TROY, Mich., April 26, 2016 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported first quarter 2016 net income of $39 million, or $0.54 per diluted share, as compared to $33 million in the fourth quarter 2015, or $0.44 per diluted share, and net income of $32 million in the first quarter 2015, or $0.43 per diluted share.

"We had another solid quarter, further validating our business plan and continuing our now five-quarter run of consistent earnings," said Alessandro P. DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "Earnings improved 18 percent from last quarter, and we earned a 1.2 percent return on assets while capital, liquidity, and credit quality all remained strong. It was a good start to the year.

"Mortgage originations rebounded from a tough fourth quarter 2015. We feel good about where we stand as it relates to TRID, and we saw the first signs of traction from initiatives aimed at growing our retail production channels.

"We are inching closer to TARP refinance and subject to market conditions, regulatory approval, and other conditions, we believe that we will be able to complete the transaction within the next 90 days.

"While we are very pleased with the progress we are making, we are actively looking for opportunities to expand our banking relationships, strengthen our mortgage origination capabilities across all channels, and grow our subservicing business."

First Quarter 2016 Highlights:

 

 

 

 

Net Interest Income

First quarter 2016 net interest income increased $3 million, or 4 percent, to $79 million, compared to $76 million for the fourth quarter 2015. The results were led by average earning asset growth of 6 percent, partially offset by a slight drop in the net interest margin.

Net interest margin decreased 3 basis points to 2.66 percent for the first quarter 2016, as compared to 2.69 percent for the fourth quarter 2015. The decrease from the prior quarter was driven primarily by higher cost funding in support of loan growth at the end of the prior quarter, partially offset by increased interest income on loans held-for-investment (mainly commercial loans).

Average loans held-for-sale were $2.9 billion in the first quarter 2016, increasing $425 million, or 17 percent, from the prior quarter. The increase was due to higher levels of mortgage originations.

Average loans held-for-investment totaled $5.7 billion for the first quarter 2016, largely unchanged from the fourth quarter 2015. During the first quarter 2016, relationship-based commercial loans increased while consumer loans declined. Average commercial loans increased $135 million, or 6 percent. Average consumer loans fell $109 million, or 3 percent, due to the sale of $787 million (UPB) of performing mortgage loans, and $96 million (UPB) of nonperforming, TDR, and other higher risk loans.

Average total deposits were $8.1 billion in the first quarter 2016, decreasing $82 million from the prior quarter. The decline was led by a drop in company-controlled and government deposits, partially offset by a gain in retail deposits. Average company-controlled deposits fell $89 million, or 7 percent, due to seasonality and a drop in subserviced loans. Average retail deposits rose $35 million, or 1 percent, led by a 3 percent increase in demand deposits.

Provision for Loan Losses

The Company experienced a provision benefit in the first quarter 2016, resulting primarily from a decrease in residential first mortgage loans and the sale of $96 million (UPB) nonperforming, TDR, and other higher risk loans. The provision benefit for loan losses totaled $13 million for the first quarter 2016, an increase from a benefit of $1 million for the fourth quarter 2015.

Net charge-offs in the first quarter 2016 were $12 million, or 0.86 percent of applicable loans, compared to $9 million, or 0.62 percent of applicable loans in the prior quarter. The first quarter 2016 amount included $6 million of net charge-offs associated with the sale of $96 million (UPB) of nonperforming, TDR, and other higher risk loans. The fourth quarter 2015 amount included $2 million of net charge-offs associated with the sale of $11 million (UPB) of nonperforming loans. Excluding loan sales in both quarters, net charge-offs in the first quarter 2016 were $6 million, or 0.40 percent of applicable loans, compared to $7 million, or 0.51 percent of applicable loans in the prior quarter.

Noninterest Income

First quarter 2016 noninterest income increased $8 million, or 8 percent, to $105 million, as compared to $97 million for the fourth quarter 2015. The first quarter 2016 results were led by higher net gain on loan sales, partially offset by a drop in the net return on the mortgage servicing asset and a reduced representation and warranty benefit.

First quarter 2016 net gain on loan sales increased to $75 million, as compared to $46 million for the fourth quarter 2015. The increase from the prior quarter reflected higher fallout-adjusted locks, an improved gain on sale margin, and a $9 million gain from the sale of $787 million (UPB) mortgage loans transferred from HFI, which were originated in 2015. Excluding the HFI loan transfer, net gain on loan sales was $66 million, up $20 million, or 43 percent, from the fourth quarter 2015. In the first quarter 2016, fallout-adjusted locks increased 37 percent to $6.9 billion, led by an increase in refinance activity. The net gain on loan sale margin was 1.09 percent for the first quarter 2016. Excluding the HFI loan sale, the net gain on loan sale margin was 0.96 percent, as compared to 0.92 percent for the fourth quarter 2015.

 

Net return on the mortgage servicing asset (including the impact of economic hedges) was a net loss of $6 million for the first quarter 2016, as compared to income of $9 million for the fourth quarter 2015. The return on the mortgage servicing asset decreased from the fourth quarter 2015, primarily due to an increase in anticipated and actual prepayments as well as a smaller benefit from the collection of contingencies held back by the purchaser relating to MSR sales in prior periods.

