FBC - Earnings call transcript Q4 2019

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Operator

Good day, and welcome to the Flagstar Bank's Fourth Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kenneth Schellenberg. Please go ahead, sir.

Kenneth Schellenberg

good and Anna, you, morning. Thank Fourth Welcome Earnings XXXX to Flagstar Call. Quarter

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

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

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

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

Alessandro DiNello

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

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

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

fourth we history. quarter the what strong capping company's today, successful consider earlier our most produced reported in As perhaps earnings, I year off

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

our $X.XX share, adjusted the year, of net full XXXX $XXX by topping million we per or results income year full For for XX%. achieved diluted adjusted the

highlight, all past will quarter lines momentum have the we our prepared build fourth of the year. seen As our in results upon comments business our collective over

a revenue grow despite streams have volumes. mortgage by challenging and and built our us servicing characterized prior XXXX, managing to that our in sheet, As which narrowing by this and community provide did this businesses In a and quarters, optionality. bank lower market earnings costs in company balance growing we able business. was I've flexible by mortgage diverse margins aggressively to said were we We

we grew we XXXX, temper by due to this net on faced declining $X.XX but our mortgage $X.XX. pressure favorable the value to grew In full we on share compared per earnings book conditions our capitalizing to diluted and tangible share year able per The for interest XXXX result, in by market. rates, were margin the by

We of continue to way. mention continue taking to expansion pay our in mortgage people advantage The operate we that teams and correspondent the through bulk and broadly more in into off. not business beneficial a mortgage the into investments the made with market and technology, a disciplined acquisitions to in lift-outs

always, As volume to very industry-leading a our we margin seen producing time. long in while revenue maintain and service levels we haven't are managing

business lines. model. in our year and validate results of in of primary These strong X full performance was Our business all quarter our further fourth power the XXXX the

Our interest relationships leverage servicing in are segment, All strategically into all of perform that kind in produce mortgage team we income, positioned in economic business our relationships, high-quality well, operate off think heading continues to the to even focuses on it while scenarios. is which well uncertain XXXX. our I environments, adding grow scale, spread all, banking tapping we and rate built

natural that, interest When volatility are business to grow, mortgage our interest the that rate model continues of Meanwhile, net NIM. our quality NIM When business a great are to done hedge reduced servicing the rates profitability fluctuations. and quite rates interest adding provides and the profitable, business narrower income We business. in we've front margin the and narrowing, against our for is time. mortgage rising, in becomes check. all job fee think a also interest keeping center improves offsets more is with I offsetting doing falling and resilient It's credit us keep our earnings.

a ROEs, have volatility bit strong last result, experienced been and in years, over pretty As interest consistent our the quite and ROAs rates. a two we period a of quarter-by-quarter, which in

comments. my concludes That

around I'll numbers. Now to over detail the for more the turn Jim meeting

James Ciroli

Thanks, Sandro.

Turning to Slide X.

compares million $X per quarter income or last net the per $XX Our same income or of in quarter adjusted share quarter per was performance $XX year. $X.XX to million last the $XX share. this or share and million This $X.XX net

income full year, in share, the the a in earned earnings For per per we $X.XX $X.XX over of we share improvement net million, had adjusted $XXX XXXX. adjusted XX%

net points, Diving basis deeper million quarter's by billion, loan was to decreased earning the and mostly income this performance. in quarter. X% cuts. of interest impact the into our up Net XX interest held over primarily $X margin The assets rate or Average the $X.X grew sale warehouse for and portfolios. September due prior October loans

mortgage brings income of dollars, at a albeit environment held net our for lower NIM. more a couple of took slides. loans numbers to sale review in interest the favorable grow we further We'll Additionally, advantage these portfolio, which

were the or a revenues to quarter. million X% $XX prior compared decrease million, Mortgage $XX of

favorable points, quarter. volume on margin gain optimized a capitalize on During of resulting the of margin increase prior and points the an basis to sale X market, in XXX compared the mortgage to quarter, and continue we basis

respectively. more XX asset and remained get nonperforming slide. to strong we We'll only the net basis basis flat our when coverage were quality and quality points, Asset loan and allowance charge-offs details points remained XX provide ratios as X.X%, at

solid. remained also Capital

of asset the asset later. capital at held content. nearly capital of risk-based of category total more period-end has despite relatively very sale, was this low-risk through prior flat quarter, a We'll Our billion $X.X for XX% analysis year-end, growth to loans More in growth. than XX.X% was that go a our extensive period-end

growth $XXX fourth a loans. estate, quarter, commercial dive The reflect into by homebuilder and X% X% commercial higher average income $X sale between was largely, deeper earning X last than loans. the real million income Slide million for the interest and assets, Net loans to turn held loan was let's quarter. commercial The results warehouse increase for split statement. and in led which loans So to grew

loans With sale, the increase more by basis able equity lower held we spread, on and return points. were albeit in a for income, X at to interest reducing NIM book enhancing net

September side, the noninterest-bearing. are basis and cuts the the points, technically in of reduced as these On deposit by October, only deposits late deposits of cost our XX% of impact rate X

rates came X% down beta cost deposits XX XX%. Noninterest to lower you if growth refinance credit consider decreased points, We'll to a we million basis the However, the the sub-servicing $XXX earning activity. due on mortgage $X of asset strengthened or to robust seasonally our slide. discuss revenues, by million income next customers, of continued more

on million million fallout-adjusted of in quarter. decrease $X represented primarily billion X% decrease revenue or The sale gain $XXX locks. XX% the a from of or prior lower Our reflected $X

roughly Our refinance volume. XX% same the activity quarter, and comprised as retail of last mix was our lock

disciplined we our remained to sale our protect focus margin. that execution to ensure on We continue on gain in and pricing

us return totaling issuances RMBS to This million. quarter two $XXX saw market, with the

