Flagstar Reports 77% Reduction in Net Loss; Launches $380 Million Public Equity Offering

Oct 27, 2010, 19:29 ET from Flagstar Bancorp

TROY, Mich., Oct. 27 /PRNewswire-FirstCall/ -- Flagstar Bancorp, Inc. (NYSE: FBC) (the “Company”), the holding company for Flagstar Bank FSB (the “Bank”), today reported a 77% narrowing in net loss in the third quarter 2010 as compared to the loss in second quarter 2010.  In addition, the Company launched a $380 million public equity offering.

Key Items for Third Quarter:

  • Net loss of $(22.6) million improved by 77% from prior quarter
  • Incurred an $11.9 million expense related to prepayment of FHLB advance and restructured 7 other tranches of advances, which will positively impact net interest margin
  • Gain on loan sale income of $103.2 million (margin of 135 bps), increased by 61% from prior quarter
  • Residential mortgage originations of $7.6 billion, increased by 40% from prior quarter
  • Mortgage rate lock commitments of $11.0 billion, increased by 32% from prior quarter
  • Bank net interest margin of 1.55%, increased from prior quarter level of 1.53%
  • Loan fees of $24.4 million, increased by 20% from prior quarter
  • Net servicing revenue of $23.2 million, increased by 55% from prior quarter
  • Provision for loan losses decreased by 40% from prior quarter to $(51.4) million
  • Asset resolution expense decreased by 25% from the prior quarter to $(34.2) million
  • Non-performing loans of $911 million, decreased by 10% from prior quarter

“We are pleased with the significant improvement this quarter, which reflects growth in top line revenue, combined with decreasing credit costs and a continued improvement in asset quality,” said Joseph P. Campanelli, Chairman and Chief Executive Officer.  “In the face of a sluggish economy and compressed margins, we were able to increase our pre-tax, pre-credit cost income by 53% from the prior quarter.  The third quarter includes an $11.9 million expense related to the prepayment of a $250 million FHLB advance.  Excluding prepayment expense, net loss in the third quarter would have been $(10.7) million, as compared to $(88.0) million in the second quarter.”

Campanelli further stated, “The improvement in the quarter was driven by a number of positives in our core business.  Compared to the prior quarter, residential mortgage originations increased by 39% and gain on loan sale income increased by 60%, while credit related expenses decreased by 30% and non-performing loans decreased by 10%.  We were also able to keep expenses flat and maintain historically high capital ratios.”

“In addition,” Campanelli said, “We took a big step forward in our transformation toward becoming a full-service super community bank, announcing the launch of our new small business banking line of products and services.  We are excited that we can now offer a robust set of banking and credit products to the nearly half a million small businesses near our branches.  The commencement of our public equity offering and potential accelerated disposition of impaired assets is just another step in our turnaround.”

For third quarter 2010, the Company had a net loss applicable to common stockholders of $(22.6) million, as compared to a net loss of $(97.0) million for the second quarter 2010.  On a per share basis, third quarter 2010 had a loss of $(0.15) per share (diluted) based on average shares outstanding of 153,405,000, a decline from the second quarter 2010 loss of $(0.63) per share (diluted) based on average shares outstanding of 153,298,000.  For the third quarter 2009, the Company reported a net loss applicable to common shareholders of $(298.2) million, which was a loss of $(6.36) per share (diluted) based on average share outstanding of 46,853,000.

On a year-to-date basis, the Company reduced its net loss by 54% during the nine months ended September 30, 2010 as compared to the same period for 2009.  For the nine months ended September 30, 2010, the net loss applicable to common stockholders totaled $(201.5) million, or $(1.57) per share (diluted) based on average shares outstanding of 128,411,000, as compared to a net loss of $(442.2) million, or $(16.58) per share (diluted) based on average shares outstanding of 26,678,000 during the same period 2009.  

Results from the quarter included the following:

Asset Quality

Non-performing assets decreased to $1.1 billion at September 30, 2010, from $1.2 billion at both June 30, 2010 and September 30, 2009.  This category of assets is comprised of non-performing loans (i.e., loans 90 days or more past due, and matured loans), real estate owned and net repurchased assets and excludes repurchased assets that are insured by the Federal Housing Agency (FHA).  The decline in non-performing assets reflects a reduction in the amount of non-performing loans.  

The allowance for loan losses at September 30, 2010 decreased to $474.0 million and equaled 6.48% of loans held for investment and 52.0% of non-performing loans.  The allowance for loan losses at June 30, 2010 was $530.0 million and equaled 7.20% of loans held for investment and 52.3% of non-performing loans.  At December 31, 2009, the allowance for loan loss was $524.0 million and equaled 6.79% of loans held for investment and 48.9% of non-performing loans. The decline in the allowance resulted from the decline in the balance of delinquent loans in both residential first mortgage and commercial real estate loans during the third quarter of 2010.

