Flagstar Financial, lnc.(FLG) - 2025 Q1 - Quarterly Results

Q1 2025 Financial Performance Overview Flagstar Financial reported a Q1 2025 GAAP net loss of $0.26 per diluted share and an adjusted net loss of $0.23 per share, demonstrating progress in strategic goals and aiming for profitability by Q4 2025 Key Financial and Operational Highlights Flagstar Financial reported a Q1 2025 GAAP net loss of $0.26 per diluted share and an adjusted net loss of $0.23 per share, demonstrating progress in strategic goals and aiming for profitability by Q4 2025 Key Financial Metrics | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net Loss Attributable to Common Stockholders | ($108M) | ($196M) | ($335M) | | GAAP Diluted Loss Per Share | ($0.26) | ($0.47) | ($1.36) | | Non-GAAP Adjusted Diluted Loss Per Share | ($0.23) | ($0.40) | ($0.74) | - Key operational achievements include a 48% linked-quarter decline in net charge-offs, a 6% decrease in criticized loans, and a 32% increase in new credit commitments to over $1 billion[2] - The company continued to reduce its CRE exposure, with multi-family loans down $656 million and CRE loans down $326 million from the prior quarter[2][12] CEO Commentary and Strategic Outlook The CEO emphasized strong financial performance and a robust balance sheet, outlining a 2025 strategy focused on earnings improvement, C&I and Private Bank growth, CRE reduction, and achieving profitability by Q4 2025 through $600 million in cost savings - The company's 2025 focus is on improving its earnings profile, executing its C&I and Private Bank growth strategy, and continuing to manage down CRE exposure[6] - C&I loan originations grew over 40% linked-quarter to nearly $770 million, and the company added 15 new commercial bankers, bringing the total to 75[6][7] - The company is on pace to meet its $600 million cost savings goal and has laid the groundwork for a return to profitability by the fourth quarter of 2025[6][9] Detailed Earnings Analysis Net Interest Income decreased due to a smaller balance sheet, while Net Interest Margin stabilized, and non-interest income and expenses reflected strategic adjustments and cost-saving measures Net Interest Income (NII) and Net Interest Margin (NIM) Net Interest Income decreased to $410 million due to a smaller balance sheet, while Net Interest Margin stabilized at 1.74% driven by reduced cost of interest-bearing liabilities Net Interest Income and Margin Trends | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income ($M) | $410 | $461 | $624 | | Net Interest Margin (NIM) (%) | 1.74% | 1.73% | 2.28% | | Cost of Total Interest-Bearing Liabilities (%) | 4.02% | 4.27% | 4.19% | - The linked-quarter decline in NII was driven by a $3.5 billion (5%) decrease in average loan balances, a result of strategic reductions in CRE and C&I portfolios[19][22] Non-Interest Income Non-interest income reached $80 million in Q1 2025, showing an 11% adjusted increase linked-quarter but a 38% year-over-year decrease primarily due to the prior sale of the mortgage business Non-Interest Income Breakdown | (in millions) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Total Non-Interest Income (GAAP) ($M) | $80 | $164 | $9 | | Net gain on loan sales ($M) | $13 | $5 | $20 | | Fee income ($M) | $22 | $33 | $34 | | Adjusted Non-Interest Income (Non-GAAP) ($M) | $80 | $72 | $130 | - The linked-quarter increase in adjusted income was driven by a $8 million increase in net gain on loan sales[32] Non-Interest Expense Non-interest expense decreased 26% linked-quarter to $532 million, with adjusted expenses at $485 million, reflecting successful cost-saving measures in compensation and general administrative categories Non-Interest Expense Breakdown | (in millions) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Total Non-Interest Expense (GAAP) ($M) | $532 | $718 | $699 | | Compensation and benefits ($M) | $244 | $302 | $333 | | General and administrative ($M) | $147 | $252 | $186 | | Adjusted Non-Interest Expense (Non-GAAP) ($M) | $485 | $556 | $621 | - The linked-quarter decrease in adjusted expenses was driven by a $27 million decline in compensation and benefits, a $24 million decrease in FDIC insurance expense, and a $21 million decline in general and administrative costs[35] Balance Sheet Analysis Total assets and deposits decreased due to strategic loan reductions and funding management, while the company actively grew its C&I lending business Asset Composition Total assets decreased by 3% to $97.6 billion, primarily due to a $1.7 billion