Flagstar Announces Return to Profitability in Second Quarter 2012

Reports second quarter 2012 net income of $86.0 million, or $0.15 per share, and year-to-date 2012 net income of $77.3 million, or $0.13 per share; Continuing improvements in consumer credit quality

Jul 17, 2012, 21:40 ET from Flagstar Bancorp, Inc.

TROY, Mich., July 17, 2012 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) (the "Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today announced its return to profitability, reporting second quarter 2012 net income applicable to common stockholders of $86.0 million, or $0.15 per share, as compared to a first quarter 2012 net loss of $(8.7) million, or $(0.02) per share and a second quarter 2011 net loss of $(74.9) million, or $(0.14) per share.  For the six months ended June 30, 2012, net income applicable to common stockholders totaled $77.3 million, or $0.13 per share, as compared to a net loss of $(106.6) million, or $(0.19) per share during the same period in 2011.

"I am very pleased to report strong net income for the second quarter and for the first six months of 2012," said Joseph P. Campanelli, Chairman of the Board, President and CEO.  "Returning to profitability following an extended period of losses marks a major milestone for our bank, and is the culmination of countless hours of hard work and dedication by our employees.  While we are excited about reaching this significant milestone, we recognize that we still have a great deal of work ahead of us.  We have made great progress in transforming Flagstar into a diversified super-community bank, and we remain committed to delivering diversified products and exceptional service to our customers and generating value for our shareholders." 

Campanelli continued, "Our second quarter performance reflects the earnings power of our industry-leading mortgage banking franchise and a continued focus on risk management and controlling credit costs, while at the same time, adding reserves to the balance sheet.  We also continued to see improvements in our consumer loan credit quality, with total delinquent consumer loans decreasing for the third consecutive quarter."                         

Second Quarter Highlights:

  • Gain on loan sale income increased to $212.7 million, reflecting a margin of 1.66 percent, as compared to $204.9 million, reflecting a margin of 1.89 percent, in the prior quarter.
  • Bank net interest margin remained relatively flat at 2.37 percent, as compared to 2.41 percent in the prior quarter.
  • Tier 1 capital ratio (to adjusted total assets) increased to 9.07 percent and total risk-based capital ratio (to risk-weighted assets) increased to 17.03 percent.
  • Significant liquidity at quarter-end, with cash on hand and interest-earning deposits of $1.3 billion, in addition to over $600 million in unused borrowing capacity at the Federal Home Loan Bank of Indianapolis (FHLB).
  • Total reserves increased by $25.0 million from the prior quarter, with the allowance for loan losses increasing to $287.0 million and the representation and warranty reserve increasing to $161.0 million.
  • Total delinquent loans (i.e., 30 days or more past due) held-for-investment decreased slightly from the prior quarter. 

Second quarter 2012 net income of $0.15 per share (diluted) was based on average shares outstanding of 561,821,000, as compared to a first quarter 2012 net loss of $(0.02) per share (diluted) based on average shares outstanding of 556,623,000 and a  second quarter 2011 net loss of $(0.14) per share (diluted) based on average shares outstanding of 553,946,000.

For the six months ended June 30, 2012, the net income of $0.13 per share (diluted) was based on average shares outstanding of 560,082,000, as compared to the net loss of $(0.19) per share (diluted) based on average shares of 553,752,000 during the same period 2011.

Net Interest Income Second quarter 2012 net interest income was generally unchanged at $75.5 million, as compared to $74.7 million for the first quarter 2012.  Net interest margin for the Bank compressed slightly to 2.37 percent for the second quarter 2012, from 2.41 percent for the first quarter 2012.  The slight decrease in net interest margin for the Bank primarily reflects the lower interest rate environment during the second quarter 2012.  Yields on interest-earning assets declined at a greater rate than the rates paid on interest-bearing liabilities, partially offset by an increase in average interest-earning assets. 

Average interest-earning assets increased to $12.9 billion in the second quarter 2012, as compared to $12.6 billion for the first quarter 2012.  This increase was primarily driven by an increase in the average balance of available for sale mortgage loans due to the increase in mortgage originations during the quarter, and an increase in commercial loans held-for-investment driven by new commercial relationships.

