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Newcastle Announces Third Quarter 2012 Results

Stocks in this article: NCT

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.

 

Newcastle Investment Corp.

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except share data)

 
        Three Months Ended September 30 Nine Months Ended September 30
2012       2011     2012       2011
Interest income $ 82,850 $ 72,393 $ 240,187 $ 218,739
Interest expense   28,411     32,587     88,038     106,502  
Net interest income   54,439     39,806     152,149     112,237  
 
Impairment (Reversal)
Valuation allowance (reversal) on loans 4,094 17,644 (8,160 ) (38,218 )
Other-than-temporary impairment on securities (236 ) 5,537 16,506 14,433

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)

  1,156     (1,531 )   (1,913 )   (838 )
  5,014     21,650     6,433     (24,623 )
 
Net interest income after impairment 49,425 18,156 145,716 136,860
 
Other Revenues
Rental income 6,137 - 6,137 -
Care and ancillary income   1,411     -     1,411     -  
Total other revenues   7,548     -     7,548     -  
 
Other Income (Loss)
Gain (loss) on settlement of investments, net 229,239 5,636 232,885 75,334
Gain on extinguishment of debt 2,345 15,917 23,127 60,402
Change in fair value of investments in excess mortgage servicing rights 1,774 - 6,513 -
Other income (loss), net   2,424     (2,751 )   1,650       (12,576 )
  235,782     18,802     264,175       123,160  
Expenses
Loan and security servicing expense 1,054 1,198 3,256 3,458
Property operating expenses 4,742 - 4,742 -
General and administrative expense 4,703 1,399 13,193 4,649
Management fee to affiliate 6,852 4,569 17,459 13,313
Depreciation and amortization   2,370     -     2,370     -  
  19,721     7,166     41,020     21,420  
 
Income from continuing operations 273,034 29,792 376,419 238,600
Income (loss) from discontinued operations   187     151     712     151  
Net Income 273,221 29,943 377,131 238,751
Preferred dividends   (1,395 )   (1,395 )   (4,185 )   (4,185 )
Income Available for Common Stockholders $ 271,826   $ 28,548   $ 372,946   $ 234,566  
Income Per Share of Common Stock
Basic $ 1.65   $ 0.35   $ 2.77   $ 3.16  
Diluted $ 1.63   $ 0.35   $ 2.74   $ 3.16  
Income from continuing operations per share of common stock,
after preferred dividends
Basic $ 1.65   $ 0.35   $ 2.77   $ 3.16  
Diluted $ 1.63   $ 0.35   $ 2.74   $ 3.16  
Income (loss) from discontinued operations per share
of common stock
Basic $ -   $ -   $ -   $ -  
Diluted $ -   $ -   $ -   $ -  
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   164,237,757     80,425,197     134,619,858     74,168,573  
Diluted   166,429,120     80,441,593     135,869,332     74,177,027  
 
Dividends Declared per Share of Common Stock $ 0.22   $ 0.15   $ 0.62   $ 0.25  
 
 

Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)

 
        September 30, 2012    
(Unaudited) December 31, 2011
Assets

Non-Recourse VIE Financing Structures

Real estate securities, available for sale $ 591,929 $ 1,479,214
Real estate related loans, held for sale, net 832,885 807,214
Residential mortgage loans, held for investment, net 301,370 331,236
Subprime mortgage loans subject to call option 405,525 404,723
Operating real estate, held for sale 7,839 7,741
Other investments 18,883 18,883
Restricted cash 2,829 105,040
Derivative assets - 1,954
Receivables and other assets   6,432     23,319  
  2,167,692     3,179,324  

Recourse Financing Structures, Mortgaged Real Estate and Unlevered Assets

Real estate securities, available for sale 788,431 252,530
Real estate related loans, held for sale, net 9,418 6,366
Residential mortgage loans, held for sale, net 2,566 2,687
Investments in excess mortgage servicing rights at fair value 258,347 43,971
Investments in real estate, net of accumulated depreciation 126,798 -
Resident lease intangibles, net of accumulated amortization 14,755 -
Other investments 6,024 6,024
Cash and cash equivalents 229,036 157,356
Derivative assets 224 -
Receivables and other assets   33,571     3,541  
  1,469,170     472,475  
$ 3,636,862   $ 3,651,799  
 
