FLG 3Q 2026 Earnings Webcast - FLAGSTAR BANCORP INC

Explicit Guidance:

• EPS Forecast: FY2026 EPS revised down to $0.10–$0.15; FY2027 EPS revised up to $0.85–$0.95; FY2028 EPS introduced at $1.60–$1.70.
• Balance Sheet Growth: Average growth expected of $1 billion/quarter in FY2027 and FY2028, driven by $2 billion/quarter in net C&I loan growth funded 50% by deposit growth and 50% by CRE runoff.
• Deposit Assumptions: Projected to add $800 million–$1 billion in new deposits per quarter starting in 2027; new deposit cost assumed between 3.9%–4.0% for interest-bearing, with 18% non-interest-bearing.
• Operating Expenses: FY2026 expenses expected to decline $168 million (9%) year-over-year vs. FY2025; FY2027 expenses projected higher than prior guidance due to investments in people and technology.
• Non-Accruals: Projected to end FY2026 at $2.6 billion and decrease to approximately $2.0 billion by end of FY2027.
• Capital Returns: No additional buybacks in Q4 2026; resumption of stock repurchases expected in 2027, contingent on core earnings growth, credit quality improvement, and C&I funding needs.
• Provision/Credit: Full-year FY2027 provision costs revised upward primarily due to higher interest rates impacting rent-regulated CRE; provision used as proxy for net charge-offs in forecasts.

Business-Segment Outlook:

• C&I Lending: Portfolio growth of $2 billion/quarter sustained; pipeline stands at $2.7 billion; 90% of forecasted balance sheet growth driven by C&I loans.
• CRE Diversification: Net CRE runoff of $1 billion/quarter anticipated; $10.7 billion of CRE portfolio is floating rate; $12 billion of low-coupon (<3.9%) multifamily loans resetting/maturing between Oct 1, 2026, and Dec 31, 2027.
• Rent-Regulated Portfolio: $2.9 billion of the $10 billion resetting/maturing in 2027 involves NYC multifamily with >50% rent regulation; $7 billion resetting/maturing in 2028 with weighted average coupon of 4.43%.
• Asset Quality: Non-accruals expected to decline through 2027–2028 but at a slower pace than previously anticipated; migration driven by DSCR pressure on market-rate units and floating rate resets.
• Fee Income: Reduced short-term outlook for 2026–2027 due to lower mortgage originations and deposit volumes; long-term growth expected from capital markets, treasury management, and swaps.

Market and Competitive Outlook:

• Deposit Competition: Competitive deposit environment with costs rising (e.g., 1-year CDs at 4.75%); deposit pricing and growth expectations revised downward.
• Commercial Banking: Pipeline pull-through considered "solid" and resilient despite inflation and geopolitical concerns; client demand driven by CapEx in technology, AI, and data centers.
• Pricing Power: Anticipated NIM expansion driven by repricing of low-coupon CRE loans (retain 35–40% at higher market rates) and higher spreads on new C&I originations (target spread 340–350 bps on new money).
• M&A/Dispositions: No current plans to sell rent-regulated portfolio; internal resolution strategy preferred to maximize capital retention.

Macro / Industry Outlook:

• Interest Rates: Forward curve currently priced for four rate hikes (Sept, Dec, Mar, Jun); "higher for longer" environment shifting strategic realization timeline from 2027 to 2028.
• Credit Impact: Higher rates increasing operating expenses and cap rates on rent-regulated buildings, pressuring debt service coverage ratios (DSCR).
• Inflation: Persistent inflationary pressures on operating costs contributing to credit cost increases.
• Rate Sensitivity: Position remains neutral to slightly asset-sensitive; higher rates benefit net interest income but increase credit migration risk.
• Regulatory: New York City rent regulation changes and inflationary impacts cited as key credit cost drivers.

Strategic Initiatives:

• Balance Sheet Transformation: Execution timeline extended to 2028 to achieve peer-like metrics and profitability; strategic focus on diversifying from CRE to C&I and consumer cash flows (target 1/3 split).
• Hiring & Platform: Added 35 new commercial bankers in Q3; 400+ hires over two years; 164 revenue-producing bankers at quarter-end; targeting expansion in Dallas, Detroit, Chicago, Cleveland, and Phoenix.
• Product & Technology: Deployment of enhanced treasury management, fraud protection, and digital capabilities to secure non-interest-bearing deposits and working capital relationships.
• Capital Optimization: Completed $250 million buyback program; $300 million sub-debt paydown planned for Q4 FY2028.

Risks and Headwinds to Outlook:

• Interest Rate Volatility: Further rate hikes could increase provision costs and slow non-accrual resolution; rate cuts could accelerate borrower refinancing/payoff volatility.
• Deposit Attraction: Primary execution risk is ability to fund $800M–$1B in quarterly deposit growth at assumed costs.
• Credit Quality: Potential for further loan migration to special mention/substandard/accrual status if DSCRs deteriorate under the "4 hikes" scenario; 18-month look-forward is formulaic and conservative.
• Mortgage Market: Lower mortgage origination volumes persisting due to high rates, reducing gain-on-sale fees.
• Execution Risk: Timeline extension to 2028 implies continued pressure on earnings and capital in the near term.

Management Tone on the Future:

• Confidence Level: Confident in the long-term strategy and the inevitability of balance sheet remixing (mechanical resets), but cautious regarding short-term timing due to macro headwinds.
• Strategic Shift: Emphasizes a "change in timing, not strategy"; views 2028 as the inflection point for peer-like profitability.
• Prudence: Describes credit assessment as "very prudent," "formulaic," and "conservative," particularly regarding the 18-month forward look and retention of low-coupon loans.
• Value Creation: Believes significant shareholder value will be unlocked by executing the plan rather than pursuing M&A or rapid capital returns.

Miscellaneous:

• Tax: Q3 included a $22 million ($0.04) tax benefit from the settlement of a 2020 legacy audit.
• NIM Trends: Q3 NIM expanded to 2.17%; September NIM came in at 2.23%; Q4 NIM forecast range of 2.20%–2.25%.
• Cost of Funds: Average cost of interest-bearing deposits rose to 3.09% (up 1 bp); spot rate as of Sept 30 was 2.56% (including non-interest-bearing and brokered).
• Asset Composition: Target balance sheet mix of one-third consumer cash flows, one-third commercial real estate, one-third commercial (C&I).