CORRECTING and REPLACING PHH Corporation Announces Results for Fourth Quarter and Full Year 2010

2010 Core Earnings (after-tax)* Exceed 2009 by 18%

  • Fourth quarter 2010 consolidated GAAP net income attributable to PHH Corporation of $181 million and basic earnings per share attributable to PHH Corporation of $3.26, up from $97 million and $1.76 per share, respectively, in the fourth quarter of 2009, driven by a $287 million pre-tax, market-related fair value adjustment on mortgage servicing rights (MSRs)
  • Full year 2010 consolidated GAAP net income attributable to PHH Corporation of $48 million and basic earnings per share attributable to PHH Corporation of $0.87, down from $153 million and $2.80 per share, respectively, in 2009
  • Fourth quarter 2010 core earnings (after-tax)* of $17 million and core earnings per share* of $0.31, down from $55 million and $0.99, respectively, in the fourth quarter of 2009
  • Full year 2010 core earnings (after-tax) of $167 million and core earnings per share of $3.01, up from $142 million and $2.60, respectively, in 2009
  • Results reflect success in increasing mortgage market share, improving operating efficiencies, and earnings growth in Fleet Management segment

CORRECTION...by PHH Corporation

MT. LAUREL, N.J.--()--Please replace the release dated Feb. 28, 2011 with the following corrected version. Under the Summary Consolidated Results table, revisions have been made to the second bullet under Fourth Quarter – 2010 and to the second bullet under Full Year – 2010.

The corrected release reads:

PHH CORPORATION ANNOUNCES RESULTS FOR FOURTH QUARTER AND FULL YEAR 2010

2010 Core Earnings (after-tax)* Exceed 2009 by 18%

  • Fourth quarter 2010 consolidated GAAP net income attributable to PHH Corporation of $181 million and basic earnings per share attributable to PHH Corporation of $3.26, up from $97 million and $1.76 per share, respectively, in the fourth quarter of 2009, driven by a $287 million pre-tax, market-related fair value adjustment on mortgage servicing rights (MSRs)
  • Full year 2010 consolidated GAAP net income attributable to PHH Corporation of $48 million and basic earnings per share attributable to PHH Corporation of $0.87, down from $153 million and $2.80 per share, respectively, in 2009
  • Fourth quarter 2010 core earnings (after-tax)* of $17 million and core earnings per share* of $0.31, down from $55 million and $0.99, respectively, in the fourth quarter of 2009
  • Full year 2010 core earnings (after-tax) of $167 million and core earnings per share of $3.01, up from $142 million and $2.60, respectively, in 2009
  • Results reflect success in increasing mortgage market share, improving operating efficiencies, and earnings growth in Fleet Management segment

PHH Corporation (NYSE: PHH) (“PHH” or the “Company”) today announced results for the three months and year ended December 31, 2010.

Jerry Selitto, president and chief executive officer, commented, “Our strong 2010 full year core after-tax earnings reflect our success in increasing mortgage market share, strengthening operating efficiencies, and improving earnings in our Fleet Management Services segment. Despite a challenging year for the mortgage industry, our overall mortgage origination volume was up 30% in 2010 at $49 billion, versus $38 billion in 2009, as we increased market share from 2.1% in 2009 to 3.1% in 2010. The aggregate unpaid principal balance of loans included in our mortgage servicing portfolio increased almost $15 billion during the year, from $151 billion at year-end 2009 to $166 billion at year-end 2010, while the weighted average interest rate dropped nearly 40 basis points to 4.9% as of year-end. Fleet segment profit showed significant improvement versus 2009, up 67% for the quarter and 17% for the full year.

“Mortgage foreclosure related charges were $21 million during the fourth quarter 2010, up from $11 million in the comparable 2009 quarter, but were comparable on a full year basis at $72 million in 2010 versus $70 million in 2009. Total mortgage servicing portfolio delinquencies also showed improvement, standing at 4.24% at the end of 2010, compared to 4.92% at the end of 2009.

“2010 marked an important first step in the transformation of PHH, as we deepened market penetration, improved net margins, and through our transformation initiative, enhanced efficiencies and achieved approximately $88 million of annualized run-rate savings. In 2011, we expect to reinvest some of these savings in strengthening our capabilities in sales, marketing and enterprise risk management, while building scalability through technology. We remain committed to delivering sustainable, profitable growth within our risk guidelines by continuing to focus on improving productivity, expanding market share for mortgage originations and servicing, and increasing profitability in our Fleet Management Services segment.”

