Attached files
| file | filename |
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| 8-K - 8-K - FLAGSTAR BANCORP INC | a8-kearningsrelease1q2017.htm |
| EX-99.1 - EXHIBIT 99.1 - FLAGSTAR BANCORP INC | pressrelease1q2017.htm |
1st Quarter 2017
Flagstar Bancorp, Inc. (NYSE: FBC)
Earnings Presentation
1st Quarter 2017
April 25, 2017
1st Quarter 2017 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
1st Quarter 2017 Executive Overview
Sandro DiNello, CEO
1st Quarter 2017 1Q17 Strategic highlights
4
Unique
relationship-based
business model
• Growth in commercial loans, mortgage loans and other earning assets demonstrated our asset generation ability
despite contraction of warehouse loans
• Mortgage revenues(1) increased 19 percent despite challenging macroeconomic headwinds
Strengthen
mortgage revenues
Grow community
banking
Highly
profitable
operations
• Solid, consistent financial results with net income of $27 million and diluted EPS of $0.46
• Progress on long-term financial targets with LTM adjusted ROA of 1.0%(2) and LTM adjusted ROCE of 10.7%(2)
Positioned to thrive
in any market
• Strong credit metrics and low delinquency levels supported by 2.4% allowance coverage ratio
• Relatively neutral interest rate risk position; strong liquidity
• Tier 1 leverage ratio of 9.3%, up 43 bps
• Strong balance sheet growth
- Strong commercial loan growth with period-end commercial and industrial and commercial real estate loans up 11
percent from prior quarter-end and up 58 percent vs. same quarter-end last year
- Average retail deposits up 2% vs. 4Q16 and up 10% vs. 1Q16
• Announced two acquisitions to strengthen our position as national leader in mortgage industry
- Acquisition of delegated correspondent business of Stearns Lending positions Flagstar as 4th largest correspondent
lender with 190 new correspondent relationships
- Pending acquisition of Opes Advisors, a $3 billion originator in 2016, will increase distributed retail channel
1) Mortgage revenue is defined as gain on loan sales HFS and the net (loss) return on the MSR.
2) References non-GAAP number for 3Q16 that excludes DOJ benefit during that period. Please see reconciliation on slide 43.
1st Quarter 2017 Financial Overview
Jim Ciroli, CFO
1st Quarter 2017 1Q17 Financial highlights
6
Solid
results
Solid
banking
contribution
• Net interest income decreased $4 million, or 5%, to $83 million
- Prior quarter net interest margin benefited $2 million, or 6bp, on termination of FHLB advances
- Fewer days in current quarter reduced net interest income by $2 million
- Strong asset generation kept all other net interest income flat, despite contraction in warehouse loans
Good
expense
control
• Noninterest expense fell $2 million, or 1%, to $140 million
- Lower commissions and loan processing expense (down $8 million) due to lower mortgage closings
- Seasonally higher benefits expense (up $6 million)
- Acquisition costs ($1 million) for transactions announced in 1Q17
Strong
credit
performance
• Net charge-offs of $4 million, or 0.27%, versus $2 million, or 0.13%, during 4Q16
• Nonperforming loans fell to $28 million with no delinquencies in commercial portfolio
• Allowance for loan losses covered 2.4% of loans HFI
Robust
capital
position
• Regulatory capital ratios are well above current guidelines for “well capitalized” institutions
- Tier 1 leverage improved to 9.3% despite 33 bp cost from higher phase-in requirement under Basel III and is 4.3
percentage points above “well capitalized” minimum level
- Other regulatory capital ratios have cushions between 5.8 - 6.7 percentage points above “well capitalized” min. levels
• Net income of $27 million, or $0.46 per diluted share, in 1Q17
- Relatively stable net interest income
- Higher noninterest income on increased mortgage revenue(1) due to improved return on mortgage servicing asset
- Improved noninterest expense due to lower mortgage closings, partially offset by seasonally higher benefits expense
1) Mortgage revenue is defined as gain on loan sales HFS and the net (loss) return on the MSR.
