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Newcastle Announces Third Quarter 2012 Results

  Newcastle Announces Third Quarter 2012 Results

Third Quarter 2012 Highlights

  *GAAP income of $1.63 per diluted share
  *Core Earnings of $0.26 per diluted share
  *Declared common dividend of $0.22 per share, the third increase in the
    past six quarters
  *GAAP book value increased by $1.96 per share

Third Quarter 2012 Financial Results

Business Wire

NEW YORK -- October 25, 2012

Newcastle Investment Corp. (NYSE: NCT) reported that in the third quarter of
2012, income available for common stockholders (“GAAP income”) was $272
million, or $1.63 per diluted share, compared to $29 million, or $0.35 per
diluted share, in the third quarter of 2011.

GAAP income of $272 million consisted of the following:

Core Earnings:

  *$43 million, or $0.26 per diluted share, which is equal to net interest
    income and other revenues less expenses excluding depreciation and
    amortization, net of preferred dividends

Other Income/Loss:

  *$229 million of other income related to a $224 million net gain on the
    sale of Newcastle’s CDO X interests and a $5 million net gain on the sale
    of other securities

The Company generated $36 million of Cash Available for Distribution (“CAD”),
compared to $21 million in the second quarter of 2012.

On September 13, 2012, the Board of Directors declared a quarterly dividend of
$0.22 per common share, or $38 million, for the quarter, representing a 10%
increase from the second quarter’s dividend of $0.20 per common share, or $29
million. The Board of Directors also declared dividends of $0.609375,
$0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and
8.375% Series D preferred stock, respectively, for the period beginning August
1, 2012 and ending October 31, 2012.

As of September 30, 2012, GAAP book value was $5.64 per share, an increase of
$1.96 per share from June 30, 2012.

The following table summarizes the Company’s operating results ($ in millions,
except per share data):


                                     Three Months Ended
                                         Sep 30,    June 30,    Sep 30,
                                         2012          2012           2011
Summary Operating Results:
                                                                      
GAAP income                              $  272        $  29          $  29
                                                                      
GAAP income, per diluted share           $  1.63       $  0.21        $  0.35
                                                                      
                                                                      
Non-GAAP Results:
                                                                      
Core earnings                            $  43         $  39          $  31
                                                                      
Core earnings, per diluted share         $  0.26       $  0.29        $  0.39
                                                                      
Cash Available for Distribution          $  36         $  21          $  18


For a reconciliation of income available for common stockholders to core
earnings and net cash flow provided by operating activities to cash available
for distribution, please refer to the tables following the presentation of
GAAP results.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for
investors, please refer to the “Quarterly Supplement – Third Quarter 2012”
presentation posted to the Investor Relations section of Newcastle’s website,
www.newcastleinv.com.

For consolidated investment portfolio information, please refer to the
Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, which
are also available on the Company’s website, www.newcastleinv.com.

THIRD QUARTER 2012 EVENTS & INVESTMENT ACTIVITY

$167 million of common equity raised:

In July 2012, the Company completed the sale of approximately 25 million
shares of its common stock at a price of $6.63 per share for net proceeds of
approximately $167 million.

CDO X sale:

In September 2012, the Company completed the sale of 100% of its interests in
CDO X to the sole owner of the senior notes and another third party, in
connection with the liquidation and termination of CDO X. The Company received
$130 million for $90 million face amount of subordinated notes and all of its
equity in CDO X.

In addition, Newcastle deconsolidated the deal from its balance sheet, which
reduced total assets by $1.1 billion and total liabilities by $1.2 billion. As
a result, the Company recorded a $224 million gain on sale, increased GAAP
book value by $1.22 per share, and decreased its debt to equity ratio from 3.8
to 2.2.

$205 million of unrestricted cash invested primarily in the following:

$50 million: Collateral formerly held in CDO X

In connection with the liquidation of CDO X, Newcastle negotiated the purchase
of eight securities and loans. Prior to the sale of the Company’s CDO X
interests to the senior note holder, it invested $50 million to purchase $101
million face amount of assets at an average price of 49.4% of par. The Company
expects to generate $100 million of cash flow or $50 million of profit over an
average of 2.4 years. This purchase includes five Non-Agency residential
securities with a face amount of $45 million, two bank loans with a face
amount of $29 million, and one NCT CDO security with a face amount of $27
million.

$79 million: Non-Agency RMBS investments

Invested $79 million to purchase $140 million face amount of Non‐Agency RMBS
at an average price of 56.6% of par, with an expected unlevered yield of 7%,
and a levered return of 17% assuming 65% financing.

