Flagstar Reports First Quarter 2014 Results Bolsters loan loss reserves by increasing allowance for loan losses estimation period

Asset quality remains stable

Achieves previously announced cost reductions

Small uptick in gain on sale margin

TROY, Mich., April 22, 2014 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported a first quarter 2014 net loss applicable to common stockholders of $78.9 million, or $1.51 loss per share, as compared to net income of $160.5 million in the fourth quarter 2013, or $2.77 earnings per (diluted) share, and net income of $22.2 million in the first quarter 2013, or $0.33 earnings per (diluted) share. Book value per common share decreased to $19.29 at March 31, 2014, as compared to $20.66 at December 31, 2013 and $16.46 at March 31, 2013.

"Our first quarter results were largely in-line with expectations except for our provision for loan losses and a one-time adjustment to our repurchased loans." said Sandro DiNello, the Company's President and Chief Executive Officer. "During the quarter, we made the determination to significantly bolster our loan loss reserve estimates which results in an increase to the loss coverage period from approximately 12 months to 18 months. As a result of this action, which was not driven by charge-offs, the allowance for loan losses increased to $307.0 million at March 31, 2014, from $207.0 million at December 31, 2013 and the ratio of allowance for loan losses to non-performing loans increased to 286.9 percent from 145.9 percent at December 31, 2013. Additionally, we recorded a $21.1 million reduction to the originally recorded fair value of loans that we repurchased from the GSEs and which were performing at that time."

Mr. DiNello continued, "In a very challenging mortgage environment, we were able to maintain our market share and at the same time increase our gain on sale income from $44.8 million in the fourth quarter 2013 to $45.3 million in the first quarter 2014, despite the industry-wide decline in mortgage production levels. Additionally, the Bank's net interest margin increased 125 basis points to 3.05 percent in the first quarter from a fourth quarter 2013 rate of 1.80 percent due primarily to the fourth quarter prepayment of our higher cost Federal Home Loan Bank advances. Furthermore, our continued focus on enhancing efficiency across the organization led to a reduction in noninterest expense as we completed the previously announced workforce reduction."

Mr. DiNello continued, "We see significant opportunities to develop and nurture profitable consumer and business relationships as Michigan's leading community bank. We will continue to strengthen our mortgage platform and hope to achieve profitability in any mortgage environment and remain optimistic about the Company's future prospects."

First Quarter 2014 Highlights (as compared to Fourth Quarter 2013):

  • Net loss applicable to common stockholders was $78.9 million, as compared to net income of $160.5 million in the prior quarter:
    • The fourth quarter 2013 results were impacted by several significant one-time items:
      • Tax benefit of $410.4 million, primarily due to the full reversal of the federal deferred tax asset ("DTA") valuation allowance and a partial reversal of the state DTA valuation allowance.
      • Loss on extinguishment of debt of $177.6 million (included in non-interest expense) from the prepayment of $2.9 billion in long-term fixed-rate Federal Home Loan Bank ("FHLB") advances.
      • Incremental non-interest expense of $61.0 million related to the estimated fair value liability associated with a lending-related legal settlement reached in February 2012 with the Department of Justice ("DOJ Settlement").
      • Benefit (included in non-interest income) of approximately $24.9 million associated with the previously announced settlement agreements with Fannie Mae and Freddie Mac.
  • Net gain on loan sales increased to $45.3 million, as compared to $44.8 million in the prior quarter:
    • Gain on sale margin (based on fallout-adjusted rate locks) increased to 0.93 percent, as compared to 0.85 percent in the prior quarter.
    • Fallout adjusted mortgage rate lock commitments decreased to $4.9 billion from $5.3 billion in the prior quarter.
    • Total mortgage originations decreased to $4.9 billion, as compared to $6.4 billion in the prior quarter.
  • Continued improvement in asset quality:
    • Sold $35.1 million in unpaid principal balance of residential first mortgage non-performing loans and troubled debt restructurings ("TDRs"), with a carrying value of $25.6 million.
    • Net charge-offs decreased to $12.3 million, as compared to $14.1 million in the prior quarter.
    • Non-performing assets decreased to $141.8 million, as compared to $182.3 million in the prior quarter.
    • Ratio of allowance for loan losses to non-performing loans held-for-investment at 286.9 percent.
  • Capital remains strong:
    • Tier 1 leverage ratio was 12.44 percent, as compared to 13.97 percent in the prior quarter.
    • Basel III, pro forma, would be an estimated Tier 1 leverage ratio of 10.94 percent and estimated Common Equity Tier 1 ratio of 19.56 percent (see non-GAAP reconciliation).

Net Interest Income

First quarter 2014 net interest income increased to $58.2 million, as compared to $41.2 million for the fourth quarter 2013 and $55.7 million for the first quarter 2013. The increase from the prior quarter is primarily due to the reduction in the first quarter 2014 interest expense following the fourth quarter 2013 prepayment of higher-costing Federal Home Loan Bank advances. Net interest margin for the Bank increased to 3.05 percent for first quarter 2014, as compared to 1.80 percent for the fourth quarter 2013 and 1.89 percent for the first quarter 2013. 

Interest income decreased by $5.5 million from the fourth quarter 2013, primarily driven by lower balances of interest-earning assets. Average residential first mortgage loans held-for-sale and warehouse loans decreased, both attributable to an industry-wide decrease in mortgage loan originations during the first quarter 2014. These decreases were slightly offset by an increase in average investment securities available-for-sale as the Company continues to invest excess cash into higher-yielding liquid securities.

Interest expense decreased by $22.5 million from the fourth quarter 2013, due to a $1.9 billion decrease in average Federal Home Loan Bank advances as a result of the prior quarter prepayment and a 292 basis point decrease in the average cost of such advances. The average cost of funds for the first quarter 2014 was 0.52 percent, as compared 1.44 percent for the fourth quarter 2013 and 1.54 percent for the first quarter 2013. The average cost of total deposits decreased to 0.46 percent for the first quarter 2014, as compared to 0.50 percent for the fourth quarter 2013 and 0.78 percent for the first quarter 2013.

