Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - FLAGSTAR BANCORP INC | pressrelease4q2016.htm |
| 8-K - 8-K - FLAGSTAR BANCORP INC | a8-kearningsrelease4q2016.htm |
4th Quarter 2016
Flagstar Bancorp, Inc. (NYSE: FBC)
Earnings Presentation
4th Quarter 2016
January 24, 2017
4th Quarter 2016 Cautionary statements
This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s
business and performance, the economy and other future conditions, and forecasts of future events, circumstances and results. However,
they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies and other factors.
Generally, forward-looking statements are not based on historical facts but instead represent our management’s beliefs regarding future
events. Such statements may be identified by words such as believe, expect, anticipate, intend, plan, estimate, may increase, may
fluctuate, and similar expressions or future or conditional verbs such as will, should, would and could. Such statements are based on
management’s current expectations and are subject to risks, uncertainties and changes in circumstances. Actual results and capital and
other financial conditions may differ materially from those included in these statements due to a variety of factors, including without
limitation those found in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the
Company’s website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov).
Any forward-looking statements made by or on behalf of us speak only as to the date they are made, and we do not undertake to update
forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were
made, except as required under United States securities laws.
In addition to results presented in accordance with GAAP, this presentation includes non-GAAP financial measures. The Company
believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital
requirements Flagstar will face in the future and underlying performance and trends of Flagstar.
Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied. Readers should be aware of these
limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP
measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial
condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and
that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these
non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in
isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.
Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the
reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in these conference call slides.
Additional discussion of the use of non-GAAP measures can also be found in the Form 8-K Current Report related to this presentation and
in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s
website at flagstar.com.
2
4th Quarter 2016 Executive Overview
Sandro DiNello, CEO
4th Quarter 2016 4Q16 Strategic highlights
4
Unique
relationship-based
business model
• Continue to make progress on long-term financial targets (ROA of 1.2 – 1.6% and ROCE of 13 – 18%):
- 4Q16 ROA of 0.8% and ROCE of 8.6%
- FY16 adjusted ROA 1.1%(1) and adjusted ROCE of 11.8%(1)
Expand mortgage
revenues
Grow community
banking
Highly
profitable
operations
• Solid, consistent financial results (EPS $0.49 per diluted share)
• Net interest income rose $7 million (or 9%) vs. 3Q16; highest level in the Company’s history
Positioned to thrive
in any market
• Strong credit metrics: NPLs at 0.67%, consumer delinquencies at 0.36% and ALLL coverage at 2.4% of LHFI
• Relatively neutral interest rate risk position; strong liquidity
• Tier 1 leverage ratio remained strong at 8.9 percent
• Continued robust risk management infrastructure and culture
1) References non-GAAP number for 3Q16 and GAAP number for 4Q16. 3Q16 number shown excludes DOJ benefit during that period. Please see reconciliation on slide 44.
• Banking growth better-than-expected:
- Average total commercial loans up 6% vs. 3Q16 and up 56% vs. 4Q15
- Average retail deposits up 2% vs. 3Q16 and up 10% vs. 4Q15
• Net gain on loan sales fell to $57 million due to:
- Anticipated seasonal factors
- Lower refinance activity from significantly higher interest rates
4th Quarter 2016 Financial Overview
Jim Ciroli, CFO
4th Quarter 2016 4Q16 Financial highlights
Profitable
results
Solid
banking
growth
• Net interest income increased $7 million to $87, up 9% from 3Q16
- Average earning assets up 4% vs 3Q16 and up 14% vs 4Q15
- Net interest margin up 9 bps
Good
expense
control
• Noninterest expense unchanged at $142 million
- Legal and professional expense increased $4 million
- Partially offset by $3 million drop in compensation and benefits expense
Strong
credit
performance
• Net charge-offs of $2 million, or 0.13%, versus $7 million, or 0.51%, during 3Q16
• Nonperforming loans HFI were flat at $40 million with no delinquencies in commercial portfolio
• Allowance for loan losses covered 2.4% of loans HFI
Robust
capital
position
• Tier 1 leverage remained strong at 8.9%
• Capital ratios are consistent or higher than peers before considering low risk content of business
1) References non-GAAP number for 3Q16 and GAAP number for 4Q16. 3Q16 number shown excludes DOJ benefit during that period. Please see reconciliation on slide 44.
• Net income of $28 million, or $0.49 per diluted share, in 4Q16
- Net interest income increased 9%
- Adjusted noninterest income down 26%(1)
- Noninterest expense unchanged
6
4th Quarter 2016
4Q16 3Q16 $ Variance % Variance
Net interest income $87 $80 $7 9%
Provision (benefit) for loan losses ("PLL") 1 7 (6) (86%)
Net interest income after PLL 86 73 13 18%
Net gain on loan sales 57 94 (37) (39%)
Loan fees and charges 20 22 (2) (9%)
Loan administration income 4 4 - 0%
Net return on the mortgage servicing asset (5) (11) 6 (55%)
Representation and warranty benefit 7 6 1 17%
Adjusted other noninterest income 15 17 (1) (2) (12%)
Total noninterest income 98 132 (1) (34) (26%)
Net gain on loan sales / total revenue 31% 44% (1) (14%)
Compensation and benefits 66 69 (3) (4%)
Commissions and loan processing expense 30 29 1 3%
Other noninterest expenses 46 44 2 5%
Total noninterest expense 142 142 - 2%
Income before income taxes 42 63 (1) (21) (33%)
Provision for income taxes 14 22 (1) (8) 36%
Adjusted net income $28 $41 (1) ($13) (32%)
Adjusted diluted earnings per share $0.49 $0.69 (1) ($0.20) (29%)
Profitability
Net interest margin 2.67% 2.58% 9 bps
Mortgage rate lock commitments, fallout adjusted $6,091 $8,291 ($2,200) (27%)
Mortgage closings $8,573 $9,198 ($625) (7%)
Gain on loan sale margin, HFS 0.93% 1.13% -20 bps
Adjusted efficiency ratio 76.7% 67.0% (1) 970 bps
Provision (benefit) for loan losses
• Lower provision expense reflected strong asset
quality and lower level of net charge-offs
• NPLs flat at $40mm, or 0.67%, of loans HFI
B
Quarterly income comparison
$mm Observations
Noninterest income
• Adjusted noninterest income decreased 26%(1)
- Net gain on loan sales fell to $57mm on anticipated
seasonal factors, lower refinance from significantly
higher interest rates and price competition
- Loan fees and charges decreased $2mm on lower
mortgage closings
- Net MSR return improved $6mm on lower
prepayments and lower fair value charges on MSR
sales, partially offset by unfavorable changes in fair
value from volatile interest rates
C
Net interest income
• Net interest income increased 9%
- Average earning assets rose 4%, led by growth in
loans HFI (up 5%)
- Net interest margin increased 9 bps to 2.67%, led
by a $2mm (6bps) benefit on the termination of
certain fixed rate FHLB advances
A
1) References non-GAAP number for 3Q16 and GAAP number for 4Q16. 3Q16 number shown excludes DOJ benefit during that period. Please see reconciliation on slide 44.