 

Summary Consolidated Results

(In millions, except per share data)

  Three Months Ended   Year Ended
December 31, December 31,
2010   2009 2010   2009
Net revenues $ 918 $ 744 $ 2,438 $ 2,606
Income before income taxes 313 169 115 280
Net income attributable to PHH Corporation 181 97 48 153
 
Basic earnings per share attributable to PHH Corporation $ 3.26 $ 1.76 $ 0.87 $ 2.80
 
Non-GAAP Results*
Core earnings (pre-tax) $ 31 $ 90 $ 289 $ 240
Core earnings (after-tax) 17 55 167 142
Core earnings per share $ 0.31 $ 0.99 $ 3.01 $ 2.60
 

Consolidated Results

Fourth Quarter – 2010

  • Net revenues and Income before income taxes for the fourth quarters of 2010 and 2009 included market-related changes in fair value of the MSRs of $287 million and $96 million, respectively
  • Both Income before income taxes and Core earnings (pre-tax) during the fourth quarter of 2010 were impacted by unfavorable changes in value of mortgage loans held for sale and related derivatives and higher prepayments in the mortgage loan servicing portfolio that were partially offset by improving Fleet leasing margins

Full Year – 2010

  • Net revenues and income before income taxes for the years ended December 31, 2010 and 2009 included market-related changes in fair value of the MSRs of $(166) million and $111 million, respectively
  • Both Income before income taxes and Core earnings (pre-tax) during the year ended December 31, 2010 were impacted by significantly higher interest rate lock commitments, lower prepayments in our mortgage servicing portfolio and improving Fleet leasing margins
   
SEGMENT RESULTS – FOURTH QUARTER
(In millions)
 
Fourth
Quarter
Fourth Quarter 2010   2009  
    Combined   Fleet    
Mortgage Mortgage Mortgage Management
Production Servicing Services Services Total PHH Total PHH
Segment Segment Segments Segment Other Corporation Corporation
 
Net fee income $ 98 $ $ 98 $ 41 $ $ 139 $ 97
Fleet lease income 340 340 354
Gain on mortgage loans 126 126 126 160
Mortgage net finance expense (3 )

(12

)

(15

)

(1 )

(16

)

(19

)

Loan servicing revenues (1)

114 114 114 114
Net reinsurance (loss) income (2 ) (2 ) (2 ) 8
MSRs prepayments and recurring cash flows(2)

(77

)

(77

)

(77

)

(57

)

Other income               18       18     16  
 
Core revenue* 221 23 244 399 (1 )

642

673

MSRs fair value adjustments:

 

Market-related(3) 287 287 287 96
Credit-related(4)       (11 )   (11 )         (11 )   (25 )
Net revenues   221     299     520     399   (1 )   918     744  
Depreciation on operating leases 303 303 305
Fleet interest expense 20 (1 ) 19 17
Foreclosure-related charges 21 21 21 11
Other expenses   182     27     209     51   2     262     242  
Total expenses   182     48     230     374   1     605     575  

Income (loss) before income taxes

39

251

290

25

(2 )

$

313

 

$

169

 
Less: income attributable to noncontrolling interest   6         6        

 

Segment profit (loss) $ 33   $ 251   $ 284   $ 25 $ (2 )
 
(1) Loan servicing revenues do not include Net reinsurance (loss) income.
(2) Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows.
(3) 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.

(4)

 

Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

   
SEGMENT RESULTS – FULL YEAR
(In millions)
 
2010

2009

    Combined   Fleet    
Mortgage Mortgage Mortgage Management
Production Servicing Services Services Total PHH Total PHH
Segment Segment Segments Segment Other Corporation Corporation
 
Net fee income $ 291 $ $ 291 $ 157 $

$

448

$ 425
Fleet lease income 1,370 1,370 1,441
Gain on mortgage loans 635 635 635 610
Mortgage net finance expense (16 )

(54

)

(70

)

(3 )

(73

)

(58

)

Loan servicing revenues (1)

434 434 434 436
Net reinsurance loss (19 ) (19 ) (19 ) (5 )
MSRs prepayments and recurring cash flows(2)

(225

)

(225

)

(225

)

(300

)

Other income   1     3     4     66       70     37  
 
Core revenue* 911 139 1,050 1,593 (3 ) 2,640

2,586

MSRs fair value adjustments:

 

Market-related(3) (166 ) (166 ) (166 ) 111
Credit-related(4)       (36 )   (36 )         (36 )   (91 )
Net revenues   911     (63 )   848     1,593   (3 )   2,438     2,606  
Depreciation on operating leases 1,224 1,224 1,267
Fleet interest expense 94 (3 ) 91 89
Foreclosure-related charges 72 72 72 70
Other expenses   615     106     721     212   3     936     900  
Total expenses   615     178     793     1,530       2,323     2,326  

Income (loss) before income taxes

296

(241

)

55

63

(3 )

$

115

 

$

280

 
Less: income attributable to noncontrolling interest   28         28        

 

Segment profit (loss) $ 268   $ (241 ) $ 27   $ 63 $ (3 )
 
(1) Loan servicing revenues do not include Net reinsurance loss.
(2) Represents the reduction in the fair value of MSRs due to actual prepayments and the receipt of recurring cash flows.
(3) 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.
(4)

Represents the Change in fair value of mortgage servicing rights primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

 

