Flagstar Bancorp Reports First Quarter 2021 Net Income of $149 million, or $2.80 Per Diluted Share

TROY, Mich., April 26, 2021 /PRNewswire/ --

Key Highlights - First Quarter 2021

• Posted adjusted net income of $176 million, or $3.31 per diluted share, excluding the $35 million expense for the final settlement of Department of Justice legacy liability.
• Generated net interest income of $189 million, with net interest margin up 4 basis points.
• Produced mortgage revenue of $227 million as fallout adjusted locks stayed strong.
• Maintained solid asset quality with low levels of nonperforming loans and net charge-offs coupled with a $16 million recovery of a previously charged-off loan.
• Achieved $41.77 in tangible book value per share – an 8 percent increase from prior quarter.

Flagstar Bancorp, Inc. (NYSE: FBC), the holding company for Flagstar Bank, today reported first quarter 2021 net income of $149 million, or $2.80 per diluted share, compared to fourth quarter 2020 net income of $154 million, or $2.83 per diluted share and first quarter 2020 net income of $46 million, or $0.80 per diluted share. On an adjusted basis, Flagstar reported net income of $176 million, or $3.31 per diluted share, for the first quarter 2021.

"Today, I am pleased to announce that we have entered into an agreement for a strategic partnership with New York Community Bank," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp. "This is a unique opportunity, and the partnership positions us well for continued expansion and accelerated growth as we leverage complementary business models to achieve the scale necessary to aggressively invest in our key businesses. The combination allows us to build from a safe and profitable base, by tapping into the deep industry knowledge and diverse skillsets of each organization to deliver even stronger financial results and drive increased long-term shareholder value."

"As for our financial performance for the quarter, we posted impressive results, continuing our string of strong quarterly performances from last year. All our business segments combined to produce robust growth in tangible book value, resulting in a bank that is stronger and well positioned to continue generating shareholder value."

"Banking delivered solid numbers for the quarter as net interest margin improved 4 basis points to 2.82 percent, with net interest income totaling $189 million and adjusted net interest margin at 3.02 percent, up slightly from the prior quarter. We continue to focus on lending into lower-risk asset classes while maintaining balance sheet flexibility. This strategy has produced consistent results from our banking business while protecting our exposure to credit risk."

"Credit remained strong with low levels of nonperforming loans and net charge-offs, even after excluding the large recovery. Given our strong asset quality and an improved forecast for our macroeconomic environment, we were able to release $15 million of our allowance for credit losses while maintaining a strong coverage ratio of 3.1 percent, similar to the fourth quarter 2020."

"We closed the quarter servicing and subservicing over 1.1 million loans, up 6 percent from the prior quarter as we boarded over 100,000 non-Flagstar originated loans to the portfolio in the quarter. This is a testament to our business model, the quality of the service delivered, and the strength of the relationships we have developed with our subservicing partners."

"Our mortgage team delivered another strong quarter, posting mortgage revenues of $227 million. The team leveraged our multi-channel mortgage platform to grow fallout adjusted locks by 3 percent. We were pleased with how well our margins held up, averaging 1.84 percent for the quarter. Our results demonstrate the team's ability to remain opportunistic and execute skillfully in an operating environment that is ever changing."

"It was a strong start to the year as we continued to generate value for our shareholders, despite the uncertainties we face in everything from regulation to the interest rate environment. With our ability to originate mortgages in multiple channels, our asset-sensitive balance sheet, our strong ACL coverage, and our demonstrated power to generate capital, we are well positioned to flex our business to take advantage of whatever may come our way… and to find success whatever the environment may be."

Net Interest Income

Net interest income in the first quarter was $189 million, flat as compared to the fourth quarter 2020. The results primarily reflect higher loans held-for-sale average balances, full quarter of impact from extinguishment of senior notes and the impact of lower rates on deposits, offsetting the impact of lower average balances and yields on loans-held-for-investment.

