UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2015
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Michigan
 
1-16577
 
38-3150651
(State or other jurisdiction of
incorporation)
 
(Commission File
Number)
 
(I.R.S. Employer
Identification No.)
 
 
5151 Corporate Drive, Troy, Michigan 48098
(Address of principal executive offices) (Zip Code)
(248) 312-2000
(Registrant's telephone number, including area code)
 
 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 





Item 2.02
Results of Operations and Financial Condition

On July 28, 2015, Flagstar Bancorp, Inc. (the "Company") issued a press release regarding its preliminary results of operations and financial condition for the three months ended June 30, 2015. The text of the press release is furnished as Exhibit 99.1 to this report. The Company will include final financial statements and additional analysis for the three and six months ended June 30, 2015 as part of its Quarterly Report on Form 10-Q.

On July 28, 2015, the Company will hold a conference call to review second quarter 2015 earnings. A copy of the slide presentation to be used by the Company on the conference call is furnished as Exhibit 99.2 to this Current Report on Form 8-K.


Item 9.01
Financial Statements and Exhibits
 
 Exhibits
 
 
99.1
  
Press release of Flagstar Bancorp, Inc. dated July 28, 2015
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides -
Earnings Presentation Second Quarter 2015







SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
FLAGSTAR BANCORP, INC.
 
 
 
 
Dated: July 28, 2015
 
 
 
By:
 
/s/    James K. Ciroli 
 
 
 
 
 
 
James K. Ciroli
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer






Exhibit Index
 
Exhibit No.
  
Description
 
 
99.1
  
Press release of Flagstar Bancorp, Inc. dated July 28, 2015
 
 
99.2
  
Flagstar Bancorp, Inc. Conference Call Presentation Slides -
Earnings Presentation Second Quarter 2015







                    

EXHIBIT 99.1

NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Second Quarter 2015 Net Income of $46.4 million, or $0.68 per Diluted Share


Earnings increase 47 percent, led by positive operating leverage and lower credit costs
Net interest income up 12 percent with earning assets up 10 percent
Interest-only loan sale significantly de-risked balance sheet


Key Q2 Highlights  

•
Net income increased $14.9 million, or $0.25 per diluted share, from first quarter 2015
•
Positive operating leverage, led by 9 percent rise in revenue and 1 percent increase in expenses versus prior quarter
•
Interest-earning assets increased 10 percent from first quarter 2015, driven by loan growth; warehouse lending rose 56 percent
•
Interest-only loans decreased $386 million and NPLs declined 22 percent versus prior quarter, contributing to $10.3 million after-tax net allowance release
•
Tier 1 leverage ratio remained strong at 11.5 percent

TROY, Mich. July 28, 2015 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2015 net income of $46.4 million, or $0.68 per diluted share, as compared to $31.5 million in the first quarter 2015, or $0.43 per diluted share and $25.5 million in the second quarter 2014, or $0.33 per diluted share.

"We’re pleased with the strong results we demonstrated in the quarter, thanks largely to growth in banking revenue, solid mortgage revenue, and continued expense discipline," said Alessandro P. DiNello, president and chief executive officer of Flagstar Bancorp. "We posted positive operating leverage as net interest income grew 12 percent and noninterest income rose 7 percent. We also continued to de-risk the balance sheet and improve our efficiency ratio.
 
"Our sale of a large portion of interest-only loans during the quarter was a major accomplishment. We sold $386 million of interest-only loans, nearly half the portfolio, along with $70 million of lower performing loans.

1

Our execution in connection with these transactions was strong and drove a $10 million after-tax net allowance release and a sizeable drop in nonperforming loans.
 
"Looking forward, we will continue to build out our community bank where average loans held-for-investment grew 15 percent in the second quarter. I’m encouraged by the progress we have made diversifying our Company and confident that Flagstar is on the path to sustained profit growth."

Second Quarter 2015 Highlights:
Income Statement Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Consolidated Statements of Operations
 
 

 

 
 
Net interest income
$
72.5

$
64.9

$
61.3

$
64.4

$
62.5

11.7
%
16.0
%
Provision for loan losses
(13.3
)
(3.5
)
5.0

8.1

6.2

N/M
N/M
Noninterest income
127.0

118.3

98.4

85.2

102.5

7.4
%
23.9
%
Noninterest expense
138.9

137.0

139.2

179.4

121.4

1.4
%
14.4
%
Income (loss) before income taxes
73.9

49.7

15.5

(37.9
)
37.4

48.7
%
97.6
%
Provision (benefit) for income taxes
27.5

18.2

4.4

(10.3
)
11.9

51.1
%
N/M
Net income (loss)
$
46.4

$
31.5

$
11.1

$
(27.6
)
$
25.5

47.3
%
82.0
%
 
 
 
 
 
 


Earnings (Loss) Per Share (1)
$
0.68

$
0.43

$
0.07

$
(0.61
)
$
0.33

58.1
%
N/M
N/M - Not meaningful
(1)
Fully diluted earnings (loss) per share, except where securities would be anti-dilutive. Includes deferred unpaid dividends.
Key Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
Net interest margin
2.79
%
2.75
%
2.80
%
2.91
 %
2.98
%
4
(19)
Efficiency ratio (adjusted) (1)
71.7
%
75.4
%
90.6
%
86.8
 %
80.2
%
(370)
(850)
Return (loss) on average assets
1.57
%
1.16
%
0.44
%
(1.08
)%
1.04
%
41
53
Return (loss) on average equity
12.71
%
8.85
%
3.18
%
(7.88
)%
7.38
%
386
533
N/M - Not meaningful
(1)
See non-GAAP reconciliation.
Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average Balance Sheet
 
 
 
 
 


Average interest-earning assets
$
10,366

$
9,422

$
8,724

$
8,815

$
8,367

10
%
24
%
Average loans held-for-investment
4,938

4,294

4,031

4,088

3,903

15
%
27
%
Average interest-bearing deposits
6,130

5,985

5,898

5,788

5,446

2
%
13
%


2

Net Interest Income

Second quarter 2015 net interest income increased $7.6 million, or 12 percent to $72.5 million, as compared to $64.9 million for the first quarter 2015. The increase from the prior quarter was led by solid interest-earning asset growth and net interest margin expansion.

Net interest margin improved four basis points to 2.79 percent for the second quarter 2015, as compared to 2.75 percent for the first quarter 2015. The increase from the prior quarter was driven primarily by a greater proportion of higher yielding assets while maintaining a relatively stable funding cost.

Average loans held-for-investment totaled $4.9 billion for the second quarter 2015, increasing $0.6 billion, or 15 percent, compared to the first quarter 2015. Warehouse lending grew $349 million, or 56 percent, led by higher line utilization and new accounts. Residential first mortgage loans increased $221 million, or 10 percent, as the Company retained certain mortgage loan production on balance sheet.

Average interest bearing deposits were $6.1 billion in the second quarter 2015, increasing $144 million or 2 percent from the prior quarter. Retail deposits rose $159 million, or 3 percent, led by growth in savings deposits. Average noninterest bearing deposits increased $224 million, or 16 percent, driven by seasonal growth in company controlled mortgage escrow deposits.

Provision for Loan Losses

The Company experienced a provision benefit in the second quarter 2015 from the sale of lower performing loans. The benefit for loan losses totaled $13.3 million for the second quarter 2015, as compared to a benefit of $3.5 million for the first quarter 2015. In the second quarter 2015, the Company realized a $16.4 million net allowance release primarily related to loan sales.

Net charge-offs in the second quarter 2015 were $17.7 million, or 1.49 percent of applicable loans, compared to $40.5 million, or 3.97 percent of applicable loans in the prior quarter. The second quarter 2015 amount included $14.6 million of net charge-offs associated with the sale of $456.3 million unpaid principal balance of interest-only and lower performing loans during the quarter. The first quarter 2015 amount included $36.0 million of net charge-offs associated with the sale of $331.0 million of lower performing loans during the quarter. Excluding loan sales in both quarters, net charge-offs in the second quarter 2015 were $3.1 million, or 0.26 percent of applicable loans, compared to $4.5 million, or 0.45 percent of applicable loans in the prior quarter.

Noninterest Income

Second quarter 2015 noninterest income increased $8.7 million, or 7.4 percent, to $127.0 million, as compared to $118.3 million for the first quarter 2015. The second quarter 2015 results were led by an increase in the net return on the mortgage servicing asset, higher loan administration income and a larger representation and warranty benefit, partially offset by lower net gain on loan sales.

3

Adjustments to Noninterest Income
 
 
 
 
 
Three Months Ended
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
 
(Dollars in millions)
Noninterest income
$
127.0

$
118.3

$
98.4

$
85.2

$
102.5

Adjusting items
 
 
 
 
 
Loan fees and charges (1)
—

—

—

—

(10.0
)
Representation and warranty provision (2)
—

—

—

10.3

—

Adjusted noninterest income (3)
$
127.0

$
118.3

$
98.4

$
95.5

$
92.5

(1)
Reverse benefit for contract renegotiation.
(2)
Add back reserve increase related to indemnifications claims on government insured loans.
(3)
Non-GAAP number, see page 23 for reconciliation.

Second quarter 2015 net gain on loan sales decreased $9.1 million, or 10.0 percent to $82.2 million, as compared to $91.3 million for the first quarter 2015. The decrease from the prior quarter reflected lower fallout-adjusted locks and a drop in the gain on sale margin. In the second quarter 2015, fallout-adjusted locks decreased 5 percent to $6.8 billion, led by a decline in refinance activity due to higher mortgage interest rates. The net gain on loan sale margin decreased 6 basis points to 1.21 percent for the second quarter 2015, as compared to 1.27 percent for the first quarter 2015, driven by increased competition on conventional business, partially offset by a higher mix of government production.

Mortgage Metrics
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
 
(Dollars in millions)
 
 
GOS margin (change in bps) (1)
1.21
%
1.27
%
0.87
%
0.83
%
0.82
%
(6)
39
Gain on loans sales
$
82.2

$
91.3

$
53.5

$
52.2

$
54.8

(10.0
)%
50.0
%
Mortgage rate lock commitments (fallout-adjusted) (2)
$
6,804

$
7,185

$
6,156

$
6,304

$
6,693

(5.3
)%
1.7
%
Residential loans serviced (number of accounts - 000's) (3)
378

385

383

388

367

(1.8
)%
3.0
%
Capitalized value of mortgage servicing rights
1.15
%
1.03
%
1.01
%
1.08
%
1.14
%
12
1
(1)
Gain on sale margin is based on net gain on loan sales to fallout-adjusted mortgage rate lock commitments.
(2)
Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(3)
Includes serviced for own loan portfolio, serviced for others and subserviced for others loans.

Loan administration income increased to $6.8 million for the second quarter 2015, as compared to $4.3 million in the first quarter 2015. The increase was primarily due to slower prepayments in the Company’s mortgage servicing portfolio during the second quarter 2015.

Net return on the mortgage servicing asset (including the impact of economic hedges of mortgage servicing rights) increased to $9.3 million for the second quarter 2015, as compared to a loss of $2.4 million for the first quarter 2015. The net return on the mortgage servicing asset was 14 percent in the second quarter 2015, an increase from the first quarter 2015, primarily due to a net hedge gain from falling market implied volatility, increased servicing fee income, and a decrease in anticipated run-off speeds due to higher mortgage rates.

Representation and warranty provision was a $5.9 million benefit for the second quarter 2015, as compared to a $1.5 million benefit in the first quarter 2015. The change from the prior quarter was primarily due to lower net charge-offs and positive claims experience. The overall level of the representation and warranty reserve was $48.0 million and $53.0 million at June 30, 2015 and March 31, 2015 respectively.

4

Noninterest Expense

Noninterest expense increased $1.9 million, or 1 percent, to $138.9 million for the second quarter 2015, as compared to $137.0 million for the first quarter 2015. During the second quarter 2015, commissions and loan processing expense increased $3.2 million as a result of increased mortgage origination volume, offset by lower compensation and benefits, asset resolution, and legal and professional expense.
Adjustments to Noninterest expense
 
 
 
 
 
Three Months Ended
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
 
(Dollars in millions)
Noninterest expense
$
138.9

$
137.0

$
139.2

$
179.4

$
121.4

Adjusting items
 
 
 
 
 
Legal and professional expense (1)
—

—

—

(1.1
)
(2.9
)
Other noninterest expense (2)
—

—

—

(37.5
)
10.0

Adjusted noninterest expense (3)
$
138.9

$
137.0

$
139.2

$
140.8

$
128.5

(1)
Adjust for legal expenses related to CFPB litigation settlements during the respective periods.
(2)
Adjust for CFPB litigation settlement expense and an additional accrual for the DOJ litigation, respectively.
(3)
Non-GAAP number, see page 23 for reconciliation.

Compensation and benefits decreased $1.7 million, or 3 percent, to $59.1 million for the second quarter 2015, as compared to $60.8 million in the prior quarter, primarily due to lower payroll taxes, partially offset by higher variable expense related to higher mortgage origination volumes.

Second quarter 2015 asset resolution expense decreased to $4.7 million, as compared to $7.8 million for the first quarter 2015. The $3.1 million decrease reflects the Company's on-going efforts to de-risk the balance sheet and includes the benefit of an FHA indemnification release.

Loan processing expense was $14.3 million for the second quarter 2015, as compared to $11.7 million for the first quarter 2015. The $2.6 million increase in the second quarter 2015 was primarily attributable to higher mortgage origination activity.

Legal and professional expenses were $7.8 million for the second quarter 2015, as compared to $9.0 million for the first quarter 2015.

Other noninterest expenses for the second quarter 2015 totaled $15.9 million, as compared to $11.9 million for the first quarter 2015. The $4.0 million increase from the prior quarter was related to a $2.5 million rise in warrant expense and planned advertising expense.

Income Taxes

The second quarter 2015 provision for income taxes totaled $27.5 million, as compared to $18.2 million in the first quarter 2015. The effective tax rate in the second quarter 2015 was 37.2 percent, as compared to 36.6 percent in the first quarter 2015. The marginal tax rate in the second quarter 2015 was impacted by the Company's effort to utilize net operating loss carryforwards.


5

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
4.31
%
5.69
%
7.01
%
7.60
%
7.41
%
(138)
(310)
Charge-offs, net of recoveries
$
17.7

$
40.5

$
9.0

$
13.1

$
7.2

(56.3
)%
145.8
 %
Charge-offs, net of recoveries,
adjusted (1)
$
3.1

$
4.5

$
6.0

$
6.8

$
7.2

(31.1
)%
(56.9
)%
Total nonperforming loans held-for-investment
$
65

$
84

$
120

$
107

$
120

(22.6
)%
(45.8
)%
Net charge-off ratio (annualized)
1.49
%
3.97
%
0.91
%
1.36
%
0.78
%
(248)
71
Net charge-off ratio, adjusted (annualized) (1)
0.26
%
0.45
%
0.60
%
0.70
%
0.78
%
(19)
(52)
Nonperforming loans to LHFI
1.22
%
1.81
%
2.71
%
2.56
%
2.76
%
(59)
(154)
N/M - Not meaningful
(1)
Excludes charge-offs of $14.6 million, $36.0 million, $3.0 million and $6.3 million related to the sale of nonperforming loans and TDRs during the three months ended June 30, 2015, March 31, 2015, December 31, 2014, and September 30, 2014, respectively.

