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Press release from Business Wire

Newcastle Announces Third Quarter 2011 Results

<ul class='bwalignc'> <li class='bwlistitemmargb'> Reports Core Earnings of $0.39 per diluted share </li> <li class='bwlistitemmargb'> Reports GAAP income of $0.35 per diluted share </li> <li class='bwlistitemmargb'> Declared Common Dividend of $0.15 per share for the third quarter of 2011 </li> <li class='bwlistitemmargb'> Increased Over-collateralization in CDO X to $106 million at quarter-end </li> <li class='bwlistitemmargb'> $190 million of Current Unrestricted Cash to invest </li> </ul> <p> </p>

Tuesday, November 08, 2011

Newcastle Announces Third Quarter 2011 Results21:10 EST Tuesday, November 08, 2011 NEW YORK (Business Wire) -- : THIRD QUARTER 2011 FINANCIAL RESULTS Newcastle Investment Corp. (NYSE: NCT) reported that in the third quarter of 2011, income available for common stockholders (“GAAP income”) was $29 million, or $0.35 per diluted share, compared to $162 million, or $2.61 per diluted share, in the third quarter of 2010. GAAP income of $29 million consisted of the following: $31 million, or $0.39 per diluted share, of core earnings, which is equal to net interest income less expenses (net of preferred dividends) $19 million of other income related to a $6 million net gain on the settlement of investments, a $16 million gain on the extinguishment of CDO debt, offset primarily by a $3 million non-cash mark-to-market loss related to interest rate derivatives in the CDOs $21 million of non-cash mark-to-market loss on loans held for sale and impairment recorded on securities In the third quarter of 2011, GAAP book value decreased by $0.34 per share. As of September 30, 2011, GAAP book value was $1.02 per share, compared to $1.36 per share as of June 30, 2011. During the third quarter of 2011, the Company generated $15 million of cash flow from operations compared to $15 million in the second quarter of 2011. In addition, the Company received $9 million of unrestricted cash from principal repayments on Newcastle's repurchased CDO debt and other CDO securities that were purchased at a weighted average price of 57% of par. On September 14, 2011, the Board of Directors declared a quarterly dividend of $0.15 per common share or $16 million for the third quarter of 2011, representing a 50% increase from the prior quarter's dividend of $0.10 per common share. The Board of Directors also declared 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 period beginning August 1, 2011 and ending October 31, 2011. On September 27, 2011, Newcastle completed the sale of 25.9 million shares of its common stock, at a price of $4.55 per share. The net proceeds of the sale were $112.3 million, after deducting underwriting discounts and offering expenses. The following table summarizes the Company's operating results ($ in millions, except per share data):       Three Months EndedSeptember 30,     June 30,     September 30,201120112010Summary Operating Results:   GAAP income $ 29 $ 98 $ 162   GAAP income, per diluted share$0.35$1.23$2.61     Non-GAAP Results:   Core earnings (1) $ 31 $ 30 $ 30   Core earnings, (1) per diluted share$0.39$0.37$0.48   Cash flow from: Operations $ 15 $ 15 $ 16 Principal repayments on repurchased CDO debt & other CDO securities (2) $ 9 $ 48 $ -   (1)   Previously referred to as “net interest income less expenses (net of preferred dividends)”. (2) The related repurchased CDO debt and other CDO securities were purchased at a weighted average price of 57% of par, and 74% of par for the three months ended September 30, 2011 and June 30, 2011, respectively. During the three months ended September 30, 2010, no such repayments were received.   