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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
 
or
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________to________________
 
Commission File Number: 001-35777
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware
 
45-3449660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(212) 798-3150
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x  Accelerated filer ¨ Non-accelerated filer ¨
Smaller reporting company ¨     Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 340,354,429 shares outstanding as of October 26, 2018.




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
 
reductions in the value of, or cash flows received from, our investments;
the quality and size of the investment pipeline and our ability to take advantage of investment opportunities at attractive risk-adjusted prices;
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
our ability to deploy capital accretively and the timing of such deployment;
our counterparty concentration and default risks in Nationstar, Ocwen, OneMain, Ditech, PHH and other third parties;
events, conditions or actions that might occur at Nationstar, Ocwen, OneMain, Ditech, PHH and other third parties, as well as the continued effect of prior events;
a lack of liquidity surrounding our investments, which could impede our ability to vary our portfolio in an appropriate manner;
the impact that risks associated with subprime mortgage loans and consumer loans, as well as deficiencies in servicing and foreclosure practices, may have on the value of our mortgage servicing rights (“MSRs”), Excess MSRs, Servicer Advance Investments, residential mortgage-backed securities (“RMBS”), residential mortgage loans and consumer loan portfolios;
the risks related to our acquisition of Shellpoint Partners LLC and ownership of entities that perform origination and servicing operations;
the risks that default and recovery rates on our MSRs, Excess MSRs, Servicer Advance Investments, RMBS, residential mortgage loans and consumer loans deteriorate compared to our underwriting estimates;
changes in prepayment rates on the loans underlying certain of our assets, including, but not limited to, our MSRs or Excess MSRs;
the risk that projected recapture rates on the loan pools underlying our MSRs or Excess MSRs are not achieved;
servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our Servicer Advance Investments or MSRs;
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities or loans are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
the relative spreads between the yield on the assets in which we invest and the cost of financing;
adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or not entering into new financings with us;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
the availability and terms of capital for future investments;




changes in economic conditions generally and the real estate and bond markets specifically;
competition within the finance and real estate industries;
the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of Fannie Mae and Freddie Mac and legislation that permits modification of the terms of residential mortgage loans;
the risk that Government Sponsored Enterprises or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business;
our ability to maintain our exclusion from registration under the Investment Company Act of 1940 (the “1940 Act”) and the fact that maintaining such exclusion imposes limits on our operations;
the risks related to Home Loan Servicing Solutions (“HLSS”) liabilities that we have assumed;
the impact of current or future legal proceedings and regulatory investigations and inquiries;
the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest; and
effects of the completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.

We also direct readers to other risks and uncertainties referenced in this report, including those set forth under “Risk Factors.” We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.





SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about New Residential Investment Corp. (the “Company,” “New Residential” or “we,” “our” and “us”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements proved to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 




NEW RESIDENTIAL INVESTMENT CORP.
FORM 10-Q
 
INDEX
 
PAGE
Part I. Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
September 30, 2018
 
December 31, 2017
 
(Unaudited)
 
Assets
 
 
 
Investments in:
 
 
 
Excess mortgage servicing rights, at fair value
$
467,061

 
$
1,173,713

Excess mortgage servicing rights, equity method investees, at fair value
154,939

 
171,765

Mortgage servicing rights, at fair value
2,872,004

 
1,735,504

Mortgage servicing rights financing receivables, at fair value
1,681,072

 
598,728

Servicer advance investments, at fair value(A)
799,936

 
4,027,379

Real estate and other securities, available-for-sale
11,650,257

 
8,071,140

Residential mortgage loans, held-for-investment (includes $123,606 and $0 at fair value at September 30, 2018 and December 31, 2017, respectively)(A)
776,323

 
691,155

Residential mortgage loans, held-for-sale
1,996,303

 
1,725,534

Residential mortgage loans, held-for-sale, at fair value
524,863

 

Real estate owned
115,160

 
128,295

Residential mortgage loans subject to repurchase
110,181

 

Consumer loans, held-for-investment(A)
1,140,769

 
1,374,263

Consumer loans, equity method investees
44,787

 
51,412

Cash and cash equivalents(A)
330,148

 
295,798

Restricted cash
155,749

 
150,252

Servicer advances receivable
3,217,121

 
675,593

Trades receivable
3,424,865

 
1,030,850

Other assets
629,231

 
312,181

 
$
30,090,769

 
$
22,213,562

Liabilities and Equity
 
 
 
Liabilities
 
 
 
  Repurchase agreements
$
14,387,020

 
$
8,662,139

  Notes and bonds payable (includes $117,470 and $0 at fair value at September 30, 2018 and December 31, 2017, respectively)(A)
7,254,946

 
7,084,391

  Trades payable
1,791,191

 
1,169,896

  Residential mortgage loans repurchase liability
110,181

 

  Due to affiliates
74,135

 
88,961

  Dividends payable
170,177

 
153,681

  Deferred tax liability, net
3,910

 
19,218

  Accrued expenses and other liabilities(A)
462,161

 
239,114

 
24,253,721

 
17,417,400

Commitments and Contingencies


 


