FLAGSTAR BANCORP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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EX-99.2 - EXHIBIT 99.2 - FLAGSTAR BANCORP INC	a2q18earningspresentatio.htm
8-K - 8-K - FLAGSTAR BANCORP INC	a8-kearningsrelease2q2018.htm

EXHIBIT 99.1

NEWS RELEASE

For more information, contact:

David L. Urban

david.urban@flagstar.com

(248) 312-5970

Flagstar Reports Second Quarter 2018 Net Income of $50 million, or $0.85 per Diluted Share

Company posts solid earnings with positive operating leverage

Key Highlights - Second Quarter 2018


•	Net interest income rose $9 million, or 8 percent from first quarter 2018, driven by earning asset growth and net interest margin expansion.


•	Mortgage revenues increased $8 million, or 13 percent from the prior quarter, led by a seasonal increase in mortgage originations and higher net return on MSR.


•	Total revenue increased $21 million, or 10 percent, while noninterest expense rose a modest $4 million, or 2 percent from last quarter, benefiting from expense discipline and variable cost model.


•	Strong asset quality with minimal net charge-offs and no commercial delinquencies.


•	Pending acquisition of 52 Wells Fargo branches accelerates banking transformation.

TROY, Mich., July 24, 2018 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2018 net income of $50 million, or $0.85 per diluted share, compared to first quarter 2018 net income of $35 million, or $0.60 per diluted share. For the second quarter 2017, the Company reported net income of $41 million, or $0.71 per diluted share.

“I’m pleased with our financial results this quarter," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. “We produced solid earnings with positive operating leverage, despite a challenging mortgage environment. Earnings rose on both a sequential and year-over-year basis, achieving a level we haven't seen since the third quarter 2012 when we had $334 million of net gain on loan sales as compared to only $63 million in the second quarter 2018.

“Our banking business performed well, boosted by the acquisitions of the Desert Community Bank (DCB) branches and a warehouse business at the end of the first quarter 2018. Net interest income for the second quarter 2018 rose 8 percent to $115 million, led by a 4 percent rise in average earning assets and a 10 basis point increase in net interest margin. The core banking business delivered consistent growth with average commercial loans (excluding the impact of the DCB branch and warehouse business acquisitions) increasing 8 percent.

"We continued to build scale and profitability within our servicing business -- a segment that brings fee income, as well as ancillary benefits like deposits that fuel our loan growth. During the second quarter, we sold $6.4 billion of mortgage servicing rights with 100 percent of the servicing retained. Since the beginning of 2018, we've increased the number of loans serviced by 93,000 or 21 percent and are well positioned to add more scale later this year.

“Our mortgage business was softer than expected with fallout-adjusted locks and gain on sale margin coming in below our expectations. Locks rose 17 percent to $9 billion while the GOS margin fell 6 basis points to 0.71 percent due to the impact of wider spreads on the outcome of a securitization late in the quarter.

“A key highlight of the second quarter was our announcement of the pending acquisition of 52 Wells Fargo branches in Indiana, Michigan, Wisconsin and Ohio. This transaction will significantly expand our banking business, enhance our franchise value and provide compelling financial benefits -- all without the need to raise capital. Bringing these branches on board later this year will accelerate our banking transformation. Meanwhile, we will continue to leverage our strong asset generation capability, abundant liquidity and strong capital for the benefit of our shareholders.”

Second Quarter 2018 Highlights:



Income Statement Highlights
	Three Months Ended
	June 30, 2018			March 31, 2018		December 31, 2017			September 30, 2017		June 30, 2017
	(Dollars in millions)
Net interest income	$	115		$	106	$	107		$	103	$	97
Provision (benefit) for loan losses	(1		)	—		2			2		(1		)
Noninterest income	123			111		124			130		116
Noninterest expense	177			173		178			171		154
Income before income taxes	62			44		51			60		60
Provision for income taxes (1)	12			9		96			20		19
Net income (loss)	$	50		$	35	$	(45	)	$	40	$	41

Income (loss) per share:
Basic	$	0.86		$	0.61	$	(0.79	)	$	0.71	$	0.72
Diluted	$	0.85		$	0.60	$	(0.79	)	$	0.70	$	0.71


(1)	The three months ended December 31, 2017 included an $80 million, or $1.37 per diluted share, non-cash charge to the provision for income taxes, resulting from the revaluation of the Company's net deferred tax asset at a lower statutory rate as a result of the Tax Cuts and Jobs Act.



Key Ratios
	Three Months Ended										Change (bps)
	June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017		Seq	Yr/Yr
Net interest margin	2.86	%	2.76	%	2.76	%	2.78	%	2.77	%	10	9
Return on average assets	1.1	%	0.8	%	(1.1	)%	1.0	%	1.0	%	30	10
Return on average equity	13.5	%	9.9	%	(12.1	)%	11.1	%	11.6	%	360	190
Efficiency ratio	74.4	%	79.7	%	77.1	%	73.5	%	72.0	%	(530)	240



Balance Sheet Highlights
	Three Months Ended										% Change
	June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017		Seq		Yr/Yr
	(Dollars in millions)
Average Balance Sheet Data
Average interest-earning assets	$	15,993	$	15,354	$	15,379	$	14,737	$	14,020	4	%	14	%
Average loans held-for-sale (LHFS)	4,170		4,231		4,537		4,476		4,269		(1	)%	(2	)%
Average loans held-for-investment (LHFI)	8,380		7,487		7,295		6,803		6,224		12	%	35	%
Average total deposits	10,414		9,371		9,084		9,005		8,739		11	%	19	%

Net Interest Income

Net interest income rose $9 million to $115 million for the second quarter 2018, as compared to the first quarter 2018. The results reflected a 4 percent increase in average earning assets, led by continued solid growth in commercial loans. The net interest margin rose 10 basis points to 2.86 percent for the second quarter 2018 as higher yields on earning assets more than offset a modest increase in deposit costs.

