NOVASTAR FINANCIAL INC - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003.

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: 001-13533

NovaStar Financial, Inc.

(Exact name of registrant as specified in its charter)

Maryland

74-2830661

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer

Identification No.)

8140 Ward Parkway, Suite 300, Kansas City, MO 64114

(Address of principal executive offices)

(Zip Code)

(816) 237-7000

(Registrant’s telephone number, including area code)

(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 12 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 ¨

The number of shares of the registrant’s common stock outstanding as of August 4, 2003 was 11,180,601.

NOVASTAR FINANCIAL, INC.

FORM 10-Q

QUARTER ENDED June 30, 2003

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Balance Sheets	4
	Statements of Income	5
	Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Table 1, Mortgage Loans by FICO Score	19
	Table 2, Mortgage Loans by Geographic Concentration	19
	Table 3, Carrying Value of Mortgage loans	19
	Table 4, Mortgage Credit Analysis—Held-in-Portfolio Loans	20
	Table 5, Loss Analysis—Held-in-Portfolio Loans	20
	Table 6, Mortgage Loan Coupon and Prepayment Analysis	20
	Table 7, Mortgage Securities	22
	Table 8, Characteristics of Loan Collateral, Valuation of Individual Mortgage Securities and Assumptions	24
	Table 9, Loans Collateralizing Mortgage Securities by FICO Score	24
	Table 10, Loans Collateralizing Mortgage Securities by Geographic Concentration	25
	Table 11, Loans Collateralizing Mortgage Securities by Product/Type	25
	Table 12, Loans Collateralizing Mortgage Securities, Coupon and Prepayment Analysis	25
	Table 13, Loans Collateralizing Mortgage Securities, Credit Analysis	26
	Table 14, Asset-backed Bonds	27
	Table 15, Short-term Financing Resources	28
	Table 16, Non-conforming Loan Originations	28
	Table 17, Quarterly Mortgage Loan Originations by State	29
	Table 18, Mortgage Securities Interest Analysis	30

		Page
	Table 19, Loans Under Management Net Interest Income Analysis	30
	Table 20, Quarterly Activity—Allowance for Credit Losses	31
	Table 21, Gains on Sales of Mortgage Assets and Gains (Losses) on Derivative Instruments	33
	Table 22, Quarterly Mortgage Loan Sales	34
	Table 23, Wholesale Loan Costs of Production	36
	Table 24, Summary of Servicing Operations	36
	Table 25, Loan Originations—Branches	37
	Table 26, Taxable Net Income	37
	Table 27, Contractual Obligations	39

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
	Table 28, Interest Rate Sensitivity—Income	41
	Table 29, Interest Rate Sensitivity—Market Value	41

Item 4.	Controls and Procedures	43

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 2.	Changes in Securities	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Submission of Matters to a Vote of Security Holders	44

Item 5.	Other Information	44

Item 6.	Exhibits and Reports on Form 8-K	45

	Signatures	46

NOVASTAR FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; dollars in thousands, except per share amounts)

	June 30, 2003			December 31, 2002
Assets
Cash and cash equivalents	$	104,602		$	79,742
Mortgage loans—held-for-sale		684,889			983,633
Mortgage loans—held-in-portfolio		122,972			149,876
Mortgage securities—available-for-sale		300,932			178,879
Corporate advances to borrowers		13,451			11,875
Mortgage servicing rights		13,655			7,906
Assets acquired through foreclosure		6,008			5,935
Accrued interest receivable		4,349			7,673
Other assets		47,779			26,978

Total assets	$	1,298,637		$	1,452,497

Liabilities and Stockholders’ Equity
Liabilities:
Short-term borrowings	$	844,073		$	1,025,536
Asset-backed bonds		143,549			199,692
Accounts payable and other liabilities		52,620			27,244
Dividends payable		27,926			16,768

Total liabilities		1,068,168			1,269,240

Commitments and contingencies
Stockholders’ equity:
Capital stock, $0.01 par value, 50,000,000 shares authorized:
Common stock, 11,170,330 and 10,479,910 shares issued and outstanding, respectively		112			105
Additional paid-in capital		166,623			133,358
Accumulated deficit		(21,737	)		(12,026	)
Accumulated other comprehensive income		86,516			62,935
Other		(1,045	)		(1,115	)

Total stockholders’ equity		230,469			183,257

Total liabilities and stockholders’ equity	$	1,298,637		$	1,452,497

See accompanying notes to consolidated financial statements.

NOVASTAR FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in thousands, except per share amounts)

	For the Six Months Ended June 30,						For the Three Months Ended June 30,
	2003			2002			2003			2002
Interest income:
Mortgage securities	$	41,675		$	21,786		$	23,357		$	14,768
Mortgage loans		38,637			22,173			17,639			10,343

Total interest income		80,312			43,959			40,996			25,111

Total interest expense		23,479			18,827			11,047			9,668

Net interest income before provision for credit recoveries		56,833			25,132			29,949			15,443
Provision for credit recoveries		263			246			171			379

Net interest income		57,096			25,378			30,120			15,822
Gains on sales of mortgage assets		73,474			20,623			44,031			15,993
Fee income		29,933			14,613			16,562			7,554
Premiums for mortgage loan insurance		(2,003	)		(1,110	)		(1,224	)		(536	)
Losses on derivative instruments		(20,785	)		(7,644	)		(13,439	)		(12,336	)
Other income, net		5,205			1,022			3,876			529

General and administrative expenses:
Compensation and benefits.		49,861			21,496			30,419			12,360
Loan expense		12,747			1,998			8,803			1,187
Travel and public relations		11,700			4,862			6,097			2,189
Office administration		10,125			4,086			5,182			2,251
Professional and outside services		2,978			1,420			1,464			831
Other		1,744			1,047			659			456

Total general and administrative expenses		89,155			34,909			52,624			19,274

Income before income tax expense (benefit)		53,765			17,973			27,302			7,752
Income tax expense (benefit)		8,324			(1,338	)		4,183			(2,638	)

Net income available to common shareholders	$	45,441		$	19,311		$	23,119		$	10,390

Basic earnings per share	$	4.25		$	1.87		$	2.12		$	1.00

Diluted earnings per share	$	4.13		$	1.77		$	2.06		$	0.97

Weighted average basic shares outstanding		10,701			10,339			10,900			10,396

Weighted average diluted shares outstanding		10,998			10,970			11,215			10,704

Dividends declared per common share	$	5.08		$	1.70		$	2.50		$	0.90

See accompanying notes to consolidated financial statements.

NOVASTAR FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

		For the Six Months Ended June 30,
		2003				2002

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents