Flagstar Reports First Quarter 2013 Results Delivers net income of $22.2 million, or $0.33 per common share

Continues emphasis on overall asset quality, with decreases in credit-related costs, non-performing loans and net charge-offs

Strengthens regulatory capital ratios and liquidity position

TROY, Mich., April 23, 2013 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported first quarter 2013 net income applicable to common stockholders of $22.2 million, or $0.33 per share (diluted), as compared to a net loss of $(94.2) million, or $(1.75) per share, in the fourth quarter 2012, and a net loss of $(8.7) million, or $(0.22) per share, in the first quarter 2012.  

"In the past year, we have been focused on improving our risk management operations, strengthening compliance and quality control, and de-risking the balance sheet, while at the same time returning Flagstar to profitability," said Michael Tierney, the Company's President and Chief Executive Officer.  "Our results for the past quarter reflect the positive impact from this commitment as we saw a significant improvement in overall credit quality, with a decline in credit costs to the lowest level since 2008.  In addition, non-performing loans decreased by eight percent, net charge-offs declined by 30 percent, and the total repurchase pipeline decreased by 17 percent.  We also significantly strengthened our capital and liquidity ratios, and continued our efforts to reduce MSR concentrations, as we prepare to meet the requirements of Basel III and the regulatory-prescribed stress tests.

"In addition, we enhanced our leadership team during the quarter with the appointment of Hugh Boyle as our new Chief Risk Officer and Michael Flynn as General Counsel.  We are dedicated to strategically growing our business and creating long-term shareholder value, and Hugh and Michael's leadership will help us to advance those objectives while strengthening our risk management capabilities and our culture of compliance."

Mr. Tierney concluded, "Flagstar's revenues are heavily dependent on the mortgage banking business, with gain on loan sales, net interest income, and loan fees all driven by mortgage volume.  Along with the industry, we experienced a slowdown in mortgage banking activity during the quarter, with reduced demand and tighter margins due to increased competition and excess capacity.  In response to recent headwinds, we have taken steps to gain market share and improve margins, and are confident that Flagstar remains well positioned to capitalize on future opportunities in the mortgage business.  Additionally, we will continue to carefully and aggressively manage expenses to be in line with revenue trends, and improve company-wide efficiency."

First Quarter 2013 Highlights (as Compared to Fourth Quarter 2012)


  • Earned net income applicable to common stockholders of $22.2 million, as compared to a loss of $(94.2) million:
    • Decrease in legal and professional expense of $184.6 million, primarily related to increasing reserves for pending and threatened litigation in the fourth quarter 2012.
    • Decrease in total credit-related costs of $43.2 million.
    • Decrease in gain on loan sales of $101.4 million.
      • Gross mortgage rate lock commitments decreased to $12.1 billion, as compared to $16.2 billion.
      • Gain on loan sale margin (based on fallout-adjusted locks) decreased to 1.40 percent, as compared to 1.90 percent.
    • Decrease in net interest income of $18.3 million.
  • Strengthened capital and liquidity, improved mix of deposits:
    • Tier 1 leverage ratio increased by 88 basis points to 10.14 percent.
    • Cash on hand and interest-earning deposits increased by $1.3 billion to $2.2 billion.
    • Completed bulk sales of mortgage servicing rights related to $10.7 billion in underlying mortgage loans.
    • Consistent with emphasis on growing retail core deposits in Michigan, increased the average balance of demand deposits by 2.3 percent (12.1 percent increase as compared to first quarter 2012) and the average balance of savings deposits by 22.5 percent (43.9 percent increase as compared to first quarter 2012).
  • Improved credit quality:
    • Total non-performing loans decreased by 7.6 percent to $369.3 million.
    • Net charge-offs of loans held-for-investment decreased by 29.7 percent to $35.4 million.
    • Ratio of allowance for loan losses to non-performing loans increased to 78.5 percent.
    • Net charge-offs of loan repurchases decreased by 24.8 percent to $31.2 million.
    • Total pipeline of active loan repurchase demands (the "repurchase pipeline") decreased by 16.6 percent to $187.0 million.

Net Interest Income

First quarter 2013 net interest income decreased to $55.7 million, as compared to $73.9 million for the fourth quarter 2012 and $74.7 million for the first quarter 2012.  The decrease from the prior quarter was primarily due to a decrease in interest-earnings assets.  Net interest margin for the Bank decreased to 1.89 percent, as compared to 2.26 percent for the fourth quarter 2012 and 2.41 percent for the first quarter 2012.

As compared to the prior quarter, interest income decreased by $20.4 million, driven primarily by lower average balances of residential first mortgage loans held-for-sale and warehouse loans, both attributable to a decrease in residential first mortgage loan originations during the quarter.  It also reflects a decline in commercial and commercial real estate loans related to the previously announced agreements to sell a substantial portion of the Company's commercial loan portfolio, most of which was located in the Northeast (the "Commercial Loan Sales"). 

