Flagstar is back in the black after eight quarters of losses

• Key insight: Flagstar Bank reported a profit for the fourth quarter, marking a shift after two years of losses spurred by commercial loan troubles, rising credit-loss provisions and capital concerns.
  
• Expert quote: "I think we're now pivoting to the growth side of the story." — Lee Smith, chief financial officer
  
• Forward look: The bank maintained most of its guidance for 2026 and 2027, with the exception of its anticipated net interest income, which was revised downward for both years.

Flagstar Bank returned to profitability in the fourth quarter, ending a prolonged period of losses that began two years ago when it nearly collapsed due to significant commercial loan troubles.
The Long Island-based bank, which reported eight straight quarterly losses, moved from red to black by cutting noninterest expenses across several categories and by reducing its provision for potential bad loans, which helped boost net interest income by nearly 50% year over year.

CEO Joseph Otting characterized the return to profitability as "a significant milestone" and said the management team remains committed to turning Flagstar, which was formerly known as New York Community Bancorp, into "one of the best-performing regional banks in the country." 

"2025 was a year of significant momentum for the bank, which accelerated during the fourth quarter," Otting told analysts Friday during the bank's quarterly earnings call. "We continue to successfully execute on our strategic plan … [to build a bank] with a diversified balance sheet and revenue streams," as well as strong capital ratios, liquidity and credit quality.

Otting, who was the Comptroller of the Currency during the first Trump administration, is nearing the two-year mark as Flagstar's CEO. When he took over in April 2024, the bank was struggling to survive amid souring loans in its commercial real estate portfolio, which included multifamily and office loans. The fallout led to sky-high credit-loss provisions, liquidity and risk concerns, management turnover and a stock price that, for some time, was in freefall mode.

Otting, along with former Treasury Secretary Steven Mnuchin and other investors, injected $1.05 billion of capital into the bank to help stabilize it against further deterioration and reduce some of the market's fears about its survivability. By mid-2024, Otting and a mostly new management team laid out a three-year business overhaul and moved quickly to implement it.

While much has been done in the past 18 months to turn Flagstar around, there's still a lot of work to do. One of the main objectives of Otting's plan is to further diversify the bank's loan portfolio, which historically was dominated by multifamily loans in the New York metro area.

Flagstar is focused on doing more commercial-and-industrial loans while reducing its commercial real estate portfolio. Last year, there were $5.5 billion of CRE loan payoffs, including $4.2 billion in multifamily loans, and a 25% reduction in CRE loans between late 2023 and year-end 2025,the bank said Friday.

The changes over the past two years have resulted in a reduction in total assets. During the fourth quarter, total assets shrunk to $87.5 billion, down 13% compared with the end of 2024.

The balance sheet is expected to grow in 2026 to $93.5 to $95.5 billion, the bank said. By 2027, when the turnaround should be largely complete, assets should be $103 billion, Chief Financial Officer Lee Smith said on the call. 

There are still "a lot of moving parts" involved in Flagstar's turnaround strategy, Smith said. Still, "I think we're now pivoting to the growth side of the story," he added.

During the quarter, net income totaled $29 million, or 5 cents per share, beating the average estimate of 2 cents per share that had been predicted by analysts polled by S&P Capital IQ.

Revenues were $557 million for the three-month period, down about $75 million year over year.

Net interest income totaled $467 million for the quarter, up 1% year over year. Excluding $3 million in provisions for loan losses, which was significantly less than the $135 million in the year-ago period, net interest income was $464 million, an increase of 47% year over year.

Noninterest expenses of $509 million fell 29% year over year, reflecting lower Federal Deposit Insurance Corp. charges, along with a 47% decrease in general and administrative costs compared with the year-ago period and a 16% decline in employee compensation and benefits.

Flagstar did incur $4 million in severance costs during the quarter, as a result of layoffs that took place earlier this month, Smith said. The bank declined Friday to say how many positions were eliminated or whether more layoffs are planned.

As of Dec. 31, total headcount was 5,600, a Flagstar spokesperson said in an email. That's down nearly 20% compared to the end of 2024, when the total workforce was 6,993, according to the bank's 2024 annual report.

Flagstar largely stuck to its financial targets for 2026 and 2027, which it had laid out in previous quarters. It did, however, lower its net interest income expectations by $100 million for both years. The revision reflects the anticipation of higher payoffs in the CRE book, Smith said.

During the fourth quarter, Flagstar's board of directors shrank by one when Brian Callanan, the former general counsel of Liberty Strategic Capital, Mnuchin's private equity firm, resigned in November. Callanan, who is now the U.S. general counsel at TD Bank, served on the board for less than a year.

The bank declined to say whether the eight-member board plans to fill Callanan's seat.