NCT-2014.3.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



S	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014



£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 001-31458

Newcastle Investment Corp.

(Exact name of registrant as specified in its charter)



Maryland		81-0559116
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)



1345 Avenue of the Americas, New York, NY		10105
(Address of principal executive offices)		(Zip Code)

(212)798-6100

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

S Yes No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer S Accelerated filer £ Non-accelerated filer £ (Do not check if a smaller reporting company)

Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.

Common stock, $0.01 par value per share: 351,453,495 shares outstanding as of April 28, 2014.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:


•	changes in global, national and local economic conditions, including, but not limited to, a prolonged economic slowdown and a downturn in the real estate market;


•	reductions in cash flows received from our investments;


•	the availability and cost of capital for future investments, particularly in a rising interest rate environment, and our ability to deploy capital accretively;


•	our ability to profit from opportunistic investments, such as our investment in golf, and to mitigate the risks associated with managing operating businesses and asset classes with which we have limited experience;


•	the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;


•	changes in our asset portfolio and investment strategy as a result of a spin-off of our senior housing business or other factors;


•	adverse changes in the financing markets we access affecting our ability to finance our investments;


•	changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or entering into new financings with us;


•	changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;


•	the risks that default and recovery rates on our real estate securities and loan portfolios deteriorate compared to our underwriting estimates;


•	impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities, loans or real estate are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;


•	our dependence on our property managers and tenants in our senior housing business;


•	the ability of our property managers and tenants to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract residents;


•	increases in costs at our senior housing properties (including, but not limited to, the costs of labor, supplies, insurance and property taxes);


•	geographical concentrations with respect to the mortgage loans underlying and collateral securing certain of our debt investments, our senior housing properties and our golf courses;


•	legislative/regulatory changes, including but not limited to, any modification of the terms of loans or changes in the healthcare industry;


•	competition within the finance, real estate, senior housing industries, as well as other industries, such as the golf industry, in which we have and/or may pursue additional investments;


•	the impact of litigation or any financial, accounting, legal or regulatory issues that may affect us or our property managers and tenants;


•	our ability and willingness to maintain our qualification as a REIT; and


•	other risks detailed from time to time below, particularly under the heading “Risk Factors,” and in our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”).

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this report. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Newcastle Investment Corp. (the “Company”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;


•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.

NEWCASTLE INVESTMENT CORP.

FORM 10-Q

INDEX



		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	1

	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2014 and 2013	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2014 and 2013	5

	Consolidated Statement of Equity (unaudited) for the three months ended March 31, 2014	6

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2014 and 2013	7

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79

Item 4.	Controls and Procedures	81

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	117

Item 3.	Defaults upon Senior Securities	117

Item 4.	Mine Safety Disclosures	117

Item 5.	Other Information	117

Item 6.	Exhibits	118

SIGNATURES		121

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)



	March 31, 2014			December 31, 2013
	(Unaudited)			December 31, 2013
Assets
Real estate securities, available-for-sale	$	439,023		$	984,263
Real estate related and other loans, held-for-sale, net	313,250			437,530
Residential mortgage loans, held-for-investment, net	—			255,450
Residential mortgage loans, held-for-sale, net	248,299			2,185
Subprime mortgage loans subject to call option	406,217			406,217
Investments in senior housing real estate, net of accumulated depreciation	1,374,710			1,362,900
Investments in other real estate, net of accumulated depreciation	262,403			266,170
Intangibles, net of accumulated amortization	187,101			199,725
Other investments	25,795			25,468
Cash and cash equivalents	122,053			74,133
Restricted cash	4,314			5,889
Receivables and other assets	137,444			141,887
Assets of discontinued operations	—			690,746
Total Assets	$	3,520,609		$	4,852,563


Liabilities and Equity
Liabilities
CDO bonds payable	$	408,813		$	544,525
Other bonds and notes payable	221,305			230,279
Repurchase agreements	74,863			556,347
Mortgage notes payable	1,091,823			1,076,828
Credit facilities, golf	152,961			152,498
Financing of subprime mortgage loans subject to call option	406,217			406,217
Junior subordinated notes payable	51,236			51,237
Dividends payable	36,075			36,075
Accounts payable, accrued expenses and other liabilities	271,841			277,166
Liabilities of discontinued operations	—			295,267
Total Liabilities	$	2,715,134		$	3,626,439



Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of March 31, 2014 and December 31, 2013	$	61,583		$	61,583
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 351,453,495 shares issued and outstanding, at March 31, 2014 and December 31, 2013	3,515			3,515
Additional paid-in capital	2,970,786			2,970,786
Accumulated deficit	(2,310,496		)	(1,947,913		)
Accumulated other comprehensive income	79,860			76,874
Total Newcastle Stockholders' Equity	805,248			1,164,845
Noncontrolling interests	227			61,279
Total Equity	$	805,475		$	1,226,124

Total Liabilities and Equity	$	3,520,609		$	4,852,563

Statement continues on the next page.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

The following table presents certain assets of consolidated variable interest entities (“VIEs”), which are included in the Consolidated Balance Sheets above. The assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs, and are in excess of those obligations. Additionally, the assets in the table below exclude intercompany balances that eliminate in consolidation.



