EX-99.1 2 pressrelease4q2014.htm EXHIBIT 99.1 Press Release 4Q2014


                    

EXHIBIT 99.1

NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Fourth Quarter 2014 Net Income of $11.1 million, or $0.07 per Diluted Share

Profitable results led by revenue growth and continued expense discipline

Key Q4 Highlights  

•
Increased profitability with no unusual items
•
Noninterest income up modestly
•
Noninterest expense down slightly
•
Lower net charge-offs and provision expense
•
Tier 1 leverage ratio increased

TROY, Mich. Jan 22, 2015 - Flagstar Bancorp, Inc. (NYSE:FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported fourth quarter 2014 net income of $11.1 million, or $0.07 per diluted share, as compared to a net loss of $27.6 million in the third quarter 2014, or $(0.61) per diluted share, and net income of $161.9 million in the fourth quarter 2013, or $2.77 per diluted share. The full year 2014 net loss was $69.5 million, or $(1.72) per diluted share, as compared to a full year 2013 net income of $267.0 million, or $4.37 per diluted share.
 
 
 
 
 
 
 
 
Alessandro P. DiNello, president and chief executive officer, said, "I am pleased that this quarter's earnings are the result of core operations. We have been working tirelessly for the last two years to de-risk the balance sheet, settle major legal matters, right size operating expenses, upgrade our management talent, build a strong risk management organization and focus our business strategies. These efforts have begun to bear fruit and we will continue to build on this foundation going forward."


1

Fourth Quarter 2014 Highlights:

Income Statement Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
 
(Dollars in thousands)
 
 
Consolidated Statements of Operations
 
 
 
 
 
 
 
Net interest income
$
61,302

$
64,363

$
62,425

$
58,201

$
41,203

(4.8
)%
48.8
 %
Provision for loan losses
4,986

8,097

6,150

112,321

14,112

(38.4
)%
(64.7
)%
Noninterest income
98,441

85,188

102,484

74,953

113,146

15.6
 %
(13.0
)%
Noninterest expense
139,253

179,389

121,353

139,252

388,693

(22.4
)%
(64.2
)%
Income (loss) before income taxes
15,504

(37,935
)
37,406

(118,419
)
(248,456
)
N/M
N/M
Provision (benefit) for income taxes
4,428

(10,303
)
11,892

(39,996
)
(410,362
)
N/M
N/M
Net income (loss)
$
11,076

$
(27,632
)
$
25,514

$
(78,423
)
$
161,906

N/M
(93.2
)%
 
 
 
 
 
 


Earnings (Loss) Per Share (1)
$
0.07

(0.61
)
0.33

(1.51
)
2.77

N/M
(97.5
)%
N/M - Not meaningful
(1)
Fully diluted earnings (loss) per share, except where securities would be anti-dilutive. Includes the preferred stock dividend, including the accretion and cumulative deferred.
Key Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
Net interest margin (consolidated)
2.80
%
2.91
 %
2.98
%
2.97
 %
1.73
%
(11
)
107

Efficiency ratio (adjusted) (1)
90.6
%
86.8
 %
71.3
%
91.3
 %
108.1
%
380

N/M
Return (loss) on average assets
0.44
%
(1.08
)%
1.04
%
(3.39
)%
5.70
%
152

(526
)
Return (loss) on average equity
3.18
%
(7.88
)%
7.38
%
(21.85
)%
50.39
%
N/M
N/M
N/M - Not meaningful
(1)
See non-GAAP reconciliation.
    
Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
 
(Dollars in thousands)
 
 
Average Balance Sheet
 
 
 
 
 


Average interest-earning assets
$
8,724,037

$
8,814,714

$
8,366,703

$
7,829,814

$
9,607,376

(1.0
)%
(9.2
)%
Average loans held-for-investment
4,030,525

4,087,862

3,902,871

3,864,110

3,927,537

(1.4
)%
2.6
 %
Average interest-bearing deposits
5,897,543

5,788,388

5,445,734

5,230,154

5,339,165

1.9
 %
10.5
 %


2

Net Interest Income

Fourth quarter 2014 net interest income fell to $61.3 million, as compared to $64.4 million for the third quarter 2014. The decrease in net interest income was attributable to lower interest income from the Company’s Ginnie Mae early buy-outs, due to a reduction in the average interest rate earned in accordance with the terms of loans with government guarantees, as well as jumbo residential first mortgage loan sales. The full year 2014 net interest income was $246.3 million, as compared to $186.7 million for the full year 2013, which primarily resulted from the prepayment of long-term Federal Home Loan Bank advances at the end of 2013.

Net interest margin decreased to 2.80 percent for the fourth quarter 2014, as compared to 2.91 percent for the third quarter 2014. The decrease from the prior quarter was driven primarily by a lower yield from the loans that were included in the early buy-outs, as described above, and a 21 basis point reduction in the yield on loans held-for-sale.

Provision for Loan Losses

Provision for loan losses totaled $5.0 million for the fourth quarter 2014, as compared to $8.1 million for the third quarter 2014. The decrease from the prior quarter was primarily attributable to lower net charge-offs. Net charge offs in the fourth quarter 2014 were $9.0 million, or 0.91 percent of applicable loans, compared to $13.1 million, or 1.36 percent of applicable loans in the prior quarter. The fourth quarter 2014 amount included $3.0 million of net charge-offs associated with the sale of $24 million of lower performing loans during the quarter. The net charge-offs associated with these loan sales accounted for 31 basis points of the fourth quarter's net charge-off rate.

Noninterest Income

Fourth quarter 2014 noninterest income was $98.4 million, as compared to noninterest income of $85.2 million for the third quarter 2014. The third quarter of 2014 included a $10.4 million charge related to certain Federal Housing Administration indemnifications. Net of this adjustment, noninterest income rose $2.8 million, or 3 percent from the prior quarter.
Adjustments to Noninterest Income
 
 
 
 
 
Three Months Ended
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
 
(Dollars in thousands)
Noninterest income
$
98,441

$
85,188

$
102,484

$
74,953

$
113,146

Adjusting items
 
 
 
 
 
Loan fees and charges (1)
—

—

(10,000
)
—

—

Representation and warranty provision (2)
—

10,375

—

—

(24,900
)
Other noninterest income (3)
—

—

—

21,056

—

Adjusted noninterest income (4)
$
98,441

$
95,563

$
92,484

$
96,009

$
88,246

(1)
Reverse benefit for contract renegotiation.
(2)
Add back reserve increase related to indemnifications claims on government insured loans and reduce for the settlement with Fannie Mae and Freddie Mac, respectively.
(3)
Adjust for a negative fair value adjustment related to performing loans repurchased.
(4)
Non-GAAP number.

Fourth quarter 2014 deposit fees and charges increased to $6.0 million, as compared to $5.6 million for the third quarter 2014. The increase from the prior quarter reflects continued growth in demand deposit balances and seasonality.

3

Mortgage Metrics
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
 
(Dollars in millions)
 
 
GOS margin (change in bps) (3)
0.87
%
0.83
%
0.82
%
0.93
%
0.85
%
4

2

Gain on loans sales
$
54

$
52

$
55

$
45

$
45

3.8
 %
20.0
%
Mortgage rate lock commitments (fall-out adjusted) (1)
6,156

6,304

6,693

4,854

5,299

(2.3
)%
16.2
%
Residential loans serviced (2)
76,672

78,135

73,732

74,302

71,824

(1.9
)%
6.7
%
(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.
(2)
Includes serviced and subserviced loans.
(3)
Gain on sale margin is based on net gain on loan sales to fall-out adjusted mortgage rate lock commitments.

Loan fees and charges decreased to $16.8 million for the fourth quarter 2014, as compared to $18.7 million in the third quarter 2014. The decrease of $1.9 million, or 10 percent, was primarily related to an 8 percent decrease in mortgage originations in the fourth quarter 2014.

Fourth quarter 2014 net gain on loan sales increased to $53.5 million, as compared to $52.2 million for the third quarter 2014. The increase from the prior quarter reflects higher refinance volume driven by lower rates in October and early December, offsetting the seasonal decline in purchase origination volume. Fallout-adjusted locks were $6.2 billion for the fourth quarter 2014, as compared to $6.3 billion for the third quarter 2014. The net gain on loan sale margin increased to 0.87 percent for the fourth quarter 2014, as compared to 0.83 percent for the third quarter 2014.

Loan administration income remained relatively flat at $5.5 million for the fourth quarter 2014, as compared to the third quarter 2014.

