Flagstar Financial, Inc. Q1 FY2026 earnings call

• Disciplined expense management with operating expenses decreasing and expected to continue decreasing. • Diversification of loan portfolio with CNI lending platform growth for three consecutive quarters. • Further reduction in CRE exposure. • Positive credit migration with non-accrual and criticized classified loans decreasing. • Robust CET1 capital ratio of 13.2%. • Fitch and Moody upgraded bank's long-term and short-term deposit ratings to investment grade. • Remediation of previously material weakness in internal controls. • Consolidation of six legacy data centers into two co-location centers with no disruptions. • CNI loans growing with strong pipeline and broad base of growth in various verticals.

CNI loans grew by $1.4 billion, or 9% on a linked quarter basis. Core deposits excluding brokered grew $1.1 billion. Net interest margin expanded 10 basis points. Operating expenses continued to decrease. Non-accrual loans declined by 11% and criticized and classified loans decreased by 3%. CRE exposure further reduced by $1.6 billion. Adjusted diluted EPS went from 3 cents in the fourth quarter to 4 cents during Q1.

• Adjusted interest income guidance downward for 2026 and 2027 due to increased CRE and multifamily payoffs, paydowns, and amortization. • Adjusted EPS forecast to be in the 60 to 65 cent range in 2026 and $1.80 to $1.90 range in 2027. • Expect total assets to be approximately $94 billion at the end of 2026 and $102 billion at the end of 2027. • Focus on demonstrating sustainable profitability, continued improvement in non-accrual loans, and flexibility to support loan growth for capital distributions in the second half of the year.

• Impact of more CRE and multifamily payoffs, paydowns, and amortization on short-term interest income and NIM. • Uncertainty in the level of commercial real estate payoffs going forward affecting NII outlook. • Risk of continued changes in deposit costs and growth affecting net interest income. • Potential impact of rent freezes on certain multifamily loan portfolios. • Uncertainty in the execution of core conversion and associated expenses.

Q: Chris McGrady with KBW asked about margin adjustment and capital distribution mile markers.

A: Lee explained about balance sheet and CRE/multifamily book impact on margin, and Joseph talked about consistent earnings, non-performing assets reduction, and CNI portfolio growth as mile markers.

Q: Jared Shaw with Barclays asked about loan yield and margin expansion.

A: Lee discussed asset yield, payoffs impact, C&I growth timing, and net CNI growth run rate.

Q: Manan Gosalia with Morgan Stanley asked about Moody's and Fitch upgrades implications.

A: Joseph and Lee talked about deposit relationship gains and no direct impact on FDIC expenses.

Q: David Chevrini with Jefferies asked about credit quality expectations.

A: David and Lee discussed continued reduction in criticized and classified loans, special mention loans analysis, and charge-off trends.

Q: David Smith with Truist Securities asked about rent freeze impact and C&I banker hiring.

A: David and others talked about rent freeze analysis impact on portfolio and C&I banker hiring progress.

Q: Dave Rochester with Cantor asked about capital employment and C&I banker production.

A: Joseph and Lee discussed capital optionality and C&I banker production progress.

Q: Anthony Elion with JP Morgan asked about fee income drivers.

A: Lee talked about fee income components and drivers.

Q: Matthew Brees with Stevens asked about MPA inflows and NII visibility.

A: Joseph and Lee discussed MPA trends and NII visibility.

Q: Casey with Autonomous asked about balance sheet forecast and deposit growth.

A: Lee discussed balance sheet components and deposit growth outlook.

Q: Bernard Bongazigi with Deutsche Bank asked about deposit pricing and flood advance paydowns.

A: Joseph and Lee talked about deposit pricing and flood advance paydown expectations