Flagstar Bank’s Remarkable Turnaround
Two years after a surprise loss nearly locked Flagstar Bank into a death spiral, the Long Island-based lender has returned to profitability, as reported in the fourth-quarter earnings report released by the bank on Friday.
Flagstar reported a net income of $29 million between October and December, marking a significant improvement compared to a $36 million loss in the third quarter and a $188 million loss from a year earlier.
Strategic Growth Initiatives
Joseph Otting, the bank’s CEO and former Comptroller of the Currency, described the report as a “significant milestone in the Bank’s turnaround” and highlighted the positive trends that have emerged. He mentioned the strategic expansion of the commercial and industrial (C&I) banking platform, which saw the addition of over 250 experienced bankers and support staff. This effort resulted in the bank’s second consecutive quarter of growth in C&I loans.
Despite the growth in the C&I sector, Flagstar has reduced its overall workforce, with 5,600 employees as of December 31, representing a nearly 20% decrease from the previous year.
The bank incurred $4 million in severance costs in the fourth quarter due to layoffs that were implemented in January, although the exact number of positions eliminated was not disclosed.
Business Strategy Shift
A significant shift in Flagstar’s business strategy has been its pivot away from the commercial real estate (CRE) sector, which was a major contributor to the bank’s challenges in 2023 and 2024. The bank reported a 25% drop in CRE loans from late 2023 through 2025, including $5.5 billion in CRE loan payoffs last year.
Throughout the bank’s recovery over the past two years, provisions for credit losses have been closely monitored. In the fourth quarter of 2025, the provisions for credit losses decreased by 92% compared to the previous quarter and by 98% from a year earlier.
Net charge-offs for the fourth quarter totaled $46 million, reflecting a 37% decrease from the preceding quarter and a 79% decrease from the end of 2024.
Future Growth Prospects
Flagstar’s asset total stood at $87.5 billion as of December, representing a 13% decrease from the previous year. However, the bank has set ambitious targets of $93.5 billion to $95.5 billion by the end of this year and aims to surpass the $100 billion threshold by 2027.
In terms of revenue, the bank reported $557 million in the fourth quarter, down approximately $68 million from the previous year. Net interest income for the quarter was $467 million, showing a 1% increase year over year. Adjusting for loan-loss provisions, the bank has witnessed a 47% improvement since the end of 2024.
Conclusion
Flagstar Bank’s turnaround story is a testament to its strategic realignment and focus on sustainable growth. The bank’s shift away from the CRE sector, coupled with prudent cost management and targeted growth initiatives, has paved the way for its return to profitability.
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