旗星银行 (FLG) 2026年第三季度业绩说明会：扭亏目标推迟至2028年

旗星银行（FLG）2026年第三季度业绩说明会的核心在于改善净利息收入和商业贷款，但高企的信贷成本以及将其转型时间表延长一年至2028年抵消了部分利好。

核心要点

• 第三季度净息差环比上升4个基点至2.17%，其中9月份净息差达到2.23%。
• 商业及工业（C&I）贷款净额增加20亿美元至206亿美元，较第二季度增长11%。旗星银行新增了约75个商业客户关系，本季度末储备项目规模达27亿美元。
• 拨备费用为7600万美元，反映出高利率、通胀以及纽约市受租金管制的多家庭住宅敞口带来的压力。
• 净核销环比减少2500万美元至7400万美元，占平均贷款额的0.49%。非应计贷款总体保持稳定，约为28亿美元。
• 管理层下调了2026年和2027年的业绩预期，并将达到同业水平盈利指标的目标从2027年推迟至2028年。目前预计2028年每股收益（EPS）为1.60美元至1.70美元。
• 旗星银行完成了2.5亿美元的股票回购授权，但预计2026年第四季度不会进行额外的回购。管理层预计将在2027年恢复回购，具体取决于盈利、信贷质量和资本需求。

关键财务数据

业务与经营业绩

商业银行业务仍是资产负债表增长的主要动力。旗星银行第三季度新增及扩大的C&I承诺额达46亿美元，新发放贷款达29亿美元。增长涵盖金融机构、出资人融资、可再生能源、娱乐、科技、医疗健康、休闲与博彩、公共融资、设备融资及多元化工业等领域。

本季度该银行新增了约6.00亿美元的核心商业客户存款。管理层表示，其客户关系策略侧重于将贷款与存款、资金管理、资本市场及其他收费服务相结合。

旗星银行继续减少商业地产（CRE）敞口。其CRE集中度降至346%，同时该行预计每季度CRE净流失额约为10亿美元。此外，在超过7亿美元的承诺额中，该行发放了约3.75亿美元的新增关系型CRE贷款。

截至9月30日，受租金管制的组合总额为129亿美元，较第二季度减少5.31亿美元，即4%。租金管制单位占比超过50%的贷款下降4%至81亿美元。该类别中纽约市部分的拨备覆盖率增加了21个基点，达到3.37%。

管理层业绩指引

管理层预计2027年和2028年资产负债表平均每季度增长约10亿美元。该计划假设每季度净新增贷款约为20亿美元，资金来源大致均等来自存款增长和CRE流失。预计新增贷款中约90%将来自C&I贷款。

预计2027年的盈利拐点在一定程度上与合同贷款重定价挂钩。在2026年10月1日至2027年12月31日期间，票息低于3.9%的120亿美元CRE多家庭住宅贷款将迎来重置或到期。另有加权平均票息为4.43%的70亿美元贷款计划于2028年重置或到期。

风险与关注点

较高利率正对纽约市多家庭住宅（特别是布朗克斯区受租金管制的建筑）的资本化率、运营费用和偿债备付率造成压力。管理层还预计，非应计贷款的化解进展将慢于此前预测。

吸收存款是旗星银行修订后计划中的核心执行风险。由于行业竞争性激进定价，管理层下调了存款增长假设，并将每季度新增约8亿至10亿美元存款的能力列为达成其预测的关键条件。

较高利率还减少了按揭贷款发放及相关的出售收益收入。管理层将费用收入预测下调的主要原因归咎于按揭业务活动疲软以及预期的存贷款规模下降。

在对即将在18个月内到期或重定价的贷款应用了前瞻性审查后，关注类及不良贷款增加了6.70亿美元，即6%。次级贷款增加了2.48亿美元，即4%。

分析师问答环节点评

• 存款增长：管理层表示，资产生成并非主要制约因素，因为商业团队一直在稳定推动C&I增长。更具不确定性的假设在于旗星银行能否以具备经济效益的成本吸收足够的存款。
• 利率敏感度：管理层将该行描述为中性至轻度资产敏感型。利率下降有助于提高信贷质量和促进再融资活动，而利率上升虽可增加浮动利率资产收益，但会加剧信贷压力并提高存款成本。
• CRE流失：旗星银行预计每季度CRE净流失额约为10亿美元，从2026年第四季度至2028年期间预定到期或重置的190亿美元贷款对此提供了支撑。
• 受租金管制资产组合出售：管理层表示，目前并未考虑批量出售。管理层认为，按单笔贷款重组、折价结清和协商处置目前能更好地保存股东资本。
• 资本回报：预计2026年第四季度不会有额外的股份回购。管理层打算在评估核心盈利、信贷趋势以及C&I增长的资本需求后，于2027年重新考虑回购。
• 转型时间表：管理层将推迟至2028年定性为时间节点而非战略上的转变，预计合同规定的CRE重定价、C&I增长以及更低的非应计贷款余额将驱动未来净息差和盈利改善。

业绩说明会完整文字实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Thank you. Hello everyone, thank you for joining us and welcome to the Flagstar Bank third quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1. [Operator Instructions] I will now hand the conference over to Sal DiMartino, Director of Investor Relations. Sal, please go ahead.

Salvatore DiMartino

Thank you, Holly, and good morning everyone. Welcome to our third quarter 2026 earnings conference call. This morning, our Executive Chairman and CEO, Joseph Otting, along with the company's Co-President, Co-Chief Operating Officer, and Chief Banking Officer, Rich Raffetto, and Co-President, Co-Chief Operating Officer, and Chief Financial Officer, Lee Smith, will discuss our results for the quarter. During the 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 meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. In addition, when discussing our results, we will reference certain non-GAAP measures which exclude certain items from reported results. Please refer to today's earnings release for reconciliation of these non-GAAP measures. And with that, I would now like to turn the call over to Mr. Otting. Joseph?

