<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 000-22633
---------
NEW CENTURY FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0683629
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 VON KARMAN, SUITE 1000, IRVINE, CALIFORNIA 92612
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (949) 440-7030
--------------
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
As of April 30, 1999, 14,613,362 shares of common stock of New Century Financial
Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
2
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Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby. Such
statements include the anticipated mix of whole loan sales and securitizations
for the second quarter of 1999, the assumptions used by the Company to value its
residual interests from securitizations and excess cash flow private placements,
the expectation that the Company will be able to renew its warehouse line of
credit, the belief that the Company's current liquidity, credit facilities and
capital resources will be sufficient to fund its operations for the foreseeable
future, the Company's belief that it will complete implementation of its Y2K
Plan by Aug 31, 1999 and within its budget, and the belief that any liability
with respect to its legal actions, individually or in the aggregate, will not
have a material adverse effect on the Company. There are many important factors
that could cause the Company's actual results to differ materially from expected
results in the forward-looking statements. Such factors include, but are not
limited to, the Company's ability to access funding sources during a period of
tight liquidity in the Company's industry, the Company's limited operating
history, the Company's ability to sustain and manage its rate of growth, the
impact of competition in the subprime mortgage banking industry, the potential
for legislative or regulatory changes limiting the Company's business, and other
risks identified in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and its other filings with the Securities and Exchange
Commission.
3
<PAGE>
Item 1. Financial Statements
New Century Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents..................................... $ 10,519 $ 30,875
Loans receivable held for sale, net (notes 2 and 5)........... 372,709 356,975
Residual interests in securitizations (note 3)................ 194,703 205,395
Mortgage servicing assets (note 4)............................ 12,788 8,665
Accrued interest receivable................................... 946 1,536
Office property and equipment................................. 3,159 3,644
Prepaid expenses and other assets............................. 11,920 17,637
-------- --------
TOTAL ASSETS $606,744 $624,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 5)............ $345,201 $345,843
Residual financing............................................ 93,017 122,298
Notes payable................................................. 3,480 3,985
Income taxes payable.......................................... 5,415 1,690
Accounts payable and accrued liabilities...................... 14,851 16,056
Deferred income taxes......................................... 20,242 20,242
-------- --------
Total liabilities..................................... 482,206 510,114
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
20,000 shares issued and outstanding...................... - -
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,565,786 shares at March 31, 1999
and 14,473,566 shares at December 31, 1998................ 146 145
Additional paid-in capital.................................... 65,505 65,241
Retained earnings, restricted................................. 59,394 49,953
-------- --------
125,045 115,339
Deferred compensation costs................................... (507) (726)
-------- --------
Total stockholders' equity............................ 124,538 114,613
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $606,744 $624,727
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiaries
Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Gain on sale of loans................................... $29,428 $24,319
Interest income......................................... 15,318 10,193
Servicing income........................................ 9,465 3,936
------- -------
Total revenues........................................ 54,211 38,448
------- -------
Expenses:
Personnel............................................... 12,191 9,899
Interest................................................ 12,416 8,709
General and administrative.............................. 8,835 5,984
Advertising and promotion............................... 2,385 2,195
Servicing............................................... 639 571
Professional services................................... 1,120 261
------- -------
Total expenses........................................ 37,586 27,619
------- -------
Earnings before income taxes.............................. 16,625 10,829
Income taxes.............................................. 6,813 4,596
------- -------
Net earnings ............................................. $ 9,812 $ 6,233
======= =======
Basic earnings per share.................................. $ 0.69 $ 0.45
======= =======
Diluted earnings per share................................ $ 0.55 $ 0.42
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
New Century Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
March 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 9,812 $ 6,233
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 1,405 901
Deferred income taxes..................................... - 2,500
NIR gains................................................. (40,936) (23,763)
Servicing gains........................................... (4,519) -
Initial deposits to over-collateralization accounts....... (21,845) (6,201)
Deposits to over-collateralization accounts............... (3,121) (7,569)
Release of cash from over-collateralization accounts...... 2,557 6,149
Net proceeds from NIMS transaction........................ 76,098 -
Amortization (accretion) of NIRs.......................... (1,119) 4,543
General valuation provision for NIRs...................... 4,000 -
Provision for losses...................................... 3,469 1,708
Loans originated or acquired for sale..................... (892,722) (654,285)
Loan sales, net........................................... 872,880 661,743
Principal payments on loans receivable held for sale...... 233 10,246
Net change in other assets and liabilities................ 4,165 (1,728)
Decrease in warehouse and aggregation lines of credit..... (642) (19,147)
--------- ---------
Net cash provided by (used in) operating activities......... 9,715 (18,670)
--------- ---------
Cash flows from investing activities:
Purchase of office property and equipment................. (55) (906)
Acquisition of Primewest.................................. (108) (1,500)
--------- ---------
Net cash used in investing activities....................... (163) (2,406)
Cash flows from financing activities:
Net proceeds from notes payable........................... (505) (316)
Net proceeds from (repayments of) residual financing...... (29,281) 17,659
Payment of dividends on convertible preferred stock....... (279) -
Net proceeds from issuance of stock....................... 157 205
--------- ---------
Net cash provided by (used in) financing activities......... (29,908) 17,548
--------- ---------
Net decrease in cash and cash equivalents................... (20,356) (3,528)
Cash and cash equivalents, beginning of period.............. 30,875 12,701
--------- ---------
Cash and cash equivalents, end of period.................... $ 10,519 $ 9,173
========= =========
Supplemental cash flow disclosure:
Interest paid............................................. $ 12,397 $ 9,042
Income taxes paid......................................... $ 3,087 $ 1,949
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest.. $ 108 $ 2,000
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999 and 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
Recent Accounting Developments - In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Securities and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (iii) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security, or a foreign currency-denominated
forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. Management is in the
process of assessing the impact of implementing SFAS No. 133, which is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Residual interests in securitizations - Residual interests in securitizations
(Residuals) are recorded as a result of the sale of loans through
securitizations and the sale of residual interests in securitizations through
what are sometimes referred to as net interest margin securities (NIMS).
