Exhibit 99.1
PHH Corporation Announces Fourth Quarter and Full-Year 2011 Results
4Q 2011 Net Earnings of $13 million, $0.22 per share
Full-Year 2011 Net Loss of $127 million, $2.26 per share
4Q 2011 Core Earnings (after-tax)* of $55 million, $0.98 per share
Full-Year 2011 Core Earnings (after-tax) of $182 million, $3.23 per share
· 4Q Interest Rate Lock Commitments (IRLCs) expected to close of $9.7 billion; $33.7 billion for full year
· Full-year total mortgage loan closings of $51.9 billion
· Unpaid principal balance (UPB) of capitalized mortgage servicing portfolio of $147 billion at December 31, 2011
· Tangible book value per share* of $24.56 at December 31, 2011
· Year-end liquidity included $414 million in unrestricted cash and equivalents and $509 million in unsecured revolving credit facility availability
· Closed $250 million aggregate principal amount of 6% convertible senior notes due 2017 in January 2012
Mt. Laurel, NJ — February 6, 2012 — PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today announced financial results for the quarter and year ended December 31, 2011.
For the quarter ended December 31, 2011, the Company reported GAAP net income of $13 million or $0.22 per share. Core earnings (after-tax) for the quarter ended December 31, 2011, was $55 million, or $0.98 per share, an increase of 224% over the fourth quarter 2010. For the year ended December 31, 2011, PHH Corporation reported a GAAP net loss of $127 million or $2.26 per share. Core earnings (after-tax) for the year ended December 31, 2011, was $182 million, or $3.23 per share, an increase of 9% over the prior year.*
Core earnings (after-tax) and Core earnings per share are financial measures that are not in accordance with GAAP and are designed to measure the Company’s financial performance excluding unrealized changes in value of Mortgage Servicing Rights (MSR) that are based upon projections of expected future cash flows. Core earnings (after-tax) and Core earnings per share also exclude realized and unrealized changes in fair value of derivatives related to the MSR, if any. See the Note Regarding Non-GAAP Financial Measures below for a detailed description of these and certain other non-GAAP financial measures and reconciliations of such non-GAAP financial measures to their most directly comparable GAAP financial measures as required by Regulation G.
“We delivered solid core earnings performance in the fourth quarter,” said Glen A. Messina, president and CEO of PHH Corporation. “In our Mortgage business, we took advantage of elevated levels of both volumes and priced-in margins while maintaining the quality of our mortgage servicing portfolio. Our continued focus on fee-based services in our Fleet Management segment continues to reap benefits and drive improvement in our ROE.
“Going forward we are focusing on four key strategies: disciplined growth in our franchise platforms; industry leading operational execution; an unwavering commitment to customer service; and in the near term, an emphasis
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on liquidity, cash flow generation and deleveraging the balance sheet. These strategies are intended to maximize shareholder value by making PHH more efficient from both an operating and financial perspective while leveraging our scale and franchise to improve profitability.
“We have taken decisive actions to significantly improve our liquidity, which combined with these strategies, should put us in a strong position to retire both our 2012 and 2013 debt maturities and to pursue opportunities to maximize value. While some of these actions, combined with lower expected mortgage industry origination volumes, may have a negative impact on our 2012 earnings, we believe our narrowed and deliberate growth strategy and focus on operational excellence, customer satisfaction, and liquidity will result ultimately in a more profitable, less volatile and better capitalized company.”
Liquidity and Capital Raising Update
At December 31, 2011:
· $414 million in unrestricted cash and equivalents
· $509 million in availability under unsecured revolving credit facility
During the fourth quarter, the Company issued $100 million of 9¼% senior notes due 2016 and upsized the committed funding capacity available under its Chesapeake Variable Funding Notes by $300 million.
On January 17, 2012, the Company closed its offering of $250 million in aggregate principal amount of 6% convertible senior notes due 2017.
In January 2012, the Company repurchased $48 million in face value of its 4% convertible notes due 2012.