	March 31, 2014		December 31, 2013
	(Unaudited)		December 31, 2013
Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
Real estate securities, available-for-sale	$	431,617	$	426,695
Real estate related and other loans, held-for-sale, net	313,250		437,530
Residential mortgage loans, held-for-sale, net	215,991		223,628
Subprime mortgage loans subject to call option	406,217		406,217
Investments in other real estate, net of accumulated depreciation	6,573		6,597
Other investments	19,556		19,308
Restricted cash	1,338		2,377
Receivables and other assets	4,046		3,727
Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs	$	1,398,588	$	1,526,079

The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets above. The liabilities in the table below include liabilities of consolidated VIEs due to third parties only, and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts where creditors or beneficial interest holders have recourse to the general credit of Newcastle.



	March 31, 2014		December 31, 2013
	(Unaudited)		December 31, 2013
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle
CDO bonds payable	$	408,813	$	544,525
Other bonds and notes payable	221,305		230,279
Financing of subprime mortgage loans subject to call option	406,217		406,217
Derivative liabilities	10,514		13,795
Accounts payable, accrued expenses and other liabilities	1,745		6,766
Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle	$	1,048,594	$	1,201,582

See notes to consolidated financial statements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except share data)



	Three Months Ended March 31,
	2014			2013
Interest income	$	46,452		$	61,332
Interest expense	35,855			22,710
Net interest income	10,597			38,622
Impairment/(Reversal)
Valuation allowance (reversal) on loans	1,246			2,234
Other-than-temporary impairment on securities	—			422
Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss)	—			117
Total impairment (reversal)	1,246			2,773
Net interest income after impairment/reversal	9,351			35,849
Operating Revenues
Rental income	52,890			12,887
Care and ancillary income	5,461			613
Golf course operations	40,389			—
Sales of food and beverages - golf	13,539			—
Other golf revenue	9,350			—
Total operating revenues	121,629			13,500
Other Income
Gain (loss) on settlement of investments, net	2,332			(3		)
Gain on extinguishment of debt	—			1,206
Other income, net	13,474			4,567
Total other income	15,806			5,770
Expenses
Loan and security servicing expense	857			1,034
Property operating expenses	23,804			8,670
Operating expenses - golf	58,338			—
Cost of sales - golf	5,956			—
General and administrative expense	9,212			3,906
Management fee to affiliate	8,037			9,565
Depreciation and amortization	30,359			4,079
Total expenses	136,563			27,254
Income from continuing operations before income tax	10,223			27,865
Income tax expense	295			—
Income from continuing operations	9,928			27,865
Income (loss) from discontinued operations, net of tax	(5,305		)	10,148
Net Income	4,623			38,013
Preferred dividends	(1,395		)	(1,395		)
Net loss attributable to noncontrolling interests	661			—
Income Applicable to Common Stockholders	$	3,889		$	36,618

Continued on next page.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except share data)



Income Per Share of Common Stock
Basic	$	0.01		$	0.16
Diluted	$	0.01		$	0.15
Income from continuing operations per share of common stock, after preferred dividends and noncontrolling interests
Basic	$	0.03		$	0.11
Diluted	$	0.03		$	0.11
Income (loss) from discontinued operations per share of common stock
Basic	$	(0.02	)	$	0.05
Diluted	$	(0.02	)	$	0.04
Weighted Average Number of Shares of Common Stock Outstanding
Basic	351,453,495			235,136,756
Diluted	363,066,769			240,079,144
Dividends Declared per Share of Common Stock	$	0.10		$	0.22

See notes to consolidated financial statements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands, except share data)



	Three Months Ended March 31,
	2014			2013
Net income	$	4,623		$	38,013
Other comprehensive income (loss):
Net unrealized gain on securities	4,588			29,454
Reclassification of net realized (gain) loss on securities into earnings	(2,334		)	539
Net unrecognized gain and pension prior service cost (discontinued operations)	9			—
Net unrealized gain on derivatives designated as cash flow hedges	1,203			1,841
Reclassification of net realized (gain) loss on derivatives designated as cash flow hedges into earnings	(13		)	—
Other comprehensive income	3,453			31,834
Total comprehensive income	$	8,076		$	69,847
Comprehensive income attributable to Newcastle stockholders' equity	$	8,737		$	69,847
Comprehensive loss attributable to noncontrolling interests	$	(661	)	$	—

