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Press release from PR Newswire

Flagstar Reports Third Quarter 2011 Net Loss of $14.2 Million

Tuesday, October 25, 2011

Flagstar Reports Third Quarter 2011 Net Loss of $14.2 Million21:11 EDT Tuesday, October 25, 2011Strength of Mortgage Banking Franchise Drives 81 percent Quarterly Improvement in Bottom LineTROY, Mich., Oct. 25, 2011 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) (the "Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported a third quarter 2011 net loss applicable to common shareholders of $(14.2) million, as compared to a second quarter 2011 net loss of $(74.9) million and a third quarter 2010 net loss of $(22.6) million."Overall, we were pleased with the improvement in fundamentals on our core revenue drivers, even though such fundamentals continue to be offset by legacy credit costs.  During the quarter, we reported our strongest earnings, before taxes and credit costs, since 2009.  We experienced significant quarterly improvements in our bank net interest margin, our gain on loan sale income, and our mortgage originations and rate lock commitments.  We also saw meaningful loan growth in our core portfolios, with our average held for investment loans increasing by an annualized rate of 13.6 percent from the prior quarter.  We continue to execute on our commercial strategy, originating over $300 million in new core commercial and specialty loans, more than double the amount in the second quarter 2011," commented Joseph P. Campanelli, Chairman of the Board, President and CEO.Campanelli continued, "Our overall credit costs in the third quarter were relatively flat from the prior quarter, as we continue to work through challenges in our legacy balance sheet.  We saw some encouraging trends in the third quarter, with 30-day delinquent and 60-day delinquent residential mortgage loans flat from the prior quarter, and the pace of increase slowing dramatically in the greater than 90 days delinquent residential first mortgage loans.  Macroeconomic conditions and home prices remain challenging, however, we are confident we have the resources, including the capital, liquidity and leadership, necessary to support our business plan and continue our planned growth strategies."               Third Quarter 2011 Highlights: Strong revenue growth, with our largest quarterly level of earnings, before taxes and credit costs, since 2009.Gain on loan sale income of $103.9 million (margin of 153 basis points), increased from prior quarter level of $39.8 million (91 basis points).  Residential mortgage originations of $6.9 billion, increased 50 percent from prior quarter.Mortgage rate-lock commitments of $13.1 billion, increased 105 percent from prior quarter.Loan fees of $18.4 million, increased $3.7 million from prior quarter.Successfully converted our legacy residential mortgage servicing system to a nationally recognized loan servicing platform and restructured our residential servicing process, which management believes will materially improve efficiencies and loss mitigation activities.Entered into separate agreements to divest our 27 branch retail bank franchise in Georgia at break-even and to divest our 22 branch retail bank franchise in Indiana for a gain of approximately $24 million. Improved bank net interest margin to 2.30 percent, from 1.86 percent in prior quarter.Average bank yield on interest earning assets of 4.09 percent, improvement from prior quarter level of 3.82 percent.Overall bank cost of funds of 2.08 percent, improvement from prior quarter level of 2.20 percent. Meaningful growth in interest earnings assets, driven by increases in available-for-sale loan portfolio, and the warehouse lending and commercial and industrial portfolios.Increased average core deposits by 4.9 percent from prior quarter, to $2.8 billion.Continued to fortify balance sheet, selling $15.4 million of non-performing commercial real estate assets, resulting in a nominal gain.Capital and liquidity levels remained strong, with a Tier 1 capital ratio of 9.31 percent and cash and cash equivalents equal to 6.6 percent of total assets (does not include other marketable assets).  Incurred total credit costs of $111.7 million, relatively flat from prior quarter.Loan loss provision expense decreased by $11.7 million due to lower historical residential first mortgage loss rates that offset the increase in greater than 90 days delinquent residential first mortgages.Secondary marketing reserve provision increased to $39 million, driven by a heightened level of loan repurchase requests primarily from Fannie Mae, consistent with industry trends. Asset resolution expense increased to $34.5 million as a result of increased costs associated with Ginnie Mae repurchased loans.  Third quarter 2011 net loss per share was $(0.03) per share (diluted) based on average shares outstanding of 554,489,000, as compared to a second quarter 2011 of $(0.14) per share (diluted) based on average shares outstanding of 553,946,000 and $(0.15) per share (diluted) based on average shares outstanding of 153,405,000 in the third quarter 2010.  For the nine months ended September 30, 2011, the net loss applicable to common stockholders totaled $(120.8) million, or $(0.22) per share (diluted) based on average shares outstanding of 554,000,000, a 40.1 percent improvement as compared to $(201.5) million or $(1.57) per share (diluted) based on average shares of 128,411,000 during the same period 2010.Georgia and Indiana Branch DivestituresDuring the third quarter, the Bank announced it had entered into separate agreements to divest its 27-branch Georgia and its 22-branch Indiana retail bank franchises, with PNC Bank, N.A., part of The PNC Financial Services Group, Inc. ("PNC") and First Financial Bancorp ("First Financial"), respectively.  Management believes that the Company's presence in the Georgia and Indiana markets lacked market density and sufficient scale, and believes that these transactions are consistent with its strategic focus on its core Midwest banking markets, and on its deployment of capital towards its continuing growth in commercial and consumer banking in those markets, as well as the emerging Northeast market.   Under the Georgia agreement, PNC is to purchase the facilities or assume the leases associated with the branches and is to purchase associated business and retail deposits (approximately $233 million at September 30, 2011).  PNC has also agreed to pay the net book value of the acquired real estate and fixed and other personal assets associated with the branches.  