Loans held-for-investment averaged $8.4 billion for the second quarter 2018, increasing $893 million, or 12 percent, from the prior quarter. Excluding the impact of the DCB branch and warehouse business acquisitions, average loans HFI rose 6 percent in the quarter. During the second quarter 2018, average commercial loans rose 19 percent with average warehouse loans increasing $647 million, or 76 percent, average commercial real estate loans rising $63 million, or 3 percent and average commercial and industrial loans increasing $40 million, or 3 percent. Average consumer loans rose $143 million, or 4 percent, driven by an increase in mortgage loans.

Average total deposits were $10.4 billion in the second quarter 2018, increasing $1 billion, or 11 percent from the first quarter 2018. Excluding the impact of the DCB branch acquisition, average deposits rose 6 percent in the quarter. Average retail deposits increased $780 million, or 12 percent, as higher demand deposits and certificates of deposit were partially offset by a drop in savings deposits. Average custodial deposits rose $149 million, or 10 percent, while average government deposits rose $21 million, or 2 percent.

Provision for Loan Losses

The Company experienced a provision benefit in the second quarter 2018, resulting primarily from a continued decline in loss rates in the held-for-investment portfolio. The provision benefit for loan losses totaled $1 million for the second quarter 2018, as compared to no provision expense for the first quarter 2018.

Noninterest Income

Noninterest income rose $12 million, or 11 percent, to $123 million in the second quarter of 2018, as compared to $111 million for the first quarter 2018. The increase was primarily due to an increase in net gain on loan sales, loan fees and charges and the net return on the mortgage servicing rights.

Second quarter 2018 net gain on loan sales increased $3 million, or 5 percent, to $63 million, versus $60 million in the first quarter 2018. Fallout-adjusted locks rose 17 percent to $9 billion primarily due to a seasonal increase in mortgage originations. The net gain on loan sale margin fell 6 basis points to 0.71 percent for the second quarter 2018, as compared to 0.77 percent for the first quarter 2018.



Mortgage Metrics
																Change (% / bps)
	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			Seq		Yr/Yr
	(Dollars in millions)
For the three months ended:
Mortgage rate lock commitments (fallout-adjusted) (1)	$	9,011		$	7,722		$	8,631		$	8,898		$	9,002		17	%	—	%
Net margin on mortgage rate lock commitments (fallout-adjusted) (1) (2)	0.71		%	0.77		%	0.91		%	0.84		%	0.73		%	(6)		(2)
Net gain on loan sales	$	63		$	60		$	79		$	75		$	66		5	%	(5	)%
Net (loss) return on the mortgage servicing rights (MSR)	$	9		$	4		$	(4	)	$	6		$	6		125	%	50	%
Gain on loan sales + net (loss) return on the MSR	$	72		$	64		$	75		$	81		$	72		13	%	—	%
At the end of the period:
Residential loans serviced (number of accounts - 000's) (3)	535			470			442			415			402			14	%	33	%
Capitalized value of MSRs	1.34		%	1.27		%	1.16		%	1.15		%	1.14		%	7		20
N/M - Not meaningful
(1) Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(2) Gain on sale margin is based on net gain on loan sales (excludes net gain on loan sales of $1 million from loans transferred from HFI in the three months ended December 31, 2017) to fallout-adjusted mortgage rate lock commitments.
(3) Includes loans serviced for own loan portfolio, serviced for others, and subserviced for others.

Loan fees and charges rose to $24 million for the second quarter 2018, as compared to $20 million for the first quarter 2018. The increase primarily reflected higher mortgage loan closings.

Net return on mortgage servicing rights (including the impact of hedges) increased $5 million, resulting in a net gain of $9 million for the second quarter 2018, as compared to a net gain of $4 million for the first quarter 2018. The increase from the prior quarter largely reflected lower sale-related costs, reduced runoff due to increasing interest rates and higher service fee income.

Noninterest Expense

Noninterest expense increased to $177 million for the second quarter 2018, as compared to $173 million for the first quarter 2018, primarily due to an increase in mortgage-related expense from higher mortgage closings. During the second quarter 2018, commissions increased $7 million and loan processing expense rose $1 million.

The Company's total efficiency ratio improved to 74 percent for the second quarter 2018, as compared to 80 percent for the first quarter 2018, led by strong, positive operating leverage. Revenue increased 10 percent while expenses rose a modest 2 percent in the second quarter 2018.

Income Taxes

The second quarter 2018 provision for income taxes totaled $12 million, as compared to $9 million in the first quarter 2018. The Company's effective tax rate was 20 percent for the second quarter 2018, unchanged from the prior quarter.

Asset Quality



Credit Quality Ratios
	Three Months Ended															Change (% / bps)
	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			Seq		Yr/Yr
	(Dollars in millions)
Allowance for loan loss to LHFI	1.5		%	1.7		%	1.8		%	2.0		%	2.1		%	(20)		(60)
Charge-offs, net of recoveries	$	1		$	1		$	2		$	2		$	—		—	%	N/M
Total nonperforming loans held-for-investment	$	27		$	29		$	29		$	31		$	30		(7	)%	(10	)%
Net charge-offs to LHFI ratio (annualized)	0.02		%	0.06		%	0.12		%	0.08		%	0.04		%	(4)		(2)
Ratio of nonperforming LHFI and TDRs to LHFI	0.30		%	0.35		%	0.38		%	0.44		%	0.44		%	(5)		(14)

N/M - Not meaningful

The allowance for loan losses was $137 million at June 30, 2018, compared to $139 million at March 31, 2018. The allowance for loan losses covered 1.5 percent of loans held-for-investment at June 30, 2018, as compared to 1.7 percent of loans held-for-investment at March 31, 2018.