Equity
 
 
 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 340,354,429 and 307,361,309 issued and outstanding at September 30, 2018 and December 31, 2017, respectively
3,404

 
3,074

  Additional paid-in capital
4,256,045

 
3,763,188

  Retained earnings
1,014,919

 
559,476

  Accumulated other comprehensive income (loss)
468,952

 
364,467

  Total New Residential stockholders’ equity
5,743,320

 
4,690,205

  Noncontrolling interests in equity of consolidated subsidiaries
93,728

 
105,957

    Total Equity
5,837,048

 
4,796,162

 
$
30,090,769

 
$
22,213,562


1



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars in thousands)

(A)
New Residential’s Condensed Consolidated Balance Sheets include the assets and liabilities of certain consolidated VIEs, Advance Purchaser LLC (the “Buyer”) (Note 6), Shellpoint Asset Funding Trust 2013-1 (“SAFT 2013-1”) and the Shelter retail mortgage origination joint ventures (“Shelter JVs”) (Note 8) and the Consumer Loan SPVs (Note 9), which primarily hold investments in Servicer Advance Investments, residential mortgage loans and consumer loans, respectively, financed with notes and bonds payable. The balance sheets of the Buyer, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs are included in Notes 6, 8 and 9, respectively. The creditors of the Buyer, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs do not have recourse to the general credit of New Residential and the assets of the Buyer, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.

See notes to condensed consolidated financial statements.

2



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Interest income
$
425,524

 
$
397,722

 
$
1,212,902

 
$
1,162,212

Interest expense
162,806

 
125,278

 
421,109

 
338,664

Net Interest Income
262,718

 
272,444

 
791,793

 
823,548

 
 
 
 
 
 
 
 
Impairment
 
 
 
 
 
 
 
Other-than-temporary impairment (OTTI) on securities
3,889

 
1,509

 
23,190

 
8,736

Valuation and loss provision (reversal) on loans and real estate owned (REO)
5,471

 
26,700

 
28,136

 
65,381

 
9,360

 
28,209

 
51,326

 
74,117

 
 
 
 
 
 
 
 
  Net interest income after impairment
253,358

 
244,235

 
740,467

 
749,431

Servicing revenue, net
175,355

 
58,014

 
538,784

 
269,467

Gain on sale of originated mortgage loans, net
45,732

 

 
45,732

 

Other Income
 
 
 
 
 
 
 
Change in fair value of investments in excess mortgage servicing rights
(4,744
)
 
(14,291
)
 
(55,711
)
 
(32,650
)
Change in fair value of investments in excess mortgage servicing rights, equity method investees
3,396

 
2,054

 
5,624

 
6,056

Change in fair value of investments in mortgage servicing rights financing receivables
(88,345
)
 
70,232

 
63,628

 
75,828

Change in fair value of servicer advance investments
(5,353
)
 
10,941

 
(86,581
)
 
70,469

Gain (loss) on settlement of investments, net
(11,893
)
 
1,553

 
106,064

 
1,250

Earnings from investments in consumer loans, equity method investees
4,555

 
6,769

 
12,343

 
12,649

Other income (loss), net
19,086

 
9,887

 
39,047

 
7,696

 
(83,298
)
 
87,145

 
84,414

 
141,298

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
General and administrative expenses
98,587

 
19,919

 
139,169

 
47,788

Management fee to affiliate
15,464

 
14,187

 
46,027

 
41,447

Incentive compensation to affiliate
23,848

 
19,491

 
65,169

 
72,123

Loan servicing expense
11,060

 
13,690

 
33,609

 
40,068

Subservicing expense
43,148

 
49,773

 
135,703

 
123,435

 
192,107

 
117,060

 
419,677

 
324,861

 
 
 
 
 
 
 
 
Income Before Income Taxes
199,040

 
272,334

 
989,720

 
835,335

Income tax expense (benefit)
3,563

 
32,613

 
(5,957
)
 
121,053

Net Income
$
195,477

 
$
239,721

 
$
995,677

 
$
714,282

Noncontrolling Interests in Income of Consolidated Subsidiaries
$
10,869

 
$
13,600

 
$
32,058

 
$
45,051

Net Income Attributable to Common Stockholders
$
184,608

 
$
226,121

 
$
963,619

 
$
669,231

 
 
 
 
 
 
 
 
Net Income Per Share of Common Stock
 
 
 
 
 
 
 
  Basic
$
0.54

 
$
0.74

 
$
2.87

 
$
2.23

  Diluted
$
0.54

 
$
0.73

 
$
2.86

 
$
2.21

 
 
 
 
 
 
 
 
Weighted Average Number of Shares of Common Stock Outstanding
 
 
 
 
 
 
 
  Basic
340,044,440

 
307,361,309

 
335,615,566

 
300,511,550

  Diluted
340,868,403

 
309,207,345

 
337,078,824

 
302,357,147

 
 
 
 
 
 
 
 
Dividends Declared per Share of Common Stock
$
0.50

 
$
0.50

 
$
1.50

 
$
1.48

 
See notes to condensed consolidated financial statements.

