PHH Corporation Announces Second Quarter 2013 Results

 

For the quarter ended June 30, 2013, the Company reported net income attributable to PHH Corporation of $90 million or $1.58 per basic share. Core loss (after-tax)* and core loss per share* for the quarter ended June 30, 2013, were $2 million and $0.03, respectively. These results include a $21 million pre-tax loss ($0.24 per basic share after tax) related to the termination of an inactive mortgage reinsurance agreement. This transaction generated $69 million of unrestricted cash of which $30 million was received in the second quarter of 2013 and $39 million was received in the third quarter of 2013.

Tangible book value per share* was $28.14 at June 30, 2013, up 6% from $26.62 at March 31, 2013.

Glen A. Messina, president and CEO of PHH Corporation, said, “Over the past year and a half, through the execution of our strategic priorities, PHH has made significant progress in placing the company in a position of strength to deal with the cyclical and dynamic nature of the mortgage industry. In the second quarter, our financial performance reflected the impact of a rising interest rate environment, which drove an increase in the value of our mortgage servicing rights and negatively impacted our mortgage origination volume. I’m pleased with the progress the company is making in managing through this transition period to a rising interest rate environment. Our results were also impacted by a charge related to the commutation of our remaining Atrium reinsurance contract. The Fleet business continued to provide solid profitability.”

Messina added, “We are taking the necessary actions to reposition our mortgage businesses for the current interest rate and regulatory environment. We are scaling expenses to be consistent with lower expected mortgage production volumes, while maintaining our commitment to high customer service levels and accommodating the demands of the rapidly-changing regulatory environment. In part due to recent regulatory changes, we also are seeking to amend certain private label contracts to address the fundamental changes in the industry and ensure our programs are meeting our mutual objectives. Further, we are working to ensure that we have access to multiple funding sources aimed at lowering our capital needs and overall cost of capital.”

* Non-GAAP Financial Measures

Core earnings or loss (pre-tax), core earnings or loss (after-tax), core earnings or loss 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 second quarter of 2013 was $44 million, down 44% from $78 million in the second quarter of 2012 and down $1 million from the first quarter of 2013. Segment profit declined from the second quarter 2012 primarily due to a 20% decline in IRLCs expected to close, a 33 bps decline in total loan margin and greater operating expenses as a result of higher retail origination volume. A slight decline in sequential quarter segment profit reflected the impact of narrower total loan margin offset by 9% growth in IRLCs expected to close.

Mortgage Servicing Segment Profit

Mortgage Servicing segment profit in the second quarter of 2013 was $81 million, which included a favorable $155 million market-related fair value adjustment to our MSR, primarily from an increase in mortgage interest rates, which was offset slightly by $1 million in hedge losses. The MSR fair value adjustment for prepayments and recurring cash flows was an unfavorable $80 million in the second quarter of 2013, compared to an unfavorable $77 million in the first quarter of 2013. Loan servicing income includes losses associated with the termination of reinsurance agreements of $21 million and $16 million in the second quarters of 2013 and 2012, respectively.

Repurchase and foreclosure-related charges during the second quarter of 2013 decreased to $11 million from $39 million in the second quarter of 2012 and $15 million in the first quarter of 2013. Repurchase and foreclosure-related charges were reflective of the continued decrease in repurchase requests as the Agencies have continued to focus on reviewing loans from pre-2009 origination years.

Interest Rate Lock Commitments

IRLCs expected to close of $5.4 billion in the second quarter of 2013 declined 20% from the second quarter of 2012, primarily reflecting declining demand for refinancings attributable to rising interest rates, a decline in wholesale/correspondent volume as we remain focused on cash usage and the relative profitability of wholesale/correspondent originations, and a continued shift in mix toward fee-based production. IRLCs expected to close increased 9% from $5.0 billion in the first quarter of 2013, driven by sequential quarter growth in home purchase volume and the addition of HSBC as a private label client, partially offset by a greater portion of our production done on a fee-for-service basis.

Total Loan Margin

Total loan margin on IRLCs expected to close for the second quarter of 2013 was 348 bps, a 24 bps decrease from the first quarter of 2013 and 33 bps less than the second quarter of 2012. Margins narrowed in the second quarter of 2013, primarily due to rising mortgage interest rates. Margins generally widen when mortgage interest rates decline and tighten when mortgage interest rates increase, as loan originators attempt to balance origination volume with operational capacity.

Mortgage Closing Volume

Total second quarter 2013 mortgage closings were $14.8 billion, a 15% increase from the second quarter of 2012. Retail closings increased 21% in the second quarter of 2013 compared to the second quarter of 2012 and 16% compared to the first quarter of 2013, reflecting our strategy of growth in our retail channels. Retail closings represented 91% of our total closings during the second quarter of 2013. Fee-based closings continued to trend higher in the second quarter of 2013, increasing to 51% of total retail closings. This was up from 43% of total retail closings in the second quarter of 2012 and 47% of total retail closings in the first quarter of 2013. Our private label agreement with HSBC that was launched in the second quarter of 2013 did not meaningfully contribute to closing volume in the quarter.

