Flagstar Reports 2006 Third Quarter Results

TROY, Mich., Oct. 19 /PRNewswire-FirstCall/ -- Flagstar Bancorp, Inc. , today reported 2006 third quarter net earnings of $20.8 million, or $0.32 per share - diluted, an increase from the 2005 third quarter net earnings of $9.5 million, or $0.15 per share - diluted. For the nine months ended September 30, 2006, net earnings totaled $68.3 million, or $1.06 - diluted, an increase from $57.0 million, or $0.89 per share - diluted, for the same period in 2005. On a linked-quarter basis, net earnings declined from $0.44 per share - diluted in the 2006 second quarter. Return on equity for the third quarter and year to date 2006 were 10.10% and 12.23%, respectively, as compared to 5.03% and 10.19% for the same periods in 2005.

Balance Sheet and Capital Adequacy

Consolidated assets were $15.1 billion at September 30, 2006, unchanged from December 31, 2005. The regulatory capital ratios of Flagstar Bank, our wholly owned subsidiary, were 6.5% core capital and 11.5% risk-based capital at September 30, 2006. Flagstar Bank was considered "well-capitalized" for regulatory purposes at September 30, 2006.

Net Interest Margin

The consolidated net interest margin for the third quarter of 2006 was 1.54%, as compared to 1.49% for the second quarter of 2006 and 1.72% for the third quarter of 2005. For the nine months ended September 30, 2006, the consolidated net interest margin was 1.57% as compared to 1.85% for the nine months ended September 30, 2005.

The net interest margin, at the Flagstar Bank level, for the third quarter of 2006 was 1.67%, as compared to 1.57% for the second quarter of 2006 and 1.84% for the third quarter of 2005. For the nine months ended September 30, 2006 Flagstar Bank's net interest margin was 1.65%, as compared to 1.90% for the nine months ended September 30, 2005.

Retail Banking Operations

Flagstar Bank had 146 branches in operation at September 30, 2006. As of September 30, 2006, the Bank had nine branches in Georgia, including four branches that opened in 2006. "We are pleased with our growth in the Georgia retail banking market over the past year," said Mark Hammond, chief executive officer. "We opened our first Georgia branch just last year and the growth since then is in line with our expectations." As of September 30, 2006, the Georgia branches had approximately $89.0 million in retail deposits.

Mortgage Banking Operations

Loan production for the third quarter 2006 was $4.8 billion, including $4.6 billion of residential loans, as compared to $5.3 billion, including $4.9 billion of residential loans, respectively, during the second quarter of 2006. Gain on sale spread was 4 basis points during the quarter ended September 30, 2006 as compared to 20 basis points for the second quarter of 2006 and 17 basis points for the 2005 third quarter. For the nine months ended September 30, 2006 and 2005, gain on sale was 19 basis points and 26 basis points, respectively.

During the third quarter of 2006, Flagstar sold servicing rights related to underlying loans of $10.7 billion as compared to $9.9 billion during the second quarter of 2006. There were no sales during the third quarter of 2005. This resulted in a gain on sales of servicing rights of $45.2 million in the third quarter of 2006 as compared to $34.9 million in the second quarter of 2006. Sales of servicing rights totaled $22.9 billion for the nine months ended September 30, 2006 and $2.5 billion during the same period in 2005, with gains on sales of $88.7 million and $7.0 million, respectively. "These transactions reflect the strategic nature of our MSR sales, which we have historically engaged in and which form an integral part of our overall business model," said Mr. Hammond.

At September 30, 2006, Flagstar's mortgage servicing portfolio totaled $14.8 billion with a weighted average service fee of 34.6 basis points, a decrease from $22.4 billion at June 30, 2006 with a weighted average servicing fee of 35.6 basis points. The decrease is the result of the bulk sale that occurred during the third quarter. The capitalized value of Flagstar's servicing portfolio was $150.7 million, or 1.02% of the outstanding balance of loans serviced for others, at September 30, 2006 with an estimated market value of $180.0 million. This compares to the capitalized value of $231.0 million, or 1.03%, at June 30, 2006 with an estimated market value of $328.7 million.

Asset Quality

Charge-offs of loans during the third quarter of 2006 decreased to $4.7 million from $6.5 million during the second quarter of 2006. Non-performing loans totaled $55.5 million at September 30, 2006, an increase of $5.5 million as compared to $50.0 million at June 30, 2006. Seriously delinquent loans (90 days and over) as a percent of loans held for investment increased to 0.62% at September 30, 2006, from 0.53% at June 30, 2006. At September 30, 2006, 91.9% of non-performing loans were secured by first or second mortgages on single- family homes. Flagstar increased its allowance for loan losses during the third quarter to $42.7 million, or 0.48% of loans held for investment at September 30, 2006, from $39.6 million, or 0.42% of loans held for investment, at June 30, 2006. Single-family residential first mortgage loans held for investment at September 30, 2006 had an average FICO credit score of 720 and an average original loan-to-value ratio of 73%.