The allowance for loan losses was $222 million at June 30, 2015, covering 4.31 percent of loans held-for-investment. The allowance for loan losses was $253 million at March 31, 2015, covering 5.69 percent of loans held-for-investment. The decrease in the allowance for loan losses in the second quarter 2015 was largely due to charge-offs and the allowance release related to the sale of interest-only and lower performing loans.

Second quarter 2015 net charge-offs were $17.7 million, representing 1.49 percent of applicable loans. This represented a decrease of $22.8 million from first quarter 2015 net charge-offs of $40.5 million, or 3.97 percent of applicable loans. Excluding loan sales in both quarters, net charge-offs in the second quarter 2015 were $3.1 million, or 0.26 percent, compared to $4.5 million, or 0.45 percent in the prior quarter.

Nonperforming loans decreased to $65 million at June 30, 2015 from $84 million at March 31, 2015. The improved asset quality was primarily driven by the sale of $22.5 million unpaid principal balance of nonperforming loans in the second quarter 2015. The ratio of nonperforming loans to loans held-for-investment decreased to 1.22 percent at June 30, 2015 from 1.81 percent at March 31, 2015. At June 30, 2015, consumer loan delinquencies (30-89 days past due) totaled $15 million, or 50 basis points, an improvement of 71 basis points from March 31, 2015. The improvement in the delinquency ratio was led by better asset quality, the sale of lower performing loans and recent growth in the residential mortgage loan portfolio. There were no commercial loan delinquencies at June 30, 2015.

Capital
Capital Ratios (Bancorp) (1)
Three Months Ended
Change (% / bps)
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Seq
Yr/Yr
Total capital
21.30
%
22.61
%
24.12
%
24.35
%
25.19
%
(131
)
(389
)
Tier 1 capital
19.97
%
21.26
%
22.81
%
23.03
%
23.87
%
(129
)
(390
)
Tier 1 leverage
11.47
%
12.02
%
12.59
%
12.50
%
12.59
%
(55
)
(112
)
Mortgage servicing rights to Tier 1 capital
24.2
%
22.2
%
21.8
%
24.9
%
24.2
%
200

—

Book value per common share (change in percent)
$
20.98

$
20.43

$
19.64

$
19.28

$
19.90

2.7
%
5.4
%
(1)
On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014 and prior.

The Company's regulatory capital ratios remain well above current regulatory quantitative guidelines for "well-capitalized" institutions. At June 30, 2015, the Company had a Tier 1 leverage ratio of 11.47 percent, as compared

6

to 12.02 percent at March 31, 2015. The decrease in the ratio resulted from the deployment of capital for balance sheet growth. At June 30, 2015, the Company had a common equity-to-assets ratio of 9.76 percent.

Earnings Conference Call

As previously announced, the Company's second quarter 2015 earnings call will be held Tuesday, July 28, 2015 at 11 a.m. (ET).

To join the call, please dial (888) 208-1814 toll free or (719) 457-2618, and use passcode 9686622. Please call at least 10 minutes before the conference is scheduled to begin. A replay will be available for five business days by calling (888) 203-1112 toll free or (719) 457-0820, using passcode 9686622.

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

About Flagstar

Flagstar Bancorp, Inc. (NYSE: FBC) is a $12.1 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, the largest bank headquartered in Michigan, provides commercial, small business, and consumer banking services through 100 branches in the state. It also provides home loans through a wholesale network of brokers and correspondents in all 50 states, as well as through 13 retail centers in nine states. Flagstar is the 10th largest national originator of mortgage loans and a top 20 mortgage servicer, handling payments and record keeping for over $76 billion of home loans for 377,673 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release includes non-GAAP financial measures such as adjusted earnings, the ratio of total nonperforming assets to Tier 1 capital (to adjusted total assets) and estimated Basel III ratios. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, there are practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that the Company's performance is properly reflected to facilitate consistent period-to-period comparisons. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this earnings release, conference call slides, or the Form 8-K related to this press release. Additional discussion of the use of non-GAAP measures can also be found 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.


7

Forward Looking Statements

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




8

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
June 30, 2014
 
(Unaudited)
 
(Unaudited)
 
 
 
(Unaudited)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Cash
$
53

 
$
43

 
$
47

 
$
68

Interest-earning deposits
193

 
199

 
89

 
135

Total cash and cash equivalents
246

 
241

 
136

 
203

    Investment securities
2,272

 
2,295

 
1,672

 
1,606

Loans held-for-sale
2,038

 
2,097

 
1,244

 
1,343

Loans with government guarantees
592

 
704

 
1,128

 
1,218

Loans held-for-investment, net
 
 
 
 
 
 
 
Loans held-for-investment
5,335

 
4,631

 
4,448

 
4,359

Less: allowance for loan losses
(222
)
 
(253
)
 
(297
)
 
(306
)
Total loans held-for-investment, net
5,113

 
4,378

 
4,151

 
4,053

    Mortgage servicing rights
317

 
279

 
258

 
289

    Federal Home Loan Bank stock
113

 
156

 
155

 
210

    Premises and equipment, net
240

 
241

 
238

 
235

    Net deferred tax asset
400

 
416

 
442

 
435

    Other assets
809

 
764

 
416

 
342

Total assets
$
12,139

 
$
11,571

 
$
9,840

 
$
9,933

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
Noninterest bearing
$
1,417

 
$
1,468

 
$
1,209

 
$
1,081

Interest bearing
6,231

 
6,081

 
5,859

 
5,563

Total deposits
7,648

 
7,549

 
7,069

 
6,644

    Federal Home Loan Bank advances
2,198

 
1,625

 
514

 
1,032

    Long-term debt
283

 
317

 
331

 
345

    Representation and warranty reserve
48

 
53

 
53

 
50

Other liabilities
511

 
607

 
500

 
477

            Total liabilities
10,689

 
10,152

 
8,467

 
8,547

    Stockholders' Equity
 
 
 
 
 
 
 
Preferred stock
267

 
267

 
267

 
267

Common stock
1

 
1

 
1

 
1

    Additional paid in capital
1,483

 
1,483

 
1,482

 
1,480

    Accumulated other comprehensive income
8

 
23

 
8

 
7

    Accumulated deficit
(307
)
 
(354
)
 
(385
)
 
(369
)
Total stockholders' equity
1,451

 
1,420

 
1,373

 
1,386

Total liabilities and stockholders' equity
$
12,139

 
$
11,571

 
$
9,840

 
$
9,933


Does not foot in all cases, due to rounding.


9

Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Second Quarter 2015 Compared to:
 
Three Months Ended
 
First Quarter
2015
Second Quarter 2014
 
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
 
Amount
Percent
Amount
Percent
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
89.0

$
79.3

$
72.2

$
75.1

$
71.9

 
$
9.7

12.2
 %
$
17.1

23.8
 %
Total interest expense
16.5

14.4

10.9

10.7

9.4

 
2.1

14.6
 %
7.1

75.5
 %
Net interest income
72.5

64.9

61.3

64.4

62.5

 
7.6

11.7
 %
10.0

16.0
 %
(Benefit) provision for loan losses
(13.3
)
(3.5
)
5.0

8.1

6.2

 
(9.8
)
N/M
(19.5
)
N/M
Net interest income after provision for loan losses
85.8

68.4

56.3

56.3

56.3

 
17.4

25.4
 %
29.5

52.4
 %
Noninterest Income
 
 
 
 
 
 








Net gain on loan sales
82.2

91.3

53.5

52.2

54.8

 
(9.1
)
(10.0
)%
27.4

50.0
 %
Loan fees and charges
18.5

17.0

16.7

18.7

25.3

 
1.5

8.8
 %
(6.8
)
(26.9
)%
Deposit fees and charges
6.2

6.1

5.9

5.7

5.3

 
0.1

1.6
 %
0.9

17.0
 %
Loan administration income
6.8

4.3

5.5

5.6

6.2

 
2.5

58.1
 %
0.6

9.7
 %
Net return on the mortgage servicing asset
9.3

(2.4
)
1.6

1.4

5.0

 
11.7

N/M
4.3

86.0
 %
Net (loss) gain on sale of assets
(1.6
)
(0.4
)
1.8

4.8

3.5

 
(1.2
)
N/M
(5.1
)
N/M
Representation and warranty benefit (provision)
5.9

1.5

6.1

(12.5
)
(5.2
)
 
4.4

N/M
11.1

N/M
Other noninterest (loss) income
(0.3
)
0.9

7.3

9.3

7.6

 
(1.2
)
N/M
(7.9
)
N/M
Total noninterest income
127.0

118.3

98.4

85.2

102.5

 
8.7

7.4
 %
24.5

23.9
 %
Noninterest Expense
 
 
 
 
 
 








Compensation and benefits
59.1

60.8

59.0

53.5

55.3

 
(1.7
)
(2.8
)%
3.8

6.9
 %
Commissions
11.0

10.4

9.3

10.3

8.5

 
0.6

5.8
 %
2.5

29.4
 %
Occupancy and equipment
19.8

19.9

20.1

20.5

19.4

 
(0.1
)
(0.5
)%
0.4

2.1
 %
Asset resolution
4.7

7.8

13.4

13.7

17.9

 
(3.1
)
(39.7
)%
(13.2
)
(73.7
)%
Federal insurance premiums
6.3

5.5

5.3

5.6

6.8

 
0.8

14.5
 %
(0.5
)
(7.4
)%
Loan processing expense
14.3

11.7

10.6

10.5

8.2

 
2.6

22.2
 %
6.1

74.4
 %
Legal and professional expense
7.8

9.0

10.8

15.0

13.5

 
(1.2
)
(13.3
)%
(5.7
)
N/M
Other noninterest expense
15.9

11.9

10.7

50.3

(8.2
)
 
4.0

33.6
 %
24.1

N/M
Total noninterest expense
138.9

137.0

139.2

179.4

121.4

 
1.9

1.4
 %
17.5

14.4
 %
Income (loss) before income taxes
73.9

49.7

15.5

(37.9
)
37.4

 
24.2

48.7
 %
36.5

97.6
 %
Provision (benefit) for income taxes
27.5

18.2

4.4

(10.3
)
11.9

 
9.3

51.1
 %
15.6

N/M
Net income (loss) applicable to common stockholders
$
46.4

$
31.5

$
11.1

$
(27.6
)
$
25.5

 
$
14.9

47.3
 %
$
20.9

82.0
 %
Income (loss) per share
 
 
 
 
 
 








Basic
$
0.69

$
0.43

$
0.07

$
(0.61
)
$
0.33

 
$
0.26

60.5
 %
$
0.36

N/M
Diluted
$
0.68

$
0.43

$
0.07

$
(0.61
)
$
0.33

 
$
0.25

58.1
 %
$
0.35

N/M
N/M - Not meaningful





10

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
 
June 30,
2015
 
June 30,
2014
Mortgage loans originated (1)
$
8,448.0

 
$
7,254.2

 
$
5,950.7

 
$
15,702.1

 
$
10,817.3

Mortgage loans sold and securitized
$
7,571.4

 
$
6,253.7

 
$
6,029.8

 
$
13,825.2

 
$
10,504.1

Interest rate spread (2)
2.63
%
 
2.60
%
 
2.87
%
 
2.61
%
 
2.87
 %
Net interest margin
2.79
%
 
2.75
%
 
2.98
%
 
2.77
%
 
2.97
 %
Average common shares outstanding
56,436,026

 
56,385,454

 
56,230,458

 
56,410,880

 
56,212,422

Average fully diluted shares outstanding
57,165,072

 
56,775,039

 
56,822,102

 
56,971,133

 
56,212,422

Average interest-earning assets
$
10,366.2

 
$
9,421.6

 
$
8,366.7

 
$
9,896.5

 
$
8,099.7

Average interest paying liabilities
$
8,264.5

 
$
7,504.6

 
$
6,795.1

 
$
7,887.1

 
$
6,580.5

Average stockholders' equity
$
1,461.6

 
$
1,423.4

 
$
1,381.9

 
$
1,442.6

 
$
1,413.2

Return (loss) on average assets
1.57
%
 
1.16
%
 
1.04
%
 
1.38
%
 
(1.12
)%
Return (loss) on average equity
12.71
%
 
8.85
%
 
7.38
%
 
10.81
%
 
(7.56
)%
Efficiency ratio
69.6
%
 
74.8
%
 
73.6
%
 
72.1
%
 
87.4
 %
Equity-to-assets ratio (average for the period)
12.37
%
 
13.11
%
 
14.12
%
 
12.73
%
 
14.80
 %
Charge-offs to average LHFI (3)
1.49
%
 
3.97
%
 
0.78
%
 
2.63
%
 
1.07
 %
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
June 30, 2014
Book value per common share
$
20.98

 
$
20.43

 
$
19.64

 
$
19.90

Number of common shares outstanding
56,436,026

 
56,436,026

 
56,332,307

 
56,238,925

Mortgage loans subserviced for others
$
43,291.9

 
$
44,708.1

 
$
46,723.7

 
$
43,103.4

Mortgage loans serviced for others
$
27,679.3

 
$
27,046.4

 
$
25,426.8

 
$
25,342.3

Weighted average service fee (basis points)
27.4

 
27.7

 
27.2

 
29.2

Capitalized value of mortgage servicing rights
1.15
%
 
1.03
%
 
1.01
%
 
1.14
%
Mortgage servicing rights to Tier 1 capital
24.2
%
 
22.2
%
 
21.8
%
 
24.2
%
Ratio of allowance for loan losses to LHFI (3)
4.31
%
 
5.69
%
 
7.01
%
 
7.41
%
Ratio of nonperforming assets to total assets
0.69
%
 
0.87
%
 
1.41
%
 
1.52
%
Equity-to-assets ratio
11.95
%
 
12.27
%
 
13.95
%
 
13.95
%
Common equity-to-assets ratio
9.76
%
 
9.96
%
 
11.24
%
 
11.27
%
Number of bank branches
100

 
107

 
107

 
106

Number of FTE employees
2,713

 
2,680

 
2,739

 
2,741

(1)
Includes residential first mortgage and second mortgage loans.
(2)
Interest rate spread is the difference between the annualized yield earned on average interest-earning assets for the period and the annualized rate of interest paid on average interest-bearing liabilities for the period.
(3)
Excludes loans carried under the fair value option.


