EXHIBIT 99.1
[FLAGSTAR BANCORP LOGO]
NEWS RELEASE
FOR MORE INFORMATION CONTACT:
Michael W. Carrie
Executive Director / CFO
(248) 312-2000
FLAGSTAR ANNOUNCES EARNINGS AND NON-EARNINGS CHANGES TO 2004
FINANCIAL STATEMENTS
Troy, Mich. (March 11, 2005) - Flagstar Bancorp, Inc. (NYSE:FBC) announced today
a $0.04 per diluted share reduction to its fourth quarter 2004 earnings to defer
a gain recognized in December 2004 from an interest rate hedging position that
it had terminated. The gain will instead be recorded in 2005 and 2006.
At the same time, Flagstar announced an unrelated adjustment to its retained
earnings to correct a cumulative overstatement of its accrued interest
receivable. This adjustment will not affect Flagstar's 2004 earnings or have any
effect on its compliance with bank regulatory capital requirements nor will it
change Flagstar's previously issued guidance for 2005 of $1.90 to $2.50 per
share.
The effect of the change arising from the termination of the hedge position in
December 2004 is a reduction in 2004 earnings of $0.04 per diluted share, to
$2.24 per diluted share (compared to previously announced unaudited 2004
earnings of $2.28 per diluted share), and a corresponding increase of
approximately $0.02 per diluted share to be recognized in 2005 and $0.02 in
2006. These per share increase estimates for 2005 and 2006 assume no changes
from 2004 in the weighted average number of shares outstanding or the tax rate.
The resulting change applies to the unaudited financial results for 2004 that
have been reported by Flagstar, and does not apply to any previously issued
audited financial statements.
Flagstar uses interest rate swap agreements and other instruments as hedges to
protect itself from changes in interest rates. As its risk exposure changes,
Flagstar will increase or decrease its holdings of these types of agreements.
These agreements were utilized as a hedge for certain forecasted transactions.
Under Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities, when terminating a derivative used to hedge a forecast
transaction, amounts that are accumulated in other comprehensive income may only
be recognized in earnings when it is probable that the forecasted transaction
will not occur. The gains that are deferred will remain in other comprehensive
income until earnings are impacted by the forecast transactions during 2005 and
2006. The adjustment to 2004 earnings reflects that the hedged forecast
transactions remained, so the cash gain created by the elimination of the hedge
could not be recognized in current earnings. The after-tax cash gain will be
recognized as an adjustment to equity as an addition to Other Comprehensive
Income.
The revised, as well as previously reported fourth quarter and year end December
31, 2004 selected consolidated financial data (in thousands) are shown below:
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004
As Revised As Previously Reported
Other Income 12,324 16,329
Earnings before federal tax provision 39,505 43,510
Provision for federal income taxes 13,890 15,292
Net earnings 25,615 28,218
Basic earnings per share 0.42 0.46
Diluted earnings per share 0.40 0.44
Return on average assets 0.78% 0.85%
Return on average equity 13.88% 15.29%
Efficiency Ratio 59.64% 57.21%
Accumulated other Comprehensive Income 5,343 2,629
Retained earnings 699,141 701,744
FOR THE YEAR ENDED DECEMBER 31, 2004
As Revised As Previously Reported
Other Income 44,442 48,447
Earnings before federal tax provision 221,893 225,898
Provision for federal income taxes 78,139 79,541
Net earnings 143,754 146,357
Basic earnings per share $2.35 $2.40
Diluted earnings per share $2.24 $2.28
Return on average assets 1.18% 1.20%
Return on average equity 20.42% 20.79%
Efficiency Ratio 50.20% 47.79%
Accumulated other Comprehensive Income 5,343 2,629
Retained earnings 699,141 701,744
Additionally, Flagstar announced that it has restated its retained earnings at
December 31, 2004 to correct an overstatement of its accrued interest receivable
that has accumulated over time. The restatement did not have any effect on
Flagstar's 2004 earnings or its historic cash flow or any effect on its
compliance with bank regulatory capital requirements.
During a review of internal controls relating to our accrued interest, we
identified, in the 2004 fourth quarter, that our accounting methodology was
inadequate and resulted in the overstatement of interest accrued on our $10.2
billion portfolio of mortgage loans, with a corresponding overstatement of
interest income.
The cumulative impact, as of December 31, 2004, is a $16.9 million overstatement
of accrued interest, which resulted in a $5.9 million overstatement of deferred
income tax liability and an $11.0 million overstatement of retained earnings.
We have determined that there were no net earnings adjustments required in the
2002-2004 period. To properly correct the cumulative adjustment from the years
prior to 2002, we have made a cumulative adjustment to the Company's retained
earnings in its statements of financial condition contained in its 2004 Form
10-K filing. Management and Flagstar's Audit Committee have also concluded that
the Company's previously filed financial statements should no longer be relied
upon.
As is required by Section 404 of Sarbanes-Oxley, management has done an
assessment and concluded that deficiencies in internal controls that led to
these errors constitute "material weaknesses" as defined by the Public Company
Accounting Oversight Board's Auditing Standard No. 2. Consequently, management
will be unable to conclude that Flagstar's internal controls over financial
reporting are effective as of December 31, 2004.
Furthermore, Flagstar expects that Grant Thornton LLP will issue an adverse
opinion with respect to the company's internal controls over financial reporting
which opinion will be included in Flagstar's 2004 Form 10-K.
Flagstar Bancorp, which has $13.1 billion in total assets, is the second largest
independent banking institution headquartered in Michigan. Flagstar operates 120
banking centers in Michigan and Indiana, 112 loan centers in 26 states and
correspondent offices located across the United States. In addition, it is one
of the nation's largest 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 Flagstar'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). Words such
as "may," "could," "should," "would," "believe," and similar expressions are
intended to identify forward-looking statements.