1 4th Quarter 2020 Flagstar Bancorp, Inc. (NYSE: FBC) Earnings Presentation 4th Quarter 2020 January 21, 2021
2 4th Quarter 2020Cautionary 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.
1st Quarter 2020Executive Overview Sandro DiNello, CEO
4 4th Quarter 2020 Unique relationship-based business model • Well diversified loan portfolio, with no outsized exposure to any geography or industry reflects our disciplined approach to growing the Community Bank • Servicing business produced consistent results for the quarter, while also highlighting our competitive advantage as the subservicing business is housed within a well capitalized Bank with ample liquidity Strengthen mortgage Grow community banking and servicing Highly profitable operations • Delivered strong pre-provision net revenue despite the volatility in the market that was caused from the COVID-19 pandemic Positioned to thrive in any market • Durable business model well-positioned to weather the storm--profitability is strong--capital is strong--allowance is strong--and liquidity is strong • Maintaining quarterly dividend--demonstrating a commitment to return capital to our shareholders while still being prudent in managing our balance sheet in these uncertain times • Supporting employees, communities and customers during the pandemic, with focus on their health, safety and financial well-being • Diverse revenue streams and flexible balance sheet produced strong results in declining interest rate environment by capitalizing on the resulting beneficial mortgage market • Leveraged multi-channel origination platform to generate solid fallout adjusted lock growth, even with most of our staff working remotely during the quarter • Invested in people and technology, expanding retail and generating more business in the most profitable channels Strategic highlights
1st Quarter 2020Financial Overview Jim Ciroli, CFO
6 4th Quarter 2020 1. Mortgage revenue is defined as net gain on loan sales HFS plus the net return on the MSRs. 2. References non-GAAP number. Please see reconciliations on page 48 - 49. Solid earnings Growth in community banking and servicing • Net interest margin, excluding the impact from loans with government guarantees that have not been repurchased, was 2.98% for the quarter, up 4 basis points, vs. 3Q20 - Performance driven by the impact of lower rates on deposits and higher levels of warehouse loans - Low funding rates locked in using interest rate swaps and LT advances with terms from 3 to 7 years • Consistent servicing results as total loans serviced remained flat at 1.1 million loans at period end Mortgage revenue Strong asset quality Robust capital position • Total risk based capital ratio at 11.9% - Total risk based capital ratio would have been 14.0% if the risk-weighting of warehouse loans were adjusted to 50% to reflect the risk weightings of the assets that fully collateralized the loans • Tier 1 leverage ratio at 7.7% and CET1 ratio at 9.1% remained strong considering balance sheet growth was isolated to low-risk warehouse balances • Over $400mm of excess total risk-based capital over the minimum level needed to be considered well-capitalized. • Net income of $154mm, or $2.83 per diluted share, in 4Q20 • Pre-tax, pre-provision net revenue of $207mm in 4Q20, a decrease of $120mm vs. 3Q20 • Grew TBV per share $3.20, or 9%, to $38.802 per share at 12/31/20, compared to $28.572 per share at 12/31/19 • Mortgage revenue(1) of $232mm, down $126mm vs. 3Q20 as FOALs were down 20% and margin contracted 38 basis points - Gain on sale margin of 1.93%, down 38 basis points from record 3Q20 levels - $12mm decrease in the return on MSR which reflects elevated prepayment speeds • Asset quality strong as net charge-offs were only 4 basis points and nonperforming loan ratio remained low • Credit reserves of $280mm at 12/31/20 flat to 3Q20 • Credit reserves covered 1.73% of loans HFI, or 3.19% excluding warehouse loans at 12/31/20 Financial highlights
7 4th Quarter 2020 $mm Observations • Noninterest income down $115mm, or 25% - Net gain on loan sale margin decreased 38 basis points, to 1.93%. - FOALs decreased $3.0bn reflecting seasonal holiday factors and a deliberate slowing of volume early in the quarter. Noninterest income • Net interest income increased $9mm, or 5% - Average earning assets increased 5% driven by warehouse loan growth. - Net interest margin, excluding LGG that have not been repurchased, expanded 4 basis points to 2.98%. - Average deposits increased 8%, due to $1.2bn billion in custodial deposits and $0.5bn increase in savings and government deposits. Interest-bearing deposit costs declined 16 basis points. Net interest income • Noninterest expense up $14mm, or 5%, refer to slide 9 for more details Noninterest expense Quarterly income comparison N/M = not meaningful 4Q20 3Q20 $ Variance % Variance Net interest income $189 $180 $9 5% Net gain on loan sales 232 346 (114) (33%) Loan fees and charges 53 45 8 18% Loan administration income 25 26 (1) (4%) Net return (loss) on mortgage servicing rights - 12 (12) N/M Other noninterest income 27 23 4 17% Total noninterest income 337 452 (115) (25%) Pre-provision total revenue 526 632 (106) (17%) Compensation and benefits 125 123 2 2% Commissions and loan processing expense 99 96 3 3% Other noninterest expenses 95 86 9 10% Total noninterest expense 319 305 14 5% Pretax, pre-provision net revenue 207 327 (120) (37%) Provision for credit losses 2 32 (30) (94%) Income before income taxes 205 295 (90) (31%) Provision for income taxes 51 73 (22) (30%) Net income $154 $222 ($68) (31%) Diluted income per share $2.83 $3.88 -$1.05 (27%) Profitability Net interest margin 2.78% 2.78% -- Net interest margin, excl. LGG repurchase obligation(1) 2.98% 2.94% 4 bps Net gain on loan sales / total revenue 44% 55% -11% Mortgage rate lock commitments, fallout adjusted (2) $12,000 $15,000 ($3,000) (20%) Mortgage closings (2) $13,100 $14,400 ($1,300) (9%) Net gain on loan sale margin, HFS 1.93% 2.31% (38) bps 1. References non-GAAP number as it excludes impact of $0.1 billion (2Q20), $1.4 billion (3Q20), and $1.8 billion (4Q20) of average balance of loans with government guarantees that have not been repurchased and do not accrue interest. Please see reconciliations on page 48 - 49. 2. Rounded to the nearest hundred million N/M = not meaningful
