Flagstar Q4 2025 Flagstar Financial Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Flagstar Financial Inc Earnings Call
Operator: 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 Bank Q4 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, 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.
Operator: 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 Bank Q4 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, then the number one on your telephone keypad.
Speaker #1: 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 Flagstar the Bank .
Speaker #1: Fourth quarter 2020 earnings call. All lines on the conference 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'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.
Speaker #1: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.
Speaker #1: 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.
Salvatore DiMartino: Thank you, Regina, and good morning, everyone. Welcome to Flagstar Bank's Q4 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 results for the quarter and the full year ended December 31, 2025. 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. Also, before we begin, I'd like to remind everyone that certain comments made today by the management team of Flagstar Bank 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.
Salvatore DiMartino: Thank you, Regina, and good morning, everyone. Welcome to Flagstar Bank's Q4 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 results for the quarter and the full year ended December 31, 2025. During this call, we will be referring to a presentation which provides additional detail on our quarterly results and operating performance.
Speaker #1: Please go ahead
Speaker #2: Regina , and everyone . Welcome to you , Flagstar
Speaker #2: bank's fourth good . Thank Quarter 2020 earnings call . This morning , chairman , our president and CEO , Joseph Otting , along with the company's senior Executive Vice President and Chief Financial Officer , Lee Smith , will discuss our results for the quarter and the full year ended December 31st , 2025 .
Speaker #2: 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 , IRS .
Both the earnings presentation and the press release can be found on the investor relations section of our company website, ir.flagstar.com. Also, before we begin, I'd like to remind everyone that certain comments made today by the management team of Flagstar Bank 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.
Speaker #2: Also , before we begin , I'd like to remind everyone that certain comments made today by the management team of Flagstar Bank may include forward looking statements within the meaning of the private securities Litigation Reform Act of 1995 .
Salvatore DiMartino: 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. Additionally, 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. With that, now I would like to turn the call over to Mr. Otting. Joseph, please go ahead.
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. Additionally, 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. With that, now I would like to turn the call over to Mr. Otting. Joseph, please go ahead.
Speaker #2: 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 .
Speaker #2: For more information about risks and uncertainties , which may affect us . Additionally , when discussing our results , we will reference certain non-GAAP measures which exclude certain items from reported results .
Speaker #2: Please refer to today's earnings release for reconciliations of these non-GAAP measures . With that now , I would like to turn the call over to Mr. Joseph .
Joseph Otting: Thank you, Sal. Good morning, everyone, and welcome to our Q4 2025 Earnings Conference Call. We are pleased with the bank's performance throughout 2025 and especially during Q4. As all of you know, after two challenging years, I'm proud to share that we returned to profitability in Q4, reporting adjusted net income of $30 million, or $0.06 per diluted share, compared to a net loss of $0.07 per diluted share in the previous quarter. 2025 was a year of significant momentum for the bank, which accelerated during Q4. We continued to successfully execute on our strategic plan to transform Flagstar Bank into one of the best-performing regional banks in the country, one with a diversified balance sheet and revenue streams and strong capital, liquidity, and credit quality.
Joseph Otting: Thank you, Sal. Good morning, everyone, and welcome to our Q4 2025 Earnings Conference Call. We are pleased with the bank's performance throughout 2025 and especially during Q4. As all of you know, after two challenging years, I'm proud to share that we returned to profitability in Q4, reporting adjusted net income of $30 million, or $0.06 per diluted share, compared to a net loss of $0.07 per diluted share in the previous quarter. 2025 was a year of significant momentum for the bank, which accelerated during Q4.
Speaker #2: Please go ahead .
Speaker #3: Thank you . Sal . Good morning , everyone , and our welcome to fourth quarter 2020 earnings conference call . We are pleased with bank's performance throughout 2025 and especially during the fourth quarter , as all of you know , after two challenging years , I'm proud to share that we returned to profitability in the fourth quarter , reporting adjusted net income of $30 million , or $0.06 per diluted share , compared to a net loss of $0.07 per diluted share in the previous quarter .
We continued to successfully execute on our strategic plan to transform Flagstar Bank into one of the best-performing regional banks in the country, one with a diversified balance sheet and revenue streams and strong capital, liquidity, and credit quality.
Speaker #3: 2025 was a year of significant momentum for the Bank, which accelerated during the fourth quarter. We continued to successfully execute on our strategic plan to transform Flagstar Bank into one of the best performing regional banks in the country—one with a diversified balance sheet and revenue streams, and strong capital, liquidity, and credit quality. While returning to profitability is a significant milestone, we remain focused on building sustainable value.
Joseph Otting: While returning to profitability is a significant milestone, but it is only one of several positives during the quarter. Turning to slide 3 of the investor presentation, we'll highlight those. First, our return to profitability during the quarter was driven by several factors, including growth in our net interest income, coupled with NIM expansion, and disciplined expense management. This resulted in a $45 million increase in pre-provision net revenue and positive operating leverage of approximately 900 basis points. Second, we had another strong quarter of net C&I loan growth, up at 2% on a linked quarter basis or about 9% on an analyzed basis. Third, we continued to reduce our overall CRE exposure, mostly through par payoffs, resulting in an overall $2.3 billion reduction in multifamily, and CRE loans, and a CRE concentration ratio now falling below 400.
Joseph Otting: While returning to profitability is a significant milestone, but it is only one of several positives during the quarter. Turning to slide 3 of the investor presentation, we'll highlight those. First, our return to profitability during the quarter was driven by several factors, including growth in our net interest income, coupled with NIM expansion, and disciplined expense management. This resulted in a $45 million increase in pre-provision net revenue and positive operating leverage of approximately 900 basis points.
Speaker #3: But it is only one of several positives during the quarter . Turning to slide three of the investor presentation , we'll highlight those first , our return to during the profitability quarter was driven by several factors , including growth in our net interest income , coupled with Nim expansion and disciplined expense management .
Speaker #3: This resulted in a 45 million increase in Pre-provision net revenue and positive leverage of operating approximately 900 basis points . Second , we had another strong quarter of net CNI loan growth , up a 2% on a linked quarter basis , or about 9% on an annualized basis .
Second, we had another strong quarter of net C&I loan growth, up at 2% on a linked quarter basis or about 9% on an analyzed basis. Third, we continued to reduce our overall CRE exposure, mostly through par payoffs, resulting in an overall $2.3 billion reduction in multifamily, and CRE loans, and a CRE concentration ratio now falling below 400.
Speaker #3: Third , we continue to reduce our overall CRE exposure , mostly through Par payoffs , resulting in an overall 2.3 billion reduction in multifamily and CRE loans and a CRE concentration ratio now falling below 404th .
Joseph Otting: Fourth, our credit quality profile continued to improve as non-accrual loans declined, while we also had a decrease in net charge-offs and the provision for loan losses. Moving to slide 4. After 2 years of building a solid foundation for growth, we expect that in 2026, our earning power will continue to strengthen with a full year of profitability, driven by continued growth in net interest income and margin expansion, along with a continued focus on managing our expenses lower, leading to a positive operating leverage in 2026. We remain focused on further improving the bank's credit profile as we proactively manage our CRE exposure lower through par payoffs and opportunistic loan sales, reducing non-accruals and a lower level of charge-offs. We will continue to diversify the loan portfolio through growth in non-CRE loans, especially through our C&I lending platform.
Fourth, our credit quality profile continued to improve as non-accrual loans declined, while we also had a decrease in net charge-offs and the provision for loan losses. Moving to slide 4. After 2 years of building a solid foundation for growth, we expect that in 2026, our earning power will continue to strengthen with a full year of profitability, driven by continued growth in net interest income and margin expansion, along with a continued focus on managing our expenses lower, leading to a positive operating leverage in 2026. We remain focused on further improving the bank's credit profile as we proactively manage our CRE exposure lower through par payoffs and opportunistic loan sales, reducing non-accruals and a lower level of charge-offs. We will continue to diversify the loan portfolio through growth in non-CRE loans, especially through our C&I lending platform.
Speaker #3: Our credit quality profile continued to improve, as non-accrual loans declined, while we also had a decrease in net charge-offs and the provision for loan losses.
Speaker #3: Moving to slide four . After two years of building a solid foundation for growth , we expect that in 2026 , our earning power will continue to strengthen with the full year of profitability driven by continued growth in net interest income and margin expansion , along with a continued focus on managing our expenses lower , leading to a positive operating leverage in 2026 .
Speaker #3: We remain focused on further improving the bank's credit profile as we proactively manage our CRE exposure lower through par payoffs and opportunistic loan sales, reducing non-accruals and a lower level of charge-offs.
Speaker #3: We will continue to diversify the loan portfolio through growth and non CRE loans , especially through our lending platform . And lastly , we will generate deposit growth across various business lines while keeping our discipline on pricing .
Joseph Otting: And lastly, we will generate deposit growth across various business lines while keeping our discipline on pricing. On the next slide, we highlight the roadmap we employed to solidify the balance sheet and reposition the bank for growth. We built a strong capital position as our CET1 capital ratio has increased by almost 400 basis points, now ranking us amongst the highest, best capitalized regional banks amongst our peers. We have also fortified our ACL through a rigorous credit review process and have increased the ACL up to 1.79%, also amongst the tops of the regional banks. We significantly enhanced our liquidity position as cash and securities have increased to 25% of total assets, and we reduced our reliance on wholesale funding, lowering the cost of funds and boosting our net interest margin.
And lastly, we will generate deposit growth across various business lines while keeping our discipline on pricing. On the next slide, we highlight the roadmap we employed to solidify the balance sheet and reposition the bank for growth. We built a strong capital position as our CET1 capital ratio has increased by almost 400 basis points, now ranking us amongst the highest, best capitalized regional banks amongst our peers. We have also fortified our ACL through a rigorous credit review process and have increased the ACL up to 1.79%, also amongst the tops of the regional banks. We significantly enhanced our liquidity position as cash and securities have increased to 25% of total assets, and we reduced our reliance on wholesale funding, lowering the cost of funds and boosting our net interest margin.
Speaker #3: On the next slide, we highlight the roadmap we employed to solidify the balance sheet and reposition the bank for growth. We built a strong capital position, as our CET1 capital ratio has increased by almost 400 basis points.
Speaker #3: Now ranking amongst the highest, best-capitalized regional banks amongst our peers. We have also fortified our ACL through a rigorous credit review process and have increased the ACL up to 1.79%.
Speaker #3: Also , amongst the tops of the regional banks , we significantly enhanced our liquidity position as cash and securities have increased to 25% of total assets , and we reduced our reliance on wholesale funding , lowering the cost of funds and boosting our net interest margin .
Joseph Otting: During the year, we reduced our brokered deposits almost by $8 billion. We believe that our strategic initiatives over the past couple of years have provided us with the opportunity to drive sustainable growth and profitability going forward... The next two slides highlight the continued momentum and tremendous progress in our C&I business. Under Rich Raffetto's leadership, we've built, in a relatively short period of time of about 15 months, a very powerful origination scheme, team across America. As you see on slide 6, you can see that the C&I lending had another strong quarter in commitments and originations. As total commitments increased 28% to $3 billion, while originations increased 22% to $2.1 billion. This is led by the bank's two primary strategic focus areas, our specialized industries and corporate and regional banking group.
During the year, we reduced our brokered deposits almost by $8 billion. We believe that our strategic initiatives over the past couple of years have provided us with the opportunity to drive sustainable growth and profitability going forward... The next two slides highlight the continued momentum and tremendous progress in our C&I business. Under Rich Raffetto's leadership, we've built, in a relatively short period of time of about 15 months, a very powerful origination scheme, team across America. As you see on slide 6, you can see that the C&I lending had another strong quarter in commitments and originations. As total commitments increased 28% to $3 billion, while originations increased 22% to $2.1 billion. This is led by the bank's two primary strategic focus areas, our specialized industries and corporate and regional banking group.
Speaker #3: And during the year, we reduced our brokered deposits by almost $88 billion. We believe that our strategic initiatives over the past couple of years have provided us with the opportunity to drive sustainable growth and profitability going forward.
Speaker #3: The next two slides highlight the continued momentum in tremendous progress in our CNI business . Under the leadership , we've built in a relatively short period of time of about 15 months , very powerful a origination team team across America .
Speaker #3: As you see on slide six, you can see that the CNI lending had another strong quarter. Commitments and originations were strong, as total commitments increased 28% to $3 billion, while originations increased 22% to $2.1 billion.
Speaker #3: This is led by the bank's two primary strategic focus areas are specialized industries and corporate and regional banking group . On slide seven , you'll see the overall CNI growth was 343 million , or 2% , compared to the third quarter .
Joseph Otting: On slide seven, you'll see the overall C&I growth was $343 million, or 2% compared to Q3. Our second consecutive quarter of net C&I loan growth. This was driven by $1.5 billion in combined growth in these two businesses. The one of the things that you also can observe on this slide is that we de-risked a number of the businesses, as we've talked about in the past, where either because of hold size or credit quality, we've decided to reduce those exposures or exit those credits. Alone, in 2025, it was roughly about $4 billion of actions that we took, and we do see the businesses of like asset base and commitment, equipment finance and mortgage starting to be accretive to our loan growth going forward.
On slide seven, you'll see the overall C&I growth was $343 million, or 2% compared to Q3. Our second consecutive quarter of net C&I loan growth. This was driven by $1.5 billion in combined growth in these two businesses. The one of the things that you also can observe on this slide is that we de-risked a number of the businesses, as we've talked about in the past, where either because of hold size or credit quality, we've decided to reduce those exposures or exit those credits. Alone, in 2025, it was roughly about $4 billion of actions that we took, and we do see the businesses of like asset base and commitment, equipment finance and mortgage starting to be accretive to our loan growth going forward.
Speaker #3: Our second consecutive quarter of net CNI loan growth . This was driven by 1.5 billion in combined growth in these two businesses . The one of the things that you also can observe on this slide is that we de-risked a number of the businesses , as we've talked about in the past , where either because of hole size or credit quality , we've decided to reduce those exposures or exit those credits alone .
Speaker #3: In 2025 , it was roughly about $4 billion of actions that we took , and we do see the businesses of asset base and commitment , equipment , finance and mortgage starting to be accretive to our loan growth going forward .
Joseph Otting: Turning now to slide 8, you can clearly see the trajectory of our adjusted EPS as we successfully executed on all our strategic initiatives, resulting in the first profitable quarter since Q3 2023. With that, I now will turn it over to Lee to review our financials and credit quality.
Turning now to slide 8, you can clearly see the trajectory of our adjusted EPS as we successfully executed on all our strategic initiatives, resulting in the first profitable quarter since Q3 2023. With that, I now will turn it over to Lee to review our financials and credit quality.
Speaker #3: Turning now to slide eight. You can clearly see the trajectory of our adjusted EPS as we successfully executed on all our strategic initiatives, resulting in the first profitable quarter since the third quarter of 2023.
Lee Smith: Thank you, Joseph, and good morning, everyone. We're obviously very pleased with our performance in Q4 and for the full year in 2025. We're executing on our strategic vision and have returned the bank to profitability, as we said we would do. We feel we're very much on track to make Flagstar one of the best performing regional banks in the country over the next 2 years. Our unadjusted pre-provision, pre-tax net revenue improved $51 million quarter-over-quarter, while our adjusted pre-provision, pre-tax net revenue improved $45 million versus Q3. We achieved NIM expansion of 14 basis points quarter-over-quarter, after adjusting for a one-time hedge gain of approximately $20 million. We paid off another $1.7 billion of high-cost brokered deposits and $1 billion of FHLB advances as we further reduced our funding costs and continued to demonstrate excellent cost control.
Lee Smith: Thank you, Joseph, and good morning, everyone. We're obviously very pleased with our performance in Q4 and for the full year in 2025. We're executing on our strategic vision and have returned the bank to profitability, as we said we would do. We feel we're very much on track to make Flagstar one of the best performing regional banks in the country over the next 2 years. Our unadjusted pre-provision, pre-tax net revenue improved $51 million quarter-over-quarter, while our adjusted pre-provision, pre-tax net revenue improved $45 million
Speaker #3: With that , I will turn it over to Lee to review our financials and credit quality .
Speaker #4: Thank you , Joseph , and good morning , everyone . We're obviously very pleased with our performance in the fourth quarter . And for the full year in 2025 , we're executing on our strategic vision and have returned the bank to profitability .
Speaker #4: As we said we would do, we feel we're very much on track to make Flagstar one of the best performing regional banks in the country.
Speaker #4: Over the next two years . Our unadjusted pre-provision pre-tax net revenue improved 51 million quarter over quarter , while our adjusted Pre-provision pre-tax net revenue improved 45 million versus Q3 .
versus Q3. We achieved NIM expansion of 14 basis points quarter-over-quarter, after adjusting for a one-time hedge gain of approximately $20 million. We paid off another $1.7 billion of high-cost brokered deposits and $1 billion of FHLB advances as we further reduced our funding costs and continued to demonstrate excellent cost control.
Speaker #4: We achieved NIM expansion of 14 basis points quarter over quarter after adjusting for a one-time hedge gain of approximately $20 million. We paid off another $1.7 billion of high-cost brokered deposits and $1 billion of club advances.
Lee Smith: On the credit side, quarter-over-quarter, we saw a reduction in criticized and classified loans of $330 million, including a reduction in non-accruals of $267 million, while net charge-offs declined $26 million and the provision decreased $35 million. CRE par payoffs were again elevated at $1.8 billion, of which 50% was substandard, and we ended the year with 12.83% CET1 capital, almost $2.1 billion pre-tax above the bottom of our targeted operating range of 10.5%. We're thrilled with the quarter and fiscal 2025 and are excited about what we will accomplish in 2026 and beyond. Now turning to slide 9. This morning, we reported net income attributable to common stockholders of $0.05 per diluted share. There were only a couple of notable items in Q4.
On the credit side, quarter-over-quarter, we saw a reduction in criticized and classified loans of $330 million, including a reduction in non-accruals of $267 million, while net charge-offs declined $26 million and the provision decreased $35 million. CRE par payoffs were again elevated at $1.8 billion, of which 50% was substandard, and we ended the year with 12.83% CET1 capital, almost $2.1 billion pre-tax above the bottom of our targeted operating range of 10.5%. We're thrilled with the quarter and fiscal 2025 and are excited about what we will accomplish in 2026 and beyond. Now turning to slide 9. This morning, we reported net income attributable to common stockholders of $0.05 per diluted share. There were only a couple of notable items in Q4.
Speaker #4: As we further reduced our funding costs and continued to demonstrate excellent cost control on the credit side , quarter over quarter , we saw a reduction in criticized and classified loans of 330 million , including a reduction in Non-accruals of 267 million , while net charge offs declined 26 million and the provision decreased 35 million .
Speaker #4: Siri Pas payoffs were again elevated at 1.8 billion , of which 50% were substandard , and we ended the year with 12.83% . Cet1 capital , almost 2.1 billion pre-tax , above the bottom of our targeted operating range of 10.5% .
Speaker #4: We're thrilled with the quarter and fiscal 2025, and are excited about what we will accomplish in 2026 and beyond. Now, turning to slide nine.
Speaker #4: This morning, we reported net income attributable to common stockholders of $0.05 per diluted share. There were only a couple of notable items in the fourth quarter.
Lee Smith: First, our investment in Figure Technologies was revalued $9 million higher than the value on 30 September. Second, we accrued $4 million in severance costs for FTE reductions that occurred in January 2026. Therefore, on an adjusted basis, after also excluding merger expenses, we reported net income of $0.06 per diluted share, significantly better than last quarter and above consensus. On slide 10, we provide our updated forecast through 2027. We've slightly adjusted our net interest income guidance for both 2026 and 2027 as a result of higher payoffs and a smaller balance sheet. EPS for 2026 is now forecast to be in the $0.65 to $0.70 range, and EPS for 2027 is forecast to be in the $1.90 to $2.00 range.
