As said quality and our Should we we've is us portfolio.

the book continued its loans, XXX,XXX. servicing quarter XX% our Our to as during million grew one segment toward march servicing

an year-over-year this portfolio Our in growth XXX%. outstanding was

and source We both liquidity. of fee are continued in with provides pleased as the business growth stable it income this a

the all mortgage fourth for XX% locks in the quarter, with $X.X billion reaching an uptick which from a March saw occurred in also increase We of quarter fallout-adjusted XXXX.

have we the managed last past, customer year, said and quickly meet the the our we've the Despite significantly profitability is relationships business. maintaining business our in that reacted to team capacity building capacity the for all has team downsizing mile mortgage As deep while long-term variable ops This built. ramped evidence the us up our further opportunity of in market March. presented in

subsided don't year than we strength market, capacity commitment service Looking shaping advantage. is of differently up where quarter a some the announcements the and result ahead, transformation and a any was as is the a we we of competitive to a believe of share The that in of size the adjust ago the customer pricing that service to origination see quarter milestone In in terms irrational starting quarterly the the but saw overall returning bit. has dividend a closing of of it repurchase. and achieved our that with to our top are a a our consistency the relationships, that we do

the of successfully and completed XX new expanding integration We further also product offerings. our retail branches footprint

and credit And servicing kept solid turned we business concludes performances. near-perfect mortgage That our strong. comments. of and quality All my in finally, community banking, capital lines

Now let me to over it turn Jim.

Jim Ciroli

Sandro. Thanks

expenses this Turning seasonal you'll $XX or per $XX in compared improved several or compensation million, to provision adjusted million our diluted net $X.XX was $X.XX operating for increase adjust last note areas. $X quarter's diluted benefit performance of quarter. share and in per approximately you and income slide operating share quarter X, net When income benefits adjusted million the last the to

The linked-quarter on fallout-adjusted asset. by of despite or last were been basis acquired banking stabilize This Non-interest revenues deposits deposits. our MSR quarter assets. a quarter. revenues $X saw we the as decline increase and levels in level a net more than sale lower the in which the increased as interest offset many slightly Each loans only by income. of as the slight years driven $XX return net income results mortgage a level on for of quarter was gain Operating net This improved the income of weeks earning driven by full drove first X% a we having in of an net increased grow we quarter million million stronger strong locks on the has trend interest a this now.

only than impact be our net as a its solid also midsized well the away whatever industry. year five points coverage to ratio any were less the coverage still nonperforming from charge-offs loan CECL strong flat specifically continued remained on as feel we strongest at discuss our while remained impact solid. be. our in us and adoption portfolio allowance not X.X% now for as Capital We're to bank CECL's quality Asset might going Flagstar, loan of among and the was level positions basis we're

loans us risk capital level regulations discuss days this such Nearly the which the from sheet. extensive by the later, I'll basis threshold. mortgage on million was dive growth $X balance level interest as of the XX assets ratio grew addressed We'll two quarter slide deeper seven net interest on warehouse during the Non-interest a to of invested note and lower turn capital take of by well-capitalized in quarter through the loans, as increased will our improve levels asset net than of that by assets impacted analysis we as in branch million. to income its increase by $X earning mortgage impact FHLB our full statement. with seasonally net protection deposits points of While a loans, XX a sale capital securities, the home Net held $X above by balance million driven slide. margin mortgage of holding The into $XX represents total income due interest expansion increased cost was lower and points. the largely little margin income ratio fewer $XXX offset next adjusted simplification of risk-based capital stock. benefit basis and X.XX%. also longer QX lower loans our more builder two-thirds margin acquisition. our for cash, so low let's warehouse is is million quarter. The expanded XX% We'll to interest revenues the million more the negatively This credit sheet

on of revenue gain or increase represented despite achieved quarter. margin in no a was sale million $XX transactions XX RMBS The the million $XX our by basis gain an from on increase revenue driven prior the Our on of of which sale point gain quarter. improved in level sale XX% was

sales Additionally lower quarter. a the fallout-adjusted locks We improved saw XX% volumes our purchase higher environment channels. by a of mix especially of XX% end decline to all as the in we driven saw volume, mortgage our at rate

$X the on servicing mortgage by end decreased quarter due asset As rates. to the lower million you'd return expect

branches. deposit levels the attributable We of and of full fees also a to quarter having saw acquired charges, improved

basis loans recognize million of lower expense $XXX million, in million seasonally higher net or quarter at and reflected January negligible $XX their $X higher experienced XX% expenses continued clean. $X the up was million we expenses The administration basis on smooth lock. to We waive full quarter. early or in revenues this points whereas Flagstar This branches approximate portfolio, fees $X funding, and waivers remained approximately XX these noninterest benefits. operating recognized from our we as customers Credit at costs prior quarter commercial the impact of fee $XX from rate higher points expenses origination the the quarter. costs increased to $X while loan partially the to offset We due that the were business. million. the acquired were early million gain at of newly million estimate these continued in of is transition to again February taxes that sale Loan five and nonperforming mortgage income only by payroll growth and are charge-offs were to sub-servicing for order Adjusted portfolio employee

of highlights traction million. even which seasonally loan led which growth continue growth balanced loans well for type had have last continue C&I, that Let's business loans declined by and nice we now by channel. average our slide small acquired Loan was $XXX in across investment as quarter sheet to a by Commercial quarter's $XXX Michigan our balance Average full footprint grew held and be acquisition. million to turn the branch quarter. average warehouse X, to this loans

