Exhibit 99.2
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Investment Corporation
Fourth Quarter 2005 Results
& Conference Call
March 27, 2006
Forward-looking Statements
This presentation may contain forward-looking statements under federal securities laws. These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause a actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties that may cause our performance and results to vary include:(i) limited cash flow to fund operations and dependence on short-term financing facilities; (ii) changes in overall economic conditions and interest rates; (iii) increased delinquency rates in the portfolio; (iv) intense competition in the mortgage lending industry; (v) adverse changes in the securitization and whole loan market for mortgage loans; (vi) declines in real estate values; (vii) an inability to originate subprime hybrid/adjustable mortgage loans; (viii) obligations to repurchase mortgage loans and indemnify investors; (ix) concentration of operations in California, Florida, New York and Texas and the adverse impact of natural disasters (including Hurricanes Katrina, Rita and Wilma); (x) extensive government regulation; and (xi) an inability to comply with the federal tax requirements applicable to REITs and effectively operate within limitations imposed on REITs by federal tax rules. .
2
4th Quarter Overview
• Clean up quarter to dispose of lower value loans
• Retention of higher value loans for portfolio
• Began to see sustained rate increases on coupons
• Strategic corporate reorganization - Capital key to earnings growth
• Continued downward pressure on whole loan premiums require even greater efficiency
3
4th Quarter Financial Overview
• Core EPS of $0.02 -$1.1 million core net income
• Origination’s of $1.9 billion
• 10.1% higher than Q4 2004
• Cost to originate of 1.75%
• 15.9% improvement from Q3 2005
• Portfolio of $4.1 billion
• Expect to expand portfolio in 2006
4
Condensed Consolidated Statement of Operations
|
| Quarter Ended |
| ||||
($ in millions) |
| December 31, 2005 |
| September 30, 2005 |
| ||
Net interest income |
| $ | 49.0 |
| $ | 48.6 |
|
Provision for credit losses |
| (8.9 | ) | (13.0 | ) | ||
Mark-to-market adjustment |
| (5.3 | ) | 7.1 |
| ||
NII after LLP & mark |
| 34.7 |
| 42.7 |
| ||
Noninterest income |
| 2.6 |
| 21.3 |
| ||
NII and noninterest income |
| $ | 37.3 |
| $ | 64.0 |
|
|
|
|
|
|
| ||
Noninterest expense |
| 41.4 |
| 43.4 |
| ||
Operating income (loss) |
| (4.1 | ) | 20.6 |
| ||
Tax (benefit) provision |
| (0.1 | ) | (0.7 | ) | ||
Net income (loss) |
| $ | (4.2 | ) | $ | 21.3 |
|
|
|
|
|
|
| ||
Net income (loss) |
| $ | (4.2 | ) | $ | 21.3 |
|
Mark-to-market adjustment |
| 5.3 |
| (7.1 | ) | ||
Non-core expenses (income) |
|
|
| (1.6 | ) | ||
Core net income (loss) |
| $ | 1.1 |
| $ | 12.5 |
|
EPS |
|
|
|
|
| ||
Diluted |
| $ | (0.07 | ) | $ | 0.34 |
|
Core |
| $ | 0.02 |
| $ | 0.20 |
|
5
Loan Originations
[CHART]
6
Originations by Channel
|
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Wholesale Production |
|
|
|
|
|
|
|
|
| ||||
Dollar Volume |
| $ | 845,058 |
| $ | 920,506 |
| $ | 1,119,445 |
| $ | 1,071,507 |
|
Sequential Growth |