Unpaid Principal Balance of Mortgage Servicing Portfolio

At June 30, 2013, the UPB of our capitalized servicing portfolio was $133.1 billion, down 3% from March 31, 2013, and 10% from June 30, 2012. These decreases reflect prepayments that were not fully offset by additions from new loan production.

At June 30, 2013, the UPB of our total loan servicing portfolio was $228.6 billion, a 26% increase from March 31, 2013, and a 19% increase from June 30, 2012. The sequential quarter and year-over-year increases in our total loan servicing portfolio primarily reflect approximately $47 billion of subservicing UPB that we assumed from HSBC in the second quarter of 2013, partially offset by the aforementioned declines in the UPB of our capitalized servicing portfolio.

Mortgage Servicing Rights

At June 30, 2013, the book value of our mortgage servicing rights was $1.2 billion, up 22% from the end of 2012. During the second quarter of 2013, $71 million in MSR value was added from the capitalization of new servicing rights from new loans sold in the quarter, and our MSR value increased by $155 million due to market-related fair value adjustments. Our MSR value decreased $80 million in the second quarter of 2013 related to prepayments and the receipt of recurring cash flows, primarily attributable to continued high prepayment speeds from refinances driven by low mortgage interest rates. We also incurred $1 million in MSR hedge losses in the second quarter of 2013.

Repurchase and Foreclosure-related Charges

Repurchase and foreclosure-related charges in the second quarter of 2013 were $11 million, down from $15 million in the first quarter of 2013, reflecting a continued downward trend of repurchase requests. Total repurchase and foreclosure-related reserves were $191 million at the end of the second quarter of 2013, compared to $194 million at the end of the first quarter of 2013. As of June 30, 2013, the estimated amount of reasonably possible losses in excess of total repurchase and foreclosure-related reserves was $45 million, unchanged from the end of the first quarter of 2013. Although Fannie Mae and Freddie Mac are still expected to be complete with repurchase requests for pre-2009 origination years by the end of 2013, losses associated with government insured loan foreclosures could persist into 2014 and beyond as loans continue to work through the foreclosure process and we evaluate loans and expenses that are not eligible for insurance reimbursement.

Fleet Management Services

Segment Profit

In the second quarter of 2013, Fleet Management Services segment profit was $21 million, unchanged from the first quarter of 2013 and down from $22 million in the second quarter of 2012. Sequential quarter segment profit remained unchanged as growth in our fleet lease income was offset by greater operating expenses.

Fleet Leasing

Net investment in fleet leases at June 30, 2013, increased 2% compared to March 31, 2013, while average leased vehicle units remained unchanged during the second quarter of 2013. This was the result of higher-capitalized units continuing to replace lower-cost vehicles, consistent with our emphasis on service fleets.

Fleet Management Fees

In the second quarter of 2013, Fleet management fees decreased to $44 million from $45 million in the second quarter of 2012, primarily driven by lower client participation in driver safety training services. Fleet management fees increased by $1 million compared to the first quarter of 2013 primarily attributable to sequential quarter average unit growth in our key fleet service offerings.

Liquidity Update

Liquidity at June 30, 2013, included $1.0 billion in unrestricted cash and cash equivalents.

As of June 30, 2013, we had no outstanding balances on our $305 million in total unsecured revolving credit facilities or our $119 million Canadian secured revolving credit facility.

On July 29, 2013, we amended our U.S. revolving credit agreement to increase our flexibility to repay or refinance our 2016 and 2017 unsecured notes prior to the maturity of our revolving credit facility.

Conference Call/Webcast

The Company will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, August 1, 2013, to discuss its second quarter 2013 results. All interested parties are welcome to participate. You can access the conference call by dialing (800) 344-6491 or (785) 830-7988 and using the conference ID 7283605 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, August 1, 2013, prior to the start of the conference call.

A replay will be available beginning shortly after the end of the call through August 15, 2013, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 7283605, 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 (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.

1 Inside Mortgage Finance, Copyright 2013

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 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.

Capacity for Mortgage asset-backed debt shown above excludes $2.3 billion not drawn under uncommitted facilities, and $380 million available under committed off-balance sheet gestation facilities.

* NOTE REGARDING NON-GAAP FINANCIAL MEASURES

Core earnings or loss (pre-tax and after-tax), core earnings or loss per share, adjusted cash flow, tangible book value and tangible book value per share are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations below for a reconciliation of these measures to the most directly comparable GAAP financial measures as required by Regulation G.

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

Adjusted cash flow involves differences from Net increase or decrease in cash and cash equivalents computed in accordance with GAAP. Adjusted cash flow should be considered as supplementary to, and not as a substitute for, Net increase or decrease in cash and cash equivalents computed in accordance with GAAP as a measure of the Company’s net increase or decrease in cash and cash equivalents.

Tangible book value and tangible book value per share involve differences from Total PHH Corporation stockholders’ equity computed in accordance with GAAP. Tangible book value and tangible book value per share should be considered as supplementary to, and not as a substitute for, Total PHH Corporation stockholders’ equity computed in accordance with GAAP as a measure of the Company’s financial position.

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 Company’s underlying operating performance which can be obscured by significant unrealized changes in value of the Company’s mortgage servicing rights, as well as any gain or loss on derivatives that are intended to offset market-related fair value adjustments on the Company’s mortgage servicing rights, in a given period that are 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.

Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share

Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share measure the Company’s financial performance excluding unrealized changes in fair value of the Company’s mortgage servicing rights that are based upon projections of expected future cash flows and prepayments as well as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of mortgage servicing rights. The changes in fair value of mortgage servicing rights and related derivatives are highly sensitive to changes in interest rates and are dependent 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 are received, 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 mortgage servicing segment with the associated value created through new originations in the mortgage production segment. 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 its 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.

Core earnings metrics are used in managing the Company’s mortgage business. The Company has also designed certain management incentives based upon the achievement of core earnings targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.

Limitations on the use of Core Earnings

Since core earnings or loss (pre-tax and after-tax) and core earnings or loss per share measure the Company’s financial performance excluding unrealized changes in value of mortgage servicing rights, such measures may not appropriately reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, core earnings or loss (pre-tax and after-tax) and core earnings or loss per share may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment, absent the effect of any offsetting gains or losses on derivatives that are intended to offset changes in fair value on the Company’s mortgage servicing rights.

Adjusted cash flow

Adjusted cash flow measures the Company’s Net increase or decrease in cash and cash equivalents for a given period excluding changes resulting from the issuance of equity, the purchase of derivative securities related to the Company’s stock or the issuance or repayment of unsecured or other debt by PHH Corporation. The Company believes that Adjusted cash flow is a useful measure for investors because the Company’s ability to repay future unsecured debt maturities or return capital to equity holders is highly dependent on a demonstrated ability to generate cash. Accordingly, the Company believes that Adjusted cash flow may assist investors in determining the amount of cash and cash equivalents generated from business activities during a period that is available to repay unsecured debt or distribute to holders of the Company’s equity.

Adjusted cash flow can be generated through a combination of earnings, more efficient utilization of asset-backed funding facilities, or an improved working capital position. Adjusted cash flow can vary significantly between periods based upon a variety of potential factors including, but not limited to, timing related to cash collateral postings, mortgage origination volumes and margins, fleet vehicle purchases, sales, and related securitizations.

Adjusted cash flow is not a substitute for the Net increase or decrease in cash and cash equivalents for a period and is not intended to provide the Company’s total sources and uses of cash or measure its change in liquidity. As such, it is important that investors review the Company’s consolidated statement of cash flows for a more detailed understanding of the drivers of net cash provided by (used in) operating activities, investing activities, and financing activities.

Adjusted cash flow metrics are used in managing the Company’s mortgage and fleet businesses. The Company has also designed certain management incentives based upon the achievement of adjusted cash flow targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.

Tangible book value and Tangible book value per share

Tangible book value is a measure of Total PHH Corporation stockholders’ equity computed in accordance with GAAP excluding the 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 Company’s debt agreements contain indebtedness-to-tangible net worth ratio covenants, and such ratios are calculated using a measure of tangible net worth that is calculated on a basis similar to the Company’s calculation of tangible book value. Accordingly, the Company believes that tangible book value and tangible book value per share provide useful supplementary information to investors.

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Silvergate Bank Reports Strong Second Quarter 2013 Earnings

 

"We are pleased to report that Silvergate Bank delivered another solid earnings performance in the second quarter of 2013," said Alan J. Lane, the Bank's president and chief executive officer.  "Our capital and asset quality ratios continue to be superior to comparable averages for all FDIC insured banks.  Additionally, our levels of profitability, capital and asset quality all support our ability to continue providing our clients with the innovative products and services they have come to expect from us to help them grow their business."   

At June 30, 2013, Silvergate Bank's Tier 1 Leverage Capital Ratio was 11.49% and Total Risk-Based Capital Ratio was 18.08%, both substantially exceeding 'well capitalized' minimums of 5% and 10%. The Bank's ratios of nonperforming loans to total loans and nonperforming assets to total assets both remained low, at 1.17% and 1.20%, respectively.   

Further second quarter performance highlights for Silvergate Bank were its funding of $705.3 million in single family mortgage loans through the Bank's Warehouse Lending Division and the acquisition / funding of $85.7 million in U.S. Government insured reverse mortgage loans.  

"Silvergate Bank's sustained profitability from our core commercial banking activities and diversified revenue streams continues to strengthen our capital base and enhance our ability to serve our entire range of clients," said Dennis S. Frank, the Bank's chairman.

According to Lane, the release of Silvergate Bank's mid-year 2013 earnings comes just one month before the Bank celebrates its 25th anniversary. "We value our clients who make this milestone event all the more meaningful," he said.  "We remain fully committed to providing them with the products they need and the personal service they deserve.  We also thank our employees for their dedication to serving our clients and supporting the Bank's success."

Financial Performance

The Bank's net income for the second quarter was $1.37 million, compared to $1.39 million for the prior quarter and $1.46 million for the second quarter last year.  Net income for the first half was $2.76 million, compared to $2.49 million last year.  Total assets were $642.7 million at June 30, 2013, up $4.2 million from the prior quarter and up $82.2 million from the second quarter a year ago.

