Stonegate CEO Jim Cutillo abruptly leaves company

A positive move for the company?

Stonegate Mortgage (SGM) Founder and CEO Jim Cutillo announced he is abruptly leaving the company effective Sept. 10, 2015, serving only as a consultant over the next six months to facilitate his transition.

The lender named Richard Kraemer as interim CEO until the search for a permanent CEO with the requisite leadership and mortgage industry experience is completed.

Cutillow founded the company, which is based in Indianapolis, back in 2005.

"I am proud of the growth and development of Stonegate Mortgage since the company was founded ten years ago. We have a great team in place that has accomplished so much during a time of transformation in the mortgage industry,” Cutillo said in the press release.

“The strategic investments we have made in technology have positioned the company for growth and success so now is the right time for me to leave Stonegate. I am looking forward to working with Rich, Jim and others to transition the day-to-day leadership of the company and will be redirecting my entrepreneurial energy on a new endeavor going forward," he added.

Cutillo’s background garnered a lot of attention back in October 2014 after reports came out claiming that he was lying about graduating Indiana University. Cutillo responded by saying that he never claimed to have earned a degree from Indiana University, rather reporters need to do a better job fact checking.  

In an interview with HousingWire at the time, Cutillo explained that before he founded the company, he spent time serving in the military. After high school, Cutillo joined the Army in 1987 and spent two years on active duty at Fort Campbell, Kentucky. Cutillo was in the Green to Gold program for soldiers to become officers. After a soldier completes half of their degree, they transfer to full-time student status. Cutillo moved those credits over to Indiana University and attended two more years. He stayed there until he was commissioned in the middle of 1991, which was earlier than expected, and when he was assigned to active duty he was forced to leave Indiana University.

The sudden news might bode well for the company after struggling to win over analyst approval this year.  

In an article from Benzinga earlier this month, Barclaysanalyst Mark DeVries said "SGM hasn't been able to properly execute on its strategy, translating into volatile core earnings that oscillate between gains and losses.”

With this news, FBR Capital Markets & Co announced it upgraded shares of SGM to outperform from market perform, maintaining its price target of $10.

“We believe these changes could act as a positive catalyst for shares as the company pursues a permanent CEO to execute its business plan and drive profitability,” FBR said in its report.

FBR said that there are two possible outcomes from this:

  1. The company will hire a replacement CEO quickly to execute business plan or eventual pursuit of acquirers. Stonegate has disappointed investor expectations broadly, and a change was needed for a restoration of confidence, in our opinion. This management change forces the company's hand to clean up the business in rapid fashion.
  2. It could lead the company to pursue an acquirer if this cannot be accomplished.

Either way, FBR views both outcomes as positive catalysts based on existing valuation.

Other positives FBR noted about the change is that the company plans to realize up to $3 million of cost saves annually starting in 4Q15, while looking to reduce its cost per loan origination, could accelerate.

Meanwhile, James Smith was also named as president and chief operating officer, starting Sept. 3. The previous president Daniel Bettenburg resigned from the position back in June 2014 to pursue other interest. However, despite the open position, Stonegate said it did not intend to hire a replacement for the president role, “given the recent executive team additions and its transition to a business unit driven operating model.”

In its most recent second-quarter earnings, Stonegate Mortgage reported that its mortgage loan origination volume increased 21% to $3.44 billion, up from $2.84 billion in the first quarter of 2015, and up 4% from $3.31 billion in originations during the second quarter of 2014.

For the first half of 2015, mortgage loan origination volume grew 10% to $6.28 billion compared to $5.73 billion in originations for the six months ended 2014.

However, the lender’s stock has steadily declined over the past year.

Here is a snapshot of the lender’s stock over the last year, along with how it is faring today.

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