Attached files
| file | filename |
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| 8-K - 8-K - FLAGSTAR BANCORP INC | a8-kearningsrelease4q2017.htm |
| EX-99.1 - EXHIBIT 99.1 - FLAGSTAR BANCORP INC | pressrelease4q2017.htm |
4th Quarter 2017
Flagstar Bancorp, Inc. (NYSE: FBC)
Earnings Presentation
4th Quarter 2017
January 23, 2018
4th Quarter 2017 Cautionary statements
This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s
business and performance, the economy and other future conditions, and forecasts of future events, circumstances and results. However,
they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies and other factors.
Generally, forward-looking statements are not based on historical facts but instead represent our management’s beliefs regarding future
events. Such statements may be identified by words such as believe, expect, anticipate, intend, plan, estimate, may increase, may
fluctuate, and similar expressions or future or conditional verbs such as will, should, would and could. Such statements are based on
management’s current expectations and are subject to risks, uncertainties and changes in circumstances. Actual results and capital and
other financial conditions may differ materially from those included in these statements due to a variety of factors, including without
limitation those found in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the
Company’s website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov).
Any forward-looking statements made by or on behalf of us speak only as to the date they are made, and we do not undertake to update
forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were
made, except as required under United States securities laws.
In addition to results presented in accordance with GAAP, this presentation includes non-GAAP financial measures. The Company
believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital
requirements Flagstar will face in the future and underlying performance and trends of Flagstar.
Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied. Readers should be aware of these
limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP
measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial
condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and
that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these
non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in
isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.
Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the
reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in these conference call slides.
Additional discussion of the use of non-GAAP measures can also be found in the Form 8-K Current Report related to this presentation and
in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s
website at flagstar.com.
2
4th Quarter 2017 Executive Overview
Sandro DiNello, CEO
4th Quarter 2017 Strategic highlights
4
Unique
relationship-based
business model
• Durable and balanced earnings stream
- Continued growth of banking and servicing businesses has reduced impact of swings in origination business,
producing more predictable and consistent results
Strengthen
mortgage revenues
Grow community
banking
Highly
profitable
operations
• Solid, consistent financial results
- Adjusted net income of $35 million(1) or $0.60(1) per diluted share; up 25% vs. 4Q16
Positioned to thrive
in any market
• Strong credit metrics and low delinquency levels supported by 1.8 percent allowance coverage ratio
• Relatively neutral interest rate risk position
• Tier 1 leverage ratio of 8.5 percent, Capital Simplification proposal would improve Tier 1 leverage ratio to 9.2
percent
• Continued transformation into strong commercial bank
- Average commercial loans up $344 million, or 9 percent vs. prior quarter
- $1.1 billion of high quality C&I and CRE loans added to balance sheet in 2017
• Received regulatory approval to acquire eight Desert Community Bank branches
• Mortgage acquisitions strengthened distribution channels and added flexibility to take advantage of market conditions
- Mortgage closings totaled $9.7 billion, up 14 percent vs. 3Q17
- Fallout-adjusted locks increased 42% vs. 4Q16
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.
4th Quarter 2017 Financial Overview
Jim Ciroli, CFO
4th Quarter 2017 Financial highlights
6
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) Mortgage revenue is defined as net gain on loan sales HFS plus the net (loss) return on the MSR.
Durable
earnings
Strong
banking
contribution
• Net interest income rose $4 million, or 4 percent, led by growth of high-quality, relationship-based commercial loans
- Average earning assets rose on strength of 9 percent increase in average commercial loans
- Net interest margin remained stable at 2.76 percent on continued deposit price discipline
Good
mortgage
performance
Strong
asset quality
• Net charge-offs negligible at 0.11 percent of HFI loans
• Nonperforming loan ratio fell to 0.38 percent; early stage delinquencies low and stable
• Allowance for loan losses covered 1.8 percent of loans HFI
Robust
capital
position
• Capital remained hallmark with regulatory capital ratios well above current “well capitalized” guidelines
- Tier 1 leverage at 8.5 percent with nearly 120 basis points of trapped capital in MSRs and DTAs
- Tier 1 leverage has approximately 350 basis point buffer to “well-capitalized” minimums that would grow to
approximately 420 basis points under the proposed Capital Simplification
• Adjusted net income of $35 million(1), or $0.60(1) per diluted share, in 4Q17
- Average earning assets grew 4 percent, and net interest margin remained steady; deposits grew 1 percent
- GOS margin strengthened to 91 basis points, while volumes dropped only 3 percent
- Mortgage Servicing gained scale with book of business that exceeds 440,000 accounts
• Mortgage revenue(2) down $7 million; stronger net gain on loan sales partially offset net loss on MSR
- Net gain on loan sales rose $3 million, reflecting 7 basis point increase in GOS margin
- Net loss on MSR was $4 million, led by drop in fair value from model changes and charge on pending MSR sales
4th Quarter 2017
4Q17 3Q17 $ Variance % Variance
Net interest income $107 $103 $4 4%
Provision for loan losses ("PLL") 2 2 - 0%
Net interest income after PLL 105 101 4 4%
Net gain on loan sales 79 75 4 5%
Loan fees and charges 24 23 1 4%
Loan administration income 5 5 - 0%
Net return on mortgage servicing rights (4) 6 (10) N/M
Representation and warranty benefit 2 4 (2) (50%)
Other noninterest income 18 17 1 6%
Total noninterest income 124 130 (6) (5%)
Net gain on loan sales / total revenue 34% 32% 2%
Compensation and benefits 80 76 4 5%
Commissions and loan processing expense 39 38 1 3%
Other noninterest expenses 59 57 2 4%
Total noninterest expense 178 171 7 4%
Income before income taxes 51 60 (9) (15%)
Provision for income taxes 16 (1) 20 (4) (20%)
Net income $35 (1) $40 ($5) (13%)
Diluted income per share $0.60 (1) $0.70 ($0.10) (14%)
Profitability
Net interest margin 2.76% 2.78% (2 bps)
Total revenues $231 $233 ($2) (1%)
Mortgage rate lock commitments, fallout adjusted $8,631 $8,898 ($267) (3%)
Mortgage closings $9,749 $9,572 $177. 2%
Net gain on loan sale margin, HFS 0.91% 0.84% 7 bps.
