Newcastle Announces First Quarter 2011 Results

NEW YORK--(BUSINESS WIRE)--

FIRST QUARTER 2011 FINANCIAL RESULTS

Newcastle Investment Corp. (NYSE: NCT) reported that in the first quarter of 2011, income applicable to common stockholders ("GAAP income") was $108 million, or $1.73 per diluted share, compared to $180 million, or $3.36 per diluted share, in the first quarter of 2010.

GAAP income of $108 million consisted of the following: $26 million, or $0.41 per diluted share, of net interest income less expenses (net of preferred dividends), compared to $13 million, or $0.24 per diluted share, in the first quarter of 2010; $45 million of other income primarily related to a $34 million net gain on the settlement of investments and an $11 million gain on the extinguishment of CDO debt; and $37 million representing the reversal of prior valuation allowances on loans net of impairment recorded on securities.

In the first quarter of 2011, GAAP book value increased $323 million or $5.16 per share. As of March 31, 2011, GAAP book value was $14 million or $0.18 per share, compared to $(309) million or $(4.98) per share as of December 31, 2010.

On March 29, 2011, Newcastle completed the sale of 17.3 million shares of its common stock, at a price of $6.00 per share. The net proceeds of the sale were $98 million, after deducting underwriting discounts and offering expenses.

On March 30, 2011, the Board of Directors declared dividends on the Company's Series B, Series C and Series D Preferred Stock for the period beginning February 1, 2011 and ending April 30, 2011. The Company paid total 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 first quarter of 2011, Newcastle's Board of Directors elected not to pay a dividend on its common stock.

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

RECOURSE DEBT FINANCING AND CASH

As of May 4, 2011, the Company's cash and current financings are set forth below. These amounts do not include the use of $25 million of unrestricted cash and $208 million of restricted cash on committed but not funded investments which are described further in subsequent events:

    --  Cash - The Company had unrestricted cash of $129 million. In addition,
        the Company had $152 million of restricted cash available for
        reinvestment within its consolidated CDOs;
    --  Margin Exposure - The Company had margin exposure of $17 million related
        to the financing of the Newcastle CDO VI Class I-MM notes (of which only
        $4 million is recourse) and $106 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):


                                 May 4,   Mar 31,   Dec 31,
                                 2011     2011      2010

CDO Cash for Reinvestment        $ 152    $ 128     $ 150

Unrestricted Cash                  129      161       34

Recourse Financings

Non-FNMA/FHLMC (non-agency)

NCT CDO senior bonds               4        4         5

Subtotal                           4        4         5

FNMA/FHLMC Securities              106      79        -

Total Recourse Financings        $ 110    $ 83      $ 5



CDO FINANCINGS

The following table summarizes the cash receipts in the first quarter of 2011 from the Company's consolidated CDO financings, their related coverage tests and negative watch assets ($ in thousands):



                                  Interest

                                  Coverage

                                  % Excess                                                                                Assets
        Primary                                   Over Collateralization Excess (Deficiency)                              on
                                  (Deficiency)

        Collateral    Cash        May 4,          May 4, 2011(2)          March 31, 2011(2)       December 31, 2010(2)    Negative

        Type          Receipts    2011 (2)        %         $             %         $             %         $             Watch(3)
                      (1)

CDO     Securities    $ 1,331     204.3%          -2.6%     (7,075   )    -2.6%     (7,075   )    -10.8%    (33,908  )    $ 11,046
IV

CDO     Securities      132       102.6%          -14.6%    (50,979  )    -14.6%    (50,979  )    -8.3%     (30,319  )      26,408
V

CDO     Securities      207       -80.7%          -53.2%    (187,742 )    -52.0%    (183,733 )    -46.9%    (178,604 )      22,133
VI

CDO     Loans           3,783     327.0%          8.0%      51,422        7.3%      47,158        9.9%      63,954          -
VIII

CDO     Loans           4,353     304.6%          14.2%     91,603        14.2%     91,539        18.5%     119,317         -
IX

CDO     Securities      3,195     189.1%          1.7%      21,302        4.4%      53,500        4.0%      48,480          20,200
X

Total                 $ 13,001                                                                                            $ 79,787




      Represents cash received from each CDO based on all of the interests in
      such CDO (including senior management fees but excluding principal
      received from CDO bonds owned by the Company). Cash receipts for the
 (1)  quarter ended March 31, 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.

