PHH Corporation Announces Third Quarter 2005 Results; Net Income Was $46 Million or $0.86 Per Basic Share
MT. LAUREL, N.J.--Nov. 1, 20050, 2005--PHH Corporation today announced results for the quarter ended September 30, 2005.Net revenues for the third quarter of 2005 were $292 million, an increase of 19% from net revenues of $245 million for the quarter ended September 30, 2004. Net income for the quarter ended September 30, 2005 was $46 million or $0.86 per basic share, compared to net income of $62 million or $1.19 per basic share for the quarter ended September 30, 2004. Income from continuing operations for the quarter of $46 million or $0.86 per share was up 92% when compared to income from continuing operations of $24 million or $0.47 per basic share for the quarter ended September 30, 2004.
For the nine months ended September 30, 2005, net revenues were $803 million compared to $757 million for the nine months ended September 30, 2004. The net loss for the nine months ended September 30, 2005, which included spin-off related expenses, was $186 million or a loss of $3.51 per basic share compared to net income for the comparable period last year of $157 million or $2.99 per basic share. Loss from continuing operations on a year to date basis, which also included the spin-off related expenses, was $185 million or a loss of $3.49 per basic share compared to income from continuing operations of $65 million or $1.25 per basic share for the same period last year.
Excluding spin-off related expenses of $280 million in the first quarter, pre-tax income from continuing operations for the nine months ended September 30, 2005 would have been $178 million compared to pre-tax income from continuing operations of $111 million for the nine months ended September 30, 2004. Management believes that it is useful to investors to present pre-tax income from continuing operations excluding spin-off related expenses because of the one-time nature of the spin-off.
Highlights for the Third Quarter of 2005
-- Fleet management segment pre-tax income increased to $20 million from $15 million in the third quarter of last year.
-- Average fleet leased vehicles grew 2.4% compared to the third quarter of last year.
-- Mortgage services segment pre-tax income increased to $58 million from $26 million in the third quarter of last year.
-- Mortgage closing volume was nearly $14 billion during the quarter, up 10% from the third quarter of last year and up 7% from the second quarter of 2005. Sixty-seven percent of the closed volume for the quarter was purchase related.
-- Mortgage announced the purchase of the key assets of CUNA Mutual Mortgage Corporation, including credit union relationships, mortgage servicing rights on a $6.6 billion loan portfolio, certain branding rights, and the right to sub-service $2.9 billion in mortgages.
Mortgage Services Segment
For the third quarter of 2005, the mortgage services segment reported pre-tax income of $58 million which consisted of $31 million net contribution from production and $27 million net contribution from servicing.
Net contribution from production included $52 million of income from mortgage fees, $107 million of income from gain on sale of mortgage loans, net, $13 million of net finance income, and $141 million of production related expenses including allocations for overhead. Gain on sale margin was 98 basis points for the quarter on $10.9 billion of loans sold. The gain on sale margin was favorably impacted by $10 million or 10 basis points attributable to timing differences associated with the application of SFAS No. 133, $4 million of which is expected to reverse in the fourth quarter of 2005 when the loans are sold. Initial capitalization rates for mortgage servicing rights increased during the quarter due primarily to higher interest rates. Production related expenses decreased by $3 million despite a 10% increase in total loan closings as compared to the same period in 2004.
Net contribution from servicing included $19 million of net finance income, $36 million of net loan servicing income and $28 million of servicing related expenses including allocations for overhead. Net finance income attributable to servicing increased by approximately $10 million as compared to the same period in 2004, due primarily to higher escrow balances and higher income earned on those balances due to higher short-term interest rates. Included in servicing expense for the quarter was $3 million of expense related to estimated losses associated with damage caused by Hurricane Katrina.
Fleet Management Services Segment
For the third quarter of 2005, the fleet management services segment recorded increases in all major revenue categories which resulted in $20 million in operating income versus $15 million for the comparable quarter in 2004. These increases were due to overall unit count growth, higher average transactions for the fee based services, and higher net finance income.
