Attached files
| file | filename |
|---|---|
| 8-K - 8-K - PHH CORP | a13-17707_28k.htm |
Exhibit 99.1
PHH Corporation Announces Second Quarter 2013 Results
2Q13 Net Income Attributable to PHH Corporation of $90 million or $1.58 per basic share
2Q13 Core Loss (after-tax)* of $2 million and Core Loss per Share* of $0.03
· Tangible book value per share* of $28.14 at June 30, 2013, up 6% from March 31, 2013
· 2Q13 results include a $21 million pre-tax loss ($0.24 per basic share after tax) related to the termination of an inactive mortgage reinsurance agreement
· Sequential quarter growth in: mortgage applications (up 22%); interest rate lock commitments expected to close (up 9%); and mortgage closings (up 11%)
· Total loan margin of 348 bps in 2Q13, a 24 bps decrease from 1Q13 and a 33 bps decrease from 2Q12
· Launched private label relationship with HSBC in 2Q13, and assumed approximately $47 billion in subservicing unpaid principal balance (UPB)
· Fleet segment profit of $21 million, unchanged from 1Q13 and down from $22 million in 2Q12
Mt. Laurel, NJ — July 31, 2013 — PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today announced financial results for the quarter ended June 30, 2013.
For the quarter ended June 30, 2013, the Company reported net income attributable to PHH Corporation of $90 million or $1.58 per basic share. Core loss (after-tax)* and core loss per share* for the quarter ended June 30, 2013, were $2 million and $0.03, respectively. These results include a $21 million pre-tax loss ($0.24 per basic share after tax) related to the termination of an inactive mortgage reinsurance agreement. This transaction generated $69 million of unrestricted cash of which $30 million was received in the second quarter of 2013 and $39 million was received in the third quarter of 2013.
Tangible book value per share* was $28.14 at June 30, 2013, up 6% from $26.62 at March 31, 2013.
Glen A. Messina, president and CEO of PHH Corporation, said, “Over the past year and a half, through the execution of our strategic priorities, PHH has made significant progress in placing the company in a position of strength to deal with the cyclical and dynamic nature of the mortgage industry. In the second quarter, our financial performance reflected the impact of a rising interest rate environment, which drove an increase in the value of our mortgage servicing rights and negatively impacted our mortgage origination volume. I’m pleased with the progress the company is making in managing through this transition period to a rising interest rate environment. Our results were also impacted by a charge related to the commutation of our remaining Atrium reinsurance contract. The Fleet business continued to provide solid profitability.”
Messina added, “We are taking the necessary actions to reposition our mortgage businesses for the current interest rate and regulatory environment. We are scaling expenses to be consistent with lower expected mortgage production volumes, while maintaining our commitment to high customer service levels and accommodating the demands of the rapidly-changing regulatory environment. In part due to recent regulatory changes, we also are seeking to amend certain private label contracts to address the fundamental changes in the industry and ensure our programs are meeting our mutual objectives. Further, we are working to ensure that we have access to multiple funding sources aimed at lowering our capital needs and overall cost of capital.”
Summary Consolidated Results
(In millions, except per share data)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Net revenues |
|
$ |
822 |
|
$ |
559 |
|
$ |
1,552 |
|
$ |
1,336 |
|
|
Income (loss) before income taxes |
|
158 |
|
(80 |
) |
254 |
|
44 |
| ||||
|
Net income (loss) attributable to PHH Corporation |
|
90 |
|
(57 |
) |
142 |
|
18 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings (loss) per share attributable to PHH Corporation |
|
$ |
1.58 |
|
$ |
(1.00 |
) |
$ |
2.48 |
|
$ |
0.32 |
|
|
Diluted earnings (loss) per share attributable to PHH Corporation |
|
1.40 |
|
(1.00 |
) |
2.18 |
|
0.31 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
|
Basic shares (in millions) |
|
57.321 |
|
56.804 |
|
57.285 |
|
56.730 |
| ||||
|
Diluted shares (in millions) |
|
64.822 |
|
56.804 |
|
65.301 |
|
59.401 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Non-GAAP Results* |
|
|
|
|
|
|
|
|
| ||||
|
Core (loss) earnings (pre-tax) |
|
$ |
(8 |
) |
$ |
48 |
|
$ |
10 |
|
$ |
124 |
|
|
Core (loss) earnings (after-tax) |
|
(2 |
) |
27 |
|
10 |
|
80 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Core (loss) earnings per share |
|
$ |
(0.03 |
) |
$ |
0.49 |
|
$ |
0.18 |
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Adjusted cash flow |
|
$ |
116 |
|
$ |
26 |
|
$ |
214 |
|
$ |
295 |
|
* Non-GAAP Financial Measures
Core earnings or loss (pre-tax), core earnings or loss (after-tax), core earnings or loss per share, adjusted cash flow, tangible book value and tangible book value 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 of these and certain other Non-GAAP financial measures and reconciliations of such Non-GAAP financial measures to their most directly comparable GAAP financial measures as required by Regulation G.
Mortgage Production and Mortgage Servicing
Mortgage Production Segment Profit
Mortgage Production segment profit in the second quarter of 2013 was $44 million, down 44% from $78 million in the second quarter of 2012 and down $1 million from the first quarter of 2013. Segment profit declined from the second quarter 2012 primarily due to a 20% decline in IRLCs expected to close, a 33 bps decline in total loan margin and greater operating expenses as a result of higher retail origination volume. A slight decline in sequential quarter segment profit reflected the impact of narrower total loan margin offset by 9% growth in IRLCs expected to close.
Mortgage Servicing Segment Profit
Mortgage Servicing segment profit in the second quarter of 2013 was $81 million, which included a favorable $155 million market-related fair value adjustment to our MSR, primarily from an increase in mortgage interest rates, which was offset slightly by $1 million in hedge losses. The MSR fair value adjustment for prepayments and recurring cash flows was an unfavorable $80 million in the second quarter of 2013, compared to an unfavorable $77 million in the first quarter of 2013. Loan servicing income includes losses associated with the termination of reinsurance agreements of $21 million and $16 million in the second quarters of 2013 and 2012, respectively.
Repurchase and foreclosure-related charges during the second quarter of 2013 decreased to $11 million from $39 million in the second quarter of 2012 and $15 million in the first quarter of 2013. Repurchase and foreclosure-
related charges were reflective of the continued decrease in repurchase requests as the Agencies have continued to focus on reviewing loans from pre-2009 origination years.
Interest Rate Lock Commitments
IRLCs expected to close of $5.4 billion in the second quarter of 2013 declined 20% from the second quarter of 2012, primarily reflecting declining demand for refinancings attributable to rising interest rates, a decline in wholesale/correspondent volume as we remain focused on cash usage and the relative profitability of wholesale/correspondent originations, and a continued shift in mix toward fee-based production. IRLCs expected to close increased 9% from $5.0 billion in the first quarter of 2013, driven by sequential quarter growth in home purchase volume and the addition of HSBC as a private label client, partially offset by a greater portion of our production done on a fee-for-service basis.
