Flagstar Bank Returns to Profitability With $21M Q4 Income, Accelerates Commercial Real Estate Reduction

Flagstar Bank returned to profitability in the fourth quarter of 2025, reporting net income attributable to common stockholders of $21 million, or $0.05 per diluted share, as the institution accelerated its strategic pivot away from commercial real estate financing toward diversified commercial and industrial lending.

The bank reported adjusted net income of $0.06 per diluted share for the quarter ended December 31, 2025. The profitability return came as Flagstar executed $1.8 billion in commercial real estate par payoffs, with half of those representing substandard loans, while simultaneously expanding its C&I lending platform.

Strategic Reduction in CRE Exposure

Flagstar's commercial real estate concentration ratio improved to 381% in the fourth quarter, down from 405% in the prior quarter. The bank's total multifamily and commercial real estate exposure decreased $2.3 billion, or 6%, compared to the third quarter.

Multi-family loans declined $1.5 billion, or 5%, while CRE loans fell $849 million, or 8%, quarter-over-quarter.

Criticized and classified loans declined $330 million, or 2%, compared to the third quarter and decreased $2.9 billion, or 19%, since December 31, 2024. Non-accrual loans decreased $267 million, or 8%, versus the prior quarter, contributing to improved credit quality metrics.

C&I Lending Growth

As Flagstar reduced its commercial real estate portfolio, the bank demonstrated significant momentum in commercial and industrial lending. Total C&I commitments reached $3.0 billion, up 28% compared to the third quarter, while C&I originations totaled $2.1 billion, representing a 22% quarterly increase.

Strategic C&I focus areas grew loans by $1.5 billion, or 31%, versus the prior quarter, with total C&I loans increasing $343 million, or 2%.

Net interest margin expanded 23 basis points to 2.14% quarter-over-quarter, or 14 basis points to 2.05% on an adjusted basis, as the cost of funds declined.

Credit Quality Improvements

The bank's provision for credit losses declined 92% compared to the prior quarter, while net charge-offs improved to 0.30% of average loans from 0.46% in the third quarter. Total allowance for credit losses stood at $1.1 billion, representing 1.79% of total loans held for investment.

For multi-family properties, the ACL coverage ratio reached 1.89%, with coverage for rent-regulated units equal to or greater than 50% of the portfolio at 3.44%.

Operating expenses declined 3% compared to the prior quarter and fell 26% for full-year 2025. The bank reduced brokered deposits by $7.8 billion, or 77% year-to-date, to $2.4 billion, while wholesale borrowings declined $1.0 billion, or 8%, versus the third quarter.

Capital Position

Flagstar's Common Equity Tier 1 capital ratio improved to 12.83%, reaching levels at or above peer group benchmarks.

Sources

Flagstar Bank Investor Relations