Noninterest expense
• Noninterest expense was unchanged
- Legal and professional expense increased $4mm
- Compensation & benefits decreased $3mm
D
A
B
C2
D
C1
C3
7
4th Quarter 2016
Equity(4)
• Common equity to asset ratio of 9.5%
• Price to book ratio of 110% based on closing price
as of January 23, 2017
Average balance sheet highlights
$ $ %
Loans held-for-sale $3,321 ($95) (3%)
Consumer loans
(2)
2,691 111 4%
Commercial loans
(2)
3,472 204 6%
Total loans held-for-investment 6,163 315 5%
Other earning assets
(3)
3,333 279 9%
Interest-earning assets 12,817 $499 4%
Other assets 1,672 (158) (9%)
Total assets 14,489 $341 2%
Deposits $9,233 $107 1%
Short-term FHLB advances & other 1,427 354 33%
Long-term FHLB advances 1,573 (3) (0%)
Other long-term debt 493 26 6%
Other liabilities 451 (76) (14%)
Total liabilities 13,177 $408 3%
Preferred Equity - (72) (100%)
Common Equity 1,312 5 0%
Total liabilities and equity 14,489 $341 2%
Book value per c mmo share (12/31/16)
(4)
$23.50 $0.78 3%
Incr (Decr)
(1)
Average Balance Sheet
1) Measured vs. the prior quarter.
2) Consumer loans include first and second mortgages, HELOC and other loans; commercial loans include commercial real estate, commercial & industrial and
warehouse loans.
3) Other earning assets include interest earning deposits, investment securities and loans with government guarantees.
4) Common equity and book value ratios are calculated on ending period balances.
Interest-bearing liabilities
• Average deposits increased 1%
- Average retail deposits rose $132 or 2% on
increased savings and demand deposits
4Q16 ($mm) Observations
Interest-earning assets
• Average earning assets rose 4%, led by growth in
loans HFI (up 5%)
- Commercial real estate loans up $127mm or 12%
- Commercial & industrial loans up $88mm or 14%
- Warehouse loans down $11mm or 1%
• Improved net interest margin, excluding benefit from
terminating certain fixed rate FHLB advances
8
4th Quarter 2016 Asset quality
Performing TDRs and NPLs ($mm)
101
75 73 71 67
66
53 44 40 40
$167
$128
$117 $111 $107
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Peforming TDRs NPLs
1) Excludes loans carried under the fair value option and loans with government guarantees.
Allowance coverage(1) (% of loans HFI)
3.0% 2.9%
2.6%
2.3% 2.4%
4.2%
4.5% 4.5%
3.8%
3.3%
1.4% 1.3% 1.2%
1.3%
1.6%
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Total Consumer Commercial
Net charge-offs ($mm)
Representation & warranty reserve(2) ($mm)
$40 $40
$36
$32
$27
$20
$16
$11 $11
$6
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Reserve Repurchase pipeline
4 3 3 2 1
2
6
2
3
3
4
5
1
$9
$12
$9
$7
$2
4Q15 1Q16 2Q16 3Q16 4Q16
Adj. charge-offs Loan sales Govt. guaranteed loans
9
2) Please see slide 43 in the appendix for further details on the representation and warranty reserve.
4th Quarter 2016 Robust capital
8.6%
8.2%
8.6%
2.9%
-49bps +42bps
2.8%
+8bps +47bps
3.0%
-41bps
+63bps
-21bps +21bps
-40bps
-293bps
11.5%
11.0%
11.6%
8.9% 8.9%
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
• Flagstar continues to have strong capital levels after its TARP
redemption
- 4Q16 earnings generated 21bps of Tier 1 leverage
- Capital ratios are consistent or higher than peers before
considering the low risk content of our business
• Flagstar has used excess capital to support balance sheet
growth
• Flagstar grows regulatory capital at a greater pace as it utilizes
its NOL-related DTAs and reduces its MSRs
• The balance sheet has trapped capital of:
- $171mm of NOL-related DTAs (121bps of Tier 1 leverage)
- $156mm of MSRs (110bps of Tier 1 leverage)
• Robust capital generation will support future growth
Observations 4Q16 Flagstar Bancorp Tier 1 leverage
Well
Capitalized
5.0%
Tier 1 CET-1 Tier 1 Total RBC
Leverage to RWA to RWA to RWA
4Q16 Actual 8.9% 13.1% 15.1% 16.4%
3 16 ctual 8.9 12.0 14.0 15.3
Higher rate capital generation (near-term)
Tier 1 equity less TARP incl. deferred dividends TARP incl. deferred dividends
Balance sheet impact Net earnings contribution
2016 phase-in under Basel III TARP redemption
10
4th Quarter 2016 Business Segment Overview
Lee Smith, COO
4th Quarter 2016 Community banking
Average commercial loans ($bn) Commercial loan total commitments ($bn)
Average consumer loans ($bn) Average deposit funding(1) ($bn)
0.4 0.6 0.6 0.6
0.7
0.8
0.8 0.9
1.1
1.2
1.0
1.0
1.3
1.6
1.5
$2.2
$2.4
$2.8
$3.3
$3.5
4Q15 1Q16 2Q16 3Q16 4Q16
Commercial and Industrial Commercial Real Estate Warehouse
0.9 0.9 1.0 1.1 [VALUE]
1.1 1.3
1.5
1.8 [VALUE]
2.2
2.3
2.4
2.9 [VALUE]
$4.2
$4.5
$4.9
$5.8 [VALUE]
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Commercial and Industrial Commercial Real Estate Warehouse
2.9 2.8
2.2 2.1 2.2
0.5 0.5
0.5 0.5 0.5
$3.4 $3.3
$2.7 $2.6 $2.7
4Q15 1Q16 2Q16 3Q16 4Q16
Residential First Mortgages Other Consumer Loans
5.8 5.8 6.1 6.2 6.3
1.1 1.1 1.0
1.1 1.0
1.2 1.2
1.6
1.9 1.9
$8.1 $8.1
$8.6
$9.1 $9.2
4Q15 1Q16 2Q16 3Q16 4Q16
Retail Government Company-controlled deposits
1) Includes company-controlled deposits which are included as part of mortgage servicing.