Our saw in well, late the growth good as albeit CRE portfolio quarter.

dealers. We portfolio million the during continue quarter balances also $XXX among consumer which good traction indirect loans, non-auto by and averaged demonstrate to higher our saw in driven

small higher million of one in quarter slightly last X% quarter deposits by Our of again sale deposits custodial the Fargo increased declined a the result at mortgage the from loans benefits Wells deposits. for and and quarter, of end Average full branch this the driven quarter. small a held or sale investment $XXX the

Average to the face the in Excluding of average and this were the XXXX. million, deposits in category flat only full and point the mid-December hike, held a of a by increase driven serviced XX% retail all we the XX%, impact increase the hikes impact basis deposits, deposits a relatively rate of rose acquired in effects XX custodial $XXX of carry-on rate accounts. or quarter

cost quarter the first of saw costs Our last last deposits rate deposit costs performance basis managing XX%. and deposit how compared increases. we've deposit total managed is to deposit consistent quarter, cycle with in points, beta of We XX throughout of excluding representing rise acquired this the quarter XXXX our a

loans $X.XX period XXX the costs excluding comparison to-date For basis We'll XX%, tangible only XX, period, basis for of our fell At cover book our to the representing basis beta X.XX%, while increased deposit deposits, points. our investment Fargo of over position shortly. the deposit Tangible cycle points level cycle, have the a to points loans our same investment remained value total while a yield equity held for loan solid. increased beginning points to over capital on has per XX%. March XX beta time since only And the same ratio the assets Wells basis held our $XX.XX. increased rate of XX capital risen regulatory yield share XX for on

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

to Turning remained slide XX, solid. capital

risk-based March capital was total XX. ratio Our XX.X% at

the time growth we XX some opportunities, final capital at move same higher. bit flexibility while being quarter enacted, should loans are point the buffer. maintain buffer, loan capital would simplification held-for-sale a proposed, enacted this capital above us the were stress Assuming regulations that as our ratio higher, absent regulation end, basis basis be we commercial simplification which this stay points is end nice we allowing to knowing into that our strategic proposed XXX At saw period cushion

buffer a target the sheet above tests. Our balance loans held-for-sale, range strategic capital large the component constrained. of stress in by all and agile well-capitalized our status and operating are gives maintain is event the Having be such flexibility buffer and the stress us we becomes informed the of ability the flexible to size

for the more businesses. in regulations at I'll Our basis this basis should benefit are at Tier be points ratio our by quarter. was of X capital our of this and eight to March enacted, Lee XX, Capital XX for upper operating target of from X.X% simplification XX% each up turn now leverage ratio insight ratio. when points, end simplification we last will range

Lee Smith

share good of capital grow we and XXXX. we interest or The Thanks net at threshold instituted We're points share and for the per very commercial XXXX our quarter-over-quarter. to and XX $XX December and with investment diluted $XXX a basis quarterly positive continue targeted start asset-generating for Jim, believe by liquidity a and to which necessary time include: repurchase loans We're since operating pleased grew quarter, highlights in net million, capabilities our of million off X%, the the consumer first margin for quarter; and average everyone. adjusted initiated the forward. going expanded morning, our levels held profitability we of during dividend to a $X.XX have income

March results had of and Wells we closed XX% versus months the four the attrition January Fargo branches acquired was QX XX, in when our As we after transaction, X.X% net we bank X.X% for modeled. the reported

higher in flatten adding existing of from in new the attrition out the the are and customers particularly where start saw we've located. acquisition, deposit early deposit the customers we and Following to part XXXX, normalize and in successful been states four balances branches

the of the or benefit in is the increased the due average a loans an current the years. deposits Overall, of Given to $XXX $XXX million level deposits and of transaction subserviced. the expected X% of in attrition, of full be increase deposits number quarter-over-quarter, increase on payback to X.X acquired estimated this custodial million, given quarter

increase subservicing loans, loans, we XXX,XXX As or XXX,XXX XX% were March of XX, servicing quarter-over-quarter. or an which is of

the the the largest the of now Award in Mae to subservicer Finance, fifth Servicing the STAR and country in year according are Mortgage We loans category Inside we Fannie General fourth for also Performer won running.

