The earnings report is out for how Flagstar Bancorp’s two major acquisitions earlier this year fared for the bank, revealing a roadmap on how it hopes to position itself for success in today’s competitive market.
Looking over the bank’s second-quarter release, the acquisitions fit into Flagstar’s long-term targets and strong growth opportunities. Those two acquisitions include Opes Advisors, a full-service mortgage bank and financial advisory firm, and Stearns Lending’s delegated correspondent lending business.
For starters, in the second quarter, mortgage revenues, including gain on sale and return on mortgage-servicing rights, increased by $10 million, or 16%, from last quarter led by seasonal increase in mortgage originations and its recent acquisitions, which successfully mitigated impact of softer mortgage market.
Flagstar Bank, overall, reported second quarter 2017 net income of $41 million, or $0.71 per diluted share, as compared to $27 million, or $0.46 per diluted share, in the first quarter 2017, and $47 million, or $0.66 per diluted share, in the second quarter 2016.
Alessandro DiNello, president and CEO of Flagstar Bancorp, gave more context on the bank’s MSR plans in the release, stating, “We closed on the previously reported bulk sales of $191 million of mortgage servicing rights (MSRs), successfully executing our MSR reduction strategy and releasing capital to support balance sheet growth. We are the subservicer on approximately 85% of the MSRs we sold, providing a boost to our subservicing business and helping us to exceed over 400,000 accounts serviced or subserviced. Our MSRs now stand at 13% of our Tier 1 capital, positioning us well for the full phase-in of Basel III.”
Beyond MSRs, DiNello said, “Our mortgage business also had an outstanding quarter. Fallout-adjusted locks rose 50% to $9.0 billion, driven primarily by the impact of the acquisitions of Opes Advisors this quarter, as well as the delegated correspondent business from Stearns Lending last quarter.”
“The integration of Opes is going smoothly, and the division is helping us maintain revenue in a softer mortgage origination market,” he said. “Opes brings us more than double our pre-acquisition distributed retail origination volume and puts us now in a strong position for the move to a purchase mortgage market.”
The integration of Opes added 39 retail home lending offices in high growth western markets and more than doubled distributed retail origination volume, helping the bank as the market transition to a purchase driven market.
And the bank isn’t done growing. From here, it plans to recruit experienced talent to increase its share of the origination market. It also plans to grow its servicing operations. Both of these initiatives are outlined in the chart below.
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(Source: Flagstar)
For its long-term targets, the bank plans to grow mortgage revenue by 5% to 10% through expanded retail originations and new loans sub-serviced, as outlined in the chart below.
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(Source: Flagstar)
Also, tucked away in the earnings, Flagstar revealed major plans for growth in the homebuilding market. As it stands, America’s housing market is projected to witness the biggest year for homebuilders in a decade, as homebuilders work in overdrive to fix the housing shortage.
And according to Flagstar’s earnings report, it’s set to capitalize on this growth thanks to builder and mortgage relationships. The chart below shows that the bank’s homebuilder loan commitments jumped by nearly $200 million this quarter.
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(Source: Flagstar)
DiNello concluded, “We have a formidable banking business, an industry-leading mortgage origination platform and a blossoming subservicing business–supported by strong capital and liquidity. It’s a powerful combination that positions us to grow our balance sheet with higher quality, relationship-focused assets and continues to create value for our shareholders.”