Interest expense decreased by $2.2 million from the prior quarter, driven primarily by an improvement in the mix of deposits.  The Company's average cost of funds for the first quarter 2013 was 1.54 percent, a decrease from 1.60 percent for the fourth quarter 2012 and from 1.76 percent for the first quarter 2012.  The decrease from the prior quarter was primarily driven by a decrease in the average balance of wholesale deposits and a lower average cost of total deposits, which decreased to 0.78 percent for the first quarter 2013, as compared to 0.86 percent for the fourth quarter 2012 and 1.15 percent for the first quarter 2012. 

Non-interest Income

First quarter 2013 non-interest income decreased to $184.9 million, as compared to $285.8 million for the fourth quarter 2012 and $221.4 million for the first quarter 2012.  The decrease from the prior quarter was primarily due to lower net gain on loan sales.  First quarter 2013 net gain on loan sales decreased to $137.5 million, as compared to $239.0 million for the fourth quarter 2012 and $204.9 million for the first quarter 2012.  The decrease from the prior quarter was equally attributable to a decrease in the volume of mortgage rate lock commitments and a lower gain on sale margin. 

The volume of gross mortgage rate lock commitments decreased to $12.1 billion for the first quarter 2013, as compared to $16.2 billion for the fourth quarter 2012 and $14.9 billion for the first quarter 2012.  The decrease from the prior quarter was driven primarily by an overall industry decline in volume due to seasonality and an increase in mortgage rates during the quarter, as well as increased competition in the mortgage market.  Purchase mortgage originations decreased by 19.8 percent and refinance mortgage originations decreased by 18.9 percent from the prior quarter.  As part of its focus on increasing purchase mortgage originations, the Company added 10 new retail home lending centers during the quarter, bringing its total to 41 at March 31, 2013, from 31 at December 31, 2012.   

Gain on loan sale margin (based on the amount of rate lock commitments net of estimated cancellations, or "fallout-adjusted locks") decreased to 1.40 percent for the first quarter 2013, as compared to 1.90 percent for the fourth quarter 2012 and 1.91 percent for the first quarter 2012.  Gain on loan sale margin (based on loan sales) decreased to 1.07 percent for the first quarter 2013, as compared to 1.53 percent for the fourth quarter 2012 and 1.89 percent for the first quarter 2012.  As compared to the prior quarter, the decrease in gain on sale margin was driven largely by a decrease in base margin. 

Loan fees and charges decreased to $33.4 million for the first quarter 2013, as compared to $40.8 million for the fourth quarter 2012, but increased as compared to $30.0 million for the first quarter 2012.  Loan fees and charges are driven by mortgage loan originations, which decreased to $12.4 billion for the first quarter 2013, as compared to $15.4 billion for the fourth quarter 2012, but increased as compared to $11.2 billion for the first quarter 2012.

Net servicing revenue, which is the combination of loan administration income (including the off-balance sheet hedges of mortgage servicing rights) and the gain (loss) on trading securities (i.e., the on-balance sheet hedges of mortgage servicing rights), decreased to $20.4 million for the first quarter 2013, as compared to $25.0 million for the fourth quarter 2012 and $32.9 million for the first quarter 2012.  The decrease from the prior quarter was primarily attributable to hedging challenges associated with significant interest rate volatility during the quarter.

The Company completed bulk sales of mortgage servicing rights related to $10.7 billion in underlying mortgage loans during the first quarter 2013, as part of its strategy to seek opportunistic ways to reduce its concentration of mortgage servicing rights.

Non-interest Expense

Non-interest expense was $196.6 million for the first quarter 2013, as compared to $398.0 million for the fourth quarter 2012 and $188.7 million for the first quarter 2012.  Excluding asset resolution expense (discussed in Credit-Related Costs and Asset Quality, below), non-interest expense would have totaled $180.1 million for the first quarter 2013, as compared to $376.7 million for the fourth quarter 2012 and $152.0 million for the first quarter 2012.  The decrease from the prior quarter reflects an $184.6 million decline in legal and professional expense incurred during the fourth quarter 2012, primarily related to the increase in reserves for pending and threatened litigation.

Compensation and benefits increased to $77.2 million for the first quarter 2013, as compared to $72.1 million for the fourth quarter 2012 and $66.0 million for the first quarter 2012.  The increase from the prior quarter was primarily due to the timing of payroll taxes.  Commission expense decreased to $17.5 million for the first quarter 2013, as compared to $22.2 million for the fourth quarter 2012 and increased as compared to $15.5 million for the first quarter 2012.  The decrease from the prior quarter was consistent with the decrease in mortgage loan originations during the first quarter 2013. 

Warrant income was $3.5 million for the first quarter 2013, as compared to an expense of $5.4 million in the fourth quarter 2012 and an expense of $2.5 million for the first quarter 2012.  As compared to the prior quarter, the decrease reflects the quarterly valuation of the outstanding warrant liability arising from the decrease in the market price of the Company's common stock at March 31, 2013, as compared to December 31, 2012.

Credit-Related Costs and Asset Quality

For the first quarter 2013, total credit-related costs (see non-GAAP reconciliation) decreased to $54.4 million, as compared to $97.6 million for the fourth quarter 2012 and $213.6 million for the first quarter 2012.  The decrease from the prior quarter was primarily due to a decrease in the representation and warranty reserve - change in estimate expense, as well as a decrease in provision for loan losses.