3



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net income
$
195,477

 
$
239,721

 
$
995,677

 
$
714,282

Other comprehensive income (loss)
 
 
 
 
 
 
 
Net unrealized gain (loss) on securities
(22,445
)
 
75,845

 
14,600

 
277,805

Reclassification of net realized (gain) loss on securities into earnings
32,626

 
(5,833
)
 
89,885

 
(20,856
)
 
10,181

 
70,012

 
104,485

 
256,949

Total comprehensive income
$
205,658

 
$
309,733

 
$
1,100,162

 
$
971,231

Comprehensive income attributable to noncontrolling interests
$
10,869

 
$
13,600

 
$
32,058

 
$
45,051

Comprehensive income attributable to common stockholders
$
194,789

 
$
296,133

 
$
1,068,104

 
$
926,180

 
See notes to condensed consolidated financial statements.


4



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total New Residential Stockholders’ Equity
 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2017
307,361,309

 
$
3,074

 
$
3,763,188

 
$
559,476

 
$
364,467

 
$
4,690,205

 
$
105,957

 
$
4,796,162

Dividends declared

 

 

 
(508,176
)
 

 
(508,176
)
 

 
(508,176
)
Capital contributions

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 
(51,735
)
 
(51,735
)
Issuance of common stock
29,241,659

 
292

 
491,312

 

 

 
491,604

 

 
491,604

Option exercise
3,694,228

 
37

 
(37
)
 

 

 

 

 

Other dilution

 

 
(63
)
 

 

 
(63
)
 

 
(63
)
Purchase of Noncontrolling Interests

 

 
627

 

 

 
627

 
7,448

 
8,075

Director share grants
57,233

 
1

 
1,018

 

 

 
1,019

 

 
1,019

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 
963,619

 

 
963,619

 
32,058

 
995,677

Net unrealized gain (loss) on securities

 

 

 

 
14,600

 
14,600

 

 
14,600

Reclassification of net realized (gain) loss on securities into earnings

 

 

 

 
89,885

 
89,885

 

 
89,885

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
1,068,104

 
32,058

 
1,100,162

Equity - September 30, 2018
340,354,429

 
$
3,404

 
$
4,256,045

 
$
1,014,919

 
$
468,952

 
$
5,743,320

 
$
93,728


$
5,837,048

 

5



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total New Residential Stockholders’ Equity
 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2016
250,773,117

 
$
2,507

 
$
2,920,730

 
$
210,500

 
$
126,363

 
$
3,260,100

 
$
208,077

 
$
3,468,177

Dividends declared

 

 

 
(454,877
)
 

 
(454,877
)
 

 
(454,877
)
Capital contributions

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 
(70,493
)
 
(70,493
)
Issuance of common stock
56,545,787

 
566

 
833,963

 

 

 
834,529

 

 
834,529

Purchase of noncontrolling interests in the Buyer

 

 
9,183

 

 

 
9,183

 
(75,043
)
 
(65,860
)
Other dilution

 

 
(4,202
)
 

 

 
(4,202
)
 

 
(4,202
)
Director share grants
42,405

 
1

 
698

 

 

 
699

 

 
699

Comprehensive income (loss)
 
 
 
 
 
 


 
 
 


 


 


   Net income (loss)

 

 

 
669,231

 

 
669,231

 
45,051

 
714,282

   Net unrealized gain (loss) on securities

 

 

 

 
277,805

 
277,805

 

 
277,805

   Reclassification of net realized (gain) loss on securities into earnings

 

 

 

 
(20,856
)
 
(20,856
)
 

 
(20,856
)
Total comprehensive income (loss)


 


 


 


 


 
926,180

 
45,051

 
971,231

Equity - September 30, 2017
307,361,309

 
$
3,074

 
$
3,760,372

 
$
424,854

 
$
383,312

 
$
4,571,612

 
$
107,592

 
$
4,679,204


See notes to condensed consolidated financial statements.


6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
Nine Months Ended  
 September 30,
 
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net income
$
995,677

 
$
714,282

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Change in fair value of investments in excess mortgage servicing rights
55,711

 
32,650

Change in fair value of investments in excess mortgage servicing rights, equity method investees
(5,624
)
 
(6,056
)
Change in fair value of investments in mortgage servicing rights financing receivables
(63,628
)
 
(75,828
)
Change in fair value of servicer advance investments
86,581

 
(70,469
)
Change in fair value of residential mortgage loans, at fair value, and notes and bonds payable, at fair value
1,462

 

(Gain) / loss on settlement of investments (net)
(106,064
)
 
(1,250
)
Earnings from investments in consumer loans, equity method investees
(12,343
)
 
(12,649
)
Unrealized (gain) / loss on derivative instruments
(27,985
)
 
124

Unrealized (gain) / loss on other ABS
(12,001
)
 
(340
)
(Gain) / loss on transfer of loans to REO
(16,609
)
 
(16,791
)
(Gain) / loss on transfer of loans to other assets
1,648

 
(359
)
(Gain) / loss on Excess MSRs
(5,257
)
 