XXX points. gain on As to all sale points margin X these of activities, a basis expanded basis by result

Noninterest the $XXX of of a $X $X The and up downs, prepayments, was quarter. net asset million the increase refinance loss fourth million activity from rights $X write donation primarily expect, As a of loss and quarter, you'd was cleanup servicing accelerated net compared by last million expense to fixed on million prior Flagstar shareholder the $X place creating mortgage to a in expenses the including quarter. million, increased the sheet offering to Foundation. discretionary costs related balance secondary that largest to took our related our

lock. flat which closing essentially volume to recognize primarily when to our as last revenue relatively contrast quarter a was close flat. is we recognition, were expenses We loans in expense rate Mortgage

volume This The quarter, $X.X exceeded billion. closings mortgage last that billion from of mortgage were quarter, expenses lock mortgage which flat. is of revenues $X.X yet declined result of

exceed a locks in level of of that this, see mortgage expect QX, We reversal that we'll closings. will the

XXX cost the and expenses related if of million the When and quarter, the adjust branch It's the volume, the that run rate the and efficiency out at points growth acquisitions million categories basis expenses in quarter. higher, of employees. in flat of expense to ratio is business what that virtually prior for remaining mortgage scalability our closing to increase $X the Normalizing note result and is of expenses are of banking. earlier, we important by find interesting in note The were relatively expenses as only business other same with our you to were last called branches, the demonstrating year-over-year, community in at you the look of marginal we discipline mortgage servicing the a non-mortgage growth driven XX%. that for higher, all under this expense It's coming retail acquired million our an are expenses expenses mix. $XX $XX expenses

terms balances, which team serviced. to lender increased to number higher increase turn favorable. in this of increase by loans CRE loans now driven balance strong driven average due finance X, an custodial CRE. and deposits or which warehouse of grew by quarter. deal Average rose an for in highlights Slide was the Let's Average sheet billion held as $X.X be remain average this billion, our $X.X sector to the billion, builder continues by X%, $X.X our driven and Most investment growth home accounts

to end. which from we quarter continue value share, at tangible last grow our $XX.XX, ended the Finally, up per book $X.XX year

X. loan million strong. XX December asset $XX So and continue turn still at let's quality accruing to delinquent, now XX. delinquencies the total loans quality Early-stage portfolio negligible, in on were remained over to only be days of Credit Slide

these was loans. reflects loans. loans warehouse out X.X% of HFI XX% of point that this allowance coverage I'd coverage being total Our

So coverage industry. excluding clean the X.X%, in relatively withstand loss warehouse our at ratio their the denominator, credit among history, the given strongest loans for

This also give our will CECL. Turning to XX% approximately includes We now reserve for on like commitments. I'd XX. our reserves XX%. an impact expect Slide unfunded increase to on update the to

of affect quite adoption of and the is As the of type, unsecured. implementation. does whether secured life CECL income differently, loan on impacts depending the including at or not The you collateral know, the the loan each our portfolios impact

guarantees, our the we government breaks down to Considering and by change loans mix portfolio, day our with current portfolio, characteristics be mortgage the as and X economic excluding residential loan of credit reserved expect be our our portfolio X.X%; outlook between X.X%; portfolio and by portfolio our CECL. at to X.X%; and loan to loans, consumer commercial to between X.X% loan our warehouse be impacted loans, warehouse X.X excluding minimally to X.X% be and follows:

to Additionally, unfunded by the Xx, with commitments due to is our customers. existing nonwarehouse approximately reserve lines increase commercial expected for largely

our impacted whose amounts change. reserves CECL loans measured for for also with not to We methodology continue are guarantees the specifically loans and maintain government by

first changes our million. expect Given loan to a portfolio our we'd million charge-offs, quarter forecasts changes for these in replacement and each of our $X This and to $X loan other for and between loss no our growth expectations economic contemplates in our outlook. net provision portfolios, be mix of

Turning down only Total XX, to was capital Despite was our ratios XX. X.X% X ratio basis X our balance sheet growth, risk-based CETX XX.X% basis of remained capital relatively while up December points. unchanged. at Slide points,

sheet X was of this X.X% we leverage down up to flex Tier quarter. ratio Our balance as allowed the

aware, As rules, old are rules simplification under on these now new subject you're we're to. which ratios capital capital based

change in held is basis quarter-to-quarter ratio. more alone, ratio points. Our at XX ratio our might reduced still by our risk-based in sheet Balance higher. closely Earnings which XX.X%, be be and XX sale look X.X%, ratio growth Tier capital the higher, basis our X points. asset have capital helpful increased net to our risk-based sale ratio this that very loans that XXX for total retention have portfolio total would loan only portfolios, turns points been points over ratio in capital dedicated for approximately portfolio are at sale. the at comfortable It by Loans XX leverage capital of XX basis held loans we held X ratio, is the tightest XX would December All basis from categories of We're total other fair for for basis the growing decrease points. points that risk-based coming held basis carried sale have basis. loans with warehouse quite risk accounted value and content. to for activity little a X on Between a regular compression

or risk the XXX% Great years, had lower over cumulatively which includes we've under higher million lending, stress not X change our warehouse has do of a $X And In that meaningfully these losses last categories period the testing XX a the from models. outputs balances. Recession, capital weight,