Non-performing commercial real estate mortgages decreased to $238.6 million at September 30, 2010 as compared to $324.9 million at June 30, 2010.  Non-performing residential first mortgage loans decreased 1.7%, to $651.9 million at September 30, 2010, as compared to $663.5 million at June 30, 2010.  The decrease reflected reductions of $1.1 million in the 90-120 day category and $10.5 million in the over 120 – day and in the matured delinquent loans categories.  The Company has received, and is currently evaluating, a firm offer on $473 million of its non-insured non-performing residential first mortgage loans, at a price of 44% of book value before reserves.          

The Company maintains a secondary marketing reserve on its balance sheet, which reflects the estimate of losses that it expects to incur on loans that it sold or securitized into the secondary market.  At September 30, 2010, the secondary marketing reserve was $77.5 million, as compared to $76.0 million at June 30, 2010 and $66.0 million at December 31, 2009.  For the third quarter 2010, the Company incurred a secondary marketing reserve provision expense of $13.0 million, as compared to $11.4 million in the second quarter 2010.  

Capital

Flagstar Bank remained “well-capitalized” for regulatory purposes at September 30, 2010, with regulatory capital ratios of 9.12% for Tier 1 capital and 16.87% for total risk-based capital.

Mortgage Banking Operations

Gain on loan sales increased to $103.2 million in the third quarter 2010 as compared to $64.3 million for the second quarter 2010 and $104.4 million for the third quarter 2009.  This reflects the increase in volume, through the increase in both interest rate lock commitments and loan production, and the increase in margin. Gain on loan sale margins increased to 1.35% for the third quarter 2010, as compared to 1.22% for the second quarter 2010 and 1.37% for the third quarter 2009.  

Mortgage rate lock commitments increased to $11.0 billion during the third quarter 2010 as compared to $8.3 billion during the second quarter 2010 and $8.7 billion during the third quarter 2009.  Loan production, substantially comprised of agency-eligible residential first mortgage loans, increased to $7.6 billion in the third quarter 2010, as compared to $5.5 billion in the second quarter 2010 and $6.6 billion in the third quarter 2009.  For the nine months ended September 30, 2010, loan production was $17.4 billion, which is comprised of $9.9 billion originated in the correspondent channel, $6.0 billion originated in the broker channel and $1.4 billion originated in the retail channel.

At September 30, 2010, our loans serviced for others increased to $52.3 billion and had a weighted average servicing fee of 31.5 basis points.  This was an increase from $50.4 billion at June 30, 2010 with a weighted average servicing fee of 32.4 basis points and a decrease from $56.5 billion at December 31, 2009 with a weighted average servicing fee of 32.1 basis points.

Net Interest Margin

Net interest margin for the Bank increased to 1.55% for the third quarter 2010 as compared to 1.53% for the second quarter 2010, and decreased slightly from 1.58% for the third quarter 2009.  The increase from second quarter 2010 reflects a 9 bps decrease in earning asset yields with average interest earning assets declining $0.4 billion, which was partially offset by a 15 bps decline in funding costs, with average interest bearing liabilities decreasing only $0.3 billion.  The decline in funding costs is due primarily to reduced costs of retail deposits and reduced borrowings and rates associated with Federal Home Loan Bank (FHLB) advances and the absence of any repurchase agreements for the third quarter 2010 as they were repaid during the second quarter 2010.  

As part of the Bank’s focus on reducing its borrowing costs, it initiated a restructuring of several of its FHLB advances intended to better match its funding maturities with asset maturities, maintain an asset sensitive balance sheet structure and obtain the benefit of the current lower interest rate environment.  To this end, the Bank prepaid a single advance otherwise due in 2011 and restructured seven other advances totaling $1.9 billion to extend maturities during which time the now-current interest rates would apply.  As a result, the Bank reduced its annual advance cost on the $1.9 billion of restructured advances by 123bps.  

Net Interest Income

  • Third quarter net interest income decreased to $41.1 million, as compared to, $42.4 million during the second quarter 2010 and $47.6 million during the third quarter 2009.  The decrease reflects the decline in the average balances of interest-earning assets, including higher-yielding trading securities and loans held for investment, offset in part by the reduction in funding costs due to lower balances and average rates for FHLB advances.
  • Third quarter loan loss provisions declined by 40% from the second quarter, to $51.4 million, as compared to $86.0 million for the second quarter 2010 and $125.5 million for the third quarter 2009.  The reduced provision expense during third quarter 2010 reflects the decline in 90-day and over delinquencies on first mortgage loans held for investment between June 30, 2010 and September 30, 2010. Delinquent first mortgage loans (90 days and over) held for investment declined to $651.9 million at September 30, 2010 from $663.5 million at June 30, 2010. The decline in the provision for third quarter 2010 also reflects the lower balance of non-performing commercial real estate loans, following charge-offs of $57.6 million, of such loans which were previously reserved for during prior quarters.