See notes to consolidated financial statements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(dollars in thousands, except share data)



	Newcastle Stockholders
	Preferred Stock			Common Stock			Additional Paid-		Accumulated			Accumulated Other Comp.			Total Newcastle Stockholders'			Noncontrolling			Total Equity
	Shares	Amount		Shares	Amount		in Capital		Deficit			Income (Loss)			Equity			Interests			(Deficit)
Equity - December 31, 2013	2,463,321	$	61,583	351,453,495	$	3,515	$	2,970,786	$	(1,947,913	)	$	76,874		$	1,164,845		$	61,279		$	1,226,124

Dividends declared	—	—		—	—		—		(36,540		)	—			(36,540		)	—			(36,540		)

Spin-off of New Media	—	—		—	—		—		(331,327		)	(467		)	(331,794		)	(60,391		)	(392,185		)

Comprehensive income (loss)

Net income (loss)	—	—		—	—		—		5,284			—			5,284			(661		)	4,623

Other comprehensive income	—	—		—	—		—		—			3,453			3,453			—			3,453

Total comprehensive income (loss)															8,737			(661		)	8,076

Equity - March 31, 2014	2,463,321	$	61,583	351,453,495	$	3,515	$	2,970,786	$	(2,310,496	)	$	79,860		$	805,248		$	227		$	805,475

See notes to consolidated financial statements

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except share data)



	Three Months Ended March 31,
	2014			2013
Cash Flows From Operating Activities
Net income	$	4,623		$	38,013
Adjustments to reconcile net income to net cash provided by operating activities (inclusive of amounts related to discontinued operations):
Depreciation and amortization	34,955			4,079
Accretion of discount and other amortization	(8,639		)	(8,539		)
Interest income in CDOs redirected for reinvestment or CDO bond paydown	(328		)	(536		)
Interest income on investments accrued to principal balance	(7,214		)	(6,181		)
Interest expense on debt accrued to principal balance	109			109
Valuation allowance on loans	1,246			2,234
Other-than-temporary impairment on securities	—			539
Change in fair value of investments in excess mortgage servicing rights	—			(1,858		)
Change in fair value of investments in equity method investees	—			(969		)
Straight-lining of rental income	(6,107		)	—
Equity in earnings from equity method investments	39			—
Distributions of earnings from equity method investees	—			1,344
(Gain)/loss on settlement of investments (net)	(2,332		)	3
Unrealized gain on non-hedge derivatives and hedge ineffectiveness	(12,748		)	(3,126		)
Gain on extinguishment of debt	—			(1,206		)
Change in:
Restricted cash	2,018			995
Receivables and other assets	8,434			(2,277		)
Accounts payable, accrued expenses and other liabilities	(9,419		)	1,995
Net cash provided by operating activities	4,637			24,619
Cash Flows From Investing Activities
Principal repayments from repurchased CDO debt	4,398			8,656
Principal repayments from CDO securities	601			1,290
Principal repayments from non-Agency RMBS	—			17,472
Return of investments in excess mortgage servicing rights	—			10,272
Principal repayments from loans and non-CDO securities (excluding non-Agency RMBS)	25,435			74,944
Principal repayment from security accounted for as a linked transaction	26,709			—
Purchase of real estate securities	—			(871,127		)
Purchase of real estate related and other loans	—			(101,313		)
Proceeds from sale of investments	532,236			—
Acquisition of investments in real estate	(22,800		)	—
Additions to investments in real estate	(3,578		)	(259		)
Contributions to equity method investees	—			(109,588		)
Distributions of capital from equity method investees	—			6,625
Deposits paid on investments	(2,448		)	(2,700		)
Net cash provided by (used in) investing activities	560,553			(965,728		)

Continued on next page

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except share data)



