New Residential Investment Corp. (NYSE:NRZ; “New Residential” or
the “Company”) today reported the following information for the
quarter ended March 31, 2017:
FIRST QUARTER
FINANCIAL HIGHLIGHTS:
- GAAP Net Income of $121 million, or
$0.42 per diluted share
- Core Earnings of $155 million, or $0.54
per diluted share*
- Common dividend of $148 million, or
$0.48 per share
Q1 2017 Q4 2016 Summary Operating Results:
GAAP Net Income per Diluted Share** $0.42 $0.90 GAAP Net Income
$121 million $225 million
Non-GAAP Results: Core
Earnings per Diluted Share** $0.54 $0.62 Core Earnings* $155
million $155 million
NRZ Common Dividend: Common
Dividend per Share** $0.48 $0.46 Common Dividend $148 million $115
million
* Core Earnings is a non-GAAP measure. For a
reconciliation of Core Earnings to GAAP Net Income, as well as an
explanation of this measure, please refer to Non-GAAP Measures and
Reconciliation to GAAP Net Income below.
** Per share calculations of GAAP Net Income and Core Earnings
are based on 288,241,188 weighted average diluted shares during the
quarter ended March 31, 2017, and 251,299,730 weighted average
diluted shares during the quarter ended December 31, 2016.
First Quarter 2017 & Subsequent Highlights:
- Mortgage Servicing Rights
(“MSRs”) -
- New Residential acquired or agreed to
acquire MSRs totaling approximately $176 billion UPB for an
aggregate purchase price of approximately $1.6 billion. (1) In
addition, to further enhance liquidity, NRZ secured $800 million of
MSR financings in the first quarter.
- In March 2017, New Residential acquired
approximately $92.5 billion UPB of seasoned Agency MSRs from
CitiMortgage, Inc. (“Citi”) for a purchase price of approximately
$906 million. (2)
- Servicer Advances -
- During and after first quarter 2017,
New Residential continued to improve funding by securing fixed-rate
financing, lowering cost of funds and extending maturities.
- In February 2017, New Residential
issued $400 million of four-year fixed rate term notes. In
addition, during the quarter, the Company refinanced $1.65 billion
of debt from floating rate to fixed rate.
- Non-Agency Securities & Call
Rights -
- In the first quarter of 2017, New
Residential continued to execute its deal collapse strategy by
executing clean-up calls on 45 seasoned, Non-Agency RMBS deals with
an aggregate UPB of approximately $1.2 billion. In addition, the
Company completed a $773 million Non-Agency loan securitization in
March 2017 and a $668 million Non-Agency loan securitization in
April 2017.
- During the quarter, the Company
continued growing its Non-Agency securities portfolio as part of
its effort to accelerate its call rights strategy. New Residential
purchased $2.1 billion face value of Non-Agency RMBS, increasing
net equity by $260 million to approximately $1.3 billion as of the
end of first quarter 2017.
- Other Notable Events -
- Dividend - New Residential
increased its first quarter 2017 dividend to $0.48 per share, up
from $0.46 per share in fourth quarter 2016.
- Equity Offering - New
Residential raised $834 million of net proceeds in February 2017 to
help fund the Citi MSR purchase and other investments.
1)
Includes MSR purchases NRZ made in the
first quarter of 2017 as well as NRZ’s $67 billion UPB MSR purchase
from PHH, which was agreed on December 28, 2016 and has not yet
settled. The PHH purchase remains subject to (i) PHH shareholder
approval, (ii) GSE and other regulatory approvals and (iii) certain
customary closing conditions.
2) Stated final purchase price and UPB are different from the
previously estimated values in New Residential’s fourth quarter and
full year 2016 earnings release due to certain contractual
adjustments such as amortization of the UPB of the MSR portfolio.
ADDITIONAL INFORMATION
For additional information that management believes to be useful
for investors, please refer to the latest presentation posted on
the Investor Relations section of the Company’s website,
www.newresi.com. For consolidated investment portfolio information,
please refer to the Company’s most recent Annual Report on Form
10-K, which is available on the Company’s website,
www.newresi.com.
EARNINGS CONFERENCE CALL
New Residential’s management will host a conference call on
Monday, May 1, 2017 at 8:00 A.M. Eastern Time. A copy of the
earnings release will be posted to the Investor Relations section
of New Residential’s website, www.newresi.com.
All interested parties are welcome to participate on the live
call. The conference call may be accessed by dialing 1-866-393-1506
(from within the U.S.) or 1-281-456-4044 (from outside of the U.S.)
ten minutes prior to the scheduled start of the call; please
reference “New Residential First Quarter 2017 Earnings Call.”
