Flagstar Bancorp : Q2 2022 Flagstar Bancorp Earnings Presentation

Flagstar Bancorp, Inc. (NYSE: FBC)

Earnings Presentation 2nd Quarter 2022

July 27, 2022

Cautionary statements	2nd Quarter 2022

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 2022

Unique relationship- based business model

Grow community banking

Award winning servicing business

Strengthen mortgage

Highly profitable operations

Positioned to thrive in any market

• NIM expanded 58 basis points to 3.69%; net interest income grew 17%
• Average commercial loans, excluding warehouse, grew 9% and ended the quarter 9% higher than the average in the quarter
• Delivered a return on average assets of 1.1%
• Average C&I loans rose 18% to $2.2B for the quarter
• Maintained discipline in our deposit pricing as retail deposit costs increased only 2 basis points
• Asset quality remains clean
• Grew our fee-generating portfolio of loans serviced or subserviced by 10% to nearly 1.4M accounts
• Average custodial deposits remain an important source of liquidity; as we accumulate more owned MSR, these balances provide more funding at a lower average cost
• Proactive expense management, combined with the variable cost structure of our mortgage business drove mortgage expenses down 11%
• Our mortgage expense ratio declined 10 basis points to 1.14% of closing volume
• Despite the challenges in mortgage, net income grew $7M, delivering a 1.1% return on average assets for the quarter
• Our current quarter earnings demonstrate the resilience of our portfolio of businesses as EPS increased even as gain-on-sale revenue declined to less than 10% of our total revenue
• This quarter's results provide yet another validation of our business mix and strategy
• We believe we are still in the process of pivoting to a mix that is led by banking and servicing while representing a bottom for the mortgage business - future quarters will get better as banking and servicing continue to grow

1. References non-GAAP number. Please see reconciliations on pages 39 - 40.

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Financial highlights	2nd Quarter 2022

Solid earnings

Growth in community banking and servicing

Mortgage revenue

Strong asset quality

Robust capital position

• Adjusted net income of $63M, or $1.17 per diluted share, in 2Q22(1),
• ROA of 1.1% and ROE of 8.7% despite the large amount of excess capital
• TBV per share of $47.83(1) at 6/30/2022, as AOCI negatively impacted this by $1.82 per share
• Strong C&I loan growth with average balances up 18% from last quarter led by MSR lending
• Controlled cost of total retail deposits only increasing 0.02%; total deposit costs of 0.16%, outperforming our internal betas
• Total loans serviced grew to over $0.3 trillion of UPB at period end providing $4.6 billion of low-cost custodial deposits
• Gain on sale revenue of $27M due to a $1.1B, or 47%, decline in our retail volume as a result of lower refinance volumes
• Net return on MSR of $22M, an annualized 16 percent return for the quarter
• Credit reserves of $135M at 6/30/22, a $10M decrease from 2Q22, with a coverage ratio of 0.92% of loans HFI, or 1.27%, excluding warehouse loans
• Early stage delinquencies were negligible, and there were no delinquent or nonperforming commercial loans at quarter-end
• Pay-offsand improved delinquencies for the portfolio of expired forbearance loans in our loans with government guarantees portfolio resulting in the ACL release
• Total risk based capital ratio at 15.7%, or 17.5% 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 12.2% and CET1 ratio at 13.2% reflecting strong capital generation
• Over $1.1B of excess total risk-based capital over the minimum level needed to be considered well-capitalized

1. References non-GAAP number. Please see reconciliations on pages 39 - 40.

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Quarterly income comparison	2nd Quarter 2022

$mm

	2Q22		1Q22		$ Variance		% Variance
Net interest income	$193	$165	$28	17 %
(Benefit) provision for credit losses	(9)	(4)	(5)	125 %
Net interest income after PLL	202		169		33	20 %
Net gain on loan sales	27	45	(18)	(40)%
Loan fees and charges	29	27	2	7 %
Net return on mortgage servicing rights	22	29	(7)	(24)%
Loan administration income	33	33	0		- %
Other noninterest income	20	26	(6)	(23)%
Total noninterest income	131		160		(29)	(18)%
Compensation and benefits	122	127	(5)	(4)%
Commissions and loan processing	45	47	(2)	(4)%
Other noninterest expenses	86	84	2	2 %
Total noninterest expense(1)	253		258		(5)	(2)%
Income before income taxes(1)	80	71	9	13 %
Provision for income taxes(1)	17	16	1	6 %
Net income (1)	$63	$55	$8	15 %
Diluted income per share(1)	$1.17	$1.02	$0.15	14 %
Profitability
Net interest margin	3.69 %	3.11 %		58 bps
Net gain on loan sales / total revenue	8.1 %	13.8 %	(5.7)%
Fallout adjusted rate lock commitments(2)	$7,100	$7,700	$(600)	(8)%
Mortgage closings(2)	$7,700	$8,200	$(500)	(6)%
Net gain on loan sale margin	0.39 %	0.58 %		(19) bps

Observations

Net interest income

• Net interest income increased $28 million
• • Net interest margin was 3.69%, a 58 bp increase largely attributable to our asset sensitivity, hedging strategies and managing deposit pricing.
  • June's NIM was 3.88%, a positive sign for the third quarter
  • Retail deposit costs, including retail DDA, rose only 2bps
  • Average earning assets decreased $0.6 billion, or 3 percent

Noninterest income

• Noninterest income decreased $29 million, or 18 percent
• • Net gain on loan sales was $27 million, driven by a $1.1 billion decline in retail volume.
  • The mortgage servicing rights portfolio yielded an annualized 16 percent return for the quarter.

Noninterest expense

• Noninterest expense decreased $5 million, or 2%
• The ratio of mortgage noninterest expense to closings - our mortgage expense ratio - was 1.14%, a decrease of 10 bps compared to Q1

1.	Non-GAAP number, please see reconciliations on pages 39 - 40.	5
2.	Rounded to the nearest hundred million