Joseph Otting

Yes, thank you, Sal, and good morning, everyone. We appreciate you joining the call today. I'd like to begin on slide 3 by providing updates to factor our business and updates around the financial forecast. We continue to make meaningful progress in strengthening our core business and advancing our strategic priorities. Net interest income increased, the net interest margin expanded, and pre-provisioned net revenue improved compared to the previous quarter. We also grew our C&I loan portfolio in deposits while reducing our exposure to commercial real estate loans as well. However, several variables pressured credit costs during the third quarter, including the effects of higher interest rates, actions related to the New York City rent-regulated (RIT) regulations, and persistent inflationary pressures. At the same time, a competitive deposit environment continues to impact deposit pricing and growth expectations. Our success as a company will be determined by our ability to continue to reduce our New York rent-regulated exposure, which we did during the quarter, and attract deposits in an economic manner and expand the balance sheet through C&I loan growth. We are still on track towards achieving our strategic objectives and with our plan to diversify our balance sheet. However, given a higher for longer interest rate environment, the full realization of our transformation has shifted to 2028 from 2027. As a result, we are adjusting our guidance from what we previously outlined to reflect the impact of higher interest rates, the rate environment on credit quality, less deposit growth, and corresponding C&I loan growth, and the net interest margin, which Lee will discuss in more detail shortly. Moving to slide 4, I'd like to discuss some of our third quarter highlights in each of our key focus areas. First, in terms of our earnings, both our net interest income and margin increased compared to the prior quarter, while PPNR also continued to improve. Second, a key part of our balance sheet diversification strategy is growing our C&I loan portfolio. This quarter we delivered another $2 billion of net C&I loan growth, which resulted in about $1 billion of net loan portfolio growth during the quarter. On average, the average loan in that portfolio that we added was about $28 million in loan outstandings, and it was roughly 75 relationships. Third, another key component of our balance sheet diversification strategy is reducing our overall commercial real estate exposure. During the quarter, our CRE PAR payoffs totaled $1.2 billion, of which 35% were rated substandard. The decline in the overall CRE portfolio was slightly less as we funded approximately $375 million of new high-quality relationship-based CRE loans on commitments of over $700 million. In our forecast, we project CRE to decline net $1 billion per quarter. And fourth, we continued to apply a prudent approach to credit quality. During the quarter, we had net charge-offs of $74 million, or 49 basis points of average loans, down $25 million compared to the prior quarter, while non-accrual loans were relatively stable. Now I'd like to turn it over to our Chief Financial Officer, Lee Smith, who can provide more color on our revised guidance, asset quality, and third quarter trends. Lee, I'll hand it over to you.

Lee Smith

Thank you, Joseph, and good morning, everyone. As you just heard, the turnaround story at Flagstar is very much on track. However, certain macroeconomic headwinds, especially from higher interest rates, have pushed back the timing of us achieving peer-like metrics by approximately 12 months. The last few months have seen a significant shift in interest rates. The five-year Treasury had increased 75 basis points over the last three months as of October 14th and 111 basis points over the last six months. Two quarters ago, the forward curve assumed two rate cuts in 2026, and as recently as June 18th of this year, the forward curve had shifted to one rate hike in October. Fast forward to September 18 and the current forward curve has four rate hikes in September, December, March and June. We're also seeing extended inflationary pressures as a result of higher energy prices. This change in interest rates and inflationary pressures have impacted our New York City rent-regulated multifamily portfolio in particular. When we use the forward curve with full rate hikes and include inflationary pressures, it has had the following effects: increased cap rates on rent-regulated buildings, particularly in the Bronx; increased operating expenses at a time when rents have been frozen for up to two years; put pressure on debt service coverage ratios; increased the risk that more loans migrate to criticized and classified status. These events have caused an increase in our provision expense to $76 million in the third quarter. Turning now to slide 5, given what I have just outlined and our commitment to transparent reporting on the impact of any change to our forecast, we've adjusted our guidance downward for both '26 and '27, predominantly the result of higher provision costs in 4Q and full year '27 for the reasons I just mentioned. The higher interest rates have also resulted in a more competitive deposit environment. While we expect to grow deposits quarter over quarter, it's at a reduced level than previously anticipated. Less deposit growth also results in a smaller balance sheet. We expect the balance sheet to grow on average approximately $1 billion a quarter in 2027 and 2028, driven by net new loan growth of $2 billion, funding approximately 50% with deposit growth and 50% with CRE runoff, as we continue to diversify the balance sheet and improve the mix of C&I loans in particular. The higher rate environment is also resulting in lower mortgage originations, impacting both interest income and non-interest income, and non-accruals declining at a slower rate than previously anticipated. EPS for '26 is now forecast to be in the $0.10 to $0.15 range, and EPS for '27 is forecast to be in the $0.85 to $0.95 range. We are also including a full year '28 forecast where EPS is expected to be $1.60 to $1.70 on top of where we previously expected full year 2027 EPS to be. I would note that our goal to return Flagstar to profitability metrics similar to our peers is on track to occur in 2028. The inflection point is '27 for the following reasons. Between October 1st, 2026 and December 31st, '27, we have $12 billion of low coupon, less than 3.9% CRE multifamily loans, either resetting or maturing. If they reset and stay with Flagstar, they will reprice to a market rate significantly higher current coupons. If they pay off, we will use the proceeds to originate market rates, C&I or CRE loans. We have a further $7 billion resetting or maturing in 2028, with a weighted average coupon of 4.43%. Both these scenarios result in net interest income and NIM expansion. The reset dates are all contractual, and '27 is our largest reset year, allowing us to significantly improve the mix of the balance sheet over the next 15 months. As we continue to originate new C&I loans and grow the balance sheet, the spread between the new loans coming on and the marginal cost of the new deposits used to fund such growth should be accretive to net interest income and NIM expansion. While we expect the pace of non-accrual resolution to slow, we still expect our non-accrual balances to decrease throughout '27 and '28. And given these loans are on the balance sheet and funded today, as they return to accruing status, this is also accretive to net interest income, and NIM. A significant driver of the remixing of the balance sheet over the next 12 to 18 months is mechanical in nature, given the volume of low coupon loans hitting their reset or maturity dates. On slides 6 and 7, we have provided a bridge to our 2027 and 2028 net interest income forecasts. As you can see, the main drivers in both years is balance sheet growth along with fixed rate repricing and lower non-accrual loans. On slide 8, we show the trend in pre-provision net revenue through 2028. And slide 9 depicts our EPS progression over the same time period. I would like to point out that in 3Q pre-credit provision, we generated plus $0.13 of earnings, which included a $22 million or $0.04 tax benefit as we settled a legacy tax audit from 2020 in our favor. The next slide details our NIM trends. Our NIM expanded four basis points in 3Q versus 2Q to 2.17%, with the September NIM coming in at 2.23%. Next is operating expenses on slide 11. Here I would highlight that despite the modest increase during the quarter, we still expect full year '26 operating expenses to decline approximately $168 million or 9% year over year versus full year 2025. On the capital slide, you can see that at 12.38%, our CET1 ratio continues to rank among the top quartile in our peer group. We also completed the previously approved stock repurchase program of $250 million, repurchasing 19.1 million shares at an average price of approximately $13 per share. Turning now to our deposits on slide 13. Total deposits increased about $300 million quarter over quarter, while average interest-bearing deposits rose 1%. The cost of interest-bearing deposits increased only one basis point to 3.09% versus last. Moving next to slide 14, which shows the continuing positive trend of commercial real estate PAR payoffs. During the third quarter, PAR payoffs were $1.2 billion, of which 35% were rated substandard, and our CRE concentration ratio is now at 346%. The next several slides provide additional details on our multifamily portfolio. On slide 15, I would note that in 2027, we have approximately $8.4 billion of multifamily loans that mature or reach their contractual reset date. Of this amount, approximately $2.9 billion or 35% is NYC multifamily with greater than 50% rent-regulated units. And I would also note the reserve coverage on the greater than 50% rent-regulated population, including loans outside of New York City, is nearly 3%. If we look at just the New York City rent-regulated portfolio greater than 50%, the coverage ratio increased 21 basis points quarter over quarter to 3.37%. Moving next to slides 16 and 17, where we provide a more comprehensive overview of the rent-regulated portfolio. At September 30th, this tranche of the portfolio was $12.9 billion, down $531 million or 4% compared to the second quarter. While the rent-regulated component greater than 50% was $8.1 billion, down $370 million or 4% quarter over quarter. The next slide details our ACL by loan category. The link quarter ACL was unchanged as increases related to higher interest rates and growth in the C&I portfolio, and the impact from a higher interest rate environment were offset by volume reductions in our multifamily portfolio. Finally, slide 19 provides a look at our broader credit quality trends during the quarter. At approximately $2.8 billion, our non-accrual loans were relatively stable quarter over quarter. Of note, 42% of our non-accrual loans are current and performing. Substandard loans increased $248 million, or 4%, as overall criticized and classified loans increased $670 million, or 6%, due to our prudent and comprehensive look forward of loans that are maturing or repricing within the next 18 months. With regards to charge-offs, net charge-offs this quarter was $74 million or 0.49% of average loans, down $25 million compared to the prior quarter. To conclude, we remain on track to achieve our strategic goals, significantly improve profitability through 2028 and deliver value to our shareholders. Now, I'd like to turn it over to our Chief Banking Officer, Rich Raffetto, who will discuss our commercial banking trends in more detail. Rich.