A simultaneous webcast of the conference call will be available
to the public on a listen-only basis at www.newresi.com. Please
allow extra time prior to the call to visit the website and
download any necessary software required to listen to the internet
broadcast.
A telephonic replay of the conference call will also be
available two hours following the call’s completion through 11:59
P.M. Eastern Time on Monday, May 15, 2017 by dialing 1-855-859-2056
(from within the U.S.) or 1-404-537-3406 (from outside of the
U.S.); please reference access code “13927972.”
Condensed Consolidated Statements of
Income
($ in thousands, except share and per
share data)
Three Months Ended March 31,
2017
December 31, 2016
(unaudited) (unaudited) Interest income $
292,538 $ 326,834 Interest expense 98,229
95,023
Net Interest Income 194,309
231,811
Impairment Other-than-temporary
impairment (OTTI) on securities 2,112 2,426 Valuation and loss
provision on loans and real estate owned 17,910
35,871 20,022 38,297
Net interest income after impairment 174,287 193,514
Servicing revenue, net 40,602 118,169
Other Income Change in
fair value of investments in excess mortgage servicing rights 821
17,100 Change in fair value of investments in excess mortgage
servicing rights, equity method investees (244 ) 7,918 Change in
fair value of investments in servicer advances 2,559 (12,096 ) Gain
on consumer loans investment - - Gain on remeasurement of consumer
loans investment - - Gain (loss) on settlement of investments, net
(13,674 ) (4,510 ) Other income (loss), net 6,844
15,025 (3,694 ) 23,437
Operating Expenses General and administrative expenses
11,827 10,488 Management fee to affiliate 13,074 11,058 Incentive
compensation to affiliate 12,460 28,997 Loan servicing expense
13,376 13,964 Subservicing expense 17,704
7,832 68,441 72,339
Income Before Income Taxes 142,754 262,781 Income tax
expense (benefit) 5,596 20,716
Net
Income $ 137,158 $ 242,065
Noncontrolling
Interests in Income of Consolidated Subsidiaries $ 15,780
$ 16,908
Net Income Attributable to Common
Stockholders $ 121,378 $ 225,157
Net Income Per Share of Common Stock Basic $ 0.42 $
0.90 Diluted $ 0.42 $ 0.90
Weighted
Average Number of Shares of Common Stock Outstanding Basic
286,600,324 250,773,117 Diluted
288,241,188 251,299,730
Dividends
Declared per Share of Common Stock $ 0.48 $ 0.46
Condensed Consolidated Balance
Sheets
($ in thousands)
March 31, 2017 December 31,
2016 Assets (unaudited) Investments in:
Excess mortgage servicing rights, at fair value $ 1,369,341 $
1,399,455 Excess mortgage servicing rights, equity method
investees, at fair value 185,870 194,788 Mortgage servicing rights,
at fair value 1,694,792 659,483 Servicer advances, at fair value
5,037,172 5,706,593 Real estate securities, available-for-sale
5,938,743 5,073,858 Residential mortgage loans, held-for-investment
182,939 190,761 Residential mortgage loans, held-for-sale 1,058,184
696,665 Real estate owned 79,331 59,591 Consumer loans,
held-for-investment 1,679,818 1,799,486 Cash and cash
equivalents 236,557 290,602 Restricted cash 158,373 163,095 Trades
receivable 1,857,537 1,687,788 Deferred tax asset, net 147,866
151,284 Other assets 403,464 326,080 $ 20,029,987 $
18,399,529
Liabilities and Equity
Liabilities Repurchase agreements $ 6,277,636 $ 5,190,631
Notes and bonds payable 7,557,578 7,990,605 Trades payable
1,446,276 1,381,968 Due to affiliates 23,119 47,348 Dividends
payable 147,520 115,356 Accrued expenses and other liabilities
276,098 205,444 15,728,227 14,931,352
Commitments and Contingencies Equity
Common Stock, $0.01 par value,
2,000,000,000 shares authorized, 307,334,117and 250,773,117 issued
and outstanding at March 31, 2017 and December 31, 2016,
respectively
3,073 2,507 Additional paid-in capital 3,755,558 2,920,730 Retained
earnings 184,361 210,500 Accumulated other comprehensive income
(loss) 159,120 126,363 Total New Residential
stockholders’ equity 4,102,112 3,260,100 Noncontrolling interests
in equity of consolidated subsidiaries 199,648
208,077 Total Equity 4,301,760 3,468,177 $ 20,029,987
$ 18,399,529
NON-GAAP MEASURES AND RECONCILIATION TO GAAP NET
INCOME
New Residential has four primary variables that impact its
operating performance: (i) the current yield earned on the
Company’s investments, (ii) the interest expense under the debt
incurred to finance the Company’s investments, (iii) the Company’s
operating expenses and taxes and (iv) the Company’s realized and
unrealized gains or losses, including any impairment, on the
Company’s investments. “Core earnings” is a non-GAAP measure of the
Company’s operating performance, excluding the fourth variable
above and adjusts the earnings from the consumer loan investment to
a level yield basis. Core earnings is used by management to
evaluate the Company’s performance without taking into account: (i)
realized and unrealized gains and losses, which although they
represent a part of the Company’s recurring operations, are subject
to significant variability and are generally limited to a potential
indicator of future economic performance; (ii) incentive
compensation paid to the Company’s manager; (iii) non-capitalized
transaction-related expenses; and (iv) deferred taxes, which are
not representative of current operations.
