NEWS RELEASE
FOR MORE INFORMATION CONTACT:
Paul D. Borja
Executive Vice President / CFO
(248) 312-2000
FOR IMMEDIATE RELEASE
FLAGSTAR REPORTS THIRD QUARTER RESULTS
Troy, Mich. (October 24, 2005) - Flagstar Bancorp, Inc. (NYSE:FBC), today
reported third quarter 2005 net earnings of $9.5 million, or $0.15 per share -
diluted. For the third quarter ended September 30, 2004, net earnings totaled
$40.0 million, or $0.62 per share - diluted.
For the nine months ended September 30, 2005, net earnings totaled $57.0
million, or $0.89 per share - diluted. These results compare to $118.1 million,
or $1.84 per share - diluted, reported in the comparable 2004 period.
HIGHLIGHTS FROM THE QUARTERLY REPORT INCLUDE:
o An increase in total assets of 3.4% in the quarter to $15.4 billion;
o Nine-month annualized asset growth of 23.4%, including an annualized growth
of 15.2% in the investment loan category;
o An annualized increase of 14.4% in the deposit portfolio;
o A year-to-date annualized return on average equity of 10.19%;
o The opening of the Company's 129th banking center during the quarter;
o Third quarter total loan production of $8.8 billion, including $8.3 billion
in residential mortgage loans;
o Mortgages serviced for others of $31.3 billion.
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BALANCE SHEET AND CAPITAL ADEQUACY
Consolidated assets at September 30, 2005 were $15.4 billion, compared with
$13.1 billion at December 31, 2004 and $12.8 billion at September 30, 2004.
Flagstar's stockholders' equity now stands at $752.0 million, or 4.87% of total
assets. The book value of the common stock at September 30, 2005 equaled $12.06
per share. Flagstar Bank, the Company's wholly-owned subsidiary reported capital
ratios that categorize the Bank as a "well-capitalized" institution for
regulatory purposes. The Bank's core capital ratio stood at 5.99% and the total
risk-based capital ratio stood at 10.44% at September 30, 2005.
NET INTEREST INCOME
Net interest income was $60.8 million for the three months ended September 30,
2005 compared to $55.9 million for the comparable period for 2004, and $184.4
million for the nine months ended September 30, 2005 compared to $166.2 million
for the same period last year. The net interest margin for the quarter ended
September 30, 2005 was 1.72%, which was a decrease of 26 basis points when
compared to the same period last year. The net interest margin for the nine
months ended September 30, 2005 was 1.85%, a decrease of 19 basis points
compared to the nine months ended September 30, 2004.
On a sequential quarter basis, the Company's interest rate spread decreased 3
basis points and the net interest margin decreased 7 basis points, to 1.72% from
1.79%. Our decline in net interest margin reflects the significant competition
in the loan market that limits yield growth, and similar competition for
deposits that resulted in increasingly higher deposit rates to retain our
existing deposit base, although generally at costs below FHLB advance rates.
RETAIL BANKING OPERATIONS
The Company's pre-tax profits from its banking operations totaled approximately
$33.6 million during the quarter. These results were up 23.1% from the second
quarter of 2005 and down 16.8% from the third quarter of 2004. The Company
opened one banking center during the quarter and a total of nine during the
first nine-months of 2005.
The Company's investment loan portfolio totaled $11.7 billion at September 30,
2005 as compared to $10.6 billion at December 31, 2004. The investment loan
portfolio was comprised of the following loans:
Sep 30, 2005 Dec 31, 2004 Sep 30, 2004
------------ ------------ ------------
(In thousands)
DESCRIPTION:
First mortgage loans $ 8,901,744 $ 8,693,768 $ 7,926,995
Second mortgage loans 532,760 196,518 158,229
Commercial real estate loans 888,051 751,730 659,516
Construction loans 68,052 66,811 67,640
Warehouse lending 242,541 249,291 220,690
Consumer loans 1,064,199 591,107 415,938
Non-real estate commercial loans 6,437 9,100 8,309
----------- ----------- -----------
Total investment loan portfolio $11,702,543 $10,559,154 $ 9,457,729
=========== =========== ===========
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Flagstar's deposits were $8.2 billion at September 30, 2005 compared with $7.4
billion at December 31, 2004 and $7.5 billion at September 30, 2004. At
September 30, 2005, consumer transaction account balances, including checking,
savings, and money market accounts, represented $1.6 billion compared with $2.1
billion at December 31, 2004. During the past quarter, the Company's weighted
average cost of deposits increased by 21 basis points from the second quarter of
2005.