12
4th Quarter 2016
$61
$65
$73 $73
$76
$79
$77
$80
$87
$8,725
$9,422
$10,367
$10,693
$11,240
$11,871
$11,639
$12,318
$12,817
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Net Interest income Average earning assets
● Sold lower performing assets and re-deployed capital into higher spread commercial loans
● Transition to more stable net interest income
Average earning assets and net interest income ($mm)
CAGR 21%
CAGR 19%
13
Higher net interest income is stabilizing earnings
4th Quarter 2016
3.4 3.8
4.7 5.1 4.5
1.4
1.5
2.1
2.3
1.9 1.0
1.0
1.5
1.8
2.1
$5.8
$6.3
$8.3
$9.2
$8.6
4Q15 1Q16 2Q16 3Q16 4Q16
Conventional Government Jumbo
Mortgage originations
Closings by purpose ($bn)
2.9 2.7
3.8 3.9 3.2
2.9 3.7
4.5
5.3
5.3
$5.8
$6.3
$8.3
$9.2
$8.6
4Q15 1Q16 2Q16 3Q16 4Q16
Purchase originations Refinance originations
Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin
Fallout-adjusted locks ($bn)
$5.0
$6.9
$8.1 $8.3
$6.1
4Q15 1Q16 2Q16 3Q16 4Q16
$66
$85
$46
$75
$90
$94
$57
0.92%
0.96%
1.04%
1.13%
0.93%
4Q15 1Q16 2Q16 3Q16 4Q16
Gain on loan sale (HFS) Gain on HFI transfer Gain on sale margin (HFS)
14
4th Quarter 2016
MSR / regulatory capital (Bancorp)
Loans serviced (‘000) $ UPB of MSRs sold ($bn)
2.5 2.6 2.1
4.2
1.7
2.5 3.2
2.5
$4.2
$5.1
$2.2
$5.3
$6.7
4Q15 1Q16 2Q16 3Q16 4Q16
Bulk Sales Flow Transactions
119 119 134 139 133
212 206 194
207 221
31 29 30
29 29
362 354 358
375 383
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Serviced for Others Subserviced for Others Flagstar Loans HFI
28% 27% 28%
29%
31%
21%
19% 20%
25%
27%
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
MSR to Tier 1 Common MSR to Tier 1 Capital
Mortgage servicing
Average company-controlled deposits ($bn)
$1.2
$1.2
$1.6
$1.9 $1.9
4Q15 1Q16 2Q16 3Q16 4Q16
15
4th Quarter 2016
71% 71%
FY15 FY16
Noninterest expense and efficiency ratio
Adjusted efficiency ratio(1)
75% 75%
68% 67%
77%
4Q15 1Q16 2Q16 3Q16 4Q16
Quarterly noninterest expense ($mm)
$129
$137 $139
$142 $142
4Q15 1Q16 2Q16 3Q16 4Q16
• Flagstar‘s long-term objective is to achieve an efficiency ratio in the mid-60’s
1) References non-GAAP number for 3Q16 and GAAP number for 4Q16. 3Q16 number shown
excludes DOJ benefit during that period. Please see reconciliation on slide 44.
16
4th Quarter 2016 Closing Remarks / Q&A
Sandro DiNello, CEO
4th Quarter 2016 Guidance(1)
18
1) See cautionary statements on slide 2.
Net interest income
• Average earning assets up slightly from year-end, led by growth in C&I, CRE and jumbo mortgage loans, partially offset
by decline in warehouse loans from lower mortgage market volume
• Net interest margin stable to up slightly
Gain on loan sale
income
• Gain on loan sale income down approximately 5%
- Gain on loan sale margin down moderately on continued price competition
- Fallout-adjusted lock volumes up approximately 6% on seasonality
Net MSR return
• Net return on the mortgage servicing asset approximates 4-6%
• Mortgage servicing asset relatively flat
Provision for loan
losses
• Provision for loan losses to replace net charge-offs, consistent with FY16 run rate
Noninterest expenses • Noninterest expenses to remain fairly stable between $142 - $147 million
2017 1st quarter outlook
4th Quarter 2016 Appendix
Company overview 20
Financial performance 25
Community banking 28
Mortgage origination 36
Mortgage servicing 38
Capital and liquidity 40
Asset quality 43
Non-GAAP reconciliation 44
4th Quarter 2016 Flagstar at a glance
COMPANY OVERVIEW
41
Retail home lending
offices in 21 states(1)
99
Branches in
Michigan
Bank branches
Retail home lending
Community banking
• Leading Michigan-based bank with a balanced,
diversified lending platform
• $14.1bn of assets and $8.8bn of deposits
• 99 branches
• 105k household & 14k business relationships
Mortgage origination
• Leading national originator
• Originated $32.5bn of residential mortgage
loans during 2016
• More than 1,350 TPO relationships
• Retail lending network included 41 locations
in 21 states
Mortgage servicing
• 8th largest sub-servicer of mortgage loans
nationwide
• Currently servicing approximately 383k loans
• Scalable platform with capacity to service
1mm loans
• Low cost deposits from escrow balances
Corporate Overview
• Traded on the NYSE (FBC)
• Headquartered in Troy, MI
• Market capitalization $1.5bn
• Member of the Russell 2000 Index
20
1) Includes eight home lending offices located in banking branches.
4th Quarter 2016 Flagstar’s one-of-a-kind business model
… Originates mortgages in
multiple channels on a
national scale, which …
… Deploy excess funding into
lending opportunities where we
are a lender of choice, which …
… Cross-sell our banking
products to deepen our B2B
relationships, which …
… Leverages our
scalable sub-servicing
platform, which …
… Builds enduring net
interest margin driven
revenue, allowing us to …
… Generates stable, lower
cost, long-term funding,
which we are able to ...
