Flagstar Reports First Quarter 2012 Results and Reaffirms Expected Return to Profitability in 2012

Pre-tax, pre-credit-cost revenue of $206.3 million, up 109.8 percent over prior quarter and 229.9 percent over prior year;

Strong mortgage banking revenues, stable net interest margin and solid growth in core deposits;

Significant improvement in delinquent loan trends

Apr 30, 2012, 21:05 ET from Flagstar Bancorp, Inc.

TROY, Michigan, April 30, 2012 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) (the "Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported a first quarter 2012 net loss applicable to common stockholders of $(8.7) million, an improvement from fourth quarter 2011 net loss of $(78.2) million and first quarter 2011 net loss of $(31.7) million.  During the quarter, refinements were made to both the allowance for loan losses and representation and warranty reserve models, consistent with a more conservative posture taken by the Bank's new primary regulator and a continuing evolution of the performance dynamics within the mortgage industry.  First quarter 2012 net loss included $114.7 million in loan loss provision expense, which included amounts resulting from refinements to the existing loan loss model, as well as increased loan modification activity resulting from a strategic emphasis on loss mitigation beginning in the fourth quarter 2011.  First quarter net loss also included $60.5 million in provisions related to the representation and warranty reserve that reflected both charge-offs of certain loans previously sold into the secondary market and expectations of continued elevated levels of repurchase requests from government sponsored entities (GSEs).

"Our first quarter performance reflects continued improvement and revenue growth in each of our core businesses, driving the historically high level of pre-tax, pre-credit-cost revenue," commented Joseph P. Campanelli, Chairman of the Board, President and CEO.  "Although we incurred substantial credit costs, we remained well-capitalized with significant liquidity, experienced significant improvements in delinquent loan trends, continued our emphasis on putting pre-2009 portfolio challenges behind us, and further aligned our loss models with a more conservative regulatory approach as we transitioned to a new primary regulator.  At the same time, we were able to generate record mortgage banking revenues to essentially offset the heightened credit costs."

Campanelli continued, "We believe our ability to continue to generate significant revenue is a testament to the strength of the Flagstar brand, specifically in the mortgage market where we anticipate gaining market share.  Our long-held distribution channels and industry-leading position in the mortgage market, as well as the strategic initiatives we recently implemented, are allowing us to take advantage of current market dislocation.  Consistent with our business plan, we continue to use revenues from mortgage banking to fuel growth in our other business lines.  This includes our commercial lending business, in which we are balancing diversification with strong but prudent growth that is funded principally by growth in our lower cost retail core deposit balances.

"We believe our business lines are moving in the right direction, and with our continued emphasis on risk management and controlling credit costs, and favorable credit trends, we are reaffirming our previous guidance that we expect to return to profitability during 2012.  That view is based on our expectations on economic and business trends as we see them, and is of course subject to many risks related to Flagstar and its business as well as the economy and business conditions more broadly," Campanelli said.

First Quarter Highlights:

  • Substantial mortgage banking revenues.
    • Gain on loan sale income increased by 91.6 percent to $204.9 million, compared to $106.9 million in prior quarter (margin increased from prior quarter by 85.3 percent to 189 basis points).
    • Net servicing revenue (loan administration income plus gain (loss) on trading securities) of $32.9 million, compared to $29.0 million in prior quarter.

 

  • Stable net interest margin, continued growth in commercial loans and reduced funding costs.
    • Bank net interest margin remained stable at 2.41 percent, compared to 2.43 percent in prior quarter.
    • Average commercial loans increased by $135.8 million from prior quarter.
    • Overall cost of funds declined by 5 basis points to 1.76 percent.

 

  • Remained well-capitalized with significant liquidity.
    • Tier 1 capital ratio of 8.64 percent and Tier 1 common ratio of 8.58 percent (see non-GAAP reconciliation).
    • Cash on hand and interest-earning deposits of $757.9 million, in addition to approximately $270 million in liquidity in the form of unencumbered marketable securities and approximately $670 million in unused borrowing capacity at the Federal Home Loan Bank of Indianapolis (FHLB).

 

  • Continued emphasis on credit risk management and reducing the level of non-performing assets. 
    • Robust and segmented loss models believed to be more consistent with peers regulated by the Office of Comptroller of Currency (OCC).  All thrifts previously regulated by the Office of Thrift Supervision (OTS) were required to file their first regulatory Call Report for the quarter ended March 31, 2012.
    • Non-performing loans held-for-investment decreased by 16.7 percent from prior quarter.
    • Net charge-offs increased to $151.7 million from prior quarter primarily due to the write-off of specific valuation allowances to conform with the OCC's application of regulatory guidance.
    • Allowance to non-performing loans increased to 69.1 percent, compared to 65.1 percent in prior quarter.
    • Increased representation and warranty reserve by $22.0 million from prior quarter.

 

  • Net loss applicable to common stockholders of $(8.7) million, or $(0.02) per share.
    • Pre-tax, pre-credit cost revenue of $206.3 million, or $0.36 per share, a $107.9 million increase from the prior quarter and a $143.7 million increase from first quarter 2011 (see non-GAAP reconciliation).
    • Total credit related costs of $213.6 million (see non-GAAP reconciliation).

