Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - FLAGSTAR BANCORP INC | pressrelease1q2018.htm |
| 8-K - 8-K - FLAGSTAR BANCORP INC | a8-kearningsrelease1q2018.htm |
1st Quarter 2018
Flagstar Bancorp, Inc. (NYSE: FBC)
Earnings Presentation
1st Quarter 2018
April 24, 2018
1st Quarter 2018 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 2018 Executive Overview
Sandro DiNello, CEO
1st Quarter 2018 Strategic highlights
4
Unique
relationship-based
business model
• Delivered consistent earnings despite industry-wide challenges in mortgage origination
- Average earning assets flat as continued growth in CRE and C&I loans offset seasonal declines in loans HFS and
warehouse loans
- Continued subservicing growth; should exceed 500,000 accounts by end of second quarter
Strengthen
mortgage revenues
Grow community
banking
Highly profitable
operations
• Solid, consistent financial results despite challenging mortgage market
- Net income of $35 million or $0.60 per diluted share; unchanged vs. adjusted 4Q17(1) and up 30% vs. 1Q17
- Noninterest expense fell $5 million, down 3 percent vs. 4Q17, driven by variable cost model and prudent expense
management
Positioned to thrive
in any market
• Strong credit metrics and low delinquency levels supported by 1.7 percent allowance coverage ratio
• Relatively neutral interest rate risk position
• Strong Tier 1 leverage ratio of 8.7 percent, Capital Simplification NPR would improve Tier 1 leverage ratio to 9.2
percent(2)
• Average CRE and C&I loans increased $169 million, up 6 percent vs. 4Q17; deposits up 3%
• Closed on acquisition of Desert Community Bank branches and Santander mortgage warehouse business
• Mortgage revenues totaled $64 million, down 15 percent vs. 4Q17 and up 3 percent vs. 1Q17
• Strong, well-diversified distribution channels will help weather down market and positions us to take advantage of market
dislocation
1) Non-GAAP number. Number shown excludes non-cash charge of $80 million, or $1.37 per diluted share, resulting from Tax Cuts and Jobs Act. Please see reconciliation on page 48.
2) Non-GAAP number. Please see reconciliation on page 48.
1st Quarter 2018 Financial Overview
Jim Ciroli, CFO
1st Quarter 2018 Financial highlights
6
1) Mortgage revenue is defined as net gain on loan sales HFS plus the net return on the MSRs.
Unique
relationship-based
business model
Grow community
banking
• Net interest income of $106 million, reflecting two fewer days in quarter
- Average earning assets unchanged; earning assets at quarter-end of $16 billion
- Net interest margin stable; booking attractive spread assets while managing deposit costs
- Acquisitions late in the quarter will provide immediate benefits
Seasonally lower
mortgage revenues
Strong
asset quality
• Negligible net charge-offs
• Nonperforming loan ratio fell to 0.35 percent; early stage consumer delinquencies low; no commercial loan
delinquencies over 30 days
• Allowance for loan losses covered 1.7 percent of loans HFI
Robust capital
position
• Capital remained strong with regulatory capital ratios well above current “well capitalized” guidelines
- Tier 1 leverage at 8.7 percent with nearly 50 basis points of trapped capital in MSRs and DTAs
- Tier 1 leverage has approximately 370 basis point buffer to “well-capitalized” minimums that would grow to
approximately 420 basis points under the Capital Simplification proposal
• Net income of $35 million, or $0.60 per diluted share, in 1Q18
- Increased HELOC, CRE and C&I loans
- Mortgage revenues down on seasonal decline in originations and margin compression from competitive market
- Mortgage Servicing gained scale from sales of MSRs (subservicing retained)
• Mortgage revenue(1) down $11 million; lower net gain on loan sales partially offset by higher net return on MSRs
- Net gain on loan sales fell $19 million, reflecting lower FOAL (down 11%) and GOS margin (down 14 basis points)
- Net return on MSRs 5 percent after transaction costs of $2 million from MSR sales in 1Q18
1st Quarter 2018
1Q18 4Q17 $ Variance % Variance
Net interest income $106 $107 ($1) (1%)
Provision for loan losses ("PLL") - 2 (2) (100%)
Net interest income after PLL 106 105 1 1%
Net gain on loan sales 60 79 (19) (24%)
Loan fees and charges 20 24 (4) (17%)
Loan administration income 5 5 - -
Net return on mortgage servicing rights 4 (4) 8 N/M
Representation and warranty benefit 2 2 - -
Other noninterest income 20 18 2 11%
Total noninterest income 111 124 (13) (10%)
Compensation and benefits 80 80 - -
Commissions and loan processing expense 32 39 (7) (18%)
Other noninterest expenses 61 59 2 3%
Total noninterest expense 173 178 (5) (3%)
Income before income taxes 44 51 (7) (14%)
Provision for income taxes 9 16 (1) (7) (44%)
Net income $35 $35 (1) - -
Diluted income per share $0.60 $0.60 (1) - -
Profitability
Net interest margin 2.76% 2.76% 0 bps
Total revenues $217 $231 ($14) (6%)
Net gain on loan sales / total revenue 28% 34% (600 bps)
Mortgage rate lock commitments, fallout $7,722 $8,631 ($909) (11%)
Mortgage closings $7,886 $9,749 ($1,863) (19%)
Net gain on loan sale margin, HFS 0.77% 0.91% (14 bps)
Quarterly income comparison
$mm Observations
• Noninterest income fell $13mm
- Net gain on loan sales down $19mm due to
seasonal decline in mortgage originations and
margin compression from competitive market
- Net return on MSRs improved $8mm
Noninterest income B
• Net interest income declined $1mm
• Average earning assets steady at $15.4bn
- Net interest margin stable at 2.76%
- Deposits grew 3%
Net interest income
• Noninterest expense decreased $5mm or 3%
- Commissions and loan processing expense
declined $7mm on lower mortgage closings
- Compensation and benefits steady at $80mm
- Merger expenses of $1mm
Noninterest expense
A
B
C
7
1) Non-GAAP number. Number shown excludes non-cash charge of $80 million, or $1.37 per diluted share, resulting from Tax Cuts and Jobs Act. Please see reconciliation on page 48.