The Company's average cost of funds for the second quarter 2012 decreased to 1.72 percent, an improvement from the prior quarter of 1.76 percent.  This decline was driven primarily by an increase in lower-cost retail core deposits from prior quarter.  The average cost of total retail deposits declined during the second quarter 2012 to 0.98 percent, as compared to 1.06 percent during the first quarter 2012.

Non-interest Income Second quarter 2012 non-interest income increased to $240.3 million, as compared to $221.4 million for the first quarter 2012.  Excluding the provision related to the representation and warranty reserve (discussed in Credit-Related Costs and Asset Quality below), non-interest income increased to $286.4 million for the second quarter 2012, as compared to $281.9 million for the first quarter 2012.  The increase was primarily due to higher net gain on loan sales, which was reflective of strong consumer demand for the refinancing of residential mortgage loans in a declining interest rate environment.  Additionally, the Company believes it has been able to strategically take advantage of opportunities given the current displacement in the mortgage market.

Second quarter 2012 net gain on loan sales increased to $212.7 million, as compared to $204.9 million for the first quarter 2012.  This increase from the prior quarter was a result of increases in both residential first mortgage rate lock commitments and sales of residential first mortgage loans. 

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 declined to 1.66 percent for the second quarter 2012, as compared to 1.89 percent for the first quarter 2012, due to increased hedging costs resulting from a more rapid declining rate market during second quarter 2012, as compared to the first quarter 2012.  Residential first mortgage rate lock commitments increased 17.9 percent to $17.5 billion for the second quarter 2012, as compared to $14.9 billion for the first quarter 2012.  Loan sales of residential first mortgage loans also increased for the second quarter 2012 to $12.8 billion, as compared to $10.8 billion for the first quarter 2012. 

Residential first mortgage loan originations, which are principally comprised of agency-eligible residential first mortgage loans, increased to $12.5 billion for the second quarter 2012, as compared to $11.2 billion for the first quarter 2012.

Loan fees and charges increased to $34.8 million for the second quarter 2012, as compared to $30.0 million for the first quarter 2012, reflecting the increase in residential first mortgage loan originations during the quarter.

Net servicing revenue, which is the combination of net loan administration income (including the economic hedges of mortgage servicing rights) and the gain (loss) on trading securities (i.e., the on-balance sheet hedges of mortgage servicing rights), decreased to $28.7 million for the second quarter 2012, as compared to $32.9 million for the first quarter 2012.  This decrease from the prior quarter reflects a lower value of mortgage servicing rights in the second quarter 2012, principally as a result of an increase in prepayment speeds due to the refinancing of consumer mortgages from the decline in interest rates during the quarter.  This decline in value was substantially offset by income generated from both the economic hedges (e.g., U.S. Treasury and Eurodollar futures, swap futures, and "to be announced" forwards) and the on-balance sheet hedges. 

Non-interest Expense Second quarter 2012 non-interest expense declined to $169.5 million, as compared to $188.7 million for the first quarter 2012.  The 10.2 percent decrease in non-interest expense from prior quarter was primarily driven by decreases in asset resolution expense, warrant expense, and general and administrative expense.  Excluding asset resolution expense (discussed in Credit-Related Costs and Asset Quality below), non-interest expense declined to $148.6 million for the second quarter 2012, as compared to $152.0 million for the first quarter 2012.  The efficiency ratio, as adjusted to exclude credit-related costs, improved to 41.2 percent for the second quarter 2012, as compared to 42.6 percent for the first quarter 2012 (see non-GAAP reconciliation).

Compensation and benefits were $65.4 million for the second quarter 2012, relatively flat as compared to $66.0 million for the first quarter 2012.  Commission expense increased to $17.8 million for the second quarter 2012, as compared to $15.5 million for the first quarter 2012, as a result of the 12.3 percent increase in residential first mortgage loan originations during the quarter. 

Warrant income for the second quarter 2012 was $(0.6) million, as compared to an expense of $2.5 million in the first quarter 2012, reflecting the decrease in the quarterly valuation of the outstanding warrant liability arising from the decrease in the market price of the Company's common stock at June 30, 2012, as compared to March 31, 2012.

Balance Sheet and Funding Total assets at June 30, 2012 were $14.4 billion, as compared to $14.0 billion at March 31, 2012.  The increase from the prior quarter was primarily the result of a $512.4 million increase in cash and cash equivalents arising from a short-term, period-end increase in company-controlled deposits.      

