Higher costs, hurricanes weigh down Flagstar's quarterly results
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%.
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.