Richard Raffetto

Thank you, Lee, and good morning to everyone as well. As you turn to slide 20, you will see that we continue to make significant progress in building out a relationship-based commercial and private banking platform here at Flagstar. Our two-pronged approach to this business combines specialized industries banking with corporate and regional commercial banking coverage featuring customized solutions for business owners, and it's delivering strong but disciplined growth. We continue to hire talented mid-career bankers to join the platform, including 35 new and replacement hires during the third quarter alone, bringing our aggregate hiring activity to more than 400 professionals over the last couple of years. And at the end of the quarter, we had 164 revenue producing commercial bankers credit underwriters up from 124 at the start of the year. During the third quarter, we generated $4.6 billion in new and increased C&I loan commitments, resulting in $2.9 billion in loan originations, up 4% compared to the prior quarter, and we ended the quarter with a strong pipeline going into the fourth quarter at $2.7 billion. We also continued to successfully add new commercial relationships, as Joseph mentioned, adding roughly 75 this quarter alone. The right side of this slide shows the quarterly trend in C&I loan balances. And C&I loans during the third quarter increased $2 billion to $20.6 billion, up 11% compared to the second quarter, continuing our trend of brisk but prudent loan growth. Slide 21 provides a more detailed look at C&I loan growth by business line. And loan growth in the third quarter was fueled by various industry-focused verticals and lending segments, including financial institutions, lender finance, renewables energy, entertainment banking, technology, healthcare, leisure, hospitality, and gaming, public finance, equipment, equipment finance, and diversified industrials. In addition, regionally speaking, our commercial banking teams in Southern California, New York City, Long Island, and New Jersey were key contributors to the third quarter loan growth. And we are optimistic about future momentum in regional markets where we have recently established or upgraded team leader talent, including Dallas, Detroit, Chicago, Cleveland, and Phoenix. And in a sign of continued progress in our goal of building broad-based relationships across our commercial banking enterprise, we experienced a notable increase in core commercial client deposits during the quarter of approximately $600 million. And we also experienced strong year-over-year and quarter-over-quarter increases in capital markets fees, and collected treasury management fees. So with that, I will now turn the call back to Joseph.

Joseph Otting

Thank you, Lee and Rich. Let me close with a few summary comments. We remain committed to our long-term strategy of transforming Flagstar into a top performing regional bank. While the current operating environment has affected the pace of our turnaround, we believe our long-term objectives remain very achievable with our expected timeline now extending to 2028. This is a change in timing, not in our strategy nor expectations. We will continue to execute on our strategic plan with discipline, strengthening our core franchise and focus on delivering value for our shareholders. Now we'd be happy to turn it back over to the operator and open up for questions. Thank you.

Operator

We will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Chris McGrady with KBW. Chris, your line is now open. Please go ahead. Chris McGrady, KBW.

分析师问答

Christopher McGratty

Oh, great. Thank you. Good morning. Maybe we could start on slide 15. You have been giving us the slide with the contractual maturity by year for some time. I think this quarter you split out the rent-regulated, which is helpful. Can you help with the visibility into the resets in the maturity wall that you've talked about given the change in the rate environment? You guys have said you've gotten through most of it, but are you going through it again, given the change in the macro? Thanks.

Lee Smith

Yes, so Chris, we, as you know, we do the 18-month look forward. 2027 is our biggest reset and maturity year where we have about $10 billion, so if you think about with through that and if you think about this last quarter, it pushes us through to 1Q of 2028. And as I mentioned in my prepared remarks, we have about $7 billion that is resetting or maturing in 2028. So, you know, we have visibility into the biggest year. I think there's and we feel that given the interest rate environment using that forward curve, that's what the credit team has looked at when they've done that look forward. We've accounted for that. I think what is interesting is when you look at '27, the amount of resets and maturities, $2.9 billion of that $10 billion is more than 50% rent-regulated. So the vast majority is market or less than 50% rent-regulated. I think the other interesting phenomenon for us as we look at our migration this quarter. When we do the look forward, it's very formulaic. Okay, so what we're doing is we're overlaying the interest rate environments at the time and saying what does the DSCR coverage look like? And that DSCR coverage is driving how we risk rate those loans and the migration. The vast majority of the migration this quarter was on market units. And the reason we see a change in interest rates, we will react quickly because we're prudent and we're conservative. If you think about the annual financial statements that we're using, we're using '25 financial statements at the moment. So in terms of those market units being able to increase rent. We don't see that yet. And we don't adjust for that until we see it on the financial statements. So I'm telling you that because we're very, very prudent in the way that we assess the credit quality of our multifamily book.

Christopher McGratty

Okay. Thanks for that, Lee. And then Joseph on the, um, on the capital, nice to see you get through the $250. Given the messaging on smaller balance sheet, and then you're roughly 12.4% versus your target of 11%, how do we think about buybacks from here, given a little bit of noise and credit?

Joseph Otting

Yes, so you know, Chris, I think we've been pretty consistent in our messages that you know the three things that management looks at and has dialogue with the board, how are our core earnings growing? What is the credit quality of the company and the trends in the credit quality? And then how much capital do we expect to use in the C&I growth? And, you know, obviously with the short-term disruptions in that, uh, don't envision us doing any additional stock buybacks in the fourth quarter, but with our capital levels, we would expect to resume buybacks in 2027.

Christopher McGratty

And then just to put a finer point on 2027, so you'd need to see the credit get a decent amount better before you – I'm just trying to gauge. Is it a first half event? Is it we're going to wait a few quarters?

Joseph Otting

You know, if you really look at like the credit like funnel, and that's the thing that I look at is, you know, charge-offs were, on a gross basis, the lowest since we've been here. Non-accrual was flat. And really, you know, other than two borrowers which have resolutions, we haven't seen an increase in past new loans. So where we've seen migration was really on the upper end in the special mention and substandard. And that gets back to Lee's point is when you're looking out in that portfolio 18 months and you're applying interest rates on the five-year curve plus our contractual borrowing in the notes at either SOFR plus 300 or a reference rate plus 275, you know, that's a pretty punitive interest rate that those loans are being underwritten to. And that's what, you know, drag nets in some of those relationships and loan outstandings into those special mention and substandard. So we'll watch to see if there's migration, but we haven't seen that migration to, you know, what I would consider, you know, more critical or difficult loans, you know, at this point yet.

