New Century Financial — Piper Jaffray Financial Conference 2005
35 slides from New Century Financial's conference presentation, Mar 15, 2005
Slide 1: New Century Financial Corporation
New Century Financial Corporation
Slide 2: Safe Harbor Statement
Safe Harbor Statement As used in this slide presentation, except where the context otherwise requires or as otherwise indicated, “the company,” “New Century,” “New Century Financial,” “New Century Financial Corporation,” “our,” “we” and “us” refer to New Century Financial Corporation and its consoli
Slide 3: Company Overview
Bob Cole Chairman and CEO Company Overview
Slide 4: Great Performance, Done Right
Great Performance, Done Right Earnings Per Share $10 $8 $6 $4 $2 $0 $8.29 $6.32 $4.73 $1.54 2001 2002 2003 2004 Loan Production (in billions) $50 $40 $30 $20 $10 $0 $42.2 $27.4 $14.2 $6.2 2001 2002 2003 2004 Total Revenues (in billions) $2.0 $1.5 $1.0 $0.5 $0.0 $1.7 $1.0 $0.6 $0.3 2001 2002 2003 200
Slide 5: Preparing Operations for 2005
Preparing Operations for 2005 Expected environmental conditions Rising interest rates – 25 bps per quarter Moderating, but stable home prices Competitive landscape TRS strategy Reduce cost per loan by 15% during 1H05 to reduce loan acquisition costs below 2% for 2H05 Combination of scale and active
Slide 6: Volume Growth by Channel
Volume Growth by Channel Production Volume (in billions) $50 $40 $30 $20 $10 $0 2,249 $6 $4 1,686 $39 $38 $2 1,164 820 $25 $2 $12 2,500 2,000 1,500 1,000 500 0 # of A Es & LOs 12/31/2002 12/31/2003 12/31/2004 12/31/2005 Est. Wholesale (000’s) Retail (000’s) # of AEs & LOs 10 new sales offices planne
Slide 7: Home123 Marketing & Branding Objectives
Home123 Marketing & Branding Objectives Differentiate the channels Freedom to mass market the brand Borrower value proposition is simplicity “Cutting through the loan clutter” TV Direct Mail, Shared Mail www.Home123.com
Slide 8: Growing Production in a Declining Market
Growing Production in a Declining Market Wholesale 2004 Retail 2004 Actual volume $38.0 billion $4.0 billion Avg. # of sales staff 700 800 Volume per sales staff $54.3 million $5.0 million Hypothetical 20% decline in total industry volume $43.4 million $4.0 million Hypothetical volume $30.5 billion
Slide 9: Improving Credit Quality
Improving Credit Quality 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 627 85.8% 80.3% 611 72.1% 596 47.2% 586 630 620 610 600 590 580 570 560 550 8.4% 5.1% 3.2% 3.1% 2001 2002 2003 2004 Top 2 Credit Grades Bottom 2 Credit Grades FICO Score
Slide 10: Growth of Servicing Platform
Growth of Servicing Platform Managing Our Assets Over 70,000 loans serviced Includes our mortgage loan portfolio of $13.2 billion at 12/31/04 and $4.7 billion at 12/31/03 (in billions) $25 $20 $15 $10 $5 $0 $24.4 $21.8 $20.9 $12.9 $11.6 $9.7 $5.6 $4.1 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
Slide 11: Prepared for the Future
Prepared for the Future Well capitalized—$1.9 billion, 9.4% of managed assets Liquid—$1 billion in cash and liquidity Stable earnings—> 50% from balance sheet assets in ‘05 Growing production franchise $45 billion or more in ‘05 Maintaining credit quality Growth in EPS—$9.00 or more in ‘05 Growing d
Slide 12: Dividend Outlook
Dividend Outlook 4Q04 – paid $1.50 per share 1Q05 – declared $1.55 per share 2005 – expect $6.50 per share or more Thereafter – our goal is to increase our dividend 10% annually
Slide 13: Stockholder Return
Stockholder Return Made the “Top Guns” list of Shareholder Scoreboard in WSJ Delivered a 94.6% stock price increase in the three-year average annual return category 2004 – Delivered an annual return of 63.8%
Slide 14: Financial Overview
Patti Dodge Executive Vice President & Chief Financial Officer Financial Overview
Slide 15: New Century Financial Corporation is the Total Return REIT
New Century Financial Corporation is the Total Return REIT REIT Loan Originations Builds Portfolio Spread Income Pre-Tax Earnings Dividends TRS Loan Originations Whole Loan Sales Mort. Banking Income Net Earnings Dividends Retained Earnings Dividends + Additional TRS Earnings = Total Return REIT
Slide 16: The Total Return REIT
The Total Return REIT The Total Return REIT concept reflects the unique features of our business: A growing REIT portfolio producing a substantial dividend A mortgage origination franchise that: Supports our goal of growing our dividend Provides future growth through potential retention of capital
Slide 17: The REIT Strategy
The REIT Strategy Near-term strategy: Accelerate growth of the REIT portfolio during 1H05 to fully deploy: Capital raised in 2004 Cash and capital generated through the tender offer of our convertible notes This strategy results in a fairly steep ramp of quarterly EPS Long-term strategy: Raise addit
Slide 18: 1H05 Plan to Accelerate Growth of REIT Portfolio
