FBC - Earnings call transcript Q2 2019

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Operator

Please standby, we're about to begin. Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Flagstar Bank Second Quarter 2019 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Ken Schellenberg. sir. ahead, go Please

Ken Schellenberg

and earnings Welcome call. Paula, second the quarter XXXX good you, to morning. Flagstar Thank

available at Before and that to during earnings are today's our begin, remind second our we I'd forward-looking subject quarter release like you that call and statements also are I uncertainty. would flagstar.com. to any mention on like website made presentation risks to

and change on in SEC. materially could file our our release, Slide our of that assumptions on described current XX-K Factors are Form presentation, X today's press reports and in XXXX forward-looking subsequent the with

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

of this call. refer should You part to these as documents

to the Sandro turn that, And call Chief Officer. like with our DiNello, I'd to Executive and President over now

Sandro DiNello

everyone morning us I Thank to you Ken. join listening you, to the today. taking in. time Good appreciate

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

the segments I'll to questions. strategic our financial call As high-level up the the of a start for and I'll quarter. for will follow second performance guidance Lee with turn results. line the of Jim over Then business usual, initiatives, for review the by call for our view details the quarter our I'm before to going providing on conclude a opening with and

and effective produce combining was with second our revenue Overall, positive growth quarter to pleased for the management with I operating leverage. results expense top-line

this quarter in diluted touch loan we quarter which million the $XX of the concern $X.XX million I by previous down the but exceeded income share will was our our achieved Financial disclosed quarter, first in of more Well XX-Q. originator per same from later. $XX as matter we diluted driven XX% net a Live on or $X.XX last loans write-down or commercial adjusted in per mortgage share the a Our year

increase mostly commission expenses especially to originations is to important are growing to where originations. channel directly during note nice that the in It's tied a in mortgage retail the expenses quarter in bump non-interest our attributable

business the We've on how In It's us drop this model in presented quarter the an to demonstrated action. also unique interest put in flexible which our business margins profitable pressure again significantly an in a rates once helped quarter. case, that example model an solid works. produce mortgage interest revenues increase opportunity unexpected of

the an $XX as Well after were event this came there credit, loans conducted operations to on the taken to by Live we circumstances that to understatement enforcement, reoccurrence say SEC loan like was been much experienced ceased Though We've rigorous reported that have commercial had as ongoing not about all. to expand worth would we of as us. the consistently reduce an a collateral of this unusual in around extremely a every To and likelihood happened charge-off evidenced at law the they million be and learn the investigations, step I'm some postmortem disappointed this. a supporting it and partial unexpectedly

bankruptcy details able to proceedings. we this be you and not pursuing that remedies actively within course more Additionally, legal are time. both means may all outside of we provide This with

with utilization proactive was This mortgage interest again XX% management from we compared story. seasonally in by banking driven coupled rates a grew have benefited higher increase Turning in led quarter lending Net the market. assets. income to growth solid exceptional earning once warehouse a by we to as business, our growth XX% the of prior

have on the fostered in estate over and our We years. teams consumer the commercial industrial, growth of and commercial continue portfolio our real stable lending to relationships see strength

While we credit due thin a have pressure number we and passed on spreads. on to any of our have sizable we not compromised standards seen have opportunities of yields,

Our solidifying our servicing as to segment contribution in position space. key a to keeps player this quarter continues each grow its our growing bottom-line nicely and

delivered expand discipline quarter expanding outstanding sale as volume Our on to mortgage margin over saw XX in did they of origination an excellent and mortgage in grow job an and volume team the on carefully second opportunities that focused quarter. pricing capacity. The our points compared managing spike improved we into maintained basis Gain and margin. March team to margins first carried while optimizing identifying and the quarter

quarter. increase from in industry all put $X.X is to revenue mortgage the last rose billion, XX% locks this of result a leading XX%. together, you Fallout-adjusted $XX an When quarter-over-quarter increase a million

capacity to Quality in our believe increased to adjusted has only size grow the of a total the slightly have of backbone our we've a origination mortgage continue most consistency we see we well become as do part, for is positions up XXXX overall and as rationale. customer for terms the for projection we The strong there service that of in ahead, pricing a did Looking if as relationships, and shaping of We year originations commitment revenue of projected leverage more QX. be can key competitive us will This advantage. EBIT we the to market. service.

without our that business ability model, In of earnings consistently highlighted risk. closing, significant a a expectations quarter meet primary our adding it was to strength

All and critical continue on leverage that my depending of our us comments. conditions and our help can earnings. That consistent anyone to deliver market are business concludes to durable segments we success

let Now to Jim. over turn me it

Jim Ciroli

Thanks, Sandro.

