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(1)	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;

(2)	Competitive factors for loans could negatively impact gain on loan sale margins;

(3)	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;

(4)	Changes in the regulation of financial services companies and government-sponsored housing enterprises, and in particular, declines in the liquidity of the residential mortgage loan secondary market, could adversely affect our business;

(5)	Changes in regulatory capital requirements or an inability to achieve or maintain 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;

(6)	General business and economic conditions, including unemployment rates, movements in interest rates, the slope of the yield curve, any increase in fraud and other related 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;

(7)	Factors concerning the implementation of proposed refinements and transformation of our business model could result in slower implementation times than we anticipate and negate any competitive advantage that we may enjoy;

(8)	Actions of mortgage loan purchasers, guarantors and insurers regarding repurchases and indemnity demands and uncertainty related to foreclosure procedures could adversely affect our business activities and earnings;

(9)

The Dodd-Frank Wall Street Reform and Consumer Protection Act has resulted in the elimination of the Office of Thrift Supervision (the "OTS"), tightening of capital standards, and the creation of a new Consumer Financial Protection Bureau and has resulted, or will result, in new laws, regulations and regulatory supervisors that are expected to increase our costs of operations. In addition, the change to the Office of the Comptroller of the Currency (the "OCC") as our primary federal regulator may result in interpretations, or in OCC enforcement actions, different than those of the OTS and may affect our operations and our relationships with institutional counterparties;

(10)	Both the volume and the nature of consumer actions and other forms of litigation against financial institutions have increased and to the extent that such actions are brought against us or threatened, the cost of defending such suits as well as potential exposure could increase our costs of operations;

(11)	Our compliance with the terms and conditions of the agreement with the U.S. Department of Justice, the impact of performance and enforcement of commitments under, and provisions contained in the

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(12)	Our compliance with the terms and conditions of the Consent Order with the OCC;

(13)	The downgrade by Standards & Poor's of the long-term credit rating of the U.S. could materially affect global and domestic financial markets and economic conditions, which may affect our business activities, financial condition, and liquidity;

(14)	If we do not regain compliance with the New York Stock Exchange (“NYSE”) continued listing requirements, our common stock may be delisted from the NYSE (the stock price deficiency is deemed cured if it promptly exceeds $1.00 per share after October 11, 2012, the date of the reverse split, and remains above that level for at least the following 30 trading days); and

(15)	Our potential loss of key personnel or our inability to attract and retain qualified personnel in the future could affect our ability to operate effectively.

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(1)	The preferred stock dividend/accretion for the three and nine months ended September 30, 2012, respectively, represents only the accretion. On January 27, 2012, the Company elected to defer payment of dividends and interest on the preferred stock.

(2)	Restated for a one-for-ten reverse stock split announced September 27, 2012 and began trading on October 11, 2012.

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(1)	The preferred stock dividend/accretion during the nine months ended September 30, 2012 represents only the accretion. On January 27, 2012, the Company elected to defer payment of dividends and interest on the preferred stock.

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•

within 120 days of the date of the Consent Order, and at least annually thereafter, the Bank's board of directors shall review, revise, and forward to the OCC a written capital plan for the Bank covering at least a three-year period and establishing projections for the Bank's overall risk profile, earnings performance, growth expectations, balance sheet mix, off-balance sheet activities, liability and funding structure, capital and liquidity adequacy, as well as a contingency capital funding process and plan that identifies alternative capital sources should the primary sources not be available;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, adopt and forward to the OCC written policies and procedures for maintaining an adequate allowance for loan and lease losses in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”);

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, adopt and forward to the OCC written policies and procedures for maintaining an adequate representation and warranty reserve in accordance with U.S. GAAP;

•	within 60 days of the date of the Consent Order, the Bank's board of directors shall adopt and forward to the OCC a comprehensive written liquidity risk management policy that systematically requires the Bank to reduce liquidity risk;

•	within 60 days of the date of the Consent Order, the Bank's board of directors shall adopt, implement, and ensure Bank adherence to an independent, internal audit program covering all Bank operations and shall implement appropriate actions to remedy deficiencies cited in such audit reports;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall develop, adopt, and forward to the OCC a written enterprise risk management program that is designed to ensure that the Bank effectively identifies, monitors, and controls its enterprise-wide risks, including by developing risk limits for each line of business;