First, our investment in Figure Technologies was revalued $9 million higher than the value on 30 September. Second, we accrued $4 million in severance costs for FTE reductions that occurred in January 2026. Therefore, on an adjusted basis, after also excluding merger expenses, we reported net income of $0.06 per diluted share, significantly better than last quarter and above consensus. On slide 10, we provide our updated forecast through 2027. We've slightly adjusted our net interest income guidance for both 2026 and 2027 as a result of higher payoffs and a smaller balance sheet. EPS for 2026 is now forecast to be in the $0.65 to $0.70 range, and EPS for 2027 is forecast to be in the $1.90 to $2.00 range.
Speaker #4: First, our investment in Figure Technologies was revalued $9 million higher than the value on September 30th. Second, we accrued $4 million in severance costs for FTE reductions that occurred in January 2026.
Speaker #4: Therefore , on an adjusted basis , after also excluding merger expenses , we reported net income of $0.06 per diluted share , significantly better than last quarter and above consensus on slide ten , provide we our updated forecast through 2027 with slightly adjusted our net income interest guidance for both 26 and 27 .
Speaker #4: As result of a higher payoffs and a smaller balance sheet . EPs for 2026 is now forecast to be in the 65 to 70 cent range .
Speaker #4: An EPS for 2027 is forecast to be in the $1.90 to $2.00 range on slide 11. We provide an overview of the expected balance sheet growth in 2026, when compared year to end 2025 point to point.
Lee Smith: On Slide 11, we provide an overview of the expected balance sheet growth in 2026 when compared to year-end 2025, point to point. Another highlight this quarter was the double-digit increase in net interest margin. Slide 12 shows the trends in our NIM over the past several quarters. Net interest margin improved 23 basis points quarter-over-quarter to 2.14%, when including a gain of $20 million for the tearing up of hedges tied to long-term FHLB advances that we restructured at the end of the quarter. Excluding this one-time benefit, NIM was 2.05%, still a 14 basis point increase from the third quarter. Turning to Slide 13, costs remain well controlled as core operating expenses declined approximately $700 million when comparing full year 2025 to full year 2024.
On Slide 11, we provide an overview of the expected balance sheet growth in 2026 when compared to year-end 2025, point to point. Another highlight this quarter was the double-digit increase in net interest margin. Slide 12 shows the trends in our NIM over the past several quarters. Net interest margin improved 23 basis points quarter-over-quarter to 2.14%, when including a gain of $20 million for the tearing up of hedges tied to long-term FHLB advances that we restructured at the end of the quarter. Excluding this one-time benefit, NIM was 2.05%, still a 14 basis point increase from the third quarter. Turning to Slide 13, costs remain well controlled as core operating expenses declined approximately $700 million when comparing full year 2025 to full year 2024.
Speaker #4: Another highlight this quarter was the double-digit increase in net interest margin. Slide 12 shows the trends in our NIM over the past several quarters.
Speaker #4: Net interest margin improved 23 basis points quarter over 1:45 .14 percent . When including a gain of 20 million for the tearing up of hedges tied to long term flub advances that we restructured at the end of the quarter .
Speaker #4: Excluding this one time benefit , Nim was 2.05% . Still a 14 basis point increase from the third quarter . Turning to slide 13 .
Speaker #4: Costs remain well controlled, as core operating expenses declined approximately $700 million when comparing full year 2025 to full year 2020. The modest linked quarter increase was mainly the result of higher short-term incentive compensation and associated taxes.
Lee Smith: The modest linked quarter increase was mainly the result of higher short-term incentive compensation and associated taxes. Slide 14 shows the growth in our capital over the past five quarters and the strength of our CET1 ratio. At 12.83%, our CET1 ratio ranks among the best relative to our regional bank peers, and at this level, we have over $2 billion in excess capital pre-tax, or $1.4 billion after tax, relative to the low end of our target operating CET1 range of 10.5%. Slide 15 is our deposit overview. Like last quarter, we further deleveraged the balance sheet by paying down over $1.7 billion of brokered deposits, which had a weighted average cost of 4.74%.
The modest linked quarter increase was mainly the result of higher short-term incentive compensation and associated taxes. Slide 14 shows the growth in our capital over the past five quarters and the strength of our CET1 ratio. At 12.83%, our CET1 ratio ranks among the best relative to our regional bank peers, and at this level, we have over $2 billion in excess capital pre-tax, or $1.4 billion after tax, relative to the low end of our target operating CET1 range of 10.5%. Slide 15 is our deposit overview. Like last quarter, we further deleveraged the balance sheet by paying down over $1.7 billion of brokered deposits, which had a weighted average cost of 4.74%.
Speaker #4: Slide 14 shows the growth in our capital over the past five quarters, and the strength of our CET1 ratio at 12.83%. CET1 ratio ranks among the best relative to our regional bank peers.
Speaker #4: And at this level , we have over 2 billion in excess capital pre-tax , or 1.4 billion after tax relative to the low end of our target operating Ct1 range of 10.5% .
Speaker #4: Slide 15 is our deposit overview . Like last quarter , we further deleveraged the balance sheet by paying down over 1.7 billion of brokered deposits , which had a weighted average cost of 4.74% .
Lee Smith: We also paid down $1 billion of FHLB advances with a weighted average cost of 4.3% and saw our mortgage escrow balances decline $1.4 billion, which was typical seasonality as taxes and insurance balances are paid out at the end of the year. In addition, approximately $5.4 billion of retail CDs matured with a weighted average cost of 4.29%. We retained approximately 86% of these CDs, and they moved into other CD products that were approximately 45 to 50 basis points lower than the maturing product. In Q1 2026, we have another $5.3 billion of retail CDs maturing with a weighted average cost of 4.13%. The deleveraging actions, CD maturities, and other deposit management strategies have allowed us to reduce interest-bearing deposit costs 26 basis points quarter-over-quarter.
We also paid down $1 billion of FHLB advances with a weighted average cost of 4.3% and saw our mortgage escrow balances decline $1.4 billion, which was typical seasonality as taxes and insurance balances are paid out at the end of the year. In addition, approximately $5.4 billion of retail CDs matured with a weighted average cost of 4.29%. We retained approximately 86% of these CDs, and they moved into other CD products that were approximately 45 to 50 basis points lower than the maturing product. In Q1 2026, we have another $5.3 billion of retail CDs maturing with a weighted average cost of 4.13%. The deleveraging actions, CD maturities, and other deposit management strategies have allowed us to reduce interest-bearing deposit costs 26 basis points quarter-over-quarter.
Speaker #4: We also paid down $1 billion of club advances, with a weighted average cost of 4.3%, and saw our mortgage escrow balances decline $1.4 billion, which was typical seasonality as taxes and insurance balances are paid out at the end of the year.
Speaker #4: In addition , approximately 5.4 billion of retail CDs matured , with a weighted average cost of 4.29% . We retained approximately 86% of these CDs , and they moved into other CD products that were approximately 45 to 50 basis points lower than the maturing product .
Speaker #4: In Q1 2026 , we have another 5.3 billion of retail CDs maturing , with a weighted average cost of 4.13% . The deleveraging Actions CD maturities and other deposit management strategies have allowed us to reduce interest bearing deposit costs 26 basis points quarter over quarter .
Lee Smith: We continue to actively manage the cost of our deposits and are performing in line with the 55 to 60% target beta on all interest-bearing deposits with the Fed cuts. Slide 16 shows our multifamily and CRE par payoffs for the quarter and the full year. We continue to experience significant par payoffs of approximately $1.8 billion in Q4, of which 50% were rated substandard, including the disposition of the previously disclosed $253 million sale in October. Approximately $244 million of this quarter's payoffs were multifamily, greater than 50% rent-regulated. We continue to see strong market interest for multifamily loans from other banks and the GSEs. The par payoffs are also leading to a substantial reduction in overall CRE balances and in our CRE concentration ratio.
We continue to actively manage the cost of our deposits and are performing in line with the 55 to 60% target beta on all interest-bearing deposits with the Fed cuts. Slide 16 shows our multifamily and CRE par payoffs for the quarter and the full year. We continue to experience significant par payoffs of approximately $1.8 billion in Q4, of which 50% were rated substandard, including the disposition of the previously disclosed $253 million sale in October. Approximately $244 million of this quarter's payoffs were multifamily, greater than 50% rent-regulated. We continue to see strong market interest for multifamily loans from other banks and the GSEs. The par payoffs are also leading to a substantial reduction in overall CRE balances and in our CRE concentration ratio.
Speaker #4: We continue to actively manage the cost of our deposits and a performing in line with the 55 to 60% target beta on all interest bearing deposits .
Speaker #4: With the fed cuts . Slide 16 shows our multifamily and CRE payoffs for the quarter and the full year we continue to experience significant part payoffs of approximately 1.8 billion in the fourth quarter , of which 50% were rated substandard , including the disposition of the previously disclosed 253 million sale in October , approximately 244 million of this quarter's payoffs were multifamily , greater than 50% rent regulated .
Speaker #4: We continue to see strong market interest for multifamily loans from other banks and the GSEs . The PA payoffs are also leading to a substantial reduction in overall CRE balances and in our CRE concentration ratio .
Lee Smith: Total CRE balances have declined $12.1 billion, or 25%, since year-end 2023 to about $36 billion, aiding our strategy to diversify the loan portfolio to a mix of 1/3 CRE, 1/3 C&I, and 1/3 consumer. In addition, the payoffs have led to a 120 percentage point decline in the CRE concentration ratio to 381%. The next slide is an overview of our multifamily portfolio, which has declined 13%, or $4.3 billion, on a year-over-year basis. Our reserve coverage on the overall multifamily portfolio of 1.83% remains strong and is the highest relative to other multifamily-focused lenders in the Northeast. Furthermore, the reserve coverage on those multifamily loans, where 50% or more of the units are rent-regulated, is 3.44%.
Total CRE balances have declined $12.1 billion, or 25%, since year-end 2023 to about $36 billion, aiding our strategy to diversify the loan portfolio to a mix of 1/3 CRE, 1/3 C&I, and 1/3 consumer. In addition, the payoffs have led to a 120 percentage point decline in the CRE concentration ratio to 381%. The next slide is an overview of our multifamily portfolio, which has declined 13%, or $4.3 billion, on a year-over-year basis. Our reserve coverage on the overall multifamily portfolio of 1.83% remains strong and is the highest relative to other multifamily-focused lenders in the Northeast. Furthermore, the reserve coverage on those multifamily loans, where 50% or more of the units are rent-regulated, is 3.44%.
Speaker #4: CRE Total balances have declined 12.1 billion , or 25% , since year end 2023 to about 36 billion . Aiding our strategy to diversify the loan portfolio to a mix of one third CRE , one third CNI and one third consumer .
Speaker #4: In addition , the payoffs have led to 120 percentage point decline in the Serie concentration ratio to 381% . The next slide is an overview of our multifamily portfolio , which has declined 13% , or 4.3 billion on a year over year basis .
Speaker #4: Our reserve coverage on the overall multifamily portfolio of 1.83% remains strong and is the highest relative to other multifamily-focused lenders in the Northeast.
Speaker #4: reserve Furthermore , the coverage on those multifamily loans where 50% or more of the units are rent regulated is 3.44% . Currently , we have about 12.9 billion of multifamily loans that are either resetting or contractually maturing between now and the end of 2027 , with a weighted average coupon of less than 3.7% .
Lee Smith: Currently, we have about $12.9 billion of multifamily loans that are either resetting or contractually maturing between now and the end of 2027, with a weighted average coupon of less than 3.7%. If these loans pay off, we can reinvest the proceeds in C&I or other loan growth of market rates, or choose to pay down wholesale borrowings. If the borrowers stay with Flagstar, the reset rate is significantly higher than the existing rate, which provides a NIM benefit. On slides 18 and 19, we have once again provided significant additional information on our New York City multifamily loans, where 50% or more units are rent-regulated. This tranche of the multifamily portfolio totals $9.2 billion, has an occupancy rate of 98%, and a current LTV ratio of 70%.
Currently, we have about $12.9 billion of multifamily loans that are either resetting or contractually maturing between now and the end of 2027, with a weighted average coupon of less than 3.7%. If these loans pay off, we can reinvest the proceeds in C&I or other loan growth of market rates, or choose to pay down wholesale borrowings. If the borrowers stay with Flagstar, the reset rate is significantly higher than the existing rate, which provides a NIM benefit. On slides 18 and 19, we have once again provided significant additional information on our New York City multifamily loans, where 50% or more units are rent-regulated. This tranche of the multifamily portfolio totals $9.2 billion, has an occupancy rate of 98%, and a current LTV ratio of 70%.
Speaker #4: If these loans pay off , we can reinvest the proceeds in CNI or other loan growth up market rates , or choose to pay down wholesale borrowings if the borrowers stay with Flagstar , the reset rate is significantly higher than the existing rate , which provides a Nim benefit on slides 18 and 19 , we have once again provided significant additional information on our New York City multifamily loans , where 50% or more units are rent regulated .
Speaker #4: tranche This of the multifamily portfolio totals 9.2 billion , has an occupancy rate of 98% and a current LTV ratio of 70% . Approximately 53% , or 4.8 billion , of the 9.2 billion a pass rated and the remaining 47% , or 4.3 billion , are criticized or classified , meaning they are either special mention , substandard or non-accrual .
Lee Smith: Approximately 53%, or $4.8 billion of the $9.2 billion, are pass-rated, and the remaining 47%, or $4.3 billion, are criticized or classified, meaning they are either special mention, substandard, or nonaccrual. Of the $4.3 billion, $1.9 billion are nonaccrual and have already been charged off to 90% of appraisal value, meaning $355 million or 16%, has been charged off against these nonaccrual loans. Furthermore, we have also added an additional $91 million, or 5%, of ACL reserves against this nonaccrual population, meaning we have taken 21% of either charge-offs or reserves against this population... of the remaining $2.4 billion that are special mention and substandard loans, between reserves and charge-offs, we have 6% or $150 million of loan loss coverage.
Approximately 53%, or $4.8 billion of the $9.2 billion, are pass-rated, and the remaining 47%, or $4.3 billion, are criticized or classified, meaning they are either special mention, substandard, or nonaccrual. Of the $4.3 billion, $1.9 billion are nonaccrual and have already been charged off to 90% of appraisal value, meaning $355 million or 16%, has been charged off against these nonaccrual loans. Furthermore, we have also added an additional $91 million, or 5%, of ACL reserves against this nonaccrual population, meaning we have taken 21% of either charge-offs or reserves against this population... of the remaining $2.4 billion that are special mention and substandard loans, between reserves and charge-offs, we have 6% or $150 million of loan loss coverage.
Speaker #4: Of the 4.3 billion , 1.9 billion and Non-accrual and have already been charged off to 90% of appraisal value , meaning 355 million , or 16% has been charged off against non-accrual these .
Speaker #4: we have Furthermore , also added an additional 91 million or 5% of ACL reserves against this Non-accrual population , meaning we have taken 21% of either charge offs or reserves against this population .
Speaker #4: Of the remaining $2.4 billion that are special mention and substandard loans, between reserves and charge-offs, we have 6%, or $150 million, of loan loss coverage.
Lee Smith: We believe we're adequately reserved or have charged these loans off to the appropriate levels. With excess capital of $2.1 billion before tax, we think we're more than covered were there to be any further degradation in this portion of the portfolio. Slide 20 details our ACL coverage by category. The $43 million reduction in the ACL was largely driven by lower held for investment balances, a better economic forecast, and higher recoveries. Our coverage ratio, including unfunded commitments, remained flat at 1.79% quarter-over-quarter. Our ACL reserve at 31 December also includes adjustments for the one borrower in bankruptcy, where the auction process was recently finalized and confirmed by the bankruptcy court. We expect to close the sale of these properties before the end of Q1. On Slide 21, we provide additional details around our asset quality trends.
We believe we're adequately reserved or have charged these loans off to the appropriate levels. With excess capital of $2.1 billion before tax, we think we're more than covered were there to be any further degradation in this portion of the portfolio. Slide 20 details our ACL coverage by category. The $43 million reduction in the ACL was largely driven by lower held for investment balances, a better economic forecast, and higher recoveries. Our coverage ratio, including unfunded commitments, remained flat at 1.79% quarter-over-quarter. Our ACL reserve at 31 December also includes adjustments for the one borrower in bankruptcy, where the auction process was recently finalized and confirmed by the bankruptcy court. We expect to close the sale of these properties before the end of Q1. On Slide 21, we provide additional details around our asset quality trends.
Speaker #4: We believe we're adequately reserved or have charged these loans off to the appropriate levels. And with excess capital of $2.1 billion before tax, we think we're more than covered.
Speaker #4: Were there to be any further degradation in this portion of the portfolio, slide 20 details our ACL coverage by category. The 41.
Speaker #4: The $43 million reduction in the ACL was largely driven by lower health investment balances, a better economic forecast, and higher recoveries. Our coverage ratio, including unfunded commitments, remained flat at 1.79% quarter over quarter.
Speaker #4: ACL Our reserve at 1231 also includes adjustments for the one borrower in bankruptcy , where the auction process was recently finalized and confirmed by the bankruptcy court .
Speaker #4: expect to We close the sale of these properties before the end of the first quarter on slide 21 , we provide additional details around our asset quality trends .
Lee Smith: All of our credit quality metrics trended positively during Q4. Criticized and classified loans decreased $330 million, or 2%, on a quarter-over-quarter basis, and were down $2.9 billion, or 19%, since the beginning of the year. Our net charge-offs decreased $27 million, or 37%, to $46 million compared to the previous quarter, and net charge-offs to average loans improved 16 basis points to 30 basis points. Nonaccrual loans were $3 billion, down $267 million, or 8%, compared to the prior quarter. Included in this $3 billion nonaccrual amount are the loans tied to the bankruptcy I referenced earlier, which we expect to close the sale on before the end of Q1.
All of our credit quality metrics trended positively during Q4. Criticized and classified loans decreased $330 million, or 2%, on a quarter-over-quarter basis, and were down $2.9 billion, or 19%, since the beginning of the year. Our net charge-offs decreased $27 million, or 37%, to $46 million compared to the previous quarter, and net charge-offs to average loans improved 16 basis points to 30 basis points. Nonaccrual loans were $3 billion, down $267 million, or 8%, compared to the prior quarter. Included in this $3 billion nonaccrual amount are the loans tied to the bankruptcy I referenced earlier, which we expect to close the sale on before the end of Q1.
Speaker #4: All of our credit quality metrics trended positively during the fourth quarter , criticized and classified loans 330 million , or 2% , basis quarter decreased on a quarter over , and were down 2.9 billion , or 19% , since the beginning of the year .
Speaker #4: Our net charge offs decreased 27 million , or 37% , to 46 million , compared to the previous quarter , a net charge offs to average loans improved 16 basis points to 30 basis points .
Speaker #4: Non-accrual loans were 3 billion , down 267 million , or compared to 8% , the prior quarter . Included in this 3 billion non-accrual amount are the loans tied to the bankruptcy I referenced earlier , which we expect to close the sale on before the end of the first quarter .
Lee Smith: At the end of the quarter, 30- to 89-day delinquencies were approximately $988 million, an increase of $453 million from the previous quarter. I will point out that the biggest driver of this increase is the additional day, or 31 December, versus 30 days in September. This accounted for $410 million of the increase, and as of 26 January, approximately $690 million, or 70% of these delinquent loans, had been brought current. Furthermore, $298 million of these delinquent loans at 31 December were driven by one borrower who pays subsequent to the month end and has done so once again, bringing his account current as of 26 January.
