Announces Sale of Its GNMA MSR Portfolio and
Exit from PLS Business
3Q16 Highlights:
- Net loss attributable to PHH
Corporation of $27 million or $0.50 per basic share, which includes
$23 million of pre-tax expenses related to notable items, including
$11 million related to an increase in reserves for legacy
regulatory matters, and a $13 million pre-tax unfavorable
market-related fair value adjustment to our mortgage servicing
rights (MSRs), net of derivatives related to MSRs.
- Entered into a definitive agreement
to sell substantially all of the GNMA MSR portfolio and related
servicing advances to Lakeview Loan Servicing, subject to GNMA
approval and certain origination source consents, with total book
value of $120 million. Proceeds, excluding transaction and other
costs, are currently expected to be $122
million(1).
- Initiating the exit from the PLS
business and intend to be substantially complete by the first
quarter of 2018. Estimate total pre-tax losses related to the exit
from PLS, including operating losses, of $175 million to $205
million.
- Intend to complete the final phase
of the evaluation of strategic alternatives by the end of January
2017.
- Ended 3Q16 with $1.0 billion of Cash
and cash equivalents, $645 million of MSRs, approximately $1.3
billion of Total equity and Tangible book value per share of
$22.84.
- Mortgage applications and Total
Closings totaled $12.4 billion and $10.0 billion, respectively,
representing a 1% increase and 3% decrease from $12.2 billion and
$10.3 billion in 3Q15, respectively. Total loan margin increased 69
bps to 388 bps in 3Q16.
PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today
announced financial results for the quarter ended
September 30, 2016. For the quarter ended September 30,
2016, the Company reported Net loss attributable to PHH Corporation
of $27 million or $0.50 per basic share. For the quarter ended
September 30, 2016, core loss (after-tax)* and core loss per
share*, which exclude a $13 million pre-tax unfavorable
market-related mortgage servicing rights ("MSR") fair value
adjustment, net of derivative losses related to MSRs, were $19
million and $0.35, respectively.
Glen A. Messina, President and CEO of PHH Corporation, said, “We
have made substantial progress in our evaluation of strategic
alternatives and have made two critical decisions. First, we are
pleased to announce that we have entered into a definitive
agreement to sell substantially all our GNMA MSR portfolio and
related servicing advances to Lakeview for a slight premium to book
value before considering customary transaction and other expenses.
In addition, after exhaustive consideration of the available
alternatives, we have decided to exit from the PLS origination
business. We are committed to achieving an orderly and well-managed
exit in the quickest and most cost effective way possible while
meeting our regulatory and contractual requirements. We are
continuing to evaluate possible additional sales of our remaining
MSR portfolio and to evaluate the best course of action for our
Real Estate and servicing platforms, which we expect to complete by
the end of January 2017.”
Messina also commented, “Our financial performance reflects
continued volume reduction from the previously announced Merrill
Lynch insourcing decisions and lower revenue and higher expenses
related to our owned servicing asset, offset by continued strong
momentum in our portfolio recapture initiative and higher loan
origination margins. Our increase in legal reserves is a result of
continued progress in resolving legacy regulatory matters, which
has also led to a reduction in our reasonably possible losses in
excess of reserves by $20 million.”
(1) Final proceeds are dependent on the portfolio composition
and market conditions at each sale date.
