New Residential Investment Corp. Announces First Quarter 2020 Results
NEW YORK--(BUSINESS WIRE)--New Residential Investment Corp. (NYSE: NRZ; “New Residential” or the “Company”) today reported the following information for the first quarter ended March 31, 2020: FIRST QUARTER 2020 FINANCIAL HIGHLIGHTS: GAAP Net Loss of ($1,602.3) million, or ($3.86) per diluted common share(1) Core Earnings of $198.4 million, or $0.48 per diluted common share(1)(2) Common Dividend of $20.8 million, or $0.05 per common share(1) Book Value per common share of $10.71(1) $360.5 million of cash as of March 31, 2020 1Q 2020 4Q 2019 Summary Operating Results: GAAP Net (Loss) Income per Diluted Common Share(1) ($3.86) $0.51 GAAP Net (Loss) Income ($1,602.3) million $211.8 million Non-GAAP Results: Core Earnings per Diluted Common Share(1) $0.48 $0.61 Core Earnings(2) $198.4 million $255.4 million NRZ Common Dividend: Common Dividend per Share(1) $0.05 $0.50 Common Dividend $20.8 million $207.8 million “Ahead of the unprecedented volatility in March 2020, our Company was positioned for a very strong first quarter," said Michael Nierenberg, Chairman, Chief Executive Officer and President of New Residential. "The world changed swiftly following our investor update on March 13, 2020. Subsequent to that update, asset values in the mortgage market went into free fall as liquidity left the system. In response, we sold down approximately $27.9 billion in assets and significantly de-leveraged our balance sheet. Our investment portfolio as of April 30, 2020 is 61% smaller than it was on December 31, 2019, which we believe puts us in a strong position to navigate the current and forward environment.(3) Importantly, we have continued to bolster our capital position and improve financing capacity; as of April 30, 2020, we have an estimated $517.3 million in cash and $397.4 million in unencumbered assets.(4) In particular, we have increased our advance financing capacity up to approximately $5.25 billion.(5) Looking ahead, our investment strategy will be to target assets that are term financed or low leverage. Our primary focus will be on our operating business, which includes our mortgage origination, servicing and ancillary service business lines. We believe that in today’s low interest rate environment, these businesses are particularly well-positioned to contribute to our profitability. We intend to support our investments, be opportunistic, and continue to do all we can to generate returns for our shareholders. We look forward to growing book value and returning our Company to normalcy.” FIRST QUARTER 2020 COMPANY HIGHLIGHTS: Origination Segment pre-tax net income of $60.2 million Origination production grew to $11.4 billion in unpaid principal balance (“UPB”), up 8% QoQ and 418% YoY Segment pre-tax net income of $60.2 million Origination production grew to $11.4 billion in unpaid principal balance (“UPB”), up 8% QoQ and 418% YoY Servicing Segment pre-tax net income of $30.4 million The servicing portfolio grew to $275.8 billion in UPB, up 26% QoQ and 95% YoY Segment pre-tax net income of $30.4 million The servicing portfolio grew to $275.8 billion in UPB, up 26% QoQ and 95% YoY Mortgage Servicing Rights (“MSRs”) MSR portfolio totaled approximately $648 billion UPB as of March 31, 2020, compared to $630 billion UPB as of December 31, 2019(6) MSR portfolio totaled approximately $648 billion UPB as of March 31, 2020, compared to $630 billion UPB as of December 31, 2019(6) Residential Securities and Call Rights Sold $24.9 billion of residential securities Called 15 deals with collateral of $487.7 million UPB(7) Completed one securitization of loans acquired through exercise of call rights with $545.4 million UPB of collateral Sold $24.9 billion of residential securities Called 15 deals with collateral of $487.7 million UPB(7) Completed one securitization of loans acquired through exercise of call rights with $545.4 million UPB of collateral Residential Loans Sold $2.0 billion of residential loans Completed two securitizations with total collateral of $1.5 billion UPB (one reperforming loan and one Non-Qualified Mortgage loan) Sold $2.0 billion of residential loans Completed two securitizations with total collateral of $1.5 billion UPB (one reperforming loan and one Non-Qualified Mortgage loan) Additional Updates Post Q1’20(8) $517.3 million of cash as of April 30, 2020 