Flagstar Reports 2010 First Quarter Results

TROY, Mich., April 28 /PRNewswire-FirstCall/ -- Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank FSB, today reported a first quarter 2010  net loss applicable to common stockholders of $81.9 million, or $(0.11) per share (diluted) based on average shares outstanding of 777.0 million, as compared to a net loss of $71.6 million, or $(0.15) per share (diluted) based on average shares outstanding of 317.7 million in the fourth quarter 2009.  As of March 31, 2010 there were 1.47 billion shares outstanding.  Our net loss was $67.4 million, or $(0.76) per share (diluted), in the first quarter 2009 based on average shares outstanding of 88.2 million.

Capital

At March 31, 2010, the wholly owned subsidiary Flagstar Bank remained “well-capitalized” for regulatory purposes, with capital ratios of 9.37% for Tier 1 capital and 17.93% for total risk-based capital.

On February 9, 2010, the Company announced that it had completed its previously announced rights offering and raised $300.6 million of capital in connection with the exercise of subscription rights by its stockholders and issued approximately 423.3 million shares of its common stock to participating stockholders.  

On March 31, 2010, the Company also announced that it has completed its previously announced registered offering of 575 million shares of common stock, which includes 75 million shares issued pursuant to the underwriters’ over-allotment option, on March 29, 2010.  The offering resulted in net proceeds to the Company of approximately $276.1 million, after deducting underwriting fees and estimated offering expenses.  

On April 1, 2010, MP Thrift Investments, L.P.,  the Company’s majority shareholder, exercised its right to convert $50 million of trust preferred securities into 62.5 million shares of common stock.  

Assets

Total assets at March 31, 2010 were $14.3 billion as compared to $14.0 billion at December 31, 2009.  The increase reflects an increase in stockholders equity, the proceeds of which were invested in liquid short-term assets.  

Operations

For the first quarter 2010, our net loss applicable to common stockholders of $81.9 million reflected the following:

• Gain on loan sales decreased to $52.6 million as compared to $96.5 million for the fourth quarter 2009, reflecting both the decrease in interest rate locks on mortgage loans, to $6.1 billion in the first quarter 2010 from $7.9 billion in the fourth quarter 2009, and the decrease in residential mortgage loan sales, to $5.0 billion as compared to $7.1 billion in the fourth quarter of 2009. Margin on loan sales also decreased during the first quarter 2010 to 1.05% from 1.35% during the fourth quarter 2009.  
• Provision for loan losses decreased to $63.5 million as compared to $95.0 million for the fourth quarter of 2009. Net charge-offs decreased to $49.6 million for first quarter 2010 as compared to $98.9 million for fourth quarter 2009.  
• Loan fees, resulting from the origination of residential mortgage loans, decreased to $16.3 million in the first quarter 2010 as compared to $27.8 million during the fourth quarter 2009. Loan originations declined to $4.3 billion for the first quarter 2010 as compared to $6.9 billion for fourth quarter 2009.  
• Net loan administration income reflected a gain of $26.2 million as compared to a gain of $27.4 million for the fourth quarter 2009.  The first quarter 2010 and the fourth quarter 2009 gains were partially offset by losses of $3.3 million and $0.5 million, respectively, on trading securities that were issued for economic hedging purposes.  The first quarter net gain of $22.9 million, as compared to the fourth quarter 2009 net gain of $26.9 million, included a decrease in the fair value of mortgage servicing rights, arising in part from bulk servicing sales of $10.8 billion in underlying loans which were completed during the first quarter.
• Non interest expense decreased to $123.3 million as compared to $150.7 million in the fourth quarter 2009. The decrease reflected a decline in compensation expense of $3.6 million as the result of a reduction in salaried employees, a reduction in asset resolution expenses of $10.3 million related largely to foreclosed properties and a decline in general and administrative expenses of $15.1 million.
• General and administrative expenses declined $15.1 million in the first quarter 2010 as compared to the fourth quarter of 2009. The decrease included a decline of $2.6 million in outside consulting fees and the absence of a $16.4 million loss on extinguishment of FHLB debt which was recorded in the fourth quarter of 2009. The decreases were offset in part by a change of $5.4 million in the valuation of outstanding warrants as a result of anti-dilution provisions that caused an adjustment to the number and the exercise price following the March 31, 2010 stock offering. Also, there was a $3.0 million increase in reinsurance expenses due to the absence of a $4.6 million gain related to termination of an agreement with one of our captive reinsurance counterparties which was recorded in the fourth quarter of 2009.

Community Banking Operations

Flagstar Bank had 162 community banking branches at March 31, 2010 as compared to 165 branches at December 31, 2009 and 177 branches at March 31, 2009.  

