2nd Quarter 2016 Flagstar Bancorp, Inc. (NYSE: FBC) Earnings Presentation 2nd Quarter 2016 July 26, 2016
2nd Quarter 2016 Cautionary statement 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. 2
2nd Quarter 2016 Executive Overview Sandro DiNello, CEO
2nd Quarter 2016 Strategic highlights 4 Unique relationship-based business model • Continue to make progress on long-term financial targets: - Return on average assets of 1.4% vs. target of 1.2 – 1.6% - Return on average common equity of 13.8 % vs. target of 13 – 18% Expand mortgage originations • Fallout-adjusted lock volumes increased 18% and gain on loan sale margin (HFS) increased 8bps - Correspondent volumes increased 20% during 2Q16 - Retail volumes increased 41% to 7% of total fallout-adjusted lock volumes during 2Q16 Grow community banking • Average commercial loans grew 20%, and exceeded average consumer loans for first time • Core deposits increased 4%, increasing our stable funding base for balance sheet expansion Highly profitable operations • Positive operating leverage (revenue up 11% vs. expenses up 2%) • Solid, consistent financial results with no surprises (EPS $0.66 2Q16 vs. $0.54 1Q16) • Efficiency ratio improved to 68% from 74% in 1Q16 Positioned to thrive in any market • Strong credit metrics: NPLs at 0.76%, consumer delinquencies at 0.27% and ALLL coverage at 2.6% • Relatively neutral interest rate risk position; strong liquidity • Tier 1 leverage was 11.6 percent and remains strong at 8.6 percent when adjusted for TARP redemption(1) • Continued strong risk management infrastructure and culture 1) Please see non-GAAP reconciliation in the appendix.
2nd Quarter 2016 Financial Overview Jim Ciroli, CFO
2nd Quarter 2016 2nd quarter key highlights 6 Strong profitability Positive operating leverage • Revenue up 11% vs. expenses up 2% - Strong revenue growth, led by increased net gain on loan sales and loan fees and charges - Low level of incremental expense reflects the scalability of our platform Increased noninterest income • Noninterest income increased $23 million to $128 million, up 22% from 1Q16 - Adjusted net gain on loan sales(1) increased 29% on higher fallout-adjusted lock volumes (+18%) and margin (+8bps) - Loan fees and charges rose $4mm on higher mortgage loan closings Improved asset quality • Nonperforming loans and consumer delinquencies improved on solid credit performance - Nonperforming loans fell $9mm to $44mm or 0.76% of loans held-for-investment - Consumer loan delinquencies (30-89 days past due) fell $4mm to $7mm - No nonperforming loans or delinquencies in our commercial loan portfolio Robust capital • Tier 1 leverage was 11.6 percent and remains strong at 8.6 percent when adjusted for TARP redemption(2) • On-balance sheet liquidity equal to 15.8% of total assets(3) 1) Net gain on loan sales has been adjusted to exclude the $5mm gain on HFI loans sold during the quarter. 2) Please see non-GAAP reconciliation in the appendix. 3) Liquid assets include cash, interest earning deposits, investment securities exclude pledged securities less a 7% haircut applied to investment securities to estimate liquidation costs. • Net income of $47 million, or $0.66 per diluted share, in 2Q16 - Up $0.12 per diluted share, or 22% vs. 1Q16 on higher noninterest income - Returns on assets and equity up vs. 1Q16
2nd Quarter 2016 2Q16 1Q16 $ Variance % Variance Net interest income $77 $79 ($2) (3%) (Benefit) provision for loan losses ("PLL") (3) (13) 10 (77%) Net interest income after PLL 80 92 (12) (13%) Net gain on loan sales 90 75 15 20% Loan fees and charges 19 15 4 27% Loan administration income 4 6 (2) (33%) Net return on the mortgage servicing asset (4) (6) 2 (33%) Representation and warranty benefit 4 2 2 100% Other noninterest income 15 13 2 15% Total noninterest income 128 105 23 22% Net gain on loan sales / total revenue 44% 41% 3% Compensation and benefits 66 68 (2) (3%) Commissions and loan processing expense 29 22 7 32% Other noninterest expenses 44 47 (3) (6%) Total noninterest expense 139 137 2 2% Income before income taxes 69 60 9 15% Provision for income taxes 22 21 1 (5%) Net income $47 $39 $8 21% Diluted earnings per share $0.66 $0.54 $0.12 22% Profitability Net interest margin 2.63% 2.66% -3 bps Mortgage rate lock commitments, fallout adjusted $8,127 $6,863 $1,264 18% Mortgage closings $8,330 $6,352 $1,978 31% Gain on loan sale margin, adjusted(1) 1.04% 0.96% 8 bps Efficiency ratio 68.2% 74.5% N/M (Benefit) provision for loan losses • $3 million provision benefit from performing mortgage loan sales and continued strong credit metrics • NPLs fell $9 million to $44 million or 0.76% of loans held-for-investment B Quarterly income comparison $mm Observations 7 Noninterest income • Noninterest income increased 22% - Net gain on loan sales (HFS) rose 29% on higher volumes (+18%) and margin (+8bps) - Loan fees and charges increased $4mm on higher mortgage closings - Net MSR return improved due to higher service fee income and lower disposition costs, partially offset by anticipated and actual prepayments C Net interest income • Net interest income remained relatively stable - Earning assets declined 2%, primarily due to loan sales - Net interest margin dropped slightly to 2.63% A 1. Expressed as a percent of fallout-adjusted locks and excludes gain on HFI loans during the quarters. N/M – not meaningful Noninterest expense • Noninterest expenses were up 2% - Commissions and loan processing increased $7mm due to higher mortgage closings - Other expense categories were flat to down D A B C2 D C1 C3
