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Flagstar Financial reported a net loss Friday as the Long Island-based bank continues to try to right itself after last year’s near-collapse and amid its revamp into a top-performing regional bank.
The parent company of Flagstar Bank reported a first-quarter net loss of $100 million, or 26 cents per share, marking the sixth consecutive quarter of net losses. Analysts polled by S&P Capital IQ had estimated a net loss of 27 cents per share. The loss shrank from $327 million, or $1.36 per share, in the year-ago period.
Excluding costs related to branch closures, the sale of its mortgage business and merger-related expenses, Flagstar’s net loss was $86 million, or 23 cents a share.
Net interest income tumbled 34% year over year, reflecting a decrease in average loan balances, which have been shrinking over the past year as the company has sold off certain assets, such as its mortgage warehouse business, and reduced its multifamily and commercial real estate portfolio. The decline also reflected lower commercial and industrial loan balances.
Flagstar, formerly known as New York Community Bancorp, is pinning much of its future prospects on building out its fledgling C&I lending business. During the quarter, it hired 15 commercial bankers, bringing the total to 75 since last year, and it plans to add another 80 to 90 commercial bankers before the end of the year, according to Chairman and CEO Joseph Otting.
The company’s task at hand: improving its earnings profile, moving forward with its C&I and private bank growth strategy, lowering its commercial real estate exposure and credit normalization, Otting said in a release.
It is also reducing its expenses, which fell 24% year over year. The company is on track to eliminate $600 million of costs this year, Otting said Friday.
He reaffirmed the company’s expectation that it would achieve profitability by the end of the year.
“The significant strides we made in 2024 have laid the groundwork for growth and have established a path to profitability by fourth quarter 2025,” he said in the release.
The company highlighted several bright spots in the first quarter. Fee income of $80 million was substantially higher than the year-ago fee income, which totaled $9 million. C&I loan originations rose 40% compared with the prior quarter and the common equity tier 1 ratio, which measures a bank’s capital against its assets, was 11.9%, up from 9.45% in the same quarter of last year.
Provisions for credit losses fell 75% from a year ago to $79 million.
Flagstar reduced its forecast for full-year net interest income to $1.825 billion-$1.875 billion, from $1.875 billion-$1.925 billion previously. Meanwhile, it raised its estimate for fee income to $320 million-$360 million, from $280 million-$320 million.
Its other forecast metrics remain unchanged.
In January, the $97.6 billion-asset bank warned that it would likely experience earnings challenges in the second and third quarters as well, before returning to profitability in the fourth quarter.
In a March interview with American Banker, one of his first formal media interviews since taking over as CEO in April 2024, Otting said the company, which was stabilized last year with a $1 billion capital injection led by Otting and former Treasury Secretary Steven Mnuchin, is
“We solved capital. We solved liquidity. We solved credit,” he said at the time. “And I think the next building block will be, can this team now grow the bank and become profitable?”