Newcastle Announces Second Quarter 2011 Results

NEW YORK--(BUSINESS WIRE)-- Newcastle Investment Corp. (NYSE: NCT):

SECOND QUARTER 2011 FINANCIAL RESULTS

Newcastle Investment Corp. (NYSE: NCT) reported that in the second quarter of 2011, income available for common stockholders (“GAAP income”) was $98 million, or $1.23 per diluted share, compared to $118 million, or $1.90 per diluted share, in the second quarter of 2010.

GAAP income of $98 million consisted of the following:

  • $30 million, or $0.37 per diluted share, of net interest income less expenses (net of preferred dividends), compared to $22 million, or $0.36 per diluted share, in the second quarter of 2010.
  • $59 million of other income related to a $36 million net gain on the settlement of investments, a $33 million gain on the extinguishment of CDO debt, offset primarily by a $9 million non-cash mark-to-market loss related to an interest rate swap agreement in connection with the repurchase of Newcastle CDO IV Class I notes.
  • $9 million representing the reversal of prior valuation allowances on loans, net of impairment recorded on securities.

In the second quarter of 2011, GAAP book value increased $94 million or $1.18 per share. As of June 30, 2011, GAAP book value was $108 million or $1.36 per share, compared to $14 million or $0.18 per share as of March 31, 2011.

During the second quarter of 2011, the Company generated $15 million of cash flow from operations compared to $11 million in the first quarter of 2011. In addition, the Company received $48 million of unrestricted cash from principal repayments on Newcastle and third-party CDO securities that were purchased at a weighted average discounted price of 74% of par.

On June 17, 2011, the Board of Directors declared a quarterly dividend of $0.10 per common share or $8 million for the second quarter of 2011. 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 May 1, 2011 and ending July 30, 2011.

For a reconciliation of income available for common stockholders to net interest income less expenses (net of preferred dividends), please refer to the tables following the presentation of GAAP results.

SECOND QUARTER 2011 INVESTMENT ACTIVITY

$122 million of unrestricted cash investments:

Newcastle invested $121 million to purchase $169 million face amount of non-agency investments at an average price of 72% of par, with an expected average return of 19% and an average life of 4.1 years, including the following:

  • Invested $86 million to repurchase $119 million of Newcastle CDO debt at an average price of 72% of par. The Company expects the investment to have an average life of 3.5 years and to generate a return of 16%. These investments are further described below:
    • Invested $78 million to repurchase $92 million of the most senior bonds at an average price of 84% of par with an average life of 1.4 years.
    • Invested $8 million to repurchase $27 million of junior bonds at an average price of 31% of par with an average life of 10.8 years.
  • Invested $20 million to purchase BB- rated notes and the residual interest in Newcastle Investment Trust 2011-MH 1. Assuming the loans are held to maturity, the Company expects the investment to have an average life of 8.0 years and a return of 30%.
  • Invested $15 million to purchase $30 million face amount of two third-party CDO securities at an average price of 50%. These CDO securities have credit enhancements of 52.4%, an average life of 4.1 years and an expected average return of 26%.

The Company also invested $1 million in the quarter to purchase $24 million face amount of FNMA securities at an average price of 104% of par, financed with $24 million of repurchase agreements. On June 29th, the Company purchased an additional $81 million face amount of FNMA and FHLMC securities at an average price of 105%, which settled on July 5th, investing $4 million and financed with $82 million of repurchase agreements.

$293 million of restricted CDO cash investments:

Newcastle invested $293 million to purchase $315 million face amount of assets at an average price of 93% of par with an expected average yield of 8% and an average life of 4.7 years, including the following:

  • Invested $158 million to purchase $160 million face amount of three mezzanine loan and B-Notes at an average price of 99% of par, with an expected average yield of 9% and an average life of 3.7 years.
  • Invested $135 million to purchase $155 million face amount of CMBS, ABS, and third-party CDO securities at an average price of 88% of par, with an expected average yield of 7%, an average life of 5.7 years, and an average rating of BBB-.