For a reconciliation of income available for common stockholders to core earnings, please refer to the tables following the presentation of GAAP results. THIRD QUARTER 2011 INVESTMENT ACTIVITY$10 million of unrestricted cash investments: Newcastle invested $9 million to purchase $26 million face amount of Newcastle CDO bonds at an average price of 33% of par, with an expected average return of 27% and an average life of 3.9 years. The Company also invested $1 million in the quarter to purchase $31 million face amount of FNMA securities at an average price of 106% of par, financed with $31 million under repurchase agreements. $185 million of restricted CDO cash investments: Newcastle invested $185 million to purchase $225 million face amount of assets at an average price of 82% of par with an expected average yield of 10% and an average life of 5.9 years, including the following: • Invested $115 million to purchase $155 million face amount of CMBS, ABS, and CDO securities at an average price of 74% of par, with an expected average yield of 11%, an average life of 7.6 years, and an average rating of BBB. • Invested $70 million to purchase one senior mezzanine loan at a price of par, with a coupon of 1-Month LIBOR plus 7% subjected to a 1% LIBOR floor. The loan is secured by 13 hotel properties, has a loan-to-value of 53%, and an average life of 2.1 years. CASH AND RECOURSE FINANCING As of November 4, 2011, the Company's cash and current recourse financings were as set forth below: • Cash – The Company had $190 million of unrestricted cash and $84 million of restricted cash available for reinvestment within its consolidated CDOs. • Recourse Financing – The Company had $3 million related to the financing of senior Newcastle CDO bonds it repurchased and $207 million related to the financing of FNMA and FHLMC securities. The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):           November 4,2011     September 30,2011     June 30,2011   CDO Cash for Reinvestment $ 84 $ 138 $ 168   Unrestricted Cash 190 205 101   Recourse Financings NCT CDO senior bonds 3 3 4 FNMA/FHLMC Securities 207 209 104       Total Recourse Financings $ 210 $ 212 $ 108   NEWCASTLE CDO FINANCINGS The following table summarizes the cash receipts in the third quarter of 2011 from the Company's consolidated CDO financings and their related coverage tests ($ in thousands):           InterestCoverage% Excess(Deficiency)Oct 31, 2011 (2)                     PrimaryCollateralTypeOver-Collateralization Excess (Deficiency) (2)CashReceipts (1)October 31, 2011September 30, 2011June 30, 2011%$%$%$ CDO IV Securities $ 394 44.5 % -5.1 % (10,260 ) -5.1 % (10,260 ) -2.4 % (4,987 ) CDO VI Securities 155 -93.2 % -56.7 % (172,787 ) -54.3 % (165,735 ) -56.3 % (181,831 ) CDO VIII Loans 4,686 342.4 % 8.8 % 56,590 8.4 % 54,135 8.7 % 56,396 CDO IX Loans 5,245 383.8 % 14.9 % 96,190 14.4 % 93,283 14.2 % 91,926 CDO X Securities   5,704 240.9 % 8.3 % 97,654 9.0 % 105,811 2.1 % 25,220 Total$16,184   (1)   Represents cash received from each CDO based on all of the interests in such CDO (including senior management fees but excluding $8.2 million of principal received from senior CDO bonds owned by the Company). Cash receipts for the quarter ended September 30, 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 October 31, 2011, September 30, 2011, or June 30, 2011, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).   • Of the $16 million CDO cash receipts, $1.5 million were related to senior collateral management fees, which were not subject to the related CDO coverage tests.   • During the quarter, the over-collateralization in CDO X increased by $81 million from $25 million to $106 million. As of the October 2011 remittance, assets on negative watch for possible downgrade by at least one rating agency (Moody's, S&P, or Fitch) for CDOs VIII, IX, and X were $26 million, $1 million, and $67 million, respectively.   