Flagstar Bank: The Good, The Bad & The Ugly

This week's "The Good, The Bad & The Ugly" from BankRegData.com reviews Flagstar Bank.

Flagstar (FBC) is the nation's 65th largest Bank with $14.3 Billion in Assets. They operate approximately 165 branches in Michigan, Indiana and Georgia. With this footprint, it probably comes as little surprise that they are somewhat struggling. You can see a review of Texas Ratio by state for Community Banks here.

The data for the following tables and charts comes from the FDIC Call Reports and the spot review is not intended as advice. BankRegData holds no positions in any bank stocks nor has financial backing from any institution.

The Good: Tier 1 Capital Ratio

With another capital raise in the first quarter, Flagstar saw an increase in their Tier 1 Capital Ratio to 16.68%. While going to the markets again for more money might not necessarily be a good thing, they are sitting on $1.343 Billion in Tier 1 Capital.

The increase has also had the benefit of lowering their Texas Ratio from 227.75 to 165.88 - primarily through an increase in the denominator as Nonperforming Loans increased for the 12th straight quarter.

The Bad: Nonperforming Loans

A full 15.70% of Flagstar's loan portfolio is either 90+ Days Past Due and/or on Nonaccrual. The number is three times their peer group at 4.79%. It is important to note that they have $487 million in Government Guarantees (mostly from GNMA) which brings their NPL rate down to 10.46%. The Adjusted NPL rate of 10.46% is up from 9.41% and places them in the 92nd percentile relative to peers.

Nonperforming Loans by Loan Portfolio:

- At 11.48%, Commercial Real Estate is down from 15.90%

- Home Equity Loans have ticked back up to 2.75% from 2.48%

- Yes, Construction & Development is at a NPL rate of 52.65%

Another concern is the fact that Flagstar's Early Stage 30-89 Days Past Due delinquency rate has climbed for the second straight quarter to 2.89%. In terms of absolute dollars they have 15x as many NPLs as they did 3 years ago. Where do you get the staff to work all this inventory?

Hire? Yes, but as a former collection manager, I can tell you we wouldn't put the new guys on the hardest paper. So, the new collectors get thrown on the Early Stage.

Who do you have train them? Chances are, you want your best reps actually working not training, so now you have your "middling" group doing the training of the new hires. Flagstar has entered what I call the "death spiral" where bad delinquencies beget more bad delinquencies as you self create a continuing problem.

The Ugly: Net Interest Margin

Flagstar's NIM of 1.57% is well below their peers at 3.84% and places them in the 96th percentile on peer performance. A Cost of Funding of 3.01% relative to peers at 1.34% certainly does not help. The 3.01% places them last in their peer group in the 100th percentile.

While Cost of Funding might adjust relative to their health, another issue is that their Yield on Earning Assets at 4.58% will continue to be constrained by a heavy reliance on 1-4 Family 1st Liens making up 71.25% of their loan book. At this point, it's hard to see how Flagstar will have the ability to grow Interest Income.

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Comments

[Ying-Yang]

Hey... I have my home mortage with these guys.... I am in the Family First Lien group and I am current. Also located in Texas where values aren't down as much.

Any advice?

Ying-Yang

[Sudden Debt]

Stop 3 payments and ask for a loan modification ;)

They need the cash and can't afford to lose much more so they'll bite :)

[bmoreland]

Even if (when?) they go under, your mortgage will only change in the fact that you have a new address to mail your payment. Even if you had deposits under $250k I'm not sure you'd need to do anything.