PHH Corporation Announces Fourth Quarter and Full-Year 2012 Results
PHH Corporation Announces Fourth Quarter and Full-Year 2012 Results
4Q12 Net Income Attributable to PHH Corporation of $58 million or $1.01 per basic share
Full-Year 2012 Net Income Attributable to PHH Corporation of $34 million or $0.60 per basic share
4Q12 Core Earnings (after-tax)* of $46 million and Core Earnings per Share* of $0.81
Full-Year 2012 Core Earnings (after-tax)* of $168 million and Core Earnings per Share* of $2.96
- Full-year total retail mortgage loan closings of $45.5 billion, up 28% from 2011. Full-year total mortgage loan closings of $55.6 billion, up 7% from 2011
- 4Q12 total loan margin of 406 bps, a 14 bps decrease from 3Q12 but a 120 bps increase from 4Q11
- Total loan servicing portfolio at December 31, 2012, of $183.7 billion in unpaid principal balance (UPB), up 1% from $182.4 billion in UPB at the end of 2011
- 2012 Fleet segment profit growth of 16%, continuing a 3-year track record of double-digit segment profit growth
- $829 million in unrestricted cash and cash equivalents at year-end 2012, up from $414 million at year-end 2011, and no outstanding balances on our $431 million in total revolving credit facilities at December 31, 2012
For the quarter ended December 31, 2012, the Company reported net income attributable to PHH Corporation of $58 million or $1.01 per basic share. Core earnings (after-tax)* and core earnings per share* for the quarter ended December 31, 2012, were $46 million and $0.81, respectively. For the year ended December 31, 2012, the Company reported net income attributable to PHH Corporation of $34 million or $0.60 per basic share. Core earnings (after-tax)* and core earnings per share* for the year ended December 31, 2012, were $168 million and $2.96, respectively. The results for the year ended December 31, 2012, include a $13 million pre-tax loss ($0.13 per share after tax) related to the early repayment of our 2013 medium term notes and a $16 million pre-tax loss (or $0.18 per share after tax) associated with the termination of an inactive mortgage reinsurance agreement. Tangible book value per share* was $25.80 at December 31, 2012, up 5% from $24.56 at year-end 2011.
Glen A. Messina, president and CEO of PHH Corporation, said, "Our fourth quarter performance was a solid ending to a year in which we made significant progress from both an operating and financing standpoint. We demonstrated strong growth in our franchise platforms, made significant investments in operational excellence and customer service, and enhanced our financial flexibility with our focus on cash flow and liquidity. We continue to believe our business model is well-designed to respond to change and opportunities in the mortgage and fleet industries, and we see significant growth potential through both increased penetration of our existing clients and expansion of our client base."
Messina added, "Continued execution on our four key strategies positions us well for further success in 2013. We believe the expectation of both modest macroeconomic improvement and increased clarity for the mortgage industry, along with the value proposition we offer our Fleet and Mortgage clients, position us well to create long-term value for our borrowers, clients and shareholders."
|Summary Consolidated Results|
|(In millions, except per share data)|
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|Income (loss) before income taxes||99||21||87||(202||)|
|Net income (loss) attributable to PHH Corporation||58||13||34||(127||)|
|Basic earnings (loss) per share attributable to PHH Corporation||$||1.01||$||0.22||$||0.60||$||(2.26||)|
|Diluted earnings (loss) per share attributable to PHH Corporation||0.89||0.22||0.56||(2.26||)|
|Weighted-average common shares outstanding:|
|Basic shares (in millions)||56.957||56.504||56.815||56.349|
|Diluted shares (in millions)||65.082||56.847||61.601||56.349|
|Core earnings (pre-tax)||$||65||$||85||$||256||$||297|
|Core earnings (after-tax)||46||55||168||182|
|Core earnings per share||$||0.81||$||0.98||$||2.96||$||3.23|
|Adjusted cash flow||$||148||$||311||$||563||$||112|
* Non-GAAP Financial Measures
Core earnings (pre-tax), core earnings (after-tax), core earnings 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 fourth quarter of 2012 was $99 million, up 15% from $86 million in the fourth quarter of 2011 but down 19% from the third quarter of 2012. Growth over the fourth quarter 2011 was driven primarily by significantly wider total loan margins and growth in Mortgage fees as a result of greater volumes of Total retail closings and Fee-based closings, which were partially offset by a decline in interest rate lock commitments expected to close. The sequential quarter segment profit decline was primarily driven by total loan margins that were slightly lower but still at an elevated level compared to historical periods, lower interest rate lock commitments expected to close, and increased investment in customer service and quality-related initiatives.