Summary Consolidated Results
(In millions, except per share data)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2016 2015 2016
2015 GAAP Results Net revenues $ 197 $ 169 $ 550 $
667 Loss before income taxes (29 ) (87 ) (98 ) (130 ) Net loss
attributable to PHH Corporation (27 ) (50 ) (69 ) (91 )
Basic & diluted loss per share attributable to PHH Corporation
$ (0.50 ) $ (0.84 ) $ (1.28 ) $ (1.68 ) Weighted-average common
shares outstanding — basic & diluted shares 53.578 59.831
53.616 54.078 Net increase (decrease) in Cash and cash
equivalents $ (9 ) $ 24 $ 90 $ (277 )
Non-GAAP
Results* Core loss (pre-tax) $ (22 ) $ (68 ) $ (72 ) $ (204 )
Core loss (after-tax) (19 ) (36 ) (47 ) (129 ) Core loss per
share $ (0.35 ) $ (0.61 ) $ (0.88 ) $ (2.39 ) Adjusted cash
flow $ (9 ) $ 26 $ 113 $ (34 )
Notable items in each respective period included the
following:
Three Months Ended September 30, 2016
2015 Pre-Tax Post-Tax Pre-Tax
Post-Tax $ Per Share $ Per
Share Legal and regulatory reserves $ (11 ) $ (0.22 ) $ (44 ) $
(0.45 ) Re-engineering and growth investments (5 ) (0.06 ) (17 )
(0.18 ) Strategic review expenses (7 ) (0.08 ) — — Market-related
MSR fair value adjustment, net of related derivatives (13 ) (0.15 )
(22 ) (0.23 )
In addition to the notable items presented above, our results
for the three and nine months ended September 30, 2015 include
$1 million and $14 million of expenses, respectively, 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 profit in the third quarter of 2016
was $22 million, compared to a segment profit of $13 million in the
second quarter of 2016 and a segment loss of $10 million in the
third quarter of 2015. The $9 million increase in segment profit
for the third quarter of 2016 compared to the second quarter of
2016 was due to a $6 million increase in Net revenues and a $6
million decrease in Total expenses, partially offset by $3 million
in higher net income attributable to non-controlling interest. The
improvement in Net revenues was due primarily to a $10 million
increase in Gain on loans held for sale, net driven by a 10%
increase in loans sold and a 45 basis point increase in average
total loan margins, that was partially offset by a $4 million
decrease in Origination and other loan fees primarily caused by a
decline in Origination assistance fees from a 7% decrease in
fee-based closing units. The $6 million decrease in Total expenses
was primarily driven from a $4 million decrease in Salaries and
related expenses as a result of severance costs incurred in the
second quarter of 2016.
The $32 million favorable change in segment results in the third
quarter of 2016 compared to the third quarter of 2015 was primarily
due to a $19 million increase in Net revenue and a $16 million
decrease in Total expenses, partially offset by $3 million in
higher net income attributable to non-controlling interest. The
increase in Net revenue was primarily driven from a 69 basis point
increase in average total loan margins that was partially offset by
a decline in volume. The exit from wholesale/correspondent lending
during the second quarter of 2016 resulted in a lower cost to
acquire loans, which had a positive impact on Gain on loans held
for sale, net. The decline in Total expenses was primarily driven
by a $5 million decrease in Loan origination expenses from lower
overall closing and application volumes in the third quarter of
2016, $4 million in reduced Occupancy and other office expenses due
to one-time expenses for the consolidation of facilities in the
third quarter of 2015 and $3 million in lower Professional and
third-party service fees from reduced consulting expenses on
compliance and re-engineering.
Statistics
Total third quarter of 2016 mortgage closings were $10.0
billion, down 3% from both the second quarter of 2016 and the third
quarter of 2015. The decrease in total closings compared to the
second quarter of 2016 was primarily attributable to seasonal
declines in our purchase volume. The decrease in total closings
compared to the third quarter of 2015 was driven by the exit from
our wholesale/correspondent lending channel during the second
quarter of 2016 and lower closing units from our private label
channel that were offset by a significant increase in closings from
our portfolio recapture efforts.
IRLCs expected to close of $1.2 billion in the third quarter of
2016 decreased by 9% as compared to the second quarter of 2016 but
decreased by 31% from the third quarter of 2015. Total loan margin
on IRLCs expected to close for the third quarter of 2016 was 388
bps, a 45 bps increase from the second quarter of 2016 and a 69 bps
increase from the third quarter of 2015. The increase in margins is
consistent with the decline in interest rates experienced beginning
in June through the third quarter of 2016 as loan margins tend to
widen in periods of declining interest rates as industry
participants attempt to balance origination volume with operational
capacity.
As announced above, as an outcome of our strategic review
process we plan to exit our PLS business, which represented 78% of
our total closing volume (based on dollars) for the nine months
ended September 30, 2016. In addition, in the third quarter of
2016, Merrill Lynch Home Loans, a division of Bank of America,
National Association exercised its right to terminate their private
label services agreement, effective as of March 31, 2017. At this
time, we believe we will be in a position to substantially exit the
PLS business by the first quarter of 2018, subject to certain
transition support requirements.
