Flagstar Reports 2007 Third Quarter Results

TROY, Mich., Oct. 30 /PRNewswire-FirstCall/ -- Flagstar Bancorp, Inc. (NYSE:FBC), today reported a 2007 third quarter net loss of $32.1 million, or $(0.53) per share (diluted), as compared to a 2006, third quarter net earnings of $20.8 million, or $0.32 per share (diluted). For the nine months ended September 30, 2007, net loss totaled $9.2 million, or $(0.15) per share (diluted) compared to net earnings of $68.3 million, or $1.06 per share (diluted) for the same nine month period in 2006. On a linked-quarter basis, net earnings decreased $47.2 million from $15.1 million, or $0.25 per share (diluted) in the second quarter 2007.

The 2007 third quarter loss as compared to the same period in 2006 primarily reflects, a decrease in gains on sale of mortgage servicing rights, an increase in the provision for loan loss and an increase in losses on loan sales.

On a linked quarter basis, net earnings decreased as a result of a decrease in gain on loan sales, an increase in the provision for losses, and a decrease in gains on sales of mortgage servicing rights, offset in part by an increase in net interest income.

Consolidated assets increased $1.1 billion, or 7.1%, from $15.5 billion at December 31, 2006 to $16.6 billion at September 30, 2007 and increased $1.5 billion or 9.9% from $15.1 billion at September 30, 2006.

Liquidity

Flagstar's primary sources of funds are deposits, loan repayments and sales, advances from the Federal Home Loan Bank, security repurchase agreements, cash generated from operations and customer escrow accounts. Retail deposits increased to $5.0 billion at September 30, 2007, as compared to $4.9 billion at December 31, 2006. At September 30, 2007, we had available collateral at the FHLB sufficient to access $7.4 billion of the line of which $1.0 billion was still available at September 30, 2007. Also at September 30, 2007, we had $1.2 billion of agency securities and $0.8 billion of non-agency securities available for uses as collateral in security repurchase agreements. We can also draw upon our $0.9 billion line of credit at the Federal Reserve discount window but have not used that facility as of September 30, 2007.

Capital

At September 30, Flagstar Bancorp had $728.9 million in equity. Flagstar Bank, our wholly owned subsidiary, was considered "well-capitalized" for regulatory purposes at September 30, 2007, with regulatory capital ratios of 5.78% core capital (based on $955.2 million of regulatory Tier 1 capital) and 10.65% risk-based capital (based on regulatory total risk-based capital of $977.4 million).

Net Interest Margin

Net interest margin increased on a linked quarter basis from second quarter 2007 to third quarter 2007 at both the Bancorp and Bank levels. Flagstar Bancorp's net interest margin for the third quarter 2007 was 1.36%, as compared to 1.35% for the second quarter 2007 and 1.54% for the third quarter 2006. For the nine months ended September 30, 2007 the net interest margin was 1.38% as compared to 1.57% reported for the nine months ended September 30, 2006.

The net interest margin of its subsidiary Flagstar Bank for the third quarter 2007 was 1.52%, as compared to 1.43% for the second quarter 2007 and 1.67% for the third quarter 2006. For the nine months ended September 30, 2007 its net interest margin was 1.45% as compared to 1.65% for the nine months ended September 30, 2006.

Retail Banking Operations

Flagstar Bank had 158 retail banking branches at September 30, 2007, an increase of 8.2% as compared to 146 branches as of September 30, 2006 and an increase of 4.6% from 151 branches at December 31, 2006. For the fourth quarter 2007 and for 2008, Flagstar Bank plans to open a total of 20 more retail banking branches. During the third quarter of 2007, the total number of retail accounts increased 6.7% to 292,200 as compared to approximately 273,800 at September 30, 2006 and 5.1% to approximately 277,900 at December 31, 2006.

Mortgage Banking Operations

Loan production for third quarter 2007 decreased 8.1% to $6.8 billion, including $6.6 billion of residential loans, as compared to $7.4 billion, including $7.2 billion of residential loans, during second quarter 2007 and $4.8 billion, including $4.6 billion of residential loans, for third quarter of 2006.

For the nine months ended September 30, 2007 loan production increased 35.1% to $20.0 billion, including $19.2 billion of residential loans, as compared to $14.8 billion, including $13.9 billion of residential loans, for the nine months ended September 30, 2006. At September 30, 2007, subprime loans comprised approximately 1% of the investment loan portfolio.

