Flagstar Bank Faces Another Quarterly Loss Amid Ongoing Business Revamp
Long Island-based Flagstar Bank has reported a net loss in the third quarter, continuing its consecutive eight-quarter streak of profitability challenges. Despite the loss, bank executives remain optimistic, citing the ongoing diversification of Flagstar’s loan portfolio, an improving margin, and well-controlled operating expenses as reasons for future hope.
Third Quarter Losses and Executive Optimism
Flagstar Bank, formerly known as New York Community Bancorp, logged a third-quarter net loss of $45 million, or $0.11 per share. This figure is higher than the $0.08 average loss estimate projected by analysts polled by S&P Capital IQ. The bank has been struggling with profitability since the third quarter of 2023 due to bad commercial loans, credit mishaps, and oversight risks. These challenges resulted in significant turmoil and put the bank on the brink of collapse in early 2024.
Despite these challenges, Chairman and CEO Joseph Otting expressed confidence in the bank’s strategic direction. He emphasized the bank’s progress in diversifying its loan portfolio by adding more commercial and industrial loans while reducing its exposure to commercial real estate loans, including multifamily loans.
Shifting Focus and the Road to Profitability
Flagstar has been focusing on building up its commercial and industrial (C&I) loan portfolio. In the third quarter, C&I loans totaled $14.9 billion, a 3% increase compared to the prior quarter, but a 9.7% decrease year over year due to the sale of certain noncore C&I loans.
Simultaneously, the bank’s multifamily loan portfolio continued to shrink, with total loans amounting to $28.8 billion, reflecting a year-over-year decline of 13%. On a positive note, Flagstar’s net interest margin was 1.91%, up 12 basis points year over year.
Financial Highlights and Future Plans
The bank’s net interest income of $425 million was down 17% year over year due to a reduction in average assets and a lower yield on interest-earning assets. Noninterest income totaled $94 million, a 17% decrease from the same quarter last year following the decision to sell its mortgage servicing operation and a third-party origination business. Despite these losses, third-quarter expenses were down 27% year over year, owing to reduced compensation and benefits costs among other factors.
Last week, Flagstar completed the dissolution of its holding company, a move aimed at simplifying its corporate structure, lowering annual operating expenses by $10 million, and reducing regulatory oversight. As a result, the bank’s sole regulator is now the Office of the Comptroller of the Currency (OCC).
Looking forward, market observers are keenly focused on when Flagstar will return to profitability. While executives have not committed to achieving profitability in the fourth quarter, there is an expectation of progress based on the bank’s strategic developments over the last few quarters.
This article includes analyst comments and an update on Flagstar’s stock performance. Shares were up about 2.7% by midmorning. For more information about Flagstar, visit here.
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