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Press release from Business Wire

Newcastle Announces First Quarter 2011 Results

Friday, May 06, 2011

Newcastle Announces First Quarter 2011 Results07:00 EDT Friday, May 06, 2011 NEW YORK (Business Wire) -- FIRST QUARTER 2011 FINANCIAL RESULTS Newcastle Investment Corp. (NYSE: NCT) reported that in the first quarter of 2011, income applicable to common stockholders (“GAAP income”) was $108 million, or $1.73 per diluted share, compared to $180 million, or $3.36 per diluted share, in the first quarter of 2010. GAAP income of $108 million consisted of the following: $26 million, or $0.41 per diluted share, of net interest income less expenses (net of preferred dividends), compared to $13 million, or $0.24 per diluted share, in the first quarter of 2010; $45 million of other income primarily related to a $34 million net gain on the settlement of investments and an $11 million gain on the extinguishment of CDO debt; and $37 million representing the reversal of prior valuation allowances on loans net of impairment recorded on securities. In the first quarter of 2011, GAAP book value increased $323 million or $5.16 per share. As of March 31, 2011, GAAP book value was $14 million or $0.18 per share, compared to $(309) million or $(4.98) per share as of December 31, 2010. On March 29, 2011, Newcastle completed the sale of 17.3 million shares of its common stock, at a price of $6.00 per share. The net proceeds of the sale were $98 million, after deducting underwriting discounts and offering expenses. On March 30, 2011, the Board of Directors declared dividends on the Company's Series B, Series C and Series D Preferred Stock for the period beginning February 1, 2011 and ending April 30, 2011. The Company paid total dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively. For the first quarter of 2011, Newcastle's Board of Directors elected not to pay a dividend on its common stock. For a reconciliation of income applicable to common stockholders to net interest income less expenses (net of preferred dividends), please refer to the tables following the presentation of GAAP results. RECOURSE DEBT FINANCING AND CASH As of May 4, 2011, the Company's cash and current financings are set forth below. These amounts do not include the use of $25 million of unrestricted cash and $208 million of restricted cash on committed but not funded investments which are described further in subsequent events: Cash – The Company had unrestricted cash of $129 million. In addition, the Company had $152 million of restricted cash available for reinvestment within its consolidated CDOs; Margin Exposure – The Company had margin exposure of $17 million related to the financing of the Newcastle CDO VI Class I-MM notes (of which only $4 million is recourse) and $106 million related to the financing of FNMA and FHLMC securities. The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):         May 4,2011     Mar 31,2011     Dec 31,2010   CDO Cash for Reinvestment $ 152 $ 128 $ 150   Unrestricted Cash 129 161 34   Recourse Financings Non-FNMA/FHLMC (non-agency) NCT CDO senior bonds   4   4   5 Subtotal 4 4 5   FNMA/FHLMC Securities 106 79 -             Total Recourse Financings$110$83$5   CDO FINANCINGS The following table summarizes the cash receipts in the first quarter of 2011 from the Company's consolidated CDO financings, their related coverage tests and negative watch assets ($ in thousands):                                                             InterestCoveragePrimary% Excess (Deficiency)Over Collateralization Excess (Deficiency)Assets onCollateralCashMay 4,May 4, 2011 (2)March 31, 2011 (2)December 31, 2010 (2)NegativeTypeReceipts (1) 2011 (2)   %$%$%$Watch (3) CDO IV Securities $ 1,331 204.3% -2.6% (7,075 ) -2.6% (7,075 ) -10.8% (33,908 ) $ 11,046 CDO V Securities 132 102.6% -14.6% (50,979 ) -14.6% (50,979 ) -8.3% (30,319 ) 26,408 CDO VI Securities 207 -80.7% -53.2% (187,742 ) -52.0% (183,733 ) -46.9% (178,604 ) 22,133 CDO VIII Loans 3,783 327.0% 8.0% 51,422 7.3% 47,158 9.9% 63,954 - CDO IX Loans 4,353 304.6% 14.2% 91,603 14.2% 91,539 18.5% 119,317 - CDO X Securities   3,195 189.1% 1.7% 21,302 4.4% 53,500 4.0% 48,480   20,200 Total$13,001$79,787     (1) Represents cash received from each CDO