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Flagstar Bancorp Inc. in Troy, Mich., reported a net loss of $14.2 million for the third quarter, a 37% improvement over the same period last year and its smallest quarterly loss since the start of the financial crisis three years ago.

The results, which were released late Tuesday, were driven by stronger interest income and flat credit costs.

The $13.7 billion-asset company said its interest income rose 59% year over year, to $65.6 million, and that its net interest margin improved 62 basis points, to 2.30%. Flagstar, which is primarily a mortgage lender, also said it added more than $300 million in commercial loans, doubling the amount it had at the second quarter as part of a broader effort to diversify its balance sheet.

The provision for loan losses was $36.7 million, down 28% from a year earlier. Flagstar said, that its overall credit-related costs, including its provision and asset resolution expenses, totaled $111.7 million, relatively flat from the previous quarter and year earlier. The company's nonperforming assets totaled $558.3 million, up 9% from the second quarter as more mortgages moved into nonperforming status. A year earlier, nonperforming assets were $1.1 billion.

In the fourth quarter 2010 the company began selling the problem assets in bulk and, to date, it has sold off $638 million of those assets, it said in a press release.

Non-interest income was $112.6 million, down 22% from a year earlier, but up 93% from the second quarter. The improvement from the second quarter stemmed from a $103.9 million gain on loan sales, up from $39.8 million in the second quarter.