TROY, Mich., Oct. 24, 2017 /PRNewswire/ --

Key Highlights - Third Quarter 2017

• Net interest income rose $6 million, or 6 percent, from second quarter 2017, driven by solid earning asset growth.
• Well-balanced loan growth with average commercial loans increasing $434 million, or 13 percent, from last quarter.
• Mortgage revenues, including gain on sale and return on MSR, increased $9 million, or 13 percent, from prior quarter, led by higher retail originations.
• Asset quality strong with minimal net charge-offs and low delinquencies across all loan portfolios.
• Strong capital position with Tier 1 leverage at 8.8 percent.

Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, FSB, today reported third quarter 2017 net income of $40 million, or $0.70 per diluted share, as compared to $41 million, or $0.71 per diluted share, in the second quarter 2017, and $57 million, or $0.96 per diluted share, in the third quarter 2016. Excluding a one-time benefit, the Company had adjusted non-GAAP third quarter 2016 net income of $41 million, or $0.69 per diluted share.

"Our transformation into a strong commercial bank continued this quarter," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "Net interest income rose $6 million on average earning asset growth of $717 million, or 5 percent, and a relatively stable net interest margin. Earning asset growth was, again, broad-based, with double-digit increases in all three commercial loan portfolios. We also continued to maintain our disciplined deposit growth, which saw average deposits increase $266 million, or 3 percent. Total mortgage revenues grew $9 million, or 13 percent, as our gain on sale margin expanded 11 basis points to 84 basis points, reflecting a full quarter of revenue from Opes Advisors."

"Our noninterest expense increased $17 million in the third quarter 2017, in line with our expectations, and largely due to a full quarter of expenses from Opes Advisors, plus costs of investing in new businesses. The integration of Opes is on track with our initial expectations and, while it's still early, the financial performance of this unit is slightly ahead of our expectations. The remaining expenses associated with balance sheet expansion reflected our cost discipline, and had a very low, incremental efficiency ratio. Credit costs were negligible, as the provision for loan losses replaced 8 basis points of net charge-offs."

"Finally, we are pleased to see the Capital Simplification proposal from our regulators. If enacted as proposed, it would accelerate the capital formation to support further balance sheet growth, improve our capital flexibility to better manage the uncertainties of the MSR market and allow us to hold more MSRs -- a high yielding asset that we fund efficiently and hedge well. We believe it should improve our position to continue to execute on our business model, matching superior asset generation capabilities, supported by the capital and liquidity to grow the bank prudently, thereby creating value for our shareholders."

Third Quarter 2017 Highlights:

 

 

Net Interest Income

Net interest income rose $6 million, or 6 percent, to $103 million, as compared to $97 million for the second quarter 2017. The results reflected a 5 percent increase in average earning assets, led by continued solid growth in commercial loans, and a slight increase in the net interest margin.

Loans held-for-investment averaged $6.8 billion for the third quarter 2017, increasing $579 million, or 9 percent, from the prior quarter. During the third quarter 2017, average commercial loans rose 13 percent with average commercial real estate loans increasing $169 million, or 11 percent, average commercial and industrial loans increasing $137 million, or 15 percent, and average warehouse loans increasing $128 million, or 15 percent. Average consumer loans rose 5 percent, driven by an increase in mortgage loans (primarily jumbos).

Average total deposits were $9.0 billion in the third quarter 2017, increasing $266 million, or 3 percent from the second quarter 2017. The increase was led by a $121 million increase in company controlled deposits. Average retail deposits increased $70 million, led by an increase in retail certificates of deposit. Excluding warehouse loans and company-controlled deposits, the Company's held-for-investment (HFI) loan-to-deposit ratio was 78 percent in the third quarter 2017, as compared to 73 percent in the second quarter 2017, providing ample liquidity for balance sheet growth.

Net interest margin increased 1 basis point to 2.78 percent for the third quarter 2017, as compared to the second quarter 2017. The slight increase from the prior quarter was driven by higher interest income on commercial loans, partially offset by increased interest expense on short-term Federal Home Loan Bank advances due to recent Federal Reserve rate hikes. Total deposit costs were up modestly due to higher rates paid on retail certificates of deposit and government deposits.

Provision (Benefit) for Loan Losses

The provision for loan losses totaled $2 million for the third quarter 2017, as compared to a $1 million benefit for the second quarter 2017. The low level of provision expense reflected strong asset quality and largely matched net charge-offs during the third quarter.

Noninterest Income

Noninterest income rose $14 million, or 12 percent, to $130 million in the third quarter of 2017, as compared to $116 million for the second quarter 2017. The increase was primarily due to an increase in net gain on loan sales and loan fees and charges.

