e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-16577
(Exact name of registrant as specified in its charter).
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Michigan
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38-3150651 |
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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5151 Corporate Drive, Troy, Michigan
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48098-2639 |
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(Address of principal executive offices)
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(Zip code) |
(248) 312-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past ninety days.
Yes þ No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ.
As of May 6, 2011, 553,883,609 shares of the registrants common stock, $0.01 par value, were
issued and outstanding.
FORWARDLOOKING STATEMENTS
This report 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 could cause
actual results or outcomes to differ materially from those expressed in a forward-looking
statement. Examples of forward-looking statements include statements regarding our expectations,
beliefs, plans, goals, objectives and future financial or other performance. Words such as
expects, anticipates, intends, plans, believes, seeks, estimates and variations of
such words and similar expressions are intended to identify such forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is made. Except to fulfill our
obligations under the U.S. securities laws, we undertake no obligation to update any such statement
to reflect events or circumstances after the date on which it is made.
There are a number of important factors that could cause future results to differ materially
from historical performance and these forward-looking statements. Factors that might cause such a
difference include:
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Volatile interest rates that impact, amongst other things, (i) the mortgage banking
business, (ii) our ability to originate loans and sell assets at a profit, (iii)
prepayment speeds and (iv) our cost of funds, could adversely affect earnings, growth
opportunities and our ability to pay dividends to stockholders; |
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Our ability to raise additional capital; |
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Competitive factors for loans could negatively impact gain on loan sale margins; |
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Competition from banking and non-banking companies for deposits and loans can affect
our growth opportunities, earnings, gain on sale margins, market share and ability to
transform business model; |
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Changes in the regulation of financial services companies and government-sponsored
housing enterprises, and in particular, declines in the liquidity of the mortgage loan
secondary market, could adversely affect business; |
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Changes in regulatory capital requirements or an inability to achieve desired
capital ratios could adversely affect our growth and earnings opportunities and our
ability to originate certain types of loans, as well as our ability to sell certain
types of assets for fair market value or to transform business model; |
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General business and economic conditions, including unemployment rates, movements in
interest rates, the slope of the yield curve, any increase in mortgage fraud and other
criminal activity and the further decline of asset values in certain geographic
markets, may significantly affect our business activities, loan losses, reserves,
earnings and business prospects; |
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Factors concerning the implementation of proposed enhancements and transformation of
the business model could result in slower implementation times than we anticipate and
negate any competitive advantage that we may enjoy; |
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Actions of mortgage loan purchasers, guarantors and insurers regarding repurchases
and indemnity demands and uncertainty related to foreclosure procedures could adversely
affect business activities and earnings; |
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The Dodd-Frank Wall Street Reform and Consumer Protection Act will, among other
things, eliminate the Office of Thrift Supervision, tighten capital standards, create a
new Bureau of Consumer Financial Protection and result in new laws, regulations and
regulatory supervisors that are expected to increase our costs of operations; and |
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Both the volume and the nature of consumer actions and other forms of litigation
against financial institutions may increase and to the extent that such actions are
brought against us, the cost of defending such suits as well as potential exposure could
increase our costs of operations. |
All of the above factors are difficult to predict, contain uncertainties that may materially
affect actual results, and may be beyond our control. New factors emerge from time to time, and it
is not possible for our management to predict all such factors or to assess the effect of each such
factor on our business.
Please also refer to Item 1A. Risk Factors to Part II of this report, Item 1A to Part I of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and Item 1A to Part II of
this Quarterly Report on Form 10-Q, which are incorporated by reference herein, for further
information on these and other factors affecting us.
1
Although we believe that the assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these
statements included herein may prove to be inaccurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that the results or conditions
described in such statements or our objectives and plans will be achieved.
2
FLAGSTAR BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements of the Company are as follows:
4
Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(In thousands, except share data)
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March 31, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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Assets |
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Cash and cash items |
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$ |
49,677 |
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$ |
60,039 |
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Interest-earning deposits |
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1,665,342 |
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893,495 |
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Cash and cash equivalents |
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1,715,019 |
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953,534 |
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Securities classified as trading |
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160,650 |
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160,775 |
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Securities classified as available-for-sale |
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452,368 |
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475,225 |
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Loans available-for-sale ($1,484,824 and $2,343,638 at fair value at
March 31, 2011 and December 31, 2010, respectively) |
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1,609,501 |
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2,585,200 |
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Loans held-for-investment ($22,198 and $19,011 at fair value at
March 31, 2011 and December 31, 2010, respectively) |
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5,764,675 |
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6,305,483 |
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Less: allowance for loan losses |
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(271,000 |
) |
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(274,000 |
) |
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Loans held-for-investment, net |
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5,493,675 |
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6,031,483 |
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Total interest-earning assets |
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9,381,536 |
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10,146,178 |
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Accrued interest receivable |
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24,640 |
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27,424 |
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Repossessed assets, net |
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146,372 |
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151,085 |
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Federal Home Loan Bank stock |
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337,190 |
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337,190 |
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Premises and equipment, net |
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233,621 |
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232,203 |
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Mortgage servicing rights at fair value |
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635,122 |
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580,299 |
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Government insured repurchased assets |
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1,781,825 |
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1,731,276 |
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Other assets |
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426,984 |
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377,810 |
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Total assets |
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$ |
13,016,967 |
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$ |
13,643,504 |
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Liabilities and Stockholders Equity |
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Deposits |
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$ |
7,748,910 |
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$ |
7,998,099 |
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Federal Home Loan Bank advances |
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3,400,000 |
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3,725,083 |
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Long-term debt |
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248,610 |
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248,610 |
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Total interest-bearing liabilities |
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11,397,520 |
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11,971,792 |
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Accrued interest payable |
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10,124 |
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12,965 |
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Secondary market reserve |
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79,400 |
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79,400 |
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Other liabilities |
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292,901 |
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319,684 |
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Total liabilities |
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11,779,945 |
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12,383,841 |
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Commitments and contingencies Note 21 |
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Stockholders Equity |
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Preferred stock $0.01 par value, liquidation value $1,000 per share,
25,000,000 shares authorized; 266,657 issued and outstanding at
March 31, 2011 and December 31, 2010, respectively |
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3 |
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3 |
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Common stock $0.01 par value, 700,000,000 shares authorized;
553,711,848 and 553,313,113 shares issued and outstanding at
March 31, 2011 and December 31, 2010, respectively |
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5,537 |
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5,533 |
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Additional paid in capital preferred |
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250,569 |
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249,193 |
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Additional paid in capital common |
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1,462,620 |
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1,461,373 |
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Accumulated other comprehensive loss |
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(9,760 |
) |
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(16,165 |
) |
Retained earnings (accumulated deficit) |
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(471,947 |
) |
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(440,274 |
) |
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Total stockholders equity |
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1,237,022 |
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1,259,663 |
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Total liabilities and stockholders equity |
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$ |
13,016,967 |
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$ |
13,643,504 |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
5
Flagstar Bancorp, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
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For the Three Months Ended |
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March 31, |
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2011 |
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2010 |
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(Unaudited) |
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Interest Income |
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Loans |
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$ |
89,340 |
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$ |
110,195 |
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Securities classified as available-for-sale or trading |
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8,097 |
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15,367 |
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Interest-earning deposits and other |
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968 |
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644 |
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Total interest income |
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98,405 |
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126,206 |
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Interest Expense |
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Deposits |
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27,022 |
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41,887 |
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FHLB advances |
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29,979 |
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41,788 |
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Security repurchase agreements |
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1,153 |
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Other |
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1,606 |
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3,695 |
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Total interest expense |
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58,607 |
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88,523 |
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Net interest income |
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39,798 |
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37,683 |
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Provision for loan losses |
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28,309 |
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63,559 |
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Net interest expense after provision for loan losses |
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11,489 |
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(25,876 |
) |
Non-Interest Income |
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Loan fees and charges |
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16,138 |
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16,329 |
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Deposit fees and charges |
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7,500 |
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8,413 |
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Loan administration |
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39,336 |
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26,150 |
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Loss on trading securities |
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(74 |
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(3,312 |
) |
Loss on residual and transferors interest |
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(2,381 |
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(2,682 |
) |
Net gain on loan sales |
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50,184 |
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52,566 |
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Net loss on sales of mortgage servicing rights |
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(112 |
) |
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(2,213 |
) |
Net gain on securities available-for-sale |
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2,166 |
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Net loss on sale of assets |
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(1,036 |
) |
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Total other-than-temporary impairment gain (loss) |
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15,688 |
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Gain (loss) recognized in other comprehensive income before taxes |
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18,974 |
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Net impairment losses recognized in earnings |
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(3,286 |
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Other fees and charges |
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(13,289 |
) |
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(22,133 |
) |
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Total non-interest income |
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96,266 |
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71,998 |
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Non-Interest Expense |
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Compensation, commissions and benefits |
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63,308 |
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61,022 |
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Occupancy and equipment |
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16,618 |
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16,011 |
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Asset resolution |
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25,335 |
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16,573 |
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Federal insurance premiums |
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8,725 |
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10,047 |
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Other taxes |
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|
866 |
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|
855 |
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Warrant (income) expense |
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(827 |
) |
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1,227 |
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General and administrative |
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20,430 |
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17,607 |
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Total non-interest expense |
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134,455 |
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123,342 |
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Loss before federal income taxes |
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(26,700 |
) |
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(77,220 |
) |
Provision for federal income taxes |
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264 |
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Net Loss |
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(26,964 |
) |
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(77,220 |
) |
Preferred stock dividend/accretion |
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(4,710 |
) |
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(4,680 |
) |
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Net loss applicable to common stock |
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$ |
(31,674 |
) |
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$ |
(81,900 |
) |
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Loss per share |
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Basic (1) |
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$ |
(0.06 |
) |
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$ |
(1.05 |
) |
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Diluted (1) |
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$ |
(0.06 |
) |
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$ |
(1.05 |
) |
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(1) |
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Restated for a 1-for-10 reverse stock split announced May 27, 2010 and completed on May 28, 2010. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
Flagstar Bancorp, Inc.
Consolidated Statements of Stockholders Equity and Comprehensive Loss
(In thousands)
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Additional |
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Additional |
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Accumulated |
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Retained |
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Paid in |
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Paid in |
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Other |
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Earnings |
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Total |
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Preferred |
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Common |
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Capital |
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Capital |
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Comprehensive |
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(Accumulated |
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Stockholders |
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Stock |
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Stock |
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Preferred |
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Common |
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Income (Loss) |
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|
Deficit) |
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Equity |
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|
Balance at December 31, 2009 |
|
$ |
3 |
|
|
$ |
469 |
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|
$ |
243,778 |
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|
$ |
447,449 |
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|
$ |
(48,263 |
) |
|
$ |
(46,712 |
) |
|
$ |
596,724 |
|
(Unaudited) |
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Net loss |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(77,220 |
) |
|
|
(77,220 |
) |
Reclassification of gain on sale of
securities available-for-sale |
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
(1,594 |
) |
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|
|
|
|
|
(1,594 |
) |
Reclassification of loss on securities
available-for-sale due to other-than-
temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,286 |
|
|
|
|
|
|
|
3,286 |
|
Change in net unrealized loss on securities
available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,019 |
|
|
|
|
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|
7,019 |
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|
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|
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Total comprehensive loss |
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|
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|
|
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|
|
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|
(68,509 |
) |
Issuance of common stock |
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|
999 |
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|
576,251 |
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|
577,250 |
|
Restricted stock issued |
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(12 |
) |
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(12 |
) |
Dividends on preferred stock |
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|
|
|
|
|
|
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|
|
(3,334 |
) |
|
|
(3,334 |
) |
Accretion of preferred stock |
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|
|
|
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|
1,346 |
|
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|
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|
|
|
(1,346 |
) |
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|
|
Stock-based compensation |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2,759 |
|
|
|
|
|
|
|
|
|
|
|
2,761 |
|
Tax effect from stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
(116 |
) |
|
|
|
Balance at March 31, 2010 |
|
$ |
3 |
|
|
$ |
1,470 |
|
|
$ |
245,124 |
|
|
$ |
1,026,331 |
|
|
$ |
(39,552 |
) |
|
$ |
(128,612 |
) |
|
$ |
1,104,764 |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
3 |
|
|
$ |
5,533 |
|
|
$ |
249,193 |
|
|
$ |
1,461,373 |
|
|
$ |
(16,165 |
) |
|
$ |
(440,274 |
) |
|
$ |
1,259,663 |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,964 |
) |
|
|
(26,964 |
) |
Change in net unrealized loss on securities
available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,405 |
|
|
|
|
|
|
|
6,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,559 |
) |
Restricted stock issued |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,333 |
) |
|
|
(3,333 |
) |
Accretion of preferred stock |
|
|
|
|
|
|
|
|
|
|
1,376 |
|
|
|
|
|
|
|
|
|
|
|
(1,376 |
) |
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
1,249 |
|
|
|
|
|
|
|
|
|
|
|
1,251 |
|
|
|
|
Balance at March 31, 2011 |
|
$ |
3 |
|
|
$ |
5,537 |
|
|
$ |
250,569 |
|
|
$ |
1,462,620 |
|
|
$ |
(9,760 |
) |
|
$ |
(471,947 |
) |
|
$ |
1,237,022 |
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
Flagstar Bancorp, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Operating Activities |
|
(Unaudited) |
|
Net loss |
|
$ |
(26,964 |
) |
|
$ |
(77,220 |
) |
Adjustments to net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
28,309 |
|
|
|
63,559 |
|
Depreciation and amortization |
|
|
3,642 |
|
|
|
4,648 |
|
Increase in valuation allowance in mortgage servicing rights |
|
|
|
|
|
|
176 |
|
(Loss) gain on fair value of residential first mortgage servicing rights net of hedging gains
(losses) |
|
|
(4,123 |
) |
|
|
41,471 |
|
Stock-based compensation expense |
|
|
1,251 |
|
|
|
2,761 |
|
Gain on interest rate swap |
|
|
|
|
|
|
(221 |
) |
Net loss on the sale of assets |
|
|
1,158 |
|
|
|
4,480 |
|
Net gain on loan sales |
|
|
(50,184 |
) |
|
|
(52,566 |
) |
Net loss on sales of mortgage servicing rights |
|
|
112 |
|
|
|
2,213 |
|
Net gain on securities classified as available-for-sale |
|
|
|
|
|
|
(2,166 |
) |
Other than temporary impairment losses on securities classified as available-for-sale |
|
|
|
|
|
|
3,286 |
|
Net loss on trading securities |
|
|
74 |
|
|
|
3,312 |
|
Net loss on residual and transferor interest |
|
|
2,381 |
|
|
|
2,682 |
|
Proceeds from sales of loans available-for-sale |
|
|
5,914,461 |
|
|
|
5,079,635 |
|
Origination and repurchase of mortgage loans available-for-sale, net of principal
repayments |
|
|
(4,949,989 |
) |
|
|
(4,874,084 |
) |
Purchase of trading securities |
|
|
|
|
|
|
(746,589 |
) |
Increase (decrease) in accrued interest receivable |
|
|
2,784 |
|
|
|
(7,766 |
) |
Proceeds from sales of trading securities |
|
|
|
|
|
|
178,480 |
|
Increase in government insured repurchased assets |
|
|
(50,549 |
) |
|
|
(100,620 |
) |
Increase in other assets |
|
|
(49,286 |
) |
|
|
(6,418 |
) |
Decrease in accrued interest payable |
|
|
(2,841 |
) |
|
|
(4,360 |
) |
Net tax effect of stock grants issued |
|
|
|
|
|
|
115 |
|
Increase (decrease) liability for checks issued |
|
|
3,830 |
|
|
|
(3,930 |
) |
Increase in federal income taxes payable |
|
|
|
|
|
|
457 |
|
(Decrease) increase in payable for mortgage repurchase option |
|
|
(19,743 |
) |
|
|
441,020 |
|
Decrease in other liabilities |
|
|
(8,553 |
) |
|
|
(2,191 |
) |
|
|
|
|
|
|
|
Net cash provided in operating activities |
|
$ |
795,790 |
|
|
$ |
9,836 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Net change in other investments |
|
|
|
|
|
|
11,173 |
|
Proceeds from the sale of investment securities available-for-sale |
|
|
|
|
|
|
54,948 |
|
Net repayment (purchase) of investment securities available-for-sale |
|
|
29,299 |
|
|
|
(176,078 |
) |
Net proceeds from sales of portfolio loans |
|
|
6,736 |
|
|
|
(109,496 |
) |
Origination of portfolio loans, net of principal repayments |
|
|
476,784 |
|
|
|
44,167 |
|
Proceeds from the disposition of repossessed assets |
|
|
37,572 |
|
|
|
48,943 |
|
Acquisitions of premises and equipment, net of proceeds |
|
|
(5,046 |
) |
|
|
(2,949 |
) |
Proceeds from the sale of mortgage servicing rights |
|
|
|
|
|
|
112,848 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
$ |
545,345 |
|
|
$ |
(16,444 |
) |
|
|
|
|
|
|
|
8
Flagstar Bancorp, Inc.
Consolidated Statements of Cash Flows, Continued
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
(Unaudited) |
|
Financing Activities |
|
|
|
|
|
|
|
|
Net decrease in deposit accounts |
|
$ |
(249,189 |
) |
|
$ |
(632,790 |
) |
Net decrease in Federal Home Loan Bank advances |
|
|
(325,083 |
) |
|
|
|
|
Net (disbursement) receipt of payments of loans serviced for others |
|
|
(9,023 |
) |
|
|
14,636 |
|
Net receipt (disbursement) of escrow payments |
|
|
6,978 |
|
|
|
(705 |
) |
Net tax benefit for stock grants issued |
|
|
|
|
|
|
(116 |
) |
Dividends paid to preferred stockholders |
|
|
(3,333 |
) |
|
|
(3,334 |
) |
Issuance of common stock |
|
|
|
|
|
|
577,250 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(579,650 |
) |
|
|
(45,059 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
761,485 |
|
|
|
(111,339 |
) |
|
|
|
|
|
|
|
Beginning cash and cash equivalents |
|
|
953,534 |
|
|
|
1,082,489 |
|
|
|
|
|
|
|
|
Ending cash and cash equivalents |
|
$ |
1,715,019 |
|
|
$ |
971,150 |
|
|
|
|
|
|
|
|
Loans held-for-investment transferred to repossessed assets |
|
$ |
64,290 |
|
|
$ |
93,155 |
|
|
|
|
|
|
|
|
Total interest payments made on deposits and other borrowings |
|
$ |
61,448 |
|
|
$ |
92,883 |
|
|
|
|
|
|
|
|
Reclassification of mortgage loans originated for portfolio to mortgage loans
available-for-sale
for sale |
|
$ |
383 |
|
|
$ |
109,496 |
|
|
|
|
|
|
|
|
Reclassification of mortgage loans originated available-for-sale then transferred
to portfolio loans |
|
$ |
7,119 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Mortgage servicing rights resulting from sale or securitization of loans |
|
$ |
50,700 |
|
|
$ |
48,267 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
9
Flagstar Bancorp, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
Note 1 Nature of Business
Flagstar Bancorp, Inc. (Flagstar or the Company), is the holding company for Flagstar
Bank, FSB (the Bank), a federally chartered stock savings bank founded in 1987. Flagstar is the
largest insured depository institution headquartered in Michigan, and is the largest publicly held
savings bank headquartered in the Midwest. At March 31, 2011, Flagstar had $13.0 billion in total
assets, $7.7 billion in deposits and $1.2 billion in stockholders equity.
The Company offers a full array of banking and lending products and services to meet the needs
of both consumers and businesses. Consumer products include deposit accounts, standard and jumbo
home loans, home equity lines of credit, and personal loans,
including auto, and boat loans.
Business products include deposit and sweep accounts, telephone banking, term loans and lines of
credit, government banking products and treasury management services such as remote deposit and
merchant services.
The Company sells or securitizes most of the mortgage loans that it originates and generally
retains the right to service the mortgage loans that it sells. These mortgage-servicing rights
(MSRs) are occasionally sold by the Company in transactions separate from the sale of the
underlying mortgages. The Company may also invest in its loan originations to enhance the
Companys leverage ability and to receive the interest spread between earning assets and paying
liabilities.
The Bank is a member of the Federal Home Loan Bank (FHLB) of Indianapolis and is subject to
regulation, examination and supervision by the Office of Thrift Supervision (OTS) and the Federal
Deposit Insurance Corporation (FDIC). The Banks deposits are insured by the FDIC through the
Deposit Insurance Fund (DIF).
Note 2 Basis of Presentation and Accounting Policies
The unaudited consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the
Securities and Exchange Commission (the SEC). Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted in the United States
of America (U.S. GAAP) for complete financial statements. The accompanying interim financial
statements are unaudited; however, in the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. The
results of operations for the three month period ended March 31, 2011, are not necessarily
indicative of the results that may be expected for the year ending December 31, 2011. In addition,
certain prior period amounts have been reclassified to conform to the current period presentation.
For further information, reference should be made to the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December
31, 2010, which are available on the Companys Investor Relations web page, at
www.flagstar.com, and on the SEC website, at www.sec.gov.
Recently Adopted Accounting Standards
On January 1, 2010, the Company adopted Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing. New authoritative
accounting guidance under ASC Topic 860, Transfers and Servicing, amends prior accounting
guidance to enhance reporting about transfers of financial assets, including securitizations, and
where companies have continuing exposure to the risks related to transferred financial assets. The
new authoritative accounting guidance eliminates the concept of a qualifying special-purpose
entity and changes the requirements for derecognizing financial assets. The new authoritative
accounting guidance also requires additional disclosures about all continuing involvements with
transferred financial assets including information about gains and losses resulting from transfers
during the period. The adoption of the new authoritative accounting guidance did not have an
effect on the Companys Consolidated Financial Statements.
As of and for the year ended December 31, 2010, the Company adopted Accounting Standards
Update (ASU) No. 2010-20, Receivables (Topic 310): Disclosure about Credit Quality of Financing
Receivables and Allowance For Credit Losses. This guidance requires disclosures that facilitate
the evaluation of the nature of credit risk inherent in its portfolio of financing receivables; how
that risk is analyzed and assessed in determining the allowance for credit losses; and the changes
and reasons for those changes in the allowance for credit losses. To achieve those objectives,
disclosures on a disaggregated basis are provided on two defined levels: (1) portfolio segment; and
(2) class of financing receivable. This guidance updates existing disclosure requirements and
includes additional disclosure requirements relating to financing receivables. Short-term accounts
receivable, receivables measured at fair value or lower of cost or fair value and debt securities
are exempt from this guidance. For further information concerning credit quality, refer to Note 6
Loans Held-for-Investment.
10
As of and for the year ended December 31, 2010, the Company adopted the provisions of ASU No.
2010-06, Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. The guidance requires separate disclosures of significant transfers in and out of
Level 1 and Level 2 fair value measurements and the reasons for the transfers and requires
disclosure on purchases, sales, issuances and settlement activity on gross (rather than net) basis
in the Level 3 reconciliation of fair value measurement for assets and liabilities measured at fair
value on a recurring basis. In addition, the guidance clarifies that fair value measurement
disclosures should be provided for each class of assets and liabilities and that disclosures of
inputs and valuation techniques should be provided for both recurring and non-recurring Level 2 and
Level 3 fair value measurements. For further information concerning the fair value measurements,
refer to Note 3 Fair Value Accounting.
Pending Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-02 Receivables (Topic 310) A Creditors Determination of Whether a
Restructuring is a Troubled Debt Restructuring. The troubled debt restructuring (TDR) guidance
clarifies whether loan modifications constitute TDRs, include factors and examples for creditors to
consider in evaluating whether a restructuring results in a delay in payment that is insignificant,
prohibit creditors from using the borrowers effective rate test to evaluate whether a concession
has been granted to the borrower, and add factors for creditors to use in determining whether a
borrower is experiencing financial difficulties. A provision in the guidance also ends the FASBs
deferral of the additional disclosures about TDRs. The provisions of this guidance are effective
for the first interim and annual period beginning on or after June 15, 2011, and should be applied
retrospectively to the beginning of the annual period of adoption. The Company is currently
evaluating the impact of the guidance on the Companys Consolidated Financial Statements and the
Notes thereto.
In April 2011, the FASB issued ASU No. 2011-03 Transfers and Servicing (Topic 860)
Reconsideration of Effective Control for Repurchase Agreements. Under the amended guidance, a
transferor maintains effective control over transferred financial assets if there is an agreement
that both entitles and obligates the transferor to repurchase the financial assets before maturity.
In addition, the following requirements must be met: (a) the financial asset to be repurchased or
redeemed are the same or substantially the same as those transferred, (b) the agreement is to
repurchase or redeem the transferred financial asset before maturity at a fixed or determinable
price, and (c) the agreement is entered into contemporaneously with, or in contemplation of the
transfer. This guidance is effective prospectively for transactions, or modifications of existing
transactions, that occur on or after the first interim or annual period beginning on or after
December 15, 2011. The adoption of the guidance is not expected to have a material impact on the
Companys Consolidated Financial Statements or the Notes thereto.
Note 3 Fair Value Accounting
The Company utilizes fair value measurements to record certain assets and liabilities at fair
value and to determine fair value disclosures.
Valuation Hierarchy
The accounting guidance for fair value measurements and disclosures establishes a three-level
valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy favors the
transparency of inputs used for the valuation of an asset or liability as of the measurement date
and therefore favors use of Level 1 measurements if appropriate information is available, and
otherwise Level 2, and finally Level 3 if Level 2 input is not available. The three levels are
defined as follows:
|
|
|
Level 1 Fair value is based upon quoted prices (unadjusted) for identical
assets or liabilities in active markets in which the Company can participate. |
|
|
|
Level 2 Fair value is based upon quoted prices for similar (i.e., not
identical) assets and liabilities in active markets, and other inputs that are
observable for the asset or liability, either directly or indirectly, for substantially
the full term of the financial instrument. |
|
|
|
Level 3 Fair value is based upon financial models using primarily
unobservable inputs. |
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input within the valuation hierarchy that is significant to the fair value
measurement.
11
The following is a description of the valuation methodologies used by the Company for
instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy.
Assets
Securities classified as trading. These securities are comprised of United States Department
of the Treasury (U.S. Treasury) bonds and non-investment grade residual securities. The U.S.
Treasury bonds trade in an active, open market with readily observable prices and are therefore
classified within the Level 1 valuation hierarchy. The non-investment grade residual securities do
not trade in an active, open market with readily observable prices and are therefore classified
within the Level 3 valuation hierarchy. Under Level 3, the fair value of residual securities is
determined by discounting estimated net future cash flows using expected prepayment rates and
discount rates that approximate current market rates. Estimated net future cash flows include
assumptions related to expected credit losses on these securities. The Company maintains a model
that evaluates the default rate and severity of loss on the residual securities collateral,
considering such factors as loss experience, delinquencies, loan-to-value ratios, borrower credit
scores and property type. At March 31, 2011, the Company had no Level 3 securities classified as
trading. See Note 8 Private-label Securitization Activity, for further information. At March
31, 2011, the Companys residual interests were deemed to have no value.
Securities classified as available-for-sale. These securities are comprised of U.S.
government sponsored agency mortgage-backed securities and collateralized mortgage obligations
(CMOs). Where quoted prices for securities are available in an active market, those securities
are classified within Level 1 of the valuation hierarchy. If such quoted market prices are not
available, then fair values are estimated using pricing models, quoted prices of securities with
similar characteristics, or discounted cash flows. Due to illiquidity in the markets, the Company
determined the fair value of certain non-agency securities using internal valuation models and
therefore classified them within the Level 3 valuation hierarchy as these models utilize
significant inputs which are unobservable.
Loans available-for-sale. At March 31, 2011 and December 31, 2010, the majority of the
Companys loans originated and classified as available-for-sale were reported at fair value and
classified as Level 2. These loans had an aggregate fair value that exceeded the recorded amount.
The Company generally estimated the fair value of mortgage loans based on quoted market prices for
securities backed by similar types of loans. Where quoted market prices were available, such
market prices were utilized as estimates for fair values. Otherwise, the fair values of loans were
estimated by discounting estimated cash flows using managements best estimate of market interest
rates, prepayment speeds and loss assumptions for similar collateral. At March 31, 2011 and
December 31, 2010, the Company had $124.7 million and $241.6 million, respectively, of loans which
were originated prior to the fair value election and accounted for at lower of cost or market. The
$111.1 million decrease was primarily due to the reclassification of $19.7 million of Ginnie Mae
loans serviced for others and the sale of $80.3 million of non-performing residential first
mortgage loans during the three months ended March 31, 2011. Loans as to which the Company has the
unilateral right to repurchase from certain securitization transactions, but has not yet
repurchased, are classified as available-for-sale and accounted for at historical cost, based on
current unpaid principal balance.
Loans held-for-investment. The Company generally does not record these loans at fair value on
a recurring basis. However, from time to time, a loan is considered impaired and an allowance for
loan losses is established. Loans are considered impaired if it is probable that payment of
interest and principal will not be made in accordance with the contractual terms of the loan
agreement. Once a loan is identified as impaired, the fair value of the impaired loan is estimated
using one of several methods, including collateral value, market value of similar debt, enterprise
value and liquidation value or discounted cash flows. Impaired loans do not require an allowance
if the fair value of the expected repayments or collateral exceed the recorded investments in such
loans. At March 31, 2011 and December 31, 2010, substantially all of the impaired loans were
evaluated based on the fair value of the collateral rather than on discounted cash flows. If the
fair value of collateral is used to establish an allowance, the underlying impaired loan must be
assigned a classification in the fair value hierarchy. To the extent the fair value of the
collateral is based on an observable market price or a current appraised value, the Company records
the impaired loan as a non-recurring Level 2 valuation.
Repossessed assets. Loans on which the underlying collateral has been repossessed are
adjusted to fair value less costs to sell upon transfer to repossessed assets. Subsequently,
repossessed assets are carried at the lower of carrying value or fair value, less anticipated
marketing and selling costs. Fair value is based upon independent market prices, appraised values
of the collateral or managements estimation of the value of the collateral. When the fair value
of the collateral is based on an observable market price or a current appraised value, the Company
records the repossessed asset as a non-recurring Level 2 valuation.
Residential mortgage servicing rights. The current market for residential mortgage servicing
rights is not sufficiently liquid to provide participants with quoted market prices. Therefore,
the Company uses an option-adjusted spread valuation approach to determine the fair value of
residential MSRs. This approach consists of projecting servicing cash flows under multiple
interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. The
key assumptions used in the valuation of residential MSRs include mortgage prepayment speeds,
discount rates and delinquency rates with related servicing costs. Management periodically obtains
third-party valuations of the residential MSR portfolio to assess the
12
reasonableness of the fair
value calculated by the internal valuation model. Due to the nature of the valuation inputs,
residential
MSRs are classified within Level 3 of the valuation hierarchy. See Note 9 Mortgage
Servicing Rights, for the key assumptions used in the residential MSR valuation process.
