1Q17 Highlights:
- Net loss attributable to PHH
Corporation of $67 million or $1.26 per basic share, which includes
$34 million of pre-tax expenses related to notable items, a $2
million pre-tax unfavorable market-related fair value adjustment to
our mortgage servicing rights (MSRs), net of derivatives related to
MSRs and $25 million of pre-tax expenses related to Exit and
disposal costs.
- Our Board of Directors has
authorized up to $100 million in open market share repurchases as
an initial action in returning capital to shareholders. We intend
to commence repurchases pursuant to this authority effective at the
next available securities purchase window.
- Updates estimate of potential excess
cash(1) from up to $550 million to up to $655 million
based on certain assumptions for asset sales, contingencies,
working capital, and transaction, restructuring and PLS exit
costs.
- Closed the initial sale of GNMA MSRs
and related advances to Lakeview for $81 million in proceeds and
began process of reducing expenses to targeted levels through
previously announced senior level organizational changes.
- Ended 1Q17 with $936 million of Cash
and cash equivalents, $596 million of MSRs, approximately $1.1
billion of Total equity and Tangible book value per share of
$19.10.
PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today
announced financial results for the quarter ended March 31,
2017. For the quarter ended March 31, 2017, the Company
reported Net loss attributable to PHH Corporation of $67 million or
$1.26 per basic share. Net loss attributable to PHH Corporation for
the quarter ended March 31, 2016 of $30 million or $0.56 per
basic share.
For the quarter ended March 31, 2017, core loss
(after-tax)* and core loss per share* were $66 million and $1.24,
respectively, which exclude a $2 million pre-tax unfavorable
market-related MSR fair value adjustment, net of derivative related
to MSRs.
Glen A. Messina, president and CEO of PHH Corporation, said, "In
2017, we are focused on maximizing the amount of excess cash and
the opportunity for near-term cash distributions to shareholders.
Consistent with this objective, the Board has authorized a $100
million share repurchase program, which is not subject to the
completion of our asset sale transactions, as the initial action in
our capital return plan. Based on the progress we made on our
operational priorities of closing our announced asset sales,
minimizing cash usage in the business, obtaining greater clarity
into the exact timing of our PLS client exits, and resolving our
remaining legacy regulatory matters, we have increased our estimate
of potential excess cash(1) by $105 million to $655 million."
Messina also commented, "Management and the Board intend to be
diligent in the assessment of our ongoing progress and PHH 2.0’s
opportunities and challenges in the context of our rapidly changing
industry environment. We will adjust our actions accordingly to
maximize value for our shareholders."
__________________________ (1) The amount of excess cash is
dependent upon a variety of factors, including the execution of the
sale of all of our MSRs, the monetization of our investment in PHH
Home Loans, the successful completion of our PLS exit activities,
the resolution of our outstanding legal and regulatory matters and
the successful completion of other restructuring and capital
management activities in accordance with our assumptions. There can
be no assurances that the actions will result in the amount of
estimated excess cash.