•

within 90 days of the date of the Consent Order, the Bank's board of directors shall adopt, implement, and ensure Bank adherence to an independent, ongoing loan review system to review the Bank's loan and lease portfolios, which system shall provide for the filing with the Bank's board of directors of internal loan and lease review reports and shall require the Bank's board of directors to review the reports and take immediate remedial action if appropriate;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall establish, adopt, and forward to the OCC written policies and procedures designed to identify, measure, monitor, and control risks associated with the Bank's credit concentrations;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, and ensure Bank adherence to the Bank's written Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) Risk Assessment to ensure BSA/AML risks posed to the Bank are accurately identified after consideration of all pertinent information;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, and ensure Bank adherence to the Bank's written program of policies and procedures adopted in accordance with the Bank Secrecy Act (“BSA”), which shall include the production of periodic reports designed to identify, monitor, and evaluate unusual or suspicious activity;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall update the status of its plan and timeline for the implementation of enhanced BSA/AML internal controls and shall forward a copy of the plan and timeline to the OCC;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, and ensure Bank adherence to its risk-based processes to obtain and analyze appropriate information from its customer due diligence program, both at the time of account opening and on an ongoing basis, in order to effectively monitor for, and investigate, suspicious or unusual activity;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall review, revise, and ensure Bank adherence to its BSA independent testing program;

•	within 90 days of the date of the Consent Order, the Bank's board of directors shall adopt and forward to the OCC a written program to improve the Bank's compliance management process, which the Bank's board of directors shall implement and ensure compliance with following the OCC's determination of non-objection;

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within 60 days of the date of the Consent Order, the Bank's board of directors shall adopt, implement, and ensure Bank adherence to (i) written Flood Disaster Protection Act (“FDPA”) policies and procedures detailing a coordinated program to ensure Bank compliance with the FDPA, and (ii) a comprehensive FDPA training program for all applicable lending staff to ensure awareness of their FDPA compliance responsibilities; and

•	within 180 days of the date of the Consent Order, the Bank's board of directors shall adopt and forward to the OCC a comprehensive written business continuity plan, which the Bank's board of directors shall implement and ensure compliance with following the OCC's determination of non-objection.

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•	U.S. government sponsored agencies are classified within Level 1 of the valuation hierarchy due to the quoted prices for these securities being available in an active market.

•	The quoted market prices are not available for municipal obligations and the fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows and those securities are classified within Level 2 of the valuation hierarchy.

•

Non-agency CMOs are classified within Level 2 of the valuation hierarchy and were previously classified within Level 3. Non-agency CMOs were transferred from Level 3 to Level 2 during the first quarter 2012 due to increased market liquidity and an increase in the number of available pricing models. The non-agency CMOs are valued based on pricing provided by external pricing services. Previously, the markets were illiquid and fair values were based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement, which was the reason for a Level 3 classification. As of September 30, 2012, the Company sold the remaining securities in non-agency collateralized mortgage obligation securities that were related to the investments arising out of strategies to fully utilize available balance sheet leverage capacity.

•	Due to illiquidity in the markets, the Company determined the fair value of the mortgage securitization, Flagstar Home Equity Loan Trust 2006-1 (“FSTAR 2006-1”) securitization trust, using a discounted estimated net future cash flow model and therefore classified it within the Level 3 valuation hierarchy as the model utilizes significant inputs which are unobservable.

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•	The Company generates positive income for a sustained period, such that part or all of the Deferred Tax Asset ("DTA"), which has been offset by a valuation allowance ("DTA Valuation Allowance"), is likely to be realized, as evidenced by the reversal of the DTA Valuation Allowance in accordance with U.S. GAAP;

•	The Company is able to include capital derived from the reversal of the DTA Valuation Allowance in the Bank's Tier 1 capital, which is the lesser of 10 percent of Tier 1 capital or the amount of the DTA that the Company expects to recover within one year based on financial projections;

•	The Company's obligation to repay the $266.7 million in preferred stock held by the U.S. Treasury under the TARP Capital Purchase Program has been either extinguished or excluded from Tier 1 capital for purposes of calculating the Tier 1 capital ratio as described in the paragraph below;

