PHH Corporation Announces Third Quarter 2009 Results
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PHH to host conference call at 10:00 a.m. EST on November 5, 2009
-- Third quarter 2009 Net loss of $(52) million, and Loss per share of $
(0.94), reflected solid operating performance in our Mortgage Production
and Fleet Management Services segments which was more than offset by
valuation adjustments on MSRs, as primary mortgage rates declined in the
quarter.
-- Net income for the nine months ended September 30, 2009 of $56 million,
and Earnings per share of $1.03 ($1.02 on a fully diluted basis), were
driven in part by three consecutive quarters of profitability in
Mortgage Production and better than expected performance in Fleet
Management Services.
-- Mortgage Production segment continued its positive momentum posting a
profit of $46 million for the third quarter, driven by solid volumes and
healthy margins. The drop in primary mortgage rates at the end of the
quarter lifted production volumes going into the fourth quarter.
-- Mortgage Servicing segment third quarter 2009 loss of $(139) million
reflects negative valuation adjustments on MSRs of $186 million, as well
as the continued impact of recessionary trends on credit-related charges
of $35 million.
-- Fleet Management Services segment third quarter 2009 profit of $14
million was driven by lower than expected financing costs, and
continuing efforts to renegotiate lease pricing and to reduce costs;
Fleet Management Services segment profit outlook improved to $42-$45
million for 2009.
-- The Company took further steps to broaden and strengthen its funding
with the issuance of $910 million of term vehicle asset-backed
securities in September, including $850 million of TALF-eligible
securities, as well as $250 million of convertible senior notes due
2014.
-- Ongoing focus on driving G&A efficiencies have resulted in approximately
$40 million in cost savings across the Company year-to-date.
MT. LAUREL, N.J.--(BUSINESS WIRE)-- PHH Corporation (NYSE: PHH) today announced results for the three and nine months ended September 30, 2009.
Consolidated Results
Third Quarter - 2009
-- Net revenues for the third quarter of 2009 were $507 million compared to
Net revenues of $533 million for the third quarter of 2008.
-- Loss before income taxes was $(80) million for the third quarter of
2009, compared to $(141) million for the third quarter of 2008. Net loss
attributable to PHH Corporation for the third quarter of 2009 was $(52)
million compared to $(84) million for the third quarter of 2008.
-- Both Basic and fully diluted loss per share attributable to PHH
Corporation were $(0.94) for the third quarter of 2009 compared to $
(1.56) for the third quarter of 2008.
-- The improved third quarter 2009 results as compared to the same period
last year were primarily a reflection of higher margins on mortgage
loans, higher volumes of more profitable first mortgage retail
originations and interest rate lock commitments ("IRLCs") expected to
close and more favorable economic hedge results associated with our
IRLCs and mortgage loans held for sale ("MLHS"), combined with cost
efficiency efforts by both of our businesses. These improvements
combined to dampen the impact of a higher negative change in the value
of mortgage servicing rights ("MSRs") due to market-related valuation
adjustments, prepayments and portfolio decay, as well as lower earnings
from mortgage escrow balances. The third quarter 2008 results included a
$61 million impairment of PHH Home Loans' Goodwill.
Consolidated Results
Nine Months - 2009
-- Net revenues for the nine months ended September 30, 2009 were $1.9
billion compared to Net revenues of $1.8 billion for the nine months
ended September 30, 2008. During the nine months ended September 30,
2008, Net revenues included a $30 million benefit of adopting fair value
accounting pronouncements and the receipt of a reverse termination fee
from Blackstone Capital Partners V L.P. ("Blackstone") of $50 million.
-- Income (loss) before income taxes was $111 million for the nine months
ended September 30, 2009, compared to $(65) million for the nine months
ended September 30, 2008. Loss before income taxes for the nine months
ended September 30, 2008 included a $30 million benefit of adopting fair
value accounting pronouncements and the receipt of a reverse termination
fee from Blackstone, net of terminated merger related expenses, of $42
million that were partially offset by a $61 million Goodwill impairment
related to PHH Home Loans.
-- Net income (loss) attributable to PHH Corporation for the nine months
ended September 30, 2009 was $56 million compared to $(38) million for
the nine months ended September 30, 2008.
-- Basic and fully diluted earnings per share attributable to PHH
Corporation was $1.03 and $1.02, respectively, for the nine months ended
September 30, 2009 compared to both basic and fully diluted loss per
share attributable to PHH Corporation of $(0.70) for the nine months
ended September 30, 2008.
-- The improved year-to-date 2009 results as compared to the same period
last year were primarily a reflection of higher margins on and volumes
of mortgage loans and higher volumes of more profitable first mortgage
retail originations and IRLCs expected to close, more favorable economic
hedge results associated with our IRLCs and MLHS and a favorable MSR
market-related valuation adjustment. Additionally, efforts by the Fleet
Management Services segment to improve leasing margins and cost
efficiency efforts by both of our businesses favorably impacted results.
All of these combined to more than offset a higher negative change in
the value of MSRs due to prepayments and portfolio decay, lower earnings
on mortgage escrow balances and the impact of volume declines in our
Fleet Management Services segment. The comparable prior year period
results included the impact of the receipt of a reverse termination fee
from Blackstone and the benefit of adopting fair value accounting
pronouncements, which were partially offset by the impairment of PHH
Home Loans' Goodwill.
