EX-99.1 2 pressrelease4q2016.htm EXHIBIT 99.1 Exhibit


flagstara38.jpg                fbcnyselisteda17.jpg

EXHIBIT 99.1
NEWS RELEASE
For more information, contact:        
David L. Urban
david.urban@flagstar.com
(248) 312-5970
                                
                                        
Flagstar Reports Fourth Quarter 2016 Net Income of $28 million, or $0.49 per Diluted Share

Company continues solid banking growth and successful execution of business plan

Key Highlights - Fourth Quarter 2016

•
Net interest income grew $7 million, or 9 percent, from third quarter 2016, led by higher earning assets and a higher net interest margin.
•
Net gain on loan sales fell to $57 million, versus $94 million in prior quarter, due to anticipated seasonal factors and lower refinance activity from significantly higher interest rates.
•
Solid credit performance with low levels of delinquencies, nonperforming loans and net charge-offs.
•
Strong capital position with Tier 1 leverage at 8.9 percent.
•
Lifting of OCC Consent Order reflects success in building strong business model.

TROY, Mich., January 24, 2017 - Flagstar Bancorp, Inc. (NYSE:FBC), the holding company for Flagstar Bank, FSB, today reported fourth quarter 2016 net income of $28 million, or $0.49 per diluted share, as compared to $57 million, or $0.96 per diluted share, in the third quarter 2016 and $33 million, or $0.44 per diluted share, in the fourth quarter 2015.

Full year 2016 net income was $171 million, or $2.66 per diluted share, as compared to full year 2015 net income of $158 million, or $2.24 per diluted share. Third quarter 2016 results included a $24 million benefit related to a decrease in the fair value of the Department of Justice ("DOJ") settlement liability. Excluding this benefit, the Company had adjusted non-GAAP 2016 net income of $155 million, or $2.38 per diluted share, an increase in diluted earnings per share of 6 percent from the full year 2015.

"We are pleased to turn in another profitable quarter, capping a year of solid earnings growth for our Company,” said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, Inc. "During the quarter, we saw growth in earning assets combined with net interest margin expansion. Asset quality remained rock solid, as it has all year, and expenses were well controlled. Mortgage originations declined seasonally, as expected, and coupled with rising interest rates made mortgage production challenging."

"We reached an important milestone during the quarter with the lifting of the Consent Order in December with the Office of the Comptroller of the Currency. We believe this represented a validation of the quality of our

1

risk management organization, the strength of our balance sheet and our improved performance, and also reflected our success in building a broader, more stable and less risky business model."

"With the positive momentum from our 2016 performance, we are looking forward to 2017. We believe the economy will be a bit stronger and the interest rate curve a little steeper. Our business model is poised to continue to be successful."

Fourth Quarter 2016 Highlights:

Income Statement Highlights
 
 
 
 
 
Three Months Ended
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
 
(Dollars in millions)
Net interest income
$
87

$
80

$
77

$
79

$
76

Provision (benefit) for loan losses
1

7

(3
)
(13
)
(1
)
Noninterest income
98

156

128

105

97

Noninterest expense
142

142

139

137

129

Income before income taxes
42

87

69

60

45

Provision for income taxes
14

30

22

21

12

Net income
$
28

$
57

$
47

$
39

$
33

 
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
0.50

$
0.98

$
0.67

$
0.56

$
0.45

Diluted
$
0.49

$
0.96

$
0.66

$
0.54

$
0.44

Key Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (bps)
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Seq
Yr/Yr
Net interest margin
2.67
%
2.58
%
2.63
%
2.66
%
2.69
%
9
(2)
Return on average assets
0.8
%
1.6
%
1.4
%
1.2
%
1.0
%
(83)
(25)
Return on average equity
8.6
%
16.5
%
11.5
%
10.1
%
8.6
%
(793)
4
Return on average common equity
8.6
%
17.5
%
13.8
%
12.2
%
10.4
%
(885)
(180)
Efficiency ratio
76.7
%
59.9
%
68.2
%
74.5
%
75.2
%
1680
150
Balance Sheet Highlights
 
 
 
 
 
 
 
Three Months Ended
% Change
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Average Balance Sheet Data
 
 
 
 
 


Average interest-earning assets
$
12,817

$
12,318

$
11,639

$
11,871

$
11,240

4
 %
14
%
Average loans held-for-sale (LHFS)
3,321

3,416

2,884

2,909

2,484

(3
)%
34
%
Average loans held-for-investment (LHFI)
6,163

5,848

5,569

5,668

5,642

5
 %
9
%
Average total deposits
9,233

9,126

8,631

8,050

8,132

1
 %
14
%

Note: Please refer to the financial tables at the end of this news release for a reconciliation of adjusted non-GAAP financial measures
to the most directly comparable measure prepared in accordance with GAAP.

Net Interest Income

The Company continued to realize growth in its community banking business in the fourth quarter 2016. Net interest income increased to $87 million, compared to $80 million for the third quarter 2016. The results reflected a 4 percent increase in average earning assets, led by growth in investment securities, commercial loans and mortgage loans, and net interest margin expansion of 9 basis points.

Loans held-for-investment averaged $6.2 billion for the fourth quarter 2016, increasing $315 million, or 5 percent, from the prior quarter. During the fourth quarter 2016, average commercial real estate loans increased $127 million, or 12 percent. Average consumer loans rose $111 million, or 4 percent, driven by an increase in mortgage loans (primarily jumbos). Average commercial and industrial loans also registered solid gains, increasing $88 million, or 14 percent.

Average total deposits were $9.2 billion in the fourth quarter 2016, increasing $107 million, or 1 percent, from the third quarter 2016. The increase was led by higher retail deposits, partially offset by lower government deposits. Average retail deposits rose $132 million, or 2 percent, due to an $89 million increase in savings deposits and a $28 million rise in demand deposits.

Net interest margin increased 9 basis points to 2.67 percent for the fourth quarter 2016, as compared to 2.58 percent for the third quarter 2016. During the quarter, the Company terminated certain fixed rate FHLB advances which resulted in a $2 million benefit to interest expense, accounting for 6 basis points of the increase.

Provision for Loan Losses

The provision for loan losses totaled $1 million for the fourth quarter 2016, as compared to $7 million for the third quarter 2016. The lower level of provision expense reflected strong asset quality and largely matched net charge-offs in the quarter.

Noninterest Income

Noninterest income decreased $58 million, or 37 percent, to $98 million, as compared to $156 million for the third quarter 2016. The decline was driven by a $37 million drop in net gain on loan sales and a $24 million benefit that was recognized in the third quarter 2016 from the reduction in fair value on the DOJ settlement liability.