1st Quarter 2017
1Q17 4Q16 $ Variance % Variance
Net interest income $83 $87 ($4) (5%)
Provision for loan losses ("PLL") 3 1 2 N/M
Net interest income after PLL 80 86 (6) (7%)
Net gain on loan sales 48 57 (9) (16%)
Loan fees and charges 15 20 (5) (25%)
Loan administration income 5 4 1 25%
Net return on mortgage servicing rights 14 (5) 19 N/M
Representation and warranty benefit 4 7 (3) (43%)
Other noninterest income 14 15 (1) (7%)
Total noninterest income 100 98 2 2%
Net gain on loan sales / total revenue 26% 31% (5%)
Compensation and benefits 72 66 6 9%
Commissions and loan processing expense 22 30 (8) (27%)
Other noninterest expenses 46 46 - 0%
Total noninterest expense 140 142 (2) (1%)
Income before income taxes 40 42 (2) (5%)
Provision for income taxes 13 14 (1) 7%
Net income $27 $28 ($1) (4%)
Diluted income per share $0.46 $0.49 ($0.03) (6%)
Profitability
Net interest margin 2.67% 2.67% 0 bps
Mortgage rate lock commitments, fallout $5,996 $6,091 ($95) (2%)
Mortgage closings $5,912 $8,573 ($2,661) (31%)
Net gain on loan sale margin, HFS 0.80% 0.93% -13 bps
Efficiency ratio 76.8% 76.7% 10 bps
Provision for loan losses
• Low level of provision expense reflected strong
asset quality and largely matched net charge-offs
• NPLs fell to $28mm, or 0.47%, of loans HFI
B
Quarterly income comparison
$mm Observations
Noninterest income
• Noninterest income increased 2%
- Net gain on loan sales fell 16% due to lower margin
from competitive factors and extended turn times to
offset impact of lower warehouse loans
- Loan fees and charges decreased $5mm on lower
mortgage closings
- Net MSR return improved $19mm
C
Net interest income
• Relatively stable net interest margin; prior quarter
benefitted $2mm on termination of FHLB advances
• Average earning assets decreased 4%
- Warehouse loans down $852mm
- Partially offset by C&I and CRE loans up $162mm,
or 8%, and consumer loans up $166mm, or 6%
A
Noninterest expense
• Noninterest expense decreased 1%
- Commissions and loan processing expense fell
$8mm on lower mortgage closings
- Seasonally higher benefits expense (up $6mm)
- Acquisition costs of $1mm
D
A
B
C2
D
C1
C3
7
1st Quarter 2017
• Common equity to asset ratio of 8.9%
• Price to book ratio of 119% based on closing price as
of April 24, 2017
Equity(4)
Average balance sheet highlights
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.
8
$ $ %
Loans held-for-sale $3,286 ($35) (1%)
Consumer loans(2) 2,857 166 6%
Commercial loans(2) 2,782 (690) (20%)
Total loans held-for-investment 5,639 (524) (9%)
Other earning assets(3) 3,418 85 3%
Interest-earning assets 12,343 ($474) (4%)
Other assets 1,700 28 2%
Total assets 14,043 ($446) (3%)
Deposits $8,795 ($438) (5%)
Short-term FHLB advances & other 1,822 395 28%
Long-term FHLB advances 1,200 (373) (24%)
Other long-term debt 493 - 0%
Other liabilities 387 (64) (14%)
Total liabilities 12,697 ($480) (4%)
Stockholders' equity 1,346 34 3%
Total liabilities and stockholders' equity 14,043 ($446) (3%)
Book value per c mm share (3/31/17)(4) $24.03 $0.53 2%
Incr (Decr)(1)
Average Balance Sheet
Interest-bearing liabilities
• Average deposits decreased 5%
- Company controlled deposits fell $522mm or 28%
- Average retail deposits increased $98mm, or 2%,
on growth in consumer savings accounts
1Q17 ($mm) Observations
Interest-earning assets
• Period-end loans HFI were approximately $300mm
higher than 1Q17 quarter average, setting a
foundation for net interest income growth in 2Q17:
- Rebound in warehouse loans
- Continued solid growth in C&I and CRE
• Pulled forward planned purchases of investment
securities
1st Quarter 2017 Asset quality
9
Performing TDRs and NPLs ($mm)
75 73 71 67
48
53
44 40 40
28
$128
$117
$111 $107
$76
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Peforming TDRs NPLs
1) Excludes loans carried under the fair value option and loans with government guarantees.
Allowance coverage(1) (% of loans HFI)
2.9%
2.6%
2.3% 2.4% 2.4%
4.5% 4.5%
3.8%
3.3%
2.9%
1.3% 1.2% 1.3%
1.6%
1.9%
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Total Consumer Commercial
Net charge-offs ($mm)
Representation & warranty reserve(2) ($mm)
$40
$36
$32
$27
$23
$16
$11 $11
$6 $6
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Reserve Repurchase pipeline
3 3 2 1 1
6
2
1
3
4
5
1
2
$12
$9
$7
$2
$4
1Q16 2Q16 3Q16 4Q16 1Q17
Adj. charge-offs Loan sales Govt. guaranteed loans
2) Please see slide 42 in the appendix for further details on the representation and warranty reserve.
