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Flagstar Bank's IDR Upgraded to 'BB+' by Fitch, Outlook Remains Stable
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Key Takeaways
Fitch upgraded FLG's Long-Term IDR to BB and deposit ratings to BBB-/F3 on improved balance sheet strength.
FLG expanded commercial lending, with C&I originations rising to $2.1B in Q4 2025 from $542M a year earlier.
Flagstar Bank returned to profitability in Q4 2025 and reported a CET1 ratio of 12.83%, above many peers.
Fitch Ratings (“Fitch”) has upgraded the credit ratings of Flagstar Bank, N.A. (FLG - Free Report) . The rating agency raised the bank’s Long-Term Issuer Default Rating (IDR) and Viability Rating to ‘BB+’ and ‘bb+’, respectively, from ‘BB’ and ‘bb’. The bank’s rating outlook remains stable.
Additionally, Fitch upgraded the bank’s long-term and short-term deposit ratings to ‘BBB-’ and ‘F3’ from ‘BB+’ and ‘B’, respectively.
The upgrade reflects Fitch’s view that Flagstar Bank’s balance sheet and business restructuring have helped lower loan concentration and reduce reliance on wholesale funding, while also improving funding costs. These efforts have also supported the bank’s return to profitability.
Rationale Behind FLG’s Rating Upgrade
Progress in Business Transformation: Fitch noted that the bank’s management has made meaningful progress in executing a strategy to transform the business since taking charge in 2024. The initial focus was on stabilizing operations through improved credit-risk oversight, deposit stabilization and balance-sheet streamlining by exiting non-core businesses.
In 2025, Flagstar Bank expanded its regional commercial and corporate banking operations. Its quarterly commercial and industrial (C&I) originations increased significantly to $2.1 billion in the fourth quarter of 2025 from $542 million in the fourth quarter of 2024. Fitch believes the expansion of these lending segments will improve the bank’s revenue diversification. Currently, non-interest income accounts for roughly 16% of operating revenue, which is lower than that of regional bank peers.
Progress in De-Risking the Balance Sheet: The bank has also made notable progress in reducing credit risk. Although commercial real estate (CRE) concentration remains higher than that of peers, it declined to 365% of risk-based capital at the end of 2025 from 471% at the end of 2024. This improvement reflects the bank’s efforts to diversify its loan portfolio through C&I lending while gradually reducing certain CRE exposures.
Flagstar Bank has also strengthened its loan monitoring and risk-rating framework, which enables more accurate assessment and provisioning for credit risks. Fitch believes that the material weakness identified in early 2024 has been largely addressed.
Asset Quality Trends Expected to Improve: Fitch expects asset quality trends to gradually improve. The bank’s impaired loans ratio rose to 4.9% in 2025 from 4.4% in 2024, consistent with earlier expectations. However, nonaccrual loan balances peaked in the third quarter of 2025, indicating that asset quality may have reached an inflection point. Fitch also noted that both net charge-offs and criticized and classified loans have declined since its last review.
The resolution of a large credit relationship currently in bankruptcy is expected in the first quarter of 2026. This could account for nearly 45% of the projected $1 billion decline in nonaccrual loans in 2026. As a result, nonaccrual balances may decline by nearly one-third. Nevertheless, the rating agency cautioned that large credit exposures could still introduce greater volatility in asset quality.
Return to Profitability: Flagstar Bank’s return to profitability in the fourth quarter of 2025 marked a key milestone and was a major factor supporting the rating upgrade. Fitch highlighted that meeting management’s timeline improved the credibility of the bank’s turnaround strategy.
Going forward, the rating agency expects profitability to strengthen further in 2026 as net interest margin expands, operating efficiency improves and credit provisions normalize. Fitch expects the bank’s profitability to move closer to regional bank peer levels by 2027.
Higher Capital Levels: The bank’s capital position has strengthened due to a decline in risk-weighted assets. Flagstar Bank reported a Common Equity Tier 1 (CET1) ratio of 12.83%at the end of 2025, exceeding Fitch’s 2025 base-case expectations and standing above that of many peers.
Management has indicated a preference to maintain relatively high capital levels and deploy capital toward loan growth instead of share repurchases. Fitch considers this approach prudent, given the bank’s relatively higher-risk loan portfolio compared with higher-rated peers.