	Three Months Ended March 31,
	2014			2013
Cash Flows From Financing Activities
Repurchases of CDO bonds payable	$	—		$	(9,722	)
Repayments of other bonds and notes payable	(8,384		)	(9,922		)
Borrowings under repurchase agreements	34,713			1,379,928
Borrowings under repurchase agreements accounted for as linked transactions	970			—
Repayments of repurchase agreements	(516,197		)	(835,777		)
Repayments under repurchase agreements accounted for as linked transactions	(7,366		)	—
Repayments of credit facilities, media and golf	(4,248		)	—
Margin deposits under repurchase agreements	(12,277		)	(62,100		)
Return of margin deposits under repurchase agreements	11,867			56,788
Borrowings under mortgage notes payable	17,250			—
Repayment of mortgage notes payable	(2,739		)	—
Issuance of common stock	—			764,759
Costs related to issuance of common stock	—			(592		)
New Media spin-off	(23,845		)	—
Common stock dividends paid	(35,145		)	(37,954		)
Preferred stock dividends paid	(1,395		)	(1,395		)
Payment of financing costs	(2,285		)	(30		)
Net cash provided by (used in) financing activities	(549,081		)	1,243,983
Net Increase in Cash and Cash Equivalents	16,109			302,874
Cash and Cash Equivalents of Continuing Operations, Beginning of Period	74,133			231,898
Cash and Cash Equivalents of Discontinued Operations, Beginning of Period	31,811			—
Cash and Cash Equivalents, End of Period	$	122,053		$	534,772
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for income taxes	$	76		$	—
Cash paid during the period for interest expense	$	20,477		$	12,953
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid	$	930		$	930
Common stock dividends declared but not paid	$	35,145		$	55,666
Reduction of Assets and Liabilities relating to the spin-off of New Media
Property, plant and equipment, net	$	266,385		$	—
Goodwill and intangibles, net	$	271,350		$	—
Restricted cash	$	6,477		$	—
Receivables and other assets	$	101,940		$	—
Credit facilities, media	$	177,955		$	—
Accounts payable, accrued expenses and other liabilities	$	99,857		$	—

See notes to consolidated financial statements

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

1. GENERAL

Newcastle Investment Corp. (and its subsidiaries, “Newcastle”) is a Maryland corporation that was formed in 2002. Newcastle focuses on opportunistically investing in, and actively managing, a variety of real estate-related and other investments. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. As such, Newcastle will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. Newcastle's common stock is traded on the New York Stock Exchange under the symbol "NCT".

On February 13, 2014, Newcastle completed the spin-off of New Media Investment Group Inc. ("New Media"), and established New Media as a separate, publicly traded company (NYSE:NEWM). The spin-off was effected as a taxable pro rata distribution by Newcastle of all of the outstanding shares of common stock it held of New Media to Newcastle’s common stockholders of record at the close of business on February 6, 2014. The distribution ratio was 0.0722 shares of New Media common stock for each share of Newcastle common stock.

In December 2013, Newcastle restructured an investment in mezzanine debt issued by NGP Mezzanine, LLC (“NGP”), the indirect parent of NGP Realty Sub, L.P. (“National Golf”). National Golf owns 27 golf courses across 8 states, and leases these courses to American Golf Corporation (“American Golf”), an affiliated operating company. American Golf also leases an additional 54 golf courses and manages 11 courses, all owned by third parties. As part of the transaction, Newcastle acquired the equity of NGP and American Golf’s indirect parent, AGC Mezzanine Pledge LLC (“AGC”), and therefore is consolidating these entities.

As a result, Newcastle now conducts its business through the following segments: (i) investments in senior housing properties (“senior housing”), (ii) debt investments financed with collateralized debt obligations (“CDOs”), (iii) other debt investments (“other debt”), (iv) investments in golf courses and facilities (“Golf”) and (v) corporate. With respect to the CDOs and other debt investments, subject to the passing of certain periodic coverage tests, Newcastle is generally entitled to receive the net cash flows from these structures on a periodic basis.

Newcastle is party to a management agreement (the "Management Agreement") with FIG LLC (the "Manager"), a subsidiary of Fortress Investment Group LLC (“Fortress”), under which the Manager advises Newcastle on various aspects of its business and manages its day-to-day operations, subject to the supervision of Newcastle's board of directors. For its services, the Manager is entitled to an annual management fee and incentive compensation, both as defined in, and in accordance with the terms of, the Management Agreement.

Newcastle has its senior housing properties managed pursuant to property management agreements (the “Senior Housing Management Agreements”) with third parties (collectively, the “Senior Housing Managers”). Currently, the Senior Housing Managers are affiliates or subsidiaries of either Holiday Acquisition Holdings LLC (“Holiday”), a portfolio company that is majority owned by private equity funds managed by an affiliate of Newcastle’s Manager, or FHC Property Management LLC (together with its subsidiaries, “Blue Harbor”), an affiliate of Newcastle’s Manager.

Approximately 6.4 million shares of Newcastle’s common stock were held by Fortress, through its affiliates, and its principals at March 31, 2014. In addition, Fortress, through its affiliates, held options to purchase approximately 25.7 million shares of Newcastle’s common stock at March 31, 2014.

The accompanying consolidated financial statements and related notes of Newcastle have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Newcastle's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Newcastle's consolidated financial statements for the year ended December 31, 2013

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

and notes thereto included in Newcastle’s Annual Report on Form 10-K filed with the SEC. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s consolidated financial statements for the year ended December 31, 2013.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Recently Adopted Accounting Policies

The following accounting policies have been adopted in connection with Golf.

