Flagstar Bank has shown strong growth and profitability by increasing CET1 capital ratio and reducing brokered deposits. The bank has enhanced liquidity, lowering funding costs and boosting net interest margin. C&I lending saw significant growth in commitments and originations, led by specialized industries and regional banking. Derisking actions have positioned the bank for sustainable growth.
Flagstar Bank has reported improved financial performance in Q4 2025, returning to profitability and achieving NIM expansion. The bank paid off high-cost deposits, reduced criticized loans, and saw a decrease in nonaccruals and net charge-offs. With a strong CET1 capital position and cost control, Flagstar is on track to be a top-performing regional bank.
Flagstar Bank’s net income attributable to common stockholders in Q4 2025 was $0.05 per diluted share, with adjusted net income of $0.06 per share after excluding notable items. The bank is optimistic about future accomplishments in 2026 and beyond, with updated forecasts for net interest income and EPS through 2027. Flagstar also saw double-digit growth in net interest margin and controlled operating expenses in the past year.
Flagstar Bank has shown a positive trend in net interest margin, with a 23 basis point improvement in Q4 2025. Excluding a one-time hedge gain, NIM still increased by 14 basis points. The bank has effectively controlled costs, with core operating expenses declining year-over-year. Looking ahead, Flagstar aims to maintain growth and profitability in the coming years. Flagstar Bancorp reported a modest increase in capital due to higher short-term incentive compensation. Deleveraging actions reduced interest-bearing deposit costs by 26 basis points. Multifamily and CRE payoffs led to a 25% decline in total CRE balances since 2023. The reserve coverage on multifamily loans remains strong at 1.83%. Net charge-offs decreased by 37% to $46 million. Nonaccrual loans were down 8% to $3 billion. At the end of the quarter, 30- to 89-day delinquencies increased by $453 million to approximately $988 million. The main driver of this increase was the additional day in December compared to September. As of January 26, 70% of delinquent loans have been brought current, with $298 million driven by 1 borrower.
The review of the 2024 annual financial statements for all CRE borrowers is almost complete, with 93% of loans reviewed. Of these, 80% are stable, 7% have improved, and 13% have declined. The CRE exposure has been reduced by over $12 billion or 24% since the beginning of 2024, with an increase in ACL coverage against the remaining portfolio.
The bank’s solid foundation, strong capital position, and expense optimization program have allowed for successful derisking and growth. The focus on reducing exposure and increasing ACL coverage has set the stage for future value creation for shareholders. The bank remains committed to delivering on its strategic plan over the next two years.
The bank reported returning to profitability in the fourth quarter of 2025, reflecting disciplined decisions and hard work. The team’s efforts in strengthening the balance sheet, diversifying the loan portfolio, and investing in key areas have been instrumental. The Board of Directors and executive leadership were acknowledged for their support and dedication.
NII was lowered by $100 million due to higher payoff activity, particularly in multifamily and CRE loans. Excess cash was used to delever the balance sheet, resulting in reduced assets. The bank has also addressed oversized exposures in individual names through rightsizing, leading to higher net C&I growth in the first quarter.
The bank is guiding $3.5 billion to $5 billion in payoff activity for 2026, with an expectation that 40% to 50% of these payoffs will be substandard loans. Pricing rollover on these loans has been higher than market, motivating borrowers to take loans to other institutions or agencies. Lee Smith and Joseph Otting of Cantor discuss their plans for loan growth in 2026 and 2027, leveraging C&I relationships and private client bankers for core deposit growth. With $1.2 billion in excess capital, they anticipate stock buybacks and continued expense rationalization for profitability.
Casey Haire of Autonomous questions Lee Smith on funding strategy, highlighting the reduction in wholesale borrowings to 13% of assets and plans to further deleverage by paying down club advances in 2026. Expense rationalization efforts will continue, with a focus on reducing FDIC expenses.
Lee Smith explains Cantor’s expense guide of $1.5 billion to $1.8 billion, noting Q4 severance costs and incentive compensation. With ongoing cost optimization initiatives, expenses are expected to decline after Q1, leading to further reductions in FDIC expenses. The bank aims to maintain profitability through continued expense rationalization. The company is working on technology projects to improve efficiency and optimizing real estate. Expense reduction is expected to continue throughout the year. Capital deployment for organic growth is a priority, with plans to reduce nonperforming loans and maintain credit quality. The New York multifamily portfolio is being closely monitored for potential rent freezes and impact on liquidity. The company is focusing on underwriting loans and assessing risk factors for the future. There has been no slowdown in liquidity, and exposure to fines and violations is minimal. In a recent conference call, Lee Smith and Joseph Otting discussed a borrower that went through bankruptcy, with $450+ million in nonaccruals expected to close by the end of the first quarter. The auction was confirmed, and any additional charge-offs were taken in the fourth quarter.