Net charge-offs in the second quarter 2018 were $1 million, or 2 basis points of HFI loans, compared to $1 million, or 6 basis points in the prior quarter.

Nonperforming loans held-for-investment were $27 million at June 30, 2018, compared to $29 million at March 31, 2018. The ratio of nonperforming loans to loans held-for-investment was 0.30 percent at June 30, 2018, compared to 0.35 percent at March 31, 2018. At June 30, 2018, early stage consumer loan delinquencies totaled $3 million, or 0.08 percent of consumer loans, compared to $5 million, or 0.14 percent at March 31, 2018. There were no commercial loan delinquencies greater than 30 days at June 30, 2018.

Capital



Capital Ratios (Bancorp)	Three Months Ended															Change (% / bps)
	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			Seq		Yr/Yr
Tangible common equity to assets ratio (1)	7.74		%	7.65		%	8.15		%	8.47		%	8.70		%	9		(96)
Tier 1 leverage (to adj. avg. total assets)	8.65		%	8.72		%	8.51		%	8.80		%	9.10		%	(7)		(45)
Tier 1 common equity (to RWA)	10.84		%	10.80		%	11.50		%	11.65		%	12.45		%	4		(161)
Tier 1 capital (to RWA)	12.86		%	12.90		%	13.63		%	13.72		%	14.65		%	(4)		(179)
Total capital (to RWA)	14.04		%	14.14		%	14.90		%	14.99		%	15.92		%	(10)		(188)
MSRs to Tier 1 capital	16.9		%	16.2		%	20.1		%	17.3		%	13.1		%	70		N/M
Tangible book value per share (1)	$	24.37		$	23.62		$	24.04		$	25.01		$	24.29		3	%	—	%


(1)	See Non-GAAP Reconciliation for further information.

N/M - Not meaningful

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At June 30, 2018, the Company had a Tier 1 leverage ratio of 8.65 percent, as compared to 8.72 percent at March 31, 2018. The decrease in the ratio resulted primarily from balance sheet growth driven by the impact of the DCB branch and warehouse business acquisitions, largely offset by earnings retention.

Under the terms of recently proposed changes to regulatory capital requirements, the Company's Tier 1 leverage ratio would have increased approximately 50 basis points and risk-based capital ratios by approximately 15-25 basis points at June 30, 2018 (pro forma basis).

Earnings Conference Call

As previously announced, the Company's second quarter 2018 earnings call will be held Tuesday, July 24, 2018 at 11 a.m. (ET).

To join the call, please dial (800) 667-5617 toll free or (334) 323-0505 and use passcode 2373953. Please call at least 10 minutes before the conference is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820 and using passcode 2373953.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and available for replay and download. The slide presentation accompanying the conference call will be posted on the site.

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is an $18.1 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, provides commercial, small business, and consumer banking services through 107 branches in Michigan and California. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as 88 retail locations in 31 states, representing the combined retail branches of Flagstar and its Opes Advisors mortgage division. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $120 billion of home loans representing over 535,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as tangible book value per share and tangible common equity to assets ratio. 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. 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 this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release 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.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of Flagstar Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company's actual results could differ materially from those described in the forward-looking statements depending upon various factors as described 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). Other than as required under United States securities laws, Flagstar Bancorp does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(Dollars in millions)

(Unaudited)



	June 30, 2018			March 31, 2018			December 31, 2017			June 30, 2017
Assets
Cash	$	139		$	121		$	122		$	80
Interest-earning deposits	220			122			82			103
Total cash and cash equivalents	359			243			204			183
Investment securities available-for-sale	1,871			1,918			1,853			1,614
Investment securities held-to-maturity	748			771			939			1,014
Loans held-for-sale	4,291			4,743			4,321			4,506
Loans held-for-investment	8,904			8,134			7,713			6,776
Loans with government guarantees	278			286			271			278
Less: allowance for loan losses	(137		)	(139		)	(140		)	(140		)
Total loans held-for-investment and loans with government guarantees, net	9,045			8,281			7,844			6,914
Mortgage servicing rights	257			239			291			184
Federal Home Loan Bank stock	303			303			303			260
Premises and equipment, net	355			348			330			299
Net deferred tax asset	119			130			136			266
Goodwill and intangible assets	71			72			21			20
Other assets	711			688			670			705
Total assets	$	18,130		$	17,736		$	16,912		$	15,965
Liabilities and Stockholders' Equity
Noninterest-bearing	$	2,781		$	2,391		$	2,049		$	2,012
Interest-bearing	7,807			7,595			6,885			6,683
Total deposits	10,588			9,986			8,934			8,695
Short-term Federal Home Loan Bank advances	3,840			4,153			4,260			3,670
Long-term Federal Home Loan Bank advances	1,280			1,280			1,405			1,200
Other long-term debt	494			494			494			493
Other liabilities	453			396			420			499
Total liabilities	16,655			16,309			15,513			14,557
Stockholders' Equity
Common stock	1			1			1			1
Additional paid in capital	1,514			1,514			1,512			1,509
Accumulated other comprehensive loss	(32		)	(30		)	(16		)	(9		)
Accumulated deficit	(8		)	(58		)	(98		)	(93		)
Total stockholders' equity	1,475			1,427			1,399			1,408
Total liabilities and stockholders' equity	$	18,130		$	17,736		$	16,912		$	15,965

Flagstar Bancorp, Inc. Condensed Consolidated Statements of Operations (Dollars in millions, except per share data) (Unaudited)

