Form 8-K PHH CORP For: Feb 17

Item 2.02.     Results of Operations and Financial Condition.

On February 17, 2015, PHH Corporation (“PHH,” the “Company,” “we” or “our”) issued a press release announcing financial results for the three and twelve month periods ended December 31, 2014. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference in its entirety..

The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as expressly set forth in such filing.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

*          Exhibit 99.1 hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall such Exhibit be incorporated by reference into any registration statement or other document pursuant to the Securities Act, except as expressly set forth in such filing.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 17, 2015

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Exhibit 99.1

PHH Corporation Announces Fourth Quarter and Full-Year 2014 Results

4Q14 Highlights:

·                  Net loss attributable to PHH Corporation of $33 million or $0.66 per basic share.  Net loss from continuing operations attributable to PHH Corporation of $32 million or $0.62 per basic share.  Net loss from continuing operations includes a $12 million pre-tax unfavorable market-related fair value adjustment to our mortgage servicing rights (MSRs), net of derivative gains related to MSRs.

·                  Mortgage applications of $10.9 billion, a 6% increase from $10.4 billion in 4Q13.  Interest rate lock commitments expected to close of $1.6 billion, a 25% decrease from $2.1 billion in 4Q13 as fee-based closings constituted 68% of total closings, up from 61% in 4Q13.

·                  Total closings of $9.4 billion, a 1% decline from $9.5 billion in 4Q13.  Purchase closings of $4.8 billion, a 3% increase from $4.7 billion in 4Q13.  Total loan margin of 291 bps, a 13 bps increase from 278 bps in 3Q14.

·                  Total loan servicing portfolio of $227.3 billion at December 31, 2014, up from $226.0 billion at September 30, 2014.

·                  MSR book value of $1.0 billion at December 31, 2014, representing an 89 bps capitalized servicing rate and a 3.1x capitalized servicing multiple, compared to a book value of $1.1 billion, representing a 93 bps capitalized servicing rate and a 3.2x capitalized servicing multiple at September 30, 2014.

Mt. Laurel, NJ — February 17, 2015 — PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today announced financial results for the quarter and year ended December 31, 2014.

For the quarter ended December 31, 2014, the Company reported a net loss attributable to PHH Corporation of $33 million or $0.66 per basic share.  For the year ended December 31, 2014, net income attributable to PHH Corporation was $81 million or $1.47 per basic share.  Net loss from continuing operations attributable to PHH Corporation for the quarter ended December 31, 2014, was $32 million or $0.62 per basic share.  Net loss from continuing operations attributable to PHH Corporation for the year ended December 31, 2014, was $191 million or $3.47 per basic share.

For the quarter ended December 31, 2014, core loss (after-tax)* and core loss per share*, which exclude a $12 million pre-tax unfavorable market-related MSR fair-value adjustment, net of derivative gains related to MSRs, were $24 million and $0.47, respectively.  For the year ended December 31, 2014, core loss (after-tax)* and core loss per share*, which exclude an $83 million pre-tax unfavorable market-related MSR fair-value adjustment, net of derivative gains related to MSRs, were $140 million and $2.55, respectively.

Notable items in the fourth quarter of 2014 included a charge related to legal and regulatory reserves ($6 million pre-tax or $0.07 per share after tax) and a severance release ($1 million pre-tax or $0.02 per share after tax).  Notable items in the third quarter of 2014 included charges related to severance ($8 million pre-tax or $0.09 per share after tax), early debt repayment ($24 million pre-tax or $0.26 per share after tax) and legal and regulatory reserves ($22 million pre-tax or $0.24 per share after tax) and $10 million in unfavorable tax adjustments resulting from the Fleet sale.  Notable items in the fourth quarter of 2013 included a charge related to severance ($12 million pre-tax or $0.13 per share after tax) and a legal and regulatory reserve release ($3 million pre-tax or $0.04 per share after tax).

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Tangible book value per share* was $30.21 at December 31, 2014, up 7% from $28.15 at December 31, 2013.

Glen A. Messina, president and CEO of PHH Corporation, said, “In 2014, we took an important step forward with the sale of our Fleet business, which provided us with the financial flexibility to return significant capital to our shareholders, lower our unsecured debt level to our target range, and reinvest in the future success of our Mortgage business.  I am excited about 2015 and beyond for PHH.  We intend to operate more efficiently, maintain our focus on quality, compliance and customer service, as well as diversify and expand our revenue opportunities.”