XX. December comfortable levels at So this with is why our we capital remain

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

Lee Smith

and equity the good quarter, net everyone. in on share diluted These of quarter with and of adjusted Jim, for per for income of on fiscal return for for Thanks, XXXX. XX.X% $X the morning, diluted fourth of We're net our $X.XX adjusted equity income per resulted return pleased full very a an earnings XX.X% the year. share

declining for income margin months has rates interest put is income pressure fee model, interest business our banks. and unique many net The But last have revenues, noninterest seen delivered between XX interest balanced outstanding on well results. which

this To noninterest during of or further interest came while XX% came point, year, illustrate from our the XX% net fee from revenues income. income,

which in impressive strong in average an we billion several our and to $X.X continue environment and notable fourth predictable quarter. with in during deliver sustainable $X.X occurring quarter, shareholders. assets, result, included in were billion other XX% for any to year XXXX, There As interest the or increased ability believe a interest-earning X% generate developments or earnings and rate the returns our

We in saw cuts $X.X increased large we billion while loans commercial X.XX% XXXX successfully platform. XXXX. of consumer XX our good fiscal net XXXX. billion our part, add in deposits and in end acquired the during more retail being XXXX interest the across to business our Average to X.XX% year-over-year, custodial Average subservicing increased there also to result from growth all at in categories, and of X XXXX, continue rate increased loan despite deposits grow as branches servicing we a $X margin

to our million origination million versus during disciplined lower in the business the $XXX and take able $XXX increased mortgage XXXX $XXX was as revenues banking interest XXXX, stay XX% in of advantage to rate Mortgage or environment million year.

Our integration of acquired we beginning default X.X also we has grew operation quarter gone noninterest in subservicing XXXX. the ended the servicing the smoothly. million which approximately generates The subservicing of income bank. XX% business And the consistent year for loans, fee very or at service fourth the

regulatory the the the year, on out we September During issue of closed with remaining order XX. the legacy consent expiration last CFPB

Finally, quarterly restarted we've success. after share, our remains at beginning $X.XX increase our our further of and our solid, which has per capital from shareholders announced XXXX, benefit enabled just in to an to dividend dividend program the we

we've the of some year operating even now major Flagstar, accomplished. our another XX. given to we're believe we each I for It's and the business shareholders segments will exciting with been from higher can what during Furthermore, returns our our we business and continue proud quarter. of metrics in future. grow key Please model, of Slide outline reward the fourth turn to

consumer from environment increased X% the net refinance held We've indirect to million division. lending HELOCs of to the months, indirect of commercial $XX interest as average Average activity consumer quarter-over-quarter. loans million non-auto real the the real this Average industry. highlights lower operating rate for the segment million for and include with which as interest Overall, increased in loans predominantly loans finance Quarterly average million to XX industrial, X%, loans million increased HELOCs. drove driven $XXX and loans our $X.X quarter, held growth $X or $XXX estate in X% or increased continue homebuilder in means with being commercial million by we over coming loans estate the for in sheet warehouse that balance within quarter or and commercial growth the add billion the non-auto community high-quality $XXX most loans mortgage income a investment and XX% banking almost portfolio. the increased $XXX during last increase investment quarter the or to added loans

going high-quality will forward. Given continue originate and warehouse to loan lending, commercial our to we relationship-based consumer, footprint and expanded balances approach

savings escrow activity. and custodial a increased and environment, while deposits lower $XXX rate Average number $XXX result of demand increased the million, refinance increased as the and average of million subserviced deposits increasing loans

As margin highlights X predictable $X.X lock XX. basis to to for Quarterly grow it we produces loan the bank look points. we basis operating mortgage Slide on ahead, business the fallout-adjusted while increased stable net the volume XX% quarter-over-quarter, given turn sale continue origination points billion will gain the decreased and include: XXX community Please bank. to to for earnings

to As quarter. fourth during revenues due XX% slowdown mortgage on in lock decreased a volume usual this rates, fallout-adjusted the continuation was volume our activity in refinance decrease the accounted seasonal to gain million offset interest in lot quarter. $XXX industry, of activity but decline. Refinance of result, driving sale low the slight of the the for The increased some

quarter to fourth in operations consistent available compromising team of to without our optimize $X.X billion the testament and quarter. with is Mortgage loan closings mortgage capacity this service third how closings And customers. quality our the were they our in

maintain how interest It we've mortgage the enabled we natural the points fee maximizing and basis revenues on able approach during to We're with a to seen us ensure some rate right pricing continue business. year, significant XXXX. approach has our increase in this sale businesses to and to rate income environment that the we in interest with have loans points environment capacity declining margin advantage generated a the have originating hedge quarter disciplined pleased We on of of lower It's been our we take basis XXX to the gain noninterest in very focused available. and as throughout is other the quarter. X to

the industry in or XX% quarter have loans and subservices or during the one over servicing for last in include: and X.X servicing. for that Quarterly approximately months, mortgage others. XXX,XXX of loans XX% operating increased subserviced serviced We time. number or the XX XXX,XXX to Moving or million subservicing we servicing been segment XX,XXX which ended on by in highlights the the the are the quarter subserviced fastest-growing Slide or XX of XX% of

