FBC - Earnings call transcript Q3 2020

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Operator

Good day, and welcome to the Flagstar Bank Third Quarter 2020 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Ken Schellenberg. Please go ahead, sir.

Kenneth Schellenberg

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

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

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

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

Alessandro DiNello

everyone you stay ones I good Banking. Ciroli, and in. of of hope Officer; listening our Ken, healthy. Chief and Davis, safe been of all morning have our Reggie new joined Financial our I'm morning by Thanks, Mortgage, President Smith, this President Jim loved your able to Lee and and to

a to of know, on quarter. As chose date. a industry, He have a Mortgage, you could a banking during same on the his of and bring Flagstar. person us. Fercho, Flagstar the change that join to but in Further, our of left we in I'm team stature bit banks, Xrd, gone to Kristy lot Reggie may President leadership of August our us had the joined thrilled to

he turnaround, Smith, go, internal also of as overseeing servicing. one with Kristy who been of mortgage responsibilities. see fortunately, mortgage we me overseeing already to day Plus Lee COO great hated his from part was was fulfillment had solution. we a While Flagstar's

under one the originations, it Mortgage, highly of in servicing, place to fulfillment, allowing role have us sense leader. all the him to So of and made world in the President respected

former will his to changes, with Lee Reggie servicing. Bank, update areas. the including an a these leadership mortgage segment, then of bit expand Community Jim today will follow and Given handle will the remarks Lee’s cover some on

more As line He's with usual, record versatile, of Reggie. A talented, a a few we'll then banker, about seasoned proven for comments questions. the track open success.

forward, of progress many Bank, feel been Community is our aware, you ongoing during who in very not Community strategy, made a as the we whole. are that we've on As have Chief and of and strategy, strategy. our but diversifying pillar an that team therefore retired. replacing our lot fortunate Officer, new earnings David announced of Cindy And a as a Myers, Hollis Reggie key onboard growing has to in just move joined Banking, our us Resources company Also to the Human quarter, that

see help hated in her His all David services leave, background in results doing HR strong job demonstrated Kristy and we a shoes. financial industries, While has is great other to of leveraging ensure filling both in including aspects will stays the this equity, to breadth Flagstar improve and important the field. his and organizational all and depth of of of in forefront HR, diversity, experience inclusion, performance,

This performance, servicing an best would phenomenal our have which deck supported warehouse that business. for performance, I all-hands in year, at quarter entire the was quarter, for a our exceeding on Not it led was second said, alone ago, I As was long simply by the unprecedented, earn complimentary to performance the thrilled time $X.XX Flagstar's quarter. third business, by by been in a mortgage, followed an let and in per share history.

think how overshadowed in quarter increase value interest per by XX%. successful alone of an expanding De less portfolio are that and fees. to story with We put X.XX% our quarter. amongst model and X.XX% unprecedented, million at warehouse the ex peers business and the our in feet tangible government pretty that unique of interest we've I credit with There's way of overall book year XX at already were adjusted you'll this our the over yields was don't significant rates, were we can had $X.XX, over in impact much foresight a them, result that's revenue growing by the margin, margin also $X Minimis, these with guarantees. were portfolio from want than net you it. losses we We in a months In fact, from loans in that yields managed the protect the the to first growing here floor recall our and stunning share results, nine enhanced the And drop last The years. net warehouse were

trend story these we that in because And quarter our we with large tandem has LIBOR, amount costs XXXX. costs costs, to have important with throughout other to of from where The the a average quarter, dropped aggressive continued carry the third wholesale deposits tied way costs deposit is manage dropping again the continued actions. funding a in are of Fed

deposits, face all the funding, in refinance sale mortgage business quietly, last increased resilient. boom. to chugging, high during even servicing deposits, revenue, related our service million growing keeps we year. amazing. of the with in say? supporting What then proud success which has of remain fee the team to margin the income, efficient billion of that on $XX I historically our On current I’m million excludes mortgage. and providing to $XXX Average the by just more and custodial think And number business, achieved deposits. adding loans the $X.X broker payoffs Pretty also of can Community respect gain the retail accounts Importantly, will quarter. than Banking sub

me let Finally, address credit.

is So holding far, everything up.

million. borrowers, tap loan and cautious to are those payments encouraged commercial only close making now again. fact, In to who that, We're now by deferrals $XX staying total especially but on start

not careful coverage be are because books. conservative. see That's our and we our in increased any we weakness quarter, watch to again our As this why words always, ratio

just fact, for what good future as opposite, guess your the to is In the mine but economy. the as holds as

could conservative. All into be don't power and know more I with to we non-interest choose with we where things possible feel We've to a satisfied outstanding fortress balance QX margin, we're considered, how sheet. generate I interest position. So a the income, moved stable stand. much in best

As we the are best, we for hope for the worst. prepared

turn know me Let it to over Jim.

James Ciroli

Sandro. Thanks,

income $XXX or The This Turning to X, last to per our quarter compared $XXX increase while share. increased assets quarter's compared earnings linked net $XXX or this pre-tax quarter. the pre-provision have $X.XX These grew income million per was quarter. only X million share $XX billion, guarantees a Slide performance on $X.XX and higher $X.X the due Diving of and impacted credit largely results, lending, points. million, last stronger million with quarter average that nice gross-up. $XXX net million result increase a lower and the score. X%, net interest are warehouse by or loans into and this performance, mortgage of margin earning by been Net the were result basis, a reported interest were decreased in deeper government provision was not repurchased, interest basis to an income, accounting to

warehouse was custodial our balances, core performance cost Mortgage of number compression, from net floors the place of rate protect points. $XX the CDs, which actually strong higher rates maturity We'll a for slides. an to business our couple of and to also in Excluding increased driven the quarter. deposits, benefited these very that exploration of This interest review and these on and primarily we the by has margin $XXX compared were from accounts. basis the six assets, strength numbers million higher million, promotional in savings of revenues last reported increase margin