INVESTMENT PORTFOLIO Newcastle's $3.8 billion investment portfolio (with a basis of $2.9 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the September 30, 2011 portfolio changed from 78.3% to 75.1%, a decrease of $121 million. The face amount of the portfolio increased by $15 million, primarily as a result of purchases of $262 million, offset by sales of $156 million, principal repayments of $84 million, and actual principal write-downs of $13 million. The following table describes the investment portfolio as of September 30, 2011 ($ in millions):             % of   Carrying       WeightedFaceBasisTotalValueNumber ofAverageAmount $   Amount $ (4)   Basis   Amount $   Investments   Credit (5)   Life (years) (6)Commercial Assets CMBS $ 1,493 $ 1,069 37.3 % $ 1,061 206 BB 3.9 Mezzanine Loans 560 443 15.5 % 443 16 68% 2.3 B-Notes 255 188 6.5 % 188 9 78% 1.8 Whole Loans 31 31 1.1 % 31 3 48% 2.1 CDO Securities (1) 90 68 2.4 % 57 3 BB+ 3.7 Other Investments (2)   25     25   0.9 %   25 1 -- -- Total Commercial Assets 2,454 1,824 63.7 % 1,805 3.3   Residential Assets MH and Residential Loans 391 338 11.8 % 338 10,340 705 6.3 Subprime Securities 270 144 5.0 % 151 64 B+ 6.5 Real Estate ABS   53     41   1.4 %   40 14 BBB 6.4 714 523 18.2 % 529 6.4   FNMA/FHLMC Securities   211     221   7.7 %   221 26 AAA 4.6 Total Residential Assets 925 744 25.9 % 750 6.0   Corporate Assets REIT Debt 137 137 4.8 % 134 20 BB+ 2.7 Corporate Bank Loans   278     160   5.6 %   160 6 CC 3.0 Total Corporate Assets 415 297 10.4 % 294 2.9               Total/Weighted Average (3) $ 3,794   $ 2,865   100.0 % $ 2,849 3.9 (1)   Represents non-consolidated CDO securities excluding ten securities with a zero value, which had an aggregate face amount of $117 million. (2) Relates to an equity investment in a REO property. (3) Excludes operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million. (4) Net of impairment. (5) 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 and assumed 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 at any time. (6) Weighted average life is based on the timing of expected principal reduction on the asset.   Commercial Assets The Company owns $2.5 billion of commercial assets (with a basis of $1.8 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans, CDO securities, and other investments. During the quarter, the Company purchased $214 million of CMBS, mezzanine loans and CDO securities, sold $122 million of CMBS and mezzanine loans, received principal repayments of $57 million and had $4 million of actual principal write-downs on CMBS. Regarding the Company's CMBS portfolio, five securities or $18 million were upgraded (from a weighted average rating of AA- to AA), one security or $2 million was affirmed and 21 securities or $141 million were downgraded (from a weighted average rating of BB- to B). The weighted average carrying value of these assets changed from 77.3% to 73.6%, a decrease of $92 million in the quarter. CMBS portfolio ($ in thousands):     AverageMinimum     Face   Basis   % of Total     CarryingValue   Delinquency   Principal   WeightedAverageVintage (1)     Rating (2)   Number   Amount $   Amount $   Basis     Amount $   60+/FC/REO (3)   Subordination (4)   Life (yrs) (5)   Pre 2004 BB+ 67 330,670 311,149 29.1% 287,725 6.4% 13.7% 1.6 2004 BB+ 31 144,015 112,741 10.5% 105,214 3.1% 7.7% 3.6 2005 BB 30 312,213 175,555 16.4% 201,250 4.6% 7.8% 3.3 2006 BB 43 387,280 261,494 24.5% 254,312 7.6% 11.9% 3.9 2007 B 16 121,638 34,936 3.3% 52,134 19.7% 11.5% 4.4 2010 BB+ 4 46,798 43,434 4.1% 39,608 0.0% 3.5% 9.1 2011     BBB   15   150,000   129,639   12.1% 120,391   0.0%   6.8%   8.8   TOTAL/WA     BB   206   1,492,614   1,068,948   100.0%1,060,634   6.3%   10.2%   3.9 (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 at any time. The Company had $24 million of CMBS assets that were on negative watch for possible downgrade by at least one rating agency as of September 30, 2011. (3) The percentage of underlying loans that are 60+ days delinquent, in foreclosure or considered real estate owned (REO). (4) The percentage of the outstanding face amount of securities that is subordinate to the Company's investments. (5) Weighted average life is based on the timing of expected principal reduction on the asset.   