<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 SEPTEMBER 30, 2000
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 October 31, 2000, 14,793,891 shares of Common Stock of New Century
Financial Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 32
Item 4. Submission of Matters to a Vote of
Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 33
EXHIBIT INDEX 34
</TABLE>
2
<PAGE>
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 (i) the assumptions used to value the Company's
residual securities, including assumptions relating to prepayment rates,
losses and delinquencies and discount rate, (ii) the anticipated secondary
marketing strategy for the remainder of 2000, (iii) the expectation that the
Company will be able to fulfill its forward sale commitments in the fourth
quarter, (iv) the expectation that the Company will be able to renew its
Salomon aggregation facility and/or establish a suitable replacement facility
with another lender, (v) the expectation that the Company's underwriting
guideline adjustments will have a positive impact on secondary marketing
results, (vi) the expectation that the Company will be able further to reduce
its all-in acquisition cost for loans, (vii) the expectation that application
of Statement of Financial Accounting Standards Nos. 133 and 140 will not have
a material impact on the Company's financial condition or results of
operations, (viii) the expectation that the Company will be able to improve
its cash flow by selling 100% of its production in whole loan sales and by
tailoring its production mix to conform to the appetites of whole loan
buyers, and (ix) the belief regarding the scope of the Company's potential
legal exposure. 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, (i)
the Company's ability to sustain and manage its growth, (ii) the Company's
continued ability to maintain its funding sources, (iii) the effect of any
margin calls under any of the Company's credit facilities, (iv) volatility in
the market for whole loans, (v) the condition of the market for
mortgage-backed securities, (vi) the ability of the Company to continue to
implement cost savings plans for its business, (vii) the Company's ability to
raise additional capital or attract a buyer through the PaineWebber
engagement or otherwise, (viii) the effect of proposed legislation and
regulations that could restrict the Company's business, (ix) the Company's
ability to improve its cash flow and maintain adequate liquidity, (x) the
Company's ability to reduce the percentage of its production that is excluded
from its whole loan sales by loan purchasers, (xi) the Company's ability to
enter into definitive agreements regarding its fourth quarter forward
commitments and (xii) the other risks identified in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and its other
filings with the Securities and Exchange Commission.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, December 31,
2000 1999
----------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents ........................................ $ 2,362 $ 4,496
Loans receivable held for sale, net (notes 2 and 5) .............. 428,380 442,653
Residual interests in securitizations (note 3) ................... 405,394 364,689
Mortgage servicing assets (note 4) ............................... 23,470 22,145
Accrued interest receivable ...................................... 1,780 1,538
Income taxes receivable .......................................... -- 548
Office property and equipment .................................... 3,159 3,780
Prepaid expenses and other assets ................................ 33,860 23,860
----------------------------
TOTAL ASSETS ..................................................... $ 898,405 $ 863,709
============================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 5) ............... $ 427,372 $ 428,726
Residual financing ............................................... 188,072 177,493
Subordinated debt ................................................ 37,500 20,000
Notes payable .................................................... 11,710 3,051
Income taxes payable ............................................. -- --
Accounts payable and accrued liabilities ......................... 22,743 26,484
Deferred income taxes ............................................ 32,508 34,992
----------------------------
Total liabilities ........................................ 719,905 690,746
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
40,000 shares issued and outstanding ......................... -- --
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,782,719 shares at September 30, 2000
and 14,694,984 shares at December 31, 1999 ................... 148 147
Additional paid-in capital ....................................... 89,777 85,625
Retained earnings, restricted .................................... 88,584 87,351
----------------------------
178,509 173,123
Deferred compensation costs ...................................... (9) (160)
----------------------------
Total stockholders' equity ............................... 178,500 172,963
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 898,405 $ 863,709
============================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans ............. $ 41,470 $ 94,890 $ 20,265 $ 35,275
Interest income ................... 51,551 44,988 15,339 16,014
Servicing income .................. 59,382 33,327 21,022 11,747
Other income ...................... 1,104 -- 564 --
------------------------------------------------------------------
Total revenues .................. 153,507 173,205 57,190 63,036
------------------------------------------------------------------
EXPENSES:
Personnel ......................... 40,145 38,757 11,830 13,964
Interest .......................... 54,040 36,992 18,562 13,640
General and administrative ........ 38,735 29,957 14,575 10,722
Advertising and promotion ......... 10,089 8,593 2,682 3,466
Professional services ............. 4,135 3,392 1,235 956
------------------------------------------------------------------
Total expenses .................. 147,144 117,691 48,884 42,748
------------------------------------------------------------------
Earnings before income taxes ........ 6,363 55,514 8,306 20,288
Income taxes ........................ 2,956 22,895 3,569 8,360
------------------------------------------------------------------
Net earnings ........................ $ 3,407 $ 32,619 $ 4,737 $ 11,928
==================================================================
Basic earnings per share (note 6).... $ 0.08 $ 2.17 $ 0.27 $ 0.78
==================================================================
Diluted earnings per share (note 6).. $ 0.08 $ 1.77 $ 0.24 $ 0.62
==================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Nine Months Ended September 30,
2000 1999
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings .................................................... $ 3,407 $ 32,619
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization ................................. 7,795 4,333
NIR gains ..................................................... (54,035) (126,425)
Initial deposits to over-collateralization accounts ........... (23,927) (60,742)
Deposits to over-collateralization accounts ................... (61,110) (21,333)
Release of cash from over-collateralization accounts .......... 48,687 18,372
Servicing gains ............................................... (5,900) (12,940)
Amortization (accretion) of NIRs/I/O's ........................ 19,804 4,615
Market value adjustment of residual securities ................ 21,197 --
General valuation provision for NIRs .......................... -- 13,000
Net proceeds from NIMS transaction ............................ 8,679 76,098
Provision for losses .......................................... 13,226 5,787
Loans originated or acquired for sale ......................... (3,115,587) (3,011,864)
Loan sales, net ............................................... 3,106,267 2,988,492
Principal payments on loans receivable held for sale .......... 25,487 4,397
Deferred income taxes ......................................... (2,484) 7,498
Increase in warehouse and aggregation lines of credit ......... (7,157) 10,199
Net change in other assets and liabilities .................... (20,275) 4,062
-------------------------------
Net cash used in operating activities ........................... (35,926) (63,832)
-------------------------------
Cash flows from investing activities:
Purchase of office property and equipment ..................... (1,025) (508)
Acquisition of Primewest ...................................... (43) --
-------------------------------
Net cash used in investing activities ........................... (1,068) (508)
Cash flows from financing activities:
Net proceeds from residual financing .......................... 10,579 24,605
Proceeds from issuance of subordinated debt ................... 17,500 --
Proceeds from (net repayments of) notes payable ............... 8,659 (1,347)
Payment of dividends on convertible preferred stock ........... (2,175) (1,383)
Net proceeds from issuance of stock/purchase of treasury stock. 297 19,974
-------------------------------
Net cash provided by financing activities ....................... 34,860 41,849
-------------------------------
Net decrease in cash and cash equivalents ....................... (2,134) (22,491)
Cash and cash equivalents, beginning of period .................. 4,496 30,875
-------------------------------
Cash and cash equivalents, end of period ........................ $ 2,362 $ 8,384
===============================
Supplemental cash flow disclosure:
Interest paid ................................................. $ 55,016 $ 36,857
Income taxes paid ............................................. $ 5,440 $ 10,653
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest ...... $ 43 $ 108
Net assets acquired through acquisition of subsidiary ......... $ 553 $ --
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
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 nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
RECENT ACCOUNTING DEVELOPMENTS - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133 (SFAS 133), "Accounting for Derivative Securities and Hedging Activities,"
which was subsequently amended by SFAS No. 137 and 138. SFAS 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. SFAS No. 137
delayed the implementation of SFAS No. 133 to all fiscal quarters of fiscal
years beginning after June 15, 2000. In June 2000, SFAS No. 133 was further
amended by SFAS No. 138. SFAS No. 138 addresses a limited number of issues
causing implementation difficulties for numerous entities that apply SFAS No.
