EX-99.1 2 pressrelease2q2016.htm EXHIBIT 99.1 Exhibit


                

EXHIBIT 99.1

NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Second Quarter 2016 Net Income of $47 million, or $0.66 per Diluted Share

Company posts solid earnings gain with significant operating leverage


Key Highlights - Second Quarter 2016

•
Net income per diluted share increased $0.12, or 22 percent, from first quarter 2016.
•
Positive operating leverage, led by 11 percent rise in revenue versus 2 percent increase in expenses against prior quarter.
•
Net gain on loan sales rose $15 million, or 20 percent, on higher fallout-adjusted locks and wider gain on sale margin.
•
Lower nonperforming loans and consumer delinquencies on continuing strong credit performance.
•
Tier 1 leverage was 11.6 percent and remains strong at 8.6 percent when adjusted for TARP redemption.

TROY, Mich., July 26, 2016 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported second quarter 2016 net income of $47 million, or $0.66 per diluted share, as compared to $39 million in the first quarter 2016, or $0.54 per diluted share, and net income of $46 million in the second quarter 2015, or $0.68 per diluted share.

"We’re happy to report another solid quarter," said Alessandro P. DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "Net income rose as mortgage volume increased 18 percent and net interest income remained relatively stable. We continued to rotate our lower spread consumer assets into relationship-focused commercial loans and this quarter marks the first time that our average commercial loans held for investment exceeded our consumer loans held for investment. Asset quality improved again, with nonperforming loans declining 17 percent to $44 million. Yet, while total revenue increased 11 percent, expenses increased only 2 percent, reflecting the franchise's operating leverage. As a result, our efficiency ratio improved to 68 percent and our return on assets was 1.4 percent.

"As we previously announced, we received regulatory approval to redeem our TARP preferred shares on June 23, 2016. Given the notice requirement prior to redemption, we will be redeeming these shares in full by the

1

end of July. We’ve replaced this high-cost funding with senior notes and other bank-level sources of funds that cost, on average, only one-third of the TARP preferred on an after-tax basis. After this redemption, our regulatory capital remains strong on an adjusted basis as of June 30, 2016, with Tier 1 leverage at 8.59 percent and Common Equity Tier 1 at 12.17 percent.
"Our business model has been tested over the past few quarters, and it has generated strong earnings despite volatility in the interest rate, regulatory and mortgage environment. More recently, low rates have created an opportunity for us to demonstrate the power and profitability of our mortgage business. We believe we have built a solid business model that will continue to be successful."

Second Quarter 2016 Highlights:

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
 
(Dollars in millions)
Consolidated Statements of Income
 
 

 

Net interest income
$
77

$
79

$
76

$
73

$
73

Provision (benefit) for loan losses
(3
)
(13
)
(1
)
(1
)
(13
)
Noninterest income
128

105

97

128

126

Noninterest expense
139

137

129

131

138

Income before income taxes
69

60

45

71

74

Provision for income taxes
22

21

12

24

28

Net income
$
47

$
39

$
33

$
47

$
46

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.67

$
0.56

$
0.45

$
0.70

$
0.69

Diluted
$
0.66

$
0.54

$
0.44

$
0.69

$
0.68

Key Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Seq
Yr/Yr
Net interest margin
2.63
%
2.66
%
2.69
%
2.75
%
2.79
%
(3)
(16)
Return on average assets
1.4
%
1.2
%
1.0
%
1.5
%
1.6
%
20
(20)
Return on average equity
11.5
%
10.1
%
8.6
%
12.4
%
12.7
%
140
(120)
Return on average common equity
13.8
%
12.2
%
10.4
%
15.1
%
15.6
%
160
(180)
Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average Balance Sheet Data
 
 
 
 
 


Average interest-earning assets
$
11,639

$
11,871

$
11,240

$
10,693

$
10,367

(2
)%
12
%
Average loans held-for-sale
2,884

2,909

2,484

2,200

2,218

(1
)%
30
%
Average loans held-for-investment
5,569

5,668

5,642

5,412

4,938

(2
)%
13
%
Average total deposits
8,631

8,050

8,132

8,260

7,736

7
 %
12
%

2


Net Interest Income

Second quarter 2016 net interest income remained relatively stable at $77 million, compared to $79 million for the first quarter 2016. The results reflected a 2 percent decline in average earning assets, primarily due to loan sales, and a slight drop in the net interest margin.

Net interest margin decreased 3 basis points to 2.63 percent for the second quarter 2016, as compared to 2.66 percent for the first quarter 2016. The decrease from the prior quarter was driven by lower interest income on loans held-for-sale due to a drop in market interest rates, partially offset by increased interest income from a rotation of lower spread residential mortgages into higher spread commercial loans.

Average loans held-for-investment totaled $5.6 billion for the second quarter 2016, largely unchanged from the first quarter 2016. During the second quarter 2016, relationship-based commercial loans increased while consumer loans declined. Average commercial loans increased $469 million, or 20 percent, led by a $351 million, or 36 percent increase in warehouse loans. Commercial & industrial and commercial real estate loans also registered solid gains. Average consumer loans fell $568 million, or 17 percent, due to the sale of $408 million (UPB) of performing residential mortgage loans and $14 million (UPB) of nonperforming, TDR, and other higher risk loans.

Average total deposits were $8.6 billion in the second quarter 2016, increasing $581 million, or 7 percent from the prior quarter. The increase was led by higher company-controlled and retail deposits, partially offset by a drop in government deposits. Average company-controlled deposits rose $403 million, or 35 percent, due to seasonal factors, higher refinance volume and an increase in loans serviced. Average retail deposits increased $253 million, or 4 percent, providing core deposits to support balance sheet growth.

Provision (Benefit) for Loan Losses

The Company experienced a provision benefit in the second quarter 2016, resulting primarily from the sale of $408 million (UPB) performing residential first mortgage loans. The provision benefit for loan losses totaled $3 million for the second quarter 2016, a decrease from a benefit of $13 million for the first quarter 2016.

Net charge-offs in the second quarter 2016 were $9 million, or 0.62 percent of applicable loans, compared to $12 million, or 0.86 percent of applicable loans in the prior quarter. The second quarter 2016 amount included $2 million of net charge-offs associated with the sale of $14 million (UPB) of nonperforming, TDR, and other higher risk loans and $4 million of net charge-offs associated with loans with government guarantees. The first quarter 2016 amount included $6 million of net charge-offs associated with the sale of $96 million (UPB) of nonperforming, TDR, and other higher risk loans and $3 million of net charge-offs associated with loans with government guarantees. Excluding the charge-offs associated with loan sales and loans with government guarantees in both quarters, net charge-offs in the second quarter 2016 were $3 million, or 0.18 percent of applicable loans, compared to $3 million, or 0.20 percent of applicable loans in the prior quarter.