The net interest margin in the first quarter was 2.82 percent, a 4 basis point increase from the prior quarter. Excluding the impact from the loans with government guarantees that have not been repurchased and do not accrue interest, adjusted net interest margin expanded 4 basis points to 3.02 percent in the first quarter, compared to adjusted net interest margin of 2.98 percent in the prior quarter. The increase in the net interest margin was primarily driven by lower rates on deposits and impact from the early redemption of the senior notes due July 15, 2021. Retail banking deposit rates decreased 5 basis points driven by the expiration of promotional rates on some of our savings deposits and the maturity of higher cost time deposits.

Loans held-for-investment averaged $14.9 billion for the first quarter, decreasing $0.8 billion (5 percent) from the prior quarter. The decrease was primarily driven by $0.6 billion (8 percent) lower average warehouse loan balances consistent with the volume decrease in the overall mortgage market and $0.3 billion (6 percent) lower average consumer loans, primarily attributable to a decrease in our residential first mortgage portfolio as loans pay off.

Average total deposits were $20.0 billion in the first quarter, decreasing $1.0 billion (5 percent) from the fourth quarter 2020. Average custodial deposits decreased $1.3 billion (16 percent) primarily driven by a decrease in refinance activity, more than offsetting $0.3 billion higher average retail banking and government deposits.

Provision for Credit Losses

The benefit for credit losses was $28 million for the first quarter, as compared to a $2 million provision for the fourth quarter 2020, reflecting the impact from improved economic forecasts and $13 million of net recoveries during the quarter. The net recoveries for the quarter were driven by a $16 million recovery on a previously charged-off commercial loan. Excluding the $16 million recovery, the net charge-off ratio remained low for the quarter at only 8 basis points of LHFI. Despite the reserve release, our coverage ratio remained relatively flat as compared to the prior quarter. Although our economic forecasts are improved, we continue to believe that uncertainty persists regarding the economic recovery, especially as it affects consumer loan forbearance and the commercial real estate sector.

Noninterest Income

Noninterest income decreased $8 million to $324 million in the first quarter, as compared to $332 million for the fourth quarter 2020, primarily due to lower mortgage revenues and loan fees and charges.

First quarter net gain on loan sales decreased $5 million, to $227 million, as compared to $232 million in the fourth quarter 2020. Fallout-adjusted locks increased $0.3 billion, or 3 percent, to $12.3 billion and we maintained strong gain on sale margins that decreased only 9 basis points, to 1.84 percent for the first quarter 2021, as compared to 1.93 percent for the fourth quarter 2020.

Net return on mortgage servicing rights was $0.4 million in the first quarter 2021, consistent with the net return for the fourth quarter 2020. Refinance activity remained elevated compared to historical norms as favorable mortgage rates persisted during the quarter impacting prepayment speeds and overall net return on mortgage servicing rights.

Loan fees and charges decreased $6 million, to $42 million for the first quarter, compared to $48 million for the fourth quarter 2020, primarily due to a decrease in the number of loans being boarded in the first quarter and lower revenue associated with loans in forbearance. 

Noninterest Expense

Noninterest expense increased to $347 million for the first quarter, compared to $314 million for the fourth quarter 2020.

Excluding the $35 million expense related to the DOJ settlement liability, noninterest expenses were $312 million for the first quarter, or a $2 million decrease compared to the fourth quarter 2020. The decrease in noninterest expense primarily reflects lower commissions, primarily in the third party originations (TPO) channel, and expenses in the prior quarter associated with the early redemption of the senior notes and a secondary offering which did not reoccur in the first quarter. This more than offset the impact from an increase in performance driven incentives.

Mortgage expenses were $148 million for the first quarter, a decrease of $1 million compared to the prior quarter. The ratio of mortgage noninterest expense to closings – our mortgage expense ratio – was 1.07 percent, a decrease of 7 basis points quarter over quarter, primarily driven by lower revenue-based TPO-related commissions that were impacted by a decrease in TPO channel revenue and the fact that the prior quarter included higher annual payout factor which did not reoccur.

The efficiency ratio was 68 percent for the first quarter, as compared to 60 percent for the fourth quarter 2020. Excluding the $35 million expense related to the DOJ settlement liability, the adjusted efficiency ratio was 61 percent for the first quarter.