Quarterly income comparison
$mm Observations
Noninterest income
• Noninterest income decreased $6mm or 5%
- Higher GOS revenues largely reflected higher
GOS margin; FOAL fell only 3 percent, reflecting
strengthening of bulk and retail channels
- Net return on MSR declined $10 million on model
changes and MSR sales that extends flexibility
for holding MSRs on-balance sheet
B
Net interest income
• Net interest income increased $4mm or 4%
- Average earning assets increased 4%, led by
commercial loans (up 9%)
- Net interest margin stable at 2.76%, reflecting
continued deposit price discipline
Noninterest expense
• Noninterest expense increased $7mm or 4%
- Compensation and benefits rose $4mm, led
primarily by incentive compensation
- $2 million higher expense supported growth
initiatives
- Commissions and loan processing expense rose
$1mm on higher loan originations
A
B2
C
B1
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
4th Quarter 2017
Equity(4)
• Common equity to asset ratio of 8.3%
• FBC closing share price of $38.98 on January 22, 2018
is 162% of tangible book value
Average balance sheet highlights
8
Interest-bearing liabilities
• Average deposits grew $79 million, or 1%, led by higher
company-controlled and government deposits
• Retail deposits unchanged with mix shift from retail
savings to retail CDs
- Deposit costs managed despite slight duration
extension from higher CD mix
Observations
Interest-earning assets
• Average loans held-for-investment rose $492 million, or
7%, most of which came from commercial loans
- Commercial loan growth was broad-based with a
solid gain in CRE, C&I and warehouse loans
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 $4,537 $61 1%
Consumer loans(2) 3,254 148 5%
Commercial loans(2) 4,041 344 9%
Total loans held-for-investment 7,295 492 7%
Other earning assets(3) 3,547 89 3%
Interest-earning assets $15,379 $642 4%
Other assets 1,772 70 4%
Total assets $17,151 $712 4%
Deposits $9,084 $79 1%
Short-term FHLB advances & other 4,329 520 14%
Long-term FHLB advances 1,301 67 5%
Other long-term debt 494 1 0%
Other liabilities 446 19 4%
Total liabilities $15,654 $686 5%
Stockholders' equity 1,497 26 2%
Total liabilities a d stockholders' equity $17,151 $712 4%
Tangible book value per common share (12/31/17) (4) $24.04 ($0.97) (4%)
Incr (Decr)(1)
Average Balance Sheet
4Q17 ($mm)
4th Quarter 2017 Asset quality
9
Performing TDRs and NPLs ($mm)
67
48 46 46 43
40
28 30 31 29
$107
$76 $76 $77 $72
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Peforming TDRs NPLs
1) Excludes loans carried under the fair value option and loans with government guarantees.
Allowance coverage(1) (% of loans HFI)
2.4% 2.4%
2.1% 2.0%
1.8%
3.3%
2.9%
2.5%
2.3%
2.0%
1.6%
1.9%
1.7% 1.7% 1.6%
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Total Consumer Commercial
Net charge-offs ($mm)
Representation & warranty reserve(2) ($mm)
$27
$23
$20
$16 $15
$6 $6
$4
$5
$3
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Reserve Repurchase pipeline
1 1
0
1 1
1
2
1 1
1
$2
$4
$0
$2 $2
4Q16 1Q17 2Q17 3Q17 4Q17
Adj. charge-offs Govt. guaranteed loans Loan sales
2) Please see slide 47 in the appendix for further details on the representation and warranty reserve.