N/M – not meaningful
C
A
1st Quarter 2018
• Tangible common equity to asset ratio of 7.7%
• FBC closing share price of $33.61 on April 23, 2018 is
142% of tangible book value per share
Equity(4)
Average balance sheet highlights
8
• Average deposits increased $287mm, or 3%
• Government deposits rose $151mm, or 15%
• Retail deposits grew $109mm, or 2%, with mix shift from
retail savings to retail CDs
- Deposit costs well managed despite slight duration
extension from higher CD mix
Interest-bearing liabilities
Observations
• Average loans held-for-investment increased $192mm,
or 3%
- Higher consumer, CRE and C&I loans offset decline in
loans HFS and warehouse loans from seasonal drop in
mortgage closings
- Acquisitions late in quarter to provide immediate NII
growth
Interest-earning assets
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) Tangible book value per common share references a non-GAAP number. Please see reconciliation on page 48.
$ $ %
Loans held-for-sale $4,231 ($306) (7%)
Consumer loans(2) 3,468 214 7%
Commercial loans(2) 4,019 (22) (1%)
Total loans held-for-investment 7,487 192 3%
Other earning assets(3) 3,636 89 3%
Interest-earning assets $15,354 ($25) (0%)
Other assets 1,736 (36) (2%)
Total assets $17,090 ($61) (0%)
Deposits $9,371 $287 3%
Short-term FHLB advances & other 4,032 (297) (7%)
Long-term FHLB advances 1,290 (11) (1%)
Other long-term debt 494 - 0%
Other liabilities 489 43 10%
Total liabilities $15,676 $22 0%
Stockholders' equity 1,414 (83) (6%)
Total liabilities nd stockholders' equity $17,090 ($61) (0%)
Tangible book value er common share(4) $23.62 ($0.42) (2%)
Incr (Decr)(1)
Average Balance Sheet
1Q18 ($mm)
1st Quarter 2018 Asset quality
9
Performing TDRs and NPLs ($mm)
48 46 46 43 49
28 30 31 29
29
$76 $76 $77 $72
$78
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
Peforming TDRs NPLs
1) Excludes loans carried under the fair value option and loans with government guarantees.
Allowance coverage(1) (% of loans HFI)
2.4%
2.1%
2.0%
1.8%
1.7%
2.9%
2.5%
2.3%
2.0% 2.0%
1.9%
1.7% 1.7% 1.6% 1.5%
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
Total Consumer Commercial
Net charge-offs ($mm)
Representation & warranty reserve(2) ($mm)
$23
$20
$16 $15
$13
$6
$4
$5
$3
$6
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
Reserve Repurchase pipeline
$4
$0
$2 $2
$1
1Q17 2Q17 3Q17 4Q17 1Q18
2) Please see slide 47 in the appendix for further details on the representation and warranty reserve.
1st Quarter 2018
8.5%
-32bps +2bps +23bps
+28bps
8.7%
14.9%
-149bps +35bps
+38bps
14.1%
9.2%
15.2%
9.2%
14.2%
12/31/2017 3/31/2018 12/31/2017 3/31/2018
Robust capital
Observations 1Q18
Tier 1 CET-1 Tier 1 Total RBC
Leverage to RWA to RWA to RWA
1Q18 Actual 8.7% 10.8% 12.9% 14.1%
4 17 ctual 8.5 11.5 13.6 14.9
10
Flagstar Bancorp Capital Ratios
Well
Capitalized
5.0%
• Tier 1 leverage ratio ended quarter at 8.7% (372bp stress buffer
above “well capitalized”)
- Increase led by earnings retention (28bps) and MSR sales
(23bps), partially offset by acquisition of DCB branches and
Santander mortgage warehouse business (32bps)
- Target range of 8-9%
• Closely monitoring total risk-based capital ratio due to increase
in risk weights and continued growth in commercial loans
- Ended quarter at 14.1% (414bp stress buffer above “well
capitalized”)
- Target range of 13.5-14.5%
• Capital Simplification proposal would increase Tier 1 leverage
ratio ~50 bps(2) and total risk-based capital ratio by ~10 bps(2) to
support balance sheet growth
• Flagstar will generate capital at pre-tax rate as it utilizes its NOL-
related DTAs
- $66mm of NOL-related DTAs (39bps of Tier 1 leverage)
Balance sheet impact(1) Net earnings contribution
Impact from 2018 acquisitions Change in MSR balance
Proforma ratio under Capital Simplification proposal(2)
2) Non-GAAP number. Please see reconciliation on page 48. 1) Change from 12/31/17 to 3/31/18 includes insignificant impact resulting from 2018 phase-in under Basel III.
Tier 1 Leverage Total Risk Based Capital
Well
Capitalized
10.0%
1st Quarter 2018 Business Segment Overview
Lee Smith, COO
1st Quarter 2018 Community banking
12
Quarter-end commercial loan commitments ($bn)
Average deposit funding(1) ($bn)
6.4 6.5 6.6 6.5 6.8
1.0 0.9 0.9 1.0
1.1
1.4 1.4 1.5 1.6
1.5
$8.8 $8.7 $9.0 $9.1
$9.4
1Q17 2Q17 3Q17 4Q17 1Q18
Retail Government Company-controlled deposits
1) Includes company-controlled deposits which are included as part of mortgage servicing.
2) Includes brokered certificates of deposits.