Summary Consolidated Results
(In millions, except per share data) Three
Months Ended March 31, 2017 2016 GAAP
Results Net revenues $ 114 $ 157 Loss before income taxes (105
) (49 ) Net loss attributable to PHH Corporation (67 ) (30 )
Basic & diluted loss per share attributable to PHH Corporation
$ (1.26 ) $ (0.56 ) Weighted-average common shares outstanding —
basic & diluted shares 53.683 53.703
Non-GAAP
Results* Core loss (pre-tax) $ (99 ) $ (39 ) Core loss
(after-tax) (66 ) (24 ) Core loss per share $ (1.24 ) $
(0.45 )
Notable items, Exit costs and net MSR fair value adjustments
included the following:
Three Months Ended March 31, 2017
2016 Pre-Tax Post-Tax Pre-Tax
Post-Tax $ Per Share $ Per
Share Notable items: Strategic review expenses $ (17 ) $ (0.19
) $ — $ — Legal and regulatory reserves (9 ) (0.11 ) (4 ) (0.05 )
Loss from MSR sales (7 ) (0.08 ) (2 ) (0.02 ) Severance (1 ) (0.01
) (1 ) (0.01 ) Impairment of equity method investment (1 ) (0.01 )
— — Re-engineering and growth investments 1 0.01 (11 ) (0.12 )
Exit and disposal costs (25 ) (0.29 ) — Market-related MSR
fair value adjustment, net of related derivatives (2 ) (0.02 ) (10
) (0.11 )
* Non-GAAP Financial Measures
Core earnings or loss (pre-tax), core earnings or loss
(after-tax) and core earnings or loss per share 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 2017
was $41 million, compared to a segment loss of $62 million in the
fourth quarter of 2016 and a segment loss of $26 million in the
first quarter of 2016. The $21 million favorable change in segment
results for the first quarter of 2017 compared to the fourth
quarter of 2016 was due to a $26 million decrease in Total expenses
and a $4 million favorable change in Net loss attributable to
noncontrolling interest, which was partially offset by a $9 million
decrease in Net revenues. The decline in Net revenues was due
primarily to a $21 million decrease in Origination and other loan
fees caused by a 33% decrease in total retail closing units, an $8
million decrease in Gain on loans held for sale, net that was
driven by a 49 basis point decrease in average total loan margins,
that was partially offset by a $21 million favorable change in
Other income (loss) resulting from the $23 million impairment
recorded in the fourth quarter of 2016 on our equity investment in
Speedy Title and Appraisal Review Services LLC ("STARS"). The $26
million decrease in Total expenses was primarily driven from a $20
million decrease in Exit and disposal costs as well as a $4 million
decrease in Commissions and a $3 million decrease in Loan
origination expenses from a decline in closings. Exit and disposal
costs in the first quarter of 2017 included $7 million related to
the PLS exit and $6 million for shared service employees as a
result of the reorganization, while the fourth quarter of 2016
included $33 million related to the PLS exit including a non-cash
asset impairment charge.
The $15 million unfavorable change in segment results in the
first quarter of 2017 compared to the first quarter of 2016 was
primarily due to a $26 million decrease in Net revenue, that was
partially offset by a $7 million decrease in Total expenses and a
$4 million favorable change from Net loss attributable to
noncontrolling interest. The decrease in Net revenue was primarily
driven by lower application and closing volumes. Total PLS closing
units in the first quarter of 2017 declined by 29% when compared to
the first quarter of 2016, primarily due to the decline in PLS
volume as we execute the exit of this channel. The decline in Total
expenses was driven by a $9 million reduction from the Corporate
overhead allocation resulting from reduced professional fees for
information technology shared services, a $7 million decrease in
Loan origination expenses from a 37% decrease in retail application
units, and a $4 million decrease in Salaries and related expenses
from declines in overall average headcount and reduced contract
labor and overtime. This was offset by a $13 million increase in
Exit and disposal costs as a result of the first quarter of 2017
PLS and reorganization exit charges.
Statistics
Total first quarter of 2017 mortgage closings were $5.9 billion,
down 34% from the fourth quarter of 2016 and 26% from the first
quarter of 2016. The decrease in total closings compared to the
fourth quarter of 2016 was due to the decline in PLS volume, as we
execute the exit of this channel, as well as seasonal declines in
purchase volume in our real estate channel. The decrease in total
closings compared to the first quarter of 2016 was primarily driven
by the decline in PLS volume.
Saleable applications of $2.5 billion in the first quarter of
2017 decreased 6% from the fourth quarter of 2016 and 23% from the
first quarter of 2016, primarily due to our exit from the
wholesale/correspondent lending channel in the second quarter of
2016. Total loan margin on IRLCs expected to close for the first
quarter of 2017 was 356 bps, a 49 bps decrease from the fourth
quarter of 2016 and a 61 bps increase from the first quarter of
2016, which is consistent with the decline in interest rates
experienced during June through November 2016 and increase in
interest rates since the fourth quarter of 2016.
