Rithm Capital Corp. · NYSE:RITM
Rithm Capital — Q4 2020 Earnings Presentation
55 slides from Rithm Capital's earnings presentation, Feb 9, 2021
Slide 1: Quarterly Supplement Fourth Quarter and Full Year 2020
New Residential Investment Corp. Quarterly Supplement Fourth Quarter and Full Year 2020
Slide 2: Disclaimers
Disclaimers IN GENERAL. This disclaimer applies to this document and the verbal or written comments of any person presenting it. This document, taken together with any such verbal or written comments, is referred to herein as the “Presentation.” FORWARD-LOOKING STATEMENTS. Certain statements regardi
Slide 3: New Residential Investment Corp. Overview
New Residential Investment Corp. Overview Our vertically integrated investment management and mortgage platform generates attractive and sustainable risk-adjusted returns ✓ Over $3.5 Billion in Dividends Paid Since Inception(2)(3) ✓ $5.3 Billion Net Equity(4) ✓ 77% Total Shareholder Return Since Inc
Slide 4: Q4'20 Company and Financial Highlights
Q4’20 Company and Financial Highlights ▪ GAAP Net Income of $68.6 Million, or $0.16 per Diluted Share(1) ▪ $295.7 Million Pre-Tax Income (“PTI”) from Origination and Servicing(2) ▪ Core Earnings of $137.0 Million, or $0.32 per Diluted Share(1)(3) ▪ Fourth Quarter 2020 Common Stock Dividend of $0.20
Slide 5: Book Value Per Share Summary
Book Value Per Share Summary Book value increased +0.1% in Q4’20 relative to Q3’20 Q3’20 to Q4’20 Book Value Per Share Walk QoQ% Per Share* Change Ending Q3'20 BV $10.86 Origination & Servicing Segment Net Income ** 0.70 Investment Portfolio and Corporate Segment Net Income 0.55 MSR Realization of C
Slide 6: Sum of the Parts: Greater than the Whole
Sum of the Parts: Greater than the Whole(1) Current stock market valuation significantly understates the value of New Residential(1) $20.00 Illustrative Operating Company Valuation(4) $18.00 ~$14- $18 Low High $16.00 Operating Co Off Balance FY’21 Operating Company PTI $700 $800 $14.00 Sheet Value C
Slide 7: What Do Higher Rates Mean for New Residential?
What Do Higher Rates Mean for New Residential? As rates rise, MSR prepayment expectations fall, extending the duration of our servicing cash flows(1) The MBA is forecasting a 70bps increase in 10-year treasury by year end 2021…(2) 10-Year Treasury Refinance Volume ($bn) Forecast(2) Forecast(2) 3.0%
Slide 8: Well Positioned to Generate Higher Earnings as Rates Rise
Well Positioned to Generate Higher Earnings as Rates Rise(1) With rates 50bps to 75bps higher, we believe Core Earnings per share could increase to ~$0.50(2) ▪ As interest rates rise, we forecast a slow down in MSR amortization to outweigh the potential reduction to origination volume and earnings ▪
Slide 9: Growing Recapture Platform Presents Significant Upside Opportunity
Growing Recapture Platform Presents Significant Upside Opportunity Initiatives geared at enhancing recapture demonstrated progress in Q4’20 We are focused on recapturing our borrowers and maintaining relationships with them throughout the lifetime of their mortgage loans Q4’20 NewRez Recapture Perfo
Slide 10: Leverage and Financing Summary
Leverage and Financing Summary Throughout the year we strengthened our balance sheet, lowered our cost of funds and reduced our mark to market exposure* Q4’19 vs. Q4’20 Financing and Leverage Metrics FY’20 Securitizations and Refinancing Tombstones ▪ Completed 17 securitizations for ~$8.0 billion an
Slide 11: Delivering Results
Delivering Results FY’20 Accomplishments Maintained elevated levels of cash 1 Operated from a position and unencumbered assets; $1.9 billion of of financial strength unencumbered assets of which $945 million is cash 2 NewRez was the fastest growing Gained origination market share mortgage originator
Slide 12: Investment Portfolio
Investment Portfolio @ New RESIDENTIAL wy /eSTMENT CORP.