reduction in loans held for investment, reflecting strategic CRE and multi-family loan exposure reduction Asset Composition Overview | Asset Category (in billions) | Q1 2025 | Q4 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets ($B) | $97.6 | $100.2 | -3% | | Total Loans HFI ($B) | $66.6 | $68.3 | -2% | | Multi-family Loans ($B) | $33.4 | $34.1 | -2% | | CRE Loans ($B) | $11.5 | $11.8 | -3% | | C&I Loans ($B) | $14.7 | $15.4 | -4% | - The company is actively growing its C&I lending business, with new credit commitments of $1.05 billion and new funded loans of $769 million in Q1 2025[14] Deposits and Funding Total deposits decreased by $2.0 billion to $73.9 billion, driven by mortgage escrow transfers and strategic reduction of higher-cost brokered CDs, alongside a $250 million decline in wholesale borrowings Deposits and Funding Overview | Liability Category (in billions) | Q1 2025 | Q4 2024 | Change | | :--- | :--- | :--- | :--- | | Total Deposits ($B) | $73.9 | $75.9 | -3% | | Certificates of Deposit (CDs) ($B) | $25.9 | $27.3 | -5% | | Non-interest-bearing Deposits ($B) | $12.7 | $13.5 | -5% | | Wholesale Borrowings ($B) | $13.2 | $13.4 | -2% | - The decline in CDs was driven by a $1.4 billion payoff of brokered CDs, in line with the strategy to reduce higher-cost funding[16] Credit Quality Analysis Asset quality showed mixed trends with declining net charge-offs but increased non-accrual loans, primarily due to a single multi-family borrower relationship Asset Quality Overview Asset quality showed mixed trends in Q1 2025, with declining net charge-offs and strong ACL coverage, but an increase in non-accrual loans primarily due to a single multi-family borrower relationship Asset Quality Ratios | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Total ACL % of total loans HFI (%) | 1.82% | 1.83% | 1.56% | | NPLs to total loans HFI (%) | 4.93% | 3.83% | 0.97% | | Net charge-offs to average loans (annualized) (%) | 0.68% | 1.23% | 0.39% | - The total allowance for credit losses was $1.215 billion, nearly unchanged from the previous quarter's coverage level, reflecting a stable credit outlook despite portfolio changes[41][42] Non-Performing Assets (NPAs) Total non-accrual loans increased by $363 million to $3.3 billion, primarily driven by a single multi-family borrower relationship, which, if excluded, would have shown a decrease Non-Accrual Loans Held for Investment | Non-Accrual Loans HFI (in millions) | Q1 2025 | Q4 2024 | Change | | :--- | :--- | :--- | :--- | | Total Non-Accrual Loans HFI ($M) | $3,280 | $2,615 | +25% | | Multi-family ($M) | $2,361 | $1,755 | +35% | | Commercial Real Estate ($M) | $589 | $564 | +4% | - The ratio of non-accrual loans HFI to total loans HFI increased to 4.93% from 3.83% in the prior quarter[40] Provision and Net Charge-Offs The provision for credit losses significantly decreased to $79 million due to lower net charge-offs and strategic loan portfolio reductions, with net charge-offs totaling $115 million Provision for Credit Losses and Net Charge-Offs | (in millions) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses ($M) | $79 | $145 | $315 | | Net Charge-Offs ($M) | $115 | $222 | $81 | - The annualized net charge-off rate improved to 0.68% of average loans, compared to 1.23% in Q4 2024[28] Capital and Liquidity The company maintained a strong capital position, exceeding regulatory minimums, and robust liquidity, providing substantial coverage for uninsured deposits Capital Position The company's capital position strengthened, exceeding regulatory minimums with a Common Equity Tier 1 (CET1) ratio improving to 11.90%, positioning it favorably against peers Regulatory Capital Ratios | Regulatory Capital Ratios (Flagstar Financial, Inc.) | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Common equity tier 1 ratio (%) | 11.90% | 11.83% | | Tier 1 risk-based capital ratio (%) | 12.66% | 12.57% | | Total risk-based capital ratio (%) | 15.25% | 15.14% | | Leverage capital ratio (%) | 8.45% | 7.68% | - Tangible book value per common share was $17.33, a slight increase from $17.30 in the prior quarter[2][63] Liquidity Position The company maintained a strong liquidity position with $30 billion in total liquidity, providing 231% coverage of uninsured deposits and supported by substantial borrowing capacity and high-quality liquid assets - Total liquidity of $30 billion provides 231% coverage on uninsured deposits[2] - The liquidity position is supported by $18.1 billion of available borrowing capacity and high-quality liquid assets[2]