REVENUE RECOGNITION

Revenue from green fees, cart rentals, food and beverage sales, merchandise sales and other income (consisting primarily of range income, banquets, and club and other rental income) are generally recognized at the time of sale, when services are rendered and collection is reasonably assured.

Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenues and recognized as revenue ratably over the appropriate period, which is generally twelve months or less. The monthly dues are generally structured to cover the club operating costs and membership services.

Private country club members generally pay an advance initiation fee upon their acceptance as a member to the country club. Initiation fees at most private clubs are deposits which are generally refundable 30 years after the date of acceptance as a member. Revenue related to membership deposits is recognized over the expected life of an active membership. For membership deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized on a straight-line basis over the expected life of an active membership.

The present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheets and accretes over the nonrefundable term (30 years) using the effective interest method. This accretion is recorded as interest expense in the consolidated statements of income.

EXPENSE RECOGNITION

Operating Leases and Other Operating Expenses - Other operating expenses for the Golf business consist primarily of equipment leases, utilities, repairs and maintenance, supplies, seed, soil and fertilizer, and marketing. Many of the golf courses and related facilities are leased under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 to 20 years, and typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accounts payable, accrued expenses and other liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. This update is effective for Newcastle in the first quarter of 2015. Newcastle is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

The FASB has recently issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, revenue recognition, leases, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on Newcastle’s reporting. Newcastle has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

2. ACQUISITIONS

Acquisitions of Senior Housing properties

In January 2014, Newcastle completed the acquisitions of two senior housing properties for an aggregate purchase price of approximately $22.8 million plus acquisition costs. Each of these acquisitions was accounted for as a business combination, under which all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. Newcastle has retained Holiday to manage these properties. Pursuant to the property management agreements with Holiday, Newcastle pays management fees equal to either (i) 5% of the property’s effective gross income (as defined in the agreements) or (ii) 6% of the property’s effective gross income (as defined in the agreements) for the first two years and 7% thereafter. In addition, Newcastle will reimburse Holiday for certain expenses, primarily the compensation expense associated with the on-site employees.

The following table summarizes the allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed at the date of acquisition, in accordance with the acquisition method of accounting:



Allocation of Purchase Price (A)
Investments in Real Estate	$	20,630
Resident Lease Intangibles	2,370
Other Assets, net of other Liabilities	(200		)
Total purchase price	$	22,800

Mortgage Notes Payable (B)	(17,250		)
Net assets acquired	$	5,550
Total acquisition related costs (C)	$	258


(A)	Due to the timing of the acquisition, Newcastle is still obtaining additional information relating to the purchase price allocation. Therefore, the review process of the purchase price allocation is not complete. Newcastle expects to complete this process within twelve months of the acquisition.


(B)	See Note 10.


(C)	Acquisition related costs are expensed as incurred and included within general and administrative expense on the consolidated statements of income.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

3. SPIN-OFF OF NEW RESIDENTIAL AND NEW MEDIA

On May 15, 2013, Newcastle completed the spin-off of New Residential from Newcastle.

On February 13, 2014, Newcastle completed the spin-off of New Media from Newcastle.

The following table presents the carrying value of the assets and liabilities of New Media, immediately preceding the February 13, 2014 spin-off.



Assets
Property, plant and equipment, net	$	266,385
Intangibles, net	144,664
Goodwill	126,686
Cash and cash equivalents	23,845
Restricted cash	6,477
Receivables and other assets	101,940
Total Assets	$	669,997

Liabilities
Credit facilities - media	$	177,955
Accounts payable, accrued expenses and other liabilities	99,857
Total Liabilities	$	277,812

Net Assets	$	392,185

As a result of the May 15, 2013 spin-off and the February 13, 2014 spin-off, for all periods presented, the assets, liabilities and results of operations of those components of Newcastle’s operations that (i) were part of the spin-off, and (ii) represent operations in which Newcastle has no significant continuing involvement, are presented separately in discontinued operations in Newcastle’s consolidated financial statements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

Results from discontinued operations were as follows:



	Three Months Ended March 31,
	2014			2013
Interest Income	$	—		$	10,035
Interest Expense	2,096			—
Net interest income (loss)	(2,096		)	10,035

Media income	68,213			—

Change in fair value of investments in excess mortgage servicing rights	—			1,858
Change in fair value of investments in equity method investees	—			969
Other income	—			2,827

Media operating expenses	65,826			—
Property operating costs	—			7
General and administrative expenses	1,904			2,707
Depreciation and amortization	4,596			—
Income tax (benefit) expense	(915		)	—
Total expenses	71,411			2,714

Net income attributable to noncontrolling interest	522			—

Income (loss) from discontinued operations	$	(4,772	)	$	10,148

The May 15, 2013 spin-off resulted in a $1.2 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options (see Note 13).

The February 13, 2014 spin-off resulted in a $0.4 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options (see Note 13).

4. SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES

Newcastle conducts its business through the following segments: (i) investments in senior housing properties (“senior housing”), (ii) debt investments financed with collateralized debt obligations (“CDOs”), (iii) other debt investments (“other debt”), (iv) investment in golf courses and facilities (“golf”) and (v) corporate. With respect to the CDOs and other debt segments, Newcastle is generally entitled to receive net cash flows from these structures on a periodic basis.

The corporate segment consists primarily of interest income on short term investments, general and administrative expenses, interest expense on the junior subordinated notes payable and management fees pursuant to the Management Agreement.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

Summary financial data on Newcastle's segments is given below, together with reconciliation to the same data for Newcastle as a whole:



	Senior			Debt Investments (A)										Inter-segment Elimination and
	Housing (A)			CDOs		Other Debt (B)		Golf			Corporate			Discontinued Operations (C)			Total
Three Months Ended March 31, 2014
Interest income	$	—		$	30,722	$	16,952	$	41		$	11		$	(1,274	)	$	46,452
Interest expense	13,701			6,128		12,663		3,682			955			(1,274		)	35,855
Net interest income (expense)	(13,701		)	24,594		4,289		(3,641		)	(944		)	—			10,597
Impairment (reversal)	—			432		814		—			—			—			1,246
Operating revenues	57,810			—		541		63,278			—			—			121,629
Other income (loss)	(2		)	13,610		2,198		—			—			—			15,806
Property operating expenses	23,520			—		284		—			—			—			23,804
Operating expenses - golf	—			—		—		58,338			—			—			58,338
Cost of sales - golf	—			—		—		5,956			—			—			5,956
Depreciation and amortization	22,835			—		57		7,430			37			—			30,359
Other operating expenses	7,792			156		702		1,081			8,375			—			18,106
Income tax expense	155			—		—		140			—			—			295
Income (loss) from continuing operations	(10,195		)	37,616		5,171		(13,308		)	(9,356		)	—			9,928
Income (loss) from discontinued operations, net of tax	—			—		—		—			—			(5,305		)	(5,305		)
Net income (loss)	(10,195		)	37,616		5,171		(13,308		)	(9,356		)	(5,305		)	4,623
Preferred dividends	—			—		—		—			(1,395		)	—			(1,395		)
Net loss attributable to noncontrolling interests	—			—		—		139			—			522			661
Income (loss) applicable to common stockholders	$	(10,195	)	$	37,616	$	5,171	$	(13,169	)	$	(10,751	)	$	(4,783	)	$	3,889



	Senior		Debt Investments (A)									Inter-segment Elimination and
	Housing (A)		CDOs		Other Debt (B)		Golf		Corporate			Discontinued Operations (C)			Total
March 31, 2014
Investments	$	1,465,735	$	807,388	$	718,082	$	351,906	$	—		$	(86,313	)	$	3,256,798
Cash and restricted cash	36,095		1,304		752		12,916		75,300			—			126,367
Other assets	63,969		36,733		1,350		34,455		1,089			(152		)	137,444
Total assets	1,565,799		845,425		720,184		399,277		76,389			(86,465		)	3,520,609
Debt	1,091,823		543,859		624,240		182,373		51,236			(86,313		)	2,407,218
Other liabilities	69,440		10,918		2,123		181,165		44,422			(152		)	307,916
Total liabilities	1,161,263		554,777		626,363		363,538		95,658			(86,465		)	2,715,134
Preferred stock	—		—		—		—		61,583			—			61,583
Noncontrolling interests	—		—		—		227		—			—			227
GAAP book value	$	404,536	$	290,648	$	93,821	$	35,512	$	(80,852	)	$	—		$	743,665

Additions to investments in real estate	$	24,640	$	—	$	33	$	1,892	$	—		$	—		$	26,565

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)



	Senior			Debt Investments (A)										Inter-segment Elimination and
	Housing (A)			CDOs		Other Debt (B)			Golf		Corporate			Discontinued Operations (C)			Total
Three Months Ended March 31, 2013
Interest income	$	—		$	31,828	$	30,298		$	—	$	72		$	(866	)	$	61,332
Interest expense	1,232			7,135		14,257			—		952			(866		)	22,710
Net interest income (expense)	(1,232		)	24,693		16,041			—		(880		)	—			38,622
Impairment (reversal)	—			3,182		(409		)	—		—			—			2,773
Operating revenues	12,997			—		503			—		—			—			13,500
Other income (loss)	8			4,572		1,190			—		—			—			5,770
Property operating expenses	8,423			—		247			—		—			—			8,670
Depreciation and amortization	4,022			—		57			—		—			—			4,079
Other operating expenses	2,081			194		855			—		11,375			—			14,505
Income (loss) from continuing operations	(2,753		)	25,889		16,984			—		(12,255		)	—			27,865
Income (loss) from discontinued operations	—			—		—			—		—			10,148			10,148
Net income (loss)	(2,753		)	25,889		16,984			—		(12,255		)	10,148			38,013
Preferred dividends	—			—		—			—		(1,395		)	—			(1,395		)
Income (loss) applicable to common stockholders	$	(2,753	)	$	25,889	$	16,984		$	—	$	(13,650	)	10,148			$	36,618