														Second Quarter 2018 Compared to:
	Three Months Ended													First Quarter 2018					Second Quarter 2017
	June 30, 2018			March 31, 2018		December 31, 2017			September 30, 2017		June 30, 2017			Amount			Percent		Amount			Percent
Interest Income
Total interest income	$	167		$	152	$	148		$	140	$	129		$	15		10	%	$	38		29	%
Total interest expense	52			46		41			37		32			6			13	%	20			63	%
Net interest income	115			106		107			103		97			9			8	%	18			19	%
Provision (benefit) for loan losses	(1		)	—		2			2		(1		)	(1		)	N/M		—			—	%
Net interest income after provision (benefit) for loan losses	116			106		105			101		98			10			9	%	18			18	%
Noninterest Income
Net gain on loan sales	63			60		79			75		66			3			5	%	(3		)	(5	)%
Loan fees and charges	24			20		24			23		20			4			20	%	4			20	%
Deposit fees and charges	5			5		4			5		5			—			—	%	—			—	%
Loan administration income	5			5		5			5		6			—			—	%	(1		)	(17	)%
Net (loss) return on the mortgage servicing rights	9			4		(4		)	6		6			5			125	%	3			50	%
Other noninterest income	17			17		16			16		13			—			—	%	4			31	%
Total noninterest income	123			111		124			130		116			12			11	%	7			6	%
Noninterest Expense
Compensation and benefits	80			80		80			76		71			—			—	%	9			13	%
Commissions	25			18		23			23		16			7			39	%	9			56	%
Occupancy and equipment	30			30		28			28		25			—			—	%	5			20	%
Federal insurance premiums	6			6		5			5		4			—			—	%	2			50	%
Loan processing expense	15			14		16			15		14			1			7	%	1			7	%
Legal and professional expense	6			6		8			7		8			—			—	%	(2		)	(25	)%
Other noninterest expense	15			19		18			17		16			(4		)	(21	)%	(1		)	(6	)%
Total noninterest expense	177			173		178			171		154			4			2	%	23			15	%
Income before income taxes	62			44		51			60		60			18			41	%	2			3	%
Provision for income taxes	12			9		96			20		19			3			33	%	(7		)	(37	)%
Net income (loss)	$	50		$	35	$	(45	)	$	40	$	41		$	15		43	%	$	9		22	%
Income (loss) per share
Basic	$	0.86		$	0.61	$	(0.79	)	$	0.71	$	0.72		$	0.25		41	%	$	0.14		19	%
Diluted	$	0.85		$	0.60	$	(0.79	)	$	0.70	$	0.71		$	0.25		42	%	$	0.14		20	%

N/M - Not meaningful

Flagstar Bancorp, Inc. Consolidated Statements of Operations (Dollars in millions, except per data share) (Unaudited)

						Six Months Ended June 30, 2018
	Six Months Ended					Compared to: Six Months Ended June 30, 2017
	June 30, 2018			June 30, 2017		Amount			Percent
Total interest income	$	319		$	239	$	80		33	%
Total interest expense	98			59		39			66	%
Net interest income	221			180		41			23	%
Provision (benefit) for loan losses	(1		)	2		(3		)	N/M
Net interest income after provision (benefit) for loan losses	222			178		44			25	%
Noninterest Income
Net gain on loan sales	123			114		9			8	%
Loan fees and charges	44			35		9			26	%
Deposit fees and charges	10			9		1			11	%
Loan administration income	10			11		(1		)	(9	)%
Net (loss) return on the mortgage servicing rights	13			20		(7		)	(35	)%
Other noninterest income	34			27		7			26	%
Total noninterest income	234			216		18			8	%
Noninterest Expense
Compensation and benefits	160			143		17			12	%
Commissions	43			26		17			65	%
Occupancy and equipment	60			47		13			28	%
Federal insurance premiums	12			7		5			71	%
Loan processing expense	29			26		3			12	%
Legal and professional expense	12			15		(3		)	(20	)%
Other noninterest expense	34			30		4			13	%
Total noninterest expense	350			294		56			19	%
Income before income taxes	106			100		6			6	%
Provision for income taxes	21			32		(11		)	(34	)%
Net income	$	85		$	68	$	17		25	%
Income per share
Basic	$	1.47		$	1.18	$	0.29		25	%
Diluted	$	1.45		$	1.16	$	0.29		25	%

Flagstar Bancorp, Inc.

Summary of Selected Consolidated Financial and Statistical Data

(Dollars in millions, except share data)

(Unaudited)



	Three Months Ended									Six Months Ended
	June 30, 2018			March 31, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Selected Mortgage Statistics:
Mortgage rate lock commitments (fallout-adjusted) (1)	$	9,011		$	7,722		$	9,002		$	16,734		$	14,998
Mortgage loans originated (2)	$	9,040		$	7,886		$	9,184		$	16,926		$	15,087
Mortgage loans sold and securitized	$	9,260		$	7,247		$	8,989		$	16,506		$	13,473
Selected Ratios:
Interest rate spread (3)	2.58		%	2.54		%	2.59		%	2.56		%	2.55		%
Net interest margin	2.86		%	2.76		%	2.77		%	2.81		%	2.72		%
Net margin on loans sold and securitized	0.69		%	0.82		%	0.73		%	0.75		%	0.84		%
Return on average assets	1.12		%	0.82		%	1.04		%	0.97		%	0.91		%
Return on average equity	13.45		%	9.94		%	11.57		%	11.73		%	9.77		%
Efficiency ratio	74.4		%	79.7		%	72.0		%	76.9		%	74.2		%
Equity-to-assets ratio (average for the period)	8.29		%	8.27		%	9.02		%	8.28		%	9.29		%
Average Balances:
Average common shares outstanding	57,491,714			57,356,654			57,101,816			57,424,557			57,012,208
Average fully diluted shares outstanding	58,258,577			58,314,385			58,138,938			58,286,327			58,106,070
Average interest-earning assets	$	15,993		$	15,354		$	14,020		$	15,675		$	13,187
Average interest-paying liabilities	$	13,164		$	12,974		$	11,804		$	13,069		$	11,066
Average stockholders' equity	$	1,475		$	1,414		$	1,418		$	1,445		$	1,382


(1)	Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.


