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Press release from PR Newswire

Flagstar Reports Second Quarter 2014 Results

Tuesday, July 22, 2014

Flagstar Reports Second Quarter 2014 Results

17:00 EDT Tuesday, July 22, 2014

Net income of $25.5 million, or $0.33 per diluted share
Improved net interest income and gain on loan sales
Increased mortgage rate lock commitments and loan origination volume
Continued focus on expense management

TROY, Mich., July 22, 2014 /PRNewswire/ -- Flagstar Bancorp, Inc. (NYSE: FBC) ("the Company"), the holding company for Flagstar Bank, FSB (the "Bank"), today reported a second quarter 2014 net income applicable to common stockholders of $25.5 million, or $0.33 per (diluted) share, as compared to net loss of $78.9 million in the first quarter 2014, or $1.51 loss per share, and net income of $65.8 million in the second quarter 2013, or $1.10 earnings per (diluted) share. Book value per common share increased to $19.90 at June 30, 2014, as compared to $19.29 at March 31, 2014 and $17.66 at June 30, 2013.

"Our second quarter results reflect the continued enhancements, that we began in 2013, to put the bank in a position to be profitable," said Sandro DiNello, the Company's President and Chief Executive Officer. "During the second quarter, net interest income increased to $62.4 million and net gain on loan sales increased to $54.8 million, while noninterest income increased to $102.5 million and noninterest expense decreased to $121.4 million."

Mr. DiNello continued, "We continue to focus on controlling our noninterest expense in the current mortgage environment and are managing expenses in order to be profitable in any origination environment. While we are pleased with these results, this quarter brought two changes that impacted pretax income by approximately $20 million, albeit favorably. Overall, we are encouraged by our progress, especially as it relates to our growth in net interest income and net gain on sale income, as well as our continued expense discipline."

Net Interest Income

Second quarter 2014 net interest income increased to $62.4 million, as compared to $58.2 million for the first quarter 2014 and $47.1 million for the second quarter 2013. Of the $4.2 million net increase from the prior quarter, $4.6 million was attributable to an increase in volume of average net interest earning assets. This increase was partially offset by higher funding costs. Net interest margin for the Bank increased to 3.06 percent for second quarter 2014, as compared to 3.05 percent for the first quarter 2014 and 1.72 percent for the second quarter 2013. 

Interest income increased by $5.6 million from the first quarter 2014, primarily driven by loan growth. The average yield on interest-earnings assets increased slightly to 3.43 percent for the second quarter 2014, as compared to 3.39 percent for the first quarter 2014 and 3.01 percent for the second quarter 2013.

Interest expense increased slightly from the first quarter 2014, primarily from deposit growth. The average cost of funds for the second quarter 2014 was 0.56 percent, as compared 0.52 percent for the first quarter 2014 and 1.58 percent for the second quarter 2013. The average cost of total deposits increased to 0.53 percent for the second quarter 2014, as compared to 0.46 percent for the first quarter 2014 and decreased from 0.75 percent for the second quarter 2013. This increase in cost was primarily attributable to a slightly more aggressive deposit pricing strategy.

Noninterest Income

Second quarter 2014 noninterest income increased to $102.5 million, as compared to $75.0 million for the first quarter 2014 and $220.0 million for the second quarter 2013.      

Other noninterest income increased to $7.6 million for the second quarter 2014, as compared to a loss of $14.5 million for the first quarter 2014 and decreased from income of $44.8 million for the second quarter 2013. The increase from the prior quarter was primarily due to negative fair value adjustments in the first quarter 2014.

Loan fees and charges increased to $25.3 million for the second quarter 2014, as compared to $12.3 million for the first quarter 2014 and decreased from $29.9 million for the second quarter 2013. The increase from the prior quarter was primarily due to an unanticipated $10.0 million benefit from a contract renegotiation.

Second quarter 2014 net gain on loan sales increased to $54.8 million, as compared to $45.3 million for the first quarter 2014 and decreased from $144.8 million for the second quarter 2013. The increase from the prior quarter primarily reflects an increase in fallout-adjusted mortgage rate lock commitments. The benefit from the increase in fallout adjusted  mortgage rate lock commitments was partially offset by a margin decrease. The net gain on loan sale margin (based on the amount of fallout-adjusted locks) decreased to 0.82 percent for the second quarter 2014, as compared to 0.93 percent for the first quarter 2014 and 1.47 percent for the second quarter 2013, due to a reduction in production base margin and hedge costs.

Gain on loan sale income is driven by rate lock commitments net of estimated cancellations, or "fallout-adjusted locks," as the Company uses fair value accounting to account for the majority of its mortgage business. Fallout-adjusted locks were $6.7 billion for the second quarter 2014, a 37.9 percent increase from the first quarter 2014.

Net transaction costs on sales of mortgage servicing rights ("MSRs") decreased to an expense of $2.7 million for the second quarter 2014, as compared to income of $3.6 million for the first quarter 2014 and an expense of $4.3 million for the second quarter 2013. The decrease from the prior quarter was primarily due to the first quarter 2014 release of holdback reserves on sales completed in prior periods.

Loan administration income (including off-balance sheet hedges of mortgage servicing rights) decreased to $13.9 million for the second quarter 2014, as compared to $19.6 million for the first quarter 2014 and $36.2 million for the second quarter 2013. The decrease was due to negative mortgage servicing rights fair value adjustments.

Noninterest Expense

Noninterest expense was $121.4 million for the second quarter 2014, as compared to $139.3 million for the first quarter 2014 and $174.4 million for the second quarter 2013.

Compensation and benefits decreased to $55.2 million for the second quarter 2014, as compared to $65.6 million for the first quarter 2014 and $70.9 million for the second quarter 2013. The decrease from the prior quarter was primarily due to the effect of previously announced staff reductions that occurred during the first quarter 2014.

Second quarter 2014 legal and professional expenses decreased to income of $2.1 million, as compared to an expense of $13.9 million for the first quarter 2014 and an expense of $16.4 million for the second quarter 2013. The decrease from the prior quarter was primarily driven by a $10.0 million change due to the estimated timing of payments impacting the fair value of the liability associated with the Department of Justice settlement.

