EX-99.1 2 k26015exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
     
 
  NEWS RELEASE
 
  FOR MORE INFORMATION, CONTACT:
 
  Paul D. Borja
 
  Executive Vice President / CFO
 
  (248) 312-2000
     
 
  FOR IMMEDIATE RELEASE
FLAGSTAR REPORTS 2008 FIRST QUARTER RESULTS
TROY, Mich. (April 22, 2008) — Flagstar Bancorp, Inc. (NYSE:FBC), today reported a 2008 first quarter net loss of $10.6 million, or $(0.17) per share (diluted). On a linked-quarter basis, fourth quarter 2007 net loss was $30.1 million, or $(0.50) per share (diluted). On a prior year basis, first quarter 2007 net earnings were $7.8 million, or $0.12 per share (diluted). Return on equity and return on average assets for the first quarter 2008 were (5.93%) and (0.27%), respectively, as compared to (16.67%) and (0.75%) for the 2007 fourth quarter and 3.85% and 0.19% for the 2007 first quarter.
“Although we are disappointed with these results,” said Mark T. Hammond, president and CEO, “we are pleased that our key operating metrics were at or above expectations, including our net interest margin, loan production and gain on loan sale margin. These positive developments were overshadowed by the charges we incurred from a change in our accounting for mortgage servicing rights and from increased credit costs and asset mark-downs.”
Earnings for first quarter 2008 were adversely affected by the effect of Flagstar’s election of fair value accounting for the vast majority of its mortgage servicing rights (“MSR”) portfolio, which contributed to a loss on loan administration activities of $17.0 million. Prior to 2008, Flagstar had accounted for the MSRs using the amortization method. Had the amortization method been used, first quarter 2008 net earnings would have been $617,663, or $0.01 per share (diluted).
Earnings were also adversely affected by increased credit costs of a $34.3 million provision for loan losses in the first quarter 2008, as compared to $8.3 million for the same quarter in 2007. Further, earnings were impacted by asset mark-downs of a $9.5 million impairment of residuals related to asset securitizations and a $1.6 million decline in the fair value of interest rate swaps resulting from derecognition of cash flow hedges.
Liquidity
Flagstar’s primary sources of funds are deposits, loan repayments and sales, advances from the Federal Home Loan Bank, security repurchase agreements, cash generated from operations and customer escrow accounts. Retail deposits increased to $5.2 billion at March 31, 2008, as compared to $ 5.1 billion at December 31, 2007 and $4.9 billion at March 31, 2007. At March 31, 2008, Flagstar had a $7.5 billion line of credit with the FHLB, as to which $1.3 billion remained available, and a $0.9 billion undrawn line of credit at the Federal Reserve discount window.
Capital
At March 31, 2008, Flagstar’s wholly-owned subsidiary, Flagstar Bank, remained “well-capitalized” for bank regulatory purposes, with capital ratios of 5.64% for core capital and 10.47% for total risk-based capital.
“Our regulatory capital ratios are consistent with our historical norms and we believe they are appropriate given the composition of our balance sheet. Although we remain comfortable operating at these capital levels, we expect to pursue opportunities to increase both the core capital ratio and the total risk-based capital ratio until such time as the capital markets normalize and the residential real estate market shows signs of improvement,” said Mr. Hammond.

 

 

