FLAGSTAR BANK, NATIONAL ASSOCIATION Q4 FY2024 earnings call

• Strategic focus on bolstering management and talent, particularly in the C&I business with significant new hires.
• Ongoing execution of operating plan with consecutive deposit growth in retail and private banking, reduced CRE exposure, proactive problem loan management, and successful sale of mortgage businesses.
• On track to reach full profitability in 2026, with a strong liquidity profile, reduced wholesale borrowings (now 13% of total assets), and a loan deposit ratio of 90%.
• In 2025, focus on improving earnings via NIM expansion, moderating credit costs, and driving operational efficiency (reducing operating expenses by $600M). Execution of C&I and private bank growth initiatives, proactive management of the CRE portfolio, and credit normalization to lower charge-offs and provisions.

Flagstar Financial's segment performance included retail and private banking with consecutive deposit growth. CRE exposure was reduced through proactive management. The company successfully sold mortgage warehouse and servicing businesses. Liquidity remained strong with over $31 billion. The CET1 ratio was 11.9%, up 280 basis points during the year. Overall deposits decreased by approximately $7 billion, largely due to the sale of the mortgage servicing business, but retail channel saw $900 million growth and private bank $500 million growth. CRE balances, excluding owner-occupied, were down $4.7 billion year-over-year, and the CRE concentration ratio declined to 443% from 501%.

• 2025 forecast: smaller loss per share than previous guidance. Net interest income slightly lower due to a smaller balance sheet, offset by higher non-interest income and lower non-interest expenses.
• EPS guidance for 2026 and 2027 remains unchanged.
• Plan to reduce operating expenses by $600M in 2025.
• C&I business hiring and pipeline growth expected, with new loan commitments and funded loans increasing in the fourth quarter.

• Potential impact of interest rate changes on credit performance, especially with CRE loan resets and maturities.
• Concentration of delinquencies in certain portfolios, though some loans have been brought current.
• Uncertainty around regulatory changes and their impact on the bank's operations, including potential effects on capital and liquidity requirements.

Q: Mark Fitzgibbon asked about real estate optimization and the securities portfolio.

A: Lee Smith responded that they are consolidating branches, phasing closures in three phases, and contemplating growing the securities portfolio.

Q: Jared Shaw inquired about excess capital and loan sales.

A: Joseph Otting stated that the ACL model handles non-performing loans with specific reserves, and they feel comfortable with loan sales as reserves cover potential hits.

Q: Christopher Marinac asked about core deposit growth and private banking retention.

A: Lee Smith mentioned core deposit growth from consumer and private banks, with plans to replace high-cost funding sources with core deposits.

Q: Manan Gosalia questioned the impact of interest rate changes on reserves and provisions.

A: Joseph Otting noted that it depends on individual property performance, reviewing NOIs and debt service coverage relative to interest rates.

Q: Ebrahim Poonawala asked about capital and C&I loan growth.

A: Joseph Otting and Lee Smith discussed using excess capital to grow the balance sheet, C&I business hiring and pipeline, and opportunities in the market.

Q: Chris McGratty asked about rate sensitivity and share count.

A: Lee Smith stated neutral to slightly asset sensitive, and warrants are expected to fully convert in Q4 2025.

Q: Ben Gerlinger inquired about rate impact and delinquency trends.

A: Lee Smith discussed deleveraging and managing delinquencies, with some loans brought current post-year end.

Q: Bernard Von Gizycki asked about commercial bank hiring and production ramp-up.

A: Joseph Otting mentioned quick production expectations with seasoned hires, starting transactions 90 days after arrival.

Q: Steve Moss asked about deposit beta and noninterest-bearing deposits.

A: Lee Smith discussed deposit beta within the 55%-60% range and noninterest-bearing deposits remaining relatively constant.

Q: Anthony Elian asked about provision changes and office reserve dynamics.

A: Lee Smith explained provision conservatism and office reserve changes based on appraisal updates and loan sales.

Q: Jon Arfstrom asked about client onboarding and regulator concerns.

A: Joseph Otting mentioned customer calls to address concerns, with new clients having fewer discussions due to the bank's liquidity and capital levels.

Q: Matthew Breese asked about excess cash and commercial real estate charge-offs.

A: Lee Smith discussed reducing excess cash through deposit growth and charge-off expectations for 2025, while Joseph Otting talked about regulator category considerations.