Flagstar Reports Second Quarter 2014 Results Net income of $25.5 million, or $0.33 per diluted share

Improved net interest income and gain on loan sales

Increased mortgage rate lock commitments and loan origination volume

Continued focus on expense management

TROY, Mich., July 22, 2014 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported a second quarter 2014 net income applicable to common stockholders of $25.5 million, or $0.33 per (diluted) share, as compared to net loss of $78.9 million in the first quarter 2014, or $1.51 loss per share, and net income of $65.8 million in the second quarter 2013, or $1.10 earnings per (diluted) share. Book value per common share increased to $19.90 at June 30, 2014, as compared to $19.29 at March 31, 2014 and $17.66 at June 30, 2013.

"Our second quarter results reflect the continued enhancements, that we began in 2013, to put the bank in a position to be profitable," said Sandro DiNello, the Company's President and Chief Executive Officer. "During the second quarter, net interest income increased to $62.4 million and net gain on loan sales increased to $54.8 million, while noninterest income increased to $102.5 million and noninterest expense decreased to $121.4 million."

Mr. DiNello continued, "We continue to focus on controlling our noninterest expense in the current mortgage environment and are managing expenses in order to be profitable in any origination environment. While we are pleased with these results, this quarter brought two changes that impacted pretax income by approximately $20 million, albeit favorably. Overall, we are encouraged by our progress, especially as it relates to our growth in net interest income and net gain on sale income, as well as our continued expense discipline."

Net Interest Income

Second quarter 2014 net interest income increased to $62.4 million, as compared to $58.2 million for the first quarter 2014 and $47.1 million for the second quarter 2013. Of the $4.2 million net increase from the prior quarter, $4.6 million was attributable to an increase in volume of average net interest earning assets. This increase was partially offset by higher funding costs. Net interest margin for the Bank increased to 3.06 percent for second quarter 2014, as compared to 3.05 percent for the first quarter 2014 and 1.72 percent for the second quarter 2013. 

Interest income increased by $5.6 million from the first quarter 2014, primarily driven by loan growth. The average yield on interest-earnings assets increased slightly to 3.43 percent for the second quarter 2014, as compared to 3.39 percent for the first quarter 2014 and 3.01 percent for the second quarter 2013.

Interest expense increased slightly from the first quarter 2014, primarily from deposit growth. The average cost of funds for the second quarter 2014 was 0.56 percent, as compared 0.52 percent for the first quarter 2014 and 1.58 percent for the second quarter 2013. The average cost of total deposits increased to 0.53 percent for the second quarter 2014, as compared to 0.46 percent for the first quarter 2014 and decreased from 0.75 percent for the second quarter 2013. This increase in cost was primarily attributable to a slightly more aggressive deposit pricing strategy.

Noninterest Income

Second quarter 2014 noninterest income increased to $102.5 million, as compared to $75.0 million for the first quarter 2014 and $220.0 million for the second quarter 2013.      

Other noninterest income increased to $7.6 million for the second quarter 2014, as compared to a loss of $14.5 million for the first quarter 2014 and decreased from income of $44.8 million for the second quarter 2013. The increase from the prior quarter was primarily due to negative fair value adjustments in the first quarter 2014.

Loan fees and charges increased to $25.3 million for the second quarter 2014, as compared to $12.3 million for the first quarter 2014 and decreased from $29.9 million for the second quarter 2013. The increase from the prior quarter was primarily due to an unanticipated $10.0 million benefit from a contract renegotiation.

Second quarter 2014 net gain on loan sales increased to $54.8 million, as compared to $45.3 million for the first quarter 2014 and decreased from $144.8 million for the second quarter 2013. The increase from the prior quarter primarily reflects an increase in fallout-adjusted mortgage rate lock commitments. The benefit from the increase in fallout adjusted  mortgage rate lock commitments was partially offset by a margin decrease. The net gain on loan sale margin (based on the amount of fallout-adjusted locks) decreased to 0.82 percent for the second quarter 2014, as compared to 0.93 percent for the first quarter 2014 and 1.47 percent for the second quarter 2013, due to a reduction in production base margin and hedge costs.

Gain on loan sale income is driven by rate lock commitments net of estimated cancellations, or "fallout-adjusted locks," as the Company uses fair value accounting to account for the majority of its mortgage business. Fallout-adjusted locks were $6.7 billion for the second quarter 2014, a 37.9 percent increase from the first quarter 2014.

Net transaction costs on sales of mortgage servicing rights ("MSRs") decreased to an expense of $2.7 million for the second quarter 2014, as compared to income of $3.6 million for the first quarter 2014 and an expense of $4.3 million for the second quarter 2013. The decrease from the prior quarter was primarily due to the first quarter 2014 release of holdback reserves on sales completed in prior periods.

Loan administration income (including off-balance sheet hedges of mortgage servicing rights) decreased to $13.9 million for the second quarter 2014, as compared to $19.6 million for the first quarter 2014 and $36.2 million for the second quarter 2013. The decrease was due to negative mortgage servicing rights fair value adjustments.

Noninterest Expense

Noninterest expense was $121.4 million for the second quarter 2014, as compared to $139.3 million for the first quarter 2014 and $174.4 million for the second quarter 2013.

Compensation and benefits decreased to $55.2 million for the second quarter 2014, as compared to $65.6 million for the first quarter 2014 and $70.9 million for the second quarter 2013. The decrease from the prior quarter was primarily due to the effect of previously announced staff reductions that occurred during the first quarter 2014.

Second quarter 2014 legal and professional expenses decreased to income of $2.1 million, as compared to an expense of $13.9 million for the first quarter 2014 and an expense of $16.4 million for the second quarter 2013. The decrease from the prior quarter was primarily driven by a $10.0 million change due to the estimated timing of payments impacting the fair value of the liability associated with the Department of Justice settlement.

Credit-Related Costs and Asset Quality

At June 30, 2014, the Company's allowance for loan losses declined to $306.0 million, as compared to $307.0 million at March 31, 2014 and increased from $243.0 million at June 30, 2013. At June 30, 2014, the ratio of the allowance for loan losses to non-performing loans held-for-investment was 263.1 percent, as compared to 286.9 percent at March 31, 2014 and increased from 94.2 percent at June 30, 2013.