Net return on the mortgage servicing asset (including off-balance sheet hedges of mortgage servicing rights) increased to $1.6 million for the fourth quarter 2014, as compared to $1.3 million for the third quarter 2014. The gross return on the mortgage servicing rights asset was 7.4 percent in the 2014 fourth quarter, a slight decrease from the third quarter 2014 as a result of higher prepayments of serviced loans. Additionally, the Company had $3.5 million of lower revenue as a result of the transaction costs and losses associated with $70 million of mortgage servicing rights sold during the quarter.

Net gain on sales of assets fell $3.2 million in the fourth quarter 2014, compared to the prior quarter. The Company sold $24 million of lower performing mortgage loans during the fourth quarter 2014, resulting in a net gain of $1.7 million. In the third quarter 2014, the Company sold $48 million of performing jumbo residential first mortgage loans and $33 million of lower performing loans, producing a net gain of $4.9 million.

Representation and warranty provision improved to income of $6.1 million for the fourth quarter 2014, as compared to an expense of $12.5 million reported for the third quarter 2014. The change from the prior quarter was primarily due to a $10.4 million charge in the prior quarter related to certain indemnifications made by the Company. Additionally, during the fourth quarter 2014, the Company received recoveries of prior expenses and recorded a downward adjustment in the anticipated level of loss rates on claims from Fannie Mae and Freddie Mac, as the overall level of the representation and warranty reserve declined to $53.0 million at December 31, 2014 from $57.0 million at September 30, 2014.

The fourth quarter 2014 other noninterest income was $7.3 million, as compared to $9.5 million for the third quarter 2014. The decrease from the prior quarter primarily resulted from lower gains on the sale of investment securities and lower fair value adjustments on mortgage loans.

4


Noninterest Expense

Noninterest expense was $139.3 million for the fourth quarter 2014, as compared to $179.4 million for the third quarter 2014. The third quarter 2014 included a $37.5 million litigation settlement expense with the Consumer Financial Protection Bureau ("CFPB"), as well as $1.1 million in related legal expenses. After making these adjustments, noninterest expense in the third quarter 2014 was $140.8 million.

Adjustments to Noninterest expense
 
 
 
 
 
Three Months Ended
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
 
(Dollars in thousands)
Noninterest expense
$
139,253

$
179,389

$
121,353

$
139,252

$
388,693

Adjusting items
 
 
 
 
 
Loss on extinguishment of debt (1)
—

—

—

—

(177,556
)
Legal and professional expense (2)
—

(1,116
)
(2,879
)
—

—

Other noninterest expense (3)
—

(37,500
)
10,000

—

(61,000
)
Adjusted noninterest expense (4)
$
139,253

$
140,773

$
128,474

$
139,252

$
150,137

(1)
Adjust prepayment of long-term FHLB advances.
(2)
Adjust for legal expenses related to CFPB litigation settlements during the respective periods.
(3)
Adjust CFPB litigation settlement expense and an additional accrual for the DOJ litigation, respectively.
(4)
Non-GAAP number.

Compensation and benefits increased to $59.0 million for the fourth quarter 2014, as compared to $53.5 million for the third quarter 2014. The increase from the prior quarter was primarily due to higher levels of incentive compensation and $2.6 million in severance.

Fourth quarter 2014 asset resolution expense decreased to $13.4 million, as compared to $13.7 million for the third quarter 2014. The decrease was primarily due to process improvements and lower levels of problem assets, partially offset by a $2.0 million provision for expenses related to prior loss recoveries.

Legal and professional expenses were $10.8 million for the fourth quarter 2014, as compared to $15.0 million for the third quarter 2014. The $4.2 million decrease in the fourth quarter was primarily attributable to a decrease in consulting expenses, as well as legal expenses related to the Company’s CFPB settlement experienced in the prior quarter.

Other noninterest expenses for the fourth quarter 2014 totaled $10.8 million, as compared to $50.3 million for the third quarter 2014. The decrease of $39.2 million from the prior quarter, included the third quarter 2014 adjusting item of $37.5 million related to the CFPB settlement.

Income Taxes

The fourth quarter 2014 provision for income taxes totaled $4.4 million, as compared to a tax benefit of $10.3 million in the third quarter 2014. The effective tax rate in the fourth quarter 2014 was 28.6 percent, as compared to 27.2 percent in the third quarter 2014.

The full year 2014 income tax benefit was $34.0 million, as compared to a benefit of $416.3 million for the full year 2013, primarily due to the reversal of the deferred tax asset valuation allowance during the fourth quarter 2013. The Company reversed 100 percent of the valuation allowance on its federal deferred tax asset ("DTA") and a portion of its state DTA, which had been previously established as of September 30, 2009, which resulted in a $355.8 million DTA valuation allowance reversal, or $6.29 per diluted share.


5

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
 
(Dollars in thousands)
 
 
Charge-offs, net of recoveries
$
8,986

$
13,097

$
7,150

$
12,321

$
14,110

(31.4
)%
(36.3
)%
Total nonperforming loans held-for-investment
$
120,491

$
106,944

$
120,162

$
110,749

$
145,685

12.7
 %
(17.3
)%
Net charge-off ratio (annualized)
0.91
%
1.36
%
0.78
%
1.36
%
1.53
%
(45
)
(62
)
Nonperforming loans ratio to LHFI
2.71
%
2.56
%
2.76
%
2.76
%
3.59
%
15

(88
)
Allowance for loan loss to LHFI
7.01
%
7.60
%
7.41
%
8.11
%
5.42
%
(59
)
159


Fourth quarter 2014 net charge-offs were $9.0 million, representing 0.91 percent of associated loans, excluding loans carried under a fair value option. This represented a decrease of $4.1 million from the third quarter 2014 net charge-offs of $13.1 million, or 1.36 percent, of associated loans. Excluding loan sales in both quarters, net charge-offs in the fourth quarter were $6.0 million or 0.60 percent, compared to $6.8 million or 0.70 percent in the prior quarter.

Nonperforming loans increased to $120.5 million at December 31, 2014 from $106.9 million at September 30, 2014. The increase was driven by higher non-accrual TDRs, which increased to $28.7 million from $17.5 million in the third quarter 2014. The ratio of nonperforming loans to loans held-for-investment increased to 2.71 percent at December 31, 2014 from 2.56 percent at September 30, 2014.

The allowance for loan losses was $297.0 million at December 31, 2014, covering 7.01 percent of total loans held-for-investment, excluding loans carried under a fair value option. The allowance for loan losses was $301.0 million at September 30, 2014, covering 7.60 percent of total loans held-for-investment. The decrease in the coverage ratio during the fourth quarter of 2014 was primarily due to an increase in higher quality commercial warehouse loans at quarter end.

Capital
Capital Ratios (Bancorp)
Three Months Ended
Change (bps)
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Seq
Yr/Yr
Total capital
24.1
%
24.4
%
25.2
%
25.3
%
28.6
%
(23
)
(443
)
Tier 1 capital
22.8
%
23.0
%
23.9
%
24.0
%
27.3
%
(22
)
(444
)
Tier 1 leverage
12.6
%
12.5
%
12.6
%
12.6
%
14.2
%
9

(162
)
Mortgage servicing rights to Tier 1 capital (1)
21.8
%
24.9
%
24.2
%
27.6
%
22.2
%
(312
)
(45
)
Book value per common share (change in percent)
$
19.64

$
19.28

$
19.90

$
19.29

$
20.66

1.9
 %
(4.9
)%
(1)
See non-GAAP reconciliation.

The Company's regulatory capital ratios remain well above current regulatory quantitative guidelines for "well-capitalized" institutions. At December 31, 2014, the Company had a Tier 1 leverage ratio of 12.6 percent, as compared to 12.5 percent at September 30, 2014. At December 31, 2014, the Company had a common equity-to-assets ratio of 11.24 percent.

As of January 2015, the Company and the Bank are subject, on a phased-in basis, to the Basel III regulatory capital requirements that replace the current capital requirements. Assuming that the Basel III requirements were fully applicable at December 31, 2014, the Company’s pro forma Basel III Tier 1 leverage ratio would have been 10.2 percent at December 31, 2014 (see Non-GAAP reconciliation).

6


Earnings Conference Call

As previously announced, the Company's fourth quarter 2014 earnings call will be held on Thursday, January 22, 2015 at 11 a.m. (Eastern).

To join the call, please dial (888) 206-4916 toll free or (913) 312-0722, and use passcode: 1627539. Please call at least 10 minutes before the conference 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: 1627539.