Christopher McGratty

Okay, great. Thanks, Nicola.

Operator

You're welcome. Your next question comes from the line of Dave Rochester with Cantor. Dave, your line is now open. Please go ahead.

David Rochester

Hey, good morning, guys. Good morning. Just on the C&I growth that you've had and the deposit picture today, I know part of the C&I strategy was that you get the deposits associated with those new lending relationships. Can you just talk about the progress you've made there and how much more deposit growth potential you think you have coming from those new relationships you've always brought over and your confidence in getting that, you know, with funding 50% of that growth, with new deposit relationships that are hopefully on the lower side of cost. Thanks.

Richard Raffetto

Great. Thanks, Dave. This is Rich. In the third quarter, as we reported, net C&I loan growth was $2 billion, and we brought in just under $600 million of deposits around that commercial activity. So that batting average, we feel, you know, pretty good about bringing in 30% of deposits. I will tell you that our bankers are very motivated to drive full relationship value whether that's deposits or fee income or a combination thereof and get more relationship primacy as we further mature our commercial banking platform. So with our focus both on special industries coverage and regional commercial banking, as well as deepening our existing private banking relationships. That is how we will continue to fund the loan growth that we are forecasting in the future. So it's about relationship primacy and it's about deepening existing relationships. So that's where we are in the journey, Dave.

David Rochester

Appreciate that. And then just for the new 2028 guide, how do you assess that confidence level that you'll get that profitability ramp up all in that year? We're still in this higher for longer environment when it's just really challenging to project what you're going to get in the next couple of quarters. Right.

Lee Smith

Yes, so Dave, that's why we put the bridge slides in there. So maybe let me walk you through. Let me walk you through '27 first of all, because the two biggest drivers are the balance sheet growth and then the fixed asset repricing. So the way we think about the balance sheet growth, sort of a couple of components. You've got the new loans that are coming on that are funded by the new deposit growth. So on and this is all on a weighted average basis because you've obviously got loans and deposits coming in towards the end of '26 that we get the full year benefit from in '27, et cetera. But if you assume that you've got balance sheet growth so this is new growth on average of about $2.8 billion and that is funded by the new deposits coming on. And we're assuming that we can bring in approximately $800 million to $1 billion of new deposits. And the split there would be about 18% non-interest bearing, 80%, 82% interest bearing. The cost that we've assumed for the interest-bearing is between 3.9% and 4%, and then when you overlay the interest-bearing or the non-interest-bearing deposits, the cost is around overall cost is around 3.20%. So that's and that spot rate is significantly above our spot rate today for our existing portfolio. So you're earning a spread on those new loans of anywhere from 3.40% to 3.50%. That's that's the new loans coming on from the new deposits. You've also got new loans coming on that are being funded by the CRE runoff, and getting a big lift in the shift. In spread because as we've said. The multifamily loans that are resetting have a coupon less than 3.9%. And so you then bring in on market rate C&I loans or new CRE loans and you're going to pick up 2.5% of the spread on that and that number is somewhere between $4 billion and $4.5 billion. So that's how you sort of get to the balance sheet growth. If you then look at the fixed asset repricing, our assumption is we will retain 35% to 40% of what is resetting at much higher rates. And again, we're using the forward curve here. So you're probably going to pick up anywhere from 3.30% to 3.50% in terms of incremental spread. And then the other thing in a rising rate environment that we haven't sort of really spoken about previously, about $10.7 billion of our CRE portfolio is floating. So as rates rise, we'll get the benefit of those loans, $10.7 billion repricing. And that's the reason why, when you look at our interest rate sensitivity, we're neutral to ever so slightly asset sensitive.

David Rochester

All right. Thank you very much.

Operator

Got it. Your next question comes from the line of David Chiaverini with Jefferies. David, your line is open. Please go ahead.

David Chiaverini

Hi, thanks for taking the questions. I guess a bit of a follow up on that last question. When thinking about, I guess drilling in on net interest income and the walk on, say, slide 7, which of these factors would you say is the most at risk of coming in weaker and which ones are the most kind of locked in and mechanical?

Lee Smith

Yes, so here's what I would say. I think first of all, we've obviously, because of the competitive deposit environment, we've brought down our assumption in terms of the amount of deposits we can bring in. And we're saying it would be $800 million to $1.25 billion, Dave. And so that to me is the, that's the assumption that I would look at and say, can these guys bring in that amount of deposits? Because I think the rest of it, we've proven out. You know, Rich and the team have consistently been originating C&I loans at a clip of $2 billion growth a quarter. So I don't think there's any question about our ability to generate assets. And then the fixed asset repricing, that is all mechanical because those loans are either going to pay off and we're going to use them use those funds to originate more C&I loans at market spreads, or they will stay with us and we're going to get an increase in coupon, which is going to significantly increase net interest income. And NIM, and you've got a significant portion of that CRE portfolio, the $10.7 billion, which is floating. So in a rising rate environment, you pick up the benefit there. So to me, I think the question is, can we deliver on the deposit growth?

David Chiaverini

Thank you for that. And then on the C&I growth side of things, the pipeline at $2.7 billion, to what extent could the higher rate environment impact the pull through of that pipeline? And did that pipeline kind of build? You know kind of evenly through the quarter or did it slow down towards the end of the quarter?

Richard Raffetto

Good question, David. I would describe the external environment of our business and commercial and corporate clients as resilient. We have traveled around the country in the third quarter and hosted private gatherings with a number of our clients and in existing geographies and newer geographies. And it is impressive how resilient we are finding the business owner community in terms of executing on their strategic plan, taking advantage of uplift from the significant CapEx investment around technology and AI and data centers that's like a pebble in a pile pond with concentric circles of businesses that benefit from that macro environment. And so I would say that the pull-through is solid, and it's well diversified in terms of what makes up that $2.7 billion of pipeline, and it's amidst an environment that is not without challenges in terms of the inflationary environment and diesel fuel prices, et cetera, and geopolitical concerns. But our customers are telling us that they are moving forward with capital projects, moving forward with M&A, and other strategic initiatives around expansion. So we feel good about the breadth of the loan pipeline, and we also feel good about the ability to pull that through. And I would not say that we experienced any material slowdown as the third quarter came to a close in terms of what we're adding to that pipeline. We also have the unique nature of continuing to be in a scale and growth mode, so as new bankers come onto our platform, they are bringing over their relationship activity and that is also helping to further build our pipeline. That's something that's a little bit more unique to our bank and why you've seen us materially outperform a number of our peers in terms of C&I loan growth.

David Chiaverini

Great to hear. Thank you.

Operator

Your next question comes from the line of Casey Hare with Autonomous. Casey, your line is now open. Please go ahead.

Unknown Speaker

Yes, great, thanks. Good morning, everyone. Wanted to touch on, what is the forward guide assumed for net charge-offs and within that, you know, the ACL ratio at 150, what's, you know, you know, how low can that go?