Mortgage Production Segment

Fourth Quarter - 2010

  • The mortgage production segment continued to generate strong volumes as interest rate lock commitments expected to close increased by $3.0 billion (48%) during the fourth quarter of 2010 compared to the same period in 2009
  • Total mortgage closing volumes increased and were driven by the increase in the mix of wholesale/correspondent closings to 39% during the fourth quarter of 2010 from 20% during the same period in 2009, which represents the execution of our strategy to expand on this channel in 2010 and grow market share
  • The trend of higher margins continued into the fourth quarter; however, margins came under pressure as the fourth quarter progressed and there was significant margin contraction late in the fourth quarter, which has continued into the early part of 2011
  • The increase in mortgage interest rates and associated volatility late in the fourth quarter of 2010 caused a $5 million unfavorable change in fair value of mortgage loans held for sale and related derivatives during the fourth quarter of 2010, compared to a $35 million favorable change during the same period in 2009

Full Year – 2010

  • The mortgage production segment generated strong volumes as interest rate lock commitments expected to close increased by $12.1 billion (46%) during the year ended December 31, 2010 compared to the same period in 2009
  • Total mortgage closing volumes increased and were driven by the increase the mix of wholesale/correspondent closings to 32% during the year ended December 31, 2010 from 15% during the same period in 2009, which represents the execution of our strategy to expand on this channel in 2010 and grow market share
  • Total loan margins during the year ended December 31, 2010 were lower than the same period in 2009 due to the lower value of initial capitalized MSRs resulting from continuing reductions in mortgage interest rates that occurred throughout most of 2010.

Mortgage Servicing Segment

Fourth Quarter – 2010

  • The loan servicing portfolio continued to grow as additions to the portfolio exceeded actual prepayments and the average loan servicing portfolio increased by $12.1 billion (8%) during the fourth quarter of 2010 compared to the same period in 2009
  • There was a significant amount of refinance activity, which led to increased prepayments in the mortgage loan servicing portfolio and a $67 million decrease in MSR value from actual prepayments of the underlying mortgage loans during the fourth quarter of 2010 compared to $44 million during the same period in 2009
  • The fair value of MSRs increased by $287 million and $96 million in the fourth quarters of 2010 and 2009 respectively due to changes in market-related inputs and assumptions. The change in the fair value of MSRs was positively impacted in both periods by increases in mortgage interest rates
  • Foreclosure costs increased to $21 million during the fourth quarter 2010, from $11 million during the same period in 2009 due to higher loss provisions from an increase in loan repurchases and indemnifications

Full Year – 2010

  • The loan servicing portfolio grew as additions to the portfolio exceeded actual prepayments and the average loan servicing portfolio increased by $7.2 billion (5%) during the year ended December 31, 2010 compared to the same period in 2009
  • The fair value of our MSRs declined by $166 million during the year ended December 31, 2010 compared to an increase of $111 million during the same period in 2009 due to changes in market-related inputs and assumptions and was primarily impacted in both periods by changes in mortgage interest rates
  • Foreclosure costs were $72 million during the year ended December 31, 2010 compared to $70 million during the same period in 2009

Fleet Management Services Segment

Fourth Quarter – 2010

  • The results during the fourth quarter of 2010 as compared to the same period in 2009 were positively impacted by growth in our principal fee-based products and our focus on cost reductions
  • During the fourth quarter of 2010 all of our principal fee-based products experienced growth and were led by a 17% increase in average maintenance service cards outstanding during the fourth quarter of 2010 compared to the same period in 2009
  • Average leased units decreased 6% as existing clients have reduced fleets due to the current economic conditions and we continue to realize the impact of non-renewals of lease arrangements in prior years

Full Year – 2010

  • The results during the year ended December 31, 2010 as compared to the same period in 2009 were positively impacted by improvement in leasing margins and our focus on cost reductions
  • Average leased units decreased 8% as existing clients have reduced fleets due to the current economic conditions and we continued to realize the impact of non-renewal of lease arrangements in previous years

* Note Regarding Non-GAAP Financial Measures

Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share, and core revenues, are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations at the back of this release for a reconciliation of these measures to the most directly comparable GAAP financial measures.

Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share, and core revenues measure the Company’s financial performance excluding certain unrealized changes in value of mortgage servicing rights that are based upon projections of future voluntary and involuntary prepayments.

The unrealized changes in value of our mortgage servicing rights for voluntary and involuntary prepayments are reflected as market-related and credit related fair value adjustments, respectively. Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share, and core revenues may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance.

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 underlying operating performance which can be obscured by significant unrealized changes in value of our mortgage servicing rights in a given period that is 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.

Use of Core Earnings by Management

The unrealized changes in the value of mortgage servicing rights are based upon numerous assumptions, which include estimated changes in future prepayments that may or may not be actually realized in the future. The market-related fair value adjustments are based upon assumptions of future interest rates, the shape of the yield curve, volatility and other factors. The credit-related fair value adjustments are based upon projected levels of delinquencies and foreclosures that are assumed to remain at current period-end levels throughout the life of the asset for purposes of modeling the expected future cash flows of the mortgage servicing rights. Value lost from actual voluntary and involuntary prepayments are recorded when the underlying loans actually prepay or when foreclosure proceedings are complete, and are included in core earnings based on the current value of the mortgage servicing rights.