to decreased indirect our in as commercial though average the expected in high-quality $XXX the led X% $XXX increased million investment commercial include; by Finally, XX. real the increased the of quarter the origination was portfolio. QX some reduction industrial Average community and Financial following estate and to banking in in of quarter, non-auto slide note potential origination from million key the warehouse XX-year segment its outline turn the highlights the $XXX industrial loans. Operating the loans business slowdown our year quarter, on first I consumer treasury each in a quarter. we commercial in the minimal, quarter. will operating loans predominantly impact metrics and XX% for business. $XX our volume now saw the business or or segments lending in mortgage encouraged during or later mortgage Average increase of rate loans major and the HELOCs added Please production the for about million origination our held seasonal increased for million but remainder business. on due we loans impact X% we're in

points consumer net $XXX on a acquired in branch continues most We're and our it of earnings pleased of business and a basis bank, the in continue the with community both interest very to expanding same given believe quarter, interest-earning relationship-based income net of on slide significant XX. the adjusted the portion second performance million see result Please as during the improved deposits deposits. our grow the increased Operating and Given basis Total billion can right lines. quarter the loan a mortgage rose we approach XX% of origination of our our from expanded loans contribute XX to of fallout to lock footprint, believe XX and to assets levels or we turn to any while to margin for and highlights XX% commercial now. full expanding grow and mortgage healthy net will business the margin origination warehouse gain lending quarter, benefit environment outstanding volume at loans the increase XX you include; yields the basis points. points increased $X.X quarter-over-quarter, sale

$XX to in sale season QX. million in the buying to volume As $XX in a fallout spring anticipated million quarter from the rate. the QX due reduction quarter-over-quarter versus lock both of in treasury gain result, and increased $XX revenues late on increase predominantly increase XX-year was million the The adjusted note

As reports, to optimizing capacity. XX enabled to mechanism basis in sale us pricing this and increase our we've terms a previous points continued in production of on margins we're it XX It's gain the points focus our most using basis to from that profitable manage as with disciplined mentioned quarter-over-quarter. channels

we're within the capacity all While across there environment. started scale well lower channels, last to rate industry, from interest positioned few quarters correct to our given is believe the itself it the still excess benefit origination has and over we

and our maximize management We to the in line. business will also continue to mortgage order in be earnings expense from disciplined pricing

serviced Finance. of according of XXX,XXX months loans We've we for and over serviced Today, XX last XXX,XXX the include; fastest runway MSRs or to subservicer sold Quarterly we've growth we Inside others. subserviced the Furthermore, subserviced servicing. by we've XXX,XXX the segment has subservice slide the onboarded, subserviced where number therefore than XXX% subservicing. loans rather keep X or last industry loans, for predominantly or servicing in loans another growing. or over the during XX% to period the loans operating have the the which that XX months, are increased or and come originated to in growing Mortgage highlights our sufficient million Flagstar retained to non-Flagstar originated XX on Moving capacity mortgage approximately service from have that

testament to to growth think and award we the quality as also Mae is I indicates. one-stop is STAR by recent for a team backed platform customers, our but the our offer year shop fourth the consecutive Fannie

As subservicing held a The we deposits custodial well $X.X financing bank that as services, loan growth. throughout offer believe loans, fund these XX% of generate also we and We all capitalized. as average successful of is quarter-over-quarter. the an deposits continue pleased loans of solutions million our subservicing be us the well We billion and help $XXX you custodial recapture couldn't progress forward. the be or move see and grow quarter, to more with will our business behind increase

expenses to on on slide Moving XX.

to associated the integration $X one-time which in benefits. for increased full adjusting seasonally at expense expenses associated costs million to higher The Our the December, increase acquisition. with majority non-interest this taxes of employee due $XX and of with together of acquisition, expense bank $XXX non-interest closed beginning of payroll after was quarter million quarter-over-quarter million a with branch the

to expenses, loan the further our of in increase an increase across growth we And given saw of invest in lines. also $X subserviced. million number continue business in opportunities processing all We of the loans

for of was a just from reasons prior first the worsening the I quarter outlined. XX% which X% efficiency the ratio quarter, was Our for

compare we of million as The $XX processing non-interest $XXX from $X dig is all non-interest million. by our loan maintained is partially expenses. costs volume acquisition, revenues. deeper related. $XXX The seen due and increase this full quarter the bank expenses will increase mortgage the Wells XXXX expenses, an throughout in better-than-targeted subserviced compensation attrition. QX, see months. higher given expense both $XX million be volume during Of increased branch this to will benefits lower significant loans of the because increases a the between discipline to acquisition if expense point is being Fargo have higher deposits to quarter. seasonally or in being, million non-interest in you are of We and benefited included you bank low-cost in solid quarter's However, and increase and expense the mortgage full three been from second expense have related production cash estimate acquisition the with and million branch being We've It's a offset

continue high-quality businesses. assets our core to lending consumer from We and commercial grow

strength-to-strength, inconsistent non-interest Our are. continues business and go for origination where about to rates our grow outlook mortgage we our earnings. to fee interest from And given subservicing adding feel business positive income the

