Flagstar Bancorp in Troy, Mich., said Tuesday that its fourth-quarter profit fell 15% from the same period in 2015, to $28 million, as strong growth in net interest income was largely offset by higher expenses tied to its business expansion.
Earnings per share climbed 11% to 49 cents but still fell short 6 cents short of consensus analysts' estimates.
Compared to the third quarter, net income fell by more than 50% due to sharp decline in mortgage activity. As one of the nation's most prolific home lenders, Flagstar's fortunes each quarter are determined largely by the noninterest income it generates selling loans. For the quarter ending Dec. 31, the net gain on those sales fell 39% from three months earlier, to $57 million.
Seasonal declines coupled with rising interest rates "made mortgage production challenging," President and CEO Alessandro DiNello said in a press release.
Flagstar, with $14.1 billion of assets, reported net interest income of $87 million, up 14% from the same quarter in 2015.
Seeking to balance variable mortgage revenues with more stable net interest income, Flagstar has made growing its commercial and industrial, commercial real estate and mortgage warehouse loans a major strategic objective. Its commercial portfolio totaled $3.5 billion at yearend, up 59% from just 12 months earlier.
"Our team has done a really good job over the last three or four years in becoming relevant in Southeast Michigan," DiNello said on a conference call with analysts. "As good as 2016 was, I think 2017 will be even better."
The cost of beefing up its commercial lending affected overall profits, however. Salary and commission expense totaled $81 million in the fourth quarter, up 21% from the same period in 2015. The bank also slightly increased its provision for loan losses in the quarter as it added more commercial loans.
Flagstar shares were trading at $26.40 late midday Tuesday, up 2.5% from Monday's closing price.