Flagstar Beats Estimates Overall Despite Lower Loan Revenue


Flagstar Bancorp in Troy, Mich., outstripped earnings estimates by a wide margin as the company received a $410 million tax benefit and slashed its loan-loss provision by 72%.

The company earned $160.5 million in the fourth quarter, compared to a loss of $94.2 million in the fourth quarter of 2012. Earnings per share of $2.77 surpassed the estimates of analysts polled by Bloomberg by $2.24.

Flagstar’s net interest income fell 44%, to $41.2 million. The decline was primarily the result of a 43% decrease in loan revenue, which dropped to $64.2 million. The company’s net interest margin decreased 46 basis points, to 1.80%.

Noninterest income plunged 60%, to $113.1 million. Steep declines in revenue from loan fees and gains on loan sales were responsible for the overall decrease, as well as a 58% decline in income from mortgage originations. A $24.9 million benefit related to Flagstar’s previously announced settlements with Fannie Mae and Freddie Mac partially offset the decline.

Flagstar originated $6.4 billion in single-family loans in fourth quarter and $2.8 billion, or 57%, were purchase mortgages. In 4Q12, originations totaled $15.4 billion and just 19% or $2.9 billion were purchase mortgages.

The declines in interest and noninterest income were counterbalanced by a $410 million tax benefit from the reversal of federal and state deferred tax asset valuation allowances.

Noninterest expenses rose to $388.7 million—down 2% from the same period a year ago. The company took a $177.6 million loss in the fourth quarter by prepaying $2.9 billion in long-term Federal Home Loan Bank advances.

Flagstar also added $64.5 million of expenses related to its February 2012 settlement with the Department of Justice. As a result of the reversal of DTA valuation allowance, the company increased its settlement liability from $28.5 million to $93 million.

The $9.4 billion-asset Flagstar also recorded a $1.2 million expense related to its recently announced layoffs. The company is eliminating 600 jobs in order to save $40 million in operating expenses. Flagstar expects to incur a total $5.2 million charge as a result of the cuts.

The company slashed its loan-loss provision 72%, to $14.1 million. Net charge-offs plummeted 72%, to $14.1 million, as charge-offs on residential first mortgage loans posted dramatic declines.

Flagstar agreed in December to sell $40.7 billion of mortgage servicing rights to Matrix Financial Services.

– Brian Collins contributed to this report.

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