Mortgage Servicing
Segment Results
Mortgage Servicing segment loss in the third quarter of 2016 was
$52 million, compared to a segment loss of $33 million in the
second quarter of 2016 and a segment loss of $77 million in the
third quarter of 2015. The $19 million decline in segment results
for the third quarter of 2016 compared to the second quarter of
2016 was due to a $5 million decrease in Net revenues and a $14
million increase in Total expenses. The decrease in Total revenues
was due primarily to higher prepayments of MSRs from a 15% increase
in payoffs in our capitalized portfolio and lower loan servicing
income. The increase in Total expenses was primarily due to the $11
million provision for legal and regulatory matters recorded during
the third quarter of 2016 and $2 million in higher Repurchase and
foreclosure-related charges.
The $25 million favorable change in segment results in the third
quarter of 2016 compared to the third quarter of 2015 represents a
$9 million increase in Net revenues and a $16 million decrease in
Total expenses. Net revenues increased compared to the prior year
quarter primarily driven by favorable changes in the fair value of
our MSRs, net of related derivatives of $15 million that was
partially offset by a $5 million decline in loan servicing income
from the decline in our average capitalized loan servicing
portfolio. Total expenses for the third quarter of 2016 declined
compared to the third quarter of 2015 primarily from $33 million of
lower provisions for legal and regulatory matters that was
partially offset by an $8 million increase in Repurchase and
foreclosure-related charges, a $4 million increase in Professional
and third-party service fees and a $3 million increase in Salaries
and related expenses.
Statistics
At September 30, 2016, the unpaid principal balance (“UPB”)
of our capitalized servicing portfolio was $88.6 billion, down 10%
from December 31, 2015, and 13% from September 30, 2015.
Our capitalized servicing portfolio continues to decline due to a
low interest rate environment leading to high prepayment activity
that has exceeded the additions from our new loan production. In
2016, we have reduced sales under our MSR flow sale arrangements;
during the nine months ended September 30, 2016, sales were $742
million, or 17% of our additions compared to $3.1 billion, or 43%
of our additions during the prior year (based on UPB).
At September 30, 2016, the UPB of our total loan servicing
portfolio was $227.9 billion, which has marginally improved from
both December 31, 2015 and September 30, 2015. Activity
in our total loan servicing portfolio since the end of 2015
includes an increase in our subservicing UPB driven by the addition
of a subservicing portfolio of approximately 35,000 loans during
the first quarter of 2016 that was partially offset by declines in
our capitalized servicing portfolio. However, as we have previously
announced, by December 31, 2016, we are expecting our subservicing
units to decline by approximately 222,000, or 47% of September 30,
2016 balances, when certain subservicing associated with HSBC and
Merrill Lynch transfers from our portfolio.
Mortgage Servicing Rights
At September 30, 2016, the book value of our MSR was $645
million, representing a 73 bps capitalized servicing rate. The MSR
book value and capitalized servicing rate at December 31, 2015
were $880 million and 89 bps and at September 30, 2015 were
$927 million, and 91 bps, respectively. During the third quarter of
2016, there was a $37 million decrease in the asset value related
to prepayments and the receipt of recurring cash flows, a $9
million decrease from market-related fair value adjustments, and a
$3 million decrease from MSR sales that was partially offset by $15
million in MSR book value added from loan sales.
As announced above, in November 2016, we entered into an
agreement to sell substantially all of our Ginnie Mae MSR portfolio
and related advances to Lakeview Loan Servicing. As of September
30, 2016, the underlying loans in our Ginnie Mae MSR portfolio
totaled $14.8 billion. Additionally, as of September 30, 2016, the
fair value of our Ginnie Mae MSR was $104 million, representing a
70 bps capitalized servicing rate, and the related Servicing
advance receivables were $16 million. The MSR sale agreement with
Lakeview Loan Servicing is subject to Ginnie Mae approval as well
as approvals of the certain origination sources of the loans.
Approximately 70% of our Ginnie Mae MSR underlying this sale
agreement is able to be sold without the consent of any origination
source.
Based on the portfolio composition as of September 30, 2016,
current market conditions, and assuming the receipt of all required
approvals, the expected proceeds from this sale are $122 million,
excluding transaction and other related costs. The final proceeds
received from this transaction are dependent on the portfolio
composition and market conditions at each respective sale date and
the aggregate amount of origination source consents received. Upon
sale, the subservicing responsibilities with respect to the related
mortgage loans will transfer to a successor subservicer appointed
by Lakeview.