The Company's consumer certificate of deposit portfolio, which total $ 3.1
billion carried a weighted rate of 3.80% and a weighted term of 13.8 months at
September 30, 2005. On a sequential quarter, the weighted average rate increased
13 basis points from the second quarter of 2005.
The municipal division, which totals $1.6 billion in deposits, gathers funds
from local governmental entities within the Company's immediate market area.
These deposits carried a weighted average rate of 3.81% and a weighted average
term of 2.6 months at September 30, 2005. On a sequential quarter basis, the
weighted average rate on municipal deposits increased 40 basis points from the
second quarter of 2005.
The wholesale deposits, which totaled $1.8 billion, are comprised of
strategically placed duration-specific offerings solicited from a nation wide
audience. These deposits carry a weighted average rate of 3.37% and a weighted
average term of 20.0 months at September 30, 2005. The weighted average rate for
wholesale deposits increased 9 basis points from the second quarter of 2005, as
the lower-costing wholesale deposits mature.
MORTGAGE BANKING OPERATIONS
LOAN SALE GAINS
Gains recorded on the sales of mortgage loans declined to $846,000 during the
quarter ended September 30, 2005 from $24.2 million recorded in the comparable
2004 period. This decrease was primarily attributable to a 32 basis point
decrease in the gain on sale spread during the quarter ended September 30, 2005
compared to the same quarter in 2004. On a sequential quarter basis, the gain on
sale spread decreased 30 basis points, to 17 basis points in the third quarter
of 2005 as compared to 47 basis points in the second quarter of 2005.
The following table sets forth the calculation of our gain on loan sales and
related sales spread:
For the three months ended For the nine months ended
Sep-05 Sep-04 Sep-05 Sep-04
------------ ------------ ------------ ------------
Net gain on loan sales $ 846 $ 24,241 $ 41,779 $ 63,886
Plus: FASB 133 adjustment 7,014 (117) (1,987) (6,662)
Plus: Secondary Market Reserve 4,098 2,875 7,552 16,791
------------ ------------ ------------ ------------
Gain on loan sales $ 11,958 $ 26,999 $ 47,344 $ 74,015
============ ============ ============ ============
Loans sold $ 6,983,384 $ 5,495,477 $ 18,312,923 $ 21,221,693
============ ============ ============ ============
Sales spread 0.17% 0.49% 0.26% 0.35%
============ ============ ============ ============
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MORTGAGE SERVICING
LOANS SERVICED FOR OTHERS
At September 30, 2005, the Company serviced $31.3 billion in loans for others,
an increase of 46.3% from December 31, 2004 and up 50.5% from September 30,
2004. During the first nine months of 2005, the Company sold $3.9 billion in
servicing ($2.5 billion in bulk servicing and $1.4 billion servicing released),
as compared to $24.7 billion ($14.7 billion of bulk servicing sales, $9.2
billion in flow servicing sales, and $0.8 billion in servicing released) in the
first nine months of 2004.
The current servicing portfolio contains 224,105 loans with a weighted average
rate of 5.98%, a weighted average service fee of 0.351 basis points, and a
weighted 13 months of seasoning. Revenue from the portfolio equaled $27.6
million during the third quarter, up $2.3 million, or 9.1% over the comparable
2004 third quarter. This increase was offset by the higher amortization expense
in the third quarter of 2005 than the same period in 2004. For the nine months
ended September 30, 2005, revenue from loans serviced for others totaled $71.4
million, a decrease of $12.8 million, or 15.2%, compared to the nine months
ended September 30, 2004. This decrease was primarily attributable to the 8.6%
decrease in the average portfolio for the nine months ended September 30, 2005,
which totaled $25.4 billion, as compared to an average of $27.8 billion for the
same period last year. Period-end balances during 2004 were lower because of
more frequent servicing sales during 2004 than 2005.
MORTGAGE SERVICING RIGHTS
The capitalized value of the servicing portfolio was $354.2 million, or 1.13% of
the outstanding balance at September 30, 2005. The estimated market value of the
portfolio was $462.6 million at September 30, 2005. The Company amortized $29.5
million and $65.7 million in book value for loan prepayments and amortizations
for third quarter 2005 and the first nine months of 2005, respectively, and
$15.5 million and $60.6 million for the same periods in 2004, respectively.
