2014

Flagstar Reports Fourth Quarter and Full Year 2012 Results Delivers third consecutive quarter of profitability, net income of $223.7 million for 2012

Continues to emphasize risk management, quality control and strengthening and de-risking the balance sheet

TROY, Mich., Jan. 23, 2013 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) (the "Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported fourth quarter 2012 net income applicable to common stockholders of $66.8 million, or $1.12 per share (diluted), as compared to third quarter 2012 net income of $79.7 million, or $1.36 per share (diluted), and a fourth quarter 2011 net loss of $(78.2) million, or $(1.41) per share (diluted).   The full year 2012 net income applicable to common stockholders was $223.7 million, or $3.74 per share (diluted), compared to a full year 2011 net loss of $(198.9) million, or $(3.62) per share (diluted). 

"We are pleased to report fourth quarter and full year financial results that demonstrate continued performance improvement and sustainable profitability," said Michael Tierney, President and Chief Executive Officer of the Company.  "During the fourth quarter we significantly reduced credit costs, further strengthened and de-risked the balance sheet, and improved the Tier 1 leverage capital ratio by over 100 basis points from the previous quarter.  We remain dedicated to building a strong culture of compliance, and we believe that the initiatives we completed during the fourth quarter demonstrate our continued emphasis on quality, risk management and sound governance.  Our sustained profitability is a testament to the hard work of Flagstar's talented employees, and I thank them for their continued dedication." 

Mr. Tierney continued, "With the recently announced sale of a substantial portion of Flagstar's Northeast-based commercial loan portfolio, we are refocusing our business strategy on our national mortgage presence and our Michigan-based community banking model.  We remain committed to being the largest bank headquartered in Michigan, through our 111 branches and our commercial banking team, and we look forward to continuing to meet and exceed the needs of our clients and communities.  At the same time, we will continually strive to improve our risk management systems and processes, and deliver enhanced value to all of our stakeholders."


Highlights

  • Delivered strong financial performance:
    • Net income applicable to common stockholders of $66.8 million, or $1.12 per diluted share.
    • Gain on loan sale income remained strong, at $239.0 million, reflecting a margin of 1.53 percent.
    • Net interest income increased slightly from the prior quarter to $73.9 million.
    • Total provisions related to the representation and warranty reserve decreased by 75.2 percent from the prior quarter to $32.5 million.
  • Strengthened and de-risked the balance sheet:
    • Total repurchase pipeline decreased by $201.4 million from the prior quarter to $224.2 million, as the Company continued to work through the existing population of repurchase requests.
    • Continued to add reserves for pending and threatened litigation.
    • Entered into a definitive agreement to sell a substantial portion of Northeast-based commercial loan portfolio, which is expected to be capital accretive (discussed in Commercial Loan Sale below).
  • Improved capital ratios, liquidity remained strong:
    • Tier 1 capital ratio (to adjusted total assets) increased by 110 basis points to 10.41 percent.
    • Cash on hand and interest-earning deposits of approximately $1.0 billion.
  • Non-performing loans were flat from prior quarter, but declined significantly from December 31, 2011:
    • Consumer non-performing loans increased by 13.4 percent from the prior quarter, driven primarily by an increase in performing nonaccrual TDRs, but declined by 19.1 percent from December 31, 2011.
    • Commercial non-performing loans declined by 29.5 percent from the prior quarter and 14.5 percent from December 31, 2011.

Commercial Loan Sale

As previously announced, effective December 31, 2012 the Bank entered into a definitive Transaction Purchase and Sale Agreement (the "Agreement") with CIT Bank, the wholly-owned U.S. commercial bank subsidiary of  CIT Group Inc. (NYSE: CIT) ("CIT").  Under the terms of the Agreement, CIT will acquire $1.3 billion in commercial loan commitments, $785.0 million of which is currently outstanding.  The Company expects that the total purchase price for the portfolio will be approximately $779.0 million and that a vast majority of the assets will be sold during the first quarter of 2013.


Net Interest Income

Fourth quarter 2012 net interest income increased slightly to $73.9 million, as compared to $73.1 million for the third quarter 2012.  Net interest margin for the Bank also increased to 2.26 percent, as compared to 2.21 percent for the third quarter 2012, driven primarily by an improvement in our funding costs.

Interest income decreased by $4.3 million from the prior quarter, driven primarily by a lower average balance of investment securities available-for-sale primarily resulting from the sale of non-agency collateralized mortgage obligation securities during the third quarter 2012 and lower average balances of loans held-for-investment.  Fourth quarter 2012 average yield on interest-earnings assets was 3.44 percent, as compared to 3.54 percent for the third quarter 2012. 

Interest expense decreased by $5.2 million during the fourth quarter 2012 from the third quarter 2012, more than offsetting the decline in interest income.  The decrease in interest expense from prior quarter was primarily due to an improvement in the funding mix and a lower average cost of deposits. 