Fourth quarter 2016 net gain on loan sales fell to $57 million, versus $94 million in the third quarter and $46 million in the same period last year. The decrease from the prior quarter reflected lower fallout-adjusted locks and a drop in the gain on sale margin. In the fourth quarter 2016, fallout-adjusted locks decreased 27 percent to $6.1

2

billion, primarily due to anticipated seasonal factors and lower refinance activity from significantly higher interest rates. The net gain on loan sale margin fell 20 basis points to 0.93 percent for the fourth quarter 2016, as compared to 1.13 percent for the third quarter 2016, driven by price competition.

Mortgage Metrics
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
6,091

$
8,291

$
8,127

$
6,863

$
5,027

(27
)%
21
 %
Gain on sale margin (change in bps) (1)(2)
0.93
%
1.13
%
1.04
%
0.96
%
0.92
%
(20)
1
Net gain on loan sales on HFS
$
57

94

$
85

$
66

$
46

(39
)%
24
 %
Net (loss) return on the mortgage servicing rights ("MSR")
$
(5
)
$
(11
)
$
(4
)
$
(6
)
$
9

N/M
N/M
Gain on loan sales HFS + net (loss) return on the MSR
$
52

$
83

$
81

$
60

$
55

(37
)%
(5
)%
Residential loans serviced (number of accounts - 000's) (3)
383

375

358

354

361

2
 %
6
 %
Capitalized value of mortgage servicing rights (change in bps)
1.07
%
0.96
%
0.99
%
1.06
%
1.13
%
11
(6)
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 loans serviced for own loan portfolio, serviced for others, and subserviced for others.

Loan fees and charges fell to $20 million for the fourth quarter 2016, as compared to $22 million for the third quarter 2016. The decrease primarily reflected lower mortgage loan closings.

Net return on the mortgage servicing asset (including the impact of hedges) was a net loss of $5 million for the fourth quarter 2016, as compared to a net loss of $11 million for the third quarter 2016. The net return on the mortgage servicing asset increased from the third quarter 2016. This was primarily due to lower prepayments and a $7 million charge recognized in the third quarter 2016 related to MSR sales with a fair value of $50 million that closed in the fourth quarter 2016, partially offset by unfavorable changes in fair value driven by an increase in market implied interest rate volatility experienced in the fourth quarter 2016.

The representation and warranty benefit was $7 million for the fourth quarter 2016, as compared to a $6 million benefit in the third quarter 2016. The representation and warranty reserve was reduced to $27 million at December 31, 2016, from $32 million at September 30, 2016, reflecting a continued improvement in risk trends and a repurchase demand pipeline that was only $6 million at December 31, 2016.

Total other noninterest income for the fourth quarter 2016 was $10 million, as compared to $36 million for the third quarter 2016. The decrease was almost entirely due to a $24 million reduction in the fair value of the Company's DOJ settlement liability recognized in the prior quarter.

Noninterest Expense

Noninterest expense was unchanged at $142 million for the fourth quarter 2016, as compared to the third quarter 2016. Legal and professional expense rose $4 million, while compensation and benefits expense fell $3 million.


3

The Company's efficiency ratio was 77 percent for the fourth quarter 2016, compared to an adjusted non-GAAP efficiency ratio of 67 percent in the prior quarter, excluding the $24 million benefit from the drop in fair value on the DOJ settlement liability in the third quarter 2016.

Income Taxes

The fourth quarter 2016 provision for income taxes totaled $14 million, as compared to $30 million in the third quarter 2016. The effective tax rate in the fourth quarter 2016 declined slightly to 33 percent, as compared to 34 percent in the third quarter 2016 and the full year 2016.

Asset Quality
Credit Quality Ratios
 
 
 
 
 
 
 
Three Months Ended
Change (% / bps)
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Seq
Yr/Yr
 
(Dollars in millions)
 
 
Allowance for loan loss to LHFI
2.4
%
2.3
%
2.6
%
2.9
%
3.0
%
10
(60)
Allowance for loan loss to LHFI and loans with government guarantees
2.2
%
2.2
%
2.4
%
2.7
%
2.8
%
0
(60)
 
 
 
 
 
 
 
 
Charge-offs, net of recoveries
$
2

$
7

$
9

$
12

$
9

(71
)%
(78
)%
Charge-offs associated with loans with government guarantees
1

5

4

3

3

(80
)%
(67
)%
Charge-offs associated with the sale or transfer of nonperforming loans and TDRs
—

—

2

6

2

N/M
N/M
Charge-offs, net of recoveries, adjusted (1)
$
1

$
2

$
3

$
3

$
4

(50
)%
(75
)%
 
 
 
 
 
 
 
 
Total nonperforming loans held-for-investment
$
40

$
40

$
44

$
53

$
66

—
 %
(39
)%
Net charge-offs to LHFI ratio (annualized)
0.13
%
0.51
%
0.62
%
0.86
%
0.62
%
(38)
(49)
Net charge-off ratio, adjusted (annualized)
0.07
%
0.15
%
0.18
%
0.20
%
0.29
%
(8)
(22)
Ratio of nonperforming LHFI to LHFI
0.67
%
0.63
%
0.76
%
0.95
%
1.05
%
4
(38)
N/M - Not meaningful
 
 
 
 
 
 
 
(1)
Excludes charge-offs associated with loans with government guarantees and charge-offs associated with the sale or transfer of nonperforming loans and TDRs.

The Company continued to experience solid credit performance in the fourth quarter 2016. The allowance for loan losses was $142 million at December 31, 2016, covering 2.4 percent of loans held-for-investment, as compared to an allowance for loan losses of $143 million at September 30, 2016, covering 2.3 percent of loans held-for-investment.

Net charge-offs in the fourth quarter 2016 were $2 million, or 0.13 percent of applicable loans, compared to $7 million, or 0.51 percent of applicable loans in the prior quarter. The fourth quarter 2016 amount included $1 million of net charge-offs associated with loans with government guarantees compared to $5 million in the third quarter of 2016.

Nonperforming loans held-for-investment were $40 million at December 31, 2016, unchanged from September 30, 2016. As in the prior quarter, there were no nonperforming commercial loans at December 31, 2016. The ratio of nonperforming loans to loans held-for-investment increased to 0.67 percent at December 31, 2016 from 0.63 percent at September 30, 2016. At December 31, 2016, consumer loan delinquencies totaled $10 million, up slightly from September 30, 2016. As in the prior quarter, there were no commercial loans more than 30 days delinquent at December 31, 2016.


4

Capital
Capital Ratios (Bancorp)
Three Months Ended
Change (% / bps)
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Seq
Yr/Yr
Total capital
16.42
%
15.26
%
20.19
%
20.97
%
20.28
%
116

(386
)
Tier 1 capital
15.14
%
13.98
%
18.89
%
19.67
%
18.98
%
116

(384
)
Tier 1 leverage
8.88
%
8.88
%
11.59
%
11.04
%
11.51
%
—

(263
)
Mortgage servicing rights to Tier 1 capital
26.7
%
24.6
%
19.9
%
19.3
%
20.6
%
210

610

Book value per common share
$
23.50

$
22.72

$
23.54

$
22.82

$
22.33

3
%
5
%

The Company maintained a robust capital position with regulatory ratios well above current regulatory quantitative guidelines for "well capitalized" institutions. At December 31, 2016, the Company had a Tier 1 leverage ratio of 8.88 percent, unchanged from September 30, 2016.