Noninterest Income

Noninterest income increased $23 million, or 22 percent, to $128 million, as compared to $105 million for the first quarter 2016. The second quarter 2016 results were led primarily by higher net gain on loan sales and loan fees and charges.

Second quarter 2016 net gain on loan sales increased to $90 million, as compared to $75 million for the first quarter 2016. The increase from the prior quarter reflected higher fallout-adjusted locks and an improved gain on sale margin. Excluding gains from the sale of mortgage loans transferred from HFI, net gain on loan sales was $85 million, up $19 million, or 29 percent, from the first quarter 2016. In the second quarter 2016, fallout-adjusted locks increased 18 percent to $8.1 billion, led by higher purchase volumes. Excluding HFI loan sales, the net gain on loan sale margin was 1.04 percent, as compared to 0.96 percent for the first quarter 2016.

3


Mortgage Metrics
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
8,127

$
6,863

$
5,027

$
6,495

$
6,804

18
 %
19
 %
GOS on HFS margin (change in bps) (2)
1.04
%
0.96
%
0.92
%
1.05
%
1.22
%
8
(18)
Gain on loan sales on HFS
$
85

66

$
46

$
68

$
83

29
 %
2
 %
Net (loss) return on the mortgage servicing asset ("MSA")
$
(4
)
$
(6
)
$
9

$
12

$
9

(33
)%
N/M

Gain on loan sales + net (loss) return on the MSA
$
81

$
60

$
55

$
80

$
92

35
 %
(12
)%
Residential loans serviced (number of accounts - 000's) (3)
358

340

361

369

378

5
 %
(5
)%
Capitalized value of mortgage servicing rights (change in bps)
0.99
%
1.06
%
1.13
%
1.12
%
1.15
%
(7)
(16)
N/M - Not meaningful
 
 
 
 
 
 
 
(1) Fallout-adjusted mortgage rate lock commitments are adjusted by a percentage of mortgage loans in the pipeline that are not expected to close based on previous historical experience and the level of interest rates.
(2) Gain on sale margin is based on net gain on loan sales (excluding gains from loans transferred from HFI) to fallout-adjusted mortgage rate lock commitments.
(3) Includes serviced for own loan portfolio, serviced for others, and subserviced for others loans.

Loan fees and charges rose to $19 million for the second quarter 2016, as compared to $15 million in the first quarter 2016. The increase primarily reflected higher mortgage loan closings.

Net return on the mortgage servicing asset (including the impact of economic hedges) was a net loss of $4 million for the second quarter 2016, as compared to a net loss of $6 million for the first quarter 2016. The return on the mortgage servicing asset improved from the first quarter 2016, primarily due to higher service fee income and lower disposition costs from fewer bulk MSR sales, partially offset by an increase in anticipated and actual prepayments.

The representation and warranty benefit was $4 million for the second quarter 2016, as compared to a $2 million benefit in the first quarter 2016. The representation and warranty reserve fell to $36 million at June 30, 2016, from $40 million at March 31, 2016, based on a continued improvement in risk trends in the repurchase pipeline.

Noninterest Expense

The Company experienced modest expense growth in the second quarter 2016. Noninterest expense increased $2 million, or 2 percent, to $139 million for the second quarter 2016, as compared to $137 million for the first quarter 2016. The second quarter 2016 results were driven by higher commissions and loan processing expense related to increased business activity, and higher warrant expense, partially offset by lower compensation and benefits, asset resolution, and legal and professional expense. The Company's efficiency ratio improved to 68.2 percent for the second quarter 2016 as revenues grew without the addition of significant incremental expenses.

Overall, expenses related to higher mortgage volumes drove the quarter’s increase in noninterest expense. Commissions increased $4 million and loan processing expense rose $3 million. Warrant expense, driven by a higher stock price, also increased $3 million. These increases were partially offset by decreased levels of expense in a number of other categories, including legal and professional expense, asset resolution expense, and compensation and benefits, which were seasonally lower.


4

Income Taxes

The second quarter 2016 provision for income taxes totaled $22 million, as compared to $21 million in the first quarter 2016. The effective tax rate in the second quarter 2016 was 33 percent, as compared to 34 percent in the first quarter 2016. The decrease in the marginal tax rate in the second quarter 2016 was largely due to a benefit for state tax settlements in the quarter.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
2.6
%
2.9
%
3.0
%
3.7
%
4.3
%
(30)
(170)
Allowance for loan loss to LHFI and loans with government guarantees
2.4
%
2.7
%
2.8
%
3.3
%
3.9
%
(30)
(150)
Charge-offs, net of recoveries
$
9

$
12

$
9

$
24

$
18

(25
)%
(50
)%
Charge-offs, net of recoveries,
adjusted (1)
$
3

$
3

$
4

$
8

$
3

—
 %
—
 %
Total nonperforming loans held-for-investment
$
44

$
53

$
66

$
63

$
65

(17
)%
(32
)%
Net charge-off ratio (annualized)
0.62
%
0.86
%
0.62
%
1.84
%
1.49
%
(24)
(87)
Net charge-off ratio, adjusted (annualized) (1)
0.18
%
0.20
%
0.29
%
0.61
%
0.26
%
(2)
(8)
Nonperforming loans to LHFI
0.76
%
0.95
%
1.05
%
1.15
%
1.22
%
(19)
(46)
(1) Excludes charge-offs of $2 million, $6 million, $2 million, $16 million and $15 million related to the sale or transfer of nonperforming loans and
        TDRs during the three months ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015, respectively. Also
        excludes charge-offs related to loans with government guarantees of $4 million, $3 million and $3 million during the three months ended June 30, 2016,
        March 31, 2016 and December 31, 2015, respectively.

The Company maintained strong reserve coverage and solid credit quality in the second quarter 2016. The allowance for loan losses was $150 million at June 30, 2016, covering 2.6 percent of loans held-for-investment, as compared to an allowance for loan losses of $162 million at March 31, 2016, covering 2.9 percent of loans held-for-investment. The decrease in the allowance for loan losses resulted primarily from the provision benefit of selling residential first mortgage loans and charge-offs from the sale of $14 million (UPB) of lower quality loans.

Second quarter 2016 net charge-offs were $9 million, representing 0.62 percent of loans held-for-investment. This represented a decrease of $3 million from the first quarter 2016 net charge-offs of $12 million, or 0.86 percent of loans held-for-investment. Excluding the charge-offs associated with loan sales and loans with government guarantees in both quarters, net charge-offs in the second quarter 2016 were $3 million, or 0.18 percent of loans held-for-investment, compared to $3 million, or 0.20 percent of loans held-for-investment in the prior quarter.