Loans are primarily funded with deposits obtained through banking centers in Michigan and from public units, as well as from deposits obtained in prior years from investment banking firms and not yet matured.  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 on 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. 

At June 30, 2012, the Bank had approximately $1.3 billion of cash on hand and interest-earning deposits, as compared to $757.9 million at March 31, 2012.  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 June 30, 2012, the Bank's outstanding long-term borrowings on the FHLB line of credit were approximately $3.4 billion, with no short-term borrowings outstanding.  At June 30, 2012, the Bank also had approximately $650 million of collateralized borrowing capacity available. 

Credit-Related Costs and Asset Quality For the second quarter 2012, total credit-related costs decreased to $127.6 million, as compared to $213.6 million for the first quarter 2012 (see non-GAAP reconciliation).  

The allowance for loan losses at June 30, 2012 increased to $287.0 million, as compared to $281.0 million at March 31, 2012.  The increase from prior quarter was primarily attributable to an increase in residential first mortgage loan modifications (also referred to as troubled debt restructurings) and an increase in historical loss rates, which are updated quarterly.  These increases were partially offset by a decrease in commercial allowance for loan losses, as older loans (originated prior to 2009) with higher loss rates paid off and were partially replaced by new originations with lower loss rates. 

At June 30, 2012, the ratio of the allowance for loan losses to loans held-for-investment was 4.4 percent and the ratio of the allowance for loan losses to non-performing loans held-for-investment was 66.5 percent, as compared to 4.2 percent and 69.1 percent, respectively, at March 31, 2012. 

The provision for loan losses in the second quarter 2012 decreased to $58.4 million, as compared to $114.7 million for the first quarter 2012.  The decline in second quarter 2012 provision for loan losses primarily reflects a lower level of net charge-offs for the second quarter 2012.  In the prior quarter, the Company wrote-off its specific valuation allowances related to residential and commercial loans over 180 days past due, and no longer carries such allowances.

Total non-performing loans increased to $431.6 million at June 30, 2012, as compared to $406.6 million at March 31, 2012.  The increase from the prior quarter was driven by a $45.8 million increase in non-performing commercial loans, substantially all of which was related to commercial real estate loans originated prior to 2009.  Non-performing consumer loans decreased by $20.8 million from the prior quarter, partially offsetting the increase in non-performing commercial loans.

Total delinquent loans decreased to $522.5 million at June 30, 2012, as compared to $533.4 million at March 31, 2012, primarily due to decreases in the 30-59 days past due and the 60-89 days past due loans. 

The Company maintains a representation and warranty reserve on the balance sheet, which reflects its estimate of probable losses that it may incur on loans that have been sold or securitized into the secondary market, primarily to the government sponsored entities ("GSEs").  At June 30, 2012, the representation and warranty reserve was $161.0 million, a 13.4 percent increase, as compared to $142.0 million at March 31, 2012.  The representation and warranty reserve reflects an increase in pending loan demands from the GSEs and changes in loss severity rates.  In the second quarter 2012, provisions related to the representation and warranty reserve, other than as included in our gain on sale computations, were $46.0 million, as compared to $60.5 million for the first quarter 2012.    

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which we file claims with the U.S. Department of Housing and Urban Development) decreased to $20.9 million for the second quarter 2012, as compared to $36.8 million for the first quarter 2012.  This decrease from the prior quarter was primarily attributable to a reduction in expected losses from loans repurchased with government guarantees, a reduction in foreclosure costs, and an improvement in recoveries.

Capital The Bank was considered "well-capitalized" for regulatory purposes at June 30, 2012, and had regulatory capital ratios of 9.07 percent for the Tier 1 capital ratio (to adjusted total assets) and 17.03 percent for the total risk-based capital ratio (to risk-weighted assets).  At June 30, 2012, the Company had a Tier 1 common capital ratio (to risk-weighted assets) of 9.60 percent and an equity-to-assets ratio of 8.20 percent.

Earnings Conference Call As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, July 18, 2012 from 11 a.m. until noon (Eastern).

Questions for discussion at the conference call may be submitted in advance by e-mail to investors@flagstar.com or asked live during the conference call.

