Conference Transcript - FLG 2026-06-10

Manon, Analyst

Okay. Up next, we have Flagstar Bank. We're delighted to have with us today, Joseph Odding, Chairman and CEO, Lee Smith, Co-President, Co-CEO, and CFO, and Rich Profetto, Co-President, Co-CEO, and Chief Banking Officer. Thanks so much for joining us.

Joseph Otting, Chairman

Thank you very much. It's an honor to be here.

Manon, Analyst

So Joseph, Rich, and Lee, I want to extend my congratulations to all of you. Joseph, the board recently announced, for those that don't know in the room, a one-year extension of your contract through March 2028. That's a strong vote of confidence in your leadership. And Rich and Lee, you're also now serving as co-presidents and co-CEOers in addition to your current role. So congratulations to all of you. Joseph, I guess the question for you is, we'd love to get your thoughts on the new leadership structure and what this means for Blackstar.

Joseph Otting, Chairman

Yeah, I think it's a natural progression of our company. as we came to the organization in march of 2024 we've assembled a relatively new management team from people throughout both the banking industry and the office of the comptroller of the currency with my background there and rich was one of the people that we recruited to come in and run a big part of our banking operations lee was already there running you know really the the most significant important parts of the flagstar organization and so giving you know lee the opportunity to be the cfo last year brought him into a very important role into the company and now with the additions of the human resource function and the technology and operations expands his reach into the organization and with rich it made perfect sense to put all our banking operations under one individual in the company and get the synergies that you know can have and be created from that so we're really excited these are two really great guys i really like working with them and it's a it's a fun team to be a part of all right perfect yeah i think we'll

Manon, Analyst

we'll go we'll go through some of that as well uh maybe to start with big picture uh joseph 2025 was a transformational year 2026 i think the focus has clearly shifted towards sustainable growth and profitability. So can you walk us through the bank's strategic priorities, how they've evolved over the past six to 12 months and what investors have been looking for in 2026 and

Joseph Otting, Chairman

beyond? Sure. Well, we arrived in 2024. We laid out a three-year financial plan and really described for our investors and our employees and the community what we thought the bank would look like in 2027 and we've really been on that path uh uh since that point in time you know the goal really was to get the company to look more like a diversified regional bank where a third of the earnings were coming from commercial industrial lending a third from commercial real estate and a third from consumer cash flows and our strategic plan really lined up about you know our goal to be a top 25 performing regional bank in 2027 as measured by return on assets efficiency ratio and return on equity but just as important to build a really strong risk governance structure if we look at you know what's transpired over the last couple years it wasn't that a number of banks that failed weren't good at what they did with their customers it was generally there weren't good risk governance structures and my background as the comptroller i was able to recruit some really high quality people from the office of the comptroller to help us build that out so our second mission really was to have a really good risk governance structure and the third part of our strategic plan is to build a really strong customer-centric bank we you know when we look at signature bank or first republic or silicon valley or union that have all gone away they were the banks that people thought of in the regional bank space as best in class the way they served our customers and so we have built our whole model and our whole plan around those three key initiatives and there's a lot of energy and excitement in our company today because people are seeing the progress that we're making we returned back to profitability in the fourth quarter of last year we were profitable in the first quarter and we've really taken on some real big tasks and we've accomplished those and it's really shown with the energy that we have in the company to be successful

Manon, Analyst

Got it. A big part of that strategy is a commercial banking build out, as you alluded to. And the C&I loan growth story has been a really successful story so far. 1Q was a really strong quarter as well, and there appears to be a significant runway ahead. Rich, I want to bring you in here. You've talked about how C&I bankers typically see an accelerated ramp over their first 12 to 18 months. So can you talk about where the business stands in its cycle right now and how much upside there is to the growth?