Under the Indiana agreement, First Financial is to pay a consideration equal to a seven percent premium on the consumer and commercial deposits.  At September 30, 2011, the total amount of consumer and commercial deposits were $343 million, which translates to a one-time gain of approximately $24 million.  First Financial will also pay net book value on real estate and personal assets of the bank branches and will assume the existing leases on 14 of the branches.  The Company predominantly originated residential mortgage loans for sale in the secondary market in both the Georgia and Indiana markets.  Accordingly, the amount of loans on its balance sheet and potentially available to be transferred as part of these transactions was immaterial; thus no loans will be transferred in either transaction.  Both transactions are anticipated to close during December 2011, subject to satisfaction of customary closing conditions and receipt of regulatory approvals.Net Interest Income and MarginThird quarter 2011 net interest income was $65.6 million, as compared to $51.3 million during the second quarter 2011 and $41.1 million during the third quarter 2010.  The $14.3 million increase from second quarter 2011 reflects an improvement in the net interest spreads, and a 3.4 percent increase in average interest-earning assets, driven primarily by increases in the available-for-sale, warehouse lending and commercial and industrial loan portfolios. Net interest margin for the Bank was 2.30 percent for the third quarter 2011, as compared to 1.86 percent for the second quarter 2011 and 1.68 percent for the third quarter 2010.  The increase for the third quarter 2011 reflects a 3.4 percent increase in average interest earning assets to $11.7 billion, from $11.3 billion for the second quarter 2011.  It also reflects a 7.1 percent increase in the average yield on interest earnings assets to 4.09 percent for the third quarter 2011.  Third quarter 2011 overall cost of funds decreased to 2.08 percent from 2.20 percent in the second quarter 2011.  The Bank's cost of deposits for the third quarter 2011 was 1.37 percent, an 8.7 percent decline, compared to 1.50 percent in the second quarter 2011, and a 37.4 percent decline, compared to 2.19 percent in the third quarter 2010.  The decrease in overall funding costs for the third quarter 2011 was primarily due to the success of Bank's initiatives to replace maturing high-cost certificates of deposit in part with lower cost core retail deposits.  The Bank also refinanced $1.0 billion of long-term FHLB advances during September 2011, which is expected to reduce total interest expense by approximately $14.1 million annually.Net interest margin for the Bank was 2.01 percent for the nine months ended September 30, 2011, as compared to 1.61 percent for the nine months ended September 30, 2010.  The increase for the nine months ended September 30, 2011, compared to the same period in 2010, was primarily due to increased net interest income that offset the decline in average interest-earnings assets for the nine months ended September 30, 2011 as compared to the same period ended September 30, 2010.Average interest-earning deposits, on which the Bank earns a minimal interest rate (25 basis points), were $718.6 million in the third quarter 2011, and represent 5.2 percent of total assets.  Management believes the Bank's interest-earning deposits allow it sufficient flexibility to fund its on-going strategic initiatives, which include increasing commercial and specialty lending, as well as other mortgage related initiatives.   Non-interest IncomeThird quarter 2011 non-interest income was $112.6 million, as compared to $58.1 million for the second quarter 2011 and $144.9 million for the third quarter 2010.  The increase in non-interest income was primarily due to the third quarter 2011 reduced mortgage interest rate environment and the resulting strength of the mortgage business.    In the third quarter 2011, gain on loan sales totaled $103.9 million, as compared to $39.8 million for the second quarter 2011 and $103.2 million for the third quarter 2010.  The increase from the prior quarter was a result of both an increase in amount of interest rate lock commitments and an increase in associated margin.  Gain on loan sale margin increased to 1.53 percent for the third quarter 2011, as compared to 0.91 percent for the second quarter 2011 and 1.35 percent for the third quarter 2010.Residential mortgage loan originations, which are principally comprised of agency-eligible residential first mortgage loans, were $6.9 billion during the third quarter 2011, an increase from $4.6 billion in the second quarter 2011 and a decrease from $7.6 billion in the third quarter 2010.  Loan sales for the third quarter of 2011 increased to $6.8 billion, as compared to $4.4 billion for the second quarter 2011 and decreased from $7.6 billion for the third quarter 2010.  Mortgage rate lock commitments increased to $13.1 billion during the third quarter 2011, as compared to $6.4 billion during the second quarter 2011, and from $11.0 billion during the third quarter 2010.   Net servicing revenue, which is the combination of net loan administration income (including the off-balance hedges of mortgage servicing rights) and the gain (loss) on trading securities (the on-balance sheet hedges of mortgage servicing rights), decreased to $16.9 million during third quarter 2011, as compared to $30.5 million during second quarter 2011.  The decrease as compared to second quarter 2011 was primarily attributable to historically low interest rate levels, increased prepayment activity, and a continued reduction in the capitalization of new servicing assets during the third quarter.At September 30, 2011, loans serviced for others totaled $56.8 billion with a weighted average servicing fee of 30.5 basis points. This was a decrease from $57.1 billion at June 30, 2011, with a weighted average servicing fee of 30.3 basis points, and an increase from $52.3 billion at September 30, 2010 with a weighted average servicing fee of 31.5 basis points. During the third quarter, the Company sold $31.3 million in residential first mortgage servicing rights, with $4.6 billion in underlying loans, through bulk sales.    Non-interest ExpenseNon-interest expense was $150.7 million for the third quarter 2011, compared to $130.9 million in the second quarter 2011, and $162.6 million for the third quarter 2010.  Excluding asset resolution expense, non-interest expense was $116.2 million in the third quarter 2011, compare to $107.6 million in the second quarter 2011.  