During we increase. quarter, saw margins sale the gain on

we the basis the this, strong. remained we up early ticked allowance delinquencies on Non-performing status. had up slightly, $XXX on of quality commercial increased views uncertainties put of million the at were continued within points, the This stage that low. loans $XXX Despite only economy. stayed quarter. to non-accrual Asset from all reflects million, Net one credit and for our end losses we charge-offs XX credit five the million second as of

credit quality September allowances Capital and allowed a reserve ratio capital risk-based CETX losses was was our unfunded we capital ratios Total deeper lower ACL, the remained would Our We these when be, come levels also X.X%, from coming CECL. reminder, includes into these and expect dive or to a commitments. levels XX, loan in any losses leverage more slide, at at slightly XX.X% As X.X%. details to solid. higher ratio We get take for assets. asset of tier they don't was the one otherwise We'll warehouse provide loans. for the support where to than

into go support our So with on there to later. We'll lower is them capital a need details ratios more capital.

up at ago, XX% $X.XX generation, with capital share significant continued XX, $X.XX from tangible we and June value a $XX.XX in to end, per year to one book Finally, demonstrate growth our quarter increase. from

servicing turn due $XX and came $XXX dive balance So position statement. assets grew forbearance. income to full interest revenue. fee let's related solely are Slide million deeper slide. led to We'll reconsolidated mortgage $XXX down costs deeper X, billion. Non-interest $XXX to XX prior income was on and rate up Net to $XX increased Deposit revenues dive Average due next $X a X% guarantees the into points, increased the our earning increased quarter. warehouse quarter, million net last interest million balances of while million, the and that interest basis X%, this and quarter. deposit higher from to into income government from average by income lending loans expense million, quarter’s with Non-Interest $X million

billion, appropriate we they more planning X, in this future. tax is tax up quarter. of as that Finally, it have this, to than benefits rates a of balances held you'll $X.X for prepayments be with beginning tax in warehouse our income, rate corporate higher with Declines loans, higher quarter. increased of assets will billion last level increase earnings, XX% guarantees government of Slide mortgage our tax this of balance end future the a offset at and C&I the billion which more sheet in position earnings. balance July. of quarter, expect and the sale faster not loan with strategies, loans we investment billion effective our declined of With the be billion billion, value a much that our $X.X growth. notice risk repurchased. also the details $X.X loans periods. is higher increase securities by Average our we $X.X of average PPP portfolio were of due level a On in pre-tax function delay from have tax the sheet certain that to earning Considering the rate the rate rate would of in in year-to-date the resulted partially This $X.X should to decided quarter. This combined the end been on run $X at for use and we've provide from interest tipped

We where and through through peak loans we MSR government balances will the Ginnie of gradually rest expect XXXX own loans. see to with this quarter, Mae to and guarantees start for decline XXXX, we an

remain by are the loans, repurchase to the resell we can deposits FHLB, option is Average we were gross-up. loans, delinquency is date, have to the this assets. we pledge either We liabilities. do made months At deposits not holding have we onto attractive gone to sheet, to loans loans they we three them repurchase second due Further, drove quarter. XX, not at $X.X increased or quarter $X.X a the there If consistent loans without the to they accounting us, had this on either balance Custodial the significant buying $X.X call, which such is accounting the rules after offset government We the billion and we loans loans with increase. believe of XX% September the these last or could billion weighted which other later risk at billion do of but loans, an to and we through forbearance. the what repurchase those had downside for guaranteed. which a with if repurchased, reconsolidate us payment, indicated

when We and costs managed also deposits from non-interest by dropped billion changes saw short-term been retail making billion in tax in a March, deposits $X.X points government deposits, the payments. $X.X quarter, a pricing to bearing increase seasonal growth we've from Fed due last lower XX of XX% a We rates. basis impact of since increase the

observed Additionally, quarter, provided environment, margin last as the support to new continued deposits we our for expansion. net which reprice interest curve

risk position future, where rate actions lock the quarters. it's believe our costs to our can net that our purchase rate interest portfolio, loan been While due further swaps in commercial interest money, a in floors rate a net for environment. the $X interest completed our that margin, feel should and us to the be predict the taken to last rates interest out place interest that against be is might funding in fixed these combination in on it's long-term, protect margin of cost to program We compression. low The we interest rates interest difficult two net We've margin laddering where rate feel seven we and should for relatively in lower income three we've this have that flat to years. we using a and protect that the billion good

sensitive. banking our liability our in sensitive origination asset- is more us make will business business, mortgage this While

set future believe regardless of this rates are. will for success, up where we program So us

and have strength sources balance Fed FHLB of off We deposit access with to undrawn and the balance we with window. by securities multiple continue of driven $X.X facilities. on quality discount the had At ready position, base of liquidity to high XX, have the we billion, our sheet liquidity ample to including portfolio, not liquidity, September sheet, both with borrow a our access strong our

Let's non-interest prior rose Non-interest $XX expenses. revenue. our of Slide turn income non-interest to which and income million details the quarter strength from the on mortgage now X,

sale And was on XXX Our adjusted million, gain X% on increase points. an of billion. $XXX $XX of million, increased sale $XX while margin the basis our gain to revenue locks represented