1.4 1.7 1.8 1.9 1.9
2.2 2.3
2.7 2.9 2.9
2.4
2.6
2.7 2.8
4.3 $6.0
$6.6
$7.2
$7.6
$9.1
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
Commercial and Industrial Commercial Real Estate Warehouse
Average commercial loans ($bn)
Average consumer loans ($bn)
0.8 0.9 1.1
1.1 1.2
1.3
1.5
1.6 1.9
2.0
0.7
0.9
1.0
1.0 0.8
$2.8
$3.3
$3.7
$4.0 $4.0
1Q17 2Q17 3Q17 4Q17 1Q18
Commercial and Industrial Commercial Real Estate Warehouse
2.4 2.5 2.6
2.7 2.8
0.5 0.5
0.5
0.6
0.7 $2.9
$3.0 $3.1
$3.3
$3.5
1Q17 2Q17 3Q17 4Q17 1Q18
Residential First Mortgages Other Consumer Loans
(2)
1st Quarter 2018
$6.0
$9.0 $8.9 $8.6
$7.7
1Q17 2Q17 3Q17 4Q17 1Q18
3.1
5.5 5.5 5.3 4.5
2.8
3.7 4.1 4.4
3.4
$5.9
$9.2 $9.6
$9.7
$7.9
1Q17 2Q17 3Q17 4Q17 1Q18
Purchase originations Refinance originations
Purchase
Mix %
Mortgage originations
13
54% 58% 55% 54% 59%
3.0
4.6 4.5 4.9 3.9
1.7
2.4 2.2
2.3
2.1 1.2
2.2 2.9 2.5
1.9 $5.9
$9.2
$9.6 $9.7
$7.9
1Q17 2Q17 3Q17 4Q17 1Q18
Conventional Government Jumbo
Closings by purpose ($bn)
Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin
Fallout-adjusted locks ($bn)
$48
$66
$75
$79
$60
0.80%
0.73%
0.84%
0.91%
0.77%
1Q17 2Q17 3Q17 4Q17 1Q18
Gain on loan sale Gain on sale margin (HFS)
1st Quarter 2018 Mortgage servicing
14
MSR / regulatory capital (Bancorp)
Quarter-end loans serviced (000’s) $ UPB of MSRs sold ($bn)
5.8
17.1
12.0
2.2
1.9
1.6 4.3
$8.0
$19.0
$2.0
$4.3
$12.0
1Q17 2Q17 3Q17 4Q17 1Q18
Bulk Sales Flow Transactions
117
66 87 103 77
242 305 297
310 361
34 31
31
29
32 393 402
415
442
470
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
Serviced for Others Subserviced for Others Flagstar Loans HFI
28%
15%
20%
24%
19%
23%
13%
17%
21%
16%
3/31/2017 6/30/17 9/30/17 12/31/17 3/31/2018
MSR to Tier 1 Common MSR to Tier 1 Capital
Average company-controlled deposits ($bn)
$1.4 $1.4
$1.5
$1.6
$1.5
1Q17 2Q17 3Q17 4Q17 1Q18
1st Quarter 2018 Noninterest expense and efficiency ratio
15
Quarterly noninterest expense ($mm) and efficiency ratio
$140
$154
$171
$178
$173
77%
72%
74%
77%
80%
1Q17 2Q17 3Q17 4Q17 1Q18
Noninterest expense Efficiency ratio
● Higher efficiency ratio led by strategic acquisitions and investments in growth initiatives
1st Quarter 2018 Closing Remarks / Q&A
Sandro DiNello, CEO
1st Quarter 2018 Earnings guidance(1)
17
1) See cautionary statements on slide 2.
Net interest income
• Net interest income up 5-10%
- Average earning assets grow 5-10%, led by significant increase in warehouse loans from Santander acquisition
and higher CRE (home builder loans)
- Net interest margin fairly steady
Net gain on loan sales
• Net gain on loan sales up 30-40% on seasonal increase in mortgage market led by higher purchase originations
- Fallout-adjusted locks up 20-25%
- Gain on loan sale margin improves 5-10 bps
Mortgage servicing
rights (MSRs)
• Net return on MSRs approximates 5-7% before transaction costs from MSR sales
Other noninterest
income
• Loan fees and charges up approximately 20% on higher mortgage closings
• All other noninterest income declines 5-10%
Noninterest expense
• Noninterest expense to rise to between $180-$185 million, due to acquisitions closed late in 1Q18 and variable costs to
support higher mortgage volume
2nd Quarter 2018 Outlook
1st Quarter 2018 Appendix
Company overview 19
Financial performance 25
Community banking 29
Mortgage originations 41
Mortgage servicing 43
Capital and liquidity 44
Asset quality 47
Non-GAAP reconciliation 48
1st Quarter 2018 Flagstar at a glance
COMPANY OVERVIEW
99
Branches in
Michigan
Community banking
• Leading Michigan-based bank with a balanced,
diversified lending platform
• $17.7bn of assets and $10.0bn of deposits
• 107 branches
• 124k household & 17k business relationships
Mortgage origination
• Leading national originator of residential
mortgages ($36.4bn during last twelve months)
• 92 retail home lending offices operating in 31
states
• More than 1,000 correspondent and more than
800 broker relationships
Mortgage servicing
• 8th largest sub-servicer of mortgage loans
nationwide
• Currently servicing approximately 470k loans
• Scalable platform with capacity to service 1 mm
loans
• Lower cost deposits from escrow balances
Corporate Overview
• Traded on the NYSE (FBC)
• Headquartered in Troy, MI
• Market capitalization $1.9bn
• Member of the Russell 2000 Index
19
1) Desert Community Bank branch acquisition closed during 1Q18.
2) Includes seven home lending offices located in banking branches.
3) Opes has one retail lending office in Honolulu, HI that is not pictured on this map.
