With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Q1 2025

Q4 2024

Get insights into Flagstar Bank including business profile, stock information, news, and rankings from Fortune.

Flagstar Bank (FLG): Company Profile, Stock Price, News, Rankings

legacy

Flagstar Bank

flagstar bank

and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Flagstar Financial First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I would now like to turn the conference over to Sal DiMartino, Director of Investor Relations. Please go ahead.

Thank you, Regina, and good morning, everyone. Welcome to Flagstar Financial's first quarter twenty twenty five earnings call. This morning, our Chairman, President and CEO, Joseph Fadding along with the company's Senior Executive Vice President and Chief Financial Officer, Lee Smith, will discuss our first quarter results and outlook. During this call, we will be referring to our earnings presentation, which provides additional detail on our quarterly results and operating performance. Both the earnings presentation and the press release can be found on the Investor Relations section of our company website at irflagstar.com.

Also, before we begin, I'd like to remind everyone that certain comments made today by the management team of Flagstar Financial may include forward looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward looking statements we may make are subject to the safe harbor rules. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. Also, when discussing our results, we will reference certain non GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliations of these non GAAP measures.

And with that, now I would like to turn the call over to Mr. Otting. Joseph?

Thank you, Sal, and good morning, everyone, and welcome to our first quarter earnings call. We are very pleased with this quarter's operating performance and financial results as we continue to make significant progress on our journey to profitability, executing on our strategic plan and transferring the company to a strong performing regional bank. We executed on the critical cost takeouts, credit management, C and I growth and risk governance during the quarter and really aligned with our overall pattern that we laid out for all of you in early twenty twenty four. Our first quarter adjusted net loss available to common shareholders was $0.23 per diluted share compared to a consensus of $0.27 per diluted share. This was also $0.17 better than what we reported in the fourth quarter.

In addition to our improved financial results, I'm also excited with the progress that we are making in building out our commercial lending business, where we continue to add talented bankers. These new hires now generating strong origination volumes, which I will detail for you shortly. Also during the quarter, we announced the hiring of Mark Pizzi to lead our private bank and wealth management business. Mark's extensive expertise at various large regional and international banks will help us drive our continued growth in these two core businesses. And we're really excited because Mark is going to be a great leader.

He's already brought focus to those businesses and we look to add additional talent as we move forward as he executes on his business model. In addition, we rounded out some key product offerings in the C and I, including an interest only jumbo AMR mortgage with a low loan to value aimed at our high net worth clients and a subscription loan product. We feel now that we have the appropriate product set in place to grow market share in the high net worth space. Turning to Slide three of our presentation. In 2024, we successfully built capital, improved liquidity and enhanced the credit quality of our commercial real estate and multifamily portfolios.

In 2025, our focus is on the following four areas: improving our earnings profile through margin expansion as our cost of funds decreases, moderating credit cost and cost reductions. Lee will discuss these and outline these later on a couple of slides. And we'll continue to execute on our C and I and Private Bank growth initiatives and then proactively manage the CRE portfolio, including reducing our CRE concentration, which you'll also see in a couple of slides. We've continued to do that virtually since we've arrived, and we continue to see that as we kind of move through the remainder of 2025 and 2026. And then we also see normalizing credit.

I will note that both net charge offs and the loan loss provision in the first quarter each declined by almost 50% on a quarter over quarter basis. I'd like to spend the next few slides discussing the build out and increasing momentum in our C and I business, which we've consistently communicated as one of our key targets, is to diversify the balance sheet away from being a CRA driven balance sheet to one where we focus on consumer, C and I and commercial real estate going forward. We've continued to add talent in the C and I business. We hired another 15 bankers during the first quarter and intend to hire another 80 to 90 during the remainder of the year. These additional hires are already factored into our forecast and will not impact our cost savings initiatives.