CASH AND RECOURSE FINANCING

As of August 3, 2011, the Company’s cash and current recourse financings were as set forth below:

  • Cash – The Company had $84 million of unrestricted cash and $99 million of restricted cash available for reinvestment within its consolidated CDOs.
  • Recourse Financing – The Company had $4 million related to the financing of senior Newcastle CDO bonds it repurchased and $205 million related to the financing of FNMA and FHLMC securities.

The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):

       

August 3,
2011

June 30,
2011

March 31,
2011

 
CDO Cash for Reinvestment $ 99 $ 168 $ 128
 
Unrestricted Cash 84 101 161
 
Recourse Financings
NCT CDO senior bonds 4 4 4
FNMA/FHLMC Securities 205 104 79
     
Total Recourse Financings $ 209 $ 108 $ 83
 

NEWCASTLE CDO FINANCINGS

The following table summarizes the cash receipts in the second quarter of 2011 from the Company’s consolidated CDO financings and their related coverage tests ($ in thousands):

      Interest            
Coverage
Primary

% Excess
(Deficiency)

Over-Collateralization Excess (Deficiency)
Collateral Cash Jul 31, July 31, 2011 (2) June 30, 2011 (2) March 31, 2011 (2)
Type

Receipts (1)

2011 (2)

% $ % $ % $
CDO IV Securities $ 473 151.1 % -2.4 % (4,987 ) -2.4 % (4,987 ) -2.6 % (7,075 )
CDO VI Securities 179 -65.9 % -57.9 % (185,180 ) -56.3 % (181,831 ) -52.0 % (183,733 )
CDO VIII Loans 5,178 284.3 % 8.7 % 56,331 8.7 % 56,396 7.3 % 47,158
CDO IX Loans 4,570 319.1 % 14.7 % 94,640 14.2 % 91,926 14.2 % 91,539
CDO X Securities   6,155   262.9 % 4.3 % 52,643 2.1 % 25,220 4.4 % 53,500
Total $ 16,555  
 
(1) Represents cash received from each CDO based on all of the interests in such CDO (including senior management fees but excluding $39.2 million of principal received from senior CDO bonds owned by the Company). Cash receipts for the quarter ended June 30, 2011 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 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 July 31, 2011, June 30, 2011, or March 31, 2011, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).
  • Of the $17 million CDO cash receipts, $2.2 million were related to non-recurring fees and $1.7 million were related to senior collateral management fees, which were not subject to the related CDO coverage tests.
  • As of the July 2011 remittance, assets on negative watch for possible downgrade by at least one rating agency (Moody’s, S&P, or Fitch) for CDOs VIII, IX, and X were $47 million, $3 million, and $120 million, respectively.
  • In the second quarter, as a result of the failure of the collateral manager over-collateralization trigger, the Company deconsolidated Newcastle CDO V. The Company continued to receive the senior collateral management fee in this CDO.

INVESTMENT PORTFOLIO

Newcastle’s $3.8 billion investment portfolio (with a basis of $2.9 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the June 30, 2011 portfolio changed from 79.4% to 78.3%, a decrease of $42 million. The face amount of the portfolio decreased by $408 million, primarily as a result of the deconsolidation of Newcastle CDO V, which accounted for $333 million, principal repayments of $191 million, sales of $327 million and actual principal write-downs of $13 million, offset by purchases of $450 million.