The Company's average cost of funds for the fourth quarter 2012 was 1.60 percent, a decrease from the third quarter 2012 of 1.73 percent, driven primarily by a decrease in the average rate paid on retail certificates of deposits.  During the fourth quarter 2012, the Company reduced higher cost retail deposits.  The average cost of total deposits decreased during the fourth quarter 2012 to 0.86 percent, as compared to 1.02 percent during the third quarter 2012. 


Non-interest Income

Fourth quarter 2012 non-interest income increased to $285.8 million, as compared to $273.7 million for the third quarter 2012.  Excluding the provision related to the representation and warranty reserve - change in estimate, which decreased by $99.3 million (discussed in Credit-Related Costs and Asset Quality below), non-interest income would have totaled $311.0 million for the fourth quarter 2012, as compared to $398.2 million for the third quarter 2012.  This decrease from the prior quarter was primarily due to lower net gain on loan sales.

Fourth quarter 2012 net gain on loan sales decreased to $239.0 million, as compared to $334.4 million for the third quarter 2012, but increased as compared to $106.9 million for the fourth quarter 2011.  The decrease from the prior quarter was reflective of both a decrease in mortgage rate lock commitments and a decrease in margin on rate lock commitments.  Mortgage rate lock commitments decreased to $16.2 billion for the fourth quarter 2012, as compared to $18.1 billion for the third quarter 2012, driven by seasonal and competitive mortgage patterns, as well as actions to manage volume levels.   

As compared to the fourth quarter 2011, net gain on loan sales increased by $132.1 million, primarily driven by increases in mortgage rate lock commitments and increased margin on rate lock commitments. 

Gain on loan sale margin is calculated based on residential first mortgage rate lock commitments and actual sales of residential first mortgage loans, and is net of sales expenses, hedging costs and provisions related to the representation and warranty reserve (i.e., the portion of the reserve established at the time of sale).  Gain on loan sale margin decreased to 1.53 percent for the fourth quarter 2012, as compared to 2.42 percent for the third quarter 2012, but increased from 1.02 percent for the fourth quarter 2011.  The decrease from the prior quarter was largely attributable to a decrease in gross gain on sale margin, as well as a 12.5 percent increase in mortgage loan sales (which serves as the denominator in computing the reported margin) as compared to the prior quarter.  As compared to the fourth quarter 2011, gain on loan sale margin increased by 51 basis points, reflective of strong consumer demand for the refinancing of residential mortgage loans in a declining interest rate environment and fewer competitors in the marketplace.

Loan fees and charges increased to $40.8 million for the fourth quarter 2012, as compared to $37.4 million for the third quarter 2012.  Loan fees are driven by mortgage loan originations, which increased to $15.4 billion for the fourth quarter 2012, as compared to $14.5 billion for the third quarter 2012.   

Net servicing revenue, which is the combination of net 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), increased to $25.0 million for the fourth quarter 2012, as compared to $11.3 million for the third quarter 2012.  This increase from the prior quarter was primarily attributable to effective hedge positioning, despite significant rate volatility intra-quarter and the absence of uncertainty from the central banks with respect to quantitative easing. 

The Company also recorded a net loss on sales of mortgage servicing rights of $7.7 million during the fourth quarter 2012, due to bulk sales of mortgage servicing rights related to $13.8 billion in underlying mortgage loans.  The Company intends to continue to look for opportunistic ways to reduce its concentration of mortgage servicing rights.


Credit-Related Costs and Asset Quality

For the fourth quarter 2012, total credit-related costs (see non-GAAP reconciliation) decreased to $97.6 million, as compared to $189.7 million for the third quarter 2012 and $173.2 million for the fourth quarter 2011.  The declines from the prior quarter, and the same quarter in 2011, were driven primarily by a decrease in representation and warranty reserve - change in estimate provisions (exclusive of provisions for representation and warranty reserve which are taken through gain on loan sale income).  

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 December 31, 2012, the representation and warranty reserve was $193.0 million, a decrease as compared to $202.0 million at September 30, 2012, but an increase of $73.0 million as compared to $120.0 million at December 31, 2011.  The decrease from the prior quarter includes an $11.0 million reclassification of reserves associated with loans insured by the MBIA Insurance Corporation ("MBIA").  This reclassification reflects the nature of the reserves following the filing by MBIA of its lawsuit against the Bank (discussed in Non-interest Expense below).

Representation and warranty reserve - change in estimate provision was $25.2 million for the fourth quarter 2012, as compared to $124.5 million for the third quarter 2012 and $69.3 million for the fourth quarter 2011.  The declines from the prior quarter, and the same quarter in 2011, primarily reflect decreases in net charge-offs of loan repurchases.           