8 4th Quarter 2020 4.04% 3.78% 3.38% 3.16% 3.09% 5.2 5.2 5.6 5.6 5.7 4.9 4.9 4.7 4.5 4.2 2.0 1.7 3.2 4.8 5.8 2.7 2.3 3.8 5.7 6.9 5.8 7.0 6.3 5.2 4.4 $20.7 $21.2 $23.7 $25.7 $27.1 4Q19 1Q20 2Q20 3Q20 4Q20 LHFS Consumer LHFI CRE and C&I Warehouse Other Average interest-earning assets & yields ($bn) 1. 16% 1.03% 0.57% 0.44% 0.37% 10.5 10.4 10.8 11.3 11.5 5.4 5.4 7.0 8.3 9.5 3.9 4.4 4.8 3.5 2.8 0.5 0.5 0.5 0.5 0.6 $20.3 $20.7 $23.0 $23.6 $24.5 4Q19 1Q20 2Q20 3Q20 4Q20 Retail Deposits Other Deposits FHLB Borrowings LT Debt Average liabilities and rate ($bn) Warehouse- $7.9bn (EOP-12/31/20) CRE - $3.1bn (EOP-12/31/20) C&I - $1.4bn (EOP-12/31/20) 82% 17% 1% LIBOR w/Floor > 0 Prime w/Floor > 0 No Floor 69% 11% 6% 10% 4% LIBOR w/Floor = 0 LIBOR w/Floor > 0 Prime w/Floor = 0 Prime w/Floor > 0 Fixed Rate LIBOR no Floor 56% 12% 19% 4% 2% LIBOR w/Floor = 0 Fixed Rate LIBOR w/Floor > 0 Prime w/Floor = 0 No Floor Prime w/Floor > 0 7% Net interest income
9 4th Quarter 2020 98 96 295 358 232 30 26 41 45 53 8 12 21 26 25 26 23 21 23 27 $162 $157 $378 $452 $337 4Q19 1Q20 2Q20 3Q20 4Q20 Mortgage Revenue Loan Fees Loan Admin Other Noninterest income ($mm) 102 102 116 123 125 35 29 61 72 7020 20 25 24 29 88 84 94 86 95 $245 $235 $296 $305 $319 4Q19 1Q20 2Q20 3Q20 4Q20 Comp & Benefits Commissions Loan Processing Other Noninterest expense ($mm) • Noninterest income down $115mm, or 25% - Mortgage revenue decreased $126mm to $232mm, compared to prior quarter. The decrease was driven by a 38 basis point decrease in gain on sale margin which continues to moderate and fallout adjusted locks decreased 20% reflecting seasonal holiday factors and other actions. Net return on MSR decreased $12mm compared to the prior quarter as prepayments continued to be elevated. - Loan fees and charges increased $8mm primarily due to higher loss mitigation and forbearance fee income on subserviced loans, despite a 9 percent decrease in mortgage closings. Noninterest income • Noninterest expense up $14mm, or 5% - Mortgage expenses increased $7mm. The ratio of mortgage noninterest expense to closings – our mortgage expense ratio – was 1.18 percent, an increase of 16 basis points quarter over quarter, primarily driven by efforts to expand capacity and a higher retail channel mix. - Non-mortgage expense increased $6mm due to the a $7mm loss recognized on the early extinguishment of the senior notes which will settle in January and a special contribution of $2mm to the Flagstar Foundation. Noninterest expense Noninterest income and expense
10 4th Quarter 2020 NPLs and performing TDRs ($mm) 38 37 40 39 36 26 29 33 35 38 10 18 $65 $66 $73 $84 $92 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Performing TDRs Consumer NPLs Commercial NPL 1. Includes early stage delinquencies, defined as 30 to 89 days past due and nonaccrual loans 2. Excludes loans carried under the fair value option and loans with government guarantees. 3. Excludes loans held-for-sale Allowance coverage(2) (% of loans HFI) 0.9% 1.1% 1.7% 1.7% 1.7%1.1% 1.5% 2.6% 3.1% 3.2% 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Total Total excl. Warehouse Delinquencies(1) (% of loans HFI) Nonperforming loan and asset ratios Asset quality 0.33% 0.40% 0.32% 0.36% 0.56% 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 0.30% 0.28% 0.27% 0.31% 0.40% 0.21% 0.21% 0.22% 0.28% 0.34% 0.15% 0.14% 0.14% 0.17% 0.21% 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 NPA/LHFI & OREOs NPL & TDRs/LHFI NPA/Total Assets
11 4th Quarter 2020 CECL methodology - Forecast • Used 2-year forecasts as of December reflecting the continued economic distress caused by COVID weighted 40% base, 30% adverse and 30% growth • Composite forecast contemplates unemployment ending the year at 7%, increases slightly in 2021 and begins recovering in 2022 • GDP recovers slightly by the end of 2021 from current levels and does not return to near pre-COVID level until 2024 • HPI decreases about 1% throughout 2021 • Qualitative adjustments reflect best estimate of COVID-19 impact on portfolios including estimated impact of government stimulus, forbearance/payment holidays and Fed programs Allowance for credit losses ($mm) Current Expected Credit Loss (“CECL”) 1. New loans and aging of existing portfolio 2. COVID impact sectors 3. Changes to macro-economic variables and forecast scenarios 4. Changes to underlying credit conditions
12 4th Quarter 2020 Commercial Exposure - $1.0 billion, 6.0% of LHFI $149 million / 0.9% of loans No loans in deferral $10 million in nonperforming loans Leisure & Entertainment Includes restaurants, churches, theatres, etc. $279 million / 1.7% of loans (22 loans) $14 million in deferrals No loans classified as nonperforming Hotel Marriott, Hilton, IHG and Hyatt flagship hotels comprise 77% of portfolio $146 million / 0.9% of loans (17 loans) No loans in deferral or classified as nonperforming Senior Housing Geographically diverse; facilities in 8 different metro areas. All have recourse to strong borrowers $79 million UPB / 0.5% of loans No loans in deferral or classified as nonperforming Automotive Manufacturing, automotive suppliers $22 million / 0.1% of loans No loans in deferral or classified as nonperforming Healthcare Hospitals, HMO Medical Centers $299 million / 1.8% of loans (44 loans) No loans in deferral or classified as nonperforming Retail ~ 89% in footprint; 75% are neighborhood centers or single-tenant properties Commercial & Industrial Loans Commercial Real Estate Loans COVID-19 impacted industry exposure
13 4th Quarter 2020 Observations 4Q20 Tier 1 CET-1 Tier 1 Total RBC Leverage to RWA to RWA to RWA 4Q20 7.7% 9.1% 10.2% 11.9% 3Q20 8.0% 9.2% 10.3% 11.3% Flagstar Bancorp Total Risk Based Capital Ratio • Total risk based capital ratio of 11.9% o Total risk based capital ratio would have been 14.0% if the risk-weighting of warehouse loans were adjusted to 50% o Warehouse lending—100% risk weight– has had under $5mm of losses, cumulatively, over the last 12 years o Over 1,000 basis points of total risk based capital attributed to warehouse loans, loans held for sale and loans with government guarantees that have not yet been repurchased • Tier 1 leverage ratio ended quarter at 7.7% o Over 700 basis points of tier 1 leverage attributed to warehouse loans, loans held for sale and loans with government guarantees that have not yet been repurchased Capital 11.2% 11.3% 1. Sub-debt increased ratio by 67 basis points, offsetting the decrease associated with the stock buyback.