million income $XX this charge-off. the $XX Turning compared quarter to performance last share of diluted $XX adjusted to This million $X.XX per million even diluted or $X.XX share or net per a with Slide adjusted X, our income quarter. net was

strong leverage This XX% quarter of was growth by highlighted revenue leading to X%. of operating

quarter the higher results interest revenue. of net were a growth led Our mortgage income and by strong in level for

detail we We earnings X. will discuss when in Slide to more get

Live million the Well quarter $XX by loan discussed Asset quality charge-offs negatively earlier. impacted this

non-performing points. As XX loan result, our a ratio basis increased

of by reserves substandard our three portfolio. driven the charge-offs our loan by the mostly the Additionally, continued million of of payoff levels and full we rest low loans due to also in $XX reduced

the Our charge-off get the period the loan more the portfolio when in reserve quality. asset warehouse will growth we allowance of to reduction, details X.X% quarter, loan decreased provide reflecting activity end balances. and for strong to coverage I

Expenses $XX with also scaled origination increase. in nicely this drove only of quarter showing increase growth revenues. volumes the XX% and XX% reacted Mortgage million

in lower based of warehouse no warehouse last capital to XX.X% improve will been the $X little XX would more take quarter, at And ratio were Capital growth, to basis our relatively and ratios June risk we of flat capital attributed capital ratio On have loan This our this simplification while total later. capital XX. billion loans loan our will have quarter us credit those risk. without that warehouse extensive loan growth. this by a points believe through analysis basis was

interest to and quarter million the statement. the last into $XX time. XX% year's first higher fourth grew which Net income Slide X surpassed $XXX So deeper to gain and million million excluding for the the for second in a than income quarter million quarter's dive turn let's $XX second quarter is $XXX hedge

in growth in reflect average primarily XX% earning commercial led by results average loans. increase a assets The X%

earning more growth, loan discuss the On of next slide. We'll the basis in relatively this net margin assets the flat. was interest

of reflects DOJ $XX increased reduction million reduced payments from liability settlement value timing income $XXX million. to related lower longer the likelihood value settlement The be million in the Non-interest that The of the liability. this and to for $XX will quarter the any a fair agreement. benefited made

$XX $XXX and million. million XX% fees to DOJ non-interest and increased $XX income million. benefit, The as second quarter led or was million the charges Excluding revenues activity $X by increased increased mortgage-related mortgage increase loan

team Our gain sale on by prior from of increase a channels sales volumes. represented at more The basis increase targeted higher sales attractive margin our margin improved as gain revenue million gain of or on revenue an was of on XX% quarter. prices XX point million $XX sale chasing in the instead $XX driven mortgage

fallout-adjusted locks by XX% quarter. for Additionally, increased the

the due prepay rates expect, decreased million to assets $X mortgage by return on you'd As lower servicing impacting speeds. the

the treasury quarter. job position volatility did an exemplary in our in hedging Our the despite team MSR

to million of able to In deliver a impact return that still we million fact we and the negative factors, our impact in to quarter rates the and had a X%. of hedge $XX and MSR were $XX of changes due during other position

$X saw significant decreased which XX% custodial driven for balances quarter. income later. growth million administration or an Loan by cover deposits on paid the increase I'll interest average the custodial in in increase

our prior volume driven Non-interest expense the business. with levels channel. The shift and to as quarter of were was was The commissions, and of related compensation expense prior expenses $XXX flat million categories scalability up mortgage due increase to demonstrating retail such toward mix remaining loan from $XX primarily processing the higher a million, relatively the production quarter.

of that I'd in for rate also at a in lower will increased quarter the than tax the benefit or XX% rate be that note tax expect the Nonetheless, as rate XX%. quarter. first which slightly was we effective DOJ full-year our to the our our effective result

interest the Higher acquired charge-off losses These have that have a came that cleanup some higher charges as this the that higher well quarter and a this with rate level Live costs smaller with therefore rate. of of as acquisition. coming a loans represent the charge-offs branch higher discussed the quarter acquisition. unsecured with balance Well loans Wells of from we portfolio Fargo The

X a couple which so let's our of average this our balance to to in We'll quarter. highlights dive move Slide credit sheet slides, quality

to We loans for interest the remaining investment and warehouse the assets, loans loans portfolio. the those In growth the by indirect Average the of in investment especially average quarter increase held for flat held net and across deposits warehouse in quality loans portfolios. well-balanced quarter. keeping investment billion margin, opportunities or driven margin loan core grew while an in high our for some non-auto portfolio more in the last C&I saw $X.X

thought there spreads quarter additional $XXX lending didn't narrow. fact as warehouse would in opportunities over we take of we that million In the were the

acquired we in seasonally average XXXX and warehouse experiencing in we productive Growth to leveraging actions income loans grow net the while lines acquisition warehouse the volume. took also with early higher in interest

business growth reflects million the non-auto indirect increased XX% quarter. or the The of to growth balances compared loan $XXX first average as the continued

the yielding the divaricating actions a volume Also quarter, this we and higher decreased loans the assets for expected increase loan securities. sale managed would in origination support to considering during the Both be portfolio to level taken were and quarter's lower held-for-sale available growth. we than

increased for higher portfolio. or and C&IS $X.X higher rose a deposits of growth. higher deposits Average growth driven The in prepayments by our XX% or underlying from XX% deposits. million community servicing seasonally and custodial $XXX loan billion banking levels quarter number serviced in accounts a the custodial of the Average level