1st Quarter 2017 Robust capital
• Flagstar uses excess capital generation to support balance
sheet growth
• Flagstar grows regulatory capital at a greater pace as it utilizes
NOL-related DTAs and reduces MSRs
• The balance sheet has trapped capital of:
- $167mm of NOL-related DTAs (122bps of Tier 1 leverage)
- $169mm of MSRs (123bps of Tier 1 leverage)
- Pending MSR sales will recapture 114bps of trapped T1L
• Robust capital generation will support future growth
Observations 1Q17
• Increase in Tier 1 leverage ratio led by earnings retention,
MSR sales and decrease in average assets during 1Q17
• Flagstar continues to have strong capital levels after TARP
redemption
- 1Q17 earnings generated 19bps of Tier 1 leverage
- Capital ratios are consistent or higher than peers before
considering low risk content of business
Tier 1 CET-1 Tier 1 Total RBC
Leverage to RWA to RWA to RWA
1Q17 Actual 9.3% 12.3% 14.7% 16.0%
4 16 ctual 8.9 13.1 15.1 16.4
Higher rate capital generation (near-term)
10
8.2%
8.6%
8.9%
2.8%
+8bps +47bps
3.0%
-41bps +63bps
-21bps +21bps
-33bps +57bps
+19bps
-293bps
11.0%
11.6%
8.9% 8.9%
9.3%
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Flagstar Bancorp Tier 1 leverage
Well
Capitalized
5.0%
Tier 1 equity less TARP incl. deferred dividends TARP incl. deferred dividends
Balance sheet impact Net earnings contribution
2017 phase-in under Basel III TARP redemption
1st Quarter 2017 Business Segment Overview
Lee Smith, COO
1st Quarter 2017 Community banking
12
Average commercial loans ($bn) Quarter-end commercial loan commitments ($bn)
Average consumer loans ($bn) Average deposit funding(1) ($bn)
0.6 0.6 0.6 0.7 0.8
0.8 0.9
1.1
1.2 1.3
1.0
1.3
1.6
1.5
0.7
$2.4
$2.8
$3.3
$3.5
$2.8
1Q16 2Q16 3Q16 4Q16 1Q17
Commercial and Industrial Commercial Real Estate Warehouse
0.9 1.0 1.1 1.2
1.4
1.3 1.5
1.8 1.9
2.2
2.3
2.4
2.9 2.9
2.4 $4.5
$4.9
$5.8 $6.0 $6.0
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Commercial and Industrial Commercial Real Estate Warehouse
2.8
2.2 2.1 2.2
2.4
0.5
0.5 0.5 0.5
0.5
$3.3
$2.7 $2.6 $2.7
$2.9
1Q16 2Q16 3Q16 4Q16 1Q17
Residential First Mortgages Other Consumer Loans
5.8 6.1 6.2 6.3
6.4
1.1 1.0
1.1 1.0 1.0
1.2
1.6
1.9 1.9 1.4
$8.1
$8.6
$9.1 $9.2
$8.8
1Q16 2Q16 3Q16 4Q16 1Q17
Retail Government Company-controlled deposits
1) Includes company-controlled deposits which are included as part of mortgage servicing.
1st Quarter 2017
$6.9
$8.1 $8.3
$6.1 $6.0
1Q16 2Q16 3Q16 4Q16 1Q17
2.7
3.8 3.9 3.2 3.1
3.7
4.5
5.3
5.3
2.8
$6.3
$8.3
$9.2
$8.6
$5.9
1Q16 2Q16 3Q16 4Q16 1Q17
Purchase originations Refinance originations
Purchase
Mix %
Mortgage originations
13
41% 47% 38% 43% 54%
3.8
4.7 5.1 4.5
3.0
1.5
2.1
2.3
1.9
1.7
1.0
1.5
1.8
2.1
1.2
$6.3
$8.3
$9.2
$8.6
$5.9
1Q16 2Q16 3Q16 4Q16 1Q17
Conventional Government Jumbo
Closings by purpose ($bn)
Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin
Fallout-adjusted locks ($bn)
$66
$85
$75
$90
$94
$57
$48
0.96%
1.04%
1.13%
0.93%
0.80%
1Q16 2Q16 3Q16 4Q16 1Q17
Gain on loan sale (HFS) Gain on HFI transfer Gain on sale margin (HFS)
1st Quarter 2017 Mortgage servicing
14
MSR / regulatory capital (Bancorp)
Quarter-end loans serviced (000’s) $ UPB of MSRs sold ($bn)
2.6 2.1
4.2
5.8
2.5 3.2
2.5
2.2
$5.1
$2.2
$5.3
$6.7
$8.0
1Q16 2Q16 3Q16 4Q16 1Q17
Bulk Sales Flow Transactions
119 134 139 133 117
206 194
207 221 242
29 30
29 29 34
354 358
375 383
393
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Serviced for Others Subserviced for Others Flagstar Loans HFI
27% 28%
29%
31%
28%
19% 20%
25%
27%
23%
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
MSR to Tier 1 Common MSR to Tier 1 Capital
Average company-controlled deposits ($bn)
$1.2
$1.6
$1.9 $1.9
$1.4
1Q16 2Q16 3Q16 4Q16 1Q17
1st Quarter 2017 Noninterest expense and efficiency ratio
• Flagstar„s long-term objective is to achieve an efficiency ratio in the mid-60‟s
15
1) References non-GAAP number for 3Q16 and GAAP number for all other quarters. 3Q16
number shown excludes DOJ benefit during that period. Please see reconciliation on slide 43.
