Flagstar expects to turn profitable in 2025 as recovery push takes root

Adds CEO comment in paragraph 3, analyst comment in paragraph 11, updates shares

By Niket Nishant

Jan 30 (Reuters) - Flagstar Financial FLG.N said on Thursday it expects to turn profitable in the fourth quarter of 2025, in a sign that the lender's efforts to cut its big exposure to embattled commercial real estate loans has started paying off.

The shares of the bank, formerly known as New York Community Bancorp, rose 17% to their highest in more than a month.

"We are projecting to be profitable in the fourth quarter of this year," said CEO Joseph Otting, who will complete a year at the helm in April. "This will ultimately mark the company's turning point and its return to consistent profitability."

Since joining the bank as part of a $1 billion capital injection, Otting, a former comptroller of the currency, has revamped the management, sold several assets, paid down costly debt and improved its deposit growth.

"Perhaps our most important accomplishment this year (2024) is the improvement in our capital position," he said.

The bank expects losses in 2025 between 25 cents and 30 per share, lower than the 35 cents that analysts polled by LSEG had forecast.

Excluding one-time costs, fourth-quarter loss was 34 cents per share, also smaller than expectations of 54 cents.

PROVISIONS DECLINE

The bank's quarterly provision for credit losses dropped 80% to $108 million, while its multi-family portfolio shrunk 9% from a year ago, underscoring the bank's progress in exiting strained sectors.

"We would expect the shares to perform better than peers today, largely driven by the softer loan loss provision," Citigroup analyst Benjamin Gerlinger said.

However, multi-family loans — mortgages collateralized by apartment buildings with more than four units — accounted for 47% of Flagstar's loan portfolio as of Dec. 31.

The bank said it would further reduce CRE exposure, which sparked an upheaval in the banking industry last year as remote work and online shopping dented the demand for office spaces and shopping malls.

Interest-rate cuts by the Federal Reserve too have helped ease some of the pressure.