While booked down from improvements. gain slightly, last due margin we channel largely transaction overall expanded to RMBS did margins slightly the quarter, this our come the other quarter, on execution and

custodial two the and in ratio, UPB changes at were return flat declined. mortgage MSR. signs XX increased the to Despite our results expense actually CECL we rate XX volume, non-interest expense in market improved congruent million loans a quarter primarily $X recognized for the increase the based for prepayments. the to Non-interest from in future, of quarter to MSR second model due of on that continues was and accelerated deposits not for $XX ratio improvement recur components expenses are for believe our income a expense certain PPP over this costs Advisors a as due that to the made current second to of our mortgage to division. certain recur points including we the basis expenses a higher use with economic basis This fees also resulted increase related expenses. to we run to achieved, for The in closings value quarter million third small of are was compensation forecast non-mortgage the MSR of increased share quarter to mortgage last $XXX million that and in quarter, that in reflecting did from last more of We with quarter, falling average not of represented vesting offering. level we performance-related certain even related with These capitalization of quarter. were of secondary the that incentives forbearance. origination loans, the for that We expected executive the and the for they This normalized due certain quarter, a higher $XXX quarter LIBOR compared admin in million recent as Loan quarter, improvement, Opes million sub as the provide that decline the control, the credit end we of third show observe the demonstrated would servicing sales from customers the MSR the executed August. points

quality up Slide to review rate of were asset relatively Non-Performing loan September no our the put as million in continued still turn So that slightly low. XX. which at its The June portfolio commercial delinquent, be strong. recently, stage remains credits we for Credit let's quality national we to on at of flat status. from XX. Early total changes one relatively shared of XX ticked OCC on of days over non-accrual million delinquencies resulted loans. $XX had accruing $XX XX, million $XX loans loans Only credit because completed

for X.X% losses loans. total allowances Our credit covered HFI of

we total, denominator, XXX In Slide loans can reserve consisting loan relatively that quarter the at history, $XX XX, substantially, see are by with loans of their all of our coverage reported these with ACL the Excluding loan quarter of ended what X.X%. loans, the credit and the warehouse million second unfunded a at of or for of we and from agency loss in commitments. that stand the On strong given clean end, our million for would increased ratio over considering collateralized government ACL, very $XXX we million quarter. end at losses, XX% allowance backed

This only return HPI at drops XXXX. the through from SX quarter, next Moody's ends equivalent years baseline The resulting GDP levels. the two we weighted September in to roughly guide year of recovers second to from we All the allowance forecast level, adverse XX%, about Unemployment for to at slightly used forecast end the an forecasts by and and a continued weighted different forecast XX%, near only weighted the mid-XXXX forecast the in It levels our scenario to XX%. at the year at slightly growth composite XX%, use release. used SX third three pre-COVID X% for was does XXXX. not until recovers current quarter forecasts quarter. the XXXX.

more from adverse qualitative of guided forecast. reserves success pandemic. a this signs until and While we of output we're provide portfolio cautious from Moody's million, believe we that $XX we've Slide to to of impacted. coverage billion likely the confidence have be have to our ratios be in portfolio ACL more our On the model representing to loan total Accordingly, possible September have loans portfolios portfolio, see point billion. conditions no provided in $X.X totaled V-shaped be this the $X combating are commercial to industries a stressful our XX, by side recovery, could our medical going CECL almost that updated total, customers deferral note, In COVID in coverage we outstanding we there we scenarios It's C&I primarily In recovery, by down of interesting the X.X% exposed those to category, for these to XX. loans our in impacted resulting appendix. loans most portfolios, in the are industries industrial the breakdown using and even loan believe our exposure and portfolio. We’ve in of in CRE about more today, we our

the exposure relatively these million. deferrals low, that in see total portfolios $X can You as here especially only is

our We the be no we still our average gas we're commercial our of oil including category, pre-COVID have most coverage XX%. our have $X.X XX%, have in don't In Of average ratio by in that commercial estate real hotels, portfolios we billion hotel areas and estate exposure. was and We loans retail pre-COVID in portfolio, housing. X.X service seeing COVID, senior real likely and secured believe loans times. levels properties, outstanding portfolio, occupancy will LTV this default. In debt to impacted with these was any loans

their burn at point this slows level service, Now, occupancy, covering this debt of considerably. quite cash but is of not the

the in borrower underwriting across that ratios We pre-COVID good in lend portfolio. support and we our debt portfolio. commercial portfolio, from who about believe carefulness we strength credits, credit coverage estate disciplined and of see real as position the those to the risk the we starting a of have losses, LTVs from to to, feel our continue about service will strong this While we're we

Slide solid nicely of at $X September ratios buffers. relatively above despite and Total growth. to our XX, remain Turning both our capital the asset from and CETX billion our was stress risk-based prior X.X%, capital XX.X% unchanged quarter, XX, was ratio

current of weighted to capital risk-based capital just at If of tier ratio most rules, one see at they’re ratios banks. compare the we increased this other warehouse leverage points XXX% XX%, X.X%, As loans favorably XX our expected, you'd our that our basis quarter. mid-sized weighted

sense. loans proposal Now, The on remain a risk while XX% we fully our the makes outstanding wholeheartedly distinction is under are that this custody, capital collateralized support. in proposal loans to make by are even our an those rules, there the assets, assets this lines. weighted Further, risk-based and

risk loans all that for risk-based the the total warehouse XX%, XXX above banks. adjusting on to So, average put XX.X%, the capital over our higher, points would basis would mid-sized weighting be which ratio

Our XX.X%. would ratio be CETX

As given categories has points at risk-based with than this strong I’ll more portfolio loan government turn downside, portfolio we loans to pointed sale turn Reggie two levels, balance over operating risk you and for When for held we this asset composition. of capital, our The was to one with and to real portfolio perhaps Loans no warehouse Banking. our believe held basis have guarantees, carried at and of all into loans loans half risk consideration, to very of are it now with Community our and fair take value. out, we guarantees balance total capital dedicated upside. sheet we cover sheet low modest government of a over sale every XXX months, have little contracts. that that