ASSET QUALITY
NON-PERFORMING LOANS
Non-performing loans at September 30, 2005 were $51.6 million, down $11.2
million or 17.8% from December 31, 2004 and down $10.9 million from September
30, 2004. Total delinquencies in the Company's investment loan portfolio equaled
0.90% at September 30, 2005, compared with 1.02% at December 31, 2004 and 1.16%
at September 30, 2004. Delinquent loans include $3.0 million in matured
commercial real estate loans that are in the process of being renegotiated.
Reflecting the Company's business model of focusing primarily on the residential
mortgage market, 91.8% of non-performing loans were collateralized by
single-family homes.
PROVISION FOR LOSSES
The provision for losses was $3.7 million for the three months ended September
30, 2005 as compared to $3.2 million recorded during the third quarter of 2004.
Net charge-offs were $4.7 million and $3.6 million, an annualized 0.16% and
0.18% of average investment loans, during the three months ended September 30,
2005 and September 30, 2004, respectively. Provision for losses were $12.8
million for the nine months ended September 30, 2005, a decrease of $3.3
million, or 20.5% when compared to the same period in 2004. Net charge-offs were
$15.3 million, annualized at 0.18% of average investment loans for the nine
months ended September 30, 2005 and $11.4 million, annualized at 0.18% for the
nine months ended September 30, 2004.
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ALLOWANCE FOR LOSSES
The allowance for losses totaled $35.9 million at September 30, 2005, as
compared to $38.3 million at December 31, 2004 and $42.5 million at September
30, 2004. The allowance for losses decreased slightly on a sequential quarter
basis due to a minimal improvement in delinquency ratios and a small decrease in
non-performing loans. Non-performing loans to loans held for investment declined
to 0.44% at September 30, 2005 from 0.66% at September 30, 2004. The ratio of
non-performing assets to total assets declined to 0.86% at September 30, 2005
from 0.94% at September 30, 2004.
The allowance for losses as a percentage of non-performing loans was 69.6%,
61.0%, and 68.0% at September 30, 2005, December 31, 2004, and September 30,
2004, respectively. The allowance for losses as a percentage of investment loans
was 0.31%, 0.36%, and 0.45% at September 30, 2005, December 31, 2004, and
September 30, 2004, respectively.
REPURCHASED ASSETS
Net repurchased assets pending foreclosure totaled $14.5 million at September
30, 2005, a decrease of $2.6 million, or 15.2% compared to $17.1 million at
December 31, 2004, and a decrease of $6.4 million, or 30.6%, compared to $20.9
million at September 30, 2004. During the first nine months of 2005, the Company
repurchased $44.8 million in non-performing assets previously sold to the
secondary market. During 2004, the Company repurchased a total of $68.7 million
in non-performing assets.
SECONDARY MARKET RESERVE
The secondary market reserve, which reflects management's assessment of
potential losses arising from loans previously sold into the secondary market
but subsequently repurchased, totaled $15.9 million at September 30, 2005
compared to $19.0 million at December 31, 2004. The secondary market reserve is
determined based upon a systematic methodology that incorporates management's
analysis of the potential for future repurchased loans and the effects of actual
recoveries. Provisions charged to earnings attributable to secondary market
activities totaled $4.1 million and $2.9 million for the three months ended
September 30, 2005 and 2004, respectively. During the nine months ended
September 30, 2005 and 2004, provisions charged to earnings attributable to
secondary market activities totaled $7.6 million and $16.8 million,
respectively.
AS PREVIOUSLY ANNOUNCED
The Company's quarterly earnings conference call will be held on Tuesday,
October 25, 2005 at 11:00 a.m. Eastern Time.
The conference call will also be webcast at
http://www.flagstar.com/inside/presentations.jsp
To participate, please telephone at least ten minutes prior at (719) 785-9442 or
toll free at (800) 309-1331, passcode: 2124651.
Flagstar Bancorp, which has $15.4 billion in total assets, is the second largest
banking institution headquartered in Michigan. Flagstar currently operates 131
banking centers with $8.2 billion in total deposits. Flagstar banking centers
are located throughout southern Michigan, Indiana and Georgia. Flagstar also
operates 105 loan centers in 24 states. Flagstar Bank 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 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.