At December 31, 2016, the Company had a common equity-to-assets ratio of 9.50 percent.

Earnings Conference Call

As previously announced, the Company's fourth quarter 2016 earnings call will be held Tuesday, January 24, 2017 at 11 a.m. (ET).

To join the call, please dial (800) 474-8920 toll free or (719) 457-2640 and use passcode 1910792. Please call at least 10 minutes before the conference is scheduled to begin. A replay will be available for five business days by calling (866) 375-1919 toll free or (719) 457-0820, using passcode 1910792.

The conference call will also be available as a live audiocast on the Investor Relations section of flagstar.com, where it will be archived and 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 $14.1 billion savings and loan holding company headquartered in Troy, Mich. Flagstar Bank, FSB, 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 41 retail locations in 21 states. Flagstar is a leading national originator and servicer of mortgage loans, handling payments and record keeping for $80 billion of home loans representing 383,000 borrowers. For more information, please visit flagstar.com.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes non-GAAP financial measures, such as adjusted net income, adjusted return on average assets, adjusted return on average equity, adjusted return on common equity, adjusted noninterest income, adjusted efficiency ratio and estimated fully implemented Basel III capital levels and ratios. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar’s method of calculating these non-GAAP measures may differ from

5

methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. Additional discussion of the use of non-GAAP measures can also be found in conference call slides, the Form 8-K Current Report related to this news release and in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission. These documents can all be found on the Company’s website at flagstar.com.

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.


6

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(Dollars in millions)
(Unaudited)
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
Assets
 
 
 
 
 
Cash
$
84

 
$
76

 
$
54

Interest-earning deposits
74

 
98

 
154

Total cash and cash equivalents
158

 
174

 
208

    Investment securities available-for-sale
1,480

 
1,115

 
1,294

    Investment securities held-to-maturity
1,093

 
1,156

 
1,268

Loans held-for-sale
3,177

 
3,393

 
2,576

Loans held-for-investment
6,065

 
6,290

 
6,352

Loans with government guarantees
365

 
404

 
485

Less: allowance for loan losses
(142
)
 
(143
)
 
(187
)
Total loans held-for-investment and loans with government guarantees, net
6,288

 
6,551

 
6,650

    Mortgage servicing rights
335

 
302

 
296

    Federal Home Loan Bank stock
180

 
172

 
170

    Premises and equipment, net
275

 
271

 
250

    Net deferred tax asset
286

 
305

 
364

    Other assets
781

 
834

 
639

Total assets
$
14,053

 
$
14,273

 
$
13,715

Liabilities and Stockholders' Equity
 
 
 
 
 
Noninterest-bearing
$
2,077

 
$
2,544

 
$
1,574

Interest-bearing
6,723

 
6,827

 
6,361

Total deposits
8,800

 
9,371

 
7,935

Short-term Federal Home Loan Bank advances and other
1,780

 
905

 
2,116

Long-term Federal Home Loan Bank advances
1,200

 
1,577

 
1,425

Other long-term debt
493

 
493

 
247

    Representation and warranty reserve
27

 
32

 
40

Other liabilities
417

 
609

 
423

            Total liabilities
12,717

 
12,987

 
12,186

    Stockholders' Equity
 
 
 
 
 
Preferred stock
—

 
—

 
267

Common stock
1

 
1

 
1

    Additional paid in capital
1,502

 
1,494

 
1,486

    Accumulated other comprehensive (loss) income
(7
)
 
(20
)
 
2

    Accumulated deficit
(160
)
 
(189
)
 
(227
)
Total stockholders' equity
1,336

 
1,286

 
1,529

Total liabilities and stockholders' equity
$
14,053

 
$
14,273

 
$
13,715





7

Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Fourth Quarter 2016 Compared to:
 
Three Months Ended
 
Third Quarter
2016
Fourth Quarter
2015
 
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
 
Amount
Percent
Amount
Percent
 
 
 
 
 
 
 
 
 
 
 
Interest Income
 
 
 
 
 
 
 
 
 
 
Total interest income
$
111

$
106

$
99

$
101

$
95

 
$
5

5
 %
$
16

17
 %
Total interest expense
24

26

22

22

19

 
(2
)
(8
)%
5

26
 %
Net interest income
87

80

77

79

76

 
7

9
 %
11

14
 %
Provision (benefit) for loan losses
1

7

(3
)
(13
)
(1
)
 
(6
)
(86
)%
$
2

N/M

Net interest income after provision (benefit) for loan losses
86

73

80

92

77

 
13

18
 %
9

12
 %
Noninterest Income
 
 
 
 
 
 








Net gain on loan sales
57

94

90

75

46

 
(37
)
(39
)%
$
11

24
 %
Loan fees and charges
20

22

19

15

14

 
(2
)
(9
)%
6

43
 %
Deposit fees and charges
5

5

6

6

6

 
—

—
 %
(1
)
(17
)%
Loan administration income
4

4

4

6

7

 
—

—
 %
(3
)
(43
)%
Net (loss) return on the mortgage servicing rights
(5
)
(11
)
(4
)
(6
)
9

 
6

(55
)%
(14
)
N/M

Representation and warranty benefit
7

6

4

2

6

 
1

17
 %
1

17
 %
Other noninterest income
10

36

9

7

9

 
(26
)
(72
)%
1

11
 %
Total noninterest income
98

156

128

105

97

 
(58
)
(37
)%
1

1
 %
Noninterest Expense
 
 
 
 
 
 








Compensation and benefits
66

69

66

68

59

 
(3
)
(4
)%
$
7

12
 %
Commissions
15

16

14

10

8

 
(1
)
(6
)%
$
7

88
 %
Occupancy and equipment
21

21

21

22

21

 
—

—
 %
$
—

—
 %
Asset resolution
1

2

1

3

2

 
(1
)
(50
)%
$
(1
)
(50
)%
Federal insurance premiums
2

3

3

3

5

 
(1
)
(33
)%
$
(3
)
(60
)%
Loan processing expense
15

13

15

12

12

 
2

15
 %
$
3

25
 %
Legal and professional expense
9

5

6

9

9

 
4

80
 %
$
—

—
 %
Other noninterest expense
13

13

13

10

13

 
—

—
 %
$
—

—
 %
Total noninterest expense
142

142

139

137

129

 
—

—
 %
13

10
 %
Income before income taxes
42

87

69

60

45

 
(45
)
(52
)%
(3
)
(7
)%
Provision for income taxes
14

30

22

21

12

 
(16
)
(53
)%
$
2

17
 %
Net income
$
28

$
57

$
47

$
39

$
33

 
$
(29
)
(51
)%
$
(5
)
(15
)%
Income per share
 
 
 
