EX-99.1 2 pressreleasethirdquarter2013.htm EXHIBIT 99.1 Press Release Third Quarter 2013


EXHIBIT 99.1

NEWS RELEASE
For more information, contact:        
Paul D. Borja
Chief Financial Officer
Bradley T. Howes
Director of Investor Relations
(248) 312-2000
                                
                                        
Flagstar Reports Third Quarter 2013 Net Income of $12.8 million or $0.16 per Diluted Share

Results demonstrate the Company’s continued progress reducing risk, improving credit performance and disposing of legacy assets

Non-performing loans declined by 46 percent, TDRs decreased by 21 percent, while allowance coverage ratio increased to 153 percent

Purchase mortgage originations increased 17 percent, reflecting industry shift to more purchase-driven market

Executing initiatives to optimize cost structure; non-interest expense decreased by $16 million during quarter, with further savings anticipated

TROY, Mich. (October 22, 2013) - Flagstar Bancorp, Inc. (NYSE:FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported third quarter 2013 net income applicable to common stockholders of $12.8 million, or $0.16 per share (diluted), as compared to $65.8 million, or $1.10 per share (diluted), in the second quarter 2013 and $79.7 million, or $1.36 per share (diluted), in the third quarter 2012. Book value per common share increased to $17.96 at September 30, 2013, as compared to $17.66 at June 30, 2013.

"As expected, mortgage-related revenues were lower this quarter, with higher interest rates driving a significant decline in refinance volume," said Sandro DiNello, the Company's President and Chief Executive Officer. "The 17 percent increase in purchase mortgage originations, along with improved credit performance and decreased fixed and variable expenses, helped to partially offset the reduction in refinance activity."

DiNello continued, "Mortgage banking continues to be a key component of Flagstar’s overall strategy, and we are adapting to a shift in the mortgage industry from a primarily refinance-driven market to a purchase market by further reducing our cost structure and focusing our efforts on appropriate growth opportunities. We also have worked to reduce various risks in the organization. At the same time, we increased our capital and liquidity position, and improved our reserve coverage, to provide Flagstar with the ability to capitalize on growth opportunities and deliver improved shareholder returns despite a weaker mortgage environment."


1

"Our third quarter results demonstrate significant progress in our ongoing efforts to optimize Flagstar’s cost structure, improve the Company’s risk profile and dispose of legacy assets," said Lee Smith, the Company’s Chief Operating Officer. "During the third quarter, we executed a series of company-wide expense cutting initiatives, leading to a reduction in non-interest expense by almost $16 million from the prior quarter. We sold approximately $167 million (unpaid principle balance) of non-performing loans and troubled debt restructurings, which significantly improved asset quality ratios and contributed to lower credit costs. Total non-performing loans decreased to the lowest level since 2007, and our allowance increased to over 150 percent coverage of non-performing loans."

Smith added, "We have made great progress in addressing Flagstar’s legacy issues and believe our actions have significantly improved the Company’s financial performance and have placed Flagstar in a position to drive diversified and sustainable long-term revenue growth. We are also working to create a sub-servicing platform which we believe will give us the ability to further diversify and increase revenues in the future."

Third Quarter 2013 Highlights:

•
Net income applicable to common stockholders decreased to $12.8 million, as compared to $65.8 million in the prior quarter (which included the benefit of $44.1 million in income arising from the settlement agreements).
◦
Gain on loan sales decreased by $69.7 million from the prior quarter.
◦
Net interest income decreased by $4.4 million from the prior quarter.
◦
Total credit-related costs decreased by $59.7 million from the prior quarter.
◦
Non-interest expense decreased by $15.9 million from the prior quarter.

•
Book value per common share increased to $17.96, compared to $17.66 in the prior quarter.

•
Tier 1 leverage ratio increased by 98 basis points from the prior quarter to 11.98 percent.

•
Total mortgage originations decreased by 28.9 percent from the prior quarter to $7.7 billion, driven by a decline in refinance mortgage originations.
◦
Purchase mortgage originations increased by 17.0 percent from the prior quarter, partially offsetting the decline in refinance mortgage originations.

•
Credit performance continued to improve:
◦
Sold $167.2 million in unpaid principal balance of residential first mortgage non-performing loans and total troubled debt restructuring loans ("TDRs"), resulting in a net gain (after broker fees) of $1.6 million.
◦
Total non-performing loans decreased by 46.2 percent to $138.8 million.
◦
Total TDRs decreased by 20.9 percent to $432.7 million, of which $387.9 million were performing.
◦
Ratio of allowance for loan losses to non-performing loans held-for-investment increased to 152.6 percent.
◦
Net charge-offs decreased to $40.1 million, as compared to $78.6 million in the prior quarter.

Net Interest Income

Third quarter 2013 net interest income decreased to $42.7 million, as compared to $47.1 million for the second quarter 2013 and $73.1 million for the third quarter 2012. The decrease from the prior quarter is in-line with expectations and largely due to a decrease in the average balance of interest-earning assets, primarily within the residential first mortgage loan (both available-for-sale and held-for-investment) and warehouse loan portfolios. These decreases in average balances were partially offset by an increase in the yield earned on residential first mortgage loans held-for-sale and an improvement in the Bank's deposit mix. Net interest margin for the Bank decreased to 1.68 percent for third quarter 2013, as compared to 1.72 percent for the second quarter 2013 and 2.21 percent for the third quarter 2012.


2

The average cost of funds for the third quarter 2013 was 1.58 percent, unchanged from the second quarter 2013 and decreased from 1.73 percent for the third quarter 2012. While the average cost of funds was flat from the prior quarter, the average cost of total deposits decreased to 0.67 percent for the third quarter 2013, as compared to 0.75 percent for the second quarter 2013 and 1.02 percent for the third quarter 2012. The decrease from the prior quarter was driven primarily by a reduction in higher-cost retail certificates of deposit and a decrease in the average rate paid on retail savings accounts.

Non-interest Income

Third quarter 2013 non-interest income decreased to $134.3 million, as compared to $220.0 million for the second quarter 2013 and $273.7 million for the third quarter 2012. The decrease from the prior quarter was driven by a decrease in net gain on loan sales, partially offset by a decrease in representation and warranty provision - change in estimate (discussed in Credit-Related Costs and Asset Quality, below). The Company's non-interest income in the prior quarter included $36.8 million of the $44.1 in total income related to settlement agreements with Assured and MBIA.

