UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		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).

Michigan		38-3150651
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)
5151 Corporate Drive, Troy, Michigan		48098-2639
(Address of principal executive offices)		(Zip code)

(248) 312-2000

     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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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 August 2, 2010, 153,363,870 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

 

 

FORWARD—LOOKING STATEMENTS

     This report contains certain forward-looking statements with respect to the financial condition, results of operations, liquidity, plans, objectives, future performance and business of Flagstar Bancorp, Inc. (“Flagstar” or the “Company”) and these statements are subject to risk and uncertainty. Forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, include those using words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions.

     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, but are not limited to, those discussed under the heading “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and under Part II, Item 1A of this quarterly report on Form 10-Q, including: (1) our business has been and may continue to be adversely affected by conditions in the global financial markets and economic conditions generally; (2) defaults by another larger financial institution could adversely affect financial markets generally; (3) we may be required to raise capital at terms that are materially adverse to our stockholders; (4) if we cannot effectively manage the impact of the volatility of interest rates our earnings could be adversely affected; (5) if we do not meet the New York Stock Exchange continued listing requirements, our common stock may be delisted; (6) current and further deterioration in the housing market, as well as the number of programs that have been introduced to address the situation by government agencies and government sponsored enterprises, may lead to increased costs to service loans which could affect our margins or impair the value of our mortgage servicing rights; (7) current and further deterioration in the housing and commercial real estate markets may lead to increased loss severities and further increases in delinquencies and non-performing assets in our loan portfolios. Consequently, our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our reserves; (8) changes in the fair value or ratings downgrades of our securities may reduce our stockholders’ equity, net earnings, or regulatory capital ratios; (9) certain hedging strategies that we use to manage our investment in mortgage servicing rights may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity; (10) our ability to borrow funds, maintain or increase deposits or raise capital could be limited, which could adversely affect our liquidity and earnings; (11) our business is highly regulated and subject to change; (12) we are subject to the restrictions and conditions of supervisory agreements with the Office of Thrift Supervision. Failure to comply with the supervisory agreements could result in further enforcement action against us; (13) increases in deposit insurance premiums and special Federal Deposit Insurance Corporation assessments will adversely affect our earnings; (14) we are subject to heightened regulatory scrutiny with respect to bank secrecy and anti-money laundering statutes and regulations; (15) future dividend payments and common stock repurchases may be restricted; (16) we depend on our institutional counterparties to provide services that are critical to our business. If one or more of our institutional counterparties defaults on its obligations to us or becomes insolvent, it could have a material adverse affect on our earnings, liquidity, capital position and financial condition; (17) we use estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; (18) our home equity lines of credit funding reimbursements could be negatively impacted by loan losses; (19) our secondary market reserve for losses could be insufficient; (20) our home lending profitability could be significantly reduced if we are not able to resell mortgages; (21) our holding company is dependent on Flagstar Bank for funding of obligations and dividends; (22) we may be exposed to other operational and reputational risks; (23) we have many new members of our executive team; (24) the potential loss of key members of senior management or the inability to attract and retain qualified relationship managers in the future could affect our ability to operate effectively; (25) the network and computer systems on which we depend could fail or experience a security breach; (26) our loans are geographically concentrated in only a few states; (27) we are subject to environmental liability risk associated with lending activities; (28) severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business; (29) general business, economic and political conditions may significantly affect our earnings; (30) we are a controlled company that is exempt from certain New York Stock Exchange corporate governance requirements; (31) our controlling stockholder has significant influence over us, including control over decisions that require the approval of stockholders, whether or not such decisions are in the best interests of other stockholders; and (32) financial reform legislation recently signed by the President will, among other things, eliminate the Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

     The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

FLAGSTAR BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			42
Item 3. Quantitative and Qualitative Disclosures about Market Risk			76
Item 4. Controls and Procedures			77
PART II. — OTHER INFORMATION
Item 1. Legal Proceedings			78
Item 1A. Risk Factors			78
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			78
Item 3. Defaults upon Senior Securities			79
Item 4. (Removed and Reserved)			79
Item 5. Other Information			79
Item 6. Exhibits			80
SIGNATURES			81
EXHIBIT 3.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

The consolidated financial statements of the Company are as follows:
Consolidated Statements of Financial Condition — June 30, 2010 (unaudited) and December 31, 2009.			5
Consolidated Statements of Operations — For the three and six months ended June 30, 2010 and 2009. (Unaudited)			6
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) — For the six months ended June 30, 2010 and 2009. (Unaudited)			7
Consolidated Statements of Cash Flows — For the six months ended June 30, 2010 and 2009. (Unaudited)			8
Notes to Consolidated Financial Statements. (Unaudited)			10