Slide 13: Investment Portfolio
Investment Portfolio Increase in asset base quarter over quarter was driven primarily by purchases of Agency securities Q4’20 Activity Additional Opportunities(3) ✓ Purchased $3.9bn (net face value) of Agency securities ✓ We expect call activity to pick up as advance balances and $321mm of GNMA EBOs
Slide 14: MSRs
MSRs MSRs are one of the few fixed income assets that increase in value when interest rates rise Q4’20 MSR Portfolio Activity and Outlook ▪ MSR portfolio totaled $537bn UPB as of December 31, 2020(1) (6% QoQ decline in MSR UPB) ▪ 100% of MSR financings are non-daily mark to market facilities* ▪ $2.9
Slide 15: Residential Loans & Non-Agency Residential Securities
Residential Loans & Non-Agency Residential Securities Strategically retain residential loans and non-agency securities that fit within our long-term strategy Residential Loans Non-Agency Residential Securities Other RPL 14% 30% NPL Risk 32% Other NRZ Portfolio Retention Retained Composition Bonds Bo
Slide 16: Call Rights
Call Rights We anticipate call volumes will increase over the remainder of 2021(1) Q4’20 Call Rights Portfolio Activity and Outlook ▪ We restarted our call rights strategy in Q4’20 as capital markets activity normalized ▪ We expect call activity to pick up as advance balances decline and delinquenci
Slide 17: Servicer Advances
Servicer Advances We continue to have significant excess servicer advance capacity(1) Advance Balances as of December 31, 2020 ▪ Servicer advance balances as of December 31, 2020 increased to $3.6bn from $3.4bn as of September 30, 2020 driven by the seasonal nature of property tax and insurance disb
Slide 18: COVID-19 Related Forbearances Have Continued to Flatten
COVID-19 Related Forbearances Have Continued to Flatten Within NRZ’s full MSR portfolio, COVID-19 forbearances continue to decline, and increasing numbers of borrowers’ forbearances are ending(1) COVID-19 Loans in Forbearance from March 25, 2020 through January 22, 2021(2) 9.00% 8.00% 7.00% 6.00% 5.
Slide 19: Origination and Servicing Performance
Origination and Servicing Performance
Slide 20: Origination: Activity and Business Highlights
Origination: Activity and Business Highlights Continued strength in loan origination and profitability Q4’20 Summary FY’20 Summary ▪ $247.9mm Origination PTI (-21% QoQ)(1) ▪ $801.6mm Origination PTI (+447% YoY)(1) ▪ $23.9bn of funded originations (+32% QoQ) ▪ $61.6bn of funded originations (+176% Yo
Slide 21: Growth Across Every Channel
Growth Across Every Channel Across each of our origination channels, we have demonstrated significant progress Direct to Consumer Joint Venture $8.0 $1.6 +25% QoQ +2% QoQ Funded Volume UPB ($bn) +169% YoY $5.9 +93% YoY $1.2 $1.2 Volume UPB ($bn) $6.0 $1.2 $1.0 $4.9 $4.3 $4.0 $3.6 $3.4 $0.8 $0.7 $3.0
Slide 22: Servicing: Activity and Business Highlights
Servicing: Activity and Business Highlights Industry-leading servicer with financial and operational strength P P P P Q4’20 Servicing PTI of $297.8bn UPB Over 1.7 million $300bn UPB YE’20 Servicing $47.8 million(1) customers Q1’21 Estimated Portfolio (up 58% QoQ) (up 5% QoQ) Servicing Portfolio(2) (
Slide 23: Origination and Servicing Overview
Origination and Servicing Overview
Slide 24: Origination and Servicing Opportunities
Origination and Servicing Opportunities Well positioned for profitable growth across macroeconomic environments(1) 1 Significant Profitability & Scale in Origination and Servicing 2 Opportunity for Further Origination Market Share Growth in Fragmented Market 3 Positioned to Perform and Originate Acr
Slide 25: Significant Profitability & Scale in Origination and Servicing
Significant Profitability & Scale in Origination and Servicing Key performance metrics demonstrate scale and profitability Pre-Tax Income(1) Origination Funded Volume $1,000 $934 $80 24x 10x Pre-Tax Income ($mm) Increase $62 Origination UPB ($bn) $750 Increase $60 $500 $40 $225 $22 $250 $20 $38 $58
Slide 26: Opportunity for Further Origination Market Share Growth