4th Quarter 2017
8.9%
-33bps +54bps
+22bps
9.3%
-130bps +44bps
+65bps
9.1%
-38bps
-24bps +32bps
8.8%
-40bps
-21bps +32bps
8.5%
9.5%
9.2%
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Robust capital
Observations 4Q17
Tier 1 CET-1 Tier 1 Total RBC
Leverage to RWA to RWA to RWA
4Q17 Actual 8.5% 11.5% 13.6% 14.9%
3 17 ctual 8.8 11.7 13.7 15.0
10
Flagstar Bancorp Tier 1 Leverage
Well
Capitalized
5.0%
Balance sheet impact Net earnings contribution
2017 phase-in under Basel III Capital impact of MSR
• Tier 1 leverage ended the quarter at 8.5%
- Balance sheet growth of more than $700mm consumed
40bps of capital excluding MSR impact
- Planned MSR growth utilized 21bps of capital given positive
signals of Capital Simplification
- Net earnings contributed 32bps of capital
• Flagstar will generate capital at pre-tax rate as it utilizes its
NOL-related DTAs
- $72mm of NOL-related DTAs (43bps of Tier 1 leverage)
• Capital Simplification proposal would unleash trapped capital
and increase Tier 1 leverage ~70 bps(1) and risk-based
capital ratios ~30-35 bps(1) to support balance sheet growth
- $125mm of MSRs (74bps of Tier 1 leverage) will be
released upon increasing CET-1 threshold to 25%
1) Non-GAAP number. Please see reconciliation on page 48.
Proforma ratio under Capital Simplification proposal(1)
4th Quarter 2017 Business Segment Overview
Lee Smith, COO
4th Quarter 2017 Community banking
12
Quarter-end commercial loan commitments ($bn)
Average deposit funding(1) ($bn)
6.3 6.4 6.5 6.6 6.5
1.0 1.0 0.9 0.9 1.0
1.9 1.4 1.4 1.5 1.6
$9.2
$8.8 $8.7 $9.0 $9.1
4Q16 1Q17 2Q17 3Q17 4Q17
Retail Government Company-controlled deposits
1) Includes company-controlled deposits which are included as part of mortgage servicing.
1.2 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
$6.0 $6.0
$6.6
$7.2
$7.6
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Commercial and Industrial Commercial Real Estate Warehouse
Average commercial loans ($bn)
Average consumer loans ($bn)
0.7 0.8 0.9
1.1 1.1
1.2 1.3
1.5
1.6 1.9
1.5
0.7
0.9
1.0
1.0
$3.5
$2.8
$3.3
$3.7
$4.0
4Q16 1Q17 2Q17 3Q17 4Q17
Commercial and Industrial Commercial Real Estate Warehouse
2.2 2.4 2.5
2.6 2.7
0.5
0.5 0.5
0.5
0.6 $2.7
$2.9 $3.0
$3.1
$3.3
4Q16 1Q17 2Q17 3Q17 4Q17
Residential First Mortgages Other Consumer Loans
4th Quarter 2017
$6.1 $6.0
$9.0 $8.9 $8.6
4Q16 1Q17 2Q17 3Q17 4Q17
3.2 3.1
5.5 5.5 5.3
5.3
2.8
3.7 4.1 4.4
$8.6
$5.9
$9.2 $9.6
$9.7
4Q16 1Q17 2Q17 3Q17 4Q17
Purchase originations Refinance originations
Purchase
Mix %
Mortgage originations
13
43% 54% 58% 55% 54%
4.5
3.0
4.6 4.5 4.9
1.9
1.7
2.4 2.2
2.3
2.1
1.2
2.2 2.9 2.5
$8.6
$5.9
$9.2
$9.6 $9.7
4Q16 1Q17 2Q17 3Q17 4Q17
Conventional Government Jumbo
Closings by purpose ($bn)
Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin
Fallout-adjusted locks ($bn)
$57
$48
$66
$75
$79
0.93%
0.80%
0.73%
0.84%
0.91%
4Q16 1Q17 2Q17 3Q17 4Q17
Gain on loan sale Gain on sale margin (HFS)
4th Quarter 2017 Mortgage servicing
14
MSR / regulatory capital (Bancorp)
Quarter-end loans serviced (000’s) $ UPB of MSRs sold ($bn)
4.2
5.8
17.1
4.3
2.5
2.2
1.9
1.6
$6.7
$8.0
$19.0
$2.0
$4.3
4Q16 1Q17 2Q17 3Q17 4Q17
Bulk Sales Flow Transactions
133 117
66 87 103
221 242
305 297
310
29 34 31
31
29 383 393 402
415
442
12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
Serviced for Others Subserviced for Others Flagstar Loans HFI
31%
28%
15%
20%
24%
27%
23%
13%
17%
21%
12/31/2016 3/31/2017 6/30/17 9/30/17 12/31/17
MSR to Tier 1 Common MSR to Tier 1 Capital
Average company-controlled deposits ($bn)
$1.9
$1.4 $1.4
$1.5
$1.6
4Q16 1Q17 2Q17 3Q17 4Q17
4th Quarter 2017 Noninterest expense and efficiency ratio
15
Quarterly noninterest expense ($mm) and efficiency ratio
77% 77%
72%
74%
77%
$142
$140
$154
$171
$178
4Q16 1Q17 2Q17 3Q17 4Q17
Efficiency ratio Noninterest expense
● Higher expenses led by incentive compensation and investment in growth initiatives with stable efficiency ratio
4th Quarter 2017 Closing Remarks / Q&A
Sandro DiNello, CEO
4th Quarter 2017 Earnings guidance(1)
17
1) See cautionary statements on slide 2.