Total quarter. or X% the retail deposits for million grew $XXX

per value increased book to to $X.XX tangible share. our per Finally share $XX.XX

to on quality X. let's So asset turn Slide

Well the Live estimates during XX, the As noted the was by $XX million earlier the that At down charged quarter. quarter the is been place to charged underlying of partially has value our in of loan reflecting status loan non-accrual collateral. impacted significantly off to June this

We take once action are we at possession. of expect to collateral appropriate most the some point third of during possession evaluating the and we course take quarter the

Excluding XX days accruing delinquent and million the Well, $X Early delinquencies Live to an level the stage impact Only loans XX quarter. strong. delinquencies of and quality negligible. last still remains June loan over portfolio of total at be improvement credit in of continue were

XX, June our reflects this loans. held-for-investment coverage allowance of I'd X.X% total that our loans. in held-for-investment loans out warehouse grew point At of XX% coverage

control are fully no loans portfolio loss as collateral. secured little the loan credit to has warehouse on Our we these and hand

warehouse given in stand June our relatively at Excluding coverage loans X.X% credit still clean would held-for-investment industry. XXth loans ratio for strong at history; the allowance relatively loss denominator their

overall we as adoption. implementing to we and quarter We toward our intend impact said, ratio as comprehensive are up from this reduction set continue for in might being the get believe coverage that to we impacted With CECL has any our bank update a don't provide whatever closer events as work to mid-sized CECL's including well that more the view be.

XX over the XX. simplification risk June to represents $XXX of capital XX. million capital cushion was total XX.X% Turning based to regulations points. at in minimum basis ratio Final QX which This capitalized. level Capital a remains needed effect total this increase The considered will by well XXXX capital be of solid. take ratio Slide of

during of mentioned has our by as XX I risk-based total points. ratio quarter. capital billion earlier our capital reduced the loan we $X risk-based factor As This growth ratio basis alone had warehouse declined

scenario buffer the we from flexibility to are economic Our the capital well-capitalized buffer combined in would the our and have the target our by loan stress all range, operating the size expect CECL above with in year, warehouse second informed strategic expectation of June with of our of XX. very warehouse levels the tests. level losses stress and Due the low the remain comfortable even our at balances we that status half portfolio loan with adverse that trying to

Our XX to basis XX X% operating basis was upper X%. at ratio us June XX by the last this will of the total quarter. points ratio end leverage put of simplification will range at Capital X.X% points down from target increase which

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

Lee Smith

Thanks, and Jim, morning good everyone.

with on how note and pleased during to and given margin rate saw in very healthy earnings revenue treasury gain We're we our the adjusted we loss mortgage the as maximize both quickly from increases pivoted quarter quarter-over-quarter. flat lower business sale XX-year

we and business commercial as million X% acquired impressive or balances little average $X.X channels. XX% warehouse billion increased is experienced over paying growth as warehouse year consumer a in a The positive we $XXX an almost earning lending all ago lending or increase dividends we Average commendable quarter-over-quarter. assets a

$X.X deposits the of X stable sub-servicing now a Average which million earnings. another sub-servicer provides and almost with country billion largest XX% us increased serve we and in fifth or the source single are loans

with disappointed the quarter commercial operations. loan during of partial the charge-off obviously after unexpectedly and they We're million $XX abruptly Well Live ceased

loan is in situation something a this that that and for portfolio the deterioration collateral confident our are was book. commercial we in reflective this We elsewhere not not have underlying and unique of remaining

as our rate hedge We different with a billion again flexibility assets in meaning act generate almost where demonstrated business natural once the earnings interest model we the and environment. ended any the $XX businesses strong can quarter of average in have

estate turn will some and during commercial for and Operating key operating and Slide segments I from two to or quarter metrics the Banking highlights was average now evenly the between outline the the in million of $XXX include Please XX. real major increased industrial Community the second our of business commercial portfolios. each quarter. the growth found X% loans segment

of $XXX the our and increased portfolio. to held-for-investment HELOCs quality mortgage loans $XXX warehouse we consumer loans a as X% has to million or high added Average our increased which due the increased quarter in lending activity remarkable growth. quarter acquisition the but mortgages loans in helped million bolster non-auto by helped the indirect Average industry also in or XX% warehouse first-lien the lending this business

continue relationship believe, consumer warehouse we organic together ability and with quality originate going and to consumer, to both high originate our Given loan balances commercial, commercial approach, loans forward. our based we will

given or escrow retail deposits principal Average the interest increased during $XXX $XXX million increased environment or therefore of deposits the X% quarter, and XX% and while to activity balances. refinance and and loans leading high rate increasing number higher million the sub-serviced custodial low

it satisfied performance as very power bank. further Bank with the continues earnings We're grow the to our of of Community diversify the and

points fall-out XX to basis billion XX points. for basis to the volume turn rose on XX. XX% or business adjusted loan origination $X.X sale Please Slide the increased XX% Operating highlights quarter-over-quarter include net gain mortgage while margin lock to

million a million on QX. QX increased $XX gain sale million versus to in result in $XX As $XX revenues