The third quarter 2011 increase in non-interest expense (excluding asset resolution expense) compared to second quarter 2011, was primarily driven by increased compensation and commissions related to the increase in the mortgage banking business and a $5.2 million general and administrative expense associated with a commercial letter of credit.  Our efficiency ratio, as adjusted to exclude credit costs, improved to 53.5 percent during the third quarter 2011, as compared 82.3 percent during the second quarter 2011.  Compensation, benefits and commission expense increased by $4.2 million to $65.4 million for the third quarter 2011, as compared to $61.2 million in second quarter 2011, and compared to $59.8 million in third quarter 2010.  The increase in compensation, benefits and commissions expense in the third quarter 2011 compared to second quarter 2011, was primarily due to a $3.1 million increase in commissions as a result of  an increase in mortgage banking volumes during the third quarter 2011.  Warrant income, reflected as an offset under non-interest expense, was $4.2 million for the third quarter 2011, as compared to $2.0 million in the second quarter 2011, primarily due to the quarterly valuation of the outstanding warrant liability.Balance Sheet and FundingTotal assets at September 30, 2011 were $13.7 billion, as compared to $12.7 billion at June 30, 2011 and $13.8 billion at September 30, 2010.  The increase in total assets was primarily due to a $1.1 billion increase in total interest-earning assets, as the Bank was able to generate loan growth in warehouse lending and commercial and industrial loan portfolios, and an increase in the available-for-sale residential mortgage loan portfolio.  The increase in warehouse lending and available-for-sale loans was attributable to the increase in residential mortgage originations.  The Bank's primary sources of funds are deposits obtained through its community banking branches and its internet banking platform, as well as deposits obtained from municipalities and investment banking firms.  Funds are also obtained from time to time through loan repayments and sales of loans and securities in the ordinary course of business, advances from the FHLB, community banking operations, customer escrow accounts and security repurchase agreements.  The Bank relies upon several of these sources at different times to address its daily and forecasted liquidity needs for operational requirements and policy levels while managing overall net interest costs.  Total retail deposits were $5.5 billion at September 30, 2011, as compared to $5.2 billion at June 30, 2011 and $5.4 billion at September 30, 2010.  The increase in retail deposits at September 30, 2011, compared to June 30, 2011, was due to an increase in both certificates of deposits and savings deposits.    At September 30, 2011, the Bank had a collateralized $4.6 billion line of credit with the FHLB, of which $3.6 billion was advanced or borrowed, and $921 million remained as borrowing capacity. The Bank also had approximately $900 million of cash on hand and interest-earning deposits, in addition to other marketable securities.Credit Related Costs and Asset QualityCredit related costs consist primarily of loan loss provision expense, secondary market reserve provision expense, asset resolution expense and impairment on investment securities available-for-sale.  The Company's credit related costs totaled $111.7 million for the third quarter 2011, as compared to $110.9 million for the second quarter 2011 and $113.3 million for the third quarter 2010.  Third quarter 2011 loan loss provision expense decreased by $11.7 million to $36.7 million, as compared to $48.4 million in second quarter 2011 and decreased compared to $51.4 million in third quarter 2010.  The third quarter 2011 decrease from second quarter 2011 was primarily due to a $10.1 million decrease in provision related to residential first mortgages, consistent with a slowing pace of an increase on the greater than 90 days delinquent residential first mortgages.  Third quarter 2011, 30 day and 60 day delinquent residential first mortgages were relatively unchanged from the second quarter 2011, indicating reduced levels of inflows.For commercial real estate loans, loan loss provision decreased slightly from the second quarter 2011, and has now decreased for four consecutive quarters.  The Company also sold $15.4 million of non-performing commercial real estate assets during the third quarter 2011, which resulted in a $0.1 million gain. Third quarter 2011 secondary marketing reserve provision expense was $39.0 million, as compared to $21.4 million in the second quarter 2011 and $13.0 million in the third quarter 2010.  Management believes the increase from prior quarter is consistent with recent industry trends, as the GSEs (a term generally used to refer collectively or singularly to Fannie Mae and Freddie Mac) continue to be more aggressive in the number of pre-2009 loans files being reviewed and their interpretation of their rights under the related representations and warranties.  The Company has not experienced similar issues with its 2009, 2010 or 2011 vintages.      The Company maintains a secondary marketing reserve on the balance sheet, which reflects the estimate of probable losses that currently exists on loans which have sold or securitized into the secondary market, except for loans repurchased with government guarantees.  The secondary marketing reserve was $85.0 million as of September 30, 2011, as compared to $79.4 million as of June 30, 2011 and $77.5 million at September 30, 2010.  Asset resolution expense, which are expenses associated with foreclosed properties (including the foreclosure claims in process with Ginnie Mae), increased by 48.2 percent to $34.5 million in the third quarter 2011, as compared to $23.3 million in the second quarter of 2011. The third quarter 2011 increase compared to second quarter 2011, was primarily due to continued pressure on home values and heightened costs associated with servicing the loans repurchased with government guarantees.  During the third quarter 2011, the Company made improvements to the servicing processes within the loans repurchased with government guarantees portfolio, which management believes will provide a benefit in the next several quarters by reducing associated servicing costs.   