Flagstar Bank (FLG) — 3Q26: Challenging Qtr on Another EPS Outlook Reset & Rent Regulated Comes Under the Microscope Again

J.P. Morgan views 3Q26 as a challenging quarter for Flagstar from just about any lens: core EPS of $0.01 came in well below consensus of $0.07 and JPM's $0.06 forecast as provision expense, NII, NIM, fees and expenses were all worse than expected. Management cut 2026 core EPS guidance to $0.10-0.15 (prior $0.40-0.50) and 2027 to $0.85-0.95 (prior $1.60-1.70), pushing the prior 2027 target out to 2028, tied to lower NII/NIM and fee income and higher provisions. Criticized and classified loans rose $670mm q/q (+6%) and nonaccruals reached $2.8B, driven by higher rates pressuring the NYC rent regulated multifamily portfolio, which totals $8.1B, or 13% of total loans, with roughly half categorized as special mention, substandard or nonaccrual. Management indicated a preference to work out the portfolio internally rather than sell, and no new buyback was announced. The analyst maintains Neutral with a price target cut to $11.50 from $14.00, with the only item preventing an Underweight ratin