 

First quarter 2012 net loss of $(0.02) per share (diluted) was based on average shares outstanding of 556,623,000, as compared to a fourth quarter 2011 loss of $(0.14) per share (diluted) based on average shares outstanding of 555,360,000 and net loss of $(0.06) per share (diluted) based on average shares outstanding of 553,555,000 in the first quarter 2011.

Net Interest Income

First quarter 2012 net interest income was $74.7 million, relatively flat compared to $75.9 million for the fourth quarter 2011.  The slight decrease in net interest income from the prior quarter was primarily due to a decline in average interest-earning assets. 

Similarly, net interest margin for the Bank was 2.41 percent for the first quarter 2012, relatively flat compared to 2.43 percent for the fourth quarter 2011. 

Average interest-earning assets decreased to $12.6 billion in the first quarter 2012, compared to $12.8 billion in the fourth quarter 2011.  This decrease was primarily driven by a reduction in the average balances of residential first mortgage loans held-for-investment, reflecting continued pay downs, charge-offs, and occasional loan sales, as well as a reduction in the average balances of residential first mortgage loans held-for-sale and warehouse loans, reflecting a heightened pace of loan sales during the first quarter 2012.

The average cost of funds for the first quarter 2012 was 1.76 percent, an improvement from the prior quarter level of 1.81 percent, arising primarily from a significant increase in lower-cost retail core deposits.  The average cost of total retail deposits decreased in the first quarter 2012 to 1.06 percent, compared to 1.15 percent in the fourth quarter 2011.

Non-interest Income

First quarter 2012 non-interest income was $221.4 million, compared to $118.6 million for the fourth quarter 2011.  Excluding the expense related to the representation and warranty reserve (discussed in Credit Related Costs and Asset Quality below), non-interest income increased 50.0 percent to $281.9 million in the first quarter 2012, compared to $187.9 million in the fourth quarter 2011.  The increase was primarily due to an increase in gain on loan sale income, which the Bank believes is driven by strong industry demand and fewer competitors in the marketplace, as compared to both fourth quarter 2011 and first quarter 2011. 

First quarter 2012 gain on loan sales totaled $204.9 million, compared to $106.9 million for the fourth quarter 2011.  This increase from the prior quarter was a result of increases in gain on loan sale margin, growth in residential first mortgage rate locks, and higher residential first mortgage originations. 

Gain on loan sale margin is calculated based on mortgage rate lock commitments and actual loan sales, and is net of sales expenses, hedging costs and representation and warranty expense (i.e., that portion of the reserve established at the time of sale).  Gain on loan sale margin increased to 1.89 percent for the first quarter 2012, compared to 1.02 percent for the fourth quarter 2011.  Mortgage rate lock commitments increased 32.4 percent to $14.9 billion during the first quarter 2012, compared to $11.2 billion during the fourth quarter 2011. 

Residential first mortgage originations, which are principally comprised of agency-eligible residential first mortgages, increased to $11.2 billion during the first quarter 2012, compared to $10.2 billion in the fourth quarter 2011.  Loan sales also increased for the first quarter 2012 to $10.8 billion, compared to $10.5 billion for the fourth quarter 2011. 

Loan fees and charges increased to $30.0 million in the first quarter 2012, compared to $28.6 million in the fourth quarter 2011, based on increased originations during the quarter.

Net servicing revenue, which is the combination of net loan administration income (including the off-balance hedges of mortgage servicing rights) and the gain (loss) on trading securities (i.e., the on-balance sheet hedges of mortgage servicing rights), increased to $32.9 million during first quarter 2012, compared to $29.0 million during fourth quarter 2011.  This increase from the prior quarter was primarily attributable to effective hedge positioning, despite increased rate volatility.

Non-interest Expense

First quarter 2012 non-interest expense was $188.7 million, compared to $205.8 million in the fourth quarter 2011.  Excluding asset resolution expense, non-interest expense was $152.0 million in the first quarter 2012, compared to $173.4 million in the fourth quarter 2011.  The 12.4 percent decrease from prior quarter was primarily driven by a decrease in general and administrative expenses related to the agreement with the Department of Justice (DOJ Agreement) that the Bank entered into on February 24, 2012, but was recognized in the fourth quarter 2011.  The efficiency ratio, as adjusted to exclude credit related costs, improved to 42.6 percent during the first quarter 2012, compared to 65.8 percent during the fourth quarter 2011 (see non-GAAP reconciliation).

Compensation, benefits, and commission expense increased to $81.5 million for the first quarter 2012, compared to $74.2 million in fourth quarter 2011.  This 9.8 percent increase from prior quarter primarily reflects increased commission expense attributable to the 9.6 percent increase in residential first mortgage loan origination volume from the prior quarter. 

General and administrative expenses decreased to $37.8 million in the first quarter 2012, compared to $67.7 million in the fourth quarter 2011.  This decrease from the prior quarter was primarily due to a decrease in litigation settlement expense recorded in the fourth quarter 2011 relating to the DOJ Agreement. 

Warrant expense was $2.5 million for the first quarter 2012, compared to income of $0.1 million in the fourth quarter 2011, reflecting the increase in the quarterly valuation of the outstanding warrant liability arising from the increase in the market price of the Company's common stock at March 31, 2012, as compared to December 31, 2011.

