Flagstar Bancorp (FBC) reported first-quarter 2015 net income of $31.5 million, or $0.43 per diluted share, as compared to $11.1 million in the fourth quarter 2014, or $0.07 per diluted share and a net loss of $78.9 million in the first quarter 2014, or $1.51 loss per share.
Mortgage volumes were a driver in the quarterly results, according to Flagstar’s leadership.
"Our first quarter results reflect our significant efforts to strengthen our core business and improve financial performance," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp. "Mortgage volumes increased during the first quarter, providing a favorable tailwind, but most of our revenue growth was due to improved gain on sale margins in part from fundamental changes to optimize our mortgage originations business.
“In addition to improving our top- and bottom-line results, we also grew our balance sheet and executed on our strategic priority to reduce risk by continuing to sell lower quality loans. Nonperforming loans are now well below $100 million, a level Flagstar has not seen since 2006,” DiNello said.
First quarter 2015 net interest income increased to $64.9 million, as compared to $61.3 million for the fourth quarter 2014. The increase from the prior quarter was led by interest-earning asset growth, partially offset by net interest margin reduction.
Net interest margin decreased to 2.75% for the first quarter 2015, as compared to 2.80% for the fourth quarter 2014. The decrease from the prior quarter was driven primarily by increased Federal Home Loan Bank advances that provided more stable funding for planned loan growth, partially offset by increased interest income.
Average loans held-for-investment totaled $4.3 billion for the first quarter 2015, increasing $263 million or 7% compared to the fourth quarter 2014. The company realized solid growth in warehouse, commercial real estate, and commercial loans. Warehouse loans rose $79 million, or 15%, led by market share gains.
"We are encouraged by our progress, especially in controlling expenses given this quarter's higher business levels. We remain focused on continuing our strong results by growing our community banking franchise in Michigan and expanding our national warehouse lending business, which led our loan growth this quarter,” DiNello said. "Last quarter, we pointed to the work done the previous two years to position the Company for going-forward success. We believe this quarter delivers on our promise to continue to build on this foundation."
Average interest-bearing deposits were $6.0 billion in first quarter 2015, increasing $88 million or 1% versus the prior quarter. Retail deposits rose $121 million or 3%, led by growth in savings deposits, partially offset by a decline in certificates of deposits.
Average Federal Home Loan Bank advances totaled $1.2 billion for the first quarter 2015, up $388 million compared to the fourth quarter 2014. During the quarter, the company entered into longer-term fixed rate advances to provide more stable funding for planned loan growth.
Loan administration income decreased to $4.3 million for the first quarter 2015, as compared to $5.5 million in the fourth quarter 2014.The decrease was primarily due to charges attributable to pool payoffs arising from higher prepayments in the company's mortgage servicing portfolio during the first quarter 2015.
Net return on the mortgage servicing asset (including off-balance sheet hedges of mortgage servicing rights) decreased to $(2.4) million for the first quarter 2015, as compared to income of $1.6 million for the fourth quarter 2014. The gross return on the mortgage servicing rights asset was (1.2)% in the first quarter 2015, a decrease from the fourth quarter 2014, primarily as a result of an increase in anticipated run-off speeds related to elevated mortgage refinance volumes and a net hedge loss related to an increase in market implied volatility.
Net gain on sales of assets decreased to a loss of $0.4 million in the first quarter 2015, compared to a gain of $1.7 million in the prior quarter. The Company sold $24 million of lower performing mortgage loans during the fourth quarter 2014, resulting in a net gain of $1.7 million.
Representation and warranty provision was $1.5 million for the first quarter 2015, as compared to $6.1 million reported for the fourth quarter 2014. The change from the prior quarter was primarily due to a benefit in the prior quarter related to a downward adjustment in the anticipated level of loss rates on claims from Fannie Mae and Freddie Mac and the recovery of expenses. The overall level of the representation and warranty reserve remained at $53.0 million for both March 31, 2015 and December 31, 2014.
The first quarter 2015 other noninterest income was $0.9 million, as compared to $7.2 million for the fourth quarter 2014. The decrease from the prior quarter primarily resulted from a $5.5 million reduction in the fair value of securitized HELOCs.