42
Opes
retail home
lending
offices(3)
50
Flagstar
retail home
lending
offices(2)
99
Flagstar
Bank
branches
8
Desert
Community
Bank
Branches(1)
Operations center
1st Quarter 2018 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 2018
● Illustrative case studies detailed below:
21
Flagstar’s integrated business model
Initial relationship
• Established correspondent lending
relationship (2017)
- Purchased more than $290mm of
mortgages since inception (2017)
Expanded relationship
• Warehouse line of credit (2017)
- Commitments of $50mm
• Initiated subservicing agreement
(2017)
- Entire portfolio of newly originated
mortgage loans are on-boarded
with Flagstar
Residential MBS Investor
Initial relationship
• Bulk sale of MSRs with subservicing
retained (2013 - 2014)
Expanded relationship
• Provided MSR lending facility (2016)
- Commitments of $50mm
collateralized by FNMA MSRs
- Subservice non-Flagstar mortgage
accounts providing fee income
• Portfolio recapture services provided
with direct-to-consumer refinancings
of nearly $250mm since inception
(2016)
• Additional bulk and flow sales of
MSRs with subservicing retained
(2017 and 2018)
Home Builder
Initial relationship
• Provided home builder line of credit
(2016)
- Unsecured non-real estate
commitments of $30mm
- Average commercial deposits of
more than $35mm
Expanded relationship
• Participated in syndicated
warehouse facility to captive
mortgage operation (2016 - 2017)
- Commitments of $36mm
- 1 of 3 participants in the
syndication
Wholesale Originator
COMPANY OVERVIEW
1st Quarter 2018 Flagstar has a strong executive team
COMPANY OVERVIEW
22
Board of Directors
John Lewis
Chairman
Community
Banking
Chief
Financial Officer
• CFO since 8/14
• More than 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
• Appointed
President of
Mortgage effective
9/17
• Has 15 years
experience with
Fannie Mae in
various executive
and leadership
roles focused on
building banking
relationships and
growth initiatives
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 Kristy Fercho Jim Ciroli Lee Smith
• Executive Vice
President, Michigan
Market President
and Managing
Director, Lending
• With Flagstar since
12/15 and has 30
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 2018
Risk management
Best-in-class risk management platform with 221 FTEs(1)
23
1) Does not include 28 FTEs in internal audit.
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 6 61 51 12 8 8 31 FTEs
Regulatory
Affairs
Modeling &
Analytics
ERM
Chief
Credit
Officer
QC /
Appraisal
Review
MFIU Fraud
Investigations
Loan
Review
Operational
Risk
AML /
BSA
Compliance
29
Investigative
Services
10
COMPANY OVERVIEW
1st Quarter 2018 Strong growth opportunities
COMPANY OVERVIEW
24
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
24
B
u
il
d
B
u
y
• Pairing a deposit franchise where we currently
have mortgage origination offices could enhance
synergies between them
• Acquiring deposit oriented franchises that support
asset generation
• Leverage relationship banking models and
community banking approach
• Opportunistically; no strategic bank buyers of size
• Highly fragmented industry with aging individual
ownership
• Regulatory and interest rate environment should
accelerate exits
• Can produce compelling returns with reliance only
on funding synergies
• Opportunistic team lift outs
• Grow national lending platforms(1)
- Expand warehouse lending (375bp spread)
- Grow home builder finance (475bp spread)
- Build MSR lending (425bp spread; LTVs<60%)
• Cultivate middle-market and business banking
relationships
• Add specialty lending disciplines and teams
1) Indicated spreads are targets and may not be reflective of actual spreads.
1st Quarter 2018 Long-term targets
• Long-term target of 1.1 – 1.7%
- Add incremental revenue with low incremental cost
- Improved risk management will deliver long-run
savings
• Long-term target of 12 - 17%
- Add / increase high ROE businesses
Financial Performance
Return on assets Return on equity
• Lender of choice in key markets (Michigan,
national lending platforms)
• 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
- Scalable platforms with balance sheet growth at low
incremental cost
• Nationally recognized leader the quick brown fox d
• Growth trajectory 5 - 10%
- Expand retail originations
• Every 100k in new loans sub-serviced generates
$4mm - $6mm of incremental pre-tax profits
Revenues
Mortgage Banking
FINANCIAL PERFORMANCE
25
1st Quarter 2018
$61
$65
$73 $73
$76
$79 $77
$80
$87
$83
$97
$103
$107 $106
$8.7
$9.4
$10.4 $10.7
$11.2
$11.9 $11.6
$12.3
$12.8
$12.3
$14.0
$14.7
$15.4 $15.4
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
Net interest income ($mm) Average earning assets ($bn)
● 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
CAGR 19%
CAGR 19%
26
Higher net interest income is stabilizing earnings
FINANCIAL PERFORMANCE
1st Quarter 2018
0%
25%
50%
75%
100%
$22
$26
$30
$34
$38
$42
$46
3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18
Buy Hold Actual Price Target Price
Actual Price $33.61
Target Price $40.88
Price target has increased on improved prospects
27
Analyst rating history
FINANCIAL PERFORMANCE
Source: Analyst ratings and target price (consensus estimate) as reported by First Call as of 4/16/2018.
As of 4/23/2018
1st Quarter 2018
1
/3
1
/2
0
1
6
2
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9
/2
0
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3
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1
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1
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1
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0
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6
1
1
/3
0
/2
0
1
6
1
2
/3
1
/2
0
1
6
1
/3
1
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0
1
7
2
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8
/2
0
1
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3
/3
1
/2
0
1
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4
/3
0
/2
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5
/3
1
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0
1
7
6
/3
0
/2
0
1
7
7
/3
1
/2
0
1
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8
/3
1
/2
0
1
7
9
/3
0
/2
0
1
7
1
0
/3
1
/2
0
1
7
1
1
/3
0
/2
0
1
7
1
2
/3
1
/2
0
1
7
1
/3
1
/2
0
1
8
2
/2
8
/2
0
1
8
3
/3
1
/2
0
1
8
. FBC valuation vs. SNL U.S. Bank and Thrift Index
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
7
2
/2
8
/2
0
1
7
3
/3
1
/2
0
1
7
4
/3
0
/2
0
1
7
5
/3
1
/2
0
1
7
6
/3
0
/2
0
1
7
7
/3
1
/2
0
1
7
8
/3
1
/2
0
1
7
9
/3
0
/2
0
1
7
1
0
/3
1
/2
0
1
7
1
1
/3
0
/2
0
1
7
1
2
/3
1
/2
0
1
7
1
/3
1
/2
0
1
8
2
/2
8
/2
0
1
8
3
/3
1
/2
0
1
8
Valuation metrics
Observation: FBC trades at a discount to its banking peers
FINANCIAL PERFORMANCE
28
U
.S
.