subservice such and offerings X ancillary MSR as service loans well recapture provide owners. we have as as to or the Today, financing solutions million capacity to services

we million XXXX, of in of generated And $X every at allocations you $X will operating million $XX If of achieving indirect XXX,XXX add end and look see profit to business Slide to fiscal platform. guidance you tax the before XX, high are for tax. that operating servicing our loans the our we before million profit

the underlying flow retained, the have the billion was we confidence seamless you XX% loans model. originations with gives and MSRs, our and which indication of an they sales of sold relationships strong buyers and in have quarter, to albeit our transfer subservicing the servicing sold we During the $X.X MSR quality of of

in the we of operation the of averaged quarter, is our integration quarter, indeed the one get in full gives from sheet. any The has our business servicing $X.X the benefits illustration cycle of fund default This or and additional of $XXX increase of the from liquidity subservicing the balance at Jacksonville, control an it X% we helps smoothly life an as that fourth million acquired quarter. loan. billion last of gone deposits beginning us very Custodial over that provides

growth We future. couldn't to in team, be more have our we platform and success subservicing its the believe continue pleased with right the and results offering and of business the

Slide Moving expenses on XX. to on

of environment. the of expenses noninterest as million balance expenses the expenses and of to during continue X% $X million or lower were million fourth drivers take increased our while to there period. $XXX and decreased by quarter-over-quarter, total we investment The advantage mortgage total in follows: main $X as business cleaner quarter Our during the in the the sheet $X million $X increase to rate same in discretionary quarter, slightly were of million million revenues $XXX

Approximately which QX, drive if they mortgage business. paid QX. are in an mortgage million, or mortgage to million quarter-over-quarter, $XXX nonmortgage, mortgage XX, expenses If the were invest means continue increase we volumes basis semi-variable, tied and flat at are previously which to $X per excluding and compared on unit to Slide is XX% expenses were versus our directly million, in given Expenses to easily origination expenses, mentioned of $XXX nature $X QX, business flat you closings tied business in were of core mortgage quickly decline. origination a which after and look this million the the just noninterest when variable

are we first quarter-over-quarter. with costs function to decreased which mortgage associated a the of million business this revenues, mortgage $XX in closings, Mortgage mortgage quarter. and the locks, would therefore, expect lower translate And to

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

include our expense Going granularity forward, optimizing will expenses would in reporting, on this our focus continue XXXX. we to core and to noninterest

made $XXX estimate quarter. million result complement the business and originations believe been the the we will the but model given business. rate consistent the be act first servicing, significant in line. We It's The bank, during of strong where major also activity, outstanding a the in and have our mortgage of seasonality All earnings and successful meaning decrease bottom expense generate another noninterest natural any of between a each we to year. community diversified interest contributions different as less and environment. other, million and businesses: the can have an mortgage We being hedge, expenses be quarter $XXX businesses three predictable

unique model to our we believe seasoned this continue forward. management going business team, value we create Given will shareholders for and

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

Alessandro DiNello

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

to to expect X% together in decline decline a due interest net interest narrower interest-earning margin. income XX% We assets, with a net to seasonal

on As on noted, will expense due return a the $X We we the of and including XX% million. decrease mortgage market. XX% Jim anticipate MSR, sale expect million net of to $X to gain seasonality mortgage provision to revenue,

other to noninterest expected is decline income slightly. Our

that he be million, as QX effective As to noted, rate to the be consistent expect $XXX discretionary we And expenses to noninterest we noted. finally, with reflecting tax million elimination as $XXX expenses anticipate lower the mortgage-related of the expenses well XXXX. we

built in we down mortgage the for just we originations And bit. the We to are can as favorable, because quickly to determined on ratchet to Improving demand the not in make to XXXX but up not to when we way efficient. this for a have is past this consistently expand did we falls of more That's ebb this and quickly major costs mortgage flow the become focus our the like the scale a year, I'd off. we environment When business, Finally, progress. growth is advantage revenue opportunities. have expenses the market. take ability can't with of efficiency only say team and that of

As in this seen, a more to you start, numbers quarter, model we as introduce accurately. granularity our expense you've more help

This listeners. concludes our and the questions call our to Emma? open now from prepared remarks, we'll

Operator

Instructions]. [Operator

Our first question comes from George Bose with KBW.

Bose George

Okay. I wanted to ask just margin, about first. the net interest

Just is the can going for impact you X about it plays cut, loans as X just in point basis that decline? forward, mix, How just into well? noted held the asset rate the I driven changing XX will your sale guess, to quarter, guidance decline, December any from by you talk

Alessandro DiNello

Bose. Sure,

NIM you commercial purchased me through billion they deposits there's the The play recall, the QX So impact our with are as really be first of where $X not factors here. very really, will the and and the acquisitions can't into branch fed too full we're that, come move. seen And first sure of compression that quarter book that of what say feels low last the a cost, I'm cheaper. any we let I'm we've concerned projecting. And couple get

-- loans of in X.XX%. Second, it's at balance sale $X.X average the QX. billion grew think, about, an held I yield And of average our for