Increased advance capacity by up to approximately $1.8 billion(5) Priced and sold a seasoned performing loan securitization with $449.4 million UPB of collateral Reduced overall leverage to 1.5x(9) Sold $1.0 billion of residential loans $517.3 million of cash as of April 30, 2020 Increased advance capacity by up to approximately $1.8 billion(5) Priced and sold a seasoned performing loan securitization with $449.4 million UPB of collateral Reduced overall leverage to 1.5x(9) Sold $1.0 billion of residential loans ADDITIONAL INFORMATION For additional information that management believes to be useful for investors, please refer to the latest presentation posted on the Investor Relations section of the Company’s website, www.newresi.com. For consolidated investment portfolio information, please refer to the Company’s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, which are available on the Company’s website, www.newresi.com. EARNINGS CONFERENCE CALL New Residential’s management will host a conference call on Tuesday, May 5, 2020 at 8:00 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of New Residential’s website, www.newresi.com. All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-888-317-6016 (from within the U.S.) or 1-412-317-6016 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “New Residential First Quarter 2020 Earnings Call.” A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.newresi.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available two hours following the call’s completion through 11:59 P.M. Eastern Time on Tuesday, May 19, 2020 by dialing 1-877-344-7529 (from within the U.S.) or 1-412-317-0088 (from outside of the U.S.); please reference access code “10143668.” Consolidated Statements of Income ($ in thousands, except share and per share data) $ 402,373 $ 463,089 216,855 247,013 185,518 216,076 44,149 3,232 100,496 2,361 144,645 5,593 40,873 210,483 (289,115 ) 251,793 179,698 180,520 (11,024 ) (9,084 ) (457 ) 2,713 (104,111 ) (55,823 ) (18,749 ) (5,644 ) (86,792 ) (6,909 ) (265,244 ) (146,006 ) (39,982 ) (31,107 ) (799,572 ) 131,073 - (548 ) (76,730 ) 67,509 (1,402,661 ) (53,826 ) 206,363 186,676 21,721 21,211 - 42,627 7,853 5,570 66,981 79,719 302,918 335,803 (1,774,123 ) 253,167 (166,868 ) 22,786 $ (1,607,255 ) $ 230,381 $ (16,162 ) $ 10,658 $ 11,222 $ 7,943 $ (1,602,315 ) $ 211,780 $ (3.86 ) $ 0.51 $ (3.86 ) $ 0.51 415,589,155 415,520,780 415,589,155 415,673,185 $ 0.05 $ 0.50 Consolidated Balance Sheets ($ in thousands) $ 363,932 $ 379,747 119,609 125,596 3,934,384 3,967,960 1,604,431 1,718,273 515,574 581,777 2,479,603 19,477,728 824,183 925,706 1,264,533 1,429,052 3,283,973 4,613,612 780,821 827,545 360,453 528,737 147,435 162,197 3,072,863 3,301,374 3,293,976 5,256,014 176,238 8,669 1,971,467 1,559,467 $ 24,193,475 $ 44,863,454 $ 10,814,130 $ 27,916,225 7,014,579 7,720,148 20,913 902,081 17,216 103,882 28,033 211,732 968,140 773,126 18,863,011 37,627,194 150,026 150,026 273,418 273,418 389,548 - 4,157 4,156 5,500,308 5,498,226 (1,059,706 ) 549,733 6,135 682,151 5,263,886 7,157,710 66,578 78,550 5,330,464 7,236,260 $ 24,193,475 $ 44,863,454 NON-GAAP MEASURES AND RECONCILIATION TO GAAP NET INCOME New Residential has five 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, (iv) the Company’s realized and unrealized gains or losses, including any impairment, on the Company’s investments, and (v) income from its origination and servicing businesses. “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 Accounting Standards Codification (“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. Since the third quarter of 2018, as a result of its acquisition of Shellpoint Partners LLC (“Shellpoint”), the Company, through its wholly owned subsidiary, NewRez (formerly New Penn Financial), originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. In connection with the transfer of loans to the GSEs or mortgage investors, the Company reports realized gains or losses on the sale of originated residential mortgage loans and retention of mortgage servicing rights, which the Company believes is an indicator of performance for the Servicing and Origination segments and therefore included in core earnings. Realized gains or losses on the sale of originated residential mortgage loans had no impact on core earnings in any prior period, but may impact core earnings in future periods. Beginning with the third quarter of 2019, as a result of the continued evaluation of how Shellpoint operates its business and its impact on the Company’s operating performance, core earnings includes Shellpoint’s GAAP net income with the exception of the unrealized gains or losses due to changes in valuation inputs and assumptions on MSRs owned by NewRez, and non-capitalized transaction-related expenses. This change was not material to core earnings for the quarter ended September 30, 2019. 