New Residential Announces First Quarter 2018 Results

  New Residential Announces First Quarter 2018 Results

Business Wire

NEW YORK -- April 27, 2018

New Residential Investment Corp. (NYSE:NRZ; “New Residential” or the
“Company”) today reported the following information for the quarter ended
March 31, 2018:

FIRST QUARTER FINANCIAL HIGHLIGHTS:

  * GAAP Net Income of $604 million, or $1.81 per diluted share
  * Core Earnings of $195 million, or $0.58 per diluted share*
  * Common dividend of $168 million, or $0.50 per share

                                                    
                                      1Q 2018        4Q 2017
                                                      
Summary Operating Results:
GAAP Net Income per Diluted Share**   $1.81          $0.93
GAAP Net Income                       $604 million   $288 million
                                                      
Non-GAAP Results:
Core Earnings per Diluted Share**     $0.58          $0.61
Core Earnings*                        $195 million   $189 million
                                                      
NRZ Common Dividend:
Common Dividend per Share**           $0.50          $0.50
Common Dividend                       $168 million   $154 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
333,380,436 weighted average diluted shares during the quarter ended March 31,
2018 and 310,388,102 weighted average diluted shares during the quarter ended
December 31, 2017. Per share calculations of Common Dividend are based on
336,135,391 basic shares outstanding as of March 31, 2018 and 307,361,309
basic shares outstanding as of December 31, 2017.
 

First Quarter 2018 & Subsequent Highlights:

  * Mortgage Servicing Rights (“MSRs”) -

       * During and subsequent to first quarter 2018, New Residential acquired
         or agreed to acquire MSRs totaling approximately $38 billion UPB for
         an aggregate purchase price of approximately $364 million. In
         addition, to further enhance liquidity, NRZ priced two fixed rate MSR
         notes in January and February 2018, totaling $930 million, at a
         weighted average cost of funds of ~3.6%.
       * In January 2018, as part of the Company’s previously announced MSR
         transfer agreement with Ocwen Financial Corporation (“Ocwen”),^(1)
         New Residential paid Ocwen an approximately $280 million
         restructuring fee to obtain the remaining rights to MSRs on the
         legacy Non-Agency MSR portfolio totaling $87 billion UPB.^(2) Under
         the New RMSR Agreement, Ocwen will transfer the remaining $87 billion
         UPB Non-Agency MSRs^(2) to New Residential.

  * Non-Agency Securities & Call Rights -

       * During the first 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 $500 million. In addition, during
         the quarter, New Residential completed a $727 million Non-Agency loan
         securitization.
       * In the first 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 $695
         million face value of Non-Agency RMBS, bringing net equity to
         approximately $1.4 billion as of March 31, 2018.

      In July 2017, New Residential and Ocwen signed definitive agreements for
      the transfer of Ocwen’s interest in MSRs and subservicing relating to
      approximately $110 billion UPB (balance as of June 30, 2017) of
      Non-Agency MSRs. In January 2018, New Residential and Ocwen entered into
(1)   new agreements (collectively, the “New RMSR Agreement”), which
      accelerated certain parts of the July 2017 agreements, including, but
      not limited to, lump sum payments made by New Residential to Ocwen
      parties the companies continue to obtain the third party consents
      necessary to transfer the MSRs from Ocwen to New Residential.
       
      In the third quarter of 2017, New Residential paid Ocwen $55 million in
      restructuring fees for approximately $16 billion UPB of MSRs. Total
(2)   portfolio UPB decreased from $110 billion to $87 billion prior to
      entering into the New RMSR Agreement as a result of amortization and the
      transfer of such MSRs.
       

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 Friday, April 27,
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 First 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 Friday, May
11, 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 “3090809.”

                                           
Condensed Consolidated Statements of
Income
($ in thousands, except share and per
share data)
                                            Three Months Ended
                                            March 31, 2018   December 31, 2017
                                            (unaudited)      (unaudited)
                                                              
Interest income                             $  383,573       $   357,467
Interest expense                               124,387           122,201
Net Interest Income                            259,186           235,266
                                                              
Impairment
Other-than-temporary impairment (OTTI) on      6,670             1,598
securities
Valuation and loss provision (reversal)        19,007            10,377
on loans and real estate owned
                                               25,677            11,975
                                                              
Net interest income after impairment           233,509           223,291
                                                              
Servicing revenue, net                         217,236           154,882
Other Income
Change in fair value of investments in         (45,691)          36,972
excess mortgage servicing rights
Change in fair value of investments in
excess mortgage servicing rights, equity       523               6,561
method investees
Change in fair value of investments in
mortgage servicing rights financing            271,076           (9,434)
receivables
Change in fair value of servicer advance       (79,476)          13,949
investments
Gain (loss) on settlement of investments,      103,302           9,060
net
Earnings from investments in consumer          4,806             12,968
loans, equity method investees
Other income (loss), net                       9,984             (3,588)
                                               264,524           66,488
Operating Expenses
General and administrative expenses            20,007            19,371
Management fee to affiliate                    15,110            14,187
Incentive compensation to affiliate            14,589            9,250
Loan servicing expense                         11,514            12,262
Subservicing expense                           46,597            42,646
                                               107,817           97,716
                                                              