Rich Profetto, CEO

Sure. Thanks, Manon. I'm excited to be here today. Using a baseball analogy, I'd have to say it feels like we rounded the third inning and we're at the top of the fourth inning. So we have a long-term strategy of building a durable and diversified commercial banking platform here at Flagstar. And with that effort, you can't do that without talent. So the first part of the roadmap was making sure that we attracted the right talent to the organization. We focused on hiring mid-career bankers who know what good looks like. And it's really a two-pronged strategy to attract bankers in the geographies where Flagstar already has relevance and branch footprint in the four big geographies around the country where we operate today. and accenting that with commercial and corporate bankers in those geographies to do core middle market and mid-corporate banking. And the second part of the strategy is a national effort to serve unique, specialized industry verticals by attracting mid-career bankers who've spent their whole career in those individual industry verticals. We now have over 15 individual industry verticals that touch large swaths of GDP in the energy sector and healthcare, technology, entertainment, sports, hospitality, food and beverage, et cetera, as we continue to scale the commercial and corporate banking capabilities, both geographically and in those industry segments. And I'm pleased to report that with bankers on board, we're outperforming our own modeled expectations for how soon those bankers will be productive, bringing over relationships, either individual clients or clients that need more than one bank. And we joined that bank group because we just hired the banker who they've known and trusted for a decade onto our platform. And we expect the banker to be bringing over relationships in that first 90 days, and we're

Manon, Analyst

outperforming already. So as you think about the actions that you're taking, the hiring on the one hand. And then the macro environment, on the other hand, there is some uncertainty out there. There are higher energy prices. There's a little bit more inflation as well. How are you thinking about that impacting the pace of growth, whether it's in 2Q or beyond?

Rich Profetto, CEO

Sure. Well, we're certainly mindful of the macro environment and the kinds of bankers that we're hiring. Our goal is to hire trusted advisors who are giving advice to their clients in every step of the way. That includes guidance around the macro environment. So we have some unique dynamics at Flagstar because we are so underpenetrated in the markets that we're serving that there's a lot of runway for us just to catch up from a market share perspective. So we grew our C&I loans 9% in the first quarter on a point-to-point basis, and we'll exceed that here in the second quarter into the 10-plus percent quarter-over-quarter loan growth as we simply onboard banks and become more relevant. In the macro environment, I think our clients are showing a lot of resolve and continuing to press forward with important business and strategic initiatives. And we're helping them, whether it's to buy a new building or to open a new distribution center. We're seeing that business owners in this country are showing a lot of resolve despite the macro environment. And I think they're mindful of a higher interest rate environment and a longer than expected conflict in the Middle East, for example, and stickier inflation. So I think the interest rate outlook is, you know, our business owner clients and commercial clients are very mindful of. And that's why having good advisors as bankers is really important, is now the right time to hedge, is now the right time to take on this strategic acquisition. So we think that environment will continue and we have the opportunity to outgrow our peers as we gain market share and continue to scale our platform in an environment where there's continued uncertainty.

Manon, Analyst

Got it, all right, perfect. So now maybe I wanna bring it to the commercial real estate side and Flagstar has continued to see power payoffs through the first quarter of this year. Just given the move higher in rates, What have we seen so far in 2Q in terms of payoffs, in terms of CRE growth?

Lee Smith, CEO

Yeah, sure. I'll take that, Manan. And again, thank you for having us and for your good wishes earlier. I would say that payoffs have slowed down slightly. And I think it's really driven by three things, one of which is the higher interest rates. And what I mean by that is when our borrowers hit their reset date, they have two options. They can either take a fixed rate or a floating rate. And I think more in this higher for longer environment, they're choosing the floating rate as a short term option, thinking rates are going to come down further down the line. As we mentioned on the last call, we are now looking to retain the better quality CRE loans, particularly where there's a deposit relationship, or there's the potential for a relationship around deposits or fee income as we move forward. And we're originating new CRE loans generally, not necessarily multifamily rent regulated in New York City, but CRE, good quality CRE loans in other parts of our footprint, South Florida, the Midwest, California. And so all of that together has slowed down the payoffs and the runoff. And we'll probably be at about a billion

