Exhibit 99.1

 

LOGO

   NEWCASTLE INVESTMENT CORP.

Contact:

Investor Relations

212-479-3195

Newcastle Announces Second Quarter 2012 Results

SECOND QUARTER 2012 HIGHLIGHTS

 

   

Core Earnings of $0.29 per diluted share

 

   

GAAP income of $0.21 per diluted share

 

   

Declared Common Dividend of $0.20 per share, or $29 million

 

   

$240 million of average un-invested capital in the quarter

SECOND QUARTER 2012 FINANCIAL RESULTS

New York, NY, August 9, 2012 – Newcastle Investment Corp. (NYSE: NCT) reported that in the second quarter of 2012, income available for common stockholders (“GAAP income”) was $29 million, or $0.21 per diluted share, compared to $98 million, or $1.23 per diluted share, in the second quarter of 2011.

GAAP income of $29 million consisted of the following:

Core Earnings:

 

   

$39 million, or $0.29 per diluted share, which is equal to net interest income less expenses, net of preferred dividends

Other Income/Loss:

 

   

$1 million of other losses related to a $1 million net loss on the settlement of investments and a $1 million net loss in non-cash mark-to-market offset by $1 million of other fee income

 

   

$9 million of non-cash mark-to-market net loss on loans held for sale and impairment recorded on investments

During the second quarter of 2012, the Company generated $21 million of Cash Available for Distribution (“CAD”), compared to $20 million in the first quarter of 2012.

On June 13, 2012, the Board of Directors declared a quarterly dividend of $0.20 per common share, or $29 million, for the second quarter of 2012. The Board of Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively, for the period beginning May 1, 2012 and ending July 31, 2012.

In the second quarter of 2012, GAAP book value increased by $1.19 per share. As of June 30, 2012, GAAP book value was $3.68 per share, compared to $2.49 per share as of March 31, 2012.

 

1


The following table summarizes the Company’s operating results ($ in millions, except per share data):

 

      Three Months Ended  
      June 30,
2012
     March 31,
2012
     June 30,
2011
 

Summary Operating Results:

        

GAAP income

   $ 29       $ 72       $ 98   

GAAP income, per diluted share

   $ 0.21       $ 0.68       $ 1.23   

Non-GAAP Results:

        

Core earnings

   $ 39       $ 35       $ 30   

Core earnings, per diluted share

   $ 0.29       $ 0.33       $ 0.37   

Cash Available for Distribution

   $ 21       $ 20       $ 26   

For a reconciliation of income available for common stockholders to core earnings and net cash flow provided by operating activities to cash available for distribution, please refer to the tables following the presentation of GAAP results.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for investors, please refer to the “Quarterly Supplement – Second Quarter 2012” presentation posted to the Investor Relations section of Newcastle’s website, www.newcastleinv.com.

For consolidated investment portfolio information, please refer to the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, which are also available on the Company’s website, www.newcastleinv.com.

SECOND QUARTER 2012 EVENTS & INVESTMENT ACTIVITY

$272 million of common equity raised:

In April 2012, the company completed the sale of approximately 19 million shares of its common stock at an average price of $6.22 per share. The total gross proceeds from the sale were approximately $118 million.

In May 2012, the Company completed the sale of 23 million shares of its common stock at an average price of $6.71 per share. The total gross proceeds from the sale were approximately $154 million.

$284 million of unrestricted cash invested:

Excess MSRs investments – total of $220 million:

Invested $44 million to purchase a 65% interest in the Excess MSRs on a $10 billion residential mortgage loan portfolio. The Company expects the investment to generate a 17% IRR and $90 million of total cash flow, or 2.1x its initial investment.

Invested $176 million to purchase a 65% interest in Excess MSRs on three portfolios with a total of $64 billion of residential mortgage loans. The Company expects the three investments to generate an average 18% IRR and $355 million of total cash flow, or 2.0x its initial investment.

 

2


Non-Agency RMBS investments – total of $64 million:

Invested $123 million to purchase $182 million of Non-Agency RMBS at an average price of 67.4% of par, with an expected unlevered yield of 9%, and an average life of 4.6 years. In July, the Company entered into $59 million of recourse financing resulting in an overall portfolio leverage of 48% with an expected levered return of 14%.

$89 million of restricted CDO cash invested:

Invested $43 million to purchase $51 million face amount of six CMBS and an ABS at an average price of 85% of par, with an expected average yield of 7%, an average life of 9 years, and an average rating of BBB+.

