Novation Holdings Inc. · OTC:NOHO
Novation — NovaStar Financial — Q2 2005 Earnings Presentation
23 slides from Novation's earnings presentation, Jul 29, 2005
Slide 1: 2005 Second Quarter Earnings Conference Call
NovaStar Financial (NYSE-NFI) www.novastarmortgage.com 2005 Second Quarter Earnings Conference Call July 29, 2005
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain matters discussed in this presentation may 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 l
Slide 3: Opening Comments
Opening Comments Scott Hartman, CEO
Slide 4: Key Performance Metrics
Key Performance Metrics Summary of Key Performance Metrics (In thousands, except per share data) Second Quarter (Unaudited) 2005 2004 Change Earnings (GAAP) Net Income available to common $37,856 $33,963 11% EPS available to common (diluted) $1.29 $1.34 -4% Return on average equity 30.4% 39.7% Retur
Slide 5: Key Performance Metrics
Key Performance Metrics Summary of Key Performance Metrics (In thousands, except per share data) Second Quarter (Unaudited) 2005 2004 Change Mortgage Banking – Lending & Originations Nonconforming loan production $2,357,632 $1,978,801 19% Cost of wholesale production* 2.47% 2.43% Portfolio Managemen
Slide 6: Mortgage Banking
Mortgage Banking
Slide 7: Production
Production Production Volume ($ in Mil.) 2,500 2,000 1,500 1,000 500 - Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 Q1 ‘05 Q2 ‘05 Production up 19% Yr/Yr, Up 21% Sequentially 1,948 2,358 7
Slide 8: Production Credit Characteristics
Production Credit Characteristics Weighted Avg. FICO 655 650 645 640 635 630 625 620 615 610 605 Q2 ‘03 Q3’03 Q4 ‘03 Q1’04 Q2 ‘04 Q3 ‘04 Q4 ‘04 Q1 ‘05 Q2 ‘05 Weighted Avg. LTV 85.0 84.0 83.0 82.0 81.0 80.0 79.0 78.0 77.0 76.0 75.0 Q2’ 03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 Q1 ‘05 Q2 ‘05 82.1 8
Slide 9: Spreads
Spreads % 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 Q1 ‘05 Q2 ‘05 7.2% 560 bps 1.6% 7.6% 361 bps 4.0% 2-year Swap WAC 9
Slide 10: Mortgage Banking Segment Financials
Mortgage Banking Segment Financials Lending and Servicing Financials (Dollars in Thousands, except per share data) Q2 ‘05* Q2 ‘04 Change (%) Interest Income $21,429 $19,804 Interest Expense 14,408 8,664 Net Interest Income Before Credit Losses 7,021 11,140 -37.0 Credit Losses - - - Fee Income 25,520
Slide 11: Mortgage Banking Environment
Mortgage Banking Environment Origination activity continues to be robust Spreads on newly originated loans are relatively thin Whole-loan pricing continues to be strong, relative to recent spread tightening. Cost containment measures continue to be a primary focus
Slide 12: Portfolio Management
Portfolio Management
Slide 13: Portfolio Rollforward
Portfolio Roll forward Portfolio Rollforward (In $000’s) Assets Underlying Portfolio—Q1 ‘05 $12,860,740 Loan Originations 2,357,632 Portfolio run-off (principle paydown, loss) (1,383,811) Whole Loan Sales (227,195) Assets Underlying Portfolio—Q2 ‘05 $13,607,366
Slide 14: Loss Expectations Lowered in Q1 & Q2 '05
Loss Expectations Lowered in Q1 & Q2 ‘05 Unrealized Gain ($ in thousands) Securitization Dec ‘04 Loss Assumption Mar ‘05 Loss Assumption June ‘05 Loss Assumption Dec ‘04 Unrealized Gain Mar ‘05 Unrealized Gain June ‘05 Unrealized Gain Earlier Deals - - - 39,265 42,382 49,662 NMFT 2003-3 1.6% 1.0% 0.
Slide 15: Portfolio ROA
Portfolio ROA Net Interest Income ($Mil) 60.0 50.0 40.0 30.0 20.0 10.0 - Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% ROA Net Interest Income ROA
Slide 16: Portfolio Net Interest Income
Portfolio Net Interest Income Avg. Assets Under Mgmt. ($Bil.) 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 60.0 50.0 40.0 30.0 20.0 10.0 - Net Interest Income ($Mil.) Avg. Assets Under Mgmt. Net Interest Income
Slide 17: Portfolio Segment Financials
Portfolio Segment Financials Mortgage Portfolio Management Financials (Dollars in Thousands, except per share data) Q2 ‘05* Q2 ‘04 Change (%) Interest Income $49,701 $33,880 Interest Expense 5,001 4,188 Net Interest Income Before Credit Losses 44,700 29,692 50.5 Credit Losses (100) (515) Gains on Sa
Slide 18: Portfolio Trends
Portfolio trends Better credit from strength of housing market Faster prepayments – borrowers looking to monetize increase in home value Spread on risks have tightened Bond spreads have tightened Spreads on investing in loans have tightened Lower ROE’s on retained securities Hold/sell asset decision
Slide 19: Dividends
Dividends Dividend Carry-over Analysis (In millions) Estimated 2004 REIT Taxable Income $257 Plus: 2003 Taxable Income Spillover Less: Dividends declared in 2004 (183) Less: Estimated Dividends Declared Jan. 1, ‘05 to date (87) Estimated 2004 REIT Taxable Income Remaining to be Declared Prior to Sep
Slide 20: Consolidated Financials
Consolidated Financials Consolidated Financials For the Three Months Ended June 30, 2005 Unaudited Mortgage Portfolio Management Mortgage Lending and Loan Servicing Branch Operations Eliminations Total Interest Income $49,701 $21,310 $119 $1 $71,131 Interest Expense 5,001 14,380 28 (2,387) 17,022 Ne
Slide 21: Questions
Questions
Slide 22: Appendix
Appendix
Slide 23: Wholesale Cost of Production Reconciliation
Wholesale Cost of Production Reconciliation For the Six Months Ended June 30, For the Three Months Ended June 30, 2005 2004 2005 2004 General and administrative expenses $119,207 $104,495 $61,250 $55,795 Mortgage portfolio management general and administrative expenses (7,754) (3,604) (4,581) (1,655