The conference call will also be available as a live audio cast on the Investor Relations section of flagstar.com. It will be archived on that site and will be available for replay and download. A slide presentation accompanying the conference call will also be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is a $9.8 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, the largest bank headquartered in Michigan, provides commercial, small business, and consumer banking services through 107 branches in the state. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as through 26 retail centers in 15 states. Flagstar is the ninth largest national originator of mortgage loans and a top 20 mortgage servicer, handling payments and recordkeeping for over $75 billion of home loans for nearly 400,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release includes non-GAAP financial measures such as an adjusted efficiency ratio, adjusted earnings, the ratio of total nonperforming assets to Tier 1 capital (to adjusted total assets) and estimated Basel III ratios. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, there are practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that the Company's performance is properly reflected to facilitate consistent period-to-period comparisons. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

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 earnings release, conference call slides, or the Form 8-K related to this press release. Additional discussion of the use of non-GAAP measures can also be found in Flagstar Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013, and Quarterly Report on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014. All of which can be found on the Company’s website at flagstar.com.


7

Forward Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements can be found in Flagstar Bancorp Annual Report on Form 10-K for the year ended December 31, 2013, and Quarterly Report on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, which have been filed with the Securities and Exchange Commission and are available on the Company’s website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov). Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.




8

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in thousands)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
(Unaudited)
 
(Unaudited)
 
 
Assets
 
 
 
 
 
Cash and cash equivalents
$
136,014

 
$
106,840

 
$
280,505

    Investment securities available-for-sale or trading
1,672,179

 
1,378,093

 
1,045,548

Loans held-for-sale
1,243,792

 
1,468,668

 
1,480,418

Loans with repurchased government guarantees
1,128,359

 
1,191,826

 
1,273,690

Loans held-for-investment, net
 
 
 
 
 
Loans held-for-investment
4,447,554

 
4,184,624

 
4,055,756

Less: allowance for loan losses
(297,000
)
 
(301,000
)
 
(207,000
)
Total loans held-for-investment, net
4,150,554

 
3,883,624

 
3,848,756

    Mortgage servicing rights
257,827

 
285,386

 
284,678

    Federal Home Loan Bank stock
155,443

 
209,737

 
209,737

    Premises and equipment, net
237,942

 
238,261

 
231,350

    Net deferred tax asset
442,349

 
449,575

 
414,681

    Other assets
415,392

 
413,400

 
337,938

Total assets
$
9,839,851

 
$
9,625,410

 
$
9,407,301

Liabilities and Stockholders' Equity
 
 
 
 
 
Deposits
 
 
 
 
 
Noninterest bearing
$
1,209,275

 
$
1,299,405

 
$
930,060

Interest bearing
5,859,331

 
5,934,991

 
5,210,266

Total deposits
7,068,606

 
7,234,396

 
6,140,326

    Federal Home Loan Bank advances
514,000

 
150,000

 
988,000

    Long-term debt
331,194

 
339,575

 
353,248

    Representation and warranty reserve
53,000

 
57,000

 
54,000

Other liabilities
500,230

 
492,834

 
445,853

            Total liabilities
8,467,030

 
8,273,805

 
7,981,427

    Stockholders' Equity
 
 
 
 
 
Preferred stock
266,657

 
266,657

 
266,174

Common stock
563

 
563

 
561

    Additional paid in capital
1,482,465

 
1,480,955

 
1,479,265

    Accumulated other comprehensive income (loss)
8,380

 
(250
)
 
(4,831
)
    Accumulated deficit
(385,244
)
 
(396,320
)
 
(315,295
)
Total stockholders' equity
1,372,821

 
1,351,605

 
1,425,874

Total liabilities and stockholders' equity
$
9,839,851

 
$
9,625,410

 
$
9,407,301





9

Flagstar Bancorp, Inc.
 Consolidated Statements of Operations
 (Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
December 31,
2014
 
September 30,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
Total interest income
$
72,203

 
$
75,094

 
$
71,833

 
$
285,561

 
$
330,687

Total interest expense
10,901

 
10,731

 
30,630

 
39,271

 
144,036

Net interest income
61,302

 
64,363

 
41,203

 
246,290

 
186,651

Provision for loan losses
4,986

 
8,097

 
14,112

 
131,553

 
70,142

Net interest income after provision for loan losses
56,316

 
56,266

 
27,091

 
114,737

 
116,509

Noninterest Income
 
 
 
 
 
 

 
 
Loan fees and charges
16,760

 
18,661

 
19,349

 
73,033

 
103,501

Deposit fees and charges
5,964

 
5,618

 
5,193

 
21,625

 
20,942

Net gain on loan sales
53,528

 
52,175

 
44,790

 
205,803

 
402,193

Loan administration income
5,478

 
5,599

 
3,284

 
24,304

 
6,035

Net return on the mortgage servicing asset
1,607

 
1,346

 
16,659

 
24,082

 
90,609

Net gain on sale of assets
1,735

 
4,874

 
51

 
12,361

 
2,172

Net impairment losses
—

 
—

 
—

 
—

 
(8,789
)
Representation and warranty provision
6,080

 
(12,538
)
 
15,424

 
(10,011
)
 
(36,116
)
Other noninterest income
7,289

 
9,453

 
8,396

 
9,868

 
71,796

    Total noninterest income
98,441

 
85,188

 
113,146

 
361,065

 
652,343

Noninterest Expense
 
 
 
 
 
 


 
 
Compensation and benefits
58,967

 
53,503

 
69,572

 
233,185

 
279,268

Commissions
9,309

 
10,346

 
9,444

 
35,480

 
54,407

Occupancy and equipment
20,122

 
20,471

 
19,824

 
80,386

 
80,042

Asset resolution
13,378

 
13,666

 
3,372

 
56,486

 
52,033

Federal insurance premiums
5,314

 
5,633

 
7,932

 
22,716

 
34,873

Loss on extinguishment of debt
—

 
—

 
177,556

 
—

 
177,556

Loan processing expense
10,590

 
10,472

 
8,833

 
36,996

 
52,223

Legal and professional expense
10,777

 
15,044

 
14,600

 
50,603

 
77,742

Other noninterest expense
10,796

 
50,254

 
77,560

 
63,394

 
109,971

    Total noninterest expense
139,253

 
179,389

 
388,693

 
579,246

 
918,115

(Loss) income before income taxes
15,504

 
(37,935
)
 
(248,456
)
 
(103,444
)
 
(149,263
)
(Benefit) provision for income taxes
4,428

 
(10,303
)
 
(410,362
)
 
(33,979
)
 
(416,250
)
Net (loss) income
11,076

 
(27,632
)
 
161,906

 
(69,465
)
 
266,987

Preferred stock dividend/accretion
—

 
—

 
(1,449
)
 
(483
)
 
(5,784
)
Net (loss) income applicable to common stockholders
$
11,076

 
$
(27,632
)
 
$
160,457

 
$
(69,948
)
 
$
261,203

(Loss) earnings per share
 
 
 
 
 
 
 
 
 
       Basic
$
0.07

 
$
(0.61
)
 
$
2.79

 
$
(1.72
)
 
$
4.40

       Diluted
$
0.07

 
$
(0.61
)
 
$
2.77

 
$
(1.72
)
 
$
4.37






10

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
December 31,
2014
 
September 30,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Mortgage loans originated (1)
$
6,603,413

 
$
7,186,856

 
$
6,439,242

 
$
24,607,550

 
$
37,481,877

Other loans originated
102,858

 
84,084

 
64,973

 
490,849

 
300,823

Mortgage loans sold and securitized
6,830,552

 
7,072,398

 
6,783,212

 
24,407,054

 
39,074,649

Interest rate spread - consolidated (2)
2.67
%
 
2.79
 %
 
1.54
%
 
2.80
 %
 
1.50
%
Net interest margin - consolidated (3)
2.80
%
 
2.91
 %
 
1.73
%
 
2.91
 %
 
1.72
%
Average common shares outstanding
56,310,858

 
56,249,300

 
56,126,895

 
56,246,528

 
56,063,282

Average fully diluted shares outstanding
56,792,751

 
56,249,300

 
56,694,096

 
56,246,528

 
56,518,181

Average interest-earning assets
$
8,724,037

 
$
8,814,714

 
$
9,607,376

 
$
8,440,413

 
$
10,881,618

Average interest paying liabilities
6,917,685

 
7,034,094

 
8,341,976

 
6,780,341

 
9,337,936

Average stockholders' equity
1,395,347

 
1,402,165

 
1,273,763

 
1,406,038

 
1,238,550

(Loss) return on average assets
0.44
%
 
(1.08
)%
 
5.70
%
 
(0.71
)%
 
2.08
%
(Loss) return on average equity
3.18
%
 
(7.88
)%
 
50.39
%
 
(4.97
)%
 
21.09
%
Efficiency ratio
87.2
%
 
120.0
 %
 
251.8
%
 
95.4
 %
 
109.4
%
Efficiency ratio (adjusted) (4)
90.6
%
 
86.8
 %
 
108.1
%
 
87.1
 %
 
81.4
%
Equity-to-assets ratio (average for the period)
13.74
%
 
13.68
 %
 
11.32
%
 
14.22
 %
 
9.87
%
Charge-offs to average LHFI (5)
0.91
%
 
1.36
 %
 
1.53
%
 
1.07
 %
 
4.00
%
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Book value per common share
$
19.64