Invested $46 million to purchase two commercial real estate loans at par, with an expected average yield of 9%, an average loan-to-value ratio of 56%, and an average life of 2 years.

In May 2012, Newcastle committed to invest up to $450 million, with an expected investment of between $150 and $300 million, to acquire up to a 65% interest in Excess MSRs from Nationstar Mortgage in connection with their stalking horse bid on mortgage servicing assets from ResCap.

SUBSEQUENT EVENTS & INVESTMENT ACTIVITY

$170 million of common equity raised:

On July 31, 2012, the Company completed the sale of approximately 25 million shares of its common stock and the gross proceeds from the sale were approximately $170 million.

$82 million of unrestricted cash invested:

Invested $64 million (including $9 million of working capital and closing costs) to purchase 8 senior housing assets financed with $88 million of non-recourse debt at a weighted average interest rate of 3.45% with a 7-year maturity.

Invested $18 million to purchase $29 million of Non-Agency RMBS at an average price of 62.9% of par, with an expected unlevered yield of 8.2%, and an average life of 7.3 years.

$85 million of restricted CDO cash invested:

Invested $85 million to purchase $76 million face amount of CMBS and $18 million face amount of ABS at a total average price of 90% of par, with an expected average yield of 6.5%, an average life of 4.1 years, and an average rating of BBB.

As of July 20, 2012, all CDOs were fully invested and past their reinvestment periods.

 

3


CASH AND RECOURSE FINANCING

As of August 7, 2012, the Company’s cash and recourse financings, excluding junior subordinated notes, were as set forth below:

 

   

Unrestricted Cash Available to Invest – The Company had $173 million of unrestricted cash available to invest

 

   

Recourse Financing – The Company had $497 million of financing related to FNMA and FHLMC securities with a value of $523 million and $59 million of financing related to two Non-Agency RMBS bonds with a value of $91 million. In addition, the Company had $2 million of financing related to senior Newcastle CDO bonds it repurchased.

I. RESIDENTIAL SERVICING & SECURITIES PORTFOLIO

As of June 30, 2012, Newcastle’s residential servicing and securities portfolio consisted of five Excess MSRs investments with a total carrying value of $265 million and 10 newly purchased Non-Agency RMBS with a total carrying value of $119 million.

Excess MSRs

As of June 30, 2012, $265 million of investments represent 65% interests in Excess MSRs on a total unpaid principal balance of $82 billion.

During the quarter, Pool 1 generated $4.3 million of total cash flow, of which $1.9 million contributed to CAD. The first payments on Pools 2 through 5 were received subsequent to the quarter.

As of June 30, 2012 for the total Excess MSRs portfolio:

 

   

The average updated IRR with actual performance was 18%, compared to an initial expected IRR of 18%

 

   

Weighted Average Constant Prepayment Rate (“CPR”) was 12.5% compared to an initial CPR projection of 20%

Non-Agency RMBS

As of June 30, 2012, the Company’s newly purchased Non-Agency RMBS portfolio consisted of $177 million face amount of assets (value of 67.3% of par). During the second quarter of 2012, these investments generated $4.2 million of total cash flow, of which $1.0 million contributed to CAD.

II. REAL ESTATE DEBT & OTHER ASSETS PORTFOLIO

As of June 30, 2012, the Company’s real estate debt and other assets portfolio consisted of $3.9 billion of diversified assets financed with $2.9 billion of primarily match funded, non-recourse debt. Assets included 355 commercial, residential and corporate real estate securities and loan investments with an average investment size of $10 million, and 9,436 mortgage loans backed by residential real estate.

During the second quarter of 2012, the portfolio generated total cash flow of $35 million of which $29 million contributed to CAD. During the quarter, the weighted average carrying value of the June 30, 2012 portfolio changed from a price of 81.1 to 81.3, an increase of 0.2% or $6 million.