1st Quarter 2020Business Segment Overview Reggie Davis, President of Banking
15 4th Quarter 2020 Deposits and Lending Portfolio and strategy overview • 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 governmental entities – Cost of total deposits(1) equal to 0.23%, down 10 basis points from 0.33% in 3Q20 Total average deposits $21.1bn 1. Total deposits include noninterest bearing deposits. Total average LHFI $15.7bn Total: $21.1 bn 0.23% cost of total deposits(1) • Flagstar’s largest category of earning assets consists of loans held-for-investment which averaged $15.7bn during 4Q20 – 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 1st Mortgage 15% 2nds, HELOC & other 12% Warehouse 44% CRE 20% C&I 9% Total: $15.7 bn 3.78% LHFI yield
16 4th Quarter 2020 Commercial lending Diversified relationship-based approach Commercial Real Estate - $3.1bn (12/31/20) Commercial & Industrial - $1.4bn (12/31/20) Financial, insurance & real estate 46% Services 22% Manufacturing 20% Healthcare 2% Distribution 8% Government & education 1% Warehouse - $7.9bn (12/31/20)Overview • Warehouse lines with approximately 393 active relationships nationwide, of which approximately 67% 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 Industry % Advances sold to Flagstar Property type ~47 borrowers sell >75% ~66 borrowers sell 25% - 75% ~280 borrowers sell <25% Other 1% Home Building, 24% Multi Family, 17% Owner Occupied, 12% Retail, 10% Hotel/Motel, 9% Office, 9% Other, 19%
1st Quarter 2020Business Segment Overview Lee Smith, President of Mortgage
18 4th Quarter 2020Flagstar’s one-stop-shop mortgage model MORTGAGE BANKING & SERVICING Teamwork Customer Satisfaction Risk & Compliance Optimize Results Mortgage Originations Mortgage Servicing Mortgage Operations • Warehouse Lending • MSR and Servicing Advance Lending • Custodial Deposits – fund balance sheet • HELOCs Bank Synergies Sales – multi channel • TPO • Distributed Retail • Direct Lending • People • Products • CRA Secondary & Cap Markets • Pricing & Hedging • Outlets o Sales o Securitizations o Retain on B/S Performing • Growth & Scale • Customer Feedback • Risk and Compliance • Other Revenue Opportunities Default • Risk and compliance • Delinquency Mgt • Forbearance Mgt • Claims process • Minimize losses MSR Creation • Sale and retain subservicing • Retain MSR o Agency o GNMA • Protect asset Mortgage Ops • Service • Multi skilled operators • Risk and Compliance • Variable cost model • Support
19 4th Quarter 2020 41% 36% 35% 33% 36% 3.5 4.2 5.1 5.8 4.7 2.0 2.2 2.4 2.3 1.81.0 1.4 2.0 2.2 1.61.3 2.4 3.0 3.7 2.7 0.4 1.0 1.2 1.0 1.2 $8.2 $11.2 $13.8 $15.0 $12.0 4Q19 1Q20 2Q20 3Q20 4Q20 Correspondent Bulk Broker Distributed Retail Direct Lending 3.6 3.1 4.4 5.4 4.6 5.7 5.5 7.8 9.0 8.5 $9.3 $8.6 $12.2 $14.4 $13.1 1.12% 1.12% 1.22% 1.02% 1.18% 4Q19 1Q20 2Q20 3Q20 4Q20 Purchase originations Refinance originations Mortgage expense 5.5 5.2 10.1 12.5 10.2 1.8 1.6 1.2 1.6 2.4 2.0 1.8 0.9 0.3 0.5 $9.3 $8.6 $12.2 $14.4 $13.1 4Q19 1Q20 2Q20 3Q20 4Q20 Conventional Jumbo Government Closings by mortgage type ($bn) Net gain on loan sales – revenue and margin Fallout-adjusted locks by channel ($bn) $101 $90 $303 $346 $232 1.23% 0.80% 2.19% 2.31% 1.93% 4Q19 1Q20 2Q20 3Q20 4Q20 Gain on loan sale ($mm) Gain on sale margin (HFS) Closings by purpose and expense ratio ($bn) 23% 23% 30% 31% 33% RetailMix % Mortgage originations Purchase Mix %
20 4th Quarter 2020 MSR / CET1 (Bancorp) Quarter-end loans serviced (000’s) $ UPB of MSRs sold ($bn) 105 102 123 149 151 919 917 855 894 868 1,091 1,082 1,043 1,105 1,085 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Serviced for Others Subserviced for Others Flagstar Loans HFI 2.2 2.6 4.4 2.6 $4.9 $6.6 $1.0 $0.8 $5.2 4Q19 1Q20 2Q20 3Q20 4Q20 Bulk Sales Flow Transactions 20% 13% 15% 16% 16% 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Average custodial deposits ($bn) $8.5 $4.8 $4.8 $6.2 $7.3 4Q19 1Q20 2Q20 3Q20 4Q20 Mortgage servicing
21 4th Quarter 2020 Consumer Forbearance as of 12/31/2020 (UPB in $mm) • Significant decrease in new forbearance requests since middle of April • 12% of residential first lien borrowers who have requested forbearance have made their October, November, and December payments and not taken advantage of the forbearance option. • Proactive customer outreach to evaluate readiness to return to payment or need for further assistance • Stable early-stage delinquency trends for loans not in forbearance Forbearance Requests (accounts) 1. Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets. 2. Includes LHFI (residential first mortgage, home equity and other consumer), LHFS (residential first mortgage), loans with government guarantees (residential first mortgage), and repossessed assets. 28,675 5,134 1,526 646 870 687 849 1,802 1,765 2/ 29 /2 02 0 3/ 31 /2 02 0 4/ 30 /2 02 0 5/ 31 /2 02 0 6/ 30 /2 02 0 7/ 31 /2 02 0 8/ 30 /2 02 0 9/ 30 /2 02 0 10 /3 1/ 20 20 11 /3 0/ 20 20 Supporting consumer needs
1st Quarter 2020Appendix Company overview 23 Community banking 26 Mortgage servicing 36 Mortgage originations 39 Financial performance 41 Capital and liquidity 43 Valuation 46 Guidance 47 Non-GAAP reconciliation 48