 
$
19.28

 
$
20.66

Number of common shares outstanding
56,332,307

 
56,261,652

 
56,138,074

Mortgage loans subserviced for others
$
46,723,713

 
$
46,695,465

 
$
40,431,865

Mortgage loans serviced for others
25,426,768

 
26,377,572

 
25,743,396

Weighted average service fee (basis points)
27.2

 
26.8

 
28.7

Capitalized value of mortgage servicing rights
1.01
%
 
1.08
%
 
1.11
%
Mortgage servicing rights to Tier 1 capital (4)
22.1
%
 
25.2
%
 
22.6
%
Ratio of allowance for loan losses to non-performing LHFI (5)
255.7
%
 
295.4
%
 
145.9
%
Ratio of allowance for loan losses to LHFI (5)
7.01
%
 
7.60
%
 
5.42
%
Ratio of non-performing assets to total assets (bank only)
1.42
%
 
1.40
%
 
1.95
%
Equity-to-assets ratio
13.95
%
 
14.04
%
 
15.16
%
Common equity-to-assets ratio
11.24
%
 
11.27
%
 
12.33
%
Number of bank branches
107

 
106

 
111

Number of loan origination centers
26

 
32

 
39

Number of FTE employees (excluding loan officers and account executives)
2,530

 
2,492

 
2,894

Number of loan officers and account executives
209

 
233

 
359

(1)
Includes residential first mortgage and second mortgage loans.
(2)
Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.
(3)
Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets.
(4)
See Non-GAAP reconciliation.
(5)
Excludes loans carried under the fair value option.


11

Flagstar Bancorp, Inc.
Earnings Per Share
(Dollars in thousands, except per share data)
(Unaudited)


 
Three Months Ended
 
Year Ended
 
December 31,
2014
 
September 30,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Net (loss) income
$
11,076

 
$
(27,632
)
 
$
161,906

 
$
(69,465
)
 
$
266,987

Less: preferred stock dividend/accretion
—

 
—

 
(1,449
)
 
(483
)
 
(5,784
)
Net (loss) income from continuing operations
11,076

 
(27,632
)
 
160,457

 
(69,948
)
 
261,203

Deferred cumulative preferred stock dividends
(7,104
)
 
(6,948
)
 
(3,659
)
 
(26,539
)
 
(14,366
)
Net (loss) income applicable to Common Stockholders
$
3,972

 
$
(34,580
)
 
$
156,798

 
$
(96,487
)
 
$
246,837

Weighted Average Shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
56,311

 
56,249

 
56,127

 
56,247

 
56,063

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
248

 
—

 
279

 
—

 
237

Stock-based awards
234

 
—

 
288

 
—

 
218

Weighted average diluted common shares
56,793

 
56,249

 
56,694

 
56,247

 
56,518

(Loss) earnings per common share
 
 
 
 
 
 
 
 
 
Net (loss) income applicable to Common Stockholders
$
0.07

 
$
(0.61
)
 
$
2.79

 
$
(1.72
)
 
$
4.40

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
—

 
—

 
(0.01
)
 
—

 
(0.02
)
Stock-based awards
—

 
—

 
(0.01
)
 
—

 
(0.01
)
Diluted (loss) earnings per share
$
0.07

 
$
(0.61
)
 
$
2.77

 
$
(1.72
)
 
$
4.37



12

Average Balances, Yields and Rates
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
1,686,534

$
17,702

4.20
%
 
$
1,628,874

$
17,949

4.41
%
 
$
1,617,817

$
17,309

4.28
%
Loans with repurchased government guarantees
1,140,851

5,596

1.96
%
 
1,215,357

7,589

2.50
%
 
1,234,383

7,599

2.46
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Consumer loans (1)
2,509,506

23,889

3.81
%
 
2,634,498

24,830

3.77
%
 
2,950,887

29,189

3.96
%
Commercial loans (1)
1,521,019

14,081

3.62
%
 
1,453,364

13,692

3.69
%
 
976,650

10,068

4.03
%
Total loans held-for-investment
4,030,525

37,970

3.74
%
 
4,087,862

38,522

3.74
%
 
3,927,537

39,257

3.97
%
Investment securities available-for-sale or trading
1,621,242

10,794

2.66
%
 
1,642,071

10,880

2.65
%
 
1,006,801

6,515

2.59
%
Interest-earning deposits and other
244,885

141

0.23
%
 
240,550

154

0.25
%
 
1,820,838

1,153

0.25
%
Total interest-earning assets
8,724,037

$
72,203

3.30
%
 
8,814,714

$
75,094

3.39
%
 
9,607,376

$
71,833

2.98
%
Other assets
1,429,919

 
 
 
1,437,898

 
 
 
1,648,399

 
 
Total assets
$
10,153,956

 
 
 
$
10,252,612

 
 
 
$
11,255,775

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
420,869

$
148

0.14
%
 
$
421,062

$
147

0.14
%
 
$
410,147

$
142

0.14
%
Savings deposits
3,393,950

5,837

0.68
%
 
3,274,268

5,482

0.66
%
 
2,906,271

3,623

0.49
%
Money market deposits
256,505

142

0.22
%
 
261,740

134

0.20
%
 
293,192

127

0.17
%
Certificate of deposits
837,039

1,442

0.68
%
 
891,308

1,682

0.75
%
 
1,168,992

2,335

0.79
%
Total retail deposits
4,908,363

7,569

0.61
%
 
4,848,378

7,445

0.61
%
 
4,778,602

6,227

0.52
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
229,658

227

0.39
%
 
217,862

213

0.39
%
 
115,980

83

0.28
%
Savings deposits
386,062

510

0.52
%
 
378,013

504

0.53
%
 
172,886

116

0.27
%
Certificate of deposits
373,460

340

0.36
%
 
344,135

299

0.35
%
 
256,274

116

0.18
%
Total government deposits
989,180

1,077

0.43
%
 
940,010

1,016

0.43
%
 
545,140

315

0.23
%
Wholesale deposits
—

—

—
%
 
—

—

—
%
 
15,423

171

4.40
%
Total deposits
5,897,543

8,646

0.58
%
 
5,788,388

8,461

0.58
%
 
5,339,165

6,713

0.50
%
Federal Home Loan Bank advances
772,707

481

0.24
%
 
998,272

591

0.23
%
 
2,755,375

22,257

3.16
%
Other
247,435

1,774

2.84
%
 
247,435

1,679

2.69
%
 
247,435

1,660

2.66
%
Total interest-bearing liabilities
6,917,685

10,901

0.62
%
 
7,034,095

10,731

0.60
%
 
8,341,975

30,630

1.44
%
Noninterest-bearing deposits
1,247,461

 
 
 
1,258,864

 
 
 
1,064,660

 
 
Other liabilities (2)
593,463

 
 
 
557,488

 
 
 
575,377

 
 
Stockholders' equity
1,395,347

 
 
 
1,402,165

 
 
 
1,273,763

 
 
Total liabilities and stockholder's equity
$
10,153,956

 
 
 
$
10,252,612

 
 
 
$
11,255,775

 
 
Net interest-earning assets
$
1,806,352

 
 
 
$
1,780,619

 
 
 
$
1,265,401

 
 
Net interest income
 
$
61,302

 
 
 
$
64,363

 
 
 
$
41,203

 
Interest rate spread (3)
 
 
2.67
%
 
 
 
2.79
%
 
 
 
1.54
%
Net interest margin (4)
 
 
2.80
%
 
 
 
2.91
%
 
 
 
1.73
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
126.1
%
 
 
 
125.3
%
 
 
 
115.2
%
Total average deposits
$
7,145,004

 
 
 
$
7,047,252

 
 
 
$
6,403,825

 
 
(1)
Consumer loans include: residential first mortgage, second mortgage, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, commercial lease financing and warehouse lending loans.
(2)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.
(3)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by average interest-earning assets.

