<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 333-21621
-------------
FLAGSTAR BANCORP, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-3150651
- ---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 Telegraph Road, Bloomfield Hills, Michigan 48302-0953
- ----------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 338-7700
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes No X .
----- -----
As of June 6, 1997, 13,670,000 shares of the registrant's Common
Stock, $0.01 par value, were issued and outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements of the Registrant and
its wholly-owned subsidiaries are as follows:
Condensed Unaudited Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996.
Condensed Unaudited Consolidated Statements of Earnings - For the
three months ended March 31, 1997 and 1996.
Condensed Unaudited Consolidated Statements of Cash Flows - For the
three months ended March 31, 1997 and 1996.
Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
FLAGSTAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands except share data)
<TABLE>
<CAPTION>
ASSETS March 31, 1997 December 31, 1996
------ -------------------- ---------------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 30,935 $ 44,187
Loans receivable
Mortgage loans held for sale................................................. 1,091,136 840,767
Loans held for investment.................................................... 240,833 273,569
Less allowance for losses.................................................... (3,995) (3,500)
----------- -----------
1,327,974 1,110,836
Federal Home Loan Bank stock....................................................... 25,500 19,725
Other investments.................................................................. 543 887
----------- -----------
Total earning assets.................................................... 1,354,017 1,131,448
Accrued interest receivable........................................................ 7,146 6,626
Repossessed assets................................................................. 9,916 10,363
Premises and equipment............................................................. 23,854 20,866
Mortgage servicing rights.......................................................... 30,331 30,064
Other assets....................................................................... 62,890 53,672
----------- -----------
Total assets....................................................... $ 1,519,099 $ 1,297,226
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Deposit accounts............................................................. $ 767,293 $ 624,485
Federal Home Loan Bank advances.............................................. 465,614 389,801
----------- -----------
Total interest bearing liabilities...................................... 1,232,907 1,014,286
Accrued interest payable..................................................... 3,492 2,712
Undisbursed payments on loans serviced for others............................ 61,255 61,445
Escrow accounts.............................................................. 72,971 61,009
Liability for checks issued.................................................. 38,681 39,813
Federal income taxes payable................................................. 13,131 22,548
Other liabilities............................................................ 13,673 16,945
----------- -----------
Total liabilities....................................................... 1,436,110 1,218,758
Stockholders' Equity
Common stock -- $0.01 par value, 40,000,000 shares authorized,
11,250,000 shares issued and outstanding at March 31, 1997
and December 31, 1996................................................... 112 112
Additional paid in capital................................................... 2,816 2,816
Retained earnings............................................................ 80,061 75,540
----------- -----------
Total stockholders' equity.............................................. 82,989 78,468
----------- -----------
Total liabilities and stockholders' equity......................... $ 1,519,099 $ 1,297,226
=========== ===========
</TABLE>
3
<PAGE>
FLAGSTAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Interest Income
Loans.......................................................................... $ 25,472 $ 19,111
Other.......................................................................... 519 407
------------- -------------
25,991 19,518
Interest Expense
Deposits....................................................................... 9,736 7,399
FHLB advances.................................................................. 5,213 3,987
Other.......................................................................... 297 336
------------- -------------
15,246 11,722
------------- -------------
Net interest income............................................................ 10,745 7,796
Provision for losses........................................................... 662 308
------------- -------------
Net interest income after provision for losses................................. 10,083 7,488
Non-Interest Income
Loan administration............................................................ 3,180 3,736
Net gain on loan sales and sales of mortgage servicing rights.................. 9,192 3,505
Other fees and charges......................................................... 214 1,143
------------- -------------
12,586 8,384
------------- -------------
Non-Interest Expense
Compensation and benefits...................................................... 7,235 5,165
Occupancy and equipment........................................................ 3,365 2,192
General and administrative..................................................... 4,965 5,123
------------- -------------
15,565 12,480
------------- -------------
Earnings before federal income taxes........................................... 7,104 3,392
Provision for federal income taxes............................................. 2,583 1,142
------------- -------------
Net Earnings................................................................... $ 4,521 $ 2,250
============= =============
Earnings per common share...................................................... $ 0.40 $ 0.20
============= =============
</TABLE>
4
<PAGE>
FLAGSTAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Operating Activities
Net earnings ............................................................................ $ 4,521 $ 2,250
