New Century Financial — Q1 2004 Earnings Presentation
30 slides from New Century Financial's earnings presentation, Apr 23, 2004
Slide 1: New Century Financial Corporation
New Century Financial Corporation
Slide 2: Performance Overview
=S-~ Performance Overview
Slide 3: 1Q04 Net Earnings, EPS and Production Volume
1Q03 1Q04 Net Earnings 3 Months $45.7 million $ 87.2 million Earnings Per Share 3 Months $1.23 $2.03(a) Production Volume 3 Months $ 4.7 billion $ 8.4 billion (a) On-balance sheet asset portfolio and residual interests contributed $0.64 of the $2.03 total EPS
Slide 4: The REIT
—-~ The REIT
Slide 5: Overview of REIT
Overview of REIT ! New Century expects to convert to REIT status and raise approximately $750 million in equity capital using UBS and FBR as lead underwriters ! We expect this amount of capital will allow the company to build a REIT portfolio of $15-$20 billion without the need to raise additional c
Slide 6: Reasons for Becoming a REIT
Reasons for Becoming a REIT ! Well positioned to originate and manage portfolio of mortgage loans ! REIT structure provides unique advantages: ! Capacity to grow loan portfolio in a tax-efficient manner ! Flexibility to execute growth strategies ! Diversification of revenues ! More stable earnings !
Slide 7: C-Corp. – REIT Business Structure
C-Corp. – REIT Business Structure C-CORP. STOCKHOLDERS Capital Optional Dividends PORTFOLIO ASSETS On B/S Securitizations ORIGINATION, SALES, SERVICING RETAINED EARNINGS REIT STOCKHOLDERS Capital Mandatory Dividends REIT PORTFOLIO ASSETS On B/S Securitizations Loans Sold Optional Dividends TAXABLE R
Slide 8: Impact to Convertible Bondholders
Impact to Convertible Bondholders ! In July 2003, the Company issued $210 million of Convertible Senior Notes due July 3, 2008 ! Notes became convertible on March 17, 2004 and remain convertible until maturity ! Conversion price of $34.80 represents 28% premium to the $27.19 price at the time of iss
Slide 9: Financial Results
= Financial Results
Slide 10: Record Earnings Per Share
Record Earnings Per Share $2.25 $2.03 $2.00 $2.00 $1.75 $1.75 $1.61 $1.50 $1.25 $1.23 $1.00
Slide 11: Operating Margin
Operating Margin 1Q04 Gain on sale* 3.82% Net interest income 0.58% Net points and fees (0.36%) Operating Expenses (1.99%) Pre-Tax Operating Margin 2.05% Operating Margin 2.53% 2.05% 1.98% 1.94% Note: For GAAP reconciliation see Addendum A at the end of this presentation.
Slide 12: Increasing Guidance
Increasing Guidance 2003 2004 Previous 2004 Revised Actual Guidance Guidance EPS $ 6.56 $ 7.00 $ 7.50- $8.00* Loan Production $27.4 billion $30 billion $ 36 billion * Whether or not we convert to a REIT and complete the related capital raise
Slide 13: C-Corp. – REIT The Tax Advantage
C-Corp. – REIT The Tax Advantage C-CORP. PORTFOLIO ASSETS Gross Income $100,000 Income Tax Expense 42,000 Net Income $ 58,000 REIT REIT PORTFOLIO ASSETS Gross Income $100,000 Income Tax Expense 0 Net Income $100,000 Difference = Tax Savings
Slide 14: Building for the Future
Building for the Future Projected Cash Flow and EPS from Balance Sheet Portfolio and Residual Interests $ 4.84 Goal: 50% of earnings contribution $ 3.00 from balance sheet by end of 2005 $ 1.41 $ 1.19 $ 1.22 $ 1.02 $ 0.82 $ 0.79 $ 0.75 $ 0.64
Slide 15: Loan Performance
Loan Performance 60+ Delinquency by Production Vintage
Slide 16: Operations Overview
=S-~ Operations Overview 16
Slide 17: Growing Production Volume
Growing Production Volume Volume Trend by quarter—$’s in millions – 80% increase compared to 1Q03 $8,639 $8,436 $8,252 $5,803 $4,689
Slide 18: Competitive Advantages
Competitive Advantages ! Growing wholesale and retail production franchise ! Expanding sales force ! Innovative technology/marketing ! Growing percentage of purchase money business ! Geographic expansion ! Rated servicing platform
Slide 19: Growing Wholesale Production
Growing Wholesale Production Wholesale Volume by quarter—$’s in millions – 82% increase compared to 1Q03 $8,015 $7,695 $7,612 $5,324 $4,237
Slide 20: Growing Retail Production
Growing Retail Production Retail Volume by quarter—$’s in millions – 64% increase compared to 1Q03 $741 $640 $624 $479 $452
Slide 21: Expanding Sales Force
Expanding Sales Force 659 657 722 631 658 627 534 505 463 475 416 376 Retail Loan Officers Wholesale Account Executives *Estimated 21
Slide 22: Growing Purchase Business
Growing Purchase Business Home Purchase Business—187% increase compared to 1Q03 29% $2,484 $2,344 $2,298 27% 26% 21% $1,336 18% $864
Slide 23: Expanding Franchise
Expanding Franchise 1Q04 Production California 40% Other Western States 19% Northeast 21% Other Eastern States 20% NCEN HQ < $25 million $25—$50 million $50—$100 million $100 million—$1 billion $1 billion—$5 billion Regional Processing Centers 7 Proposed Centers for 2004
Slide 24: Loan Servicing Platform
Loan Servicing Platform ! Received RPS3 rating from Fitch Ratings !$ 12.9 billion loan servicing balance as of March 31, 2004 ! Platform scalable to support growth in production and portfolio ! Expect to retain servicing of our on-balance sheet securitizations of $8-$10 billion and additional $2-$4
Slide 25: Production Characteristics
Production Characteristics Maintaining Credit Quality – 1Q04 NCEN Credit Grade AA A+ A- B C Total Wtd. Avg. FICO Score 634 594 574 562 549 619 Wtd. Avg. Int.-Fixed 7.2% 7.1% 7.3% 7.8% 8.6% 7.2% Wtd. Avg. Int.-ARMs 6.6% 7.0% 7.2% 7.8% 8.2% 6.9% Wtd. Avg. LTV 87.3% 81.1% 77.0% 74.6% 68.8% 84.5% % of O
Slide 26: Production Characteristics: Credit Quality Trend
Production Characteristics Credit Quality Trend – comparing quarters 84.5% 71.3% 57.5% 598 597 42.2% 32.7% 582 13.9% 10.0% 5.5% 3.5% 3.5% Top 2 Credit Grades Bottom 2 Credit Grades FICO Score
Slide 27: Summary
Summary ar
Slide 28: Enhance Stockholder Value in 2004
“Enhance Stockholder Value in 2004” ! Maintain Growth Initiatives ! Increase loan production ($36 billion target in 2004) ! Expand geographically ! Increase market share ! Expand technology ! Build a Stronger Balance Sheet ! Grow on-balance sheet portfolio ! Project balance sheet assets will contrib
Slide 29: New Century Financial Corporation
New Century Financial Corporation
Slide 30: Addendum A: Reconciliation of Non-GAAP Measures
Addendum A Reconciliation of Non-GAAP Measures The slides contain non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is
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