23 4th Quarter 2020 Community banking • Leading Michigan-based bank with a balanced, diversified lending platform • $31.0bn of assets and $20.0bn of deposits • 209k household & over 27k business relationships Mortgage origination • 6th largest bank originator of residential mortgages ($48.3bn during twelve months ended December 31, 2020) • Scalable platform originating business in all channels and all 50 states including 103 retail home lending offices • More than 1,050 correspondent and more than 1,300 broker relationships Corporate Overview • Traded on the NYSE (FBC) • Headquartered in Troy, MI • Market capitalization $2.4bn • Member of the Russell 2000 Index 1. Includes eight home lending offices located in banking branches. 103 Retail home lending Offices(1) 158 Flagstar Bank Branches Mortgage servicing • 6th largest sub-servicer of mortgage loans nationwide • Servicing 1.1 million loans as of December 31, 2020 • Efficiently priced deposits from escrow balances Flagstar at a glance Company Overview
24 4th Quarter 2020Flagstar has a strong executive team 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 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 and Servicing • Effective since September 2020.. Previously COO for 7 years May 2013 – Aug 2020. • Formerly a partner of MatlinPatterson Global Advisors and a Senior Director at Zolfo Cooper • Extensive expe- rience in financial management and operations Operations • Joined Flagstar in 1/21 • Over 30 years of experience in the financial services industry, most recently with TD Bank • CEO since 5/13 • Over 40 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 Karen BuckSteve FigliuoloReggie DavisLee SmithJim Ciroli • More than 35 years of banking experience with Suntrust, Royal Bank of Canada, and Wachovia Chief Audit Officer Meagan Belfinger Sandro DiNello President & CEO Chief Information Officer Jennifer Charters • CIO since 6/18 • Over 25 years of IT and financial services experience with Ally Financial and Accenture COMPANY OVERVIEW Chief Human Resources Officer David Hollis Corporate Responsibility Beth Correa Chief Marketing Officer Matt Allen
25 4th Quarter 2020 Risk management Best-in-class risk management platform with 277 FTEs(1) 1. Does not include 29 FTEs in internal audit as of 12/31/2020. Karen Sabatowski Chief Compliance Officer Sandro DiNello President & CEO Board of Directors Steve Figliuolo Chief Risk Officer Risk Committee Enterprise Risk Committee 67 48 13 4 14 58FTEs Regulatory Affairs Chief Credit Officer QC / Appraisal Review MFIU Fraud Investigations Operational Risk Financial Crimes (BSA/AML) Compliance 14 Vendor Management 32 Information Security 26 COMPANY OVERVIEW
26 4th Quarter 2020 $87 $83 $97 $103 $107 $106 $115 $124 $123 $126 $138 $146 $152 $148 $168 $180 $189 $12.8 $12.3 $14.0 $14.7 $15.4 $15.4 $16.0 $16.8 $16.4 $16.3 $17.8 $19.0 $20.7 $21.2 $23.6 $24.3 $25.3 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Net interest income ($mm) Average earning assets ($bn) 2.67% 2.67% 2.77% 2.78% 2.76% 2.76% 2.86% 2.93% 2.99% 3.09% 3.08% 3.05% 2.93% 2.81% 2.88% 2.94% 2.98% ● Achieving earning asset growth while continuing to grow net interest income - Strong net interest margin management ● Transition to more stable net interest income Average earning assets and net interest income Higher net interest income is stabilizing earnings 1. References non-GAAP number for 4Q18; excludes $29 million of hedging gains reclassified from AOCI to net interest income in conjunction with the payment of long- term FHLB advances. Please see reconciliations on page 48 - 49. 2. References non-GAAP number as it excludes impact of $0.1 billion (2Q20), $1.4 billion (3Q20), and $1.8 billion (4Q20) of average balance of loans with government guarantees that have not been repurchased and do not accrue interest. Please see reconciliations on page 48 - 49. COMMUNITY BANKING CAGR 19% CAGR 21% Adjusted NIM: (1) (2) (2) (1) (2) (2)
27 4th Quarter 2020Strong market position Source: S&P Global Market Intelligence; Note: Deposit data as of December 31, 2020 and projections based on 2020 estimates; MI-based banks highlighted. 1. Fort Wayne, IN deposit data is based on Fort Wayne, IN Fed District. Fort Wayne, IN demographic data is based on counties within Fort Wayne, IN Fed District, deposit weighted based on Flagstar’s portfolio. 2. Key Midwest Markets Median HHI, based on Flagstar’s portfolio. 3. Deposit data is based on High Desert Region of San Bernardino County, CA. projected HHI growth and projected population growth are deposit weighted 4. 2021–2026 CAGR. Key Markets COMMUNITY BANKING Michigan deposit share ● Leading deposit share in Michigan, Fort Wayne, IN(1), and San Bernardino County, CA (High Desert Region) ● Provides access to markets with attractive demographics and low-cost, stable liquidity for continued balance sheet growth % YoY Overall MI-based Institution Branches Total Share Change 1 Chase 208 $63,501 22% 43% 2 TCF/Huntington 513 39,743 14% 20% 3 Comerica 194 35,492 12% 22% 4 Bank of America 92 29,285 10% 28% 5 Fifth Third 191 21,632 8% 30% 6 PNC 164 21,220 7% 25% 7 1 Flagstar 114 17,184 6% 32% 8 Citizens 82 6,372 2% 10% 9 Independent 66 3,561 1% 18% 10 Mercantile Bank Corp. 43 3,272 1% 25% Top 10 1,667 $241,262 83% 29% 2020 Rank Deposits as of 12/31/2020 ($mm) Deposit Median Proj HHI Proj pop Market $mm % of total mkt share HHI growth (4) growth (4) Oakland County, MI 5,922$ 50.1% 8.1% 86,562$ 10.7% 1.4% Grand Rapids, MI MSA 392 3.3% 1.4% 68,835 10.2% 2.7% Ann Arbor, MI MSA 265 2.2% 2.3% 78,844 12.5% 1.7% Fort Wayne, IN(1) 808 6.8% 6.7% 60,699 9.4% 2.9% Key Midwest Markets(2) 7,387 62.4% 6.0% 82,516 10.6% 1.6% San Bernardino County, CA (3) 658 5.6% 1.0% 71,365 12.8% 3.6% National aggregate 67,761$ 9.0% 2.9% Flagstar Deposits
