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8/2/2019 PHHInvestor Presentation February 13, 2012-1
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PHH CorporationInvestor Presentation
February 13, 2012
8/2/2019 PHHInvestor Presentation February 13, 2012-1
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2 2012 PHH Corporation. All rights reserved.
Forward-Looking StatementsCertain statements in this presentation and in any accompanying oral remarks made in connection with this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, forward looking-statements arenot based on historical facts but instead represent only our current beliefs regarding future events. All forward-looking statements are, bytheir nature, subject to risks, uncertainties and other factors that could cause actual results, performance or achievements to differmaterially from those expressed or implied in such forward-looking statements. Investors are cautioned not to place undue reliance onthese forward-
You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. You -ort onForm 10-K and Quarterly Reports on Form 10-Q, in connection with any forward-looking statements that may be made by us or ourare alsoavailable 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 anyupdates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or unanticipatedevents.
Basis of Presentation of Financial Data
Unless noted otherwise in this presentation, all reported financial data is being presented as of the period ended December 31, 2011.
Non-GAAP Financial Measures
Core earnings (loss) (pre-tax and after-tax), core earnings (loss) per share, tangible book value and tangible book value per share arefinancial measures that are not in accordance with GAAP. See Non-GAAP Financial Measures Disclosures beginning on slide 18 forreconciliations of these measures to the most directly comparable GAAP financial measures and other disclosures as required byRegulation G.
Important Disclosures
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PHH An Attractive Investment Opportunity
Leading player in mortgage outsourcing
Long-term established relationships with exclusivityin Mortgage franchise platforms
Fleet vendor network, scale and technology createhigh barriers to entry
Limited credit risk and strong underwriting culture
Capitalized servicing portfolio 85% agency product,over 52% 2009 and later vintage
Diversified Fleet lease portfolio with highconcentration of investment grade customers
Recurring and growing Fleet earnings largely cash
Servicing portfolio generates cash
Managing Mortgage Production for greater capitalefficiency
Operate Mortgage for positive net cash flow
Defensible MarketPosition with AttractiveGrowth Prospects
High Quality Assets
Business ModelGenerates StrongCash Flow
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2011 Performance
GAAP net loss of $127 million, $2.26 per share Core Earnings (after-tax)* of $182 million, $3.23 per share
Unpaid principal balance (UPB) of capitalized mortgage servicingportfolio up 9% to $147 billion at year-end 2011
Servicing portfolio delinquencies (excluding foreclosure and REO) of3.29% continue to be stable and one of the lowest in the mortgageindustry at year-end 2011
Foreclosure and real estate owned only 1.85% of servicing portfolio atyear-end 2011
Fleet segment profit (pre-tax) of $75 million, a 19% increase over 2010
Tangible book value per share* of $24.56 at year-end 2011
* See Non-GAAP Financial Measures in this presentation
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Four Key Strategies to Create Shareholder Value
1. Disciplined growth in franchise platforms
Mortgage Private Label Services
Realogy relationship
Fleet Management business
2. Operational excellence
3. Unwavering commitment to customer service
4. In near term, liquidity, cash generation and deleveraging balance sheet
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2012: A Transition Year
Liquidity actions may have a negative impact on 2012 earnings- Reduction in cash usage for Correspondent
- Non-core asset sales
Focus on deleveraging the balance sheet
- Intend to repay 2012 and 2013 debt maturities in 2012
- Intend to seek multi-year extension of revolver
Beyond 2012, PHH should be:- More profitable
- Less volatile- Better capitalized
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Strong Position to Retire 2012 and 2013 DebtMaturities in 2012
Liquidity position at December 31, 2011: Unrestricted cash and equivalents of $414 million
Revolving credit facility availability of $509 million
Liquidity enhanced by $250 millionconvertible debt offering in January
Sufficient liquidity to retire 2012 corporatematurities $250 million of Convertible Notes due in April
$525 million unsecured revolving creditfacility expected to be extended and
available to February 2013 Intend to seek a multi-year extension after 2012 and
2013 maturities are addressed
Goal to deleverage to 3.0:1 unencumberedasset coverage
202 250 250
421350
8
100
0
100
200
300
400
500
600
700800
900
1,000
2012 2013 2014 2015 2016 2017 &Beyond
(In$Millions)
Unsecured Debt MaturitiesAs of 12/31/2011 Pro forma
Convertible Debt Unsecured BondsRevolver Borrowings Unsecured Bond Add-on
Intend to retire in 2012
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PHH Overview
A Leading Provider of Mortgage and Fleet Management Services
Long-term track record of business process management excellence
Leading institutions view us as a trusted partner serving their
customers and employees
Scale and relationships create a defensible and expandable marketposition
Market dynamics may drive additional opportunities to improveprofitability and increase market share
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Company Profile
1
Source: Inside Mortgage Finance, Copyright 2011/12
Top 4 originator of retail
residential mortgages in the
United States 3Q11 YTD1
Mortgage Origination revenue
consists of fees from mortgage
loan origination services and the
origination and sale of mortgage
loans into the secondary market
Flexibility to partially regulate
current cash investment in future
cash flow generation
Investment in Future Cash FlowGeneration
Mortgage Origination
Fleet
Management services with
approximately 570,000 vehicles
under management in the U.S.
