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Actionable news in FBC: FLAGSTAR BANCORP Inc NEW,

- Flagstar Bancorp, Inc. (Nyse:Fbc), The Holding Company For Flagstar Bank, Fsb, Today Reported

The following excerpt is from the company's SEC filing.


net income of

$47 million

per diluted share, as compared to

$46 million

in the


per diluted share, and a net loss of

$28 million

, or a loss of

per diluted share.

"We are pleased with the solid results we were able to post again this quarter. Despite lower revenue from mortgage originations, we grew total revenue and reduced expenses, resulting in positive operating leverage," said Alessandro P. DiNello, president and chief executive officer of Flagstar Bancorp. "We’ve now posted four straight quarters of positi ve net income and operating leverage, a testament to the execution of our business plan."

$214 million

of interest-only loans, after previously moving these loans to our held-for-sale portfolio in anticipation of this transaction. We’ve now sold $600 million of these assets this year. Despite these sales, we’ve been able to grow the earnings power of our balance sheet, reinvesting the proceeds from these sales into higher quality assets. Additionally, our level of nonperforming loans remains below pre-crisis levels."

"Our success has only strengthened our resolve in our business plan of growing our community bank, increasing the profitability of our mortgage originations, and building our mortgage sub-servicing business. We continue to make progress on the regulatory front and believe that we are on track for lifting the OCC consent order and redeeming our TARP preferred securities."

Third Quarter 2015 Highlights:

Income Statement Highlights

Three Months Ended

September 30,

June 30,

March 31,

December 31,

(Dollars in millions)

Consolidated Statements of Operations

Net interest income

(Benefit) provision for loan losses

Noninterest income

Noninterest expense

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Income (loss) per share:


Key Ratios

Change (bps)

Net interest margin

Return (loss) on average assets

Return (loss) on average equity

Balance Sheet Highlights

% Change

Average Balance Sheet

Average interest-earning assets



Average loans held-for-sale

Average loans held-for-investment

Average total deposits

Net Interest Income

net interest income was unchanged at

$73 million

. The results were led by modest earning asset growth offset by a slight drop in net interest margin.

Net interest margin decreased

basis points to

2.75 percent

for the

2.79 percent

. The decrease from the prior quarter was primarily driven by a lower yield on commercial loans held-for-investment (including warehouse loans) and higher interest on FHLB debt to match-fund long-term assets.

Average loans held-for-investment totaled

$5.4 billion

$474 million

10 percent

, compared to the

. Residential first mortgage loans grew $374 million, or 16 percent, as the Company retained more loan production on the balance sheet. Home equity lines of credit increased $83 million, or 25 percent, reflecting the acquisition of a loan portfolio in the second quarter 2015.

Average total deposits were

$8.3 billion

$524 million

7 percent

, from the prior quarter. Company-controlled deposits increased

$380 million

24 percent

, driven by the return of mortgage escrow deposits. Government deposits rose $124 million, or 13 percent, led by higher demand and savings deposits.

Provision for Loan Losses

The Company experienced a provision benefit in the

from the transfer of interest-only and sale of lower performing loans. The benefit for loan losses totaled

$1 million

, as compared to a benefit of

$13 million

. During the

, the Company realized a

$9 million

net allowance release primarily related to loan sales.

Net charge-offs in the

$24 million

1.84 percent

of applicable loans, compared to

$18 million

1.49 percent

of applicable loans in the prior quarter. The

amount included

$16 million

of net charge-offs associated with the sale of

$233 million

unpaid principal balance of interest-only and lower performing loans. The

$15 million

of net charge-offs associated with the sale of $456 million unpaid principal balance of interest-only and lower performing loans. Excluding loan sales in both quarters, net charge-offs in the

$8 million

0.61 percent

$3 million

0.26 percent

Noninterest Income

noninterest income increased

$2 million

2 percent

$128 million

$126 million

results were led by an increase in the net return on the mortgage servicing asset, the net gain on sale of assets and other noninterest income, partially offset by lower net gain on loan sales.

net gain on loan sales decreased

18 percent

$68 million

. The decrease from the prior quarter reflected a drop in the gain on sale margin and lower fallout-adjusted locks. The net gain on loan sale margin fell

1.05 percent

1.21 percent

, led by lower margins on government and refinance business. In the

, fallout-adjusted locks decreased

$6.5 billion

. The Company increased government and jumbo production to partially offset a drop in conventional volumes.

Mortgage Metrics

Change (% / bps)

GOS margin (change in bps)

Gain on loan sales

Mortgage rate lock commitments (fallout-adjusted)

Residential loans serviced (number of accounts - 000's)

Capitalized value of mortgage servicing rights

(1) Gain on sale margin is based on net gain on loan sales to fallout-adjusted mortgage rate lock commitments.

(2) Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.

(3) Includes serviced for own loan portfolio, serviced for others and subserviced for others loans.

Net return on the mortgage servicing asset (including the impact of economic hedges of mortgage servicing rights) rose to

$12 million

. The net return on the mortgage servicing asset improved

from the prior quarter largely as the prior quarter had $5 million of elevated costs associated with sales in that quarter and the current quarter benefited $3 million from collections of contingencies held back by the purchaser relating to MSR sales in prior periods. These benefits were partially offset in the current quarter by the net impact of market-driven changes in the position.

Other noninterest income for the

, as compared to a loss of

for the second quarter 2015. The

$10 million

improvement was the result of three main factors. First, the change in the fair value of the Company’s commitments to purchase HFI residential first mortgage loans improved

due to a drop in interest rates at the end of the third quarter 2015, compared to an increase in rates at the end of the second quarter 2015; second, the change in fair value for HFI residential first mortgage loans carried under a fair value election was

better due to the impact of the same change in interest rates; and finally, the fair value of HELOCs improved

charge in the prior quarter while certain of these loans were serviced by an outside servicer. At the end of the second quarter 2015, we exercised our clean-up call on part of this portfolio and its performance in the third quarter 2015 has been consistent with our expectations.

Noninterest Expense

Noninterest expense decreased

$7 million

$131 million

$138 million

results were led by a decrease in asset resolution expense and other noninterest expense, partially offset by higher legal and professional expense. The Company's efficiency ratio improved to

65.0 percent

through careful expense management.

Compensation and benefits decreased

$58 million

$59 million

asset resolution expense declined

, as compared to the

. The decrease largely reflected the positive impact of building a stronger balance sheet.

Legal and professional expenses were

increase was due to higher legal expense related to the execution of various non-agency loan sales and consulting fees on various projects to improve operational efficiency and risk management.

Other noninterest expenses for the

decrease from the prior quarter was related to lower advertising costs and regulatory-related expense.

Income Taxes

provision for income taxes totaled

. The effective tax rate in the

34.4 percent

37.2 percent

. The decline in the marginal tax rate in the

resulted from the recognition of R&D tax credits and higher tax exempt income.

Asset Quality

Credit Quality Ratios

Allowance for loan loss to LHFI

Charge-offs, net of recoveries

Charge-offs, net of recoveries,