Flagstar's loss on sale spread was a negative 29 basis points for the quarter ended September 30, 2007, as compared to a gain on loan sale spreads of 52 basis points for the second quarter 2007 and a negative 20 basis points for the quarter ended September 30, 2006. Our calculation of net gain on loan sales reflects any mark to market adjustments on loan commitments and forward sales commitments in accordance with SFAS 133, lower of cost or market adjustments on loan transfers and provisions to our secondary market reserve. Net mark to market adjustments made in accordance with SFAS 133, amounted to $8.5 million, ($3.6) million and $7.1 million for the three months ended September 30, 2007, June 30, 2007 and September 30, 2006, respectively. Lower of cost or market adjustments on loan transfers amounted to $0.1 million for both the three months ended September 30, 2007 and June 30, 2007 and $1.1 million for the three months ended September 30, 2006. Provisions to our secondary market reserve amounted to $2.7 million, $2.4 million and $1.6 million for the three months ended September 30, 2007, June 30, 2007 and September 30, 2006, respectively. Also included in our net gain on loan sales are the capitalized value of our MSR's, which totaled $93.6 million, $86.0 million and $61.6 million for the three months ended September 30, 2007, June 30, 2007 and September 30, 2006, respectively.

For the nine months ended September 30, 2007, the gain on sale spread increased 5 basis points to 21 basis points, as compared to 16 basis points for the same period in 2006. Our calculation of net gain on loan sales reflects any mark to market adjustments on loan commitments and forward sales commitments in accordance with SFAS 133, lower of cost or market adjustments on loan transfers and provisions to our secondary market reserve. Net mark to market adjustments made in accordance with SFAS 133, amounted to $0.1 million and ($2.4) million for the nine months ended September 30, 2007 and September 30, 2006, respectively. Lower of cost or market adjustments on loan transfers amounted to $0.2 million and $1.9 million for the nine months ended September 30, 2007 and 2006, respectively. Provisions to our secondary market reserve amounted to $7.2 million and $4.1 million for the nine months ended September 30, 2007 and 2006, respectively. Also included in our net gain on loan sales are the capitalized value of our MSR's, which totaled $247.5 million and $171.1 million for the nine months ended September 30, 2007 and 2006, respectively.

At September 30, 2007, Flagstar's mortgage servicing portfolio totaled $26.7 billion with a weighted average service fee of 36.4 basis points. This is an increase from $21.5 billion at June 30, 2007 with a weighted average servicing fee of 36.9 basis points. The capitalized value of Flagstar's servicing portfolio at September 30, 2007 was $340.8 million, or 1.28% of the outstanding balance of loans serviced for others, with an estimated market value of $385.6 million. This compares to the capitalized value at June 30, 2007 of $266.5 million, or 1.24% with an estimated market value of $333.3 million and a capitalized value at September 30, 2006 of $150.7 million, or 1.02% with an estimated market value of $180.0 million.

Asset Quality

During the third quarter 2007, Flagstar increased its allowance for loan losses to $77.8 million, or 1.11% of loans held for investment at September 30, 2007, from $53.4 million, or 0.70% of loans held for investment, at June 30, 2007 and from $42.7 million, or 0.48% of loans held for investment, at September 30, 2006. Single-family residential first mortgage loans held for investment at September 30, 2007 had an average FICO credit score of 719 and an average original loan-to-value ratio of 73.65%.

Net charge-offs of loans during the third quarter 2007 decreased to $5.8 million from $6.5 million during the second quarter 2007 and increased from $4.7 million during the third quarter 2006. Third quarter 2007 total non- performing assets increased to $221.0 million at September 30, 2007, from $160.2 million at December 31, 2006 and $158.8 million at September 30, 2006.

Non-performing loans, which include loans 90 days or more past due and matured loans, increased to $127.5 million at September 30, 2007 as compared to $99.3 at June 30, 2007 and $55.5 million at September 30, 2006. At September 30, 2007, 76.0% of non-performing loans were secured by first or second mortgages on single-family homes as compared to 78.1% at June 30, 2007 and 91.9% at September 30, 2006.

Loans 90 days or more past due and matured loans were 1.81% of loans held for investment at September 30, 2007 as compared to 1.30% at June 30, 2007 and 0.62% at September 30, 2006. The aggregate of loans past due 30 days or less and 60 days or less increased 46.1% to $117.9 million at September 30, 2007 from $80.7 million at June 30, 2007.

Of non-performing assets, real estate owned increased 4.0% to $84.2 million at September 30, 2007 from $81.0 million at December 31, 2006 and $71.5 million at September 30, 2006. Repurchased and non-performing assets decreased 57.9% to $9.3 million at September 30, 2007 compared to $22.1 million at December 31, 2006 and $31.9 million at September 30, 2006.

