Novation Holdings Inc. · OTC:NOHO
Novation — NovaStar Financial — Q1 2007 Earnings Presentation
23 slides from Novation's earnings presentation, May 11, 2007
Slide 1: NovaStar Financial 2007 First Quarter Earnings Conference Call
NovaStar Financial (NYSE-NFI) www.novastarmortgage.com 2007 First Quarter Earnings Conference Call May 11, 2007
Slide 2: Safe Harbor Statement
Safe Harbor Statement This Presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections, and assumptions with respect to, among other things, our future operations, busine
Slide 3: NovaStar Q1 Takeaways
NovaStar Q1 Takeaways March appears to have been the worst month for the capital markets Liquidity is coming back – sell through BBB- Spreads have tightened from the widest levels Production Coupons up / risk profile is improved (less layered risk) Whole loan pricing is improving Q1 portfolio perfor
Slide 4: Capital Markets
Capital Markets Transactions 2007-1 $1.9 Billion deal closed on February 28 REMIC – but on balance sheet due to securities retained CDO debt $375 million deal closed on February 8 Non-recourse financing for mortgage securities
Slide 5: Liquidity Risks
Liquidity Risks Margin call exposure Whole loans Prices for the same coupon are 2-3 points lower because of funding spreads & higher capital requirements Each 100 bp of spread widening = 2.5 points of value Residual securities 2.5 year duration 100bp of spread widening lowers value by 2.5% Pre-CDO a
Slide 6: Spreads AAA/A
Spreads AAA/A NovaStar estimates – may not be indicative of where NovaStar would trade
Slide 7: Spreads A-/BB
Spreads A-/BB NovaStar estimates – may not be indicative of where NovaStar would trade
Slide 8: Financing Facilities
Financing Facilities $100 million Wachovia Facility Pledge unencumbered residuals and MSRs Additional liquidity as needed $1.9 billion Wachovia “Global” Facility
Slide 9: Q1 Earnings Review
Q1 Earnings Review Greg Metz, CFO
Slide 10: Election to Terminate REIT Status
Election to Terminate REIT Status Company anticipates little or no taxable income over next several years Without taxable income no requirement for REIT dividends REIT compliance is restrictive to business operations After careful consideration Board elected to terminate REIT status beginning Januar
Slide 11: Deferred Tax Asset
Deferred Tax Asset Impact of Terminating REIT Status REIT has existing tax basis temporary differences related primarily to mortgage securities These tax deductible temporary differences will reverse in 2008 and later years The election to terminate REIT status gives rise to future tax benefits of a
Slide 12: Adoption of FAS Fair Value Option
Adoption of FAS 159 The Company elected to early adopt FAS Fair Value Option for financial assets and liabilities Elected to apply to the CDO debt Natural hedge against underlying trading securities Required write-off of deferred debt issuance costs of approximately $5 million
Slide 13: Portfolio Review
Portfolio Review Residual Securities $3 mil impairment Trading securities financed with CDO debt $39 mil mark-to-market on assets $41 mil mark-to-market on liabilities $(2) net change (after write-off of debt issuance costs) Trading securities (pre-CDO) $11 mil mark-to-market On-balance sheet securi
Slide 14: Mortgage Portfolio Management Results
) “NOVASTAR | Mortgage Portfolio Management Interest income $ 89,556 Interest expense 47,753 Net interest income before provision for credit losses 35,803 Provision for credit losses (19,913) Losses on sales of mortgage assets - Fair value adjustment (9,491) Yaluation adjustment on mortgage loans -
Slide 15: Mortgage Lending Results
Interest income Interest expense Net interest income before provision for credit losses Provision for credit losses Losses on sales of mortgage assets Fair value adjustm ent Valuation adjustment on mortgage loans - HFS Premiums for mortgage loan insurance Fee income Gains (losses) on derivative inst
Slide 16: Loan Servicing Results
Loan Servicing Interest income $ 6,966 Interest expense : Net interest income before provision for credit losses 6,966 Provision for credit losses - Losses on sales of mortgage assets - Fair value adjustm ent : Valuation adjustment on mortgage loans - HFS - Premiums for mortgage loan insurance : Fee
Slide 17: 2007 Dividend Alternatives
2007 Dividend Alternatives Under tax rules dividends can be paid in the form of cash and/or “property.” The term “property” is broadly defined and generally includes: Notes, bonds, debentures or other debt securities of the corporation Stock of the company generally does not qualify except in certai
Slide 18: Mortgage Banking Review
Mortgage Banking Review Lance Anderson, President & COO
Slide 19: Origination Environment
Origination Environment Fewer competitors exist today as many have closed their doors Guidelines in the industry have tightened for most originators Industry volumes are down – unclear as to where volumes will settle (how large is the market?) Pricing across the board from aggressive to conservative
Slide 20: NovaStar's Production
NovaStar’s Production Wholesale down to $1 billion in quarter, $183 million for month of March. Trend continues for weaker production. Retail volume is up with acquisition of certain retail branch assets. $348 million for the quarter $117 million in March. Expect slow growth remainder of year. Coupo
Slide 21: Recent Production
Recent Production Data NA 1.57% 1.70% 1.97% 2.76% 3.36% FPD 60% 63% 72% 83% 90% 93% Wholesale 40% 37% 28% 17% 10% 7% Retail 4.5% 3.7% 4.9% 5.8% 5.5% 5.9% NOO 47.8% 43.9% 45.2% 51.5% 50.9% 53.3% Non-Full Doc 32.0% 29.1% 27.4% 23.7% 21.9% 23.8% 4.2% 8.4% 9.8% 12.4% 11.5% 11.2% Interest Only 68.3% 67.3
Slide 22: Profitability Goals
Profitability Goals Working to get wholesale costs down to 102 and retail down to 101.5 at current volumes over next few months. Assuming asset value recovers to mid 102s could have mortgage banking business break even to slightly profitable. As market recovers focus on slow growth in both channels.
Slide 23: Questions
Questions