and Canada as of 12/31/11
Fleet Management revenue
consists of leasing revenue
related to operating and direct
financing leases and fees earned
by providing maintenance,
accident management and fuel
card services
Cash Flow Generator
Fleet Management
7th largest servicer of residential
mortgages in the United States as
of 12/31/111
Mortgage Servicing revenue
consists of fees from servicing
rights and subservicing
agreements earned by providing
various administrative services
(e.g., collecting loan payments)
Capitalized MSR valuation
subject to volatility due to interest
rates, shape of the yield curve
and other factors
Cash Flow Generator
Mortgage Servicing
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Strategic Objectives for Mortgage
Disciplined growth in Private Label and Realogy channels
Operate business for positive net cash flow
Emphasize non-capital intensive growth opportunities
Fee-for-service originations Sub-servicing
Improving critical business processes to mitigate origination defects
IWR scores 90+%
Incremental upside potential: Actual prepayment speeds have been slower than modeled
150+% replenishment rate has historically offset runoff
Servicing cash flow should improve with rising interest rates
Foreclosure costs should decline with rising housing prices
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Key MortgageOrigination Sources Description
More than 30 financial institution clients provide access to network ofmore than 4,300 branches and 55,000 financial advisors
On-boarding new clients and continuing to expand and convertpipeline of client prospects
Investment in relationship management and technology should enablefurther penetration of existing clients
Regulatory and capital pressure on banks creates opportunity
Proprietary relationship gives us access to an estimated 1 of every 4home purchase transactions
More than 6,500 real estate offices and 200,000 real estate agents
Adding loan officers to significantly increase capture rates
Well-positioned for eventual resurgence in the purchase market
Private Label(Franchise Channel)
Real Estate (Realogy JV)(Franchise Channel)
Key Mortgage Origination Sources
Acquire loans through a network of high quality correspondents,maintaining rigorous underwriting standards
Focus on Credit Unions and small community banks
Correspondent Lending(Opportunistic Channel)
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Unpaid principal balance (UPB) of capitalized servicing portfolio has steadily grown
- Capitalized servicing portfolio grew 9% or $12.3B to $147.1B in 2011
Weighted average interest rate1 decreased to 4.9%, enhancing long-term portfolio value
MSR asset valued at 82 bps of capitalized UPB at year-end 2011
Servicing fees of 31 bps in 4Q11
Disciplined Growth in Mortgage Servicing Portfolio
1 On capitalized portfolio only
Wtd. Avg.Int. Rate1
129.1 127.7 128.5 130.1 131.9 134.8 141.1 142.4 144.3 147.1
20.7 23.8 24.6 25.9 27.531.3 29.6 31.3
33.8 35.3149.8 151.5 153.1 156.0 159.4
166.1 170.7 173.7178.1 182.4
$0
$50
$100
$150
$200
20085.9%
20095.5%
2010 Q15.5%
2010 Q25.4%
2010 Q35.3%
2010 Q45.2%
2011 Q15.1%
2011 Q25.0%
2011 Q34.9%
2011 Q44.9%
(In
$Billions)
PHH Servicing Portfolio
Capitalized Servicing Portfolio Subserviced Loans & Loans in Warehouse
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Low Delinquency Rates Relative to Peers
Consistently outperformed industry in delinquency performance
Total Delinquencies as of 9/30/11Capitalized Servicing Portfolio Total Delinquency Compared to Industry
13.54%
11.52%
8.37%7.63%
4.80%
10.70%
0%
4%
8%
12%
16%
Bank ofAmerica
Chase Citi WellsFargo
PHH LargerServicer
Index
Source: PHH data as of 9/30/11; Industry data as of 10/31/11 from McDash/LPS
0%
2%
4%
6%
8%
10%
12%
14%
16%
2004 2005 2006 2007 2008 2009 2010 2011 AllYears
PHH Industry
(Excludes FC and REO)
Year of Origination
Source: Inside Mortgage Finance 11/25/2011; PHH rate based on UPB
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Strategic Objectives for Fleet Management