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SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(unaudited, in thousands, except share data)
SUMMARY OF THE CONSOLIDATED STATEMENTS OF At or for the three months ended At or for the nine months ended
EARNINGS September 30, September 30,
2005 2004 2005 2004
------------ -------------- ------------ -------------
Interest income $ 185,391 $ 140,818 $ 514,628 $ 411,873
Interest expense 124,617 84,914 330,202 245,671
------------ ------------ ------------ ------------
Net interest income 60,774 55,904 184,426 166,202
Provision for losses 3,690 3,171 12,840 16,076
------------ ------------ ------------ ------------
Net interest income after provision 57,084 52,733 171,586 150,126
Loan fees and charges, net 3,587 3,752 9,422 13,840
Deposit fees and charges 4,356 3,134 12,333 9,293
Loan servicing fees, net (1,913) 9,760 5,701 23,582
Gain on loan sales, net 846 24,241 41,779 63,886
Gain on MSR sales, net 492 15,734 7,002 74,767
Other income 13,399 11,745 34,960 32,117
Operating expenses
Compensation and benefits 37,231 37,148 113,263 115,891
Commissions 25,867 25,334 69,834 77,391
Occupancy and equipment 16,431 16,066 51,384 50,530
General and administrative 11,348 8,533 34,647 32,365
Other 6,323 7,778 18,785 22,838
Capitalized direct cost of loan closing (33,970) (35,347) (93,888) (113,790)
------------ ------------ ------------ ------------
Earnings before federal income tax 14,623 61,589 88,758 182,386
Provision for federal income taxes 5,163 21,598 31,720 64,248
------------ ------------ ------------ ------------
Net earnings $ 9,460 $ 39,991 $ 57,038 $ 118,138
============ ============ ============ ============
Basic earnings per share $ 0.15 $ 0.65 $ 0.92 $ 1.94
Diluted earnings per share $ 0.15 $ 0.62 $ 0.89 $ 1.84
Dividends paid per common share $ 0.25 $ 0.25 $ 0.75 $ 0.75
Interest rate spread 1.68% 1.91% 1.74% 1.90%
Net interest margin 1.72% 1.98% 1.85% 2.04%
Return on average assets 0.25% 1.30% 0.52% 1.33%
Return on average equity 5.03% 22.29% 10.19% 23.11%
Efficiency ratio 77.54% 48.69% 65.63% 48.27%
Average earning assets $ 14,053,098 $ 11,192,229 $ 13,304,485 $ 10,867,536
Average paying liabilities $ 13,728,860 $ 10,816,422 $ 12,963,161 $ 10,422,307
Average stockholders' equity $ 752,608 $ 706,696 $ 746,627 $ 681,679
Mortgage loans originated or purchased $ 8,306,439 $ 6,891,042 $ 22,623,153 $ 25,434,314
Other loans originated or purchased $ 489,665 $ 277,307 $ 1,274,541 $ 574,779
Mortgage loans sold $ 6,983,384 $ 5,495,477 $ 18,312,923 $ 21,221,693
Equity/assets ratio (average for the period) 4.95% 5.75% 5.14% 5.74%
Ratio of charge-offs to average investment loans 0.16% 0.18% 0.18% 0.18%
SUMMARY OF THE CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
September 30, June 30, December 31, September 30,
2005 2005 2004 2004
------------- ----------- ------------ -------------
Total assets $15,444,512 $14,916,627 $13,125,488 $12,766,175
Loans held for sale 1,630,527 1,961,977 1,506,311 2,174,186
Investment loans portfolio, net 11,666,645 11,751,110 10,520,836 9,415,255
Allowance for losses 35,898 36,944 38,318 42,474
Mortgage servicing rights 354,185 284,331 187,975 175,593
Deposits 8,161,415 7,887,028 7,379,655 7,542,581
FHLB advances 5,373,279 5,161,035 4,090,000 3,408,000
Stockholders' equity 752,030 755,278 734,837 720,227
OTHER FINANCIAL AND STATISTICAL DATA:
Equity/assets ratio 4.87% 5.06% 5.60% 5.64%
Core capital ratio 5.99% 6.07% 6.19% 6.15%
Total risk-based capital ratio 10.44% 10.50% 10.97% 11.20%
Book value per share $ 12.06 $ 12.13 $ 11.98 $ 11.74
Shares outstanding 62,368 62,244 61,358 61,338
Mortgage loans serviced for others $31,282,929 $26,646,531 $21,354,724 $20,824,209
Value of mortgage servicing rights 1.13% 1.07% 0.88% 0.84%
Allowance for losses to non performing loans 69.55% 56.69% 60.97% 67.97%
Allowance for losses to loans held for investment 0.31% 0.31% 0.36% 0.45%
Non performing assets to total assets 0.86% 0.93% 1.04% 0.94%
Number of bank branches 129 128 120 108
Number of loan origination centers 105 114 112 123
Number of salaried employees 2,414 2,431 2,396 2,407
Number of commissioned employees 790 800 980 989