New Residential Investment Corp. (NYSE: NRZ; “New Residential”
or the “Company”) today reported the following information for the
fourth quarter and full year ended December 31, 2017:
FOURTH QUARTER FINANCIAL
HIGHLIGHTS:
- GAAP Net Income of $288 million, or
$0.93 per diluted share
- Core Earnings of $189 million, or $0.61
per diluted share*
- Common dividend of $154 million, or
$0.50 per share
FULL YEAR 2017 FINANCIAL
HIGHLIGHTS:
- GAAP Net Income of $958 million, or
$3.15 per diluted share
- Core Earnings of $861 million, or $2.83
per diluted share*
- Common dividend of $609 million, or
$1.98 per share
4Q 2017 3Q 2017 Year Ended
December 31, 2017
Year Ended
December 31, 2016
Summary Operating Results: GAAP Net Income per Diluted
Share** $0.93 $0.73 $3.15 $2.12 GAAP Net Income
$288
million
$226
million
$958 million $504 million
Non-GAAP Results: Core
Earnings per Diluted Share** $0.61 $0.64 $2.83 $2.14 Core Earnings*
$189 million $199 million $861 million $511 million
NRZ
Common Dividend: Common Dividend per Share** $0.50 $0.50 $1.98
$1.84 Common Dividend $154 million $154 million $609 million $443
million
* Core Earnings is a non-GAAP measure. For
a reconciliation of Core Earnings to GAAP Net Income, as well as an
explanation of this measure, please refer to Non-GAAP Measures and
Reconciliation to GAAP Net Income below.
** Per share calculations of GAAP Net
Income and Core Earnings are based on 310,388,102 weighted average
diluted shares during the quarter ended December 31, 2017,
309,207,345 weighted average diluted shares during the quarter
ended September 30, 2017, 304,381,388 weighted average diluted
shares during the year ended December 31, 2017, and 238,486,772
weighted average diluted shares during the year ended December 31,
2016. Per share calculations of Common Dividend are based on
307,361,309 basic shares outstanding as of December 31, 2017 and
September 30, 2017, and 250,773,117 basic shares outstanding as of
December 31, 2016.
Fourth Quarter 2017 & Subsequent Highlights:
- Acquisition of Shellpoint
Partners -
- On November 29, 2017, New Residential
announced definitive agreements to acquire Shellpoint Partners LLC
(“Shellpoint”), a vertically integrated mortgage platform with
established origination and servicing capabilities, for
approximately $190 million, net of financing. (1) As part of the
acquisition, New Residential purchased and settled on approximately
$8 billion UPB of Fannie Mae and Freddie Mac MSRs from Shellpoint
in January 2018. The corporate acquisition is expected to close in
the first half of 2018, subject to receipt of regulatory approvals
and certain third party consents and satisfaction of certain other
closing conditions.
- Mortgage Servicing Rights
(“MSRs”) -
- During and subsequent to fourth quarter
2017, New Residential acquired or agreed to acquire MSRs totaling
approximately $32 billion UPB for an aggregate purchase price of
approximately $307 million. In addition, to further enhance
liquidity, NRZ priced two fixed rate MSR notes in January and
February 2018, totaling $930 million, at a weighted average cost of
funds of ~3.6%.
- In January 2018, as part of the
Company’s previously announced MSR transfer agreement with Ocwen
Financial Corporation (“Ocwen”)(2), New Residential paid Ocwen an
approximately $280 million restructuring fee to obtain the
remaining rights to MSRs on the legacy Non-Agency MSR portfolio
totaling $87 billion UPB. (3) Under the New RMSR Agreement, Ocwen
will transfer the remaining $87 billion UPB Non-Agency MSRs (3) to
New Residential.
- Non-Agency Securities & Call
Rights -
- During the fourth quarter, New
Residential continued to accelerate the execution around its deal
collapse strategy by executing clean-up calls on 36 seasoned,
Non-Agency residential mortgage-backed securities (“RMBS”) deals
with an aggregate UPB of approximately $1 billion. In addition,
subsequent to the fourth quarter, New Residential completed a $727
million Non-Agency loan securitization.
- In the fourth quarter, New Residential
continued to strategically invest in Non-Agency securities that are
expected to be accretive to the Company’s call rights strategy. New
Residential purchased $882 million face value of Non-Agency RMBS,
bringing net equity to approximately $1.4 billion as of December
31, 2017.
- Servicer Advances -
- New Residential continued to focus on
lowering advance balances during the quarter. Advances declined to
$4.1 billion in the fourth quarter, down approximately 31%
year-over-year.