As Previously Announced

The Company's quarterly earnings conference call will be held on Friday, October 20, 2006 from 11 a.m. until noon (Eastern).

Questions for discussion at the conference call may only be submitted in advance by email to [e-mail].

The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company's website, http://www.flagstar.com/, with replays available at that site for at least 10 days.

To listen by telephone, please call at least 10 minutes prior to the start of the conference call at [phone] or toll free at [phone], passcode: 4342623.

Flagstar Bancorp, with $15.1 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest. Flagstar currently operates 146 banking centers located throughout southern Michigan, Indiana and Georgia and operates 85 loan centers in 22 states. Flagstar Bank originates loans nationwide and is one of the nation's top 30 originators of residential mortgage loans.

The information contained in this release is not intended as a solicitation to buy Flagstar Bancorp, Inc. stock and is provided for general information. This release contains certain statements that may constitute "forward-looking statements" within the meaning of federal securities laws. These forward-looking statements include statements about the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates, and intentions, that are subject to significant risks and uncertainties, and are subject to change based upon various factors (some of which may be beyond the

Company's control). The words "may," "could," "should," "would," "believe," and similar expressions are intended to identify forward-looking statements.

Flagstar Bancorp, Inc. Summary of Selected Consolidated Financial Data (in thousands, except share data) (unaudited) Summary of the Consolidated Statements of Earnings At or for the three months ended September 30, June 30, September 30, 2006 2006 2005 Interest income $205,557 $192,648 $185,391 Interest expense (151,929) (141,910) (124,617) Net interest income 53,628 50,738 60,774 Provision for losses (7,291) (5,859) (3,690) Net interest income after provision 46,337 44,879 57,084 Non-interest income Loan fees and charges, net 2,146 1,239 3,587 Deposit fees and charges 5,080 5,692 4,356 Loan servicing fees, net 7,766 309 (1,913) Gain on loan sales, net (8,197) 9,650 3,426 Gain on MSR sales, net 45,202 34,932 492 Net loss on securities available for sale (2,144) - - Other income 4,485 9,750 10,819 Non-interest expenses Compensation and benefits (41,715) (38,758) (37,231) Commissions (18,405) (20,911) (25,867) Occupancy and equipment (17,749) (16,748) (16,431) General and administrative (9,242) (10,957) (11,348) Other (4,829) (750) (6,321) Capitalized direct cost of loan closing 23,087 25,770 33,970 Earnings before federal income tax 31,822 44,097 14,623 Provision for federal income taxes (11,070) (15,457) (5,163) Net earnings $20,752 $28,640 $9,460 Basic earnings per share $0.33 $0.45 $0.15 Diluted earnings per share $0.32 $0.44 $0.15 Dividends paid per common share $0.15 $0.15 $0.25 Interest rate spread - Bank only 1.44% 1.34% 1.63% Net interest margin - Bank only 1.67% 1.57% 1.84% Net interest spread - Consolidated 1.47% 1.41% 1.68% Net interest margin - Consolidated 1.54% 1.49% 1.72% Return on average assets 0.55% 0.76% 0.25% Return on average equity 10.10% 14.46% 5.03% Efficiency ratio 63.77% 55.52% 77.54% Average interest earning assets $13,814,697 $13,650,019 $14,053,098 Average interest paying liabilities $13,461,132 $13,427,419 $13,728,860 Average stockholders' equity $821,699 $791,998 $752,608 Equity/assets ratio (average for the period) 5.46% 5.22% 4.95% Ratio of charge-offs to average loans held for investment 0.18% 0.23% 0.16% Flagstar Bancorp, Inc. Summary of Selected Consolidated Financial Data (in thousands, except share data) (unaudited) Summary of the Consolidated Statements of Earnings At or for the nine months