Total Loan Margin
Total loan margin on IRLCs expected to close for the second quarter of 2013 was 348 bps, a 24 bps decrease from the first quarter of 2013 and 33 bps less than the second quarter of 2012. Margins narrowed in the second quarter of 2013, primarily due to rising mortgage interest rates. Margins generally widen when mortgage interest rates decline and tighten when mortgage interest rates increase, as loan originators attempt to balance origination volume with operational capacity.
Mortgage Closing Volume
Total second quarter 2013 mortgage closings were $14.8 billion, a 15% increase from the second quarter of 2012. Retail closings increased 21% in the second quarter of 2013 compared to the second quarter of 2012 and 16% compared to the first quarter of 2013, reflecting our strategy of growth in our retail channels. Retail closings represented 91% of our total closings during the second quarter of 2013. Fee-based closings continued to trend higher in the second quarter of 2013, increasing to 51% of total retail closings. This was up from 43% of total retail closings in the second quarter of 2012 and 47% of total retail closings in the first quarter of 2013. Our private label agreement with HSBC that was launched in the second quarter of 2013 did not meaningfully contribute to closing volume in the quarter.
Unpaid Principal Balance of Mortgage Servicing Portfolio
At June 30, 2013, the UPB of our capitalized servicing portfolio was $133.1 billion, down 3% from March 31, 2013, and 10% from June 30, 2012. These decreases reflect prepayments that were not fully offset by additions from new loan production.
At June 30, 2013, the UPB of our total loan servicing portfolio was $228.6 billion, a 26% increase from March 31, 2013, and a 19% increase from June 30, 2012. The sequential quarter and year-over-year increases in our total loan servicing portfolio primarily reflect approximately $47 billion of subservicing UPB that we assumed from HSBC in the second quarter of 2013, partially offset by the aforementioned declines in the UPB of our capitalized servicing portfolio.
Mortgage Servicing Rights
At June 30, 2013, the book value of our mortgage servicing rights was $1.2 billion, up 22% from the end of 2012. During the second quarter of 2013, $71 million in MSR value was added from the capitalization of new servicing rights from new loans sold in the quarter, and our MSR value increased by $155 million due to market-related fair value adjustments. Our MSR value decreased $80 million in the second quarter of 2013 related to prepayments and the receipt of recurring cash flows, primarily attributable to continued high prepayment speeds from refinances driven by low mortgage interest rates. We also incurred $1 million in MSR hedge losses in the second quarter of 2013.
Repurchase and Foreclosure-related Charges
Repurchase and foreclosure-related charges in the second quarter of 2013 were $11 million, down from $15 million in the first quarter of 2013, reflecting a continued downward trend of repurchase requests. Total repurchase and foreclosure-related reserves were $191 million at the end of the second quarter of 2013, compared to $194 million
at the end of the first quarter of 2013. As of June 30, 2013, the estimated amount of reasonably possible losses in excess of total repurchase and foreclosure-related reserves was $45 million, unchanged from the end of the first quarter of 2013. Although Fannie Mae and Freddie Mac are still expected to be complete with repurchase requests for pre-2009 origination years by the end of 2013, losses associated with government insured loan foreclosures could persist into 2014 and beyond as loans continue to work through the foreclosure process and we evaluate loans and expenses that are not eligible for insurance reimbursement.
Fleet Management Services
Segment Profit
In the second quarter of 2013, Fleet Management Services segment profit was $21 million, unchanged from the first quarter of 2013 and down from $22 million in the second quarter of 2012. Sequential quarter segment profit remained unchanged as growth in our fleet lease income was offset by greater operating expenses.
Fleet Leasing
Net investment in fleet leases at June 30, 2013, increased 2% compared to March 31, 2013, while average leased vehicle units remained unchanged during the second quarter of 2013. This was the result of higher-capitalized units continuing to replace lower-cost vehicles, consistent with our emphasis on service fleets.
Fleet Management Fees
In the second quarter of 2013, Fleet management fees decreased to $44 million from $45 million in the second quarter of 2012, primarily driven by lower client participation in driver safety training services. Fleet management fees increased by $1 million compared to the first quarter of 2013 primarily attributable to sequential quarter average unit growth in our key fleet service offerings.
Liquidity Update
Liquidity at June 30, 2013, included $1.0 billion in unrestricted cash and cash equivalents.
As of June 30, 2013, we had no outstanding balances on our $305 million in total unsecured revolving credit facilities or our $119 million Canadian secured revolving credit facility.
On July 29, 2013, we amended our U.S. revolving credit agreement to increase our flexibility to repay or refinance our 2016 and 2017 unsecured notes prior to the maturity of our revolving credit facility.
Conference Call/Webcast
The Company will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, August 1, 2013, to discuss its second quarter 2013 results. All interested parties are welcome to participate. You can access the conference call by dialing (800) 344-6491 or (785) 830-7988 and using the conference ID 7283605 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/invest under webcasts and presentations.
An investor presentation of supplemental schedules will be available by visiting the Investor Relations page of PHH’s website at www.phh.com/invest on Thursday, August 1, 2013, prior to the start of the conference call.
A replay will be available beginning shortly after the end of the call through August 15, 2013, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 7283605, or by visiting the Investor Relations page of PHH’s website at www.phh.com/invest.
About PHH Corporation
Headquartered in Mount Laurel, New Jersey, PHH Corporation (NYSE: PHH) is a leading provider of business process management services for the mortgage and fleet industries. Its subsidiary, PHH Mortgage, is one of the largest originators and servicers of residential mortgages in the United States(1), and its subsidiary, PHH Arval, is a leading fleet management services provider in the United States and Canada. PHH is dedicated to delivering premier customer service and providing value-added solutions to its clients. For additional information about PHH and its subsidiaries, please visit the Company’s website at www.phh.com.
(1) Inside Mortgage Finance, Copyright 2013
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.