Provision for loan losses decreased to $6.2 million for the second quarter 2014, as compared to $112.3 million for the first quarter 2014 and $31.6 million for the second quarter 2013. The reduction was due in part to an increase during the first quarter 2014 related to increases in the loss emergence period on its residential loan portfolio and losses incurred due to reset risk on interest-only loans.

Net charge-offs for the second quarter 2014 decreased to $7.2 million, as compared to $12.3 million for the first quarter 2014 and $78.6 million for the second quarter 2013. The decrease from the prior quarter was primarily driven by a decrease in residential first mortgage loan charge-offs.

Total non-performing loans held-for-investment were $120.2 million at June 30, 2014, an increase as compared to $110.7 million at March 31, 2014 and a decrease from $257.9 million at June 30, 2013. The increase from the prior quarter was primarily driven by an increase in non-performing residential first mortgage loans. The ratio of non-performing loans held-for-investment to loans held-for-investment remained at 2.76 percent for both June 30, 2014 and March 31, 2014, as compared to 5.74 percent at June 30, 2013.

Real estate-owned and other non-performing assets increased slightly to $31.6 million at June 30, 2014, as compared to $31.1 million at March 31, 2014 and decreased from $86.4 million at June 30, 2013.

The Company maintains a representation and warranty reserve on the balance sheet, which reflects an estimate of losses that may occur both on loans that have been sold or securitized into the secondary market and those currently in the repurchase pipeline, primarily with Fannie Mae and Freddie Mac. At June 30, 2014, the representation and warranty reserve was $50.0 million, as compared to $48.0 million at March 31, 2014 and $185.0 million at June 30, 2013. The provisions related to the representation and warranty reserve - change in estimate was $5.2 million for the second quarter 2014, as compared to a benefit of $1.7 million for the first quarter 2014 and a provision of $28.9 million for the second quarter 2013. Representation and warranty reserve - change in estimate increased $6.9 million from the first quarter 2014, which reflects the estimated impact of changes in the fair value of repurchased loans at time of repurchase.

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 the Department of Housing and Urban Development ("HUD")) was $17.9 million for the second quarter 2014, as compared to $11.5 million for the first quarter 2014 and $15.9 million for the second quarter 2013. The increase from the prior quarter primarily resulted from higher expenses related to repurchased government insured loans.

Balance Sheet and Funding

Total assets increased to $9.9 billion at June 30, 2014, as compared to $9.6 billion at March 31, 2014. The increase from the prior quarter was due to an 8.4 percent increase in loans held-for-investment, primarily from warehouse and commercial and industrial loans. Investment securities available-for-sale also increased as cash was invested from the sale of residential first mortgage jumbo loans.

Total deposits increased to $6.6 billion at June 30, 2014, as compared to $6.3 billion at March 31, 2014. The increase from the prior quarter was primarily due to an increase in branch retail savings accounts, which increased $186.4 million.

At June 30, 2014, the Company had $202.5 million of cash on hand and interest-earning deposits, as compared to $219.2 million at March 31, 2014. The Bank maintains a line of credit with the Federal Home Loan Bank of Indianapolis ("FHLBI") under which borrowings are collateralized by residential first mortgage loans and other assets of the Bank. At June 30, 2014, the Bank had borrowings outstanding from the FHLBI of $1.0 billion and an additional $1.8 billion of collateralized borrowing capacity available at the FHLBI. The Company also had $1.6 billion of investment securities available-for-sale at June 30, 2014, which could serve as a further source of liquidity.

Capital

The Bank's regulatory capital ratios remain above current regulatory quantitative guidelines for "well-capitalized" institutions. At June 30, 2014, the Bank had a Tier 1 leverage ratio of 12.52 percent, as compared to 12.44 percent at March 31, 2014. At June 30, 2014, the Company had an equity-to-assets ratio of 13.95 percent.

Beginning January 2015, the Company and the Bank each becomes subject, on a phased-in basis, to the Basel III regulatory capital requirements that replace the current capital requirements. Assuming that the Basel III requirements were fully applicable at June 30, 2014, the Bank's pro forma Basel III Tier 1 leverage ratio would be 11.44 percent at June 30, 2014 (see Non-GAAP reconciliation). 

Senior Management Addition

The Company is pleased to announce that Stephen Figliuolo recently joined the Bank and will serve as Chief Risk Officer, subject to regulatory approval. Mr. Figliuolo will be responsible for managing the office of Enterprise Risk Management, which oversees credit risk, operations risk, modeling and analytics, mortgage risk and loan review operations.

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, July 23, 2014 from 11 a.m. until noon (Eastern).

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

To join the call, please dial (866) 952-1908 toll free or (785) 424-1827, and use passcode: 222687. 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) 348-4629 toll free or (719) 884-8882, using passcode: 222687.

The conference call will also be available as a live audio cast 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 accompanying the conference call will also be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. ("Flagstar") is the holding company for Flagstar Bank, FSB, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners. With $9.9 billion in total assets at June 30, 2014, Flagstar is the largest bank headquartered in Michigan. Flagstar operates 106 banking centers, all of which are located in Michigan and 32 home lending centers in 18 states, which primarily originate one-to-four family residential first mortgage loans. Originating loans nationwide, Flagstar is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

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 current expectations, plans or forecasts of its core business drivers, credit related costs, asset quality, capital adequacy and liquidity, the implementation of the Company's business plan and growth strategies, the suspension of dividend payments on preferred stock, the deferral of interest payment on trust preferred securities, the result of improvements to the Company's servicing processes, the Company's strategy for its servicing business 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 Form 10-K and Forms 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 Supervisory Agreement with the Board of Governors of the Federal Reserve System and the Consent Order with the Office of the Comptroller of the Currency. 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

(Dollars in thousands)



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013

Assets

(Unaudited)


(Unaudited)





(Unaudited)

