Stonegate Mortgage Announces Quarterly Loss

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Indianapolis-based Stonegate Mortgage Corp. (NYSE: SGM) is reporting a third quarter net loss of nearly $1.7 million, compared to a profit of about $270,000 during the same period the previous year. Chief Executive Officer Jim Cutillo says the company continues to face "industry headwinds." November 6, 2014

News Release

INDIANAPOLIS, Ind. - 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 September 30, 2014.

"We continue to make progress on our strategic initiatives, in spite of the industry headwinds and interest rate volatility," said Jim Cutillo, Chief Executive Officer of Stonegate Mortgage. "More importantly we increased our liquidity through monetizing our investment in a portion of our MSR asset and reducing our net cost to originate through noticeably growing our retail and wholesale volumes in the third quarter. We continue to see opportunity to grow our market share and are positioned to take advantage of the emerging mortgage market with a strong balance sheet."

The Company's servicing portfolio, as measured by unpaid principal balance ("UPB"), ended the third quarter 2014 at $17.7 billion, an increase of 48% from the ending fourth quarter 2013 UPB of $11.9 billion, and up 82% over the ending third quarter 2013 UPB of $9.7 billion.

Mortgage loan origination volume grew 7% to $3.5 billion during the third quarter of 2014 compared to $3.3 billion in originations in the second quarter of 2014 and grew 51% from origination volume of $2.3 billion in the third quarter of 2013. Nine months ended 2014 mortgage loan origination volume grew 46% to $9.3 billion compared to $6.3 billion in originations for the nine months ended 2013.

Revenues increased 9% to $63.1 million in the third quarter of 2014 from $57.6 million in the second quarter of 2014 and were up 98% from $31.9 million in the third 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. These increases were partially offset by a decrease in the fair value of mortgage servicing rights ("MSRs"). Revenues increased 39% to $159.1 million for the nine months ended 2014 from $114.1 for the nine months ended 2013.

Net loss for the third quarter 2014 was $1.7 million, or $0.07 per diluted share, compared to net income of $0.3 million, or $0.01 per diluted share, in the second quarter of 2014 and net income of $1.7 million, or $0.10 per diluted share in the third quarter of 2013. Third quarter 2014 financial results were impacted by a $6.0 billion decrease in MSR valuations as well as an additional $2.5 million of non-cash tax expense primarily caused by a change in our blended state tax rates due to shifts in the geographic concentration of our origination business, and related effects on our deferred tax liabilities and other tax-related adjustments. Net loss for the nine months ended 2014 was $9.3 million, or $0.36 per diluted share, compared to net income of $20.5 million, or $1.42 per diluted share for the nine months ended 2013.

Adjusted net income was $4.1 million, or $0.15 per diluted share1, for the third quarter 2014, after excluding pre-tax non-cash mortgage servicing rights valuation adjustments of $6.0 million and adding certain other pre-tax non-cash expense items and other non-routine expenses totaling $0.8 million. Adjusted net income was $7.4 million, or $0.29 per diluted share, for the second quarter of 2014 and $0.1 million, or $0.02 per diluted share, for the third quarter 2013. Nine months ended September 30, 2014 adjusted net income was $22.4 million, or $0.86 per diluted share. Nine months ended September 30, 2013 adjusted net income was $12.9 million, or $0.89 per diluted share. Refer to page 7 for a reconciliation of adjusted net income and adjusted diluted earnings per share to the most directly comparable measures calculated in accordance with GAAP.

Recent Developments

October 2014 Key Operating Highlights

Average mortgage loans locked per business day increased 25% to $81.2 million during the month of October 2014, compared with average locks per business day of $64.9 million during the third quarter of 2014.

Retail locks per day grew 39% in October to $15.0 million to represent 18% of total lock volume, compared to 17% of total lock volume during the third quarter of 2014.

Wholesale locks per day increased in October to $20.0 million, compared to $16.0 million during the third quarter of 2014. Wholesale locks represented 25% of total lock volume in both periods.

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.

Source: Stonegate Mortgage Corp.