71% 72%
LTM 1Q16 LTM 1Q17
Adjusted efficiency ratio(1)
75%
68% 67%
77% 77%
1Q16 2Q16 3Q16 4Q16 1Q17
Quarterly noninterest expense ($mm)
$137 $139
$142 $142 $140
1Q16 2Q16 3Q16 4Q16 1Q17
1st Quarter 2017 Closing Remarks / Q&A
Sandro DiNello, CEO
1st Quarter 2017 Earnings guidance(1)(2)
17
1) See cautionary statements on slide 2.
2) Opes Advisors pending acquisition not included in earnings guidance.
Net interest income
• Net interest income up 10-15%
- Period-end earning assets grow 5-10%, led by higher warehouse and other commercial loans
- Net interest margin steady with upward bias from recent Fed rate increase
Net gain on loan sales
• Net gain on loan sales up significantly on seasonal increase in mortgage market led by higher purchase originations
- Fallout-adjusted locks up 25-30%, excluding impact of delegated correspondent acquisition
- Delegated correspondent acquisition totals $1.0-$1.5 billion
- Gain on loan sale margin flat, excluding delegated correspondent acquisition
Mortgage servicing
rights
• Net return on mortgage servicing rights declines due to significantly lower MSR balance and approximates 4-6%
Other noninterest
income
• Loan administration income increases on higher sub-serviced volume
• Loan fees and charges up on higher closings
• All other noninterest income down slightly from Q1 levels
Noninterest expense
• Noninterest expense to rise to $147-$152 million, due to seasonally higher mortgage volume driven expenses and full
quarter of expenses related to Stearns acquisition
2nd Quarter 2017 Outlook
1st Quarter 2017 Appendix
Company overview 19
Financial performance 24
Community banking 26
Mortgage origination 35
Mortgage servicing 38
Capital and liquidity 39
Asset quality 42
Non-GAAP reconciliation 43
1st Quarter 2017 Flagstar at a glance
COMPANY OVERVIEW
43
Flagstar retail home
lending offices(1)
99
Branches in
Michigan
Bank branches
Flagstar retail home lending
Opes retail home lending
Community banking
• Leading Michigan-based bank with a balanced,
diversified lending platform
• $15.4bn of assets and $8.6bn of deposits
• 99 branches
• 106k household & 15k business relationships
Mortgage origination
• Leading national originator
• Originated $32.0bn of residential mortgage
loans during the last twelve months
• More than 1,600 TPO relationships
Mortgage servicing
• 8th largest sub-servicer of mortgage loans
nationwide
• Currently servicing approximately 393k 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 $1.6bn
• Member of the Russell 2000 Index
19
1) Includes seven home lending offices located in banking branches.
2) Flagstar will acquire 39 retail home lending offices upon completing the pending acquisition of Opes Advisors.