(2)	Includes residential first mortgage.


(3)	Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.



	June 30, 2018			March 31, 2018			December 31, 2017			June 30, 2017
Selected Statistics:
Book value per common share	$	25.61		$	24.87		$	24.40		$	24.64
Tangible book value per share (1)	24.37			23.62			24.04			24.29
Number of common shares outstanding	57,598,406			57,399,993			57,321,228			57,161,431
Number of FTE employees	3,682			3,659			3,525			3,432
Number of bank branches	107			107			99			99
Ratio of nonperforming assets to total assets	0.19		%	0.19		%	0.22		%	0.24		%
Common equity-to-assets ratio	8.14		%	8.05		%	8.27		%	8.82		%
MSR Key Statistics and Ratios:
Weighted average service fee (basis points)	32.4			30.4			28.9			27.8
Capitalized value of mortgage servicing rights	1.34		%	1.27		%	1.16		%	1.14		%
Mortgage servicing rights to Tier 1 capital	16.9		%	16.2		%	20.1		%	13.1		%


(1)	Excludes goodwill and intangibles of $71 million, $72 million, $21 million, and $20 million at June 30, 2018, March 31, 2018, December 31, 2017, and June 30, 2017, respectively. See Non-GAAP Reconciliation for further information.

Average Balances, Yields and Rates

(Dollars in millions)

(Unaudited)



	Three Months Ended
	June 30, 2018						March 31, 2018						June 30, 2017
	Average Balance		Interest		Annualized Yield/Rate		Average Balance		Interest		Annualized Yield/Rate		Average Balance		Interest		Annualized Yield/Rate
Interest-Earning Assets
Loans held-for-sale	$	4,170	$	47	4.50	%	$	4,231	$	44	4.12	%	$	4,269	$	42	4.00	%
Loans held-for-investment
Residential first mortgage	2,875		25		3.53	%	2,773		23		3.41	%	2,495		21		3.38	%
Home equity	679		8		5.05	%	668		9		5.21	%	439		6		4.91	%
Other	57		1		5.39	%	27		—		4.56	%	27		—		4.54	%
Total Consumer loans	3,611		34		3.85	%	3,468		32		3.76	%	2,961		27		3.61	%
Commercial Real Estate	2,017		26		5.09	%	1,954		24		4.87	%	1,477		16		4.16	%
Commercial and Industrial	1,257		17		5.30	%	1,217		16		5.21	%	936		11		4.77	%
Warehouse Lending	1,495		19		5.03	%	848		11		5.14	%	850		10		4.71	%
Total Commercial loans	4,769		62		5.13	%	4,019		51		5.03	%	3,263		37		4.48	%
Total loans held-for-investment	8,380		96		4.58	%	7,487		83		4.44	%	6,224		64		4.07	%
Loans with government guarantees	280		2		3.66	%	291		3		3.72	%	295		3		4.02	%
Investment securities	3,049		21		2.72	%	3,233		22		2.69	%	3,166		20		2.57	%
Interest-earning deposits	114		1		1.72	%	112		—		1.67	%	66		—		1.07	%
Total interest-earning assets	15,993		$	167	4.17	%	15,354		$	152	3.95	%	14,020		$	129	3.69	%
Other assets	1,791						1,736						1,690
Total assets	$	17,784					$	17,090					$	15,710
Interest-Bearing Liabilities
Retail deposits
Demand deposits	$	704	$	1	0.60	%	$	548	$	—	0.26	%	$	510	$	—	0.15	%
Savings deposits	3,412		8		0.86	%	3,490		7		0.81	%	3,933		8		0.75	%
Money market deposits	247		—		0.54	%	205		—		0.44	%	239		—		0.42	%
Certificates of deposit	2,006		8		1.63	%	1,619		6		1.45	%	1,094		3		1.08	%
Total retail deposits	6,369		17		1.06	%	5,862		13		0.92	%	5,776		11		0.75	%
Government deposits
Demand deposits	243		—		0.47	%	241		—		0.55	%	200		—		0.39	%
Savings deposits	488		2		1.26	%	483		2		1.11	%	411		1		0.56	%
Certificates of deposit	380		1		1.35	%	401		1		1.19	%	291		—		0.68	%
Total government deposits	1,111		3		1.12	%	1,125		3		1.02	%	902		1		0.56	%
Wholesale deposits and other	264		1		1.96	%	171		1		1.91	%	4		—		0.48	%
Total interest-bearing deposits	7,744		21		1.10	%	7,158		17		0.96	%	6,682		12		0.72	%
Short-term Federal Home Loan Bank advances and other	3,646		17		1.85	%	4,032		15		1.53	%	3,429		8		0.98	%
Long-term Federal Home Loan Bank advances	1,280		7		2.25	%	1,290		7		2.10	%	1,200		6		1.91	%
Other long-term debt	494		7		5.60	%	494		7		5.37	%	493		6		5.06	%
Total interest-bearing liabilities	13,164		52		1.58	%	12,974		46		1.41	%	11,804		32		1.10	%
Noninterest-bearing deposits (1)	2,670						2,213						2,057
Other liabilities	475						489						431
Stockholders' equity	1,475						1,414						1,418
Total liabilities and stockholders' equity	$	17,784					$	17,090					$	15,710
Net interest-earning assets	$	2,829					$	2,380					$	2,216
Net interest income			$	115					$	106					$	97
Interest rate spread (2)					2.58	%					2.54	%					2.59	%
Net interest margin (3)					2.86	%					2.76	%					2.77	%
Ratio of average interest-earning assets to interest-bearing liabilities					121.5	%					118.3	%					118.8	%
Total average deposits	$	10,414					$	9,371					$	8,739


(1)	Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.