Management Comments and Outlook
Jerry Selitto, PHH's new president and chief executive officer, stated, "PHH delivered solid operating performance across our mortgage and fleet businesses during the third quarter, though those improved results were more than offset by the valuation adjustments on MSRs. PHH has been making steady progress in recent quarters, including the signing of a major new private-label account with $1.5B in annualized potential origination volume, but we are not satisfied with our financial performance - and we need to move quickly and aggressively to make PHH as competitive as possible for the long term, while staying true to our core, client-focused values.
"The Board and the management team have taken a fresh look at every aspect of PHH's business over the past three months. That review process has made clear that the markets in which we operate are experiencing profound change. It also has made clear that we have substantial opportunities to build value for our shareholders, our clients and our employees by fundamentally changing the way we do business. This will include capturing new revenue opportunities, further enhancing the client experience, and driving efficiencies and improved processes across every level of our business. This will be an ambitious effort, but I am confident there are significant opportunities to make PHH an even stronger, more competitive, and more client-focused company, now and over the long-term."
Sandra Bell, executive vice president and chief financial officer, stated, "Our Mortgage Production segment posted its third consecutive quarterly profit, driven by healthy margins and solid volumes across the business, as well as continued progress in shifting to a more flexible cost structure. However, results in our Mortgage Servicing segment were dampened by the negative impact of MSR valuation adjustments from lower mortgage rates and higher prepayment rates, as well as by continued negative trends in delinquency and foreclosure costs and the impact of very low short-term interest rates on our escrow balances that reduced interest income. We expect higher delinquency rates to continue to impact credit-related charges through the balance of the year and into 2010, which will likely negatively impact our Mortgage Servicing segment.
"Our Fleet Management Services segment delivered solid results again this quarter, as we made continued progress in bringing lease pricing in line with market rates and reducing costs, while also benefitting from improvements in funding costs. Given the solid performance we have achieved year-to-date, we expect to deliver even stronger full-year Fleet Management Services segment profit than we previously anticipated.
Under Jerry's leadership, we look forward to driving change across both businesses, seizing new revenue opportunities, driving further innovation for our clients, and building a more competitive cost structure.
"We have also been taking important steps this year to broaden and strengthen our funding, making additional progress during the third quarter - as we raised nearly $1.2 billion in funding. While we have a strong capital and funding position right now, we are going to be opportunistic in continuing to diversify our financing structure."
Segment Results - Third Quarter 2009
Third
Third Quarter 2009
Quarter
2008
Mortgage Mortgage Fleet Total PHH Total PHH
Production Servicing Management Other
Segment Segment Services Corporation Corporation
Segment
(In millions, unaudited)
Net fee income $ 69 $ -- $ 37 $ -- $ 106 $ 90
Fleet lease income -- -- 363 -- 363 401
Gain on mortgage 118 -- -- -- 118 60
loans(1)
Mortgage net (2 ) (14 ) -- -- (16 ) (6 )
finance expense
Loan servicing
income before -- 119 -- -- 119 122
reinsurance-related
charges
MSRs prepayments
and portfolio decay -- (97 ) -- -- (97 ) (76 )
(2)
Other income 3 1 14 (2 ) 16 22
(expense)
Net revenues before
certain fair value
adjustments and 188 9 414 (2 ) 609 613
reinsurance-related
charges
Change in fair
value of Investment -- -- -- -- -- 5
securities(3)
Change in fair
value of certain (3 ) -- -- -- (3 ) (11 )
MLHS(4)
Reinsurance-related -- (10 ) -- -- (10 ) (11 )
charges
Market-related MSRs
fair value -- (89 ) -- -- (89 ) (63 )
adjustments(5)
Net revenues 185 (90 ) 414 (2 ) 507 533
Depreciation on -- -- 315 -- 315 325
operating leases
Fleet interest -- -- 22 (1 ) 21 37
expense
Other expenses 135 24 63 4 226 230
Total expenses
before
foreclosure-related 135 24 400 3 562 592
charges and
Goodwill impairment
Foreclosure-related -- 25 -- -- 25 21
charges
Expenses before 135 49 400 3 587 613
Goodwill impairment
Goodwill impairment -- -- -- -- -- 61
Total expenses 135 49 400 3 587 674
Income (loss)
before 50 (139 ) 14 (5 ) $ (80 ) $ (141 )
income taxes
Less: income
attributable to 4 -- -- --
noncontrolling
interest
Segment profit $ 46 $ (139 ) $ 14 $ (5 )
(loss)
__________
(1) Gain on mortgage loans other than the change in fair value of certain non-conforming
loans and adjustable-rate mortgage loans ("ARMs").
(2) Represents the reduction in the fair value of MSRs due to actual prepayments and
portfolio decay. Portfolio decay represents the reduction in the value of MSRs from the
receipt of recurring cash flows and changes in portfolio delinquencies and foreclosures.
During the third quarters of 2009 and 2008, MSRs were reduced by $50 million and $33
million, respectively due to actual prepayments and $47 million and $43 million,
respectively due to portfolio decay. The impact of changes in portfolio delinquencies
and foreclosures was $31 million and $25 million during the third quarters of 2009 and
2008, respectively.
(3) Represents the change in fair value of Investment securities based upon the change
in expected cash flows from the underlying securities resulting from changes in market
conditions impacting prepayment and expected credit loss assumptions.
(4) Represents the change in fair value of certain non-conforming loans and ARMs.
(5) 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. In 2008, this amount includes a Net derivative loss related to MSRs of
$62 million.