11

Flagstar Bancorp, Inc.
Earnings Per Share
(Dollars in millions, except share data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Net income (loss)
$
46.4

 
$
31.5

 
$
25.5

 
$
77.9

 
$
(52.9
)
Less: preferred stock accretion
—

 
—

 
—

 
—

 
(0.5
)
Net income (loss) from continuing operations
46.4

 
31.5

 
25.5

 
77.9

 
(53.4
)
Deferred cumulative preferred stock dividends
(7.4
)
 
(7.3
)
 
(6.8
)
 
(14.7
)
 
(12.5
)
Net income (loss) applicable to Common Stockholders
$
39.0

 
$
24.2

 
$
18.7

 
$
63.2

 
$
(65.9
)
Weighted Average Shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
56,436,026

 
56,385,454

 
56,230,458

 
56,410,880

 
56,212,422

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
299,391

 
232,474

 
314,693

 
266,118

 
—

Stock-based awards
429,655

 
157,111

 
276,951

 
294,135

 
—

Weighted average diluted common shares
57,165,072

 
56,775,039

 
56,822,102

 
56,971,133

 
56,212,422

Earnings (loss) per common share
 
 
 
 
 
 
 
 
 
Net income (loss) applicable to Common Stockholders
$
0.69

 
$
0.43

 
$
0.33

 
$
1.12

 
$
(1.17
)
Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
—

 
—

 
—

 
—

 
—

Stock-based awards
(0.01
)
 
—

 
—

 
(0.01
)
 
—

Diluted earnings (loss) per share
$
0.68

 
$
0.43

 
$
0.33

 
$
1.11

 
$
(1.17
)


12

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
Interest-Earning Assets
 
Loans held-for-sale
$
2,217.7

$
21.0

3.80
%
 
$
1,841.6

$
18.5

4.01
%
 
$
1,516.8

$
15.8

4.16
%
Loans with government guarantees
630.3

4.7

2.97
%
 
864.7

5.3

2.45
%
 
1,237.5

8.0

2.58
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Consumer loans (1)
2,913.1

27.2

3.74
%
 
2,615.2

25.1

3.85
%
 
2,672.5

26.4

3.96
%
Commercial loans (1)
2,024.5

20.6

4.03
%
 
1,678.4

16.6

3.95
%
 
1,230.4

11.7

3.77
%
Total loans held-for-investment
4,937.6

47.8

3.86
%
 
4,293.6

41.7

3.89
%
 
3,902.9

38.1

3.90
%
Investment securities
2,349.7

15.0

2.55
%
 
2,112.8

13.6

2.58
%
 
1,541.2

9.9

2.57
%
Interest-earning deposits
230.9

0.5

0.55
%
 
308.9

0.2

0.44
%
 
168.3

0.1

0.28
%
Total interest-earning assets
10,366.2

$
89.0

3.42
%
 
9,421.6

$
79.3

3.37
%
 
8,366.7

$
71.9

3.43
%
Other assets
1,445.1

 
 
 
1,434.2

 
 
 
1,417.1

 
 
Total assets
$
11,811.3

 
 
 
$
10,855.8

 
 
 
$
9,783.8

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
431.3

$
0.1

0.14
%
 
$
423.6

$
0.1

0.14
%
 
$
426.5

$
0.1

0.14
%
Savings deposits
3,752.1

7.8

0.83
%
 
3,561.3

6.8

0.77
%
 
3,010.1

4.4

0.59
%
Money market deposits
241.7

0.2

0.26
%
 
256.8

0.2

0.25
%
 
265.2

0.1

0.19
%
Certificate of deposits
762.7

1.4

0.71
%
 
787.4

1.3

0.67
%
 
945.6

1.7

0.74
%
Total retail deposits
5,187.8

9.5

0.73
%
 
5,029.1

8.4

0.67
%
 
4,647.4

6.3

0.55
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
209.7

0.2

0.40
%
 
225.3

0.2

0.39
%
 
155.3

0.1

0.39
%
Savings deposits
401.0

0.5

0.52
%
 
374.1

0.5

0.52
%
 
301.2

0.4

0.53
%
Certificate of deposits
331.2

0.3

0.34
%
 
356.8

0.3

0.35
%
 
341.8

0.3

0.32
%
Total government deposits
941.9

1.0

0.43
%
 
956.2

1.0

0.43
%
 
798.3

0.8

0.41
%
Total deposits
6,129.7

10.5

0.68
%
 
5,985.3

9.4

0.63
%
 
5,445.7

7.1

0.53
%
Federal Home Loan Bank advances
1,828.3

4.2

0.90
%
 
1,161.0

3.2

1.08
%
 
1,100.4

0.6

0.22
%
Other
306.5

1.8

2.38
%
 
359.3

1.8

2.39
%
 
249.0

1.7

2.66
%
Total interest-bearing liabilities
8,264.5

16.5

0.79
%
 
7,505.6

14.4

0.78
%
 
6,795.1

9.4

0.56
%
Noninterest-bearing deposits (2)
1,606.2

 
 
 
1,382.6

 
 
 
1,027.8

 
 
Other liabilities
479.0

 
 
 
544.3

 
 
 
579.0

 
 
Stockholders' equity
1,461.6

 
 
 
1,423.3

 
 
 
1,381.9

 
 
Total liabilities and stockholder's equity
$
11,811.3

 
 
 
$
10,855.8

 
 
 
$
9,783.8

 
 
Net interest-earning assets
$
2,101.7

 
 
 
$
1,916.0

 
 
 
$
1,571.6

 
 
Net interest income
 
$
72.5

 
 
 
$
64.9

 
 
 
$
62.5

 
Interest rate spread (3)
 
 
2.63
%
 
 
 
2.60
%
 
 
 
2.87
%
Net interest margin (4)
 
 
2.79
%
 
 
 
2.75
%
 
 
 
2.98
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
125.4
%
 
 
 
125.5
%
 
 
 
123.1
%
Total average deposits
$
7,735.9

 
 
 
$
7,367.9

 
 
 
$
6,473.5

 
 
(1)
Consumer loans include: residential first mortgage, second mortgage, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial and warehouse lending loans.
(2)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.
(3)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by average interest-earning assets.





13

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
2,030.7

$
39.5

3.89
%
 
$
1,407.6

$
29.4

4.18
%
Loans with government guarantees
746.9

10.0

2.67
%
 
1,253.5

15.9

2.54
%
Loans held-for-investment
 
 
 
 
 
 
 
Consumer loans (1)
2,765.0

52.3

3.79
%
 
2,792.8

54.5

3.90
%
Commercial loans (1)
1,852.4

37.2

3.99
%
 
1,090.8

20.8

3.80
%
Total loans held-for-investment
4,617.4

89.5

3.87
%
 
3,883.6

75.3

3.87
%
Investment securities available-for-sale or trading
2,231.9

28.6

2.56
%
 
1,358.3

17.4

2.57
%
Interest-earning deposits
269.6

0.7

0.49
%
 
196.7

0.3

0.27
%
Total interest-earning assets
9,896.5

$
168.3

3.40
%
 
8,099.7

$
138.3

3.41
%
Other assets
1,439.7

 
 
 
1,447.5

 
 
Total assets
$
11,336.2

 
 
 
$
9,547.2

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
427.5

$
0.3

0.14
%
 
$
423.1

$
0.3

0.14
%
Savings deposits
3,657.2

14.5

0.80
%
 
2,942.9

7.7

0.53
%
Money market deposits
249.2

0.3

0.26
%
 
272.7

0.2

0.18
%
Certificate of deposits
775.0

2.7

0.69
%
 
966.2

3.6

0.74
%
Total retail deposits
5,108.9

17.8

0.70
%
 
4,604.9

11.8

0.52
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
217.5

0.4

0.39
%
 
138.8

0.2

0.37
%
Savings deposits
387.6

1.0

0.52
%
 
255.5

0.6

0.48
%
Certificate of deposits
343.9

0.6

0.35
%
 
339.4

0.5

0.30
%
Total government deposits
949.0

2.0

0.43
%
 
733.7

1.3

0.38
%
Total deposits
6,057.9

19.8

0.66
%
 
5,338.6

13.1

0.50
%
Federal Home Loan Bank advances
1,496.5

7.3

0.97
%
 
993.7

1.1

0.23
%
Other
332.7

3.8

2.28
%
 
248.2

3.4

2.66
%
Total interest-bearing liabilities
7,887.1

30.9

0.79
%
 
6,580.5

17.6

0.54
%
Noninterest-bearing deposits
1,495.0

 
 
 
1,003.4

 
 
Other liabilities (2)
511.5

 
 
 
550.1

 
 
Stockholders' equity
1,442.6

 
 
 
1,413.2

 
 
Total liabilities and stockholder's equity
$
11,336.2

 
 
 
$
9,547.2

 
 
Net interest-earning assets
$
2,009.4

 
 
 
$
1,519.2

 
 
Net interest income
 
$
137.4

 
 
 
$
120.7

 
Interest rate spread (3)
 
 
2.61
%
 
 
 
2.87
%
Net interest margin (4)
 
 
2.77
%
 
 
 
2.97
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
125.5
%
 
 
 
123.1
%
Total average deposits
$
7,552.9

 
 
 
$
6,342.0

 
 
 
 
 
 
 
 
 
 
(1)
Consumer loans include: residential first mortgage, second mortgage, HELOC and other consumer loans. Commercial loans include: commercial real estate, commercial and industrial and warehouse lending loans.
(2)
Includes company controlled deposits that arise due to the servicing of loans for others, which do not bear interest.
(3)
Interest rate spread is the difference between rate of interest earned on interest-earning assets and rate of interest paid on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by average interest-earning assets.


14



Gain on Loan Sales
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
(Dollars in millions)
Net gain on loan sales
$
82.2

 
$
91.3

 
$
53.5

 
$
52.2

 
$
54.8

Mortgage rate lock commitments (gross)
$
8,400.2

 
$
9,034.9

 
$
7,604.9

 
$
7,713.1

 
$
8,187.9

Loans sold and securitized
$
7,571.4

 
$
6,253.7

 
$
6,830.6

 
$
7,072.4

 
$
6,029.8

Net margin on loan sales
1.09
%
 
1.46
%
 
0.78
%
 
0.74
%
 
0.91
%
Mortgage rate lock commitments (fallout-adjusted) (1)
$
6,803.7

 
$
7,185.4

 
$
6,155.5

 
$
6,304.4

 
$
6,693.4

Net margin on mortgage rate lock commitments (fallout-adjusted) (1)
1.21
%
 
1.27
%
 
0.87
%
 
0.83
%
 
0.82
%
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
(Dollars in millions)
Net gain on loan sales
$
173.5

 
$
100.1

Mortgage rate lock commitments (gross)
$
17,435.1

 
$
14,227.8

Loans sold and securitized
$
13,825.1

 
$
10,504.1

Net margin on loan sales
1.25
%
 
0.95
%
Mortgage rate lock commitments (fallout-adjusted) (1)
$
13,989.1

 
$
11,547.0

Net margin on mortgage rate lock commitments (fallout-adjusted) (1)
1.24
%
 
0.87
%

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

15

Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,308.7

11.47
%
 
$
1,256.6

12.02
%
 
$
1,183.6

12.59
%
 
$
1,146.2

12.50
%
 
$
1,195.5

12.59
%
Total adjusted tangible asset base
$
11,406.1

 
 
$
10,453.4

 
 
$
9,403.2

 
 
$
9,172.6

 
 
$
9,495.5

 
Tier 1 common equity (to risk weighted assets) (1)
$
954.4

14.56
%
 
$
908.6

15.38
%
 
N/A
N/A
 
N/A
N/A
 
N/A
N/A
Tier 1 capital (to risk weighted assets) (1)
$
1,308.7

19.97
%
 
$
1,256.6

21.26
%
 
$
1,183.6

22.81
%
 
$
1,146.2

23.03
%
 
$
1,195.5

23.87
%
Total capital (to risk weighted assets)
1,395.6

21.30
%
 
1,336.0

22.61
%
 
1,251.9

24.12
%
 
1,212.0

24.35
%
 
1,261.8

25.19
%
Risk weighted asset base
$
6,553.4

 
 
$
5,909.4

 
 
$
5,189.8

 
 
$
4,978.0

 
 
$
5,008.9

 
(1)
On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014 and prior.
N/A - Not applicable.

Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets) (1)
$
1,336.9

11.70
%
 
$
1,277.5

12.21
%
 
$
1,167.4

12.43
%
 
$
1,134.4

12.38
%
 
$
1,188.9

12.52
%
Total adjusted tangible asset base
$
11,424.2

 
 
$
10,470.7

 
 
$
9,392.2

 
 
$
9,162.3

 
 
$
9,493.5

 
Tier 1 common equity (to risk weighted assets) (1)
$
1,336.9

20.35
%
 
$
1,277.5

21.58
%
 
N/A
N/A
 
N/A
N/A
 
N/A
N/A
Tier 1 capital (to risk weighted assets) (1)
$
1,336.9

20.35
%
 
$
1,277.5

21.58
%
 
$
1,167.4

22.54
%
 
$
1,134.4

22.84
%
 
$
1,188.9

23.75
%
Total capital (to risk weighted assets)
1,423.3

21.66
%
 
1,357.4

22.91
%
 
1,235.0

23.85
%
 
1,199.4

24.14
%
 
1,254.4

25.05
%
Risk weighted asset base
$
6,569.8

 
 
$
5,925.4

 
 
$
5,178.8

 
 
$
4,968.0

 
 
$
5,006.9

 
(1)
On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014 and prior.
N/A - Not applicable.



16


Loan Originations
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
8,448.0

99.1
%
 
$
7,254.2

99.2
%
 
$
5,950.7

97.9
%
    Other consumer (2)
32.8

0.4
%
 
21.3

0.3
%
 
20.2

0.3
%
Total consumer loans
8,480.8

99.5
%
 
7,275.5

99.5
%
 
5,970.9

98.2
%
Commercial loans (3)
40.5

0.5
%
 
38.0

0.5
%
 
111.4

1.8
%
Total loan originations
$
8,521.3

100.0
%
 
$
7,313.5

100.0
%
 
$
6,082.3

100.0
%
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
    Mortgage (1)
$
15,702.1

99.2
%
 
$
10,817.3

97.3
%
    Other consumer (2)
54.1

0.3
%
 
37.8

0.3
%
Total consumer loans
15,756.2

99.5
%
 
10,855.1

97.6
%
Commercial loans (3)
78.6

0.5
%
 
266.1

2.4
%
Total loan originations
$
15,834.8

100.0
%
 
$
11,121.2

100.0
%
(1)
Includes residential first mortgage and second mortgage loans.
(2)
Other consumer loans include: HELOC and other consumer loans.
(3)
Commercial loans include: commercial real estate and commercial and industrial loans.


Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
June 30, 2014
Consumer loans
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,495.3

46.7
%
 
$
2,012.8

43.4
%
 
$
2,193.3

49.2
%
 
$
2,353.0

53.9
%
Second mortgage
142.5

2.7
%
 
146.0

3.2
%
 
149.0

3.4
%
 
157.8

3.6
%
HELOC
422.2

7.9
%
 
315.9

6.8
%
 
256.3

5.8
%
 
268.5

6.2
%
Other
30.8

0.6
%
 
30.3

0.7
%
 
31.1

0.7
%
 
33.4

0.8
%
    Total consumer loans
3,090.8

57.9
%
 
2,505.0

54.1
%
 
2,629.7

59.1
%
 
2,812.7

64.5
%
Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
628.5

11.8
%
 
635.1

13.7
%
 
620.0

13.9
%
 
523.0

12.0
%
Commercial and industrial
412.4

7.7
%
 
407.7

8.8
%
 
429.2

9.7
%
 
340.3

7.8
%
Warehouse lending
1,203.5

22.6
%
 
1,083.3

23.4
%
 
768.6

17.3
%
 
683.3

15.7
%
    Total commercial loans
2,244.4

42.1
%
 
2,126.1

45.9
%
 
1,817.8

40.9
%
 
1,546.6

35.5
%
Total loans held-for-investment
$
5,335.2

100.0
%
 
$
4,631.1

100.0
%
 
$
4,447.5

100.0
%
 
$
4,359.3

100.0
%


17

Residential Loans Serviced
(Dollars in millions)
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
June 30, 2014
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
Serviced for own loan portfolio (1)
$
5,210.7

28,106

 
$
4,932.6

27,235

 
$
4,521.1

26,268

 
$
4,068.7

26,614

Serviced for others
27,679.3

124,299

 
27,046.4

126,393

 
25,426.8

117,881

 
25,342.3

127,409

Subserviced for others (2)
43,291.9

225,268

 
44,708.1

231,223

 
46,723.7

238,498

 
43,103.4

212,927

Total residential loans serviced
$
76,181.9

377,673

 
$
76,687.1

384,851

 
$
76,671.6

382,647

 
$
72,514.4

366,950

(1)
Includes loans held-for-investment (residential first mortgage, second mortgage and HELOC), loans-held-for-sale (residential first mortgage), loans with government guarantees (residential first mortgage) and repossessed assets.
(2)
Does not include temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.


18

Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Beginning balance
$
253.0

 
$
297.0

 
$
307.0

 
$
297.0

 
$
207.0

Provision (release) for loan losses
(13.3
)
 
(3.5
)
 
6.2

 
(16.8
)
 
118.5

Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(18.5
)
 
(40.8
)
 
(5.6
)
 
(59.3
)
 
(16.5
)
     Second mortgage
(0.7
)
 
(0.8
)
 
(1.1
)
 
(1.6
)
 
(2.2
)
     HELOC
(0.3
)
 
(0.9
)
 
(1.1
)
 
(1.2
)
 
(3.7
)
     Other
(0.7
)
 
(0.7
)
 
(0.5
)
 
(1.4
)
 
(1.0
)
 Total consumer loans
(20.2
)
 
(43.2
)
 
(8.3
)
 
(63.5
)
 
(23.4
)
Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
—

 
—

 
(1.8
)
 
—

 
(1.8
)
     Commercial and industrial
(0.2
)
 
—

 
—

 
(0.2
)
 
—

 Total commercial loans
(0.2
)
 
—

 
(1.8
)
 
(0.2
)
 
(1.8
)
Total charge-offs
(20.4
)
 
(43.2
)
 
(10.1
)
 
(63.7
)
 
(25.2
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
1.2

 
0.3

 
0.5

 
1.6

 
1.6

     Second mortgage
0.5

 
0.1

 
—

 
0.6

 
0.2

     HELOC
0.1

 
0.1

 
0.1

 
0.2

 
0.1

     Other
0.6

 
0.5

 
0.4

 
1.1

 
0.7

Total consumer loans
2.4

 
1.0

 
1.0

 
3.5

 
2.6

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
0.3

 
1.7

 
1.9

 
2.0

 
3.0

     Commercial and industrial
—

 
—

 
—

 
—

 
0.1

Total commercial loans
0.3

 
1.7

 
1.9

 
2.0

 
3.1

Total recoveries
2.7

 
2.7

 
2.9

 
5.5

 
5.7

Charge-offs, net of recoveries
(17.7
)
 
(40.5
)
 
(7.2
)
 
(58.2
)
 
(19.5
)
Ending balance
$
222.0

 
$
253.0

 
$
306.0

 
$
222.0

 
$
306.0

Net charge-off ratio (annualized) (1)
1.49
 %
 
3.97
 %
 
0.78
 %
 
2.63
 %
 
1.07
 %
Net charge-off ratio, adjusted (annualized) (1)(2)
0.26
 %
 
0.45
 %
 
0.78
 %
 
0.34
 %
 
0.94
 %
Net charge-off ratio (annualized) also by loan type (1)
 
 
 
 
 
 
 
 
 
Residential first mortgage
2.9
 %
 
7.5
 %
 
0.9
 %
 
5.1
 %
 
1.2
 %
Second mortgage
1.0
 %
 
2.9
 %
 
4.1
 %
 
2.0
 %
 
4.0
 %
HELOC and consumer
0.4
 %
 
2.8
 %
 
2.9
 %
 
1.3
 %
 
4.9
 %
Commercial real estate
(0.2
)%
 
(1.1
)%
 
(0.1
)%
 
(0.6
)%
 
(0.5
)%
Commercial and industrial
0.2
 %
 
—
 %
 
(0.1
)%
 
0.1
 %
 
(0.1
)%
(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $14.6 million and $36.0 million related to the sale of nonperforming loans and TDRs during the three months ended June 30, 2015 and March 31, 2015, respectively, and $50.6 million and $2.3 million during the six months ended June 30, 2015 and 2014, respectively.



19

Representation and Warranty Reserve
(Dollars in millions)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 Balance, beginning of period
$
53.0

 
$
53.0

 
$
48.0

 
$
53.0

 
$
54.0

 Provision (release)
 
 
 
 
 
 
 
 
 
 
Charged to gain on sale for current loan sales
2.2

 
1.9

 
1.7

 
4.1

 
2.9

 
Charged to representation and warranty provision
(5.9
)
 
(1.5
)
 
5.2

 
(7.4
)
 
3.6

 
Total
(3.7
)
 
0.4

 
6.9

 
(3.3
)
 
6.5

 Charge-offs, net
(1.3
)
 
(0.4
)
 
(4.9
)
 
(1.7
)
 
(10.5
)
 Balance, end of period
$
48.0

 
$
53.0


$
50.0

 
$
48.0

 
$
50.0



Composition of Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
June 30, 2015
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
136.8

 
$
13.8

 
$
150.6

   Second mortgage
6.2

 
8.1

 
14.3

   HELOC
22.7

 
1.5

 
24.2

   Other
0.6

 
0.2

 
0.8

Total consumer loans
166.3

 
23.6

 
189.9

Commercial loans
 
 
 
 
 
   Commercial real estate
15.5

 
—

 
15.5

   Commercial and industrial
12.3

 
—

 
12.3

   Warehouse lending 
4.3

 
—

 
4.3

Total commercial loans
32.1

 
—

 
32.1

Total allowance for loan losses
$
198.4

 
$
23.6

 
$
222.0

March 31, 2015
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
171.5

 
$
15.9

 
$
187.4

   Second mortgage
6.5

 
5.5

 
12.0

   HELOC
20.3

 
0.9

 
21.2

   Other
0.3

 
0.1

 
0.4

Total consumer loans
198.6

 
22.4

 
221.0

Commercial loans
 
 
 
 
 
   Commercial real estate
16.2

 
—

 
16.2

   Commercial and industrial
12.0

 
—

 
12.0

   Warehouse lending 
3.8

 
—

 
3.8

Total commercial loans
32.0

 
—

 
32.0

Total allowance for loan losses
$
230.6

 
$
22.4

 
$
253.0



20

Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
June 30, 2014
Nonperforming loans
$
41.3

 
$
55.9

 
$
74.8

 
$
86.4

Nonperforming TDRs
11.0

 
17.8

 
28.7

 
17.6

Nonperforming TDRs at inception but performing for less than six months
12.8

 
10.0

 
17.0

 
16.2

Total nonperforming loans held-for-investment
65.1

 
83.7

 
120.5

 
120.2

Real estate and other nonperforming assets, net
17.8

 
16.5

 
18.7

 
31.5

Nonperforming assets held-for-investment, net (1)
$
82.9

 
$
100.2

 
$
139.2

 
$
151.7

 
 
 
 
 
 
 
 
Ratio of nonperforming assets to total assets
0.69
%
 
0.87
%
 
1.41
%
 
1.53
%
Ratio of nonperforming loans held-for-investment to loans held-for-investment
1.22
%
 
1.81
%
 
2.71
%
 
2.76
%
Ratio of nonperforming assets to loans held-for-investment and repossessed assets
1.55
%
 
2.15
%
 
3.12
%
 
3.46
%
(1)
Does not include nonperforming loans held-for-sale of $14.1 million, $19.0 million, $14.8 million and $6.0 million at June 30, 2015, March 31, 2015, December 31, 2014 and June 30, 2014, respectively.


Asset Quality - Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
30-59 Days Past Due
60-89 Days Past Due
Greater than 90 days
Total Past Due
Total Investment Loans
June 30, 2015
 
 
 
 
 
Consumer loans
$
9.7

$
5.6

$
65.1

$
80.4

$
3,090.8

Commercial loans
—

—

—

—

2,244.4

     Total loans
$
9.7

$
5.6

$
65.1

$
80.4

$
5,335.2

March 31, 2015
 
 
 
 
 
Consumer loans
$
21.8

$
8.6

$
83.7

$
114.1

$
2,505.0

Commercial loans
—

—

—

—

2,126.1

     Total loans
$
21.8

$
8.6

$
83.7

$
114.1

$
4,631.1

December 31, 2014
 
 
 
 
 
Consumer loans
$
34.1

$
9.9

$
120.4

$
164.4

$
2,629.7

Commercial loans
—

—

—

—

1,817.8

     Total loans
$
34.1

$
9.9

$
120.4

$
164.4

$
4,447.5

June 30, 2014
 
 
 
 
 
Consumer loans
42.3

8.9

120.2

$
171.4

$
2,812.7

Commercial loans
0.5

—

—

0.5

1,546.6

     Total loans
$
42.8

$
8.9

$
120.2

$
171.9

$
4,359.3



21

Troubled Debt Restructurings
(Dollars in millions)
(Unaudited)
 
TDRs
 
Performing
 
Nonperforming
 
Nonperforming TDRs at inception but performing for less than six months
 
Total
June 30, 2015
 
Consumer loans
$
108.0

 
$
11.0

 
$
12.8

 
$
131.8

Commercial loans
—

 
—

 
—

 
—

     Total TDR loans
$
108.0

 
$
11.0

 
$
12.8

 
$
131.8

March 31, 2015
 
 
 
 
 
 
 
Consumer loans
$
110.7

 
$
17.8

 
$
10.0

 
$
138.5

Commercial loans
0.4

 
—

 
—

 
0.4

     Total TDR loans
$
111.1

 
$
17.8

 
$
10.0

 
$
138.9

December 31, 2014
 
 
 
 
 
 
 
Consumer loans
$
361.5

 
$
28.7

 
$
16.9

 
$
407.1

Commercial loans
0.4

 
—

 
—

 
0.4

     Total TDR loans
$
361.9

 
$
28.7

 
$
16.9

 
$
407.5

June 30, 2014
 
 
 
 
 
 
 
Consumer loans
$
371.6

 
$
17.6

 
$
16.2

 
$
405.4

Commercial loans
0.4

 
—

 
—

 
0.4

     Total TDR loans
$
372.0

 
$
17.6

 
$
16.2

 
$
405.8


Adjusted Income from Operations and Adjusted Earnings Per Share. In addition to analyzing the Company’s results on a reported basis, management reviews the Company’s results and the results on an adjusted basis. These non-GAAP measures reflect the adjustment of the reported U.S. GAAP results for significant items that management does not believe are reflective of the Company’s current and ongoing operations.
    

22

The following table provides the Company's adjusted noninterest income and noninterest expense and adjusted earnings per share along with a reconciliation of these non-GAAP financial measures to GAAP.

Non-GAAP Reconciliation
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
June 30,
2015
March 31,
2015
December 31, 2014
September 30,
2014
June 30,
2014
Net interest income
$
72.5

$
64.9

$
61.3

$
64.4

$
62.5

Noninterest income
127.0

118.3

98.4

85.2

102.5

Adjusting items:
 
 
 
 
 
Loan fees and charges (1)
—

—

—

—

(10.0
)
Representation and warranty provision (release) (2)
—

—

—

10.3

—

Adjusted noninterest income
$
127.0

$
118.3

$
98.4

$
95.5

$
92.5

Noninterest expense
$
138.9

$
137.0

$
139.2

$
179.4

$
121.4

Adjusting items:
 
 
 
 
 
Legal and professional expense (3)
—

—

—

(1.1
)
(2.9
)
Other noninterest expense (4)
—

—

—

(37.5
)
10.0

Adjusted noninterest expense
$
138.9

$
137.0

$
139.2

$
140.8

$
128.5

 
 
 
 
 
 
Efficiency ratio
69.6
%
74.8
%
87.2
%
119.9
%
73.6
%
 
 
 
 
 
 
Net (loss) income applicable to common stockholders
$
46.4

$
31.5

$
11.1

$
(27.6
)
$
25.5

Adjustment to remove adjusting items (1-4 above), net of tax
—

—

—

48.9

(17.1
)
Tax impact of adjusting items
—

—

—

(13.6
)
6.0

Adjusted net (loss) income applicable to common stockholders
$
46.4

$
31.5

$
11.1

$
7.7

$
14.4

 
 
 
 
 
 
Diluted (loss) earnings per share
$
0.68

$
0.43

$
0.07

$
(0.61
)
$
0.33

Adjustment to remove adjusting items
—

—

—

0.87

(0.30
)
Tax impact of adjusting items
—

—

—

(0.24
)
0.11

Diluted adjusted (loss) earnings per share
$
0.68

$
0.43

$
0.07

$
0.02

$
0.14

 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
       Basic
56,436,026

56,385,454

56,310,858

56,249,300

56,230,458

       Diluted
57,165,072

56,775,039

56,792,751

56,249,300

56,822,102

(1)
Reverse benefit for contract renegotiation.
(2)
Add back reserve increase related to indemnifications claims on government insured loans.
(3)
Adjust for legal expenses related to the litigation settlements.
(4)
Adjust for CFPB litigation settlement expense.


