News Column

Stonegate Mortgage Corporation Reports Second Quarter 2014 Financial Results

August 7, 2014

INDIANAPOLIS--(BUSINESS WIRE)-- Stonegate Mortgage Corporation ("Stonegate Mortgage" or the "Company") (NYSE:SGM), a leading, non-bank mortgage company focused on originating, financing and servicing U.S. residential mortgage loans, today reported results for the quarter ended June 30, 2014.

"We are very pleased with the operational and financial results produced by Stonegate during the second quarter" said Jim Cutillo, Chief Executive Officer of Stonegate Mortgage. "Our commitment to growing our retail and wholesale channels has started to flow through the income statement as gain on sale margins continued to improve during the quarter while primary-secondary spreads in the market remained stable. Our other strategic focuses of growing NattyMac and non-agency also continue to provide improving results."

The Company's servicing portfolio, as measured by unpaid principal balance ("UPB"), ended the second quarter 2014 at $16.7 billion, an increase of 40% from the ending fourth quarter 2013 UPB of $11.9 billion, and up 121% over the ending second quarter 2013 UPB of $7.6 billion.

Mortgage loan origination volume grew 37% to $3.3 billion during the second quarter of 2014 compared to $2.4 billion in originations in the first quarter of 2014 and grew 59% from origination volume of $2.1 billion in the second quarter of 2013. Six months ended 2014 mortgage loan origination volume grew 44% to $5.7 billion compared to $4.0 billion in originations for the six months ended 2013.

"The strong origination volume growth and 23 basis point improvement in gain on sale margins resulted in strong top line growth" said Rob Eastep, Chief Financial Officer of Stonegate Mortgage. "The fee income generated from our growing servicing portfolio and NattyMac are also providing a stable source of revenue. Just as important to our revenue growth was our improvement in non-interest expenses in basis points of origination volume as more revenue is flowing through to the bottom line."

Revenues increased 50% to $57.6 million in the second quarter of 2014 from $38.3 million in the first quarter of 2014 and were up 33% from $43.4 million in the second quarter of 2013, primarily due to increases in gains on mortgage loans held for sale, interest income, loan servicing fees, and loan origination and other loan fees, partially offset by a decrease in the fair value of mortgage servicing rights ("MSRs"). Revenues increased 17% to $95.9 million for the six months ended 2014 from $82.2 for the six months ended 2013.

Net income for the second quarter 2014 was $0.3 million, or $0.01 per diluted share, compared to net loss of $7.9 million, or $0.31 per diluted share, in the first quarter of 2014 and net income of $9.1 million, or $0.63 per diluted share in the second quarter of 2013. Net loss for the six months ended 2014 was $7.6 million, or $0.30 per diluted share, compared to net income of $18.9 million, or $1.46 per diluted share for the six months ended 2013.

Adjusted net income1 was $7.4 million, or $0.29 per diluted share1, for the second quarter 2014, after excluding pre-tax non-cash mortgage servicing rights valuation adjustments of $10.7 million and adding certain other pre-tax non-cash expense items and other non-routine expenses totaling $0.9 million. Adjusted net income was $3.4 million, or $0.13 per diluted share, for the first quarter of 2014 and $6.7 million, or $0.46 per diluted share, for the second quarter 2013. Six months ended June 30, 2014 adjusted net income was $10.8 million, or $0.42 per diluted share. Six months ended June 30, 2013 adjusted net income was $12.8 million, or $1.00 per diluted share. Refer to page 7 for a reconciliation to the most directly comparable measures calculated in accordance with GAAP.

1 Adjusted net income and adjusted diluted earnings per share 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 page 7 of this release 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.

Recent Developments

July 2014 Key Operating Highlights

  • Average mortgage loans locked per business day decreased 14% to $62.8 million during the month of July 2014, compared with average locks per business day of $72.8 million during the second quarter of 2014.
  • Retail locks per day grew 18% in July to $11.4 million to represent 18% of total lock volume, compared to 13% of total lock volume during the second quarter of 2014.
  • Wholesale locks per day declined 7% in July to $16.0 million to represent 26% of total lock volume, compared to 24% of total lock volume during the second quarter of 2014.