based on all of the interests in such CDO (including senior management fees but excluding principal received from CDO bonds owned by the Company). Cash receipts for the quarter ended March 31, 2011 may not be indicative of cash receipts for subsequent periods. See Forward-Looking Statements below for risks and uncertainties that could cause cash receipts for subsequent periods to differ materially from these amounts. (2) Represents excess or deficiency under the applicable interest coverage or over collateralization test to the first threshold at which cash flow would be redirected. The Company generally does not receive material interest cash flow from a CDO until a deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before May 4, 2011, March 31, 2011, or December 31, 2010, as applicable. The CDO IV and V tests are conducted only on a quarterly basis (December, March, June and September). (3) Represents the face amount of assets on negative watch for possible downgrade by at least one rating agency (Moody's, S&P or Fitch). Amounts are as of the determination date pertaining to March 2011 remittances for CDO IV and V (these tests are conducted only on a quarterly basis) and as of the determination date pertaining to April 2011 remittances for all other CDOs. The amounts include $13 million of bonds issued by Newcastle, which are eliminated in consolidation and not reflected in the investment portfolio disclosures.   $1.7 million of the $13 million CDO cash receipts were senior collateral management fees, which were not subject to the related CDO coverage tests. The cash receipts above also include $0.9 million of non-recurring fees. In addition, the Company received $9.7 million of unrestricted cash from principal repayments on Newcastle CDO debt. This cash represents a return of principal and a realization of the difference between par and the discounted purchase price of the Newcastle CDO debt. SUBSEQUENT EVENTS On May 4, 2011, Newcastle completed a new securitization to refinance its Manufactured Housing Loans Portfolio II (the “Portfolio”). Newcastle sold $197 million outstanding principal balance of manufactured housing loans, with an average net coupon of 8.7%, to Newcastle Investment Trust 2011-MH 1 (the “Trust”), an indirect wholly-owned subsidiary of Newcastle. The Trust issued $160 million aggregate principal amount of investment grade notes, of which $143 million was sold to third parties and $17 million was sold to one of Newcastle's CDOs. The Company invested $20 million of unrestricted cash to retain the below investment grade notes and residual interest in the securitization. The $160 million of investment grade notes that term financed the Portfolio is non-recourse to the Company and has a weighted average funding cost of 3.7%. At the closing of the securitization, Newcastle terminated the related interest rate swap contracts, repaid $164 million of existing debt, and paid related transaction costs. The weighted average funding cost of the repaid debt was 5.3%. Since quarter-end, Newcastle invested or committed to invest $63 million of unrestricted cash with an expected average return of 20% and invested or committed to invest $228 million of restricted CDO cash with an average coupon of 7.5%. Unrestricted cash investment activities: In April 2011, Newcastle repurchased $37 million of Newcastle CDO debt at an average price of 49% of par, investing $18 million of unrestricted cash. Assuming the collateral in the CDOs is held to maturity, the Company projects the investment to have an average life of 8.3 years and generate an expected return of 17%. On May 4,2011, the Company purchased $12 million face amount of BB- rated notes and the residual interest in the Newcastle Investment Trust 2011-MH 1 for a total of $20 million. Assuming the loans are held to maturity, the Company projects the investment to have an average life of 8.0 years and generate an expected return of 30% on the $20 million investment. The Company has committed to invest $25 million in two real estate related investments with an average expected return of 14.5%. Restricted CDO cash investment activities: In April 2011, the Company purchased $20 million of fixed rate assets with an average coupon of 6.6% at an average price of 99.5% of