Flagstar Bancorp, Inc. (



Q4 2011 Earnings Call

January 25, 2012 11:00 am ET


Paul Borja - CFO

Joseph Campanelli - Chairman and CEO

Matt Kerin - EVP and MD

Mike Maher - EVP and CAO


Kevin Barker - FBR Capital Market

Bose George - KBW

Mark Steinberg - Dawson James

John Lux - IMS



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At this time, I would like to welcome everyone to the Q4 earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Paul Borja, Chief Financial Officer. Mr. Borja, you may begin.

Paul Borja

Thank you. Good morning, everyone. I'd like to welcome you to our fourth quarter 2011 earnings call. My name is Paul Borja and I'm the Chief Financial Officer of Flagstar Bancorp.

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, competitive pressures within the financial services industry and legislative or 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 recently filed 10-K and 10-Q, as well as the legal disclaimer on Page 2 of our earnings call slides that we have posted on our Investor Relations page today at flagstar.com.

During the call, we may also discuss non-GAAP measures regarding our financial performance. A reconciliation of these measures to like or similar GAAP measures is provided in a table through our press release, which we issued last night.

With that, I'd like to now turn the call over to Joseph Campanelli, our Chairman and Chief Executive Officer.

Joseph Campanelli

Thank you, Paul, and good morning, everyone. I'd also like to welcome you to our fourth quarter 2011 earnings call.

Today I'll begin with an overview of the fourth quarter and for 2011, and then provide some detail on our legacy balance sheet and associated credit cost, including the strategies we have implemented to address and mitigate the risk embedded in these portfolios.

After I finish my remarks, I will turn it back over to Paul, who will help us and will take us through a more detailed financial review and our 2012 outlook. Paul and I along with the rest of the executive team will then take questions.

First of, I'd like to say that I am extremely proud of our over 3,000 employees for their efforts and for the passion and commitments they have demonstrated during this challenging economic environment. You will see in a moment that while we continued to be challenged by legacy credit cost, we've made significant progress in 2011 and achieved many of our established goals and objectives. We believe our core operations and the business strategies we've implemented have positioned us to achieve profitability in 2012.

During the year we generated over $337 million in pre-tax, pre-credit cost income, as you can see on Slide 6, and reduced our yearly net loss by 58% from 2010. We've made significant progress in transition to a more diversified full-service bank, including converting to a state-of-the-art retail, commercial and mortgage banking systems, providing a competitive suite of products and services and hiring approximately 100 experienced team members to service and expand the small business, middle market and especially customer base.

We completed the divestitures of Georgia and Indiana retail banking offices, a strategic move that has allowed us to focus on our core operations and build on the strengths we have in Michigan market. We fortified our balance sheet by adding reserves, maintaining strong capital and liquidity levels, and continuing to de-risk through sales for modifications and work also at non-performing assets.

We improved our net bank interest margin by 22% from the prior year, during a period where the industry in general was facing significant margin compression. We reduced total non-interest expense by 1.5% from the prior year, in spite of significant investments in infrastructure and new business initiatives.

We implemented new policies, procedures and risk management practices to address substantial changes in regulatory environment, arising primarily out of the Dodd-Frank legislation and continue to build our risk management function and pursue it strategies to put our legacy credit cost behind us.

Turning to the fourth quarter results. We reported net loss to common shareholders of $44.9 million or $0.08 per share, attributable primarily to elevate a level of credit-related cost. For the full year of 2011, reported net loss to common shareholders of $165.6 million or $0.30 per share. During the quarter we experienced a number of significant improvements in our core business and we believe the steps we took in the fourth quarter and throughout 2011 have positioned us for return of profitability in 2012.

Before getting into those, I'd like to first discuss credit cost. Our goal today is that in my comments along with the additional transparency provided in our earnings release and presentation slides and 2012 outlook Paul will supply, we'll provide you with a meaningful framework for better understanding our credit cost, both at the current quarter and for estimating future amounts.

Our fourth quarter net loss of $44.8 million includes $71 million in expenses for reestablishment of additional reserves on our balance sheet, which we believe will allow us to be even more proactive in addressing and reducing the overall level of non-performing loans of which the vast majority related to loans originated prior to 2009.

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