EX-99.1 2 pressreleasesecondquarter2.htm EXHIBIT 99.1 Press Release Second Quarter 2013


EXHIBIT 99.1

NEWS RELEASE
For more information, contact:        
Paul D. Borja
Chief Financial Officer
Bradley T. Howes
Investor Relations Officer
(248) 312-2000
                                
                                        
Flagstar Reports Second Quarter 2013 Net Income of $65.8 million or $1.10 per Diluted Share

Strengthened regulatory capital ratios and significantly reduced balance sheet risk through bulk loan sales

Non-performing loans declined by 30 percent, troubled debt restructurings declined by 26 percent and allowance coverage increased to 94 percent

Successfully resolved key legacy litigation

New CEO Sandro DiNello committed to transparency and shareholder value

TROY, Mich. (July 23, 2013) - Flagstar Bancorp, Inc. (NYSE:FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported second quarter 2013 net income applicable to common stockholders of $65.8 million, or $1.10 per share (diluted), as compared to $22.2 million, or $0.33 per share (diluted), in the first quarter 2013 and $86.0 million, or $1.47 per share (diluted), in the second quarter 2012. Book value per common share increased to $17.66 at June 30, 2013, as compared to $16.46 at March 31, 2013.

"Our second quarter results represent the successful continuation of Flagstar's efforts to reduce risk, address legacy issues and build strong capital levels," said Sandro DiNello, the Company's President and Chief Executive Officer. "We believe that these efforts, along with new initiatives to reduce expenses and maximize efficiency across the organization, collectively position Flagstar for long-term growth and shareholder value creation.

"During the quarter, we were opportunistic in the resolution of our remaining legacy litigation, entering into settlement agreements with both MBIA and Assured, resulting in a net gain of $44 million. In addition, we took advantage of an improving market for loan demand, selling a substantial amount of non-performing loans and troubled debt restructurings virtually at book, which significantly improved our asset quality ratios. This month, we also made the decision to outsource our non-core default servicing business, which we believe will generate significant cost savings and better position the company to focus on growing the core performing servicing business."
 

1

Mr. DiNello continued, "Gain on loan sale income grew from the prior quarter, reflecting an increase in base margin and a flat level of mortgage locks. Despite this improvement, it is important to convey that we believe the recent uptick in mortgage rates will significantly decrease overall refinance volumes in the coming quarters. We believe we can offset some of the expected decrease in refinance production by leveraging our product offerings, overall market position and reputation for speed of closing, and certainty of execution, to continue to grow our share of the purchase market. We also plan to focus on efficiency optimization and disciplined expense management throughout the organization, while developing strategies to improve cross-sells and to utilize excess cash to grow interest-earning assets. As we drive towards Flagstar's next phase of growth and development, we remain committed to improved disclosure and transparency to ensure that our strategy and improved performance is better communicated among the investment community."

Second Quarter 2013 Highlights (as Compared to First Quarter 2013)

•
Net income applicable to common stockholders increased to $65.8 million, as compared to $22.2 million:
◦
Income of $49.1 million related to the previously announced settlement with Assured Guaranty Municipal Corp., formerly known as Financial Security Assurance Inc. ("Assured").
◦
Loss of $(4.9) million related to the settlement with MBIA Insurance Corporation ("MBIA").
◦
Decrease in net interest income to $47.1 million, as compared to $55.7 million.
◦
Increase in gain on loan sales to $144.8 million, as compared to $137.5 million.
▪
Fallout-adjusted mortgage rate lock commitments of $9.8 billion, relatively flat.
▪
Gain on loan sale margin (based on fallout-adjusted locks) of 1.47 percent, as compared to 1.40 percent.
◦
Increase in net loan administration income to $36.2 million, as compared to $20.4 million.

•
Strengthened regulatory capital ratios, maintained liquidity and sold mortgage servicing rights:
◦
Tier 1 leverage ratio increased by 86 basis points to 11.00 percent
◦
Cash and cash equivalents increased by $0.5 billion to $2.7 billion.
◦
Completed bulk sales of mortgage servicing rights related to $12.7 billion in underlying mortgage loans.

•
Significantly improved credit quality:
◦
Sold $341.1 million in unpaid principal balance of residential first mortgage non-performing loans and total troubled debt restructurings ("TDRs"), with a carrying value of $277.9 million, for 99.5 percent of carrying value, resulting in a net loss (before broker fees) of $1.4 million.
◦
Total non-performing loans decreased by 30.2 percent to $257.9 million and total TDRs decreased by 26.4 percent to $547.3 million, of which $451.1 million are performing TDRs.
◦
Ratio of allowance for loan losses to non-performing loans increased to 94.2 percent.
◦
Total pipeline of active loan repurchase demands (the "repurchase pipeline") decreased by 38.5 percent to $115.0 million, while the representation and warranty reserve remained at $185.0 million.

Litigation Settlements

On May 2, 2013 the Bank entered into an agreement (the "MBIA Settlement Agreement") to settle the previously announced lawsuit which was filed by MBIA on January 11, 2013. The lawsuit involved approximately $1.1 billion of non-agency securitization transactions in 2006 and 2007 involving fixed and adjustable rate second mortgage loans that MBIA insured. Under the terms of the Settlement Agreement, MBIA terminated its pending lawsuit and in exchange, among other consideration and transaction provisions, the Company paid MBIA $110.0 million. As a result of the MBIA Settlement Agreement, the Company recognized a loss of $(4.9) million. This includes a $7.2 million loss (recorded in other non-interest income) arising from the fair value of the assets in the mortgage securitizations and an $8.8 million other-than-temporary impairment, partially offset by $5.0 million in income recognition resulting from the reversal of related reserves for pending and threatened litigation and a $6.1 million tax benefit resulting from the deferred tax asset associated with the mortgage securitization.


2

On June 21, 2013 the Bank entered into an agreement (the "Assured Settlement Agreement") to settle the previously announced lawsuit filed by Assured. The litigation pertained to $902.2 million of non-agency securitization transactions in 2005 and 2006 involving home equity line of credit ("HELOC") loans which were insured by Assured. Under the terms of the Assured Settlement Agreement, Assured terminated its pending lawsuit and will not pursue any related claims at any time in the future. In exchange, the Company paid Assured $105.0 million and will assume responsibility for future claims associated with the two HELOC securitization trusts, including the right to receive from Assured all future reimbursements for claims paid to which Assured would have been entitled. As a result of the Assured Settlement Agreement, the Company recognized $49.1 million of income, which includes $44.1 million in income arising from the excess of the fair value of the net assets and liabilities in the two HELOC securitizations and $5.0 million in income recognition from the reversal of related reserves for pending and threatened litigation.