Cash and cash equivalents












Cash and cash items

$

67,924



$

56,968



$

55,913



$

51,252


Interest-earning deposits

134,611



162,229



224,592



2,653,191


Total cash and cash equivalents

202,535



219,197



280,505



2,704,443


    Investment securities available-for-sale or trading

1,605,805



1,207,430



1,045,548



142,969


Loans held-for-sale

1,342,611



1,673,763



1,480,418



2,331,458


Loans repurchased with government guarantees

1,217,721



1,266,702



1,273,690



1,509,365


Loans held-for-investment, net












Loans held-for-investment

4,359,293



4,019,871



4,055,756



4,491,153


Less: allowance for loan losses

(306,000)



(307,000)



(207,000)



(243,000)


Total loans held-for-investment, net

4,053,293



3,712,871



3,848,756



4,248,153


    Mortgage servicing rights

289,185



320,231



284,678



729,019


    Repossessed assets, net

31,579



31,076



36,636



86,382


    Federal Home Loan Bank stock

209,737



209,737



209,737



301,737


    Premises and equipment, net

235,202



233,195



231,350



227,771


    Net deferred tax asset

435,217



451,392



414,681




    Other assets

310,229



285,759



301,302



453,720


Total assets

$

9,933,114



$

9,611,353



$

9,407,301



$

12,735,017


Liabilities and Stockholders' Equity












Deposits












Noninterest bearing

$

1,081,026



$

983,348



$

930,060



$

1,181,226


Interest bearing

5,562,883



5,326,953



5,210,266



6,288,841


Total deposits

6,643,909



6,310,301



6,140,326



7,470,067


    Federal Home Loan Bank advances

1,031,705



1,125,000



988,000



2,900,000


    Long-term debt

345,157



349,145



353,248



367,415


    Representation and warranty reserve

50,000



48,000



54,000



185,000


Other liabilities

476,669



427,627



445,853



558,800


            Total liabilities

8,547,440



8,260,073



7,981,427



11,481,282


    Stockholders' Equity












Preferred stock

266,657



266,657



266,174



263,277


Common stock

562



562



561



561


    Additional paid in capital

1,480,321



1,479,459



1,479,265



1,477,484


    Accumulated other comprehensive income (loss)

6,821



(1,197)



(4,831)



988


    Accumulated deficit

(368,687)



(394,201)



(315,295)



(488,575)


Total stockholders' equity

1,385,674



1,351,280



1,425,874



1,253,735


Total liabilities and stockholders' equity

$

9,933,114



$

9,611,353



$

9,407,301



$

12,735,017


 


Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,
 2014


March 31,
 2014


June 30,
 2013


June 30,
 2014


June 30,
 2013

Interest Income















Loans

$

61,910



$

58,668



$

81,731



$

120,579



$

173,680


Investment securities available-for-sale or trading

9,885



7,538



1,838



17,423



3,932


Interest-earning deposits and other

118



145



1,489



262



2,435


    Total interest income

71,913



66,351



85,058



138,264



180,047


Interest Expense















Deposits

7,239



5,988



12,148



13,227



25,656


Federal Home Loan Bank advances

600



534



24,171



1,134



48,332


Other

1,649



1,628



1,643



3,277



3,295


    Total interest expense

9,488



8,150



37,962



17,638



77,283


Net interest income

62,425



58,201



47,096



120,626



102,764


Provision for loan losses

6,150



112,321



31,563



118,471



51,978


Net interest income (loss) after provision for loan losses

56,275



(54,120)



15,533



2,155



50,786


Noninterest Income















Loan fees and charges

25,301



12,311



29,916



37,611



63,276


Deposit fees and charges

5,279



4,764



5,193



10,042



10,339


Net gain on loan sales

54,756



45,342



144,791



100,100



282,331


Loan administration

13,915



19,584



36,157



33,499



56,513


Net transactions costs on sales of mortgage servicing rights

(2,726)



3,583



(4,264)



857



(8,483)


Net gain on sale of assets

3,537



2,216



1,064



5,752



2,022


Total other-than-temporary impairment (loss) gain





(8,789)





(8,789)


Loss recognized in other comprehensive income before taxes










Net impairment losses recognized in earnings





(8,789)





(8,789)


Representation and warranty reserve - change in estimate

(5,226)



1,672



(28,940)



(3,554)



(46,336)


Other noninterest income (loss)

7,648



(14,519)



44,831



(6,871)



54,029


    Total noninterest income

102,484



74,953



219,959



177,436



404,902


Noninterest Expense















Compensation and benefits

55,218



65,572



70,935



120,788



148,144


Commissions

8,532



7,220



15,402



15,752



32,863


Occupancy and equipment

19,383



20,410



22,198



39,793



41,574


Asset resolution

17,934



11,508



15,921



29,442



32,366


Federal insurance premiums

6,758



5,010



7,791



11,769



19,031


Loan processing expense

8,199



7,735



15,389



15,934



32,500


Legal and professional expense

(2,062)



13,902



16,390



11,840



45,229


Other noninterest expense

7,391



7,895



10,371



15,286



19,279


    Total noninterest expense

121,353



139,252



174,397



260,604



370,986


Income (loss) before income taxes

37,406



(118,419)



61,095



(81,013)



84,702


Provision (benefit) for income taxes

11,892



(39,996)



(6,108)



(28,104)



(6,108)


Net income (loss)

25,514



(78,423)



67,203



(52,909)



90,810


Preferred stock dividend/accretion



(483)



(1,449)



(483)



(2,887)


Net income (loss) applicable to common stockholders

$

25,514



$

(78,906)



$

65,754



$

(53,392)



$

87,923


Income (loss) per share















       Basic

$

0.33



$

(1.51)



$

1.11



$

(1.17)



$

1.44


       Diluted

$

0.33



$

(1.51)



$

1.10



$

(1.17)



$

1.43


 

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2014


March 31, 2014


June 30, 2013


June 30,
 2014


June 30,
 2013

Mortgage loans originated (1)