28 4th Quarter 2020Community banking Quarter-end commercial loan commitments ($bn) Average deposit funding(1) ($bn) 9.3 9.3 9.7 9.9 10.0 1.2 1.1 1.1 1.4 1.6 4.8 4.8 6.2 7.3 8.5 $15.9 $15.8 $17.7 $19.6 $21.1 4Q19 1Q20 2Q20 3Q20 4Q20 Retail Government Custodial deposits Brokered deposits 1. Includes custodial deposits which are included as part of mortgage servicing. 2.7 2.6 2.9 2.7 2.6 4.8 4.8 4.7 4.6 4.7 4.7 6.2 7.9 9.8 10.4 $12.2 $13.6 $15.5 $17.1 $17.7 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Commercial and Industrial Commercial Real Estate Warehouse Average commercial loans ($bn) Average consumer loans ($bn) 1.7 1.7 2.0 1.7 1.5 2.8 2.9 3.1 3.0 3.1 2.7 2.3 3.8 5.7 6.9 $7.2 $6.9 $8.9 $10.4 $11.5 4Q19 1Q20 2Q20 3Q20 4Q20 Commercial and Industrial Commercial Real Estate Warehouse 3.2 3.1 2.8 2.6 2.3 1.7 1.8 1.9 1.9 1.9 $4.9 $4.9 $4.7 $4.5 $4.2 4Q19 1Q20 2Q20 3Q20 4Q20 Residential First Mortgages Other Consumer Loans COMMUNITY BANKING
29 4th Quarter 2020 • Average LTV ~53% and DSC ~2.4% • 81% LIBOR / 15% Prime Rate / 4% Fixed Rate • Over 96% of portfolio has Prime and LIBOR rate floors at or greater than 0% • Shared National Credits ~7% of portfolio Commercial Real Estate ($bn) Commercial real estate portfolio detail Portfolio Characteristics State Breakdown (by collateral location) COMMUNITY BANKING Property Breakdown Michigan 40% Texas 12% California 10% Florida 5% Ohio 6% Other 27% Other 19% Retail 10% Owner Occupied 12% Office 9% Hotel/motel 9%Home Building 24% Multi Family 17% NBV Commitment % Utilization Home Builder 0.7$ 1.7$ 42.3% Multi Family 0.5 0.7 63.4% Owner Occupied 0.4 0.4 97.1% Retail 0.3 0.3 95.9% Office 0.3 0.3 87.8% Hotel/Motel 0.3 0.3 85.8% Senior Living Facility 0.2 0.3 67.9% Industrial 0.1 0.2 79.8% Parking Garage/Lot 0.1 0.1 99.5% All Other 0.2 0.3 75.2% Total CRE 3.1$ 4.6$ 66.0%
30 4th Quarter 2020 Commercial & Industrial ($bn) Commercial and industrial portfolio detail Portfolio Characteristics State Breakdown COMMUNITY BANKING MI 35% CA 6% OH 4% IN 2% WI 1% TX 9% MN 5% NY 6% FL 5% CT 4% Other 23% • 76% LIBOR / 11% Fixed Rate / 13% Prime Rate • Approximately 87% of portfolio has Prime and LIBOR rate floors at or greater than 0% • Shared national credits ~48% of portfolio Industry Breakdown Financial, insurance & real estate 46% Services 22% Manufacturing 20% Healthcare 2% Distribution 8% Government & education 1% Other 1% NBV Commitment % Utilization Financial & Insurance 0.5$ 0.9$ 51.7% Services 0.3 0.5 61.0% Manufacturing 0.2 0.4 67.2% Home Builder Finance 0.1 0.3 23.0% Rental & Leasing 0.1 0.2 54.1% All Other 0.2 0.3 57.9% Total C&I 1.4$ 2.6$ 53.9%
31 4th Quarter 2020Allowance for credit losses COMMUNITY BANKING 1. Includes reserve for unfunded commitment of $25 million and $28 million at 9/30/20 and 12/31/20, respectively. September 30, 2020 December 31, 2020 Amount(1) % of LHFI Amount(1) % of LHFI ($ in millions) Consumer: Residential First Mortgage $ 52 2.1% $ 49 2.2% Home Equity 29 3.1% 25 2.9% Other Consumer 39 4.0% 40 4.0% Total Consumer 120 2.7% 114 2.8% Commercial: Commercial Real Estate 106 3.5% 103 3.4% Commercial and Industrial 47 3.1% 57 4.1% Warehouse Lending 7 0.1% 6 0.1% Total Commercial 160 1.3% 166 1.4% Total Credit Reserve $ 280 1.7% $ 280 1.7% Total Credit Reserve Excluding Warehouse $ 273 3.1% $ 274 3.2%
32 4th Quarter 2020 $1.0 $1.1 $1.2 $1.1 29 22 17 17 1 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 NCO ($mm) NCO Rate (bps) 2.8 4.0 5.2 7.6 7.71.9 2.2 2.7 2.2 2.8 $4.7 $6.2 $7.9 $9.8 $10.5 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Outstandings Unfunded Commitments FBC warehouse loan commitments ($bn) Warehouse lending COMMUNITY BANKING Lenders ranked by commitments ($mm) Source: Inside Mortgage Finance as of November 2020 ● National relationship-based lending platform ● Attractive asset class with good spreads and low credit risk ● Flagstar is well positioned to hold market share, leveraging relationships in complementary lines of business, including home builder finance and mortgage originations ● Collateral Breakdown: Agency & Conventional 71.8% Government 21.4% / Jumbo 6.5% / Non-QM 0.3% YOY Rank Institution Growth Total Share 1 JPMorgan Chase 14% $21,000 16% 2 First Horizon 32% 10,420 8% 3 Flagstar Bancorp(1) 104% 9,802 8% 4 Texas Capital 18% 9,378 7% 5 TIAA FSB 35% 8,800 7% 6 Merchants Bank 58% 7,914 6% 7 Truist 85% 7,912 6% 8 Wells Fargo 17% 7,020 5% 9 Customers Bank 42% 5,100 4% 10 U.S. Bancorp 23% 4,660 4% Top 10 35% $92,006 71% 3Q20 Net chargeoffs 6 bps annual loss rate since 2006