Legal and Regulatory
Matters
Our significant outstanding legal and regulatory matters at the
end of the third quarter include matters with the Bureau of
Consumer Financial Protection (the “CFPB”), a multistate coalition
of certain mortgage banking regulators, the New York Department of
Financial Services (the "NYDFS"), and the Office of the Inspector
General of the U.S. Department of Housing and Urban Development.
For the third quarter of 2016, we recorded an $11 million provision
for all of our outstanding legal and regulatory matters based on
recent developments and our current expectations.
In October 2016, the D.C. Circuit Court of Appeals overturned
the Director of the CFPB's $109 million final order related to our
former mortgage reinsurance activities, and remanded the case to
the CFPB to determine our compliance with certain provisions of
RESPA specific to whether any mortgage insurers paid more than
reasonable market value to our reinsurance business. There was no
significant impact to our results from this decision, as our
recorded reserve for this matter was not material and had been
substantially less than the Director's final order.
In the second quarter of 2016, the NYDFS proposed terms for a
consent order to close out pending examination report findings,
including New York findings stemming from the MMC examination. We
have reached an agreement in principle with the NYDFS on the terms
of the consent order; however, the final consent order has not been
executed by the NYDFS. Although there can be no assurances, we
expect final resolution to be imminent and believe in any event
that it will happen in the fourth quarter of 2016. At this time, we
believe that any final consent order will not have a material
adverse effect on our consolidated financial condition, results of
operations or cash flows. As of September 30, 2016, we included an
estimate of probable losses from this consent order in connection
with the NYDFS matter in the recorded liability.
With respect to the MMC and FHA matters, we remain highly
engaged and expect that resolution of these matters will extend to
at least year end. We are acting with a sense of urgency to resolve
these matters in order to provide certainty to our investors while
attempting to preserve shareholder value.
Liquidity and Capital
Update
Liquidity at September 30, 2016 included $935 million in
unrestricted Cash and cash equivalents, excluding cash held in
variable interest entities. As of September 30, 2016, we had
$615 million total principal of unsecured debt outstanding with our
next maturity date in September 2019.
We have authorizations from our Board of Directors to repurchase
up to an additional $150 million of common shares through December
31, 2016 under an open market repurchase program. As we currently
intend to complete the final phase of our strategic review in
January 2017, we do not expect to complete any further repurchases
under this authorization. However, at that time, we expect to
provide guidance with respect the amount and timing of any future
shareholder distributions.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern
Time) on Wednesday, November 9, 2016, to discuss its third 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 Wednesday, November 9, 2016, prior
to the start of the conference call.
You can access the conference call by dialing (800) 401-3551 or
(913) 312-0862 and using the conference ID 1975761 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 November 24, 2016, by dialing (888) 203-1112 or
(719) 457-0820 and using conference ID 1975761, 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/invest.
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 Ended Nine Months
Ended September 30, September 30, 2016
2015 2016 2015 REVENUES