The loan securitizations are generally structured as follows: First, the
Company sells a portfolio of mortgage loans to a special purpose entity (SPE)
which has been established for the limited purpose of buying and reselling
mortgage loans. The SPE then transfers
7
<PAGE>
the same mortgage loans to a Real Estate Mortgage Investment Conduit or Owners
Trust (the REMIC or Trust), and the Trust in turn issues interest-bearing asset-
backed securities (the Certificates) generally in an amount equal to the
aggregate principal balance of the mortgage loans. The Certificates are
typically sold at face value and without recourse except that representations
and warranties customary to the mortgage banking industry are provided by the
Company to the Trust. One or more investors purchase these Certificates for
cash. The Trust uses the cash proceeds to pay the Company the cash portion of
the purchase price for the mortgage loans. The Trust also issues a certificate
representing a residual interest in the payments on the securitized loans. In
addition, the Company may provide a credit enhancement for the benefit of the
investors in the form of additional collateral (over-collateralization account
or OC Account) held by the Trust. The OC Account is required by the servicing
agreement to be maintained at certain levels.
At the closing of each securitization, the Company removes from its consolidated
balance sheet the mortgage loans held for sale and adds to its consolidated
balance sheet (i) the cash received, (ii) the estimated fair value of the
interest in the mortgage loans retained from the securitizations (Residuals),
which consist of (a) the OC Account and (b) the net interest receivable (NIR)
and (iii) the estimated fair value of the servicing asset. The NIR represents
the discounted estimated cash flows to be received by the Company in the future.
The excess of the cash received and the assets retained by the Company over the
carrying value of the loans sold, less transaction costs, equals the net gain on
sale of mortgage loans recorded by the Company.
The NIMS are generally structured as follows. First, the Company sells or
contributes the Residuals to an SPE which has been established for the limited
purpose of receiving and selling asset-backed residual interests in
securitization certificates. Next, the SPE transfers the Residuals to an owner
trust (the Trust) and the Trust in turn issues interest-bearing asset-backed
securities (the bonds and certificates). The Company sells these Residuals
without recourse except that normal representations and warranties are provided
by the Company to the Trust. One or more investors purchase the bonds and
certificates and the proceeds from the sale of the bonds and certificates, along
with a residual interest certificate that is subordinate to the bonds and
certificates, represent the consideration to the Company for the sale of the
Residuals.
At the closing of each NIMS, the Company removes from its consolidated balance
sheet the carrying value of the Residuals sold and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the Residuals retained, which consists of the net interest receivable
(NIR) and the OC account. The excess of the cash received and assets retained
over the carrying value of the Residuals sold, less transaction costs, equals
the net gain or loss on the sale of Residuals recorded by the Company.
The Company allocates its basis in the mortgage loans and residual interests
between the portion of the mortgage loans and residual interests sold through
the Certificates and the portion retained (the Residuals and servicing assets)
based on the relative fair values of those portions on the date of sale. The
Company may recognize gains or losses attributable to the changes in the fair
value of the Residuals, which are recorded at
8
<PAGE>
estimated fair value and accounted for as "held-for-trading" securities. The
Company is not aware of an active market for the purchase or sale of Residuals
and, accordingly, the Company determines the estimated fair value of the
Residuals by discounting the expected cash flows released from the OC Account
(the cash out method) using a discount rate commensurate with the risks
involved. The Company has utilized an effective discount rate of approximately
12% on the estimated cash flows released from the OC Account to value the
Residuals through securitization and approximately 14% on the estimated cash
flows released from the Trust to value Residuals through NIMS transactions.
The Company receives periodic servicing fees for the servicing and collection of
the mortgage loans as master servicer of the securitized loans. In addition,
the Company is entitled to the cash flows from the Residuals that represent
collections on the mortgage loans in excess of the amounts required to pay the
Certificate principal and interest, the servicing fees and certain other fees
such as trustee and custodial fees. At the end of each collection period, the
aggregate cash collections from the mortgage loans are allocated first to the
base servicing fees and certain other fees such as trustee and custodial fees
for the period, then to the Certificateholders for interest at the pass-through
rate on the Certificates plus principal as defined in the servicing agreements.
If the amount of cash required for the above allocations exceeds the amount
collected during the collection period, the shortfall is drawn from the OC
Account. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related OC Account,
the excess is released to the Company. If the OC Account balance is not at the
required credit enhancement level, the excess cash collected is retained in the
OC Account until the specified level is achieved. The cash and collateral in
the OC Account is restricted from use by the Company. Pursuant to certain
servicing agreements, cash held in the OC Accounts may be used to make
accelerated principal paydowns on the Certificates to create additional excess
collateral in the OC Account which is held by the Trusts on behalf of the
Company as the Residual holder. The specified credit enhancement levels are
defined in the servicing agreements as the OC Account balance expressed
generally as a percentage of the current collateral principal balance.