Impact of Credit-Related Charges and Certain Fair Value Adjustments on Income before
Income Taxes
Third
Third Quarter 2009
Quarter
2008
Mortgage Mortgage Fleet Total PHH Total PHH
Production Servicing Management Other
Segment Segment Services Corporation Corporation
Segment
(In millions, unaudited)
Credit-Related
Charges:
Reinsurance-related $ -- $ (10 ) $ -- $ -- $ (10 ) $ (11 )
charges
Foreclosure-related -- (25 ) -- -- (25 ) (21 )
charges
Certain MSRs Fair
Value Adjustments:
Market-related (1) -- (89 ) -- -- (89 ) (63 )
Credit-related(2) -- (31 ) -- -- (31 ) (25 )
Certain Other Fair
Value Adjustments:
Change in fair
value of Investment -- -- -- -- -- 5
securities(3)
Change in fair
value of certain (3 ) -- -- -- (3 ) (11 )
MLHS(4)
________
(1) Represents the Change in fair value of MSRs due to changes in market inputs and
assumptions used in the valuation model. In 2008, this amount includes a Net derivative
loss related to MSRs of $62 million.
(2)Represents the Change in fair value of MSRs due to changes in portfolio
delinquencies and foreclosures.
(3)Represents the change in fair value of Investment securities based upon the change
in expected cash flows from the underlying securities resulting from changes in market
conditions impacting prepayment and expected credit loss assumptions.
(4) Represents the change in fair value of certain non-conforming loans and ARMs.
Mortgage Production Segment
-- Segment profit of $46 million for the Mortgage Production segment was
driven primarily by higher margins on mortgage loans, higher volume of
IRLCs expected to close and favorable economic hedge results associated
with our IRLCs and MLHS. Segment profit includes a $3 million net
unfavorable change in the fair value of jumbo and second-lien loans.
-- Total originations were $9.0 billion during the third quarter of 2009,
which were comprised of $6.6 billion of loans closed to be sold,
substantially all of which were conforming, and $2.4 billion of
fee-based closings.
-- IRLCs expected to close were $5.5 billion for the third quarter of 2009.
-- Purchase closings represented 50% of total originations during the third
quarter of 2009.
Mortgage Servicing Segment
-- Segment loss for the third quarter of 2009 of $(139) million includes a
$97 million reduction in the value of MSRs due to prepayments and
portfolio decay and an $89 million unfavorable non-cash market-related
MSRs valuation adjustment, primarily due to the decrease in mortgage
rates during the third quarter of 2009. Segment loss also included $35
million of credit-related charges which was comprised of
foreclosure-related charges of $25 million and reinsurance-related
charges of $10 million.
Fleet Management Services Segment
-- Segment profit of $14 million for the third quarter of 2009 was driven
primarily by improved lease margins, resulting from lease re-pricing,
and the impact of ongoing cost reduction initiatives.
-- The cost reduction initiatives implemented during the fourth quarter of
2008 in anticipation of expected volume declines favorably impacted
segment profit for the third quarter of 2009 by $2 million.
Segment Results - Nine Months 2009
Nine
Nine Months 2009
Months 2008
Mortgage Mortgage Fleet Total PHH Total PHH
Production Servicing Management Other
Segment Segment Services Corporation Corporation
Segment
(In millions, unaudited)
Net fee income $ 216 $ -- $ 112 $ -- $ 328 $ 295
Fleet lease income -- -- 1,087 -- 1,087 1,191
Gain on mortgage 467 -- -- -- 467 234
loans(1)
Mortgage net
finance (expense) (6 ) (35 ) -- 2 (39 ) 10
income
Loan servicing
income before -- 345 -- -- 345 359
reinsurance-related
charges
MSRs prepayments
and portfolio decay -- (309 ) -- -- (309 ) (212 )
(2)
Other income 5 1 42 (6 ) 42 111
(expense)(3)
Net revenues before
certain fair value
adjustments and 682 2 1,241 (4 ) 1,921 1,988
reinsurance-related
charges
Change in fair
value of Investment -- (21 ) -- -- (21 ) 12
securities(4)
Change in fair
value of certain (17 ) -- -- -- (17 ) (57 )
MLHS(5)
Reinsurance-related -- (36 ) -- -- (36 ) (29 )
charges
Market-related MSRs
fair value -- 15 -- -- 15 (76 )
adjustments(6)
Net revenues 665 (40 ) 1,241 (4 ) 1,862 1,838
Depreciation on -- -- 962 -- 962 971
operating leases
Fleet interest -- -- 76 (4 ) 72 119
expense
Other expenses 412 72 164 10 658 698
Total expenses
before
foreclosure-related 412 72 1,202 6 1,692 1,788
charges and
Goodwill impairment
Foreclosure-related -- 59 -- -- 59 54
charges
Expenses before 412 131 1,202 6 1,751 1,842
Goodwill impairment
Goodwill impairment -- -- -- -- -- 61
Total expenses 412 131 1,202 6 1,751 1,903
Income (loss)
before 253 (171 ) 39 (10 ) $ 111 $ (65 )
income taxes
Less: income
attributable to 12 -- -- --
noncontrolling
interest
Segment profit $ 241 $ (171 ) $ 39 $ (10 )
(loss)
__________
(1) Gain on mortgage loans other than the change in fair value of certain non-conforming
loans and ARMs. In 2008, this amount includes the benefit of adopting fair value
accounting pronouncements of $30 million.
(2) Represents the reduction in the fair value of MSRs due to actual prepayments and
portfolio decay. Portfolio decay represents the reduction in the value of MSRs from the
receipt of recurring cash flows and changes in portfolio delinquencies and foreclosures.
During the nine months ended September 30, 2009 and 2008, MSRs were reduced by $200
million and $122 million, respectively, due to actual prepayments and $109 million and
$90 million, respectively, due to portfolio decay. The impact of changes in portfolio
delinquencies and foreclosures was $66 million and $41 million during the nine months
ended September 30, 2009 and 2008, respectively.