Noninterest Income

First quarter 2014 noninterest income decreased to $75.0 million, as compared to $113.1 million for the fourth quarter 2013 and $184.9 million for the first quarter 2013. The decrease from the prior quarter was driven by decreases in other noninterest income, representation and warranty provision - change in estimate (discussed in Credit-Related Costs and Asset Quality), loan administration and net loan fees and charges, offset by lower net transactions costs on sales of mortgage servicing rights.  

First quarter 2014 net gain on loan sales increased to $45.3 million, as compared to $44.8 million for the fourth quarter 2013 and $137.5 million for the first quarter 2013. The increase from the prior quarter reflects an increase in gain on loan sale margin, offset by a lower level of gross mortgage rate lock commitments. The gain on loan sale margin increased as the Company's hedge execution improved as compared to the fourth quarter 2013, while the volume of mortgage rate lock commitments decreased as a result of an overall industry decline in volume due to seasonality.

Gain on loan sale income is driven by rate lock commitments net of estimated cancellations, or "fallout-adjusted locks," as the Company uses fair value accounting to account for the majority of its mortgage business. Fallout-adjusted locks were $4.9 billion for the first quarter 2013, an 8.4 percent decrease from the fourth quarter 2013. Gain on loan sale margin (based on the amount of fallout-adjusted locks) increased to 0.93 percent for the first quarter 2014, as compared to 0.85 percent for the fourth quarter 2013 and 1.40 percent for the first quarter 2013.

Net transaction costs on sales of mortgage servicing rights ("MSRs") increased to income of $3.6 million for the first quarter 2014, as compared to an expense of $9.0 million for the fourth quarter 2013. The change from the prior quarter reflects a release of holdback reserves during the first quarter 2014, as compared to expenses incurred during fourth quarter 2013 due to bulk sales of $53.4 billion (including a $40.7 billion previously announced bulk sale) in aggregate unpaid principal balance of underlying mortgage loans during the fourth quarter 2013.

Loan fees and charges decreased to $12.3 million for the first quarter 2014, as compared to $19.3 million for the fourth quarter 2013 and $33.4 million for the first quarter 2013. Loan fees and charges are driven by loan originations, which decreased to $5.0 billion for the first quarter 2014, as compared to $6.5 billion for fourth quarter 2013 and $12.5 billion for the first quarter 2013. The 22.5 percent decrease from the prior quarter was primarily driven by decreases in both purchase and refinance mortgage originations, partially offset by increases in both other consumer and commercial loan originations. 

Net servicing revenue, which is the combination of loan administration income (including the off-balance sheet hedges of MSRs) and the gain (loss) on trading securities (i.e., the on-balance sheet hedges of mortgage servicing rights), was $19.6 million for the first quarter 2014, as compared to $28.9 million for the fourth quarter 2013 and $20.4 million for the first quarter 2013. The decrease was primarily the result of a reduction in the MSRs earning asset following the fourth quarter 2013 bulk sales of MSRs, as part of the Company's strategy to seek opportunistic ways to reduce its concentration of MSRs asset. Additionally, net servicing revenue was affected by lower loan originations during the first quarter 2014. The ratio of MSR-to-Tier 1 capital was 28.1 percent, as compared to 22.6 percent in the fourth quarter and 55.1 percent at March 31, 2013.

Other noninterest income reflected a loss of $14.5 million for the first quarter 2014, as compared to income of $8.4 million for the fourth quarter 2013 and income of $9.2 million for the first quarter 2013. The decrease included a $21.1 million adjustment to the originally recorded fair value of performing repurchased loans, primarily caused by liquidity risk which will not repeat.

Noninterest Expense

Noninterest expense was $139.3 million for the first quarter 2014, as compared to $388.7 million for the fourth quarter 2013 and $196.6 million for the first quarter 2013. Excluding the prior quarter loss on extinguishment of debt and the adjustment to the fair value related to the DOJ litigation liability, noninterest expense decreased $10.8 million from $150.1 million for the fourth quarter 2013, driven primarily by decreases in other noninterest expenses, compensation and benefits, federal insurance premiums and commissions, partially offset by an increase in asset resolution expense (discussed in Credit-Related Costs and Asset Quality).

Compensation and benefits decreased to $65.6 million for the first quarter 2014, as compared to $69.6 million for the fourth quarter 2013 and $77.2 million for the first quarter 2013. The decrease from the prior quarter was primarily due to decreased employee benefit and incentive compensation costs. Offsetting these decreases were higher expenses due to the timing of payroll taxes.  

First quarter 2014 legal and professional expenses decreased to $13.9 million, as compared to $79.2 million for the fourth quarter 2013 and $28.8 million for the first quarter 2013. The decrease from the prior quarter was primarily driven by a $61.0 million expense in the prior quarter related to the fair value of the DOJ litigation liability and lower consulting costs.

Other noninterest expenses decreased to $7.9 million, as compared to $12.9 million for the fourth quarter 2013 and $8.9 million for the first quarter 2013. The decrease from the prior quarter was primarily due to a reduction in other taxes and lower warrant expense reflecting the quarterly valuation of the outstanding warrant liability.

Credit-Related Costs and Asset Quality

At March 31, 2014, the Company's allowance for loan losses increased to $307.0 million, from $207.0 million at December 31, 2013 and $290.0 million at March 31, 2013. At March 31, 2014, the ratio of the allowance for loan losses to non-performing loans held-for-investment increased to 286.9 percent, as compared to 145.9 percent at December 31, 2013 and 78.5 percent at March 31, 2013.

