Flagstar Bancorp : Q2 2021 Flagstar Bancorp Earnings Presentation

Quarter 2021

Flagstar Bancorp, Inc. (NYSE: FBC)

Earnings Presentation 2nd Quarter 2021

July 28, 2021

1

Cautionary statements	2nd Quarter 2021

This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are based on management's current expectations and assumptions regarding the Company's business and performance, the economy and other future conditions, and forecasts of future events, circumstances and results. However, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, contingencies and other factors. Generally, forward-looking statements are not based on historical facts but instead represent our management's beliefs regarding future events. Such statements may be identified by words such as believe, expect, anticipate, intend, plan, estimate, may increase, may fluctuate, and similar expressions or future or conditional verbs such as will, should, would and could. Such statements are based on management's current expectations and are subject to risks, uncertainties and changes in circumstances. Actual results and capital and other financial conditions may differ materially from those included in these statements due to a variety of factors, including without limitation those found in periodic Flagstar reports filed with the U.S. Securities and Exchange Commission, which are available on the Company's website (flagstar.com) and on the Securities and Exchange Commission's website (sec.gov).

Any forward-looking statements made by or on behalf of us speak only as to the date they are made, and we do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made, except as required under United States securities laws.

In addition to results presented in accordance with GAAP, this presentation includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the capital requirements Flagstar will face in the future and underlying performance and trends of Flagstar.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. Flagstar's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

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

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Strategic highlights	2nd Quarter 2021

Unique relationship-based business model

Grow community banking

Award winning servicing business

Strengthen mortgage

Highly profitable operations

Positioned to thrive in any market

• Diverse revenue streams and flexible balance sheet produced strong dependable results in a volatile interest rate environment and we continued to capitalize on the beneficial mortgage market as a result of our multi-channel mortgage business.
• Well diversified loan portfolio, with no outsized exposure to any geography or industry, reflects our disciplined approach to growing the Community Bank while maintaining prudent underwriting standards
• Our balance sheet continues to demonstrate it's high credit quality and lower risk-content which provides flexibility to leverage our relationship-based lending strategy to enter new markets and expand current product offerings
• Servicing business produced consistent results for the quarter, while also continuing to grow the subservicing business
• The results highlight our competitive advantage as the subservicing business is housed within a well capitalized Bank with ample liquidity
• Mortgage results demonstrate our ability to deploy our multi-channel origination platform to produce strong returns in a volatile interest rate environment and shrinking mortgage market.
• Leveraged our unique capabilities as an RMBS issuer, becoming the 3rd largest issuer in the market during the quarter
• Invested in people and technology, expanding retail and generating more business in the most profitable channels
• Delivered strong pre-provision net revenue with all three segments contributing to the results for the quarter which resulted in a continued trend of above average returns on assets and tangible common equity
• Durable business model well-positioned to succeed--profitability is strong--capital is strong--allowance is strong--and liquidity is strong
• Fortress balance sheet and unique capital generation capabilities provides strategic flexibility in prudently managing the growth of the bank

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Financial highlights	2nd Quarter 2021

Solid earnings

Growth in community banking and servicing

Mortgage revenue

• Adjusted net income of $146mm, or $2.73 per diluted share, in 2Q21, and adjusted pre-tax,pre-provision net revenue of $145mm in 2Q21, a decrease of $56mm vs. 1Q21
• Grew TBV per share $2.61, or 6%, to $44.38(1) per share at 06/30/21, compared to $41.77(1) per share at 03/31/21
• Trailing 12 months (TTM) adjusted return on average tangible common equity of 31%, 13% higher compared to the prior TTM
• Net interest margin, excluding the impact from loans with government guarantees that have not been repurchased, was 3.06% for the quarter, up 4 basis points, vs. 1Q21
• • Performance driven by the impact of an increase in LHFS yields due to a mix shift to higher yielding products supporting our residential mortgage-backed securities program, higher LHFI yields and lower deposit costs.
• Servicing results solid as total loans serviced were approximately 1.2 million loans at period end
• Mortgage revenue(2) of $163mm, down $64mm vs. 1Q21 as margin contracted 49 basis points, and FOALs remained flat
• • Gain on sale margin of 1.35%, down 49 basis points from 1Q21 levels
  • Net loss on MSR of $5 million, reflecting an $8 million write off of MSR fair value for those loans with government guarantees that were repurchased during the quarter. Impact of MSR FV write off will be more than offset when the repurchased loans are cured and re-securitized (refer to slide 34 for more details)

Strong asset quality

Robust capital position

• Asset quality strong as net charge-offs were only 1 basis point, nonperforming loan ratio remained low, and no commercial loans currently in deferral
• Credit reserves of $220mm at 06/30/21, a $45mm decrease from 1Q21, with a coverage ratio of 1.6% of loans HFI, or 2.6% excluding warehouse loans
• Total risk based capital ratio at 14.1%, or 16.3% if the risk-weighting of warehouse loans were adjusted to 50% to reflect the risk weightings of the assets that fully collateralized the loans
• Tier 1 leverage ratio at 9.2% and CET1 ratio at 11.4% reflecting strong capital generation coupled with the balance sheet contraction from our warehouse business
• Over $840mm, a $190mm increase compared to the prior quarter, of excess total risk-based capital over the minimum level needed to be considered well-capitalized further strengthening the bank

1. References non-GAAP number. Please see reconciliations on pages 43 - 44.
2. Mortgage revenue is defined as net gain on loan sales HFS plus the net return on the MSRs.

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Quarterly income comparison	2nd Quarter 2021

$mm

Observations

Net interest income

• Net interest income decreased $6mm
• • Net interest margin, excluding LGG that have not been repurchased, expanded 4 basis points to 3.06%.
  • Average earning assets declined $1.9 billion, or 7 percent, as warehouse balances were $1.0 billion (15 percent) lower and LHFS declined $0.6 billion.
  • Average deposits decreased 5%, due to a $1.0bn billion decrease in custodial deposits.

Noninterest income

• Noninterest income decreased $72mm, or 22%
• • Net gain on loan sale margin decreased 49 basis points, to 1.35%, with FOALs flat.
  • Net loss on MSR was $5 million, primarily reflecting an $8 million write off of MSR fair value for those LGGs that were repurchased during the quarter. A future gain on sale benefit will be recognized on these repurchased loans as they cure and are re-securitized. Refer to slide 34 for more details.

Noninterest expense

• Noninterest expense decreased $91mm, or 29%, refer to slide 7 for more details

1. Non-GAAP number, please see reconciliations on pages 43 and 44.

2. References non-GAAP number as it excludes the impact of $1.8 billion (1Q21) and $1.3 billion (2Q21) of average balance of loans with government guarantees that have not been repurchased and do not accrue interest. Please see reconciliations on pages 43 - 44.

3. Rounded to the nearest hundred million

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N/M = not meaningful