| -25.54 | % | 8.93 | % | 21.61 | % | -4.28 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Retail Production |
|
|
|
|
|
|
|
|
| ||||
Dollar Volume |
| 516,558 |
| 624,816 |
| 793,851 |
| 811,096 |
| ||||
Sequential Growth |
| -10.11 | % | 20.96 | % | 27.05 | % | 2.17 | % | ||||
Annual Production Wholesale |
|
|
| |
2005 Dollar Value |
| $ | 4,008,207 |
|
Annual Growth |
| -19.81 | % | |
|
|
|
| |
Annual Retail Production |
|
|
| |
2005 Dollar Value |
| $ | 2,746,321 |
|
Annual Growth |
| 13.41 | % |
7
Net Cost to Originate
|
| Quarter Ended |
| ||||||
(dollars in thousands) |
| 12/31/2005 |
| 9/30/2005 |
| Increase |
| ||
|
|
|
|
|
|
|
| ||
Total non-interest expense |
| $ | 41,390 |
| $ | 43,353 |
| (4.45 | )% |
Non-core expenses |
| — |
| 1,635 |
| nm |
| ||
Deferred loan origination costs |
| 24,306 |
| 24,319 |
| (0.05 | )% | ||
Loan servicing and other costs |
| (3,274 | ) | (2,733 | ) | 19.80 | % | ||
Total expenses |
| 62,422 |
| 66,574 |
| (6.19 | )% | ||
|
|
|
|
|
|
|
| ||
Loan origination fees received |
| (29,567 | ) | (26,716 | ) | 10.67 | % | ||
Net cost to originate |
| $ | 32,855 |
| $ | 39,858 |
| (17.48 | )% |
|
|
|
|
|
|
|
| ||
Total Originations |
| $ | 1,882,603 |
| $ | 1,913,296 |
| (1.60 | )% |
|
|
|
|
|
|
|
| ||
Cost Ratios |
|
|
|
|
|
|
| ||
Core operating expenses |
| 2.20 | % | 2.35 | % | (6.42 | )% | ||
Deferred loan origination costs |
| 1.29 | % | 1.27 | % | 1.58 | % | ||
Loan servicing and other costs |
| (0.17 | )% | (0.14 | )% | 21.75 | % | ||
Total expenses |
| 3.32 | % | 3.48 | % | (4.66 | )% | ||
Loan origination fees received |
| (1.57 | )% | (1.40 | )% | 12.48 | % | ||
|
|
|
|
|
|
|
| ||
Net cost to originate |
| 1.75 | % | 2.08 | % | (16.14 | )% |
8
Net Cost to Originate/Origination Volume
[CHART]
9
Loan Held for Investment Portfolio - - As of 12-31-05
Total Portfolio Balance |
| $ | 4,121,108,437 |
|
|
|
|
| |
Average Loan Size |
| $ | 153,458 |
|
|
|
|
| |
WA FICO |
| 614 |
| |
|
|
|
| |
WAC |
| 7.39 | % | |
|
|
|
| |
WA LTV |
| 78.53 | % | |
|
|
|
| |
WA Seasoning - Month |
| 11.5 |
|
Top 10 States |
|
|
|
California |
| 23.9 | % |
Florida |
| 22.7 | % |
Texas |
| 8.4 | % |
New York |
| 6.3 | % |
New Jersey |
| 3.6 | % |
All Others |
| 23.1 | % |
Washington |
| 2.8 | % |
Virginia |
| 2.6 | % |
Georgia |
| 2.6 | % |
Nevada |
| 2.1 | % |
Maryland |
| 2.0 | % |
10
NII Detail
|
| Quarter Ended |
| ||
|
| 12/31/2005 |
| 9/30/2005 |
|
|
|
|
|
|
|
Gross yield on LHFI |
| 6.97 | % | 7.07 | % |
Prepayment penalty fees |
| 0.88 | % | 0.75 | % |
Amortization of premiums |
| -0.70 | % | -0.43 | % |
Amortization of deferred loan fees and costs |
| -0.15 | % | -0.13 | % |
Net yield on LHFI |
| 7.00 | % | 7.26 | % |
|
|
|
|
|
|
Net cost of funding for LHFI |
| 3.63 | % | 3.63 | % |
Hedge premium amortization |
| 0.07 | % | 0.76 | % |
|
|
|
|
|
|
Net interest margin |
| 3.30 | % | 2.88 | % |
|
|
|
|
|
|
Servicing costs |
| -0.47 | % | -0.45 | % |
|
|
|
|
|
|
Portfolio net interest margin |
| 2.83 | % | 2.43 | % |
|
|
|
|
|
|
Net charge-offs |
| -0.11 | % | 0.00 | % |
|
|
|
|
|
|
Portfolio income margin |
| 2.72 | % | 2.43 | % |
11
Normalized Net Interest Income
|
| Quarter Ended |
| ||
|
| 12/31/2005 |
| 9/30/2005 |
|
|
|
|
|
|
|
Net yield on LHFI |
| 7.00 | % | 7.26 | % |
|
|
|
|
|
|
Net cost of funding for LHFI |
