Flagstar Bancorp in Troy, Mich., reported lower earnings after higher expenses and a loss tied to mortgage-servicing rights offset revenue from commercial loan growth.

The $17 billion-asset company said in a press release Tuesday that its third-quarter earnings fell by 30% from a year earlier, to $40 million, or 70 cents a share. Flagstar’s profit still fell by 2% when subtracting a large one-time gain from last year’s results.

Revenue fell 1.2%, to $233 million.

Net interest income rose by 29% to $103 million. Total loans increased by 11%, to $7.3 billion, while the net interest margin expanded by 20 basis points to 2.78%.

"We felt the effect of TRID more than other bank originators," said Flagstar CEO Alessandro DiNello.
Flagstar, led by CEO Alessandro DiNello, hopes to report lower noninterest expense in the fourth quarter.

Flagstar’s plan to reinvent itself as a commercial lender continued to gain traction; commercial-and-industrial loans rose 70% to more than $1 billion. Commercial real estate loans increased by 52% to $564 million.

Flagstar’s strong loan growth makes a foray into bank acquisitions unlikely, CEO Alessandro DiNello said during a conference call to discuss the quarterly results. “The right banking situation is going to be hard to find … since we can do what we want to do organically,” he said.

Deposits rose 1.2% to $6.8 billion as growth in retail deposits was partially offset by an 11% decline in government deposits.

Noninterest income fell 17% to $130 million. The results included a 20% decline in net gains from loan sales and a $6 million gain tied to mortgage-servicing rights.

Mortgage revenue rose 52% to $81 million because of higher retail originations. Mortgage and home-equity originations increased by 5% to $9.7 billion.

The mortgage results were depressed somewhat by the recent hurricanes in Texas and Florida, which rank among Flagstar’s largest home-lending markets, DiNello said. The storms reduced overall corporate profits by as much as 3 cents a share, he said.

Noninterest expense increased by 20% to $171 million, largely because of higher compensation costs. Flagstar’s efficiency ratio increased to 73.5% from 66.9% a year earlier.

Noninterest expense levels should range between $167 million and $172 million in the fourth quarter, Lee Smith, Flagstar’s chief operating officer, said during the earnings call.

Nonperforming assets of $40 million amounted to just 0.24% of total assets, while the $2 million of net chargeoffs equaled 0.08% of loans held for investment.

“The absolute level of nonperforming assets is near its lowest levels in 20 years,” James Ciroli, the company’s chief financial officer, said during the call.

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Corrected October 26, 2017 at 10:27AM: A previous version of this article, including the headline, said that Flagstar had a loss tied to mortgage-servicing rights. The company actually had a gain.