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

22 Apr, 2014, 20:14 ET from Flagstar Bancorp, Inc.

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.



RELATED LINKS

http://www.flagstar.com