Credit-Related Costs and Asset Quality

At June 30, 2014, the Company's allowance for loan losses declined to $306.0 million, as compared to $307.0 million at March 31, 2014 and increased from $243.0 million at June 30, 2013. At June 30, 2014, the ratio of the allowance for loan losses to non-performing loans held-for-investment was 263.1 percent, as compared to 286.9 percent at March 31, 2014 and increased from 94.2 percent at June 30, 2013.

Provision for loan losses decreased to $6.2 million for the second quarter 2014, as compared to $112.3 million for the first quarter 2014 and $31.6 million for the second quarter 2013. The reduction was due in part to an increase during the first quarter 2014 related to increases in the loss emergence period on its residential loan portfolio and losses incurred due to reset risk on interest-only loans.

Net charge-offs for the second quarter 2014 decreased to $7.2 million, as compared to $12.3 million for the first quarter 2014 and $78.6 million for the second quarter 2013. The decrease from the prior quarter was primarily driven by a decrease in residential first mortgage loan charge-offs.

Total non-performing loans held-for-investment were $120.2 million at June 30, 2014, an increase as compared to $110.7 million at March 31, 2014 and a decrease from $257.9 million at June 30, 2013. The increase from the prior quarter was primarily driven by an increase in non-performing residential first mortgage loans. The ratio of non-performing loans held-for-investment to loans held-for-investment remained at 2.76 percent for both June 30, 2014 and March 31, 2014, as compared to 5.74 percent at June 30, 2013.

Real estate-owned and other non-performing assets increased slightly to $31.6 million at June 30, 2014, as compared to $31.1 million at March 31, 2014 and decreased from $86.4 million at June 30, 2013.

The Company maintains a representation and warranty reserve on the balance sheet, which reflects an estimate of losses that may occur both on loans that have been sold or securitized into the secondary market and those currently in the repurchase pipeline, primarily with Fannie Mae and Freddie Mac. At June 30, 2014, the representation and warranty reserve was $50.0 million, as compared to $48.0 million at March 31, 2014 and $185.0 million at June 30, 2013. The provisions related to the representation and warranty reserve - change in estimate was $5.2 million for the second quarter 2014, as compared to a benefit of $1.7 million for the first quarter 2014 and a provision of $28.9 million for the second quarter 2013. Representation and warranty reserve - change in estimate increased $6.9 million from the first quarter 2014, which reflects the estimated impact of changes in the fair value of repurchased loans at time of repurchase.

Asset resolution expense, which includes expenses associated with foreclosed properties (including the foreclosure claims in process with respect to government insured loans for which the Bank files claims with the Department of Housing and Urban Development ("HUD")) was $17.9 million for the second quarter 2014, as compared to $11.5 million for the first quarter 2014 and $15.9 million for the second quarter 2013. The increase from the prior quarter primarily resulted from higher expenses related to repurchased government insured loans.

Balance Sheet and Funding

Total assets increased to $9.9 billion at June 30, 2014, as compared to $9.6 billion at March 31, 2014. The increase from the prior quarter was due to an 8.4 percent increase in loans held-for-investment, primarily from warehouse and commercial and industrial loans. Investment securities available-for-sale also increased as cash was invested from the sale of residential first mortgage jumbo loans.

Total deposits increased to $6.6 billion at June 30, 2014, as compared to $6.3 billion at March 31, 2014. The increase from the prior quarter was primarily due to an increase in branch retail savings accounts, which increased $186.4 million.

At June 30, 2014, the Company had $202.5 million of cash on hand and interest-earning deposits, as compared to $219.2 million at March 31, 2014. The Bank maintains a line of credit with the Federal Home Loan Bank of Indianapolis ("FHLBI") under which borrowings are collateralized by residential first mortgage loans and other assets of the Bank. At June 30, 2014, the Bank had borrowings outstanding from the FHLBI of $1.0 billion and an additional $1.8 billion of collateralized borrowing capacity available at the FHLBI. The Company also had $1.6 billion of investment securities available-for-sale at June 30, 2014, which could serve as a further source of liquidity.

Capital

The Bank's regulatory capital ratios remain above current regulatory quantitative guidelines for "well-capitalized" institutions. At June 30, 2014, the Bank had a Tier 1 leverage ratio of 12.52 percent, as compared to 12.44 percent at March 31, 2014. At June 30, 2014, the Company had an equity-to-assets ratio of 13.95 percent.

Beginning January 2015, the Company and the Bank each becomes 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 June 30, 2014, the Bank's pro forma Basel III Tier 1 leverage ratio would be 11.44 percent at June 30, 2014 (see Non-GAAP reconciliation). 

Senior Management Addition

The Company is pleased to announce that Stephen Figliuolo recently joined the Bank and will serve as Chief Risk Officer, subject to regulatory approval. Mr. Figliuolo will be responsible for managing the office of Enterprise Risk Management, which oversees credit risk, operations risk, modeling and analytics, mortgage risk and loan review operations.

Earnings Conference Call

As previously announced, the Company's quarterly earnings conference call will be held on Wednesday, July 23, 2014 from 11 a.m. until noon (Eastern).

It is preferred that questions are emailed in advance to investors@flagstar.com, or they may be asked during the conference call.

To join the call, please dial (866) 952-1908 toll free or (785) 424-1827, and use passcode: 222687. Please call at least 10 minutes before the call is scheduled to begin. A replay will be available for five business days by calling (888) 348-4629 toll free or (719) 884-8882, using passcode: 222687.

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. ("Flagstar") is the holding company for Flagstar Bank, FSB, a full-service financial institution offering a range of products and services to consumers, businesses, and homeowners. With $9.9 billion in total assets at June 30, 2014, Flagstar is the largest bank headquartered in Michigan. Flagstar operates 106 banking centers, all of which are located in Michigan and 32 home lending centers in 18 states, which primarily originate one-to-four family residential first mortgage loans. Originating loans nationwide, Flagstar is one of the leading originators of residential first mortgage loans. For more information, please visit flagstar.com.