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

(A)

Assets held within non-recourse structures, including all of the assets in the senior housing and CDO segments, are not available to satisfy obligations outside of such financings, except to the extent net cash flow distributions are received from such structures. Furthermore, creditors or beneficial interest holders of these structures generally have no recourse to the general credit of Newcastle. Therefore, the exposure to the economic losses from such structures generally is limited to invested equity in them and economically their book value cannot be less than zero. Therefore, impairment recorded in excess of Newcastle’s investment, which results in negative GAAP book value for a given non-recourse financing structure, cannot economically be incurred and will eventually be reversed through amortization, sales at gains, or as gains at the deconsolidation or termination of such non-recourse financing structure.


(B)	The following table summarizes the investments and debt in the other debt segment:



	March 31, 2014
	Investments				Debt
Non-Recourse	Outstanding Face Amount		Carrying Value		Outstanding Face Amount*		Carrying Value*
Manufactured housing loan portfolio I	$	98,925	$	89,113	$	70,943	$	63,325
Manufactured housing loan portfolio II	123,611		123,277		88,785		88,524
Subprime mortgage loans subject to call options	406,217		406,217		406,217		406,217
Real estate securities	54,446		50,226		38,253		34,811
Operating real estate	N/A		6,573		6,000		6,000
Subtotal	683,199		675,406		610,198		598,877
Other
Unlevered real estate securities	128,032		4,129		—		—
Other investments	N/A		6,239		—		—
Residential mortgage loans	44,183		32,308		25,363		25,363
	$	855,414	$	718,082	$	635,561	$	624,240

*An aggregate face amount of $133.6 million (carrying values of $86.3 million) of debt represents intersegment financing, which is eliminated upon consolidation.


(C)	Represents the elimination of investments and financings and their related income and expenses between the CDO segment, the other debt segment and the golf segment as the corresponding inter-segment investments and financings are presented on a gross basis within each of these segments. In addition, includes the results of discontinued segments.

Variable Interest Entities (“VIEs”)

The VIEs in which Newcastle has a significant interest include (i) Newcastle’s CDOs, in which Newcastle has been determined to be the primary beneficiary and therefore consolidates them (with the exception of CDO V and CDO VIII Repack), since it has the power to direct the activities that most significantly impact the CDOs’ economic performance and would absorb a significant portion of their expected losses and receive a significant portion of their expected residual returns, and (ii) the manufactured housing loan financing structures, which are similar to the CDOs in analysis. Newcastle’s CDOs and manufactured housing loan financings are held in special purpose entities whose debt is treated as non-recourse secured borrowings of Newcastle.

Newcastle’s subprime securitizations, CDO V and the CDO VIII Repack are also considered VIEs, but Newcastle does not control the decisions that most significantly impact their economic performance and, no longer receives a significant portion of their returns, and therefore does not consolidate them.

In addition, Newcastle’s investments in RMBS, commercial mortgage backed securities (“CMBS”), CDO securities and real estate related and other loans may be deemed to be variable interests in VIEs, depending on their structure. Newcastle monitors these investments and analyzes the potential need to consolidate the related securitization entities pursuant to the VIE consolidation requirements. These analyses require considerable judgment in determining whether an entity is a VIE and determining the primary beneficiary of a VIE since they involve subjective determinations of significance, with respect to both power and economics. The result could be the consolidation of an entity that otherwise would not have been consolidated or the de-consolidation of an entity that otherwise would have been consolidated.

As of March 31, 2014, Newcastle has not consolidated these potential VIEs. This determination is based, in part, on the assessment that Newcastle does not have the power to direct the activities that most significantly impact the economic performance of these

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

entities, such as if Newcastle owned a majority of the currently controlling class. In addition, Newcastle is not obligated to provide, and has not provided, any financial support to these entities.

Newcastle had variable interests in the following unconsolidated VIEs at March 31, 2014, in addition to the subprime securitizations which are described in Note 6:



Entity	Gross Assets (A)		Debt (A) (B)		Carrying Value of Newcastle's Investment (C)
Newcastle CDO V	$	177,764	$	204,882	$	3,278

CDO VIII Repack	$	90,097	$	90,097	$	88,272


(A)	Face amount.