The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company's website, www.flagstar.com, with replays available at that site for at least 10 days.

To listen by telephone, please call at least 10 minutes prior to the start of the conference call at (800) 344-6491 toll free or (785) 830-7988 and use passcode: 4797176.

About Flagstar Flagstar Bancorp, Inc. is a full-service financial services company, offering a range of products and services to consumers, businesses, and homeowners.  With $14.4 billion in total assets at June 30, 2012, Flagstar is the largest publicly held savings bank headquartered in the Midwest.  As of June 30, 2012, Flagstar operated 111 branches in Michigan, 30 home loan centers in 13 states, and a total of four commercial banking offices in Massachusetts, Connecticut, and Rhode Island.  Flagstar originates loans nationwide and is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

Non-GAAP This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding the Company's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the 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, 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; our ability to control credit related costs and forecast the adequacy of reserves; and the imposition of regulatory enforcement actions against us.  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)

June 30, 2012

March 31, 2012

December 31, 2011

June 30, 2011

Assets

(Unaudited)

(Unaudited)

(Unaudited)

Cash and cash items

$

71,184

$

46,946

$

49,715

$

56,031

Interest-earning deposits

1,199,205

711,002

681,343

701,852

Cash and cash equivalents

1,270,389

757,948

731,058

757,883

Securities classified as trading

169,834

307,355

313,383

292,438

Securities classified as available-for-sale

424,765

448,147

481,352

551,173

Loans held-for-sale ($2,195,679, $2,132,842, $1,629,618, and

$1,870,499 at fair value at June 30, 2012, March 31, 2012,

December 31, 2011, and June 30, 2011, respectively)

2,459,482

2,492,855

1,800,885

2,002,888

Loans repurchased with government guarantees

1,999,110

2,002,999

1,899,267

1,711,591

Loans held-for-investment ($20,231, $20,365, $22,651, and

$21,514 at fair value at June 30, 2012, March 31, 2012,

December 31, 2011, and June 30, 2011, respectively)

6,550,257

6,659,538

7,038,587

5,975,134

Less: allowance for loan losses

(287,000)

(281,000)

(318,000)

(274,000)

Loans held-for-investment, net

6,263,257

6,378,538

6,720,587

5,701,134

Total interest-earning assets

12,515,653

12,340,896

11,896,817

10,961,076

Accrued interest receivable

103,985

108,143

105,200

91,527

Repossessed assets, net

107,235

108,686

114,715

110,050

Federal Home Loan Bank stock

301,737

301,737

301,737

301,737

Premises and equipment, net

209,126

206,573

203,578

244,565

Mortgage servicing rights

638,865

596,830

510,475

577,401

Other assets

420,661

332,538

455,236

320,425

Total assets

$

14,368,446

$

14,042,349

$

13,637,473

$

12,662,812

Liabilities and Stockholders' Equity

Deposits

$

8,922,847

$

8,599,153

$

7,689,988

$

7,405,027

Federal Home Loan Bank advances

3,400,000

3,591,000

3,953,000

3,406,571

Long-term debt

248,585

248,585

248,585

248,610

Total interest-bearing liabilities

12,571,432

12,438,738

11,891,573

11,060,208

Accrued interest payable

12,271

10,124

8,723

10,935

Representation and warranty reserve

161,000

142,000

120,000

79,400

Other liabilities ($19,100, $19,100, $18,300, and $0 at fair

value at June 30, 2012, March 31, 2012, December 31, 2011,

and June 30, 2011, respectively)

445,394

364,066

537,461

337,829

Total liabilities

13,190,097

12,954,928

12,557,757

11,488,372

Stockholders' Equity

Preferred stock $0.01 par value, liquidation value $1,000 per

share, 25,000,000 shares authorized; 266,657 issued and

outstanding and outstanding at June 30, 2012, March 31,

2012, December 31, 2011, and June 30, 2011, respectively

257,556

256,139

254,732

251,959

Common stock $0.01 par value, 700,000,000 shares

authorized; 557,722,618, 557,132,814, 555,775,639, and

554,163,337 shares issued and outstanding at June 30, 2012,

March 31, 2012, December 31, 2011, and June 30, 2011,

respectively

5,577

5,571

5,558

5,542

Additional paid in capital

1,468,905

1,467,476

1,466,461

1,464,131

Accumulated other comprehensive income (loss)