Mezzanine loans, B-Notes and whole loans portfolio ($ in thousands):       Face   Basis   % of Total     Carrying Value   WA First $   WA Last $   Asset Type     Number   Amount ($)   Amount ($)   Basis     Amount ($)   Loan to Value (1)   Loan to Value (1)   Delinquency (%) (2) Mezzanine Loans 16 560,563 443,361 67.0% 443,361 57.5% 68.0% 11.3% B-Notes 9 255,085 187,865 28.4% 187,865 65.0% 77.7% 17.7% Whole Loans     3   30,670   30,670   4.6% 30,670   0.0%   48.2%   0.0%   Total/WA     28   846,318   661,896   100.0%661,896   57.7%   70.2%   12.8%   (1)   Loan to Value is based on the appraised value at the time of purchase or refinancing. (2) The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned (REO).   CDO Securities ($ in thousands) (1):   Collateral     Primary     Average Minimum   Face   Basis   % of Total   CarryingValue   PrincipalManager     Collateral Type   Number   Rating (2)   Amount $   Amount $   Basis   Amount $   Subordination (3) Third Party CMBS 1 BBB- 78,338 60,791 89.5% 50,136 51.6% Newcastle CMBS 1 BBB- 6,053 4,562 6.7% 4,562 27.7% Newcastle ABS 1 CC 5,500 2,540 3.8% 2,640 56.4%                                     TOTAL/WA         3   BB+   89,891   67,893   100.0%   57,338   50.3%   (1)   Represents non-consolidated CDO securities excluding ten securities with a zero value, which had an aggregate face amount of $117 million. (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 at any time. (3) The percentage of the outstanding face amount of securities that is subordinate to the Company's investments.   Residential Assets The Company owns $925 million of residential assets (with a basis of $744 million), which include manufactured housing (“MH”) loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities. During the quarter, the Company purchased $48 million of subprime securities and FNMA/FHLMC securities, received principal repayments of $26 million and had $9 million of actual principal write-downs. Regarding the Company's ABS portfolio, no securities were upgraded, 8 securities or $55 million were affirmed and 8 securities or $37 million were downgraded (from a weighted average rating of B+ to B-). The weighted average carrying value of these assets changed from 82.1% to 81.1%, a decrease of $9 million in the quarter. Manufactured housing and residential loan portfolios ($ in thousands):             % of   Carrying   Average       AverageFaceBasisTotalValueLoan AgeOriginalDelinquencyCumulativeDeal     FICO Score   Amount $   Amount $   Basis   Amount $   (years)   Balance $   90+/FC/REO (1)   Loss to Date   MH Loans Portfolio 1 703 139,891 113,566 33.6% 113,566 9.8 327,855 1.1% 7.6% MH Loans Portfolio 2 702 190,022 180,371 53.4% 180,371 12.1 434,743 1.7% 5.8% Residential Loans Portfolio 1 715 57,612 40,699 12.0% 40,699 8.3 646,357 12.5% 0.4% Residential Loans Portfolio 2     737   3,779   3,395   1.0%   3,395   7.1   83,950   0.0%   0.0%   TOTAL/WA     705   391,304   338,031   100.0%   338,031   10.6   1,492,905   3.0%   5.6% (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     % of   Carrying   Minimum   Face   BasisTotalValuePrincipal   ExcessVintage (1)     Rating (2)   Number   Amount $   Amount $   Basis   Amount $   Subordination (3)   Spread (4)   2003 B- 14 14,313 6,945 4.8% 8,337 24.5% 4.2% 2004 BB- 9 36,162 17,484 12.1% 19,478 24.8% 3.8% 2005 B- 26 111,255 43,171 30.0% 44,355 32.5% 4.6% 2006 B+ 7 59,541 39,545 27.5% 40,240 41.3% 5.1% 2007 & Later     BB   8   49,159   36,903   25.6% 38,494   20.5%   2.5%   TOTAL/WA     B+   64   270,430   144,048   100.0%150,904   