Impairment on investment securities available-for-sale was $(1.3) million during the third quarter 2011, as compared to $(15.6) million incurred during in the second quarter 2011, and no impairment in the third quarter 2010.  The decrease in impairment losses during the third quarter reflected the quarterly valuation impairment charge on the collateralized mortgage obligations in line with current industry forecasts for future home price expectations. Non-performing assets held-for-investment were $558.3 million at September 30, 2011, as compared to $513.4 million at June 30, 2011, and $1.1 billion at September 30, 2010.  Such loans are principally from the Company's pre-2009 loan origination activity (referred to as "legacy loans").  This category of assets is comprised of non-performing loans (i.e., loans 90 days or more past due and matured loans), real estate owned and net repurchased assets, and it excludes repurchased loans that are guaranteed primarily by the Federal Housing Administration (FHA).  The $44.9 million increase in the third quarter 2011, as compared to second quarter 2011, was driven primarily by a $55.0 million increase in non-performing residential first mortgage loans, offset by a $12.2 million decrease in non-performing commercial and commercial real estate loans.  Management expects that the growth in non-performing loans will moderate as such loans are modified or foreclosed upon, and continues to aggressively look for opportunities to de-risk its legacy residential first mortgage and commercial real estate loan portfolios.  Beginning in the fourth quarter 2010, the Company has now cumulatively sold $637.8 million in legacy non-performing assets through bulk sales, which are in addition to loan or property sales in the ordinary course of business.Allowance for loan losses at September 30, 2011 was $282.0 million, or 4.1 percent of loans held-for-investment and 63.4 percent of non-performing loans held-for-investment, as compared to $274.0 million, or 4.6 percent of loans held-for-investment and 67.9 percent of non-performing loans held-for-investment at June 30, 2011.  The slight increase in allowance for loan loss, as compared to second quarter 2011, was primarily due to an increase in residential non-performing loans.  The decline in the ratio of allowance to loans held-for-investment reflects the changing composition of the loan portfolio, as warehouse loans and commercial and industrial loans, which usually have lower historical industry-wide loss rates than residential first mortgage loans, have increased the size of the held-for-investment loan portfolio.  At September 30, 2010, the allowance for loan losses was $474.0 million, or 6.5 percent of loans held-for-investment and 52.0 percent of non-performing loans.CapitalFlagstar Bank remained "well-capitalized" for regulatory purposes at September 30, 2011, with regulatory capital ratios of 9.31 percent for Tier 1 capital and 17.64 percent for total risk-based capital. The Company had an equity-to-assets ratio of 8.44 percent at September 30, 2011.As Previously AnnouncedThe Company's quarterly earnings conference call will be held on Wednesday, October 26, 2011 from 11 a.m. until noon (Eastern). Questions for discussion at the conference call may be submitted in advance by e-mail to investors@flagstar.com or asked live during the conference call.The conference call and accompanying slide presentation will be webcast live on the Investor Relations section of the Company's Web site, www.flagstar.com, with replays available at that site for at least 10 days.To listen by telephone, please call at least 10 minutes prior to the start of the conference call at (866) 834-5823 toll free or (973) 341-3018 and use passcode: 14214072.About FlagstarFlagstar Bancorp is a full-service financial services company, offering a range of products and services to consumers, businesses, and homeowners.  With $13.7 billion in total assets at September 30, 2011, Flagstar is the largest publicly held savings bank headquartered in the Midwest.  As of September 30, 2011, Flagstar operated 162 branches in Michigan, Indiana, and Georgia, and has subsequently entered into agreements to sell or lease its 27 branches in Georgia and 22 branches in Indiana.  Flagstar also operated, at September 30, 2011, 29 home loan centers in 14 states, and a total of four commercial banking offices in Massachusetts, Connecticut, and Rhode Island.  Flagstar Bank originates loans nationwide and is one of the leading originators of residential mortgage loans. For more information, please visit flagstar.com.Forward Looking StatementsThis 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 impact, timing and likelihood of consummation of the Company's sale of its Georgia and Indiana retail bank franchises, the result of improvements to the Company's servicing processes, and other similar matters.  There is a risk that, because of business, economic or market conditions or for any other reasons within or outside of the Company's discretion, the Company's sale of its Georgia and Indiana retail bank franchises may not have the projected impact or be consummated in a timely manner or at all.  For a further discussion of the factors that may cause actual results to differ materially from current expectations, please review the Company's filings with the Securities and Exchange Commission ("SEC"), including but not limited to, our Forms 10-K and 10-Q.  Except to the extent required under the federal securities laws and the rules and regulations promulgated by the SEC, the Company undertakes no obligation to update any such statement to reflect events or circumstances after the date on which it is made.Flagstar Bancorp, Inc.Consolidated Statements of Financial Condition(In thousands, except share data)September 30, 2011June 30, 2011December 31, 2010September 30, 2010Assets(Unaudited)    Cash and cash items$63,288$                 56,031$                   60,039$           50,422    Interest-earning deposits839,510701,852893,495962,711         Cash and cash equivalents902,798757,883953,5341,013,133    Securities classified as trading312,766292,438160,775161,000    Securities classified as available-for-sale521,259551,173475,225503,568    Loans available-for-sale         ($1,939,780, $1,870,499, $2,343,638 and $1,780,486         at fair value at September 30, 2011, June 30, 2011,         December 31, 2010 and September 30, 2010,         respectively)2,080,9262,002,8882,585,2001,943,096    Loans repurchased with government guarantees1,745,9741,711,5911,674,7521,500,635    Loans held-for-investment ($22,787, $21,514,        $19,011 and $35,994 