 

4


Newcastle CDO financings

As of June 30, 2012, Newcastle’s five CDOs consisted of $3.2 billion face amount of collateral (value of 81.1% of par) financed with $2.4 billion of debt. During the second quarter of 2012, the CDOs generated $29.1 million of total cash flow which included:

 

   

$21.0 million of CDO cash receipts consisting of $16.4 million of excess interest, $3.1 million of interest on retained and repurchased CDO debt, and $1.5 million of senior collateral management fees

 

   

$8.1 million of principal repayments on repurchased CDO debt, of which $1.7 million contributed to CAD

The following table summarizes the cash receipts in the second quarter of 2012 from the Company’s consolidated CDO financings and the results of their related coverage tests ($ in thousands):

 

      Primary
Collateral
Type
     Cash
Receipts (1)
     Interest
Coverage
% Excess
(Deficiency)
July 31,
2012 (2)
    Over-Collateralization Excess (Deficiency) (2)(3)  
          
          
          
           July 31, 2012     June 30, 2012     March 31, 2012  
           %     $     %     $     %     $  

CDO IV

     Securities       $ 396         38.5     -3.6     (6,433     -3.6     (6,433     -2.1     (4,070

CDO VI

     Securities         125         -156.1     -64.4     (178,375     -63.9     (177,738     -63.2     (177,539

CDO VIII

     Loans         6,575         452.0     13.5     85,161        12.9     82,127        8.3     53,094   

CDO IX

     Loans         8,326         609.2     20.1     129,279        19.5     125,699        18.9     121,772   

CDO X

     Securities         5,602         325.6     8.1     93,150        5.0     56,925        8.2     93,725   
     

 

 

                

Total

      $ 21,024                  
     

 

 

                

 

(1) Cash receipts exclude principal repayments from repurchased bonds. Cash receipts for the quarter ended June 30, 2012 may not be indicative of cash receipts for subsequent periods. See Forward-Looking Statements below for risks and uncertainties that could cause cash receipts for subsequent periods to differ materially from these amounts.
(2) Represents the excess or deficiency under the applicable interest coverage or over-collateralization test to the first threshold at which cash flow would be redirected. The Company generally does not receive material interest cash flow from a CDO until a deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before July 31, 2012, June 30, 2012 or March 31, 2012, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).
(3) As of the July 2012 remittance, the face amount of assets on negative watch for possible downgrade by at least one rating agency (Moody’s, S&P, or Fitch) for CDOs VIII, IX, and CDO X were $30 million, $7 million, and $29 million, respectively.

Other Real Estate Related Investments

As of June 30, 2012, other real estate related investments were comprised of $718 million face amount of assets (value of 91.1% of par) financed with $559 million of debt. During the second quarter of 2012, these investments generated $5.6 million of total cash flow which included:

 

   

$5.3 million consisting of excess interest, interest on retained debt, and senior collateral management fees

 

   

$0.3 million of principal repayments from a commercial real estate loan

 

5


INVESTMENT PORTFOLIO

The following table describes the investment portfolio as of June 30, 2012 ($ in millions):

 

      Face
Amount $
     Basis
Amount $  (6)
     % of
Total
Basis
    Carrying
Value
Amount $
     Number of
Investments
     Credit (7)     Weighted
Average
Life (years) (8)
 

I. Residential Servicing & Securities

                  

Excess MSRs Investment

     265         265         7.7     265         5         —          5.5   

Non-Agency RMBS(1)

     177         119         3.4     119         10         CC        4.2   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Residential Servicing & Securites

     442         384         11.1     384              5.0   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

II. Real Estate Debt & Other Assets

                  

Commercial Assets

                  

CMBS

   $ 1,470       $ 1,104         32.0   $ 1,163         192         BB+        3.8   

Mezzanine Loans

     609         487         14.1     487         17         72     2.1   

B-Notes

     208         186         5.4     186         7         59     2.5   

Whole Loans

     30         30         0.9     30         3         48     1.5   

CDO Securities (2)

     86         69         2.0     65         3         BB+        2.9   

Other Investments (3)

     25         25         0.6     25         1         —          —     
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Commercial Assets

     2,428         1,901         55.0     1,956              3.2   

Residential Assets

                  

MH and Residential Loans

     354         309         8.9     309         9,436         706        6.3   

Subprime Securities

     245         126         3.7     134         60         B –      6.5   

Real Estate ABS

     39         29         0.8     31         11         BB+        4.0   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 
     638         464         13.4     474              6.2   

FNMA/FHLMC Securities

     377         397         11.5     400         37         AAA        4.7   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Residential Assets

     1,015         861         24.9     874              5.7   

Corporate Assets

                  

REIT Debt

     120         119         3.4     123         18         BB+        2.2   

Corporate Bank Loans

     301         189         5.6     189         6         CC        2.3   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Corporate Assets

     421         308         9.0     312              2.3   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Real Estate Debt & Other Assets(4)