ended September 30, September 30, 2006 2005 Interest income $589,503 $514,628 Interest expense (426,462) (330,202) Net interest income 163,041 184,426 Provision for losses (17,213) (12,840) Net interest income after provision 145,828 171,586 Non-interest income Loan fees and charges, net 4,996 9,422 Deposit fees and charges 15,584 12,333 Loan servicing fees, net 12,430 5,701 Gain on loan sales, net 18,538 45,351 Gain on MSR sales, net 88,719 7,002 Net loss on securities available for sale (5,701) - Other income 23,966 31,388 Non-interest expenses Compensation and benefits (120,346) (113,263) Commissions (56,283) (69,834) Occupancy and equipment (51,405) (51,384) General and administrative (30,070) (34,647) Other (11,464) (18,785) Capitalized direct cost of loan closing 70,291 93,888 Earnings before federal income tax 105,083 88,758 Provision for federal income taxes (36,780) (31,720) Net earnings $68,303 $57,038 Basic earnings per share $1.08 $0.92 Diluted earnings per share $1.06 $0.89 Dividends paid per common share $0.45 $0.75 Interest rate spread - Bank only 1.44% 1.69% Net interest margin - Bank only 1.65% 1.90% Net interest spread - Consolidated 1.48% 1.74% Net interest margin - Consolidated 1.57% 1.85% Return on average assets 0.60% 0.52% Return on average equity 12.23% 10.19% Efficiency ratio 61.97% 65.63% Average interest earning assets $13,855,673 $13,304,485 Average interest paying liabilities $13,596,972 $12,963,161 Average stockholders' equity $744,394 $746,627 Equity/assets ratio (average for the period) 4.93% 5.14% Ratio of charge-offs to average loans held for investment 0.25% 0.18% Summary of the Consolidated Statements of Financial Condition: September 30, June 30, December 31, September 30, 2006 2006 2005 2005 Total assets $15,120,025 $15,225,864 $15,075,430 $15,457,045 Loans held for sale 3,286,263 2,817,428 1,773,394 1,630,527 Loans held for investment, net 8,881,437 9,387,460 10,537,331 11,666,645 Allowance for loan losses 42,744 39,606 39,140 35,898 Servicing rights 150,663 230,984 315,678 354,185 Deposits 8,212,773 7,843,249 7,979,000 8,161,415 FHLB advances 4,517,308 4,290,000 4,225,000 5,373,279 Repurchase agreements 734,495 1,145,578 1,060,097 - Stockholders' equity 815,012 803,944 771,883 746,147 Other Financial and Statistical Data: Equity/assets ratio 5.39% 5.28% 5.12% 4.83% Core capital ratio 6.52% 6.39% 6.26% 5.99% Total risk-based capital ratio 11.52% 11.15% 11.09% 10.44% Book value per share $12.82 $12.65 $12.21 $11.96 Shares outstanding 63,571 63,529 63,208 62,368 Loans serviced for others $14,829,396 $22,379,937 $29,648,088 $31,282,929 Weighted average service fee (bps) 34.6 35.6 34.7 35.1 Value of servicing rights 1.02% 1.03% 1.06% 1.13% Allowance for loan losses to non performing loans 77.1% 79.2% 60.7% 69.6% Allowance for loan losses to loans held for investment 0.48% 0.42% 0.37% 0.31% Non performing assets to total assets 1.05% 0.99% 0.98% 0.86% Number of bank branches 146 145 137 129 Number of loan origination centers 85 87 101 105 Number of employees (excluding loan officers & account executives) 2,559 2,548 2,405 2,414 Number of loan officers and account executives 491 530 689 790 Flagstar Bancorp, Inc. Loan Originations (in millions) (unaudited) For the three months ended September 30, June 30, September 30, Loan type 2006 % 2006 % 2005 % Residential mortgage loans $4,634 95.9 $4,901 93.2 $8,306 94.4 Consumer loans 113 2.3 194 3.7 350 4.0 Commercial loans 87 1.8 165 3.1 140 1.6 Total loan production $4,834 100.0 $5,260 100.0 $8,796 100.0 Flagstar Bancorp, Inc. Loan Originations (in millions) (unaudited) For the nine months ended September 30, September 30, Loan type 2006 % 2005 % Residential mortgage loans $13,883 94.0 $22,623 94.7 Consumer loans 486 3.3 920 3.8 Commercial loans 399 2.7 354 1.5 Total loan production $14,768 100.0 $23,897 100.0 Gain on Loan Sales (in thousands) (unaudited) For the three