 
 
 








Basic
$
0.50

$
0.98

$
0.67

$
0.56

$
0.45

 
$
(0.48
)
(49
)%
$
0.05

11
 %
Diluted
$
0.49

$
0.96

$
0.66

$
0.54

$
0.44

 
$
(0.47
)
(49
)%
$
0.05

11
 %
N/M - Not meaningful


8

Flagstar Bancorp, Inc.
 Condensed Consolidated Statements of Operations
 (Dollars in millions, except per share data)
(Unaudited)
 
 
 
Year Ended December 31, 2016
 
Year Ended
 
Compared to:
Year Ended December 31, 2015
 
December 31, 2016
December 31, 2015
 
Amount
Percent
Interest Income
 
 
 
 
 
Total interest income
$
417

$
355

 
$
62

17
 %
Total interest expense
94

68

 
26

38
 %
Net interest income
323

287

 
36

13
 %
Provision (benefit) for loan losses
(8
)
(19
)
 
11

(58
)%
Net interest income after provision (benefit) for loan losses
331

306

 
25

8
 %
Noninterest Income
 
 
 
 
 
Net gain on loan sales
316

288

 
28

10
 %
Loan fees and charges
76

67

 
9

13
 %
Deposit fees and charges
22

25

 
(3
)
(12
)%
Loan administration income
18

26

 
(8
)
(31
)%
Net (loss) return on the mortgage servicing rights
(26
)
28

 
(54
)
N/M

Representation and warranty benefit
19

19

 
—

—
 %
Other noninterest income
62

17

 
45

N/M

Total noninterest income
487

470

 
17

4
 %
Noninterest Expense
 
 
 
 
 
Compensation and benefits
269

237

 
32

14
 %
Commissions
55

39

 
16

41
 %
Occupancy and equipment
85

81

 
4

5
 %
Asset resolution
7

15

 
(8
)
(53
)%
Federal insurance premiums
11

23

 
(12
)
(52
)%
Loan processing expense
55

52

 
3

6
 %
Legal and professional expense
29

36

 
(7
)
(19
)%
Other noninterest expense
49

53

 
(4
)
(8
)%
Total noninterest expense
560

536

 
24

4
 %
Income before income taxes
258

240

 
18

8
 %
Provision for income taxes
87

82

 
5

6
 %
Net income
$
171

$
158

 
$
13

8
 %
Income per share
 
 
 
 
 
Basic
$
2.71

$
2.27

 
$
0.44

19
 %
Diluted
$
2.66

$
2.24

 
$
0.42

19
 %
N/M - Not meaningful


9

Flagstar Bancorp, Inc.
Summary of Selected Consolidated Financial and Statistical Data
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31,
2016
 
December 31,
2015
Mortgage loans originated (1)
$
8,573

 
$
9,198

 
$
5,824

 
$
32,453

 
$
29,402

Mortgage loans sold and securitized
$
8,422

 
$
8,723

 
$
5,164

 
$
32,033

 
$
26,307

Interest rate spread (2)
2.49
%
 
2.36
%
 
2.54
%
 
2.45
%
 
2.58
%
Net interest margin
2.67
%
 
2.58
%
 
2.69
%
 
2.64
%
 
2.74
%
Average common shares outstanding
56,607,933

 
56,580,238

 
56,449,596

 
56,569,307

 
56,426,977

Average fully diluted shares outstanding
57,824,854

 
57,933,806

 
57,502,017

 
57,597,667

 
57,164,523

Average interest-earning assets
$
12,817

 
$
12,318

 
$
11,240

 
$
12,164

 
$
10,436

Average interest-paying liabilities
$
10,222

 
$
9,773

 
$
9,078

 
$
9,757

 
$
8,305

Average stockholders' equity
$
1,312

 
$
1,379

 
$
1,547

 
$
1,464

 
$
1,486

Return on average assets (4)
0.78
%
 
1.61
%
 
1.03
%
 
1.23
%
 
1.32
%
Return on average equity (4)
8.60
%
 
16.53
%
 
8.56
%
 
11.69
%
 
10.63
%
Return on average common equity (4)
8.60
%
 
17.45
%
 
10.35
%
 
13.03
%
 
10.49
%
Efficiency ratio (4)
76.7
%
 
59.9
%
 
75.2
%
 
69.2
%
 
70.9
%
Equity-to-assets ratio (average for the period)
9.05
%
 
9.75
%
 
12.07
%
 
10.52
%
 
12.43
%
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
Book value per common share
$
23.50

 
$
22.72

 
$
22.33

Number of common shares outstanding
56,824,802

 
56,597,271

 
56,483,258

Mortgage loans subserviced for others
$
43,127

 
$
41,017

 
$
40,287

Mortgage loans serviced for others
$
31,207

 
$
31,372

 
$
26,145

Weighted average service fee (basis points)
26.7

 
28.1

 
27.7

Capitalized value of mortgage servicing rights
1.07
%
 
0.96
%
 
1.13
%
Mortgage servicing rights to Tier 1 capital
26.7
%
 
24.6
%
 
20.6
%
Ratio of allowance for loan losses to LHFI (3)
2.37
%
 
2.30
%
 
3.00
%
Ratio of allowance for loan losses to LHFI and loans with government guarantees (3)
2.23
%
 
2.16
%
 
2.78
%
Ratio of nonperforming assets to total assets
0.39
%
 
0.39
%
 
0.61
%
Equity-to-assets ratio
9.50
%
 
9.01
%
 
11.14
%
Common equity-to-assets ratio
9.50
%
 
9.01
%
 
9.20
%
Number of bank branches
99

 
99

 
99

Number of FTE employees
2,886

 
2,881

 
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.
(4)
See Non-GAAP Reconciliation in which applicable periods, three months ended September 30, 2016 and full year ended December 31, 2016, have been adjusted.


10

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

 
Three Months Ended
 
Year Ended
 
December 31, 2016
 
September 30,
2016
 
December 31, 2015
 
December 31, 2016
 
December 31, 2015
Net income
28

 
57

 
33

 
171

 
158

Cumulative preferred stock dividends (1)
—

 
(2
)
 
(8
)
 
(18
)
 
(30
)
Net income applicable to Common Stockholders
$
28

 
$
55

 
$
25

 
$
153

 
$
128

Weighted Average Shares
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
56,607,933

 
56,580,238

 
56,449,596

 
56,569,307

 
56,426,977

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
151,560

 
364,791

 
348,939

 
138,314

 
305,484

Stock-based awards
1,065,361

 
988,777

 
703,482

 
890,046

 
432,062

Weighted average diluted common shares
57,824,854

 
57,933,806

 
57,502,017

 
57,597,667

 
57,164,523

Earnings per common share
 
 
 
 
 
 
 
 
 
Net income applicable to Common Stockholders
$
0.50

 
$
0.98

 
$
0.45

 
$
2.71

 
$
2.27

Effect of dilutive securities
 
 
 
 
 
 
 
 
 
Warrants
—

 
—

 
—

 
(0.01
)
 
(0.01
)
Stock-based awards
(0.01
)
 
(0.02
)
 
(0.01
)
 
(0.04
)
 
(0.02
)
Diluted earnings per share
$
0.49

 
$
0.96

 
$
0.44

 
$
2.66

 
$
2.24

(1)
Under the terms of the Series C Preferred Stock, we elected to defer dividends beginning with the February 2012 dividend. In July 2016, we ended the deferral and brought current our previously deferred dividends.