Mortgage Servicing Segment Loss
Mortgage Servicing segment loss in the fourth quarter of 2012 was $35 million, primarily driven by a $56 million net decrease in the book value of our MSR and related derivatives and $37 million in repurchase and foreclosure-related charges. The changes in the book value of our MSR and related derivatives included $75 million in prepayments and receipts of recurring cash flows, primarily attributable to continued high prepayment speeds from low mortgage interest rates, partially offset by $29 million in market-related positive fair value adjustments on our mortgage servicing rights and $10 million in net derivative losses. Repurchase and foreclosure-related charges during the fourth quarter of 2012 decreased slightly from $41 million in the third quarter of 2012. The continued elevated levels of repurchase and foreclosure-related charges were reflective of elevated repurchase requests, which are estimated to continue through the end of 2013.
Interest Rate Lock Commitments
IRLCs expected to close of $6.2 billion in the fourth quarter of 2012 decreased from $6.8 billion in the third quarter of 2012, reflecting seasonality, planned lower correspondent activity, and a continued shift in mix toward fee-based closings. IRLCs expected to close declined from the fourth quarter 2011, reflecting our strategy of growth in our retail channels and narrowing our focus in our wholesale/correspondent channel to business partners we believe will consistently deliver high-quality loans. Retail IRLCs expected to close grew 10% in 2012 compared to 2011.
Total Loan Margin
Total loan margin on IRLCs expected to close for the fourth quarter of 2012 was 406 bps, a 14 bps decrease from the third quarter of 2012 but 120 bps greater than the fourth quarter of 2011. Wider margins throughout 2012 reflect higher consumer demand, especially for refinancing, primarily due to a reduction in mortgage interest rates. Although we expect priced-in margins to eventually decline from the levels experienced during 2012, we believe margins could remain elevated in 2013 when compared to historical experience, reflecting a longer-term industry view of the returns required to manage the underlying risk of a mortgage production and servicing business.
Mortgage Closing Volume
Total fourth quarter 2012 mortgage closings were $14.4 billion of which 87% were retail and 13% were wholesale/correspondent, consistent with third quarter closings and reflecting our strategy of growth in our retail channels and narrowing our focus in our wholesale/correspondent channel to business partners we believe will consistently deliver high-quality loans. Fee-based closings increased to 41% of total closings in the quarter, compared to 39% of total closings in the third quarter 2012 and 24% of total closings in the fourth quarter of 2011.
Unpaid Principal Balance of Mortgage Servicing Portfolio
At December 31, 2012, the UPB of our capitalized servicing portfolio was $140.4 billion, down 3% from the UPB at September 30, 2012, and a 5% decrease from the UPB at the end of 2011. These decreases reflect prepayments that were not fully offset by additions from new loan production.
At December 31, 2012, the UPB of our total loan servicing portfolio was $183.7 billion, a 1% increase over the UPB at the end of 2011, and a 1% decrease from the UPB at the end of the third quarter of 2012. The sequential quarter and year-over-year changes in our total loan servicing portfolio reflect the aforementioned declines in the UPB of our capitalized servicing portfolio offset by increases in our subservicing UPB. We anticipate adding approximately $50 billion of subservicing UPB related to our private label agreement with HSBC.
Mortgage Servicing Rights
At December 31, 2012, the book value of our mortgage servicing rights was $1.0 billion, consistent with the end of the third quarter of 2012. During the fourth quarter of 2012, $66 million in book value of MSR was added from the capitalization of new servicing rights from new loans sold in the quarter. In addition, during the fourth quarter of 2012, our MSR book value increased by $29 million due to market-related fair value adjustments, which partially offset a decrease in our MSR book value of $75 million related to prepayments and the receipt of recurring cash flows.
