Rithm Capital (RITM) - 2023 Q3 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) Rithm Capital reported Q3 2023 net income of $221.2 million and total assets of $34.7 billion, with nine-month net income at $697.8 million Consolidated Balance Sheet Highlights (Unaudited) | Metric | September 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Assets | $34,745,528 | $32,479,336 | | Mortgage servicing rights | $8,694,868 | $8,889,403 | | Real estate and other securities | $10,193,596 | $8,289,277 | | Cash and cash equivalents | $1,217,283 | $1,336,508 | | Total Liabilities | $27,477,565 | $25,469,268 | | Secured financing agreements | $13,605,380 | $11,257,736 | | Secured notes and bonds payable | $9,964,855 | $10,098,943 | | Total Equity | $7,267,963 | $7,010,068 | Consolidated Statement of Operations Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2023 ($ thousands) | Three Months Ended Sep 30, 2022 ($ thousands) | Nine Months Ended Sep 30, 2023 ($ thousands) | Nine Months Ended Sep 30, 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,089,415 | $910,847 | $2,911,034 | $3,960,028 | | Total Expenses | $759,178 | $723,697 | $2,124,553 | $2,663,319 | | Net Income | $221,191 | $154,190 | $697,825 | $877,452 | | Net Income Attributable to Common Stockholders | $193,949 | $124,456 | $620,204 | $783,039 | | Diluted EPS | $0.40 | $0.26 | $1.28 | $1.62 | Consolidated Cash Flow Highlights (Unaudited) | Metric | Nine Months Ended Sep 30, 2023 ($ thousands) | Nine Months Ended Sep 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,667,487 | $6,732,161 | | Net cash used in investing activities | $(1,453,938) | $(854,825) | | Net cash used in financing activities | $(245,453) | $(5,456,203) | | Net (Decrease) Increase in Cash | $(31,904) | $421,133 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management reported strong Q3 2023 economic data, increased book value per share, and adequate liquidity for planned acquisitions Book Value Per Common Share Trend | Date | Book Value Per Common Share | | :--- | :--- | | September 30, 2023 | $12.32 | | June 30, 2023 | $12.16 | | March 31, 2023 | $11.67 | | December 31, 2022 | $12.00 | | September 30, 2022 | $12.10 | - The company's total assets reached approximately $34.7 billion as of September 30, 2023, with a workforce of around 6,098 employees[297] - Management noted strong Q3 2023 economic data, including a 4.9% annualized real GDP increase, but also highlighted persistent inflation and a tight labor market. The 10-year U.S. Treasury rate rose to 4.6%, and the 30-year fixed mortgage rate was 7.3%[299][300][306] - The company has sufficient liquidity to finance the acquisitions of Sculptor ($719.8 million, expected Q4 2023) and Computershare ($720 million, expected Q1 2024) using cash on hand, available liquidity, and additional MSR/servicer advance financing[432] - As of September 30, 2023, the company's regulated servicer subsidiaries (NRM, Newrez, Caliber) held $737.9 million in liquidity excess of the new regulatory requirements that became effective on that date[433][440] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate, mortgage basis spread, prepayment, and credit risks, with book value sensitive to rate changes Interest Rate Sensitivity on Book Value (Pre-tax) | Interest Rate Change (bps) | Estimated Change in Book Value ($ millions) | | :--- | :--- | | +50 | +116.9 | | +25 | +60.0 | | -25 | -60.0 | | -50 | -125.0 | Mortgage Basis Spread Sensitivity on Book Value (Pre-tax) | Mortgage Basis Change (bps) | Estimated Change in Book Value ($ millions) | | :--- | :--- | | +20 | -53.8 | | +10 | -26.8 | | -10 | +26.8 | | -20 | +53.0 | - The company's primary market risks are identified as interest rate risk, mortgage basis spread risk, prepayment rate risk, and credit risk[487] - The company uses recapture agreements on a significant portion of its MSRs and Excess MSRs to mitigate the negative impact of increasing prepayment rates in a declining interest rate environment[491][502] Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[512] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[513] Part II. Other Information Legal Proceedings The company is involved in various legal and regulatory matters, including Sculptor acquisition proceedings, with no material adverse effect anticipated - The company is subject to various legal disputes and regulatory inquiries that arise in the ordinary course of business[515] - Specific legal proceedings concerning the acquisition of Sculptor Capital Management are detailed in Note 25 to the Consolidated Financial Statements[516] Risk Factors New risks related to the Sculptor acquisition include completion failure, integration challenges, litigation, and business disruption - The acquisition of Sculptor is subject to customary closing conditions, including Sculptor stockholder approval, and there is no assurance it will be consummated[518][519] - The company faces challenges in successfully integrating Sculptor's business, which could result in delays, increased costs, and failure to achieve anticipated synergies[524][525] - Stockholder litigation has been filed seeking to enjoin the transaction, which could result in damages, divert management's attention, and materially affect the business[526] - Uncertainties related to the acquisition may cause a loss of key management personnel and employees from both Rithm and Sculptor[532] - The company's ability to utilize Sculptor's significant tax attributes, such as net operating losses, will be significantly limited due to an "ownership change" under Section 382 of the Code[535]