Flagstar Bank posts third straight profit, launches $250M buyback

Flagstar Bank posted $34M in Q2 net income, its third straight profitable quarter, and announced a $250M share repurchase program.

"The results reflect the meaningful progress we have made in executing our strategic plan, the strength of the balance sheet, and Flagstar's long-term growth prospects," Joseph M. Otting, executive chairman and chief executive officer, said.

Net income attributable to common stockholders was $26M, or $0.06 per diluted share, compared with $13M, or $0.03, in the first quarter and a loss of $78M, or $0.19, a year earlier. Adjusted net income was $23M, or $0.05 per share. Pre-provision net revenue rose to $66M from $32M in the prior quarter, while operating expenses fell 3% to $427M, producing positive operating leverage of 7%.

The results mark a turning point for the Hicksville, New York-based lender, which has been reshaping its balance sheet after years of elevated CRE exposure. Total assets grew $600M to $87.7B, the first quarterly expansion since late 2023, as C&I lending — up 12% to $18.6B — offset continued runoff in the multifamily and CRE portfolios.

C&I Growth Drives Loan Expansion

Commercial and industrial loan originations totaled $2.8B in the quarter, with commitments reaching $4.2B. The C&I portfolio now stands at $18.6B, driven by growth in Specialized Industries Banking, which rose 34%, and Corporate & Regional Commercial Banking, which increased 18%. Total loans held for investment rose 1% to $61B, or 4% annualized.

The bank reduced its combined multifamily and CRE portfolio by $1.5B, or 4%, to $35.2B. CRE par payoffs totaled $1.1B, with 39% classified as substandard. The CRE concentration ratio improved to 350% from 367% in the prior quarter.

Deposit Growth and Funding Costs

Total deposits increased $689M to $67.5B, all driven by core deposits. C&I lending-related deposits accounted for $706M of the growth. The bank reduced its cost of deposits by five basis points and overall cost of funds by seven basis points. Wholesale borrowings declined $250M to $9.9B.

Net interest income was $440M, down $3M from the prior quarter, while the net interest margin held relatively steady at 2.13%. Excluding an extra day in the quarter, the margin would have been 2.16%.

Credit Quality and Capital

The provision for credit losses was $18M, compared with no provision in the first quarter, driven by C&I portfolio growth, higher charge-offs, and updated assumptions on New York City rent-regulated multifamily loans. Net charge-offs totaled $100M, or 0.66% of average loans on an annualized basis, up from 0.52% in the prior quarter.

Non-accrual loans rose 5% to $2.8B, representing 4.59% of total loans held for investment, though criticized and classified loans declined $143M. The total allowance for credit losses stood at $925M, or 1.52% of total loans.

The bank's CET1 capital ratio was 13.16%, well above the 6.5% minimum for a well-capitalized designation. The $250M buyback program, authorized over the next 12 months, represents about 3% of the bank's market capitalization based on tangible book value of $17.51 per share.

The buyback signals management's confidence in the bank's capital position and earnings trajectory after three consecutive quarters of profitability. Investors will watch the pace of C&I loan growth and further CRE reduction in the second half of 2026, with the next quarterly report expected in late October.

This article is for informational purposes only and does not constitute investment advice.