Given continue and Sandro. to all it capital robust liquidity back infrastructure With our and our diversified to across to and well add believe positioned business hand we business strong three positions continue by risk all grow model we're of to shareholders. lines I'll major and compliance complemented for that, our value

Sandro DiNello

then, Thank guidance turn QX. slide open and questions for Please answers. to you, And remarks call Lee. for XX. our to I'm going the with prepared close some

We increase loan net will to gain seasonally the concert non-interest income increase to loan will as five XX% driven to slight to assets and All XX% other with gain income is locks expected by in margin. basis in increase grow increase a fees will to margin income X% to mortgage attributable higher interest sale XX%, increase while increasing XX anticipate loan seasonally sale on points. X% will net on We XX% expect interest interest-earning closings.

We expect slightly. MSR the return to on decline the

call questions noted we effective to be our and between expect rate million listeners. tax open concludes be And $XXX from we'll This remarks. XX%. and to now our Lee As we to prepared million expenses the the anticipate $XXX non-interest

Operator

Instructions] first Please take our Bose KBW. now from [Operator question ahead. will George from you. We Thank go

Sandro DiNello

Bose. morning, Good

Bose George

to the sort quarter-over-quarter mortgage driven guidance, piece think entirely the on on there? being anything follow-up else the is by the variable about a of that almost increase Or Just there increasing? expense is

Lee Smith

the being increased predominantly volume. on mortgage piece it's driven the by variable Bose, Lee. Yeah. It's

Bose George

in going that talk guided of you've in rates interest you quarter, then, NIM can Okay. just and forward should there increase assuming the also Great for think about margin, second actually about drivers the we how fairly the are stable? just and the the net terms

Jim Ciroli

Yes.

Bose is Jim. this So

it the summer and talked as we first sale, a and warehouse warehouse I So, to mortgage builder the in pull months because back-up little there lower quarter builder. about home into was of when as get prepared lower And was kind the bit remarks, of home margin into it you'd inflates and we for see where you'll held loans inflates expect be. expand that on back

Bose George

Okay. terms And of outlook any then the in just commentary there?

Sandro DiNello

margin With respect to the itself?

Bose George

to... Guiding

Sandro DiNello

guiding point that, a little wider, than that X Yeah. grow Well, the but that we're the next because the – at XX you to I'm look we'll we as quarter farther we'll we're about confident to QX. the on give any going assets to basis funding pretty first not versus increase. about view see we think

Bose George

Okay. Thanks.

on operating that – servicing there is one incremental that? mortgage that Just servicing. on an target put When in margin you've you you of guys on the terms

Lee Smith

Yeah.

operating we If – consistently again mean, loans – it million $X we We've $X every in for XXX,XXX an said Bose. of you the million incremental it's adds it's that to and I profit. deck. Lee add

Bose George

Thanks. Great. Okay.

Operator

Our Sandler Please Partners. O'Neill next go from from Siefers comes ahead. Scott question

Sandro DiNello

Scott. Hi,

Scott Siefers

I was the times Hey. couple have be for prepared you to just guys. in a of pricing to questions. finally rationalization that Sandro alluded seems maybe the And is for place taking of sort sort taking Thanks perfect in industry. give and the kind of that to in morning, Good your where guys remarks little sense dots could you expand world a in us upon of those are at level a much go? process? a a of we top there sort more how hoping in

Sandro DiNello

Scott, that, I second. suggest has quarter there to better welcomed on add give that there's some and need still so the that here another certainly Kristy but let might But that. think to on it really we have what to too say me say on to but out a soon vision rationality it's Kristy to subsided. really in some a it's trend, let jump It's I'll hard and of see

Kristy Fercho

that of the rallied, saw people January February, that them Yeah. room and of little say the look to the so aggressive some believe rates. on about had positioned actually think they've to but pricing, a bit, exit people some that come had. started deal are the a well competitive at trying XXXX, production we're the the I'd just we're still at has add for And is seeing that two subside those competitive lower rates out the the continues our because which think to the about But of is we market here pricing of still we why who conservative things, seeing little two I'd think of that's initially a actually especially as when expectations gave you remainder market continuing. some I kind with rate breathing bit, pricing of so rally bit to kind rally first it continue. stabilized when a I some of going were we're it we gave But rationalization Scott. we if and as volumes little of note had were you

Scott Siefers

rates have rates of been have long the couple at dropped plenty times quite of sort of do years Thank maybe of sustainability I level. is below of to at Perfect. rally? the you there theme continuing improving then because ask mortgage look market, the guys on a you. kind over obviously this end been what the there think curve, I have or while And guess, of the Okay. this last you bit when

longevity that the the at kind what guys sort a refinance do whole own your of you market and by have? as driven would or beyond of the continue book rally in a country, as just So finite look housing rally could could you period think this

Sandro DiNello

in this rally three going different to awful. January Scott going we comments, my were said year and market is months this think was to despite any I like absolutely don't be the ago I February it thought than Well,

end So March bigger than to somehow at at lot be was I have thought to we is that see the everybody of a lot of or don't market this that. the year optimism least better. going a But a lot thought,

Scott Siefers

Yeah.