Summary Consolidated Results
(In millions, except per share data)
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Net revenues | | $ | 649 | | $ | 918 | | $ | 2,214 | | $ | 2,438 | |
Income (loss) before income taxes | | 21 | | 313 | | (202 | ) | 115 | |
Net income (loss) attributable to PHH Corporation | | 13 | | 181 | | (127 | ) | 48 | |
| | | | | | | | | |
Basic earnings (loss) per share attributable to PHH Corporation | | $ | 0.22 | | $ | 3.26 | | $ | (2.26 | ) | $ | 0.87 | |
| | | | | | | | | |
Non-GAAP Results* | | | | | | | | | |
Core earnings (pre-tax) | | $ | 85 | | $ | 31 | | $ | 297 | | $ | 289 | |
Core earnings (after-tax) | | 55 | | 17 | | 182 | | 167 | |
Core earnings per share | | $ | 0.98 | | $ | 0.31 | | $ | 3.23 | | $ | 3.01 | |
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Segment Results - Fourth Quarter
(In millions)
| | Fourth Quarter 2011 | | Fourth
Quarter 2010 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | | Total PHH
Corporation | | Total PHH
Corporation | |
Net fee income | | $ | 85 | | $ | — | | $ | 45 | | $ | — | | $ | 130 | | $ | 139 | |
Fleet lease income | | — | | — | | 350 | | — | | 350 | | 340 | |
Gain on mortgage loans | | 186 | | — | | — | | — | | 186 | | 126 | |
Mortgage net finance expense | | (6 | ) | (13 | ) | — | | (1 | ) | (20 | ) | (16 | ) |
Loan servicing income (1) | | — | | 119 | | — | | — | | 119 | | 112 | |
MSR fair value adjustments: | | | | | | | | | | | | | |
MSRs prepayments and recurring cash flows (2) | | — | | (64 | ) | — | | — | | (64 | ) | (77 | ) |
Market-related (3) | | — | | (55 | ) | — | | — | | (55 | ) | 287 | |
Credit-related (4) | | — | | (13 | ) | — | | — | | (13 | ) | (11 | ) |
Net derivative loss related to MSRs | | — | | (4 | ) | — | | — | | (4 | ) | — | |
Other income | | 2 | | — | | 18 | | — | | 20 | | 18 | |
Net revenues | | 267 | | (30 | ) | 413 | | (1 | ) | 649 | | 918 | |
Depreciation on operating leases | | — | | — | | 301 | | — | | 301 | | 303 | |
Fleet interest expense | | — | | — | | 19 | | — | | 19 | | 19 | |
Foreclosure-related charges | | — | | 21 | | — | | — | | 21 | | 21 | |
Other expenses | | 173 | | 39 | | 74 | | 1 | | 287 | | 262 | |
Total expenses | | 173 | | 60 | | 394 | | 1 | | 628 | | 605 | |
Income (loss) before income taxes | | 94 | | (90 | ) | 19 | | (2 | ) | $ | 21 | | $ | 313 | |
Less: income attributable to noncontrolling interest | | 8 | | — | | — | | — | | | | | |
Segment profit (loss) | | $ | 86 | | $ | (90 | ) | $ | 19 | | $ | (2 | ) | | | | |
(1) | Loan servicing income includes net reinsurance loss of $1 million and $2 million for the three months ended December 31, 2011 and 2010, respectively. |
(2) | Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows. |
(3) | Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. |
(4) | Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures. |
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Segment Results - Full Year
(In millions)
| | Year Ended December 31, 2011 | | Year Ended
December 31,
2010 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | | Total PHH
Corporation | | Total PHH
Corporation | |
Net fee income | | $ | 295 | | $ | — | | $ | 173 | | $ | — | | $ | 468 | | $ | 448 | |
Fleet lease income | | — | | — | | 1,400 | | — | | 1,400 | | 1,370 | |
Gain on mortgage loans | | 567 | | — | | — | | — | | 567 | | 635 | |
Mortgage net finance expense | | (24 | ) | (61 | ) | — | | (3 | ) | (88 | ) | (73 | ) |
Loan servicing income (1) | | — | | 456 | | — | | — | | 456 | | 415 | |
MSR fair value adjustments: | | | | | | | | | | | | | |
MSRs prepayments and recurring cash flows (2) | | — | | (212 | ) | — | | — | | (212 | ) | (225 | ) |
Market-related (3) | | — | | (510 | ) | — | | — | | (510 | ) | (166 | ) |
Credit-related (4) | | — | | (11 | ) | — | | — | | (11 | ) | (36 | ) |
Net derivative loss related to MSRs | | — | | (3 | ) | — | | — | | (3 | ) | — | |
Other income | | 76 | | (2 | ) | 73 | | — | | 147 | | 70 | |
Net revenues | | 914 | | (343 | ) | 1,646 | | (3 | ) | 2,214 | | 2,438 | |
Depreciation on operating leases | | — | | — | | 1,223 | | — | | 1,223 | | 1,224 | |
Fleet interest expense | | — | | — | | 82 | | (3 | ) | 79 | | 91 | |
Foreclosure-related charges | | — | | 80 | | — | | — | | 80 | | 72 | |
Other expenses | | 631 | | 134 | | 266 | | 3 | | 1,034 | | 936 | |
Total expenses | | 631 | | 214 | | 1,571 | | — | | 2,416 | | 2,323 | |
Income (loss) before income taxes | | 283 | | (557 | ) | 75 | | (3 | ) | $ | (202 | ) | $ | 115 | |
Less: income attributable to noncontrolling interest | | 25 | | — | | — | | — | | | | | |
Segment profit (loss) | | $ | 258 | | $ | (557 | ) | $ | 75 | | $ | (3 | ) | | | | |
(1) | Loan servicing income includes net reinsurance loss of $16 million and $19 million for the years ended December 31, 2011 and 2010, respectively. |
(2) | Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows. |
(3) | Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. |
(4) | Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures. |
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Mortgage Production and Mortgage Servicing
Mortgage Production Segment Profit
Mortgage Production segment profit in the fourth quarter 2011 was $86 million, 161% greater than the fourth quarter of 2010 but down from $95 million in the third quarter 2011. Fourth quarter segment profit reflects a continued strong level of IRLCs expected to close from the continuation of the refinancing surge that began in the third quarter and continued strong gain on sale margins as well as significantly improved economic hedge results relative to the fourth quarter 2010.