Nonperforming loans held-for-investment decreased to $44 million at June 30, 2016 from $53 million at March 31, 2016. There were no nonperforming commercial loans at June 30, 2016. The ratio of nonperforming loans to loans held-for-investment decreased to 0.76 percent at June 30, 2016 from 0.95 percent at March 31, 2016. At June 30, 2016, consumer loan delinquencies (30-89 days past due) totaled $7 million, down $4 million from March 31, 2016. As in the prior quarter, there were no commercial loan delinquencies (30-89 days past due) at June 30, 2016.


5

Capital
Capital Ratios (Bancorp)
Three Months Ended
Change (% / bps)
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
Seq
Yr/Yr
Total capital
20.19
%
20.97
%
20.28
%
21.64
%
21.30
%
(78
)
(111
)
Tier 1 capital
18.89
%
19.67
%
18.98
%
20.32
%
19.97
%
(78
)
(108
)
Tier 1 leverage
11.59
%
11.04
%
11.51
%
11.65
%
11.47
%
55

12

Mortgage servicing rights to Tier 1 capital
19.9
%
19.3
%
20.6
%
21.1
%
24.2
%
60

(430
)
Book value per common share
$
23.48

$
22.82

$
22.33

$
21.91

$
20.98

3
%
12
%

The Company maintained a robust capital position with regulatory capital ratios well above current regulatory quantitative guidelines for "well-capitalized" institutions. At June 30, 2016, the Company had a Tier 1 leverage ratio of 11.59 percent, as compared to 11.04 percent at March 31, 2016. The increase in the ratio resulted from earnings retention and a decrease in average assets. Adjusting for the expected TARP redemption in July, the Tier 1 leverage ratio was 8.59 percent at June 30, 2016.

At June 30, 2016, the Company had a common equity-to-assets ratio of 9.68 percent.

Earnings Conference Call

As previously announced, the Company's second quarter 2016 earnings call will be held Tuesday, July 26, 2016 at 11 a.m. (ET).

To join the call, please dial (800) 723-6604 toll free or (785) 830-7977, and use passcode 1789408. 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 1789408.

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 $13.7 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 99 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 29 retail locations in 21 states. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for nearly $75 billion of home loans for nearly 360,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release includes non-GAAP financial measures such as the estimated Basel III ratios and ratios adjusted for TARP redemption. 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. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in

6

a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP.

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.

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.



7

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
June 30, 2015
 
(Unaudited)
 
(Unaudited)
 
 
 
(Unaudited)
Assets
 
 
 
 
 
 
 
Cash
$
64

 
$
54

 
$
54

 
$
52

Interest-earning deposits
120

 
670

 
154

 
194

Total cash and cash equivalents
184

 
724

 
208

 
246

    Investment securities available-for-sale
1,145

 
1,314

 
1,294

 
2,272

    Investment securities held-to-maturity
1,211

 
1,253

 
1,268

 
—

Loans held-for-sale
3,091

 
2,591

 
2,576

 
2,038

Loans held-for-investment
5,822

 
5,640

 
6,352

 
5,335

Loans with government guarantees
435

 
462

 
485

 
592

Less: allowance for loan losses
(150
)
 
(162
)
 
(187
)
 
(222
)
Total loans held-for-investment and loans with government guarantees, net
6,107

 
5,940

 
6,650

 
5,705

    Mortgage servicing rights
301

 
281

 
296

 
317

    Federal Home Loan Bank stock
172

 
172

 
170

 
113

    Premises and equipment, net
259

 
256

 
250

 
240

    Net deferred tax asset
335

 
352

 
364

 
400

    Other assets
920

 
854

 
639

 
808

Total assets
$
13,725

 
$
13,737

 
$
13,715

 
$
12,139

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Noninterest-bearing
$
2,109

 
$
1,984

 
$
1,574

 
$
1,417

Interest-bearing
6,462

 
6,485

 
6,361

 
6,231

Total deposits
8,571

 
8,469

 
7,935

 
7,648

Short-term Federal Home Loan Bank advances
1,069

 
1,250

 
2,116

 
1,323

Long-term Federal Home Loan Bank advances
1,577

 
1,625

 
1,425

 
875

Other long-term debt
247

 
247

 
247

 
283

    Representation and warranty reserve
36

 
40

 
40

 
48

Other liabilities
629

 
548

 
423

 
511

            Total liabilities
12,129

 
12,179

 
12,186

 
10,688

    Stockholders' Equity
 
 
 
 
 
 
 
Preferred stock
267

 
267

 
267

 
267

Common stock
1

 
1

 
1

 
1

    Additional paid in capital
1,491

 
1,489

 
1,486

 
1,482

    Accumulated other comprehensive (loss) income
(22
)
 
(11
)
 
2

 
8

    Accumulated deficit
(141
)
 
(188
)
 
(227
)
 
(307
)
Total stockholders' equity
1,596

 
1,558

 
1,529

 
1,451

Total liabilities and stockholders' equity
$
13,725

 
$
13,737

 
$
13,715

 
$
12,139





8

Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Second Quarter 2016 Compared to:
 
Three Months Ended
 
First Quarter
2016
Second Quarter
2015
 
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
 
Amount
Percent
Amount
Percent
 
 
 
 
 
 
 
 
 
 
 
Interest Income
 
 
 
 
 
 
 
 
 
 
Total interest income
$
99

$
101

$
95

$
91

$
90

 
$
(2
)
(2
)%
$
9

10
 %
Total interest expense
22

22

19

18

17

 
—

—
 %
5

29
 %
Net interest income
77

79

76

73

73

 
(2
)
(3
)%
4

5
 %
Provision (benefit) for loan losses
(3
)
(13
)
(1
)
(1
)
(13
)
 
10

(77
)%
$
10

(77
)%
Net interest income after provision for loan losses
80

92

77

74

86

 
(12
)
(13
)%
(6
)
(7
)%
Noninterest Income
 
 
 
 
 
 








Net gain on loan sales
90

75

46

68

83

 
15

20
 %
$
7

8
 %
Loan fees and charges
19

15

14

17

19

 
4

27
 %
$
—

—
 %
Deposit fees and charges
6

6

6

7

6

 
—

—
 %
$
—

—
 %
Loan administration income
4

6

7

8

7

 
(2
)
(33
)%
$
(3
)
(43
)%
Net (loss) return on the mortgage servicing asset
(4
)
(6
)
9

12

9

 
2

(33
)%
$
(13
)
N/M

Net (loss) gain on sale of assets
—

(2
)
—

1

(2
)
 
2

(100
)%
2

(100
)%
Representation and warranty benefit
4

2

6

6

5

 
2

100
 %
$
(1
)
(20
)%
Other noninterest income (loss)
9

9

9

9

(1
)
 
—

—
 %
$
10

N/M

Total noninterest income
128

105

97

128

126

 
23

22
 %
2

2
 %
Noninterest Expense
 
 
 