Net charge-offs for the first quarter 2014 decreased to $12.3 million, as compared to $14.1 million for the fourth quarter 2013 and $35.4 million for the first quarter 2013. Provision for loan losses increased to $112.3 million for the first quarter 2014, as compared to $14.1 million for the prior quarter and $20.4 million for the first quarter 2013.

As the Bank continued to evaluate emerging credit data, including the performance of the payment resets, and their effect on probable losses inherent in the remaining residential portfolio, the Company increased its estimate of the loss estimation period from 12 months to 18 months and increased the reserve related to the reset risk at March 31, 2014, resulting in an increase in coverage for losses by approximately 50 percent as compared to December 31, 2013.

Total non-performing loans held-for-investment were $110.7 million at March 31, 2014, a decrease as compared to $145.7 million at December 31, 2013 and $369.3 million at March 31, 2013. The decrease from the prior quarter was driven primarily by the first quarter 2014 non-performing and TDR loan sale with a carrying value of $25.6 million. The ratio of non-performing loans held-for-investment to loans held-for-investment decreased to 2.76 percent at March 31, 2014, from 3.59 percent at December 31, 2013 and 7.79 percent at March 31, 2013. The allowance for loan loss on individually evaluated reserves was $86.2 million at March 31, 2014, compared to $86.7 million at December 31, 2013.

Real estate-owned and other non-performing assets decreased to $31.1 million at March 31, 2014, as compared to $36.6 million at December 31, 2013 and $114.4 million at March 31, 2013. 

The Company maintains a representation and warranty reserve on the balance sheet, which reflects an estimate of losses that may occur both on loans that have been sold or securitized into the secondary market and those currently in the repurchase pipeline, primarily with the Fannie Mae and Freddie Mac (collectively, government sponsored entities or the "GSEs"). At March 31, 2014, the representation and warranty reserve was $48.0 million, as compared to $54.0 million at December 31, 2013 and $185.0 million at March 31, 2013. The decrease from the prior quarter was consistent with lower in net charge-offs on loan repurchases from the prior quarter. As a result, provisions related to the representation and warranty reserve - change in estimate was a benefit of $1.7 million for the first quarter 2014, as compared to $15.4 million for the fourth quarter 2013.

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which the Bank files claims with HUD) was $11.5 million for the first quarter 2014, as compared to $3.4 million for the fourth quarter 2013 and $16.4 million for the first quarter 2013. The increase from the prior quarter was primarily driven by lower gains on real estate-owned sales during the first quarter 2014.

Balance Sheet and Funding

Total assets increased to $9.6 billion at March 31, 2014, as compared to $9.4 billion at December 31, 2013. The increase from the prior quarter was primarily due to increases in loans held-for-sale and investment securities available-for-sale, partially offset by a decrease in interest-bearing deposits as the Company continues to invest excess cash into higher-yielding liquid securities.

Total deposits increased to $6.3 billion at March 31, 2014, as compared to $6.1 billion at December 31, 2013. The increase from the prior quarter was due to increases in retail and government demand and savings deposits, as the Company continues to focus on growing core deposits.

At March 31, 2014, the Company had $0.2 billion of cash on hand and interest-earning deposits, as compared to $0.3 billion at December 31, 2013. The Bank maintains a line of credit with the Federal Home Loan Bank under which borrowings are collateralized by residential first mortgage loans and other assets of the Bank. At March 31, 2014, the Bank had outstanding borrowings from the Federal Home Loan Bank of $1.1 billion and an additional $1.8 billion of collateralized borrowing capacity available at the Federal Home Loan Bank. The Company also had $1.2 billion of investment securities available-for-sale, which could serve as a further source of liquidity.

Capital

The Bank's regulatory capital ratios remain above current regulatory quantitative guidelines for "well-capitalized" institutions. At March 31, 2014, the Bank had a Tier 1 leverage ratio of 12.44 percent as compared to 13.97 percent at December 31, 2013. At March 31, 2014, the Company had an equity-to-assets ratio of 14.06 percent.

Beginning January 2015, the Company and the Bank each becomes subject, on a phase-in basis, to the Basel III regulatory capital requirements that replace the current capital requirements. Assuming that the Basel III requirements were fully applicable at March 31, 2014, the Bank's pro forma Basel III Tier 1 leverage ratio is estimated to be 10.94 percent at March 31, 2014 (see Non-GAAP reconciliation). 

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, April 23, 2014 from 11 a.m. until noon (Eastern).

It is preferred that questions are emailed in advance to investors@flagstar.com, or they may be asked during the conference call.

To join the call, please dial (877) 638-9067 toll free or (647) 438-1131, and use passcode: 2389835. Please call at least 10 minutes before the call is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (647) 436-0148, using passcode: 2389835.

The conference call will also be available as a live audio cast on the Investor Relations section of flagstar.com. It will be archived on that site and will be available for replay and download. A slide presentation accompanying the conference call will also be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. ("Flagstar") is the holding company for Flagstar Bank, FSB, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners. With $9.6 billion in total assets at March 31, 2014, Flagstar is the largest bank headquartered in Michigan. Flagstar operates 106 banking centers, all of which are located in Michigan and 33 home lending centers in 18 states, which primarily originate one-to-four family residential first mortgage loans. Originating loans nationwide, Flagstar is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