(3) Other income in 2008 includes the receipt of a $50 million reverse termination fee
from Blackstone related to a terminated merger agreement with General Electric Capital
Corporation.
(4) Represents the change in fair value of Investment securities based upon the change in
expected cash flows from the underlying securities resulting from changes in market
conditions impacting prepayment and expected credit loss assumptions.
(5) Represents the change in fair value of certain non-conforming loans and ARMs.
(6) 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. In 2008, this amount is net of Net derivative loss related to MSRs of $179
million.
Impact of Credit-Related Charges and Certain Fair Value Adjustments on Income before
Income Taxes
Nine
Nine Months 2009
Months 2008
Mortgage Mortgage Fleet Total PHH Total PHH
Production Servicing Management Other
Segment Segment Services Corporation Corporation
Segment
(In millions, unaudited)
Credit-Related
Charges:
Reinsurance-related $ -- $ (36 ) $ -- $ -- $ (36 ) $ (29 )
charges
Foreclosure-related -- (59 ) -- -- (59 ) (54 )
charges
Certain MSRs Fair
Value Adjustments:
Market-related(1) -- 15 -- -- 15 (76 )
Credit-related(2) -- (66 ) -- -- (66 ) (41 )
Certain Other Fair
Value Adjustments:
Change in fair
value of Investment -- (21 ) -- -- (21 ) 12
securities(3)
Change in fair
value of certain (17 ) -- -- -- (17 ) (57 )
MLHS(4)
________
(1) Represents the Change in fair value of MSRs due to changes in market inputs and
assumptions used in the valuation model. In 2008, this amount is net of Net derivative
loss related to MSRs of $179 million.
(2) Represents the Change in fair value of MSRs due to changes in portfolio
delinquencies and foreclosures.
(3)Represents the change in fair value of Investment securities based upon the change
in expected cash flows from the underlying securities resulting from changes in market
conditions impacting prepayment and expected credit loss assumptions.
(4) Represents the change in fair value of certain non-conforming loans and ARMs.
Mortgage Production Segment
-- Segment profit of $241 million for the Mortgage Production segment was
driven primarily by higher margins on mortgage loans, higher volume of
IRLCs expected to close and favorable economic hedge results associated
with our IRLCs and MLHS. Segment profit includes a $17 million net
unfavorable change in the fair value of scratch and dent, second-lien,
construction, Alt-A and jumbo loans.
-- Total originations were $28.9 billion during the nine months ended
September 30, 2009, which were comprised of $22.9 billion of loans
closed to be sold, substantially all of which were conforming, and $6.0
billion of fee-based closings.
-- IRLCs expected to close were $20.0 billion for the nine months ended
September 30, 2009.
-- Purchase closings represented 38% of total originations during the nine
months ended September 30, 2009.
Mortgage Servicing Segment
-- Segment loss for the nine months ended September 30, 2009 of $(171)
million includes a $309 million reduction in the value of MSRs due to
prepayments and portfolio decay and a $15 million favorable non-cash
market-related MSRs valuation adjustment.
-- Segment loss also included credit-related charges of $95 million, which
were comprised of foreclosure-related charges of $59 million and
reinsurance-related charges of $36 million, and a $21 million decline in
fair value of Investment securities.
Fleet Management Services Segment
-- Segment profit of $39 million for the nine months ended September 30,
2009 was driven primarily by improved lease margins resulting from lease
re-pricing and the impact of ongoing cost reduction initiatives.
-- Cost reduction initiatives implemented during the fourth quarter of 2008
in anticipation of expected volume declines favorably impacted segment
profit for the nine months ended September 30, 2009 by $6 million.
Liquidity
-- As of September 30, 2009, we had $501 million of unused available
capacity under our unsecured committed credit facilities.
-- During the third quarter of 2009, Chesapeake Funding LLC ("Chesapeake"),
our wholly owned subsidiary, issued $910 million in asset-backed term
notes, and we issued $250 million in 4.0% convertible senior notes due
2014.
-- We are actively engaged in evaluating various sources of funding for our
Fleet Management Services segment in the U.S. and Canada. Term
Asset-Backed Loan Facility ("TALF") eligibility criteria permit the
issuance of up to an additional $1.65 billion of asset-backed securities
by Chesapeake.
-- As of September 30, 2009, we had mortgage warehouse capacity (including
uncommitted facilities) of $4.3 billion, $974 million of which was
utilized.
-- On October 8, 2009, the Chesapeake Series 2006-1 variable funding notes
were paid in full.
Conference Call
The Company will conduct a conference call for investors on Thursday, November 5, 2009 at 10:00 a.m., Eastern Standard Time. Investors will be able to access the third quarter 2009 downloadable slide presentation that will accompany management's remarks by visiting the Investor Relations page of the Company's website at www.phh.com prior to the conference call. Investors may also request copies via fax by calling the investor hotline at 1-856-917-7405.
Interested investors can access the conference call by dialing 1-877-219-9989 or 1-706-758-6450, using conference ID 39945724, ten minutes prior to the start time. The conference call will also be broadcast on the Company's website at www.phh.com. A replay will be available beginning shortly after the conclusion of the live call and ending on November 20, 2009 by dialing 1-800-642-1687 or 1-706-645-9291, using conference ID 39945724, or by logging on to the Company's website.