p
re
s
iden
ti
a
l
e
le
c
ti
o
n
Market / tangible book Price / LTM earnings
Market value gap: ~$0.6B
. FBC valuation vs. SNL U.S. Bank and Thrift Index
77%
67%
85%
U
.S
.
p
re
s
iden
ti
a
l
e
le
c
ti
o
n
77%
57%
Market value gap: ~$0.8B
71%
Source: SNL Financial; as of 4/16/2018 Source: SNL Financial; as of 4/16/2018
1st Quarter 2018
% YoY
Overall MI-based Institution Branches Total Share Change
1 Chase 234 $43,668 21% 5%
2 Comerica 197 29,481 14% 14%
3 PNC 117 17,796 8% 11%
4 Bank of America 190 17,425 8% 5%
5 Fifth Third 211 16,954 8% 7%
6 Huntington 316 14,756 7% 8%
7 1 Chemical 206 11,565 6% 6%
8 2 Flagstar 99 9,024 4% 3%
9 Citizens 95 5,538 3% 9%
10 TCF 52 3,010 1% 13%
Top 10 1,717 $169,218 81% 8%
2017 Rank Deposits ($mm)
154 7 35
Strong market position as leading MI-based bank
COMMUNITY BANKING
29
Deposit Median Proj HHI Proj pop
Market $mm % of total mkt share HHI(2) growth(2)(3) growth(2)(3)
Oakland County(1) 3,497 46.4% 6.7% 76,705 11.7% 4.1%
Grand Rapids MSA 415 5.5% 2.0% 61,391 10.9% 3.3%
Ann Arbor MSA 351 4.7% 4.0% 69,221 8.9% 3.3%
Key Flagstar markets 4,262 56.6% 5.3% 74,599 11.4% 3.9%
National aggregate 61,045 8.9% 3.5%
Flagstar Deposits
Source: SNL Financial; Note: Deposit data as of June 30, 2017; MI-based banks highlighted.
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) 2018–2023 CAGR.
Flagstar’s branch network Market share
Attractive markets
Leading position among independent banks
1st Quarter 2018
Deposits
Portfolio and strategy overview
COMMUNITY BANKING
30
6.4 6.5 6.5 6.5 6.8
2.4 2.2 2.5 2.6
2.6
$8.8 $8.7 $9.0
$9.1 $9.4
1Q17 2Q17 3Q17 4Q17 1Q18
Retail deposits Other deposits
Total average deposits ($bn)
• Flagstar gathers deposits from consumers,
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 0.73%(1)
[CATEGORY
NAME],
[VALUE]
Savings, 37%
[CATEGORY
NAME],
[VALUE]
[CATEGORY
NAME](2),
[VALUE]
[CATEGORY
NAME],
16%
Government,
12%
72%
retail
Total : $9.4bn
0.73% cost of total deposits(1)
1Q18 total average deposits
1) Total deposits include noninterest bearing deposits.
2) Includes brokered CDs
(2)
1st Quarter 2018 Deposit growth opportunities
• Average balance of $1.1bn during 1Q18
• Cost of total government deposits: 1.01%(2) during
1Q18
• Michigan deposits are not required to be collateralized
• Strong, long-term relationships across the state
• Average balance of $0.5bn during 1Q18
• Flagstar is focused on growing commercial deposits
- Increasing balances with growing lines of
business, including home builder finance
• Offer complete line of treasury management services
• Average balance of $1.5bn during 1Q18 on 470k
loans serviced and subserviced
• Low cost of deposits
• Deposit balances increase along with the number of
loans serviced and subserviced
• Average balance of $6.3bn during 1Q18 of which 60%
are demand & savings accounts
• Cost of total core deposits(1): 0.85%(2) during 1Q18
• Average core deposits of $63mm per branch
• Flagstar’s brand campaign is helping grow its core
deposit base
Core Deposits
Retail
Commercial
Other Deposits
Government
Company-controlled
COMMUNITY BANKING
1) Core deposits = total deposits excluding government deposits and company-controlled deposits.
2) Total deposits include noninterest bearing deposits.
31
1st Quarter 2018
154 7 35
Desert Community Bank branches
32
San Bernardino County, CA (High Desert region) Acquired deposits ($mm) – 3/31/2018
• San Bernardino is the fifth largest county in California with
2.1mm residents and a median household income of $60k
- Strong projected population growth of 4% and household
income growth of 10%
• Desert Community Bank has the #2 market share position in
the High Desert region of San Bernardino County, CA
- San Bernardino County has realized deposit growth of nearly
7% since 2012 (5 year CAGR); potential to grow low-cost
deposits
Demographics(1)(2)
Rank Branch Location Deposits ($mm)
1 Apple Valley $155
2 Victorville (Main Branch) 101
3 Hesperia 88
4 Victorville (North Branch) 87
5 Adelanto 60
6 Barstow 56
7 Wrightwood 38
8 Phelan 38
$623
Average deposits / branch $78
Acquired branch list – 3/31/2018
Market rank ($mm)(1) – 6/30/17
Noninterest
bearing
42%
Savings &
money market
43%
Certificates
of deposit
15%
0.26% cost of deposits
As of 1-Year
Rank Bank 6/30/17 % Incr
1 Bank of m rica $626 11%
2 Desert Community Bank $585 9%
3 JPMorgan Chas $479 14%
4 Wells Fargo $478 9%
5 Mitsubishi UFJ $338 7%
6 US Bank $307 5%
7 Citizens Business Bank $112 5%
(1) Source: 6/30/17 FDIC Summary of Deposits as reported by SNL Financial.
(2) As estimated at July 1, 2015 by the U.S. Census Bureau.
