Flagstar Bank (FLG) Q4 2018 earnings summary

Executive summary

• 2018 marked a return to organic balance-sheet growth after the SIFI asset threshold increased from $50B to $250B; year-end assets reached $51.9B, up 5.6% YoY.

• Net income was $422.4M vs. $466.2M in 2017; diluted EPS was $0.79 vs. $0.90. Growth in loans and securities was offset by higher funding costs.

Financial highlights

• Net interest income fell 9% to $1.031B; interest income rose 6.8% to $1.690B, while interest expense increased 45.6% to $658.7M.

• Non-interest income declined 57.8% to $91.6M; 2017 included an $82.0M gain on covered-loan and mortgage-banking sales, plus a $29.9M securities gain.

• Non-interest expense fell 14.8% to $546.6M, including lower compensation and G&A costs; income tax expense was $135.3M and the effective tax rate was 24.25%.

• Total deposits grew 5.7% to $30.8B; borrowed funds rose 10.0% to $14.2B. Securities increased 59.8% to $5.6B as excess cash was redeployed.

Outlook and guidance

• 2019 operating expenses were expected to finish in the low-$500M range, with further declines anticipated following regulatory relief and expense reduction actions.

• About one-third of loans, averaging a 3.37% coupon, were due to mature or reprice over the next several years; current origination rates were closer to 4.00%.

• Acquisitions may resume, but any transaction must meet internal metrics and be accretive; otherwise, it will not proceed.