At the end of the quarter, 30- to 89-day delinquencies were approximately $988 million, an increase of $453 million from the previous quarter. I will point out that the biggest driver of this increase is the additional day, or 31 December, versus 30 days in September. This accounted for $410 million of the increase, and as of 26 January, approximately $690 million, or 70% of these delinquent loans, had been brought current. Furthermore, $298 million of these delinquent loans at 31 December were driven by one borrower who pays subsequent to the month end and has done so once again, bringing his account current as of 26 January.
Speaker #4: At the end of the quarter, 30- to 89-day delinquencies were approximately $988 million, an increase of $453 million from the previous quarter.
Speaker #4: I will point out that the biggest driver of this increase is the additional day, or 31st day of December, versus 30 days in September.
Speaker #4: This accounted for 410 million of the increase , and as of January 26th , approximately 690 million , or 70% of these delinquent loans had been brought .
Speaker #4: . Current Furthermore , 298 million of these delinquent loans at 1231 were driven by one borrower who pays subsequent to the month end , and has done so once again , bringing his account current .
Lee Smith: As we reported last quarter, in the month of October, we sold approximately $253 million of this borrower's loans, reducing our exposure in this one name. We're finalizing the review of the 2024 annual financial statements for all CRE borrowers, and to date, we've completed the review on approximately 93% of loans. Of the 93% reviewed, 80% are stable, 7% have improved, and 13% have declined, so almost 90% are stable or improving. All of this has been considered as part of our ACL analysis. Concluding on slide 22, since the beginning of 2024, we have proactively managed our CRE exposure lower by over $12 billion, or 24%, through par payoffs, net charge-offs, amortization, and other dispositions. We have also increased our ACL coverage against the remaining CRE portfolio during this time.
As we reported last quarter, in the month of October, we sold approximately $253 million of this borrower's loans, reducing our exposure in this one name. We're finalizing the review of the 2024 annual financial statements for all CRE borrowers, and to date, we've completed the review on approximately 93% of loans. Of the 93% reviewed, 80% are stable, 7% have improved, and 13% have declined, so almost 90% are stable or improving. All of this has been considered as part of our ACL analysis. Concluding on slide 22, since the beginning of 2024, we have proactively managed our CRE exposure lower by over $12 billion, or 24%, through par payoffs, net charge-offs, amortization, and other dispositions. We have also increased our ACL coverage against the remaining CRE portfolio during this time.
Speaker #4: As of Jan 26th . As we reported last quarter , in the month of October , we sold borrowers approximately loans 253 million of this , reducing our exposure in this one name .
Speaker #4: We're finalizing the review of the 2024 annual financial statements for all Siri borrowers , and to date , we've completed the review on approximately 93% of loans .
Speaker #4: Of the 93% reviewed , 80% are stable , 7% have improved , and 13% have declined . So almost 90% are stable or improving .
Speaker #4: All of this has been considered as part of our ACL analysis . Concluding on slide 22 . Since the beginning of 2024 , we have proactively managed our CRE exposure lower by over $12 billion , or 24% through Par payoffs .
Speaker #4: Net charge offs , amortization , and other dispositions . We have also increased our ACL coverage against the remaining CRE portfolio significant during this time .
Lee Smith: This significant de-risking, along with our solid capital position, strong liquidity, and expense optimization program, has created the solid foundation for us to grow and be successful. We continue to deliver on our strategic plan and are excited about the journey we're on and the value we will create for our shareholders over the next two years. With that, I will now turn the call back to Joseph.
This significant de-risking, along with our solid capital position, strong liquidity, and expense optimization program, has created the solid foundation for us to grow and be successful. We continue to deliver on our strategic plan and are excited about the journey we're on and the value we will create for our shareholders over the next two years. With that, I will now turn the call back to Joseph.
Speaker #4: This de-risking , along with our solid capital position , strong liquidity and expense optimization program , has created foundation for us solid to grow and be successful .
Speaker #4: We continue to deliver on our strategic plan and are excited about the journey we're on and the value we will create for our shareholders over the next two years .
Joseph Otting: Okay, thank you very much, Lee. And, before moving to Q&A, as I stated at the beginning of the call, you know, we are extremely proud of our performance in 2025 and returning to profitability during the Q4. This milestone reflects discipline and hard work of our entire team. We made it difficult but necessary decisions that strengthened our balance sheet, diversified the loan portfolio, lowered our cost, and we thoughtfully invested in our C&I and private banking businesses, along with our IT and risk management infrastructure. I'd like to thank our executive leadership team and all the teammates for their dedication and commitment to the organization and our customers. I'd also like to thank our board of directors for their invaluable advice and support.
Joseph Otting: Okay, thank you very much, Lee. And, before moving to Q&A, as I stated at the beginning of the call, you know, we are extremely proud of our performance in 2025 and returning to profitability during the Q4. This milestone reflects discipline and hard work of our entire team. We made it difficult but necessary decisions that strengthened our balance sheet, diversified the loan portfolio, lowered our cost, and we thoughtfully invested in our C&I and private banking businesses, along with our IT and risk management infrastructure.
Speaker #4: With that, now I will turn the call back to Joseph.
Speaker #3: Okay . Thank you very much . Lee . And before moving to Q&A , as I stated at the beginning of the we are call , extremely proud of our performance in 2025 and returning to profitability during the fourth quarter .
Speaker #3: This milestone reflects discipline and hard work of our entire team it . We made difficult but necessary decisions that strengthened our balance sheet , diversified the loan portfolio , our lowered cost , and we thoughtfully invested in and CNI private banking along with our IT and risk management infrastructure .
I'd like to thank our executive leadership team and all the teammates for their dedication and commitment to the organization and our customers. I'd also like to thank our board of directors for their invaluable advice and support.
Speaker #3: I'd like to thank our executive leadership team and all the teammates for their dedication and commitment to the organization and our customers. I'd also like to thank our Board of Directors for their invaluable advice and support.
Joseph Otting: As I said, I think we probably set a record for board meetings last year, and now I'd be happy to turn it over to the operator to open up for questions. Thank you.
As I said, I think we probably set a record for board meetings last year, and now I'd be happy to turn it over to the operator to open up for questions. Thank you.
Speaker #3: As I said, I think we probably set a record for board meetings last year, and now I would be happy to turn it over to the operator to open up for questions.
Operator: At this time, I'd like to remind everyone that in order to ask a question, press star, followed by the number one on your telephone keypad. We ask that you please limit your initial question to one and return to the queue for any additional questions you might have. Our first question will come from the line of David Ceccherini with Jefferies. Please go ahead.
Operator: At this time, I'd like to remind everyone that in order to ask a question, press star, followed by the number one on your telephone keypad. We ask that you please limit your initial question to one and return to the queue for any additional questions you might have. Our first question will come from the line of David Ceccherini with Jefferies. Please go ahead.
Speaker #3: Thank you .
Speaker #1: At this time, I'd like to remind everyone that in order to ask a question, press star followed by the number one on your telephone keypad.
Speaker #1: We ask that you please limit your initial question to one, and return to the queue for any additional questions you might have. Our first question will come from the line of David Severini with Jefferies.
David Ceccherini: Hi, thanks for taking the question. So wanted to start on NII. I saw that you lowered it by $100 million. Can you talk about the drivers behind that? I'm assuming it's the higher payoff activity, but any detail there would be helpful.
David Chiaverini: Hi, thanks for taking the question. So wanted to start on NII. I saw that you lowered it by $100 million. Can you talk about the drivers behind that? I'm assuming it's the higher payoff activity, but any detail there would be helpful.
Speaker #1: Please go ahead .
Speaker #5: Thanks for Hi . So I wanted to start on NII . I saw that you lowered it by $100 million . Can you talk about the drivers behind that ?
Lee Smith: ... Yeah, you're exactly right, David. It's the higher payoff activity, particularly as it relates to multifamily and CRE loans. And we use that excess cash to further delever the balance sheet. And as I mentioned, we paid down $1 billion of FHLB, $1.7 billion of brokered deposits. And then we saw $1.4 billion of mortgage escrows exit in Q4, which is seasonality because they hold C&I escrow deposits, which is when they usually go out, and then they build throughout the rest of the year, pay out in the fourth quarter. And so that reduction - the other thing that I will point out is you've heard us talk about tall trees as it relates to that legacy C&I book.
Lee Smith: ... Yeah, you're exactly right, David. It's the higher payoff activity, particularly as it relates to multifamily and CRE loans. And we use that excess cash to further delever the balance sheet. And as I mentioned, we paid down $1 billion of FHLB, $1.7 billion of brokered deposits. And then we saw $1.4 billion of mortgage escrows exit in Q4, which is seasonality because they hold C&I escrow deposits, which is when they usually go out, and then they build throughout the rest of the year, pay out in the fourth quarter.
Speaker #5: I'm assuming it's the higher payoff activity , but any detail there would helpful
Speaker #5: be
Speaker #5: .
Speaker #4: right , exactly Yeah , you're David . It's the higher payoff activity , particularly as it relates to multifamily and CRE loans . And we use that excess cash to further deliver the balance sheet .
Speaker #4: as I And mentioned , we pay down $1 billion of flub , 1.7 billion of brokered deposits . And then we saw 1.4 billion of mortgage escrows exit in Q4 , which is seasonality , because they were t and escrow deposits , which is when they usually go out and then they build throughout the rest of the year , pay out in the fourth quarter .
And so that reduction - the other thing that I will point out is you've heard us talk about tall trees as it relates to that legacy C&I book.
Speaker #4: And so that reduction, the other thing that we will point out is you've heard us talk about tall trees as it relates to that legacy.
Lee Smith: And what we mean by that is we had some large, oversized exposures in individual names. We're talking $250, $300 million, and we've right-sized a lot of those, in order to bring them in line with our sort of risk tolerance levels, and how we think about things today. And so you've seen runoff, particularly in the ABL, and dealer floor plan space, and also the MSR space. I would say that we are mostly through that. And so I think what you're going to see is higher net C&I growth starting in Q1 here because we are mostly through that right-sizing of those tall trees. But coming back to your initial question, it's those additional par payoffs that have effectively reduced the assets.
And what we mean by that is we had some large, oversized exposures in individual names. We're talking $250, $300 million, and we've right-sized a lot of those, in order to bring them in line with our sort of risk tolerance levels, and how we think about things today. And so you've seen runoff, particularly in the ABL, and dealer floor plan space, and also the MSR space. I would say that we are mostly through that. And so I think what you're going to see is higher net C&I growth starting in Q1 here because we are mostly through that right-sizing of those tall trees. But coming back to your initial question, it's those additional par payoffs that have effectively reduced the assets.
Speaker #4: CNI book and what we mean by that is we had some large , oversized exposures in individual names . We're talking 250 , 300 million , and we've rightsized a lot of those in order to bring them in line with our sort of risk tolerance levels and how we think about things today .
Speaker #4: And so you've run, seen off, particularly in the ABL and dealer floor plan space, and also the MSR space. I would say that we are mostly through that.
Speaker #4: So, and I think what you're going to see is higher net debt, CNI growth starting in the first quarter here, because we are mostly through that right-sizing of those tall trees.
Speaker #4: But coming back to your initial question , it's those additional part payoffs that have effectively reduced the assets we've used . The excess cash to deleverage .
Lee Smith: We've used the excess cash to deleverage. That's sort of reducing NIM, and that's rolled through into 2026 and 2027.
We've used the excess cash to deleverage. That's sort of reducing NIM, and that's rolled through into 2026 and 2027.
Speaker #4: That's of sort reducing Nim , and that's rolled into and through 26 27 .
David Ceccherini: Great. Thanks for that. And sticking with the payoff activity, you're guiding $3.5 to 5 billion, you know, for 2026. How much of that, to the extent you have line of sight on it, how much of that do you expect to be substandard?
David Chiaverini: Great. Thanks for that. And sticking with the payoff activity, you're guiding $3.5 to 5 billion, you know, for 2026. How much of that, to the extent you have line of sight on it, how much of that do you expect to be substandard?
Speaker #5: that . Thanks for And Great . sticking with the payoff activity , you're guiding three and a half to 5 billion . You know , for 2026 .
Lee Smith: Well, you know, I commented on the $1.8 billion this quarter, which was 50% substandard. And we have been, throughout 2025, we've seen 40% to 50% of those par payoffs be substandard loans. So we don't see any reason for that to change as we move through 2026.
Lee Smith: Well, you know, I commented on the $1.8 billion this quarter, which was 50% substandard. And we have been, throughout 2025, we've seen 40% to 50% of those par payoffs be substandard loans. So we don't see any reason for that to change as we move through 2026.
Speaker #5: How much of that, to the extent you have line of sight on it, how much of that do you expect to be substandard?
Speaker #4: Well , you know , I commented on the 1.8 billion this quarter , which was 50% substandard . And we have been throughout 2020 .
Speaker #4: We we've seen 40 to 50% of those payoffs be substandard loans . So we don't see any reason for that to change as we move .
David Ceccherini: Thanks very much.
David Chiaverini: Thanks very much.
Joseph Otting: Yeah, you know, David, in that regard, in that regard, I mean, I, as you have followed us, you know, we originally were projecting those payoffs to be in the $700 to 800, but as those loans come up, our pricing rollover is higher, significantly higher than market. And so it motivates, you know, to align with our goal to reduce our real estate exposure. It motivates people to take those loans to other institutions or to the agencies.
Joseph Otting: Yeah, you know, David, in that regard, in that regard, I mean, I, as you have followed us, you know, we originally were projecting those payoffs to be in the $700 to 800, but as those loans come up, our pricing rollover is higher, significantly higher than market. And so it motivates, you know, to align with our goal to reduce our real estate exposure. It motivates people to take those loans to other institutions or to the agencies.
Speaker #4: 26 . through
Speaker #5: Thanks very much .
Speaker #3: Yeah . in that David , regard , in that regard , I mean , I you have followed us . You know , we originally were projecting those payoffs to be in the 7 to 800 .
Speaker #3: But as those loans come up , our , our pricing rollover is , is higher , significantly higher than market . And so it motivates , you know , to align with our goal to reduce our real estate motivates people to those take loans to other institutions or to the agencies .
Operator: Our next question will come from the line of Dave Rochester with Cantor. Please go ahead.
Operator: Our next question will come from the line of Dave Rochester with Cantor. Please go ahead.
Dave Rochester: Hey, good morning, guys.
Dave Rochester: Hey, good morning, guys.
Joseph Otting: Good morning.
Joseph Otting: Good morning.
Speaker #1: Our next question will come from the line of Dave Rochester with Cantor. Please go ahead.
Lee Smith: Hey, Dave.
Lee Smith: Hey, Dave.
Dave Rochester: Just looking at, I think it's slide 11 here. You've got some great loan growth planned for this year. Just wanted to hear about, you know, how comfortable you are on the funding side of things with funding this with core deposit growth.
Dave Rochester: Just looking at, I think it's slide 11 here. You've got some great loan growth planned for this year. Just wanted to hear about, you know, how comfortable you are on the funding side of things with funding this with core deposit growth.
Speaker #6: Hey, good morning, guys.
Speaker #3: Good morning .
Speaker #4: Hey , Dave .
Speaker #6: It just looking at I think a slide 11 here . You've got some great loan growth plan for this year . Just wanted to hear about you know , how comfortable you are on the funding side of things with funding this with Cortopassi growth .
Lee Smith: Yeah, let me-
Lee Smith: Yeah, let me-
Joseph Otting: Yeah, go ahead, Lee.
Joseph Otting: Yeah, go ahead, Lee.
Lee Smith: Yeah, I was going to say, I'll let me go, and then Joseph can jump in. Yeah, we feel pretty good. You know, as we think about, you know, core deposit growth, I think there are a number of avenues that we're pursuing. Obviously, you know, we think we can grow deposits from our 350 bank branches. We're in good geographies across the country, as you know. But we also are going to leverage these new C&I relationships. So as you've seen us grow the C&I business very successfully under Rich Raffetto, as Joseph mentioned, we believe that we will be able to leverage those relationships, not just to bring in deposits, but bring in more fee income, as well.
Lee Smith: Yeah, I was going to say, I'll let me go, and then Joseph can jump in. Yeah, we feel pretty good. You know, as we think about, you know, core deposit growth, I think there are a number of avenues that we're pursuing. Obviously, you know, we think we can grow deposits from our 350 bank branches. We're in good geographies across the country, as you know. But we also are going to leverage these new C&I relationships. So as you've seen us grow the C&I business very successfully under Rich Raffetto, as Joseph mentioned, we believe that we will
Speaker #4: Yeah . Let me .
Speaker #3: Yeah go ahead Lee .
Speaker #4: Yeah I was going to I'll say let me go and then and then Joseph can jump in . Yeah . We feel pretty You as good .
Speaker #4: know , we think about , you know , core deposit growth , I think there are a number of avenues that we're pursuing , obviously , you know , we think we can grow deposits from our 350 bank branches .
Speaker #4: in good geographies across the We're country . As you know , but we also are going to leverage these new CNI relationships . So as you've seen us grow , the CNI business very successfully under under rich Raffetto , as Joseph mentioned , we we believe that that we will be able to leverage those relationships not just to bring in deposits , but bringing more fee income as well .
be able to leverage those relationships, not just to bring in deposits, but bring in more fee income, as well.
Lee Smith: And then the final piece is the private client bank, and we feel that we can leverage deposits from our private client bankers, as well, going forward. So that's how we're going to drive core deposit growth, as we move forward through 2026 and into 2027 as well.
And then the final piece is the private client bank, and we feel that we can leverage deposits from our private client bankers, as well, going forward. So that's how we're going to drive core deposit growth, as we move forward through 2026 and into 2027 as well.
Speaker #4: And , and , and then the final , the final piece is the private client bank . And we feel that we can leverage deposits from our private client bankers as Going well .
Speaker #4: forward . And we're going to drive that's how so core deposit growth as we move forward through 26 and into 2027 , as well .
Dave Rochester: Great. Appreciate that. And then, just on the capital, Lee, you mentioned $1 billion for after tax of excess capital. You know, you guys are still obviously trading at a discount to your adjusted tangible value per share, adjusted for the warrants. You know, it sounds like you're making, you know, faster progress than maybe you expected even just a few months ago. You know, you mentioned, you know, all the tall trees that you had, then it sounds like you're pretty much at the end of that process of trimming, meaning C&I growth ramps up earlier, faster. You're making a lot of progress on the credit front, which is great to see, and profitability is only going to, you know, follow from that.
Dave Rochester: Great. Appreciate that. And then, just on the capital, Lee, you mentioned $1 billion for after tax of excess capital. You know, you guys are still obviously trading at a discount to your adjusted tangible value per share, adjusted for the warrants. You know, it sounds like you're making, you know, faster progress than maybe you expected even just a few months ago. You know, you mentioned, you know, all the tall trees that you had, then it sounds like you're pretty much at the end of that process of trimming, meaning C&I growth ramps up earlier, faster. You're making a lot of progress on the credit front, which is great to see, and profitability is only going to, you know, follow from that.
Speaker #6: Great . Appreciate that . And then just on the capital , you mentioned a billion for after tax of excess capital . You know , you guys are still obviously trading at a discount to your adjusted tangible book value per share , adjusted for the warrants .
Speaker #6: You know , it sounds like you're making , you know , faster progress . And maybe you expected even just a few months ago .
Speaker #6: You mentioned , you know , all the tall trees that you had . Then it sounds like you're pretty much at the end of that process of trimming , meaning CNI growth ramps up earlier , faster .
Dave Rochester: It seems like you're going to be in a great position to buy back your stock with all the fundamentals going the way you need, and you've got a ton of excess capital. I know you talked about, you know, potential board meeting coming up in April. You know, what are the prospects of you guys, you know, coming out strong on that and taking advantage of the opportunity here?