Manon, Analyst

plus or minus this quarter. A billion plus or minus, got it. And I guess when you think about the CRE loans that you're willing to keep as they hit their reset dates, I guess how much of those balances are you willing to keep? Is there a number you have in mind or a type of customer

Lee Smith, CEO

that you have in mind that you want to retain? Yeah, well, first of all, it's all about relationship banking. So we're prioritizing, as I said, those customers where there is a deposit relationship, there's the potential for a deposit relationship, or we can do a lot more business and create fee income opportunities for the organization. But we look at it on a net basis. So rather than saying, how many of these loans do we want to keep? When you look at how many loans do we want to keep? Let's look at new originations and let's look at runoff on a combined or on a consolidated basis. I think if we're in that $800 million to a billion dollars, a quarter of runoff, that's where we want to be. And we can pull any one of those levers to get there. Because as Rich has mentioned, we're seeing some very strong C&I growth right now. And we believe this is the quarter where you're going to see us have that inflection point of balance sheet growth driven by that C&I growth that Rich talked about.

Manon, Analyst

So maybe putting together the C&I side and the CRE side, any thoughts on loan growth overall

Lee Smith, CEO

this quarter? We think we can be right around a billion dollars of balance sheet growth this

Joseph Otting, Chairman

quarter. This is a real inflection point for the company since we've been there. We predicted this at our earnings call that this would be the inflection point where the balance sheet starts to expand and then each quarter can expand, you know, a couple billion dollars each quarter. And we start to build our way back towards a hundred billion dollars. So, so clearly

Manon, Analyst

really strong loan growth coming through, you know, the other side of the balance sheet is you were thinking about funding that loan growth. You just had a, uh, uh, an upgrade on, on, on your deposit rating to, to investment grade. Um, can you talk about the opportunities that, that ratings upgrade unlocks in terms of, you know, either deposit or even on the lending side in terms of the types of clients that you can get. Yeah. Rich, you want to take that? Sure. I'll

Rich Profetto, CEO

start out and hand it over to you. The upgrade to investment grade on the deposit ratings is very meaningful to us, especially as we look to be meaningful to, you know, middle market customers and even into the corporate space, many of our clients have minimum deposit counterparty ratings thresholds. And we can now check that box as part of that overall relationship. And we're already seeing the benefits of that, whether it's a financial institution client, a corporate client, a commercial business owner client. I think it really helps us from a credibility perspective. We have private banking and wealth clients that moved some of their assets off of our balance sheet. Some of those assets are now coming back on in the form of both deposits and AUM. So it has really multiple touch points, all positive, as we get

Joseph Otting, Chairman

these ratings upgrades. Yeah, I think the other thing is, as the balance sheet shrunk, we were able to significantly reduce the flub advances and the broker deposits. Our broker deposits now are down in line with our peer group we've continued to use excess liquidity for the federal home loan advances and you know last quarter was the first quarter we showed net deposit growth of about 1.4 billion dollars and we reduced our deposit cost by 23 basis points we we look to have similar kind of deposit growth and the mix of the deposits for us are going to change is we're putting on 75 new relationships a quarter the mix of those are going to be more business related deposits that are less price sensitive and so you know as we're looking now to expand the balance sheet we're going to be able to do that by generating deposits um from

Manon, Analyst

our customers so that's all core deposit growth the other thing that goes hand in hand with that is is the branch footprint you have about 340 branches and another 20 private bank offices so uh can you talk about how you're managing that branch footprint you know both from a perspective of bringing in more of these core deposits as well as maybe what it does in the on the cni side yeah

Joseph Otting, Chairman

the branch we think the branch system for us has a real opportunity we're most of our branches are in very affluent markets because they had a bit of a legacy around the thrift model and most of those branches were put in places where there was lots of liquidity and so we have very good we have a very good branch network we've been working on really driving our new strategy in the branch which is more focused on relationship type banking versus just paying high deposit rates and having the vast majority of deposits being cds or money market um i i would say we're kind of in the opening innings of that strategy we really look for that to come together over the next year um but that's a bit that's probably the biggest opportunity that we have in the deposit side is really get our branch system focused on relationship banking.