8,274

6,167

(7,819)

(356)

Accumulated deficit

(561,963)

(647,932)

(639,216)

(546,836)

Total stockholders' equity

1,178,349

1,087,421

1,079,716

1,174,440

Total liabilities and stockholders' equity

$

14,368,446

$

14,042,349

$

13,637,473

$

12,662,812

 

Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 2012

March 31, 2012

June 30, 2011

June 30, 2012

June 30, 2011

Interest Income

Loans

$

115,611

$

113,908

$

98,155

$

229,519

$

200,269

Securities classified as available-for-sale

or trading

6,850

8,571

8,949

15,421

17,046

Interest-earning deposits and other

462

412

957

874

1,925

Total interest income

122,923

122,891

108,061

245,814

219,240

Interest Expense

Deposits

18,321

18,986

24,902

37,307

51,924

FHLB advances

27,386

27,394

30,218

54,779

60,196

Other

1,738

1,778

1,617

3,517

3,223

Total interest expense

47,445

48,158

56,737

95,603

115,343

Net interest income

75,478

74,733

51,324

150,211

103,897

Provision for loan losses

58,428

114,673

48,384

173,101

76,693

Net interest income (loss) after provision for

loan losses

17,050

(39,940)

2,940

(22,890)

27,204

Non-Interest Income

Loan fees and charges

34,783

29,973

14,712

64,757

30,850

Deposit fees and charges

5,039

4,923

7,845

9,961

15,345

Loan administration

25,012

38,885

30,450

63,898

69,786

Gain (loss) on trading securities

3,711

(5,971)

102

(2,260)

28

Loss on transferors' interest

(1,244)

(409)

(2,258)

(1,653)

(4,640)

Net gain on loan sales

212,666

204,853

39,827

417,518

90,012

Net loss on sales of mortgage servicing rights

(983)

(2,317)

(2,381)

(3,299)

(2,493)

Net gain on securities available-for-sale

20

310

330

Net (loss) gain on sale of assets

(26)

27

1,293

256

Total other-than-temporary impairment

(loss) gain

(1,707)

3,872

39,725

2,810

39,725

Gain (loss) recognized in other

comprehensive income before taxes

690

(5,047)

(55,309)

(5,002)

(55,309)

Net impairment losses recognized in

earnings

(1,017)

(1,175)

(15,584)

(2,192)

(15,584)

Representation and warranty reserve -

change in estimate

(46,028)

(60,538)

(21,364)

(106,566)

(41,791)

Other fees and charges, net

8,401

12,816

5,436

21,216

12,575

Total non-interest income

240,334

221,377

58,078

461,710

154,344

Non-Interest Expense

Compensation and benefits

65,402

65,989

53,719

131,390

109,459

Commissions

17,838

15,466

7,437

33,305

15,005

Occupancy and equipment

18,706

16,950

16,969

35,656

33,587

Asset resolution

20,851

36,770

23,282

57,621

61,391

Federal insurance premiums

12,104

12,324

10,789

24,428

19,515

Other taxes

370

946

667

1,327

1,533

Warrant (income) expense

(551)

2,549

(1,998)

1,998

(2,825)

General and administrative

34,777

37,752

20,057

72,518

40,488

Total non-interest expense

169,497

188,746

130,922

358,243

278,153

Income (loss) before federal income taxes

87,887

(7,309)

(69,904)

80,577

(96,605)

Provision for federal income taxes

500

264

500

528

Net income (loss)

87,387

(7,309)

(70,168)

80,077

(97,133)

Preferred stock dividend/accretion

(1,417)

(1,407)

(4,720)

(2,824)

(9,429)

Net income (loss) applicable to common

stockholders

$

85,970

$

(8,716)

$

(74,888)

$

77,253

$

(106,562)

Income (loss) per share

Basic

$

0.15

$

(0.02)

$

(0.14)

$

0.13

$

(0.19)

Diluted

$

0.15

$

(0.02)

$

(0.14)

$

0.13

$

(0.19)

(1)

The preferred stock dividend/accretion for the three months ended June 30, 2012 and March 31, 2012 and six months ended June 30, 2012, respectively, represents only the accretion. As of December 31, 2011, the Company elected the deferral of dividend and interest payments on preferred stock.

