Flagstar Bancorp Inc., the Troy, Mich.-based holding company for Flagstar Bank FSB, reported second quarter net income of $46.4 million, up from the first quarter’s net income of $31.5 million and $25.5 million in the fourth quarter of 2014.
Flagstar Bancorp’s second quarter net interest income increased $7.6 million, or 12 percent to $72.5 million, up from to $64.9 million for the first quarter. Net interest margin improved four basis points to 2.79 percent for the second quarter, up from 2.75 percent for the first quarter.
Average loans held-for-investment totaled $4.9 billion for the second quarter, increasing $0.6 billion, or 15 percent, compared to the first quarter. Within the company’s product lines, warehouse lending grew $349 million, or 56 percent, while residential first mortgage loans increased $221 million, or 10 percent.
On the servicing side, Flagstar Bancorp’s net return on the mortgage servicing asset (including the impact of economic hedges of mortgage servicing rights) increased to $9.3 million for the second quarter, compared to a loss of $2.4 million for the first quarter. The net return on the mortgage servicing asset was 14 percent in the second quarter, an increase from the first quarter 2015, which the company credited as being primarily due to a “net hedge gain from falling market implied volatility, increased servicing fee income, and a decrease in anticipated run-off speeds due to higher mortgage rates.”
On the depository side, the company’s average interest bearing deposits were $6.1 billion in the second quarter, increasing $144 million or two percent from the prior quarter. Retail deposits rose $159 million, or 3 percent, led by growth in savings deposits, while the average noninterest bearing deposits increased $224 million, or 16 percent, which Flagstar Bancorp attributed to seasonal growth in company controlled mortgage escrow deposits.
"We're pleased with the strong results we demonstrated in the quarter, thanks largely to growth in banking revenue, solid mortgage revenue, and continued expense discipline," said Alessandro P. DiNello, president and chief executive officer of Flagstar Bancorp. "We posted positive operating leverage as net interest income grew 12 percent and noninterest income rose seven percent. We also continued to de-risk the balance sheet and improve our efficiency ratio.
Loan administration income increased to $6.8 million for the second quarter 2015, as compared to $4.3 million in the first quarter 2015. The increase was primarily due to slower prepayments in the Company's mortgage servicing portfolio during the second quarter 2015.
"Our sale of a large portion of interest-only loans during the quarter was a major accomplishment,” said DiNello. “We sold $386 million of interest-only loans, nearly half the portfolio, along with $70 million of lower performing loans. Our execution in connection with these transactions was strong and drove a $10 million after-tax net allowance release and a sizeable drop in nonperforming loans.
