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This stock just came to my attention yesterday and I bought it this morning at $22.60 (why do stocks always drop at least a couple points right after I buy them?). From all the research I've done so far, it looks like I would have to be an idiot not to but this stock. There must be a catch! How could this stock be selling this cheap? Maybe I'm reading things wrong but it looks to me like this one could at least double in the short term. Hmm. I will say that this isn't the type of stock I usually am interested in. I've never owned a bank stock before.
DADUNCHDA
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Dadunchda,

FBC does look cheap. Why is it so reasonably priced relative to the industry average?

Well, it has traditionally been priced close to 1.5 x book, which is where it is at now.

I notice that it appears that OCF & FCF is strongly negative. It seems that it has quick and current ratios of less than one; and that it is leveraged above the industry average.

So at first glance it appears FBC needs ongoing financing. Since insiders are selling, I am not overly enthusiastic.

All of the above information is from the Fool snapshot:
http://quote.fool.com/Snapshot/snapshot.asp?currticker=fbc&symbols=fbc
and the msn website:
http://moneycentral.msn.com/investor/research/profile.asp?Symbol=FBC

I have noticed problems in their data before; I stress this is the most cursory of examinations; and my detailed analysis are often wrong; so take this with a grain of salt. Best of luck on your investment.

-- KC
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Kap, (replying to you cause I don't know if Dadunchda is still around)

I'm starting to become interested in this company, but not because I think the stock price is cheap. I live not too far from the corp. headquarters and would like to “own a piece of” a local company. Stupid reason to buy a stock? Perhaps, however I'm just window shopping right now. Most of the companies near by seem to be in the metal bending business. Very cyclical, and I'm not really looking to play the cycles.

I don't know enough about banks yet, except I think stable or declining interest rates are favorable, as well as steadily increasing fees. I'll have to do a little more digging to find out how FBC intends to make money.

I notice that it appears that OCF & FCF is strongly negative. It seems that it has quick and current ratios of less than one; and that it is leveraged above the industry average.

So at first glance it appears FBC needs ongoing financing. Since insiders are selling, I am not overly enthusiastic


From what I've read so far, this company is partially focusing on growing future earnings by opening new retail branches at a rapid rate (in comparison to their existing number of outlets).
Stolen directly from the 2000 annual report:
Growth & expansion
Throughout the year 2000, Flagstar Bank opened 17 new offices, eight of which are located in Wal-Mart stores. The new offices increased our total number of banking centers by 49%. These openings, coupled with strong marketing efforts at existing banking centers, resulted in retail deposit balances growing a phenomenal 46% in 2000.
Last year we began an ambitious community banking expansion within Wal-Mart Stores, Inc. We entered a series of long-term leases to open Flagstar InStore Banking Centers as tenants in 26 Michigan and 16 Indiana Wal-Mart stores.


Community Banking
… Flagstar is a growth-oriented bank with a firm commitment to community banking, as our accomplishments in 2000 demonstrate.
We will continue our aggressive growth plan in 2001…
Flagstar differentiates itself from its regional money center bank and international bank competitors in a number of ways... Finally, we generally provide lower fees and higher deposit rates than our large-bank competitors.


I guess the lower fees and higher deposit rates would attract retail deposits. However, on the surface this would seem to make FBC appear “less profitable” when comparing ratio's with some other banks. I also need to learn about the Preferred Shares. Do they have a certain date when they “mature”? And if they do, what happens then? I'm hoping the insiders are selling because they own a relatively large percentage of the company, and not because they think the future looks dim.
Looks like I have a lot of work to do.

t


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Hey Thenderson,

I hope your research is going well. There's nothing silly about wanting to invest in your community. Of course you'll have to know what you are getting into and have a reasonable expectation of a return on your investment.

I'm not keeping up with FBC, as I'm currently fully invested and happy with my portfolio. I think that there might also be easier investment decisions out there.

You're right on that an aggressive growth strategy would create low operating cash flow. Preferred shares usually don't technically mature with repayment of principal but there may be call, put, or conversion provisions that would allow the company to buy back the preferred, the holders to sell it back, or either to convert them.

The Wal-Mart in-store strategy sounds great. How did they land that deal?

Some questions I would ask:
-- Why is their growth strategy going to be successful? What is their edge? I think that they are right in the backyard of Bank of America and Bank One, how will they take business from these much larger rivals?

-- What is the risk? Your mention of higher yields on deposits reminded me of the S&L crisis -- where are these higher yields coming from? What does their loan portfolio look like? I remain concerned about the leverage. What circumstances would lead to a default, and how likely are they?

To expand a little on the yield question, I'd like to paraphrase an explanation of commercial banking someone once gave me. "You deposit money and the bank pays you 2% for it. Then the bank loans it out for 8%. They make the spread of 6%. Almost all of commercial banking can be explained this way." So higher yielding deposits are less profitable for the bank, although good for insured depositors (as the S&Ls revealed). If their only competitive advantage is price and yield, what's to stop a larger, better financed rival from entering a rate war and driving them out of business?

As I said before, I'm not keeping up on FBC, this post is just some of what I would do before investing. Certainly the company has bright points (such as strong growth) that I haven't focused on. I hope that your research goes well, let me know how it pans out. Good Luck!

KapitalCash
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I think that there might also be easier investment decisions out there.

Kap,

That just about says it all.

They may have a good growth story and enough fee income from servicing mortgages to carry them through the hard times, but I believe I'll give this stew a few more years to simmer, before taking a taste. If I feel I have to invest in a local bank, I can always look at Comerica http://quote.fool.com/Snapshot/snapshot.asp?currticker=cma&symbols=cma
they're not far away either.

I also felt a little uncomfortable about investing in a company where upper level management (mostly one family) owns over half of the shares.

Home construction http://quote.fool.com/Snapshot/snapshot.asp?currticker=phm&symbols=phm
and generic pharmaceutical manufacturing
http://quote.fool.com/Snapshot/snapshot.asp?currticker=prgo&symbols=prgo
are other possible avenues of exploration for a “local” company as well.

The quest continues,

t
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cash and henderson,
I hope dadunchda followed his hunch and stayed with this stock. It's up 60% since January and 50% since you guys passed up on it. fortunately I got in at 22. But it's worth considering your concerns. Time to think about an exit price.
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To continue this long story, FBC is now up 200% since daduncha bought it. Fortunately, I did not get scared off it and have ridden it this far. But now it may really be running out of steam at least for the short term. However, it's P/E is not out of line at 12 so it is still a solid stock.
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