Flagstar Bancorp (FBC) in Troy, Mich., recorded its fifth consecutive quarter of profitability and met Wall Street's earnings forecasts despite a drop in income from the sales of loans.
The $11.8 billion-asset company earned $14.3 million in the third quarter, down 82% from the same period of 2012, it reported Tuesday. Per-share earnings were 16 cents, meeting the average estimate of analysts polled by Bloomberg.
Flagstars stock rose more than 8% following the earnings announcement, reaching $15.84 a share in trading Wednesday morning.
Flagstar managed a profit despite a slowdown in loan income. The company's net interest income fell 42%, to $42.7 million, as its net interest margin tightened to 1.62%, from 2.16%.
Flagstar's net loans fell by 38%, to $3.8 million. The company has been selling loans in an effort to reposition itself as a Michigan-focused community bank with a national mortgage business. In the third quarter, it gained $75.1 million from loan sales, down from $334.4 million in the same period in 2012.
The lower gains on loan sales drove a 51% decrease in noninterest income, to $134.3 million. Loan and deposit fees also fell, but loan-administration revenue nearly tripled, to $30.4 million from $11.1 million.
Noninterest expense dropped 32%, to $158.4 million, as legal and professional costs decreased by 66%, to $19.6 million.
Flagstar's mortgage business sputtered as refinance volume fell industrywide. Its mortgage originations fell 29% from the second quarter of 2013, to $7.7 billion, but purchase mortgage originations rose 17%.
"Mortgage banking continues to be a key component of Flagstar's overall strategy, and we are adapting to a shift in the mortgage industry from a primarily refinance-driven market to a purchase market by further reducing our cost structure and focusing our efforts on appropriate growth opportunities," said Sandro DiNello, Flagstars chief executive, in the news release. DiNello succeeded Michael Tierney as CEO in May.
Flagstar returned to profitability last year after suffering steep losses in the wake of the financial crisis. This year, it has settled several lawsuits over allegations that it misrepresented the quality of mortgages it sold prior to the crisis.