Continue earnings momentum
Leverage franchise to expand customer base
Emphasis on services growth
Expand vehicle remarketing capabilities
Further penetrate existing clients for incremental fee-based services
Continuous technology innovation and improvement
100% subscription to full service suite
Driver and client satisfaction at 90+%
Grow truck lease syndications
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GE25%
ARI20%
16%
Leaseplan12%
Wheels10%
Enterprise8%
Donlen (Hertz)5%
Others4%
Fleet Management Services
Fully-integrated provider of vehicle leasing and fleetmanagement services
Mission-
Diversified lease portfolio of industry leader lessees
Nearly one-third of Fortune 500 in client base
More than 50% of net investment in fleet leases to investment
grade lessees
No client represents more than 5% of portfolio
High barriers to entry
Vendor network difficult to replicate
Significant purchasing power
Technology tie-in with client operations
An innovation leader in technology for fleet industry
Recurring, fee-based revenue and cash flow streams Minimal lease residual and credit risk
Approximately 97% -
as of December 31, 2011
Charge-offs averaged less than 3 basis points per annum for
the last 10 years
Management Services U.S. Fleet Served Market Share (fleets>15 units)1
1 Source: 2011 Automotive Fleet Fact Bookreflecting data as of FYE 2010 for leased andservice only vehicles, excluding "unserved" market share
Selected Clients
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Healthcare &Pharmaceuticals
15%
Utilities: Electric15%
Services:Business
9%
Chemicals,Plastics and
Rubber9%
Beverage, Foodand Tobacco
8%
Energy: Oil & Gas5%
Construction &Building
5%
High TechIndustries
4%
CapitalEquipment
4%
Services:Consumer
4%
Other (16Industries < 3.5%)
22%
Diversified and High Quality Fleet Lease Portfolio
U.S. Lease Portfolio Characteristics (as of 9/30/11)
Broad array of client industries
Predominance of vehicle types are mission critical for our customers
Utility/service vehicles comprise 82% of portfolio
1As of 9/30/11, excludes FirstFleet lease book value of $93 million
Light Duty Trucks
53%
Cars18%
Medium DutyTrucks13%
Heavy DutyTrucks
7%Equipment
4%
Trailers3%Forklifts
2%
Top 200 U.S. Client Breakout by Industry Classification1 U.S. Lease Distribution by Vehicle Type1
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Conclusion
Attractive investment opportunity- High quality assets
- Strong cash flows
- Defensible market position
Solid fundamental trends
- New client additions- Increasing volume with existing clients
- Recent wide Mortgage Production margins
Four key strategies to create shareholder value1. Disciplined growth in franchise platforms
2. Operational excellence3. Customer service
4. In near term, liquidity, cash generation and deleveraging
Strong position to retire 2012 & 2013 debt maturities
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Core earnings (loss) pre-tax involves differences from Mortgage Services Segment profit (loss) and Income (loss) before income taxes
computed in accordance with GAAP. Core earnings (loss) (pre-tax) should be considered as supplementary to, and not as a substitutefor, Mortgage Services Segment profit (loss) and Income (loss) before income taxes attributable to PHH Corporation computed in
puted inaccordance with GAAP. Tangible book value and tangible book value per share should be considered as supplementary to, and not as aancialposition.
The Company believes that these Non-GAAP financial measures can be useful to investors because they provide a means by whichdjustmentsand activities that investors may consider to be unrelated to or tend to obscure the underlying economic performance of the business for agiven period.
tandingges in et-related fairegment netrevenue, Net income (loss) attributable to PHH Corporation and Basic earnings (loss) per share attributable to PHH Corporation in
accordance with GAAP.