Messina added, “We are pleased that we are at or near the end of contract negotiations and have achieved our target objectives with clients representing approximately 50% of our 2014 total PLS closing volume.  For our remaining PLS clients, we have extended our negotiations to address their unique program requirements and potentially expand the scope of services to be provided.  In addition, we remain on track on our re-engineering and growth initiatives.  I want to recognize and thank the PHH Board of Directors and my colleagues at PHH for their continued hard work and enduring commitment, and we believe these efforts put PHH in a strong position to continue to deliver value for our shareholders.”

Summary Consolidated Results

(In millions, except per share data)

* Non-GAAP Financial Measures

Non-GAAP financial measures for all periods presented reflect the continuing operations of the Company and exclude the results of the Fleet business and amounts related to the disposition of the business.

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.

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Mortgage Production

Mortgage Production Segment Loss

Mortgage Production segment loss in the fourth quarter of 2014 was $26 million, compared to a segment loss of $28 million in the third quarter of 2014 and a segment loss of $45 million in the fourth quarter of 2013.  The $2 million improvement in segment loss during the fourth quarter of 2014 compared to the third quarter of 2014 was primarily due to declines in total expenses that were partially offset by declines in mortgage fees and gain on mortgage loans.  The reduced segment loss in the fourth quarter of 2014 compared to the fourth quarter of 2013 was due to reductions in salaries and related expenses and other operating expenses.

Mortgage Closing Volume

Total fourth quarter 2014 mortgage closings were $9.4 billion, down 5% from the third quarter of 2014 and down 1% from the fourth quarter of 2013.  Retail closings also decreased 5% from the third quarter of 2014 but increased 1% compared to the fourth quarter of 2013.  Fee-based closings as a percentage of total closings continued to trend higher in the fourth quarter of 2014, increasing to 68%.  This was up from 65% of total closings in the third quarter of 2014 and 61% of total closings in the fourth quarter of 2013.  The high percentage of fee-based closings continues to adversely affect the profitability of our Mortgage Production segment as the revenue per loan on fee-based closings is generally lower than the revenue per loan on saleable closings.

Interest Rate Lock Commitments

IRLCs expected to close of $1.6 billion in the fourth quarter of 2014 decreased 13% from the third quarter of 2014 and decreased 25% from the fourth quarter of 2013, primarily reflecting continued low demand for refinancing despite declining interest rates and a continued shift in mix toward fee-based closings.

Total Loan Margin

Total loan margin on IRLCs expected to close for the fourth quarter of 2014 was 291 bps, a 13 bps increase from the third quarter of 2014 and 22 bps less than the fourth quarter of 2013.  This represents the second consecutive quarter of increases in total loan margin.  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 Servicing

Mortgage Servicing Segment Loss

Mortgage Servicing segment loss in the fourth quarter of 2014 was $13 million, compared to a segment loss of $71 million in the third quarter of 2014 and a segment profit of $85 million in the fourth quarter of 2013.  The fourth quarter of 2014 segment loss included a $68 million unfavorable market-related fair value adjustment to our mortgage servicing rights (MSRs), as mortgage rates declined during the quarter, partially offset by a $56 million net derivative gain related to MSRs.  This compares to a $40 million unfavorable market-related fair value adjustment to our MSR in the third quarter of 2014 and a $50 million favorable market-related fair value adjustment to our MSR partially offset by a $2 million net derivative loss related to MSRs in the fourth quarter of 2013.  The sequential quarter improvement in segment results was also driven by a decrease in non-market-related MSR fair value adjustments, and a lower charge related to reserves for legal and regulatory contingencies.  The decline in interest rates during the fourth quarter of 2014 resulted in an increased value of our MSR derivative portfolio as the instruments became in the money, which caused an increase in our hedge coverage ratio despite a constant hedge strategy.

Unpaid Principal Balance (UPB) of Mortgage Servicing Portfolio

At December 31, 2014, the UPB of our capitalized servicing portfolio was $112.7 billion, down 6% from September 30, 2014, and 13% from December 31, 2013.  Our capitalized servicing portfolio continues to decline as payoffs and curtailments and sales continue to exceed additions from new loan production.  Sales includes the UPB

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related to sales of newly-created MSRs for which we are sub-servicing the underlying loans and we expect the combined value of the sale price of these MSRs and the net present value of the subservicing of the underlying loans to at least equal the value we would have ascribed to the MSRs if they had been retained by PHH.  In the fourth quarter of 2014, sales also includes a sale of existing MSRs.