Adjustments to reconcile net earnings to net cash used in operating activities
Provision for losses ............................................................... 662 308
Depreciation and amortization ...................................................... 3,864 3,649
Net loss on the sale of assets ..................................................... 111 12
Net gain on loan sales and sales of mortgage servicing rights ...................... (9,192) (3,505)
(Benefit) provision for deferred federal income taxes .............................. (773) 3,415
Proceeds from sales of loans held for sale ......................................... 1,245,651 2,104,439
Originations and repurchases of loans held for sale, net of principal repayments ... (1,497,159) (2,272,716)
Increase in accrued interest receivable ............................................ (520) (873)
Increase in other assets ........................................................... (9,557) (15,318)
Increase in accrued interest payable ............................................... 780 34
Decrease in liability for checks issued ............................................ (1,132) (8,918)
Decrease in federal taxes payable .................................................. (8,644) (2,243)
(Decrease) increase in other liabilities ........................................... (3,272) 1,869
----------- -----------
Net cash used in operating activities ......................................... (274,660) (187,597)
Investing Activities
Maturity of other investments ........................................................... 344 418
Originations of loans held for investment, net of principal repayments .................. 32,736 56,220
Purchase of Federal Home Loan Bank Stock ................................................ (5,775) (2,200)
Proceeds from the disposition of repossessed assets ..................................... 1,346 --
Acquisitions of premises and equipment .................................................. (4,651) (2,635)
Increase in mortgage servicing rights ................................................... (13,499) (19,762)
Proceeds from the sale of mortgage servicing rights ..................................... 20,515 17,769
----------- -----------
Net cash provided by investing activities ..................................... 31,016 49,810
Financing Activities
Net increase in deposit accounts ........................................................ 142,807 12,396
Net increase in reverse repurchase agreements ........................................... -- 5,036
Net increase in Federal Loan Bank advances .............................................. 75,813 96,844
Net (disbursement) receipt of payments of loans serviced for others ..................... (190) 46,049
Net receipt (disbursement) of escrow payments ........................................... 11,962 (27,186)
Dividends paid to stockholders .......................................................... -- (1,000)
----------- -----------
Net cash provided by financing activities ..................................... 230,392 132,139
----------- -----------
Net decrease in cash and cash equivalents .................................................. (13,252) (5,648)
Beginning cash and cash equivalents ........................................................ 44,187 29,119
----------- -----------
Ending cash and cash equivalents ........................................................... $ 30,935 $ 23,471
=========== ===========
Supplemental disclosure of cash flow information:
Loans receivable transferred to repossessed assets ...................................... $ 824 $ 1,348
=========== ===========
Total interest payments made on deposits and other borrowings ........................... $ 14,466 $ 11,688
=========== ===========
Federal income taxes paid ............................................................... $ 12,000 $ --
=========== ===========
</TABLE>
5
<PAGE>
FLAGSTAR BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business
------------------
Flagstar Bancorp, Inc. is a non-diversified, unitary thrift holding
company. The Company provides retail banking services in southern
Michigan and mortgage lending services nationwide.
Note 2. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements of
Flagstar Bancorp, Inc. (the "Company"), and its subsidiaries,
have been prepared in accordance with generally accepted
accounting principles for interim information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation
S-X as promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
All interim amounts are subject to year-end audit and the
results of operations for the interim period herein are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
Note 3. Initial Public Offering
-----------------------
On April 30, 1997, the Company's common stock began trading on
the Nasdaq Stock Market under the symbol "FLGS" on a
"when-issued" basis. On May 5, 1997, the Company sold 2,200,000
shares of its Common Stock as part of the initial public
offering of 5,000,000 shares of Common Stock, including
2,800,000 shares sold by the stockholders of the Company. On May
12, 1997, the Company sold an additional 220,000 shares of its
Common Stock in connection with exercise by the underwriters in
the initial public offering of an option to acquire additional
shares equal to not more than 10% of the shares sold in the
initial public offering. The net proceeds received by the
Company totaled approximately $27.3 million.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected Financial Ratios
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Return on average assets......................... 1.28% 0.80%
Return on average equity......................... 22.85% 14.55%
Interest rate spread............................. 2.52% 2.04%
Net interest margin.............................. 3.32% 3.02%
Efficiency ratio................................. 65.3% 75.1%
</TABLE>
Bank Regulatory Capital Ratios
<TABLE>
<CAPTION>
At March 31, 1997 At December 31, 1996
----------------- --------------------
% of Assets /(1)/ % of Assets /(1)/
----------------- -------------------
<S> <C> <C>
Tangible capital............... 5.09% 5.58%
Core capital................... 5.43% 6.01%
Total risk-based capital....... 10.06% 10.91%
</TABLE>
- -------------
/(1)/ Based on adjusted total assets for purposes of tangible capital and core
capital requirements, and risk-weighted assets for purposes of the risk-based
capital requirement.