Early returns from the bankers we hired in 2024 are impressive, especially in our two main focus areas, which are corporate and regional commercial banking and our specialized industry verticals. Overall, we had over $1,000,000,000 of C and I loan commitments in the quarter with $769,000,000 in originations, up over 40% versus the fourth quarter. Our C and I pipeline currently stands at $870,000,000 up over two times compared to the fourth quarter. Our expansion strategy in this is twofold. Our corporate and regional commercial banking business is focused on relationship lending in and around our branch footprint to ensure we can maximize our middle market and corporate banking lending opportunities in our backyard, specifically where we have Flagstar brand recognition.

And then the second is our specialized industry business is a national model and focuses on several industry verticals, including things like sports and entertainment, energy and energy renewables, franchise finance, health care and lender finance. Slide five depicts the momentum we have in these two areas over the last several quarters. And if you recall, we really, with Rich Raffetto's hiring in June of twenty twenty four, began to organize ourselves and began to recruit talent into that space. But as you can see on slide five, importantly, in our two areas of forecast, originations increased over 70% to $449,000,000 on a linked quarter basis, while commitments rose 40% to $656,000,000 So we're really excited about that, and it really shows as we've talked to people about growing out our C and I opportunities in the marketplace that those are really starting to come through as we forecast it. On Slide six, in addition to the sale of the mortgage warehouse business, we opted to strategically reduce our exposure to several non core, non relationship based C and I borrowers.

As a result, over the past several quarters, the runoff in these portfolios has masked the progress we are making in growing our new focus areas. As you can see in the upper left of this slide on page six, while overall C and I loans declined again this quarter, corporate, regional, commercial banking and the specialized interest loans increased to $147,000,000 up 4.4% compared to the fourth quarter. Runoff is now abated in the C and I portfolios. And combined with continued momentum in our focus area, we feel comfortable that the overall C and I portfolio will begin to net grow in the second quarter. With that, I will turn it over to Lee and allow Lee to kind of walk you through some of our financial data.

Thank you, Joseph, and good morning, everyone. We're very pleased with the continued progress of our turnaround strategy to transform Flagstar into a top performing, well diversified, relationship driven regional bank. From a fundamental point of view, our CET1 capital ratio remains right around 12%, one of the strongest in the industry for regional banks. We further improved our liquidity profile as we continue to reduce brokered deposits and FHLB advances, and the results of our cost optimization efforts are on full display as our noninterest expenses, excluding onetime charges, merger expenses and intangible amortization, declined $71,000,000 quarter over quarter, putting us on track to achieve our full 2025 forecasted run rate. We continue to see significant par payoffs in our commercial real estate portfolio, and we closed on the two nonaccrual loan sales that had been moved to available for sale during the fourth quarter with a combined book value of $290,000,000 resulting in a small gain of $9,000,000 on these loan sales.

We will continue to explore all options as it relates to reducing our multifamily and commercial real estate portfolios and nonperforming loans, and we'll execute on what is in the best economic interest of the bank. Joseph already touched on the momentum in the C and I business, but let me add that our goal is to originate 1 plus billion of C and I loans per quarter and believe the first quarter trends prove we're on track to do this. Moreover, this growth is at market spreads, which together with the expected multifamily resets and maturities will drive margin expansion over the next three years. We paid off approximately €1,900,000,000 of brokered deposits during the quarter with a weighted average cost of five percent and €250,000,000 of flub advances with a weighted average cost of approximately 4.5%. The last £1,400,000,000 of our high cost savings promos with a weighted average cost of 5.2% matured during the first quarter, and we had €5,000,000,000 of retail CD maturities at a weighted average cost of almost 5%.