 
 
 








Compensation and benefits
66

68

59

58

59

 
(2
)
(3
)%
$
7

12
 %
Commissions
14

10

8

10

11

 
4

40
 %
$
3

27
 %
Occupancy and equipment
21

22

21

20

20

 
(1
)
(5
)%
$
1

5
 %
Asset resolution
1

3

2

—

5

 
(2
)
(67
)%
$
(4
)
(80
)%
Federal insurance premiums
3

3

5

6

6

 
—

—
 %
$
(3
)
(50
)%
Loan processing expense
15

12

12

14

14

 
3

25
 %
$
1

7
 %
Legal and professional expense
6

9

9

10

8

 
(3
)
(33
)%
$
(2
)
(25
)%
Other noninterest expense
13

10

13

13

15

 
3

30
 %
$
(2
)
(13
)%
Total noninterest expense
139

137

129

131

138

 
2

2
 %
1

1
 %
Income before income taxes
69

60

45

71

74

 
9

15
 %
(5
)
(7
)%
Provision for income taxes
22

21

12

24

28

 
1

5
 %
$
(6
)
(21
)%
Net income
$
47

$
39

$
33

$
47

$
46

 
$
8

21
 %
$
1

2
 %
Income per share
 
 
 
 
 
 








Basic
$
0.67

$
0.56

$
0.45

$
0.70

$
0.69

 
$
0.11

20
 %
$
(0.02
)
(3
)%
Diluted
$
0.66

$
0.54

$
0.44

$
0.69

$
0.68

 
$
0.12

22
 %
$
(0.02
)
(3
)%
N/M - Not meaningful


9

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

 
 
 
Six Months Ended June 30, 2016
 
Six Months Ended
 
Compared to:
Six Months Ended June 30, 2015
 
June 30,
2016
June 30,
2015
 
Amount
Percent
 
 
 
 
 
 
Interest Income
 
 
 
 
 
Total interest income
$
200

$
169

 
$
31

18
 %
Total interest expense
44

31

 
13

42
 %
Net interest income
156

138

 
18

13
 %
Provision (benefit) for loan losses
(16
)
(17
)
 
1

(6
)%
Net interest income after provision for loan losses
172

155

 
17

11
 %
Noninterest Income
 
 
 
 
 
Net gain on loan sales
165

174

 
(9
)
(5
)%
Loan fees and charges
34

36

 
(2
)
(6
)%
Deposit fees and charges
12

12

 
—

—
 %
Loan administration income
10

11

 
(1
)
(9
)%
Net (loss) return on the mortgage servicing asset
(10
)
7

 
(17
)
N/M

Net loss on sale of assets
(2
)
(2
)
 
—

—
 %
Representation and warranty benefit
6

7

 
(1
)
(14
)%
Other noninterest income
18

—

 
18

N/M

Total noninterest income
233

245

 
(12
)
(5
)%
Noninterest Expense
 
 
 
 
 
Compensation and benefits
134

120

 
14

12
 %
Commissions
24

21

 
3

14
 %
Occupancy and equipment
43

40

 
3

8
 %
Asset resolution
4

13

 
(9
)
(69
)%
Federal insurance premiums
6

12

 
(6
)
(50
)%
Loan processing expense
27

26

 
1

4
 %
Legal and professional expense
15

17

 
(2
)
(12
)%
Other noninterest expense
23

27

 
(4
)
(15
)%
Total noninterest expense
276

276

 
—

—
 %
Income before income taxes
129

124

 
5

4
 %
Provision for income taxes
43

46

 
(3
)
(7
)%
Net income
$
86

$
78

 
$
8

10
 %
Income per share
 
 
 
 
 
Basic
$
1.23

$
1.12

 
$
0.11

10
 %
Diluted
$
1.21

$
1.11

 
$
0.10

9
 %
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,
2016
 
March 31,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Mortgage loans originated (1)
$
8,330

 
$
6,352

 
$
8,448

 
$
14,682

 
$
15,702

Mortgage loans sold and securitized
$
7,940

 
$
6,948

 
$
7,571

 
$
14,888

 
$
13,825

Interest rate spread (2)
2.43
%
 
2.50
%
 
2.63
%
 
2.46
%
 
2.61
%
Net interest margin
2.63
%
 
2.66
%
 
2.79
%
 
2.64
%
 
2.77
%
Average common shares outstanding
56,574,796

 
56,513,715

 
56,436,026

 
56,544,256

 
56,410,880

Average fully diluted shares outstanding
57,751,230

 
57,600,984

 
57,165,072

 
57,623,081

 
56,971,133

Average interest-earning assets
$
11,639

 
$
11,871

 
$
10,367

 
$
11,755

 
$
9,897

Average interest-paying liabilities
$
9,205

 
$
9,823

 
$
8,265

 
$
9,514

 
$
7,887

Average stockholders' equity
$
1,606

 
$
1,561

 
$
1,462

 
$
1,583

 
$
1,443

Return on average assets
1.38
%
 
1.16
%
 
1.57
%
 
1.27
%
 
1.38
%
Return on average equity
11.53
%
 
10.08
%
 
12.71
%
 
10.81
%
 
10.81
%
Return on average common equity
13.83
%
 
12.15
%
 
15.55
%
 
13.00
%
 
13.26
%
Efficiency ratio
68.2
%
 
74.5
%
 
69.6
%
 
71.2
%
 
72.1
%
Equity-to-assets ratio (average for the period)
11.95
%
 
11.52
%
 
12.37
%
 
11.73
%
 
12.73
%
 
June 30,
2016
 
March 31,
2016
 
December 31, 2015
 
June 30,
2015
Book value per common share
$
23.48

 
$
22.82

 
$
22.33

 
$
20.98

Number of common shares outstanding
56,575,779

 
56,557,895

 
56,483,258

 
56,436,026

Mortgage loans subserviced for others
$
38,000

 
$
37,714

 
$
40,244

 
$
43,292

Mortgage loans serviced for others
$
30,443

 
$
26,613

 
$
26,145

 
$
27,679

Weighted average service fee (basis points)
28.2

 
28.2

 
27.7

 
27.4

Capitalized value of mortgage servicing rights
0.99
%
 
1.06
%
 
1.13
%
 
1.15
%
Mortgage servicing rights to Tier 1 capital
19.9
%
 
19.3
%
 
20.6
%
 
24.2
%
Ratio of allowance for loan losses to LHFI (3)
2.62
%
 
2.93
%
 
3.00
%
 
4.31
%
Ratio of allowance for loan losses to LHFI and loans with government guarantees (3)
2.43
%
 
