New Residential Investment Corp. (NYSE: NRZ; “New Residential”
or the “Company”) today reported the following information for the
quarter ended June 30, 2018:
SECOND QUARTER FINANCIAL
HIGHLIGHTS:
- GAAP Net Income of $175 million, or
$0.51 per diluted share
- Core Earnings of $198 million, or $0.58
per diluted share*
- Common dividend of $170 million, or
$0.50 per share
2Q 2018 1Q 2018 Summary Operating Results:
GAAP Net Income per Diluted Share** $0.51 $1.81 GAAP Net Income
$175 million $604 million
Non-GAAP Results: Core
Earnings per Diluted Share** $0.58 $0.58 Core Earnings* $198
million $195 million
NRZ Common Dividend: Common
Dividend per Share** $0.50 $0.50 Common Dividend $170 million $168
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 339,538,503 weighted average diluted shares during the
quarter ended June 30, 2018 and 333,380,436 weighted average
diluted shares during the quarter ended March 31, 2018. Per share
calculations of Common Dividend are based on 339,862,769 basic
shares outstanding as of June 30, 2018 and 336,135,391 basic shares
outstanding as of March 31, 2018.
Second Quarter 2018 & Subsequent Highlights:
- Mortgage Servicing Rights
(“MSRs”) -
- During the quarter, New Residential
acquired MSRs totaling approximately $20 billion UPB for an
aggregate purchase price of approximately $245 million. In
addition, to further enhance liquidity, NRZ priced two fixed rate
MSR notes in May and July 2018, totaling $1.2 billion, at a
weighted average cost of funds of ~4.5%.
- Non-Agency Securities & Call
Rights -
- During the second quarter 2018, New
Residential continued its deal collapse strategy by executing
clean-up calls on 32 seasoned, Non-Agency residential
mortgage-backed securities (“RMBS”) deals with an aggregate UPB of
approximately $1.1 billion. In addition, during the quarter, New
Residential completed a $435 million Non-Agency loan
securitization.
- In the second quarter, New Residential
continued to strategically invest in Non-Agency securities that are
expected to be accretive to the Company’s call rights strategy. New
Residential purchased $696 million face value of Non-Agency RMBS,
bringing net equity to approximately $1.6 billion as of June 30,
2018.
- Acquisition of Shellpoint Partners
LLC (“Shellpoint”) -
- On July 3, 2018, New Residential closed
the previously announced acquisition of Shellpoint, a vertically
integrated mortgage platform with established origination and
servicing capabilities. The acquisition comprises all outstanding
equity interests of Shellpoint and all companies within the
Shellpoint family, including New Penn Financial, Shellpoint
Mortgage Servicing, Avenue 365, and eStreet Appraisal Management
Company.
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 Quarterly Report on Form
10-Q or Annual Report on Form 10-K, which are available on the
Company’s website, www.newresi.com.
EARNINGS CONFERENCE CALL
New Residential’s management will host a conference call on
Thursday, July 26, 2018 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 Second Quarter 2018 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 Thursday, August 9, 2018 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 “6696752.”