Derivative financial instruments. Certain classes of derivative contracts are listed on an
exchange and are actively traded, and they are therefore classified within Level 1 of the valuation
hierarchy. These include U.S. Treasury futures, U.S. Treasury options and interest rate swaps.
The Companys forward loan sale commitments may be valued based on quoted prices for similar assets
in an active market with inputs that are observable and are classified within Level 2 of the
valuation hierarchy. Rate lock commitments are valued using internal models with significant
unobservable market parameters and therefore are classified within Level 3 of the valuation
hierarchy.
Liabilities
Warrants. Warrant liabilities are valued using a binomial lattice model and are classified
within Level 2 of the valuation hierarchy. Significant assumptions include expected volatility, a
risk free rate and an expected life.
Assets and liabilities measured at fair value on a recurring basis
The following tables present the financial instruments carried at fair value as of March 31,
2011 and December 31, 2010, by caption on the Consolidated Statement of Financial Condition and by
the valuation hierarchy (as described above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
March 31, 2011 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
|
(Dollars in thousands) |
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
$ |
160,650 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
160,650 |
|
Securities classified as available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
|
|
|
|
|
|
|
|
|
444,957 |
|
|
|
444,957 |
|
U.S. government sponsored agencies |
|
|
7,411 |
|
|
|
|
|
|
|
|
|
|
|
7,411 |
|
Loans available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
|
|
|
|
|
1,484,824 |
|
|
|
|
|
|
|
1,484,824 |
|
Loans held-for-investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
|
|
|
|
|
22,198 |
|
|
|
|
|
|
|
22,198 |
|
Residential mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
635,122 |
|
|
|
635,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury futures |
|
|
8,208 |
|
|
|
|
|
|
|
|
|
|
|
8,208 |
|
Rate lock commitments |
|
|
|
|
|
|
|
|
|
|
13,780 |
|
|
|
13,780 |
|
Agency forwards |
|
|
5,633 |
|
|
|
|
|
|
|
|
|
|
|
5,633 |
|
|
|
|
Total derivative assets |
|
|
13,841 |
|
|
|
|
|
|
|
13,780 |
|
|
|
27,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
181,902 |
|
|
$ |
1,507,022 |
|
|
$ |
1,093,859 |
|
|
$ |
2,782,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward agency and loan sales |
|
|
|
|
|
|
(4,541 |
) |
|
|
|
|
|
|
(4,541 |
) |
Warrant liabilities (2) |
|
|
|
|
|
|
(8,474 |
) |
|
|
|
|
|
|
(8,474 |
) |
|
|
|
Total liabilities at fair value |
|
$ |
|
|
|
$ |
(13,015 |
) |
|
$ |
|
|
|
$ |
(13,015 |
) |
|
|
|
|
|
|
(1) |
|
Recorded in other assets on the Consolidated Statements of Financial Condition. |
|
(2) |
|
Recorded in other liabilities on the Consolidated Statements of Financial Condition. |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
December 31, 2010 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
|
|
|
(Dollars in thousands) |
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
$ |
160,775 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
160,775 |
|
Securities classified as available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
|
|
|
|
|
|
|
|
|
467,488 |
|
|
|
467,488 |
|
U.S. government sponsored agencies |
|
|
7,737 |
|
|
|
|
|
|
|
|
|
|
|
7,737 |
|
Loans available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
|
|
|
|
|
2,343,638 |
|
|
|
|
|
|
|
2,343,638 |
|
Loans held-for-investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
|
|
|
|
|
19,011 |
|
|
|
|
|
|
|
19,011 |
|
Residential mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
580,299 |
|
|
|
580,299 |
|
Derivative assets: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward agency and loan sales |
|
|
|
|
|
|
35,820 |
|
|
|
|
|
|
|
35,820 |
|
Rate lock commitments |
|
|
|
|
|
|
|
|
|
|
14,396 |
|
|
|
14,396 |
|
Agency forwards |
|
|
4,088 |
|
|
|
|
|
|
|
|
|
|
|
4,088 |
|
|
|
|
Total derivative assets |
|
|
4,088 |
|
|
|
35,820 |
|
|
|
14,396 |
|
|
|
54,304 |
|
|
|
|
Total assets at fair value |
|
|
172,600 |
|
|
|
2,398,469 |
|
|
|
1,062,183 |
|
|
|
3,633,252 |
|
|
|
|
Derivative liabilities: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury futures |
|
|
(13,176 |
) |
|
|
|
|
|
|
|
|
|
|
(13,176 |
) |
Warrant liabilities (2) |
|
|
|
|
|
|
(9,300 |
) |
|
|
|
|
|
|
(9,300 |
) |
|
|
|
Total liabilities at fair value |
|
|
(13,176 |
) |
|
|
(9,300 |
) |
|
|
|
|
|
|
(22,476 |
) |
|
|
|
Net assets and liabilities at fair value |
|
$ |
159,424 |
|
|
$ |
2,389,169 |
|
|
$ |
1,062,183 |
|
|
$ |
3,610,776 |
|
|
|
|
|
|
|
(1) |
|
Recorded in other assets on the Consolidated Statements of Financial Condition. |
|
(2) |
|
Recorded in other liabilities on the Consolidated Statements of Financial Condition. |
There were no transfers of assets or liabilities recorded at fair value on a recurring
basis into or out of Level 3 fair value measurements during the three month periods ended March 31,
2011 and 2010.
Changes in Level 3 fair value measurements
A determination to classify a financial instrument within Level 3 of the valuation hierarchy
is based upon the significance of the unobservable factors to the overall fair value measurement.
However, Level 3 financial instruments typically include, in addition to the unobservable or Level
3 components, observable components (that is, components that are actively quoted and can be
validated to external sources). Accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that are included within the valuation
methodology. Also, the Company manages the risk associated with the observable components of Level
3 financial instruments using securities and derivative positions that are classified within Level
1 or Level 2 of the valuation hierarchy; these Level 1 and Level 2 risk management instruments are
not included below, and therefore the gains and losses in the tables do not reflect the effect of
the Companys risk management activities related to such Level 3 instruments.
14
Fair value measurements using significant unobservable inputs
The tables below include a roll forward of the Consolidated Statement of Financial Condition
amounts for the three months ended March 31, 2011 and 2010 (including the change in fair value) for
financial instruments classified by the Company within Level 3 of the valuation hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Transfers in |
|
|
|
|
|
|
|
For the Three Months Ended |
|
Beginning |
|
|
Gains / |
|
|
|
|
|
|
|
|
|
|
and/or Out of |
|
|
Balance at |
|
|
Held at End |
|
March 31, 2011 |
|
of Period |
|
|
(Losses) |
|
|
Purchases |
|
|
Settlements |
|
|
Level 3 |
|
|
End of Period |
|
|
of Period (6) |
|
|
|
|
(Dollars in thousands) |
|
Securities
classified as available-for-sale: (2)(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
$ |
467,488 |
|
|
$ |
7,722 |
|
|
$ |
|
|
|
$ |
(30,253 |
) |
|
$ |
|
|
|
$ |
444,957 |
|
|
$ |
7,722 |
|
Residential mortgage servicing rights |
|
|
580,299 |
|
|
|
4,123 |
|
|
|
50,700 |
|
|
|
|
|
|
|
|
|
|
|
635,122 |
|
|
|
|
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments |
|
|
14,396 |
|
|
|
(6,201 |
) |
|
|
48,844 |
|
|
|
(43,259 |
) |
|
|
|
|
|
|
13,780 |
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,062,183 |
|
|
$ |
5,644 |
|
|
$ |
99,544 |
|
|
$ |
(73,512 |
) |
|
$ |
|
|
|
$ |
1,093,859 |
|
|
$ |
7,722 |
|
|
|
|
For the Three Months Ended
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment grade residual interests (1) |
|
$ |
2,057 |
|
|
$ |
(1,771 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
286 |
|
|
$ |
|
|
Securities
classified as available-for-sale: (2)(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
|
538,376 |
|
|
|
7,914 |
|
|
|
|
|
|
|
(22,389 |
) |
|
|
|
|
|
|
523,901 |
|
|
|
11,200 |
|
Residential mortgage servicing rights |
|
|
649,133 |
|
|
|
(156,600 |
) |
|
|
48,267 |
|
|
|
|
|
|
|
|
|
|
|
540,800 |
|
|
|
|
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments (5) |
|
|
10,061 |
|
|
|
|
|
|
|
3,024 |
|
|
|
|
|
|
|
|
|
|
|
13,085 |
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,199,627 |
|
|
$ |
(150,457 |
) |
|
$ |
51,291 |
|
|
$ |
(22,389 |
) |
|
$ |
|
|
|
$ |
1,078,072 |
|
|
$ |
11,200 |
|
|
|
|
|
|
|
(1) |
|
Residual interests are valued using internal inputs supplemented by independent third
party inputs. |
|
(2) |
|
Realized gains (losses), including unrealized losses deemed other-than-temporary and
related to credit issues, are reported in non-interest income. Unrealized gains (losses)
are reported in accumulated other comprehensive loss. |
|
(3) |
|
U.S. government agency securities classified as available-for-sale are valued
predominantly using quoted broker/dealer prices with adjustments to reflect for any
assumptions a willing market participant would include in its valuation. Non-agency
securities classified as available-for-sale are valued using internal valuation models and
pricing information from third parties. |
|
(4) |
|
Management had anticipated that the non-agency securities would be classified under
Level 2 of the valuation hierarchy. However, due to illiquidity in the markets, the fair
value of these securities will be determined using internal models and therefore is
classified within Level 3 of the valuation hierarchy and pricing information from third
parties. |
|
(5) |
|
Purchases as disclosed on a net basis and include purchases, issuances and settlements
for the three months ended March 31, 2010. |
|
(6) |
|
Changes in the unrealized gains (losses) related to financial instruments held at the
end of the period. |
The Company also has assets that under certain conditions are subject to measurement at
fair value on a non-recurring basis. These assets are measured at the lower of cost or market and
had a fair value below cost at the end of the period as summarized below:
Assets Measured at Fair Value on a Non-recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-investment: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
$ |
31,952 |
|
|
$ |
|
|
|
$ |
31,952 |
|
|
$ |
|
|
Commercial real estate loans |
|
|
184,463 |
|
|
|
|
|
|
|
184,463 |
|
|
|
|
|
Repossessed assets(2) |
|
|
146,372 |
|
|
|
|
|
|
|
146,372 |
|
|
|
|
|
|
|
|
Totals |
|
$ |
362,787 |
|
|
$ |
|
|
|
$ |
362,787 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-investment: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
$ |
32,025 |
|
|
$ |
|
|
|
$ |
32,025 |
|
|
$ |
|
|
Commercial real estate loans |
|
|
218,091 |
|
|
|
|
|
|
|
218,091 |
|
|
|
|
|
Repossessed assets (2) |
|
|
151,085 |
|
|
|
|
|
|
|
151,085 |
|
|
|
|
|
|
|
|
Totals |
|
$ |
401,201 |
|
|
$ |
|
|
|
$ |
401,201 |
|
|
$ |
|
|
|
|
|
|
|
|
(1) |
|
The Company recorded $14.6 million and $13.6 million in fair value losses on impaired loans
(include in provision for loan
losses on the Consolidated Statements of Operations) during the three months ended March 31,
2011 and 2010, respectively. |
|
(2) |
|
The Company recorded $13.2 million and $7.4 million in losses related to write-downs of
repossessed assets based
on the estimated fair value of the asset, and recognized net losses of $0.1 million and $4.3
million on sales of
repossessed assets during the three months ended March 31, 2011 and 2010, respectively. |
15
Fair Value of Financial Instruments
The accounting guidance for financial instruments requires disclosures of the estimated fair
value of certain financial instruments and the methods and significant assumptions used to estimate
their fair values. Certain financial instruments and all non-financial instruments are excluded
from the scope of this guidance. Accordingly, the fair value disclosures required by this guidance
are only indicative of the value of individual financial instruments as of the dates indicated and
should not be considered an indication of the fair value of the Company.
The following table presents the carrying amount and estimated fair value of certain financial
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
|
|
|
(Dollars in thousands) |
|
Financial Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,715,019 |
|
|
$ |
1,715,019 |
|
|
$ |
953,534 |
|
|
$ |
953,534 |
|
Securities classified as trading |
|
|
160,650 |
|
|
|
160,650 |
|
|
|
160,775 |
|
|
|
160,775 |
|
Securities classified as available-for-sale |
|
|
452,368 |
|
|
|
452,368 |
|
|
|
475,225 |
|
|
|
475,225 |
|
Loans available-for-sale |
|
|
1,609,501 |
|
|
|
1,606,810 |
|
|
|
2,585,200 |
|
|
|
2,513,239 |
|
Loans held-for-investment, net |
|
|
5,493,675 |
|
|
|
5,434,136 |
|
|
|
6,031,483 |
|
|
|
5,976,623 |
|
Repossessed assets |
|
|
146,372 |
|
|
|
146,372 |
|
|
|
151,085 |
|
|
|
151,085 |
|
FHLB stock |
|
|
337,190 |
|
|
|
337,190 |
|
|
|
337,190 |
|
|
|
337,190 |
|
Mortgage servicing rights |
|
|
635,122 |
|
|
|
635,122 |
|
|
|
580,299 |
|
|
|
580,299 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits and savings accounts |
|
|
(2,304,127 |
) |
|
|
(2,191,198 |
) |
|
|
(2,153,438 |
) |
|
|
(2,075,898 |
) |
Certificates of deposit |
|
|
(3,189,138 |
) |
|
|
(3,236,524 |
) |
|
|
(3,230,972 |
) |
|
|
(3,292,983 |
) |
Government accounts |
|
|
(753,561 |
) |
|
|
(722,870 |
) |
|
|
(663,976 |
) |
|
|
(664,572 |
) |
National certificates of deposit |
|
|
(812,463 |
) |
|
|
(831,949 |
) |
|
|
(883,270 |
) |
|
|
(906,699 |
) |
Company controlled deposits |
|
|
(689,621 |
) |
|
|
(671,043 |
) |
|
|
(1,066,443 |
) |
|
|
(1,048,432 |
) |
FHLB advances |
|
|
(3,400,000 |
) |
|
|
(3,546,154 |
) |
|
|
(3,725,083 |
) |
|
|
(3,901,385 |
) |
Long-term debt |
|
|
(248,610 |
) |
|
|
(103,982 |
) |
|
|
(248,610 |
) |
|
|
(100,534 |
) |
Warrant liabilities |
|
|
(8,474 |
) |
|
|
(8,474 |
) |
|
|
(9,300 |
) |
|
|
(9,300 |
) |
Derivative Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward delivery contracts |
|
|
(4,541 |
) |
|
|
(4,541 |
) |
|
|
35,820 |
|
|
|
35,820 |
|
Commitments to extend credit |
|
|
13,780 |
|
|
|
13,780 |
|
|
|
14,396 |
|
|
|
14,396 |
|
U.S. Treasury and agency futures/forwards |
|
|
13,841 |
|
|
|
13,841 |
|
|
|
(9,088 |
) |
|
|
(9,088 |
) |
The methods and assumptions that were used to estimate the fair value of financial assets
and financial liabilities that are measured at fair value on a recurring or non-recurring basis are
discussed above. The following methods and assumptions were used to estimate the fair value of
other financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents. Due to their short-term nature, the carrying amount of cash and
cash equivalents approximates fair value.
Loans held-for-investment. The fair value of loans is estimated by using internally developed
discounted cash flow models using market interest rate inputs as well as managements best estimate
of spreads for similar collateral.
FHLB stock. No secondary market exists for FHLB stock. The stock is bought and sold at par
by the FHLB. Management believes that the recorded value is the fair value.
Deposit accounts. The fair value of demand deposits and savings accounts approximates the
carrying amount. The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for certificates of deposit with similar remaining maturities.
FHLB advances. Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of the existing debt.
Long-term debt. The fair value of the long-term debt is estimated based on a discounted cash
flow model that incorporates the Companys current borrowing rates for similar types of borrowing
arrangements.
16
Note 4 Investment Securities
As of March 31, 2011 and December 31, 2010, investment securities were comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
|
|
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
$ |
160,238 |
|
|
$ |
412 |
|
|
$ |
|
|
|
$ |
160,650 |
|
|
|
|
Securities classified as available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
$ |
481,217 |
|
|
$ |
755 |
|
|
$ |
(37,015 |
) |
|
$ |
444,957 |
|
U.S. government sponsored agencies |
|
|
6,899 |
|
|
|
512 |
|
|
|
|
|
|
|
7,411 |
|
|
|
|
Total securities classified as
available-for-sale |
|
$ |
488,116 |
|
|
$ |
1,267 |
|
|
$ |
(37,015 |
) |
|
$ |
452,368 |
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
$ |
160,289 |
|
|
$ |
486 |
|
|
$ |
|
|
|
$ |
160,775 |
|
|
|
|
Securities classified as available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agencies |
|
$ |
510,167 |
|
|
$ |
1,979 |
|
|
$ |
(44,658 |
) |
|
$ |
467,488 |
|
U.S. government sponsored agencies |
|
|
7,211 |
|
|
|
526 |
|
|
|
|
|
|
|
7,737 |
|
|
|
|
Total securities classified as
available-for-sale |
|
$ |
517,378 |
|
|
$ |
2,505 |
|
|
$ |
(44,658 |
) |
|
$ |
475,225 |
|
|
|
|
Trading
Securities classified as trading are comprised of AAA-rated U.S. Treasury bonds and
non-investment grade residual interests from private-label securitizations. U.S. Treasury bonds
held in trading are distinguished from available-for-sale based upon the intent of the Company to
use them as an economic offset against changes in the valuation of the MSR portfolio; however,
these securities do not qualify as an accounting hedge as defined in current accounting guidance
for derivatives and hedges.
For U.S. Treasury bonds held, the Company recorded a loss of $0.1 million during the three
month period ended March 31, 2011, all of which was an unrealized loss on U.S. Treasury bonds held
at March 31, 2011. For the three month period ended March 31, 2010, the Company recorded a loss of
$3.3 million, $3.8 million of which was unrealized loss on U.S. Treasury bonds held at March 31,
2010.
The Company had no non-investment grade residual interests resulting from private label
securitizations at March 31, 2011 or December 31, 2010, as compared to $0.3 million at March 31, 2010. The fair value of
non-investment grade residual securities classified as trading decreased as a result of the
increase in the actual and expected losses in the second mortgages and HELOCs that underlie these
assets.
The fair value of residual interests is determined by discounting estimated net future cash
flows using discount rates that approximate current market rates and expected prepayment rates.
Estimated net future cash flows include assumptions related to expected credit losses on these
securities. The Company maintains a model that evaluates the default rate and severity of loss on
the residual interests collateral, considering such factors as loss experience, delinquencies,
loan-to-value ratio, borrower credit scores and property type.
Available-for-Sale
Securities available-for-sale are carried at fair value, with unrealized gains and losses
reported as a component of other comprehensive loss to the extent they are temporary in nature or
other-than-temporary impairments (OTTI) as to non-credit related issues. If unrealized losses
are, at any time, deemed to have arisen from OTTI, the credit related portion is reported as an
expense for that period. At March 31, 2011 and December 31, 2010, the Company had $452.4 million
and $475.2 million, respectively, in securities classified as available-for-sale which were
comprised of U.S. government sponsored agency and non-agency collateralized mortgage obligations.
17
The following table summarizes by duration the unrealized loss positions, at March 31, 2011,
on securities classified as available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Loss Position with |
|
|
Unrealized Loss Position with |
|
|
|
Duration 12 Months and Over |
|
|
Duration Under 12 Months |
|
|
|
Fair |
|
|
Number of |
|
|
Unrealized |
|
|
Fair |
|
|
Number of |
|
|
Unrealized |
|
Type of Security |
|
Value |
|
|
Securities |
|
|
Loss |
|
|
Value |
|
|
Securities |
|
|
Loss |
|
|
|
|
(Dollars in thousands) |
|
Collateralized mortgage obligations |
|
$ |
413,156 |
|
|
|
11 |
|
|
$ |
(37,015 |
) |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
The unrealized losses on securities available-for-sale amounted to $37.0 million and
related solely to non-agency CMOs that are interests in investment vehicles backed by residential
first mortgage loans.
An investment impairment analysis is triggered when the estimated market value is less than
amortized cost for an extended period of time, generally six months. Before an analysis is
performed, the Company also reviews the general market conditions for the specific type of
underlying collateral for each security; in this case, the mortgage market in general has suffered
from significant losses in value. With the assistance of third party experts as deemed necessary,
the Company models the expected cash flows of the underlying mortgage assets using historical
factors such as default rates, current delinquency rates and estimated factors such as prepayment
speed, default speed and severity speed. Next, the cash flows are modeled through the appropriate
waterfall for each CMO tranche owned; the level of credit support provided by subordinated tranches
is included in the waterfall analysis. The resulting cash flow of principal and interest is then
utilized by management to determine the amount of credit losses by security.
The credit losses on the portfolio reflect the economic conditions present in the U.S. over
the course of the last several years. This includes high mortgage defaults, declines in collateral
values and changes in homeowner behavior, such as intentionally defaulting on a note due to a home
value worth less than the outstanding debt on the home (so-called strategic defaults.)
During the three month period ended March 31, 2011, there were no additional OTTI due to
credit losses on the CMOs. During the three month period ended March 31, 2010, additional OTTI due
to credit losses on six CMOs with existing OTTI credit losses totaled $3.3 million while no
additional OTTI due to credit loss was recognized on the CMOs that did not already have such
losses. All OTTI due to credit losses were recognized in current operations.
At March 31, 2011, the Company had total OTTI of $35.9 million on 11 CMOs in the
available-for-sale portfolio with no net gain recognized in other comprehensive income. At
December 31, 2010, the Company had total OTTI of $43.6 million on 10 CMOs in the available-for-sale
portfolio with $48.6 million in total net gain recognized in other comprehensive income. The
impairment losses arising from credit related matters were reported in the Consolidated Statements
of Operations. The following table shows the activity for OTTI credit loss:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
(Dollars in thousands) |
|
Balance, beginning of period |
|
$ |
(40,263 |
) |
|
$ |
(35,272 |
) |
Additions on securities with no prior OTTI |
|
|
|
|
|
|
|
|
Net change on securities with previous OTTI recognized |
|
|
4,312 |
|
|
|
(3,286 |
) |
|
|
|
Balance, end of period, |
|
$ |
(35,951 |
) |
|
$ |
(38,558 |
) |
|
|
|
Gains (losses) on the sale of U.S. government sponsored agency mortgage-backed securities
available-for-sale that are recently created with underlying mortgage products originated by the
Bank are reported within net gain on loan sale. Securities in this category have typically
remained in the portfolio less than 90 days before sale. During the three months ended March 31,
2011 and 2010, there were no sales of U.S. government sponsored agency securities with underlying
mortgage products recently originated by the Bank.
Gain (loss) on sales for all other available-for-sale securities types are reported in net
gain on sale of available-for-sales securities. During the three months ended March 31, 2011, the
Company did not have any sales non-agency securities compared to the same period ended March 31,
2010 in which the Company sold $54.6 million in non-agency securities available-for-sale resulting
in a net gain on sale of $2.2 million.
18
As of March 31, 2011 and December 31, 2010, the aggregate amount of available-for-sale
securities from each of the following non-agency issuers was greater than 10 percent of the
Companys stockholders equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Fair Market |
|
|
Amortized |
|
|
Fair Market |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
|
|
|
(Dollars in thousands) |
|
Name of Issuer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Countrywide Home Loans |
|
$ |
162,674 |
|
|
$ |
152,856 |
|
|
$ |
173,860 |
|
|
$ |
159,910 |
|
Flagstar Home Equity Loan Trust 2006-1 |
|
|
142,139 |
|
|
|
129,956 |
|
|
|
149,717 |
|
|
|
136,707 |
|
|
|
|
Total |
|
$ |
304,813 |
|
|
$ |
282,812 |
|
|
$ |
323,577 |
|
|
$ |
296,617 |
|
|
|
|
Note 5 Loans Available-for-Sale
Total loans available-for-sale were $1.6 billion and $2.6 billion at March 31, 2011 and
December 31, 2010, respectively, and were comprised primarily of residential first mortgage loans.
During the three months ended March 31, 2011, the Company sold $80.3 million of non-performing
residential first mortgage loans in the available-for-sale category at a sale price which
approximated carrying value.
At March 31, 2011 and December 31, 2010, $1.5 billion and $2.3 billion of loans
available-for-sale were recorded at fair value, respectively. The Company estimates the fair value
of mortgage loans based on quoted market prices for securities backed by similar types of loans for
which quoted market prices were available. Otherwise, the fair values of loans were estimated by
discounting estimated cash flows using managements best estimate of market interest rates for
similar collateral.
In addition, for certain loans sold to Ginnie Mae, the Company has the unilateral option to
repurchase certain loans securitized in Ginnie Mae pools, if the loans meet certain delinquency
criteria. As a result of this unilateral option, once the delinquency criteria have been met, and
before the repurchase option has been exercised, the Company must treat the loans as
having been repurchased and recognize the assets as loans
available-for-sale and also recognize a corresponding liability for a similar amount. If the loans are
actually repurchased, the Company eliminates the corresponding
liability and reclassifies the loans as government insured
repurchased assets (See Note 10). At March 31, 2011 and
December 31, 2010, the
amount of such loans which the Company had not yet repurchased but had the
unilateral right to repurchase totaled $92.3 million and $112.0
million, respectively, and were classified as loans
available-for-sale.
Note 6 Loans Held-for-Investment
Loans held-for-investment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
(Dollars in thousands) |
|
Consumer loans: |
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
3,751,772 |
|
|
$ |
3,784,700 |
|
Second mortgage |
|
|
165,161 |
|
|
|
174,789 |
|
Construction |
|
|
3,246 |
|
|
|
8,012 |
|
Warehouse lending |
|
|
303,785 |
|
|
|
720,770 |
|
HELOC |
|
|
255,012 |
|
|
|
271,326 |
|
Other |
|
|
81,037 |
|
|
|
86,710 |
|
|
|
|
Total consumer loans |
|
$ |
4,560,013 |
|
|
$ |
5,046,307 |
|
|
|
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,170,198 |
|
|
|
1,250,301 |
|
Commercial and industrial |
|
|
9,326 |
|
|
|
8,875 |
|
Commercial lease financing |
|
|
25,138 |
|
|
|
|
|
|
|
|
Total commercial loans |
|
$ |
1,204,662 |
|
|
$ |
1,259,176 |
|
|
|
|
Total consumer and commercial loans held-for-investment |
|
$ |
5,764,675 |
|
|
$ |
6,305,483 |
|
|
|
|
Less allowance for loan losses |
|
|
(271,000 |
) |
|
|
(274,000 |
) |
|
|
|
Loans
held-for-investment, net |
|
$ |
5,493,675 |
|
|
$ |
6,031,483 |
|
|
|
|
19
For the three month period ended March 31, 2011 and 2010, the Company transferred $7.1
million and $60.6 million, respectively, in loans available-for-sale to loans held-for-investment.
The loans transferred were carried at fair value, and will continue to be reported at fair value
while classified as held-for-investment. During the year ended December 31, 2010, the Company
transferred $578.2 million of non-performing residential first mortgage loans from loans
held-for-investment to loans available-for-sale, as a result of the $474.0 million sale of
non-performing residential first mortgage loans and the transfer of $104.2 million in similar loans
to available-for-sale.
The Companys commercial leasing activities consist primarily of equipment leases. Generally,
lessees are responsible for all maintenance, taxes, and insurance on leased properties. The
following table lists the components of the net investment in financing leases.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
(Dollars in thousands) |
|
Total minimum lease payment to be received |
|
$ |
25,616 |
|
|
$ |
|
|
Estimated residual values of lease properties |
|
|
3,415 |
|
|
|
|
|
Less: unearned income |
|
|
(3,893 |
) |
|
|
|
|
|
|
|
Net investment in commercial financing leases |
|
$ |
25,138 |
|
|
$ |
|
|
|
|
|
The following outlines the Companys minimum lease receivables for direct financing leases for
the five succeeding years and thereafter. The Company had no commercial financing leases at
December 31, 2010.
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
|
(Dollars in thousands) |
|
2011 |
|
$ |
3,843 |
|
2012 |
|
|
5,123 |
|
2013 |
|
|
5,123 |
|
2014 |
|
|
5,123 |
|
2015 |
|
|
5,123 |
|
Thereafter |
|
|
1,281 |
|
|
|
|
|
Total |
|
$ |
25,616 |
|
|
|
|
|
The Company adopted the provision of ASU No. 2010-20, Receivables (Topic 310): Disclosure
about Credit Quality of Financing Receivables and Allowance For Credit Losses for the year ended
December 31, 2010. This guidance requires an entity to provide disclosures that facilitate the
evaluation of the nature of credit risk inherent in its portfolio of financing receivables; how
that risk is analyzed and assessed in determining the allowance for credit losses; and the changes
and reasons for those changes in the allowance for credit losses. To achieve those objectives,
disclosures on a disaggregated basis must be provided on two defined levels: (1) portfolio segment;
and (2) class of financing receivable. This guidance makes changes to existing disclosure
requirements and includes additional disclosure requirements relating to financing receivables.
Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value
and debt securities are exempt from this guidance.