The Annual Percentage Rate (APR) on the mortgage loans is relatively high in
comparison to the pass-through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In determining
the value of the Residuals, the Company must estimate the future rates of
prepayments, prepayment penalties to be received by the Company, delinquencies,
defaults and default loss severity as they affect the amount and timing of the
estimated cash flows. The Company uses an annual default rate estimate of 0.50%
to 1.00% for adjustable rate first trust deeds, 0.45% to 0.65% for fixed rate
first trust deeds and 1.00% for second trust deeds. The Company's default rate
estimates result in cumulative loss estimates as a percentage of the original
principal balance of the mortgage loans of 0.78% to 2.50% for adjustable rate
first trust deeds, 2.37% to 2.63% for fixed rate first trust deeds and 2.88% for
second trust deeds. These estimates are based on historical loss data for
comparable loans and the specific characteristics of the loans originated by the
Company. The Company estimates prepayments by evaluating historical prepayment
performance of comparable mortgage loans and the impact of trends in the
industry. The Company has used a prepayment curve to estimate the prepayment
characteristics of the mortgage
9
<PAGE>
loans. The rate of increase, duration, severity and decrease of the curve
depends on the age and nature of the mortgage loans, primarily whether the
mortgage loans are fixed or adjustable and the interest rate adjustment
characteristics of the mortgage loans (6 month, 1 year, 2 year, 3 year or 5 year
adjustment periods). The Company's prepayment curve and default estimates have
resulted in weighted average lives of between 2.31 to 3.47 years for its
adjustable mortgage loans and 3.44 and 4.31 years for its fixed rate mortgage
loans.
Due to the uncertainty associated with estimating future cash flows caused by
the lack of historical performance data on the mortgage loans and the absence of
an active market for the purchase and sale of Residuals, the Company established
a general valuation allowance of $3.0 million for the Residuals during the year
ended December 31, 1997 added $7.5 million to the allowance during 1998, and
added $4.0 million to the allowance in the first quarter of 1999. The general
valuation allowance is based on the Company's periodic evaluation of the
Residuals, which takes into consideration trends in actual cash flow
performance, industry and economic developments, as well as other relevant
factors. As a result of its evaluation of the Residuals during the first quarter
of 1999, particularly prepayment trends in the 6 month LIBOR product, the
Company wrote down the Residuals by $4.0 million.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
March 31, 1999 and December 31, 1998 follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Mortgage loans receivable.................. $371,609 $355,875
Net deferred origination costs............. 1,100 1,100
-------- --------
$372,709 $356,975
======== ========
</TABLE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
March 31, 1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Over-collateralization amount.................. $112,201 $ 89,792
Net interest receivable (NIR).................. 93,002 126,103
-------- --------
205,203 215,895
General valuation allowance.................... (10,500) (10,500)
-------- --------
$194,703 $205,395
======== ========
</TABLE>
10
<PAGE>
The following table summarizes activity in the NIR amounts for the three month
periods ended March 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Balance, beginning of period................ $126,103 $79,036
Sale of NIR through NIMS.................... (71,156) --
NIR gains................................... 40,936 23,763
Write-down of NIR........................... (4,000) --
NIR accretion (amortization)................ 1,119 (4,543)
-------- -------
Balance, end of period...................... $ 93,002 $98,256
======== =======
</TABLE>
The following table summarizes activity in the OC accounts for the three month
periods ended March 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Balance, beginning of period................ $ 89,792 $21,224
Initial deposits to OC accounts............. 21,845 6,201
Additional deposits to OC accounts.......... 3,121 7,569
Release of cash from OC accounts............ (2,557) (6,149)
-------- -------
Balance, end of period...................... $112,201 $28,845
======== =======
</TABLE>
4. Mortgage Servicing Assets
Mortgage servicing assets represent the carrying value of the Company's
servicing portfolio. The following table summarizes activity in mortgage
servicing assets for the three month periods ended March 31, 1999 and 1998
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -----
<S> <C> <C>
Balance, beginning of period................. $ 8,665 $ --
Additions.................................... 4,519 --
Amortization................................. (396) --
------- -----
Balance, end of period....................... $12,788 $ --
======= =====
</TABLE>
11
<PAGE>
5. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at March 31,
1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
A $320 million line of credit expiring in May 1999
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (4.94% at
March 31, 1999)....................................... $249,947 $191,931
A $603 million master repurchase agreement bearing
interest based on one month LIBOR (4.94% at
March 31, 1999). The agreement may be terminated
by the lender giving 28 days written notice........... 95,254 153,912
-------- --------
$345,201 $345,843
======== ========
</TABLE>
The warehouse and aggregation line of credit agreements contain certain
restrictive financial and other covenants which require the Company to, among
other things, restrict dividends, maintain certain net worth and liquidity
levels, remain below specified debt-to-net-worth ratios and comply with
regulatory and investor requirements. At March 31, 1999, the Company was in
compliance with these financial and other covenants.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
New Century Financial Corporation (the Company) is a specialty finance company
engaged in the business of originating, purchasing, selling and servicing sub-
prime mortgage loans secured primarily by first mortgages on single family
residences. The Company originates and purchases loans through its Wholesale
and Retail Divisions and through its Primewest subsidiary. The Company's
borrowers generally have substantial equity in the property securing the loan,
but have impaired or limited credit profiles or higher debt-to-income ratios
than traditional mortgage lenders allow. The Company's borrowers also include
individuals who, due to self-employment or other circumstances, have difficulty
verifying their income, as well as individuals who prefer the prompt and
personalized service provided by the Company.