Lee Smith

Yes, so I would, the provision forecast, I would look at that as the proxy for net charge-offs, Casey. So what we're showing as a provision number, I would use that as your proxy for the net charge-offs.

Unknown Speaker

Got you. Thank you. And then on the deposit front, that's really helpful color on the new money deposit growth. Just wanted to get a finer point on the third quarter. You guys gave a September NIM, the 3.09% deposit costs in the third quarter. What was that in September? And sort of what is the beta expectation going forward? Yes.

Lee Smith

So yes, so a couple of things. First of all, our spot rate as of September 30th and again, this includes non-interest-bearing and brokered was 2.56%. The way we think about the beta is we are targeting a 60% beta. If you look at where we are, and this this is as of three or four days ago, Casey, versus the September rate hike. And this is for interest-bearing deposits excluding CDs. We were at 32%.

Operator

Thank you. Your next question comes from the line of Jared Shaw with Barclays Capital. Jared, your line is now open. Please go ahead.

Jared David Shaw

Thanks. Good morning. Um, I guess trying to to get hey, trying to to get to an assumption for you, year end assets in '27 and '28 and just looking at the guide for commercial loan growth. I guess you've been running significantly higher than that. What's, I guess, driving that slowdown? Is that just you being more selective and more judicious with capital deployment? And then I guess within that loan growth, what portion do you assume is residential versus commercial?

Lee Smith

So, Jared, what's driving where we are for '27 and '28 is really, like I said, it's the deposits. So, you know, what we're sort of saying is we think that we can generate net sort of C&I growth and it's all going to be, I say all, 90% of the growth is going to come from C&I. There will be some residential growth, but obviously the higher rate environment impacts that. But if you think that we're growing substantially, sort of new loans $2 billion a quarter on average and the way we're funding that is $1 billion of CRE runoff net and then you've got $1 billion, $800 million to $1 billion of new deposit flows. So what is, when you look at the growth, it really predicated on the deposit, the new deposits that we can bring in.

Jared David Shaw

Okay, okay, thanks. Um, and then shifting a little bit, I guess, what's what's the sentiment around among the the New York City rent-regulated landlords? Do you still have confidence that they're going to have the ability and desire to support their properties to the same degree as they were in the past, given the rate environment and the political climate in New York?

Lee Smith

We do. I mean, we've said this before. We don't have any REO. A lot of these owners have benefited from the 1031 tax rules. So, you know, that's obviously a huge advantage. The migration that we've seen has been at the upper end of the portfolio because of the way that we calculate, you know, the DSCR and the formulaic nature of how we look at the credit and 42% of our non-accruals continue to be current and are paying. And again, you know, we saw a very healthy amount of part payoffs this quarter, $1.2 billion, 35% of which was substandard.

Joseph Otting

Yes, hey, Jared, the comment that I would say is, you know, like a lot of these borrowers are resetting from, pick a number, 3% to 4% interest rate that they took out either 5-1s or 7-1s. And our documentation, just as a reminder, resets at their SOFR index plus 300, reference rate plus 275. So those are pretty steep interest rates that frequently can have a borrower go from, say, 3.5% to 7.5%. So we don't see a desire not to own the property. What you see is a desire maybe for the bank to restructure and lower their interest rate off the contractual coupon. But I mean, for the most part, that has held up, you know, relatively well. Um, so we haven't seen a material change. And, you know, you've seen some trades in the marketplace recently where, you know, some investors are coming in and buying pools from banks. So I there's a fair amount of and I think that who have a more longer-term viewpoint of the market than just perhaps maybe the next four to six years.

Operator

Thanks. Your next question comes from the line of David Smith with Truist Securities. David, your line is now open. Please go ahead.

David Smith

Good morning. Good morning. Can you just like explicitly clarify your expectations for ending assets over the next few years? Like it's basically $1 billion a quarter of net asset growth with the new originations net of the runoff, but I just wanted to confirm that.

Lee Smith

Yeah, you're right, David. So end of '26, we're at $82.1 billion. This is total assets, $82.1 billion. End of '27, $92.1 billion. And then end of '28, we're just around $97 billion.

David Smith

Okay. Um, and, you know, you've got a lot of people. You touched upon this a little bit in the last question, but just thinking about it, interest rates are a lot lower a lot higher today than they were a quarter ago, but your expectation for CRE runoff and paydowns isn't really that much lower. Is there, I guess, two things. Is there a rate level where you feel like that that would start to decline more meaningfully? Just flesh out a little bit of what you think is supporting that um, you know, that level of pay down and those options that are outside you in the marketplace still today.

Lee Smith

Yes, it's really driven by volume, David. As I mentioned, we have $10 billion of loans that are resetting and maturing in '27 and another $7 billion in '28. And by the way, that doesn't include $1.8 billion in 4Q of '26. So if you just add those three numbers you're at $19 billion of loans that are resetting or maturing. And so you know I would say that, you know, on a net runoff of $1 billion a quarter that that's how we get there and for all the reasons that I just mentioned. 3Q, you know, we have the high rate environment. We still saw $1.2 billion of PAR payoffs. And then I think the other interesting fact is of the $10 billion that is resetting or maturing in '27, only $3 billion is more than 50% rent-regulated. So $7 billion is market to less than 50% rent-regulated.

Operator

Thank you. Your next question comes from the line of Ryan Kenny with Morgan Stanley. Hold on a second. Open, please go ahead.

Ryan Kenny

Hey, good morning. It was a good quarter in terms of growth in non-interest-bearing deposits. And I wonder if you could give some more color on what's driving that growth. Can that continue? And how the investments in Treasury management, you know, from here maybe need to interject. Thanks.

Lee Smith

Yes, so let me take the first part of the question and then I'll hand it to Rich. So we did during the quarter, towards the end of the quarter. We have been undertaking a pretty comprehensive product review. We did move around $900 million to $1 billion of interest-bearing deposits. These were deposits that we were paying one, two, three basis points on. We moved from interest-bearing to non-interest-bearing because for all intents and purposes, they are non-interest-bearing. So that's what you're seeing in the non-interest-bearing line item. And then I think, you know, in terms of going forward, I mentioned in '27, when we think of the new deposit growth on a weighted average point of view, about 18% are non-interest-bearing. And we want to leverage our relationships, particularly from a commercial lending point of view, from a private banking point of view, and then leveraging the 340 bank branches that we have to drive, not just the non-interest-bearing, but the interest-bearing deposits as well. And I'll let Rich comment on some of the strategies that we deploy.

Richard Raffetto

Yes, thanks, Ryan. As Lee mentioned, we are driving further with respect to our relationship banking model business banking to commercial banking and private banking and as we move forward on that journey. We continue to deploy our treasury management platform. When we win new business, I think the receptivity, we have a competitive, management platform that's comparable to other regional banks. We are focused on solutions around working capital management and deploying tools for our clients, especially around fraud and cyber risk, which is, you know, perhaps the #1 concern of our clients when they are banking with digitally, so we are deploying enhanced digital capabilities and fraud protection as we onboard customers and, you know, with a goal to have fulsome relationships that include not just a deposit that's interest-bearing, but those operational accounts that bring bring non-interest-bearing accounts to to the to the front, as well as other payments capabilities including card.