The Company maintains a representation and warranty reserve on the balance sheet, which reflects an estimate of losses that may occur on both loans that have been sold or securitized into the secondary market and those currently in the repurchase pipeline, primarily to the GSEs. At March 31, 2013, the representation and warranty reserve was $185.0 million, a decrease as compared to $193.0 million at December 31, 2012.  The decrease from the prior quarter was driven primarily by a decrease in the total repurchase pipeline, as well as lower loss rates resulting from two consecutive quarters of declining levels of net charge-offs of loan repurchases.  There was a $10.3 million decrease in net charge-offs of loan repurchases from the prior quarter, and as a result, provisions related to the representation and warranty reserve - change in estimate decreased to $17.4 million for the first quarter 2013 as compared to $25.2 million for the fourth quarter 2012. 

At March 31, 2013, the total repurchase pipeline decreased to $187.0 million, as compared to $224.2 million at December 31, 2012, as the Company continued to aggressively work through its existing population of repurchase requests.  New audit file review requests increased by 3.7 percent from the prior quarter, and new repurchase demands increased by 20.9 percent from the prior quarter, which management believes is appropriately reflected in its existing loss estimation model and arises from heightened scrutiny by the GSEs as they transition to their new review process.

At March 31, 2013, the allowance for loan losses decreased to $290.0 million, as compared to $305.0 million at December 31, 2012.  The decrease from the prior quarter was driven by a release of reserves associated with loans sold as part of the Commercial Loan Sales and a decrease in the consumer allowance for loan losses driven by portfolio run-off and lower loss rates.  At March 31, 2013, the ratio of the allowance for loan losses to non-performing loans held-for-investment improved to 78.5 percent, as compared to 76.3 percent at December 31, 2012. There was a $14.9 million decrease in net charge-offs from the prior quarter, and as a result, provision for loan losses in the first quarter 2013 decreased to $20.4 million, as compared to $50.4 million for the fourth quarter 2012.

Total non-performing loans held-for-investment were $369.3 million at March 31, 2013, a decrease of 7.6 percent as compared to $399.8 million at December 31, 2012, and a decrease of 9.2 percent as compared to $406.6 million at March 31, 2012.  The ratio of non-performing loans held-for-investment to loans held-for-investment increased to 7.79 percent at March 31, 2013, from 7.35 percent at December 31, 2012, as the level of loans held for investment decreased more than the level of total non-performing loans during the quarter.   

Consumer non-performing loans decreased to $303.2 million at March 31, 2013, as compared to $313.4 million at December 31, 2012 and $314.2 million at March 31, 2012.  The decrease from the prior quarter primarily reflects a reduction in greater than 90 days past due residential first mortgage loans.  Commercial non-performing loans decreased to $66.1 million at March 31, 2013, as compared to $86.4 million at December 31, 2012 and $92.4 million at March 31, 2012.  The decrease from the prior quarter was driven primarily by continued work-outs and individual note sales within the portfolio. 

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which the Bank files claims with HUD) decreased to $16.4 million for the first quarter 2013, as compared to $21.2 million for the fourth quarter 2012 and to $36.8 million for the first quarter 2012.  The decrease from the prior quarter was primarily attributable to the realization of gains on the sales of repossessed assets due to an improvement in home prices.

Balance Sheet and Funding

Total assets at March 31, 2013 were $13.1 billion, as compared to $14.1 billion at December 31, 2012.  The decrease from the prior quarter was driven largely by an $859.0 million reduction in commercial loans held-for-sale, as a result of the settlements of the Commercial Loan Sales.  Mortgage loans held-for-sale also decreased by $403.5 million from the prior quarter and warehouse loans decreased by $597.0 reflecting the decrease in mortgage loan originations during the first quarter 2013.  Loans repurchased with government guarantees also decreased by $236.4 million. These decreases were partially offset by an increase in cash and interest-earnings deposits resulting from the proceeds from the Commercial Loan Sales and the Company's continued strengthening of its liquidity position.

Total deposits were $7.8 billion at March 31, 2013, a decrease of $447.0 million as compared to $8.3 billion at December 31, 2012.  The decrease from the prior quarter was primarily attributable to decreases in company-controlled custodial deposits and certificate of deposits, partially offset by increased savings deposits, as the Company continues to shift its funding mix towards more core branch deposits. 

At March 31, 2013, the Company had approximately $2.2 billion of cash on hand and interest-earning deposits, as compared to $1.0 billion at December 31, 2012.  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, 2013, the Bank had medium-term outstanding borrowings from the FHLB of $2.9 billion, as compared to medium-term and short-term borrowings of $3.2 billion at December 31, 2012.  At March 31, 2013, the Bank had an additional $0.9 billion of collateralized borrowing capacity available at the FHLB.  

Capital

The Bank's regulatory capital ratios remain above current regulatory quantitative guidelines for "well-capitalized" institutions.  At March 31, 2013, the Bank had a Tier 1 leverage ratio of 10.14 percent, as compared to 9.26 percent at December 31, 2012.  At March 31, 2013, the Company had an equity-to-assets ratio of 9.04 percent.