Manon, Analyst

So as more of those core deposits come in, there is more opportunity to reduce deposit costs.

Joseph Otting, Chairman

Yeah, 100%. But I mean, I think if we grew a billion four last quarter, we'll grow a billion four this quarter. And we look for that deposit growth to accelerate, predominantly coming from private banking and the wholesale banking.

Manon, Analyst

So does that help on the loan growth side as well? Or is that more of a deposit cost?

Joseph Otting, Chairman

Well, you know, on the business side, Usually what happens is in a single bank relationship, you do the loan, and over a 60, 90 day, the treasury management, the deposits, and the interest rate derivatives all flow over to the bank. In the larger transaction where there's maybe two or four banks, doing the loan effectively gives you the ticket to compete for the other non-interest income and depository in that company. So as we book those type of transactions, there's a little bit longer delay, but we clearly have a pricing model that makes it difficult for to do a loan-only relationship, that the relationship managers have to be interacting with the management teams, talking about what other sources of revenue that are going to be available to the company. And we document that in the relationship plan, so we'll go back 12 months from now and say, you know, were we able to get, you know, those 401k business or the payments business or the treasury management to adjunct the return on our credit

Manon, Analyst

relationship. So maybe then let's talk about fees, but I do want to get back to Nim and NII. But as you think about fees and the products that when it comes to servicing middle market and corporate borrowers, can you discuss what your capital markets and treasury management capabilities are that help you get that fee business in as well? Yeah, those sit under

Rich Profetto, CEO

rich so i think you know sure investing in the core commercial banking products including the transaction services like treasury management and commercial card they are core to our strategy as well as the traditional set of bank capital markets so loan syndications uh you know certainly interest rate hedging and derivatives capabilities foreign exchange uh we're launching a you know commodity derivatives capability to serve our customers better in the energy ecosystem. We've got wealth management related products for business owners, particularly if they experience a liquidity event. But we can also do day to day activities like 401k plan advisory. So wrapping a commercial client that we started a relationship with on the lending side with deposit and these other fee services is all about the core of the relationship management strategy. And we're adding, we continue to add additional specialty products that could include specialty financing products like an ESOP financing capability or a tax-exempt lending capability that the bank just didn't have 12 months ago. So every quarter, as new bankers come on board, they're reminding us of product capabilities that we either need to enhance or get into. And we're listening and investing in those product areas. And that will help us drive fee income in the future and round out relationship ROE.

Joseph Otting, Chairman

We've built a lot of that out in the last 12 months because either the capabilities weren't being used or we didn't have those. and rich has done a really good job of hiring a really qualified capital markets team so we're kind of front and center of offering you know all the capital market products to our customers and that's now presented opportunities where we're the lead left on the number of transactions and then that business getting to that number one spot is you know very critical so you're getting more of

Manon, Analyst

the relationship from from the from the client perspective yep um you know maybe pivoting back to the net interest margins, you know, as we think about the NIM, it came in at 2.15% in the first quarter, your guidance is for 270 to 280 in 2027. How does the current rate environment change that, right? We've had some more, an increase in the belly of the curve, long end of the curve, you know, maybe rate cuts are coming out of the forward curve as well. How do you see that impacting funding costs in the NIM overall in the longer term?