     3,864         3,070         88.9     3,142              3.7   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Portfolio/Weighted Average (5)

   $ 4,306       $ 3,454         100.0   $ 3,526              3.8   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

 

(1) Represents non-agency RMBS purchased outside of the Company’s CDOs since April 2012.
(2) Represents non-consolidated CDO securities, excluding ten securities with a zero value that had an aggregate face amount of $117 million.
(3) Relates to an equity investment in a REO property.
(4) Total Real Estate Debt and Other Assets excludes $63 million of CDO cash available for reinvestment.
(5) Excludes operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million.
(6) Net of impairment.
(7) Credit represents the weighted average of minimum ratings for rated assets, the Loan to Value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied and assumed AAA rating for FNMA/FHLMC securities. Ratings provided herein were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time.
(8) Weighted average life is an estimate based on the timing of expected principal reduction on the asset.

 

6


CONFERENCE CALL

Newcastle’s management will conduct a live conference call on Thursday, August 9, 2012 at 8:00 A.M. Eastern Time to review the financial results for the second quarter 2012. 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. The conference call may be accessed by dialing 1-888-243-2046 (from within the U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Newcastle Second Quarter 2012 Earnings Call.”

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at http://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 Thursday, August 16, 2012 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “15139033”.

ABOUT NEWCASTLE

The Company invests in real estate debt and other real estate related assets, including excess mortgage servicing rights. The Company is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. The Company is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. For more information regarding the Company or to be added to our e-mail distribution list, please visit http://www.newcastleinv.com.

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the average life of an investment, the expected returns, or expected yield on an investment, statements relating to our liquidity, future losses and impairment charges, our ability to acquire assets with attractive returns and the delinquent and loss rates on our subprime portfolios. These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. Newcastle can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Newcastle’s expectations include, but are not limited to, the risk that market conditions cause downgrades of a significant number of our securities or the recording of additional impairment charges or reductions in shareholders’ equity; the risk that we can find additional suitably priced investments; the risk that investments made or committed to be made cannot be financed on the basis and for the term at which we expect; the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested; actual recapture rates with respect to any Excess MSR investment; 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 Annual Report on Form 10-K or 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.

 

7


CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN THIS PRESS RELEASE

Expected returns and expected yields are estimates of the annualized effective rate of return that we presently expect to be earned over the expected average life of an investment (i.e., IRR), after giving effect, in the case of returns, to existing leverage, and calculated on a weighted average basis. Expected returns and expected yields reflect our estimates of an investment’s coupon, amortization of premium or discount, and costs and fees, and they contemplate our assumptions regarding prepayments, defaults and loan losses, among other things. In the case of Excess MSRs, these assumptions include, but are not limited to, the recapture rate. Income recognized by the Company in future periods may be significantly less than the income that would have been recognized if an expected return or expected yield were actually realized, and the estimates we use to calculate expected returns and expected yields could differ materially from actual results.

Statements about expected returns and expected yields in this press release are forward-looking statements. You should carefully read the cautionary statement above under the caption “Forward-looking Statements,” which directly applies to our discussion of expected returns and expected yields.

 

8


Newcastle Investment Corp.

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except share data)

 

     Three Months Ended June 30     Six Months Ended June 30  
     2012     2011     2012     2011  

Interest income

   $ 82,438      $ 74,143      $ 157,337      $ 146,346   

Interest expense

     29,462        35,750        59,627        73,915   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     52,976        38,393        97,710        72,431   
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairment (Reversal)

        

Valuation allowance (reversal) on loans

     (3,223     (14,555     (12,254     (55,862

Other-than-temporary impairment on securities

     10,859        5,784        16,742        8,896   

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

     863        (296     (3,069     693   
  

 

 

   

 

 

   

 

 

   

 

 

 
     8,499        (9,067     1,419        (46,273
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after impairment

     44,477        47,460        96,291        118,704   

Other Income (Loss)

        

Gain (loss) on settlement of investments, net

     (1,177     35,606        3,646        69,698   

Gain on extinguishment of debt

     39        33,443        20,782        44,485   

Change in fair value of investments in excess mortgage servicing rights

     3,523        —          4,739        —     

Other income (loss), net

     (3,744     (10,160     (774     (9,825
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,359     58,889        28,393        104,358   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Loan and security servicing expense

     1,104        1,200        2,202        2,260   

General and administrative expense

     6,205        1,649        8,490        3,250   

Management fee to affiliate

     5,631        4,555        10,607        8,744   
  

 