Non-GAAP

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding the Company's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.  Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that are difficult to predict and could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement. Forward-looking statements contained in this press release and any information related to expectations about future events or results are based upon information available to the Company as of the date hereof.  Forward-looking statements can be identified by such words as "anticipates," "intends," "plans," "seeks," "believes," "expects", "estimates," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements made regarding the Company's current expectations, plans or forecasts of its core business drivers, credit related costs, asset quality, capital adequacy and liquidity, the implementation of the Company's business plan and growth strategies, the suspension of dividend payments on preferred stock, the deferral of interest payment on trust preferred securities, the result of improvements to the Company's servicing processes, the Company's strategy for its servicing business and other similar matters. Although we believe that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies, and other factors. Accordingly, we cannot give you any assurance that our expectations will in fact occur or that actual results will not differ materially from those expressed or implied by such forward-looking statements. We caution you not to place undue reliance on any forward-looking statement and to consider all of the following uncertainties and risks, as well as those more fully discussed in the Company's filings with the Securities and Exchange Commission ("SEC"), including, but not limited to, our Form 10-K and Forms 10-Q: volatile interest rates that impact, among other things, the mortgage banking business, our ability to originate loans and sell assets at a profit, prepayment speeds and our cost of funds; changes in regulatory capital requirements or an inability to achieve or maintain desired capital ratios; actions of mortgage loan purchasers, guarantors and insurers regarding repurchases and indemnity demands and uncertainty related to foreclosure procedures; uncertainty regarding pending and threatened litigation; our ability to control credit related costs and forecast the adequacy of reserves; the imposition of regulatory enforcement actions against us; our compliance with the Supervisory Agreement with the Board of Governors of the Federal Reserve System and the Consent Order with the Office of the Comptroller of the Currency. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the SEC, the Company undertakes no obligation to update any such statement to reflect events or circumstances after the date on which it is made.  

 

 

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(Dollars in thousands)








March 31, 2014


December 31, 2013


March 31, 2013

Assets

(Unaudited)




(Unaudited)

Cash and cash equivalents






Cash and cash items

$

56,968



$

55,913



$

50,840


Interest-earning deposits

162,229



224,592



2,179,846


Total cash and cash equivalents

219,197



280,505



2,230,686


    Investment securities available-for-sale

1,207,430



1,045,548



169,827


Loans held-for-sale

1,673,763



1,480,418



2,677,239


Loans repurchased with government guarantees

1,266,702



1,273,690



1,604,906


Loans held-for-investment, net






Loans held-for-investment

4,019,871



4,055,756



4,743,266


Less: allowance for loan losses

(307,000)



(207,000)



(290,000)


Total loans held-for-investment, net

3,712,871



3,848,756



4,453,266


    Mortgage servicing rights

320,231



284,678



727,207


    Repossessed assets, net

31,076



36,636



114,356


    Federal Home Loan Bank stock

209,737



209,737



301,737


    Premises and equipment, net

233,195



231,350



223,276


    Net deferred tax asset

451,392



414,681




    Other assets

285,759



301,302



591,650


Total assets

$

9,611,353



$

9,407,301



$

13,094,150


Liabilities and Stockholders' Equity






Deposits






Noninterest bearing

$

983,348



$

930,060



$

1,112,313


Interest bearing

5,326,953



5,210,266



6,734,978


Total deposits

6,310,301



6,140,326



7,847,291


    Federal Home Loan Bank advances

1,125,000



988,000



2,900,000


    Long-term debt

349,145



353,248



247,435


    Representation and warranty reserve

48,000



54,000



185,000


Other liabilities

427,627



445,853



730,396


            Total liabilities

8,260,073



7,981,427



11,910,122


    Stockholders' Equity






Preferred stock

266,657



266,174



261,828


Common stock

562



561



561


    Additional paid in capital

1,479,459



1,479,265



1,476,624


    Accumulated other comprehensive loss

(1,197)



(4,831)



(656)


    Accumulated deficit

(394,201)



(315,295)



(554,329)


Total stockholders' equity

1,351,280



1,425,874



1,184,028


Total liabilities and stockholders' equity

$

9,611,353



$

9,407,301



$

13,094,150


 


Flagstar Bancorp, Inc.

 Consolidated Statements of Operations

 (Dollars in thousands, except per share data)

(Unaudited)



Three Months Ended


March 31,
 2014


December 31,
 2013


March 31,
 2013

Interest Income






Loans

$

58,668



$

64,165



$

91,950


Investment securities available-for-sale or trading

7,538



6,515



2,094


Interest-earning deposits and other

145



1,153



946


    Total interest income

66,351



71,833



94,990


Interest Expense






Deposits

5,988



6,713



13,508


Federal Home Loan Bank advances

534



22,257



24,161


Other

1,628



1,660



1,652


    Total interest expense

8,150



30,630



39,321


Net interest income

58,201



41,203



55,669


Provision for loan losses

112,321



14,112



20,415


Net interest (loss) income after provision for loan losses

(54,120)



27,091



35,254


Noninterest Income






Loan fees and charges

12,311



19,349



33,360


Deposit fees and charges

4,764



5,193



5,146


Loan administration

19,584



28,924



20,356


Net gain on loan sales

45,342



44,790



137,540


Net transactions costs on sales of mortgage servicing rights

3,583



(8,981)



(4,219)


Net gain on sale of assets

2,216



51



958


Representation and warranty reserve - change in estimate

1,672



15,424



(17,395)


Other noninterest (loss) income

(14,519)



8,396



9,197


    Total noninterest income

74,953



113,146



184,943


Noninterest Expense






Compensation and benefits

65,572



69,572



77,208


Commissions

7,220



9,444



17,462


Occupancy and equipment

20,410



19,824



19,375


Asset resolution

11,508



3,372



16,445


Federal insurance premiums

5,010



7,932



11,240


Loss on extinguishment of debt



177,556




Loan processing expense

7,735



8,833



17,111


Legal and professional expense

13,902



79,232



28,839


Other noninterest expense

7,895



12,928



8,910


    Total noninterest expense

139,252



388,693



196,590


(Loss) income before income taxes

(118,419)



(248,456)



23,607


Benefit for income taxes

(39,996)



(410,362)




Net (loss) income

(78,423)



161,906



23,607


Preferred stock dividend/accretion

(483)



(1,449)



(1,438)