Loan Originations and Purchases
As of March 31, 1999, the Company's Wholesale division was operating through
five regional operating centers and 65 additional sales offices. The Wholesale
division funded $666.3 million in loans during the quarter ended March 31, 1999.
As of March 31, 1999, the Company's Retail division was operating through 79
sales offices. The Retail division funded $193.5 million in loans during the
three months ended March 31, 1999. The Company's Primewest subsidiary closed
$32.1 million in loans during the quarter ended March 31, 1999.
Loan Sales and Securitizations
Loan Sale Strategy. The Company's loan sale strategy includes both
securitizations and whole loan sales in order to advance the Company's goal of
enhancing profits while managing cash flows. Loan sales through securitizations
permit the Company to enhance operating profits and to benefit from future cash
flows generated by the residual interests retained by the Company. Whole loan
sale transactions enable the Company to generate current cash flow, protect
against the potential volatility of the securitization market and reduce the
risks inherent in retaining residual interests in securitizations.
The Company's primary source of revenue is the recognition of gains from the
sale of its loans through whole loan sales and securitizations. In a whole loan
sale, the Company recognizes and receives a cash gain upon sale. In a
securitization, the Company recognizes a gain on sale at the time the loans are
sold, but receives corresponding cash flows, represented by the over-
collateralization amount (OC) and the Net Interest Receivable (NIR) (combined,
the Residuals), over the actual life of the loans. As a result of timing
differences in receiving cash from whole loan sales versus securitizations, the
relative percentage of whole loan sales to securitizations will affect the
Company's operating cash flow. For the quarter ended March 31, 1999, $576.9
million, or 66.1%, of the Company's loan sales were in the form of
securitizations. Based on current liquidity and profit projections and current
market conditions, the Company anticipates the percentage of whole loan sales
will increase to approximately 50% of total loan sales in the second quarter of
1999.
13
<PAGE>
The Company has, to date, elected to fund the required OC at the closing of all
but two of its securitizations. The over-collateralization requirement ranges
from two to five percent of the initial securitization bond debt principal
balance or four to nine percent of the remaining principal balance after thirty
to thirty-six months of principal amortization. When funding all of the OC
Account up front, the Company begins to receive cash flow from the Residual
immediately. In those cases where only a portion of the OC Account is funded up
front, the Company will begin to receive cash flow from the Residual more
quickly than in cases where no initial funding is undertaken. Cash flows from
the Residuals are subject to certain delinquency or credit loss tests, as
defined by the rating agencies or the bond insurance companies. Over time, the
Company will also receive the OC, subject to the performance of the mortgage
loans in each securitization.
In connection with the origination and purchase of loans, the Company may either
receive or pay origination fees. These fees, referred to as "points" or
"premiums" in the mortgage industry, are dependent on the source of loan
production. Typically, they correspond to the amount of further processing
required for a loan to be funded and are determined as a percentage of the loan
amount. The points received from the origination of loans and the premiums paid
to originate and acquire loans are included in the gain recognized from the sale
of loans in the income statement.
The following table sets forth loan sales for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Securitizations........................... $576,869 $309,660
Whole loan sales.......................... 296,011 352,083
-------- --------
Total $872,880 $661,743
======== ========
</TABLE>
As part of its overall securitization strategy, the Company completed a NIM
excess cash flow private placement transaction in February 1999 with respect to
its remaining residual interests in securitizations closed prior to December
1998. This transaction reduced borrowings under the Company's residual financing
facility by $71.8 million.
Condition of Secondary Market. During the second half of 1998, whole loan
prices fell to levels significantly lower than the prices received by the
Company in earlier periods. These lower prices have persisted into the first and
second quarters of 1999. The Company does not know whether these lower prices
will persist, and for how long. Continuing lower whole loan prices will affect
the Company's secondary marketing strategy, cash flow and profitability. Based
on current liquidity and profit projections and current market conditions, the
Company expects that in the second quarter, approximately 50% of its loan sales
will be in the form of whole loan sales.
14
<PAGE>
Results of Operations
As of March 31, 1999, the Company's Wholesale Division operated through 65 sales
offices and five regional operating centers located in 35 states. The number of
account executives in the Wholesale Division grew to 155 at March 31, 1999, from
127 at March 31, 1998. The Company's Retail Division operates through 79 sales
offices located in 29 states. The number of loan officers decreased to 277 at
March 31, 1999, from 318 at March 31, 1998. In January 1998, the Company
completed its acquisition of PWF Corporation (Primewest), a correspondent lender
of the Company. Primewest is a retail originator based in California.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
The Company originated and purchased $891.9 million in loans for the three
months ended March 31, 1999, compared to $655.0 million for the three months
ended March 31, 1998. Loans originated and purchased through the Company's
Wholesale Division were $666.3 million, or 74.7%, of total originations and
purchases for the three months ended March 31, 1999. Loans originated through
the Company's Retail Division were $193.5 million, or 21.7%, of total
originations and purchases for the three month period. Loans originated through
the Company's Primewest subsidiary were $32.1 million, or 3.6%, of total
originations and purchases for the three months ended March 31, 1999. For the
same period in 1998, Wholesale, Retail and Primewest originations and purchases
totaled $434.0 million, or 66.3%, $209.6 million, or 32.0% and $11.4 million, or
1.7%, respectively, of total originations and purchases.