volume to and business. both The fall-out XX-year lock due treasury to capacity we in mortgage manoeuvre adjusted optimize quickly able quarter-over-quarter volume note from seasonally to increase and higher the in order were was expand rate and earnings our lower

margins that discipline We our It's on to to points most quarter-over-quarter. also the XX% on focused approach ensure pricing gain we basis enabled generating this in business profitable increase to maintained channels. that disciplined XX us sale

providing to We remain lower from our the capacity in to mortgage in environment pricing maximize business, disciplined customers. earnings take management service advantage to will continue this rate while excellent our of and order and

we are making servicing. segment March on of for the which country service Servicing in operating the sub-service Finance. sub-servicer loans largest XX or Mortgage others, Slide or include, XXX,XXX for Inside of the Mortgage XXX,XXX over to sub-serviced approximately XX% for XX highlights Moving Quarterly fifth as us

one growing during loan increased have and or fastest XX sub-serviced have of period. the sub-services number the in industry We months that XXX,XXX or last the been in the serviced by XX% of

and To-date or offerings MSR sub-service capacity to recapture solutions ancillary X financing well services such loans service as provide as we the have million owners. to as

announced currently recently third-party. the Florida, mortgage managed September. is transaction close end The supporting would We servicing loans the we delinquent in to acquiring by scheduled operation default exclusively is at our seriously be that Jacksonville, of which

infrastructure it our growth providing our risk Flagstar and strengthen to to compliance monitoring clients back rapid and the further With capabilities oversight offer. in-house. of industry-leading sub-servicing the sense and makes our default This has side while portfolio, the the acquisition operation on benefits bring leverages

$X.X custodial as held increase continue million We're also over we've the or months. loan help pleased our an move with you quarter-over-quarter. throughout of will deposits how XX forward. flourish our to these grown last us The very deposits average We believe I we quarter, XX% fund the see business of loans billion custodial growth. $XXX generate sub-servicing

dynamic to Slide DOJ in due million or of cost particularly to business because XX% model Moving million our of of and or to led $XX in increased on operating to as with the on structure mortgage expense XX% million opportunities allowed benefit. or of XX The This high quarter-over-quarter the being variable same excluding mortgage us $XX expenses the majority the quarter-over-quarter during increase increase market period increased X% revenues expenses business. while million production. was positive activity the to the XX% mortgage our of $XX in non-interest million QX leverage $XX in non-interest advantage take increase $XXX

was for prior improvement from DOJ excluding ratio the which the XX% of efficiency X% the benefit was adjusted quarter. Our second an quarter

costs business quarter, the increased while associated If business increased down $X and meaning other lines revenues costs million gain increased fees related loan sale it million million. $XX further, revenues on you million this $XX to in increased from $XX break charges and and

be all deliberate quickly been million quarter. have $XXX take A We made and being pivoted environment we expenses the solid to to The million slight our $XXX months. advantage in value. related of volume. during shareholder increased with is of lower non-interest the estimate earnings thoughtful a It's investment three mortgage decisions mortgage efficiently and business. have cost increase and benefited point will rate We and particularly production the the bank that expense created third between

to growth sub-servicing our consistent We saw loan and with consumer bringing and income non-interest commercial growth our strong to earnings. deposit fee excellent business continues together prosper

business model and and our value robust to our we're move flexible Given by believe forward. to as continue add well-positioned for infrastructure, diversified we supported compliance risk our shareholders we

to I'll that, back hand it With Sandro.

Sandro DiNello

Thank you, Lee.

I'm with going prepared answers. to then and for some close guidance remarks and QX the our call for open questions

turn Slide XX. Please to

improve sale We X% expect increase be income loan to to interest approximately while XX% slightly. will or gain margin anticipated decline XX%. net on interest net income The flat will

expect decline slightly. We on XX%. other income non-interest to MSR expected the to decline to return All the X% is

between be rate As we million tax non-interest to Lee and $XXX anticipate be to and we noted, $XXX expect expenses XX%. effective the million

prepared concludes This our remarks.

for We will now open listeners. the from questions our call

to I So Paula. call the will over turn

Operator

Instructions]. Thank you. [Operator

from We'll first with Siefers question Scott O'Neill. take our Sandler

Sandro DiNello

Scott. morning, Good

Scott Siefers

what words sale of about and had on not on you continue other kinds thanks basically talk my trends Could in question. on if the seeing is are really, a regarding you could then by mix state gain little how the originations, question is mix on just in to mix a improvement and strong appreciate but this much if first you on context just it the of guess left. sort curious improved of the just sales Hey, margins. you taking improved of quarter put margins? the the for enrich I gain about channel really you I steady originations mean

Sandro DiNello

areas, but is margin I I said because for as have that to seen production as has that well than we reaction on Scott second volume. just comments opposed very all in will our that my to really that in work optimizing I And think more we give we've I a us. think some focused about think in others. is Kristy prepared the optimizing improvement And our proven think to

mortgage our increased revenue XX% we said by I've quarter-over-quarter. As

I other pretty compares favorably mortgage think to that large originators.