Origination and other loan fees $ 75 $ 75 $ 215 $ 220 Gain on loans
held for sale, net 87 69 212 237 Net loan servicing income: Loan
servicing income 89 94 271 298 Change in fair value of mortgage
servicing rights (46 ) (115 ) (272 ) (123 ) Net derivative (loss)
gain related to mortgage servicing rights (4 ) 50 139
54 Net loan servicing income 39 29 138
229 Net interest expense: Interest income 11 13 32 35
Secured interest expense (8 ) (9 ) (24 ) (27 ) Unsecured interest
expense (10 ) (11 ) (31 ) (44 ) Net interest expense (7 ) (7 ) (23
) (36 ) Other income 3 3 8 17
Net
revenues 197 169 550 667
EXPENSES Salaries and related expenses 86 79 268 251
Commissions 19 19 49 65 Loan origination expenses 18 23 52 72
Foreclosure and repossession expenses 10 11 26 41 Professional and
third-party service fees 35 39 111 126 Technology equipment and
software expenses 10 9 30 28 Occupancy and other office expenses 11
15 35 39 Depreciation and amortization 4 4 13 13 Other operating
expenses 33 57 64 162
Total
expenses 226 256 648 797
Loss
before income taxes (29 ) (87 ) (98 ) (130 ) Income tax benefit
(8 ) (40 ) (38 ) (50 )
Net loss (21 ) (47 ) (60 ) (80 )
Less: net income attributable to noncontrolling interest 6 3
9 11
Net loss attributable to PHH
Corporation $ (27 ) $ (50 ) $ (69 ) $ (91 )
Basic and
Diluted loss per share attributable to PHH Corporation $ (0.50
) $ (0.84 ) $ (1.28 ) $ (1.68 )
PHH CORPORATION
AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions) September 30, December
31, 2016 2015 ASSETS Cash and cash
equivalents $ 996 $ 906 Restricted cash 50 47 Mortgage loans held
for sale 761 743 Accounts receivable, net 89 81 Servicing advances,
net 668 691 Mortgage servicing rights 645 880 Property and
equipment, net 50 47 Other assets 187 247
Total
assets $ 3,446 $ 3,642
LIABILITIES
Accounts payable and accrued expenses $ 200 $ 251 Subservicing
advance liabilities 318 314 Debt 1,332 1,348 Deferred taxes 117 182
Loan repurchase and indemnification liability 65 62 Other
liabilities 154 137
Total liabilities 2,186
2,294 Commitments and contingencies
Total
PHH Corporation stockholders’ equity 1,224 1,318 Noncontrolling
interest 36 30
Total equity 1,260 1,348
Total liabilities and equity $ 3,446 $ 3,642
Segment Results
(In millions)
ThirdQuarter2015
Third Quarter 2016
MortgageProduction
MortgageServicing
Other
Total PHHCorporation
Total PHHCorporation
Origination and other loan fees $ 75 $ — $ — $ 75 $ 75 Gain on
loans held for sale, net 87 — — 87 69 Loan servicing income — 89 —
89 94 MSR fair value adjustments: Prepayments and receipts of
recurring cash flows — (37 ) — (37 ) (43 ) Market-related — (9 ) —
(9 ) (72 ) Net derivative (loss) gain related to MSRs — (4 ) — (4 )
50 Net interest expense: Interest income 8 3 — 11 13 Secured
interest expense (5 ) (3 ) — (8 ) (9 ) Unsecured interest expense —
(10 ) — (10 ) (11 ) Other income 3 — — 3
3
Net revenues 168 29 —
197 169 Salaries and related expenses 53 17 16
86 79 Commissions 19 — — 19 19 Loan origination expenses 18 — — 18
23 Foreclosure and repossession expenses — 10 — 10 11 Professional
and third-party service fees 6 9 20 35 39 Technology equipment and
software expenses 1 4 5 10 9 Occupancy and other office expenses 6
4 1 11 15 Depreciation and amortization 2 — 2 4 4 Other operating
expenses: Repurchase and foreclosure-related charges — 7 — 7 (1 )
Legal and regulatory reserves — 11 — 11 44 Overhead Allocation - IT
16 7 (23 ) — — Overhead Allocation - Other 12 6 (18 ) — — Other 7
6 2 15 14
Total expenses
140 81 5 226 256
Income
(loss) before income taxes 28 (52 ) (5 ) $ (29 ) $ (87 ) Less:
net income attributable to noncontrolling interest 6 —
—
Segment profit (loss) $ 22 $ (52 ) $
(5 )
Segment Results
(In millions)
Nine MonthsEndedSeptember
30,2015
Nine Months Ended September 30, 2016
MortgageProduction
MortgageServicing
Other
Total PHHCorporation