Contact Information:
Investors
Jim Ballan
jim.ballan@phh.com
856-917-4311
Media
Dico Akseraylian
dico.akseraylian@phh.com
410-771-2038
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
REVENUES |
|
|
|
|
|
|
|
|
| ||||
|
Mortgage fees |
|
$ |
82 |
|
$ |
83 |
|
$ |
161 |
|
$ |
163 |
|
|
Fleet management fees |
|
44 |
|
45 |
|
87 |
|
92 |
| ||||
|
Net fee income |
|
126 |
|
128 |
|
248 |
|
255 |
| ||||
|
Fleet lease income |
|
343 |
|
338 |
|
675 |
|
674 |
| ||||
|
Gain on mortgage loans, net |
|
197 |
|
208 |
|
384 |
|
438 |
| ||||
|
Mortgage interest income |
|
19 |
|
21 |
|
39 |
|
46 |
| ||||
|
Mortgage interest expense |
|
(48 |
) |
(53 |
) |
(96 |
) |
(108 |
) | ||||
|
Mortgage net finance expense |
|
(29 |
) |
(32 |
) |
(57 |
) |
(62 |
) | ||||
|
Loan servicing income |
|
88 |
|
100 |
|
196 |
|
221 |
| ||||
|
Change in fair value of mortgage servicing rights |
|
75 |
|
(205 |
) |
80 |
|
(226 |
) | ||||
|
Net derivative (loss) gain related to mortgage servicing rights |
|
(1 |
) |
2 |
|
(17 |
) |
(3 |
) | ||||
|
Valuation adjustments related to mortgage servicing rights, net |
|
74 |
|
(203 |
) |
63 |
|
(229 |
) | ||||
|
Net loan servicing income (loss) |
|
162 |
|
(103 |
) |
259 |
|
(8 |
) | ||||
|
Other income |
|
23 |
|
20 |
|
43 |
|
39 |
| ||||
|
Net revenues |
|
822 |
|
559 |
|
1,552 |
|
1,336 |
| ||||
|
EXPENSES |
|
|
|
|
|
|
|
|
| ||||
|
Salaries and related expenses |
|
163 |
|
143 |
|
322 |
|
279 |
| ||||
|
Occupancy and other office expenses |
|
17 |
|
14 |
|
32 |
|
28 |
| ||||
|
Depreciation on operating leases |
|
305 |
|
303 |
|
607 |
|
604 |
| ||||
|
Fleet interest expense |
|
14 |
|
17 |
|
29 |
|
34 |
| ||||
|
Other depreciation and amortization |
|
9 |
|
6 |
|
16 |
|
12 |
| ||||
|
Other operating expenses |
|
156 |
|
156 |
|
292 |
|
335 |
| ||||
|
Total expenses |
|
664 |
|
639 |
|
1,298 |
|
1,292 |
| ||||
|
Income (loss) before income taxes |
|
158 |
|
(80 |
) |
254 |
|
44 |
| ||||
|
Income tax expense (benefit) |
|
56 |
|
(38 |
) |
88 |
|
1 |
| ||||
|
Net income (loss) |
|
102 |
|
(42 |
) |
166 |
|
43 |
| ||||
|
Less: net income attributable to noncontrolling interest |
|
12 |
|
15 |
|
24 |
|
25 |
| ||||
|
Net income (loss) attributable to PHH Corporation |
|
$ |
90 |
|
$ |
(57 |
) |
$ |
142 |
|
$ |
18 |
|
|
Basic earnings (loss) per share attributable to PHH Corporation |
|
$ |
1.58 |
|
$ |
(1.00 |
) |
$ |
2.48 |
|
$ |
0.32 |
|
|
Diluted earnings (loss) per share attributable to PHH Corporation |
|
$ |
1.40 |
|
$ |
(1.00 |
) |
$ |
2.18 |
|
$ |
0.31 |
|
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
ASSETS |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
1,044 |
|
$ |
829 |
|
|
Restricted cash, cash equivalents and investments |
|
349 |
|
425 |
| ||
|
Mortgage loans held for sale |
|
1,751 |
|
2,174 |
| ||
|
Accounts receivable, net |
|
972 |
|
797 |
| ||
|
Net investment in fleet leases |
|
3,736 |
|
3,636 |
| ||
|
Mortgage servicing rights |
|
1,247 |
|
1,022 |
| ||
|
Property, plant and equipment, net |
|
76 |
|
79 |
| ||
|
Goodwill |
|
25 |
|
25 |
| ||
|
Other assets (1) |
|
571 |
|
616 |
| ||
|
Total assets |
|
$ |
9,771 |
|
$ |
9,603 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND EQUITY |
|
|
|
|
| ||
|
Accounts payable and accrued expenses |
|
$ |
782 |
|
$ |
586 |
|
|
Debt |
|
6,323 |
|
6,554 |
| ||
|
Deferred taxes |
|
705 |
|
622 |
| ||
|
Other liabilities |
|
274 |
|
279 |
| ||
|
Total liabilities |
|
8,084 |
|
8,041 |
| ||
|
Commitments and contingencies |
|
— |
|
— |
| ||
|
Total PHH Corporation stockholders’ equity |
|
1,662 |
|
1,526 |
| ||
|
Noncontrolling interest |
|
25 |
|
36 |
| ||
|
Total equity |
|
1,687 |
|
1,562 |
| ||
|
Total liabilities and equity |
|
$ |
9,771 |
|
$ |
9,603 |
|
(1) Includes intangible assets of $30 million and $31 million as of June 30, 2013 and December 31, 2012, respectively.
Segment Results
(In millions)
|
|
|
Second Quarter 2013 |
|
Second |
| ||||||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
|
Total PHH |
|
Total PHH |
| ||||||
|
Net fee income |
|
$ |
82 |
|
$ |
— |
|
$ |
44 |
|
$ |
— |
|
$ |
126 |
|
$ |
128 |
|
|
Fleet lease income |
|
— |
|
— |
|
343 |
|
— |
|
343 |
|
338 |
| ||||||
|
Gain on mortgage loans |
|
197 |
|
— |
|
— |
|
— |
|
197 |
|
208 |
| ||||||
|
Mortgage interest income |
|
16 |
|
3 |
|
— |
|
— |
|
19 |
|
21 |
| ||||||
|
Mortgage interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-backed interest expense |
|
(14 |
) |
(3 |
) |
— |
|
— |
|
(17 |
) |
(19 |
) | ||||||
|
Allocated interest expense |
|
(19 |
) |
(12 |
) |
— |
|
— |
|
(31 |
) |
(34 |
) | ||||||
|
Loan servicing income (1) |
|
— |
|
88 |
|
— |
|
— |
|
88 |
|
100 |
| ||||||
|
MSR fair value adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Prepayments and receipt of recurring cash flows |
|
— |
|
(80 |
) |
— |
|
— |
|
(80 |
) |
(60 |
) | ||||||
|
Market-related (2) |
|
— |
|
155 |
|
— |
|
— |
|
155 |
|
(145 |
) | ||||||
|
Net derivative (loss) gain related to MSRs |
|
— |
|
(1 |
) |
— |
|
— |
|
(1 |
) |
2 |
| ||||||
|
Other income |
|
3 |
|
— |
|
20 |
|
— |
|
23 |
|
20 |
| ||||||
|
Net revenues |
|
265 |
|
150 |
|
407 |
|
— |
|
822 |
|
559 |
| ||||||
|
Salaries and related expenses |
|
113 |
|
14 |
|
18 |
|
18 |
|
163 |
|
143 |
| ||||||
|
Occupancy and other office expenses |