Net interest income
• Net interest income fairly steady
- Average earning assets relatively unchanged; Higher home builder and consumer loans largely offset by decline
in loans held-for-sale and warehouse loans from fewer mortgage closings
- Net interest margin fairly stable
Net gain on loan sales
• Net gain on loan sales relatively steady
- Consumer direct mortgage team from Capital One provides no meaningful impact in 1Q18
Mortgage servicing
rights (MSRs)
• Net return on MSRs approximates 5-7% before transaction costs from closing 1Q18 MSR sales
Other noninterest
income
• Loan fees and charges down moderately on lower mortgage loan closings
• All other noninterest income fairly steady with Q4 levels
Noninterest expense
• Noninterest expense to rise to between $183-$188 million, due to seasonally higher payroll taxes and benefit costs and
continued investment in revenue growth initiatives
1st Quarter 2018 Outlook
4th Quarter 2017 Appendix
Company overview 19
Financial performance 26
Community banking 30
Mortgage origination 41
Mortgage servicing 43
Capital and liquidity 44
Asset quality 47
Non-GAAP reconciliation 48
4th Quarter 2017 Flagstar at a glance
COMPANY OVERVIEW
99
Branches in
Michigan
Community banking
• Leading Michigan-based bank with a balanced,
diversified lending platform
• $16.9bn of assets and $8.9bn of deposits
• 99 branches
• 108k household & 15k business relationships
Mortgage origination
• Leading national originator of residential
mortgages ($34.4bn during 2017)
• Recent acquisitions originated approximately
$10bn of residential mortgages during 2016
• More than 1,000 correspondent and more than
700 broker relationships
Mortgage servicing
• 8th largest sub-servicer of mortgage loans
nationwide
• Currently servicing approximately 442k loans
• Scalable platform with capacity to service 1mm
loans
• Lower cost deposits from escrow balances
Corporate Overview
• Traded on the NYSE (FBC)
• Headquartered in Troy, MI
• Market capitalization $2.2bn
• Member of the Russell 2000 Index
19
1) Pending Desert Community Bank branch acquisition expected to close 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)
47
Flagstar
retail home
lending
offices(2)
99
Flagstar
Bank
branches
8
Desert
Community
Bank
Branches(1)
Operations center
4th Quarter 2017 Flagstar’s one-of-a-kind business model
… Originates mortgages in
multiple channels on a
national scale, which …
… Deploy excess funding into
lending opportunities where we
are a lender of choice, which …
… Cross-sell our banking
products to deepen our B2B
relationships, which …
… Leverages our
scalable sub-servicing
platform, which …
… Builds enduring net
interest margin driven
revenue, allowing us to …
… Generates stable, lower
cost, long-term funding,
which we are able to ...
… Expands our key B2B
relationships to develop greater
mortgage origination referrals,
improving our ability to …
… Generates capital
with high ROE fee-based
activity and servicing
relationships, which …
COMPANY OVERVIEW
20
4th Quarter 2017
● Illustrative case studies detailed below:
21
Flagstar’s integrated business model
Initial relationship
• Established correspondent lending
relationship (2017)
- Purchased more than $225mm of
mortgages year-to-date
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 more than $200mm since
inception (2016)
• Additional bulk and flow sales of
MSRs with subservicing retained
(2017 completed and 2018 pending)
Home Builder
Initial relationship
• Provided home builder line of credit
(2016)
- Unsecured non-real estate
commitments of $30mm
- Average commercial deposits of
more than $15mm
Expanded relationship
• Participated in syndicated
warehouse facility to captive
mortgage operation (2016)
- Commitments of $36mm
- 1 of 3 participants in the
syndication
Wholesale Originator
COMPANY OVERVIEW
4th Quarter 2017 Pistons sponsorship improves brand awareness
Local and national exposure
Key elements support community banking, mortgage origination
and mortgage servicing:
• First-ever jersey patch sponsor for the Pistons
• Exclusive title as official banking and mortgage sponsor
• Three 30 second TV and radio spots per game
• In-arena signage including courtside, baskets, LED rings
• Affinity debit and credit cards
• Digital banner ads on Pistons.com and Pistons mobile app
Value proposition
22
Exclusive banking and mortgage sponsorship
• Sponsorship agreement benefits:
- Creates national brand exposure that supports all
business lines
- Our target customers are NBA viewers
- Increased exposure in Michigan banking market
• Strong value proposition relative to other announced NBA
sponsorship deals
- Multi-year agreement with an option to extend
Meaningful geographic overlap
COMPANY OVERVIEW
Bank branches
Flagstar retail home lending
Opes retail home lending
NBA franchise
4th Quarter 2017 Flagstar has a strong executive team
COMPANY OVERVIEW
23
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
4th Quarter 2017
1) Excludes 25 FTEs in internal audit and 4 FTEs in Sarbanes-Oxley compliance.