Non-GAAP

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

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.  Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that are difficult to predict and could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement. Forward-looking statements contained in this press release and any information related to expectations about future events or results are based upon information available to the Company as of the date hereof.  Forward-looking statements can be identified by such words as "anticipates," "intends," "plans," "seeks," "believes," "expects", "estimates," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements made regarding the Company's current expectations, plans or forecasts of its core business drivers, credit related costs, asset quality, capital adequacy and liquidity, the implementation of the Company's business plan and growth strategies, the suspension of dividend payments on preferred stock, the deferral of interest payment on trust preferred securities, the result of improvements to the Company's servicing processes, the Company's strategy for its servicing business and other similar matters. Although we believe that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies, and other factors. Accordingly, we cannot give you any assurance that our expectations will in fact occur or that actual results will not differ materially from those expressed or implied by such forward-looking statements. We caution you not to place undue reliance on any forward-looking statement and to consider all of the following uncertainties and risks, as well as those more fully discussed in the Company's filings with the Securities and Exchange Commission ("SEC"), including, but not limited to, our Form 10-K and Forms 10-Q: volatile interest rates that impact, among other things, the mortgage banking business, our ability to originate loans and sell assets at a profit, prepayment speeds and our cost of funds; changes in regulatory capital requirements or an inability to achieve or maintain desired capital ratios; actions of mortgage loan purchasers, guarantors and insurers regarding repurchases and indemnity demands and uncertainty related to foreclosure procedures; uncertainty regarding pending and threatened litigation; our ability to control credit related costs and forecast the adequacy of reserves; the imposition of regulatory enforcement actions against us; our compliance with the Supervisory Agreement with the Board of Governors of the Federal Reserve System and the Consent Order with the Office of the Comptroller of the Currency. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the SEC, the Company undertakes no obligation to update any such statement to reflect events or circumstances after the date on which it is made.

 

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(Dollars in thousands)

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Assets

(Unaudited)

(Unaudited)

(Unaudited)

Cash and cash equivalents

Cash and cash items

$

67,924

$

56,968

$

55,913

$

51,252

Interest-earning deposits

134,611

162,229

224,592

2,653,191

Total cash and cash equivalents

202,535

219,197

280,505

2,704,443

    Investment securities available-for-sale or trading

1,605,805

1,207,430

1,045,548

142,969

Loans held-for-sale

1,342,611

1,673,763

1,480,418

2,331,458

Loans repurchased with government guarantees

1,217,721

1,266,702

1,273,690

1,509,365

Loans held-for-investment, net

Loans held-for-investment

4,359,293

4,019,871

4,055,756

4,491,153

Less: allowance for loan losses

(306,000)

(307,000)

(207,000)

(243,000)

Total loans held-for-investment, net

4,053,293

3,712,871

3,848,756

4,248,153

    Mortgage servicing rights

289,185

320,231

284,678

729,019

    Repossessed assets, net

31,579

31,076

36,636

86,382

    Federal Home Loan Bank stock

209,737

209,737

209,737

301,737

    Premises and equipment, net

235,202

233,195

231,350

227,771

    Net deferred tax asset

435,217

451,392

414,681

?

    Other assets

310,229

285,759

301,302

453,720

Total assets

$

9,933,114

$

9,611,353

$

9,407,301

$

12,735,017

Liabilities and Stockholders' Equity

Deposits

Noninterest bearing

$

1,081,026

$

983,348

$

930,060

$

1,181,226

Interest bearing

5,562,883

5,326,953

5,210,266

6,288,841

Total deposits

6,643,909

6,310,301

6,140,326

7,470,067

    Federal Home Loan Bank advances

1,031,705

1,125,000

988,000

2,900,000

    Long-term debt

345,157

349,145

353,248

367,415

    Representation and warranty reserve

50,000

48,000

54,000

185,000

Other liabilities

476,669

427,627

445,853

558,800

            Total liabilities

8,547,440

8,260,073

7,981,427

11,481,282

    Stockholders' Equity

Preferred stock

266,657

266,657

266,174

263,277

Common stock

562

562

561

561

    Additional paid in capital

1,480,321

1,479,459

1,479,265

1,477,484

    Accumulated other comprehensive income (loss)

6,821

(1,197)

(4,831)

988

    Accumulated deficit

(368,687)

(394,201)

(315,295)

(488,575)

Total stockholders' equity

1,385,674

1,351,280

1,425,874

1,253,735

Total liabilities and stockholders' equity

$

9,933,114

$

9,611,353

$

9,407,301

$

12,735,017

 

Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Interest Income

Loans

$

61,910

$

58,668

$

81,731

$

120,579

$

173,680

Investment securities available-for-sale or trading

9,885

7,538

1,838

17,423

3,932

Interest-earning deposits and other

118

145

1,489

262

2,435

    Total interest income

71,913

66,351

85,058

138,264

180,047

Interest Expense

Deposits

7,239

5,988

12,148

13,227

25,656

Federal Home Loan Bank advances

600

534

24,171

1,134

48,332

Other

1,649

1,628

1,643

3,277

3,295

    Total interest expense

9,488

8,150

37,962

17,638

77,283

Net interest income

62,425

58,201

47,096

120,626

102,764

Provision for loan losses

6,150

112,321

31,563

118,471

51,978

Net interest income (loss) after provision for loan losses

56,275

(54,120)

15,533

2,155

50,786

Noninterest Income

Loan fees and charges

25,301

12,311

29,916

37,611

63,276

Deposit fees and charges

5,279

4,764

5,193

10,042

10,339

Net gain on loan sales

54,756

45,342

144,791

100,100

282,331

Loan administration

13,915

19,584

36,157

33,499

56,513

Net transactions costs on sales of mortgage servicing rights

(2,726)

3,583

(4,264)

857

(8,483)

Net gain on sale of assets

3,537

2,216

1,064

5,752

2,022

Total other-than-temporary impairment (loss) gain

?

?

(8,789)

?

(8,789)

Loss recognized in other comprehensive income before taxes

?

?

?

?

?

Net impairment losses recognized in earnings

?

?

(8,789)

?

