1Q16 Highlights:
- Net loss attributable to PHH
Corporation of $30 million or $0.56 per basic share, which includes
$18 million of pre-tax notable items and a $10 million pre-tax
unfavorable market-related fair value adjustment to our mortgage
servicing rights (MSRs), net of derivatives related to
MSRs.
- Ended 1Q16 with $937 million of Cash
and cash equivalents, $770 million of MSRs, $1.3 billion of Total
PHH Corporation equity and Tangible book value per share of
$23.66.
- Mortgage applications and Total
Closings totaled $12.3 billion and $8.0 billion, respectively,
representing a 19% and 15% decrease from $15.2 billion and $9.4
billion in 1Q15, respectively. Interest rate lock commitments
(“IRLCs”) expected to close totaled $1.2 billion, a 45% decrease
from $2.1 billion in 1Q15, while total loan margin decreased 20 bps
to 295 bps.
- The unpaid principal balance of our
Total Servicing Portfolio increased to $233 billion or 4% compared
to March 31, 2015, as a 21% increase in the subserviced portfolio
was partially offset by a 12% decrease in the capitalized
portfolio.
- Continuing to evaluate strategic
options and pursuing certain preliminary business actions to
enhance shareholder value.
PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today
announced financial results for the quarter ended March 31,
2016. For the quarter ended March 31, 2016, the Company
reported Net loss attributable to PHH Corporation of $30 million or
$0.56 per basic share. For the quarter ended March 31, 2016,
core loss (after-tax)* and core loss per share*, which exclude a
$10 million pre-tax unfavorable market-related mortgage servicing
rights ("MSR") fair value adjustment, net of derivative gains
related to MSRs, were $24 million and $0.45, respectively.
Glen A. Messina, president and CEO of PHH Corporation, said,
"Our first quarter financial results are consistent with our prior
guidance of a core loss before notable items due to seasonally weak
closing volume, seasonal expense variances, and the expected timing
for the realization of the full run rate re-engineering benefits in
the second quarter of 2016. We are making solid progress in our
strategic review process. We have decided to suspend our inorganic
growth initiatives as we reassess our previously communicated scale
objectives. In addition, we have decided to evaluate all options to
substantially reduce our owned MSR investment. While we are
committed to returning excess capital to our shareholders, we are
evaluating multiple contractual, debt and tax complexities to
ensure the sequence and timing of actions we may take will not
limit our objective of maximizing shareholder value. As a result,
we have decided not to take any capital actions including share
repurchases at this time."
Messina added, "Over the next three months, we believe we will
make substantial progress towards completing our strategic and
capital review process. During this time, we intend to take the
necessary actions to drive organic growth through our most
profitable channels, manage operational capacity and fixed costs as
necessary, and preserve our balance sheet. We will continue to
provide material updates on our progress as appropriate.”
Summary Consolidated Results (In millions, except
per share data)
Three Months EndedMarch
31,
2016 2015 Net revenues $ 157 $ 261
(Loss) income
before income taxes (49 ) 31
Net (loss) income attributable
to PHH Corporation (30 ) 21 Basic (loss) earnings per
share attributable to PHH Corporation $ (0.56 ) $ 0.40 Diluted
(loss) earnings per share attributable to PHH Corporation (0.56 )
0.34 Weighted-average common shares outstanding Basic shares
53.703 51.173 Diluted shares 53.703 60.556
Non-GAAP
Results* Core loss (pre-tax) $ (39 ) $ (36 ) Core loss
(after-tax) (24 ) (20 ) Core loss per share $ (0.45 ) $
(0.38 ) Adjusted cash flow $ 54 $ 8
Notable items in each respective period included the
following:
Three Months Ended March 31, 2016
2015 Pre-Tax Post-Tax Pre-Tax
Post-Tax $ Per Share $ Per
Share Legal and regulatory reserves $ (4 ) $ (0.05 ) $ — $ —
Re-engineering and growth investments (11 ) (0.12 ) (9 ) (0.10 )
Severance (1 ) (0.01 ) — — Loss on sale of existing MSRs (2 ) (0.02
) — — Market-related MSR fair value adjustment, net of related
derivatives (10 ) (0.11 ) 65 0.78
In addition to the notable items presented above, our results
for the three months ended March 31, 2015 include $8 million
of expenses associated with the sale and separation of our Fleet
business, net of transition services revenue.