23

Nonperforming assets / Tier 1 + Allowance for Loan Losses. The ratio of nonperforming assets to Tier 1 capital and allowance for loan losses divides the total level of nonperforming assets held for investment by Tier 1 capital (to adjusted total assets), as defined by bank regulations, plus allowance for loan losses. We believe these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of capital in comparison to other companies within the industry.
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
 
June 30,
2014
Nonperforming assets / Tier 1 capital + allowance for loan losses
(Dollars in millions)
(Unaudited)
Nonperforming assets
$
82.9

 
$
100.2

 
$
139.2

 
$
151.7

Tier 1 capital
1,308.7

 
1,256.6

 
1,183.6

 
1,195.5

Allowance for loan losses
(222.0
)
 
(253.0
)
 
(297.0
)
 
(306.0
)
Tier 1 capital + allowance for loan losses
$
1,530.7

 
$
1,509.6

 
$
1,480.6

 
$
1,501.5

Nonperforming assets / Tier 1 capital + allowance for loan losses
5.4
%
 
6.6
%
 
9.4
%
 
10.1
%
 
 
 
 
 
 
 
 

Basel III (transitional) to Basel III (fully phased-in) reconciliation. On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014 and prior. When fully phased-in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the final Basel III rules place greater emphasis on common equity. In October 2013, the OCC and Federal Reserve released final rules detailing the U.S. implementation of Basel III and the application of the risk-based and leverage capital rules to top-tier savings and loan holding companies. We have transitioned to the Basel III framework beginning in January 2015 and are subject to a phase-in period extending through 2018. Accordingly, the calculations provided below are estimates. These measures are considered to be non-GAAP financial measures because they are not formally defined by GAAP and the Basel III implementation regulations will not be fully phased-in until January 1, 2019. The regulations are subject to change as clarifying guidance becomes available and the calculations currently include our interpretations of the requirements including informal feedback received through the regulatory process. Other entities may calculate the Basel III ratios differently from ours based on their interpretation of the guidelines. Since analysts and banking regulators may assess our capital adequacy using the Basel III framework, we believe that it is useful to provide investors information enabling them to assess our capital adequacy on the same basis.

June 30, 2015
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)
 
(Dollars in millions)
(Unaudited)
Flagstar Bancorp (the Company)
 
 
 
 
 
 
 
Regulatory capital – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III (transitional)
$
954.4

 
$
1,308.7

 
$
1,308.7

 
$
1,395.6

Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components
(412.6
)
 
(262.2
)
 
(262.2
)
 
(261.6
)
Basel III (fully phased-in) capital (1)
$
541.8

 
$
1,046.5

 
$
1,046.5

 
$
1,134.0

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
6,553.4

 
$
11,406.1

 
$
6,553.4

 
$
6,553.4

Net change in assets
(138.6
)
 
(261.2
)
 
(138.6
)
 
(138.6
)
Basel III (fully phased-in) assets (1)
$
6,414.8

 
$
11,144.9

 
$
6,414.8

 
$
6,414.8

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
14.56
%
 
11.47
%
 
19.97
%
 
21.30
%
Basel III (fully phased-in) (1)
8.43
%
 
9.40
%
 
16.33
%
 
17.68
%
 
 
 
 
 
 
 
 
(1)
On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014.


24

June 30, 2015
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)
Flagstar Bank (the Bank)
(Dollars in millions)
(Unaudited)
Regulatory capital – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III (transitional)
$
1,336.9

 
$
1,336.9

 
$
1,336.9

 
$
1,423.3

Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components
(198.5
)
 
(198.5
)
 
(198.5
)
 
(198.5
)
Basel III (fully phased-in) capital (1)
$
1,138.4

 
$
1,138.4

 
$
1,138.4

 
$
1,224.8

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
6,569.8

 
$
11,424.2

 
$
6,569.8

 
$
6,569.8

Net change in assets
58.7

 
(197.5
)
 
58.7

 
58.7

Basel III (fully phased-in) assets (1)
$
6,628.5

 
$
11,226.7

 
$
6,628.5

 
$
6,628.5

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
20.35
%
 
11.70
%
 
20.35
%
 
21.66
%
Basel III (fully phased-in) (1)
17.17
%
 
10.14
%
 
17.17
%
 
18.47
%
 
 
 
 
 
 
 
 
(1)
On January 1, 2015, the Basel III rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014.


25


2nd Quarter 2015 Flagstar Bancorp, Inc. (NYSE: FBC) Earnings Presentation 2nd Quarter 2015 July 28, 2015

 
2nd Quarter 2015 Cautionary statement This report 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. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements The Company’s actual results or outcomes may vary materially from those expressed or implied in a forward-looking statement. Accordingly, we cannot and do not provide you with any assurance that our expectations will in fact occur or that actual results will not differ materially from those expressed or implied by such forward-looking statements. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Factors that could cause future results to differ materially from historical performance and these forward-looking statements include, but are not limited to, the following items: 1. General business and economic conditions, including unemployment rates, movements in interest rates, the slope of the yield curve, any increase in mortgage fraud and other related activity and the changes in asset values in certain geographic markets, that affect us or our counterparties; 2. Volatile interest rates, and our ability to effectively hedge against them, which could affect, among other things, (i) the overall mortgage business, (ii) our ability to originate or acquire loans and to sell assets at a profit, (iii) prepayment speeds, (iv) our cost of funds and (v) investments in mortgage servicing rights; 3. The adequacy of our allowance for loan losses and our representation and warranty reserves; 4. Changes in accounting standards generally applicable to us and our application of such standards, including in the calculation of the fair value of our assets and liabilities; 5. Our ability to borrow funds, maintain or increase deposits or raise capital on commercially reasonable terms or at all and our ability to achieve or maintain desired capital ratios; 6. Changes in material factors affecting our loan portfolio, particularly our residential mortgage loans, and the market areas where our business is geographically concentrated or further loan portfolio or geographic concentration; 7. Changes in, or expansion of, the regulation of financial services companies and government-sponsored housing enterprises, including new legislation, regulations, rulemaking and interpretive guidance, enforcement actions, the imposition of fines and other penalties by our regulators, the impact of existing laws and regulations, new, changed or reduced roles or guidelines of government-sponsored entities, changes in regulatory capital ratios, and increases in deposit insurance premiums and special assessments of the Federal Deposit Insurance Corporation; 8. Our ability to comply with the terms and conditions of the Supervisory Agreement with the Board of Governors of the Federal Reserve and the Bank’s ability to comply with the Consent Order of the Office of Comptroller of the Currency and the Consent Order of the Consumer Financial Protection Bureau and our ability to address any further matters raised by these regulators, and other regulators or government bodies; 9. Our ability to comply with the terms and conditions of the agreement with the U.S. Department of Justice and the impact of compliance with that agreement and our ability to accurately estimate the financial impact of that agreement, including the fair value and timing of the future payments; 10. The Bank’s ability to make capital distributions and our ability to pay dividends on our capital stock or interest on our trust preferred securities; 11. Our ability to attract and retain senior management and other qualified personnel to execute our business strategy, including our entry into new lines of business, our introduction of new products and services and management of risks relating thereto, and our competing in the mortgage loan originations, mortgage servicing and commercial and retail banking lines of business; 12. Our ability to satisfy our mortgage servicing and subservicing obligations and manage repurchases and indemnity demands by mortgage loan purchasers, guarantors and insurers; 13. The outcome and cost of defending current and future legal or regulatory litigation, proceedings or investigations; 14. Our ability to create and maintain an effective risk management framework and effectively manage risk, including, among other things, market, interest rate, credit and liquidity risk, including risks relating to the cyclicality and seasonality of our mortgage banking business, litigation and regulatory risk, operational risk, counterparty risk and reputational risk; 15. The control by, and influence of, our majority stockholder; 16. A failure of, interruption in or cybersecurity attack on our network or computer systems, which could impact our ability to properly collect, process and maintain personal data, ensure ongoing mortgage and banking operations, or maintain system integrity with respect to funds settlement; and 17. Our ability to meet our forecasted earnings such that we would need to establish a valuation allowance against our deferred tax asset. Factors that may cause future results to differ materially from historical performance and from forward-looking statements, including but not limited to the factors listed above, may be difficult to predict, may contain uncertainties that materially affect actual results, and may be beyond our control. Also, new factors emerge from time to time, and it is not possible for our management to predict the occurrence of all such factors or to assess the effect of each such factor, or the combined effect of several of the factors at one time, on our business. Any forward-looking statement speaks only as of the date on which it is made. Except to fulfill our obligations under the U.S. securities laws, we undertake no obligation to update any such statement to reflect events or circumstances after the date on which it is made.

 
2nd Quarter 2015 Executive Overview Sandro DiNello, CEO

 
2nd Quarter 2015 2nd quarter key highlights Solid core franchise Strong profitability • Net income of $46 million, or $0.68 per diluted share in 2Q15, up $15 million, or $0.25 per diluted share vs. 1Q15 • Positive operating leverage, led by 9% increase in revenue versus a 1% increase in expenses • Average interest earning assets increased 10%; warehouse lending increased 56% Greater noninterest income • Noninterest income increased $9 million to $127 million, up more than 7% from 1Q15 - MSR return of $9 million, representing a yield of 14%, compared to a loss of $(2) million in 1Q15 - Net gain on loan sales decreased 10% to $82 million on lower lock volumes and gain on sale margin - Representation and warranty benefit of $6 million due to lower net charge-offs and positive claims experience Expense discipline • Noninterest expense increased $2 million to $139 million, up just over 1% from 1Q15 - Higher commissions and loan processing expense related to increased business activity - Higher warrant expense resulting from improved stock performance - Offset by improved compensation & benefits, asset resolution and legal & professional expenses Improved asset quality • Sold $456 million of interest-only and lower performing loans - Adjusted charge-offs improved to 26 bps - $10.3 million after-tax net allowance release relating to interest-only and lower performing loan sales - Allowance to loans held for investment remained strong at 4.31% Robust capital and liquidity • Tier 1 leverage remains solid at 11.47% • On-balance sheet liquidity equal to 29.1% of total assets(1) • Largest bank headquartered in Michigan, with $12.1 billion in assets, $7.6 billion of deposits and 100 branches • Mortgage origination (10th largest) and servicing (6th largest sub-servicer) franchises have national scale 1) Liquid assets include interest earning deposits and investment securities; a 5% haircut is applied to investment securities to estimate liquidation costs. 4

 
2nd Quarter 2015 Financial Overview Jim Ciroli, CFO

 
2nd Quarter 2015 2Q15 1Q15 $ Variance % Variance Net interest income $72.5 $64.9 $7.6 12% (Benefit) provision for loan losses ("PLL") (13.3) (3.5) (9.8) N/M Net interest income after PLL 85.8 68.4 17.4 25% Net gain on loan sales 82.2 91.3 (9.1) (10%) Loan fees and charges 18.5 17.0 1.5 9% Loan administration income 6.8 4.3 2.5 58% Net return on the mortgage servicing asset 9.3 (2.4) 11.7 N/M Representation and warranty benefit 5.9 1.5 4.4 N/M Other noninterest income 4.3 6.6 (2.3) (34%) Total noninterest income 127.0 118.3 8.7 7% Gain sale / total revenue 39% 49% -10% Compensation and benefits 59.1 60.8 (1.7) (3%) Commissions and loan processing expense 25.3 22.1 3.2 15% Other noninterest expenses 54.5 54.1 0.4 1% Total noninterest expense 138.9 137.0 1.9 1% Income before income taxes 73.9 49.7 24.2 49% Provision for income taxes 27.5 18.2 9.3 (51%) Net income $46.4 $31.5 $14.9 47% Diluted earnings per share $0.68 $0.43 $0.25 58% Profitability Net interest margin 2.79% 2.75% 4 bps Mortgage rate lock commitments, fallout adjusted $6,804 $7,185 ($382) (5%) Mortgage closings $8,448 $7,254 $1,194 16% Gain on loan sale margin(1) 1.21% 1.27% -6 bps Efficiency ratio 69.6% 74.8% 520 bps (Benefit) provision for loan losses • $16.4 million net allowance release relating to interest-only and lower performing loan sales • $15.1 million decrease in consumer loan delinquencies to 0.50% compared to 1.21% in 1Q15; no commercial loan delinquencies B Quarterly income comparison $mm Observations 6 A B C2 Noninterest income • Noninterest income increased more than 7% - Net gain on loan sales decreased 10% on lower lock volumes and gain on sale margin - Loan administration income improved from slower prepayment rates - Net return on the MSR improved from lower market volatility C Net interest income • Net interest income increased 12% - Interest-earning asset growth of 10% - Net interest margin increased 4 bps to 2.79% A 1) Expressed as a percent of fallout adjusted locks. D Noninterest expense • Efficiency ratio improved through careful management of noninterest expense - Higher commissions and loan processing related to increased mortgage closings - Offset by lower compensation, asset resolution and legal & professional expenses D C1 C3

 
2nd Quarter 2015 154 7 35 7 Pre-tax earnings bridge (2Q15 vs 1Q15) ($mm) 1) See non-GAAP reconciliations in the appendix for excluded items in Q3 2014. +$9.8 +4.4 ($9.1) +$11.7 +$7.4 $49.7 $73.9 Q1'15 Δ Benefit for loan losses Δ R&W benefit Δ Gain on sale Δ net MSR return Core improvement Q2'15 Balance sheet Operations

 
2nd Quarter 2015 Book value per share • Price to book ratio of 88% based on closing price as of July 27, 2015(3) 2Q15 1Q15 $ Variance % Variance Total Assets $11,811 $10,856 $955 9% Cash and cash equivalents $200 $290 ($90) (31%) Investment securities $2,350 $2,113 237 11% Liquid assets $2,549 $2,403 $147 6% Residential first mortgages $2,408 $2,186 $221 10% Consumer loans(1) $505 $429 77 18% Commercial loans(1) $1,054 $1,057 (3) (0%) Warehouse loans $970 $621 349 56% Loans, held for investment $4,938 $4,294 $644 15% Loans held for sale 2,218 1,842 376 20% Loans with government guarantees 630 865 (234) (27%) Total loans $7,786 $7,000 $786 11% Mortgage servicing rights $271 $265 $5 2% Book value per common share $20.98 $20.43 $0.55 3% Strong balance sheet(2) • Deposits are a significant portion of our funding - Total deposits equal 75% of liabilities - Core deposits equal 47% of liabilities • Common equity / assets of 10% 1) Consumer loans include second mortgage, HELOC and other consumer loans; commercial loans include commercial real estate and commercial & industrial loans. 2) Ratios are calculated on the average balance sheet for the quarter. 3) Book value has not been reduced for $71 million of unpaid dividends on our perpetual preferred stock which has been deferred. If these dividends were paid, book value per share would be reduced by $1.26 per share. Average balance sheet highlights $mm Observations Balance sheet growth • The average balance sheet grew $955 million or nearly 9% • Total average loan growth of 11% - Led by growth in loans HFI of 15% with warehouse lending growth of 56% - Retention of first residential mortgages grew balances 10% 8

 
2nd Quarter 2015 9 Asset quality Performing TDRs and NPLs ($mm) 372 366 362 111 108 120 107 120 84 65 $492 $473 $482 $195 $173 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Peforming TDRs NPLs 1) Excludes loans carried under the fair value option. Representation & warranty reserve ($mm) Allowance coverage¹ (% of loans HFI) 7.4% 7.6% 7.0% 5.7% 4.3% 10.8% 11.1% 11.0% 9.5% 6.5% 1.7% 1.9% 1.7% 1.5% 1.4% 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Total Consumer Commercial $50 $57 $53 $53 $48 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Net charge-offs ($mm) 7.2 6.8 6.0 4.6 3.1 6.3 3.0 36.0 14.6 $7.2 $13.1 $9.0 $40.5 $17.7 2Q14 3Q14 4Q14 1Q15 2Q15 Charge-offs excl. asset sales Charge-offs from asset sales

 
2nd Quarter 2015 Robust capital and liquidity Basel III implementation overview • 3 year phase-in period, starting January 1, 2015 – January 1, 2018 • DTA and MSR assets are limited to 10% individually and 15% on a combined basis of common equity Tier 1 capital (CET-1) • DTA and MSR assets are weighted at 250% of the amount included in risk weighted assets (RWA) • Average quarterly assets, rather than end of period assets, are measured for the Tier 1 leverage ratio Basel III phase-in as of 6/30/15 vs 3/31/15(1) 12.0% 15.4% 21.3% 22.6% 11.5% 14.6% 20.0% 21.3% Tier 1 leverage CET-1 to RWA Tier 1 to RWA Total RBC to RWA 3/31/15 6/30/2015 Changes in regulatory ratios – Q2 2015 • Decrease in regulatory ratios resulted primarily from the deployment of capital to fund balance sheet growth • 2Q15 net income had a positive effect on regulatory ratios • Flagstar continues to maintain strong capital ratios with the partial phase-in of Basel III regulations 10 1) Please see non-GAAP tables in the appendix. Pro-forma capital ratios as of 6/30/15(1) 11.5% 14.6% 9.4% 8.4% 5.7% 7.5% Tier 1 Leverage CET-1 to RWA 6/30/2015 Basel III fully phased-in Basel III & payoff TARP 1) Please see non-GAAP tables in the appendix.