Repurchase and Foreclosure-related Charges
Repurchase and foreclosure-related charges in the fourth quarter of 2012 were $37 million, down from $41 million in the third quarter of 2012, reflecting a continued high level of repurchase requests. Total repurchase and foreclosure-related reserves were $191 million at the end of 2012, compared to $176 million at the end of the third quarter of 2012. As of December 31, 2012, the estimated amount of reasonably possible losses in excess of the total repurchase and foreclosure-related reserve was $40 million, down from $70 million at the end of the third quarter of 2012. The reasonably possible estimate assumes that repurchases and indemnifications remain at an elevated level through the year ended December 31, 2013, our success rate in defending against requests declines, and loss severities remain at current levels.
Fleet Management Services
In 2012, Fleet Management Services segment profit grew 16% over 2011, continuing a 3-year track record of double-digit segment profit growth. These results were driven by growth in average units enrolled in maintenance, fuel and accident management programs as well as a 3% increase in net investment in fleet leases and lower debt costs. Fleet fourth quarter 2012 segment profit was $20 million, down $1 million from the third quarter of 2012, but up $1 million from the fourth quarter of 2011.
Net investment in fleet leases at December 31, 2012, represented a 3% increase compared to the end of 2011, despite a 3% decline in average leased vehicle units. Higher-capitalized units continue to replace lower cost vehicles as our penetration into service fleets continues.
Fleet Management Fees
In the fourth quarter of 2012, Fleet management fees decreased to $43 million from $45 million in the fourth quarter of 2011, primarily resulting from the loss of volume from certain service-only clients, partially offset by new client additions.
Liquidity at December 31, 2012, included $829 million in unrestricted cash and cash equivalents.
As of December 31, 2012, we had no outstanding balances on our $305 million in total unsecured revolving credit facilities or our $126 million Canadian secured revolving credit facility.
The Company will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, February 7, 2013, to discuss its fourth quarter and full-year 2012 results. All interested parties are welcome to participate. You can access the conference call by dialing (866) 454-4204 or (913) 312-0725 and using the conference ID 9254161 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, February 7, 2013, prior to the start of the conference call.
A replay will be available beginning shortly after the end of the call through February 22, 2013, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 9254161, 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 (NYS: 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 States1, 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.
1Inside Mortgage Finance, Copyright 2012
Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, forward looking-statements are not based on historical facts but instead represent only our current beliefs regarding future events. All forward-looking statements are, by their nature, subject to risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied in such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. Such statements may be identified by words such as "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate" and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could."
You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. You should consider the areas of risk described under the heading "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in our periodic reports filed with the U.S. Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us or our businesses generally. Such periodic reports are available in the "Investors" section of our website at http://www.phh.com and are also available at http://www.sec.gov. Except for our ongoing obligations to disclose material information under the federal securities laws, applicable stock exchange listing standards and unless otherwise required by law, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or unanticipated events.
|PHH CORPORATION AND SUBSIDIARIES|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In millions, except per share data)|
Three Months Ended
|Fleet management fees||43||45||180||173|
|Net fee income||135||130||526||468|
|Fleet lease income||350||350||1,364||1,400|
|Gain on mortgage loans, net||247||186||942||567|
|Mortgage interest income||21||32||91||114|
|Mortgage interest expense||(50||)||(52||)||(212||)||(202||)|
|Mortgage net finance expense||(29||)||(20||)||(121||)||(88||)|
|Loan servicing income||116||119||449||456|
|Change in fair value of mortgage servicing rights||(46||)||(132||)||(497||)||(733||)|
|Net derivative loss related to mortgage servicing rights||(10||)||(4||)||(5||)||(3||)|
|Valuation adjustments related to mortgage servicing rights, net||(56||)||(136||)||(502||)||(736||)|
|Net loan servicing income (loss)||60||(17||)||(53||)||(280||)|
|Salaries and related expenses||157||132||595||507|
|Occupancy and other office expenses||16||15||59||59|
|Depreciation on operating leases||304||301||1,212||1,223|
|Fleet interest expense||16||19||68||79|
|Other depreciation and amortization||6||6||25||25|
|Other operating expenses||185||155||697||523|
|Income (loss) before income taxes||99||21||87||(202||)|
|Income tax expense (benefit)||26|
|Net income (loss)||73||21||93||(102||)|
|Less: net income attributable to noncontrolling interest||15||8||59||25|
|Net income (loss) attributable to PHH Corporation||$||58||$||13||$||34||$||(127||)|
|Basic earnings (loss) per share attributable to PHH Corporation||$||1.01|