par, investing $19.9 million of restricted CDO cash. The assets have an average life of 9.9 years and an expected return of 6.8%. The Company has committed to purchase $210 million of assets with an average coupon of 7.6% and an average price of 99.1% of par or $208 million. These investments will be funded from current restricted CDO cash and receipts from expected principal repayments and asset sales. $160 million are commercial real estate mezzanine loans with an initial average coupon of 7.1% that adjusts monthly at a rate of one month LIBOR + 6.1%, subject to interest rate floors. $50 million is a commercial real estate mezzanine loan with a fixed coupon of 9%. INVESTMENT PORTFOLIO Newcastle's $4.2 billion investment portfolio (with a basis of $3.1 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the March 31, 2011 portfolio changed from 73.4% to 77.3%, an increase of $162 million. The face amount of the portfolio decreased by $129 million, primarily as a result of principal repayments of $250 million, sales of $177 million and actual principal write-downs of $44 million, offset by purchases of $337 million at a weighted average price of 98% of par, a weighted average yield of 6.0%, and a weighted average life of 5.0 years. The following table describes the investment portfolio as of March 31, 2011 ($ in millions):                                             % ofCarryingWeightedFaceBasisTotalValueNumber ofAverageAmount $       Amount $ (1)       Basis       Amount $       Investments       Credit (2)       Life (yrs) (3)Commercial Assets CMBS $ 1,890 $ 1,319 43.0% $ 1,444 248 BB  3.7 Mezzanine Loans 531 395 12.9% 395 16 62% 2.3 B-Notes 233 159 5.2% 159 9 77% 1.6 Whole Loans 31 31 1.0% 31 3 48% 3.0 Other Investments (4)   25         25       0.8%   25 1 -- -- Total Commercial Assets 2,710 1,929 62.9% 2,054 3.2   Residential Assets MH and Residential Loans 415 361 11.7% 361 10,959 703 6.7 Subprime Securities 326 157 5.1% 179 82 B- 5.7 Real Estate ABS   71         48       1.6%   50 21 BB+ 5.5 812 566 18.4% 590 6.2   FNMA/FHLMC Securities   88         91       3.0%   92 13 AAA 4.7 Total Residential Assets 900 657 21.4% 682 6.0   Corporate Assets REIT Debt 299 298 9.7% 315 38 BBB- 3.4 Corporate Bank Loans   278         184       6.0%   184 7 CC 3.4 Total Corporate Assets 577 482 15.7% 499 3.4                             Total/Weighted Average (5) $ 4,187       $ 3,068       100.0% $ 3,235 3.9   (1)   Net of impairment. (2) Credit represents the weighted average of minimum ratings for rated assets, the Loan to Value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied AAA rating for FNMA/FHLMC securities. Ratings provided herein were determined by third party rating agencies as of a particular date, may not be current and are subject to change (including a “negative watch” assignment) at any time. (3) Weighted average life is based on the timing of expected principal reduction on the asset. (4) Relates to an equity investment in a REO property. (5) Excludes unconsolidated CDO securities with a face amount of $169 million (valued at $6 million), operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million.   Commercial Assets The Company owns $2.7 billion of commercial assets (with a basis of $1.9 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans and other investments. During the quarter, the Company purchased $179 million of mezzanine loans and CMBS, sold $154 million of CMBS, received principal repayments of $130 million of mezzanine loans and CMBS and had $25 million of actual mezzanine loan principal write-downs. Regarding the Company's CMBS portfolio, one security or $3 million was upgraded (from a rating of BB+ to BBB-), six securities or $77 million were affirmed and 29 securities or $214 million were downgraded (from a weighted average rating of BB- to CCC+). The weighted average carrying value of these assets changed from 66.9% to 75.8%, an increase of $146 million in the quarter. CMBS portfolio ($ in thousands):                                                       Average MinimumFaceBasis% of TotalCarrying ValueDelinquencyPrincipalWeighted AverageVintage (1)       Rating (2)       Number       Amount $       Amount $       Basis       Amount $       60+/FC/REO (3)       Subordination (4)       Life (yrs) (5)   Pre 2004 BB+ 78 398,584 368,674 28.0% 353,819 5.2% 10.7% 2.3 2004 BB- 51 344,700 252,062 19.1% 222,352 2.8% 6.7% 3.3 2005 BB- 35 376,324 207,958 15.8% 279,530 4.6% 8.6% 4.1 2006 BB+ 52 487,365 347,370 26.3% 406,930 5.0% 12.1% 3.7 2007 B 23 195,684 58,778 4.5% 95,582 11.6% 11.8% 3.8 2010 BBB- 5 56,798 53,166 4.0% 55,254 0.0% 5.5% 9.6 2011       BBB+       4       31,000       30,576       2.3% 30,481       0.0%       10.0%       9.8   TOTAL/WA       BB       248       1,890,455       1,318,584       100.0%   1,443,948       5.0%       9.9%       3.7   (1)   The year in which the securities were originally issued. (2) Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change (including a “negative watch” assignment) at any time. The Company had approximately $25 million of CMBS assets that were on negative watch for possible downgrade by at least one rating agency as of March 31, 2011. (3) The percentage of underlying loans that are 60+ days delinquent, in foreclosure or considered real estate owned (REO). (4) The percentage of the outstanding face amount of securities that is subordinate to the Company's investments. (5) Weighted average life is based on the timing of expected principal reduction on the asset.   Mezzanine loans, B-Notes and whole loans portfolio ($ in thousands):                                               FaceBasis% of TotalCarrying ValueWA First $WA Last $Asset Type     Number       Amount ($)       Amount ($)       Basis       Amount ($)       Loan to Value (1)       Loan to Value (1)       Delinquency (%) (2) Mezzanine Loans 16 530,664 394,656 67.5% 394,656 50.5% 62.0% 9.7% B-Notes 9 233,132 159,069 27.2% 159,069 62.1% 76.6% 19.3% Whole Loans     3       30,872       30,872       5.3% 30,872       0.0%       48.2%       0.0%   Total/WA     28       794,668       584,597       100.0%584,597       52.0%       65.7%       12.2% (1)   Loan to Value is based on the appraised value at the time of purchase or refinancing. (2) The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned.   Residential Assets The Company owns $900 million of residential assets (with a basis of $657 million), which include manufactured housing (“MH”) loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities. During the quarter, the Company purchased $106 million of subprime securities, real estate ABS and FNMA/FHLMC securities, sold $17 million of subprime securities and real estate ABS, received principal repayments of $20 million and had $16 million of subprime securities actual principal write-downs. Regarding the Company's ABS portfolio, one security or $22 million was upgraded (from a weighted average rating of B to BB), 16 securities or $31 million were affirmed and 20 securities or $54 million were downgraded (from a weighted average rating of BB- to CCC). The weighted average carrying value of these assets changed from 70.3% to 75.9%, an increase of $5 million in the quarter. Manufactured housing and residential loan portfolios ($ in thousands):                                                       % ofCarryingAverageAverageFaceBasisTotalValueLoan AgeOriginalDelinquencyCumulativeDeal       FICO Score       Amount $       Amount $       Basis       Amount $       (months)       Balance $       90+/FC/REO (1)       Loss to Date   MH Loans Portfolio 1 700 147,937 119,647 33.1% 119,647 111 327,855 0.8% 7.1% MH Loans Portfolio 2 701 204,675 191,515 53.1% 191,515 143 434,743 1.5% 5.2% Residential Loans Portfolio 1 715 58,900 46,614 12.9% 46,614 94 646,357 8.4% 0.3% Residential Loans Portfolio 2       737       3,795       3,352       0.9% 3,352       74       83,950       0.0%       0.0%   TOTAL/WA       703       415,307       361,128       100.0%361,128       124       1,492,905       2.2%       5.2% (1)   The percentage of loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).   