PLS Exit
As previously announced in November 2016, we are executing on a
plan to exit our PLS business. In March 2017, we closed our
transaction with LenderLive to transfer to them certain operating
assets, personnel and responsibilities and outsource certain PLS
mortgage origination fulfillment functions. We believe this will
help mitigate certain operating risks associated with the wind down
of the PLS business. 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.
In addition to the exit costs outlined above, in the first
quarter of 2017, we incurred $25 million of pre-tax operating
losses for the PLS business. While we implement the exit from this
channel, we expect to incur further pre-tax operating losses of $95
million for the PLS business, including maintaining the support and
compliance infrastructure needed to comply with both regulatory and
contractual requirements. We also estimate that we will incur $56
million of additional exit costs (pre-tax) over the next 12
months.
Mortgage Servicing
Segment Results
Mortgage Servicing segment loss in the first quarter of 2017 was
$34 million, compared to a segment loss of $117 million in the
fourth quarter of 2016 and a segment loss of $21 million in the
first quarter of 2016. The $83 million favorable improvement in
segment results for the first quarter of 2017 compared to the
fourth quarter of 2016 was due to a $51 million favorable change in
Net revenues and a $32 million decrease in Total expenses. The
favorable change in Net revenues was primarily due to $66 million
of favorable adjustments to Change in fair value of MSRs, net of
related derivatives compared to the fourth quarter of 2016 that was
partially offset by a $20 million decline in Loan servicing income.
Within Change in fair value of MSRs, net of related derivatives, we
had minimal change in the first quarter of 2017 to our
market-related fair value adjustments and to our MSR-related
derivatives due to the termination of substantially all MSR-related
derivatives in the fourth quarter of 2016. In the fourth quarter of
2016, our market-related fair value adjustments were driven
primarily by negative model adjustments to reflect increased
servicing costs and foreclosure losses and by a calibration of our
valuation model considering the pricing with the MSR agreements
executed in the fourth quarter of 2016. The decline in Loan
servicing income was primarily due to a 10% decline in the average
capitalized portfolio from the sale of a portion of our MSRs to
Lakeview Loan Servicing, LLC ("Lakeview") and a decrease in the
average number of loans in our subservicing portfolio, as well as
$7 million in transaction costs and related expenses on the sale of
the MSRs to Lakeview. The decrease in Total expenses compared to
the fourth quarter of 2016 was primarily driven from $13 million in
lower provisions for Legal and regulatory reserves, $10 million of
lower Repurchase and foreclosure-related charges driven by higher
fourth quarter of 2016 expenses that will not be reimbursed
pursuant to mortgage insurance programs, and $6 million of lower
Other expenses related to additional compensatory fee reserves
recorded in the fourth quarter of 2016.
The $13 million unfavorable change in segment results in the
first quarter of 2017 compared to the first quarter of 2016
represents a $17 million decrease in Net revenues, partially offset
by a $4 million decrease in Total expenses. Net revenues decreased
compared to the prior year quarter driven by a $29 million decline
in Loan servicing income due to a 20% decrease in the average
capitalized portfolio from the sale of a portion of our MSRs to
Lakeview and a decrease in the average number of loans in our
subservicing portfolio, as well as a $7 million in transaction
costs and related expenses on the sale of the MSRs to Lakeview. The
decline in Net revenue was partially offset by a favorable
adjustment to Change in fair value of MSRs, net of related
derivatives of $7 million. The decrease in Total expenses compared
to the first quarter of 2016 was due to lower Corporate overhead
allocation of $5 million and lower Professional and third-party
service fees and Occupancy and other office expenses that was
partially offset by higher provisions for legal and regulatory
matters of $4 million.
Mortgage Servicing Rights
At March 31, 2017, the book value of our MSRs was $596
million, representing an 83 bps capitalized servicing rate, and
included the calibration of our modeled value using the pricing
associated with the MSR sale commitments. The MSR book value and
capitalized servicing rate at December 31, 2016 was $690
million and 82 bps of the capitalized loan servicing portfolio. The
MSR book value at March 31, 2016 was $770 million,
representing an 80 bps capitalized servicing rate. For the first
quarter of 2017, $11 million of MSR book value was added from loans
sold. The initial sale of our GNMA MSRs under the Lakeview sale
agreement was completed, representing a decrease of $74 million of
MSR fair value. Prepayments and the receipt of recurring cash flows
further decreased the value of our MSR by $27 million, as well as a
$2 million decrease from market-related fair value adjustments.