$65 million: Senior Living Property investments

Invested $65 million (including working capital and transaction costs) to
purchase eight senior housing assets financed with $88 million of non-recourse
debt at a weighted average interest rate of 3.45% with a seven-year maturity.

CASH AND RECOURSE FINANCING

As of October 23, 2012, the Company’s cash and recourse financings, excluding
junior subordinated notes, were as set forth below:

  *Unrestricted Cash Available to Invest – The Company had $184 million of
    unrestricted cash available to invest
  *Recourse Financing – The Company had $660 million of financing related to
    FNMA and FHLMC securities with a value of $695 million and $61 million of
    financing related to two Non-Agency RMBS bonds with a value of $93
    million.

I. RESIDENTIAL SERVICING & SECURITIES

As of September 30, 2012, Newcastle’s residential servicing and securities
portfolio consisted of five Excess MSRs investments with a total carrying
value of $258 million and 21 Non-Agency RMBS purchased outside of the
Company’s CDOs since April 2012 with a total carrying value of $200 million.

This portfolio generated total cash flow of $27 million and increased in value
by $10 million.

Excess MSRs

As of September 30, 2012, the total carrying value of the Company’s Excess MSR
investment was $258 million, representing a 65% interest in the net MSR cash
flows on five loan portfolios with a total unpaid principal balance of $80
billion.

During the quarter, these investments generated $18 million of total cash flow
and increased in value by $2 million.

  *The average updated IRR with actual performance was 19%, compared to an
    initial expected IRR of 18%
  *Received $29 million of life-to-date total cash flow through the end of
    September, or 11% of the initial investment of $262 million over an
    average of 4 months
  *Weighted Average Constant Prepayment Rate (“CPR”) for September was 9.5%
    compared to the Company’s initial CPR projection of 20%

Non-Agency RMBS

As of September 30, 2012, the Company’s Non-Agency RMBS portfolio consisted of
$309 million face amount of assets (value of 64.7% of par). During the
quarter, these investments generated $9 million of total cash flow and
increased in value by $8 million.

II. COMMERCIAL REAL ESTATE DEBT & OTHER ASSETS

As of September 30, 2012, the Company’s commercial real estate debt and other
assets portfolio consisted of $2.8 billion of diversified assets financed with
$1.9 billion of primarily match funded, non-recourse debt In addition, the
portfolio consisted of $144 million of senior living properties financed with
$88 million of non-recourse mortgage notes. Assets included 219 commercial,
residential and corporate real estate securities and loan investments with an
average investment size of $11 million, 9,137 mortgage loans backed by
residential real estate, and eight senior living properties.

This portfolio generated total cash flow of $172 million and increased in
value by $39 million. During the quarter, the weighted average carrying value
of the real estate debt portfolio changed from a price of 82.0% to 83.3% of
par.

Newcastle CDO financings

As of September 30, 2012, Newcastle’s four CDOs consisted of $1.8 billion face
amount of collateral (value of 79.9% of par) financed with $1.2 billion of
non-recourse debt. During the quarter, the CDOs generated $159 million of
total cash flow, which included:

  *$25 million of CDO cash receipts consisting of $21 million of excess
    interest, $3 million of interest on retained and repurchased CDO debt, and
    $1 million of senior collateral management fees
  *$134 million of proceeds from the sale of the CDO X interests and
    principal repayments on repurchased CDO debt

In addition, CDO IV passed its quarterly over-collateralization tests in
September 2012. As a result of deferred interest payments on debt that is
senior to the Company’s Class V and equity holdings, the Company did not
receive any additional cash flow during the quarter. If CDO IV continues to
pass the over-collateralization tests, the Company should begin to receive
additional cash flow to these holdings.

The following table summarizes the cash receipts in the quarter from the
Company’s consolidated CDO financings and the results of their related
coverage tests ($ in thousands):


                                    Interest                                        
                                              Coverage
                                              % Excess
              Primary                                            Over-Collateralization Excess (Deficiency) ^(2)(3)
                                              (Deficiency)
              Collateral       Cash           Sep 30,            September 30, 2012           June 30, 2012
              Type             Receipts       2012 ^(2)          %            $               %            $
                               ^(1)
CDO           Securities       $ 378          47.4%              0.1%         213             -3.6%        (6,433)
IV
CDO           Securities       134            -80.1%             -64.8%       (176,780)       -63.9%       (177,738)
VI
CDO           Loans            6,492          418.7%             9.8%         70,553          12.9%        82,127
VIII
CDO           Loans            8,709          537.2%             20.6%        127,199         19.5%        125,699
IX
                               15,713
                                                                                                           
CDO X                          9,854
Total                          $ 25,567


(1) Cash receipts exclude $10 million of principal repayments from repurchased
bonds and $124 million of proceeds in connection with the sale of CDO X
interests. Cash receipts for the quarter ended September 30, 2012 may not be
indicative of cash receipts for subsequent periods. See Forward-Looking
Statements below for risks and uncertainties that could cause cash receipts
for subsequent periods to differ materially from these amounts.