Kristy Fercho

big story I What is came mix add in would really Scott. the the in Yes, bulk.

originations volume terms more that the the coming day saw the you we channel our were seeing easily and were pipe in choosing discipline one we bulk, to margins billion way of both in do a in the in so we as prepared the maintained retail there And remarks. said just for where

It that maximize take was volume and the we not So margin the discipline volume certainly for take wanted where volume to around is and just sake. there.

Jim Ciroli

Scott, I'll just And add.

increased just growth at you just broker, volume and non-del, that's Sandro's If to where multiple actually correspondent, channels QX mean and point, look margin going the retail saw I over QX, in business are the the saw we the mean expansion. the which from particularly back because quarter-over-quarter. getting channels higher margin focused I and why margin is we we those channels much those on so

Sandro DiNello

most point more important we than what real and on revenue is revenue I is the with. margin were growth the what volume focused pleased But really that's was or

Scott Siefers

perfect. that's you Thank Yes, guys color. for the

well Let to what's or question I gears was a maybe gives it's comfort about beginning. I on comment at secured, the me Well there valuation that the what some the collateral two switch situation left know guess Live you just and

color so good maybe to it was a to little what's there's at any this whack speak? or just question on conservative feel additional very the apple, if or like risk you a if left, if So more

Sandro DiNello

we've comfortable where the Yes, valued with extremely we feel collateral.

other And but for legal be then resolution we similar recovery. to asset. the opportunities so, confident as where course the of we're And sure process anything you can't perhaps marked ultimate that through there's say will we've the for go

Operator

we'll Moving from KBW. on, George to go Bose

Sandro DiNello

Hi, Bose.

Bose George

Hi, good morning.

or sale, the Just on increase margins gain by the or quarter driven for the a both? next is follow-up for on volumes guidance

Sandro DiNello

hard it's of over alone both. to little know I you months. let a Probably But happen know, think volume. on tomorrow Bose, the next But never so going to three what's margin more bit right, than

where opportunity is I adjust emphasize the is. we'll think what I'd like to to

to best can where swift we'll as that do. opportunity we make I good there's we've and a margin on but we more volume able brings quarter-over-quarter decisions at opportunity for think is. us the been revenue more so And that's if think show And what narrow net

Bose George

on great. rate drivers talk you or are the to guidance then cuts that can the interest the switching rate and Thanks. margin, work? net two Okay you does about -- there And how just incorporating the

Sandro DiNello

Well, definitely at our the on noted seeing on we in comments then the pressure and book. yields cost, commercial On yield the prepared side side let's look right? as we're yield

that's concerned not And but react from a so the to next going the funds decline week see that the about get Fed point only adjustable from adjust then loans going if how we're with pretty press you competition basis course deposit XX in how then of you're just all sure and quickly cost to of to quickly match you'd adjust decline. never for the know can you rate up

we're that. on So little cautious

you how I Jim, so And want to add that's question. answer that? would I to think your

Jim Ciroli

Yes. we sensitivity slightly on When what curve the which our certainty us. said is then at the the with cut well sensitive. you think that we've it point the And we is go in are short cut a now terms focus asset Sandro The given curve managing basis rate goal right slight reflects deposit our costs. Congress of said next short-term, quarter guidance you in the but what chance almost defines tells what of week, asset the just market of for end see as the XX small that I

to guide down in costs we'll we NIM. know manage do get on that a and what flat and way thoughtful out deposit to those very deliberate we'll and have maintain we So to

Sandro DiNello

margin we that rate, past our and one add three rates the saw of quarter that this narrowing the months. business the very pleased only basis point I say the reacted Bose pressures over I'd given in was last were the interest interest way that all

well. margin confident the that can manage pretty I'm So we reasonably

Bose George

fee And servicing average year. servicing Thanks. last one the just up bit just has your gone quite the okay Okay. on more over fee, a

curious else Just just are better is you excess or holding servicing on shift going anything or there getting there? mix execution, more

JimCiroli

the more positive having on MSR that's on holding holding G&A a asset, we're then we see. what a impact we're Yes, definitely the and carry bigger that's and

Sandro DiNello

about comments good well managed a Jim team did how Bose, his in investment. our talking Yes, that job

know you a As of do warehouse lending. we lot

in only And non-bank remarkable. $X environment, So see mortgage MSR our don't out And we we're is the a to of of companies. see lot MSR. the a their value other pretty hedge companies last month and in of this deterioration million course the

strong to And our increasing is shows day-to-day but basis I rates. keep think decreasing on how despite that unchanged interest a it or team we've pretty that able managing MSR been much

JimCiroli

that to that track XXXX. add to back back the record goes goes I'd to team

Operator

Up next we with have Moss Riley B. Steve FBR.

Sandro DiNello

Good morning, Steve.