The Bank's net interest margin was 3.47% for the quarter, compared to 3.41% for the prior quarter and 4.22% for the second quarter last year.  This year-over-year margin decline resulted mainly from a greater decrease in the yield on our earning assets (0.64%) than in our cost of funds (0.03%); the decline in earning asset yield was due primarily to growth in lower yielding assets including cash and reverse mortgage loans.  Net interest income was $5.39 million for the quarter, compared to $5.37 million for the prior quarter and $5.34 million last year. 

Noninterest income was $1.86 million for the quarter, compared to $1.67 million for the prior quarter and $1.34 million last year. Noninterest expense was $5.1 million for the quarter, compared to $4.7 million for the prior quarter and $4.1 million last year.  This year-over-year expense increase reflects the full effect of higher employee and occupancy costs associated with the Bank's growth in staffing, assets and headquarters space, a large portion of which occurred after the second quarter of 2012, including 2013 costs of forming a forward single-family mortgage loan correspondent group to complement the Bank's warehouse and reverse mortgage lending activities.

The Bank's strong profile in commercial real estate lending continued in the second quarter of 2013, with commercial real estate loans totaling $201.5 million at June 30, 2013, compared to $190.7 million at June 30, 2012. Total deposits grew by 32% in the past twelve months, with noninterest bearing demand deposits growing by 52%.  Despite the significant costs of opening two new branch offices and relocating a third in the past 24 months, the Bank has generated strong profits due to the ongoing strength of its core commercial lending activities and the expanded residential lending activities it has added in recent years.   

Continued High Volumes of Residential Mortgage Loan Fundings

The Bank's Mortgage Warehouse Lending Division, established in April 2009 to meet the credit needs of mortgage bankers that originate single-family residential mortgage loans, had another excellent quarter, funding $705.3 million in loans and almost $1.4 billion in the first half of 2013.  In the face of forecasts by the Mortgage Bankers Association of America and others for decreases in 2013 single-family residential loan originations, this division maintained high loan volumes through the first half of 2013 by increasing the number of mortgage banking clients it serves.

Acquisitions and Sales of Reverse Mortgage Loans

In late 2011 the Bank began to acquire Home Equity Conversion Mortgage ("HECM") loans insured by the U.S. Federal Housing Administration, and in mid-2012 the Bank was approved by the Government National Mortgage Association ("Ginnie Mae") to be an issuer of Ginnie Mae HECM backed securities. In the second quarter the Bank acquired and/or funded $85.7 million in HECM loans and completed four HECM loan pool sales and one securitization of HECM loan participations. 

About Silvergate Bank
Silvergate Bank is a San Diego-based bank that specializes in meeting the needs of small businesses through a comprehensive offering of lending products and personalized banking services. Silvergate Bank opened in 1988 and is a subsidiary of Silvergate Capital Corporation.  Bank branches are located in Carlsbad, Escondido, La Jolla, La Mesa, and Lancaster. Silvergate Bank's headquarters office is located at 4275 Executive Square, Suite 800, La Jolla, CA 92037. The Bank's website is www.silvergatebank.com. 

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations.  When used in this release, the words or phrases such as "will continue," "is anticipated," "estimate," "expect," "projected," "believe," "seeking," or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers should not place undue reliance on the forward-looking statements, which reflect views only as of the date hereof.  Neither Silvergate Capital Corporation nor Silvergate Bank undertakes any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Silvergate Bank Selected Financial and Operating Data

(Dollars in Thousands - Unaudited)

Net Loan Charge-Offs to Average Total Loans

Securitized Loans, at fair value

Loans Held for Investment ("HFI")

Noninterest Bearing Demand Deposits

Interest Bearing Demand Deposits

NOW, Money Market, and Savings Accounts

FHLB Advances and Other Borrowings

Payables under Securitizations

Total Liabilities and Shareholder's Equity

Nonperforming Loans to Total Loans

Loss Allowance to Noncurrent Loans

Allowance for Loan Losses to Loans HFI

Nonperforming Assets to Total Assets

Total Risk-Based Capital Ratio

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Mandate National Mortgage Corporation - Second Quarter 2013 Dividend

Revenue for the three months ending June 30, 2013 decreased 31.1% to $151,251 from $219,579 in 2012. Second quarter net income decreased 8.4% to $106,646 or $.162 per share compared with $116,381 or $.163 per share for the same period in 2012.

Return on Common equity was 7% while return on Preferred shares was 6.5%.

Mandate operates as a mortgage investment corporation under the provisions of the Income Tax Act (Canada) and invests in a diverse portfolio of residential and commercial mortgages.  Mandate has provided and intends to continue to provide a high dividend yield to its shareholders through its prudent mortgage lending policy.  It has been among the top performing mortgage funds for the past twenty years as reported in the financial press.  Mandate distributes quarterly all of its earned income to its shareholders by way of dividend.

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Mandate National Mortgage Corporation - Second Quarter 2013 Dividend

 On behalf of the Board of Directors of Mandate National Mortgage Corporation ("Mandate"), Mr. Alan E. R. Long, President, is pleased to announce the dividend payment rate to shareholders of record as at June 30, 2013 is $0.1615 per share and will be paid August 15, 2013.

Revenue for the three months ending June 30, 2013 decreased 31.1% to $151,251 from $219,579 in 2012. Second quarter net income decreased 8.4% to $106,646 or $.162 per share compared with $116,381 or $.163 per share for the same period in 2012.