Total revenues for the three months ended March 31, 1999 increased to $54.2
million, from $38.4 million for the three months ended March 31, 1998. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1999, as well as the increase in the mortgage loan servicing
portfolio. Gain on sale of loans increased to $29.4 million for the three
months ended March 31, 1999, from $24.3 million for the three months ended March
31, 1998, due to the increase in loan sales in 1999.
15
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------------- -------------
<S> <C> <C>
Gain from whole loan sale transactions $ 10,398 $ 16,182
Non-cash gain from securitizations 40,936 23,763
Non-cash gain from servicing asset 4,519 --
Cash loss from securitizations/NIMS (4,659) --
Securitization expenses (3,426) (1,521)
Accrued interest (3,874) (2,441)
Provision for losses (3,469) (1,708)
General valuation provision for NIR (4,000) --
Non-refundable loan fees 11,451 10,526
Premiums paid (4,200) (7,482)
Origination costs (14,000) (13,000)
Hedging losses (248) --
-------- --------
Gain on sale of loans $ 29,428 $ 24,319
======== ========
</TABLE>
Whole loan sales decreased to $296.0 million for the three months ended March
31, 1999, from $352.1 million for the corresponding period in 1999. This
decrease is the result of a change in the mix of whole loan sales versus
securitizations. Loans sold through whole loan sales decreased to 33.9% of
total loan sales in the three months ended March 31, 1999, compared to 53.2% for
the corresponding period in 1998.
Interest income increased to $15.3 million for the three months ended March 31,
1999, from $10.2 million for the same period in 1998, primarily due to increased
interest income from loans held for sale. Interest income is earned on loans
held in inventory for sale. Such interest income accrues during periods when
loans are accumulated for future sales, and increases as loan originations and
purchases increase. The increase in interest income for the three months ended
March 31, 1999 is the result of a higher average inventory of loans held for
sale compared to the corresponding period in 1998, primarily as a result of
increased loan originations and purchases.
Servicing income increased to $9.5 million for the three months ended March 31,
1999, from $3.9 million for the three months ended March 31, 1998. This
increase resulted from the increase in securitizations, pursuant to which the
Company retains ownership of the servicing rights. Servicing income reflects
servicing fees received on loans sold or securitized by the Company, as well as
income recognized on residual cash flows from securitizations. As of March 31,
1999, the Company had securitized over $3.9 billion in loans and retained the
servicing rights. As of March 31, 1998, the Company had securitized $1.5
billion in loans.
Total expenses increased to $37.6 million for the three months ended March 31,
1999, from $27.6 million for the three months ended March 31, 1998. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and aggregation borrowings. All other expense components increased
from 1998 to 1999 due
16
<PAGE>
primarily to (1) higher loan origination volume in the quarter ended March 31,
1999 compared to the same period in 1998; and (2) the addition of 17 sales
offices from March 31, 1998 to March 31, 1999.
Residual Securities
The carrying value of the Company's residual securities at March 31, 1999 and
December 31, 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Carrying value of securities $205,203 $215,895
Less: general valuation allowance for NIR (10,500) (10,500)
-------- --------
Net book value $194,703 $205,395
======== ========
</TABLE>
In establishing the net book value of the residual securities, management
reviews on a quarterly basis the underlying assumptions used to value each
residual security. The specific values set forth above were established and
tested by (i) changing prepayment speed assumptions and loss assumptions for
each security to reflect actual experience and future expectations, and (ii)
performing sensitivity analyses on the assumptions to assess the potential
impact of a higher prepayment and lower loss scenario, and the potential impact
of a lower prepayment and higher loss scenario.
The following table summarizes the cash flow performance of the Company's
securities (dollars in thousands):
<TABLE>
<CAPTION>
1st Qtr 1999 Life-to-date
------------ ------------
<S> <C> <C>
Actual cash received $20,965 $39,011
Projected cash flow 19,322 36,363
------- -------
Excess cash flow received $ 1,643 $ 2,648
======= =======
</TABLE>
For residual interests sold through excess cash flow private placement
transactions, the cash flows illustrated in the table above represent cash flows
subsequent to the sale, all of which were used to pay down the senior
bondholders. To date, the Company's overall cash flows on its residual
interests are higher than the Company projected. However, based on historic
prepayment activity, particularly in the 6-month ARM product, the Company
believes that future cash flows may fall short of original projections. Based
on the quarterly evaluation of residual interests, the Company recorded a $4.0
million write-down in the first quarter of 1999.
Liquidity and Capital Resources
Financing Sources. The Company requires access to short-term warehouse and
aggregation credit facilities in order to fund loan originations and purchases
pending the securitization and sale of such loans. As of March 31, 1999, the
Company had a $320.0 million warehouse line of credit led by U.S. Bank National
Association which expires in May 1999 and bears interest at a rate equal to the
one month LIBOR plus 1.25%. At
17
<PAGE>
March 31, 1999, the balance outstanding under the warehouse line of credit was
$249.9 million. The Company is in the process of negotiating the renewal of this
warehouse line of credit.