Risk management
Best-in-class risk management platform with 206 FTEs(1)
COMPANY OVERVIEW
24
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 5 63 50 12 7 6 32 FTEs
Regulatory
Affairs
Modeling &
Analytics
ERM
Chief
Credit
Officer
QC /
Appraisal
Review
MFIU Fraud
Investigations
Loan
Review
Operational
Risk
AML /
BSA
Compliance
26
4th Quarter 2017 Strong growth opportunities
COMPANY OVERVIEW
25
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
25
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 lag in
support growing 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 is
accelerating 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.
4th Quarter 2017 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
26
4th Quarter 2017
$61
$65
$73 $73
$76
$79 $77
$80
$87
$83
$97
$103
$107
$8.7
$9.4
$10.4 $10.7
$11.2
$11.9 $11.6
$12.3
$12.8
$12.3
$14.0
$14.7
$15.4
1Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Net interest income ($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 21%
CAGR 21%
27
Higher net interest income is stabilizing earnings
FINANCIAL PERFORMANCE
4th Quarter 2017
0%
25%
50%
75%
100%
$22
$26
$30
$34
$38
$42
12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17
Buy Hold Actual Price Target Price
Actual Price +39%
Target Price +37%
Price target has increased on improved prospects
28
Analyst rating history
FINANCIAL PERFORMANCE
Source: Analyst ratings and target price (consensus estimate) as reported by First Call.
4th Quarter 2017
. FBC valuation vs. SNL U.S. Bank and Thrift Index
1
/3
1
/2
0
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0
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0
1
7
1
2
/3
1
/2
0
1
7
Valuation metrics
Observation: Flagstar continues to narrow its valuation discount to its banking peers.
FINANCIAL PERFORMANCE
29
U
.S
.
p
re
s
iden
ti
a
l
e
le
c
ti
o
n
Market / tangible book Price / LTM earnings
Market value gap: ~$0.3B
. FBC valuation vs. SNL U.S. Bank and Thrift Index
87%
67%
85%
U
.S
.
p
re
s
iden
ti
a
l
e
le
c
ti
o
n
77%
57%
Market value gap: ~$0.7B
75%
4th Quarter 2017
% 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
30
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
4th Quarter 2017
Deposits
Portfolio and strategy overview
COMMUNITY BANKING
31
6.3 6.4 6.5 6.5 6.5
2.9 2.4 2.2 2.5 2.6
$9.2
$8.8 $8.7 $9.0
$9.1
4Q16 1Q17 2Q17 3Q17 4Q17
Retail deposits Other deposits
Total average deposits ($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 0.64%(1)
[CATEGORY
NAME],
[VALUE]
Savings, 40%
[CATEGORY
NAME],
[VALUE]
[CATEGORY
NAME],
[VALUE]
[CATEGORY
NAME],
17%
Government &
other, 11%
72%
retail
Total : $9.1bn
0.64% cost of total deposits(1)
4Q17 total average deposits
1) Total deposits include noninterest bearing deposits.
4th Quarter 2017 Deposit growth opportunities
• Average balance of $1.0bn during 4Q17
• Cost of total government deposits: 0.90%(2) during
4Q17
• Michigan deposits are not required to be collateralized
• Strong, long-term relationships across the state
• Average balance of $0.5bn during 4Q17
• Flagstar realized 11% year-over-year increase in
commercial deposits
- Increasing balances with growing lines of
business, including home builder finance
• Offer complete line of treasury management services
• Average balance of $1.6bn during 4Q17 on 442k
loans serviced and sub-serviced
• Low cost of deposits
• Deposit balances increase along with the number of
loans serviced and sub-serviced
• Average balance of $6.0bn during 4Q17 of which 75%
are demand & savings accounts
• Cost of total core deposits(1): 0.75%(2) during 4Q17
• Average core deposits of $66mm per branch
• Flagstar’s brand campaign is helping grow its core
deposit base
Core Deposits
Retail
Commercial
Other Deposits
Government
Company-controlled
COMMUNITY BANKING
1) Core deposits = total deposits excluding government deposits and company-controlled deposits.
2) Total deposits include noninterest bearing deposits.