(8,789)

Representation and warranty reserve - change in estimate

(5,226)

1,672

(28,940)

(3,554)

(46,336)

Other noninterest income (loss)

7,648

(14,519)

44,831

(6,871)

54,029

    Total noninterest income

102,484

74,953

219,959

177,436

404,902

Noninterest Expense

Compensation and benefits

55,218

65,572

70,935

120,788

148,144

Commissions

8,532

7,220

15,402

15,752

32,863

Occupancy and equipment

19,383

20,410

22,198

39,793

41,574

Asset resolution

17,934

11,508

15,921

29,442

32,366

Federal insurance premiums

6,758

5,010

7,791

11,769

19,031

Loan processing expense

8,199

7,735

15,389

15,934

32,500

Legal and professional expense

(2,062)

13,902

16,390

11,840

45,229

Other noninterest expense

7,391

7,895

10,371

15,286

19,279

    Total noninterest expense

121,353

139,252

174,397

260,604

370,986

Income (loss) before income taxes

37,406

(118,419)

61,095

(81,013)

84,702

Provision (benefit) for income taxes

11,892

(39,996)

(6,108)

(28,104)

(6,108)

Net income (loss)

25,514

(78,423)

67,203

(52,909)

90,810

Preferred stock dividend/accretion

?

(483)

(1,449)

(483)

(2,887)

Net income (loss) applicable to common stockholders

$

25,514

$

(78,906)

$

65,754

$

(53,392)

$

87,923

Income (loss) per share

       Basic

$

0.33

$

(1.51)

$

1.11

$

(1.17)

$

1.44

       Diluted

$

0.33

$

(1.51)

$

1.10

$

(1.17)

$

1.43

 

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Mortgage loans originated (1)

$

5,950,650

$

4,866,631

$

10,882,129

$

10,817,280

$

23,305,492

Other loans originated

$

131,602

$

172,305

$

67,763

$

303,908

$

142,503

Mortgage loans sold and securitized

$

6,029,817

$

4,474,287

$

11,123,821

$

10,504,104

$

23,946,700

Interest rate spread - bank only (2)

2.95

%

2.96

%

1.46

%

2.96

%

1.55

%

Net interest margin - bank only (3)

3.06

%

3.05

%

1.72

%

3.05

%

1.81

%

Interest rate spread - consolidated (2)

2.87

%

2.87

%

1.43

%

2.87

%

1.52

%

Net interest margin - consolidated (3)

2.98

%

2.97

%

1.66

%

2.97

%

1.75

%

Average common shares outstanding

56,230,458

56,194,184

56,053,922

56,212,422

56,014,126

Average fully diluted shares outstanding

56,822,102

56,194,184

56,419,163

56,212,422

56,417,122

Average interest-earning assets

$

8,366,703

$

7,829,814

$

11,311,945

$

8,099,742

$

11,691,470

Average interest paying liabilities

$

6,795,144

$

6,363,459

$

9,642,543

$

6,580,494

$

9,988,671

Average stockholders' equity

$

1,381,948

$

1,444,741

$

1,238,787

$

1,413,192

$

1,206,563

Return on average assets

1.04

%

(3.39)%

2.03

%

(1.12)%

1.32

%

Return on average equity

7.38

%

(21.85)%

21.23

%

(7.56)%

14.57

%

Efficiency ratio

73.6

%

104.6

%

65.3

%

87.4

%

73.1

%

Efficiency ratio (adjusted) (4)

71.3

%

91.3

%

68.8

%

80.8

%

72.4

%

Equity-to-assets ratio (average for the period)

14.12

%

15.52

%

9.56

%

14.80

%

9.06

%

Charge-offs to average LHFI (5)

0.78

%

1.36

%

6.96

%

1.07

%

4.88

%

Charge-offs, to average LHFI adjusted (5)(6)

0.78

%

1.11

%

3.56

%

0.94

%

3.24

%

 

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Book value per common share

$

19.90

$

19.29

$

20.66

$

17.66

Number of common shares outstanding

56,238,925

56,221,056

56,138,074

56,077,528

Mortgage loans subserviced for others

$

43,103,393

$

39,554,373

$

40,431,865

$

?

Mortgage loans serviced for others

$

25,342,335

$

28,998,897

$

25,743,396

$

68,320,534

Weighted average service fee (basis points)

29.2

28.5

28.7

29.5

Capitalized value of mortgage servicing rights

1.14

%

1.10

%

1.11

%

1.07

%

Mortgage servicing rights to Tier 1 capital (4)

24.3

%

28.1

%

22.6

%

52.4

%

Ratio of allowance for loan losses to non-performing LHFI (5)

263.1

%

286.9

%

145.9

%

94.2

%

Ratio of allowance for loan losses to LHFI (5)

7.41

%

8.11

%

5.42

%

5.75

%

Ratio of non-performing assets to total assets (bank only)

1.54

%

1.49

%

1.95

%

2.71

%

Equity-to-assets ratio

13.95

%

14.06

%

15.16

%

9.84

%

Number of bank branches

106

106

111

111

Number of loan origination centers

32

33

39

40

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

2,481

2,483

2,894

3,418

Number of loan officers and account executives

260

315

359

341

(1) Includes residential first mortgage and second mortgage loans.

(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) See Non-GAAP reconciliation.

(5) Excludes loans carried under the fair value option.

(6) Excludes charge-offs of $2.3 million related to the sale of non-performing loans and TDR, during both the three months ended March 31, 2014 and the six months ended June 30, 2014, and $38.3 million of charge-offs related to the sale of non-performing and TDR loans during both the three and six months ended June 30, 2013, respectively.

 

Regulatory Capital

(Dollars in thousands)

(Unaudited)

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Tier 1 leverage (to adjusted tangible assets) (1)

$

1,188,936

12.52

%

$

1,139,810

12.44

%

$

1,257,608

13.97

%

$

1,390,582

11.00

%

Total adjusted tangible asset base

$

9,493,531

$

9,160,924

$

9,004,904

$

12,646,776

Tier 1 capital (to risk weighted assets) (1)

$

1,188,936

23.75

%

$

1,139,810

23.62

%

$

1,257,608

26.82

%

$

1,390,582

23.73

%

Total capital (to risk weighted assets) (1)

1,254,445

25.05

%

1,203,098

24.93

%

1,317,964

28.11

%

1,465,860

25.01

%

Risk weighted asset base

$

5,006,897

$

4,826,024

$

4,688,545

$

5,861,221

(1) Based on adjusted total assets for purposes of core capital and risk-weighted assets for purposes of total risk-based capital. These ratios are applicable to the Bank only.