$

5,950,650



$

4,866,631



$

10,882,129



$

10,817,280



$

23,305,492


Other loans originated

$

131,602



$

172,305



$

67,763



$

303,908



$

142,503


Mortgage loans sold and securitized

$

6,029,817



$

4,474,287



$

11,123,821



$

10,504,104



$

23,946,700


Interest rate spread - bank only (2)

2.95

%


2.96

%


1.46

%


2.96

%


1.55

%

Net interest margin - bank only (3)

3.06

%


3.05

%


1.72

%


3.05

%


1.81

%

Interest rate spread - consolidated (2)

2.87

%


2.87

%


1.43

%


2.87

%


1.52

%

Net interest margin - consolidated (3)

2.98

%


2.97

%


1.66

%


2.97

%


1.75

%

Average common shares outstanding

56,230,458



56,194,184



56,053,922



56,212,422



56,014,126


Average fully diluted shares outstanding

56,822,102



56,194,184



56,419,163



56,212,422



56,417,122


Average interest-earning assets

$

8,366,703



$

7,829,814



$

11,311,945



$

8,099,742



$

11,691,470


Average interest paying liabilities

$

6,795,144



$

6,363,459



$

9,642,543



$

6,580,494



$

9,988,671


Average stockholders' equity

$

1,381,948



$

1,444,741



$

1,238,787



$

1,413,192



$

1,206,563


Return on average assets

1.04

%


(3.39)%



2.03

%


(1.12)%



1.32

%

Return on average equity

7.38

%


(21.85)%



21.23

%


(7.56)%



14.57

%

Efficiency ratio

73.6

%


104.6

%


65.3

%


87.4

%


73.1

%

Efficiency ratio (adjusted) (4)

71.3

%


91.3

%


68.8

%


80.8

%


72.4

%

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

14.12

%


15.52

%


9.56

%


14.80

%


9.06

%

Charge-offs to average LHFI (5)

0.78

%


1.36

%


6.96

%


1.07

%


4.88

%

Charge-offs, to average LHFI adjusted (5)(6)

0.78

%


1.11

%


3.56

%


0.94

%


3.24

%

 



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013

Book value per common share

$

19.90



$

19.29



$

20.66



$

17.66


Number of common shares outstanding

56,238,925



56,221,056



56,138,074



56,077,528


Mortgage loans subserviced for others

$

43,103,393



$

39,554,373



$

40,431,865



$


Mortgage loans serviced for others

$

25,342,335



$

28,998,897



$

25,743,396



$

68,320,534


Weighted average service fee (basis points)

29.2



28.5



28.7



29.5


Capitalized value of mortgage servicing rights

1.14

%


1.10

%


1.11

%


1.07

%

Mortgage servicing rights to Tier 1 capital (4)

24.3

%


28.1

%


22.6

%


52.4

%

Ratio of allowance for loan losses to non-performing LHFI (5)

263.1

%


286.9

%


145.9

%


94.2

%

Ratio of allowance for loan losses to LHFI (5)

7.41

%


8.11

%


5.42

%


5.75

%

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

1.54

%


1.49

%


1.95

%


2.71

%

Equity-to-assets ratio

13.95

%


14.06

%


15.16

%


9.84

%

Number of bank branches

106



106



111



111


Number of loan origination centers

32



33



39



40


Number of FTE employees (excluding loan officers and account executives)

2,481



2,483



2,894



3,418


Number of loan officers and account executives

260



315



359



341














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

(2) Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period.

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

(4) See Non-GAAP reconciliation.

(5) Excludes loans carried under the fair value option.

(6) Excludes charge-offs of $2.3 million related to the sale of non-performing loans and TDR, during both the three months ended March 31, 2014 and the six months ended June 30, 2014, and $38.3 million of charge-offs related to the sale of non-performing and TDR loans during both the three and six months ended June 30, 2013, respectively.

 

Regulatory Capital

(Dollars in thousands)

(Unaudited)



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013


Amount

Ratio


Amount

Ratio


Amount

Ratio


Amount

Ratio

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

$

1,188,936


12.52

%


$

1,139,810


12.44

%


$

1,257,608


13.97

%


$

1,390,582


11.00

%

Total adjusted tangible asset base

$

9,493,531





$

9,160,924





$

9,004,904





$

12,646,776




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

$

1,188,936


23.75

%


$

1,139,810


23.62

%


$

1,257,608


26.82

%


$

1,390,582


23.73

%

Total capital (to risk weighted assets) (1)

1,254,445


25.05

%


1,203,098


24.93

%


1,317,964


28.11

%


1,465,860


25.01

%

Risk weighted asset base

$

5,006,897





$

4,826,024





$

4,688,545





$

5,861,221





(1) Based on adjusted total assets for purposes of core capital and risk-weighted assets for purposes of total risk-based capital. These ratios are applicable to the Bank only.

 

Loan Originations

(Dollars in thousands)

(Unaudited)


Three Months Ended


June 30, 2014


March 31, 2014


June 30, 2013

Consumer loans















    Mortgage (1)

$

5,950,650


97.8

%


$

4,866,631


96.6

%


$

10,882,129


99.4

%

    Other consumer (2)

20,262


0.3

%


17,600


0.3

%


11,659


0.1

%

Total consumer loans

5,970,912


98.2

%


4,884,231


96.9

%


10,893,788


99.5

%

Commercial loans (3)

111,340


1.8

%


154,705


3.1

%


56,104


0.5

%

Total loan originations

$

6,082,252


100.0

%


$

5,038,936


100.0

%


$

10,949,892


100.0

%

 


Six Months Ended


June 30, 2014


June 30, 2013

Consumer loans










    Mortgage (1)

$

10,817,280


97.3

%


$

23,305,492


99.4

%

    Other consumer (2)

37,862


0.3

%


20,212


0.1

%

Total consumer loans

10,855,142


97.6

%


23,325,704


99.5

%

Commercial loans (3)

266,046


2.4

%


122,291


0.5

%

Total loan originations

$

11,121,188


100.0

%


$

23,447,995


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)



