TROY, Mich., April 23, 2019 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported first quarter 2019 net income of $36 million, or $0.63 per diluted share, compared to fourth quarter 2018 net income of $54 million, or $0.93 per diluted share. On an adjusted basis, Flagstar reported net income of 37 million, or $0.64 per diluted share, for the first quarter 2019, compared to net income of $42 million, or $0.72 per diluted share, for the fourth quarter 2018. For the first quarter 2018, Flagstar reported net income of $35 million, or $0.60 per diluted share.

First Quarter 2019 Highlights:

"In the first quarter, we took another step in the continued transformation of our company. Thanks to our success in executing our business plan, we were pleased to initiate a quarterly dividend and a $50 million share buyback to return value to our shareholders," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "These actions, coupled with our strong first quarter results, demonstrate the progress we have made to diversify our franchise and deliver strong results.

"Our banking and mortgage servicing businesses had another solid quarter. Deposit costs were 3 basis points lower, reflecting a full quarter of lower cost deposits from the Wells Fargo branch acquisition. We are also pleased that four months after conversion, we have experienced deposit attrition of only 4.9 percent, substantially better than our 10 percent target and the 17 percent we modeled. Net interest margin expanded 10 basis points to 3.09 percent compared to an adjusted fourth quarter net interest margin of 2.99 percent. Total serviced accounts increased 13 percent to 962,000, continuing growth in a segment that provides both a stable source of fee income and liquidity.

"Our mortgage team delivered for the quarter, maintaining pricing and expense discipline in a very competitive mortgage environment, and then when the market turned favorable late in the quarter, our team was well positioned to take advantage of the opportunity. Fallout-adjusted locks increased 25 percent to $6.6 billion and gain on sale margin expanded for the second consecutive quarter. The improvement in net gain on loan sales more than offset lower net return on MSRs.

"Overall, I am pleased with our first quarter results and feel we are well positioned to continue to produce value for our shareholders."

 

 

 

 

Net Interest Income

Net interest income decreased $26 million to $126 million for the first quarter 2019, as compared to the fourth quarter 2018. However, the fourth quarter included the recognition of $29 million of hedging gains in conjunction with the Wells Fargo branch acquisition. Excluding hedging gains, the Company's net interest income rose $3 million. This reflected the full quarter benefit of using lower cost deposits from the acquisition to reduce Federal Home Loan Bank advances. This action was partially offset by seasonal declines in loans held-for-sale and warehouse loans. Net interest margin rose 10 basis points to 3.09 percent for the first quarter 2019 as compared to adjusted net interest margin for the fourth quarter 2018.

Loans held-for-investment averaged $9.2 billion for the first quarter 2019, increasing $248 million from the prior quarter. During the first quarter 2019, average commercial real estate and commercial and industrial loans rose $328 million, or 9 percent. This increase was partially offset by a $162 million drop in warehouse loans due to anticipated seasonal factors. Average consumer loans rose $82 million, or 2 percent, driven primarily by growth in non-auto indirect loans and the full quarter impact from consumer loans acquired as part of the Wells Fargo branch acquisition.

Average total deposits were $12.9 billion in the first quarter 2019, increasing $964 million, or 8 percent from the fourth quarter 2018, driven by the full quarter impact of Wells Fargo branch deposits and higher custodial deposits, which rose $402 million, or 19 percent, driven by a 13 percent increase in serviced accounts.

Provision for Loan Losses

The Company had no provision for loan losses for first quarter 2019, as compared to a benefit of $5 million for the fourth quarter 2018. The lack of provision expense reflected strong asset quality and a low level of net charge-offs in the quarter.

Noninterest Income

Noninterest income increased $11 million, or 11 percent, to $109 million in the first quarter 2019, as compared to $98 million for the fourth quarter 2018. The increase was primarily driven by higher net gain on loan sales, net loan administration income and deposit fee income, partially offset by lower net return on MSRs and seasonally lower fee income.

First quarter 2019 net gain on loan sales increased $15 million, or 44 percent, to $49 million, versus $34 million in the fourth quarter 2018. The results reflected improvement in the mortgage environment late in the quarter which drove fallout-adjusted locks higher and an expansion of gain on sale margin. Fallout-adjusted locks increased 25 percent to $6.6 billion. The net gain on loan sale margin increased 12 basis points to 0.72 percent for the first quarter 2019, as compared to 0.60 percent for the fourth quarter 2018.

 

Net return on mortgage servicing rights decreased $4 million, resulting in a net gain of $6 million for the first quarter 2019, as compared to a net gain of $10 million for the fourth quarter 2018. The decrease from the prior quarter reflected an increase in runoff due to lower interest rates and smaller benefit from the collection of contingencies related to MSR sales in prior periods.

