Flagstar Bank, National Association (NYSE:FLG) reported its third consecutive quarter of profitability in the second quarter of 2026, as commercial-and-industrial loan growth, deposit growth and lower operating expenses helped offset continued runoff in commercial real estate and multifamily lending.
The bank reported GAAP net income attributable to common stockholders of $0.06 per diluted share, while adjusted earnings were $0.05 per diluted share. That compared with an adjusted loss of $0.14 per share in the second quarter of 2025, according to Executive Chairman and Chief Executive Officer Joseph Otting.
C&I Lending Drives Balance-Sheet Growth
Total balance-sheet growth resumed during the quarter, rising by roughly $600 million from the prior quarter, the first overall balance-sheet growth since 2023. Smith said the balance sheet would have increased by more than $800 million had the company not paid down $250 million of Federal Home Loan Bank advances.
Commercial-and-industrial loans increased by $2 billion, or 12% quarter over quarter, to $18.6 billion. The company generated $4.2 billion in new and increased credit commitments, leading to a record $2.8 billion in C&I loan originations.
Rich Raffetto, co-president, co-chief operating officer and chief banking officer, said Flagstar added 75 new-to-bank C&I relationships and hired 32 producers and credit underwriters during the quarter. The company’s C&I pipeline entering the third quarter stood at more than $2 billion in commitments.
Specialized Industries Banking and Corporate and Regional Commercial Banking together produced $2.1 billion of end-of-period loan growth. Raffetto cited activity in energy, financial institutions, healthcare, technology, sports and entertainment, large corporate diversified banking, and regional commercial banking in New York and Southern California.
The bank also expanded its commercial platform through new team leadership in Dallas, Detroit, Cleveland and Phoenix, launched a Texas regional commercial banking initiative, and added specialized-industry verticals in food and beverage, leisure, hospitality and gaming, and education and nonprofits.
Deposits Grow as Funding Costs Decline
Core deposits excluding brokered deposits rose $700 million in the second quarter and were up about $1.8 billion in the first half of 2026. Commercial and private-bank deposits increased approximately $900 million, partly offset by a $290 million decline in retail deposits.
Despite the growth in interest-bearing deposits, Flagstar reduced the cost of interest-bearing deposits by five basis points from the prior quarter and by 65 basis points from a year earlier. Smith said the bank retained roughly 85% of $4.8 billion in retail certificates of deposit that matured during the quarter, with retained balances moving into CD products priced about 15 to 25 basis points below the maturing CDs.
Another $4.4 billion of retail CDs with a weighted-average cost of 3.87% are scheduled to mature in the third quarter. Smith said Flagstar’s all-in spot cost of deposits, including noninterest-bearing and brokered deposits, was approximately 2.49% at quarter-end.
Net interest margin was 2.13% in the second quarter, versus 2.15% in the first quarter. Excluding the effect of an additional day in the quarter, management said NIM would have been 2.16%. June NIM was 2.19%, which Smith said he viewed as a floor as the bank expands its balance sheet, adds market-rate C&I loans and continues reducing lower-yielding multifamily exposure.
CRE Reduction and Credit Trends
Flagstar continued to reduce commercial real estate exposure, with multifamily and CRE balances declining $1.5 billion during the quarter. CRE balances are down $14.9 billion, or 28%, since 2023, while the CRE concentration ratio declined to 350% from 367% in the prior quarter and more than 500% when current management joined the company.
CRE par payoffs totaled $1.1 billion, with 39% involving substandard-rated loans. Total multifamily and CRE payoffs reached $1.5 billion. Management said these payoffs accelerate the bank’s diversification strategy but also reduce near-term interest income and margin.
The allowance for credit losses declined by $81 million, primarily because of lower CRE and multifamily balances, charge-offs and lower qualitative adjustments as more appraisals became available. Criticized and classified loans fell $152 million, or 1%, from the prior quarter and were down $1.1 billion, or 9%, year over year. Substandard loans declined $375 million during the quarter.
Nonaccrual loans rose 5% sequentially to $2.8 billion, partly reflecting the company’s review of loans with reset or maturity dates within 18 months. Smith said approximately 40% of nonaccrual loans were current and paying, and Flagstar expects nonaccrual balances to decline to about $2.3 billion by year-end.
Net charge-offs were approximately $100 million, though management said $47 million of that amount had previously been fully reserved. The company expects new C&I production to carry reserve coverage of about 1%, while runoff in CRE and multifamily includes loans with higher risk and coverage levels.
Updated Outlook
Flagstar reduced its interest-income outlook for 2026 and 2027, citing faster-than-expected CRE and multifamily payoffs, a greater mix of interest-bearing deposits, somewhat higher anticipated nonaccrual balances and weaker mortgage gain-on-sale revenue in a higher-for-longer rate environment.
- 2026 earnings per share are forecast at $0.40 to $0.50.
- 2027 earnings per share are forecast at $1.60 to $1.70.
- Management expects total assets to end 2026 at roughly $91.5 billion to $92 billion and reach about $100 billion by the end of 2027.
Otting said future capital-return decisions would depend on core earnings growth, credit trends and the balance between CRE payoffs and capital needed to support C&I expansion. Smith said the updated earnings guidance does not include the effect of the newly authorized share repurchase program.
About Flagstar Bank, National Association (NYSE:FLG)
Flagstar Financial Corporation (NYSE: FLG) is a bank holding company whose principal subsidiary, Flagstar Bank, provides a range of financial services across the United States. Headquartered in Troy, Michigan, Flagstar combines commercial banking, mortgage lending and servicing, and deposit products to serve individuals, businesses and public entities. As a publicly traded company, Flagstar leverages its banking charter and national mortgage platform to deliver tailored financial solutions through both digital and branch channels.
The company’s mortgage business is one of the largest residential originators and servicers in the nation, offering retail, wholesale and correspondent lending channels.