While -- and is a arbitrage, while narrow. that's relatively spread great its

a little expect arb, on while a probably And -- shrinking And you in overall know, a impact negative the still sale very average yield in QX. warehouse NIM. as we asset. with for still bit actually. high-yielding will held QX, still decline loans will shrink it's see a we bit bit probably a that's Plus, will good while be So

comfortable you when which So banks, we're function look business but something the think the that balance are happening the the see than other a of the to our NIM to are think that can to mid-sized with. mortgage better that deep, dynamics when see this is very causing dynamics that same I you that And happen is different NIM, compression most are really I of revenues. causing actually you see makeup sheet,

Bose George

makes if of over don't give and you is rate the the but impact That cuts think about look Okay. you sort after sort past But this just margins I guidance quarter, more out further we that? are -- of know of first sort of -- the should out, sense. stable -- more

Alessandro DiNello

the for that high depends rate it's question is think likely, difficult interest not specific to everybody a the very answer me the we're market, in more for Well, that. can't So -- degree right? it to if doesn't certainty. all with but position of But happens margin on that stability Fed would what about you be change I

Bose George

Okay. Makes over ask then the sense. And actually, mortgage to wanted just to side, question. just switching regulatory a

out? great? get QM that's Whether with that's that would about like feel to be that potentially your to going the be how the Just going -- suggesting on to wanted to just CFPB thoughts have or taking reduced the your plays the changes you good proposed is patch, -- -- removing XX thoughts that just bad, DTI,

Alessandro DiNello

think as generally, Kristy positive. let I'll we comment I Yes. on it. view But that

Kristy Fercho

Yes. We do.

Bose, one is this happen sorry, and things Kristy. think the first of that -- would I

of looking potentially we would think with, would comfortable But is that. feel that is manage they we'll first the an that to and easy think I be happen the do actually things at X.XX something on proposals look to to. APR [ph] very pretty the we of at One kind the extension table, of

and disruption So is a thing market. the committed I is think no to transition ensuring one to everybody smooth the

able the ultimate today. quite and we'll whatever are made, I table on and the all with, adjust easily. to that think gets We certainly, so And decision comfortable proposals be feel very

Operator

Our Scott comes next Piper Sandler. question from with Siefers

Robert Siefers

for grow to question's pace of guess, been you've just existing sounds quarter. of the thereafter, size you simplified sheet sheet side, method? where just first doing, your balance get relief you, on even kind given under some same I But in the the for with appetite thoughts maybe overall levels, say, regarding at the are capital we balance Jim, the first Let's just will like curious the

Alessandro DiNello

that, we'll to been Scott, on here. then that. and chime Let growth to thoughts me Jim first give I'll to the optimize always do opportunities, you in continue some able We've let

been past. following know know pretty in think put you've our loan we you the that We good I success we on doing the us long that that time, on a books. equity have of every return

it if just we don't it. so hurdle make doesn't return expectations, And our

do we much requirement that credit not compromising we'll So as can, while all. given at as

those we much how whether in nonmortgage, what just sale warehouse builder, on might held business. carry even be they will consumer C&I, depending in for Now opportunities CRE, that or mortgage are, the determine

still our mind, to in sure capital to where that they we that levels we make need have of all So be. keep

that So real I of offset our gives this or for balance our greater is of sheet us to in sale held commercial adjust to lines that the flexibility our growth it less the beauty business. think either

So overall, here, the Jim of company view past. way do which can the I'll the growth isn't than I going any in and forward, get different how that's issues into the more him the we've it accounting-related just managed that. let

James Ciroli

yes. Yes,

balance there, his we've unparalleled that glad So comments sheet. our made get I this for was prepared and in did. few going Sandro years we those now, and said have that I'm he Because remarks to flexibility right in somewhat, a

up on because that, loans was able what we did returns we opportunity. invest saw little were past hurt a had flex we took that our bit, had And sale the and we the because So you it equity fully that that we but balance to sheet. we that this increased -- improved held quarter for albeit NIM

in portfolio is through our I likely mortgage which will right, think on the you're reading flex Those guide that quarter, down quarter. warehouse bit. we'll As the depending that the where loans, expect first goes a market and we move

earning spin the for I wouldn't always to the that know that pace have a situation up did slide have the held and that have now don't the we So or X we're deck that. the reflects X-year future about be that years, see we maximize in up, think that that to are we years I standpoint, growth flex over lending. anything And a of lending quarter, past but longer we And like ago, I our sale. to underinvested time If commercial opportunities consumer that in has position. extent the brisk capacity, we think a the that have period growing we've category ability talks over capacity in expect been as one ROE. we that Because the just our this in had you'll down, always that no like find assets, X of wouldn't loans CAGR know a we capital We it we past as past. I in where to and the from saying

were that $X.X our add balance just would able sheet retention like I capital growth our the assets, of amount influence we flat. to past going but So That ratios billion have. we quarter, where to capital keep of imagine, this is really

Alessandro DiNello

than just our mortgages take to always if narrower I business. balance could of a the advantage on while longer the negative And NIM. is the ability risk, the emphasize to therefore, in NIM sheet absolutely arb of than -- have concept and to that, banking Because our this get the hold has going flexing and it's that's impact no on our arb solid

we compressed, earnings earnings, increase value. mean, interest equity, a better a that produces bad not I increase that on return interest shareholder produces in net thing. So income. into you necessarily an turn income should showed when more more An net see NIM in

can I NIM I can X% to And we so. $X by sale sit a So can grow for improvement. on don't have for not going yield XX don't I the mortgages the here better have think books is that I days. decide report can that a company? billion, held and mortgages -- But so we for under