11

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31, 2016
 
September 30, 2016
 
December 31, 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
$
3,321

$
29

3.55
%
 
$
3,416

$
30

3.51
%
 
$
2,484

$
24

3.88
%
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
 
Consumer loans (1)
2,691

24

3.55
%
 
2,580

23

3.52
%
 
3,423

30

3.52
%
Commercial loans (1)
3,472

35

4.06
%
 
3,268

33

3.96
%
 
2,219

21

3.77
%
Total loans held-for-investment
6,163

59

3.84
%
 
5,848

56

3.77
%
 
5,642

51

3.62
%
Loans with government guarantees
389

4

4.23
%
 
432

4

3.88
%
 
496

4

2.84
%
Investment securities
2,845

18

2.53
%
 
2,516

16

2.55
%
 
2,441

16

2.55
%
Interest-earning deposits
99

1

0.51
%
 
106

—

0.48
%
 
177

—

0.49
%
Total interest-earning assets
12,817

$
111

3.46
%
 
12,318

$
106

3.42
%
 
11,240

$
95

3.36
%
Other assets
1,672

 
 
 
1,830

 
 
 
1,585

 
 
Total assets
$
14,489

 
 
 
$
14,148

 
 
 
$
12,825

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
521

$
—

0.21
%
 
$
509

$
—

0.20
%
 
$
431

$
—

0.13
%
Savings deposits
3,840

7

0.77
%
 
3,751

8

0.77
%
 
3,725

8

0.84
%
Money market deposits
256

—

0.43
%
 
250

—

0.41
%
 
272

—

0.39
%
Certificates of deposit
1,079

3

1.05
%
 
1,071

3

1.05
%
 
813

2

0.88
%
Total retail deposits
5,696

10

0.75
%
 
5,581

11

0.75
%
 
5,241

10

0.76
%
Government deposits
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
211

—

0.39
%
 
243

—

0.39
%
 
304

—

0.40
%
Savings deposits
470

1

0.52
%
 
478

1

0.52
%
 
401

1

0.52
%
Certificates of deposit
352

1

0.60
%
 
355

—

0.52
%
 
410

1

0.45
%
Total government deposits
1,033

2

0.52
%
 
1,076

1

0.49
%
 
1,115

2

0.46
%
Total interest-bearing deposits
6,729

12

0.72
%
 
6,657

12

0.71
%
 
6,356

12

0.71
%
Short-term Federal Home Loan Bank advances and other
1,427

1

0.50
%
 
1,073

1

0.44
%
 
1,226

1

0.25
%
Long-term Federal Home Loan Bank advances
1,573

5

1.24
%
 
1,576

7

1.81
%
 
1,219

4

1.60
%
Other long-term debt
493

6

4.89
%
 
467

6

4.86
%
 
277

2

2.66
%
Total interest-bearing liabilities
10,222

24

0.97
%
 
9,773

26

1.06
%
 
9,078

19

0.83
%
Noninterest-bearing deposits (2)
2,504

 
 
 
2,469

 
 
 
1,776

 
 
Other liabilities
451

 
 
 
527

 
 
 
424

 
 
Stockholders' equity
1,312

 
 
 
1,379

 
 
 
1,547

 
 
Total liabilities and stockholders' equity
$
14,489

 
 
 
$
14,148

 
 
 
$
12,825

 
 
Net interest-earning assets
$
2,595

 
 
 
$
2,545

 
 
 
$
2,162

 
 
Net interest income
 
$
87

 
 
 
$
80

 
 
 
$
76

 
Interest rate spread (3)
 
 
2.49
%
 
 
 
2.36
%
 
 
 
2.54
%
Net interest margin (4)
 
 
2.67
%
 
 
 
2.58
%
 
 
 
2.69
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
125.4
%
 
 
 
126.0
%
 
 
 
123.8
%
Total average deposits
$
9,233

 
 
 
$
9,126

 
 
 
$
8,132

 
 
(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.

12

Average Balances, Yields and Rates
(Dollars in millions)
(Unaudited)
 
Year Ended
 
December 31, 2016
 
December 31, 2015
 
Average Balance
Interest
Annualized
Yield/Rate
 
Average Balance
Interest
Annualized
Yield/Rate
 
 
Interest-Earning Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
3,134

$
113

3.62
%
 
$
2,188

$
85

3.90
%
Loans held-for-investment
 
 
 
 
 
 
 
Consumer loans (1)
2,832

99

3.52
%
 
3,083

114

3.68
%
Commercial loans (1)
2,981

120

3.97
%
 
1,993

78

3.88
%
Total loans held-for-investment
5,813

219

3.75
%
 
5,076

192

3.76
%
Loans with government guarantees
435

16

3.59
%
 
633

18

2.86
%
Investment securities
2,653

68

2.56
%
 
2,305

59

2.55
%
Interest-earning deposits
129

1

0.50
%
 
234

1

0.50
%
Total interest-earning assets
12,164

$
417

3.42
%
 
10,436

$
355

3.39
%
Other assets
1,743

 
 
 
1,520

 
 
Total assets
$
13,907

 
 
 
$
11,956

 
 
Interest-Bearing Liabilities
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
Demand deposits
$
489

$
1

0.18
%
 
$
429

$
1

0.14
%
Savings deposits
3,751

29

0.78
%
 
3,693

30

0.82
%
Money market deposits
278

1

0.44
%
 
258

1

0.31
%
Certificates of deposit
990

10

1.05
%
 
787

6

0.77
%
Total retail deposits
5,508

41

0.76
%
 
5,167

38

0.73
%
Government deposits
 
 
 
 
 
 
 
Demand deposits
228

1

0.39
%
 
257

1

0.39
%
Savings deposits
442

2

0.52
%
 
405

2

0.52
%
Certificates of deposit
382

2

0.40
%
 
358

1

0.39
%
Total government deposits
1,052

5

0.45
%
 
1,020

4

0.44
%
Total interest-bearing deposits
6,560

46

0.71
%
 
6,187

42

0.68
%
Short-term Federal Home Loan Bank advances and other
1,249

5

0.44
%
 
311

1

0.30
%
Long-term Federal Home Loan Bank advances
1,584

27

1.72
%
 
1,500

18

1.17
%
Other long-term debt
364

16

4.34
%
 
307

7

2.42
%
Total interest-bearing liabilities
9,757

94

0.97
%
 
8,305

68

0.82
%
Noninterest-bearing deposits (2)
2,202

 
 