Funding Profile Improving: Flagstar Bank has also made progress in improving its funding mix by reducing reliance on wholesale funding and brokered deposits. Its deposit concentrations have declined, and the bank maintains a sizable level of liquidity on its balance sheet.
However, its loan-to-deposit ratio, funding costs and reliance on non-core deposits remain higher than those of better-rated peers. Fitch expects the deposit mix to gradually improve as the bank focuses on building relationship-driven deposits, including commercial operating accounts.
Our Take on Flagstar Bank
The upgrade of FLG’s credit rating reflects Fitch’s confidence in the ongoing transformation and improving financial profile. Continued diversification of the loan portfolio, progress in reducing credit risk and strengthening capital levels are expected to support the bank’s financial stability over the long term. Additionally, improving profitability and a stronger funding mix should further enhance Flagstar Bank’s operating performance in the coming years.
FLG’s Price Performance and Zacks Rank
Over the past three months, shares of FLG have risen 0.9% compared with the industry’s growth of 3.9%.
In November 2025, Zions Bancorporation N.A. (ZION - Free Report) announced that S&P Global Ratings revised the bank’s outlook to Stable from Negative while affirming its ‘BBB+’ long-term issuer credit rating.
The outlook revision reflects ZION’ improving financial profile, supported by higher capital ratios, stable deposits and expanding net interest margin. The rating agency also noted that the bank maintains solid asset quality and stable funding, which are expected to support consistent profitability and gradual capital improvement over the next two years.
Earlier, in September 2025, Fitch Ratings upgraded the credit ratings of KeyCorp (KEY - Free Report) . The rating agency raised the Long-Term Issuer Default Ratings of KeyCorp and its subsidiary KeyBank National Association to ‘A-’ from ‘BBB+’, while the Short-Term IDRs were upgraded to ‘F1’ from ‘F2’. The rating outlook remains stable.
The upgrade reflected Fitch’s view that KEY’s strategic initiatives, including its 2024 capital raise and securities portfolio repositioning, have strengthened the bank’s long-term earnings profile. The improvements in asset-liability management, capital planning and liquidity management are expected to support the bank’s financial stability and growth prospects.
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Flagstar Bank's IDR Upgraded to 'BB+' by Fitch, Outlook Remains Stable
Key Takeaways
Fitch Ratings (“Fitch”) has upgraded the credit ratings of Flagstar Bank, N.A. (FLG - Free Report) . The rating agency raised the bank’s Long-Term Issuer Default Rating (IDR) and Viability Rating to ‘BB+’ and ‘bb+’, respectively, from ‘BB’ and ‘bb’. The bank’s rating outlook remains stable.
Additionally, Fitch upgraded the bank’s long-term and short-term deposit ratings to ‘BBB-’ and ‘F3’ from ‘BB+’ and ‘B’, respectively.
The upgrade reflects Fitch’s view that Flagstar Bank’s balance sheet and business restructuring have helped lower loan concentration and reduce reliance on wholesale funding, while also improving funding costs. These efforts have also supported the bank’s return to profitability.
Rationale Behind FLG’s Rating Upgrade
Progress in Business Transformation: Fitch noted that the bank’s management has made meaningful progress in executing a strategy to transform the business since taking charge in 2024. The initial focus was on stabilizing operations through improved credit-risk oversight, deposit stabilization and balance-sheet streamlining by exiting non-core businesses.
In 2025, Flagstar Bank expanded its regional commercial and corporate banking operations. Its quarterly commercial and industrial (C&I) originations increased significantly to $2.1 billion in the fourth quarter of 2025 from $542 million in the fourth quarter of 2024. Fitch believes the expansion of these lending segments will improve the bank’s revenue diversification. Currently, non-interest income accounts for roughly 16% of operating revenue, which is lower than that of regional bank peers.
Progress in De-Risking the Balance Sheet: The bank has also made notable progress in reducing credit risk. Although commercial real estate (CRE) concentration remains higher than that of peers, it declined to 365% of risk-based capital at the end of 2025 from 471% at the end of 2024. This improvement reflects the bank’s efforts to diversify its loan portfolio through C&I lending while gradually reducing certain CRE exposures.