The following table describes the investment portfolio as of June 30, 2011 ($ in millions):

        % of   Carrying       Weighted
Face Basis Total Value Number of Average
Amount $  

Amount $ (1)

  Basis   Amount $   Investments  

Credit (2)

 

Life (years) (3)

Commercial Assets
CMBS $ 1,505 $ 1,070 37.5 % $ 1,156 211 BB 3.8
Mezzanine Loans 530 413 14.5 % 413 16 64 % 2.3
B-Notes 255 187 6.6 % 187 9 71 % 2.0
Whole Loans 31 31 1.1 % 31 3 48 % 2.8
Third-Party CDO Securities 77 57 2.0 % 55 2 BB+ 4.1

Other Investments (4)

  25     25   0.9 %   25 1 -- --
Total Commercial Assets 2,423 1,783 62.6 % 1,867 3.2
 
Residential Assets
MH and Residential Loans 404 352 12.3 % 352 10,647 704 6.8
Subprime Securities 265 140 4.9 % 153 63 B+ 6.2
Real Estate ABS   57     43   1.5 %   43 14 BBB 5.8
726 535 18.7 % 548 6.5
 
FNMA/FHLMC Securities   185     194   6.8 %   194 21 AAA 4.6
Total Residential Assets 911 729 25.5 % 742 6.1
 
Corporate Assets
REIT Debt 172 172 6.0 % 179 26 BB+ 3.2
Corporate Bank Loans   273     169   5.9 %   169 6 CC 3.3
Total Corporate Assets 445 341 11.9 % 348 3.2
               
Total/Weighted Average (5) $ 3,779   $ 2,853   100.0 % $ 2,957 3.9
 
(1) Net of impairment.
(2) 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 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.
(3) Weighted average life is based on the timing of expected principal reduction on the asset.
(4) Relates to an equity investment in a REO property.
(5) Excludes third-party CDO securities with a face amount of $117 million with zero value, operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million.

Commercial Assets

The Company owns $2.4 billion of commercial assets (with a basis of $1.8 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans, third-party CDO securities, and other investments.

  • During the quarter, the Company purchased $326 million of mezzanine loans, B-Notes and CMBS, sold $258 million of CMBS and mezzanine loans, and received principal repayments of $157 million.
  • Regarding the Company’s CMBS portfolio, four securities or $14 million were upgraded (from a weighted average rating of A to AA-), no securities were affirmed and 17 securities or $145 million were downgraded (from a weighted average rating of B+ to B-).
  • The weighted average carrying value of these assets changed from 78.2% to 77.1%, a decrease of $25 million in the quarter.

CMBS portfolio ($ in thousands):

 

Average
Minimum

 

Face

  Basis   % of Total  

Carrying
Value

  Delinquency   Principal  

Weighted
Average

Vintage (1)  

Rating (2)

  Number   Amount $   Amount $   Basis   Amount $   60+/FC/REO (3)   Subordination (4)   Life (yrs) (5)
 
Pre 2004 BBB- 71 349,023 332,645 31.1 % 314,444 5.2 % 11.9 % 1.9
2004 BB+ 37 204,746 160,401 15.0 % 158,681 2.3 % 7.5 % 3.1
2005 BB 30 319,027 167,703 15.7 % 214,563 4.6 % 7.5 % 3.9
2006 BB 44 387,932 257,630 24.1 % 298,697 6.2 % 12.1 % 4.1
2007 B 17 123,638 36,679 3.4 % 57,116 10.2 % 11.6 % 4.0
2010 BBB- 5 51,798 48,231 4.5 % 47,507 0.0 % 6.0 % 9.3
2011   BBB-   7   69,000   66,616   6.2 %   64,764   0.0 %   5.7 %   7.9
 
TOTAL/WA   BB   211   1,505,164   1,069,905   100.0 %   1,155,772   4.9 %   9.9 %   3.8
 
(1) The year in which the securities were originally issued.
(2) Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time. The Company had no CMBS assets that were on negative watch for possible downgrade by at least one rating agency as of June 30, 2011.
(3) The percentage of underlying loans that are 60+ days delinquent, in foreclosure or considered real estate owned (REO).
(4) The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.
(5) Weighted average life is based on the timing of expected principal reduction on the asset.