At December 31, 2014, the UPB of our total loan servicing portfolio was $227.3 billion, representing a 1% increase from September 30, 2014, and a slight increase from December 31, 2013.  The year-over-year slight increase in our total loan servicing portfolio primarily reflects an increase in our sub-servicing UPB, partially offset by the aforementioned decline in the UPB of our capitalized servicing portfolio.  The increase in subserviced loans was primarily driven by fee-based closings and sales of newly-created MSRs.  At December 31, 2014, subserviced loans represented 50% of our total loan servicing portfolio.

Mortgage Servicing Rights

At December 31, 2014, the book value of our MSR was $1.0 billion, representing an 89 bps capitalized servicing rate.  The MSR book value and capitalized servicing rate at September 30, 2014, was $1.1 billion and 93 bps of the capitalized loan servicing portfolio.  During the fourth quarter, the primary mortgage rate used to value our MSR declined 30 bps.  The MSR book value at December 31, 2013, was $1.3 billion, representing a 99 bps capitalized servicing rate.  During the fourth quarter of 2014, $21 million in MSR book value was added from loans sold, which was more than offset by a $68 million decrease due to market-related fair value adjustments, a $37 million decrease related to prepayments and the receipt of recurring cash flows, and a $25 million decrease from MSR sales.

Liquidity Update

Liquidity at December 30, 2014, included $1.2 billion in unrestricted Cash and cash equivalents, excluding cash held in variable interest entities.  As of December 31, 2014, we had $860 million total principal of unsecured debt outstanding.

In the third quarter of 2014, we entered into two Accelerated Share Repurchase agreements, which resulted in an immediate reduction of approximately 7 million of our issued and outstanding shares.  The final settlement of shares repurchased from these programs will be determined at the completion of the programs, which is expected to occur in the first quarter of 2015.

Conference Call/Webcast

The Company will host a conference call at 10:00 a.m. (Eastern Time) on Wednesday, February 18, 2015, to discuss its fourth quarter and full-year 2014 results. All interested parties are welcome to participate. You can access the conference call by dialing (888) 713-4487 or (913) 312-0838 and using the conference ID 9626580 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 with an appendix of supplemental schedules will accompany the conference call and be available by visiting the Investor Relations page of PHH’s website at www.phh.com/invest on Wednesday, February 18, 2015, prior to the start of the conference call.

A replay will be available beginning shortly after the end of the call through March 5, 2015, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 9626580, or by visiting the Investor Relations page of PHH’s website at www.phh.com/invest.

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About PHH Corporation

Headquartered in Mount Laurel, New Jersey, PHH Corporation is a leading provider of end-to-end mortgage solutions through its subsidiary, PHH Mortgage.  Its outsourcing model and proven expertise, combined with a strong commitment to operational excellence and customer service, has enabled PHH Mortgage to become one of the largest non-bank originators and servicers of residential mortgages in the United States.  PHH Mortgage provides mortgage solutions for the real estate market and financial institutions, and offers home financing directly to consumers.  For additional information, please visit www.phh.com.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Generally, forward looking-statements are not based on historical facts but instead represent only our current beliefs regarding future events.  All forward-looking statements are, by their nature, subject to risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied in such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.  Such statements may be identified by words such as “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.”

You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. You should consider the areas of risk described under the heading “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the U.S. Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us or our businesses generally. Such periodic reports are available in the “Investors” section of our website at http://www.phh.com and are also available at http://www.sec.gov.  Except for our ongoing obligations to disclose material information under the federal securities laws, applicable stock exchange listing standards and unless otherwise required by law, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or unanticipated events.

Contact Information:

Investors

Jim Ballan

[email protected]

856-917-4311

Media

Dico Akseraylian

[email protected]

856-917-0066

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PHH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

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PHH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

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Segment Results

(In millions)

(1)                                 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.

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Segment Results

(In millions)

(1)                                 For the year ended December 31, 2013, loan servicing income includes a $21 million pre-tax loss related to the termination of an inactive reinsurance agreement.

(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.

(3)                                 For the year ended December 31, 2014 and 2013, Other includes pre-tax losses of $24 million and $54 million, respectively related to the early repayment of certain unsecured debt obligations during each period.

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Mortgage Production Segment

($ In millions)