2nd Quarter 2016 Average balance sheet highlights 8 $ $ % Loans held-for-sale $2,884 ($25) (1%) Consumer loans (2) 2,746 (568) (17%) Commercial loans (2) 2,823 469 20% Total loans held-for-investment 5,569 (99) (2%) Other earning assets (3) 3,186 (108) (3%) Interest-earning assets $11,639 (232) (2%) Other assets 1,799 127 8% Total assets $13,438 ($105) (1%) Deposits $8,631 581 7% Short-term debt 835 (827) (50%) Long-term debt 1,625 65 4% Other liabilities 741 31 4% Total liabilities $11,832 (150) (1%) Preferred Equity 267 - 0% Common Equity 1,339 45 3% Total liabilities and equity $13,438 ($105) (1%) Book value per common share (6/30/16) (4)(6) $23.48 $0.66 3% Incr (Decr) (1) Average Balance Sheet Equity(6) • Common equity / assets of 9.7% • Book value per share increased at an annualized rate of 12% during 2Q16 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) Book value per share has not been reduced for $102 million of unpaid dividends on our perpetual preferred stock, which have been deferred. If these dividends were paid, book value per share would be $21.67/share. 5) Core deposits is defined as consumer and commercial accounts including demand, savings, money market and CD deposits. 6) Common equity and book value ratios are calculated on ending period balances. Interest-bearing liabilities • Average deposits increased 7% - Core deposits up 4%(5) - Company controlled deposits up 35% due to seasonal factors and higher refinance volume and loans serviced 2Q16 ($mm) Observations Interest-earning assets • Average earning assets fell 2% primarily due to loan sales at the end of 1Q16 and in 2Q16 • Rotated into higher spread commercial loans from lower spread consumer loans - Commercial loans up 20% on organic growth; warehouse lending - Consumer loans down 17% on loan sales and prepayments
2nd Quarter 2016 9 Asset quality Performing TDRs and NPLs ($mm) 108 97 101 75 73 65 63 66 53 44 $173 $160 $167 $128 $117 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Peforming TDRs NPLs 1) Excludes loans carried under the fair value option and loans with government guarantees. Allowance coverage¹ (% of loans HFI) 4.3% 3.7% 3.0% 2.9% 2.6% 6.5% 5.2% 4.2% 4.5% 4.5% 1.4% 1.4% 1.4% 1.3% 1.2% 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Total Consumer Commercial Net charge-offs(1) ($mm) 1) Excludes charge-offs of $15mm, $16mm, $2mm, $6mm and $2mm related to the sale or transfer of nonperforming loans and TDRs during 2Q15 – 2Q16, respectively. Also excludes charge-offs related to loans with government guarantees of $3mm, $3mm and $4mm during 4Q15 – 2Q16, respectively. Representation & warranty reserve ($mm) $48 $45 $40 $40 $36 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 3 8 4 3 3 $18.0 $24.0 $9.0 $12.0 $9.0 0.26% 0.61% 0.29% 0.20% [VALUE] 2Q15 3Q15 4Q15 1Q16 2Q16 Adjusted charge-offs Adjustments(1) Adjusted NCO % LHFI
2nd Quarter 2016 8.5% 8.8% 8.6% 8.2% 8.6% 3.0% -43bps +61bps 2.9% -41bps +25bps 2.9% -49bps +42bps 2.8% +8bps . +47bps 3.0% -40bps 11.5% 11.7% 11.5% 11.0% 11.6% 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Robust capital 10 • Flagstar expects to have strong capital levels after its TARP redemption - 2Q16 earnings generated 47bps of Tier 1 leverage - Capital ratios are consistent or higher than peers before considering the low risk content of our business • Flagstar has used excess capital to support balance sheet growth • Flagstar grows regulatory capital at a greater pace as it utilizes its NOL-related DTAs and reduces its MSRs • The balance sheet has trapped capital of: - $196mm of NOL-related DTAs (150bps of Tier 1 leverage) - $144mm of MSRs (110bps of Tier 1 leverage) • Robust capital generation will support future growth Observations 2Q16 Flagstar Bancorp Tier 1 leverage Well Capitalized 5.0% Tier 1 CET-1 Tier 1 Total RBC Leverage to RWA to RWA to RWA 2Q16 Actual 11.6% 13.6% 18.9% 20.2% 2Q16 Adjusted(1) 8.6 12.2 14.2 15.5 1Q16 Actual 11.0% 14.0% 19.7% 21.0% Higher rate capital generation (near-term) Tier 1 equity less TARP incl. deferred dividends TARP incl. deferred dividends Balance sheet impact Net earnings contribution 2016 phase-in under Basel III 1) Reflect ratios adjusted for TARP redemption; please see non-GAAP reconciliation in the appendix.