Ryan Kenny

Merchant solutions as well. Thanks. And then separately to follow up on the earlier question on rent-regulated multifamily, what's the net charge-off you're assuming on rent-regulated relative to what you're seeing recently? Is there an uptick embedded in the guidance?

Lee Smith

No, no, not particularly at all. I think the one thing I'd point out on the net charge-offs as well this quarter, so we had net charge-offs of $74 million. And what I would say about that is $34 million was already fully reserved for. So the so if you take that out, we would have been at $40 million in in net charge-offs, which that's where we sort of expected our provision to be. The reason that we were at the sort of 75 is that 34 that would have come out normally we had to replace because of the higher rate environment impacting those cap rates on units in the Bronx in particular. In particular, the inflationary environment, putting pressure on operating expenses, on the higher rate environment, putting, you know, more pressure on the DSCRs, and then that caused more migration. And so, you know, without that higher interest rate environment, the charge-offs net charge-offs, you know, we wouldn't have had to replace that $34 million and your provision would have been $40 million for the quarter instead of the, you know, the $76 million that we saw. Thank you.

Operator

Your next question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim, your line is now open. Please go ahead.

Ebrahim Poonawala

Good morning. Morning, Apologies if I apologize, Heli, if I missed it. Is why are we shutting down the buybacks? Like when you look at the stock at 1.1x tangible book, 15x, shouldn't this be the time to be leaning in? And I ask that because I think you mentioned that you might reinitiate buybacks in in one queue. So I'm just trying to understand, is there like very narrowly a metric that you're managing to as opposed to one like why not buy back today or if the environment is becoming uncertain, why not push and suspend buybacks indefinitely? I'm just trying to figure out between those two spectrums why you said what you said.

Joseph Otting

I mean I just think it's prudent until we build our core earnings and and ensure that our credit quality forecast is accurate and then the C&I growth has been spectacular. But those are the three variables management will use to make a recommendation to the board. I mean we we clearly acknowledge our capital levels are higher than our intended levels. Um but you know just in light of that uncertainty we will wait until 2027 before we would look to buy back. We, you know, we fully expect to resume that in 2027.

Ebrahim Poonawala

Got it. And separately, this big picture, it feels like rates don't go down. There is not a whole lot that's going to be helpful from the CRE book resolution unwind. Obviously, this quarter was an evidence of that. If rates move up, and I appreciate they've come down a little bit in the last week, but but maybe Joseph talk to us how you're thinking about, yes, the C&I strategy is working, but beyond that, like are there other strategic options like strategic merge larger partnerships with other banks that you would be exploring in order to unlock shareholder value?

Joseph Otting

Yes, you know, Ebrahim, I think really we think the best value for the shareholders of this company is for us to execute on our business plan. Able to do that, we really can unlock, I think, significant value in the valuation of the company just by executing, you know, on the path that we expect to get to in 2028.

Lee Smith

And Ebrahim, I would just add, you know, and to Joseph's point, we've laid out sort of the path here over the next two years, and as we've said and as we've answered other questions, a large part of this is mechanical as these low-coupon multifamily CRE loans. I think, you know, the deposit growth we we brought down and if we can achieve that, we know we can generate the C&I loans so you. You know, look, I think that if we achieve these numbers, it's going to create significant value for the shareholders over a short time period. In terms of your question around sort of the interest rate environment, we are slightly, well, we're neutral to slightly asset sensitive. You know, so obviously in that scenario, a higher rate environment is helpful. Higher rate environment does put pressure on the credit side. But again, you know, I think as I described earlier, the migration we saw was sort of more in the market rents, the upper end of our portfolio, because we're sort of, we're very kind of punitive on ourselves and conservative in in the way that we do that 18-month look forward in the formulaic approach so I I agree with Joseph. I think there is an enormous amount of value creation here by executing on the plan we've laid out.

Ebrahim Poonawala

Understood. Thank you both.

Operator

Your next question comes from the line of Ben Gerlinger with Citigroup. Ben, your line is now open. Please go ahead.

Benjamin Gerlinger

Hey, good morning. I just want to double check. Was this forecast based on 9/30 curve for like last Friday?

Lee Smith

Uh, this was based on a September curve that had four hikes in it. So we've got September, December, March, and June.

Benjamin Gerlinger

Got it. Okay. So, this kind of gets to the question Ebrahim just had where he's basically kind of saying like, I apologize in advance, because I don't want to diminish the progress you guys have made. It just seems kind of like the franchise today is very much an interest rate curve bet. And the only reason I say that is five-year has come down roughly 30 basis points since the end of last quarter. So the first three weeks here. So like when you think about just the update, if we just kind of retrace, wouldn't that put like alleviate quite a bit of the incremental pressure you guys have just kind of alluded to in terms of credit, like I get the positive price is a little bit more expensive today based on the front of the curve, but like the credit resolution opportunity probably gets a little easier relative to where it was just three weeks ago if the curve kind of plays out on the belly of the curve. Am I thinking about this correctly or am I kind of off base?

Lee Smith

Ben, you're spot on. If rates come down, that is definitely beneficial and certainly on the credit side. So that is absolutely the right way to think about it. You are correct.

Joseph Otting

But I think, Ben, when you look at what last time we were forecasting was in mid-June, seen a hundred basis points increase even from the pullback. So that's on that half of the equation. The other half, I would say you've seen a super hyper increase in deposit cost. You know, 30 days ago, it was pretty difficult to find a CD for one year over 4%. Some of the competitors are at 4.75% today. So you've seen super hyper pricing increases in the deposit that hopefully we'll see that pull back also. But in the short run, some of the competitors are very aggressive.

Benjamin Gerlinger

Got it. And then just kind of thinking from a client-based perspective in terms of the multifamily slash areas where you might see pockets of pressure on a DSCR coverage, like when you think about their level of sophistication, if the five-year comes in a little bit more, would you potentially see like kind of rapid payoffs or like basically the borrower hitting the bid to refinance because it's a window of opportunity that's pretty small or presumably pretty small? I'm just trying to think like how sensitive this kind of lumpy payoff potential might be to rates bit more formulaic over time period of kind of getting close to expiration.

Lee Smith

No, no, no. I think you're exactly right. You know, we do so, you know, Joseph has described, we have two options contractually, five-year SOFR plus 300 or prime plus 275. We do see, and there is a SOFR sort of opportunity, we do see people taking the floating rate because they're effectively making the bet that rates will come down and then they will be able to refinance. So your thesis is exactly right. You've got people that will take a floating rate now in a high rate environment because they're betting that rates come down and then they will be able to refinance at a lower rate and with a better opportunity. So I think if rates come down, then yeah, you would see more of that activity which is people taking advantage of the drop to refinance what they would see as.

Joseph Otting

Good right yes and the other thing then I think they recognize this next really five quarters is the largest, you know, repricing window that we've seen since we've been here in '24 so they'll just the numerator to that is so much higher than what we've experienced. That gets back to an earlier question about how confident are you that you can net reduce that CRE portfolio by $1 billion if you just kind of applied historical levels, we would be much higher than that. But we are also originating now CRE outside New York, across Seattle. United States and predominantly transitional type of properties.