Troubled Asset Relief Program ("TARP")

During the first quarter 2013, the U.S. Treasury sold to private investors all of the shares of the Company's Series C fixed rate cumulative non-convertible perpetual preferred stock ("Series C Preferred Stock") previously acquired by the U.S. Treasury as part of the TARP Capital Purchase Program.  Pursuant to that program, the Company had sold the Series C Preferred Stock, as well as a warrant to purchase 645,137 shares of common stock at an exercise price of $62.00 per share (the "Treasury Warrant"), to the U.S. Treasury in January 2009 for $266.7 million.  The Series C Preferred Stock qualifies as Tier 1 capital and accrues cumulative dividends quarterly at a rate of 5 percent per annum until January 2014, and 9 percent per annum thereafter.  The sale did not include the Treasury Warrant, which is still held by the U.S. Treasury. 

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, April 24, 2013 from 11 a.m. until Noon (Eastern).

It is preferred that questions are emailed in advance to investors@flagstar.com, or they may be asked during the conference call.

To join the call, please dial (800) 684-1259 toll free or (913) 312-1503, and use passcode: 2962176.  Please call at least 10 minutes before the call is scheduled to begin.  A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820, using passcode: 2962176.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com.  It will be archived on that site and will be available for replay and download.  A slide presentation to accompany the conference call will also be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. is the holding company for Flagstar Bank, FSB, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners.  With $13.1 billion in total assets at March 31, 2013, Flagstar is the largest publicly held savings bank headquartered in the Midwest.  Flagstar operates 111 banking centers, all of which are located in Michigan and 41 home lending centers located in 19 states, which primarily originate one-to-four family residential first mortgage loans.  Originating loans nationwide, Flagstar is one of the leading originators of residential first mortgage loans.  For more information, please visit flagstar.com.

 

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(In thousands)



March 31, 2013


December 31, 2012


March 31, 2012

Assets

(Unaudited)




(Unaudited)

Cash and cash items

$

50,840



$

38,070



$

46,946


Interest-earning deposits

2,179,846



914,723



711,002


Cash and cash equivalents

2,230,686



952,793



757,948


Securities classified as trading

170,139



170,086



307,355


Securities classified as available-for-sale

169,827



184,445



448,147


Loans held-for-sale

2,677,239



3,939,720



2,492,855


Loans repurchased with government guarantees

1,604,906



1,841,342



2,002,999


Loans held-for-investment

4,743,266



5,438,101



6,659,538


Less: allowance for loan losses

(290,000)



(305,000)



(281,000)


Loans held-for-investment, net

4,453,266



5,133,101



6,378,538


Total interest-earning assets

11,255,223



12,183,417



12,340,896


Accrued interest receivable

81,056



91,992



108,143


Repossessed assets, net

114,356



120,732



108,686


Federal Home Loan Bank stock

301,737



301,737



301,737


Premises and equipment, net

223,276



219,059



206,573


Mortgage servicing rights

727,207



710,791



596,830


Other assets

340,455



416,214



332,538


Total assets

$

13,094,150



$

14,082,012



$

14,042,349


Liabilities and Stockholders' Equity






Deposits

$

7,847,291



$

8,294,295



$

8,599,153


Federal Home Loan Bank advances

2,900,000



3,180,000



3,591,000


Long-term debt

247,435



247,435



248,585


Total interest-bearing liabilities

10,994,726



11,721,730



12,438,738


Accrued interest payable

15,402



13,420



10,124


Representation and warranty reserve

185,000



193,000



142,000


Other liabilities

714,994



994,500



364,066


Total liabilities

11,910,122



12,922,650



12,954,928


Stockholders' Equity






Preferred stock

261,828



260,390



256,139


Common stock (1)

561



559



557


    Additional paid in capital (1)

1,476,624



1,476,569



1,472,490


Accumulated other comprehensive (loss) income

(656)



(1,658)



6,167


Accumulated deficit

(554,329)



(576,498)



(647,932)


Total stockholders' equity

1,184,028



1,159,362



1,087,421


Total liabilities and stockholders' equity

$

13,094,150



$

14,082,012



$

14,042,349



(1) March 31, 2012 has been restated for a one-for-ten reverse stock split announced September 27, 2012 and began trading on October 11, 2012.