Mortgage Servicing Segment Loss
Mortgage Servicing segment loss in the fourth quarter 2011 was $90 million. The segment loss includes $68 million in market-related and credit-related negative fair value adjustments on our mortgage servicing rights, which includes an unfavorable impact of approximately $20 million related to the implementation of HARP 2 and increased assumptions of foreclosure-related costs. This compares to market-related and credit-related fair value adjustments on our MSR of positive $276 million in the fourth quarter 2010 and negative $361 million in the third quarter 2011.
Interest Rate Lock Commitments
IRLCs expected to close of $9.7 billion in the fourth quarter 2011 represented a 6% increase from the fourth quarter 2010, reflecting the continuation of the refinancing surge that began in the third quarter 2011. For the fourth quarter 2011, IRLCs expected to close declined 15% from the third quarter 2011. Although mortgage interest rates remained at relatively low levels through 2011, many borrowers had already taken advantage of the low interest rate environment in 2010. As a result, IRLCs expected to close declined by 12% during 2011 compared to 2010, despite similar interest rate environments.
Total Pricing Margins
In the fourth quarter 2011, total pricing margins on IRLCs expected to close remained at an elevated level, declining only 2 basis points from the third quarter 2011 and increasing 5 basis points from the fourth quarter 2010. These margins reflect continuing high levels of refinancing activity.
Mortgage Closing Volume
Total fourth quarter mortgage closings were $15.6 billion of which 65% was retail and 35% was wholesale/correspondent. This volume represents a 23% increase from the third quarter 2011, reflecting the surge in IRLCs expected to close in the prior quarter. Full-year total mortgage loan closings were $51.9 billion of which 69% was retail and 31% was wholesale/correspondent. This volume represents a 6% increase from full-year 2010.
Unpaid Principal Balance of Mortgage Servicing Portfolio
At December 31, 2011, the UPB of our capitalized servicing portfolio was $147.1 billion, a 9% increase over the UPB at the end of 2010 and a 2% increase over the UPB at the end of the third quarter 2011. Also at December 31, 2011, the UPB of our total loan servicing portfolio was $182.4 billion, a 10% increase over the UPB at the end of 2010 and a 2% increase over the UPB at the end of the third quarter 2011.
Mortgage Servicing Rights
At December 31, 2011, the fair value of our mortgage servicing rights was $1.2 billion, an increase of 1% from the balance at the end of the third quarter 2011. This change reflects $143 million in MSR added partially offset by $132 million in negative fair value adjustments. The MSR added from the capitalization of new servicing rights reflects the increase in loans sold in the quarter, which resulted from the closing and sale of IRLCs expected to close in the third quarter 2011.
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Fleet Management Services
Segment Profit
Fleet Management Services segment profit was $19 million in the fourth quarter 2011, down 24% from the fourth quarter 2010, reflecting stronger net revenues offset by higher cost of goods sold related to lease syndications, technology investments, and higher incentive compensation expenses. Fourth quarter 2011 segment profit was $6 million less than in the fourth quarter 2010 and $2 million less than in the third quarter 2011.
Fleet Lease Income
Fleet lease income increased by $10 million in the fourth quarter 2011 compared to the fourth quarter 2010, due to a $12 million increase in lease syndication revenue that was partially offset by a decrease in lease revenue attributable to fewer units under lease. The increase in lease syndication revenue was substantially offset by a corresponding increase in other expenses, primarily due to higher cost of goods sold related to the lease syndications.
Fleet Management Fees
Fleet management fees increased to $45 million in the fourth quarter 2011 from $41 million in the fourth quarter of 2010, reflecting an increase in fee-for-service unit counts. Maintenance service, fuel, and accident management average units all increased in fourth quarter 2011 compared to fourth quarter 2010 despite a 5% decline in the number of leased vehicles, reflecting our strategy to increase penetration of our accounts with fee-based services.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern Time) on Tuesday, February 7, 2012, to discuss its fourth quarter 2011 results. All interested parties are welcome to participate. You can access the conference call by dialing (888) 510-1762 or (719) 457-2634 and using the conference ID 4120134 approximately 10 minutes prior to the call. The conference call will also be webcast at www.phh.com/invest under webcasts and presentations.
Fourth Quarter 2011 supplemental schedules will be available by visiting the Investor Relations page of PHH’s website at www.phh.com/invest on February 7, 2012, prior to the conference call.
A replay will be available shortly after the end of the call through February 21, 2012, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 4120134 or by logging on to the company’s website.
About PHH Corporation
Headquartered in Mount Laurel, New Jersey, PHH Corporation (NYSE: PHH) is a leading provider of business process management services for the mortgage and fleet industries. Its subsidiary, PHH Mortgage, is one of the top five retail originators of residential mortgages in the United States1, and its subsidiary, PHH Arval, is a leading fleet management services provider in the United States and Canada. PHH has more than 5,000 employees dedicated to delivering premier customer service and providing value-added solutions to its clients. For additional information about PHH and its subsidiaries, please visit the Company’s website at www.phh.com.