Net (loss) income applicable to common stockholders

$

(78,906)



$

160,457



$

22,169


(Loss) income per share






       Basic

$

(1.51)



$

2.79



$

0.33


       Diluted

$

(1.51)



$

2.77



$

0.33


 


Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in thousands, except per share data)

(Unaudited)




Three Months Ended








March 31, 2014


December 31, 2013


March 31, 2013

Mortgage loans originated (1)

$

4,866,631



$

6,439,242



$

12,423,364


Other loans originated

$

172,305



$

64,973



$

74,739


Mortgage loans sold and securitized

$

4,474,287



$

6,783,212



$

12,822,879


Interest rate spread - bank only (2)

2.96

%


1.58

%


1.64

%

Net interest margin - bank only (3)

3.05

%


1.80

%


1.89

%

Interest rate spread - consolidated (2)

2.87

%


1.54

%


1.61

%

Net interest margin - consolidated (3)

2.97

%


1.73

%


1.83

%

Average common shares outstanding

56,194,184



56,126,895



55,973,888


Average fully diluted shares outstanding

56,194,184



56,694,096



56,415,057


Average interest-earning assets

$

7,829,814



$

9,607,376



$

12,075,212


Average interest paying liabilities

$

6,363,459



$

8,341,976



$

10,338,644


Average stockholders' equity

$

1,444,741



$

1,273,763



$

1,173,982


Return on average assets

(3.39)%



5.70

%


0.65

%

Return on average equity

(21.85)%



50.39

%


7.55

%

Efficiency ratio

104.6

%


251.8

%


81.7

%

Efficiency ratio (adjusted) (4)

91.3

%


108.1

%


76.2

%

Equity-to-assets ratio (average for the period)

15.52

%


11.32

%


8.57

%

Charge-offs to average LHFI (5)

1.36

%


1.53

%


2.93

%

Charge-offs, to average LHFI adjusted (5)(6)

1.11

%


1.53

%


2.93

%




















March 31, 2014


December 31, 2013


March 31, 2013

Book value per common share

$

19.29



$

20.66



$

16.46


Number of common shares outstanding

56,221,056



56,138,074



56,033,204


Mortgage loans subserviced for others

$

39,554,373



$

40,431,865



$


Mortgage loans serviced for others

$

28,998,897



$

25,743,396



$

73,933,296


Weighted average service fee (basis points)

28.5



28.7



29.3


Capitalized value of mortgage servicing rights

1.10

%


1.11

%


0.98

%

Mortgage servicing rights to Tier 1 capital (4)

28.1

%


22.6

%


55.1

%

Ratio of allowance for loan losses to non-performing LHFI (5)

286.9

%


145.9

%


78.5

%

Ratio of allowance for loan losses to LHFI (5)

8.11

%


5.42

%


6.11

%

Ratio of non-performing assets to total assets (bank only)

1.49

%


1.95

%


3.70

%

Equity-to-assets ratio

14.06

%


15.16

%


9.04

%

Number of bank branches

106



111



111


Number of loan origination centers

33



39



41


Number of FTE employees (excluding loan officers and account executives)

2,483



2,894



3,456


Number of loan officers and account executives

315



359



322


(1)

Includes residential first mortgage and second mortgage loans.

(2)

Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period.

(3)

Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets.

(4)

See Non-GAAP reconciliation.

(5)

Excludes loans carried under the fair value option.

(6)

Excludes charge-offs of $2.3 million related to the sale of non-performing and TDR loans during the three months ended March 31, 2014.

 


Regulatory Capital

(Dollars in thousands)

(Unaudited)








March 31, 2014


December 31, 2013


March 31, 2013


Amount

Ratio


Amount

Ratio


Amount

Ratio

Tier 1 leverage (to adjusted tangible assets) (1)

$

1,139,810


12.44

%


$

1,257,608


13.97

%


$

1,318,770


10.14

%

Total adjusted tangible asset base

$

9,160,924




$

9,004,904




$

13,007,694



Tier 1 capital (to risk weighted assets) (1)

$

1,139,810


23.62

%


$

1,257,608


26.82

%


$

1,318,770


21.24

%

Total capital (to risk weighted assets) (1)

1,203,098


24.93

%


1,317,964


28.11

%


1,398,914


22.53

%

Risk weighted asset base

$

4,826,024




$

4,688,545




$

6,208,327





(1)

Based on adjusted total assets for purposes of core capital and risk-weighted assets for purposes of total risk-based capital.  These ratios are applicable to the Bank only.

 


Loan Originations

(Dollars in thousands)

(Unaudited)



Three Months Ended


March 31, 2014


December 31, 2013


March 31, 2013

Consumer loans









    Mortgage (1)

$

4,866,631


96.6

%


$

6,439,242


99.0

%


$

12,423,364


99.4

%

    Other consumer (2)

17,600


0.3

%


16,295


0.3

%


8,553


0.1

%

Total consumer loans

4,884,231


96.9

%


6,455,537


99.3

%


12,431,917


99.5

%

Commercial loans (3)

154,705


3.1

%


48,678


0.7

%


66,186


0.5

%

Total loan originations

$

5,038,936


100.0

%


$

6,504,215


100.0

%


$

12,498,103


100.0

%



(1)

Includes residential first mortgage and second mortgage loans.

(2)

Other consumer loans include: Warehouse lending, HELOC and other consumer loans.

(3)

Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans.