Sandro DiNello

to big any and change. where to a respect any don't do to continue But no, better better in why I a see with in Kristy we'll I that's we're that? a find can difference So that, margin big, big change. get the hopeful we on margin bit see of see I'm a the QX. market opportunity not volume guiding to little places

Kristy Fercho

just in us our then and would No. last And quarter to of pockets market the we've as look product, in really that guys I advantage of and advantage well the positions can diversified not market the where we Scott take certain us, but those where only we the can or that by compete able way. mortgage scale either to strategically that for Sandro be take described, see remind channels in discipline quarter, of shown market, really certain you platform to can this or we

platform us So, diversified then it that up in market we like this. continues, the a of serves rally rest and And take with really well advantage variable them. cost scale the if of model can and

Scott Siefers

-- comments for return return I variable then, to last rate But to in to XQ question, subside. be appreciate notion of the I to those predominantly where of And we'd I to can one rise with volumes. higher a I'm basically cost all able slip begin as is guess, going Okay. that be if the function that. wondering Perfect. associated to the the Thanks just expenses. volumes

base. sense expenses on subservicing more maybe costs of guess, the is what natural with there to pressure just quarterly for more from I I'm guess servicing the I so, things be a get trying like steady associated -- state So, expense some would

provide, So appreciated. will maybe could you any we additional thoughts

Sandro DiNello

Well, state if you're a I there organization. growing is a don't think steady

of pure continue your grow expenses grow, the think as amount you dollar I the to organization. will

we if year, you a differences. versus we who lot at of are so who look this are year last And there's

And have going so, to amount expenses. in you're of an dollar increase the

and our Our in efficiency quarter, within bit lines continue sure been a up because on but just making three flat, of each having diversified ratio of focused of that to has very lines business, little we're having be business it's diversification. business we line not this last pretty

expenses. So, little that's more a bit

there center ways is where in think I is to a my steady we're efficient prepared that for tell know us going you that and -- it get we us not But more ago remarks see I'm state Now, I I said is can front want -- anything to that add do to is, that? for state. to that, year don't as what us Lee, you efficiencies. compare there now and gain to wonder a steady don't to to more

Lee Smith

No.

growing the I growing mean, subservicing and we've we've particularly bank and right. Scott, acquisitive all business think know gave community of lines, you bank been that's been I business of you're our the on as sort and absolutely in why an XXXX I to that steady a and and bridge you of point, you're versus been don't want we of to that's QX be. QX there continue when state think organization is to a that of XXXX. have But Sandro's I we something

Scott Siefers

right. you All That’s Okay. I appreciate thought. perfect. guys

Sandro DiNello

Thanks, Scott.

Operator

The next Riley from Please ahead. question Steve B. comes go Moss FBR. from

Steve Moss

relative estate to a expect morning. Lee, you to good similar Hi, commercial quarter pace relative for -- real quarter. and C&I this first the I believe growth loan mentioned

wondering seeing Just for what there? the kind underlying drivers of you're

Drew Ottaway

Hey, Yeah. Drew. morning. It's good

is echo So, Sandro, where really drivers and to Lee Kristy from start you heard a I'd as well what from diversification. I and is of number is which think

have, we have that think across platforms the portfolio if if what's in loan we you platforms, really place, So, that's at we growth. the diversification that sustaining the about the have look you that those

saw quarter growth of we growth C&I. this out Last less quarter, good was So, out of there really C&I.

because we've some investments see see going to forward, made. movement quarter-to-quarter, balanced of going going that but to you're you're growth So, the steady

Lee Smith

And I'll just add.

talk loans Given we both based well growth. approach we continue loans believe two can relationship commercial we consumer going our that that we the just the the break ever-expanding that's footprint well, as at talk about, about we for footprint the always given up and Drew why the when the But and across pace articulated. reasons loan to see as that you're and also expanding growth

Steve Moss

potential share in for can Okay. here additional repurchases and terms get M&A on around, And capital forward, any then of both going just updated if wondering we thoughts activity?