32
4th Quarter 2017
154 7 35
Desert Community Bank branches
33
San Bernardino County, CA (High Desert region) Acquired deposits ($mm) – 9/30/17(3)
• 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 $121
2 Victorville (Main Branch) 104
3 Hesperia 88
4 Victorville (North Branch) 83
5 Adelanto 67
6 Barstow 57
7 Wrightwood 38
8 Phelan 36
$594
Average deposits / branch $74
Acquired branch list
Market rank ($mm)(1) – 6/30/17
Noninterest
bearing
43%
Savings &
money market
42%
Certificates
of deposit
15%
0.25% 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.
(3) Pending acquisition expected to close 1Q18.
COMMUNITY BANKING
4th Quarter 2017 Desert Community Bank branches
34
Transaction
summary
• Flagstar is acquiring the branches of Desert Community Bank, a division of East West Bank(1)
- 8 branches in High Desert region of San Bernardino County, California
- Approximately $600mm of deposits at average cost of 0.25% (82% retail deposits)(2)
- Approximately $70mm of loans that yield 4.8% (85% commercial) (2)
• Expected to have only a 20-25 basis point impact to Tier 1 leverage
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
• Closing is subject to satisfaction of customary closing conditions and is expected during first quarter of 2018
• Regulatory approval has been received
• Operate as a division of Flagstar and will retain:
- Existing branding
- Employees (currently 65 full-time and 6 part-time) as of November 13, 2017
(1) Pending acquisition expected to close 1Q18.
(2) As of September 30, 2017
COMMUNITY BANKING
4th Quarter 2017
Lending
Portfolio and strategy overview
COMMUNITY BANKING
35
3.3 3.3
4.3 4.5 4.5
6.2 5.6
6.2
6.8 7.3
$9.9
$9.2
$10.8
$11.6
$12.1
4Q16 1Q17 2Q17 3Q17 4Q17
Loans HFS Loans HFI Loans with government guarantees
1st Mortgage
HFI, 22%
2nds, HELOC
& other, 5%
Warehouse,
9%
CRE and C&I,
25%
Loans with
government
guarantees,
2%
[CATEGORY
NAME], 37%
4Q17 average loans
Total average loans ($bn)
• Flagstar’s largest category of earning assets consists
of loans held-for-investment which averaged $7.3bn
during 4Q17
– 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 $4.5bn during 4Q17
– 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
4th Quarter 2017
Flagstar has deep lending experience
COMMUNITY BANKING
36
Sandro DiNello
President & CEO
Drew Ottaway
Managing Director of Lending &
Michigan Market President
Commercial
Real Estate
Comprised of
commercial and
homebuilder lending
officers who 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 15 years average
banking experience.
Commercial
& Industrial
Comprised of lending
officers who 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 20 years average
banking experience.
Warehouse
Lending
Comprised of lending
officers who average
experience of 26
years in banking.
Prior banking
experience includes
Citizens Bank, Bank
of America and Texas
Capital.
Supported by a team of
credit officers with nearly
15 years average
banking experience.
Capital
Markets
Primarily focused on
syndications and
secondary markets.
Supports relationship
based lending
platforms.
Recent additions from
Comerica support
growth in line of
business
Supported by a team of
credit officers with more
than 20 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 20 years average
banking experience.
Consumer Finance
Consumer Finance
supports consumer
lending products,
including processing
and underwriting of
loan applications
received from the
Retail Branch, Direct
to Consumer lending
channels and Indirect
originations platform.
Supported by a
management team
with an average of
25+ years of
consumer lending
experience
4th Quarter 2017 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)
37
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 25
Consumer Finance 3 20
CRE Lending 5 20
Equip Financing 6 27
Home Builder Finance 15 20
Indirect Lending 3 22
Warehouse Lending 2 18
Grand Total 51 22
COMMUNITY BANKING
4th Quarter 2017
Commercial lending
Diversified relationship-based commercial lending capabilities
COMMUNITY BANKING
Commercial Real Estate - $1.9bn (12/31/17)
Home builder
finance
30%
Multi-
family
18%
Retail
14%
Office
0 Industrial
11%
Hospitality
6%
Other
11%
Commercial & Industrial - $1.2bn (12/31/17)
Financial,
insurance &
real estate
34%
Services
25%
Manufacturing
16%
Healthcare
9%
Distribution
7%
Servicing
advances
7%
Other
2%
Warehouse - $1.1bn (12/31/17) Overview
• Warehouse lines with approximately 280 active
relationships nationwide, of which approximately 90%
sell a portion of their loans to Flagstar
• Collateralized by mortgage loans being funded which
are paid off once the loan is sold
• Diversified property types which are primarily income-
producing in the normal course of business
• Focused on experienced top-tier developers with
significant deposit and non-credit product opportunities
• Lines of credit and term loans for working capital
needs, equipment purchases, and expansion projects
• Primarily Michigan based relationships or relationships
with national finance companies
Warehouse
Commercial
Real Estate
Commercial
& Industrial
~140
borrowers
sell >75%
~60
borrowers
sell 25% - 75%
~80
borrowers
sell <25%
Average 34% advances sold to Flagstar
Industry
% Advances sold to Flagstar
Property type
38
16% owner occupied 46% Michigan relationships; 18% National finance; 9% Home builder finance
4th Quarter 2017
1.2 1.2 1.2 1.2 1.1
1.7
1.2 1.4
1.5 1.7
$2.9
$2.4
$2.6
$2.7
$2.8
12/31/16 3/31/17 6/30/17 9/30/17 12/31/2017
Outstandings Unfunded Commitments
FBC warehouse loan commitments ($mm)
Warehouse lending
COMMUNITY BANKING
39
Warehouse lenders ranked by commitments ($mm)
Source: Inside Mortgage Finance as of December 1, 2017.