Lee Smith, CEO

Yeah, I don't think it really affects where we think we can get our NIM margin, and that's because there are a number of levers for us to expand our NIM from where it is today. On the asset side, between now and the end of 27, we've got 12 billion of multifamily and CRE loans that are hitting their reset maturity dates with a weighted average coupon of less than 3.8%. So they will either reset at a higher rate and we'll get them in benefit or they will pay off and we will use that liquidity and capital and give it to Rich, who is growing new C&I loans at an average spread to SOFA of 225 to 240. So, again, a very, very strong market rate. We have $2.5 billion of non-accrual loans. So as we continue to work down the non-accruals, that is trapped earnings. earnings so it will expand NIM and it's also trapped capital because they're 150% risk weighted. So as we further reduce the non-accruals that will have a positive impact on NIM and interest income. And then on the liability side we continue to pay down wholesale borrowings as Joseph mentioned and we pay down flub advances in Q1. We pay down more in the second quarter that will help NIM and we're also able to reduce core deposit costs even without fed cuts and the way we do that is we typically have about five billion of retail CDs maturing every quarter and we're able and we're retaining 86 percent of them but rolling them into new CDs that are typically 20, 25, 30 basis points lower than the maturing CDs. And we meet on this as a team weekly, and we're very surgical at looking at money market and savings accounts and just understanding where can we take five basis points, 10 basis points out without jeopardizing deposit balances. So we will continue to do that. If there are Fed cuts, then our expected beta is 55 to 60, and we were certainly achieving that and more based on the rate cuts that we saw at the end

Manon, Analyst

of last year. And so it feels like you have a lot more flexibility on the deposit side so even if deposit competition is picking up a little bit for the industry it sounds like you have a lot

Lee Smith, CEO

more flexibility there. Well I think we can we're able to sort of strategically reduce those deposit costs as I mentioned but the other thing we expect to start seeing coming through and I think It ties into what Joseph mentioned about the $1.4 billion of deposit growth in Q1. We feel we'll be at a similar number in Q2. It's leveraging those new C&I relationships and other relationships to bring in ultimately not interest-bearing DDAs, but also low-cost deposits as well, tying it to the lending that we're doing. So that's another capability and more optionality we have on the deposit side.

Joseph Otting, Chairman

And the other thing to remind history is that we started from a much higher cost of interest-bearing deposit. So our ability to bring that down to market is an easier task, so to speak. I mean, we lowered our interest-bearing deposits by 23 basis points in the last quarter. And so when you start from a higher spot and looking at where the market is, we can bring those deposits down. and our customers are not going to be able to look around and see that we're out of market.

Manon, Analyst

Got it. All right. Perfect. So let's talk about expenses. You know, expenses is down about 9% year-on-year in 1Q. You're guiding to further reductions in both 26 and 27. You know, at the same time, you know, more banks are talking about investments and areas like AI, you're investing on the commercial side as well. So can you help us think through how you're balancing both, you

Lee Smith, CEO

know the investment span as well as the cost sets yeah so um we as you know man we have taken out over 700 million of costs uh over the last 18 months on an annualized basis and it's not an easy thing i mean there's no shortcut to doing that you have to look at an under every single rock um but if you go back two years ago i think the uh the head count of this organization was about 9200 and we're 53-5400 today but we continue to see opportunities for to further reduce our expense base through technology projects coming online that will allow us to get more efficient we continue to drive vendor expenses out of the organization as we continue to produce profitability quarter over quarter and improve asset quality that will reduce FDIC expenses we're looking at optimizing real estate particularly some of the operating centers that we currently have so we believe that we will achieve the NIE guidance that we have in our projections for 26 and 27 which would put us in 26 at about 1.7 to 1.75 billion of operating expense and then 1.65 to 1.7 billion of operating expense in 27 those numbers are net of the investment that we continue to make in riches businesses and the investment that we're making in technology as well so um yes while we've done a lot on the expense side there is more we feel we can do to drive expenses down but at the same same time we're still investing heavily in the business

Manon, Analyst

so richard spoke about some of the investment spans right there there's investment span in products and then clearly there's there's hiring that you guys are doing as well uh what is the investment spend on the tech side that you're you're doing right now well first of all when we