at fair value at        September 30, 2011, June 30, 2011, December 31,        2010 and September 30, 2010, respectively)6,821,7375,975,1346,305,4837,312,226         Less: allowance for loan losses(282,000)(274,000)(274,000)(474,000)         Loans held-for-investment, net6,539,7375,701,1346,031,4836,838,226             Total interest-earning assets12,040,17210,961,07611,820,93011,909,236    Accrued interest receivable100,44291,52783,89386,347    Repossessed assets, net113,365110,050151,085198,585    Federal Home Loan Bank stock301,737301,737337,190373,443    Premises and equipment, net250,674244,565232,203233,235    Mortgage servicing rights at fair value437,338577,401580,299447,023    Other assets427,013320,425377,865538,282             Total assets$13,734,029$          12,662,812$            13,643,504$    13,836,573Liabilities and Stockholders' Equity    Deposits$8,128,258$            7,405,027$              7,998,099$      8,561,943    Federal Home Loan Bank advances3,615,0003,406,5713,725,0833,400,000    Long-term debt248,585248,610248,610248,610            Total interest-bearing liabilities11,991,84311,060,20811,971,79212,210,553    Accrued interest payable8,45210,93512,96518,338    Secondary market reserve85,00079,40079,40077,500    Other liabilities489,395337,829319,684469,453            Total liabilities12,574,69011,488,37212,383,84112,775,844    Stockholders' Equity    Preferred stock $0.01 par value, liquidation value         $1,000 per share, 25,000,000 shares authorized;         266,657 issued and outstanding and outstanding at         September 30, 2011, June 30, 2011, December 31,         2010, and September 30, 2010, respectively3333    Common stock $0.01 par value, 700,000,000        shares authorized; 555,015,011, 554,163,337,        553,313,113 and 153,512,990 shares issued and        outstanding at September 30, 2011, June 30, 2011,        December 31, 2010 and September 30, 2010,          respectively5,5505,5425,5331,535    Additional paid in capital ? preferred253,341251,956249,193247,837    Additional paid in capital ? common 1,465,5541,464,1311,461,3731,079,042    Accumulated other comprehensive loss (4,074)(357)(16,165)(19,484)    Retained earnings (accumulated deficit)(561,035)(546,835)(440,274)(248,204)            Total stockholders' equity1,159,3391,174,4401,259,6631,060,729            Total liabilities and stockholders' equity$13,734,029$          12,662,812$            13,643,504$    13,836,573Flagstar Bancorp, Inc. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)For the Three Months Ended For the Nine Months EndedSeptember 30, 2011June 30, 2011September 30, 2010September 30, 2011September 30, 2010 Interest Income Loans $          109,966$       98,155$          121,834$           310,234$            354,069 Securities classified as available-for-sale or trading9,6268,94910,96826,67347,069 Interest-earning deposits and other4339575052,3581,631    Total interest income120,025108,061133,307339,265402,769 Interest Expense Deposits22,67924,90240,27074,603123,677 FHLB advances30,12130,21839,81690,317123,755 Security repurchase agreements----2,750 Other1,6111,6172,0174,8348,060    Total interest expense54,41156,73782,103169,754258,242 Net interest income65,61451,32451,204169,511144,527 Provision for loan losses36,69048,38451,399113,383200,978 Net interest expense after provision for loan losses28,9242,940(195)56,128(56,451) Non-Interest Income Loan fees and charges18,38314,71224,36549,23360,930 Deposit fees and charges7,9537,8457,58523,29724,796 Loan administration(3,478)30,45012,92466,308(15,590) Gain (loss) on trading securities20,38510210,35420,41476,702 Loss on residual and transferors' interest(186)(2,258)(4.665)(4,825)(11,660) Net gain on loan sales103,85839,827103,211193,869220,034 Net loss on sales of mortgage servicing rights(2,587)(2,381)(1,195)(5,080)(4,674) Net gain on securities available-for-sale----6,689 Net gain (loss) on sale of assets1,0411,293-1,297-    Total other-than-impairment gain 51,00339,725-35,99335,200    Loss recognized in other comprehensive           income before taxes(52,325)(55,309)-(52,899)(38,877) Net impairment losses recognized in earnings(1,322)(15,584)-(16,906)(3,677) Secondary market reserve ? change in estimate(38,985)(21,364)(12,958)(80,776)(51,174) Other fees and charges, net7,4895,4365,26720,06414,841    Total non-interest income112,55158,078144,888266,895317,217 Non-Interest Expense Compensation, commissions and benefits65,42661,15659,817189,894171,944 Occupancy and equipment17,08316,96915,75750,66947,670 Asset resolution34,51523,28244,32395,906119,569 Federal insurance premiums10,66510,7898,52230,18029,209 Other taxes6476671,9642,1783,660 Warrant (income) expense(4,202)(1,998)(1,405)(7,027)(3,664)Loss on extinguishment of debt--11,855-20,826 General and administrative26,55720,05721,75667,04458,985    Total non-interest expense150,691130,922162,589428,844448,199 Loss before federal income taxes(9,216)(69,904)(17,896)(105,821)(187,433) Provision for federal income taxes264264-792- Net Loss(9,480)(70,168)(17,896)(106,613)(187,433) Preferred stock dividend/accretion(4,719)(4,720)(4,690)(14,148)(14,059) Net loss applicable to common stock$         (14,199)$       (74,888)$         (22,586)$        (120,761)$        (201,492) Loss per share       Basic $             (0.03)$           (0.14)$             (0.15)$              (0.22)$              (1.57)       Diluted $             (0.03)$           (0.14)$             (0.15)$              (0.22)$              (1.57)Flagstar Bancorp, Inc.Summary of Selected Consolidated Financial and Statistical Data(Dollars in thousands, except per share data)(Unaudited)For the Three Months EndedFor the Nine Months EndedSummary of ConsolidatedStatements of OperationsSeptember 30, 2011June 30, 2011September 30,2010September 30, 2011September 30,2010Return on average assets(0.43)%(2.32)%(0.64)%(1.23)%(1.92)%Return on average equity(4.90)%(24.87)%(8.35)%(13.39)%(26.85)%Efficiency ratio84.6%119.7%82.9%98.3%97.1%Efficiency ratio (credit-adjusted) (1)53.5%82.3%56.6%64.4%64.1%Equity/assets ratio (average for the period)8.80%9.33%7.71%9.20%7.14%Residential first mortgage loans originated $        6,926,451$      4,642,706$       7,613,502$        16,425,699$         17,396,195Other loans originated $           322,558$         152,566$            13,201$             506,430$                26,958Mortgage loans sold and securitized $        6,782,795$      4,362,518$       7,619,097$        16,974,821$         17,893,675Interest rate spread ? Bank only (2)2.02%1.62%1.35%1.75%1.32%Net