|
9 |
|
3 |
|
4 |
|
1 |
|
17 |
|
14 |
| ||||||
|
Depreciation on operating leases |
|
— |
|
— |
|
305 |
|
— |
|
305 |
|
303 |
| ||||||
|
Fleet interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-backed interest expense |
|
— |
|
— |
|
14 |
|
— |
|
14 |
|
17 |
| ||||||
|
Other depreciation and amortization |
|
3 |
|
1 |
|
3 |
|
2 |
|
9 |
|
6 |
| ||||||
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Direct origination expenses |
|
34 |
|
— |
|
— |
|
— |
|
34 |
|
32 |
| ||||||
|
Repurchase and foreclosure-related |
|
— |
|
11 |
|
— |
|
— |
|
11 |
|
39 |
| ||||||
|
Direct foreclosure and REO expenses |
|
— |
|
19 |
|
— |
|
— |
|
19 |
|
13 |
| ||||||
|
Cost of goods sold |
|
— |
|
— |
|
20 |
|
— |
|
20 |
|
17 |
| ||||||
|
Equipment and software expenses |
|
1 |
|
4 |
|
— |
|
5 |
|
10 |
|
9 |
| ||||||
|
Professional fees and consulting |
|
8 |
|
4 |
|
1 |
|
16 |
|
29 |
|
17 |
| ||||||
|
Overhead Allocation - IT |
|
13 |
|
3 |
|
7 |
|
(23 |
) |
— |
|
— |
| ||||||
|
Overhead Allocation - Other |
|
13 |
|
3 |
|
6 |
|
(22 |
) |
— |
|
— |
| ||||||
|
Other |
|
15 |
|
7 |
|
8 |
|
3 |
|
33 |
|
29 |
| ||||||
|
Other expenses |
|
84 |
|
51 |
|
42 |
|
(21 |
) |
156 |
|
156 |
| ||||||
|
Total expenses |
|
209 |
|
69 |
|
386 |
|
— |
|
664 |
|
639 |
| ||||||
|
Income (loss) before income taxes |
|
56 |
|
81 |
|
21 |
|
— |
|
$ |
158 |
|
$ |
(80 |
) | ||||
|
Less: income attributable to noncontrolling interest |
|
12 |
|
— |
|
— |
|
— |
|
|
|
|
| ||||||
|
Segment profit |
|
$ |
44 |
|
$ |
81 |
|
$ |
21 |
|
$ |
— |
|
|
|
|
| ||
(1) Loan servicing income includes a net reinsurance loss of $20 million and $17 million for the three months ended June 30, 2013 and 2012, respectively which includes $21 million and $16 million, respectively of losses on the termination of inactive reinsurance agreements.
(2) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors.
Segment Results
(In millions)
|
|
|
Six Months Ended June 30, 2013 |
|
Six Months |
| ||||||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
|
Total PHH |
|
Total PHH |
| ||||||
|
Net fee income |
|
$ |
161 |
|
$ |
— |
|
$ |
87 |
|
$ |
— |
|
$ |
248 |
|
$ |
255 |
|
|
Fleet lease income |
|
— |
|
— |
|
675 |
|
— |
|
675 |
|
674 |
| ||||||
|
Gain on mortgage loans |
|
384 |
|
— |
|
— |
|
— |
|
384 |
|
438 |
| ||||||
|
Mortgage interest income |
|
35 |
|
5 |
|
— |
|
(1 |
) |
39 |
|
46 |
| ||||||
|
Mortgage interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-backed interest expense |
|
(28 |
) |
(5 |
) |
— |
|
— |
|
(33 |
) |
(40 |
) | ||||||
|
Allocated interest expense |
|
(39 |
) |
(24 |
) |
— |
|
— |
|
(63 |
) |
(68 |
) | ||||||
|
Loan servicing income (1) |
|
— |
|
196 |
|
— |
|
— |
|
196 |
|
221 |
| ||||||
|
MSR fair value adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Prepayments and receipt of recurring cash flows |
|
— |
|
(157 |
) |
— |
|
— |
|
(157 |
) |
(124 |
) | ||||||
|
Market-related (2) |
|
— |
|
237 |
|
— |
|
— |
|
237 |
|
(102 |
) | ||||||
|
Net derivative loss related to MSRs |
|
— |
|
(17 |
) |
— |
|
— |
|
(17 |
) |
(3 |
) | ||||||
|
Other income |
|
4 |
|
— |
|
39 |
|
— |
|
43 |
|
39 |
| ||||||
|
Net revenues |
|
517 |
|
235 |
|
801 |
|
(1 |
) |
1,552 |
|
1,336 |
| ||||||
|
Salaries and related expenses |
|
223 |
|
25 |
|
36 |
|
38 |
|
322 |
|
279 |
| ||||||
|
Occupancy and other office expenses |
|
17 |
|
6 |
|
7 |
|
2 |
|
32 |
|
28 |
| ||||||
|
Depreciation on operating leases |
|
— |
|
— |
|
607 |
|
— |
|
607 |
|
604 |
| ||||||
|
Fleet interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-backed interest expense |
|
— |
|
— |
|
30 |
|
(1 |
) |
29 |
|
33 |
| ||||||
|
Allocated interest expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
| ||||||
|
Other depreciation and amortization |
|
6 |
|
1 |
|
5 |
|
4 |
|
16 |
|
12 |
| ||||||
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Direct origination expenses |
|
62 |
|
— |
|
— |
|
— |
|
62 |
|
61 |
| ||||||
|
Repurchase and foreclosure-related |
|
— |
|
26 |
|
— |
|
— |
|
26 |
|
104 |
| ||||||
|
Direct foreclosure and REO expenses |
|
— |
|
35 |
|
— |
|
— |
|
35 |
|
20 |
| ||||||
|
Cost of goods sold |
|
— |
|
— |
|
33 |
|
— |
|
33 |
|
32 |
| ||||||
|
Equipment and software expenses |
|
2 |
|
7 |
|
— |
|
10 |
|
19 |
|
17 |
| ||||||
|
Professional fees and consulting |
|
14 |
|
8 |
|
3 |
|
24 |
|
49 |
|
35 |
| ||||||
|
Overhead Allocation - IT |
|
25 |
|
6 |
|
12 |
|
(43 |
) |
— |
|
— |
| ||||||
|
Overhead Allocation - Other |
|
23 |
|
5 |
|
12 |
|
(40 |
) |
— |
|
— |
| ||||||
|
Other |
|
32 |
|
17 |
|
14 |
|
5 |
|
68 |
|
66 |
| ||||||
|
Other expenses |
|
158 |
|
104 |
|
74 |
|
(44 |
) |
292 |
|
335 |
| ||||||
|
Total expenses |
|
404 |
|
136 |
|
759 |
|
(1 |
) |
1,298 |
|
1,292 |
| ||||||
|
Income before income taxes |
|
113 |
|
99 |
|
42 |
|
— |
|
$ |
254 |
|
$ |
44 |
| ||||
|
Less: income attributable to noncontrolling interest |
|
24 |
|
— |
|
— |
|
— |
|
|
|
|
| ||||||
|
Segment profit |
|
$ |
89 |
|
$ |
99 |
|
$ |
42 |
|
$ |
— |
|
|
|
|
| ||
(1) Loan servicing income includes a net reinsurance loss of $19 million for both the six months ended June 30, 2013 and 2012, which includes $21 million and $16 million, respectively of losses on the termination of inactive reinsurance agreements.
