Quarterly report pursuant to Section 13 or 15(d)

REAL ESTATE SECURITIES (Tables)

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REAL ESTATE SECURITIES (Tables)
 9 Months Ended
Sep. 30, 2013
Real Estate Securities Tables  
Schedule of Real Estate Securities Holdings

The following is a summary of Newcastle’s real estate securities at September 30, 2013, 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     Maturity
(Years) (C)		     Principal Subordination (D)  
CMBS-Conduit   $ 247,582     $ 228,850     $ (82,947 )   $ 145,903     $ 52,338     $ (201 )   $ 198,040       35     B+     5.51 %     14.17 %     3.2       9.5 %
CMBS- Single Borrower     91,877       90,996       (12,364 )     78,632       4,946       —       83,578       15     BB     5.67 %     4.75 %     2.7       6.3 %
CMBS-Large Loan     4,458       4,411       —       4,411       47       —       4,458       1     BBB-     6.06 %     11.92 %     0.4       6.2 %
REIT Debt     29,200       28,607       —       28,607       2,608       —       31,215       5     BB+     5.89 %     6.86 %     1.8       N/A  
Non-Agency RMBS (E)     101,315       103,810       (62,860 )     40,950       16,576       (20 )     57,506       34     CCC     1.10 %     13.14 %     5.0       28.0 %
ABS-Franchise     8,464       7,647       (7,647 )     —       —       —       —       1     C     6.69 %     0.00 %     —       0.0 %
FNMA/FHLMC (H)     362,484       386,640       —       386,640       2,151       (1,183 )     387,608       46     AAA     2.82 %     1.27 %     3.7       N/A  
CDO (F)     193,435       76,091       (14,861 )     61,230       1,977       (113 )     63,094       12     CCC+     2.99 %     7.70 %     1.2       19.8 %
Total / Average (G)   $ 1,038,815     $ 927,052     $ (180,679 )   $ 746,373     $ 80,643     $ (1,517 )   $ 825,499       149     BBB-     3.71 %     5.64 %     3.1          

  

(A) See Note 10 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. Newcastle used an implied AAA rating for the FNMA/FHLMC securities. 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 maturity 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) Includes the retained bond with a face amount of $4.0 million and a carrying value of $1.9 million from Securitization Trust 2006 (Note 6).

(F) Includes two CDO bonds issued by a third party with a carrying value of $58.0 million, four CDO bonds issued by CDO V (which has been de-consolidated) and held as investments by Newcastle with a carrying value of $5.1 million and six CDO bonds issued by C-BASS Investment Management LLC (“C-BASS”) with zero carrying value.

(G) The total outstanding face amount was $0.4 billion for fixed rate securities and $0.6 billion for floating rate securities.

(H) Amortized cost basis and carrying value include principal receivable of $4.2 million.
Schedule of Real Estate Securities Holdings in an Unrealized Loss Position

The following table summarizes Newcastle’s securities in an unrealized loss position as of September 30, 2013.

 

          Amortized Cost Basis     Gross Unrealized                 Weighted Average  
Securities in   Outstanding           Other-than-                             Number                          
an Unrealized   Face     Before     Temporary     After                 Carrying     of                       Maturity  
Loss Position   Amount     Impairment     Impairment     Impairment     Gains     Losses     Value     Securities     Rating     Coupon     Yield     (Years)  
Less Than                                                                        
Twelve Months   $ 223,008     $ 226,596     $ (4,437 )   $ 222,159     $ —     $ (1,107 )   $ 221,052       23       AA-       2.17 %     3.05 %     3.1  
Twelve or More Months     39,196       40,725       —       40,725       —       (410 )     40,315       4       A+       3.78 %     2.56 %     2.8  
Total   $ 262,204     $ 267,321     $ (4,437 )   $ 262,884     $ —     $ (1,517 )   $ 261,367       27       AA-       2.41 %     2.98 %     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:

 

    September 30, 2013  
          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     2,139       2,160       (4,359 )     (21 )
Non credit impaired securities     259,228       260,724       —       (1,496 )
Total debt securities in an unrealized loss position   $ 261,367     $ 262,884     $ (4,359 )   $ (1,517 )

 

(A) Newcastle may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, Newcastle must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

(B) This amount is required to be recorded as other-than-temporary impairment through earnings. In measuring the portion of credit losses, Newcastle’s management estimates the expected cash flow for each of the securities.  This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends.  Significant inputs in estimating the cash flows include management’s expectations of prepayment speeds, default rates and loss severities.  Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.

(C) This amount represents unrealized losses on securities that are due to non-credit factors and is required to be recorded through other comprehensive income.

 
Schedule of Credit Losses on Debt Securities

The following table summarizes the activity related to credit losses on debt securities for the nine months ended September 30, 2013:

 

Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income   $ (4,770 )
         
Additions for credit losses on securities for which an OTTI was not previously recognized     (1 )
         
Increases to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income     (89 )
         
Additions for credit losses on securities for which an OTTI was previously recognized without any portion of OTTI recognized in other comprehensive income     (4,317 )
         
Reduction for credit losses on securities for which no OTTI was recognized in other comprehensive income at the current measurement date     —  
         
Reduction for securities sold during the period     4,739  
         
Reduction for securities transferred to New Residential     —  
         
Reduction for securities de-consolidated during the period     —  
         
Reduction for increases in cash flows expected to be collected that are recognized over the remaining life of the security     79  
         
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income   $ (4,359 )

 
Schedule of Geographic Distribution of Collateral Securing Newcastle's CMBS and ABS

The table below summarizes the geographic distribution of the collateral securing Newcastle’s CMBS and asset backed securities (“ABS”) at September 30, 2013:

 

    CMBS     ABS  
Geographic Location     Outstanding Face Amount       Percentage       Outstanding Face Amount       Percentage  
Western U.S.   $ 73,846       21.5 %   $ 33,394       30.4 %
Northeastern U.S.     64,203       18.6 %     22,869       20.8 %
Southeastern U.S.     67,648       19.7 %     21,845       19.9 %
Midwestern U.S.     54,720       15.9 %     14,417       13.1 %
Southwestern U.S.     65,889       19.2 %     11,036       10.1 %
Other     12,719       3.7 %     6,218       5.7 %
Foreign     4,892       1.4 %     —       0.0 %
    $ 343,917       100.0 %   $ 109,779       100.0 %