interest margin ? Bank only (3) 2.30%1.86%1.68%2.01%1.61%Interest rate spread ? Consolidated (2) 2.01%1.61%1.34%1.74%1.30%Net interest margin ? Consolidated (3)2.25%1.81%1.62%1.96%1.52%Average common shares outstanding 554,489,448553,946,138153,405,151554,000,247128,411,259Average fully diluted shares outstanding 554,489,448553,946,138153,405,151554,000,247128,411,259Average interest earning assets$      11,677,994$    11,297,984$     12,623,592$        11,483,759$         12,551,298Average interest paying liabilities$      10,337,645$    10,301,159$     11,383,551$        10,365,972$         11,598,035Average stockholder's equity$        1,159,825$      1,204,652$       1,082,499$          1,202,923$           1,000,644Charge-offs to average investment loans       (annualized) 1.83%3.15%5.90%2.36%4.53%September 30,2011June 30, 2011December 31,2010September 30,2010Equity/assets ratio8.44%9.27%9.23%7.67%Core capital ratio (4)9.31%10.07%9.61%9.12%Total risk-based capital ratio (4)17.64%19.73%18.55%16.87%Book value per common share$                  1.63$                  1.66$                   1.83$                   5.30Number of common shares outstanding 555,015,011554,163,337553,313,113153,512,990Mortgage loans serviced for others$       56,772,598$       57,087,989$        56,040,063$        52,287,204Weighted average service fee (bps)30.530.330.831.5Capitalized value of mortgage servicing rights0.77%1.01%1.04%0.85%Ratio of allowance for loan losses to non-    performing loans held-for-investment (5)63.4%67.9%86.1%52.0%Ratio of allowance for loan losses to loans    held-for-investment (5)4.13%4.59%4.35%6.48%Ratio of non-performing assets to total assets    (bank only) 4.09%4.10%4.35%8.25%Number of bank branches162162162162Number of loan origination centers29302727Number of employees (excluding loan officers   and account executives)2,9932,9903,0012,922Number of loan officers and account executives306316278285(1) Based on efficiency ratios as calculated, less secondary market reserve change in estimate and asset resolution expense.  (2) 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.(3) Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets.(4) 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.  (5) Bank only and does not include non-performing loans available-for-saleLoan Originations(Dollars in thousands)(Unaudited)For the Three Months EndedSeptember 30,2011June 30,2011September 30,2010Consumer loans:    Residential first mortgage $        6,926,45197.6%$   4,642,70696.8%$     7,613,50299.8%    Other consumer (1)4,3380.12,6840.1486-Total consumer loans 6,930,78997.74,645,39096.97,613,98899.8Commercial loans (2)318,2202.3149,8823.112,7150.2      Total loan originations$        7,249,009100.0%$   4,795,272100.0%$     7,626,703100.0%For the Nine Months EndedSeptember 30,2011September 30,2010Consumer loans:    Residential first mortgage $   16,425,69997.0%$ 17,396,19599.8%    Other consumer (1)7,9910.12,0460.1Total consumer loans 16,433,69097.117,398,24199.9Commercial loans (2)498,4392.924,9120.1      Total loan originations$   16,932,129100.0%$ 17,423,153100.0%(1) Other consumer loans include: second mortgage, construction, warehouse lending, HELOC and other consumer loans.(2) Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans.Loans Held-for-Investment(Dollars in thousands)(Unaudited)September 30,2011June 30,2011December 31,2010September 30,2010Consumer loans:Residential first mortgage$   3,827,35656.2%$      3,744,34262.7%$        3,784,70060.1%$         4,479,81461.4%Second mortgage 146,5012.1155,5372.6174,7892.8185,0622.5Construction 758-898-8,0120.19,9560.1Warehouse lending995,66314.6513,6788.6720,77011.4913,49412.5HELOC232,7963.4241,3964.0271,3264.3265,2403.6Other73,1271.177,0521.386,7101.4107,8461.5    Total consumer loans5,276,20177.44,732,90379.25,046,30780.15,961,41281.6Commercial loans:Commercial real estate 1,268,87818.61,111,13118.61,250,30119.81,341,00918.3Commercial and industrial234,1483.499,1731.88,8750.19,8050.1Commercial lease financing 42,5100.631,9270.4????    Total commercial loans1,545,53622.61,242,23120.81,259,17619.91,350,81418.4     Total loans held-for-investment$   6,821,737100.0%$      5,975,134100.0%$        6,305,483100.0%$         7,312,226100.0%Composition of Mortgage Loans Held-for-Investment(In thousands)(Unaudited)September 30, 2011June 30, 2011Portfolio Balance (1)Allowance (1)Portfolio Balance (1)Allowance (1)     Performing modified (TDR)$                    488,981$                     41,381$                    529,588$                   44,838     Performing and not delinquent within             last 36 months2,160,06725,7522,237,48626,696     Performing with government             insurance104,240?120,059?     Other performing801,26933,693650,70635,963     Non-performing - 90+ day delinquent291,82664,722241,25853,077     Non-performing with government            insurance64,9321,09560,147902     30 day and 60 day delinquent63,3014,03061,5334,103Total$                 3,974,616$                   170,673$                 3,900,777$                 165,579December 31, 2010September 30, 2010Portfolio Balance (1)Allowance (1)Portfolio Balance (1)Allowance (1)     Performing modified (TDR)$                    576,594$                     46,857$                    615,998$                   47,943     Performing and not delinquent within             last 36 months2,084,57827,7002,260,22929,750     Performing with government             insurance122,677?124,715?     Other performing987,97543,4621,002,37855,428     Non-performing - 90+ day delinquent76,57219,786531,296164,010     Non-performing with government            insurance56,5871,91552,692960     30 day and 60 day delinquent62,5184,86687,5244,470Total$                 3,967,501$                   144,586$                 4,674,832$                 302,561(1) Includes residential first mortgage, second mortgage and construction loans.Composition of Commercial Loans Held-for-Investment (In thousands)(Unaudited)September 30, 2011  June 30, 2011Portfolio Balance (1)Allowance (1)Portfolio Balance (1)Allowance (1)     Performing ? not impaired$                    1,197,714$                    31,559$                      966,754$                         34,190     Special mention ? not impaired145,52410,32291,1047,901     Impaired107,47727,71282,49619,630     Non-performing ? not impaired173440217     Non-performing94,64817,683101,47521,885Total$                    1,545,536$                    87,280$                  1,242,231$                         