Balance Sheet and Funding

Total assets at March 31, 2012 were $14.0 billion, compared to $13.6 billion at December 31, 2011.  The increase from the prior quarter was the result of a $692.0 million increase in residential first mortgage loans held-for-sale and a $215.6 million increase in commercial and industrial loans, both consistent with targeted growth strategies associated with transitioning to a more diversified full-service bank by using mortgage banking revenues to fund the growth of commercial and small business / middle market lending.  These increases were partially offset by a $444.9 million decrease from the prior quarter in the residential first mortgage loan portfolio, which consists primarily of loans originated prior to 2009.  The decrease reflects continued success in strategically reducing the level of this portfolio.  

Loans are primarily funded with deposits obtained through community banking centers in Michigan and deposits obtained from public units and investment banking firms.  Funds are also obtained through loan repayments and sales of loans and securities in the ordinary course of business, advances from the FHLB in varying maturities depending upon current needs, customer escrow accounts and security repurchase agreements.  Several of these sources are relied upon at different times to address daily and forecasted liquidity needs for operational requirements and policy levels while managing overall net interest costs and interest-rate risk. 

The Bank maintains a line of credit with the FHLB under which borrowings are collateralized by residential first mortgage loans and other assets of the Bank.  At March 31, the Bank's outstanding borrowings on the line were approximately $3.6 billion, and it had approximately $670 million of collateralized borrowing capacity remaining based on pledged collateral.  In addition, $757.9 million in cash on hand and interest-earning deposits (excluding other marketable securities) was held on balance sheet.

Credit Related Costs and Asset Quality

Credit related costs consist primarily of loan loss provision expense, provisions related to the representation and warranty reserve, and asset resolution expense.  First quarter 2012 credit related costs increased to $213.6 million, compared to $173.2 million in the fourth quarter 2011 (see non-GAAP reconciliation), driven primarily by increases in the loan loss provision expense and provisions related to the representation and warranty reserve.  

Loan loss provision expense for the first quarter 2012 was $114.7 million, compared to $63.5 million in the fourth quarter 2011, which included amounts resulting from refinements to existing loss models as well as heightened loan modification activity during the first quarter 2012.  First quarter 2012 loan loss provision expense reflected total net charge-offs of $151.7 million, with a net charge-off ratio of 8.99%, compared to $27.5 million, with a net charge-off ratio of 1.60%, in the fourth quarter 2011. 

Net charge-offs related to residential first mortgages comprised $94.6 million of the first quarter total, compared to $18.6 million in the fourth quarter 2011.  Net charge-offs related to commercial real estate loans were $43.0 million in the first quarter 2012, as compared to $1.7 million in the fourth quarter 2011.  These increases from the prior quarter were primarily driven by a write-off of the specific valuation allowance to conform with the OCC's application of regulatory guidance as the Bank transitioned to Call Report requirements for March 31, 2012, as well as the continued heightened level of loan modifications resulting from strategic emphasis on loss mitigation associated with the pre-2009 loan origination portfolio.

At March 31, 2012, allowance for loan losses to loans held-for-investment was 4.2 percent and allowance for loan losses to non-performing loans held-for-investment was 69.1 percent, compared to 4.5 percent and 65.1 percent, respectively, at December 31, 2011.  Allowance for loan losses at March 31, 2012 was $281.0 million, compared to $318.0 million at December 31, 2011. 

Total non-performing loans (i.e., loans 90 days or more past due and matured loans), which is generally considered a leading indicator of charge-offs, decreased by 16.7 percent to $406.6 million at March 31, 2012, compared to $488.4 million at December 31, 2011.  The decrease from the prior quarter was driven primarily by decreases of $69.7 million in non-performing residential first mortgage loans and $7.1 million in commercial real estate loans.  Total delinquent loans (i.e., loans 30 days or more past due) also decreased by 15.8 percent to $533.4 million at March 31, 2012, compared to $633.5 million at December 31, 2011.   

The Company maintains a representation and warranty reserve on the balance sheet, which reflects the estimate of probable losses it may incur on loans which have been sold or securitized into the secondary market, primarily to the GSEs.  At March 31, 2012, the representation and warranty reserve was $142.0 million, an 18.3 percent increase compared to $120.0 million at December 31, 2011.  The representation and warranty reserve remains elevated given the continued high level of loan repurchase and reimbursement demands from the GSEs.  In the first quarter 2012, provisions related to the representation and warranty reserve, other than as included in our gain on sale computations, were $60.5 million, as compared to $69.3 million in the fourth quarter 2011.    

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which we file claims with the US Department of Housing and Urban Development) increased to $36.8 million in the first quarter 2012, compared to $32.4 million in the fourth quarter 2011.  The increase from prior quarter was driven primarily by mark downs on foreclosed commercial real estate properties. 

Capital

The Bank remained "well-capitalized" for regulatory purposes at March 31, 2012, due to its regulatory capital ratios of 8.64 percent for Tier 1 capital and 16.06 percent for total risk-based capital.  At March 31, 2012, the Company had a Tier 1 common to risk-weighted assets ratio of 8.58 percent and an equity-to-assets ratio of 7.74 percent.