Overall, our weighted average cost of deposits declined 34 basis points in Q1 versus Q4. Looking ahead, a further €4,900,000,000 of retail CDs will mature in the second quarter with a weighted average cost of 4.8%. We continue to actively manage our deposit costs and will further deleverage the balance sheet in 2025 by paying down more brokered deposits and FHLB advances. Over the next three quarters, we expect to reduce our brokered deposits by an additional $3,000,000,000 and our FHLB advances by another $1,000,000,000 On the asset quality front, our criticized assets declined quarter over quarter, while our allowance for credit losses and reserve coverage remained stable due to lower held for investment loan balances and better appraisal values. The increase in thirty to eighty nine day delinquencies were driven by one borrower who pays subsequent to month end and has done so again, meaning that $414,000,000 of delinquent loans as of March 31 are current as of April 23.

We also moved one significant borrower to non accrual status during the quarter. Their portfolio is approximately $563,000,000 and 90 properties. We are pursuing all legal and contractual remedies against this borrower. Turning to Slide seven. As you read in our earnings release, our first quarter loss narrowed significantly compared to the previous quarter.

And as Joseph mentioned, it was ahead of consensus estimates. On a GAAP basis, we reported a net loss available to common stockholders of $0.26 per diluted share. And on an adjusted basis, we reported a net loss available to common stockholders of $0.23 per diluted share versus $0.40 in the fourth quarter after adjusting for the following items in Q1: '5 million dollars in trailing costs from the sale of the mortgage servicing and third party origination business 6,000,000 in accelerated lease costs related to branch closures and $8,000,000 of merger related expenses. Moreover, our adjusted pre provision, pretax net revenue for the quarter was negative 20 3 million euros also much improved compared to the previous quarter as we aim to return the bank to profitability by the fourth quarter twenty twenty five. On Slide eight, you can see the tremendous strides we have made in strengthening our balance sheet over the past five quarters.

We have increased capital by nearly 300 basis points, improved our reserve coverage by almost 60 basis points, significantly enhanced our liquidity position, and we enhanced our funding profile by reducing our reliance on higher cost wholesale borrowings. This last item also helps us reduce our FDIC expenses. We now have a more fortified balance sheet that will better support our diversification strategy as we move forward. Slide nine provides our updated three year forecast through 2027. We slightly lowered our 2025 net interest income forecast and increased our forecast for fee income.

These largely offset, resulting in no change to our 2025 earnings per share. Fiscal years 2026 and 2027 remain unchanged. Slide 10 shows our NIM trends, and as you can see, the margin has stabilized over the past two quarters. The NIM is expected to increase as we move forward based on a lower cost of funds as we continue to deleverage the balance sheet and manage our cost of deposits lower, using excess cash to purchase investment securities, low coupon multifamily loans resetting higher or paying off at par, growth in higher yielding C and I loans, and a reduction in non accrual loan balances. I touched on our cost optimization efforts a moment ago, and on slide 11, you can see the significant progress we've made in reducing our expense base.

Our cost reduction efforts are focused on the following five areas: compensation and benefits, real estate optimization, vendor costs, outsourcing, offshoring, non strategic back office functions and processes and FDIC expenses. We've reduced noninterest expenses $71,000,000 quarter over quarter on an adjusted basis and are on track to reduce expenses by over $600,000,000 year over year and achieve our non interest expense forecast for 2025. It is important to note that our cost savings goal is net of growth in other areas, including our C and I businesses and investment in our risk compliance and technology infrastructure. Turning now to Slide 12, which shows the growth and strength of our capital position. At just under 12%, our CET1 capital ratio is top quartile among our peer group.

Our priority is to redeploy this capital into growing our C and I business as we diversify our balance sheet. The next slide is our deposit overview. Our deposits decreased approximately $2,000,000,000 driven by the payoff of $1,900,000,000 in brokered deposits, consistent with management's strategy to reduce our reliance on wholesale funding. Moving to slide 14, the first quarter was another strong quarter for par payoffs in the CRE portfolio, which totaled $840,000,000 6 70 3 million dollars or 80% of these were in the multifamily portfolio, and importantly, 59% of the payoffs were loans rated substandard. These payoffs are driving a significant reduction in our CRE balances and in the CRE concentration ratio.