•

Upon the occurrence of each of the future events described above, and provided doing so would not violate any banking regulatory requirement or the OCC does not otherwise object, the Company will begin making Additional Payments provided that (i) each annual payment would be equal to the lesser of $25 million or the portion of the Additional Payments that remains outstanding after deducting prior payments; and (ii) no obligation arises until the Company's call report as filed with the OCC, including any amendments thereto, for the period ending at least six months prior to the making of such Additional Payments, reflects a minimum Tier 1 capital ratio of 11 percent (or higher if required by regulators), after excluding any unextinguished portion of the preferred stock held by U.S. Treasury under the TARP Capital Purchase Program; and

•	In no event will the Company be required to make an Additional Payment if doing so would violate any material banking regulatory requirement or the OCC (or any successor regulator under the safety and soundness program) objects in writing to the making of an Additional Payment.

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(1)	Does not include the $15.0 million payment required to be paid within 30 business days after the effective date of the DOJ Agreement, which was paid on April 3, 2012.

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(1)	Realized gains (losses), including unrealized losses deemed other-than-temporary and related to credit issues, are reported in non-interest income.

(2)

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 CMOs classified as available-for-sale are valued using internal valuation models and pricing information from third parties. Mortgage securitization is classified as available-for-sale is valued using a discounted estimated net future cash flow model.

(3)	Management had anticipated that the non-agency CMOs would be classified under Level 2 of the valuation hierarchy. However, due to illiquidity in the markets, the fair value of these securities has been determined using internal models and therefore is classified within Level 3 of the valuation hierarchy and pricing information from third parties.

(4)	Changes in the unrealized gains (losses) related to financial instruments held at the end of the period.

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(1)

The Company recorded $26.7 million and $116.6 million in fair value losses on impaired loans (included in provision for loan losses on the Consolidated Statements of Operations) during the three and nine months ended September 30, 2012, respectively, compared to $12.0 million and $41.8 million in fair value losses on impaired loans during the three and nine months ended September 30, 2011, respectively.

(2)

The Company recorded a gain of $(0.9) million and a loss of $8.9 million related to write-downs of repossessed assets based on the estimated fair value of the specific assets, and recognized net gains of $4.2 million and $7.3 million on sales of repossessed assets during the three and nine months ended September 30, 2012, respectively, compared to $5.5 million and $17.7 million in losses related to write-downs of repossessed assets based on the estimated fair value of the specific assets, and recognized net gains of $2.0 million and $2.7 million on sales of repossessed assets during the three and nine months ended September 30, 2011, respectively.

(3)	As of December 31, 2011, the Company reclassified impaired loans and repossessed assets from Level 2 to Level 3 to reflect that many of the appraised values, price opinions or internal estimates contain unobservable inputs.

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(1)	Remaining principal outstanding is not applicable to the litigation settlement because it does not obligate the Company to return a stated amount of principal at maturity, but instead return an amount based upon performance on the underlying terms in the Agreement.

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(1)	As of March 31, 2012, mortgage securitization (FSTAR 2006-1) available-for-sale security no longer represents 10.0 percent of the Company's stockholders' equity.

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(1)	Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

(2)	Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.

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(1)	The allowance for loan losses on consumer TDR loans totaled $138.1 million and $85.2 million at September 30, 2012 and December 31, 2011, respectively.

(2)	The allowance for loan losses on commercial TDR loans totaled $0.4 million and $32.2 million at September 30, 2012 and December 31, 2011, respectively.

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(1)	Post-modification balances include past due amounts that are capitalized at modification date.

(2)	Subsequent default is defined as a payment re-defaulted within 12 months of the restructuring date.

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(1)	These impaired loans are from originations prior to 2011.

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(1)	These impaired loans are from originations prior to 2011.

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In December 2005 and December 2006, the Company participated in non-agency HELOC securitizations (the "FSTAR 2005-1 HELOC Securitization" and the "FSTAR 2006-2 HELOC Securitization," respectively) in the amount of $600.0 million and $302.2 million, respectively. As a result of these securitizations, the Company recorded assets of $26.1 million and $11.2 million in residual interests, respectively. The offered securities in the two HELOC securitizations were both guaranteed by Assured Guaranty Municipal Corp., formerly known as Financial Security Assurance Inc. ("Assured").