83,623December 31, 2010September 30, 2010Portfolio Balance (1)Allowance (1)Portfolio Balance (1)Allowance (1)     Performing ? not impaired$                    933,557$                    31,291$                      911,629$                         32,069     Special mention ? not impaired85,1035,907126,8337,387     Impaired73,63117,18179,88818,845     Non-performing ? not impaired6,4857524,939327     Non-performing160,40039,847227,52567,820Total$                 1,259,176$                    94,978$                   1,350,814$                       126,448(1) Includes commercial real estate, commercial and industrial, and commercial lease financing loans.Allowance for Loan Losses(Dollars in thousands)(Unaudited)For the Three Months EndedFor the Nine Months EndedSeptember 30, 2011June 30,2011September 30, 2010September 30, 2011September 30, 2010Beginning balance$             274,000$          271,000$            530,000$                 274,000$              524,000Provision for loan losses 36,69048,38451,399113,383200,978Charge-offsConsumer loans:     Residential first mortgage (11,233)(8,383)(38,612)(22,098)(113,894)     Second mortgage(4,629)(6,138)(6,843)(16,545)(21,939)     Construction -(419)(419)(419)(500)     Warehouse lending(272)(288)(151)(560)(1,900)           HELOC(3,477)(4,925)(4,704)(13,465)(16,944)           Other(1,208)(1,146)(1,299)(3,813)(4,300) Total consumer loans(20,819)(21,299)(52,028)(56,900)(159,477)Commercial loans:     Commercial real estate(9,853)(25,957)(57,281)(55,099)(97,017)     Commercial and industrial(587)(9)(529)(644)(992) Total commercial loans(10,440)(25,966)(57,810)(55,743)(98,009)Total charge-offs(31,259)(47,265)(109,838)(112,643)(257,486)RecoveriesConsumer loans:     Residential first mortgage7561586051,2501,854     Second mortgage3713445361,5811,194     Construction --217     Warehouse lending--3915444           HELOC5244433401,4531,042           Other 4234743851,2841,185Total consumer loans2,0741,4192,2595,5745,726Commercial loans:     Commercial real estate3734621651,564765     Commercial and industrial122-1512217Total commercial loans4954621801,686782Total recoveries2,5691,8812,4397,2606,508Charge-offs, net of recoveries(28,690)(45,384)(107,399)(105,383)(250,978)Ending balance$             282,000$             274,000$            474,000$                 282,000$              474,000Net charge-off ratio 1.83%3.15%5.90%2.36%4.53%Composition of Allowance for Loan LossesAs of September 30, 2011 (In thousands)(Unaudited)Collectively Evaluated Reserves (1)Individually Evaluated Reserves (2)TotalConsumer loans:   Residential first mortgage $                           87,606$                          68,223$                      155,829   Second mortgage 15,3312,90518,236   Construction 12478202   Warehouse lending 1,3075161,823   HELOC14,681-14,681   Other1,98411,985Total consumer loans121,03371,723192,756Commercial loans:   Commercial real estate 49,76935,36185,130   Commercial and industrial 2,0441,7603,804   Commercial lease financing 310-310Total commercial loans52,12337,12189,244Total allowance for loan losses$                         173,156$                        108,844$                      282,000(1) Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans. (2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans. Non-Performing Loans and Assets(Dollars in thousands)(Unaudited)September 30, 2011June 30,2011December 31,2010September 30, 2010Non-performing loans held-for-investment$               444,887$           403,381$               318,416$             911,372Real estate and other non-performing assets, net113,365110,050179,557229,750Nonperforming assets held-for-investment, net558,252513,431497,9731,141,122Non-performing loans available-for-sale3,3315,34194,889-Total non-performing assets including loans available-for-sale$               561,583$           518,772$               592,862$          1,141,122Ratio of nonperforming loans held-for-     investment to loans held-for-investment6.52%6.75%5.05%12.46%Ratio of non-performing assets to total assets4.09%4.10%4.35%8.25%Asset Quality ? Loans Held-for-Investment(Dollars in thousands)(Unaudited)30-59 Days Past Due60-89 Days Past DueGreater than 90 daysTotal Past DueTotal Investment LoansSeptember 30, 2011Consumer loans (1)$                       91,318$                           46,023$                       352,429$                    489,770$                     5,276,201Commercial loans (1)13,69910,45492,458116,6111,545,536     Total loans$                     105,017$                           56,477$                       444,887$                    606,381$                     6,821,737June 30, 2011Consumer loans (1)$                       91,185$                           46,082$                       298,751$                    436,018$                     4,732,903Commercial loans (1)1,392187104,630106,2091,242,231     Total loans$                       92,577$                           46,269$                       403,381$                    542,227$                     5,975,134December 31, 2010Consumer loans (1)$                     105,029$                           46,907$                       137,939$                    289,875$                     5,046,307Commercial loans (1)28,4206,838180,477215,7351,259,176     Total loans$                     133,449$                           53,745$                       318,416$                    505,610$                     6,305,483September 30, 2010Consumer loans (1)$                       97,662$                           49,786$                       670,064$                    817,512$                     5,961,412Commercial loans (1)15,07923,954241,308280,3411,350,814     Total loans$                     112,741$                           73,740$                       911,372$                 1,097,853$                     7,312,226(1) Consumer loans include: residential first mortgage, second mortgage, construction, warehouse lending, HELOC, and other consumer loans.  Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.   