Since year end 2023, CRE balances are down $5,700,000,000 or 12% to $42,000,000,000 while the CRE concentration ratio is down 62 percentage points to 439% compared to 501% at year end 2023. Slide 15 provides an overview of the multifamily portfolio. This portfolio has declined $3,300,000,000 or 9% year over year. In addition to the payoffs, this portfolio has been reduced through loan sales and charge offs. We maintain a strong reserve coverage on this portfolio of 1.82%, the highest relative to other multi family focused banks in the Northeast.

Furthermore, the reserve coverage on multi family loans, where more than 50% of the units are rent regulated, is 2.82. Earlier, I stated that one driver to our margin expansion is the resetting of our multi family loans. We have about €18,000,000,000 of multifamily loans either resetting or maturing through the remainder of 2025 and end of twenty twenty seven, with a weighted average coupon of less than 3.8%. If these loans pay off, we will reinvest the proceeds and capital into C and I growth or pay down wholesale borrowings. If they reset, the contractual reset is at least 7.5%, which gives us an immediate NIM benefit.

Going back to 01/01/2024, approximately 3,400,000,000 of multifamily loans have reset. Over 90% of these loans have either paid off at par or reset and at current, excluding the one borrower we moved to non accrual. Slide 16 provides an overview of the office portfolio. We have reduced our office exposure by approximately $800,000,000 or 25% over the past five quarters, and we will continue to actively manage this portfolio lower throughout the course of the year. Our office allowance coverage at March 31 stood at 6.68% and remains among the highs compared to our regional bank peers.

The next slide details our allowance for credit losses by loan category. Of note, our total ACL coverage, including unfunded commitments of 1.82%, was relatively unchanged compared to the previous quarter due to lower loan balances, charge offs and the receipt of additional appraisals. On Slide 18, we provide additional details around our credit quality trends. Criticized loans declined almost £900,000,000 or 6% on a quarter over quarter basis to £14,000,000,000 Additionally, net charge offs declined 48% to £115,000,000 compared to the previous quarter, reflecting further normalization of credit costs. As I mentioned earlier, one borrower relationship totaling £563,000,000 became non accrual during the quarter, which accounted for almost all of the increase in non accruals.

Excluding this non accrual, loans including held for sale would have declined modestly compared to last quarter. Finally, slide 19 depicts our liquidity position as of quarter end. Overall, our liquidity remained strong, totaling $30,000,000,000 representing 231% of uninsured deposits. During the quarter, we used that cash position to pay down brokered deposits, wholesale borrowings and to purchase investment securities. In conclusion, we're executing on our turnaround and strategic plan to return Flagstar to profitability and make us one of the best performing regional banks in the country.

Hey. Thank you very much, Lee. Before we go to questions, I'd just reference for everybody's benefit Slide 20. As we started this journey with all of you when we arrived virtually a year ago and started to talk about, like, the direction we wanted to take the company, there were some critical, you know, components that need to be you know, that we we needed to accomplish. We obviously needed to lower the cost.

We needed to get our arms around the credit risk within the company. We needed to build a C and I franchise that could originate loans, and we could move the company forward on that journey. And I think where we sit today, we feel very confident on the turnaround of the company. And as Lee referenced, we do forecast and believe that our fourth quarter will be a profitable quarter for us, turning point in the organization's history. On Slide 20, we give you a reference that compared to where the current stock price is trading and where we think it would be on a one times multiple that we do feel for investors there is a tremendous opportunity in owning the Flagstar Bank stock going forward.

So with that, operator, I will turn it back to you and we can open it up for questions.

Our first question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Thank you and happy Friday. I see your guidance, Joseph, on Page 10 of the slide deck and as it relates to the NIM. But I guess I'm curious to get to a $1.95 to $2.05 NIM for the year, it looks like a pretty big lift from the 174,000,000 we had this quarter. So I guess I'm curious, does that incorporate any rate cuts? If so, how many?