      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
 (2)  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 May 4, 2011, March 31, 2011, or December 31,
      2010, as applicable. The CDO IV and V tests are conducted only on a
      quarterly basis (December, March, June and September).

      Represents the face amount of assets on negative watch for possible
      downgrade by at least one rating agency (Moody's, S&P or Fitch). Amounts
      are as of the determination date pertaining to March 2011 remittances for
 (3)  CDO IV and V (these tests are conducted only on a quarterly basis) and as
      of the determination date pertaining to April 2011 remittances for all
      other CDOs. The amounts include $13 million of bonds issued by Newcastle,
      which are eliminated in consolidation and not reflected in the investment
      portfolio disclosures.



    --  $1.7 million of the $13 million CDO cash receipts were senior collateral
        management fees, which were not subject to the related CDO coverage
        tests.
    --  The cash receipts above also include $0.9 million of non-recurring fees.
    --  In addition, the Company received $9.7 million of unrestricted cash from
        principal repayments on Newcastle CDO debt. This cash represents a
        return of principal and a realization of the difference between par and
        the discounted purchase price of the Newcastle CDO debt.

SUBSEQUENT EVENTS

On May 4, 2011, Newcastle completed a new securitization to refinance its Manufactured Housing Loans Portfolio II (the "Portfolio"). Newcastle sold $197 million outstanding principal balance of manufactured housing loans, with an average net coupon of 8.7%, to Newcastle Investment Trust 2011-MH 1 (the "Trust"), an indirect wholly-owned subsidiary of Newcastle. The Trust issued $160 million aggregate principal amount of investment grade notes, of which $143 million was sold to third parties and $17 million was sold to one of Newcastle's CDOs. The Company invested $20 million of unrestricted cash to retain the below investment grade notes and residual interest in the securitization. The $160 million of investment grade notes that term financed the Portfolio is non-recourse to the Company and has a weighted average funding cost of 3.7%. At the closing of the securitization, Newcastle terminated the related interest rate swap contracts, repaid $164 million of existing debt, and paid related transaction costs. The weighted average funding cost of the repaid debt was 5.3%.

Since quarter-end, Newcastle invested or committed to invest $63 million of unrestricted cash with an expected average return of 20% and invested or committed to invest $228 million of restricted CDO cash with an average coupon of 7.5%.

Unrestricted cash investment activities:

In April 2011, Newcastle repurchased $37 million of Newcastle CDO debt at an average price of 49% of par, investing $18 million of unrestricted cash. Assuming the collateral in the CDOs is held to maturity, the Company projects the investment to have an average life of 8.3 years and generate an expected return of 17%.

On May 4, 2011, the Company purchased $12 million face amount of BB- rated notes and the residual interest in the Newcastle Investment Trust 2011-MH 1 for a total of $20 million. Assuming the loans are held to maturity, the Company projects the investment to have an average life of 8.0 years and generate an expected return of 30% on the $20 million investment.

The Company has committed to invest $25 million in two real estate related investments with an average expected return of 14.5%.

Restricted CDO cash investment activities:

In April 2011, the Company purchased $20 million of fixed rate assets with an average coupon of 6.6% at an average price of 99.5% of par, investing $19.9 million of restricted CDO cash. The assets have an average life of 9.9 years and an expected return of 6.8%.

The Company has committed to purchase $210 million of assets with an average coupon of 7.6% and an average price of 99.1% of par or $208 million. These investments will be funded from current restricted CDO cash and receipts from expected principal repayments and asset sales.

  • $160 million are commercial real estate mezzanine loans with an initial average coupon of 7.1% that adjusts monthly at a rate of one month LIBOR + 6.1%, subject to interest rate floors.
  • $50 million is a commercial real estate mezzanine loan with a fixed coupon of 9%.

INVESTMENT PORTFOLIO

Newcastle's $4.2 billion investment portfolio (with a basis of $3.1 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the March 31, 2011 portfolio changed from 73.4% to 77.3%, an increase of $162 million. The face amount of the portfolio decreased by $129 million, primarily as a result of principal repayments of $250 million, sales of $177 million and actual principal write-downs of $44 million, offset by purchases of $337 million at a weighted average price of 98% of par, a weighted average yield of 6.0%, and a weighted average life of 5.0 years.