At March 31, 2017, the unpaid principal balance (“UPB”) of
our capitalized servicing portfolio was $71.8 billion, down 15%
from December 31, 2016, and 25% from March 31, 2016. This
decline in our capitalized loan servicing portfolio was due to our
February 2017 sale of $10.2 billion in GNMA servicing to Lakeview,
the persistent low interest rate environment throughout 2016
leading to high prepayment activity and our execution of sales of
MSRs under flow sale agreements.
The following table summarizes the Company's MSRs committed
under sale agreements, based on the portfolio as of March 31,
2017:
March 31, 2017 UPB Fair Value
(In millions) MSR commitments: New Residential Investment
Corp. $ 66,993 $ 554 Lakeview Loan Servicing, LLC 2,707 18 Other
counterparties 49 1 Non-committed 2,059 23 Total MSRs
$ 71,808 $ 596
In addition, the Company has commitments to transfer
approximately $285 million of Servicing advances to the
counterparties of these agreements (based on the March 31,
2017 portfolio).
On February 2, 2017, we completed the initial sale of GNMA MSRs
to Lakeview, representing $10.2 billion unpaid principal balance,
$74 million of MSR fair value, and $11 million of Servicing
advances with total expected proceeds of $85 million from the
initial transfer. On May 2, 2017, an additional sale of GNMA
MSRs was completed, representing $1 billion of unpaid principal
balance, $7 million of MSR fair value, and $1 million of Servicing
advances. We expect to receive additional total proceeds of $8
million from this transfer.
The final proceeds received from the MSR sales is dependent on
the closing of the remaining MSR sales, as well as portfolio
composition and servicing advances outstanding at each transfer
date, the amount of investor and origination source consents
received, and transaction costs.
Subservicing
At March 31, 2017, our subservicing portfolio consisted of
approximately 268,000 units, up 1% from December 31, 2016 and
down 45% from March 31, 2016. Our total subservicing units
declined by approximately 211,000 units during the fourth quarter
of 2016 driven by the insourcing of Merrill Lynch Home Loans'
portfolio and HSBC Bank USA's sale of a population of mortgage
servicing rights related to loans that we subserviced.
Other
Segment Results
Net loss before income taxes for the first quarter of 2017 was
$26 million, primarily due to Strategic review expenses of $15
million and Exit and disposal costs of $10 million that were
primarily related to the reorganization of our operations that were
not allocated back to our reportable segments. This was compared to
a loss of $27 million in the fourth quarter of 2016 and a loss of
$2 million in the first quarter of 2016.
Reorganization
As discussed above, as an outcome of our strategic review
process, we plan to operate as a smaller business that is focused
on subservicing and portfolio retention services. We intend to
re-engineer and reduce operating and overhead costs, which may take
up to 12 to 18 months to complete. For the first quarter of 2017,
we have incurred a total of $17 million in Exit and disposal costs
(pre-tax), which primarily were severance-related costs related to
our executive transitions and shared service employees. We estimate
that we will incur approximately $33 million (pre-tax) of
additional exit costs in 2017. We are targeting total annual shared
service expenses of $75 million in PHH 2.0’s first full year as a
stand-alone business.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern
Time) on Wednesday, May 10, 2017, to discuss its first quarter
2017 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, May 10, 2017, prior
to the start of the conference call.
