Rithm Capital Corp.

Good morning and welcome to the new residential first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bohi Yoon.

Please go ahead. Thank you, and good morning, everyone. I'd like to thank you for joining us for New Residential's first quarter 2022 earnings call. With me today are Michael Nirenberg, Chairman, CEO, and President of New Residential, Nick Santoro, Chief Financial Officer, and also Barron Silverstein, President of New Resident Caliber. Throughout the call, we are going to reference the earnings supplement that was posted to the New Residential website this morning. If you have not already done so, I'd encourage you to download the presentation now. I'd like to point out that certain statements today will be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we'll be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in our earnings supplements. And with that, I'll turn the call over to Michael.

Thanks, Bowie. Good morning, everyone. Thanks for joining us. As we all know, there's lots of pain and suffering in the world. As we think about everyone who is in need of help or a prayer, we send out our warm wishes and hope for healing and an end to the war as soon as possible. Now on to business. Despite the volatility in the markets, our company had a very good quarter. As we have mentioned during prior calls, we have positioned our company for a higher rate environment, taking all the necessary actions to protect our portfolios and operating companies from rising interest rates. During the quarter, our book value increased to $12.56. Currently, our book value sits at approximately $13.50. We have interest rate hedges in place, which protect our long-duration assets, along with our MSR portfolio, which should only help to increase our book value as we go forward based on expected Fed actions. We have increased our cash and liquidity levels to $1.7 billion. We will be patient as we look for opportunistic investments across the financial services sector. We believe patience will be rewarded in these markets, and the first quarter was a great example of our diversified business. Regarding our operating companies, The integration of new resin caliber will be done by the end of Q2. As we previously mentioned, we expected saves in the area of $175 to $200 million. As we go forward, we believe that number is light, and we will likely have more saves in excess of the $200 million number. We initially mentioned, as we think about our homeowners, We are looking for more ways to be able to offer them loans, products, and other ways to support our homeowners as we go forward. As we all know, the origination business, which had been extremely profitable the past couple of years, is now in the middle of a serious contraction and will remain this way for the near future. The buildup of capacity is now part of the big unwind. We view the origination business as essential to our overall strategy. Our various channels will focus on customer retention, and our retail will focus on the purchase market, which will become a bigger part of the origination business. Our ability to launch new products and focus on non-QM, jumbo, HELOCs, will differentiate us from our peers. As we go forward, looking across the industry, I would expect very little profitability in the origination business unless we see the treasury market rally back to lower yields. This will put enormous pressure on the mortgage banking community as a whole, This will lead to more M&A, and we believe this will lead to more MSR sales, as mortgage bankers will need to sell MSRs in order to fund their businesses. As we look at our broader base of operating businesses, Genesis, which is a fix-and-flip lender we closed on in December. When we think about that business, we've embarked on an expansion plan that will open up many more markets across the U.S. Our ability to cross-sell through the caliber sales force should create additional volumes for the company. The loan portfolio floating rate assets, coupled with the origination of high-coupon short-duration assets, make this a perfect asset for our balance sheet. On a door, our single-family rental business, we have taken a cautious approach to growth and believe with housing affordability at some of the lowest levels in years, cap rates should come our way, coupled with rent growth. Having dry powder will enable us to continue building a great business. On the investment front, yields on assets are beginning to look attractive with the widening of credit spreads and the rise in yields. To put this in context, credit spreads in securitized products, particularly in the mortgage space, have more than doubled since the beginning of the year and are now at a point where levered returns in certain asset classes are in the mid-teens. When we look at the Treasury market, the 10-year note has risen 100% from 150 to 3% yesterday, and the two-year Treasury note has risen from 73 basis points at the end of December to 2.73%. These are massive, massive moves, and we have positioned the company in a great way to take advantage of where we are. I'll now refer to the supplement which has been posted online. I'm going to start on page three. When you look at our company today, we have paid out $4 billion in dividends since inception. Our dividend yield is 9.1%. Our net equity of $7.1 billion. Our market cap of $5.1 billion. Our balance sheet today, $38 billion. MSR portfolio, an industry leading $626 billion of owned MSRs. When we look at our mortgage companies and operating businesses, we are a top five non-bank originator and servicer in the business. One thing I want to be clear, we're not about size, we're about profitability. So as we go forward, if we originate less loans, that's what we'll do. We want to make sure that we make money for our shareholders and support our customers. We have an industry-leading business purpose lender in Genesis, which I just referred to. Our single-family rental business continues to grow. And then we have some complementary operating businesses, including title, appraisal, and a great property preservation business named Guardian. Financial results for the quarter. Gap net income, $661.9 million, or $1.37 per diluted share. Core earnings, $177.4 million, or 37 cents per diluted share. Book value, $12.56 per common share. First quarter common stock dividend, $0.25. Cash and liquidity, $1.7 billion. Net equity, $7.1 billion. Business highlights on page five. The company today is positioned to perform. We always use this line across all interest rate environments. I will tell you today we're positioned for much higher rates. MSRs, as I pointed out before, $626 billion, an industry-leading MSR portfolio. will go up in value as rates rise. We saw the results of that in the first quarter. Our origination franchise will continue to be focused on purchase and recapture. Barron will talk to that in a little bit. Assets that we have on our balance sheet that have positive duration are all hedged against rising rates. When we look at shareholder returns for the quarter, book value up