It seems like you're going to be in a great position to buy back your stock with all the fundamentals going the way you need, and you've got a ton of excess capital. I know you talked about, you know, potential board meeting coming up in April. You know, what are the prospects of you guys, you know, coming out strong on that and taking advantage of the opportunity here?
Speaker #6: You're making a lot of progress on the credit front , which is great to see . And profitability is only going to , you know , follow from that .
Speaker #6: It seems like you're going to be in a great position to buy back your stock with all the fundamentals going the way you need , and you've got a ton of excess know you capital .
Speaker #6: talked about , you know , I potential board meeting coming up in April . You know , what are the prospects of you guys coming out strong on that and taking advantage of the opportunity here , I would which think is probably not going to be here for very long to buy back your stock .
Lee Smith: ... which I would think is probably not going to be here for very long to buy back your stock.
... which I would think is probably not going to be here for very long to buy back your stock.
Joseph Otting: Yeah, you know, what we've kind of communicated is that, you know, the variables really are, as you described, you know, how much balance sheet growth can we get in the targeted areas? How quickly we see the non-performings cure, which, you know, we're forecasting in total that in 2026 will be down $1 billion. I think, you know, what the board will look for with management's recommendation as we, you know, look at those numbers coming together in 2026, how do we deploy that excess capital? I would tell you it's definitely a discussion point amongst the board, and I would say, you know, as we move forward through the year, it would be something we would look favorably if we're not deploying the capital.
Joseph Otting: Yeah, you know, what we've kind of communicated is that, you know, the variables really are, as you described, you know, how much balance sheet growth can we get in the targeted areas? How quickly we see the non-performings cure, which, you know, we're forecasting in total that in 2026 will be down $1 billion. I think, you know, what the board will look for with management's recommendation as we, you know, look at those numbers coming together in 2026, how do we deploy that excess capital?
Speaker #3: Yeah . You know , we've kind of communicated is that , you know , there the variables really are as you describe how much balance sheet growth can we get in the targeted areas .
Speaker #3: How quickly we see the non-performing cure , which we we're forecasting in total that in 2026 we'll be down $1 billion . And I think you know what what the board will look for with management's recommendation we look as at those numbers coming together in 2026 , how do we deploy that excess and capital I would tell you , it's definitely a discussion point amongst the And I would board .
I would tell you it's definitely a discussion point amongst the board, and I would say, you know, as we move forward through the year, it would be something we would look favorably if we're not deploying the capital.
Speaker #3: say , you know , as we move forward through the year , it would be something we would look favorably if we're not deploying the capital .
Lee Smith: All right, great. Thanks, guys.
Dave Rochester: All right, great. Thanks, guys.
Operator: Our next question will come from the line of Casey Herr with Autonomous. Please go ahead.
Operator: Our next question will come from the line of Casey Herr with Autonomous. Please go ahead.
Speaker #6: All right. Great. Thanks, guys.
Casey Herr: Yeah, great. Thanks. Good morning, guys.
Casey Haire: Yeah, great. Thanks. Good morning, guys.
Speaker #1: next question Our will come from the line of Casey hair with autonomous . Please go ahead .
Joseph Otting: Morning.
Joseph Otting: Morning.
Casey Herr: Just, uh-
Casey Haire: Just, uh-
Lee Smith: Hi, Casey
Lee Smith: Hi, Casey
Casey Herr: - following up on, on slide 11, another follow-up on the funding strategy. So Lee, I heard you, you sound pretty confident on the deposit growth. Just wondering, where do you, where do you, the wholesale borrowings as a percentage of assets at 13%, where does that go in your, in your budget?
Casey Haire: - following up on, on slide 11, another follow-up on the funding strategy. So Lee, I heard you, you sound pretty confident on the deposit growth. Just wondering, where do you, where do you, the wholesale borrowings as a percentage of assets at 13%, where does that go in your, in your budget?
Speaker #7: Thanks . Good Yeah . Great . morning guys . Just following up on on slide 11 , another follow up on the funding strategy .
Speaker #7: So Lee , I heard you . You sound pretty confident on the deposit growth . Just wondering where do you where is the wholesale borrowings as percentage of assets at 13% .
Lee Smith: Yeah. So we, as I mentioned, we paid another $1.7 billion of brokered deposits off in Q4. We only have $2.3 billion of broker deposits remaining as of 31 December. So I mean, we are writing off probably better than other banks. And we've done a nice job over the last, you know, 18 months of reducing our exposure there. As it relates to, and, you know, I talked a little bit about the FHLB restructuring in my prepared remarks. The reason we did that was we swapped out long-term FHLB for short-term FHLB and used some excess cash to pay off that or change out that $2 billion of long term. So we are now mostly sitting on short-term FHLB.
Lee Smith: Yeah. So we, as I mentioned, we paid another $1.7 billion of brokered deposits off in Q4. We only have $2.3 billion of broker deposits remaining as of 31 December. So I mean, we are writing off probably better than other banks. And we've done a nice job over the last, you know, 18 months of reducing our exposure there. As it relates to, and, you know, I talked a little bit about the FHLB restructuring in my prepared remarks. The reason we did that was we swapped out long-term FHLB for short-term FHLB and used some excess cash to pay off
Speaker #7: Does that where go in your budget?
Speaker #4: Yeah . So we as I mentioned we paid another 1.7 billion of brokered deposits off in Q4 . We only have 2.3 billion of brokered deposits as remaining of 1231 .
Speaker #4: I mean , So we are right in like probably better than than other banks . And we've nice know , , you last over the done a job 18 months of reducing our exposure .
Speaker #4: There as it relates to . And , you know , I talked a little bit about the restructuring in my prepared remarks . The reason we did that was we we swapped out long term flub for short term flub .
that or change out that $2 billion of long term. So we are now mostly sitting on short-term FHLB.
Speaker #4: And used some excess cash to to pay off that or change out that 2 billion of long term . So we are now mostly sitting on short term flub .
Lee Smith: And that is the opportunity for us in 2026 and beyond to further deleverage the wholesale borrowings by paying down the FHLB advances, because we also get an FDIC benefit from that. So, you know, we think and we expect to continue to pay down the FHLB advances as we move through 2026 with any excess cash.
And that is the opportunity for us in 2026 and beyond to further deleverage the wholesale borrowings by paying down the FHLB advances, because we also get an FDIC benefit from that. So, you know, we think and we expect to continue to pay down the FHLB advances as we move through 2026 with any excess cash.
Speaker #4: And that is the opportunity for us in 2026 and beyond to further deleverage the wholesale borrowings by paying down the FHLB advances, because we also get an FDIC benefit from that.
Speaker #4: So , you know , we we think and we we expect to continue to pay down the , the flub advances as , as we move through 2026 with any excess cash .
Casey Herr: Gotcha. Okay. And then just switching to expenses. The expense guide of $1.75 to 1.8 billion. Your current run rate, you're about $1.85 billion. So there's more expense rationalization coming in 2026, and just any color around that?
Casey Haire: Gotcha. Okay. And then just switching to expenses. The expense guide of $1.75 to 1.8 billion. Your current run rate, you're about $1.85 billion. So there's more expense rationalization coming in 2026, and just any color around that?
Speaker #7: Okay . just And switching to then Gotcha . expenses , the expense guide of 1750 to to 1.8 billion , your current run rate , you're about 1.85 .
Speaker #7: So there's there's more expense rationalization in in 26 . And just any color around that .
Lee Smith: Yeah. So, there's a couple of things I would point out. And again, I mentioned this in my prepared remarks. You know, we had additional incentive compensation and associated taxes in Q4. We also had severance of $4 million in the fourth quarter as well. And the severance was related to some reductions. These are tough decisions that we executed on earlier this month. And so, you know, as I think about our sort of Q1 NIE, we're probably more like, and this is excluding the amortization in the $455 to 465 range. And then you will see continue to decline after Q1, because remember, in Q1, expenses are typically elevated because of FICA costs that are sort of front-end loaded in the year.
Lee Smith: Yeah. So, there's a couple of things I would point out. And again, I mentioned this in my prepared remarks. You know, we had additional incentive compensation and associated taxes in Q4. We also had severance of $4 million in the fourth quarter as well. And the severance was related to some reductions. These are tough decisions that we executed on earlier this month. And so, you know, as I think about our sort of Q1 NIE, we're probably more like, and this is excluding the amortization in the $455 to 465 range.
Speaker #4: So Yeah . there's a couple of things that I'd point out . And again I mentioned this in my prepared remarks . You know , we had additional incentive compensation and associated taxes in Q4 .
Speaker #4: We also had severance of $4 million in the fourth quarter as well. And the severance was related to some reductions.
Speaker #4: are tough These decisions that we executed on earlier this month . And so , you know , if , as I think about our sort of Q1 knee , we're probably more like and this is excluding the amortization in the fourth , 455 to 465 range .
And then you will see continue to decline after Q1, because remember, in Q1, expenses are typically elevated because of FICA costs that are sort of front-end loaded in the year.
Speaker #4: And then you will see it continue to decline after Q1. Because remember, in Q1, expenses are typically elevated because of FICA costs that are sort of front-end loaded in the year.
Lee Smith: But we continue to work through a number of other cost optimization initiatives, and we think you'll see further reductions in our FDIC expenses. We've got technology projects that are coming on stream that will allow us to get more efficient as we move forward, as well. And then there's still some real estate optimization as it relates to a couple of operating centers that we have. So I feel very comfortable, Casey, that we will be within the range that we've guided to, and you will continue to see a reduction in expenses as we move through the year.
But we continue to work through a number of other cost optimization initiatives, and we think you'll see further reductions in our FDIC expenses. We've got technology projects that are coming on stream that will allow us to get more efficient as we move forward, as well. And then there's still some real estate optimization as it relates to a couple of operating centers that we have. So I feel very comfortable, Casey, that we will be within the range that we've guided to, and you will continue to see a reduction in expenses as we move through the year.
Speaker #4: we But continue to work through a number of other cost optimization initiatives . And you'll see further we think in our FDIC reductions expenses .
Speaker #4: We've technology got projects that are stream coming on that will allow us to get more we move efficient as forward as well . And then the still some estate real relates it of a couple operating optimization as So we have .
Speaker #4: very comfortable , Casey , centers that that that we will be the within range that we've guided to and you will continue to see a reduction in expenses as we move through the year .
Casey Herr: Great. Thank you.
Casey Haire: Great. Thank you.
Operator: Our next question will come from the line of Manan Gosalia with Morgan Stanley. Please go ahead.
Operator: Our next question will come from the line of Manan Gosalia with Morgan Stanley. Please go ahead.
Speaker #7: Thank you .
Manan Gosalia: Hey, good morning. Joseph, maybe a follow-up to the capital question. You know, I know you noted that the priority for capital return or the priority for capital is to deploy for organic growth. But I guess you also noted that the balance sheet will be lower given the CRE paydowns. Is there anything that could cause you to hold on to the excess capital for a little bit longer? Like, is it the rating agencies? Is it rent freezes in NYC? Is it maybe the C&I loans are coming on at a high RWA? Can you just help us think through-
Manan Gosalia: Hey, good morning. Joseph, maybe a follow-up to the capital question. You know, I know you noted that the priority for capital return or the priority for capital is to deploy for organic growth. But I guess you also noted that the balance sheet will be lower given the CRE paydowns. Is there anything that could cause you to hold on to the excess capital for a little bit longer? Like, is it the rating agencies? Is it rent freezes in NYC? Is it maybe the C&I loans are coming on at a high RWA? Can you just help us think through-
Speaker #1: Our next question will come from the line of Manon Gosalia with Morgan Stanley. Please go ahead.
Speaker #8: Hey , good morning Joseph . Maybe a follow up to the the capital question . You know , I know you noted that the priority for capital return or the priority for capital is to deploy for organic growth .
Speaker #8: But I guess you also noted that the balance sheet will be lower given the CRE paydowns . Is there anything that could cause you to hold on to the excess capital for a little bit longer ?
Speaker #8: Like, are you, maybe, is it the rating agencies? Is it rent freezes in NYC? Is it maybe the CNI loans are coming on at a high?
Lee Smith: Yeah
Lee Smith: Yeah
Manan Gosalia: ... you know, what scenarios you would hold on to that excess capital?
Manan Gosalia: ... you know, what scenarios you would hold on to that excess capital?
Joseph Otting: Well, I think you know, first of all, on the balance sheet, we do feel this quarter will be the low point in the quarter for the size of the balance sheet, and that should grow going forward from here. The other, you know, thing I think, lens that we've been looking at, and I think this quarter we saw improvement, was, you know, we've taken on a initiative to move the non-performing loans out of the bank, and we wanna see that that initiative continues to be successful, and we get the non-performing loans down.
Joseph Otting: Well, I think you know, first of all, on the balance sheet, we do feel this quarter will be the low point in the quarter for the size of the balance sheet, and that should grow going forward from here. The other, you know, thing I think, lens that we've been looking at, and I think this quarter we saw improvement, was, you know, we've taken on a initiative to move the non-performing loans out of the bank, and we wanna see that that initiative continues to be successful, and we get the non-performing loans down.
Speaker #8: Can you just help us think through—you know, what scenarios would you hold on to that excess capital?
Speaker #3: Well , I think I think of all , on the first you know , the , balance sheet , we do feel this quarter will be the low point in the quarter for the size of the balance sheet .
Speaker #3: And that should grow going forward from here . The the other thing I think limbs that we've been looking at , and I think this quarter , we saw improvement was , you know , we've we've taken on a initiative to move the non-performing loans out of the bank .
Joseph Otting: The other element that, you know, we do an 18-month look forward—you know, one of the reasons we think we have a very conservative view on our credit quality is we do this 18-month look forward on the loans to make sure what would the underwriting look like both at the current coupon and what it would look like if they reset to market. And that has, you know, historically for us, drove a lot of loans into the special mention and to the substandard area. So I think, you know, as we can get some visibility around reducing all of that, and as Lee commented, you know, we have $9 billion of maturing in 2027, and we're about halfway through that, because think about the 18 months.
Speaker #3: And and we want to see that that initiative continues to be successful . And we get the non-performing loans down . The other element that , you know , we do an 18 month , you know , one of the reasons we think we very have a conservative view on our credit quality is we do this 18 month look forward on the loans to make sure what would the underwriting look like , both at the current coupon and what it would look like if they reset to market , and that has , historically , for special lot the drove a into of loans And to the mention .
The other element that, you know, we do an 18-month look forward—you know, one of the reasons we think we have a very conservative view on our credit quality is we do this 18-month look forward on the loans to make sure what would the underwriting look like both at the current coupon and what it would look like if they reset to market. And that has, you know, historically for us, drove a lot of loans into the special mention and to the substandard area. So I think, you know, as we can get some visibility around reducing all of that, and as Lee commented, you know, we have $9 billion of maturing in 2027, and we're about halfway through that, because think about the 18 months.
Speaker #3: substandard area . So I think as we can get some visibility around reducing all of that and as Lee commented , you know , we have $9 billion of maturing in 2027 .
Joseph Otting: So this quarter, we're into the third quarter of 2027, looking at those loans, that we're in a position to really understand what does that bubble look like coming through, and does it have any impact to the credit quality, for the company? We haven't, you know, seen a major shift, but that's one area that we're keeping our eye on.
So this quarter, we're into the third quarter of 2027, looking at those loans, that we're in a position to really understand what does that bubble look like coming through, and does it have any impact to the credit quality, for the company? We haven't, you know, seen a major shift, but that's one area that we're keeping our eye on.
Speaker #3: And we're about halfway through that because think about the 18 months we're this quarter . We're into the third quarter of 2027 . Looking at those loans that were in a position to really understand what does that bubble look like coming through , and does it have any impact to the credit quality for the company ?
Speaker #3: We haven't seen a major shift, but that's one area that we're keeping our eye on.
Manan Gosalia: Got it. Very helpful. And then, just maybe on the New York multifamily portfolio. So given that we could get rent freezes in New York in the near term, any updates on what you're hearing from your multifamily borrowers in the city?
Manan Gosalia: Got it. Very helpful. And then, just maybe on the New York multifamily portfolio. So given that we could get rent freezes in New York in the near term, any updates on what you're hearing from your multifamily borrowers in the city?
Speaker #8: it . Got Very helpful . And then just maybe on on the New York multifamily portfolio . So given that we could get rent freezes in New York in the near term , any updates on what you're hearing from your multifamily borrowers in the city ?
Joseph Otting: You know, there's just a lot of dialogue going on about like, how can we, you know, I think collectively come to resolution between the new city government and owners of properties and banks that finance those, about resolution. You know, we look, you know, what would be the impact if, you know, this year, it seems like the rent board will be former Mayor Adams' tilted, and, you know, they have a history of looking at kind of the overall expenses, in making adjustments to revenue accordingly. We've started to spend a lot of time looking out, like, forward-thinking as if those rents were flat for two or three years and expenses went up a couple percent, the impact on the portfolio.
Joseph Otting: You know, there's just a lot of dialogue going on about like, how can we, you know, I think collectively come to resolution between the new city government and owners of properties and banks that finance those, about resolution. You know, we look, you know, what would be the impact if, you know, this year, it seems like the rent board will be former Mayor Adams' tilted, and, you know, they have a history of looking at kind of the overall expenses, in making adjustments to revenue accordingly.
Speaker #3: lot on a can how going we , you about , dialogue of know , like , , there's just I think collectively come to resolution between the new city government and owners of properties and banks that finance those about resolution .
Speaker #3: We are we look , you know , what would be the impact if if you know , this year , it seems like the rent board will be former Mayor Adams tilted and and you know , they have a history of looking at kind of the overall expenses in making adjustments to revenue .
We've started to spend a lot of time looking out, like, forward-thinking as if those rents were flat for two or three years and expenses went up a couple percent, the impact on the portfolio.
Speaker #3: Accordingly , we've started to spend a lot of time looking out like forward thinking , as if those rents were flat for 2 or 3 years and expenses went up a couple percent .
Joseph Otting: And so that's kind of where we're spending most of our time. But as Lee commented on, we have not seen a decline in liquidity. In fact, we saw acceleration of liquidity taking us out of those loans in multifamily and rent-regulated in the fourth quarter. So but we're, you know, obviously, we spend a lot of time looking at various aspects of that portfolio, make sure we understand our risk. And we were kind of early on, you know, in our process of, you know, effectively underwriting with that window out 18 months of both kind of what credit marks and interest rate marks would look like, as those loans start to come up for maturity or repricing.
And so that's kind of where we're spending most of our time. But as Lee commented on, we have not seen a decline in liquidity. In fact, we saw acceleration of liquidity taking us out of those loans in multifamily and rent-regulated in the fourth quarter. So but we're, you know, obviously, we spend a lot of time looking at various aspects of that portfolio, make sure we understand our risk. And we were kind of early on, you know, in our process of, you know, effectively underwriting with that window out 18 months of both kind of what credit marks and interest rate marks would look like, as those loans start to come up for maturity or repricing.
Speaker #3: The on the impact portfolio . And so that's kind of where we're spending most of our . But time but Lee as commented on , we have not seen a decline in liquidity .
Speaker #3: In fact , we saw acceleration of liquidity taking us out of those loans . And rent multifamily and regulated in the fourth quarter .
Speaker #3: So but , you know , obviously we spend a lot of time looking at various aspects of that portfolio . Make sure we understand our risk .
Speaker #3: were And we kind of early on , you know , in our process of effectively underwriting with that window out , 18 months of both kind of what credit markets and interest rate marks would look like as those loans start to come up for maturity or repricing .
Manan Gosalia: Great, thank you.
Manan Gosalia: Great, thank you.