2nd Quarter 2016 Business Segment Overview Lee Smith, COO
2nd Quarter 2016 Community banking 12 Average commercial loans ($bn) Commercial loan total commitments ($bn) Average consumer loans ($bn) Average deposit funding(1) ($bn) 0.4 0.4 0.4 0.6 0.6 0.6 0.7 0.8 0.8 0.9 1.0 0.9 1.0 1.0 1.3 $2.0 $2.0 $2.2 $2.4 $2.8 2Q15 3Q15 4Q15 1Q16 2Q16 Commercial and Industrial Commercial Real Estate Warehouse 0.6 0.8 0.7 0.7 [VALUE] 1.0 1.2 1.3 1.5 [VALUE] 2.0 2.1 2.2 2.3 [VALUE] $3.6 $4.0 $4.2 $4.5 [VALUE] 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Commercial and Industrial Commercial Real Estate Warehouse 2.4 2.8 2.9 2.8 2.2 0.5 0.6 0.5 0.5 0.5 $2.9 $3.4 $3.4 $3.3 $2.7 2Q15 3Q15 4Q15 1Q16 2Q16 Residential First Mortgages Other Consumer Loans 5.7 5.7 5.8 5.8 6.1 0.9 1.1 1.1 1.1 1.0 1.1 1.5 1.2 1.2 1.6 $7.7 $8.3 $8.1 $8.1 $8.6 2Q15 3Q15 4Q15 1Q16 2Q16 Retail Government Company-controlled deposits 1) Includes company controlled deposits which are included as part of mortgage servicing.
2nd Quarter 2016 5.2 4.5 3.4 3.8 4.7 1.7 1.9 1.4 1.5 2.1 1.5 1.5 1.0 1.0 1.5 $8.4 $7.9 $5.8 $6.3 $8.3 2Q15 3Q15 4Q15 1Q16 2Q16 Conventional Government Jumbo Mortgage originations 13 Closings by purpose ($bn) 3.8 4.4 2.9 2.7 3.8 4.6 3.5 2.9 3.7 4.5 $8.4 $7.9 $5.8 $6.3 $8.3 2Q15 3Q15 4Q15 1Q16 2Q16 Purchase originations Refinance originations Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin Fallout-adjusted locks ($bn) $6.8 $6.5 $5.0 $6.9 $8.1 2Q15 3Q15 4Q15 1Q16 2Q16 $66 $85 $83 $68 $46 $75 $90 1.21% 1.05% 0.92% [VALUE] [VALUE] 2Q15 3Q15 4Q15 1Q16 2Q16 Gain on loan sale (HFS) Gain on HFI transfer Gain on loan sale % (HFS)
2nd Quarter 2016 14 MSR / regulatory capital (Bancorp) Loans serviced (‘000) $ UPB of MSRs sold ($bn) 4.6 6.7 2.5 2.6 0.7 0.8 1.7 2.5 2.2 $5.3 $7.5 $4.2 $5.1 $2.2 2Q15 3Q15 4Q15 1Q16 2Q16 Bulk Sales Flow Transactions 124 119 119 119 134 225 221 212 192 194 28 30 31 29 30 377 370 362 340 358 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Serviced for Others Subserviced for Others Flagstar Loans HFI 33% 29% 28% 27% 28% 24% 21% 21% 19% 20% 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 MSR to Tier 1 Common MSR to Tier 1 Capital Mortgage servicing Average company-controlled deposits ($bn) $1.1 $1.5 $1.2 $1.2 $1.6 2Q15 3Q15 4Q15 1Q16 2Q16
2nd Quarter 2016 Noninterest expenses and efficiency ratio Efficiency ratio 70% 65% 75% 75% 68% 2Q15 3Q15 4Q15 1Q16 2Q16 Quarterly noninterest expenses ($mm) $138 $131 $129 $137 $139 2Q15 3Q15 4Q15 1Q16 2Q16 15 • Flagstar‘s long-term objective is to achieve an efficiency ratio in the mid-60’s
2nd Quarter 2016 Closing Remarks / Q&A Sandro DiNello, CEO
2nd Quarter 2016 Guidance(1) 17 1) See cautionary statements on slide 2. Net interest income • Average earning assets up 5 - 8 percent, led by increases in loans HFS and commercial loans, driven by higher mortgage market and continued C&I, CRE growth • Net interest margin contracts slightly due to new Senior Notes (TARP redemption) Mortgage originations • Fallout-adjusted locks up approximately 5 percent on a slightly stronger mortgage market Gain on loan sales • Gain on loan sale margin improves moderately from Q2, adjusted for HFI gains Net servicing revenue • Net return on the mortgage servicing asset negatively impacted by continued prepayments • Mortgage servicing asset relatively flat Provision for loan losses • Provision for loan losses to match Q2 net charge-offs (excluding loan sales and loans with government guarantees) Noninterest expenses • Noninterest expenses to rise to $142 - $147 million due to higher mortgage originations and increases from Q2 in asset resolution and other noninterest expense 2016 3rd quarter outlook
2nd Quarter 2016 Appendix Company overview 19 Financial performance 25 Community banking segment 26 Mortgage origination segment 31 Mortgage servicing segment 33 Capital and liquidity 34 Asset quality 38 Non-GAAP reconciliation 39
2nd Quarter 2016 Flagstar at a glance Community banking • Leading Michigan-based bank with a balanced, diversified lending platform • $13.7bn of assets and $8.6bn of deposits • 99 branches • 104k household & 14k business relationships Mortgage origination • Leading national originator • Originated $28.4bn of residential mortgage loans during the last 12 months • Approximately 1,200 TPO relationships • Retail lending network included 29 locations in 21 states Mortgage servicing • 7th largest sub-servicer of mortgage loans nationwide • Currently servicing approximately 360k loans • Scalable platform with capacity to service 1mm loans • Low cost deposits from escrow balances Corporate Overview • Traded on the NYSE (FBC) • Headquartered in Troy, MI • Market capitalization $1.5bn • Member of the Russell 2000 Index 19 COMPANY OVERVIEW 29 Retail home lending Offices in 21 states 99 Branches in Michigan Bank branches Retail home lending
