November 3, 2016

Stonegate Mortgage Corporation Reports Third Quarter 2016 Financial Results

INDIANAPOLIS, IN -- (Marketwired) -- 11/03/16 -- Stonegate Mortgage Corporation (NYSE: SGM) ("Stonegate Mortgage" or the "Company"), a leading, non-bank mortgage company focused on originating, financing and servicing U.S. residential mortgage loans, today reported financial results and operating performance for the quarter ended September 30, 2016. These results are based on continuing operations, unless otherwise noted, as the retail restructuring announced last year resulted in, and is presented as, discontinued operations.

Total revenues during the third quarter of 2016 were $66.3 million, up $39.8 million, or 150%, compared to the second quarter of 2016. Compared to the third quarter of 2015, revenues were up $40.7 million, or 159%. The increase in revenues during the third quarter of 2016 as compared to both the second quarter of 2016 and the third quarter of 2015 was predominantly the result of favorable changes in the fair value of our MSRs and increases in gains on mortgage loans held for sale, partially offset by lower servicing fee income from a decline in our average servicing portfolio.

Total expenses during the third quarter of 2016 were $50.4 million, up $6.8 million, or 16%, compared to the second quarter of 2016. Compared to the third quarter of 2015, expenses declined $4.4 million, or 8%.

Income tax expense during the third quarter of 2016 was $0.3 million, up $0.3 million compared to the second quarter of 2016 and up $9.4 million compared to the third quarter of 2015. The expense in the third quarter of 2016 was positively impacted by the reversal of $6.2 million of the valuation allowance established in prior periods.

Net income from continuing operations improved $32.7 million, or $1.26 per diluted share, in the third quarter of 2016 to $15.6 million, or $0.60 per diluted share, compared to a net loss from continuing operations of $17.2 million, or $0.66 per diluted share, in the second quarter of 2016. Net income from continuing operations was up $35.8 million, or $1.38 per diluted share, compared to the third quarter of 2015, during which we reported a net loss from continuing operations of $20.2 million, or $0.78 per diluted share.

Adjusted net income from continuing operations1 for the third quarter of 2016 was $11.0 million, or $0.42 per diluted share, after excluding pre-tax mortgage servicing rights valuation adjustments of $4.9 million compared to reported adjusted net income from continuing operations of $1.0 million, or $0.04 per diluted share, for the second quarter of 2016. Adjusted net income from continuing operations was up $8.2 million, or $0.31 per diluted share, compared to the third quarter of 2015, during which we reported adjusted net income from continuing operations of $2.8 million, or $0.11 per diluted share.

"We are extremely pleased to report strong GAAP and adjusted net income for the third quarter," said Jim Smith, Chief Executive Officer. "Our business platform was well prepared to benefit from increased production levels during the quarter and, as a result, we achieved GAAP earnings of $15.6 million and adjusted net income of $11.0 million. We continue to be highly focused on maintaining prudent liquidity and MSR debt levels, as well as fully leveraging our cost structure. Thanks to the dedication and commitment of our associates and the support of our many customers, Stonegate continues to deliver value to our shareholders."

1 Adjusted net income from continuing operations and adjusted diluted earnings per share from continuing operations are considered non-GAAP financial measures. These non-GAAP financial measures are performance measures and are presented to provide additional information about our core operations. See below for a discussion of the use of these non-GAAP measures and a reconciliation of each of these non-GAAP measures to the most comparable measure prepared in accordance with GAAP.

Third Quarter Highlights

  • SGM consolidated highlights
    • Reported third quarter GAAP net income of $15.6 million or $0.60 per diluted share -- increase of $32.7 million or 191% from the prior quarter
    • Adjusted net income of $11.0 million or $0.42 per diluted share -- increase of $0.38 per diluted share from the prior quarter
    • Maintained adequate liquidity position with $23.2 million in cash and cash equivalents as of 9/30/16
    • Reduced MSR debt by $4.3 million, or 7%, to $57.6 million as of 9/30/16 compared to 6/30/16
  • Originations segment highlights
    • GAAP pre-tax income of $17.7 million -- up $12.0 million or 211% from the prior quarter
    • Total originations of $2.62 billion -- up 12% from the prior quarter
    • Total revenues of $51.8 million -- up $13.5 million or 35% from the prior quarter
    • Total expenses down 9 basis points from the prior quarter
    • Strong growth in retail channel -- originations up 27% from prior quarter results
  • Financing segment highlights (NattyMac)
    • Pre-tax income of $983 thousand -- up $57 thousand or 6% from the prior quarter
    • Total funded loans of $1.37 billion -- up $146 million or 12% from the prior quarter
    • Funding fee income of $488 thousand -- increase of 6% from the prior quarter
    • Total expenses down 3% from the prior quarter
  • Servicing segment highlights
    • GAAP pre-tax income of $3.6 million -- an improvement of $22.3 million or 120% from the prior quarter
    • Adjusted pre-tax loss of $1.3 million compared to a $0.7 million loss in the prior quarter
    • Total expenses down 4% from the prior quarter
    • End of quarter servicing UPB of $14.42 billion with a weighted average coupon of 3.75%

Audio Presentation

Stonegate Mortgage's Chief Executive Officer, Jim Smith, and Chief Financial Officer, Carrie Preston, will review the results for the third quarter ended September 30, 2016 in a recorded presentation. The audio recording and accompanying slide presentation will be available on the Company's Investor Relations Website at http://investors.stonegatemtg.com/.

