Flagstar Financial, Inc. (FLG) Cash Flow Statement

The return to profitability in 2026Q2, with net income of $34M, marks a third consecutive quarter of positive earnings, but the magnitude is modest relative to the bank's balance sheet. Operating cash flow swung from -$178M in 2025Q4 to $241M in 2026Q2, indicating that earnings quality is not yet stable. This suggests that internal capital generation is insufficient to meaningfully bolster regulatory capital ratios, which remain under pressure from prior losses and elevated leverage.

The bank has consistently been a net purchaser of investment securities, with net purchases of $2.0B in 2026Q2 and $1.7B in 2025Q4, suggesting a strategy to deploy excess liquidity into higher-yielding assets. However, the sales of $1.4B in 2026Q2 may reflect realized losses or a shift in duration positioning. This activity implies that the bank is using its securities portfolio to manage interest rate risk and liquidity, but the effectiveness of this strategy is unclear given the persistent NIM compression.

The dramatic reduction in loan loss provisions, from $390M in 2024Q2 to $18M in 2026Q2, suggests that the credit cycle may have peaked, allowing the bank to release capital previously set aside for losses. However, the absence of significant loan origination cash flows in the data implies that the loan book is contracting or stagnant, consistent with a deleveraging strategy. This may indicate that the bank is prioritizing balance sheet de-risking over growth, which could limit future revenue generation.

The dividend cut from $43M in 2024Q1 to $12M in 2026Q2 is a clear sign of capital preservation, but even the reduced dividend is not fully covered by net income in quarters like 2026Q1 when net income was $21M and dividends were $13M. With no buybacks occurring, the bank is retaining nearly all earnings, yet the cumulative losses over the past two years have depleted capital. This suggests that the current dividend level may be at risk if earnings do not continue to improve, and investors should monitor the sustainability of this payout.

While deposit flows are not directly reported in the cash flow data, the persistent NIM of 0.5% suggests that the bank's cost of funds is rising faster than asset yields, likely due to deposit repricing. This implies that the bank may be experiencing deposit outflows or a shift to higher-cost funding sources, which could pressure liquidity. Investors should monitor the bank's deposit beta and mix, as a high beta could further erode profitability in a higher-for-longer rate environment.