2nd Quarter 2016 Flagstar’s one-of-a-kind business model … Originates mortgages in multiple channels on a national scale, which … … Deploy excess funding into lending opportunities where we are a lender of choice, which … … Cross-sell our banking products to deepen our B2B relationships, which … … Leverages our scalable sub-servicing platform, which … … Builds enduring net interest margin driven revenue, allowing us to … … Generates stable, lower cost, long-term funding, which we are able to ... … Expands our key B2B relationships to develop greater mortgage origination referrals, improving our ability to … … Generates capital with high ROE fee-based activity and servicing relationships, which … COMPANY OVERVIEW 20
2nd Quarter 2016 Flagstar has a strong executive team 21 COMPANY OVERVIEW Board of Directors John Lewis Chairman Community Banking • Currently serving as Director Chief Financial Officer • CFO since 8/14 • Nearly 30 years of banking and financial services experience with First Niagara, Huntington and KeyCorp Chief Operating Officer • COO since 5/13 • Formerly a partner of MatlinPatterson Global Advisors and a Senior Director at Zolfo Cooper • Extensive expe- rience in financial management and operations • Chartered Accoun- tant in England and Wales Chief Risk Officer • CRO since 6/14 • Over 35 years of financial services experience with Citizens Republic, Fleet Boston Financial, First Union and Chase Manhattan Mortgage Banking • President of Mortgage Banking since 6/15 • 30 years of mortgage industry experience with Mission Hills Mortgage, IndyMac and CitiMortgage General Counsel • General Counsel since 6/15 • 20 years of legal experience with the FDIC and Sidley Austin LLP • CEO since 5/13 • Over 35 years of banking experience with Flagstar and its predecessors with a strong emphasis on community banking, including the management of retail operations and product strategy Patrick McGuirk Steve Figliuolo Sandro DiNello Len Israel Jim Ciroli Lee Smith Drew Ottaway • Managing Director of Lending since 11/15 • Has over 25 years of commercial lending experience in southeast Michigan with Comerica and NBD Chief Audit Officer Sandro DiNello President & CEO David Colajezzi
2nd Quarter 2016 Sandro DiNello President & CEO Drew Ottaway Managing Director of Lending Warehouse Lending Commercial Real Estate Comprised of lending officers who average experience of 21 years in banking (3+ with Flagstar). Prior banking experience includes Fifth Third, Wells Fargo and Bank of America. Homebuilder Finance Commercial & Industrial Newly recruited team of lending officers who have extensive experience of more than 20 years in banking. Prior banking experience includes Texas Capital and Royal Bank of Canada. Comprised of lending officers who average experience of 26 years in banking (13 with Flagstar). Prior banking experience includes Citizens Bank, Bank of America and Texas Capital. Comprised of lending officers who average experience of 25 years in banking (2+ with Flagstar). Prior banking experience includes Fifth Third, PNC, Bank of America and JPM Chase. Flagstar has deep commercial lending experience Supported by a team of credit officers with more than 15 years average banking experience. Supported by a team of credit officers with more than 20 years average banking experience. Supported by a team of credit officers with nearly 15 years average banking experience. Supported by a team of credit officers with more than 15 years average banking experience. COMPANY OVERVIEW 22
2nd Quarter 2016 Karen Sabatowski Chief Compliance Officer Sandro DiNello President & CEO Board of Directors Steve Figliuolo Chief Risk Officer Risk Committee Enterprise Risk Committee • Capital planning / stress test modeling • Mortgage • Warehouse • Commercial • Consumer • TPO’s • Counterparty • Model risk management • Risk assessment/ deficiency mgmt • R&W reserve • Market risk • Effective challenge 6 9 60 44 12 9 7 28 FTEs Regulatory Affairs Modeling & Analytics ERM Chief Credit Officer QC / Appraisal Review MFIU Fraud Investigations Loan Review Operational Risk AML / BSA Compliance 19 ¹ Excludes 24 FTEs in internal audit and 4 FTEs in Sarbanes-Oxley compliance Risk management Best-in-class risk management platform with 194 FTEs¹ COMPANY OVERVIEW 23
2nd Quarter 2016 Strong growth opportunities Grow community banking • Team lift outs • Grow housing-related relationships(1) - Expand warehouse lending (400bps spreads) - Launch builder finance lending (350bps spreads) - Initiate MSR lending (500bps spreads; LTVs<60%) • Cultivate middle-market commercial relationships in foot-print Expand mortgage business • Recruit experienced talent to increase share of origination market - Distributed retail - TPO account executives • Grow servicing operations - Acquire new sub-servicing relationships - Cross-sell additional revenue capabilities 24 B u il d B u y • Buyers of size in Michigan are engaged on other projects for the foreseeable future • Michigan is a highly fragmented banking market • Focused on our share in metro markets • Acquiring deposit oriented franchises that lag in profitability because of lack of asset generation • No strategic buyers of size • Highly fragmented industry with aging individual ownership • Regulatory and interest rate environment is accelerating exits • Will consider accretive transactions that add incrementally to annual origination volume 24 COMPANY OVERVIEW 1. Indicated spreads are targets and may not be reflective of actual spreads.