Reggie Davis

and Jim, good you, morning. Thank

of in see franchise. excited As potential the like me be What you, to this comment coming tremendous Flagstar, to potential the at I Flagstar. this business my opportunity first was on of about I'd front Banking is Community many in the of to

with from clients. at to way able well-diversified manner, impressed focus has loan Looking grow building advisory with this our with on company the its I've in a company book been that outside, the the relationships been a

for organization. the in Quarterly sustaining with clients. as the the a best-in-class, performance full want is an In on to improve the deposit deposit relationships. and all This Slide our focus near team, to retail client-focused transform journey Banking. on XX. very term, deliberate we our be where businesses of to turn two to impressed lending and for build Flagstar we focus more billion acquisitions we can seen opportunity refinance Community for interest experience retail from a days, low This will even the include, warehouse Omni-channel Now, quarter, in base to having to energy meaningfully The on been out continue team inside the I'm XX team. nearly commitment more build the lending warehouse or Community the this increased environment $X.X to across rate operating XX% due strong Please average productivity volume. highlights driving the billion strong balances we've segment $X.X take Banking to focus our

Our of relationship-based quarter. execution, lines enabled us increased as as existing approach, during also speed well for new and customers clients, to add the

the We closed $XXX being we disciplined continue and in estate in commercial July. predominantly Average million PPP and decreased our underwriting maintain with business. that loans, of by sale the to driven this loans or X%, commercial real industrial decrease

custodial lien We Marine and consumer portfolio, believe X%, decreased bearing savings in of investment in apparent. from and deposits, consumer and Community becomes a has the balances in fallout the diversified or deposits, retail a which offset continue facilities, strong cost to governmental $XXX thoughtful in strength performed predominantly loans, new the due Average credit of by or collections, I'm be mortgage increased more Banking our million nice portfolio, indirect and quarter other loans pandemic that over first to our policies increased of and proud achieved. include in which accounts. non-interest tax low terms environment. billion the a result seasonal billion. X% has RV for which We the deposits last loan DDA, partially as held payoffs be this $XX.X broker our growth Average is $X.X nicely growth to will portfolio, saw success rather also accounts team

billion. contract basis cost did job accounts. basis overall CDs a great into to We redeploying these from quarter. and retail DDA XX points where savings deposits points, maturing, deposits of they're The team also balances and by in these CD saw points last declined The retaining $X.X basis XX XX

the our result strong performed Lee. that beyond The customers the here to I'll markets well C&I has those and relationship our October see get commercial management manage teams loan on of commercial demonstrating that starting sustain at teams their have book working a the and close contact period book, remains with efforts direct having of our our In we're we're we estate, be our to turn expectations, to commercial lending to the customers, continue book. Flagstar. opportunities lenders despite capital these track. balance to back We're things build our in serve steps end fully averaged business base. the now accommodate using our billion, taking ratios. customer a been customers impact slide, are in when succeeding. business sheet relationships growth, on needs constant warehouse Turning this bank book these can well-diversified our the so $X.X we The real themselves. Through our in to next on over In home builder core to diversified, position now XX, present we've we've to with lending the

Lee Smith

revenues low are quarter, income non-interest mortgage over how performing originated and of sale Flagstar, million was Reggie, interest pleased as or servicing significant $XXX we X% strong quarter, loans The more added platform. Furthermore, banking our revenue we non-Flagstar on our be XXX,XXX gain now, quarter, good Thanks, third providing million and over the the this rate increased during valuable in environment. everyone. and with from XX% quarter businesses a the couldn't morning, fee We best-in-class refinance record increase the servicing an million quarter advantage market. previous an to take to ended as over or just we incredible sub-servicing of X.X $XX of loans, of right as generated continue mortgage servicing

highlights those business mortgage mortgage retail the channels, throughout operating we mortgages additional turn shop us to third nimble net flexible, also provides to one-stop increased mortgage or outline I origination while in business servicing billion the metrics This sell mortgage to points. unique quarter, rights basis us Our servicing will segments for mortgage life originate and include, enables Please created, the across and us and and quarter multiple model, sell distribute XXX allows optionality TPOs adjusted earnings loans, build allows balance how to is increased help Quarterly deep business, loans. the Slide operating XX. And and to sale quarter. X% XX now fund basis cycle. maximize points gain deposits loan by warehouse the escrow and This on to servicing mortgage from retain during the complimented remain our us key our sub by model margin also and capabilities. lending $XX partnerships, generated that lot full the out the custodial sheet. and servicing the over on volume

result, increased million revenues majority growth during $XX Refinance $XXX in on our activity volume. XX% for to seen for of gain non-delegated of the lock a million quarter, volume quarter. margin lot XX% broker accounted of volume lot channels. The our and and accounted in the retail a higher our As significant correspondent retail sale was

keep increased in of in a continue We interest rate as check fulfillment billion the increase Mortgage with underwriting lever we the quarter, volume to ensure margin quarter, volume were the to third continue low from and and production use result as exceptional environment. a customers. add our as the capacity, for a given closings XX% capacity, service previous continued $XX.X to

home environment. Our to from operate team work this in mortgage operations effectively continues

throughout. We haven't productivity and seen new train any hire continue we during fulfillment staff, therefore in pandemic, degradation and building the capacity to

is period $X.X or the originated, result we minimize effectuated credit areas tightened claims and of to get reinstated this, on own buyouts originating will The back pandemic. the opting And or owning is or pandemic, loan before them out a Once we the on a point the we a get capital. the longer outset our loan, Flagstar disciplined These payments to significant products approach of Mae stop number and for small in expires, any at products, buy have either partial out all as doing at buyout. We go as performing early the of moved We in the not. accounting on gain loans were higher and whether modified it's sheet. risk types sale Of approximately buyouts, therefore or box partial the to our billion result also position of them through conjunction future after biggest certain categorized losses. and period the the a the approximately Ginnie consequence we forbearance their protect balance re-securitize and process. reinstated, the our will pandemic, end, borrowers were realizing MSR, against the with At to to claim, outright, number maintain into early an believe as of buy impact $X.X will them making as in write-downs you where no being modified which believe forbearance is a billion early of benefit so. show