 


Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)



For the Three Months Ended


March 31, 2013


December 31, 2012


March 31, 2012


(Unaudited)


(Unaudited)


(Unaudited)

Interest Income






Loans

$

91,950



$

112,464



$

113,908


 Securities classified as available-for-sale or trading

2,094



2,277



8,571


Interest-earning deposits and other

946



674



412


  Total interest income

94,990



115,415



122,891


Interest Expense






Deposits

13,508



15,017



18,986


FHLB advances

24,161



24,756



27,394


Other

1,652



1,701



1,778


  Total interest expense

39,321



41,474



48,158


Net interest income

55,669



73,941



74,733


Provision for loan losses

20,415



50,351



114,673


 Net interest income (expense) after provision for loan losses

35,254



23,590



(39,940)


Non-Interest Income






Loan fees and charges

33,360



40,793



29,973


Deposit fees and charges

5,146



5,154



4,923


Loan administration

20,356



25,010



38,885


 Gain (loss) on trading securities

51



12



(5,971)


Loss on transferors' interest

(174)



(780)



(409)


Net gain on loan sales

137,540



238,953



204,853


 Net loss on sales of mortgage servicing rights

(4,219)



(7,687)



(2,317)


Net (loss) gain on securities available-for-sale



(310)



310


Net gain on sale of assets

958





27


    Total other-than-temporary impairment gain





3,872


Loss recognized in other comprehensive income before taxes





(5,047)


 Net impairment losses recognized in earnings





(1,175)


 Representation and warranty reserve - change in estimate

(17,395)



(25,231)



(60,538)


Other fees and charges, net

9,320



9,881



12,816


  Total non-interest income

184,943



285,795



221,377


Non-Interest Expense






Compensation and benefits

77,208



72,081



65,989


Commissions

17,462



22,154



15,466


Occupancy and equipment

19,375



19,184



16,950


Asset resolution

16,445



21,241



36,770


Federal insurance premiums

11,240



12,202



12,324


Other taxes

897



856



946


 Warrant (income) expense

(3,500)



5,422



2,549


Loan processing expense

17,111



18,590



10,686


Legal and professional expense

28,839



213,413



16,817


General and administrative

11,513



12,819



10,249


  Total non-interest expense

196,590



397,962



188,746


Income (loss) before federal income taxes

23,607



(88,577)



(7,309)


 Provision for federal income taxes



4,235




Net income (loss)

23,607



(92,812)



(7,309)


 Preferred stock dividend/accretion (1)

(1,438)



(1,417)



(1,407)


 Net income (loss) applicable to common stockholders

$

22,169



$

(94,229)



$

(8,716)


Income (loss) per share






       Basic (2)

$

0.33



$

(1.75)



$

(0.22)


       Diluted (2)

$

0.33



$

(1.75)



$

(0.22)



(1) The preferred stock dividend/accretion represents only the accretion. On January 27, 2012, the Company elected to defer payment of dividends and interest on the preferred stock.

(2) The three months ended March 31, 2012 has been restated for a one-for-ten reverse stock split announced September 27, 2012 and began trading on October 11, 2012.

 

 

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in thousands, except per share data)

(Unaudited)




For the Three Months Ended


March 31, 2013

December 31, 2012

March 31, 2012

Return on average assets

0.65%


(2.51)%


(0.25)%


Return on average equity

7.55%


(29.26)%


(3.07)%


Efficiency ratio

81.7%


110.6%


63.7%


Efficiency ratio (credit-adjusted) (1)

69.8%


97.9%


42.6%


Equity-to-assets ratio (average for the period)

8.57%


8.58%


8.00%


Mortgage loans originated (2)

$

12,423,364


$

15,356,795


$

11,169,409


Other loans originated

$

74,739


$

113,458


$

271,445


Mortgage loans sold and securitized

$

12,822,879


$

15,610,590


$

10,829,798


Interest rate spread - bank only (3)

1.64%


1.87%


2.15%


Net interest margin - bank only (4)

1.89%


2.26%


2.41%


Interest rate spread - consolidated (3)

1.61%


1.84%


2.13%


Net interest margin - consolidated (4)

1.83%


2.21%


2.35%


Average common shares outstanding (5)

55,973,888


55,842,910


55,662,305


Average fully diluted shares outstanding (5)

56,415,057


55,842,910


55,662,305


Average interest-earning assets

$

12,075,212


$

13,349,991


$

12,640,668


Average interest paying liabilities

$

10,338,644


$

10,318,385


$

10,994,258


Average stockholder's equity

$

1,173,982


$

1,288,332


$

1,136,618


Charge-offs to average investment loans (annualized)

2.93%


3.18%


8.99%

















March 31, 2013

December 31, 2012

March 31, 2012

Equity-to-assets ratio

9.04%


8.23%


7.74%


Book value per common share (5)

$

16.46


$

16.12


$

14.92


Number of common shares outstanding (5)

56,033,204


55,863,053


55,713,281


Mortgage loans serviced for others

$

73,933,296


$

76,821,222


$

68,207,554


Weighted average service fee (basis points)

29.3


29.2


28.7


Capitalized value of mortgage servicing rights

0.98%


0.93%


0.88%


Ratio of allowance for loan losses to non-performing loans
held-for-investment (6)

78.5%


76.3%


69.1%


Ratio of allowance for loan losses to loans held-for-investment (6)

6.11%


5.61%


4.22%


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

3.70%


3.70%


3.67%


Number of bank branches

111


111


113


Number of loan origination centers

41


31


28


Number of employees (excluding loan officers and account executives)

3,456


3,328


2,970


Number of loan officers and account executives

322


334


311



(1)  See Non-GAAP reconciliation.

(2)  Includes residential first mortgage and second mortgage loans.

(3)  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.