Net Interest Income

Second quarter 2013 net interest income decreased to $47.1 million, as compared to $55.7 million for the first quarter 2013 and $75.5 million for the second quarter 2012. The decrease from the prior quarter was driven primarily by lower average balances of interest-earning assets and a decrease in the yield paid on those assets, plus a slight increase in the cost of funds. Net interest margin for the Bank decreased to 1.72 percent, as compared to 1.89 percent for the first quarter 2013 and 2.37 percent for the second quarter 2012. The decrease from the prior quarter reflects the decline in net interest income, which more than offset the decline in the average balances of higher-yielding assets, primarily mortgage loans held-for-sale and warehouse loans.

The average cost of funds for the second quarter 2013 was 1.58 percent, an increase from 1.54 percent for the first quarter 2013 and a decrease from 1.72 percent for the second quarter 2012. The increase from the prior quarter was driven by the use of lower costing short-term FHLB advances during the first quarter which were paid-off during the second quarter 2013 as a result of the availability of increased liquidity. Average cost of total deposits decreased to 0.75 percent for the second quarter 2013, as compared to 0.78 percent for the first quarter 2013 and 1.07 percent for the second quarter 2012. The decrease from the prior quarter was consistent with the Company's improvement in funding mix, as higher-cost retail certificates of deposit were replaced with lower-cost demand and savings deposits.

Non-interest Income

Second quarter 2013 non-interest income increased to $220.0 million, as compared to $184.9 million for the first quarter 2013 and decreased from $240.3 million for the second quarter 2012. The increase from the prior quarter was driven by increased gain on loan sales, net servicing revenue and other non-interest income.

Second quarter 2013 net gain on loan sales increased to $144.8 million, as compared to $137.5 million for the first quarter 2013 and decreased from $212.7 million for the second quarter 2012. The increase from the prior quarter was primarily due to an increase in the gain on sale margin, combined with a flat level of mortgage rate lock commitments. Gain on loan sale margin (based on the amount of rate lock commitments net of estimated cancellations, or "fallout-adjusted locks") increased to 1.47 percent for the second quarter 2013, as compared to 1.40 percent for the first quarter 2013 and decreased from 1.59 percent for the second quarter 2012. Fallout-adjusted locks were $9.8 billion in the second quarter 2013, flat from the level in the prior quarter.

Mortgage originations decreased to $10.9 billion for the second quarter 2013, as compared to $12.4 billion for the prior quarter and $12.5 billion for the second quarter 2012. Purchase originations comprised 28.9 percent of overall mortgage originations in the second quarter, as compared to 18.8 percent in the prior quarter, reflecting the shift to a more purchase-driven market as a result of the recent and sustained increase in mortgage interest rate levels.

Loan fees and charges decreased to $29.9 million for the second quarter 2013, as compared to $33.4 million for the first quarter 2013 and $34.8 million for the second quarter 2012. Loan fees and charges are driven by mortgage loan originations, which decreased to $10.9 billion for the second quarter 2013, as compared to $12.4 billion for the first quarter 2013 to $12.5 billion for the second quarter 2012.


3

Net servicing revenue, which is the combination of loan administration income (including the off-balance sheet hedges of mortgage servicing rights) and the gain (loss) on trading securities (i.e., the on-balance sheet hedges of mortgage servicing rights), increased to $36.2 million for the second quarter 2013, as compared to $20.4 million for the first quarter 2013 and $28.7 million for the second quarter 2012. The increase from the prior quarter was primarily attributable to a gain associated with bulk sales of mortgage servicing rights related to $12.7 billion in underlying mortgage loans, partially offset by a decrease in hedge performance from the prior quarter.

The Company's second quarter 2013 results included $44.1 million related to the Assured Settlement Agreement and a loss of $7.2 million related to the MBIA Settlement Agreement, which in total, increased other non-interest income by $36.8 million from the prior quarter.

The Company also recorded a second quarter 2013 net impairment loss on its investment securities available-for-sale of $8.8 million (recognized in earnings), as compared to no impairment in the prior quarter, as a result of the MBIA Settlement Agreement.
Non-interest Expense

Non-interest expense was $174.4 million for the second quarter 2013, as compared to $196.6 million for the first quarter 2013 and $169.5 million for the second quarter 2012. Excluding asset resolution expense (discussed in Credit-Related Costs and Asset Quality, below), non-interest expense would have totaled $158.5 million for the second quarter 2013, as compared to $180.1 million for the first quarter 2013 and $148.6 million for the second quarter 2012. The decrease from the prior quarter primarily reflects decreases in legal and professional expense and compensation and benefits.

Second quarter 2013 legal and professional expense decreased to $16.4 million, as compared to $28.8 million for the first quarter 2013. The decrease from the prior quarter was primarily driven by a $10.0 million release of reserves for pending and threatened litigation associated the Assured Settlement Agreement and the MBIA Settlement Agreement. As a result of the settlement agreements, the Company's reserves for pending and threatened litigation decreased by $221.2 million from the prior quarter to a balance of $26.8 million at June 30, 2013, which primarily includes the U.S. Department of Justice ("DOJ") litigation.

Compensation and benefits decreased to $70.9 million for the second quarter 2013, as compared to $77.2 million for the first quarter 2013 but increased from $65.4 million for the second quarter 2012. The decrease from the prior quarter was primarily related to the timing of payroll taxes. Commission expense decreased to $15.4 million for the second quarter 2013, as compared to $17.5 million for the first quarter 2013 and $17.8 million for the second quarter 2012. The decrease from the prior quarter was consistent with the 12.4 percent decrease in mortgage loan originations during the quarter.

Credit-Related Costs and Asset Quality

For the second quarter 2013, total credit-related costs (see non-GAAP reconciliation) increased to $85.2 million, as compared to $54.4 million for the first quarter 2013 and $127.6 million for the second quarter 2012. The increase from the prior quarter was primarily due to increases in the provision for loan losses, representation and warranty reserve - change in estimate and other than temporary impairment on available-for-sale investment securities (discussed in Non-interest Income, above).

During the quarter, the Company sold $341.1 million in unpaid principal balance of residential first mortgage non-performing and TDRs, with a carrying value of $277.9 million. The Company recorded a total loss on the sales of $3.0 million, which included $1.6 million in fees paid to the broker.

At June 30, 2013, the allowance for loan losses decreased to $243.0 million, as compared to $290.0 million at March 31, 2013, primarily driven by the charge-off of $38.3 million in reserves associated with the non-performing loan and TDR sales, partially offset by an increase in the allowance for loan losses related to emerging risks associated with

4

loans expected to convert from interest-only to full-pay. At June 30, 2013, the ratio of the allowance for loan losses to non-performing loans held-for-investment increased to 94.2 percent, as compared to 78.5 percent at March 31, 2013.

Provision for loan losses increased to $31.6 million for the second quarter 2013, as compared to $20.4 million for the prior quarter, driven primarily by the increased allowance for loan losses related to emerging risks associated with loans expected to convert from interest-only to full-pay. Second quarter 2013 net charge-offs increased to $78.6 million, as compared to $35.4 million for the prior quarter, driven primarily by the $38.3 million in charge-offs associated with the non-performing loan and TDR sales.