(1)
Shellpoint total purchase price is subject
to certain adjustments, plus potential additional consideration
pursuant to a three-year earnout based on the performance of
Shellpoint after closing.
(2)
In July 2017, New Residential and Ocwen
signed definitive agreements for the transfer of Ocwen’s interest
in MSRs and subservicing relating to approximately $110 billion UPB
(balance as of June 30, 2017) of Non-Agency MSRs. In January 2018,
New Residential and Ocwen entered into new agreements (“New RMSR
Agreement”), which accelerated certain parts of the July 2017
agreements, including, but not limited to, lump sum payments made
by New Residential to Ocwen while the companies continue to obtain
the third party consents necessary to transfer the MSRs from Ocwen
to New Residential.
(3)
In the third quarter of 2017, New
Residential paid Ocwen $55 million in restructuring fees for
approximately $16 billion UPB of MSRs. Total portfolio UPB
decreased from $110 billion to $87 billion prior to entering into
the New RMSR Agreement as a result of amortization and the transfer
of such MSRs.
ADDITIONAL INFORMATION
For additional information that management believes to be useful
for investors, please refer to the latest presentation posted on
the Investor Relations section of the Company’s website,
www.newresi.com. For consolidated investment portfolio information,
please refer to the Company’s most recent Quarterly Report on Form
10-Q or Annual Report on Form 10-K, which are available on the
Company’s website, www.newresi.com.
EARNINGS CONFERENCE CALL
New Residential’s management will host a conference call on
Tuesday, February 13, 2018 at 8:00 A.M. Eastern Time. A copy of the
earnings release will be posted to the Investor Relations section
of New Residential’s website, www.newresi.com.
All interested parties are welcome to participate on the live
call. The conference call may be accessed by dialing 1-866-393-1506
(from within the U.S.) or 1-281-456-4044 (from outside of the U.S.)
ten minutes prior to the scheduled start of the call; please
reference “New Residential Fourth Quarter & Full Year 2017
Earnings Call.”
A simultaneous webcast of the conference call will be available
to the public on a listen-only basis at www.newresi.com. Please
allow extra time prior to the call to visit the website and
download any necessary software required to listen to the internet
broadcast.
A telephonic replay of the conference call will also be
available two hours following the call’s completion through 11:59
P.M. Eastern Time on Tuesday, February 27, 2018 by dialing
1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from
outside of the U.S.); please reference access code “5739907.”
Consolidated Statements of
Income
($ in thousands, except share and per
share data)
Year Ended
December 31,
2017
2016
2015
(unaudited) Interest income $ 1,519,679 $ 1,076,735 $
645,072 Interest expense 460,865 373,424
274,013
Net Interest Income 1,058,814
703,311 371,059
Impairment Other-than-temporary impairment (OTTI) on
securities 10,334 10,264 5,788 Valuation and loss provision
(reversal) on loans and real estate owned 75,758
77,716 18,596 86,092 87,980
24,384 Net interest income after
impairment 972,722 615,331 346,675 Servicing revenue, net
424,349 118,169 —
Other Income Change in fair value of
investments in excess mortgage servicing rights 4,322 (7,297 )
38,643 Change in fair value of investments in excess mortgage
servicing rights, equity method investees 12,617 16,526 31,160
Change in fair value of investments in mortgage servicing rights
financing receivables 66,394 — — Change in fair value of servicer
advance investments 84,418 (7,768 ) (57,491 ) Gain on consumer
loans investment — 9,943 43,954 Gain on remeasurement of consumer
loans investment — 71,250 — Gain (loss) on settlement of
investments, net 10,310 (48,800 ) (19,626 ) Earnings from
investments in consumer loans, equity method investees 25,617 — —
Other income (loss), net 4,108 28,483
5,389 207,786 62,337 42,029
Operating Expenses General and administrative
expenses 67,159 38,570 61,862 Management fee to affiliate 55,634
41,610 33,475 Incentive compensation to affiliate 81,373 42,197
16,017 Loan servicing expense 52,330 44,001 6,469 Subservicing
expense 166,081 7,832 —
422,577 174,210 117,823
Income Before Income Taxes 1,182,280 621,627 270,881 Income
tax expense (benefit) 167,628 38,911
(11,001 )
Net Income $ 1,014,652 $ 582,716 $ 281,882
Noncontrolling Interests in Income of Consolidated
Subsidiaries $ 57,119 $ 78,263 $ 13,246
Net
Income Attributable to Common Stockholders $ 957,533 $ 504,453
$ 268,636