months ended September 30, June 30, September 30, Description 2006 2006 2005 Net gain on loan sales ($8,197) $9,651 $3,426 Plus: FASB 133 adjustment 8,248 (3,337) 7,014 Plus: secondary market reserve 1,626 1,420 1,518 Gain on loan sales $1,677 $7,734 $11,958 Loans sold $4,045,915 $3,964,625 $6,983,384 Sales spread 0.04% 0.20% 0.17% Gain on Loan Sales (in thousands) (unaudited) For the nine months ended September 30, September 30, Description 2006 2005 Net gain on loan sales $18,538 $45,351 Plus: FASB 133 adjustment (471) (1,987) Plus: secondary market reserve 4,052 3,980 Gain on loan sales $22,119 $47,344 Loans sold $11,904,611 $18,312,923 Sales spread 0.19% 0.26% Loans Held for Investment (in thousands) (unaudited) Description September 30, 2006 June 30, 2006 First mortgage loans $6,427,010 72.0% $7,091,818 75.2% Second mortgage loans 589,860 6.6% 470,885 5.0% Commercial real estate loans 1,260,338 14.1% 1,210,212 12.8% Construction loans 64,014 0.7% 62,847 0.7% Warehouse lending 203,187 2.3% 190,466 2.0% Consumer loans 365,289 4.1% 389,167 4.1% Non-real estate commercial loans 14,483 0.2% 11,670 0.1% Total loans held for investment $8,924,181 100.0% $9,427,065 100.0% Loans Held for Investment (in thousands) (unaudited) Description Dec. 31, 2005 September 30, 2005 First mortgage loans $8,248,897 78.0% $8,901,744 76.1% Second mortgage loans 700,492 6.6% 532,760 4.6% Commercial real estate loans 995,410 9.4% 888,051 7.6% Construction loans 65,646 0.6% 66,811 0.6% Warehouse lending 146,694 1.4% 242,541 2.1% Consumer loans 410,920 3.9% 1,064,199 9.1% Non-real estate commercial loans 8,411 0.1% 6,437 0.1% Total loans held for investment $10,576,470 100.0% $11,702,543 100.0% Deposit Portfolio (in thousands) (unaudited) Description September 30, 2006 June 30, 2006 Balance Rate Balance Rate ($ '000) (%) ($ '000) (%) Demand deposits $351,233 0.85 $340,843 0.75 Savings deposits 159,769 1.61 184,103 1.65 Money market deposits 620,019 3.98 656,902 3.89 Certificates of deposits 3,846,023 4.73 3,723,086 4.50 Total retail deposits 4,977,044 4.26 4,904,934 4.06 Municipal deposits 1,988,616 5.40 1,448,077 5.16 Wholesale deposits 1,247,113 3.59 1,490,238 3.53 Total deposits $8,212,773 4.43 $7,843,249 4.17 Deposit Portfolio (in thousands) (unaudited) Description Dec. 31, 2005 September 30, 2005 Balance Rate Balance Rate ($ '000) (%) ($ '000) (%) Demand deposits $374,816 0.60 $336,976 0.64 Savings deposits 239,215 1.52 293,704 1.61 Money market deposits 781,087 2.98 938,232 2.99 Certificates of deposits 3,450,450 3.94 3,135,556 3.79 Total retail deposits 4,845,568 3.41 4,704,468 3.27 Municipal deposits 1,353,633 4.30 1,621,740 3.81 Wholesale deposits 1,779,799 3.42 1,835,207 3.37 Total deposits $7,979,000 3.56 $8,161,415 3.40 Asset Quality & Reserves (in thousands) (unaudited) Delinquencies at September 30, 2006 June 30, 2006 Days delinquent ($ '000) (%) ($ '000) (%) 30 $33,738 32.0 $28,703 30.5 60 16,150 15.3 15,253 16.2 90 54,743 52.0 49,530 52.7 Matured - Delinquent 721 0.7 497 0.5 Total $105,352 100.0 $93,983 100.0 Investment loans $8,924,181 $9,427,065 Delinquency % (90+ Days and Matured) 0.62% 0.53% Asset Quality & Reserves (in thousands) (unaudited) Delinquencies at Dec. 31, 2005 September 30, 2005 Days delinquent ($ '000) (%) ($ '000) (%) 30 $30,972 26.7 $28,287 26.9 60 20,456 17.7 25,247 24.0 90 61,816 53.3 47,397 45.1 Matured - Delinquent 2,650 2.3 4,221 4.0 Total $115,894 100.0 $105,152 100.0 Investment loans $10,576,470 $11,702,543 Delinquency % (90+ Days and Matured) 0.61% 0.44% Asset Quality & Reserves (in thousands) (unaudited) Non-Performing Loans and Assets at September 30, June 30, Dec. 31, September 30, 2006 2006 2005 2005 Non-Performing Loans $55,464 $50,027 $64,466 $51,618 As a Percentage of Investment Loans 0.62% 0.53% 0.61% 0.44% Non-Performing Assets $158,832 $150,369 $146,967 $133,017 As a Percentage of Total Assets 1.05% 0.99% 0.97% 0.86%