The Company maintains a representation and warranty reserve on the balance sheet, which reflects an estimate of losses that may occur on both loans that have been sold or securitized into the secondary market and those currently in the repurchase pipeline, primarily to the GSEs. At June 30, 2013, the representation and warranty reserve was $185.0 million, which remained flat as compared to March 31, 2013. During the second quarter 2013, the model was enhanced to reflect a change in estimate of loss period as a result of increased requests by the GSEs for loan files for loans originated in earlier vintages. As a result, provisions related to the representation and warranty reserve - change in estimate increased to $28.9 million for the second quarter 2013, as compared to $17.4 million for the first quarter 2013.

At June 30, 2013, the total repurchase pipeline decreased to $115.0 million, as compared to $187.0 million at March 31, 2013, as the Company continued to aggressively work through its existing population of repurchase requests. New audit file review requests increased by 33.5 percent in the second quarter 2013 from the first quarter 2013, while new repurchase demands decreased by 35.4 percent from the prior quarter.

Total non-performing loans held-for-investment were $257.9 million at June 30, 2013, a decrease as compared to $369.3 million at March 31, 2013 and $431.6 million at June 30, 2012. The ratio of non-performing loans held-for-investment to loans held-for-investment also decreased to 5.74 percent at June 30, 2013, from 7.79 percent at March 31, 2013, as a result of the decrease in non-performing loans. These decreases from the prior quarter were primarily due to a decrease in consumer non-performing loans as a result of the sale of residential first mortgage non-performing loans completed during the second quarter 2013.

Commercial non-performing loans decreased to $63.8 million at June 30, 2013, as compared to $66.1 million at March 31, 2013 and $138.1 million at June 30, 2012, primarily driven by normal dispositions of commercial real estate loans.

Real estate-owned and other non-performing assets also decreased to $86.4 million at June 30, 2013, as compared to $114.4 million at March 31, 2013. The decrease was driven primarily by the sale of residential first mortgage non-performing loans, a portion of which were considered in-substance foreclosures for accounting purposes and therefore classified as real-estate owned.
  
Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which the Bank files claims with HUD) was $15.9 million for the second quarter 2013, relatively flat as compared to $16.4 million for the first quarter 2013, but decreased from $20.9 million for the second quarter 2012.

Balance Sheet and Funding

Total assets at June 30, 2013 were $12.7 billion, as compared to $13.1 billion at March 31, 2013, driven primarily by a decrease in loans held-for-sale reflecting the decrease in mortgage loan originations during the second quarter 2013. This decrease was partially offset by an increase in cash on hand and interest-earning deposits from the proceeds of the non-performing loan and TDR sales completed during the second quarter 2013.


5

Long-term debt increased to $367.4 million at June 30, 2013, as compared to $247.4 million at March 30, 2013, driven by the on balance-sheet recognition of debt, which is recorded at fair value, associated with the Company's re-consolidation of the two HELOC securitization trusts as a result of the Assured Settlement Agreement.

Total deposits were $7.5 billion at June 30, 2013, a decrease of $0.3 billion as compared to $7.8 billion at March 31, 2013. The decrease from the prior quarter was primarily attributable to a decrease in retail certificates of deposits, which were replaced, in part, by retail demand and savings deposits. The Company's average balances of retail demand and savings deposits increased by 2.1 percent and 7.0 percent, respectively, from the prior quarter.

At June 30, 2013, the Company had approximately $2.7 billion of cash on hand and interest-earning deposits, as compared to $2.2 billion at March 31, 2013. The Bank 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, 2013, the Bank had medium-term outstanding borrowings from the FHLB of $2.9 billion and an additional $0.5 billion of collateralized borrowing capacity available at the FHLB.

Capital

The Bank's regulatory capital ratios remain above current regulatory quantitative guidelines for "well-capitalized" institutions. At June 30, 2013, the Bank had a Tier 1 leverage ratio of 11.00 percent, as compared to 10.14 percent at March 31, 2013. At June 30, 2013, the Company had an equity-to-assets ratio of 9.84 percent.

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, July 24, 2013 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 (888) 726-2423 toll free or (913) 312-1480, and use passcode: 7813813. Please call at least 10 minutes before the call is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820, using passcode: 7813813.

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 to accompany the conference call will also be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. 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 $12.7 billion in total assets at June 30, 2013, Flagstar is the largest publicly held savings bank headquartered in the Midwest. Flagstar operates 111 banking centers, all of which are located in Michigan and 40 home lending centers located in 17 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

6

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 outsourcing its non-core default 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.



7

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in thousands)
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
Assets
(Unaudited)
 
(Unaudited)
 
 
 
(Unaudited)
Cash and cash equivalents
 
 
 
 
 
 
 
Cash and cash items
$
51,252

 
$
50,840

 
$
38,070

 
$
71,184

Interest-earning deposits
2,653,191

 
2,179,846

 
914,723

 
1,199,205

Total cash and cash equivalents
2,704,443

 
2,230,686

 
952,793

 
1,270,389

    Trading securities
50,039

 
170,139

 
170,086

 
169,834

    Investment securities available-for-sale
92,930

 
169,827

 
184,445

 
424,765

Loans held-for-sale
2,331,458

 
2,677,239

 
3,939,720

 
2,459,482

Loans repurchased with government guarantees
1,509,365

 
1,604,906

 
1,841,342

 
1,999,110

Loans, net
 
 
 
 
 
 
 
Loans held-for-investment
4,491,153

 
4,743,266

 
5,438,101

 
6,550,257

Less: allowance for loan losses
(243,000
)
 
(290,000
)
 
(305,000
)
 
(287,000
)
Total loans held-for-investment, net
4,248,153

 
4,453,266

 
5,133,101

 
6,263,257

    Mortgage servicing rights
729,019

 
727,207

 
710,791

 
638,865

    Repossessed assets, net
86,382

 
114,356

 
120,732

 
107,235

    Federal Home Loan Bank stock
301,737

 
301,737

 
301,737

 
301,737

    Premises and equipment, net
227,771

 
223,276

 
219,059

 
209,126

    Other assets
453,720

 
421,511

 
508,206

 
524,646

Total assets
$
12,735,017

 
$
13,094,150

 
$
14,082,012

 
$
14,368,446

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
Non-interest bearing
$
1,181,226

 
$
1,112,313

 
$
1,308,317

 
$
2,079,456

Interest bearing
6,288,841

 
6,734,978

 
6,985,978

 
6,843,391

Total deposits
7,470,067

 
7,847,291

 
8,294,295

 
8,922,847

    Federal Home Loan Bank advances
2,900,000

 
2,900,000

 
3,180,000

 
3,400,000

    Long-term debt
367,415

 
247,435

 
247,435

 
248,585

    Representation and warranty reserve
185,000

 
185,000

 
193,000

 
161,000

Other liabilities
558,800

 
730,396

 
1,007,920

 
457,665

            Total liabilities
11,481,282

 
11,910,122

 
12,922,650

 
13,190,097

    Stockholders' Equity
 
 
 