 

 

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 Six Months Ended

Summary of Consolidated

Statements of Operations

June 30, 2012

March 31, 2012

June 30, 2011

June 30, 2012

June 30, 2011

Return on average assets

2.37

%

(0.25)

%

(2.32)

%

1.08

%

(1.64)

%

Return on average equity

31.09

%

(3.07)

%

(24.87)

%

13.78

%

(17.40)

%

Efficiency ratio (1)

53.7

%

63.7

%

119.7

%

58.5

%

107.7

%

Efficiency ratio (credit-adjusted) (1)

41.2

%

42.6

%

82.3

%

41.8

%

72.2

%

Equity/assets ratio (average for the period)

7.62

%

8.00

%

9.33

%

7.81

%

9.40

%

Mortgage loans originated (2)

$

12,547,017

$

11,169,409

$

4,642,864

$

23,716,426

$

9,499,248

Other loans originated

$

203,584

$

271,445

$

152,408

$

475,029

$

183,698

Mortgage loans sold and securitized

$

12,777,311

$

10,829,798

$

4,362,518

$

23,607,109

$

10,192,026

Interest rate spread - Bank only (3)

2.10

%

2.15

%

1.62

%

2.12

%

1.62

%

Net interest margin - Bank only (4)

2.37

%

2.41

%

1.86

%

2.39

%

1.87

%

Interest rate spread - Consolidated (3)

2.08

%

2.13

%

1.61

%

2.10

%

1.61

%

Net interest margin - Consolidated (4)

2.32

%

2.35

%

1.81

%

2.34

%

1.81

%

Average common shares outstanding

557,405,579

556,623,046

553,946,138

557,014,312

553,751,593

Average fully diluted shares outstanding

561,821,303

556,623,046

553,946,138

560,082,317

553,751,593

Average interest earning assets

$

12,943,237

$

12,640,668

$

11,297,984

$

12,791,952

$

11,385,031

Average interest paying liabilities

$

11,100,307

$

10,994,258

$

10,301,159

$

11,047,283

$

10,380,371

Average stockholder's equity

$

1,106,224

$

1,136,618

$

1,204,652

$

1,121,421

$

1,224,829

Charge-offs to average investment loans (annualized)

3.24

%

8.99

%

3.15

%

6.18

%

2.64

%

June 30, 2012

March 31, 2012

December 31, 2011

June 30, 2011

Equity/assets ratio

8.20

%

7.74

%

7.92

%

9.27

%

Tier 1 capital ratio (to adjusted total assets) (5)

9.07

%

8.64

%

8.95

%

10.07

%

Total risk-based capital ratio (to risk-weighted assets) (5)

17.03

%

16.06

%

16.64

%

19.73

%

Book value per common share

$

1.65

$

1.49

$

1.48

$

1.66

Number of common shares outstanding

557,722,618

557,132,814

555,775,639

554,163,337

Mortgage loans serviced for others

$

76,192,099

$

68,207,554

$

63,770,676

$

57,087,989

Weighted average service fee (bps)

30.4

28.7

30.8

30.3

Capitalized value of mortgage servicing rights

0.84

%

0.88

%

0.80

%

1.01

%

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

66.5

%

69.1

%

65.1

%

67.9

%

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

4.38

%

4.22

%

4.52

%

4.59

%

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

3.75

%

3.67

%

4.43

%

4.10

%

Number of bank branches

111

113

113

162

Number of loan origination centers

30

28

27

30

Number of employees (excluding loan officers and account executives)

3,184

2,970

2,839

2,990

Number of loan officers and account executives

336

311

297

316

(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)

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.