● 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 38% $11,000 16%
2 Wells Fargo 13% 6,000 9%
3 Texas Capital 14% 5,642 8%
4 Comerica 4% 3,942 6%
5 BB&T 5% 3,880 6%
6 TIAA FSB (Everbank) -5% 3,800 6%
7 Customers Bank 6% 3,450 5%
8 First Tennessee 4% 3,167 5%
9 Flagstar Bancorp 2% 2,756 4%
10 Santander Bank 10% 2,700 4%
Top 10 % $46,337 69%
3Q17
4th Quarter 2017 Home builder finance
COMMUNITY BANKING
40
Home builder loan commitments(2) ($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 42 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
$264 $365
$494
$619 $699
$297
$403
$484
$559
$567
$561
$768
$978
$1,178
$1,266
12/31/16 3/31/17 6/30/17 9/30/17 12/31/2017
Unpaid principal balance Unused
Tightening housing supply(1)
0
2
4
6
8
10
12
0
1
2
3
4
5
6
7
8
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
Existing home sales (mm) Months supply of existing homes for sale
1) Source: Bloomberg (through 11/30/17)
2) Commitments are for loans classified as commercial real estate and commercial
& industrial.
4th Quarter 2017
National distribution through multiple channels
MORTGAGE ORIGINATIONS
41
Residential mortgage originations by channel ($bn)
Broker Correspondent Retail
$6.5
$4.5
$7.0 $7.0
$7.3
4Q16 1Q17 2Q17 3Q17 4Q17
$1.4
$1.0
$1.4 $1.3 $1.2
4Q16 1Q17 2Q17 3Q17 4Q17
$0.6 $0.4
$0.8
$1.3 $1.2
4Q16 1Q17 2Q17 3Q17 4Q17
• 2.7% market share with #8 national ranking(1)
• Approximately 700 brokerage relationships in
50 states in 4Q17
• Targeted gain on sale margin of ~90bps
• Top 10 relationships account for 17% of overall
brokerage volume
1) Data source: As reported by Inside Mortgage Finance for 3Q17 published November 24, 2017.
• 4.2% market share with #6 national ranking(1)
• More than 1,000 correspondent partners in 50
states in 4Q17
• Targeted gain on sale margin of ~60bps
• Top 10 relationships account for 12% of overall
correspondent volume
• Warehouse lines with approximately 250
correspondent relationships
• Retail distribution share of 12% in 4Q17 vs. 7%
in 4Q16
• Opes acquisition and organic growth has
expanded our retail footprint to 95 locations in
27 states
• Targeted gain on sale margin of ~300bps
• Direct-to-consumer is 13% of retail volume
4th Quarter 2017
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
E
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) ($) .3 .9 2.1 .5 .2 .4 .5 .9 .3 1.8 .5 4.3 .6 .9 4.1 .5 3.0 1.9 2.4 2.0 1. 2. . 1.3 1.7 2.1 1.8 1.7 1.7
4th Quarter 2017
Freddie
35%
Fannie
37%
GNMA
25%
Private
3%
by Investor
154 7 35
MSR portfolio
as of 12/31/17
MSR portfolio characteristics (% UPB) MSR portfolio statistics
Measure ($mm) 9/30/2017 12/31/2017 Difference
Unpaid principal balance $21,342 $25,073 $3,731
Fair value of MSR $246 $291 $45
Capitalized rate (% of UPB) 1.15% 1.16% 0.01%
Multiple 4.092 4.015 (0.077)
Note rate 4.026% 4.054% 0.028%
Service fee 0.281% 0.289% 0.008%
Average Measure ($000)
UPB per loan $245 $243 ($2)
FICO 728 722 (6)
Loan to value 74.09% 76.61% 2.52%
Net (loss) return on mortgage servicing rights ($mm)
$ Return 4Q16 1Q 7 2Q17 3Q17 4Q17
Net hedged profit (l ss) ($5) $2 $0 $ ($1)
Carry on asset 17 14 9 9 11
Run-off (17) (6) (4) (4) (7)
Gross return on the
mortgage servicing rights
($5) $10 $5 $5 $3
Sale transaction & P/L 1 (1) 1 1 (3)
Model changes (1) 5 0 0 (4)
Net r turn on the
mortgage servicing rights
($5) $14 $6 $6 ($4)
Average mortgage
servicing rights
$327 $344 $205 $212 $269
2016 &
later; 79%
2015;
12%
2014; 4%
2013 &
prior; 5%
by Vintage
MORTGAGE SERVICING
43
2017
82%
2016
6%
2015
7%
2014
& prior
5%
By intage
4th Quarter 2017
154 7 35
Balance sheet composition
CAPITAL AND LIQUIDITY
44
2%
Other
liabilitie
s
3%
Other
long-
term
debt
Liabilities & Equity
4Q17 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.)