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


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

Average Balances, Yields and Rates

(Dollars in millions)

(Unaudited)



	Six Months Ended
	June 30, 2018						June 30, 2017
	Average Balance		Interest		Annualized Yield/Rate		Average Balance		Interest		Annualized Yield/Rate
Interest-Earning Assets
Loans held-for-sale	$	4,201	$	90	4.31	%	$	3,780	$	74	3.94	%
Loans held-for-investment
Residential first mortgage	2,824		49		3.47	%	2,447		41		3.35	%
Home equity	674		17		5.13	%	436		11		5.01	%
Other	42		1		5.12	%	26		—		4.52	%
Total Consumer loans	3,540		67		3.80	%	2,909		52		3.61	%
Commercial Real Estate	1,986		50		4.98	%	1,399		28		3.99	%
Commercial and Industrial	1,237		33		5.25	%	855		20		4.67	%
Warehouse Lending	1,173		30		5.07	%	770		18		4.62	%
Total Commercial loans	4,396		113		5.08	%	3,024		66		4.34	%
Total loans held-for-investment	7,936		180		4.51	%	5,933		118		3.98	%
Loans with government guarantees	285		5		3.69	%	318		7		4.34	%
Investment securities	3,140		43		2.71	%	3,090		39		2.54	%
Interest-earning deposits	113		1		1.69	%	66		1		0.97	%
Total interest-earning assets	15,675		$	319	4.06	%	13,187		$	239	3.63	%
Other assets	1,764						1,694
Total assets	$	17,439					$	14,881
Interest-Bearing Liabilities
Retail deposits
Demand deposits	$	626	$	1	0.46	%	$	509	$	—	0.17	%
Savings deposits	3,451		14		0.83	%	3,930		15		0.76	%
Money market deposits	226		1		0.49	%	258		1		0.44	%
Certificates of deposit	1,814		14		1.55	%	1,083		6		1.07	%
Total retail deposits	6,117		30		0.99	%	5,780		22		0.75	%
Government deposits
Demand deposits	242		1		0.51	%	217		—		0.39	%
Savings deposits	485		3		1.18	%	435		1		0.54	%
Certificates of deposit	391		2		1.27	%	305		1		0.65	%
Total government deposits	1,118		6		1.07	%	957		2		0.54	%
Wholesale deposits and other	217		2		1.94	%	6		—		0.42	%
Total interest-bearing deposits	7,452		38		1.03	%	6,743		24		0.72	%
Short-term Federal Home Loan Bank advances and other	3,838		32		1.68	%	2,630		12		0.89	%
Long-term Federal Home Loan Bank advances	1,285		14		2.17	%	1,200		11		1.89	%
Other long-term debt	494		14		5.49	%	493		12		5.05	%
Total interest-bearing liabilities	13,069		98		1.50	%	11,066		59		1.08	%
Noninterest-bearing deposits (1)	2,443						2,024
Other liabilities	482						409
Stockholders' equity	1,445						1,382
Total liabilities and stockholders' equity	$	17,439					$	14,881
Net interest-earning assets	$	2,606					$	2,121
Net interest income			$	221					$	180
Interest rate spread (2)					2.56	%					2.55	%
Net interest margin (3)					2.81	%					2.72	%
Ratio of average interest-earning assets to interest-bearing liabilities					119.9	%					119.2	%
Total average deposits	$	9,895					$	8,767


(1)	Includes noninterest-bearing custodial deposits that arise due to the servicing of loans for others.


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


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

Flagstar Bancorp, Inc.

Earnings Per Share

(Dollars in millions, except share data)

(Unaudited)



	Three Months Ended									Six Months Ended
	June 30, 2018			March 31, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Net income	50			35			41			85			68
Weighted average shares
Weighted average common shares outstanding	57,491,714			57,356,654			57,101,816			57,424,557			57,012,208
Effect of dilutive securities
May Investor warrants	—			—			—			—			24,575
Stock-based awards	766,863			957,731			1,037,122			861,770			1,069,287
Weighted average diluted common shares	58,258,577			58,314,385			58,138,938			58,286,327			58,106,070
Earnings per common share
Basic earnings per common share	$	0.86		$	0.61		$	0.72		$	1.47		$	1.18
Effect of dilutive securities
May Investor warrants	—			—			—			—			—
Stock-based awards	(0.01		)	(0.01		)	(0.01		)	(0.02		)	(0.02		)
Diluted earnings per common share	$	0.85		$	0.60		$	0.71		$	1.45		$	1.16

Regulatory Capital - Bancorp

(Dollars in millions)

(Unaudited)



	June 30, 2018				March 31, 2018				December 31, 2017				June 30, 2017
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 leverage (to adjusted avg. total assets)	$	1,525	8.65	%	$	1,475	8.72	%	$	1,442	8.51	%	$	1,408	9.10	%
Total adjusted avg. total asset base	$	17630			$	16,918			$	16,951			$	15,468
Tier 1 common equity (to risk weighted assets)	$	1,285	10.84	%	$	1,235	10.80	%	$	1,216	11.50	%	$	1,196	12.45	%
Tier 1 capital (to risk weighted assets)	$	1,525	12.86	%	$	1,475	12.90	%	$	1,442	13.63	%	$	1,408	14.65	%
Total capital (to risk weighted assets)	$	1,665	14.04	%	$	1,617	14.14	%	$	1,576	14.90	%	$	1,530	15.92	%
Risk-weighted asset base	$	11,855			$	11,440			$	10,579			$	9,610

Regulatory Capital - Bank

(Dollars in millions)

