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Newcastle Announces Fourth Quarter & Full Year 2012 Results

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.

           

Newcastle Investment Corp.

Consolidated Statements of Income

(dollars in thousands, except share data)

 
Three Months Ended December 31, Year Ended
2012       2011 December 31, 2012
(unaudited)     (unaudited)
Interest income $ 70,272 $ 73,557 $ 310,459
Interest expense   21,886         31,533     109,924  
Net interest income   48,386         42,024     200,535  
 
Impairment (Reversal)
Valuation allowance (reversal) on loans (16,427 ) 23,055 (24,587 )
Other-than-temporary impairment on securities 2,853 (1,478 ) 19,359
Impairment of long-lived assets - - -
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)

  1,477         3,723     (436 )
  (12,097 )       25,300     (5,664 )
 
Net interest income after impairment 60,483 16,724 206,199
 
Other Revenues
Rental income 9,397 488 17,081
Care and ancillary income   1,583         -     2,994  
Total other revenues   10,980         488     20,075  
 
Other Income (Loss)
Gain (loss) on settlement of investments, net 12 2,847 232,897
Gain on extinguishment of debt 958 5,708 24,085
Change in fair value of investments in excess mortgage servicing rights 2,510 367 9,023
Other income (loss), net   12,062         3,708     13,712  
  15,542         12,630     279,717  
Expenses
Loan and security servicing expense 1,004 1,191 4,260
Property operating expenses 7,443 306 12,943
General and administrative expense 9,739 2,654 22,942
Management fee to affiliate 7,234 4,976 24,693
Depreciation and amortization   4,586         1     6,975  
  30,006         9,128     71,813  
 
Income from continuing operations 56,999 20,714 434,178
Income (loss) from discontinued operations   (20 )       (18 )   (68 )
Net Income 56,979 20,696 434,110
Preferred dividends   (1,395 )       (1,395 )   (5,580 )
Income Available for Common Stockholders $ 55,584       $ 19,301   $ 428,530  
Income Per Share of Common Stock
Basic $ 0.32       $ 0.18   $ 2.97  
Diluted $ 0.32       $ 0.18   $ 2.94  
Income from continuing operations per share of common stock,
after preferred dividends
Basic $ 0.32       $ 0.18   $ 2.97  
Diluted $ 0.32       $ 0.18   $ 2.94  
Income (loss) from discontinued operations per share
of common stock
Basic $ -       $ -   $ -  
Diluted $ -       $ -   $ -  
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   172,518,808         105,175,323     144,146,370  
Diluted   175,413,251         105,175,323     145,766,413  
 
Dividends Declared per Share of Common Stock $ 0.22       $ 0.15   $ 0.84  
 
 
       

Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)

 
December 31,
2012         2011
Assets
Real estate securities, available-for-sale $ 1,691,575 $ 1,731,744
Real estate related loans, held-for-sale, net 843,132 813,580
Residential mortgage loans, held-for-investment, net 292,461 331,236
Residential mortgage loans, held-for-sale, net 2,471 2,687

Investments in excess mortgage servicing rights at fair value

245,036 43,971
Subprime mortgage loans subject to call option 405,814 404,723
Investments in real estate, net of accumulated depreciation 169,473 -
Intangibles, net of accumulated amortization 19,086 -
Operating real estate, held-for-sale - 7,741
Other investments 24,907 24,907
Cash and cash equivalents 231,898 157,356
Restricted cash 2,064 105,040
Derivative assets 165 1,954
Receivables and other assets   17,230     26,860  
Total Assets $ 3,945,312   $ 3,651,799  
 
Liabilities and Stockholders' Equity
Liabilities
CDO bonds payable $ 1,091,354 $ 2,403,605
Other bonds and notes payable 183,390 200,377
Repurchase agreements 929,435 239,740
Mortgage notes payable 120,525 -
Financing of subprime mortgage loans subject to call option 405,814 404,723
Junior subordinated notes payable 51,243 51,248
Derivative liabilities 31,576 119,320
Dividends payable 38,884 16,707
Due to affiliates 3,620 1,659
Purchase price payable on investments in excess mortgage servicing rights 59 3,250
Accrued expenses and other liabilities   16,352     19,081  
Total Liabilities   2,872,252     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 December 31, 2012 and
December 31, 2011 61,583 61,583
Common stock, $0.01 par value, 500,000,000 shares authorized, 172,525,645 and
105,181,009 shares issued and outstanding at December 31, 2012 and 2011, respectively 1,725 1,052
Additional paid-in capital 1,710,083 1,275,792
Accumulated deficit (771,095 ) (1,073,252 )
Accumulated other comprehensive income (loss)   70,764     (73,086 )
Total Equity   1,073,060     192,089  
Total Liabilities and Stockholders' Equity $ 3,945,312   $ 3,651,799  
 
 
     

Newcastle Investment Corp.