(2) Represents the excess or deficiency under the applicable interest coverage
or over-collateralization test to the first threshold at which cash flow would
be redirected. The Company generally does not receive material interest cash
flow from a CDO until a deficiency is corrected. The information regarding
coverage tests is based on data from the most recent remittance date on or
before September 30, 2012 or June 30, 2012, as applicable. The CDO IV test is
conducted only on a quarterly basis (December, March, June and September).

(3) As of the September 2012 remittance, the face amount of assets on negative
watch for possible downgrade by at least one rating agency (Moody’s, S&P, or
Fitch) for CDOs IV, VIII and IX were $1.7 million, $53.8 million and zero,
respectively

Other Real Estate Related Investments

As of September 30, 2012, other real estate related investments consisted of
$988 million face amount of assets (value of 89.6% of par) financed with $741
million of debt. During the quarter, these investments generated $11 million
of total cash flow which included:

  *$8 million of excess interest and interest on retained debt
  *$3 million of principal repayments

Senior Living Property Investments

As of September 30, 2012, the Company owned eight senior living properties
consisting of $144 million of assets financed with $88 million of debt.

During the quarter, the investments generated $1.6 million of total cash flow,
$0.4 million more than projected.

  *Average occupancy rate was 88%, equal to the Company’s underwriting
    projection
  *Average monthly revenue per occupied unit was $4,213, compared to $4,132
    in the underwriting projection

INVESTMENT PORTFOLIO

The following table describes the investment portfolio as of September 30,
2012 ($ in millions):


                                                                                    Weighted
                        Face        Basis       % of          Carry       Number of                  Average
                                                              Value
                        Amount      Amount                    Amount                      Credit     Life
                        $         $ ^(6)    Basis      $         Investments   ^(7)     (years)
                                                                                                     ^(8)
I. Residential
Servicing &
Securities
Excess MSRs               258         244       8.6   %         258       5               --         5.5
Investments
Non-Agency RMBS          309      193     6.7   %        200       21              CC         4.8
^(1)
Total
Residential
Servicing &               567         437       15.3  %         458                                  5.1
Securities
Assets
                                                                                                     
II. Commercial
Real Estate
Debt & Other
Assets
Commercial
Assets
CMBS                    $ 485       $ 347       12.1  %       $ 378       78              BB-        3.4
Mezzanine Loans           530         443       15.5  %         443       17              77%        2.3
B-Notes                   207         189       6.6   %         189       7               65%        2.4
Whole Loans               30          30        1.1   %         30        3               48%        1.3
Third-Party CDO           97          68        2.4   %         70        5               BB         3.7
Securities ^(2)
Other
Investments              25       25      0.8   %        25        1               --         --
^(3)
Total
Commercial                1,374       1,102     38.5  %         1,135                                2.8
Assets
                                                                                                     
Residential
Assets
MH and
Residential               342         299       10.5  %         299       9,137           704        6.2
Loans
Subprime                  129         49        1.7   %         61        42              CCC+       4.9
Securities
Real Estate ABS          10       2       0.1   %        2         3               CCC-       4.9
                          481         350       12.3  %         362                                  5.8
                                                                                                     
FNMA/FHLMC               535      563     19.7  %        568       45              AAA        4.3
Securities
Total
Residential               1,016       913       32.0  %         930                                  5.0
Assets
                                                                                                     
Corporate
Assets
REIT Debt                 88          86        3.0   %         93        11              BBB-       2.1
Corporate Bank           335      180     6.3   %        180       7               CC         1.9
Loans
Total Corporate           423         266       9.3   %         273                                  1.9
Assets
                                                                                                     
Senior Living
Property                  144         142       4.9   %         142       8               --         --
Investments^(4)
                                                                                             
Total
Commercial Real          2,957    2,423   84.7  %        2,480                                3.5
Estate Debt &
Other Assets
                                                                                             
Total/Weighted          $ 3,524   $ 2,860   100.0 %       $ 2,938                                3.8
Average ^(5)


(1) Represents Non-Agency RMBS purchased outside of the Company’s CDOs since
April 2012.

(2) Represents non-consolidated CDO securities, excluding eight securities
with a zero value that had an aggregate face amount of $106 million.

