Core Viewpoint - Fitch Ratings has upgraded Flagstar Bank's credit ratings, reflecting improvements in the bank's balance sheet, business restructuring, and return to profitability [2][3][10] Financial Performance - Flagstar Bank's Long-Term Issuer Default Rating (IDR) and Viability Rating were raised to 'BB+' and 'bb+' from 'BB' and 'bb', with a stable outlook [2] - The bank's long-term and short-term deposit ratings were upgraded to 'BBB-' and 'F3' from 'BB+' and 'B' [2] - The bank returned to profitability in Q4 2025, marking a significant milestone [10] Business Transformation - Management has made significant progress in transforming the business since 2024, focusing on stabilizing operations and improving credit-risk oversight [4] - The bank expanded its regional commercial and corporate banking operations, with quarterly commercial and industrial (C&I) originations increasing to $2.1 billion in Q4 2025 from $542 million in Q4 2024 [5] Risk Management - The bank has reduced credit risk, with commercial real estate (CRE) concentration declining to 365% of risk-based capital at the end of 2025 from 471% at the end of 2024 [6] - The bank strengthened its loan monitoring and risk-rating framework, addressing material weaknesses identified in early 2024 [7] Asset Quality - The impaired loans ratio rose to 4.9% in 2025 from 4.4% in 2024, but nonaccrual loan balances peaked in Q3 2025, indicating potential improvement in asset quality [8] - A large credit relationship currently in bankruptcy is expected to resolve in Q1 2026, potentially leading to a significant decline in nonaccrual loans [9] Capital and Funding - Flagstar Bank reported a Common Equity Tier 1 (CET1) ratio of 12.83% at the end of 2025, exceeding expectations and standing above many peers [13] - The bank has improved its funding mix by reducing reliance on wholesale funding and brokered deposits, although its loan-to-deposit ratio remains higher than that of better-rated peers [15][16] Future Outlook - Fitch expects profitability to strengthen further in 2026 as net interest margin expands and operating efficiency improves [12] - Continued diversification of the loan portfolio and strengthening capital levels are anticipated to support the bank's financial stability in the long term [17]