Steve Moss

guess following the Good with or asset asset Well you morning. retain wondering to I on just it? Live here, are liquidate regard just thoughts your the what whether up

Sandro DiNello

I'm speculate. I to if where not is marked. on don't market the earlier collateral can't, I the what about It Well own have too as know I is. it efficient most I the said depends a have can't that's we the question, concerned the long-term but way But what to opportunity to desire don't We best necessarily that that's go do. we'll

add place anything going I it. able Jim, reasonably well. think to it to good you be work to think And we're through that? to a with we're I in that want

JimCiroli

collateral. evaluate in and bring help collateral; was pricing strategy I'd us Yes, that add consultants the did of our evaluate what is to we what to some

So consultant Sandro's was that by to that able really about informed the and I'd that say what comments with inform were pricing. collateral respect us to

Steve Moss

if quarter, then what here, your in pricing? digging perhaps Okay. funding do guess this do points deposit further and XX we particular see a for little expect deposit And costs costs on you we basis I just

Sandro DiNello

for base been don't you And that has many, for wait always others move, the move managing did deposit I years. on to manage Steve, Well in. many I've as down, been know may or philosophy my you here you the way

in that's our of rate deposit So adjustment we aggressive will be in our history.

that our we've Now against funding. got need balance to for

tell it Fed we're about lose cautious going we can that if basis the either. points, by overly drops but I you rates XX XX deposit be to not So

going to I deal really important, the way be to a so by with is cost Jim aggressive think and not the that important be deposit to being managing And on margin. going as side, deposit more that. the we're to do the sensitive managing we're asset afraid said, touch

Jim Ciroli

It's are look see think that. loan down commercial all balance when that of to assets you I the our reprice see Steve; you'll sheet, easy to the at going portfolio.

at the you at sub-servicer interest look deposits. where the FHLB, pay look we you on If at custodial we're the

we something were it, You whole rate priced of and to degree there's manage have cutting to of the host is back. see curve within preferred, certainly sensitivity that asset look the manage whatever we to that end trust liability, we what liability the of down at to our short ability feel really in liabilities also a terms

Steve Moss

deposits paid my custodial next income. is to is there an is those actually on offset administration question. interest Jim, loan The

of think item? we will. translate line indexed income how perhaps How fee thinking, kind are if guys? how And that you those deposits about you for Just that do into

Jim Ciroli

a elaborate. a We've the that the new a given to given page page, turn it XX Slide in Lee I before and it’s ever actually give I'll Appendix information, lot you think will deck, to you over to more we've

Lee Smith

on parties sub-servicing think Yes, deposit you're sub-servicing the Flagstar so servicing the the interest exactly XX% right, the amounts loan escrow shown to fees owners -- MSR for benefit is of I remember those Steve. portfolio, in most less interest receives income. from paid with and The it includes overall

do the from we've see why servicing on up that, pre-tax is loans operating deck profitability million we to if profit matched servicing from profitability slide is where a this we which you we expense as $X of million isn't just it point, rules look of the interest match from are to $X slide And for non-GAAP point and XX you income XXX,XXX at deposits. So Page Jim's which have. of achieving new escrow GAAP interest included every view, can

JimCiroli

look And it's how in noted But interesting deposits. the you related page, at deposits billion look the comments, if quarter. Steve, to has quarter-over-quarter custodial interest as to custodial prepared the was I the grown improved that expense $X last think from

that there's a much because the of loans part of So freshly loans a of quarter-over-quarter. in serviced of prepayment lot and we large didn't change really number because

cost tied of those completely as efficient It of all all so billion for So LIBOR decline LIBOR. LIBOR ranges is point the deposit, plus is that declines, from important that that's little but something funding. deposits and minus, to so viewing immediately the it's LIBOR to But the LIBOR. tied

Operator

Barker Kevin on, we to go Moving Jaffray. with Piper will

Sandro DiNello

Hi, Kevin.

Kevin Barker

Good morning.

to or going then buybacks, how back Just balance sheet back your very it quarter the priorities looks of little where on second stands today in forward going that comments especially and capital of the share ratio the given you the capital put paused second made like amount Jim the the quarter? look bought on some and and you in the growth

JimCiroli

just let's buyback. the back come share Well, to

us work with quarter. immediate -- of recall If we beginning mid-second that an work have February we transaction And buyback. of and happens January settle-up an accelerated all we there buyback, And for share and bank repurchase. another which we was kind investment execute is you with later executed we said then a

So February settle-up done really think buyback, share the QX. we've that in with way we have a you're it a come from that's what small about we seeing through

total of we $XX authorization. our used So million

through come capital that because earnings and also deflates, up over the sheet you is the and increase, of I ratios the end it that as us, don't back look that to my capital billion also of possible balance see risk half we when worth will the because from back ratios us, quarters. meeting of loan of at loss. we year the quarter bothers next second at concerns $X inflation -- the the accumulation experience and the couple down capital, balance go not at which have warehouse you'll But -- the that think something just that of of sheet of you the will so just about come when remarks, look I the prepared we

Sandro DiNello

payment to of the from that's a to return our making that we but couple hurdle a the us closely passed point very why a books the the view that put use stating assets on implications on were get heard capital from capital. remarks and not bring managing next your of we earnings of sure mention And few But of the the we point that that to opportunities prepared we point given that quite Kevin year. couldn't view. And comfortable sense capital you in us we’re makes the credit