… Expands our key B2B
relationships to develop greater
mortgage origination referrals,
improving our ability to …
… Generates capital
with high ROE fee-based
activity and servicing
relationships, which …
COMPANY OVERVIEW
21
4th Quarter 2016 Flagstar has a strong executive team
COMPANY OVERVIEW
Board of Directors
John Lewis
Chairman
Community
Banking
• Currently serving as
Director
Chief
Financial
Officer
• CFO since 8/14
• Nearly 30 years of
banking and
financial services
experience with
First Niagara,
Huntington and
KeyCorp
Chief
Operating Officer
• COO since 5/13
• Formerly a partner
of MatlinPatterson
Global Advisors and
a Senior Director at
Zolfo Cooper
• Extensive expe-
rience in financial
management and
operations
• Chartered Accoun-
tant in England and
Wales
Chief Risk
Officer
• CRO since 6/14
• Over 35 years of
financial services
experience with
Citizens Republic,
Fleet Boston
Financial, First
Union and Chase
Manhattan
Mortgage
Banking
• President of
Mortgage Banking
since 6/15
• 30 years of
mortgage industry
experience with
Mission Hills
Mortgage, IndyMac
and CitiMortgage
General
Counsel
• General Counsel
since 6/15
• 20 years of legal
experience with the
FDIC and Sidley
Austin LLP
• CEO since 5/13
• Over 35 years of banking experience with
Flagstar and its predecessors with a strong
emphasis on community banking, including the
management of retail operations and product
strategy
Patrick McGuirk Steve Figliuolo Sandro DiNello Len Israel Jim Ciroli Lee Smith
Drew Ottaway
• Managing Director
of Lending since
11/15
• Has over 25 years
of commercial
lending experience
in southeast
Michigan with
Comerica and NBD
Chief Audit
Officer
Sandro DiNello
President & CEO
David Colajezzi
22
4th Quarter 2016
Karen Sabatowski
Chief Compliance
Officer
Sandro DiNello
President & CEO
Board of Directors
Steve Figliuolo
Chief Risk Officer
Risk
Committee
Enterprise
Risk
Committee
• Capital
planning /
stress test
modeling
• Mortgage
• Warehouse
• Commercial
• Consumer
• TPO’s
• Counterparty
• Model risk
management
• Risk
assessment/
deficiency
mgmt
• R&W reserve
• Market risk
• Effective
challenge
5 8 53 48 11 8 5 31 FTEs
Regulatory
Affairs
Modeling &
Analytics
ERM
Chief
Credit
Officer
QC /
Appraisal
Review
MFIU Fraud
Investigations
Loan
Review
Operational
Risk
AML /
BSA
Compliance
20
¹ Excludes 24 FTEs in internal audit and 3 FTEs in Sarbanes-Oxley compliance
Risk management
Best-in-class risk management platform with 189 FTEs(1)
COMPANY OVERVIEW
23
4th Quarter 2016 Strong growth opportunities
Grow community banking
• Team lift outs
• Grow housing finance related relationships(1)
- Expand warehouse lending (400bps spreads)
- Grow builder finance lending (350bps spreads)
- Build MSR lending (500bps spreads; LTVs<60%)
• Cultivate middle-market commercial relationships in
foot-print
Expand mortgage business
• Recruit experienced talent to increase share of
origination market
- Distributed and direct-to-consumer retail
- TPO account executives
• Grow servicing operations
- Acquire new sub-servicing relationships
- Cross-sell additional revenue capabilities
24
B
u
il
d
B
u
y
• Buyers of size in Michigan are engaged on other
projects for the foreseeable future
• Michigan is a highly fragmented banking market
• Focused on our share in metro markets
• Acquiring deposit oriented franchises that lag in
profitability because of lack of asset generation
• No strategic buyers of size
• Highly fragmented industry with aging individual
ownership
• Regulatory and interest rate environment is
accelerating exits
• Will consider accretive transactions that add
incrementally to annual origination volume
COMPANY OVERVIEW
1) Indicated spreads are targets and may not be reflective of actual spreads.
24
4th Quarter 2016 Long-term targets
• Long-term target of 1.2 - 1.6%
- Add incremental revenue with low incremental cost
- Improved risk management will deliver long-run
savings
- FY16 adjusted return on average assets of 1.1%(1)
(top 30% of banks $10bn - $50bn of assets(2))
• Long-term target of 13 - 18%
- Add / increase high ROE businesses
- Adjusted return on average equity of 11.8%(1)
(top 15% of banks $10bn - $50bn of assets(2))
Financial Performance
Return on assets Return on equity
• Lender of choice in key markets (Michigan,
national housing finance)
• Long-term target of 50% of revenue
• Growth trajectory 10 - 15%
- Every additional $1bn of earning assets increases
pre-tax profits ~$20mm – $25mm
- Rotate lower spread assets to higher spread assets
while minimizing capital costs
• Nationally recognized leader the quick brown fox d
• Long-term target of 50% of revenue
• Growth trajectory 5 - 10%
- Expand retail originations (distributed, DTC)
- Every 100k in new loans sub-serviced generates
$5mm - $7mm of incremental pre-tax profits
Revenues
Mortgage Banking
FINANCIAL PERFORMANCE
1) References non-GAAP number for 3Q16 and GAAP number for 4Q16. 3Q16 number shown excludes DOJ benefit during that period. Please see reconciliation on slide 44.
2) Data for top ROA and ROE is as of December 31, 2016 (September 30, 2016 if not available) for all major exchange U.S. Banks with assets between $10bn and $50bn, excluding
Puerto Rican banks.
25
4th Quarter 2016 Proposed corporate tax reform
FBC considerations regarding potential tax reform
• A reduction of the U.S. corporate tax rate would impact FBC’s
earnings by:
- Reducing deferred tax asset upon the enactment date of
the law
• Reduction in tangible book value
• Limited reduction to regulatory capital
- Decreasing effective tax rate, which will increase net
income and EPS upon effective date of the law
• Focus on implementing strategies to maximize economic
benefit of DTA
Pro-forma impact of potential tax reform ($mm)
Date
Federal
NOL Other
(2)
Total
12/31/16 (actual) $168 $118 $286
FY17 tax expense
(1)
(70) - (70)
12/31/17 (pro-forma) $98 $118 $216
FY2018 Pro forma Tier 1
corporate tax rate NOL Other Total Capital(4)
35% $0 $0 $0 0 bps
30% ($14) ($17) ($31) (4 bps)
25% ($28) ($34) ($62) (7 bps)
20% ($42) ($51) ($92) (15 bps)
Notes:
(1) Represents consensus estimate from analysts covering FBC.