 


Loans Held-for-Investment

(Dollars in thousands)

(Unaudited)








March 31, 2014


December 31, 2013


March 31, 2013

Consumer loans









Residential first mortgage

$

2,348,691


58.4

%


$

2,508,968


61.9

%


$

2,991,394


63.1

%

Second mortgage

164,627


4.1

%


169,525


4.2

%


112,385


2.4

%

Warehouse lending

408,874


10.2

%


423,517


10.4

%


750,765


15.8

%

HELOC

273,454


6.8

%


289,880


7.1

%


167,815


3.5

%

Other

34,875


0.9

%


37,468


0.9

%


44,488


0.9

%

    Total consumer loans

3,230,521


80.4

%


3,429,358


84.5

%


4,066,847


85.7

%

Commercial loans









Commercial real estate

512,994


12.7

%


408,870


10.1

%


562,916


11.9

%

Commercial and industrial

266,176


6.6

%


207,187


5.1

%


107,688


2.3

%

Commercial lease financing

10,180


0.3

%


10,341


0.3

%


5,815


0.1

%

    Total commercial loans

789,350


19.6

%


626,398


15.5

%


676,419


14.3

%

Total loans held-for-investment

$

4,019,871


100.0

%


$

4,055,756


100.0

%


$

4,743,266


100.0

%

 


Residential Loans Serviced

(Dollars in thousands)

(Unaudited)








March 31, 2014


December 31, 2013


March 31, 2013


Unpaid Principal Balance

Number of

accounts


Unpaid Principal Balance

Number of

accounts


Unpaid Principal Balance

Number of

accounts

Serviced for own loan portfolio (1)

$

4,481,592


28,072



$

4,375,009


28,069



$

4,714,278


33,768


Serviced for others

28,998,897


146,339



25,743,396


131,413



73,933,296


360,018


Subserviced for others (2)

39,554,373


195,448



40,431,867


198,256





Total residential loans serviced (2)

$

73,034,862


369,859



$

70,550,272


357,738



$

78,647,574


393,786




(1)

Includes both loans held-for-investment (residential first mortgage, second mortgage and HELOC) and loans-held-for-sale (residential first mortgage).

(2)

Does not include temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights.

 


Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)




Three Months Ended


March 31,
 2014


December 31,
 2013


March 31,
 2013

Beginning balance

$

207,000



$

207,000



$

305,000


Provision for loan losses

112,321



14,110



20,415


Charge-offs






Consumer loans






     Residential first mortgage

(10,863)



(9,868)



(25,692)


     Second mortgage

(1,068)



(730)



(1,955)


     HELOC

(2,689)



(1,728)



(2,061)


     Other

(461)



(995)



(699)


 Total consumer loans

(15,081)



(13,321)



(30,407)


Commercial loans






     Commercial real estate



(5,051)



(13,162)


     Commercial and industrial



(48)




     Commercial lease financing



(1,299)




 Total commercial loans



(6,398)



(13,162)


Total charge-offs

(15,081)



(19,719)



(43,569)


Recoveries






Consumer loans






     Residential first mortgage

1,116



1,033



5,353


     Second mortgage

84



353



390


     HELOC

49



315



105


     Other

320



1,235



454


Total consumer loans

1,569



2,936



6,302


Commercial loans






     Commercial real estate

1,115



2,300



1,843


     Commercial and industrial

29



85



9


     Commercial lease financing

47



288




Total commercial loans

1,191



2,673



1,852


Total recoveries

2,760



5,609



8,154


Charge-offs, net of recoveries

(12,321)



(14,110)



(35,415)


Ending balance

$

307,000



$

207,000



$

290,000


Net charge-off ratio (annualized) (1)

1.36

%


1.53

%


2.93

%

Net charge-off ratio, adjusted (annualized) (1)(2)

1.11

%


1.53

%


2.93

%



(1)

Excludes loans carried under the fair value option.

(2)

Excludes charge-offs of $2.3 million related to the sale of non-performing and TDR loans during the three months ended March 31, 2014.

 


Representation and Warranty Reserve

(Dollars in thousands)

(Unaudited)






Three Months Ended


March 31, 2014


December 31, 2013


March 31, 2013

 Balance, beginning of period

$

54,000



$

174,000



$

193,000


 Provision







Charged to gain on sale for current loan sales

1,229



3,018



5,817



Charged to representation and warranty reserve - change in estimate

(1,672)



(15,425)



17,396



Total

(443)



(12,407)



23,213


 Charge-offs, net

(5,557)



(107,593)



(31,213)


 Balance, end of period

$

48,000



$

54,000



$

185,000















 

Composition of Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)







March 31, 2014

Collectively Evaluated Reserves


Individually Evaluated Reserves


Total

Consumer loans






   Residential first mortgage

$

175,082



$

81,209



$

256,291


   Second mortgage

8,830



4,625



13,455


   Warehouse lending

1,465





1,465


   HELOC

11,331



262



11,593


   Other

1,438





1,438


Total consumer loans

198,146



86,096



284,242


Commercial loans






   Commercial real estate

18,029



102



18,131


   Commercial and industrial

4,477





4,477


   Commercial lease financing

150





150


Total commercial loans

22,656



102



22,758


Total allowance for loan losses

$

220,802



$

86,198



$

307,000


 


December 31, 2013

Collectively Evaluated Reserves


Individually Evaluated Reserves


Total

Consumer loans






   Residential first mortgage

$

79,377



$

81,765



$

161,142


   Second mortgage

7,575



4,566



12,141


   Warehouse lending

1,392





1,392


   HELOC

7,488



405



7,893


   Other

2,412





2,412


Total consumer loans

98,244



86,736



184,980


Commercial loans






   Commercial real estate

18,540





18,540


   Commercial and industrial

3,332





3,332


   Commercial lease financing

148





148


Total commercial loans

22,020





22,020


Total allowance for loan losses

$

120,264



$

86,736



$

207,000


 


Non-Performing Loans and Assets

(Dollars in thousands)

(Unaudited)








March 31, 2014


December 31, 2013


March 31, 2013

Non-performing loans

$

84,387



$

98,976



$

223,388


Non-performing TDRs

11,645



25,808



56,498


Non-performing TDRs at inception but performing for less than six months

14,717



20,901



89,417


Total non-performing loans held-for-investment

110,749



145,685



369,303


Real estate and other non-performing assets, net

31,076



36,636



114,356


Non-performing assets held-for-investment, net (1)

$

141,825



$

182,321



$

483,659


Ratio of non-performing assets to total assets (Bank only)

1.49

%


1.95

%


3.70

%

Ratio of non-performing loans held-for-investment to loans held-for-investment

2.76

%


3.59

%


7.79

%

Ratio of non-performing assets to loans held-for-investment and repossessed assets

3.50

%


4.46

%


9.96

%



(1)

Does not include non-performing loans held-for-sale of $6.9 million, $0.8 million and $0.4 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively.