For the nine months ended September 30, 2005, pre-tax income of $62 million was up 88% over the comparable period last year. Continued growth in fleet management fees has resulted from unit count increases in fuel cards and accident management vehicles and increased revenues from higher transactions in the fuel and maintenance programs. Net finance income increased $33 million due in part to a $15 million decrease in interest expense, due to lower debt levels resulting from certain capital structure adjustments made in connection with the spin-off.
Management Comments
Terry Edwards, president and chief executive officer, commented, "The third quarter was a solid quarter for both PHH Arval and PHH Mortgage. Our year to date pre-tax income of $178 million, excluding spin-off expenses, speaks to the outstanding performance of both operating companies. Continued margin pressure in the mortgage market and potential volatility associated with hedging activities for the pipeline and the servicing portfolio will challenge the mortgage results in the fourth quarter; however, the recent signings of CUNA Mutual Mortgage and MetLife are evidence that our outsource business model is performing to expectations. PHH Arval continues to exceed our original estimates and we anticipate continued strong results in the fourth quarter."
Non-GAAP Financial Measures
This press release contains certain financial measures related to the spin-off which are not calculated in accordance with generally accepted accounting principles in the United States (GAAP). Management believes that it is useful to investors to present pre-tax income from continuing operations excluding spin-off related expenses because of the one-time, non-recurring nature of the spin-off. A reconciliation of pre-tax income from continuing operations, excluding spin-off related expenses, is shown in the reconciliation table attached to this press release. These non-GAAP financial measures should not be viewed as a substitute for the comparable GAAP financial measures.
The Company will conduct a conference call for investors on Friday morning, November 11 at 11:00 a.m. eastern standard time. Interested investors can access the conference call by dialing 201-689-8341 or 877-407-8289 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 after the call until December 2, 2005 by dialing 201-612-7415 or 877-660-6853, using account number 234, passcode 173065, 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 ten retail originators of residential mortgages in the United States(1), and its subsidiary, PHH Arval, is the second-largest fleet management services provider in the United States and Canada(2). For additional information about the company and its subsidiaries please visit our website at www.phh.com.
(1) Inside Mortgage Finance, August 2005
(2) Automotive Fleet Fact Book, June 2005
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These 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. Statements preceded by, followed by or that otherwise include the words "believes", "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" are generally forward-looking in nature and not historical facts. For example, our expectations regarding fourth quarter results are forward-looking statements.
You should consider the areas of risk described under the heading "Forward Looking Statements" in our periodic reports under the Securities Exchange Act of 1934 as amended, and those risk factors included as Exhibit 99 thereto, titled "Risk Factors Affecting our Business and Future Results," 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, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law.
