- Key insight: It was a mixed bag for Flagstar Bank during the second quarter, as commercial-real-estate loans payoffs came in higher than expected, which will help with the bank's efforts to remix its loan portfolio, but also led it to reduce its net-interest-income guidance.
- What's at stake: The Long Island-based regional bank is in the midst of a multiyear overhaul after nearly collapsing in 2024. Its efforts are largely centered on making more commercial-and-industrial loans and fewer commercial real estate loans.
- Forward look: Despite negative revisions to several near-term targets, Flagstar management reaffirmed the bank's long-term financial targets.
Flagstar Bank delivered both good news and bad news to investors on Friday, demonstrating that it continues to execute on a multiyear turnaround plan, but also reducing its guidance for several metrics in the face of a less favorable interest-rate environment.
The list of positives included further progress in the company's effort to reduce commercial real estate loans and boost commercial-and-industrial credits. The Long Island-based bank also reported another quarter of profitability and announced a long-awaited share-repurchase program, the first one since the company
But by early afternoon Friday, Flagstar's stock was down more than 5.5% as investors digested developments they saw as more negative.
That list included the fact that Flagstar's share-repurchase program was smaller than investors had hoped. There was also the reality that payoffs and paydowns of CRE loans were again elevated during the second quarter, which had a negative impact on Flagstar's financial outlook.
The bank lowered its full-year 2026 guidance
Flagstar CEO Joseph Otting addressed the weaker guidance during a call with analysts to discuss the bank's second-quarter results. When the bank laid out its original expectations, he said, it was operating under different assumptions about how the year would shake out, including an assumption that interest rates would continue to decline, instead of potentially rising.
"In spite of this, overall, we are still pleased with the trajectory of the business," Otting said.
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For the quarter, which ended June 30, net income was $34 million, which
Diluted earnings per share were six cents, matching S&P Capital IQ's consensus estimate.
The $87.7 billion-asset
Their plan is to reduce the bank's concentration of multifamily and other CRE loans, which long dominated the portfolio. The end-goal is to have a loan portfolio that is one-third commercial real estate, one-third commercial-and-industrial and one-third consumer.
As of June 30, CRE loan balances totaled $32.6 billion, down 32% from the end of 2023, Flagstar said in its earnings presentation. However, CRE payoffs and paydowns are occurring at a faster rate than executives expected, which in turn is crimping net interest income in the near term.
The bank had thought CRE payoffs would be in the $600 million to $800 million range per quarter, according to Otting. In each of the first two quarters of 2026, payoffs have been $1.5 billion.
Going forward, the bank expects net CRE payoffs to be about $1 billion per quarter, Otting said Friday.
Flagstar trimmed its guidance for much of 2026 and, in some cases, for 2027. It now expects net interest income to be in the range of $1.86 billion to $1.96 billion for all of 2026, down from the $1.95 billion-to-$2.05 billion range it projected in April. That outlook had been lowered from the January guidance.
But not everyone saw the rapid paydowns as a negative.
The elevated rate of paydowns is "a positive trend that can accelerate the company's strategic goal to remix the loan portfolio," Jon Arfstrom, an analyst at RBC Capital Markets, said Friday in a research note.
Flagstar now expects net income to be $225 million to $300 million for the year, down from the $275 million to $325 million it forecasted in April. Diluted adjusted earnings per share for 2026 is now expected to be anywhere from 40 cents to 50 cents, down from 60 cents to 65 cents laid out in April.
The bank predicted a full-year net interest margin of 2.20% to 2.30%, down from the 2.30% to 2.40% it forecast in the spring. And fee-income expectations for 2026 dropped to $310 million to $330 million, down from $325 million to $335 million, due to lower mortgage gain-on-sale revenues that have been impacted by higher-for-longer interest rates, executives said.
Still, Flagstar reaffirmed its long-term profitability targets, including a return on average tangible common equity of 11% to 12%.
Chris McGratty, an analyst at Keefe, Bruyette & Woods, asked Otting how likely it is that the net interest income guidance could again be revised down, given the higher loan payoffs. The bank is originating new CRE loans, which should help offset "what has been really enormous payoffs," Otting said.
Analysts also probed Flagstar executives for more insight into the board's decision to authorize only $250 million of buybacks, given the sizable excess capital the company has on hand, and they asked whether the board might decide to launch another repurchase program after the current one ends.
Otting, whose
"So it's a little bit of, as we march our way through the rest of the year and into 2027, looking at those three variables and then making a decision and a recommendation to the board," he said.