 

Loan Originations

(Dollars in thousands)

(Unaudited)

Three Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

Consumer loans

    Mortgage (1)

$

5,950,650

97.8

%

$

4,866,631

96.6

%

$

10,882,129

99.4

%

    Other consumer (2)

20,262

0.3

%

17,600

0.3

%

11,659

0.1

%

Total consumer loans

5,970,912

98.2

%

4,884,231

96.9

%

10,893,788

99.5

%

Commercial loans (3)

111,340

1.8

%

154,705

3.1

%

56,104

0.5

%

Total loan originations

$

6,082,252

100.0

%

$

5,038,936

100.0

%

$

10,949,892

100.0

%

 

Six Months Ended

June 30, 2014

June 30, 2013

Consumer loans

    Mortgage (1)

$

10,817,280

97.3

%

$

23,305,492

99.4

%

    Other consumer (2)

37,862

0.3

%

20,212

0.1

%

Total consumer loans

10,855,142

97.6

%

23,325,704

99.5

%

Commercial loans (3)

266,046

2.4

%

122,291

0.5

%

Total loan originations

$

11,121,188

100.0

%

$

23,447,995

100.0

%

(1) Includes residential first mortgage and second mortgage loans.

(2) Other consumer loans include: Warehouse lending, HELOC and other consumer loans.

(3) Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans.

 

Loans Held-for-Investment

(Dollars in thousands)

(Unaudited)

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Consumer loans

Residential first mortgage

$

2,352,965

53.9

%

$

2,348,691

58.4

%

$

2,508,968

61.9

%

$

2,627,979

58.5

%

Second mortgage

157,772

3.6

%

164,627

4.1

%

169,525

4.2

%

180,802

4.0

%

Warehouse lending

683,258

15.7

%

408,874

10.2

%

423,517

10.4

%

676,454

15.1

%

HELOC

268,655

6.2

%

273,454

6.8

%

289,880

7.1

%

321,576

7.2

%

Other

33,364

0.8

%

34,875

0.9

%

37,468

0.9

%

42,293

0.9

%

    Total consumer loans

3,496,014

80.2

%

3,230,521

80.4

%

3,429,358

84.5

%

3,849,104

85.7

%

Commercial loans

Commercial real estate

523,006

12.0

%

512,994

12.7

%

408,870

10.1

%

476,500

10.6

%

Commercial and industrial

330,256

7.6

%

266,176

6.6

%

207,187

5.1

%

160,259

3.6

%

Commercial lease financing

10,017

0.2

%

10,180

0.3

%

10,341

0.3

%

5,290

0.1

%

    Total commercial loans

863,279

19.8

%

789,350

19.6

%

626,398

15.5

%

642,049

14.3

%

Total loans held-for-investment

$

4,359,293

100.0

%

$

4,019,871

100.0

%

$

4,055,756

100.0

%

$

4,491,153

100.0

%

 

Residential Loans Serviced

(Dollars in thousands)

(Unaudited)

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Unpaid Principal Balance

Number of accounts

Unpaid Principal Balance

Number of accounts

Unpaid Principal Balance

Number of accounts

Unpaid Principal Balance

Number of accounts

Serviced for own loan portfolio (1)

$

4,068,682

26,614

$

4,481,592

28,072

$

4,375,009

$

28,069

$

5,389,033

32,505

Serviced for others

25,342,335

127,409

28,998,897

146,339

25,743,396

131,413

68,320,534

342,971

Subserviced for others (2)

43,103,393

212,927

39,554,373

195,448

40,431,867

198,256

?

?

Total residential loans serviced (2)

$

72,514,410

366,950

$

73,034,862

369,859

$

70,550,272

357,738

$

73,709,567

375,476

(1) Includes both loans held-for-investment (residential first mortgage, second mortgage and HELOC) and loans-held-for-sale (residential first mortgage).

(2) Does not include temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights.

 

Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Beginning balance

$

307,000

$

207,000

$

290,000

$

207,000

$

305,000

Provision for loan losses

6,150

112,321

31,563

118,471

51,978

Charge-offs

Consumer loans

     Residential first mortgage

(5,603)

(10,863)

(63,099)

(16,466)

(88,791)

     Second mortgage

(1,145)

(1,068)

(2,033)

(2,213)

(3,988)

     HELOC

(1,055)

(2,689)

(812)

(3,744)

(2,873)

     Other

(479)

(461)

(587)

(940)

(1,286)

 Total consumer loans

(8,282)

(15,081)

(66,531)

(23,363)

(96,938)

Commercial loans

     Commercial real estate

(1,789)

?

(21,350)

(1,789)

(34,512)

Total charge-offs

(10,071)

(15,081)

(87,881)

(25,152)

(131,450)

Recoveries

Consumer loans

     Residential first mortgage

458

1,116

6,687

1,574

12,040

     Second mortgage

95

84

87

179

477

     HELOC

62

49

457

111

562

     Other

370

320

(80)

690

374

Total consumer loans

985

1,569

7,151

2,554

13,453

Commercial loans

     Commercial real estate

1,896

1,115

2,159

3,011

4,002

     Commercial and industrial

40

29

8

69

17

     Commercial lease financing

?

47

?

47

?

Total commercial loans

1,936

1,191

2,167

3,127

4,019

Total recoveries

2,921

2,760

9,318

5,681

17,472

Charge-offs, net of recoveries

(7,150)

(12,321)

(78,563)

(19,471)

(113,978)

Ending balance

$

306,000

$

307,000

$

243,000

$

306,000

$

243,000

Net charge-off ratio (annualized) (1)

0.78

%

1.36

%

6.96

%

1.07

%

4.88

%

Net charge-off ratio, adjusted (annualized) (1)(2)

0.78

%

1.11

%

3.56

%

0.94

%

3.24

%

(1) Excludes loans carried under the fair value option.