The following table describes the investment portfolio as of March 31, 2011 ($ in millions):



                                          % of      Carrying                             Weighted

                    Face       Basis      Total     Value       Number of                Average

                    Amount     Amount     Basis     Amount $    Investments    Credit    Life
                    $          $(1)                                            (2)       (yrs)(3)

Commercial
Assets

CMBS                $ 1,890    $ 1,319    43.0%     $ 1,444     248            BB        3.7

Mezzanine Loans       531        395      12.9%       395       16             62%       2.3

B-Notes               233        159      5.2%        159       9              77%       1.6

Whole Loans           31         31       1.0%        31        3              48%       3.0

Other                 25         25       0.8%        25        1              --        --
Investments (4)

Total
Commercial            2,710      1,929    62.9%       2,054                              3.2
Assets

Residential
Assets

MH and
Residential           415        361      11.7%       361       10,959         703       6.7
Loans

Subprime              326        157      5.1%        179       82             B-        5.7
Securities

Real Estate ABS       71         48       1.6%        50        21             BB+       5.5

                      812        566      18.4%       590                                6.2

FNMA/FHLMC            88         91       3.0%        92        13             AAA       4.7
Securities

Total
Residential           900        657      21.4%       682                                6.0
Assets

Corporate
Assets

REIT Debt             299        298      9.7%        315       38             BBB-      3.4

Corporate Bank        278        184      6.0%        184       7              CC        3.4
Loans

Total Corporate       577        482      15.7%       499                                3.4
Assets

Total/Weighted      $ 4,187    $ 3,068    100.0%    $ 3,235                              3.9
Average(5)




 (1)  Net of impairment.

      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
 (2)  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 (including a "negative watch" assignment) 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.

      Excludes unconsolidated CDO securities with a face amount of $169 million
 (5)  (valued at $6 million), 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 $2.7 billion of commercial assets (with a basis of $1.9 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans and other investments.

    --  During the quarter, the Company purchased $179 million of mezzanine
        loans and CMBS, sold $154 million of CMBS, received principal repayments
        of $130 million of mezzanine loans and CMBS and had $25 million of
        actual mezzanine loan principal write-downs.
    --  Regarding the Company's CMBS portfolio, one security or $3 million was
        upgraded (from a rating of BB+ to BBB-), six securities or $77 million
        were affirmed and 29 securities or $214 million were downgraded (from a
        weighted average rating of BB- to CCC+).
    --  The weighted average carrying value of these assets changed from 66.9%
        to 75.8%, an increase of $146 million in the quarter.

CMBS portfolio ($ in thousands):



            Average                                        % of      Carrying                                     Weighted
                                 Face         Basis        Total     Value        Delinquency    Principal        Average
            Minimum

Vintage     Rating     Number    Amount $     Amount $     Basis     Amount $     60+/FC/REO     Subordination    Life
(1)         (2)                                                                   (3)            (4)              (yrs)(5)

Pre 2004    BB+        78        398,584      368,674      28.0%     353,819      5.2%           10.7%            2.3

2004        BB-        51        344,700      252,062      19.1%     222,352      2.8%           6.7%             3.3

2005        BB-        35        376,324      207,958      15.8%     279,530      4.6%           8.6%             4.1

2006        BB+        52        487,365      347,370      26.3%     406,930      5.0%           12.1%            3.7

2007        B          23        195,684      58,778       4.5%      95,582       11.6%          11.8%            3.8

2010        BBB-       5         56,798       53,166       4.0%      55,254       0.0%           5.5%             9.6

2011        BBB+       4         31,000       30,576       2.3%      30,481       0.0%           10.0%            9.8

TOTAL/WA    BB         248       1,890,455    1,318,584    100.0%    1,443,948    5.0%           9.9%             3.7




 (1)  The year in which the securities were originally issued.

      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
 (2)  (including a "negative watch" assignment) at any time. The Company had
      approximately $25 million of CMBS assets that were on negative watch for
      possible downgrade by at least one rating agency as of March 31, 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):



                                            % of      Carrying    WA       WA
                      Face       Basis      Total     Value       First    Last
                                                                  $        $

                                                                  Loan     Loan
Asset       Number    Amount     Amount     Basis     Amount      to       to       Delinquency
Type                  ($)        ($)                  ($)         Value    Value    (%)(2)
                                                                  (1)      (1)

Mezzanine   16        530,664    394,656    67.5%     394,656     50.5%    62.0%    9.7%
Loans

B-Notes     9         233,132    159,069    27.2%     159,069     62.1%    76.6%    19.3%

Whole       3         30,872     30,872     5.3%      30,872      0.0%     48.2%    0.0%
Loans

Total/WA    28        794,668    584,597    100.0%    584,597     52.0%    65.7%    12.2%




(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.