1 Inside Mortgage Finance, Copyright 2011
Forward-Looking Statements
Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, forward looking-statements are not based on historical facts but instead represent only our current beliefs regarding future events. All forward-looking statements are, by their nature, subject to risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied in such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. Such statements may be identified by words such as “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.”
You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. You should consider the areas of risk described under the heading “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the U.S. Securities
6
and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us or our businesses generally. Such periodic reports are available in the “Investors” section of our website at http://www.phh.com and are also available at http://www.sec.gov. Except for our ongoing obligations to disclose material information under the federal securities laws, applicable stock exchange listing standards and unless otherwise required by law, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or unanticipated events.
Contact Information:
Investors
Jim Ballan
jim.ballan@phh.com
856-917-4311
Media
Heather McElrath
heather.mcelrath@phh.com
856-917-7628
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PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Revenues | | | | | | | | | |
Mortgage fees | | $ | 85 | | $ | 98 | | $ | 295 | | $ | 291 | |
Fleet management fees | | 45 | | 41 | | 173 | | 157 | |
Net fee income | | 130 | | 139 | | 468 | | 448 | |
Fleet lease income | | 350 | | 340 | | 1,400 | | 1,370 | |
Gain on mortgage loans, net | | 186 | | 126 | | 567 | | 635 | |
Mortgage interest income | | 32 | | 41 | | 114 | | 110 | |
Mortgage interest expense | | (52 | ) | (57 | ) | (202 | ) | (183 | ) |
Mortgage net finance expense | | (20 | ) | (16 | ) | (88 | ) | (73 | ) |
Loan servicing income | | 119 | | 112 | | 456 | | 415 | |
Change in fair value of mortgage servicing rights | | (132 | ) | 199 | | (733 | ) | (427 | ) |
Net derivative loss related to mortgage servicing rights | | (4 | ) | — | | (3 | ) | — | |
Valuation adjustments relating to mortgage servicing rights, net | | (136 | ) | 199 | | (736 | ) | (427 | ) |
Net loan servicing (loss) income | | (17 | ) | 311 | | (280 | ) | (12 | ) |
Other income | | 20 | | 18 | | 147 | | 70 | |
Net revenues | | 649 | | 918 | | 2,214 | | 2,438 | |
Expenses | | | | | | | | | |
Salaries and related expenses | | 132 | | 137 | | 507 | | 497 | |
Occupancy and other office expenses | | 15 | | 15 | | 59 | | 60 | |
Depreciation on operating leases | | 301 | | 303 | | 1,223 | | 1,224 | |
Fleet interest expense | | 19 | | 19 | | 79 | | 91 | |
Other depreciation and amortization | | 6 | | 5 | | 25 | | 22 | |
Other operating expenses | | 155 | | 126 | | 523 | | 429 | |
Total expenses | | 628 | | 605 | | 2,416 | | 2,323 | |
Income (loss) before income taxes | | 21 | | 313 | | (202 | ) | 115 | |
Income tax expense (benefit) | | — | | 126 | | (100 | ) | 39 | |
Net income (loss) | | 21 | | 187 | | (102 | ) | 76 | |
Less: net income attributable to non-controlling interest | | 8 | | 6 | | 25 | | 28 | |
Net income (loss) attributable to PHH Corporation | | $ | 13 | | $ | 181 | | $ | (127 | ) | $ | 48 | |
Basic earnings (loss) per share attributable to PHH Corporation | | $ | 0.22 | | $ | 3.26 | | $ | (2.26 | ) | $ | 0.87 | |
Diluted earnings (loss) per share attributable to PHH Corporation | | $ | 0.22 | | $ | 3.25 | | $ | (2.26 | ) | $ | 0.86 | |
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PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
| | December 31, | |
| | 2011 | | 2010 | |
| | | | | |
ASSETS | | | | | |
Cash and cash equivalents | | $ | 414 | | $ | 195 | |
Restricted cash, cash equivalents and investments | | 574 | | 531 | |
Mortgage loans held for sale | | 2,658 | | 4,329 | |
Accounts receivable, net | | 700 | | 573 | |
Net investment in fleet leases | | 3,515 | | 3,492 | |
Mortgage servicing rights | | 1,209 | | 1,442 | |
Property, plant and equipment, net | | 64 | | 46 | |
Goodwill | | 25 | | 25 | |
Other assets (1) | | 618 | | 637 | |
Total assets | | $ | 9,777 | | $ | 11,270 | |
| | | | | |
LIABILITIES AND EQUITY | | | | | |
Accounts payable and accrued expenses | | $ | 504 | | $ | 521 | |
Debt | | 6,914 | | 8,085 | |
Deferred taxes | | 626 | | 728 | |
Other liabilities | | 272 | | 358 | |
Total liabilities | | 8,316 | | 9,692 | |
Commitments and contingencies | | — | | — | |
Total PHH Corporation stockholders’ equity | | 1,442 | | 1,564 | |
Noncontrolling interest | | 19 | | 14 | |
Total equity | | 1,461 | | 1,578 | |
Total liabilities and equity | | $ | 9,777 | | $ | 11,270 | |
(1) Other assets include intangible assets of $33 million and $36 million as of December 31, 2011 and 2010, respectively.