And secondly, of the four main drivers that you referenced, what are the biggest pieces of that, which really contributes the most of the NIM benefit?

Yes. Thanks for the question. So when we put this latest forecast together, we were using the forward rate curve as of March. So there are two rate cuts in 2025 assumed in this. And as you think of the NIM improvement going forward, it is driven by the items that are noted.

So you'll see our cash balances come down throughout the remainder of this year and that's the result of us we're going buy another $2,000,000,000 of securities between now and the end of the year. We're planning on reducing brokered CDs another 3,000,000,000 and we will pay off another $1,000,000,000 of FHLB advances. As we've mentioned previously, we've got another $4,000,000,000 of multifamily loans resetting in 2025. They have a coupon that is less than 3.8%. So as they reset, they're going to move into if they stay, they're going to move into coupons that are at least 7.5%.

So we get an immediate NIM benefit there. And if they pay off at par, we will reinvest those proceeds in growing our C and I portfolio, which is based off a SOFA spread. So that is improving the NIM position as well. We're also going to manage the cost of our and continue to manage the cost of our deposits lower like we have in the first quarter. We've managed interest bearing deposits down 34 basis points versus Q4 and we're going to continue to do that as we move throughout not just 2025, but beyond as well.

We've got $4,900,000,000 of retail CDs maturing in the second quarter. They've got a weighted average cost of 4.8. Then as I mentioned, we're planning on reducing our non accrual loans and that will be additive to NIM as well.

Okay. And then secondly, just was curious on that one large relationship that went on non accrual this quarter. Can you give us a sense what the LTVs on those loans look like? And also how much you have in specific reserves on that relationship?

Yes. So here's what I would say. We're not going to get into the specifics around the relationship. But what I would tell you is when we looked at this, this loan had the ability to pay. The LTVs and all the other metrics were adequate.

This was a borrower who decided that he wasn't going to pay, and that was a human behavioral choice, but he certainly had the ability to pay. A couple of other things that I would mention is when you look at the specific impact of this on the quarter between additional reserves and charge offs, it cost us about $28,000,000 And then in terms of NIM reversal, it was about $5,000,000 So this particular borrower, it cost us about $33,000,000 or $07 just in the quarter. And the other thing that I would add is we've obviously scrubbed the remaining portfolio. We have done a lot of screens and we believe that this was a very unique situation. This borrower, he looked to gain additional leverage by pledging his equity interest.

And as we've done various other screens, we don't see anything like this in the rest of the portfolio. So we do see as being very idiosyncratic and unique.

And the thing I would add, Mark, is I think we've communicated the journey through twenty twenty four through the whole portfolio. We continue to in an instance like this is we do an assessment of our current reserves. And then when we move it to non accrual, you do specific reserves against the loan. So what Lee was kind of referencing was that we've placed additional reserves against that loan. So we feel subject to getting appraisals back in is that we're adequately reserved on that loan for any action that we would take.

I think just one other thing that I would add. Outside of that loan, if you look at the credit trends, charge offs are down, the provision was down. And if you look at classified assets, as I mentioned in the prepared remarks, they were down $900,000,000 quarter over quarter as well.

Our next question will come from the line of Jared Shaw with Barclays. Please go ahead.

I guess when we look at the projected growth in commercial lending and then tie that with the guidance for provision, How should we be thinking about the ratio of allowance as we go forward? I mean, is this going to be at this point, we're going to continue to see reserve releasing and most of the provision is going to be for that growth in the commercial portfolios? Or is there still potential for reserves as some of those multifamily loans get that eighteen month refi window?