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(In thousands, except share data)

		June 30,				December 31,
		2010				2009
		(Unaudited)
Assets
Cash and cash items		$	52,867			$	73,019
Interest-bearing deposits			702,251				1,009,470
Cash and cash equivalents			755,118				1,082,489
Securities classified as trading			487,370				330,267
Securities classified as available for sale			544,474				605,621
Other investments – restricted			1,951				15,601
Loans available for sale ($1,692,286 and $1,937,171 at fair value at June 30, 2010 and December 31, 2009, respectively)			1,849,718				1,970,104
Loans held for investment ($14,935 and $11,287 at fair value at June 30, 2010 and December 31, 2009, respectively)			7,365,817				7,714,308
Less: allowance for loan losses			(530,000	)			(524,000	)
Loans held for investment, net			6,835,817				7,190,308
Total interest-earning assets			10,421,581				11,121,371
Accrued interest receivable			41,840				44,941
Repossessed assets, net			198,230				176,968
Federal Home Loan Bank stock			373,443				373,443
Premises and equipment, net			234,880				239,318
Mortgage servicing rights at fair value			473,724				649,133
Mortgage servicing rights, net			1,090				3,241
Other assets			1,896,175				1,331,897
Total assets		$	13,693,830			$	14,013,331
Liabilities and Stockholders’ Equity
Deposits		$	8,254,046			$	8,778,469
Federal Home Loan Bank advances			3,650,000				3,900,000
Security repurchase agreements			—				108,000
Long term debt			248,635				300,182
Total interest-bearing liabilities			12,152,681				13,086,651
Accrued interest payable			25,117				26,086
Secondary market reserve			76,000				66,000
Other liabilities			363,671				237,870
Total liabilities			12,617,469				13,416,607
Commitments and contingencies – Note 19			—				—
Stockholders’ Equity
Preferred stock $0.01 par value, liquidation value $1,000 per share, 25,000,000 shares authorized; 266,657 issued and outstanding at June 30, 2010 and December 31, 2009, respectively			3				3
Common stock $0.01 par value, 300,000,000 shares authorized; 153,338,007 and 46,877,067 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			1,533				469
Additional paid in capital – preferred			246,481				243,778
Additional paid in capital – common			1,077,244				447,449
Accumulated other comprehensive loss			(23,282	)			(48,263	)
Accumulated deficit			(225,618	)			(46,712	)
Total stockholders’ equity			1,076,361				596,724
Total liabilities and stockholders’ equity		$	13,693,830			$	14,013,331

The accompanying notes are an integral part of these consolidated financial statements.

Flagstar Bancorp, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
						(Unaudited)
Interest Income
Loans		$	108,805			$	156,761			$	219,000			$	315,383
Securities classified as available for sale or trading			20,735				30,659				36,102				56,136
Interest-bearing deposits			481				426				1,124				1,283
Other			1				2				2				24
Total interest income			130,022				187,848				256,228				372,826
Interest Expense
Deposits			41,521				66,547				83,407				133,897
FHLBI advances			42,151				57,284				83,938				114,093
Security repurchase agreements			1,597				1,166				2,750				2,319
Other			2,348				2,834				6,044				5,770
Total interest expense			87,617				127,831				176,139				256,079
Net interest income			42,405				60,017				80,089				116,747
Provision for loan losses			86,019				125,662				149,579				283,876
Net interest expense after provision for loan losses			(43,614	)			(65,645	)			(69,490	)			(167,129	)
Non-Interest Income
Loan fees and charges			20,236				35,022				36,565				67,944
Deposit fees and charges			8,798				7,984				17,211				15,217
Loan administration			(54,665	)			41,853				(28,515	)			10,053
Gain (loss) on trading securities			69,660				(39,085	)			66,348				(15,338	)
Loss on residual and transferors’ interest			(4,312	)			(3,400	)			(6,994	)			(15,935	)
Net gain on loan sales			64,257				104,664				116,823				300,358
Net loss on sales of mortgage servicing rights			(1,266	)			(2,544	)			(3,479	)			(2,626	)
Net gain on securities available for sale			4,523				—				6,689				—
Total other-than-temporary impairment gain (loss)			11,274				8,461				36,796				(103,633	)
Gain (loss) recognized in other comprehensive income before taxes			11,665				8,788				40,473				(86,064	)
Net impairment loss recognized in earnings			(391	)			(327	)			(3,677	)			(17,569	)
Other fees and charges			(6,509	)			(9,630	)			(28,642	)			(16,608	)
Total non-interest income			100,331				134,537				172,329				325,496
Non-Interest Expense
Compensation, commissions and benefits			51,104				71,638				112,125				163,427
Occupancy and equipment			15,903				17,499				31,914				36,378
Asset resolution			45,439				17,977				62,012				42,850
Federal insurance premiums			10,640				16,612				20,688				20,848
Other taxes			841				1,098				1,696				2,105
Warrant (income) expense			(3,486	)			12,977				(2,259	)			24,005
Loss on extinguishment of debt			8,971				—				8,971				—
General and administrative			19,621				34,017				37,229				64,874
Total non-interest expense			149,033				171,818				272,376				354,487
Loss before federal income taxes			(92,316	)			(102,926	)			(169,537	)			(196,120	)
Benefit for federal income taxes			—				(31,261	)			—				(59,957	)
Net Loss			(92,316	)			(71,665	)			(169,537	)			(136,163	)
Preferred stock dividend/accretion			(4,690	)			(4,921	)			(9,369	)			(7,841	)
Net loss applicable to common stock		$	(97,006	)		$	(76,586	)		$	(178,906	)		$	(144,004	)
Loss per share
Basic		$	(0.63	)		$	(3.20	)		$	(1.55	)		$	(8.77	)
Diluted		$	(0.63	)		$	(3.20	)		$	(1.55	)		$	(8.77	)