(B)	Newcastle CDO V includes $40.3 million face amount of debt owned by Newcastle with a carrying value of $3.3 million at March 31, 2014. CDO VIII Repack includes $90.1 million face amount of debt owned by Newcastle with a carrying value of $88.3 million at March 31, 2014.


(C)	This amount represents Newcastle’s maximum exposure to loss from this entity.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

5. REAL ESTATE SECURITIES

The following is a summary of Newcastle’s real estate securities at March 31, 2014, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired.



			Amortized Cost Basis							Gross Unrealized								Weighted Average
Asset Type	Outstanding Face Amount		Before Impairment		Other-Than- Temporary Impairment			After Impairment		Gains		Losses			Carrying Value (A)		Number of Securities	Rating (B)	Coupon		Yield		Life (Years) (C)	Principal Subordination (D)
CMBS-Conduit	$	235,635	$	217,189	$	(68,980	)	$	148,209	$	52,221	$	(97	)	$	200,333	33	BB-	5.47	%	18.84	%	2.5	10.2	%
CMBS- Single Borrower	91,349		90,813		(12,364		)	78,449		4,345		(15		)	82,779		15	BB	5.60	%	7.15	%	2.1	7.8	%
CMBS-Large Loan	3,229		3,229		—			3,229		—		—			3,229		1	BBB-	6.63	%	6.63	%	0.1	4.4	%
REIT Debt	29,200		28,729		—			28,729		2,228		—			30,957		5	BB+	5.89	%	6.87	%	1.3	N/A
Non-Agency RMBS	93,221		99,881		(59,987		)	39,894		21,639		(9		)	61,524		33	CCC+	1.04	%	11.90	%	4.7	26.2	%
ABS-Franchise	8,464		7,647		(7,647		)	—		—		—			—		1	C	6.69	%	0.00	%	—	0.0	%
CDO (E)	71,632		55,851		—			55,851		4,350		—			60,201		2	BB+	0.51	%	7.59	%	3.2	49.1	%
Total / Average (F)	$	532,730	$	503,339	$	(148,978	)	$	354,361	$	84,783	$	(121	)	$	439,023	90	B+	4.10	%	12.62	%	2.8


(A)	See Note 12 regarding the estimation of fair value, which is equal to carrying value for all securities.


(B)	Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the lowest rating is used. Ratings provided were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current.


(C)	The weighted average life is based on the timing of expected principal reduction on the assets.


(D)	Percentage of the outstanding face amount of securities and residual interests that is subordinate to Newcastle’s investments.


(E)	Represents non-consolidated CDO securities, excluding nine securities with a zero value, which had an aggregate face amount of $115.3 million.


(F)	The total outstanding face amount was $340.6 million for fixed rate securities and $192.1 million for floating rate securities.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2014

(dollars in tables in thousands, except share data)

Unrealized losses that are considered other-than-temporary are recognized currently in earnings. During the three months ended March 31, 2014, Newcastle recorded no other-than-temporary impairment charges (“OTTI”) with respect to real estate securities. Based on management’s analysis of the securities, the performance of the underlying loans and changes in market factors, Newcastle noted no adverse changes in the expected cash flows on certain of these securities. Unrealized losses on Newcastle’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. Newcastle performed analyses in relation to such securities, using management’s best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. The following table summarizes Newcastle’s securities in an unrealized loss position as of March 31, 2014.



			Amortized Cost Basis
Securities in	Outstanding				Other-than-												Number	Weighted Average
an Unrealized	Face		Before		Temporary			After		Gross Unrealized					Carrying		of						Life
Loss Position	Amount		Impairment		Impairment			Impairment		Gains		Losses			Value		Securities	Rating	Coupon		Yield		(Years)
Less Than Twelve Months	$	15,084	$	15,590	$	(1,443	)	$	14,147	$	—	$	(24	)	$	14,123	5	BBB	2.31	%	4.97	%	2.4
Twelve or More Months	6,700		6,519		—			6,519		—		(97		)	6,422		2	B+	5.98	%	6.63	%	4.4
Total	$	21,784	$	22,109	$	(1,443	)	$	20,666	$	—	$	(121	)	$	20,545	7	BB+	3.43	%	5.50	%	3.0

Newcastle performed an assessment of all of its debt securities that are in an unrealized loss position (unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:



	March 31, 2014
			Amortized
			Cost Basis		Unrealized Losses
	Fair Value		After Impairment		Credit (B)		Non-Credit (C)
Securities Newcastle intends to sell	$	—	$	—	$	—	$ N/A
Securities Newcastle is more likely than not to be required to sell (A)	—		—		—		N/A
Securities Newcastle has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities	1,358		1,367		—		(9	)
Non credit impaired securities	19,187		19,299		—		(112	)
Total debt securities in an unrealized loss position	$	20,545