 
2nd Quarter 2015 Business Segment Overview Lee Smith, COO

 
2nd Quarter 2015 • Flagstar is investing in its community banking franchise to diversify and grow its earnings stream Community banking 12 Average commercial loans ($bn) Commercial loan total commitments ($bn) Average consumer loans ($bn) Average deposit funding(1) ($bn) 0.3 0.4 0.4 0.4 0.4 0.5 0.6 0.6 0.6 0.6 0.4 0.6 0.5 0.6 1.0 $1.2 $1.5 $1.5 $1.7 $2.0 2Q14 3Q14 4Q14 1Q15 2Q15 Commercial and Industrial Commercial Real Estate Warehouse 0.6 0.6 0.7 0.7 0.7 0.6 0.7 0.8 0.8 0.8 1.6 1.4 1.6 1.7 1.9 $2.9 $2.8 $3.1 $3.2 $3.3 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Commercial and Industrial Commercial Real Estate Warehouse 2.4 2.3 2.2 2.2 2.4 $2.7 $2.6 $2.5 $2.6 $2.9 2Q14 3Q14 4Q14 1Q15 2Q15 Residential First Residential Second Other Consumer 5.0 5.2 5.3 5.5 5.7 0.8 0.9 1.0 1.0 0.9 0.7 0.9 0.8 1.0 1.1 $6.5 $7.0 $7.1 $7.4 $7.7 2Q14 3Q14 4Q14 1Q15 2Q15 Retail Government Company controlled deposits 1) Includes company controlled deposits which are included as part of mortgage servicing.

 
2nd Quarter 2015 3.7 4.4 4.1 4.6 5.2 1.5 1.9 1.6 1.4 1.7 $6.0 $7.2 $6.6 $7.2 $8.4 2Q14 3Q14 4Q14 1Q15 2Q15 Conventional Government Jumbo Mortgage originations 13 Closings by purpose ($bn) 3.9 4.5 3.5 2.6 3.8 2.1 2.7 3.1 4.6 4.6 $6.0 $7.2 $6.6 $7.2 $8.4 2Q14 3Q14 4Q14 1Q15 2Q15 Purchase originations Refinance originations Closings by mortgage type ($bn) 62% 61% 62% 64% 61% Conforming (%) Gain on loan sale(1) – revenue and margin $54.8 $52.2 $53.5 $91.3 $82.2 0.82% 0.83% 0.87% 1.27% 1.21% 0.00% 0.50% 1.00% 1.50% 2.00% $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2Q14 3Q14 4Q14 1Q15 2Q15 Fallout adjusted locks ($bn) $6.7 $6.3 $6.2 $7.2 $6.8 2Q14 3Q14 4Q14 1Q15 2Q15 1) Based on fallout adjusted locks. • Flagstar has enhanced its mortgage originations business to improve customer service and profitability 16% 15% 14% 12% 16% FHA (%)

 
2nd Quarter 2015 14 Fannie, 50% Freddie, 10% Ginnie, 32% HFI / Other, 8% Breakdown of loans serviced MSR / regulatory capital(1) Loans serviced (‘000) $ UPB of MSRs sold ($bn) $8.8 $4.9 $6.4 $2.8 $4.6 2Q14 3Q14 4Q14 1Q15 2Q15 127 123 118 126 124 213 238 238 231 225 27 27 26 27 28 367 388 383 385 378 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Serviced for Others Subserviced for Others Flagstar Loans HFI 42% 45% 39% 31% 33% 24% 25% 22% 22% 24% 6/30/2014 9/30/14 12/31/2014 3/31/2015 6/30/2015 MSR to Tier 1 Common MSR to Tier 1 Capital 1) Regulator ratios reported under Basel III as of 6/30/2015 and Basel 1 as of 12/31/2014. Please see appendix for non-GAAP calculations. Mortgage servicing

 
2nd Quarter 2015 Interest-only loan portfolio Overview 15 • Flagstar has substantially reduced risk associated with interest-only loans Subject to review Interest only reset exposure ($mm) Resolved, $1,187 Pre-reset, $263 Post-reset, $105 Remaining, $369 Interest-only portfolio at 12/31/2011 ($1,556) Interest-only portfolio at 6/30/2015 ($369)

 
2nd Quarter 2015 Adjusted noninterest expenses(1) Efficiency ratio 73.6% 119.9% 87.2% 74.8% 69.6% 2Q14 3Q14 4Q14 1Q15 2Q15 Quarterly noninterest expenses(1) ($mm) $111.8 $120.0 $119.3 $114.9 $16.7 $20.8 $19.9 $22.1 $113.6 $25.3 $128.5 $140.8 $139.2 $137.0 $138.9 2Q14 3Q14 4Q14 1Q15 2Q15 Fixed expense Variable expense Note: Fixed expenses include compensation and benefits, occupancy and equipment, FDIC premiums, asset resolution, legal and professional expense, and other noninterest expense; Variable expenses include commissions and loan processing expense 1) See non-GAAP reconciliations in the appendix for excluded items. Quarters with adjusted totals include Q2 2014 and Q3 2014. 16 • Flagstar expense discipline is substantially contributing to positive operating leverage

 
2nd Quarter 2015 Closing Remarks / Q&A Sandro DiNello, CEO

 
2nd Quarter 2015 Guidance(1)(2) 18 1) See cautionary statements on slide 2. 2) All assumptions and estimates are subject to change and may impact 2015 3rd quarter outlook. Net interest income and margin • Net interest income up slightly • Earning assets rise slightly led by increase in residential mortgage HFI loans • Net interest margin contracts slightly with shift in mix to lower yielding assets Mortgage originations • Mortgage industry closings projected down 13-18% on lower refinance volumes and relatively flat purchase transactions • Fall out adjusted lock volumes decrease 5-10% Gain on loan sales • Lower industry volumes likely increase price competition in mortgage market • Gain on loan sale margin declines slightly, but remains above 2014 levels Net servicing revenue • Net loan administration income to remain flat • Net return on the mortgage servicing asset to average 4 - 6% MSR to Tier 1 capital ratio • MSR to Tier 1 ratio declines from 6/30/15 levels Credit related costs • Provision for loan losses in 3Q15 to approximate 2Q15 charge-offs (adjusted for loan sales) • No material change in allowance for loan losses anticipated • Asset resolution expenses flat Noninterest expenses • Noninterest expenses decline to $133 - $138 million led by lower variable expenses on decreased mortgage closings 2015 3nd quarter outlook Income tax expense • Effective tax rate equal to 34% for the fiscal year 2015

 
2nd Quarter 2015 Appendix Company overview 20 Financial performance 22 Community banking segment 24 Mortgage origination segment 30 Mortgage servicing segment 32 Capital and liquidity 33 Asset quality 36 Non-GAAP reconciliation 46

 
2nd Quarter 2015 Strong core franchise 20 COMPANY OVERVIEW 3 Community bank • Largest Michigan based bank • #7 in deposit market share • $12.1bn of assets • $7.6bn of deposits • 100 branches Mortgage originator • 10th largest originator nationally • Originated more than $29bn of residential mortgage loans during the last 12 months Mortgage servicer • 6th largest sub-servicer of mortgage loans nationwide • Currently servicing nearly 400k loans • Scalable mortgage platform to service up to 1mm loans

 
2nd Quarter 2015 1/22/14 Announced reversal of $410mm DTA valuation allowance 6/22/15 Len Israel becomes President of Mortgage Banking 8/4/2014 James Ciroli becomes CFO 6/23/14 Stephen Figliuolo becomes CRO 9/29/14 Settlement with CFPB related to loss mitigation and default servicing practices Substantial progress rebuilding Flagstar 21 COMPANY OVERVIEW 1/16/14 Announced restructuring to complete ~$200mm of operating expense reductions R is k m it ig a tio n M a n a g e m e n t A c h ie v e m e n ts 7/17/13 Announced outsourcing of default servicing and intent to service only performing 8/28/13 Announced marketing partnership with Detroit Red Wings 12/18/13 Announced sale of $40.7bn of MSRs to Two Harbors, retaining subservicing 5/2/13 Settlement with MBIA for $110mm 6/21/13 Settlement with Assured Guaranty for $105mm Q4 2013 Repaid $2.9bn of high cost FHLB advances 11/6/13 Settlement with Fannie Mae R&W liability of $121mm for pre-2009 mortgages 12/30/13 Settlement with Freddie Mac R&W liability of $11mm for pre-2009 mortgages Q1 2014 Bolstered LLR by $100mm to raise resi I/O loss estimation from 12 to 18 months 5/17/13 Sandro DiNello becomes CEO, Lee Smith becomes COO FY 2014 Completed the sales of $72mm UPB of NPLs and TDRs FY 2013 Completed the sales of $508mm UPB of NPLs and TDRs Q1 2015 Completed the sales of $331mm UPB of NPLs and TDRs 2013 2015 2014 Q2 2015 Completed the sales of $456mm UPB of I/Os, NPLs and TDRs

 
2nd Quarter 2015 Consolidated financial highlights 22 FINANCIAL PERFORMANCE Quarterly results – $mm 2Q14 3Q14 4Q14 1Q15 2Q15 Balance Sheet Gross loans HFS $1,343 $1,469 $1,244 $2,097 $2,038 Gross loans HFI $4,359 $4,185 $4,448 $4,631 $5,335 Government guaranteed loans $1,218 $1,192 $1,128 $704 $592 MSR $289 $285 $258 $279 $317 Total assets $9,933 $9,625 $9,840 $11,571 $12,139 Deposits $6,644 $7,234 $7,069 $7,549 $7,648 FHLB borrowings $1,032 $150 $514 $1,625 $2,198 Trust preferred $247 $247 $247 $247 $247 Preferred equity $267 $267 $267 $267 $267 Common equity $1,119 $1,085 $1,106 $1,153 $1,184 % common equity of total assets 11.3% 11.3% 11.2% 10.0% 9.8% Income Statement Net interest income $62 $64 $61 $65 $73 Gain on loan sales $55 $52 $54 $91 $82 Other noninterest income $48 $33 $45 $27 $45 Noninterest expense ($121) ($179) ($139) ($137) ($139) Pre-provision net revenue (expense) $44 ($30) $20 $46 $61 Provision for loan losses ($6) ($8) ($5) $4 $13 Income (loss) before taxes $37 ($38) $16 $50 $74 PPNR / average assets 1.8% -1.2% 0.8% 1.7% 2.0% Credit ALLL $306 $301 $297 $253 $222 ALLL as a % of loans HFI (excl FV) 7.4% 7.6% 7.0% 5.7% 4.3% NPAs to total assets 1.54% 1.40% 1.42% 0.87% 0.69% Operations Number of banking centers 106 106 107 107 100 Number of loan origination centers 32 32 16 16 13 # of employees 2,741 2,725 2,739 2,680 2,713

 
2nd Quarter 2015 Consolidated financial highlights 23 FINANCIAL PERFORMANCE Annual results – $mm 2010 2011 2012 2013 2014 Balance Sheet Gross loans HFS $2,585 $1,801 $3,940 $1,480 $1,244 Gross loans HFI $6,305 $7,039 $5,438 $4,056 $4,448 Government guaranteed loans $1,675 $1,899 $1,841 $1,308 $1,128 MSR $580 $510 $711 $285 $258 Total assets $13,644 $13,637 $14,082 $9,407 $9,840 Deposits $7,998 $7,690 $8,294 $6,140 $7,069 FHLB borrowings $3,725 $3,953 $3,180 $988 $514 Trust preferred $247 $247 $247 $247 $247 Preferred equity $249 $255 $260 $266 $267 Common equity $1,010 $825 $899 $1,160 $1,106 % common equity of total assets 7.4% 6.0% 6.4% 12.3% 11.2% Income Statement Net interest income $211 $245 $297 $187 $246 Gain on loan sales $297 $301 $991 $402 $206 Other noninterest income $157 $85 $30 $250 $155 Noninterest expense ($611) ($635) ($990) ($918) ($579) Pre-provision net revenue (expense) $54 ($4) $329 ($79) $28 Provision for loan losses ($426) ($177) ($276) ($70) ($132) Income (loss) before taxes ($373) ($181) $53 ($149) ($103) PPNR / average assets 0.4% -0.0% 2.4% -0.7% 0.3% Credit ALLL $274 $318 $305 $207 $297 ALLL as a % of loans HFI (excl FV) 4.35% 4.52% 5.61% 5.42% 7.01% NPAs to total assets 4.35% 4.43% 3.70% 1.95% 1.42% Operations Number of banking centers 162 111 111 111 107 Number of loan origination centers 27 27 31 39 16 # of employees 3,279 3,136 3,662 3,253 2,739

 
2nd Quarter 2015 Deposits Portfolio and strategy overview 5.0 5.2 5.3 5.5 5.7 $6.5 $7.0 $7.1 $7.4 $7.7 2Q14 3Q14 4Q14 1Q15 2Q15 Retail deposits Other deposits Total average deposits ($bn) +20% 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 gathering core DDA deposits from small business and consumers and represents nearly $50mm of the quarterly deposit growth – We additionally maintain depository relationships in connection with our mortgage origination and servicing businesses, and with predominately MI governmental entities – Cost of total deposits equal to 0.58% DDA 12% Savings 48% MMDA 3% CD 10% Company controlled 15% Government & other 12% 73% retail Total : $7.7bn 0.58% cost of total deposits Q2 2015 total average deposits 24 COMMUNITY BANKING

 
2nd Quarter 2015 Focus on driving consumer deposit growth Key retail accomplishments • 3% growth in total personal checking accounts during the first half of 2015 • 4% growth in average savings / money market balances during Q2 2015 • 2% growth in deposit fee income over prior quarter and 14% higher than 2014 average Average consumer deposits ($mm) $4,863 $5,063 $5,124 $5,240 $5,417 2Q14 3Q14 4Q14 1Q15 2Q15 25 Affinity Relationships COMMUNITY BANKING