The accompanying notes are an integral part of these consolidated financial statements.

Flagstar Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited)

(In thousands)

										Additional				Additional				Accumulated				Retained
										Paid in				Paid in				Other				Earnings
		Preferred				Common				Capital -				Capital -				Comprehensive				(Accumulated				Total
		Stock				Stock				Preferred				Common				Income (Loss)				Deficit)				Stockholders’ Equity
Balance at December 31, 2008		$	—			$	84			$	—			$	119,776			$	(81,742	)		$	434,175			$	472,293
(Unaudited)
Net loss			—				—				—				—				—				(136,163	)			(136,163	)
Reclassification of loss on securities available for sale due to other-than-temporary impairment			—				—				—				—				11,420				—				11,420
Change in net unrealized loss on securities available for sale			—				—				—				—				6,788				—				6,788
Total comprehensive loss			—				—				—				—				—				—				(117,955	)
Cumulative effect for adoption of FSP FAS 115-2 and FAS 124-2			—				—				—				—				(32,914	)			32,914				—
Issuance of preferred stock			6				—				507,488				—				—				—				507,494
Conversion of preferred stock			(3	)			375				(268,574	)			268,202				—				—				—
Issuance of common stock to management			—				7				—				5,314				—				—				5,321
Reclassification of Treasury Warrants			—				—				—				49,673				—				—				49,673
Issuance of common stock for exercise of May Warrants			—				3				—				4,373				—				—				4,376
Restricted stock issued			—				—				—				(45	)			—				—				(45	)
Dividends on preferred stock			—				—				—				—				—				(5,629	)			(5,629	)
Accretion of preferred stock			—				—				2,211				—				—				(2,211	)			—
Stock-based compensation			—				—				—				458				—				—				458
Tax effect from stock-based compensation			—				—				—				(465	)			—				—				(465	)
Balance at June 30, 2009		$	3			$	469			$	241,125			$	447,286			$	(96,448	)		$	323,086			$	915,521

Balance at December 31, 2009		$	3			$	469			$	243,778			$	447,449			$	(48,263	)		$	(46,712	)		$	596,724
(Unaudited)
Net loss			—				—				—				—				—				(169,537	)			(169,537	)
Reclassification of gain on sale of securities available for sale			—				—				—				—				(6,278	)			—				(6,278	)
Reclassification of loss on securities available for sale due to other-than- temporary impairment			—				—				—				—				3,677				—				3,677
Change in net unrealized loss on securities available for sale			—				—				—				—				27,582				—				27,582
Total comprehensive loss			—				—				—				—				—				—				(144,556	)
Issuance of common stock			—				1,061				—				625,852				—				—				626,913
Restricted stock issued			—				—				—				(12	)			—								(12	)
Dividends on preferred stock			—				—				—				—				—				(6,666	)			(6,666	)
Accretion of preferred stock			—				—				2,703				—				—				(2,703	)			—
Stock-based compensation			—				3				—				4,071				—				—				4,074
Tax effect from stock-based compensation			—				—				—				(116	)			—				—				(116	)
Balance at June 30, 2010		$	3			$	1,533			$	246,481			$	1,077,244			$	(23,282	)		$	(225,618	)		$	1,076,361

The accompanying notes are an integral part of these consolidated financial statements.

Flagstar Bancorp, Inc.