Third quarter 2013 net gain on loan sales decreased to $75.1 million, as compared to $144.8 million for the second quarter 2013 and $334.4 million for the third quarter 2012. The decrease from the prior quarter reflects both a lower level of mortgage rate lock commitments (given the rising interest rate environment) and a decrease in gain on loan sale margin. Fallout adjusted mortgage rate lock commitments were $6.6 billion for the third quarter 2013, a 32.9 percent decrease from the prior quarter.

Mortgage originations also decreased to $7.7 billion for the third quarter 2013, as compared to $10.9 billion for second quarter 2013 and $14.5 billion for the third quarter 2012. The decrease from the prior quarter was driven by a decline in refinance originations, consistent with the increase in mortgage interest rate levels as compared to prior quarter. The decrease in refinance originations was partially offset by an increase in purchase mortgage originations, which increased by 17.0 percent from the prior quarter. Purchase originations comprised 47.6 percent of the Company's overall residential first mortgage originations in the third quarter 2013, an increase from 28.9 percent in the prior quarter, consistent with the industry shift to a more purchase-driven market.
      
Gain on loan sale margin (based on the amount of rate lock commitments net of estimated cancellations, or "fallout-adjusted locks") decreased to 1.14 percent for the third quarter 2013, as compared to 1.47 percent for the second quarter 2013 and 2.39 percent for the third quarter 2012. The decrease from the prior quarter was driven by a number of factors, principally due to lower hedge performance.

Loan fees and charges decreased to $20.9 million for the third quarter 2013, as compared to $29.9 million for the second quarter 2013 and $37.4 million for the third quarter 2012. Loan fees and charges are driven by mortgage loan originations, and the decline from the prior quarter was consistent with the decline in mortgage originations during the third quarter 2013.

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), was $30.4 million for the third quarter 2013, as compared to $36.2 million for the second quarter 2013 and $11.3 million for the third quarter 2012. The decrease from the prior quarter was primarily attributable to higher income in the second quarter 2013 resulting from bulk sales of mortgage servicing rights. There were no bulk sales of mortgage servicing rights during the third quarter 2013.
Non-interest Expense

Non-interest expense was $158.4 million for the third quarter 2013, as compared to $174.4 million for the second quarter 2013 and $233.5 million for the third quarter 2012. Excluding asset resolution expense (discussed in Credit-Related Costs and Asset Quality, below), non-interest expense would have totaled $142.1 million for the third quarter 2013, as compared to $158.5 million for the second quarter 2013 and $221.0 million for the third quarter 2012. The decrease from the prior quarter reflected lower variable expenses related to the decrease in

3

mortgage originations from the prior quarter, as well as reduced fixed costs as a result of the Company's ongoing initiatives to optimize its cost structure in light of the changing mortgage origination market.

Compensation and benefits decreased to $61.6 million for the third quarter 2013, as compared to $70.9 million for the second quarter 2013 and $67.4 million for the third quarter 2012. The decrease from the prior quarter was driven by a reduction in annual incentive compensation and a decrease in both headcount and contract employees, both consistent with the Company's ongoing efforts to optimize its cost structure and manage expenses more in line with revenues. Full-time equivalent employees plus loan officers and account executives decreased by 331 from the prior quarter, and the number of long-term subcontract employees decreased by 155 from the prior quarter.

Commission expense decreased to $12.1 million for the third quarter 2013, as compared to $15.4 million for the second quarter 2013 and $19.9 million for the third quarter 2012. Loan processing expense also decreased to $10.9 million for the third quarter 2013, as compared to $15.4 million for the second quarter 2013 and $15.7 million for the third quarter 2012. Commissions and loan processing expense are both related to mortgage originations, and the decreases were consistent with the decrease in mortgage originations during the third quarter 2013.

Third quarter 2013 occupancy and equipment expense decreased to $18.6 million, as compared to $22.2 million for the second quarter 2013 and $18.8 million for the third quarter 2012. The decrease from the prior quarter was primarily due to a reduction in capitalized projects, as a result of the Company's ongoing cost reduction initiatives.

Third quarter 2013 legal and professional expenses increased to $19.6 million, as compared to $16.4 million for the second quarter 2013, and decreased from $57.2 million for the third quarter 2012. The prior quarter included a $10.0 million release of reserves for pending and threatened litigation associated with the settlement agreements with Assured and MBIA. Excluding the $10.0 million release of reserves in the prior quarter, legal and professional expenses would have decreased by $6.8 million from the prior quarter, driven largely by a reduction in third party legal expenses as a result of the resolution of the Assured and MBIA litigation, as well as and lower expenses related to the Company's vendor management and procurement initiatives.

Credit-Related Costs and Asset Quality

For the third quarter 2013, total credit-related costs (see non-GAAP reconciliation) decreased to $25.6 million, as compared to $85.2 million for the second quarter 2013 and $189.7 million for the third quarter 2012. The decrease from the prior quarter was primarily driven by decreases in the provision for loan losses and the representation and warranty reserve - change in estimate.

At September 30, 2013, the Company's allowance for loan losses decreased to $207.0 million, as compared to $243.0 million at June 30, 2013 and $305.0 million at September 30, 2012. The decrease from the prior quarter was primarily the result of a release of reserves associated with the non-performing loans and TDRs sold during the quarter, as well as decreased reserves from normal loan run-off. At September 30, 2013, the ratio of the allowance for loan losses to non-performing loans held-for-investment increased to 152.6 percent, as compared to 94.2 percent at June 30, 2013 and 76.5 percent at September 30, 2012.

Net charge-offs for the third quarter were $40.1 million, a decrease of $38.5 million as compared to $78.6 million for the prior quarter, and a slight increase from $34.6 million for the third quarter 2012. Provision for loan losses decreased to $4.1 million for the third quarter 2013, as compared to $31.6 million for the prior quarter and $52.6 million for the third quarter 2012. The decrease from the prior quarter reflects the lower level of allowance for loan losses and the decrease in net charge-offs.

Total non-performing loans held-for-investment were $138.8 million at September 30, 2013, a decrease as compared to $257.9 million at June 30, 2013 and $398.9 million at September 30, 2012. The decrease from the prior quarter was driven by lower consumer non-performing loans reflecting the sales completed during the quarter, as well as lower commercial non-performing loans driven by discounted pay-offs and note sales. The ratio of non-

4

performing loans held-for-investment to loans held-for-investment also decreased to 3.46 percent at September 30, 2013, from 5.74 percent at June 30, 2013 and 6.09 percent at September 30, 2012.

Real estate-owned and other non-performing assets decreased to $66.5 million at September 30, 2013, as compared to $86.4 million at June 30, 2013 and $119.5 million at September 30, 2012. The decrease from the prior quarter was driven by sales of commercial real estate-owned properties and normal run-off in the consumer real estate-owned portfolio.

