Dive Brief:

• Hicksville, New York-based Flagstar Financial is consolidating its real estate footprint, as part of the lender’s efforts to shed $600 million in operating expenses by the end of the year, CFO Lee Smith said Thursday.
• During the bank’s fourth-quarter earnings call, Smith said Flagstar is closing about 60 retail branches, most of which it leases; about 20 private-client retail locations; and a couple of operating centers that are owned by the bank.
• Flagstar reported a fourth-quarter loss of $160 million, according to an earnings release. However, CEO Joseph Otting said he expects the bank to post profits in the fourth quarter of 2025, marking a turning point on the company’s return to consistent profitability.

Dive Insight:

As the bank trims costs, executives are also focused on compensation and benefits and vendor spending, Smith said. Many expense initiatives have been completed or are in process, he said.

Regarding the operating center consolidations, Smith said Flagstar will move into smaller facilities. The private-client retail locations and branches are in close proximity to other locations, he said, “so we feel we can be more efficient and not lose anything from a customer service point of view” by shuttering those.

Branch closures are occurring in three phases, “one of which is already underway, and then a further two phases that will occur later this year,” Smith said. The bank doesn’t expect any disruption to customer experience, he added. A bank spokesperson didn’t immediately respond to a request for more information on branch closures.

After 2024’s “transitional year,” Otting said the bank has set the stage for profitable growth moving forward. 

“The company is in a better position than it was 12 months ago,” Otting said. 

One year ago, during its Q4 2023 earnings call, the bank reported a surprise $252 million loss connected to its commercial real estate exposure. That led the share price of New York Community Bank, as it was then known, to plummet. The lender, a week later, reported a $2.4 billion impairment charge and a change at CEO.

The bank received a $1.05 billion capital infusion in March from ex-Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital and other investors. Otting, a former head of the Office of the Comptroller of the Currency, was then installed as CEO. 

Since then, executives have pursued a turnaround plan designed to diversify the bank’s portfolio and return it to profitability. Flagstar sold $5 billion in mortgage warehouse loans to JPMorgan Chase last year, and sold its residential mortgage servicing business to nonbank mortgage firm Mr. Cooper for $1.4 billion.

Flagstar continues to work on reducing its CRE exposure and managing problem loans, executives said Thursday. Total CRE balances have dropped 9%, from $50.6 billion at the end of 2023 to $45.9 billion at the end of 2024, and the bank’s CRE concentration ratio has dipped from 501% to 443% in that time period, according to an earnings presentation. 

“In some of the portfolios, the historical practice of the company was to take very large positions,” such as in commercial real estate, Otting said. 

This year, Flagstar aims to continue reducing its CRE exposure through payoffs and loan sales, and grow its commercial and industrial loan business and its residential mortgage portfolio, Smith said. During 2024’s fourth quarter, the bank sold about $244 million of non-accrual CRE assets, including its largest office loan, and moved $266 million to available-for-sale, which is expected to close this quarter, Smith said.

To strike a better balance, “it’s a combination of pulling those commitments down slightly while we’re growing the market to get better diversity to the portfolio,” Otting said.

Flagstar announced job cuts last October, and the company’s overall headcount has fallen to about 6,000, from 9,000, Otting noted. Flagstar did, however, add more than 50 bankers in the latter half of last year, and plans to hire another 100 in 2025, he said.