Joseph Otting, Chairman

arrived we had six data centers uh in the organization and and we over the last 12 months successfully closed all six of those opened up two new co-location centers so we went from you know six 1963 ford fair lanes to modern state-of-the-art you know infrastructure we also will be converting our core system we're on two core systems we'll go to one core system next year that'll save us roughly 42 million dollars a year in 2028 when we get through the conversion but i think you know the other areas that we've really invested in is the risk you know governance structure of the company um you've heard numbers we have probably invested 40 million dollars in our risk governance structure to make sure that as we go back and get over the 100 billion dollar we're we're prepared and ready for that and then as we've said rich's area you know we've added 350 people we've invested in products all the way at time the net takeouts for 700 million so probably it's more like 900 million to a billion when you would say you know on the save side but

Rich Profetto, CEO

we have been reinvesting in the company and you think about the use cases for ai in a in a you know all financial services you know we look to participate in that from a financial statement spreading credit memo underwriting qaqc there's a lot of applications just in our commercial area where we think we can continue to scale the platform in a more efficient manner by embracing

Joseph Otting, Chairman

AI and other technology tools. And in fact, we have our own Star IQ, which is our own internal AI tool that people can use in the bank. It's amazing. We have 89% utilization of it. We want to continue to expand how people are using it. We've kind of had people go from Google to AI tool but really we want people to use it for contract reviews and you know as rich was saying financial analysis all those things are available for people to use that and you know it's going to make us a much more efficient organization

Manon, Analyst

Joseph you also mentioned going over a hundred billion if the tailoring rules change how does that impact any of the investment I don't think it changes

Joseph Otting, Chairman

because we've made the investment now and we feel good about you know that investment and what it looks like um you know i i do think you know that rule eventually gets you know raised but you know that that probably impacts 10 or 12 banks well a lot of the things that you see the regulatory community doing today impacts thousands of banks and so they've really kind of focused um uh you know on the side of where it has big impact and i think you know this whole issue in the regulatory community about focusing on MRAs or MOUs or supervisory action on material financial thing, I think is really profound. And I think when that final rule comes out from the FDIC and the OCC, it's going to be incredibly impactful for banks that they can now focus on the things that are most important. Everybody gets on the same page of that. And I think the regulatory harmony with banks will be really solid, that we're all focusing on the right things.

Manon, Analyst

Got it. Let's talk about credit a little bit. One aspect of your credit risk management process is to look out 18 months in your forward look analysis. So you're currently looking out through

Joseph Otting, Chairman

the end of 2027. What are you seeing in that analysis today? When you do that, you just have certain percentage of the bank's customers in that portfolio that their fixed charge coverage on their loans are less than one-to-one and so you know that generally then has a tendency to flow into special mention if it's you know substantially below one-to-one then you'll order an appraisal and try to make a determination is your primary and secondary source repayment impaired and so you know as we've looked out you know i i would say this quarter probably had the probably the least amount of movement in the portfolio so we're really talking about as you said the fourth quarter of 2027 and then we kind of enter into 2028 where it's you know roughly four billion dollars so falls off significantly and you might say well why did that happen it's because if you go back five years that's when interest rates started to rise people weren't locking in uh as much as the long-term debt they went to more variable rates so so we think you You know, the vast majority of that has will then be through the process.

Lee Smith, CEO

I think the thing I would you've got to remember back in 24 after the new equity came in, we re underwrote that multifamily and CRE book and we took significant charge ups and we increased our ACL reserves and our coverage ratios against a lot of those CRE asset classes are higher than any other bank in the industry. And we do do that 18-month look forward. 2027 is the biggest year in terms of resets. We've got almost $9 billion. So by the end of June, we're all the way through looking at that 2027 cohort. And I think what I would say is we're not sort of seeing anything draconian. And the way I would validate that is if you look at the last two quarters, criticized and classified loans have come down. Charge-offs have come down. Provision has come down. So if there was anything that was problematic, you wouldn't see those ratios coming down. And we also got annual financial statements on 96% of these borrowers. So there is a lot of work we're doing on this asset class. And as we've said before, given the billion dollars plus of par payoffs a quarter, there's a lot of liquidity in the market for this asset class from the agencies and other banks