COMMUNITY BANKING
1st Quarter 2018 Desert Community Bank branches
33
Transaction
summary
• Flagstar acquired the branches of Desert Community Bank, a division of East West Bank
- 8 branches in High Desert region of San Bernardino County, California
- Approximately $600 million of deposits at average cost of 0.26% (62% retail deposits) at 3/31/2018
- Approximately $60 million of loans (82% commercial) at 3/31/2018
Strategic
rationale
• Fits strategic goal of acquiring deposit-oriented franchises
- Provides low-cost, stable funding to continue growing balance sheet
• Combines a successful deposit franchise with a significant Flagstar presence already on the West Coast
- Largest mortgage origination state (30+% of all Flagstar production)
- Market with significant commercial lending activities, including warehouse lending and home builder financing
Other
considerations
• Conducted comprehensive due diligence consistent with a full enterprise acquisition
• Operate as a division of Flagstar and will retain:
- Existing branding
- Employees (currently 67 full-time and 7 part-time) as March 31, 2018
COMMUNITY BANKING
1st Quarter 2018
Lending
Portfolio and strategy overview
COMMUNITY BANKING
34
3.3
4.3 4.5 4.5 4.2
5.6
6.2
6.8 7.3 7.5
$9.2
$10.8
$11.6
$12.1 $12.0
1Q17 2Q17 3Q17 4Q17 1Q18
Loans HFS Loans HFI Loans with government guarantees
1st Mortgage
HFI, 23%
2nds, HELOC
& other, 6%
Warehouse,
7%
[CATEGORY
NAME], 27%
Loans with
government
guarantees,
2%
[CATEGORY
NAME], 35%
1Q18 average loans
Total average loans ($bn)
• Flagstar’s largest category of earning assets consists
of loans held-for-investment which averaged $7.5bn
during 1Q18
– 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 $4.2bn during 1Q18
– 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
1st Quarter 2018
Flagstar has deep lending experience
COMMUNITY BANKING
35
Sandro DiNello
President & CEO
Drew Ottaway
Managing Director of Lending &
Michigan Market President
Commercial
Real Estate
Comprised of
commercial and
homebuilder lending
officers with average
experience of 21
years in banking.
Prior banking
experience includes
Fifth Third, Wells
Fargo, Bank of
America, Texas
Capital, and Royal
Bank of Canada.
Supported by a team of
credit officers with more
than 25 years average
banking experience
Commercial
& Industrial
Comprised of lending
officers with average
experience of 25
years in banking.
Prior banking
experience includes
Fifth Third, PNC, Bank
of America and JP
Morgan Chase.
.
Supported by a team of
credit officers with more
than 25 years average
banking experience.
Warehouse
Lending
Comprised of lending
officers with average
experience of 26
years in banking.
Prior banking
experience includes
Citizens Bank, Bank
of America and Texas
Capital.
In 2018, we acquired
experienced lenders
from Santander Bank.
Supported by a team of
credit officers with nearly
25 years average
banking experience.
Business
Banking
Comprised of lending
officers with average
experience of over 25
years in banking.
Prior banking
experience includes
Comerica, Huntington,
PNC, and Fifth Third.
Supported by a team of
credit officers with more
than 25 years average
banking experience.
Homebuilder
Finance
Comprised of lending
officers with 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 25 years average
banking experience.
Consumer Finance
Consumer Finance
supports the product
functionality and
pricing of consumer
lending products.
Processing and
Underwriting supports
the adjudication of
loan applications
received from the
Retail Branch and
Direct to Consumer
lending channels.
Supported by a
management team
with more than 25
years average
consumer lending
experience.
1st Quarter 2018 Community banking growth model
• Primary focus is to build relationships
- Recruit experienced bankers from larger regional
banks
- Retain seasoned bankers within our organization
• Leverage deep industry experience and client
relationships
- Focus on moving relationships and credit facilities
to Flagstar
• Low incremental efficiency ratio
- Marginal cost of 15-30% that varies with type of
loans underwritten
• Estimated pre-tax contribution of $5bn loan growth
could contribute ~$1.00 earnings per share
New banker additions (past 2 years)
36
Relationship-based growth platform
(1) We focus on recruitment of bankers with larger, regional bank
lending experience.
# of Avg Years
Line of Service Additions Experience(1)
Business Banking 7 24
Commercial Lending 10 23
Consumer Finance 3 20
CRE Lending 5 10
Equip Financing 6 27
Home Builder Finance 15 20
Indirect Lending 3 22
Warehouse Lendng 2 18
Wealth Management 2 17
Grand Total 53 22
COMMUNITY BANKING
1st Quarter 2018
Commercial lending
Diversified relationship-based commercial lending capabilities
COMMUNITY BANKING
Commercial Real Estate - $2.0bn (3/31/18)
Home builder
finance
27%
Multi-
family
20%
Retail
15%
Office
10% Industrial
11%
Hospitality
6%
Other
11%
Commercial & Industrial - $1.2bn (3/31/18)
Financial,
insurance &
real estate
33%
Services
26%
Manufacturing
16%
Healthcare
9%
Distribution
8%
Government &
education
6%
Other
2%
Warehouse - $1.4bn (3/31/18) Overview
• Warehouse lines with approximately 275 active
relationships nationwide, of which approximately 85%
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
~130
borrowers
sell >75%
~50
borrowers
sell 25% - 75%
~95
borrowers
sell <25%
Average 32% advances sold to Flagstar
Industry
% Advances sold to Flagstar
Property type
37
17% owner occupied 44% Michigan relationships; 20% National finance; 9% Home builder finance
1st Quarter 2018
1.2 1.2 1.2 1.1
1.4
1.2 1.4
1.5 1.7
2.9
$2.4
$2.6 $2.7
$2.8
$4.3
3/31/17 6/30/17 9/30/17 12/31/2017 3/31/2018
Outstandings Unfunded Commitments
FBC warehouse loan commitments ($mm)
Warehouse lending
COMMUNITY BANKING
38
Warehouse lenders ranked by commitments ($mm)
1) Proforma - includes Santander warehouse commitments which were acquired 3/12/2018.
Source: Inside Mortgage Finance as of March 2, 2018.