39
Opes retail home
lending offices(2)
1st Quarter 2017 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
20
1st Quarter 2017 Flagstar has a strong executive team
COMPANY OVERVIEW
21
Board of Directors
John Lewis
Chairman
Community
Banking
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
• Interim
management of
sales and
fulfillment to be
shared between
Sandro DiNello
and Lee Smith,
respectively, until a
search is
completed
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 Drew Ottaway Sandro DiNello Jim Ciroli Lee Smith
• Managing Director
of Lending and
Michigan Market
President
• Has over 25 years
of banking and
commercial lending
experience in
southeast Michigan
with Comerica and
NBD
Chief Audit
Officer
Sandro DiNello
President & CEO
Brian Dunn
1st Quarter 2017
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 7 57 49 12 8 4 32 FTEs
Regulatory
Affairs
Modeling &
Analytics
ERM
Chief
Credit
Officer
QC /
Appraisal
Review
MFIU Fraud
Investigations
Loan
Review
Operational
Risk
AML /
BSA
Compliance
21
¹ Excludes 24 FTEs in internal audit and 3 FTEs in Sarbanes-Oxley compliance
Risk management
Best-in-class risk management platform with 195 FTEs(1)
COMPANY OVERVIEW
22
1st Quarter 2017 Strong growth opportunities
Grow community banking 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
23
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
• Team lift outs
• Grow housing finance related relationships(1)
- Expand warehouse lending (375bps spreads)
- Grow builder finance lending (475bps spreads)
- Build MSR lending (450bps spreads; LTVs<60%)
• Cultivate middle-market commercial relationships in
foot-print
COMPANY OVERVIEW
1) Indicated spreads are targets and may not be reflective of actual spreads.
23
1st Quarter 2017 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
- Adjusted return on average assets (last twelve
months) of 1.0%(1)
• Long-term target of 13 - 18%
- Add / increase high ROE businesses
- Return on average common equity (last twelve
months) of 10.7%(1)
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. 3Q16 number shown excludes DOJ benefit during that period. Please see reconciliation on slide 43.
24
1st Quarter 2017
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
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0
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0
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1
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0
1
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1
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2
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3
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1
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0
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1
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0
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2
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0
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3
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0
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4
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5
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9
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0
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1
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0
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0
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0
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1
2
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1
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0
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1
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0
1
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2
/2
8
/2
0
1
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3
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1
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0
1
7
Valuation metrics
Observation: Flagstar has a valuation discount to its banking peers. The Company closed the valuation
gap through October 2016, but has underperformed since the U.S. presidential 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: ~$0.6B
. FBC valuation vs. SNL U.S. Bank and Thrift Index
63%
57%
72%
67%
77%
85%
FINANCIAL PERFORMANCE
25
1st Quarter 2017
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 MI-based 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)
26
1st Quarter 2017
Deposits
Portfolio and strategy overview
5.8 6.1 6.2 6.3 6.4
2.3 2.6
2.9 2.9 2.4
$8.1
$8.6
$9.1 $9.2 $8.8
1Q16 2Q16 3Q16 4Q16 1Q17
Retail deposits Other deposits
Total average deposits ($bn)
+8.6%
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
balances with consumer, business banking and
commercial relationships
– 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 0.56%(1)
DDA
13%
Savings
44%
MMDA
3%
CD
13%
Company-
controlled
16%
Government &
other
11%
73%
retail
Total : $8.8bn
0.56% cost of total deposits(1)
1Q17 total average deposits
COMMUNITY BANKING
1. Total deposits include noninterest bearing deposits.
27
1st Quarter 2017 Deposit growth opportunities
• Average balance of $1.0bn during 1Q17
• Cost of total government deposits: 0.52%(2) during
1Q17
• Michigan deposits are not collateralized
• Strong relationships across the state
• Average balance of $0.5bn during 1Q17
• Offer complete line of treasury management services
• Flagstar has realized 43% growth (year-over-year) in
commercial demand and savings deposits
• Average balance of $1.4bn during 1Q17 on 393k
loans serviced and sub-serviced
• Low cost of deposits
• Deposit balances increase along with the number of
loans serviced and sub-serviced
• Average balance of $5.9bn during 1Q17 of which 79%
are demand & savings accounts
• Cost of total core deposits(1): 0.68%(2) during 1Q17
• Average core deposits of $65mm per branch
• Flagstar‟s brand campaign is helping grow its core
deposit base
Core Deposits
Retail
Commercial
Other Deposits
Government
Company controlled
COMMUNITY BANKING
1) Core deposits = total deposits excluding government deposits and company-controlled deposits.
2) Total deposits include noninterest bearing deposits.