Residential Assets

The Company owns $900 million of residential assets (with a basis of $657 million), which include manufactured housing ("MH") loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities.

    --  During the quarter, the Company purchased $106 million of subprime
        securities, real estate ABS and FNMA/FHLMC securities, sold $17 million
        of subprime securities and real estate ABS, received principal
        repayments of $20 million and had $16 million of subprime securities
        actual principal write-downs.
    --  Regarding the Company's ABS portfolio, one security or $22 million was
        upgraded (from a weighted average rating of B to BB), 16 securities or
        $31 million were affirmed and 20 securities or $54 million were
        downgraded (from a weighted average rating of BB- to CCC).
    --  The weighted average carrying value of these assets changed from 70.3%
        to 75.9%, an increase of $5 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       Amount     Amount     Basis     Amount $    (months)    Balance $    90+/FC/REO     Loss to
               Score      $          $                                                         (1)            Date

MH Loans       700        147,937    119,647    33.1%     119,647     111         327,855      0.8%           7.1%
Portfolio 1

MH Loans       701        204,675    191,515    53.1%     191,515     143         434,743      1.5%           5.2%
Portfolio 2

Residential
Loans          715        58,900     46,614     12.9%     46,614      94          646,357      8.4%           0.3%
Portfolio 1

Residential
Loans          737        3,795      3,352      0.9%      3,352       74          83,950       0.0%           0.0%
Portfolio 2

TOTAL/WA       703        415,307    361,128    100.0%    361,128     124         1,492,905    2.2%           5.2%




(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     Rating     Number    Amount     Amount     Basis     Amount $    Subordination    Spread
(1)         (2)                  $          $                                (3)              (4)

2003        CCC+       15        16,589     8,151      5.2%      8,721       22.6%            4.1%

2004        CCC+       23        69,390     21,406     13.6%     28,455      17.6%            3.7%

2005        B-         26        99,481     35,595     22.7%     42,151      31.0%            4.5%

2006        CCC+       9         73,701     45,621     29.1%     49,858      34.8%            4.7%

2007 &      B+         9         66,932     46,052     29.4%     50,270      20.3%            2.9%
Later

TOTAL/WA    B-         82        326,093    156,825    100.0%    179,455     26.4%            4.0%



Collateral Characteristics:


                Average

                Loan Age    Collateral    3 Month    Delinquency    Cumulative

Vintage(1)      (months)    Factor(5)     CPR(6)     90+/FC/REO     Loss to Date
                                                     (7)

2003            99          0.09          9.0%       16.1%          3.6%

2004            83          0.14          8.4%       21.1%          3.9%

2005            72          0.18          9.4%       32.7%          8.4%

2006            59          0.37          12.2%      28.6%          18.0%

2007 & Later    42          0.41          8.0%       19.0%          13.7%

TOTAL/WA        66          0.26          9.5%       25.6%          10.4%



Real Estate ABS portfolios ($ in thousands):
Security Characteristics



                Average                                  % of      Carrying

                Minimum              Face      Basis     Total     Value       Principal        Excess

Asset Type      Rating     Number    Amount    Amount    Basis     Amount $    Subordination    Spread
                (2)                  $         $                               (3)              (4)

Manufactured    BBB+       7         34,141    33,148    68.4%     34,623      39.9%            1.5%
Housing

Small
Business        B+         14        36,885    15,328    31.6%     15,865      24.8%            2.1%
Loans

TOTAL/WA        BB+        21        71,026    48,476    100.0%    50,488      32.1%            1.8%



Collateral Characteristics:


                Average

                Loan Age    Collateral    3 Month    Delinquency    Cumulative

Asset Type      (months)    Factor(5)     CPR(6)     90+/FC/REO     Loss to Date
                                                     (7)

Manufactured    140         0.27          5.7%       2.5%           12.9%
Housing

Small
Business        70          0.60          9.2%       27.9%          8.0%
Loans

TOTAL/WA        104         0.44          7.5%       15.7%          10.4%




(1)  The year in which the securities were issued.

     Ratings provided above were determined by third party rating agencies as of
     a particular date, may not be current and are subject to change (including
(2)  a "negative watch" assignment) at any time. The Company had approximately
     $54 million of subprime and ABS securities that were on negative watch for
     possible downgrade by at least one rating agency as of March 31, 2011.