Third quarter 2017 net gain on loan sales increased to $75 million, as compared to $66 million in the second quarter 2017, led by a full quarter of the Opes acquisition. Fallout-adjusted locks fell 1 percent to $8.9 billion due to lower correspondent and broker volume, partially offset by stronger retail volume from a full quarter of Opes Advisors. The net gain on loan sale margin rose 11 basis points to 0.84 percent for the third quarter 2017, as compared to 0.73 percent for the second quarter 2017. The increase was led by a higher distributed retail mix from the Opes acquisition.

 

 

Loan fees and charges rose to $23 million for the third quarter 2017, as compared to $20 million for the second quarter 2017. The increase primarily reflected higher mortgage loan closings with a greater mix of distributed retail loans.

Net return on the mortgage servicing rights (including the impact of hedges) was a net gain of $6 million for the third quarter 2017, unchanged from the second quarter 2017, reflecting stable prepayments and hedge performance.

The representation and warranty benefit was $4 million for the third quarter 2017, as compared to a $3 million benefit in the second quarter 2017. The representation and warranty reserve was reduced to $16 million at September 30, 2017, from $20 million at June 30, 2017, reflecting continued improvement in risk trends and a repurchase pipeline that was only $5 million at September 30, 2017.

Noninterest Expense

Noninterest expense rose to $171 million for the third quarter 2017, as compared to $154 million for the second quarter 2017. The increase from the prior quarter was primarily due to a full quarter of operating expenses associated with the recent acquisition of Opes Advisors.

The Company's efficiency ratio was 74 percent for the third quarter 2017, as compared to 72 percent for the second quarter 2017. Excluding Opes noninterest expense, the Company experienced positive operating leverage with the remaining expenses reflecting a greater degree of expense control and a low level of incremental cost from expanding community banking revenues.

Income Taxes

The third quarter 2017 provision for income taxes totaled $20 million, as compared to $19 million in the second quarter 2017. The effective tax rate was 32 percent for the third quarter 2017, unchanged from the second quarter 2017.

Asset Quality  

 

 

The allowance for loan losses was $140 million at September 30, 2017, unchanged from June 30, 2017. The allowance for loan losses covered 2.0 percent of loans held-for-investment at September 30, 2017, as compared to 2.1 percent of loans held-for-investment at June 30, 2017.

Net charge-offs in the third quarter 2017 were $2 million, or 0.08 percent of HFI loans, compared to less than $1 million, or 0.04 percent of such loans in the prior quarter.

Nonperforming loans held-for-investment were $31 million at September 30, 2017, compared to $30 million at June 30, 2017. The ratio of nonperforming loans to loans held-for-investment were 0.44 percent at September 30, 2017, unchanged from June 30, 2017. At September 30, 2017, consumer loan delinquencies totaled $5 million, unchanged from June 30, 2017.

 

Capital

 

The Company grew the average balance sheet $729 million in the third quarter 2017 while maintaining a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At September 30, 2017, the Company had a Tier 1 leverage ratio of 8.8 percent, as compared to 9.10 percent at June 30, 2017. The decrease in the ratio resulted from balance sheet growth and a 24 basis point deduction for higher MSRs, partially offset by earnings retention.

On September 27, 2017, the federal banking agencies issued a notice of proposed rulemaking ("NPR") regarding several proposed simplifications of the Basel III capital rules issued in 2013. This Capital Simplification NPR would accelerate capital formation for balance sheet growth. On a pro-forma basis at September 30, 2017, the proposal would have increased the Company's Tier 1 leverage ratio by approximately 70 bps and risk-based capital ratios by approximately 30 - 45 basis points.

At September 30, 2017, the Company had a common equity-to-assets ratio of 8.6 percent. 

Earnings Conference Call

As previously announced, the Company's third quarter 2017 earnings call will be held Tuesday, October 24, 2017 at 11 a.m. (ET).

To join the call, please dial (800) 239-9838 toll free or (719) 325-2202 and use passcode 8531257. 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 8531257.

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 a $16.9 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, 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 95 retail locations in 27 states, representing the combined retail branches of Flagstar and Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $91 billion of home loans representing 415,000 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 adjusted third quarter 2016 net income, adjusted earnings per share, tangible book value per share and estimated fully implemented Basel III capital levels and ratios. 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. 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 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 ours 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.

 

 

 

               

               

Tangible book value per share, adjusted net income and adjusted earnings per share. 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. These non-GAAP measures 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 Company believes that tangible book value per share, adjusted net income and adjusted earnings per share provide a meaningful representation of its operating performance on an ongoing basis. Management uses these measures to assess performance of the Company against its peers and evaluate overall performance. The Company believes these non-GAAP financial measures provide useful information for investors, securities analysts and others because it provides a tool to evaluate the Company's performance on an ongoing basis and compared to its peers.   

 

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

 

 

 

 

 

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SOURCE Flagstar Bancorp, Inc.