28
1st Quarter 2017
2.9 2.9 3.4 3.3 3.3
5.7 5.6
5.8 6.2 5.6
$9.1 $8.9
$9.7 $9.9
$9.2
1Q16 2Q16 3Q16 4Q16 1Q17
Loans HFS Loans HFI Loans with government guarantees
1st Mortgage
HFI
26%
2nds, HELOC
& other
5%
Warehouse
7%
CRE and C&I
23%
Loans with
government
guarantees
4%
1st Mortgage
HFS
35%
1Q17 average loans
Lending
Portfolio and strategy overview
Total average loans ($bn)
• Flagstar’s largest category of earning assets consists
of loans held-for-investment which averaged $5.6bn
during 1Q17
– 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 1Q17
– 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
29
1st Quarter 2017
$65
$73 $73
$76
$79
$77
$80
$87
$83
$9,422
$10,367
$10,693
$11,240
$11,871
$11,639
$12,318
$12,817
$12,343
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
Net Interest income Average earning assets
● Sold lower performing assets and re-deployed capital into higher spread commercial loans
● Transition to more stable net interest income
Average earning assets and net interest income ($mm)
CAGR 14%
CAGR 13%
30
Higher net interest income is stabilizing earnings
COMMUNITY BANKING
1st Quarter 2017
Commercial lending
Diversified relationship-based commercial lending capabilities
COMMUNITY BANKING
Commercial Real Estate - $1.4bn (3/31/17) Commercial & Industrial - $0.9bn (3/31/17)
Services
34%
Financial,
Insurance &
Real Estate
(FIRE)
34%
Manufacturing
16%
Servicing
Advances
7%
Distribution
5%
Govt & Educ.
4%
Warehouse - $0.8bn (3/31/17) Overview
• Warehouse lines with approximately 260 relationships
nationwide, of which 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
> 75%; ~150
borrowers
25% - 75%;
~50
borrowers
< 25%; ~60
borrowers
Average 40% advances sold to Flagstar
Industry
% Advances sold to Flagstar
Property type
31
71% Michigan 57% Michigan; 15% national finance
Home
Builder
Finance
21%
Retail
18%
Owner-
occupied
17%
Multi-
family
17%
Office
14%
Special
purpose
10%
Industrial
3%
1st Quarter 2017
Flagstar has deep commercial lending experience
COMMUNITY BANKING
32
Sandro DiNello
President & CEO
Drew Ottaway
Managing Director of Lending &
Michigan Market President
Warehouse
Lending
Commercial
Real Estate
Comprised of lending
officers who average
experience of 21 years
in banking.
Prior banking
experience includes
Fifth Third, Wells Fargo
and Bank of America.
Retail
Banking
Commercial
& Industrial
Network of 99 retail
branches and online
platform providing
deposit, investment,
insurance and lending
services to 106k
consumer and 15k
business relationships.
Comprised of lending
officers who average
experience of 26 years
in banking.
Prior banking
experience includes
Citizens Bank, Bank of
America and Texas
Capital.
Comprised of lending
officers who average
experience of 25 years
in banking.
Prior banking
experience includes
Fifth Third, PNC, Bank
of America and JPM
Chase.
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.
Provides funding
support for our portfolio
of consumer and
commercial loans HFI
Homebuilder
Finance
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.
Supported by a team of
credit officers with more
than 15 years average
banking experience.
Capital
Markets
More than 20 years
experience in various
capital raising activities
across all asset classes.
Prior banking
experience includes
Union Bank and
Mitsubishi Financial
Group (MUS–USA
Securities, Inc.).
Supports all the lending
segments of Commercial
Lending where the officers
average over 17 years of
experience
1st Quarter 2017
Warehouse lenders ranked by commitments ($mm)
YOY
Rank Institution Growth Total Share
1 JPMorgan Chase 64% $9,000 15%
2 Wells Fargo 20% 5,777 9%
3 Texas Capital -9% 4,497 7%
4 Comerica 20% 4,360 7%
5 EverBank 11% 4,100 7%
6 BB&T 23% 3,600 6%
7 Customers Bank 11% 3,435 6%
8 First Tennessee 50% 3,255 5%
9 Flagstar Bancorp 39% 3,006 5%
10 U.S. Bancorp -6% 2,524 4%
Top 10 22% $43,554 70%
4Q16
Source: Inside Mortgage Finance as of February 24, 2017.
FBC average warehouse loans ($mm)
62%
57%
Warehouse lending
● National relationship based lending platform
● Attractive asset class with good spreads (approximately 375bps) and low credit risk
● Strong demonstrated growth potential (Top 10 commitments up 22% 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
33
$966
$1,317
$1,553 $1,542
$690
1Q16 2Q16 3Q16 4Q16 1Q17
1st Quarter 2017 Home builder finance
COMMUNITY BANKING
34
Home builder loan commitments ($mm)
● National relationship based lending platform launched in 1Q16
● Attractive asset class with good spreads (approximately 475bps)
● 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
Home builder finance footprint
Primary markets
Secondary markets
Note: Includes loans originated prior to the launch of National Home Builder Lending Platform during
1Q16.