Flagstar Bank has also strengthened its loan monitoring and risk-rating framework, which enables more accurate assessment and provisioning for credit risks. Fitch believes that the material weakness identified in early 2024 has been largely addressed.
Asset Quality Trends Expected to Improve: Fitch expects asset quality trends to gradually improve. The bank’s impaired loans ratio rose to 4.9% in 2025 from 4.4% in 2024, consistent with earlier expectations. However, nonaccrual loan balances peaked in the third quarter of 2025, indicating that asset quality may have reached an inflection point. Fitch also noted that both net charge-offs and criticized and classified loans have declined since its last review.
The resolution of a large credit relationship currently in bankruptcy is expected in the first quarter of 2026. This could account for nearly 45% of the projected $1 billion decline in nonaccrual loans in 2026. As a result, nonaccrual balances may decline by nearly one-third. Nevertheless, the rating agency cautioned that large credit exposures could still introduce greater volatility in asset quality.
Return to Profitability: Flagstar Bank’s return to profitability in the fourth quarter of 2025 marked a key milestone and was a major factor supporting the rating upgrade. Fitch highlighted that meeting management’s timeline improved the credibility of the bank’s turnaround strategy.
Going forward, the rating agency expects profitability to strengthen further in 2026 as net interest margin expands, operating efficiency improves and credit provisions normalize. Fitch expects the bank’s profitability to move closer to regional bank peer levels by 2027.
Higher Capital Levels: The bank’s capital position has strengthened due to a decline in risk-weighted assets. Flagstar Bank reported a Common Equity Tier 1 (CET1) ratio of 12.83%at the end of 2025, exceeding Fitch’s 2025 base-case expectations and standing above that of many peers.
Management has indicated a preference to maintain relatively high capital levels and deploy capital toward loan growth instead of share repurchases. Fitch considers this approach prudent, given the bank’s relatively higher-risk loan portfolio compared with higher-rated peers.
Funding Profile Improving: Flagstar Bank has also made progress in improving its funding mix by reducing reliance on wholesale funding and brokered deposits. Its deposit concentrations have declined, and the bank maintains a sizable level of liquidity on its balance sheet.
However, its loan-to-deposit ratio, funding costs and reliance on non-core deposits remain higher than those of better-rated peers. Fitch expects the deposit mix to gradually improve as the bank focuses on building relationship-driven deposits, including commercial operating accounts.
Our Take on Flagstar Bank
The upgrade of FLG’s credit rating reflects Fitch’s confidence in the ongoing transformation and improving financial profile. Continued diversification of the loan portfolio, progress in reducing credit risk and strengthening capital levels are expected to support the bank’s financial stability over the long term. Additionally, improving profitability and a stronger funding mix should further enhance Flagstar Bank’s operating performance in the coming years.
FLG’s Price Performance and Zacks Rank
Over the past three months, shares of FLG have risen 0.9% compared with the industry’s growth of 3.9%.
Image Source: Zacks Investment Research
Currently, FLG carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Rating Action on Other Banks
In November 2025, Zions Bancorporation N.A. (ZION - Free Report) announced that S&P Global Ratings revised the bank’s outlook to Stable from Negative while affirming its ‘BBB+’ long-term issuer credit rating.
The outlook revision reflects ZION’ improving financial profile, supported by higher capital ratios, stable deposits and expanding net interest margin. The rating agency also noted that the bank maintains solid asset quality and stable funding, which are expected to support consistent profitability and gradual capital improvement over the next two years.
Earlier, in September 2025, Fitch Ratings upgraded the credit ratings of KeyCorp (KEY - Free Report) . The rating agency raised the Long-Term Issuer Default Ratings of KeyCorp and its subsidiary KeyBank National Association to ‘A-’ from ‘BBB+’, while the Short-Term IDRs were upgraded to ‘F1’ from ‘F2’. The rating outlook remains stable.
The upgrade reflected Fitch’s view that KEY’s strategic initiatives, including its 2024 capital raise and securities portfolio repositioning, have strengthened the bank’s long-term earnings profile. The improvements in asset-liability management, capital planning and liquidity management are expected to support the bank’s financial stability and growth prospects.