 
1,690

 
 
Other liabilities
484

 
 
 
475

 
 
Stockholders' equity
1,464

 
 
 
1,486

 
 
Total liabilities and stockholders' equity
$
13,907

 
 
 
$
11,956

 
 
Net interest-earning assets
$
2,407

 
 
 
$
2,131

 
 
Net interest income
 
$
323

 
 
 
$
287

 
Interest rate spread (3)
 
 
2.45
%
 
 
 
2.58
%
Net interest margin (4)
 
 
2.64
%
 
 
 
2.74
%
Ratio of average interest-earning assets to interest-bearing liabilities
 
 
124.7
%
 
 
 
125.7
%
Total average deposits
$
8,762

 
 
 
$
7,877

 
 
 
 
 
 
 
 
 
 
(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

Gain on Loan Sales on Loans Held-for-Sale
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
(Dollars in millions)
Mortgage rate lock commitments (fallout-adjusted) (1)
$
6,091

 
$
8,291

 
$
8,127

 
$
6,863

 
$
5,027

Gain on sale margin (change in bps) (1)

0.93
%
 
1.13
%
 
1.04
%
 
0.96
%
 
0.92
%
Net gain on loan sales on HFS
$
57

 
$
94

 
$
85

 
$
66

 
$
46

Net (loss) return on the mortgage servicing rights
$
(5
)
 
$
(11
)
 
$
(4
)
 
$
(6
)
 
$
9

Gain on loan sales HFS + net (loss) return on the MSR
$
52

 
$
83

 
$
81

 
$
60

 
$
55

Residential loans serviced (number of accounts - 000's) (2)
383

 
375

 
358

 
354

 
361

Capitalized value of mortgage servicing rights
1.07
%
 
0.96
%
 
0.99
%
 
1.06
%
 
1.13
%
Mortgage rate lock commitments (gross)
$
7,611

 
$
10,328

 
$
10,168

 
$
8,762

 
$
6,258

Mortgage loans sold and securitized
$
8,422

 
$
8,723

 
$
7,940

 
$
6,948

 
$
5,164

Net margin on loan sales
0.68
%
 
1.08
%
 
1.07
%
 
0.94
%
 
0.90
%
(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.

 
Year Ended
 
December 31,
2016
 
December 31,
2015
 
 
Mortgage rate lock commitments (fallout-adjusted) (1)
$
29,372

 
$
25,511

Gain on sale margin (change in bps) (1)

1.03
%
 
1.13
%
Net gain on loan sales on HFS
$
301

 
$
288

Net (loss) return on the mortgage servicing rights
$
(26
)
 
$
28

Gain on loan sales HFS + net (loss) return on the MSR
$
275

 
$
316

Residential loans serviced (number of accounts - 000's) (2)
383

 
361

Capitalized value of mortgage servicing rights
1.07
%
 
1.13
%
Mortgage rate lock commitments (gross)
$
36,869

 
$
31,718

Mortgage loans sold and securitized
$
32,033

 
$
26,307

Net margin on loan sales
0.94
%
 
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.



14

Regulatory Capital - Bancorp
(Dollars in millions)
(Unaudited)
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets)
$
1,256

8.88
%
 
$
1,225

8.88
%
 
$
1,514

11.59
%
 
$
1,453

11.04
%
 
$
1,435

11.51
%
Total adjusted tangible asset base
$
14,149

 
 
$
13,798

 
 
$
13,068

 
 
$
13,167

 
 
$
12,474

 
Tier 1 common equity (to risk weighted assets)
$
1,084

13.07
%
 
$
1,056

12.04
%
 
$
1,086

13.55
%
 
$
1,032

13.96
%
 
$
1,065

14.09
%
Tier 1 capital (to risk weighted assets)
$
1,256

15.14
%
 
$
1,225

13.98
%
 
$
1,514

18.89
%
 
$
1,453

19.67
%
 
$
1,435

18.98
%
Total capital (to risk weighted assets)
$
1,363

16.42
%
 
$
1,338

15.26
%
 
$
1,618

20.19
%
 
$
1,549

20.97
%
 
$
1,534

20.28
%
Risk weighted asset base
$
8,298

 
 
$
8,767

 
 
$
8,014

 
 
$
7,387

 
 
$
7,561

 


Regulatory Capital - Bank
(Dollars in millions)
(Unaudited)
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Tier 1 leverage (to adjusted tangible assets)
$
1,491

10.52
%
 
$
1,459

10.55
%
 
$
1,576

12.03
%
 
$
1,509

11.43
%
 
$
1,472

11.79
%
Total adjusted tangible asset base
$
14,177

 
 
$
13,824

 
 
$
13,102

 
 
$
13,200

 
 
$
12,491

 
Tier 1 common equity (to risk weighted assets)
$
1,491

17.91
%
 
$
1,459

16.59
%
 
$
1,576

19.58
%
 
$
1,509

20.34
%
 
$
1,472

19.42
%
Tier 1 capital (to risk weighted assets)
$
1,491

17.91
%
 
$
1,459

16.59
%
 
$
1,576

19.58
%
 
$
1,509

20.34
%
 
$
1,472

19.42
%
Total capital (to risk weighted assets)
$
1,597

19.19
%
 
$
1,571

17.87
%
 
$
1,679

20.86
%
 
$
1,605

21.63
%
 
$
1,570

20.71
%
Risk weighted asset base
$
8,325

 
 
$
8,794

 
 
$
8,048

 
 
$
7,421

 
 
$
7,582

 


Loan Originations
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
Consumer loans
 
 
 
 
 
 
 
 
    Mortgage (1)
$
8,573

97.3
%
 
$
9,198

96.9
%
 
$
5,824

96.0
%
    Other consumer (2)
46

0.5
%
 
44

0.5
%
 
39

0.6
%
Total consumer loans
8,619

97.8
%
 
9,242

97.4
%
 
5,863

96.6
%
Commercial loans (3)
191

2.2
%
 
248

2.6
%
 
205

3.4
%
Total loan originations
$
8,810

100.0
%
 
$
9,490

100.0
%
 
$
6,068

100.0
%
 
Year Ended
 
December 31, 2016
 
December 31, 2015
    Mortgage (1)
$
32,453

97.5
%
 
$
29,402

98.2
%
    Other consumer (2)
159

0.5
%
 
132

0.4
%
Total consumer loans
32,612

97.9
%
 
29,534

98.6
%
Commercial loans (3)
687

2.1
%
 
415

1.4
%
Total loan originations
$
33,299

100.0
%
 
$
29,949

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.