(1,948
)
(Gain) / loss on Ocwen common stock
(4,655
)
 
(6,987
)
Accretion and other amortization
(528,981
)
 
(811,922
)
Other-than-temporary impairment
23,190

 
8,736

Valuation and loss provision on loans and real estate owned
28,136

 
65,381

Non-cash portions of servicing revenue, net
(35,118
)
 
81,986

Non-cash directors’ compensation
1,019

 
699

Deferred tax provision
(12,680
)
 
114,016

Changes in:
 
 
 
Servicer advances receivable
441,351

 
(7,774
)
Other assets
(168,862
)
 
(35,799
)
Due to affiliates
(14,826
)
 
32,276

Accrued expenses and other liabilities
161,246

 
48,442

Other operating cash flows:
 
 
 
Interest received from excess mortgage servicing rights
33,521

 
53,067

Interest received from servicer advance investments
25,901

 
136,431

Interest received from Non-Agency RMBS
156,420

 
170,931

Interest received from residential mortgage loans, held-for-investment
6,656

 
5,906

Interest received from PCD consumer loans, held-for-investment
27,681

 
40,762

Distributions of earnings from excess mortgage servicing rights, equity method investees
7,976

 
11,054

Distributions of earnings from consumer loan equity method investees
6,176

 
4,291

Purchases of residential mortgage loans, held-for-sale
(3,295,378
)
 
(4,146,740
)
Origination of residential mortgage loans, held-for-sale
(1,678,606
)
 

Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale
3,706,334

 
2,986,992

Principal repayments from purchased residential mortgage loans, held-for-sale
146,170

 
69,069

Net cash provided by (used in) operating activities
(75,761
)
 
(617,817
)

Continued on next page.

7


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
Nine Months Ended  
 September 30,
 
2018
 
2017
Cash Flows From Investing Activities
 
 
 
Acquisition of Shellpoint, net of cash acquired
(118,285
)
 

Purchase of servicer advance investments
(1,790,635
)
 
(9,328,137
)
Purchase of MSRs, MSR financing receivables and servicer advances receivable
(971,079
)
 
(1,586,063
)
Purchase of Agency RMBS
(6,574,783
)
 
(6,352,488
)
Purchase of Non-Agency RMBS
(2,714,991
)
 
(2,070,898
)
Purchase of residential mortgage loans
(85,778
)
 
(585,983
)
Purchase of derivatives

 

Purchase of real estate owned and other assets
(26,807
)
 
(25,667
)
Purchase of investment in consumer loans, equity method investees
(292,616
)
 
(344,902
)
Draws on revolving consumer loans
(45,017
)
 
(41,930
)
Payments for settlement of derivatives
(59,113
)
 
(146,898
)
Return of investments in excess mortgage servicing rights
43,690

 
142,626

Return of investments in excess mortgage servicing rights, equity method investees
14,474

 
14,157

Return of investments in consumer loans, equity method investees
279,669

 
276,601

Principal repayments from servicer advance investments
1,845,411

 
10,898,739

Principal repayments from Agency RMBS
76,515

 
76,744

Principal repayments from Non-Agency RMBS
565,460

 
615,657

Principal repayments from residential mortgage loans
110,770

 
59,673

Proceeds from sale of residential mortgage loans
21,278

 

Principal repayments from consumer loans
237,129

 
312,132

Proceeds from sale of Agency RMBS
4,121,325

 
6,205,573

Proceeds from sale of Non-Agency RMBS
81,325

 
166,460

Proceeds from settlement of derivatives
146,146

 
81,505

Proceeds from sale of real estate owned
111,459

 
63,476

Net cash provided by (used in) investing activities
(5,024,453
)
 
(1,569,623
)

Continued on next page.

8


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
 
Nine Months Ended  
 September 30,
 
2018
 
2017
Cash Flows From Financing Activities
 
 
 
Repayments of repurchase agreements
(58,414,966
)
 
(34,057,218
)
Margin deposits under repurchase agreements and derivatives
(1,374,374
)
 
(820,678
)
Repayments of notes and bonds payable
(7,512,484
)
 
(7,323,512
)
Payment of deferred financing fees
(12,838
)
 
(5,702
)
Common stock dividends paid
(491,680
)
 
(416,552
)
Borrowings under repurchase agreements
63,696,426

 
36,713,743

Return of margin deposits under repurchase agreements and derivatives
1,263,220

 
815,903

Borrowings under notes and bonds payable
7,547,541

 
6,561,390

Issuance of common stock
492,285

 
835,465

Costs related to issuance of common stock
(681
)
 
(936
)
Noncontrolling interest in equity of consolidated subsidiaries - contributions

 

Noncontrolling interest in equity of consolidated subsidiaries - distributions
(51,735
)
 
(70,493
)
Purchase of noncontrolling interests
(653
)
 
(65,860
)
   Net cash provided by (used in) financing activities
5,140,061

 
2,165,550

 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
39,847

 
(21,890
)
 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period
446,050

 
453,697

 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, End of Period
$
485,897

 
$
431,807

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
405,672

 
$
320,804

Cash paid during the period for income taxes
3,176

 
4,956

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Dividends declared but not paid
$
170,177