 
2nd Quarter 2015 Deposit channel overviews: Commercial, Company Controlled, Government Average commercial ($mm) $172 $175 $191 $214 $242 2Q14 3Q14 4Q14 1Q15 2Q15 Average company controlled ($mm) $682 $865 $836 $952 $1,131 2Q14 3Q14 4Q14 1Q15 2Q15 Average government ($mm) $803 $944 $994 $962 $946 2Q14 3Q14 4Q14 1Q15 2Q15 • Arise due to servicing of loans for others and represent the portion of the investor custodial accounts on deposit with the Bank • Approximately $443mm of additional deposits are available at 6/30/2015 to return to our balance sheet once certain conditions are met • We call on local governmental agencies, and other public units, as an additional source for deposit funding • Cost of deposit 0.43% • Over the past year, treasury management services has driven: – 40% growth in commercial deposits – 29% growth in fee income • Cost of deposit: 0.25% 26 COMMUNITY BANKING

 
2nd Quarter 2015 1.5 1.7 1.7 1.8 2.2 4.1 4.2 4.2 4.3 4.9 1.2 1.2 1.1 0.9 0.6 $6.8 $7.1 $7.0 $7.0 $7.8 2Q14 3Q14 4Q14 1Q15 2Q15 Loans HFS Gross Loans HFI Government Guaranteed Loans 1st Mortgage HFI 31% 2nds, HELOC & other 7% Warehouse 12% CRE and C&I 14% GNMA buyouts 8% 1st Mortgage HFS 28% Q2 2015 average gross loans Lending Portfolio and strategy overview Total average loans ($bn) • Flagstar’s largest category of earning assets consists of loans held-for-investment, currently $5.3bn, gross – Loans to consumers consist of residential first mortgage loans, HELOC and other – C&I / CRE lending is an important growth strategy, offering risk diversification and asset sensitivity – Warehouse loans are extended to other mortgage lenders, offering attractive risk-adjusted returns • Flagstar maintains a balance of mortgage loans held for sale, currently $2.0bn – Essentially all of our mortgage loans produced are sold into the secondary market on a whole loan basis or by securitizing the loans into MBS – Flagstar has the option to direct a portion of the mortgage loans it originates to its own balance sheet • Flagstar also has a portfolio of FHA-insured or guaranteed delinquent loans securitized in Ginnie Mae pools, which it repurchases from time to time 27 COMMUNITY BANKING

 
2nd Quarter 2015 $1.3 $1.2 $1.3 $1.1 $1.1 C&I, $412 , 18% CRE, $629 , 28% Warehouse, $1,204 , 54% Gross outstandings : $2,244mm Total commitments: $3.320mm Q2 average yield: 4.03% Commercial loan balances ($bn) 0.3 0.4 0.4 0.4 0.4 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.8 1.1 1.2 $1.5 $1.5 $1.8 $2.1 $2.2 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Commercial & Industrial Commercial Real Estate Warehouse 45% YOY Increase 6/30/15 commercial loan portfolio (%) Note: Commercial & Industrial loans include commercial lease financings Lending: Commercial 28 Unfunded commitment out. ($bn) COMMUNITY BANKING ($mm)

 
2nd Quarter 2015 Lending: Commercial C&I and CRE predominately in-footprint and well diversified 29 COMMUNITY BANKING MI 59% SC 12% MN 9% OH 8% CA 8% Other 4% Services 36% Financial / Insurance 38% Manufact. 14% Distribution 11% Govt & Educ. 1% MI 88% CA 4% GA 2% NC 2% NY 1% Other 3% Office 20% Retail 23% Multifamily 18% Industrial 7% Owner- Occupied Real Estate 22% Other 10% CRE as of 6/30/15 - $629mm Property type: C&I as of 6/30/15 - $412mm Property location: Borrower location: Borrower type:

 
2nd Quarter 2015 Mortgages are originated primarily through the correspondent channel 30 MORTGAGE ORIGINATIONS Residential mortgage originations by channel ($bn) $4.4 $5.3 $4.8 $5.0 $5.8 2Q14 3Q14 4Q14 1Q15 2Q15 Correspondent Broker Retail $1.3 $1.5 $1.5 $1.8 $2.2 2Q14 3Q14 4Q14 1Q15 2Q15 $0.3 $0.3 $0.3 $0.4 $0.4 2Q14 3Q14 4Q14 1Q15 2Q15 • Slightly less than 700 correspondent partners in 50 states in Q2 2015 • Top 10 relationships account for 17% of overall correspondent volume • Warehouse lines to approximately 250 correspondent relationships • Over 550 brokerage relationships in 50 states in Q2 2015 • Top 10 relationships account for 23% of overall brokerage volume • 13 standalone home centers in 9 states in Q2 2015 • Consumer direct is 34% of retail volume

 
2nd Quarter 2015 Third-party originator oversight • Flagstar has been actively managing its Third-party Originator (“TPO”) relationships to optimize risk and profitability – Has maintained consistent market share while halving TPO relationships 31 Number of third party originators 2,681 2,011 1,369 1,249 12/31/2012 12/31/2013 12/31/2014 6/30/2015 MORTGAGE ORIGINATIONS

 
2nd Quarter 2015 Net return on mortgage servicing asset MORTGAGE SERVICING 32 $mm return – MSR asset % return – MSR asset $ Ret rn 2Q14 3Q14 4Q14 1Q15 2Q15 Net hedged profit (loss) $0.6 ($0.5) $0.4 ($4.0) $3.7 Carry on asset 16.1 16.3 15.2 17.8 21.7 Run-off (6.9) (8.8) (10.4) (14.6) (11.6) Gross return on the mortgage servicing asset $9.7 $6.9 $5.2 ($0.8) $13.8 Sale transaction & P/L (4.7) (2.3) (3.6) (1.6) (4.5) Model Changes - (3.3) - - (0.0) Net return on the mortgage servicing asset $5.0 $1.3 $1.6 ($2.4) $9.3 Average mortgage servicing rights $291 $295 $280 $265 $271 % Return 2Q14 3Q14 4Q14 1Q15 2Q15 Net hedged profit (loss) 0.8% -0.7% 0.6% -6.1% 5.5% Carry on asset 22.1% 21.9% 21.5% 27.2% 32.1% Run-off -9.5% -11.8% -14.7% -22.3% -17.1% Gross return on the mortgage servicing asset 13.4% 9.3% 7.4% -1.3% 20.5% Sale transaction & P/L -6.5% -3.1% -5.1% -2.4% -6.6% Model Changes 0.0% -4.5% 0.0% 0.0% -0.1% Net return on the mortgage servicing asset 6.9% 1.8% 2.3% -3.7% 13.8%

 
2nd Quarter 2015 Liquidity Gross loans/deposits Available liquidity/total assets 20% 20% 18% 28% 27% 66% 58% 63% 61% 70% 18% 16% 16% 9% 8% 104% 95% 96% 98% 104% 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Gross loans HFS Gross loans HFI Gov. insured loans 33 CAPITAL AND LIQUIDITY 17% 14% 17% 21% 19% 18% 29% 22% 13% 10% 34% 43% 39% 33% 29% 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Cash + AFS / assets FHLB borrowing capacity / assets

 
2nd Quarter 2015 Available liquidity and funding 34 CAPITAL AND LIQUIDITY Quarter end balances and ratios($mm) Available liquidity 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Interest earning deposits $135 $62 $87 $198 $193 Investment & trading securities $1,606 $1,378 $1,672 $2,295 $2,272 Less: securities haircut (80) (69) (84) (115) (114) Less: pledged collateral (2) (1) (0) - - Liquid assets $1,658 $1,371 $1,675 $2,379 $2,352 FHLB borrowing capacity $1,766 $2,775 $2,200 $1,476 $1,186 Total available liquidity $3,424 $4,145 $3,875 $3,855 $3,538 Liquid assets as a % of total assets 16.7% 14.2% 17.0% 20.6% 19.4% FHLB Capacity as a % of total assets 17.8% 28.8% 22.4% 12.8% 9.8% Available liquidity as a % of total assets 34.5% 43.1% 39.4% 33.3% 29.1% Funding 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 Brokered deposits $357 $354 $392 $361 $328 FHLB advances 1,032 150 514 1,625 2,198 Other debt 345 340 331 317 283 Total wholesale funding $1,734 $844 $1,237 $2,303 $2,809 Wholesale funding as a % of total assets 17.5% 8.8% 12.6% 19.9% 23.1%

 
2nd Quarter 2015 Composition of liabilities 35 CAPITAL AND LIQUIDITY Quarter end liabilities ($mm) ($ in mm) Balance Mix Balance Mix Balance Mix Balance Mix Balance Mix Retail deposits Demand $707 8.3% $685 8.3% $726 8.6% $751 7.4% $757 7.1% Savings 3,105 36.3% 3,311 40.0% 3,427 40.5% 3,642 35.9% 3,749 35.1% Money market 231 2.7% 220 2.7% 209 2.5% 196 1.9% 185 1.7% Certificates of deposit 926 10.8% 854 10.3% 807 9.5% 769 7.6% 765 7.2% Total retail $4,969 58.1% $5,070 61.3% $5,169 61.0% $5,358 52.8% $5,456 51.0% Commercial deposits Demand $106 1.2% $121 1.5% $133 1.6% $139 1.4% $161 1.5% Savings 33 0.4% 27 0.3% 27 0.3% 35 0.3% 39 0.4% Money market 35 0.4% 37 0.4% 43 0.5% 56 0.6% 95 0.9% Certificates of deposit 1 0.0% 1 0.0% 5 0.1% 6 0.1% 2 0.0% Total commercial $175 2.0% $186 2.2% $208 2.5% $236 2.3% $298 2.8% Government deposits Demand $175 2.0% $292 3.5% $246 2.9% $346 3.4% $253 2.4% Savings 300 3.5% 410 5.0% 317 3.7% 356 3.5% 403 3.8% Certificates of deposit 340 4.0% 376 4.5% 355 4.2% 240 2.4% 313 2.9% Total government $815 9.5% $1,078 13.0% $918 10.8% $943 9.3% $970 9.1% Company controlled deposits $685 8.0% $900 10.9% $773 9.1% $1,012 10.0% $925 8.7% Total deposits $6,644 77.7% $7,234 87.4% $7,069 83.5% $7,549 74.4% $7,648 71.6% FHLB Advances 1,032 12.1% 150 1.8% 514 6.1% 1,625 16.0% 2,198 20.6% Other debt 345 4.0% 340 4.1% 331 3.9% 317 3.1% 283 2.6% Other liabilities 527 6.2% 550 6.6% 553 6.5% 660 6.5% 559 5.2% Total liabilities $8,547 100.0% $8,274 100.0% $8,467 100.0% $10,152 100.0% $10,689 100.0% 6/30/20153/31/201512/31/20149/30/20146/30/2014

 
2nd Quarter 2015 Representation & Warranty reserve details (in millions) 6/30/14 9/30/14 12/31/14 3/31/15 6/30/15 Beginning balance $48.0 $50.0 $57.0 $53.0 $53.0 Additions 7.0 14.5 (4.2) 0.4 (3.7) Net charge-offs (5.0) (7.5) 0.2 (0.4) (1.3) Ending Balance $50.0 $57.0 $53.0 $53.0 $48.0 $54 $31 $43 $58 $46 6/30/2014 9/30/2014 12/31/2014 3/31/15 6/30/2015 Repurchase pipeline ($mm) Repurchase reserve ($mm) 935 766 988 1,185 912 646 588 487 449 442 1,581 150 1,354 177 1,475 265 1,634 237 1,354 150 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 Fannie Mae Freddie Mac Fannie Mae Freddie Mac Audit file pulls Repurchase demands Repurchase activity with Fannie and Freddie Repurchase demands / file pulls 13% 18% 15% 9% 36 11% ASSET QUALITY

 
2nd Quarter 2015 Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items. First mortgage portfolio – by state ASSET QUALITY 37 First mortgage portfolio, by state ($ in 000’s) To be updated State ARM Fixed Balloon Total % of Total ARM Fixed Balloon Total % of Total CA $13,246 $0 $645,986 $659,232 33.3% $691,288 $0 $315,622 $1,006,910 40.5% FL 2,332 - 174,408 176,740 8.9% 145,545 720 74,321 220,586 8.9% MI 822 - 128,114 128,936 6.5% 161,011 85 77,995 239,090 9.6% WA 3,483 - 60,586 64,069 3.2% 79,177 - 30,529 109,706 4.4% AZ 348 - 51,201 51,550 2.6% 38,301 - 19,550 57,852 2.3% CO 1,295 - 44,650 45,945 2.3% 27,484 - 23,046 50,530 2.0% MD 774 - 35,909 36,683 1.9% 35,217 245 21,377 56,838 2.3% NY 1,152 - 86,935 88,088 4.5% 18,157 - 26,040 44,197 1.8% VA 2,161 - 44,596 46,757 2.4% 25,305 391 16,900 42,597 1.7% TX 3,013 - 144,629 147,642 7.5% 54,339 - 54,537 108,876 4.4% NJ 236 - 37,507 37,742 1.9% 21,338 - 27,749 49,087 2.0% NV - - 8,351 8,351 0.4% 19,570 63 6,258 25,890 1.0% IL 1,322 - 68,658 69,980 3.5% 37,097 - 29,588 66,686 2.7% GA 574 - 28,708 29,282 1.5% 22,230 169 15,136 37,536 1.5% OH 281 - 17,672 17,952 0.9% 12,337 300 8,661 21,298 0.9% OTHER 3,794 339 365,389 369,522 18.7% 168,724 1,249 176,720 346,693 14.0% Total $34,834 $339 $1,943,299 $1,978,472 100.0% $1,557,121 $3,222 $924,029 $2,484,373 100.0% Loans Held for Sale Loans Held for Investment

 
2nd Quarter 2015 First mortgage portfolio – by vintage ASSET QUALITY 38 First mortgage portfolio, by vintage ($ in 000’s) Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items. State ARM Fixed Balloon Total % of Total ARM Fixed Balloon Total % of Total Older $120 $0 $509 $630 0.0% $94,890 $129 $19,844 $114,863 4.6% 2004 469 - 257 725 0.0% 110,047 320 6,349 116,716 4.7% 2005 280 - 553 833 0.0% 331,104 164 10,727 341,995 13.8% 2006 - - 688 688 0.0% 56,040 346 45,019 101,405 4.1% 2007 - 339 7,071 7,410 0.4% 64,566 2,023 130,283 196,871 7.9% 2008 - - 6,855 6,855 0.3% 6,108 180 51,293 57,581 2.3% 2009 - - 7,182 7,182 0.4% 4,840 - 19,344 24,183 1.0% 2010 - - 3,915 3,915 0.2% 4,862 - 7,949 12,811 0.5% 2011 - - 2,117 2,117 0.1% 10,554 59 10,332 20,945 0.8% 2012 - - 1,017 1,017 0.1% 7,133 - 12,662 19,794 0.8% 2013 921 - 1,031 1,952 0.1% 29,384 - 11,972 41,356 1.7% 2014 14,954 - 6,821 21,775 1.1% 184,615 - 31,344 215,959 8.7% 2015 18,090 - 1,905,282 1,923,371 97.2% 652,979 - 566,912 1,219,892 49.1% Total $34,834 $339 $1,943,299 $1,978,472 100.0% $1,557,121 $3,222 $924,029 $2,484,373 100.0% Loans Held for Sale Loans Held for Investment