Mezzanine loans, B-Notes and whole loans portfolio ($ in thousands):

    Face   Basis   % of Total   Carrying Value   WA First $   WA Last $  
Asset Type   Number   Amount ($)   Amount ($)   Basis   Amount ($)   Loan to Value (1)   Loan to Value (1)   Delinquency (%) (2)
Mezzanine Loans 16 529,882 413,007 65.4 % 413,007 54.9 % 64.3 % 9.7 %
B-Notes 9 255,147 187,436 29.7 % 187,436 59.6 % 71.4 % 17.7 %
Whole Loans   3   30,772   30,772   4.9 %   30,772   0.0 %   48.2 %   0.0 %
 
Total/WA   28   815,801   631,215   100.0 %   631,215   54.3 %   65.9 %   11.9 %
 
(1) Loan to Value is based on the appraised value at the time of purchase or refinancing.
(2) The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned (REO).

Third-party CDO Securities ($ in thousands):

   

Average
Minimum

 

Face

  Basis   % of Total  

Carrying
Value

  Principal
Asset Type   Number   Rating (1)   Amount $   Amount $   Basis   Amount $   Subordination (2)
CDO - CMBS 1 BBB- 71,278 54,990 95.7 % 52,746 50.8 %
CDO - ABS 1 CC 5,500 2,481 4.3 % 2,475 73.7 %
                             
TOTAL/WA   2   BB+   76,778   57,471   100.0 %   55,221   52.4 %
 
(1) Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time.
(2) The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.

Residential Assets

The Company owns $911 million of residential assets (with a basis of $729 million), which include manufactured housing (“MH”) loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities.

  • During the quarter, the Company purchased $124 million of subprime securities and FNMA/FHLMC securities, sold $16 million of subprime securities, received principal repayments of $25 million and had $13 million of actual principal write-downs on subprime securities.
  • Regarding the Company’s ABS portfolio, no securities were upgraded, 6 securities or $26 million were affirmed and 3 securities or $6 million were downgraded (from a weighted average rating of C to D).
  • The weighted average carrying value of these assets changed from 82.1% to 81.2%, a decrease of $9 million in the quarter.

Manufactured housing and residential loan portfolios ($ in thousands):

        % of   Carrying   Average      
Average Face Basis Total Value Loan Age Original Delinquency Cumulative
Deal   FICO Score   Amount $   Amount $   Basis   Amount $   (years)   Balance $   90+/FC/REO (1)   Loss to Date
 
MH Loans Portfolio 1 702 144,227 116,863 33.2 % 116,863 9.7 327,855 1.1 % 7.3 %
MH Loans Portfolio 2 701 197,603 187,554 53.3 % 187,554 12.1 434,743 1.7 % 5.5 %
Residential Loans Portfolio 1 715 58,372 43,828 12.5 % 43,828 8.1 646,357 12.5 % 0.4 %
Residential Loans Portfolio 2   737   3,795   3,361   1.0 % 3,361   6.2   83,950   0.0 %   0.0 %
 
TOTAL/WA   704   403,997   351,606   100.0 % 351,606   10.6   1,492,905   3.0 %   5.4 %
 
(1) The percentage of loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).

Subprime Securities portfolio ($ in thousands):

Security Characteristics:

  Average     % of   Carrying  
Minimum   Face   Basis Total Value Principal   Excess
Vintage (1)   Rating (2)   Number   Amount $   Amount $   Basis   Amount $   Subordination (3)   Spread (4)
 
2003 B- 14 14,674 7,211 5.2 % 8,081 24.2 % 4.4 %
2004 BB- 8 29,157 12,961 9.2 % 16,257 17.2 % 3.5 %
2005 B- 26 108,272 40,050 28.6 % 44,143 31.3 % 4.5 %
2006 BB- 7 61,470 40,877 29.1 % 42,984 41.3 % 5.5 %
2007 & Later   BB   8   51,371   39,195   27.9 % 41,528   21.0 %   2.7 %
 
TOTAL/WA   B+   63   264,944   140,294   100.0 % 152,993   29.7 %   4.3 %
 

Collateral Characteristics:

  Average        
Loan Age Collateral 3 Month Delinquency Cumulative
Vintage (1)   (years)   Factor (5)   CPR (6)  

90+/FC/REO (7)

  Loss to Date
 
2003 8.5 0.09 8.5 % 16.5 % 3.9 %
2004 7.2 0.15 7.5 % 11.8 % 3.6 %
2005 6.2 0.19 9.2 % 29.0 % 9.8 %
2006 5.3 0.34 13.2 % 25.6 % 17.2 %
2007 & Later   3.3   0.35   8.2 %   16.5 %   13.4 %
 
TOTAL/WA   5.7   0.25   9.7 %   23.2 %   11.2 %
 

Real Estate ABS portfolios ($ in thousands):

Security Characteristics:

  Average         % of   Carrying    
Minimum Face Basis Total Value Principal Excess
Asset Type   Rating (2)   Number   Amount $   Amount $   Basis   Amount $   Subordination (3)   Spread (4)
 
Manufactured Housing BBB+ 7 32,727 31,779 73.9 % 33,255 40.6 % 1.5 %
Small Business Loans   BB+   7   24,399   11,199   26.1 % 9,958   32.6 %   1.3 %
 
TOTAL/WA   BBB   14   57,126   42,978   100.0 % 43,213   37.2 %   1.4 %
 

Collateral Characteristics:

  Average        
Loan Age Collateral 3 Month Delinquency Cumulative
Asset Type   (years)   Factor (5)   CPR (6)   90+/FC/REO (7)   Loss to Date
 
Manufactured Housing 11.9 0.26 7.2 % 1.3 % 13.1 %
Small Business Loans   6.1   0.62   8.2 %   28.5 %   8.9 %
 
TOTAL/WA   9.4   0.41   7.6 %   12.9 %   11.3 %
 
(1) The year in which the securities were issued.
(2) Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time. The Company had approximately $179 million of subprime and ABS securities that were on negative watch for possible downgrade by at least one rating agency as of June 30, 2011.
(3) The percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company’s investments.
(4) The annualized amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance.
(5) The ratio of original unpaid principal balance of loans still outstanding.
(6) Three month average constant prepayment rate.
(7) The percentage of underlying loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).

Corporate Assets

The Company owns $445 million of corporate assets (with a basis of $341 million), including REIT debt and corporate bank loans.

  • During the quarter, the Company sold $53 million of REIT debt and received $10 million of principal repayments from the bank loans.
  • Regarding the Company’s REIT debt portfolio, three securities or $10 million were upgraded (from a weighted average rating of BBB to BBB+), and no securities were affirmed or downgraded.
  • The weighted average carrying value of these assets changed from 80.1% to 78.2%, a decrease of $8 million in the quarter.

REIT debt portfolio ($ in thousands):

 

Average
Minimum

    Face   Basis  

% of
Total

 

Carrying
Value

Industry   Rating (1)   Number   Amount $   Amount $   Basis   Amount $
 
Retail BBB+ 6 44,025 43,036 25.1 % 47,998
Diversified CCC+ 4 39,286 39,291 22.9 % 35,892
Office BBB 6 41,717 42,234 24.6 % 43,900
Multifamily BBB 4 13,765 13,818 8.0 % 14,820
Hotel BBB- 2 12,000 11,988 7.0 % 12,971
Healthcare   BBB-   4   21,600   21,316   12.4 % 23,874
 
TOTAL/WA   BB+   26   172,393   171,683   100.0 % 179,455
 

Corporate bank loan portfolio ($ in thousands):

  Average         % of   Carrying
Minimum Face Basis Total Value
Industry   Rating (1)   Number   Amount $   Amount $   Basis   Amount $
 
Real Estate NR 1 17,811 16,208 9.6 % 16,208
Media CCC- 2 110,710 39,763 23.6 % 39,763
Resorts NR 1 125,947 95,947 56.9 % 95,947
Restaurant   B-   2   18,090   16,584   9.9 % 16,584
 
TOTAL/WA   CC   6   272,558   168,502   100.0 % 168,502
 
(1) Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time. The Company had no corporate assets that were on negative watch for possible downgrade as of June 30, 2011.