Consolidated Statements of Cash Flows

(In thousands)

		For the Six Months Ended
		June 30,
		2010				2009
		(Unaudited)
Operating Activities
Net loss		$	(169,537	)		$	(136,163	)
Adjustments to net loss to net cash used in operating activities
Provision for loan losses			149,579				283,876
Depreciation and amortization			9,314				11,957
(Decrease) increase in valuation allowance in mortgage servicing rights			(64	)			2,016
Loss on fair value of residential mortgage servicing rights net of hedging gains (losses)			153,672				13,887
Stock-based compensation expense			4,074				458
(Gain) loss on interest rate swap			(484	)			227
Net loss on the sale of assets			6,436				1,464
Net gain on loan sales			(116,823	)			(300,358	)
Net loss on sales of mortgage servicing rights			3,479				2,626
Net gain on sale of securities classified as available for sale			(6,689	)			—
Other than temporary impairment losses on securities classified as available for sale			3,677				17,569
Net (gain) loss on trading securities			(66,348	)			15,338
Net loss on residual and transferor interest			6,994				15,935
Proceeds from sales of loans available for sale			10,179,349				16,761,330
Origination and repurchase of mortgage loans available for sale, net of principal repayments			(10,197,955	)			(18,692,067	)
Purchase of trading securities			(899,012	)			(783,370	)
Proceeds from sales of trading securities			806,496				(143	)
Decrease in accrued interest receivable			3,101				518,793
Increase in other assets			(565,692	)			(193,234	)
Increase (decrease) in accrued interest payable			(969	)			391
Net tax effect of stock grants issued			116				465
Increase (decrease) in liability for checks issued			(4,657	)			3,303
Increase (decrease) in federal income taxes payable			455				(10,270	)
Increase in other liabilities			119,681				97,791
Net cash used in operating activities			(581,807	)			(2,368,179	)
Investing Activities
Net change in other investments			13,650				(4,768	)
Proceeds from the sale of investment securities available for sale			401,104				—
Net (purchase) repayment of investment securities available for sale			(153,071	)			56,608
Proceeds from sales of portfolio loans			(58,546	)			29,961
Origination of portfolio loans, net of principal repayments			127,234				325,416
Investment in unconsolidated subsidiary			—				1,547
Proceeds from the disposition of repossessed assets			108,799				122,970
Acquisitions of premises and equipment, net of proceeds			(4,451	)			(7,724	)
Proceeds from the sale of mortgage servicing rights			112,848				27,536
Net cash provided by investing activities			547,567				551,546
Financing Activities
Net (decrease) increase in deposit accounts			(524,423	)			1,629,668
Net decrease in Federal Home Loan Bank advances			(250,000	)			(48,093	)
Net decrease in security repurchase agreements			(108,000	)			—
Net receipt of payments of loans serviced for others			11,738				35,279
Net receipt of escrow payments			7,423				20,356
Net tax benefit for stock grants issued			(116	)			(465	)
Dividends paid to preferred stockholders			(6,666	)			(3,889	)
Issuance of junior subordinated debt			—				50,000
Issuance of preferred stock			—				544,365
Issuance of common stock			576,913				6,696
Net cash (used in) provided by financing activities			(293,131	)			2,233,917
Net increase (decrease) increase in cash and cash equivalents			(327,371	)			417,284
Beginning cash and cash equivalents			1,082,489				506,905
Ending cash and cash equivalents		$	755,118			$	924,189

Consolidated Statements of Cash Flows

		For the Six Months Ended
		June 30,
		2010				2009
		(Unaudited)
Supplemental Disclosure of Cash Flow Information:
Loans held for investment transferred to repossessed assets		$	279,955			$	333,630
Total interest payments made on deposits and other borrowings		$	177,108			$	255,688
Federal income taxes paid		$	341			$	590
Reclassification of mortgage loans originated for investment to mortgage loans available for sale		$	58,546			$	—
Reclassification of mortgage loans originated available for sale to held for investment loans		$	—			$	29,961
Recharacterization of mortgage loans available for sale to investment securities available for sale		$	159,422			$	—
Mortgage servicing rights resulting from sale or securitization of loans		$	93,392			$	191,261
Conversion of mandatory convertible participating voting preferred stock to common stock		$	—			$	271,577
Conversion of convertible trust securities		$	50,000			$	—

The accompanying notes are an integral part of these consolidated financial statements.

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 its principal subsidiary, Flagstar Bank, FSB (the “Bank”), a federally chartered stock savings bank founded in 1987. With $13.7 billion in assets at June 30, 2010, Flagstar is the largest insured depository institution headquartered in Michigan. Unless otherwise specified, references herein to the Company shall include the business operations of the Company and the Bank.