At December 31, 2012, the total repurchase pipeline decreased to $224.2 million, as compared to $425.6 million at September 30, 2012, as the Company continued to work through the existing population of repurchase requests. New audit file review requests increased by 12.7 percent from the prior quarter, which management believes is a reflection of the GSEs continuing their reviews as they transition to a new review process.

The provision for loan losses in the fourth quarter 2012 decreased to $50.4 million, as compared to $52.6 million for the third quarter 2012 and $63.5 million for the fourth quarter 2011.  At December 31, 2012, the allowance for loan losses remained unchanged at $305.0 million, as compared to September 30, 2012, and decreased as compared to $318.0 million at December 31, 2011.  At December 31, 2012, the ratio of the allowance for loan losses to non-performing loans held-for-investment was 76.3 percent, relatively unchanged as compared to 76.5 percent at September 30, 2012, but increased as compared to 65.1 percent at December 31, 2011. 

The consumer allowance for loan losses increased to $260.7 million at December 31, 2012, as compared to $244.6 million at September 30, 2012, which reflects management's view of potentially higher losses from re-defaults within the portfolio of troubled debt restructurings ("TDRs"), as well as an increase in the level of TDRs.  The total commercial allowance for loan losses decreased to $44.3 million at December 31, 2012, as compared to $60.4 million at September 30, 2012, reflecting the continued run-off in the commercial loan portfolio and reversal of $12.6 million in reserves associated with the December sale of commercial loans under the Agreement with CIT. 

Total non-performing loans were $399.8 million as of December 31, 2012, essentially unchanged as compared to $398.9 million at September 30, 2012, but decreased by 18.1 percent from December 31, 2011.  Consumer non-performing loans increased to $313.4 million at December 31, 2012, as compared to $276.3 million at September 30, 2012, but decreased by 19.1 percent from December 31, 2011.  The increase from the prior quarter was driven primarily by an increase in TDRs, virtually all of which were performing as agreed, as a result of the implementation of the Office of the Comptroller of the Currency guidance on bankruptcies.  Commercial non-performing loans decreased to $86.4 million at December 31, 2012, as compared to $122.6 million at September 30, 2012 and $101.0 million at December 31, 2011.  The decrease from the prior quarter was primarily driven 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) increased to $21.2 million for the fourth quarter 2012, as compared to $12.5 million for the third quarter 2012, but decreased as compared to $32.4 million for the fourth quarter 2011.  The increase from the prior quarter was driven primarily by the recognition of a $7.8 million benefit applied against asset resolution expense in the third quarter 2012, as a result of the Company's participation in a HUD-coordinated market auction of loans repurchased with government guarantees.


Non-interest Expense

Non-interest expense was $237.0 million for the fourth quarter 2012, as compared to $233.5 million for the third quarter 2012 and $205.8 million for the fourth quarter 2011.  Excluding asset resolution expense (discussed in Credit-Related Costs and Asset Quality above), non-interest expense would have totaled $215.7 million for the fourth quarter 2012, as compared to $221.0 million for the third quarter 2012 and $173.4 for the fourth quarter 2011.  The decrease in non-interest expense (excluding asset resolution expense) from the prior quarter is primarily due to a $15.2 million decrease in loss on extinguishment of debt resulting from the Company's prepayment of FHLB advances during the third quarter 2012.

As compared to the fourth quarter 2011, the increase in non-interest expense was driven by an increase in compensation and benefits related to significant staffing increases in the default servicing and loss mitigation areas, an increase in commissions driven by increased mortgage loan originations, and an increase in general and administrative expense from additional legal reserves for pending and threatened litigation.

Compensation and benefits increased to $72.1 million for the fourth quarter 2012, as compared to $67.4 million for the third quarter 2012, reflecting incentive compensation and retention expenses.  Commission expense also increased to $22.2 million for the fourth quarter 2012, as compared to $19.9 million for the third quarter 2012. This increase from the prior quarter was consistent with an increase in mortgage loan originations during the quarter. 

The fourth quarter 2012 general and administrative expense includes approximately $27.0 million with respect to the Company's assessment of exposure from pending and threatened litigation.  This includes the reclassification of $11.0 million previously recorded in the representation and warranty reserve.  The total amount reserved by the Company for pending and threatened litigation, including amounts paid in anticipation of a future settlement, was approximately $82.7 million at December 31, 2012.  Included in this reserve are amounts for the previously disclosed lawsuit filed by Assured Guaranty Municipal Corp., formerly known as Financial Security Assurance Inc. ("Assured"), and for the lawsuit that MBIA filed against the Bank on January 11, 2013.  The MBIA claims relate to approximately $1.1 billion of non-agency securitization transactions in 2006 and 2007 involving fixed and adjustable rate second mortgage loans that Flagstar held at the time in its investment portfolio.  MBIA guaranteed the offered securities.  The Assured and MBIA cases are pending in the United States District Court for the Southern District of New York.  The bench trial in the Assured case concluded on November 13, 2012, and the Company expects a decision in late January.  Although there can be no assurance as to the ultimate outcome of the Assured and MBIA lawsuits, the Company believes that the Bank has meritorious defenses and intends to continue to defend itself vigorously.  The actual costs of resolving the Assured and MBIA claims, and the other pending and threatened litigation, may be materially higher or lower than the amounts reserved.