last in impacts and it many anticipate most have foreclosure on into don't their realizing the and mentioned, And The recognition. end Flagstar sale class, few these will increase forbearance loans. create prices generated. an I asset benefit equity going be borrowers Loans only need that to of out the through as rules the can years over following the bought the to the therefore owners It gain is capital, home the accounting does if re-securitize, Given and this loan period. somewhat given we homes, in modify we be operational overall work of neutral. impact would

usual the pleased $XXX the business to quarter, it future million and mortgage bank's QX. to Finally, earnings the the contributor particular, record-setting fourth because sale we a days, impacting number meaningful affecting and of volume market very in in purchase forecast be gain our decline to winter and business of continue margin seasonality the on believe and expect periods. revenues in performance months with the in in be quarter to approximately will of third the the We're

or well include, replace for the mortgage loans. Today, almost serviced non-Flagstar servicing, the owners. as servicing (business) the solutions XX% capacity And new we're of quarterly to increased we for XXX,XXX Slide operating Fannie on The XX segment able Of ancillary are Freddie in ended loans mortgage such slightly XXX,XXX X.X to the Mae. Moving service, owners. sub-servicing quarter sub loans servicing or we approximately other provide Ginnie subservice which of X.X MSR subservice our our number added or quarter, loans, to loans we subservice of million XX% service backed of of of as have loans, highlights X origination high Mae, excess by refinance service to the in million or million and or or as we business, levels MSR financing despite services advantage from another offerings, runoff as activity, with originated model. the recapture Mac

million we will in before million our previously X we business. million, to benefits this platform. scale see an If add to every is economies we from reported tax you of to for look increase achieve million as X operating loans the XXX,XXX generating to that Slide profit at are X X of This continue you XX,

of COVID new relates monthly pandemic. COVID-XX. forbearance, continued XX, mortgage September borrowers, using or a peak we effectively subservice, forbearance. to the payments right to X.X% forbearance to of that This actually requests or service of the XX,XXX,XXX Interestingly, loan means the forbearance now, subservice, since are forbearance, significant need and the option. lien it We’ve first advantage have decrease XX% make have of of As the XX.X% their service of we requested those outset that because portfolio through representing borrowers September have forbearance book through who not requested seen weeks in the at have taken relief

loan as reached September their their out had resolved, XX%, borrowers loans has their number will paid also reporting As or hardship been has as XXX,XXX. of or off period, credit part initially XX,XXX had and that say peak waiving forbearance approximately who to bureaus. was negative opted forbearance loan, opted of the the their And is by fees The no loan in, declined have and of modified. be current, we're out, XX, certain to there in number

have approximately onboarded During quarter, we were the third forbearance. in loans XX,XXX originated non-Flagstar that

isn't period forbearance meaningful. comparing So as over period activity

we MSR to coming at ratio it the outset is CETX our in becomes threshold after During pandemic. deals. And for MSR the punitive. MSR below capital million back market before the flow it quarter, certainly dried of up is sold the XX% The $XXX significantly currently XX%,

another in our liquidity the that as from averaged custodial compared sheet. $X.X benefit provides fund XX% Finally, our we is prior quarter. it helps quarter, just get third increase subservicing an this Again, the business, to deposits billion balance

with our flourish mortgage continues give and from the business origination models subservicing scale to listeners. valuable operations, will This concludes quality both call we to Our business the questions believe our us be of the capabilities, and our we one and When now mortgage remarks, successful. in prepared combined open of most industry. the

Operator

[Operator Instructions].

come Raymond Tamayo will from James. from Our first question Daniel

Daniel Tamayo

able up morning of good on Hey, this a I the able quarter. holding yield, Congratulations warehouse bit you're still about to the wanted there, great or period and some little these guys. competition changing kind clients rates of that if going you're balance there the envision other if the for using you still higher going but but sustainability. or asked a if clearly I just sustainability the charge all there's on if forward factor talk first, to quarter, at given sheet, last end

Alessandro DiNello

on do we our and leave of annual all are any envision not had that have change, a we not rates at I competencies the charging.

if you at floors. not know probably all most, are warehouse As these Danny, lines, their of

likelihood - think sustainability that I So yield pretty the of is the is high. of the

$X.X far or thus the of balances, balance in through In noted, October. as so, we're at Reggie terms average billion yesterday

So that's hanging well. in there as

I So a I have do know, mean, concentration you we policy. disciplined think,

you I there is opportunity going strong. forward the be our know, so, against growth will measured And think but capital growth, pretty

to if has to see Reggie that. add me he Let anything wants

Reggie Davis

business. to for that mean, nothing disciplined can think execute. get seeing add. We we paid we've it, our more opportunities we're approach. and as and I a to like got We more No, struggle competitors fairly

Daniel Tamayo

lower back you then overall. a there you you you then, yield you curve you for - potential could have if bit, might about that know, that terrific. a talk and you mitigate levers demand the do side. capacity last side on know, maybe demand to that yield you the comes several And know, a maybe pull, kind as curve Thanks. see quarters. here, a know, you steeper see how in we business right, kind - the overall How that, if know, about - on a volume you impact before order stepping little All know, a much reduction lot in mortgage do to is the delta the just what of for see of being outstripping you've steepening significant into there play mortgage would talked volumes and And

Alessandro DiNello

future, Danny, I'd out guess hard Well, Yes. I it's this. you but know, to into say look the that far

of mortgage some the our long that we've got I can. in runway we're think as business, view going continue to and to advantage as take that is we

and we point rates way, think other a of there's yield in see curve, see any would should I know, mitigate that mitigate, could might the kick business the that the going You that mortgage in business. other the that start steep in pieces reduction probably at we'd