     The Company’s principal business is obtaining funds in the form of deposits and wholesale borrowings and investing those funds in single-family mortgages and other types of loans. Its primary lending activity is the acquisition or origination of single-family mortgage loans. The Company may also originate consumer loans, commercial real estate loans and non-real estate commercial loans. The Company services a significant volume of residential mortgage loans for others.

     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 a significant amount of its loan production to enhance the Company’s leverage 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 (including any successors thereto “OTS”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund (“DIF”).

Note 2 — Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company’s 10 trust subsidiaries and four securitization trusts are considered variable interest entities and are not consolidated in the Company’s consolidated financial statements because the Company is not the primary beneficiary of those entities. Prior to January 1, 2010, the securitization trusts were not consolidated in the Company’s consolidated financial statements because they were qualified special purpose entities under FASB ASC Topic 860, Transfers and Servicing. The concept of the special purpose entity was eliminated from ASC Topic 860 effective January 1, 2010. In addition, certain prior period amounts have been reclassified to conform to the current period presentation.

     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 six month period ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, reference should be made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which are available on the Company’s Investor Relations web page, at www.flagstar.com, and on the website SEC, at www.sec.gov.

Note 3 — Recent Developments

Reverse Stock Split

     On May 27, 2010, the Company’s board of directors authorized a one-for-ten reverse stock split immediately following the annual meeting of stockholders at which the reverse stock split was approved by its stockholders. The reverse stock split became effective on May 27, 2010. Unless noted otherwise, all share-related amounts herein reflect the one-for-ten reverse stock split.

     In connection with the reverse stock split, stockholders received one new share of common stock for every ten shares held at the effective time. The reverse stock split reduced the number of shares of outstanding common stock from approximately 1.53 billion to 153 million. The number of authorized shares of common stock was reduced from 3 billion to 300 million. Proportional adjustments were made to the Company’s outstanding options, warrants and other securities entitling

their holders to purchase or receive shares of common stock. In lieu of fractional shares, stockholders received cash payments for fractional shares that were determined on the basis of the common stock’s closing price on May 26, 2010, adjusted for the reverse stock split. The reverse stock split did not negatively affect any of the rights that accrue to holders of the Company’s outstanding options, warrants and other securities entitling their holders to purchase or receive shares of common stock, except to adjust the number of shares relating thereto accordingly. For further information, please see Note 15, “Stockholders’ Equity and Loss per Common Share.”

Conversion of Convertible Trust Securities

     On April 1, 2010, MP Thrift Investments, L.P. (“MP Thrift”) converted $50 million of 10% convertible trust preferred securities due in 2039 into 6.25 million shares of the Company’s common stock (as adjusted for the reverse stock split). For further information on the conversion of the convertible trust preferred securities, please see Note 15, “Stockholders’ Equity and Loss Per Common Share.”

Supervisory Agreements

     On January 27, 2010, the Company and the Bank each entered into respective supervisory agreements with the OTS (collectively, the “Supervisory Agreements”). The Company and the Bank have taken numerous steps to comply with, and intend to comply in the future with, all of the requirements of the Supervisory Agreements, and do not believe that the Supervisory Agreements will materially constrain management’s ability to implement its business plan. The Supervisory Agreements will remain in effect until terminated, modified, or suspended in writing by the OTS, and the failure to comply with the Supervisory Agreements could result in the initiation of further enforcement action by the OTS, including the imposition of further operating restrictions and result in additional enforcement actions against the Company.

Note 4. Recent Accounting Developments

     ASU No. 2010-20, “Receivables (Topic 310): Disclosure about Credit Quality of Financing Receivables and the Allowance For Credit Losses.” This guidance requires an entity to provide disclosures that facilitate the evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables; how that risk is analyzed and assessed in arriving at the allowance for doubtful accounts; 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. The guidance pertaining to disclosures as of the end of a reporting period, and to disclosures about activity that occurs during a reporting period, is effective December 15, 2010. The provisions of this guidance are not expected to have a significant impact on the Company’s consolidated financial condition, results of operations or liquidity.

     ASU No. 2010-11, “Derivatives and Hedging (Topic 815) — Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of an embedded credit derivative which is exempt from embedded derivative bifurcation requirements must relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 are effective for the Company for interim and annual reporting periods beginning after June 15, 2010 and are not expected to have a significant impact on the Company’s consolidated financial condition, results of operations or liquidity.

