Here's What the Market Missed About Flagstar Bancorp's Earnings


After announcing earnings on Wednesday night, Flagstar Bancorp's stock declined 12% on Thursday. Though the bank recovered a bit this morning, investors are still looking for a reason for the decline yesterday. While the market seemed to be focusing on shrinking net interest margins and declining assets, future earnings could be affected by the announced sale of $1.3 billion in assets.

About the sale
Flagstar reached an agreement with CIT Group in which CIT will acquire $1.3 billion in commercial loan commitments. The company expects the sale to be completed during the first quarter and to bring in $779 million. The sale is part of the bank's refocusing strategy to be truly committed to community banking in Michigan and maintain its position as the largest bank headquartered in the state.

We'll better know the impact of this sale after the first quarter, but it is a further sign that the bank is working diligently to improve its asset base. Flagstar has reduced total nonperforming loans by 18.1% since December 2011. This will hopefully start out 2013 strong for the bank, and I expect the bank will be reporting its fourth consecutive profitable quarter in about three months.

Other numbers are positive, too
The Michigan bank also posted its third consecutive profitable quarter, recovering from a loss of almost $200 million dollars in 2011. Full-year net income of $223.7 million should be reason to celebrate as well. The bank seems to be on the right track going forward.

With Flagstar returning its focus to its community banking roots, it could learn a lot from another regional bank that prides itself on similar behavior. To learn more about this other bank, I invite you to read our premium research report on North Carolina-based BB&T. We'll fill you in on both reasons to buy and reasons to sell BB&T, and what areas that BB&T investors need to watch going forward. Click here now for instant access!

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