 
 
 
 
Preferred stock
263,277

 
261,828

 
260,390

 
257,556

Common stock
561

 
561

 
559

 
558

    Additional paid in capital
1,477,484

 
1,476,624

 
1,476,569

 
1,473,924

    Accumulated other comprehensive (loss) income
988

 
(656
)
 
(1,658
)
 
8,274

    Accumulated deficit
(488,575
)
 
(554,329
)
 
(576,498
)
 
(561,963
)
            Total stockholders' equity
1,253,735

 
1,184,028

 
1,159,362

 
1,178,349

            Total liabilities and stockholders' equity
$
12,735,017

 
$
13,094,150

 
$
14,082,012

 
$
14,368,446





8

Flagstar Bancorp, Inc.
 Consolidated Statements of Operations
 (Dollars in thousands, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Interest Income
 
 
 
 
 
 
 
 
 
Loans
$
81,731

 
$
91,950

 
$
115,611

 
$
173,680

 
$
229,519

Investment securities available-for-sale or trading
1,838

 
2,094

 
6,850

 
3,932

 
15,421

Interest-earning deposits and other
1,489

 
946

 
462

 
2,435

 
874

    Total interest income
85,058

 
94,990

 
122,923

 
180,047

 
245,814

Interest Expense
 
 
 
 
 
 
 
 
 
Deposits
12,148

 
13,508

 
18,321

 
25,656

 
37,307

Federal Home Loan Bank advances
24,171

 
24,161

 
27,386

 
48,332

 
54,779

Other
1,643

 
1,652

 
1,738

 
3,295

 
3,517

    Total interest expense
37,962

 
39,321

 
47,445

 
77,283

 
95,603

Net interest income
47,096

 
55,669

 
75,478

 
102,764

 
150,211

Provision for loan losses
31,563

 
20,415

 
58,428

 
51,978

 
173,101

Net interest income (expense) after provision for loan losses
15,533

 
35,254

 
17,050

 
50,786

 
(22,890
)
Non-Interest Income
 
 
 
 
 
 

 
 
Loan fees and charges
29,916

 
33,360

 
34,783

 
63,276

 
64,757

Deposit fees and charges
5,193

 
5,146

 
5,039

 
10,339

 
9,961

Loan administration
36,157

 
20,356

 
25,012

 
56,513

 
63,898

Gain (loss) on trading securities
21

 
51

 
3,711

 
72

 
(2,260
)
Net gain on loan sales
144,791

 
137,540

 
212,666

 
282,331

 
417,518

Net transactions costs on sales of mortgage servicing rights
(4,264
)
 
(4,219
)
 
(983
)
 
(8,483
)
 
(3,299
)
Net gain on investment securities available-for-sale
—

 
—

 
20

 
—

 
330

Net gain (loss) on sale of assets
1,064

 
958

 
(26
)
 
2,022

 
—

Total other-than-temporary impairment (loss) gain
(8,789
)
 
—

 
(1,707
)
 
(8,789
)
 
2,810

Gain (loss) recognized in other comprehensive income before taxes
—

 
—

 
690

 
—

 
(5,002
)
Net impairment losses recognized in earnings
(8,789
)
 
—

 
(1,017
)
 
(8,789
)
 
(2,192
)
Representation and warranty reserve - change in estimate
(28,940
)
 
(17,395
)
 
(46,028
)
 
(46,336
)
 
(106,566
)
Other non-interest income
44,810

 
9,146

 
7,157

 
53,957

 
19,563

    Total non-interest income
219,959

 
184,943

 
240,334

 
404,902

 
461,710

Non-Interest Expense
 
 
 
 
 
 


 
 
Compensation and benefits
70,935

 
77,208

 
65,402

 
148,144

 
131,390

Commissions
15,402

 
17,462

 
17,838

 
32,863

 
33,305

Occupancy and equipment
22,198

 
19,375

 
18,706

 
41,574

 
35,656

Asset resolution
15,921

 
16,445

 
20,851

 
32,366

 
57,621

Federal deposit insurance premiums
7,791

 
11,240

 
12,104

 
19,031

 
24,428

Loan processing expense
15,389

 
17,111

 
11,132

 
32,500

 
21,818

Legal and professional expense
16,390

 
28,839

 
13,084

 
45,229

 
29,901

Other non-interest expense
10,371

 
8,910

 
10,380

 
19,279

 
24,124

    Total non-interest expense
174,397

 
196,590

 
169,497

 
370,986

 
358,243


9

Flagstar Bancorp, Inc.
 Consolidated Statements of Operations
 (Dollars in thousands, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
Income before federal income taxes
61,095

 
23,607

 
87,887

 
84,702

 
80,577

(Benefit) provision for federal income taxes
(6,108
)
 
—

 
500

 
(6,108
)
 
500

Net income
67,203

 
23,607

 
87,387

 
90,810

 
80,077

Preferred stock dividend/accretion
(1,449
)
 
(1,438
)
 
(1,417
)
 
(2,887
)
 
(2,824
)
Net income applicable to common stockholders
$
65,754

 
$
22,169

 
$
85,970

 
$
87,923

 
$
77,253

Income per share
 
 
 
 
 
 
 
 
 
       Basic
$
1.11

 
$
0.33

 
$
1.48

 
$
1.44

 
$
1.26

       Diluted
$
1.10

 
$
0.33

 
$
1.47

 
$
1.43

 
$
1.26




10


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, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
Return on average assets
2.03
%
 