(2) Represents the Change in fair value of mortgage servicing rights due to changes in market inputs and assumptions used in the valuation model. The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors.
Mortgage Production Segment
($ In millions)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
| ||||
|
Loans closed to be sold |
|
$ |
7,897 |
|
$ |
8,059 |
|
(2 |
)% |
$ |
15,744 |
|
$ |
18,736 |
|
(16 |
)% |
|
Fee-based closings |
|
6,874 |
|
4,771 |
|
44 |
% |
12,346 |
|
8,047 |
|
53 |
% | ||||
|
Total closings |
|
$ |
14,771 |
|
$ |
12,830 |
|
15 |
% |
$ |
28,090 |
|
$ |
26,783 |
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Purchase closings |
|
$ |
5,344 |
|
$ |
5,010 |
|
7 |
% |
$ |
8,483 |
|
$ |
8,860 |
|
(4 |
)% |
|
Refinance closings |
|
9,427 |
|
7,820 |
|
21 |
% |
19,607 |
|
17,923 |
|
9 |
% | ||||
|
Total closings |
|
$ |
14,771 |
|
$ |
12,830 |
|
15 |
% |
$ |
28,090 |
|
$ |
26,783 |
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Retail closings - PLS |
|
$ |
9,503 |
|
$ |
7,438 |
|
28 |
% |
$ |
18,013 |
|
$ |
13,968 |
|
29 |
% |
|
Retail closings - Real Estate |
|
3,877 |
|
3,618 |
|
7 |
% |
6,908 |
|
6,578 |
|
5 |
% | ||||
|
Total retail closings |
|
13,380 |
|
11,056 |
|
21 |
% |
24,921 |
|
20,546 |
|
21 |
% | ||||
|
Wholesale/correspondent closings |
|
1,391 |
|
1,774 |
|
(22 |
)% |
3,169 |
|
6,237 |
|
(49 |
)% | ||||
|
Total closings |
|
$ |
14,771 |
|
$ |
12,830 |
|
15 |
% |
$ |
28,090 |
|
$ |
26,783 |
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Retail - PLS (in units) |
|
24,976 |
|
21,472 |
|
16 |
% |
48,902 |
|
43,257 |
|
13 |
% | ||||
|
Retail - Real Estate (in units) |
|
15,703 |
|
14,555 |
|
8 |
% |
27,979 |
|
26,859 |
|
4 |
% | ||||
|
Total retail |
|
40,679 |
|
36,027 |
|
13 |
% |
76,881 |
|
70,116 |
|
10 |
% | ||||
|
Wholesale/correspondent (in units) |
|
6,131 |
|
8,750 |
|
(30 |
)% |
14,082 |
|
29,946 |
|
(53 |
)% | ||||
|
Total closings (in units) |
|
46,810 |
|
44,777 |
|
5 |
% |
90,963 |
|
100,062 |
|
(9 |
)% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loans sold |
|
$ |
7,989 |
|
$ |
7,868 |
|
2 |
% |
$ |
16,222 |
|
$ |
19,477 |
|
(17 |
)% |
|
Applications |
|
$ |
19,704 |
|
$ |
18,653 |
|
6 |
% |
$ |
35,869 |
|
$ |
36,509 |
|
(2 |
)% |
|
IRLCs expected to close |
|
$ |
5,386 |
|
$ |
6,763 |
|
(20 |
)% |
$ |
10,341 |
|
$ |
13,625 |
|
(24 |
)% |
|
Total loan margin (in basis points) |
|
348 |
|
381 |
|
(9 |
)% |
359 |
|
373 |
|
(4 |
)% | ||||
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
| ||||
|
Mortgage fees |
|
$ |
82 |
|
$ |
83 |
|
(1 |
)% |
$ |
161 |
|
$ |
163 |
|
(1 |
)% |
|
Gain on mortgage loans, net |
|
197 |
|
208 |
|
(5 |
)% |
384 |
|
438 |
|
(12 |
)% | ||||
|
Mortgage net finance expense |
|
(17 |
) |
(17 |
) |
— |
|
(32 |
) |
(33 |
) |
3 |
% | ||||
|
Other income |
|
3 |
|
2 |
|
50 |
% |
4 |
|
4 |
|
— |
| ||||
|
Net revenues |
|
265 |
|
276 |
|
(4 |
)% |
517 |
|
572 |
|
(10 |
)% | ||||
|
Salaries and related expenses |
|
113 |
|
100 |
|
13 |
% |
223 |
|
193 |
|
16 |
% | ||||
|
Occupancy and other office expenses |
|
9 |
|
8 |
|
13 |
% |
17 |
|
15 |
|
13 |
% | ||||
|
Other depreciation and amortization |
|
3 |
|
1 |
|
200 |
% |
6 |
|
3 |
|
100 |
% | ||||
|
Other operating expenses |
|
84 |
|
74 |
|
14 |
% |
158 |
|
141 |
|
12 |
% | ||||
|
Total expenses |
|
209 |
|
183 |
|
14 |
% |
404 |
|
352 |
|
15 |
% | ||||
|
Income before income taxes |
|
56 |
|
93 |
|
(40 |
)% |
113 |
|
220 |
|
(49 |
)% | ||||
|
Less: net income attributable to noncontrolling interest |
|
12 |
|
15 |
|
(20 |
)% |
24 |
|
25 |
|
(4 |
)% | ||||
|
Segment profit |
|
$ |
44 |
|
$ |
78 |
|
(44 |
)% |
$ |
89 |
|
$ |
195 |
|
(54 |
)% |
Mortgage Servicing Segment
($ In millions)
|
|
|
As of June 30, |
| ||||||
|
|
|
2013 |
|
2012 |
|
Change |
| ||
|
Total loan servicing portfolio |
|
$ |
228,637 |
|
$ |
192,775 |
|
19 |
% |
|
Number of loans serviced |
|
1,259,697 |
|
1,100,857 |
|
14 |
% | ||
|
Capitalized loan servicing portfolio |
|
$ |
133,061 |
|
$ |
147,894 |
|
(10 |
)% |
|
Capitalized servicing rate |
|
0.94 |
% |
0.78 |
% |
|
| ||
|
Capitalized servicing multiple |
|
3.2 |
|
2.6 |
|
|
| ||
|
Weighted-average servicing fee (in basis points) |
|
29 |
|
30 |
|
|
| ||
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
| ||||
|
Average total loan servicing portfolio |
|
$ |
204,961 |
|
$ |
186,984 |
|
10 |
% |
$ |
195,595 |
|
$ |
185,551 |
|
5 |
% |
|
Average capitalized loan servicing portfolio |
|
134,962 |
|
148,864 |
|
(9 |
)% |
136,813 |
|
148,622 |
|
(8 |
)% | ||||
|
Payoffs and principal curtailments of capitalized portfolio |
|
10,246 |
|
8,412 |
|
22 |
% |
20,758 |
|
16,639 |
|
25 |
% | ||||
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
| ||||
|
Mortgage net finance expense |
|
$ |
(12 |
) |
$ |
(15 |
) |
20 |
% |
$ |
(24 |
) |
$ |
(28 |
) |
14 |
% |
|
Loan servicing income |
|
88 |
|
100 |
|
(12 |
)% |
196 |
|
221 |
|
(11 |
)% | ||||
|
Valuation adjustments related to mortgage servicing rights, net |
|
74 |
|
(203 |
) |
n/m |
(1) |
63 |
|
(229 |
) |
n/m |
(1) | ||||
|
Other income (expense) |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
100 |
% | ||||
|
Net revenues |
|
150 |
|
(118 |