Borrowings under the warehouse line are secured by first mortgages funded
through the facility. Within seven days of funding, the Company is required to
deposit the mortgage note and file with U.S. Bank to be held as collateral. If
the file is incomplete, U.S. Bank ceases to count the loan as valid collateral
in calculating the Company's available borrowing capacity. As a consequence, as
valid collateral the Company is essentially forced to use its own cash to carry
the loan until the file defect can be cured and the loan can be resubmitted
under the warehouse line. As of March 31, 1999, the Company's "zero-collateral"
balance was not material, and did not affect the Company's liquidity.
As of March 31, 1999, the Company also had a $600.0 million aggregation facility
with Salomon Smith Barney (Salomon), which is subject to renewal by Salomon on a
monthly basis and bears interest at a rate generally equal to the one month
LIBOR plus 1.25%. At March 31, 1999, the balance outstanding under the
aggregation facility was $94.9 million. In November 1998, the Company
established a $3.0 million line of credit with Salomon secured by a newly-formed
special purpose subsidiary of the Company that will hold residential properties
owned by the Company from time to time. This facility bears interest at a rate
equal to the one month LIBOR plus 2.50%. The balance outstanding at March 31,
1999 was $368,000.
The Company utilizes the U.S. Bank warehouse line to finance the actual funding
of its loan originations and purchases. After loans are funded by the Company
using the warehouse line and all loan documentation is complete, the loans are
generally transferred to the Salomon aggregation facility. The aggregation
facility is paid down with the proceeds of loan sales and securitizations.
The Company also has residual financing arrangements with Salomon, whereby
Salomon provides financing of the Company's residual interests in
securitizations as well as its residual interest from NIM transactions. The
amount of residual financing provided upon each securitization is determined
pursuant to formulas set forth in the respective agreements and is generally
subject to repayment as a result of changes in the market value of the residual
interests or the formula used by the lead underwriter to determine the market
value of the residual interest (which the lead underwriter may adjust in its
discretion). The facilities bear interest at a rate based on the one month
LIBOR. At March 31, 1999, the balance outstanding under these facilities was
$93.0 million.
The Company's business requires substantial cash to support its operating
activities and growth plans. As a result, the Company is dependent on the U.S.
Bank warehouse facility, the Salomon aggregation line and the residual financing
facility in order to finance its continued operations. If either Salomon or
U.S. Bank decided not to renew its credit facility with the Company, the loss of
borrowing capacity would have a material adverse impact on the Company's results
of operations unless the Company found a suitable alternative source.
18
<PAGE>
Industry Liquidity Environment. Since the third and fourth quarters of 1998,
the financing environment for sub-prime mortgage lenders like the Company has
become more difficult. Some investment and commercial banks have been
withdrawing or substantially curtailing their warehouse and/or aggregation
financing commitments. Others have continued lending to sub-prime originators,
but on less favorable terms. Partly as a consequence of these liquidity
problems, several relatively large sub-prime mortgage lenders have declared
bankruptcy since the third quarter of 1998. The Company believes that as a
result of these bankruptcies, some investment and commercial banks will be less
willing to renew or expand their remaining commitments to sub-prime mortgage
lenders.
Strategy. The Company is engaged in efforts to diversify its financing sources
in order to reduce its reliance on single sources of warehouse, aggregation and
residual financing. Because of the difficult liquidity environment in the sub-
prime mortgage industry, there can be no assurance that the Company will be able
to establish alternate credit facilities on terms comparable to those in its
existing Salomon and U.S. Bank facilities. In addition, Salomon Smith Barney
has recently experienced professional staff changes and structural
reorganizations in the division responsible for providing the Company's
aggregation and residual financing. As a consequence, there can be no assurance
that Salomon will continue to renew its aggregation and residual financing
facilities on terms as favorable as the Company's current borrowing terms.
Cash Flow. For the three months ended March 31, 1999, the Company's operations
provided approximately $9.7 million in cash, which is primarily attributable to
the effect of the NIM transaction. In general, however, the Company's operating
strategy results in negative operating cash flow, primarily because of its
securitization strategy and rapid growth. The Company records a residual
interest in securitization and recognizes a gain on sale when it effects a
securitization, but only receives the cash representing such gain over the life
of the loans securitized. In order to support its loan origination, purchase and
securitization programs, the Company is required to make significant cash
investments that include the funding of: (i) fees paid to brokers and
correspondents in connection with generating loans through wholesale lending
activities; (ii) fees and expenses incurred in connection with the
securitization and sale of loans including over-collateralization requirements
for securitization; (iii) commissions paid to sales employees to originate
loans; (iv) any difference between the amount funded per loan and the amount
advanced under the current warehouse facility; (v) principal and interest
payments on residual financing secured by the NIM residual bonds, for which the
Company does not expect to receive cash flows during 1999; and (vi) income tax
payments arising from the recognition of gain on sale of loans. The Company also
requires cash to fund ongoing operating and administrative expenses, including
capital expenditures and debt service. The Company's sources of operating cash
flow include: (i) the premium advance component of the aggregation facility;
(ii) premiums obtained in whole loan sales; (iii) mortgage origination income
and fees; (iv) interest income on loans held for sale; (v) excess cash flow from
securitization trusts; and (vi) servicing income.
The Company has a discretionary, non-revolving $5.0 million line of credit with
an affiliate of U.S. Bank secured by the Company's furniture and equipment.
