Flagstar Bancorp, Inc. (FBC)

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Flagstar Bancorp, Inc. (FBC)

Q4 2012 Earnings Call

January 24, 2013 11:00 am ET


Paul D. Borja – Executive Vice President Chief Financial Officer

Michael J. Tierney – President Chief Executive Officer

Matthew A. Kerin –President-Mortgage Banking Division

Alessandro P. DiNello – Executive Vice President and Chief Administrative Officer, President-Flagstar Bank


Paul J. Miller – FBR Capital Markets

Bose George – Keefe, Bruyette & Woods, Inc.

Jordan N. Hymowitz – Philadelphia Financial Management of San Francisco LLC

Marc S. Steinberg – Dawson James Securities, Inc.

Andrew Luke – Jersey Micks

Dan Mazur – Harvest Capital



Good day everyone and welcome to the Flagstar Bank Fourth Quarter Investor Relations Conference Call. Today’s call is being recorded. At this time, I’d like to turn the conference over to Paul Borja. Please go ahead.

Paul D. Borja

Thank you. Good morning everyone, I’d like to welcome you to our Fourth Quarter 2012 Earnings Call. My name is Paul Borja and I’m the Chief Financial Officer of Flagstar Bank. Before we begin our comments, I’d like to remind you that the presentation today may contain forward-looking statements regarding both our financial condition, and our financial results. These statements involve certain risks that may cause actual results in the future to be different from our current expectations, these factors include among other things changes in economic conditions, changes in interest rates, the outcome of pending litigation, competitive pressures within the financial services industry and legislative of our regulatory requirements that may affect our businesses.

For additional factors we urge you to review the press release we issued last night. Our SEC documents, such as our most recent Form 10-K and Form 10-Q as well as the legal disclaimer on page two of our earnings call slides, that we have just posted on our investor relations page at flagstar.com.

In addition, pursuant to the existing consent order, we are in the process of finalizing our capital plans. And therefore, we will not be providing any guidance for the coming year at this time.

During the call, we may also discuss non-GAAP measures regarding our financial performance. A reconciliation of these measures to like GAAP measures is provided in the table to our press release, which was issued last night, as well as in the appendix to our earnings call slides.

With that I’d like to now turn the call over to Mike Tierney, our Chief Executive Officer. Mike?

Michael J. Tierney

Thanks Paul and good morning everyone. Thank you for joining us, and welcome to our fourth quarter 2012 earnings call. We are focusing our national mortgage banking business in our Michigan-based community bank model. We also remain dedicated to enhancing our culture of compliance. We’re investing in our quality and risk management functions, as well as enhancing corporate governance, so we can continue to generate sustainable profitability and deliver shareholder value.

With these priorities in mind, during the fourth quarter we made several organizational changes that strengthen our corporate wide risk management in governance. First of all, our mortgage banking activities have been consolidated under one division, which Matt Kerin leads.

Second, the community banking activities including commercial banking, personal financial services, bank operations and technology are now operating under Sandro DiNello’s oversight. To help implement these organizational changes and further enhance our culture of compliance we made several additional personnel changes. First, we hired a new Chief Risk Officer; Hugh Boyle will take over the position from Todd McGowan.

Todd will be moving into a new and very important role as the Managing Director of Regulatory Affairs. We’ve also received OCC approval for John Lewis to serve as our chairman. We expect to finalize his appointment shortly once we have received approval from the Federal Reserve.

And now I’d like to discuss some of the key themes and drivers of the fourth quarter results. Matt Kerin, our Mortgage Banking President will talk about the mortgage business; after Matt, Sandro DiNello, our Bank President will provide an update of our community banking areas; Paul Borja will then take us through a more detailed financial review; and finally, would be available to answer your questions.

Please turn to slide four. We’re very happy to report fourth quarter net income to common stockholders of $66.8 million or $1.12 per diluted share representing our third consecutive quarter profitability. On an annualized basis, this represents a return on average assets of 1.8% and a return on average equity of 20.7%. For the full-year of 2012, we earned net income to common stockholders of $223.7 million or $3.74 per diluted share.

Looking at slide five, you can see that the majority of our key performance metrics improved from the prior year. Our 2012 return on average assets was 1.5%, and our 2012 return on average equity was 18.8%. We also increased our book value per common share to $18.97 at December 31, 2012, an increase of $4.17 per share or 28% from the prior year.

On slide six, we’ve broken down select items from our balance sheet. As you can see, our total assets are approximately $800 million less than they were at the end of the third quarter. This decrease is due to a variety of factors including lower mortgage loans held for sale, as loan sales outpaced originations during the quarter and a decline in commercial real estate loans originated prior to 2009.

Our fourth quarter financial performance was anchored by continued strong performance from our mortgage banking business. Gain on loan sale income for the fourth quarter 2012 was $239 million with a margin of 153 basis points.

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