Flagstar Financial narrows losses as credit costs moderate, stock edges up

NEW YORK - Flagstar Financial, Inc. (NYSE:FLG) reported a second quarter adjusted net loss of $0.14 per share on Friday, in-line with analyst expectations, as the bank continues its transformation toward becoming a diversified regional institution.

The company’s shares edged up 0.83% in pre-market trading following the announcement.

The bank reported revenue of $496 million for the quarter, below the consensus estimate of $519.38 million, but showed improvement in several key metrics. Flagstar’s net interest margin increased to 1.81%, up 7 basis points from the previous quarter, while credit costs moderated with provision for credit losses declining compared to the first quarter.

"I am very pleased with the progress the Company made during the second quarter across multiple fronts as we continued to execute on our successful strategy of transforming Flagstar into a top-performing, well-diversified regional bank," said Chairman, President, and CEO Joseph M. Otting.

The bank reported strong momentum in commercial and industrial (C&I) lending, with new loan originations increasing 57% and new commitments rising 80% on a linked-quarter basis. The company also reduced its commercial real estate exposure, with CRE loans declining $874 million or 8% compared to the previous quarter.

Credit quality showed improvement with criticized and classified assets declining 9% from the prior quarter and 15% over the first half of the year. Non-accrual loans declined 4% compared to the first quarter.

Flagstar maintained disciplined expense management, reducing adjusted operating expenses by 5% compared to the prior quarter. The bank also announced plans to eliminate its bank holding company structure to further reduce costs and streamline operations.

"We have made great strides during the first half of the year and anticipate further progress over the remainder of the year," Otting added, noting that the company expects to return to profitability in the fourth quarter of this year.

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