New Century Financial — Q3 2004 Earnings Presentation
25 slides from New Century Financial's earnings presentation, Nov 4, 2004
Slide 1: Third Quarter 2004 Conference Call Presentation
New Century Financial Corporation Third Quarter 2004 Conference Call Presentation
Slide 2: Safe Harbor Regarding Forward-Looking Statements
Safe Harbor Regarding Forward-Looking Statements Certain statements contained in this slide presentation may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe harbor created thereby. The forward-looking
Slide 3: Financial Highlights
Financial Highlights 2004 2003 Production Volume (in billions) Third Quarter $10.0 $8.6 Nine Months Ended 30.7 19.1 Year 40.0+(e) 27.4 Net Earnings (in millions) Third Quarter $107.3 $64.9 Nine Months Ended 296.9 171.4 Year 400.0 (e) 245.5 Earnings Per Share (in dollars) Third Quarter $2.49 $1.75 Ni
Slide 4: Financial Highlights
Financial Highlights Completed: Raised gross proceeds of $818 million in equity offerings REIT purchased $6.6 billion of CMO/ABS securities from taxable REIT subsidiary (TRS) (Oct. ‘04) Expected: REIT will purchase an additional $3 billion or more of loans from the TRS during the remainder of fourth
Slide 5: Total Return REIT - 2005
Total Return REIT - 2005 Dividends + Franchise Growth Pre-Tax Earnings - $343 million Spread Income - $567 million Average Loan Portfolio - $14 billion Loan Originations - $10 billion REIT Retained Earnings Net Earnings - $263 million Mortgage Banking Income $525 million Whole Loan Sales - $35 billi
Slide 6: Managed Assets
Managed Assets $’s in billions $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 $1.0 $3.6 $5.4 $5.0 $4.0 $3.2 $6.5 $11.9 1997 1998 1999 2000 2001 2002 2003 9/30/04 Note: The chart above includes mortgage loans held for investment and other managed assets, including the loans underlying our residual interests in
Slide 7: Operations Overview
——E—" Operations Overview
Slide 8: Annual Production Growth
Annual Production Growth ($’s in billions) $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 $6.2 $14.2 $27.4 $3.6 (1) $30.7 $40.0+ $45.0+ 2001 2002 2003 YTD 2004 2004(e) 2005(e) (1) YTD 2004 includes October production — total $34.3 billion (e) estimate
Slide 9: Key Operating Initiatives
Key Operating Initiatives Expand geographically and increase sales staff Expand product menu (Alt-A, Purchase Money, HELOC) Implement Home 1-2-3 Retail expansion Rollout Empower loan origination system Increased standardization of operations Cost efficiency
Slide 10: National Production Franchise
National Production Franchise 3Q04 Loan Production and Market Share California production 41% Other Western States production 17% Market Share 6% Northeast production 22% Market Share 12% Market Share 11% Market Share 5% NCEN HQ < $25 million $25 - $50 million $50 - $100 million $100 million - $1 bi
Slide 11: Production Characteristics
Production Characteristics Nine Months Ended September 30, 2004 NCEN Credit Grade AA A+ A- B C Total Wtd. Avg. FICO Score 642 598 578 565 555 628 Wtd. Avg. Int.-Fixed 7.2% 7.1% 7.3% 7.6% 8.2% 7.2% Wtd. Avg. Int.-ARMs 6.7% 7.1% 7.4% 7.7% 8.2% 6.9% Wtd. Avg. LTV 82.7% 79.6% 76.6% 74.0% 68.4% 81.1% % o
Slide 12: Production Characteristics
Production Characteristics Credit Trend Quality – comparing Nine Months Ending 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 36.7% 47.2% 72.1% 80.3% 85.9% 13.1% 8.4% 5.1% 3.1% 3.2% 2000 2001 2002 2003 2004 630 620 610 600 590 580 570 560 550 Top 2 Credit Grades Bottom 2 Credit Grades FI
Slide 13: Risk Management Practices
Risk Management Practices Originations Automated credit grading Every loan underwritten by New Century Associates Comprehensive appraisal review process Internal and external quality control audits Extensive third party due diligence Best practices policy to avoid unfair lending Ongoing training, ov
Slide 14: Vintage Performance
Vintage Performance 60+ Delinquency by Vintage Year Delinquency 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% ‘04 ‘00 ‘01 ‘02 ‘99 ‘98 ‘97 ‘03 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Seasoning (in months) 1997 1998 1999 2000 2001 2002 2003 2004
Slide 15: Loan Performance
Loan Performance 60+ Delinquency by Vintage and FICO, Securitized Loans Only 60+ Delinquency FICOs 500-549 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Age (Months) 1998 1999 2000 2001 2002 2003 60+ Delinquency FICOs 600-649 30.0% 25.0% 20.0%
Slide 16: Business Model Assumptions
——E—" Business Model Assumptions
Slide 17: Assumed REIT Portfolio Balance
Assumed REIT Portfolio Balance $20 $15 $10 $5 $0 $16 $15 $14$ 14 $11 $10 $7 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 2005 Avg.
Slide 18: Economics of REIT Portfolio
Economics of REIT Portfolio 2005 Margin Assumptions GAAP TAX Wtd. average coupon 7.35% 7.35% Pass-thru rate on bonds (3.30%) (3.30%) Annual losses (1.00%) ( .20%) Capitalized costs (0.75%) (0.90%) Servicing costs/fee (0.30%) (0.50%) Net Margin 2.00% 2.45%
Slide 19: Estimated REIT Earnings
Estimated REIT Earnings REIT Loan Portfolio Creates GAAP and Tax Spread Income $14 Billion Avg. Portfolio GAAP TAX Net Spread Assumptions 2.00% 2.45% Per Share (1) $4.91 $6.02 1) Assumes 57 million shares outstanding. Dividends are computed based on taxable earnings, not GAAP earnings.
Slide 20: TRS Earnings Assumptions
TRS Earnings Assumptions Production and Operating Margin Assumptions Production 45 billion Less: Production Sold to REIT 10 billion Production Sold in Secondary Market 35 billion Average Sales Price Over Par, net of discounted sales 3.25% Warehouse Net Interest Earned 0.50% Less: Cost of Acquisition
Slide 21: The Total Return REIT
The Total Return REIT Assumptions GAAP REIT $4.91 TRS $4.61 Total EPS $9.52 Dividend $6.00 Retained Earnings $3.52 TAX (1) $6.02 Dividend + Franchise Growth = Total Return (1) The Company will dividend approximately 90%—100% of taxable REIT earnings to shareholders
Slide 22: Assumptions: Retained Earnings
Assumptions Retained Earnings Shares Outstanding (000) 57,000 Retained Eamings $ (000) $200,000 Leverage Target 12.5 Portfolio Growth $2.5 billion Average Spread 2.00% Growth in EPS $0.88 % Growth from 2005 Target 15% Assumes thatthe portfolio growth occurs within the RE, that 57 mili shares re oust
Slide 23: Summary
Summary
Slide 24: New Century – The Total Return REIT
New Century – The Total Return REIT Proven executive management team in various economic cycles with solid track record in portfolio management and loan servicing Executive officers, including three Founding Managers: Cole, Morrice and Gotschall, with substantial ownership position have long term in
Slide 25: Legal Information
New Century Financial Corporation Legal Information This slide presentation may be deemed to be solicitation material in connection with the previously announced plan to offer (the “Tender Offer”) to have converted all of the 3.50% Convertible Senior Notes due 2008 of New Century TRS Holdings, Inc.
New Century Financial — Q3 2004 Earnings Presentation on 6ix