Net Income Per Share of Common
Stock Basic $ 3.17 $ 2.12 $ 1.34 Diluted $ 3.15 $
2.12 $ 1.32
Weighted Average Number of
Shares of Common Stock Outstanding Basic 302,238,065
238,122,665 200,739,809 Diluted
304,381,388 238,486,772 202,907,605
Dividends Declared per Share of Common Stock $ 1.98 $
1.84 $ 1.75
Consolidated Balance Sheets
($ in thousands)
December 31,
2017
December 31,
2016
Assets (unaudited) Investments in: Excess mortgage
servicing rights, at fair value $ 1,173,713 $ 1,399,455 Excess
mortgage servicing rights, equity method investees, at fair value
171,765 194,788 Mortgage servicing rights, at fair value 1,735,504
659,483 Mortgage servicing rights financing receivables, at fair
value 598,728 — Servicer advance investments, at fair value
4,027,379 5,706,593 Real estate and other securities,
available-for-sale 8,071,140 5,073,858 Residential mortgage loans,
held-for-investment 691,155 190,761 Residential mortgage loans,
held-for-sale 1,725,534 696,665 Real estate owned 128,295 59,591
Consumer loans, held-for-investment 1,374,263 1,799,486 Consumer
loans, equity method investees 51,412 — Cash and cash equivalents
295,798 290,602 Restricted cash 150,252 163,095 Servicer advances
receivable 675,593 81,582 Trades receivable 1,030,850 1,687,788
Deferred tax asset, net — 151,284 Other assets 312,181
244,498 $ 22,213,562 $ 18,399,529
Liabilities and
Equity Liabilities Repurchase agreements $
8,662,139 $ 5,190,631 Notes and bonds payable 7,084,391 7,990,605
Trades payable 1,169,896 1,381,968 Due to affiliates 88,961 47,348
Dividends payable 153,681 115,356 Deferred tax liability, net
19,218 — Accrued expenses and other liabilities 239,114
205,444 17,417,400 14,931,352
Commitments and Contingencies Equity
Common Stock, $0.01 par value,
2,000,000,000 shares authorized, 307,361,309 and250,773,117 issued
and outstanding at December 31, 2017 and December 31,
2016,respectively
3,074 2,507 Additional paid-in capital 3,763,188 2,920,730 Retained
earnings 559,476 210,500 Accumulated other comprehensive income
(loss) 364,467 126,363 Total New Residential
stockholders’ equity 4,690,205 3,260,100 Noncontrolling interests
in equity of consolidated subsidiaries 105,957
208,077 Total Equity 4,796,162 3,468,177 $ 22,213,562
$ 18,399,529
NON-GAAP MEASURES AND RECONCILIATION TO GAAP NET
INCOME
New Residential has four primary variables that impact its
operating performance: (i) the current yield earned on the
Company’s investments, (ii) the interest expense under the debt
incurred to finance the Company’s investments, (iii) the Company’s
operating expenses and taxes and (iv) the Company’s realized and
unrealized gains or losses, including any impairment, on the
Company’s investments. “Core earnings” is a non-GAAP measure of the
Company’s operating performance, excluding the fourth variable
above and adjusts the earnings from the consumer loan investment to
a level yield basis. Core earnings is used by management to
evaluate the Company’s performance without taking into account: (i)
realized and unrealized gains and losses, which although they
represent a part of the Company’s recurring operations, are subject
to significant variability and are generally limited to a potential
indicator of future economic performance; (ii) incentive
compensation paid to the Company’s manager; (iii) non-capitalized
transaction-related expenses; and (iv) deferred taxes, which are
not representative of current operations.
The Company’s definition of core earnings includes accretion on
held-for-sale loans as if they continued to be held-for-investment.
Although the Company intends to sell such loans, there is no
guarantee that such loans will be sold or that they will be sold
within any expected timeframe. During the period prior to sale, the
Company continues to receive cash flows from such loans and
believes that it is appropriate to record a yield thereon. In
addition, the Company’s definition of core earnings excludes all
deferred taxes, rather than just deferred taxes related to
unrealized gains or losses, because the Company believes deferred
taxes are not representative of current operations. The Company’s
definition of core earnings also limits accreted interest income on
RMBS where the Company receives par upon the exercise of associated
call rights based on the estimated value of the underlying
collateral, net of related costs including advances. The Company
created this limit in order to be able to accrete to the lower of
par or the net value of the underlying collateral, in instances
where the net value of the underlying collateral is lower than par.