Condensed Consolidated Statements of
Income
($ in thousands, except share and per
share data)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017
2018 2017
(unaudited) (unaudited) (unaudited)
(unaudited) Interest income $ 403,805 $ 471,952 $
787,378 $ 764,490 Interest expense 133,916
115,157 258,303 213,386
Net
Interest Income 269,889 356,795
529,075 551,104
Impairment Other-than-temporary impairment (OTTI) on
securities 12,631 5,115 19,301 7,227 Valuation and loss provision
on loans and real estate owned 3,658 20,771
22,665 38,681 16,289
25,886 41,966 45,908
Net interest income after impairment 253,600
330,909 487,109 505,196 Servicing revenue, net 146,193 170,851
363,429 211,453
Other Income Change in fair value of
investments in excess mortgage servicing rights (5,276 ) (19,180 )
(50,967 ) (18,359 ) Change in fair value of investments in excess
mortgage servicing rights, equity method investees 1,705 4,246
2,228 4,002 Change in fair value of investments in mortgage
servicing rights financing receivables (119,103 ) 5,596 151,973
5,596 Change in fair value of servicer advance investments (1,752 )
56,969 (81,228 ) 59,528 Gain (loss) on settlement of investments,
net 14,655 13,371 117,957 (303 ) Earnings from investments in
consumer loans, equity method investees 2,982 5,880 7,788 5,880
Other income (loss), net 9,977 (9,035 )
19,961 (2,191 ) (96,812 ) 57,847
167,712 54,153
Operating
Expenses General and administrative expenses 20,575 16,042
40,582 27,869 Management fee to affiliate 15,453 14,186 30,563
27,260 Incentive compensation to affiliate 26,732 40,172 41,321
52,632 Loan servicing expense 11,035 13,002 22,549 26,378
Subservicing expense 45,958 55,958
92,555 73,662 119,753
139,360 227,570 207,801
Income Before Income Taxes 183,228 420,247 790,680
563,001 Income tax expense (benefit) (2,608 ) 82,844
(9,520 ) 88,440
Net Income $
185,836 $ 337,403 $ 800,200 $ 474,561
Noncontrolling Interests in Income of Consolidated
Subsidiaries $ 11,078 $ 15,671 $ 21,189 $
31,451
Net Income Attributable to Common Stockholders
$ 174,758 $ 321,732 $ 779,011 $ 443,110
Net Income Per Share of Common Stock Basic $ 0.52
$ 1.05 $ 2.34 $ 1.49 Diluted $ 0.51
$ 1.04 $ 2.32 $ 1.48
Weighted
Average Number of Shares of Common Stock Outstanding Basic
336,311,253 307,344,874
333,364,426 297,029,904 Diluted
339,538,503 309,392,512 336,476,481
298,875,279
Dividends Declared per
Share of Common Stock $ 0.50 $ 0.50 $ 1.00
$ 0.98
Condensed Consolidated Balance
Sheets
($ in thousands)
June 30,
2018
December 31,
2017
Assets (unaudited) Investments in: Excess mortgage
servicing rights, at fair value $ 495,299 $ 1,173,713 Excess
mortgage servicing rights, equity method investees, at fair value
159,034 171,765 Mortgage servicing rights, at fair value 2,232,126
1,735,504 Mortgage servicing rights financing receivables, at fair
value 1,904,919 598,728 Servicer advance investments, at fair value
843,438 4,027,379 Real estate and other securities,
available-for-sale 8,084,927 8,071,140 Residential mortgage loans,
held-for-investment 690,771 691,155 Residential mortgage loans,
held-for-sale 2,021,319 1,725,534 Real estate owned 125,701 128,295
Consumer loans, held-for-investment 1,212,917 1,374,263 Consumer
loans, equity method investees 57,820 51,412 Cash and cash
equivalents 193,236 295,798 Restricted cash 161,441 150,252
Servicer advances receivable 3,215,361 675,593 Trades receivable
1,076,626 1,030,850 Other assets 468,796 312,181 $
22,943,731 $ 22,213,562
Liabilities and Equity
Liabilities Repurchase agreements $ 8,757,134 $ 8,662,139
Notes and bonds payable 6,707,776 7,084,391 Trades payable
1,168,865 1,169,896 Due to affiliates 48,648 88,961 Dividends
payable 169,931 153,681 Deferred tax liability, net 8,403 19,218
Accrued expenses and other liabilities 284,050
239,114 17,144,807 17,417,400
Commitments
and Contingencies Equity
Common Stock, $0.01 par value,
2,000,000,000 shares authorized, 339,862,769 and307,361,309 issued
and outstanding at June 30, 2018 and December 31, 2017,
respectively
3,399 3,074 Additional paid-in capital 4,246,135 3,763,188 Retained
earnings 1,000,488 559,476 Accumulated other comprehensive income
(loss) 458,771 364,467 Total New Residential
stockholders’ equity 5,708,793 4,690,205 Noncontrolling interests
in equity of consolidated subsidiaries 90,131 105,957
Total Equity 5,798,924 4,796,162 $ 22,943,731 $
22,213,562
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.