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 with the GSEs. At September 30, 2013, the representation and warranty reserve was $174.0 million, as compared to $185.0 million at June 30, 2013 and $202.0 million at September 30, 2012. The decrease from the prior quarter was consistent with a $14.1 million decrease in net charge-offs of loan repurchases from the prior quarter. As a result, provisions related to the representation and warranty reserve - change in estimate decreased to $5.2 million for the third quarter 2013, as compared to $28.9 million for the second quarter 2013 and $124.5 million for the third quarter 2012.

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which the Bank files claims with HUD) was $16.3 million for the third quarter 2013, relatively flat as compared to $15.9 million for the second quarter 2013 and increased from $12.5 million for the third quarter 2012.

Balance Sheet and Funding

Total assets decreased to $11.8 billion at September 30, 2013, as compared to $12.7 billion at June 30, 2013, driven primarily by decreases in the Company's loan portfolios, as a result of reduced mortgage production and the sales of non-performing loans and TDRs. These decreases were partially offset by a $402.5 million increase in investment securities available-for-sale, as the Company invested a portion of its excess cash.

Loans repurchased with government guarantees decreased to $1.2 billion at September 30, 2013, as compared to $1.5 billion at June 30, 2013 and $1.9 billion at September 30, 2012. This portfolio represents delinquent loans which have been repurchased from Ginnie Mae pools that are insured or guaranteed by the Federal Housing Administration. The balance of this portfolio has continued to decrease, driven primarily by normal pay-downs, re-sales and accelerated dispositions.

Total deposits decreased to $6.6 billion at September 30, 2013, as compared to $7.5 billion at June 30, 2013, due to lower funding needs resulting from a reduction in mortgage originations. This decrease was primarily driven by a reduction in higher-cost retail certificates of deposit.

At September 30, 2013, the Company had $2.6 billion of cash on hand and interest-earning deposits, as compared to $2.7 billion at June 30, 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 September 30, 2013, the Bank had medium-term outstanding borrowings from the FHLB of $2.9 billion and an additional $0.4 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 September 30, 2013, the Bank had a Tier 1 leverage ratio of 11.98 percent, as compared to 11.00 percent at June 30, 2013. At September 30, 2013, the Company had an equity-to-assets ratio of 10.78 percent.


5

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, October 23, 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 (800) 768-6563 toll free or (785) 830-7991, and use passcode: 9201691. 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: 9201691.

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. ("Flagstar") is the holding company for Flagstar Bank, FSB, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners. With $11.8 billion in total assets at September 30, 2013, Flagstar is the largest bank headquartered in Michigan. Flagstar operates 111 banking centers, all of which are located in Michigan and 45 home lending centers located in 19 states, which primarily originate one-to-four family residential first mortgage loans. Originating loans nationwide, Flagstar is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

Non-GAAP

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding the Company's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that are difficult to predict and could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement. Forward-looking statements contained in this press release and any information related to expectations about future events or results are based upon information available to the Company as of the date hereof. Forward-looking statements can be identified by such words as "anticipates," "intends," "plans," "seeks," "believes," "expects", "estimates," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements made regarding the Company's current expectations, plans or forecasts of its core business drivers, credit related costs, asset quality, capital adequacy and liquidity, the implementation of the Company's business plan and growth strategies, the suspension of dividend payments on preferred stock, the deferral of interest payment on trust preferred securities, the result of improvements to the Company's servicing processes, the Company's strategy for 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

6

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)
 
September 30, 2013
 
June 30, 2013
 
December 31, 2012
 
September 30, 2012
Assets
(Unaudited)
 
(Unaudited)
 
 
 
(Unaudited)
Cash and cash equivalents
 
 
 
 
 
 
 
Cash and cash items
$
68,228

 
$
51,252

 
$
38,070

 
$
53,883

Interest-earning deposits
2,482,882

 
2,653,191

 
914,723

 
949,514

Total cash and cash equivalents
2,551,110

 
2,704,443

 
952,793

 
1,003,397

    Trading securities
50,053

 
50,039

 
170,086

 
170,073

    Investment securities available-for-sale
495,423

 
92,930

 
184,445

 
198,861

Loans held-for-sale
1,879,290

 
2,331,458

 
3,939,720

 
3,251,936

Loans repurchased with government guarantees
1,231,765

 
1,509,365

 
1,841,342

 
1,931,163

Loans, net
 
 
 
 
 
 
 
Loans held-for-investment
4,013,507

 
4,491,153

 
5,438,101

 
6,552,399

Less: allowance for loan losses
(207,000
)
 
(243,000
)
 
(305,000
)
 
(305,000
)
Total loans held-for-investment, net
3,806,507

 
4,248,153

 
5,133,101

 
6,247,399

    Mortgage servicing rights
797,029

 
729,019

 
710,791

 
686,799

    Repossessed assets, net
66,530

 
86,382

 
120,732

 
119,468

    Federal Home Loan Bank stock
301,737

 
301,737

 
301,737

 
301,737

    Premises and equipment, net
229,117

 
227,771

 
219,059

 
211,981

    Other assets
399,254

 
453,720

 
508,206

 
776,408

Total assets
$
11,807,815

 
$
12,735,017

 
$
14,082,012

 
$
14,899,222

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
Non-interest bearing
$
1,002,472

 
$
1,182,204

 
$
1,309,649

 
$
2,504,873

Interest bearing
5,646,813

 
6,287,863

 
6,984,646

 
6,984,296

Total deposits
6,649,285

 
7,470,067

 
8,294,295

 
9,489,169

    Federal Home Loan Bank advances
2,907,598

 
2,900,000

 
3,180,000

 
3,088,000

    Long-term debt
360,389

 
367,415

 
247,435

 
248,560

    Representation and warranty reserve
174,000

 
185,000

 
193,000

 
202,000

Other liabilities
444,188

 
558,800

 
1,007,920

 
620,894

            Total liabilities
10,535,460

 
11,481,282

 
12,922,650

 
13,648,623

    Stockholders' Equity
 
 
 
 
 
 
 
Preferred stock
264,726

 
263,277

 
260,390

 
258,973

Common stock
561

 
561

 
559

 
558

    Additional paid in capital
1,478,391

 
1,477,484

 
1,476,569

 
1,475,380

    Accumulated other comprehensive income (loss)
4,429

 
988

 
(1,658
)
 
(2,042
)
    Accumulated deficit
(475,752
)
 