Total PHHCorporation
Origination and other loan fees $ 215 $ — $ — $ 215 $ 220 Gain on
loans held for sale, net 212 — — 212 237 Loan servicing income —
271 — 271 298 MSR fair value adjustments: Prepayments and receipt
of recurring cash flows — (98 ) — (98 ) (132 ) Market-related —
(174 ) — (174 ) 9 Net derivative gain related to MSRs — 139 — 139
54 Net interest expense: Interest income 24 8 — 32 35 Secured
interest expense (16 ) (8 ) — (24 ) (27 ) Unsecured interest
expense — (31 ) — (31 ) (44 ) Other income 8 — —
8 17
Net revenues 443 107
— 550 667 Salaries and related expenses
167 54 47 268 251 Commissions 49 — — 49 65 Loan origination
expenses 52 — — 52 72 Foreclosure and repossession expenses — 26 —
26 41 Professional and third-party service fees 17 27 67 111 126
Technology equipment and software expenses 3 12 15 30 28 Occupancy
and other office expenses 20 13 2 35 39 Depreciation and
amortization 7 2 4 13 13 Other operating expenses: Repurchase and
foreclosure-related charges — 10 — 10 5 Loss on early debt
retirement — — — — 30 Legal and regulatory reserves — 16 — 16 78
Overhead Allocation - IT 53 23 (76 ) — — Overhead Allocation -
Other 39 17 (56 ) — — Other 18 13 7 38
49
Total expenses 425 213 10 648
797
Income (loss) before income taxes 18 (106
) (10 ) $ (98 ) $ (130 ) Less: net income attributable to
noncontrolling interest 9 — —
Segment
profit (loss) $ 9 $ (106 ) $ (10 )
Mortgage Production Segment
($ In millions) Three Months
EndedSeptember 30, Nine Months
EndedSeptember 30, 2016
2015 Change 2016 2015
Change
Closings:
Saleable to investors $ 2,759 $ 3,477 (21 )% $ 7,594 $ 10,700 (29
)% Fee-based 7,258 6,860 6 % 20,750 21,062
(1 )% Total $ 10,017 $ 10,337 (3 )% $ 28,344
$ 31,762 (11 )% Purchase $ 4,421 $ 5,920 (25
)% $ 12,748 $ 15,843 (20 )% Refinance 5,596 4,417 27
% 15,596 15,919 (2 )% Total $ 10,017 $ 10,337
(3 )% $ 28,344 $ 31,762 (11 )% Retail -
PLS $ 7,853 $ 7,600 3 % $ 22,161 $ 23,536 (6 )% Retail - Real
Estate 2,137 2,296 (7 )% 5,598 7,118
(21 )% Total retail 9,990 9,896 1 % 27,759 30,654 (9 )%
Wholesale/correspondent 27 441 (94 )% 585
1,108 (47 )% Total $ 10,017 $ 10,337 (3 )% $
28,344 $ 31,762 (11 )% Retail - PLS (units)
13,590 14,956 (9 )% 38,718 45,239 (14 )% Retail - Real Estate
(units) 7,379 8,485 (13 )% 19,928 26,269
(24 )% Total retail (units) 20,969 23,441 (11 )% 58,646
71,508 (18 )% Wholesale/correspondent (units) 107 1,942
(94 )% 2,298 4,881 (53 )% Total (units) 21,076
25,383 (17 )% 60,944 76,389 (20 )%
Applications:
Saleable to investors $ 4,136 $ 4,169 (1 )% $ 11,580 $ 14,982 (23
)% Fee-based 8,217 8,058 2 % 25,720 26,440
(3 )% Total $ 12,353 $ 12,227 1 % $ 37,300
$ 41,422 (10 )% Retail - PLS $ 9,743 $ 9,266 5
% $ 29,193 $ 30,690 (5 )% Retail - Real Estate 2,610 2,433
7 % 7,416 8,999 (18 )% Total retail 12,353
11,699 6 % 36,609 39,689 (8 )% Wholesale/correspondent — 528
(100 )% 691 1,733 (60 )% Total $ 12,353
$ 12,227 1 % $ 37,300 $ 41,422 (10 )%
Retail - PLS (units) 18,234 19,074 (4 )% 53,011 60,856 (13 )%
Retail - Real Estate (units) 8,879 9,215 (4 )% 26,052
33,271 (22 )% Total retail (units) 27,113 28,289 (4
)% 79,063 94,127 (16 )% Wholesale/correspondent (units) —
2,373 (100 )% 2,649 7,547 (65 )% Total (units)
27,113 30,662 (12 )% 81,712 101,674 (20
)%
Other:
IRLCs expected to close $ 1,199 $ 1,732 (31 )% $ 3,685 $ 6,025 (39
)% Total loan margin on IRLCs (in basis points) 388 319 22 % 342
310 10 % Loans sold $ 2,954 $ 4,234 (30 )% $ 7,804 $ 11,002 (29 )%
Mortgage Production
Segment (continued)
(in
millions) Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2016 2015 Change
2016 2015 Change
Segment
Results:
Origination and other loan fees $ 75 $ 75 — % $ 215 $ 220 (2 )%
Gain on loans held for sale, net 87 69 26 % 212 237 (11 )% Net
interest income (expense): Interest income 8 12 (33 )% 24 32 (25 )%
