FLAGSTAR BANK, NATIONAL ASSOCIATION Q3 FY2024 earnings call

• Board transformation is complete, with over 30 new hires in middle market commercial banking and specialized industry lending. - Hired new Chief Information Officer Chris Higgins with experience from U.S. Bank and MUFG. - Consecutive quarters of solid deposit growth in retail and private bank, with private banking customers returning and winning new relationships. - Exited certain non-core businesses and reduced exposures in C&I portfolio. - Pro forma CET1 ratio is 11.4%, expect to close the sale of MSR and third-party broker business to Mr. Cooper at the end of October. - Reduced operating expenses through headcount reductions and cost controls while investing in key areas. - Completed review of nearly the entire CRE portfolio, with multi-family loans having $2.1 billion repricing year-to-date.

In the third quarter, the C&I loans declined $1.3 billion or 8% compared to the second quarter due to runoff of certain loans. There was solid deposit growth in both retail and private bank for the second consecutive quarter. The private banking deposits have a weighted average cost in the low 2% range. Liquidity remained extremely strong at over $41 billion, and the pro forma CET1 ratio, including the impact of the sale of the MSR and third-party origination business, is 11.4%.

• Non-accrual loans are expected to remain elevated through 2026. - Higher FDIC assessment cost is expected through 2026. - Net interest income margin is expected to improve starting from 2025. - The provision for loan losses for the full year of 2024 is expected to be $1.1 billion to $1.2 billion, related to charge-offs associated with multi-family loans.

• Credit risk related to the repricing of loans and potential negative surprises in credit quality. - Interest rate fluctuations that could impact the portfolio's performance. - Regulatory requirements and compliance risks associated with the bank's operations and transformations.

Q: Was any of the change from the change in the forward rate curve? Can you talk about how you think the balance sheet is positioned for rate cuts here?

A: We're slightly liability-sensitive. We will benefit from lower rates on the deposit side, but there will be pressure on the on-balance sheet liquidity aspect of the portfolio. We've been successful in bringing down deposit rates in the last six weeks.

Q: What's causing those non-accrual loans to remain on the balance sheet for longer?

A: We're exploring all opportunities to reduce our non-accrual portfolio. We are working with borrowers to work them out, looking at discounted payoffs, and exploring the market to see if there's an opportunity to sell. In some cases, we think we can do better working them out ourselves.