30.8%   4.2%   Collateral Characteristics:     Average         Loan AgeCollateral3 MonthDelinquencyCumulativeVintage (1)     (years)   Factor (5)   CPR (6)   90+/FC/REO (7)   Loss to Date   2003 8.8 0.09 6.6% 17.0% 4.0% 2004 7.3 0.14 8.4% 17.4% 4.1% 2005 6.4 0.18 11.0% 28.8% 10.7% 2006 5.5 0.33 13.1% 24.2% 17.9% 2007 & Later     3.4   0.33   6.8%   15.9%   13.8%   TOTAL/WA     5.9   0.23   10.1%   23.3%   11.6%   Real Estate ABS portfolios ($ in thousands):Security Characteristics:     Average         % of   Carrying     MinimumFaceBasisTotalValuePrincipalExcessAsset Type     Rating (2)   Number   Amount $   Amount $   Basis   Amount $   Subordination (3)   Spread (4)   Manufactured Housing BBB+ 7 31,446 30,614 73.8% 31,909 41.1% 1.5% Small Business Loans     BBB-   7   21,177   10,869   26.2% 8,101   24.6%   0.9%   TOTAL/WA     BBB   14   52,623   41,483   100.0%40,010   34.5%   1.3%   Collateral Characteristics:       Average         Loan AgeCollateral3 MonthDelinquencyCumulativeAsset Type     (years)   Factor (5)   CPR (6)   90+/FC/REO (7)   Loss to Date   Manufactured Housing 12.1 0.26 7.0% 1.1% 13.2% Small Business Loans     6.2   0.55   9.3%   20.0%   15.3%   TOTAL/WA     9.7   0.37   7.9%   8.7%   14.1%   (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 at any time. The Company had approximately $79 million of subprime and ABS securities that were on negative watch for possible downgrade by at least one rating agency as of September 30, 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 $415 million of corporate assets (with a basis of $297 million), including REIT debt and corporate bank loans. During the quarter, the Company sold $34 million and received $1 million of principal repayments from REIT debt. Regarding the Company's REIT debt portfolio, there were no upgraded, affirmed or downgraded securities. The weighted average carrying value of these assets changed from 75.7% to 70.9%, a decrease of $20 million in the quarter. REIT debt portfolio ($ in thousands):                 AverageMinimumFaceBasis% ofTotalCarryingValueIndustry     Rating (1)   Number   Amount $   Amount $   Basis   Amount $   Retail A- 4 34,525 33,671 24.6% 36,497 Diversified CCC+ 4 39,286 39,282 28.7% 31,631 Office BBB 6 34,117 34,501 25.2% 35,116 Multifamily BBB 3 12,765 12,800 9.4% 13,522 Healthcare     BBB-   3   16,700   16,506   12.1% 17,585   TOTAL/WA     BB+   20   137,393   136,760   100.0%134,351   Corporate bank loan portfolio ($ in thousands):                 Average% ofCarryingMinimumFaceBasisTotalValueIndustry     Rating (1)   Number   Amount $   Amount $   Basis   Amount $   Real Estate NR 1 17,811 16,208 10.1% 16,208 Media CCC- 2 110,710 28,830 18.0% 28,830 Resorts NR 1 130,952 100,952 63.2% 100,952 Restaurant     B   2   18,068   13,888   8.7% 13,888   TOTAL/WA     CC   6   277,541   159,878   100.0%159,878   (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 at any time. The Company had no corporate assets that were on negative watch for possible downgrade as of September 30, 2011.   CONFERENCE CALL Newcastle's management will conduct a live conference call on November 9, 2011, at 9:00 A.M. Eastern Time to review the financial results for the third quarter ended September 30, 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 Third 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 Wednesday, November 16, 2011 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “21132178.” ABOUT NEWCASTLE Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate 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, the expected average life of an investment, the expected returns, or expected yield 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 AND EXPECTED YIELDS PRESENTED IN THIS PRESS RELEASE Expected returns and expected yields are estimates of the annualized effective rate of return that we presently expect to be earned