CONFERENCE CALL

Newcastle’s management will conduct a live conference call today, August 5, 2011, at 11:00 A.M. Eastern Time to review the financial results for the second quarter ended June 30, 2011. 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. You can access the conference call 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 Second Quarter Earnings Call."

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at 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 Friday, August 12, 2011 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 “84152001.”

ABOUT NEWCASTLE

Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate debt that is primarily financed with match funded debt. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. Newcastle is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com.

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 expected 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; 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 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 and loan losses, among other things. 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 Operations (Unaudited)
(dollars in thousands, except per share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2011   2010 2011   2010
Interest income $ 74,143   $ 74,183 $ 146,346   $ 144,275
Interest expense   35,750     43,141     73,915     88,730  
Net interest income   38,393     31,042     72,431     55,545  
 
Impairment (Reversal)
Valuation allowance (reversal) on loans (14,555 ) (91,534 ) (55,862 ) (187,308 )
Other-than-temporary impairment on securities 5,784 33,925 8,896 98,781

Portion of other-than-temporary impairment on
 securities recognized in other comprehensive income (loss),
 net of reversal of other comprehensive loss into net income (loss)

  (296 )   15,114     693     (22,000 )
  (9,067 )   (42,495 )   (46,273 )   (110,527 )
 
Net interest income after impairment/ reversal 47,460 73,537 118,704 166,072
 
Other Income (Loss)
Gain (loss) on settlement of investments, net 35,606 8,954 69,698 18,631
Gain on extinguishment of debt 33,443 46,728 44,485 95,074
Other income (loss), net   (10,160 )   (2,298 )   (9,825 )     (3,778 )
  58,889     53,384     104,358       109,927  
Expenses
Loan and security servicing expense 1,200 1,322 2,260 2,357
General and administrative expense 1,649 2,000 3,250 5,101
Management fee to affiliate   4,555     4,258     8,744     8,735  
  7,404     7,580     14,254     16,193  
 
Income from continuing operations 98,945 119,341 208,808 259,806
Income (loss) from discontinued operations   190     13     -     (27 )
Net Income 99,135 119,354 208,808 259,779
Preferred dividends (1,395 ) (1,395 ) (2,790 ) (4,663 )

Excess of carrying amount of exchanged preferred stock
 over fair value of consideration paid

  -     -     -     43,043  
Income Available for Common Stockholders $ 97,740   $ 117,959   $ 206,018   $ 298,159  
 
Income Per Share of Common Stock
Basic $ 1.23   $ 1.90   $ 2.90   $ 5.16  
Diluted $ 1.23   $ 1.90   $ 2.90   $ 5.16  
 

Income from continuing operations per share of common stock,
 after preferred dividends and excess of carrying amount of
 exchanged preferred stock over fair value of consideration paid

Basic $ 1.23   $ 1.90   $ 2.90   $ 5.16  
Diluted $ 1.23   $ 1.90   $ 2.90   $ 5.16  
 
Income (loss) from discontinued operations per share
of common stock
Basic $ -   $ -   $ -   $ -  
Diluted $ -   $ -   $ -   $ -  
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   79,282,480     62,010,570     70,988,410     57,838,286  
Diluted   79,282,480     62,010,570     70,992,828     57,838,286  
 
Dividends Declared per Share of Common Stock $ 0.10   $ -   $ 0.10   $ -  
 
     

Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands)