•

In April 2006, the Company completed a $400.0 million non-agency securitization transaction involving fixed second mortgage loans that the Company held at the time in its investment portfolio. The transaction was treated as a recharacterization of loans held for investment to securities held to maturity and, therefore, no gain on sale was recorded. As of September 30, 2012, the Company still holds this mortgage securitization in available-for-sale investment securities. The offered securities in the this second mortgage loan securitization were guaranteed by MBIA Insurance Corporation.

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In addition, in March 2007, the Company completed a $620.9 million non-agency securitization transaction involving closed-ended, fixed and adjustable rate second mortgage loans and recorded $22.6 million in residual interests and servicing assets. In June 2007, the Company completed a secondary closing for $98.2 million and recorded an additional $4.2 million in residual interests. The offered securities in this second mortgage loan securitization were guaranteed by MBIA Insurance Corporation.

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(1)	Additional draws on lines of credit for which the Company receives a beneficial interest in the Trust.

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(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.

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(1)

The Company’s 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, the Company expects that the maturity dates of the FSTAR 2005-1 HELOC Securitization and the FSTAR 2006-2 HELOC Securitization pools will be reached in 2015 and 2017, respectively, and the Company’s exposure will be substantially mitigated at such times, based on prepayment speeds and losses in the cash flow forecast.

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(1)	Includes bulk sales related to underlying serviced loans totaling $1.2 billion and $3.6 billion for the three and nine months ended September 30, 2012, respectively, compared to $4.5 billion and $9.2 billion for the three and nine months ended September 30, 2011, respectively.

(2)	Represents decrease in MSR value associated with loans that were paid-off during the period.

(3)	Represents estimated MSR value change resulting primarily from market-driven changes in interest rates.

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•	Fannie Mae, Freddie Mac, Ginnie Mae and other forward loan sale contracts;

•	Rate lock commitments;

•	Interest rate swap agreements; and

•	U.S. Treasury and euro dollar futures and options.

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(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 Statements of Financial Condition.

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(1)	The securities are currently callable by the Company.

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(1)	The income tax (expense) benefit reflects the amount which existed at the time the Company established the valuation allowance for deferred securities that were held at the date disposed or matured.

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•	comply with all applicable HUD and FHA rules related to the continued participation in the direct endorsement lender program;

•	make an initial payment of $15.0 million within 30 business days of the effective date of the DOJ Agreement (which was paid on April 3, 2012);

•	make the Additional Payments of approximately $118.0 million contingent only upon the occurrence of certain future events (as further described below); and

•	complete a monitoring period by an independent third party chosen by the Bank and approved by HUD.

•

immediately release the Bank and all of the current or former officers, directors, employees, affiliates and assigns from any civil or administrative claim it has or may have under various federal laws, the common law or equitable theories of fraud or mistake of fact in connection with the mortgage loans the Bank endorsed for FHA insurance during the period January 1, 2002 to the date of the DOJ Agreement (the "Covered Period");

•	not refuse to pay any insurance claim or seek indemnification or other relief in connection with the mortgage loans the Bank endorsed for FHA insurance during the Covered Period but for which no claims have yet been paid on the basis of the conduct alleged in the complaint or referenced in the DOJ Agreement; and

•	not seek indemnification or other relief in connection with the mortgage loans the Bank endorsed for FHA insurance during the Covered Period and for which HUD has paid insurance claims on the basis of the conduct alleged in the complaint or referenced in the DOJ Agreement.

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•	Branch Network consists of Branch Banking and Internet Banking. At September 30, 2012, Branch Banking included 111 banking centers located throughout Michigan.

•	Government Banking provides deposit and cash management services to government units on a relationship basis throughout Michigan and Georgia. Government banking manages relationships with various small and large government entities and school districts.

•	Business / Commercial Banking engages in deposit gathering through our teams of business and commercial banking relationship managers.

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(1)	Unpaid principal balance does not include premiums or discounts.

(2)	Current FICO scores obtained at various times during the current quarter.