(6)

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

 

Loan Originations

(Dollars in thousands)

(Unaudited)

For the Three Months Ended

June 30, 2012

March 31, 2012

June 30, 2011

Consumer loans:

Mortgage (1)

$

12,547,017

98.4

%

$

11,169,409

97.7

%

$

4,642,864

96.8

%

Other consumer (2)

6,501

0.1

%

4,479

%

2,526

0.1

%

Total consumer loans

12,553,518

98.5

%

11,173,888

97.7

%

4,645,390

96.9

%

Commercial loans (3)

197,083

1.5

%

266,966

2.3

%

149,882

3.1

%

Total loan originations

$

12,750,601

100.0

%

$

11,440,854

100.0

%

$

4,795,272

100.0

%

For the Six Months Ended

June 30, 2012

June 30, 2011

Consumer loans:

Mortgage (1)

$

23,716,426

98.1

%

$

9,499,248

98.1

%

Other consumer (2)

10,980

%

3,653

%

Total consumer loans

23,727,406

98.1

%

9,502,901

98.1

%

Commercial loans (3)

464,049

1.9

%

180,045

1.9

%

Total loan originations

$

24,191,455

100.0

%

$

9,682,946

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, 2012

March 31, 2012

December 31, 2011

June 30, 2011

Consumer loans:

Residential first mortgage

$

3,102,137

47.4

%

$

3,304,889

49.7

%

$

3,749,821

53.1

%

$

3,745,240

62.7

%

Second mortgage

127,434

1.9

%

132,463

2.0

%

138,912

2.0

%

155,537

2.6

%

Warehouse lending

1,261,442

19.3

%

1,104,205

16.6

%

1,173,898

16.7

%

513,678

8.6

%

HELOC

198,228

3.0

%

209,228

3.1

%

221,986

3.2

%

241,396

4.0

%

Other

57,605

0.9

%

62,111

0.9

%

67,613

1.0

%

77,052

1.3

%

Total consumer loans

4,746,846

72.5

%

4,812,896

72.3

%

5,352,230

76.0

%

4,732,903

79.2

%

Commercial loans:

Commercial real estate

1,075,015

16.4

%

1,157,911

17.3

%

1,242,969

17.7

%

1,111,131

18.6

%

Commercial and industrial

569,288

8.7

%

544,481

8.2

%

328,879

4.7

%

106,943

1.8

%

Commercial lease financing

159,108

2.4

%

144,250

2.2

%

114,509

1.6

%

24,157

0.4

%

Total commercial loans

1,803,411

27.5

%

1,846,642

27.7

%

1,686,357

24.0

%

1,242,231

20.8

%

Total loans held-for-investment

$

6,550,257

100.0

%

$

6,659,538

100.0

%

$

7,038,587

100.0

%

$

5,975,134

100.0

%

 

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

For the Three Months Ended

For the Six Months Ended

June 30, 2012

March 31, 2012

June 30, 2011

June 30, 2012

June 30, 2011

Beginning balance

$

281,000

$

318,000

$

271,000

$

318,000

$

274,000

Provision for loan losses

58,428

114,673

48,384

173,101

76,693

Charge-offs

Consumer loans:

Residential first mortgage

(22,570)

(95,432)

(9,441)

(118,002)

(12,543)

Second mortgage

(4,057)

(5,283)

(6,138)

(9,340)

(11,916)

Warehouse lending

(288)

(288)

HELOC

(4,257)

(6,419)

(4,925)

(10,676)

(9,988)

Other

(728)

(1,190)

(507)

(1,918)

(1,346)

Total consumer loans

(31,612)

(108,324)

(21,299)

(139,936)

(36,081)

Commercial loans:

Commercial real estate

(31,277)

(45,033)

(25,957)

(76,310)

(45,246)

Commercial and industrial

(23)

(1,581)

(9)

(1,604)

(57)

Total commercial loans

(31,300)

(46,614)

(25,966)

(77,914)

(45,303)

Total charge-offs

(62,912)

(154,938)

(47,265)

(217,850)

(81,384)

Recoveries

Consumer loans:

Residential first mortgage

6,582

550

342

7,132

827

Second mortgage

1,039

249

344

1,288

1,210

Warehouse lending

5

HELOC

93

257

443

350

929

Other

395

212

290

607

529

Total consumer loans

8,109

1,268

1,419

9,377

3,500

Commercial loans:

Commercial real estate

2,344

1,992

462

4,336

1,191

Commercial and industrial

31

5

36

Total commercial loans

2,375

1,997

462

4,372

1,191

Total recoveries

10,484

3,265

1,881

13,749

4,691

Charge-offs, net of recoveries

(52,428)

(151,673)

(45,384)

(204,101)

(76,693)

Ending balance

$

287,000

$

281,000

$

274,000

$

287,000

$

274,000

Net charge-off ratio

3.24

%

8.99

%

3.15

%

6.18

%

2.64

%

 

