Rithm Capital (US:RITM)2024-11-05 00:47Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Rithm Capital Corp. as of September 30, 2024, and for the three and nine months then ended, including balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, cash flows, and detailed notes on accounting policies, acquisitions, and segment performance Consolidated Balance Sheets As of September 30, 2024, total assets increased to $42.3 billion from $39.7 billion at year-end 2023, driven by growth in Mortgage Servicing Rights (MSRs) and government securities, while total liabilities rose to $34.5 billion from $32.6 billion due to increased secured financing, and total equity grew to $7.8 billion from $7.1 billion Consolidated Balance Sheet Highlights (as of Sept 30, 2024 vs. Dec 31, 2023) | Metric | September 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | Change ($ thousands) | | :--- | :--- | :--- | :--- | | Total Assets | 42,275,962 | 39,717,084 | +2,558,878 | | Mortgage servicing rights (MSRs) | 9,300,989 | 8,405,938 | +895,051 | | Government securities | 10,134,897 | 8,557,683 | +1,577,214 | | Cash and cash equivalents | 1,639,539 | 1,287,199 | +352,340 | | Total Liabilities | 34,524,553 | 32,616,046 | +1,908,507 | | Secured financing agreements | 15,357,630 | 12,561,283 | +2,796,347 | | Secured notes and bonds payable | 9,410,773 | 10,360,188 | -949,415 | | Total Equity | 7,751,409 | 7,101,038 | +650,371 | Consolidated Statements of Operations For Q3 2024, Net Income was $123.6 million, a decrease from $221.2 million in Q3 2023, primarily due to a significant negative change in the fair value of MSRs, resulting in diluted EPS of $0.20 compared to $0.40 in Q3 2023 Q3 and Nine Months Performance Summary | Metric (in thousands, except per share data) | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $619,514 | $1,135,405 | $3,109,539 | $3,070,533 | | Servicing revenue, net | $(254,164) | $463,359 | $730,982 | $1,278,091 | | Interest income | $550,732 | $462,497 | $1,459,271 | $1,177,688 | | Net Income | $123,581 | $221,191 | $649,585 | $697,825 | | Net Income Attributable to Common Stockholders | $97,024 | $193,949 | $571,825 | $620,204 | | Diluted EPS | $0.20 | $0.40 | $1.16 | $1.28 | | Dividends Declared per Share | $0.25 | $0.25 | $0.75 | $0.75 | - A significant factor in the Q3 2024 results was a negative change in the fair value of MSRs and MSR financing receivables of $(747.3) million, compared to a positive change of $20.9 million in Q3 202312 Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, the company experienced a net cash outflow from operating activities of $431.8 million, with investing activities using $2.1 billion, while financing activities provided $2.8 billion, resulting in a net increase in cash of $306.3 million Cash Flow Summary (Nine Months Ended Sept 30) | Cash Flow Activity ($ thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | (431,843) | 1,740,541 | | Net cash provided by (used in) investing activities | (2,087,529) | (1,491,011) | | Net cash provided by (used in) financing activities | 2,825,689 | (285,748) | | Net Increase (Decrease) in Cash | 306,317 | (36,218) | Notes to Consolidated Financial Statements The notes detail the company's business structure, accounting policies, and specifics of financial items, including the acquisition of Computershare Mortgage Services for $708.0 million and Sculptor Capital Management for $630.3 million, and the company's operation through five reportable segments - The company completed the acquisition of Computershare Mortgage Services Inc. on May 1, 2024, for a purchase price of $708.0 million, resulting in a $28.2 million bargain purchase gain4647 - The acquisition of Sculptor Capital Management, Inc. was completed on November 17, 2023, for a GAAP purchase price of approximately $630.3 million, resulting in goodwill of $46.7 million555657 - The company operates through five reportable segments: (i) Origination and Servicing, (ii) Investment Portfolio, (iii) Mortgage Loans Receivable, (iv) Asset Management, and (v) Corporate2963 - On March 19, 2024, the company issued $775.0 million of 8.000% Senior Unsecured Notes due 2029, concurrently repurchasing $275.0 million of its 6.250% Senior Unsecured Notes due 2025174187 - On September 26, 2024, the company issued 30.0 million shares of common stock in a public offering for gross proceeds of $340.2 million306 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, market conditions, and strategic initiatives, highlighting a book value per common share of $12.31, a $754.7 billion servicing portfolio, and $34.3 billion in AUM, while analyzing financial drivers, liquidity, and capital resources Book Value Per Common Share Trend | Date | Book Value per Common Share | | :--- | :--- | | September 30, 2024 | $12.31 | | June 30, 2024 | $12.39 | | March 31, 2024 | $12.19 | | December 31, 2023 | $11.90 | - The total servicing portfolio UPB increased to $754.7 billion as of September 30, 2024, a QoQ increase of $13.1 billion, driven by new client acquisition and loan production371 - Funded loan origination volume for Q3 2024 was $15.9 billion, up from $14.6 billion in Q2 2024, with gain on sale margin improved to 1.13% from 1.00% in the prior quarter379 - The company has $22.1 billion in total borrowing capacity, with $9.3 billion available as of September 30, 2024511 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to various market risks, primarily interest rate risk, mortgage basis spread risk, prepayment rate risk, and credit risk, including sensitivity analyses on book value and employed hedging strategies Interest Rate Sensitivity on Book Value (Pre-Tax) | Interest Rate Change (bps) | Estimated Change in Book Value ($ millions) | | :--- | :--- | | +50 | +83.2 | | +25 | +57.4 | | -25 | -89.0 | | -50 | -209.7 | Mortgage Basis Spread Sensitivity on Book Value (Pre-Tax) | Mortgage Basis Change (bps) | Estimated Change in Book Value ($ millions) | | :--- | :--- | | +20 | +49.7 | | +10 | +24.8 | | -10 | -24.8 | | -20 | -49.7 | - The company's primary market risks are identified as interest rate risk, mortgage basis spread risk, prepayment rate risk, and credit risk532 Item 4. Controls and Procedures Management concluded that as of September 30, 2024, the company's disclosure controls and procedures were not effective due to a previously identified material weakness in internal control over financial reporting, for which a remediation plan is underway - The Company's disclosure controls and procedures were deemed not effective as of September 30, 2024, due to a material weakness in internal control over financial reporting555 - A remediation plan is underway, which includes involving external experts, conducting formal quarterly reviews of transactions, and enhancing documentation of significant accounting judgments556557 Part II. Other Information Item 1. Legal Proceedings The company is involved in various disputes, litigation, and regulatory inquiries that arise in the ordinary course of business, none of which are currently believed to have a material adverse effect - The company states that it is not aware of any legal proceedings that would have a material adverse effect on its business, financial position, or results of operations561562 Item 1A. Risk Factors For the three months ended September 30, 2024, the company reports no material changes to the risk factors previously disclosed in its Amended 2023 Form 10-K/A and the Q2 2024 Form 10-Q - There were no material changes to the company's risk factors during the third quarter of 2024563 Other Part II Items This section covers standard SEC filing requirements, reporting no unregistered sales of equity securities, no defaults upon senior securities, and no other material information to disclose for the quarter, along with a list of exhibits - The company reported no activity for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)563564