Tue. May 17th, 2022

NEW YORK, May 03, 2022–(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, 2022:

First Quarter 2022 Financial Highlights:

  • GAAP net income of $661.9 million, or $1.37 per diluted common share(1)

  • Core earnings of $177.4 million, or $0.37 per diluted common share(1)(2)

  • Common dividend of $116.7 million, or $0.25 per common share

  • Book value per common share of $12.56(1)

Q1 2022

Q4 2021

Summary Operating Results:

GAAP Net Income per Diluted Common Share(1)

$

1.37

$

0.33

GAAP Net Income

$

661.9

million

$

160.4

million

Non-GAAP Results:

Core Earnings per Diluted Common Share(1)

$

0.37

$

0.40

Core Earnings(2)

$

177.4

million

$

191.9

million

NRZ Common Dividend:

Common Dividend per Share

$

0.25

$

0.25

Common Dividend

$

116.7

million

$

116.7

million

“New Residential’s performance in the first quarter demonstrated the strength and balance of our company,” said Michael Nierenberg, Chairman, Chief Executive Officer and President of New Residential. “Our diversified investment management company performed exceptionally well, generating a ~5% total shareholder return and growing book value by ~10% to $12.56 per share. We expect book value growth to continue in the second quarter given the upward move in treasury yields and the Fed’s expected policy actions,” he added.

“With $1.7 billion of cash and liquidity coupled with the expected market volatility ahead, we should see terrific opportunities to deploy capital effectively and generate great returns for our shareholders in 2022 and beyond.”

First Quarter 2022 Company Highlights:

  • Origination

    • Segment pre-tax income of $25.9 million (down from $82.3 million in Q4’21)(3)(4)

    • Quarterly origination funded production of $26.9 billion UPB (down from $38.1 billion UPB in Q4’21)

    • Total gain on sale margin of 1.53% for the first quarter of 2022 compared to 1.65% for the fourth quarter of 2021

(1)

Per common share calculations for GAAP Net Income and Core Earnings are based on 484,425,066 and 485,381,890 weighted average diluted shares for the quarter ended March 31, 2022 and December 31, 2021, respectively. Per share calculations of Book Value are based on 466,786,526 and 466,758,266 common shares outstanding as of March 31, 2022 and December 31, 2021, respectively.

(2)

Core Earnings is a non-GAAP financial 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.

(3)

Includes noncontrolling interests.

(4)

Includes mortgage company corporate expenses re-allocated from MSR Related Investments to Origination and Servicing segments.

(5)

Includes excess and full 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, May 3, 2022 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 1-833-974-2382 (from within the U.S.) or 1-412-317-5787 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “New Residential First Quarter 2022 Earnings Call.” In addition, participants are encouraged to pre-register for the conference call at https://dpregister.com/sreg/10166255/f2692aef34.

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 10, 2022 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 “4221662.”

Consolidated Statements of Income (Unaudited)

($ in thousands, except share and per share data)

Three Months Ended

March 31, 2022

December 31,

2021

Revenues

Servicing fee revenue, net and interest income from MSR financing receivables

$

456,400

$

464,200

Change in fair value of MSRs and MSR financing receivables (including amortization of $(200,325), $(267,880), respectively)

575,393

(154,021

)

Servicing revenue, net

1,031,793

310,179

Interest income

225,413

217,555

Gain on originated residential mortgage loans, held-for-sale, net

471,996

569,815

1,729,202

1,097,549

Expenses

Interest expense and warehouse line fees

138,833

141,936

General and administrative

246,238

289,861

Compensation and benefits

392,619

441,891

Management fee to affiliate

25,189

25,772

802,879

899,460

Other income (loss)

Change in fair value of investments

(147,119

)

10,499

Gain (loss) on settlement of investments, net

61,184

(45,642

)

Other income (loss), net

56,072

54,271

(29,863

)

19,128

Impairment

Provision (reversal) for credit losses on securities

711

(181

)

Valuation and credit loss provision (reversal) on loans and real estate owned

3,029

74

3,740

(107

)

Income before income taxes

892,720

217,324

Income tax expense

202,789

29,485

Net income

$

689,931

$

187,839

Noncontrolling interests in income (loss) of consolidated subsidiaries

5,609

4,908

Dividends on preferred stock

22,461

22,495

Net income attributable to common stockholders

$

661,861

$

160,436

Net income per share of common stock

Basic

$

1.42

$

0.34

Diluted

$

1.37

$

0.33

Weighted average number of shares of common stock outstanding

Basic

466,785,584

466,680,724

Diluted

484,425,066

485,381,890

Dividends declared per share of common stock

$

0.25

$

0.25

Consolidated Balance Sheets

($ in thousands, except share data)

March 31,

2022

(Unaudited)

December 31,

2021

Assets

Excess mortgage servicing rights, at fair value

$

341,187

$

344,947

Mortgage servicing rights and mortgage servicing rights financing receivables, at fair value