 
$
153,681

Purchase of Agency and Non-Agency RMBS, settled after quarter end
1,791,191

 
1,076,086

Sale of investments, primarily Agency RMBS, settled after quarter end
3,424,865

 
1,785,708

Transfer from residential mortgage loans to real estate owned and other assets
88,376

 
105,750

Non-cash distributions from LoanCo
25,739

 
30,337

MSR purchase price holdback
8,692

 
79,045

Shellpoint Acquisition purchase price holdback
10,173

 

Shellpoint Acquisition contingent consideration
42,770

 

Real estate securities retained from loan securitizations
762,056

 
310,579

Residential mortgage loans subject to repurchase
110,181

 

Ocwen transaction (Note 5) - excess mortgage servicing rights
638,567

 
23,080

Ocwen transaction (Note 5) - servicer advance investments
3,175,891

 
71,982

Ocwen transaction (Note 5) - mortgage servicing rights financing receivables
1,017,993

 
481,220

 
See notes to condensed consolidated financial statements.

9



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 
1.
ORGANIZATION AND BASIS OF PRESENTATION
 
New Residential Investment Corp. (together with its subsidiaries, “New Residential”) is a Delaware corporation that was formed as a limited liability company in September 2011 for the purpose of making real estate related investments and commenced operations on December 8, 2011. New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related assets. New Residential is listed on the New York Stock Exchange (“NYSE”) under the symbol “NRZ.”
 
New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 17 regarding New Residential’s taxable REIT subsidiaries.
 
New Residential has entered into a management agreement (the “Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), pursuant to which the Manager provides a management team and other professionals who are responsible for implementing New Residential’s business strategy, subject to the supervision of New Residential’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement. The Manager also manages investment funds that until June 2018, owned a majority of the outstanding common stock of OneMain Holdings, Inc. (formerly Springleaf Holdings, Inc.) (together with its subsidiaries, “OneMain”), former managing member of the Consumer Loan Companies (Note 9). The Manager also manages investment funds that until August 2, 2018, indirectly owned approximately 40.5% of the outstanding interests in Nationstar Mortgage LLC (“Nationstar”), a leading residential mortgage servicer. As of September 30, 2018, such ownership of the outstanding interests in Nationstar, through ownership of its parent, WMIH Corp. (“WMIH”), was limited to 2.5%.

As of September 30, 2018, New Residential conducted its business through the following segments: (i) Servicing and Originations, (ii) Residential Securities and Loans, (iii) Consumer Loans and (iv) Corporate.
 
Approximately 0.5 million shares of New Residential’s common stock were held by Fortress, through its affiliates, as of September 30, 2018. In addition, Fortress, through its affiliates, held options relating to approximately 4.1 million shares of New Residential’s common stock as of September 30, 2018.
 
Interim Financial Statements

The accompanying condensed consolidated financial statements and related notes of New Residential have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with New Residential’s consolidated financial statements for the year ended December 31, 2017 and notes thereto included in New Residential’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Capitalized terms used herein, and not otherwise defined, are defined in New Residential’s consolidated financial statements for the year ended December 31, 2017. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
 
Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In effect, companies are required to exercise further judgment and

10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

make more estimates prospectively. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2014-09 was effective for New Residential in the first quarter of 2018. New Residential has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC No. 606. For income from servicing residential mortgage loans, New Residential considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC No. 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC No. 606 contains a scope exception for contracts that fall under ASC No. 860. In addition, NRM determined that ancillary income generated from services for mortgage loans and REO properties represent servicing fees due to a servicer, through contractual terms, that would no longer be received by a servicer if the owners of the serviced loans were to exercise their authority to shift the servicing to another servicer and, therefore, similarly fall under ASC No. 860. Finally, New Residential determined that fee income on residential mortgage loan originations is outside the scope of ASC No. 606 as it continues to be accounted for in accordance with ASC 948. As a result, the adoption of ASU No. 2014-09 did not have a material impact on the condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-01 did not have a material impact on the condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that lessees recognize a right-of-use asset and corresponding lease liability on the balance sheet for most leases. The guidance applied by a lessor under ASU No. 2016-02 is substantially similar to existing GAAP. ASU No. 2016-02 is effective for New Residential in the first quarter of 2019. Early adoption is permitted upon issuance. An entity should apply ASU No. 2016-02 by means of a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. The adoption of ASU No. 2016-02 is not expected to have a material impact on the condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. ASU No. 2016-13 is effective for New Residential in the first quarter of 2020. Early adoption is permitted beginning in 2019. An entity should apply ASU No. 2016-13 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-16 did not have a material impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (Topic 805). The standard simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test. Under the new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. ASU No. 2017-04 is effective for New Residential in the first quarter of 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU No. 2017-04 is not expected to have a material impact on the condensed consolidated financial statements.