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Mortgage Production Segment
(In millions, except average loan amount)
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
Loans closed to be sold | | $ | 11,807 | | $ | 14,438 | | (18 | )% | $ | 37,889 | | $ | 37,747 | | — | |
Fee-based closings | | 3,812 | | 3,996 | | (5 | )% | 14,056 | | 11,247 | | 25 | % |
Total closings | | $ | 15,619 | | $ | 18,434 | | (15 | )% | $ | 51,945 | | $ | 48,994 | | 6 | % |
Purchase closings | | $ | 4,326 | | $ | 5,316 | | (19 | )% | $ | 20,404 | | $ | 20,270 | | 1 | % |
Refinance closings | | 11,293 | | 13,118 | | (14 | )% | 31,541 | | 28,724 | | 10 | % |
Total closings | | $ | 15,619 | | $ | 18,434 | | (15 | )% | $ | 51,945 | | $ | 48,994 | | 6 | % |
Fixed rate | | $ | 11,888 | | $ | 14,641 | | (19 | )% | $ | 37,692 | | $ | 38,657 | | (2 | )% |
Adjustable rate | | 3,731 | | 3,793 | | (2 | )% | 14,253 | | 10,337 | | 38 | % |
Total closings | | $ | 15,619 | | $ | 18,434 | | (15 | )% | $ | 51,945 | | $ | 48,994 | | 6 | % |
Retail closings | | $ | 10,219 | | $ | 11,333 | | (10 | )% | $ | 35,592 | | $ | 33,429 | | 6 | % |
Wholesale/correspondent closings | | 5,400 | | 7,101 | | (24 | )% | 16,353 | | 15,565 | | 5 | % |
Total closings | | $ | 15,619 | | $ | 18,434 | | (15 | )% | $ | 51,945 | | $ | 48,994 | | 6 | % |
| | | | | | | | | | | | | |
Average loan amount | | $ | 261,653 | | $ | 241,857 | | 8 | % | $ | 258,365 | | $ | 238,187 | | 8 | % |
Loans sold | | $ | 11,728 | | $ | 12,583 | | (7 | )% | $ | 40,035 | | $ | 34,535 | | 16 | % |
Applications | | $ | 18,580 | | $ | 19,305 | | (4 | )% | $ | 67,586 | | $ | 74,628 | | (9 | )% |
IRLCs expected to close | | $ | 9,743 | | $ | 9,170 | | 6 | % | $ | 33,717 | | $ | 38,330 | | (12 | )% |
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
Mortgage fees | | $ | 85 | | $ | 98 | | (13 | )% | $ | 295 | | $ | 291 | | 1 | % |
Gain on mortgage loans, net | | 186 | | 126 | | 48 | % | 567 | | 635 | | (11 | )% |
Mortgage net finance expense | | (6 | ) | (3 | ) | (100 | )% | (24 | ) | (16 | ) | (50 | )% |
Other income | | 2 | | — | | 100 | % | 76 | | 1 | | n/m | (1) |
Net revenues | | 267 | | 221 | | 21 | % | 914 | | 911 | | — | |
Total expenses | | 173 | | 182 | | (5 | )% | 631 | | 615 | | 3 | % |
Income before income taxes | | 94 | | 39 | | 141 | % | 283 | | 296 | | (4 | )% |
Less: net income attributable to noncontrolling interest | | 8 | | 6 | | 33 | % | 25 | | 28 | | (11 | )% |
Segment profit | | $ | 86 | | $ | 33 | | 161 | % | $ | 258 | | $ | 268 | | (4 | )% |
(1) n/m —Not meaningful
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Mortgage Servicing Segment
($ In millions)
| | | | | | | | As of December 31, | |
| | | | | | | | 2011 | | 2010 | | Change | |
Ending total loan servicing portfolio | | | | | | | | $ | 182,387 | | $ | 166,075 | | 10 | % |
Number of loans serviced | | | | | | | | 1,063,884 | | 1,005,950 | | 6 | % |
Ending capitalized loan servicing portfolio | | | | | | | | $ | 147,088 | | $ | 134,753 | | 9 | % |
Capitalized servicing rate | | | | | | | | 0.82 | % | 1.07 | % | — | |
Capitalized servicing multiple | | | | | | | | 2.7 | | 3.5 | | — | |
Weighted-average servicing fee (in basis points) | | | | | | | | 31 | | 30 | | — | |
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
Average total loan servicing portfolio | | $ | 180,366 | | $ | 162,628 | | 11 | % | $ | 174,332 | | $ | 156,825 | | 11 | % |
Average capitalized loan servicing portfolio | | 145,711 | | $ | 133,277 | | 9 | % | 142,128 | | 130,462 | | 9 | % |
Payoffs and principal curtailments of capitalized portfolio | | 8,188 | | $ | 8,850 | | (7 | )% | 25,168 | | 25,887 | | (3 | )% |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
Mortgage net finance expense | | $ | (13 | ) | $ | (12 | ) | (8 | )% | $ | (61 | ) | $ | (54 | ) | (13 | )% |
Loan servicing income | | 119 | | 112 | | 6 | % | 456 | | 415 | | 10 | % |