Return on Common equity was 7% while return on Preferred shares was 6.5%.

Mandate operates as a mortgage investment corporation under the provisions of the Income Tax Act (Canada) and invests in a diverse portfolio of residential and commercial mortgages.  Mandate has provided and intends to continue to provide a high dividend yield to its shareholders through its prudent mortgage lending policy.  It has been among the top performing mortgage funds for the past twenty years as reported in the financial press.  Mandate distributes quarterly all of its earned income to its shareholders by way of dividend.

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Silvergate Bank Reports Strong Second Quarter 2013 Earnings

Silvergate Bank's just released financial results for the quarter and six-month period ended June 30, 2013, show continued strong performance with quarterly income of $1.37 million and first-half net income of $2.76 million.  Total assets were $642.7 million, and the Bank's equity capital grew to an all-time high of $72.5 million.

"We are pleased to report that Silvergate Bank delivered another solid earnings performance in the second quarter of 2013," said Alan J. Lane, the Bank's president and chief executive officer.  "Our capital and asset quality ratios continue to be superior to comparable averages for all FDIC insured banks.  Additionally, our levels of profitability, capital and asset quality all support our ability to continue providing our clients with the innovative products and services they have come to expect from us to help them grow their business."   

At June 30, 2013, Silvergate Bank's Tier 1 Leverage Capital Ratio was 11.49% and Total Risk-Based Capital Ratio was 18.08%, both substantially exceeding 'well capitalized' minimums of 5% and 10%. The Bank's ratios of nonperforming loans to total loans and nonperforming assets to total assets both remained low, at 1.17% and 1.20%, respectively.   

Further second quarter performance highlights for Silvergate Bank were its funding of $705.3 million in single family mortgage loans through the Bank's Warehouse Lending Division and the acquisition / funding of $85.7 million in U.S. Government insured reverse mortgage loans.  

"Silvergate Bank's sustained profitability from our core commercial banking activities and diversified revenue streams continues to strengthen our capital base and enhance our ability to serve our entire range of clients," said Dennis S. Frank, the Bank's chairman.

According to Lane, the release of Silvergate Bank's mid-year 2013 earnings comes just one month before the Bank celebrates its 25th anniversary. "We value our clients who make this milestone event all the more meaningful," he said.  "We remain fully committed to providing them with the products they need and the personal service they deserve.  We also thank our employees for their dedication to serving our clients and supporting the Bank's success."

Financial Performance

The Bank's net income for the second quarter was $1.37 million, compared to $1.39 million for the prior quarter and $1.46 million for the second quarter last year.  Net income for the first half was $2.76 million, compared to $2.49 million last year.  Total assets were $642.7 million at June 30, 2013, up $4.2 million from the prior quarter and up $82.2 million from the second quarter a year ago.

The Bank's net interest margin was 3.47% for the quarter, compared to 3.41% for the prior quarter and 4.22% for the second quarter last year.  This year-over-year margin decline resulted mainly from a greater decrease in the yield on our earning assets (0.64%) than in our cost of funds (0.03%); the decline in earning asset yield was due primarily to growth in lower yielding assets including cash and reverse mortgage loans.  Net interest income was $5.39 million for the quarter, compared to $5.37 million for the prior quarter and $5.34 million last year. 

Noninterest income was $1.86 million for the quarter, compared to $1.67 million for the prior quarter and $1.34 million last year. Noninterest expense was $5.1 million for the quarter, compared to $4.7 million for the prior quarter and $4.1 million last year.  This year-over-year expense increase reflects the full effect of higher employee and occupancy costs associated with the Bank's growth in staffing, assets and headquarters space, a large portion of which occurred after the second quarter of 2012, including 2013 costs of forming a forward single-family mortgage loan correspondent group to complement the Bank's warehouse and reverse mortgage lending activities.

Commercial Banking Platform

The Bank's strong profile in commercial real estate lending continued in the second quarter of 2013, with commercial real estate loans totaling $201.5 million at June 30, 2013, compared to $190.7 million at June 30, 2012. Total deposits grew by 32% in the past twelve months, with noninterest bearing demand deposits growing by 52%.  Despite the significant costs of opening two new branch offices and relocating a third in the past 24 months, the Bank has generated strong profits due to the ongoing strength of its core commercial lending activities and the expanded residential lending activities it has added in recent years.   

Continued High Volumes of Residential Mortgage Loan Fundings

The Bank's Mortgage Warehouse Lending Division, established in April 2009 to meet the credit needs of mortgage bankers that originate single-family residential mortgage loans, had another excellent quarter, funding $705.3 million in loans and almost $1.4 billion in the first half of 2013.  In the face of forecasts by the Mortgage Bankers Association of America and others for decreases in 2013 single-family residential loan originations, this division maintained high loan volumes through the first half of 2013 by increasing the number of mortgage banking clients it serves.

Acquisitions and Sales of Reverse Mortgage Loans

In late 2011 the Bank began to acquire Home Equity Conversion Mortgage ("HECM") loans insured by the U.S. Federal Housing Administration, and in mid-2012 the Bank was approved by the Government National Mortgage Association ("Ginnie Mae") to be an issuer of Ginnie Mae HECM backed securities. In the second quarter the Bank acquired and/or funded $85.7 million in HECM loans and completed four HECM loan pool sales and one securitization of HECM loan participations. 