(3)	The housing price index ("HPI") LTV is updated from the original LTV based on Metropolitan Statistical Area-level Office of Federal Housing Enterprise Oversight ("OFHEO") data as of June 30, 2012.

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(1)	Unpaid principal balance does not include premiums or discounts.

(2)	Current FICO scores obtained at various times during the current quarter.

(3)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

(4)	Includes substantially fixed rate mortgage loans.

(5)	Subprime loans are defined as the FDIC's assessment regulations definitions for subprime loans, which includes loans with FICO scores below 620 or similar characteristics.

(6)	Reflects LTV because these are second liens.

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(1)	Unpaid principal balance does not include premiums or discounts.

(2)	Subprime loans are defined as the FDIC's assessment regulations definitions for subprime loans, which includes loans with FICO scores below 620 or similar characteristics.

(1)	Unpaid principal balance does not include premiums or discounts.

(2)	Current FICO scores obtained at various times during the current quarter.

(3)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

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(1)	Unpaid principal balance does not include premiums or discounts.

(2)	Current FICO scores obtained at various times during the current quarter.

(3)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

(1)	Unpaid principal balance does not include premiums or discounts.

(1)	Reflects loans that have reset through September 30, 2012.

(2)	Later years reflect one reset period per loan.

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(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.

(3)	Current FICO scores obtained at various times during the current quarter.

(4)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

(1)	Unpaid principal balance does not include premiums or discounts.

(2)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

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(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.

(3)	The HPI LTV is updated from the original LTV based on Metropolitan Statistical Area-level OFHEO data as of June 30, 2012.

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(1)	During the nine months ended September 30, 2012, we had no sales of non-performing commercial real estate loans and charged off $102.8 million of the same loans.

(1)	Includes commercial real estate loans originated during 2011 and into 2012.

(2)	Greater than 90 days past due includes performing non-accrual loans.

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(1)	Includes commercial real estate loans originated prior to 2011.

(2)	Greater than 90 days past due includes performing non-accrual loans.

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•	Net interest margin improved to 2.28 percent, as compared to 1.96 percent for the nine months ended September 30, 2011, primarily due to a decrease in our cost of funds and an increase in the average balances in our residential first mortgage loans held-for-sale loan portfolio;

•	Net interest income increased by $53.8 million to $223.3 million for the nine months ended September 30, 2012, primarily due to a decrease in FHLB advances rate of 66 basis points and in deposit rates of 42 basis points;

•	Provision for loan losses increased by $112.3 million from the nine months ended September 30, 2011, to $225.7 million, primarily as a result of refinements to existing loss models during the first quarter 2012;

•	Net gain on loan sales increased $558.1 million from the nine months ended September 30, 2011, to $751.9 million, primarily due to an increase in volume of loan sales and margins;

•	Representation and warranty reserve - change in estimate increased $150.3 million to $231.1 million for the nine months ended September 30, 2012, primarily due to refinements in the estimation process and an increase in forecasted demands of repurchase requests from GSEs; and

•	General and administrative expense increased $88.9 million to $156.0 million for the nine months ended September 30, 2012, primarily due to an assessment of overall litigation exposure from pending and threatened litigation resulting in a $40.0 million increase in the reserve for such matters and a $31.5 million increase in consulting and legal fee expenses.

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(1)	See Non-GAAP reconciliation.

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

(3)	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.

(4)	Net interest margin is the annualized effect of the net interest income divided by that period's average interest-earning assets.

(5)	Restated for a one-for-ten reverse stock split announced September 27, 2012 and trading began on October 11, 2012.

(6)	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.

(7)	Bank only and does not include non-performing loans held-for-sale.

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

(2)	The three months ended September 30, 2011 includes $565.4 million of average demand deposits accounts, savings accounts and certificates of deposit that relate to the Georgia and Indiana sale.

(3)	Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.

(4)	Interest rate spread is the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

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

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

(2)	The nine months ended September 30, 2011 includes $583.0 million of average demand deposits accounts, savings accounts and certificates of deposit that relate to the Georgia and Indiana sale.

(3)	Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.

(4)	Interest rate spread is the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities.

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

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(1)	Consumer loans include residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans.

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

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(1)	Consumer loans include residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans.

