Novation Holdings Inc. · OTC:NOHO
Novation — NovaStar Financial — 2006 Morgan Stanley Small Cap Executive Conference
17 slides from Novation's conference presentation, Jun 14, 2006
Slide 1: NovaStar Financial
NovaStar Financial (NYSE-NFI) www.novastarmortgage.com 2006 Morgan Stanley Small Cap Executive Conference June 15, 2006
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain matters discussed in this release constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are those that predict or describe future events and that do not relate solely to historical matters. Forward-looking st
Slide 3: Business Overview
Business Overview High margin, nonconforming residential mortgages Market size of $600B plus NovaStar has less than 2% market share Create mortgage securities with good risk-adjusted returns from our loans through securitization Use capital markets to price and lay off risks Interest rate risks – sw
Slide 4: NovaStar's Business
Asset-backed Securitization Loan Sales NovaStar REIT NovaStar’s Business ASSET ACQUISITION ASSET DISPOSITION ASSET MANAGEMENT DIVIDENDS Excess Interest Prepayment Penalties Overcollateralization Mortgage Banking Portfolio Management Nonconforming Mortgage Loans * * TRS has the ability to dividend ea
Slide 5: Origination Channels
Origination Channels Primarily Wholesale (86% of May ’06) Independent brokers Retail (10% of May ’06) Primarily portfolio retention Correspondent Bulk (4% of May ’06) Opportunistic and price sensitive
Slide 6: World Class Portfolio Management Team
World Class Portfolio Management Team Mike Bamburg, CIO Former Partner with Smith Breeden More than 19 years specializing in analysis and hedging of mortgage backed securities Proprietary modeling Staff includes three PhD's or PhD candidates 3 Portfolio Managers 1 Trader
Slide 7: Business Landscape Over the Previous Months
Business Landscape Over the Previous 18 Months
Slide 8: 2005 Consolidating Financials
2005 Consolidating Financials
Slide 9: Long-term NovaStar WAC/Swap Spreads
Long-term NovaStar WAC/Swap Spreads 480bps 340bps 580bps 300bps
Slide 10: Spread Effect
Spread Effect 570bps 330bps Whole-loan price = 104.21* COP = 2.40 Gain on Sale = 2.5% Whole-loan price = 103.28* COP = 2.53 Gain on Sale = 1.4% Whole-loan price = 102.00* COP = 2.39 Gain on Sale = 0.5% *Loans Securitized
Slide 11: NovaStar WAC/Swap Spreads
NovaStar WAC/Swap Spreads 2.96% 3.57% Cyclical Bottom?
Slide 12: Cost of Production (Wholesale)
NOvASTAR" 2.90% 2.70% 2.50% 230% 2.10% COP (Wholesale) 1.90% 1.70% € 2 e 600 1.80% PP a0 0? sah ah sah po 0 220 2 po ao HF e Pp Pp Tg gh yh HP gH oP Ho oh a fee ad =P induction — Cost of Production
Slide 13: NovaStar Historical Production Trends
NovaStar Historical Production Trends 2004 + 60% + 10% 2006 YTD + 6%
Slide 14: Average Assets Under Management and Net Interest Income
NowSrax 160 70.0 _ 140 e00 z = bos 120 500 2 B too ¢ 2 soo E 2 co A 5 300 % 3° i 2, 200 5 3 z * 100 MarO4 Jun-04 Sep-04 Dec-04 Mar0S Jun-05 Sep-05 Dec-05 Mar06 Avg Assets Under Mamt. Net interest Income
Slide 15: Net Interest Income and ROA
NowSrax 700 200% con 1.80% 1.00% 5 00 1.40% 2 ae 1.20% 2 100% 8 = 0.60% 200 g 040% 10.0 a.20% 2 00% Mar04 Jun04 Sep-04 Dec-04 Mar0S Jun-0§ Sep-05 Dec-05 Mar06 =a Net interest Income 0A
Slide 16: Static Pool Cumulative Losses
Static Pool Cumulative Losses
Slide 17: Portfolio trends
Portfolio trends Size of portfolio could be relatively stable over the next year Over time, ROA’s should come down to a normalized range of 1.00% to 1.25% Increases in the price of the nations housing stock continues to drive excellent credit performance
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