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013

Consumer loans




















Residential first mortgage

$

2,352,965


53.9

%


$

2,348,691


58.4

%


$

2,508,968


61.9

%


$

2,627,979


58.5

%

Second mortgage

157,772


3.6

%


164,627


4.1

%


169,525


4.2

%


180,802


4.0

%

Warehouse lending

683,258


15.7

%


408,874


10.2

%


423,517


10.4

%


676,454


15.1

%

HELOC

268,655


6.2

%


273,454


6.8

%


289,880


7.1

%


321,576


7.2

%

Other

33,364


0.8

%


34,875


0.9

%


37,468


0.9

%


42,293


0.9

%

    Total consumer loans

3,496,014


80.2

%


3,230,521


80.4

%


3,429,358


84.5

%


3,849,104


85.7

%

Commercial loans




















Commercial real estate

523,006


12.0

%


512,994


12.7

%


408,870


10.1

%


476,500


10.6

%

Commercial and industrial

330,256


7.6

%


266,176


6.6

%


207,187


5.1

%


160,259


3.6

%

Commercial lease financing

10,017


0.2

%


10,180


0.3

%


10,341


0.3

%


5,290


0.1

%

    Total commercial loans

863,279


19.8

%


789,350


19.6

%


626,398


15.5

%


642,049


14.3

%

Total loans held-for-investment

$

4,359,293


100.0

%


$

4,019,871


100.0

%


$

4,055,756


100.0

%


$

4,491,153


100.0

%

 

Residential Loans Serviced

(Dollars in thousands)

(Unaudited)



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013


Unpaid
Principal
Balance

Number of
accounts


Unpaid
Principal
Balance

Number of
accounts


Unpaid
Principal
Balance

Number of
accounts


Unpaid
Principal
Balance

Number of
accounts

Serviced for own loan portfolio (1)

$

4,068,682


26,614



$

4,481,592


28,072



$

4,375,009


$

28,069



$

5,389,033


32,505


Serviced for others

25,342,335


127,409



28,998,897


146,339



25,743,396


131,413



68,320,534


342,971


Subserviced for others (2)

43,103,393


212,927



39,554,373


195,448



40,431,867


198,256





Total residential loans serviced (2)

$

72,514,410


366,950



$

73,034,862


369,859



$

70,550,272


357,738



$

73,709,567


375,476



(1) Includes both loans held-for-investment (residential first mortgage, second mortgage and HELOC) and loans-held-for-sale (residential first mortgage).

(2) Does not include temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights.

 

Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,
 2014


March 31,
 2014


June 30,
 2013


June 30,
 2014


June 30,
 2013

Beginning balance

$

307,000



$

207,000



$

290,000



$

207,000



$

305,000


Provision for loan losses

6,150



112,321



31,563



118,471



51,978


Charge-offs















Consumer loans















     Residential first mortgage

(5,603)



(10,863)



(63,099)



(16,466)



(88,791)


     Second mortgage

(1,145)



(1,068)



(2,033)



(2,213)



(3,988)


     HELOC

(1,055)



(2,689)



(812)



(3,744)



(2,873)


     Other

(479)



(461)



(587)



(940)



(1,286)


 Total consumer loans

(8,282)



(15,081)



(66,531)



(23,363)



(96,938)


Commercial loans















     Commercial real estate

(1,789)





(21,350)



(1,789)



(34,512)


Total charge-offs

(10,071)



(15,081)



(87,881)



(25,152)



(131,450)


Recoveries















Consumer loans















     Residential first mortgage

458



1,116



6,687



1,574



12,040


     Second mortgage

95



84



87



179



477


     HELOC

62



49



457



111



562


     Other

370



320



(80)



690



374


Total consumer loans

985



1,569



7,151



2,554



13,453


Commercial loans















     Commercial real estate

1,896



1,115



2,159



3,011



4,002


     Commercial and industrial

40



29



8



69



17


     Commercial lease financing



47





47




Total commercial loans

1,936



1,191



2,167



3,127



4,019


Total recoveries

2,921



2,760



9,318



5,681



17,472


Charge-offs, net of recoveries

(7,150)



(12,321)



(78,563)



(19,471)



(113,978)


Ending balance

$

306,000



$

307,000



$

243,000



$

306,000



$

243,000


Net charge-off ratio (annualized) (1)

0.78

%


1.36

%


6.96

%


1.07

%


4.88

%

Net charge-off ratio, adjusted (annualized) (1)(2)

0.78

%


1.11

%


3.56

%


0.94

%


3.24

%


(1) Excludes loans carried under the fair value option.

(2) Excludes charge-offs of $2.3 million related to the sale of non-performing loans and TDR during both the three months ended March 31, 2014 and six months ended June 30, 2014, and $38.3 million during both the three and six months ended June 30, 2013, respectively.

 


Representation and Warranty Reserve

(Dollars in thousands)

(Unaudited)




Three Months Ended


Six Months Ended


June 30, 2014


March 31, 2014


June 30, 2013


June 30, 2014


June 30, 2013

 Balance, beginning of period

$

48,000



$

54,000



$

185,000



$

54,000



$

193,000


 Provision
















Charged to gain on sale for current loan sales

1,734



1,229



5,052



2,963



10,870



Charged to representation and warranty reserve - change in estimate

5,226



(1,672)



28,940



3,554



46,336



Total

6,960



(443)



33,992



6,517



57,206


 Charge-offs, net

(4,960)



(5,557)



(33,992)



(10,517)



(65,206)


 Balance, end of period

$

50,000



$

48,000



$

185,000



$

50,000



$

185,000
























 

Composition of Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)


June 30, 2014

Collectively Evaluated
Reserves


Individually Evaluated
Reserves


Total

Consumer loans









   Residential first mortgage

$

162,272



$

86,918



$

249,190


   Second mortgage

7,561



6,094



13,655


   Warehouse lending

2,557





2,557


   HELOC

12,313



1,753



14,066


   Other

2,030





2,030


Total consumer loans

186,733



94,765



281,498


Commercial loans









   Commercial real estate

19,266





19,266


   Commercial and industrial

5,096





5,096


   Commercial lease financing

140





140


Total commercial loans

24,502





24,502


Total allowance for loan losses

$

211,235



$

94,765



$

306,000


 