Net Interest Margin
The net interest margin of Flagstar Bank increased to 1.66% for the 2008 first quarter, as compared to 1.62% for the fourth quarter 2007 and 1.43% for the first quarter 2007.
Retail Banking Operations
Flagstar Bank had 167 retail banking branches at March 31, 2008 as compared to 164 branches at December 31, 2007 and 155 branches at March 31, 2007. During the first quarter of 2008, the total number of retail accounts increased to approximately 299,700, representing an increase of 8.8% on an annualized basis as compared to December 31, 2007 and 15.4% on annualized basis, as compared to March 31, 2007.
Mortgage Banking Operations
Loan production for first quarter 2008 increased 19.4% to $8.0 billion, including $7.9 billion of residential loans, as compared to loan originations of $6.7 billion, including $6.5 billion in residential loans, in the fourth quarter 2007. Loan production increased 37.9%, as compared to loan originations of $5.8 billion, including $5.5 billion of residential loans, for first quarter of 2007.
Gain on loan sale or securitization spread increased to 89 basis points for the quarter ended March 31, 2008, its highest quarterly level since second quarter 2003, as compared to 42 basis points for the 2007 fourth quarter and 48 basis points for the first quarter 2007.
At March 31, 2008, the loans associated with Flagstar’s MSR portfolio totaled $38.4 billion and had a weighted average service fee of 35.0 basis points. This was an increase from $32.5 billion at December 31, 2007 with a weighted average servicing fee of 36.0 basis points and an increase from $19.1 billion at March 31, 2007 with an average weighted servicing fee of 37.0 basis points.
Assets
Consolidated assets were $15.9 billion at March 31, 2008, as compared to $15.8 billion at December 31, 2007 and $15.4 billion at March 31, 2007.
The provision for loan losses was $34.3 million for the first quarter 2008 as compared to $38.4 million for the fourth quarter 2007 and $8.3 million for the first quarter 2007. Net charge-offs of loans during the first quarter 2008 increased to $16.9 million from $12.2 million during the fourth quarter 2007 and from $5.5 million during the first quarter 2007. As a result, the allowance for loan losses increased 16.7% to $121.4 million, or 1.42% of loans held for investment at March 31, 2008, from $104.0 million, or 1.28% of loans held for investment, at December 31, 2007 and from $48.5 million, or 0.61% of loans held for investment, at March 31, 2007.
Non-performing assets, which include non-performing loans, real estate owned and repurchased assets, increased to $399.5 million at March 31, 2008, from $314.5 million at December 31, 2007 and $159.0 million at March 31, 2007. Non-performing loans, which are loans 90 days or more past due and matured loans, increased to $253.4 million (2.96% of loans held for investment) at March 31, 2008 as compared to $197.1 million (2.42%) at December 31, 2007 and $74.6 million (0.93%) at March 31, 2007.
Non-performing residential first mortgage loans increased to $172.6 million at March 31, 2008, as compared to $134.6 million at December 31, 2007 and $61.1 million at March 31, 2007. Single-family residential first mortgage loans held for investment at March 31, 2008 had an average original FICO credit score of 719 and an average original loan-to-value ratio of 73.7%. Non-performing commercial real estate mortgages increased to $72.7 million at March 31, 2008 from $57.8 million at December 31, 2007 and $9.0 million at March 31, 2007. Non-performing commercial real estate loans are individually evaluated for impairment and may not require a specific reserve depending upon the sufficiency of collateral or cash flows.
Real estate owned increased to $136.5 million at March 31, 2008 from $109.3 million at December 31, 2007 and from $76.8 million at March 31, 2007. Repurchased assets were $9.6 million at March 31, 2008 as compared to $8.1 million at December 31, 2007 and $7.7 million at March 31, 2007.

 

 

As Previously Announced
The Company’s quarterly earnings conference call will be held on Wednesday, April 23, 2008 from 11 a.m. until 12 noon (Eastern).
Questions for discussion at the conference call may only be submitted in advance by e-mail to investors@flagstar.com.
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 (913) 312-1375 or toll free at (800) 431-4190, passcode: 7485216.
Flagstar Bancorp, with $15.9 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest. At March 31, 2008, Flagstar operated 167 banking centers in Michigan, Indiana and Georgia and 138 home loan centers in 26 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 to 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.

 

 

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
(Unaudited)
                         
    For the Three Months Ended  
Summary of Consolidated   March 31,     December 31,     March 31,  
Statements of Operations   2008     2007     2007  
Interest income
   $ 210,853     $ 225,324     $ 220,570  
Interest expense
     (156,055 )     (171,271 )     (167,719 )
 
                  
Net interest income
     54,798       54,053       52,851  
Provision for loan losses
     (34,262 )     (38,356 )     (8,293 )
 
                  
Net interest income after provision
     20,536       15,697       44,558  
Non-interest income
                        
Loan fees and charges, net
      884        240       1,229  
Deposit fees and charges
     6,031       6,502       4,978  
Loan administration
     (17,046 )     2,618       2,183  
Net gain (loss) on loan sales and securitizations
     63,425       26,318       25,154  
Net gain on investments available for sale
     —       —        729  
Gain (loss) on MSR sales, net
      287       (283 )      115  
Impairment — residuals
     —       (14,799 )     —  
Impairment — securities available for sale
     —       (2,793 )     —  
Unrealized loss on trading securities — residuals
     (9,482 )     (8,699 )     —  
Unrealized loss on interest rate swaps
     (1,611 )     —       —  
Other income
     10,186       9,401       5,078  
 
                  
Total non-interest income
     52,674       18,505       39,466  
Non-interest expenses
                        
Compensation and benefits
     (56,626 )     (49,492 )     (42,499 )
Commissions
     (29,316 )     (30,088 )     (15,306 )
Occupancy and equipment
     (19,853 )     (17,772 )     (16,786 )
General and administrative
     (8,827 )     (7,655 )     (12,378 )
Other
     (6,850 )     (4,949 )     (3,506 )
 
                  
Total non-interest expense
     (121,472 )     (109,956 )     (90,475 )
Capitalized direct cost of loan closing
     32,304       29,337       18,629  
 