1H05 Plan to Accelerate Growth of REIT Portfolio 2005 Average = $15.6 Billion (in billions) $20 $15 $10 $5 $0 $17.8 $17.7 $17.1 $13.1 $9.4 $6.8 9/30/04(a) 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 (a) Includes loans transferred to REIT in early October
Slide 19: Economics of REIT Portfolio
Economics of REIT Portfolio 2005 Interest Spread Assumptions GAAP TAX Wtd. average coupon + PPP 7.27% 7.27% Pass-thru rate on bonds (3.38%) (3.38%) Annual losses (1.06%) (0.19%) Capitalized costs (0.62%) (0.70%) Servicing costs/fee (0.50%) (0.50%) Net interest spread 1.71% 2.50% Other REIT expenses
Slide 20: Protecting Spreads
Protecting Spreads The chart below shows how the excess spread on the 2-yr product is “locked in” during the hedge period. WAC is fixed during the first 24 months, then after the 24th month, the WAC moves in tandem with current market rates. WAC vs LIBOR vs Euro Dollar Futures 9% 8% 7% 6% 5% 4% 3% 2
Slide 21: Estimated 2005 REIT Earnings
Estimated 2005 REIT Earnings REIT loan portfolio creates GAAP and tax spread income Covers 96% of our projected dividend $15.6 Billion Avg. Portfolio GAAP TAX Net spread assumptions 1.51% 2.30% Per share(a) $4.10 $6.24 (a) Assumes 57.5 million shares outstanding. Dividends are computed based on taxa
Slide 22: TRS 2005 Earnings Assumptions
TRS 2005 Earnings Assumptions Production and Operating Margin Production $45 billion Less: Production sold to REIT (11 billion) Production sold in secondary market $34 billion Average sales price, net of discounted sales 2.90% Warehouse net interest earned 0.45% Less: Cost of acquisition (2.10)% Ope
Slide 23: Total Return REIT
Total Return REIT Dividend + Additional TRS Earnings = Total Return Assumptions GAAP REIT $ 4.10 TRS $ 5.02 Estimated EPS $ 9.12 Dividend $ 6.50 Additional TRS Earnings $ 2.62 Dividend Payout Ratio 71%
Slide 24: Quarterly Secondary Market Transactions
Quarterly Secondary Market Transactions $16 $14 $12 $10 $8 $6 $4 $2 $0 4Q04 1Q05 2Q05 3Q05 4Q05 Whole Loan Sales Securitizations
Slide 25: Building the Path to $9.00 Per Share in '05
Building the Path to $9.00 Per Share in ‘05 Quarterly contribution to EPS under 3 scenarios 50% 40% 30% 20% 10% 0% 1Q05 2Q05 3Q05 4Q05 Straight Line Annual Earnings Straight Line Securitization % and Operating Margin Acceleration Strategy and Improving Margin
Slide 26: Example of Further REIT Portfolio Growth
Example of Further REIT Portfolio Growth 2H 2005 Average = $20.9 billion (in billions) $30 $25 $20 $15 $10 $5 $0 $25.7 $19.8 $17.1 $13.1 $9.4 $6.8 ‘9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 Note: Hypothetical example of potential for increasing dividend by deploying additional capital to gro
Slide 27: Economics of REIT Portfolio
Economics of REIT Portfolio 2005 Interest Spread Assumptions GAAP TAX Wtd. average coupon + PPP 7.27% 7.27% Pass-thru rate on bonds (3.38%) (3.38%) Annual losses (1.06%) (0.19%) Capitalized costs (0.62%) (0.70%) Servicing costs/fee (0.50%) (0.50%) Net interest spread 1.71% 2.50% Other REIT expenses
Slide 28: Potential REIT Earnings
Potential REIT Earnings REIT loan portfolio creates GAAP and tax spread income 2H05 Avg. Portfolio GAAP TAX Net spread assumptions 1.51% 2.30% Per share* $4.72 $7.19 * Assumes 66.9 million shares outstanding. Dividends are computed based on taxable earnings.
Slide 29: Summary
Summary
Slide 30: We Are Prepared For The Challenge!
We Are Prepared For The Challenge! Well capitalized—$1.9 billion, 9.4% of managed assets Liquid—$1 billion in cash and liquidity Stable earnings—> 50% from balance sheet assets in ‘05 Growing production franchise $45 billion or more in ‘05 Maintaining credit quality Growth in EPS—$9.00 or more in ‘0
Slide 31: Aspire to be World Class
Aspire to be World Class Transform from a non-prime mortgage company to a mortgage company with a broad product line Be one of the top 10 U.S. mortgage companies Consistently deliver a strong dividend growth rate Deliver the right results, done well
Slide 32: Ringing the Opening Bell at the NYSE
Ringing the Opening Bell at the NYSE We rang the opening bell at the NYSE on February 10th to celebrate: Our move to the NYSE Our launch of “A New Shade of Blue Chip”
Slide 33: A New Shade of Blue Chip
A New Shade of Blue Chip
Slide 34: A New Shade of Blue Chip
A New Shade of Blue Chip Our first corporate branding initiative Like a traditional blue chip company, we have delivered strong financial performance Loan production volume growth of 197% and stock-price appreciation of 300% over past 3 years As a NEW SHADE of Blue Chip, we modernize the traditional
Slide 35: Piper Jaffray Financial Conference 2005
Piper Jaffray Financial Conference 2005 New Century Financial Corporation March 15, 2005
New Century Financial — Piper Jaffray Financial Conference 2005 on 6ix