Flagstar Bank reported Q3 2025 net loss of $45 million, or EPS of $0.11, representing a significant improvement from the $333 million loss in Q2 2024. The bank achieved total revenue of $481 million, up from $432 million in Q2 2025 and $411 million in Q1 2025. However, this keeps the full year firmly in loss-making territory with trailing 12-month losses of $427 million, though this represents an improvement from the $1.2 billion loss in the 12 months to Q4 2024. The bank's net interest margin improved to 1.91% in Q3 2025 from 1.74% in Q1 2025 and 1.81% in Q2 2025, though it remains below the 2% threshold that investors typically view as necessary for sustainable profitability.
The bank faces significant asset quality challenges with non-performing loans rising to $3.3 billion in Q3 2025, representing 5.2% of the loan book, up from $1.9 billion in Q2 2024 when total loans were $74.6 billion. The allowance for bad loans is reported at only 33% of non-performing loans, meaning approximately two-thirds of the $3.3 billion exposure remains uncovered by reserves. This deterioration occurs alongside shrinking total loans from $74.6 billion in Q2 2024 to $62.7 billion in Q3 2025, creating pressure on both asset quality and earning assets simultaneously. The bank's Common Equity Tier 1 (CET1) capital ratio rose to 12.83%, indicating strengthened capital position despite the asset quality concerns.
Flagstar has made substantial progress in diversifying its loan portfolio away from commercial real estate, with $5.5 billion in CRE loan payoffs last year, including $4.2 billion in multifamily loans. The bank achieved a 25% reduction in CRE loans between late 2023 and year-end 2025, with CRE exposure reduced by $12.1 billion to about $36 billion and the CRE concentration ratio improving to 381% from 405% in the prior quarter. Total assets shrunk to $87.5 billion in the fourth quarter, down 13% compared to the end of 2024, with the balance sheet expected to grow to $93.5 to $95.5 billion in 2026 and reach $103 billion by 2027. Workforce reduction included nearly 20% decrease to 5,600 employees from 6,993 at the end of 2024. The bank paid off $1.7 billion of brokered deposits and $1 billion of FHLB advances during the quarter, reducing brokered deposits by nearly $8 billion in 2025 to $2.3 billion.
The bank demonstrated strong growth in its targeted commercial segments, achieving net loan growth of $343 million, a 2% increase sequentially in Commercial & Industrial lending. Total C&I commitments rose 28% year-over-year to $3 billion, reflecting the bank's strategic pivot toward commercial-and-industrial loans while reducing its commercial real estate portfolio. C&I originations increased 22% to $2.1 billion in the fourth quarter, with management describing continued momentum in building the platform under Rich Raffetto's leadership. The bank reduced non-accrual loans by 8% sequentially to $3.0 billion and provision for credit losses declined by 92% compared to the previous quarter, indicating improved asset quality and reduced risk exposure. New C&I loans are coming on at spreads to SOFR of 175 to 300 basis points, with a blended spread around 230 basis points.
Despite the operational improvements, Flagstar's stock trades at $13.22, below the analyst target price of $14.37 but above the DCF fair value of $10.19. The bank's P/B ratio of 0.7x compares to 1.1x for the US Banks industry and 1.3x for peers, with some investors arguing the low P/B multiple hints at embedded value. However, net interest margin staying below 2% alongside a trailing 12-month loss of $427 million means the low P/B ratio is paired with ongoing losses rather than clear profitability at today's margin level. Management updated its forecast through 2027, projecting 2026 EPS in the range of $0.65 to $0.70 and 2027 EPS in the range of $1.90 to $2.00, with the bank expecting continued NIM improvement and continued reductions in non-accrual loans as key priorities for 2026.