Yes. So a couple of questions there, Jared. First of all, this quarter, as you use the Moody data and you put it into your quantitative model, it did not reflect the reduction in interest rates. And so if interest rates, especially on the five year curve, were down any given day 40 to 60 basis points, I do think that that will have some positive impact when we do the quantitative analysis in the second quarter. And the reserve build would be the offset to that would be that as we add new C and I incrementally that we're reserving against those loans as they get boarded.

If you look at Page 17 of the deck, you will see the reserve or the coverage against the C and I loans did increase quarter over quarter as a result of some of those new originations, but also the economic forecast that Joseph referenced that was coming out of Moody's. But as we think about the overall provision, I think it's looking at the entire book. So it's factoring in what we're doing on the C and I side from a growth point of view, but it's also taking into account what we expect to happen from a CRE and multifamily point of view as well.

Just to remind you, Gerard, we actually went through the entire portfolio in 2024 and virtually re underwrote all the commercial real estate, including the multifamily, that it was mark to market, so to speak, from the standpoint of where we thought the underlying cash flow supported and the loan to value on the underlying assets.

Okay. All right. Thanks. And if I could just ask a follow-up on capital. With the capital CET1 being sort of above that target range and then all the positive steps that you've outlined with tailwinds on margin and tailwinds on credit.

What are your updated thoughts on maybe deploying some of that capital into a buyback maybe around here with the valuation being so far below tangible book?

Yes. We think that as we start to stabilize and pay down the real estate, the offset to that will be deploying that capital into the C and I and private bank. And so I think our forecast at this point in time is to use that capital to expand the balance sheet. One thing we did do, Jared, is we did combination of we shrunk the balance sheet between 15,000,000,000 and $16,000,000,000 over the last twelve months. And we actually think we can turn it around and go back the other way now with the balance sheet and use that excess capital for growing the franchise.

Our next question comes from the line of Ben Gurlinger with Citi. Please go ahead.

So you guys referenced around $1,000,000,000 or so kind of aspirational run rate on C and I. I was kinda curious if you could dig into that a little bit. I know you

plus, so I think you're a doubling around in terms of hiring. So just kind of a low in size or segments or another pricing you said at market rate, but 1,000,000,000 is quite a bit more than I was expecting.

Yes. So the 1,000,000,000 is consistent from an origination point of view. That's what we accomplished in the first quarter. We originated $1,000,000,000 of commitments from a C and I point of view, and we outlined that on Page five. And this is coming from the 60 bankers that we recruited in the second half of twenty twenty four.

We've recruited another 15 to 20 just in the first quarter of this year, and we still intend to recruit another 60 to 70 throughout the remainder of this year. These bankers are very experienced. They come with a track record. They're coming from other big financial institutions, and they're typically originating their first loan within the first ninety days of arriving at Flagstar. And that's how we're seeing these numbers.

From a strategic point of view, we're sort of focused in two areas. On a national basis, we're starting these specialty lending verticals. So you heard Joseph mention sports and entertainment, but also oil and gas, renewables, energy, health care are just some of the other national lending verticals that we've set up. But then geographically, as it relates to our footprint, we're also hiring experienced bankers to better penetrate the middle market C and I areas within our footprint. So it's a twofold approach.

There's the national approach from a specialty lending point of view and then there's a geographical approach leveraging our brand name in the geographies that we operate. And I mean, we're thrilled obviously with what we've accomplished in the first quarter, and we believe that we can maintain that and even grow it going forward. What I would tell you is we also believe Q2 will be the turning point. And what I mean by that is right now, even though we've been originating these new C and I loans, the C and I balances have been decreasing quarter over quarter as we've rightsized other legacy portfolios. Starting in the second quarter, you'll start to see overall C and I balances increasing.

So we're sort of making that pivot and you'll see an increasing C and I loan balance Q2 and going forward.

not to take away from the successes you guys have seen on the expense front because it seems like you moved mountains quite a bit here. But when you think about the back half of this year, the remaining three quarters, I know you still have initiatives and plans. Is there anything to think about in terms of timing on additional cuts and or accruals for kind of C and I success that would work against that? Or should we think about it linear to get to the range that you guys provided?