About Stonegate Mortgage Corporation

Founded in 2005, Stonegate Mortgage Corporation (NYSE: SGM) is a leading, publicly-traded, mortgage company that originates, finances and services agency and non-agency residential mortgages through its network of retail offices and approved third party originators. Stonegate Mortgage also provides financing through its fully integrated warehouse lending platform, NattyMac. Stonegate Mortgage's operational excellence, financial strength, dedication to customer service, and commitment to technology have positioned the firm as a leading provider in the emerging housing finance market.

For more information on Stonegate Mortgage Corporation, please visit www.stonegatemtg.com.

 
Stonegate Mortgage Corporation
Key Operating Statistics
(Unaudited)
 
    Three Months Ended   Nine Months Ended
(In millions)   September 30, 2016   June 30,
2016
  September 30, 2015   September 30, 2016   September 30, 2015
Origination volume by channel:                              
Retail   $ 364.2   $ 287.3   $ 402.6   $ 866.9   $ 1,240.3
Wholesale     596.8     561.8     574.6     1,586.7     2,004.7
Correspondent     1,660.3     1,494.3     2,222.5     4,452.7     5,721.0
Total origination volume   $ 2,621.4   $ 2,343.4   $ 3,199.7   $ 6,906.3   $ 8,966.0
                               
Average origination volume per business day   $ 41.0   $ 36.6   $ 50.0   $ 36.3   $ 47.4
                               
Mortgage loan locks volume:                              
Mortgage loans locked   $ 3,625.0   $ 3,280.3   $ 3,929.3   $ 9,971.3   $ 12,555.7
Average mortgage loans locked per business day   $ 56.6   $ 51.3   $ 61.4   $ 52.5   $ 66.5
                               
    As of      
    September 30, 2016   December 31, 2015   September 30, 2015            
Servicing portfolio   $ 14,416.9   $ 17,520.7     18,165.0            
                               
                               
                               
Stonegate Mortgage Corporation
Consolidated Statements of Operations
(Unaudited)
 
    Three Months Ended   Nine Months Ended
(In thousands, except per share data)   September 30, 2016   June 30,
2016
  September 30, 2015   September 30, 2016   September 30, 2015
Revenues                                        
Gains on mortgage loans held for sale, net   $ 41,239     $ 28,314     $ 32,874     $ 92,674     $ 119,095  
Changes in mortgage servicing rights valuation     4,918       (17,927 )     (28,088 )     (48,729 )     (34,525 )
Payoffs and principal amortization of mortgage servicing rights     (8,592 )     (10,148 )     (9,215 )     (25,988 )     (34,303 )
Loan origination and other loan fees     6,013       5,473       6,718       15,948       18,530  
Loan servicing fees     11,184       13,712       14,051       38,342       41,001  
Interest and other income     11,515       7,070       9,217       25,500       26,125  
Total revenues     66,277       26,494       25,557       97,747       135,923  
                                         
Expenses                                        
Salaries, commissions and benefits     25,880       23,551       31,851       72,657       93,836  
General and administrative expense     11,576       6,467       8,921       25,057       24,939  
Interest expense     6,488       6,824       7,508       20,561       23,358  
Occupancy, equipment and communication     4,230       4,050       4,175       12,528       12,441  
Depreciation and amortization expense     2,247       2,725       2,397       7,518       5,779  
Total expenses     50,421       43,617       54,852       138,321       160,353  
                                         
Income (loss) before income taxes     15,856       (17,123 )     (29,295 )     (40,574 )     (24,430 )
Income tax expense (benefit)     282       29       (9,105 )     (1,473 )     (7,265 )
Income (loss) from continuing operations, net of tax     15,574       (17,152 )     (20,190 )     (39,101 )     (17,165 )
(Loss) from discontinued operations, net of tax     -       -       (2,614 )     -       (5,624 )
Net income (loss) attributable to common stockholders   $ 15,574     $ (17,152 )   $ (22,804 )   $ (39,101 )   $ (22,789 )
                                         
                                         
Basic earnings (loss) per share:                                        
  From continuing operations   $ 0.60     $ (0.66 )   $ (0.78 )   $ (1.51 )   $ (0.66 )
  From discontinued operations     -       -       (0.10 )     -       (0.22 )
    Total basic earnings (loss) per share   $ 0.60     $ (0.66 )   $ (0.88 )   $ (1.51 )   $ (0.88 )
                                         
Diluted earnings (loss) per share:                                        
  From continuing operations   $ 0.60     $ (0.66 )   $ (0.78 )   $ (1.51 )   $ (0.66 )
  From discontinued operations     -       -       (0.10 )     -       (0.22 )
    Total diluted earnings (loss) per share   $ 0.60     $ (0.66 )   $ (0.88 )   $ (1.51 )   $ (0.88 )
                                             