Income Taxes

The first quarter provision for income taxes totaled $45 million, with an effective tax rate of 23.0 percent, compared to $51 million and an effective tax rate of 24.8 percent for the fourth quarter 2020. Our effective tax rate decreased slightly primarily due to the prior quarter including a non-recurring tax impact of $2 million from the sale of stock by a shareholder that formerly held more than 50 percent of our outstanding shares.

Asset Quality

The allowance for credit losses was $265 million and covered 1.78 percent of loans held-for-investment at March 31, 2021, a 5 basis point increase from December 31, 2020. Excluding warehouse loans, the allowance coverage ratio was 3.11 percent, a 9 basis point decrease from December 31, 2020.

Net recoveries in the first quarter 2021 were $13 million, compared to $2 million of net charge-offs in the prior quarter. Excluding the $16 million commercial loan recovery, net charge-offs for the first quarter were a nominal 8 basis points of LHFI, compared to 4 basis points in the prior quarter.

Nonperforming loans and troubled debt restructurings (TDRs) were $60 million and our ratio of nonperforming loans and TDRs to loans held-for-investment was 40 basis points at March 31, 2021, a 6 basis point increase compared to December 31, 2020 with 3 basis points of that increase due to a $1.3 billion decrease in LHFI balances. At March 31, 2021, early stage loan delinquencies totaled $15 million, or 10 basis points, of total loans, compared to $36 million, or 22 basis points, at December 31, 2020.

Capital

The Company maintained a solid capital position with regulatory ratios above current regulatory quantitative guidelines for "well capitalized" institutions. The capital ratios are impacted by a 100 percent risk-weighting of the warehouse loan portfolio – the largest component of the Company's held-for-investment portfolio.  Adjusting the risk-weighting of warehouse loans to 50 percent, because of the historically low level of losses from this loan portfolio and the fact that the portfolio is fully collateralized with assets that would receive a 50 percent risk weighting, the Company would have had a Tier 1 common equity ratio of 11.89 percent and a total risk-based capital ratio of 15.20 percent at March 31, 2021.

Importantly, tangible book value per share grew to $41.77, up $2.97, or 8 percent from last quarter.

Earnings Conference Call

As a result of the entry into a merger agreement with New York Community Bank, there will be a joint investor conference call to discuss the transaction and first quarter earnings at 8:30 A.M. Eastern Time today. To listen to the call live, please dial (877) 407-8293 (for domestic calls) or (201) 689-8349 (for international calls).  A replay will be available through 11:59 p.m. on April 30, 2021 and may be accessed by calling (877) 660-6853 (domestic) or (201) 612-7415 (international) and providing the following conference ID: 13719339. The live call will be simultaneously webcast at ir.mynycb.com and flagstar.com. The Company has cancelled its originally scheduled earnings conference call on Thursday, April 29, 2021.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is a $29.4 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 158 branches in Michigan, Indiana, California, Wisconsin and Ohio. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 87 retail locations in 27 states. Flagstar is a leading national originator and servicer of mortgage and other consumer loans, handling payments and record keeping for $247.4 billion of loans representing over 1.1 million borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes certain non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company's website at flagstar.com.

Cautionary Statements Regarding Forward-Looking Information

Certain statements in this press release may constitute "forward–looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to NYCB's and Flagstar's beliefs, goals, intentions, and expectations regarding revenues, earnings, loan production, asset quality, capital levels, and acquisitions, among other matters; NYCB's and Flagstar's estimates of future costs and benefits of the actions each company may take; NYCB's and Flagstar's assessments of probable losses on loans; NYCB's and Flagstar's assessments of interest rate and other market risks; and NYCB's and Flagstar's ability to achieve their respective financial and other strategic goals.

Forward–looking statements are typically identified by such words as "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project," "should," and other similar words and expressions, and are subject to numerous assumptions, risks, and uncertainties, which change over time. These forward-looking statements include, without limitation, those relating to the terms, timing and closing of the proposed transaction.

