Expanding Commercial Banking Staff: Flagstar to Recruit 80-90 Bankers in 2023
Flagstar Bank's Commercial Turnaround Strategy in Full Swing
Flagstar Bank, a leading financial institution, is making significant strides in its commercial banking turnaround strategy for 2023. The focus is on expanding Commercial & Industrial (C&I) lending, reducing quarterly losses, managing loan balances, and lowering commercial real estate (CRE) exposure.
Hiring for C&I Growth
The bank aims to hire around 100 commercial bankers in 2023 to support C&I loan growth. The strategic pivot from multifamily and CRE lending towards more diversified commercial lending is evident, with quarterly C&I loan originations expected to reach $1 billion to $1.5 billion when fully staffed.
Quarterly Losses Improving
In Q2 2023, Flagstar reported a narrowed net loss and a positive pre-provision net revenue (PPNR) of $9 million, a significant improvement from a $23 million PPNR loss in Q1 2023. Cost-cutting efforts such as merging the holding company into the bank, branch closures, and workforce optimization contributed to a 27% year-over-year reduction in non-interest expenses.
C&I Loan Balance Status
As of June 30, 2023, the C&I loan book stood at approximately $14.4 billion, a 6.2% decrease year-over-year. However, new C&I credit commitments surged 80% quarter-over-quarter to $1.9 billion, and originations rose 60% to $1.2 billion in Q2 2023, indicating strong loan production.
CRE Exposure Reduction
Flagstar has made "great strides" in reducing its multifamily and commercial real estate exposure, partly through record principal payoffs. Criticized assets fell 9% sequentially and 15% year-to-date, and non-accrual loans declined 4% quarter-over-quarter, reflecting improved asset quality and risk mitigation.
Corporate Restructuring
The bank plans to merge its holding company into Flagstar Bank, N.A., simplifying the corporate structure, reducing costs by about $15 million annually, and eliminating Federal Reserve oversight in favor of the Office of the Comptroller of the Currency (OCC).
Looking Ahead
Flagstar Bank aims to improve its earnings profile, execute on C&I and private-bank growth strategies, and continue to reduce its CRE exposure in 2023. The bank has already made significant progress, having cut jobs and closed branches in recent months as part of its cost reduction efforts. Additionally, Flagstar plans to hire 80 to 90 commercial bankers in 2023.
The situation with the significant borrower, which led to a 25% increase in non-accrual loans in the first quarter, costing the bank about $33 million, is described as "very idiosyncratic and unique" by Flagstar executives. Six data centers at Flagstar Bank have never been consolidated, according to CEO Joseph Otting, who was installed as CEO in March 2024 and agreed to occupy the role until March 2027.
In the first quarter of 2023, Flagstar added 15 bankers, totaling 75 hires since June 2024. The bank continues to work on reducing its CRE exposure, specifically its multifamily loans, and has been reviewing its portfolio with tariff impacts in mind, flagging sectors such as automotive, construction, and consumer products. Flagstar is also pursuing legal and contractual remedies against the borrower who moved to non-accrual status.
The bank's strategy for 2023 includes hiring around 100 commercial bankers to support the growth of Commercial & Industrial (C&I) loans, demonstrating a shift towards diversified commercial lending.
Flagstar Bank's efforts to reduce commercial real estate (CRE) exposure are evident through record principal payoffs and a decrease in criticized assets.