33 4th Quarter 2020Home builder finance COMMUNITY BANKING Home builder loan commitments(1) ($mm) ● National relationship-based lending platform launched in 1Q16 - Attractive asset class with good spreads (~375 bps) - Meaningful cross-sell opportunities including warehouse loans, commercial deposits and purchase originations ● Flagstar is well positioned - Focused on markets with strong housing fundamentals and higher growth potential - We have direct relationships with 10 of the top 10 and do business with 56 of the top 100 builders nationwide (74 of the top 200) through June. Home builder finance footprint Overview $989 $947 $957 $852 $786 $1,186 $1,154 $1,065 $1,161 $1,206 $2,175 $2,101 $2,022 $2,013 $1,992 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Unpaid principal balance Unused Tightening housing supply - 2 4 6 8 10 12 0 1 2 3 4 5 6 7 8 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 Existing home sales (mm) Months supply of existing homes for sale Source: Bloomberg (through 9/30/20) 1. Commitments are for loans classified as commercial real estate and commercial & industrial. (left axis) (right axis)
34 4th Quarter 2020 Manufacturing 49% Financials & Insurance 24% Services 19% Distribution 4% Healthcare 4% • 66 borrowers, average UPB of $15 million and average commitment of $26 million • Total SNC breakdown: C&I ~68% / CRE ~21% / Warehouse ~11% • We are the lead bank in 17% of these deals and this percentage continues to grow • No nonperforming loans as of 12/31/20 • Loans totaling $26 million are rated as special mention or substandard • Average UPB of ~$15 million per loan • No nonperforming loans as of 12/31/20 • Loans totaling $5 million of commitments are rated as special mention or substandard • SNCs comprised $211 million of total leveraged loan UPB Leverage lending commentary Leverage lending and SNCs Shared national credits “SNCs” commentary Portfolio Composition - $0.3bn UPB (12/31/20) COMMUNITY BANKING Portfolio Composition - $ 1.0bn UPB (12/31/20) Distribution 2% Financial & Insurance 33% Healthcare 2% Manufacturing 17% Rental & Leasing 20% Services 26%
35 4th Quarter 2020COVID Impacted Sectors – CRE 58% 17% 15% 10% Neighborhood Centers Single Tenant Shopping Centers Other $299M as of December 31, 2020 ($mm) Hotel UPB(5) (as of December 31, 2020) ($mm) 13% 19% 18% 50% Luxury Upper Upscale Upper Midscale Upscale 5. Classifications as determined by STR Chain Scales Retail Descriptions 1. Retail centers < 100,000 sq. ft. – generally anchored by grocery stores 2. Single Tenant – Hardware stores 46% / Pharmacies 33% 3. Power centers 4. Other – includes one regional mall with $15mm in UPB ~77% of balances are from Marriott, Hilton, IHG, and Hyatt flagged franchises Retail UPB (as of December 31, 2020) ($mm) $279M(1) (2) (3) (4) COMMUNITY BANKING
36 4th Quarter 2020 Freddie 36% Fannie 30% GNMA 32% Private 2% By Investor MSR portfolio MSR portfolio characteristics (% UPB)MSR portfolio statistics Measure ($mm) 9/30/2020 12/31/2020 Difference Unpaid principal balance $37,908 $38,026 $118 Fair value of MSR $323 $329 $6 Capitalized rate (% of UPB) 0.85% 0.86% 1 bps Multiple 2.487 2.575 0.088 Note rate 3.76% 3.66% (10) bps Service fee 0.34% 0.34% - bps Average Measure ($000) UPB per loan $255 $252 ($3) FICO 722 726 4 Loan to value 78.31% 76.77% (154) bps Net return (loss) on mortgage servicing rights ($mm) $ Return 4Q19 1Q20 2Q20 3Q20 4Q20 Net hedged profit (loss) $0 $10 $1 $2 $3 Carry on asset 23 17 18 30 30 Run-off (27) (20) (20) (23) (34) Gross return on the mortgage servicing rights ($4) $7 ($0) $9 ($1) Sale transaction & P/L 1 (1) (3) 3 1 Model changes - - (5) - - Net return on the mortgage servicing rights ($) ($3) $6 ($8) $12 ($0) Average mortgage servicing rights ($) $287 $252 $242 $292 $347 Net return on the mortgage servicing rights (%) -4.1% 9.6% -13.5% 16.3% -0.2% MORTGAGE SERVICING 2020 63% 2019 14% 2018 13% 2017 & prior 10% By Vintage
37 4th Quarter 2020 ($mm) 4Q19 1Q20 2Q20 3Q20 4Q20 Net interest income Interest income (FTP) 27$ 23$ 12$ 7$ 8$ Interest expense on custodial deposits (1) (22) (19) (8) (2) (3) Total net interest income 5 4 4 5 5 Noninterest income(2) Service fee income 28 30 35 39 37 Ancillary fee income 10 9 18 15 23 Late fee income 5 6 2 2 2 Total noninterest income 43 45 55 56 62 Noninterest expense(3) (31) (36) (38) (41) (47) Earnings before Tax 17$ 13$ 21$ 20$ 20$ Average Custodial Deposits ($bn) 4.8$ 4.8$ 6.2$ 7.3$ 8.5$ Average Loans Serviced for Others (000's) 1,042 1,086 1,062 1,074 1,095 Servicing Servicing Profitability MORTGAGE SERVICING 1. Expense on custodial deposits from loans subserviced which is included in net loan administration income for GAAP purposes. Includes intersegment allocation. 2. Service fee income and late fee income are included in net loan administration income for GAAP purposes; ancillary fee income is included in loan fees and charges for GAAP purposes. 3. Includes direct allocations.