11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The standard: (i) adds incremental requirements for entities to disclose (a) the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy, (b) the range and weighted average used to develop significant unobservable inputs and (c) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy and (ii) eliminates disclosure requirements for (a) transfers between Level 1 and Level 2 and (b) valuation processes for Level 3 fair value measurements. ASU No. 2018-13 is effective for New Residential in the first quarter of 2020. The adoption of ASU No. 2018-13 is not expected to have a material impact on the condensed consolidated financial statements.

Acquisition of Shellpoint Partners LLC

On November 29, 2017, NRM Acquisition LLC (the “Shellpoint Purchaser”), a Delaware limited liability company and a wholly owned subsidiary of New Residential, entered into a Securities Purchase Agreement (the “Shellpoint SPA”) to acquire Shellpoint Partners LLC, a Delaware limited liability company (“Shellpoint”).

On July 3, 2018, the Shellpoint Purchaser acquired 100% of the outstanding equity interests of Shellpoint for a purchase price of $212.3 million (the “Shellpoint Acquisition”). As additional consideration for the Shellpoint Acquisition, the Shellpoint Purchaser may make up to three cash earnout payments, which will be calculated following each of the first three anniversaries of the Shellpoint closing as a percentage of the amount by which the pre-tax income of certain of Shellpoint’s businesses exceeds certain specified thresholds, up to an aggregate maximum amount of $60.0 million (the “Shellpoint Earnout Payments”). The Shellpoint Earnout Payments are classified as contingent consideration recorded at fair value at the acquisition date and included in the total consideration transferred for the Shellpoint Acquisition.

Shellpoint is a vertically integrated mortgage platform with established origination and servicing capabilities and provides New Residential with in-house servicing, asset origination and recapture capabilities. The results of Shellpoint’s operations have been included in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2018 from the date of the acquisition and represent $97.0 million and $11.7 million of revenue and net income, respectively.

The acquisition date fair value of the consideration transferred includes $212.3 million in cash consideration, $42.8 million in contingent consideration and $180.3 million in effective settlement of preexisting relationships. The total consideration is summarized as follows:
Total Consideration
 
Amount
Cash Consideration
 
$
212.3

Earnout Payment(A)
 
42.8

Effective Settlement of Preexisting Relationships(B)
 
180.3

Total Consideration
 
$
435.4


(A)
The range of outcomes for this contingent consideration is from $0 to $60.0 million, dependent on the performance of Shellpoint. New Residential derived a fair value of the contingent consideration payment in three years of $48.7 million inclusive of payments to Shellpoint employees of $5.9 million. Contingent payments to the long-term employee incentive plans require continuing employment and will be recognized as compensation expense within General and Administrative expenses in the post-acquisition consolidated financial statements separate from New Residential’s acquisition of assets and assumption of liabilities in the business combination. As a result, New Residential recorded contingent consideration of $42.8 million.
(B)
Represents the effective settlement of preexisting relationships between New Residential and Shellpoint including 1) MSR acquisitions, 2) a note payable and 3) operating accounts receivable and payable existing prior to the acquisition date. The effective settlement of these preexisting relationships had no impact to New Residential’s condensed consolidated statements of income.


12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

New Residential has performed a preliminary allocation of the total consideration of $435.4 million to Shellpoint’s assets and liabilities, as set forth below. The final amount and allocation of total consideration may differ from the amounts included herein to reflect new information obtained primarily relating to the valuation of contingent consideration and intangible assets that existed as of the acquisition date.
Total Consideration ($ in millions)
 
$
435.4

Assets
 
 
Cash and cash equivalents
 
$
84.1

Restricted cash
 
9.9

Residential mortgage loans, held-for-sale, at fair value
 
488.2

Mortgage servicing rights, at fair value(A)
 
286.6

Residential mortgage loans, held-for-investment, at fair value
 
125.3

Residential mortgage loans subject to repurchase
 
121.4

Intangible assets
 
4.3

Other assets
 
81.1

Total Assets Acquired
 
$
1,200.9

 
 
 
Liabilities
 
 
Repurchase agreements
 
$
439.6

Notes and bonds payable
 
25.4

Mortgage-backed securities issued, at fair value
 
120.7

Residential mortgage loans repurchase liability
 
121.4

Excess spread financing, at fair value
 
48.3

Accrued expenses and other liabilities
 
50.7

Total Liabilities Assumed
 
$
806.1

 
 
 
Noncontrolling Interest
 
$
8.3

 
 
 
Net Assets
 
$
386.5

 
 
 
Goodwill
 
$
48.9


(A)
Includes $135.3 million of Ginnie Mae MSRs where New Residential acquired the rights to the economic value of the servicing rights from Shellpoint prior to the acquisition date.

The goodwill of $48.9 million primarily includes the synergies and benefits expected to result from combining operations with Shellpoint and adding in-house servicing, asset origination and recapture capabilities. The full amount of goodwill for tax purposes of $46.7 million is expected to be deductible. New Residential will assess the goodwill annually on October 1 and in interim periods in case of events or circumstances make it more likely than not that an impairment may have occurred.

Certain transactions were recognized separately from New Residential’s acquisition of assets and assumption of liabilities in the business combination. These separately recognized transactions include 1) contingent payments to Shellpoint’s employees and 2) effective settlement of preexisting relationships discussed above.