(2) Other includes DTAs related to state NOLs and reserves for ALLL, R&W and DOJ.
(3) Represents write-down in value of DTA at new tax rate.
(4) Represents reduction in Tier 1 Capital at new tax rate.
Deferred tax asset, net
Income Statement(3)
FINANCIAL PERFORMANCE
26
4th Quarter 2016
1
/3
1
/2
0
1
6
2
/2
9
/2
0
1
6
3
/3
1
/2
0
1
6
4
/3
0
/2
0
1
6
5
/3
1
/2
0
1
6
6
/3
0
/2
0
1
6
7
/3
1
/2
0
1
6
8
/3
1
/2
0
1
6
9
/3
0
/2
0
1
6
1
0
/3
1
/2
0
1
6
1
1
/3
0
/2
0
1
6
1
2
/3
1
/2
0
1
6
1
/3
1
/2
0
1
6
2
/2
9
/2
0
1
6
3
/3
1
/2
0
1
6
4
/3
0
/2
0
1
6
5
/3
1
/2
0
1
6
6
/3
0
/2
0
1
6
7
/3
1
/2
0
1
6
8
/3
1
/2
0
1
6
9
/3
0
/2
0
1
6
1
0
/3
1
/2
0
1
6
1
1
/3
0
/2
0
1
6
1
2
/3
1
/2
0
1
6
Valuation metrics
Observation: Flagstar has a valuation discount to its banking peers. The Company closed the valuation
gap through October, but has underperformed since the election.
Market / tangible book Price / LTM earnings
. FBC valuation vs. SNL U.S. Bank and Thrift Index
Market value gap: ~$0.9B Market value gap: ~$0.8B
. FBC valuation vs. SNL U.S. Bank and Thrift Index
62%
57%
67% 67%
77%
85%
FINANCIAL PERFORMANCE
27
4th Quarter 2016
Deposit Median Proj HHI Proj pop
Market $mm % of total mkt share HHI(2) growth(2)(3) growth(2)(3)
Oakland County 3,456 47.5% 7.0% 72,183 10.7% 2.7%
Grand Rapids MSA 402 5.5% 2.0% 58,024 10.3% 4.3%
Ann Arbor MSA 296 4.1% 3.6% 65,958 9.2% 3.3%
Key Flagstar markets 4,154 57.1% 5.3% 70,369 10.6% 2.9%
National aggregate 57,462 8.7% 3.8%
Flagstar Deposits
154 7 35
Strong market position as leading
Michigan-based community bank
COMMUNITY BANKING
Source: SNL Financial; Note: Deposit data as of June 30, 2016; MI-based banks highlighted; Pro forma for pending mergers and acquisitions.
1) Oakland County data excludes $1.5bn of company-controlled deposits held at company headquarters.
2) Flagstar Median HHI, projected HHI growth and projected population growth are deposit weighted.
3) 2017–2022 CAGR.
Flagstar’s branch network Market share
Attractive markets
Leading position among independent banks
Overall MI-based Institution (pro forma) Branches Total Share
1 Chase 246 $42,006 21%
2 Comerica 214 26,963 13%
3 PNC 206 17,326 9%
4 Bank of America 127 16,564 8%
5 Fifth Third 215 16,073 8%
6 Huntington (pro forma) 362 15,212 8%
7 1 Chemical (pro forma) 224 11,281 6%
8 2 Flagstar 99 8,773 4%
9 Citizens 98 5,138 3%
10 TCF 54 2,908 1%
Top 10 1,845 $162,244 81%
Rank Deposits ($mm)
28
4th Quarter 2016
Deposits
Portfolio and strategy overview
5.8 5.8 6.1 6.2 6.3
2.3 2.3 2.6
2.9 2.9
$8.1 $8.1
$8.6
$9.1 $9.2
4Q15 1Q16 2Q16 3Q16 4Q16
Retail deposits Other deposits
Total average deposits ($bn)
+13.6%
YOY
• Flagstar gathers deposits from consumers, small
businesses and select governmental entities
– Traditionally, CDs and savings accounts
represented the bulk of our branch-based retail
depository relationships
– Today, we are focused on growing DDA
relationships with small business and
consumers
– We additionally maintain depository
relationships in connection with our mortgage
origination and servicing businesses, and with
Michigan governmental entities
– Cost of total deposits equal to 0.52%(1)
DDA
12%
Savings
42%
MMDA
3%
CD
12%
Company-
controlled
20%
Government &
other
11%
69%
retail
Total : $9.2bn
0.52% cost of total deposits(1)
4Q16 total average deposits
COMMUNITY BANKING
1. Total deposits include noninterest bearing deposits.
29
4th Quarter 2016 Deposit growth opportunities
• Average balance of $1.0bn during 4Q16
• Cost of total government deposits: 0.52%(2) during
4Q16
• Michigan deposits are not collateralized
• Strong relationships across the state
• Average balance of $0.4bn during 4Q16
• Flagstar has realized year-over-year growth in
treasury management services of:
- Deposits 27%
• Average balance of $1.9bn during 4Q16 on 383k
loans serviced and sub-serviced
• Low cost of deposits
• Deposit balances increase along with the number of
loans serviced & sub-serviced
• Average balance of $5.9bn during 4Q16 of which 77%
are customer demand & savings accounts
• Cost of total core deposits(1): 0.68%(2) during 4Q16
• Average core deposits of $64mm per branch
• Flagstar’s brand campaign and targeted acquisition
offers are helping grow its core deposit base
Core Deposits
Retail
Commercial
Other Deposits
Government
Company controlled
COMMUNITY BANKING
1) Core deposits equal total deposits less government deposits and company-controlled deposits.
2) Total deposits include noninterest bearing deposits.