(488,575
)
 
(576,498
)
 
(482,270
)
            Total stockholders' equity
1,272,355

 
1,253,735

 
1,159,362

 
1,250,599

            Total liabilities and stockholders' equity
$
11,807,815

 
$
12,735,017

 
$
14,082,012

 
$
14,899,222





8

Flagstar Bancorp, Inc.
 Consolidated Statements of Operations
 (Dollars in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Interest Income
 
 
 
 
 
 
 
 
 
Loans
$
75,633

 
$
81,731

 
$
114,158

 
$
249,312

 
$
343,677

Investment securities available-for-sale or trading
1,465

 
1,838

 
4,912

 
5,397

 
20,333

Interest-earning deposits and other
1,709

 
1,489

 
672

 
4,145

 
1,546

    Total interest income
78,807

 
85,058

 
119,742

 
258,854

 
365,556

Interest Expense
 
 
 
 
 
 
 
 
 
Deposits
10,023

 
12,148

 
17,819

 
35,680

 
55,126

Federal Home Loan Bank advances
24,434

 
24,171

 
27,091

 
72,766

 
81,870

Other
1,665

 
1,643

 
1,753

 
4,960

 
5,270

    Total interest expense
36,122

 
37,962

 
46,663

 
113,406

 
142,266

Net interest income
42,685

 
47,096

 
73,079

 
145,448

 
223,290

Provision for loan losses
4,053

 
31,563

 
52,595

 
56,030

 
225,696

Net interest income (expense) after provision for loan losses
38,632

 
15,533

 
20,484

 
89,418

 
(2,406
)
Non-Interest Income
 
 
 
 
 
 

 
 
Loan fees and charges
20,876

 
29,916

 
37,359

 
84,152

 
102,116

Deposit fees and charges
5,410

 
5,193

 
5,255

 
15,749

 
15,216

Loan administration
30,434

 
36,157

 
11,099

 
86,947

 
74,997

Gain (loss) on trading securities
13

 
21

 
237

 
85

 
(2,023
)
Net gain on loan sales
75,073

 
144,791

 
334,427

 
357,404

 
751,945

Net transactions costs on sales of mortgage servicing rights
(1,763
)
 
(4,264
)
 
(1,332
)
 
(10,246
)
 
(4,631
)
Net gain on investment securities available-for-sale
—

 
—

 
2,616

 
—

 
2,946

Total other-than-temporary impairment (loss) gain
—

 
(8,789
)
 
—

 
(8,789
)
 
2,810

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

 
—

 
—

 
—

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

 
(8,789
)
 
—

 
(8,789
)
 
(2,192
)
Representation and warranty reserve - change in estimate
(5,205
)
 
(28,940
)
 
(124,492
)
 
(51,541
)
 
(231,058
)
Other non-interest income
9,458

 
45,874

 
8,568

 
65,437

 
28,132

    Total non-interest income
134,296

 
219,959

 
273,737

 
539,198

 
735,448

Non-Interest Expense
 
 
 
 
 
 


 
 
Compensation and benefits
61,552

 
70,935

 
67,386

 
209,696

 
198,776

Commissions
12,099

 
15,402

 
19,888

 
44,962

 
53,193

Occupancy and equipment
18,644

 
22,198

 
18,833

 
60,218

 
54,490

Asset resolution
16,295

 
15,921

 
12,487

 
48,661

 
70,108

Federal deposit insurance premiums
7,910

 
7,791

 
12,643

 
26,941

 
37,071

Loss on extinguishment of debt
—

 
—

 
15,246

 
—

 
15,246

Loan processing expense
10,890

 
15,389

 
15,662

 
43,390

 
37,480

Legal and professional expense
19,593

 
16,390

 
57,209

 
64,822

 
87,110

Other non-interest expense
11,453

 
10,371

 
14,137

 
30,732

 
38,261

    Total non-interest expense
158,436

 
174,397

 
233,491

 
529,422

 
591,735


9

Flagstar Bancorp, Inc.
 Consolidated Statements of Operations
 (Dollars in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Income before federal income taxes
14,492

 
61,095

 
60,730

 
99,194

 
141,307

(Benefit) provision for federal income taxes
220

 
(6,108
)
 
(20,380
)
 
(5,888
)
 
(19,880
)
Net income
14,272

 
67,203

 
81,110

 
105,082

 
161,187

Preferred stock dividend/accretion
(1,449
)
 
(1,449
)
 
(1,417
)
 
(4,336
)
 
(4,241
)
Net income applicable to common stockholders
$
12,823

 
$
65,754

 
$
79,693

 
$
100,746

 
$
156,946

Income per share
 
 
 
 
 
 
 
 
 
       Basic
$
0.16

 
$
1.11

 
$
1.37

 
$
1.61

 
$
2.63

       Diluted
$
0.16

 
$
1.10

 
$
1.36

 
$
1.59

 
$
2.61




10


Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Return on average assets
0.42
%
 