2nd Quarter 2016 Long-term targets • Long-term target of 1.2 - 1.6% - Add incremental revenue with a low incremental cost - Improved risk management will deliver long-run savings - Return on average assets of 1.38% is amongst the top quintile of banks $10bn - $50bn of assets(1) • Long-term target of 13 - 18% - Add / increase high ROE businesses - Return on average common equity of 13.8% is amongst the top quintile of banks $10bn - $50bn of assets(1) Financial Performance Return on assets Return on equity • Lender of choice in key markets (Michigan, national housing finance) • Long-term target of 50% of revenue • Growth trajectory 10 - 15% - Every additional $1bn of earning assets increases pre-tax profits ~$20mm – $25mm - Rotate lower spread assets to higher spread assets while minimizing capital costs • Nationally recognized leader the quick brown fox d • Long-term target of 50% of revenue • Growth trajectory 5 - 10% - Expand retail originations (distributed, DTC) - Every 100k in new loans sub-serviced generates $5- 7mm of incremental pre-tax profits Revenues Mortgage Banking 25 FINANCIAL PERFORMANCE 1. Data for top ROA and ROCE is as of March 31, 2016 for all major exchange U.S. Banks with assets between $10bn and $50bn, excluding Puerto Rican banks.
2nd Quarter 2016 154 7 35 Strong market position as leading Michigan-based community bank 26 COMMUNITY BANKING Source: SNL Financial; Note: Deposit data as of June 30, 2015, per branch data capped at $500mm per branch; MI-based banks highlighted in grey; Pro forma for pending mergers and acquisitions; 1. Oakland County data excludes $1.4bn of company-controlled deposits held at company headquarters; 2. 2016–2021 CAGR; 3. Flagstar Median HHI, projected HHI growth and projected population growth are deposit weighted Flagstar’s branch network Rank Deposits ($mm) Overall MI-based Institution Branches Total Share 1 Chase 249 $20,654 14% 2 Comerica 215 18,991 13% 3 Huntington 319 12,910 9% 4 Fifth Third 240 12,461 9% 5 PNC 210 11,651 8% 6 Bank of America 127 11,444 8% 7 1 Chemical (pro forma) 227 9,802 7% 8 2 Flagstar 99 5,530 4% 9 Citizens 98 4,951 3% 10 TCF 53 2,600 2% Top 10 1,837 $110,996 77% Market share Attractive markets Deposit Median Proj. HHI Proj. pop Market $mm % of total mkt. share HHI grow th² grow th³ Oakland County¹ $2,765 43% 5.9% $70,892 10.6% 2.6% Grand Rapids MSA 385 6% 2.0% 56,710 10.4% 3.6% Ann Arbor MSA 288 4% 3.9% 62,584 7.8% 2.9% Key Flagstar markets $3,437 54% 4.6% $68,609 10.4% 2.7% National aggregate 55,551 7.8% 3.7% Flagstar deposits Leading position among independent banks (pro forma)
2nd Quarter 2016 Deposits Portfolio and strategy overview 5.7 5.7 5.8 5.8 6.1 $7.7 $8.3 $8.1 $8.1 $8.6 2Q15 3Q15 4Q15 1Q16 2Q16 Retail deposits Other deposits Total average deposits ($bn) +12% YOY • Flagstar gathers deposits from consumers, small businesses and select governmental entities – Traditionally, CDs and savings accounts represented the bulk of our branch-based retail depository relationships – Today, we are focused on growing DDA relationships with small business and consumers – We additionally maintain depository relationships in connection with our mortgage origination and servicing businesses, and with Michigan governmental entities – Cost of total deposits equal to 0.53%(1) DDA 12% Savings 43% MMDA 4% CD 11% Company- controlled 18% Government & other 12% 70% retail Total : $8.6bn 0.53% cost of total deposits(1) 2Q16 total average deposits 27 COMMUNITY BANKING 1. Total deposits include noninterest bearing deposits.