Lee Smith: And then I would just add to what Joseph said. I think the two key points that he made, first of all, was we haven't seen any slowdown in liquidity, you know, looking at the par payoffs we experienced in Q4. So that's number one. Number two, you know, obviously the work we did in 2024, where we re-underwrote that book, and took both WRAY and credit marks, and we had, you know, the $900 million of charge-offs. But the other thing, as well as sort of as we look forward, you know, we have started looking at, you know, what sort of exposure might we have to the fines, violations, liens.
Lee Smith: And then I would just add to what Joseph said. I think the two key points that he made, first of all, was we haven't seen any slowdown in liquidity, you know, looking at the par payoffs we experienced in Q4. So that's number one. Number two, you know, obviously the work we did in 2024, where we re-underwrote that book, and took both WRAY and credit marks, and we had, you know, the $900 million of charge-offs. But the other thing, as well as sort of as we look forward, you know, we have started looking at, you know, what sort of exposure might
Speaker #8: Okay . Great .
Speaker #4: Thank you . And and then I'll would just add to what Joseph said I think I think the the two key points that he made , first of all was we haven't seen any slowdown in liquidity .
Speaker #4: You know , looking looking at the par pay offs . We experienced in , in Q4 . So that's number one . Number two , you know , obviously the work we did in 2024 where we're underwrote that book and took both Ray and credit marks .
Speaker #4: And we had , you know , the 900 million of charge offs . But the other , as well thing as sort of as we look forward , you know , we have started looking at , you know , what what sort of exposure might we have to the fines violations We're just , liens .
we have to the fines, violations, liens.
Lee Smith: We're just not and we're not seeing much as it relates to that tied to our portfolio. We don't have much exposure. There was a landlord list that came out recently that we took a look at, and again, you know, we don't have a significant exposure there either. And we have the annual financial statements that we collect and, you know, as I mentioned, we're 93 percent of the way through the 2024 financials, and 80 percent are stable, 7 percent have improved, 13 percent have deteriorated. So the vast majority are stable or improving. So there's a lot of different things we're doing to triangulate everything as it relates to that portfolio.
We're just not and we're not seeing much as it relates to that tied to our portfolio. We don't have much exposure. There was a landlord list that came out recently that we took a look at, and again, you know, we don't have a significant exposure there either. And we have the annual financial statements that we collect and, you know, as I mentioned, we're 93 percent of the way through the 2024 financials, and 80 percent are stable, 7 percent have improved, 13 percent have deteriorated. So the vast majority are stable or improving. So there's a lot of different things we're doing to triangulate everything as it relates to that portfolio.
Speaker #4: not and we're not seeing much as it relates to that tied to our portfolio . We don't have much exposure . There was a landlord list that came out recently that we took a look at .
Speaker #4: again , you And know , we don't have significant exposure there either . And we have the annual financial statements that that we collect .
Speaker #4: And , you know , as I mentioned , we're 93% of the way through the 24 financials and 80% are stable , 77% of improved , 13% of deteriorated .
Speaker #4: So the vast majority are stable or improving . So there's a lot of different things we're doing to triangulate everything as it relates to that portfolio
Manan Gosalia: Great. Thank you both.
Manan Gosalia: Great. Thank you both.
Operator: Our next question will come from the line of Bernard Von Lazicki with Deutsche Bank. Please go ahead.
Operator: Our next question will come from the line of Bernard Von Lazicki with Deutsche Bank. Please go ahead.
Speaker #4: .
Speaker #8: both Great . you Thank .
Bernard Von Lazicki: Hey, guys, good morning. Just on that borrower that went through the bankruptcy process, Lee, you know, can you just update us on some main takeaways, like on the economics, how much of the loan you have left? I think you mentioned some of the sales you had on there. It seems like it's mostly reserved for already from your prepared remarks. The new yields, any thoughts on the improved credit profile? Any additional funding provided? Just any color you can share on that process, on that loan position.
Bernard Von Gizycki: Hey, guys, good morning. Just on that borrower that went through the bankruptcy process, Lee, you know, can you just update us on some main takeaways, like on the economics, how much of the loan you have left? I think you mentioned some of the sales you had on there. It seems like it's mostly reserved for already from your prepared remarks. The new yields, any thoughts on the improved credit profile? Any additional funding provided? Just any color you can share on that process, on that loan position.
Speaker #1: next Our question will come from the line of Bernhard von Gizycki with Deutsche Bank . Please go ahead .
Speaker #9: Good Hey guys . morning . Just on that bar that went through the bankruptcy process , Lee , can you just update us on some main takeaways like on the economics ?
Speaker #9: How much of the loan you have left ? I think you mentioned some of the sales you had on there . It seems like it's mostly reserved already from your for prepared remarks , the new yield .
Speaker #9: Any thoughts on the improved profile ? credit Any provided ? additional funding can Just any share color you on that process on that loan position ?
Lee Smith: Yeah. So first of all, as we've said before, we do not get into the specifics as it relates to customer loans, deals, and transactions. We just don't do that in a public forum. I think what I would say and sort of just reemphasize is the auction was completed, it was confirmed, and we expect that to close before the end of Q1. You know, what we've got in all of those loans today are in our non-accrual balance. And you know, there's probably about $450+ million of non-accruals as it relates to that particular bankruptcy case. And anything that we do going forward would be an accruing loan.
Lee Smith: Yeah. So first of all, as we've said before, we do not get into the specifics as it relates to customer loans, deals, and transactions. We just don't do that in a public forum. I think what I would say and sort of just reemphasize is the auction was completed, it was confirmed, and we expect that to close before the end of Q1. You know, what we've got in all of those loans today are in our non-accrual balance. And you know, there's probably about $450+ million of non-accruals as it relates to that particular bankruptcy case.
Speaker #4: Yeah . So so first , as we've said of all before , we do not get into the specifics as it relates to customer loans and deals transactions .
Speaker #4: We just don't do that in a public forum . I think what I would say sort of and just reemphasize is the the auction was was completed , it confirmed and we expect that to close before the end of the first quarter .
Speaker #4: You know what ? We've got in of those all loans today are in our non-accrual balance . And , you know , there's there's there's there's probably about 450 plus million of of of of Non-accruals as it relates to that particular bankruptcy case .
And anything that we do going forward would be an accruing loan.
Lee Smith: So, I think that's how I would look at it. As I said in my prepared remarks, everything related to that bankruptcy, so any additional charge-offs or that were needed, we took in Q4, so there is nothing that is gonna be taken in Q1 as it relates to that, because we took what we needed to do in Q4 and previous quarters.
So, I think that's how I would look at it. As I said in my prepared remarks, everything related to that bankruptcy, so any additional charge-offs or that were needed, we took in Q4, so there is nothing that is gonna be taken in Q1 as it relates to that, because we took what we needed to do in Q4 and previous quarters.
Speaker #4: And anything that we do going forward would, would be, would be in accruing loan. So I, that's how I think would look at it.
Speaker #4: And as I said in my prepared remarks , everything related to that bankruptcy . So any additional charge offs or that were needed , we in the fourth took quarter .
Speaker #4: So there is nothing that is going to be taken in Q1 as it relates to that , because we , we , we took what we needed to do in the in fourth quarter and previous quarters .
Joseph Otting: Yeah, and
Joseph Otting: Yeah, and
Bernard Von Lazicki: Thanks for that.
Bernard Von Gizycki: Thanks for that.
Joseph Otting: In addition to Lee's comment, I would just add, you know, there were very-- we were almost on top of the mark for where we knew the bid was. So there wasn't a material adds to reserves for that particular transaction. But you can also run the math of, like, you have a non-performing loan of that dollar amount, and you're gonna turn that into a performing loan. It obviously is, will be positive from a net interest income perspective.
Joseph Otting: In addition to Lee's comment, I would just add, you know, there were very-- we were almost on top of the mark for where we knew the bid was. So there wasn't a material adds to reserves for that particular transaction. But you can also run the math of, like, you have a non-performing loan of that dollar amount, and you're gonna turn that into a performing loan. It obviously is, will be positive from a net interest income perspective.
Speaker #3: Yeah . And in addition to would just add , you know , there I were we were we very were almost on the top of mark for where we knew the the , bid was there .
Speaker #3: wasn't a material add to reserves for that transaction . So particular But you also math run the like you have of a non-performing loan of dollar amount that going to into a performing loan .
Speaker #3: turn that It and you're obviously is be positive will from a net income interest perspective .
Bernard Von Lazicki: Great. Thanks for that. And then just on rent-regulated portfolio, on slide 19, the $4.3 billion of criticized and classified. I'm just wondering, of the $1.9 billion, how much of that has repriced as of today? And what percentage does that go to by the end of 2026? And I'm just wondering, similar repricing for that $2.4 billion of the special mention loans.
Bernard Von Gizycki: Great. Thanks for that. And then just on rent-regulated portfolio, on slide 19, the $4.3 billion of criticized and classified. I'm just wondering, of the $1.9 billion, how much of that has repriced as of today? And what percentage does that go to by the end of 2026? And I'm just wondering, similar repricing for that $2.4 billion of the special mention loans.
Speaker #9: Great, thanks. Then, just on the regulated portfolio—on slide 19, the criticized and, I'm wondering, I'm classified—$4.3 billion of the $1.9 billion, how much of a percentage is that? And what repriced as of today—just of that—how much of that has repriced as of today?
Speaker #9: by the go to end And of 2026 ? wondering , I'm just repricing for similar 2.4 billion of the special mentioned loans .
Lee Smith: Yeah. So, I'm looking at the $4.3 billion in total. 54% of it is already repriced, and then another 36% of that will reprice within the next 18 months. So 90% of it has already repriced or will have repriced in the next 18 months.
Lee Smith: Yeah. So, I'm looking at the $4.3 billion in total. 54% of it is already repriced, and then another 36% of that will reprice within the next 18 months. So 90% of it has already repriced or will have repriced in the next 18 months.
Speaker #4: So so I'm Yeah . looking at the 4.3 . Billion in total , 54% of it has already repriced . And then another 36% of that will reprice within the next 18 months .
Speaker #4: So 90% of it has already repriced or will have repriced in the next 18 months .
Bernard Von Lazicki: Okay, great. Thanks for taking my questions.
Bernard Von Gizycki: Okay, great. Thanks for taking my questions.
Operator: Our next question will come from the line of Jared Shaw with Barclays. Please go ahead.
Operator: Our next question will come from the line of Jared Shaw with Barclays. Please go ahead.
Speaker #9: great . Thanks for taking my Okay , questions .
John Rowe: Hi, this is John Rowe in for Jared.
John Rowe: Hi, this is John Rowe in for Jared.
Speaker #1: Our next question will come from the line of Jared Shore with Barclays. Please go ahead.
Lee Smith: Hey, John.
Lee Smith: Hey, John.
John Rowe: Just thinking about the new loans being added to the balance sheet in C&I, and then with CRE origination starting back up again, what the new, like, roll-on yield is for those and the floating versus fixed mix of those loans?
John Rowe: Just thinking about the new loans being added to the balance sheet in C&I, and then with CRE origination starting back up again, what the new, like, roll-on yield is for those and the floating versus fixed mix of those loans?
Speaker #10: Hi, this is John Rowe. I'm for Jared. Maybe just thinking about the new loans being added to the balance sheet and CNI.
Speaker #10: And then with a CRE origination starting back up again , what the new role on yield is for those . And the floating versus fixed mix of those loans .
Lee Smith: Yeah. Yeah. So, the C&I loans, so we've obviously got a number of C&I verticals, and the loans are coming on at a spread to SOFR of anywhere from 175 to 300. On a blended basis, you're probably in that, you know, 230 basis point range. As we're looking at the new CRE growth, I would say that the spread to SOFR on those loans is more like 200 to 225 basis points. So that's how I would think about the spreads for the new originations.
Lee Smith: Yeah. Yeah. So, the C&I loans, so we've obviously got a number of C&I verticals, and the loans are coming on at a spread to SOFR of anywhere from 175 to 300. On a blended basis, you're probably in that, you know, 230 basis point range. As we're looking at the new CRE growth, I would say that the spread to SOFR on those loans is more like 200 to 225 basis points. So that's how I would think about the spreads for the new originations.
Speaker #4: Yeah . Yeah . So the the CNI . loans got a So we've number of CNI verticals and , and the , the , the loans are coming on at a spread to sofr of anywhere from 175 to 300 on a blended basis .
Speaker #4: You probably in that , you know , 230 range , 230 basis point range as we as we're looking at the new CRE growth , I would say that the spread to Sofr on those loans is more like 200 to 225 basis points .
John Rowe: Okay, great. Thank you for that. And then just thinking ahead, to the governor election, later this year in New York, I guess, first, do you expect any potential action on the 2019 law change, related to rent-regulated in advance of that? And, I guess just broader thoughts on, what the election, could mean for that.
John Rowe: Okay, great. Thank you for that. And then just thinking ahead, to the governor election, later this year in New York, I guess, first, do you expect any potential action on the 2019 law change, related to rent-regulated in advance of that? And, I guess just broader thoughts on, what the election, could mean for that.
Speaker #4: So that's how I would think about the spreads for the new originations .
Speaker #10: you for Great . Thank Okay . that . And then just thinking ahead to the governor election later this year in New York , any I guess first , do you expect any potential action on the 2019 law change related to rent in advance of regulated that ?
Joseph Otting: Yeah, yeah, you know, I think, you know, that's something that'll take its ordinary course. On the 2019 legislation, you know, I think there's, you know, now that we've had a number of years to kind of look back on that, I think there are, you know, certain parts of that, that I think there could be, you know, common ground on how do we fix the issue. And one of the areas is these ghost units, where the legislation effectively made it uneconomic to remodel units that are vacated. And so what you've had is a number of instances where landlords just keep them vacant. Those are estimated, you know, 50,000 or 60,000 units.
Joseph Otting: Yeah, yeah, you know, I think, you know, that's something that'll take its ordinary course. On the 2019 legislation, you know, I think there's, you know, now that we've had a number of years to kind of look back on that, I think there are, you know, certain parts of that, that I think there could be, you know, common ground on how do we fix the issue. And one of the areas is these ghost units, where the legislation effectively made it uneconomic to remodel units that are vacated.
Speaker #10: And just broader I guess thoughts on what the election could mean for that ?
Speaker #3: You know , Yeah . I think , you know , that's something take that'll its ordinary course on the 2019 , you know , legislation .
Speaker #3: I think there's a, you know, now that we've had a number of years to kind of look back on that, I think there are certain parts of that that I think there could be, you know, common ground on.
Speaker #3: How do we fix the issue ? And one of the areas is these ghost units where the , legislation effectively made it uneconomic to remodel units that are vacated .
And so what you've had is a number of instances where landlords just keep them vacant. Those are estimated, you know, 50,000 or 60,000 units.
Speaker #3: So what you've had is instances where a number of landlords just keep them vacant. Those are estimated at 50,000 or 60,000 units.
Joseph Otting: And so I think, you know, there's a lot of talk about, is there an economic model that could revise that rule the way it was written, to make those available to come back on the market and reimburse the owners? But the rest of that, I think, you know, we're gonna have to see, you know, ultimately, you know, what direction that takes and how much discussion. I do know there's a lot of dialogue now occurring between, you know, property managers, owners of properties in the city. And hopefully, you know, we all, you know, feel that, you know, we want people to live in safe and sound, you know, environments and are supportive of, you know, continued, you know, correction of any violations amongst our portfolio. We're out watching that very closely.
And so I think, you know, there's a lot of talk about, is there an economic model that could revise that rule the way it was written, to make those available to come back on the market and reimburse the owners? But the rest of that, I think, you know, we're gonna have to see, you know, ultimately, you know, what direction that takes and how much discussion. I do know there's a lot of dialogue now occurring between, you know, property managers, owners of properties in the city. And hopefully, you know, we all, you know, feel that, you know, we want people to live in safe and sound, you know, environments and are supportive of, you know, continued, you know, correction of any violations amongst our portfolio. We're out watching that very closely.
Speaker #3: And and so I think , you there's a lot of talk about is there an economic model that could revise that rule the way it was written to make those available to come back on the market and reimburse the but the owners , know rest of think that , I see , you have to , ultimately , you know , how what direction that takes and how much discussion .
Speaker #3: do know I there's a lot of dialogue now occurring between , you know , property managers , owners of properties in the city and hopefully , you know , we all feel that we want people to live in safe and sound .
Speaker #3: You know , environments in are supportive of , you know , continued , you know , correction of any violations amongst our portfolio .
Joseph Otting: You know, we do expect borrowers, when they have violations, to cure those.
You know, we do expect borrowers, when they have violations, to cure those.
Speaker #3: We're now watching that very closely. And, you know, we do expect borrowers, when they have violations, to cure those.
John Rowe: Okay, thank you.
John Rowe: Okay, thank you.
Operator: Our next question will come from the line of Chris McGrady with KBW. Please go ahead.
Operator: Our next question will come from the line of Chris McGrady with KBW. Please go ahead.
Speaker #10: Thank Okay . you .
Chris McGrady: Oh, great. Good morning.
Chris McGratty: Oh, great. Good morning.
Lee Smith: Hi, Chris.
Lee Smith: Hi, Chris.
Chris McGrady: Good morning.
Chris McGratty: Good morning.
Speaker #1: Our next question will come from the line of Chris Mcgratty with KBW . Please go ahead .
Lee Smith: Hi, Chris.
Lee Smith: Hi, Chris.
Chris McGrady: Good morning. Maybe for you, the $1.8 billion of par payoffs, I think it was $1.3 billion or so last quarter. I guess my question is degree of confidence in the updated balance sheet, especially if the forward curve comes through and you get a couple of cuts and maybe prepay pick up a bit. Thanks.
Chris McGratty: Good morning. Maybe for you, the $1.8 billion of par payoffs, I think it was $1.3 billion or so last quarter. I guess my question is degree of confidence in the updated balance sheet, especially if the forward curve comes through and you get a couple of cuts and maybe prepay pick up a bit. Thanks.
Speaker #11: Hi , Chris .
Speaker #3: Good morning .
Speaker #4: Chris .
Speaker #12: Good morning . Maybe for you , the billionaire to pay , I think was a billion three or so last quarter . I guess my question is degree of confidence in the updated balance sheet , especially if the forward curve comes through and you get a couple of cuts and maybe prepays pick up a bit next .
Lee Smith: Yeah, I mean, you know, I think we feel good about the par payoffs sort of continuing as we move forward now, you know, as Joseph mentioned, when we came into 2025, we thought that the par payoffs would be around sort of maybe $800 million on average a quarter. And we've seen in excess of $1 billion a quarter in 2025. There's a lot of demand out there from other financial institutions and the GSEs. And we think that that will continue in 2026. What I would say, Q1, seasonality-wise, is typically the lowest quarter for par payoffs, as we saw in 2025, and then it sort of picks up Q2, Q3, Q4.
Lee Smith: Yeah, I mean, you know, I think we feel good about the par payoffs sort of continuing as we move forward now, you know, as Joseph mentioned, when we came into 2025, we thought that the par payoffs would be around sort of maybe $800 million on average a quarter. And we've seen in excess of $1 billion a quarter in 2025. There's a lot of demand out there from other financial institutions and the GSEs. And we think that that will continue in 2026. What I would say, Q1, seasonality-wise, is typically the lowest quarter for par payoffs, as we saw in
Speaker #4: Yeah , I mean , you know , I think we feel we feel good about the , the off sort pop of continuing as we move forward .
Speaker #4: Now , you know , as Joseph mentioned , when we came into 25 , we thought that the PA payoffs would be around sort of maybe 800 million on average , a quarter .
Speaker #4: And we've seen in excess of $1 billion in in 2025 . There's a lot of demand out there from other financial institutions . And and the get and we we we think that that will continue What I in 26 .
