Flagstar's Flagging Performance


Flagstar Bancorp (NYS: FBC) has disappointed its investors once again by reporting its 13th straight quarter of net losses. Does the bank have any positives to offer? Let's take a look.

The quarter in detail
In my previous discussion of the bank's first-quarter results, I sounded cautiously optimistic as it recorded significant improvements in its key metrics, in spite of posting a net loss. But this time, the tune has changed.

The bank's net losses have gone up to $74.9 million from $31.7 million in the first quarter of 2011. While its regional peers such as KeyCorp (NYS: KEY) and SunTrust Banks (NYS: STI) have been reporting quarterly profits on the back of declining provisions for loan losses (PLL), Flagstar continues to struggle with its losses.

The negatives
The preceding quarter witnessed a considerable drop in PLL, but this quarter saw that figure rise to $48.4 million from $28.3 million. I also noticed a slight decline in net interest margin (NIM) because of a 1.5% dip in average interest-earning assets. Consequently, net interest income (NII) decreased by $1.3 million from the prior quarter. Non-interest income also declined to $58.1 million from $96.3 million.

This continued rise in delinquencies, combined with unfavorable conditions in the housing industry, resulted in an increase in residential loan portfolio provisions. Furthermore, the bank continues to grapple with credit costs, which have been plaguing it for a while now.

The positives
The bank, however, did reveal a few positives. Average core deposits grew by 8.4% from the last quarter. Flagstar also maintains a decent Tier 1 capital ratio of 10.07%, which is well above the minimum level of 8%. Flagstar is selling 27 of its branches to PNC Financial (NYS: PNC) as it plans to focus its expansion in the Midwest and Northeast markets. But these positives weren't enough to break its trend of more significant bad news.

The Foolish bottom line
With consecutive losses and not many noticeable improvements, the second quarter doesn't paint a very healthy picture of Flagstar. At the moment, I would prefer to keep an eye on this stock, but from a distance.

At the time thisarticle was published Fool contributor Zeeshan Siddique owns none of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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