) |
n/m |
(1) |
235 |
|
(37 |
) |
n/m |
(1) | ||||
|
Salaries and related expenses |
|
14 |
|
9 |
|
56 |
% |
25 |
|
19 |
|
32 |
% | ||||
|
Occupancy and other office expenses |
|
3 |
|
2 |
|
50 |
% |
6 |
|
4 |
|
50 |
% | ||||
|
Other depreciation and amortization |
|
1 |
|
— |
|
100 |
% |
1 |
|
— |
|
100 |
% | ||||
|
Other operating expenses |
|
51 |
|
67 |
|
(24 |
)% |
104 |
|
162 |
|
(36 |
)% | ||||
|
Total expenses |
|
69 |
|
78 |
|
(12 |
)% |
136 |
|
185 |
|
(26 |
)% | ||||
|
Segment profit (loss) |
|
$ |
81 |
|
$ |
(196 |
) |
n/m |
(1) |
$ |
99 |
|
$ |
(222 |
) |
n/m |
(1) |
(1) n/m - Not meaningful
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||
|
|
|
Number of |
|
Unpaid |
|
Number |
|
Unpaid |
|
|
Portfolio Delinquency(2) |
|
|
|
|
|
|
|
|
|
|
30 days |
|
2.58 |
% |
2.03 |
% |
2.45 |
% |
1.93 |
% |
|
60 days |
|
0.75 |
% |
0.60 |
% |
0.64 |
% |
0.52 |
% |
|
90 or more days |
|
1.04 |
% |
0.95 |
% |
0.80 |
% |
0.70 |
% |
|
Total(1) |
|
4.37 |
% |
3.58 |
% |
3.89 |
% |
3.15 |
% |
|
Foreclosure/real estate owned(3) |
|
2.49 |
% |
2.44 |
% |
2.05 |
% |
1.92 |
% |
(1) Excluding the subservicing portfolio assumed during the three months ended June 30, 2013, the Company’s total portfolio delinquency and foreclosure/real estate owned based on the number of loans were 3.84% and 2.01%, respectively and based on the unpaid principal balance were 2.97% and 1.79%, respectively.
(2) Represents portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.
(3) As of June 30, 2013 and December 31, 2012, the total servicing portfolio included 25,978 and 17,329 of loans in foreclosure with an unpaid principal balance of $4.9 billion and $3.0 billion, respectively. Excluding the subservicing portfolio assumed during the three months ended June 30, 2013, the Company’s total servicing portfolio included 16,080 of loans in foreclosure with an unpaid principal balance of $2.8 billion.
Fleet Management Services Segment
|
|
|
Average for the |
|
Average for the |
| ||||||||
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
|
|
|
|
(In thousands of units) |
| ||||||||||
|
Leased vehicles |
|
258 |
|
267 |
|
(3 |
)% |
258 |
|
268 |
|
(4 |
)% |
|
Maintenance service cards |
|
340 |
|
347 |
|
(2 |
)% |
335 |
|
343 |
|
(2 |
)% |
|
Fuel cards |
|
311 |
|
301 |
|
3 |
% |
310 |
|
299 |
|
4 |
% |
|
Accident management vehicles |
|
317 |
|
314 |
|
1 |
% |
309 |
|
314 |
|
(2 |
)% |
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
Change |
|
2013 |
|
2012 |
|
Change |
| ||||
|
|
|
(In millions) |
| ||||||||||||||
|
Fleet management fees |
|
$ |
44 |
|
$ |
45 |
|
(2 |
)% |
$ |
87 |
|
$ |
92 |
|
(5 |
)% |
|
Fleet lease income |
|
343 |
|
338 |
|
1 |
% |
675 |
|
674 |
|
— |
| ||||
|
Other income |
|
20 |
|
18 |
|
11 |
% |
39 |
|
36 |
|
8 |
% | ||||
|
Net revenues |
|
407 |
|
401 |
|
1 |
% |
801 |
|
802 |
|
— |
| ||||
|
Salaries and related expenses |
|
18 |
|
16 |
|
13 |
% |
36 |
|
32 |
|
13 |
% | ||||
|
Occupancy and other office expenses |
|
4 |
|
3 |
|
33 |
% |
7 |
|
7 |
|
— |
| ||||
|
Depreciation on operating leases |
|
305 |
|
303 |
|
1 |
% |
607 |
|
604 |
|
— |
| ||||
|
Fleet interest expense |
|
14 |
|
18 |
|
(22 |
)% |
30 |
|
36 |
|
(17 |
)% | ||||
|
Other depreciation and amortization |
|
3 |
|
2 |
|
50 |
% |
5 |
|
5 |
|
— |
| ||||
|
Other operating expenses |
|
42 |
|
37 |
|
14 |
% |
74 |
|
72 |
|
3 |
% | ||||
|
Total expenses |
|
386 |
|
379 |
|
2 |
% |
759 |
|
756 |
|
— |
| ||||
|
Segment profit |
|
$ |
21 |
|
$ |
22 |
|
(5 |
)% |
$ |
42 |
|
$ |
46 |
|
(9 |
)% |
DEBT AND BORROWING ARRANGEMENTS
The following table summarizes the components of Debt:
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||
|
|
|
|
|
Wt. Avg- |
|
|
|
Wt. Avg- |
| ||
|
|
|
|
|
Interest |
|
|
|
Interest |
| ||
|
|
|
Balance |
|
Rate(1) |
|
Balance |
|
Rate(1) |
| ||
|
|
|
(In millions) |
| ||||||||
|
Term notes, in amortization |
|
$ |
827 |
|
1.3 |
% |
$ |
424 |
|
2.2 |
% |
|
Term notes, in revolving period |
|
1,650 |
|
0.9 |
% |
1,593 |
|
1.0 |
% | ||
|
Variable-funding notes |
|
1,036 |
|
2.1 |
% |
1,415 |
|
1.6 |
% | ||
|
Other |
|
22 |
|
5.0 |
% |
25 |
|
5.1 |
% | ||
|
Vehicle Management Asset-Backed Debt |
|
3,535 |
|
|
|
3,457 |
|
|
| ||
|
Secured Canadian credit facility |
|
— |
|
— |
% |
— |
|
— |
% | ||
|
Committed warehouse facilities |
|
1,552 |
|
2.1 |
% |
1,875 |
|
2.0 |
% | ||
|
Uncommitted warehouse facilities |
|
— |
|
— |
% |
— |
|
— |
| ||
|
Servicing advance facility |
|
65 |
|
2.7 |
% |
66 |
|
2.7 |
% | ||
|
Mortgage Asset-Backed Debt |
|
1,617 |
|
|
|
1,941 |
|
|
| ||
|
Term notes |
|
732 |
|
8.5 |
% |
732 |
|
8.5 |
% | ||
|
Convertible notes(2) |
|
439 |
|
5.0 |
% |
424 |
|
5.0 |
% | ||
|
Unsecured credit facilities |
|
— |
|
— |
% |
— |
|
— |
% | ||
|
Unsecured Debt |
|
1,171 |
|
|
|
1,156 |
|
|
| ||
|
Total |
|
$ |
6,323 |
|
|
|
$ |
6,554 |
|
|
|
(1) Represents the weighted-average stated interest rate of outstanding debt as of the respective date, which may be different from the effective rate due to the amortization of premiums, discounts and issuance costs. Facilities are variable-rate, except for the Unsecured Term notes and Convertible notes which are fixed-rate.