Secured interest expense (5 ) (7 ) (29 )% (16 ) (19 ) (16 )%
Unsecured interest expense — (3 ) (100 )% — (18 )
(100 )% Net interest income (expense) 3 2 50 % 8 (5 ) n/m Other
income 3 3 — % 8 8 — %
Net
revenues 168 149 13 % 443 460 (4 )%
Salaries and related expenses 53 52 2 % 167 164 2 %
Commissions 19 19 — % 49 65 (25 )% Loan origination expenses 18 23
(22 )% 52 72 (28 )% Professional and third-party service fees 6 9
(33 )% 17 25 (32 )% Technology equipment and software expenses 1 1
— % 3 3 — % Occupancy and other office expenses 6 10 (40 )% 20 24
(17 )% Depreciation and amortization 2 3 (33 )% 7 9 (22 )% Other
operating expenses 35 39 (10 )% 110 113
(3 )%
Total expenses 140 156 (10 )% 425
475 (11 )% Income (loss) before income taxes 28 (7 ) n/m 18
(15 ) n/m Less: net income attributable to noncontrolling interest
6 3 100 % 9 11 (18 )%
Segment profit
(loss) $ 22 $ (10 ) n/m $ 9 $ (26 ) n/m
______________ n/m - Not Meaningful
Mortgage Servicing
Segment ($ in millions)
September 30, 2016 2015
Change
Total Loan
Servicing Portfolio:
Unpaid Principal Balance $ 227,883 $ 226,949 — % Number of
loans in owned portfolio (units) 588,700 658,051 (11 )% Number of
subserviced loans (units) 475,877 449,209 6 % Total
number of loans serviced (units) 1,064,577 1,107,260 (4 )%
Capitalized
Servicing Portfolio:
Unpaid Principal Balance $ 88,622 $ 101,838 (13 )% Capitalized
servicing rate 0.73 % 0.91 % (20 )% Capitalized servicing multiple
2.6 3.2 (19 )% Weighted-average servicing fee (in basis points) 28
29 (3 )%
Three Months
EndedSeptember 30, Nine Months
EndedSeptember 30, 2016
2015 Change 2016 2015
Change
Total Loan
Servicing Portfolio:
Average Portfolio UPB $ 229,969 $ 226,051 2 % $ 230,479 $ 225,501 2
%
Capitalized
Servicing Portfolio:
Average Portfolio UPB $ 90,655 $ 103,207 (12 )% $ 94,213 $ 106,953
(12 )% Payoffs and principal curtailments 5,335 4,888 9 % 14,102
14,854 (5 )% Sales 246 742 (67 )% 742 3,080 (76 )%
September 30, 2016 December 31, 2015
Number ofLoans
UnpaidBalance
Number ofLoans
UnpaidBalance
Delinquency -
Total Servicing Portfolio(1)
30 days 2.13 % 1.47 % 2.22 % 1.55 % 60 days 0.42 0.28 0.44 0.30 90
or more days 0.67 0.49 0.82 0.62 Total
3.22 % 2.24 % 3.48 % 2.47 % Foreclosure/real estate owned(2)
1.62 % 1.35 % 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
September 30, 2016 and December 31, 2015, the total servicing
portfolio included 13,710 and 15,487 of loans in foreclosure with
an unpaid principal balance of $2.7 billion and $3.0 billion,
respectively.
Mortgage Servicing Segment
(continued)
($ in millions)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2016 2015 Change
2016 2015 Change
Segment
Results:
Net loan servicing income $ 39 $ 29 34 % $ 138 $ 229 (40 )% Net
interest expense (10 ) (9 ) 11 % (31 ) (31 ) — % Other income
— — n/m — 3
(100 )%
Net revenues 29 20 45 %
107 201 (47 )% Salaries and
related expenses 17 14 21 % 54 44 23 % Foreclosure and repossession
expenses 10 11 (9 )% 26 41 (37 )% Professional and third-party
service fees 9 5 80 % 27 19 42 % Technology equipment and software
expenses 4 4 — % 12 12 — % Occupancy and other office expenses 4 5
(20 )% 13 13 — % Depreciation and amortization — — n/m 2 1 100 %
Other operating expenses 37 58 (36 )%
79 137 (42 )%
Total expenses
81 97 (16 )% 213
267 (20 )%
Segment loss $ (52 ) $ (77 ) (32 )% $ (106
) $ (66 ) 61 % ______________ n/m - Not Meaningful
Debt and Borrowing Arrangements (in millions)
September 30, 2016 December 31,
2015 Balance Interest
Rate(1) Available
Capacity(2) Balance Committed
warehouse facilities $ 628 2.7 % $ 622 $ 632 Uncommitted warehouse
facilities — — 2,800 — Servicing advance facility 97 2.5 % 58 111
Term notes due in 2019(3) 272 7.375 % n/a 271 Term notes due
in 2021(3) 335 6.375 % n/a 334 Unsecured debt
607 605 Total $ 1,332 $ 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.