Non-interest Income

Non-interest income increased to $144.9 million for the third quarter 2010, as compared to $100.3 million for the second quarter 2010 and $66.2 million for the third quarter 2009.  Non-interest income included the following components:

  • Gain on loan sales increased 61% to $103.2 million as compared to $64.3 million for the second quarter 2010, reflecting both the 33% increase in interest rate locks on mortgage loans, to $11.0 billion in the third quarter 2010 from $8.3 billion in the second quarter 2010, and the 43% increase in residential mortgage loan sales, to $7.6 billion as compared to $5.3 billion in the second quarter 2010. Margin on loan sales also increased during the third quarter 2010 to 1.35% from 1.22% during the second quarter 2010.
  • Loan fees, which arise from the origination of residential mortgage loans, increased 21% to $24.4 million for the third quarter 2010 as compared to $20.2 million for the second quarter 2010. The increase in loan fees reflected the 38% increase in originations to $7.6 billion during the third quarter 2010 as compared to $5.5 billion during the second quarter 2010.  
  • Net servicing revenue, which is the combination of net loan administration income and the related hedging effect of gain (loss) on trading securities, increased 55% to $23.2 million during third quarter 2010 as compared to $15.0 million during second quarter 2010.
  • Other fees and charges were $(7.7) million, as compared to $(6.5) million for the second quarter 2010, principally as the result of a $1.6 million increase in secondary market reserve provisions accrued for expected losses on loans repurchased from the secondary market.

Non-interest Expense

Non-interest expense increased to $152.5 million for the third quarter 2010, as compared to $149.0 million for the second quarter 2010, and decreased from $166.9 million for the third quarter 2009.

  •   Compensation and benefits expense increased $5.6 million and commissions expense increased $3.0 million, reflecting the overall build out of the organization, an increase in employees necessary to handle the increased loan production workload and an increase in incentive pay associated with the heightened underwriting activity.
  • Asset resolution expenses, which are expenses associated with foreclosed property and repurchased assets, decreased 25% to $34.2 million, as compared to $45.4 million in the second quarter of 2010. The decline was principally due to the reduced provisions for possible losses on foreclosed property, to gains recognized on sales of foreclosed properties, and to reduced provisions for possible losses associated with repurchased FHA-insured loans.
  • Loss on the early extinguishment of debt during the third quarter arose from the prepayment of a $250.0 million advance from the FHLB with a 4.825% interest rate and due in September 2011.
  • The re-valuation of our outstanding warrants at the end of third quarter 2010 resulted in income of $1.4 million, as compared to income of $3.5 million recognized at the end of second quarter of 2010. The change in value results from reduced expense anticipated in future years based upon the decline in the market price of the Company’s common stock since the end of second quarter 2010.  

Assets

Total assets at September 30, 2010 were $13.8 billion, as compared to $13.7 billion at June 30, 2010 and $14.0 billion at December 31, 2009.  The increase from June 30, 2010 reflected an increase in loans available for sale, partially offset by sales of trading securities and securities available for sale, and the continued run-off of the Bank’s held-for-investment portfolio.  

Funding Sources

Flagstar Bank’s primary sources of funds are deposits obtained through its 162 community banking branches and the internet banking platform as well as deposits obtained from municipalities and investment banking firms.  Funds are also obtained through loan repayments and sales of loans and securities in the ordinary course of business, advances from the FHLB, community banking operations, customer escrow accounts and security repurchase agreements.  The Bank relies upon several of these sources at any one time to manage its daily and forecasted liquidity needs for operational requirements and policy levels while managing overall net interest costs.  Retail deposits were $5.4 billion at September 30, 2010, as compared to $5.2 billion at June 30, 2010 and $5.5 billion at December 31, 2009.  

At September 30, 2010, the Bank had a collateralized $4.0 billion line of credit with the FHLB with $587.0 million of remaining capacity.

Community Banking Operations

Flagstar Bank had 162 community banking branches at both September 30, 2010 and June 30, 2010, and 176 branches at  September 30, 2009.  

Earnings Conference Call

The Company's quarterly earnings conference call will be held on Wednesday, October 27, 2010 from 8:00 p.m. until 9:00 p.m. (Eastern), as previously announced.

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 Web site, 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 (866) 294-1212 toll free or (702) 696-4911 and use passcode: 15462873.

Flagstar Bancorp, with $13.8 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest.  At September 30, 2010, Flagstar operated 162 banking centers in Michigan, Indiana and Georgia and 27 home loan centers in 13 states.  Flagstar Bank originates loans nationwide and is one of the leading originators of residential mortgage loans.

The information contained in this release is not intended as a solicitation to buy Flagstar Bancorp, Inc. stock and is provided for general information.  This release contains certain statements that may constitute “forward-looking statements” within the meaning of federal securities laws.  These forward-looking statements include statements about the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, and intentions, that are subject to significant risks and uncertainties, and are subject to change based upon various factors (some of which may be beyond the Company’s control).  The words “may,” “could,” “should,” “would,” “believe,” and similar expressions are intended to identify forward-looking statements.