    Conference Call and Webcast

    The Company will host a conference call today, August 7, 2014, at 11:00 a.m. EDT in which management will discuss the second quarter earnings results.

    To access the call please dial (877) 303-5863 from the United States, or (678) 304-6908 from outside the U.S. The conference call I.D. number is 66099592. Participants should dial in 5 to 10 minutes before the scheduled time and must be on a touch-tone telephone to ask questions.

    A replay of the call can be accessed through September 7, 2014 by dialing (855) 859-2056 from the U.S., or (404) 537-3406 from outside the U.S. The conference call I.D. number is 66099592.

    This call will also be available as a live webcast which can be accessed at Stonegate Mortgage's Investor Relations Website at http://investors.stonegatemtg.com/. Presentation materials for the call will also 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, non-bank 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   Six Months Ended
    (In millions)June 30, 2014   March 31, 2014   June 30, 2013June 30, 2014   June 30, 2013
    Origination volume by channel:
    Retail $ 469.7 $ 260.9 $ 194.1 $ 730.6 $ 344.4
    Wholesale 729.9 422.2 401.3 1,152.1 797.8
    Correspondent 2,107.9   1,738.8   1,489.4   3,846.7   2,842.3
    Total origination volume $ 3,307.5   $ 2,421.9   $ 2,084.8   $ 5,729.4   $ 3,984.5
     
    Average origination volume per business day $ 51.7 $ 39.7 $ 32.6 $ 45.8 $ 31.9
     
    Mortgage loan locks volume:
    Mortgage loans locked $ 4,660.7 $ 3,464.5 $ 2,800.0 $ 8,125.2 $ 5,334.0
    Average mortgage loans locked per business day $ 72.8 $ 55.0 $ 43.8 $ 65.0 $ 42.7
     
    As of
    June 30, 2014December 31, 2013June 30, 2013
    Servicing portfolio $ 16,739.5 $ 11,923.5 $ 7,588.3
     
     

    Stonegate Mortgage Corporation

    Consolidated Statements of Operations

    (Unaudited)

     
        Three Months Ended   Six Months Ended
    (In thousands, except per share data)

    June 30,

    2014

     

    March 31,

    2014

     

    June 30,

    2013

    June 30,

    2014

     

    June 30,

    2013

    Revenues
    Gains on mortgage loans held for sale $ 46,548 28,631 $ 24,378 $ 75,179 $ 48,582
    Changes in mortgage servicing rights valuation (15,364 ) (10,658 ) 5,460 (26,022 ) 9,550
    Loan origination and other loan fees 6,731 5,077 5,350 11,808 9,998
    Loan servicing fees 10,790 9,174 5,239 19,965 8,358
    Interest income 8,918   6,077   2,926   14,994   5,747  
    Total revenues 57,623 38,301 43,353 95,924 82,235
     
    Expenses
    Salaries, commissions and benefits 35,144 33,420 17,634 68,563 32,127
    General and administrative expense 9,215 8,209 5,293 17,424 8,895
    Interest expense 6,263 3,813 4,602 10,075 7,675
    Occupancy, equipment and communication 4,762 4,141 1,638 8,904 3,123
    Provision for mortgage repurchases and indemnifications-change in estimate 509 395 (1,028 ) 904 (1,028 )
    Depreciation and amortization expense 1,193 1,083 529 2,276 913
    Loss on disposal of property and equipment 131   91     223    
    Total expenses 57,217   51,152   28,668   108,369   51,705  
     
    Income (loss) before income tax expense 406 (12,851 ) 14,685 (12,445 ) 30,530
    Income tax expense (benefit) 138   (4,967 ) 5,550   (4,829 ) 11,680  
    Net income (loss) 268 (7,884 ) 9,135 (7,616 ) 18,850
    Less: preferred stock dividends     (8 )   (27 )
    Net income (loss) attributable to common stockholders $ 268   $ (7,884 ) $ 9,127   $ (7,616 ) $ 18,823  
     