                  
Total non-interest expense after capitalized direct cost of loan closing
     (89,168 )     (80,619 )     (71,846 )
 
                  
(Loss) earnings before federal income tax
     (15,958 )     (46,417 )     12,179  
(Benefit) provision for federal income taxes
     (5,359 )     (16,356 )     4,420  
 
                  
Net (loss) earnings
   $ (10,599 )   $ (30,061 )   $ 7,759  
 
                  
Basic (loss) earnings per share
   $ (0.18 )   $ (0.50 )   $ 0.12  
 
                  
Diluted (loss) earnings per share
   $ (0.17 )   $ (0.50 )   $ 0.12  
 
                  
Dividends paid per common share
     N/A     $ 0.05     $ 0.10  
 
                  
Dividend payout ratio
     N/A       (10.0 %)     81.5 %
Net interest spread — Consolidated
     1.48 %     1.48 %     1.33 %
Net interest margin — Consolidated
     1.55 %     1.50 %     1.42 %
Interest rate spread — Bank only
     1.61 %     1.54 %     1.34 %
Net interest margin — Bank only
     1.66 %     1.62 %     1.43 %
Return on average assets
     (0.27 )%     (0.75 )%     0.19 %
Return on average equity
     (5.93 )%     (16.67 )%     3.85 %
Efficiency ratio
     82.97 %     111.11 %     77.72 %
Average interest earning assets
   $ 14,183,297     $ 14,665,289     $ 14,792,298  
Average interest paying liabilities
   $ 14,007,106     $ 14,595,558     $ 14,702,275  
Average stockholders’ equity
   $ 715,262     $ 721,322     $ 806,110  
Equity/assets ratio (average for the period)
     4.48 %     4.48 %     5.06 %
Ratio of charge-offs to average loans held for investment
     0.80 %     0.58 %     0.26 %

 

 

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
(Unaudited)
                         
Summary of the Consolidated   March 31,   December 31,   March 31,
Statements of Financial Condition:   2008   2007   2007
 
                        
Total assets
   $ 15,923,312     $ 15,791,095     $ 15,446,557  
Mortgage backed securities held to maturity
     —       1,255,431       1,156,805  
Investment securities available for sale
     2,364,007       1,275,275       —  
Loans held for sale
     3,137,410       3,511,425       3,791,142  
Loans held for investment, net
     8,452,624       8,030,282       7,933,445  
Allowance for loan losses
     121,400       104,000       48,500  
Mortgage servicing rights
     497,875       413,986       226,794  
Deposits
     8,427,804       8,236,744       7,975,531  
FHLB advances
     6,207,000       6,301,000       5,604,000  
Repurchase agreements
     108,000       108,000       625,426  
Stockholders’ equity
     703,654       692,978       797,658  
 
                        
Other Financial and Statistical Data:
                        
Equity/assets ratio
     4.42 %     4.39 %     5.17 %
Core capital ratio
     5.64 %     5.78 %     6.29 %
Total risk-based capital ratio
     10.47 %     10.66 %     11.42 %
Book value per share
   $ 11.66     $ 11.50     $ 12.79  
Shares outstanding
     60,325       60,271       62,360  
Average shares outstanding
     60,312       61,152       63,427  
Average diluted shares outstanding
     60,753       61,509       64,041  
Loans serviced for others
   $ 38,378,056     $ 32,487,337     $ 19,124,378  
Weighted average service fee (bps)
     35.0       36.0       37.0  
Value of mortgage servicing rights
     1.30 %     1.27 %     1.19 %
Allowance for loan losses to non performing loans
     47.9 %     52.8 %     65.0 %
Allowance for loan losses to loans held for investment
     1.42 %     1.28 %     0.61 %
Non performing assets to total assets
     2.51 %     1.99 %     1.03 %
Number of bank branches
     167       164        155  
Number of loan origination centers
     138       143       72  
Number of employees (excluding loan officers & account executives)
     3,170       3,083       2,522  
Number of loan officers and account executives
     839       877        448  

 

 

Loan Originations
(Dollars in millions)
(unaudited)
                                                 
    For the Three Months Ended
    March 31,   December 31,   March 31,
Loan type   2008   2007   2007
Residential mortgage loans
   $ 7,860       98.1 %   $ 6,493       97.1 %   $ 5,489       95.4 %
Consumer loans
     49       0.6       42       0.6       104       1.8  
Commercial loans
      101       1.3        155       2.3       160       2.8  
     
Total loan production
   $ 8,010       100.0 %   $ 6,690       100.0 %   $ 5,753       100.0 %
     
Gain (Loss) on Loan Sales and Securitizations
(Dollars in millions)
(unaudited)
                                                 