13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

Unaudited Supplemental Pro Forma Financial Information — The following table presents unaudited pro forma combined Servicing and Originations Revenue, which is comprised of 1) servicing revenue, net and 2) gain on sale of originated mortgage loans, net, and Income Before Income Taxes for the three and nine months ended September 30, 2018 and 2017 prepared as if the Shellpoint Acquisition had been consummated on January 1, 2017.
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Pro Forma
 
 
 
 
 
 
 
 
Servicing and Originations Revenue
 
$
221,087

 
$
141,002

 
$
710,742

 
$
513,076

Income Before Income Taxes
 
199,040

 
278,274

 
1,006,743

 
850,509


The unaudited supplemental pro forma financial information has not been adjusted for transactions other than the Shellpoint Acquisition, or for the conforming of accounting policies. The unaudited supplemental pro forma financial information does not include any anticipated synergies or other anticipated benefits of the Shellpoint Acquisition and, accordingly, the unaudited supplemental pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the Shellpoint Acquisition occurred on January 1, 2017.

2.
OTHER INCOME, ASSETS AND LIABILITIES
 
Gain (loss) on settlement of investments, net is comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Gain (loss) on sale of real estate securities, net
$
(28,737
)
 
$
7,342

 
$
(66,695
)
 
$
29,592

Gain (loss) on sale of acquired residential mortgage loans, net
4,065

 
9,029

 
(1,358
)
 
37,967

Gain (loss) on settlement of derivatives
19,459

 
(18,756
)
 
76,092

 
(58,326
)
Gain (loss) on liquidated residential mortgage loans
(1,113
)
 
(2,152
)
 
(2,267
)
 
(7,996
)
Gain (loss) on sale of REO
(4,971
)
 
(1,864
)
 
(12,114
)
 
(7,176
)
Gains reclassified from change in fair value of investments in excess MSRs and servicer advance investments

 
11,320

 
113,002

 
11,320

Other gains (losses)
(596
)
 
(3,366
)
 
(596
)
 
(4,131
)
 
$
(11,893
)
 
$
1,553

 
$
106,064

 
$
1,250


Other income (loss), net, is comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Unrealized gain (loss) on derivative instruments
$
24,299

 
$
3,560

 
$
27,985

 
$
(124
)
Unrealized gain (loss) on other ABS
7,197

 
189

 
12,001

 
340

Unrealized gain (loss) on residential mortgage loans, held-for-investment, at fair value
647

 

 
647

 

Unrealized gain (loss) on notes and bonds payable
900

 

 
900

 

Gain (loss) on transfer of loans to REO
6,119

 
5,179

 
16,609

 
16,791

Gain (loss) on transfer of loans to other assets
(1,528
)
 
66

 
(1,648
)
 
359

Gain (loss) on Excess MSRs
987

 
606

 
5,257

 
1,948

Gain (loss) on Ocwen common stock
(145
)
 
6,987

 
4,655

 
6,987

Other income (loss)
(19,390
)
 
(6,700
)
 
(27,359
)
 
(18,605
)
 
$
19,086

 
$
9,887

 
$
39,047

 
$
7,696



14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
 
Accrued Expenses
and Other Liabilities
 
September 30, 2018
 
December 31, 2017
 
 
 
September 30, 2018
 
December 31, 2017
Margin receivable, net
$
163,357

 
$
53,150

 
Interest payable
 
$
38,284

 
$
28,821

Other receivables
23,023

 
10,635

 
Accounts payable
 
109,852

 
73,017

Principal and interest receivable
66,283

 
48,373

 
Derivative liabilities (Note 10)
 
2,294

 
697

Receivable from government agency
20,158

 
41,429

 
Due to servicers
 
73,524

 
24,571

Call rights
290

 
327

 
MSR purchase price holdback
 
109,982

 
101,290

Derivative assets (Note 10)
27,212

 
2,423

 
Excess spread financing, at fair value
 
44,374

 

Servicing fee receivables
76,815

 
60,520

 
Contingent Consideration
 
42,770

 

Ginnie Mae EBO servicer advances receivable, net
934

 
8,916

 
Reserve for sales recourse
 
6,214

 

Due from servicers
74,539

 
38,601

 
Other liabilities
 
34,867

 
10,718

Goodwill
48,921

 

 
 
 
$
462,161

 
$
239,114

Intangible assets
4,308

 

 
 
 
 
 
 
Ocwen common stock, at fair value
23,876

 
19,259

 
 
 
 
 
 
Prepaid expenses
13,976

 
7,308

 
 
 
 
 
 
Other assets
85,539

 
21,240

 
 
 
 
 
 
 
$
629,231

 
$
312,181

 
 
 
 
 
 

As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:
 
 
Nine Months Ended  
 September 30,
 
 
2018
 
2017
Accretion of servicer advances receivable discount and servicer advance investments
 
$
207,428

 
$
451,824

Accretion of excess mortgage servicing rights income
 
32,371

 
75,237

Accretion of net discount on securities and loans(A)
 
296,961

 
295,753

Amortization of deferred financing costs
 
(6,180
)
 
(9,525
)
Amortization of discount on notes and bonds payable
 
(1,599
)
 
(1,367
)
 
 
$
528,981

 
$
811,922


(A)
Includes accretion of the accretable yield on PCD loans.