Note 5 — Fair Value Accounting

     The Company adheres to guidance related to fair value measurements and additional guidance for financial instruments. This guidance establishes a framework for measuring fair value and prescribes disclosures about fair value measurements. The guidance also establishes a uniform definition of fair value. The definition of fair value under this guidance is market-based as opposed to company-specific and includes the following:

	•		Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case through an orderly transaction between market participants at a measurement date, and establishes a framework for measuring fair value;
	•		Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date;

	•		Nullifies previous fair value guidance, which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique;
	•		Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the company’s creditworthiness when valuing liabilities; and
	•		Expands disclosures about instruments that are measured at fair value.

     The accounting guidance for financial instruments provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized Company commitments and written loan commitments not previously recorded at fair value. In accordance with the provisions of this guidance, the Company applied the fair value option to certain non-investment grade residual securities that arose from private-label securitizations. Accordingly, these residual securities are classified as trading securities.

     The Company applies the fair value measurement method for residential MSRs under guidance related to servicing assets and liabilities. Management applies the fair value measurement method of accounting for residential MSRs to be consistent with the fair value accounting method required for its risk management strategy to economically hedge the fair value of these assets. Changes in the fair value of MSRs, as well as changes in fair value of the related derivative and other hedging instruments, are recognized each period within the combination of loan administration income (loss) on the consolidated statement of operations and in gain (loss) on trading securities, to the extent such instruments are held on the balance sheet.

     Effective January 1, 2009, the Company elected the fair value option for the majority of its loans available for sale in accordance with the accounting guidance for financial instruments. Only loans available for sale originated subsequent to January 1, 2009 were affected. Prior to the Company’s fair value election, loans available for sale were carried at the lower of aggregate cost or estimated fair value; therefore, any increase in fair value to such loans was not realized until such loans were sold. The effect on consolidated operations of this election amounted to recording additional gains on loan sales of $43.8 million for the six month period ended June 30, 2010, based upon an increase in fair value during the period rather than at a later time when the loans were sold. See Note 7, “Loans Available for Sale,” for further information.

Determination of Fair Value

     The Company has an established process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that use primarily market-based or independently-sourced market parameters, including interest rate yield curves and option volatilities. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, creditworthiness, liquidity and unobservable parameters that are applied consistently over time. Any changes to the valuation methodology are reviewed by management to determine appropriateness of the changes. As markets develop and the pricing for certain products becomes more transparent, the Company expects to continue to refine its valuation methodologies.

     The methods described above may produce a fair value estimate that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions by other market participants to determine the fair value of certain financial instruments could result in different estimates of fair values of the same financial instruments as held by the Company at the reporting date.

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 to the valuation of an asset or liability as of the measurement date and thereby favors use of Level 1 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 may 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 instrument’s 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.

     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 U.S. government sponsored agency mortgage-backed securities, United States Department of the Treasury (“U.S. Treasury”) bonds and non-investment grade residual securities that arose from private-label securitizations of the Company. The U.S. government sponsored agency mortgage-backed securities and 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. See Note 10, “Private Label Securitization Activity” for the key assumptions used in the residual interest valuation process.

     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.

     Other investments-restricted. Other investments are primarily comprised of various mutual fund holdings. These mutual funds trade in an active market and quoted prices are available. Other investments are classified within Level 1 of the valuation hierarchy.

     Loans available for sale. At June 30, 2010, the majority of the Company’s loans originated and classified as available for sale were reported at fair value and classified as Level 2. The Company estimates the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans. Otherwise, the fair value of loans is estimated using discounted cash flows based upon management’s best estimate of market interest rates for similar collateral. 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 management’s best estimate of market interest rates, prepayment speeds and loss assumptions for similar collateral. At June 30, 2010, the Company continued to have a relatively small number of loans which were originated prior to the fair value election and accounted for at lower of cost or market. Loans as to which the Company has the unilateral right to repurchase from certain securitization transactions 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 June 30, 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 nonrecurring 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 management’s 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 nonrecurring Level 2 valuation.

     Mortgage Servicing Rights. The Company has obligations to service residential first mortgage loans, and consumer loans (i.e. home equity lines of credit (“HELOCs”) and second mortgage loans obtained through private-label securitization transactions). Residential MSRs are accounted for at fair value on a recurring basis, while servicing rights associated with consumer loans are carried at amortized cost and are periodically evaluated for impairment.

          Residential Mortgage Servicing Rights. Management believes that 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 and discount rates. Management periodically obtains third-party valuations of the residential MSR portfolio to assess the reasonableness of the fair value calculated by its internal valuation model. Due to the nature of the valuation inputs, residential MSRs are classified within Level 3 of the valuation hierarchy. See Note 11, “Mortgage Servicing Rights” for the key assumptions used in the residential MSR valuation process.