Let or Lee that. add anything me if see anybody to wants else to

James Ciroli

I those comments, agree Danny. with

model look have. really the you at have know, we to balanced You

in while mortgage about would to business perform scenario. think business in the that servicing the going crimp well that so a about the how that bit, little arrangement, Banking And Community do business could think kind and how of is an

of predict regardless to but And positioned going well really to are heading. able the so, you not obviously, do we've where know, to where they're we're rates be, company

Lee Smith

is this Danny, Lee. And Yes.

diversified want can I we that. So whatever to always successful, happens emphasize we've said model, The interest to rates. be

So, won't repeat anything Sandro said. and Jim have

side, this mortgage know, semi-variable. we've XX% you before, XX% the of to said variable, expenses and are On our

natural And expense down, goes going the your have to so volume as well. base in as you're some flex

Daniel Tamayo

That's - on expenses. I the color. all just terrific. Maybe the that on appreciate last the one

they've mortgage. mentioned, you to lower quarter in related As running the been you know, than

going you seen come Advisors Is going to kind the prior quarter that out. of percentage forward? just think this we've what that than there to be incentives is have and the You lower driver Opes mentioned

Lee Smith

Yes. an Opes The main coming earn-out Danny, to end. driver that, is for the

out. come that's so And

going see You forward. won't

rate that's in can the give I expenses or got we've think mortgages, think where where code, I XX, it’s the Slide terms I of be zip on you percentage run expect of chart, closings. you’re the to seeing as a and a of take, think

Daniel Tamayo

Thank color. you the all Terrific. for

Operator

you. Thank

from next question from Our will be Piper Siefers Sandler. Scott

Jamie Benjamin

for Benjamin is This my actually for Thanks questions. taking Scott. morning. Good on Jamie

with some from if securitization quarter. well, up very benefit benefit I held First, you sale was the this wondering transaction what was margins that clarify gain could quarter. on

Alessandro DiNello

RMBS? the from was benefit the much How

Jamie Benjamin

Yes.

James Ciroli

Yes.

disclosed was We was it half sizable, - but haven’t that. of actually rather only was maybe No, it that benefit. it

execution what call side. on just I made other secondary was half improvements that other we The really the

Lee Smith

got RMBS. Yes. it I'll of was the correspondent see an we over view. volume of channel biggest quarter non-del margin better is Half point just right. Jim We did jump quarter and our wise. execution in. That's hedge, our in a around channel and from increase

So the three drivers. were those

Jamie Benjamin

follow-up. moreover, the additional on could the one deposit sheet little you then And that's us more around about levers deposit movements, Whether cost costs. in Thanks. Appreciate could clarity a flex leverage, balance interest margin? et net tell what wondering, you. Thank Perfect. you bit Was the decrease cetera.

Alessandro DiNello

the come And think into Well, CDs we're hold we side. think to feel are deposits, rate the there's so going because going I pretty discipline. the of still play the that on the of some I and warehouse yields confident just - pretty runoff to drive higher that are from influence

that. Reggie Let comment on me let

Reggie Davis

Yes.

into we've lower had portfolio, because We able the move cost to been I we've CD know, opportunities think the with with we've one the the of is, for of schedule, the of products. additional the year. balance got been year pleased things as we've happen maturity maturity this that

So trend we would expect that to continue.

Jamie Benjamin

you Perfect. very much. Thank

Operator

Our Wedbush. next from question will be from Coffey Henry

Henry Coffey

mean, the about EBO questions. as the my be how EBO know, thinking own, what cetera, and then about Two loans subservicing? into EBO governor more taking or the for a gains? Ginnie opportunity. into both I may talked little what thanks areas. it is behind resecuritization work, converting a in Exactly capital servicing - forbearance and et the does everyone, especially with opportunity. that you morning, billion So you $X.X Good bit you One, know impact, it's but servicing may specific with I of Yes. Mae an I'm that And you

Lee Smith

Yes.

Jim point. to and Henry, want then probably So take let me will this,

and balance $X.X the Flagstar are of is MSR. Ginnie forbearance, because all Ginnie billion are EBOs we on the terms $X.X owned In borrowers referenced in that sheet that the the

consequences The remarks accounting I mentioned So prepared they’re … the Flagstar owned in EBOs.

Henry Coffey

own them you you’re sheet? them putting or balance on just Do your

Lee Smith

the balance on Yes, them sheet. we’re putting

early explain. show is them as this is or bought owning not I'll out have - the where MSR whether out. to We And this not. consequence buyout, The them them buy you accounting of what an is

pandemic. biggest is Once a own through get number so the all get we think them against payments get impact modified And the we the will to then resecuritizing sale will partial If claim. they're back their the making will big These were prior either of on reinstated go the for on performing after EBO. or And capital. portion and us expires, an the process. modified forbearance outright, loans small to period a they'll reinstated, or case, they're no conjunction longer benefit buy categorized loans. out and A as in partial realize that's modified with gain the claim

Henry Coffey

know? size or you that number, what is the don’t And of

Lee Smith

forbearance, that working We for Act period remember - per don't the know six CARES expiring We're the you've now. month to first is got yet.

correct six And have either know, claim those and process they just a so extend. can of working need extend to or and through modification want because months, we a continue through we're loans opt partial they or or for forbearance, pay And you sort out second partial a borrowers they to a don't don't that option can to the claim.

the so So but that, cannot there's on we're many X right working … parts. say spot moving through because we the marks now been it’s And

Henry Coffey

Mae Ginnie government in The X.X in foreclosure, billion …

Lee Smith

It’s in forbearance.

Henry Coffey

notes. I misread my sorry. Forbearance. I'm own

Okay.