* Non-GAAP Financial Measures
Core earnings or loss (pre-tax), core earnings or loss
(after-tax), core earnings or loss per share, and adjusted cash
flow are financial measures that are not in accordance with U.S.
generally accepted accounting principles (GAAP). See the “Note
Regarding Non-GAAP Financial Measures” below for a detailed
description and reconciliation of such Non-GAAP financial measures
to their most directly comparable GAAP financial measures, as
required by Regulation G.
Mortgage Production
Segment Results
Mortgage Production segment loss in the first quarter of 2016
was $26 million, compared to a segment loss of $21 million in the
fourth quarter of 2015 and a segment loss of $19 million in the
first quarter of 2015. The $5 million unfavorable change in segment
results for the first quarter of 2016 compared to the fourth
quarter of 2015 was due to a $13 million decrease in Net revenues
that was partially offset by a $5 million decrease in Total
expenses. The decline in Total revenues was due to a $13 million
decrease in Gain on loans held for sale, net driven by an 18%
decrease in loans sold. The $5 million decrease in expenses was
primarily driven by the decline in total applications and
closings.
The $7 million unfavorable change in segment results in the
first quarter of 2016 compared to the first quarter of 2015 was due
to a $24 million decrease in Net revenue primarily driven by a
reduction in closing volume and a 20 bps reduction in total loan
margins. The decline in revenue was partially offset by a reduction
in Total expenses of $15 million which was primarily driven by a $7
million decrease in Commissions and an $8 million decrease in Loan
origination expenses which were a result of the lower overall
closing and application volumes in the first quarter of 2016.
Statistics
Total first quarter 2016 mortgage closings were $8.0 billion,
down 10% from the fourth quarter of 2015 and down 15% from the
first quarter of 2015. The decrease in total closings compared to
the fourth quarter of 2015 was primarily attributable to seasonal
declines in our purchase volume. The decrease in total closings
compared to the first quarter of 2015 was primarily driven by the
strong refinancing demand in the first quarter of 2015 due to the
relative interest rate environment.
Fee-based closings as a percentage of total closings continued
to remain high in the first quarter of 2016, representing 75% of
the total closings, an increase from 67% of total closings in the
first quarter of 2015.
IRLCs expected to close of $1.2 billion in the first quarter of
2016 remained consistent with the fourth quarter of 2015 but
decreased by 45% from the first quarter of 2015. Total loan margin
on IRLCs expected to close for the first quarter of 2016 was 295
bps, a 10 bps decrease from the fourth quarter of 2015 and a 20 bps
decrease from the first quarter of 2015.
Mortgage Servicing
Segment Results
Mortgage Servicing segment loss in the first quarter of 2016 was
$21 million, compared to a segment loss of $65 million in the
fourth quarter of 2015 and a segment profit of $57 million in the
first quarter of 2015. The $44 million favorable change in segment
results for the first quarter of 2016 compared to the fourth
quarter of 2015 was primarily a result of a favorable change in the
fair value of MSRs, net of related derivatives, of $42 million. The
unfavorable change in segment results of $78 million compared to
the first quarter of 2015 is a result of net revenues decreasing to
$44 million, down $77 million, or 64%, primarily driven by an
unfavorable change in our MSR market-related fair value
adjustments, net of derivatives and a decline in Loan servicing
income.
Total expenses remained relatively consistent for the first
quarter of 2016 compared to the fourth quarter of 2015 and the
first quarter of 2015. Our segment results for the first quarter of
2016 include $5 million of legal and regulatory provisions as we
continue to increase reserves for legal and regulatory matters.
This increase was offset by a decline in Foreclosure and
repossession expenses resulting from our actions to rebalance the
servicing portfolio, resulting in lower delinquent servicing
costs.