20
The allowance for loan losses represents managements estimate of probable losses in our loans
held-for-investment portfolio as of the date of the Consolidated Financial Statements. The
allowance provides for probable losses that have been identified with specific customer
relationships and for probable losses believed to be inherent in the loan portfolio but that have
not been specifically identified. Consistent with such disclosure requirements, set forth below is
the activity in the allowance for loan losses for the three-month and year-end periods noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year |
|
|
|
For the Three Months Ended |
|
|
Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Beginning balance |
|
$ |
274,000 |
|
|
$ |
524,000 |
|
|
$ |
524,000 |
|
Provision for loan losses |
|
|
28,309 |
|
|
|
63,559 |
|
|
|
426,353 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
|
(2,482 |
) |
|
|
(29,684 |
) |
|
|
(473,484 |
) |
Second mortgage |
|
|
(5,778 |
) |
|
|
(6,695 |
) |
|
|
(27,976 |
) |
Construction |
|
|
|
|
|
|
(21 |
) |
|
|
(581 |
) |
Warehouse lending |
|
|
|
|
|
|
(471 |
) |
|
|
(2,154 |
) |
HELOC |
|
|
(5,063 |
) |
|
|
(4,877 |
) |
|
|
(21,618 |
) |
Other |
|
|
(839 |
) |
|
|
(634 |
) |
|
|
(2,620 |
) |
|
|
|
Total consumer loans |
|
|
(14,162 |
) |
|
|
(42,382 |
) |
|
|
(528,433 |
) |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
(19,289 |
) |
|
|
(8,334 |
) |
|
|
(152,369 |
) |
Commercial and industrial |
|
|
(48 |
) |
|
|
(147 |
) |
|
|
(1,832 |
) |
|
|
|
Total commercial loans |
|
|
(19,337 |
) |
|
|
(8,481 |
) |
|
|
(154,201 |
) |
Other |
|
|
(620 |
) |
|
|
(697 |
) |
|
|
(2,840 |
) |
|
|
|
Total charge-offs |
|
$ |
(34,119 |
) |
|
$ |
(51,560 |
) |
|
$ |
(685,474 |
) |
|
|
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
336 |
|
|
$ |
664 |
|
|
$ |
2,506 |
|
Second mortgage |
|
|
866 |
|
|
|
265 |
|
|
|
1,806 |
|
Construction |
|
|
1 |
|
|
|
1 |
|
|
|
7 |
|
Warehouse lending |
|
|
5 |
|
|
|
|
|
|
|
516 |
|
HELOC |
|
|
486 |
|
|
|
354 |
|
|
|
1,531 |
|
Other |
|
|
239 |
|
|
|
301 |
|
|
|
856 |
|
|
|
|
Total consumer loans |
|
|
1,933 |
|
|
|
1,585 |
|
|
|
7,222 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
729 |
|
|
|
373 |
|
|
|
1,121 |
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
Total commercial loans |
|
|
729 |
|
|
|
373 |
|
|
|
1,140 |
|
Other |
|
|
148 |
|
|
|
43 |
|
|
|
759 |
|
|
|
|
Total recoveries |
|
$ |
2,810 |
|
|
$ |
2,001 |
|
|
$ |
9,121 |
|
|
|
|
Charge-offs, net of recoveries |
|
$ |
(31,309 |
) |
|
$ |
(49,559 |
) |
|
$ |
(676,353 |
) |
|
|
|
Ending balance |
|
$ |
271,000 |
|
|
$ |
538,000 |
|
|
$ |
274,000 |
|
|
|
|
Net charge-off ratio |
|
|
2.14 |
% |
|
|
2.65 |
% |
|
|
9.34 |
% |
|
|
|
21
The allowance for loan losses by class of loan is summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
Residential |
|
|
Second |
|
|
|
|
|
|
Warehouse |
|
|
|
|
|
|
Commercial |
|
|
Commercial |
|
|
Lease |
|
|
|
|
|
|
|
March 31, 2011 |
|
First Mortgage |
|
|
Mortgage |
|
|
Construction |
|
|
Lending |
|
|
Consumer(1) |
|
|
Real Estate |
|
|
and Industrial |
|
|
Financing |
|
|
Unallocated |
|
|
Total |
|
|
|
|
(Dollars in thousands) |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance allowance
for loan losses |
|
$ |
117,939 |
|
|
$ |
25,186 |
|
|
$ |
1,461 |
|
|
$ |
4,171 |
|
|
$ |
24,819 |
|
|
$ |
93,437 |
|
|
$ |
1,542 |
|
|
$ |
|
|
|
$ |
5,445 |
|
|
$ |
274,000 |
|
Charge-offs |
|
|
(2,482 |
) |
|
|
(5,778 |
) |
|
|
|
|
|
|
|
|
|
|
(6,522 |
) |
|
|
(19,289 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
(34,119 |
) |
Recoveries |
|
|
336 |
|
|
|
866 |
|
|
|
1 |
|
|
|
5 |
|
|
|
873 |
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,810 |
|
Provision |
|
|
11,405 |
|
|
|
1,821 |
|
|
|
(622 |
) |
|
|
(2,159 |
) |
|
|
197 |
|
|
|
17,527 |
|
|
|
154 |
|
|
|
251 |
|
|
|
(265 |
) |
|
|
28,309 |
|
|
|
|
Ending balance allowance
for loan losses |
|
$ |
127,198 |
|
|
$ |
22,095 |
|
|
$ |
840 |
|
|
$ |
2,017 |
|
|
$ |
19,367 |
|
|
$ |
92,404 |
|
|
$ |
1,648 |
|
|
$ |
251 |
|
|
$ |
5,180 |
|
|
$ |
271,000 |
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
8,828 |
|
|
$ |
572 |
|
|
$ |
288 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
49,787 |
|
|
$ |
596 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
60,071 |
|
Ending balance: collectively
evaluated for impairment |
|
|
40,083 |
|
|
|
1,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,593 |
|
|
|
|
Total allowance allocated to
impaired loans |
|
$ |
48,911 |
|
|
$ |
1,900 |
|
|
$ |
288 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
49,969 |
|
|
$ |
596 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
101,664 |
|
|
|
|
Loans held-for-investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,138 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
3,751,772 |
|
|
$ |
165,161 |
|
|
$ |
3,246 |
|
|
$ |
303,785 |
|
|
$ |
336,049 |
|
|
$ |
1,170,198 |
|
|
$ |
9,326 |
|
|
|
|
|
|
$ |
|
|
|
$ |
5,764,675 |
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
74,912 |
|
|
$ |
4,098 |
|
|
$ |
1,024 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
202,552 |
|
|
$ |
1,616 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
284,202 |
|
Ending balance: collectively
evaluated for impairment |
|
|
517,188 |
|
|
|
9,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
527,284 |
|
|
|
|
Total impaired loans |
|
$ |
592,100 |
|
|
$ |
13,353 |
|
|
$ |
1,024 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
203,393 |
|
|
$ |
1,616 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
811,486 |
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance allowance
for loan losses |
|
$ |
117,939 |
|
|
$ |
25,187 |
|
|
$ |
1,461 |
|
|
$ |
4,171 |
|
|
$ |
24,819 |
|
|
$ |
93,436 |
|
|
$ |
1,542 |
|
|
$ |
|
|
|
$ |
5,445 |
|
|
$ |
274,000 |
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
8,677 |
|
|
$ |
580 |
|
|
$ |
458 |
|
|
$ |
|
|
|
$ |
7 |
|
|
$ |
53,865 |
|
|
$ |
425 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,012 |
|
Ending balance: collectively
evaluated for impairment |
|
|
40,816 |
|
|
|
1,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,499 |
|
|
|
|
Total allowance allocated to
impaired loans |
|
$ |
49,493 |
|
|
$ |
1,868 |
|
|
$ |
458 |
|
|
$ |
|
|
|
$ |
7 |
|
|
$ |
54,260 |
|
|
$ |
425 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
106,511 |
|
|
|
|
Loans held-for-investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
3,784,700 |
|
|
$ |
174,789 |
|
|
$ |
8,012 |
|
|
$ |
720,770 |
|
|
$ |
358,036 |
|
|
$ |
1,250,301 |
|
|
$ |
8,875 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,305,483 |
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
75,375 |
|
|
$ |
4,165 |
|
|
$ |
1,364 |
|
|
$ |
|
|
|
$ |
52 |
|
|
$ |
232,844 |
|
|
$ |
1,619 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
315,419 |
|
Ending balance: collectively
evaluated for impairment |
|
|
526,661 |
|
|
|
9,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537,658 |
|
|
|
|
Total impaired loans |
|
$ |
602,036 |
|
|
$ |
13,471 |
|
|
$ |
1,364 |
|
|
$ |
|
|
|
$ |
52 |
|
|
$ |
234,535 |
|
|
$ |
1,619 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
853,077 |
|
|
|
|
|
|
|
(1) |
|
Consumer loans include HELOC and other consumer. Loans that are individually evaluated
for impairment include only consumer HELOC loans. At March 31, 2011 and December 31, 2010
total consumer allowance for loan losses includes $16.9 million and $21.4 million of HELOC,
respectively, and $2.5 million and $3.4 million of other consumer, respectively. At March
31, 2011 and December 31, 2010, total ending balance of loans held-for-investment includes
$255.0 million and $271.3 million of HELOC, respectively, and $81.0 million and $86.7
million of other consumer, respectively. |
|
(2) |
|
Consumer loans include: residential first mortgages, second mortgages, construction,
warehouse lending and consumer loans. Commercial loans include: commercial real estate,
commercial and industrial, and commercial lease financing. |
There were loans totaling $7.8 million and $11.5 million greater than 90 days past due
that were still accruing interest as of March 31, 2011 and December 31, 2010, respectively. The
following table presents an age analysis of past due loans by class of loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Greater than |
|
|
Total |
|
|
|
|
|
|
Investment |
|
|
90 Days and Still |
|
|
|
Past Due |
|
|
Past Due |
|
|
90 days |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
|
Accruing |
|
|
|
|
|
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first
mortgage |
|
$ |
83,031 |
|
|
$ |
44,596 |
|
|
$ |
199,033 |
|
|
$ |
326,660 |
|
|
$ |
3,425,112 |
|
|
$ |
3,751,772 |
|
|
$ |
1,162 |
|
Second mortgage |
|
|
2,036 |
|
|
|
1,722 |
|
|
|
8,339 |
|
|
|
12,097 |
|
|
|
153,064 |
|
|
|
165,161 |
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
2,467 |
|
|
|
2,467 |
|
|
|
779 |
|
|
|
3,246 |
|
|
|
508 |
|
Warehouse lending |
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
28 |
|
|
|
303,757 |
|
|
|
303,785 |
|
|
|
|
|
HELOC |
|
|
2,704 |
|
|
|
1,123 |
|
|
|
7,104 |
|
|
|
10,931 |
|
|
|
244,081 |
|
|
|
255,012 |
|
|
|
176 |
|
Other |
|
|
809 |
|
|
|
407 |
|
|
|
278 |
|
|
|
1,494 |
|
|
|
79,543 |
|
|
|
81,037 |
|
|
|
46 |
|
|
|
|
Total consumer loans |
|
|
88,580 |
|
|
|
47,848 |
|
|
|
217,249 |
|
|
|
353,677 |
|
|
|
4,206,336 |
|
|
|
4,560,013 |
|
|
|
1,892 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real
estate |
|
|
5,514 |
|
|
|
8,189 |
|
|
|
146,006 |
|
|
|
159,709 |
|
|
|
1,010,489 |
|
|
|
1,170,198 |
|
|
|
2,673 |
|
Commercial lease
financing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,138 |
|
|
|
25,138 |
|
|
|
|
|
Commercial and
industrial |
|
|
38 |
|
|
|
|
|
|
|
4,897 |
|
|
|
4,935 |
|
|
|
4,391 |
|
|
|
9,326 |
|
|
|
3,283 |
|
|
|
|
Total commercial loans |
|
|
5,552 |
|
|
|
8,189 |
|
|
|
150,903 |
|
|
|
164,644 |
|
|
|
1,040,018 |
|
|
|
1,204,662 |
|
|
|
5,956 |
|
|
|
|
Total loans |
|
$ |
94,132 |
|
|
$ |
56,037 |
|
|
$ |
368,152 |
|
|
$ |
518,321 |
|
|
$ |
5,246,354 |
|
|
$ |
5,764,675 |
|
|
$ |
7,848 |
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Greater than |
|
|
Total |
|
|
|
|
|
|
Investment |
|
|
90 Days and Still |
|
|
|
Past Due |
|
|
Past Due |
|
|
90 days |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
|
Accruing |
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first
mortgage |
|
$ |
96,768 |
|
|
$ |
40,826 |
|
|
$ |
119,903 |
|
|
$ |
257,497 |
|
|
$ |
3,527,203 |
|
|
$ |
3,784,700 |
|
|
$ |
|
|
Second mortgage |
|
|
3,587 |
|
|
|
1,963 |
|
|
|
7,480 |
|
|
|
13,030 |
|
|
|
161,759 |
|
|
|
174,789 |
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
3,021 |
|
|
|
3,021 |
|
|
|
4,991 |
|
|
|
8,012 |
|
|
|
|
|
Warehouse lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720,770 |
|
|
|
720,770 |
|
|
|
|
|
HELOC |
|
|
3,735 |
|
|
|
3,783 |
|
|
|
6,713 |
|
|
|
14,231 |
|
|
|
257,095 |
|
|
|
271,326 |
|
|
|
|
|
Other |
|
|
939 |
|
|
|
335 |
|
|
|
822 |
|
|
|
2,096 |
|
|
|
84,614 |
|
|
|
86,710 |
|
|
|
52 |
|
|
|
|
Total consumer loans |
|
|
105,029 |
|
|
|
46,907 |
|
|
|
137,939 |
|
|
|
289,875 |
|
|
|
4,756,432 |
|
|
|
5,046,307 |
|
|
|
52 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real
estate |
|
|
28,245 |
|
|
|
6,783 |
|
|
|
175,559 |
|
|
|
210,587 |
|
|
|
1,039,714 |
|
|
|
1,250,301 |
|
|
|
8,143 |
|
Commercial and
industrial |
|
|
175 |
|
|
|
55 |
|
|
|
4,918 |
|
|
|
5,148 |
|
|
|
3,727 |
|
|
|
8,875 |
|
|
|
3,300 |
|
|
|
|
Total commercial loans |
|
|
28,420 |
|
|
|
6,838 |
|
|
|
180,477 |
|
|
|
215,735 |
|
|
|
1,043,441 |
|
|
|
1,259,176 |
|
|
|
11,443 |
|
|
|
|
Total loans |
|
$ |
133,449 |
|
|
$ |
53,745 |
|
|
$ |
318,416 |
|
|
$ |
505,610 |
|
|
$ |
5,799,873 |
|
|
$ |
6,305,483 |
|
|
$ |
11,495 |
|
|
|
|
For purposes of impairment testing, impaired loans greater than an established threshold
($1.0 million) were individually evaluated for impairment. Loans below those scopes were
collectively evaluated as homogeneous pools. Renegotiated loans are evaluated at the present value
of expected future cash flows discounted at the loans effective interest rate. The required
valuation allowance is included in the allowance for loan losses in the Consolidated Statements of
Financial Condition.
Loans are placed on non-accrual status when any portion of principal or interest is 90 days
delinquent or earlier when concerns exist as to the ultimate collection of principal or interest.
When a loan is placed on non-accrual status, the accrued and unpaid interest is reversed and
interest income is recorded as collected. Loans return to accrual status when principal and
interest become current and are anticipated to be fully collectible. Interest income is recognized
on impaired loans using a cost recovery method unless the receipt of principal and interest as they
become contractually due is not in doubt, such as with a TDR. Loans on which interest accruals have
been discontinued totaled approximately $360.3 million at March 31, 2011 and $306.9 million at
December 31, 2010. Interest that would have been accrued on such loans totaled approximately $5.7
million and $8.2 million during the three months ended March 31, 2011 and 2010, respectively.
The Company may modify certain loans to retain customers or to maximize collection of the loan
balance. The Company has maintained several programs designed to assist borrowers by extending
payment dates or reducing the borrowers contractual payments. All loan modifications are made on
a case by case basis. Loan modification programs for borrowers have resulted in a significant
increase in restructured loans. These loans are classified as TDRs and are included in non-accrual
loans if the loan was non-accruing prior to the restructuring or if the payment amount increased
significantly. These loans will continue on non-accrual status until the borrower has established
a willingness and ability to make the restructured payments for at least six months, after which
they will begin to accrue interest. At March 31, 2011, TDRs totaled $739.7 million of which $151.1
million were non-accruing and $2.6 million were classified as available-for-sale, compared to
December 31, 2010, TDRs totaled $768.7 million of which $124.5 million were non-accruing and $34.0
million were classified as available-for-sale.
A loan is impaired when it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan agreement. Impaired loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
(Dollars in thousands) |
|
Impaired loans with no allowance for loan losses allocated (1) |
|
$ |
79,017 |
|
|
$ |
101,961 |
|
Impaired loans with allowance for loan losses allocated |
|
|
732,469 |
|
|
|
751,116 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
811,486 |
|
|
$ |
853,077 |
|
|
|
|
|
|
|
|
Amount of the allowance allocated to impaired loans |
|
$ |
101,664 |
|
|
$ |
106,511 |
|
Average investment in impaired loans |
|
$ |
832,282 |
|
|
$ |
990,587 |
|
Cash-basis interest income recognized during impairment (2) |
|
$ |
8,051 |
|
|
$ |
31,030 |
|
|
|
|
(1) |
|
Includes loans for which the principal balance has been charged down to net realizable value. |
|
(2) |
|
Includes interest income recognized during the three months and twelve months ended March 31, 2011 and December 31, 2010, respectively. |
23
Those impaired loans not requiring an allowance represent loans for which expected
discounted cash flows or the fair value of the collateral less estimated selling costs exceeded the
recorded investments in such loans. At March 31, 2011, approximately 31.5 percent of the total
impaired loans were evaluated based on the fair value of related collateral.
The following table presents impaired loans with no related allowance and with an allowance
recorded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Unpaid Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized (1) |
|
|
|
|
|
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
42,530 |
|
|
$ |
42,530 |
|
|
$ |
|
|
|
$ |
42,393 |
|
|
$ |
422 |
|
Commercial real estate |
|
|
36,487 |
|
|
|
66,177 |
|
|
|
|
|
|
|
48,064 |
|
|
|
345 |
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
$ |
79,017 |
|
|
$ |
108,707 |
|
|
$ |
|
|
|
$ |
90,489 |
|
|
$ |
767 |
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
549,570 |
|
|
$ |
549,570 |
|
|
$ |
48,911 |
|
|
$ |
554,675 |
|
|
$ |
5,304 |
|
Second mortgage |
|
|
13,353 |
|
|
|
13,353 |
|
|
|
1,900 |
|
|
|
13,412 |
|
|
|
139 |
|
Construction |
|
|
1,024 |
|
|
|
1,024 |
|
|
|
288 |
|
|
|
1,194 |
|
|
|
|
|
HELOC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
Commercial real estate |
|
|
166,906 |
|
|
|
216,822 |
|
|
|
49,969 |
|
|
|
170,900 |
|
|
|
1,469 |
|
Commercial and industrial |
|
|
1,616 |
|
|
|
1,616 |
|
|
|
596 |
|
|
|
1,586 |
|
|
|
372 |
|
|
|
|
|
|
$ |
732,469 |
|
|
$ |
782,385 |
|
|
$ |
101,664 |
|
|
$ |
741,793 |
|
|
$ |
7,284 |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
592,100 |
|
|
$ |
592,100 |
|
|
$ |
48,911 |
|
|
$ |
597,068 |
|
|
$ |
5,726 |
|
Second mortgage |
|
|
13,353 |
|
|
|
13,353 |
|
|
|
1,900 |
|
|
|
13,412 |
|
|
|
139 |
|
Construction |
|
|
1,024 |
|
|
|
1,024 |
|
|
|
288 |
|
|
|
1,194 |
|
|
|
|
|
HELOC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
Commercial real estate |
|
|
203,393 |
|
|
|
282,999 |
|
|
|
49,969 |
|
|
|
218,964 |
|
|
|
1,814 |
|
Commercial and industrial |
|
|
1,616 |
|
|
|
1,616 |
|
|
|
596 |
|
|
|
1,618 |
|
|
|
372 |
|
|
|
|
Total impaired loans |
|
$ |
811,486 |
|
|
$ |
891,092 |
|
|
$ |
101,664 |
|
|
$ |
832,282 |
|
|
$ |
8,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
42,255 |
|
|
$ |
42,255 |
|
|
$ |
|
|
|
$ |
54,482 |
|
|
$ |
1,747 |
|
Commercial real estate |
|
|
59,642 |
|
|
|
107,254 |
|
|
|
|
|
|
|
70,547 |
|
|
|
2,124 |
|
Commercial and industrial |
|
|
64 |
|
|
|
274 |
|
|
|
|
|
|
|
120 |
|
|
|
6 |
|
|
|
|
|
|
$ |
101,961 |
|
|
$ |
149,783 |
|
|
$ |
|
|
|
$ |
125,149 |
|
|
$ |
3,877 |
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
559,781 |
|
|
$ |
559,781 |
|
|
$ |
49,493 |
|
|
$ |
553,231 |
|
|
$ |
21,108 |
|
Second mortgage |
|
|
13,471 |
|
|
|
13,471 |
|
|
|
1,868 |
|
|
|
13,987 |
|
|
|
551 |
|
Construction |
|
|
1,364 |
|
|
|
1,364 |
|
|
|
458 |
|
|
|
1,803 |
|
|
|
3 |
|
HELOC |
|
|
52 |
|
|
|
52 |
|
|
|
7 |
|
|
|
55 |
|
|
|
3 |
|
Commercial real estate |
|
|
174,893 |
|
|
|
224,334 |
|
|
|
54,260 |
|
|
|
293,162 |
|
|
|
5,488 |
|
Commercial and industrial |
|
|
1,555 |
|
|
|
1,555 |
|
|
|
425 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
$ |
751,116 |
|
|
$ |
800,557 |
|
|
$ |
106,511 |
|
|
$ |
865,438 |
|
|
$ |
27,153 |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
602,036 |
|
|
$ |
602,036 |
|
|
$ |
49,493 |
|
|
$ |
607,713 |
|
|
$ |
22,855 |
|
Second mortgage |
|
|
13,471 |
|
|
|
13,471 |
|
|
|
1,868 |
|
|
|
13,987 |
|
|
|
551 |
|
Construction |
|
|
1,364 |
|
|
|
1,364 |
|
|
|
458 |
|
|
|
1,803 |
|
|
|
3 |
|
HELOC |
|
|
52 |
|
|
|
52 |
|
|
|
7 |
|
|
|
55 |
|
|
|
3 |
|
Commercial real estate |
|
|
234,535 |
|
|
|
331,588 |
|
|
|
54,260 |
|
|
|
363,709 |
|
|
|
7,612 |
|
Commercial and industrial |
|
|
1,619 |
|
|
|
1,829 |
|
|
|
425 |
|
|
|
3,320 |
|
|
|
6 |
|
|
|
|
Total impaired loans |
|
$ |
853,077 |
|
|
$ |
950,340 |
|
|
$ |
106,511 |
|
|
$ |
990,587 |
|
|
$ |
31,030 |
|
|
|
|
|
|
|
(1) |
|
Includes interest income recognized during the three months ended March 31, 2011 and the
year ended December 31, 2010, respectively. |
|
(2) |
|
Consumer loans included: residential first mortgage, second mortgage, construction and
HELOC loans. Commercial loans include: commercial real estate and commercial and
industrial. |
24
The Company utilizes an internal risk rating system on loans. Descriptions of the
Companys internal risk ratings as they relate to credit quality are as follows:
Pass. Pass assets are not impaired nor do they have any known deficiencies that could impact
the quality of the asset.
Special mention. Assets identified as special mention possess credit deficiencies or potential
weaknesses deserving managements close attention. Special mention assets have a potential
weakness or pose an unwarranted financial risk that, if not corrected, could weaken the assets and
increase risk in the future.
Substandard. Assets identified as substandard are inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so
classified must have a well-defined weakness or weaknesses. They are characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful. Assets identified as doubtful have all the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of current existing facts, conditions and values, highly questionable and
improbable. The possibility of a loss on a doubtful asset is high. However, due to important and
reasonably specific pending factors, which may work to strengthen (or weaken) the asset, its
classification as an estimated loss is deferred until its more exact status can be determined.
For consumer loans, the Company evaluates credit quality based on the aging and status of
payment activity. This is reflected in a designation of either performing or non-performing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
|
Commercial Credit |
|
Commercial Real |
|
|
Commercial and |
|
|
Commercial Lease |
|
|
Total |
|
Exposure |
|
Estate |
|
|
Industrial |
|
|
Financing |
|
|
Commercial |
|
Grade: |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Pass |
|
$ |
558,896 |
|
|
$ |
3,310 |
|
|
$ |
25,138 |
|
|
$ |
587,344 |
|
Special mention/watch |
|
|
416,743 |
|
|
|
4,400 |
|
|
|
|
|
|
|
421,143 |
|
Substandard |
|
|
194,449 |
|
|
|
1,616 |
|
|
|
|
|
|
|
196,065 |
|
Doubtful |
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,170,198 |
|
|
$ |
9,326 |
|
|
$ |
25,138 |
|
|
$ |
1,204,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
Consumer Credit |
|
Residential First |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure |
|
Mortgage |
|
|
Second Mortgage |
|
|
Construction |
|
|
Warehouse |
|
|
Total |
|
Grade: |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
Pass |
|
$ |
3,613,155 |
|
|
$ |
156,259 |
|
|
$ |
779 |
|
|
$ |
302,024 |
|
|
$ |
4,072,217 |
|
Special mention/watch |
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800 |
|
Substandard |
|
|
137,817 |
|
|
|
8,902 |
|
|
|
2,467 |
|
|
|
1,761 |
|
|
|
150,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,751,772 |
|
|
$ |
165,161 |
|
|
$ |
3,246 |
|
|
$ |
303,785 |
|
|
$ |
4,223,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
HELOC |
|
|
Other Consumer |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Performing |
|
$ |
247,908 |
|
|
$ |
80,759 |
|
|
$ |
328,667 |
|
Non-performing |
|
|
7,104 |
|
|
|
278 |
|
|
|
7,382 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
255,012 |
|
|
$ |
81,037 |
|
|
$ |
336,049 |
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
Commercial Credit |
|
Commercial Real |
|
|
Commercial and |
|
|
|
|
Exposure |
|
Estate |
|
|
Industrial |
|
|
|
Total Commercial |
|
Grade: |
|
(Dollars in thousands) |
|
Pass |
|
$ |
609,239 |
|
|
$ |
2,937 |
|
|
$ |
612,176 |
|
Special
mention/watch |
|
|
430,714 |
|
|
|
4,174 |
|
|
|
434,888 |
|
Substandard |
|
|
210,245 |
|
|
|
1,764 |
|
|
|
212,009 |
|
Doubtful |
|
|
103 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,250,301 |
|
|
$ |
8,875 |
|
|
$ |
1,259,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
Consumer Credit |
|
Residential First |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure |
|
Mortgage |
|
|
Second Mortgage |
|
|
Construction |
|
|
Warehouse |
|
|
Total |
|
Grade: |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
3,713,761 |
|
|
$ |
167,309 |
|
|
$ |
4,991 |
|
|
$ |
718,484 |
|
|
$ |
4,604,545 |
|
Special
mention/watch |
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
411 |
|
|
|
1,400 |
|
Substandard |
|
|
69,950 |
|
|
|
7,480 |
|
|
|
3,021 |
|
|
|
1,875 |
|
|
|
82,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,784,700 |
|
|
$ |
174,789 |
|
|
$ |
8,012 |
|
|
$ |
720,770 |
|
|
$ |
4,688,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
HELOC |
|
|
Other Consumer |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Performing |
|
$ |
264,612 |
|
|
$ |
85,889 |
|
|
$ |
350,501 |
|
Non-performing |
|
|
6,713 |
|
|
|
821 |
|
|
|
7,534 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
271,325 |
|
|
$ |
86,710 |
|
|
$ |
358,035 |
|
|
|
|
|
|
|
|
|
|
|
Note 7 Pledged Assets
The Company has pledged certain securities and loans to collateralize lines of credit and/or
borrowings with the Federal Reserve Bank of Chicago and the FHLB of Indianapolis and other
potential future obligations. The following table details pledged asset by asset class, and the
carrying value of pledged investments and the investments maturities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
Investment |
|
|
|
Carrying Value |
|
|
Maturities |
|
|
Carrying Value |
|
|
Maturities |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Cash pledged for letter of credit |
|
$ |
17,360 |
|
|
|
|
|
|
$ |
17,353 |
|
|
|
|
|
Securities classified as trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
|
114,079 |
|
|
|
2012 |
|
|
|
158,754 |
|
|
|
2012 |
|
Securities classified as available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agencies |
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
2015-2032 |
|
Non-agencies securities
|
|
|
129,956 |
|
|
|
2036 |
|
|
|
136,707 |
|
|
|
2036 |
|
Loans held-for-investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
|
6,001,217 |
|
|
Various |
|
|
6,700,681 |
|
|
Various |
Second mortgage loans |
|
|
396 |
|
|
Various |
|
|
202 |
|
|
Various |
Consumer loans |
|
|
233,441 |
|
|
Various |
|
|
253,030 |
|
|
Various |
Commercial real estate loans |
|
|
461,582 |
|
|
Various |
|
|
554,382 |
|
|
Various |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government insured repurchased assets |
|
|
1,781,825 |
|
|
Various |
|
|
1,731,276 |
|
|
Various |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
8,739,856 |
|
|
|
|
|
|
$ |
9,552,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Note 8 Private-label Securitization Activity
The Company previously securitized fixed and adjustable rate second mortgage loans and home
equity line of credit loans. The Company acted as the principal underwriter of the beneficial
interests that were sold to investors. The financial assets were derecognized when they were
transferred to the securitization trust, which then issued and sold mortgage-backed securities to
third party investors. The Company relinquished control over the loans at the time the financial
assets were transferred to the securitization trust. The Company recognized a gain on the sale on
the transferred assets.
The Company retained interests in the securitized mortgage loans and trusts, in the form of residual interests,
transferor's interests, and servicing assets. The residual interests represent the present value of future cash flows
expected to be received by the Company. Residual interests are
accounted for at fair value and are included as
securities classified as trading in the Consolidated Statements of Financial Condition.
Any gains or losses realized on the sale of such securities and any subsequent changes in unrealized
gains and losses are reported in the Consolidated Statements of
Operations. At March 31, 2011,
the Company's residual interests were deemed to have no value. Transferor's interests
represent draws on the HELOCs subsequent to them being sold to the trusts that were
funded by the Bank rather than being purchased by the trusts.
Transferor's interests are included in loans held-for-investment in the Consolidated
Statements of Financial Condition. At March 31, 2011, the Company no longer serviced
any of the loans that were sold to the private-label securitization trusts,
and therefore had no servicing assets accounted for on an amortized cost method.
For more information, please refer to our Annual Report on Form 10-K for the year ended December 31, 2010.
During 2010 and for the three months ended March 31, 2011, the Company did not engage in any
private-label securitization activity.
Summary of Securitization Activity
Certain cash flows received from the securitization trusts were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Servicing fees received |
|
$ |
|
|
|
$ |
1,166 |
|
The following table sets forth certain characteristics of each of the securitizations at
their inception and the current characteristics as of and for the three month period ended March
31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-1 |
|
|
2006-2 |
|
HELOC Securitizations |
|
At Inception |
|
|
Current Levels |
|
|
At Inception |
|
|
Current Levels |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Number of loans |
|
|
8,155 |
|
|
|
2,888 |
|
|
|
4,186 |
|
|
|
2,302 |
|
Aggregate principal balance |
|
$ |
600,000 |
|
|
$ |
133,654 |
|
|
$ |
302,182 |
|
|
$ |
140,670 |
|
Average principal balance |
|
$ |
55 |
|
|
$ |
46 |
|
|
$ |
72 |
|
|
$ |
61 |
|
Weighted average fully indexed
interest rate |
|
|
8.43 |
% |
|
|
5.90 |
% |
|
|
9.43 |
% |
|
|
6.91 |
% |
Weighted average original term |
|
120 months |
|
120 months |
|
120 months |
|
120 months |
Weighted average remaining
term |
|
112 months |
|
51 months |
|
112 months |
|
65 months |
Weighted average original
credit score |
|
|
722 |
|
|
|
719 |
|
|
|
715 |
|
|
|
721 |
|
Transferors Interests
Under the terms of the HELOC securitizations, the trusts were initially obligated to purchase
any subsequent draws on the lines of credit out of funds available through principal payments on such
loans. However, as the securitizations are now in rapid
amortization, the trusts no longer purchase such
draws from the Bank. Instead, the Bank funds the draws pursuant to the underlying lines of credit with the
borrowers, and receives a pro rata beneficial interest in the underlying loans (transferor's interest).
