Flagstar Bank, N.A.

Hello, 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 fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. 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. Thank you for joining the management team of Flagstar Financial for today's call. Our discussion today of the company's fourth quarter and full year 2024 results will be led by Chairman, President, and CEO, Joseph Otting, along with the company's Senior Executive Vice President and Chief Financial Officer, Lee Smith. Before the discussion begins, I would like to remind everyone that our quarterly earnings press release and investor presentation can be found on the investor relations section of our company website at ir.flagstar.com. Additionally, certain comments made today by the management team of Flagstar Financial may include forward-looking statements within the meetings 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. 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 reconciliation of these non-GAAP measures. And with that, now I would like to turn the call to Mr. Otting.

Thank you, Sal. And good morning, everyone, and welcome to our fourth quarter earnings call. Today is somewhat of a tragic in our nation, and our hearts and minds this morning are with the accident victims and first responders at the Reagan National Airport. I think a lot of you know that for four years that was my primary airport, and I know a lot of the people in that area, so truly a tragedy for our nation. I'd like to thank all of you for your interest and support as we've worked to build a successful regional bank. I would also like to welcome Lee Smith, who is joining me this morning for his first earnings call as the company's new chief financial officer. Lee has been an important part of the company's leadership team and active in various aspects of the company's turnaround really throughout the past year, and especially over the last six weeks as he has named to the CFO role in the company. This morning, we'll discuss our results for the fourth quarter, which were better than our internal projections and analysis forecasts. We'll also discuss some of the trends we are seeing, update you on our strategic priorities, and provide you with our three-year forecast. I'm excited to share our fourth quarter results and even more excited about the momentum and progress we are seeing going on in 2025. As I look back on 2024, I think we've accomplished a lot of things in a very short period of time. While last year was a transitional year for the organization, We really made significant progress on all of our strategic priorities, setting the stage for profitable growth going forward. When I joined the company last March, we outlined the, for the investment community, our three primary objectives for the year. They included understanding the credit risk and the commercial real estate portfolio, getting our hands around the regulatory compliance issues and putting the bank back on a path to profitability. Today, I can say that we've done this and that the company is in a better position than it was 12 months ago and strategically for a long time. We are on projections to be profitable now in the fourth quarter of this year, and I think this will ultimately mark the company's turning point on its return to consistent profitability. Moving on to our presentation, starting on page three, this slide provides you with an update of our strategic focus. As you can see across the top, you know, we continue to bolster management and talent in the organization. And more importantly, as we've kind of looked forward in our CNI business, we added significant amounts of new talent to grow that business. We'll talk a little bit about some of those results. Ongoing execution of our operating plan. You know, the third quarter, this is the third quarter of consecutive solid deposit growth in our retail and private banking. We've continued to reduce our CRE exposure. We've had proactive management of our problem loans, and we successfully completed the sale of the mortgage warehouse and mortgaging, servicing, and subservicing businesses. On the goal, a strategic focus of achieving capital and earnings, we're on track to reach the full profitability in 2026. And in approving funding costs, we have strong liquidity profile of over $31 billion. We reduced wholesale borrowings by almost $7 billion, or 34% during the year, and now represents just 13% of total assets. And our loan deposit ratio is at 90%. On the focus of credit and risk management, as we've taken you through the journey, we've completed the reviews of our CRE. We de-risked the office and multifamily portfolios through charge-offs, payoffs, and loan sales. And we maintained a solid ACL coverage ratio of 1.78%. But just as importantly, we've increased those on the riskiest aspects of the portfolio. So I think, you know, overall, we really feel, you know, good and comfortable about the direction. And probably the most important slide or area on that slide is that our CET capital ratio for the fourth quarter was up to 11.9%, up over 280 basis points during the course of the year in ranking us within the top quartile of our peers. So very, very successful growth and strategic focus for the organization. On slide four, as you can expect, our transition in 2025 There are really four main areas that we're focused on. We want to improve our earnings profile via NIM expansion, moderating credit costs, and driving operational efficiency. By the end of 2025, we'll have reduced our operating expenses by $600 million or 23% compared to 2024. We also want to execute on our CNI and private bank growth initiatives. And we want to continually proactive the CRE size of the portfolio and the make of it. And then we want our credit to normalize, resulting in lower charge-offs, provision, and slowing new loan formation. On slide five, we provide an update on the commercial banking to illustrate how far we've come over the last six months. Starting in the lower left of the slide, we continue to hire seasoned mid-career bankers from other regional money center banks. who have a proven track record of building a commercial business. We added 24 bankers during the quarter across various functions and line of business, on top of the 30 we hired during the third quarter. And we plan to hire an additional 100 over the course of 2025. On the lending front, we already have a good platform of roughly $7.2 billion to begin with, and our new hires are starting to make an impact. As you can see on the slide, during the fourth quarter, We had new loan commitments of $620 million and funded slightly under $400 billion of loans, double what we did in the third quarter. We also have a solid base of low-cost deposits and a meaningful opportunity to grow both loans and deposits in this segment, as in-market mergers and the exit of competition has allowed us to expand market share. And then as some of our competitors have capacity and various credit facilities, we're a welcome new entrant into those credit facilities as well. So with that, I'd like to turn it over to our CFO, Lee Smith, for his comments.