Opportunity for Further Origination Market Share Growth NewRez has successfully grown and captured market share Origination Production Growth vs Peers(1) Origination Market Share Growth(2) Of the Top 20 mortgage originators, NewRez was the fastest We have made significant progress growing our market
Slide 27: Positioned to Perform and Originate Across Rate Cycles
Positioned to Perform and Originate Across Rate Cycles Our platform is built to perform across various rate environments with robust purchase capabilities Origination Purchase Volumes Over Time Purchase & Refinance Characteristics by Channel NewRez Origination 2020 was our largest purchase volume ye
Slide 28: Track Record of Creating High-Quality Non-Agency Products
Track Record of Creating High-Quality Non-Agency Products Significant Opportunity Across non-QM and non-Agency Lending NewRez Origination Funded Volume – Q1’19-Q1’20 $0.8 Funded Volume UPB ($bn) $0.6 $0.6 $0.6 $0.6 $0.5 $0.4 $0.4 $0.4 $0.4 $0.4 $0.3 $0.3 $0.2 $0.2 $0.2 $0.1 $0.1 $0.2 $0.0 Q1'19 Q2'1
Slide 29: Leading Special Servicer Creates Positive Outcomes for Homeowners
Leading Special Servicer Creates Positive Outcomes for Homeowners Committed to helping homeowners and clients navigate COVID-19 landscape Migration of COVID-19 Impacted Homeowners(1) ▪ Our servicing team at NewRez and SMS has supported homeowners and provided 200,000 solutions throughout COVID-19 ▪
Slide 30: Technology Platform Focused on Digitizing the Entire Mortgage Experience
Technology Platform Focused on Digitizing the Entire Mortgage Experience Technology that enhances the customer experience and loan fulfillment process 1 2 Lead Generation & Fulfillment Marketing ▪ Predictive analytics and customized ▪ Customer-centric and fast customer journeys ▪ Improves employee e
Slide 31: New Residential – Our Value Proposition
New Residential – Our Value Proposition(1) ABILITY TO DRIVE ATTRACTIVE RISK ADJUSTED RETURNS ACROSS MACRO ENVIRONMENTS PORTFOLIO OF LARGE MSR PORTFOLIO UNDERVALUED HIGH- WITH SIGNIFICANT PERFORMING UPSIDE OPPORTUNITY OPERATING COMPANIES EXPERIENCED STRONG BALANCE MANAGEMENT SHEET WITH AMPLE TEAM & B
Slide 32: Appendix
Appendix @ New RESIDENTIAL Ww Investment Core.
Slide 33: Origination: Direct to Consumer Channel
Origination: Direct to Consumer Channel We are focused on meeting the refinance demand of our existing customer base DTC Funded and Pull Through Adjusted Lock Volume DTC GOS Margin Performance $8.0 25% QoQ growth in quarterly 5.00% 4.52% funded volume and 20% QoQ growth in pull through adjusted $5.9
Slide 34: Origination: Joint Venture Channel
Origination: Joint Venture Channel Our industry leading joint venture business is poised for growth(1) Joint Venture Funded Volume Joint Venture GOS Margin Performance Purchase as % of Total 77% 72% 70% 51% 60% 56% 6.00% 5.17% $1.6 5.00% 4.99% $1.2 $1.2 4.34% 4.79% $1.2 4.00% $1.0 3.93% UPB ($bn) 3.
Slide 35: Origination: Wholesale Channel
Origination: Wholesale Channel Significant runway to capitalize further market share from existing platform Wholesale Funded Volume Wholesale GOS Margin Performance $2.5 $2.3 4.00% 3.26% $2.0 3.39% $2.0 3.00% $1.6 $1.7 $1.5 2.59% UPB ($bn) $1.5 $1.3 2.00% $1.0 1.56% 1.00% 1.46% $0.5 0.54% 0.00% $0.0
Slide 36: Origination: Correspondent Channel
Origination: Correspondent Channel Driver of opportunistic MSR acquisition and customer growth for overall business Correspondent Funded Volume Correspondent GOS Margin Performance $20.0 0.75% 0.71% $16.0 0.64% $16.0 0.61% 0.64% $11.5 0.50% 0.54% UPB ($bn) $12.0 0.42% $8.0 $6.9 $7.1 0.25% $4.0 $3.0
Slide 37: Servicing: Special Servicing Summary
Servicing: Special Servicing Summary Well-recognized and distinguished track record of helping homeowners with complex servicing solutions P P P P +16% YoY Over 60 20 year track world class Over 500k growth in special institutional special loans serviced record of special servicing UPB servicing exp
Slide 38: Financial Statements
Financial Statements @ New RESIDENTIAL ww Inv P. /eSTMENT CORP.