2nd Quarter 2016 Deposit growth opportunities • Average balance of $1.0bn during 2Q16 • Cost of total government deposits: 0.49% during 2Q16(2) • Michigan deposits are not collateralized • Strong relationships across the state • Average balance of $0.6bn during 2Q16 • Flagstar has realized year-over-year growth in treasury management services of: - Deposits 129% - Fee income 4% • Average balance of $1.6bn during 2Q16 on 358k loans serviced and sub-serviced • Low cost of deposits • Deposit balances increase along with the number of loans serviced & sub-serviced • Average balance of $5.5bn during 2Q16 of which 79% are customer demand & savings accounts • Cost of total core deposits(1): 0.68% during 2Q16(2) • Average core deposits equal $61mm per branch • Flagstar has launched a brand campaign to build awareness to grow its core deposit base Core Deposits Retail Commercial Other Deposits Government Company controlled 28 COMMUNITY BANKING 1. Core deposits equal total deposits less government deposits and company-controlled deposits. 2. Total deposits include noninterest bearing deposits.
2nd Quarter 2016 2.2 2.2 2.5 2.9 2.9 4.9 5.4 5.6 5.7 5.6 0.6 0.5 0.5 0.5 0.4 $7.7 $8.1 $8.6 $9.1 $8.9 2Q15 3Q15 4Q15 1Q16 2Q16 Loans HFS Loans HFI Loans with government guarantees 1st Mortgage HFI; 25% 2nds, HELOC & other; 6% Warehouse; 15% CRE and C&I; 17% GNMA buyouts; 5% 1st Mortgage HFS; 32% 2Q16 average loans Lending Portfolio and strategy overview Total average loans ($bn) • Flagstar’s largest category of earning assets consists of loans held-for-investment which averaged $5.6bn during 2Q16 – 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 $2.9bn during 2Q16 – Essentially all of our mortgage loans originated are sold into the secondary market – Flagstar has the option to direct a portion of the mortgage loans it originates to its own balance sheet 29 COMMUNITY BANKING
2nd Quarter 2016 2Q16 Commercial Real Estate 81% Michigan Retail 22% Owner- Occupied 22% Multi-family 21% Office 15% Home builder finance 10% Special Purpose 6% Industrial 4% 2Q16 Commercial & Industrial 61% Michigan; 16% national finance Services 44% Financial, Insurance & Real Estate (FIRE) 33% Manufacturing, 11% Distribution 4% Govt & Educ. 1% 2Q16 Warehouse - % advances sold to Flagstar Overview • Warehouse lines with approximately 260 relationships nationwide, of which more than 90% sell a portion of their loans to Flagstar • Collateralized by mortgage loans being funded which are paid off once the loan is sold • Diversified property types which are primarily income- producing in the normal course of business • Focused on experienced top-tier developers with significant deposit and non-credit product opportunities • Lines of credit and term loans for working capital needs, equipment purchases, and expansion projects • Primarily Michigan based relationships or relationships with national finance companies Warehouse Commercial Real Estate Commercial & Industrial Commercial lending Diversified relationship-based commercial lending capabilities COMMUNITY BANKING Average 42% advances sold to Flagstar [CATEGORY NAME]; ~150 borrowers [CATEGORY NAME]; ~60 Borrowers [CATEGORY NAME]; ~50 borrowers 30
2nd Quarter 2016 Residential mortgage originations by channel ($bn) Broker • 3.3% market share with #8 national ranking(1) • Approximately 500 brokerage relationships in 50 states in 2Q16 • Targeted gain on sale margin of ~90bps • Top 10 relationships account for 21% of overall brokerage volume 1) Data source: As reported by Inside Mortgage Finance for 1Q16 published May 27, 2016. Correspondent • 3.9% market share with #6 national ranking(1) • Approximately 700 correspondent partners in 50 states in 2Q16 • Targeted gain on sale margin of ~60bps • Top 10 relationships account for 16% of overall correspondent volume • Warehouse lines with approximately 240 correspondent relationships Retail • Loan officer additions have expanded our retail footprint to 29 locations in 21 states • Targeted gain on sale margin of ~340bps • Direct-to-consumer is 34% of retail volume Originates mortgages in multiple channels on a national scale 31 $5.8 $5.6 $4.1 $4.8 $6.2 2Q15 3Q15 4Q15 1Q16 2Q16 $2.2 $1.9 $1.4 $1.3 $1.6 2Q15 3Q15 4Q15 1Q16 2Q16 $0.5 $0.4 $0.3 $0.3 $0.5 2Q15 3Q15 4Q15 1Q16 2Q16 MORTGAGE ORIGINATIONS
