• Flagstar Bank returned to profitability with $29 million in fourth quarter net income
• Losses narrowed sharply from both the prior quarter and a year earlier
• The bank expanded its C and I platform while cutting overall headcount
• Commercial real estate exposure fell by roughly 25 percent since late 2023
• Credit loss provisions and charge offs dropped significantly
• Management signaled a strategic shift from recovery to growth

Two years after a surprise loss nearly pushed Flagstar Bank toward a potential death spiral, the Long Island-based lender has reported a return to profitability, marking a critical moment in its ongoing turnaround.

In its fourth-quarter earnings report released Friday, the bank said it generated net income of $29 million between October and December.

The result represents a sharp reversal from a $36 million loss in the third quarter and a $188 million loss recorded in the same period a year earlier, when Flagstar was still grappling with the fallout from balance sheet stress and credit deterioration.

Chief executive Joseph Otting, a former Comptroller of the Currency, described the results as a “significant milestone in the Bank’s turnaround,” while cautioning that the recovery is still unfolding and not yet complete.

Over the past year, Otting said, Flagstar has deliberately rebuilt its commercial and industrial banking franchise, hiring more than 250 experienced bankers and support staff to attract new client relationships.

The strategy has delivered tangible results, with the bank reporting a second consecutive quarter of growth in C and I lending, an area it sees as more resilient and strategically aligned than its legacy exposures.

That growth has come alongside a notable contraction in overall headcount. Flagstar employed approximately 5,600 people as of December 31, according to a spokesperson, representing a decline of nearly 20 percent from the 6,993 employees it reported at the end of 2024.

The bank recorded $4 million in severance costs in the fourth quarter related to layoffs that took effect in January, although it did not disclose how many roles were eliminated in the latest round.

More consequential for investors has been Flagstar’s retreat from commercial real estate, a sector that weighed heavily on the bank’s performance in 2023 and 2024.

The lender said its CRE loan portfolio has fallen by roughly 25 percent since late 2023, including $5.5 billion in loan payoffs last year, as it sought to reduce risk and free up capital.

Credit costs, long a focal point of market scrutiny, also improved markedly. Provisions for credit losses dropped to $3 million in the fourth quarter, a 92 percent decline from the prior quarter and a 98 percent reduction compared with a year earlier.

Net charge offs fell to $46 million, down 37 percent from the third quarter and 79 percent from the end of 2024.

“I think we’re now pivoting to the growth side of the story,” chief financial officer Lee Smith said during the earnings call.

Despite the return to profit, Flagstar’s balance sheet has continued to shrink. Total assets stood at $87.5 billion at year end, down 13 percent from a year earlier.

Management said that decline is expected to reverse, with the bank targeting assets of between $93.5 billion and $95.5 billion by the end of this year and a return above the $100 billion threshold in 2027.

Revenue for the fourth quarter totaled $557 million, roughly $68 million lower than a year earlier. Net interest income came in at $467 million, up 1 percent on an unadjusted basis.

Excluding loan loss provisions, the bank said net interest income has improved by 47 percent since the end of 2024, underscoring the scale of its operational reset.