over the expected average life of an investment (i.e., IRR), after giving effect, in the case of returns, to existing leverage, and calculated on a weighted average basis. Expected returns and expected yields reflect our estimates of an investment's coupon, amortization of premium or discount, and costs and fees, and they contemplate our assumptions regarding prepayments and loan losses, among other things. Income recognized by the Company in future periods may be significantly less than the income that would have been recognized if an expected return or expected yield were actually realized, and the estimates we use to calculate expected returns and expected yields could differ materially from actual results. Statements about expected returns and expected yields 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 and expected yields.     Newcastle Investment Corp.Consolidated Statements of Operations (Unaudited)(dollars in thousands, except per share data)         Three Months Ended September 30,Nine Months Ended September 30,2011   20102011   2010 Interest income $ 72,393 $ 81,040 $ 218,739 $ 225,315 Interest expense   32,587     42,547     106,502     131,277   Net interest income   39,806     38,493     112,237     94,038     Impairment (Reversal) Valuation allowance (reversal) on loans 17,644 (105,360 ) (38,218 ) (292,668 ) Other-than-temporary impairment on securities 5,537 3,616 14,433 102,397 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)   (1,531 )   6,425     (838 )   (15,575 )   21,650     (95,319 )   (24,623 )   (205,846 )   Net interest income after impairment 18,156 133,812 136,860 299,884   Other Income (Loss) Gain (loss) on settlement of investments, net 5,636 (1,134 ) 75,334 17,497 Gain on extinguishment of debt 15,917 46,624 60,402 141,698 Other income (loss), net   (2,751 )   (8,828 )   (12,576 )   (12,606 )   18,802     36,662     123,160     146,589   Expenses Loan and security servicing expense 1,198 1,116 3,458 3,473 General and administrative expense 1,399 1,811 4,649 6,912 Management fee to affiliate   4,569     4,258     13,313     12,993     7,166     7,185     21,420     23,378     Income from continuing operations 29,792 163,289 238,600 423,095 Income (loss) from discontinued operations   151     213     151     186   Net Income 29,943 163,502 238,751 423,281 Preferred dividends (1,395 ) (1,395 ) (4,185 ) (6,058 ) Excess of carrying amount of exchanged preferred stock  over fair value of consideration paid   -     -     -     43,043   Income Available for Common Stockholders $ 28,548   $ 162,107   $ 234,566   $ 460,266   Income Per Share of Common Stock Basic $ 0.35   $ 2.61   $ 3.16   $ 7.77   Diluted $ 0.35   $ 2.61   $ 3.16   $ 7.77   Income from continuing operations per share of common stock,  after preferred dividends and excess of carrying amount of  exchanged preferred stock over fair value of consideration paid Basic $ 0.35   $ 2.61   $ 3.16   $ 7.77   Diluted $ 0.35   $ 2.61   $ 3.16   $ 7.77   Income (loss) from discontinued operations per shareof common stock Basic $ -   $ -   $ -   $ -   Diluted $ -   $ -   $ -   $ -     Weighted Average Number of Shares of Common Stock Outstanding Basic   80,425,197     62,024,945     74,168,573     59,249,175   Diluted   80,441,593     62,024,945     74,177,027     59,249,175     Dividends Declared per Share of Common Stock $ 0.15   $ -   $ 0.25   $ -       Newcastle Investment Corp.Consolidated Balance Sheets(dollars in thousands)           September 30, 2011   (Unaudited)December 31, 2010AssetsNon-Recourse VIE Financing Structures Real estate securities, available for sale $ 1,437,893 $ 1,859,984 Real estate related loans, held for sale, net 815,140 750,130 Residential mortgage loans, held for investment, net 340,489 124,974 Residential mortgage loans, held for sale, net - 252,915 Subprime mortgage loans subject to call option 404,476 