The Company’s definition of core earnings includes 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
believes that it is appropriate to record a yield thereon. In
addition, the Company’s definition of core earnings excludes 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. The Company’s
definition of core earnings also limits 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
created this limit 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
the Company would have expected to earn on such bonds had the call
rights not been exercised.
The Company’s investments in consumer loans are accounted for
under ASC No. 310-20 and ASC No. 310-30, including certain
non-performing consumer loans with revolving privileges that are
explicitly excluded from being accounted for under ASC No. 310-30.
Under ASC No. 310-20, the recognition of expected losses on these
non-performing consumer loans is delayed in comparison to the level
yield methodology under ASC No. 310-30, which recognizes income
based on an expected cash flow model reflecting an investment’s
lifetime expected losses. The purpose of the core earnings
adjustment to adjust consumer loans to a level yield is to present
income recognition across the consumer loan portfolio in the manner
in which it is economically earned, avoid potential delays in loss
recognition, and align it with the Company’s overall portfolio of
mortgage-related assets which generally record income on a level
yield basis. With respect to consumer loans classified as
held-for-sale, the level yield is computed through the expected
sale date. With respect to the gains recorded under GAAP in 2014
and 2016 as a result of a refinancing of the debt related to the
Company’s investments in consumer loans, and the consolidation of
entities that own the Company’s investments in consumer loans,
respectively, the Company continues to record a level yield on
those assets based on their original purchase price.
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.
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 the Company’s
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 June
30, Six Months Ended June 30, 2018
2017 2018
2017 Net income attributable to
common stockholders $ 174,758 $ 321,732 $ 779,011 $ 443,110
Impairment 16,289 25,886 41,966 45,908 Other Income adjustments:
Other Income Change in fair value of investments in excess mortgage
servicing rights 5,276 19,180 50,967 18,359
Change in fair value of investments in
excess mortgage servicing rights,equity method investees
(1,705 ) (4,246 ) (2,228 ) (4,002 )
Change in fair value of investments in
mortgage servicing rightsfinancing receivables
62,263 (6,723 ) (257,516 ) (6,723 ) Change in fair value of
servicer advance investments 1,752 (56,969 ) 81,228 (59,528 )
(Gain) loss on settlement of investments, net (14,655 ) (13,371 )
(117,957 ) 303 Unrealized (gain) loss on derivative instruments
(1,240 ) 8,010 (3,686 ) 3,684 Unrealized (gain) loss on other ABS
(5,117 ) 607 (4,804 ) (151 ) (Gain) loss on transfer of loans to
REO (6,320 ) (4,978 ) (10,490 ) (11,612 ) (Gain) loss on transfer
of loans to other assets 175 (81 ) 120 (293 ) (Gain) loss on Excess
MSRs (1,365 ) (715 ) (4,270 ) (1,342 ) (Gain) loss on Ocwen common
stock 972 - (4,800 ) - Other (income) loss 2,918
6,192 7,969 11,905 Total
Other Income Adjustments 42,954 (53,094 )
(265,467 ) (49,400 ) Other Income and
Impairment attributable to non-controlling interests (5,869 )
(7,848 ) (12,455 ) (18,101 ) Change in fair value of investments in
mortgage servicing rights (52,632 ) (89,742 ) (182,425 ) (88,983 )
Non-capitalized transaction-related expenses 6,373 5,278 13,510
7,930 Incentive compensation to affiliate 26,732 40,172 41,321
52,632 Deferred taxes (1,759 ) 82,188 (10,815 ) 85,606 Interest
income on residential mortgage loans, held-for sale 2,562 3,789
6,868 7,466 Limit on RMBS discount accretion related to called
deals (5,920 ) (6,516 ) (10,194 ) (6,516 ) Adjust consumer loans to
level yield (9,213 ) (8,566 ) (15,155 ) (13,586 ) Core earnings of
equity method investees: Excess mortgage servicing rights
3,432 4,456 6,046 6,534
Core Earnings $ 197,707 $ 317,735 $
392,211 $ 472,600
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 accretion from investing in Non-Agency securities.
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 and other filings 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, non-Agency securities 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, a global
investment management firm.
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New Residential Investment Corp.Investor Relations,
212-479-3150
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