Capital

The Bank was considered "well-capitalized" for regulatory purposes at December 31, 2012, and had regulatory capital ratios of 10.41 percent for the Tier 1 capital ratio (to adjusted total assets) and 19.16 percent for the total risk-based capital ratio (to risk-weighted assets).  

At December 31, 2012, the Company had an equity-to-assets ratio of 9.38 percent.


Balance Sheet and Funding

Total assets at December 31, 2012 were $14.1 billion, as compared to $14.9 billion at September 30, 2012. The decrease from the prior quarter was primarily driven by a decrease in held-for-sale residential first mortgage loans resulting from an excess of residential first mortgage loan sales over residential first mortgage loan originations, and a decrease in commercial real estate loans held-for-investment driven by the Company's continued emphasis on reducing the balances of loans originated prior to 2009. During the quarter, commercial loans related to the Agreement with CIT were transferred from the loans held-for-investment portfolio to the loans held-for-sale portfolio.

Loans are primarily funded with deposits obtained through branches in Michigan and from public entities. 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 on 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. 

Total deposits were $8.3 billion at December 31, 2012, a decrease of $1.2 billion as compared to September 30, 2012.  The decrease from the prior quarter was primarily attributable to a $1.2 billion transfer of principal and interest custodian accounts serviced for GSEs to a third party.  Retail checking and savings balances increased, more than offsetting a decrease in retail and wholesale certificates of deposit, as the Company continued to replace higher costing funding with core deposits.

At December 31, 2012 and September 30, 2012, the Bank had approximately $1.0 billion of cash on hand and interest-earning deposits.  The Bank also 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 December 31, 2012, the Bank had outstanding borrowings from the FHLB of $3.2 billion, as compared to $3.1 billion at September 30, 2012.  At December 31, 2012, the Bank had an additional $1.1 billion of collateralized borrowing capacity available at the FHLB. 

Earnings Conference Call

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

Questions may be asked during the conference call or by emailing questions in advance to investors@flagstar.com

To join the call, please dial (800) 684-1259 toll free or (913) 312-1503, and use passcode: 3359641.  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: 3359641.

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. (NYSE: FBC) is the holding company for Flagstar Bank, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners.  With $14.1 billion in total assets at December 31, 2012, Flagstar is the largest publicly held savings bank headquartered in the Midwest.  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 reconciliation 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, the impact, timing and consummation of the commercial loan sale and other similar matters.  Although we believe that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies, and other factors.  Accordingly, we cannot give you any assurance that our expectations will in fact occur or that actual results will not differ materially from those expressed or implied by such forward-looking statements.  We caution you not to place undue reliance on any forward-looking statement and to 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, among 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; uncertainty regarding pending and threatened litigation; our ability to control credit related costs and forecast the adequacy of reserves; the imposition of regulatory enforcement actions against us; our compliance with the Consent Order with the Office of the Comptroller of the Currency, which was disclosed on October 23, 2012; and the commercial loan sale may not have the projected impact or be consummated in a timely manner.  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)








December 31, 2012


September 30, 2012


December 31, 2011

Assets

(Unaudited)


(Unaudited)



Cash and cash items

$

38,070



$

53,883



$

49,715


Interest-earning deposits

914,723



949,514



681,343


Cash and cash equivalents

952,793



1,003,397



731,058


Securities classified as trading

170,086



170,073



313,383


Securities classified as available-for-sale

184,445



198,861



481,352


Loans held-for-sale

3,791,188



3,251,936



1,800,885


Loans repurchased with government guarantees

1,841,342



1,931,163



1,899,267


Loans held-for-investment

5,586,633



6,552,399



7,038,587


Less: allowance for loan losses

(305,000)



(305,000)



(318,000)


Loans held-for-investment, net

5,281,633



6,247,399



6,720,587


Total interest-earning assets

12,183,417



12,748,946



11,896,817


Accrued interest receivable

91,992



106,458



105,200


Repossessed assets, net

120,732



119,468



114,715


Federal Home Loan Bank stock

301,737



301,737



301,737


Premises and equipment, net

219,059



211,981



203,578


Mortgage servicing rights

710,791



686,799



510,475


Other assets

416,214



669,950



455,236


Total assets

$

14,082,012



$

14,899,222



$

13,637,473


Liabilities and Stockholders' Equity






Deposits

$

8,294,295



$

9,489,169



$

7,689,988


Federal Home Loan Bank advances

3,180,000



3,088,000



3,953,000


Long-term debt

247,435



248,560



248,585


Total interest-bearing liabilities

11,721,730



12,825,729



11,891,573


Accrued interest payable

13,420



12,522



8,723


Representation and warranty reserve

193,000



202,000



120,000


Other liabilities

833,500



608,372



537,461


Total liabilities

12,761,650



13,648,623



12,557,757


Stockholders' Equity






Preferred stock

260,390



258,973



254,732


Common stock

559



558



556


Additional paid in capital

1,476,569



1,475,380



1,471,463


Accumulated other comprehensive loss

(1,658)