U.S. housing starts (000’s)
(SAAR, 3-mo. moving avg, thru 3/31/17)
Overview
909
1,823
353
821
D
e
c
-8
9
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e
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$152
$234 $264
$365
$155
$230
$297
$402
$96
$307
$463
$561
$768
3/31/16 6/30/16 9/30/16 12/31/16 3/31/17
Outstanding Unused
1st Quarter 2017
National distribution through multiple channels
MORTGAGE ORIGINATIONS
35
Residential mortgage originations by channel ($bn)
Broker Correspondent Retail
$4.8
$6.2
$7.0
$6.5
$4.5
1Q16 2Q16 3Q16 4Q16 1Q17
$1.3
$1.6 $1.6 $1.4
$1.0
1Q16 2Q16 3Q16 4Q16 1Q17
$0.3 $0.5
$0.6 $0.6 $0.4
1Q16 2Q16 3Q16 4Q16 1Q17
• 2.6% market share with #8 national ranking(1)
• Approximately 600 brokerage relationships in
50 states in 1Q17
• Targeted gain on sale margin of ~90bps
• Top 10 relationships account for 19% of overall
brokerage volume
1) Data source: As reported by Inside Mortgage Finance for FY16 published February 24, 2017.
• 3.7% market share with #6 national ranking(1)
(pro forma with Stearns – 5.0% market share
with #4 national ranking)
• More than 1,000 correspondent partners in 50
states in 1Q17
• Targeted gain on sale margin of ~60bps
• Top 10 relationships account for 15% of overall
correspondent volume
• Warehouse lines with approximately 250
correspondent relationships
• Loan officer additions have expanded our retail
footprint to 43 locations in 23 states
• Targeted gain on sale margin of ~340bps
• Direct-to-consumer is 32% of retail volume
• Opes Advisors, Inc. originated $2.9bn during
2016 with 39 retail locations in Northern
California, Oregon and Washington
1st Quarter 2017 Mortgage origination channel mix with acquisitions
36
MORTGAGE ORIGINATIONS
Channel Sub-channel
FBC,
pre-acquisitions Acquisitions Pricing
Credit
Underwriting Funding GOS Margin
Distributed
retail
N/A ~5%
Opes(1)
(100%)
N/A FBC FBC Highest
Consumer
direct
N/A ~2% N/A FBC FBC
Broker N/A ~20% Best efforts FBC FBC
Non-delegated ~50% Best efforts FBC Warehouse
Delegated
best efforts
~15%
Stearns
(~20%)
Best efforts 3rd Party Warehouse
Delegated
mandatory
~3% Mandatory 3rd Party Warehouse
Bulk mandatory ~5%
Stearns
(~80%)
Mandatory 3rd Party Warehouse Lowest
Correspondent
Mortgage origination channel attributes
1) Pending acquisition of Opes Advisors is expected to close during 2Q17.
1st Quarter 2017
Flagstar has restructured its operations to be profitable
even at historical lows for the mortgage origination market
37
MORTGAGE ORIGINATIONS
Source: Inside Mortgage Finance for actual periods and a blended average of forecast by Fannie Mae, Freddie Mac and Mortgage Bankers Association.
1. Adjusted for historical inflation as reported by Bloomberg (2015 = 100).
2. Adjusted for population growth as reported by the US Census Bureau (2015 = 100).
Nominal ($) 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 2.0 1.6 1.5
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Adjusted(2) ($) .2 .9 2.1 .5 .2 .4 .5 .5 2.2 1.6 .3 4.3 .6 4.0 4.1 3.8 3.0 1. .1 1. 1. 2. 2.0 1.3 1.7 2.0 1.6 1.5
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1st Quarter 2017
154 7 35
MSR portfolio
as of 3/31/17
MSR portfolio characteristics (% UPB) MSR portfolio statistics
Measure ($mm) 12/31/2016 3/31/2017 Difference
Unpaid principal balance $31,207 $26,762 ($4,445)
Fair value of MSR $335 $295 ($40)
Capitalized rate (% of UPB) 1.07% 1.10% 0.03%
Multiple 4.010 4.141 0.131
N te rate 3.878% 3.905% 0.027%
Service fee 0.267% 0.266% -0.001%
Average Measure ($000)
UPB per loan $234 $229 ($5)
FICO 745 744 (1)
Loan to value 69.81% 68.22% -1.59%
Mortgage servicing rights – $ return
$ Return 1Q16 2Q16 3Q16 4Q16 1Q17
Net hedged profit (loss) $1 $1 $4 ($5) $2
Carry on asset 6 9 13 17 14
Run-off (11) (15) (19) (17) (6)
Gr ss return on the
mortgage servicing rights
($4) ($5) ($2) ($5) $10
S le transaction & P/L (2) 1 (9) 1 (1)
Model Changes - - - (1) 5
Net return on the
mortgage servicing rights
($6) ($4) ($11) ($5) $14
Average mortgage
servicing rights
$285 $307 $316 $327 $344
2016 &
later; 50%
2015;
35%
2014;
10%
2013 &
prior; 5%
by Vintage
MORTGAGE SERVICING
38
Fannie
64%
Freddie
31%
GNMA
3%
Private
2%
by Investor
1st Quarter 2017
154 7 35
Balance sheet composition
CAPITAL AND LIQUIDITY
39
3%
Other
liabilitie
s
3%
Other
long-
term
debt
Liabilities & Equity
1Q17 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.)