(3) Relates to an equity investment in a REO property.

(4) Face amount of Senior Living Property Investments represents the gross
carrying amount, which excludes accumulated depreciation and amortization.

(5) Excludes operating real estate held for sale of $8 million and loans
subject to a call option with a face amount of $406  million.

(6) Net of impairment.

(7) Credit represents the weighted average of minimum ratings for rated
assets, the Loan to Value ratio (based on the appraised value at the time of
purchase or refinancing) for non-rated commercial assets, or the FICO score
for non-rated residential assets and an implied and assumed AAA rating for
FNMA/FHLMC securities. Ratings provided herein were determined by third-party
rating agencies as of a particular date, may not be current and are subject to
change at any time.

(8) Weighted average life is an estimate based on the timing of expected
principal reduction on the asset.

CONFERENCE CALL

Newcastle’s management will conduct a live conference call on Thursday,
October 25, 2012 at 8:00 A.M. Eastern Time to review the financial results for
the third quarter 2012. A copy of the earnings press release is posted to the
Investor Relations section of Newcastle’s website, www.newcastleinv.com.

All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing 1-888-243-2046 (from within the
U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference “Newcastle Third Quarter 2012
Earnings Call.”

A simultaneous webcast of the conference call will be available to the public
on a listen-only basis at http://www.newcastleinv.com. Please allow extra time
prior to the call to visit the site and download the necessary software
required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available until 11:59
P.M. Eastern Time on Thursday, November 1, 2012 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 “53738363”.

ABOUT NEWCASTLE

Newcastle Investment Corp. focuses on opportunistically investing in, and
actively managing, real estate related assets. The Company primarily invests
in two distinct areas: (1) Residential Servicing and Securities and (2)
Commercial Real Estate Debt and Other Assets. The Company 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.

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the average life of an investment, the expected
returns, or expected yield on an investment, statements relating to our
liquidity, future losses and impairment charges, our ability to acquire assets
with attractive returns and the delinquent and loss rates on our subprime
portfolios. These statements are based on management's current expectations
and beliefs and are subject to a number of trends and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements, many of which are beyond our control. Newcastle
can give no assurance that its expectations will be attained. Factors that
could cause actual results to differ materially from Newcastle's expectations
include, but are not limited to, the risk that market conditions cause
downgrades of a significant number of our securities or the recording of
additional impairment charges or reductions in shareholders’ equity; the risk
that we can find additional suitably priced investments; the risk that
investments made or committed to be made cannot be financed on the basis and
for the term at which we expect; the relationship between yields on assets
which are paid off and yields on assets in which such monies can be
reinvested; actual recapture rates with respect to any Excess MSR investment;
and the relative spreads between the yield on the assets we invest in and the
cost and availability of debt and equity financing. Accordingly, you should
not place undue reliance on any forward-looking statements contained in this
press release. For a discussion of some of the risks and important factors
that could affect such forward-looking statements, see the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” in the Company’s Annual Report on Form
10-K or Quarterly Report on Form 10-Q, which is available on the Company’s
website (www.newcastleinv.com). In addition, new risks and uncertainties
emerge from time to time, and it is not possible for the Company 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. Such forward-looking
statements speak only as of the date of this press release. Newcastle
expressly disclaims any obligation to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or change in events,
conditions or circumstances on which any statement is based.

CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN
THIS PRESS RELEASE

Expected returns and expected yields are estimates of the annualized effective
rate of return that we presently expect to be earned over the expected average
life of an investment (i.e., IRR), after giving effect, in the case of
returns, to existing leverage, and calculated on a weighted average basis.
Expected returns and expected yields reflect our estimates of an investment’s
coupon, amortization of premium or discount, and costs and fees, and they
contemplate our assumptions regarding prepayments, defaults and loan losses,
among other things. In the case of Excess MSRs, these assumptions include, but
are not limited to, the recapture rate. Income recognized by the Company in
future periods may be significantly less than the income that would have been
recognized if an expected return or expected yield were actually realized, and
the estimates we use to calculate expected returns and expected yields could
differ materially from actual results.

Statements about expected returns and expected yields in this press release
are forward-looking statements. You should carefully read the cautionary
statement above under the caption “Forward-looking Statements,” which directly
applies to our discussion of expected returns and expected yields.

  Newcastle Investment Corp.