(2,042)



(7,819)


Accumulated deficit

(415,498)



(482,270)



(639,216)


Total stockholders' equity

1,320,362



1,250,599



1,079,716


Total liabilities and stockholders' equity

$

14,082,012



$

14,899,222



$

13,637,473


 



Flagstar Bancorp, Inc.

 Consolidated Statements of Operations

 (In thousands, except per share data)

 


For the Three Months Ended


For the Year Ended


December 31,
2012


September 30,
2012


December 31,
2011


December 31,
2012


December 31,
2011


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)



Interest Income










Loans

$

112,464



$

114,158



$

116,790



$

456,141



$

427,022


 Securities classified as available-for-sale

 or trading

2,277



4,912



8,929



22,609



35,602


Interest-earning deposits and other

674



672



426



2,220



2,785


  Total interest income

115,415



119,742



126,145



480,970



465,409


Interest Expense










Deposits

15,017



17,819



20,944



70,143



95,546


FHLB advances

24,756



27,091



27,646



106,625



117,963


Other

1,701



1,753



1,692



6,971



6,527


  Total interest expense

41,474



46,663



50,282



183,739



220,036


Net interest income

73,941



73,079



75,863



297,231



245,373


Provision for loan losses

50,351



52,595



63,548



276,047



176,931


Net interest income after provision for loan losses

23,590



20,484



12,315



21,184



68,442


Non-Interest Income










Loan fees and charges

40,793



37,359



28,610



142,908



77,843


Deposit fees and charges

5,154



5,255



6,332



20,370



29,629


Loan administration

25,010



11,099



28,295



100,007



94,604


Gain on trading securities

12



237



674



(2,011)



21,088


Loss on transferors' interest

(780)



(118)



(847)



(2,552)



(5,673)


Net gain on loan sales

238,953



334,427



106,919



990,898



300,789


 Net loss on sales of mortgage servicing rights

(7,687)



(1,332)



(2,823)



(12,319)



(7,903)


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

(310)



2,616





2,636




Net gain on sale of assets





21,379





22,676


    Total other-than-temporary impairment

    (loss) gain





(11,569)



2,810



(30,456)


Gain (loss) recognized in other comprehensive income before taxes





4,437



(5,002)



6,417


 Net impairment losses recognized in

 earnings





(7,132)



(2,192)



(24,039)


 Representation and warranty reserve -

 change in estimate

(25,231)



(124,492)



(69,279)



(256,289)



(150,055)


Other fees and charges, net

9,881



8,686



6,493



39,786



26,557


  Total non-interest income

285,795



273,737



118,621



1,021,242



385,516


 


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)



Non-Interest Expense










Compensation and benefits

72,081



67,386



60,011



270,859



224,711


Commissions

22,154



19,888



14,151



75,345



39,345


Occupancy and equipment

19,184



18,833



19,448



73,674



70,117


Asset resolution

21,241



12,487



32,408



91,349



128,313


Federal insurance premiums

12,202



12,643



11,401



49,273



41,581


Other taxes

856



2,036



606



4,219



2,784


Warrant expense (income)

5,422



1,516



138



8,935



(6,889)


 Loss on extinguishment of debt



15,246





15,246




General and administrative

83,822



83,456



67,674



239,795



134,718


  Total non-interest expense

236,962



233,491



205,837



828,695



634,680


Income (loss) before federal income taxes

72,423



60,730



(74,901)



213,731



(180,722)


 Provision (benefit) for federal income taxes

4,235



(20,380)



264



(15,645)



1,056


Net income (loss)

68,188



81,110



(75,165)



229,376



(181,778)


 Preferred stock dividend/accretion (1)

(1,417)



(1,417)



(3,016)



(5,658)



(17,165)


 Net income (loss) applicable to common 
  
stockholders

$

66,771



$

79,693



$

(78,181)



$

223,718



$

(198,943)


Income (loss) per share










       Basic (2)

$

1.13



$

1.37



$

(1.41)



$

3.77



$

(3.62)


       Diluted (2)

$

1.12



$

1.36



$

(1.41)



$

3.74



$

(3.62)



(1)

The preferred stock dividend/accretion for the three months ended December 31, 2012 and September 30, 2012 and the year ended December 31, 2012, respectively, 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 and year ended December 31, 2011 have 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


For the Year Ended


December 31, 2012


September 30,
2012


December 31, 2011


December 31, 2012


December 31, 2011

Return on average assets

1.78

%


2.10

%


(2.21)