About PHH Corporation
Headquartered in Mount Laurel, New Jersey, PHH Corporation is a leading outsource provider of mortgage and vehicle fleet management services. Its subsidiary, PHH Mortgage, is one of the top five retail originators of residential mortgages in the United States1, and its subsidiary, PHH Arval, is a leading fleet management services provider in the United States and Canada. For additional information about the company and its subsidiaries please visit our website at www.phh.com.
1 Inside Mortgage Finance, Copyright 2009
Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should understand that these statements are not guarantees of performance or results and are preliminary in nature. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "projects", "estimates", "plans", "may increase", "may result", "will result", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts.
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 Securities and Exchange Commission under the Exchange Act and those risk factors included in our Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 23, 2009 in connection with any forward-looking statements that may be made by us and our businesses generally. 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
(Unaudited)
(In millions, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Revenues
Mortgage fees $ 69 $ 50 $ 216 $ 172
Fleet management fees 37 40 112 123
Net fee income 106 90 328 295
Fleet lease income 363 401 1,087 1,191
Gain on mortgage loans, net 115 49 450 177
Mortgage interest income 20 38 70 138
Mortgage interest expense (36 ) (44 ) (109 ) (128 )
Mortgage net finance (expense) (16 ) (6 ) (39 ) 10
income
Loan servicing income 109 111 309 330
Change in fair value of mortgage (186 ) (77 ) (294 ) (109 )
servicing rights
Net derivative loss related to -- (62 -- (179 )
mortgage servicing rights
Valuation adjustments related to (186 ) (139 ) (294 ) (288 )
mortgage servicing rights
Net loan servicing (loss) income (77 ) (28 15 42
Other income(1) 16 27 21 123
Net revenues 507 533 1,862 1,838
Expenses
Salaries and related expenses 114 108 357 341
Occupancy and other office expenses 16 19 43 55
Depreciation on operating leases 315 325 962 971
Fleet interest expense 21 37 72 119
Other depreciation and amortization 7 7 20 19
Other operating expenses 114 117 297 337
Goodwill impairment -- 61 -- 61
Total expenses 587 674 1,751 1,903
(Loss) income before income taxes (80 ) (141 ) 111 (65 )
(Benefit from) provision for income (32 ) (28 43 (1 )
taxes
Net (loss) income (48 ) (113 ) 68 (64 )
Less: net income (loss) attributable 4 (29 12 (26 )
to noncontrolling interest
Net (loss) income attributable to $ (52 ) $ (84 ) $ 56 $ (38 )
PHH Corporation
Basic (loss) earnings per share $ (0.94 ) $ (1.56 ) $ 1.03 $ (0.70 )
attributable to PHH Corporation
Diluted (loss) earnings per share $ (0.94 ) $ (1.56 ) $ 1.02 $ (0.70 )
attributable to PHH Corporation
__________
(1) Other income for the nine months ended September 30, 2008 includes the
receipt of a $50 million reverse termination fee from Blackstone related to a
terminated merger agreement with General Electric Capital Corporation.
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
September 30, December 31,
2009 2008
ASSETS
Cash and cash equivalents $ 140 $ 109
Restricted cash 641 614
Mortgage loans held for sale 1,256 1,006
Accounts receivable, net 496 468
Net investment in fleet leases 3,698 4,204
Mortgage servicing rights 1,367 1,282
Investment securities 12 37
Property, plant and equipment, net 51 63
Goodwill 25 25
Other assets(1) 601 465
Total assets $ 8,287 $ 8,273
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 508 $ 451
Debt 5,455 5,764
Deferred income taxes 620 579
Other liabilities 311 212
Total liabilities 6,894 7,006
Commitments and contingencies -- --
Total PHH Corporation stockholders' equity(2) 1,388 1,266
Noncontrolling interest 5 1
Total equity 1,393 1,267
Total liabilities and equity $ 8,287 $ 8,273
__________
(1) Other assets include intangible assets of $39 million and $40 million
as of September 30, 2009 and December 31, 2008, respectively.
(2) Outstanding shares of common stock were 54.744 million and 54.256
million as of September 30, 2009 and December 31, 2008, respectively.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE PRODUCTION SEGMENT RESULTS
THIRD QUARTER 2009 VS. THIRD QUARTER 2008
(Unaudited)
Three Months
Ended September 30,
2009 2008 Change % Change
(Dollars in millions, except
average loan amount)
Loans closed to be sold $ 6,630 $ 4,320 $ 2,310 53 %
Fee-based closings 2,383 3,532 (1,149 ) (33 ) %
Total closings $ 9,013 $ 7,852 $ 1,161 15 %
Purchase closings $ 4,481 $ 6,198 $ (1,717 ) (28 ) %
Refinance closings 4,532 1,654 2,878 174 %
Total closings $ 9,013 $ 7,852 $ 1,161 15 %
Fixed rate $ 6,870 $ 4,372 $ 2,498 57 %
Adjustable rate 2,143 3,480 (1,337 ) (38 ) %
Total closings $ 9,013 $ 7,852 $ 1,161 15 %
Number of loans closed 39,161 34,499 4,662 14 %
(units)
Average loan amount $ 230,151 $ 227,599 $ 2,552 1 %
Loans sold $ 7,428 $ 5,059 $ 2,369 47 %