3.
SEGMENT REPORTING
 
New Residential conducts its business through the following segments: (i) Servicing and Originations, (ii) Residential Securities and Loans, (iii) Consumer Loans and (iv) Corporate. The corporate segment consists primarily of (i) general and administrative expenses, (ii) the management fees and incentive compensation related to the Management Agreement and (iii) corporate cash and related interest income. Securities owned by New Residential (Note 7) that are collateralized by servicer advances and consumer loans are included in the Servicing and Originations and Consumer Loans segments, respectively. Secured corporate loans effectively collateralized by Excess MSRs are included in the Servicing and Originations segment.


15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

During the third quarter of 2018, New Residential changed the composition of its reportable segments primarily to reflect the (i) aggregation of the similar MSR, Excess MSR and Servicer Advance segments as the new Servicing and Originations segment and (ii) incorporation of the Shellpoint Acquisition. Segment information for prior periods has been restated to reflect this change.

Summary financial data on New Residential’s segments is given below, together with a reconciliation to the same data for New Residential as a whole:
 
 
 
Residential Securities and Loans
 
 
 
 
 
 
 
 
Servicing and Originations
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
193,424

 
$
138,197

 
$
42,942

 
$
50,961

 
$

 
$
425,524

Interest expense
 
62,994

 
67,117

 
22,374

 
10,321

 

 
162,806

Net interest income (expense)
 
130,430

 
71,080

 
20,568

 
40,640

 

 
262,718

Impairment
 

 
3,889

 
(4,436
)
 
9,907

 

 
9,360

Servicing revenue, net
 
175,355

 

 

 

 

 
175,355

Gain on sale of originated mortgage loans, net
 
45,732

 

 

 

 

 
45,732

Other income (loss)
 
(92,243
)
 
17,994

 
(12,729
)
 
3,795

 
(115
)
 
(83,298
)
Operating expenses
 
132,542

 
63

 
6,436

 
8,467

 
44,599

 
192,107

Income (Loss) Before Income Taxes
 
126,732

 
85,122

 
5,839

 
26,061

 
(44,714
)
 
199,040

Income tax expense (benefit)
 
495

 

 
3,100

 
(32
)
 

 
3,563

Net Income (Loss)
 
$
126,237

 
$
85,122

 
$
2,739

 
$
26,093

 
$
(44,714
)
 
$
195,477

Noncontrolling interests in income (loss) of consolidated subsidiaries
 
$
1,086

 
$

 
$

 
$
9,783

 
$

 
$
10,869

Net income (loss) attributable to common stockholders
 
$
125,151

 
$
85,122

 
$
2,739

 
$
16,310

 
$
(44,714
)
 
$
184,608


 
 
 
Residential Securities and Loans
 
 
 
 
 
 
 
 
Servicing and Originations
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
579,824

 
$
354,922

 
$
118,019

 
$
158,631

 
$
1,506

 
$
1,212,902

Interest expense
 
173,759

 
157,195

 
57,299

 
32,856

 

 
421,109

Net interest income (expense)
 
406,065

 
197,727

 
60,720

 
125,775

 
1,506

 
791,793

Impairment
 

 
23,190

 
(8,683
)
 
36,819

 

 
51,326

Servicing revenue, net
 
538,784

 

 

 

 

 
538,784

Gain on sale of originated mortgage loans, net
 
45,732

 

 

 

 

 
45,732

Other income (loss)
 
48,128

 
45,346

 
(27,219
)
 
13,363

 
4,796

 
84,414

Operating expenses
 
235,417

 
1,003

 
25,658

 
26,743

 
130,856

 
419,677

Income (Loss) Before Income Taxes
 
803,292

 
218,880

 
16,526

 
75,576

 
(124,554
)
 
989,720

Income tax expense (benefit)
 
(6,458
)
 

 
289

 
212

 

 
(5,957
)
Net Income (Loss)
 
$
809,750

 
$
218,880

 
$
16,237

 
$
75,364

 
$
(124,554
)
 
$
995,677

Noncontrolling interests in income (loss) of consolidated subsidiaries
 
$
3,525

 
$

 
$

 
$
28,533

 
$

 
$
32,058

Net income (loss) attributable to common stockholders
 
$
806,225

 
$
218,880

 
$
16,237

 
$
46,831

 
$
(124,554
)
 
$
963,619


16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
(dollars in tables in thousands, except share data) 
 

 
 
 
Residential Securities and Loans
 
 
 
 
 
 
 
 
Servicing and Originations
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Investments
 
$
6,722,697

 
$
11,650,257

 
$
2,775,145

 
$
1,185,556

 
$

 
$
22,333,655

Cash and cash equivalents
 
260,353

 
2,841

 
3,764

 
22,050

 
41,140

 
330,148

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