403,793 Operating real estate, held for sale 7,743 8,776 Other investments 18,883 18,883 Restricted cash 178,121 157,005 Derivative assets 2,383 7,067 Receivables and other assets   23,818     29,206     3,228,946     3,612,733   Recourse Financing Structures and Unlevered Assets Real estate securities, available for sale 230,463 600 Real estate related loans, held for sale, net 6,634 32,475 Residential mortgage loans, held for sale, net 3,031 298 Other investments 6,024 6,024 Cash and cash equivalents 205,180 33,524 Receivables and other assets   2,775     1,457     454,107     74,378   $ 3,683,053   $ 3,687,111     Liabilities and Stockholders' Equity (Deficit)LiabilitiesNon-Recourse VIE Financing Structures CDO bonds payable $ 2,428,294 $ 3,010,868 Other bonds and notes payable 210,033 261,165 Repurchase agreements 8,764 14,049 Financing of subprime mortgage loans subject to call option 404,476 403,793 Derivative liabilities 132,056 176,861 Payables to brokers, dealers and clearing organizations 37,341 - Accrued expenses and other liabilities   9,107     8,445     3,230,071     3,875,181   Recourse Financing Structures and Other Liabilities Repurchase agreements 212,164 4,683 Junior subordinated notes payable 51,250 51,253 Dividends payable 16,706 - Due to affiliates 1,532 1,419 Accrued expenses and other liabilities   2,805     2,160     284,457     59,515     3,514,528     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 September 30, 2011 and December 31, 2010 61,583 61,583 Common stock, $0.01 par value, 500,000,000 shares authorized, 105,175,197 and 62,027,184 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively 1,052 620 Additional paid-in capital 1,275,765 1,065,377 Accumulated deficit (1,076,776 ) (1,328,987 ) Accumulated other comprehensive income (loss)   (93,099 )   (46,178 )   168,525     (247,585 ) $ 3,683,053   $ 3,687,111       Newcastle Investment Corp.Consolidated Statements of Cash Flows (Unaudited)(dollars in thousands)         Three Months Ended September 30,Nine Months Ended September 30,2011   20102011   2010   Cash flows From Operating Activities Net income $ 29,943 $ 163,502 $ 238,751 $ 423,281 Adjustment to reconcile net income to net cash provided by (used in) operating activities (inclusive of amounts related to discontinued operations): Depreciation and amortization 88 36 225 161 Accretion of discount and other amortization (11,407 ) (3,352 ) (33,214 ) (11,729 ) Interest income in CDOs redirected for reinvestment or CDO bonds pay down (2,402 ) (5,280 ) (8,981 ) (17,985 ) Interest income on investments accrued to principal balance (5,005 ) (4,288 ) (14,303 ) (8,077 ) Interest expense on debt accrued to principal balance 105 634 619 2,279 Deferred interest received - - 1,027 44 Non-cash directors' compensation - - 122 60 Reversal of valuation allowance on loans 17,644 (105,360 ) (38,218 ) (292,668 ) Other-than-temporary impairment on securities 4,006 10,041 13,595 86,822 Impairment on real estate held for sale - - 433 60 Gain on settlement of real estate held for sale (61 ) - (61 ) - Gain on settlement of investments, net (5,636 ) 1,134 (74,402 ) (17,497 ) Unrealized loss on non-hedge derivatives and hedge ineffectiveness 3,289 9,057 14,483 13,356 Gain on extinguishment of debt (15,917 ) (46,624 ) (60,402 ) (141,698 ) Change in: Restricted cash 1,004 (4,372 ) 1,249 (1,354 ) Receivables and other assets (548 ) 814 528 3,781 Due to affiliates 14 - 113 (78 ) Accrued expenses and other liabilities   130     164     57     (1,182 ) Net cash provided by (used in) operating activities   15,247     16,106     41,621     37,576       Cash Flows From Investing Activities Principal repayments from repurchased CDO debt 8,227 - 57,108 53 Principal repayments on CDO securities 969 - 9,834 - Principal repayments on loans and non-CDO securities 13,823 10,200 65,756 55,283 Purchase of real estate securities (122,856 ) - (303,101 ) (2,291 ) Proceeds from sale of real estate securities - - 3,885 26,022 Acquisition of servicing rights - - (2,268 ) - Purchase of and advances on loans - (6,024 ) - (6,024 ) Margin received on derivative instruments - - - 5,073 Payments on settlement of derivative instruments - - (14,322 ) (11,394 ) Proceeds from sale of real estate held for sale 650 840 650 840 Distributions of capital from equity method investees   -     2     -     161   Net cash provided by (used in) investing activities   (99,187 )   5,018     (182,458 )   67,723       Cash flows From Financing Activities Repurchases of CDO bonds payable (3,975 ) (1,473 ) (91,039 ) (11,400 ) Issuance of other bonds payable - - 142,736 97,650 Repayments of other bonds payable (10,137 ) (9,923 ) (194,379 ) (134,027 ) Borrowings under repurchase agreements 183,242 - 291,818 - Repayments of repurchase agreements (80,359 ) - (89,622 ) (71,309 ) Issuance of common stock 112,724 - 211,567 - Costs related to issuance of common stock - - (468 ) - Cash consideration paid in exchange for junior subordinated notes - - - (9,715 ) Cash consideration paid to redeem preferred stock - - - (16,001 ) Dividends paid (9,325 ) - (14,906 ) (19,484 ) Payment of deferred financing costs (35 ) - (1,581 ) (1,677 ) Restricted cash returned (paid) from refinancing activities   (3,853 )   10,924     58,367     50,700   Net cash provided by (used in) financing activities   188,282     (472 )   312,493     (115,263 )   Net Increase (Decrease) in Cash and Cash Equivalents 104,342 20,652 171,656 (9,964 )   Cash and Cash Equivalents, Beginning of Period   100,838     37,684     33,524     68,300     Cash and Cash Equivalents, End of Period $ 205,180   $ 58,336   $ 205,180   $ 58,336     Supplemental Disclosure of Cash Flow Information Cash paid during the period for interest expense $ 23,561 $ 32,002 $ 76,730 $ 97,948   Supplemental Schedule of Non-Cash Investing and Financing Activities   Common stock dividends declared but not paid $ 15,776 $ - $ 15,776 $ - Preferred stock dividends declared but not paid $ 930 $ - $ 930 $ - Common stock issued to redeem preferred stock $ - $ - $ - $ 28,457 Face amount of CDO bonds issued in exchange for previously issued junior subordinated notes of $52,904 $ - $ - $ - $ 37,625     Newcastle Investment Corp.Reconciliation of Core Earnings (1)(dollars in thousands)           Three Months Ended September 30,Nine Months Ended September 30,2011   20102011   2010 Income available for common stockholders $ 28,548 $ 162,107 $ 234,566 $ 460,266 Add (Deduct): Impairment reversal 21,650 (95,319 ) (24,623 ) (205,846 ) Other income (18,802 ) (36,662 ) (123,160 ) (146,589 ) Excess of carrying amount of exchanged preferred stock over fair value of consideration paid - - - (43,043 ) Income from discontinued operations   (151 )   (213 )   (151 )   (186 ) Core Earnings $ 31,245   $ 29,913   $ 86,632   $ 64,602     (1)  Previously referred to as “Net Interest Income Less Expenses (Net of Preferred Dividends)”.   Management believes that core earnings provides investors with useful information because it enables investors to evaluate Newcastle's current performance using the same measure that management uses to operate the business. Management uses core earnings to gauge the current performance of Newcastle without taking into account gains and losses, which, although they represent a part of recurring operations, are subject to significant variability and are only a potential indicator of future economic performance. Core earnings does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, and it is not necessarily indicative of cash available to fund cash needs. The calculation of core earnings above may be different from the calculation used by other companies and, therefore, comparability may be limited. Newcastle Investment Corp.Investor Relations212-479-3195