Speaker #4: would say Q1 seasonality wise is typically the the lowest quarter for PA payoffs , as we saw in 2025 . And then it sort of picks up Q2 , Q3 , Q4 , and we expect to sort of see a similar a similar thing in 2020 .
2025, and then it sort of picks up Q2, Q3, Q4.
Lee Smith: And we expect to sort of see a similar thing in 2020, in 2026. Look, I think the forecast we put forward and the guidance we were using, the rate curve as of the middle of December, it had 2 cuts, June and September. A decline in rate environment is only going to help those borrowers refinance. So yeah, I mean, look, I think we feel that we should be in that billion-dollar zip code on a quarter on an average basis plus, as we move through 2020, 2026.
And we expect to sort of see a similar thing in 2020, in 2026. Look, I think the forecast we put forward and the guidance we were using, the rate curve as of the middle of December, it had 2 cuts, June and September. A decline in rate environment is only going to help those borrowers refinance. So yeah, I mean, look, I think we feel that we should be in that billion-dollar zip code on a quarter on an average basis plus, as we move through 2020, 2026.
Speaker #4: In 2026 . And look , I think the the forecast , we of of put forward and the we guidance were using , the rate curve as of the middle of December , it had two cuts , June and September , and a declining rate environment is only going to help those borrowers refinance .
Speaker #4: So so yeah , I mean , look , I think we feel that we should be in that billion dollar zip code on a quarter on an average basis .
Chris McGrady: Okay, great. And then-
Chris McGratty: Okay, great. And then-
Joseph Otting: Hey, Chris, I would just add that, you know, we've, we've declared that we're going to begin to originate some CRE, and this isn't a big dollar amount. We're talking about $2 billion in originations in a year, just as if we've seen the acceleration in the paydowns. And obviously, that won't be New York City, you know, multifamily. But as we look across our franchise in, you know, Michigan, California, Florida, those markets, sourcing opportunities in the commercial real estate will help to offset some of that, that outflow.
Joseph Otting: Hey, Chris, I would just add that, you know, we've, we've declared that we're going to begin to originate some CRE, and this isn't a big dollar amount. We're talking about $2 billion in originations in a year, just as if we've seen the acceleration in the paydowns. And obviously, that won't be New York City, you know, multifamily. But as we look across our franchise in, you know, Michigan, California, Florida, those markets, sourcing opportunities in the commercial real estate will help to offset some of that, that outflow.
Speaker #4: Plus, as we move through 2020, 2026.
Speaker #12: Okay , great . And then .
Speaker #3: , Chris , I would just add that , you know , we've declared that we're going to begin to originate some CRE . And this amount .
Speaker #3: , Chris , I would just add that , you know , we've declared that we're going to begin to originate some CRE . And this amount . isn't a big dollar We're talking about a couple billion dollars in originations in a year .
Speaker #3: Just as if we've seen the acceleration in the Paydowns . And obviously that won't be New York City multifamily . But as we look across our franchise and , you know , Michigan , California , Florida , those markets sourcing opportunities and the commercial real estate will help to offset some of that , that outflow .
Chris McGrady: Great. Thanks, Joseph. And my follow-up, I guess, two parts, Lee, on the model. The risk-weighted assets, given the par payoffs and the non-accrual resolution plus the growth, how do we think about just the cadence of RWA growth over the year? And then also a help on the first quarter share count with the warrants and everything. Thanks.
Chris McGratty: Great. Thanks, Joseph. And my follow-up, I guess, two parts, Lee, on the model. The risk-weighted assets, given the par payoffs and the non-accrual resolution plus the growth, how do we think about just the cadence of RWA growth over the year? And then also a help on the first quarter share count with the warrants and everything. Thanks.
Speaker #12: Great . Thanks , Joseph . And my follow up , I guess two parts on the model , the risk weighted assets , given the the PA pay offs and the Nonaccrual resolution , plus the growth , how do we think about just the cadence of RWA growth over the year ?
Lee Smith: Yeah, let me start with the share count. So in Q4, the share count was 459 million. And then, if you're looking at the sort of 2026 and 2027, you should be using around 473 million, and then 479 million shares. So that's how I would think about the share count. In terms of the risk-weighted assets, so you got to remember that as it relates to the multifamily and CRE book, first of all, the non-accruals are 150 percent risk-weighted. Anything that is sort of substandard, special mention, is 100 percent risk-weighted. And so C&I loans coming on are typically 100 percent risk-weighted.
Lee Smith: Yeah, let me start with the share count. So in Q4, the share count was 459 million. And then, if you're looking at the sort of 2026 and 2027, you should be using around 473 million, and then 479 million shares. So that's how I would think about the share count. In terms of the risk-weighted assets, so you got to remember that as it relates to the multifamily and CRE book, first of all, the non-accruals are 150 percent risk-weighted. Anything that is sort of substandard, special mention, is 100 percent risk-weighted.
Speaker #12: And then, also, help on the first quarter share count with the warrants and everything? Thanks.
Speaker #4: Yeah . start Let me with the let me start with the share count . So in in Q4 , the share count was 459 million .
Speaker #4: And then in in if you're looking at the sort of 26 and 27 , you should be using around 473 million and then 479 million shares .
Speaker #4: So that's how I would think about the the share count in terms of the , the risk weighted assets . So you got to remember that as it relates to the , the multifamily and CRE book , first of all , the Non-accruals are 150% risk weighted .
And so C&I loans coming on are typically 100 percent risk-weighted.
Speaker #4: Anything that is sort of substandard special mention is 100% risk-weighted. And so C&I loans coming on are typically 100% risk-weighted.
Lee Smith: But it's not as if you are really losing too much. We've got, obviously, the 50% risk weight in our multifamily for the performers. But as we've mentioned, we're seeing a lot of those substandard loans pay off at 100%. We're looking to reduce our non-accruals, which are 150%. So while we use, we use capital as we grow the balance sheet, it's actually not as punitive as you may think for those reasons.
But it's not as if you are really losing too much. We've got, obviously, the 50% risk weight in our multifamily for the performers. But as we've mentioned, we're seeing a lot of those substandard loans pay off at 100%. We're looking to reduce our non-accruals, which are 150%. So while we use, we use capital as we grow the balance sheet, it's actually not as punitive as you may think for those reasons.
Speaker #4: But it's not as if you are really losing too much. We've got, obviously, the 50% risk weighting on multifamily for the performers.
Speaker #4: But as we've mentioned , we're seeing a lot of those substandard loans pay off that are 100% . We're to looking reduce our which non-accruals , are 150% .
Speaker #4: So while we use , we use capital as we grow the balance sheet , it's actually not as punitive as you may think for those reasons .
Chris McGrady: That's helpful. Thank you.
Chris McGratty: That's helpful. Thank you.
Operator: Our next question will come from the line of Janet Lee with TD Cowen. Please go ahead.
Operator: Our next question will come from the line of Janet Lee with TD Cowen. Please go ahead.
Speaker #12: That's helpful . Thank you .
Janet Lee: Good morning.
Janet Lee: Good morning.
Speaker #1: Our next question will come from the line of Janet Lee with TD Cowan . Please go ahead .
Joseph Otting: Good morning, Janet.
Joseph Otting: Good morning, Janet.
Lee Smith: Hi, Janet.
Lee Smith: Hi, Janet.
Janet Lee: Appreciate the slide 11, where you indicated an average deal size for C&I being around $25 million, which is on a larger side for a typical regional bank, but probably not for you guys. Are some of these syndications, and are you able to share any other metrics underwriting, just given that it's a newer segment for Flagstar?
Janet Lee: Appreciate the slide 11, where you indicated an average deal size for C&I being around $25 million, which is on a larger side for a typical regional bank, but probably not for you guys. Are some of these syndications, and are you able to share any other metrics underwriting, just given that it's a newer segment for Flagstar?
Speaker #13: Good morning .
Speaker #3: morning . Good
Speaker #14: Janet Hey , .
Speaker #13: Appreciate the slide 11 . Where you indicated an average deal size for CNI being around 25 million . Which is on a larger side for a typical regional bank , but probably not for you guys .
Speaker #13: Are some of these syndications and are you able to share any other metrics on the underwriting ? Just given that it's a newer segment for Flagstar ?
Joseph Otting: So, Janet, I think that we, you know, if you go back and look at slide seven, and you know, the top two businesses is where we're seeing most of the growth now in the specialized industries, in the corporate, regional, commercial bank. So each of these business have a little bit different characteristics. But the commercial, corporate, and regional, we target kind of mid to upper middle market and lower corporate. And in those particular categories, you know, we shoot in a lot of instances, that we are the primary bank of those relationships that we're generating. So it is really a kind of a onesie, two, or three bank where we would, you know, look to lead that.
Joseph Otting: So, Janet, I think that we, you know, if you go back and look at slide seven, and you know, the top two businesses is where we're seeing most of the growth now in the specialized industries, in the corporate, regional, commercial bank. So each of these business have a little bit different characteristics. But the commercial, corporate, and regional, we target kind of mid to upper middle market and lower corporate. And in those particular categories, you know, we shoot in a lot of instances, that we are the primary bank of those relationships that
Speaker #3: So , so , Janet , I think that we if you go back and and look at slide seven and you know , the top two businesses is where we're seeing most of the growth now in the specialized industries , in the corporate , regional , commercial bank and and so each of these businesses have a little bit different characteristics .
Speaker #3: But the commercial , corporate and regional , we target kind of mid to upper middle market and lower corporate and and those particular categories .
we're generating. So it is really a kind of a onesie, two, or three bank where we would, you know, look to lead that.
Speaker #3: We shoot in a lot of instances that we are the primary bank of those relationships that we're generating . So it is really a kind of a onesie .
Joseph Otting: In the specialized industries group, those are 12 industry verticals, and as we've come into those, we've hired, you know, highly experienced people that have been in a lot of these industries for 25 or 35 years. You know, we're getting into bilateral and some participations, but our goal in those instances also is to be in smaller bank groups where it's like oil and gas or healthcare. Very few of those where you would have 20 banks and, you know, we're just one of banks, you know, making a $30 million commitment to the transaction. That isn't where our focus has been. Where we've entered into transactions like that, our people have direct relationships with the management, and it's obviously our goal to, you know, swim up the fish ladder, so to speak, in the importance to those companies.
In the specialized industries group, those are 12 industry verticals, and as we've come into those, we've hired, you know, highly experienced people that have been in a lot of these industries for 25 or 35 years. You know, we're getting into bilateral and some participations, but our goal in those instances also is to be in smaller bank groups where it's like oil and gas or healthcare. Very few of those where you would have 20 banks and, you know, we're just one of banks, you know, making a $30 million commitment to the transaction. That isn't where our focus has been. Where we've entered into transactions like that, our people have direct relationships with the management, and it's obviously our goal to, you know, swim up the fish ladder, so to speak, in the importance to those companies.
Speaker #3: 2 or 3 bank where we would look to lead that . And the specialized Industries group , those are 12 industry verticals . And as we've come into those , we've hired highly experienced people that have been in a lot of these industries for 25 or 35 years .
Speaker #3: You know , we're getting into bilateral and some participations , but our goal in those instances also is to be in smaller bank groups where it's like oil and gas or health care .
Speaker #3: Very few—those were, you would have 20, and banks were just one of those banks making a $30 million commitment to the transaction.
Speaker #3: That isn't where our focus has been , where we've entered into transactions like that . Our people have direct relationships with the management , and it's obviously our goal to swim up the fish ladder , so to speak , in the importance to those companies .
Joseph Otting: So we, you know, it's highly diversified the originations. And then when you get into the equipment finance, those are, those are usually, you know, multi bank transactions, but we may be the only bank financing their equipment finance. And then in the asset base, we also look to be, you know, the primary bank in those transactions. So it, it's a really, you know, it's business by business, is the way I would describe that.
So we, you know, it's highly diversified the originations. And then when you get into the equipment finance, those are, those are usually, you know, multi bank transactions, but we may be the only bank financing their equipment finance. And then in the asset base, we also look to be, you know, the primary bank in those transactions. So it, it's a really, you know, it's business by business, is the way I would describe that.
Speaker #3: So we , you know , it's highly diversified . The originations . And then when you get into the equipment finance , those are those are usually multi bank transactions .
Speaker #3: But we may be the only bank financing their equipment finance. And then, in the asset base, we also look to be the primary bank in those transactions.
Lee Smith: Yeah, the other thing, Janet, that I would, first of all, on the credit side, you know, as Joseph has mentioned, we're not. We've seen really good growth on the C&I side, but it's not because we're taking outsized positions in single names. Far from it, you know, the average loan size is sort of $25 to 30 million. And so we're kind of managing the risk just in terms of the deal size. You know, credit has final say on all loans that come onto the balance sheet. We have a first line review within the business as it relates to all credits that come on. Then you have the second line credit, and then we have loan review, you know, in the third line.
Lee Smith: Yeah, the other thing, Janet, that I would, first of all, on the credit side, you know, as Joseph has mentioned, we're not. We've seen really good growth on the C&I side, but it's not because we're taking outsized positions in single names. Far from it, you know, the average loan size is sort of $25 to 30 million. And so we're kind of managing the risk just in terms of the deal size. You know, credit has final say on all loans that come onto the balance sheet. We have a first line review within the business as it relates to all credits that come on.
Speaker #3: So, it's really, you know, it's business by business is the way I would describe that.
Speaker #4: The the other thing , Janet , that I would first of all , on credit the side , you know , as Joseph has mentioned , we're not we've seen really good growth on the CNI side , but it's not because we're taking outsized positions in single names .
Speaker #4: from it . You know , Far the average , you loan size is sort of 25 , 30 million . And so we're kind of managing the risk just in of , terms of of the deal size , you know , credit has say on on all final loans that come onto the onto the balance sheet .
Then you have the second line credit, and then we have loan review, you know, in the third line.
Speaker #4: We have a first line review within the business as it relates to all credits that come on. Then you have second line, the credit.
Lee Smith: So, you know, we have a very, very robust process in place as it relates to assessing the quality of these loans before we bring them on. And then a couple of other things that I would say. You know, we've talked about the spreads that we're typically seeing, so we're not giving the business away. We're sort of averaging a spread to SOFR of 225, 230. And so I think that's a good indication that, again, we're not giving it away or doing sort of cheap deals. And we're typically seeing a 70% utilization on these facilities as well, and I think that's another important metric that is worth emphasizing.
So, you know, we have a very, very robust process in place as it relates to assessing the quality of these loans before we bring them on. And then a couple of other things that I would say. You know, we've talked about the spreads that we're typically seeing, so we're not giving the business away. We're sort of averaging a spread to SOFR of 225, 230. And so I think that's a good indication that, again, we're not giving it away or doing sort of cheap deals. And we're typically seeing a 70% utilization on these facilities as well, and I think that's another important metric that is worth emphasizing.
Speaker #4: And then we have loan review . You know in the third line . So you know , we have a very , very robust process in place as it relates to assessing the the quality of these loans before , we we before we bring them on .
Speaker #4: couple of other that that things then a I would And say , you know , we've talked about the spreads that we're typically seeing .
Speaker #4: So we're not we're not giving the business away . We're sort of averaging a spread to Sofa of 225 to 30 . And so I think that's a good indication that , again , we're not we're not giving it away or doing sort of cheap deals .
Speaker #4: And we're typically seeing a 70% utilization on these facilities as well . And I think that's another important metric that is worth emphasizing .
Janet Lee: Thank you. Thank you for the color. Just lastly, for a NIM guide of 240 to 260, which is a pretty wide range, I think you said also balance sheet is at a low point this quarter, and you're assuming 2 rate cuts. It's sort of the midpoint of that range where your baseline expectation is, what would put you at the higher end versus lower end? Thanks.
Janet Lee: Thank you. Thank you for the color. Just lastly, for a NIM guide of 240 to 260, which is a pretty wide range, I think you said also balance sheet is at a low point this quarter, and you're assuming 2 rate cuts. It's sort of the midpoint of that range where your baseline expectation is, what would put you at the higher end versus lower end? Thanks.
Speaker #13: Thank you . Thank you for the color . And just lastly , for for Nim . Guide of 240 to 260 , which is a pretty wide range .
Speaker #13: I think you said also balance sheet is at a low point . This quarter , and you're assuming two rate cuts . It's sort of the midpoint of that range where your baseline expectation is .
Lee Smith: Yeah, well, Janet, it's a good question. As you know, we have a lot of moving parts as it relates to the NIM improvements. And, you know, what I mean by that is, you know, on the asset side, you do have that multifamily and CRE runoff. And I mentioned that, if you look at what is running off, or what is resetting, I should say, or maturing in 2026, and there's about $5 billion, it has a weighted average coupon of less than 3.7%. So you've obviously got, you know, how much of that is gonna reset and stay, how much will ultimately pay off? You've got the C&I growth at the spreads that I mentioned.
Lee Smith: Yeah, well, Janet, it's a good question. As you know, we have a lot of moving parts as it relates to the NIM improvements. And, you know, what I mean by that is, you know, on the asset side, you do have that multifamily and CRE runoff. And I mentioned that, if you look at what is running off, or what is resetting, I should say, or maturing in 2026, and there's about $5 billion, it has a weighted average coupon of less than 3.7%. So you've obviously got, you know, how much of that is gonna reset and stay, how much will ultimately pay off?
Speaker #13: You would put that at the higher end. Thanks. Lower end.
Speaker #13: versus Yeah .
Speaker #4: Well Janet , it's it's a good question . As you know , we have a lot of moving parts as it relates to the Nim improvement .
Speaker #4: And you know what I mean by that is , you know , on on the asset side , you do have that multifamily and see a run off .
Speaker #4: And I mentioned that if you look at what is running off in , in , in what is resetting , I should say , or maturing in 26 .
Speaker #4: And there's about 5 billion . It has a weighted average coupon of less than 3.7% . So you've obviously got , you know , how much that is is going of to reset and much stay .
You've got the C&I growth at the spreads that I mentioned.
Speaker #4: Will how ultimately pay off. You've got the CNI growth at the spreads that are mentioned. We're going to be originating new CNI loans, as Joseph mentioned.
Lee Smith: We're gonna be originating new CRE loans, as Joseph mentioned. And then we also expect to continue to grow that consumer book, particularly by adding residential one to four mortgages to the balance sheet. And then on the funding side, we've done a really nice job of reducing core funding or core deposit costs in Q4 and 2025, and we will continue to do that. Even outside of the Fed cuts, by leveraging some of the opportunities we have as retail CDs mature, and we can roll them into lower cost CDs. And then obviously continuing to pay down wholesale borrowings, particularly the FHLB advances.
We're gonna be originating new CRE loans, as Joseph mentioned. And then we also expect to continue to grow that consumer book, particularly by adding residential one to four mortgages to the balance sheet. And then on the funding side, we've done a really nice job of reducing core funding or core deposit costs in Q4 and 2025, and we will continue to do that. Even outside of the Fed cuts, by leveraging some of the opportunities we have as retail CDs mature, and we can roll them into lower cost CDs. And then obviously continuing to pay down wholesale borrowings, particularly the FHLB advances.
Speaker #4: And then we also expect to to continue to grow that consumer book , particularly by adding 1 to 4 mortgages residential to the balance sheet .
Speaker #4: And then on the on the funding side , we've done a really nice job of reducing core funding or core deposit costs in in Q4 and 2025 .
Speaker #4: And we will continue to do that even outside of the Fed cuts by leveraging some of the opportunities we have as CDs mature, and we can roll them into lower-cost CDs.