13

Average Balances, Yields and Rates
(Dollars in thousands)
(Unaudited)
 
Year Ended
 
December 31, 2014
 
December 31, 2013
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
1,533,666

$
65,087

4.24
%
 
$
2,498,893

$
88,666

3.55
%
Loans with repurchased government guarantees
1,215,516

29,099

2.39
%
 
1,476,801

48,131

3.26
%
Loans held-for-investment
 
 
 
 
 
 
 
Consumer loans (1)
2,681,456

103,129

3.85
%
 
3,113,183

122,899

3.95
%
Commercial loans (1)
1,293,775

48,592

3.70
%
 
1,214,994

53,781

4.37
%
Total loans held-for-investment
3,975,231

151,721

3.80
%
 
4,328,177

176,680

4.07
%
Investment securities available-for-sale or trading
1,496,090

39,097

2.61
%
 
474,205

11,912

2.51
%
Interest-earning deposits and other
219,911

557

0.25
%
 
2,103,542

5,298

0.25
%
Total interest-earning assets
8,440,414

$
285,561

3.38
%
 
10,881,618

$
330,687

3.03
%
Other assets
1,445,973

 
 
 
1,673,298

 
 
Total assets
$
9,886,387

 
 
 
$
12,554,916

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
421,839

$
586

0.14
%
 
$
397,094

$
769

0.19
%
Savings deposits
3,139,106

19,047

0.61
%
 
2,668,571

16,924

0.63
%
Money market deposits
265,819

525

0.20
%
 
334,945

824

0.25
%
Certificate of deposits
914,823

6,682

0.73
%
 
2,054,834

18,249

0.89
%
Total retail deposits
4,741,587

26,840

0.57
%
 
5,455,444

36,766

0.67
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
181,779

695

0.38
%
 
96,112

409

0.43
%
Savings deposits
319,887

1,621

0.51
%
 
203,191

707

0.35
%
Certificate of deposits
349,265

1,147

0.33
%
 
360,406

1,489

0.41
%
Total government deposits
850,931

3,463

0.41
%
 
659,709

2,605

0.39
%
Wholesale deposits
831

31

3.76
%
 
60,711

3,021

4.98
%
Total deposits
5,593,349

30,334

0.54
%
 
6,175,864

42,392

0.69
%
FHLB advances
939,173

2,206

0.23
%
 
2,914,637

95,024

3.22
%
Other
247,819

6,731

2.72
%
 
247,435

6,620

2.68
%
Total interest-bearing liabilities
6,780,341

39,271

0.58
%
 
9,337,936

144,036

1.53
%
Noninterest-bearing deposits
1,140,758

 
 
 
1,197,000

 
 
Other liabilities (2)
559,250

 
 
 
781,430

 
 
Stockholders' equity
1,406,038

 
 
 
1,238,550

 
 
Total liabilities and stockholder's equity
$
9,886,387

 
 
 
$
12,554,916

 
 
Net interest-earning assets
$
1,660,073

 
 
 
$
1,543,682

 
 
Net interest income
 
$
246,290

 
 
 
$
186,651

 
Interest rate spread (3)
 
 
2.80
%
 
 
 
1.50
%
Net interest margin (4)
 
 
2.91
%
 
 
 
1.72
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
124.5
%
 
 
 
116.5
%
Total average deposits
$
6,734,107

 
 
 
$
7,372,864

 
 
 
 
 
 
 
 
 
 
(1)
Consumer loans include: residential first mortgage, second mortgage, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, commercial lease financing and warehouse lending loans.
(2)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.
(3)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by average interest-earning assets.

14

Gain on Loan Sales
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Description
 
 
 
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
 
 
 
Value of interest rate locks
$
4,037

0.06
 %
 
$
(24,294
)
(0.34
)%
 
$
(53,542
)
(0.79
)%
Value of forward sales
(7,668
)
(0.11
)%
 
23,145

0.33
 %
 
89,330

1.31
 %
Fair value of loans held-for-sale
132,044

1.93
 %
 
79,867

1.13
 %
 
68,938

1.02
 %
Total valuation gains
128,413

1.88
 %
 
78,718

1.12
 %
 
104,726

1.54
 %
 
 
 
 
 
 
 
 
 
Sales losses
 
 
 
 
 
 
 
 
Marketing losses, net of adjustments
(10,891
)
(0.16
)%
 
(2,392
)
(0.04
)%
 
(3,313
)
(0.05
)%
Pair-off losses
(62,065
)
(0.91
)%
 
(22,190
)
(0.31
)%
 
(53,605
)
(0.79
)%
Provision for representation and warranty reserve
(1,929
)
(0.03
)%
 
(1,961
)
(0.03
)%
 
(3,018
)
(0.04
)%
Total sales losses
(74,885
)
(1.10
)%
 
(26,543
)
(0.38
)%
 
(59,936
)
(0.88
)%
Total gain on loan sales
$
53,528

 
 
$
52,175

 
 
$
44,790

 
Total mortgage rate lock commitments (gross)
$
7,604,879

 
 
$
7,713,074

 
 
$
6,481,782

 
Total loan sales and securitizations
$
6,830,552

0.78
 %
 
$
7,072,398

0.74
 %
 
$
6,783,212

0.66
 %
Total mortgage rate lock commitments (fallout-adjusted) (1)
$
6,155,532

0.87
 %
 
$
6,304,425

0.83
 %
 
$
5,298,728

0.85
 %
 
 
 
 
 
 
 
Year Ended
 
December 31, 2014
 
December 31, 2013
Description
 
 
 
 
 
Valuation gain (loss)
 
 
 
 
 
Value of interest rate locks
$
20,465

0.08
 %
 
$
(75,948
)
(0.19
)%
Value of forward sales
(32,683
)
(0.13
)%
 
33,945

0.09
 %
Fair value of loans held-for-sale
401,313

1.64
 %
 
200,639

0.50
 %
Total valuation gains
389,095

1.59
 %
 
156,839

0.40
 %
 
 
 
 
 
 
Sales (losses) gains
 
 
 
 
 
Marketing gains, net of adjustments
(7,009
)
(0.03
)%
 
(822
)
—
 %
Pair-off gains (losses)
(169,429
)
(0.69
)%
 
263,782

0.68
 %
Provision for representation and warranty reserve
(6,854
)
(0.03
)%
 
(17,606
)
(0.05
)%
Total sales (losses) gains
(183,292
)
(0.75
)%
 
245,354

0.63
 %
Total gain on loan sales
$
205,803

 
 
$
402,193

 
Total mortgage rate lock commitments (gross)
$
29,545,705

 
 
$
39,316,782

 
Total loan sales and securitizations
$
24,407,054

0.84
 %
 
$
39,074,649

1.03
 %
Total mortgage rate lock commitments (fallout-adjusted) (1)
$
24,006,960

0.86
 %
 
$
31,590,150

1.27
 %
(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.











15

Regulatory Capital - Bank
(Dollars in thousands)
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,167,422

12.43
%
 
$
1,134,429

12.38
%
 
$
1,257,608

13.97
%
Total adjusted tangible asset base
$
9,392,178

 
 
$
9,162,342

 
 
$
9,004,904

 
Tier 1 capital (to risk weighted assets) (1)
$
1,167,422

22.54
%
 
$
1,134,429

22.84
%
 
$
1,257,608

26.82
%
Total capital (to risk weighted assets) (1)
1,234,958

23.85
%
 
1,199,410

24.14
%
 
1,317,964

28.11
%
Risk weighted asset base
$
5,178,781

 
 
$
4,967,755

 
 
$
4,688,545

 
(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.