(2) Excludes charge-offs of $2.3 million related to the sale of non-performing loans and TDR during both the three months ended March 31, 2014 and six months ended June 30, 2014, and $38.3 million during both the three and six months ended June 30, 2013, respectively.

 

Representation and Warranty Reserve

(Dollars in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

 Balance, beginning of period

$

48,000

$

54,000

$

185,000

$

54,000

$

193,000

 Provision

Charged to gain on sale for current loan sales

1,734

1,229

5,052

2,963

10,870

Charged to representation and warranty reserve - change in estimate

5,226

(1,672)

28,940

3,554

46,336

Total

6,960

(443)

33,992

6,517

57,206

 Charge-offs, net

(4,960)

(5,557)

(33,992)

(10,517)

(65,206)

 Balance, end of period

$

50,000

$

48,000

$

185,000

$

50,000

$

185,000

 

Composition of Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)

June 30, 2014

Collectively Evaluated Reserves

Individually Evaluated Reserves

Total

Consumer loans

   Residential first mortgage

$

162,272

$

86,918

$

249,190

   Second mortgage

7,561

6,094

13,655

   Warehouse lending

2,557

?

2,557

   HELOC

12,313

1,753

14,066

   Other

2,030

?

2,030

Total consumer loans

186,733

94,765

281,498

Commercial loans

   Commercial real estate

19,266

?

19,266

   Commercial and industrial

5,096

?

5,096

   Commercial lease financing

140

?

140

Total commercial loans

24,502

?

24,502

Total allowance for loan losses

$

211,235

$

94,765

$

306,000

 

March 31, 2014

Collectively Evaluated Reserves

Individually Evaluated Reserves

Total

Consumer loans

   Residential first mortgage

$

175,082

$

81,209

$

256,291

   Second mortgage

8,830

4,625

13,455

   Warehouse lending

1,465

?

1,465

   HELOC

11,331

262

11,593

   Other

1,438

?

1,438

Total consumer loans

198,146

86,096

284,242

Commercial loans

   Commercial real estate

18,029

102

18,131

   Commercial and industrial

4,477

?

4,477

   Commercial lease financing

150

?

150

Total commercial loans

22,656

102

22,758

Total allowance for loan losses

$

220,802

$

86,198

$

307,000

 

Non-Performing Loans and Assets

(Dollars in thousands)

(Unaudited)

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Non-performing loans

$

86,373

$

84,387

$

98,976

$

161,725

Non-performing TDRs

17,596

11,645

25,808

24,025

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

16,193

14,717

20,901

72,186

Total non-performing loans held-for-investment

120,162

110,749

145,685

257,936

Real estate and other non-performing assets, net

31,579

31,076

36,636

86,382

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

$

151,741

$

141,825

$

182,321

$

344,318

Ratio of non-performing assets to total assets (Bank only)

1.54

%

1.49

%

1.95

%

2.71

%

Ratio of non-performing loans held-for-investment to loans held-for-investment

2.76

%

2.76

%

3.59

%

5.74

%

Ratio of non-performing assets to loans held-for-investment and repossessed assets

3.46

%

3.50

%

4.46

%

7.52

%

(1) Does not include non-performing loans held-for-sale of $6.0 million, $6.9 million, $0.8 million and $3.4 million at June 30, 2014, March 31, 2014, December 31, 2013 and June 30, 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

June 30, 2014

Consumer loans

$

42,840

$

8,978

$

120,162

$

171,980

$

3,496,014

Commercial loans

?

?

?

?

863,279

     Total loans

$

42,840

$

8,978

$

120,162

$

171,980

$

4,359,293

March 31, 2014

Consumer loans

$

49,301

$

15,497

$

108,983

$

173,781

$

3,230,521

Commercial loans

2,130

?

1,766

3,896

789,350

     Total loans

$

51,431

$

15,497

$

110,749

$

177,677

$

4,019,871

December 31, 2013

Consumer loans

$

41,013

$

20,732

$

144,185

$

205,930

$

3,429,358

Commercial loans

?

?

1,500

1,500

626,398

     Total loans

$

41,013

$

20,732

$

145,685

$

207,430

$

4,055,756

June 30, 2013

Consumer loans

$

60,872

$

13,421

$

194,151

$

268,444

$

3,849,104

Commercial loans

188

22,736

63,785

86,709

642,049

     Total loans

$

61,060

$

36,157

$

257,936

$

355,153

$

4,491,153

 

Troubled Debt Restructurings

(Dollars in thousands)

(Unaudited)

TDRs

Performing

Non-performing

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

Total

June 30, 2014

Consumer loans

$

371,562

$

17,596

$

16,193

$

405,351

Commercial loans

432

?

?

432

Total TDRs

$

371,994

$

17,596

$

16,193

$

405,783

March 31, 2014

Consumer loans

$

374,277

$

11,645

$

14,717

$

400,639

Commercial loans

446

?

?

446

Total TDRs

$

374,723

$

11,645

$

14,717

$

401,085

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

June 30, 2013

Consumer loans

$

451,097

$

24,025

$

71,951

$

547,073

Commercial loans

?

?

235

235

Total TDRs

$

451,097

$

24,025

$

72,186

$

547,308

 

Gain on Loan Sales and Securitizations

(Dollars in thousands)

(Unaudited)

Three Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

Description

Valuation gain (loss)

Value of interest rate locks

$

29,698

0.49

%

$

11,024

0.25

%

$

(75,040)

(0.68)%

Value of forward sales

(31,534)

(0.52)%

(16,626)

(0.38)%

166,941

1.51

%

Fair value of loans held-for-sale

126,399

2.10

%

63,002

1.41

%

(19,336)

(0.17)%

Total valuation gains (losses)

124,563

2.07

%

57,400

1.28

%

72,565

0.66

%

Sales (losses) gains

Marketing (losses) gains, net of adjustments

(15,365)

(0.26)%

21,637

0.48

%

28,753

0.25

%

Pair-off (losses) gains

(52,708)

(0.87)%

(32,466)

(0.72)%

48,525

0.44

%

Provision for representation and warranty reserve

(1,734)

(0.03)%

(1,229)

(0.03)%

(5,052)

(0.05)%

Total sales (losses) gains

(69,807)