March 31, 2014

Collectively Evaluated
Reserves


Individually Evaluated
Reserves


Total

Consumer loans









   Residential first mortgage

$

175,082



$

81,209



$

256,291


   Second mortgage

8,830



4,625



13,455


   Warehouse lending

1,465





1,465


   HELOC

11,331



262



11,593


   Other

1,438





1,438


Total consumer loans

198,146



86,096



284,242


Commercial loans









   Commercial real estate

18,029



102



18,131


   Commercial and industrial

4,477





4,477


   Commercial lease financing

150





150


Total commercial loans

22,656



102



22,758


Total allowance for loan losses

$

220,802



$

86,198



$

307,000


 

Non-Performing Loans and Assets

(Dollars in thousands)

(Unaudited)



June 30, 2014


March 31, 2014


December 31, 2013


June 30, 2013

Non-performing loans

$

86,373



$

84,387



$

98,976



$

161,725


Non-performing TDRs

17,596



11,645



25,808



24,025


Non-performing TDRs at inception but performing for less than six months

16,193



14,717



20,901



72,186


Total non-performing loans held-for-investment

120,162



110,749



145,685



257,936


Real estate and other non-performing assets, net

31,579



31,076



36,636



86,382


Non-performing assets held-for-investment, net (1)

$

151,741



$

141,825



$

182,321



$

344,318














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

1.54

%


1.49

%


1.95

%


2.71

%

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

2.76

%


2.76

%


3.59

%


5.74

%

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

3.46

%


3.50

%


4.46

%


7.52

%


(1) Does not include non-performing loans held-for-sale of $6.0 million, $6.9 million, $0.8 million and $3.4 million at June 30, 2014, March 31, 2014, December 31, 2013 and June 30, 2013, respectively.

 

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

June 30, 2014











Consumer loans

$

42,840


$

8,978


$

120,162


$

171,980


$

3,496,014


Commercial loans





863,279


     Total loans

$

42,840


$

8,978


$

120,162


$

171,980


$

4,359,293


March 31, 2014











Consumer loans

$

49,301


$

15,497


$

108,983


$

173,781


$

3,230,521


Commercial loans

2,130



1,766


3,896


789,350


     Total loans

$

51,431


$

15,497


$

110,749


$

177,677


$

4,019,871


December 31, 2013











Consumer loans

$

41,013


$

20,732


$

144,185


$

205,930


$

3,429,358


Commercial loans



1,500


1,500


626,398


     Total loans

$

41,013


$

20,732


$

145,685


$

207,430


$

4,055,756


June 30, 2013











Consumer loans

$

60,872


$

13,421


$

194,151


$

268,444


$

3,849,104


Commercial loans

188


22,736


63,785


86,709


642,049


     Total loans

$

61,060


$

36,157


$

257,936


$

355,153


$

4,491,153


 


Troubled Debt Restructurings

(Dollars in thousands)

(Unaudited)



TDRs


Performing


Non-performing


Non-performing TDRs at inception but performing for less than six months


Total

June 30, 2014


Consumer loans

$

371,562



$

17,596



$

16,193



$

405,351


Commercial loans

432







432


Total TDRs

$

371,994



$

17,596



$

16,193



$

405,783


March 31, 2014












Consumer loans

$

374,277



$

11,645



$

14,717



$

400,639


Commercial loans

446







446


Total TDRs

$

374,723



$

11,645



$

14,717



$

401,085


December 31, 2013












Consumer loans

$

382,529



$

25,808



$

20,901



$

429,238


Commercial loans

456







456


Total TDRs

$

382,985



$

25,808



$

20,901



$

429,694


June 30, 2013












Consumer loans

$

451,097



$

24,025



$

71,951



$

547,073


Commercial loans





235



235


Total TDRs

$

451,097



$

24,025



$

72,186



$

547,308


 

Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)



Three Months Ended


June 30, 2014


March 31, 2014


June 30, 2013

Description















Valuation gain (loss)















Value of interest rate locks

$

29,698


0.49

%


$

11,024


0.25

%


$

(75,040)


(0.68)%


Value of forward sales

(31,534)


(0.52)%



(16,626)


(0.38)%



166,941


1.51

%

Fair value of loans held-for-sale

126,399


2.10

%


63,002


1.41

%


(19,336)


(0.17)%


Total valuation gains (losses)

124,563


2.07

%


57,400


1.28

%


72,565


0.66

%
















Sales (losses) gains















Marketing (losses) gains, net of adjustments

(15,365)


(0.26)%



21,637


0.48

%


28,753


0.25

%

Pair-off (losses) gains

(52,708)


(0.87)%



(32,466)


(0.72)%



48,525


0.44

%

Provision for representation and warranty reserve

(1,734)


(0.03)%



(1,229)


(0.03)%



(5,052)


(0.05)%


Total sales (losses) gains

(69,807)


(1.16)%



(12,058)


(0.27)%



72,226


0.64

%

Total gain on loan sales and securitizations

$

54,756





$

45,342





$

144,791




Total mortgage rate lock commitments (gross)

$

8,187,881





$

6,039,871





$

12,353,000




Total loan sales and securitizations

$

6,029,817


0.91

%


$

4,474,287


1.01

%


$

11,123,821


1.30

%

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

$

6,693,366


0.82

%


$

4,853,637


0.93

%


$

9,837,573


1.47

%

 


Six Months Ended


June 30, 2014


June 30, 2013

Description










Valuation gain (loss)










Value of interest rate locks

$

40,722


0.39

%


$

(110,367)


(0.46)%


Value of forward sales

(48,160)


(0.46)%



162,602


0.68

%

Fair value of loans held-for-sale

189,402


1.80

%


66,510


0.28

%

Total valuation gains

181,964


1.73

%


118,745


0.50

%











Sales (losses) gains










Marketing gains, net of adjustments

6,273


0.06

%


54,612


0.23

%

Pair-off gains (losses)

(85,174)


(0.81)%



119,843


0.50

%

Provision for representation and warranty reserve

(2,963)


(0.03)%



(10,870)