Regulatory Capital - Bancorp
(Dollars in thousands)
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
March 31, 2014
 
December 31, 2013
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,183,625

12.59
%
 
$
1,146,187

12.50
%
 
$
1,195,494

12.59
%
 
$
1,158,532

12.63
%
 
$
1,280,532

14.21
%
Total adjusted tangible asset base
$
9,403,219

 
 
$
9,172,557

 
 
$
9,495,500

 
 
$
9,171,170

 
 
$
9,014,524

 
Tier 1 capital (to risk weighted assets) (1)
$
1,183,625

22.81
%
 
$
1,146,187

23.03
%
 
$
1,195,494

23.87
%
 
$
1,158,532

23.96
%
 
$
1,280,532

27.25
%
Total capital (to risk weighted assets) (1)
1,251,916

24.12
%
 
1,211,976

24.35
%
 
1,261,799

25.19
%
 
1,222,581

25.28
%
 
1,341,616

28.55
%
Risk weighted asset base
$
5,189,822

 
 
$
4,977,969

 
 
$
5,008,866

 
 
$
4,836,270

 
 
$
4,698,580

 
(1)
Based on adjusted total assets for purposes of core capital and risk-weighted assets for purposes of total risk-based capital.
Loan Originations
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
6,603,413

98.5
%
 
$
7,186,856

98.8
%
 
$
6,439,242

99.0
%
    Other consumer (2)
26,506

0.4
%
 
28,678

0.4
%
 
16,295

0.3
%
Total consumer loans
6,629,919

98.9
%
 
7,215,534

99.2
%
 
6,455,537

99.3
%
Commercial loans (3)
76,352

1.1
%
 
55,406

0.8
%
 
48,678

0.7
%
Total loan originations
$
6,706,271

100.0
%
 
$
7,270,940

100.0
%
 
$
6,504,215

100.0
%
 
Year Ended
 
December 31, 2014
 
December 31, 2013
Consumer loans
 
 
 
 
 
    Mortgage (1)
$
24,607,550

98.0
%
 
$
37,481,877

99.2
%
    Other consumer (2)
93,046

0.4
%
 
61,318

0.2
%
Total consumer loans
24,700,596

98.4
%
 
37,543,195

99.4
%
Commercial loans (3)
397,803

1.6
%
 
239,505

0.6
%
Total loan originations
$
25,098,399

100.0
%
 
$
37,782,700

100.0
%
(1)
Includes residential first mortgage and second mortgage loans.
(2)
Other consumer loans include: HELOC and other consumer loans.
(3)
Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans.




16






Loans Held-for-Investment
(Dollars in thousands)
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Consumer loans
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,193,252

49.3
%
 
$
2,224,734

53.2
%
 
$
2,508,968

61.9
%
Second mortgage
149,032

3.4
%
 
153,891

3.7
%
 
169,525

4.2
%
HELOC
256,318

5.8
%
 
261,826

6.3
%
 
289,880

7.1
%
Other
31,108

0.7
%
 
31,612

0.8
%
 
37,468

0.9
%
    Total consumer loans
2,629,710

59.1
%
 
2,672,063

63.9
%
 
3,005,841

74.1
%
Commercial loans
 
 
 
 
 
 
 
 
Commercial real estate
620,014

13.9
%
 
566,870

13.5
%
 
408,870

10.1
%
Commercial and industrial
419,499

9.4
%
 
341,312

8.2
%
 
207,187

5.1
%
Commercial lease financing
9,687

0.2
%
 
9,853

0.2
%
 
10,341

0.3
%
Warehouse lending
768,644

17.3
%
 
594,526

14.2
%
 
423,517

10.4
%
    Total commercial loans
1,817,844

40.9
%
 
1,512,561

36.1
%
 
1,049,915

25.9
%
Total loans held-for-investment
$
4,447,554

100.0
%
 
$
4,184,624

100.0
%
 
$
4,055,756

100.0
%

Residential Loans Serviced
(Dollars in thousands)
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
Serviced for own loan portfolio (1)
$
4,521,125

26,268

 
$
5,061,943

26,671

 
$
5,648,699

$
34,099

Serviced for others
25,426,768

117,881

 
26,377,572

122,788

 
25,743,396

131,413

Subserviced for others (2)
46,723,713

238,498

 
46,695,465

238,425

 
40,431,867

198,256

Total residential loans serviced
$
76,671,606

382,647

 
$
78,134,980

387,884

 
$
71,823,962

363,768

(1)
Includes loans held-for-investment (residential first mortgage, second mortgage and HELOC), loans-held-for-sale (residential first mortgage), loans with repurchased government guarantees (residential first mortgage) and repossessed assets.
(2)
Does not include temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.


17

Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
December 31,
2014
 
September 30,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Beginning balance
$
301,000

 
$
306,000

 
$
207,000

 
$
207,000

 
$
305,000

Provision for loan losses
4,986

 
8,097

 
14,110

 
131,553

 
70,142

Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(8,799
)
 
(12,320
)
 
(9,868
)
 
(37,584
)
 
(133,326
)
     Second mortgage
(353
)
 
(645
)
 
(730
)
 
(3,211
)
 
(6,252
)
     HELOC
(758
)
 
(1,355
)
 
(1,728
)
 
(5,857
)
 
(5,473
)
     Other
(418
)
 
(565
)
 
(995
)
 
(1,923
)
 
(3,622
)
 Total consumer loans
(10,328
)
 
(14,885
)
 
(13,321
)
 
(48,575
)
 
(148,673
)
Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
(2
)
 
(672
)
 
(5,051
)
 
(2,463
)
 
(47,982
)
     Commercial and industrial
—

 
—

 
(48
)
 
—

 
(350
)
     Commercial lease financing
—

 
—

 
(1,299
)
 
—

 
(1,299
)
     Warehouse lending
—

 
(74
)
 
—

 
(74
)
 
(45
)
 Total commercial loans
(2
)
 
(746
)
 
(6,398
)
 
(2,537
)
 
(49,676
)
Total charge-offs
(10,330
)
 
(15,631
)
 
(19,719
)
 
(51,112
)
 
(198,349
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
208

 
1,267

 
1,033

 
3,049

 
15,329

     Second mortgage
94

 
204

 
353

 
477

 
1,178

     HELOC
27

 
45

 
315

 
183

 
1,020

     Other
853

 
768

 
1,235

 
2,311

 
2,079

Total consumer loans
1,182

 
2,284

 
2,936

 
6,020

 
19,606

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
125

 
183

 
2,300

 
3,319

 
10,162

     Commercial and industrial
33

 
9

 
85

 
111

 
151

     Commercial lease financing
—

 
—

 
288

 
47

 
288

     Warehouse lending
4

 
58

 
—

 
62

 
—

Total commercial loans
162

 
250

 
2,673

 
3,539

 
10,601

Total recoveries
1,344

 
2,534

 
5,609

 
9,559

 
30,207

Charge-offs, net of recoveries
(8,986
)
 
(13,097
)
 
(14,110
)
 
(41,553
)
 
(168,142
)
Ending balance
$
297,000

 
$
301,000

 
$
207,000

 
$
297,000

 
$
207,000

Net charge-off ratio (annualized) (1)
0.91
%
 
1.36
 %
 
1.53
%
 
1.07
%
 
4.00
%
Net charge-off ratio, adjusted (annualized) (1)(2)
0.60
%
 
0.70
 %
 
1.53
%
 
0.77
%
 
2.45
%
Net charge-off ratio (annualized) also by loan type (1)
 
 
 
 
 
 
 
 
 
Residential first mortgage
1.58
%
 
1.92
 %
 
1.37
%
 
1.47
%
 
4.29
%
Second mortgage
1.07

 
1.78

 
1.42

 
2.73

 
4.66

HELOC and consumer
0.78

 
47.03

 
2.62

 
3.39

 
3.03

Commercial real estate
0.08

 
0.36

 
2.66

 
0.16

 
7.53

Commercial and industrial and lease financing
0.03

 
(0.01
)
 
1.80

 
0.05

 
3.09

Warehouse
—

 
0.01

 
—

 
—

 
0.01

(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $3.0 million and $6.3 million related to the sale loans during the three months ended December 31, 2014 and September 30, 2014, respectively. Excludes charge-offs of $11.4 million and $65.1 million related to loan sales during the years ended December 31, 2014 and 2013 respectively.