You can access the conference call by dialing (800) 344-6698 or
(785) 830-7979 and using the conference ID 1992771 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 25, 2017, by dialing (888) 203-1112 or (866)
375-1919 and using conference ID 1992771, 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 EndedMarch
31, 2017 2016 REVENUES Origination
and other loan fees $ 44 $ 61 Gain on loans held for sale, net 42
48 Net loan servicing income: Loan servicing income 62 91 Change in
fair value of mortgage servicing rights (29 ) (121 ) Net derivative
gain related to mortgage servicing rights — 85 Net
loan servicing income 33 55 Net interest expense:
Interest income 9 9 Secured interest expense (6 ) (8 ) Unsecured
interest expense (10 ) (10 ) Net interest expense (7 ) (9 ) Other
income 2 2
Net revenues 114 157
EXPENSES Salaries and related expenses 86 90
Commissions 11 12 Loan origination expenses 9 16 Foreclosure and
repossession expenses 7 7 Professional and third-party service fees
37 39 Technology equipment and software expenses 9 10 Occupancy and
other office expenses 9 13 Depreciation and amortization 4 4 Exit
and disposal costs 25 — Other operating expenses 22 15
Total expenses 219 206
Loss before
income taxes (105 ) (49 ) Income tax benefit (34 ) (19 )
Net
loss (71 ) (30 ) Less: net loss attributable to noncontrolling
interest (4 ) —
Net loss attributable to PHH
Corporation $ (67 ) $ (30 )
Basic and Diluted loss
per share attributable to PHH Corporation $ (1.26 ) $ (0.56 )
PHH CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
March 31, December 31, 2017 2016
ASSETS Cash and cash equivalents $ 936 $ 906 Restricted cash
64 57 Mortgage loans held for sale 471 683 Accounts receivable, net
61 66 Servicing advances, net 599 628 Mortgage servicing rights 596
690 Property and equipment, net 32 36 Other assets 92 109
Total assets $ 2,851 $ 3,175
LIABILITIES Accounts payable and accrued expenses $ 185 $
193 Subservicing advance liabilities 271 290 Debt, net 1,083 1,262
Deferred taxes, net 69 101 Loan repurchase and indemnification
liability 43 49 Other liabilities 149 157
Total
liabilities 1,800 2,052 Commitments and
contingencies
Total PHH Corporation stockholders’
equity 1,024 1,092 Noncontrolling interest 27 31
Total equity 1,051 1,123
Total liabilities
and equity $ 2,851 $ 3,175
Segment Results
(In millions)
FirstQuarter2016
First Quarter 2017
MortgageProduction
MortgageServicing
Other
Total PHHCorporation
Total PHHCorporation
Origination and other loan fees $ 44 $ — $ — $ 44 $ 61 Gain on
loans held for sale, net 42 — — 42 48 Loan servicing income — 62 —
62 91 MSR fair value adjustments: Prepayments and receipts of
recurring cash flows — (27 ) — (27 ) (26 ) Market-related — (2 ) —
(2 ) (95 ) Net derivative gain related to MSRs — — — — 85 Net
interest expense: Interest income 5 4 — 9 9 Secured interest
expense (4 ) (2 ) — (6 ) (8 ) Unsecured interest expense — (10 ) —
(10 ) (10 ) Other income — 2 — 2 2
Net revenues 87 27 — 114
157 Salaries and related expenses 53 17 16 86 90
Commissions 11 — — 11 12 Loan origination expenses 9 — — 9 16
Foreclosure and repossession expenses — 7 — 7 7 Professional and
third-party service fees 4 7 26 37 39 Technology equipment and
software expenses 1 3 5 9 10 Occupancy and other office expenses 6
3 — 9 13 Depreciation and amortization 2 1 1 4 4 Exit and disposal
costs 13 2 10 25 — Other operating expenses: Repurchase and
foreclosure-related charges — (1 ) — (1 ) (2 ) Legal and regulatory
reserves — 9 — 9 5 Overhead Allocation - IT 12 4 (16 ) — — Overhead
Allocation - Other 13 5 (18 ) — — Other 8 4 2
14 12
Total expenses 132 61 26
219 206
Loss before income taxes (45 )
(34 ) (26 ) $ (105 ) $ (49 ) Less: net loss attributable to