The table below identifies the unpurchased draw contributions from the Bank for each of the
HELOC securitization trusts as well as the fair value of the transferor's interests.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Summary of Transferors |
|
|
|
|
|
|
|
|
|
|
|
|
Interest by Securitization |
|
FSTAR 2005-1 |
|
|
FSTAR 2006-2 |
|
|
FSTAR 2005-1 |
|
|
FSTAR 2006-2 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Total draw contribution |
|
$ |
35,236 |
|
|
$ |
51,092 |
|
|
$ |
35,088 |
|
|
$ |
50,949 |
|
Additional balance increase amount (1) |
|
$ |
27,901 |
|
|
$ |
32,402 |
|
|
$ |
28,219 |
|
|
$ |
33,407 |
|
Transferors interest ownership percentage |
|
|
20.25 |
% |
|
|
22.45 |
% |
|
|
19.59 |
% |
|
|
21.75 |
% |
Fair value of transferors interests |
|
$ |
14,949 |
|
|
$ |
|
|
|
$ |
17,439 |
|
|
$ |
|
|
Transferors interest reserve |
|
$ |
1,574 |
|
|
$ |
1,809 |
|
|
$ |
1,876 |
|
|
$ |
1,908 |
|
|
|
|
(1) |
|
Additional draws on lines of credit for which the Company receives a beneficial interest
in the Trust. |
FSTAR 2005-1. At March 31, 2011, outstanding claims due to the note insurer were $11.6
million and based on the Companys internal model, the Company believed that because of the claims
due to the note insurer and continuing credit losses on the loans underlying the securitization,
the fair value/carrying amount of the transferors interest was $14.9 million. During the third
quarter of 2010, the Company determined that the transferors interests had deteriorated to the
extent that a contingent liability was required to be recorded. The Company recorded a liability to
reflect the expected liability arising from losses on future draws associated with this
securitization, of which $1.6 million remained at March 31, 2011. In determining this liability,
the Company assumed (i) no further draws would be made with respect to those HELOCs as to which
further draws were currently prohibited, (ii) the remaining HELOCs would continue to operate in the
same manner as their historical draw behavior indicated, as measured on an individual loan basis
and on a pool drawdown basis, and (iii) that any draws actually made and therefore recognized as
transferors interests by the Company would have a loss rate of 46.4 percent.
FSTAR 2006-2. At March 31, 2011, outstanding claims due to the note insurer were $74.7
million and based on the Companys internal model, the Company believed that because of the claims
due to the note insurer and continuing credit losses on the loans underlying the securitization,
there was no carrying amount of the transferors interest. Also, during the fourth quarter 2009,
the Company determined that the transferors interests had deteriorated to the extent that a SFAS 5
(now codified within ASC Topic 450, Contingencies,) liability was required to be recorded.
During the period, the Company recorded a liability of $7.6 million to reflect the expected
liability arising from losses on future draws associated with this securitization, of which $1.8
million remained at March 31, 2011. In determining this liability, the Company (i) assumed no
further draws would be made with respect to those HELOCs as to which further draws were currently
prohibited, (ii) the remaining HELOCs would continue to operate in the same manner as their
historical draw behavior indicated, as measured on an individual loan basis and on a pool drawdown
basis, and (iii) that any draws actually made and therefore recognized as transferors interests by
the Company would have a loss rate of 100 percent.
The following table outlines the Companys expected losses on future draws on loans in FSTAR
2005-1 and FSTAR 2006-2 at March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Future |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Draws as % of |
|
|
Expected |
|
|
|
|
|
|
Potential |
|
|
|
Unfunded |
|
|
Unfunded |
|
|
Future |
|
|
Expected |
|
|
Future |
|
|
|
Commitments (1) |
|
|
Commitments (2) |
|
|
Draws (3) |
|
|
Loss (4) |
|
|
Liability (5) |
|
|
|
|
|
|
(Dollars in thousands) |
|
FSTAR 2005-1 HELOC Securitization |
|
$ |
5,392 |
|
|
|
62.90 |
% |
|
$ |
3,391 |
|
|
|
46.4 |
% |
|
$ |
1,574 |
|
FSTAR 2006-2 HELOC Securitization |
|
|
2,993 |
|
|
|
60.40 |
% |
|
|
1,809 |
|
|
|
100.0 |
% |
|
|
1,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,385 |
|
|
|
|
|
|
$ |
5,200 |
|
|
|
|
|
|
$ |
3,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unfunded commitments represent the amounts currently fundable at the dates indicated
because the underlying borrowers lines of credit are still active. |
|
(2) |
|
Expected future draws on unfunded commitments represents the historical draw rate within the
securitization. |
|
(3) |
|
Expected future draws reflects unfunded commitments multiplied by expected future draws
percentage. |
|
(4) |
|
Expected losses represent an estimated reduction in carrying value of future draws. |
|
(5) |
|
Potential future liability reflects expected future draws multiplied by expected losses. |
Assured Litigation
In 2009 and 2010, the Bank received repurchase demands from Assured Guaranty Municipal Corp.,
formerly known as Financial Security Assurance Inc. (Assured), with respect to HELOCs that were
sold by the Bank in connection with the HELOC securitizations. Assured is the note insurer for
each of the two HELOC securitizations described above. The Bank has provided detailed rebuttals to
these demands. Notwithstanding the Banks rebuttals, in April 2011, Assured filed a lawsuit
against the Bank and its affiliates for breach of contract, reimbursement and indemnification. The
Bank intends to vigorously defend itself against the suit brought by Assured. In addition, to the
extent, if any, the Bank repurchases loans from or provides
indemnification to the FSTAR 2005-1
HELOC Securitization trust, the Bank expects that the fair value of its
28
transferors
interest held with respect to the FSTAR 2005-1 HELOC Securitization will increase by a like
amount.
Unfunded Commitments
The table below identifies separately for each HELOC securitization trust: (i) the notional
amount of the total unfunded commitment under the Companys contractual arrangements, (ii) unfunded
commitments that have been frozen or suspended because the borrowers do not currently meet the
contractual requirements under their home equity line of credit with the Company, and (iii) the
amount currently fundable because the underlying borrowers lines of credit are still active:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 |
|
|
|
FSTAR 2005-1 |
|
|
FSTAR 2006-2 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Notional amount of unfunded commitments (1) |
|
$ |
38,673 |
|
|
$ |
34,044 |
|
|
$ |
72,717 |
|
Less: Frozen or suspended unfunded commitments |
|
|
33,281 |
|
|
|
31,051 |
|
|
|
64,332 |
|
Unfunded commitments still active |
|
|
5,392 |
|
|
|
2,993 |
|
|
|
8,385 |
|
|
|
|
(1) |
|
The Companys total potential funding obligation is dependent on both (a) borrower
behavior (e.g., the amount of additional draws requested) and (b) the contractual draw period
(remaining term) available to the borrowers. Because borrowers can make principal payments and
restore the amounts available for draws and then borrow additional amounts as long as their
lines of credit remain active, the funding obligation has no specific limitation and it is not
possible to define the maximum funding obligation. However, we expect that the call provision
of the FSTAR 2005-1 HELOC securitization and the FSTAR 2006-2 HELOC Securitization pools will
be reached in 2015 and 2014, respectively, and our exposure will be substantially mitigated at
such times, based on prepayment speeds and losses in our cash flow forecast. |
Credit Risk on Securitization
With respect to the issuance of private-label securitizations, the Company retains certain
limited credit exposure in that it retains non-investment grade residual securities in addition to
customary representations and warranties. The Company does not have credit exposure associated
with non-performing loans in securitizations beyond its investment in retained interests in
non-investment grade residuals and draws (transferors interests) on HELOCs that it funds and which
are not reimbursed by the respective trust. The value of the Companys transferors interests
reflects the Companys credit loss assumptions as applied to the underlying collateral pool. To
the extent that actual credit losses exceed the assumptions, the value of the Companys
non-investment grade residual securities and unreimbursed draws will be diminished.
During
the fourth quarter 2010, all servicing related to loans underlying
the private-label securitizations (i.e., HELOC and second mortgage
loans) was
transferred to a third party servicer.
The following table summarizes the Companys consumer servicing portfolio and the balance of
retained assets with credit exposure, which includes residential interests that are included as
trading securities and unreimbursed HELOC draws that are included in loans held-for-investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Balance of Retained |
|
|
|
|
|
|
Balance of Retained |
|
|
|
Amount of Loans |
|
|
Assets With Credit |
|
|
Amount of Loans |
|
|
Assets With Credit |
|
|
|
Serviced |
|
|
Exposure |
|
|
Serviced |
|
|
Exposure |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Private-label securitizations |
|
$ |
|
|
|
$ |
14,949 |
|
|
$ |
|
|
|
$ |
17,439 |
|
Loans that have been securitized in private-label securitizations that are serviced by
Flagstar and are sixty days or more past due, all of which are consumer loans, and the credit
losses incurred in the securitization trusts are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Principal |
|
|
Principal Amount |
|
|
Credit Losses |
|
|
|
Amount of |
|
|
of Loans |
|
|
(Net of Recoveries) For |
|
|
|
Loans Outstanding |
|
|
60 Days or More Past Due |
|
|
the Three Months Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Securitized
mortgage loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Note 9 Mortgage Servicing Rights
The Company has obligations to service residential first mortgage loans. Prior to December 31,
2010, the Company had obligations to service consumer loans (HELOC and second mortgage loans)
resulting from private-label securitization transactions. A description of these classes of
servicing assets follows.
Residential mortgage servicing rights. Servicing of residential first mortgage loans is a
significant business activity of the Company. The Company recognizes MSR assets on residential
first mortgage loans when it retains the obligation to service these loans upon sale. MSRs are
subject to changes in value from, among other things, changes in interest rates, prepayments of the
underlying loans and changes in credit quality of the underlying portfolio. In the past, the
Company treated this risk as a general counterbalance to the increased production and gain on loan
sale margins that tend to occur in an environment with increased prepayments. However, in 2008,
the Company elected the fair value option for residential first mortgage servicing rights. As
such, the Company currently specifically hedges the risk of fair value changes of MSRs using
derivative instruments that are intended to change in value inversely to part or all of the changes
in the components underlying the fair value of MSRs.
Changes in the carrying value of residential first mortgage MSRs, accounted for at fair value,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Balance at beginning of period |
|
$ |
580,299 |
|
|
$ |
649,133 |
|
Additions from loans sold with servicing retained |
|
|
50,700 |
|
|
|
48,267 |
|
Reductions from bulk sales |
|
|
|
|
|
|
(115,128 |
) |
Changes in fair value due to: |
|
|
|
|
|
|
|
|
Payoffs(1) |
|
|
(14,521 |
) |
|
|
(15,271 |
) |
All other changes in valuation inputs or assumptions (2) |
|
|
18,644 |
|
|
|
(26,201 |
) |
|
|
|
|
|
|
|
Fair value of MSRs at end of period |
|
$ |
635,122 |
|
|
$ |
540,800 |
|
|
|
|
|
|
|
|
Unpaid principal balance of residential first mortgage loans serviced for others |
|
$ |
59,577,239 |
|
|
$ |
47,359,431 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents decrease in MSR value associated with loans that were paid off during the period. |
|
(2) |
|
Represents estimated MSR value change resulting primarily from market-driven changes in interest rates. |
The fair value of residential MSRs is estimated using a valuation model that calculates
the present value of estimated future net servicing cash flows, taking into consideration expected
mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which
are determined based on current market conditions. The Company periodically obtains third-party
valuations of residential MSRs to assess the reasonableness of the fair value calculated by the
valuation model.
The key economic assumptions used in determining the fair value of MSRs capitalized during the
three month period ended March 31, 2011 and 2010 periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
Weighted-average life (in years) |
|
|
6.8 |
|
|
|
5.9 |
|
Weighted-average constant prepayment rate |
|
|
14.9 |
% |
|
|
20.0 |
% |
Weighted-average discount rate |
|
|
8.4 |
% |
|
|
8.4 |
% |
The key economic assumptions reflected in the overall fair value of MSRs were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
Weighted-average life (in years) |
|
|
6.0 |
|
|
|
5.8 |
|
Weighted-average constant prepayment rate |
|
|
14.9 |
% |
|
|
16.9 |
% |
Weighted-average discount rate |
|
|
8.9 |
% |
|
|
9.1 |
% |
30
Consumer servicing assets. Consumer servicing assets represented servicing rights related to
HELOC and second mortgage loans that were created in the Companys private-label securitizations.
These servicing assets were initially measured at fair value and subsequently accounted for using
the amortization method. Under this method, the assets were amortized in proportion to and over
the period of estimated servicing income and were evaluated for impairment on a periodic basis.
When the carrying value exceeds the fair value, a valuation allowance was established by a charge
to loan administration income in the Consolidated Statements of Operations.
The fair value of consumer servicing assets was estimated by using an internal valuation
model. This method was based on calculating the present value of estimated future net servicing
cash flows, taking into consideration discount rates, actual and expected loan prepayment rates,
servicing costs and other economic factors.
During the fourth quarter of 2010, the Company transferred its mortgage servicing rights
with respect to its private-label securitizations, related to
HELOC and second mortgage loans, to a third-party servicer pursuant to the terms of the
applicable servicing agreements.
Changes in the carrying value of the consumer servicing assets and the associated valuation
allowance follow:
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
Consumer servicing assets |
|
|
|
|
Balance at beginning of period |
|
$ |
7,049 |
|
Reduction from transfer of servicing (1) |
|
|
|
|
Amortization |
|
|
(418 |
) |
|
|
|
|
Carrying value before valuation allowance at end of period |
|
|
6,631 |
|
|
|
|
|
Valuation allowance |
|
|
|
|
Balance at beginning of period |
|
|
(3,808 |
) |
Impairment recoveries (charges) |
|
|
(176 |
) |
Reduction from transfer of servicing (1) |
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
(3,984 |
) |
|
|
|
|
Net carrying value of servicing assets at end of period |
|
$ |
2,647 |
|
|
|
|
|
Unpaid principal balance of consumer loans serviced for others |
|
$ |
905,301 |
|
|
|
|
|
Fair value of servicing assets: |
|
|
|
|
Beginning of period |
|
$ |
3,523 |
|
|
|
|
|
End of period |
|
$ |
2,881 |
|
|
|
|
|
|
|
|
(1) |
|
Reflects the transfer of mortgage servicing rights related to the Companys
private-label securitizations. |
The key economic assumptions used to estimate the fair value of these servicing assets
were as follows:
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
Weighted-average life (in years) |
|
|
2.8 |
|
Weighted-average discount rate |
|
|
11.4 |
% |
Contractual servicing fees. Contractual servicing fees, including late fees and
ancillary income, for each type of loan serviced are presented below. Contractual servicing fees
are included within loan administration income on the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Residential first mortgage |
|
$ |
43,586 |
|
|
$ |
37,369 |
|
Other consumer |
|
|
34 |
|
|
|
1,174 |
|
|
|
|
Total |
|
$ |
43,260 |
|
|
$ |
38,543 |
|
|
|
|
31
Note 10 Government Insured Repurchased Assets
Pursuant to Ginnie Mae servicing guidelines, the Company has the unilateral option to
repurchase certain loans securitized in Ginnie Mae pools, if the loans meet certain delinquency
criteria. As a result of this unilateral option, once the delinquency criteria have been met, and
regardless of whether the repurchase option has been exercised, the Company must treat the loans as
having been repurchased and recognize the assets on the Consolidated Statement of Financial
Condition and also recognize a corresponding liability for a similar amount. If the loans are
actually repurchased, the Company eliminates the corresponding liability. At March 31, 2011, the
amount of such loans actually repurchased totaled $1.8 billion and were classified as government
insured repurchased assets, and those loans which the Company had not yet repurchased but had the
unilateral right to repurchase totaled $92.3 million and were classified as loans
available-for-sale. At December 31, 2010, the amount of such loans actually repurchased totaled
$1.7 billion and were classified as government insured repurchased assets, and those loans which
the Company had not yet repurchased but had the unilateral right to repurchase totaled $112.0
million and were classified as loans available-for-sale.
Substantially all of these assets continue to be insured or guaranteed by Ginnie Mae and the
Companys management believes that the reimbursement process is proceeding appropriately. On
average, claims have historically been filed and paid in approximately 18 months from the date of
the initial delinquency; however increasing volumes throughout the country, as well as changes in
the foreclosure process in states throughout the country and other forms of government intervention
may result in changes to the historical norm. These repurchased assets earn interest at a statutory
rate, which varies and is based upon the 10-year U.S. Treasury rate at the time the
underlying loan becomes delinquent. This interest is recorded as an offset to the related claims settlement
expenses. Both the interest earned and the related claims settlement expenses are recorded in
asset resolution expense on the Consolidated Statements of Operations.
Note 11 FHLB Advances
The portfolio of FHLB advances includes floating rate daily adjustable advances and fixed rate
term advances. The following is a breakdown of the advances outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Daily adjustable advances |
|
$ |
|
|
|
|
|
% |
|
$ |
325,083 |
|
|
|
0.50 |
% |
Long-term fixed rate term advances |
|
|
3,400,000 |
|
|
|
3.52 |
|
|
|
3,400,000 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,400,000 |
|
|
|
3.52 |
% |
|
$ |
3,725,083 |
|
|
|
3.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Maximum outstanding at any month end |
|
$ |
3,400,755 |
|
|
$ |
3,900,000 |
|
Average balance |
|
|
3,400,252 |
|
|
|
3,900,000 |
|
Average interest rate |
|
|
3.52 |
% |
|
|
4.29 |
% |
|
|
|
|
|
|
|
|
|
The Company has the authority and approval from the FHLB to utilize a total of $7.0
billion in collateralized borrowings. At March 31, 2011, the line was collateralized to $4.2
billion. Pursuant to collateral agreements with the FHLB, advances are collateralized by
non-delinquent single-family residential first mortgage loans, second mortgages and investment
securities.
32
Note 12 Security Repurchase Agreements
The repurchase agreements were prepaid during the second quarter of 2010. The following table
sets forth certain information related to the security repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
Maximum outstanding at any month end |
|
$ |
|
|
|
$ |
108,000 |
|
Average balance |
|
|
|
|
|
|
108,000 |
|
Average interest rate |
|
|
|
% |
|
|
4.27 |
% |
Note 13 Long-Term Debt
The Companys long-term debt is comprised principally of junior subordinated notes which were issued in
connection with the issuance of trust preferred securities. The following table presents the outstanding
balance and related interest rates of the long-term debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Junior Subordinated Notes |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Floating 3 Month LIBOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus 3.25% (1), matures 2032 |
|
$ |
25,774 |
|
|
|
3.56 |
% |
|
$ |
25,774 |
|
|
|
3.55 |
% |
Plus 3.25% (1), matures 2033 |
|
|
25,774 |
|
|
|
3.55 |
% |
|
|
25,774 |
|
|
|
3.54 |
% |
Plus 3.25% (1), matures 2033 |
|
|
25,780 |
|
|
|
3.56 |
% |
|
|
25,780 |
|
|
|
3.55 |
% |
Plus 2.00%, matures 2035 |
|
|
25,774 |
|
|
|
2.30 |
% |
|
|
25,774 |
|
|
|
2.29 |
% |
Plus 2.00%, matures 2035 |
|
|
25,774 |
|
|
|
2.30 |
% |
|
|
25,774 |
|
|
|
2.29 |
% |
Plus 1.75% (1), matures 2035 |
|
|
51,547 |
|
|
|
2.06 |
% |
|
|
51,547 |
|
|
|
2.05 |
% |
Plus 1.50% (2), matures 2035 |
|
|
25,774 |
|
|
|
1.80 |
% |
|
|
25,774 |
|
|
|
1.79 |
% |
Plus 1.45%, matures 2037 |
|
|
25,774 |
|
|
|
1.76 |
% |
|
|
25,774 |
|
|
|
1.75 |
% |
Plus 2.50%, matures 2037 |
|
|
15,464 |
|
|
|
2.81 |
% |
|
|
15,464 |
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
247,435 |
|
|
|
|
|
|
$ |
247,435 |
|
|
|
|
|
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed 7.00% due 2013 |
|
|
1,175 |
|
|
|
|
|
|
|
1,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
248,610 |
|
|
|
|
|
|
$ |
248,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The securities are currently callable by the Company. |
|
(2) |
|
As part of the transaction, the Company entered into an interest rate swap with the placement agent, under which the Company was required to pay
4.33% fixed rate on a notional amount of $25 million and received a floating rate equal to three month LIBOR. The swap matured on October 7, 2010.
The securities are callable by the Company. |
Interest on all junior subordinated notes related to trust preferred securities is
payable quarterly. Under these arrangements, the Company has the right to defer dividend payments
to the trust preferred security holders for up to five years.
Note 14 Income Taxes
The Companys net deferred tax asset position has been entirely offset by a valuation
allowance amounting to $340.3 million and $330.8 million, at March 31, 2011 and December 31, 2010,
respectively. A valuation allowance is established when management determines that it is more
likely than not that all or a portion of the Companys net deferred tax assets will not be realized
in future periods.
For the three months ended March 31, 2011, the net provision (benefit) for federal income
taxes as a percentage of pretax loss was one percent as compared to a provision (benefit) of zero
percent for the comparable 2010 period. During the three months ended March 31, 2011, the variance
to the statutory rate of 35 percent was attributable to a $9.5 million addition to our valuation
allowance for net deferred tax assets, certain non-deductible-corporate expenses of $0.4 million
and non-deductible warrant income of $0.3 million.
The Companys income tax returns are subject to examination by federal, state and local
government authorities. On an ongoing basis, numerous federal, state and local examinations are in
progress and cover multiple tax years. As of March 31, 2011, the Internal Revenue Service had
completed its examination of the Companys income tax returns through the years ended December 31,
2005 and is in process of examining income tax returns for years ended December 31, 2006, 2007 and
2008. The years open to examination by state and local government authorities vary by
jurisdiction.
33
Note 15 Warrant Liabilities
May Investors
In full satisfaction of the Companys obligations under anti-dilution provisions applicable to
certain investors (the May Investors) in the Companys May 2008 private placement capital raise,
the Company granted warrants (the May Investor Warrants) to the May Investors on January 30, 2009
for the purchase of 1,425,979 of Common Stock at $6.20 per share. The holders of such warrants are
entitled to acquire shares of Common Stock for a period of ten years. During 2009, May Investors
exercised May Investor Warrants to purchase 314,839 shares of Common Stock. As a result of the
Companys registered offering on March 31, 2010, of 57.5 million shares of Common Stock at a price
per share of $5.00, the number of shares of the Companys Common Stock issuable to the May
Investors under the May Investor Warrants was increased by 266,674 and the exercise price was
decreased to $5.00 pursuant to the antidilution provisions of the May Investors Warrants. As a
result of the Companys registered offering on November 2, 2010 of 115.7 million shares of Common
Stock at a price per share of $1.00, the number of shares of Common Stock issuable to the May
Investors under the May Investor Warrants was increased by 5,511,255 and the exercise price was
decreased to $1.00 pursuant to the antidilution provisions of the May Investors Warrants. For the
three month period ended March 31, 2011, no shares of Common Stock were issued upon exercise of May
Investor Warrants, and at March 31, 2011, the May Investors held warrants to purchase 6,889,069
shares at an exercise price of $1.00.
Management believes the May Investor Warrants do not meet the definition of a contract that is
indexed to the Companys own stock under U.S. GAAP. Therefore, the May Investor Warrants are
classified as liabilities rather than as an equity instrument and are measured at fair value, with
changes in fair value recognized through operations.
On January 30, 2009, in conjunction with the capital investments, the Company recorded the May
Investor Warrants at their fair value of $6.1 million. From the issuance of the May Investor
Warrants on January 30, 2009 through March 31, 2011, the Company marked these warrants to market
which resulted in an increase in the liability during this time of $3.2 million. This increase was
recorded as warrant expense and included in non-interest expense.
At March 31, 2011, the Companys liabilities to the holders of May Investors Warrants amounted
to $8.5 million. The warrant liabilities are included within other liabilities in the Consolidated
Statements of Financial Condition.
Treasury Warrants
On January 30, 2009, the Company sold to the U.S. Treasury 266,657 shares of Series C fixed
rate cumulative non-convertible perpetual preferred stock (Series C Preferred Stock) and a
warrant to purchase up to approximately 6.5 million shares of Common Stock at an exercise price of
$0.62 per share (the Treasury Warrant) for $266.7 million.. The issuance and the sale of the
Series C Preferred Stock and Treasury Warrant were exempt from the registration requirements of the
Securities Act of 1933, as amended. The Series C Preferred Stock qualifies as Tier 1 capital and
pays cumulative dividends quarterly at a rate of 5 percent per annum for the first five years, and
9 percent per annum thereafter. The Treasury Warrant became exercisable upon receipt of stockholder
approval on May 26, 2009 and has a ten-year term.
During the first quarter of 2009, the Company recorded a Treasury Warrant liability that arose
in conjunction with the Companys participation in the Troubled Asset Relief Program (TARP)
because the Company did not have available an adequate number of authorized and unissued shares of
the Companys common stock. As described in Note 16- Stockholders Equity and Loss Per Common
Share, the Company initially recorded the Treasury Warrant on January 30, 2009 at its fair value of
$27.7 million. The Treasury warrant was marked to market on March 31, 2009 resulting in an
increase to the warrant liability of $9.1 million. Upon stockholder approval on May 26, 2009 to
increase the number of authorized shares of Common Stock, the Company marked the liability to
market at that date and reclassified the Treasury Warrant liability to additional paid in capital.
The mark to market adjustment on May 26, 2009 resulted in an increase to the warrant liability of
$12.9 million during the second quarter 2009. This increase was recorded as warrant expense and
included in non-interest expense.
34
Note 16 Stockholders Equity
Preferred Stock
Preferred stock with a par value of $0.01 and a liquidation value of $1,000 and additional
paid in capital attributable to preferred stock at March 31, 2011 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
Earliest |
|
|
Shares |
|
|
Preferred |
|
|
Paid in |
|
|
|
Rate |
|
|
Redemption Date |
|
|
Outstanding |
|
|
Shares |
|
|
Capital |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Series C
Preferred Stock,
TARP Capital
Purchase Program |
|
|
5 |
% |
|
January 31, 2012 |
|
|
266,657 |
|
|
$ |
3 |
|
|
$ |
250,569 |
|
On January 30, 2009, the Company sold to the U.S. Treasury, 266,657 shares of the Series C
Preferred Stock for $266.7 million and the Treasury Warrant. The Series C Preferred Stock and
Treasury Warrant qualify as Tier 1 capital. The Series C Preferred Stock pays cumulative dividends
quarterly at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The
Treasury Warrant is exercisable over a 10 year period. Because the Company did not have an
adequate number of authorized and unissued shares of Common Stock at January 30, 2009 or at March
31, 2009, the Company was required to initially classify such Treasury Warrant as a liability and
record the Treasury Warrant at its fair value of $27.7 million. Upon receipt of stockholder
approval to authorize an adequate number of shares of Common Stock on May 26, 2009, the Company
reclassified the Treasury Warrant to stockholders equity. The Series C Preferred Stock and
additional paid in capital attributable to Series C Preferred Stock was recorded in stockholders
equity as the difference between the cash received from the U.S. Treasury and the amount initially
recorded as a warrant liability, or $239.0 million. The discount on the Series C Preferred Stock
is represented by the initial fair value of the Treasury Warrant. This discount will be accreted
to additional paid in capital attributable to Series C Preferred Stock over five years using the
interest method.
Accumulated Other Comprehensive Loss
The following table sets forth the ending balance in accumulated other comprehensive loss for
each component:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
(Dollars in thousands) |
|
Net unrealized loss on securities available-for-sale |
|
$ |
(9,760 |
) |
|
$ |
(16,165 |
) |
The following table sets forth the changes to other comprehensive (loss) income and the
related tax effect for each component:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Gain (reclassified to earnings) on sales of
securities available-for-sale (net of tax $572 for the 2010 period) |
|
$ |
|
|
|
$ |
(1,594 |
) |
|
|
|
|
|
|
|
|
|
Loss (reclassified to earnings) for other-than-temporary
impairment on securities available-for-sale |
|
|
|
|
|
|
3,286 |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available-for-sale |
|
|
6,405 |
|
|
|
7,019 |
|
|
|
|
Change in comprehensive income, net of tax |
|
$ |
6,405 |
|
|
$ |
8,711 |
|
|
|
|
35
Note 17 Loss Per Share
Basic loss per share excludes dilution and is computed by dividing loss available to common
stockholders by the weighted average number of shares of Common Stock outstanding during the
period. Diluted loss per share reflects the potential dilution that could occur if securities or
other contracts to issue Common Stock were exercised and converted into Common Stock or resulted in
the issuance of Common Stock that could then share in the loss of the Company.
On May 27, 2010, the Companys stockholders approved an amendment to the Articles to effect a
reverse stock split of the Common Stock with the exact exchange ratio and timing of the reverse
stock split to be determined at the discretion of the Companys Board of Directors. The Board of
Directors approved a 1-for-10 reverse stock split which became effective on May 27, 2010. In lieu
of fractional shares, stockholders received cash payments based on the Common Stocks closing price
on May 26, 2010 of $5.00 per share, which reflected the reverse stock split. The par value of the
Common Stock remained at $0.01 per share. Unless otherwise indicated, all Common Stock and related
per share amounts in these Consolidated Financial Statements and Notes to the Consolidated
Financial Statements are stated on an after-reverse-split basis for all periods presented.
The following table sets forth the computation of basic and diluted loss per share of Common
Stock for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
Loss |
|
|
Weighted
Average Shares |
|
|
Per Share
Amount |
|
|
Loss |
|
|
Weighted
Average
Shares |
|
|
Per Share
Amount |
|
Net loss |
|
$ |
(26,965 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
(77,220 |
) |
|
|
|
|
|
$ |
|
|
Less: Preferred stock
dividend/accretion |
|
|
(4,709 |
) |
|
|
|
|
|
|
|
|
|
|
(4,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Loss Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to Common
Stock |
|
|
(31,674 |
) |
|
|
553,555 |
|
|
|
(0.06 |
) |
|
|
(81,900 |
) |
|
|
77,699 |
|
|
|
(1.05 |
) |
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Loss Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to Common
Stock |
|
$ |
(31,674 |
) |
|
|
553,555 |
|
|
$ |
(0.06 |
) |
|
$ |
(81,900 |
) |
|
|
77,699 |
|
|
$ |
(1.05 |
) |
|
|
|
Due to the loss attributable to common stockholders for the three months ended March 31,
2011 and 2010, the diluted loss per share calculation excludes all common stock equivalents,
including 13,340,448 shares and 7,565,482 shares, respectively, pertaining to warrants and
2,675,693 shares and 840,145 shares, respectively, pertaining to stock-based awards. The inclusion
of these securities would be anti-dilutive.