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

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(1)	Includes the servicing fees, ancillary income and charges on other consumer mortgage servicing.

(2)

Loan administration income does not reflect the impact of securities deployed as economic hedges of MSR assets. These positions, recorded as securities - trading, provided $0.2 million in gains and $2.0 million in losses in the three and nine months ended September 30, 2012, respectively, compared to $20.4 million in gains for both the three and nine months ended September 30, 2011. These positions, which are on the balance sheet, also contributed $0.1 million and $1.9 million in interest income for the three and nine months ended September 30, 2012, respectively, compared to $1.4 million and $2.5 million during the three and nine months ended September 30, 2011, respectively.

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(1)	Total operating and administrative expenses divided by the sum of net interest income and non-interest income.

(2)	Based on efficiency ratios as calculated, less representation and warranty reserve - change in estimate and asset resolution expense, see "Use of Non-GAAP Financial Measures."

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(1)	Consumer loans include: residential first mortgage, second mortgage, warehouse lending, HELOC and other consumer loans. The allowance for loan losses on consumer TDR loans totaled $138.1 million and $85.2 million at September 30, 2012 and December 31, 2011, respectively.

(2)	Commercial loans include: commercial real estate, commercial and industrial and commercial lease financing loans. The allowance for loan losses on commercial TDR loans totaled $0.4 million and $32.2 million at September 30, 2012 and December 31, 2011, respectively.

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(1)	Includes loans paid in full or otherwise settled, sold or charged off.

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(1)	This rate reflects the average rate for the deposit portfolio at the end of the noted month.

(2)	The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $2.3 billion and $2.1 billion at September 30, 2012 and December 31, 2011, respectively.

(3)	Government accounts include funds from municipalities and schools.

(4)	These accounts represent a portion of the investor custodial accounts and escrows controlled by the Company in connection with loans serviced for others and that have been placed on deposit with the Bank.

(5)	The aggregate amount of deposits with a balance over $250,000 was approximately $2.6 billion and $1.6 billion at September 30, 2012 and December 31, 2011, respectively.

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(1)	Includes servicing sold with recourse.

(2)	Weighted average.

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•	We generate positive income for a sustained period, such that part or all of our Deferred Tax Asset ("DTA"), which has been offset by a valuation allowance (the "DTA Valuation Allowance"), is likely to be realized, as evidenced by the reversal of the DTA Valuation Allowance in accordance with accounting principles generally accepted in the United States ("GAAP");

•	We are able to include capital derived from the reversal of the DTA Valuation Allowance in our Tier 1 capital (to adjusted total assets); and

•	Our obligation to repay the $266.7 million in preferred stock held by the U.S. Treasury under the TARP Capital Purchase Program has been either extinguished or excluded from Tier 1 capital (to adjusted total assets) for purposes of calculating the Tier 1 capital (to adjusted total assets) ratio as described in the paragraph below.

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(1)	Represents Tier 1 capital for Bank.

(2)

Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.

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(a)

Disclosure Controls and Procedures. A review and evaluation was performed by our principal executive and financial officers regarding the effectiveness of our disclosure controls and procedures as of September 30, 2012 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based on that review and evaluation, the principal executive and financial officers have concluded that our current disclosure controls and procedures, as designed and implemented, are operating effectively.

(b)	Changes in Internal Controls. During the quarter ended September 30, 2012, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934, as amended, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Within 120 days of the date of the Consent Order, the Board of Directors of the Bank (the “Board”) must review, revise, and forward to the OCC a written capital plan for the Bank covering at least a three-year period and establishing projections for the Bank's overall risk profile, earnings performance, growth expectations, balance sheet mix, off-balance sheet activities, liability and funding structure, capital and liquidity adequacy, as well as a contingency capital funding process and plan that identifies alternative capital sources should the primary sources not be available;

•	Within 60 days of the date of the Order, the Board shall adopt and forward to the OCC a comprehensive written liquidity risk management policy that systematically requires the Bank to reduce liquidity risk; and

•	Within 90 days of the date of the Order, the Board shall develop, adopt, and forward to the OCC a written enterprise risk management program that is designed to ensure that the Bank effectively identifies, monitors, and controls its enterprise-wide risks, including by developing risk limits for each line of business;

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