Regarding the re-regulated portfolio, $4.3 billion has already repriced, with an additional 36% expected to reprice within the next 18 months. Lee Smith also mentioned that 54% of the total portfolio has already repriced, with 90% set to reprice or have repriced in the next 18 months.
Lee Smith provided details on new loans being added to the balance sheet, with C&I loans coming in at a spread of 230 basis points and CRE loans at 200-225 basis points. They also discussed potential outcomes of the upcoming New York governor election and the 2019 law changes related to rent regulation.
Joseph Otting highlighted the need to revise legislation affecting remodels of vacant units, estimated at 50,000-60,000 units. Property managers and owners are engaging in discussions to ensure safe living environments and address violations within their portfolios.
In the same call, Christopher McGratty asked about the $1.1 billion in par payoffs, noting a decrease from the previous quarter. The specifics of these payoffs were not further elaborated on in the conversation. Flagstar Bancorp executives express confidence in balance sheet updates, expecting over $1 billion in par payoffs per quarter in 2026. Anticipate growth in commercial real estate originations to offset outflows. Share count projected to increase over 2026. Risk-weighted assets management discussed, with focus on reducing nonaccruals. Innovative underwriting strategies highlighted for C&I and specialized industries segments. The company has seen strong growth in C&I loans with an average size of $25-30 million, managed carefully to mitigate risk. Credit department reviews all loans before approval. The company maintains healthy spreads and 70% utilization on facilities. NIM guide set at 240-260, with various factors influencing improvements.
The company anticipates growth in C&I and consumer loans, offsetting runoff of multifamily and CRE loans. Funding costs reduced through core deposit cuts and leveraging retail CDs. Focus on reducing nonaccrual loans to improve NIM. NIM influenced by multiple moving parts, leading to a wide range in projections.
Clarification provided on C&I growth strategy, with target deals per banker outlined. Legacy loans mostly rightsized, but some runoff expected in ABL and dealer floor plan portfolios. Normal paydowns and line usage affect loan balance movement. Company aims to demonstrate achievable C&I growth targets.
Uncertainty in the current interest rate environment adds complexity to growth projections. Flagstar Bank’s CEO, Joseph Otting, believes the bank is neutral in interest rate sensitivity but will benefit from a declining rate environment. This will help multifamily borrowers and boost mortgage activity, benefiting the bank’s mortgage business.
Otting sees a beneficial impact on multifamily and mortgage borrowers from a steeper yield curve, particularly on the 5- and 10-year ends. This will enhance the bank’s position in these areas.
Flagstar Bank expects a continued increase in net interest margin (NIM) quarter-over-quarter after a 14 basis point improvement in Q4. No specific quarterly guidance is provided, but a positive trajectory is forecasted for the year.
The bank anticipates year-end assets to be around $103 billion for 2027, a slight decrease from the previous range given in the last quarter.
Cash balances decreased due to deleveraging and payments on broker deposits and FHLB debt. The bank invested in securities, with a fungible relationship between cash and securities to optimize returns.
At year-end, the cost of deposits was at 2.56%, with maturing CDs at a weighted average cost of 4.9% in Q4. The bank retained 86% of these CDs at lower rates, expecting a 25-35 basis point benefit from maturing CDs in Q1. Further CDs are set to mature in Q2 with a weighted average cost of 4%. Lee Smith provided updated share counts, including warrants, for the years ahead. Jon Arfstrom inquired about the health of multifamily loans maturing in the next 2 years. Lee Smith expects a $1 billion reduction in nonperforming balances in 2026, including resolution of bankruptcy loans. The quality of loans hitting reset and maturity dates is consistent, with ongoing analysis and risk assessment.
Joseph Otting highlighted the consistent tracking of payoffs to maintain portfolio risk. Jon Arfstrom questioned Lee Smith on guidance adjustments. Lee emphasized the focus on executing growth plans for 2026 and Flagstar’s proven track record. Christopher Marinac asked about the shift in deposit mix as C&I grows, with Joseph Otting noting a strategy to bring in noninterest-bearing operating accounts over time.
Joseph Otting expects a mix of interest-bearing and noninterest-bearing deposits as C&I grows. The focus is on full relationship banking to generate fee income. Christopher Marinac anticipates movement in deposit ratios and mix throughout the year. Joseph Otting acknowledges the potential for increased fee income and deposits with the expansion of services in the past 15 months. Flagstar Bank reports a transitional period with a focus on specialized industries for deposit growth. CEO Joseph Otting emphasizes executing the strategic plan to transform Flagstar into a top-performing regional bank. The call concludes with a thank you to participants. See the full transcript for details.
Read more at Yahoo Finance: Flagstar (FLG) Q4 2025 Earnings Call Transcript