The Company manages the business and has designed certain management incentives based upon the achievement of core earnings targets. In addition, 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 our 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. 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.

Limitations on the Use of Core Earnings and Core Revenues

Since core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share and core revenues measure the Company’s financial performance excluding certain unrealized changes in value of mortgage servicing rights, they may not reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share and core revenues may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment.

Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share and core revenues involves differences from Segment profit (loss), Income (loss) before income taxes, Net income (loss) attributable to PHH Corporation, Basic earnings (loss) per share attributable to PHH Corporation and Net revenues computed in accordance with GAAP. Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share and core revenues 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, Basic earnings (loss) per share attributable to PHH Corporation or Net revenues computed in accordance with GAAP as a measure of the Company’s financial performance.

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 the Company’s website at 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. Investors are cautioned not to place undue reliance on these 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 “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, 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 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.

1 Inside Mortgage Finance, Copyright 2010

   
PHH CORPORATION AND SUBSIDIARIES
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 

Three Months
Ended December 31,

Full Year

  2010       2009     2010       2009  
Revenues
Mortgage fees $ 98 $ 59 $ 291 $ 275
Fleet management fees   41     38     157     150  
Net fee income   139     97     448     425  
Fleet lease income   340     354     1,370     1,441  
Gain on mortgage loans, net   126     160     635     610  
Mortgage interest income 41 19 110 89
Mortgage interest expense   (57 )   (38 )   (183 )   (147 )
Mortgage net finance expense   (16 )   (19 )   (73 )   (58 )
Loan servicing income 112 122 415 431
Change in fair value of mortgage servicing rights   199     14     (427 )   (280 )
Net loan servicing income (loss)   311     136     (12 )   151  
Other income   18     16     70     37  
Net revenues   918     744     2,438     2,606  
Expenses
Salaries and related expenses 137 125 497 482
Occupancy and other office expenses 15 16 60 59
Depreciation on operating leases 303 305 1,224 1,267
Fleet interest expense 19 17 91 89
Other depreciation and amortization 5 6 22 26
Other operating expenses   126     106     429     403  
Total expenses   605     575     2,323     2,326  
Income before income taxes 313 169 115 280
Income tax expense   126     64     39     107  
Net income 187 105 76 173
Less: net income attributable to noncontrolling interest   6     8     28     20  
Net income attributable to PHH Corporation $ 181   $ 97   $ 48   $ 153  
Basic earnings per share attributable to PHH Corporation $ 3.26   $ 1.76   $ 0.87   $ 2.80  
Diluted earnings per share attributable to PHH Corporation $ 3.25   $ 1.74   $ 0.86   $ 2.77  
   
PHH CORPORATION AND SUBSIDIARIES
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
December 31, December 31,
2010 2009
ASSETS
Cash and cash equivalents $ 195 $ 150
Restricted cash, cash equivalents and investments 531 596
Mortgage loans held for sale 4,329 1,218
Accounts receivable, net 573 469
Net investment in fleet leases 3,492 3,610
Mortgage servicing rights 1,442 1,413
Property, plant and equipment, net 46 49
Goodwill 25 25
Other assets(1)   637   593
Total assets $ 11,270 $ 8,123
 
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 521 $ 495
Debt 8,085 5,160
Deferred income taxes 728 702
Other liabilities   358   262
Total liabilities   9,692   6,619
Commitments and contingencies
Total PHH Corporation stockholders’ equity 1,564 1,492
Noncontrolling interest   14   12
Total equity   1,578   1,504
Total liabilities and equity $ 11,270 $ 8,123
 
(1) Other assets include intangible assets of $36 million and $38 million as of December 31, 2010 and December 31, 2009, respectively.
   
PHH CORPORATION AND SUBSIDIARIES
 
 
COMBINED MORTGAGE SERVICES SEGMENTS RESULTS
(In millions)
 
Three Months Ended Full Year Ended
December 31, December 31,
    %     %
  2010     2009   Change   2010     2009   Change
Mortgage fees $ 98   $ 59   66 % $ 291   $ 275   6 %
Gain on mortgage loans, net   126     160   (21 )%   635     610   4 %
Mortgage interest income 42 20 110 % 112 91 23 %
Mortgage interest expense   (57 )   (39 ) (46 )%   (182 )   (151 ) (21 )%
Mortgage net finance expense   (15 )   (19 ) 21 %   (70 )   (60 ) (17 )%
Loan servicing income 112 122 (8 )% 415 431 (4 )%
Change in fair value of mortgage servicing rights   199     14  

n/m

(1)

  (427 )   (280 ) (53 )%
Net loan servicing income (loss)   311     136   129 %   (12 )   151  

n/m

(1)

Other income       1   (100 )%   4     (14 )

n/m

(1)

Net revenues   520     337   54 %   848     962   (12 )%
Salaries and related expenses 121 96 26 % 406 375 8 %
Occupancy and other office expenses 11 11 43 41 5 %
Other depreciation and amortization 3 4 (25 )% 11 15 (27 )%
Other operating expenses   95     67   42 %   333     290   15 %
Total expenses   230     178   29 %   793     721   10 %
Income before income taxes 290 159 82 % 55 241 (77 )%

Less: net income attributable to noncontrolling interest

  6     8   (25 )%   28     20   40 %
Combined Mortgage Services segments profit $ 284   $ 151   88 % $ 27   $ 221   (88 )%
 
(1) n/m — Not meaningful.
   