 

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

June 30, 2012

Collectively Evaluated Reserves (1)

Individually Evaluated

Reserves (2)

Total

Consumer loans:

Residential first mortgage

$

75,887

$

99,829

$

175,716

Second mortgage

14,654

5,429

20,083

Warehouse lending

1,556

1,556

HELOC

15,073

2,780

17,853

Other

2,502

83

2,585

Total consumer loans

109,672

108,121

217,793

Commercial loans:

Commercial real estate

48,703

9,704

58,407

Commercial and industrial

8,485

23

8,508

Commercial lease financing

2,292

2,292

Total commercial loans

59,480

9,727

69,207

Total allowance for loan losses

$

169,152

$

117,848

$

287,000

March 31, 2012

Consumer loans:

Residential first mortgage

$

73,092

$

85,569

$

158,661

Second mortgage

15,724

3,343

19,067

Warehouse lending

1,824

1,824

HELOC

14,760

18

14,778

Other

2,593

2,593

Total consumer loans

107,993

88,930

196,923

Commercial loans:

Commercial real estate

52,410

19,060

71,470

Commercial and industrial

2,654

2,654

Commercial lease financing

9,953

9,953

Total commercial loans

65,017

19,060

84,077

Total allowance for loan losses

$

173,010

$

107,990

$

281,000

(1)

Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.

(2)

Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

 

Non-Performing Loans and Assets (Dollars in thousands) (Unaudited)

June 30, 2012

March 31, 2012

December 31, 2011

June 30, 2011

Non-performing loans held-for-investment

$

431,599

$

406,583

$

488,367

$

403,381

Real estate and other non-performing assets, net

107,235

108,686

114,715

110,050

Non‑performing assets held-for-investment, net

538,834

515,269

603,082

513,431

Non-performing loans available-for-sale

2,430

2,842

4,573

5,341

Total non-performing assets including loans

available-for-sale

$

541,264

$

518,111

$

607,655

$

518,772

Ratio of non‑performing loans held-for-

investment to loans held-for-investment

6.59

%

6.11

%

6.94

%

6.75

%

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

3.75

%

3.67

%

4.43

%

4.10

%

 

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, 2012

Consumer loans (1)

$

62,123

$

24,762

$

293,474

$

380,359

$

4,746,846

Commercial loans (1)

1,719

2,345

138,125

142,189

1,803,411

Total loans

$

63,842

$

27,107

$

431,599

$

522,548

$

6,550,257

March 31, 2012

Consumer loans (1)

$

67,719

$

39,133

$

314,232

$

421,084

$

4,812,896

Commercial loans (1)

11,133

8,802

92,351

112,286

1,846,642

Total loans

$

78,852

$

47,935

$

406,583

$

533,370

$

6,659,538

December 31, 2011

Consumer loans (1)

$

83,670

$

41,602

$

387,362

$

512,634

$

5,352,230

Commercial loans (1)

7,464

12,385

101,005

120,854

1,686,357

Total loans

$

91,134

$

53,987

$

488,367

$

633,488

$

7,038,587

June 30, 2011

Consumer loans (1)

$

91,185

$

46,082

$

298,751

$

436,018

$

4,732,903

Commercial loans (1)

1,392

187

104,630

106,209

1,242,231

Total loans

$

92,577

$

46,269

$

403,381

$

542,227

$

5,975,134

(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.

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

For the Three Months Ended

June 30, 2012

March 31, 2012

June 30, 2011

Description

(000's)

bps

(000's)

bps

(000's)

bps

Valuation gain (loss):

Value of interest rate locks

$

64,123

50

$

(2,700)

(2)

$

(2,860)

(7)

Value of forward sales

(47,126)

(37)

43,810

40

(3,657)

(8)

Fair value of loans held-for-sale

176,741

138

121,066

112

82,760

190

LOCOM adjustments on loans held-for-investment

(21)

46

Total valuation gains

193,738

151

162,155

150

76,289

175

Sales gains (losses):

Marketing gains, net of adjustments

180,691

141

131,512

121

21,865

50

Pair-off (losses) gains

(156,120)

(122)

(83,763)

(77)

(56,952)

(131)

Provision for representation and warranty reserve