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Tuesday, May 1, 2012 from 11:00 a.m. until noon (Eastern).

Questions for discussion at the conference call may be submitted in advance by e-mail to investors@flagstar.com or asked live during the conference call.

The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company's Web site, 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 (866) 294-1212 toll free or (702) 696-4911 and use passcode: 67450807.

About Flagstar

Flagstar Bancorp, Inc. is a full-service financial services company, offering a range of products and services to consumers, businesses, and homeowners.  With $14.0 billion in total assets at March 31, 2012, Flagstar is the largest publicly held savings bank headquartered in the Midwest.  As of March 31, 2012, Flagstar operated 113 branches in Michigan, 28 home loan centers in 13 states, and a total of four commercial banking offices in Massachusetts, Connecticut, and Rhode Island.  Flagstar originates loans nationwide and is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

Non-GAAP

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding the Company's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconcilement to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that are difficult to predict and could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement. Forward-looking statements contained in this press release and any information related to expectations about future events or results are based upon information available to the Company as of the date hereof. Forward-looking statements can be identified by such words as "anticipates," "intends," "plans," "seeks," "believes," "expects", "estimates," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements made regarding the Company's results of operations, current expectations, plans or forecasts of core business drivers, credit related costs, asset quality, capital adequacy and liquidity, the implementation of the Company's business plan and growth strategies, and other similar matters.  Forward-looking statements may cause actual results to differ materially from current expectations, therefore you should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks, as well as those more fully discussed in the Company's filings with the Securities and Exchange Commission ("SEC"), including but not limited to, our Forms 10-K and 10-Q: volatile interest rates that impact, amongst other things, the mortgage banking business, our ability to originate loans and sell assets at a profit, prepayment speeds and our cost of funds; changes in regulatory capital requirements or an inability to achieve or maintain desired capital ratios; actions of mortgage loan purchasers, guarantors and insurers regarding repurchases and indemnity demands and uncertainty related to foreclosure procedures; and our ability to control credit related costs and forecast the adequacy of reserves.  Except to the extent required under the federal securities laws and the rules and regulations promulgated by the SEC, the Company undertakes no obligation to update any such statement to reflect events or circumstances after the date on which it is made.  

 

Flagstar Bancorp, Inc. Consolidated Statements of Financial Condition

(In thousands, except share data)

 

March 31, 2012

December 31, 2011

March 31, 2011

Assets

(Unaudited)

(Unaudited)

Cash and cash items

$

46,946

$

49,715

$

49,677

Interest-earning deposits

711,002

681,343

1,665,342

Cash and cash equivalents

757,948

731,058

1,715,019

Securities classified as trading

307,355

313,383

160,650

Securities classified as available-for-sale

448,147

481,352

452,368

Loans held-for-sale ($2,132,842, $1,629,618, and $1,484,824 at fair

  value at March 31, 2012, December 31, 2011, and March 31, 2011,

   respectively)

2,492,855

1,800,885

1,609,501

Loans repurchased with government guarantees

2,002,999

1,899,267

1,756,534

Loans held-for-investment ($20,365, $22,651, and $22,198 at fair value

   at March 31, 2012, December 31, 2011, and March 31, 2011, respectively)

6,659,538

7,038,587

5,764,675

Less: allowance for loan losses

(281,000)

(318,000)

(271,000)

Loans held-for-investment, net

6,378,538

6,720,587

5,493,675

Total interest-earning assets

12,340,896

11,896,817

11,138,070

Accrued interest receivable

108,143

105,200

86,862

Repossessed assets, net

108,686

114,715

146,372

Federal Home Loan Bank stock

301,737

301,737

337,190

Premises and equipment, net

206,573

203,578

233,621

Mortgage servicing rights at fair value

596,830

510,475

635,122

Other assets

332,538

455,236

390,053

Total assets

$

14,042,349

$

13,637,473

$

13,016,967

Liabilities and Stockholders' Equity

Deposits

$

8,599,153

$

7,689,988

$

7,748,910

Federal Home Loan Bank advances

3,591,000

3,953,000

3,400,000

Long-term debt

248,585

248,585

248,610

Total interest-bearing liabilities

12,438,738

11,891,573

11,397,520

Accrued interest payable

10,124

8,723

10,124

Representation and warranty reserve

142,000

120,000

79,400

Other liabilities ($19,100, $18,300, and $0 at fair value at March 31, 2012,

   December 31, 2011, and March 31, 2011, respectively)

364,066

537,461

292,901

Total liabilities

12,954,928

12,557,757

11,779,945

Stockholders' Equity

    Preferred stock $0.01 par value, liquidation value $1,000 per share,

     25,000,000 shares authorized; 266,657 issued and       outstanding and outstanding at March 31, 2012, December 31, 2011, 

     and March 31, 2011, respectively

256,139

254,732

250,572

    Common stock $0.01 par value, 700,000,000 shares authorized;

       557,132,814, 555,775,639, and 553,711,848 shares issued and

       outstanding at March 31, 2012, December 31, 2011, and

       March 31, 2011, respectively

5,571

5,558

5,537

Additional paid in capital

1,467,476

1,466,461

1,462,620

Accumulated other comprehensive income (loss)