(0.05)%


Total sales gains

(81,864)


(0.78)%



163,585


0.68

%

Total gain on loan sales and securitizations

$

100,100





$

282,330




Total mortgage rate lock commitments volume

$

14,227,752





$

24,495,000




Total loan sales and securitizations

$

10,504,104


0.95

%


$

23,946,700


1.18

%

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

$

11,547,003


0.87

%


$

19,685,990


1.43

%


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

 

Average Balances, Yields and Rates

(Dollars in thousands)

(Unaudited)



Three Months Ended


June 30, 2014


March 31, 2014


June 30, 2013


Average Balance

Interest

Annualized

Yield/Rate


Average Balance

Interest

Annualized

Yield/Rate


Average
Balance

Interest

Annualized

Yield/Rate

Interest-Earning Assets


Loans held-for-sale

$

1,516,813


$

15,783


4.16

%


$

1,297,118


$

13,652


4.21

%


$

2,630,309


$

22,202


3.38

%

Loans repurchased with government guarantees

1,237,491


7,970


2.58

%


1,269,781


7,943


2.50

%


1,540,798


13,220


3.43

%

Loans held-for-investment





















Consumer loans (1)

3,084,197


30,829


3.99

%


3,180,487


30,878


3.89

%


3,845,503


39,230


4.08

%

Commercial loans (1)

818,674


7,328


3.54

%


683,623


6,195


3.62

%


669,253


7,079


4.18

%

Total loans held-for-investment

3,902,871


38,157


3.90

%


3,864,110


37,073


3.84

%


4,514,756


46,309


4.10

%

Investment securities available-for-sale or trading

1,541,215


9,885


2.57

%


1,173,304


7,538


2.57

%


240,296


1,838


3.06

%

Interest-earning deposits and other

168,313


118


0.28

%


225,501


145


0.26

%


2,385,786


1,489


0.25

%

Total interest-earning assets

8,366,703


$

71,913


3.43

%


7,829,814


$

66,351


3.39

%


11,311,945


$

85,058


3.01

%

Other assets

1,417,105







1,478,014







1,649,000






Total assets

$

9,783,808







$

9,307,828







$

12,960,945






Interest-Bearing Liabilities





















Retail deposits





















Demand deposits

$

426,458


$

147


0.14

%


$

419,677


$

144


0.14

%


$

395,137


$

205


0.21

%

Savings deposits

3,010,108


4,396


0.59

%


2,871,553


3,331


0.47

%


2,627,166


4,753


0.73

%

Money market deposits

265,250


123


0.19

%


280,221


126


0.18

%


345,694


223


0.26

%

Certificate of deposits

945,622


1,747


0.74

%


986,968


1,812


0.74

%


2,353,775


5,338


0.91

%

Total retail deposits

4,647,438


6,413


0.55

%


4,558,419


5,413


0.48

%


5,721,772


10,519


0.74

%

Government deposits





















Demand deposits

155,286


153


0.39

%


122,121


102


0.34

%


114,707


115


0.40

%

Savings deposits

301,243


397


0.53

%


209,226


210


0.41

%


169,122


122


0.29

%

Certificate of deposits

341,767


276


0.32

%


337,016


232


0.28

%


413,177


457


0.44

%

Total government deposits

798,296


826


0.41

%


668,363


544


0.33

%


697,006


694


0.40

%

Wholesale deposits



%


3,372


31


3.76

%


73,910


935


5.07

%

Total deposits

5,445,734


7,239


0.53

%


5,230,154


5,988


0.46

%


6,492,688


12,148


0.75

%

Federal Home Loan Bank advances

1,100,437


600


0.22

%


885,870


534


0.24

%


2,901,102


24,171


3.34

%

Other

248,973


1,649


2.66

%


247,435


1,628


2.67

%


248,753


1,643


2.65

%

Total interest-bearing liabilities

6,795,144


9,488


0.56

%


6,363,459


8,150


0.52

%


9,642,543


37,962


1.58

%

Other liabilities (2)

1,606,716







1,499,628







2,079,615






Stockholders' equity

1,381,948







1,444,741







1,238,787






Total liabilities and stockholder's equity

$

9,783,808







$

9,307,828







$

12,960,945






Net interest-earning assets

$

1,571,559







$

1,466,355







$

1,669,402






Net interest income



$

62,425







$

58,201







$

47,096




Interest rate spread (3)





2.87

%






2.87

%






1.43

%

Net interest margin (4)





2.98

%






2.97

%






1.66

%

Ratio of average interest-earning assets to interest-bearing liabilities





123.1

%






123.1

%






117.3

%


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

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

(3) Interest rate spread is the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

(4) Net interest margin is net interest income divided by average interest-earning assets.

 


Six Months Ended


June 30, 2014


June 30, 2013


Average Balance

Interest

Annualized

Yield/Rate


Average
Balance

Interest

Annualized

Yield/Rate



Interest-Earning Assets














Loans held-for-sale

$

1,407,572


$

29,435


4.18

%


$

3,120,529


$

49,010


3.14

%

Loans repurchased with government guarantees

1,253,547


15,914


2.54

%


1,656,872


28,225


3.41

%

Loans held-for-investment














Consumer loans (1)

3,132,076


61,707


3.94

%


3,990,157


81,914


4.12

%

Commercial loans (1)