Operator

Got it. That is helpful. Thank you. Thanks, Ben. Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Bernard, your line is now open. Please go ahead.

Bernard Von Gizycki

Hey guys, good morning. Just on the NIM outlook, it's growing but at a slower pace than originally expected. Could you just maybe provide some updates on some of the headwinds? I know you already mentioned maybe slower expectations on the non-accruals coming down, but what about the expectations on the levels of retention of maturing loans? And pricing of higher quality retained loans. Just some thoughts on some of the push and takes.

Lee Smith

Yes, so I think there's a couple of things that have played out. And Bernie, first of all, I think as we mentioned, we did see a four basis point increase in quarter over quarter in September. Came in at 2.23%, but I'd say the headwinds are the deposit costs. I mean, we've sort of... We thought that, and if you look at our history for the last several quarters, we've been able to bring deposit costs down consistently. And obviously on a weighted average basis, it kicked up one basis point in 3Q when we were sort of putting the previous forecast together. Knowing that we're going to be these full rate hikes in the curve, you know, we thought we would still be able to chip away at those deposit costs. So I think that's that's one of the things that would mention in 3Q, and Rich can touch on this a little bit. Given the mix of C&I lending that we did, I would say that the spread came in a little lighter than 2Q when we were at 2.25%, not much but a little bit, but that was all more just the mix of loans that we bought in. And then on the non-accruals, you're right, non-accruals are flat. So we're not getting the benefit of the release of those non-accruals back into earnings and back into capital. And as we've described before, the non-accruals is a little bit like a receivable account. You've got non-accruals that are resolving and are going away, and then you've got some new ones coming in. Some new ones coming in that has an impact on your net interest income as well so. You know that that's what I would. Described but I think overall if you look at the trend line, you know, you are beginning to see the interest income was up $20 million quarter over quarter. NIM was up and, you know, we're about to sort of embark on this big wave of resets and maturities which is going allow us to sort of accelerate that expansion.

Bernard Von Gizycki

Okay, great. And then just, Lee, on slide 7, you have funding mix as a positive component helping the NIM in '27. Are you still expecting wholesale borrowings to come down? We're going to start on slide 21 and come back in 20 seconds and come back down.

Lee Smith

Yeah, so that's exactly what it is. There's two things playing out on that or in that particular particular part of the chart. One, yes, we got the flood coming down about $1 billion in '28 and then we also in 4Q of '28 we see you don't it's not counting for a large part of this, but we pay down $300 million of sub debt so that's the. That's what you're seeing in that funding mix chart on page 7. It's a reduction in FLOBBR of $1 billion. And then in 4Q, you've got a little bit of benefit because we're paying off those sub notes.

Bernard Von Gizycki

Great, thanks for taking my questions.

Operator

Your next question comes from Janet Lee with TD Cowen. Janet, your line is now open. Please go ahead.

Sun Young Lee

Good morning. Good morning. Hi, Janet. Following up on provision and the forward curve, so is it as simple as if we don't get a rate hike in December, your provision forecast would be lower?

Lee Smith

I would say that there is potential for that, Janet, because it is very It is very much linked to interest rates and we have sort of, you know, been looking at the forward curve as of the credit guys. There are other things at play as it relates to the provision. So, you know, the amount of C&I growth, obviously the net $2 billion of C&I growth in 3Q, that did contribute to provision and then you also have we use the Moody's economic forecast so you know we have to wait and see what does that Moody's economic forecast look like as well so it's not the only variable there are other variables that, you know, we do need to sort of consider here.

Sun Young Lee

Got it. And it's, I believe you said, the non-accruals NPLs are likely to come down but obviously at a slower magnitude than expected before. How much visibility do you have on it? I don't believe you still expect, you know, getting to the $2.3 billion level by the end of this year like, is there, is there a line of sight into where that could go over the next year, just given you're also charging off a little more?

Lee Smith

You have some line of sight, but not total line of sight because it's not linear. We have a special asset group who are doing a fantastic job working through these non-accruals. And they have lots of different strategies, sort of DPOs, workout, asset sales. In order to be able to to reduce those non-accruals. And so sometimes, you know, we do have this ability into what is coming, but as you might imagine, sometimes things can come up and be resolved in a couple of days where you have less visibility. Right now, we're assuming that we end the year at about $2.6 billion of non-accruals, Janet. And then in full transparency, as we look through '27, we do believe we can bring those non-accruals down to about $2 billion. So those numbers are higher than what we had previously thought, because the higher rate environment does slow down the resolution of the non-accruals. But as I mentioned in my prepared remarks, and as you can see from the bridges, we are still low, we still believe we can reduce those non-accruals from where we are. And that is accretive to both earnings and capital because they're 150% risk weighted as well.

Sun Young Lee

Got it. Thanks so much. Thank you so much for it. Just a quick follow-up if I. NIM of 2.23%, do you think that's a reasonable floor from here?

Lee Smith

I would like, let me put it this way, we think 4Q NIM can be 2.20% to 2.25%. So, you know, I think we are, I don't want to say it's a floor in case one of the months is 2.22%, but I do feel that we can continue to build off of 3Q. And I think that we do think that that 2.23% is absolutely within the range that we expect to be at in 4Q overall.

Operator

Thank you. Your next question comes from the line of Anthony Elian with J.P. Morgan. Anthony, your line is now open. Please go ahead.

Anthony Elian

Great. Thank you. Slide 17, Lee, you note the ACL on criticized and classified on rent-regulated was about 502. I think that's up from 48 last quarter. What's embedded in your forecast for that?

Lee Smith

So well I think what you're seeing here is, you know, what is, you know, what is what is embedded in our forecast. And I think, you know, as I mentioned earlier, you know, I would look at the provision number that we have going forward as a proxy for the, you know, for the charge-offs. And so, um, and most of that is going to be weighted towards the multifamily portfolio.

Anthony Elian

Okay, and then more broadly on rent-regulated. So there have been a couple of banks here in the New York market that as recent as yesterday announced that they're selling parts of their New York City rent-regulated portfolio. Joseph, I'm curious, is this something you guys are considering given the headwinds you called out this quarter on rent-regulated? Which seem to be overshadowing the progress you've been making on what Rich discussed earlier on this call. Thank you.

Joseph Otting

You know, the way we look at that is we, you know, obviously we observed those sales and look at, you know, our portfolio. But, you know, what we have been able to do because where we have those loans marked is most of our resolutions, whether DPOs or payoffs or negotiated settlements, have been with, you know, 1% to 5% either positively or negatively where we have those loans marked. And most of those investors are looking at 15% to 20% returns. And so we've taken the position, we have the team in place, we've been working these out. That, you know, a year or two from now, we think our shareholders are better served by us, you know, loan by loan, having resolutions to that. But I mean, we clearly obviously monitor the market closely. And, and, you know, if there was an opportunity, speak opportunity to sell some of that we would, but I would say we have, you know, currently, you know, like nothing on the table to do that, that we will, you know, we're obviously talking to lots of people in the marketplace, but, but our resolution internally really has optimized the retention of capital for the company.

Anthony Elian

Understood, thank you.

Operator

Your next question comes from the line of Matthew Breese with Stephens Inc. Matthew, your line is now open. Please go ahead.