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues
Mortgage fees $52 $58 $147 $178
Fleet management fees 38 34 113 101
--------- --------- --------- ---------
Net fee income 90 92 260 279
--------- --------- --------- ---------
Gain on sale of mortgage
loans, net 107 56 223 274
--------- --------- --------- ---------
Fleet lease income 388 364 1,128 1,019
Depreciation on operating
leases (329) (326) (967) (915)
Mortgage interest income 88 74 208 196
Interest expense (92) (62) (238) (169)
--------- --------- --------- ---------
Net finance income 55 50 131 131
--------- --------- --------- ---------
Loan servicing income 120 124 364 365
Amortization and valuation
adjustments related to
mortgage servicing rights,
net (84) (81) (188) (316)
--------- --------- --------- ---------
Net loan servicing income 36 43 176 49
--------- --------- --------- ---------
Other income 4 4 13 24
--------- --------- --------- ---------
Net revenues 292 245 803 757
--------- --------- --------- ---------
Expenses
Salaries and related expenses 106 101 311 309
Occupancy and other office
expenses 18 21 59 63
Depreciation and amortization 11 13 31 34
Other operating expenses 79 70 224 240
Spin-Off related expenses
Goodwill impairment -- -- 239 --
Other -- -- 41 --
--------- --------- --------- ---------
Total expenses 214 205 905 646
--------- --------- --------- ---------
Income (loss) from continuing
operations before income
taxes 78 40 (102) 111
Provision for income taxes 32 16 83 46
--------- --------- --------- ---------
Income (loss) from continuing
operations 46 24 (185) 65
Income (loss) from
discontinued operations, net
of income taxes of $0, $24,
$0 and $58 -- 38 (1) 92
--------- --------- --------- ---------
Net income (loss) $46 $62 $(186) $157
========= ========= ========= =========
Basic earnings (loss) per
share:
Income (loss) from
continuing operations $0.86 $0.47 $(3.49) $1.25
Income (loss) from
discontinued operations -- 0.72 (0.02) 1.74
--------- --------- --------- ---------
Net income (loss) $0.86 $1.19 $(3.51) $2.99
========= ========= ========= =========
Diluted earnings (loss) per
share:
Income (loss) from
continuing operations $0.85 $0.47 $(3.49) $1.24
Income (loss) from
discontinued operations -- 0.71 (0.02) 1.72
--------- --------- --------- ---------
Net income (loss) $0.85 $1.18 $(3.51) $2.96
========= ========= ========= =========
Weighted average common shares
outstanding:
Basic 53.279 52.684 52.896 52.684
========= ========= ========= =========
Diluted 54.157 53.181 52.896 53.181
========= ========= ========= =========
PHH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
September 30, December 31,
2005 2004
-------------- --------------
ASSETS
Cash and cash equivalents $65 $257
Restricted cash 484 854
Mortgage loans held for sale, net 2,924 1,981
Accounts receivable, net 369 361
Net investment in fleet leases 3,928 3,765
Mortgage servicing rights, net 1,688 1,608
Investment securities 43 47
Property, plant and equipment, net 82 98
Goodwill 58 512
Other assets (1) 371 532
Assets of discontinued operations -- 1,650
-------------- --------------
Total assets $10,012 $11,665
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $454 $428
Debt 6,871 6,494
Deferred income taxes 760 720
Other liabilities 416 414
Liabilities of discontinued operations -- 1,389
-------------- --------------
Total liabilities 8,501 9,445
-------------- --------------
Commitments and contingencies -- --
Total stockholders' equity (2) 1,511 2,220
-------------- --------------
Total liabilities and stockholders'
equity $10,012 $11,665
============== ==============
(1) Other assets include intangible assets of $55 million and $57
million as of September 30, 2005 and December 31, 2004,
respectively.
(2) Outstanding shares of common stock were 53.387 million and 52.684
million as of September 30, 2005 and December 31, 2004,
respectively.
PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATING SEGMENT RESULTS
(Unaudited)
(In millions)
Three Months Ended September 30,
------------------------------------------
2005 2004
--------------------- --------------------
Income
Income (Loss)
From From
Continuing Continuing
Operations Operations
Net Before Net Before
Revenues Taxes Revenues Taxes
--------- ----------- --------- ----------
Mortgage Services $227 $58 $197 $26
Fleet Management Services 65 20 48 15
--------- ----------- --------- ----------
Total reportable segments 292 78 245 41
Other -- -- -- (1)
--------- ----------- --------- ----------
Total Company $292 $78 $245 $40
========= =========== ========= ==========
Nine Months Ended September 30,
-------------------------------------------
2005 2004
--------------------- ---------------------
Income Income
(Loss) (Loss)
From From
Continuing Continuing
Operations Operations
Net Before Net Before
Revenues Taxes Revenues Taxes
--------- ----------- --------- -----------
Mortgage Services $614 $117 $615 $82
Fleet Management Services 189 62 142 33
-------------- ------ --------- -----------
Total reportable segments 803 179 757 115
Other (1) -- (281) -- (4)
-------------- ------ --------- -----------
Total Company $803 $(102) $757 $111
============== ====== ========= ===========
(1) Expenses reported under the heading Other for the nine months
ended September 30, 2005 are primarily spin-off related expenses,
including a goodwill impairment charge of $239 million for the
Fleet Management Services segment.