2.70
%
 
2.78
%
 
3.86
%
Ratio of nonperforming assets to total assets
0.46
%
 
0.49
%
 
0.61
%
 
0.69
%
Equity-to-assets ratio
11.62
%
 
11.34
%
 
11.14
%
 
11.95
%
Common equity-to-assets ratio
9.68
%
 
9.40
%
 
9.20
%
 
9.76
%
Number of bank branches
99

 
99

 
99

 
100

Number of FTE employees
2,894

 
2,771

 
2,713

 
2,713

(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, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Net income
47

 
39

 
46

 
86

 
78

Deferred cumulative preferred stock dividends
(8
)
 
(8
)
 
(7
)
 
(16
)
 
(15
)
Net income applicable to Common Stockholders
$
39

 
$
31

 
$
39

 
$
70

 
$
63

Weighted Average Shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
56,574,796

 
56,513,715

 
56,436,026

 
56,544,256

 
56,410,880

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
349,539

 
305,219

 
299,391

 
327,307

 
266,118

Stock-based awards
826,895

 
782,050

 
429,655

 
751,518

 
294,135

Weighted average diluted common shares
57,751,230

 
57,600,984

 
57,165,072

 
57,623,081

 
56,971,133

Earnings per common share
 
 
 
 
 
 
 
 
 
Net income applicable to Common Stockholders
$
0.67

 
$
0.56

 
$
0.69

 
$
1.23

 
$
1.12

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
—

 
—

 
—

 
—

 
—

Stock-based awards
(0.01
)
 
(0.02
)
 
(0.01
)
 
(0.02
)
 
(0.01
)
Diluted earnings per share
$
0.66

 
$
0.54

 
$
0.68

 
$
1.21

 
$
1.11



12

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
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
$
2,884

$
26

3.64
%
 
$
2,909

$
28

3.81
%
 
$
2,218

$
21

3.80
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Consumer loans (1)
2,746

24

3.48
%
 
3,314

29

3.52
%
 
2,913

27

3.74
%
Commercial loans (1)
2,823

28

3.94
%
 
2,354

23

3.91
%
 
2,025

21

4.03
%
Total loans held-for-investment
5,569

52

3.71
%
 
5,668

52

3.68
%
 
4,938

48

3.86
%
Loans with government guarantees
444

4

3.33
%
 
475

4

3.05
%
 
630

5

2.97
%
Investment securities
2,558

17

2.66
%
 
2,692

17

2.51
%
 
2,350

15

2.55
%
Interest-earning deposits
184

—

0.50
%
 
127

—

0.52
%
 
231

1

0.55
%
Total interest-earning assets
11,639

$
99

3.40
%
 
11,871

$
101

3.39
%
 
10,367

$
90

3.42
%
Other assets
1,799

 
 
 
1,672

 
 
 
1,444

 
 
Total assets
$
13,438

 
 
 
$
13,543

 
 
 
$
11,811

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
482

$
—

0.17
%
 
$
445

$
—

0.13
%
 
$
431

$
—

0.14
%
Savings deposits
3,691

7

0.79
%
 
3,722

7

0.79
%
 
3,752

8

0.83
%
Money market deposits
363

1

0.52
%
 
243

—

0.36
%
 
242

—

0.26
%
Certificates of deposit
951

2

1.00
%
 
856

2

0.92
%
 
763

2

0.71
%
Total retail deposits
5,487

10

0.75
%
 
5,266

9

0.74
%
 
5,188

10

0.73
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
203

—

0.39
%
 
256

—

0.39
%
 
210

—

0.40
%
Savings deposits
398

—

0.52
%
 
419

1

0.52
%
 
401

1

0.52
%
Certificates of deposit
410

1

0.50
%
 
412

1

0.47
%
 
331

—

0.34
%
Total government deposits
1,011

1

0.49
%
 
1,087

2

0.47
%
 
942

1

0.43
%
Total interest-bearing deposits
6,498

11

0.71
%
 
6,353

11

0.69
%
 
6,130

11

0.68
%
Short-term debt
835

1

0.41
%
 
1,662

2

0.38
%
 
—

—

—
%
Long-term debt
1,625

8

1.93
%
 
1,560

7

1.86
%
 
1,828

4

0.90
%
Other
247

2

3.31
%
 
248

2

3.22
%
 
307

2

2.38
%
Total interest-bearing liabilities
9,205

22

0.97
%
 
9,823

22

0.89
%
 
8,265

17

0.79
%
Noninterest-bearing deposits (2)
2,133

 
 
 
1,697

 
 
 
1,606

 
 
Other liabilities
494

 
 
 
462

 
 
 
478

 
 
Stockholders' equity
1,606

 
 
 
1,561

 
 
 
1,462

 
 
Total liabilities and stockholders' equity
$
13,438

 
 
 
$
13,543

 
 
 
$
11,811

 
 
Net interest-earning assets
$
2,434

 
 
 
$
2,048

 
 
 
$
2,102

 
 
Net interest income
 
$
77

 
 
 
$
79

 
 
 
$
73

 
Interest rate spread (3)
 
 
2.43
%
 
 
 
2.50
%
 
 
 
2.63
%
Net interest margin (4)
 
 
2.63
%
 
 
 
2.66
%
 
 
 
2.79
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
126.4
%
 
 
 
120.9
%
 
 
 
125.4
%
Total average deposits
$
8,631

 
 
 
$
8,050

 
 
 
$
7,736

 
 
(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 noninterest-bearing company-controlled deposits that arise due to the servicing of loans for others.
(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, 2016
 
June 30, 2015
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
2,897

$
54

3.72
%
 
$
2,031

$
40

3.89
%
Loans held-for-investment
 
 
 
 
 
 
 
Consumer loans (1)
3,030

53

3.50
%
 
2,765

52

3.79
%
Commercial loans (1)
2,588

52

3.93
%
 
1,852

37

3.99
%
Total loans held-for-investment
5,618

105

3.70
%
 
4,617

89

3.87
%
Loans with government guarantees
460

7

3.18
%
 
747

10

2.67
%
Investment securities
2,625

34

2.59
%
 
2,232

29

2.56
%
Interest-earning deposits
155

—

0.50
%
 
270

1

0.49
%
Total interest-earning assets
11,755

$
200

3.39
%
 
9,897

$
169

3.40
%
Other assets
1,736

 
 
 
1,439

 
 
Total assets
$
13,491

 
 