Slide 39: Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets As of 12/31/2020 As of 9/30/2020 (dollars in thousands, except per share data) (Unaudited) (Unaudited) ASSETS Excess mortgage servicing rights assets, at fair value $ 410,855 $ 435,982 Mortgage servicing rights, at fair value 3,489,675 3,651,805 Mortgage servici
Slide 40: Condensed Consolidated Income Statements
Condensed Consolidated Income Statements Three Months Ended Twelve Months Ended December 31, 2020 September 30, 2020 December 31, 2020 December 31, 2019 (dollars in thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues Interest income $ 234,118 $ 233,848 $ 1,102,537 $ 1,766,130 Servici
Slide 41: Net Income by Segment (Q4'20 and Q3'20)
Net Income by Segment (Q4’20 and Q3’20) Servicing and Origination Residential Securities and Loans MSRs & Residential Servicer Securities & Call Residential Corporate & Quarter Ended December 31, 2020 Origination Servicing Advances Rights Loans Other Total Interest income $ 20,055 $ (687) $ 75,381 $
Slide 42: Servicing and Origination
Servicing and Origination Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 FY'19 FY'20 Servicing Servicing Portfolio (UPB $bn) NewRez / NRZ $138.7 $180.6 $174.8 $188.2 $204.4 $138.7 $204.4 Third Party / SMS $80.7 $95.2 $102.8 $99.0 $93.3 $80.7 $93.3 Total UPB ($bn) $219.4 $275.8 $277.6 $287.2 $297.8 $219.4 $297.8 Annu
Slide 43: Mortgage Servicing Rights
Mortgage Servicing Rights (in thousands) MSRs MSR Financing Receivables Total Balance as of September 30, 2020 $ 3,651,805 $ 1,129,819 $ 4,781,624 Purchases, net 2,911 (40) 2,871 Originations 241,963 - 241,963 Proceeds from sales (830) (351) (1,181) Change in fair value due to: Realization of cash f
Slide 44: Unaudited GAAP Reconciliation of Core Earnings
Unaudited GAAP Reconciliation of Core Earnings ▪ Management uses Core Earnings, which is a Non-GAAP measure, as one measure of operating performance. ▪ Please see next slide for the definition of Core Earnings. ($000s, except per share data) Q4 2020 Q3 2020 FY 2020 FY 2019 Reconciliation of Core Ear
Slide 45: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Core Earnings ▪ New Residential has five primary variables that impact its operating performance: (i) the current yield earned on the Company’s investments, (ii) the interest expense under the debt incurred to finance the Company’s investments, (iii) the Company’s
Slide 46: Endnotes
Endnotes @ New RESIDENTIAL Ww Investment Core.
Slide 47: Endnotes
Endnotes @ New RESIDENTIAL Ww Investment Core.
Slide 48: Endnotes to Slide 2
Endnotes to Slide 2 Endnotes to Slide 2: Source: Company filings and data, and Bloomberg. Financial and market data as of December 31, 2020 unless otherwise noted. (1) “Investment portfolio” assets refers to total assets less cash, restricted cash, other assets, trades receivable, goodwill and mortg
Slide 49: Endnotes to Slides 3 and 4
Endnotes to Slides 3 and 4 Endnotes to Slide 3: Source: Company filings and data. Financial data as of December 31, 2020 unless otherwise noted. (1) Per common share calculations of GAAP Net Income and Core Earnings are based on 425,127,967 weighted average diluted common shares during the quarter e
Slide 50: Endnotes to Slides 5 to 8
Endnotes to Slides 5 to 8 Endnotes to Slide 5: (1) Note: All per share values on this slide are based on 414,744,518 basic common shares outstanding as of December 31, 2020. References to “Operating Company” for the purposes of calculating “Off Balance Sheet Value” include Origination Segment and Se
Slide 51: Endnotes to Slides 9 to 13
Endnotes to Slides 9 to 13 Endnotes to Slide 9: Source: Company filings and data. Financial data as of December 31, 2020 unless otherwise noted. (1) Weighted average cost of funds includes financing costs for MSRs, servicer advances, residential loans and securities and corporate debt. “WA COF Ex Ag
Slide 52: Endnotes to Slides 14 to 16
Endnotes to Slides 14 to 16 Endnotes to Slide 14: Source: Company filings and data. Financial data as of December 31, 2020 unless otherwise noted. (1) Residential Loans: Net Investment of $708 million includes (A) $706 million net investment in Residential Loans & REO, with $3,115 million of total a
Slide 53: Endnotes to Slides 17 to 25
Endnotes to Slides 17 to 25 Endnotes to Slide 17: Source: Portfolio data through January 22, 2021. (1) There can be no assurances that these trends continue in the future. Based on management’s current views and estimates, and actual results may vary materially. See “Disclaimers” at the beginning of
Slide 54: Endnotes to Slides 26 to 36
Endnotes to Slides 26 to 36 Endnotes to Slide 26: Source: Company filings and data. Financial data as of December 31, 2020 unless otherwise noted. (1) NewRez FY’2018 through FY’2020 market share data based on NewRez annual purchase funded origination volume relative to total industry purchase origin
Slide 55: Abbreviations
Abbreviations Abbreviations: This Presentation may include abbreviations, which have the following meanings: ▪ Original UPB – UPB at Time of Securitization ▪ 60+ DQ – Percentage of loans that are delinquent by 60 days or more ▪ Proj. Future Cash Flows – Future cash flow projected with the Company’s