30
4th Quarter 2016
2.5 2.9 2.9
3.4 3.3
5.6
5.7 5.6
5.8 6.2
0.5
0.5 0.4
0.4 0.4 $8.6
$9.1 $8.9
$9.7 $9.9
4Q15 1Q16 2Q16 3Q16 4Q16
Loans HFS Loans HFI Loans with government guarantees
1st Mortgage
HFI; 22%
2nds, HELOC
& other; 5%
[CATEGORY
NAME]
[PERCENTA
GE]
[CATEGORY
NAME]
[PERCENTAG
E]
Loans with
government
guarantees;
4%
1st Mortgage
HFS; 34%
4Q16 average loans
Lending
Portfolio and strategy overview
Total average loans ($bn)
• Flagstar’s largest category of earning assets consists
of loans held-for-investment which averaged $6.2bn
during 4Q16
– Loans to consumers consist of residential first and
second mortgage loans, HELOC and other
– C&I / CRE lending is an important growth strategy,
offering risk diversification and asset sensitivity
– Warehouse lending to both originators that sell to
Flagstar and those who sell to other investors
• Flagstar maintains a balance of mortgage loans held-
for-sale which averaged $3.3bn during 4Q16
– Essentially all of our mortgage loans originated are
sold into the secondary market
– Flagstar has the option to direct a portion of the
mortgage loans it originates to its own balance sheet
COMMUNITY BANKING
31
4th Quarter 2016
Commercial lending
Diversified relationship-based commercial lending capabilities
COMMUNITY BANKING
Commercial Real Estate - $1.3bn (12/31/16)
74% Michigan
Retail
20%
Owner-
occupied
19%
Multi-family
18% Home
builder
finance
[PERCENTAG
E] Office
15%
Special
purpose
9%
Industrial
3%
Commercial & Industrial - $0.8bn (12/31/16)
Services
37%
Financial,
Insurance &
Real Estate
(FIRE)
26%
Manufacturing
19%
Servicing
Advances
8%
Distribution
6%
Govt & Educ.
4%
Warehouse - $1.2bn (12/31/16) Overview
• Warehouse lines with approximately 260 relationships
nationwide, of which slightly more than 90% sell a
portion of their loans to Flagstar
• Collateralized by mortgage loans being funded which
are paid off once the loan is sold
• Diversified property types which are primarily income-
producing in the normal course of business
• Focused on experienced top-tier developers with
significant deposit and non-credit product opportunities
• Lines of credit and term loans for working capital
needs, equipment purchases, and expansion projects
• Primarily Michigan based relationships or relationships
with national finance companies
Warehouse
Commercial
Real Estate
Commercial
& Industrial
[CATEGORY
NAME]; ~150
borrowers
[CATEGORY
NAME];
~50 Borrowers
[CATEGORY
NAME];
~60
borrowers
Average 39% advances sold to Flagstar
49% Michigan; 20% national finance
Industry
% Advances sold to Flagstar
Property type
32
4th Quarter 2016
Sandro DiNello
President & CEO
Drew Ottaway
Managing Director of Lending
Warehouse
Lending
Commercial
Real Estate
Comprised of lending
officers who average
experience of 21 years
in banking
(3+ with Flagstar).
Prior banking experience
includes Fifth Third,
Wells Fargo and Bank of
America.
Homebuilder
Finance
Commercial
& Industrial
Newly recruited team of
lending officers who
have extensive
experience of more than
20 years in banking.
Prior banking experience
includes Texas Capital
and Royal Bank of
Canada.
Comprised of lending
officers who average
experience of 26 years
in banking
(13 with Flagstar).
Prior banking experience
includes Citizens Bank,
Bank of America and
Texas Capital.
Comprised of lending
officers who average
experience of 25 years
in banking
(2+ with Flagstar).
Prior banking experience
includes Fifth Third,
PNC, Bank of America
and JPM Chase.
Flagstar has deep commercial
lending experience
Supported by a team of
credit officers with more
than 15 years average
banking experience.
Supported by a team of
credit officers with more
than 20 years average
banking experience.
Supported by a team of
credit officers with nearly
15 years average banking
experience.
Supported by a team of
credit officers with more
than 15 years average
banking experience.
COMMUNITY BANKING
33
4th Quarter 2016
Warehouse lenders ranked by commitments ($mm)
YOY
Rank Institution Growth Total Share
1 JPMorgan Chase 48% $8,000 14%
2 Wells Fargo 8% 5,300 9%
3 Texas Capital 15% 4,961 9%
4 Comerica -5% 3,800 7%
5 BB&T 25% 3,700 6%
6 Customers Bank 15% 3,320 6%
7 First Tennessee 42% 3,035 5%
8 U.S. Bancorp 43% 2,800 5%
9 Flagstar Bancorp 42% 2,705 5%
10 Santander Bank 26% 2,450 4%
Top 10 24% $40,071 69%
3Q16
Source: Inside Mortgage Finance as of December 2, 2016.
FBC average warehouse loans ($mm)
62%
57%
Warehouse lending
● National relationship based lending platform
● Attractive asset class with good spreads (approximately 400bps) and low credit risk
● Strong demonstrated growth potential (Top 10 commitments up 24% year-over-year)
● Flagstar is well positioned to gain market share, leveraging relationships in complementary lines of business,
including home builder finance and mortgage originations
COMMUNITY BANKING
34
$975 $966
$1,317
$1,553 $1,542
4Q15 1Q16 2Q16 3Q16 4Q16
4th Quarter 2016 Home builder finance
● National relationship based lending platform
● Attractive asset class with good spreads (approximately 350bps)
● Focused on markets with strong housing fundamentals and higher growth potential
- High level of housing starts / purchase originations
- Attractive cross-sell opportunities including warehouse loans, commercial deposits and purchase originations
● Flagstar is well positioned to gain market share given builder and mortgage relationships
COMMUNITY BANKING
Home builder loan commitments ($mm)
$92
$155
$181
$131
$168
$220
$0
$223
$323
$401
3/31/2016 6/30/2016 9/30/2016 12/31/2016
Outstanding Unused
Home builder finance footprint
Primary markets
Secondary markets
35
4th Quarter 2016
Originates mortgages in multiple channels
on a national scale
MORTGAGE ORIGINATIONS
36
Residential mortgage originations by channel ($bn)
Broker Correspondent Retail
$4.1
$4.8
$6.2
$7.0
$6.5
4Q15 1Q16 2Q16 3Q16 4Q16
$1.4 $1.3
$1.6 $1.6 $1.4
4Q15 1Q16 2Q16 3Q16 4Q16
$0.3 $0.3 $0.5
$0.6 $0.6
4Q15 1Q16 2Q16 3Q16 4Q16
• 3.0% market share with #9 national ranking(1)
• More than 600 brokerage relationships in 50
states in 4Q16
• Targeted gain on sale margin of ~90bps
• Top 10 relationships account for 23% of overall
brokerage volume
1) Data source: As reported by Inside Mortgage Finance for 3Q16 published November 25, 2016.
