Flagstar Bank Stages Comeback: Returns to Profitability After Two-Year Commercial Real Estate Crisis
This analysis is based on the original reporting from Banking Dive. For continuous coverage of the financial sector, subscribe to our daily Banking Dive newsletter.
Flagstar Bank, the Long Island-based lender that was nearly capsized by a wave of bad commercial real estate loans two years ago, has officially steered itself back into the black. The bank's fourth-quarter earnings report, issued Friday, shows a net income of $29 million for the period from October to December. This marks a dramatic reversal from a $188 million loss in the same quarter a year prior and a $36 million loss in the third quarter of 2025.
CEO Joseph Otting, the former Comptroller of the Currency, hailed the results as a "significant milestone in the Bank's turnaround," while cautioning it represents just "one of several positive trends." The recovery has been fueled by a deliberate strategic pivot. "Over the past year, we strategically built a significant commercial and industrial banking platform," Otting stated, noting the addition of over 250 bankers and a second consecutive quarter of growth in C&I loans.
This growth, however, has coincided with significant workforce consolidation. A bank spokesperson confirmed headcount stood at 5,600 as of December 31—a reduction of nearly 20% from the 6,993 employees reported at the end of 2024. Fourth-quarter results included $4 million in severance costs related to layoffs effective in January, though the exact number of positions cut was not disclosed.
The most critical shift has been Flagstar's retreat from the commercial real estate (CRE) sector, the epicenter of its previous troubles. The bank reported a roughly 25% decline in CRE loans from late 2023 through 2025, including $5.5 billion in loan payoffs last year alone. This de-risking is reflected in sharply falling provisions for credit losses, which plummeted 92% sequentially to just $3 million in Q4—a staggering 98% decrease year-over-year.
"I think we're now pivoting to the growth side of the story," Flagstar CFO Lee Smith declared during Friday's earnings call. While total assets have contracted 13% year-over-year to $87.5 billion, the bank has set ambitious targets to rebound to $93.5-$95.5 billion by year-end and surpass $100 billion by 2027.
The road to recovery remains a balancing act. Fourth-quarter revenue of $557 million was down year-over-year. Yet, a key bright spot is net interest income, which showed a 47% improvement from the end of 2024 when adjusted for the drastically reduced loan-loss provisions.
Market Voices
Eleanor Vance, Banking Analyst at Crestwood Advisors: "This is a textbook case of surgical restructuring. Flagstar's aggressive pivot from CRE to C&I lending, while painful in the short term with layoffs, has clearly repaired its balance sheet. The plummeting loan-loss provisions are the clearest signal the worst is over."
David Chen, Portfolio Manager: "The profit is a welcome sign, but let's not pop the champagne yet. Shrinking assets and revenue tell another story. Their ambitious growth targets for 2027 hinge on a stable economic environment—something far from guaranteed."
Marcus Thorne, former regulator and frequent industry critic: "So they fired 1,400 people, offloaded risky loans, and finally squeezed out a meager $29 million profit? This isn't a turnaround; it's financial triage paid for by employees' livelihoods. Calling this a 'pivot to growth' is spin. It's a retreat and retrenchment, and the moment economic headwinds pick up, this house of cards will be tested again."
Rebecca Shaw, Small Business Owner in Melville, NY: "As a local business customer, I've noticed a real change. My new relationship banker actually understands my company's needs for equipment financing, not just pushing real estate deals. It feels like they're trying to be a true community bank again, which is encouraging."