Statistics
At March 31, 2016, the unpaid principal balance (“UPB”) of
our capitalized servicing portfolio was $96.1 billion, down 3% from
December 31, 2015, and 12% from March 31, 2015. Our
capitalized servicing portfolio continues to decline as payoffs,
curtailments and sales have exceeded additions from new loan
production. During the first quarter of 2016, we continued to
execute on our MSR flow sale arrangements for which we retain the
right to subservice the underlying loans.
At March 31, 2016, the UPB of our total loan servicing
portfolio was $233.3 billion, which has marginally improved from
both December 31, 2015 and March 31, 2015. Activity in our
total loan servicing portfolio since the end of 2015 reflects an
increase in our subservicing UPB driven by the addition of a
subservicing portfolio with $8 billion in UPB during the first
quarter of 2016 that was partially offset by the declines in our
capitalized servicing portfolio.
Mortgage Servicing Rights
At March 31, 2016, the book value of our MSR was $770
million, representing an 80 bps capitalized servicing rate. The MSR
book value and capitalized servicing rate at December 31, 2015
was $880 million and 89 bps of the capitalized loan servicing
portfolio. The MSR book value at March 31, 2015 was $986
million, representing a 91 bps capitalized servicing rate. During
the first quarter of 2016, there was a $95 million decrease from
market-related fair value adjustments, a $26 million decrease
related to prepayments and the receipt of recurring cash flows and
a $2 million decrease from MSR sales that was partially offset by
$13 million in MSR book value that was added from loans sold.
Liquidity and Capital
Update
Liquidity at March 31, 2016 included $867 million in
unrestricted Cash and cash equivalents, excluding cash held in
variable interest entities. As of March 31, 2016, we had $615
million total principal of unsecured debt outstanding with our next
maturity date in September 2019.
In January 2016, we paid $23 million to retire 1,508,772 shares
to complete $100 million of share repurchases that started in
November 2015. We have authorizations from our Board of Directors
to repurchase up to an additional $150 million through December 31,
2016. We have not completed our strategic and capital review
process, and we believe it is important to retain maximum financial
flexibility to ensure that we can pursue all available options to
maximize value for our shareholders. As a result, we have decided
not to take any capital actions at this time including share
repurchases.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern
Time) on Thursday, May 5, 2016, to discuss its first quarter 2016
results. All interested parties are welcome to participate. An
investor presentation with an appendix of supplemental schedules
will accompany the conference call and be available by visiting the
Investor Relations page of PHH's website at www.phh.com on Thursday, May 5, 2016, prior to the
start of the conference call.
You can access the conference call by dialing (888) 211-7384 or
(913) 312-6690 and using the conference ID 8744673 approximately 10
minutes prior to the call. The conference call will also be
webcast, which can be accessed from the Investor Relations page of
PHH's website at www.phh.com under
webcasts and presentations.
A replay will be available beginning shortly after the end of
the call through May 20, 2016, by accessing
https://jsp.premiereglobal.com/websrvp and using conference ID
8744673, or by visiting the Investor Relations page of PHH's
website at www.phh.com.
About PHH Corporation
Headquartered in Mount Laurel, New Jersey, PHH Corporation is a
leading provider of end-to-end mortgage solutions through its
subsidiary, PHH Mortgage. Its outsourcing model and proven
expertise, combined with a strong commitment to operational
excellence and customer service, has enabled PHH Mortgage to become
one of the largest non-bank originators and servicers of
residential mortgages in the United States. PHH Mortgage provides
mortgage solutions for the real estate market and financial
institutions, and offers home financing directly to consumers. For
additional information, please visit www.phh.com.
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 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.
