Flagstar's 1Q Profit Grows Despite Decline in Originations

Flagstar Bancorp in Troy, Mich., reported an increase in net income during the first quarter, mainly on higher interest income and a larger release of loan loss reserves.

The $13.7 billion-asset lender reported net income of $39 million, 22% higher than a year ago. Earnings per share of 54 cents beat the average estimate of analysts polled by Bloomberg by 18 cents.

During the quarter, the company originated $6.4 billion in mortgage loans, including residential first- and second-mortgages, a 12% drop from the first quarter of 2015. Other consumer loan originations, including home equity lines of credit, increased 29% to $27 million. Commercial loan originations, which include commercial real estate and commercial and industrial loans, more than doubled to $84 million.

The company's servicing and subservicing business fell from a year ago. The amount in loans Flagstar is subservicing dropped 16% to $37.7 billion. The company's servicing portfolio slipped by 2% to $26.6 billion.

"Mortgage originations rebounded from a tough fourth quarter 2015," Flagstar CEO and President Alessandro DiNello said in a news release Tuesday. "We feel good about where we stand as it relates to TRID, and we saw the first signs of traction from initiatives aimed at growing our retail production channels."

DiNello also noted the company is approaching a Tarp refinance, which he said is expected to occur within the next 90 days.

The company's net interest income was largely responsible for its overall improved earnings. Net interest income rose 22% from last year to $79 million. The company also released $13 million in loan loss reserves versus a $4 million release in the first quarter of 2015. Net interest margin compressed nine basis points to 2.66%.

Charge-offs, net of recoveries, dropped to $12 million from $40 million the previous year, a 70% reduction.

Noninterest income dipped 12% to $105 million, on a lower net gain on loan sales and a higher net loss on mortgage servicing assets.

Noninterest expense was $137 million, 1% lower than a year ago. Higher employee compensation and occupancy costs were offset by declines in expenses related to asset resolution and federal insurance premiums.