If so the land, see delinquent, I’m they of And that view, Freddie things get loans, a that to from and not of or? some status, in loan have we counted restate they Ginnie through when $X.X to billion XXX of theoretically have sorts healthy, you as right? out? delinquent, view, longer an point the if to there go from those about those of thinking with over, go look fairly the an loans then kind that Or Mae X.X principle the opportunity is isn't are Fannie and capital it all buy of are opportunity or and forbearance in constrained point don't that in at all they current are forbearance delinquency - modification to billion

Lee Smith

them. of all not No,

to continued have them of Some pay.

And will just and so they opt out. they remain current

a and have corrected get those will then modification, those waterfall our claim buy a them corrected that And process partial But follow. clear will a to that only. be partial a we of through you modification, there's need yes, claim out. to Some just through then or

James Ciroli

know buckets. is how don't each much those we in What is one of

Lee Smith

Correct.

Henry Coffey

helpful. capital. of no, have lots as problem, an I'm a have opportunity more - because No, I’m as this liquidity thinking it and you just than lots of you is of

Alessandro DiNello

is comments upside. just noted in have at that Jim some We his point. it what it don't know this could Yes.

James Ciroli

with with lot that as I'm we keep within in that own you develop our subservicing the and be them is, But clients, And able sure whatever good of that also Right. mind quantified their opportunity relationship we'll haven't opportunity a to a know, loans. yet. partner well us to have

Henry Coffey

No, figure sale trying out you quoted, no, on to ultimately to that I you give I'm was what fourth could the again, for just the agree. quarter, Gain be. benefit number the could me the number - Lee? revenue

Lee Smith

XXX Yes. XXX, million. X-X-X,

Henry Coffey

or the because from the two sort fairly you saw obviously plays of the be cost going high, that that's last still think but closing there what you down in being being in with of originations, you we know, then a quarters. there, down some So of seasonality out? actual business, and disconnect locks how And to compression do get is

Lee Smith

about doubt Yes, no it.

high originations because QX, remain that QX. I strong will in think fallout you'll locks or find were closings adjusted

Full closings usually the of business MBA just forecast, we're got reduction if the locks, with in margin that days, the and well, as So - what adjusted to months they've look push see said. at I in going into quarter. because seasonality in and fewer continue market be winter out going and agency to particular. And that down volume through is QX coming QX, the a consistent the volume to in there those we purchase affecting fourth you

Henry Coffey

all August, how think all the we’re you we're call if are competitive right at if affecting I landscape the now? - you IPOs these since - specs, six at I no, so. No, for you - number include

Lee Smith

at investors more of point investors impacting from view. see new Yes. and a and is, What us would mortgage say though that hope I'm number of I at looking into bring the Flagstar thrilled I could would new a obviously business all stock. think not that to It's favorably,

Henry Coffey

I agree all with only can that. of

congrats great quarter. helpful This comments. very So thank is the Thanks on for a you. and

Operator

you. Thank

Our with B. next question Moss will be Riley from Securities. Steve

Steve Moss

morning. to, questions criticizing of kind on Good know, with of but you credit curious been have days? was where these my just here, Most are asked loans regard classified here,

James Ciroli

Yes.

quarter. don't same to thing. Yes. see disproven watch. We should deferral, you. wondering a loans in know, proven we honest a unless Honestly, the those loans stance not We unless really On We’re them this said facetious. - our took were portfolio. you last I’m precautionary be in be when I'm basis, that with trying being past

So significant point They’re of time, we're seeing this our But amount a criticized. not loans past. criticized portfolio. at in own not in

Alessandro DiNello

Yes.

given to going adjustments taken uses we've that's comments we're we make. think as can, the much and permitted to why push as don't qualitative might just know, liberty You our around to pushing we’re that forward. that. why happen careful the to as we model want high you what ACL economic cautious we about the be going get that's my overconfident that are scenarios mean, And we're as because here. I it can our And

it we the - as reserve. out. I get you, going We we're use wonder, it So that it up right mean, know, this I see we're strong you we'll how that all pleased believe surprised don't like but and we're as as through wait is is. And, holding you know. shakes pandemic, and - I with why really, guess now, to

are going the said, I difficult integrity know, I sponsors hope these and okay. we're as But think and for for prepared our we're work it not, going we're to if the be quality, worst we of they're should and to but through you times, high happen. best,

James Ciroli

in my not yet our comments my convinced terms on we've economy both of remarks is, got to prepared a CECL about recovery. to view and that the V-shaped what back in go we're And

Alessandro DiNello

commercial sheet this balance really identify And loans at organization. in are and remember, know, what the look you

with take $X of away take the loans recession, assets. losses warehouse available for where $XX the that's in sale, last that is to million small of residential size the that losses had loans, are compared you bank to part compared you the mid-sized and portfolio and over loans we've XX only the the our through billion If away great really exposed to company years, typical including of the a

Steve Moss

here. mortgage Okay. return the kind how That's low assets, of is helpful. income know, on And then you the the just on wondering, sustainable servicing

be You say know, come another would XX XX what the rates downside points? if down potentially mortgage let's or basis

Alessandro DiNello

to And circumstances, we've want saw asset, X%, I the pretty add And to place. MSR X%, X% think we might that historically, Jim quarter on quarter unlikely. we've MSR to can and comment what I to me because particular happen at looking if over I we been going achieved get be in in you're asset. past that return can think this phenomenal. At model, that But you're that in quarter, think a but satisfied think is on a here. been particularly our times, you was if Look, pretty Let quarter, good X% to or haven't able X% consistently particular a better. do market return of your

James Ciroli

you pen completely outlined Sandro, some We value cautious high on quarter asset us. you that mean, be know, I last Yes. that end agree set is to just also how to the Look, this the fair second the up comment. quarter you - part pen of the in just that we've it to is, you quarter. very know, a right asset. direction in I value at been remarks for bounced taking we conservative know, And going that that made range But things there. we conservative with was of very that took

