Flagstar Bank, FSB
5151 Corporate Drive
Troy, Michigan 48098
As of December 31, 2011
Predictive Indicator neutral
Docket 08412

U.S. thrift institutions are chartered under either federal or state jurisdiction for the primary purpose of utilizing deposited funds to issue loans secured by real estate. Currently, real estate-backed loans account for approximately 61% of total thrift industry assets, and one-to-four family residential mortgages comprise nearly 80% of the industry's real estate loan portfolio. Thrift institutions are subject to credit, interest rate, and operational risk, and, through the last twenty years, thrifts have made great strides toward reducing historic mismatches between asset and liability maturities.

The Bankrate proprietary thrift institution rating model analyzes capitalization, asset quality, earnings, and liquidity to produce composite and component "Star" ratings that can be used as a measure of the rated entity's financial safety and soundness. Additionally, early warning components of the model highlight operating characteristics of immediate concern and recommended follow-up actions.


Institution Name Flagstar Bank, FSB
Report Date December 31, 2011
Star Composite Rating, Percentile Rank
1 star9.12
Predictive Indicator neutral
Earnings Rating, Percentile Rank
1 10.27
Asset Quality Rating, Percentile Rank
3 32.91
Capital Rating, Percentile Rank
2 20.06
Liquidity Rating, Percentile Rank
1 0.10
Institution Asset Size 13.6234 billion
Deposits 6.6734 billion
Loans 9.9801 billion
Equity 1.2917 billion
Net Profit/Loss -137,679.00 thousand

EARNINGS Highlights
Component Star Rating: 1

Bank profitability is critical to building capital, establishing adequate loss reserves, and providing dividends to shareholders.

Key Earnings information and ratios: Ratio (%)Assessment
Return on Equity -10.46Substantially Below Average
Net Interest Margin 2.30Substantially Below Average
Level of Non-interest Income (1) 3.96Solid
Overhead (1) 5.60Significantly Higher Than Average

(1) As a percentage of average assets.

Component Star Rating: 3

Asset quality is a major determinant of the viability of any financial intermediary. Poor asset quality will have a very direct impact upon the other components and thrift industry regulators invest substantial amounts of time and resources in gauging the quality of a regulated entity's loan portfolio.

Key Asset Quality information and ratios: Ratio (%)Assessment
Nonperforming Asset Ratio (2) 29.61Higher Than Standard
1-4 Family Mortgages/Loans 72.19Sizeable
Loan Yield 4.53Conservative
Asset Growth Rate -0.06Below Normal

(2) Nonperforming Assets/Equity plus Loss Reserves

CAPITAL Highlights
Component Star Rating: 2

Capitalization stands as a protection against loss for a thrift institution's customers, creditors, shareholders, and the Federal Deposit Insurance Corporation (FDIC). Regulators place a high degree of importance upon assessments of capitalization and assign regulatory benchmarks as determinants of capital adequacy.

Key measures of Capital Adequacy: Ratio (%)Assessment
Net Worth to Total Assets 9.48Significantly Below Norm
Regulatory Capital Ratio 17.07Substantially Exceeded Requirement

LIQUIDITY Highlights
Component Star Rating: 1

Liquidity provides funding for normal operations and represents a reserve for unanticipated disintermediation. Liquidity can be both an asset and a liability concept.
Key measures of Liquidity: Ratio (%)Assessment
Balance Sheet Liquidity (3) 7.66Substantially Below Normal
Purchased Liabilities (4) 47.47Possibly Undue Dependence

(3) Cash and Equivalents/Total Assets
(4) Jumbo CD's and Borrowings/Total Assets

Early Warning Highlights
Early warning indicators identify areas of potential concern, which may lead to financial deterioration and thus, require inquiry or in depth investigation.
For this thrift we have noted:

OVERVIEW of Institution
Flagstar Bank, FSB is a federally chartered thrift institution, which, as of December 31, 2011, reported $13.6234 billion in total assets. Mortgage loans and deposits held by the institution, at that date, amounted to $8.3005 billion and $6.6734 billion, respectively. December 31, 2011 net worth, the difference between total thrift assets and liabilities, was determined to have been $1.2917 billion, which was 9.48% of total assets.

Bankrate believes that, as of December 31, 2011, this thrift exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, satisfactory asset quality, below standard capitalization, and much lower than normal liquidity.

For the year ended December 31, 2011, the institution recorded a net loss of $-137,679.00 thousand, which represented a return on average assets (ROA) of -1.04%. Year earlier results amounted to a net loss of $-176,253.00 thousand, or a -2.54% annualized ROA. An ROA of at least 1.0% is deemed satisfactory in accordance with banking industry standards, and the industry's ROA for the year of 2011 was approximately 0.7%. We have concluded that, for the year of 2011, the institution achieved a substantially below average return on equity, and, as noted, sustained an actual loss for that one year period. We deem net interest margin to have been substantially below average, and the reported percentage should cause inquiry into balance sheet composition, asset yields, and liability costs. Noninterest income was solid We also observed overhead ratios that were significantly higher than average, and the composition of overhead should be thoroughly analyzed. Importantly, net interest margins, noninterest income components, and overhead expense levels represent operating factors that combine to impact overall operating results.

The institution revealed, as previously stated, satisfactory asset quality. Our conclusion with respect to asset quality incorporates our analysis of data depicting regional economic conditions as well as our computations of a higher than standard December 31, 2011 nonperformming asset ratio; very sizable holdings of one-to-four family mortgages; and apparently acceptable quality, or no greater than average holdings of commercial real estate and construction loans, two categories that have, in the past, produuced credit quality deterioration within the thrift industry and can intensify credit risk.

Consumer loans, which may carry more than usual default potential, should not have substantial negative impact upon future results.

Loan yield can measure financial reward versus credit risk. Excessive loan yield may be an indicator of existing or future problems. Our loan review indicates that the institution has assumed a conservative between credit risk and financial reward.

Our analytical methodology does take into account the quantity, quality, and durability of net worth, and, as set forth above, we have determined, based upon our series of tests, that the institution demonstrates below standard capitalization. We have calculated the bank's December 31, 2011 Total Risk-Based Capital position, a computation used by industry regulators, and have concluded that this thrift substantially exceeded the requirement, set by regulation, for this test. We believe, based upon our analysis, that the institution should consider plans for enhancing reported capitalization.

As of December 31, 2011, the institution displayed modest balance sheet liquidity and a possibly undue reliance upon wholesale, or non-core liabilities, which include all borrowings, such as Federal Home Loan Bank Advances, and uninsured CD's greater than $100,000. Accordingly, an inquiry into funds acquisition strategies should be undertaken.

Accounting principles require some securities to be categorized as "Available-for-Sale." Changes in market value of these securities are reflected through the GAAP (Generally Accepted Accounting Principles) net worth of the institution. Based upon the thrift's present balance sheet, changes in the value of the current level of securities reported as "Available-for-Sale" are almost certain to have a substantial impact upon future net worth of the bank.

This thrift has been rated significantly below average.
Negative factors that impacted that rating follow:
As noted previously, early warning indicators possibly requiring specific investigation include:

As stated, we have determined a Composite Star rating for this thrift institution of 1 star , indicative of a significantly below average financial condition. At times, financial conditions of thrifts change rapidly and significantly. Hence, our Safe & Sound Star ratings should not be deemed predictive of likely future ratings. However, in view of early warning indicators set forth within this report, in combination with the institution's financial data, we believe that the Star rating for this institution is unlikely to change within the ensuing twelve month period.