Kevin Barker

months quarter Okay. seasonal a the your for And a third gave quarter your held-for-investment into picked slower the as guidance look second up bit and and but then obviously bit quite picked you in warehouse the you quite up during the loans like do sustain through the fourth what you the balances average or feel of this as quarters first quarter, loan as in and seasonality move do given we could point? far current you you balance as at your expect sheet those balance

Sandro DiNello

X%. net only to income going grow guidance we was quarter, we about and at think interest And right. our Well third speaking sit to the that look and

that over sheet there significant the in projected suggest to next So going balance that isn't be growth quarter. the would

see there going So decline comment. we got growth pass while not we’re some might might see and to we we some that and here, to

Kevin Barker

the shape yield Would the first be you going sustain curve the NII to quarter expect this able especially into at of point? fourth that to and given

Sandro DiNello

don't on further out. again to Well I anything want speculate

to on interest the can't If first to as own performance, that. you we're look your income at But to perform our historically I can and net come how in fourth you able comment conclusions quarter.

Operator

And Henry Coffey with Wedbush has our question. next

Sandro DiNello

morning. Good

Henry Coffey

Thank the good warehouse Good machine to you everyone. It's decline. when we my see take -- your of look mortgage question. collateral rate having how the interesting Yes, advantage at behind you're taking the the turn of When look -- kind at we to says for morning. press the mortgage issues loan on morning that with can you quickly

JimCiroli

correct me you second. one let Henry, just

Henry Coffey

Yes.

JimCiroli

a we warehouse That is loan; not warehouse have loan. did a

just explain. me Let

a completely off Well, warehouse We paid loan charge-offs. warehouse have or Live is the at loans loan, any was two without loss one

lies. marketable by loan secured which the other The securities where is was issue

Henry Coffey

Okay, got.

IO exposed obviously you I'm would that assume is take that would other going volatile or from call have a don't take pretty some accurate you correct. Mae had collateral were I Ginnie Live others so the When look remarks that problem that. that item. and collateral you credit you was -- Well, clarifying were collateralized; that loans IO for at Mae some the you that's that which I on is counting made to thanks --? on press Now says the of Ginnie to that the from it

JimCiroli

I Yes, had very clear issue different one do I’ve Maybe to is collateral that clarification to to clear the SEC it’s enforcement I said. conditions. also believe issue market charge-off We to law what I with a want from reference other all so about collateral problem -- related want do anything and we We you it the But But the any we that I to investigation. be don't made that. that. associated the not that that we're that with be thing. further. not want accurate. answers There's the the to believe do can't to something researching, experience market just say have a want just and to anything, that really comment I just on conditions.

Henry Coffey

we to to there's no you're better -- looking oh, saying approach telescope speak? here, business your need we overall you're happy at the your not So a telescope with oh, is so

JimCiroli

particular Yes, this given credit of uniqueness absolutely. the credit,

Now that and doesn’t to don’t deep but couldn't similar your ourselves that I into make mean it our sure that we than question inform answering done comfortable I'm look today something be operations we've did. and

Henry Coffey

Great. Thank you.

both talking includes a C of their a activity. from couple and kind and residential banks portion have commercial been look about development of other acquisition obviously in their The which A, of portfolio broader and thing D issues

you are that A, broad the market? D A, where market the lending -- mortgage thoughts sub-portion pretty You in C, that because view that is. overall business D on on strengths tone the on market. the your Are have a C, of weakness in of the seeing of scope business, What

Sandro DiNello

weakness let any I'll will that credit from perspective. Drew haven't a just we comment, to seen say whatsoever I begin

chime don't any Drew level that. delinquencies A, I know the D in to want you'd So have at C in we and but probably

Drew Ottaway

very seven we how add that monitor the top on. XX; top the business. of banked mix mean we really as of take XXX. to the way with of We concentration that grown banked collateral. It's well that and are collateral around collateral, of happy that we happy I'm book what take really I XX we've policies diversified. We we

So business. as concerns Sandro said, today we that book of with haven't any

think appreciation there an I is out think still price issue slowing. is affordability I but

there's So to business. to room that book of grow us we for continue think ample

Sandro DiNello

opportunities week every were loan The our space. committee come in, in opportunities have and almost new the seeing

Henry Coffey

even not maybe the the spectrum credit a that XXX, having Are trucks the the year; in low is end of to that's top builders builder builder credit your starved? view XX the at is that and very five or access homes

Drew Ottaway

five to regional overall don't I available bank think like do market happen that do more XX still bank credit. is that. significantly builders builders We than trucks. and large only by constrained houses the We

Operator

Chris go Compass Next we with to will Gamaitoni Point.