While incentive compensation paid to the Company’s manager may
be a material operating expense, the Company excludes it from core
earnings because (i) from time to time, a component of the
computation of this expense will relate to items (such as gains or
losses) that are excluded from core earnings, and (ii) it is
impractical to determine the portion of the expense related to core
earnings and non-core earnings, and the type of earnings (loss)
that created an excess (deficit) above or below, as applicable, the
incentive compensation threshold. To illustrate why it is
impractical to determine the portion of incentive compensation
expense that should be allocated to core earnings, the Company
notes that, as an example, in a given period, it may have core
earnings in excess of the incentive compensation threshold but
incur losses (which are excluded from core earnings) that reduce
total earnings below the incentive compensation threshold. In such
case, the Company would either need to (a) allocate zero incentive
compensation expense to core earnings, even though core earnings
exceeded the incentive compensation threshold, or (b) assign a “pro
forma” amount of incentive compensation expense to core earnings,
even though no incentive compensation was actually incurred. The
Company believes that neither of these allocation methodologies
achieves a logical result. Accordingly, the exclusion of incentive
compensation facilitates comparability between periods and avoids
the distortion to the Company’s non-GAAP operating measure that
would result from the inclusion of incentive compensation that
relates to non-core earnings.
With regard to non-capitalized transaction-related expenses,
management does not view these costs as part of the Company’s core
operations, as they are considered by management to be similar to
realized losses incurred at acquisition. Non-capitalized
transaction-related expenses are generally legal and valuation
service costs, as well as other professional service fees, incurred
when the Company acquires certain investments, as well as costs
associated with the acquisition and integration of acquired
businesses.
In the fourth quarter of 2014, the Company modified its
definition of core earnings to include accretion on held-for-sale
loans as if they continued to be held-for-investment. Although the
Company intends to sell such loans, there is no guarantee that such
loans will be sold or that they will be sold within any expected
timeframe. During the period prior to sale, the Company continues
to receive cash flows from such loans and believe that it is
appropriate to record a yield thereon. In the second quarter of
2015, the Company modified its definition of core earnings to
exclude all deferred taxes, rather than just deferred taxes related
to unrealized gains or losses, because the Company believes
deferred taxes are not representative of current operations. In the
fourth quarter of 2015, the Company modified its definition of core
earnings to limit accreted interest income on RMBS where the
Company receives par upon the exercise of associated call rights
based on the estimated value of the underlying collateral, net of
related costs including advances. The Company made the modification
in order to be able to accrete to the lower of par or the net value
of the underlying collateral, in instances where the net value of
the underlying collateral is lower than par. The Company believes
this amount represents the amount of accretion it would have
expected to earn on such bonds had the call rights not been
exercised.
Management believes that the adjustments to compute “core
earnings” specified above allow investors and analysts to readily
identify and track the operating performance of the assets that
form the core of the Company’s activity, assist in comparing the
core operating results between periods, and enable investors to
evaluate the Company’s current core performance using the same
measure that management uses to operate the business. Management
also utilizes core earnings as a measure in its decision-making
process relating to improvements to the underlying fundamental
operations of the Company’s investments, as well as the allocation
of resources between those investments, and management also relies
on core earnings as an indicator of the results of such decisions.
Core earnings excludes certain recurring items, such as gains and
losses (including impairment as well as derivative activities) and
non-capitalized transaction-related expenses, because they are not
considered by management to be part of the Company’s core
operations for the reasons described herein. As such, core earnings
is not intended to reflect all of the Company’s activity and should
be considered as only one of the factors used by management in
assessing the Company’s performance, along with GAAP net income
which is inclusive of all of the Company’s activities.