Flagstar Bancorp, Inc. has filed a registration statement (including a prospectus) and will file a prospectus supplement with the Securities and Exchange Commission, or SEC, for the potential offerings to which this release relates.  Before you invest, you should read the prospectus in that registration statement, the prospectus supplements when filed and any other documents relating to these offerings that Flagstar Bancorp, Inc. has filed or will file with the SEC for more complete information about Flagstar Bancorp, Inc. and these offerings.  You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov.  Alternatively, the issuer, any underwriter or any dealer participating in the offerings will arrange to send you the applicable prospectus if you request it by calling 1-866-803-9204.

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

For the Three Months Ended

Summary of Consolidated

September 30,

June 30,

September 30,

Statements of Operations

2010

2010

2009

    Interest income

$              123,217

$            130,022

$           167,107

    Interest expense

(82,103)

(87,617)

(119,513)

Net interest income

41,114

42,405

47,594

    Provision for loan losses

(51,399)

(86,019)

(125,544)

Net interest (loss) income after provision

(10,285)

(43,614)

(77,950)

Non-interest income

    Deposit fees and charges

7,585

8,798

8,438

    Loan fees and charges

24,365

20,236

29,422

    Loan administration

12,924

(54,665)

(30,293)

    Net (loss) gain on trading securities

10,354

69,660

21,714

    Loss on residuals and transferors' interest

(4,665)

(4,312)

(50,689)

    Net gain on loan sales

103,211

64,257

104,416

    (Loss) gain on sales of mortgage servicing rights

(1,195)

(1,266)

(1,319)

    Net (loss) gain on sale securities available for sale

-

4,523

-

    Impairment - securities available for sale

-

(391)

(2,875)

    Other fees (loss) income

(7,691)

(6,509)

(12,582)

        Total non-interest income

144,888

100,331

66,232

Non-interest expenses

    Compensation, benefits and commissions

(59,844)

(51,206)

(68,748)

    Occupancy and equipment

(15,757)

(15,903)

(17,175)

    Asset resolution

(34,233)

(45,439)

(26,811)

    Federal insurance premiums

(8,522)

(10,640)

(7,666)

    Warrant income (expense)

1,405

3,486

(3,556)

    Loss on extinguishment of debt

(11,855)

(8,971)

-

    Other taxes

(1,964)

(841)

(12,944)

    General and administrative

(21,756)

(19,621)

(30,143)

        Total non-interest expense

(152,526)

(149,135)

(167,043)

    Capitalized direct cost of loan closing

27

102

137

        Total non-interest expense after

           capitalized direct cost of loan closing

(152,499)

(149,033)

(166,906)

     Loss before federal income tax and preferred

           stock dividend

(17,896)

(92,316)

(178,624)

Benefit for federal income taxes

-

-

(114,965)

Net loss

(17,896)

(92,316)

(293,589)

           Preferred stock dividends

(4,690)

(4,690)

(4,623)

Net loss available to common stockholders

$              (22,586)

$           (97,006)

$         (298,212)

Basic loss per share

$                  (0.15)

$               (0.63)

$               (6.36)

Diluted loss per share

$                  (0.15)

$             (0.63)

$               (6.36)

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

For the Three Months Ended

Summary of Consolidated

September 30,

June 30,

September 30,

Statements of Operations-continued

2010

2010

2009

Net interest spread – Consolidated

1.54%

1.47%

1.48%

Net interest margin - Consolidated

1.48%

1.45%

1.46%

Net interest spread – Bank only

1.55%

1.49%

1.53%

Net interest margin – Bank only

1.55%

1.53%

1.58%

Return on average assets

(0.64)%

(2.72)%

(7.60)%

Return on average equity

(8.35)%

(34.72)%

(130.64)%

Efficiency ratio

82.0%

104.4%

146.6%

Average interest earning assets

$         11,158,181

$       11,573,413

$     13,160,528

Average interest paying liabilities

$         11,383,551

$       11,641,804

$     13,217,383

Average stockholders' equity

$           1,082,499

$         1,117,686

$          913,059

Equity/assets ratio (average for the period)

7.71%

7.84%

5.82%

Ratio of charge-offs to average loans held for investment

5.90%

5.07%

3.48%

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

For the Nine Months Ended

Summary of Consolidated

September 30,

September 30,

Statements of Operations

2010

2009

    Interest income

$                  379,445

$                  539,933

    Interest expense

(258,242)

(375,593)

Net interest income

121,203

164,340

    Provision for loan losses

(200,978)

(409,420)

Net interest (loss) income after provision

(79,775)

(245,080)

Non-interest income

    Deposit fees and charges

24,796

23,655

    Loan fees and charges

60,930

97,366

    Loan administration

(15,590)

(20,240)

    Net (loss) gain on trading securities

76,702

6,377

    Loss on residuals and transferors' interest

(11,660)

(66,625)

    Net gain on loan sales

220,034

404,773

    (Loss) gain on sales of mortgage servicing rights

(4,674)

(3,945)

    Net gain on sale securities available for sale

6,689

-

    Impairment - securities available for sale

(3,677)

(20,444)

    Other (loss) income

(36,333)

(29,189)

