Flagstar Bank far outpaced expectations for its second-quarter results due to high loan sales and a strengthened portfolio from the subtraction of lower performing loans.

Profits for the $12.1 billion-asset Troy, Mich-based bank rose 82% to $46.4 million in a year-over-year comparison. Diluted earnings per share were 68 cents per share, easily exceeding the average estimate of analysts polled by Bloomberg by 29 cents.

Net interest income rose 16% to $72.5 million before a provision benefit of $13.3 million, which the company attributed to the sale of low performing loans. Counting that benefit net interest income reached $85.8 million. The bank sold about $70 million of lower performing loans along with $386 million worth of interest-only loans.

Warehouse lending also increased significantly, by 71%, to $1.2 billion, the highest gain for the bank's mortgage division. Residential first mortgages, at $2.5 billion the largest portion of Flagstar's mortgage business, grew a more modest 6%. Commercial real estate grew 20%, to $628.5 million, while commercial and industrial lending grew 21% to $412.4 million. 

On the whole, loans held-for-investment grew 20.5% to reach $5.3 billion while loans held-for-sale rose to $2 billion, a 49% increase. Loans with government guarantees fell significantly by about 50%, to $600 million. In total Flagstar held $7.9 billion in loans at the end of the second quarter, an increase of 12%.

Non-interest income rose 49% to $127 million on the strength of $82.2 million in loan sales, a major increase from the year before though a nearly 10% drop from this year's first quarter. Non-interest expense rose 14% to $138.9 million.

Net interest margin decreased 19 basis points to 2.79% for the quarter.

Revenue grew 9%, with combined gross interest income and noninterest income of $216 million. The bank attributed this to better efficiency.

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