2014

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

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



$

1,533,220



$

1,549,258


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

34.6

%


39.3

%


35.3

%







Tier 1 common






Tier 1 capital

$

1,207,237



$

1,215,220



$

1,278,258


Adjustments






Preferred stock

(266,657)



(266,657)



(266,657)


Qualifying trust preferred securities

(240,000)



(240,000)



(240,000)


Tier 1 common

700,580



708,563



771,601


Total risk-weighted assets (1)

$

8,168,050



$

7,905,062



$

6,644,851


Tier 1 common ratio

8.58

%


8.96

%


11.61

%

 

(1) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.

 

SOURCE Flagstar Bancorp, Inc.



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