New Residential Announces Second Quarter 2015 Results

NEW YORK--(BUSINESS WIRE)-- New Residential Investment Corp. (NYSE:NRZ; “New Residential” or the “Company”) today reported the following information for the second quarter ended June 30, 2015:

SECOND QUARTER FINANCIAL HIGHLIGHTS:*

  • Record Core Earnings of $0.45 per diluted share, or $92 million
  • GAAP Income of $0.37 per diluted share, or $75 million
  • Increased second quarter common dividend by 18% to $0.45 per share, or $90 million
     

 

Q2 2015 Q1 2015
Non-GAAP Results:
Core Earnings per Diluted Share* $0.45 $0.44
Core Earnings* $92 million $63 million
 
Summary Operating Results
GAAP Income per Diluted Share $0.37 $0.25
GAAP Income $75 million $36 million

*For a reconciliation of GAAP Income to Core Earnings, please refer to the Reconciliation of Core Earnings below.

Highlights for the quarter ended June 30, 2015:

  • Acquisition of HLSS Assets - On April 6, 2015, New Residential acquired substantially all of the assets and liabilities of Home Loan Servicing Solutions Ltd. (“HLSS”) for a total purchase price of approximately $1.4 billion (“HLSS Acquisition”).
  • Excess Mortgage Servicing Rights (“Excess MSRs”) & Servicer Advances - New Residential purchased $156 billion UPB of seasoned, credit impaired Non-Agency Excess MSRs, and acquired approximately $5.1 billion of servicer advances from HLSS.
  • Dividend Increase - On May 14, 2015, New Residential announced an 18 percent increase in its regular quarterly cash dividend, from $0.38 per common share in the first quarter of 2015 to $0.45 per common share for the second quarter of 2015.
  • Excess MSRs - During the quarter, independent of the HLSS Acquisition, New Residential acquired or committed to acquire $59 billion UPB of legacy Excess MSRs. In addition, throughout the quarter, New Residential reduced its leverage and decreased interest rate exposure by paying off $659 million of the $855 million MSR debt issued in 2015 to fund the HLSS Acquisition.
  • Servicer Advances - During the quarter, New Residential increased financing capacity to approximately $11 billion. At a 69% debt utilization rate, New Residential has unused financing capacity totaling $3.5 billion. Furthermore, the Company improved the terms on multiple servicer advance financing facilities, resulting in expected total annual return improvements of approximately $36 million (1).
  • Non-Agency Securities & Call Rights - In the second quarter, New Residential continued to deliver on its deal collapse strategy by executing clean-up call rights on 18 seasoned, Non-Agency deals totaling $369 million UPB. In June, the Company completed its fourth called-deal securitization, totaling $334 million. In addition, New Residential further scaled its Non-Agency portfolio by purchasing $340 million face value of Non-Agency securities during the quarter.
  • Capital Raise - On April 8, 2015, New Residential raised $877 million gross proceeds in a public offering, approximately $446 million of which were proceeds from the primary offering and approximately $431 million of which were proceeds from the secondary offering. In addition, on June 10, 2015, New Residential raised $500 million gross proceeds in a public offering, approximately $444 million of which were proceeds from the primary offering and approximately $56 million of which were proceeds from the secondary offering. Proceeds from the two primary offerings were used to fund the HLSS Acquisition and other investments throughout the quarter.

(1) Excludes the impact from Ocwen servicing rating downgrade, both additional capital contribution required and compensation payments from Ocwen.

ADDITIONAL INFORMATION
For additional information that management believes to be useful for investors, please refer to the latest presentation posted on the Investor Relations section of the Company’s website, www.newresi.com. For consolidated investment portfolio information, please refer to the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are available on the Company’s website (www.newresi.com).

EARNINGS CONFERENCE CALL
New Residential’s management will host a conference call on Monday, August 10, 2015 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 1-706-634-0623 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “New Residential Second Quarter 2015 Earnings Call.”

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

A telephonic replay of the conference call will also be available two hours following the call’s completion through 11:59 P.M. Eastern Time on Monday, August 24, 2015 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 “92001878.”

