FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG)·Q4 2025 Earnings Summary
Flagstar Returns to Profitability in Q4 as Turnaround Strategy Gains Traction
January 30, 2026 · by Fintool AI Agent
Flagstar Bank delivered its first profitable quarter in over two years, marking a critical milestone in the regional bank's turnaround journey. Net income of $29 million and EPS of $0.05 crushed expectations for a -$0.07 loss, as the bank's strategic pivot to C&I lending and disciplined expense management bore fruit.
The headline numbers tell the turnaround story: NIM expanded 23 basis points to 2.14%, C&I loan commitments surged 28% to $3 billion, and credit quality improved across every metric. After reporting a net loss of $188 million in Q4 2024, Flagstar's return to profitability represents a dramatic reversal.
CEO Joseph Otting declared the quarter "a significant milestone in the Bank's turnaround," emphasizing that positive operating leverage should continue into 2026.
What Did Management Guide?
Flagstar provided detailed guidance for 2026 and 2027, projecting a significant ramp in profitability:
CFO Lee Smith noted the guidance assumes two Fed rate cuts (June and September per December curve) and that "a declining rate environment is only going to help those borrowers refinance."
CEO Otting emphasized: "We expect that in 2026, our earning power will continue to strengthen with a full year of profitability, driven by continued growth in net interest income and margin expansion."
Ask Fintool AI AgentDid Flagstar Beat Earnings?
Yes — decisively. Flagstar swung from an expected loss to a profit, exceeding Street estimates by a wide margin.
CEO Joseph Otting highlighted the significance: "After two challenging years, I'm proud to share that during the fourth quarter, the Bank returned to profitability."
Ask Fintool AI AgentWhat Drove the Beat?
Net Interest Margin Expansion
NIM was the star performer, expanding 23 basis points to 2.14% — the highest level in recent quarters.
The improvement came from strategic balance sheet management — the bank pre-paid $2.5 billion in longer-dated FHLB advances, contributing approximately 9 basis points to NIM from hedge gains. More importantly, the cost of interest-bearing deposits declined 26 basis points quarter-over-quarter.
C&I Lending Momentum
Flagstar's strategic pivot to Commercial & Industrial lending continued to gain traction:
The bank has strategically added over 250 experienced bankers to build its C&I platform, targeting Specialized Industries Lending and Corporate/Regional Commercial Banking. These focus areas collectively grew loans by $1.5 billion or 31% compared to Q3.
Provision and Credit Quality
The provision for credit losses plunged 92% quarter-over-quarter to just $3 million, down from $38 million in Q3 and $145 million in Q4 2024.
Balance Sheet Transformation
Flagstar continues to execute its strategy of reducing multi-family and CRE exposure while growing C&I:
The CRE concentration ratio improved to 381% from 405% in Q3 and represents an "all-time low" for the bank. Multi-family and CRE par payoffs totaled $1.8 billion in Q4, including 50% from substandard loans.
Deposit and Funding Mix
Flagstar made significant progress reducing higher-cost funding:
Year-to-date, the bank reduced brokered deposits by $7.8 billion with a weighted average cost of 4.91%.
Ask Fintool AI AgentExpense Management
Operating expenses declined 3% quarter-over-quarter and 26% year-over-year, demonstrating strong cost discipline:
The 55% reduction in FDIC insurance expense reflects improved deposit insurance costs and the bank's progress on credit metrics. For full-year 2025, operating expenses declined $603 million or 24% on an adjusted basis.
Capital Position
Flagstar's regulatory capital ratios continue to strengthen and exceed "well capitalized" thresholds:
The bank reported excess capital of $1.4 billion (after tax) above its 10.5% CET1 target. Tangible book value per share adjusted for warrant exercise is $15.82.
Full-Year 2025 Summary
For the full year, Flagstar reported a significant improvement versus 2024:
The full-year net loss attributable to common stockholders was $210 million or -$0.50 per share, compared to a loss of $1,153 million or -$3.49 per share in 2024.