Subprime Securities portfolio ($ in thousands):Security Characteristics:                                                 Average% ofCarryingMinimumFaceBasisTotalValuePrincipalExcessVintage (1)       Rating (2)       Number       Amount $       Amount $       Basis       Amount $       Subordination (3)       Spread (4)   2003 CCC+ 15 16,589 8,151 5.2% 8,721 22.6% 4.1% 2004 CCC+ 23 69,390 21,406 13.6% 28,455 17.6% 3.7% 2005 B- 26 99,481 35,595 22.7% 42,151 31.0% 4.5% 2006 CCC+ 9 73,701 45,621 29.1% 49,858 34.8% 4.7% 2007 & Later       B+       9       66,932       46,052       29.4%       50,270       20.3%       2.9%   TOTAL/WA       B-       82       326,093       156,825       100.0%       179,455       26.4%       4.0%   Collateral Characteristics:                               AverageLoan AgeCollateral3 MonthDelinquencyCumulativeVintage (1)       (months)       Factor (5)       CPR (6)       90+/FC/REO (7)       Loss to Date   2003 99 0.09 9.0% 16.1% 3.6% 2004 83 0.14 8.4% 21.1% 3.9% 2005 72 0.18 9.4% 32.7% 8.4% 2006 59 0.37 12.2% 28.6% 18.0% 2007 & Later       42       0.41       8.0%       19.0%       13.7%   TOTAL/WA       66       0.26       9.5%       25.6%       10.4%   Real Estate ABS portfolios ($ in thousands):Security Characteristics                                           Average% ofCarryingMinimumFaceBasisTotalValue       PrincipalExcessAsset Type       Rating (2)       Number       Amount $       Amount $       Basis       Amount $       Subordination (3)       Spread (4)   Manufactured Housing BBB+ 7 34,141 33,148 68.4% 34,623 39.9% 1.5% Small Business Loans       B+       14       36,885       15,328       31.6% 15,865       24.8%       2.1%   TOTAL/WA       BB+       21       71,026       48,476       100.0%50,488       32.1%       1.8%   Collateral Characteristics:                               AverageLoan AgeCollateral3 MonthDelinquencyCumulativeAsset Type       (months)       Factor (5)       CPR (6)       90+/FC/REO (7)       Loss to Date   Manufactured Housing 140 0.27 5.7% 2.5% 12.9% Small Business Loans       70       0.60       9.2%       27.9%       8.0%   TOTAL/WA       104       0.44       7.5%       15.7%       10.4%   (1)   The year in which the securities were issued. (2) Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change (including a “negative watch” assignment) at any time. The Company had approximately $54 million of subprime and ABS securities that were on negative watch for possible downgrade by at least one rating agency as of March 31, 2011. (3) The percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company's investments. (4) The annualized amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance. (5) The ratio of original unpaid principal balance of loans still outstanding. (6) Three month average constant prepayment rate. (7) The percentage of underlying loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).   Corporate Assets The Company owns $577 million of corporate assets (with a basis of $482 million), including REIT debt and corporate bank loans. During the quarter, the Company received $99 million of principal repayments, purchased $51 million of REIT debt and corporate bank loans and sold $6 million of REIT debt. Regarding the Company's REIT debt portfolio, four securities or $39 million were upgraded (from a weighted average rating of CCC- to B+), no securities were affirmed or downgraded. The weighted average carrying value of these assets changed from 85.7% to 86.5%, an increase of $11 million in the quarter. REIT debt portfolio ($ in thousands):                                     AverageMinimumFaceBasis% ofTotalCarryingValueIndustry       Rating (1)       Number       Amount $       Amount $       Basis       Amount $   Retail BBB+ 9 66,025 62,453 20.9% 72,523 Diversified B 7 65,036 65,573 22.0% 63,315 Office BBB 8 76,877 77,941 26.1% 81,420 Multifamily BBB 4 13,765 13,838 4.7% 14,566 Hotel BBB- 3 29,220 29,555 9.9% 31,054 Healthcare BBB 5 41,600 41,656 14.0% 44,574 Storage A- 1 5,000 5,046 1.7% 5,388 Industrial       BB-       1       2,000       2,060       0.7% 2,041   TOTAL/WA       BBB-       38       299,523       298,122       100.0%314,881   Corporate bank loan portfolio ($ in thousands):                                     Average% ofCarryingMinimumFaceBasisTotalValueIndustry       Rating (1)       Number       Amount $       Amount $       Basis       Amount $   Real Estate CC 2 27,654 26,373 14.2% 26,373 Media CCC- 2 110,710 49,847 27.1% 49,847 Resorts NR 1 121,184 91,184 49.5% 91,184 Restaurant B-       2       18,112       16,861       9.2% 16,861   TOTAL/WA       CC       7       277,660       184,265       100.0%184,265 (1)   Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change (including a “negative watch” assignment) at any time. The Company had no corporate assets that were on negative watch for possible downgrade as of March 31, 2011.   