    Earnings (loss) per share
    Basic $ 0.01   $ (0.31 ) $ 0.86   $ (0.30 ) $ 2.80  
    Diluted $ 0.01   $ (0.31 ) $ 0.63   $ (0.30 ) $ 1.46  
     
     

    Stonegate Mortgage Corporation

    Consolidated Balance Sheets

    (Unaudited)

     
    (In thousands, except share and per share data)     June 30, 2014   December 31, 2013
     
    Assets
    Cash and cash equivalents $ 25,150 $ 43,104
    Restricted cash 9,959 730
    Mortgage loans held for sale, at fair value 1,136,838 683,080
    Servicing advances 3,912 4,177
    Derivative assets 39,632 19,673
    Mortgage servicing rights, at fair value 217,493 170,294
    Property and equipment, net 13,470 12,640
    Goodwill 4,265 3,638
    Intangible assets, net 4,924 5,434
    Investment in closely held entity, at cost 240 440
    Loans eligible for repurchase from GNMA 56,507 26,268
    Warehouse lending receivables 52,141 12,089
    Subordinated loan receivable 9,000
    Other assets 12,441   8,322
    Total assets $ 1,585,972   $ 989,889
     
    Liabilities and stockholders' equity
    Liabilities
    Secured borrowings $ 584,723 $ 342,393
    Mortgage repurchase borrowings 521,669 223,113
    Warehouse lines of credit 993 7,056
    Operating lines of credit 11,853 6,499
    Accounts payable and accrued expenses 41,117 37,052
    Derivative liabilities 34,996 3,520
    Reserve for mortgage repurchases and indemnifications 4,787 3,709
    Due to related parties 608
    Contingent earn-out liabilities 4,184 3,791
    Liability for loans eligible for repurchase from GNMA 56,507 26,268
    Deferred income tax liabilities, net 23,488   28,379
    Total liabilities 1,284,317 682,388
     
    Stockholders' equity

    Common stock, par value $0.01, shares authorized - 100,000,000; shares issued and

    outstanding - 25,048,599 and 25,769,236

    264 264
    Additional paid-in capital 265,600 263,830
    Retained earnings 35,791   43,407
    Total stockholders' equity 301,655   307,501
    Total liabilities and stockholders' equity $ 1,585,972   $ 989,889
     
     

    Stonegate Mortgage Corporation

    Consolidated Statements of Cash Flows

    (Unaudited)

     
        Six Months Ended June 30,
    (In thousands)2014   2013
    Operating Activities
    Net (loss) income $ (7,616 ) $ 18,850
    Adjustments to reconcile net (loss) income to net cash used in operating activities:
    Depreciation and amortization expense 2,276 913
    Loss on disposal of property and equipment 223
    Amortization of debt discount 1,522
    Forgiveness of note receivable from stockholder 214
    Gains on mortgage loans held for sale (75,179 ) (48,582 )
    Changes in mortgage servicing rights valuation 26,022 (9,550 )
    Provision for reserve for mortgage repurchases and indemnifications - change in estimate 904 (1,028 )
    Stock-based compensation expense 1,770 913
    Deferred income tax (benefit) expense (4,829 ) 11,680
    Changes in contingent earn-out liabilities (142 ) 65
    Proceeds from sales and principal payments of mortgage loans held for sale 5,291,372 3,767,169
    Originations and purchases of mortgage loans held for sale (5,729,310 ) (3,984,743 )
    Repurchase and indemnifications of previously sold loans (486 )
    Changes in operating assets and liabilities:
    Restricted cash (9,229 ) 945
    Servicing advances 265 (311 )
    Warehouse lending receivables (40,052 )
    Other assets (4,025 ) (897 )
    Accounts payable and accrued expenses 3,953 25,293
    Reserve for mortgage repurchases and indemnification (38 )
    Due to related parties (608 ) 234  
    Net cash used in operating activities (544,691 ) (217,351 )
     