Applications $ 11,264 $ 9,524 $ 1,740 18 %
IRLCs expected to close $ 5,514 $ 3,538 $ 1,976 56 %
Three Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Mortgage fees $ 69 $ 50 $ 19 38 %
Gain on mortgage loans, net 115 49 66 135 %
Mortgage interest income 17 22 (5 ) (23 ) %
Mortgage interest expense (19 ) (25 ) 6 24 %
Mortgage net finance expense (2 ) (3 ) 1 33 %
Other income 3 2 1 50 %
Net revenues 185 98 87 89 %
Salaries and related 80 74 6 8 %
expenses
Occupancy and other office 9 11 (2 ) (18 ) %
expenses
Other depreciation and 3 4 (1 ) (25 ) %
amortization
Other operating expenses 43 40 3 8 %
Goodwill impairment -- 61 (61 ) (100 ) %
Total expenses 135 190 (55 ) (29 ) %
Income (loss) before income 50 (92 ) 142 n/m(1)
taxes
Less: net income (loss)
attributable to 4 (29 ) 33 n/m(1)
noncontrolling interest
Segment profit (loss) $ 46 $ (63 ) $ 109 n/m(1)
_________
(1) n/m -- Not meaningful.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE PRODUCTION SEGMENT RESULTS
NINE MONTHS ENDED SEPTEMBER 30, 2009 VS. NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
Nine Months
Ended September 30,
2009 2008 Change % Change
(Dollars in millions, except
average loan amount)
Loans closed to be sold $ 22,917 $ 17,416 $ 5,501 32 %
Fee-based closings 5,955 11,140 (5,185 ) (47 ) %
Total closings $ 28,872 $ 28,556 $ 316 1 %
Purchase closings $ 10,937 $ 17,335 $ (6,398 ) (37 ) %
Refinance closings 17,935 11,221 6,714 60 %
Total closings $ 28,872 $ 28,556 $ 316 1 %
Fixed rate $ 23,809 $ 16,442 $ 7,367 45 %
Adjustable rate 5,063 12,114 (7,051 ) (58 ) %
Total closings $ 28,872 $ 28,556 $ 316 1 %
Number of loans closed (units) 126,729 121,002 5,727 5 %
Average loan amount $ 227,827 $ 235,997 $ (8,170 ) (3 ) %
Loans sold $ 22,558 $ 17,543 $ 5,015 29 %
Applications $ 41,807 $ 39,433 $ 2,374 6 %
IRLCs expected to close $ 19,999 $ 15,799 $ 4,200 27 %
Nine Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Mortgage fees $ 216 $ 172 $ 44 26 %
Gain on mortgage loans, net 450 177 273 154 %
Mortgage interest income 61 71 (10 ) (14 ) %
Mortgage interest expense (67 ) (74 ) 7 9 %
Mortgage net finance expense (6 ) (3 ) (3 ) (100 ) %
Other income 5 3 2 67 %
Net revenues 665 349 316 91 %
Salaries and related expenses 251 235 16 7 %
Occupancy and other office 23 32 (9 ) (28 ) %
expenses
Other depreciation and 10 10 -- --
amortization
Other operating expenses 128 127 1 1 %
Goodwill impairment -- 61 (61 ) (100 ) %
Total expenses 412 465 (53 ) (11 ) %
Income (loss) before income 253 (116 ) 369 n/m(1)
taxes
Less: net income (loss)
attributable to noncontrolling 12 (26 ) 38 n/m(1)
interest
Segment profit (loss) $ 241 ($90 ) $ 331 n/m(1)
_________
(1) n/m -- Not meaningful.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE SERVICING SEGMENT RESULTS
THIRD QUARTER 2009 VS. THIRD QUARTER 2008
(Unaudited)
Three Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Average loan servicing $ 149,526 $ 147,452 $ 2,074 1 %
portfolio
Three Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Mortgage interest income $ 3 $ 16 $ (13 ) (81 ) %
Mortgage interest expense (17 ) (17 ) -- --
Mortgage net finance expense (14 ) (1 ) (13 ) n/m(1)
Loan servicing income 109 111 (2 ) (2 ) %
Change in fair value of (186 ) (77 ) (109 ) (142 ) %
mortgage servicing rights
Net derivative loss related to -- (62 ) 62 100 %
mortgage servicing rights
Valuation adjustments related (186 ) (139 ) (47 ) (34 ) %
to mortgage servicing rights
Net loan servicing loss (77 ) (28 ) (49 ) (175 ) %
Other income 1 4 (3 ) (75 ) %
Net revenues (90 ) (25 ) (65 ) (260 ) %
Salaries and related expenses 9 8 1 13 %
Occupancy and other office 3 3 -- --
expenses
Other depreciation and 1 -- 1 n/m(1)
amortization
Other operating expenses 36 30 6 20 %
Total expenses 49 41 8 20 %
Segment loss $ (139 ) $ (66 ) $ (73 ) (111 ) %
_________
(1) n/m -- Not meaningful.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE SERVICING SEGMENT RESULTS
NINE MONTHS ENDED SEPTEMBER 30, 2009 VS. NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
Nine Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Average loan servicing portfolio $ 149,274 $ 153,671 $ (4,397 ) (3 ) %
Nine Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Mortgage interest income $ 10 $ 68 $ (58 ) (85 ) %
Mortgage interest expense (45 ) (54 ) 9 17 %
Mortgage net finance (expense) (35 ) 14 (49 ) n/m(1)
income
Loan servicing income 309 330 (21 ) (6 ) %
Change in fair value of mortgage (294 ) (109 ) (185 ) (170 ) %
servicing rights
Net derivative loss related to -- (179 ) 179 100 %
mortgage servicing rights
Valuation adjustments related to (294 ) (288 ) (6 ) (2 ) %
mortgage servicing rights
Net loan servicing income 15 42 (27 ) (64 ) %
Other (expense) income (20 ) 12 (32 ) n/m(1)
Net revenues (40 ) 68 (108 ) n/m(1)
Salaries and related expenses 28 24 4 17 %
Occupancy and other office 7 8 (1 ) (13 ) %
expenses
Other depreciation and 1 1 -- --
amortization
Other operating expenses 95 83 12 14 %
Total expenses 131 116 15 13 %
Segment loss $ (171 ) $ (48 ) $ (123 ) (256 ) %
_________
(1) n/m -- Not meaningful.
