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TARP exit opens opportunities for Flagstar

has a lot morecapital to work with after receiving approval to exit TARP, but a consentorder continues to limit M&A opportunities for the bank.

On thebank's July 26 earningscall, management said they have more options available for deploying capital followingregulatory approval toredeem TARP stock, but the bank does not have any major plans to return capitalto shareholders.

"Thereare no plans at this time to do anything like a dividend or any buyback programs,"said CFO James Ciroli. "And I think our highest and best use of capital isto continue to grow the balance sheet … as long as we can continue to find the greatinvestment opportunities."

Whileexecutives said the TARP exit opens more strategic options, they said bank M&Aappeared to be off the table as the bank continued to operate under a consent orderfrom the OCC.

"Ibelieve we are in the stretch run, and I'm confident [the consent order] will bebehind us in the not-too-distant future," said President and CEO AlessandroDiNello during prepared remarks. In the question-and-answer portion of the call,an analyst asked for additional detail on the progress, but management declinedto comment. However, management said they continueto be interested in acquiring something on the "mortgage side" to helpgrow mortgage originations.

The bankhas focused on diversifying its loan portfolios and become more similar to a communitybank. Management said average commercial loans in the second quarter exceeded consumerloans for the first time. Looking forward, the bank projects average earning assetsgrowth of 5% to 8% in the third quarter.

Executivessaid they will prioritize revenue and income over market share. The company remainsfocused on asset growth, with a focus on producing better margins over time. Inits guidance, management said gain-on-sale margins should improve "moderately"in the third quarter.

"Nowthat we've got all this balance sheet restructuring behind us, as we continue togrow the banking assets, that you'll see that margin over time widen," DiNellosaid. "That certainly will be our objective."