A decline in the fair market value of its mortgage servicing rights portfolio erased the year-to-date profits of Stonegate Mortgage Corporation (SGM) and drove the company into the red for the year, the company announced Wednesday.
According to Stonegate, the company recorded a net loss in the third quarter of $22.8 million, or $0.88 per diluted share, compared to net income of $11.1 million, or $0.43 per diluted share in the second quarter of 2015, and net loss of $1.7 million, or $0.07 per diluted share in the third quarter of 2014.
Stonegate’s strong second quarter was driven by an increase of loan origination volume by 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.
In the third quarter, Stonegate’s Mortgage loan origination volume increased 1% to $3.48 billion from the second quarter’s total of $3.44 billion, but was down 2% from $3.54 billion in originations during the third quarter of 2014.
The weaker third quarter moved Stonegate to a net loss for the year. According to Stonegate, its net loss for the year is now $22.8 million, or $0.88 per diluted share, compared to net loss of $9.3 million, or $0.36 per diluted share for the first nine months of 2014.
The primary cause of the net loss was the decrease in fair value of the MSR asset, Stonegate said.
Stonegate’s revenues fell 60% to $34.9 million in the third quarter from $87.4 million in the second quarter, and were down 45% from $63.1 million in the third quarter of 2014.
Additionally, the company's servicing portfolio, as measured by unpaid principal balance, was $18.17 billion as of Sept. 30, 2015, an increase of 5% over the company’s servicing portfolio at the end of the second quarter, which was, $17.24 billion.
Stonegate said that its adjusted net income was $0.5 million, or $0.02 per diluted share, for the third quarter of 2015, after excluding pre-tax non-cash mortgage servicing rights valuation adjustments of $28.1 million and adding certain other pre-tax non-cash expense items totaling $4.9 million.
Adjusted net income was $1.1 million, or $0.04 per diluted share, for the second quarter of 2015 and adjusted net income was $3.1 million, or $0.12 per diluted share, for the third quarter of 2014.
For the nine months that ended Sept. 30, the company’s adjusted net income was $5.7 million, or $0.23 per diluted share. During the same time period last year, Stonegate’s adjusted net income was $21.4 million, or $0.83 per diluted share.
Stonegate’s interim CEO Rich Kraemer, who took over when Stonegate’s founder and CEO Jim Cutillo announced in September that he was abruptly leaving the company, said that the company is focused on maximizing shareholder value.
"We are refocusing the company in four key areas: producing stable core earnings, continuing to originate quality loans, gaining efficiencies in our operations and strengthening our relationships internally and externally,” Kraemer said.