The representation and warranty benefit was $2 million for the first quarter 2016, as compared to a $6 million benefit in the fourth quarter 2015. The representation and warranty reserve remained unchanged at March 31, 2016 at $40 million.

Noninterest Expense

Noninterest expense increased $8 million, or 6 percent, to $137 million for the first quarter 2016, as compared to $129 million for the fourth quarter 2015. The first quarter 2016 increase was led by higher compensation and benefits expense and commissions in part driven by investment in new strategic initiatives, partially offset by lower other noninterest expense.

Compensation and benefits increased to $68 million for the first quarter 2016, as compared to $59 million in the prior quarter, primarily due to higher seasonal payroll taxes, a planned increase in headcount for growth initiatives, and a full quarter's expense related to the ExLTIP plan.

Commissions were $10 million for the first quarter 2016, as compared to $8 million for the fourth quarter 2015. The $2 million increase in the first quarter 2016 was primarily attributable to higher mortgage closings.

Other noninterest expense for the first quarter 2016 totaled $10 million, as compared to $13 million for the fourth quarter 2015. The decrease from the prior quarter was led by lower warrant expense from a decrease in the Company's stock price and a drop in the FDIC assessment expense.

Income Taxes

The first quarter 2016 provision for income taxes totaled $21 million, as compared to $12 million in the fourth quarter 2015. The effective tax rate in the first quarter 2016 was 34 percent, as compared to 25 percent in the fourth quarter 2015. The increase in the marginal tax rate in the first quarter 2016 was largely due to a benefit recorded in the prior quarter for state income taxes.

Asset Quality

 

The allowance for loan losses was $162 million at March 31, 2016, covering 2.9 percent of loans held-for-investment. The allowance for loan losses was $187 million at December 31, 2015, covering 3.0 percent of loans held-for-investment. The decrease in the allowance for loan losses resulted primarily from the sale of residential first mortgage loans and charge-offs from the sale of $96 million (UPB) nonperforming, TDR, and other higher risk loans.

First quarter 2016 net charge-offs were $12 million, representing 0.86 percent of applicable loans. This represented an increase of $3 million from the fourth quarter 2015 net charge-offs of $9 million, or 0.62 percent of applicable loans. Excluding loan sales in both quarters, net charge-offs in the first quarter 2016 were $6 million, or 0.40 percent, compared to $7 million, or 0.51 percent in the prior quarter. First quarter 2016 net charge-offs included $3 million of loans with government guarantees. The remaining $3 million of charge-offs was 0.20 percent of applicable loans.

Nonperforming loans decreased to $53 million at March 31, 2016 from $66 million at December 31, 2015. The ratio of nonperforming loans to loans held-for-investment decreased to 0.95 percent at March 31, 2016 from 1.05 percent at December 31, 2015. At March 31, 2016, consumer loan delinquencies (30-89 days past due) totaled $11 million, down $3 million from December 31, 2015. There were no commercial loan delinquencies (30-89 days past due) at March 31, 2016.

Capital

The Company's regulatory capital ratios remain well above current regulatory quantitative guidelines for "well-capitalized" institutions. At March 31, 2016, the Company had a Tier 1 leverage ratio of 11.04 percent, as compared to 11.51 percent at December 31, 2015. The decrease in the ratio resulted from an increase in average assets and a higher phase-in requirement under Basel III, partially offset by earnings retention. At March 31, 2016, the Company had a common equity-to-assets ratio of 9.40 percent.

Earnings Conference Call

As previously announced, the Company's first quarter 2016 earnings call will be held Tuesday, April 26, 2016 at 11 a.m. (ET).

To join the call, please dial (800) 946-0744 toll free or (719) 325-2236, and use passcode 7324222. 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, using passcode 7324222.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com.

It will be archived on that site and will be 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 a $13.7 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, the largest bank headquartered in Michigan, provides commercial, small business, and consumer banking services through 99 branches in the state. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as through 26 retail locations in 19 states. Flagstar is the 10th largest national originator of mortgage loans and a top 25 mortgage servicer, handling payments and record keeping for nearly $70 billion of home loans for over 340,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release includes non-GAAP financial measures such as the estimated Basel III ratios. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, there are practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that the Company's performance is properly reflected to facilitate consistent period-to-period comparisons. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

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 earnings release, conference call slides, or the Form 8-K related to this press release. Additional discussion of the use of non-GAAP measures can also be found 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. Factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements can be found 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.

+For more information, contact:
David L. Urban
[email protected]  
(248) 312-5970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Basel III (transitional) to Basel III (fully phased-in) reconciliation. On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014 and prior. 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. We have transitioned to the Basel III framework beginning in January 2015 and are subject to a phase-in period extending through 2018. Accordingly, the calculations provided below are estimates. These measures are considered to be non-GAAP financial measures because they are not formally defined by GAAP and the Basel III implementation regulations will not be fully phased-in until January 1, 2019. The regulations are subject to change as clarifying guidance becomes available and the calculations currently include our interpretations of the requirements including informal feedback received through the regulatory process. Other entities may calculate the Basel III ratios differently from our calculations based on their interpretation of the guidelines. Since analysts and banking regulators may assess our capital adequacy using the Basel III framework, we believe that it is useful to provide investors information enabling them to assess our capital adequacy on the same basis.

 

 

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SOURCE Flagstar Bancorp, Inc.