18





Representation and Warranty Reserve
(Dollars in thousands)
(Unaudited)
 
 
Three Months Ended
 
Year Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
 Balance, beginning of period
$
57,000

 
$
50,000

 
$
174,000

 
$
54,000

 
$
193,000

 Provision
 
 
 
 
 
 
 
 
 
 
Charged to gain on sale for current loan sales
1,929

 
1,981

 
3,018

 
6,854

 
17,606

 
Charged to representation and warranty provision
(6,080
)
 
12,538

 
(15,425
)
 
10,011

 
36,116

 
Total
(4,151
)
 
14,519

 
(12,407
)
 
16,865

 
53,722

 Charge-offs, net
151

 
(7,519
)
 
(107,593
)
 
(17,865
)
 
(192,722
)
 Balance, end of period
$
53,000

 
$
57,000

 
$
54,000

 
$
53,000

 
$
54,000


Composition of Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
December 31, 2014
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
152,446

 
$
81,842

 
$
234,288

   Second mortgage
6,791

 
5,633

 
12,424

   HELOC
17,674

 
1,049

 
18,723

   Other
645

 
121

 
766

Total consumer loans
177,556

 
88,645

 
266,201

Commercial loans
 
 
 
 
 
   Commercial real estate
17,359

 
—

 
17,359

   Commercial and industrial
10,581

 
—

 
10,581

   Commercial lease financing 
131

 
—

 
131

   Warehouse lending 
2,728

 
—

 
2,728

Total commercial loans
30,799

 
—

 
30,799

Total allowance for loan losses
$
208,355

 
$
88,645

 
$
297,000

September 30, 2014
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
157,198

 
$
82,858

 
$
240,056

   Second mortgage
7,089

 
5,514

 
12,603

   HELOC
17,453

 
1,179

 
18,632

   Other
1,545

 
—

 
1,545

Total consumer loans
183,285

 
89,551

 
272,836

Commercial loans
 
 
 
 
 
   Commercial real estate
20,584

 
—

 
20,584

   Commercial and industrial
5,202

 
—

 
5,202

   Commercial lease financing 
144

 
—

 
144

   Warehouse lending 
2,234

 
—

 
2,234

Total commercial loans
28,164

 
—

 
28,164

Total allowance for loan losses
$
211,449

 
$
89,551

 
$
301,000



19

Non-Performing Loans and Assets
(Dollars in thousands)
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Non-performing loans
$
74,839

 
$
72,361

 
$
98,976

Non-performing TDRs
28,687

 
17,507

 
25,808

Non-performing TDRs at inception but performing for less than six months
16,965

 
17,076

 
20,901

Total non-performing loans held-for-investment
120,491

 
106,944

 
145,685

Real estate and other non-performing assets, net
18,693

 
27,149

 
36,636

Non-performing assets held-for-investment, net (1)
$
139,184

 
$
134,093

 
$
182,321

 
 
 
 
 
 
Ratio of non-performing assets to total assets (Bank only)
1.42
%
 
1.40
%
 
1.95
%
Ratio of non-performing loans held-for-investment to loans held-for-investment
2.71
%
 
2.56
%
 
3.59
%
Ratio of non-performing assets to loans held-for-investment and repossessed assets
3.12
%
 
3.18
%
 
4.46
%
(1)
Does not include non-performing loans held-for-sale of $14.8 million, $18.0 million and $0.8 million at December 31, 2014, September 30, 2014 and December 31, 2013, respectively.

Asset Quality - Loans Held-for-Investment
(Dollars in thousands)
(Unaudited)
 
30-59 Days Past Due
60-89 Days Past Due
Greater than 90 days
Total Past Due
Total Investment Loans
December 31, 2014
 
 
 
 
 
Consumer loans
$
34,005

$
9,894

$
120,491

$
164,390

$
2,629,710

Commercial loans
—

—

—

—

1,817,844

     Total loans
$
34,005

$
9,894

$
120,491

$
164,390

$
4,447,554

September 30, 2014
 
 
 
 
 
Consumer loans
$
40,188

$
12,139

$
106,944

$
159,271

$
2,672,063

Commercial loans
5,489

—

—

5,489

1,512,561

     Total loans
$
45,677

$
12,139

$
106,944

$
164,760

$
4,184,624

December 31, 2013
 
 
 
 
 
Consumer loans
$
41,013

$
20,732

$
144,185

$
205,930

$
3,005,841

Commercial loans
—

—

1,500

1,500

1,049,915

     Total loans
$
41,013

$
20,732

$
145,685

$
207,430

$
4,055,756



20

Troubled Debt Restructurings
(Dollars in thousands)
(Unaudited)
 
TDRs
 
Performing
 
Non-performing
 
Non-performing TDRs at inception but performing for less than six months
 
Total
December 31, 2014
 
Consumer loans
$
361,450

 
$
28,687

 
$
16,965

 
$
407,102

Commercial loans
403

 
—

 
—

 
403

Total TDRs
$
361,853

 
$
28,687

 
$
16,965

 
$
407,505

September 30, 2014
 
 
 
 
 
 
 
Consumer loans
$
365,553

 
$
17,507

 
$
17,076

 
$
400,136

Commercial loans
418

 
—

 
—

 
418

Total TDRs
$
365,971

 
$
17,507

 
$
17,076

 
$
400,554

December 31, 2013
 
 
 
 
 
 
 
Consumer loans
$
382,529

 
$
25,808

 
$
20,901

 
$
429,238

Commercial loans
456

 
—

 
—

 
456

Total TDRs
$
382,985

 
$
25,808

 
$
20,901

 
$
429,694


Efficiency ratio and efficiency ratio (adjusted). The efficiency ratio, which generally measures the productivity of a bank, is calculated as non-interest expense divided by total operating income. Total operating income includes net-interest income and total non-interest income. Management utilizes the efficiency ratio to monitor its own productivity and believes the ratio provides investors with a meaningful tool to monitor period-to-period productivity trends. The efficiency ratio (adjusted), excludes from non-interest expense and non-interest income (GAAP) certain adjusting items, that have been described in the table below. As the provision for loan losses is already excluded by the ratio's own definition, we believe that the exclusion of representation and warranty provision provides investors with a more complete picture of our productivity and ability to generate operating income. The efficiency ratio (adjusted) provides investors with a meaningful base for period to period comparisons, which management believes will assist investors in analyzing our operating results and predicting future performance. These non-GAAP financial measures are also utilized internally by management to assess the performance of our own business.

Our calculations of the efficiency ratio may differ from the calculation of similar measures used by other bank and thrift holding companies, and should be used to determine and evaluate period to period trends in our performance, rather than in comparison to other similar non-GAAP measurements utilized by other companies. In addition, investors should keep in mind that certain items excluded from income and expenses in the efficiency ratio (adjusted) are recurring and integral expenses to our operations, and that these expenses will still accrue under similar GAAP measures.

Adjusted income and adjusted earnings per share. In addition to analyzing the Company’s results on a reported basis, management reviews the Company’s results and the results on an adjusted basis. These non-GAAP measures reflect the adjustment of the reported U.S. GAAP results for significant items that management does not believe are reflective of the Company’s current and ongoing operations.

The following table provides a reconciliation of non-GAAP financial measures utilized in the adjusted efficiency ratio and adjusted earnings per share.







21

Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
Year Ended
 
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
December 31,
2014
December 31,
2013
Net interest income (a)
$
61,302

$
64,363

$
62,425

$
58,201

$
41,203

$
246,291

$
186,651

Noninterest income (b)
98,441

85,188

102,484

74,953

113,146

361,065

652,343

Less provisions:
 
 
 
 
 
 
 
Representation and warranty provision
(6,080
)
2,163

5,226

(1,672
)
9,476

364

61,016

Adjusting items:
 
 
 
 
 
 
 
Loan fees and charges (1)
—

—

(10,000
)
—

—

(10,000
)
—

Net impairment loss (2)
—

—

—

—

—

—

8,789

Representation and warranty provision (3)
—

10,375

—

—

(24,900
)
10,375

(24,900
)
Other noninterest income (4)
—

—

—

21,056

—

21,056

(36,854
)
Adjusted noninterest income
$
98,441

$
95,563

$
92,484

$
96,009

$
88,246

$
382,496

$
599,378

Adjusted income (c)
$
153,663

$
162,089

$
160,135

$
152,538

$
138,925

$
629,151

$
847,045

Noninterest expense (d)
$
139,253

$
179,389

$
121,353

$
139,252

$
388,693

$
579,246

$
918,115

Adjusting items:
 
 
 
 
 
 
 
Loss on extinguishment of debt (5)
—

—

—

—

(177,556
)
—

(177,556
)
Legal and professional expense (6)
—

(1,116
)
(2,879
)
—

—

(3,995
)
—

Other noninterest expense (7)
—

(37,500
)
10,000

—

(61,000
)
(27,500
)
(51,000
)
Adjusted noninterest expense (e)
$
139,253

$
140,773

$
128,474

$
139,252

$
150,137

$
547,751

$
689,559

 
 
 
 
 
 
 
 
Efficiency ratio (d/(a+b))
87.2
%
120.0
%
73.6
%
104.6
%
251.8
%
95.4
%
109.4
%
Efficiency ratio (adjusted) (e/c)
90.6
%
86.8
%
80.2
%
91.3
%
108.1
%
87.1
%
81.4
%
 
 
 
 
 
 
 
 
Net (loss) income applicable to common stockholders
$
11,076

$
(27,632
)
$
25,514

$
(78,906
)
$
160,457

$
(69,948
)
$
261,203

Adjustment to remove adjusting items (1-7 above), net of tax
—

48,991

(17,121
)
21,056

213,656

52,926

175,591

Tax impact of adjusting items
—

(13,646
)
5,992

(7,370
)
(54,471
)
—

(60,579
)
Adjusting tax item
—

—

—

—

(355,769
)
—

(355,769
)
Adjusted net (loss) income applicable to common stockholders
$
11,076

$
7,713

$
14,385

$
(65,220
)
$
(36,127
)
$
(17,022
)
$
20,446

 
 