Note 18 Derivative Financial Instruments
The following derivative financial instruments were identified and recorded at fair value as
of March 31, 2011 and December 31, 2010:
- Fannie Mae, Freddie Mac, Ginnie Mae and other forward loan sale contracts;
- Rate lock commitments;
- Interest rate swap agreements; and
- U.S. Treasury futures and options.
The Company hedges the risk of overall changes in the fair value of loans held-for-sale and
rate lock commitments generally by selling forward contracts on securities of Fannie Mae, Freddie
Mac and Ginnie Mae. The forward contracts used to economically hedge the loan commitments are
accounted for as non-designated hedges and naturally offset rate lock commitment mark-to-market
gains and losses recognized as a component of gain on loan sale. The Company recognized a loss of
$(41.0) million versus a loss of $(17.0) million for the three months ended March 31, 2011 and 2010
respectively, on its hedging activity relating to loan commitments and loans held-for-sale.
Additionally, the Company hedges the risk of overall changes in fair value of MSRs through the use
of various derivatives including purchase forward contracts on securities of Fannie Mae and Freddie
Mac and the purchase/sale of U.S. Treasury futures contracts and options on U.S. Treasury futures
contracts. These derivatives are accounted for as non-designated hedges against changes in the
fair value of MSRs. The Company recognized a loss of $(8.4) million and a gain of $29.7 million
for the three months ended March 31, 2011 and 2010
respectively, on MSR fair value hedging activities.
36
The Company occasionally uses interest rate swap agreements to reduce its exposure to interest
rate risk inherent in a portion of the current and anticipated borrowings and advances. A swap
agreement is a contract between two parties to exchange cash flows based on specified underlying
notional amounts and indices. Under U.S. GAAP, the swap agreements used to hedge the Companys
anticipated borrowings and advances qualify as cash flow hedges. Derivative gains and losses
reclassed from accumulated other comprehensive (loss) income to current period operations are
included in the line item in which the hedge cash flows are recorded. For the three month periods
ended March 31, 2011 and 2010, the Company derecognized cash flow hedges.
The Company had the following derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
|
Fair Value |
|
|
Expiration Dates |
|
|
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments |
|
$ |
1,716,926 |
|
|
$ |
13,780 |
|
|
|
2012 |
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency futures |
|
|
2,605,000 |
|
|
|
13,841 |
|
|
|
2012 |
|
|
|
|
|
|
|
|
Total derivative assets |
|
$ |
4,321,926 |
|
|
$ |
27,621 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Forward agency and loan sales |
|
$ |
3,120,296 |
|
|
$ |
4,541 |
|
|
|
2012 |
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
$ |
3,120,296 |
|
|
$ |
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments |
|
$ |
1,721,739 |
|
|
$ |
14,396 |
|
|
|
2011 |
|
Forward agency and loan sales |
|
|
3,942,673 |
|
|
|
35,820 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
Total derivative assets |
|
$ |
5,664,412 |
|
|
$ |
50,216 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency futures |
|
$ |
2,770,000 |
|
|
$ |
9,088 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
$ |
2,770,000 |
|
|
$ |
9,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Asset derivatives are included in other assets on the Consolidated Statements of
Financial Condition. |
|
(2) |
|
Liability derivatives are included in other liabilities on the Consolidated
Statement of Financial Condition. |
Counterparty credit risk. The Bank is exposed to credit loss in the event of
non-performance by the counterparties to its various derivative financial instruments. The Company
manages this risk by selecting only well-established, financially strong counterparties, spreading
the credit risk among such counterparties, and by placing contractual limits on the amount of
unsecured credit risk from any single counterparty.
Note 19 Segment Information
The Companys operations are generally conducted through two business segments: banking and
home lending. Each business operates under the same banking charter but is reported on a segmented
basis for this report. Each of the business lines is complementary to each other. The banking
operation includes the gathering of deposits and investing those deposits in duration-matched
assets primarily originated by the home lending operation. The banking group holds these loans in
the investment portfolio in order to earn income based on the difference or spread between the
interest earned on loans and the interest paid for deposits and other borrowed funds. The home
lending operation involves the origination, packaging, and sale of loans in order to receive
transaction income. The lending operation also services mortgage loans for others and sells MSRs
into the secondary market. Funding for the lending operation is provided by deposits and
borrowings garnered by the banking group. All of the non-bank consolidated subsidiaries are
included in the banking segment. No such subsidiary is material to the Companys overall
operations.
37
The following table presents financial information by business segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2011 |
|
|
|
Bank |
|
|
Home Lending |
|
|
|
|
|
|
|
|
|
Operations |
|
|
Operations |
|
|
Elimination |
|
|
Combined |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Net interest income (expense) |
|
$ |
51,880 |
|
|
$ |
(12,082 |
) |
|
$ |
|
|
|
$ |
39,798 |
|
Gain on sale revenue |
|
|
|
|
|
|
49,998 |
|
|
|
|
|
|
|
49,998 |
|
Other income |
|
|
14,628 |
|
|
|
31,640 |
|
|
|
|
|
|
|
46,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net interest income and
non-interest
income |
|
|
66,508 |
|
|
|
69,556 |
|
|
|
|
|
|
|
136,064 |
|
Loss before federal income taxes |
|
|
(24,482 |
) |
|
|
(2,218 |
) |
|
|
|
|
|
|
(26,700 |
) |
Depreciation and amortization |
|
|
1,530 |
|
|
|
2,112 |
|
|
|
|
|
|
|
3,642 |
|
Capital expenditures |
|
|
99 |
|
|
|
4,944 |
|
|
|
|
|
|
|
5,043 |
|
Identifiable assets |
|
|
11,443,766 |
|
|
|
4,598,201 |
|
|
|
(3,025,000 |
) |
|
|
13,016,967 |
|
Inter-segment income (expense) |
|
|
22,688 |
|
|
|
(22,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2010 |
|
|
|
Bank |
|
|
Home Lending |
|
|
|
|
|
|
|
|
|
Operations |
|
|
Operations |
|
|
Elimination |
|
|
Combined |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Net interest income (expense) |
|
$ |
48,527 |
|
|
$ |
(10,844 |
) |
|
$ |
|
|
|
$ |
37,683 |
|
Gain on sale revenue |
|
|
2,166 |
|
|
|
47,041 |
|
|
|
|
|
|
|
49,207 |
|
Other income |
|
|
9,821 |
|
|
|
12,970 |
|
|
|
|
|
|
|
22,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net interest income and
non-interest
income |
|
|
60,514 |
|
|
|
49,167 |
|
|
|
|
|
|
|
109,681 |
|
Loss before federal income taxes |
|
|
(62,018 |
) |
|
|
(15,202 |
) |
|
|
|
|
|
|
(77,220 |
) |
Depreciation and amortization |
|
|
2,041 |
|
|
|
3,607 |
|
|
|
|
|
|
|
4,648 |
|
Capital expenditures |
|
|
39 |
|
|
|
2,783 |
|
|
|
|
|
|
|
2,822 |
|
Identifiable assets |
|
|
12,570,739 |
|
|
|
4,512,103 |
|
|
|
(2,750,000 |
) |
|
|
14,332,842 |
|
Inter-segment income (expense) |
|
|
20,625 |
|
|
|
(20,625 |
) |
|
|
|
|
|
|
|
|
Revenues are comprised of net interest income (before the provision for loan losses) and
non-interest income. Non-interest expenses are fully allocated to each business segment. The
intersegment income (expense) consists of interest expense incurred for intersegment borrowing.
Note 20 Compensation Plans
Stock-Based Compensation
For the three months ended March 30, 2011 and 2010, the Company recorded stock-based
compensation expense of $1.7 million and $3.8 million, respectively.
Incentive Compensation Plan
Each year the compensation committee of the Board of Directors decides which employees of the
Company, who are not executive officers, will be eligible to participate in the Incentive
Compensation Plan and the size of the bonus pool. The Company incurred expenses of $1.5 million for
the three months ended March 31, 2011. For the three months ended March 31, 2010, the Company
incurred expenses of $0.1 million, which were subsequently reversed during the second quarter of
2010.
38
Note 21 Legal Proceedings, Contingencies and Commitments
Legal Proceedings
The Company and certain subsidiaries are subject to various pending or threatened legal
proceedings arising out of the normal course of business or operations. Although there can be no
assurance as to the ultimate outcome, the Company, together with subsidiaries, believes it has
meritorious defenses to the claims asserted against it in its currently outstanding legal
proceedings, including the matters described below, and with respect to such legal proceedings,
intends to continue to defend itself vigorously, litigating or settling cases according to
managements judgment as to the best interests of the Company and its shareholders.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in
connection with pending or threatened legal proceedings utilizing the latest information available.
On a case-by-case basis, reserves are established for those legal claims as to which the Company
believes it is probable that a loss may be incurred and that the amount of such loss can be
reasonably estimated.
Resolution of legal claims are inherently dependent on the specific facts and circumstances of
each specific case, and therefore the actual costs of resolving these claims may be substantially
higher or lower than the amounts reserved. Based on current knowledge, and after consultation with
legal counsel, management believes that current reserves are adequate and the amount of any
incremental liability that may otherwise arise is not expected to have a material adverse effect on
the Companys consolidated financial condition or results of operations. Certain legal claims
considered by the Company in its analysis of the sufficiency of its related reserves include the
following:
In February 2010, the Company was named in a putative class action alleging that it violated
its fiduciary duty pursuant to the Employee Retirement Income Security Act (ERISA) to employees
who participated in the Companys 401(k) plan (Plan) by continuing to offer Company stock as an
investment option after investment in the stock allegedly ceased to be prudent. On July 16, 2010,
the Company moved to dismiss the complaint and asserted, among other things, that the Plans
investment in employer stock was protected by a presumption of prudence under ERISA, and that
plaintiffs allegations failed to overcome such presumption. The parties submitted relevant
materials to the court as of February 2, 2011, and on March 31, 2011, the court granted the
Companys motion and dismissed the case. The plaintiffs have filed a notice of appeal of the
courts decision.
In August 2010, the Bank was named in a collective action lawsuit alleging that it improperly
classified its mortgage underwriters as exempt employees under the Fair Labor Standards Act
(FLSA), and thereby failed to properly compensate them for overtime. Collective action
certification was agreed upon after certain categories of employees were excluded from the class.
A notice to employees to opt in to the collective action was distributed in mid-February, with a
response required within the subsequent 60-day period. A total of 54 plaintiffs opted in to the
collective action in addition to the named plaintiff. In April 2011, the parties agreed to settle
the matter for $250,000 inclusive of attorneys fees and costs, contingent upon there being 10 or
less plaintiffs that reject the settlement within 30 days of being notified of the terms.
From time to time, governmental agencies conduct investigations or examinations of various
mortgage related practices of the Bank. Currently, ongoing investigations relate to whether the
Bank violated laws or regulations relating to mortgage origination practices and to whether its
practices with regard to servicing residential first mortgage loans are adequate. The Bank is
cooperating with such agencies and providing information as requested. In addition, the Bank has
increasingly been named in civil actions throughout the country by borrowers and former borrowers
relating to the origination, purchase, sale and servicing of mortgage loans. In the normal course, the
Bank receives repurchase and indemnification demands from counterparties involved with the purchase
of residential first mortgages for alleged breaches of representations and warranties. The Bank
establishes a secondary marketing reserve in connection with the estimated potential liability for
such potential demands. During 2009 and 2010, the Bank also received repurchase demands that were outside of
the normal course from bond insurers with respect to HELOCs and second mortgages that were sold by
the Bank in connection with the non-agency securitization transactions that it sponsored in 2005,
2006 and 2007. The Bank has provided detailed rebuttals to these demands. Notwithstanding the
Banks rebuttals, in April 2011, Assured Guaranty Municipal
Corp., formerly known as Financial Security
Assurance Inc. (Assured), brought suit against the Bank and its affiliates for breach of contract,
reimbursement and indemnification with respect to the HELOC securitizations. The Bank intends to
vigorously defend itself against the suit brought by Assured as well as the pending demands or any
related claims of any other bond insurer with respect to the second mortgage securitizations.
When establishing a reserve for contingent liabilities, the Company determines a range of
potential losses for each matter that is both probable and estimable, and records the amount it
considers to be the best estimate within the range. As of March 31, 2011, such reserve was $0.1
million. In addition, within the secondary marketing reserve, the Bank includes loans sold to the
non-agency securitization trusts. There may be further losses that could arise but the occurrence
of which is not probable or reasonably estimable, and therefore such amounts are not required to be
recognized. The Company estimates that such further
losses could amount up to $30 million in the aggregate. Notwithstanding the foregoing, and
based upon information currently
39
available, advice of counsel, available insurance coverage and established reserves, the Company
believes that the eventual outcome of the actions against the Company and/or its subsidiaries,
including the matters described above, will not, individually or in the aggregate, have a material
adverse effect on the Companys consolidated financial position or results of operations. However,
in the event of unexpected future developments, it is possible that the ultimate resolution of
those matters, if unfavorable, may be material to the Companys Consolidated Financial Condition,
results of operations, or liquidity, for any particular period.
Contingencies and Commitments
A summary of the contractual amount of significant commitments is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Commitments to extend credit: |
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
1,717,000 |
|
|
$ |
1,722,000 |
|
HELOC trust commitments |
|
|
73,000 |
|
|
|
76,000 |
|
Standby and commercial letters of credit |
|
|
41,000 |
|
|
|
41,000 |
|
Commitments to extend credit are agreements to lend. Since many of these commitments expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash
flow requirements. Certain lending commitments for mortgage loans to be sold in the secondary
market are considered derivative instruments in accordance with accounting guidance ASC Topic 815,
Derivatives and Hedging. Changes to the fair value of these commitments as a result of changes
in interest rates are recorded on the Statements of Financial Condition as either an other asset or
other liability. The commitments related to mortgage loans are included in mortgage loans in the
above table.
The Company enters into forward contracts for the future delivery or purchase of agency and
loan sale contracts. These contracts are considered to be derivative instruments under U.S. GAAP.
Further discussion on derivative instruments is included in Note 19 Derivative Financial
Instruments.
The Company has unfunded commitments under its contractual arrangement with the HELOC
securitization trusts to fund future advances on the underlying home equity lines of credit. Refer
to further discussion of this issue as presented in Note 9 Private-label Securitization
Activity.
Standby and commercial letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. Standby letters of credit generally are contingent
upon the failure of the customer to perform according to the terms of the underlying contract with
the third party, while commercial letters of credit are issued specifically to facilitate commerce
and typically result in the commitment being drawn on when the underlying transaction is
consummated between the customer and the third party.
The credit risk associated with loan commitments, standby and commercial letters of credit is
essentially the same as that involved in extending loans to customers and is subject to normal
credit policies. Collateral may be obtained based on managements credit assessment of the
customer. The guarantee liability for standby and commercial letters of credit was $3.8 million at
both March 31, 2011 and December 31, 2010.
40
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Where we say we, us, or our, we usually mean Flagstar Bancorp, Inc. However, in some
cases, a reference to we, us, or our will include our wholly-owned subsidiary Flagstar Bank,
FSB, and Flagstar Capital Markets Corporation (FCMC), its wholly-owned subsidiary, which we
collectively refer to as the Bank.
General
We are a Michigan-based savings and loan holding company founded in 1993. Our business is
primarily conducted through our principal subsidiary, the Bank, a federally chartered stock savings
bank. At March 31, 2011, our total assets were $13.0 billion, making Flagstar the largest publicly
held savings bank in the Midwest and one of the top 15 largest savings banks in the United States.
We are considered a controlled company for New York Stock Exchange (NYSE) purposes because MP
Thrift Investments, L.P. (MP Thrift) held approximately 64.3 percent of our common stock as of
March 31, 2011.
As a savings and loan holding company, we are subject to regulation, examination and
supervision by the Office of Thrift Supervision (OTS) of the United States Department of the
Treasury (U.S. Treasury). We are a member of the Federal Home Loan Bank (FHLB) of Indianapolis
and are subject to regulation, examination and supervision by the OTS and the Federal Deposit
Insurance Corporation (FDIC). The Banks deposits are insured by the FDIC through the Deposit
Insurance Fund (DIF).
We operate 162 banking centers (of which 27 are located in retail stores), including 113
located in Michigan, 22 located in Indiana and 27 located in Georgia. Of these, 98 facilities are
owned and 64 facilities are leased. Through our banking centers, we gather deposits and offer a
line of consumer and commercial financial products and services to individuals and to small and
middle market businesses. We also gather deposits on a nationwide basis through our website,
FlagstarDirect.com, and provide deposit and cash management services to governmental units on a
relationship basis throughout our markets. We leverage our banking centers and internet banking to
cross-sell other products to existing customers and increase our customer base. At March 31, 2011,
we had a total of $7.7 billion in deposits, including $5.5 billion in retail deposits, $753.6
million in government funds, $812.5 million in wholesale deposits and $689.6 million in
company-controlled deposits.
We also operate 29 home loan centers located in 14 states, which originate one-to-four family
residential first mortgage loans as part of our retail home lending business. These offices employ
approximately 173 loan officers. We also originate retail loans through referrals from our 162
retail banking centers, consumer direct call center and our website, flagstar.com. Additionally,
we have wholesale relationships with almost 2,000 mortgage brokers and more than 1,100
correspondents, which are located in all 50 states and serviced by 133 account executives. The
combination of our retail, broker and correspondent channels gives us broad access to customers
across diverse geographies to originate, fulfill, sell and service our residential first mortgage
loan products. Our servicing activities primarily include collecting cash for principal, interest
and escrow payments from borrowers, and accounting for and remitting principal and interest
payments to investors and escrow payments to third parties. With approximately $4.9 billion in
mortgage originations in the first three months of 2011, we are ranked by industry sources as the
11th largest mortgage originator in the nation with a 1.5 percent market share.
The Bank is continuing its on-going strategic initiatives to increase commercial, specialty,
small business, and mortgage warehouse lending and to transform to a super community bank by
expanding the commercial banking division and by extending commercial lending to the New England
region. Management believes the expansion will allow the Bank to leverage its existing retail
banking network and banking franchise, and that the commercial and special lending businesses
should complement existing operations and contribute to the establishment of a diversified mix of
revenue streams.
Our earnings include net interest income from our retail banking activities, fee-based income
from services we provide customers, and non-interest income from sales of residential first
mortgage loans to the secondary market, the servicing of loans for others, and the sale of
servicing rights related to mortgage loans serviced for others. Approximately 99.4 percent of our
total loan origination during the three months ended March 31, 2011 represented mortgage loans that
were collateralized by residential first mortgages on single-family residences and were eligible
for sale through U.S. government-sponsored entities, or GSEs (a term generally used to refer
collectively or singularly to Fannie Mae, Freddie Mac and Ginnie Mae).
At March 31, 2011, we had 3,336 full-time equivalent salaried employees of which 306 were
account executives and loan officers.
Operating Segments
Our business is comprised of two operating segmentsbanking and home lending. Our banking
operation currently offers a line of consumer and commercial financial products and services to
individuals, small and middle market businesses and large corporate
borrowers. Our home lending operation originates,
acquires, sells and services mortgage loans on one-to-four family residences. Each operating
segment supports and complements the operations of the other, with funding for the home lending
operation primarily provided by deposits and borrowings obtained through the banking operation.
Financial information
41
regarding our two operating segments is set forth in Note 19 of the Notes to Consolidated Financial
Statements, in Item 1. Financial Statements and Supplementary Data. A discussion of our two
operating segments is set forth below.
Bank Operations
Our
deposit-related banking operation is composed of three delivery channels: Branch Banking, Internet Banking and
Government Banking.
|
|
|
Branch Banking consists of 162 banking centers located throughout Michigan and
also in Indiana (principally in the Indianapolis metropolitan area) and Georgia
(principally in the north Atlanta suburbs). |
|
|
|
|
Internet Banking is engaged in deposit gathering on a nationwide basis,
delivered primarily through FlagstarDirect.com. |
|
|
|
|
Government Banking is engaged in providing deposit and cash management services
to governmental units on a relationship basis throughout Michigan, Indiana and Georgia. |
In addition to deposits, our banking operation may borrow funds by obtaining advances from the
FHLB or other federally backed institutions or by entering into repurchase agreements with
correspondent banks using investments as collateral. Our banking operation may invest these funds
in a variety of consumer and commercial loan products.
Home Lending Operations
Our home lending operation originates, acquires, sells and services one-to-four family
residential first mortgage loans. The origination or acquisition of residential first mortgage
loans constitutes our most significant lending activity. At March 31, 2011, approximately 57.2
percent of interest-earning assets were held in residential first mortgage loans on single-family
residences.
During 2010 and continuing into 2011, we were one of the countrys leading mortgage loan
originators. Three production channels were utilized to originate or acquire mortgage
loansRetail, Broker and Correspondent. Each production channel produces similar mortgage loan
products and applies, in most instances, the same underwriting standards. We expect to continue to
leverage technology to streamline the mortgage origination process and bring service and
convenience to brokers and correspondents. Eight sales support offices were maintained that assist
brokers and correspondents nationwide. We also continue to make increasing use of the Internet as
a tool to facilitate the mortgage loan origination process through each of our production channels.
Brokers, correspondents and home loan centers are able to register and lock loans, check the
status of in-process inventory, deliver documents in electronic format, generate closing documents,
and request funds through the Internet. Virtually all mortgage loans that closed in 2011 used the
Internet in the completion of the mortgage origination or acquisition process.
|
|
|
Retail. In a retail transaction, loans are originated through a nationwide network of
stand-alone home loan centers, as well as referrals from 162 banking centers located in
Michigan, Indiana and Georgia and the national call center located in Troy, Michigan. When
loans are originated on a retail basis, the origination documentation is completed
inclusive of customer disclosures and other aspects of the lending process and funding of
the transaction is completed internally. At March 31, 2011, we maintained 29 home loan
centers and during the remainder of 2011 we expect to allocate additional, dedicated home
lending resources towards developing lending capabilities in 162 banking centers and the
consumer direct channel. At the same time, our centralized loan processing gained
efficiencies and allowed lending staff to focus on originations. Despite the reduction in
home loan centers, for the three months ended March 31, 2011 we closed $330.0 million of
loans utilizing this origination channel, which equaled 6.8 percent of total originations
as compared to $413.7 million or 9.6 percent of total originations for the same period in
2010. |
|
|
|
|
Broker. In a broker transaction, an unaffiliated mortgage brokerage company completes
the loan paperwork, but the loans are underwritten on a loan-level basis to our
underwriting standards and we supply the funding for the loan at closing (also known as
table funding) thereby becoming the lender of record. Currently, we have active broker
relationships with almost 2,000 mortgage brokerage companies located in all 50 states. For
the three months ended March 31, 2011, we closed $1.3 billion utilizing this origination
channel, which equaled 27.6 percent of total originations, as compared to $1.7 billion or
38.4 percent for the same period in 2010. |
|
|
|
|
Correspondent. In a correspondent transaction, an unaffiliated mortgage company
completes the loan paperwork and also supplies the funding for the loan at closing. After
the mortgage company has funded the transaction the loan is acquired, usually by us paying
the mortgage company a market price for the loan. Unlike several competitors, we do not
generally acquire loans in bulk amounts from correspondents but rather we acquire each
loan on a loan-level basis and each loan is required to be originated to our underwriting
guidelines. We have active correspondent relationships with over 1,100 companies,
including banks and mortgage companies, located in all 50 states. Over the years, we have
developed a competitive advantage as a warehouse lender, wherein lines of credit to
mortgage
|
42
|
|
|
companies are provided to fund loans. Warehouse lending is not only a profitable,
stand-alone business for the Company, but also provides valuable synergies within our
correspondent channel. In todays marketplace, there is
high demand for warehouse lending, but there are only a limited number of experienced
providers. We believe that offering warehouse lines has provided a competitive advantage in
the small to midsize correspondent channel and has helped grow and build the correspondent
business in a profitable manner. (For example, in for the three months period ended March
31, 2011, warehouse lines funded over 65 percent of the loans in our correspondent channel.)
We plan to continue to leverage warehouse lending as a customer retention and acquisition
tool throughout the remainder of 2011. For the three months ended March 31, 2011, we
closed $3.2 billion utilizing the correspondent origination channel, which equaled 65.6
percent of total originations compared to $2.2 billion or 52.0 percent originated for the
same period in 2010. |
Underwriting
During the three months ended March 31, 2011, we primarily originated residential first
mortgage loans for sale that conformed to the respective underwriting guidelines established by
Fannie Mae, Freddie Mac and Ginnie Mae (each an Agency or collectively the Agencies). We did
make available our first portfolio lending product options since 2008, however the volume was
minimal due to limited ramp up time. As a result virtually all of the loans placed in the
held-for-investment portfolio in the three months ended March 31, 2011 comprised either loans that
were repurchased or, on a very limited basis, loans that were originated to facilitate the sale of
our real estate owned (REO).
Residential first mortgage loans
At March 31, 2011, most of our held-for-investment
residential first mortgage loans represented loans that were originated in 2008 or prior years with
underwriting criteria that varied by product and with the standards in place at the time of
origination.
Set forth below is a table describing the characteristics of the residential first mortgage
loans in our held-for-investment portfolio at March 31, 2011, by year of origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Origination |
|
Prior |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
3,636,740 |
|
|
$ |
71,190 |
|
|
$ |
17,569 |
|
|
$ |
3,329 |
|
|
$ |
3,728,828 |
|
Average note rate |
|
|
4.69 |
% |
|
|
5.25 |
% |
|
|
5.30 |
% |
|
|
4.83 |
% |
|
|
4.70 |
% |
Average original FICO score |
|
|
715 |
|
|
|
704 |
|
|
|
717 |
|
|
|
737 |
|
|
|
714 |
|
Average original loan-to-value
ratio |
|
|
75.1 |
% |
|
|
84.3 |
% |
|
|
75.5 |
% |
|
|
72.6 |
% |
|
|
75.3 |
% |
Average original combined
loan-to-value ratio |
|
|
72.0 |
% |
|
|
81.8 |
% |
|
|
78.5 |
% |
|
|
74.4 |
% |
|
|
72.2 |
% |
Underwritten with low or stated income documentation |
|
|
38.0 |
% |
|
|
1.0 |
% |
|
|
6.0 |
% |
|
|
|
% |
|
|
37.0 |
% |
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
Residential first mortgage loans are underwritten on a loan-by-loan basis rather than on
a pool basis. Generally, residential first mortgage loans produced through our production channels
are reviewed by one of our in-house loan underwriters or by a contract underwriter employed by a
mortgage insurance company. However, a limited number of our correspondents have been delegated
underwriting authority but this has not comprised more than 13 percent of the loans originated in
any year. In all cases, loans must be underwritten to our underwriting standards. Any loan not
underwritten by our employees must be warranted by the underwriters employer, which may be a
mortgage insurance company or a correspondent mortgage company with delegated underwriting
authority. For further information, please refer to our Annual Report on Form 10-K for the year
ended December 31, 2010.
43
The following table identifies our held-for-investment mortgages by major category, at March
31, 2011. The housing price index (HPI) loan-to-value (LTV) is updated from the original LTV
based on Metropolitan Statistical Area-level Office of Federal Housing Enterprise Oversight data.
Loans categorized as subprime were initially originated for sale and comprised only 0.1 percent of
the portfolio of first liens.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Housing |
|
|
|
Unpaid Principal |
|
|
Average Note |
|
|
Average Original |
|
|
|
|
|
Average |
|
|
Price |
|
|
|
Balance(1) |
|
|
Rate |
|
|
FICO Score |
|
|
Average Original |
|
|
Maturity |
|
|
Index LTV |
|
|
|
(Dollars in thousands) |
|
Residential first mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1 ARM |
|
$ |
167,192 |
|
|
|
3.59 |
% |
|
|
681 |
|
|
|
72.8 |
% |
|
|
274 |
|
|
|
84.1 |
% |
5/1 ARM |
|
|
479,605 |
|
|
|
4.16 |
% |
|
|
715 |
|
|
|
66.7 |
% |
|
|
285 |
|
|
|
77.4 |
% |
7/1 ARM |
|
|
35,635 |
|
|
|
5.15 |
% |
|
|
726 |
|
|
|
65.3 |
% |
|
|
286 |
|
|
|
75.4 |
% |
Other ARM |
|
|
79,307 |
|
|
|
3.76 |
% |
|
|
672 |
|
|
|
73.2 |
% |
|
|
275 |
|
|
|
82.4 |
% |
Other amortizing |
|
|
856,236 |
|
|
|
5.77 |
% |
|
|
702 |
|
|
|
72.7 |
% |
|
|
282 |
|
|
|
89.7 |
% |
Interest only: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1 ARM |
|
|
237,412 |
|
|
|
3.69 |
% |
|
|
724 |
|
|
|
73.5 |
% |
|
|
278 |
|
|
|
86.4 |
% |
5/1 ARM |
|
|
1,148,653 |
|
|
|
4.12 |
% |
|
|
722 |
|
|
|
73.2 |
% |
|
|
285 |
|
|
|
87.0 |
% |
7/1 ARM |
|
|
92,610 |
|
|
|
6.26 |
% |
|
|
730 |
|
|
|
72.7 |
% |
|
|
315 |
|
|
|
95.6 |
% |
Other ARM |
|
|
48,626 |
|
|
|
3.51 |
% |
|
|
724 |
|
|
|
75.1 |
% |
|
|
276 |
|
|
|
92.9 |
% |
Other interest only |
|
|
490,984 |
|
|
|
5.32 |
% |
|
|
725 |
|
|
|
74.4 |
% |
|
|
281 |
|
|
|
99.6 |
% |
Option ARMs |
|
|
91,073 |
|
|
|
5.92 |
% |
|
|
721 |
|
|
|
76.0 |
% |
|
|
326 |
|
|
|
104.2 |
% |
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1 ARM |
|
|
50 |
|
|
|
10.30 |
% |
|
|
685 |
|
|
|
92.5 |
% |
|
|
295 |
|
|
|
74.6 |
% |
Other ARM |
|
|
497 |
|
|
|
8.64 |
% |
|
|
596 |
|
|
|
89.9 |
% |
|
|
311 |
|
|
|
108.3 |
% |
Other subprime |
|
|
948 |
|
|
|
6.27 |
% |
|
|
576 |
|
|
|
84.6 |
% |
|
|
310 |
|
|
|
113.8 |
% |
|
|
|
Total residential first
mortgage loans |
|
$ |
3,728,828 |
|
|
|
4.70 |
% |
|
|
714 |
|
|
|
72.4 |
% |
|
|
284 |
|
|
|
88.4 |
% |
Second mortgage loans |
|
$ |
165,113 |
|
|
|
8.23 |
% |
|
|
734 |
|
|
|
18.5 |
%(2) |
|
|
139 |
|
|
|
23.1 |
%(3) |
HELOC loans |
|
$ |
240,064 |
|
|
|
5.27 |
% |
|
|
733 |
|
|
|
21.7 |
%(2) |
|
|
59 |
|
|
|
27.0 |
%(3) |
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts |
|
(2) |
|
Reflects LTV because these are second liens. |
|
(3) |
|
Does not reflect any residential first mortgages that may be outstanding. Instead,
incorporates current loan balance as a portion of current HPI
value. |
44
The following table sets forth characteristics of those loans in our held-for-investment
mortgage portfolio as of March 31, 2011 that were originated with less documentation than is
currently required. Loans as to which underwriting information was accepted from a borrower
without validating that particular item of information are referred to as low doc or stated.