Yes. No, here's what I would say on the cost reduction efforts, and it's just been a tremendous effort by the entire organization. We are mostly there and then some. And what I mean by that is I actually think right now that there's probably 25,000,000 to $30,000,000 good guide from the bottom end of our range. We did not want to move our range this quarter.

We obviously wanted to get another quarter under our belt. But the way things are trending on the expense side, I think will be what we're guiding to. In terms of things that are still in process, as we mentioned last quarter, there are some additional branch closures that will happen at the June, about 23. There's some private client locations that we are merging and exiting in early July, and then there'll be some additional branch consolidation at the September. So obviously, that's all factored into our numbers.

But the vast majority of what we were looking to accomplish has been accomplished or is on the agenda to be accomplished.

Hey, Ben. The other thing that I would add, which I think is really important is these costs are our net of we're investing $40,000,000 in our risk governance infrastructure. What we're doing in the C and I group of effectively adding 120 people over a twelve month period. And then we have some pretty significant IT and operational initiatives to drive costs down. But at the same time, we're investing in our systems to finalize the combination of the entire bank now onto one platform.

So those are things that are all kind of laying the work and the foundation for that to get completed in 02/2025. So, you know, it can't you know, our our probably total expenses, as as Lee indicated, probably are somewhere around 7 to 750,000,000 takeout. But but we are making investments in the company in addition to taking those costs out. And I, you know, I I would say, you know, we did get a lot of questions whether we were gonna be able to to meet those numbers. And as Lee referenced, we feel really confident that not only are we going to meet those numbers, but we can exceed those in 2025.

Our next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead.

Hi, good morning. Lee, I just wanted to follow-up on your comments on C and I. How are you thinking about utilization of those $1,000,000,000 in new commitments each quarter? How quickly do you expect to see balance sheet growth in C and I coming from those commitments?

Yes. So if you look at the again, if you look at Page five of the deck, so of the $1,000,000,000 7 60 million dollars has been funded, which indicates a pretty high utilization rate. Will it remain at that level? Hopefully. But I think we're sort of looking at it on a more traditional basis where people will sort of leg into it a little more and it will ramp over time.

But again, just sort of using Q1 as an example, we've sort of seen about 75%, seventy six % of what was originated utilized.

Yes. And our pricing model is pretty punitive to put commitments out that aren't being utilized. So that also spears the team, you know, to look at transactions that meet high credit quality standards, but at the same time have high utilization rates. And, you know, one of the things, you know, that I would mention, you know, we feel really good about these growth numbers, but we also have less than 1% market share in kind of C and I. And so our ability to put these numbers forward, we may go from 1% to

So it's not like we're gathering huge market share, but there's a lot of market available for us to participate in.

Got it. And then, Joseph, there are concerns about the economy slowing over the next twelve months. You've recently done a review and re underwritten the entire loan book and the credit metrics continue to improve. Can you talk about how insulated Flagstar is from the concerns around tariffs and economic growth? And do you think credit metrics can still improve from here?

Yes. We did an analysis of the portfolio of the sectors that we thought would be impacted by tariffs. Those are the obvious ones, auto, construction, consumer products. We have about $2,800,000,000 of commitments across the organization into that space. And and so, you know, it's not a big number for us.

And of that, there's $2,300,000,000 of loan outstandings. And and just slightly over half of that is in the auto space. And so the auto space actually is having a pretty good quarter because people are kind of pre buying automobiles. As we now get into the individual credits that make up $2,800,000,000 we are not seeing obviously, it's going to take time to see the impact of this, but the aggregate dollars are very minor for us, number one. And number two, they seem to be in areas that won't have significance.