          Consumer Loan Servicing Rights. Consumer servicing assets are subject to periodic impairment testing. A valuation model, which utilizes a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and a discount rate determined by management, is used in the completion of impairment testing. If the valuation model reflects a value less than the carrying value, consumer servicing assets are adjusted to fair value through a valuation allowance as determined by the model. As such, the Company classifies consumer servicing assets subject to nonrecurring fair value adjustments as Level 3 valuations.

     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 Company’s 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 presents the financial instruments carried at fair value as of June 30, 2010 and December 31, 2009, by caption on the Consolidated Statement of Financial Condition and by the valuation hierarchy (as described above):

														Total Carrying
														Value in the
														Consolidated
														Statement of
June 30, 2010		Level 1				Level 2				Level 3				Financial Condition
							(Dollars in thousands)
Securities classified as trading:
Mortgage-backed securities		$	487,370			$	—			$	—			$	487,370
Total securities classified as trading			487,370				—				—				487,370
Securities classified as available for sale			27,067				—				517,407				544,474
Loans available for sale			—				1,692,286				—				1,692,286
Loans held for investment			—				14,935				—				14,935
Residential mortgage servicing rights			—				—				473,724				473,724
Other investments-restricted			1,951				—				—				1,951
Derivative assets:
Rate lock commitments			—				—				46,160				46,160
Agency forwards			14,373				—				—				14,373
U.S. Treasury futures			4,598				—				—				4,598
Total derivative assets			18,971				—				46,160				65,131
Total assets at fair value			535,359				1,707,221				1,037,291				3,279,871
Derivative liabilities:
Interest rate swaps			263				—				—				263
Forward agency and loan sales			—				50,766				—				50,766
Total derivative liabilities			263				50,766				—				51,029
Warrant liabilities			—				2,853				—				2,853
Total liabilities at fair value			263				53,619				—				53,882
Net assets and liabilities at fair value		$	535,096			$	1,653,602			$	1,037,291			$	3,225,989

														Total Carrying
														Value in the
														Consolidated
														Statement of
December 31, 2009		Level 1				Level 2				Level 3				Financial Condition
					(Dollars in thousands)
Securities classified as trading:
Residual interests		$	—			$	—			$	2,057			$	2,057
Mortgage-backed securities			328,210				—				—				328,210
Total securities classified as trading			328,210				—				2,057				330,267
Securities classified as available for sale			67,245				—				538,376				605,621
Loans available for sale			—				1,937,171				—				1,937,171
Loans held for investment			—				11,287				—				11,287
Residential mortgage servicing rights			—				—				649,133				649,133
Other investments-restricted			15,601				—				—				15,601
Derivative assets:
Rate lock commitments			—				—				10,061				10,061
Forward agency and loan sales			—				27,764				—				27,764
Total derivative assets			—				27,764				10,061				37,825
Total assets at fair value			411,056				1,976,222				1,199,627				3,586,905
Derivative liabilities:
Interest rate swaps			747				—				—				747
Agency forwards			29,883				—				—				29,883
U.S. Treasury futures			19,345				—				—				19,345
Total derivative liabilities			49,975				—				—				49,975
Warrant liabilities			—				5,111				—				5,111
Total liabilities at fair value			49,975				5,111				—				55,086
Net assets and liabilities at fair value		$	361,081			$	1,971,111			$	1,199,627			$	3,531,819

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 herein do not reflect the effect of the Company’s risk management activities related to such Level 3 instruments.

Fair value measurements using significant unobservable inputs

     The tables below include a rollforward of the Consolidated Statement of Financial Condition amounts for the six months ended June 30, 2010 and 2009 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy:

																						Changes in
																						Unrealized Gains
																						and (Losses)
																						Related to
		Fair Value,				Total Realized/				Purchases,				Transfers				Fair Value					Financial
For the Six Months Ended		January 1,				Unrealized Gains/				Issuances and				in and/or				June 30,				Instruments Held at
June 30, 2010		2010				(Losses)				Settlements, net				Out of Level 3				2010				June 30, 2010
		(Dollars in thousands)
Securities classified as trading:
Residual interests (1)		$	2,057			$	(2,057	)		$	—			$	—			$	—			$	—
Securities classified as available for sale (2)(3)			538,376				22,237				(43,207	)			—				517,406				25,914
Residential mortgage servicing rights			649,133				(268,315	)			92,906				—				473,724				—
Derivative financial instruments:
Rate lock commitments			10,061				—				36,099				—				46,160				—
Totals		$	1,199,627			$	(248,135	)		$	85,798			$	—			$	1,037,290			$	25,914