Liabilities and Stockholders' Equity
Liabilities

Non-Recourse VIE Financing Structures

CDO bonds payable $ 1,155,080 $ 2,403,605
Other bonds and notes payable 197,583 200,377
Repurchase agreements 5,368 6,546
Financing of subprime mortgage loans subject to call option 405,525 404,723
Derivative liabilities 36,519 119,320
Accrued expenses and other liabilities   8,241     16,112  
  1,808,316     3,150,683  

Recourse Financing Structures, Mortgages and Other Liabilities

Repurchase agreements 599,959 233,194
Mortgage notes payable 88,400 -
Junior subordinated notes payable 51,245 51,248
Dividends payable 38,877 16,707
Due to affiliates 3,351 1,659
Purchase price payable on investments in excess mortgage servicing rights 3,250 3,250
Accrued expenses and other liabilities   9,278     2,969  
  794,360     309,027  
  2,602,676     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 September 30, 2012 and
December 31, 2011 61,583 61,583
Common stock, $0.01 par value, 500,000,000 shares authorized, 172,487,757 and
105,181,009 shares issued and outstanding at September 30, 2012 and December 31, 2011 1,725 1,052
Additional paid-in capital 1,709,905 1,275,792
Accumulated deficit (788,725 ) (1,073,252 )
Accumulated other comprehensive income (loss)   49,698     (73,086 )
  1,034,186     192,089  
$ 3,636,862   $ 3,651,799  
 

Newcastle Investment Corp.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 
         

Three Months Ended

September 30,

Nine Months Ended

September 30,

2012       2011     2012       2011
 
Cash flows From Operating Activities
Net income 273,221 29,943 377,131 238,751
Adjustment to reconcile net income to net cash provided by (used in) operating activities
(inclusive of amounts related to discontinued operations):
Depreciation and amortization 2,527 88 2,701 225
Accretion of discount and other amortization (13,063 ) (11,407 ) (38,923 ) (33,214 )
Interest income in CDOs redirected for reinvestment or CDO bond paydown (499 ) (2,402 ) (2,944 ) (8,981 )
Interest income on investments accrued to principal balance (5,845 ) (5,005 ) (16,759 ) (14,303 )
Interest expense on debt accrued to principal balance 110 105 328 619
Payment of Deferred Interest (568 ) - (568 ) -
Deferred interest received - - - 1,027
Non-cash directors' compensation - - 220 122
Reversal of valuation allowance on loans 4,094 17,644 (8,160 ) (38,218 )
Other-than-temporary impairment on securities 920 4,006 14,593 13,595
Impairment on real estate held-for-sale - - - 433
Change in fair value on investments in excess mortgage servicing rights (1,774 ) - (6,513 ) -
Gain on settlement of investments (net) and real estate held-for-sale (229,239 ) (5,697 ) (232,885 ) (74,463 )
Unrealized loss on non-hedge derivatives and hedge ineffectiveness (1,975 ) 3,289 501 14,483
Gain on extinguishment of debt (2,345 ) (15,917 ) (23,127 ) (60,402 )
Change in:
Restricted cash 1,377 1,004 1,741 1,249
Receivables and other assets 5,459 (548 ) 1,088 528
Due to affiliates 1,358 14 1,692 113
Accrued expenses and other liabilities   (1,359 )   130     1,618     57  
Net cash provided by (used in) operating activities   32,399     15,247     71,734     41,621  
 

Cash Flows From Investing Activities

Principal repayments from repurchased CDO debt 8,780 8,227 21,347 57,108
Principal repayments from CDO securities 919 969 1,446 9,834
Principal repayments from non-Agency RMBS 8,267 37 12,440 107
Return of investment in excess mortgage servicing rights 8,507 13,327 -
Principal repayments from loans and non-CDO securities (excluding non-Agency RMBS) 32,283 13,786 70,398 65,649
Purchase of real estate securities (370,099 ) (122,856 ) (597,769 ) (303,101 )
Purchase of real estate loans (9,216 ) - (9,216 ) -
Proceeds from sale of investments 127,000 - 127,000 3,885
Acquisition of investments in excess mortgage servicing rights (28,132 ) - (218,642 ) -
Acquisition of investments in real estate (141,576 ) - (141,576 ) -
Additions to investments in real estate (26 ) - (26 ) -
Proceeds from sale of real estate held for sale - 650 - 650
Acquisition of servicing rights - - - (2,268 )
Deposit paid on investments (9,056 ) - (25,857 ) -
Payments on settlement of derivative instruments   -     -     -     (14,322 )
Net cash provided by (used in) investing activities   (372,349 )   (99,187 )   (747,128 )   (182,458 )
 
