Rithm Capital (US:RITM)2021-07-29 16:58Financial Data and Key Metrics Changes - The company reported a GAAP net income of $121 million or $0.26 per diluted share, reflecting a dilution of $0.03 from the equity offering related to the Caliber purchase, which translates to approximately $0.29 per share pre-dilution [24] - Core earnings were $146.6 million or $0.31 per diluted share, effectively $0.34 per diluted share before the equity offering [25] - Book value was reported at $11.27, reflecting a dilution of $0.16, with a prior quarter book value of $11.35 [26] Business Line Data and Key Metrics Changes - NewRez originated $23.5 billion in loans during Q2, with pre-tax income of $75.4 million, maintaining its status as a top 10 non-bank mortgage originator [19] - The servicing portfolio reached $305 billion with pre-tax income of $32.3 million, also maintaining a top 10 status in non-bank mortgage servicing [19] - The refinance recapture rate increased to 40%, up from 28% in the previous quarter [30] Market Data and Key Metrics Changes - The company has a total economic return for the quarter of 1.1% [26] - The combined company is projected to achieve $173 billion in origination for 2021, with a total servicing portfolio of nearly $500 billion [32] Company Strategy and Development Direction - The acquisition of Caliber is viewed as a game changer, allowing the company to compete effectively across various channels and enhance product offerings [10][11] - The company plans to focus on proprietary portfolios, including call rights, early buyouts (EBOs), and mortgage servicing rights (MSRs), while remaining patient on capital deployment [14] - The single-family rental business is expected to grow significantly, with plans to acquire $5 billion worth of homes over the next five years [42] Management's Comments on Operating Environment and Future Outlook - Management anticipates that the strong economy will lead to higher interest rates, but believes the company is well-positioned to maintain and drive higher earnings [16] - The company is confident in its ability to maintain book value and drive higher earnings through its operating companies and investment business lines [17] - Management expressed optimism about the potential for significant upside in the MSR portfolio as interest rates rise [21] Other Important Information - The company has paid $3.7 billion in dividends since inception, with a current book equity of $6.1 billion and a market capitalization of approximately $5 billion [18] - The company has $25 billion in assets and is the largest non-bank owner of mortgage servicing rights [18] Q&A Session Summary Question: Improvement in gain on sale margins - Management noted a flattening in gain on sale margins across various channels, with specific improvements in the JV and DTC channels [64] Question: Estimated 2021 origination volumes for combined Caliber and NewRez - Management explained that the estimate is based on the performance of underlying channels and the limited overlap between the two companies [66] Question: EBO opportunity size - Management confirmed that the $700 million in EBOs is on the balance sheet and indicated potential for growth depending on market conditions [72][74] Question: Recapture rates strategy - Management highlighted a focus on targeting borrowers with favorable refinancing opportunities, leading to improved recapture rates [82] Question: Capital structure and appetite for additional leverage - Management stated that there is currently no need for additional capital, with expectations of maintaining sufficient liquidity post-acquisition [85] Question: Earnings expectations for Caliber - Management reiterated that synergies from the Caliber acquisition are expected to enhance overall earnings, with projections of $150 million to $200 million in annual synergies [100][104]