• 3.9% market share with #6 national ranking(1)
• More than 700 correspondent partners in 50
states in 4Q16
• Targeted gain on sale margin of ~60bps
• Top 10 relationships account for 18% of overall
correspondent volume
• Warehouse lines with approximately 250
correspondent relationships
• Loan officer additions have expanded our retail
footprint to 42 locations in 21 states
• Targeted gain on sale margin of ~340bps
• Direct-to-consumer is 37% of retail volume
4th Quarter 2016
U.S. residential mortgage origination market (historical and projected volumes)
Source: Inside Mortgage Finance for actual periods and a blended average of forecast by Fannie Mae, Freddie Mac and Mortgage Bankers Association.
1. Adjusted for historical inflation as reported by Bloomberg (2015 = 100).
2. Adjusted for population growth as reported by the US Census Bureau (2015 = 100).
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Nominal $ $0.6 $0.9 $1.0 $0.8 $0.6 $0.8 $0.9 $1.5 $1.3 $1.0 $2.2 $2.9 $3.9 $2.9 $3.1 $3.0 $2.4 $1.5 $1.8 $1.6 $1.5 $2.1 $1.9 $1.2 $1.7 $1.9 $1.6
Real(1) $ 1.0 1.5 .7 1.2 1.0 1.2 1.3 2.1 .9 .4 3.0 3.8 5.1 3.7 .8 .5 .8 .7 2.0 .8 .6 .2 . . . . .
Adjusted(2) $ $ .2 $ .9 $2.1 $ .5 $ .2 $ .4 $ .5 $ .5 $2.2 $1.6 $ .3 $4.3 $ .6 $4.0 $4.1 $3.8 $3.0 $1. $ .1 $1. $1. $2. $2.0 $1.3 $1.7 $1.9 $1.6
$
1
.2
$
1
.9
$
2
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$
1
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$
1
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$
1
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$
1
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4
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5
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4
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1
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1
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1
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1
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1
9
9
1
A
1
9
9
2
A
1
9
9
3
A
1
9
9
4
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1
9
9
5
A
1
9
9
6
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1
9
9
7
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1
9
9
8
A
1
9
9
9
A
2
0
0
0
A
2
0
0
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A
2
0
0
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A
2
0
0
3
A
2
0
0
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A
2
0
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5
A
2
0
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6
A
2
0
0
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A
2
0
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8
A
2
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A
2
0
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2
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2
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2
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1
6
F
2
0
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F
$
in
t
rill
io
n
s
$
1
.2
$
1
.9
$
2
.1
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.5
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1
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1
.6
$
3
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$
4
.3
$
5
.6
$
4
.0
$
4
.1
$
3
.8
$
3
.0
$
1
.7
$
2
.1
$
1
.8
$
1
.6
$
2
.2
$
2
.0
$
1
.3
$
1
.7
$
1
.9
$
1
.6
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
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0
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2
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3
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0
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4
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6
2
0
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2
0
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F
$
in
t
rill
io
n
s
Flagstar has restructured its operations to be profitable
even at historical lows for the mortgage origination market
37
MORTGAGE ORIGINATIONS
4th Quarter 2016
154 7 35
MSR portfolio
as of 12/31/16
MSR portfolio characteristics (% UPB) MSR portfolio statistics
Measure ($mm) 9/30/2016 12/31/2016 Difference
Unpaid principal balance $31,372 $31,207 ($165)
Fair value of MSR $302 $335 $33
Capitalized rate (% of UPB) 0.96% 1.07% 0.11%
Multiple 3.443 4.010 0.567
N te rate 3.926% 3.878% -0.048%
Service fee 0.279% 0.267% -0.012%
Average Measure ($000)
UPB per loan $226 $234 $8
FICO 738 745 7
Loan to value 73.00% 69.81% -3.19%
$ return – MSR asset
$ Return 4Q15 1Q16 2Q16 3Q16 4Q16
Net hedged profit (loss) $1 $1 $1 $4 ($5)
Carry on asset 16 6 9 13 17
Run-off (8) (11) (15) (19) (17)
Gr ss r turn on the
mortgage servicing asset
$9 ($4) ($5) ($2) ($5)
Sale transaction & P/L - (2) 1 (9) 1
Model Changes - - - - (1)
Net return on the
mortgage servicing asset
$9 ($6) ($4) ($11) ($5)
Average mortgage
servicing rights
$304 $285 $307 $316 $327
2016;
56%
2015;
31%
2014; 9%
2013 &
prior; 4%
by Vintage
Fannie
68%
Freddie
28%
[CATEGOR
Y NAME](1)
[PERCENT
AGE]
Private
2%
by Investor
MORTGAGE SERVICING
38
1) MSR sales closed during 4Q16 represented nearly all of the Company’s
remaining GNMA MSRs.
4th Quarter 2016 Mortgage servicing rights
Increase in
Mortgage
Servicing Rights
• Surprising U.S. election results raised
expectations for a pro-growth agenda, causing
a jump in mortgage rates and volatility during
4Q16 [see chart at right]
• FBC realized a $33mm increase (up 11%) in
the value of its mortgage servicing rights
Net Loss on the
Mortgage
Servicing Asset
• The Company experienced a $5mm net loss
on the mortgage servicing asset in 4Q16
• The increase from the prior quarter was
primarily due to:
- $7 million charge recognized in 3Q16
related to MSR sales that closed in 4Q16
- Lower prepayments
- Partially offset by unfavorable changes in
fair value from increase in market implied
interest rate volatility in 4Q16
MSR Hedging
Strategy
• Goal is to protect yield
• Duration and mortgage basis hedged using
swaps, MBS and TBA
• Yield curve, convexity and implied volatility
hedged using swaptions
Strategy and results Market implied volatility (Vega)
• During 4Q16, vega increased from 75 bps to 91 bps, reaching its
highest level of the year
• Vega is still low by historical standards versus highs of:
- 115 bps in 2011
- 150 bps in 2009
MORTGAGE SERVICING
39
4th Quarter 2016
3%
Other
liabilitie
s
3%
Other
long-
term
debt
Liabilities & Equity
154 7 35
Balance sheet composition
4Q16 average balance sheet (%)
Assets
Attractive relationship
lending with no loans >30
days delinquent
Primarily low risk, stable
assets (FHLB stock, BOLI,
premises & equipment,
deferred tax asset, etc.)