15

Loans Held-for-Investment
(Dollars in millions)
(Unaudited)
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
Consumer loans
 
 
 
 
 
 
 
 
Residential first mortgage
$
2,327

38.3
%
 
$
2,136

33.9
%
 
$
3,100

48.9
%
Second mortgage
126

2.1
%
 
127

2.0
%
 
135

2.1
%
HELOC
317

5.2
%
 
326

5.2
%
 
384

6.0
%
Other
28

0.5
%
 
30

0.5
%
 
31

0.5
%
    Total consumer loans
2,798

46.1
%
 
2,619

41.6
%
 
3,650

57.5
%
Commercial loans
 
 
 
 
 
 
 
 
Commercial real estate
1,261

20.8
%
 
1,168

18.6
%
 
814

12.8
%
Commercial and industrial
769

12.7
%
 
708

11.3
%
 
552

8.7
%
Warehouse lending
1,237

20.4
%
 
1,795

28.5
%
 
1,336

21.0
%
    Total commercial loans
3,267

53.9
%
 
3,671

58.4
%
 
2,702

42.5
%
Total loans held-for-investment
$
6,065

100.0
%
 
$
6,290

100.0
%
 
$
6,352

100.0
%

Residential Loans Serviced
(Dollars in millions)
(Unaudited)
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
 
Unpaid Principal Balance
Number of accounts
Serviced for own loan portfolio (1)
$
5,816

29,244

 
$
5,645

29,052

 
$
6,088

30,683

Serviced for others
31,207

133,270

 
31,372

138,771

 
26,145

118,662

Subserviced for others (2)
43,127

220,075

 
41,017

207,039

 
40,287

211,937

Total residential loans serviced
$
80,150

382,589

 
$
78,034

374,862

 
$
72,520

361,282

(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)
Includes temporary short-term subservicing performed as a result of sales of servicing-released mortgage servicing rights. Includes repossessed assets.


16

Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31,
2016
 
December 31,
2015
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
$
142

 
$
143

 
$
187

 
$
142

 
$
187

Charge-offs
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
(3
)
 
(7
)
 
(7
)
 
(29
)
 
(87
)
     Second mortgage
—

 
—

 
(2
)
 
(2
)
 
(4
)
     HELOC
—

 
(1
)
 
(1
)
 
(2
)
 
(3
)
     Other
(1
)
 
(1
)
 
(1
)
 
(3
)
 
(4
)
 Total consumer loans
(4
)
 
(9
)
 
(11
)
 
(36
)
 
(98
)
Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial and industrial
—

 
—

 
—

 
—

 
(3
)
 Total commercial loans
—

 
—

 
—

 
—

 
(3
)
Total charge-offs
$
(4
)
 
$
(9
)
 
$
(11
)
 
$
(36
)
 
$
(101
)
Recoveries
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
     Residential first mortgage
1

 
—

 
—

 
2

 
3

     Second mortgage
—

 
—

 
1

 
—

 
2

     HELOC
—

 
1

 
—

 
—

 
—

     Other
—

 
1

 
1

 
3

 
3

Total consumer loans
1

 
2

 
2

 
5

 
8

Commercial loans
 
 
 
 
 
 
 
 
 
     Commercial real estate
1

 
—

 
—

 
1

 
2

Total commercial loans
1

 
—

 
—

 
1

 
2

Total recoveries
2

 
2

 
2

 
6

 
10

Charge-offs, net of recoveries
$
(2
)
 
$
(7
)
 
$
(9
)
 
$
(30
)
 
$
(91
)
Net charge-offs to LHFI ratio (annualized) (1)
0.13
 %
 
0.51
 %
 
0.62
 %
 
0.52
 %
 
1.85
 %
Net charge-offs ratio, adjusted (annualized) (1)(2)
0.07
 %
 
0.15
 %
 
0.29
 %
 
0.15
 %
 
0.40
 %
Net charge-offs to LHFI ratio (annualized) by loan type (1)
 
 
 
 
 
 
 
 
 
Residential first mortgage
0.38
 %
 
1.33
 %
 
1.03
 %
 
1.18
 %
 
3.34
 %
Second mortgage
(0.92
)%
 
1.03
 %
 
1.89
 %
 
1.34
 %
 
1.72
 %
HELOC and consumer
0.50
 %
 
0.23
 %
 
0.86
 %
 
0.53
 %
 
1.18
 %
Commercial real estate
(0.05
)%
 
—%

 
—%

 
(0.02
)%
 
(0.29
)%
Commercial and industrial
(0.12
)%
 
(0.01
)%
 
(0.01
)%
 
(0.04
)%
 
0.71
 %
(1)
Excludes loans carried under the fair value option.
(2)
Excludes charge-offs of zero, zero, and $2 million related to the sale of nonperforming loans, TDRs and non-agency loans during the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively and $8 million and $69 million during the years ended December 31, 2016 and 2015, respectively. Also excludes charge-offs related to loans with government guarantees of $1 million, $5 million, and $3 million during the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively, and $13 million and $3 million during the years ended December 31, 2016 and December 31, 2015, respectively.



17

Representation and Warranty Reserve
(Dollars in millions)
(Unaudited)
 
 
Three Months Ended
 
Year Ended
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
 
December 31, 2016
 
December 31, 2015
 Balance, beginning of period
$
32

 
$
36

 
$
45

 
$
40

 
$
53

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

 
1

 
1

 
5

 
7

 
Charged to representation and warranty benefit
(7
)
 
(6
)
 
(6
)
 
(19
)
 
(19
)
 
Total
(6
)
 
(5
)
 
(5
)
 
(14
)
 
(12
)
 Charge-offs, net
1

 
1

 
—

 
1

 
(1
)
 Balance, end of period
$
27

 
$
32


$
40

 
$
27

 
$
40


Composition of Allowance for Loan Losses
(Dollars in millions)
(Unaudited)
December 31, 2016
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
60

 
$
5

 
$
65

   Second mortgage
2

 
6

 
8

   HELOC
14

 
2

 
16

   Other
1

 
—

 
1

Total consumer loans
77

 
13

 
90

Commercial loans
 
 
 
 
 
   Commercial real estate
28

 
—

 
28

   Commercial and industrial
17

 
—

 
17

   Warehouse lending 
7

 
—

 
7

Total commercial loans
52

 
—

 
52

Total allowance for loan losses
$
129

 
$
13

 
$
142

September 30, 2016
Collectively Evaluated Reserves
 
Individually Evaluated Reserves
 
Total
Consumer loans
 
 
 
 
 
   Residential first mortgage
$
63

 
$
7

 
$
70

   Second mortgage
3

 
6

 
9

   HELOC
15

 
1

 
16

   Other
1

 
—

 
1

Total consumer loans
82

 
14

 
96

Commercial loans
 
 
 
 
 
   Commercial real estate
25

 
—

 
25

   Commercial and industrial
14

 
—

 
14

   Warehouse lending 
8

 
—

 
8

Total commercial loans
47

 
—

 
47

Total allowance for loan losses
$
129

 
$
14

 
$
143



18

Nonperforming Loans and Assets
(Dollars in millions)
(Unaudited)
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
Nonperforming loans
$
22