About Silvergate Bank
Silvergate Bank is a San Diego-based bank that specializes in meeting the needs of small businesses through a comprehensive offering of lending products and personalized banking services. Silvergate Bank opened in 1988 and is a subsidiary of Silvergate Capital Corporation.  Bank branches are located in Carlsbad, Escondido, La Jolla, La Mesa, and Lancaster. Silvergate Bank's headquarters office is located at 4275 Executive Square, Suite 800, La Jolla, CA 92037. The Bank's website is www.silvergatebank.com. 

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations.  When used in this release, the words or phrases such as "will continue," "is anticipated," "estimate," "expect," "projected," "believe," "seeking," or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers should not place undue reliance on the forward-looking statements, which reflect views only as of the date hereof.  Neither Silvergate Capital Corporation nor Silvergate Bank undertakes any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Silvergate Bank Selected Financial and Operating Data

(Dollars in Thousands - Unaudited)

Net Loan Charge-Offs to Average Total Loans

Securitized Loans, at fair value

Loans Held for Investment ("HFI")

Noninterest Bearing Demand Deposits

Interest Bearing Demand Deposits

NOW, Money Market, and Savings Accounts

FHLB Advances and Other Borrowings

Payables under Securitizations

Total Liabilities and Shareholder's Equity

Nonperforming Loans to Total Loans

Loss Allowance to Noncurrent Loans

Allowance for Loan Losses to Loans HFI

Nonperforming Assets to Total Assets

Total Risk-Based Capital Ratio

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PHH Corporation Announces Second Quarter 2013 Results

 

For the quarter ended June 30, 2013, the Company reported net income attributable to PHH Corporation of $90 million or $1.58 per basic share. Core loss (after-tax)* and core loss per share* for the quarter ended June 30, 2013, were $2 million and $0.03, respectively. These results include a $21 million pre-tax loss ($0.24 per basic share after tax) related to the termination of an inactive mortgage reinsurance agreement. This transaction generated $69 million of unrestricted cash of which $30 million was received in the second quarter of 2013 and $39 million was received in the third quarter of 2013.

Tangible book value per share* was $28.14 at June 30, 2013, up 6% from $26.62 at March 31, 2013.

Glen A. Messina, president and CEO of PHH Corporation, said, “Over the past year and a half, through the execution of our strategic priorities, PHH has made significant progress in placing the company in a position of strength to deal with the cyclical and dynamic nature of the mortgage industry. In the second quarter, our financial performance reflected the impact of a rising interest rate environment, which drove an increase in the value of our mortgage servicing rights and negatively impacted our mortgage origination volume. I’m pleased with the progress the company is making in managing through this transition period to a rising interest rate environment. Our results were also impacted by a charge related to the commutation of our remaining Atrium reinsurance contract. The Fleet business continued to provide solid profitability.”

Messina added, “We are taking the necessary actions to reposition our mortgage businesses for the current interest rate and regulatory environment. We are scaling expenses to be consistent with lower expected mortgage production volumes, while maintaining our commitment to high customer service levels and accommodating the demands of the rapidly-changing regulatory environment. In part due to recent regulatory changes, we also are seeking to amend certain private label contracts to address the fundamental changes in the industry and ensure our programs are meeting our mutual objectives. Further, we are working to ensure that we have access to multiple funding sources aimed at lowering our capital needs and overall cost of capital.”

* Non-GAAP Financial Measures

Core earnings or loss (pre-tax), core earnings or loss (after-tax), core earnings or loss 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 second quarter of 2013 was $44 million, down 44% from $78 million in the second quarter of 2012 and down $1 million from the first quarter of 2013. Segment profit declined from the second quarter 2012 primarily due to a 20% decline in IRLCs expected to close, a 33 bps decline in total loan margin and greater operating expenses as a result of higher retail origination volume. A slight decline in sequential quarter segment profit reflected the impact of narrower total loan margin offset by 9% growth in IRLCs expected to close.

Mortgage Servicing Segment Profit

Mortgage Servicing segment profit in the second quarter of 2013 was $81 million, which included a favorable $155 million market-related fair value adjustment to our MSR, primarily from an increase in mortgage interest rates, which was offset slightly by $1 million in hedge losses. The MSR fair value adjustment for prepayments and recurring cash flows was an unfavorable $80 million in the second quarter of 2013, compared to an unfavorable $77 million in the first quarter of 2013. Loan servicing income includes losses associated with the termination of reinsurance agreements of $21 million and $16 million in the second quarters of 2013 and 2012, respectively.

Repurchase and foreclosure-related charges during the second quarter of 2013 decreased to $11 million from $39 million in the second quarter of 2012 and $15 million in the first quarter of 2013. Repurchase and foreclosure-related charges were reflective of the continued decrease in repurchase requests as the Agencies have continued to focus on reviewing loans from pre-2009 origination years.

