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

Jan 23, 2013, 21:30 ET from Flagstar Bancorp

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