Rithm Capital (RITM) - 2021 Q2 - Quarterly Report

Part I Financial Statements (Unaudited) New Residential Investment Corp. reported a net income of $447.1 million for the six months ended June 30, 2021, reversing a $1.56 billion loss, with total assets growing to $37.3 billion and equity to $6.2 billion Consolidated Balance Sheets Total assets increased to $37.3 billion as of June 30, 2021, driven by residential mortgage loans and real estate securities, while total liabilities and equity also grew Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $37,250,397 | $33,252,114 | | Mortgage servicing rights, at fair value | $3,800,593 | $3,489,675 | | Real estate and other securities | $14,956,889 | $14,244,558 | | Residential mortgage loans, held-for-sale | $7,088,441 | $5,215,703 | | Cash and cash equivalents | $956,242 | $944,854 | | Total Liabilities | $31,084,246 | $27,822,430 | | Secured financing agreements | $21,290,862 | $17,547,680 | | Total Equity | $6,166,151 | $5,429,684 | Consolidated Statements of Income Net income significantly improved to $145.7 million in Q2 2021 and $447.1 million for the six months, reversing a $1.56 billion loss, primarily due to a positive swing in servicing revenue Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $454,051 | $446,723 | $1,624,768 | $733,558 | | Total Expenses | $497,932 | $431,519 | $1,001,504 | $945,194 | | Net Income (Loss) | $145,726 | $44,129 | $447,062 | $(1,563,126) | | Net Income (Loss) Attributable to Common Stockholders | $121,315 | $(8,868) | $398,899 | $(1,611,183) | | Diluted EPS | $0.26 | $(0.02) | $0.88 | $(3.88) | Consolidated Statements of Cash Flows Net cash used in operating activities was $1.01 billion for the six months ended June 30, 2021, a shift from $2.77 billion provided in 2020, with significant changes also in investing and financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(1,006,585) | $2,766,313 | | Net cash provided by (used in) investing activities | $(2,374,125) | $16,363,229 | | Net cash provided by (used in) financing activities | $3,494,980 | $(18,668,336) | | Net Increase (Decrease) in Cash | $114,270 | $461,206 | Notes to Consolidated Financial Statements The notes detail accounting policies, business segments, fair value measurements, and debt, highlighting the agreement to acquire Caliber Home Loans Inc. for $1.675 billion - The company conducts its business through six segments: (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities and Loans, (v) Consumer Loans and (vi) Corporate[42] - On April 14, 2021, the company entered into an agreement to purchase Caliber Home Loans Inc. for $1.675 billion, with the transaction expected to close in the third quarter of 2021[44] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2021 performance to favorable economic conditions, despite decreased loan origination volume, with the company raising $512.1 million for the Caliber acquisition and reporting core earnings of $0.31 per diluted share - The company's portfolio as of June 30, 2021, totaled $37 billion in assets, with 6,129 employees within its operating entities[294] - In April 2021, the company raised net proceeds of $512.1 million from a common stock offering to finance the acquisition of Caliber Home Loans Inc.[296][297] Key Economic Indicators | Indicator | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Real GDP (Annualized Rate) | 6.5% | 6.4% | | Unemployment Rate | 5.9% | 6.0% | | 10-year U.S. Treasury Rate | 1.5% | 1.7% | | 30-year Fixed Mortgage Rate | 3.0% | 3.1% | Core Earnings Reconciliation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net (loss) income attributable to common stockholders | $121,315 | $277,584 | | Core earnings | $146,634 | $144,768 | | Net income (loss) per diluted share | $0.26 | $0.65 | | Core earnings per diluted share | $0.31 | $0.34 | Quantitative and Qualitative Disclosures About Market Risk The company faces primary market risks including interest rate, mortgage basis spread, prepayment, and credit risks, using sensitivity analysis to estimate impacts like a $223.9 million book value increase from a 50 bps interest rate rise Interest Rate Sensitivity Analysis (Estimated Change in Fair Value in millions) | Interest Rate Change (bps) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | +50 | +$223.9 | +$191.0 | | +25 | +$106.9 | +$98.0 | | -25 | -$106.9 | -$98.0 | | -50 | -$193.9 | -$199.0 | Mortgage Basis Spread Sensitivity Analysis (Estimated Change in Fair Value in millions) | Mortgage Basis Change (bps) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | +20 | +$8.6 | -$10.6 | | +10 | +$4.3 | -$5.3 | | -10 | -$4.3 | +$5.3 | | -20 | -$8.6 | +$10.6 | - The company's primary market risks are identified as interest rate risk, mortgage basis spread risk, prepayment rate risk, and credit risk[530] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[557] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[558] Part II Legal Proceedings The company is involved in various ordinary course legal and regulatory matters, which management does not expect to have a material adverse effect - The company is subject to various legal and regulatory matters in the ordinary course of business but does not currently expect them to have a material adverse effect[559][560] Risk Factors The company faces extensive risks including COVID-19 impacts, reliance on Servicing Partners, regulatory scrutiny, interest rate volatility, and integration challenges related to the pending Caliber acquisition - The COVID-19 pandemic poses significant risks, including potential adverse impacts on mortgage loan performance, market volatility leading to margin calls, and difficulties in accessing capital[562][563][564] - The company has significant counterparty concentration risk, relying heavily on its Servicing Partners (subservicers) for the performance of its MSR and servicer advance investments[593][594] - The pending acquisition of Caliber Home Loans is subject to numerous closing conditions, and failure to complete it could adversely affect the company's business and stock price[843][844] - Maintaining REIT qualification involves complex tax provisions. Failure to qualify would result in higher taxes, reduced cash for distributions, and potential delisting from the NYSE[791][792][795] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[870] Exhibits This section lists all exhibits filed with the Form 10-Q, including purchase agreements, indentures, management agreements, and required CEO/CFO certifications - Key exhibits filed include the Stock Purchase Agreement for Caliber Home Loans, Inc., the Third Amended and Restated Management and Advisory Agreement with FIG LLC, and various debt indentures[875] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[886]