(2) Balance is net of unamortized discounts of $61 million and $76 million as of June 30, 2013 and December 31, 2012, respectively. The effective interest rate of the Convertible notes is 13%, which includes the accretion of the discount and issuance costs. Excludes $148 million and $195 million as of June 30, 2013, and December 31, 2012, respectively, related to the if-converted value of the 2017 Convertible notes, as the conversion premium may be settled in either cash or shares upon conversion, at the Company’s election.
AVAILABLE FUNDING AND BORROWING CAPACITY
Capacity under all borrowing agreements is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. Available capacity under asset-backed funding arrangements may be further limited by asset eligibility requirements. Available capacity under committed borrowing arrangements as of June 30, 2013 consisted of:
|
|
|
|
|
Utilized |
|
Available |
| |||
|
|
|
Capacity |
|
Capacity |
|
Capacity |
| |||
|
|
|
(In millions) |
| |||||||
|
Vehicle Management Asset-Backed Debt: |
|
|
|
|
|
|
| |||
|
Term notes, in revolving period |
|
$ |
1,650 |
|
$ |
1,650 |
|
$ |
— |
|
|
Variable-funding notes |
|
2,276 |
|
1,036 |
|
1,240 |
| |||
|
Secured Canadian credit facility |
|
119 |
|
— |
|
119 |
| |||
|
Mortgage Asset-Backed Debt: |
|
|
|
|
|
|
| |||
|
Committed warehouse facilities |
|
3,155 |
|
1,552 |
|
1,603 |
| |||
|
Servicing advance facility |
|
120 |
|
65 |
|
55 |
| |||
|
Unsecured credit facilities(1) |
|
305 |
|
— |
|
305 |
| |||
(1) Capacity amount shown reflects the contractual maximum capacity of the facility. The available capacity of this facility is subject to the satisfaction of compliance with a borrowing base coverage ratio test.
Capacity for Mortgage asset-backed debt shown above excludes $2.3 billion not drawn under uncommitted facilities, and $380 million available under committed off-balance sheet gestation facilities.
* NOTE REGARDING NON-GAAP FINANCIAL MEASURES
Core earnings or loss (pre-tax and after-tax), core earnings or loss per share, adjusted cash flow, tangible book value and tangible book value per share are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations below for a reconciliation of these measures to the most directly comparable GAAP financial measures as required by Regulation G.
Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share involves differences from Segment profit or loss, Income or loss before income taxes, 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 should be considered as supplementary to, and not as a substitute for, Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation or Basic earnings (loss) per share attributable to PHH Corporation computed in accordance with GAAP as a measure of the Company’s financial performance.
Adjusted cash flow involves differences from Net increase or decrease in cash and cash equivalents computed in accordance with GAAP. Adjusted cash flow should be considered as supplementary to, and not as a substitute for, Net increase or decrease in cash and cash equivalents computed in accordance with GAAP as a measure of the Company’s net increase or decrease in cash and cash equivalents.
Tangible book value and tangible book value per share involve differences from Total PHH Corporation stockholders’ equity computed in accordance with GAAP. Tangible book value and tangible book value per share should be considered as supplementary to, and not as a substitute for, Total PHH Corporation stockholders’ equity computed in accordance with GAAP as a measure of the Company’s financial position.
The Company believes that these Non-GAAP Financial Measures can be useful to investors because they provide a means by which investors can evaluate the Company’s underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period.
The Company also believes that any meaningful analysis of the Company’s financial performance by investors requires an understanding of the factors that drive the Company’s underlying operating performance which can be obscured by significant unrealized changes in value of the Company’s mortgage servicing rights, as well as any gain or loss on derivatives that are intended to offset market-related fair value adjustments on the Company’s mortgage servicing rights, in a given period that are included in Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation and Basic earnings (loss) per share attributable to PHH Corporation in accordance with GAAP.
Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share
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.
Value lost from actual prepayments and recurring cash flows are recorded when actual cash payments or prepayments of the underlying loans are received, and are included in core earnings based on the current fair value of the mortgage servicing rights at the time the payments are received.
The presentation of core earnings is designed to more closely align the timing of recognizing the actual value lost from prepayments in the mortgage servicing segment with the associated value created through new originations in the mortgage production segment. The Company believes that it will likely replenish most, if not all, realized value lost from changes in value from actual prepayments through new loan originations and actively manages and monitors economic replenishment rates to measure its ability to continue to do so. Therefore, management does not believe the unrealized change in value of the mortgage servicing rights is representative of the economic change in value of the business as a whole.
Core earnings metrics are used in managing the Company’s mortgage business. The Company has also designed certain management incentives based upon the achievement of core earnings targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.
Limitations on the use of Core Earnings
Since core earnings or loss (pre-tax and after-tax) and core earnings or loss per share measure the Company’s financial performance excluding unrealized changes in value of mortgage servicing rights, such measures may not appropriately reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, core earnings or loss (pre-tax and after-tax) and core earnings or loss per share may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment, absent the effect of any offsetting gains or losses on derivatives that are intended to offset changes in fair value on the Company’s mortgage servicing rights.
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 of equity, the purchase of derivative securities related to the Company’s stock 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 Company’s ability to repay future unsecured debt maturities or return capital to equity holders is highly dependent on a demonstrated ability to generate cash. Accordingly, the Company believes that Adjusted cash flow 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. Adjusted cash flow 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 margins, fleet vehicle purchases, sales, and related securitizations.
Adjusted cash flow is not a substitute for the Net increase or decrease in cash and cash equivalents for a period and is not intended to provide the Company’s total sources and uses of cash or measure its change in liquidity. As such, it is important that investors review the Company’s consolidated statement of cash flows for a more detailed understanding of the drivers of net cash provided by (used in) operating activities, investing activities, and financing activities.