PHH CORPORATION AND SUBSIDIARIES
FLEET MANAGEMENT SERVICES SEGMENT RESULTS
THIRD QUARTER 2009 VS. THIRD QUARTER 2008
(Unaudited)
Average for the
Three Months
Ended September 30,
2009 2008 Change % Change
(In thousands of units)
Leased vehicles 310 333 (23 ) (7 ) %
Maintenance service cards 273 294 (21 ) (7 ) %
Fuel cards 281 289 (8 ) (3 ) %
Accident management vehicles 301 321 (20 ) (6 ) %
Three Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Fleet management fees $ 37 $ 40 $ (3 ) (8 ) %
Fleet lease income 363 401 (38 ) (9 ) %
Other income 14 22 (8 ) (36 ) %
Net revenues 414 463 (49 ) (11 ) %
Salaries and related expenses 21 23 (2 ) (9 ) %
Occupancy and other office expenses 4 5 (1 ) (20 ) %
Depreciation on operating leases 315 325 (10 ) (3 ) %
Fleet interest expense 22 40 (18 ) (45 ) %
Other depreciation and amortization 2 3 (1 ) (33 ) %
Other operating expenses 36 50 (14 ) (28 ) %
Total expenses 400 446 (46 ) (10 ) %
Segment profit $ 14 $ 17 $ (3 ) (18 ) %
PHH CORPORATION AND SUBSIDIARIES
FLEET MANAGEMENT SERVICES SEGMENT RESULTS
NINE MONTHS ENDED SEPTEMBER 30, 2009 VS. NINE MONTHS ENDED SEPTEMBER 30,
2008
(Unaudited)
Average for the
Nine Months
Ended September 30,
2009 2008 Change % Change
(In thousands of units)
Leased vehicles 318 337 (19 ) (6 ) %
Maintenance service cards 277 302 (25 ) (8 ) %
Fuel cards 284 299 (15 ) (5 ) %
Accident management vehicles 311 324 (13 ) (4 ) %
Nine Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Fleet management fees $ 112 $ 123 $ (11 ) (9 ) %
Fleet lease income 1,087 1,191 (104 ) (9 ) %
Other income 42 62 (20 ) (32 ) %
Net revenues 1,241 1,376 (135 ) (10 ) %
Salaries and related expenses 63 73 (10 ) (14 ) %
Occupancy and other office expenses 13 15 (2 ) (13 ) %
Depreciation on operating leases 962 971 (9 ) (1 ) %
Fleet interest expense 76 124 (48 ) (39 ) %
Other depreciation and amortization 8 8 -- --
Other operating expenses 80 128 (48 ) (38 ) %
Total expenses 1,202 1,319 (117 ) (9 ) %
Segment profit $ 39 $ 57 $ (18 ) (32 ) %
PHH CORPORATION AND SUBSIDIARIES
COMPONENTS OF MORTGAGE LOANS HELD FOR SALE
(Unaudited)
September 30, December 31,
2009 2008
(In millions)
First mortgages:
Conforming(1) $ 1,145 $ 827
Non-conforming 23 38
Alt-A(2) 2 2
Construction loans 20 35
Total first mortgages 1,190 902
Second lien 24 37
Scratch and Dent(3) 39 66
Other 3 1
Total $ 1,256 $ 1,006
__________
(1) Represents mortgages that conform to the standards of the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Government National Mortgage Association.
(2) Represents mortgages that are made to borrowers with prime credit
histories, but do not meet the documentation requirements of a
conforming loan.
(3) Represents mortgages with origination flaws or performance issues.
PHH CORPORATION AND SUBSIDIARIES
COMPONENTS OF GAIN ON MORTGAGE LOANS, NET
(Unaudited)
Three Months
Ended September 30,
2009(1) 2008(2) Change % Change
(In millions)
Gain on loans $ 80 $ 72 $ 8 11 %
Change in fair value of MLHS and
related derivatives:
ARMs -- (1 ) 1 100 %
Scratch and Dent and Alt-A loans -- (4 ) 4 100 %
Second-lien loans (2 ) (2 ) -- --
Jumbo loans (1 ) (4 ) 3 75 %
Economic hedge results 38 (12 ) 50 n/m(3)
Total change in fair value of MLHS 35 (23 ) 58 n/m(3)
and related derivatives
Gain on mortgage loans, net $ 115 $ 49 $ 66 135 %
_________
(1) The unfavorable valuation adjustments for second-lien and jumbo loans
during the third quarter of 2009 were primarily due to decreases in the credit
performance of these loans.
(2) The unfavorable valuation adjustment for adjustable-rate mortgage loans
("ARMs"), Scratch and Dent and Alt-A loans, second-lien and jumbo loans during
the third quarter of 2008 was the result of a continued decrease in demand for
this type of loans due to adverse secondary mortgage market conditions
unrelated to changes in interest rates.
(3) n/m -- Not meaningful.