(1.16)%

(12,058)

(0.27)%

72,226

0.64

%

Total gain on loan sales and securitizations

$

54,756

$

45,342

$

144,791

Total mortgage rate lock commitments (gross)

$

8,187,881

$

6,039,871

$

12,353,000

Total loan sales and securitizations

$

6,029,817

0.91

%

$

4,474,287

1.01

%

$

11,123,821

1.30

%

Total mortgage rate lock commitments (fallout adjusted) (1)

$

6,693,366

0.82

%

$

4,853,637

0.93

%

$

9,837,573

1.47

%

 

Six Months Ended

June 30, 2014

June 30, 2013

Description

Valuation gain (loss)

Value of interest rate locks

$

40,722

0.39

%

$

(110,367)

(0.46)%

Value of forward sales

(48,160)

(0.46)%

162,602

0.68

%

Fair value of loans held-for-sale

189,402

1.80

%

66,510

0.28

%

Total valuation gains

181,964

1.73

%

118,745

0.50

%

Sales (losses) gains

Marketing gains, net of adjustments

6,273

0.06

%

54,612

0.23

%

Pair-off gains (losses)

(85,174)

(0.81)%

119,843

0.50

%

Provision for representation and warranty reserve

(2,963)

(0.03)%

(10,870)

(0.05)%

Total sales gains

(81,864)

(0.78)%

163,585

0.68

%

Total gain on loan sales and securitizations

$

100,100

$

282,330

Total mortgage rate lock commitments volume

$

14,227,752

$

24,495,000

Total loan sales and securitizations

$

10,504,104

0.95

%

$

23,946,700

1.18

%

Total mortgage rate lock commitments (fallout adjusted) (1)

$

11,547,003

0.87

%

$

19,685,990

1.43

%

(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.

 

Average Balances, Yields and Rates

(Dollars in thousands)

(Unaudited)

Three Months Ended

June 30, 2014

March 31, 2014

June 30, 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

$

1,516,813

$

15,783

4.16

%

$

1,297,118

$

13,652

4.21

%

$

2,630,309

$

22,202

3.38

%

Loans repurchased with government guarantees

1,237,491

7,970

2.58

%

1,269,781

7,943

2.50

%

1,540,798

13,220

3.43

%

Loans held-for-investment

Consumer loans (1)

3,084,197

30,829

3.99

%

3,180,487

30,878

3.89

%

3,845,503

39,230

4.08

%

Commercial loans (1)

818,674

7,328

3.54

%

683,623

6,195

3.62

%

669,253

7,079

4.18

%

Total loans held-for-investment

3,902,871

38,157

3.90

%

3,864,110

37,073

3.84

%

4,514,756

46,309

4.10

%

Investment securities available-for-sale or trading

1,541,215

9,885

2.57

%

1,173,304

7,538

2.57

%

240,296

1,838

3.06

%

Interest-earning deposits and other

168,313

118

0.28

%

225,501

145

0.26

%

2,385,786

1,489

0.25

%

Total interest-earning assets

8,366,703

$

71,913

3.43

%

7,829,814

$

66,351

3.39

%

11,311,945

$

85,058

3.01

%

Other assets

1,417,105

1,478,014

1,649,000

Total assets

$

9,783,808

$

9,307,828

$

12,960,945

Interest-Bearing Liabilities

Retail deposits

Demand deposits

$

426,458

$

147

0.14

%

$

419,677

$

144

0.14

%

$

395,137

$

205

0.21

%

Savings deposits

3,010,108

4,396

0.59

%

2,871,553

3,331

0.47

%

2,627,166

4,753

0.73

%

Money market deposits

265,250

123

0.19

%

280,221

126

0.18

%

345,694

223

0.26

%

Certificate of deposits

945,622

1,747

0.74

%

986,968

1,812

0.74

%

2,353,775

5,338

0.91

%

Total retail deposits

4,647,438

6,413

0.55

%

4,558,419

5,413

0.48

%

5,721,772

10,519

0.74

%

Government deposits

Demand deposits

155,286

153

0.39

%

122,121

102

0.34

%

114,707

115

0.40

%

Savings deposits

301,243

397

0.53

%

209,226

210

0.41

%

169,122

122

0.29

%

Certificate of deposits

341,767

276

0.32

%

337,016

232

0.28

%

413,177

457

0.44

%

Total government deposits

798,296

826

0.41

%

668,363

544

0.33

%

697,006

694

0.40

%

Wholesale deposits

?

?

?

%

3,372

31

3.76

%

73,910

935

5.07

%

Total deposits

5,445,734

7,239

0.53

%

5,230,154

5,988

0.46

%

6,492,688

12,148

0.75

%

Federal Home Loan Bank advances

1,100,437

600

0.22

%

885,870

534

0.24

%

2,901,102

24,171

3.34

%

Other

248,973

1,649

2.66

%

247,435

1,628

2.67

%

248,753

1,643

2.65

%

Total interest-bearing liabilities

6,795,144

9,488

0.56

%

6,363,459

8,150

0.52

%

9,642,543

37,962

1.58

%

Other liabilities (2)

1,606,716

1,499,628

2,079,615

Stockholders' equity

1,381,948

1,444,741

1,238,787

Total liabilities and stockholder's equity

$

9,783,808

$

9,307,828

$

12,960,945

Net interest-earning assets

$

1,571,559

$

1,466,355

$

1,669,402

Net interest income

$

62,425

$

58,201

$

47,096

Interest rate spread (3)

2.87

%

2.87

%

1.43

%

Net interest margin (4)

2.98

%

2.97

%

1.66

%

Ratio of average interest-earning assets to interest-bearing liabilities

123.1

%

123.1

%

117.3

%

(1) Consumer loans include: residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.

(2) Includes 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 rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

(4) Net interest margin is net interest income divided by average interest-earning assets.