6,167

(7,819)

(9,760)

Accumulated deficit

(647,932)

(639,216)

(471,947)

Total stockholders' equity

1,087,421

1,079,716

1,237,022

Total liabilities and stockholders' equity

$

14,042,349

$

13,637,473

$

13,016,967

 

Flagstar Bancorp, Inc. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Interest Income

Loans

$

113,908

$

116,790

$

102,115

Securities classified as available-for-sale or trading

8,571

8,929

8,097

Interest-earning deposits and other

412

426

968

  Total interest income

122,891

126,145

111,180

Interest Expense

Deposits

18,986

20,944

27,022

FHLB advances

27,394

27,646

29,979

Other

1,778

1,692

1,606

  Total interest expense

48,158

50,282

58,607

Net interest income

74,733

75,863

52,573

Provision for loan losses

114,673

63,548

28,309

Net interest income after provision for loan losses

(39,940)

12,315

24,264

Non-Interest Income

Loan fees and charges

29,973

28,610

16,138

Deposit fees and charges

4,923

6,332

7,500

Loan administration

38,885

28,295

39,336

(Loss) gain on trading securities

(5,971)

674

(74)

Loss on trading securities residuals

(409)

(847)

(2,381)

Net gain on loan sales

204,853

106,919

50,184

Net loss on sales of mortgage servicing rights

(2,317)

(2,823)

(112)

Net gain on securities available-for-sale

310

Net gain (loss) on sale of assets

27

21,379

(1,036)

Total other-than-temporary impairment gain (loss)

3,872

(11,569)

(Loss) gain recognized in other comprehensive income before taxes

(5,047)

4,437

Net impairment losses recognized in earnings

(1,175)

(7,132)

Representation and warranty reserve - change in estimate

(60,538)

(69,279)

(20,427)

Other fees and charges, net

12,816

6,493

7,138

  Total non-interest income

221,377

118,621

96,266

Non-Interest Expense

Compensation, commissions and benefits

81,455

74,162

63,308

Occupancy and equipment

16,950

19,448

16,618

Asset resolution

36,770

32,408

38,110

Federal insurance premiums

12,324

11,401

8,725

Other taxes

946

606

866

Warrant expense (income)

2,549

138

(827)

General and administrative

37,752

67,674

20,430

  Total non-interest expense

188,746

205,837

147,230

Loss before federal income taxes

(7,309)

(74,901)

(26,700)

Provision for federal income taxes

264

264

Net Loss

(7,309)

(75,165)

(26,964)

Preferred stock dividend/accretion

(1,407)

(3,016)

(4,710)

Net loss applicable to common stockholders

$

(8,716)

$

(78,181)

$

(31,674)

Loss per share

     Basic

$

(0.02)

$

(0.14)

$

(0.06)

     Diluted

$

(0.02)

$

(0.14)

$

(0.06)

 

Flagstar Bancorp, Inc. Summary of Selected Consolidated Financial and Statistical Data (Dollars in thousands, except per share data) (Unaudited)

 

For the Three Months Ended

Summary of Consolidated

Statements of Operations

March 31, 2012

December 31, 2011

March 31, 2011

Return on average assets

(0.25)

%

(2.21)

%

(0.96)

%

Return on average equity

(3.07)

%

(27.56)

%

(10.17)

%

Efficiency ratio (1)

63.7

%

105.8

%

98.8

%

Efficiency ratio (credit-adjusted) (1)

42.6

%

65.8

%

64.5

%

Equity/assets ratio (average for the period)

8.00

%

8.02

%

9.48

%

Residential first mortgage loans originated

$

11,169,409

$

10,187,100

$

4,856,384

Other loans originated

$

271,445

$

199,529

$

31,464

Mortgage loans sold and securitized

$

10,829,798

$

10,476,542

$

5,829,508

Interest rate spread - Bank only (2)

2.15

%

2.15

%

1.62

%

Net interest margin - Bank only (3)

2.41

%

2.43

%

1.87

%

Interest rate spread - Consolidated (2)

2.13

%

2.13

%

1.61

%

Net interest margin - Consolidated (3)

2.35

%

2.37

%

1.81

%

Average common shares outstanding

556,623,046

555,359,916

553,554,886

Average fully diluted shares outstanding          

556,623,046

555,359,916

553,554,886

Average interest earning assets

$

12,640,668

$

12,752,968

$

11,473,046

Average interest paying liabilities

$

10,994,258

$

11,018,201

$

10,460,463

Average stockholder's equity

$

1,136,618

$

1,134,716

$

1,245,229

Charge-offs to average investment loans

       (annualized)

8.99

%

1.60

%

2.14

%

 

March 31, 2012

December 31, 2011

March 31, 2011

Equity/assets ratio

7.74

%

7.92

%

9.50

%

Tier 1 capital ratio (4)

8.64

%

8.95

%

9.87

%

Total risk-based capital ratio (4)

16.06

%

16.64

%

20.51

%

Book value per common share

$

1.49

$

1.48

$

1.78

Number of common shares outstanding

557,132,814

555,775,639

553,711,848

Mortgage loans serviced for others

$

68,207,554

$

63,770,676

$

59,577,239

Weighted average service fee (bps)