(3)  The percentage of the outstanding face amount of securities and residual
     interests that is subordinate to the Company's investments.

     The annualized amount of interest received on the underlying loans in
(4)  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 $577 million of corporate assets (with a basis of $482 million), including REIT debt and corporate bank loans.

    --  During the quarter, the Company received $99 million of principal
        repayments, purchased $51 million of REIT debt and corporate bank loans
        and sold $6 million of REIT debt.
    --  Regarding the Company's REIT debt portfolio, four securities or $39
        million were upgraded (from a weighted average rating of CCC- to B+), no
        securities were affirmed or downgraded.
    --  The weighted average carrying value of these assets changed from 85.7%
        to 86.5%, an increase of $11 million in the quarter.

REIT debt portfolio ($ in thousands):


               Average                Face        Basis       % of      Carrying
               Minimum                                        Total     Value

Industry       Rating(1)    Number    Amount $    Amount $    Basis     Amount $

Retail         BBB+         9         66,025      62,453      20.9%     72,523

Diversified    B            7         65,036      65,573      22.0%     63,315

Office         BBB          8         76,877      77,941      26.1%     81,420

Multifamily    BBB          4         13,765      13,838      4.7%      14,566

Hotel          BBB-         3         29,220      29,555      9.9%      31,054

Healthcare     BBB          5         41,600      41,656      14.0%     44,574

Storage        A-           1         5,000       5,046       1.7%      5,388

Industrial     BB-          1         2,000       2,060       0.7%      2,041

TOTAL/WA       BBB-         38        299,523     298,122     100.0%    314,881



Corporate bank loan portfolio ($ in thousands):


               Average                                        % of      Carrying

               Minimum                Face        Basis       Total     Value

Industry       Rating(1)    Number    Amount $    Amount $    Basis     Amount $

Real Estate    CC           2         27,654      26,373      14.2%     26,373

Media          CCC-         2         110,710     49,847      27.1%     49,847

Resorts        NR           1         121,184     91,184      49.5%     91,184

Restaurant     B-           2         18,112      16,861      9.2%      16,861

TOTAL/WA       CC           7         277,660     184,265     100.0%    184,265




     Ratings provided above were determined by third party rating agencies as of
     a particular date, may not be current and are subject to change (including
(1)  a "negative watch" assignment) at any time. The Company had no corporate
     assets that were on negative watch for possible downgrade as of March 31,
     2011.



CONFERENCE CALL

Newcastle's management will conduct a live conference call today, May 6, 2011, at 11:00 A.M. Eastern Time to review the financial results for the first quarter ended March 31, 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 First 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, May 13, 2011 by dialing 1-800-642-1687 (from within the U.S.) or 1-706-645-9291 (from outside of the U.S.); please reference access code "61984745."

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, projected average life of an investment, expected returns 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 PRESENTED IN THIS PRESS RELEASE

Expected returns are an estimate of the annualized effective rate of return that we presently expect to be earned over the projected life of an investment (i.e., IRR), after giving effect to existing leverage and calculated on a weighted average basis. Expected returns reflect our estimates of the coupon, amortization of premium or discount, and costs and fees and contemplate our assumptions regarding prepayments and loan losses, among other things. Expected returns may not equal income recognized in future periods, and the estimates we use to calculate expected returns could differ materially from actual results.

The expected returns presented 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.


Newcastle Investment Corp.

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)

                                               Three Months Ended March 31,

                                               2011                2010

Interest income                                $ 72,203          $ 70,092

Interest expense                                 38,165            45,589

Net interest income                              34,038            24,503

Impairment (Reversal)

Valuation allowance (reversal) on loans          (41,307    )      (95,774    )

Other-than-temporary impairment on               3,112             64,856
securities

Portion of other-than-temporary impairment
on

securities recognized in other                   989               (37,114    )
comprehensive income (loss),

net of reversal of other comprehensive
loss into net income (loss)

                                                 (37,206    )      (68,032    )

Net interest income after impairment             71,244            92,535

Other Income (Loss)

Gain (loss) on settlement of investments,        34,092            9,677
net

Gain on extinguishment of debt                   11,042            48,346

Other income (loss), net                         335               (1,480     )