Consolidated Statements of Cash Flows

(dollars in thousands)

 

Three Months Ended December 31

Year Ended December 31

2012 2011 2012
(unaudited) (unaudited)
Cash flows From Operating Activities
Net income 56,979 20,696 434,110
Adjustment to reconcile net income to net cash provided by (used in) operating activities
(inclusive of amounts related to discontinued operations):
Depreciation and amortization 4,750 87 7,451
Accretion of discount and other amortization (6,659 ) (11,572 ) (45,582 )
Interest income in CDOs redirected for reinvestment or CDO bond paydown (2,540 ) (1,298 ) (5,484 )
Interest income on investments accrued to principal balance (6,076 ) (5,204 ) (22,835 )
Interest expense on debt accrued to principal balance 109 109 437
Non-cash directors' compensation 60 27 280
Reversal of valuation allowance on loans (16,427 ) 23,055 (24,587 )
Other-than-temporary impairment on securities 4,330 2,245 18,923
Change in fair value on investments in excess mortgage servicing rights (2,510 ) (367 ) (9,023 )
Gain on settlement of investments (net) and real estate held-for-sale (12 ) (2,847 ) (232,897 )
Unrealized loss on non-hedge derivatives and hedge ineffectiveness (3,048 ) (2,911 ) (2,547 )
Gain on extinguishment of debt (958 ) (5,708 ) (24,085 )
Change in:
Restricted cash 482 (88 ) 2,223
Receivables and other assets (2,790 ) (1,870 ) (1,702 )
Due to affiliates 269 127 1,961
Accrued expenses and other liabilities (359 ) 929 1,259
Payment of Deferred Interest   -     -     (568 )
Net cash provided by (used in) operating activities   25,600     15,410     97,334  
 
Cash Flows From Investing Activities
Principal repayments from repurchased CDO debt 21,488 8,804 42,835
Principal repayments from CDO securities 568 894 2,014
Principal repayments from non-Agency RMBS 8,289 11 20,729
Return of investment in excess mortgage servicing rights 15,840 760 29,167
Principal repayments from loans and non-CDO securities (excluding non-Agency RMBS) 55,727 17,140 126,125
Purchase of real estate securities (391,940 ) (30,794 ) (989,709 )
Purchase of real estate loans (18,010 ) - (27,226 )
Proceeds from sale of investments - - 127,000
Acquisition of investments in excess mortgage servicing rights (3,190 ) (40,492 ) (221,832 )
Acquisition of investments in real estate (44,110 ) - (185,686 )
Additions to investments in real estate (270 ) - (296 )
Deposit paid on investments - - (25,857 )
Return of deposit paid on investments   25,582     -     25,582  
Net cash provided by (used in) investing activities   (330,026 )   (43,677 )   (1,077,154 )
 
Cash flows From Financing Activities
Repurchases of CDO bonds payable (53 ) (10,915 ) (35,748 )
Repayments of other bonds payable (9,266 ) (9,772 ) (42,443 )
Borrowings under repurchase agreements 374,871 29,202 782,749
Repayments of repurchase agreements (50,763 ) (10,390 ) (93,054 )
Margin deposits under repurchase agreement (43,935 ) (10,270 ) (87,895 )
Return of margin deposits under repurchase agreements 44,448 10,270 87,895
Borrowings under mortgage notes payable 32,125 - 120,525
Issuance of common stock - - 435,821
Costs related to issuance of common stock (243 ) (437 ) (1,083 )
Common Stock dividends paid (37,947 ) (15,776 ) (104,196 )
Preferred Stock dividends paid (1,395 ) (1,395 ) (5,580 )
Payment of deferred financing costs (554 ) - (2,385 )
Purchase of derivative instruments - - (244 )
Restricted cash returned from refinancing activities   -     (74 )   -  
Net cash provided by (used in) financing activities   307,288     (19,557 )   1,054,362  
 
Net Increase (Decrease) in Cash and Cash Equivalents 2,862 (47,824 ) 74,542
 
Cash and Cash Equivalents, Beginning of Period   229,036     205,180     157,356  
 
Cash and Cash Equivalents, End of Period $ 231,898   $ 157,356   $ 231,898  
 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense 12,011 22,366 $ 71,395
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid $ 930 $ 930 $ 930
Common stock dividends declared but not paid $ 37,954 $ 15,776 $ 37,954
Purchase price payable on investments in excess mortgage servicing rights $ - $ - $ 59
Re-issuance of other bonds and notes payable to third parties upon deconsolidation of CDO $ 29,959 $ 5,751 $ 29,959
 
           

Newcastle Investment Corp.

Reconciliation of Core Earnings

(dollars in thousands)

 
Three Months Ended December 31, Year Ended December 31,
2012     2011 2012
Income (loss) applicable to common stockholders $ 55,584 $ 19,301 $ 428,530
Add (Deduct):
Impairment (Reversal) (12,097 ) 25,300 (5,664 )
Other income (15,542 ) (12,630 ) (279,717 )
(Income) loss from discontinued operations 20 18 68
Depreciation and amortization   4,586     1     6,975  
Core earnings $ 32,551   $ 31,990   $ 150,192  
 

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 December 31, Year Ended December 31,
2012     2011

2012

Reconciliation of Cash Available for Distribution:
Net cash provided by operating activities 25,600 15,410 97,334
 
Principal repayments bought at a discount (1) 30,345 9,698 65,578
Less: Return of capital included above (2)   (19,305 )   (5,608 )

(45,522)

Subtotal 36,640 19,500 117,390
 
Preferred dividends (3)   (1,395 )   (1,395 )

(5,580)

Cash Available for Distribution $ 35,245   $ 18,105   $111,810
 
Other data from the Consolidated Statements of Cash Flows:
Net cash provided by (used in) investing activities $ (330,026 ) $ (43,677 )

$(1,077,154)

Net cash provided by (used in) financing activities 307,288 (19,557 )

1,054,362

Net increase (decrease) in cash and cash equivalents 2,862 (47,824 )

74,542

 

(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.
  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.




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