PHH CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except
per share data)
Three Months EndedMarch
31,
2016 2015 REVENUES Origination and
other loan fees $ 61 $ 58 Gain on loans held for sale, net 48 82
Net loan servicing income: Loan servicing income 91 104 Change in
fair value of mortgage servicing rights (121 ) (26 ) Net derivative
gain related to mortgage servicing rights 85 53 Net
loan servicing income 55 131 Net interest expense:
Interest income 9 9 Secured interest expense (8 ) (9 ) Unsecured
interest expense (10 ) (17 ) Net interest expense (9 ) (17 ) Other
income 2 7
Net revenues 157 261
EXPENSES Salaries and related expenses 90 87
Commissions 12 19 Loan origination expenses 16 24 Foreclosure and
repossession expenses 7 15 Professional and third-party service
fees 39 42 Technology equipment and software expenses 10 10
Occupancy and other office expenses 13 12 Depreciation and
amortization 4 5 Other operating expenses 15 16
Total expenses 206 230
(Loss) income before
income taxes (49 ) 31 Income tax (benefit) expense (19 ) 8
Net (loss) income (30 ) 23 Less: net income
attributable to noncontrolling interest — 2
Net
(loss) income attributable to PHH Corporation $ (30 ) $ 21
Basic (loss) earnings per share attributable to
PHH Corporation $ (0.56 ) $ 0.40
Diluted (loss)
earnings per share attributable to PHH Corporation $ (0.56 ) $
0.34
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In millions)
March 31, 2016 December 31,
2015 ASSETS Cash and cash equivalents $ 937 $ 906
Restricted cash 53 47 Mortgage loans held for sale 724 743 Accounts
receivable, net 72 81 Servicing advances, net 666 691 Mortgage
servicing rights 770 880 Property and equipment, net 52 47 Other
assets 176 247
Total assets $ 3,450 $ 3,642
LIABILITIES Accounts payable and accrued expenses $ 182 $
251 Subservicing advance liabilities 316 314 Debt 1,310 1,348
Deferred taxes 145 182 Loan repurchase and indemnification
liability 56 62 Other liabilities 145 137
Total liabilities
2,154 2,294 Commitments and contingencies
Total PHH
Corporation stockholders’ equity 1,266 1,318 Noncontrolling
interest 30 30
Total equity 1,296 1,348
Total liabilities
and equity $ 3,450 $ 3,642
Segment Results
(In millions)
First Quarter
2015
First Quarter 2016
Mortgage Production
Mortgage Servicing
Other
Total PHH Corporation
Total PHH Corporation
Origination and other loan fees $ 61 $ — $ — $ 61 $ 58 Gain on
loans held for sale, net 48 — — 48 82 Loan servicing income — 91 —
91 104 MSR fair value adjustments: Prepayments and receipts of
recurring cash flows — (26 ) — (26 ) (38 ) Market-related — (95 ) —
(95 ) 12 Net derivative gain related to MSRs — 85 — 85 53 Net
interest expense: Interest income 7 2 — 9 9 Secured interest
expense (5 ) (3 ) — (8 ) (9 ) Unsecured interest expense — (10 ) —
(10 ) (17 ) Other income 2 — — 2 7
Net revenues 113 44 — 157
261 Salaries and related expenses 57 18 15 90 87
Commissions 12 — — 12 19 Loan origination expenses 16 — — 16 24
Foreclosure and repossession expenses — 7 — 7 15 Professional and
third-party service fees 5 9 25 39 42 Technology equipment and
software expenses 1 4 5 10 10 Occupancy and other office expenses 7
5 1 13 12 Depreciation and amortization 2 1 1 4 5 Other operating
expenses: Repurchase and foreclosure-related charges — (2 ) — (2 )
2 Legal and regulatory reserves — 5 — 5 — Overhead Allocation - IT
21 9 (30 ) — — Overhead Allocation - Other 13 5 (18 ) — — Other 5
4 3 12 14
Total expenses
139 65 2 206 230
(Loss)
income before income taxes (26 ) (21 ) (2 ) $ (49 ) $ 31
Less: net income attributable to noncontrolling interest — —
—
Segment loss $ (26 ) $ (21 ) $ (2 )
Mortgage Production Segment ($ In millions)
Three Months Ended March
31,
2016 2015 Change
Closings:
Saleable to investors $ 1,988 $ 3,102 (36 )% Fee-based 5,967
6,250 (5 )% Total $ 7,955 $ 9,352 (15 )%
Purchase $ 3,374 $ 3,816 (12 )% Refinance 4,581 5,536
(17 )% Total $ 7,955 $ 9,352 (15 )%
Retail - PLS $ 6,353 $ 7,047 (10 )% Retail - Real Estate 1,341
2,019 (34 )% Total retail 7,694 9,066 (15 )%
Wholesale/correspondent 261 286 (9 )% Total $ 7,955
$ 9,352 (15 )% Retail - PLS (units) 11,689
13,625 (14 )% Retail - Real Estate (units) 4,968 7,608
(35 )% Total retail (units) 16,657 21,233 (22 )%
Wholesale/correspondent (units) 1,011 1,307 (23 )%
Total (units) 17,668 22,540 (22 )%
Applications:
Saleable to investors $ 3,312 $ 5,368 (38 )% Fee-based 8,991
9,808 (8 )% Total $ 12,303 $ 15,176 (19 )%
Retail - PLS $ 9,708 $ 11,430 (15 )% Retail - Real Estate
2,077 3,142 (34 )% Total retail 11,785 14,572 (19 )%
Wholesale/correspondent 518 604 (14 )% Total $ 12,303
$ 15,176 (19 )% Retail - PLS (units) 16,563
21,926 (24 )% Retail - Real Estate (units) 7,553 11,706
(35 )% Total retail (units) 24,116 33,632 (28 )%
Wholesale/correspondent (units) 1,946 2,582 (25 )%
Total (units) 26,062 36,214 (28 )%
Other:
IRLCs expected to close $ 1,168 $ 2,135 (45 )% Total loan margin on
IRLCs (in basis points) 295 315 (6 )% Loans sold $ 2,163 $ 2,964
(27 )%
Mortgage Production Segment
(continued) (in
millions)
Three Months Ended March
31,
2016 2015 Change
Segment
Results:
Origination and other loan fees $ 61 $ 58 5 % Gain on loans held
for sale, net 48 82 (41 )% Net interest income (expense): Interest
income 7 9 (22 )% Secured interest expense (5 ) (6 ) (17 )%
Unsecured interest expense — (8 ) (100 )% Net interest
income (expense) 2 (5 ) n/m Other income 2 2 — %
Net revenues 113 137 (18 )% Salaries
and related expenses 57 55 4 % Commissions 12 19 (37 )% Loan
origination expenses 16 24 (33 )% Professional and third-party
service fees 5 7 (29 )% Technology equipment and software expenses
1 1 — % Occupancy and other office expenses 7 7 — % Depreciation
and amortization 2 3 (33 )% Other operating expenses 39 38
3 %
Total expenses 139 154 (10 )% Loss
before income taxes (26 ) (17 ) 53 % Less: net income attributable
to noncontrolling interest — 2 (100 )%
Segment
loss $ (26 ) $ (19 ) 37 % ______________ n/m - Not Meaningful
Mortgage Servicing Segment ($ in
millions) March 31,
2016 2015 Change
Total Loan
Servicing Portfolio:
Unpaid Principal Balance $ 233,340 $ 224,194 4 % Number of
loans in owned portfolio (units) 628,104 697,090 (10 )% Number of
subserviced loans (units) 486,549 426,538 14 % Total
number of loans serviced (units) 1,114,653 1,123,628 (1 )%
Capitalized
Servicing Portfolio:
Unpaid Principal Balance $ 96,116 $ 108,792 (12 )% Capitalized
servicing rate 0.80 % 0.91 % (12 )% Capitalized servicing multiple
2.8 3.2 (13 )% Weighted-average servicing fee (in basis points) 29
29 — %
Three Months EndedMarch
31,
2016 2015 Change
Total Loan
Servicing Portfolio:
Average Portfolio UPB $ 229,970 $ 225,591 2 %
Capitalized
Servicing Portfolio:
Average Portfolio UPB $ 97,647 $ 110,823 (12 )% Payoffs and
principal curtailments 3,955 4,579 (14 )% Sales 272 1,228 (78 )%
March 31, 2016 December 31, 2015
Number of
Loans
Unpaid
Balance
Number of
Loans
Unpaid
Balance
Delinquency -
Total Servicing Portfolio(1)
30 days 1.89 % 1.39 % 2.22 % 1.55 % 60 days 0.31 0.22 0.44 0.30 90
or more days 0.64 0.48 0.82 0.62 Total
2.84 % 2.09 % 3.48 % 2.47 % Foreclosure/real estate owned(2)
1.67 % 1.42 % 1.74 % 1.51 % _______________ (1) Represents
portfolio delinquencies as a percentage of the total number of
loans and the total unpaid balance of the portfolio. (2) As of
March 31, 2016 and December 31, 2015, the total servicing portfolio
included 15,130 and 15,487 of loans in foreclosure with an unpaid
principal balance of $2.9 billion and $3.0 billion, respectively.