Deposit fee income increased to $8 million for the first quarter 2019, as compared to $6 million for the fourth quarter 2018. The increase was driven by the full quarter benefit from the acquired Wells Fargo branches, despite continued fee waivers to assist customers during the Wells Fargo branch transition.

Noninterest Expense

Noninterest expense increased to $191 million for the first quarter 2019, as compared to $189 million for the fourth quarter 2018. Excluding acquisition costs of $1 million in the first quarter 2019 and $14 million in the fourth quarter 2018, adjusted noninterest expense in the first quarter 2019 was $190 million or $15 million higher than fourth quarter 2018. The increase is attributable to seasonally higher payroll taxes, employee benefits and a full quarter of expenses related to the 52 Wells Fargo branches acquired in December 2018.

The Company's efficiency ratio was 81 percent for the first quarter 2019, as compared to 76 percent for the fourth quarter 2018. Excluding hedging gains and expenses related to the acquisition of Wells Fargo branches, the adjusted efficiency ratio was 79 percent in the fourth quarter 2018.

Income Taxes

The first quarter 2019 provision for income taxes totaled $8 million, compared to $12 million for the fourth quarter 2018. The Company's effective tax rate was 18 percent for the first quarter 2019, consistent with our effective tax rate for the fourth quarter 2018.

Asset Quality

 

The allowance for loan losses was $127 million at March 31, 2019, compared to $128 million at December 31, 2018. The allowance for loan losses covered 1.3 percent of loans held-for-investment at March 31, 2019, as compared to 1.4 percent of loans held-for-investment at December 31, 2018.

Net charge-offs in the first quarter 2019 were $1 million, or 5 basis points of LHFI, compared to $1 million, or 4 basis points in the prior quarter.

Nonperforming loans were $24 million at March 31, 2019, compared to $22 million at December 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.24 percent at March 31, 2019, consistent with the ratio at December 31, 2018. At March 31, 2019, early stage loan delinquencies totaled $9 million, or 0.09 percent of total loans, compared to $7 million, or 0.08 percent at December 31, 2018. There were no commercial loan delinquencies greater than 90 days at March 31, 2019.

Capital

 

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At March 31, 2019, the Company had a total risk-based capital ratio of 12.49 percent, as compared to 13.63 percent at December 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth and share buyback, partially offset by earnings retention.

Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 55 basis points and risk-based capital ratios by approximately 25-40 basis points at March 31, 2019 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's first quarter 2019 earnings call will be held Tuesday, April 23, 2019 at 11 a.m. (ET).

To join the call, please dial (800) 289-0438 toll free or (786) 789-4783 and use passcode 9789633. Please call at least 10 minutes before the conference is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820 and using passcode 9789633.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and available for replay and download. The slide presentation accompanying the conference call will be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is an $19.4 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 160 branches in Michigan, Indiana, California, Wisconsin and Ohio. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 72 retail locations in 22 states, representing the combined retail branches of Flagstar and its Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage and other consumer loans, handling payments and record keeping for $200 billion of loans representing 962,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as tangible book value per share, tangible common equity to assets ratio, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted net income, adjusted basic and diluted earnings per share, adjusted noninterest expense, adjusted net interest income, adjusted net interest margin, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted HFI loan-to-deposit ratio. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company's website at flagstar.com.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.'s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company's actual results could differ materially from those described in the forward-looking statements depending upon various factors as described in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the Company's website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov). Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation
(Dollars in millions)
(Unaudited)

In addition to analyzing the Company's results on a reported basis, management reviews the Company's results and the results on an adjusted basis. The non-GAAP measures presented in the tables below reflect the adjustments of the reported U.S.GAAP results for significant items that management does not believe are reflective of the Company's current and ongoing operations. The acquisition related expenses and hedging gains recognized in conjunction with the Well Fargo branch acquisition in 2018 are not reflective of our ongoing operations and, therefore, have been excluded from our U.S. GAAP results. The Company believes that tangible book value per share, tangible common equity to assets ratio, return on average tangible equity, adjusted return on average tangible equity, adjusted return on average assets, adjusted net income, adjusted basic and diluted earnings per share, adjusted noninterest expense, adjusted net interest income, adjusted net interest margin, adjusted income before taxes, adjusted provision for income taxes, adjusted efficiency ratio and adjusted HFI loan-to-deposit ratio provide a meaningful representation of its operating performance on an ongoing basis.

The following tables provide a reconciliation of non-GAAP financial measures.

 

 

 

 

For more information, contact:             

Kenneth Schellenberg
[email protected]
(248) 312-5741

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SOURCE Flagstar Bancorp, Inc.