approximately 10%. Shareholder return for the quarter up approximately 5%. Our customer base, 3.2 million customers. We do a great job supporting our customers. And as I pointed out earlier, we are looking more ways to support them, and that will likely be through other types of products. And down the road, as we continue to expand our financial services company, anything is possible. When we look at our capital markets and financing capabilities, currently 99% of our portfolio is non-daily mark-to-market. That's away from our agency mortgage business. We closed five securitizations during the quarter, which represents $1.5 billion of collateral. Cash and liquidity, again, $1.7 billion. We continue to work with third parties, including our banking partners and insurance companies, to establish new financing lines and capacity across all of our operating businesses. ROE and profitability. We continue to focus on reducing our expenses. As pointed out earlier, our $175 billion to $200 million expense saved, initially quoted when we did the Calibre deal. That will likely be significantly higher as we go forward. The integration of new resin Calibre continues, and it will be complete by the end of Q2. Page six is really just our strategic evolution of the company and how it was built and formed. It was spun out of Newcastle in 2013, really just to acquire XSMSRs, and other residential assets. Over the years, we've grown into a real operating company on the mortgage side. We've added business purpose lending. We've added other complementary businesses in the financial services sector. And I'm excited for the future, and I will tell you that we've only just begun. The macro environment, there's no secrets here. Inflation at multi-year highs. The Fed's going to raise rates, we believe, 50 basis points this week. The geopolitical uncertainties continue to add to market volatility and macroeconomic concerns. I pointed out about where two-year and 10-year Treasury yields, what they've done in the quarter. Credit spreads, once again, have widened significantly, double where they were in the fourth quarter of 21. On the housing market, housing inventory remains extremely low. Price growth continues to increase. Affordability is under pressure. and this should lead to a much better market on the SFR side. We will be patient, however, in acquiring units at appropriate cap rates. And just to point out there, when we look at the SFR business, we do not factor in HPA. We think about rent growth down the road and a great securitization market, and we like where we currently sit in that business. Our overall experience in the markets. We have a very seasoned investment management team who has seen not only these current challenges in the markets, we've seen the Great Recession, we've seen obviously the 2020 March period during COVID, and we think we can handle anything. We continue to learn from difficult markets. Our balance sheet, again, $1.7 billion of cash and liquidity. We will continue to maintain an opportunistic approach to investments and capital allocation, prioritizing return on equity, goals to be the best, not just the biggest. Page 8, just to show you how we performed really in the first quarter as you think about the company. Mortgage rates rose. Treasury yields rose rapidly in the first quarter. That drove our MSR portfolio much higher. We will have much lower amortization as we go forward. Earnings overall in the segment, origination pre-tax income, $25 million in the quarter. That will continue to remain under pressure. Book value growth will continue. $12.56 at the end of Q1, $13.50 today. And when we look at core earnings, very, very stable core earnings if you look across where we are today, citing a $0.37 core earnings number for the first quarter of 22. Page 9, our ability to manufacture assets. We do not need to go out in the marketplace and compete against others to go buy assets. What we listed here is the total addressable market and what we believe. across the different mortgage products, agency origination for 22 we expect to be in and around $2.5 trillion, the non-agency origination market in and around $600 billion, and business purpose lending about $500 billion. Below that, you can see our different operating companies, New Res Caliber, and then to the right side of the page, you'll see Genesis Capital, which is our business purpose lender. Page 10, our playbook. A large portfolio of MSRs will go up in value again, complementing operating businesses, industry-leading origination franchises across not only the single-family residential business, but also in the business lending market. And then as we look into 22, I've been pretty vocal about getting into the commercial real estate space. We're going to be patient. We have some opportunities ahead of us. We're very excited for what the opportunities will be put in front of us as we go forward. I'll now flip to page 12 just to talk about our business and investment summary. When you look at our business across all the different verticals that we have or things that we can do here, top five mortgage banking originator with many different channels, servicing leading non-bank mortgage servicer, Combined servicing owned is about $625 billion, of which 400 is serviced in-house. We have MSR-related investments. We have MSRs serviced by third parties. Again, we love that asset right here in this rate environment. From a real estate standpoint, our bond businesses, when you look back to the first quarter, we did very little on the investment side, with the markets being extremely choppy. We expect that to remain constant as we go forward. until the market settled down here. Page 13, really just on the MSR portfolio today, which is a really interesting stat, only 4% of our full MSR portfolio is in the money to refinance. If you go back to 20 or 21, that number was up towards 40%. Our newly originated MSRs this quarter had an average mortgage rate of 3.33%. A lot of those mortgages were originated in the fourth quarter. From an MSR front, I'm not going to beat a dead horse. Let's move on to page 15 and just talk about our single-family rental business. Today we have roughly 3,500 units. Our average cost basis is $255,000. We're positioned across 19 markets in 12 states. Our average cap rate is 5%. We're going to maintain discipline around our cap rates. Stabilized occupancy, 98%. And then when we look at rent growth, we continue to see good rent growth in the area of approximately 5%. This business will grow over time. Call rights, not a lot of activity on the call rights sector as market volatilities prevent us from calling deals that the economics simply don't warrant it. So we'll continue to build up more cash as we go forward. Page 17, our servicer advance business, not a lot to talk about there. Servicer advances were down. to $3.1 billion, which is down 7% from December. We have plenty of capacity. We do an excellent job in financing that business. Now I'm going to turn it over to Barron, who will talk about the mortgage company, and then we'll come back for some Q&A.