Mortgage Servicing Segment
(continued) ($ in
millions)
Three Months EndedMarch
31,
2016 2015 Change
Segment
Results:
Net loan servicing income $ 55 $ 131 (58 )% Net interest expense
(11 ) (12 ) (8 )% Other income — 2 (100 )%
Net
revenues 44 121 (64 )% Salaries and
related expenses 18 16 13 % Foreclosure and repossession expenses 7
15 (53 )% Professional and third-party service fees 9 7 29 %
Technology equipment and software expenses 4 4 — % Occupancy and
other office expenses 5 4 25 % Depreciation and amortization 1 —
n/m Other operating expenses 21 18 17 %
Total
expenses 65 64 2 %
Segment (loss) profit $
(21 ) $ 57 n/m ______________ n/m - Not Meaningful
Debt and Borrowing Arrangements (in millions)
March 31, 2016
December 31, 2015
Balance
Interest Rate(1)
Available
Capacity(2)
Balance Committed warehouse facilities $ 602 2.5 % $
998 $ 632 Uncommitted warehouse facilities — — 2,925 — Servicing
advance facility 102 2.3 % 53 111 Term notes due in 2019(3)
272 7.375 % n/a 271 Term notes due in 2021(3) 334 6.375 % n/a 334
Unsecured debt 606 605 Total $ 1,310 $ 1,348 ______________ (1)
Interest rate shown represents the stated interest rate of
outstanding borrowings, which may differ from the effective rate
due to the amortization of premiums, discounts and issuance costs.
Warehouse facilities and the servicing advance facility are
variable-rate. Rate shown for warehouse facilities represents the
weighted-average rate of current outstanding borrowings. (2)
Capacity is dependent upon maintaining compliance with, or
obtaining waivers of, the terms, conditions and covenants of the
respective agreements, including asset-eligibility requirements.
(3) Deferred issuance costs were reclassified from prior
presentation in Other assets to a reduction in Unsecured debt.
* NOTE REGARDING NON-GAAP FINANCIAL MEASURES
Core earnings or loss (pre-tax and after-tax), core earnings or
loss per share, and adjusted cash flow, 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.
These Non-GAAP measures are used in managing certain aspects of
the Company’s business. For example, management’s reviews of
results incorporate Non-GAAP measures and certain of the Company’s
debt agreements contain covenants calculated using a measure
similar to the calculations of the Non-GAAP measures. The Company
has also designed certain management incentives based upon the
achievement of targets related to Non-GAAP measures. 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 and other significant
infrequent charges or gains that are not part of our principal
business operations and are not consistent with our historical and
normal operating performance.
The Company believes these Non-GAAP measures provide useful
information to investors that is supplementary to our results in
accordance with GAAP; however, there are inherent limitations to
these measures and they should not be viewed as a substitute for
our results in accordance with GAAP as measurements of the
Company's financial performance.
Core earnings or loss (pre-tax and
after-tax) and core earnings or loss per share
Core earnings or loss (after-tax) and core earnings or loss per
share involves differences from Net income or loss attributable to
PHH Corporation and Basic earnings or loss per share attributable
to PHH Corporation computed in accordance with GAAP.
Core earnings or loss (pre-tax and after-tax) and core earnings
or 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.