PHH CORPORATION AND SUBSIDIARIES
 
 
MORTGAGE PRODUCTION SEGMENT RESULTS
(In millions, except average loan amount)
 
Three Months Ended Full Year Ended
December 31, December 31,
  2010       2009     % Change   2010       2009     % Change
Loans closed to be sold $ 14,438 $ 6,453 124 % $ 37,747 $ 29,370 29 %
Fee-based closings   3,996     2,239   78 %   11,247     8,194   37 %
Total closings $ 18,434   $ 8,692   112 % $ 48,994   $ 37,564   30 %
Purchase closings $ 5,316 $ 4,464 19 % $ 20,270 $ 15,401 32 %
Refinance closings   13,118     4,228   210 %   28,724     22,163   30 %
Total closings $ 18,434   $ 8,692   112 % $ 48,994   $ 37,564   30 %
Fixed rate $ 14,641 $ 6,703 118 % $ 38,657 $ 30,512 27 %
Adjustable rate   3,793     1,989   91 %   10,337     7,052   47 %
Total closings $ 18,434   $ 8,692   112 % $ 48,994   $ 37,564   30 %
Retail closings $ 11,333 $ 6,990 62 % $ 33,429 $ 31,834 5 %
Wholesale/correspondent closings   7,101     1,702   317 %   15,565     5,730   172 %
Total closings $ 18,434   $ 8,692   112 % $ 48,994   $ 37,564   30 %
 
First mortgage closings (units) 74,247 35,243 111 % 197,010 153,694 28 %
Second-lien closings (units)   1,971     2,414   (18 )%   8,687     10,692   (19 )%
Number of loans closed (units)   76,218     37,657   102 %   205,697     164,386   25 %
 
Average loan amount $ 241,857 $ 230,810 5 % $ 238,187 $ 228,510 4 %
Loans sold $ 12,583 $ 6,444 95 % $ 34,535 $ 29,002 19 %
Applications $ 19,305 $ 12,476 55 % $ 74,628 $ 54,283 37 %
IRLCs expected to close $ 9,170 $ 6,211 48 % $ 38,330 $ 26,210 46 %
 
 
Three Months Ended Full Year Ended
December 31, December 31,
  2010     2009   % Change   2010     2009   % Change
Mortgage fees $ 98   $ 59   66 % $ 291   $ 275   6 %
Gain on mortgage loans, net   126     160   (21 )%   635     610   4 %
Mortgage interest income 37 18 106 % 97 79 23 %
Mortgage interest expense   (40 )   (23 ) (74 ) %   (113 )   (90 ) (26 )%
Mortgage net finance expense (3 ) (5 ) 40 % (16 ) (11 ) (45 )%
Other income       1   (100 )%   1     6   (83 )%
Net revenues   221     215   3 %   911     880   4 %
Salaries and related expenses 113 85 33 % 369 336 10 %
Occupancy and other office expenses 9 9 34 32 6 %
Other depreciation and amortization 2 4 (50 )% 10 14 (29 )%
Other operating expenses   58     44   32 %   202     172   17 %
Total expenses   182     142   28 %   615     554   11 %
Income before income taxes 39 73 (47 )% 296 326 (9 )%
Less: net income attributable to noncontrolling interest   6     8   (25 )%   28     20   40 %
Segment profit $ 33   $ 65   (49 )% $ 268   $ 306   (12 )%
   

PHH CORPORATION AND SUBSIDIARIES

 
 

MORTGAGE SERVICING SEGMENT RESULTS

(In millions)

 

Average for the Three Months
Ended December 31,

Average for the Year
Ended December 31,

2010   2009   % Change 2010   2009   % Change
Loan servicing portfolio $ 162,628 $ 150,540 8 % $ 156,825 $ 149,628 5 %
 

 

Three Months Ended
December 31,

Full Year Ended
December 31,

2010 2009 % Change 2010 2009 % Change
Mortgage interest income $ 5 $ 2 150 % $ 15 $ 12 25 %
Mortgage interest expense   (17 )   (16 ) (6 )%   (69 )   (61 ) (13 )%
Mortgage net finance expense   (12 )   (14 ) 14 %   (54 )   (49 ) (10 )%
Loan servicing income 112 122 (8 )% 415 431 (4 )%
Change in fair value of mortgage servicing rights   199     14   n/m(1)   (427 )   (280 ) (53 )%
Net loan servicing income (loss)   311     136   129 %   (12 )   151   n/m(1)
Other income (expense)           3     (20 ) n/m(1)
Net revenues   299     122   145 %   (63 )   82   n/m(1)
Salaries and related expenses 8 11 (27 )% 37 39 (5 )%
Occupancy and other office expenses 2 2 9 9
Other depreciation and amortization 1 100 % 1 1
Other operating expenses   37     23   61 %   131     118   11 %
Total expenses   48     36   33 %   178     167   7 %
Segment profit (loss) $ 251   $ 86   192 % $ (241 ) $ (85 ) (184 ) %

 

(1) n/m — Not meaningful.