Robert Siefers

a appreciate mortgage. if Maybe down versus to I I extra guys the move guidance, the in guys there pop then originations the I gave guess appreciate sort side, made what detail will to thereafter, there in to And you more your year. the decline the the just million you ask to cost of have color. a Is that $XX presumably quarters million cost a would aggregate couple back of on the base to be quarter And the reduce we just the want ask but prevent Okay. in mortgage-related follow-up, context And first mortgage things the know given is, middle that -- up which originations? in non there. per of of quarter changes i.e., costs, mix? you to sort opportunity then that in absent and any I in could $XX back getting is all of I guys costs, from that anything

So in of absent any just cost wondering base if something there's the more side? reductive, origination pare speak, an to back to opportunity so the

Lee Smith

it's Yes. Lee. Scott,

couple of things. a So

this variable approximately expenses and the of prepared are side, mortgage semi-variable remarks, mentioned mortgage On the in the XX% nature. in or I

to they will granularity. you cost we additional and about the volumes quickly adjust very put place we've on good mortgage So the We've the mortgage variable feel given side. in model were decline if

non-mortgage more the So the is an businesses. you I and XXXX both cost get for mentioned focus efficient Sandro in And our organization. can see not to now as

will million that that $XXX focused in number. be So on QX, we particular

Kristy Fercho

I talked Scott, of some $X additional will that some kind or about those help the our of made -- investments businesses. in some some could efficiency to, of actually million, talk about you when the if drive Lee piece, of efficiency The that efficiency of add we in technology and investments additional those technology mortgage,

that And continue so, of the about more to so we'll for where talked and take efficiency out at efficient get can doing. definitely look and to we're looking exercise cost as We're Sandro business. we the continue

Alessandro DiNello

right? fourth of is back But good in what the million a market it small... That in mean look, the that mortgage to quarter is was to would which that get thing, $XX be wouldn't 'XX, expense,

Lee Smith

Much smaller.

Alessandro DiNello

the a while to leverage. What mortgage at tried granularity been expenses, show there's to more you that nice in have by increase been this really the and revenues this you we've in lay here increase giving is out

go isn't did mortgage core the And quickly there. we we're we past you today. back down that the optimizing, and do we And the mix we're to volume half why we show XX% expenses we're to that of need to think with which if expenses that do can't make have we quarter. revenue difference that's to we as trying going we the mortgage expenses. between this that to the if point But so have this quarter, past as and the here, the trying we're can the That's

$XX is got way could MSR expertly, being originated know narrower, in $XX the rates, billion mortgages mortgages. pleased originating $XX run. I you, averaging matter much have We mean, of I managing to with Yes. is lot expenses business bank is no tell compliance would our what's consumer couldn't been it would billion with billion risk issues. more MSR avoiding country and risk been And exposure would a this last have could to business I margin think over higher, billion have keeping I don't the I have $XX year, profitable to this be grown how mortgage but No going we do of better. -- we way exponentially. the manage it interest the on

Operator

next Tamayo Daniel Our from with question Raymond comes James.

Daniel Tamayo

just of to -- guess, are, just I on you gain the really, I Sandro, you're really -- on -- you sounds touched the opportunities, sale on like margin is in question it Well, ask, high. which you -- passing if given is mortgage just was sale was that, on gain going so the which origination

today it as it You as last and it was high guys quarter didn't rose. expect up

is, at question you at can if do for on see these least? again continue an -- So are elevated the you rate the near you gain you to I opportunities, can guess term, think passing margins on sale

Alessandro DiNello

And I come FHFA Freddie do into what with and that, of that mean, Well, Fannie things play a I mean, issues, here. execution's the there's makes really lot pricing important.

it's the on guidance. quarter best with difficult to what of we we today try to know So We really a can accuracy. predict give the guess you based amount tremendous in first

really the to -- of And able hard -- think what's going where mix others to that nicely put to very been in been levels because more we people. retail on we publicly. at very, emphasis darn on that in pretty company. I what's different able we've are our compare available think very is strong margins compare that It's the to us every peers good to a business, at bit in manage some terms attract with little we've being

to going I keep So it where revenue, and to we profitability I we're think it's trying been, think that in make able of always maybe that. to the do terms be We're certainly of total the better. can business

of factors hard any time. So be so confident continue our out there real to come execute, play many to I'm It's to that but into in is length to pretty just ability here. predict for real

James Ciroli

message to in of at have scale say, is those just strength would optionality, scale gives follow-up that. the our And strength the on we somewhat to us. channels and channels all Danny, try unparalleled. we I The what And and

contribution but So it's line. that hard that revenue need you, assure I take to to predict might revenue, that, where cost we're what makes versus bottom forces do doing to optimize market we the can revenue to the the

Lee Smith

bad certainty, I Yes. is. don't having experience, And our a our that. overshoot we're appreciate aware and capacity about. is And have Danny, they Flagstar of want give capacity customers to our think a great to experience what and very and We we that's want customers what not

Slide point the mix a year-over-year. slide, of really from a a bullet, look you is cost if but view, third of at which XX, And more just

is a And business versus in ago. closings our So QX, retail obviously, typically XX.X% business. came from retail the of higher-margin this year QX, XX.X% channels the

