Flagstar reports another net loss amid ongoing revamp

• Key insight: Flagstar logged another quarterly loss, though one that was smaller than in earlier quarters this year.
  
• Supporting data: The bank's third-quarter net loss was $45 million.
  
• Forward look: Observers are focused on when the Long Island bank, which was battling for its survival last year, will return to profitability.

UPDATE: This article includes analyst comments and an update on Flagstar's stock performance.

Flagstar Bank reported a larger-than-expected net loss for the third quarter, marking the consecutive eighth quarter of profitability challenges as the Long Island-based bank continues its business overhaul.

Bank executives continued to express optimism on Friday, pointing to the ongoing diversification of Flagstar's loan portfolio as well as an improving margin and well-controlled operating expenses. Still, they did not commit to returning to profitability in the fourth quarter, which has been a goal for the company this year.

Flagstar said its third-quarter net loss was $45 million, or $0.11 per share. That was higher than the $0.08 average loss estimate predicted by analysts polled by S&P Capital IQ. 

Flagstar, which was formerly known as New York Community Bancorp, hasn't been profitable since the third quarter of 2023. In early 2024, the regional bank experienced significant tumult and nearly collapsed as a result of bad commercial loans, credit mishaps and risk oversights.

Its quarterly losses have continued to narrow this year as the bank has made progress on its plan.

In a press release announcing the latest results, Chairman and CEO Joseph Otting said the $91.7 billion-asset bank is moving in the right direction. The progress includes revamping the loan portfolio by adding more commercial-and-industrial loans and reducing exposure to commercial real estate loans, including multifamily loans, according to the bank. For decades, New York Community was a significant lender on multifamily buildings throughout the New York metropolitan region.

"Our third-quarter 2025 performance provides further evidence that we are successfully executing on each of our strategic priorities," said Otting, who joined the bank in 2024 as it was struggling to survive. "We made tremendous progress over the past year in building our [commercial-and-industrial] business and are extremely pleased with the results to date."

Flagstar executives had been predicting that the company would return to profitability by the fourth quarter of this year. In response to an analyst's question about whether that expectation still holds, Chief Financial Officer Lee Smith didn't commit to it.

"We expect to be [profitable], but there's a lot of moving parts," he said. "I would point to the progress we've made quarter over quarter for the last few quarters."

Some analysts took note of the apparent hesitation. In a research note published after Friday's call, David Smith at Truist Securities said "the point about moving parts is unstandable, given the scope of the transformation Flagstar is undergoing."

"Still, the [fourth-quarter] profitability commitment felt a bit softer than we had heard previously," he wrote. 

Shares were up about 2.7% by midmorning.

During the call with analysts on Friday, Otting said the July-September period was "a breakout quarter" for C&I loan growth.

Read more about Flagstar here: https://www.americanbanker.com/organization/flagstar-financial

In the third quarter, C&I loans totaled $14.9 billion — up 3% compared with the prior quarter, but down 9.7% year over year because the company sold off certain non-core C&I loans. Within the C&I portfolio, momentum is building in two segments in particular, the bank said: specialized industries and corporate and regional commercial banking.

Meanwhile, Flagstar's multifamily loan portfolio keeps shrinking. As of Sept. 30, those loans totaled $28.8 billion, reflecting a year-over-year decline of 13%. 

Net interest income of $425 million was down 17% year over year, reflecting a reduction in average assets caused by a lower yield on interest-earning assets, the bank said. But Flagstar's net interest margin was 1.91%, up 12 basis points year over year.

Revenues totaled $519 billion. The bank set aside $38 million in provisions for credit losses.

Noninterest income totaled $94 million, down 17% from the same quarter last year. The drop-off was the result of the bank's decision last year to sell its mortgage servicing operation and a third-party origination business.

Third-quarter expenses totaled $522 million, down 27% year over year, due to a reduction in compensation and benefits costs, as well as a decline in general and administrative fees and Federal Deposit Insurance Corp. insurance expenses, the bank said. 

Read more about bank earnings here: https://www.americanbanker.com/earnings

Last week, Flagstar completed the dissolution of its holding company, a rare move among banks. Executives have said that folding the holding company into the bank will simplify the corporate structure, lower annual operating expenses by $10 million and reduce regulatory oversight.

Instead of being regulated by the Office of the Comptroller of the Currency and the Federal Reserve Board, Flagstar's sole regulator is now the OCC, the agency that Otting led during the first Trump administration.

Also during the quarter, Flagstar realigned a portion of its commercial bank. Changes included the creation of a new specialty finance unit and the combination of two equipment finance teams.