0.65
%
 
2.37
%
 
1.32
%
 
1.08
%
Return on average equity
21.23
%
 
7.55
%
 
31.09
%
 
14.57
%
 
13.78
%
Efficiency ratio
65.3
%
 
81.7
%
 
53.7
%
 
73.1
%
 
58.5
%
Efficiency ratio (credit-adjusted) (1)
53.5
%
 
69.8
%
 
41.1
%
 
61.1
%
 
41.8
%
Equity-to-assets ratio (average for the period)
9.56
%
 
8.57
%
 
7.62
%
 
9.06
%
 
7.81
%
Mortgage loans originated (2)
$
10,882,129

 
$
12,423,364

 
$
12,547,017

 
$
23,305,492

 
$
23,716,426

Other loans originated
$
67,763

 
$
74,739

 
$
203,584

 
$
142,503

 
$
475,029

Mortgage loans sold and securitized
$
11,123,821

 
$
12,822,879

 
$
12,777,311

 
$
23,946,700

 
$
23,607,109

Interest rate spread - bank only (3)
1.46
%
 
1.64
%
 
2.10
%
 
1.55
%
 
2.12
%
Net interest margin - bank only (4)
1.72
%
 
1.89
%
 
2.37
%
 
1.81
%
 
2.39
%
Interest rate spread - consolidated (3)
1.43
%
 
1.61
%
 
2.08
%
 
1.52
%
 
2.10
%
Net interest margin - consolidated (4)
1.66
%
 
1.83
%
 
2.32
%
 
1.75
%
 
2.34
%
Average common shares outstanding
56,053,922

 
55,973,888

 
55,740,558

 
56,014,126

 
55,701,431

Average fully diluted shares outstanding
56,419,163

 
56,415,057

 
56,182,130

 
56,417,122

 
56,008,232

Average interest-earning assets
$
11,311,945

 
$
12,075,212

 
$
12,943,237

 
$
11,691,470

 
$
12,791,952

Average interest paying liabilities
$
9,642,543

 
$
10,338,644

 
$
11,100,307

 
$
9,988,671

 
$
11,047,283

Average stockholder's equity
$
1,238,787

 
$
1,173,982

 
$
1,106,224

 
$
1,206,563

 
$
1,121,421

Charge-offs to average investment loans (annualized) (5)
6.96
%
 
2.93
%
 
3.24
%
 
4.88
%
 
6.18
%
Charge-offs, excluding one-time charge-off, to average investment loans (annualized) (5)(6)
3.56
%
 
2.93
%
 
3.24
%
 
3.24
%
 
6.18
%
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
Equity-to-assets ratio
9.84
%
 
9.04
%
 
8.23
%
 
8.20
%
Book value per common share
$
17.66

 
$
16.46

 
$
16.12

 
$
16.50

Number of common shares outstanding
56,077,528

 
56,033,204

 
55,863,053

 
55,772,262

Mortgage loans serviced for others
$
68,320,534

 
$
73,933,296

 
$
76,821,222

 
$
76,192,099

Weighted average service fee (basis points)
29.5

 
29.3

 
29.2

 
30.4

Capitalized value of mortgage servicing rights
1.07
%
 
0.98
%
 
0.93
%
 
0.84
%
Ratio of allowance for loan losses to non-performing loans held-for-investment (7)
94.2
%
 
78.5
%
 
76.3
%
 
66.5
%
Ratio of allowance for loan losses to loans held-for-investment (5) (7)
5.75
%
 
6.11
%
 
5.61
%
 
4.38
%
Ratio of non-performing assets to total assets (bank only)
2.71
%
 
3.70
%
 
3.70
%
 
3.75
%
Number of bank branches
111

 
111

 
111

 
111

Number of loan origination centers
40

 
41

 
31

 
30

Number of FTE employees (excluding loan officers and account executives)
3,418

 
3,456

 
3,328

 
3,184

Number of loan officers and account executives
341

 
322

 
334

 
336

(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)
Excludes loans carried under the fair value option.
(6)
Excludes charge-offs of $38.3 million related to the sale of non-performing loans and TDRs, during both the three and six months ended June 30, 2013, respectively.
(7)
Only includes non-performing loans held-for-investment.


11


Regulatory Capital
(Dollars in thousands)
(Unaudited)
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,390,582

11.00
%
 
$
1,318,770

10.14
%
 
$
1,295,841

9.26
%
 
$
1,295,962

9.07
%
Total adjusted tangible asset base
$
12,646,776

 
 
$
13,007,694

 
 
$
13,999,636

 
 
$
14,282,922

 
Tier 1 capital (to risk weighted assets) (1)
$
1,390,582

23.73
%
 
$
1,318,770

21.24
%
 
$
1,295,841

15.90
%
 
$
1,295,962

15.76
%
Total capital (to risk weighted assets) (1)
1,465,860

25.01
%
 
1,398,914

22.53
%
 
1,400,126

17.18
%
 
1,400,975

17.03
%
Risk weighted asset base
$
5,861,221

 
 
$
6,208,327

 
 
$
8,146,771

 
 
$
8,224,348

 

(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, 2013
 
March 31, 2013
 
June 30, 2012
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
10,882,129

99.4
%
 
$
12,423,364

99.4
%
 
$
12,547,017

98.4
%
    Other consumer (2)
11,659

0.1
%
 
8,553

0.1
%
 
6,501

0.1
%
Total consumer loans
10,893,788

99.5
%
 
12,431,917

99.5
%
 
12,553,518

98.5
%
Commercial loans (3)
56,104

0.5
%
 
66,186

0.5
%
 
197,083

1.5
%
Total loan originations
$
10,949,892

100.0
%
 
$
12,498,103

100.0
%
 
$
12,750,601

100.0
%
 
Six Months Ended
 
June 30, 2013
 
June 30, 2012
Consumer loans
 
 
 
 
 
    Mortgage (1)
$
23,305,492

99.4
%
 
$
23,716,426

98.1
%
    Other consumer (2)
20,212

0.1
%
 
10,980

—
%
Total consumer loans
23,325,704

99.5
%
 
23,727,406

98.1
%
Commercial loans (3)
122,291

0.5
%
 
464,049

1.9
%
Total loan originations
$
23,447,995

100.0
%
 
$
24,191,455

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.

12


Loans Held-for-Investment
(Dollars in thousands)
(Unaudited)
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
Consumer loans
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,627,979

58.5
%
 
$
2,991,394

63.1
%
 
$
3,009,251

55.3
%
 
$
3,102,137

47.4
%
Second mortgage
180,802

4.0
%
 
112,385

2.4
%
 
114,885

2.1
%
 
127,434

1.9
%
Warehouse lending
676,454

15.1
%
 
750,765

15.8
%
 
1,347,727

24.8
%
 
1,261,442

19.3
%
HELOC
321,576

7.2
%
 
167,815

3.5
%
 
179,447

3.3
%
 
198,228

3.0
%
Other
42,293

0.9
%
 
44,488

0.9
%
 
49,611

0.9
%
 
57,605

0.9
%
    Total consumer loans
3,849,104

85.7
%
 
4,066,847

85.7
%
 
4,700,921

86.4
%
 
4,746,846

72.5
%
Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
476,500

10.6
%
 
562,916

11.9
%
 
640,315

11.8
%
 
1,075,015

16.4
%
Commercial and industrial
160,259

3.6
%
 
107,688

2.3
%
 
90,565

1.7
%
 
569,288

8.7
%
Commercial lease financing
5,290

0.1
%
 
5,815

0.1
%
 
6,300

0.1
%
 
159,108

2.4
%
    Total commercial loans
642,049

14.3
%
 
676,419

14.3
%
 
737,180

13.6
%
 
1,803,411

27.5
%
Total loans held-for-investment
$
4,491,153

100.0
%
 
$
4,743,266

100.0
%
 
$
5,438,101

100.0
%
 
$
6,550,257

100.0
%


13

Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
Beginning balance
$
290,000