Substantially all of those loans were underwritten with verification of employment but with the
related job income or personal assets, or both, stated by the borrower without verification of
actual amount. Those loans may have additional elements of risk because information provided by
the borrower in connection with the loan was limited. Loans as to which underwriting information
was supported by third party documentation or procedures are referred to as full doc and the
information therein is referred to as verified. Also set forth are different types of loans that
may have a higher risk of non-collection than other loans.
|
|
|
|
|
|
|
|
|
|
|
Low Doc |
|
|
|
% of |
|
|
|
|
|
|
Held-for-Investment |
|
|
Unpaid Principal |
|
|
|
Portfolio |
|
|
Balance (1) |
|
|
|
(Dollars in thousands) |
|
Characteristics: |
|
|
|
|
|
|
|
|
SISA (stated income, stated asset) |
|
|
2.30 |
% |
|
$ |
131,946 |
|
SIVA (stated income, verified assets) |
|
|
16.27 |
% |
|
$ |
934,460 |
|
High LTV (i.e., at or above 95%) |
|
|
0.13 |
% |
|
$ |
7,694 |
|
Second lien products (HELOCs, Second mortgages) |
|
|
2.15 |
% |
|
$ |
123,228 |
|
Loan types: |
|
|
|
|
|
|
|
|
Option ARM loans |
|
|
1.03 |
% |
|
$ |
58,985 |
|
Interest-only loans |
|
|
15.68 |
% |
|
$ |
900,328 |
|
Subprime (2) |
|
|
0.01 |
% |
|
$ |
373 |
|
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
|
(2) |
|
Includes loans with a FICO score of less than 620. |
Adjustable rate mortgages loans. Adjustable Rate Mortgages (ARM) loans
held-for-investment were originated using Fannie Mae and Freddie Mac guidelines as a base
framework, and the debt-to-income ratio guidelines and documentation typically followed the AUS
guidelines. Our underwriting guidelines were designed with the intent to minimize layered risk.
For more information, please refer to our Annual Report on Form 10-K for the year ended December
31, 2010.
At March 31, 2011, we had $91.1 million of option power ARM loans in our held-for-investment
loan portfolio, and the amount of negative amortization reflected in the loan balances for the
three months ended March 31, 2011 was $7.7 million. The maximum balance that all option power ARMs
could reach cumulatively is $144.3 million.
Set forth below is a table describing the characteristics of our ARM loans in our
held-for-investment mortgage portfolio at March 31, 2011, by year of origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Origination |
|
Prior |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
2,362,761 |
|
|
$ |
9,806 |
|
|
$ |
4,763 |
|
|
$ |
3,329 |
|
|
$ |
2,380,659 |
|
Average note rate |
|
|
4.19 |
% |
|
|
5.18 |
% |
|
|
4.76 |
% |
|
|
4.83 |
% |
|
|
4.19 |
% |
Average original FICO score |
|
|
717 |
|
|
|
699 |
|
|
|
718 |
|
|
|
737 |
|
|
|
717 |
|
Average original loan-to-value
ratio |
|
|
74.9 |
% |
|
|
83.8 |
% |
|
|
70.5 |
% |
|
|
72.6 |
% |
|
|
74.9 |
% |
Average original combined
loan-to-value ratio |
|
|
71.6 |
% |
|
|
86.4 |
% |
|
|
73.2 |
% |
|
|
74.4 |
% |
|
|
71.7 |
% |
Underwritten with low or stated
income documentation |
|
|
36.0 |
% |
|
|
9.0 |
% |
|
|
21.0 |
% |
|
|
|
% |
|
|
36.0 |
% |
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
45
Set forth below is a table describing specific characteristics of option power ARMs in
our held-for-investment mortgage portfolio at March 31, 2011, which were originated in 2008 or
prior.
|
|
|
|
|
Year of Origination |
|
2008 and Prior |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
91,073 |
|
Average note rate |
|
|
5.92 |
% |
Average original FICO score |
|
|
721 |
|
Average original loan-to-value ratio |
|
|
70.0 |
% |
Average original combined loan-to-value ratio |
|
|
76.7 |
% |
Underwritten with low or stated income documentation |
|
$ |
58,985 |
|
Total principal balance with any accumulated negative amortization |
|
$ |
83,497 |
|
Percentage of total ARMS with any accumulated negative amortization |
|
|
3.5 |
% |
Amount of net negative amortization (i.e., deferred interest)
accumulated as interest income during the three months ended March
31, 2011 |
|
$ |
7,655 |
|
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
Set forth below are the accumulated amounts of interest income arising from the net
negative amortization portion of loans during the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Net Negative |
|
|
|
Unpaid Principal Balance of |
|
|
Amortization Accumulated as |
|
|
|
Loans in Negative Amortization |
|
|
Interest Income During |
|
|
|
At Period-End(1) |
|
|
Period |
|
|
|
(Dollars in thousands) |
|
2011 |
|
$ |
83,497 |
|
|
$ |
7,655 |
|
2010 |
|
$ |
259,833 |
|
|
$ |
16,046 |
|
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
Set forth below are the frequencies at which the ARM loans outstanding at March 31, 2011,
will reprice:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reset frequency |
|
# of Loans |
|
|
Balance |
|
|
% of the Total |
|
|
|
(Dollars in thousands) |
|
Monthly |
|
|
139 |
|
|
$ |
27,804 |
|
|
|
1.1 |
% |
Semi-annually |
|
|
1,066 |
|
|
|
416,891 |
|
|
|
17.5 |
% |
Annually |
|
|
7,115 |
|
|
|
1,722,645 |
|
|
|
72.4 |
% |
No reset non-performing loans |
|
|
799 |
|
|
|
213,319 |
|
|
|
9.0 |
% |
|
|
|
Total |
|
|
9,119 |
|
|
$ |
2,380,659 |
|
|
|
100.0 |
% |
|
|
|
Set forth below as of March 31, 2011, are the amounts of the ARM loans in our
held-for-investment loan portfolio with interest rate reset dates in the periods noted. As noted
in the above table, loans may reset more than once over a three-year period. Accordingly, the
table below may include the same loans in more than one period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
|
(Dollars in thousands) |
|
2011 |
|
$ |
120,068 |
|
|
$ |
245,128 |
|
|
$ |
475,058 |
|
|
$ |
313,025 |
|
2012 |
|
$ |
267,420 |
|
|
$ |
395,394 |
|
|
$ |
570,534 |
|
|
$ |
451,529 |
|
2013 |
|
$ |
402,344 |
|
|
$ |
474,554 |
|
|
$ |
644,141 |
|
|
$ |
464,900 |
|
Later years (1) |
|
$ |
440,801 |
|
|
$ |
528,399 |
|
|
$ |
733,888 |
|
|
$ |
503,273 |
|
|
|
|
(1) |
|
Later years reflect one reset period per loan. |
|
(2) |
|
Reflects loans that have reset through March 31, 2011. |
Interest only mortgage loans. Both adjustable and fixed term loans were offered with a
10 year interest only option. These loans were originated using Fannie Mae and Freddie Mac
guidelines as a base framework. We generally applied the debt to income ratio guidelines and
documentation using the AUS Approve/Reject response requirements. For more information, please
refer to our Annual Report on Form 10-K for the year ended December 31, 2010.
46
Set forth below is a table describing the characteristics of the interest-only mortgage loans
at the dates indicated in our held-for-investment mortgage portfolio at March 31, 2011, by year of
origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 and |
|
|
|
|
|
|
|
|
|
|
Year of Origination |
|
Prior |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
2,013,939 |
|
|
$ |
863 |
|
|
$ |
3,483 |
|
|
$ |
2,018,285 |
|
Average note rate (2) |
|
|
4.45 |
% |
|
|
4.78 |
% |
|
|
4.97 |
% |
|
|
4.45 |
% |
Average original FICO score |
|
|
723 |
|
|
|
693 |
|
|
|
730 |
|
|
|
723 |
|
Average original loan-to-value ratio |
|
|
74.3 |
% |
|
|
82.1 |
% |
|
|
64.4 |
% |
|
|
74.3 |
% |
Average original combined
loan-to-value ratio |
|
|
73.4 |
% |
|
|
68.1 |
% |
|
|
64.5 |
% |
|
|
73.4 |
% |
Underwritten with low or stated
Income documentation |
|
|
40.0 |
% |
|
|
|
% |
|
|
29.0 |
% |
|
|
40.0 |
% |
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
|
(2) |
|
As described earlier, interest only loans placed in portfolio in 2010 comprise loans that
were initially originated for sale. There are two loans in this population. |
Second mortgage loans. The majority of second mortgages we originated were closed in
conjunction with the closing of the residential first mortgages originated by us. We generally
required the same levels of documentation and ratios as with our residential first mortgages. For
second mortgages closed in conjunction with a residential first mortgage loan that was not being
originated by us, our allowable debt-to-income ratios for approval of the second mortgages were
capped at 40 percent to 45 percent. In the case of a loan closing in which full documentation was
required and the loan was being used to acquire the borrowers primary residence, we allowed a
combined loan-to-value (CLTV) ratio of up to 100 percent; for similar loans that also contained
higher risk elements, we limited the maximum CLTV to 90 percent. FICO floors ranged from 620 to
720, and fixed and adjustable rate loans were available with terms ranging from five to 20 years.
Set forth below is a table describing the characteristics of the second mortgage loans in our
held-for-investment portfolio at March 31, 2011, by year of origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Origination |
|
Prior to 2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
163,078 |
|
|
$ |
1,568 |
|
|
$ |
451 |
|
|
$ |
16 |
|
|
$ |
165,113 |
|
Average note rate |
|
|
8.24 |
% |
|
|
6.97 |
% |
|
|
6.89 |
% |
|
|
6.99 |
% |
|
|
8.23 |
% |
Average original FICO score |
|
|
734 |
|
|
|
714 |
|
|
|
698 |
|
|
|
639 |
|
|
|
734 |
|
Average original loan-to-value ratio |
|
|
20.0 |
% |
|
|
17.0 |
% |
|
|
13.6 |
% |
|
|
10.0 |
% |
|
|
19.9 |
% |
Average original combined
loan-to-value ratio |
|
|
87.2 |
% |
|
|
90.9 |
% |
|
|
75.0 |
% |
|
|
90.0 |
% |
|
|
87.2 |
% |
|
|
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
HELOC loans. The majority of home equity line of credit (HELOCs) were closed in
conjunction with the closing of related residential first mortgage loans originated and serviced by
us. Documentation requirements for HELOC applications were generally the same as those required of
borrowers for the residential first mortgage loans originated by us, and debt-to-income ratios were
capped at 50 percent. For HELOCs closed in conjunction with the closing of a residential first
mortgage loan that was not being originated by us, our debt-to-income ratio requirements were
capped at 40 percent to 45 percent and the LTV was capped at 80 percent. The qualifying payment
varied over time and included terms such as either 0.75 percent of the line amount or the interest
only payment due on the full line based on the current rate plus 0.5 percent. HELOCs were
available in conjunction with primary residence transactions that required full documentation, and
the borrower was allowed a CLTV ratio of up to 100 percent, for similar loans that also contained
higher risk elements, we limited the maximum CLTV to 90 percent. FICO floors ranged from 620 to
720. The HELOC terms called for monthly interest-only payments with a balloon principal payment
due at the end of 10 years. At times, initial teaser rates were offered for the first three
months.
47
Set forth below is a table describing the characteristics of the HELOCs in our
held-for-investment portfolio at March 31, 2011, by year of origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 and |
|
|
|
|
|
|
|
|
|
|
Year of Origination |
|
Prior |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Unpaid principal balance (1) |
|
$ |
239,295 |
|
|
$ |
753 |
|
|
$ |
16 |
|
|
$ |
240,064 |
|
Average note rate (2) |
|
|
5.27 |
% |
|
|
5.87 |
% |
|
|
6.50 |
% |
|
|
5.27 |
% |
Average original FICO score |
|
|
733 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
733 |
|
Average original loan-to-value ratio |
|
|
25.2 |
% |
|
|
25.1 |
% |
|
|
9.1 |
% |
|
|
25.2 |
% |
Average original combined loan-to-
value ratio |
|
|
72.6 |
% |
|
|
61.4 |
% |
|
|
68.1 |
% |
|
|
72.5 |
% |
|
|
|
N/A |
|
Not available |
|
(1) |
|
Unpaid principal balance does not include premiums or discounts. |
|
(2) |
|
Average note rate reflects the rate that is currently in effect. As these loans adjust on a
monthly basis, the average note rate could increase, but would not decrease, as in the current
market, the floor rate on virtually all of the loans is in effect. |
Commercial Loans
The following table identifies our commercial loan portfolio by major category and selected
criteria at March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
|
|
|
Principal |
|
|
Average |
|
|
Commercial Loans on |
|
|
|
Balance(1) |
|
|
Note Rate |
|
|
Non-accrual Status |
|
|
|
(Dollars in thousands) |
|
Commercial real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
874,940 |
|
|
|
6.42 |
% |
|
$ |
41,775 |
|
Adjustable rate |
|
|
297,845 |
|
|
|
6.55 |
% |
|
|
104,280 |
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate loans |
|
|
1,172,785 |
|
|
|
6.45 |
% |
|
$ |
146,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred fees and other |
|
|
(2,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate loans |
|
$ |
1,170,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
4,856 |
|
|
|
6.37 |
% |
|
$ |
3,282 |
|
Adjustable rate |
|
|
4,373 |
|
|
|
4.20 |
% |
|
|
1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and industrial loans |
|
$ |
9,229 |
|
|
|
4.76 |
% |
|
$ |
4,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred fees and other |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and industrial loans |
|
$ |
9,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial lease financing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
25,616 |
|
|
|
5.25 |
% |
|
|
|
|
Net deferred fees and other |
|
|
(478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial lease financing loans |
|
$ |
25,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable rate |
|
$ |
312,080 |
|
|
|
5.65 |
% |
|
|
|
|
Net deferred fees and other |
|
|
(8,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total warehouse lines of credit |
|
$ |
303,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unpaid principal balance does not include net deferred fees, premiums or discounts, and
other. |
Commercial real estate loans. Our commercial real estate loan portfolio is primarily
comprised of seasoned commercial real estate loans that are collateralized by real estate
properties intended to be income-producing in the normal course of business.
The primary factors considered in past commercial real estate credit approvals were the
financial strength of the borrower, assessment of the borrowers management capabilities, industry
sector trends, type of exposure, transaction structure, and the general economic outlook.
Commercial real estate loans were made on a secured, or in limited cases, on an unsecured basis,
with a vast majority also being enhanced by personal guarantees of the principals of the borrowing
business. Assets used as collateral for secured commercial real estate loans required an appraised
value sufficient to satisfy our loan-to-value ratio requirements. We also generally required a
minimum debt-service-coverage ratio, other than for development loans, and considered the
enforceability and collectability of any relevant guarantees and the quality of the collateral.
48
As a result of the steep decline in originations, the commercial real estate lending
division completed its transformation from a production orientation into one in which the focus is
on working out troubled loans, reducing classified assets and taking pro-active steps to prevent
deterioration in performing loans. Toward that end, commercial real estate loan officers were
largely replaced by experienced workout officers and relationship managers. A comprehensive
review, including customized workout plans, were prepared for all classified loans, and risk
assessments were prepared on a loan level basis for the entire commercial real estate portfolio.
At March 31, 2011, our commercial real estate loan portfolio totaled $1.2 billion, or 20.3
percent of our investment loan portfolio, and our commercial and industrial loan portfolio was $9.3
million, or 0.2 percent of our investment loan portfolio. At December 31, 2010, our commercial
real estate loan portfolio totaled $1.3 billion, or 19.8 percent of our investment loan portfolio,
and our commercial and industrial loan portfolio was $8.9 million, or 0.1 percent of our investment
loan portfolio. We did not originate any commercial real estate loans during the three months
ended March 31, 2011, compared to $0.8 million during the same period in 2010, primarily to
facilitate the sale of the property or restructure commercial real estate loans.
At March 31, 2011, our commercial real estate loans were geographically concentrated in a few
states, with approximately $618.6 million (52.8 percent) of all commercial loans located in
Michigan, $162.3 million (13.8 percent) located in Georgia and $143.9 million (12.3 percent)
located in California.
The average loan balance in our commercial real estate portfolio was approximately $1.4
million, with the largest loan being $41.3 million. There are approximately 30 loans with more
than $377.2 million of exposure, and those loans comprised approximately 31.2 percent of the
portfolio.
Commercial and industrial loans. The Bank recently commenced a series of initiatives to
increase commercial, specialty and small business by expanding the commercial banking division and
by extending commercial lending to the New England region. Management believes the expansion will
allow the Bank to leverage its existing retail banking network and banking franchise, and the
commercial and special lending businesses should complement existing operations and contribute to
the establishment of a diversified mix of revenue streams. In commercial lending, ongoing credit
management is dependent upon the type and nature of the loan. We monitor all significant exposures
on a regular basis. Internal risk ratings are assigned at the time of each loan approval and are
assessed and updated with each monitoring event. The frequency of the monitoring event is
dependent upon the size and complexity of the individual credit, but in no case less frequently
than every 12 months. Current commercial collateral values are updated more frequently if deemed
necessary as a result of impairments of specific loan or other credit or borrower specific issues.
We continually review and adjust our risk rating criteria and rating determination process based on
actual experience. This review and analysis process also contributes to the determination of an
appropriate allowance for loan loss amount for our commercial loan portfolio.
Commercial lease financing loans. Our commercial lease financing portfolio, which we refer to
as specialty lending, is comprised of equipment leased to customers in a direct financing lease.
The net investment in financing leases includes the aggregate amount of lease payments to be
received and the estimated residual values of the equipment, less unearned income. Income from
lease financing is recognized over the lives of the leases on an approximate level rate of return
on the unrecovered investment. The residual value represents the estimated fair value of the
leased asset at the end of the lease term. Unguaranteed residual values of leased assets are
reviewed at least annually for impairment. If any declines in residual values are determined to be
other-than-temporary they will be recognized in earnings in the period such determinations are
made. At March 31, 2011, our commercial lease financing loan portfolio was $25.1 million, or 0.4
percent of our investment loan portfolio.
Warehouse lending. We also continue to offer warehouse lines of credit to other mortgage
lenders. These commercial lines allow the lender to fund the closing of residential first mortgage
loans. Each extension or drawdown on the line is collateralized by the residential first mortgage
loan being funded, and in many cases, we subsequently acquire that loan. Underlying mortgage loans
must be originated based on our underwriting standards. These lines of credit are, in most cases,
personally guaranteed by one or more qualified principal officers of the borrower. The aggregate
amount of warehouse lines of credit granted to other mortgage lenders at March 31, 2011, was $1.6
billion, of which $303.4 million was outstanding, as compared to, $1.9 billion granted at December
31, 2010, of which $720.8 million was outstanding. The decrease is consistent with the 47.6
percent decrease in loan originations for the three months ended March 31, 2011, as compared to the
three months ended December 31, 2010. As of March 31, 2011 and December 31, 2010, our warehouse
lines funded over 65 percent of the loans in our correspondent channel. There were 279 warehouse
lines of credit to other mortgage lenders with an average size of $5.9 million at March 31, 2011,
compared to 289 warehouse lines of credit with an average size of $6.5 million at December 31,
2010.
49
Summary of Operations
Our net loss for the three months ended March 31, 2011 was $26.9 million (loss of $0.06 per
diluted share) represents a decrease from the loss of $77.2 million (loss of $1.05 per diluted
share) for the same period in 2010. The net loss during the three months ended March 31, 2011
compared to the same period in 2010 was affected by the following factors:
|
|
|
Higher net interest income due to decreasing interest rates on deposits and
FHLB advances; |
|
|
|
Provision for loan losses decreased by 55.5 percent from the first quarter
2010, to $28.3 million; |
|
|
|
Net servicing revenue increased 50.4 percent from the first quarter 2010, to
$39.3 million; |
|
|
|
Lower gain on loan sales due to decreased volume, a less favorable interest
rate environment and a decrease in overall gain on sale spread; and |
|
|
|
Other fees and charges decreased 40.6 percent from the first quarter 2010, to
$(13.3) million. |
See Results of Operations below.
Critical Accounting Policies
Various elements of our accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments. Certain accounting
policies that, due to the judgment, estimates and assumptions inherent in those policies, are
critical to an understanding of our consolidated financial statements. These policies relate to:
(a) fair value measurements; (b) the determination of our allowance for loan losses; and (c) the
determination of our secondary market reserve. We believe the judgment, estimates and assumptions
used in the preparation of our consolidated financial statements are appropriate given the factual
circumstances at the time. However, given the sensitivity of our consolidated financial statements
to these critical accounting policies, the use of other judgments, estimates and assumptions could
result in material differences in our results of operations and/or financial condition. For
further information on our critical accounting policies, please refer to our Annual Report on Form
10-K for the year ended December 31, 2010, which is available on our website, www.flagstar.com,
under the Investor Relations section, or on the website of the Securities and Exchange Commission
(SEC), at www.sec.gov.
50
Selected Financial Ratios (Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
Return on average assets |
|
|
(0.96 |
)% |
|
|
(2.38 |
)% |
Return on average equity |
|
|
(10.17 |
)% |
|
|
(41.02 |
)% |
Efficiency ratio |
|
|
98.8 |
% |
|
|
112.5 |
% |
Equity/assets ratio (average for the period) |
|
|
9.48 |
% |
|
|
5.80 |
% |
Mortgage loans originated or purchased |
|
$ |
4,856,384 |
|
|
$ |
4,330,388 |
|
Other loans originated or purchased |
|
$ |
31,464 |
|
|
$ |
6,823 |
|
Mortgage loans sold and securitized |
|
$ |
5,829,508 |
|
|
$ |
5,014,748 |
|
Interest rate spread bank only (1) |
|
|
1.79 |
% |
|
|
1.45 |
% |
Net interest margin bank only (2) |
|
|
1.68 |
% |
|
|
1.42 |
% |
Interest rate spread consolidated (1) |
|
|
1.78 |
% |
|
|
1.40 |
% |
Net interest margin consolidated (2) |
|
|
1.61 |
% |
|
|
1.29 |
% |
Average common shares outstanding (4) |
|
|
553,554,886 |
|
|
|
77,698,570 |
|
Average fully diluted shares outstanding (4) |
|
|
553,554,886 |
|
|
|
77,698,570 |
|
Charge-offs to average investment loans (annualized) |
|
|
2.14 |
% |
|
|
2.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
Equity-to-assets ratio |
|
|
9.50 |
% |
|
|
9.23 |
% |
|
|
7.71 |
% |
Core capital ratio(3) |
|
|
9.87 |
% |
|
|
9.61 |
% |
|
|
9.39 |
% |
Total risk-based capital ratio (3) |
|
|
20.51 |
% |
|
|
18.55 |
% |
|
|
17.98 |
% |
Book value per common share (4) |
|
$ |
1.78 |
|
|
$ |
1.83 |
|
|
$ |
5.85 |
|
Number of common shares outstanding (4) |
|
|
553,711,848 |
|
|
|
553,313,113 |
|
|
|
147,007,614 |
|
Mortgage loans serviced for others |
|
$ |
59,577,239 |
|
|
$ |
56,040,063 |
|
|
$ |
48,264,731 |
|
Capitalized value of mortgage servicing rights |
|
|
1.07 |
% |
|
|
1.04 |
% |
|
|
1.12 |
% |
Ratio of allowance to non-performing loans |
|
|
73.6 |
% |
|
|
86.1 |
% |
|
|
47.4 |
% |
Ratio of allowance to loans held for investment |
|
|
4.70 |
% |
|
|
4.35 |
% |
|
|
7.10 |
% |
Ratio of non-performing assets to total assets (bank only) |
|
|
4.26 |
% |
|
|
4.35 |
% |
|
|
9.30 |
% |
Number of bank branches |
|
|
162 |
|
|
|
162 |
|
|
|
162 |
|
Number of loan origination centers |
|
|
29 |
|
|
|
27 |
|
|
|
23 |
|
Number of employees (excluding loan officers and account
executives) |
|
|
3,030 |
|
|
|
3,001 |
|
|
|
2,927 |
|
Number of loan officers and account executives |
|
|
306 |
|
|
|
278 |
|
|
|
314 |
|
|
|
|
N/M Not meaningful |
|
(1) |
|
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. |
|
(2) |
|
Net interest margin is the annualized effect of the net interest income divided by that
periods average interest-earning assets. |
|
(3) |
|
Based on adjusted total assets for purposes of tangible capital and core capital, and
risk-weighted assets for purposes of risk-based capital and total risk
based capital. These ratios are applicable to the Bank only. |
|
(4) |
|
Restated for a 1-for-10 reverse stock split announced May 27, 2010 and completed on May
28, 2010. |
Results of Operations
Net loss applicable to common stockholders for the three months ended March 31, 2011 was $31.7
million, $(0.06) per share-diluted, a $50.2 million decrease from the loss of $81.9 million,
$(1.05) per share-diluted, reported in the comparable 2010 period. The overall decrease resulted
from a $24.3 million increase in non-interest income, a $35.3 million decrease in the provision for
loan losses and a $2.1 million increase in net interest income offset by an $11.1 million increase
in non-interest expense and $0.3 million increase in the provision for income taxes.
51
Net Interest Income
We recognized $39.8 million in net interest income for the three months ended March 31, 2011,
which represented an increase of 5.6 percent compared to $37.7 million reported for the same period
in 2010. Net interest income represented 29.2 percent of our total revenue in 2011 as compared to
34.4 percent in 2010.
Net interest income is primarily the dollar value of the average yield we earn on the average
balances of our interest-earning assets, less the dollar value of the average cost of funds we
incur on the average balances of our interest-bearing liabilities. For the three months ended
March 31, 2011, we had average interest-earning assets of $9.7 billion, as compared to $11.4
billion for the three months ended March 31, 2010. The decline in average interest-earning assets
reflects a $1.7 billion decline in average loans held-for-investment, as we continued to primarily
originate residential first mortgage loans held-for-sale rather than investment and a $0.5 billion
decrease in average available for sale or trading securities. These decreases were offset by an
increase of $0.4 billion in average interest-earning deposits, on which the Bank earns a minimal
interest rate (25 basis points), to $1.6 billion for the three months ended March 31, 2011,
compared to the three months ended March 31, 2010. The Banks increased interest-earning deposits
will allow the Bank to fund its on-going strategic initiatives to increase commercial, specialty,
small business, and mortgage warehouse lending. Average-interest bearing liabilities totaled $10.5
billion for the three months ended March 31, 2011, as compared to $11.7 billion for the three
months ended March 31, 201. The decline of $1.2 billion reflects a $0.8 billion decrease in average
deposits and a $0.4 billion decrease in average FHLB advances for the three months ended March 31,
2011, as compared to the three months ended March 31, 2010.
Interest income for the three months ended March 31, 2011 was $98.4 million, a decrease of
22.0 percent from the $126.2 million recorded in 2010. Interest expense for the three months ended
March 31, 2011 was $58.7 million, a 33.8 percent decrease as compared to $88.5 million for the
three months ended March 31, 2010. The average cost of interest-bearing liabilities decreased 78
basis points from 3.05 percent in 2010 to 2.27 percent in 2011, while the average yield on
interest-earning assets decreased 40 basis points (8.9 percent), from 4.45 percent in 2010 to 4.05
percent in 2011. As a result, our interest rate spread was 1.78 percent at March 31, 2011 as
compared to 1.40 percent at March 31, 2010.
Our consolidated net interest margin was positively impacted by the expansion of our interest
rate spread during the period and a $0.7 billion decrease in non-performing loans from $1.1 billion
at March 31, 2010, to $0.4 billion at March 31, 2011. The result was a net interest margin for
March 31, 2011 of 1.61 percent as compared to 1.29 percent at March 31, 2010. The Bank recorded a
net interest margin of 1.68 percent for the three months ended March 31, 2011, as compared to 1.42
percent for the three months ended March 31, 2010.
The following table presents interest income from average earning assets, expressed in dollars
and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and
rates. Interest income recorded on our loans is adjusted by the amortization of net premiums, net
deferred loan origination costs and the amount of negative amortization (i.e., capitalized
interest) arising from our option power ARM loans. These adjustments to interest income during the
three month period ended March 31, 2011 and 2010 were a net reduction of $0.8 million and $0.2
million, respectively. Non-accruing loans were included in the average loans outstanding.