133. SFAS No. 138 also amends SFAS No. 133 for the decisions reached by the
Derivatives Implementation Group Process. This statement is effective for the
Company on January 1, 2001. Management has determined that application of
this statement is not expected to have a material impact on its financial
condition or results of operations.
7
<PAGE>
In September 2000, the FASB Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (SFAS 140). SFAS 140 replaces SFAS 125 and is effective for
transactions occurring after March 31, 2001 and for recognition and
reclassification of collateral and disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not believe that application of SFAS 140 will have a material
impact on its financial condition or results of operations.
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 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.
8
<PAGE>
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 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 utilizes an effective
discount rate of approximately 13% on the estimated cash flows released from the
OC Account to value the Residuals through securitization and approximately 15%
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
9
<PAGE>
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 1.60% for
adjustable rate first trust deeds and 0.45% to 0.70% for fixed rate first 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 2.22%
to 3.55% for adjustable rate first trust deeds and 2.21% to 2.79% for fixed rate
first trust deeds. These estimates are based on current pool performance,
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 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 1.74 to 3.23 years for its adjustable mortgage loans
and 3.88 to 4.56 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 has
historically established a general valuation allowance. 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. The Company has also
historically recorded write-downs in the carrying value of its residual
interests as a result of actual prepayment and loss experience. During the nine
months ended September 30, 2000, the Company recorded $26.2 million in valuation
adjustments of the carrying value of its residual interests. These valuation
adjustments resulted primarily from the increase in discount rates applied to
expected cash flows from the Residuals. Prior to the second quarter of 2000, the
Company used a 12% discount rate for Residuals through securitizations and 14%
for Residuals through NIMs transactions.
10
<PAGE>
2. Loans Receivable Held for Sale, Net
A summary of loans receivable held for sale, at the lower of cost or market at
September 30, 2000 and December 31, 1999 follows (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
September 30, December 31,
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans receivable...................... $ 427,630 $ 441,803
-------------------------------------------------------------------------------------------------------
Net deferred origination costs................. 750 850
-------------------------------------------------------------------------------------------------------
$ 428,380 $ 442,653
---------------------------------------------------------------------==================================
</TABLE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
September 30, 2000 and December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
September 30, December 31,
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Over-collateralization account.................. $ 220,895 $ 184,545
-------------------------------------------------------------------------------------------------------
Net interest receivable (NIR)................... 184,499 185,144
-------------------------------------------------------------------------------------------------------
405,394 369,689
-------------------------------------------------------------------------------------------------------
General valuation allowance..................... - (5,000)
-------------------------------------------------------------------------------------------------------
$ 405,394 $ 364,689
---------------------------------------------------------------------==================================
</TABLE>
The following table summarizes activity in the NIR amounts for the nine months
ended September 30, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period.................... $ 185,144 $ 126,103
-------------------------------------------------------------------------------------------------------
Sale of NIR through NIMS........................ (8,679) (71,156)
-------------------------------------------------------------------------------------------------------
NIR gains....................................... 54,035 126,425
-------------------------------------------------------------------------------------------------------
Charge-offs of NIR.............................. (5,000) (13,000)
-------------------------------------------------------------------------------------------------------
Market value adjustment......................... (21,197) -
-------------------------------------------------------------------------------------------------------
NIR accretion (amortization).................... (19,804) (4,531)
-------------------------------------------------------------------------------------------------------
Balance, end of period.......................... $ 184,499 $ 163,841
---------------------------------------------------------------------==================================
</TABLE>
11
<PAGE>
The following table summarizes activity in the OC accounts for the nine months
ended September 30, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period................... $ 184,545 $ 89,792
-------------------------------------------------------------------------------------------------------
Initial deposits to OC accounts................ 23,927 60,742
-------------------------------------------------------------------------------------------------------
Additional deposits to OC accounts............. 61,110 21,333
-------------------------------------------------------------------------------------------------------
Release of cash from OC accounts............... (48,687) (18,372)
-------------------------------------------------------------------------------------------------------
Balance, end of period......................... $ 220,895 $ 153,495
---------------------------------------------------------------------==================================
</TABLE>
The following table summarizes activity in the allowance for NIR losses for the
nine months ended September 30, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period....................... $ 5,000 $ 10,500
----------------------------------------------------------------------------------------------------------
Provision for NIR losses........................... - 13,000
----------------------------------------------------------------------------------------------------------
Charge-offs of NIR................................. (5,000) (13,000)
----------------------------------------------------------------------------------------------------------
Balance, end of period............................. $ - $ 10,500
-----------------------------------------------------------------------===================================
</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 nine months ended September 30, 2000 and 1999 (dollars
in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period...................... $ 22,145 $ 8,665
-------------------------------------------------------------------------------------------------------
Additions......................................... 5,900 12,940
-------------------------------------------------------------------------------------------------------
Amortization...................................... (4,575) (1,787)
-------------------------------------------------------------------------------------------------------
Balance, end of period............................ $ 23,470 $ 19,818
---------------------------------------------------------------------==================================
</TABLE>
The table below summarizes activity in the Company's mortgage loan servicing
portfolio for the nine months ended September 30, 2000 and 1999 (dollars in
millions):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period...................... $ 5,950 $ 3,786
---------------------------------------------------------------------------------------------------------
Loans funded...................................... 3,118 3,008
---------------------------------------------------------------------------------------------------------
Payoffs/servicing-released sales.................. (2,988) (1,391)
---------------------------------------------------------------------------------------------------------
Balance, end of period............................ $ 6,080 $ 5,403
---------------------------------------------------------------------====================================
</TABLE>
12
<PAGE>
5. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at September
30, 2000 and December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
September 30, December 31,