28.7

30.8

30.2

Capitalized value of mortgage servicing rights

0.88

%

0.80

%

1.07

%

Ratio of allowance for loan losses to non-

    performing loans held-for-investment (5)

69.1

%

65.1

%

73.6

%

Ratio of allowance for loan losses to loans

    held-for-investment (5)

4.22

%

4.52

%

4.70

%

Ratio of non-performing assets to total assets

    (bank only)

3.67

%

4.43

%

4.26

%

Number of bank branches

113

113

162

Number of loan origination centers

28

27

29

Number of employees (excluding loan officers

   and account executives)

2,970

2,839

3,030

Number of loan officers and account executives

311

297

306

(1) See Non-GAAP reconciliation. (2) Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period. (3) Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets. (4) Based on adjusted total assets for purposes of core capital and risk-weighted assets for purposes of total risk-based capital. These ratios are applicable to the Bank only. (5) Bank only and does not include non-performing loans held-for-sale.

 

Loan Originations

(Dollars in thousands)

(Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Consumer loans:

Residential first mortgage

$

11,169,409

97.7

%

$

10,187,100

98.1

%

$

4,856,312

99.3

%

Other consumer

4,479

%

3,033

%

1,200

0.1

%

Total consumer loans

11,173,888

97.7

%

10,190,133

98.1

%

4,857,512

99.4

%

Commercial loans

266,966

2.3

%

196,496

1.9

%

30,163

0.6

%

Total loan originations

$

11,440,854

100.0

%

$

10,386,629

100.0

%

$

4,887,675

100.0

%

 

Loans Held-for-Investment (Dollars in thousands) (Unaudited)

 

March 31, 2012

December 31, 2011

March 31, 2011

Consumer loans:

Residential first mortgage and construction

$

3,304,889

49.7

%

$

3,749,821

53.1

%

$

3,755,018

65.2

%

Second mortgage

132,463

2.0

%

138,912

2.0

%

165,161

2.8

%

Warehouse lending

1,104,205

16.6

%

1,173,898

16.7

%

303,785

5.3

%

HELOC

209,228

3.1

%

221,986

3.2

%

255,012

4.4

%

Other

62,111

0.9

%

67,613

1.0

%

81,037

1.4

%

Total consumer loans

4,812,896

72.3

%

5,352,230

76.0

%

4,560,013

79.1

%

Commercial loans:

Commercial real estate

1,157,911

17.3

%

1,242,969

17.7

%

1,170,198

20.3

%

Commercial and industrial

544,481

8.2

%

328,879

4.7

%

9,326

0.2

%

Commercial lease financing

144,250

2.2

%

114,509

1.6

%

25,138

0.4

%

Total commercial loans

1,846,642

27.7

%

1,686,357

24.0

%

1,204,662

20.9

%

Total loans held-for-investment

$

6,659,538

100.0

%

$

7,038,587

100.0

%

$

5,764,675

100.0

%

 

Composition of Mortgage Loans Held-for-Investment (In thousands) (Unaudited)

 

March 31, 2012

December 31, 2011

Portfolio Balance (1)

Allowance (1)

Portfolio Balance (1)

Allowance (1)

Performing modified (TDR)

$

588,892

$

77,132

$

496,187

$

40,760

Performing with government insurance

95,308

99,142

Other performing

2,463,603

84,728

2,841,053

58,064

Non-performing - 90+ day delinquent

171,700

13,316

323,926

92,082

Non-performing with government insurance

61,733

67,938

1,160

30 day and 60 day delinquent

56,116

2,553

60,487

3,818

Total

$

3,437,352

$

177,729

$

3,888,733

$

195,884

 

March 31, 2011

Portfolio Balance (1)

Allowance (1)

Performing modified (TDR)

$

562,570

$

45,309

Performing with government insurance

127,953

Other performing

2,958,319

59,684

Non-performing - 90+ day delinquent

146,951

38,986

Non-performing with government insurance

66,460

1,513

30 day and 60 day delinquent

57,926

4,642

Total

$

3,920,179

$

150,134

(1) Includes residential first mortgage, second mortgage and construction loans.

 

Composition of Commercial Loans Held-for-Investment (In thousands) (Unaudited)

 

March 31, 2012

December 31, 2011

Portfolio Balance (1)

Allowance (1)

Portfolio Balance (1)

Allowance (1)

Performing - not impaired

$

1,605,146

$

60,177

$

1,308,000

$

32,970

Special mention - not impaired

72,742

4,837

153,795

12,016

Impaired

82,112

17,266

125,650

32,944

Non-performing - not impaired

53

4

2,928

97

Non-performing

86,589

1,793

95,984

25,560

Total

$

1,846,642

$

84,077

$

1,686,357

$

103,587

 

March 31, 2011

Portfolio Balance (1)

Allowance (1)

Performing - not impaired

$

893,670

$

33,766

Special mention - not impaired

97,624

7,316

Impaired

5,649

957

Non-performing - not impaired

63,915

15,834

Non-performing

143,804

36,429

Total

$

1,204,662

$

94,302

 

(1) Includes commercial real estate, commercial and industrial, and commercial lease financing loans.

 

Allowance for Loan Losses (Dollars in thousands) (Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Beginning balance

$

318,000

$

282,000

$

274,000

Provision for loan losses

114,673

63,548

28,309

Charge-offs

Consumer loans:

Residential first mortgage

(95,189)

(19,042)

(3,102)

Second mortgage

(5,283)

(2,672)

(5,778)

Construction

(243)

Warehouse lending

(562)

HELOC

(6,419)

(3,515)

(5,063)

Other

(1,190)

(916)

(839)

Total consumer loans

(108,324)

(26,707)

(14,782)

Commercial loans:

Commercial real estate

(45,033)

(2,527)

(19,289)

Commercial and industrial

(1,581)

(48)

Total commercial loans

(46,614)

(2,527)

(19,337)

Total charge-offs

(154,938)

(29,234)

(34,119)

Recoveries

Consumer loans:

Residential first mortgage

549

400

484

Second mortgage

249

65

866

Construction

1

1

1

Warehouse lending

5

HELOC

257

57

486

Other

212

319

239

Total consumer loans

1,268

842

2,081

Commercial loans:

Commercial real estate

1,992

844

729

Commercial and industrial

5

Total commercial loans

1,997

844

729

Total recoveries

3,265

1,686

2,810

Charge-offs, net of recoveries

(151,673)

(27,548)

(31,309)

Ending balance

$

281,000

$

318,000

$

271,000

Net charge-off ratio

8.99

%

1.60

%

2.14

%

 

Composition of Allowance for Loan Losses As of March 31, 2012 (In thousands) (Unaudited)

 

Collectively Evaluated

Reserves (1)

Individually Evaluated

Reserves (2)

Total

Consumer loans:

Residential first mortgage and construction

$

73,092

$

85,569

$

158,661

Second mortgage

15,724

3,343

19,067

Warehouse lending 

1,824

1,824

HELOC

14,760

18

14,778

Other

2,593

2,593

Total consumer loans

107,993

88,930

196,923

Commercial loans:

Commercial real estate

52,410

19,060

71,470

Commercial and industrial

2,654

2,654

Commercial lease financing 

9,953

9,953

Total commercial loans

65,017

19,060

84,077

Total allowance for loan losses

$

173,010

$

107,990

$

281,000

 

(1) Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.

(2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

 

Non-Performing Loans and Assets (Dollars in thousands) (Unaudited)

 

March 31, 2012

December 31, 2011

March 31, 2011

Non-performing loans held-for-investment

$

406,583

$

488,367

$

368,152

Real estate and other non-performing assets, net

108,686

114,715

178,774

Non‑performing assets held-for-investment, net

515,269

603,082

546,926

Non-performing loans available-for-sale

2,842

4,573

6,598

Total non-performing assets including loans available-for-sale

$

518,111

$

607,655

$

553,524

Ratio of non‑performing loans held-for-

     investment to loans held-for-investment

6.11

%

6.94

%

6.39

%

Ratio of non-performing assets to total assets (bank)

3.67

%

4.43

%

4.26

%

 

Asset Quality - Loans Held-for-Investment (Dollars in thousands) (Unaudited)

 

30-59 Days Past Due

60-89 Days Past Due

Greater than 90 days

Total Past Due

Total Investment Loans

March 31, 2012

Consumer loans (1)

$

67,719

$

39,133

$

314,232

$

421,084

$

4,812,896

Commercial loans (1)

11,133

8,802

92,351

112,286

1,846,642

Total loans

$

78,852

$

47,935

$

406,583

$

533,370

$

6,659,538

December 31, 2011

Consumer loans (1)

$

83,670

$

41,602

$

387,362

$

512,634

$

5,352,230

Commercial loans (1)

7,464

12,385

101,005

120,854

1,686,357

Total loans

$

91,134

$

53,987

$

488,367

$

633,488

$

7,038,587

March 31, 2011

Consumer loans (1)

$

88,580

$

47,848

$

217,249

$

353,677

$

4,560,013

Commercial loans (1)

5,552

8,189

150,903

164,644

1,204,662

Total loans

$

94,132

$

56,037

$

368,152

$

518,321

$

5,764,675

 

(1) Consumer loans include: residential first mortgage, second mortgage, construction, warehouse lending, HELOC, and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.

 

Gain on Loan Sales and Securitizations (Dollars in thousands) (Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Description

(000's)

bps

(000's)

bps

(000's)

bps

Valuation (loss) gain:

Value of interest rate locks

$

(2,700)

(2)

$

(19,033)

(18)

$

(616)

(1)

Value of forward sales

43,810

40

17,793

17

(41,361

(69)

Fair value of loans held-for-sale

121,066

112

96,911

92

44,322

76

LOCOM adjustments on loans held-for-investment

(21)

(30)

Total valuation gains

162,155

150

95,671

91

2,315

6

Sales gains (losses):

Marketing gains, net of adjustments

131,512

121

73,560

70

751

1

Pair-off (losses) gains

(83,763)

(77)

(58,831)

(56)

48,458

83

Provision for representation and warranty reserve

(5,051)

(5)

(3,481)

(3)

(2,339)

(4)