 
2nd Quarter 2015 First Mortgage Portfolio – by Original FICO ASSET QUALITY 39 First mortgage portfolio, by original FICO ($ in 000’s) Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items. State ARM Fixed Balloon Total % of Total ARM Fixed Balloon Total % of Total <580 $120 $0 $4,746 $4,867 0.2% $4,900 $180 $11,834 $16,914 0.7% 580-619 - - 32,880 32,880 1.7% 6,734 334 21,447 28,514 1.1% 620-659 592 - 214,723 215,315 10.9% 44,732 246 53,519 98,496 4.0% 660-699 2,516 - 372,710 375,227 19.0% 185,778 693 124,380 310,851 12.5% >699 31,605 339 1,318,239 1,350,183 68.2% 1,314,978 1,769 712,850 2,029,597 81.7% Total $34,834 $339 $1,943,299 $1,978,472 100.0% $1,557,121 $3,222 $924,029 $2,484,373 100.0% Loans Held for Sale Loans Held for Investment

 
2nd Quarter 2015 First Mortgage Portfolio – by Original LTV ASSET QUALITY 40 First mortgage portfolio, by original LTV ($ in 000’s) Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items. State ARM Fixed Balloon Total % of Total ARM Fixed Balloon Total % of Total <=70.00% $12,137 $0 $466,638 $478,775 24.2% $736,003 $686 $353,341 $1,090,030 43.9% >70.00% - 79.99% 12,550 - 584,739 597,289 30.2% 725,288 887 395,050 1,121,225 45.1% >80.00% - 89.99% 5,652 339 233,625 239,615 12.1% 68,376 1,073 90,645 160,094 6.4% >90.00% - 99.99% 4,495 - 636,675 641,170 32.4% 25,666 575 79,421 105,662 4.3% >100.00% -109.99% - - 18,561 18,561 0.9% 689 - 3,587 4,275 0.2% >110.00% -124.99% - - 2,090 2,090 0.1% 1,101 - 1,406 2,507 0.1% >125.00% - - 971 971 0.0% - - 579 579 0.0% Total $34,834 $339 $1,943,299 $1,978,472 100.0% $1,557,121 $3,222 $924,029 $2,484,373 100.0% Loans Held for Sale Loans Held for Investment

 
2nd Quarter 2015 First Mortgage Portfolio – by HPI Adjusted LTV ASSET QUALITY 41 First mortgage portfolio, by HPI Adjusted LTV($ in 000’s) Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items. Loans Held for Sale HPI Adjusted LTV ARM Fixed Balloon Total % of Total ARM Fixed Balloon Total % of Total <=70.00% $14,356 $0 $478,615 $492,971 24.9% $954,028 $994 $408,898 $1,363,920 54.9% >70.00% - 79.99% 11,225 - 575,666 586,891 29.7% 390,616 158 308,137 698,910 28.1% >80.00% - 89.99% 4,691 339 231,678 236,708 12.0% 116,687 447 114,428 231,562 9.3% >90.00% - 99.99% 4,068 - 573,837 577,906 29.2% 59,622 989 59,435 120,045 4.8% >100.00% -109.99% 494 - 74,777 75,271 3.8% 25,131 264 15,665 41,060 1.7% >110.00% -124.99% - - 5,362 5,362 0.3% 9,933 365 12,584 22,883 0.9% >125.00% - - 3,363 3,363 0.2% 1,104 5 4,882 5,991 0.2% Total $34,834 $339 $1,943,299 $1,978,472 100.0% $1,557,121 $3,222 $924,029 $2,484,373 100.0% Loans Held for Investment

 
2nd Quarter 2015 Interest-only loan portfolio Overview I/O reset by year FICO & LTV (as of June 30, 2015) • Flagstar retains a $263mm IO portfolio that will reset from 2015 and thereafter • The portfolio is well seasoned and naturally running off, with 77% <90% LTV • Flagstar is aggressively managing this portfolio with proactive calling campaigns and refinancing/modification opportunities - 100% right party contact for resets that occurred during Q2 2015 - 98.1% right party contact for resets that will occur during Q3 2015 • 45% of portfolio is in CA/FL where it benefits from significant house price appreciation $155 $49 $24 $35 105% 105% 70% 132% 11% 4% 9% 18% 2015 2016 2017 Thereafter UPB ($mm) Payment shock to average current monthly payment Payment shock to average original monthly payment Key highlights 42 • Flagstar’s has substantially reduced its interest-only portfolio risk after 2015 <70 70-79 80-89 90-99 100+ Total <70 70-79 80-89 90-99 100+ Total 740+ $52 $26 $22 $16 $11 $126 20% 10% 8% 6% 4% 48% 700-739 $10 $9 $14 $6 $6 $45 4 3 5 2 2 17 660-699 $11 $6 $7 $9 $3 $36 4% 2% 3% 4% 1% 14% 620-659 $8 $5 $4 $4 $1 $23 3 2 2 2 1 9 <620 $13 $6 $9 $2 $3 $33 5% 2% 4% 1% 1% 13% Total $95 $51 $56 $38 $24 $263 36% 19% 21% 14% 9% 100% Current LTVs Curren t FICO s $ % ASSET QUALITY

 
2nd Quarter 2015 16 46 38 24 29 34 2 Payments 3 Payments 4 Payments 5 Payments 6 - 11 Payments 12 or More Payments 8.6% 24.6% 20.3% 12.8% 15.5% 18.2% Interest-only loan portfolio (cont’d) Aging of cash flow resets 43 Cash flow resets by payments made after reset Note: January 1, 2013 through June 30, 2015 % • Flagstar continues to see strong performance on reset I/O loans that have been not been sold Resets through June 30, 2015 Quantity UPB ($mm) UPB % Paid in full 479 $165 27.9% Cash flow resets 187 53 8.9% Loan Sales 1,023 299 50.4% Modifications 43 13 2.2% Charge-off / foreclosure 166 41 6.9% Default servicing 26 8 1.3% Total resolutions 1,924 $578 97.5% In-process 52 15 2.5% Total resets 1,976 $593 100.0% ASSET QUALITY

 
2nd Quarter 2015 Non-performing Loans HFI – by State ASSET QUALITY 44 First mortgage portfolio, by HPI Adjusted LTV($ in 000’s) State 1st Mortgages % of 1st Mortgages 2nd Mortgages HELOC Consumer Total Mortgages % of Total FL $11,697 20.6% $116 $546 $0 $12,358 19.0% CA 8,492 14.9% $386 $630 $0 9,507 14.6% NY 7,449 13.1% $92 $338 $0 7,880 12.1% NJ 4,382 7.7% $29 $794 $0 5,205 8.0% MI 2,201 3.9% $370 $1,236 $198 4,004 6.2% MD 1,930 3.4% $87 $559 $0 2,576 4.0% HI 1,832 3.2% $0 $339 $0 2,172 3.3% IL 1,679 3.0% $20 $72 $0 1,771 2.7% NC 1,386 2.4% $0 $121 $0 1,508 2.3% SC 1,371 2.4% $0 $29 $0 1,400 2.2% TX 1,356 2.4% $41 $0 $1 1,399 2.1% PA 1,245 2.2% $3 $0 $0 1,248 1.9% NV 814 1.4% $0 $340 $0 1,154 1.8% WA 1,039 1.8% $78 $0 $0 1,117 1.7% CT 680 1.2% $107 $289 $0 1,076 1.7% Other 9,335 16.4% $559 $786 $8 10,687 16.4% Total $56,888 100.0% $1,888 $6,079 $206 $65,060 100.0% Type of Mortgage Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items.

 
2nd Quarter 2015 Vintage 1st Mortgages % of 1st Mortgages 2nd Mortgages HELOC Consumer Total Mortgages % of Total Older $4,048 7.1% $171 $14 $1 $4,234 6.5% 2004 8,812 15.5% 97 2,621 87 11,618 17.9% 2005 5,815 10.2% 361 2,056 - 8,231 12.7% 2006 3,719 6.5% 40 981 7 4,746 7.3% 2007 20,400 35.9% 1,057 301 16 21,775 33.5% 2008 10,716 18.8% - - - 10,716 16.5% 2009 832 1.5% - - - 832 1.3% 2010 - 0.0% 88 - 31 118 0.2% 2011 1,180 2.1% 75 - 0 1,255 1.9% 2012 - 0.0% - 40 6 46 0.1% 2013 565 1.0% - 66 4 635 1.0% 2014 365 0.6% - - 53 419 0.6% 2015 435 0.8% - - - 435 0.7% Total $56,888 100.0% $1,888 $6,079 $206 $65,060 100.0% Type of Mortgage Non-performing Loans HFI – by Vintage ASSET QUALITY 45 First mortgage portfolio, by HPI Adjusted LTV($ in 000’s) Note: Reflects unpaid principal balance, net of write downs, of underlying loans before accounting adjustments for discounts and other items.

 
2nd Quarter 2015 Supplemental capital ratios 46 NON-GAAP RECONCILIATION $mm – Basel III (transitional) to Basel III (fully phased-in) 1) On January 1, 2015, the Basel III rules became effective, subject to transitions provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014. 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 as of 6/30/15 Basel III (transitional) $954 $1,309 $1,309 $1,396 Increased deductions related to deferred tax assets, mortgage servicing assets, and other capital components ($413) ($262) ($262) ($262) Basel III (fully phased-in) capital(1) $541 $1,047 $1,047 $1,134 Risk-weighted assets as of 6/30/15 Basel III assets (transitional) $6,553 $11,406 $6,553 $6,553 Net change in assets ($139) ($139) ($139) ($139) Basel III (fully phased-in) assets(1) $6,414 $11,145 $6,414 $6,414 Capital ratios Basel III (transitional) 14.6% 11.5% 20.0% 21.3% % Basel III (fully phased-in)(1) 8.4% 9.4% 16.3% 17.7%

 
2nd Quarter 2015 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 as of 6/30/15 Basel III (transitional) $541 $1,047 $1,047 $1,134 Net change in capital ($84) ($437) ($437) ($440) Basel III (fully phased-in) capital(1) $457 $610 $610 $694 Risk-weighted assets as of 6/30/15 Basel III assets (transitional) $6,414 $11,145 $6,414 $6,414 Net change in assets ($321) ($438) ($321) ($321) Basel III (fully phased-in) assets(1) $6,093 $10,707 $6,093 $6,093 Capital ratios Basel III (transitional) 8.4% 9.4% 16.3% 17.7% % Basel III (fully phased-in)(1) 7.5% 5.7% 10.0% 11.4% Supplemental capital ratios 47 NON-GAAP RECONCILIATION 1) On January 1, 2015, the Basel III rules became effective, subject to transitions provisions primarily related to regulatory deductions and adjustments impacting common equity Tier 1 capital and Tier 1 capital. We reported under Basel I (which included the Market Risk Final Rules) at December 31, 2014. $$mm – Basel III (fully phased-in) to Basel III (fully phased-in with TARP payoff)

 
2nd Quarter 2015 Efficiency ratio and earnings per share 48 $mm 1) Reverse benefit for contract renegotiation. 2) Add back reserve increase related to indemnifications claims on government insured loans. 3) Negative fair value adjustment on repurchased performing loans and a benefit for contract renegotiation. 4) Adjust for legal expenses related to the litigation settlements during the respective periods. 5) Adjust for CFPB litigation settlement expense. NON-GAAP RECONCILIATION 2Q14 3Q14 4Q14 1Q15 2Q15 Net interest income (a) $62.4 $64.4 $61.3 $64.9 $72.5 Noninterest income (b) 102.5 85.2 98.4 118.3 127.0 Adjusting items : Loan fees and charges (1) (10.0) - - - - Representation and warranty reserve – change in estimate (2) - 10.3 - - - Other noninterest income (3) - - - - - Adjusted noninterest income $92.5 $95.5 $98.4 $118.3 $127.0 Adjusted income $160.1 $162.1 $153.7 $181.7 $193.6 Noninterest expense (c) $121.4 $179.4 $139.2 $137.0 $138.9 Adjusting items : Legal and professional expense (4) (2.9) (1.1) - - - Other noninterest expense (5) 10.0 (37.5) - - - Adjusted noninterest expense $128.5 $140.8 $139.2 $137.0 $138.9 Efficiency ratio (c/(a+b)) 73.6% 119.9% 87.2% 74.8% 69.6% Net (loss) income applicable to common stockholders $25.5 ($27.6) $11.1 $31.5 $46.4 Adjustment to remove adjusting items (17.1) (48.9) - - - Tax impact of adjusting items 6.0 (17.1) - - - Adjusting tax item - - - - - Adjusted net (loss) income applicable to common stockholders $14.4 $4.2 $11.1 $31.5 $46.4 Dilute (loss) i come per share $0.33 ($0.61) $0.07 $0.43 $0.68 Adjustment to remove adjusting items (0.31) 0.87 - - - Tax impact of adjusting items 0.11 (0.30) - - - Adjusting tax item - - - - - Diluted adjusted (loss) income per share $0.14 ($0.04) $0.07 $0.43 $0.68 Weighted average shares outstanding Basic 56,230,458 56,249,300 56,310,858 56,385,454 56,436,026 Diluted 56,822,102 56,249,300 56,792,751 56,775,039 57,165,072

 
2nd Quarter 2015 Fixed & variable noninterest expense, adjusted 49 $mm 2Q14 3Q14 4Q14 1Q15 2Q15 Fixed expenses Compensation and benefits $55.2 $53.5 $59.0 $60.8 $59.1 Occumpancy and equipment 19.4 20.5 20.1 19.9 19.8 Asset resolution 17.9 13.7 13.4 7.8 4.7 Other noninterest expense(1) 19.2 32.3 26.8 26.4 30.0 Total fixed expenses $111.7 $120.0 $119.3 $114.9 $113.6 Variable expenses Commissions $8.5 $10.3 $9.3 $10.4 $11.0 Loan processing expenses 8.2 10.5 10.6 11.7 14.3 Total variable expenses $16.7 $20.8 $19.9 $22.1 $25.3 Non-recurring items (excluded) Other noninterest expenses ($7.1) $38.6 $0.0 $0.0 $0.0 Total non-recurring items ($7.1) $38.6 $0.0 $0.0 $0.0 Total noninterest expense $121.4 $179.4 $139.2 $137.0 $138.9 NON-GAAP RECONCILIATION 1) Other noninterest expense includes Federal insurance premiums, legal and professional expense and other noninterest expense

 
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