Non-GAAP Financial Measures Disclosures
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Non-GAAP Financial Measures Disclosures(continued)
Core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share
Core earnings (loss) (pre-tax and after-uding unrealizeds and prepayments aswell as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of mortgage servicingrights. The changes in fair value of mortgage servicing rights and related derivatives are highly sensitive to changes in interest rates and aredependent upon the level of current and projected interest rates at the end of each reporting period.
Value lost from actual prepayments and recurring cash flows are recorded when actual cash payments or prepayments of the underlying loans arereceived, and are included in core earnings based on the current fair value of the mortgage servicing rights at the time the payments are received.
The presentation of core earnings is designed to more closely align the timing of recognizing the actual value lost from prepayments in the mortgageservicing segment with the associated value created through new originations in the mortgage production segment. The Company believes that it willlikely replenish most, if not all, realized value lost from changes in value from actual prepayments through new loan originations and actively managesand monitors economic replenishment rates to measure its ability to continue to do so. Therefore, management does not believe the unrealizedchange in value of the mortgage servicing rights is representative of the economic change in value of the business as a whole.
incentivesbased upon the achievement of core earnings targets, subject to potential adjustments that may be made at the discretion of the Human Capital and
Limitations on the use of Core Earnings
Since core earnings (loss) (pre-tax and after-e excludingunrealized changes in value of mortgage servicing rights, such measures may not appropriately reflect the rate of value lost on subsequent actualpayments or prepayments over time. As such, core earnings (loss) (pre-tax and after-tax) and core earnings (loss) per share may tend to overstateoperating results in a declining interest rate environment and understate operating results in a rising interest rate environment, absent the effect of anyng rights.
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Tangible book value and Tangible book value per share
value of goodwill and other intangible assets. Tangible book value per share is a measure of tangible book value, on a per share basis,using the number of shares of outstanding PHH Corporation common stock as of the applicable measurement date. Certain of the-to-tangible net worth ratio covenants, and such ratios are calculated using a Accordingly, theCompany believes that tangible book value and tangible book value per share provide useful supplementary information to investors.
Non-GAAP Financial Measures Disclosures(continued)
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2011 2010 2011 2010
21$ 313$ (202)$ 115$
8 6 25 28
13 307 (227) 87
55 (287) 510 166
13 11 11 36
Net derivative loss related to MSRs 4 - 3 -
85$ 31$ 297$ 289$
13$ 181$ (127)$ 48$
33 (170) 301 98
7 6 6 21
Net derivative loss related to MSRs 2 - 2 -
55$ 17$ 182$ 167$
0.22$ 3.26$ (2.26)$ 0.87$
0.58 (3.06) 5.34 1.76
0.14 0.11 0.12 0.38
Net derivative gain related to MSRs 0.04 - 0.03 -
0.98$ 0.31$ 3.23$ 3.01$
Three Months
Ended December 31,
Year Ended
December 31,
Certain MSRs fair value adjustments:
Basic income per share attributable to PHH Corporation
- as reported
Market-related, net of taxes(1)(4)
Credit-related, net of taxes(2)(4)
Core earnings per share
Core earnings (after-tax)
Net income attributable to PHH Corporation - as
reported
Certain MSRs fair value adjustments:
Income before income taxes - as reported
Less: net income attributable to noncontrolling interest
Segment income
Certain MSRs fair value adjustments:
Market-related(1)
Credit-related(2)
Core earnings (pre-tax)
Market-related, net of taxes(1)(3)
Credit-related, net of taxes(2)(3)
Non-GAAP Financial Measures Reconciliation
1 Represents the Change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.2Represents the Change in fair value of MSRs primarily due to changes in estimated portfolio delinquencies and foreclosures.3 Incremental effective tax rate of 41% was applied to the MSRs fair value adjustments to arrive at the net of taxes amounts.4Basic weighted-average shares outstanding of 56.504 million and 55.699 million for the three months ended December 31, 2011 and 2010, respectively and 56.349 millionand 55.480 million for the years ended December 31, 2011 and 2010, respectively were used to calculate per share amounts.
($ in millions, except per share amounts)
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As of December 31,
2011 2010
PHH Corporations stockholder's equity - as reported $ 1,442 $ 1,564
Goodwill (25) (25)
Intangible assets (33) (36)Tangible Book Value $ 1,384 $ 1,503
Common shares issued and outstanding 56,361,155 55,699,218
Tangible book value per share $ 24.56 $ 26.98
($ in millions, except per share amounts)
Non-GAAP Financial Measures Reconciliation Tangible Book Value