 Consolidated Statements of Income (Unaudited)

  (dollars in thousands, except share data)
  
                           Three Months Ended September 30           Nine Months Ended September 30
                               2012               2011              2012               2011
Interest income                $ 82,850              $ 72,393            $ 240,187             $ 218,739
Interest expense                28,411              32,587            88,038              106,502    
  Net interest income           54,439              39,806            152,149             112,237    
                                                                                               
Impairment (Reversal)
  Valuation allowance            4,094                 17,644              (8,160      )         (38,218    )
  (reversal) on loans
  Other-than-temporary
  impairment on                  (236        )         5,537               16,506                14,433
  securities
  Portion of
  other-than-temporary
  impairment on

  securities
  recognized in other
  comprehensive income          1,156               (1,531     )       (1,913      )        (838       )
  (loss),

  net of reversal of
  other comprehensive
  loss into net income
  (loss)
                                5,014               21,650            6,433               (24,623    )
                                                                                               
  Net interest income            49,425                18,156              145,716               136,860
  after impairment
                                                                                               
Other Revenues
  Rental income                  6,137                 -                   6,137                 -
  Care and ancillary            1,411               -                 1,411               -          
  income
  Total other revenues          7,548               -                 7,548               -          
                                                                                               
Other Income (Loss)
  Gain (loss) on
  settlement of                  229,239               5,636               232,885               75,334
  investments, net
  Gain on
  extinguishment of              2,345                 15,917              23,127                60,402
  debt
  Change in fair value
  of investments in              1,774                 -                   6,513                 -
  excess mortgage
  servicing rights
  Other income (loss),          2,424               (2,751     )       1,650              (12,576    )
  net
                                235,782             18,802            264,175            123,160    
Expenses
  Loan and security              1,054                 1,198               3,256                 3,458
  servicing expense
  Property operating             4,742                 -                   4,742                 -
  expenses
  General and
  administrative                 4,703                 1,399               13,193                4,649
  expense
  Management fee to              6,852                 4,569               17,459                13,313
  affiliate
  Depreciation and              2,370               -                 2,370               -          
  amortization
                                19,721              7,166             41,020              21,420     
                                                                                               
Income from continuing           273,034               29,792              376,419               238,600
operations
Income (loss) from
discontinued                    187                 151               712                 151        
operations
Net Income                       273,221               29,943              377,131               238,751
  Preferred dividends           (1,395      )        (1,395     )       (4,185      )        (4,185     )
Income Available for           $ 271,826            $ 28,548           $ 372,946            $ 234,566    
Common Stockholders
Income Per Share of
Common Stock
  Basic                        $ 1.65               $ 0.35             $ 2.77               $ 3.16       
  Diluted                      $ 1.63               $ 0.35             $ 2.74               $ 3.16       
Income from continuing
operations per share
of common stock,
  after preferred
  dividends
  Basic                        $ 1.65               $ 0.35             $ 2.77               $ 3.16       
  Diluted                      $ 1.63               $ 0.35             $ 2.74               $ 3.16       
Income (loss) from
discontinued
operations per share
  of common stock
  Basic                        $ -                  $ -                $ -                  $ -          
  Diluted                      $ -                  $ -                $ -                  $ -          
                                                                                               
Weighted Average
Number of Shares of
Common Stock
Outstanding
  Basic                         164,237,757         80,425,197        134,619,858         74,168,573 
  Diluted                       166,429,120         80,441,593        135,869,332         74,177,027 
                                                                                               
Dividends Declared per         $ 0.22               $ 0.15             $ 0.62               $ 0.25       
Share of Common Stock


  Newcastle Investment Corp.

 Consolidated Balance Sheets

  (dollars in thousands)
  
                                  September 30, 2012  
                                      (Unaudited)            December 31, 2011
Assets
Non-Recourse VIE Financing
Structures
  Real estate securities,             $   591,929            $  1,479,214
  available for sale
  Real estate related loans,              832,885               807,214
  held for sale, net
  Residential mortgage loans,             301,370               331,236
  held for investment, net
  Subprime mortgage loans                 405,525               404,723
  subject to call option
  Operating real estate, held             7,839                 7,741
  for sale
  Other investments                       18,883                18,883
  Restricted cash                         2,829                 105,040
  Derivative assets                       -                     1,954
  Receivables and other                  6,432               23,319      
  assets
                                         2,167,692           3,179,324   
Recourse Financing
Structures, Mortgaged Real
Estate and Unlevered Assets
  Real estate securities,                 788,431               252,530
  available for sale
  Real estate related loans,              9,418                 6,366
  held for sale, net
  Residential mortgage loans,             2,566                 2,687
  held for sale, net
  Investments in excess
  mortgage servicing rights               258,347               43,971
  at fair value
  Investments in real estate,
  net of accumulated                      126,798               -
  depreciation
  Resident lease intangibles,
  net of accumulated                      14,755                -
  amortization
  Other investments                       6,024                 6,024
  Cash and cash equivalents               229,036               157,356
  Derivative assets                       224                   -
  Receivables and other                  33,571              3,541       
  assets
                                         1,469,170           472,475     
                                      $   3,636,862         $  3,651,799   
                                                             