   
Condensed Consolidated Statements of Income
($ in thousands, except share and per share data)
 

Three Months Ended June 30,

Six Months Ended June 30,

2015   2014 2015   2014
 
Interest income $ 178,177 $ 92,656 $ 262,550 $ 164,146
Interest expense   81,871   36,512   115,850     75,509
Net Interest Income   96,306   56,144   146,700     88,637
 
Impairment
Other-than-temporary impairment ("OTTI") on securities 649 615 1,720 943
Valuation provision on loans and real estate owned   4,772   293   5,749     457
  5,421   908   7,469     1,400
 
Net interest income after impairment 90,885 55,236 139,231 87,237
 
Other Income
Change in fair value of investments in excess mortgage servicing rights 356 5,502 (1,405 ) 12,104

Change in fair value of investments in excess mortgage servicing rights, equity method

investees 3,095 12,743 8,016 19,117
Change in fair value of investments in servicer advances 24,562 82,877 16,893 82,877
Earnings from investments in consumer loans, equity method investees - 21,335 - 37,695
Gain on settlement of investments, net 1,201 52,539 15,968 56,896
Other income, net   8,436   2,893   10,473     4,250
  37,650   177,889   49,945     212,939
 
Operating Expenses
General and administrative expenses 21,239 5,397 29,799 7,383
Management fee to affiliate 8,371 4,915 13,497 9,401
Incentive compensation to affiliate 2,391 18,863 6,084 22,201
Loan servicing expense   2,951   347   7,842     436
  34,952   29,522   57,222     39,421
 
Income (Loss) Before Income Taxes 93,583 203,603 131,954 260,755
Income tax expense (benefit)   14,306   21,395   10,879     21,682
Net Income (Loss) $ 79,277 $ 182,208 $ 121,075   $ 239,073
Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries $ 4,158 $ 58,705 $ 9,981   $ 66,798
Net Income (Loss) Attributable to Common Stockholders $ 75,119 $ 123,503 $ 111,094   $ 172,275
 
 
Net Income Per Share of Common Stock
Basic $ 0.37 $ 0.91 $ 0.65   $ 1.31
Diluted $ 0.37 $ 0.88 $ 0.63   $ 1.28
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   200,910,040   136,465,454   171,336,768     131,562,222
Diluted   205,169,099   139,668,128   175,206,662     134,790,790
 
Dividends Declared per Share of Common Stock $ 0.45 $ 0.50 $ 0.83   $ 0.85
 
   
Condensed Consolidated Balance Sheets
($ in thousands)
 
June 30, 2015 December 31, 2014
Assets (unaudited)
Investments in:
Excess mortgage servicing rights, at fair value $ 1,504,422 $ 417,733
Excess mortgage servicing rights, equity method investees, at fair value 216,112 330,876
Servicer advances, at fair value 8,182,400 3,270,839
Real estate securities, available-for-sale 1,907,961 2,463,163
Residential mortgage loans, held-for-investment 42,741 47,838
Residential mortgage loans, held-for-sale 523,018 1,126,439
Real estate owned 25,327 61,933
Consumer loans, equity method investees - -
Cash and cash equivalents 432,007 212,985
Restricted cash 134,735 29,418
Derivative assets 1,701 32,597
Trade receivable 986,532 -
Deferred tax asset 159,232 -
Other assets   278,610   95,423
$ 14,394,798 $ 8,089,244
 
Liabilities and Equity
 
Liabilities
Repurchase agreements $ 2,404,617 $ 3,149,090
Notes payable 7,883,061 2,908,763
Trades payable 778,528 2,678
Due to affiliates 9,670 57,424
Dividends payable 89,521 53,745
Deferred tax liability - 15,114
Accrued expenses and other liabilities   134,319   52,505
  11,299,716   6,239,319
 
Commitments and Contingencies
 
Equity
 

Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 230,438,639 and

141,434,905 issued and outstanding at June 30, 2015 and December 31, 2014,

respectively 2,304 1,414
Additional paid-in capital 2,640,608 1,328,587
Retained earnings 203,287 237,769
Accumulated other comprehensive income, net of tax   17,231   28,319
Total New Residential stockholders' equity 2,863,430 1,596,089
Noncontrolling interests in equity of consolidated subsidiaries   231,652   253,836
Total Equity   3,095,082   1,849,925
$ 14,394,798 $ 8,089,244
 
   
Reconciliation of Core Earnings
($ in thousands)
 