---------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
A $265 million line of credit expiring in May
---------------------------------------------------------------------------------------------------------
2001 secured by loans receivable held for sale,
---------------------------------------------------------------------------------------------------------
bearing interest based on one-month LIBOR
---------------------------------------------------------------------------------------------------------
(6.62% at September 30, 2000)................. $ 178,724 $ 234,778
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
A $600 million master repurchase agreement
---------------------------------------------------------------------------------------------------------
bearing interest based on one-month LIBOR
---------------------------------------------------------------------------------------------------------
(6.62% at September 30, 2000), secured by
---------------------------------------------------------------------------------------------------------
loans receivable held for sale. The agreement
---------------------------------------------------------------------------------------------------------
expires on December 31, 2000................... 230,389 162,653
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
A $300 million loan and security agreement
---------------------------------------------------------------------------------------------------------
bearing interest based on one-month LIBOR
---------------------------------------------------------------------------------------------------------
(6.62% at September 30, 2000), secured by
---------------------------------------------------------------------------------------------------------
loans receivable held for sale, expiring in June
---------------------------------------------------------------------------------------------------------
2001................................................. 4,704 17,682
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
A $25 million master loan and security
---------------------------------------------------------------------------------------------------------
agreement expiring in March 2001, secured by
---------------------------------------------------------------------------------------------------------
loans receivable held for sale and REO
---------------------------------------------------------------------------------------------------------
properties, bearing interest based on one-month
---------------------------------------------------------------------------------------------------------
LIBOR (6.62% at September 30, 2000)........ 4,004 1,673
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
A $295 million loan and security agreement
---------------------------------------------------------------------------------------------------------
bearing interest based on one-month LIBOR
---------------------------------------------------------------------------------------------------------
(6.62% at September 30, 2000), secured by
---------------------------------------------------------------------------------------------------------
loans receivable held for sale...................... 9,551 11,940
---------------------------------------------------------------------------------------------------------
$ 427,372 $ 428,726
---------------------------------------------------------------------====================================
</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 September 30, 2000, the Company was in
compliance with these financial and other covenants.
13
<PAGE>
6. Earnings per Share
The following table illustrates the computation of basic and diluted earnings
per share for the periods indicated (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
------------------------------------------------------------------------------------------------------------
September 30, September 30,
------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Net earnings $ 3,407 $ 32,619 $ 4,737 $ 11,928
------------------------------------------------------------------------------------------------------------
Less: dividends declared on
------------------------------------------------------------------------------------------------------------
preferred stock (2,175) (1,386) (725) (636)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Earnings available to
------------------------------------------------------------------------------------------------------------
common stockholders 1,232 31,233 4,012 11,292
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Weighted average common
------------------------------------------------------------------------------------------------------------
shares outstanding 14,704 14,373 14,747 14,483
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.08 $ 2.17 $ 0.27 $ 0.78
------------------------------------------------============================================================
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
DILUTED:
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Net earnings, as adjusted $ 1,232 $ 32,619 $ 4,737 $ 11,928
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Weighted average number of
------------------------------------------------------------------------------------------------------------
common and common
------------------------------------------------------------------------------------------------------------
equivalent shares outstanding 14,704 14,373 14,747 14,483
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Dilutive effect of convertible
------------------------------------------------------------------------------------------------------------
preferred stock, stock options
------------------------------------------------------------------------------------------------------------
and warrants - 4,030 4,765 4,683
------------------------------------------------------------------------------------------------------------
14,704 18,403 19,512 19,166
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.08 $ 1.77 $ 0.24 $ 0.62
------------------------------------------------============================================================
</TABLE>
For the three months ended September 30, 2000 and 1999, respectively, 401,850
and 160,500 stock options and warrants were excluded from the calculation of
diluted earnings per share because their effect would have been anti-dilutive.
For the nine
14
<PAGE>
months ended September 30, 2000, 1,041,776 stock options and warrants and the
convertible preferred stock were excluded from the calculation of diluted
earnings per share because their effect would have been anti-dilutive. For the
nine months ended September 30, 1999, 229,600 stock options and warrants were
excluded.
15
<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 September 30, 2000, the Company's Wholesale Division was operating through
five regional operating centers and 31 additional sales offices. The Wholesale
Division funded $766.7 million in loans during the three months ended September
30, 2000. As of September 30, 2000, the Company's Retail Division was operating
through 71 sales offices. The Retail Division funded $284.1 million in loans
during the three months ended September 30, 2000, including loans funded through
the Company's Primewest and Anyloan subsidiaries.
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.
One of the Company's primary sources 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 September
30, 2000, $756.3 million, or 66.3%, of the Company's loan sales were in the form
of whole loan sales.
The Company has, to date, elected to fund the required OC at the closing of most
of its securitizations. The over-collateralization requirement ranges from two
to five percent of
16
<PAGE>
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>
------------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
------------------------------------------------------------------------------------------------------------
September 30, September 30,
------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Whole loan sales............... $ 2,076,790 $ 862,334 $ 756,329 $ 189,705
------------------------------------------------------------------------------------------------------------
Securitizations................ 1,029,477 2,187,470 385,023 1,046,836
------------------------------------------------------------------------------------------------------------
Subtotal 3,106,267 3,049,804 1,141,352 1,236,541
------------------------------------------------------------------------------------------------------------
Less: Loans acquired to
------------------------------------------------------------------------------------------------------------
securitize (1)........... (61,312) (61,312)
------------------------------------------------------------------------------------------------------------
Net loan sales........... $ 3,106,267 $ 2,988,492 $ 1,141,352 $ 1,175,229
----------------------------------------====================================================================
</TABLE>
(1) Loans acquired to securitize represent loans acquired by the Company from
its whole loan investors. These loans are acquired by the Company at current
market prices for such loans.