The primary differences between core earnings and the measure
the Company uses to calculate incentive compensation relate to (i)
realized gains and losses (including impairments), (ii)
non-capitalized transaction-related expenses and (iii) deferred
taxes (other than those related to unrealized gains and losses).
Each are excluded from core earnings and included in the Company’s
incentive compensation measure (either immediately or through
amortization). In addition, the Company’s incentive compensation
measure does not include accretion on held-for-sale loans and the
timing of recognition of income from consumer loans is different.
Unlike core earnings, the Company’s incentive compensation measure
is intended to reflect all realized results of operations. The Gain
on Remeasurement of Consumer Loans Investment was treated as an
unrealized gain for the purposes of calculating incentive
compensation and was therefore excluded from such calculation.
Core earnings does not represent and should not be considered as
a substitute for, or superior to, net income or as a substitute
for, or superior to, cash flows from operating activities, each as
determined in accordance with U.S. GAAP, and our calculation of
this measure may not be comparable to similarly entitled measures
reported by other companies. Set forth below is a reconciliation of
core earnings to the most directly comparable GAAP financial
measure (in thousands):
Three Months Ended March 31,
2017
December 31, 2016
Net income attributable to common stockholders $ 121,378 $ 225,157
Impairment 20,022 38,297 Other Income adjustments: Other Income
Change in fair value of investments in excess mortgage servicing
rights (821 ) (17,100 ) Change in fair value of investments in
excess mortgage
servicing rights, equity method
investees
244 (7,918 ) Change in fair value of investments in servicer
advances (2,559 ) 12,096 Gain on consumer loans investment - - Gain
on remeasurement of consumer loans investment - - (Gain) loss on
settlement of investments, net 13,674 4,510 Unrealized (gain) loss
on derivative instruments (4,326 ) (14,278 ) Unrealized (gain) loss
on other ABS (758 ) 2,096 (Gain) loss on transfer of loans to REO
(6,634 ) (3,696 ) (Gain) loss on transfer of loans to other assets
(212 ) 83 Gain on Excess MSR recapture agreements (627 ) (614 )
Other (income) loss 5,713 1,383 Total
Other Income Adjustments 3,694 (23,438 )
Other Income and Impairment attributable to non-controlling
interests (10,253 ) (16,333 ) Change in fair value of investments
in mortgage servicing rights 759 (103,679 ) Non-capitalized
transaction-related expenses 2,652 1,472 Incentive compensation to
affiliate 12,460 28,997 Deferred taxes 3,418 21,848 Interest income
on residential mortgage loans, held-for sale 3,677 5,706 Limit on
RMBS discount accretion related to called deals - (23,990 ) Adjust
consumer loans to level yield (5,020 ) (5,071 ) Core earnings of
equity method investees: Excess mortgage servicing rights
2,078 5,975
Core Earnings $ 154,865
$ 154,941
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this press release constitutes as
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, including, but not
limited to the Company’s ability to close the PHH transaction.
These statements are not historical facts. They represent
management’s current expectations regarding future events and are
subject to a number of trends and uncertainties, many of which are
beyond our control, which could cause actual results to differ
materially from those described in the forward-looking statements.
Accordingly, you should not place undue reliance on any
forward-looking statements contained herein. For a discussion of
some of the risks and important factors that could affect such
forward-looking statements, see the sections entitled “Cautionary
Statements Regarding Forward Looking Statements,” “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in the Company’s annual and quarterly
reports filed with the SEC, which are available on the Company’s
website (www.newresi.com). New risks and uncertainties emerge from
time to time, and it is not possible for New Residential to predict
or assess the impact of every factor that may cause its actual
results to differ from those contained in any forward-looking
statements. Forward-looking statements contained herein speak only
as of the date of this press release, and New Residential expressly
disclaims any obligation to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any change in New Residential's expectations with regard
thereto or change in events, conditions or circumstances on which
any statement is based.
ABOUT NEW RESIDENTIAL
New Residential focuses on opportunistically investing in, and
actively managing, investments related to residential real estate.
The Company primarily targets investments in mortgage servicing
related assets and other related opportunistic investments. New
Residential is organized and conducts its operations to qualify as
a real estate investment trust (“REIT”) for federal income tax
purposes. The Company is managed by an affiliate of Fortress
Investment Group LLC (NYSE:FIG), a global investment management
firm.
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New Residential Investment Corp.Investor Relations,
212-479-3150
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