Valuation adjustments related to mortgage servicing rights, net | | (136 | ) | 199 | | n/m | (1) | (736 | ) | (427 | ) | (72 | )% |
Other income (expense) | | — | | — | | — | | (2 | ) | 3 | | n/m | (1) |
Net revenues | | (30 | ) | 299 | | n/m | (1) | (343 | ) | (63 | ) | n/m | (1) |
Foreclosure-related charges | | 21 | | 21 | | — | | 80 | | 72 | | 11 | % |
Other expenses | | 39 | | 27 | | 44 | % | 134 | | 106 | | 26 | % |
Total expenses | | 60 | | 48 | | 25 | % | 214 | | 178 | | 20 | % |
Segment (loss) profit | | $ | (90 | ) | $ | 251 | | n/m | (1) | $ | (557 | ) | $ | (241 | ) | (131 | )% |
Portfolio Delinquency(2)
| | December 31, | |
| | 2011 | | 2010 | |
| | Number of
Loans | | Unpaid
Balance | | Number of
Loans | | Unpaid
Balance | |
30 days | | 2.24 | % | 1.83 | % | 2.36 | % | 2.01 | % |
60 days | | 0.60 | % | 0.51 | % | 0.67 | % | 0.60 | % |
90 or more days | | 0.98 | % | 0.95 | % | 1.21 | % | 1.27 | % |
Total delinquency | | 3.82 | % | 3.29 | % | 4.24 | % | 3.88 | % |
| | | | | | | | | |
Foreclosure/real estate owned(3) | | 1.83 | % | 1.85 | % | 2.30 | % | 2.37 | % |
(1) n/m — Not meaningful.
(2) Represents the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.
(3) As of December 31, 2011 and 2010, there were 15,689 and 18,554 of loans in foreclosure with unpaid principal balance of $2.8 billion and $3.3 billion, respectively.
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Fleet Management Services Segment
| | Average for the | | Average for the | |
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
| | (In thousands of units) | |
Leased vehicles | | 270 | | 284 | | (5 | )% | 274 | | 290 | | (6 | )% |
Maintenance service cards | | 336 | | 315 | | 7 | % | 324 | | 287 | | 13 | % |
Fuel cards | | 300 | | 283 | | 6 | % | 295 | | 276 | | 7 | % |
Accident management vehicles | | 308 | | 293 | | 5 | % | 298 | | 290 | | 3 | % |
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
| | (In millions) | |
Fleet management fees | | $ | 45 | | $ | 41 | | 10 | % | $ | 173 | | $ | 157 | | 10 | % |
Fleet lease income | | 350 | | 340 | | 3 | % | 1,400 | | 1,370 | | 2 | % |
Other income | | 18 | | 18 | | — | | 73 | | 66 | | 11 | % |
Net revenues | | 413 | | 399 | | 4 | % | 1,646 | | 1,593 | | 3 | % |
Depreciation on operating leases | | 301 | | 303 | | (1 | )% | 1,223 | | 1,224 | | — | |
Fleet interest expense | | 19 | | 20 | | (5 | )% | 82 | | 94 | | (13 | )% |
Other expenses | | 74 | | 51 | | 45 | % | 266 | | 212 | | 25 | % |
Total expenses | | 394 | | 374 | | 5 | % | 1,571 | | 1,530 | | 3 | % |
Segment profit | | $ | 19 | | $ | 25 | | (24 | )% | $ | 75 | | $ | 63 | | 19 | % |
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AVAILABLE FUNDING UNDER ASSET-BACKED DEBT ARRANGEMENTS AND UNSECURED COMMITTED CREDIT FACILITIES
Capacity under all borrowing agreements is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. Available capacity under asset-backed funding arrangements may be further limited by asset eligibility requirements. Available capacity under committed asset-backed debt arrangements and unsecured credit facilities as of December 31, 2011 consisted of:
| | | | Utilized | | Available | |
| | Capacity | | Capacity | | Capacity | |
| | (In millions) | |
Vehicle Management Asset-Backed Debt: | | | | | | | |
Term notes, in revolving period | | $ | 374 | | $ | 374 | | $ | — | |
Variable-funding notes | | 2,084 | | 1,516 | | 568 | |
Mortgage Asset-Backed Debt: | | | | | | | |
Committed warehouse facilities | | 3,615 | | 2,313 | | 1,302 | |
Servicing advance facility | | 120 | | 79 | | 41 | |
Unsecured Committed Credit Facilities(1) | | 530 | | 16 | | 514 | |
| | | | | | | | | | |
(1) Utilized capacity reflects $16 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in the Consolidated Balance Sheet.
Capacity for Mortgage asset-backed debt shown above excludes $2.2 billion not drawn under uncommitted facilities, and $500 million available under committed off-balance sheet gestation facilities.