Sandro DiNello

you with in comment in that. have to regard. repurchases, Well, tell on to additional anything plans any share terms of We respect that no don't

TruPS. you we bank, In the because lose with and these little a terms problem our us of of M&A, purchasing remember, create the the TruPS Tier we've of a would bit for treatment X got situation, TruPS if

to really rate lose buying ability we and right to with -- very respect treatment along a X have rates the say right not to had we've couldn't bank our the assets pretty good we've come done With really Funding We're in in that order it's of to important us to make steady So, given the have assets situation to TruPS. sense, the at that a returns. transaction the last that but generate more and low right than purchases, would quality is Tier branch the assets. year. of attrition our with there now two pleased those

in presents those if if if teams team's other Kristy's your opportunity organizations, that. expand never and out mortgage without associated of there. itself it business relative infrastructure in you we interesting don't the no some see with more just something the when right to the business people doing but and opportunities by on that's you lifting that's house there producing us, the do so to to can us the been I So successful M&A. anything from buying side reason buy very bringing very is branches know can high new are

I how that's So position. our M&A overall view

Steve Moss

that little that I the that color still acquisition on has a opportunities abated guess, wondering just following up you on good perhaps are branch seeing maybe Sandro, continue front, way? or

Sandro DiNello

still Well, there opportunities. certainly are

sold a branches I think a was as to was. fact where of think some matter announced it bank one Pennsylvania, this in morning there I Santander

But we'll at is we and opportunity and the us. anything see Fargo, there. since to haven't because presents one they're we needed that next put with So seriously itself, behind a every together we when ear Wells ground the our to find the deal now, looked get could we happening if way

Steve Moss

very you Thank right. much. All

Sandro DiNello

welcome You're

Operator

Barker question Please Jaffray. next Kevin ahead. comes from go Piper The from

Sandro DiNello

Kevin Hi,

Kevin Barker

Sandro. Good Jim. morning, morning, Good

the And deposit some and average Just your What as the the the attrition why latest of update first were the on Wells costs an declined? give deal. us and attrition January to Fargo changed between on quarter? in of Wells update follow-up deposits then the for also what you could

Sandro DiNello

I'll and changed. the but we first or plan disclosed take that not to respect let sure to second. part with take if Jim what I'm I'll the

so the all that myself, There’s long to of as in opportunity of had to have well we a very a XX back happy So X% the as back They're there. that happening early be lot a the seeing trickling after I reported even people place attracted saw talk we couple it or relationships settled down in frankly around strong team managers good They're market, X% of to an forward. Ohio, first XX employees. with and initially positive get Flagstar. part and a testament was we branches tenured very, so think customers a something think upset growth. then competitor a January now branch our to and visited ability was by back a offer accounts attrition rough pretty really I customers ago, and like rally we're days or saw some are weeks and in that go quickly tough $XXX pretty that. what and things by their I their move vibe $XXX that that's got and of good or were situation to a Indiana But their visited

XX% and that's so that it have last the in other the actually And XX then and then we sign really a way we're we I saw see point, growth, did think leveled so north get good good at a out and one we place. go attrition of days but the seeing in started

Jim Ciroli

portfolio the Yeah, like balanced also we've checking picked -- point in I'd up Kevin small acquisition throughout when is trough that this is accounts trough out you mid-January those a the have time of Jim. for that period the come to year is pay in whole the is in bills The January. off. holidays probably probably in bills you later when January that

Regarding a accounting I pretty have note course, would on only of cost the Sandro The held steady. you'd costs that amount is that, not in take mark anything would disclosed your small portfolio. thing note us would say of we've I as I said, to question, the expect CD have only that portfolio purchase the thing

Kevin Barker

quarter branches to that the operate then is the stable, cost disclosed last has you remained correct? And Right. that

Lee Smith

two that the Yeah. have, months stable. you you relatively have quarter Other full one a versus than costs remained quarter incremental but have the

Kevin Barker

overall obviously but up And kind in I then expecting point back of refi, competitive channel correspondent you're years. lower few given the rates because of understand each those? you not versus last the like we're for pick and turning and market rates mortgage, and were differences where earlier, big not much between you at Okay. dynamics change to will retail But mentioned are this where the any are wholesale seeing within pickup what's and guys right,

Sandro DiNello

think answer but Kristy let so, her I'll I I'll that. that. don't let answer

Kristy Fercho

people went XX% they so with the I kind and volume into rally, in over first refinance think settled our just and retail say, I pretty what branches spiked first market and XX% we example is for back No. terms They've happening normal was that refinanced. refinances would of saw week, down significantly just the that Opes got weeks of pretty their interestingly, and two of retail hot consistent retail rates. Opes normally in

seen regardless so and and that's be of in maximize as we've of competitive it third-party especially just just why that a more our that tends little has compete pricing getting and terms to where active are so a pricing market they our terms in space In is continue the on space correspondent as the really we and to of can the be culprits result. broker and there, refinance continued measured competition that their and we'll aggressive non-del revenue watch

Kevin Barker

non-bank main one competitors aggressive. assume third-party that And the to maybe say? channel I of the that the more financing is fair would some being much the causes Is Okay. for of for

Sandro DiNello

you to Are of referring the lines financing? warehouse

Kevin Barker

the some that seeing the of cause and receiving. Yes for the lines some there financing to one non-banks and the FHA be lenders yes of or or we're little that more that warehouse a of seeing non-bank some competitive underlying... out you of they're the Are