CONDITION OF SECONDARY MARKET. The secondary market for non-prime whole loans
can be volatile. In the quarter ended September 30, 2000 the Company received
bids at prices that were somewhat higher than in late 1998 and 1999, although
still lower than the prices achieved in 1997 and early 1998. In addition, in
recent quarters buyers in the whole loan market have been confining their
purchases to loans with specific attributes rather than merely purchasing a
full cross section of a seller's production. Likewise, buyers in recent
quarters have tended to perform more rigorous due diligence reviews of loan
pools, and have typically elected to exclude a significant percentage of
loans from a pool on various bases. Unless the Company is able to respond to
changes in the appetites of whole loan buyers, volatility in the whole loan
market could have an adverse effect on the Company's results of operations,
business and financial condition.
During the third quarter of 2000, the Company revised its underwriting
guidelines to originate the types of loans that are more closely aligned to
the guidelines of its whole loan investors. The Company believes that these
revisions led to lower loan production volume in the third quarter over the
second quarter. However, the Company expects
17
<PAGE>
that these guideline adjustments will have a positive impact on the Company's
secondary marketing results.
During the third quarter of 2000, the Company entered into an agreement with
Financial Securities Assurance Inc. (FSA) whereby the Company agreed to
repurchase $16.2 million in non-performing loans from the 1998 NC5 security in
exchange for the waiver of the "spread squeeze" trigger, which was tripped as a
result of the increase in interest rates. This agreement allowed for the
continuation of cash flows from the securitization trust to the bondholders, and
will improve the performance of the security by decreasing the overall loss
within the security. The repurchased loans were sold at a loss of $7.6 million
during the third quarter of 2000.
FOURTH QUARTER STRATEGY. Based on current liquidity and profit projections and
current market conditions, the Company expects that the majority of its sales in
the remainder of 2000 will be in the form of whole loan sales. The Company has
entered into forward sales commitments totaling $700 million for the fourth
quarter, at prices in excess of 103%. The commitments are subject to customary
contingencies, including the Company's ability to deliver loans having the
characteristics specified by the buyers.
RESULTS OF OPERATIONS
As of September 30, 2000, the Company's Wholesale Division operated through 31
sales offices and five regional operating centers located in 24 states. The
number of account executives in the Wholesale Division decreased to 143 at
September 30, 2000, compared to 184 at September 30, 1999. The Company's Retail
Division operates through 71 sales offices located in 27 states. The number of
loan officers in the Retail Division, including the Primewest and Anyloan
subsidiaries, remained the same at 344 at September 30, 2000 compared to
September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The Company originated and purchased $3.1 billion in loans for the nine months
ended September 30, 2000, compared to $3.0 billion for the nine months ended
September 30, 1999. Loans originated and purchased through the Company's
Wholesale Division were $2.3 billion, or 72.8%, of total originations and
purchases for the nine months ended September 30, 2000. Loans originated through
the Company's Retail Division, including its Primewest and Anyloan subsidiaries,
were $848.4 million, or 27.2%, of total originations and purchases for the nine
month period. For the same period in 1999, Wholesale and Retail originations and
purchases totaled $2.1 billion, or 71.1% and $870.2 million, or 28.9%,
respectively, of total originations and purchases.
Total revenues for the nine months ended September 30, 2000 decreased to $153.5
million, from $173.2 million for the nine months ended September 30, 1999. This
decrease was primarily the result of a decrease in gain on sale of loans. Gain
on sale of loans decreased due to (i) a lower percentage of securitizations
versus whole loan sales for the nine months ended September 30, 2000 compared to
the same period a year ago; and (ii) a $21.2 million write-down in the carrying
value of the Company's residual interests recorded in the second quarter of
2000. Offsetting the decrease in gain on sale
18
<PAGE>
of loans, servicing income increased from $33.3 million for the nine months
ended September 30, 1999 to $59.4 million for the nine months ended September
30, 2000. The increase in servicing income is attributable to growth in the
servicing portfolio, as well as an increase in residual interests in
securitizations held by the Company.
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Nine Months Ended
--------------------------------------------------------------------------------------------------
September 30,
--------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Gain from whole loan sale transactions............. $ 50,590 $ 27,051
--------------------------------------------------------------------------------------------------
Non-cash gain from securitizations.................. 54,035 126,425
--------------------------------------------------------------------------------------------------
Non-cash gain from servicing asset.................. 5,873 12,940
--------------------------------------------------------------------------------------------------
Cash gain (loss) from securitization/NIMS.......... 2,062 (3,575)
--------------------------------------------------------------------------------------------------
Securitization expenses............................... (4,590) (10,519)
--------------------------------------------------------------------------------------------------
Accrued interest....................................... (7,201) (12,417)
--------------------------------------------------------------------------------------------------
Provision for losses................................... (13,226) (5,787)
--------------------------------------------------------------------------------------------------
General valuation provision for NIR................ - (13,000)
--------------------------------------------------------------------------------------------------
Market value adjustment of residual securities..... (21,197) -
--------------------------------------------------------------------------------------------------
Non-refundable loan fees............................ 46,773 40,167
--------------------------------------------------------------------------------------------------
Premiums paid........................................ (21,349) (16,614)
--------------------------------------------------------------------------------------------------
Origination costs..................................... (50,300) (47,600)
--------------------------------------------------------------------------------------------------
Hedging losses........................................ - (2,181)
--------------------------------------------------------------------------------------------------
Gain on sale of loans $ 41,470 $ 94,890
----------------------------------------------------------------------============================
</TABLE>
Whole loan sales increased to $2.1 billion for the nine months ended September
30, 2000, from $862.3 million for the corresponding period in 1999. This
increase is the result of a change in the mix of whole loan sales versus
securitizations. Loans sold through whole loan sales increased to 66.9% of total
loan sales in the nine months ended September 30, 2000, compared to 28.3% for
the corresponding period in 1999.
Interest income increased to $51.6 million for the nine months ended September
30, 2000, from $45.0 million for the same period in 1999, 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 nine months
ended September 30, 2000 is the result of both a higher average inventory of
loans held for sale compared to the corresponding period in 1999, and an
increase in the weighted average coupon rate of the loans receivable held for
sale.