Daniel Tamayo

from That's you color. the But we've going appreciate obviously, are in lower line you the to rate are I switch but guidance? helpful. how long all benefit quarter. lower? to the of The All fourth state what driving that the out that lower right. that? gave how rate with here. from guidance the is than seen investments the expect losses, tax much would then, I know tax making And in tax benefit really you're I'm what gears rate past, operating the that called And you net

Alessandro DiNello

you add secrets little little just -- a give Can't But of give you color. a mean more to here. I all he can maybe those

James Ciroli

Yes.

we tax planning So do the their in put CRA satisfy larger at to what place look and doing to are institutions requirements.

tax credit-related course, of like housing in items. investing low-income So in we're things other

taxpayer. losses, position a as where are also, utilized net in release, about we're on fully -- at of now point, we're a We we in our talked operating this both we're the all

net our federal on utilized the losses So at operating we're level.

sense. limited. that that position in by strategies still tax being make And planning some to have these start We financial now, are

as type typical regional done larger, But you'd that things those, But implement banks. come to into we've so things horizon they've And us do. just for banks more the would them. see those at that it's

Daniel Tamayo

net the is the So based making? that operating the is you're losses state and fair benefit new guidance say the investments of minimal most from to on

Alessandro DiNello

In the yes. guidance, new

Operator

comes with next Our Henry from question Coffey Wedbush.

Henry Coffey

over fact given future about know provision we to the the somewhat something and which normal? issues million CECL-related $X new -- but level had don't should given $X that we've or around is provision million -- just no, no there you're loan CECL the X we're usually I quarters, is X talk sort based shocking like booking going a on in that expense, quality number, you X. you've to plugging given that of assume last actually the Or to X years, start of

Alessandro DiNello

Yes, yes.

Henry Coffey

thought process to it $X million? So forward? X Or in of being what million be $X is. new instead That is number model the my going

Alessandro DiNello

you're the provide be X growing Well, for you've it sheet, balance can't if Because to got new. anything right?

it much in grows, bucket. grows. of And various remarks specific all impacts information then it the sheet that's a his balance prepared and included Jim how on So what the pretty different how categories some function

we're to -- growth So come. know we where not don't the is going

growth come. I comments, referenced questions, in and my if even can I view. couldn't -- So fact my I because -- going I ROE in to from answered But I of where one can't loan to, of an I the every in this, one point think, the even maybe I've that hurdle is tell I you of know don't I don't answer the that wanted question. to has

return, impact if we're any at booking not And that particular And so would impact, the it loan have including cause. on the going consideration then the take to CECL we're CECL into loans. growth the doesn't

the So at the don't it matters. of end think I day,

as little we're the CECL, going ultimately, we just balance make -- in where profitable sheet. grow it would how on as to it will a decisions be think been have of without impact we bit but it I terms

Henry Coffey

of in you how think therefore, ROE need market bank. waiting frankly, also kind to equation, you're to pricing? of have a up? sort for a the issues disciplined have new into you competitors more to damn and are because, cost Or still you new that's element one the of mean, Are the put be that they on good these they thinking I -- your about terms same wake

Alessandro DiNello

Well, I was going to ask you.

Henry Coffey

already have analyzed... you've Or

Alessandro DiNello

Yes. that obviously, know. mean, make crazy don't at I I in the know. I we're we about way want what don't we everybody look sure to reports. But not thinking And things. we're

here along we are all as CECL. go on think I we learning

And so we'll about able just quarter-by-quarter, get little more a it bit to be precise. smarter be and

James Ciroli

is on other rely the cost. higher are not That's forces what we're at the have those I to going same it's a -- a it. capital for from it's going to interest how not We we'll it's be CECL definitely those can where loans. much we say, good way. return but same. to we if loans investments. held we find too opportunities, What investment. going denominator. flexibility Henry, balance a cost, not having our objectives at would to sure numerator, look look Numerators on it's these I'm find if can Economically, And without if we profitability We're make net return people perspective capital, that those again, loans growing stay And we income can sheet true do. can't, to do,

Alessandro DiNello

business. warehouse We've the always liked

has very business warehouse the little like CECL really we impact. Now because it

as But looked And our little limits. is, the that's point much at can are you so within concentration it at now, of keep what whole grow might those know thing before. things as differently that a that to the you right? Maybe have we look you for we'll looking opportunities

Henry Coffey

We can talk about that off-line.

Alessandro DiNello

But some trying rationalization. cover to

Henry Coffey

really Preferably a dinner, nice place. some over

Alessandro DiNello

Yes.

Henry Coffey

the more return I'll encourage What think be go you that? the today about or absolutely queue. into that So thoughts look, the good with capital. you your level stance preventing what either are what Simply, to is with However, what's a like that, dividend to bump payout, prefer But aggressive itself. taking are But up and you have you towards a on do you're buybacks? back And business doing -- proven of opportunities to and you you'd from more restraints be to as are all aggressive? dynamics, just the measures? are you would where on capital the return where

Alessandro DiNello

ability do we for shareholder grows that because interest we acquisitions to our If grows return about the up can it strength our get buyback on opportunities of normal such. the a better investments. a organization. through all the think return It on and and the earnings, It's of the it to If other a business. opens potentially We is as just or that opposed long-term it investments get dividend. can the

company I that certainly the getting that think is return my preference. growing So and way the

in some if year or ago, we appropriate. both, of we a do increased to think We year. fashion, do don't that stock Now then buyback right? We can we And we just done dividend we is a need last little and/or did support course, think some increased instituted buyback a bit. we've a the dividend it

are the that So sight we of value. And think fine for any is opportunities. looking those I

was know And best the the dividend, think I we the that, country. our on I all growing but XX% mid-sized forces value. tangible it lot the the increase in do that banks little and in stock almost the have a share created a earnings amongst then market per combination a bit to a with way of of did book value, buyback last $X it year,

we'll have all forward. to pretty that's choices at the try that least we've think balance of way good, I the same So in been going evidence made, and that historically,