2.03
%
 
2.10
%
 
1.03
%
 
1.43
%
Return on average equity
4.05
%
 
21.23
%
 
25.78
%
 
10.95
%
 
18.04
%
Efficiency ratio
89.5
%
 
65.3
%
 
67.3
%
 
77.3
%
 
61.7
%
Efficiency ratio (credit-adjusted) (1)
78.0
%
 
53.5
%
 
46.9
%
 
65.3
%
 
43.8
%
Equity-to-assets ratio (average for the period)
10.26
%
 
9.56
%
 
8.16
%
 
9.44
%
 
7.93
%
Mortgage loans originated (2)
$
7,737,143

 
$
10,882,129

 
$
14,513,635

 
$
31,042,635

 
$
38,230,061

Other loans originated
$
93,347

 
$
67,763

 
$
165,668

 
$
235,850

 
$
640,697

Mortgage loans sold and securitized
$
8,344,737

 
$
11,123,821

 
$
13,876,626

 
$
32,291,437

 
$
37,483,736

Interest rate spread - bank only (3)
1.42
%
 
1.46
%
 
1.84
%
 
1.51
%
 
2.02
%
Net interest margin - bank only (4)
1.68
%
 
1.72
%
 
2.21
%
 
1.77
%
 
2.33
%
Interest rate spread - consolidated (3)
1.39
%
 
1.43
%
 
1.81
%
 
1.48
%
 
2.00
%
Net interest margin - consolidated (4)
1.62
%
 
1.66
%
 
2.16
%
 
1.71
%
 
2.28
%
Average common shares outstanding
56,096,376

 
56,053,922

 
55,801,692

 
56,041,844

 
55,735,095

Average fully diluted shares outstanding
56,541,089

 
56,419,163

 
56,233,165

 
56,458,898

 
56,083,757

Average interest-earning assets
$
10,564,417

 
$
11,311,945

 
$
13,476,917

 
$
11,311,033

 
$
13,021,941

Average interest paying liabilities
$
9,054,952

 
$
9,642,543

 
$
10,737,734

 
$
9,673,571

 
$
10,943,347

Average stockholder's equity
$
1,266,267

 
$
1,238,787

 
$
1,236,411

 
$
1,226,683

 
$
1,160,031

Charge-offs to average LHFI (5)
3.96
%
 
6.96
%
 
2.12
%
 
4.60
%
 
4.83
%
Charge-offs, to average LHFI adjusted (5)(6)
1.30
%
 
3.56
%
 
2.12
%
 
2.65
%
 
4.83
%
 
September 30, 2013
 
June 30, 2013
 
December 31, 2012
 
September 30, 2012
Equity-to-assets ratio
10.78
%
 
9.84
%
 
8.23
%
 
8.39
%
Book value per common share
$
17.96

 
$
17.66

 
$
16.12

 
$
17.76

Number of common shares outstanding
56,114,572

 
56,077,528

 
55,863,053

 
55,828,470

Mortgage loans serviced for others
$
74,200,317

 
$
68,320,534

 
$
76,821,222

 
$
82,414,799

Weighted average service fee (basis points)
29.3

 
29.5

 
29.2

 
30.1

Capitalized value of mortgage servicing rights
1.07
%
 
1.07
%
 
0.93
%
 
0.83
%
Ratio of allowance for loan losses to non-performing LHFI (7)
152.6
%
 
94.2
%
 
76.3
%
 
76.5
%
Ratio of allowance for loan losses to LHFI (5) (7)
5.50
%
 
5.75
%
 
5.61
%
 
4.65
%
Ratio of non-performing assets to total assets (bank only)
1.74
%
 
2.71
%
 
3.70
%
 
3.48
%
Number of bank branches
111

 
111

 
111

 
111

Number of loan origination centers
45

 
40

 
31

 
31

Number of FTE employees (excluding loan officers and account executives)
3,069

 
3,418

 
3,328

 
3,240

Number of loan officers and account executives
359

 
341

 
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 $26.8 million and $38.3 million related to the sale of non-performing loans and TDRs, during the three months ended September 30, 2013 and June 30, 2013, respectively, and $65.1 million during the nine months ended September 30, 2013.
(7)
Only includes non-performing loans held-for-investment.




11


Regulatory Capital
(Dollars in thousands)
(Unaudited)
 
September 30, 2013
 
June 30, 2013
 
December 31, 2012
 
September 30, 2012
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,402,423

11.98
%
 
$
1,390,582

11.00
%
 
$
1,295,841

9.26
%
 
$
1,379,701

9.31
%
Total adjusted tangible asset base
$
11,708,635

 
 
$
12,646,776

 
 
$
13,999,636

 
 
$
14,819,100

 
Tier 1 capital (to risk weighted assets) (1)
$
1,402,423

26.57
%
 
$
1,390,582

23.73
%
 
$
1,295,841

15.90
%
 
$
1,379,701

16.31
%
Total capital (to risk weighted assets) (1)
1,470,060

27.85
%
 
1,465,860

25.01
%
 
1,400,126

17.18
%
 
1,487,851

17.58
%
Risk weighted asset base
$
5,278,254

 
 
$
5,861,221

 
 
$
8,146,771

 
 
$
8,461,130

 

(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
 
September 30, 2013
 
June 30, 2013
 
September 30, 2012
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
7,737,142

98.8
%
 
$
10,882,129

99.4
%
 
$
14,513,635

98.8
%
    Other consumer (2)
24,811

0.3
%
 
11,659

0.1
%
 
8,489

0.1
%
Total consumer loans
7,761,953

99.1
%
 
10,893,788

99.5
%
 
14,522,124

98.9
%
Commercial loans (3)
68,537

0.9
%
 
56,104

0.5
%
 
157,179

1.1
%
Total loan originations
$
7,830,490

100.0
%
 
$
10,949,892

100.0
%
 
$
14,679,303

100.0
%
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
Consumer loans
 
 
 
 
 
    Mortgage (1)
$
31,042,635

99.3
%
 
$
38,230,061

98.3
%
    Other consumer (2)
45,023

0.1
%
 
19,469

0.1
%
Total consumer loans
31,087,658

99.4
%
 
38,249,530

98.4
%
Commercial loans (3)
190,827

0.6
%
 
621,228

1.6
%
Total loan originations
$
31,278,485

100.0
%
 
$
38,870,758

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)
 
September 30, 2013
 
June 30, 2013
 
December 31, 2012
 
September 30, 2012
Consumer loans
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,478,599

61.8
%
 
$
2,627,979

58.5
%
 
$
3,009,251

55.3
%
 
$
3,086,096

47.1
%
Second mortgage
174,383

4.3
%
 
180,802

4.0
%
 
114,885

2.1
%
 
122,286

1.9
%
Warehouse lending
390,348

9.7
%
 
676,454

15.1
%
 
1,347,727

24.8
%
 
1,307,292

20.0
%
HELOC
307,552

7.7
%
 
321,576

7.2
%
 
179,447

3.3
%
 
192,117

2.9
%
Other
39,043

1.0
%
 
42,293

0.9
%
 
49,611

0.9
%
 
53,188

0.8
%
    Total consumer loans
3,389,925

84.5
%
 
3,849,104

85.7
%
 
4,700,921

86.4
%
 
4,760,979

72.7
%
Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
420,879

10.4
%
 
476,500

10.6
%
 
640,315

11.8
%
 
1,005,498

15.3
%
Commercial and industrial
187,639

4.7
%
 
160,259

3.6
%
 
90,565

1.7
%
 
597,273

9.1
%
Commercial lease financing
15,064

0.4
%
 
5,290

0.1
%
 
6,300

0.1
%
 
188,649

2.9
%
    Total commercial loans
623,582

15.5
%
 
642,049

14.3
%
 
737,180

13.6
%
 
1,791,420

27.3
%
Total loans held-for-investment
$
4,013,507

100.0
%
 
$
4,491,153

100.0
%
 
$
5,438,101

100.0
%
 
$
6,552,399

100.0
%


13

Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Beginning balance
$
243,000

 
$
290,000

 
$
287,000

 
$
305,000

 
$
318,000

Provision for loan losses
4,053

 
31,563

 
52,595

 
56,030

 
225,696

Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(34,666
)
 