 

Six Months Ended

June 30, 2014

June 30, 2013

Average Balance

Interest

Annualized

Yield/Rate

Average Balance

Interest

Annualized

Yield/Rate

Interest-Earning Assets

Loans held-for-sale

$

1,407,572

$

29,435

4.18

%

$

3,120,529

$

49,010

3.14

%

Loans repurchased with government guarantees

1,253,547

15,914

2.54

%

1,656,872

28,225

3.41

%

Loans held-for-investment

Consumer loans (1)

3,132,076

61,707

3.94

%

3,990,157

81,914

4.12

%

Commercial loans (1)

751,522

13,523

3.58

%

683,681

14,531

4.23

%

Total loans held-for-investment

3,883,598

75,230

3.87

%

4,673,838

96,445

4.13

%

Investment securities available-for-sale or trading

1,358,276

17,423

2.57

%

294,112

3,932

2.67

%

Interest-earning deposits and other

196,749

262

0.27

%

1,946,119

2,435

0.25

%

Total interest-earning assets

8,099,742

$

138,264

3.41

%

11,691,470

$

180,047

3.08

%

Other assets

1,447,412

1,633,267

Total assets

$

9,547,154

$

13,324,737

Interest-Bearing Liabilities

Retail deposits

Demand deposits

$

423,086

$

291

0.14

%

$

391,820

$

444

0.23

%

Savings deposits

2,941,213

7,727

0.53

%

2,472,870

9,033

0.74

%

Money market deposits

272,694

249

0.18

%

366,581

553

0.30

%

Certificate of deposits

966,181

3,558

0.74

%

2,641,070

11,846

0.90

%

Total retail deposits

4,603,174

11,825

0.52

%

5,872,341

21,876

0.75

%

Government deposits

Demand deposits

138,795

254

0.37

%

106,619

220

0.42

%

Savings deposits

255,489

609

0.48

%

238,581

479

0.40

%

Certificate of deposits

339,405

508

0.30

%

442,347

1,151

0.52

%

Total government deposits

733,689

1,371

0.38

%

787,547

1,850

0.47

%

Wholesale deposits

1,677

31

3.76

%

77,921

1,930

4.99

%

Total deposits

5,338,540

13,227

0.50

%

6,737,809

25,656

0.77

%

FHLB advances

993,746

1,134

0.23

%

3,002,764

48,332

3.25

%

Other

248,208

3,277

2.66

%

248,098

3,295

2.68

%

Total interest-bearing liabilities

6,580,494

17,638

0.54

%

9,988,671

77,283

1.56

%

Other liabilities (2)

1,553,468

2,129,503

Stockholders' equity

1,413,192

1,206,563

Total liabilities and stockholder's equity

$

9,547,154

$

13,324,737

Net interest-earning assets

$

1,519,248

$

1,702,799

Net interest income

$

120,626

$

102,764

Interest rate spread (3)

2.87

%

1.52

%

Net interest margin (4)

2.97

%

1.75

%

Ratio of average interest-earning assets to interest-bearing liabilities

123.1

%

117.0

%

(1) Consumer loans include: residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial, and commercial lease financing loans.

(2) Includes 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 rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

(4) Net interest margin is net interest income divided by average interest-earning assets.

 

Non-GAAP Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Efficiency ratio (adjusted)

Net interest income (a)

$

62,425

$

58,201

$

47,096

$

120,626

$

102,764

Noninterest income (b)

102,484

74,953

219,959

177,436

404,902

Less provisions:

Representation and warranty reserve - change in estimate

5,226

(1,672)

28,940

3,554

46,336

Significant one-time items:

Net impairment loss recognized through earnings

?

?

8,789

?

8,789

Other noninterest income

?

21,056

(36,854)

21,056

(36,854)

Adjusted income (c)

$

170,135

$

152,538

$

267,930

$

322,672

$

525,937

Noninterest expense (d)

$

121,353

$

139,252

$

174,397

$

260,605

$

370,986

Significant one-time items:

        Legal and professional expense

?

?

10,000

?

10,000

Adjusted noninterest expense (e)

$

121,353

$

139,252

$

184,397

$

260,605

$

380,986

Efficiency ratio (d/(a+b))

73.6

%

104.6

%

65.3

%

87.4

%

73.1

%

Efficiency ratio (adjusted) (e/c)

71.3

%

91.3

%

68.8

%

80.8

%

72.4

%

 

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Non-performing assets / Tier 1 capital + allowance for loan losses

Non-performing assets

$

151,741

$

141,825

$

182,321

$

344,318

Tier 1 capital (1)

1,188,936

1,139,810

1,257,608

1,390,582

Allowance for loan losses

306,000

307,000

207,000

243,000

Tier 1 capital + allowance for loan losses

$

1,494,936

$

1,446,810

$

1,464,608

$

1,633,582

Non-performing assets / Tier 1 capital + allowance for loan losses

10.2

%

9.8

%

12.4

%

21.1

%

Mortgage servicing rights to Tier 1 capital ratio

June 30, 2014

March 31, 2014

December 31, 2013

June 30, 2013

Mortgage servicing rights

$

289,185

$

320,231

$

284,678

$

729,019

Tier 1 capital (to adjusted total assets) (1)

1,188,936

1,139,810

1,257,608

1,390,582

Mortgage servicing rights to Tier 1 capital ratio

24.3

%

28.1

%

22.6

%

52.4

%

(1) Represents Tier 1 capital for Bank.

 

The Bank currently calculates 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. The Company will begin transitioning to the Basel III framework in January 2015 subject to a phase-in period extending through January 2019. The Company is currently evaluating the impact of the final Basel III rules. Accordingly, the calculations provided below are estimates.

 

June 30, 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

$

1,188,936

$

1,188,936

Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components

(154,900)

(154,900)

Basel III (fully phased-in) capital (2)

$

1,034,036

$

1,034,036

Risk-weighted assets ? Basel I to Basel III (fully phased-in) (2)

Basel I assets

$

5,006,897

$

9,493,531

Net change in assets

83,669

(453,242)

Basel III (fully phased-in) assets (2)

$

5,090,566

$

9,040,289

Capital ratios

Basel I (3)

23.75

%

12.52

%

Basel III (fully phased-in) (2)

20.31

%

11.44

%

(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) The Bank is currently subject to the requirements of Basel I.

 

SOURCE Flagstar Bancorp, Inc.

For further information: Paul D. Borja, Chief Financial Officer (248) 312-2000

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