2nd Quarter 2016 32 MORTGAGE ORIGINATIONS US mortgage origination market Historical and projected volumes Residential mortgage originations (adjusted for inflation and population growth) - $ in trillions $ 1 .2 $ 1 .9 $ 2 .1 $ 1 .5 $ 1 .2 $ 1 .4 $ 1 .5 $ 2 .5 $ 2 .2 $ 1 .6 $ 3 .3 $ 4 .3 $ 5 .6 $ 4 .0 $ 4 .1 $ 3 .8 $ 3 .0 $ 1 .7 $ 2 .1 $ 1 .8 $ 1 .6 $ 2 .2 $ 2 .0 $ 1 .3 $ 1 .7 $ 1 .7 $ 1 .5 1 9 9 1 A 1 9 9 2 A 1 9 9 3 A 1 9 9 4 A 1 9 9 5 A 1 9 9 6 A 1 9 9 7 A 1 9 9 8 A 1 9 9 9 A 2 0 0 0 A 2 0 0 1 A 2 0 0 2 A 2 0 0 3 A 2 0 0 4 A 2 0 0 5 A 2 0 0 6 A 2 0 0 7 A 2 0 0 8 A 2 0 0 9 A 2 0 1 0 A 2 0 1 1 A 2 0 1 2 A 2 0 1 3 A 2 0 1 4 A 2 0 1 5 A 2 0 1 6 F 2 0 1 7 F Source: Inside Mortgage Finance for actual periods and a blended average of forecast by Fannie Mae, Freddie Mac and Mortgage Bankers Association. 1. Adjusted for historical inflation as reported by Bloomberg (2015 = 100). 2. Adjusted for population growth as reported by the US Census Bureau (2015 = 100). 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Nominal $ $0.6 $0.9 $1.0 $0.8 $0.6 $0.8 $0.9 $1.5 $1.3 $1.0 $2.2 $2.9 $3.9 $2.9 $3.1 $3.0 $2.4 $1.5 $1.8 $1.6 $1.5 $2.1 $1.9 $1.2 $1.7 $1.7 $1.5 Real(1) $ 1.0 1.5 .7 1.2 1.0 1.2 1.3 2.1 .9 .4 3.0 3.8 5.1 3.7 .8 .5 .8 .7 2.0 .8 .6 .2 . . . . . Adjusted(2) $ $ .2 $ .9 $2.1 $ .5 $ .2 $ .4 $ .5 $ .5 $2.2 $1.6 $ .3 $4.3 $ .6 $4.0 $4.1 $3.8 $3.0 $1. $ .1 $1. $1. $2. $2.0 $1.3 $1.7 $1.7 $1.5
2nd Quarter 2016 154 7 35 33 MSR portfolio as of 6/30/16 MSR portfolio characteristics (% UPB) MSR portfolio statistics Measure ($mm) 6/30/2016 3/31/2016 Difference Unpaid principal balance $30,443 $26,613 $3,830 Fair value of MSR $301 $281 $20 Capitalized rate (% of UPB) 0.99% 1.06% -0.07% Multiple 3.534 3.766 (0.232) N te rate 4.034% 4.092% -0.058% Service fee 0.282% 0.282% 0.000% Average Measure ($000) UPB per loan $227 $224 $3 FICO 735 731 4 Loan to value 74.05% 75.13% -1.08% $ return – MSR asset $ Return 2Q15 3Q15 4Q15 1Q16 2Q16 Net hedged profit (loss) $4 $1 $1 $1 $1 Carry on asset 22 19 16 6 9 Run-off (12) (8) (8) (11) (15) Gr ss r turn on the mortgage servicing asset $14 $12 $9 ($4) ($5) Sale transaction & P/L (5) 3 - (2) 1 Model Changes - (3) - - - Net return on the mortgage servicing asset $9 $12 $9 ($6) ($4) Average mortgage servicing rights $271 $317 $304 $285 $307 2016; 26% 2015; 46% 2014; 22% 2013 & prior; 6% by Vintage Fannie; 63% Freddie; 20% GNMA; 15% Private; 2% by Investor MORTGAGE SERVICING
2nd Quarter 2016 11.6% 8.6% Actual 6/30/16 Adjusted 6/30/16 Tier 1 leverage ratio Select capital ratios (adjusted for TARP redemption)(2) 13.6% 12.2% Actual 6/30/16 Adjusted 6/30/16 CET-1 ratio Capital adjusted for TARP redemption 34 3) Reflects ratios adjusted for TARP redemption; please see non-GAAP reconciliation in the appendix. Capitalization ($mm) Illustrative transaction(2) ($mm) Raised $250mm of 6.125% Senior Notes Due 2021 Flagstar Bancorp, Inc. Flagstar Bank, FSB $245mm proceeds $250mm notes $200mm dividend TARP securities $267mm redemption $102mm dividend Trust preferred securities $31mm interest CAPITAL AND LIQUIDITY Actual Adjusted Short-term FHLB advances $1,069 $1,069 Long-term FHLB advances 1,577 1,577 6.125% Senior Notes due 2021 - 250 Trust preferred securities 247 247 Total debt 2,893 3,143 Preferred stock 267 - Common Equity 1,329 1,227 Total stockholders' equity 1,596 1,227 Total capitalization $4,489 $4,370 Total assets 13,739 13,789 Common equity-to-assets ra io 9.7% 8.9% As of 6/30/16 (1) 1. Reflects non-GAAP adjustments to Flagstar’s capitalization for the TARP redemption completed July, 2016. 2) Illustrative transaction reflects estimates for a transaction as of 6/30/16, with actual costs expected to be slightly higher for final transaction which will close during July, 2016.