 
       

PHH CORPORATION AND SUBSIDIARIES

 
 

FLEET MANAGEMENT SERVICES SEGMENT RESULTS

(In millions, except lease units)

 

Average for the Three Months
Ended December 31,

Average for the Year
Ended December 31,

2010   2009   % Change 2010   2009   % Change
(In thousands of units)
Leased vehicles 284 303 (6 )% 290 314 (8 )%
Maintenance service cards 315 269 17 % 287 275 4 %
Fuel cards 283 277 2 % 276 282 (2 )%
Accident management vehicles 293 289 1 % 290 305 (5 )%
 

 

Three Months Ended
December 31,

Full Year Ended
December 31,

2010 2009 % Change 2010 2009 % Change
 
Fleet management fees $ 41 $ 38 8 % $ 157 $ 150 5 %
Fleet lease income 340 354 (4 )% 1,370 1,441 (5 )%
Other income   18   16 13 %   66   58 14 %
Net revenues   399   408 (2 )%   1,593   1,649 (3 )%
Salaries and related expenses 15 23 (35 )% 75 86 (13 )%
Occupancy and other office expenses 4 5 (20 )% 17 18 (6 )%
Depreciation on operating leases 303 305 (1 )% 1,224 1,267 (3 )%
Fleet interest expense 20 19 5 % 94 95 (1 )%
Other depreciation and amortization 3 3 11 11
Other operating expenses   29   38 (24 )%   109   118 (8 )%
Total expenses   374   393 (5 )%   1,530   1,595 (4 )%
Segment profit $ 25 $ 15 67 % $ 63 $ 54 17 %
 
 

PHH CORPORATION AND SUBSIDIARIES

 
 

COMPONENTS OF MORTGAGE LOANS HELD FOR SALE

(In millions)

 
December 31,
2010   2009
First mortgages: (In millions)
Conforming(1) $ 4,123 $ 1,106
Non-conforming 138 27
Construction loans   11   16
Total first mortgages   4,272   1,149
Second lien 11 24
Scratch and Dent(2) 40 43
Other   6   2
Total $ 4,329 $ 1,218

 

(1) Represents mortgage loans that conform to the standards of the government-sponsored entities.

(2) Represents mortgage loans with origination flaws or performance issues.

       

COMPONENTS OF GAIN ON MORTGAGE LOANS, NET

(In millions)

 

Three Months Ended
December 31,

Full Year Ended
December 31,

2010   2009   % Change 2010   2009   % Change
Gain on loans $ 131 $ 125 5 % $ 624 $ 552 13 %

Change in fair value of Scratch and Dent and certain non-conforming mortgage loans

 

(13 ) (3 ) (333 )% (19 ) (20 ) 5 %
Economic hedge results   8     38   (79 )%   30     78   (62 )%
Total change in fair value of MLHS and related derivatives   (5 )   35   n/m(1)   11     58   (81 )%
Gain on mortgage loans, net $ 126   $ 160   (21 )% $ 635   $ 610   4 %

 

(1) n/m — Not meaningful.

 

PHH CORPORATION AND SUBSIDIARIES

 

MORTGAGE LOAN SERVICING PORTFOLIO COMPOSITION

(In millions)
     
December 31,

 

2010   2009
 
Owned servicing portfolio $ 140,160 $ 129,663
Subserviced portfolio   25,915     21,818  
Total servicing portfolio $ 166,075   $ 151,481  
 
Conventional loans $ 136,261 $ 129,840
Government loans 23,100 14,872
Home equity lines of credit   6,714     6,769  
Total servicing portfolio $ 166,075   $ 151,481  
 
Weighted-average interest rate 4.9 % 5.3 %
 
 

MORTGAGE LOAN SERVICING PORTFOLIO DELINQUENCY (1)

   
December 31,
2010   2009
Number   Unpaid Number   Unpaid
of Loans Balance of Loans Balance
30 days 2.36 % 2.01 % 2.57 % 2.26 %
60 days 0.67 % 0.60 % 0.73 % 0.69 %
90 or more days 1.21 % 1.27 % 1.62 % 1.73 %
Total delinquency 4.24 % 3.88 % 4.92 % 4.68 %
Foreclosure/real estate owned(2) 2.30 % 2.37 % 2.18 % 2.32 %
 

(1)

Represents the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.

(2)

As of December 31, 2010 and 2009, there were 18,554 and 16,553 of loans in foreclosure with unpaid principal balances of $3.3 billion and $2.9 billion, respectively.
 