noncontrolling interest (4 ) — —
Segment loss
$ (41 ) $ (34 ) $ (26 )
Mortgage Production Segment
($ in millions) Three Months Ended
March 31, 2017 2016
Change
Closings:
Saleable to investors $ 1,708 $ 1,988 (14 )% Fee-based 4,161
5,967 (30 )% Total $ 5,869 $ 7,955 (26 )%
Purchase $ 2,664 $ 3,374 (21 )% Refinance 3,205 4,581
(30 )% Total $ 5,869 $ 7,955 (26 )%
Retail - PLS $ 4,672 $ 6,353 (26 )% Retail - Real Estate 1,197
1,341 (11 )% Total retail 5,869 7,694 (24 )%
Wholesale/correspondent — 261 (100 )% Total $ 5,869
$ 7,955 (26 )% Retail - PLS (units) 8,279
11,689 (29 )% Retail - Real Estate (units) 4,208 4,968
(15 )% Total retail (units) 12,487 16,657 (25 )%
Wholesale/correspondent (units) — 1,011 (100 )% Total
(units) 12,487 17,668 (29 )%
Applications:
Saleable to investors $ 2,539 $ 3,312 (23 )% Fee-based 4,341
8,991 (52 )% Total $ 6,880 $ 12,303 (44 )%
Retail - PLS $ 4,965 $ 9,708 (49 )% Retail - Real Estate
1,915 2,077 (8 )% Total retail 6,880 11,785 (42 )%
Wholesale/correspondent — 518 (100 )% Total $ 6,880
$ 12,303 (44 )% Retail - PLS (units) 8,658
16,563 (48 )% Retail - Real Estate (units) 6,576 7,553
(13 )% Total retail (units) 15,234 24,116 (37 )%
Wholesale/correspondent (units) — 1,946 (100 )% Total
(units) 15,234 26,062 (42 )%
Other:
IRLCs expected to close $ 495 $ 1,168 (58 )% Total loan margin on
IRLCs (in basis points) 356 295 21 % Loans sold $ 1,943 $ 2,163 (10
)%
Mortgage Production Segment
(continued) (In millions) Three Months
EndedMarch 31, 2017
2016 Change
Segment
Results:
Origination and other loan fees $ 44 $ 61 (28 )% Gain on loans held
for sale, net 42 48 (13 )% Net interest income (expense): Interest
income 5 7 (29 )% Secured interest expense (4 ) (5 ) (20 )%
Unsecured interest expense — — n/m Net interest
income 1 2 (50 )% Other income — 2 (100 )%
Net
revenues 87 113 (23 )% Salaries and
related expenses 53 57 (7 )% Commissions 11 12 (8 )% Loan
origination expenses 9 16 (44 )% Professional and third-party
service fees 4 5 (20 )% Technology equipment and software expenses
1 1 — % Occupancy and other office expenses 6 7 (14 )% Depreciation
and amortization 2 2 — % Exit and disposal costs 13 — n/m Other
operating expenses 33 39 (15 )%
Total expenses
132 139 (5 )% Loss before income taxes (45 ) (26 ) 73
% Less: net income attributable to noncontrolling interest (4 ) —
n/m
Segment loss $ (41 ) $ (26 ) 58 % ______________
n/m - Not Meaningful
Mortgage Servicing Segment ($
in millions) March 31,
2017 2016 Change
Total Loan
Servicing Portfolio:
Conventional loans $ 150,022 $ 205,305 (27 )% Government loans
11,833 23,919 (51 )% Home equity lines of credit 1,771 4,116
(57 )% Unpaid Principal Balance $ 163,626 $ 233,340 (30 )%
Number of loans in owned portfolio (units) 486,706 628,104
(23 )% Number of subserviced loans (units) 267,949 486,549
(45 )% Total number of loans serviced (units) 754,655
1,114,653 (32 )% Weighted-average interest rate 3.8 % 3.8 %
— % Portfolio delinquency (% of UPB) (1) 1.94 % 2.09 % (7 )%
Capitalized
Servicing Portfolio:
Unpaid Principal Balance $ 71,808 $ 96,116 (25 )% Capitalized
servicing rate 0.83 % 0.80 % 4 % Capitalized servicing multiple 3.0
2.8 7 % Weighted-average servicing fee (in basis points) 28 29 (3
)%
Three Months EndedMarch 31,
2017 2016 Change
Total Loan
Servicing Portfolio:
Average Portfolio UPB $ 169,152 $ 229,970 (26 )%
Capitalized
Servicing Portfolio:
Average Portfolio UPB $ 78,155 $ 97,647 (20 )% Payoffs and
principal curtailments 3,459 3,955 (13 )% Sales 10,316 272 n/m
_______________ (1) Portfolio delinquencies are loans 30
days or more past due and are represented as a percentage of the
unpaid principal balance of the Total loan servicing portfolio.
