Flagstar Financial, Inc. (FLG) Income Statement

NII contracted sharply from $624M in 2024Q1 to $440M by 2026Q2, a cumulative decline of 29%, reflecting the repricing of legacy fixed-rate assets and higher funding costs. However, the pace of decline has slowed, with NII growth turning positive in 2026Q1 and Q2 (8% and 5% YoY, respectively), indicating that the balance sheet may be nearing a stable run-rate. The stabilization appears driven by reduced deposit costs and a shift in mix, but the absolute level remains well below historical peaks, suggesting the earnings base has been permanently reset.

NIM has been stuck at 0.5% since 2025Q2, a level that is structurally inadequate for a regional bank, especially when compared to peers like Western Alliance (61.1% gross margin) and Columbia Banking (67.7%). The compression reflects the combination of a large portfolio of low-yielding, long-duration multi-family loans and rising deposit costs, which have not yet repriced downward. Even as the rate cycle stabilizes, the bank's ability to expand NIM appears limited without significant balance sheet restructuring, which could take several quarters to execute.

The efficiency ratio has improved from 49.9% in 2024Q1 to 42.8% in 2026Q2, but this improvement is misleading because it is the result of aggressive expense reduction, not top-line expansion. Total revenue has declined from $1.6B in 2024Q1 to $1.1B in 2026Q2, a 31% drop, while non-interest expenses have been cut more aggressively. This suggests the bank is shrinking its way to profitability, which may not be sustainable if revenue continues to decline. The operating leverage is negative, as revenue contraction outpaces cost savings, and the bank has yet to demonstrate that it can grow earnings organically.

The dramatic reduction in provision expense from $390M in 2024Q2 to $18M in 2026Q2 indicates that the bank has largely recognized the credit losses from its rent-regulated multi-family portfolio. This normalization has been the primary driver of the return to profitability, as net income turned positive in 2026Q1. However, the low provision level may not be sustainable if the economic outlook for NYC real estate deteriorates further, and the bank's allowance coverage remains thin relative to its criticized assets. Investors should monitor whether the bank is adequately reserved for potential future losses, especially given the ongoing regulatory and legislative risks.

Non-interest income has been volatile, declining from $130M in 2024Q1 to $76M in 2026Q2, and fee income as a percentage of total revenue has dropped from 7.9% to 7.2%. This decline is largely attributable to lower mortgage banking revenues, which are sensitive to interest rate movements and refinancing activity. The bank's reliance on mortgage-related fees introduces earnings volatility, as seen in the wide swings in non-interest income across quarters. The lack of a stable, recurring fee stream, such as wealth management or service charges, makes the bank's earnings more dependent on the interest rate environment and housing market conditions.

The inflection point in FLG's income statement occurred in 2025Q4, when the bank reported net income of $29M, breaking a streak of five consecutive quarterly losses that cumulatively totaled over $1.2B. This turnaround was primarily driven by a dramatic reduction in provision expense, which fell from $145M in 2024Q4 to $3M in 2025Q4, and continued cost discipline. The subsequent quarters have shown modest but consistent profitability, with 2026Q2 EPS of $0.05, though still below consensus estimates. This suggests that the bank has stabilized, but the pace of recovery is slow, and the earnings power remains weak relative to the bank's asset base.