Flagstar halves its 2027 profit goal, keeps old targets for 2028

Flagstar Bank, N.A. is a national bank based in Hicksville, New York, and its common stock trades on the New York Stock Exchange as FLG.¹ It runs about 320 retail branches and 20 private banking offices in nine states, and it ended the third quarter with $87.4 billion of assets and $67.8 billion of deposits.² It is the successor to New York Community Bancorp, and it files its reports with the Securities and Exchange Commission voluntarily.³

Today's bank was built by a run of large deals. It merged with Flagstar Bancorp in December 2022 and took over large parts of the failed Signature Bank in a sale run by the Federal Deposit Insurance Corporation in March 2023.¹ In March 2024 it raised $1.05 billion of new capital, in July 2024 it did a reverse stock split, and in 2024 it sold its mortgage servicing, third-party mortgage lending and mortgage warehouse businesses.² It folded away its holding company in October 2025.³

The heart of the problem is apartment lending in New York City. A large slice of the loan book sits on buildings where at least half the units are rent-regulated, so landlords cannot freely raise rents, and that slice stood at about $8.1 billion at the end of September.¹ The bank's 10-Q for the second quarter warned that as these loans reset to today's rates, debt payments, combined with rising operating costs and capped rents, approach or exceed some buildings' net operating income.² The bank is curtailing new loans on rent-regulated buildings and is growing loans to businesses instead.³ In the third quarter, business loans grew $2.0 billion, or 11%, to $20.6 billion, while apartment and commercial property loans fell $1.1 billion, or 3%.⁴

Before this release the bank had been back in profit for three straight quarters: $29 million in the fourth quarter of 2025, then $21 million and $34 million in the first and second quarters of 2026.¹ After a Moody's upgrade in April 2026, the bank says it now meets the rating standard that mortgage agencies set for banks that hold their custodial deposits.² In July its board approved buying back up to $250 million of stock over the following year.³

The stock drifted lower into the release, from $12.845 on September 15, 2026 to $11.455 on October 22, while the regional-bank fund KRE went from $73.89 to $72.37.¹ A shareholder class action over the old New York Community Bancorp is still open. The 10-Q said a motion to dismiss, filed August 8, 2025, was awaiting the court's decision.² A law-firm advertisement posted days before the results says a federal judge has since denied a motion to dismiss, but it names no case, court or date.³

Some industry basics help. A bank earns mostly on the gap between what its loans and bonds yield and what it pays for deposits and borrowings; that gap is net interest income, and as a share of earning assets it is the net interest margin, which was 2.17% for Flagstar in the third quarter.¹ Regulators also watch how much commercial property a bank holds against its capital; Flagstar's ratio fell to 346% from 501% at the end of 2023, and its 10-Q names heightened regulatory focus on such concentrations as a risk.²

The investor deck the bank began handing out on October 23, 2026 resets its goals for 2026, 2027 and 2028. For 2027, net income is now $400 million to $500 million against $800 million to $900 million before, and adjusted diluted earnings per share is $0.85 to $0.95 against $1.60 to $1.70.¹ At the midpoints that is a cut of about 47%.² For 2026, net income is now $85 million to $95 million against $225 million to $300 million, and adjusted earnings per share is $0.10 to $0.15 against $0.40 to $0.50.³ The old 2027 numbers became the new 2028 guide: $800 million to $900 million of net income and $1.60 to $1.70 a share. The deck's reason, in its own words: "given a higher for longer interest rate environment our 2027 financial objectives have shifted to 2028."⁴

Two lines carry most of the 2027 cut. Net interest income is now guided at $2.2 billion to $2.3 billion against $2.5 billion to $2.65 billion, about $325 million lower at the midpoints.¹ The loan-loss provision, the money set aside for loans expected to go bad, is now $175 million to $225 million against $100 million to $150 million, about $75 million higher at the midpoints.² On the call, management said the forecast rests on a September interest-rate curve with four rate hikes in it, in September, December, March and June.³ Higher rates raise what the bank must pay depositors, and the deck says competition for deposits is already hurting pricing and growth. They also strain borrowers whose loans reset, and the deck says higher rates pressured credit costs.⁴