(Unaudited)



	June 30, 2018				March 31, 2018				December 31, 2017				June 30, 2017
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 leverage (to adjusted avg. total assets)	$	1,594	9.04	%	$	1,537	9.08	%	$	1,531	9.04	%	$	1,590	10.26	%
Total adjusted avg. total asset base	$	17,637			$	16,926			$	16,934			$	15,504
Tier 1 common equity (to risk weighted assets)	$	1,594	13.44	%	$	1,537	13.42	%	$	1,531	14.46	%	$	1,590	16.49	%
Tier 1 capital (to risk weighted assets)	$	1,594	13.44	%	$	1,537	13.42	%	$	1,531	14.46	%	$	1,590	16.49	%
Total capital (to risk weighted assets)	$	1,734	14.62	%	$	1,679	14.66	%	$	1,664	15.72	%	$	1,712	17.75	%
Risk-weighted asset base	$	11,863			$	11,449			$	10,589			$	9,645



Loan Originations (Dollars in millions) (Unaudited)
	Three Months Ended
	June 30, 2018				March 31, 2018				June 30, 2017
Residential first mortgage	$	9,040	95.2	%	$	7,886	97.1	%	$	9,184	95.0	%
Home equity (1)	141		1.5	%	65		0.8	%	75		0.8	%
Total consumer loans	9,181		96.7	%	7,951		97.9	%	9,259		95.8	%
Commercial loans (2)	317		3.3	%	169		2.1	%	400		4.2	%
Total loan originations	$	9,498	100.0	%	$	8,120	100.0	%	$	9,659	100.0	%


(1)	Includes second mortgage loans, HELOC loans, and other consumer loans.


(2)	Includes CRE and C&I loans that were net funded within the period.



Loan Originations (Dollars in millions) (Unaudited)
	Six Months Ended
	June 30, 2018				June 30, 2017
Residential first mortgage	$	16,926	96.0	%	$	15,087	95.0	%
Home equity (1)	206		1.2	%	131		0.8	%
Total consumer loans	17,132		97.2	%	15,218		95.8	%
Commercial loans (2)	486		2.8	%	671		4.2	%
Total loan originations	$	17,618	100.0	%	$	15,889	100.0	%


(1)	Includes second mortgage loans, HELOC loans, and other consumer loans.


(2)	Includes CRE and C&I loans that were net funded within the period.

Residential Loans Serviced

(Dollars in millions)

(Unaudited)



	June 30, 2018			March 31, 2018			December 31, 2017			June 30, 2017
	Unpaid Principal Balance (1)		Number of accounts	Unpaid Principal Balance (1)		Number of accounts	Unpaid Principal Balance (1)		Number of accounts	Unpaid Principal Balance (1)		Number of accounts
Serviced for own loan portfolio (2)	$	7,303	32,012	$	7,629	32,185	$	7,013	29,493	$	7,156	30,875
Serviced for others	19,249		78,898	18,767		77,426	25,073		103,137	16,144		66,106
Subserviced for others (3)	93,761		424,331	77,748		360,396	65,864		309,814	63,991		304,830
Total residential loans serviced	$	120,313	535,241	$	104,144	470,007	$	97,950	442,444	$	87,291	401,811


(1)	UPB, net of write downs, does not include premiums or discounts.


(2)	Includes loans held-for-investment (residential first mortgage and home equity), loans-held-for-sale (residential first mortgage), loans with government guarantees (residential first mortgage), and repossessed assets.


(3)	Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.

Loans Held-for-Investment

(Dollars in millions)

(Unaudited)



	June 30, 2018				March 31, 2018				December 31, 2017				June 30, 2017
Consumer loans
Residential first mortgage	$	2,986	33.5	%	$	2,818	34.6	%	$	2,754	35.7	%	$	2,538	37.5	%
Home equity	685		7.7	%	671		8.3	%	664		8.6	%	459		6.7	%
Other	88		1.0	%	25		0.3	%	25		0.3	%	27		0.4	%
Total consumer loans	3,759		42.2	%	3,514		43.2	%	3,443		44.6	%	3,024		44.6	%
Commercial loans
Commercial real estate	2,020		22.7	%	1,985		24.4	%	1,932		25.1	%	1,557		23.1	%
Commercial and industrial	1,324		14.9	%	1,228		15.1	%	1,196		15.5	%	1,040		15.3	%
Warehouse lending	1,801		20.2	%	1,407		17.3	%	1,142		14.8	%	1,155		17.0	%
Total commercial loans	5,145		57.8	%	4,620		56.8	%	4,270		55.4	%	3,752		55.4	%
Total loans held-for-investment	$	8,904	100.0	%	$	8,134	100.0	%	$	7,713	100.0	%	$	6,776	100.0	%

Allowance for Loan Losses

(Dollars in millions)

(Unaudited)



	As of/For the Three Months Ended
	June 30, 2018			March 31, 2018			June 30, 2017
Allowance for loan losses
Residential first mortgage	$	45		$	47		$	56
Home equity	19			21			19
Other	1			1			1
Total consumer loans	65			69			76
Commercial real estate	45			44			37
Commercial and industrial	21			20			21
Warehouse lending	6			6			6
Total commercial loans	72			70			64
Total allowance for loan losses	$	137		$	139		$	140
Charge-offs
Total consumer loans	(2		)	(2		)	(2		)
Total commercial loans	—			—			—
Total charge-offs	$	(2	)	$	(2	)	$	(2	)
Recoveries
Total consumer loans	1			1			2
Total commercial loans	—			—			—
Total recoveries	1			1			2
Charge-offs, net of recoveries	$	(1	)	$	(1	)	$	—
Net charge-offs to LHFI ratio (annualized) (1)	0.02		%	0.06		%	0.04		%
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
Residential first mortgage	0.04		%	0.11		%	0.09		%
Home equity and other consumer	0.10		%	0.28		%	0.02		%
Commercial real estate	—		%	(0.01		)%	—		%
Commercial and industrial	(0.01		)%	(0.01		)%	(0.01		)%


(1)	Excludes loans carried under the fair value option.

