PHH Reports 350% Gain in Core Earnings Despite Loss in Revenue
[Update 1: clarifies PHH posted a loss in Q210] PHH Corporation (PHH), the private label outsourcer for the mortgage industry, announced Wednesday the company earned $28m in core earnings after tax, or $0.52 per share in Q210, up 350% from $8m in the first quarter and up 186% from $15m in the same quarter of 2009. Core earnings are presented as a supplement to quarterly earnings statement. It excludes fair value adjustments on Mortgage Serving and is not intended to substitute for GAAP earnings. PHH saw a GAAP net loss of $133m or $2.40 per basic share in Q210. Net revenues decreased to $371m in Q210 from $577m in Q110 and $768m in 2009. The company attributed monetary increases to improvements in its combined Mortgages Services segments and its Fleeting Services segment. Stock in the company soared on the news, closing the day 11% higher at $22.3. PHH reported that the combined Mortgages Services division, including Mortgage Production and Mortgage Servicing, were impacted by lower closing volumes and margins compared to higher closing volumes and margins experienced in the second quarter of 2009, partially offset by an increase in IRLCs expected to close. It also stated profit for the combined Mortgage Services segments was also impacted by the unfavorable change in fair value of MSRs due to market-related adjustments. Even so, total originations were up to $10.1bn during Q210 from $7.8bn in Q110, comprised of $7.7bn loans to be sold and $2.4bn in fee-based closings. The servicing segment experienced losses of $273m with regard to the value of MSRs due to market-related changes, $46m with regard to prepayments and recurring cash flows, $15m due to reinsurance related charges and $20m in foreclosure-related charges. Fleet segment profits increased 63% in the second quarter of 2010 at $13 million compared to $8 million in the first quarter of 2010, but decreased compared to Q209 due primarily to an internal recapitalization, the report said. PHH reported an unused capital decrease to $415m in the second quarter from $1.1bn in the first quarter, while a mortgage warehouse capacity of $1.8bn out of a respective $2.2bn was utilized. PHH also released its six-month earnings Wednesday reporting core earnings of $41m, or $0.74 per share, down from $67m ($1.63 per share) in the first half of 2009. Net revenues totaled $948m, down from $1.4bn in the same time period last year. Net loss income totaled $125m or $2.26 per share compared with $108m ($1.98 per share) in the same period of 2009. Despite countable losses, president an CEO Jerry Selitto said all initiatives are on track. "Second quarter results demonstrate that our revenue initiatives and transformation efforts are on track," he said. "Our goals in 2010 are to reduce expenses by building a more cost efficient business model, stabilize our funding sources, increase mortgage market share and regain ground in the fleet segment." The book value per share as of June 30, 2010 was $24.76. Write to Christine Ricciardi.