(4)  Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets.

(5)  Restated for a 1-for-10 reverse stock split announced September 27, 2012 and began trading on October 11, 2012.

(6)  Bank only and does not include non-performing loans held-for-sale.

 


Regulatory Capital

(Dollars in thousands)

(Unaudited)









March 31, 2013


December 31, 2012


March 31, 2012



Amount

Ratio

Amount

Ratio

Amount

Ratio

Tier 1 leverage (to adjusted tangible assets) (1)

1,318,770


10.14%


1,295,841


9.26%


1,207,237


8.64%


Total adjusted tangible asset base

13,007,694



13,999,636



13,964,948



Tier 1 capital (to risk weighted assets) (1)

1,318,770


21.24%


1,295,841


15.90%


1,207,237


14.78%


Total capital (to risk weighted assets) (1)

1,398,914


22.53%


1,400,126


17.18%


1,311,568


16.06%


Risk weighted asset base

6,208,327



8,146,771



8,168,050








(1) 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.

 

Loan Originations

(Dollars in thousands)

(Unaudited)





For the Three Months Ended



March 31, 2013



December 31, 2012



March 31, 2012


Consumer loans









    Mortgage (1)

$

12,423,364


99.4%



$

15,356,795


99.3%



$

11,169,409


97.7%


    Other consumer (2)

8,553


0.1%



7,589


—%



4,479


—%


Total consumer loans

12,431,917


99.5%



15,364,384


99.3%



11,173,888


97.7%


Commercial loans (3)

66,186


0.5%



105,869


0.7%



266,966


2.3%


Total loan originations

$

12,498,103


100.0%



$

15,470,253


100.0%



$

11,440,854


100.0%



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

(2) Other consumer loans include: warehouse lending, HELOC and other consumer loans.

(3) Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans.

 


Loans Held-for-Investment

(Dollars in thousands)

(Unaudited)



March 31, 2013


December 31, 2012


March 31, 2012


Consumer loans







Residential first mortgage

$

2,991,394


63.1%


$

3,009,251


55.3%


$

3,304,889


49.7%


Second mortgage

112,385


2.4%


114,885


2.1%


132,463


2.0%


Warehouse lending

750,765


15.8%


1,347,727


24.8%


1,104,205


16.6%


HELOC

167,815


3.5%


179,447


3.3%


209,228


3.1%


Other

44,488


0.9%


49,611


0.9%


62,111


0.9%


Total consumer loans

4,066,847


85.7%


4,700,921


86.4%


4,812,896


72.3%


Commercial loans







Commercial real estate

562,916


11.9%


640,315


11.8%


1,157,911


17.3%


Commercial and industrial

107,688


2.3%


90,565


1.7%


544,481


8.2%


Commercial lease financing

5,815


0.1%


6,300


0.1%


144,250


2.2%


Total commercial loans

676,419


14.3%


737,180


13.6%


1,846,642


27.7%


Total loans held-for-investment

$

4,743,266


100.0%


$

5,438,101


100.0%


$

6,659,538


100.0%



 

Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)



For the Three Months Ended


March 31, 2013


December 31, 2012


March 31, 2012

Beginning balance

$

305,000



$

305,000



$

318,000


Provision for loan losses

20,415



50,351



114,673


Charge-offs






Consumer loans






Residential first mortgage

(25,692)



(33,802)



(95,432)


Second mortgage

(1,955)



(5,423)



(5,283)


HELOC

(2,061)



(5,000)



(6,419)


Other

(699)



(1,613)



(1,190)


Total consumer loans

(30,407)



(45,838)



(108,324)


Commercial loans






Commercial real estate

(13,162)



(13,443)



(45,033)


Commercial and industrial



(3,011)



(1,581)


     Commercial lease financing



(1,191)




Total commercial loans

(13,162)



(17,645)



(46,614)


Total charge-offs

(43,569)



(63,483)



(154,938)


Recoveries






Consumer loans






Residential first mortgage

5,353



5,530



550


Second mortgage

390



196



249


HELOC

105



67



257


Other

454



731



212


Total consumer loans

6,302



6,524



1,268


Commercial loans






Commercial real estate

1,843



6,600



1,992


Commercial and industrial

9



8



5


Total commercial loans

1,852



6,608



1,997


Total recoveries

8,154



13,132



3,265


Charge-offs, net of recoveries

(35,415)



(50,351)



(151,673)


Ending balance

$

290,000



$

305,000



$

281,000


Net charge-off ratio (annualized)

2.93%



3.18%



8.99%


 


Representation and Warranty Reserve

(Dollars in thousands)

(Unaudited)




For the Three Months Ended


March 31, 2013


December 31, 2012


March 31, 2012


(Dollars in thousands)

Balance, beginning of period

$

193,000



$

202,000



$

120,000


Provision







Charged to gain on sale for current loan sales

5,817



7,285



5,051



Charged to representation and warranty reserve - change in estimate

17,396



25,231



60,538



Total

23,213



32,516



65,589


Charge-offs, net

(31,213)



(41,516)



(43,589)


Balance, end of period

$

185,000



$

193,000



$

142,000
















 