 

PHH CORPORATION AND SUBSIDIARIES

 

CHANGE IN FAIR VALUE OF MORTGAGE SERVICING RIGHTS

(In millions)
       
Three Months Ended Full Year Ended
December 31, December 31,
2010   2009   % Change 2010   2009   % Change
 
Actual prepayments of the underlying mortgage loans $ (67 ) $ (44 ) (52 )% $ (184 ) $ (244 ) 25 %
Actual receipts of recurring cash flows (10 ) (13 ) 23 % (41 ) (56 ) 27 %
Credit-related fair value adjustments(1) (11 ) (25 ) 56 % (36 ) (91 ) 60 %
Market-related fair value adjustments(2)   287     96   199 %   (166 )   111   n/m(3)
Change in fair value of mortgage servicing rights $ 199   $ 14  

n/m(3)

$ (427 ) $ (280 ) (53 )%
 

(1)

  Represents the change in fair value of MSRs primarily due to changes in portfolio delinquencies and foreclosures.
(2) Represents the change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
(3) n/m — Not meaningful.
 
 
PHH CORPORATION AND SUBSIDIARIES
 
NET INVESTMENT IN FLEET LEASES DETAIL
     
December 31,

 

2010   2009
 
Vehicles under open-end leases 97 % 95 %
Vehicles under closed-end leases 3 % 5 %
 
Vehicles under variable-rate leases 80 % 76 %
Vehicles under fixed-rate leases 20 % 24 %
 
Our Fleet Management Services segment’s historical net credit losses as a percentage of Net investment in fleet leases has averaged 2 basis points annually, and did not exceed 6 basis points annually, over the last ten fiscal years. During the year ended December 31, 2010, net credit losses as a percentage of Net investment in fleet leases were less than 3 basis points for the period.
 
 

AVAILABLE FUNDING UNDER ASSET-BACKED DEBT ARRANGEMENTS AND UNSECURED COMMITTED CREDIT FACILITIES

(In millions)

 
Capacity under all borrowing agreements is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. Capacity under asset-backed funding arrangements may be further limited by the asset eligibility requirements.
 
Available capacity under committed asset-backed debt arrangements and unsecured credit facilities as of December 31, 2010 consisted of:
       
Utilized Available
Capacity Capacity Capacity
Vehicle Management Asset-Backed Debt:
Term notes, in revolving period $ 989 $ 989 $
Variable funding notes 1,301 871 430
Mortgage Asset-Backed Debt:
Committed warehouse facilities 2,825 2,419 406
Servicing advance facility 120 68 52
Unsecured Committed Credit Facilities(1) 810 17 793
 
(1) Utilized capacity reflects $17 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in the Consolidated Balance Sheet.
 
The capacity of our Unsecured committed credit facilities was reduced to $525 million as of January 6, 2011 upon the expiration of certain commitments. Capacity for Mortgage-asset backed debt does not reflect $750 million not drawn under uncommitted warehouse facilities and $580 million available under committed off-balance sheet gestation facilities.
 

PHH CORPORATION AND SUBSIDIARIES

   
 
 

BOOK VALUE PER SHARE

       

(In millions, except per share data)

 
December 31,

December 31,

2010

2009

 
Total PHH Corporation stockholders’ equity(1) $ 1,564 $ 1,492
Book value per share $ 28.08 $ 27.24
 
(1)   Outstanding shares of common stock were 55.699 million and 54.775 million as of December 31, 2010 and December 31, 2009, respectively.
 
COMPONENTS OF PHH CORPORATION STOCKHOLDERS’ EQUITY    
(In millions)  
 
December 31,
2010
PHH Corporation Stockholders’ Equity(1):
Combined Mortgage Services Segments $ 1,060
Fleet Management Services Segment 447
Other   57
Total PHH Corporation stockholders’ equity $ 1,564
 
(1)   The composition of Total PHH Corporation stockholders’ equity by business may be useful in determining return on stockholders’ equity by business; however, the reporting of equity by segment is not prescribed nor required by GAAP. As such, these amounts may be deemed non-GAAP financial measures under Regulation G.
 
PHH CORPORATION AND SUBSIDIARIES
 
 
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 these Non-GAAP Financial Measures.

 

Regulation G Reconciliation

  Three Months Ended   Year Ended
December 31, December 31,
2010   2009 2010   2009
Income before income taxes – as reported $ 313 $ 169 $ 115 $ 280
Less: net income attributable to noncontrolling interest   6     8     28   20  
Segment income 307 161 87 260
Certain MSRs fair value adjustments:
Market-related(1) (287 ) (96 ) 166 (111 )
Credit-related(2)   11     25     36   91  
Core earnings (pre-tax) $ 31   $ 90   $ 289 $ 240  
 
Net income attributable to PHH Corporation – as reported $ 181 $ 97 $ 48 $ 153
Certain MSRs fair value adjustments:
Market-related, net of taxes(1)(3) (170 ) (57 ) 98 (65 )
Credit-related, net of taxes(2)(3)   6     15     21   54  
Core earnings (after-tax) $ 17   $ 55   $ 167 $ 142  
 
Basic earnings per share attributable to PHH Corporation – as reported $ 3.26 $ 1.76 $ 0.87 $ 2.80
Certain MSRs fair value adjustments:
Market-related, net of taxes(1)(4) (3.06 ) (1.04 ) 1.76 (1.19 )
Credit-related, net of taxes(2)(4)   0.11     0.27     0.38   0.99  
Core earnings per share $ 0.31   $ 0.99   $ 3.01 $ 2.60  
 
(1)   Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
 
(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.
 