Servicing income increased to $59.4 million for the nine months ended September
30, 2000, from $33.3 million for the nine months ended September 30, 1999. This
increase resulted from the increase in securitizations, under which the Company
retains ownership of the servicing rights and the residual interests. Servicing
income reflects servicing fees received on loans sold or securitized by the
Company, net of amortization of mortgage
19
<PAGE>
servicing assets, as well as income recognized on residual cash flows from
securitizations. For the nine months ended September 30, 2000, the servicing
portfolio averaged $6.0 billion, compared to $4.5 billion for the nine months
ended September 30, 1999. In addition, residual interests in securitizations
increased from an average of $235 million for the nine months ended September
30, 1999 to an average of $391 million for the nine months ended September 30,
2000.
Total expenses increased to $147.1 million for the nine months ended September
30, 2000, from $117.7 million for the nine months ended September 30, 1999.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse and aggregation borrowings, as well as the increase in
interest rates on warehouse borrowings. General and administrative expenses
increased from 1999 to 2000 due to (i) higher loan origination volume in the
nine months ended September 30, 2000 compared to the same period in 1999; and
(ii) the costs incurred to develop the Company's internet-based lending
initiatives.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
The Company originated and purchased $1.1 billion in loans for the three months
ended September 30, 2000, compared to $1.2 billion for the three months ended
September 30, 1999. Loans originated and purchased through the Company's
Wholesale Division were $766.7 million, or 73.0%, of total originations and
purchases for the three months ended September 30, 2000. Loans originated
through the Company's Retail Division and the Primewest and Anyloan subsidiaries
were $284.1 million, or 27.0%, of total originations and purchases for the
three-month period. For the same period in 1999, Wholesale and Retail
originations and purchases totaled $823.6 million, or 71.1% and $334.0 million,
or 28.9%, respectively, of total originations and purchases.
Total revenues for the three months ended September 30, 2000 decreased to $57.2
million, from $63.0 million for the three months ended September 30, 1999. This
decrease was due to a decrease in loans sold through securitization versus whole
loans sales in 2000, partially offset by the increase in servicing revenues due
to the increase in the mortgage loan servicing portfolio and the portfolio of
residual interests in securitizations. Gain on sale of loans decreased to $20.3
million for the three months ended September 30, 2000 from $35.3 million for the
three months ended September 30, 1999, due to the decrease in the percentage of
securitizations, as well as decreases in securitization gains recorded in 2000.
20
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Three Months Ended
-----------------------------------------------------------------------------------------------
September 30,
-----------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Gain from whole loan sale transactions............. $ 17,454 $ 3,790
-----------------------------------------------------------------------------------------------
Non-cash gain from securitizations.................. 18,919 51,292
-----------------------------------------------------------------------------------------------
Non-cash gain from servicing asset.................. 2,735 5,478
-----------------------------------------------------------------------------------------------
Cash gain (loss) from securitization/NIMS.......... 2,062 127
-----------------------------------------------------------------------------------------------
Securitization expenses............................... (1,540) (4,089)
-----------------------------------------------------------------------------------------------
Accrued interest....................................... (3,397) (5,564)
-----------------------------------------------------------------------------------------------
Provision for losses................................... (7,376) (2,199)
-----------------------------------------------------------------------------------------------
Non-refundable loan fees............................ 16,804 14,900
-----------------------------------------------------------------------------------------------
Premiums paid........................................ (6,596) (7,627)
-----------------------------------------------------------------------------------------------
Origination costs...................................... (18,800) (18,900)
-----------------------------------------------------------------------------------------------
Hedging losses........................................ - (1,933)
-----------------------------------------------------------------------------------------------
Gain on sale of loans $ 20,265 $ 35,275
--------------------------------------------------------------------===========================
</TABLE>
Whole loan sales increased to $756.3 million for the three months ended
September 30, 2000, from $189.7 million for the corresponding period in 1999.
This increase is the result of a change in the Company's mix of whole loan sales
versus securitizations. Loans sold through whole loan sales increased to 66.3%
of total loan sales in the three months ended September 30, 2000, compared to
15.3% for the corresponding period in 1999.
Interest income decreased slightly to $15.3 million for the three months ended
September 30, 2000, compared to $16.0 million for the same period in 1999,
primarily due to a decrease in the average inventory of loans receivable held
for sale that resulted from the Company spreading its whole loan sales activity
throughout the quarter in 2000. Sales in the third quarter of 1999 were
concentrated at the end of the quarter.
Servicing income increased to $21.0 million for the three months ended September
30, 2000, from $11.7 million for the three months ended September 30, 1999. This
increase resulted from the increase in securitizations, pursuant to which the
Company retains ownership of the servicing rights and the residual interests.
Servicing income reflects servicing fees received on loans sold or securitized
by the Company, net of amortization of mortgage servicing assets, as well as
income recognized on residual cash flows from securitizations. For the three
months ended September 30, 2000, the servicing portfolio averaged $6.0 billion,
compared to $4.9 billion for the three months ended September 30, 1999. In
addition, residual interests in securitizations increased from an average of
$271
21
<PAGE>
million for the three months ended September 30, 1999 to an average of $399
million for the three months ended September 30, 2000.
Total expenses increased to $48.9 million for the three months ended September
30, 2000, from $42.7 million for the three months ended September 30, 1999. The
increase in total expenses was primarily the result of an increase in interest
expense due to higher average outstanding subordinated debt, as well as the
increase in interest rates on warehouse borrowings, partially offset by a
decrease in the average inventory of loans receivable held for sale.
RESIDUAL SECURITIES
The carrying value of the Company's residual securities at September 30, 2000
and December 31, 1999 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
September 30, December 31,
-------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value of securities 405,394 369,689
-------------------------------------------------------------------------------------------------------
Less: general valuation allowance for NIR - (5,000)
-------------------------------------------------------------------------------------------------------
Net book value $ 405,394 $ 364,689
---------------------------------------------------------------------==================================
</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 and adjusts the carrying value of the securities based on
actual experience and trends in the industry. During the second quarter of 2000,
the Company recorded a market value adjustment to its residual interests in
securitizations of $26.2 million, $5.0 million of which was a charge-off of the
general valuation allowance for NIRs. The market value adjustment resulted from
(i) increases in interest rates which decreased cash flow from the excess spread
between the interest rates on the mortgage loans and the rates paid to the
bondholders in the adjustable rate securities; and (ii) the Company's decision
to increase, by 1%, the discount rate used to establish the carrying value of
its securities.
LIQUIDITY AND CAPITAL RESOURCES
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.
WAREHOUSE LINE OF CREDIT. In May 2000, the Company renewed its $265.0 million
warehouse line of credit led by U.S. Bank National Association, with an
expiration date in May 2001 and an interest rate equal to the one month LIBOR
plus 1.25%. At September 30, 2000, the balance outstanding under the warehouse
line of credit was $178.7 million.