Sandro DiNello

Chris. Hi,

Chris Gamaitoni

that the value the on I exclusive inclusive one fair of everyone. DOJ points guidance change? non-interest clarify of all Hi income X% to other down Is or XX%. wanted to the

Sandro DiNello

from comments completely the Yes, made. DOJ many excluded that we've

Chris Gamaitoni

strength is balances. then growth of thoughts helpful. And XX% to that's of is any the HFI in it homebuilder about the Okay, core commercials, quarter-over-quarter. composition is there Is warehouse thinking of loans, on kind it X% greater that, that

drive kind get wondering in what's going to of Just to a the business of understanding that? better on

JimCiroli

you’re quarter past speaking -- the In QX

Kristy Fercho

guidance. Future

Chris Gamaitoni

future guidance. the No,

JimCiroli

about it's think going you area. doesn't see we what that's what I honestly just very every come in typically and similar is be one QX any to saw Yes, to quarter that in for Flagstar

increase team did one lot number such a comments, it we for touched Now and had the a there's we rates. Drew on his that of our in maximizing QX and finally that reasons was of warehouse job prepared big good unique really business utilization in a and

a really of the our requests non-auto year. C&I. nature on jumping us then produced also perspective and So very consumer overlying with opportunities it's quickly that loan grow bit good of allowed rates of and business and top book in that the that then little things that with of from the and reacting finance, is the once growth boom area But inside CRE And return against presented that quickly. this itself indirect the well continual really here performed CRE otherwise of refinance balanced that to to

do wouldn't other? have I to So expect you Drew, be different. much any it

Drew Ottaway

within book advantage think have warehouse I a we even over of warehouse commercial think able that's mix the we've a an mean had right. warehouse have this themselves. quarter, outsized advantages presented really we and jumped I great that and on consumer In good No, to customers. advantage we XXX with and or exactly and I been we take think I

CRE has a bolster or one in any helped the consumer in terms we of So But of that service, is frankly platforms the the much very those in continued last local core business well C&I book can and And acquisition same results. very national the thing. concentrated the diversification non-auto very, the businesses that it's had indirect. not we like year then type including diversified name you and see

Operator

Raymond Our next James. from question will with Tamayo Daniel come

Daniel Tamayo

kind is growth. on this the a So question of longer-term asset

in last growth had the obviously strong You've years Well's deposit several growth and excluding the asset branches. very even

you number forward talked about $X an three on growth billion kind years the here still thinking billion in achievable about you $X past -- a to are do kind basis? Is something of you is balance organic going or that I think two of you've long-term over now? to think how think sheet how

Sandro DiNello

the we've is growing have that and important growth per the to I the we're we we at be growth than meeting going achieved, forward company got careful growing that levels is But think capital that Well, higher levels. share. today have earnings return that given

of so there good to have and here have we're opportunities are great we that come be that Flagstar at the going only and to people in work not Southeast but because very, Michigan And have relationships across focused on the lots country. very

know don't satisfactory so we to capital. be that produce is our use And What going a support we we're to know will that return will the the the opportunities of opportunity. whether get

that probably positive But we us on in a because present we've forward little to past, the about them in going as more opportunities to be a advantage bit of done we'll take of levels. themselves cautious only we're So execute and going but the way. will that capital

Daniel Tamayo

then the deposit kind growth? XX% still into to has for capital which over loan of defining does the factor help that crept about how investment is kind you're threshold And here of thinking ratio for or loan how

Sandro DiNello

say capital. ratio approved you that the not Well, think or to considered agree. is defining threshold yes clearly would is but HFI not that think Jim, to I I capital you

Jim Ciroli

initiated and we buy a Yes, where ability right ratio stock. we of look ignore and improving runway we now, now at is said outlook we've our it has invested the dividend loan the I to Sandro that deposit have well, in we what the it's but a stability modified as from year. back think this those and earlier that of liquidity company the cognizant standpoint not We it capital

maybe we management capital if enable thing what's tools us, the like always and right that's of the have some us that think we that to the returns don't to seeing even we can sit do. it if presented the capital we're buy So on back back we

available tools us as we to So that got more we've on to manage return mix go-forward. equity

Operator

have follow-up Barker And we with Kevin from do Jaffray. Piper a

Kevin Barker

been answered, has thank question My you.

Sandro DiNello

Thanks, Kevin.

Operator

closing And you. Mr. or Sandro additional Thank any for DiNello comments. I'll now turn it back to

Sandro DiNello

loan from in DCB and results. Thanks, emerging Paula. completed our started with and our the in solid funded upswing Fargo focus And payoff efficiently strong our lending good new with it Wells a the All retail Santander particular, huge indirect our said such on channel, contributors. as warehouse that businesses through deposits as the we the plus mortgage this lending came contributions acquisitions strong and are of retail of important was a growth, and quarter non-auto performance we banking, and all board across including they commercial, quarter mortgage servicing,

deliver And of it you profile the bank together, you consistent earnings unique put pieces each and together to value. shareholder get all diverse other a that and work and many complement growth with long-term

in again Thanks shareholders the to quarter to for family you October. your time results forward for Flagstar your And In listen for our to I closing thanks again the today. look to outstanding taking thank reporting support. in third performance.

Operator

today's their We'd for participation. conclude thank conference. like And that everyone to does

now may disconnect. You

Flagstar Bancorp (FBC) 23 Jul 192019 Q2 Earnings call transcript