 


Asset Quality - Loans Held-for-Investment

(Dollars in thousands)

(Unaudited)








30-59 Days Past Due

60-89 Days Past Due

Greater than 90 days

Total

Past Due

Total Investment Loans

March 31, 2014






Consumer loans

$

49,301


$

15,497


$

108,983


$

173,781


$

3,230,521


Commercial loans

2,130



1,766


3,896


789,350


     Total loans

$

51,431


$

15,497


$

110,749


$

177,677


$

4,019,871


December 31, 2013






Consumer loans

$

41,013


$

20,732


$

144,185


$

205,930


$

3,429,358


Commercial loans



1,500


1,500


626,398


     Total loans

$

41,013


$

20,732


$

145,685


$

207,430


$

4,055,756


March 31, 2013






Consumer loans

$

58,368


$

20,481


$

303,168


$

382,017


$

4,066,847


Commercial loans

1,465


6,400


66,135


74,000


676,419


     Total loans

$

59,833


$

26,881


$

369,303


$

456,017


$

4,743,266


 


Troubled Debt Restructurings

(Dollars in thousands)

(Unaudited)




TDRs


Performing


Non-performing


Non-performing TDRs

at inception but

performing for less

than six months


Total

March 31, 2014


Consumer loans

$

374,277



$

11,645



$

14,717



$

400,639


Commercial loans

446







446


Total TDRs

$

374,723



$

11,645



$

14,717



$

401,085


December 31, 2013








Consumer loans

$

382,529



$

25,808



$

20,901



$

429,238


Commercial loans

456







456


Total TDRs

$

382,985



$

25,808



$

20,901



$

429,694


March 31, 2013








Consumer loans

$

598,041



$

56,498



$

87,971



$

742,510


Commercial loans





1,446



1,446


Total TDRs

$

598,041



$

56,498



$

89,417



$

743,956


 


Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)




Three Months Ended


March 31, 2014


December 31, 2013


March 31, 2013

Description









Valuation gain (loss)









Value of interest rate locks

$

11,024


0.25

%


$

(53,542)


(0.79)%



$

(35,327)


(0.28)%


Value of forward sales

(16,626)


(0.38)%



89,330


1.31

%


(4,339)


(0.03)%


Fair value of loans held-for-sale

63,002


1.41

%


68,938


1.02

%


87,644


0.68

%

LOCOM adjustments on loans held-for-investment


%



%


(1,797)


(0.01)%


Total valuation gains (losses)

57,400


1.28

%


104,726


1.54

%


46,181


0.36

%










Sales (losses) gains









Marketing (losses) gains, net of adjustments

21,637


0.48

%


(3,313)


(0.05)%



25,859


0.21

%

Pair-off (losses) gains

(32,466)


(0.72)%



(53,605)


(0.79)%



71,317


0.55

%

Provision for representation and warranty reserve

(1,229)


(0.03)%



(3,018)


(0.04)%



(5,817)


(0.05)%


Total sales (losses) gains

(12,058)


(0.27)%



(59,936)


(0.88)%



91,359


0.71

%

Total gain on loan sales and securitizations

$

45,342




$

44,790




$

137,540



Total mortgage rate lock commitments (gross)

$

6,039,871




$

6,481,782




$

12,142,000



Total loan sales and securitizations

$

4,474,287


1.01

%


$

6,783,212


0.66

%


$

12,822,879


1.07

%

Total mortgage rate lock commitments (fallout adjusted) (1)

$

4,853,637


0.93

%


$

5,298,728


0.85

%


$

9,848,417


1.40

%



(1)

Fallout adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates. The net margin is based on net gain on loan sales to fallout adjusted mortgage rate lock commitments.

 


Average Balances, Yields and Rates

(Dollars in thousands)

(Unaudited)




Three Months Ended


March 31, 2014


December 31, 2013


March 31, 2013


Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate

Interest-Earning Assets


Loans held-for-sale

$

1,297,118


4.21

%


$

1,617,817


4.28

%


$

3,616,195


2.97

%

Loans repurchased with government guarantees

1,269,781


2.50

%


1,234,383


2.46

%


1,774,235


3.38

%

Loans held-for-investment









Consumer loans (1) (2)

3,180,487


3.89

%


3,296,584


4.01

%


4,136,420


4.15

%

Commercial loans (1)