CONFERENCE CALL Newcastle's management will conduct a live conference call today, May 6, 2011, at 11:00 A.M. Eastern Time to review the financial results for the first quarter ended March 31, 2011. A copy of the earnings press release is posted to the Investor Relations section of Newcastle's website, www.newcastleinv.com All interested parties are welcome to participate on the live call. You can access the conference call by dialing 1-888-243-2046 (from within the U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle First Quarter Earnings Call." A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.newcastleinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Friday, May 13, 2011 by dialing 1-800-642-1687 (from within the U.S.) or 1-706-645-9291 (from outside of the U.S.); please reference access code “61984745.” ABOUT NEWCASTLE Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate debt that is primarily financed with match funded debt. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. Newcastle is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com. FORWARD-LOOKING STATEMENTS Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, projected average life of an investment, expected returns on an investment, statements relating to our liquidity, future losses and impairment charges, our ability to acquire assets with attractive returns and the delinquent and loss rates on our subprime portfolios. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. Newcastle can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Newcastle's expectations include, but are not limited to, the risk that market conditions cause downgrades of a significant number of our securities or the recording of additional impairment charges or reductions in shareholders' equity; the risk that we can find additional suitably priced investments; the risk that investments made or committed to be made cannot be financed on the basis and for the term at which we expect; the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested; and the relative spreads between the yield on the assets we invest in and the cost and availability of debt and equity financing. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operation” in the Company's Quarterly Report on Form 10-Q, which is available on the Company's website (www.newcastleinv.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Newcastle expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based. CAUTIONARY NOTE REGARDING EXPECTED RETURNS PRESENTED IN THIS PRESS RELEASE Expected returns are an estimate of the annualized effective rate of return that we presently expect to be earned over the projected life of an investment (i.e., IRR), after giving effect to existing leverage and calculated on a weighted average basis. Expected returns reflect our estimates of the coupon, amortization of premium or discount, and costs and fees and contemplate our assumptions regarding prepayments and loan losses, among other things. Expected returns may not equal income recognized in future periods, and the estimates we use to calculate expected returns could differ materially from actual results. The expected returns presented in this press release are forward-looking statements. You should carefully read the cautionary statement above under the caption “Forward-looking Statements”, which directly applies to our discussion of expected returns.           Newcastle Investment Corp.Consolidated Statements of Operations (Unaudited)(dollars in thousands, except per share data)   Three Months Ended March 31,2011         2010   Interest income $ 72,203 $ 70,092 Interest expense   38,165     45,589   Net interest income   34,038     24,503       Impairment (Reversal) Valuation allowance (reversal) on loans (41,307 ) (95,774 ) Other-than-temporary impairment on securities 3,112 64,856 Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of reversal of other comprehensive loss into net income (loss)   989     (37,114 )   (37,206 )   (68,032 )   Net interest income after impairment 71,244 92,535   Other Income (Loss) Gain (loss) on settlement of investments, net 34,092 9,677 Gain on extinguishment of debt 11,042 48,346 Other income (loss), net   335     (1,480 )   45,469     56,543   Expenses Loan and security servicing expense 1,060 1,035 General and administrative expense 1,601 3,101 Management fee to affiliate   4,189     4,477     6,850     8,613     Income from continuing operations 109,863 140,465 Income (loss) from discontinued operations   (190 )   (40 ) Net Income 109,673 140,425 Preferred dividends (1,395 ) (3,268 ) Excess of carrying amount of exchanged preferred stock over fair value of consideration paid   -     43,043   Income Available for Common Stockholders $ 108,278   $ 180,200   Income Per Share of Common Stock Basic $ 1.73   $ 3.36   Diluted $ 1.73   $ 3.36   Income from continuing operations per share of common stock,after preferred dividends and excess of carrying amount ofexchanged preferred stock over fair value of consideration paid Basic $ 1.73   $ 3.36   Diluted $ 1.73   $ 3.36   Income from discontinued operations per shareof common stock Basic $ -   $ -   Diluted $ -   $ -     Weighted Average Number of Shares of Common Stock Outstanding Basic   62,602,184     53,619,643   Diluted   62,611,070     53,619,643     Dividends Declared per Share of Common Stock $ -   $ -       Newcastle Investment Corp.Consolidated Balance Sheets(dollars in thousands)               March 31, 2011(Unaudited)December 31, 2010AssetsNon-Recourse VIE Financing Structures Real estate securities, available for sale $ 1,994,079 $ 1,859,984 Real estate related loans, held for sale, net 764,254 750,130 Residential mortgage loans, held for investment, net 121,661 124,974 Residential mortgage loans, held for sale, net 246,298 252,915 Subprime mortgage loans subject to call option 404,011 403,793 Operating real estate, held for sale 8,339 8,776 Other investments 18,883 18,883 Restricted cash 131,540 157,005 Derivative assets 7,535 7,067 Receivables and other assets   31,420     29,206     3,728,020     3,612,733   Recourse Financing Structures and Unlevered Assets Real estate securities, available for sale 94,587 600 Real estate related loans, held for sale, net 4,608 32,475 Residential mortgage loans, held for sale, net 277 298 Other investments 6,024 6,024 Cash and cash equivalents 160,594 33,524 Receivables and other assets   3,586     1,457     269,676     74,378   $ 3,997,696   $ 3,687,111     Liabilities and Stockholders' Equity (Deficit)LiabilitiesNon-Recourse VIE Financing Structures CDO bonds payable $ 2,944,193 $ 3,010,868 Other bonds payable 246,561 256,809 Notes payable 4,296 4,356 Repurchase agreements 12,527 14,049 Financing of subprime mortgage loans subject to call option 404,011 403,793 Derivative liabilities 153,944 176,861 Accrued expenses and other liabilities   11,745     8,445     3,777,277     3,875,181   Recourse Financing Structures and Other Liabilities Repurchase agreements 83,276 4,683 Junior subordinated notes payable 51,252 51,253 Dividends payable 930 - Due to affiliates 1,351 1,419 Accrued expenses and other liabilities   7,656     2,160     144,465     59,515     3,921,742     3,934,696     Stockholders' Equity (Deficit) Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of March 31, 2011 and December 31, 2010 61,583 61,583 Common stock, $0.01 par value, 500,000,000 shares authorized, 79,277,184 and 62,027,184 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively 793 620 Additional paid-in capital 1,163,604 1,065,377 Accumulated deficit (1,224,429 ) (1,328,987 ) Accumulated other comprehensive income (loss)   74,403     (46,178 )   75,954     (247,585 ) $ 3,997,696   $ 3,687,111                 Newcastle Investment Corp.Reconciliation of Net Interest Income Less Expenses (Net of Preferred Dividends)(dollars in thousands)   Three Months Ended March 31,20112010 Income available for common stockholders $ 108,278 $ 180,200 Add (Deduct): Impairment reversal (37,206 ) (68,032 ) Other income (45,469 ) (56,543 ) Excess of carrying amount of exchanged preferred stock over fair value of consideration paid - (43,043 ) Loss from discontinued operations   190     40   Net interest income less expenses (net of preferred dividends) $ 25,793   $ 12,622   Newcastle Investment Corp.Nadean Novogratz, 212-479-5295Investor Relations