The Company believes this amount represents the amount of accretion
the Company would have expected to earn on such bonds had the call
rights not been exercised.
The Company’s investments in consumer loans are accounted for
under ASC No. 310-20 and ASC No. 310-30, including certain
non-performing consumer loans with revolving privileges that are
explicitly excluded from being accounted for under ASC No. 310-30.
Under ASC No. 310-20, the recognition of expected losses on these
non-performing consumer loans is delayed in comparison to the level
yield methodology under ASC No. 310-30, which recognizes income
based on an expected cash flow model reflecting an investment’s
lifetime expected losses. The purpose of the core earnings
adjustment to adjust consumer loans to a level yield is to present
income recognition across the consumer loan portfolio in the manner
in which it is economically earned, avoid potential delays in loss
recognition, and align it with the Company’s overall portfolio of
mortgage-related assets which generally record income on a level
yield basis. With respect to consumer loans classified as
held-for-sale, the level yield is computed through the expected
sale date. With respect to the gains recorded under GAAP in 2014
and 2016 as a result of a refinancing of the debt related to the
Company’s investments in consumer loans, and the consolidation of
entities that own the Company’s investments in consumer loans,
respectively, the Company continues to record a level yield on
those assets based on their original purchase price.
While incentive compensation paid to the Company’s manager may
be a material operating expense, the Company excludes it from core
earnings because (i) from time to time, a component of the
computation of this expense will relate to items (such as gains or
losses) that are excluded from core earnings, and (ii) it is
impractical to determine the portion of the expense related to core
earnings and non-core earnings, and the type of earnings (loss)
that created an excess (deficit) above or below, as applicable, the
incentive compensation threshold. To illustrate why it is
impractical to determine the portion of incentive compensation
expense that should be allocated to core earnings, the Company
notes that, as an example, in a given period, it may have core
earnings in excess of the incentive compensation threshold but
incur losses (which are excluded from core earnings) that reduce
total earnings below the incentive compensation threshold. In such
case, the Company would either need to (a) allocate zero incentive
compensation expense to core earnings, even though core earnings
exceeded the incentive compensation threshold, or (b) assign a “pro
forma” amount of incentive compensation expense to core earnings,
even though no incentive compensation was actually incurred. The
Company believes that neither of these allocation methodologies
achieves a logical result. Accordingly, the exclusion of incentive
compensation facilitates comparability between periods and avoids
the distortion to the Company’s non-GAAP operating measure that
would result from the inclusion of incentive compensation that
relates to non-core earnings.
With regard to non-capitalized transaction-related expenses,
management does not view these costs as part of the Company’s core
operations, as they are considered by management to be similar to
realized losses incurred at acquisition. Non-capitalized
transaction-related expenses are generally legal and valuation
service costs, as well as other professional service fees, incurred
when the Company acquires certain investments, as well as costs
associated with the acquisition and integration of acquired
businesses.
Management believes that the adjustments to compute “core
earnings” specified above allow investors and analysts to readily
identify and track the operating performance of the assets that
form the core of the Company’s activity, assist in comparing the
core operating results between periods, and enable investors to
evaluate the Company’s current core performance using the same
measure that management uses to operate the business. Management
also utilizes core earnings as a measure in its decision-making
process relating to improvements to the underlying fundamental
operations of the Company’s investments, as well as the allocation
of resources between those investments, and management also relies
on core earnings as an indicator of the results of such decisions.
Core earnings excludes certain recurring items, such as gains and
losses (including impairment as well as derivative activities) and
non-capitalized transaction-related expenses, because they are not
considered by management to be part of the Company’s core
operations for the reasons described herein. As such, core earnings
is not intended to reflect all of the Company’s activity and should
be considered as only one of the factors used by management in
assessing the Company’s performance, along with GAAP net income
which is inclusive of all of the Company’s activities.
The primary differences between core earnings and the measure
the Company uses to calculate incentive compensation relate to (i)
realized gains and losses (including impairments), (ii)
non-capitalized transaction-related expenses and (iii) deferred
taxes (other than those related to unrealized gains and losses).
Each are excluded from core earnings and included in the Company’s
incentive compensation measure (either immediately or through
amortization). In addition, the Company’s incentive compensation
measure does not include accretion on held-for-sale loans and the
timing of recognition of income from consumer loans is different.
Unlike core earnings, the Company’s incentive compensation measure
is intended to reflect all realized results of operations. The Gain
on Remeasurement of Consumer Loans Investment was treated as an
unrealized gain for the purposes of calculating incentive
compensation and was therefore excluded from such calculation.