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* NOTE REGARDING NON-GAAP FINANCIAL MEASURES
Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share, tangible book value and tangible book value per share are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations below for a reconciliation of these measures to the most directly comparable GAAP financial measures as required by Regulation G.
Core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share involves differences from Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation and Basic earnings (loss) per share attributable to PHH Corporation computed in accordance with GAAP. Core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share should be considered as supplementary to, and not as a substitute for, Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation or Basic earnings (loss) per share attributable to PHH Corporation computed in accordance with GAAP as a measure of the Company’s financial performance.
Tangible book value and tangible book value per share involve differences from Total PHH Corporation stockholders’ equity computed in accordance with GAAP. Tangible book value and tangible book value per share should be considered as supplementary to, and not as a substitute for, Total PHH Corporation stockholders’ equity computed in accordance with GAAP as a measure of the Company’s financial position.
The Company believes that these Non-GAAP Financial Measures can be useful to investors because they provide a means by which investors can evaluate the Company’s underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period.
The Company also believes that any meaningful analysis of the Company’s financial performance by investors requires an understanding of the factors that drive the Company’s underlying operating performance which can be obscured by significant unrealized changes in value of the Company’s mortgage servicing rights, as well as any gain or loss on derivatives that are intended to offset market-related fair value adjustments on the Company’s mortgage servicing rights, in a given period that are included in Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation and Basic earnings (loss) per share attributable to PHH Corporation in accordance with GAAP.
Core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share
Core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share measure the Company’s financial performance excluding unrealized changes in fair value of the Company’s mortgage servicing rights that are based upon projections of expected future cash flows and prepayments as well as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of mortgage servicing rights. The changes in fair value of mortgage servicing rights and related derivatives are highly sensitive to changes in interest rates and are dependent upon the level of current and projected interest rates at the end of each reporting period.
Value lost from actual prepayments and recurring cash flows are recorded when actual cash payments or prepayments of the underlying loans are received, and are included in core earnings based on the current fair value of the mortgage servicing rights at the time the payments are received.
The presentation of core earnings is designed to more closely align the timing of recognizing the actual value lost from prepayments in the mortgage servicing segment with the associated value created through new originations in the mortgage production segment. The Company believes that it will likely replenish most, if not all, realized value lost from changes in value from actual prepayments through new loan originations and actively manages and monitors economic replenishment rates to measure its ability to continue to do so. Therefore, management does not believe the unrealized change in value of the mortgage servicing rights is representative of the economic change in value of the business as a whole.
Core earnings metrics are used in managing the Company’s mortgage business. The Company has also designed certain management incentives based upon the achievement of core earnings targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.
Limitations on the use of Core Earnings
Since core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share measure the Company’s financial performance excluding unrealized changes in value of mortgage servicing rights, such measures may not appropriately reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, core earnings (loss) (pre-tax and after-
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tax) and core earnings (loss) per share may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment, absent the effect of any offsetting gains or losses on derivatives that are intended to offset changes in fair value on the Company’s mortgage servicing rights.
Tangible book value and Tangible book value per share
Tangible book value is a measure of Total PHH Corporation stockholders’ equity computed in accordance with GAAP excluding the value of goodwill and other intangible assets. Tangible book value per share is a measure of tangible book value, on a per share basis, using the number of shares of outstanding PHH Corporation common stock as of the applicable measurement date. Certain of the Company’s debt agreements contain indebtedness-to-tangible net worth ratio covenants, and such ratios are calculated using a measure of tangible net worth that is calculated on a basis similar to the Company’s calculation of tangible book value. Accordingly, the Company believes that tangible book value and tangible book value per share provide useful supplementary information to investors.
15
PHH CORPORATION AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS — CORE EARNINGS
(In millions, except per share data)
See “Note Regarding Non-GAAP Financial Measures” above in this press release for a description of the uses and limitations of these Non-GAAP Financial Measures.