Matthew Breese

Good morning. Good morning. Come on in. You know, Lee, I was hoping you could provide a little bit more color on the fee income outlook. Looks like it's about an $80 million to $100 million reduction. I'm curious areas you're expecting to see, you know, reduced level of fee income from.

Lee Smith

Yes, so the biggest drivers of the reduction in the fee income forecast are lower gain on loan sale from the mortgage origination business, the higher rate environment. I mean, that's been sort of costing us a couple of million a month. That is a big driver. As I've mentioned, we've reduced our deposit forecast down, which also had an impact on the loan origination volumes versus the previous forecast. And so you're seeing less fees from sort of the deposit and loan businesses as a result of just those lower volumes. And so those are the sort of the big drivers. If you sort of look year over year from '26 to '27, you know, we are showing growth from a net interest or a non-interest income point of view. And we do feel that, you know, from capital market fees, treasury management fees, the swaps, FX, everything that Rich and the team is doing, that we're going to continue to expand our fee income as we move forward. But we're just right now in the higher rate environment, we're not going to get the help that we had originally thought from the mortgage business.

Matthew Breese

Got it. Okay. And then I wanted to go back to, you had mentioned that you have $10.7 billion in commercial real estate that's now floating. Is that a function of folks that have hit the end of the five-year fix and are now floating? Or is that a function of swaps? It feels a little bit unnatural for a commercial real estate borrower to hold a floating rate for an extended period of time. I'm wondering if that's a risk factor to your interesting position going forward those folks either locking in for five or leaving for five elsewhere.

Lee Smith

Yeah, no, no, I think it's there's there's a couple of things that are that are playing out. Some of those CRE loans, about $3 billion, are actually healthcare facilities, that we fund in another part of the organization, but they're categorized as a CRE. And then the other part is people that are selecting, you can either select the prime rate, and we know that when they select the prime rate plus 275, that's probably on a short-term basis until they find a better opportunity. And you're always going to, so you're going to have people cyclically in and out of that. But then there are, as I mentioned, there are SOFR options that our team is also making available to certain borrowers. And you've got people that are that are going with those SOFR options as well on the CRE side.

Joseph Otting

I think you have to think about that as a landing spot. If you just happened to hit two weeks ago when the five-year was 5.12% or 5.13%, you wanted to see, are rates going to pull back? And so a landing spot for people to set where they're kind of watching interest rates. And for us, what we think that ultimately means is, as Lee referenced, we expect 65% of those loans to pay off as a general rule when they come up for maturity. They may stick around for 60 to 120 days, but we do eventually think they go away.

Richard Raffetto

As we reopen selectively for originations across the country in CRE, we are seeing a higher percentage of floating rate SOFR-based loans. And if the client wants to fix the rate, they'll do that synthetically through a swap transaction.

Matthew Breese

Okay. If that plays out just the way you thought, with 65% locking in, I guess, elsewhere, is that moving into a liability sensitive type interest rate position? No.

Lee Smith

No it doesn't remember, you know, if you look at our balance sheet, we are putting on with transitioning to more C&I loans, right? So that in itself, you know, makes us asset sensitive. You've got this sort of $10.7 billion of CRE that is floating, but I think you're going to have in and ins and outs. Some of that is permanent because of the health care facilities because of the new CRE loans that we're doing that are typically floating. We're not sort of, you know, really offering those fixed rates unless they're part of the research that sets and a contractual. Our non-interest-bearing deposits increased because we moved those very low cost deposits from interest-bearing to non-interest-bearing. No, I don't think it doesn't move us to a liability sensitive position. I think we're very much neutral to asset sensitive. Probably moving more in that direction, given the transition of the balance sheet to more C&I. I'll leave it there. Thank you.

Operator

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. John, your line is now open. Please go ahead. Thanks. Good morning. Good morning. Hi, John. Yep. Hi, John. Yep.

Jon Arfstrom

Hey, one small one and then one bigger picture, but Lee, on the higher expense guide, maybe I missed it, but I know it's small, but just curious what the driver of that was.

Lee Smith

You mean for '27? Yeah. Yes. So it so the previous guide, we were sort of towards the top end of the range, and then we we continue to invest in sort of people and technology. And so that just put us sort of beyond the top end of the previous guide and into the sort of the current guide, which is consistent with where our expenses are this year. So it's just investment in people and technology.

Jon Arfstrom

Okay, okay, good. Um, and then the bigger picture one, I just, I asked this respectfully, but I know a lot of this is hard to predict, but that update slide, it's been drifting lower for a few quarters and it's elongated a bit and maybe an unfair question, but any elements of this that were maybe a deeper dive reset where you think this is probably the bottom? Them or set another way? What does it take for things to get tougher from here? And I guess I'm focused kind of more on the core trends. I think credit works its way out. But how deep did you guys go on this reset? Because for '27, it's a pretty big cut.

Lee Smith

Yeah, I mean, we've spent countless hours, days, weeks, pouring over this, John. And as I mentioned, you know, we, a lot of this is mechanical now because of the repricing. You know, as I mentioned to one of the previous questions, you know, if you look at this and say, okay, big picture, you know, where is the risk? We have the ability to create and generate assets. I think, you know, we've proven that on the C&I side. And so we know the resets are going to happen. They're contractual. We all just sit here and wait. Time is our friend in that regard. And we've taken the deposit um down but we're saying we're going to grow deposits, you know, $800 million to $1 billion a quarter. And so, you know, that is the that would be the question, can we bring in $800 million to $1 billion of deposits a quarter? And so, we believe we can. And so that's if we can do that, then we can hit all of these numbers because that helps fund the incremental balance sheet growth. 50% of it is funded by CRE runoff. That is going to obviously change the mix of the balance sheet more favorably. And you have the pickup in the spread just given everything everything that's resetting is sort of, or a lot of it is low coupon. So I think it comes down to, can we bring in the deposits?

Jon Arfstrom

Okay, thank you.

Operator

This concludes the question and answer session. I will now turn the call back to Joseph Otting for closing remarks.

Joseph Otting

Thank you very much, operator. As noted with this presentation, we provided our 2028 forecast. We thought that was important so that the journey ahead is well defined. As we have done in the past along the way, as both internal and external factors alter that, we've come forward and really tried to make sure that, as we have those changes, we communicated those, so everyone knew how we observed the business. We do, as I said in my opening comments, feel we remain to be on the path for Flagstar Bank to complete its turnaround. It's just if you look at the numbers, you know, the $0.28 really on top of previous '27. So this is a what I would just say it pushed it out, but it didn't change the direction that we were going. So we do feel very good about the continued fundamentals of this transformation of this company where the C&I business will become, and is now becoming a much more significant portion of the business and that we look to really have a balanced balance sheet where a third of the assets are dedicated to consumer cash flows, a third to commercial real estate, and a third to business lending. In closing, I'd like to thank our executive leadership team and all our teammates for their dedication and commitment to the organization and our customers. I'd like to also thank the Board of Directors for their support and counsel. And thank you for taking the time to join us this morning and asking what we thought were really important and critical questions. So thank you for your interest in Flagstar.

Operator

This concludes today's conference. Thank you for participating. You may now disconnect.

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