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE SERVICES SEGMENT RESULTS
(Unaudited)
($ in millions, except average loan amount)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Loans closed to be sold $10,799 $8,217 $27,291 $27,244
Fee-based closings 3,191 4,469 9,204 14,326
--------- --------- --------- ---------
Total closings $13,990 $12,686 $36,495 $41,570
========= ========= ========= =========
Purchase closings $9,383 $9,695 $24,749 $27,171
Refinance closings 4,607 2,991 11,746 14,399
--------- --------- --------- ---------
Total closings $13,990 $12,686 $36,495 $41,570
========= ========= ========= =========
Number of loans closed (units) 67,296 67,927 176,055 220,501
========= ========= ========= =========
Average loan amount $207,888 $186,759 $207,293 $188,521
========= ========= ========= =========
Loans sold $10,896 $8,686 $25,993 $25,719
========= ========= ========= =========
Average loan servicing
portfolio $146,659 $145,895 $146,282 $142,424
========= ========= ========= =========
Mortgage fees $52 $58 $147 $178
--------- --------- --------- ---------
Gain on sale of mortgage
loans, net 107 56 223 274
--------- --------- --------- ---------
Mortgage interest income 88 74 208 196
Interest expense (56) (35) (141) (96)
--------- --------- --------- ---------
Net finance income 32 39 67 100
--------- --------- --------- ---------
Loan servicing income 120 124 364 365
--------- --------- --------- ---------
Amortization and valuation
adjustments related to MSRs,
net:
Amortization of MSRs (118) (73) (335) (230)
Recovery of (provision for)
impairment of MSRs 240 (248) 102 (156)
Net derivative (loss) gain
related to MSRs (206) 240 45 70
--------- --------- --------- ---------
(84) (81) (188) (316)
--------- --------- --------- ---------
Net loan servicing income 36 43 176 49
--------- --------- --------- ---------
Other income -- 1 1 14
--------- --------- --------- ---------
Net revenues 227 197 614 615
--------- --------- --------- ---------
Salaries and related expenses 78 76 235 242
Occupancy and other office
expenses 14 17 45 50
Depreciation and amortization 7 9 21 24
Other operating expenses 70 69 196 217
--------- --------- --------- ---------
Total expenses 169 171 497 533
--------- --------- --------- ---------
Income before income taxes $58 $26 $117 $82
========= ========= ========= =========
Net contribution from
production $31 $3 $(20) $95
Net contribution from
servicing 27 23 137 (13)
--------- --------- --------- ---------
Income before income taxes $58 $26 $117 $82
========= ========= ========= =========
PHH CORPORATION AND SUBSIDIARIES
FLEET MANAGEMENT SERVICES SEGMENT RESULTS
(Unaudited)
Average for the Average for the
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Leased vehicles 325,506 317,943 324,767 317,846
Maintenance cards 338,165 340,017 338,970 341,647
Fuel cards 321,778 314,002 321,743 315,478
Accident management
vehicles 332,796 313,614 331,509 313,240
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(In millions)
Fleet management fees $38 $34 $113 $101
---------- ---------- ---------- ----------
Fleet lease income 388 364 1,128 1,019
Depreciation on operating
leases (329) (326) (967) (915)
Interest expense (36) (27) (97) (73)
---------- ---------- ---------- ----------
Net finance income 23 11 64 31
---------- ---------- ---------- ----------
Other income 4 3 12 10
---------- ---------- ---------- ----------
Net revenues 65 48 189 142
---------- ---------- ---------- ----------
Salaries and related
expenses 26 23 71 63
Occupancy and other office
expenses 4 4 14 13
Depreciation and
amortization 4 4 10 10
Other operating expenses 11 2 32 23
---------- ---------- ---------- ----------