Nine Months
Ended September 30,
2009(1) 2008(2) Change % Change
(In millions)
Gain on loans $ 427 $ 258 $ 169 66 %
Change in fair value of MLHS and
related derivatives:
ARMs -- (20 ) 20 100 %
Scratch and Dent and Alt-A loans (6 ) (20 ) 14 70 %
Second-lien loans (6 ) (2 ) (4 ) (200) %
Construction loans (4 ) -- (4 ) n/m(3)
Jumbo loans (1 ) (15 ) 14 93 %
Economic hedge results 40 (54 ) 94 n/m(3)
Total change in fair value of MLHS 23 (111 ) 134 n/m(3)
and related derivatives
Benefit of transition provision of -- 30 (30 ) (100) %
updates to ASC 815
Gain on mortgage loans, net $ 450 $ 177 $ 273 154 %
_________
(1) The unfavorable valuation adjustments for Scratch and Dent and Alt-A
loans, second-lien, construction and jumbo loans during the nine months ended
September 30, 2009 were primarily due to decreases in the collateral values
and credit performance of these loans.
(2) The unfavorable valuation adjustments for ARMs, Scratch and Dent and Alt-A
loans, second-lien and jumbo loans during the nine months ended September 30,
2008 was the result of a continued decrease in demand for these types of
products due to adverse secondary mortgage market conditions unrelated to
changes in interest rates.
(3) n/m -- Not meaningful.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE LOAN SERVICING PORTFOLIO
(Unaudited)
Portfolio Activity
Nine Months
Ended September 30,
2009 2008
(In millions)
Balance, beginning of period $ 149,750 $ 159,183
Additions 25,799 24,428
Payoffs, sales and curtailments(1) (25,815 ) (34,897 )
Balance, end of period $ 149,734 $ 148,714
Portfolio Composition
September 30,
2009 2008
(In millions)
Owned servicing portfolio $ 128,846 $ 133,135
Subserviced portfolio 20,888 15,579
Total servicing portfolio $ 149,734 $ 148,714
Fixed rate $ 99,672 $ 93,075
Adjustable rate 50,062 55,639
Total servicing portfolio $ 149,734 $ 148,714
Conventional loans $ 129,915 $ 132,963
Government loans 13,125 10,127
Home equity lines of credit 6,694 5,624
Total servicing portfolio $ 149,734 $ 148,714
Weighted-average interest rate 5.40 % 5.80 %
Portfolio Delinquency(2)
September 30,
2009 2008
Number Unpaid Number Unpaid
of Loans Balance of Loans Balance
30 days 2.57 % 2.28 % 2.33 % 2.03 %
60 days 0.82 % 0.79 % 0.60 % 0.55 %
90 or more days 1.39 % 1.47 % 0.58 % 0.53 %
Total delinquency 4.78 % 4.54 % 3.51 % 3.11 %
Foreclosure/real estate 2.65 % 2.72 % 1.72 % 1.63 %
owned/bankruptcies
________
(1) Payoffs, sales and curtailments for the nine months ended September 30,
2008 includes $18.3 billion of the unpaid principal balance of the underlying
mortgage loans for which the associated MSRs were sold during the year ended
December 31, 2007, but the Company subserviced these loans until the MSRs were
transferred from the Company's systems to the purchasers' systems during the
second quarter of 2008.
(2) Represents the loan servicing portfolio delinquencies as a percentage of
the total number of loans and the total unpaid balance of the portfolio.
PHH CORPORATION AND SUBSIDIARIES
CHANGE IN FAIR VALUE OF MSRs AND NET (LOSS) GAIN ON MSRs RISK MANAGEMENT
ACTIVITIES
(Unaudited)
Three Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Actual prepayments of the $ (50 ) $ (33 ) $ (17 ) (52) %
underlying mortgage loans
Actual receipts of recurring cash (16 ) (18 ) 2 11 %
flows
Changes in portfolio delinquencies (31 ) (25 ) (6 ) (24) %
and foreclosures
Changes in market inputs or
assumptions used in the valuation (89 ) (1 ) (88 ) n/m(1)
model
Change in fair value of mortgage $ (186 ) $ (77 ) $ (109 ) (142) %
servicing rights
_________
(1) n/m -- Not meaningful.
Three Months
Ended September 30,
2009 2008
(In millions)
Change in fair value of mortgage servicing rights due
to changes in market inputs or $ (89 ) $ (1 )
assumptions used in the valuation model
Net derivative loss related to mortgage servicing (62 )
rights
Net loss on MSRs risk management activities $ (89 ) $ (63 )
Nine Months
Ended September 30,
2009 2008 Change % Change
(In millions)
Actual prepayments of the $ (200 ) $ (122 ) $ (78 ) (64) %
underlying mortgage loans
Actual receipts of recurring cash (43 ) (49 ) 6 12 %
flows
Changes in portfolio delinquencies (66 ) (41 ) (25 ) (61) %
and foreclosures
Changes in market inputs or
assumptions used in the valuation 15 103 (88 ) (85) %
model
Change in fair value of mortgage $ (294 ) $ (109 ) $ (185 ) (170) %
servicing rights
Nine Months
Ended September 30,
2009 2008
(In millions)
Change in fair value of mortgage servicing rights
due to changes in market inputs or $ 15 $ 103
assumptions used in the valuation model
Net derivative loss related to mortgage servicing -- (179 )
rights
Net gain (loss) on MSRs risk management $ 15 $ (76 )
activities
PHH CORPORATION AND SUBSIDIARIES
NET INVESTMENT IN FLEET LEASES DETAIL
(Unaudited)
September 30, December 31,
2009 2008
Vehicles under open-end leases 95 % 94 %
Vehicles under closed-end leases 5 % 6 %
Vehicles under variable-rate leases 75 % 73 %
Vehicles under fixed-rate leases 25 % 27 %
Our Fleet Management Services segment's historical net credit losses as a percentage of Net investment in fleet lea
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