Three Months Ended June 30, Six Months Ended June 30,
2015   2014 2015   2014
Net income (loss) attributable to common stockholders $ 75,119 $ 123,503 $ 111,094 $ 172,275
Impairment 5,421 908 7,469 1,400
Other Income Adjustments:
Other Income (excluding service fees) (36,850 ) (177,889 ) (49,145 ) (212,939 )
Other Income attributable to non-controlling interests   (3,294 )   44,741     (7,823 )   44,741  
Total Other Income Adjustments   (40,144 )   (133,148 )   (56,968 )   (168,198 )
 
Incentive compensation to affiliate 2,391 18,863 6,084 22,201
Non-capitalized transaction-related expenses 9,341 1,825 14,890 1,825
Deferred taxes 14,348 16,303 11,341 16,303
Interest income on residential mortgage loans, held-for-sale 3,648 - 17,083 -
Core earnings of equity method investees:
Excess mortgage servicing rights 4,597 8,646 10,435 17,871
Consumer loans   17,458     19,465     34,216     34,452  
Core Earnings $ 92,179   $ 56,365   $ 155,644   $ 98,129  
 

CORE EARNINGS

New Residential has four primary variables that impact the Company’s operating performance: (i) the current yield earned on the Company’s investments, (ii) the interest expense incurred under the debt incurred to finance its investments, (iii) its operating expenses and (iv) its realized and unrealized gains or losses, including any impairment and deferred tax, on its investments. “Core earnings” is a non-GAAP measure of the Company’s operating performance excluding the fourth variable above and adjusting the earnings from the consumer loan investment to a level yield basis. It is used by management to gauge the Company’s current 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 only a potential indicator of future economic performance; (ii) incentive compensation paid to the Company’s Manager; (iii) non-capitalized transaction-related expenses; and (iv) deferred taxes, which are not representative of current operations.

While incentive compensation paid to the Company’s Manager may be a material operating expense, the Company excludes it from core earnings because (i) from time to time, a component of the computation of this expense will relate to items (such as gains or losses) that are excluded from core earnings, and (ii) it is impractical to determine the portion of the expense related to core earnings and non-core earnings, and the type of earnings (loss) that created an excess (deficit) above or below, as applicable, the incentive compensation threshold. To illustrate why it is impractical to determine the portion of incentive compensation expense that should be allocated to core earnings, the Company notes that, as an example, in a given period, the Company 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. 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. These costs are recorded as “General and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.

In the fourth quarter of 2014, the Company modified its definition of core earnings to include accretion on held-for-sale loans as if they continued to be held-for-investment. Although the Company intends to sell such loans, there is no guarantee that such loans will be sold or that they will be sold within any expected timeframe. During the period prior to sale, the Company continues to receive cash flows from such loans and believes that it is appropriate to record a yield thereon. This modification had no impact on core earnings in 2014 or any prior period. In the second quarter of 2015, the Company modified its definition of core earnings to exclude all deferred taxes, rather than just deferred taxes related to unrealized gains or losses, because deferred taxes are not representative of current operations. This modification was applied prospectively due to only immaterial impacts in prior periods.

Management believes that the adjustments to compute “core earnings” specified above allow investors and analysts to readily identify the operating performance of the assets that form the core of the Company activity, assist in comparing the core operating results between periods, and enable investors to evaluate the Company’s current performance using the same measure that management uses to operate the business.

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.

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 the Company’s liquidity and is not necessarily indicative of cash available to fund cash needs.

ABOUT NEW RESIDENTIAL

New Residential focuses on opportunistically investing in, and actively managing, investments related to residential real estate. The Company primarily targets investments in mortgage servicing related assets and other related opportunistic investments. New Residential is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is managed by an affiliate of Fortress Investment Group LLC (NYSE: FIG), a global investment management firm.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements regarding commitments to purchase or sell Excess MSRs, which the Company expects to close but the closing of which is subject to the completion of definitive documentation between the seller and buyer of the related MSR and the completion of definitive documentation between the buyer or seller of the MSR and the Company. 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 the Company’s control. The Company can give no assurance that its expectations will be attained. 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 Operations” incorporated by reference in the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are available on the Company’s website (www.newresi.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. The Company 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.

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

Source: New Residential Investment Corp.