(63,099
)
 
(23,999
)
 
(123,456
)
 
(142,001
)
     Second mortgage
(1,534
)
 
(2,033
)
 
(3,990
)
 
(5,522
)
 
(13,330
)
     Warehouse lending
(45
)
 
—

 
—

 
(45
)
 
—

     HELOC
(872
)
 
(812
)
 
(1,483
)
 
(3,745
)
 
(12,159
)
     Other
(1,341
)
 
(587
)
 
(892
)
 
(2,627
)
 
(2,810
)
 Total consumer loans
(38,458
)
 
(66,531
)
 
(30,364
)
 
(135,395
)
 
(170,300
)
Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
(8,419
)
 
(21,350
)
 
(15,532
)
 
(42,931
)
 
(91,842
)
     Commercial and industrial
(302
)
 
—

 
(12
)
 
(302
)
 
(1,616
)
 Total commercial loans
(8,721
)
 
(21,350
)
 
(15,544
)
 
(43,233
)
 
(93,458
)
Total charge-offs
(47,179
)
 
(87,881
)
 
(45,908
)
 
(178,628
)
 
(263,758
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
2,256

 
6,687

 
5,899

 
14,296

 
13,031

     Second mortgage
348

 
87

 
428

 
825

 
1,716

     HELOC
143

 
457

 
44

 
705

 
394

     Other
470

 
(80
)
 
448

 
844

 
1,055

Total consumer loans
3,217

 
7,151

 
6,819

 
16,670

 
16,196

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
3,860

 
2,159

 
4,461

 
7,862

 
8,797

     Commercial and industrial
49

 
8

 
33

 
66

 
69

Total commercial loans
3,909

 
2,167

 
4,494

 
7,928

 
8,866

Total recoveries
7,126

 
9,318

 
11,313

 
24,598

 
25,062

Charge-offs, net of recoveries
(40,053
)
 
(78,563
)
 
(34,595
)
 
(154,030
)
 
(238,696
)
Ending balance
$
207,000

 
$
243,000

 
$
305,000

 
$
207,000

 
$
305,000

Net charge-off ratio (annualized) (1)
3.96
%
 
6.96
%
 
2.12
%
 
4.60
%
 
4.83
%
Net charge-off ratio, adjusted (annualized) (1)(2)
1.30
%
 
3.56
%
 
2.12
%
 
2.65
%
 
4.83
%

(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $26.8 million and $38.3 million related to the sale of non-performing loans and TDRs, during the three months ended September 30, 2013 and June 30, 2013, respectively, and $65.1 million during the nine months ended September 30, 2013.


14

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

 
$
185,000

 
$
161,000

 
$
193,000

 
$
120,000

 Provision
 
 
 
 
 
 
 
 
 
 
Charged to gain on sale for current loan sales
3,719

 
5,052

 
6,432

 
14,588

 
17,126

 
Charged to representation and warranty reserve - change in estimate
5,205

 
28,941

 
124,492

 
51,541

 
231,058

 
Total
8,924

 
33,993

 
130,924

 
66,129

 
248,184

 Charge-offs, net
(19,924
)
 
(33,993
)
 
(89,924
)
 
(85,129
)
 
(166,184
)
 Balance, end of period
$
174,000

 
$
185,000

 
$
202,000

 
$
174,000

 
$
202,000


Composition of Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
September 30, 2013
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
65,490

 
$
81,087

 
$
146,577

   Second mortgage
10,124

 
8,571

 
18,695

   Warehouse lending 
408

 
—

 
408

   HELOC
8,567

 
540

 
9,107

   Other
2,130

 
—

 
2,130

Total consumer loans
86,719

 
90,198

 
176,917

Commercial loans
 
 
 
 
 
   Commercial real estate
25,331

 
1,161

 
26,492

   Commercial and industrial
3,407

 
88

 
3,495

   Commercial lease financing 
96

 
—

 
96

Total commercial loans
28,834

 
1,249

 
30,083

Total allowance for loan losses
$
115,553

 
$
91,447

 
$
207,000

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






15

Non-Performing Loans and Assets
(Dollars in thousands)
(Unaudited)
 
September 30, 2013
 
June 30, 2013
 
December 31, 2012
 
September 30, 2012
Non-performing loans
$
94,062

 
$
161,725

 
$
254,582

 
$
289,468

Non-performing TDRs
21,104

 
24,025

 
60,516

 
55,396

Non-performing TDRs at inception but performing for less than six months
23,638

 
72,186

 
84,728

 
54,084

Total non-performing loans held-for-investment
138,804

 
257,936

 
399,826

 
398,948

Real estate and other non-performing assets, net
66,530

 
86,382

 
120,732

 
119,468

Non-performing assets held-for-investment, net
205,334

 
344,318

 
520,558

 
518,416

Non-performing loans held-for-sale
3,099

 
3,351

 
1,835

 
2,086

Total non-performing assets including loans held-for-sale
$
208,433

 
$
347,669

 
$
522,393

 
$
520,502

Ratio of non-performing assets to total assets (Bank only)
1.74
%
 
2.71
%
 
3.70
%
 
3.48
%
Ratio of non-performing loans held-for-investment to loans held-for-investment
3.46
%
 
5.74
%
 
7.35
%
 
6.09
%
Ratio of non-performing assets to loans held-for-investment and repossessed assets
5.03
%
 
7.52
%
 
9.36
%
 
7.77
%

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
September 30, 2013
 
 
 
 
 
Consumer loans
$
51,176

$
18,244

$
123,289

$
192,709

$
3,389,925

Commercial loans
—

208

15,515

15,723

623,582

     Total loans
$
51,176

$
18,452

$
138,804

$
208,432

$
4,013,507

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

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

September 30, 2012
 
 
 
 
 
Consumer loans
$
53,919

$
26,697

$
276,319

$
356,935

$
4,760,979

Commercial loans
9,563

432

122,629

132,624

1,791,420

     Total loans
$
63,482

$
27,129

$
398,948

$
489,559

$
6,552,399




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
September 30, 2013
 
Consumer loans
$
387,671

 
$
21,104

 
$
21,353

 
$
430,128

Commercial loans
268

 
—

 
2,284

 
2,552

Total TDRs
$
387,939

 
$
21,104

 
$
23,637

 
$
432,680

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

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

September 30, 2012
 
 
 
 
 
 
 