Lee Smith: I think that's the focus for us in 2026, given the good work we've done bringing our broker deposits down to a level that is pretty consistent with other, with other banks. So you've got all of those sort of contribute to the NIM. And the final thing I should have added is obviously reducing our non-accrual loans, which we're intending on doing as well. So you've got all of those sort of moving pieces. They all contribute to the improving NIM, but that's why, you know, we've got that range, because you've got all those variables.
I think that's the focus for us in 2026, given the good work we've done bringing our broker deposits down to a level that is pretty consistent with other, with other banks. So you've got all of those sort of contribute to the NIM. And the final thing I should have added is obviously reducing our non-accrual loans, which we're intending on doing as well. So you've got all of those sort of moving pieces. They all contribute to the improving NIM, but that's why, you know, we've got that range, because you've got all those variables.
Speaker #4: And then obviously continuing to to pay down wholesale , particularly the club advances . I think that that's the focus for us in 26 , given the good work we've done bringing our brokered deposits a level down to is that pretty consistent with other with other banks .
Speaker #4: So you've got all of those sort of contribute to the Nim . And the final thing I should have added is obviously reducing our Non-accrual , which which were loans intending on doing as well .
Speaker #4: So you've got all of those sort of moving pieces , they all contribute to the improving name , but that's why , you know , we've got that range because you you've got all those variables .
Janet Lee: Thanks for all the color.
Janet Lee: Thanks for all the color.
Joseph Otting: Our next question will come from the line of David Smith with Truist Securities. Please go ahead.
Operator: Our next question will come from the line of David Smith with Truist Securities. Please go ahead.
Speaker #13: Thanks for the color .
David Smith: Hey, good morning.
David Smith: Hey, good morning.
Joseph Otting: Hi, David.
Joseph Otting: Hi, David.
Speaker #1: Our next question will come from the line of David Smith with Truist Securities . Please go ahead .
Lee Smith: Hi, David.
Lee Smith: Hi, David.
David Smith: On the C&I growth, just a clarifying question. You pointed to 125 relationship bankers doing 4 deals a year, so that would be 500 deals at an average deal size of $25 million, or $12.5 billion. What are the offsets bringing C&I growth down this year to $6 to $7.5 billion, if you're mostly done rightsizing legacy loans? I guess maybe is that like originations as opposed to like actual loans coming on the balance sheet, but it seems still to not quite foot to the 6, 7.5-
David Smith: On the C&I growth, just a clarifying question. You pointed to 125 relationship bankers doing 4 deals a year, so that would be 500 deals at an average deal size of $25 million, or $12.5 billion. What are the offsets bringing C&I growth down this year to $6 to $7.5 billion, if you're mostly done rightsizing legacy loans? I guess maybe is that like originations as opposed to like actual loans coming on the balance sheet, but it seems still to not quite foot to the 6, 7.5-
Speaker #15: Hey good morning .
Speaker #14: Hi , David . Hey , David .
Speaker #15: I'm the CNI growth . Just a clarifying question . You pointed to 125 relationship bankers doing four deals a year . So that would be 500 deals at an average deal size of 25 million , or 12.5 billion .
Speaker #15: What are the offsets bringing CNI down this growth year to 6 to 7.5 billion . If you're mostly done right loans I guess maybe .
Speaker #15: Is that like originations as opposed to like actual loans coming on the balance sheet ? But it seems still not not quite to foot to the 6.7.5 .
Joseph Otting: Well, David-
Joseph Otting: Well, David-
David Smith: -ramps or?
David Smith: -ramps or?
Joseph Otting: Yeah, David, you have to realize that that's the model we have with the people, but not everybody is gonna achieve that 100%.
Joseph Otting: Yeah, David, you have to realize that that's the model we have with the people, but not everybody is gonna achieve that 100%.
Speaker #15: Ramps are .
Speaker #3: Yeah . to David , you have realize that that's the model we have with but the people , everybody is going to achieve that 100% .
David Smith: Okay, so that's not an average. That's like the target or something?
David Smith: Okay, so that's not an average. That's like the target or something?
Joseph Otting: Well, no, it's our target, yes.
Joseph Otting: Well, no, it's our target, yes.
Speaker #15: Okay , that's not so an average . That's like the the the target or something .
David Smith: Okay, um-
David Smith: Okay, um-
Lee Smith: Yeah. Here's what I'll say. That's the target, but again, you know, that's if everything goes perfectly. Number 1. Number 2, while we're mostly done, I think in 2026, the one portfolio where you will see some additional runoff will be the ABL and dealer floor plan. I think there's still some additional sort of runoff there. And then, you know, with C&I loans, you, you're just gonna have the normal course, sort of, you know, pay downs and people using the line, not using the line, amortization. So you, you've kind of got that movement as well. And so I think all we're trying to-- what we're trying to provide people with here is, a lot of people have questioned our ability to grow C&I at the numbers that we've indicated.
Speaker #3: It's the—it's our target. Yes.
Lee Smith: Yeah. Here's what I'll say. That's the target, but again, you know, that's if everything goes perfectly. Number 1. Number 2, while we're mostly done, I think in 2026, the one portfolio where you will see some additional runoff will be the ABL and dealer floor plan. I think there's still some additional sort of runoff there. And then, you know, with C&I loans, you, you're just gonna have the normal course, sort of, you know, pay downs and people using the line, not using the line, amortization.
Speaker #15: Okay .
Speaker #4: If yeah here's what I say . That's the target . But again you know that's if everything goes perfectly number one . Number two while we're mostly done , I think in 26 , the one portfolio where you will see some additional run off will be the ABL and dealer floor plan , I think there's still some additional sort of run off there .
Speaker #4: And then , you know , we'd see an eye loan . You're just going to have the normal course sort of and , paydowns people using the line , not using the line amortization .
So you, you've kind of got that movement as well. And so I think all we're trying to-- what we're trying to provide people with here is, a lot of people have questioned our ability to grow C&I at the numbers that we've indicated.
Speaker #4: So you've kind of got that , that movement as well . so I think all we're trying to what we're trying to provide with people here is a lot of people have questioned our ability to grow .
Lee Smith: I think when you break it down like we have, when we're showing $3 billion of new commitments in Q4, $2 billion funded, and when we're showing the number of customer-facing bankers that we have, and what our expectation is, I think what we're just indicating is, look, this isn't as big a stretch as I think some people thought a few months ago.
I think when you break it down like we have, when we're showing $3 billion of new commitments in Q4, $2 billion funded, and when we're showing the number of customer-facing bankers that we have, and what our expectation is, I think what we're just indicating is, look, this isn't as big a stretch as I think some people thought a few months ago.
Speaker #4: CNI at the numbers that we've indicated . And I think when break it you down like we have when we're showing 3 billion of of new commitments in 2 billion funded , and when we're showing the number of customer facing bankers that we have and what our expectation is , I think what we're just indicating is , look , this isn't as big a stretch as I think some people thought a few months ago .
David Smith: Okay. And then just there's a lot of uncertainty, obviously, in the rate backdrop right now. We just got a new Fed chair nominated. Can you talk about what you see as the ideal rate backdrop for Flagstar when you think about, you know, the bank's asset sensitivity today, and how that evolves with your plan over the next year or two?
David Smith: Okay. And then just there's a lot of uncertainty, obviously, in the rate backdrop right now. We just got a new Fed chair nominated. Can you talk about what you see as the ideal rate backdrop for Flagstar when you think about, you know, the bank's asset sensitivity today, and how that evolves with your plan over the next year or two?
Speaker #15: Okay . And then just there's a lot of uncertainty , obviously , in the rate backdrop right now . We just got a new fed chair nominated .
Speaker #15: Can you talk about what you see as the ideal rate backdrop for Flagstar ? When you assets and sensitivity bank's know , the about , you think today and how that evolves with your plan over the next year or two ?
Lee Smith: Yeah, I would say we're, you know, we're pretty neutral from an interest rate sensitivity point of view. There is no doubt about it, though; a declining rate environment helps our multifamily borrowers. And so we think that that is beneficial. It will also, we believe, you'll see more mortgage activity as well. And so we have an active and very good mortgage business that we feel will benefit from in a declining rate environment. So, you know, we sort of call it that this business model hedge, that, even though from a balance sheet point of view, we're pretty neutral, the business model, there are benefits that we will enjoy in a declining rate environment.
Lee Smith: Yeah, I would say we're, you know, we're pretty neutral from an interest rate sensitivity point of view. There is no doubt about it, though; a declining rate environment helps our multifamily borrowers. And so we think that that is beneficial. It will also, we believe, you'll see more mortgage activity as well. And so we have an active and very good mortgage business that we feel will benefit from in a declining rate environment. So, you know, we sort of call it that this business model hedge, that, even though from a balance sheet point of view, we're pretty
Speaker #4: Yeah , say we're you know , we're pretty neutral from an interest rate sensitivity point of view . There is no doubt about it , though .
Speaker #4: A declining rate it helps our multifamily borrowers . And so we think that that is beneficial . It will also we believe you'll see more mortgage activity as well .
Speaker #4: And so we have a active and very good mortgage business we feel will benefit from in a declining rate environment . So , you know , we sort of call it this business model hedge that even though from a balance sheet point of view , we're pretty neutral , the business model there are benefits that we will enjoy in a declining rate environment .
neutral, the business model, there are benefits that we will enjoy in a declining rate environment.
David Smith: Is that a steeper curve still being better or just overall flatter, given how CR is indexed?
David Smith: Is that a steeper curve still being better or just overall flatter, given how CR is indexed?
Lee Smith: I think, yeah, you know, if the short end, because the way we think about multifamily, it's sort of the 5-year, and then obviously mortgages are the 10-year. So, you know, we'd be looking to sort of see an impact, you know, with a 5- and 10-year in particular, that would really benefit the multifamily and mortgage borrowers.
Lee Smith: I think, yeah, you know, if the short end, because the way we think about multifamily, it's sort of the 5-year, and then obviously mortgages are the 10-year. So, you know, we'd be looking to sort of see an impact, you know, with a 5- and 10-year in particular, that would really benefit the multifamily and mortgage borrowers.
Speaker #4: .
Speaker #15: that And is a steeper curve still being better or just overall flatter ? Given how as .
Speaker #14: I think I think ,
Speaker #4: Yeah , I think , you know , if short end because the way we think about multifamily , it's sort of the five year and then obviously mortgages are the ten year .
Speaker #4: So , you know , we'd be looking to sort of see an impact , you know , with a five and ten year in particular , that would really benefit the multifamily and mortgage borrowers .
David Smith: Thank you.
David Smith: Thank you.
Operator: Our next question will come from the line of Anthony Elian with J.P. Morgan. Please go ahead.
Operator: Our next question will come from the line of Anthony Elian with J.P. Morgan. Please go ahead.
Speaker #15: Thank you .
Anthony Elian: Hi, Lee. How are you thinking about NIM and NII specifically for Q1 after we back out the nine basis points and $20 million benefit you saw from the hedge gains?
Anthony Elian: Hi, Lee. How are you thinking about NIM and NII specifically for Q1 after we back out the nine basis points and $20 million benefit you saw from the hedge gains?
Speaker #1: Our next question will come from the line of Anthony Elian with JPMorgan. Please go ahead.
Speaker #16: Hi , Lee . How are you thinking about Nim and NII specifically for one ? Q after we back out the nine basis points and 20 million benefit you saw from the hedge gains ?
Lee Smith: Yeah, well, I'm not sort of, you know, I haven't and we haven't deliberately given sort of quarterly guidance. But I think what I would say is, as I mentioned in Q4, when you back out that one-time gain, we were at 2.05%, and you've seen a steady increase quarter-over-quarter. So we were up 14 basis points versus Q3. And our expectation is you will continue to see that NIM improvement quarter-over-quarter as we move through the year. So, you know, we're not getting sort of specific by quarter. We're giving that overall guidance for the year. But, I mean, just looking at that guidance, I think you can expect us to continue on that positive trajectory quarter-over-quarter.
Lee Smith: Yeah, well, I'm not sort of, you know, I haven't and we haven't deliberately given sort of quarterly guidance. But I think what I would say is, as I mentioned in Q4, when you back out that one-time gain, we were at 2.05%, and you've seen a steady increase quarter-over-quarter. So we were up 14 basis points versus Q3. And our expectation is you will continue to see that NIM improvement quarter-over-quarter as we move through the year. So, you know, we're not getting sort of specific by quarter.
Speaker #14: Yeah .
Speaker #4: Well , I'm not sort of haven't . haven't deliberately And we know , I you given sort of quarterly guidance . But I think what I would say is , as I mentioned in Q4 , when you back out that one time gain , we were at 2.05% and you've seen a steady increase quarter over quarter .
Speaker #4: So we were up 14 basis points versus Q3 . And our expectation is you will continue to see that Nim improvement quarter over quarter as we move through the year .
We're giving that overall guidance for the year. But, I mean, just looking at that guidance, I think you can expect us to continue on that positive trajectory quarter-over-quarter.
Speaker #4: So you know , we're not getting sort of specific by quarter . We're giving that overall guidance for the . But year I mean , just looking at that guidance , I think you can expect us to continue positive on that trajectory quarter over quarter .
Anthony Elian: Okay. And then on slide 11, so you're calling for year-end assets in the range of $93.5 to 95.5 billion. But if I stretch this out, how are you thinking about assets for 2027, just relative to the range that you gave last quarter of, I think it was $108 to 109 billion?
Anthony Elian: Okay. And then on slide 11, so you're calling for year-end assets in the range of $93.5 to 95.5 billion. But if I stretch this out, how are you thinking about assets for 2027, just relative to the range that you gave last quarter of, I think it was $108 to 109 billion?
Speaker #16: Okay . And then on slide 11 , so you're calling for year end assets in the range 93.5 to 95.5 billion . But if I stretch this out , how are you thinking about assets for 27 .
Lee Smith: Yeah, yeah. So we think that, the balance sheet at the end of 2027 will be sort of more around $103 billion.
Lee Smith: Yeah, yeah. So we think that, the balance sheet at the end of 2027 will be sort of more around $103 billion.
Speaker #16: Just relative to the range that you gave last quarter of, I think, $108 to $109 billion.
Speaker #14: Yeah .
Speaker #4: Yeah. So we think that the balance sheet at the end of '27 will be sort of more around $103 billion.
Anthony Elian: Thank you.
Anthony Elian: Thank you.
Operator: Our next question will come from the line of Matthew Brees with Stephens. Please go ahead.
Operator: Our next question will come from the line of Matthew Brees with Stephens. Please go ahead.
Speaker #16: Thank you .
Matthew Brees: Hey, good morning.
Matthew Breese: Hey, good morning.
Lee Smith: Good morning.
Lee Smith: Good morning.
Matthew Brees: Popular slide, slide eleven. I was focused on cash and securities. So cash balances are still a bit elevated at 6.7% of assets down this quarter. You know, maybe first, what drove lower cash balances? And then as we look ahead, what is the breakdown between cash growth and securities growth to get kind of that $2.5 billion midpoint of total growth there for the year?
Speaker #1: Our next question will come from the line of Matthew Bryce with Stephens . Please go ahead .
Matthew Breese: Popular slide, slide eleven. I was focused on cash and securities. So cash balances are still a bit elevated at 6.7% of assets down this quarter. You know, maybe first, what drove lower cash balances? And then as we look ahead, what is the breakdown between cash growth and securities growth to get kind of that $2.5 billion midpoint of total growth there for the year?
Speaker #12: Hey good morning .
Speaker #3: Good morning .
Speaker #14: I'm .
Speaker #12: Popular slide . Slide 11 .
Speaker #17: I was focused on cash and securities . So cash balances are still a bit elevated at 6.7% of assets down this quarter . You know , maybe first , what drove lower cash balances and then as we look ahead , what is the breakdown cash growth and between securities growth to get kind of that there for $2.5 billion midpoint .
Lee Smith: Yeah. So the reduction in cash was the deleveraging. As I mentioned, we paid down the $1.7 billion of broker deposits, $1 billion of FHLB. We did actually buy another $1 billion of securities in Q4. We haven't spoken about that, but we did buy another $1 billion of securities, so we used some of the cash to further build that securities book. And the way we think about it is sort of the cash and the securities is somewhat fungible, and we'll just kind of look on really a real-time basis, you know, what are we better doing with any excess cash we have? You know, should we buy more securities, or can we use that to delever?
Lee Smith: Yeah. So the reduction in cash was the deleveraging. As I mentioned, we paid down the $1.7 billion of broker deposits, $1 billion of FHLB. We did actually buy another $1 billion of securities in Q4. We haven't spoken about that, but we did buy another $1 billion of securities, so we used some of the cash to further build that securities book. And the way we think about it is sort of the cash and the securities is somewhat fungible, and we'll just kind of look on really a real-time basis, you know, what are we better doing with any excess cash we have?
Speaker #17: Total growth the year .
Speaker #4: Yeah . So the reduction in cash was the deleveraging . As I mentioned , we paid down the 1.7 billion of brokered deposits , a billion of of flub .
Speaker #4: We did actually buy another billion of securities in the fourth quarter. We haven't spoken about that, but we did buy another billion dollars of securities.
Speaker #4: So, we used some of the cash to further build that securities book. And the way we think about it is, sort of, the cash and the securities is somewhat fungible.
Speaker #4: And we'll just kind of look on , on really a real time basis , you know , what ? Are we better doing with any excess cash ?
You know, should we buy more securities, or can we use that to delever?
Lee Smith: And so that's, you know, the relationship between sort of securities and the cash, somewhat fungible. And that's how I'd think about it, when you're looking at the numbers, Matt.
Lee Smith: And so that's, you know, the relationship between sort of securities and the cash, somewhat fungible. And that's how I'd think about it, when you're looking at the numbers, Matt.
Speaker #4: We have ? You know , should we should should we buy more securities or can we use that to , to deliver . And so that's , that's , you know , the relationship between securities and the cash somewhat fungible .
Matthew Brees: Okay. And then, Lee, I don't know if you have it at your fingertips, but, you know, do you have the cost of deposits at year-end or more recently? And as we think about some of the higher cost categories, you know, maybe time deposits, you know, what is kind of the blended rate that CDs are going to as they mature and come back on? And is that a decent proxy for where you think CD costs could go over the next year?
Matthew Breese: Okay. And then, Lee, I don't know if you have it at your fingertips, but, you know, do you have the cost of deposits at year-end or more recently? And as we think about some of the higher cost categories, you know, maybe time deposits, you know, what is kind of the blended rate that CDs are going to as they mature and come back on? And is that a decent proxy for where you think CD costs could go over the next year?
Speaker #4: And that's how I'd think about it. When you're looking at the numbers, Matt.
Speaker #17: Okay then . And if you have it at your fingertips , but do you have the cost of deposits at year end or more recently ?
Speaker #17: And as we think about some of the higher cost categories , maybe time deposits , what is kind of the blended , you know , rate that CDs are going to as they mature and come back on ?
Lee Smith: Yeah, yeah. So, the spot, the spot rate, as of the end of the year, and this is for all interest-bearing, well, it's for all deposits, so it does include our non-interest-bearing DDAs, which are in here as well, was 2.56%, Matt. And then, as I mentioned, in my prepared remarks, we had $5.4 billion of CDs that matured in Q4 with a weighted average cost of 4.29%, and we've retained 86% of those, moved them into products sort of 40 to 50 basis points lower. In Q1, we have $5.3 billion of CDs maturing with a weighted average cost of 4.13%.
Lee Smith: Yeah, yeah. So, the spot, the spot rate, as of the end of the year, and this is for all interest-bearing, well, it's for all deposits, so it does include our non-interest-bearing DDAs, which are in here as well, was 2.56%, Matt. And then, as I mentioned, in my prepared remarks, we had $5.4 billion of CDs that matured in Q4 with a weighted average cost of 4.29%, and we've retained 86% of those, moved them into products sort of 40 to 50 basis points lower. In Q1, we have $5.3 billion of CDs maturing with a weighted average cost of 4.13%.