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
(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.
CORE EARNINGS -
Regulation G Reconciliation Three Months
EndedSeptember 30, Nine Months
EndedSeptember 30, 2016 2015
2016 2015 Loss before income taxes - as
reported $ (29 ) $ (87 ) $ (98 ) $ (130 ) Less: net income
attributable to noncontrolling interest 6 3
9 11 Segment loss (35 ) (90 )
(107 ) (141 ) Market-related fair value adjustments (1) 9 72 174 (9
) Net derivative (gain) loss related to MSRs 4
(50 ) (139 ) (54 )
Core loss (pre-tax)
$ (22 ) $ (68 ) $
(72 ) $ (204 ) Net loss
attributable to PHH Corporation - as reported $ (27 ) $ (50 ) $ (69
) $ (91 ) Market-related fair value adjustments (1) 9 72 174 (9 )
Net derivative (gain) loss related to MSRs 4
(50 ) (139 ) (54 ) (14 ) (28 ) (34 ) (154 ) Income
tax expense (benefit) on Core adjustments (2) 5
8 13 (25 )
Core loss
(after-tax) $ (19 ) $ (36
) $ (47 ) $ (129 )
Core loss (after-tax) per share (3) $
(0.35 ) $ (0.61 ) $
(0.88 ) $ (2.39 )
CORE EARNINGS BY SEGMENT - Regulation G Reconciliation
MortgageProduction
MortgageServicing
Other
MortgageProduction
MortgageServicing
Other Three Months Ended September 30, 2016
Nine Months Ended September 30, 2016 Segment profit (loss) $
22 $ (52 ) $ (5 ) $ 9 $ (106 ) $ (10 ) Market-related fair value
adjustments(1) — 9 — — 174 — Net derivative gain related to MSRs
— 4 — —
(139 ) —
Core earnings (loss) (pre-tax)
$ 22 $ (39 ) $
(5 ) $ 9 $ (71
) $ (10 ) Three Months Ended
September 30, 2015 Nine Months Ended September 30, 2015
Segment (loss) $ (10 ) $ (77 ) $ (3 ) $ (26 ) $ (66 ) $ (49 )
Market-related fair value adjustments(1) — 72 — — (9 ) — Net
derivative loss (gain) related to MSRs — (50 )
— — (54 ) —
Core loss (pre-tax) $ (10 ) $
(55 ) $ (3 ) $ (26
) $ (129 ) $ (49
) _____________ (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 total estimated tax
impact of Core adjustment amounts, utilizing an incremental
effective tax rate of 39%. (3) Basic weighted-average shares
outstanding of 53.578 million and 59.831 million for the three
months ended September 30, 2016 and 2015, respectively, and 53.616
million and 54.078 million for the nine months ended September 30,
2016 and 2015, respectively, were used to calculate per share
amounts.
NON-GAAP
RECONCILIATIONS - (continued)
(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.
ADJUSTED CASH FLOW -
Regulation G Reconciliation Three Months
EndedSeptember 30, Nine Months
EndedSeptember 30, 2016 2015
2016 2015 Net increase (decrease) in Cash and
cash equivalents - as reported $ (9 ) $ 24 $ 90 $ (277 )
Adjustments: Decrease in unsecured borrowings — 2 — 245 Repurchase
of Common stock — — 23 — Issuances of Common stock —
— — (2 )
Adjusted Cash Flow $
(9 ) $ 26 $ 113 $
(34 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161108006237/en/
PHH CorporationInvestorsHugo Arias,
856-917-0108hugo.arias@phh.comorMediaDico Akseraylian,
856-917-0066dico.akseraylian@phh.com
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