 
$
23

 
$
31

Nonperforming TDRs
8

 
8

 
7

Nonperforming TDRs at inception but performing for less than six months
10

 
9

 
28

Total nonperforming loans held-for-investment
40

 
40

 
66

Real estate and other nonperforming assets, net
14

 
15

 
17

Nonperforming assets held-for-investment, net (1)
$
54

 
$
55

 
$
83

 
 
 
 
 
 
Ratio of nonperforming assets to total assets
0.39
%
 
0.39
%
 
0.61
%
Ratio of nonperforming loans held-for-investment to loans held-for-investment
0.67
%
 
0.63
%
 
1.05
%
Ratio of nonperforming assets to loans held-for-investment and repossessed assets
0.90
%
 
0.87
%
 
1.32
%
Ratio of nonperforming assets to Tier 1 capital + allowance for loan losses
3.93
%
 
4.03
%
 
5.12
%
(1)
Does not include nonperforming loans held-for-sale of $6 million, $5 million, and $12 million at December 31, 2016, September 30, 2016, and December 31, 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
December 31, 2016
 
 
 
 
 
Consumer loans
$
8

$
2

$
40

$
50

$
2,798

Commercial loans
—

—

—

—

3,267

     Total loans
$
8

$
2

$
40

$
50

$
6,065

September 30, 2016
 
 
 
 
 
Consumer loans
$
6

$
2

$
40

$
48

$
2,619

Commercial loans
—

—

—

—

3,671

     Total loans
$
6

$
2

$
40

$
48

$
6,290

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

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


















19

Troubled Debt Restructurings
(Dollars in millions)
(Unaudited)
 
TDRs
 
Performing
 
Nonperforming
 
Nonperforming TDRs at inception but performing for less than six months
 
Total
December 31, 2016
 
Consumer loans
$
67

 
$
8

 
$
10

 
$
85

     Total TDR loans
$
67

 
$
8

 
$
10

 
$
85

September 30, 2016
 
 
 
 
 
 
 
Consumer loans
$
70

 
$
8

 
$
9

 
$
87

Commercial loans
1

 
—

 
—

 
1

     Total TDR loans
$
71

 
$
8

 
$
9

 
$
88

December 31, 2015
 
 
 
 
 
 
 
Consumer loans
$
101

 
$
7

 
$
28

 
$
136

     Total TDR loans
$
101

 
$
7

 
$
28

 
$
136


20


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 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.

December 31, 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)
 
 
 
 
 
 
 
Basel III (transitional)
$
1,084

 
$
1,256

 
$
1,256

 
$
1,363

Increased deductions related to deferred tax assets, mortgage servicing assets and other capital components
(230
)
 
(162
)
 
(162
)
 
(160
)
Basel III (fully phased-in) capital
$
854

 
$
1,094

 
$
1,094

 
$
1,203

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
8,298

 
$
14,149

 
$
8,298

 
$
8,298

Net change in assets
35

 
(161
)
 
35

 
35

Basel III (fully phased-in) assets
$
8,333

 
$
13,988

 
$
8,333

 
$
8,333

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
13.07
%
 
8.88
%
 
15.14
%
 
16.42
%
Basel III (fully phased-in)
10.25
%
 
7.82
%
 
13.13
%
 
14.44
%
December 31, 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)
 
 
 
 
 
 
 
Basel III (transitional)
$
1,491

 
$
1,491

 
$
1,491

 
$
1,597

Increased deductions related to deferred tax assets, mortgage servicing assets and other capital components
(119
)
 
(119
)
 
(119
)
 
(116
)
Basel III (fully phased-in) capital
$
1,372

 
$
1,372

 
$
1,372

 
$
1,481

Risk-weighted assets – Basel III (transitional) to Basel III (fully phased-in)
 
 
 
 
 
 
 
Basel III assets (transitional)
$
8,325

 
$
14,177

 
$
8,325

 
$
8,325

Net change in assets
196

 
(120
)
 
196

 
196

Basel III (fully phased-in) assets
$
8,521

 
$
14,057

 
$
8,521

 
$
8,521

Capital ratios
 
 
 
 
 
 
 
Basel III (transitional)
17.91
%
 
10.52
%
 
17.91
%
 
19.19
%
Basel III (fully phased-in)
16.10
%
 
9.76
%
 
16.10
%
 
17.39
%

21



Adjusted Net Income and Adjusted Income 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. The Company believes that adjusted net income and adjusted non-interest income and ratios based on these non-GAAP measures provide a meaningful representation of its operating performance on an ongoing basis. These are measures that management uses to assess performance of the Company against its peers and evaluate overall performance. The Company believes these non-GAAP financial measures provide useful information for investors, securities analysts and others because they provide a tool to evaluate the Company’s performance on an ongoing basis and compared to its peers.

The following table provides a reconciliation of non-GAAP financial measures.
 
Three Months Ended
 
Year Ended
 
September 30, 2016
 
December 31, 2016
 
(Dollars in millions)
(Unaudited)
Net income
$
57

 
$
171

Adjustment to remove DOJ adjustment
(24
)
 
(24
)
Tax impact of adjusting item
8

 
8

Adjusted net income
$
41

 
$
155

 
 
 
 
Diluted income per share
$
0.96

 
$
2.66

Adjustment to remove DOJ adjustment
(0.41
)
 
(0.42
)
Tax impact of adjusting item
0.14

 
0.14

Diluted adjusted income per share
$
0.69

 
$
2.38

 
 
 
 
Return on average assets
1.61
 %
 
1.23
 %
Adjustment to remove DOJ adjustment including tax impact
(0.45
)%
 
(0.12
)%
Adjusted return on average assets
1.16
 %
 
1.11
 %
 

 
 
Return on average equity
16.53
 %
 
11.69
 %
Adjustment to remove DOJ adjustment including tax impact
(4.64
)%
 
(1.10
)%
Adjusted return on average equity
11.89
 %
 
10.59
 %
 
 
 
 
Return on average common equity
17.45
 %
 
13.03
 %
Adjustment to remove DOJ adjustment including tax impact
(4.89
)%
 
(1.22
)%
Adjusted return on average common equity
12.56
 %
 
11.81
 %
 
 
 
 
Total noninterest expense
$
142

 
$
560

Net interest income
$
80

 
$
323

 
 
 
 
Total noninterest income
$
156

 
$
487

Adjustment to remove DOJ adjustment
(24
)
 
(24
)
Adjusted total noninterest income
$
132

 
$
463

 
 
 
 
Efficiency Ratio
59.9
 %
 
69.2
 %
Adjustment to remove DOJ adjustment
7.1
 %
 
2.0
 %
Adjusted Efficiency Ratio
67.0
 %
 
71.2
 %

22