Gain on Loan Sales and Securitizations(Dollars in thousands)(Unaudited)For the Three Months EndedSeptember 30, 2011June 30, 2011September 30, 2010Description(000's)bps(000's)bps(000's)bpsValuation gain (loss):     Value of interest rate locks$             79,078117$            (2,860)(7)$               4,3806     Value of forward sales(52,573)(78)(3,657)(8)31,61942     Fair value of loans available for sale132,28519582,760190140,993185     LOCOM adjustments on loans held-for-         investment--46-171-Total valuation gains158,79023476,289175177,193233Sales gains (losses):     Marketing gains, net of adjustments94,94214021,8655012,73716     Pair-off gains (losses)(148,078)(218)(56,951)(131)(77,404)(102)     Provisions for secondary marketing reserve(1,796)(3)(1,375)(3)(9,315)(12)Total sales gains(54,932)(81)(36,462)(84)(73,982)(98)Total gain on loan sales and securitizations$           103,858153$             39,82791$             103,211135Total loan sales and securitizations$        6,782,795$        4,362,518$          7,619,097For the Nine Months EndedSeptember 30, 2011September 30, 2010Description(000's)bps(000's)bpsValuation gain (loss):     Value of interest rate locks$             75,60245$               40,47923     Value of forward sales(96,591)(57)(46,881)(27)     Fair value of loans available for sale259,367152303,713170     LOCOM adjustments on loans held-for-         investment16-38-Total valuation gains238,394140297,349166Sales gains (losses):     Marketing gains, net of adjustments117,5586966,70637     Pair-off gains (losses)(156,572)(92)(120,776)(67)     Provisions for secondary marketing reserve(5,511)(3)(23,244)(13)Total sales gains(44,525)(26)(77,314)(43)Total gain on loan sales and securitizations$           193,869114$             220,034123Total loan sales and securitizations$      16,974,821$        17,893,675Average Balances, Yields and Rates(Dollars in thousands)(Unaudited)For the Three Months EndedSeptember 30, 2011June 30, 2011September 30, 2010Average BalanceAnnualizedYield/RateAverage BalanceAnnualizedYield/RateAverage BalanceAnnualizedYield/RateInterest-Earning Assets:Loans available-for-sale$        2,041,1734.35%$        1,509,6924.72%$        2,166,0724.63%Loans repurchased with     government guarantees1,790,4643.341,752,8163.031,465,4112.75Loans held-for-investment:     Consumer loans (1)4,857,7714.544,551,2674.595,860,7494.77     Commercial loans (1)1,429,4494.821,211,2844.851,418,0114.63Loans held-for-investment6,287,2204.605,762,5514.657,278,7604.74Securities classified as available-for-sale     or trading840,4904.58724,6944.94863,2015.08Interest-earning deposits and other718,6470.241,548,2310.25850,1480.25Total interest-earning assets11,677,9944.0911,297,9843.8212,623,5924.21Other assets1,503,8281,612,2931,408,752Total assets$      13,181,822$      12,910,277$      14,032,344Interest-Bearing Liabilities:         Demand deposits$           401,6470.31%$           409,6630.33%$           378,1930.48%         Savings deposits1,250,8440.731,182,1450.79744,8890.97         Money market deposits580,5080.65579,3610.73542,3500.96         Certificate of deposits2,811,4581.723,002,3631.813,401,7392.77      Total retail deposits5,044,4571.245,173,5321.345,067,1712.14         Demand deposits84,1140.5466,5490.55214,8660.26         Savings deposits485,8150.65433,6420.65171,8800.74         Certificate of deposits289,0630.54237,6000.67440,5400.94      Total government deposits858,9920.60737,7910.65827,2860.72      Wholesale deposits657,5573.41741,0243.461,427,4633.18   Total deposits6,561,0061.376,652,3471.507,321,9202.18   FHLB advances3,528,0543.393,400,2023.563,813,0214.14   Other248,5852.57248,6102.61248,6103.22Total interest-bearing liabilities 10,337,6452.0910,301,1592.2111,383,5512.86Other liabilities1,684,3521,404,4661,566,294Stockholder's equity1,159,8251,204,6521,082,499Total liabilities and stockholder's equity$      13,181,822$      12,910,277$      14,032,344(1) Consumer loans include: residential first mortgage, second mortgage, construction, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.Average Balances, Yields and Rates(Dollars in thousands)(Unaudited)For the Nine Months EndedSeptember 30, 2011September 30, 2010Average BalanceAnnualizedYield/RateAverage BalanceAnnualizedYield/RateInterest-Earning Assets:Loans available-for-sale$        1,746,2024.48%$        1,790,0994.84%Loans repurchased with     government guarantees1,763,0553.101,186,7702.62Loans held-for-investment:     Consumer loans (1)4,675,7954.665,876,8724.84     Commercial loans (1)1,290,4744.841,518,1344.58Loans held-for-investment5,966,2694.707,395,0064.78Securities classified as available-for-sale     or trading732,3164.861,217,1235.16Interest-earning deposits and other1,275,9170.25962,2960.22Total interest-earning assets11,483,7593.9312,551,2944.27Other assets1,593,2371,469,471Total assets$      13,076,996$      14,020,765Interest-Bearing Liabilities:         Demand deposits$           403,2360.34%$           378,9000.54%         Savings deposits1,170,0570.80708,5500.90         Money market deposits572,0410.72562,0680.93         Certificate of deposits2,998,4401.823,368,7752.89      Total retail deposits5,143,7741.355,018,2932.21         Demand deposits76,1600.54299,3250.39         Savings deposits425,9980.65106,2920.64         Certificate of deposits259,5730.63320,5870.86      Total government deposits761,7310.63726,2040.63      Wholesale deposits745,8793.401,614,2833.08   Total deposits6,651,3841.507,358,7802.25   FHLB advances3,465,9863.483,867,9414.28   Security repurchase agreements--105,6943.48   Other248,6022.60265,6204.06Total interest-bearing liabilities 10,365,9722.1911,598,0352.98Other liabilities1,508,1011,422,085Stockholder's equity1,202,9231,000,645Total liabilities and stockholder's equity$      13,076,996$      14,020,765(1) Consumer loans include: residential first mortgage, second mortgage, construction, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.Pre-tax, pre-credit-cost Income(Non GAAP measure)(Dollars in thousands)(Unaudited)For the Three Months EndedFor the Nine Months EndedSeptember 30, 2011June 30,2011September 30, 2010September 30, 2011September 30, 2010Loss before tax provision$          (9,216)$         (69,904)$         (17,896)$        (105,821)$        (187,433)Add back:     Provision for loan losses36,69048,38451,399113,383200,978     Asset resolution34,51523,28244,32395,906119,569     Other than temporary impairment           on AFS investments1,32215,584?16,9063,677     Secondary marketing reserve           provision38,98521,36412,95880,77651,174     Write down of residual interest1862,2584,6654,82511,660     Reserve increase for reinsurance????433          Total credit-related-costs:111,698110,872113,345311,796387,491Pre-tax, pre-credit-cost income$        102,482$            40,968$           95,449$           205,975$           200,058SOURCE Flagstar Bancorp, Inc.For further information: Paul D. Borja, Executive Vice President / CFO, Bradley T. Howes, Investor Relations Officer, +1-248-312-2000