Liabilities and Stockholders'
Equity
Liabilities
Non-Recourse VIE Financing
Structures
  CDO bonds payable                   $   1,155,080          $  2,403,605
  Other bonds and notes                   197,583               200,377
  payable
  Repurchase agreements                   5,368                 6,546
  Financing of subprime
  mortgage loans subject to               405,525               404,723
  call option
  Derivative liabilities                  36,519                119,320
  Accrued expenses and other             8,241               16,112      
  liabilities
                                         1,808,316           3,150,683   
Recourse Financing
Structures, Mortgages and
Other Liabilities
  Repurchase agreements                   599,959               233,194
  Mortgage notes payable                  88,400                -
  Junior subordinated notes               51,245                51,248
  payable
  Dividends payable                       38,877                16,707
  Due to affiliates                       3,351                 1,659
  Purchase price payable on
  investments in excess                   3,250                 3,250
  mortgage servicing rights
  Accrued expenses and other             9,278               2,969       
  liabilities
                                         794,360             309,027     
                                         2,602,676           3,459,710   
                                                             
Stockholders' Equity
  Preferred stock, $0.01 par
  value, 100,000,000 shares
  authorized,
  1,347,321 shares of 9.75%
  Series B Cumulative
  Redeemable Preferred Stock
  496,000 shares of 8.05%
  Series C Cumulative
  Redeemable Preferred Stock,
  and
  620,000 shares of 8.375%
  Series D Cumulative
  Redeemable Preferred Stock,
  liquidation preference
  $25.00 per share, issued
  and outstanding as of
  September 30, 2012 and
  December 31, 2011                       61,583                61,583
  Common stock, $0.01 par
  value, 500,000,000 shares
  authorized, 172,487,757 and
  105,181,009 shares issued
  and outstanding at                      1,725                 1,052
  September 30, 2012 and
  December 31, 2011
  Additional paid-in capital              1,709,905             1,275,792
  Accumulated deficit                     (788,725   )          (1,073,252  )
  Accumulated other                      49,698              (73,086     )
  comprehensive income (loss)
                                         1,034,186           192,089     
                                      $   3,636,862         $  3,651,799   
  

Newcastle Investment Corp.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

                               Three Months Ended                   Nine Months Ended
                         
                               September 30,                        September 30,
                               2012            2011            2012            2011
                                                                                       
Cash flows From
Operating Activities
Net income                       273,221            29,943            377,131            238,751
Adjustment to
reconcile net income
to net cash provided
by (used in)
operating activities
(inclusive of
amounts related to
discontinued
operations):
Depreciation and                 2,527              88                2,701              225
amortization
Accretion of
discount and other               (13,063  )         (11,407  )        (38,923  )         (33,214  )
amortization
Interest income in
CDOs redirected for              (499     )         (2,402   )        (2,944   )         (8,981   )
reinvestment or CDO
bond paydown
Interest income on
investments accrued              (5,845   )         (5,005   )        (16,759  )         (14,303  )
to principal balance
Interest expense on
debt accrued to                  110                105               328                619
principal balance
Payment of Deferred              (568     )         -                 (568     )         -
Interest
Deferred interest                -                  -                 -                  1,027
received
Non-cash directors'              -                  -                 220                122
compensation
Reversal of
valuation allowance              4,094              17,644            (8,160   )         (38,218  )
on loans
Other-than-temporary
impairment on                    920                4,006             14,593             13,595
securities
Impairment on real               -                  -                 -                  433
estate held-for-sale
Change in fair value
on investments in                (1,774   )         -                 (6,513   )         -
excess mortgage
servicing rights
Gain on settlement
of investments (net)             (229,239 )         (5,697   )        (232,885 )         (74,463  )
and real estate
held-for-sale
Unrealized loss on
non-hedge
derivatives and                  (1,975   )         3,289             501                14,483
hedge
ineffectiveness
Gain on
extinguishment of                (2,345   )         (15,917  )        (23,127  )         (60,402  )
debt
Change in:
Restricted cash                  1,377              1,004             1,741              1,249
Receivables and                  5,459              (548     )        1,088              528
other assets
Due to affiliates                1,358              14                1,692              113
Accrued expenses and            (1,359   )        130             1,618            57       
other liabilities
Net cash provided by
(used in) operating             32,399           15,247          71,734           41,621   
activities
                                                                                       