38 4th Quarter 2020 LGG UPB end of period ($mm) General Overview • GNMA Loans are eligible to be repurchased, at our option, after no payment has been made for 90 days (whether due to delinquency or forbearance) • When eligible to be repurchased, accounting rules require us to record a loan and a related liability • Loans eligible to be repurchased are limited to GNMA loans for which we own the MSR; not eligible to repurchase loans we are subservicing • Prior to repurchasing the loan, no interest is earned, we continue to make advances and no credit risk is present • All LGG loans, including loans eligible to be repurchased, are a 20% risk-weighted asset Impact/Opportunity • $2.6 B GNMA loans (21%) are in forbearance as of 12/31/2020, of which $1.9 B are recognized on the balance sheet • Approximately $89 million of eligible GNMA forbearance loans were repurchased during Q4 • Repurchased loans are able to be pledged as collateral with the FHLB • Drag on capital ratios and NIM due to inflated balances created by loans eligible for repurchase; no actual income risk • Estimated that $800 million will cure through the partial claim process, which will be bought out and re-securitized with an estimated impact to gain on sale of approximately $23 million in second half of 2021 and $9 million in 2022. • Estimated another $250 million will cure through a modification, with an opportunity of approximately $10 million of gain on sale related to these loans. LGG Overview Loans with government guarantees (LGG) 666 762 724 717 666 70 52 1,067 1,783 1,850 $736 $814 $1,791 $2,500 $2,516 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Repurchased Loans Loans Eligible for Repurchase $15,145 $15,243 $14,971 $13,768 $12,162 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 GNMA MSR UPB end of period ($mm) MORTGAGE SERVICING
39 4th Quarter 2020 • 3.3% market share with #8 national ranking(1) • More than 1,050 correspondent partners • Top 10 relationships account for 19% of overall correspondent volume • Warehouse lines with 304 correspondent relationships MORTGAGE ORIGINATIONS Residential mortgage originations by channel ($bn) BrokerCorrespondent Retail 3.9 3.5 3.9 5.9 5.0 2.1 2.0 2.7 2.4 1.6 4Q19 1Q20 2Q20 3Q20 4Q20 Other Bulk $5.5 $6.6 $8.3 $1.2 $1.1 $1.9 $1.8 $2.2 4Q19 1Q20 2Q20 3Q20 4Q20 Broker • 1.3% market share with #13 national ranking(1) • 1,300 broker relationships • Top 10 relationships account for 22% of overall brokerage volume 1. Data source: As reported by Inside Mortgage Finance for 12M20 published August 28,2020. • 103 retail locations in 28 states • Direct Lending is 30% of retail volume $6.0 National distribution through multiple channels $6.6 1.6 1.4 2.7 3.2 3.2 0.5 0.6 1.0 1.1 1.1 $2.1 $2.0 $3.7 $4.3 $4.3 4Q19 1Q20 2Q20 3Q20 4Q20 Distributed Retail Direct Lending
40 4th Quarter 2020 1. 3 2. 0 2. 2 1. 6 1. 3 1. 5 1. 6 3. 1 2. 4 1. 9 3. 7 4. 6 5. 9 4. 1 4. 3 3. 8 3. 2 2. 0 2 .5 2. 1 1. 7 2. 3 2. 1 1. 4 1 .8 2 .2 1. 8 1. 7 2. 3 4. 0 3. 3 2. 6 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 F 20 21 F 20 22 F $ in tr ill io ns Flagstar has a scalable origination platform that drives profitability in almost any mortgage origination market MORTGAGE ORIGINATIONS Source: Mortgage Bankers Association (MBA) for actual periods and a blended average of forecast by Fannie Mae(1/11/2021), Freddie Mac (1/14/2021) and MBA (1/20/2021). 1. Adjusted for historical inflation as reported by Bureau of Labor Statistics (2019 = 100). 2. Adjusted for population growth as reported by the U.S. Census Bureau (2018 = 100). U.S. residential mortgage origination market (historical and projected volumes) Nominal ($) 0.6 0.9 1.0 0.8 0.6 0.8 0.8 1.7 1.4 1.1 2.2 2.9 3.8 2.8 3.0 2.7 2.4 1.5 2.0 1.7 1.4 2.0 1.8 1.3 1.7 2.1 1.8 1.6 2.3 4.0 3.3 2.6 Real(1) ($) 1.0 1.6 1.8 1.3 1.1 1.3 1.3 2.6 2.1 1.7 3.2 4.0 5.3 3.7 3.9 3.5 2.9 1.8 2.4 2.0 1.6 2.3 2.0 1.4 1.8 2.2 1.8 1.7 2.3 4.0 3.3 2.6 Adjusted(2)($) 1.3 2.0 2.2 1.6 1.3 1.5 1.6 3.1 2.4 1.9 3.7 4.6 5.9 4.1 4.3 3.8 3.2 2.0 2.5 2.1 1.7 2.3 2.1 1.4 1.8 2.2 1.8 1.7 2.3 4.0 3.3 2.6
41 4th Quarter 2020 ● Solid growth in banking and subservicing has created more stable earnings ● Focus on efficiency and expense management Financial performance Revenue Composition and Earnings Metrics Revenue (millions) FY19 FY20 Percentage of Revenue Percentage Increase Community Banking 478$ 631$ 32% 32% Mortgage Servicing 172 235 12% 37% Subtotal 650 866 44% 33% Mortgage Origination 533 1,240 62% NM Other (36) (96) -6% 167% Total 1,147$ 2,010$ 100% 75% Diluted Earnings per Share 3.46$ 9.52$ NM Return on Average Assets 1.0% 2.0% Return on Average Tangible Common Equity 13.9% 29.0% FINANCIAL PERFORMANCE 1. Non-GAAP number for YTD 2019. Number shown excludes $25 million DOJ benefit. Please see reconciliations on page 48 - 49. (1) (1) (1) (1)
42 4th Quarter 2020 Quarterly noninterest expense ($mm) and efficiency ratio $245 $235 $296 $305 $31978% 77% 54% 48% 61% 4Q19 1Q20 2Q20 3Q20 4Q20 Noninterest expense Efficiency ratio Quarterly results Quarterly revenue ($mm) Quarterly adjusted noninterest expense ($mm) (5) (6) (3) 161 160 182 206 231 153 145 364 426 295 $314 $305 $546 $632 $526 4Q19 1Q20 2Q20 3Q20 4Q20 Non-Mortgage Revenue Mortgage Revenue (1) (2) 136 139 147 157 164 104 96 149 148 155 $240 $235 $296 $305 $319 1.12% 1.12% 1.22% 1.02% 1.18% 4Q19 1Q20 2Q20 3Q20 4Q20 Non-Mortgage NIE Mortgage NIE Mortgage expense (3)(1) (2) 1. Includes Servicing segment 2. Includes direct allocations. 3. As a percentage of that period’s close volume FINANCIAL PERFORMANCE
43 4th Quarter 2020Balance sheet composition CAPITAL AND LIQUIDITY 10% Other liabilities 2% Other long-term debt Liabilities & Equity 4Q20 average balance sheet (%) Assets Attractive relationship lending with very low delinquencies Primarily low risk, stable assets (FHLB stock, BOLI, premises & equipment, deferred tax asset, etc.) ~68% 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 11% Other assets 23% Warehouse loans 19% Loans held-for-sale 22% Commercial loans and Other LHFI (1) Efficiently funds loans held-for-sale and warehouse loans 42% Deposits excluding custodial deposits 9% FHLB borrowings 8% Equity 29% Custodial deposits 15% Mortgage loans held-for-investment 8% Agency MBS 1% Cash 1% MSR 1) Other LHFI includes home equity and other consumer loans.