%


1.52

%


(1.49)

%

Return on average equity

20.70

%


25.78

%


(27.56)

%


18.76

%


(16.78)

%

Efficiency ratio

65.9

%


67.3

%


105.8

%


62.9

%


100.6

%

Efficiency ratio (credit-adjusted) (1)

56.0

%


46.9

%


65.8

%


46.8

%


64.8

%

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

8.59

%


8.16

%


8.02

%


8.10

%


8.88

%

Mortgage loans originated (2)

$

15,356,795



$

14,513,635



$

10,187,100



$

53,586,856



$

26,612,800


Other loans originated

$

113,458



$

165,668



$

199,529



$

754,155



$

700,969


Mortgage loans sold and securitized

$

15,610,590



$

13,876,626



$

10,476,542



$

53,094,326



$

27,451,362


Interest rate spread - bank only (3)

1.87

%


1.84

%


2.15

%


1.98

%


1.86

%

Net interest margin - bank only (4)

2.26

%


2.21

%


2.43

%


2.31

%


2.13

%

Interest rate spread - consolidated (3)

1.84

%


1.81

%


2.13

%


1.96

%


1.85

%

Net interest margin - consolidated (4)

2.21

%


2.16

%


2.37

%


2.26

%


2.07

%

Average common shares outstanding (5)

55,842,910



55,801,692



55,535,992



55,762,196



55,434,296


Average fully diluted shares outstanding (5)

56,520,403



56,233,165



55,535,992



56,193,515



55,434,296


Average interest-earning assets

$

13,349,991



$

13,476,917



$

12,752,968



$

13,104,401



$

11,803,670


Average interest paying liabilities

$

10,318,385



$

10,737,734



$

11,018,201



$

10,786,253



$

10,530,369


Average stockholder's equity

$

1,290,082



$

1,236,411



$

1,134,716



$

1,192,721



$

1,185,731


Charge-offs to average investment loans (annualized)

3.18

%


2.12

%


1.60

%


4.43

%


2.14

%

 


December 31, 2012


September 30, 2012


December 31, 2011

Equity-to-assets ratio

9.38

%


8.39

%


7.92

%

Tier 1 capital ratio (to adjusted total assets) (6)

10.41

%


9.31

%


8.95

%

Total risk-based capital ratio (to risk-weighted assets) (6)

19.16

%


17.58

%


16.64

%

Book value per common share (5)

$

18.97



$

17.76



$

14.80


Number of common shares outstanding (5)

55,863,053



55,828,470



55,577,564


Mortgage loans serviced for others

$

76,821,222



$

82,414,799



$

63,770,676


Weighted average service fee (basis points)

29.2



30.1



30.8


Capitalized value of mortgage servicing rights

0.93

%


0.83

%


0.80

%

Ratio of allowance for loan losses to non-performing loans held-for-investment (7)

76.3

%


76.5

%


65.1

%

Ratio of allowance for loan losses to loans  held-for-investment (7)

5.46

%


4.65

%


4.52

%

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

3.70

%


3.48

%


4.43

%

Number of bank branches

111



111



113


Number of loan origination centers

31



31



27


Number of employees (excluding loan officers and account executives)

3,328



3,240



2,839


Number of loan officers and account executives

334



336



297


 


(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)

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. 

(7)

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

 

 

Loan Originations

(Dollars in thousands)

(Unaudited)



For the Three Months Ended



December 31, 2012



September 30, 2012



December 31, 2011


Consumer loans









    Mortgage (1)

$

15,356,795


99.3

%


$

14,513,635


98.8

%


$

10,187,100


98.1

%

    Other consumer (2)

7,589




8,489


0.1

%


3,033



Total consumer loans

15,364,384


99.3

%


14,522,124


98.9

%


10,190,133


98.1

%

Commercial loans (3)

105,869


0.7

%


157,179


1.1

%


196,496


1.9

%

Total loan originations

$

15,470,253


100.0

%


$

14,679,303


100.0

%


$

10,386,629


100.0

%

 



For the Year Ended



December 31, 2012



December 31, 2011


Consumer loans






    Mortgage (1)

$

53,586,856


98.6

%


$

26,612,800


97.4

%

    Other consumer (2)

27,058


0.1

%


11,024


0.1

%

Total consumer loans

53,613,914


98.7

%


26,623,824


97.5

%

Commercial loans (3)

727,097


1.3

%


689,945


2.5

%

Total loan originations

$

54,341,011


100.0

%


$

27,313,769


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)