 
 
 
 
 
 
Diluted (loss) earnings per share
$
0.07

$
(0.61
)
$
0.33

$
(1.51
)
$
2.77

$
(1.72
)
$
4.37

Adjustment to remove adjusting items
—

0.86

(0.31
)
0.38

3.77

0.94

3.11

Tax impact of adjusting items
—

(0.24
)
0.11

(0.13
)
(0.96
)
—

(1.07
)
Adjusting tax item
—

—

—

—

(6.28
)
—

(6.30
)
Diluted adjusted (loss) earnings per share
$
0.07

$
0.01

$
0.13

$
(1.26
)
$
(0.70
)
$
(0.78
)
$
0.11

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
       Basic
56,310,858

56,249,300

56,230,458

56,194,184

56,126,895

56,246,528

56,063,282

       Diluted
56,792,751

56,249,300

56,822,102

56,194,184

56,694,096

56,246,528

56,518,181

(1)
Reverse benefit for contract renegotiation.
(2)
Add back impairment charge related to the litigation settlement with MBIA.
(3)
Add back reserve increase related to indemnifications claims on government insured loans.
(4)
In 2014, negative fair value adjustment on repurchased performing loans and a benefit for contract renegotiation. In 2013, reversal of contingent liability reserve resulting from terms of settlement reached on a litigation settlement related to the HELOC securitization trusts.
(5)
Loss on extinguishment of debt as a result of the prepayment of the higher cost long-term Federal Home Loan Bank advances.
(6)
Adjust for legal expenses related to the litigation settlements during the respective periods.
(7)
Adjust for CFPB litigation settlement expense.

22

Nonperforming assets / Tier 1 + allowance for Loan Losses. The ratio of nonperforming assets to Tier 1 and allowance for loan losses divides the total level of nonperforming assets held for investment by Tier 1 capital (to adjusted total assets), as defined by bank regulations, plus allowance for loan losses. We believe these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of capital in comparison to other companies within the industry.
 
December 31,
2014
 
September 30,
2014
 
December 31,
2013
Non-performing assets / Tier 1 capital + allowance for loan losses
(Dollars in thousands)
Non-performing assets
$
139,184

 
$
134,093

 
$
182,321

Tier 1 capital (1)
1,167,422

 
1,134,429

 
1,257,608

Allowance for loan losses
297,000

 
301,000

 
207,000

Tier 1 capital + allowance for loan losses
$
1,464,422

 
$
1,435,429

 
$
1,464,608

Non-performing assets / Tier 1 capital + allowance for loan losses
9.5
%
 
9.3
%
 
12.4
%
 
 
 
 
 
 
(1)
Represents Tier 1 capital for the Bank.

Mortgage servicing rights to Tier 1 capital ratio. The ratio of mortgage servicing rights to Tier 1 capital divides the total mortgage servicing rights by Tier 1 capital, as defined by bank regulations. We believe these measurements are meaningful measures of capital adequacy, especially in relation to the level of our mortgage servicing rights. This ratio allows our investors, regulators, management and other parties to measure the adequacy and quality of our mortgage servicing rights and capital, in comparison to other companies within our industry.
Mortgage servicing rights to Tier 1 capital ratio
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
(Dollars in thousands)
Mortgage servicing rights
$
257,827

 
$
285,386

 
$
289,185

 
$
320,231

 
$
284,678

Tier 1 capital (to adjusted total assets) (1)
1,167,422

 
1,134,429

 
1,188,936

 
1,139,810

 
1,257,608

Mortgage servicing rights to Tier 1 capital ratio
22.1
%
 
25.2
%
 
24.3
%
 
28.1
%
 
22.6
%
 
 
 
 
 
 
 
 
 
 
(1)
Represents Tier 1 capital for the Bank.

Mortgage servicing rights to Tier 1 capital ratio
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
(Dollars in thousands)
 
 
Mortgage servicing rights
$
257,827

 
$
285,386

 
$
289,185

 
$
320,231

 
$
284,678

Tier 1 capital (to adjusted total assets) (1)
1,183,625

 
1,146,187

 
1,195,494

 
1,158,532

 
1,280,532

Mortgage servicing rights to Tier 1 capital ratio
21.8
%
 
24.9
%
 
24.2
%
 
27.6
%
 
22.2
%
 
 
 
 
 
 
 
 
 
 
(1)
Represents Tier 1 capital for the Company.
 
 
 
 
Basel I to Basel III (fully phased-in) reconciliation. We currently calculate our risk-based capital ratios under guidelines adopted by the OCC based on the 1988 Capital Accord ("Basel I") of the Basel Committee on Banking Supervision (the "Basel Committee"). In December 2010, the Basel Committee released its final framework for Basel III, which will strengthen international capital and liquidity regulations. When fully phased-in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the final Basel III rules place greater emphasis on common equity. In October 2013, the OCC and Federal Reserve released final rules detailing the U.S. implementation of Basel III and the application of the risk-based and leverage capital rules to top-tier savings and loan holding companies. We have transitioned to the Basel III framework beginning in January 2015 and are subject to a phase-in period extending through January 2019. We are currently evaluating the impact of the final Basel III rules. Accordingly, the calculations provided below are estimates. These measures are considered to be non-GAAP financial measures because they are not formally defined by GAAP and the Basel III implementation regulations will not be fully phased-in until 2019. The regulations are subject to change as clarifying guidance becomes available and the calculations currently include our interpretations of the requirements including informal feedback received through the regulatory process. Other entities may calculate the Basel III ratios differently from ours based on their interpretation of the guidelines. Since analysts and banking regulators may assess our capital adequacy using the Basel III framework, we believe that it is useful to provide investors information enabling them to assess our capital adequacy on the same basis.

23

December 31, 2014
Common Equity Tier 1 (to Risk Weighted Assets)
 
Tier 1 Leverage (to Adjusted Tangible Assets) (1)
Flagstar Bank (the Bank)
 
 
 
Regulatory capital – Basel I to Basel III (fully phased-in) (2)
 
 
 
Basel I capital
$
1,167,422

 
$
1,167,422

Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components
(117,406
)
 
(117,406
)
Basel III (fully phased-in) capital (2)
$
1,050,016

 
$
1,050,016

Risk-weighted assets – Basel I to Basel III (fully phased-in) (2)
 
 
 
Basel I assets
$
5,178,781

 
$
9,392,178

Net change in assets
124,516

 
192,481

Basel III (fully phased-in) assets (2)
$
5,303,297

 
$
9,584,659

Capital ratios
 
 
 
Basel I (3)
22.54
%
 
12.43
%
Basel III (fully phased-in) (2)
19.80
%
 
10.96
%
 
 
 
 
(1)
The definition of total assets used in the calculation of the Tier 1 Leverage ratio changed from ending total assets under Basel I to quarterly average total assets under Basel III.
(2)
Basel III information is considered estimated and not final at this time as the Basel III rules continue to be subject to interpretation by U.S. Banking Regulators.
(3)
As of December 31, 2014, the Bank was subject to the requirements of Basel I.
December 31, 2014
Common Equity Tier 1 (to Risk Weighted Assets)
 
Tier 1 Leverage (to Adjusted Tangible Assets) (1)
Flagstar Bank (the Company)
 
 
 
Regulatory capital – Basel I to Basel III (fully phased-in) (2)
 
 
 
Basel I capital
$
669,533

 
$
1,183,624

Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components
(205,243
)
 
(209,028
)
Basel III (fully phased-in) capital (2)
$
464,290

 
$
974,596

Risk-weighted assets – Basel I to Basel III (fully phased-in) (2)
 
 
 
Basel I assets
$
5,189,822

 
$
9,403,220

Net change in assets
(97,735
)
 
108,862

Basel III (fully phased-in) assets (2)
$
5,092,087

 
$
9,512,082

Capital ratios
 
 
 
Basel I (3)
12.90
%
 
12.59
%
Basel III (fully phased-in) (2)
9.12
%
 
10.25
%
 
 
 
 
(1)
The definition of total assets used in the calculation of the Tier 1 Leverage ratio changed from ending total assets under Basel I to quarterly average total assets under Basel III.
(2)
Basel III information is considered estimated and not final at this time as the Basel III rules continue to be subject to interpretation by U.S. Banking Regulators.
(3)
As of December 31, 2014, the Bank was subject to the requirements of Basel I.



24