Total sales gains

42,698

39

11,248

11

46,870

80

Total gain on loan sales and securitizations

$

204,853

189

$

106,919

102

$

49,185

86

Total loan sales and securitizations

$

10,829,798

$

10,476,542

$

5,829,508

 

Average Balances, Yields and Rates (Dollars in thousands) (Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Average Balance

Annualized

Yield/Rate

Average Balance

Annualized

Yield/Rate

Average Balance

Annualized

Yield/Rate

Interest-Earning Assets:

Loans held-for-sale

$

2,393,725

4.05

%

$

2,468,813

3.94

%

$

1,683,814

4.44

%

Loans repurchased with

     government guarantees

2,022,338

3.38

%

1,849,827

3.44

%

1,745,391

2.93

%

Loans held-for-investment:

     Consumer loans (1)

4,990,827

4.33

%

5,288,088

4.37

%

4,615,688

4.83

%

     Commercial loans (1)

1,755,917

4.21

%

1,620,132

4.53

%

1,228,478

4.85

%

Loans held-for-investment

6,746,744

4.30

%

6,908,220

4.40

%

5,844,166

4.84

%

Securities classified as available-for-sale

     or trading

786,275

4.36

%

813,865

4.39

%

629,444

5.15

%

Interest-earning deposits and other

691,586

0.24

%

712,242

0.24

%

1,570,231

0.25

%

Total interest-earning assets

12,640,668

3.89

%

12,752,967

3.94

%

11,473,046

3.88

%

Other assets

1,566,508

1,401,566

1,665,367

Total assets

$

14,207,176

$

14,154,533

$

13,138,413

Interest-Bearing Liabilities:

Demand deposits

$

346,542

0.26

%

$

382,419

0.29

%

$

398,360

0.39

%

Savings deposits

1,610,197

0.83

%

1,432,094

0.81

%

1,075,253

0.90

%

Money market deposits

486,907

0.54

%

531,981

0.61

%

555,983

0.78

%

Certificate of deposits

3,084,884

1.35

%

3,010,919

1.52

%

3,185,614

1.93

%

Total retail deposits

5,528,530

1.06

%

5,357,413

1.15

%

5,215,210

1.48

%

Demand deposits

98,724

0.49

%

82,278

0.52

%

77,747

0.54

%

Savings deposits

270,601

0.57

%

379,959

0.60

%

357,122

0.65

%

Certificate of deposits

392,656

0.66

%

407,386

0.60

%

251,646

0.69

%

Total government deposits

761,981

0.61

%

869,623

0.60

%

686,515

0.65

%

Wholesale deposits

357,532

3.74

%

464,104

3.47

%

841,073

3.34

%

Total deposits

6,648,043

1.15

%

6,691,140

1.24

%

6,742,798

1.63

%

FHLB advances

4,097,630

2.69

%

4,078,476

2.69

%

3,469,055

3.50

%

Other

248,585

2.88

%

248,585

2.70

%

248,610

2.62

%

Total interest-bearing liabilities

10,994,258

1.76

%

11,018,201

1.81

%

10,460,463

2.27

%

Other liabilities

2,076,300

2,001,616

1,432,721

Stockholder's equity

1,136,618

1,134,716

1,245,229

Total liabilities and stockholder's equity

$

14,207,176

$

14,154,533

$

13,138,413

 

(1) Consumer loans include: residential first mortgage, second mortgage, construction, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.

 

Non-GAAP Reconciliation (Dollars in thousands) (Unaudited)

 

For the Three Months Ended

March 31, 2012

December 31, 2011

March 31, 2011

Pre-tax, pre-credit-cost revenue

Loss before tax provision

$

(7,309)

$

(74,901)

$

(26,700)

Add back:

Provision for loan losses

114,673

63,548

28,309

Asset resolution

36,770

32,408

38,110

Other than temporary impairment on AFS investments

1,175

7,132

Representation and warranty repurchase reserve - change in estimate

60,538

69,279

20,427

Write down of residual interest

409

847

2,381

Total credit-related-costs:

213,565

173,214

89,227

Pre-tax, pre-credit-cost revenue

$

206,256

$

98,313

$

62,527

Efficiency ratio (credit-adjusted)

Net interest income (a)

$

74,733

$

75,863

$

52,573

Non-interest income (b)

221,377

118,621

96,266

Add:  Representation and warranty repurchase reserve - change in estimate (d)

60,538

69,279

20,427

Adjusted revenue

356,648

263,763

169,266

Non-interest expense (c)

188,746

205,837

147,230

Less: Asset resolution expense (e)

(36,770)

(32,408)

(38,110)

Adjusted non-interest expense

$

151,976

$

173,429

$

109,120

Efficiency ratio (c/(a+b))

63.7

%

105.8

%

98.8

%

Efficiency ratio (credit-adjusted) ((c-e)/((a+b)+d)))

42.6

%

65.8

%

64.5

%

 

March 31, 2012

December 31, 2011

March 31, 2011

Non-performing assets / Tier 1 capital + allowance for loan losses

Non-performing assets

$

515,269

$

603,082

$

546,926

Tier 1 capital

$

1,207,237

$

1,215,220

$

1,278,258

Allowance for loan losses

281,000

318,000

271,000

Tier 1 capital + allowance for loan losses

$

1,488,237