Allowance for Loan Losses

(Dollars in millions)

(Unaudited)



	As of/For the Six Months Ended
	June 30, 2018			June 30, 2017
Total allowance for loan losses	$	137		$	140
Charge-offs
Total consumer loans	(4		)	(7		)
Total commercial loans	—			—
Total charge-offs	$	(4	)	$	(7	)
Recoveries
Total consumer loans	2			3
Total commercial loans	—			—
Total recoveries	2			3
Charge-offs, net of recoveries	$	(2	)	$	(4	)
Net charge-offs to LHFI ratio (annualized) (1)	0.04		%	0.15		%
Net charge-offs/(recoveries) to LHFI ratio (annualized) by loan type (1):
Residential first mortgage	0.08		%	0.34		%
Home equity and other consumer	0.19		%	0.15		%
Commercial real estate	(0.01		)%	(0.01		)%
Commercial and industrial	(0.01		)%	(0.01		)%


(1)	Excludes loans carried under the fair value option.

Nonperforming Loans and Assets

(Dollars in millions)

(Unaudited)



	June 30, 2018			March 31, 2018			December 31, 2017			June 30, 2017
Nonperforming LHFI	$	13		$	14		$	13		$	18
Nonperforming TDRs	4			5			5			5
Nonperforming TDRs at inception but performing for less than six months	10			10			11			7
Total nonperforming LHFI and TDRs (1)	27			29			29			30
Real estate and other nonperforming assets, net	7			5			8			9
LHFS	$	7		$	11		$	9		$	7
Total nonperforming assets	$	41		$	45		$	46		$	46

Ratio of nonperforming assets to total assets (2)	0.19		%	0.19		%	0.22		%	0.24		%
Ratio of nonperforming LHFI and TDRs to LHFI	0.30		%	0.35		%	0.38		%	0.44		%
Ratio of nonperforming assets to LHFI and repossessed assets (2)	0.38		%	0.42		%	0.48		%	0.57		%


(1)	Includes less than 90 day past due performing loans placed on nonaccrual. Interest is not being accrued on these loans.


(2)	Ratio excludes LHFS.

Asset Quality - Loans Held-for-Investment

(Dollars in millions)

(Unaudited)



	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 days (1)		Total Past Due		Total Loans Held-for-Investment
June 30, 2018
Consumer loans	$	3	$	—	$	27	$	30	$	3,759
Commercial loans	—		—		—		—		5,145
Total loans	$	3	$	—	$	27	$	30	$	8,904
March 31, 2018
Consumer loans	$	4	$	1	$	29	$	34	$	3,514
Commercial loans	—		—		—		—		4,620
Total loans	$	4	$	1	$	29	$	34	$	8,134
December 31, 2017
Consumer loans	$	3	$	2	$	29	$	34	$	3,443
Commercial loans	—		—		—		—		4,270
Total loans	$	3	$	2	$	29	$	34	$	7,713
June 30, 2017
Consumer loans	2		3		30		$	35	$	3,024
Commercial loans	1		—		—		1		3,752
Total loans	$	3	$	3	$	30	$	36	$	6,776


(1)	Includes performing nonaccrual loans that are less than 90 days delinquent and for which interest cannot be accrued.

Troubled Debt Restructurings

(Dollars in millions)

(Unaudited)



	TDRs
	Performing		Nonperforming		Total
June 30, 2018
Consumer loans	$	43	$	14	$	57
Total TDR loans	$	43	$	14	$	57
March 31, 2018
Consumer loans	$	44	$	15	$	59
Commercial loans	5		—		5
Total TDR loans	$	49	$	15	$	64
December 31, 2017
Consumer loans	$	43	$	16	$	59
Total TDR loans	$	43	$	16	$	59
June 30, 2017
Consumer loans	$	46	$	12	$	58
Total TDR loans	$	46	$	12	$	58

Non-GAAP Reconciliation

(Dollars in millions)

(Unaudited)

Tangible book value per share and tangible common equity to assets ratio. In addition to analyzing the Company's results on a reported basis, management reviews the Company's results and the results on an adjusted basis. This non-GAAP measure reflects the adjustments of the reported U.S.GAAP results for significant items that management does not believe are reflective of the Company's current and ongoing operations. The Company believes that tangible book value per share and tangible common equity to assets provide a meaningful representation of its operating performance on an ongoing basis. Management uses these measures to assess performance of the Company against its peers and evaluate overall performance. The Company believes these non-GAAP financial measures provide useful information for investors, securities analysts and others because it provides a tool to evaluate the Company’s performance on an ongoing basis and compared to its peers.

The following tables provide a reconciliation of non-GAAP financial measures.

Tangible book value per share and tangible common equity to assets ratio



	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017
	(Dollars in millions, except share data)
Total stockholders' equity	$	1,475		$	1,427		$	1,399		$	1,451		$	1,408
Goodwill and intangibles	71			72			21			21			20
Tangible book value	$	1,404		$	1,355		$	1,378		$	1,430		$	1,388

Number of common shares outstanding	57,598,406			57,399,993			57,321,228			57,181,536			57,161,431
Tangible book value per share	$	24.37		$	23.62		$	24.04		$	25.01		$	24.29

Total Assets	$	18,130		$	17,736		$	16,912		$	16,880		$	15,965
Tangible common equity to assets ratio	7.74		%	7.65		%	8.15		%	8.47		%	8.70		%

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FLAGSTAR BANCORP INC Reports