Flagstar Rides Strong Q3 Gains on the Strength of 40 Percent Increase in Originations

Thursday, October 28, 2010 - 17:25

Flagstar Bancorp Inc., the holding company for Flagstar Bank FSB, has reported a 77 percent narrowing in net loss in the third quarter 2010 as compared to the loss in second quarter 2010. In addition, the company launched a $380 million public equity offering. Flagstar saw residential mortgage originations of $7.6 billion, an increase of 40 percent from the second quarter of 2010. Mortgage rate lock commitments stood at $11 billion, a 32 percent increase from the prior quarter as well. The company also saw their margin of non-performing loans at $911 million, a 10 percent drop from the previous quarter.
"We are pleased with the significant improvement this quarter, which reflects growth in top line revenue, combined with decreasing credit costs and a continued improvement in asset quality," said Joseph P. Campanelli, Flagstar chairman and chief executive officer. "In the face of a sluggish economy and compressed margins, we were able to increase our pre-tax, pre-credit cost income by 53 percent from the prior quarter. The third quarter includes an $11.9 million expense related to the prepayment of a $250 million FHLB advance. Excluding prepayment expense, net loss in the third quarter would have been $(10.7) million, as compared to $(88.0) million in the second quarter."
In terms of the company's mortgage banking operations, Flagstar saw a gain on loan sales increase to $103.2 million in the third quarter 2010, as compared to $64.3 million for the second quarter 2010, and $104.4 million for the third quarter 2009. This reflects the increase in volume, through the increase in both interest rate lock commitments and loan production, and the increase in margin. Gain on loan sale margins increased to 1.35 percent for the third quarter 2010, as compared to 1.22 percent for the second quarter 2010 and 1.37 percent for the third quarter 2009.
Mortgage rate lock commitments increased to $11 billion during the third quarter 2010, as compared to $8.3 billion during the second quarter 2010 and $8.7 billion during the third quarter 2009. Loan production, substantially comprised of agency-eligible residential first mortgage loans, increased to $7.6 billion in the third quarter 2010, as compared to $5.5 billion in the second quarter 2010 and $6.6 billion in the third quarter 2009. For the nine months ended Sept. 30, 2010, loan production was $17.4 billion, which is comprised of $9.9 billion originated in the correspondent channel, $6 billion originated in the broker channel and $1.4 billion originated in the retail channel.
As of Sept. 30, 2010, Flagstar's loans serviced for others increased to $52.3 billion and had a weighted average servicing fee of 31.5 basis points. This was an increase from $50.4 billion at June 30, 2010 with a weighted average servicing fee of 32.4 basis points and a decrease from $56.5 billion at Dec. 31, 2009 with a weighted average servicing fee of 32.1 basis points.
Other key items Flagstar posted in the third quarter of 2010:
►A net loss of $(22.6) million improved by 77 percent from the second quarter
►Incurred an $11.9 million expense related to prepayment of FHLB advance and restructured seven other tranches of advances, which will positively impact net interest margin.
►A gain on loan sale income of $103.2 million (margin of 135 bps), an increase by 61 percent from the prior quarter.
►A bank net interest margin of 1.55 percent, an increase from the prior quarter level of 1.53 percent.
►Loan fees totaling $24.4 million, an increase of 20 percent from the prior quarter.
►Net servicing revenue of $23.2 million, an increase of 55 percent from the previous quarter.
►The provision for loan losses decreased by 40 percent from the prior quarter to $(51.4) million.
►An asset resolution expense decrease by 25 percent from the prior quarter to $(34.2) million.
"The improvement in the quarter was driven by a number of positives in our core business," said Campanelli. "Compared to the prior quarter, residential mortgage originations increased by 40 percent and gain on loan sale income increased by 60 percent, while credit related expenses decreased by 30 percent and non-performing loans decreased by 10 percent. We were also able to keep expenses flat and maintain historically high capital ratios."

For third quarter 2010, the company had a net loss applicable to common stockholders of $(22.6) million, as compared to a net loss of $(97) million for the second quarter 2010. On a per share basis, third quarter 2010 had a loss of $(0.15) per share (diluted) based on average shares outstanding of 153,405,000, a decline from the second quarter 2010 loss of $(0.63) per share (diluted) based on average shares outstanding of 153,298,000. For the third quarter 2009, Flagstar reported a net loss applicable to common shareholders of $(298.2) million, which was a loss of $(6.36) per share (diluted) based on average share outstanding of 46,853,000.
On a year-to-date basis, the company reduced its net loss by 54 percent during the nine months ended Sept. 30, 2010, as compared to the same period for 2009. For the nine months ended Sept. 30, 2010, the net loss applicable to common stockholders totaled $(201.5) million, or $(1.57) per share (diluted) based on average shares outstanding of 128,411,000, as compared to a net loss of $(442.2) million, or $(16.58) per share (diluted) based on average shares outstanding of 26,678,000 during the same period 2009.
"In addition," Campanelli said, "We took a big step forward in our transformation toward becoming a full-service super community bank, announcing the launch of our new small business banking line of products and services. We are excited that we can now offer a robust set of banking and credit products to the nearly half a million small businesses near our branches. The commencement of our public equity offering and potential accelerated disposition of impaired assets is just another step in our turnaround."
For more information, visit www.flagstar.com.