Composition of Allowance for Loan Losses

(In thousands)

(Unaudited)


March 31, 2013

Collectively Evaluated
Reserves
(1)


Individually Evaluated
Reserves
(2)


Total

Consumer loans






Residential first mortgage

$

63,144



$

150,932



$

214,076


Second mortgage

12,839



7,844



20,683


Warehouse lending 

532





532


HELOC

14,835



3,283



18,118


Other

2,215





2,215


Total consumer loans

93,565



162,059



255,624


Commercial loans






Commercial real estate

32,521



199



32,720


Commercial and industrial

1,562



10



1,572


Commercial lease financing 

84





84


Total commercial loans

34,167



209



34,376


Total allowance for loan losses

$

127,732



$

162,268



$

290,000














December 31, 2012






Consumer loans






Residential first mortgage

$

68,685



$

150,545



$

219,230


Second mortgage

13,173



7,028



20,201


Warehouse lending 

899





899


HELOC

15,274



3,074



18,348


Other

2,040





2,040


Total consumer loans

100,071



160,647



260,718


Commercial loans






Commercial real estate

38,772



2,538



41,310


Commercial and industrial

2,868



10



2,878


Commercial lease financing 

94





94


Total commercial loans

41,734



2,548



44,282


Total allowance for loan losses

$

141,805



$

163,195



$

305,000



(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, 2013


December 31, 2012


March 31, 2012

Non-performing loans held-for-investment

$

369,303



$

399,825



$

406,583


Real estate and other non-performing assets, net

114,356



120,732



108,686


Non‑performing assets held-for-investment, net

483,659



520,557



515,269


Non-performing loans held-for-sale

394



1,835



2,842


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

$

484,053



$

522,392



$

518,111


Ratio of non-performing assets to total assets (Bank only)

3.70%



3.70%



3.67%


Ratio of non-performing loans held-for-investment to loans
held-for-investment

7.79%



7.35%



6.11%


Ratio of non-performing assets to loans held for investment and
repossessed assets

9.96%



9.36%



7.61%


 

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, 2013






Consumer loans (1)

$

58,368


$

20,481


$

303,168


$

382,017


$

4,066,847


Commercial loans (1)

1,465


6,400


66,135


74,000


676,419


Total loans

$

59,833


$

26,881


$

369,303


$

456,017


$

4,743,266


December 31, 2012






Consumer loans (1)

$

66,687


$

18,578


$

313,418


$

398,683


$

4,700,921


Commercial loans (1)

6,979


6,990


86,408


100,377


737,180


Total loans

$

73,666


$

25,568


$

399,826


$

499,060


$

5,438,101


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



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

 

Troubled Debt Restructurings

(Dollars in thousands)

(Unaudited)



TDRs


Performing


Non-performing


Total

March 31, 2013

(Dollars in thousands)

Consumer loans

$

598,041



$

144,469



$

742,510


Commercial loans



1,446



1,446


Total TDRs

$

598,041



$

145,915



$

743,956








December 31, 2012






Consumer loans

$

588,475



$

143,188



$

731,663


Commercial loans

1,287



2,056



3,343


Total TDRs

$

589,762



$

145,244



$

735,006








March 31, 2012






Consumer loans

$

528,537



$

141,769



$

670,306


Commercial loans

8,700



17,360



26,060


Total TDRs

$

537,237



$

159,129



$

696,366


 

Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)



For the Three Months Ended


March 31, 2013



December 31, 2012



March 31, 2012

Description









Valuation gain (loss)









Value of interest rate locks

$

(35,327)


(0.28)%



$

(143,364)


(0.94)%



$

(2,700)


(0.02)%

Value of forward sales

(4,339)


(0.03)%



123,602


0.82%



43,810


0.40%

Fair value of loans held-for-sale

87,644


0.68%



213,512


1.38%



121,066


1.12%

LOCOM adjustments on loans 
     held-for-investment

(1,797)


(0.01)%



(1,103)


(0.01)%



(21)


—%

Total valuation gains

46,181


0.36%



192,647


1.25%



162,155


1.50%










Sales gains (losses)









Marketing gains, net of adjustments

25,859


0.21%



161,163


1.03%



131,512


1.21%

Pair-off (losses) gains

71,317


0.55%



(107,572)


(0.70)%



(83,763)


(0.77)%

Provision for representation and warranty reserve

(5,817)


(0.05)%



(7,285)


(0.05)%



(5,051)


(0.05)%

Total sales gains

91,359


0.71%



46,306


0.28%



42,698


0.39

Total gain on loan sales and securitizations

$

137,540




$

238,953




$

204,853



Total mortgage rate lock commitments (gross)

$

12,142,000




$

16,242,000




$

14,867,000



Total loan sales and securitizations

$

12,822,879


1.07%



$

15,610,590


1.53%



$

10,829,798


1.89%

Total mortgage rate lock commitments (fallout adjusted) (1)

$

9,848,417


1.40%



$

12,587,980


1.90%



$

10,725,618


1.91%


(1) Fallout adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates. The net margin is based on net gain on loan sales to fallout adjusted mortgage rate lock commitments.