(3) An incremental effective tax rate of 41% was applied to the MSRs fair value adjustments to arrive at the net of taxes amounts.
 
(4) Basic weighted-average shares outstanding of 55.699 million and 54.871 million for the three months ended December 31, 2010 and 2009, respectively, and 55.480 million and 54.625 million for the years ended December 31, 2010 and 2009, respectively were used to calculate per share amounts.
 
PHH CORPORATION AND SUBSIDIARIES
 
 
NON-GAAP RECONCILIATIONS – CORE EARNINGS BY SEGMENT
(In millions)
 

Regulation G Reconciliation

  Fourth Quarter 2010
    Combined   Fleet  
Mortgage Mortgage Mortgage Management
Production Servicing Services Services
Segment Segment Segment Segment Other
 
Segment profit (loss) $ 33 $ 251 $ 284 $ 25 $ (2 )
Certain MSRs fair value adjustments:
Market-related (1) (287 ) (287 )
Credit-related(2)     11     11        
Core Earnings $ 33 $ (25 ) $ 8   $ 25 $ (2 )
 
2010
Combined Fleet
Mortgage Mortgage Mortgage Management
Production Servicing Services Services
Segment Segment Segment Segment Other
 
Segment profit (loss) $ 268 $ (241 ) $ 27 $ 63 $ (3 )
Certain MSRs fair value adjustments:
Market-related (1) 166 166
Credit-related(2)     36     36        
Core Earnings $ 268 $ (39 ) $ 229   $ 63 $ (3 )
 
(1)   Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
 
(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.
 
PHH CORPORATION AND SUBSIDIARIES
 
 
NON-GAAP RECONCILIATIONS – CORE EARNINGS BY SEGMENT (continued)
(In millions)
 

Regulation G Reconciliation

  Fourth Quarter 2009
    Combined   Fleet  
Mortgage Mortgage Mortgage Management
Production Servicing Services Services
Segment Segment Segment Segment Other
 
Segment profit (loss) $ 65 $ 86 $ 151 $ 15 $ (5 )
Certain MSRs fair value adjustments:
Market-related (1) (96 ) (96 )
Credit-related(2)     25     25        
Core Earnings $ 65 $ 15   $ 80   $ 15 $ (5 )
 
2009
Combined Fleet
Mortgage Mortgage Mortgage Management
Production Servicing Services Services
Segment Segment Segment Segment Other
 
Segment profit (loss) $ 306 $ (85 ) $ 221 $ 54 $ (15 )
Certain MSRs fair value adjustments:
Market-related (1) (111 ) (111 )
Credit-related(2)     91     91        
Core Earnings $ 306 $ (105 ) $ 201   $ 54 $ (15 )
 
(1)   Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
 
(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.
 
PHH CORPORATION AND SUBSIDIARIES
 
 
NON-GAAP RECONCILIATIONS- CORE REVENUE
(In millions)
 

Regulation G Reconciliation

    Fourth
Quarter
Fourth Quarter 2010 2009
    Combined   Fleet    
Mortgage Mortgage Mortgage Management
Production Servicing Services Services Total PHH Total PHH
Segment Segment Segment Segment Other Corporation Corporation
 
Net revenues $ 221 $ 299 $ 520 $ 399 $ (1 ) $ 918 $ 744
Certain MSRs fair value adjustments:
Market-related (1) (287 ) (287 ) (287 ) (96 )
Credit-related(2)     11     11           11     25  
Core Revenue $ 221 $ 23   $ 244   $ 399 $ (1 ) $ 642   $ 673  
 
2010 2009
Combined Fleet
Mortgage Mortgage Mortgage Management
Production Servicing Services Services Total PHH Total PHH
Segment Segment Segment Segment Other Corporation Corporation
 
Net revenues $ 911 $ (63 ) $ 848 $ 1,593 $ (3 ) $ 2,438 $ 2,606
Certain MSRs fair value adjustments:
Market-related (1) 166 166 166 (111 )
Credit-related(2)     36     36           36     91  
Core Revenue $ 911 $ 139   $ 1,050   $ 1,593 $ (3 ) $ 2,640   $ 2,586  
 
(1)   Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
 
(2) Represents the Change in fair value of MSRs primarily due to the impact of changes in estimated portfolio delinquencies and foreclosures.

Contacts

PHH Corporation
Jonathan T. McGrain, 856-917-0066

Contacts

PHH Corporation
Jonathan T. McGrain, 856-917-0066