Kristy Fercho

figuring is February and really make really could to so each a that more story and competitive yes. all really -- in driver loan pressure waiting January of the the No sure where function just that's to of throughout and competitiveness buying that the for it compete keep I focused. for I kind season people think they saw just Again Kevin, staying and wanting the market XXXX I out it. it just of in the wouldn't they and was say could and busy was back staff think we come

we're so operating there saw saw space still and now rally in in said January And that pressure as if February we at the subsided the little. but already Sandro rally the the pricing we a that third-party and continued rates, continued lower

seeing production are the main competition We of aggressive rates. note some still on

really I just getting individual depend And what is is but are I on business, season. to -- do, company trying looking think to people this their strategy the individual think to peak buying so sustain

Kevin Barker

you very thank much. Okay,

Operator

Chris question go next Our Compass comes Instructions] from Gamaitoni Please ahead. [Operator from Point.

Chris Gamaitoni

based Are on wanted everyone. period and a good back-end basis Hi, of just consistent lot basis about an loan loan period consumer kind loaded. for for comment of saying end follow-up like, to I C&I consistency? looked the afternoon growth. growth on average end on the It or you was

Lee Smith

Chris. refer basis I an on average always Yeah,

Chris Gamaitoni

consumer relationship? from recent GreenSky then, coming growth your thanks. Okay, most is other of And the

Lee Smith

channels it's actually loans. is -- our number but GreenSky, of mortgage big it well. is factors, It's of there's No. a of HELOCs that as unsecured to it originate then and some utilizing ourselves we're from And piece a HELOCs coming originating we're

growth originating well lending part of very acquisition, non-auto strong loans indeed, seeing branch the team going it non-auto then the Fargo there's that as loans we're as unsecured indirect and of to that we that other those but got Some and the we're good channel, acquired channel. so is Wells as relates you've indirect

Chris Gamaitoni

All deposit curve? kind following of forward your in markets you do right. local any on have lower competition update And

Sandro DiNello

and acquisition, somebody recent and be branch with more for the we're is markets last going can DCB there's Chris. thing to really acquisition, always flexibility and opportunity to us to The to deciding together good deposit we Nothing bring most where more now have we the go just more competitive where we always better us going aggressive. different, have to competition, deposits have after trying we this so There be the in. that's so is in that for --

see really through more costs the well those managed had prepared overall this to knew deposits we've organically compelling I up and we still been because cycle, a on think has are slowed analytics little bit to we we've that coming. opportunities. Jim's remarks betas job got team But able help good done grow us and and today identify wells a recently, even how better can really this we that deposit

in than given it's ever So any markets. been. I the matter don't of different always your right your opportunities think a situation it's It's and finding competitive just

Chris Gamaitoni

Thank right. All so you much.

Operator

The next question Please comes from go Henry Coffey from ahead. Wedbush.

Sandro DiNello

Henry. Hi,

Henry Coffey

everyone. It's Good morning still morning.

Sandro DiNello

morning. Good

Henry Coffey

front, that's ramblings has because mortgage for of unless day. he of just but lower. idea think rates we get a news scattering an out editorial On quite the of the competitive to got I confident another I'm go Jamie in life and talking not -- hear about, the any you of said, business someplace what thinks he's even Dimon he

some have have banks about regional also We complaining MSR been that volatility.

things which you are still the time. got debt mark is well question camp and Ditech, these You've over manage that all have in and

but cause out also would competition up that it, bodies of kind lot of So dark, and interesting What it's you to brighten may MSR a there, off opportunities. are there's a get it's there some your I large lot bleak, there's topple the acquisition edge of view?

Sandro DiNello

is view my dark. think I don't Well

things about I think I'm pretty and optimistic overall. actually

of said. the tailwind I mortgage of has little a as think a -- I got hint a bit some business

I So don't... look

Henry Coffey

the That's in stop. I going will brighten The fabulous banking up It's to shape. not It great, your meant. just is stuff banking is view stuff mortgage. what on

Sandro DiNello

ago year business. mortgage thrilled to Compared I'm about the a Henry,

level. smarter trillion, believe adjust long to to hard become so I cause and to capacity in the I don't light trillion look going us to So let's market that's to at there's just adjustments in $X.X come that mortgage this to We're going end continue -- But do market. $X from business light think the the isn't a it gradually and I volatile. isn't come allow our that drive will some farther it's higher the that look I see anything But a of will pricing continue. tunnel, think going feel way going it's do three more, market. I way trillion put this don't to margin will $X.X in that but I to and increase just will it it's mean, that forward. that months than a

would've March, If that to rally you me see said we would going way, if I February, it no came. but in asked have in were

time in that us know have it And this quickly. been that can so those change long a business of

especially about to is different originators Flagstar and cut against think quickly any cost volume we adjust other we almost I what's increases non-bank the originators, in quickly.