Borrowings under the warehouse line are secured by first and second 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
22
<PAGE>
Company's available borrowing capacity. As a consequence, 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
September 30, 2000, the Company's "zero-collateral" balance was not material,
and did not affect the Company's liquidity.
The warehouse line is contingent upon having a committed "take-out" - generally
a committed aggregation facility or a forward sale commitment - for the financed
loans. The advance rate for a loan on the warehouse line is generally calculated
as the lesser of (i) the outstanding principal balance of the loan and (ii) the
take-out commitment level minus three percent. In the third and fourth quarter
2000, the Company has had qualifying take-outs in the form of forward sale
commitments at prices in excess of 103% of the outstanding principal balance of
the financed loans. Accordingly, the Company's advance rate under the warehouse
facility has been 100% of the outstanding principal balance of the loans
financed. If the Company is unable to maintain forward commitments at a price of
103% or higher, then the Company may be required to rely on its committed
aggregation facilities as its qualifying "take-outs" under the warehouse line of
credit. This would most likely cause the advance rate on the warehouse line to
fall from 100% of the outstanding principal balance to approximately 98% of the
outstanding principal balance. The negative cash impact of such an occurrence
could have a material adverse impact on the Company's results of operations,
business and financial condition.
In October 2000, an institutional investor, Brookhaven Capital Management,
filed a Form 13D with the Securities and Exchange Commission reporting that
Brookhaven and its affiliates owned approximately 6.9 million shares of the
Company's Common Stock, representing approximately 37 percent of the total
voting power of the Company's outstanding securities. This filing triggered a
technical default under the Company's warehouse line of credit, which
provides that any accumulation of securities representing more than 35% of
the total voting power of the Company constitutes an event of default. The
Company obtained a temporary waiver of this default from the lenders in the
warehouse credit facility. The Company then cured the default by obtaining an
irrevocable proxy from Brookhaven and its affiliates that grants two of the
Company's executive officers, Robert Cole and Brad Morrice, the power to vote
all shares held by the Brookhaven entities in excess of 34.9% of the total
voting power of the Company's outstanding securities as directed by the Board.
AGGREGATION AND RESIDUAL FINANCING FACILITIES. As of September 30, 2000, the
Company also had a $600.0 million aggregation facility with Salomon Smith Barney
(Salomon), which bears interest at a rate generally equal to the one month LIBOR
plus 1.25%. This facility expires on December 31, 2000, but can be terminated by
Salomon upon 28 days written notice. The Company is currently negotiating its
renewal or extension with Salomon, and is also negotiating an additional
aggregation facility with another investment bank. If the Company is unable to
renew the Salomon facility or establish a suitable replacement facility, the
resulting loss in borrowing capacity could have a material adverse impact on the
Company's results of operations, business and financial condition. The Company
also has a $25.0 million Master Loan and Security Agreement with Salomon secured
by delinquent or problem loans and REO properties. The facility expires in March
2001 and bears interest at a rate equal to the one month LIBOR plus 2.00%. The
balance of the combined Salomon facilities as of September 30, 2000 was
23
<PAGE>
$234.4 million.
During the second quarter of 2000, the Company renewed its aggregation and
residual financing facility with Greenwich Capital Markets (Greenwich). The
aggregation facility totals $300.0 million, and bears interest at a rate equal
to the one-month LIBOR plus 1.25%. The facility is structured as a loan and
security agreement and consists of a $200 million committed portion and a $100
million uncommitted portion. It expires in June 2001. At September 30, 2000, the
balance outstanding under the aggregation facility was $4.7 million.
As of September 30, 2000, the Company also had an aggregation and residual
financing facility with PaineWebber Real Estate Securities, Inc. (PaineWebber).
The $300 million facility is structured as a loan and security agreement and
bears interest at a rate based on the one month LIBOR. The facility has an
indefinite term, and the entire amount is uncommitted. As of September 30, 2000,
the balance outstanding under this facility was $9.6 million.
At present, 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, Greenwich or PaineWebber
aggregation facilities. The aggregation facilities are paid down with the
proceeds of loan sales and securitizations.
As of September 30, 2000, the Company had residual financing arrangements with
Salomon, Greenwich, PaineWebber and Countrywide Securities Corporation
(Countrywide), whereby the respective lender provides financing of the Company's
residual interests in securitizations as well as its residual interests 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 Greenwich residual financing facility has an aggregate
limit of $21 million and expires on November 21, 2000. The PaineWebber facility
is uncommitted, and is built into the overall $300 million limit for that
facility. The Salomon facility is structured as a repurchase arrangement, and
does not have a specified limit. The Countrywide facility is structured as a
rolling monthly repurchase agreement. The facilities bear interest at a rate
based on the one month LIBOR. At September 30, 2000, the balance outstanding
under these facilities was $188.1 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 aggregation lines and the residual financing
facilities in order to finance its continued operations. If any of Salomon, U.S.
Bank, Greenwich, PaineWebber or Countrywide decided not to renew its credit
facility with the Company or significantly curtailed its lending to the Company,
the loss of borrowing capacity could have a material adverse impact on the
Company's results of operations, business and financial condition, unless the
Company found a suitable alternative source. Likewise, these facilities
generally include cross-default clauses. Therefore, the Company's breach or
default
24
<PAGE>
under one facility could trigger defaults under one or more of the Company's
other financing facilities. Such defaults, if not waived by the applicable
lenders, would have a material adverse impact on the Company's results of
operations, business and financial condition.
In addition, the amount of financing the Company receives under its warehouse,
aggregation and residual financing facilities depends on the lender's valuation
of the mortgage loans or residual interests securing the borrowings. Each lender
has the right to reevaluate the collateral securing the borrowings at any time
and, if it determines that the collateral value has decreased, to initiate a
margin call. In the case of the Company's residual financing, the residual
values are ordinarily reevaluated monthly, although the lenders have the
discretion to revalue the collateral at any time. As interest rates have risen
over the last few quarters, the Company has received a number of relatively
small margin calls that have required the Company to repay a portion of its
residual borrowings within 24 hours. In addition, in late July 2000, Salomon
required the Company to make a mandatory prepayment of approximately $5 million
on its residual financing. As a result, for four days the Company failed to
comply with the requirement in its U.S. Bank warehouse credit agreement that it
must maintain cash and liquidity of not less than $10 million both before and
after giving effect to any mandatory prepayment of principal under any residual
financing agreement. The Company received a waiver of this violation from its
warehouse lenders, and was in compliance with the covenant by the end of July.