683,623


3.62

%


630,953


3.84

%


698,269


4.27

%

Total loans held-for-investment

3,864,110


3.84

%


3,927,537


3.97

%


4,834,689


4.16

%

Investment securities available-for-sale or trading

1,173,304


2.57

%


1,006,801


2.59

%


348,525


2.41

%

Interest-earning deposits and other

225,501


0.26

%


1,820,838


0.25

%


1,501,568


0.26

%

Total interest-earning assets

7,829,814


3.39

%


9,607,376


2.98

%


12,075,212


3.15

%

Other assets

1,478,014




1,648,399




1,617,359



Total assets

$

9,307,828




$

11,255,775




$

13,692,571



Interest-Bearing Liabilities









Retail deposits









Demand deposits

$

419,677


0.14

%


$

410,147


0.14

%


$

388,466


0.25

%

Savings deposits

2,871,553


0.47

%


2,906,271


0.49

%


2,316,859


0.75

%

Money market deposits

280,221


0.18

%


293,192


0.17

%


387,699


0.35

%

Certificate of deposits

986,968


0.74

%


1,168,992


0.79

%


2,931,558


0.90

%

Total retail deposits

4,558,419


0.48

%


4,778,602


0.52

%


6,024,582


0.76

%

Government deposits









Demand deposits

122,121


0.34

%


115,980


0.28

%


98,442


0.44

%

Savings deposits

209,226


0.41

%


172,886


0.27

%


308,811


0.47

%

Certificate of deposits

337,016


0.28

%


256,274


0.18

%


471,842


0.60

%

Total government deposits

668,363


0.33

%


545,140


0.23

%


879,095


0.53

%

Wholesale deposits

3,372


3.76

%


15,423


4.40

%


81,976


4.92

%

Total deposits

5,230,154


0.46

%


5,339,165


0.50

%


6,985,653


0.78

%

Federal Home Loan Bank advances

885,870


0.24

%


2,755,375


3.16

%


3,105,556


3.16

%

Other

247,435


2.67

%


247,435


2.66

%


247,435


2.71

%

Total interest-bearing liabilities

6,363,459


0.52

%


8,341,975


1.44

%


10,338,644


1.54

%

Other liabilities (3)

1,499,628




1,640,037




2,179,945



Stockholders' equity

1,444,741




1,273,763




1,173,982



Total liabilities and stockholder's equity

$

9,307,828




$

11,255,775




$

13,692,571





(1)

Consumer loans include: residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.

(2)

Includes loans that are owned by consolidated variable interest entities and carried at fair value.

(3)

Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.

 

Non-GAAP Reconciliation

(Dollars in thousands)

(Unaudited)




Three Months Ended


March 31,
 2014


December 31,
 2013


March 31,
 2013

Efficiency ratio (adjusted)






Net interest income (a)

$

58,201



$

41,203



$

55,669


Noninterest income (b)

74,953



113,146



184,943


Less provisions:






Representation and warranty reserve - change in estimate

(1,672)



9,476



17,395


Significant one-time items:






Representation and warranty reserve - change in estimate (one time)



(24,900)




Other noninterest income

21,056






Adjusted income (c)

$

152,538



$

138,925



$

258,007


Noninterest expense (d)

$

139,252



$

388,693



$

196,590


Significant one-time items:






Loss on extinguishment of debt



(177,556)




Legal and professional expense



(61,000)




Adjusted noninterest expense (e)

$

139,252



$

150,137



$

196,590


Efficiency ratio (d/(a+b))

104.6

%


251.8

%


81.7

%

Efficiency ratio (adjusted) (e/c)

91.3

%


108.1

%


76.2

%














March 31,
 2014


December 31,
 2013


March 31,
 2013

Non-performing assets / Tier 1 capital + allowance for loan losses






Non-performing assets

$

141,825



$

182,321



$

483,659


Tier 1 capital (1)

1,139,810



1,257,608



1,318,770


Allowance for loan losses

307,000



207,000



290,000


Tier 1 capital + allowance for loan losses

$

1,446,810



$

1,464,608



$

1,608,770


Non-performing assets / Tier 1 capital + allowance for loan losses

9.8

%


12.4

%


30.1

%



















Mortgage servicing rights to Tier 1 capital ratio

March 31,
 2014


December 31,
 2013


March 31,
 2013

Mortgage servicing rights

$

320,231



$

284,678



$

727,207


Tier 1 capital (to adjusted total assets) (1)

1,139,810



1,257,608



1,318,770


Mortgage servicing rights to Tier 1 capital ratio

28.1

%


22.6

%


55.1

%







(1)  Represents Tier 1 capital for Bank.





 

The Bank currently calculates risk-based capital ratios under guidelines adopted by the OCC based on the 1988 Capital Accord ("Basel I") of the Basel Committee on Banking Supervision (the "Basel Committee"). In December 2010, the Basel Committee released its final framework for Basel III, which will strengthen international capital and liquidity regulations. When fully phased-in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the final Basel III rules place greater emphasis on common equity. In October 2013, the OCC and Federal Reserve released final rules detailing the U.S. implementation of Basel III and the application of the risk-based and leverage capital rules to top-tier savings and loan holding companies. The Company will begin transitioning to the Basel III framework in January 2015 subject to a phase-in period extending through January 2019. The Company is currently evaluating the impact of the final Basel III rules. Accordingly, the calculations provided below are estimates.

 

March 31, 2014

Common Equity Tier 1

(to Risk Weighted

Assets)


Tier 1 Leverage (to

Adjusted Tangible

Assets) (1)

Flagstar Bank (the Bank)




Regulatory capital – Basel I to Basel III (fully phased-in) (2)




Basel I capital

$

1,139,810



$

1,139,810


Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components

(190,401)



(190,401)


Basel III (fully phased-in) capital (2)

$

949,409



$

949,409


Risk-weighted assets – Basel I to Basel III (fully phased-in) (2)




Basel I assets

$

4,826,024



$

9,160,924


Net change in assets

28,731



(486,536)


Basel III (fully phased-in) assets (2)

$

4,854,755



$

8,674,388


Capital ratios




Basel I (3)

23.62

%


12.44

%

Basel III (fully phased-in) (2)

19.56

%


10.94

%





(1)

The definition of total assets used in the calculation of the Tier 1 Leverage ratio changed from ending total assets under Basel I to quarterly average total assets under Basel III.

(2)

Basel III information is considered estimated and not final at this time as the Basel III rules continue to be subject to interpretation by U.S. Banking Regulators.

(3)

The Bank is currently subject to the requirements of Basel I.

 

SOURCE Flagstar Bancorp, Inc.



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http://www.flagstar.com

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