As Previously Announced

The Company's quarterly earnings conference call will be held on Wednesday, October 31, 2007 from 11 a.m. until noon (Eastern).

Questions for discussion at the conference call may only be submitted in advance by e-mail to investors@flagstar.com.

The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company's Web site, www.flagstar.com, with replays available at that site for at least 10 days.

To listen by telephone, please call at least 10 minutes prior to the start of the conference call at (913) 312-0416 or toll free at (800) 289-0462, passcode: 4268862.

Flagstar Bancorp, with $16.6 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest. At September 30, 2007, Flagstar operated 158 banking centers in Michigan, Indiana and Georgia and 151 home loan centers in 29 states. Flagstar Bank originates loans nationwide and is one of the leading 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.

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
(Unaudited)

For the Three Months Ended
Summary of Consolidated September 30, June 30, September 30,
Statements of Operations 2007 2007 2006

Interest income $237,151 $222,464 $205,557
Interest expense (183,215) (172,547) (151,929)
Net interest income 53,936 49,917 53,628
Provision for loan losses (30,195) (11,452) (7,291)
Net interest income after provision 23,741 38,465 46,337

Non-interest income
Loan fees and charges, net (218) 837 2,146
Deposit fees and charges 5,808 5,710 5,080
Loan servicing fees, net 4,333 3,149 7,766
Net gain on securities available for
sale 668 - - Gain on loan sales, net (17,457) 28,144 (8,197)
Gain on MSR sales, net 456 5,610 45,202
Residual Impairment (3,612) - (2,144)
Unrealized gain on trading securities 1,914 - - Other income 9,376 13,994 4,485
Total non-interest income 1,268 57,444 54,338

Non-interest expenses
Compensation and benefits (44,653) (42,847) (41,715)
Commissions (18,136) (19,517) (18,405)
Occupancy and equipment (17,622) (17,038) (17,749)
General and administrative (10,658) (11,178) (9,242)
Other (5,431) (5,366) (4,829)
Total non-interest expense (96,500) (95,946) (91,940)
Capitalized direct cost of loan
closing 23,240 23,712 23,087
Total non-interest expense after
capitalized direct cost of
loan closing (73,260) (72,234) (68,853)

(Loss) Earnings before federal income tax (48,251) 23,675 31,822
(Benefit) Provision for federal income
taxes (16,196) (8,544) (11,070)
Net (loss) earnings $(32,055) $15,131 $ 20,752
Basic (loss) earnings per share $(0.53) $0.25 $0.33
Diluted (loss) earnings per share $(0.53) $0.25 $0.32
Dividends paid per common share $0.10 $0.10 $0.15

Dividend payout ratio (18.8)% 39.7% 46.0%
Net interest spread - Consolidated 1.27% 1.27% 1.47%
Net interest margin - Consolidated 1.36% 1.35% 1.54%
Interest rate spread - Bank only 1.35% 1.30% 1.44%
Net interest margin - Bank only 1.52% 1.43% 1.67%
Return on average assets (0.77)% 0.38% 0.55%
Return on average equity (17.08)% 7.69% 10.10%
Efficiency ratio 133.45% 67.28% 63.77%
Average interest earning assets $15,694,934 $14,799,436 $13,814,697
Average interest paying liabilities $15,233,024 $14,582,350 $13,461,132
Average stockholders' equity $750,570 $ 786,768 $821,699
Equity/assets ratio (average for the
period) 4.51% 4.99% 5.46%
Ratio of charge-offs to average loans held
for investment 0.33% 0.36% 0.18%

For the Nine Months Ended
Summary of Consolidated September 30, September 30,
Statements of Operations 2007 2006

Interest income $680,185 $ 589,503
Interest expense (524,360) (426,462)
Net interest income 155,825 163,041
Provision for loan losses (49,941) (17,213)
Net interest income after provision 105,884 145,828

Non-interest income
Loan fees and charges, net 1,257 4,996
Deposit fees and charges 16,496 15,584
Loan servicing fees, net 10,097 12,430
Net gain on securities available for sale 1,397 - Gain on loan sales, net 35,841 18,538
Gain on MSR sales, net 6,181 88,719
Residual Impairment (3,612) (5,701)
Unrealized gain on trading securities 1,914 - Other income 29,039 23,966
Total non-interest income 98,610 158,532