How Did the Stock React?
FLG shares surged following the earnings announcement, hitting a new 52-week high:
The stock's strong reaction reflects investor enthusiasm for the return to profitability and the tangible progress on the turnaround strategy. FLG is now trading at approximately 0.78x tangible book value.
Key Risks and Watch Items
- Multi-family exposure: $29B portfolio (48% of loans) with 1.89% ACL coverage; rent-regulated units >50% have 3.44% coverage
- Non-accrual loans elevated: 4.90% of total loans, up from 3.83% YoY despite QoQ improvement
- One large borrower: Previously disclosed relationship in bankruptcy; sale expected Q1 2026
- Revenue decline: Total revenues down 11% YoY as balance sheet shrinks
- Material weaknesses: Bank previously disclosed material weaknesses in internal controls
- CRE concentration: While improving, 381% ratio still elevated versus peers
Q&A Highlights: What Analysts Asked
On Capital Return and Buybacks
Analysts pressed management on the $1.4B in excess capital. CFO Smith indicated "it's definitely a discussion point amongst the board" and that they "would look favorably if we're not deploying the capital" for buybacks. The key variables: balance sheet growth, non-performing loan cures, and execution on the turnaround.
On NYC Rent Regulation
CEO Otting addressed rent freeze concerns directly: "We have started to spend a lot of time looking out... as if those rents were flat for two or three years and expenses went up a couple percent, the impact on the portfolio." However, he noted liquidity for multifamily loans actually accelerated in Q4, suggesting the market remains receptive.
On the 2019 rent law, Otting sees potential for "common ground" on ghost units — estimated 50,000-60,000 vacant units where it's uneconomic to renovate under current rules.
On the Bankruptcy Resolution
The previously disclosed large borrower in bankruptcy is expected to close before end of Q1 2026. The loans total approximately $450 million in non-accruals. Smith confirmed "anything that we do going forward would be an accruing loan" — meaning a near-term NII benefit.
On New Loan Yields
CFO Smith provided pricing details for new originations:
CEO Otting confirmed CRE originations are restarting with a $2B target for 2026 — but not in NYC rent-regulated multifamily. Focus is on Michigan, California, and Florida markets.
On Rent-Regulated Loan Repricing
Of the $4.3B criticized/classified rent-regulated loans, 54% have already repriced and another 36% will reprice within 18 months — meaning 90% will be at market rates by mid-2027.
On 2024 Financial Statement Reviews
Management disclosed that 93% of CRE borrower 2024 financials have been reviewed: 80% stable, 7% improved, 13% declined. "Almost 90% are stable or improving."
On Share Count
For modeling purposes, CFO Smith provided diluted share counts (including warrants): 459M for Q4 2025, ~473M for 2026, ~479M for 2027.
The Bottom Line
Flagstar Bank delivered a milestone quarter, returning to profitability for the first time since its merger with Flagstar Bancorp and acquisition of Signature Bank assets. The $0.05 EPS (or $0.06 adjusted) versus expectations for a -$0.07 loss marks a dramatic turnaround.
The turnaround thesis is working: NIM expanded 23 basis points, C&I lending is gaining momentum with 28% growth in commitments, credit quality is improving with the provision down 92%, and expenses are under control with a 26% YoY decline.
With CET1 at 12.83% and $1.4 billion in excess capital, Flagstar has the flexibility to continue executing its transformation strategy. CEO Otting's comment that "positive operating leverage should continue in 2026" suggests more profit growth ahead.
For investors, the key question is whether Flagstar can sustain profitability as it navigates the remaining CRE exposure and continues building its C&I franchise. Today's results suggest the worst may be behind them.
Ask Fintool AI AgentData sources: Flagstar Bank Q4 2025 Earnings Release (8-K) , Q4 2025 Earnings Call Transcript , S&P Global consensus estimates. Analysis as of January 30, 2026.