Alessandro DiNello

got we you’ve add, really, manage that good really And have have to good and I people people, asset. that might really some

Steve Moss

question. then helpful. That's last And one

Kind Just of the new up to million expenses of curious, run is going rate? Just dedicated think in that the terms about that forward. quarter-over-quarter. level XX bank,

James Ciroli

Yes.

was some there remarks, that to of a from So sold having quarter. comment costs those going recur, it loans. isn't in prepared the credit my capitalized last that origination Steve, to that's in the July. It PPP a We with do in was was and

some The to that some other, related payments there the that costs triggered not happened arrangements. executive compensation to secondary Those quarter are MP some were under recur. last going

that expenses some are of there's right now, deflating QX and So non-recurring level just things the QX inflating expenses.

Alessandro DiNello

it's So, to answer your question, a new relic. not

Steve Moss

very I appreciate that. That's much. helpful. Thank you

Operator

Thank you.

George will from Our from be next KBW. question Bose

Bose George

asked things. well, little most of but see have been I as mine Yes, afternoon. a of couple Good guys. Hi

a You loans with only the the talk as same, that business if spoke margin, can next the year. slows know, about, remained you but for it warehouse does what sale, MIM some banking just you little about but held how impacts point, that how just rates mortgage year, bit, know, looks at and and the you next

Alessandro DiNello

in the a I rates if good same, position the Look, margin. remain pretty interest think to - think sustain we're our I that net

- it's we out feel think quarter, I good. Jim the Now, hard to I both me for next for Jim suggested farther look and, than a and pretty quarter know, you

here, going out what about is a farther limb pretty out that, but So, than man, position good I'm on feel there. going I our

gaining even selective market right if pretty who we're think stay it share we're we're that than our the pricing. about could and MBA, Mae, business, in we year, and the firm pretty doing mortgage I on pretty strong, area, Mac We're being warehouse more and that the because can do being doing now. I with, think think, next we're the balances clients Freddie Fannie numbers the that

you you prospects market, being I quarter. a in quarter for how But that pretty hey, know things think So, even the to weaker from mortgage good. are change warehouse know, strong,

out year. to next So go talk and it's about hard pretty

James Ciroli

were quarters still of look to that, know, of margin, talked couple government they if know, in warehouse add Even balances levels second would quarter, you we're also that, I Bose, we guarantees about. pretty were you excluding delivering, lower. net a and lower those with consistent you Yes. ago, loans interest

those there's I that there's at to quarters. we've the still room interest bit said, sustain going I net been room able warehouse think couple Not to but happen, down. as So of that's rotate Sandro to levels a rotate balances reporting lower be have margin little the the that and think we think have to last

Bose George

Okay, helpful. Ginnie the buyouts. actually great. Mae one just That's And Thanks. more on

a of, been just quite they park to it you with peer You Is purchased know, amount buyouts know, what this know, - thoughts bit this. ahead are fair you have some I’m of already? curing a your thoughts of there. why banks of sort curious are sort liquidity of of institutions your just somewhere? Just, there's

Lee Smith

we don't institutions I've only mean, Yes. they're know can comment other Bose, I what think approach. on I our doing. And I been comment on that. over you and yes,

a of and them claim partial buy outright modify we or part will We either re-securitize. as out can where

Alessandro DiNello

out out benefit them Buying also Yes. them permanent. see There’s no quickly buying there. to is that we

So that. you can't undo

question, to Henry's buy when so as to Lee them buying sure out. earlier the out buy we're with out, that want was talking we we going And loans be we're that through

Bose George

Yes, Thanks sense. guys. makes Okay.

Operator

the for Thank you. our I'm over showing further speakers no turn questions to closing I'd back remarks. like call to time. at this

Alessandro DiNello

diversity, about at what my about not world, second cultural had the calls had employees for justice us, and for are we a going fad how our set in the how change not was inclusion a the is talked on we initiatives. that, continue the in I to we inspired in on us. with quarter, In for back. how communicated the the them, Carrie. around continue quarter, to In that how turning third This closing, change deal, social It's issues with the world past much out engage Flagstar, Thanks, not we're important a to equity, and employees change. fundamental, real and our passing cultural

for I'm a we risk circumstances we when into we make But deposit-generating fee better our it, for country. I underpinning, have and to and be when even built you not We're but the accelerating to who run now employees when in history. success. Last is best second, the I there minority support change? most relationships of operation, structure, who safe These best and we're we developed this diversity. a quarters money fellow do that out planted were We of Is and playing be success the better because the years our to had own organizations cues how bankers you taking companies. put to mind, subservicing we our about through just do. a thing of it. it no in to, to that leadership lending, expect businesses what to company. We're support the imagination. are small to harder or quarter. that our and directors, the time is in top-notch leaders changing story in a have of management today the I morning the five connection achieve beyond happened firmly Please to the front to profitable, nonprofits healthy. from We're low-risk our you seeds to company thanks my what taking businesses taken lending the E&I. because support doing has question of more first, the is board a on to also at the businesses, of accomplished that success. In today, executives in believe E&I the warehouse for own employees carefully when And diversified of nurtured commercial about will right change awe our look doing Flagstar's for we composition The behind our and businesses, their Why? a composition a two DE&I one with hiring belong of cultural on in the to stay we our my the practices, much team, thank Well, better leveraged better. And hear our makes to coincidence, recruited warehouse when Talk because top the not we business future past think there's and and January. least, is I'm everyone And can that. it's but affordable arm putting in we're successful

Operator

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

You may now disconnect.

Flagstar Bancorp (FBC) 21 Oct 202020 Q3 Earnings call transcript