 

   

 

 

   

 

 

   

 

 

 
     12,940        7,404        21,299        14,254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     30,178        98,945        103,385        208,808   

Income (loss) from discontinued operations

     261        190        525        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     30,439        99,135        103,910        208,808   

Preferred dividends

     (1,395     (1,395     (2,790     (2,790
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Available for Common Stockholders

   $ 29,044      $ 97,740      $ 101,120      $ 206,018   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Per Share of Common Stock

        

Basic

   $ 0.21      $ 1.23      $ 0.84      $ 2.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.21      $ 1.23      $ 0.84      $ 2.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations per share of common stock, after preferred dividends

        

Basic

   $ 0.21      $ 1.23      $ 0.84      $ 2.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.21      $ 1.23      $ 0.84      $ 2.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations per share of common stock

        

Basic

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

        

Basic

     134,115,335        79,282,480        119,648,172        70,988,410   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     135,172,953        79,282,480        120,421,528        70,992,828   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends Declared per Share of Common Stock

   $ 0.20      $ 0.10      $ 0.40      $ 0.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)

 

     June 30, 2012        
     (Unaudited)     December 31, 2011  

Assets

    

Non-Recourse VIE Financing Structures

    

Real estate securities, available for sale

   $ 1,505,791      $ 1,479,214   

Real estate related loans, held for sale, net

     891,953        807,214   

Residential mortgage loans, held for investment, net

     311,097        331,236   

Subprime mortgage loans subject to call option

     405,247        404,723   

Operating real estate, held for sale

     7,737        7,741   

Other investments

     18,883        18,883   

Restricted cash

     62,692        105,040   

Derivative assets

     966        1,954   

Receivables from brokers, dealers and clearing organizations

     30,632        —     

Receivables and other assets

     21,021        23,319   
  

 

 

   

 

 

 
     3,256,019        3,179,324   
  

 

 

   

 

 

 

Recourse Financing Structures and Unlevered Assets

    

Real estate securities, available for sale

     532,609        252,530   

Real estate related loans, held for sale, net

     —          6,366   

Residential mortgage loans, held for sale, net

     2,946        2,687   

Investments in excess mortgage servicing rights at fair value

     265,132        43,971   

Other investments

     6,024        6,024   

Cash and cash equivalents

     102,647        157,356   

Receivables and other assets

     28,313        3,541   
  

 

 

   

 

 

 
     937,671        472,475   
  

 

 

   

 

 

 
   $ 4,193,690      $ 3,651,799   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities

    

Non-Recourse VIE Financing Structures

    

CDO bonds payable

   $ 2,350,648      $ 2,403,605   

Other bonds and notes payable

     179,001        200,377   

Repurchase agreements

     5,538        6,546   

Financing of subprime mortgage loans subject to call option

     405,247        404,723   

Derivative liabilities

     101,809        119,320   

Payables to brokers, dealers and clearing organizations

     20,560        —     

Accrued expenses and other liabilities

     14,228        16,112   
  

 

 

   

 

 

 
     3,077,031        3,150,683   
  

 

 

   

 

 

 

Recourse Financing Structures and Other Liabilities

    

Repurchase agreements

     317,972        233,194   

Junior subordinated notes payable

     51,246        51,248   

Dividends payable

     30,366        16,707   

Due to affiliates

     8,448        1,659   

Purchase price payable on investments in excess mortgage servicing rights

     31,382        3,250   

Payables to brokers, dealers and clearing organizations

     68,296        —     

Accrued expenses and other liabilities

     6,219        2,969   
  

 

 

   

 

 

 
     513,929        309,027   
  

 

 

   

 

 

 
     3,590,960        3,459,710   
  

 

 

   

 

 

 

Stockholders’ 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 June 30, 2012 and December 31, 2011

     61,583        61,583   

Common stock, $0.01 par value, 500,000,000 shares authorized, 147,187,757 shares issued and outstanding at June 30, 2012 and December 31, 2011

     1,472        1,052   

Additional paid-in capital

     1,542,806        1,275,792   

Accumulated deficit

     (1,022,604     (1,073,252

Accumulated other comprehensive income (loss)

     19,473        (73,086
  

 

 

   

 

 

 
     602,730        192,089   
  

 

 

   

 

 

 
   $ 4,193,690      $ 3,651,799   
  

 

 

   

 

 

 

 