        Total non-interest income

317,217

391,728

Non-interest expenses

    Compensation, benefits and commissions

(172,130)

(232,702)

    Occupancy and equipment

(47,670)

(53,553)

    Asset resolution

(96,245)

(69,660)

    Federal insurance premiums

(29,209)

(28,514)

    Warrant income (expense)

3,664

(27,561)

    Loss on extinguishment of debt

(20,826)

-

    Other taxes

(3,660)

(15,049)

    General and administrative

(58,989)

(95,024)

        Total non-interest expense

(425,065)

(522,063)

    Capitalized direct cost of loan closing

190

671

        Total non-interest expense after

           capitalized direct cost of loan closing

(424,875)

(521,392)

     Loss before federal income tax and preferred

           stock dividend

(187,433)

(374,744)

Benefit for federal income taxes

-

(55,008)

Net loss

(187,433)

(429,752)

           Preferred stock dividends

(14,059)

(12,464)

Net loss available to common stockholders

$                (201,492)

$               (442,216)

Basic loss per share

$                      (1.57)

$                   (16.58)

Diluted loss per share

$                      (1.57)

$                   (16.58)

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

For the Nine Months Ended

Summary of Consolidated

September 30,

September 30,

Statements of Operations-continued

2010

2009

Net interest spread – Consolidated

1.47%

1.49%

Net interest margin - Consolidated

1.41%

1.56%

Net interest spread – Bank only

1.50%

1.53%

Net interest margin – Bank only

1.50%

1.65%

Return on average assets

(1.92)%

(3.65)%

Return on average equity

(26.85)%

(67.44)%

Efficiency ratio

96.9%

93.8%

Average interest earning assets

$                 11,364,524

$                14,022,144

Average interest paying liabilities

$                 11,598,035

$                13,778,405

Average stockholders' equity

$                   1,000,644

$                     878,614

Equity/assets ratio (average for the period)

7.14%

5.43%

Ratio of charge-offs to average loans held for investment

4.53%

3.96%

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

Summary of the Consolidated

September 30,

June 30,

December 31,

September 30,

Statements of Financial Condition:

2010

2010

2009

2009

Total assets

$            13,836,573

$        13,693,830

$    14,013,331

$        14,820,815

Securities classified as trading

161,000

487,370

330,267

1,012,309

Securities classified as available for sale

503,568

544,474

605,621

817,424

Loans available  for sale

1,943,096

1,849,718

1,970,104

2,070,878

Loans available for investment, net

6,838,226

6,835,817

7,190,308

7,605,497

Allowance for loan losses

(474,000)

(530,000)

(524,000)

(528,000)

Mortgage servicing rights

447,023

474,814

652,374

567,800

Deposits

8,561,943

8,254,046

8,778,469

8,533,968

FHLB advances

3,400,000

3,650,000

3,900,000

4,800,000

Repurchase agreements

-

-

108,000

108,000

Stockholders' equity

1,060,729

1,076,361

596,724

667,597

Other Financial and Statistical Data:

Equity/assets ratio

7.67%

7.86%

4.26%

4.50%

Core capital ratio (bank only)

9.12%

9.24%

6.19%

6.39%

Total risk-based capital ratio (bank only)

16.87%

17.20%

11.68%

12.06%

Book value per common share

$                       5.30

$                   5.41

$            7.53

$                  9.07

Shares outstanding at the period ended

153,513

153,338

46,877

46,853

Average shares outstanding for the period

     ended (000's)

128,411

115,707

31,766

46,853

Average diluted shares outstanding for the period

     ended (000's)

128,411

115,707

31,766

46,853

Loans serviced for others

$            52,287,204

$        50,385,208

$   56,521,902

$        53,159,885

Weighted average service fee (bps)

31.5

32.4

32.1

32.6

Value of mortgage servicing rights

0.85%

0.94%

1.15%

1.06%

Allowance for loan losses to non performing loans  

    (bank only)

52.0%

52.3%

48.9%

50.0%

Allowance for loan losses to loans held for

    investment (bank only)

6.48%

7.20%

6.79%

6.49%

Non performing assets to total assets (bank only)

8.25%

9.06%

9.25%

8.44%

Number of bank branches

162

162

165

176

Number of loan origination centers

27

22

23

42

Number of employees (excluding loan officers &

   account executives)

2,922

2,885

3,075

3,220

Number of loan officers and account executives

285

296

336

436

Loans Held for Investment

(Dollars in thousands)

(unaudited)

Description

September 30, 2010

June 30, 2010

December 31, 2009

September 30, 2009

First mortgage loans

$     4,479,814

61.3%

$   4,614,822

62.7%

$   4,990,994

64.7%

$     5,304,950

65.2%

Second mortgage loans

185,062

2.5

196,702

2.7

221,626

2.9

236,239

2.9

Commercial real estate loans

1,341,009

18.4

1,439,324

19.5

1,600,271

20.7

1,677,106

20.6

Construction loans

9,956

0.1

13,003

0.2

16,642

0.2

22,906

0.3

Warehouse lending

913,494

12.5

702,455

9.5

448,567

5.8

425,861

5.2

Consumer loans

373,086

5.1

388,250

5.3

423,842

5.5

452,548

5.6

Non-real estate commercial

9,805

0.1

11,261

0.1

12,366

0.2

13,887

0.2

Total loans held for investment

$     7,312,226

100.0%

$   7,365,817

100.0%

$   7,714,308

100%

$     8,133,497

100.0%

Allowance for Loan Losses

(Dollars in thousands)

