Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Northeast regional bank Flagstar Bancorp (NYSE: FBC ) dipped as much as 14% following the release of its fourth-quarter and full-year earnings results.
So what: For the quarter, Flagstar continued the progress of repairing its loan portfolio and reported a profit of $1.12, reversing a large year-ago loss. More importantly, Flagstar improved its tier 1 capital ratio by 110 basis points to 10.4% and highlighted the pending sale of its Northeast-based commercial loan portfolio, which is expected to be capital accretive. With the lone expectation only calling for a profit of $0.82, Flagstar appears to have handily "surpassed" the consensus. However, it's worth noting that net interest margin -- the difference between what it pays to borrow versus the rate at which it turns around and lends to consumers -- fell 16 basis points to 2.21% over the previous year. Not surprisingly, return on average assets fell 32 basis points to 1.78% from its sequential third quarter.
Now what: I didn't like Flagstar when I red-thumbed it more than a year ago, and despite being brutally wrong on that call, I still don't like it. Flagstar has done what it can to remove bad loans from its commercial loan portfolio, but it still has a long way to go. With a heavy reliance on consumer home loans, it wouldn't take much of a slowdown in the U.S. economy or the housing market to disrupt this still-fragile regional bank. I've been keeping my distance from Flagstar and will continue to do so.
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