Flagstar Financial's profitability challenges extended into yet another quarter, with the company reporting a net loss, though executives remain optimistic about a near-term financial turnaround.
On Friday, the parent company of Flagstar Bank reported a second-quarter net loss of $70 million, or $0.19 per share, exceeding the consensus net loss estimate of $0.14 per share.
The results are
In a press release, Flagstar Chairman and CEO Joseph Otting continued to be upbeat about the company's ability to turn the corner on profitability later this year. Otting, the former comptroller of the currency who joined Flagstar, the company previously known as New York Community Bancorp, last year as part of a
"I am very pleased with the progress the company made during the second quarter across multiple fronts as we continued to execute on our successful strategy of transforming Flagstar into a top-performing, well-diversified regional bank," said Otting, who highlighted gains in the private bank and in the growing commercial-and-industrial loan portfolio as well as improved credit metrics, reduced commercial real estate exposure and lower operating expenses.
The second-quarter net loss "narrowed significantly" compared to the year-ago period and the first quarter of this year, he noted.
"This bodes well for our expected return to profitability in the fourth quarter of this year," he said.
The latest results mark the seventh consecutive quarter in which the Hicksville, New York-based company, which is
Fee income was $77 million, down about 32% year over year. The reduction was largely due to
Noninterest expenses were $513 million, reflecting a 27% reduction compared with the year-ago period. Adjusted operating expenses are expected to be about $450 million in both the third quarter and fourth quarter of this year, Flagstar said Friday in its earnings presentation.
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During the quarter, net charge-offs were $117 million, down 66% year over year. The provision for credit losses shrank to $64 million compared with $390 million in the year-ago quarter.
On Friday, Flagstar lowered its guidance for full-year net interest income to $1.7 billion to $1.75 billion, compared with the prior forecast of $1.825 billion to $1.875 billion. It also tweaked its expectations for full-year noninterest expenses, which should now be in the range of $1.825 billion to $1.875 billion, compared with the prior guidance of $1.9 billion to $1.95 billion.
The latest financial results from the $92.2 billion-asset company were released one day after it
Executives want to merge Flagstar Financial, the holding company, into its banking subsidiary, Flagstar Bank, leaving the bank as the surviving entity. Such a change would reduce annual expenses by about $15 million and eliminate the Federal Reserve Board from regulatory oversight, leaving the Office of the Comptroller of the Currency as the primary regulator.
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Shareholders and regulators must approve the plan, which has already been OK'd by Flagstar's board of directors. Otting led the OCC during the first Trump administration.
During the second quarter, Flagstar continued to make progress in its quest to
Flagstar, whose New York Community roots included a significant multifamily lending portfolio, has said that it plans to hire 100 commercial bankers this year to support C&I loan growth, with a goal of upping C&I loans outstanding to $1 billion a quarter, or $1.5 billion when fully staffed. As of June 30, Flagstar's C&I loan book totaled $14.4 billion, down 6.2% year over year.
Otting has argued that doing more C&I business will lead to deeper relationships with customers, attracting more deposits and generating additional fee income.
At an industry conference in June, Lee Smith, Flagstar's chief financial officer, said the goal is to diversify the company's loan book, the majority of which has been in multifamily lending.
"I think when you look at the balance sheet in sort of three, four, five years' time, we're trying to be one-third, one-third, one-third," he said. "So one-third C&I, one-third [commercial real estate], one-third consumer lending."