Consumer loans
$
612,956

 
$
55,222

 
$
51,028

 
$
719,206

Commercial loans
1,329

 
173

 
3,057

 
4,559

Total TDRs
$
614,285

 
$
55,395

 
$
54,085

 
$
723,765


17

Gain on Loan Sales and Securitizations
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
September 30, 2013
 
June 30, 2013
 
September 30, 2012
Description
 
 
 
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
 
 
 
Value of interest rate locks
$
87,961

1.05
 %
 
$
(75,040
)
(0.68
)%
 
$
97,176

0.73
 %
Value of forward sales
(217,987
)
(2.61
)%
 
166,941

1.51
 %
 
(91,329
)
(0.68
)%
Fair value of loans held-for-sale
63,394

0.76
 %
 
(19,336
)
(0.17
)%
 
273,270

1.98
 %
LOCOM adjustments on loans held-for-investment
—

—
 %
 
—

—
 %
 
—

—
 %
Total valuation gains
(66,632
)
(0.80
)%
 
72,565

0.66
 %
 
279,117

2.03
 %
 
 
 
 
 
 
 
 
 
Sales gains (losses)
 
 
 
 
 
 
 
 
Marketing gains, net of adjustments
(52,120
)
(0.63
)%
 
28,753

0.25
 %
 
218,262

1.57
 %
Pair-off (losses) gains
197,544

2.37
 %
 
48,525

0.44
 %
 
(156,520
)
(1.13
)%
Provision for representation and warranty reserve
(3,719
)
(0.04
)%
 
(5,052
)
(0.05
)%
 
(6,432
)
(0.05
)%
Total sales gains
141,705

1.70
 %
 
72,226

0.64
 %
 
55,310

0.39
 %
Total gain on loan sales and securitizations
$
75,073

 
 
$
144,791

 
 
$
334,427

 
Total mortgage rate lock commitments (gross)
$
8,340,000

 
 
$
12,359,000

 
 
$
18,089,000

 
Total loan sales and securitizations
$
8,344,737

0.90
 %
 
$
11,123,821

1.30
 %
 
$
13,876,627

2.42
 %
Total mortgage rate lock commitments (fallout adjusted) (1)
$
6,605,432

1.14
 %
 
$
9,837,573

1.47
 %
 
$
13,972,922

2.39
 %
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
Description
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
Value of interest rate locks
$
(22,406
)
(0.07
)%
 
$
158,599

0.86
 %
Value of forward sales
(55,385
)
(0.17
)%
 
(94,645
)
(0.68
)%
Fair value of loans held-for-sale
131,702

0.41
 %
 
571,075

1.52
 %
LOCOM adjustments on loans held-for-investment
(1,797
)
(0.01
)%
 
(21
)
—
 %
Total valuation gains
52,114

0.16
 %
 
635,008

1.70
 %
 
 
 
 
 
 
Sales gains (losses)
 
 
 
 
 
Marketing gains, net of adjustments
2,491

0.02
 %
 
530,466

1.42
 %
Pair-off gains (losses)
317,387

0.98
 %
 
(396,403
)
(1.06
)%
Provision for representation and warranty reserve
(14,588
)
(0.05
)%
 
(17,126
)
(0.05
)%
Total sales gains
305,290

0.95
 %
 
116,937

0.31
 %
Total gain on loan sales and securitizations
$
357,404

 
 
$
751,945

 
Total mortgage rate lock commitments volume
$
32,835,000

 
 
$
50,489,000

 
Total loan sales and securitizations
$
32,291,437

1.11
 %
 
$
37,483,736

2.01
 %
Total mortgage rate lock commitments (fallout adjusted) (1)
$
26,291,422

1.36
 %
 
$
38,045,108

1.98
 %

(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
 
September 30, 2013
 
June 30, 2013
 
September 30, 2012
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
2,156,966

4.14
%
 
$
2,630,309

3.38
%
 
$
3,301,860

3.70
%
Loans repurchased with government guarantees
1,364,949

3.61
%
 
1,540,798

3.43
%
 
2,070,813

2.98
%
Loans held-for-investment
 
 
 
 
 
 
 
 
Consumer loans (1) (2)
3,412,909

4.06
%
 
3,845,503

4.08
%
 
4,717,672

4.32
%
Commercial loans (1)
637,711

3.85
%
 
669,253

4.18
%
 
1,815,897

3.67
%
Total loans held-for-investment
4,050,620

4.03
%
 
4,514,756

4.10
%
 
6,533,569

4.14
%
Investment securities available-for-sale or trading
295,923

1.98
%
 
240,296

3.06
%
 
505,361

3.89
%
Interest-earning deposits and other
2,695,959

0.25
%
 
2,385,786

0.25
%
 
1,065,314

0.25
%
Total interest-earning assets
10,564,417

2.98
%
 
11,311,945

3.01
%
 
13,476,917

3.54
%
Other assets
1,775,102

 
 
1,649,000

 
 
1,680,208

 
Total assets
$
12,339,519

 
 
$
12,960,945

 
 
$
15,157,125

 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
Demand deposits
$
394,418

0.18
%
 
$
395,137

0.21
%
 
$
364,612

0.27
%
Savings deposits
2,815,893

0.60
%
 
2,627,166

0.73
%
 
1,768,897

0.65
%
Money market deposits
314,459

0.18
%
 
345,694

0.26
%
 
457,425

0.46
%
Certificate of deposits
1,787,318

0.90
%
 
2,353,775

0.91
%
 
3,227,201

1.21
%
Total retail deposits
5,312,088

0.65
%
 
5,721,772

0.74
%
 
5,818,135

0.92
%
Government deposits
 
 
 
 
 
 
 
 
Demand deposits
55,571

0.76
%
 
114,707

0.40
%
 
107,944

0.48
%
Savings deposits
163,869

0.27
%
 
169,122

0.29
%
 
291,046

0.55
%
Certificate of deposits
303,329

0.29
%
 
413,177

0.44
%
 
375,922

0.64
%
Total government deposits
522,769

0.33
%
 
697,006

0.40
%
 
774,912

0.58
%
Wholesale deposits
72,141

5.06
%
 
73,910

5.07
%
 
334,595

3.77
%
Total deposits
5,906,998

0.67
%
 
6,492,688

0.75
%
 
6,927,642

1.02
%
Federal Home Loan Bank advances
2,900,519

3.34
%
 
2,901,102

3.34
%
 
3,561,532

3.03
%
Other
247,435

2.67
%
 
248,753

2.65
%
 
248,560

2.81
%
Total interest-bearing liabilities
9,054,952

1.58
%
 
9,642,543

1.58
%
 
10,737,734

1.73
%
Other liabilities (3)
2,018,300

 
 