The third quarter shows how thin earnings are today. Before taxes the bank lost $10 million, and a $22 million benefit from settling a 2019-2021 federal tax audit turned that into $12 million of net income.¹ After $9 million of preferred dividends, common holders got $3 million, or $0.01 a share. Without the tax benefit, the quarter would have shown a loss.² The core business did improve: net interest income rose 5% to $460 million, and the margin rose 4 basis points to 2.17%.³ But pre-provision net revenue, which is revenue minus operating costs before credit losses, was $66 million, while the provision jumped to $76 million from $18 million. Adjusted earnings per share was also $0.01, because the bank's adjusted figures do not remove the one-time tax benefit, which management put at $0.04 a share.⁴

The new 2026 guide also says a lot about the fourth quarter. Net income was $67 million through September, so $85 million to $95 million for the year leaves $18 million to $28 million for the last quarter.¹ Adjusted earnings per share was $0.04, $0.05 and $0.01 in the first, second and third quarters, a total of $0.10, so the full-year guide of $0.10 to $0.15 allows anywhere from nothing to $0.05 in the fourth.² The provision was $94 million through September, so the full-year guide of $160 million to $170 million implies $66 million to $76 million in the fourth quarter, about as much as in the third.³

On credit, losses actually written off fell: net charge-offs were $74 million, down 26% from the second quarter.¹ Early warning signs got worse. Loans 30 to 89 days past due rose to $530 million from $368 million at June 30, a jump of 44%, which management on the call tied to two borrowers it says have resolutions, and criticized and classified loans, the bank's watch lists, rose $670 million, or 6%, mostly in market-rate units, management said.² Total reserves for credit losses were $927 million, or 1.50% of loans, and the loan reserve covers 31% of non-performing loans.³ That coverage looks thin, but many of these loans have already been written down; the deck says the bank has taken $739 million of net charge-offs on multi-family loans since the start of 2024.⁴

The sore spot is rent-regulated loans the bank has put on nonaccrual: about $1.7 billion of them carry an 85% loan-to-value and, counting full principal payments even on interest-only loans, would cover debt payments only 0.74 times; across the bank, 42% of nonaccrual loans are still performing.¹ New York City froze rents on certain rent-regulated buildings effective October 1, 2026, which caps those landlords' income just as many loans reset.² Multi-family loans face $1.7 billion of option or contract maturities in the fourth quarter of 2026 and $8.4 billion in 2027. Resets cut both ways: on the call, management said it assumes it keeps only 35% to 40% of resetting loans, at an incremental spread of 3.30% to 3.50%, which lifts income when the borrower can pay.³

Capital is the strongest part of the story. The common equity tier 1 ratio, the main measure of a bank's loss-absorbing capital, was 12.38%, down from 13.16% at June 30, a drop of 78 basis points.¹ That still left $1.2 billion above 10.5%, the bottom of the bank's target range, which tops out at 11.5%, or about 29% of its market value.² Two things ate equity in the quarter. The first was the buyback: treasury stock rose $216 million in the quarter, and the bank finished its $250 million program in early October, buying 19.1 million shares in all at about $13 each, so the September 30 figures do not yet reflect the last purchases.³ The second was rates: accumulated other comprehensive loss, which holds paper losses that have not gone through earnings, widened by $292 million to $839 million, and total equity fell $496 million to $7.64 billion.⁴ Tangible book value per share fell to $17.05 from $17.51. Management does not plan more buybacks in the fourth quarter and expects to resume them in 2027.⁵ The new 2026 guide for tangible book value per share with warrants, $15.00 to $15.50, is not directly comparable with the $15.56 reported at September 30: the guide counts warrant dilution at a share price equal to tangible book value, while the $15.56 uses the $11.67 closing price, and a higher assumed price means more warrant shares and a lower figure.⁶

Both sides of that buyback matter. Holders gave up $250 million of capital, and in return the share count shrank by 19.1 million at about $13, which is below the $17.05 tangible book value per share, so each share retired added book value for the holders who stayed.¹ The cost is that those shares were bought well above today's $10.38, and the cash is no longer there to absorb losses.²

Warrants weigh on the stock. There are 104,985,000 warrants with a $7.42 exercise price, equal to about 26% of the 400,635,645 common shares at September 30, 2026.¹ At the September 30 price of $11.67, the bank counts a net 38,233,612 extra shares from them, for 438,869,257 shares including warrants. That is why tangible book value per share is $15.56 with warrants and $17.05 without.² The guidance already counts warrant and option dilution, assuming a share price equal to tangible book value.³