 
June 30, 2011
(Unaudited) December 31, 2010
Assets

Non-Recourse VIE Financing Structures

Real estate securities, available for sale $ 1,585,960 $ 1,859,984
Real estate related loans, held for sale, net 793,083 750,130
Residential mortgage loans, held for investment, net 306,505 124,974
Residential mortgage loans, held for sale, net 47,305 252,915
Subprime mortgage loans subject to call option 404,239 403,793
Operating real estate, held for sale 8,335 8,776
Other investments 18,883 18,883
Restricted cash 171,255 157,005
Derivative assets 5,534 7,067
Receivables from brokers, dealers and clearing organizations 4,118 -
Receivables and other assets   23,605     29,206  
  3,368,822     3,612,733  

Recourse Financing Structures and Unlevered Assets

Real estate securities, available for sale 197,678 600
Real estate related loans, held for sale, net 6,634 32,475
Residential mortgage loans, held for sale, net 3,371 298
Other investments 6,024 6,024
Cash and cash equivalents 100,838 33,524
Receivables and other assets   3,435     1,457  
  317,980     74,378  
$ 3,686,802   $ 3,687,111  
 
Liabilities and Stockholders' Equity (Deficit)
Liabilities

Non-Recourse VIE Financing Structures

CDO bonds payable $ 2,451,880 $ 3,010,868
Other bonds and notes payable 219,959 261,165
Repurchase agreements 10,829 14,049
Financing of subprime mortgage loans subject to call option 404,239 403,793
Derivative liabilities 126,501 176,861
Payables to brokers, dealers and clearing organizations 38,487 -
Accrued expenses and other liabilities   9,114     8,445  
  3,261,009     3,875,181  

Recourse Financing Structures and Other Liabilities

Repurchase agreements 107,216 4,683
Junior subordinated notes payable 51,251 51,253
Dividends payable 8,860 -
Due to affiliates 1,518 1,419
Payables to brokers, dealers and clearing organizations 85,278 -
Accrued expenses and other liabilities   2,303     2,160  
  256,426     59,515  
  3,517,435     3,934,696  
 
Stockholders' Equity (Deficit)

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 June 30, 2011 and
 December 31, 2010

61,583 61,583

Common stock, $0.01 par value, 500,000,000 shares authorized, 79,300,197 and
 62,027,184 shares issued and outstanding at June 30, 2011 and
 December 31, 2010, respectively

793 620
Additional paid-in capital 1,163,726 1,065,377
Accumulated deficit (1,089,548 ) (1,328,987 )
Accumulated other comprehensive income (loss)   32,813     (46,178 )
  169,367     (247,585 )
$ 3,686,802   $ 3,687,111  
 
         

Newcastle Investment Corp.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)

 
Three Months Ended June 30, Six Months Ended June 30,
2011   2010 2011   2010
 
Cash flows From Operating Activities
Net income $ 99,135 $ 119,354 $ 208,808 $ 259,779
Adjustment to reconcile net income to net cash provided by (used in)
operating activities (inclusive of amounts related to discontinued operations):
Depreciation and amortization 91 62 137 125
Accretion of discount and other amortization (11,036 ) (7,196 ) (21,807 ) (8,377 )
Interest income in CDOs redirected for reinvestment or CDO bonds paydown (2,855 ) (3,604 ) (6,579 ) (12,705 )
Interest income on investments accrued to principal balance (4,763 ) (3,789 ) (9,298 ) (3,789 )
Interest expense on debt accrued to principal balance 104 715 514 1,645
Deferred Interest received - 44 1,027 44
Non-cash directors' compensation 122 60 122 60
Reversal of valuation allowance on loans (14,555 ) (91,534 ) (55,862 ) (187,308 )
Other-than-temporary impairment on securities 5,488 49,039 9,589 76,781
Impairment on real estate held for sale - 60 433 60
Gain on settlement of investments, net (35,608 ) (8,954 ) (68,766 ) (18,631 )
Unrealized loss on non-hedge derivatives and hedge ineffectiveness 10,993 2,550 11,194 4,299
Gain on extinguishment of debt (33,443 ) (46,728 ) (44,485 ) (95,074 )
Change in:
Restricted cash 136 3,713 245 3,018
Receivables and other assets 1,116 621 1,076 2,967
Due to affiliates 167 (63 ) 99 (78 )
Accrued expenses and other liabilities   (12 )   (2,090 )   (73 )   (1,346 )
Net cash provided by (used in) operating activities   15,080     12,260     26,374     21,470  
 