Income Before Income Taxes                     607,452           346,945
Income tax expense (benefit)                   (6,912)           46,575
Net Income                                  $  614,364       $   300,370
Noncontrolling Interests in Income of       $  10,111        $   12,068
Consolidated Subsidiaries
Net Income Attributable to Common           $  604,253       $   288,302
Stockholders
                                                              
Net Income Per Share of Common Stock
Basic                                       $  1.83          $   0.94
Diluted                                     $  1.81          $   0.93
                                                              
Weighted Average Number of Shares of
Common Stock Outstanding
Basic                                          330,384,856       307,361,309
Diluted                                        333,380,436       310,388,102
                                                              
Dividends Declared per Share of Common      $  0.50          $   0.50
Stock
                                                                  

 
Condensed Consolidated Balance Sheets
($ in thousands)
 
                                            March 31, 2018   December 31, 2017
Assets                                      (unaudited)
Investments in:
Excess mortgage servicing rights, at fair   $  515,676       $    1,173,713
value
Excess mortgage servicing rights, equity       164,886            171,765
method investees, at fair value
Mortgage servicing rights, at fair value       2,129,665          1,735,504
Mortgage servicing rights financing            1,886,771          598,728
receivables, at fair value
Servicer advance investments, at fair          955,364            4,027,379
value
Real estate and other securities,              7,585,323          8,071,140
available-for-sale
Residential mortgage loans,                    647,960            691,155
held-for-investment
Residential mortgage loans, held-for-sale      1,441,955          1,725,534
Real estate owned                              115,616            128,295
Consumer loans, held-for-investment            1,305,793          1,374,263
Consumer loans, equity method investees        46,135             51,412
Cash and cash equivalents                      233,233            295,798
Restricted cash                                179,688            150,252
Servicer advances receivable                   3,393,375          675,593
Trades receivable                              1,083,558          1,030,850
Other assets                                   326,943            312,181
                                            $  22,011,941    $    22,213,562
                                                              
Liabilities and Equity
                                                              
Liabilities
Repurchase agreements                       $  7,635,494     $    8,662,139
Notes and bonds payable                        7,031,021          7,084,391
Trades payable                                 1,116,948          1,169,896
Due to affiliates                              20,292             88,961
Dividends payable                              168,068            153,681
Deferred tax liability, net                    10,162             19,218
Accrued expenses and other liabilities         268,269            239,114
                                               16,250,254         17,417,400
                                                              
Commitments and Contingencies
                                                              
Equity
Common Stock, $0.01 par value,
2,000,000,000 shares authorized,
336,135,391 and                                3,362              3,074
307,361,309 issued and outstanding at
March 31, 2018 and December 31, 2017,
respectively
Additional paid-in capital                     4,245,573          3,763,188
Retained earnings                              995,661            559,476
Accumulated other comprehensive income         419,340            364,467
(loss)
Total New Residential stockholders’            5,663,936          4,690,205
equity
Noncontrolling interests in equity of          97,751             105,957
consolidated subsidiaries
Total Equity                                   5,761,687          4,796,162
                                            $  22,011,941    $    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
                                            March 31, 2018   December 31, 2017
Net income attributable to common           $  604,253       $   288,302
stockholders
Impairment                                     25,677            11,975
Other Income adjustments:
Other Income
Change in fair value of investments in         45,691            (36,972   )
excess mortgage servicing rights
Change in fair value of investments in
excess mortgage servicing rights, equity       (523      )       (6,561    )
method investees
Change in fair value of investments in
mortgage servicing rights financing            (319,779  )       (13,746   )
receivables
Change in fair value of servicer advance       79,476            (13,949   )
investments
(Gain) loss on settlement of investments,      (103,302  )       (9,060    )
net
Unrealized (gain) loss on derivative           (2,446    )       2,066
instruments
Unrealized (gain) loss on other ABS            313               (2,543    )
(Gain) loss on transfer of loans to REO        (4,170    )       (6,147    )
(Gain) loss on transfer of loans to other      (55       )       (129      )
assets
(Gain) loss on Excess MSRs                     (2,905    )       (436      )
(Gain) loss on Ocwen common stock              (5,772    )       1,641
Other (income) loss                            5,051             9,136      
Total Other Income Adjustments                 (308,421  )       (76,700   )
                                                              
Other Income and Impairment attributable       (6,586    )       (5,986    )
to non-controlling interests
Change in fair value of investments in         (129,793  )       (78,030   )
mortgage servicing rights
Non-capitalized transaction-related            7,137             7,326
expenses
Incentive compensation to affiliate            14,589            9,250
Deferred taxes                                 (9,056    )       54,502
Interest income on residential mortgage        4,306             1,554
loans, held-for sale
Limit on RMBS discount accretion related       (4,274    )       (8,593    )
to called deals
Adjust consumer loans to level yield           (5,942    )       (17,790   )
Core earnings of equity method investees:
Excess mortgage servicing rights               2,614             3,681      
Core Earnings                               $  194,504       $   189,491    
                                                              

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 timing of and ability to complete
the transfer of the remaining $87 billion UPB non-Agency MSRs to New
Residential. 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.

View source version on businesswire.com:
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Contact:

New Residential Investment Corp.
Investor Relations, 212-479-3150
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