7,964,465

6,858,803

Servicer advance investments, at fair value

390,770

421,807

Real estate and other securities

9,509,930

9,396,539

Residential loans and variable interest entity consumer loans held-for-investment, at fair value

1,009,459

1,077,224

Residential mortgage loans, held-for-sale ($7,076,916 and $11,214,924 at fair value, respectively)

7,202,475

11,347,845

Single-family rental properties, held-for-investment

814,871

579,607

Mortgage loans receivable, at fair value

1,670,415

1,515,762

Residential mortgage loans subject to repurchase

1,700,426

1,787,314

Cash and cash equivalents

1,671,177

1,332,575

Restricted cash

295,037

195,867

Servicer advances receivable

2,652,210

2,855,148

Other assets

2,646,125

2,028,752

$

37,868,547

$

39,742,190

Liabilities and Equity

Liabilities

Secured financing agreements

$

17,281,873

$

20,592,884

Secured notes and bonds payable ($762,421 and $511,107 at fair value, respectively)

9,279,595

8,644,810

Residential mortgage loan repurchase liability

1,700,426

1,787,314

Unsecured senior notes, net of issuance costs

543,728

543,293

Due to affiliates

9,932

17,819

Dividends payable

127,895

127,922

Accrued expenses and other liabilities

1,740,386

1,358,768

30,683,835

33,072,810

Commitments and Contingencies

Equity

Preferred stock, $0.01 par value, 100,000,000 shares authorized, 52,038,000 and 52,210,000 issued and outstanding, $1,300,959 and $1,305,250 aggregate liquidation preference, respectively

1,258,667

1,262,481

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 466,786,526 and 466,758,266 issued and outstanding, respectively

4,669

4,669

Additional paid-in capital

6,059,981

6,059,671

Retained earnings (accumulated deficit)

(267,878

)

(813,042

)

Accumulated other comprehensive income

67,195

90,253

Total New Residential stockholders’ equity

7,122,634

6,604,032

Noncontrolling interests in equity of consolidated subsidiaries

62,078

65,348

Total equity

7,184,712

6,669,380

$

37,868,547

$

39,742,190

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 on investments, including any impairment or reserve for expected credit losses and (v) income from the Company’s 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.

Beginning January 1, 2020, the Company’s investments in consumer loans are accounted for under the fair value option. Core earnings adjusts earnings on consumer loans to a level yield to present income recognition across the consumer loan portfolio in the manner in which it is economically earned, to 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, and the consolidation 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.

Through its wholly owned subsidiaries, the Company 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 Origination and Servicing 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.

Core earnings includes results from operating companies with the exception of the unrealized gains or losses due to changes in valuation inputs and assumptions on MSRs, net of unrealized gains and losses on hedged MSRs, and non-capitalized transaction-related expenses.

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 and reserves 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 and reserves for expected credit losses), (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.

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 (dollars in thousands, except share and per share data):

Three Months Ended

March 31,

2022

December 31,

2021

Net income attributable to common stockholders

$

661,861

$

160,436

Adjustments for Non-Core Earnings:

Impairment

3,740

(107

)

Change in fair value of investments

(628,599

)

(124,356

)

(Gain) loss on settlement of investments, net

(28,342

)

53,933

Other (income) loss, net

(61,575

)

28,416

Other income and impairment attributable to noncontrolling interests

5,609

(3,297

)

Non-capitalized transaction-related expenses

13,485

16,735

Preferred stock management fee to affiliate

4,729

4,734

Deferred taxes

201,323

31,674

Interest income on residential mortgage loans, held-for-sale

2,334

23,175

Core earnings of equity method investees:

Excess mortgage servicing rights

2,830

532

Core earnings

$

177,395

$

191,875

Net income per diluted share

$

1.37

$

0.33

Core earnings per diluted share

$

0.37

$

0.40

Weighted average number of shares of common stock outstanding, diluted

484,425,066

485,381,890

SEGMENT INFORMATION

Origination and Servicing

Residential Securities,

Properties and Loans

First Quarter 2022

Origination

Servicing

MSR

Related

Investments

Real Estate

Securities

Properties &

Residential

Mortgage

Loans

Mortgage

Loans

Receivable

Corporate &

Other

Total

Servicing fee revenue, net and interest income from MSRs and MSR financing receivables

$

(653

)

$

349,058

$

107,995

$

$

$

$

$

456,400

Change in fair value of MSRs and MSR financing receivables

497,317

78,076

575,393

Servicing revenue, net

(653

)

846,375

186,071

1,031,793

Interest income

55,371

11,353

15,702

56,349

26,989

34,277

25,372

225,413

Gain on originated mortgage loans, held-for-sale, net

407,269

61,762

566

471,996

Total revenues

461,987

919,490

201,773

56,349

27,555

34,277

25,372

1,729,202

Interest expense

29,435

33,706

26,365

9,029

20,868

6,969

12,461

138,833

G&A and other

408,758

124,780

56,010

772

23,434

16,408

33,884

664,046

Total operating expenses

438,193

158,486

82,375

9,801

44,302