 
$
305,000

 
$
281,000

 
$
305,000

 
$
318,000

Provision for loan losses
31,563

 
20,415

 
58,428

 
51,978

 
173,101

Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(63,099
)
 
(25,692
)
 
(22,570
)
 
(88,791
)
 
(118,002
)
     Second mortgage
(2,033
)
 
(1,955
)
 
(4,057
)
 
(3,988
)
 
(9,340
)
     HELOC
(812
)
 
(2,061
)
 
(4,257
)
 
(2,873
)
 
(10,676
)
     Other
(587
)
 
(699
)
 
(728
)
 
(1,286
)
 
(1,918
)
 Total consumer loans
(66,531
)
 
(30,407
)
 
(31,612
)
 
(96,938
)
 
(139,936
)
Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
(21,350
)
 
(13,162
)
 
(31,277
)
 
(34,512
)
 
(76,310
)
     Commercial and industrial
—

 
—

 
(23
)
 
—

 
(1,604
)
 Total commercial loans
(21,350
)
 
(13,162
)
 
(31,300
)
 
(34,512
)
 
(77,914
)
Total charge-offs
(87,881
)
 
(43,569
)
 
(62,912
)
 
(131,450
)
 
(217,850
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
6,687

 
5,353

 
6,582

 
12,040

 
7,132

     Second mortgage
87

 
390

 
1,039

 
477

 
1,288

     HELOC
457

 
105

 
93

 
562

 
350

     Other
(80
)
 
454

 
395

 
374

 
607

Total consumer loans
7,151

 
6,302

 
8,109

 
13,453

 
9,377

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
2,159

 
1,843

 
2,344

 
4,002

 
4,336

     Commercial and industrial
8

 
9

 
31

 
17

 
36

Total commercial loans
2,167

 
1,852

 
2,375

 
4,019

 
4,372

Total recoveries
9,318

 
8,154

 
10,484

 
17,472

 
13,749

Charge-offs, net of recoveries
(78,563
)
 
(35,415
)
 
(52,428
)
 
(113,978
)
 
(204,101
)
Ending balance
$
243,000

 
$
290,000

 
$
287,000

 
$
243,000

 
$
287,000

Net charge-off ratio (annualized) (1)
6.96
%
 
2.93
%
 
3.24
%
 
4.88
%
 
6.18
%
Net charge-off ratio, excluding one-time charge-off (annualized) (1)(2)
3.56
%
 
2.93
%
 
3.24
%
 
3.24
%
 
6.18
%

(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $38.3 million related to the sale of non-performing loans and TDRs, during both the three and six months ended June 30, 2013, respectively.


14

Representation and Warranty Reserve
(Dollars in thousands)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
 Balance, beginning of period
$
185,000

 
$
193,000

 
$
142,000

 
$
193,000

 
$
120,000

 Provision
 
 
 
 
 
 
 
 
 
 
Charged to gain on sale for current loan sales
5,052

 
5,817

 
5,643

 
10,870

 
10,694

 
Charged to representation and warranty reserve - change in estimate
28,941

 
17,396

 
46,028

 
46,336

 
106,566

 
Total
33,993

 
23,213

 
51,671

 
57,206

 
117,260

 Charge-offs, net
(33,993
)
 
(31,213
)
 
(32,671
)
 
(65,206
)
 
(76,260
)
 Balance, end of period
$
185,000

 
$
185,000

 
$
161,000

 
$
185,000

 
$
161,000


Composition of Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
June 30, 2013
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
67,264

 
$
110,070

 
$
177,334

   Second mortgage
10,870

 
7,969

 
18,839

   Warehouse lending 
721

 
—

 
721

   HELOC
11,735

 
3,133

 
14,868

   Other
1,780

 
—

 
1,780

Total consumer loans
92,370

 
121,172

 
213,542

Commercial loans
 
 
 
 
 
   Commercial real estate
27,253

 
69

 
27,322

   Commercial and industrial
2,052

 
84

 
2,136

   Commercial lease financing 
—

 
—

 
—

Total commercial loans
29,305

 
153

 
29,458

Total allowance for loan losses
$
121,675

 
$
121,325

 
$
243,000

March 31, 2013
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
63,144

 
$
150,932

 
$
214,076

   Second mortgage
12,839

 
7,844

 
20,683

   Warehouse lending 
532

 
—

 
532

   HELOC
14,835

 
3,283

 
18,118

   Other
2,215

 
—

 
2,215

Total consumer loans
93,565

 
162,059

 
255,624

Commercial loans
 
 
 
 
 
   Commercial real estate
32,521

 
199

 
32,720

   Commercial and industrial
1,562

 
10

 
1,572

   Commercial lease financing 
84

 
—

 
84

Total commercial loans
34,167

 
209

 
34,376

Total allowance for loan losses
$
127,732

 
$
162,268

 
$
290,000






15

Non-Performing Loans and Assets
(Dollars in thousands)
(Unaudited)
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
Non-performing loans
$
161,725

 
$
223,388

 
$
254,581

 
$
298,511

Non-performing TDRs
24,025

 
56,498

 
60,516

 
58,240

Non-performing TDRs at inception but performing for less than six months
72,186

 
89,417

 
84,728

 
74,848

Total non-performing loans held-for-investment
257,936

 
369,303

 
399,825

 
431,599

 
 
 
 
 
 
 
 
Real estate and other non-performing assets, net
86,382

 
114,356

 
120,732

 
107,235

Non-performing assets held-for-investment, net
344,318

 
483,659

 
520,557

 
538,834

Non-performing loans held-for-sale
3,351

 
394

 
1,835

 
2,430

Total non-performing assets including loans held-for-sale
$
347,669

 
$
484,053

 
$
522,392

 
$
541,264

 
 
 
 
 
 
 
 
Ratio of non-performing assets to total assets (Bank only)
2.71
%
 
3.70
%
 
3.72
%
 
3.77
%
Ratio of non-performing loans held-for-investment to loans held-for-investment
5.74
%
 
7.79
%
 
7.35
%
 
6.59
%
Ratio of non-performing assets to loans held-for-investment and repossessed assets
7.52
%
 
9.96
%
 
9.36
%
 
8.09
%

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, 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

March 31, 2013
 
 
 
 
 
Consumer loans
$
58,368

$
20,481

$
303,168

$
382,017

$
4,066,847

Commercial loans
1,465

6,400

66,135

74,000

676,419

     Total loans
$
59,833

$
26,881

$
369,303

$
456,017

$
4,743,266

December 31, 2012
 
 
 
 
 
Consumer loans
$
66,687

$
18,578

$
313,418

$
398,683

$
4,700,921

Commercial loans
6,979

6,990

86,408

100,377

737,180

     Total loans
$
73,666

$
25,568

$
399,826

$
499,060

$
5,438,101

June 30, 2012
 
 
 
 
 