The other thing that I would reference in that regard, as we are looking at new opportunities, obviously, of the things that are being looked at hard in any new credit originations today is what is the tariff impact and what could it be, to a particular company. We have passed on a number of opportunities where we thought, you know, like where somebody was manufacturing in China or Vietnam or other countries that this could be problematic in the future. It may not be today, but we've passed on a number of opportunities where we thought, this needs to kind of stabilize before we would enter the opportunity. So I think we're also in a unique position that we're not starting with a big portfolio of stuff that could be impacted, and we can use that as part of our criteria in the credit underwriting.

Our next question comes from the line of Christopher Marinac with Janney. Please go ahead.

Thanks. Good morning. Lee, can you tell us about the warrant conversion and how that stands? And should we be thinking of tangible book on a fully converted basis soon?

Yes. So the way we factored that into our forecast is we assume that it converts in Q4 of twenty twenty five. And so what that does is it does factor in to the earnings per share that you've seen in the forecast. So that assumes that after Q4 twenty twenty five, the warrants have been exercised, but we have not included it in the TBV per share number because it actually because they haven't been exercised, if you see what I mean. But for the purposes of the earnings per share number, because we hit profitability in Q4, we assume that they are exercised and they are included The dilutive impact is included in the EPS number.

Got you. And is there any material change in the number of shares represented by the warrants? Would the figure we have from the case still be somewhat accurate?

Yes. I think so. The way they work, obviously, there is a it depends where the stock is trading when they're exercised. As you know, there's a strike price and their net settled. And so the dilutive impact increases as the stock price increases.

But overall, they're not incredibly dilutive. And what we've laid out in the K, I think it gets you what you need from an information point of view.

Perfect. Thank you for that. And just a quick credit question. From a high level, when you look at overall frequency and severity in the book, whether it's multifamily or other parts of CRE, are those numbers kind of the same as you thought a quarter or two ago? Or do you see those perhaps trending in a different direction somewhat better?

Couple of comments that I would add is, we're right in the season where we will be getting the updated financials from the borrowers. And last year, we were in the mid-ninety percent of borrowers who provided this updated financial, which was up substantially from the legacy bank. So we'll have a like a really good look into how twenty four was here in the next sixty days and clearly be able to talk about that in the second quarter. But for the most part, what we're seeing in the market and we see through our appraisals is we've seen stabilization both in the multifamily and in the office, while office is really a relatively immaterial number to us. If you think back to '24, that's really where a bunch of the big hits came as we moved out of some problem office credits that we had.

So I, you know, I think what I would say is right now is for the most part, if you think about what Lee commented on, you know, the movement in the special mention and the substandard down substantially and then our charge offs being down, I think it would lead you to indicate that we just don't have a lot of flow now into those categories from the portfolio. And I think that's a result of when we were doing forward looking in the portfolio through 2024 that we were catching everything that was going to mature or price reset eighteen months out, gave us a pretty long runway to be able to look at our credit exposure. And each quarter, we pick up another quarter in that kind of analysis. So we just haven't seen really the deterioration at this point from new appraisals and new credits falling into that bucket. So and we do overall, we do forecast continue to forecast that our NPAs will be down by year end.

And we continue to see reductions in our special mention and substandard.

Yes. I would just sort of echo and reiterate a couple of things Joseph mentioned. I mean the charge offs coming down up to $115,000,000 from $222,000,000 last quarter, I think, is a very positive sign. The appraisals are coming in better than we were when I say we're expecting, certainly better than the shock analysis that we have when we don't have appraisals. Of the 800 plus million of payoffs in the first quarter, '50 '9 percent we had them rated substandard.

I think that is another good sign. And then when you look at that reduction in classified assets from $14,900,000,000 to $14,000,000,000 as well as those payoffs, we did have $600,000,000 of upgrades, And I think that's important to note as well. So as we get new information, as credits continue to pay, we get appraisals, we're seeing upgrades as well. So those are obviously all good indicators.

Flagstar Bank (FLG) Q1 2025 Earnings Call Transcript

Company Participants