Flagstar Bank (FLG) Q4 2017 earnings summary

Executive summary

• FY17 net income was $466.2M, down 6% YoY; net income available to common shareholders was $441.6M and diluted EPS was $0.90, down 11%.

• Assets ended 2017 at $49.1B, with $38.4B in loans and $29.1B in deposits; balance-sheet growth resumed in Q4 after three years without growth.

• Astoria merger termination weighed on share value; management remained optimistic about growth, citing the core lending model and potential regulatory relief.

Financial highlights

• Net interest income fell 12% YoY to $1.13B, as funding costs rose and interest income declined.

• Non-interest income rose $71.3M to $216.9M, including an $82.0M one-time gain on asset and mortgage banking sales and a $26.6M increase in securities gains.

• Non-interest expense was $641.4M versus $651.6M in 2016; operating expenses edged up to $641.2M from $638.1M.

• Loan-loss provision increased to $60.9M from $11.9M; 2017 net charge-offs were $61.2M, largely tied to taxi medallion loans.

Outlook and guidance

• Meaningful balance-sheet growth was planned for 2018, supported by resumed organic growth and the expectation of regulatory relief.

• Effective tax rate was expected to be ~26.5% in 2018, versus 37% previously, following the Tax Cuts and Jobs Act.

• The Senate passed a bill proposing to raise the SIFI threshold from $50B to $250B and end company-run stress tests for banks below $250B; House consideration remained pending.