Total expenses 45 33 127 109
---------- ---------- ---------- ----------
Income before income taxes $20 $15 $62 $33
========== ========== ========== ==========
PHH CORPORATION AND SUBSIDIARIES
MORTGAGE LOAN SERVICING PORTFOLIO
(Unaudited)
Portfolio Composition
September 30,
-------------------
2005 2004
--------- ---------
(In millions)
Owned servicing portfolio $141,621 $140,487
Subserviced portfolio 5,292 6,792
--------- ---------
Total servicing portfolio $146,913 $147,279
========= =========
Fixed rate $84,850 $84,799
Adjustable rate 62,063 62,480
--------- ---------
Total servicing portfolio $146,913 $147,279
========= =========
Conventional loans $135,713 $135,050
Government loans (FHA/VA) 6,954 8,344
Home equity lines of credit 4,246 3,885
--------- ---------
Total servicing portfolio $146,913 $142,279
========= =========
Weighted-average note rate (1) 5.7% 5.3%
========= =========
Portfolio Delinquency (1)
September 30,
---------------------------------
2005 2004
---------------- ----------------
Number Unpaid Number Unpaid
of Loans Balance of Loans Balance
-------- ------- -------- -------
30 days 1.98% 1.58% 2.03% 1.64%
60 days 0.38% 0.27% 0.42% 0.29%
90 or more days 0.39% 0.25% 0.46% 0.29%
-------- ------- -------- -------
Total delinquency 2.75% 2.10% 2.91% 2.22%
======== ======= ======== =======
Foreclosure/Real estate
owned/Bankruptcies 1.00% 0.61% 1.03% 0.62%
======== ======= ======== =======
(1) Excludes certain home equity loans subserviced for others. These
amounts were approximately $2.5 billion and $2.6 billion as of
September 30, 2005 and 2004, respectively.
PHH CORPORATION AND SUBSIDIARIES
COMPONENTS OF NET GAIN (LOSS) ON MSRs RISK MANAGEMENT ACTIVITIES
(Unaudited)
(In millions)
Three Months Ended
September 30,
------------------
2005 2004
-------- --------
Net derivative (loss) gain related to MSRs $(206) $240
Recovery of (provision for) impairment of MSRs 240 (248)
Application of amortization rate to the valuation
allowance (31) (9)
-------- --------
Net gain (loss) on MSRs risk management activities $3 $(17)
======== ========
Nine Months Ended
September 30,
-----------------
2005 2004
-------- --------
Net derivative gain related to MSRs $45 $70
Recovery of (provision for) impairment of MSRs 102 (156)
Application of amortization rate to the valuation
allowance (81) (46)
-------- --------
Net gain (loss) on MSRs risk management activities $66 $(132)
======== ========
PHH CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
To supplement its condensed consolidated financial statements
presented in accordance with accounting principles generally accepted
in the United States (GAAP), the Company is providing an additional
measure of operating results excluding certain expenses. The Company
believes that this non-GAAP financial measure is useful to investors
because of the one-time, non-recurring nature of the spin-off. A
reconciliation of the difference between this non-GAAP financial
measure with the most directly comparable financial measure calculated
in accordance with GAAP follows.
Pre-tax income from continuing operations, excluding spin-off related
expenses:
The calculation of pre-tax income from continuing operations,
excluding spin-off related expenses, for the nine months ended
September 30, 2005 and 2004, follows:
Nine Months Ended
September 30,
-----------------
2005 2004
-------- --------
(In millions)
(Loss) income from continuing operations before
income taxes $(102) $111
Excluding spin-off related expenses:
Goodwill impairment 239 --
Other 41 --
-------- --------
Income from continuing operations before income
taxes, excluding spin-off related expenses $178 $111
======== ========