																						Changes in
																						Unrealized Gains
																						and (Losses)
																						Related to
		Fair Value,				Total Realized/				Purchases,				Transfers				Fair Value					Financial
For the Six Months Ended		January 1,				Unrealized Gains/				Issuances and				In and/or				June 30,				Instruments Held at
June 30, 2010		2010				(Losses)				Settlements, net				Out of Level 3				2010				June 30, 2010
										(Dollars in thousands)
Securities classified as trading:
Residual interests (1)		$	24,808			$	(8,406	)		$	—			$	—			$	16,402			$	—
Securities classified as available for Sale (2) (3)			563,083				15,769				(24,797	)			—				554,055				33,338
Residential mortgage servicing rights			511,294				(44,343	)			191,258				—				658,209				—
Derivative financial instruments:
Rate lock commitments			78,613				—				(49,413	)			—				29,200				—
Totals		$	1,177,798			$	(36,980	)		$	117,048			$	—			$	1,257,866			$	33,338

     The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These include assets that 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 Nonrecurring Basis

		Balance at
		June 30, 2010				Level 1				Level 2				Level 3
		(Dollars in thousands)
Loans held for investment		$	396,046			$	—			$	396,046			$	—
Repossessed assets			198,230				—				198,230				—
Consumer loan servicing rights			1,090				—				—				1,090
Totals		$	595,366			$	—			$	594,276			$	1,090
		Balance at
		December 31, 2009				Level 1				Level 2				Level 3
		(Dollars in thousands)
Loans held for investment		$	557,808			$	—			$	557,808			$	—
Repossessed assets			176,968				—				176,968				—
Consumer loan servicing rights			3,241				—				—				3,241
Totals		$	738,017			$	—			$	734,776			$	3,241

Required Financial Disclosures about 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 nonfinancial 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:

		June 30, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
						(Dollars in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents		$	755,118			$	755,168			$	1,082,489			$	1,082,489
Securities — trading			487,370				487,370				330,267				330,267
Securities available for sale			544,474				544,474				605,621				605,621
Other investments — restricted			1,951				1,951				15,601				15,601
Loans available for sale			1,849,718				1,921,370				1,970,104				1,975,819
Loans held for investment, net			6,835,817				6,783,607				7,190,308				7,120,802
FHLB stock			373,443				373,443				373,443				373,443
Mortgage servicing rights			474,814				474,842				652,374				652,656
Liabilities:
Retail deposits:
Demand deposits and savings accounts			(1,824,019	)			(1,724,121	)			(1,900,855	)			(1,799,776	)
Certificates of deposit			(3,385,350	)			(3,478,430	)			(3,546,616	)			(3,643,218	)
Government accounts			(703,551	)			(695,608	)			(557,495	)			(549,990	)
National certificates of deposit			(1,587,087	)			(1,617,396	)			(2,017,080	)			(2,455,684	)
Company controlled deposits			(754,039	)			(751,387	)			(756,423	)			(756,423	)
FHLB advances			(3,650,000	)			(3,922,183	)			(3,900,000	)			(4,136,489	)
Security repurchase agreements			—				—				(108,000	)			(110,961	)
Long term debt			(248,635	)			(96,196	)			(300,182	)			(284,464	)
Warrant liabilities			(2,852	)			(2,852	)			(5,111	)			(5,111	)
Derivative Financial Instruments:
Forward delivery contracts			(50,766	)			(50,766	)			27,764				27,764
Commitments to extend credit			46,160				46,160				10,061				10,061
Interest rate swaps			(263	)			(263	)			(747	)			(747	)
U.S. Treasury and agency futures/forwards			18,972				18,972				(49,228	)			(49,228	)

     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 for 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 management’s 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 deposits 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.

     Security Repurchase Agreements. Rates currently available for repurchase agreements with similar terms and maturities are used to estimate fair values for these agreements.

     Long Term Debt. The fair value of the long-term debt is estimated based on a discounted cash flow model that incorporates the Company’s current borrowing rates for similar types of borrowing arrangements.

Note 6 — Investment Securities

     As of June 30, 2010 and December 31, 2009, investment securities were comprised of the following:

		Current				June 30,				December 31,
		Maturities				2010				2009
						(Dollars in thousands)
Securities — trading
U.S. government treasury bonds			2019-2040			$	487,363			$	—
U.S. government sponsored agencies			2038-2039				7				328,210
Non-investment grade residual interests							—				2,057
Total securities — trading						$	487,370			$	330,267
Securities — available-for-sale
Non-agencies			2035-2037			$	517,407			$	538,376
U.S. government sponsored agencies			2010-2040				27,067				67,245
Total securities — available-for-sale						$	544,474			$	605,621
Other investments — restricted
Mutual funds						$	1,951			$	15,601