Consumer loans
$
62,123

$
24,762

$
293,474

$
380,359

$
4,746,846

Commercial loans
1,719

2,345

138,125

142,189

1,803,411

     Total loans
$
63,842

$
27,107

$
431,599

$
522,548

$
6,550,257




16

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, 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

March 31, 2013
 
 
 
 
 
 
 
Consumer loans
$
598,041

 
$
56,498

 
$
87,971

 
$
742,510

Commercial loans
—

 
—

 
1,446

 
1,446

Total TDRs
$
598,041

 
$
56,498

 
$
89,417

 
$
743,956

December 31, 2012
 
 
 
 
 
 
 
Consumer loans
$
588,475

 
$
60,493

 
$
82,695

 
$
731,663

Commercial loans
1,287

 
23

 
2,033

 
3,343

Total TDRs
$
589,762

 
$
60,516

 
$
84,728

 
$
735,006

June 30, 2012
 
 
 
 
 
 
 
Consumer loans
$
574,359

 
$
57,914

 
$
68,398

 
$
700,671

Commercial loans
1,738

 
326

 
6,450

 
8,514

Total TDRs
$
576,097

 
$
58,240

 
$
74,848

 
$
709,185


17

Gain on Loan Sales and Securitizations
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
Description
 
 
 
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
 
 
 
Value of interest rate locks
$
(75,040
)
(0.68
)%
 
$
(35,327
)
(0.28
)%
 
$
64,123

0.50
 %
Value of forward sales
166,941

1.51
 %
 
(4,339
)
(0.03
)%
 
(47,126
)
(0.37
)%
Fair value of loans held-for-sale
(19,336
)
(0.17
)%
 
87,644

0.68
 %
 
176,741

1.38
 %
LOCOM adjustments on loans held-for-investment
—

—
 %
 
(1,797
)
(0.01
)%
 
—

—
 %
Total valuation gains
72,565

0.66
 %
 
46,181

0.36
 %
 
193,738

1.51
 %
 
 
 
 
 
 
 
 
 
Sales gains (losses)
 
 
 
 
 
 
 
 
Marketing gains, net of adjustments
28,753

0.25
 %
 
25,859

0.21
 %
 
180,691

1.41
 %
Pair-off (losses) gains
48,525

0.44
 %
 
71,317

0.55
 %
 
(156,120
)
(1.22
)%
Provision for representation and warranty reserve
(5,052
)
(0.05
)%
 
(5,817
)
(0.05
)%
 
(5,643
)
(0.04
)%
Total sales gains
72,226

0.64
 %
 
91,359

0.71
 %
 
18,928

0.15
 %
Total gain on loan sales and securitizations
$
144,791

 
 
$
137,540

 
 
$
212,666

 
Total mortgage rate lock commitments (gross)
$
12,359,000

 
 
$
12,142,000

 
 
$
17,534,000

 
Total loan sales and securitizations
$
11,123,821

1.30
 %
 
$
12,822,879

1.07
 %
 
$
12,777,311

1.66
 %
Total mortgage rate lock commitments (fallout adjusted) (1)
$
9,837,573

1.47
 %
 
$
9,848,417

1.40
 %
 
$
13,346,568

1.59
 %
 
Six Months Ended
 
June 30, 2013
 
June 30, 2012
Description
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
Value of interest rate locks
$
(110,367
)
(0.46
)%
 
$
61,423

0.26
 %
Value of forward sales
162,602

0.68
 %
 
(3,316
)
(0.01
)%
Fair value of loans held-for-sale
68,307

0.29
 %
 
297,805

1.26
 %
LOCOM adjustments on loans held-for-investment
(1,797
)
(0.01
)%
 
(21
)
—
 %
Total valuation gains
118,745

0.5
 %
 
355,891

1.51
 %
 
 
 
 
 
 
Sales gains (losses)
 
 
 
 
 
Marketing gains, net of adjustments
54,612

0.23
 %
 
312,203

1.33
 %
Pair-off gains (losses)
119,842

0.5
 %
 
(239,883
)
(1.02
)%
Provision for representation and warranty reserve
(10,869
)
(0.05
)%
 
(10,693
)
(0.05
)%
Total sales gains
163,585

0.68
 %
 
61,627

0.26
 %
Total gain on loan sales and securitizations
$
282,330

 
 
$
417,518

 
Total mortgage rate lock commitments volume
$
24,501,000

 
 
$
32,401,000

 
Total loan sales and securitizations
$
23,946,700

1.18
 %
 
$
23,607,109

1.77
 %
Total mortgage rate lock commitments (fallout adjusted) (1)
$
19,685,990

1.43
 %
 
$
24,072,186

1.73
 %

(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.


18

Average Balances, Yields and Rates
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
2,630,309

3.38
%
 
$
3,616,195

2.97
%
 
$
2,977,233

3.91
%
Loans repurchased with government guarantees
1,540,798

3.43
%
 
1,774,235

3.38
%
 
2,067,022

3.36
%
Loans held-for-investment
 
 
 
 
 
 
 
 
Consumer loans (1) (2)
3,845,503

4.08
%
 
4,136,420

4.15
%
 
4,635,259

4.38
%
Commercial loans (1)
669,253

4.18
%
 
698,269

4.27
%
 
1,835,897

3.97
%
Total loans held-for-investment
4,514,756

4.10
%
 
4,834,689

4.16
%
 
6,471,156

4.27
%
Investment securities available-for-sale or trading
240,296

3.06
%
 
348,525

2.41
%
 
642,389

4.27
%
Interest-earning deposits and other
2,385,786

0.25
%
 
1,501,568

0.26
%
 
785,437

0.24
%
Total interest-earning assets
11,311,945

3.01
%
 
12,075,212

3.15
%
 
12,943,237

3.80
%
Other assets
1,649,000

 
 
1,617,359

 
 
1,571,239

 
Total assets
$
12,960,945

 
 
$
13,692,571

 
 
$
14,514,476

 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
Demand deposits
$
395,137

0.21
%
 
$
388,466

0.25
%
 
$
361,916

0.24
%
Savings deposits
2,627,166

0.73
%
 
2,316,859

0.75
%
 
1,829,592

0.75
%
Money market deposits
345,694

0.26
%
 
387,699

0.35
%
 
482,296

0.49
%
Certificate of deposits
2,353,775

0.91
%
 
2,931,558

0.90
%
 
3,113,134

1.27
%
Total retail deposits
5,721,772

0.74
%
 
6,024,582

0.76
%
 
5,786,938

0.98
%
Government deposits
 
 
 
 
 
 
 