2,079,615

 
 
3,182,980

 
Stockholder's equity
1,266,267

 
 
1,238,787

 
 
1,236,411

 
Total liabilities and stockholder's equity
$
12,339,519

 
 
$
12,960,945

 
 
$
15,157,125

 

(1)
Consumer loans include: residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.
(2)
Includes 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)
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
 
Average Balance
Annualized
Yield/Rate
 
Average Balance
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
Loans held-for-sale
$
2,795,812

3.40
%
 
$
2,892,439

3.87
%
Loans repurchased with government guarantees
1,558,495

3.47
%
 
2,053,455

3.24
%
Loans held-for-investment
 
 
 
 
 
Consumer loans (1) (2)
3,795,003

4.10
%
 
4,781,021

4.35
%
Commercial loans (1)
668,189

4.10
%
 
1,802,619

3.95
%
Total loans held-for-investment
4,463,192

4.10
%
 
6,583,640

4.24
%
Investment securities available-for-sale or trading
294,722

2.44
%
 
644,166

4.21
%
Interest-earning deposits and other
2,198,812

0.25
%
 
848,241

0.24
%
Total interest-earning assets
11,311,033

3.05
%
 
13,021,941

3.74
%
Other assets
1,681,689

 
 
1,606,255

 
Total assets
$
12,992,722

 
 
$
14,628,196

 
Interest-Bearing Liabilities
 
 
 
 
 
Retail deposits
 
 
 
 
 
Demand deposits
$
392,695

0.21
%
 
$
357,715

0.26
%
Savings deposits
2,588,468

0.69
%
 
1,736,348

0.74
%
Money market deposits
349,016

0.27
%
 
475,477

0.50
%
Certificate of deposits
2,353,359

0.90
%
 
3,142,051

1.28
%
Total retail deposits
5,683,538

0.72
%
 
5,711,591

0.98
%
Government deposits
 
 
 
 
 
Demand deposits
89,416

0.49
%
 
100,850

0.49
%
Savings deposits
213,403

0.37
%
 
277,970

0.56
%
Certificate of deposits
395,499

0.46
%
 
376,628

0.65
%
Total government deposits
698,318

0.44
%
 
755,448

0.60
%
Wholesale deposits
75,973

5.01
%
 
343,682

3.77
%
Total deposits
6,457,829

0.74
%
 
6,810,721

1.08
%
FHLB advances
2,968,308

3.28
%
 
3,884,049

2.82
%
Other
247,435

2.68
%
 
248,577

2.83
%
Total interest-bearing liabilities
9,673,572

1.57
%
 
10,943,347

1.74
%
Other liabilities (3)
2,092,467

 
 
2,524,818

 
Stockholder's equity
1,226,683

 
 
1,160,031

 
Total liabilities and stockholder's equity
$
12,992,722

 
 
$
14,628,196

 

(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
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Pre-tax, pre-credit-cost revenue
 
 
 
 
 
 
 
 
 
Income before tax provision
$
14,492

 
$
61,095

 
$
60,730

 
$
99,194

 
$
141,307

Add back
 
 
 
 
 
 
 
 
 
Provision for loan losses
4,053

 
31,563

 
52,595

 
56,030

 
225,696

Asset resolution
16,295

 
15,921

 
12,487

 
48,661

 
70,108

Other than temporary impairment on AFS investments
—

 
8,789

 
—

 
8,789

 
2,192

Representation and warranty reserve - change in estimate
5,205

 
28,940

 
124,492

 
51,541

 
231,058

Write down of transferor interest
—

 
—

 
118

 
174

 
1,771

Total credit-related costs
25,553

 
85,213

 
189,692

 
165,195

 
530,825

Pre-tax, pre-credit-cost net revenue
$
40,045

 
$
146,308

 
$
250,422

 
$
264,389

 
$
672,132

 
 
 
 
 
 
 
 
 
 
Efficiency ratio (credit-adjusted)
 
 
 
 
 
 
 
 
 
Net interest income (a)
$
42,685

 
$
47,096

 
$
73,079

 
$
145,448

 
$
223,290

Non-interest income (b)
134,296

 
219,959

 
273,737

 
539,198

 
735,448

Add: Representation and warranty reserve - change in estimate (d)
5,205

 
28,940

 
124,492

 
51,541

 
231,058

Adjusted income
182,186

 
295,995

 
471,308

 
736,187

 
1,189,796

Non-interest expense (c)
158,436

 
174,397

 
233,491

 
529,422

 
591,735

Less: Asset resolution expense (e)
(16,295
)
 
(15,921
)
 
(12,487
)
 
(48,661
)
 
(70,108
)
Adjusted non-interest expense
$
142,141

 
$
158,476

 
$
221,004

 
$
480,761

 
$
521,627

Efficiency ratio (c/(a+b))
89.5
%
 
65.3
%
 
67.3
%
 
77.3
%
 
61.7
%
Efficiency ratio (credit-adjusted) ((c-e)/((a+b)+d)))
78.0
%
 
53.5
%
 
46.9
%
 
65.3
%
 
43.8
%
 
September 30,
2013
 
June 30,
2013
 
December 31,
2012
 
September 30,
2012
Non-performing assets / Tier 1 capital + allowance for loan losses
 
 
 
 
 
 
 
Non-performing assets
$
205,334

 
$
344,318

 
$
520,558

 
$
518,416

Tier 1 capital (1)
1,402,423

 
1,390,582

 
1,295,841

 
1,379,701

Allowance for loan losses
207,000

 
243,000

 
305,000

 
305,000

Tier 1 capital + allowance for loan losses
$
1,609,423

 
$
1,633,582

 
$
1,600,841

 
$
1,684,701

Non-performing assets / Tier 1 capital + allowance for loan losses
12.8
%
 
21.1
%
 
32.5
%
 
30.8
%
Mortgage servicing rights to Tier 1 capital ratio
September 30,
2013
 
June 30,
2013
 
March 31,
2013
 
December 31,
2012
 
September 30,
2012
Mortgage servicing rights
$
797,029

 
$
729,019

 
$
727,207

 
$
710,791

 
$
686,799

Tier 1 capital (to adjusted total assets) (1)
1,402,423

 
1,390,582

 
1,318,770

 
1,295,841

 
1,379,701

Mortgage servicing rights to Tier 1 capital ratio
56.8
%
 
52.4
%
 
55.1
%
 
54.9
%

49.8
%
 
 
 
 
 
 
 
 
 
 
(1)Represents Tier 1 capital for Bank.


21