~73% 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
5% Warehouse loans
Loans held-for-sale
24%
Mortgage loans
held-for-investment
23%
Agency
MBS
21%
1% Cash
15%
Commercial loans
Efficiently funds loans
held-for-sale and
warehouse loans
53%
Deposits excluding
company-
controlled deposits
(“CCD”)
22%
FHLB borrowings
10% Common
equity
9%
Company-controlled
deposits (“CCD”)
1st Quarter 2017 Liquidity and funding
154 7 35
CAPITAL AND LIQUIDITY
40
68%
60% 59%
63%
66%
1Q16 2Q16 3Q16 4Q16 1Q17
1) HFI loan-to-deposit ratio is total average loans HFI (excluding warehouse loans) expressed as a percentage of total average deposits (excluding company-controlled deposits).
HFI loan-to-deposit ratio(1) 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)
1st Quarter 2017 Low interest rate risk
CAPITAL AND LIQUIDITY
41
-0.5%
-2.3%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
(-100) bps +100 bps +/-100 bps limit
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 3/31/2017
Net interest margin – 12 month horizon instantaneous shocks ($mm)
Economic value of equity, trend (12/31/15 - 3/31/17)
($ in mm) Parallel Shift Bear Flattener
Net interest income $7 ($42)
Noninterest Income ($7) to $0 $0 to $42
Up 100bps
1st Quarter 2017
540 457 508 447 479
350
238 238 273 234
890
49
695
28
746
24
720
34
713
25
1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017
Fannie Mae Freddie Mac Fannie Mae Freddie Mac
Audit file pulls Repurchase demands
Representation & Warranty reserve details
(in millions) 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17
Beginning balance $40) $40) $36 $32 $27
Additions (release) 0) (3) (5) (6) (4)
Net (charge-offs) /
recoveries 0) (1) (1) 1) 0)
Ending Balance $40) $36) $32 $27 $23
Repurchase pipeline ($mm) Repurchase reserve ($mm)
Repurchase activity with Fannie and Freddie
Repurchase demands /
file pulls
4% 3% 5% 6% 4%
ASSET QUALITY
$16
$11 $11
$6 $6
3/31/16 6/30/16 9/30/16 12/31/16 3/31/2017
42
1st Quarter 2017 Non-GAAP reconciliation
NON-GAAP RECONCILIATION
$mm
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.
43
3 Months Ended 12 Months Ended 12 Months Ended
9/30/16 12/31/16 3/31/17
Net interest income (a) $80 $323 $327
Noninterest income (b) $156 $487 $482
Adjustment to remove DOJ benefit(1) (24) (24) (24)
Adjusted noninterest income (c) $132 $463 $458
Noninterest expense (d) $142 $560 $563
Efficiency ratio (d/(a+b)) 59.9% 69.2% 69.6%
Adjustment to remove DOJ benefit(1) 7.1% 2.0% 2.1%
Adjusted efficiency ratio (d/(a+c)) 67.0% 71.2% 71.7%
Net income applicable to common stockholders (e) $57 $171 $159
Adjustment to remove DOJ benefit(1) (24) (24) (24)
Tax impact of DOJ benefit(2) 8 8 8
Adjusted net income applicable to common stockholders (f) $41 $155 $143
Average total assets (g) $14,148 $13,907 $14,030
Return on average assets ((e/g) x annualization factor) 1.6% 1.2% 1.1%
Adjustment to remove DOJ benefit(1) (0.4%) (0.1%) (0.1%)
Adjusted return on average assets ((f/g) x 4) 1.2% 1.1% 1.0%
Average common equity (h) $1,307 $1,313 $1,333
Return on average common equity ((e/h) x annualization factor) 17.5% 13.0% 11.9%
Adjustment to remove DOJ benefit(1) (4.9%) (1.2%) (1.2%)
Adjusted return on average common equity ((f/h) x 4) 12.6% 11.8% 10.7%