Advances under this facility are made periodically at the discretion of the
lender, and bear interest at
19
<PAGE>
a fixed rate established at the time of each advance for a term of three years.
As of March 31, 1999, the balance outstanding under this facility was $3.5
million, and the weighted-average interest rate was 8.8%.
The Company has various non-revolving operating lease agreements totaling $19.1
at March 31, 1999, for purposes of financing office property and equipment.
Advances under these facilities are made periodically and a financing rate is
established at the time of each advance. As of March 31, 1999, the Company had
$4.5 million available under these facilities.
Subject to the various uncertainties described above, the Company anticipates
that its current liquidity, credit facilities and capital resources will be
sufficient to fund its operations for the foreseeable future.
YEAR 2000
The Year 2000 Issue
The Year 2000 issue is the result of computer hardware and software being
designed with the year field being set for two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900. As a result the programs
could fail or yield incorrect results.
The Company's business, as well of those of its principal vendors, is dependent
on the ability of a variety of software and hardware systems to function. Less
visible, but also important, are the many non-information technology (Non-IT)
systems which have computer chips embedded in them. Failure of one or more of
these IT and Non-IT systems of the Company or an important vendor could disrupt
the Company's operations and cause a material adverse impact on the Company's
business, results of operations and financial condition.
The Company's Year 2000 Strategy
The Company is in the midst of implementing its plan (the "Y2K Plan" or the
"Plan") to prepare for the Year 2000 issue. The Plan consists of (i) evaluating
the Company's exposure to Year 2000 problems, (ii) having its major systems
certified and tested as Year 2000 ready, (iii) obtaining certifications and/or
responses to detailed questionnaires from its major vendors regarding their Year
2000 readiness, and (iv) establishing contingency plans. The Company believes
it will complete implementation of the Plan by August 31, 1999.
Progress Report
In order to spearhead implementation of the Year 2000 effort, in 1998 the
Company established a Year 2000 Task Group (the "Group"). The Group divided the
Plan implementation process into four categories: 1) Hardware, 2) Non-
Information Technology (e.g., telephone systems, pagers, etc.), 3) Software, and
4) Outside Vendors.
20
<PAGE>
Hardware - The Company's most important hardware systems are its several dozen
- --------
servers located at the Company's headquarters and regional operating centers.
The Group has contacted the manufacturers of those systems, and has obtained
certification of Year 2000 readiness. Because the Company was not formed until
late 1995 and did not commence lending operations until February 1996, most of
these systems are relatively new and were manufactured to be Year 2000 ready.
In addition, in March 1999, the Group commenced testing of each of the hardware
systems to confirm that they are able to function properly in a Year 2000
simulation. The Group currently expects that the hardware testing process will
be complete by the middle of June 1999. Any repair or replacement of systems
that are found to be unready will take place by the end of the second quarter of
1999.
Non-Information Technology - The Group is also in the process of contacting the
- --------------------------
vendors of its principal Non-IT systems in order to obtain certificates of Year
2000 readiness. The Company's material Non-IT systems include its telephone,
paging, voicemail and telemarketing systems. Because most of these systems were
purchased after 1995, the majority of these systems were designed and
manufactured to be Year 2000 ready. To date, the Company has received
certifications of Year 2000 readiness with respect to its telephone, voicemail
and telemarketing systems, and is awaiting similar certification for its paging
systems. The Group currently expects to receive Year 2000 readiness
certification with respect to its remaining material Non-IT systems by the end
of the second quarter. If the manufacturer of any such system is not willing to
provide the requested certification, the Group will decide whether or not to
replace that system.
Software - The Group is in the process of evaluating all material software
- --------
applications for Year 2000 readiness. The Company's material software
applications include its loan origination, accounting and servicing software, as
well as the general word processing and spreadsheet programs used by the
majority of the Company's employees. Because most of the Company's material
software applications were purchased in the last three years, most of this
software was designed to be Year 2000 ready.
The Company has commenced testing each material software system for Year 2000
readiness, and expects to complete this process by the middle of the second
quarter of 1999. The Group currently expects to complete the process of
bringing non-compliant software into Year 2000 readiness by the end of the
second quarter of 1999.
Outside Vendors - The Group has identified its outside vendor relationships as a
- ---------------
significant area of uncertainty with respect to Year 2000 readiness. The
Company is dependent on many vendors, both for the origination of loans and for
their subsequent sale or securitization. If one or more of the Company's
principal vendors experiences significant business disruption as a result of the
Year 2000 issue, it could have a material adverse effect on the Company's
business, results of operations and financial condition.
For example, if the Company's warehouse line of credit is not functioning
properly, the Company may be unable to fund loans. Similarly, if other major
origination-related vendors such as credit reporting agencies, title companies,
appraisers and county
21
<PAGE>
recorders are not operating, the Company's ability to originate loans could be
significantly impaired.
In order to mitigate the risks related to outside vendors, the Group is
developing a detailed questionnaire to be distributed in the second quarter of
1999 to the Company's principal vendors who have not provided satisfactory Year
2000 readiness certificates. Based on the responses, the Group may need to
develop contingency plans to replace those vendors whose ability to certify Year
2000 readiness is in doubt. The Group expects that the process of evaluating
and working with outside vendors will continue into the second quarter of 1999.