Comparison of Results of Operations for the Three Months Ended
March 31, 1997 and 1996.
The Company's consolidated net earnings for the three months ended
March 31, 1997 were $4.5 million, an increase of $2.2 million, or 95.7%, from
net earnings of $2.3 million for the three months ended March 31, 1996. This
increase in net earnings was due to increases in net interest income and non-
interest income, offset by an increase in non-interest expense and the provision
for losses. The Company's net interest income increased $2.9 million, or 37.2%,
to $10.7 million for the three months ended March 31, 1997, from $7.8 million
for the three months ended March 31, 1996, reflecting continuing substantial
growth in average assets combined with a significant increase in the net
increase margin (from 3.02% to 3.32%). Non-interest income increased $4.2
million, or 50.0%, to $12.6 million for the three months ended March 31, 1997,
from $8.4 million for the three months ended March 31, 1996. The majority of
this increase in non-interest income resulted from increased net gains on loan
sales and sales of mortgage servicing rights, offset by decreases in loan
administration and other income. Non-interest expense increased $3.1 million, or
24.8%, to $15.6 million for the three months ended March 31, 1997, from $12.5
million for the three months ended March 31, 1996. This increase was the result
of an increase in compensation and benefits of $2.1 million and an increase in
other expenses of $1.0 million.
The Company's provision for losses also increased by $354,000, or
114.9%, to $662,000 for the three months ended March 31, 1997 from $308,000 for
the three months ended March 31, 1996. The increase in the provision increased
the Company's allowance for losses, to $4.0 million at March 31, 1997 (or 10.62%
of non-performing loans) compared to $3.5 million at December 31, 1996 (or
11.43% of non-performing loans). The increased provision reflects the higher
level of non-performing loans compared to the first quarter of 1996. The Company
had net charge-offs to average loans outstanding of 0.05% (annualized) in the
first quarter of 1997 compared to 0.00% (annualized) during the first quarter of
1996 and 0.13% for all of 1996.
7
<PAGE>
Average Balances, Interest Rates and Yields. Net interest income is
affected by (i) the difference ("interest rate spread") between rates of
interest earned on interest-earning assets and rates of interest paid on
interest-bearing liabilities and (ii) the relative amounts of interest-bearing
liabilities and interest-earning assets. When the total of interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income. Financial institutions have
traditionally used interest rate spreads as a measure of net interest income.
Another indication of an institution's net interest income is its "net yield on
interest-earning assets or net interest margin" which is net interest income
divided by average interest-earning assets.
The following table sets forth certain information relating to the
Company's consolidated average interest-earning assets and interest-bearing
liabilities and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. During the periods indicated,
non-accruing loans, if any, are included in the net loan category. Average
balances are derived from daily average balances.
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------------------------------------------------------------
1997 1996
------------------------------------------- ---------------------------------------
Amount Interest % Amount Interest %
=========================================== =======================================
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $1,243,050 $25,472 8.20% $991,716 $19,111 7.71%
FHLB stock 23,419 471 8.16% 18,533 367 8.03%
Other 3,318 48 5.91% 2,259 40 6.02%
------------------------------------------- ---------------------------------------
Total 1,269,787 25,991 8.19% 1,012,508 19,518 7.71%
------------- ------------
Noninterest-earning assets 126,367 113,461
----------------- -----------------
Total assets $1,105,744 $1,125,969
================= =================
Interest-bearing liabilities:
Demand deposits $61,150 $342 2.27% $42,693 $225 2.14%
Savings deposits 63,798 620 3.94% 58,284 440 3.06%
Certificates of deposit 590,293 8,774 6.03% 426,480 6,734 6.40%
FHLB advances 356,394 5,213 5.93% 288,151 3,987 5.61%
Other 19,364 297 6.22% 22,149 336 6.19%
------------------------------------------- ---------------------------------------
Total interest-bearing liabilities: 962,571 15,246 5.67% 837,757 11,722 5.67%
Noninterest-bearing liabilities 78,294 226,374
----------------- -----------------
Total liabilities: 1,040,865 1,064,131
Equity 64,879 61,838
----------------- -----------------
Total liabilities and equity $1,105,744 $1,125,969
================= =================
Net interest-earning assets $16,806 $174,751
------------ -----------
Net interest income $10,745 $7,796
============ ===========
------------ ----------
Interest rate spread 2.52% 2.04%
============ ==========
Net interest margin 3.32% 3.02%
============ ==========
Ratio of average interest earning
assets to interest bearing
liabilities 116% 121%
============ ==========
</TABLE>
8
<PAGE>
Liquidity and Capital Resources
Liquidity. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of depositors and borrowers and fund
operations on a timely and cost-effective basis. The Company has no other
significant business other than that of its wholly owned subsidiary, Flagstar
Bank, FSB (the "Bank"). The Company's primary source of liquidity is dividends
paid by the Bank. Management of the Company believes that dividends that may be
paid by the Bank to the Company following the Offering will provide sufficient
funds for its operations and liquidity needs; however, no assurance can be given
that the Company will not have a need for additional funds in the future.