(unaudited)

For the Three Months Ended

September 30,

June 30,

September 30,

2010

2010

2009

Beginning Balance

$     (530,000)

$       (538,000)

$     (474,000)

Provision for losses

(51,399)

(86,019)

(125,544)

Charge offs, net of recoveries

   First mortgage loans

38,184

45,012

36,772

   Second mortgage loans

6,130

8,009

7,222

   Commercial R/E loans

57,631

31,488

15,724

   Construction loans

417

56

951

   Warehouse

(240)

1,225

-

   Consumer

         HELOC

4,364

7,015

9,711

         Other consumer loans

357

735

638

   Other

556

479

526

  Charge-offs, net of recoveries

107,399

94,019

71,544

Ending Balance

$        (474,000)

$       (530,000)

$     (528,000)

Allowance for Loan Losses

(Dollars in thousands)

(unaudited)

For the Nine Months Ended

September 30,

September 30,

2010

2009

Beginning Balance

$                 (524,000)

$              (376,000)

Provision for losses

(200,978)

(409,420)

Charge offs, net of recoveries

   First mortgage loans

112,217

92,658

   Second mortgage loans

20,568

30,660

   Commercial R/E loans

97,227

102,651

   Construction loans

493

2,453

   Warehouse

1,456

496

   Consumer

         HELOC

15,902

24,826

         Other consumer loans

1,424

2,397

   Other

1,691

1,279

  Charge-offs, net of recoveries

250,978

257,420

Ending Balance

$                  (474,000)

$                  (528,000)

Composition of Allowance for Loan Losses

As of September 30, 2010

(In thousands)

(unaudited)

Description

General

Reserves

Specific

Reserves

Total

First mortgage loans

$      240,672

$        29,012

$      269,684

Second mortgage loans

30,433

565

30,998

Commercial real estate loans

43,048

80,932

123,980

Construction loans

1,965

31

1,996

Warehouse lending

4,457

1,424

5,881

Consumer loans

29,093

194

29,287

Non-real estate commercial

1,218

1,250

2,468

Other and unallocated

9,706

-

9,706

Total allowance for loan losses

$      360,592

$      113,408

$      474,000

Composition of Residential HFI Portfolio

As of September 30, 2010

(In thousands)

(unaudited)

Portfolio

Balance (1)

Reserves (1)

Non-performing

$                    559,633

$            160,095

Performing TDRs

416,847

32,306

Not delinquent within last 36 months

2,244,582

29,750

Performing with mortgage insurance

378,037

5,195

Non-performing with mortgage insurance

100,052

11,656

Other current

837,153

58,060

30 day and 60 day delinquent

128,367

3,620

          Total

$                 4,664,876

$            300,682

(1) Includes first mortgage and second mortgage loans

Composition of Commercial RE HFI Portfolio

As of September 30, 2010

(In thousands)

(unaudited)

Portfolio

Balance

Reserves

Performing - not impaired

$                  893,062

$            33,285

Special mention – not impaired

126,021

7,325

Impaired

83,352

16,547

Non-performing

238,565

66,823

          Total

$                1,341,009

$          123,980

Loan Originations

(Dollars in thousands)

(unaudited)

For the Three Months Ended

September 30,

June 30,

September 30,

Loan type

2010

2010

2009

Residential mortgage loans

$ 7,613,502

99.8%

$5,452,304

99.9%

$  6,641,674

99.9%

Consumer loans

486

-

940

-

1,477

-

Commercial loans

12,715

0.2

5,995

0.1

4,335

0.1

Total loan production

$ 7,626,703

100.0%

$5,459,239

100.0%

$  6,647,486

100.0%

Loan Originations

(Dollars in thousands)

(unaudited)

For the Nine Months Ended

September 30,

September 30,

Loan type

2010

2009

Residential mortgage loans

$ 17,396,195

99.9%

$  25,428,388

99.9%

Consumer loans

2,046

-

4,866

-

Commercial loans

24,912

0.1

29,935

0.1

Total loan production

$  17,423,153

100.0%

$  25,463,189

100.0%

Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)

For the Three Months Ended

September 30,

June 30,

September 30,

2010

2010

2009

Description

(000's)

bps

(000's)

bps

(000's)

bps

Valuation gain (loss):

Value of interest rate locks

$                4,380

6

$             33,075

63

$            11,405

15

Value of forward sales

31,649

42

(58,475)

(111)

(36,537)

(48)

Fair value of loans AFS

140,993

185

103,643

197

151,911

200

LOCOM adjustments on loans HFI

171

-

(45)