Non-interest expenses
Compensation and benefits (129,924) (120,346)
Commissions (52,959) (56,283)
Occupancy and equipment (51,446) (51,405)
General and administrative (33,841) (30,070)
Other (14,303) (11,464)
Total non-interest expense (282,473) (269,568)
Capitalized direct cost of loan closing 65,581 70,291
Total non-interest expense after
capitalized direct cost of loan closing (216,892) (199,277)
(Loss) Earnings before federal income tax (12,398) 105,083
(Benefit) Provision for federal income taxes (3,233) (36,780)
Net (loss) earnings $(9,165) $68,303
Basic (loss) earnings per share $ (0.15) $1.08
Diluted (loss) earnings per share $ (0.15) $1.06
Dividends paid per common share $0.30 $0.45

Dividend payout ratio (197.3)% 41.9%
Net interest spread - Consolidated 1.29% 1.48%
Net interest margin - Consolidated 1.38% 1.57%
Interest rate spread - Bank only 1.29% 1.44%
Net interest margin - Bank only 1.45% 1.65%
Return on average assets (0.08)% 0.60%
Return on average equity (1.57)% 12.23%
Efficiency ratio 85.24% 61.97%
Average interest earning assets $15,063,143 $13,855,673
Average interest paying liabilities 14,802,878 $13,596,942
Average stockholders' equity 776,989 $ 744,394
Equity/assets ratio (average for the period) 4.79% 4.93%
Ratio of charge-offs to average loans held
for investment 0.34% 0.19%

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
(Unaudited)

Summary of the Consolidated
September June December September
Statements of Financial 30, 30, 31, 30,
Condition: 2007 2007 2006 2006

Total assets $16,564,999 $16,179,478 $15,497,205 $15,120,025
Mortgage backed securities
held to maturity 1,343,778 1,069,350 1,565,420 1,552,040
Loans held for sale 5,604,041 5,110,768 3,188,795 3,286,263
Loans held for investment,
net 6,956,932 7,602,073 8,893,906 8,881,437
Allowance for loan losses 77,800 53,400 45,779 42,744
Servicing rights 340,814 266,545 173,288 150,663
Deposits 8,485,556 7,697,810 7,623,488 8,212,773
FHLB advances 6,392,000 5,529,055 5,407,000 4,517,308
Repurchase agreements 468,668 1,705,418 990,806 734,495
Stockholders' equity 728,906 770,275 812,234 815,012

Other Financial and
Statistical Data:
Equity/assets ratio 4.40% 4.76% 5.24% 5.39%
Core capital ratio 5.78% 6.04% 6.37% 6.52%
Total risk-based capital
ratio 10.65% 10.96% 11.55% 11.52%
Book value per share $ 12.09 $ 12.78 $12.77 $12.82
Shares outstanding 60,271 60,260 63,605 63,571
Average shares outstanding 61,450 60,691 63,588 63,475
Average diluted shares
outstanding 61,874 61,110 64,328 64,323
Loans serviced for
others $26,665,052 $21,508,835 $15,032,504 $14,829,396
Weighted average service
fee (bps) 36.4 36.9 37.1 34.6
Value of servicing rights 1.28% 1.24% 1.15% 1.02%
Allowance for loan losses to
non performing loans 61.0% 53.8% 80.2% 77.1%
Allowance for loan losses to
loans held for investment 1.11% 0.70% 0.51% 0.48%
Non performing assets to total
assets 1.34% 1.18% 1.03% 1.05%
Number of bank branches 158 156 151 146

Number of loan origination
centers 151 73 76 85

Number of employees (excluding
loan officers & account
executives) 2,939 2,689 2,510 2,559

Number of loan officers and
account executives 852 462 444 491

Loan Originations
(Dollars in millions)
(unaudited)

For the Three Months Ended
September 30, June 30, September 30,
Loan type 2007 2007 2006
Residential
mortgage loans $6,566 96.1% $7,162 96.5% $4,634 95.9%
Consumer loans 87 1.3 110 1.5 113 2.3
Commercial loans 176 2.6 150 2.0 87 1.8
Total loan
production $6,829 100.0% $7,422 100.0% $4,834 100.0%

For the Nine Months Ended
September 30, September 30,
Loan type 2007 2006
Residential mortgage
loans $19,218 96.1% $13,883 94.0%
Consumer loans 300 1.5 486 3.3
Commercial loans 485 2.4 399 2.7
Total loan production $20,003 100.0% $14,768 100.0%

Gain on Loan Sales
(Dollars in millions)
(unaudited)
For the
For the Three Months Ended Nine Months Ended
September June September September September
30, 30, 30, 30, 30,
Description 2007 2007 2006 2007 2006
Net (loss) gain
on loan sales $(17,457) $28,144 $(8,197) $35,841 $18,538
Loans sold $5,955,396 $5,370,633 $4,045,915 $16,975,645 $11,904,611
Sales spread (0.29)% 0.52% (0.20)% 0.21% 0.16%