because us saw cost so, our And seeing last we see into you back the cost you're activity increasing. and projection now the year, year this cut come

So just positive business. business more it's and are economy not we're don't that is. driving what the you any the an is than see so housing -- And in where we how just it. can be being about mortgage I

Henry Coffey

You sorry on. go don't I'm the see --

Lee Smith

Sorry, and we've if profitable mortgage to mean, all mean origination chase got think the Henry. the we business variable we scale a our a I won't I wanted channels, side, we're cost you want model disciplined, of said, have exactly in six prize, Sandro we model. just in. I jump on what

heard we side So that origination Kristy maintain say you've always discipline and the on that.

hedge asset, MSR operationally. you understand it we like wouldn't We that the of We protect believe. terms In it.

a which generate to we subservicing. returns record, return generated the sell allows track created our QX. MSR, then, We at the good and subservicing in look retain it. you business, us we've the And If X.X% on

successful mortgage So non-bank different be that model a think model. about any can I in that's what's discipline the environment, our and we've created a and versus model

Henry Coffey

independent, I agree to a some public how that but not mean operators really their risk. of and watching know these don't manage MSR self-implode, regional No, bunch no. banks I'm watching to of I'm completely. I

they're I going complaining because So quite down. think about are rates now, it

those subservicing the two separately? both in details GAAP, disclosure public the or unit. reported as that are subservicing MSR your Speaking your still the on revenues filings servicing well of revenues business you and standalone have business a disclosing of your as servicing started Does kind as include

Jim Ciroli

we a and or as then is mortgage that's treated segment whether unrelated The for servicing is MSRs Henry, in a segment portfolio this the So, carry mortgage third-party by that's segment, MSRs Jim. you a the held our outside portfolio It's the by whether MSR held holds of servicer, of that's that segment being of MSRs servicing an services for when It's of company and subserviced look kind financials, itself and everything But no basically everything by like treating the Flagstar. servicing Flagstar as to it's just it both others. independent at that's treating for them. itself.

way. intersegment there, the so there And some that's are but revenues best

sell to decides MSRs, somebody servicing by It's is because held Flagstar by mortgage else. the longer MSR if some impact held is no Flagstar's the business to that unaffected, business. So

Lee Smith

As those subservicing loans. long retain we as on

Jim Ciroli

Yeah. Right, right.

Henry Coffey

of I likely basis to of you bottom will terms could you of Can time? think what and you like give revenue Maybe in XYZ the you points over sense profitability business units of that us about gain some that so in look line. know the mentioned talk that servicing equals much cost?

Sandro DiNello

Yeah. something can It think we is about.

we haven't We looked but disclosed think way, Jim or about. that maybe something that's it can

Jim Ciroli

think me Let about it.

Henry Coffey

risk business, It's that were your hedging strong don't have notable this quarter. very No. a of to capacity number banks manage and the

great your Thanks comments. all So, for quarter.

Lee Smith

Thanks, Henry.

Jim Ciroli

Henry. Thanks,

Sandro DiNello

Henry. Thanks,

Operator

Please follow-up a go Piper take question now will Kevin from We from Barker ahead. Jaffray.

Kevin Barker

as ratios out I capital something when your just more ratio primarily the capital TCE front. factor to, focused constraining a or returning of but quick you're regulatory had shareholders, do planning manage a capital most or you're planning? question your to Obviously, capital on you on to consider

Jim Ciroli

capital Kevin, are we manage it's something we regulatory watch. what ratios The to though.

we're the cognizant regulatory in the but the And balance it where at to say, so to I'd when managing, it TCE, we of risks look capital relative we're really ratios. our is sheet,

although is it's think that TCE for purpose measure to and a think I than much CETX, be the may shortcuts I easier CETX better TCE, follow.

Kevin Barker

Okay. All right. Thanks, Jim.

Operator

for are will DiNello there or I closing remarks. Mr. no question additional back As call the now further any signals, turn to

Sandro DiNello

Quena, and our everyone for you, thanks for another Thank Flagstar. interest was company. quarter This your in to good

and return I'm are doing our growth as to strong months. equity we and And of quality by over volatility improve solid performance rate current market conditions, produce we I in economic going last credit this maintaining feel our evidenced regardless continue consistent capital. mortgage while fluctuations, XX tangible and interest good position, earnings the on forward. optimistic can our about We

a continue from hint in time, tailwind servicing long almost confidence have annuity business like, mortgage We and earnings of first for of becoming strong ability to time the have are of a we the the to lot in deliver banking in a our results.

again performance, support. more ways and forward, families your front will identifying to Going shareholders for your the Thanks get and thanks to outstanding be to center. Flagstar for our efficient

Operator

will Thank and participation, you That ladies your today's gentlemen. conclude call. for

now may disconnect. You

Flagstar Bancorp (FBC) 23 Apr 192019 Q1 Earnings call transcript