Adjusted cash flow metrics are used in managing the Company’s mortgage and fleet businesses. The Company has also designed certain management incentives based upon the achievement of adjusted cash flow targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.
Tangible book value and Tangible book value per share
Tangible book value is a measure of Total PHH Corporation stockholders’ equity computed in accordance with GAAP excluding the value of goodwill and other intangible assets. Tangible book value per share is a measure of tangible book value, on a per share basis, using the number of shares of outstanding PHH Corporation common stock as of the applicable measurement date. Certain of the Company’s debt agreements contain indebtedness-to-tangible net worth ratio covenants, and such ratios are calculated using a measure of tangible net worth that is calculated on a basis similar to the Company’s calculation of tangible book value. Accordingly, the Company believes that tangible book value and tangible book value per share provide useful supplementary information to investors.
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 Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Income (loss) before income taxes — as reported |
|
$ |
158 |
|
$ |
(80 |
) |
$ |
254 |
|
$ |
44 |
|
|
Less: net income attributable to noncontrolling interest |
|
12 |
|
15 |
|
24 |
|
25 |
| ||||
|
Segment profit (loss) |
|
146 |
|
(95 |
) |
230 |
|
19 |
| ||||
|
Market-related fair value adjustments (1) |
|
(155 |
) |
145 |
|
(237 |
) |
102 |
| ||||
|
Net derivative loss (gain) related to MSRs |
|
1 |
|
(2 |
) |
17 |
|
3 |
| ||||
|
Core (loss) earnings (pre-tax) |
|
$ |
(8 |
) |
$ |
48 |
|
$ |
10 |
|
$ |
124 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) attributable to PHH Corporation — as reported |
|
$ |
90 |
|
$ |
(57 |
) |
$ |
142 |
|
$ |
18 |
|
|
Market-related fair value adjustments, net of taxes (1)(2) |
|
(93 |
) |
85 |
|
(142 |
) |
60 |
| ||||
|
Net derivative loss (gain) related to MSRs, net of taxes(2) |
|
1 |
|
(1 |
) |
10 |
|
2 |
| ||||
|
Core (loss) earnings (after-tax) |
|
$ |
(2 |
) |
$ |
27 |
|
$ |
10 |
|
$ |
80 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings (loss) per share attributable to PHH Corporation — as reported |
|
$ |
1.58 |
|
$ |
(1.00 |
) |
$ |
2.48 |
|
$ |
0.32 |
|
|
Market-related fair value adjustments, net of taxes (1)(3) |
|
(1.63 |
) |
1.51 |
|
(2.48 |
) |
1.06 |
| ||||
|
Net derivative loss (gain) related to MSRs, net of taxes(3) |
|
0.02 |
|
(0.02 |
) |
0.18 |
|
0.03 |
| ||||
|
Core (loss) earnings per share |
|
$ |
(0.03 |
) |
$ |
0.49 |
|
$ |
0.18 |
|
$ |
1.41 |
|
|
(1) |
Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model. |
|
|
|
|
(2) |
For the three and six months ended June 30, 2013, an incremental effective tax rate of 40% was applied to the MSRs valuation adjustments to arrive at the net of taxes amounts compared to an incremental effective tax rate of 41% for the three and six months ended June 30, 2012. |
|
|
|
|
(3) |
Basic weighted-average shares outstanding of 57.321 million and 56.804 million for the three months ended June 30, 2013 and 2012, respectively and 57.285 million and 56.730 million for the six months ended June 30, 2013 and 2012, 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
|
|
|
Second Quarter 2013 |
| ||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
| ||||
|
Segment profit |
|
$ |
44 |
|
$ |
81 |
|
$ |
21 |
|
$ |
— |
|
|
Market-related fair value adjustments(1) |
|
— |
|
(155 |
) |
— |
|
— |
| ||||
|
Net derivative loss (gain) related to MSRs |
|
— |
|
1 |
|
— |
|
— |
| ||||
|
Core earnings (loss) |
|
$ |
44 |
|
$ |
(73 |
) |
$ |
21 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
Second Quarter 2012 |
| ||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
| ||||
|
Segment profit (loss) |
|
$ |
78 |
|
$ |
(196 |
) |
$ |
22 |
|
$ |
1 |
|
|
Market-related fair value adjustments(1) |
|
— |
|
145 |
|
— |
|
— |
| ||||
|
Net derivative loss (gain) related to MSRs |
|
— |
|
(2 |
) |
— |
|
— |
| ||||
|
Core earnings (loss) |
|
$ |
78 |
|
$ |
(53 |
) |
$ |
22 |
|
$ |
1 |
|
|
(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 — 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
|
|
|
Six Months Ended June 30, 2013 |
| ||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
| ||||
|
Segment profit |
|
$ |
89 |
|
$ |
99 |
|
$ |
42 |
|
$ |
— |
|
|
Market-related fair value adjustments(1) |
|
— |
|
(237 |
) |
— |
|
— |
| ||||
|
Net derivative loss related to MSRs |
|
— |
|
17 |
|
— |
|
— |
| ||||
|
Core earnings (loss) |
|
$ |
89 |
|
$ |
(121 |
) |
$ |
42 |
|
$ |
— |
|
|
|
|
Six Months Ended June 30, 2012 |
| ||||||||||
|
|
|
Mortgage |
|
Mortgage |
|
Fleet |
|
Other |
| ||||
|
Segment profit (loss) |
|
$ |
195 |
|
$ |
(222 |
) |
$ |
46 |
|
$ |
— |
|
|
Market-related fair value adjustments(1) |
|
— |
|
102 |
|
— |
|
— |
| ||||
|
Net derivative loss related to MSRs |
|
— |
|
3 |
|
— |
|
— |
| ||||
|
Core earnings (loss) |
|
$ |
195 |
|
$ |
(117 |
) |
$ |
46 |
|
$ |
— |
|
(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 Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Net increase (decrease) in Cash and cash equivalents |
|
$ |
117 |
|
$ |
(175 |
) |
$ |
215 |
|
$ |
286 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||||
|
Decrease in unsecured borrowings |
|
— |
|
201 |
|
— |
|
9 |
| ||||
|
Issuances of common stock |
|
(1 |
) |
— |
|
(1 |
) |
— |
| ||||
|
Adjusted cash flow |
|
$ |
116 |
|
$ |
26 |
|
$ |
214 |
|
$ |
295 |
|
NON-GAAP RECONCILIATIONS — TANGIBLE BOOK VALUE
(In millions except share and 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
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
PHH Corporation stockholders’ equity — as reported |
|
$ |
1,662 |
|
$ |
1,526 |
|
|
Goodwill |
|
(25 |
) |
(25 |
) | ||
|
Intangible assets |
|
(30 |
) |
(31 |
) | ||
|
Tangible book value |
|
$ |
1,607 |
|
$ |
1,470 |
|
|
Common shares issued and outstanding |
|
57,105,651 |
|
56,975,991 |
| ||
|
Tangible book value per share |
|
$ |
28.14 |
|
$ |
25.80 |
|