Flagstar Bancorp in Troy, Mich., beat expectations as it reported stronger mortgage volume in the first quarter.

The $11.6 billion-asset company reported net income of $31.5 million in the first quarter versus a profit of $11.1 million in the previous quarter and a loss of $78.4 million a year ago. Earnings per share of 43 cents outpaced the average estimate of analysts polled by Bloomberg by 29 cents.

Gain-on-loan sales spiked 101.5%, to $91.3 million. Gain-on-sale margins lifted 34 basis points from the same period a year ago to 1.27%.

Year over year, Flagstar's mortgage origination activity rose sharply, increasing nearly 50% to $7.3 billion in loans originated. The number of loans Flagstar is subservicing went up by 13%, to $44.7 billion. Its own servicing portfolio dropped, however, by 7%, to $27 billion.

"Mortgage volumes increased during the first quarter, providing a favorable tailwind, but most of our revenue growth was due to improved gain-on-sale margins in part from fundamental changes to optimize our mortgage originations business," said Alessandro DiNello, president and chief executive officer of Flagstar, in the April 28 earnings release.

Overall, net interest income increased 11.5% year-over-year, to $64.9 million. Net interest margin dropped by 22 basis points, to 2.75%.

Non-interest income rose altogether as well, increasing 58% to $118.3 million. Most of this upswing was caused by a doubling in the net gain-on-loan sales, which was partially offset by a loss on the mortgage servicing asset and a decrease in loan administration income.

Non-interest expenses decreased, meanwhile, by 2% to $137 million. Lower compensation, equipment and legal costs were mitigated by a rise in commissions.

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