                                                 45,469            56,543

Expenses

Loan and security servicing expense              1,060             1,035

General and administrative expense               1,601             3,101

Management fee to affiliate                      4,189             4,477

                                                 6,850             8,613

Income from continuing operations                109,863           140,465

Income (loss) from discontinued operations       (190       )      (40        )

Net Income                                       109,673           140,425

Preferred dividends                              (1,395     )      (3,268     )

Excess of carrying amount of exchanged
preferred stock                                  -                 43,043

over fair value of consideration paid

Income Available for Common Stockholders       $ 108,278         $ 180,200

Income Per Share of Common Stock

Basic                                          $ 1.73            $ 3.36

Diluted                                        $ 1.73            $ 3.36

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                                          $ 1.73            $ 3.36

Diluted                                        $ 1.73            $ 3.36

Income from discontinued operations per
share

of common stock

Basic                                          $ -               $ -

Diluted                                        $ -               $ -

Weighted Average Number of Shares of
Common Stock Outstanding

Basic                                            62,602,184        53,619,643

Diluted                                          62,611,070        53,619,643

Dividends Declared per Share of Common         $ -               $ -
Stock




Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)

                                             March 31, 2011
                                                               December 31, 2010
                                             (Unaudited)

Assets

Non-Recourse VIE Financing Structures

Real estate securities, available for        $ 1,994,079       $ 1,859,984
sale

Real estate related loans, held for            764,254           750,130
sale, net

Residential mortgage loans, held for           121,661           124,974
investment, net

Residential mortgage loans, held for           246,298           252,915
sale, net

Subprime mortgage loans subject to call        404,011           403,793
option

Operating real estate, held for sale           8,339             8,776

Other investments                              18,883            18,883

Restricted cash                                131,540           157,005

Derivative assets                              7,535             7,067

Receivables and other assets                   31,420            29,206

                                               3,728,020         3,612,733

Recourse Financing Structures and
Unlevered Assets

Real estate securities, available for          94,587            600
sale

Real estate related loans, held for            4,608             32,475
sale, net

Residential mortgage loans, held for           277               298
sale, net

Other investments                              6,024             6,024

Cash and cash equivalents                      160,594           33,524

Receivables and other assets                   3,586             1,457

                                               269,676           74,378

                                             $ 3,997,696       $ 3,687,111

Liabilities and Stockholders' Equity
(Deficit)

Liabilities

Non-Recourse VIE Financing Structures

CDO bonds payable                            $ 2,944,193       $ 3,010,868

Other bonds payable                            246,561           256,809

Notes payable                                  4,296             4,356

Repurchase agreements                          12,527            14,049

Financing of subprime mortgage loans           404,011           403,793
subject to call option

Derivative liabilities                         153,944           176,861

Accrued expenses and other liabilities         11,745            8,445

                                               3,777,277         3,875,181

Recourse Financing Structures and Other
Liabilities

Repurchase agreements                          83,276            4,683

Junior subordinated notes payable              51,252            51,253

Dividends payable                              930               -

Due to affiliates                              1,351             1,419

Accrued expenses and other liabilities         7,656             2,160

                                               144,465           59,515

                                               3,921,742         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           61,583            61,583
Redeemable Preferred Stock, liquidation

preference $25.00 per share, issued and
outstanding as of March 31, 2011 and

December 31, 2010

Common stock, $0.01 par value,
500,000,000 shares authorized,
79,277,184

and 62,027,184 shares issued and
outstanding at March 31, 2011 and              793               620

December 31, 2010, respectively

Additional paid-in capital                     1,163,604         1,065,377

Accumulated deficit                            (1,224,429 )      (1,328,987 )

Accumulated other comprehensive income         74,403            (46,178    )
(loss)

                                               75,954            (247,585   )

                                             $ 3,997,696       $ 3,687,111




Newcastle Investment Corp.

Reconciliation of Net Interest Income Less Expenses (Net of Preferred
Dividends)

(dollars in thousands)

                                                    Three Months Ended March 31,

                                                    2011            2010

Income available for common stockholders            $ 108,278       $ 180,200

Add (Deduct):

Impairment reversal                                   (37,206 )       (68,032 )

Other income                                          (45,469 )       (56,543 )

Excess of carrying amount of exchanged preferred      -               (43,043 )
stock over fair value of consideration paid

Loss from discontinued operations                     190             40

Net interest income less expenses (net of           $ 25,793        $ 12,622
preferred dividends)




    Source: Newcastle Investment Corp.