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized |
|
|
|
|
|
|
|
|
|
|
Annualized |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
(Dollars in Thousands) |
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans available-for-sale |
|
$ |
1,683,814 |
|
|
$ |
18,694 |
|
|
|
4.44 |
% |
|
$ |
1,521,640 |
|
|
$ |
18,928 |
|
|
|
4.98 |
% |
Loans held-for-investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans (3) |
|
|
4,615,688 |
|
|
|
55,741 |
|
|
|
4.84 |
% |
|
|
5,884,871 |
|
|
|
72,303 |
|
|
|
4.91 |
% |
Commercial loans (3) |
|
|
1,228,478 |
|
|
|
14,905 |
|
|
|
4.85 |
% |
|
|
1,603,404 |
|
|
|
18,964 |
|
|
|
4.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-investment |
|
|
5,844,166 |
|
|
|
70,646 |
|
|
|
4.84 |
% |
|
|
7,488,275 |
|
|
|
91,267 |
|
|
|
4.88 |
% |
Securities classified as available-for-sale or
trading |
|
|
629,444 |
|
|
|
8,097 |
|
|
|
5.15 |
% |
|
|
1,137,521 |
|
|
|
15,367 |
|
|
|
5.43 |
% |
Interest-earning deposits and other |
|
|
1,570,231 |
|
|
|
968 |
|
|
|
0.25 |
% |
|
|
1,208,667 |
|
|
|
644 |
|
|
|
0.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
9,727,655 |
|
|
$ |
98,405 |
|
|
|
4.05 |
% |
|
|
11,364,244 |
|
|
$ |
126,206 |
|
|
|
4.45 |
% |
Other assets |
|
|
3,410,758 |
|
|
|
|
|
|
|
|
|
|
|
2,397,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,138,413 |
|
|
|
|
|
|
|
|
|
|
$ |
13,762,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
398,360 |
|
|
$ |
385 |
|
|
|
0.39 |
% |
|
$ |
370,016 |
|
|
$ |
512 |
|
|
|
0.56 |
% |
Savings deposits |
|
|
1,075,253 |
|
|
|
2,394 |
|
|
|
0.90 |
% |
|
|
688,978 |
|
|
|
1,420 |
|
|
|
0.84 |
% |
Money market deposits |
|
|
555,983 |
|
|
|
1,074 |
|
|
|
0.78 |
% |
|
|
581,848 |
|
|
|
1,271 |
|
|
|
0.89 |
% |
Certificates of deposit |
|
|
3,185,614 |
|
|
|
15,135 |
|
|
|
1.93 |
% |
|
|
3,390,755 |
|
|
|
24,779 |
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail deposits |
|
|
5,215,210 |
|
|
|
18,988 |
|
|
|
1.48 |
% |
|
|
5,031,597 |
|
|
|
27,982 |
|
|
|
2.26 |
% |
Demand deposits |
|
|
77,747 |
|
|
|
104 |
|
|
|
0.54 |
% |
|
|
291,901 |
|
|
|
273 |
|
|
|
0.38 |
% |
Savings deposits |
|
|
357,122 |
|
|
|
572 |
|
|
|
0.65 |
% |
|
|
77,233 |
|
|
|
92 |
|
|
|
0.48 |
% |
Certificates of deposit |
|
|
251,646 |
|
|
|
428 |
|
|
|
0.69 |
% |
|
|
273,685 |
|
|
|
513 |
|
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total government deposits |
|
|
686,515 |
|
|
|
1,104 |
|
|
|
0.65 |
% |
|
|
642,819 |
|
|
|
878 |
|
|
|
0.55 |
% |
Wholesale deposits |
|
|
841,073 |
|
|
|
6,929 |
|
|
|
3.34 |
% |
|
|
1,790,434 |
|
|
|
13,027 |
|
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
|
6,742,798 |
|
|
|
27,021 |
|
|
|
1.63 |
% |
|
|
7,464,850 |
|
|
|
41,887 |
|
|
|
2.28 |
% |
FHLB advances |
|
|
3,469,055 |
|
|
|
29,980 |
|
|
|
3.50 |
% |
|
|
3,900,000 |
|
|
|
41,788 |
|
|
|
4.35 |
% |
Security repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
108,000 |
|
|
|
1,153 |
|
|
|
4.33 |
% |
Other |
|
|
248,610 |
|
|
|
1,606 |
|
|
|
2.62 |
% |
|
|
300,182 |
|
|
|
3,695 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
10,460,463 |
|
|
|
58,607 |
|
|
|
2.27 |
% |
|
|
11,773,032 |
|
|
|
88,523 |
|
|
|
3.05 |
% |
Other liabilities |
|
|
1,432,721 |
|
|
|
|
|
|
|
|
|
|
|
1,190,566 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
1,245,229 |
|
|
|
|
|
|
|
|
|
|
|
798,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
13,138,413 |
|
|
|
|
|
|
|
|
|
|
$ |
13,762,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets |
|
$ |
(732,808 |
) |
|
|
|
|
|
|
|
|
|
$ |
(408,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
39,798 |
|
|
|
|
|
|
|
|
|
|
$ |
37,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (1) |
|
|
|
|
|
|
|
|
|
|
1.78 |
% |
|
|
|
|
|
|
|
|
|
|
1.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (2) |
|
|
|
|
|
|
|
|
|
|
1.61 |
% |
|
|
|
|
|
|
|
|
|
|
1.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to
interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
93.0 |
% |
|
|
|
|
|
|
|
|
|
|
97.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate spread is the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities. |
|
(2) |
|
Net interest margin is net interest income divided by average interest-earning assets. |
|
(3) |
|
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. |
53
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest
expense for the components of interest-earning assets and interest-bearing liabilities that are
presented in the preceding table. The table below distinguishes between the changes related to
average outstanding balances (changes in volume while holding the initial rate constant) and the
changes related to average interest rates (changes in average rates while holding the initial
balance constant). Changes attributable to both a change in volume and a change in rates were
included as changes in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
2011 Versus 2010 Increase |
|
|
|
|
|
|
|
(Decrease) Due to: |
|
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans available-for-sale |
|
$ |
(2,250 |
) |
|
$ |
2,016 |
|
|
$ |
(234 |
) |
Loans held-for-investment |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans(1) |
|
|
(832 |
) |
|
|
(15,730 |
) |
|
|
(16,562 |
) |
Commercial loans(1) |
|
|
375 |
|
|
|
(4,434 |
) |
|
|
(4,059 |
) |
|
|
|
Total loans held-for-investment |
|
|
(457 |
) |
|
|
(19,980 |
) |
|
|
(20,621 |
) |
Securities available-for-sale or trading |
|
|
(440 |
) |
|
|
(6,830 |
) |
|
|
(7,270 |
) |
Interest-earning deposits and other |
|
|
138 |
|
|
|
186 |
|
|
|
324 |
|
|
|
|
Total other interest-earning assets |
|
$ |
(3,009 |
) |
|
$ |
(24,792 |
) |
|
$ |
27,801 |
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
(169 |
) |
|
$ |
42 |
|
|
$ |
(127 |
) |
Savings deposits |
|
|
180 |
|
|
|
794 |
|
|
|
974 |
|
Money market deposits |
|
|
(143 |
) |
|
|
(54 |
) |
|
|
(197 |
) |
Certificates of deposit |
|
|
(8,257 |
) |
|
|
(1,387 |
) |
|
|
(9,644 |
) |
|
|
|
Total retail deposits |
|
|
(8,389 |
) |
|
|
(605 |
) |
|
|
(8,994 |
) |
Demand deposits |
|
|
32 |
|
|
|
(201 |
) |
|
|
(169 |
) |
Savings deposits |
|
|
150 |
|
|
|
330 |
|
|
|
480 |
|
Certificates of deposit |
|
|
(44 |
) |
|
|
(41 |
) |
|
|
(85 |
) |
|
|
|
Total government deposits |
|
|
138 |
|
|
|
88 |
|
|
|
226 |
|
Wholesale deposits |
|
|
821 |
|
|
|
(6,919 |
) |
|
|
(6,098 |
) |
|
|
|
Total deposits |
|
|
(7,430 |
) |
|
|
(7,436 |
) |
|
|
(14,866 |
) |
FHLB advances |
|
|
(7,291 |
) |
|
|
(4,517 |
) |
|
|
(11,808 |
) |
Security repurchase agreements |
|
|
|
|
|
|
(1,153 |
) |
|
|
(1,153 |
) |
Other |
|
|
(1,475 |
) |
|
|
(614 |
) |
|
|
(2,089 |
) |
|
|
|
Total interest-bearing liabilities |
|
|
(16,196 |
) |
|
|
(13,720 |
) |
|
|
(29,916 |
) |
|
|
|
Change in net interest income |
|
$ |
13,187 |
|
|
$ |
(11,072 |
) |
|
$ |
2,115 |
|
|
|
|
|
|
|
(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. |
Provision for Loan Losses
During the three months ended March 31, 2011, we recorded a provision for loan losses of $28.3
million as compared to $63.6 million recorded during the same period in 2010. The provisions
reflect our estimates to maintain the allowance for loan losses at a level to cover probable losses
inherent in the portfolio for each of the respective periods.
The decrease in the provision during the first quarter 2011, which decreased the allowance for
loan losses to $271.0 million at March 31, 2011 from $274.0 million at December 31, 2010, parallels
a decrease in net charge-offs both as a dollar amount and as a percentage of the loans
held-for-investment. Net charge-offs for three month period ended March 31, 2011 totaled $31.3
million as compared to $49.6 million in for the same period in 2010. The decline was primarily due
to residential first mortgage loans as a result of the non-performing loan sale in the fourth
quarter 2010. As a percentage of the average loans held-for-investment, net charge-offs for the
three month period ended March 31, 2011 decreased to 2.14 percent from 2.65 percent for the same
period in 2010. At the same time, overall loan delinquencies increased to 8.99 percent of total
loans held-for-investment at March 31, 2011 from 8.02 percent at December 31, 2010.
54
Loan delinquencies include all loans that were delinquent for at least 30 days under the OTS
Method. Total delinquent loans increased to $518.3 million at March 31, 2011, of which $368.2
million were over 90 days delinquent and non-accruing, as compared to $505.6 million at December 31, 2010, of which $318.4 million were over 90 days
delinquent and non-accruing. In the first quarter 2011, the increase in delinquencies primarily
impacted residential first mortgage loans as other categories of loans within the
held-for-investment portfolio showed improvement including commercial real estate, commercial and
industrial, second mortgage and HELOC loans. The overall delinquency rate on residential first
mortgage loans increased to 8.71 percent at March 31, 2011 from 6.81 percent at December 31, 2010.
The overall delinquency rate on commercial real estate loans decreased to 13.65 percent at March
31, 2011 from 16.85 percent at December 31, 2010, due in large part to the charge-down or movement
of impaired commercial real estate to REO.
See the section captioned Allowance for Loan Losses in this discussion for further analysis
of the provision for loan losses.
Non-Interest Income
The
following table sets forth the components of our non-interest income:
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Loan fees and charges |
|
$ |
16,138 |
|
|
$ |
16,329 |
|
Deposit fees and charges |
|
|
7,500 |
|
|
|
8,413 |
|
Loan administration |
|
|
39,336 |
|
|
|
26,150 |
|
Loss on trading securities |
|
|
(74 |
) |
|
|
(3,312 |
) |
Loss on residual and transferors interest |
|
|
(2,381 |
) |
|
|
(2,682 |
) |
Net gain on loan sales |
|
|
50,184 |
|
|
|
52,566 |
|
Net loss on sales of mortgage servicing rights |
|
|
(112 |
) |
|
|
(2,213 |
) |
Net gain on securities available-for-sale |
|
|
|
|
|
|
2,166 |
|
Net loss on sale of assets |
|
|
(1,036 |
) |
|
|
|
|
Total other-than-temporary impairment gain (loss) |
|
|
|
|
|
|
15,688 |
|
Gain (loss) recognized in other comprehensive income before taxes |
|
|
|
|
|
|
18,974 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
|
|
|
|
(3,286 |
) |
Other fees and charges |
|
|
(13,289 |
) |
|
|
(22,133 |
) |
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
96,266 |
|
|
$ |
71,998 |
|
|
|
|
|
|
|
|
Total non-interest income was $96.3 million during the three months ended March 31, 2011,
which was a 33.7 percent increase from $72.0 million of non-interest income in the comparable 2010
period. The increase during the three months ended March 31, 2011, was primarily due to an
increase in loan administration income and a decrease in other fees and charges.
Loan fees and charges. Our home lending operation and banking operation both earn loan
origination fees and collect other charges in connection with originating residential first
mortgages and other types of loans. For the three month period ended March 31, 2011, we recorded
loan fees and charges of $16.1 million, a decrease of $0.2 million from the $16.3 million recorded
for the comparable 2010 period. Loan origination fees are capitalized and added as an adjustment
to the basis of the individual loans originated. These fees are accreted into income as an
adjustment to the loan yield over the life of the loan or when the loan is sold. We account for
substantially all mortgage originations as available-for-sale using the fair value method and no
longer apply deferral of non-refundable fees and costs to those loans.
Deposit fees and charges. Our banking operation collects deposit fees and other charges such
as fees for non-sufficient funds checks, cashier check fees, ATM fees, overdraft protection, and
other account fees for services we provide to our banking customers. The amount of these fees
tends to increase as a function of the growth in our deposit base. Our total number of customer
checking accounts increased 13 percent from approximately 117,000 on March 31, 2010 to 132,000 as
of March 31, 2011. Total deposit fees and charges decreased 11 percent during the three month
period ended March 31, 2011 to $7.5 million compared to $8.4 million during the comparable 2010
period. Our non-sufficient funds fees decreased to $4.6 million during the three month period
ended March 31, 2011 from $5.6 million during the comparable 2010 period. The primary reason for
these decreases in deposit fees and charges was the result of changes to Regulation E, implemented
in the
55
third quarter 2010, requiring financial institutions to provide customers with the right to
opt-in to overdraft services for ATM and one-time, non-recurring debit card transactions. Debit
card fee income increased by 29 percent to $1.8 million during the three month period ended March
31, 2011 from $1.4 million in the comparable 2010 period. This is attributable to the 15 percent
increase in transaction volume from $80 million for the three months ended March 31, 2010 to $92
million during the three month period ended March 31, 2011. The Federal Reserve proposal regarding interchange fees
may negatively impact future debit card fee income.
Loan administration. When our home lending operation sells mortgage loans in the secondary
market, it usually retains the right to continue to service these loans and earn a servicing fee,
also referred to herein as loan administration income. Our MSRs are accounted for on the fair
value method. See Note 9 of the Notes to Consolidated Financial Statements, in Item 1. Financial
Statements herein.
The following table summarizes net loan administration income (loss):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Servicing income (loss) on other consumer mortgage servicing: |
|
|
|
|
|
|
|
|
Servicing fees, ancillary income and charges |
|
$ |
34 |
|
|
$ |
1,174 |
|
Amortization expense other consumer |
|
|
|
|
|
|
(418 |
) |
Impairment (loss) other consumer |
|
|
|
|
|
|
(176 |
) |
|
|
|
|
|
|
|
Total net loan administration income other consumer |
|
$ |
34 |
|
|
$ |
580 |
|
Servicing income (loss) on residential first mortgage servicing: |
|
|
|
|
|
|
|
|
Servicing fees, ancillary income and charges |
|
$ |
43,586 |
|
|
$ |
37,369 |
|
Fair value adjustments |
|
|
4,123 |
|
|
|
(41,471 |
) |
(Loss) gain on hedging activity |
|
|
(8,407 |
) |
|
|
29,672 |
|
|
|
|
|
|
|
|
Total net loan administration income residential (1) |
|
|
39,302 |
|
|
|
25,570 |
|
|
|
|
|
|
|
|
Total loan administration income |
|
$ |
39,336 |
|
|
$ |
26,150 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loan administration income does not reflect the impact of mortgage-backed
securities deployed as economic hedges of MSR assets. These positions, recorded
as securities trading, provided $0.1 million in losses in the three months
ended March 31, 2011, compared to $3.3 million in losses for the comparable 2010
period. These positions, which are on the balance sheet, also contributed $0.2
million in interest income for the three months ended March 31, 2011, as
compared to $2.1 million during the corresponding period of 2010. |
Loan administration income increased to $39.3 million for the three month period ended
March 31, 2011 from $26.2 million for the comparable 2010 period. Servicing fees, ancillary
income, and charges on our residential first mortgage servicing increased during the three months
ended March 31, 2011 compared to the same period in 2010, primarily attributable to an increase in
the average balance in the portfolio of loans serviced for others, slower than expected levels of
prepayments, and effective hedge performance. Hedge performance was driven in part by the
steepness of the yield curve and the resulting high level of carry on hedges as well as reduced
market volatility. The total unpaid principal balance of loans serviced for others was $59.6
billion at March 31, 2011, compared to $48.3 billion at March 31, 2010.
The loan administration income of $39.3 million does not include $0.1 million of losses in
mortgage-backed securities that were held as economic hedges of our MSR asset during the three
months ended March 31, 2011. These gains are required to be recorded separately as gains on
trading securities as a component of current period results of operations.
For consumer mortgage servicing, the decrease in the servicing fees, ancillary income and
charges for the three month period ended March 31, 2011 compared to 2010 was due to the transfer of
servicing to a third party servicer in the fourth quarter 2010. At March 31, 2011, the total
unpaid principal balance of consumer loans serviced for others was zero (due to the transfer of
such servicing pursuant to the applicable servicing agreements) compared to $0.9 billion serviced
at March 31, 2010.
Loss on trading securities. Securities classified as trading are comprised of U.S. Treasury
bonds and non-investment grade residual securities. U.S. Treasury bonds held in trading are
distinguished from available-for-sale based upon the intent of management to use them as an
economic hedge against changes in the valuation of the MSR portfolio, however, these do not qualify
as an accounting hedge as defined in current accounting guidance for derivatives and hedges.
For U.S. Treasury bonds held, we recorded a loss of $0.1 million for the three month period
ended March 31, 2011, all of which was related to an unrealized loss on agency mortgage-backed
securities held at March 31, 2011. For the same period in 2010, we recorded a loss of $3.3 million
of which $3.8 million was related to an unrealized loss on agency mortgage-backed securities held
at March 31, 2010.
56
Loss on residual interests and transferor interests. Losses on residual interests
classified as trading and transferors interest are a result of a reduction in the estimated fair
value of our beneficial interests resulting from private securitizations. The losses in the first
quarter 2011 and 2010 are primarily due to continued increases in expected credit losses on the
assets underlying the securitizations. For further information on the securitizations see Note 8
of the Notes to the Consolidated Financial Statements, in Item 1. Financial Statements herein.
We recognized a loss of $2.4 million for the three month period ended March 31, 2011, all of
which was related to a reduction in the transferors interest related to our HELOC securitizations.
We recognized a loss of $2.7 million for the three month period ended March 31, 2010, of which
$1.8 million was related to the reduction in the residual valuation and $0.9 million was related to
the reduction in the transferors interest. At March 31, 2011, our expected liability was $2.5
million.
Net gain on loan sales. Our home lending operation records the transaction fee income it
generates from the origination, securitization and sale of mortgage loans in the secondary market.
The amount of net gain on loan sales recognized is a function of the volume of mortgage loans
originated for sale and the fair value of these loans, net of related selling expenses. Net gain
on loan sales is increased or decreased by any mark to market pricing adjustments on loan
commitments and forward sales commitments, increases to the secondary market reserve related to
loans sold during the period, and related administrative expenses. The volatility in the gain on
sale spread is attributable to market pricing, which changes with demand and the general level of
interest rates. Historically, pricing competition on mortgage loans is lower in periods of low or
decreasing interest rates resulting in higher spreads on origination. Conversely, pricing
competition increases when interest rates rise thus decreasing spreads on origination and
compressing gain on sale. During 2010 and into 2011, the combination of a significant decline in
residential mortgage lenders and a significant shift in loan demand to Fannie Mae and Freddie Mac
conforming residential first mortgage loans and Federal Housing Administration insured loans
provided us with more favorable loan pricing opportunities for conventional residential mortgage
products.
The following table provides information on our net gain on loan sales reported in our
consolidated financial statements and loans sold within the period:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Net gain on loan sales |
|
$ |
50,185 |
|
|
$ |
52,566 |
|
|
|
|
Loans sold and securitized |
|
$ |
5,829,508 |
|
|
$ |
5,014,748 |
|
|
|
|
Spread achieved |
|
|
0.86 |
% |
|
|
1.05 |
% |
For the three month period ended March 31, 2011, net gain on loan sales decreased $2.4 million
to $50.2million from $52.6 million in the comparable 2010 period. First quarter 2011 included the
sale of $5.8 billion in loans compared to $5.0 billion sold in the first quarter 2010. Management
believes changes in market conditions during the 2010 and into the 2011 period resulted in
increased mortgage loan origination volume ($4.9 billion in the first quarter 2011 versus $4.3
billion in the first quarter 2010) and an overall decrease on sale spread (86 basis points in the
first quarter 2011 versus 105 basis points in the first quarter 2010).
Our calculation of net gain on loan sales reflects adoption of fair value accounting for the
majority of mortgage loans available-for-sale beginning January 1, 2009. The change of method was
made on a prospective basis; therefore, only mortgage loans available-for-sale that were originated
after 2009 have been affected. In addition, we also had changes in amounts related to derivatives,
lower of cost or market adjustments on loans transferred to held-for-investment and provisions to
secondary market reserve. Changes in amounts related to loan commitments and forward sales
commitments amounted to $41.0 million and $17.0 million for the three month period ended March 31,
2011 and 2010, respectively. Lower of cost or market adjustments amounted to less than $0.1
million and $0.1 million for the three month period ended March 31, 2011 and 2010, respectively.
Provisions to our secondary market reserve representing our initial estimate of losses on probable
mortgage repurchases amounted to $2.3 million and $7.1 million, for the three month period ended
March 31, 2011 and 2010, respectively. Also included in net gain on loan sales is the capitalized
value of our MSRs, which totaled $50.7 million and $48.3 million for the three month period, ended
March 31, 2011 and 2010, respectively.
Net loss on sales of mortgage servicing rights. As part of our business model, our home
lending operation occasionally sells MSRs in transactions separate from the sale of the underlying
loans. Because we carry most of our MSRs at fair value, we would not expect to realize significant
gains or losses at the time of the sale. Instead, our income or loss on changes in the valuation
of MSRs would be recorded through our loan administration income.
For the three month period ended March 31, 2011, we recorded a loss on sales of MSRs of $0.1
million compared to a $2.2 million loss recorded for the same period in 2010. During the three
month period ended March 31, 2011, we had no sales of servicing rights on a bulk basis and $0.4
billion on a servicing released basis. During the same period in 2010, we sold servicing rights
related to $10.8 billion of loans serviced for others on a bulk basis and $0.5 billion on a
servicing released basis.
57
Net gain on securities available-for-sale. Securities classified as available-for-sale are
comprised of U.S. government sponsored agency mortgage-backed securities and collateralized
mortgage obligations (CMOs).
Gains on the sale of U.S. government sponsored agency mortgage-backed securities
available-for-sale that are recently created with underlying mortgage products originated by the
Bank are reported within net gain on loan sales. Securities in this category have typically
remained in the portfolio less than 90 days before sale. During the three months ended March 31,
2011 and March 31, 2010, there were no sales of agency securities with underlying mortgage products
originated by the Bank.
Gain on sales for all other available-for-sale securities types are reported in net gain on
sale of available-for-sale securities. During the three month period ended March 31, 2011, there
were no sales in purchased U.S. government sponsored agency and non-U.S. government sponsored
agency securities available-for-sale. During the three months ended March 31, 2010, we sold $54.6
million in purchased U.S. government sponsored agency securities available-for-sale generating a
net gain on sale of available-for-sale securities of $2.2 million.
Net impairment loss recognized through earnings. In the three month period ended March 31,
2011, there were no additional credit losses on CMOs. At March 31, 2011, the cumulative amount of
OTTI due to credit losses totaled $36.0 million. In the three month period ended March 31, 2010,
additional OTTI due to credit losses on investments with existing OTTI credit losses totaled $3.3
million while no additional OTTI due to credit loss was recognized on securities that did not
already have such losses. All OTTI due to credit losses were recognized in current operations.
For further information on impairment losses, see Note 4 of the Notes to the Consolidated Financial
Statements, in Item 1. Financial Statements herein.
Other fees and charges. Other fees and charges include certain miscellaneous fees, including
dividends received on FHLB stock and income generated by our subsidiaries Flagstar Reinsurance
Company (FRC), Douglas Insurance Agency, Inc. and Paperless Office Solutions, Inc.
During the three months ended March 31, 2011, we recorded $2.2 million in dividends on an
average outstanding balance of FHLB stock of $337.2 million, as compared to $1.9 million in
dividends on an average balance of FHLB stock outstanding of $373.4 million for the comparable
period in 2010. During the three months ended March 31, 2011, FRC had no earned fees compared to
$0.5 million for the same period in 2010. During the third quarter 2010, FRC terminated its
reinsurance agreement with the last of the four mortgage insurance companies and as a result FRC
will no longer earn any fees. In addition, during the three month period ended March 31, 2011, we
recorded an expense of $20.4 million for the increase in our secondary market reserve due to our
change in estimate of expected losses from probable repurchase obligations related to loans sold in
prior periods, which decreased from the $26.8 million recorded in the comparable 2010 period.
Non-Interest Expense
The following table sets forth the components of our non-interest expense, along with the
allocation of expenses related to loan originations that are deferred pursuant to accounting
guidance for receivables, non-refundable fees and other costs. Mortgage loan fees and direct
origination costs (principally compensation and benefits) are capitalized as an adjustment to the
basis of the loans originated during the period and amortized to expense over the lives of the
respective loans rather than immediately expensed. Other expenses associated with loan
origination, however, are not required or allowed to be capitalized and are, therefore, expensed
when incurred. We account for substantially all of our mortgage loans available-for-sale using the
fair value method and, therefore, immediately recognize loan origination fees and direct
origination costs in the period incurred.
58
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Compensation and benefits |
|
$ |
55,741 |
|
|
$ |
53,931 |
|
Commissions |
|
|
7,570 |
|
|
|
7,150 |
|
Occupancy and equipment |
|
|
16,618 |
|
|
|
16,011 |
|
Asset resolution |
|
|
25,335 |
|
|
|
16,573 |
|
Federal insurance premiums |
|
|
8,725 |
|
|
|
10,047 |
|
Other taxes |
|
|
866 |
|
|
|
856 |
|
Warrant (income) expense |
|
|
(827 |
) |
|
|
1,227 |
|
General and administrative |
|
|
20,431 |
|
|
|
17,609 |
|
|
|
|
Total |
|
|
134,459 |
|
|
|
123,404 |
|
Less: capitalized direct costs of loan closings |
|
|
(3 |
) |
|
|
(62 |
) |
|
|
|
Total, net |
|
$ |
134,456 |
|
|
$ |
123,342 |
|
|
|
|
Efficiency ratio (1) |
|
|
98.8 |
% |
|
|
112.5 |
% |
|
|
|
|
|
|
(1) |
|
Total operating and administrative expenses divided by the sum of net interest income and
non-interest income. |
Non-interest expenses totaled $134.5 million during the three month period ended March
31, 2011 compared to $123.3 million in the comparable 2010 period. The 9.0 percent increase in
non-interest expense was largely due to an increase in asset resolution and general administration
expenses.
Compensation and benefits. Compensation and benefit expense totaled $55.7 million for the
three month period ended March 31, 2011 compared to $53.9 million in the comparable 2010 period.
The 3.3 percent increase in gross compensation and benefits expense is primarily attributable to an
increase in our salaried employees. Our full-time equivalent non-commissioned salaried employees
increased by 103 from March 31, 2011 to 3,030 at March 31, 2011.
Commissions. Commission expense, which is variable cost associated with loan origination,
totaled $7.6 million, equal to 16 basis points (0.16 percent) of total loan origination in 2011 as
compared to $7.2 million, equal to 17 basis points (0.17 percent) of total loan origination in the
comparable 2010 period. The 5.5 percent increase in commissions is primarily due to the 12.7
percent increase in loan origination. Loan origination increased to $4.9 billion for the three
months ended March 31, 2011 from $4.3 billion for the comparable period in 2010.
Asset resolution. Asset resolution expenses consist of foreclosure and other disposition and
carrying costs, loss provisions, gains and losses on the sale of REO properties that we have
obtained through foreclosure or other proceedings. Asset resolution expense increased $8.7 million
to $25.3 million, primarily due to an increase in our provision for REO loss, which increased from
$7.5 million to $18.5 million, an increase of $11.0 million, net of any gain on REO and recovery of
related debt which totaled $2.6 million.
Federal insurance premiums. Our FDIC insurance premiums were $8.7 million for the three
months ended March 31, 2011, as compared to $10.0 million for the same period in 2010. The $1.3
million decrease is largely due to a decrease in our asset base.
Warrant (income) expense. Warrant (income) expense decreased $2.0 million for the period
ended March 31, 2011, which resulted in income of $0.8 million as compared to an expense of $1.2
million during the same period in 2010. At March 31, 2010, the net total of warrants stood at 1.4
million shares and the valuation of the warrants increased to $6.3 million from $5.1 million at
December 31, 2009. In November of 2010, 5.5 million additional warrants were issued to certain
investors of the May 2008 private placement in full satisfaction of obligations under anti-dilution
provisions applicable to such investors. At March 31, 2011, total warrants stood at 6.9 million
and were fair valued at $8.5 million as compared to $9.3 million at December 31, 2010. The
decrease in warrant expense is attributable to the issuance of the additional warrants, offset by
the decline in the market price of our common stock since March 31, 2010.
General and administrative. General and administrative expense increased $2.8 million, to
$20.4 million for the three months ended March 31, 2011 from $7.6 million for the three months
ended March 31, 2010. The 15.9 percent increase was largely due to a $1.2 million increase in
residential loan expenses to $2.3 million, resulting from increased servicing-related expenses. In
addition, our outside consulting, audit and legal expenses increased 48.4 percent, an increase of
$1.5 million from $3.1 million for the three months ended March 31, 2010 to $4.6 million for the
three months ended March 31, 2011.
59
Provision (Benefit) for Federal Income Taxes
For the three month period ended March 31, 2011, our provision (benefit) for federal income
taxes as a percentage of pretax loss was one percent. For the comparable 2010 period, we recorded
no provision (benefit) for federal income taxes. For each period, the provision (benefit) for
federal income taxes varies from statutory rates primarily because of an addition to our valuation
allowance for net deferred tax assets.
We account for income taxes in accordance with ASC Topic 740, Income Taxes. Under this
pronouncement, deferred taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, a deferred tax asset is recorded for net operating loss
carry forwards and unused tax credits. Deferred tax assets and liabilities are measured using
enacted tax rates that will apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income or expense in the period that includes
the enactment date.
We periodically review the carrying amount of our deferred tax assets to determine if the
establishment of a valuation allowance is necessary. If based on the available evidence, it is
more likely than not that all or a portion of our deferred tax assets will not be realized in
future periods, a deferred tax valuation allowance would be established. Consideration is given to
all positive and negative evidence related to the realization of the deferred tax assets.
In evaluating this available evidence, we consider historical financial performance,
expectation of future earnings, the ability to carry back losses to recoup taxes previously paid,
length of statutory carry forward periods, experience with operating loss and tax credit carry
forwards not expiring unused, tax planning strategies and timing of reversals of temporary
differences. Significant judgment is required in assessing future earnings trends and the timing
of reversals of temporary differences. Our evaluation is based on current tax laws as well as our
expectations of future performance.
FASB ASC Topic 740 suggests that additional scrutiny should be given to deferred tax assets of
an entity with cumulative pre-tax losses during the three most recent years. This is widely
considered to be significant negative evidence that is objective and verifiable and, therefore,
difficult to overcome. We had such cumulative pre-tax losses in 2009 and 2010, and we considered
this evidence in our analysis of deferred tax assets. Additionally, based on the continued
economic uncertainty that persists at this time, we believe that it is probable that we will not
generate significant pre-tax income in the near term. As a result of these two significant facts,
we recorded a $340.3 million valuation allowance against deferred tax assets as of March 31, 2011.