10


Newcastle Investment Corp.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

      Three Months Ended June 30     Six Months Ended June 30  
      2012     2011     2012     2011  

Cash flows From Operating Activities

        

Net income

     30,439        99,135        103,910        208,808   

Adjustment to reconcile net income to net cash provided by (used in) operating activities (inclusive of amounts related to discontinued operations):

        

Depreciation and amortization

     87        91        174        137   

Accretion of discount and other amortization

     (13,647     (11,036     (25,860     (21,807

Interest income in CDOs redirected for reinvestment or CDO bond paydown

     (1,215     (2,855     (2,445     (6,579

Interest income on investments accrued to principal balance

     (5,621     (4,763     (10,914     (9,298

Interest expense on debt accrued to principal balance

     109        104        218        514   

Deferred interest received

     —          —          —          1,027   

Non-cash directors’ compensation

     220        122        220        122   

Reversal of valuation allowance on loans

     (3,223     (14,555     (12,254     (55,862

Other-than-temporary impairment on securities

     11,722        5,488        13,673        9,589   

Impairment on real estate held-for-sale

     —          —          —          433   

Change in fair value on investments in excess mortgage servicing rights

     (3,523     —          (4,739     —     

Gain on settlement of investments (net) and real estate held-for-sale

     1,177        (35,608     (3,646     (68,766

Unrealized loss on non-hedge derivatives and hedge ineffectiveness

     4,562        10,993        2,476        11,194   

Gain on extinguishment of debt

     (39     (33,443     (20,782     (44,485

Change in:

        

Restricted cash

     78        136        364        245   

Receivables and other assets

     (4,925     1,116        (4,371     1,076   

Due to affiliates

     334        167        334        99   

Accrued expenses and other liabilities

     3,536        (12     2,977        (73
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     20,071        15,080        39,335        26,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities

        

Principal repayments from repurchased CDO debt

     8,070        39,155        12,567        48,881   

Principal repayments from CDO securities

     329        8,865        527        8,865   

Principal repayments from non-Agency RMBS

     4,162        28        4,173        70   

Return of investment in excess mortgage servicing rights

     2,395        —          4,820        —     

Principal repayments from loans and non-CDO securities (excluding non-Agency RMBS)

     15,232        14,300        38,115        51,863   

Purchase of real estate securities

     (223,330     (90,644     (227,670     (180,245

Proceeds from sale of real estate securities

     —          3,885        —          3,885   

Acquisition of investments in excess mortgage servicing rights

     (187,438     —          (190,510     —     

Acquisition of servicing rights

     —          (186     —          (2,268

Deposit paid on investment in excess mortgage servicing rights

     (16,801     —          (16,801     —     

Payments on settlement of derivative instruments

     —          (14,322     —          (14,322
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (397,381     (38,919     (374,779     (83,271
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows From Financing Activities

        

Repurchases of CDO bonds payable

     (18     (85,981     (9,177     (87,064

Issuance of other bonds payable

     —          142,736        —          142,736   

Repayments of other bonds payable

     (11,234     (173,782     (21,684     (184,242

Borrowings under repurchase agreements

     98,077        28,598        102,194        108,576   

Repayments of repurchase agreements

     (8,291     (6,356     (18,424     (9,263

Issuance of common stock

     268,050        —          268,050        98,843   

Costs related to issuance of common stock

     (621     (410     (621     (468

Common Stock dividends paid

     (21,036     —          (36,813     —     

Preferred Stock dividends paid

     (1,395     (1,396     (2,790     (5,581

Payment of deferred financing costs

     —          (1,546     —          (1,546

Restricted cash returned from refinancing activities

     —          62,220        —          62,220   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     323,532        (35,917     280,735        124,211   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     (53,778     (59,756     (54,709     67,314   

Cash and Cash Equivalents, Beginning of Period

     156,425        160,594        157,356        33,524   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 102,647      $ 100,838      $ 102,647      $ 100,838   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

        

Cash paid during the period for interest expense

     19,664        24,410      $ 40,390      $ 53,169   

Supplemental Schedule of Non-Cash Investing and Financing Activities

        

Preferred stock dividends declared but not paid

   $ 930      $ 930      $ 930      $ 930   

Common stock dividends declared but not paid

   $ 29,436      $ 7,930      $ 29,436      $ 7,930   

Securities purchased, not yet settled

   $ 68,296      $ 85,278      $ 68,296      $ 85,278   

Purchase price payable on investments in excess mortgage servicing rights

   $ 31,382      $ —        $ 31,382      $ —     

Deposit on senior living assets due to affiliates

   $ 5,930      $ —        $ 5,930      $ —     

 

11


Newcastle Investment Corp.