 
Cash Flows From Investing Activities
Purchase of real estate securities (90,644 ) (2,288 ) (180,245 ) (2,291 )
Proceeds from sale of real estate securities 3,885 - 3,885 26,022
Acquisition of servicing rights (186 ) - (2,268 ) -
Principal repayments on loans and securities other than third-party CDO 14,328 29,313 51,933 45,083
Principal repayments on third-party CDO securities 8,865 - 8,865 -
Principal repayments from repurchased CDO debt 39,155 28 48,881 53
Margin received on derivative instruments - - - 5,073
Payments on settlement of derivative instruments (14,322 ) (7,726 ) (14,322 ) (11,394 )
Distributions of capital from equity method investees   -     7     -     159  
Net cash provided by (used in) investing activities   (38,919 )   19,334     (83,271 )   62,705  
 
 
Cash flows From Financing Activities
Repurchase of CDO bonds payable (85,981 ) (9,783 ) (87,064 ) (9,927 )
Issuance of other bonds payable 142,736 97,650 142,736 97,650
Repayments of other bonds payable (173,782 ) (112,758 ) (184,242 ) (124,104 )
Borrowings under repurchase agreements 28,598 - 108,576 -
Repayments of repurchase agreements (6,356 ) (12,889 ) (9,263 ) (71,309 )
Issuance of common stock - - 98,843 -
Costs related to issuance of common stock (410 ) - (468 ) -
Cash consideration paid in exchange for junior subordinated notes - - - (9,715 )
Cash consideration paid to redeem preferred stock - - - (16,001 )
Dividends paid (1,396 ) (542 ) (5,581 ) (19,484 )
Payment of deferred financing costs (1,546 ) (1,677 ) (1,546 ) (1,677 )
Restricted cash returned from refinancing activities   62,220     34,251     62,220     39,776  
Net cash provided by (used in) financing activities   (35,917 )   (5,748 )   124,211     (114,791 )
 
Net Increase (Decrease) in Cash and Cash Equivalents (59,756 ) 25,846 67,314 (30,616 )
 
Cash and Cash Equivalents, Beginning of Period   160,594     11,838     33,524     68,300  
 
Cash and Cash Equivalents, End of Period $ 100,838   $ 37,684   $ 100,838   $ 37,684  
 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense $ 24,410 $ 33,440 $ 53,169 $ 65,946
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
Common stock dividends declared but not paid $ 7,930 $ - $ 7,930 $ -
Preferred stock dividends declared but not paid $ 930 $ - $ 930 $ -
Common stock issued to redeem preferred stock $ - $ - $ - $ 28,457

Face amount of CDO bonds issued in exchange for previously issued junior
 subordinated notes of $52,904

$ - $ - $ - $ 37,625
Securities purchased not yet settled $ 85,278 $ - $ 85,278 $ -
 
 

Newcastle Investment Corp.
Reconciliation of Net Interest Income Less Expenses (Net of Preferred Dividends)
(dollars in thousands)

   
Three Months Ended June 30, Six Months Ended June 30,
2011   2010 2011   2010
Income available for common stockholders $ 97,740 $ 117,959 $ 206,018 $ 298,159
Add (Deduct):
Impairment reversal (9,067 ) (42,495 ) (46,273 ) (110,527 )
Other income (58,889 ) (53,384 ) (104,358 ) (109,927 )

Excess of carrying amount of exchanged preferred stock
 over fair value of consideration paid

- - - (43,043 )
Income (Loss) from discontinued operations   (190 )   (13 )   -     27  
$ 29,594   $ 22,067   $ 55,387   $ 34,689  
 

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

Source: Newcastle Investment Corp.