 

Average Balances, Yields and Rates

(Dollars in thousands)

(Unaudited)



For the Three Months Ended


March 31, 2013



December 31, 2012



March 31, 2012


Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate

Interest-Earning Assets


Loans held-for-sale

$

3,616,195


2.97%



$

3,633,394


3.47%



$

2,393,725


4.05%

Loans repurchased with government
guarantees

1,774,235


3.38%



1,912,722


3.13%



2,022,338


3.38%

Loans held-for-investment









Consumer loans (1)

4,136,420


4.15%



4,608,093


4.28%



4,990,828


4.33%

Commercial loans (1)

698,269


4.27%



1,722,609


3.78%



1,755,917


4.21%

Loans held-for-investment

4,834,689


4.16%



6,330,702


4.14%



6,746,745


4.30%

Securities classified as available-for-sale
or trading

348,525


2.41%



362,819


2.51%



786,275


4.36%

Interest-earning deposits and other

1,501,568


0.26%



1,110,354


0.24%



691,585


0.24%

Total interest-earning assets

12,075,212


3.15%



13,349,991


3.44%



12,640,668


3.89%

Other assets

1,617,359




1,670,359




1,566,508



Total assets

$

13,692,571




$

15,020,350




$

14,207,176



Interest-Bearing Liabilities









Retail deposits









Demand deposits

$

388,466


0.25%



$

379,721


0.28%



$

346,542


0.26%

Savings deposits

2,316,859


0.75%



1,891,901


0.68%



1,610,197


0.83%

Money market deposits

387,699


0.35%



427,792


0.43%



486,907


0.54%

Certificate of deposits

2,931,558


0.90%



3,253,647


1.02%



3,084,884


1.35%

Total retail deposits

6,024,582


0.76%



5,953,061


0.82%



5,528,530


1.06%

Government deposits









Demand deposits

98,442


0.44%



81,555


0.44%



98,724


0.49%

Savings deposits

308,811


0.47%



287,289


0.51%



270,601


0.57%

Certificate of deposits

471,842


0.60%



444,668


0.62%



392,656


0.66%

Total government deposits

879,095


0.53%



813,512


0.56%



761,981


0.61%

Wholesale deposits

81,976


4.92%



157,960


4.04%



357,532


3.74%

Total deposits

6,985,653


0.78%



6,924,533


0.86%



6,648,043


1.15%

FHLB advances

3,105,556


3.16%



3,145,341


3.13%



4,097,630


2.69%

Other

247,435


2.71%



248,511


2.72%



248,585


2.88%

Total interest-bearing liabilities

10,338,644


1.54%



10,318,385


1.60%



10,994,258


1.76%

Other liabilities (2)

2,179,945




3,413,633




2,076,300



Stockholder's equity

1,173,982




1,288,332




1,136,618



Total liabilities and stockholder's equity

$

13,692,571




$

15,020,350




$

14,207,176




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

(2)  Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.

 

Non-GAAP Reconciliation

 (Dollars in thousands)

(Unaudited)



For the Three Months Ended


March 31, 2013


December 31, 2012


March 31, 2012

Pre-tax, pre-credit-cost revenue






Income (loss) before tax provision

$

23,607



$

(88,577)



$

(7,309)

Add back






Provision for loan losses

20,415



50,351



114,673

Asset resolution

16,445



21,241



36,770

Other than temporary impairment on AFS investments





1,175

Representation and warranty reserve - change in estimate

17,395



25,231



60,538

Write down of residual interest

174



780



409

Total credit-related costs

54,429



97,603



213,565

Pre-tax, pre-credit-cost net revenue

$

78,036



$

9,026



$

206,256







Efficiency ratio (credit-adjusted)






Net interest income (a)

$

55,669



$

73,941



$

74,733

Non-interest income (b)

184,943



285,795



221,377

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

17,395



25,231



60,538

Adjusted income

258,007



384,967



356,648

Non-interest expense (c)

196,590



397,962



188,746

Less: Asset resolution expense (e)

(16,445)



(21,241)



(36,770)

Adjusted non-interest expense

$

180,145



$

376,721



$

151,976

Efficiency ratio (c/(a+b)) (1)

81.7%



110.6%



63.7%

Efficiency ratio (credit-adjusted) ((c-e)/((a+b)+d))) (1)

69.8%



97.9%



42.6%




March 31, 2013


December 31, 2012


March 31, 2012

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






Non-performing assets

$

483,659



$

520,557



$

515,269







Tier 1 capital (2)

$

1,318,770



$

1,295,841



$

1,207,237

Allowance for loan losses

290,000



305,000



281,000

Tier 1 capital + allowance for loan losses

$

1,608,770



$

1,600,841



$

1,488,237

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

30.1%



32.5%



34.6%


(1)  Ratios include expenses related to the legal accruals for pending and threatened litigation, including amounts paid in anticipation of a future settlement, of $188.5 million during the three months ended December 31, 2012.

(2)  Represents Tier 1 capital for Bank.

 

SOURCE Flagstar Bancorp, Inc.



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