December 31, 2012



September 30, 2012



December 31, 2011


Consumer loans









Residential first mortgage

$

3,009,251


53.9

%


$

3,086,096


47.1

%


$

3,749,821


53.1

%

Second mortgage

114,885


2.1

%


122,286


1.9

%


138,912


2.0

%

Warehouse lending

1,347,727


24.1

%


1,307,292


20.0

%


1,173,898


16.7

%

HELOC

179,447


3.2

%


192,117


2.9

%


221,986


3.2

%

Other

49,611


0.9

%


53,188


0.8

%


67,613


1.0

%

Total consumer loans

4,700,921


84.2

%


4,760,979


72.7

%


5,352,230


76.0

%

Commercial loans









Commercial real estate

689,424


12.3

%


1,005,498


15.3

%


1,242,969


17.7

%

Commercial and industrial

189,988


3.4

%


597,273


9.1

%


328,879


4.7

%

Commercial lease financing

6,300


0.1

%


188,649


2.9

%


114,509


1.6

%

Total commercial loans

885,712


15.8

%


1,791,420


27.3

%


1,686,357


24.0

%

Total loans held-for-investment

$

5,586,633


100.0

%


$

6,552,399


100.0

%


$

7,038,587


100.0

%

 

 

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






For the Three Months Ended


For the Year Ended


December 31, 2012


September 30, 2012


December 31, 2011


December 31, 2012


December 31, 2011

Beginning balance

$

305,000



$

287,000



$

282,000



$

318,000



$

274,000


Provision for loan losses

50,351



52,595



63,548



276,047



176,931


Charge-offs










Consumer loans










Residential first mortgage

(33,802)



(23,999)



(19,042)



(175,803)



(41,559)


Second mortgage

(5,423)



(3,990)



(2,672)



(18,753)



(19,217)


Warehouse lending





(562)





(1,122)


HELOC

(5,000)



(1,483)



(3,515)



(17,159)



(16,980)


Other

(1,613)



(892)



(916)



(4,423)



(4,729)


Total consumer loans

(45,838)



(30,364)



(26,707)



(216,138)



(83,607)


Commercial loans










Commercial real estate

(13,443)



(15,532)



(2,527)



(105,285)



(57,626)


Commercial and industrial

(3,011)



(12)





(4,627)



(644)


     Commercial lease financing

(1,191)







(1,191)




Total commercial loans

(17,645)



(15,544)



(2,527)



(111,103)



(58,270)


Total charge-offs

(63,483)



(45,908)



(29,234)



(327,241)



(141,877)


Recoveries










Consumer loans










Residential first mortgage

5,530



5,899



401



18,561



1,656


Second mortgage

196



428



65



1,912



1,642


Warehouse lending









5


HELOC

67



44



57



461



1,510


Other

731



448



319



1,786



1,603


Total consumer loans

6,524



6,819



842



22,720



6,416


Commercial loans










Commercial real estate

6,600



4,461



844



15,397



2,408


Commercial and industrial

8



33





77



122


Total commercial loans

6,608



4,494



844



15,474



2,530


Total recoveries

13,132



11,313



1,686



38,194



8,946


Charge-offs, net of recoveries

(50,351)



(34,595)



(27,548)



(289,047)



(132,931)


Ending balance

$

305,000



$

305,000



$

318,000



$

305,000



$

318,000


Net charge-off ratio (annualized)

3.18

%


2.12

%


1.60

%


4.43

%


2.14

%

 

 


Representation and Warranty Reserve
(Dollars in thousands)
(Unaudited)








For the Three Months Ended


For the Year Ended


December 31, 2012

September 30, 2012

December 31, 2011


December 31, 2012

December 31, 2011


(Dollars in thousands)

Balance, beginning of period

$

202,000


$

161,000


$

85,000



$

120,000


$

79,400


Provision








Charged to gain on sale for current
loan sales

7,285


6,432


3,481



24,410


8,993



Charged to representation and
warranty reserve - change in estimate

25,231


124,492


69,280



256,289


150,055



Total

32,516


130,924


72,761



280,699


159,048


Charge-offs, net

(41,516)


(89,924)


(37,761)



(207,699)


(118,448)


Balance, end of period

$

193,000


$

202,000


$

120,000



$

193,000


$

120,000





















 

 

Composition of Allowance for Loan Losses
(In thousands)
(Unaudited)







December 31, 2012

Collectively Evaluated Reserves (1)


Individually Evaluated Reserves (2)


Total

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


September 30, 2012






Consumer loans






Residential first mortgage

$

74,950



$

129,902



$

204,852


Second mortgage

12,478



6,410



18,888


Warehouse lending 

1,038





1,038


HELOC

15,216



2,340



17,556


Other

2,229





2,229


Total consumer loans

105,911



138,652



244,563


Commercial loans






Commercial real estate

47,113



1,722



48,835


Commercial and industrial

8,857



20



8,877


Commercial lease financing 

2,725





2,725


Total commercial loans

58,695



1,742



60,437


Total allowance for loan losses

$

164,606



$

140,394



$

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)








