Flagstar Financial (NYSE:FLG) Q3 2025 Earnings Call October 24, 2025 08:00 AM ET Company ParticipantsDavid Smith - VP of Banks Equity ResearchLee Smith - CFOChristopher Marinac - Director of ResearchMatthew Breese - Managing DirectorSalvatore DiMartino - Director of Investor RelationsJared Shaw - Managing DirectorManan Gosalia - Head of US Midcaps Banks ResearchMark Fitzgibbon - Head of FSG ResearchJon Arfstrom - Associate Director of US ResearchChris McGratty - Managing DirectorEbrahim Poonawala - Head of ...

Financial Data and Key Metrics Changes - The adjusted net loss narrowed to $0.07 per diluted share, a significant improvement compared to the previous quarter [3][16] - The net interest margin (NIM) expanded for the third consecutive quarter, increasing by 10 basis points to 1.91% [4][18] - Operating expenses decreased by approximately $800 million on an annualized basis compared to the previous year [4][18] - Criticized and classified assets declined by $600 million or 5% quarter-over-quarter and by $2.8 billion or 20% year-to-date [4][24] Business Line Data and Key Metrics Changes - The Commercial and Industrial (C&I) business originated $1.7 billion in new loan outstandings, with net loan growth of $448 million in the C&I portfolio [4][15] - Multifamily and Community Reinvestment Act (CRA) payoffs totaled $1.3 billion, continuing a trend of exceeding forecasts [4][14] - The provision for loan losses decreased by 41%, while net charge-offs declined by 38% [5][15] Market Data and Key Metrics Changes - The total Commercial Real Estate (CRE) balances have declined by $9.5 billion or 20% since year-end 2023, aiding in the diversification of the loan portfolio [21] - The CRE concentration ratio decreased by 95 basis points to 407% since year-end 2023 [21] Company Strategy and Development Direction - The company is focused on transforming into a top-performing regional bank, emphasizing a customer-centric relationship-based culture [27] - The strategy includes reducing reliance on wholesale funding and enhancing liquidity, which has resulted in a significant reduction in funding costs [12][20] - The company plans to start originating new high-quality CRE loans in the fourth quarter, diversifying its portfolio geographically [15][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the trajectory of profitability, citing a consistent narrowing of net losses and improved credit quality [3][5] - The company anticipates continued growth in the C&I business, with expectations of funding between $1.7 billion to $2.2 billion in C&I loans per quarter going forward [36][48] - Management noted that the balance sheet is expected to stabilize in the fourth quarter and begin to grow in 2026 [46][68] Other Important Information - The company completed a holding company reorganization, simplifying its corporate structure and reducing operating expenses by approximately $15 million [27][28] - The CET1 capital ratio stands at 12.45%, ranking among the highest among regional bank peers [19] Q&A Session Summary Question: NII guidance for the year - Management indicated that the balance sheet would likely be at its low point in Q4, with expectations for growth in 2026 and continued NIM expansion [30][31] Question: C&I production expectations - Management expects C&I production to stabilize at $1.7 billion to $2.2 billion per quarter, with plans to hire additional staff to support growth [36][41] Question: Regulatory relief from holding company elimination - The elimination of the holding company reduces regulatory burdens and streamlines examinations, freeing up resources and time [49][50] Question: Expense management and future cost savings - Management highlighted significant reductions in non-interest expenses and identified further opportunities for cost savings in FDIC expenses and vendor costs [57][60] Question: Non-interest-bearing deposit growth - Management expects non-interest-bearing deposits to grow as new C&I relationships are established and private banking efforts are enhanced [61][62] Question: Credit quality and provisioning outlook - Management anticipates a downward trend in non-performing loans and has a pipeline for significant reductions in the fourth quarter [64][66]