Interest Rate Lock Commitments

IRLCs expected to close of $5.4 billion in the second quarter of 2013 declined 20% from the second quarter of 2012, primarily reflecting declining demand for refinancings attributable to rising interest rates, a decline in wholesale/correspondent volume as we remain focused on cash usage and the relative profitability of wholesale/correspondent originations, and a continued shift in mix toward fee-based production. IRLCs expected to close increased 9% from $5.0 billion in the first quarter of 2013, driven by sequential quarter growth in home purchase volume and the addition of HSBC as a private label client, partially offset by a greater portion of our production done on a fee-for-service basis.

Total Loan Margin

Total loan margin on IRLCs expected to close for the second quarter of 2013 was 348 bps, a 24 bps decrease from the first quarter of 2013 and 33 bps less than the second quarter of 2012. Margins narrowed in the second quarter of 2013, primarily due to rising mortgage interest rates. Margins generally widen when mortgage interest rates decline and tighten when mortgage interest rates increase, as loan originators attempt to balance origination volume with operational capacity.

Mortgage Closing Volume

Total second quarter 2013 mortgage closings were $14.8 billion, a 15% increase from the second quarter of 2012. Retail closings increased 21% in the second quarter of 2013 compared to the second quarter of 2012 and 16% compared to the first quarter of 2013, reflecting our strategy of growth in our retail channels. Retail closings represented 91% of our total closings during the second quarter of 2013. Fee-based closings continued to trend higher in the second quarter of 2013, increasing to 51% of total retail closings. This was up from 43% of total retail closings in the second quarter of 2012 and 47% of total retail closings in the first quarter of 2013. Our private label agreement with HSBC that was launched in the second quarter of 2013 did not meaningfully contribute to closing volume in the quarter.

Unpaid Principal Balance of Mortgage Servicing Portfolio

At June 30, 2013, the UPB of our capitalized servicing portfolio was $133.1 billion, down 3% from March 31, 2013, and 10% from June 30, 2012. These decreases reflect prepayments that were not fully offset by additions from new loan production.

At June 30, 2013, the UPB of our total loan servicing portfolio was $228.6 billion, a 26% increase from March 31, 2013, and a 19% increase from June 30, 2012. The sequential quarter and year-over-year increases in our total loan servicing portfolio primarily reflect approximately $47 billion of subservicing UPB that we assumed from HSBC in the second quarter of 2013, partially offset by the aforementioned declines in the UPB of our capitalized servicing portfolio.

Mortgage Servicing Rights

At June 30, 2013, the book value of our mortgage servicing rights was $1.2 billion, up 22% from the end of 2012. During the second quarter of 2013, $71 million in MSR value was added from the capitalization of new servicing rights from new loans sold in the quarter, and our MSR value increased by $155 million due to market-related fair value adjustments. Our MSR value decreased $80 million in the second quarter of 2013 related to prepayments and the receipt of recurring cash flows, primarily attributable to continued high prepayment speeds from refinances driven by low mortgage interest rates. We also incurred $1 million in MSR hedge losses in the second quarter of 2013.

Repurchase and Foreclosure-related Charges

Repurchase and foreclosure-related charges in the second quarter of 2013 were $11 million, down from $15 million in the first quarter of 2013, reflecting a continued downward trend of repurchase requests. Total repurchase and foreclosure-related reserves were $191 million at the end of the second quarter of 2013, compared to $194 million at the end of the first quarter of 2013. As of June 30, 2013, the estimated amount of reasonably possible losses in excess of total repurchase and foreclosure-related reserves was $45 million, unchanged from the end of the first quarter of 2013. Although Fannie Mae and Freddie Mac are still expected to be complete with repurchase requests for pre-2009 origination years by the end of 2013, losses associated with government insured loan foreclosures could persist into 2014 and beyond as loans continue to work through the foreclosure process and we evaluate loans and expenses that are not eligible for insurance reimbursement.

Fleet Management Services

Segment Profit

In the second quarter of 2013, Fleet Management Services segment profit was $21 million, unchanged from the first quarter of 2013 and down from $22 million in the second quarter of 2012. Sequential quarter segment profit remained unchanged as growth in our fleet lease income was offset by greater operating expenses.

Fleet Leasing

Net investment in fleet leases at June 30, 2013, increased 2% compared to March 31, 2013, while average leased vehicle units remained unchanged during the second quarter of 2013. This was the result of higher-capitalized units continuing to replace lower-cost vehicles, consistent with our emphasis on service fleets.

Fleet Management Fees

In the second quarter of 2013, Fleet management fees decreased to $44 million from $45 million in the second quarter of 2012, primarily driven by lower client participation in driver safety training services. Fleet management fees increased by $1 million compared to the first quarter of 2013 primarily attributable to sequential quarter average unit growth in our key fleet service offerings.

Liquidity Update

Liquidity at June 30, 2013, included $1.0 billion in unrestricted cash and cash equivalents.

As of June 30, 2013, we had no outstanding balances on our $305 million in total unsecured revolving credit facilities or our $119 million Canadian secured revolving credit facility.

On July 29, 2013, we amended our U.S. revolving credit agreement to increase our flexibility to repay or refinance our 2016 and 2017 unsecured notes prior to the maturity of our revolving credit facility.