 
Demand deposits
114,707

0.40
%
 
98,442

0.44
%
 
95,805

0.49
%
Savings deposits
169,122

0.29
%
 
308,811

0.47
%
 
272,119

0.56
%
Certificate of deposits
413,177

0.44
%
 
471,842

0.60
%
 
361,315

0.66
%
Total government deposits
697,006

0.40
%
 
879,095

0.53
%
 
729,239

0.60
%
Wholesale deposits
73,910

5.07
%
 
81,976

4.92
%
 
339,018

3.78
%
Total deposits
6,492,688

0.75
%
 
6,985,653

0.78
%
 
6,855,195

1.07
%
Federal Home Loan Bank advances
2,901,102

3.34
%
 
3,105,556

3.16
%
 
3,996,527

2.76
%
Other
248,753

2.65
%
 
247,435

2.71
%
 
248,585

2.81
%
Total interest-bearing liabilities
9,642,543

1.58
%
 
10,338,644

1.54
%
 
11,100,307

1.72
%
Other liabilities (3)
2,079,615

 
 
2,179,945

 
 
2,307,945

 
Stockholder's equity
1,238,787

 
 
1,173,982

 
 
1,106,224

 
Total liabilities and stockholder's equity
$
12,960,945

 
 
$
13,692,571

 
 
$
14,514,476

 

(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)
Excludes loans that are consolidated variable interest entities (VIEs) and carried at fair value.
(3)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.

19

Average Balances, Yields and Rates
(Dollars in thousands)
(Unaudited)
 
Six Months Ended
 
June 30, 2013
 
June 30, 2012
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
Loans held-for-sale
$
3,120,529

3.14
%
 
$
2,685,479

3.97
%
Loans repurchased with government guarantees
1,656,872

3.41
%
 
2,044,680

3.37
%
Loans held-for-investment
 
 
 
 
 
Consumer loans (1) (2)
3,990,157

4.12
%
 
4,813,043

4.36
%
Commercial loans (1)
683,681

4.23
%
 
1,795,907

4.09
%
Total loans held-for-investment
4,673,838

4.13
%
 
6,608,950

4.28
%
Investment securities available-for-sale or trading
294,112

2.67
%
 
714,332

4.32
%
Interest-earning deposits and other
1,946,119

0.25
%
 
738,511

0.24
%
Total interest-earning assets
11,691,470

3.08
%
 
12,791,952

3.84
%
Other assets
1,633,267

 
 
1,568,874

 
Total assets
$
13,324,737

 
 
$
14,360,826

 
Interest-Bearing Liabilities
 
 
 
 
 
Retail deposits
 
 
 
 
 
Demand deposits
$
391,820

0.23
%
 
$
354,229

0.25
%
Savings deposits
2,472,870

0.74
%
 
1,719,894

0.79
%
Money market deposits
366,581

0.30
%
 
484,602

0.51
%
Certificate of deposits
2,641,070

0.90
%
 
3,099,009

1.31
%
Total retail deposits
5,872,341

0.75
%
 
5,657,734

1.01
%
Government deposits
 
 
 
 
 
Demand deposits
106,619

0.42
%
 
97,265

0.49
%
Savings deposits
238,581

0.40
%
 
271,360

0.57
%
Certificate of deposits
442,347

0.52
%
 
376,985

0.66
%
Total government deposits
787,547

0.47
%
 
745,610

0.61
%
Wholesale deposits
77,921

4.99
%
 
348,275

3.76
%
Total deposits
6,737,809

0.77
%
 
6,751,619

1.11
%
FHLB advances
3,002,764

3.25
%
 
4,047,079

2.72
%
Other
248,098

2.68
%
 
248,585

2.84
%
Total interest-bearing liabilities
9,988,671

1.56
%
 
11,047,283

1.74
%
Other liabilities (3)
2,129,503

 
 
2,192,122

 
Stockholder's equity
1,206,563

 
 
1,121,421

 
Total liabilities and stockholder's equity
$
13,324,737

 
 
$
14,360,826

 

(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)
Excludes loans that are consolidated variable interest entities (VIEs) and carried at fair value.
(3)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.


20


Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
March 31, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
Pre-tax, pre-credit-cost revenue
 
 
 
 
 
 
 
 
 
Income before tax provision
$
61,095

 
$
23,607

 
$
87,887

 
$
84,702

 
$
80,577

Add back
 
 
 
 
 
 
 
 
 
Provision for loan losses
31,563

 
20,415

 
58,428

 
51,978

 
173,101

Asset resolution
15,921

 
16,445

 
20,851

 
32,366

 
57,621

Other than temporary impairment on AFS investments
8,789

 
—

 
1,017

 
8,789

 
2,192

Representation and warranty reserve - change in estimate
28,940

 
17,395

 
46,028

 
46,336

 
106,566

Write down of residual interest
—

 
174

 
1,244

 
174

 
1,653

Total credit-related costs
85,213

 
54,429

 
127,568

 
139,643

 
341,133

Pre-tax, pre-credit-cost net revenue
$
146,308

 
$
78,036

 
$
215,455

 
$
224,345

 
$
421,710

 
 
 
 
 
 
 
 
 
 
Efficiency ratio (credit-adjusted)
 
 
 
 
 
 
 
 
 
Net interest income (a)
$
47,096

 
$
55,669

 
$
75,478

 
$
102,764

 
$
150,211

Non-interest income (b)
219,959

 
184,943

 
240,334

 
404,902

 
461,710

Add: Representation and warranty reserve - change in estimate (d)
28,940

 
17,395

 
46,028

 
46,336

 
106,566

Adjusted income
295,995

 
258,007

 
361,840

 
554,002

 
718,487

Non-interest expense (c)
174,397

 
196,590

 
169,497

 
370,986

 
358,243

Less: Asset resolution expense (e)
(15,921
)
 
(16,445
)
 
(20,851
)
 
(32,366
)
 
(57,621
)
Adjusted non-interest expense
$
158,476

 
$
180,145

 
$
148,646

 
$
338,620

 
$
300,622

Efficiency ratio (c/(a+b))
65.3
%
 
81.7
%
 
53.7
%
 
73.1
%
 
58.5
%
Efficiency ratio (credit-adjusted) ((c-e)/((a+b)+d)))
53.5
%
 
69.8
%
 
41.1
%
 
61.1
%
 
41.8
%
 
June 30, 2013
 
March 31, 2013
 
December 31, 2012
 
June 30, 2012
Non-performing assets / Tier 1 capital + allowance for loan losses
 
 
 
 
 
 
 
Non-performing assets
$
344,318

 
$
483,659

 
$
520,557

 
$
538,834

Tier 1 capital (1)
1,390,582

 
1,318,770

 
1,295,841

 
1,295,962

Allowance for loan losses
243,000

 
290,000

 
305,000

 
287,000

Tier 1 capital + allowance for loan losses
$
1,633,582

 
$
1,608,770

 
$
1,600,841

 
$
1,582,962

Non-performing assets / Tier 1 capital + allowance for loan losses
21.1
%
 
30.1
%
 
32.5
%
 
34.0
%

(1)
Represents Tier 1 capital for Bank.


21