Cash Flows From
Investing Activities
Principal repayments
from repurchased CDO             8,780              8,227             21,347             57,108
debt
Principal repayments             919                969               1,446              9,834
from CDO securities
Principal repayments             8,267              37                12,440             107
from non-Agency RMBS
Return of investment
in excess mortgage               8,507                                13,327             -
servicing rights
Principal repayments
from loans and
non-CDO securities               32,283             13,786            70,398             65,649
(excluding
non-Agency RMBS)
Purchase of real                 (370,099 )         (122,856 )        (597,769 )         (303,101 )
estate securities
Purchase of real                 (9,216   )         -                 (9,216   )         -
estate loans
Proceeds from sale               127,000            -                 127,000            3,885
of investments
Acquisition of
investments in                   (28,132  )         -                 (218,642 )         -
excess mortgage
servicing rights
Acquisition of
investments in real              (141,576 )         -                 (141,576 )         -
estate
Additions to
investments in real              (26      )         -                 (26      )         -
estate
Proceeds from sale
of real estate held              -                  650               -                  650
for sale
Acquisition of                   -                  -                 -                  (2,268   )
servicing rights
Deposit paid on                  (9,056   )         -                 (25,857  )         -
investments
Payments on
settlement of                   -                -               -                (14,322  )
derivative
instruments
Net cash provided by
(used in) investing             (372,349 )        (99,187  )       (747,128 )        (182,458 )
activities
                                                                                       
Cash flows From
Financing Activities
Repurchases of CDO               (26,518  )         (3,975   )        (35,695  )         (91,039  )
bonds payable
Issuance of other                -                  -                 -                  142,736
bonds payable
Repayments of other              (11,493  )         (10,137  )        (33,177  )         (194,379 )
bonds payable
Borrowings under
repurchase                       305,684            183,242           407,878            291,818
agreements
Repayments of
repurchase                       (23,867  )         (80,359  )        (42,291  )         (89,622  )
agreements
Margin deposits
under repurchase                 (26,503  )         (5,219   )        (43,960  )         (8,597   )
agreement
Return of margin
deposits under                   25,990             5,219             43,447             8,597
repurchase
agreements
Borrowings under
mortgage loan                    88,400             -                 88,400             -
payable
Issuance of common               167,771            112,724           435,821            211,567
stock
Costs related to
issuance of common               (219     )         -                 (840     )         (468     )
stock
Common Stock                     (29,436  )         (7,930   )        (66,249  )         (7,930   )
dividends paid
Preferred Stock                  (1,395   )         (1,395   )        (4,185   )         (6,976   )
dividends paid
Payment of deferred              (1,831   )         (35      )        (1,831   )         (1,581   )
financing costs
Purchase of
derivative                       (244     )         -                 (244     )         -
instruments
Restricted cash
returned from                   -                (3,853   )       -                58,367   
refinancing
activities
Net cash provided by
(used in) financing             466,339          (188,282 )       747,074          312,493  
activities
                                                                                       
Net Increase
(Decrease) in Cash               126,389            104,342           71,680             171,656
and Cash Equivalents
                                                                                       
Cash and Cash
Equivalents,                    102,647          100,838         157,356          33,524   
Beginning of Period
                                                                                       
Cash and Cash
Equivalents, End of            $ 229,036         $ 205,180        $ 229,036         $ 205,180  
Period
                                                                                       
Supplemental
Disclosure of Cash
Flow Information
Cash paid during the
period for interest              18,994             23,561          $ 59,384           $ 76,730
expense
                                                                                       
Supplemental
Schedule of Non-Cash
Investing and
Financing Activities
                                                                                       
Preferred stock
dividends declared             $ 930              $ 930             $ 930              $ 930
but not paid
Common stock
dividends declared             $ 37,947           $ 15,776          $ 37,947           $ 15,776
but not paid
Purchase price
payable on
investments in                 $ 3,250            $ -               $ 3,250            $ -
excess mortgage
servicing rights
Re-issuance of other
bonds and notes
payable to third               $ 29,959           $ 5,751           $ 29,959           $ 5,751
parties upon
deconsolidation of
CDO


Newcastle Investment Corp.