Regulation G Reconciliation
| | Three Months Ended | | Year Ended | |
| | December 31, | | December 31, | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Income (loss) before income taxes — as reported | | $ | 21 | | $ | 313 | | $ | (202 | ) | $ | 115 | |
Less: net income attributable to noncontrolling interest | | 8 | | 6 | | 25 | | 28 | |
Segment profit (loss) | | 13 | | 307 | | (227 | ) | 87 | |
Certain MSR fair value adjustments: | | | | | | | | | |
Market-related (1) | | 55 | | (287 | ) | 510 | | 166 | |
Credit-related (2) | | 13 | | 11 | | 11 | | 36 | |
Net derivative loss related to MSRs | | 4 | | — | | 3 | | — | |
Core earnings (pre-tax) | | $ | 85 | | $ | 31 | | $ | 297 | | $ | 289 | |
| | | | | | | | | |
Net income (loss) attributable to PHH Corporation — as reported | | $ | 13 | | $ | 181 | | $ | (127 | ) | $ | 48 | |
Certain MSR fair value adjustments: | | | | | | | | | |
Market-related, net of taxes (1)(3) | | 33 | | (170 | ) | 301 | | 98 | |
Credit-related, net of taxes (2)(3) | | 7 | | 6 | | 6 | | 21 | |
Net derivative loss related to MSRs | | 2 | | — | | 2 | | — | |
Core earnings (after-tax) | | $ | 55 | | $ | 17 | | $ | 182 | | $ | 167 | |
| | | | | | | | | |
Basic earnings (loss) per share attributable to PHH Corporation — as reported | | $ | 0.22 | | $ | 3.26 | | $ | (2.26 | ) | $ | 0.87 | |
Certain MSR fair value adjustments: | | | | | | | | | |
Market-related, net of taxes (1)(4) | | 0.58 | | (3.06 | ) | 5.34 | | 1.76 | |
Credit-related, net of taxes (2)(4) | | 0.14 | | 0.11 | | 0.12 | | 0.38 | |
Net derivative loss related to MSRs | | 0.04 | | — | | 0.03 | | — | |
Core earnings per share | | $ | 0.98 | | $ | 0.31 | | $ | 3.23 | | $ | 3.01 | |
(1) | Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. |
| |
(2) | Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures. |
| |
(3) | An incremental effective tax rate of 41% was applied to the MSRs fair value adjustments to arrive at the net of taxes amounts. |
| |
(4) | Basic weighted-average shares outstanding of 56.504 million and 55.699 million for the three months ended December 31, 2011 and 2010, respectively and 56.349 million and 55.480 million for the years ended December 31, 2011 and 2010, respectively were used to calculate per share amounts. |
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PHH CORPORATION AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS — CORE EARNINGS BY SEGMENT
(In millions)
Regulation G Reconciliation
| | Fourth Quarter 2011 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | |
Segment profit (loss) | | $ | 86 | | $ | (90 | ) | $ | 19 | | $ | (2 | ) |
| | | | | | | | | |
Certain MSRs fair value adjustments: | | | | | | | | | |
Market-related(1) | | — | | 55 | | — | | — | |
Credit-related(2) | | — | | 13 | | — | | — | |
Net derivative loss related to MSRs | | — | | 4 | | — | | — | |
| | | | | | | | | |
Core earnings (loss) | | $ | 86 | | $ | (18 | ) | $ | 19 | | $ | (2 | ) |
| | Fourth Quarter 2010 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | |
Segment profit (loss) | | $ | 33 | | $ | 251 | | $ | 25 | | $ | (2 | ) |
| | | | | | | | | |
Certain MSRs fair value adjustments: | | | | | | | | | |
Market-related(1) | | — | | (287 | ) | — | | — | |
Credit-related(2) | | — | | 11 | | — | | — | |
| | | | | | | | | |
Core earnings (loss) | | $ | 33 | | $ | (25 | ) | $ | 25 | | $ | (2 | ) |
(1) | Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. |
(2) | Represents the Change in fair value of MSRs primarily due to the impact of change in estimated portfolio delinquencies and foreclosures. |
17
PHH CORPORATION AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS — CORE EARNINGS BY SEGMENT
(In millions)
Regulation G Reconciliation
| | Year ended December 31, 2011 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | |
Segment profit (loss) | | $ | 258 | | $ | (557 | ) | $ | 75 | | $ | (3 | ) |
| | | | | | | | | |
Certain MSRs fair value adjustments: | | | | | | | | | |
Market-related(1) | | — | | 510 | | — | | — | |
Credit-related(2) | | — | | 11 | | — | | — | |
Net derivative loss related to MSRs | | — | | 3 | | — | | — | |
| | | | | | | | | |
Core earnings (loss) | | $ | 258 | | $ | (33 | ) | $ | 75 | | $ | (3 | ) |
| | Year ended December 31, 2010 | |
| | Mortgage
Production
Segment | | Mortgage
Servicing
Segment | | Fleet
Management
Services
Segment | | Other | |
Segment profit (loss) | | $ | 268 | | $ | (241 | ) | $ | 63 | | $ | (3 | ) |
| | | | | | | | | |
Certain MSRs fair value adjustments: | | | | | | | | | |
Market-related(1) | | — | | 166 | | — | | — | |
Credit-related(2) | | — | | 36 | | — | | — | |
| | | | | | | | | |
Core earnings (loss) | | $ | 268 | | $ | (39 | ) | $ | 63 | | $ | (3 | ) |
(1) | Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. |
| |
(2) | Represents the Change in fair value of MSRs primarily due to the impact of change in estimated portfolio delinquencies and foreclosures. |
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PHH CORPORATION AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS — TANGIBLE BOOK VALUE
(in millions)
Regulation G Reconciliation
| | December 31, | |
| | 2011 | | 2010 | |
PHH Corporation stockholders’ equity — as reported | | $ | 1,442 | | $ | 1,564 | |
Goodwill | | (25 | ) | (25 | ) |
Intangible assets | | (33 | ) | (36 | ) |
| | | | | |
Tangible book value | | $ | 1,384 | | $ | 1,503 | |
| | | | | |
Common shares issued and outstanding | | 56,361,155 | | 55,699,218 | |
| | | | | |
Tangible book value per share | | $ | 24.56 | | $ | 26.98 | |
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