Flagstar Bank, N.A.

Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Flagstaff Financial second quarter 2025 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 this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, press star one again. Thank you. And I would now like to turn the conference over to Sal DiMartino, Director of Investor Relations. Sal, you may begin.

Thank you, Krista, and good morning, everyone. Welcome to Flagstar Financial's second quarter 2025 earnings call. This morning, our Chairman, President, and CEO, Joseph Otting, along with the company's Senior Executive Vice President and Chief Financial Officer, Lee Smith will discuss our second quarter results and outlook. Also joining us on this call this morning is Bao Nguyen, Companies General Counsel and Chief of Staff to the CEO. Before we begin, I would like to remind everyone that during this call, we will be referring to a 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, ir.flagstar.com. In addition, please note that certain comments made today by the management team of Flagstar 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 items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures. And with that, I would now like to turn the call over to Mr. Otting. Joseph, please go ahead.

Thank you, Sal, and good morning, everybody, and welcome to our second quarter earnings call. We are very pleased with our operating results achieved during the second quarter. We continue to accomplish everything we set out to do and make progress on several fronts. We had significant momentum on our C&I growth strategy. as we generated almost $1.9 billion of commitments and $1.2 billion in new loans and added additional talent during the quarter as well. And I'll remind everybody, we really started this initiative in the third quarter of last year. We further reduced operating expenses in our plan to exceed prior estimates. Our credit quality improved as both criticized and classified assets declined 9% and non-accrual loans declined by 4%. We meaningfully reduced our CRE exposure via record par payoffs, almost $1.5 billion, which was substantially over what our initial forecast was. We grew the net interest margin, and we reduced high-cost deposits and borrowings, and this all resulted in our CET1 capital ratio increasing 12.3%. Going forward, we will continue to focus on the following areas as we continue to execute on our winning strategy to transform Flagstar Bank into a top-performing regional bank. We anticipate it will continue to grow CNI. This will further diversify our loan portfolio and generate deposits and fee income. We'll continue to reduce operating expenses, and we'll reduce the level of non-accrual loans and criticize unclassified loans. Lee will also provide an overview of our New York regulated exposure and portfolio, which we think you'll see that we've substantially taken action against that portfolio. And the overall risk is much less than I think that has been reported in the market. Before jumping into our financial results for the quarter more fully, I'd like to turn to slide three to discuss the news we issued yesterday after the close of the market regarding our plan to merge holding company into the bank flagstar bank thereby eliminating the whole holding company this is a similar action that one of our regional bank peers undertook in 2018 when i was the comptroller of the currency we were supportive of this then and feel this is the right move for our company this action is designed to primarily enhance our corporate legal and regulatory structure Also, as you can see, there are additional benefits, including a further reduction in our operating expenses, streamlining certain functions across the bank, eliminating redundant corporate activities such as dual board meetings, reducing redundant supervision and regulation. I will add that other than the elimination of the Holden Company, really nothing else changes for our company. Our board remains the same. Our management team remains the same. and our common stock will continue to trade on the New York Stock Exchange under the ticker of FLG. On the next slide, we highlight the four primary management focus areas for 2025, each of which gained momentum during the second quarter. We want to improve our earnings profile through margin expansion, fee income, and reducing operating expenses, continue to execute on our CNI and private bank growth initiatives, Proactively manage the CRE portfolio, including reducing our concentrations, and Lee will cover that later on a slide, but we've made really spectacular strides in not only reducing the CRE portfolio, but taking corrective actions. And the credit quality improvement to lower provisions and credit losses. The next two slides show the significant progress made during the second quarter in our C&I business. Beginning on slide five, we show some of the key highlights during the quarter. In the second quarter, we hired an additional 46 new bankers and related support staff, including credit underwriters and portfolio managers. We have added more than 100 commercial bankers since June 2024, and we intend to add an additional 50 during the second half of the year. During the quarter, we showed tremendous growth in our two focus areas, specialized industries lending and corporate slash regional commercial banking. Overall, new commitments increased 80% compared to the prior quarter to the $1.9 billion, while originations increased almost 60% to the $1.2 billion. But I think just more importantly is our pipeline currently stands at $1.2 billion, up 40% compared to the first quarter pipeline. And I really think this is just reflective of the focuses, the industries, and bringing on, you know, really talented people into the organization, most who have, you know, 25 to 35 years of operating in their specific specialties. Our expansion strategy is really twofold. Our corporate regional commercial banking business is focused on building out a relationship-based national corporate banking effort in a middle market commercial banking franchise within Flagstar's main four main geographic areas. Our specialized industries and corporate banking business is a national model and focuses on several industry verticals, including sponsor finance, subscription, finance, lender finance, healthcare, oil and gas, power and renewable franchise, sports, entertainment, and media and communications. And each of these have been staffed and are led by significant industry specialists in their respective area. We recently announced the expansion of this business. As you will see in the next few slides, it is already driving strong origination volume. Slide six deficits the momentum in these areas over the past several quarters. In our two focus areas, originations increased 81% to $810 million, while commitment slightly more than doubled to $1.7 billion. On slide seven, while overall CNI loans declined modestly during the quarter due to our managed approach to de-risking certain outsized credits in the legacy CNI portfolio, and this is really the result of us implementing a new hold limit policy within the company where we are driving down those commitments to be within our hold limits, the corporate regional commercial banking and specialized industries portfolios increased $422 million or about 12% compared to the previous quarter. Runoff has decelerated as we have lowered our commitments in the C&I portfolio, and along with growing momentum and new hires, we believe that the overall C&I portfolio will grow in the third quarter. On slide eight, you can see the significant improvement the company has made over the past quarters in strengthening our balance sheet. and is in line with what we said we would do and what we have done. Our CET1 capital ratio has increased by over 300 points to 12.3, ranking us among the highest relative to our peer groups. We have significantly improved our reserve coverage through a rigorous credit review process. We've enhanced overall liquidity, and we've reduced our reliance on wholesale borrowings, which helps our margin going forward. So now I'd like to turn it over to Lee to cover some of the financial data.