Ahead of common holders stand $503 million of preferred stock, $449 million of subordinated notes and $588 million of junior subordinated debentures, plus $9.9 billion of wholesale borrowings and $67.8 billion of deposits.¹ The common dividend is a token $0.01 a share each quarter.² The Series A preferred's 6.375% fixed rate ends March 17, 2027, when it switches to a floating rate of a three-month benchmark plus about 4.08 percentage points.³

Debt-to-earnings ratios used for industrial companies do not fit a bank, so capital ratios and funding do that job here. The leverage capital ratio, capital against average assets, was 9.33%.¹ Cash fell 21% to $4.05 billion from $5.11 billion, while borrowings, mostly advances from the Federal Home Loan Bank of New York, held at $10.9 billion.² Deposits rose 0.4% to $67.8 billion, and 78% of them are insured, against a 56% average at peers. The latest liquidity figure, from the second-quarter 10-Q, showed the bank's liquidity exceeding its uninsured deposits by $12.7 billion.³

The market took the cut hard. FLG fell 9.4% after the filing, from $11.455 at the October 22 close to $10.38 at the close on October 23, 2026, while the S&P 500 fund SPY fell 0.5% to $760.1.¹ The regional-bank fund KRE was flat, at $72.445 near the close against $72.37 the day before, so the drop was Flagstar's own news.² At $10.38 the stock trades at between 11 and 12 times the new 2027 earnings guide and at between 6 and 6.5 times the 2028 guide. It trades at about 67% of tangible book value per share with warrants, or 61% without, for a market value of about $4.2 billion on the September 30 share count, a bit less after the October buybacks.³

Management's own forward case, which is a set of goals and not a promise, still lands in the same place one year later. It expects the net interest margin to widen in 2027 and 2028 as multi-family loans reset, higher-yielding business loans are added, nonaccrual loans fall and the balance sheet grows.¹ It guides 2028 net interest income of $2.6 billion to $2.7 billion and pre-provision net revenue of $1.225 billion to $1.325 billion. Its 2028 goal for return on tangible common equity is 10.00% to 10.50%, still under its long-term target of 11% to 12%.² It now guides tangible book value per share, with warrants, to $15.75 to $16.25 for 2027, against $17.25 to $17.75 before. On the call, management said it expects to reach peer-like profitability in 2028.³

The strongest bull case is that the earnings power was delayed, not lost. The 2028 guide still carries the old $1.60 to $1.70 a share, so a buyer at $10.38 pays between 6 and 6.5 times that goal, at about two thirds of tangible book value.¹ Capital sits $1.2 billion over the low end of the bank's target range, 78% of deposits are insured, and net charge-offs fell 26% even as provisions rose.² The forecast also builds in four rate hikes, so if fewer arrive, the headwind management blamed would be smaller.³

The bear case, ranked by weight, starts with credit. Past-due loans rose 44% in a quarter, which management tied to two borrowers it says have resolutions; the rent freeze caps income on buildings whose nonaccrual loans would cover fully amortizing debt payments only 0.74 times; and $8.4 billion of multi-family loans reach option or contract maturity in 2027.¹ Second, earnings are thin: the third quarter needed a one-time tax benefit to show a profit, and the fourth-quarter guide allows as little as nothing in adjusted earnings per share.² Third, 104,985,000 warrants at $7.42 sit over the stock, and the bank has said it will not buy back shares in the fourth quarter.³

The dated tests come in order. The full 10-Q for the quarter should follow within weeks with the complete credit tables. Fourth-quarter results should arrive around late January; last year's came on January 30, 2026.¹ The Series A preferred moves to a floating rate on March 17, 2027, and $8.4 billion of multi-family loans reach maturity or reset through 2027.² The bear case is wrong if fourth-quarter profit lands inside the $18 million to $28 million the guide implies, the provision stays at or under the implied $66 million to $76 million, and past-due loans stop climbing.³ The bull case is wrong if the fourth-quarter provision runs above that range, past-due loans keep rising, or the bank trims the 2028 targets.⁴

The release names the New York City rent freeze on certain rent-regulated buildings as a risk, but it does not say how long the freeze runs or how many of the bank's borrowers it covers.

Management said the forecast used a September rate curve with four hikes, but gave no version of the guide under fewer hikes or lower rates.

The 10-Q said the motion to dismiss the securities class action was fully briefed and pending, and no filing in our notes reports a ruling since.

The Series A preferred switches to a floating rate on March 17, 2027, and the filings do not say whether the bank plans to redeem it then.