Conference Call/Webcast

The Company will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, August 1, 2013, to discuss its second quarter 2013 results. All interested parties are welcome to participate. You can access the conference call by dialing (800) 344-6491 or (785) 830-7988 and using the conference ID 7283605 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, August 1, 2013, prior to the start of the conference call.

A replay will be available beginning shortly after the end of the call through August 15, 2013, by dialing (888) 203-1112 or (719) 457-0820 and using conference ID 7283605, 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 (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.

1 Inside Mortgage Finance, Copyright 2013

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 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.

Capacity for Mortgage asset-backed debt shown above excludes $2.3 billion not drawn under uncommitted facilities, and $380 million available under committed off-balance sheet gestation facilities.

* NOTE REGARDING NON-GAAP FINANCIAL MEASURES

Core earnings or loss (pre-tax and after-tax), core earnings or loss per share, adjusted cash flow, tangible book value and tangible book value per share are financial measures that are not in accordance with GAAP. See Non-GAAP Reconciliations below for a reconciliation of these measures to the most directly comparable GAAP financial measures as required by Regulation G.

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

Adjusted cash flow involves differences from Net increase or decrease in cash and cash equivalents computed in accordance with GAAP. Adjusted cash flow should be considered as supplementary to, and not as a substitute for, Net increase or decrease in cash and cash equivalents computed in accordance with GAAP as a measure of the Company’s net increase or decrease in cash and cash equivalents.

Tangible book value and tangible book value per share involve differences from Total PHH Corporation stockholders’ equity computed in accordance with GAAP. Tangible book value and tangible book value per share should be considered as supplementary to, and not as a substitute for, Total PHH Corporation stockholders’ equity computed in accordance with GAAP as a measure of the Company’s financial position.

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 Company’s underlying operating performance which can be obscured by significant unrealized changes in value of the Company’s mortgage servicing rights, as well as any gain or loss on derivatives that are intended to offset market-related fair value adjustments on the Company’s mortgage servicing rights, in a given period that are 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.

Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share

Core earnings or loss (pre-tax and after-tax) and core earnings or loss per share measure the Company’s financial performance excluding unrealized changes in fair value of the Company’s mortgage servicing rights that are based upon projections of expected future cash flows and prepayments as well as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of mortgage servicing rights. The changes in fair value of mortgage servicing rights and related derivatives are highly sensitive to changes in interest rates and are dependent 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 are received, 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 mortgage servicing segment with the associated value created through new originations in the mortgage production segment. 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 its 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.

Core earnings metrics are used in managing the Company’s mortgage business. The Company has also designed certain management incentives based upon the achievement of core earnings targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.

Limitations on the use of Core Earnings

Since core earnings or loss (pre-tax and after-tax) and core earnings or loss per share measure the Company’s financial performance excluding unrealized changes in value of mortgage servicing rights, such measures may not appropriately reflect the rate of value lost on subsequent actual payments or prepayments over time. As such, core earnings or loss (pre-tax and after-tax) and core earnings or loss per share may tend to overstate operating results in a declining interest rate environment and understate operating results in a rising interest rate environment, absent the effect of any offsetting gains or losses on derivatives that are intended to offset changes in fair value on the Company’s mortgage servicing rights.

Adjusted cash flow

Adjusted cash flow measures the Company’s Net increase or decrease in cash and cash equivalents for a given period excluding changes resulting from the issuance of equity, the purchase of derivative securities related to the Company’s stock or the issuance or repayment of unsecured or other debt by PHH Corporation. The Company believes that Adjusted cash flow is a useful measure for investors because the Company’s ability to repay future unsecured debt maturities or return capital to equity holders is highly dependent on a demonstrated ability to generate cash. Accordingly, the Company believes that Adjusted cash flow may assist investors in determining the amount of cash and cash equivalents generated from business activities during a period that is available to repay unsecured debt or distribute to holders of the Company’s equity.

Adjusted cash flow can be generated through a combination of earnings, more efficient utilization of asset-backed funding facilities, or an improved working capital position. Adjusted cash flow can vary significantly between periods based upon a variety of potential factors including, but not limited to, timing related to cash collateral postings, mortgage origination volumes and margins, fleet vehicle purchases, sales, and related securitizations.

Adjusted cash flow is not a substitute for the Net increase or decrease in cash and cash equivalents for a period and is not intended to provide the Company’s total sources and uses of cash or measure its change in liquidity. As such, it is important that investors review the Company’s consolidated statement of cash flows for a more detailed understanding of the drivers of net cash provided by (used in) operating activities, investing activities, and financing activities.

Adjusted cash flow metrics are used in managing the Company’s mortgage and fleet businesses. The Company has also designed certain management incentives based upon the achievement of adjusted cash flow targets, subject to potential adjustments that may be made at the discretion of the Human Capital and Compensation Committee of the Company’s Board of Directors.

Tangible book value and Tangible book value per share

Tangible book value is a measure of Total PHH Corporation stockholders’ equity computed in accordance with GAAP excluding the 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 Company’s debt agreements contain indebtedness-to-tangible net worth ratio covenants, and such ratios are calculated using a measure of tangible net worth that is calculated on a basis similar to the Company’s calculation of tangible book value. Accordingly, the Company believes that tangible book value and tangible book value per share provide useful supplementary information to investors.

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