    For the Three Months Ended
    March 31,   December 31,   March 31,
    2008   2007   2007
Description   (000’s)   bps   (000’s)   bps   (000’s)   bps
 
                                                
Gain on loan sales
   $ 96,936       155     $ 85,532       117     $ 39,601       75  
Hedging costs
     9,099       13       (22,902 )     (32 )     1,760       3  
LOCOM adjustments
     (225 )     —       (2,510 )     (3 )     (27 )     —  
Provision to SMR
     (2,999 )     (4 )     (2,288 )     (3 )     (2,163 )     (4 )
Credit losses
     (4,438 )     (6 )     (2,238 )     (3 )     (467 )     (1 )
Loan level pricing adjustments
     (31,519 )     (44 )     (32,043 )     (44 )     (11,965 )     (23 )
Other transaction costs
     (566 )     (1 )     (366 )     —       (1,585 )     (2 )
     
Net gain (loss) on loan sales
     66,288       113       23,189       32       25,154       48  
Net gain on securitizations
     (2,863 )     (24 )     3,129       10       —       —  
     
Net gain on loan sales and securitizations
   $ 63,425       89     $ 26,318       42     $ 25,154       48  
     
Total loan sales and securitizations
   $ 7,160,328             $ 7,279,469             $ 5,289,617          
Loans Held for Investment
(Dollars in thousands)
(unaudited)
                                                 
    March 31,   December 31,   March 31,
Description   2008   2007   2007
First mortgage loans
   $ 6,103,777       71.2 %   $ 5,823,952       71.6 %   $ 5,909,807       74.0 %
Second mortgage loans
     60,917       0.7       56,516       0.7       65,601       0.8  
Commercial real estate loans
     1,641,686       19.1       1,542,104       19.0       1,325,057       16.6  
Construction loans
     77,035       0.9       90,401       1.1       75,178       0.9  
Warehouse lending
     347,908       4.1       316,719       3.9       271,493       3.4  
Consumer loans
     318,694       3.7       281,631       3.4       315,267       4.0  
Non-real estate commercial
     24,007       0.3       22,959       0.3       19,542       0.3  
     
Total loans held for investment
   $ 8,574,024       100.0 %   $ 8,134,282       100.0 %   $ 7,981,945       100.0 %
     

 

 

Deposit Portfolio
(Dollars in thousands)
(unaudited)
                                                 
    March 31, 2008   December 31, 2007   March 31, 2007
Description   Balance   Rate   Balance   Rate   Balance   Rate
Demand deposits
   $ 415,411       0.76 %   $ 436,239       1.60 %   $ 392,476       1.52 %
Savings deposits
     329,983       2.32       237,762       2.90       140,349       1.50  
Money market deposits
     541,374       2.57       531,587       3.86       609,754       4.13  
Certificates of deposits
     3,908,398       4.77       3,870,828       4.99       3,775,816       4.97  
     
Total retail deposits
     5,195,166       4.06       5,076,416       4.48       4,918,395       4.49  
Company controlled custodial deposits
     698,344       —       473,384       —       305,528       —  
Municipal deposits / CDARS
     1,508,644       3.75       1,545,395       5.04       1,772,324       5.36  
Wholesale deposits
     1,025,650       4.76       1,141,549       4.64       979,284       3.70  
     
Total deposits
   $ 8,427,804       3.75 %   $ 8,236,744       4.35 %   $ 7,975,531       4.42 %
     
Asset Quality
(Dollars in thousands)
(unaudited)
                                                 
    March 31, 2008   December 31, 2007   March 31, 2007
            % of           % of           % of
Days delinquent   Balance   Total   Balance   Total   Balance   Total
30
   $ 81,343       21.2 %   $ 59,811       18.3 %   $ 32,251       24.7 %
60
     48,823       12.7       70,450       21.5       23,863       18.3  
90 + and Matured Delinquent
     253,423       66.1       197,149       60.2       74,570       57.0  
     
Total
   $ 383,589       100.0 %   $ 327,410       100.0 %   $ 130,684       100.0 %
     
Investment loans
   $ 8,574,024             $ 8,134,282             $ 7,981,945          
                         
    Non-Performing Loans and Assets at  
    March 31,     December 31,     March 31,  
    2008     2007     2007  
Non-Performing Loans
   $ 253,423     $ 197,149     $ 74,570  
Real Estate Owned
     136,490       109,274       76,765  
Repurchased Assets/Non-Performing Assets
     9,633       8,079       7,693  
 
                  
Non-Performing Assets
   $ 399,546     $ 314,502     $ 159,028  
 
                  
Non-Performing Loans as a Percentage of Investment Loans
     2.96 %     2.42 %     0.93 %
Non-Performing Assets as a Percentage of Total Assets
     2.51 %     1.99 %     1.03 %