 
$
11,336

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
463

$
—

0.15
%
 
$
428

$
—

0.14
%
Savings deposits
3,706

15

0.79
%
 
3,657

15

0.80
%
Money market deposits
303

1

0.45
%
 
249

—

0.26
%
Certificates of deposit
904

4

0.96
%
 
775

3

0.69
%
Total retail deposits
5,376

20

0.74
%
 
5,109

18

0.70
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
230

—

0.39
%
 
218

—

0.39
%
Savings deposits
409

1

0.52
%
 
387

1

0.52
%
Certificates of deposit
411

1

0.71
%
 
344

1

0.35
%
Total government deposits
1,050

2

0.57
%
 
949

2

0.43
%
Total interest-bearing deposits
6,426

22

0.70
%
 
6,058

20

0.66
%
Short-term debt
1,249

3

0.40
%
 
—

—

—
%
Long-term debt
1,592

15

1.91
%
 
1,497

7

0.97
%
Other
247

4

3.27
%
 
332

4

2.28
%
Total interest-bearing liabilities
9,514

44

0.93
%
 
7,887

31

0.79
%
Noninterest-bearing deposits (2)
1,915

 
 
 
1,495

 
 
Other liabilities
479

 
 
 
511

 
 
Stockholders' equity
1,583

 
 
 
1,443

 
 
Total liabilities and stockholders' equity
$
13,491

 
 
 
$
11,336

 
 
Net interest-earning assets
$
2,241

 
 
 
$
2,010

 
 
Net interest income
 
$
156

 
 
 
$
138

 
Interest rate spread (3)
 
 
2.46
%
 
 
 
2.61
%
Net interest margin (4)
 
 
2.64
%
 
 
 
2.77
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
123.6
%
 
 
 
125.5
%
Total average deposits
$
8,341

 
 
 
$
7,553

 
 
 
 
 
 
 
 
 
 
(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 noninterest-bearing company-controlled deposits that arise due to the servicing of loans for others.
(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 on Loans Held-for-Sale
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
(Dollars in millions)
Mortgage rate lock commitments (fallout-adjusted) (1)
$
8,127

 
$
6,863

 
$
5,027

 
$
6,495

 
$
6,804

Net margin on mortgage rate lock commitments (fallout-adjusted) (1)
1.04
%
 
0.96
%
 
0.92
%
 
1.05
%
 
1.22
%
Net gain on loan sales on HFS
$
85

 
$
66

 
$
46

 
$
68

 
$
83

Net (loss) return on the mortgage servicing rights
$
(4
)
 
$
(6
)
 
$
9

 
$
12

 
$
9

Gain on loan sales HFS + net (loss) return on the MSR
$
81

 
$
60

 
$
55

 
$
80

 
$
92

Residential loans serviced (number of accounts - 000's) (2)
358

 
340

 
361

 
369

 
378

Capitalized value of mortgage servicing rights
0.99
%
 
1.06
%
 
1.13
%
 
1.12
%
 
1.15
%
Mortgage rate lock commitments (gross)
$
10,168

 
$
8,762

 
$
6,258

 
$
8,025

 
$
8,400

Loans sold and securitized
$
7,940

 
$
6,948

 
$
5,164

 
$
7,318

 
$
7,571

Net margin on loan sales
1.07
%
 
0.94
%
 
0.90
%
 
0.93
%
 
1.09
%
(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.
(2)
Includes serviced for own loan portfolio, serviced for others and subserviced for others loans.

 
Six Months Ended
 
June 30,
2016
 
June 30,
2015
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
14,990

 
$
13,989

Net margin on mortgage rate lock commitments (fallout-adjusted) (1)
1.00
%
 
1.24
%
Net gain on loan sales on HFS
$
151

 
$
174

Net (loss) return on the mortgage servicing rights
$
(10
)
 
$
7

Gain on loan sales HFS + net (loss) return on the MSR
$
141

 
$
181

Residential loans serviced (number of accounts - 000's) (2)
358

 
378

Capitalized value of mortgage servicing rights
0.99
%
 
1.15
%
Mortgage rate lock commitments (gross)
$
18,930

 
$
17,435

Loans sold and securitized
$
14,888

 
$
13,825

Net margin on loan sales
1.01
%
 
1.26
%
(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.
(2)
Includes serviced for own loan portfolio, serviced for others and subserviced for others loans.



15

Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets)
$
1,514

11.59
%
 
$
1,453

11.04
%
 
$
1,435

11.51
%
 
$
1,393

11.65
%
 
$
1,309

11.47
%
Total adjusted tangible asset base
$
13,068

 
 
$
13,167

 
 
$
12,474

 
 
$
11,957

 
 
$
11,406

 
Tier 1 common equity (to risk weighted assets)
$
1,086

13.55
%
 
$
1,032

13.96
%
 
$
1,065

14.09
%
 
$
1,024

14.93
%
 
$
954

14.56
%
Tier 1 capital (to risk weighted assets)
$
1,514

18.89
%
 
$
1,453

19.67
%
 
$
1,435

18.98
%
 
$
1,393

20.32
%
 
$
1,309

19.97
%
Total capital (to risk weighted assets)
$
1,618

20.19
%
 
$
1,549

20.97
%
 
$
1,534

20.28
%
 
$
1,483

21.64
%
 
$
1,396

21.30
%
Risk weighted asset base
$
8,014

 
 
$
7,387

 
 
$
7,561

 
 
$
6,857

 
 
$
6,553

 


Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets)
$
1,576

12.03
%
 
$
1,509

11.43
%
 
$
1,472

11.79
%
 
$
1,426

11.91
%
 
$
1,337

11.70
%
Total adjusted tangible asset base
$
13,102

 
 
$
13,200

 
 
$
12,491

 
 
$
11,975

 
 
$
11,424

 
Tier 1 common equity (to risk weighted assets)
$
1,576

19.58
%
 
$
1,509

20.34
%
 
$
1,472

19.42
%
 
$
1,426

20.75
%
 
$
1,337

20.35
%
Tier 1 capital (to risk weighted assets)
$
1,576

19.58
%
 
$
1,509

20.34
%
 
$
1,472

19.42
%
 
$
1,426

20.75
%
 
$
1,337

20.35
%
Total capital (to risk weighted assets)
$
1,679

20.86
%
 
$
1,605

21.63
%
 
$
1,570

20.71
%
 
$
1,516

22.05
%
 
$
1,423

21.66
%
Risk weighted asset base
$
8,048

 
 
$
7,421

 
 
$
7,582

 
 
$
6,874

 
 
$
6,570

 


Loan Originations
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
June 30, 2016
 
March 31, 2016
 
June 30, 2015
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
8,330

97.6
%
 
$
6,352

98.3
%
 
$
8,448

99.1
%
    Other consumer (2)
42

0.5
%
 
27

0.4
%
 
33

0.4
%
Total consumer loans
8,372

98.1
%
 
6,379

98.7
%
 
8,481

99.5
%
Commercial loans (3)
164

1.9
%
 
84

1.3
%
 
40

0.5
%
Total loan originations
$
8,536

100.0
%
 
$
6,463

100.0
%
 
$
8,521

100.0
%
 
Six Months Ended
 
June 30, 2016
 
June 30, 2015
    Mortgage (1)
$
14,682

97.8
%
 
$
15,702

99.2
%
    Other consumer (2)
69

0.5
%
 
54

0.3
%
Total consumer loans
14,751

98.3
%
 
15,756

99.5
%
Commercial loans (3)
248

1.7
%
 
79

0.5
%
Total loan originations
$
14,999

100.0
%
 
$
15,835

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


16

Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
June 30, 2015
Consumer loans
 