Cash flows From Financing Activities
Repurchases of CDO bonds payable (26,518 ) (3,975 ) (35,695 ) (91,039 )
Issuance of other bonds payable - - - 142,736
Repayments of other bonds payable (11,493 ) (10,137 ) (33,177 ) (194,379 )
Borrowings under repurchase agreements 305,684 183,242 407,878 291,818
Repayments of repurchase agreements (23,867 ) (80,359 ) (42,291 ) (89,622 )
Margin deposits under repurchase agreement (26,503 ) (5,219 ) (43,960 ) (8,597 )
Return of margin deposits under repurchase agreements 25,990 5,219 43,447 8,597
Borrowings under mortgage loan payable 88,400 - 88,400 -
Issuance of common stock 167,771 112,724 435,821 211,567
Costs related to issuance of common stock (219 ) - (840 ) (468 )
Common Stock dividends paid (29,436 ) (7,930 ) (66,249 ) (7,930 )
Preferred Stock dividends paid (1,395 ) (1,395 ) (4,185 ) (6,976 )
Payment of deferred financing costs (1,831 ) (35 ) (1,831 ) (1,581 )
Purchase of derivative instruments (244 ) - (244 ) -
Restricted cash returned from refinancing activities   -     (3,853 )   -     58,367  
Net cash provided by (used in) financing activities   466,339     (188,282 )   747,074     312,493  
 
Net Increase (Decrease) in Cash and Cash Equivalents 126,389 104,342 71,680 171,656
 
Cash and Cash Equivalents, Beginning of Period   102,647     100,838     157,356     33,524  
 
Cash and Cash Equivalents, End of Period $ 229,036   $ 205,180   $ 229,036   $ 205,180  
 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense 18,994 23,561 $ 59,384 $ 76,730
 
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 $ 37,947 $ 15,776 $ 37,947 $ 15,776
Purchase price payable on investments in excess mortgage servicing rights $ 3,250 $ - $ 3,250 $ -
Re-issuance of other bonds and notes payable to third parties upon deconsolidation of CDO $ 29,959 $ 5,751 $ 29,959 $ 5,751
 

Newcastle Investment Corp.

Reconciliation of Core Earnings

(dollars in thousands)

 
        Three Months Ended September 30,     Nine Months Ended September 30,
2012       2011 2012       2011
Income (loss) applicable to common stockholders $ 271,826 $ 28,548 $ 372,946 $ 234,566
Add (Deduct):
Impairment (Reversal) 5,014 21,650 6,433 (24,623 )
Other income (235,782 ) (18,802 ) (264,175 ) (123,160 )
(Income) loss from discontinued operations (187 ) (151 ) (712 ) (151 )
Depreciation and amortization   2,370     -     2,370     -  
Core earnings $ 43,241   $ 31,245   $ 116,862   $ 86,632  
 

Core Earnings

Core earnings is used by management to gauge the current performance of Newcastle without taking into account of 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. It also excludes the effect of depreciation and amortization charges, which, in the judgment of management, are not indicative of operating performance.

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 September 30,
2012       2011
Reconciliation of Cash Available for Distribution:
Net cash provided by operating activities 32,399 15,247
 
Principal repayments bought at a discount (1) 17,966 9,233
Less: Return of capital included above (2)   (13,399 )   (5,298 )
Subtotal 4,567 3,935
 
Preferred dividends (3)   (1,395 )   (1,395 )
Cash Available for Distribution $ 35,571   $ 17,787  
 
Other data from the Consolidated Statements of Cash Flows:
Net cash provided by (used in) investing activities $ (372,349 ) $ (99,187 )
Net cash provided by (used in) financing activities 466,339 188,282
Net increase (decrease) in cash and cash equivalents 126,389 104,342
 

(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).

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