44 4th Quarter 2020Liquidity and funding 85% 86% 85% 75% 70% 4Q19 1Q20 2Q20 3Q20 4Q20 1. Adjusted HFI loan-to-deposit ratio is total average loans HFI (excluding warehouse loans) expressed as a percentage of total average deposits (excluding custodial deposits). Please see non-GAAP reconciliations on page 48 - 49. 2. Cash, investment securities and FHLB borrowing capacity expressed as a percentage of total assets. Adjusted 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 custodial 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) • Over $1.4 billion of additional borrowing capacity through the discount window Liquidity ratio(2) 9% 8% 10% 8% 20% 16% 9/30/2020 12/31/2020 Cash & investment securities FHLB borrowing capacity CAPITAL AND LIQUIDITY
45 4th Quarter 2020 • Flagstar’s net interest income remains asset sensitive due to pay fixed interest rate swaps Interest rate risk CAPITAL AND LIQUIDITY Earnings at Risk Economic Value of Equity
46 4th Quarter 2020 12 /3 1/ 20 18 3/ 31 /2 01 9 6/ 30 /2 01 9 9/ 30 /2 01 9 12 /3 1/ 20 19 3/ 31 /2 02 0 6/ 30 /2 02 0 9/ 30 /2 02 0 12 /3 1/ 20 20 FBC valuation vs. SNL U.S. Bank and Thrift Index Valuation metrics Observation: FBC trades at a discount to its banking peers • All 6 analysts have a buy rating as of January 2021 (3-strong buy / 3-buy) • Consensus price target of $48.92 – currently trading at 93% of current price target Market / tangible book value Source: SNL Financial; as of 1/19/2021 71% 68% Market value gap: ~$1.0B
47 4th Quarter 2020Earnings guidance(1) 1) See cautionary statements on slide 2. Net interest income • Net interest margin should be relatively flat Noninterest income • Gain on sale revenue to be between $200 million and $220 million Noninterest expense • Noninterest expense of $295 million to $305 million for the first quarter of 2021 1st Quarter 2021 Outlook Tax rate • Effective tax rate in 2021 will be approximately 23 percent
48 4th Quarter 2020 Adjusted ROA, ROE and ROTCE As of December 31, 2019 Return on Average Assets 1.1% Adjustment to remove DOJ benefit (net of tax) -0.1% Adjusted return on average assets 1.0% Return on average tangible common equity 15.2% Adjustment to remove DOJ benefit (net of tax) -1.3% Adjusted return on tangible commmon equity 13.9% As of December 31, 2020 As of December 31, 2019 Total stockholders' equity 2,201$ 1,788$ Goodwill and intangible assets 157 170 Tangible book value 2,044$ 1,618$ Number of common shares outstanding 52,656,067 56,631,236 Tangible book value per share 38.80$ 28.57$ As of December 31, 2020 As of September 30, 2020 As of June 30, 2020 As of March 31, 2020 As of December 31, 2019 Average LHFI 15,703$ 14,839$ 13,596$ 11,823$ 12,168$ Less: Average warehouse loans 6,948 5,697 3,785 2,310 2,747 Adjusted average LHFI 8,755$ 9,142$ 9,811$ 9,513$ 9,421$ Average deposits 21,068$ 19,561$ 17,715$ 15,795$ 15,904$ Less: Average custodial deposits 8,527 7,347 6,223 4,776 4,772 Adjusted average deposits 12,541$ 12,214$ 11,492$ 11,019$ 11,132$ HFI loan-to-deposit ratio 74.5% 75.9% 76.7% 74.9% 76.5% Adjusted HFI loan-to-deposit ratio 69.8% 74.8% 85.4% 86.3% 84.6% Tangible Book Value Per Share and Tangible Common Equity to Assets Ratio Adjusted HFI Loan-to-Deposit Ratio Non-GAAP reconciliation NON-GAAP RECONCILIATION $mm
49 4th Quarter 2020Non-GAAP reconciliation (continued) NON-GAAP RECONCILIATION $mm 3 Months ended December 31, 2020 3 Months ended September 30, 2020 Net interest margin 2.78% 2.78% Adjustment to LGG loans available for repurchase 0.20% 0.16% Adjusted net interest margin 2.98% 2.94% 3 Months ended December 31, 2019 3 Months ended December 31, 2018 12 Months ended December 31, 2019 Total revenues 1,172$ Adjustment to remove DOJ benefit (25) Adjusted total revenues 1,147$ Net interest income 152$ Adjustment to remove hedging gains (29) Adjusted net interest income 123$ Noninterest expense 245$ Adjustment to remove Wells Fargo acquisition costs - Discrerionary items (5) Adjusted noninterest expense 240$ 12 months ended December 31, 2019 Diluted earnings per share 3.80$ Adjustment to remove DOJ benefit (net of tax) (0.34) Adjusted diluted earnings per share 3.46$ Adjusted Total Revenues, Net Interest Income, and Noninterest Expense Adjusted Net Interest Margin Adjusted Diluted Earnings Per Share