 
 
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,075

35.6
%
 
$
2,410

42.8
%
 
$
3,100

48.9
%
 
$
2,495

46.7
%
Second mortgage
127

2.2
%
 
129

2.3
%
 
135

2.1
%
 
143

2.7
%
HELOC
346

5.9
%
 
366

6.5
%
 
384

6.0
%
 
422

7.9
%
Other
32

0.5
%
 
31

0.5
%
 
31

0.5
%
 
31

0.6
%
    Total consumer loans
2,580

44.2
%
 
2,936

52.1
%
 
3,650

57.5
%
 
3,091

57.9
%
Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
976

16.8
%
 
851

15.1
%
 
814

12.8
%
 
629

11.8
%
Commercial and industrial
615

10.6
%
 
571

10.1
%
 
552

8.7
%
 
412

7.7
%
Warehouse lending
1,651

28.4
%
 
1,282

22.7
%
 
1,336

21.0
%
 
1,203

22.6
%
    Total commercial loans
3,242

55.8
%
 
2,704

47.9
%
 
2,702

42.5
%
 
2,244

42.1
%
Total loans held-for-investment
$
5,822

100.0
%
 
$
5,640

100.0
%
 
$
6,352

100.0
%
 
$
5,335

100.0
%

Residential Loans Serviced
(Dollars in millions)
(Unaudited)
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
June 30, 2015
 
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)
$
5,379

29,520

 
$
5,293

29,078

 
$
6,088

30,683

 
$
5,211

28,106

Serviced for others
30,443

134,266

 
26,613

118,768

 
26,145

118,662

 
27,679

124,299

Subserviced for others (2)
38,000

194,209

 
37,714

192,423

 
40,244

211,740

 
43,292

225,268

Total residential loans serviced
$
73,822

357,995

 
$
69,620

340,269

 
$
72,477

361,085

 
$
76,182

377,673

(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.


17

Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2016
 
March 31,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Beginning balance
$
162

 
$
187

 
$
253

 
$
187

 
$
297

Provision (benefit) for loan losses
(3
)
 
(13
)
 
(13
)
 
(16
)
 
(17
)
Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(8
)
 
(11
)
 
(19
)
 
(19
)
 
(60
)
     Second mortgage
(1
)
 
(1
)
 
(1
)
 
(2
)
 
(2
)
     HELOC
—

 
(1
)
 
—

 
(1
)
 
(1
)
     Other
(1
)
 
(1
)
 
(1
)
 
(2
)
 
(1
)
Total charge-offs
(10
)
 
(14
)
 
(21
)
 
(24
)
 
(64
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
1

 
—

 
1

 
1

 
2

     Second mortgage
1

 
—

 
1

 
1

 
1

     HELOC
(1
)
 
1

 
—

 
—

 
—

     Other
—

 
1

 
1

 
1

 
1

Total consumer loans
1

 
2

 
3

 
3

 
4

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
—

 
—

 
—

 
—

 
2

Total recoveries
1

 
2

 
3

 
3

 
6

Charge-offs, net of recoveries
(9
)
 
(12
)
 
(18
)
 
(21
)
 
(58
)
Ending balance
$
150

 
$
162

 
$
222

 
$
150

 
$
222

Net charge-offs to LHFI ratio (annualized) (1)
0.62
 %
 
0.86
 %
 
1.49
 %
 
0.74
 %
 
2.63
 %
Net charge-offs ratio, adjusted (annualized) (1)(2)
0.18
 %
 
0.20
 %
 
0.26
 %
 
0.44
 %
 
0.34
 %
Net charge-offs to LHFI ratio (annualized) by loan type (1)
 
 
 
 
 
 
 
 
 
Residential first mortgage
1.42
 %
 
1.50
 %
 
2.91
 %
 
1.46
 %
 
5.09
 %
Second mortgage
0.32
 %
 
4.72
 %
 
1.02
 %
 
2.55
 %
 
1.97
 %
HELOC and consumer
0.69
 %
 
0.69
 %
 
0.41
 %
 
0.69
 %
 
1.32
 %
Commercial real estate
—
 %
 
(0.02
)%
 
(0.16
)%
 
(0.01
)%
 
(0.61
)%
Commercial and industrial
(0.02
)%
 
(0.01
)%
 
0.15
 %
 
(0.02
)%
 
0.07
 %
(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of $2 million, $6 million, and $15 million related to the sale of nonperforming loans, TDRs and non-agency loans during the three months ended June 30, 2016, March 31, 2016 and June 30, 2015, respectively and $8 million and $51 million during the six months ended June 30, 2016 and 2015, respectively. Also excludes charge-offs related to loans with government guarantees of $4 million and $3 million during the three months ended June 30, 2016 and March 31, 2016, respectively, and $7 million during the six months ended June 30, 2016.



18

Representation and Warranty Reserve
(Dollars in millions)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
 Balance, beginning of period
$
40

 
$
40

 
$
53

 
$
40

 
$
53

 Provision (release)
 
 
 
 
 
 
 
 
 
 
Charged to gain on sale for current loan sales
1

 
2

 
2

 
3

 
4

 
Charged to representation and warranty benefit
(4
)
 
(2
)
 
(5
)
 
(6
)
 
(7
)
 
Total
(3
)
 
—

 
(3
)
 
(3
)
 
(3
)
 Charge-offs, net
(1
)
 
—

 
(2
)
 
(1
)
 
(2
)
 Balance, end of period
$
36

 
$
40


$
48

 
$
36

 
$
48


Composition of Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
June 30, 2016
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
74

 
$
7

 
$
81

   Second mortgage
4

 
6

 
10

   HELOC
17

 
3

 
20

   Other
1

 
—

 
1

Total consumer loans
96

 
16

 
112

Commercial loans
 
 
 
 
 
   Commercial real estate
19

 
—

 
19

   Commercial and industrial
11

 
—

 
11

   Warehouse lending 
8

 
—

 
8

Total commercial loans
38

 
—

 
38

Total allowance for loan losses
$
134

 
$
16

 
$
150

March 31, 2016
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
86

 
$
9

 
$
95

   Second mortgage
5

 
5

 
10

   HELOC
18

 
2

 
20

   Other
2

 
—

 
2

Total consumer loans
111

 
16

 
127

Commercial loans
 
 
 
 
 
   Commercial real estate
19

 
—

 
19

   Commercial and industrial
10

 
—

 
10

   Warehouse lending 
6

 
—

 
6

Total commercial loans
35

 
—

 
35

Total allowance for loan losses
$
146

 
$
16

 
$
162



19

Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
June 30,
2015
Nonperforming loans
$
23