Further, the Bank is subject to certain regulatory limitations with respect to
the payment of dividends to the Company.
The Bank is required by the Office of Thrift Supervision ("OTS")
regulations to maintain minimum levels of liquid assets. This requirement, which
may be changed at the direction of the OTS depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short-term
borrowings. The required minimum ratio is currently 5.00%. While the Bank's
liquidity ratio varies from time to time, the Bank has generally maintained
liquid assets substantially in excess of the minimum requirements. The Bank's
average daily liquidity ratio was 8.90% for the month ended March 31, 1997.
A significant source of cash flow for the Company is the sale of mortgage
loans held for sale. Additionally, the Company receives funds from net interest
income, mortgage loan servicing fees, loan principal repayments, advances from
the FHLB, deposits from customers and cash generated from operations. Mortgage
loans sold during the three months ended March 31, 1997 totaled $1.2 billion, a
decrease of $900.0 million, or 42.9% from $2.1 billion sold during the same
period in 1996. This decrease in mortgage loan sales was attributable to the
31.8% decrease in mortgage loan originations and the $250.3 million increase in
the amount of mortgage loans available for sale. The Company sold 83.2% and
93.7% of its mortgage loan originations during the three month periods ended
March 31, 1997 and 1996, respectively.
The Company typically uses FHLB advances to fund its daily operational
liquidity needs and to assist in funding loan originations. The Company will
continue to use this source of funds unless a more cost-effective source of
funds becomes available. FHLB advances are used because of their flexibility.
These funds are typically borrowed for 90-day terms with no prepayment penalty,
of which $465.6 million was outstanding at March 31, 1997. Such advances are
repaid with the proceeds from the sale of mortgage loans held for sale. The
Company currently has an authorized line of credit equal to $650 million. This
line is collateralized by non-delinquent mortgage loans. To the extent the
amount of retail deposits or customer escrow accounts can be increased, the
Company expects that they will eventually replace FHLB advances as a funding
source.
At March 31, 1997, the Company had outstanding rate-lock commitments to
lend $655.7 million for mortgage loans, along with outstanding commitments to
make other types of loans totaling $10.5 million. Because such commitments may
expire without being drawn upon, they do not necessarily represent future cash
commitments. Also, as of March 31, 1997, the Company had outstanding commitments
to sell $580.3 million of mortgage loans. These commitments will be funded
within 90 days. Total commercial and consumer unused collateralized lines of
credit totaled $ 112.7 million at March 31, 1997. Such commitments include
$105.0 million in warehouse lines of credit to various mortgage companies, of
which $30.8 million was drawn upon as of March 31, 1997.
Capital Resources. At March 31, 1997, the Bank exceeded all applicable
regulatory minimum capital requirements.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. Management currently
is not aware of any material legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of their property is subject.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule(for SEC use only)
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLAGSTAR BANCORP, INC.
Date: June 6, 1997 /s/ Thomas J. Hammond
--------------------------------
Thomas J. Hammond
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)
/s/ Michael W. Carrie
--------------------------------
Michael W. Carrie
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FLAGSTAR
BANCORP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 30,935
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,331,979
<ALLOWANCE> 3,995
<TOTAL-ASSETS> 1,327,984
<DEPOSITS> 767,293
<SHORT-TERM> 465,614
<LIABILITIES-OTHER> 203,203
<LONG-TERM> 0
0
0
<COMMON> 112
<OTHER-SE> 82,877
<TOTAL-LIABILITIES-AND-EQUITY> 1,519,099
<INTEREST-LOAN> 25,472
<INTEREST-INVEST> 0
<INTEREST-OTHER> 519
<INTEREST-TOTAL> 25,991
<INTEREST-DEPOSIT> 9,736
<INTEREST-EXPENSE> 5,510
<INTEREST-INCOME-NET> 10,745
<LOAN-LOSSES> 662
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,565
<INCOME-PRETAX> 7,104
<INCOME-PRE-EXTRAORDINARY> 4,521
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,521
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> .033
<LOANS-NON> 37,603
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,500
<CHARGE-OFFS> 167
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,995
<ALLOWANCE-DOMESTIC> 2,495
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,500
</TABLE>