-

155

-

Total valuation gains

177,193

233

78,198

149

126,934

167

Sales gains (losses):

Marketing gains

17,141

22

29,473

55

4,372

6

Pair off losses

(77,404)

(102)

(33,309)

(63)

(15,776)

(22)

Sales adjustments

(4,404)

(6)

(3,319)

(6)

(4,108)

(5)

Provision for secondary marketing reserve

(9,315)

(12)

(6,786)

(13)

(7,006)

(9)

Total sales (losses) gains

(73,982)

(98)

(13,941)

27

(22,518)

(30)

Net gain on loan sales and securitizations

$            103,211

135

$          64,257

122

$          104,416

137

Total loan sales and securitizations

$         7,619,097

$     5,259,830

$       7,606,304

Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)

For the Nine Months Ended

September 30,

September 30,

2010

2009

Description

(000's)

bps

(000's)

bps

Valuation gain (loss):

Value of interest rate locks

$              40,479

23

$         (38,008)

(15)

Value of forward sales

(46,881)

(27)

28,182

11

Fair value of loans AFS

303,713

170

424,542

168

LOCOM adjustments on loans HFI

38

-

(274)

164

Total valuation gains

297,349

166

414,442

164

Sales gains:

Marketing gains

175,447

98

102,885

41

Pair off (losses) gains

(120,776)

(67)

(5,573)

(2)

Sales adjustments

(108,741)

(61)

(89,043)

(35)

Provision for secondary marketing reserve

(23,244)

(13)

(17,938)

(7)

Total sales (losses) gains

(77,314)

(43)

(9,669)

(3)

Net gain on loan sales and securitizations

$            220,034

123

$          404,773

161

Total loan sales and securitizations

$       17,893,675

$     25,183,401

Asset Quality

(Dollars in thousands)

(Unaudited)

September 30, 2010

June 30, 2010

December 31, 2009

September 30, 2009

% of

Total

% of

Total

% of

Total

% of

Total

Days delinquent

Balance

Balance

Balance

Balance

30

$              112,741

1.5%

$       112,697

1.5%

$       143.500

1.9%

$    118,598

1.5%

60

73,740

1.0

83,044

1.1

87,625

1.1

100,078

1.2

90 + and matured delinquent

911,372

12.5

1,013,828

13.8

1,071,636

13.9

1,055,358

13

Total

$            1,097,853

15.0%

$    1,209,569

16.4%

$    1,302,761

16.9%

$1,274,034

15.7%

Loans held for investment

$            7,312,226

$    7,365,817

$    7,714,308

$8,133,497

Non-Performing Loans and Assets

(Dollars in thousands)

(Unaudited)

September 30,

June 30,

December 31,

September 30,

2010

2010

2009 

2009

Non-performing loans

$        911,372

$         1,013,828

$            1,071,636

$      1,055,358

Real estate owned

198,585

198,230

176,967

164,898

Net repurchased assets/non-performing assets

31,165

27,985

45,698

26,601

Non-performing assets

$     1,141,122

$         1,240,043

$            1,294,301

$      1,246,857

Non-performing loans as a percentage of  loans held for investment

12.46%

13.76%

13.89%

12.98%

Non-performing assets as a percentage of total assets

8.25%

9.06%

9.25%

8.44%

Average Balances, Yields and Rates

(Dollars in thousands)

(unaudited)

For the Three Months Ended

September 30, 2010

June 30, 2010

September 30,  2009

Annualized

Annualized

Annualized

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Rate

Balance

Rate

Balance

Rate

Interest-Earning Assets: 

  Loans available for sale

$      2,166,072

4.63%

$      1,675,502

5.00%

$      2,369,451

5.30%

  Loans held for investment:

     Mortgage Loans

4,734,031

4.52

4,920,436

4.64

5,685,821

5.11

     Commercial Loans

2,163,004

4.96

2,101,113

4.72

2,050,911

5.07

     Consumer Loans

381,725

6.09

398,737

5.95

488,064

5.41

  Loans held for investment

7,278,760

4.74

7,420,286

4.73

8,224,796

5.12

  Securities classified as available for sale

      or trading

     trading

863,201

5.08

1,653,662

5.02

2,315,354

5.11

   Interest-bearing deposits

848,854

0.24

820,379

0.23

210,874

0.97

  Other

1,294

0.27

3,584

0.14

40,053

0.03

Total interest-earning assets

11,158,181

4.40

11,573,413

4.49

13,160,528

5.07

Other assets

2,874,163

2,691,344

2,524,962

Total assets

$    14,032,344

$    14,264,757

$    15,685,490

Interest-Bearing Liabilities:

        Demand deposits

$         378,193

0.48%

$         388,402

0.57%

$         311,459

0.43%

        Savings deposits

744,889

0.97

691,170

0.90

605,961

1.22

        Money market deposits

542,350

0.96

562,442

0.96

730,749

1.58

        Certificates of deposits

3,401,739

2.77

3,313,711

2.94

4,082,535

3.59

     Total retail deposits 

5,067,171

2.14

4,955,725

2.24

5,730,704

2.91

        Demand deposits

214,866

0.26

392,054

0.48

155,869

0.50

        Savings deposits

171,880

0.74

68,722

0.59

92,476

0.62

        Certificates of deposits

440,540

0.94

245,702

0.81

253,485

1.17

     Total government deposits

827,286

0.72

706,478

0.60

501,830

0.86

     Wholesale deposits

1,427,463

3.18

1,628,940

3.14

1,494,927

4.08

  Total Deposits

7,321,920

2.18

7,291,143

2.28

7,727,461

3.00

  FHLB advances

3,813,021

4.14

3,891,758

4.34

5,081,739

4.38

  Security repurchase agreements

-

210,268

3.05

108,000

4.33

  Other

248,610

3.22

248,635

3.79

300,183

5.11

Total interest-bearing liabilities

11,383,551

2.86

11,641,804

3.02

13,217,383

3.59

Other liabilities

1,566,294

1,505,267

1,555,048

Stockholders' equity  

1,082,499

1,117,686

913,059

Total liabilities and stockholders equity

$    14,032,344

$    14,264,757

$    15,685,490

Average Balances, Yields and Rates

(Dollars in thousands)

(unaudited)

For the Nine Months Ended September 30,

2010

2009

Annualized

Annualized

Average

Yield/

Average

Yield/

Balance

Rate

Balance

Rate

Interest-Earning Assets: 

  Loans available for sale

$        1,790,099

4.84%

$        2,916,769

5.16%

  Loans held for investment

     Mortgage Loans

4,921,898

4.66

5,942,439

5.23

     Commercial Loans

2,074,436

4.86

2,206,308

5.13

     Consumer Loans

398,672

6.00

513,842

5.34

  Loans held for investment

7,395,006

4.78

8,662,589

5.23

  Securities classified as available for sale or

     trading

1,217,123

5.16

2,181,697

5.26

   Interest-bearing deposits

957,982

0.23

223,324

1.08

  Other

4,314

0.09

37,765

0.10

Total interest-earning assets

11,364,524

4.45

14,022,144

5.14

Other assets

2,656,241

2,144,571

Total assets

$      14,020,765

$      16,166,715

Interest-Bearing Liabilities:

        Demand deposits

$           378,900

0.54%

$           289,247

0.49%

        Savings deposits

708,550

0.90

511,812

1.51

        Money market deposits

562,068

0.93

682,368

1.89

        Certificates of deposits

3,368,775

2.89

4,016,177

3.84

     Total retail deposits 

5,018,293

2.21

5,499,604

3.20

        Demand deposits

299,325

0.39

75,814

0.55

        Savings deposits

106,292

0.64

85,547

0.84

        Certificates of deposits

320,587

0.86

686,878

1.75

     Total government deposits

726,204

0.63

848,239

1.55

     Wholesale deposits

1,614,283

3.08

1,819,921

3.72

  Total Deposits

7,358,780

2.25

8,167,764

3.15

  FHLB advances

3,867,941

4.28

5,236,429

4.35

  Security repurchase agreements

105,694

3.48

108,000

4.33

  Other

265,620

4.06

266,212

4.84

Total interest-bearing liabilities

11,598,035

2.98

13,778,405

3.65

Other liabilities

1,422,085

1,509,696

Stockholders' equity  

1,000,645

878,614

Total liabilities and stockholders equity

$      14,020,765

$      16,166,715

Pre-tax, pre-credit-cost Income

(Non GAAP measure)

(Dollars in thousands)

(Unaudited)

For the Three Months Ended

September, 2010

June, 2010

September, 2009

Loss before tax provision / benefit

$              (17,896)

$              (92,316)

$              (178,624)

  Provision for loan losses

51,399

86,019

125,544

  Asset resolution

34,233

45,439

26,811

  Other than temporary impairment on afs investments

-

391

2,875

  Secondary marketing reserve provision

12,958

11,389

27,609

  Write down of residual interests

4,665

4,312

50,689

  Reserve increase for reinsurance

-

433

3,945

         Total credit-related-costs:

103,255

147,983

237,473

Pre-tax, pre-credit-cost income

$                85,359

$                55,667

$                   58,849

Pre-tax, pre-credit-cost Income

(Non GAAP measure)

(Dollars in thousands)

(Unaudited)

For the Nine Months Ended

September, 2010

September, 2009

Loss before tax provision / benefit

$            (187,433)

$                (374,744)

Add back:

  Provision for loan losses

200,978

409,420

  Asset resolution

96,245

69,660

  Other than temporary impairment on afs investments

3,677

20,444

  Secondary marketing reserve provision

51,174

66,278

  Write down of residual interests

11,660

66,624

  Reserve increase for reinsurance

433

24,846

         Total credit-related-costs:

364,167

657,272

Pre-tax, pre-credit-cost income

$              176,734

$                  282,528

SOURCE Flagstar Bancorp



RELATED LINKS

http://www.flagstar.com