 
$
27

 
$
31

 
$
41

Nonperforming TDRs
6

 
6

 
7

 
11

Nonperforming TDRs at inception but performing for less than six months
15

 
20

 
28

 
13

Total nonperforming loans held-for-investment
44

 
53

 
66

 
65

Real estate and other nonperforming assets, net
19

 
14

 
17

 
18

Nonperforming assets held-for-investment, net (1)
$
63

 
$
67

 
$
83

 
$
83

 
 
 
 
 
 
 
 
Ratio of nonperforming assets to total assets
0.46
%
 
0.49
%
 
0.61
%
 
0.69
%
Ratio of nonperforming loans held-for-investment to loans held-for-investment
0.76
%
 
0.95
%
 
1.05
%
 
1.22
%
Ratio of nonperforming assets to loans held-for-investment and repossessed assets
1.09
%
 
1.20
%
 
1.32
%
 
1.55
%
Ratio of nonperforming assets to Tier 1 capital + allowance for loan losses
3.79
%
 
4.15
%
 
5.12
%
 
5.42
%
(1)
Does not include nonperforming loans held-for-sale of $5 million, $6 million, $12 million and $14 million at June 30, 2016, March 31, 2016, December 31, 2015 and June 30, 2015, 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 (1)
Total Past Due
Total Investment Loans
June 30, 2016
 
 
 
 
 
Consumer loans
$
5

$
2

$
44

$
51

$
2,580

Commercial loans
—

—

—

—

3,242

     Total loans
$
5

$
2

$
44

$
51

$
5,822

March 31, 2016
 
 
 
 
 
Consumer loans
$
8

$
3

$
52

$
63

$
2,936

Commercial loans
—

—

1

1

2,704

     Total loans
$
8

$
3

$
53

$
64

$
5,640

December 31, 2015
 
 
 
 
 
Consumer loans
$
10

$
4

$
64

$
78

$
3,650

Commercial loans
—

—

2

2

2,702

     Total loans
$
10

$
4

$
66

$
80

$
6,352

June 30, 2015
 
 
 
 
 
Consumer loans
10

6

65

$
81

$
3,091

Commercial loans
—

—

—

—

2,244

     Total loans
$
10

$
6

$
65

$
81

$
5,335

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


20

Troubled Debt Restructurings
(Dollars in millions)
(Unaudited)
 
TDRs
 
Performing
 
Nonperforming
 
Nonperforming TDRs at inception but performing for less than six months
 
Total
June 30, 2016
 
Consumer loans
$
72

 
$
6

 
$
15

 
$
93

Commercial loans
1

 
—

 
—

 
1

     Total TDR loans
$
73

 
$
6

 
$
15

 
$
94

March 31, 2016
 
 
 
 
 
 
 
Consumer loans
$
75

 
$
6

 
$
19

 
$
100

Commercial loans
—

 
—

 
1

 
1

     Total TDR loans
$
75

 
$
6

 
$
20

 
$
101

December 31, 2015
 
 
 
 
 
 
 
Consumer loans
$
101

 
$
7

 
$
28

 
$
136

     Total TDR loans
$
101

 
$
7

 
$
28

 
$
136

June 30, 2015
 
 
 
 
 
 
 
Consumer loans
$
108

 
$
11

 
$
13

 
$
132

     Total TDR loans
$
108

 
$
11

 
$
13

 
$
132

 
 
 
 
 
 

Non-GAAP Reconciliation
(Dollars in millions)
(Unaudited)

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. The Common Equity Tier 1, Tier 1, Total Capital and Leverage ratios, will not be fully phased-in until January 1, 2018 and the Capital Conservation buffer 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 our calculations 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.



21

June 30, 2016
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)
$
1,086

 
$
1,514

 
$
1,514

 
$
1,618

Increased deductions related to deferred tax assets, mortgage servicing assets and other capital components
(233
)
 
(154
)
 
(154
)
 
(153
)
Basel III (fully phased-in) capital
$
853

 
$
1,360

 
$
1,360

 
$
1,465

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
8,014

 
$
13,068

 
$
8,014

 
$
8,014

Net change in assets
40

 
(155
)
 
40

 
40

Basel III (fully phased-in) assets
$
8,054

 
$
12,913

 
$
8,054

 
$
8,054

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
13.55
%
 
11.59
%
 
18.89
%
 
20.19
%
Basel III (fully phased-in)
10.59
%
 
10.53
%
 
16.88
%
 
18.19
%
 
 
 
 
 
 
 
 
June 30, 2016
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)
$
1,576

 
$
1,576

 
$
1,576

 
$
1,679

Increased deductions related to deferred tax assets, mortgage servicing assets and other capital components
(105
)
 
(105
)
 
(105
)
 
(102
)
Basel III (fully phased-in) capital
$
1,471

 
$
1,471

 
$
1,471

 
$
1,577

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in) (1)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
8,048

 
$
13,102

 
$
8,048

 
$
8,048

Net change in assets
230

 
(105
)
 
230

 
230

Basel III (fully phased-in) assets
$
8,278

 
$
12,997

 
$
8,278

 
$
8,278

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
19.58
%
 
12.03
%
 
19.58
%
 
20.86
%
Basel III (fully phased-in)
17.76
%
 
11.31
%
 
17.76
%
 
19.05
%
 
 
 
 
 
 
 
 

22

TARP Redemption. As announced on June 29, 2016, we plan to redeem $267 million of our Fixed Rate Cumulative Perpetual Preferred Stock, Series C (the "TARP Preferred") plus accrued and unpaid dividends of $104 million by July 29, 2016 which will have a material impact on our capital ratios presented below.  These measures are considered to be non-GAAP financial measures because they are not formally defined by GAAP. Since analysts and banking regulators may assess our capital adequacy based on this redemption, we believe that it is useful to provide investors information enabling them to assess our capital adequacy on the same basis.
June 30, 2016
Common Equity Tier 1 (to Risk Weighted Assets)
 
Tier 1 Leverage (to Adjusted Tangible Assets)
Flagstar Bancorp (the Company)
(Dollars in millions)
(Unaudited)
 
 
 
 
Regulatory capital
$
1,086

 
$
1,514

TARP redemption
(112
)
 
(378
)
Adjusted regulatory capital
$
974

 
$
1,136

 
 
 
 
Risk-weighted assets
$
8,014

 
$
13,068

TARP redemption
(9
)
 
150

Adjusted risk-weighted assets
$
8,005

 
$
13,218

 
 
 
 
Regulatory capital ratio
13.55
%
 
11.59
%
Adjusted regulatory capital ratio for TARP Redemption
12.17
%
 
8.59
%


23