Additionally, forward–looking statements speak only as of the date they are made; NYCB and Flagstar do not assume any duty, and do not undertake, to update such forward–looking statements. Furthermore, because forward–looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in such forward-looking statements as a result of a variety of factors, many of which are beyond the control of NYCB and Flagstar.  The factors that could cause actual results to differ materially include the following: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement among NYCB, 615 Corp. and Flagstar; the outcome of any legal proceedings that may be instituted against NYCB or Flagstar; the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated; the ability of NYCB and Flagstar to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of NYCB or Flagstar; the possibility that the anticipated benefits of the proposed transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where NYCB and Flagstar do business; certain restrictions during the pendency of the proposed transaction that may impact the parties' ability to pursue certain business opportunities or strategic transactions; the possibility that the proposed transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management's attention from ongoing business operations and opportunities; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the proposed transaction within the expected timeframes or at all and to successfully integrate Flagstar's operations and those of NYCB; such integration may be more difficult, time consuming or costly than expected; revenues following the proposed transaction may be lower than expected; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; NYCB's and Flagstar's success in executing their respective business plans and strategies and managing the risks involved in the foregoing; the dilution caused by NYCB's issuance of additional shares of its capital stock in connection with the proposed transaction; and other factors that may affect future results of NYCB and Flagstar; and the other factors discussed in the "Risk Factors" section NYCB's Annual Report on Form 10–K for the year ended December 31, 2020 and in other reports NYCB files with the U.S. Securities and Exchange Commission (the "SEC"), which are available at http://www.sec.gov and in the "SEC Filings" section of NYCB's website, https://ir.mynycb.com, under the heading "Financial Information," and in Flagstar's Annual Report on Form 10-K for the year ended December 31, 2020 and in Flagstar's other filings with SEC, which are available at http://www.sec.gov and in the "Documents" section of Flagstar's website, https://investors.flagstar.com.  

Important Information and Where You Can Find It

This press release may be deemed to be solicitation material in respect of the proposed transaction by NYCB and Flagstar.  In connection with the proposed transaction, NYCB will file with the SEC a registration statement on Form S-4 to register the shares of NYCB's capital stock to be issued in connection with the proposed transaction. The registration statement will include a prospectus of NYCB and a joint proxy statement of NYCB and Flagstar, which will be sent to the stockholders of NYCB and shareholders of Flagstar seeking certain approvals related to the proposed transaction. INVESTORS AND SECURITY HOLDERS OF NYCB AND FLAGSTAR AND THEIR RESPECTIVE AFFILIATES ARE URGED TO READ, WHEN AVAILABLE, THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS TO BE INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT NYCB, FLAGSTAR AND THE PROPOSED TRANSACTION.  Investors and security holders will be able to obtain a free copy of the registration statement, including the joint proxy statement/prospectus, as well as other relevant documents filed with the SEC containing information about NYCB and Flagstar, without charge, at the SEC's website (http://www.sec.gov). Copies of documents filed with the SEC by NYCB can also be obtained, without charge, by directing a request to Investor Relations, New York Community Bancorp, Inc., 615 Merrick Avenue, Westbury, New York 11590 or by telephone (516-683-4420). Copies of documents filed with the SEC by Flagstar can also be obtained, without charge, by directing requests to Investor Relations, Flagstar Bancorp, Inc., 5151 Corporate Drive, Troy, Michigan 48098 or by telephone (248-312-5741).

Participants in the Solicitation of Proxies in Connection with Proposed Transaction

NYCB, Flagstar, and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction under the rules of the SEC.  Information regarding NYCB's directors and executive officers is available in its definitive proxy statement for its 2021 annual stockholders meeting, which was filed with the SEC on April 16, 2021, and certain of its Current Reports on Form 8-K.  Information regarding Flagstar's directors and executive officers is available in its definitive proxy statement for its 2021 annual shareholders meeting, which was filed with the SEC on April 15, 2021, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the solicitation of proxies in respect of the proposed transaction and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC. Free copies of these documents, when available, may be obtained as described in the preceding paragraph.

For more information, contact:             
Kenneth Schellenberg
[email protected]
(248) 312-5741

SOURCE Flagstar Bancorp, Inc.

Related Links

http://www.flagstar.com