● National relationship-based lending platform
● Attractive asset class with good spreads and low credit risk
● Strong growth potential and scalable platform
● Flagstar is well positioned to gain market share, leveraging relationships in complementary lines of business,
including home builder finance and mortgage originations
YOY
Rank Institution Growth Total Share
1 JPMorgan Chase 33% $12,000 18%
2 Wells Fargo 2% 5,900 9%
3 Texas Capital 18% 5,308 8%
4 Flagstar Bancorp
(1) -9% 5,018 7%
5 BB&T 5% 3,770 6%
6 TIAA FSB (Everbank) -10% 3,700 6%
7 Comerica -19% 3,536 5%
8 Customers Bank 1% 3,475 5%
9 First Tennessee -4% 3,130 5%
10 U.S. Bancorp 5% 2,638 4%
Top 10 5% $48,475 72%
4Q17
1st Quarter 2018 Santander acquisition
39
Transaction
summary
• Flagstar acquired mortgage warehouse business from Santander Bank on March 12, 2018
- Approximately $1.7 billion of commitments and $0.5 billion of outstanding loans
• Diversifies warehouse business with low customer overlap
Strategic
rationale
• Strengthens national, relationship based lending platform
• Expands commercial customer base, providing opportunity to leverage relationships in complementary lines of business
• Adds volume in an attractive asset class with good spreads and relatively low credit risk
• Strong growth potential with scalable platform
Other
considerations
• Conducted comprehensive due diligence, including financial analysis, credit review and an evaluation of risk
management
• Retained 9 full-time employees
- Santander team has joined Flagstar’s Warehouse Lending group
COMMUNITY BANKING
1st Quarter 2018 Home builder finance
COMMUNITY BANKING
40
Home builder loan commitments(2) ($mm)
● National relationship-based lending platform launched in 1Q16
- Attractive asset class with good spreads (~475bps)
- Meaningful cross-sell opportunities including warehouse loans,
commercial deposits and purchase originations
● Flagstar is well positioned to gain market share given builder and
mortgage relationships
- Focused on markets with strong housing fundamentals and
higher growth potential
- We currently have relationships with 6 of the top 10 and 44 of
the top 100 builders nationwide
- We are well positioned to take advantage of supply/demand
imbalance in housing market
Home builder finance footprint
Primary markets
Secondary markets
Overview
$365
$494
$619 $699 $656
$403
$484
$559
$567
$765
$768
$978
$1,178
$1,266
$1,421
3/31/17 6/30/17 9/30/17 12/31/2017 3/31/2018
Unpaid principal balance Unused
Tightening housing supply(1)
0
2
4
6
8
10
12
0
1
2
3
4
5
6
7
8
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
Existing home sales (mm) Months supply of existing homes for sale
1) Source: Bloomberg (through 2/28/18)
2) Commitments are for loans classified as commercial real estate and commercial
& industrial.
(left axis) (right axis)
1st Quarter 2018
• 4.3% market share with #7 national ranking(1)
• More than 1,000 correspondent partners in 50
states in 1Q18
• Top 10 relationships account for 14% of overall
correspondent volume
• Warehouse lines with approximately 280
correspondent relationships
National distribution through multiple channels
MORTGAGE ORIGINATIONS
41
Residential mortgage originations by channel ($bn)
Broker Correspondent Retail
$4.5
$7.0 $7.0
$7.3
$5.8
1Q17 2Q17 3Q17 4Q17 1Q18
$1.0
$1.4 $1.3 $1.2 $1.1
1Q17 2Q17 3Q17 4Q17 1Q18
$0.4
$0.8
$1.3 $1.2 $1.0
1Q17 2Q17 3Q17 4Q17 1Q18
• 2.5% market share with #7 national ranking(1)
• Approximately 800 brokerage relationships in
50 states in 1Q18
• Top 10 relationships account for 15% of overall
brokerage volume
1) Data source: As reported by Inside Mortgage Finance for 3Q17 published November 24, 2017.
• Retail distribution share of 12% in 1Q18 vs. 7%
in 1Q17
• Opes acquisition and organic growth has
expanded our retail footprint to 92 locations in
31 states
• Direct-to-consumer is 13% of retail volume
1st Quarter 2018
1
.3
1
.9
2
.1
1
.5
1
.2
1
.4
1
.5
2
.9
2
.3
1
.8
3
.5
4
.3
5
.6
3
.9
4
.1
3
.5
3
.0
1
.9
2
.4
2
.0
1
.6
2
.2
2
.0
1
.3
1
.7
2
.1
1
.8
1
.7
1
.7
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
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
F
2
0
1
9
F
$
in
t
rill
io
n
s
Flagstar has restructured its operations to be profitable
even at historical lows for the mortgage origination market
42
MORTGAGE ORIGINATIONS
Source: Mortgage Bankers Association 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 Bureau of Labor Statistics (2017 = 100).
2. Adjusted for population growth as reported by the U.S. Census Bureau (2016 = 100).
U.S. residential mortgage origination market (historical and projected volumes)
Nominal ($) 0.6 0.9 1.0 0.8 0.6 0.8 0.8 1.7 1.4 1.1 2.2 2.9 3.8 2.8 3.0 2.7 2.4 1.5 2.0 1.7 1.4 2.0 1.8 1.3 1.7 2.1 1.8 1.7 1.7
Real(1) ($) 1.0 1.6 .7 1.3 1.0 1.2 1.3 2.5 2.0 .6 3.1 3. 5.1 3.6 .8 3.3 .8 .8 .3 .9 .6 .2 2.0 . . . . . .