Contingency Planning
The Group is in the process of formulating a contingency plan in the event that
any material system or vendor will not be Year 2000 ready in a timely manner.
This contingency plan is scheduled to be substantially complete by the end of
the second quarter of 1999, although it will be reviewed and refined thereafter
as the Group continues to evaluate the Company's systems and vendors.
Costs
The Company has budgeted up to $1,000,000 for implementation of the Plan to
cover the costs of evaluating systems, upgrading or replacing non-compliant
systems and hiring an outside Year 2000 consultant. Although the Group believes
this amount will be sufficient to meet the costs of the Company's Year 2000
readiness efforts, there can be no assurance that the costs to implement the
Plan will not significantly exceed the Company's current estimates. To date,
expenditures for Year 2000 readiness have been approximately $150,000.
Risks
At present, the Company perceives that its greatest Year 2000 risks relate to
its dependence on outside vendors. Even if the Company can satisfy itself that
the principal IT and Non-IT systems of its main vendors are Year 2000 ready,
those vendors in turn rely on a myriad of suppliers to operate their businesses.
It is conceivable that Year 2000-related failures far removed from the Company
could trigger a chain event that could materially harm the Company's business.
A separate and equally difficult risk posed to the Company by Year 2000 issue is
that disruptions in its customers' financial condition will reduce demand for
its products. If consumer confidence is impaired, loan originations might
decline. Similarly, if the financial institutions who are purchasers of the
Company's whole loans or mortgage-backed securities suffer business disruptions
from the Year 2000-related problems, the secondary market demand and pricing for
the Company's loans may decline.
In short, while the Company is committed to attempt to prevent Year 2000-related
harms, there can be no assurance that Year 2000 problems will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
22
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 1999, the Company had $194.7 million in residual interests in
securitizations and $12.8 million in mortgage servicing assets which subject the
Company to market risk. These assets are carried at fair value on the Company's
balance sheet. The Company determines the fair value of these assets using
significant assumptions (See "Notes to Consolidated Financial Statements - Basis
of Presentation"). In future periods, if cash flows are greater than projected,
the value of the assets will increase. Alternatively, if cash flows are less
than projected, the value of the assets will decrease.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally becomes involved in litigation arising in the
normal course of business. Management believes that any liability
with respect to such legal actions, individually or in the aggregate,
will not have a material adverse effect on the Company.
Item 2. Change in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
On March 8, 1999 the Company filed a report on Form 8-K attaching
a copy of a press release announcing the Company's Stock
Repurchase Program.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW CENTURY FINANCIAL CORPORATION
DATE: May 13, 1999 By: /S/ BRAD A. MORRICE
______________________________
Brad A. Morrice
President
DATE: May 13, 1999 By: /S/ EDWARD F. GOTSCHALL
______________________________
Edward F. Gotschall
Chief Financial Officer
(Principal Financial and Accounting Officer)
25
<PAGE>
EXHIBIT INDEX
Exhibit Description of Sequentially
Number Exhibit Numbered Page
- ------ -------------- -------------
*3.1 First Amended and Restated Certificate of Incorporation
of the Company
**3.2 Certificate of Designation for Series 1998A Convertible
Preferred Stock
*3.3 First Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
***4.2 Specimen Series 1998A Convertible Preferred Stock Certificate
***10.1 Form of Founding Managers' Employment Agreement,
dated January 1, 1999
***10.2 Patrick Flanagan Employment Agreement, dated
January 1, 1999
****10.3 1999 Incentive Compensation Plan
11.1 Statement re Computation of Per Share Earnings 27
27.1 Financial Data Schedule 28
* Incorporated by reference from the Company's Amendment No. 1 to Form S-1
Registration Statement (No. 333-25483) filed with the SEC on June 2, 1997.
** Incorporated by reference from the Company's Form 8-K as filed with the
SEC on December 8, 1998.
*** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
**** Incorporated by reference to the Company's 1999 Proxy Statement filed with
the SEC on April 2, 1999.
26
<PAGE>
EXHIBIT 11.1
New Century Financial Corporation
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Basic:
Net earnings $ 9,812,000 $ 6,233,000
=========== ============
Weighted average common shares outstanding 14,278,901 14,004,153
----------- ------------
Earnings per share $ 0.69 $ 0.45
=========== ============
Diluted:
Net earnings $ 9,812,000 $ 6,233,000
=========== ============
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 14,278,901 14,004,153
Dilutive effect of convertible preferred stock,
stock options and warrants, after application 3,707,345 960,281
----------- ------------
17,986,245 14,964,434
=========== ============
Earnings per share $ 0.55 $ 0.42
=========== ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES FOR
THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,519,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 372,709,000
<CURRENT-ASSETS> 0
<PP&E> 6,731,000
<DEPRECIATION> 3,572,000
<TOTAL-ASSETS> 606,744,000
<CURRENT-LIABILITIES> 14,851,000
<BONDS> 441,698,000
20,000,000
0
<COMMON> 146,000
<OTHER-SE> 104,392,000
<TOTAL-LIABILITY-AND-EQUITY> 606,744,000
<SALES> 29,428,000
<TOTAL-REVENUES> 54,211,000
<CGS> 0
<TOTAL-COSTS> 25,170,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,416,000
<INCOME-PRETAX> 16,625,000
<INCOME-TAX> 6,813,000
<INCOME-CONTINUING> 9,812,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,812,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.55
</TABLE>