Net Interest Margin

Net interest margin decreased to 1.42% for the first quarter 2010 as compared to 1.67% for the fourth quarter 2009.  The decrease from fourth quarter 2009 reflects a $0.9 billion decline in the average balance of earning assets with a 0.41% decline in yields. The decrease in yields is largely due to a 0.30% decline in the yield on the loans available for sale portfolio and was offset in part by an 0.11% decline in funding costs.  The decline in funding costs reflects, in part, a 0.27% decline in overall deposit costs, the effect of which was largely mitigated by a $514 million decline in average deposits.

Mortgage Banking Operations

Loan production, substantially comprised of agency eligible residential first mortgage loans, decreased to $4.3 billion for the first quarter 2010, as compared to $6.9 billion in the fourth quarter 2009.  

Gain on loan sales margins decreased to 1.05% for the first quarter 2010, as compared to 1.35% for the fourth quarter 2009.  

At March 31, 2010, the unpaid principal balances of loans associated with our mortgage servicing rights portfolio totaled $48.3 billion and had a weighted average servicing fee of 33.0 basis points.  This was a decrease from $56.5 billion at December 31, 2009 with a weighted average servicing fee of 32.1 basis points and $58.9 billion at March 31, 2009 with an average weighted servicing fee of 33.4 basis points. The unpaid principal balance decreased as the result of two bulk servicing sales, totaling $10.8 billion, during the first quarter 2010.

Asset Quality

Non-performing assets, which include non-performing loans (i.e., loans 90 days or more past due, and matured loans), real estate owned and repurchased assets, but which exclude any FHA-insured assets, increased to $1.4 billion at March 31, 2010, from $1.3 billion at December 31, 2009 and $1.0 billion at March 31, 2009.  

At March 31, 2010, the allowance for loan losses was $538.0 million, which equaled 47.4% of non-performing loans and 7.10% of loans held for investment.  At December 31, 2009 and March 31, 2009, the allowance for loan losses were, respectively, $524.0 million (6.79% of loans held for investment) and $466.0 million (5.21% of loans held for investment) and equaled 48.9% and 52.1%, respectively, of non-performing loans.

Of the non-performing loans, residential first mortgage loans increased to $709.4 million at March 31, 2010, as compared to $659.5 million at December 31, 2009 and $561.5 million at March 31, 2009.  The increase reflects no growth in the 90-120 day category, a $29.5 million increase in the over 120 – day category, and a $21.0 million increase in matured delinquent loans.

Non-performing commercial real estate mortgages increased to $395.8 million at March 31, 2010 as compared to $385.7 million at December 31, 2009 and $298.2 million at March 31, 2009.  

The balance of real estate owned, net of any FHA-insured assets, decreased to $167.3 million at March 31, 2010 from $177.0 million at December 31, 2009 and increased as compared to $106.5 million at March 31, 2009.  Repurchased assets were $50.7 million at March 31, 2010 as compared to $45.7 million at December 31, 2009 and $14.8 million at March 31, 2009.  

Funding Sources

Flagstar Bank’s primary sources of funds are deposits obtained through its 162 community banking branches and the internet banking platform as well as deposits obtained from municipalities and investment banking firms.  Funds are also obtained through loan repayments and sales in the ordinary course of business, advances from the Federal Home Loan Bank of Indianapolis (FHLB), community banking operations, customer escrow accounts and security repurchase agreements.  The Bank uses several of these sources at any one time to manage its daily and forecasted liquidity needs to satisfy operational requirements and policy levels while managing overall interest costs.  Retail deposits were $5.1 billion at March 31, 2010, as compared to $5.5 billion at December 31, 2009 and $6.2 billion at March 31, 2009.  At March 31, 2010, the Bank had a $7.0 billion line of credit with the FHLB, which was collateralized to $4.0 billion.

As Previously Announced

The Company's quarterly earnings conference call will be held on Wednesday, April 28, 2010 from 11 a.m. until 12 noon (Eastern).

Questions for discussion at the conference call may be submitted in advance by e-mail to [email protected] or during the conference call.

The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company’s Web site, www.flagstar.com, with replays available at that site for at least 10 days.

To listen by telephone, please call at least 10 minutes prior to the start of the conference call at (702)696-4919 or toll free at (866)294-1212, passcode: 67000077.

Flagstar Bancorp, with $14.3 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest.  At March 31, 2010, Flagstar operated 162 banking centers in Michigan, Indiana and Georgia and 23 home loan centers in 14 states.  Flagstar Bank originates loans nationwide and is one of the leading originators of residential mortgage loans.

The information contained in this release is not intended as a solicitation to buy Flagstar Bancorp, Inc. stock and is provided for general information.  This release contains certain statements that may constitute “forward-looking statements” within the meaning of federal securities laws.  These forward-looking statements include statements about the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, and intentions, that are subject to significant risks and uncertainties, and are subject o change based upon various factors (some of which may be beyond the Company’s control).  The words “may,” “could,” “should,” “would,” “believe,” and similar expressions are intended to identify forward-looking statements.

SOURCE Flagstar Bancorp, Inc.