Reconciliation of Core Earnings

(dollars in thousands)

 

      Three Months Ended June 30,     Six Months Ended June 30,  
      2012     2011     2012     2011  

Income available for common stockholders

   $ 29,044      $ 97,740      $ 101,120      $ 206,018   

Add (Deduct):

        

Impairment (reversal)

     8,499        (9,067     1,419        (46,273

Other income

     1,359        (58,889     (28,393     (104,358

Loss (Income) from discontinued operations

     (261     (190     (525     —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 38,641      $ 29,594      $ 73,621      $ 55,387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Core Earnings

 

   

Core earnings is used by management to gauge the current performance of Newcastle without taking into account gains and losses, which, although they represent a part of our recurring operations, are subject to significant variability and are only a potential indicator of future economic performance. Management views this measure as Newcastle’s “core” current earnings, while gains and losses (including impairment) are simply a potential indicator of future earnings. Management believes that this measure provides investors with useful information regarding Newcastle’s “core” current earnings, and it enables investors to evaluate Newcastle’s current performance using the same measure that management uses to operate the business. Core earnings does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of its liquidity and is not necessarily indicative of cash available to fund cash needs. The Company’s calculation of core earnings may be different from the calculation used by other companies and, therefore, comparability may be limited.

Newcastle Investment Corp.

Reconciliation of Cash Available for Distribution

(dollars in thousands)

 

      Three Months Ended June 30,  
      2012     2011  

Reconciliation of Cash Available for Distribution:

    

Net cash provided by operating activities

     20,071        15,080   

Principal repayments bought at a discount(1)

     12,561        48,020   

Less: Return of capital included above(2)

     (9,802     (35,684
  

 

 

   

 

 

 

Subtotal

     2,759        12,336   

Preferred dividends(3)

     (1,395     (1,395
  

 

 

   

 

 

 

Cash Available for Distribution

   $ 21,435      $ 26,021   
  

 

 

   

 

 

 

Other data from the Consolidated Statements of Cash Flows:

    

Net cash provided by (used in) investing activities

   $ (397,392   $ (38,919

Net cash provided by (used in) financing activities

     323,532        (35,917

Net increase (decrease) in cash and cash equivalents

     (53,789     (59,756

 

(1) Excludes principal repayments on assets purchased at par or assets where the principal received is required to pay down Newcastle’s debt (assets held in its CDO’s, MH loans and Agency securities).
(2) Represents the portion of principal repayments from repurchased CDO debt, CDO securities, and Non-Agency RMBS computed based on the ratio of Newcastle’s purchase price of such debt or securities to the aggregate principal payments expected to be received from such debt or securities.
(3) Represents preferred dividends to be paid on an accrual basis (payments are made at the end of Jan, Apr, Jul and Oct).

Cash Available for Distribution (“CAD”)

 

   

Management believes that CAD is useful for investors because it is a meaningful measure of the Company’s operating liquidity. It represents GAAP net cash provided by operating activities adjusted for two factors:

 

  1. Principal payments received in excess of the portion which represents a return of Newcastle’s invested capital in certain of Newcastle’s investments, which were acquired at a significant discount to par. These investments include repurchased CDO debt, CDO securities and non-Agency RMBS. Although these net principal repayments are reported as investing activities for GAAP purposes, they actually represent a portion of Newcastle’s return on these investments (or yield), rather than a return of Newcastle’s invested capital.

 

12


  2. Preferred dividends. Although these dividends are reported as financing activities for GAAP purposes, they represent a recurring use of Newcastle’s operating cash flow similar to interest payments on debt.

 

   

Management uses CAD as an important input in determining cash available to pay dividends to Newcastle’s common stockholders.

 

   

CAD excludes principal repayments on assets purchased at par or assets where the principal received is required to pay down Newcastle’s debt (assets held in the its CDOs, MH loans and Agency securities). Furthermore, net cash provided by operating activities, a primary element of CAD, includes timing differences based on changes in accruals. CAD does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of the Company’s liquidity and is not necessarily indicative of cash available to fund cash needs. The Company’s calculation of CAD may be different from the calculation used by other companies and therefore comparability may be limited.

 

13