Loans Held for Investment
(Dollars in thousands)
(unaudited)

September 30, June 30,
Description 2007 2007

First mortgage loans $4,938,083 70.2% $5,542,471 72.4%
Second mortgage loans 58,224 0.8 61,107 0.8
Commercial real estate loans 1,463,222 20.8 1,381,552 18.0
Construction loans 88,018 1.3 82,301 1.1
Warehouse lending 175,496 2.5 267,740 3.5
Consumer loans 291,889 4.1 302,047 3.9
Non-real estate commercial 19,800 0.3 18,255 0.3
Total loans held for investment $7,034,732 100.0% $7,655,473 100.0%

December 31, September 30,
Description 2006 2006

First mortgage loans $6,211,765 69.4% $6,427,010 72.0%
Second mortgage loans 715,154 8.0 589,860 6.6
Commercial real estate loans 1,301,819 14.6 1,260,338 14.1
Construction loans 64,528 0.7 64,014 0.7
Warehouse lending 291,656 3.3 203,187 2.3
Consumer loans 340,157 3.8 365,288 4.1
Non-real estate commercial 14,606 0.2 14,484 0.2
Total loans held for investment $8,939,685 100.0% $8,924,181 100.0%

Deposit Portfolio
(Dollars in thousands)
(unaudited)

September 30, 2007 June 30, 2007
Description Balance Rate Balance Rate

Demand deposits $392,872 1.59% $404,837 1.58%
Savings deposits 171,381 2.30 133,099 1.48
Money market deposits 562,039 4.04 611,506 4.19
Certificates of deposits 3,863,249 5.07 3,756,718 5.00
Total retail deposits 4,989,541 4.59 4,906,160 4.52
Company controlled custodial
deposits 357,207 - 369,861 - Municipal deposits / CDARS 1,930,679 5.42 1,540,177 5.35
Wholesale deposits 1,208,129 4.51 881,612 3.72
Total deposits $8,485,556 4.57% $7,697,810 4.38%

December 31, 2006 September 30, 2006
Description Balance Rate Balance Rate

Demand deposits $380,162 1.28% $351,233 0.85%
Savings deposits 144,460 1.55 159,769 1.61
Money market deposits 608,282 4.05 620,019 3.98
Certificates of deposits 3,763,781 4.86 3,846,023 4.72
Total retail deposits 4,896,685 4.38 4,977,044 4.26
Company controlled custodial
deposits 244,193 - 377,135 - Municipal deposits / CDARS 1,419,964 5.33 1,988,616 5.41
Wholesale deposits 1,062,646 3.66 1,247,113 3.59
Total deposits $7,623,488 4.30% $8,589,908 4.24%

Asset Quality
(Dollars in thousands)
(unaudited)

September 30, 2007 June 30, 2007
% of % of
Days delinquent Balance Total Balance Total

30 $73,382 29.9% $50,202 27.9%
60 44,481 18.1 30,451 16.9
90 + and Matured Delinquent 127,506 52.0 99,298 55.2
Total $245,369 100.0% $179,951 100.0%
Investment loans $7,034,732 $7,655,473

December 31, 2006 September 30, 2006
% of % of
Days delinquent Balance Total Balance Total

30 $40,140 33.6% $33,738 32.0%
60 22,163 18.6 16,150 15.3
90 + and Matured Delinquent 57,071 47.8 55,464 52.7
Total $119,374 100.0% $105,352 100.0%
Investment loans $8,939,685 $8,924,181

Non-Performing Loans and Assets at
September June December September
30, 30, 31, 30,
2007 2007 2006 2006

Non-Performing Loans $127,506 $99,298 $57,071 $55,464
Real Estate Owned 84,248 78,916 80,995 71,514
Repurchased Assets/
Non-Performing Assets 9,261 12,501 22,096 31,854
Non-Performing Assets $221,015 $190,715 $160,162 $158,832
Non-Performing Loans as a
Percentage of Investment Loans 1.81% 1.30% 0.64% 0.62%
Non-Performing Assets as a
Percentage of Total Assets 1.34% 1.18% 1.03% 1.05%

First Call Analyst:
FCMN Contact: danielle.moseley-tatum@flagstar.com

Source: Flagstar Bancorp, Inc.

CONTACT: Paul D. Borja, Executive Vice President, CFO, Flagstar Bancorp,
Inc., +1-248-312-2000

Web site: http://www.flagstar.com/

2007-10-30 19:38:14 0212383 PRNEWSWIRE