Adjusted(2) ($) .3 .9 2.1 .5 .2 .4 .5 .9 .3 1.8 .5 4.3 .6 .9 4.1 .5 3.0 1.9 2.4 2.0 1. 2. . 1.3 1.7 2.1 1.8 1.7 1.7
1st Quarter 2018
Freddie
25% Fannie
25%
GNMA
46%
Private
4%
by Investor
154 7 35
MSR portfolio
MSR portfolio characteristics (% UPB) MSR portfolio statistics
Measure ($mm) 12/31/2017 3/31/2018 Difference
Unpaid principal balance $25,073 $18,767 ($6,306)
Fair value of MSR $291 $239 ($52)
Capitalized rate (% of UPB) 1.16% 1.27% 11 bps
Multiple 4.015 4.158 0.143
Note rate 4.054% 3.968% 8.6 bps
Service fee 0.289% 0.305% 1.6 bps
Average Measure ($000)
UPB per loan $243 $242 ($1)
FICO 722 706 (16)
Loan to value 76.61% 80.97% 436 bps
Net (loss) return on mortgage servicing rights ($mm)
$ Return 1Q17 2Q17 3Q17 4Q17 1Q18
Net hedged profit (loss) $2 $0 $0 ($1) ($1)
Carry on asset 14 9 9 11 8
Run-off (6) (4) (4) (7) (5)
Gross return on the
mortgage servicing rights
$10 $5 $5 $3 $2
Sale transaction & P/L (1) 1 1 (3) 1
Model changes 5 0 0 (4) 1
Net return on the
mortgage servicing rights
$14 $6 $6 ($4) $4
Average mortgage
servicing rights
$344 $205 $212 $269 $269
2016 &
later; 79%
2015;
12%
2014; 4%
2013 &
prior; 5%
by Vintage
MORTGAGE SERVICING
43
2018
19%
2017
69%
2016
4%
2015
& prior
8%
By intage
1st Quarter 2018
154 7 35
Balance sheet composition
CAPITAL AND LIQUIDITY
44
3%
Other
liabilitie
s
3%
Other
long-
term
debt
Liabilities & Equity
1Q18 average balance sheet (%)
Assets
Attractive relationship
lending with no loans >30
days delinquent and still
accruing
Primarily low risk, stable
assets (FHLB stock, BOLI,
premises & equipment,
deferred tax asset, etc.)
~71% 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
8%
Other assets
5% Warehouse loans
25%
Loans held-for-sale
18%
Commercial loans
Efficiently funds loans
held-for-sale and
warehouse loans
46%
Deposits excluding
company-
controlled deposits
(“CCD”)
31%
FHLB borrowings
8% Common equity
9%
Company-controlled
deposits (“CCD”)
22%
Mortgage loans
held-for-investment
19%
Agency MBS
1% Cash
2% MSR
1st Quarter 2018 Liquidity and funding
154 7 35
CAPITAL AND LIQUIDITY
45
66%
73%
78%
83% 84%
1Q17 2Q17 3Q17 4Q17 1Q18
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 2018 Low interest rate risk
CAPITAL AND LIQUIDITY
46
-7.5%
-8%
-6%
-4%
-2%
0%
2%
4%
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
down 100bps up 100bps +/-100bps limit
0bps
50bps
100bps
150bps
200bps
250bps
300bps
350bps
400bps
450bps
500bps
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 3/31/2018
Net interest margin – 12 month horizon instantaneous shocks ($mm)
Economic value of equity, trend (3/31/17 – 3/31/18)
($ in mm) +100bps Bear Flattener
Net interest income $20 ($40)
Noninterest Income ($20) to $0 $0 to $40
Scenario
1st Quarter 2018
503
135
91 103
FY15 FY16 FY17 LTM 3/18
Repurchase demands
Representation & Warranty reserve details
(in millions) 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18
Beginning balance $27 $23 $20 $16 $15
Additions (release) (4) (2) (3) (1) (1)
Net (charge-offs) /
recoveries 0 (1) (1) 0 (1)
Ending Balance $23 $20 $16 $15 $13
Repurchase pipeline ($mm) Repurchase reserve ($mm)
ASSET QUALITY
$6
$4
$5
$3
$6
3/31/2017 6/30/2017 9/30/2017 12/31/2017 3/31/2018
47
Repurchase rate(1)(2)
1) As reported, where available, by Inside Mortgage Finance and Inside Mortgage Trends for the
top 25 mortgage originators for the year ending 12/31/2017.
2) Repurchase rate is defined as mortgages repurchased / mortgages originated.
2 0.46%
0.23%
0.03%
Average Median Flagstar
1st Quarter 2018 Non-GAAP reconciliation
NON-GAAP RECONCILIATION
48
$mm
1) Reflects the 4Q17 non-cash charge resulting from Tax Cuts and Jobs Act.
3 M o nths Ended
A djusted N et Inco me and D iluted Earnings per Share 12/ 31/ 2017
Net Income (45)$
Adjustment to remove tax reform charge(1) 80
A djusted N et Inco me 35$
Weighted average diluted common shares 58,311,881
A djusted D iluted Earnings per Share 0.60$
T angible B o o k Value per Share as o f 3/ 31/ 2018 as o f 12/ 31/ 2017
Total stockholders' equity 1,427$ 1,399$
Goodwill and intangible assets 72 21
Tangible book value 1,355$ 1,378$
Number of common shares oustanding 57,399,993 57,321,228
T angible bo o k value per share 23.62$ 24.04$
M arch 3 1, 2 0 18
C ommon Equit y
T ier 1 ( t o R isk
W eight ed A sset s)
T ier 1 Leverage
( t o A d just ed
Tang ib le A sset s)
T ier 1 C ap it al ( t o
R isk W eight ed
A sset s)
To t al R isk- B ased
C ap it al ( t o R isk
W eight ed A sset s)
R egulat ory cap it al - B asel I I I t o cap it al simp lif icat ion
Basel III $ 1,235 $ 1,475 $ 1,475 $ 1,617
Net change in deductions to DTAs, M SRs and other capital components 85 86 86 86
Basel III with capital simplif icat ion $ 1,320 $ 1,561 $ 1,561 $ 1,703
Risk-weight ed asset s – Basel I I I t o cap it al simp lif icat ion
Basel III assets $ 11,440 $ 16,918 $ 11,440 $ 11,440
Net change in assets 526 85 526 526
Basel III with capital simplif icat ion $ 11,966 $ 17,003 $ 11,966 $ 11,966
C apit al rat ios
Basel III (t ransit ional) 10.8% 8.7% 12.9% 14.1%
B asel I I I wit h cap it al simp lif icat ion 11.0 % 9 .2 % 13 .0 % 14 .2 %