Core earnings does not represent and should not be considered as
a substitute for, or superior to, net income or as a substitute
for, or superior to, cash flows from operating activities, each as
determined in accordance with U.S. GAAP, and the Company’s
calculation of this measure may not be comparable to similarly
entitled measures reported by other companies. Set forth below is a
reconciliation of core earnings to the most directly comparable
GAAP financial measure (in thousands):
Three Months Ended Year Ended
December 31,
December 31,
2017
September 30,
2017
2017 2016 Net income attributable to common
stockholders $ 288,302 $ 226,121 $ 957,533 $ 504,453 Impairment
11,975 28,209 86,092 87,980 Other Income adjustments: Other Income
Change in fair value of investments in excess mortgage servicing
rights (36,972 ) 14,291 (4,322 ) 7,297 Change in fair value of
investments in excess mortgage servicing rights, equity method
investees (6,561 ) (2,054 ) (12,617 ) (16,526 ) Change in fair
value of investments in mortgage servicing rights financing
receivables (13,746 ) (89,115 ) (109,584 ) — Change in fair value
of servicer advance investments (13,949 ) (10,941 ) (84,418 ) 7,768
Gain on consumer loans investment — — — (9,943 ) Gain on
remeasurement of consumer loans investment — — — (71,250 ) (Gain)
loss on settlement of investments, net (9,060 ) (1,553 ) (10,310 )
48,800 Unrealized (gain) loss on derivative instruments 2,066
(3,560 ) 2,190 (5,774 ) Unrealized (gain) loss on other ABS (2,543
) (189 ) (2,883 ) 2,322 (Gain) loss on transfer of loans to REO
(6,147 ) (5,179 ) (22,938 ) (18,356 ) (Gain) loss on transfer of
loans to other assets (129 ) (66 ) (488 ) (2,938 ) Gain on Excess
MSR recapture agreements (436 ) (606 ) (2,384 ) (2,802 ) Gain
(loss) on Ocwen common stock 1,641 (6,987 ) (5,346 ) — Other
(income) loss 9,136 6,700 27,741
9,437 Total Other Income Adjustments
(76,700 ) (99,259 ) (225,359 ) (51,965 )
Other Income and Impairment attributable to non-controlling
interests (5,986 ) (6,329 ) (30,416 ) (26,303 ) Change in fair
value of investments in mortgage servicing rights (78,030 ) 11,518
(155,495 ) (103,679 ) Non-capitalized transaction-related expenses
7,326 6,467 21,723 9,493 Incentive compensation to affiliate 9,250
19,491 81,373 42,197 Deferred taxes 54,502 28,410 168,518 34,846
Interest income on residential mortgage loans, held-for sale 1,554
4,603 13,623 18,356 Limit on RMBS discount accretion related to
called deals (8,593 ) (13,543 ) (28,652 ) (30,233 ) Adjust consumer
loans to level yield (17,790 ) (9,874 ) (41,250 ) 7,470 Core
earnings of equity method investees: Excess mortgage servicing
rights 3,681 3,476 13,691
18,206
Core Earnings $ 189,491 $
199,290 $ 861,381 $ 510,821
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this press release constitutes as
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, including, but not
limited to the timing of and ability to complete the closing of the
Shellpoint corporate acquisition. These statements are not
historical facts. They represent management’s current expectations
regarding future events and are subject to a number of trends and
uncertainties, many of which are beyond our control, which could
cause actual results to differ materially from those described in
the forward-looking statements. Accordingly, you should not place
undue reliance on any forward-looking statements contained herein.
For a discussion of some of the risks and important factors that
could affect such forward-looking statements, see the sections
entitled “Cautionary Statements Regarding Forward Looking
Statements,” “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the
Company’s annual and quarterly reports and other filings filed with
the SEC, which are available on the Company’s website
(www.newresi.com). New risks and uncertainties emerge from time to
time, and it is not possible for New Residential 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.
Forward-looking statements contained herein speak only as of the
date of this press release, and New Residential expressly disclaims
any obligation to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change
in New Residential's expectations with regard thereto or change in
events, conditions or circumstances on which any statement is
based.
ABOUT NEW RESIDENTIAL
New Residential focuses on opportunistically investing in, and
actively managing, investments related to residential real estate.
The Company primarily targets investments in mortgage servicing
related assets and other related opportunistic investments. New
Residential 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.
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New Residential Investment Corp.Investor Relations,
212-479-3150
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