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): 2020 2019 $ (1,602,315 ) $ 211,780 144,645 5,360 504,848 (100,344 ) 18,749 5,644 86,792 6,909 265,244 145,308 39,982 31,113 811,471 (112,584 ) 83,501 (51,396 ) (22,279 ) (4,495 ) 16,902 31,984 - 42,627 2,295 1,588 (166,917 ) 20,127 12,143 15,648 (515 ) 355 3,825 5,803 $ 198,371 $ 255,427 (3.86 ) 0.51 0.48 0.61 415,589,155 415,673,185 NET INCOME BY SEGMENT $ 16,735 $ 7,487 $ 99,353 $ 184,005 $ 59,921 $ 34,872 $ 402,373 13,427 196 57,783 108,009 30,773 6,667 216,855 3,308 7,291 41,570 75,996 29,148 28,205 185,518 - - - 44,149 100,496 - 144,645 (1,078 ) 86,742 (374,779 ) - - - (289,115 ) 158,215 259 12,713 - 8,511 - 179,698 (16 ) 499 (156,933 ) (966,039 ) (192,271 ) (87,901 ) (1,402,661 ) 100,212 64,352 83,880 6,854 16,756 30,864 302,918 60,217 30,439 (561,309 ) (941,046 ) (271,864 ) (90,560 ) (1,774,123 ) 11,958 6,045 (109,785 ) - (75,201 ) 115 (166,868 ) $ 48,259 $ 24,394 $ (451,524 ) $ (941,046 ) $ (196,663 ) $ (90,675 ) $ (1,607,255 ) 1,283 - (11,247 ) - - (6,198 ) (16,162 ) $ - $ - $ - $ - $ - $ 11,222 $ 11,222 $ 46,976 $ 24,394 $ (440,277 ) $ (941,046 ) $ (196,663 ) $ (95,699 ) $ (1,602,315 ) Residential Loans $ 17,321 $ 8,665 $ 151,755 $ 186,250 $ 61,765 $ 37,333 $ 463,089 16,895 306 61,694 122,617 38,461 7,040 247,013 426 8,359 90,061 63,633 23,304 30,293 216,076 - - - 3,232 (4,050 ) 6,411 5,593 (390 ) 56,020 196,163 - - - 251,793 160,280 348 6,748 - 13,144 - 180,520 8,886 5,343 (11,876 ) (10,748 ) (42,859 ) (2,572 ) (53,826 ) 82,953 42,790 117,374 (964 ) 21,456 72,194 335,803 86,249 27,280 163,722 50,617 (23,817 ) (50,884 ) 253,167 24,286 8,150 29,819 - (39,509 ) 40 22,786 $ 61,963 $ 19,130 $ 133,903 $ 50,617 $ 15,692 $ (50,924 ) $ 230,381 1,824 - (211 ) - - 9,045 10,658 $ - $ - $ - $ - $ - $ 7,943 $ 7,943 $ 60,139 $ 19,130 $ 134,114 $ 50,617 $ 15,692 $ (67,912 ) $ 211,780 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, statements regarding our strategy, growth opportunities, ability to execute on key business initiatives and generate returns, and the ability to close any deals for which we have entered into any preliminary agreements. 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 most recent annual and quarterly reports and other filings filed with the U.S. Securities and Exchange Commission, 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 is a leading provider of capital and services to the mortgage and financial services industry. The Company’s mission is to generate attractive risk-adjusted returns in all interest rate environments through a portfolio of investments and operating businesses. New Residential has built a diversified, hard-to-replicate portfolio with high-quality investment strategies that have generated returns across different interest rate environments over time. New Residential’s portfolio is composed of mortgage servicing related assets (including investments in operating entities consisting of servicing, origination, and affiliated businesses), residential securities (and associated called rights) and loans, and consumer loans. New Residential’s investments in operating entities include its mortgage origination and servicing subsidiary, NewRez, and its special servicing division, Shellpoint Mortgage Servicing, as well as investments in affiliated businesses that provide services that are complementary to the origination and servicing businesses and other portfolios of mortgage related assets. Since inception in 2013, New Residential has a proven track record of performance, growing and protecting the value of its assets while generating attractive risk-adjusted returns and delivering approximately $3.3 billion in dividends to shareholders. New Residential is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. New Residential is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm, and headquartered in New York City.
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