Adjusted cash flow
Adjusted cash flow measures the Company’s Net increase or
decrease in cash and cash equivalents for a given period excluding
changes resulting from the issuance or repurchase of equity or the
issuance or repayment of unsecured or other debt by PHH
Corporation.
The Company believes that Adjusted cash flow is a useful measure
for investors because the measure may assist investors in
determining the amount of cash and cash equivalents generated from
business activities during a period that is available to repay
unsecured debt or distribute to holders of the Company’s equity.
Adjusted cash flow can be generated through a combination of
earnings, more efficient utilization of asset-backed funding
facilities, or an improved working capital position and can vary
significantly between periods based upon a variety of potential
factors including, but not limited to, timing related to cash
collateral postings, mortgage origination volumes and loan
margins.
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
the Non-GAAP Financial Measures.
Regulation G
Reconciliation
Three Months EndedMarch
31,
2016 2015 (Loss) income before income taxes -
as reported $ (49 ) $ 31 Less: net income attributable to
noncontrolling interest — 2 Segment (loss) profit (49
) 29 Market-related fair value adjustments (1) 95 (12 ) Net
derivative gain related to MSRs (85 ) (53 )
Core loss
(pre-tax) $ (39 ) $ (36
) Net (loss) income attributable to PHH
Corporation - as reported $ (30 ) $ 21 Market-related fair value
adjustments (1)(2) 58 (8 ) Net derivative gain related to MSRs, net
of taxes(2) (52 ) (33 )
Core loss (after-tax) $
(24 ) $ (20 )
Basic (loss) earnings per share attributable to PHH Corporation -
as reported $ (0.56 ) $ 0.40 Market-related fair value adjustments,
net of taxes (1)(3) 1.08 (0.15 ) Net derivative gain related to
MSRs, net of taxes(3) (0.97 ) (0.63 )
Core loss per share
$ (0.45 ) $ (0.38 )
_______________ (1) Represents the Change in fair value of
MSRs due to changes in market inputs and assumptions used in the
valuation model. (2) An incremental effective tax rate of 39% was
applied to arrive at the net of taxes amounts. (3) Basic
weighted-average shares outstanding of 53.703 million and 51.173
million for the three months ended March 31, 2016 and 2015,
respectively, were used to calculate per share amounts.
NON-GAAP
RECONCILIATIONS - CORE EARNINGS BY SEGMENT
(In millions)
See “Note Regarding Non-GAAP Financial Measures” above in
this press release for a description of the uses and limitations of
the Non-GAAP Financial Measures.
Regulation G
Reconciliation Three Months Ended March 31,
2016
Mortgage Production
Segment
Mortgage Servicing
Segment
Other Segment loss $ (26 ) $ (21 ) $ (2 ) Market-related
fair value adjustments(1) — 95 — Net derivative gain related to
MSRs — (85 ) — Core loss $ (26 ) $ (11 ) $ (2 )
Three Months Ended March 31, 2015
Mortgage Production
Segment
Mortgage
ServicingSegment
Other Segment (loss) profit $ (19 ) $ 57 $ (9 )
Market-related fair value adjustments(1) — (12 ) — Net derivative
gain related to MSRs — (53 ) — Core loss $ (19 ) $ (8
) $ (9 ) _____________ (1) Represents the Change in fair
value of MSRs due to changes in market inputs and assumptions used
in the valuation model.
NON-GAAP
RECONCILIATIONS - ADJUSTED CASH FLOW
(In millions)
See “Note Regarding Non-GAAP Financial Measures” above in
this press release for a description of the uses and limitations of
the Non-GAAP Financial Measures.
Regulation G
Reconciliation
Three Months EndedMarch
31,
2016 2015 Net increase in Cash and cash
equivalents - as reported $ 31 $ 10 Adjustments: Repurchase of
Common stock 23 — Issuances of Common stock — (2 )
Adjusted Cash Flow $ 54 $
8
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version on businesswire.com: http://www.businesswire.com/news/home/20160504006725/en/
PHH CorporationInvestorsHugo Arias,
856-917-0108hugo.arias@phh.comorMediaDico Akseraylian,
856-917-0066dico.akseraylian@phh.com
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