~72% 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
10%
Other assets
6% Warehouse loans
26%
Loans held-for-sale
20%
Mortgage loans
held-for-investment
19%
Agency MBS
1% Cash
18%
Commercial loans
Efficiently funds loans
held-for-sale and
warehouse loans
44%
Deposits excluding
company-
controlled deposits
(“CCD”)
33%
FHLB borrowings
9% Common equity
9%
Company-controlled
deposits (“CCD”)
4th Quarter 2017 Liquidity and funding
154 7 35
CAPITAL AND LIQUIDITY
45
63%
66%
73%
78%
83%
4Q16 1Q17 2Q17 3Q17 4Q17
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)
4th Quarter 2017 Low interest rate risk
CAPITAL AND LIQUIDITY
46
-7.5%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
9/30/2016 12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017
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 12/31/2017
Net interest margin – 12 month horizon instantaneous shocks ($mm)
Economic value of equity, trend (9/30/16 - 12/31/17)
($ in mm) +100bps Bear Flattener
Net interest income $8 ($40)
Noninterest Income ($8) to $0 $0 to $40
Scenario
4th Quarter 2017
761
503
135
91
FY14 FY15 FY16 FY17
Repurchase demands
Representation & Warranty reserve details
(in millions) 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17
Beginning balance $32 $27 $23 $20 $16
Additions (release) (6) (4) (2) (3) (1)
Net (charge-offs) /
recoveries 1) 0) (1) (1) (0)
Ending Balance $27 $23 $20 $16 $15
Repurchase pipeline ($mm) Repurchase reserve ($mm)
ASSET QUALITY
$6
$6
$4
$5
$3
12/31/16 3/31/2017 6/30/2017 9/30/2017 12/31/2017
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 2Q17 and 3Q17.
2) Repurchase rate is defined as mortgages repurchased / mortgages originated.
2
0.031%
0.029%
0.011%
Average Median Flagstar
4th Quarter 2017 Non-GAAP reconciliation
NON-GAAP RECONCILIATION
48
$mm
1) Reflects the exclusion of the 3Q16 Department of Justice (“DOJ”) benefit.
2) Reflects the 4Q17 non-cash charge resulting from Tax Cuts and Jobs Act.
A djust ed N et Income and D ilut ed Earnings per Share 12 / 3 1/ 2 0 17 12 / 3 1/ 2 0 17 12 / 3 1/ 2 0 16
Net Income (45)$ 63$ 171$
Adjustment to remove DOJ benefit
(1) - - (16)
Adjustment to remove tax reform charge
(2) 80 80 -
A djust ed N et Income 3 5$ 14 3$ 155$
Deferred cumulat ive preferred stock divdends - - (18)
Adjusted net income applicable to common shareholders 35$ 143$ 137$
Weighted average diluted common shares 58,311,881 58,178,343 57,597,667
A djust ed D ilut ed Earnings per Share 0 .6 0$ 2 .4 7$ 2 .3 8$
3 M ont hs Y ear Ended
Tangible Book Va lue per Share as of 12 /31/2017
Total stockholders' equity 1,399$
Goodwill and intangibles 21
Tangible book value 1,378$
Number of common shares oustanding 57,321,228
Tangible book va lue per ha re 24 .04$
D ecember 3 1, 2 0 17
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 ap it l - B asel I I I t o cap it al simp lif icat ion
Basel III $ 1,216 $ 1,442 $ 1,442 $ 1,576
Net change in deductions to DTAs, M SRs and other capital components 111 125 125 13
B sel III with capital simplif icat ion $ 1,327 $ 1,567 $ 1,567 $ 1,707
Risk-w ight ed ss t s – Bas l I I I t o cap it al simp lif icat ion
Basel III assets $ 10,579 $ 16,951 $ 10,579 $ 10,579
Net change in assets 655 125 655 655
Basel III with capital simplif icat ion $ 11,234 $ 17,076 $ 11,234 $ 11,234
C apit al rat ios
Basel III (t ransit ional) 11.5% 8.5% 13.6% 14.9%
B asel I I I wit h cap it al simp lif icat ion 11.8 % 9 .2 % 13 .9 % 15.2 %