2nd Quarter 2016 154 7 35 Balance sheet composition Liabilities and Equity 2Q16 average balance sheet (%) Assets Attractive relationship lending with no loans >30 days delinquent Primarily low risk, stable assets (FHLB stock, BOLI, premises & equipment, deferred tax asset, etc.) 10% Common equity 24% FHLB borrowings 51% Deposits excluding company- controlled deposits (“CCD”) 3% Other liabilities ~75% of assets are in lower risk-content assets: cash, marketable securities, warehouse loans, loans held-for-sale and freshly-originated, high-FICO conforming mortgages underwritten by Flagstar 2% TruPS 2% Series C Preferred 11% Other assets 2% MSR 10% Warehouse loans Loans held-for-sale 21% Mortgage loans held-for-investment 24% Agency MBS 19% 2% Cash 11% Commercial loans 8% CCD Efficiently funds loans held-for-sale and warehouse loans 35 CAPITAL AND LIQUIDITY
2nd Quarter 2016 Liquidity and funding 82% 89% 94% 81% 76% 6/30/2015 9/30/2015 12/31/2015 3/31/2016 6/30/2016 1 Total loans (excluding loans held-for-sale & warehouse loans); Core deposits equal total deposits less government deposits and company-controlled deposits Loans / core deposits1 154 7 35 Core deposits¹ / deposits (%) 75% 70% 74% 70% 71% Commentary ■ Flagstar has invested significantly in building its Community Bank, which provides attractive core deposit funding for its balance sheet ■ These retail deposits are supplemented by Company- controlled deposits from the servicing business ■ Much of the remainder of Flagstar’s balance sheet is self- funding given it is eligible collateral for FHLB advances (which provides significant liquidity capacity) CAPITAL AND LIQUIDITY 36
2nd Quarter 2016 Interest rate risk management • The shorter term measure of the “Earnings at Risk” interest rate risk position is asset sensitive due to the immediate repricing of the variable rate assets including the mortgage banking pipeline, warehouse loans and commercial loans while liabilities reprice more slowly. • The longer term measure of the “Economic Value of Equity” interest rate position is expected to decrease largely due to the convexity of mortgage related assets. • Flagstar also performs a Net Income Simulation that includes the effect of changes in interest rates on the mortgage business. Net income is projected to increase significantly in a decreasing rate environment due to increased mortgage originations. Net interest margin – 12 month horizon instantaneous shocks ($mm) ($ in mm) Parallel Shift Bear Flattener Net interest income $20 ($14) Noninterest Income ($20) to $0 $0 to $14 Up 100bps Low interest rate risk Economic value of equity Change in Economic Value Policy Limit Rates (bps) of Equity ($bn) ($bn) (%) (%) +300 $1.83 ($0.22) (10.7%) (22.5%) +200 $1.93 ($0.12) (5.7 ) (15.0 ) +100 $2.02 ($0.03) (1.4%) (7.5%) Market Implied $2.05 $0.00 0.0 0.0 -100 $1.95 ($0.10) (5.0%) (7.5%) Change 37 CAPITAL AND LIQUIDITY 0bps 50bps 100bps 150bps 200bps 250bps 300bps 350bps 1 month 3 months 6 months 1 year 2 year 3 year 5 year 7 year 10 year 20 year 30 year up 100bps Bear Flattener 6/30/2016
2nd Quarter 2016 788 778 540 540 457 402 337 350 350 238 1,190 56 1,115 60 890 49 890 49 695 28 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 Fannie Mae Freddie Mac Fannie Mae Freddie Mac Audit file pulls Repurchase demands Representation & Warranty reserve details (in millions) 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 Beginning balance $53) $48) $45) $40) $40) Additions (3) (4) (5) 0) (3) Net (charge-offs) / recoveries (2) 1) (0) 0) (1) Ending Balance $48) $45) $40) $40) $36) Repurchase pipeline ($mm) Repurchase reserve ($mm) Repurchase activity with Fannie and Freddie Repurchase demands / file pulls 5% 6% 6% 5% 38 4% ASSET QUALITY $46 $30 $20 $16 $11 6/30/2015 9/30/2015 12/31/2015 3/31/16 6/30/16
2nd Quarter 2016 Supplemental capital ratios 39 NON-GAAP RECONCILIATION 6/30/16 Flagstar Bancorp regulatory ratios adjusted for TARP redemption ($mm) Flagstar Bancorp Common Equity Tier 1 (to Risk Weighted Assets) Tier 1 Leverage (to Adjusted Tangible Assets) Tier 1 Capital (to Risk Weighted Assets) Total Risk-Based Capital (to Risk Weighted Assets) Regulatory capital $1,086 $1,514 $1,514 $1,618 TARP redemption(1) ($112) ($378) ($378) ($378) Adjusted regulatory capital $974 $1,136 $1,136 $1,240 Risk-weighted assets $8,014 $13,068 $8,014 $8,014 TARP redemption ($9) $150 ($9) ($9) Adjusted risk-weighted assets $8,005 $13,218 $8,005 $8,005 Regulatory capital ratio 13.6% 11.6% 18.9% 20.2% Adjusted regulatory capital ratio for TARP Redemption 12.2% 8.6% 14.2% 15.5% 1 Includes the impact of lower Tier 1 equity for assets such as deferred tax assets and mortgage servicing rights.
