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Flagstar postpones its profitability targets to 2028

Flagstar has moved its longer-term profitability targets from 2027 to 2028 and cut its earnings outlook for a third consecutive quarter. Higher rates are weighing on its rent-regulated New York housing loans, while competition for deposits limits expected growth. The bank reported 12 million dollars in third-quarter net income and paused further share repurchases until 2027.

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Brick apartment buildings with stone stoops and external fire escapes line a New York-style residential street beneath autumn trees.

Profitability targets move back by a year

Flagstar, a US bank with 87.4 billion dollars in assets, has moved its longer-term turnaround targets from 2027 to 2028. The change accompanied its third-quarter results and management commentary on October 23. The bank lowered its outlook for a third consecutive quarter as higher interest rates continued to affect its lending business. Management also faces competition for deposits while pursuing a shift toward commercial and industrial lending.[1], [2]

Expected net income for this year was cut to 85–95 million dollars, from the 225–300 million dollars forecast in July. The 2027 range fell to 400–500 million dollars from 800–900 million dollars. After completing a 250 million dollar share buyback in early October, the bank is pausing further repurchases until 2027. Third-quarter net income was 12 million dollars, against 34 million dollars in the preceding quarter and a 36 million dollar loss a year earlier.[1]

Rent-regulated housing loans remain under pressure

Chief Financial Officer Lee Smith described pressure on New York’s rent-regulated apartment buildings from higher interest rates, capitalization rates and operating expenses, while rental income remained constrained. The bank’s New York multifamily loans totalled 12.9 billion dollars, including 8.1 billion dollars tied to rent-regulated properties. Both balances declined 4 per cent during the quarter. Its total commercial real estate lending was 31.4 billion dollars, of which 10.7 billion dollars carried floating rates.[1]

Credit provisions rise as commercial lending grows

Expected credit-loss provisions were raised to 160–170 million dollars for this year from 90–140 million dollars, and to 175–225 million dollars for 2027 from 100–150 million dollars. The third-quarter provision was 76 million dollars, up 38 million dollars from a year earlier. Management regards repricing or repayment of fixed-rate assets as important to profitability and the capacity to make new commercial loans.[1]

During the quarter, Flagstar originated 2.9 billion dollars in commercial and industrial loans and added 75 relationships. Commercial real estate repayments at par totalled 1.2 billion dollars, with 35 per cent coming from loans rated substandard. The bank also wants its commercial lending relationships to bring deposits.[1]

References

  1. News sourceAmerican BankerFlagstar pushes its turnaround timetable into 2028↩1↩2↩3↩4↩5
  2. News sourceMelville Chamber of CommerceFlagstar moved its longer-term turnaround targets from 2027 to 2028.↩
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