Reconciliation of Core Earnings

(dollars in thousands)

                 Three Months Ended September      Nine Months Ended September 30,
                     30,
                     2012            2011             2012            2011
Income
(loss)
applicable           $ 271,826          $ 28,548         $ 372,946          $ 234,566
to common
stockholders
Add
(Deduct):
Impairment             5,014              21,650           6,433              (24,623  )
(Reversal)
Other income           (235,782 )         (18,802 )        (264,175 )         (123,160 )
(Income)
loss from              (187     )         (151    )        (712     )         (151     )
discontinued
operations
Depreciation
and                   2,370            -              2,370            -        
amortization
Core                 $ 43,241          $ 31,245        $ 116,862         $ 86,632   
earnings


Core Earnings

Core earnings is used by management to gauge the current performance of
Newcastle without taking into account of gains and losses, which, although
they represent a part of our recurring operations, are subject to significant
variability and are only a potential indicator of future economic performance.
Management views this measure as Newcastle’s “core” current earnings, while
gains and losses (including impairment) are simply a potential indicator of
future earnings. It also excludes the effect of depreciation and amortization
charges, which, in the judgment of management, are not indicative of operating
performance.

Management believes that this measure provides investors with useful
information regarding Newcastle’s “core” current earnings, and it enables
investors to evaluate Newcastle’s current performance using the same measure
that management uses to operate the business. Core earnings does not represent
cash generated from operating activities in accordance with GAAP and therefore
should not be considered an alternative to net income as an indicator of the
Company’s operating performance or as an alternative to cash flow as a measure
of its liquidity and is not necessarily indicative of cash available to fund
cash needs. The Company’s calculation of core earnings may be different from
the calculation used by other companies and, therefore, comparability may be
limited.

Newcastle Investment Corp.

Reconciliation of Cash Available for Distribution

(dollars in thousands)
                                          Three Months Ended September 30,
                                              2012              2011
Reconciliation of Cash Available for
Distribution:
Net cash provided by operating                   32,399              15,247
activities
                                                                   
Principal repayments bought at a                 17,966              9,233
discount^(1)
Less: Return of capital included                (13,399   )        (5,298  )
above ^ (2)
Subtotal                                         4,567               3,935
                                                                   
Preferred dividends^(3)                         (1,395    )        (1,395  )
Cash Available for Distribution               $  35,571           $ 17,787  
                                                                   
Other data from the Consolidated
Statements of Cash Flows:
Net cash provided by (used in)                $  (372,349  )       $ (99,187 )
investing activities
Net cash provided by (used in)                   466,339             188,282
financing activities
Net increase (decrease) in cash and              126,389             104,342
cash equivalents


(1) Excludes principal repayments on assets purchased at par or assets where
the principal received is required to pay down Newcastle’s debt (assets held
in its CDO’s, MH loans and Agency securities).

(2) Represents the portion of principal repayments from repurchased CDO debt,
CDO securities, and Non-Agency RMBS computed based on the ratio of Newcastle’s
purchase price of such debt or securities to the aggregate principal payments
expected to be received from such debt or securities.

(3) Represents preferred dividends to be paid on an accrual basis (payments
are made at the end of Jan, Apr, Jul and Oct).

Cash Available for Distribution (“CAD”)

  *Management believes that CAD is useful for investors because it is a
    meaningful measure of the Company’s operating liquidity. It represents
    GAAP net cash provided by operating activities adjusted for two factors:

1. Principal payments received in excess of the portion which represents a
return of Newcastle’s invested capital in certain of Newcastle’s investments,
which were acquired at a significant discount to par. These investments
include repurchased CDO debt, CDO securities and Non-Agency RMBS. Although
these net principal repayments are reported as investing activities for GAAP
purposes, they actually represent a portion of Newcastle’s return on these
investments (or yield), rather than a return of Newcastle’s invested capital.

2. Preferred dividends. Although these dividends are reported as financing
activities for GAAP purposes, they represent a recurring use of Newcastle’s
operating cash flow similar to interest payments on debt.

  *Management uses CAD as an important input in determining cash available to
    pay dividends to Newcastle’s common stockholders.
  *CAD excludes principal repayments on assets purchased at par or assets
    where the principal received is required to pay down Newcastle’s debt
    (assets held in the its CDOs, MH loans and Agency securities).
    Furthermore, net cash provided by operating activities, a primary element
    of CAD, includes timing differences based on changes in accruals. CAD does
    not represent cash generated from operating activities in accordance with
    GAAP and should not be considered an alternative to net income as an
    indicator of the Company’s operating performance or as an alternative to
    cash flow as a measure of the Company’s liquidity and is not necessarily
    indicative of cash available to fund cash needs. The Company’s calculation
    of CAD may be different from the calculation used by other companies and
    therefore comparability may be limited.

Contact:

Newcastle Investment Corp.
Investor Relations, 212-479-3195
 
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