~75% of assets are in
lower risk-content
assets: cash, marketable
securities, warehouse
loans, loans held-for-sale
and freshly-originated,
high-FICO conforming
mortgages underwritten
by Flagstar
9%
Other assets
2% MSR
11%
Warehouse loans
Loans held-for-sale
23%
Mortgage loans
held-for-investment
21%
Agency
MBS
20%
1% Cash
13%
Commercial loans
CAPITAL AND LIQUIDITY
Efficiently funds loans
held-for-sale and
warehouse loans
40
51%
Deposits excluding
company-
controlled deposits
(“CCD”)
21%
FHLB borrowings
9% Common equity
13%
Company-controlled
deposits (“CCD”)
4th Quarter 2016 Liquidity and funding
94%
81%
76%
78%
82%
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
1) Total loans (excluding loans held-for-sale & warehouse loans); Core deposits equal total deposits less government deposits and company-controlled deposits
Loans / core deposits(1)
154 7 35
Core deposits¹ /
deposits (%)
74% 70% 71% 67% 72%
Commentary
■ Flagstar has invested
significantly in building its
Community Bank, which provides
attractive core deposit funding for
its balance sheet
■ These retail deposits are
supplemented by Company-
controlled deposits from the
servicing business
■ Much of the remainder of
Flagstar’s balance sheet is self-
funding given it is eligible
collateral for FHLB advances
(which provides significant
liquidity capacity)
CAPITAL AND LIQUIDITY
41
4th Quarter 2016
Change in Economic Value Policy Limit
Rates (bps) of Equity ($bn) ($bn) (%) (%)
+300 $1.927 ($0.173) (8.2%) (22.5%)
+200 $2.005 ($0.095) (4.5%) (15.0%)
+100 $2.073 ($0.028) (1.3%) (7.5%)
Market Implied $2.100 $0.000 0.0% 0.0%
-100 $2.067 ($0.033) (1.6%) (7.5%)
Change
0bps
50bps
100bps
150bps
200bps
250bps
300bps
350bps
400bps
450bps
1
month
3
months
6
months
1
year
2
years
3
years
5
years
7
years
10
years
20
years
30
years
up 100 bps Bear Flattener 12/31/16
Interest rate risk management
• The shorter term measure of the
interest rate risk “Earnings at Risk”
position is asset sensitive due to the
immediate repricing of the variable
rate assets including the mortgage
banking pipeline, warehouse loans,
commercial loans and consumer
loans while liabilities reprice more
slowly.
• The longer term measure of the
interest rate position “Economic
Value of Equity” is relatively
balanced based on market
exposures for +/-100 bps.
• Flagstar also performs a Net Income
Simulation that includes the effect of
changes in interest rates on the
mortgage business. Net income
increase due to a parallel 100bps
increase in rate. Conversely, net
income fall under a bear flattener
scenario.
Net interest margin – 12 month horizon instantaneous shocks ($mm)
($ in mm) Parallel Shift Bear Flattener
Net interest income $10 ($25)
Noninterest Income ($10) to $0 $0 to $25
Up 100bps
Low interest rate risk
Economic value of equity
CAPITAL AND LIQUIDITY
42
4th Quarter 2016
778
540 457 508 447
337
350
238 238 273
1,115
60
890
49
695
28
746
24
720
34
4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016
Fannie Mae Freddie Mac Fannie Mae Freddie Mac
Audit file pulls Repurchase demands
Representation & Warranty reserve details
(in millions) 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16
Beginning balance $45) $40) $40) $36 $32
Additions (release) (5) 0) (3) (5) (6)
Net (charge-offs) /
recoveries (0) 0) (1) (1) 1)
Ending Balance $40) $40) $36) $32 $27
Repurchase pipeline ($mm) Repurchase reserve ($mm)
Repurchase activity with Fannie and Freddie
Repurchase demands /
file pulls
6% 4% 3% 5% 5%
ASSET QUALITY
$20
$16
$11 $11
$6
12/31/2015 3/31/16 6/30/16 9/30/16 12/31/16
43
4th Quarter 2016 Non-GAAP reconciliation
NON-GAAP RECONCILIATION
$mm (except per share amounts)
1) Reflects the exclusion of the 3Q16 Department of Justice (“DOJ”) benefit.
2) Effective tax rate of 34% applied to the Department of Justice (“DOJ”) benefit.
44
3 Months Ended 12 Months Ended
9/30/16 12/31/16
Net interest income (a) $80 $323
Noninterest income (b) $156 $487
Adjustment to remove DOJ benefit(1) (24) (24)
Adjusted noninterest income (c) $132 $463
Noninterest expense (d) $142 $560
Efficiency ratio (d/(a+b)) 59.9% 69.2%
Adjustment to remove DOJ benefit(1) 7.1% 2.0%
Adjusted efficiency ratio (d/(a+c)) 67.0% 71.2%
Net income applicable to common stockholders (e) $57 $171
Adjustment to remove DOJ benefit(1) (24) (24)
Tax impact of DOJ benefit(2) 8 8
Adjusted net income applicable to common stockholders (f) $41 $155
Weighted average diluted shares outstanding (g) 57,933,806 57,597,667
Diluted income per share (e/g) $0.96 $2.66
Adjustment to remove DOJ benefit(1) (0.41) (0.42)
Tax impact of DOJ benefit(2) 0.14 0.14
Adjusted diluted income per share (f/g) $0.69 $2.38
Average total assets (h) $14,148 $13,907
Return on average assets ((e/h) x annualization factor) 1.6% 1.2%
Adjustment to remove DOJ benefit(1) (0.4%) (0.1%)
Adjusted return on average assets ((f/h) x 4) 1.2% 1.1%
Average equity (i) $1,379 $1,464
Return on average equi y ((e/i) x annualization factor) 16.5% 11.7%
Adjustment to remove DOJ benefit(1) (4.6%) (1.1%)
Adjusted return on average equity ((f/i) x 4) 11.9% 10.6%
Average common equity (j) $1,307 $1,313
Return on average common equity ((e/j) x annualization factor) 17.5% 13.0%
Adjustment to remove DOJ benefit(1) (4.9%) (1.2%)
Adjusted return on average common equity ((f/j) x 4) 12.6% 11.8%