See Note 14 of the Notes to the Consolidated Financial Statements, in Item 1. Financial Statements
herein.
Analysis of Items on Statements of Financial Condition
Assets
Interest-earning deposits. Interest-earning deposits, on which we earn a minimal interest rate
(25 basis points), increased $771.8 million to $1.7 billion at March 31, 2011. Management believes
the increase in interest-earning deposits should allow us to fund the on-going strategic
initiatives to increase commercial, specialty, small business, and mortgage warehouse lending.
Securities classified as trading. Securities classified as trading are comprised of U.S.
Treasury bonds and non-investment grade residual securities. Changes to the fair value of trading
securities are recorded in the Consolidated Statement of Operations. At March 31, 2011 there were
$160.7 million in U.S. Treasury bonds in trading as compared to $160.8 million in U.S. Treasury
bonds at December 31, 2010. U.S. Treasury bonds held in trading are used as an offset against
changes in the valuation of the MSR portfolio, however, these securities do not qualify as an
accounting hedge as defined in U.S. GAAP. See Note 4 of the Notes to the Consolidated Financial
Statements, in Item 1. Financial Statements herein.
Securities classified as available-for-sale. Securities classified as available-for-sale,
which are comprised of U.S. government sponsored agency mortgage-backed securities and CMOs,
decreased to $452.4 million at March 31, 2011, from $475.2 million at December 31, 2010. See Note
4 of the Notes to the Consolidated Financial Statements, in Item 1. Financial Statements herein.
Loans available-for-sale. A majority of our mortgage loans produced are sold into the
secondary market on a whole loan basis or by securitizing the loans into mortgage-backed
securities. At March 31, 2011, we held loans available-for-sale of $1.6 billion, which was a
decrease of $1.0 billion from $2.6 billion held at December 31, 2010. Loan origination is
typically inversely related to the level of long-term interest rates. As long-term rates decrease,
we tend to originate an increasing number of mortgage loans. A significant amount of the loan
origination activity during periods of falling interest rates is derived from refinancing of
existing mortgage loans. Conversely, during periods of increasing long-term rates loan
originations tend to decrease. The decrease in the balance of loans available-for-sale was
principally attributable to the timing of loan sales. With respect to such loans sold to Ginnie
Mae, a corresponding liability is included in other liabilities. During the three months
60
ended March 31, 2011, the Company sold $80.3 million of non-performing residential first mortgage loans
in the available-for-sale category at a sale price which approximated carrying value. For further
information on our loans available-for-sale, see Note 5 of the Notes to the Consolidated Financial
Statements, in Item 1. Financial Statements herein.
Loans held-for-investment. Our largest category of earning assets consists of loans
held-for-investment. Loans held-for-investment consist of residential first mortgage loans that
are not held for resale (usually shorter duration and adjustable rate loans and second mortgages),
other consumer loans, commercial real estate loans, construction loans, warehouse loans to other
mortgage lenders, and various types of commercial loans such as business lines of credit, working
capital loans and equipment loans and leases. Loans held-for-investment decreased from $6.3
billion at December 31, 2010, to $5.8 billion at March 31, 2011 primarily due to warehouse loans
decreasing 57.9 percent at March 31, 2011 compared to December 31, 2010, as a result of the lower
loan origination volume. Commercial real estate loans decreased $80.1 million to $1.2 billion,
residential first mortgage loans held-for-investment decreased $32.9 million to $3.8 billion,
consumer loans decreased $22.0 million to $336.0 million, and second mortgage loans decreased $9.6
million to $165.2 million, from December 31, 2010 to March 31, 2011. These portfolios continued to
decrease as we continued to primarily originate residential first mortgage loans for sale rather
than investment, these decreases were partially offset by an increase of $25.1 million in
commercial lease financing as we began to execute our on-going strategic initiatives mentioned
above. For information relating to the concentration of credit of our loans held for investment,
see Note 6 of the Notes to the Consolidated Financial Statements, in Item 1. Financial Statement
and Supplementary Data, herein.
Quality of Earning Assets
The following table sets forth certain information about our non-performing assets as of the end of each of the last five quarters.
NON-PERFORMING LOANS AND ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Non-performing loans |
|
$ |
368,152 |
|
|
$ |
318,416 |
|
|
$ |
911,372 |
|
|
$ |
1,013,828 |
|
|
$ |
1,136,205 |
|
Repurchased non-performing assets, net |
|
|
32,402 |
|
|
|
28,472 |
|
|
|
31,165 |
|
|
|
27,985 |
|
|
|
29,189 |
|
Real estate and other repossessed assets, net |
|
|
146,372 |
|
|
|
151,085 |
|
|
|
198,585 |
|
|
|
198,230 |
|
|
|
167,265 |
|
|
|
|
Non-performing assets held-for-investment, net |
|
|
546,926 |
|
|
|
497,973 |
|
|
|
1,141,122 |
|
|
|
1,240,043 |
|
|
|
1,332,659 |
|
|
|
|
Non-performing loans available-for-sale |
|
|
6,598 |
|
|
|
94,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets including loans
available-for-sale |
|
$ |
553,524 |
|
|
$ |
592,862 |
|
|
$ |
1,141,122 |
|
|
$ |
1,240,043 |
|
|
$ |
1,332,659 |
|
|
|
|
Ratio of non-performing assets to total assets |
|
|
4.26 |
% |
|
|
4.35 |
% |
|
|
8.25 |
% |
|
|
9.06 |
% |
|
|
9.30 |
% |
Ratio of non-performing loans held for
investment to loans held-for-investment |
|
|
6.39 |
% |
|
|
5.05 |
% |
|
|
12.46 |
% |
|
|
13.76 |
% |
|
|
14.99 |
% |
Ratio of allowance to non-performing loans held
for investment |
|
|
73.6 |
% |
|
|
86.1 |
% |
|
|
52.0 |
% |
|
|
52.3 |
% |
|
|
47.4 |
% |
Ratio of allowance to loans held-for-investment |
|
|
4.70 |
% |
|
|
4.35 |
% |
|
|
6.48 |
% |
|
|
7.20 |
% |
|
|
7.10 |
% |
Ratio of net charge-offs to average loans
held-for-
investment (1) |
|
|
0.54 |
% |
|
|
1.44 |
% |
|
|
1.48 |
% |
|
|
1.27 |
% |
|
|
0.66 |
% |
|
|
|
(1) |
|
Does not include non-performing loans available-for-sale. At December 31, 2010,
net charge off to average loans held-for-investment ratio was 6.26%, including the loss recorded on the non-performing loan sale. |
61
The following table provides the activity for non-performing commercial assets, which
includes commercial real estate and commercial and industrial loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Beginning balance |
|
$ |
253,934 |
|
|
$ |
327,311 |
|
|
$ |
440,948 |
|
Additions |
|
|
29,791 |
|
|
|
23,380 |
|
|
|
44,697 |
|
Returned to performing |
|
|
(14,973 |
) |
|
|
(11,606 |
) |
|
|
(8,812 |
) |
Principal payments |
|
|
(1,818 |
) |
|
|
(8,873 |
) |
|
|
(8,521 |
) |
Sales |
|
|
(4,243 |
) |
|
|
(21,058 |
) |
|
|
(8,629 |
) |
Charge-offs, net of recoveries |
|
|
(20,532 |
) |
|
|
(46,204 |
) |
|
|
(7,699 |
) |
Valuation write-downs |
|
|
(2,153 |
) |
|
|
(9,016 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
240,006 |
|
|
$ |
253,934 |
|
|
$ |
451,984 |
|
|
|
|
Delinquent loans held-for-investment. Loans are considered to be delinquent when any payment
of principal or interest is past due. While it is the goal of management to work out a
satisfactory repayment schedule or modification with a delinquent borrower, we will undertake
foreclosure proceedings if the delinquency is not satisfactorily resolved. Our procedures
regarding delinquent loans are designed to assist borrowers in meeting their contractual
obligations. We customarily mail several notices of past due payments to the borrower within 30
days after the due date and late charges are assessed in accordance with certain parameters. Our
collection department makes telephone or personal contact with borrowers after a 30-day
delinquency. In certain cases, we recommend that the borrower seek credit-counseling assistance
and may grant forbearance if it is determined that the borrower is likely to correct a loan
delinquency within a reasonable period of time. We cease the accrual of interest on loans that we
classify as non-performing because they are more than 90 days delinquent or earlier when concerns
exist as to the ultimate collection of principal or interest. Such interest is recognized as
income only when it is actually collected.
At March 31, 2011, we had $518.3 million loans held-for- investment that were determined to be
delinquent. Of those delinquent loans, $368.2 million of loans were non-performing
held-for-investment, of which $209.0 million, or 57.0 percent, were single-family residential first
mortgage loans. At December 31, 2010, $505.6 million in loans were determined to be delinquent, of
which $318.4 million of loans were non-performing, and of which $130.4 million, or 41.0 percent
were single-family residential first mortgage loans. At March 31, 2011, non-performing loans
available-for-sale totaled $6.6 million, compared to $94.9 million at December 31, 2010. The $88.3
million decrease from December 31, 2010 to March 31, 2011 in non-performing loans
available-for-sale, was primarily due to the sale of $80.3 million of non-performing residential
first mortgage loans at a sale price which approximated carrying value in the first quarter 2011.
Residential first mortgage loans. As of March 31, 2011, non-performing residential first
mortgages, including land lot loans, increased to $199.0 million, up $79.1 million or 66.0 percent,
from $119.9 million at December 31, 2010. Although our portfolio is diversified throughout the
United States, the largest concentrations of loans are in California, Florida and Michigan. Each
of those real estate markets has experienced steep declines in real estate values beginning in 2007
and continuing through 2010 and 2011. Net charge-offs within the residential first mortgage
portfolio totaled $2.1 million for the three months ended March 31, 2011 compared to $29.0 million
for the comparable period in 2010. This reduction in net charge-offs is due to the sale or
transfer to available-for-sale of substantially all of the non-performing residential first
mortgages in the fourth quarter of 2010. Management expects this reduction in net charge-offs to
continue for the remainder of 2011.
Commercial real estate loans. The commercial real estate portfolio experienced some
deterioration in credit beginning in mid-2007 primarily in the commercial land residential
development loans. Credit deterioration in this segment has slowed in 2010 and 2011.
Non-performing commercial real estate loans have decreased to 12.5 percent of the portfolio at
March 31, 2011 down from 14.1 percent as of December 31, 2010. Net charge-offs within the
commercial real estate portfolio totaled $18.6 million for the three months ended March 31, 2011 up
from $8.1 million for comparable period in 2010.
Loan modifications. We may modify certain loans to retain customers or to maximize collection
of the loan balance. We have maintained several programs designed to assist borrowers by extending
payment dates or reducing the borrowers contractual payments. All loan modifications are made on
a case by case basis. Loan modification programs for borrowers implemented have resulted in a
significant increase in restructured loans. These loans are classified as trouble debt
restructurings (TDRs) and are included in non-accrual loans if the loan was non-accruing prior to
the restructuring or if the payment amount increased significantly. These loans will continue on
non-accrual status until the borrower has established a willingness and ability to make the
restructured payments for at least six months.
62
The following table sets forth information regarding TDRs at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs |
|
|
|
|
|
|
Performing |
|
|
Non-performing |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Consumer loans (1) |
|
$ |
561,371 |
|
|
$ |
97,159 |
|
|
$ |
658,530 |
|
Commercial loans (2) |
|
|
27,226 |
|
|
|
53,965 |
|
|
|
81,191 |
|
|
|
|
|
|
$ |
588,597 |
|
|
$ |
151,124 |
|
|
$ |
739,721 |
|
|
|
|
|
|
|
(1) |
|
Consumer loans include: residential first mortgage, 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. |
The following table sets forth information regarding delinquent loans at the dates
listed. At March 31, 2011, 63.5 percent of all delinquent loans were loans in which we had
a first lien position on residential real estate.
DELINQUENT LOANS HELD-FOR-INVESTMENT
|
|
|
|
|
|
|
|
|
Days Delinquent |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
(Dollars in thousands) |
|
30 59 |
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
83,031 |
|
|
$ |
96,768 |
|
Second mortgage |
|
|
2,036 |
|
|
|
3,587 |
|
HELOC |
|
|
2,704 |
|
|
|
3,735 |
|
Other |
|
|
809 |
|
|
|
939 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
38 |
|
|
|
175 |
|
Commercial real estate |
|
|
5,514 |
|
|
|
28,245 |
|
|
|
|
Total 30- 59 days delinquent |
|
|
94,132 |
|
|
|
133,449 |
|
|
|
|
|
|
|
|
|
|
60 - 89 |
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
Residential first mortgage |
|
|
44,596 |
|
|
|
40,821 |
|
Second mortgage |
|
|
1,722 |
|
|
|
1,968 |
|
HELOC |
|
|
1,123 |
|
|
|
3,783 |
|
Other |
|
|
407 |
|
|
|
335 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
55 |
|
Commercial real estate |
|
|
8,189 |
|
|
|
6,783 |
|
|
|
|
Total 60- 89 days delinquent |
|
|
56,037 |
|
|
|
53,745 |
|
|
|
|
|
|
|
|
|
|
90 + |
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
Residential first mortgage |
|
|
199,033 |
|
|
|
119,903 |
|
Second mortgage |
|
|
8,339 |
|
|
|
7,480 |
|
HELOC |
|
|
7,104 |
|
|
|
6,713 |
|
Other |
|
|
2,773 |
|
|
|
3,843 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
4,897 |
|
|
|
4,918 |
|
Commercial real estate |
|
|
146,006 |
|
|
|
175,559 |
|
|
|
|
Total 90+ days delinquent |
|
|
368,152 |
|
|
|
318,416 |
|
|
|
|
Total delinquent loans |
|
$ |
518,321 |
|
|
$ |
505,610 |
|
|
|
|
63
We calculate our delinquent loans using a method required by the OTS when we prepare
regulatory reports that we submit to the OTS each quarter. This method, also called the OTS
Method, considers a loan to be delinquent if no payment is received after the first day of the
month following the month of the missed payment. Other companies with mortgage
banking operations similar to ours may use the Mortgage Bankers Association Method (MBA
Method) which considers a loan to be delinquent if payment is not received by the end of the month
of the missed payment. The key difference between the two methods is that a loan considered
delinquent under the MBA Method would not be considered delinquent under the OTS Method for
another 30 days. Under the MBA Method of calculating delinquent loans, 30 day delinquencies
equaled $164.2 million, 60 day delinquencies equaled $96.4 million and 90+ day delinquencies
equaled $415.6 million at March 31, 2011. Total delinquent loans under the MBA Method total $676.2
million or 12.5 percent of loans held-for-investment at March 31, 2011. By comparison, 30 day
delinquencies equaled $215.0 million, 60 day delinquencies equaled $111.4 million and 90+ day
delinquencies equaled $365.0 million at December 31, 2010 under the MBA Method and total delinquent
loans under the MBA Method were $691.4 million or 11.0 percent of loans held-for-investment at
December 31, 2010.
The following table sets forth information regarding non-performing loans as to which we have
ceased accruing interest:
NON-ACCRUAL LOANS HELD-FOR-INVESTMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of |
|
|
As a % of |
|
|
|
Investment |
|
|
Non- |
|
|
Loan |
|
|
Non- |
|
|
|
Loan |
|
|
Accrual |
|
|
Specified |
|
|
Accrual |
|
|
|
Portfolio |
|
|
Loans |
|
|
Portfolio |
|
|
Loans |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
3,751,772 |
|
|
$ |
197,871 |
|
|
|
5.3 |
% |
|
|
55.0 |
% |
Second mortgage |
|
|
165,161 |
|
|
|
8,339 |
|
|
|
5.0 |
|
|
|
2.3 |
|
Construction |
|
|
3,246 |
|
|
|
1,959 |
|
|
|
60.4 |
|
|
|
0.5 |
|
Warehouse lending |
|
|
303,785 |
|
|
|
28 |
|
|
|
0.0 |
|
|
|
0.1 |
|
HELOC |
|
|
255,012 |
|
|
|
6,928 |
|
|
|
2.7 |
|
|
|
1.9 |
|
Other consumer |
|
|
81,037 |
|
|
|
232 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Total consumer loans |
|
|
4,560,013 |
|
|
|
215,357 |
|
|
|
4.7 |
|
|
|
59.8 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,170,198 |
|
|
|
143,333 |
|
|
|
12.2 |
|
|
|
39.8 |
|
Commercial lease financing |
|
|
25,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
9,326 |
|
|
|
1,614 |
|
|
|
17.3 |
|
|
|
0.4 |
|
|
|
|
Total commercial loans |
|
|
1,204,662 |
|
|
|
144,947 |
|
|
|
12.0 |
|
|
|
40.2 |
|
|
|
|
Total loans |
|
|
5,764,675 |
|
|
$ |
360,304 |
|
|
|
6.3 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses |
|
|
(271,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held-for-investment, net |
|
$ |
5,493,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset sale. On November 15, 2010, we sold $474.0 million of non-performing
residential first mortgage loans and transferred $104.2 million of additional non-performing
residential first mortgage loans to the available-for-sale category. The sale and the adjustment to
market value on the transfer resulted in a $176.5 million loss which has been reflected as an
increase in the provision for loan losses. During the first quarter 2011, we sold $80.3
million of the $104.2 million non-performing residential first mortgage loans in the
available-for-sale category at a sale price which approximated carrying value.
Allowance for Loan Losses
The allowance for loan losses represents managements estimate of probable losses in our loans
held-for-investment portfolio as of the date of the Consolidated Financial Statements. The
allowance provides for probable losses that have been identified with specific customer
relationships and for probable losses believed to be inherent in the loan portfolio but that have
not been specifically identified.
We perform a detailed credit quality review at least annually on large commercial loans as
well as on selected other smaller balance commercial loans. Commercial and commercial real estate
loans that are determined to be substandard and certain delinquent residential first mortgage loans
that exceed $1.0 million are treated as impaired and are individually evaluated to determine the
necessity of a specific allowance. Accounting standards require a specific allowance to be
established as a component of the allowance for loan losses when it is probable all amounts due
will not be collected pursuant to the contractual terms of the loan and the recorded investment in
the loan exceeds its fair value. Fair value is measured using either the present value of the
expected future cash flows discounted at the loans effective interest rate, the observable market
64
price of the loan, or the fair value of the collateral if the loan is collateral dependent, reduced
by estimated disposal costs. In estimating the fair value of collateral, we utilize outside
fee-based appraisers to evaluate various factors such as occupancy and rental rates in our real
estate markets and the level of obsolescence that may exist on assets acquired from commercial
business loans.
A portion of the allowance is also allocated to the remaining classified commercial loans by
applying projected loss ratios, based on numerous factors identified below, to the loans within the
different risk ratings.
Additionally, management has sub-divided the homogeneous portfolios, including consumer and
residential first mortgage loans, into categories that have exhibited a greater loss exposure such
as delinquent and modified loans. The portion of the allowance allocated to other consumer and
residential mortgage loans is determined by applying projected loss ratios to various segments of
the loan portfolio. Projected loss ratios incorporate factors such as recent charge-off
experience, current economic conditions and trends, and trends with respect to past due and
non-accrual amounts.
Our assessments of loss exposure from the homogeneous risk pools discussed above are based
upon consideration of the historical loss rates associated with those pools of loans. Such loans
are included within residential first mortgage loans, as to which we establish a reserve based on a
number of factors, such as days past due, delinquency and severity rates in the portfolio,
loan-to-value ratios based on most recently available appraisals or broker price opinions, and
availability of mortgage insurance or government guarantees. The severity rates used in the
determination of the adequacy of the allowance for loan losses are indicative of, and thereby
inclusive of consideration of, declining collateral values.
As the process for determining the adequacy of the allowance requires subjective and complex
judgment by management about the effect of matters that are inherently uncertain, subsequent
evaluations of the loan portfolio, in light of the factors then prevailing, may result in
significant changes in the allowance for loan losses. In estimating the amount of credit losses
inherent in our loan portfolio various assumptions are made. For example, when assessing the
condition of the overall economic environment assumptions are made regarding current economic
trends and their impact on the loan portfolio. If the anticipated recovery is not as strong or
timely as managements expectations, it may affect the estimate of the allowance for loan losses.
For impaired loans that are collateral dependent, the estimated fair value of the collateral may
deviate significantly from the net proceeds received when the collateral is sold.
Management maintains an unallocated allowance to recognize the uncertainty and imprecision
underlying the process of estimating expected loan losses for the entire loan portfolio.
Determination of the probable losses inherent in the portfolio, which is not necessarily captured
by the allocation methodology discussed above, involves the exercise of judgment.
The allowance for loan losses decreased to $271.0 million at March 31, 2011 from $274.0
million at December 31, 2010. The allowance for loan losses as a percentage of non-performing
loans decreased to 73.6 percent from 86.1 percent at December 31, 2010. The allowance for loan
losses as a percentage of investment loans increased to 4.70 percent as of March 31, 2011 from 4.35
percent as of December 31, 2010.
65
The following tables set forth certain information regarding the allocation of our allowance
for loan losses to each loan category.
ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 |
|
|
|
|
|
|
Investment |
|
|
Percent |
|
|
|
|
|
|
Percentage to |
|
|
|
Loan |
|
|
of |
|
|
Allowance |
|
|
Total |
|
|
|
Portfolio |
|
|
Portfolio |
|
|
Amount |
|
|
Allowance |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgage |
|
$ |
3,751,772 |
|
|
|
65.0 |
% |
|
$ |
127,200 |
|
|
|
47.0 |
% |
Second mortgage |
|
|
165,161 |
|
|
|
2.9 |
|
|
|
22,095 |
|
|
|
8.2 |
|
Construction |
|
|
3,246 |
|
|
|
0.1 |
|
|
|
839 |
|
|
|
0.3 |
|
Warehouse lending |
|
|
303,785 |
|
|
|
5.3 |
|
|
|
2,016 |
|
|
|
0.7 |
|
HELOC |
|
|
255,012 |
|
|
|
4.4 |
|
|
|
16,889 |
|
|
|
6.2 |
|
Other |
|
|
81,037 |
|
|
|
1.4 |
|
|
|
2,479 |
|
|
|
0.9 |
|
|
|
|
Total consumer loans |
|
|
4,560,013 |
|
|
|
79.1 |
|
|
|
171,518 |
|
|
|
63.3 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,170,198 |
|
|
|
20.3 |
|
|
|
92,404 |
|
|
|
34.1 |
|
Commercial lease financing |
|
|
25,138 |
|
|
|
0.4 |
|
|
|
251 |
|
|
|
0.1 |
|
Commercial and industrial |
|
|
9,326 |
|
|
|
0.2 |
|
|
|
1,647 |
|
|
|
0.6 |
|
|
|
|
Total commercial loans |
|
|
1,204,662 |
|
|
|
20.9 |
|
|
|
94,302 |
|
|
|
34.8 |
|
|
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
5,180 |
|
|
|
1.9 |
|
|
|
|
Total consumer and commercial loans |
|
$ |
5,764,675 |
|
|
|
100.0 |
% |
|
$ |
271,000 |
|
|
|
100.0 |
% |
|
|
|
The allowance for loan losses is considered adequate based upon managements assessment of
relevant factors, including the types and amounts of non-performing loans, historical and current
loss experience on such types of loans, and the current economic environment.
The following table shows the activity in the allowance for loan losses during the indicated
periods:
ACTIVITY WITHIN THE ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of period |
|
$ |
274,000 |
|
|
$ |
524,000 |
|
Provision charged to operations |
|
|
28,309 |
|
|
|
63,559 |
|
Charge-offs |
|
|
(34,119 |
) |
|
|
(51,560 |
) |
Recoveries |
|
|
2,810 |
|
|
|
2,001 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
271,000 |
|
|
$ |
538,000 |
|
|
|
|
|
|
|
|
66
The following table sets forth information regarding non-performing loans (i.e., over 90
days delinquent loans) at March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Non-performing loans |
|
(Dollars in thousands) |
|
Loans secured by real estate |
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
Home loans secured by first lien |
|
$ |
199,033 |
|
|
$ |
119,903 |
|
Home loans secured by second lien |
|
|
8,339 |
|
|
|
7,480 |
|
Home equity lines of credit |
|
|
7,104 |
|
|
|
6,713 |
|
Construction residential |
|
|
2,467 |
|
|
|
3,021 |
|
Warehouse lending |
|
|
28 |
|
|
|
|
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
146,006 |
|
|
|
175,559 |
|
|
|
|
Total non-performing loans secured by real
estate |
|
|
362,977 |
|
|
|
312,676 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
Other consumer |
|
|
278 |
|
|
|
822 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
4,897 |
|
|
|
4,918 |
|
|
|
|
Total non-performing loans held in portfolio |
|
$ |
368,152 |
|
|
$ |
318,416 |
|
|
|
|
In response to increasing rates of delinquency and steeply declining market values, management
implemented a program to modify the terms of existing loans in an effort to mitigate losses and
keep borrowers in their homes. These modification programs began in the latter months of 2009 and
increased substantially in 2010 and 2011. As of March 31, 2011, we had $739.7 million in
restructured loans in the loans held for investment portfolio, of which $151.1 million were
included in non-performing loans.
Restructured loans by loan type are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
Restructured Loans |
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
Consumer loans: |
|
|
|
|
|
|
|
|
Residential first mortgage loans |
|
$ |
643,462 |
|
|
$ |
654,414 |
|
Second mortgage loans |
|
|
15,068 |
|
|
|
15,633 |
|
Commercial loans: |
|
|
|
|
|
|
|
|
Commercial real estate loans |
|
|
81,150 |
|
|
|
98,590 |
|
Commercial and industrial loans |
|
|
41 |
|
|
|
42 |
|
|
|
|
Total |
|
$ |
739,721 |
|
|
$ |
768,679 |
|
|
|
|
Accrued interest receivable. Accrued interest receivable decreased from $27.4 million at
December 31, 2010 to $24.6 million at March 31, 2011. Our total earning assets decreased $764.6
million to $9.4 billion at March 31, 2011 as compared to $10.1 billion at December 31, 2010. During
the first quarter 2011, $1.4 million of accrued interest on non-performing loans was charged off.
We typically collect interest in the month following the month in which it is earned.
Repossessed assets. Real property we acquire as a result of the foreclosure process is
classified as real estate owned until it is sold. It is transferred from the loans
held-for-investment portfolio at the lower of cost or market value, less disposal costs.
Management decides whether to rehabilitate the property or sell it as is and whether to list the
property with a broker. At March 31, 2011, repossessed assets totaled $146.4 million compared to
$151.1million at December 31, 2010. The decrease was the result of a $35.3 million decrease in the
disposals of repossessed assets to $29.7 million in the first quarter 2011, offset by an increase
of $7.5 million in the first quarter 2011 in new foreclosures, to $25.0 million during the three
month period ended March 31, 2011 as compared to $17.5 million during the three month period ended
December 31, 2010.
Recently, increased attention has been placed in the mortgage banking industrys documentation
and review associated with foreclosure processes. We believe our foreclosure processes follow
established safeguards, and we routinely review our policies and procedures to reconfirm the
foreclosure asset quality.
67
The following schedule provides the activity for repossessed assets during each of the past
five quarters:
Net Repossessed Asset Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Beginning balance |
|
$ |
151,085 |
|
|
$ |
198,585 |
|
|
$ |
198,230 |
|
|
$ |
167,265 |
|
|
$ |
176,968 |
|
Additions |
|
|
24,976 |
|
|
|
17,535 |
|
|
|
55,522 |
|
|
|
91,119 |
|
|
|
40,750 |
|
Disposals |
|
|
(29,689 |
) |
|
|
(65,035 |
) |
|
|
(55,167 |
) |
|
|
(60,154 |
) |
|
|
(50,453 |
) |
|
|
|
Ending balance |
|
$ |
146,372 |
|
|
$ |
151,085 |
|
|
$ |
198,585 |
|
|
$ |
198,230 |
|
|
$ |
167,265 |
|
|
|
|
FHLB stock. At March 31, 2011, holdings of FHLB stock remained unchanged from $337.2 at
December 31, 2010. Once purchased, FHLB shares must be held for five years before they can be
redeemed. As a member of the FHLB, we are required to hold shares of FHLB stock in an amount equal
to at least 1.0 percent of aggregate unpaid principal balance of our mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 5.0 percent of our FHLB
advances, whichever is greater.
Premises and equipment. Premises and equipment, net of accumulated depreciation, totaled
$233.6 million at March 31, 2011, an increase of $1.4 million, or 0.6 percent from $232.2 million
at December 31, 2010. Our investment in property and equipment decreased due to our decision to
limit branch expansion and the closure of a portion of our home lending centers.
Mortgage servicing rights. At March 31, 2011, MSRs included residential MSRs at fair value
amounting to $635.1 million. At December 31, 2010, residential MSRs amounted to $580.3 million.
During the three months ended March 31, 2011 and 2010, we recorded additions to our residential
MSRs of $50.7 million and $48.3 million, respectively, due to loan sales or securitizations. Also,
during the three months ended March 31, 2011, we reduced the amount of MSRs by $14.5 million
related to loans that paid off during the period, offset by an increase of $18.6 million related to
the realization of expected cash flows and market driven changes, primarily as a result of a
decrease in interest rate lock commitments, a decrease in loan originations and a decline in
margin. Consumer MSRs were eliminated during 2010 upon the transfer to a backup servicer pursuant
to the applicable servicing agreements. See Note 9 of the Notes to the Consolidated Financial
Statements, in Item 1. Financial Statements herein.
The principal balance of the loans underlying our total MSRs was $59.6 billion at March 31,
2011 compared to $56.0 billion at December 31, 2010, with the increase primarily attributable to
loan origination activity for 2011.
Government insured repurchased assets. Pursuant to Ginnie Mae servicing guidelines, we have
the unilateral option to repurchase certain loans securitized in Ginnie Mae pools, if the loans
meet certain delinquency criteria. As a result of this unilateral option, once the delinquency
criteria have been met, and regardless of whether the repurchase option has been exercised, we must
treat the loans as having been repurchased and recognize the assets on the Consolidated Statement
of Financial Condition and also recognize a corresponding deemed liability for a similar amount. If
the loans are actually repurchased, we eliminate the corresponding liability. At March 31, 2011,
the amount of such loans actually repurchased totaled $1.8 billion and were classified as
government insured repurchased assets, and those loans which we have not yet repurchased but had
the unilateral right to repurchase totaled $92.3 million and were classified as loans
available-for-sale. At December 31, 2010, the amount of such loans actually repurchased totaled
$1.7 billion and were classified as government insured repurchased assets, and those loans which we
have not yet repurchased but had the unilateral right to repurchase totaled $112.0 million and were
classified as loans available-for-sale. The government insured repurchased assets remained
relatively stable from December 31, 2010 to March 31, 2011.
Substantially all of these assets continue to be insured or guaranteed by Ginnie Mae and our
management believes that the reimbursement process is proceeding appropriat