    Investing activities
    Subordinated loan receivable (9,000 )
    Purchases of property and equipment (2,629 ) (3,021 )
    Purchase of assets in a business combination (258 )
    Purchase of mortgage servicing rights (1,685 )
    Repayment of notes receivable from stockholder   8  
    Net cash used in investing activities (13,572 ) (3,013 )
     
    Financing activities
    Proceeds from borrowings under mortgage funding arrangements and operating lines of credit 18,057,080 8,772,156
    Repayments from borrowings under mortgage funding arrangements and operating lines of credit (17,516,703 ) (8,639,889 )
    Payments of contingent earn-out liabilities (68 )
    Proceeds from borrowing from stockholder 10,000
    Repayment of borrowing from stockholder (4,345 )
    Payments of capital lease obligations (14 )
    Net proceeds from issuance of common stock 101,645
    Payment of equity issuance costs (2,662 )
    Payment of preferred stock dividends   (27 )
    Net cash provided by financing activities 540,309   236,864  
     
    Change in cash and cash equivalents (17,954 ) 16,500
    Cash and cash equivalents at beginning of period 43,104   15,056  
    Cash and cash equivalents at end of period $ 25,150   $ 31,556  
     

    Stonegate Mortgage Corporation

    GAAP Reconciliation

    (Unaudited)

    We calculate adjusted net income and adjusted diluted earnings per share as performance measures, which are considered non-GAAP financial measures, to further aid our investors in understanding and analyzing our core operating results and comparing them among periods. Adjusted net income and adjusted diluted earnings per share exclude certain items that we do not consider part of our core operating results, including changes in valuation inputs and assumptions on our MSRs, stock-based compensation expenses, ramp-up and other non-routine expenses associated primarily with our acquired Nationstar business and acquisition related costs. Ramp-up costs include the advance hiring of servicing and originations staff, recruiting expenses, travel, licensing and legal expenses. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for total revenues, income before income taxes, net income or diluted EPS prepared in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies. These non-GAAP financial measures are performance measures and are presented to provide additional information about our core operations.

           
    Three Months EndedSix Months Ended
    (In thousands, except per share data)

    June 30,

    2014

     

    March 31,

    2014

     

    June 30,

    2013

    June 30,

    2014

     

    June 30,

    2013

    Net income (loss) $ 268 $ (7,884 ) $ 9,135 $ (7,616 ) $ 18,850
    Adjustments:
    Changes in valuation inputs and assumptions on MSRs 10,712 7,931 (7,629 ) 18,643 (13,519 )
    Stock-based compensation expense 871 899 906 1,770 913
    Other non-routine expenses 9,593 2,864 9,593 2,900
    Acquisition related costs 49 49
    Tax effect of adjustments (4,494 ) (7,149 ) 1,459   (11,661 ) 3,669  
    Adjusted net income $ 7,357   $ 3,439   $ 6,735   $ 10,778   $ 12,813  
     
    Diluted earnings (loss) per share $ 0.01 $ (0.31 ) $ 0.63 $ (0.30 ) $ 1.46
    Adjustments:
    Changes in valuation inputs and assumptions on MSRs 0.42 0.31 (0.53 ) 0.72 (1.05 )
    Stock-based compensation expense 0.03 0.04 0.06 0.07 0.06
    Other non-routine expenses 0.37 0.20 0.37 0.23
    Acquisition related costs
    Tax effect of adjustments (0.17 ) (0.28 ) 0.10   (0.44 ) 0.30  
    Adjusted diluted earnings per share $ 0.29   $ 0.13   $ 0.46   $ 0.42   $ 1.00  
     


    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 2013 Annual Report on Form 10-K filed on March 14, 2014, 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

    wclay@sloanepr.com

    or

    Investor:

    Stonegate Mortgage Corporation

    Michael McFadden, 317-663-5904

    michael.mcfadden@stonegatemtg.com

    Source: Stonegate Mortgage Corporation


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