                                             
                                             
Stonegate Mortgage Corporation
Consolidated Balance Sheets
(Unaudited)
 
(In thousands, except share and per share data)   September 30, 2016   December 31, 2015
                 
Assets                
Cash and cash equivalents   $ 23,221     $ 32,463  
Restricted cash     5,660       4,045  
Mortgage loans held for sale, at fair value     828,713       645,696  
Servicing advances, net     21,703       19,374  
Derivative assets     18,958       12,160  
Mortgage servicing rights, at fair value     148,164       199,637  
Property and equipment (net of accumulated depreciation and amortization of $19,400 and $12,558 at September 30, 2016 and December 31, 2015, respectively)     16,664       22,923  
Loans eligible for repurchase from GNMA     99,342       80,794  
Warehouse lending receivables     167,885       199,215  
Goodwill and other intangible assets (net of accumulated amortization of $1,817 and $1,453 at September 30, 2016 and December 31, 2015, respectively)     6,538       6,902  
Subordinated loan receivable     30,000       30,000  
Other assets     24,973       27,417  
Total assets   $ 1,391,821     $ 1,280,626  
                 
Liabilities and stockholders' equity                
Liabilities                
Secured borrowings - mortgage loans   $ 326,462     $ 492,799  
Secured borrowings - mortgage servicing rights     57,649       77,069  
Secured borrowings - eligible GNMA loan repurchases     27,832       37,615  
Mortgage repurchase borrowings     589,164       279,421  
Warehouse lines of credit     975       1,306  
Operating lines of credit     9,969       5,000  
Accounts payable and accrued expenses     26,160       23,544  
Derivative liabilities     7,061       2,517  
Reserve for mortgage repurchases and indemnifications     6,680       5,536  
Liability for loans eligible for repurchase from GNMA     99,342       80,794  
Deferred income tax liabilities, net     795       2,364  
Other liabilities     16,145       11,033  
Total liabilities     1,168,234       1,018,998  
                 
Stockholders' equity                
Common stock, par value $0.01, shares authorized - 100,000,000; shares issued: 25,973,455 and outstanding: 25,839,020 at September 30, 2016; shares issued: 25,845,566 and outstanding: 25,796,193 at December 31, 2015     265       264  
Additional paid-in capital     271,965       270,906  
Accumulated deficit     (48,643 )     (9,542 )
Total stockholders' equity     223,587       261,628  
Total liabilities and stockholders' equity   $ 1,391,821     $ 1,280,626  
                 
                 
                 
Stonegate Mortgage Corporation
GAAP Reconciliation
(Unaudited)
 
    Three Months Ended   Nine Months Ended
(In thousands, except per share data)   September 30, 2016   June 30,
2016
  September 30, 2015   September 30, 2016   September 30, 2015
Income (loss) from continuing operations, net of tax   $ 15,574     $ (17,152 )   $ (20,190 )   $ (39,101 )   $ (17,165 )
Adjustments:                                        
  Changes in mortgage servicing rights valuation     (4,918 )     17,927       28,088       48,729       34,525  
  Stock-based compensation expense     399       354       1,900       1,059       3,545  
  Severance expense     -       -       1,533       -       1,533  
  Results from discontinued retail branches     -       55       -       119       -  
  Other non-routine expenses1     -       -       221       -       221  
  Tax effect of adjustments     (49 )     (139 )     (8,733 )     (1,823 )     (11,843 )
Adjusted income from continuing operations, net of tax   $ 11,006     $ 1,045     $ 2,819     $ 8,983     $ 10,816  
                                         
Diluted earnings (loss) per share   $ 0.60     $ (0.66 )   $ (0.78 )   $ (1.51 )   $ (0.66 )
Adjustments:                                        
  Changes in mortgage servicing rights valuation     (0.19 )     0.70       1.09       1.88       1.33  
  Stock-based compensation expense     0.01       0.01       0.07       0.04       0.14  
  Severance expense     -       -       0.06       -       0.06  
  Results from discontinued retail branches     -       -       -       -       -  
  Other non-routine expenses     -       -       0.01       -       0.01  
  Tax effect of adjustments     -       (0.01 )     (0.34 )     (0.07 )     (0.46 )
Adjusted diluted earnings per share   $ 0.42     $ 0.04     $ 0.11     $ 0.34     $ 0.42  
1 For the three and nine months ended September 30, 2015, amount consists primarily of expenses associated with the write down of certain assets.
 

Forward Looking Statements

Various statements contained in this earnings release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward- looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "intend," "anticipate," "potential," "plan," "goal" or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this earnings release speak only as of the date of this earnings release; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed in the "Risk Factors" section within our 2015 Annual Report on Form 10-K filed on March 15, 2016 and any revisions to those Risk Factors in subsequent filings, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

Media:
Sloane & Company (on behalf of Stonegate Mortgage Corporation)
Whit Clay
212-446-1864
Email contact


Investor:
Stonegate Mortgage Corporation
Michael McFadden
317-663-5904
Email contact

Source: Stonegate Mortgage Corporation, Inc.

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