Regional banking company Flagstar Financial (NYSE: FLG) missed Wall Street’s revenue expectations in Q3 2026, but sales rose 6.4% year on year to $530 million. Its non-GAAP profit of $0.01 per share was 85.9% below analysts’ consensus estimates.

Is now the time to buy FLG? Find out in our full research report (it’s free for active Edge members).

StockStory’s take

Flagstar Financial’s third quarter was marked by ongoing progress in commercial loan and deposit growth, but the market reacted negatively to results that fell short of Wall Street’s expectations. Management pointed to net interest margin expansion and continued C&I (commercial and industrial) loan growth as bright spots, yet acknowledged higher credit costs and persistent inflationary pressures. CEO Joseph Otting described the impact of rising interest rates and New York City rent regulation as central headwinds, noting, “Several variables pressured credit costs during the third quarter, including the effects of higher interest rates, actions related to the New York City rent regulations and persistent inflationary pressures.”

Looking ahead, management’s guidance reflects both optimism about further balance sheet transformation and caution about the timing of Flagstar’s turnaround. The company now expects its profitability to reach peer levels in 2028, a year later than previously forecast, citing a more competitive deposit environment and slower credit resolution. CFO Lee Smith stated, “The inflection point is '27 for the following reasons: between October 1, 2026, and December 31, '27, we have $12 billion of low coupon, less than 3.9% CRE multifamily loans either resetting or maturing.” Management remains focused on executing its strategy but has reduced near-term expectations due to these macroeconomic headwinds.

Key insights from management’s remarks

Management attributed the third quarter’s results to commercial loan expansion and ongoing efforts to diversify away from commercial real estate, while also flagging credit pressures and deposit competition as key challenges.

• C&I loan growth momentum: The bank originated $2 billion in net new C&I loans during the quarter, supported by hiring experienced bankers and expanding into new regional markets such as Dallas, Detroit, Chicago, Cleveland, and Phoenix. Management sees this as key to diversifying away from commercial real estate exposure.

• CRE portfolio reduction strategy: Management emphasized ongoing reduction in commercial real estate (CRE) loans, achieving $1.2 billion in paydowns this quarter—35% of which were rated substandard. The goal is to reduce CRE by $1 billion per quarter, focusing on higher-quality, relationship-based lending.

• Deposit competition intensifies: The company noted increased competition for deposits, leading to higher funding costs and slower deposit growth than anticipated. CFO Lee Smith highlighted that “the higher interest rates have also resulted in a more competitive deposit environment,” which has driven up costs and challenged growth targets.

• Credit costs pressured by rates and regulations: Flagstar’s provision for credit losses rose due to interest rate increases, New York City rent regulations, and inflation. These factors placed pressure on the multifamily portfolio, especially rent-regulated loans in the Bronx, impacting net charge-offs and loan classifications.

• Expense discipline and capital position: Despite modest operating expense increases, management expects full-year 2026 operating expenses to decline by about 9% year-over-year. The company completed a $250 million share repurchase program but paused additional buybacks until 2027 to prioritize core earnings and credit stability.

Drivers of future performance

Flagstar’s outlook centers on the pace of deposit inflows, balance sheet repricing, and the resolution of credit issues within its multifamily and CRE portfolios.

• Deposit growth uncertainty: Management’s ability to generate $800 million to $1 billion in new deposits per quarter is viewed as the linchpin for supporting future C&I loan growth and overall balance sheet expansion. Lee Smith described this deposit assumption as the key swing factor in the forecast, with other elements considered “mechanical.”

• CRE loan repricing and runoff: The company will see $12 billion of low-coupon CRE loans reset or mature by the end of 2027, offering opportunities to reprice assets at higher rates or redeploy capital into higher-spread C&I loans. Much of this process is contractual, but outcomes depend on market interest rates and borrower behavior.

• Credit and nonaccrual resolution pace: While management expects nonaccrual loans and criticized assets to decrease gradually, the higher-rate environment could slow progress. The special asset group is tasked with reducing nonaccruals, but visibility is limited and outcomes may fluctuate based on economic and regulatory developments.

Catalysts in upcoming quarters

In upcoming quarters, the StockStory team will watch (1) whether Flagstar can consistently generate targeted deposit inflows to fund loan growth, (2) the pace and outcomes of contractual CRE loan repricing and paydowns, and (3) progress in reducing criticized and nonaccrual assets despite ongoing credit challenges. The ability to control costs and maintain capital discipline will also be important signposts amid persistent rate and regulatory pressures.

Flagstar Financial currently trades at $10.47, down from $11.46 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

Stocks that trumped tariffs

WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.

But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.