James Ciroli

mind, to preference. keep the Yes, reemphasize Henry, just growth in

our prepared and that my in remarks, good said and I servicing dynamic. banking community a That's marginal pretty As growth in efficiency sub-XX%. ratio is

mean, to But that So we'd don't earnings growth. to is thing per deliver -- have rely to of on the over that continue growth growing. share we having toolbox tool important if in the I like

Henry Coffey

agree. to hear perspective on I No. It's just it. your helpful

Operator

from take Point. Instructions]. Gamaitoni with Chris next our Compass [Operator We'll question

Edward Gamaitoni

for thoughts question. I growth wanted might just you envision quick loan XXXX. A to adding on And most areas your get the what be balances?

Alessandro DiNello

Jim is. well, on really about has times the and I of the we loans a couple talked return here. depends grow as all opportunity on importance I've the here don't. know. that getting of It where right don't I the

HELOCs, non-QM making opportunity And all so we're We're going the hurdles every sure every the doing to I loan quarter, that. the same whatever is, historically, And with. conservative always it. are CRE, warehouse, this ask We're somebody just prepared indirect, relatively those don't And homebuilder, put keeping we're C&I, I've the keep mortgage, know. non-auto, answered question way limits, categories comfortable on our books. single concentration ROE things. They that that within on all we for

So we'll the opportunities just see are. where

Lee Smith

I we mean, diversified only the -- and Sandro a Chris. have very has I'd think -- thing we can I model, gone, you add,

mean, commercial have of those consumer, So and come it can from different in-house. warehouse, all multiple I we sources,

So opportunities as for ready we'll be they the present themselves.

Operator

comes Steve Our from Moss FBR. Riley with question B. next

Stephen Moss

couple the just just We the on revenue good move pretty kind And days. about rates mortgage talked we've the but lot here, I side, wondering a a little And maybe had you are color, a quarter? expenses the mean, for about, in in of guidance what last the of quarter, revenue if maybe remainder what mortgage here be? hold the of could think rates if your to for assumptions underlying some of upside longer-term the

Alessandro DiNello

originations Fannie and average that said it's Well, or and try planning that from prepayments all MSR through things. expectations follow entire warehouse look Freddie company, whether MBA, we our and we've basic perspective, all the as at we of those of a always to guideline, the a then

experts that So And just XXXX. because a right for than majority now, the of volume little less that's expect to we is bank. be that's what going the XXXX

how As again, no ebb the remarks, in matter profitable, it. said And flow always to that's begin And we've I of to And a lot in that our changes, shown prepared we'll and ability done my view mortgage what. adjust there's our stay business. business. as we've

So we're comfortable very that. with

Stephen Moss

then And loans basically than terms more helpful. That's double right. of All other consumer in year-over-year. just the here,

doing? loans be helpful. growth see of you give wondering in lending. any can there you're And of Just kind is the indirect the I would color local types

Alessandro DiNello

Yes.

fairness, doubling small number. of is a in off So

So a like it grew it's not lot. really

Lee Smith

Yes.

base remarks, million prepared that of consumer lending, Most you as loan was say, we about in year-over-year. $XXX I indirect in HELOCs. think grew my the mentioned I

Alessandro DiNello

the it of consumer All indirect was in portfolio. other lending,

Stephen Moss

Right.

take And institutions, loans it? other I those so purchase are from

James Ciroli

of $XXX Steve, Yes. was growth indirect. No. million $XXX million the in

we ago, So the to the -- that and years business of it mature just a from point. its just into couple of started kind scratch was continues equilibrium

Alessandro DiNello

and RV Marine. are these And

Lee Smith

Non-order.

James Ciroli

-- a like in release press on Yes. the That's more detail there's that.

Operator

Sandro turn the now to would like conference back closing DiNello for I to remarks. over

Alessandro DiNello

XXXX Overall, Flagstar. Emma. year for Thanks, good was a very

was our Flagstar stock, in In in mentioned space mid-sized stock bank the one increasing performing fact, number the XX%. with I as XXXX, earlier, price

We're and no and great of that that's Flagstar bank family. to than repeating to mid-sized consistency earnings is the tribute shareholder value, I XXXX, it did the An a our here in important create better think Flagstar point quarter-over-quarter. bears

markets And in rest. the that In seen consistency lead lay returns period, earnings. For our XX.X% should in the will adjusted business my market impact many concern and different generated humble opinion, the has of better Flagstar with the XX over by year, to we've XX.X%. we've volatility the ROE the QX, even the The mortgage last during at how our concerned mortgage been was knock-on that months.

company the great. commitment folks thanks you for your For made My Flagstar good to to move possible. continued to listening, this you from our deepest

Our to again to in. forward continues. you months. everyone three listening look in more once I Thanks journey to speaking

Operator

gentlemen. This you, teleconference. concludes and Thank today's ladies

You may now disconnect.

Flagstar Bancorp (FBC) 28 Jan 202019 Q4 Earnings call transcript