Manon, Analyst

and lending institutions. And that holds true even if there's a potential rent freeze here in New

Lee Smith, CEO

York? Yeah, I think we've talked about, we ran the analysis assuming a three-year rent freeze beginning in October. We assumed that market units would be able to increase by 2.1% their rents on an annual basis. Expenses would increase 2.75% in line with inflation. And what we found was the demarcation line was 70% rent regulated. So buildings that are 70% or less rent regulated doesn't have a significant impact on NOI. Those that are more than 70% rent regulated over that three-year period, it impacts NOI 7 or 8%. And then as we've looked at our portfolio, and we have about $8 billion, half of it is pass-rated with a very strong DSCR, 1.5. And criticize the classified. As I mentioned, we have significant between charge-offs and ACL reserves. We've probably got 20% coverage on that population. So, again, we feel pretty good about where we've got that marked.

Joseph Otting, Chairman

And I think the proof is kind of in the pudding, so to speak, as we've done DPOs and asset sales, virtually all of those have traded at or above where we

Manon, Analyst

have them marked on the balance sheet. Got it. All right. And quick clarification, there were some headlines recently regarding potential relief for certain categories of rent-regulated landlords. Is that meaningful for your customer, Seth?

Joseph Otting, Chairman

Well, I think the two points that have been made is there is what they call ghost units that are the market where people have moved out of the units and the landlord could not get a sufficient return on their investment to to remodel to make the units you know occupiable again so they just basically closed the door locked it and didn't put a new tenant in we're still trying to figure out the details around that but i think that would be a brilliant move by the mayor's office if they unleashed those 50 to 60 000 units and got them back in the market that that that'd be the easiest way to create availability um there's also talk about you know a city you know backed insurance platform a lot of those projects have seen 30 40 back-to-back year insurance cost increases and so lowering that and then there's tax abatement where some of the larger projects have gotten tax abatement but they've signed up to capex expenditures over the next 20 years for those tax abatements so i think there are things and solutions that are coming together to try to solve, you know, what is, in a lot of instances, very difficult, you know, economics for the owners of those buildings.

Manon, Analyst

So if anything, it would be a positive.

Joseph Otting, Chairman

Okay, perfect.

Manon, Analyst

Okay, so let's, in the last minute or so that we have, let's end with capital. Joseph, just given the approximately, what, $1.6 billion of excess capital that Flagstar has today, how are you thinking about the pace of capital deployment going forward and you know, how are you thinking about organic growth versus buybacks there?

Joseph Otting, Chairman

Yeah, I, you know, the number you have is on an after tax basis, $2.3 billion on a pre-tax, you know, we're roughly 13.3% on CET1 that obviously will probably increase this quarter. You know, our target is in the 10.5% level range. So the bank does today have, you know, what would be deemed excess capital we've communicated that you know three things that the management team thinks is important to to gather around one that our core earnings are consistent and solid we hope to begin to have the third quarter of profitability the second is that we continue to improve the credit quality and the trend line on that is is is is good as well and then really getting an understanding as rich ramps up the cni business how much capital will be necessary to support his $2.5 to $3 billion of originations and how much real estate would pay down. And our plan is in the second half of the year is after we've gone and discussed it with the board is that we think we would head in the direction of doing some type of stock buyback. And we think we have enough capital due to the organic growth that we anticipate happening.

Manon, Analyst

So just stay tuned for that July on it. Yeah, sometime in the second half of the year.

Joseph Otting, Chairman

All right, perfect, great.

Manon, Analyst

With that, we're out of time. Joseph, Lee, Rich, thanks so much for your time. It was a pleasure. Thank you very much.