December 31, 2012


September 30, 2012


December 31, 2011

Non-performing loans held-for-investment

$

399,825



$

398,948



$

488,367


Real estate and other non-performing assets, net

120,732



119,468



114,715


Non‑performing assets held-for-investment, net

520,557



518,416



603,082


Non-performing loans held-for-sale

1,835



2,086



4,573


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

$

522,392



$

520,502



$

607,655


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

3.70

%


3.48

%


4.43

%

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

7.16

%


6.09

%


6.94

%

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

9.12

%


7.77

%


8.43

%

 

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

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


885,712


Total loans

$

73,666


$

25,568


$

399,826


$

499,060


$

5,586,633


September 30, 2012






Consumer loans (1)

$

53,919


$

26,697


$

276,319


$

356,935


$

4,760,979


Commercial loans (1)

9,563


432


122,629


132,624


1,791,420


Total loans

$

63,482


$

27,129


$

398,948


$

489,559


$

6,552,399


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


 


(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

December 31, 2012

(Dollars in thousands)

Consumer loans

$

588,475



$

143,188



$

731,663


Commercial loans

1,287



2,056



3,343


Total TDRs

$

589,762



$

145,244



$

735,006








September 30, 2012






Consumer loans

$

612,956



$

106,250



$

719,206


Commercial loans

1,329



3,230



4,559


Total TDRs

$

614,285



$

109,480



$

723,765








December 31, 2011






Consumer loans

$

499,438



$

167,076



$

666,514


Commercial loans

17,737



29,509



47,246


Total TDRs

$

517,175



$

196,585



$

713,760


 

 

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






For the Three Months Ended



December 31, 2012



September 30, 2012



December 31, 2011


Description

(000's)

bps


(000's)

bps


(000's)

bps

Valuation gain (loss)









Value of interest rate locks

$

(143,364)


(94)



$

97,176


73



$

(19,033)


(18)


Value of forward sales

123,602


82



(91,329)


(68)



17,793


17


Fair value of loans held-for-sale

213,512


138



273,270


198



96,911


92


LOCOM adjustments on loans held-for-investment

(1,103)


(1)








Total valuation gains

192,647


125



279,117


203



95,671


91











Sales gains (losses)









Marketing gains, net of adjustments

161,163


103



218,262


157



73,560


70


Pair-off (losses) gains

(107,572)


(70)



(156,520)


(113)



(58,831)


(56)


Provision for representation and warranty reserve

(7,285)


(5)



(6,432)


(5)



(3,481)


(3)


Total sales gains

46,306


28



55,310


39



11,248


11


Total gain on loan sales and securitizations

$

238,953


153



$

334,427


242



$

106,919


102


Total mortgage rate lock commitments volume

$

16,242,000




$

18,089,000




$

11,230,000



Total loan sales and securitizations

$

15,610,590




$

13,876,626




$

10,476,542



 

 


For the Year Ended



December 31, 2012



December 31, 2011


Description

(000's)

bps


(000's)

bps

Valuation gain (loss)






Value of interest rate locks

$

15,235


3



$

56,569


21


Value of forward sales

28,957


5



(78,798)


(29)


Fair value of loans held-for-sale

784,587


148



356,278


130


LOCOM adjustments on loans held-for-investment

(1,124)




16



Total valuation gains

827,655


156



334,065


122








Sales gains (losses)






Marketing gains, net of adjustments

731,648


138



191,118


69


Pair-off (losses) gains

(543,995)


(102)



(215,402)


(78)


Provision for representation and warranty reserve

(24,410)


(5)



(8,993)


(3)


Total sales gains

163,243


31



(33,277)


(12)


Total gain on loan sales and securitizations

$

990,898


187



$

300,788


110


Total mortgage rate lock commitments volume

$

66,732,000




$

36,281,000



Total loan sales and securitizations

$

53,094,326




$

27,451,362



 

 

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





For the Three Months Ended



December 31, 2012



September 30, 2012



December 31, 2011



Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate


Average Balance

Annualized

Yield/Rate

Interest-Earning Assets



Loans held-for-sale

$

3,631,780


3.47

%


$

3,301,860


3.70

%


$

2,468,813


3.94

%

Loans repurchased with government guarantees

1,912,722


3.13

%


2,070,813


2.98

%


1,849,827


3.44

%

Loans held-for-investment









     Consumer loans (1)

4,608,093


4.28

%


4,717,672


4.32

%


5,288,088


4.37

%

     Commercial loans (1)

1,724,223


3.78

%


1,815,897


3.67

%


1,620,132


4.53

%

Loans held-for-investment

6,332,316


4.14

%


6,533,569


4.14

%


6,908,220


4.40

%

Securities classified as available-for-sale or trading

362,819


2.51

%


505,361


3.89

%


813,865


4.39

%

Interest-earning deposits and other

1,110,354


0.24

%


1,065,314


0.25

%


712,242


0.24

%

Total interest-earning assets

13,349,991


3.44