Any future margin call or margin calls under any of the Company's financing
arrangements could have a material adverse effect on the Company's results of
operations, financial condition and business prospects.
The Company's warehouse and aggregation lenders also have substantial authority
to determine the characteristics of the loans that will qualify as collateral
under their agreements. In the past few quarters, consistent with industry
trends, those guidelines have tightened to exclude certain high-cost mortgages,
loans to borrowers at the extreme low end of the credit spectrum, smaller loans
and other loans perceived to be high risk by the lenders. Consequently, it is
now more difficult for the Company to originate those loans. To the extent the
Company cannot originate the full spectrum of non-prime mortgage loans for its
key brokers, those relationships could be strained and some brokers could elect
to curtail their business with the Company. This in turn could have a material
adverse effect on the Company's results of operations, financial condition and
business prospects.
OTHER FACILITIES. In addition to the warehouse, aggregation and residual
financing facilities, the Company also has a $10 million financing facility with
U.S. Bank secured by servicing advance receivables and delinquent mortgage loans
not financed elsewhere. The facility is structured as a weekly rolling
repurchase agreement, with the repurchase price based on an interest rate of
12%. U.S. Bank may terminate the facility at any time in its sole discretion.
Termination of this facility could have a material adverse impact on the
Company's results of operations, financial condition and business prospects
unless the Company were able to secure suitable replacement financing. As of
September 30, 2000, the balance outstanding under this facility was $10.0
million.
The Company also 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
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<PAGE>
under this facility are made periodically at the discretion of the
lender, and bear interest at a fixed rate established at the time of each
advance for a term of three years. As of September 30, 2000, the balance
outstanding under this facility was $1.7 million, and the weighted-average
interest rate was 9.29%.
The Company has various non-revolving operating lease agreements totaling $19.1
million at September 30, 2000, 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.
INDUSTRY LIQUIDITY ENVIRONMENT. Although the Company has access to numerous
financing sources, the financing environment for non-prime mortgage lenders in
general remains unfavorable by historical standards. Some large non-prime
lenders have gone out of business while others have reported losses and have
drastically decreased their operations. In this environment, lenders who have
historically been active in this sector have been much more conservative in
their decisions to extend credit to non-prime originators. In addition, as whole
loan prices have fallen, lenders have gradually reduced the levels at which they
will lend against mortgage loans and residual interests. This reduction in
advance rates has had a negative effect on the Company's cash flow. Such
lower advance rates appear likely to persist.
STRATEGY. The Company has employed a variety of strategies to deal with the more
difficult financing environment and to permit the Company to pursue its desired
secondary marketing strategy. In order to reduce its reliance on single sources
of aggregation, warehouse and residual financing, the Company established the
Greenwich, PaineWebber and Countrywide facilities. The Company has also adjusted
its secondary marketing strategy to sell a greater portion of its loan
production for cash in whole loan sales. In addition, the Company has devoted
significant efforts to reducing its origination costs. The "all-in acquisition
cost" per loan - defined as the sum of fees paid to wholesale brokers and
correspondents, direct loan origination costs, including commissions and
corporate overhead costs, net of points and fees received from borrowers, all
divided by total production volume - was 2.99% for the third quarter of 2000, a
slight increase compared to the second quarter of 2000, and a substantial
decrease from the first quarter of 2000. The Company is continuing its efforts
to further decrease the all-in acquisition cost during the remainder of 2000.
PAINEWEBBER ENGAGEMENT. Another element of the Company's liquidity strategy is
to raise additional capital. In June 2000, the Company announced that it had
retained PaineWebber Incorporated to explore strategic options including raising
additional equity and/or debt capital or a possible sale of the Company. To date
the engagement has not resulted in the announcement or completion of a
transaction.
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<PAGE>
The Company expects that the PaineWebber engagement will be concluded by the
end of the fourth quarter, whether or not it has resulted in the announcement
of any sort of transaction. There can be no assurance that the Company will
be able to raise capital or consummate a sale, or that any such transaction
would be at a price equal to or higher than the current market price for the
Company's Common Stock. Likewise, there can be no assurance that any such
transaction could be negotiated and completed in time to address the
Company's short-term capital needs. If the Company is unable to raise
additional capital or complete a sale, the Company expects it will continue
to operate by adopting a 100% whole loan strategy and through possible
additional cost reductions. However, the lack of additional capital could
have a material adverse effect on the Company's results of operations,
financial condition and business prospects.
In addition, the uncertainty stemming from the Company's announcement of the
PaineWebber engagement has raised concerns among some of the Company's loan
buyers and other business counterparts. A few of these parties have insisted on
more restrictive business terms than in the past. These restrictive terms
have placed additional stress on the Company's cash flow.
CASH FLOW. For the nine months ended September 30, 2000, the Company's
operations used approximately $35.9 million in cash, which is primarily
attributable to cash invested in OC accounts, as well as over $10 million in
available borrowing capacity not drawn down as of September 30, 2000. 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 begin receiving cash flows until May 2001; 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 facilities; (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.
In order for the Company to maintain adequate liquidity, from time to time
U.S. Bank has temporarily expanded the Company's borrowing capacity under its
$10 million repurchase agreement by allowing the Company to pledge additional
collateral. In addition, the Company has had to time certain loan sales in
order to maintain adequate cash and liquidity at various times during the
quarter.
At current cash usage levels, there can be no assurance that the Company's
month end liquidity level will not drop below the $10 million level required
under its U.S. Bank warehouse agreement.
27
<PAGE>
If the Company breaches this covenant, the Company intends to seek
appropriate waivers from U.S. Bank and its other lenders. However, there can
be no assurance that such waivers would be obtained. If such waivers were not
obtained, the warehouse line and the Company's other principal financing
facilities could be terminated. Unless the Company were able to secure
replacement facilities, this would have a material adverse effect on the
Company's results of operations, financial condition and business prospects,
and could negatively affect the Company's ability to continue to operate as a
going concern.
In addition, based on the Company's present cash usage rate, the Company's
current liquidity, credit facilities and capital resources may not be fully
adequate to fund its continuing operations at current production levels.
Accordingly, the Company has engaged PaineWebber to seek additional capital or a
possible purchase of the Company. In the event the Company cannot consummate
such a transaction in the near term or find additional sources of cash, the
Company may have to change its business model in order to operate on a
cash-positive basis. This could have a material adverse effect on the Company's
results of operations, financial condition and business prospects.