Speaker #17: And is that a decent proxy for where you think CD costs could go over the next year ?
Speaker #4: Yeah , yeah . So the spot , the spot rate as of the end of the year and this is for all interest bearing .
Speaker #4: Well , it's for all deposits . So it does include our noninterest bearing days are in here as well . Was was 2.56 Matt .
Speaker #4: And then, as I mentioned in my prepared remarks, we had $5.4 billion of CDs that matured in Q4 with a weighted average cost of 4.29%.
Speaker #4: And we've retained 86% of those, moved them into products, sort of 40 to 50 basis points lower in Q1. We have $5.3 billion of CDs maturing with a weighted average cost of 4.13%.
Lee Smith: So I think the way I would think about it is the CDs that are maturing in Q1, while we won't sort of probably realize the same 40 to 50 basis point benefit, you know, I do think that we can realize a sort of 25 to 35 basis point benefit, at least as those CDs mature. And then, you know, just looking out further, right now, we have another $4.2 billion maturing in Q2, at a weighted average cost of 4%.
So I think the way I would think about it is the CDs that are maturing in Q1, while we won't sort of probably realize the same 40 to 50 basis point benefit, you know, I do think that we can realize a sort of 25 to 35 basis point benefit, at least as those CDs mature. And then, you know, just looking out further, right now, we have another $4.2 billion maturing in Q2, at a weighted average cost of 4%.
Speaker #4: So I think the way I would think about it is the , the the CDs that are maturing in the first quarter , while we , we won't sort of probably realize the same 40 to 50 basis point benefit , you know , I do think that we can realize a sort of 2535 basis point benefit , at least , as those CDs mature .
Speaker #4: And then , you know , just looking out further right now , we have another 4.2 billion maturing in Q2 weighted at a average cost of 4% .
Matthew Brees: Very helpful. And then just last quick one, if I can sneak it in, is you provided some updated share counts for the year, for the years ahead. Is that both average diluted and common shares outstanding? And that's all I have. Thank you.
Matthew Breese: Very helpful. And then just last quick one, if I can sneak it in, is you provided some updated share counts for the year, for the years ahead. Is that both average diluted and common shares outstanding? And that's all I have. Thank you.
Speaker #17: Very helpful . And then just last quick one , if I can sneak is is you provide us some updated share counts for the year for the years ahead .
Lee Smith: Basically, the share count, it includes the warrants are included in there. So it's fully diluted.
Speaker #17: Is that both average diluted common and shares outstanding? And that's all I had. Thank you.
Lee Smith: Basically, the share count, it includes the warrants are included in there. So it's fully diluted.
Speaker #14: . It
Speaker #4: Basically the the the share count it it includes the warrants are included in there . it's So it's fully diluted .
Operator: Our next question will come from the line of John Ortstrom with RBC. Please go ahead.
Operator: Our next question will come from the line of John Ortstrom with RBC. Please go ahead.
John Ortstrom: Thanks. Good morning, guys.
Jon Arfstrom: Thanks. Good morning, guys.
Lee Smith: Morning, John.
Lee Smith: Morning, John.
John Ortstrom: Curious on the multifamily loans maturing over the next two years. Curious on the health of those credits in general, and then, you know, any chance that non-performing balances could have a larger step down at some point over the next couple of years, just, you know, based on what's maturing?
Speaker #1: Our next question will come from the line of Jon Arfstrom with RBC . Please go ahead .
Jon Arfstrom: Curious on the multifamily loans maturing over the next two years. Curious on the health of those credits in general, and then, you know, any chance that non-performing balances could have a larger step down at some point over the next couple of years, just, you know, based on what's maturing?
Speaker #18: Thanks . Good morning guys .
Speaker #3: Morning .
Speaker #18: Jon, I'm curious on the multifamily loans maturing over the next two years—curious on the health of those credits in general.
Speaker #18: And then any chance that nonperforming balances could step have a down at some point over the next couple Just just , you know , based on what's maturing .
Lee Smith: So what we said previously, let me start sort of with the last part of your question. As it relates to the non-accruals, so we ended the year at about $3 billion. You know, our expectation is we can reduce those by $1 billion in 2026. Now, again, remember, included in that billion is the bankruptcy loans that we've talked about earlier on this call, which is sort of $450 million. So we do believe that we can reduce the non-accruals fairly substantially in 2026 when you include the resolution of the bankruptcy.
Lee Smith: So what we said previously, let me start sort of with the last part of your question. As it relates to the non-accruals, so we ended the year at about $3 billion. You know, our expectation is we can reduce those by $1 billion in 2026. Now, again, remember, included in that billion is the bankruptcy loans that we've talked about earlier on this call, which is sort of $450 million. So we do believe that we can reduce the non-accruals fairly substantially in 2026 when you include the resolution of the bankruptcy.
Speaker #4: So we what we said previously , let me start sort of with the the last part of your question as it relates to the Non-accruals .
Speaker #4: So we ended the year at about 3 billion . You know , our our expectation is we can reduce those by 1,000,000,000 in 2026 .
Speaker #4: Now again, remember included in that billion is the bankruptcy loans that we've talked about earlier on this call, which is sort of $450 million.
Speaker #4: So so we do believe that we can reduce the Non-accruals fairly substantially in 26 when you include the resolution of , of of the bankruptcy in terms of the loans that are hitting their reset and maturity dates , there is nothing different about the overall quality or those loans than any loans that have that have reset or matured prior .
Lee Smith: In terms of the loans that are hitting their reset and maturity dates, there is nothing different about the overall quality or characteristics of those loans than any loans that have reset or matured prior, so, you know, in 2025 or before. And what we do, as Joseph has mentioned, is any loan that is resetting or maturing in the next 18 months; that is the trigger for us to do a deep dive analysis on that loan and run a pro forma DSCR based on the interest rate that would be in effect today. And so, you know, we are constantly looking out 18 months and running those analyses on those loans that are coming up to their reset or maturity date.
In terms of the loans that are hitting their reset and maturity dates, there is nothing different about the overall quality or characteristics of those loans than any loans that have reset or matured prior, so, you know, in 2025 or before. And what we do, as Joseph has mentioned, is any loan that is resetting or maturing in the next 18 months; that is the trigger for us to do a deep dive analysis on that loan and run a pro forma DSCR based on the interest rate that would be in effect today. And so, you know, we are constantly looking out 18 months and running those analyses on those loans that are coming up to their reset or maturity date.
Speaker #4: you know , So , in 25 or before . And what we do do as Joseph has mentioned , is any loan that is resetting or maturing in the 18 months .
Speaker #4: next That is the trigger for us to do a deep dive analysis on , on that loan and run a pro forma de on the the interest rate .
Speaker #4: That would be the effect in today. And so, you know, we are constantly looking out 18 months and running those analyses on those loans that are coming up to their reset or maturity date.
Lee Smith: And obviously, that's all considered as part of our ACL process, so it's all included in everything that we've taken and disclosed in Q4. But there isn't anything unique about the characteristics of the multifamily and CRE loans that are hitting their maturity and reset dates over the course of the next 18 months, two years, that we haven't seen in resets and maturities up to this point.
And obviously, that's all considered as part of our ACL process, so it's all included in everything that we've taken and disclosed in Q4. But there isn't anything unique about the characteristics of the multifamily and CRE loans that are hitting their maturity and reset dates over the course of the next 18 months, two years, that we haven't seen in resets and maturities up to this point.
Speaker #4: And obviously , that's all considered as part of our ACL process . So it's all included everything in that we've we've taken and disclosed in in the fourth quarter .
Speaker #4: But the reason anything unique about the characteristics of the multi family Seri loans that are hitting their maturity and reset dates over the course of the next 18 months , that we two years that haven't seen in resets and maturities up to this point .
John Ortstrom: Okay. Thank you for that.
Jon Arfstrom: Okay. Thank you for that.
Lee Smith: Yep.
Lee Smith: Yep.
Joseph Otting: Hey, John, the one thing I would add, you know, we track the payoffs and, you know, determining whether, you know, we're getting negative selection by, you know, keeping the bad credits and the good credits are paying off, and, and it's held, you know, almost consistent really since we've been here, the percentage of, you know, substandard and then, what's in the rent-regulated. So it's, it's amazingly consistent how that has continued to, you know, be as those payoffs come in. And that's, you know, that, that I think is just reflective of what we think is a good assessment of the risk in that portfolio.
Joseph Otting: Hey, John, the one thing I would add, you know, we track the payoffs and, you know, determining whether, you know, we're getting negative selection by, you know, keeping the bad credits and the good credits are paying off, and, and it's held, you know, almost consistent really since we've been here, the percentage of, you know, substandard and then, what's in the rent-regulated. So it's, it's amazingly consistent how that has continued to, you know, be as those payoffs come in.
Speaker #18: Okay . And John .
Speaker #3: The one thing hey John , the one thing I would add , you know , we track the payoffs and know , determining whether we're getting negative selection by keeping the , you know , bad credits and the good credits are paying off .
Speaker #3: And it's held , you know , almost really , consistent since we've been here , the percentage of substandard and then what's in the rent regulated .
And that's, you know, that, that I think is just reflective of what we think is a good assessment of the risk in that portfolio.
Speaker #3: So it's amazingly consistent . How that has continued to , you know , be as those payoffs come in . And that , you know that that just think is of what reflective we think I is a good assessment of the risk in that portfolio .
John Ortstrom: Okay, good. Thank you. And then Lee, maybe just wrapping this up on the guidance. I get the adjustments and refinements. It's, you know, kind of like a mixed blessing, I guess, with the payoffs. But what do you think are the biggest risks on your 26 or 27 guidance? It doesn't seem like it's credit. Are we just talking about subtle nuances at this point?
Jon Arfstrom: Okay, good. Thank you. And then Lee, maybe just wrapping this up on the guidance. I get the adjustments and refinements. It's, you know, kind of like a mixed blessing, I guess, with the payoffs. But what do you think are the biggest risks on your 26 or 27 guidance? It doesn't seem like it's credit. Are we just talking about subtle nuances at this point?
Speaker #18: Okay , good . Thank you . And then maybe just wrapping this up on the guidance the , I get adjustments and refinements .
Speaker #18: It's , you know , kind of like a mixed blessing , I guess , with the payoffs . But what do you think are the biggest risks on your 26 or 27 guidance ?
Lee Smith: Yeah, I think it is subtle nuances. Obviously, I think we're sort of—it's can we execute? I think that's really what it boils down to. You know, as I've mentioned, there's a lot of moving parts, which is a—it's a good thing, and it's a bad thing, because obviously, you know, you're having to kinda estimate what that all means. But I think, you know, we're now pivoting to the growth side of the story. And so it's really all about can we execute on that growth side of the story? And look, you know, I think everything we said we would do in 25, we've delivered on.
Speaker #18: It doesn't seem like it's credit . Are we just talking about subtle at this nuances point ?
Lee Smith: Yeah, I think it is subtle nuances. Obviously, I think we're sort of—it's can we execute? I think that's really what it boils down to. You know, as I've mentioned, there's a lot of moving parts, which is a—it's a good thing, and it's a bad thing, because obviously, you know, you're having to kinda estimate what that all means. But I think, you know, we're now pivoting to the growth side of the story. And so it's really all about can we execute on that growth side of the story? And look, you know, I think everything we said we would do in 25, we've delivered on.
Speaker #14: Yeah . I think
Speaker #4: I think it I think it is subtle nuances . Obviously . I think we're sort of it's can we execute ? I think that's really what it boils down to .
Speaker #4: You know , as I've mentioned , there's a lot of moving parts , which is a it's a it's a good thing and it's a and it's a bad thing because obviously , you know , you're having to kind of estimate what , what that all means .
Speaker #4: But but I think , you know , we're now pivoting to the it's growth side so really all . And story about can we execute on that growth the .
Lee Smith: And so, you know, I think this management team and this Flagstar team has proven that they're up for the challenge.
And so, you know, I think this management team and this Flagstar team has proven that they're up for the challenge.
Speaker #4: look , you know , I think And said we would everything we do in 25 , we've delivered on . And so , you know , I think I think this management team and and this Flagstar team has proven that they're up for the challenge .
John Ortstrom: Yep. Okay, thank you.
Jon Arfstrom: Yep. Okay, thank you.
Operator: Our final question will come from the line of Christopher Marinac with Janey. Please go ahead.
Operator: Our final question will come from the line of Christopher Marinac with Janey. Please go ahead.
Speaker #18: Okay . Thank you .
Christopher Marinac: Hey, thanks for taking all of our questions this morning. Just wanted to ask about the mix of deposits as C&I grows. Will we see the C&I and the treasury be a much different component, 12 and 24 months from now, Lee? Do you have any sort of guidepost just in general for how that mix is going to shift?
Christopher Marinac: Hey, thanks for taking all of our questions this morning. Just wanted to ask about the mix of deposits as C&I grows. Will we see the C&I and the treasury be a much different component, 12 and 24 months from now, Lee? Do you have any sort of guidepost just in general for how that mix is going to shift?
Speaker #1: Our final question will come from the line of Christopher Marinac with Janney. Please go ahead.
Speaker #19: Hey , thanks for taking all of our questions this morning . Just wanted to ask about the mix of deposits . As CNI grows .
Speaker #19: Will we see the CNI and the Treasury be a much different component ? 12 and 24 months from now ? Do you have any sort of Guideposts , just in general , for how that mix is going to shift ?
Lee Smith: No, I think it again, we expect to leverage those relationships to bring in, you know, deposits, and I think it's going to be a mix. Obviously, in an ideal situation, you're bringing in non-interest bearing DD, the operating accounts. But I think, you know, as we sort of leg into that, you'll see us sort of bring in interest-bearing DDAs and money market deposits. So I think it'll be sort of a combination, but ultimately, you know, our strategy and our business model is about a full relationship business. It's not just giving the balance sheet away.
Lee Smith: No, I think it again, we expect to leverage those relationships to bring in, you know, deposits, and I think it's going to be a mix. Obviously, in an ideal situation, you're bringing in non-interest bearing DD, the operating accounts. But I think, you know, as we sort of leg into that, you'll see us sort of bring in interest-bearing DDAs and money market deposits. So I think it'll be sort of a combination, but ultimately, you know, our strategy and our business model is about a full relationship business. It's not just giving the balance sheet away.
Speaker #4: No , I think , again , we expect to leverage those relationships to bring in , you know , deposits . And I think it's going to be a mix , obviously , in an ideal bringing in noninterest situation , you bearing , the operating accounts think , .
Speaker #4: you But I know , as , as we sort of leg into that , you'll see us sort of bring in interest bearing days and money market deposits .
Speaker #4: So I think it'll be sort of a combination . But ultimately , you know , our , our strategy and our business model is about a full relationship business .
Lee Smith: So we would expect to start bringing in, in time, more operating accounts, which would be, you know, non-interest bearing DDAs and further leveraging those relationships, not just for deposits, but for fee income as well.
So we would expect to start bringing in, in time, more operating accounts, which would be, you know, non-interest bearing DDAs and further leveraging those relationships, not just for deposits, but for fee income as well.
Speaker #4: It's not just giving the balance sheet away . So we would expect to start bringing in , more time accounts , operating which would be , you know , noninterest bearing days and and further leverage in those relationships , not just for deposits , but for fee income as , as well .
Christopher Marinac: Got it. So we'll see movement on those ratios and that mix during this year?
Christopher Marinac: Got it. So we'll see movement on those ratios and that mix during this year?
Lee Smith: Yeah, I think that's, that's fair.
Lee Smith: Yeah, I think that's, that's fair.
Speaker #19: Got it. So we'll see on those movement ratios, and that mix this year.
Christopher Marinac: Okay.
Christopher Marinac: Okay.
Joseph Otting: You know, the one, the one comment I'd have for you, you know, if you think about it, we've been effectively in this business about 15 months now. You know, the credit opens up the license for us to be able to move more of the fee income and deposits into the company, and so it's a transitional period. But yeah, I do think we will gain momentum on that, especially as we've, you know, not only in the C&I side, but we've also geared up some specialized industries on the deposit side that are focusing on, you know, these are like, you know, some title, some escrow, and some insurance companies that, you know, generally don't use the debt vehicles from banks as much, but they do use the depository treasury management, cash management services from a bank.
Joseph Otting: You know, the one, the one comment I'd have for you, you know, if you think about it, we've been effectively in this business about 15 months now. You know, the credit opens up the license for us to be able to move more of the fee income and deposits into the company, and so it's a transitional period. But yeah, I do think we will gain momentum on that, especially as we've, you know, not only in the C&I side, but we've also geared up some specialized industries on the deposit side that are focusing on, you know, these are like, you know, some
Speaker #14: Yeah .
Speaker #4: I think that's fair.
Speaker #14: Okay .
Speaker #3: You know, the have for you one—the one comment—I'd, if you think about it, we've been effectively in this business about 15 months now.
Speaker #3: know , You the the credit opens license up the for be able the to move us to fee income more of and deposits into the company .
Speaker #3: so it's And a transitional period . But yeah , I do think we will gain on that , momentum as we've , you know , not only in the CNI side , but we've also geared up some specialized industries on the deposit side that are focusing on , you know , these are like , you know , title and some escrow and some insurance companies that generally don't use the debt vehicles from banks as much , but they do use the depository treasury management , cash management services from a bank .
title, some escrow, and some insurance companies that, you know, generally don't use the debt vehicles from banks as much, but they do use the depository treasury management, cash management services from a bank.
Joseph Otting: We're highly focused on, you know, growing that segment of our deposit business as well.
We're highly focused on, you know, growing that segment of our deposit business as well.
Christopher Marinac: Got it. Thanks again for all the information this morning.
Christopher Marinac: Got it. Thanks again for all the information this morning.
Speaker #3: And so we're we're highly focused on growing that segment of our deposit business as well .
Lee Smith: Thanks, Chris.
Lee Smith: Thanks, Chris.
Operator: I will now turn the call back over to Joseph Otting for closing remarks.
Operator: I will now turn the call back over to Joseph Otting for closing remarks.
Speaker #19: Got it . Thanks again for all the information morning this .
Joseph Otting: Okay, thank you. Thank you very much for joining us this morning. You know, we really appreciate following the company and the questions that we get, and both today and the follow-up meetings. You know, we obviously remain, you know, extremely focused on executing on our strategic plan, you know, including the transformation of Flagstar into a top-performing regional bank. You know, really focused on creating a customer-centric, relationship-based culture and effectively manage risk to drive long-term value. So thank you again for taking the time to join us this morning and for your interest in Flagstar Bank.
Joseph Otting: Okay, thank you. Thank you very much for joining us this morning. You know, we really appreciate following the company and the questions that we get, and both today and the follow-up meetings. You know, we obviously remain, you know, extremely focused on executing on our strategic plan, you know, including the transformation of Flagstar into a top-performing regional bank. You know, really focused on creating a customer-centric, relationship-based culture and effectively manage risk to drive long-term value.
Speaker #14: Thanks , Chris .
Speaker #1: I will now turn the call back over to Joseph Otting for closing remarks.
Speaker #3: Okay . Thank you . Thank you very much for joining us this morning . You know , we really appreciate following the company and the questions that we get .
Speaker #3: And today both and the follow up meetings , you know , we obviously remain you extremely focused on executing on our strategic plan .
Speaker #3: You know including the transfer transformation of Flagstar into a top performing regional bank . You know , really focused on creating a customer centric relationship based culture and effectively manage risk to drive long term value .
Joseph Otting: So thank you again for taking the time to join us this morning and for your interest in Flagstar Bank.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Speaker #3: So, thank you again for taking the time this morning and for joining us. We appreciate your interest in Flagstar Bank.