n/m -Not Meaningful
Mortgage Servicing Segment
(continued)
($ in millions)
Three Months EndedMarch 31,
2017 2016 Change
Segment
Results:
Net loan servicing income $ 33 $ 55 (40 )% Net interest expense (8
) (11 ) (27 )% Other income 2 — n/m
Net
revenues 27 44 (39 )% Salaries and related
expenses 17 18 (6 )% Foreclosure and repossession expenses 7 7 — %
Professional and third-party service fees 7 9 (22 )% Technology
equipment and software expenses 3 4 (25 )% Occupancy and other
office expenses 3 5 (40 )% Depreciation and amortization 1 1 — %
Exit and disposal costs 2 — n/m Other operating expenses 21
21 — %
Total expenses 61 65 (6 )%
Segment loss $ (34 ) $ (21 ) 62 % ______________ n/m - Not
Meaningful
Debt and Borrowing Arrangements
(In millions) March 31,
2017
December 31, 2016
Balance Interest Rate(1)
Available Capacity(2) Balance
Committed warehouse facilities $ 369 3.1 % $ 381 $ 556 Uncommitted
warehouse facilities 6 1.8 % 2,094 — Servicing advance facility 100
2.9 % 55 99 Term notes due in 2019 275 7.375 % n/a 275 Term
notes due in 2021 340 6.375 % n/a 340 Unsecured credit facilities —
— 3 — Unsecured debt, face value 615 615 Debt
issuance costs (7 ) (8 ) Unsecured debt, net 608 607
Total 1,083 1,262 ______________ (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.
* NOTE REGARDING NON-GAAP FINANCIAL MEASURES
Core earnings or loss (pre-tax and after-tax) and core earnings
or loss 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.
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.
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 EndedMarch
31, 2017 2016 Loss before income taxes - as
reported $ (105 ) $ (49 ) Less: net loss attributable to
noncontrolling interest (4 ) — Segment loss (101 ) (49 )
Market-related fair value adjustments (1) 2 95 Net derivative gain
related to MSRs — (85 )
Core loss (pre-tax) $
(99 ) $ (39 ) Net loss
attributable to PHH Corporation - as reported $ (67 ) $ (30 )
Market-related fair value adjustments (1) 2 95 Net derivative gain
related to MSRs — (85 ) (65 ) (20 ) Income tax expense on
Core adjustments (2) 1 4
Core loss (after-tax)
$ (66 ) $ (24 )
Core loss (after-tax) per share (3) $
(1.24 ) $ (0.45 )
CORE EARNINGS BY SEGMENT - Regulation G
Reconciliation
MortgageProduction
MortgageServicing
Other
MortgageProduction
MortgageServicing
Other Three Months Ended March 31, 2017 Three
Months Ended March 31, 2016 Segment loss $ (41 ) $ (34 ) $ (26
) $ (26 ) $ (21 ) $ (2 ) Market-related fair value adjustments(1) —
2 — — 95 — Net derivative gain related to MSRs — — —
— (85 ) —
Core loss (pre-tax) $
(41 ) $ (32 ) $
(26 ) $ (26 ) $
(11 ) $ (2 ) _____________ (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 53.683 million and 53.703 million for the three
months ended March 31, 2017 and 2016, respectively, were used to
calculate per share amounts.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170509006649/en/
PHH CorporationInvestorsHugo Arias,
856-917-0108hugo.arias@phh.comorMediaDico Akseraylian,
856-917-0066dico.akseraylian@phh.com
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