If the Company's liquidity position tightens, the Company believes that the
Company may be able to improve its cash flows by selling 100% of its production
in whole loan sales and by tailoring its production to conform to the guidelines
of whole loan buyers. This belief assumes that current whole loan pricing levels
continue, servicing cash flows remain strong and that the Company can maintain
its financing relationships.
The Company's cash position could also be negatively affected if Salomon
exercises it call option with respect to the Company's 1998-NC5 securitization
and the accompanying NIMS transaction, NC Finance Trust 1998-II. Under the
applicable Pooling and Servicing Agreement, Salomon, as holder of the Call
Class, has the right starting in January 2000 and on every third month
thereafter, to exercise the call option. If Salomon exercises the call
option, the various bondholders will be repaid the remaining principal balance
on their certificates. In such case, the funds the Company receives for its
Class E bond issued in the NC Finance Trust 1998-II transaction could be
insufficient to repay Salomon its borrowings secured by the bond. In such
case, the Company would have to find alternative sources of cash to repay
Salomon or negotiate different payment terms.
U.S. BANCORP INVESTMENT AND STRATEGIC ALLIANCE
U.S. Bancorp, a bank holding company with total assets of approximately $83
billion, and its affiliates hold convertible preferred stock, common stock and
warrants in the Company that, if exercised, would total over 27% of the
Company's outstanding common stock.
Prior to the third quarter, the Company had also received $35 million in
subordinated debt from U.S. Bank National Association, an affiliate of U.S.
Bancorp. The Company received additional $2.5 million installments of
subordinated debt from U.S. Bank in the
28
<PAGE>
third and fourth quarters of 2000. The subordinated debt bears interest at 12%
and matures in June 2002.
On October 4, 2000, Firstar Corp., a financial holding company with
approximately $74.5 billion in total assets, announced that it had agreed to
purchase U.S. Bancorp. The companies expect the transaction to close in the
first quarter of 2001. The Company does not know what, if any, impact the
merger will have on its business relationship with U.S. Bank.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
There are a wide variety of proposed laws and regulations at the federal, state
and local levels designed to curb predatory lending practices. Although the
proposals are well-intentioned, many of them go beyond curbing predatory
practices to restrict legitimate lending activities including some of the
Company's activities. For example, some of these proposals would prohibit
prepayment charges. Others would restrict a borrower's ability to elect to
finance fees and points in the loan amount. If adopted in their current form,
these proposed laws and regulations would reduce the Company's loan origination
volume, which in turn would have a material adverse impact on the Company's
results of operation, financial condition and business prospects.
29
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2000, the Company had $405.4 million in residual interests
in securitizations and $23.5 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. The Company also
has loans receivable held for sale and outstanding borrowings which subject the
Company to market risk. Loans receivable held for sale are generally sold, and
the related borrowings repaid, within three months.
30
<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
On April 28, 2000 the Company issued U.S. Bank 37,500 warrants
in consideration of U.S. Bank lending to the Company an
additional $5,000,000 of subordinated debt. The warrants are
fully vested and are exercisable at $6.875 per share at any
time prior to April 28, 2005. The sale and issuance of the
warrants were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) of the Securities Act
and Regulation D thereunder.
On July 26, 2000 the Company issued U.S. Bank 18,750 warrants
in consideration of U.S. Bank lending to the Company an
additional $2,500,000 of subordinated debt. The warrants are
fully vested and are exercisable at $9.2188 per share at any
time prior to April 28, 2005. The
31
<PAGE>
sale and issuance of the warrants were exempt from the
registration requirements of the Securities Act by virtue of
Section 4(2) of the Securities Act and Regulation D
thereunder.
On October 30, 2000 the Company issued U.S. Bank 18,750
warrants in consideration of U.S. Bank lending to the Company
the final $2,500,000 installment of subordinated debt. The
warrants are fully vested and are exercisable at $11.75 per
share at any time prior to April 28, 2005. The sale and
issuance of the warrants were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2)
of the Securities Act and Regulation D thereunder.
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
None.
32
<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: November 13, 2000 By: /s/ Brad A. Morrice
--------------------------------
Brad A. Morrice
President
DATE: November 13, 2000 By: /s/ Edward F. Gotschall
--------------------------------
Edward F. Gotschall
Chief Financial Officer
(Principal Financial and
Accounting Officer)
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of
Number Exhibit
------- -----------------
<S> <C>
* 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 Certificate of Designation for Series 1999A Convertible
Preferred Stock
*3.4 First Amended and Restated Bylaws of the Company
****3.5 Amended Certificate of Designation for Series 1999A Convertible
Preferred Stock
* 4.1 Specimen Stock Certificate
*****4.2 Specimen Series 1998A Convertible Preferred Stock Certificate
***4.3 Specimen Series 1999A Convertible Preferred Stock Certificate
10.1 Global Master Repurchase Agreement dated as of December 11, 1998
Between Salomon Smith Barney Inc. as Agent for Salomon Brothers
International Limited and NC Capital Corporation
10.2 Global Master Repurchase Agreement dated as of December 11, 1998
between Salomon Smith Barney Inc. as Agent for Salomon Brothers
International Limited and NC Residual II Corporation
10.3 Warrant, dated April 28, 2000, issued to U.S. Bank National
Association (650,000 shares)
10.4 Warrant, dated April 28, 2000, issued to U.S. Bank National
Association (37,500 shares)
10.5 Warrant, dated July 18, 2000, issued to U.S. Bank National
Association
10.6 Warrant, dated October 30, 2000, issued to U.S. Bank National
Association
10.7 Amendment Number Two to Residual Financing Facility Agreement,
dated September 28, 2000 by and among NC Capital Corporation and
Greenwich Capital Financial Products, Inc.
34
<PAGE>
10.8 Amendment Number Three to Residual Financing Facility Agreement,
dated October 31, 2000 by and among NC Capital Corporation and
Greenwich Capital Financial Products, Inc
10.9 Amendment to Letter Agreement by and between Salomon Brothers
Realty Corp, NC Capital Corporation and New Century Mortgage
Corporation, dated April 1, 2000
10.10 Irrevocable Proxy, dated November 11, 2000, executed by
Brookhaven Capital Management, LLC, Watershed Partners, L.P. and
Vincent A. Carrino
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's Form S-1 Registration
Statement (No. 333-25483) as filed with the SEC on June 23, 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 from the Company's Quarterly Report on Form
10-Q as filed with the SEC on May 15, 2000.
***** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 as filed with the SEC.
35