751,522


13,523


3.58

%


683,681


14,531


4.23

%

Total loans held-for-investment

3,883,598


75,230


3.87

%


4,673,838


96,445


4.13

%

Investment securities available-for-sale or trading

1,358,276


17,423


2.57

%


294,112


3,932


2.67

%

Interest-earning deposits and other

196,749


262


0.27

%


1,946,119


2,435


0.25

%

Total interest-earning assets

8,099,742


$

138,264


3.41

%


11,691,470


$

180,047


3.08

%

Other assets

1,447,412







1,633,267






Total assets

$

9,547,154







$

13,324,737






Interest-Bearing Liabilities














Retail deposits














Demand deposits

$

423,086


$

291


0.14

%


$

391,820


$

444


0.23

%

Savings deposits

2,941,213


7,727


0.53

%


2,472,870


9,033


0.74

%

Money market deposits

272,694


249


0.18

%


366,581


553


0.30

%

Certificate of deposits

966,181


3,558


0.74

%


2,641,070


11,846


0.90

%

Total retail deposits

4,603,174


11,825


0.52

%


5,872,341


21,876


0.75

%

Government deposits














Demand deposits

138,795


254


0.37

%


106,619


220


0.42

%

Savings deposits

255,489


609


0.48

%


238,581


479


0.40

%

Certificate of deposits

339,405


508


0.30

%


442,347


1,151


0.52

%

Total government deposits

733,689


1,371


0.38

%


787,547


1,850


0.47

%

Wholesale deposits

1,677


31


3.76

%


77,921


1,930


4.99

%

Total deposits

5,338,540


13,227


0.50

%


6,737,809


25,656


0.77

%

FHLB advances

993,746


1,134


0.23

%


3,002,764


48,332


3.25

%

Other

248,208


3,277


2.66

%


248,098


3,295


2.68

%

Total interest-bearing liabilities

6,580,494


17,638


0.54

%


9,988,671


77,283


1.56

%

Other liabilities (2)

1,553,468







2,129,503






Stockholders' equity

1,413,192







1,206,563






Total liabilities and stockholder's equity

$

9,547,154







$

13,324,737






Net interest-earning assets

$

1,519,248







$

1,702,799






Net interest income



$

120,626







$

102,764




Interest rate spread (3)





2.87

%






1.52

%

Net interest margin (4)





2.97

%






1.75

%

Ratio of average interest-earning assets to interest-bearing liabilities





123.1

%






117.0

%















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

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

(3) Interest rate spread is the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

(4) Net interest margin is net interest income divided by average interest-earning assets.

 

Non-GAAP Reconciliation

(Dollars in thousands)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,
 2014


March 31,
 2014


June 30,
 2013


June 30,
 2014


June 30,
 2013

Efficiency ratio (adjusted)















Net interest income (a)

$

62,425



$

58,201



$

47,096



$

120,626



$

102,764


Noninterest income (b)

102,484



74,953



219,959



177,436



404,902


Less provisions:















Representation and warranty reserve - change in estimate

5,226



(1,672)



28,940



3,554



46,336


Significant one-time items:















Net impairment loss recognized through earnings





8,789





8,789


Other noninterest income



21,056



(36,854)



21,056



(36,854)


Adjusted income (c)

$

170,135



$

152,538



$

267,930



$

322,672



$

525,937


Noninterest expense (d)

$

121,353



$

139,252



$

174,397



$

260,605



$

370,986


Significant one-time items:















        Legal and professional expense





10,000





10,000


Adjusted noninterest expense (e)

$

121,353



$

139,252



$

184,397



$

260,605



$

380,986


Efficiency ratio (d/(a+b))

73.6

%


104.6

%


65.3

%


87.4

%


73.1

%

Efficiency ratio (adjusted) (e/c)

71.3

%


91.3

%


68.8

%


80.8

%


72.4

%

 


June 30,
 2014


March 31,
 2014


December 31,
 2013


June 30,
 2013

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












Non-performing assets

$

151,741



$

141,825



$

182,321



$

344,318


Tier 1 capital (1)

1,188,936



1,139,810



1,257,608



1,390,582


Allowance for loan losses

306,000



307,000



207,000



243,000


Tier 1 capital + allowance for loan losses

$

1,494,936



$

1,446,810



$

1,464,608



$

1,633,582


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

10.2

%


9.8

%


12.4

%


21.1

%

























Mortgage servicing rights to Tier 1 capital ratio

June 30,
 2014


March 31,
 2014


December 31,
 2013


June 30,
 2013

Mortgage servicing rights

$

289,185



$

320,231



$

284,678



$

729,019


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

1,188,936



1,139,810



1,257,608



1,390,582


Mortgage servicing rights to Tier 1 capital ratio

24.3

%


28.1

%


22.6

%


52.4

%













(1) Represents Tier 1 capital for Bank.










 

The Bank currently calculates risk-based capital ratios under guidelines adopted by the OCC based on the 1988 Capital Accord ("Basel I") of the Basel Committee on Banking Supervision (the "Basel Committee"). In December 2010, the Basel Committee released its final framework for Basel III, which will strengthen international capital and liquidity regulations. When fully phased-in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the final Basel III rules place greater emphasis on common equity. In October 2013, the OCC and Federal Reserve released final rules detailing the U.S. implementation of Basel III and the application of the risk-based and leverage capital rules to top-tier savings and loan holding companies. The Company will begin transitioning to the Basel III framework in January 2015 subject to a phase-in period extending through January 2019. The Company is currently evaluating the impact of the final Basel III rules. Accordingly, the calculations provided below are estimates.

 

June 30, 2014

Common Equity Tier 1
(to Risk Weighted
Assets)


Tier 1 Leverage
(to Adjusted Tangible
Assets)
(1)

Flagstar Bank (the Bank)






Regulatory capital – Basel I to Basel III (fully phased-in) (2)






Basel I capital

$

1,188,936



$

1,188,936


Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components

(154,900)



(154,900)


Basel III (fully phased-in) capital (2)

$

1,034,036



$

1,034,036


Risk-weighted assets – Basel I to Basel III (fully phased-in) (2)






Basel I assets

$

5,006,897



$

9,493,531


Net change in assets

83,669



(453,242)


Basel III (fully phased-in) assets (2)

$

5,090,566



$

9,040,289


Capital ratios






Basel I (3)

23.75

%


12.52

%

Basel III (fully phased-in) (2)

20.31

%


11.44

%







(1) The definition of total assets used in the calculation of the Tier 1 Leverage ratio changed from ending total assets under Basel I to quarterly average total assets under Basel III.

(2) Basel III information is considered estimated and not final at this time as the Basel III rules continue to be subject to interpretation by U.S. Banking Regulators.

(3) The Bank is currently subject to the requirements of Basel I.

 

SOURCE Flagstar Bancorp, Inc.



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