| 3.63 | % | 3.63 | % |
|
|
|
|
|
|
Normalized hedge premium amortization |
| 0.65 | % | 0.65 | % |
|
|
|
|
|
|
Net interest margin |
| 2.72 | % | 2.98 | % |
|
|
|
|
|
|
Servicing costs |
| -0.47 | % | -0.45 | % |
|
|
|
|
|
|
Portfolio net interest margin |
| 2.25 | % | 2.53 | % |
|
|
|
|
|
|
Net charge-offs |
| -0.11 | % | 0.00 | % |
|
|
|
|
|
|
Portfolio income margin |
| 2.14 | % | 2.53 | % |
12
Gain on Sale Detail
|
| Quarter Ended |
| ||||
(dollars in thousands) |
| 12/31/2005 |
| 9/30/2005 |
| ||
|
|
|
|
|
| ||
Gain on sale of loans: |
|
|
|
|
| ||
Gain on sale of loans |
| $ | 14,087 |
| $ | 21,838 |
|
Loan originations fees, net |
| 330 |
| 1,558 |
| ||
Provision for representation, warranty and other losses |
| (13,848 | ) | (3,796 | ) | ||
Miscellaneous costs |
| (221 | ) | (20 | ) | ||
Gain on sale of loans |
| $ | 348 |
| $ | 19,580 |
|
13
Provision for Losses
Loans Held for Sale as of 12-31-05: |
|
|
| |
|
|
|
| |
Low Value 2nd Liens |
| $ | 100 | Mil. |
|
|
|
| |
Fixed Rate & Low Coupon 1st Liens |
| $ | 115 | Mil. |
|
|
|
| |
Scratch & Dent Loans |
| $ | 50 | Mil. |
|
|
|
| |
Provision for representation, warranty and other losses: |
|
|
| |
Lower of cost or market provision |
| (15,193 | ) | |
Representation and warranty provision |
| 1,345 |
| |
Total |
| $ | (13,848 | ) |
14
Condensed Consolidated Balance Sheet
|
| Condensed Balance Sheet |
| ||||
(In millions) |
| December 31, 2005 |
| September 30, 2005 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Unrestricted cash |
| $ | 36.1 |
| $ | 43.2 |
|
Restricted cash |
| 87.1 |
| 91.4 |
| ||
Loans held for sale, at lower of cost or market |
| 951.2 |
| 632.5 |
| ||
Loans held for investment, net |
| 4,085.5 |
| 4,187.1 |
| ||
Residual interests, at estimated fair value |
| — |
| — |
| ||
Derivative instruments, at estimated fair value |
| 58.1 |
| 63.4 |
| ||
Fixed and other assets |
| 109.6 |
| 108.8 |
| ||
Total assets |
| $ | 5,327.6 |
| $ | 5,126.4 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Non-warehouse debt |
| $ | 16.5 |
| $ | — |
|
ABS financing |
| 3,623.2 |
| 4,137.8 |
| ||
Warehouse facilities |
| 1,341.7 |
| 596.4 |
| ||
Accounts payable and accrued liabilities |
| 76.8 |
| 75.5 |
| ||
Total liabilities |
| $ | 5,058.1 |
| $ | 4,809.7 |
|
|
|
|
|
|
| ||
Stockholders’ equity |
| 269.5 |
| 316.7 |
| ||
Total liabilities and stockholders’ equity |
| $ | 5,327.6 |
| $ | 5,126.4 |
|
|
|
|
|
|
| ||
Book Value per share |
| $ | 4.36 |
|
|
|
15
Elimination of REIT
• Mortgage banking operations to be parent company
• Existing REIT to become captive REIT subsidiary of existing TRS.
• Allows NOL’s to shelter most of earnings from existing REIT portfolio
• All earnings now retained as capital
• Begin to build book value
• Support additional portfolio growth
• Potential for effective capital raising
• Requires shareholders approval at special meeting
16
Cost Elimination Initiative
• Continuation of our recent efficiency actions
• Depressed pricing for whole loan sales requires even greater efforts to take out costs
• Focused primarily on wholesale channel
• Retail highly efficient and continuing lower
• Includes a company-wide reduction initiative
• Functions from Parsippany and Deerfield consolidated
• Elimination of duplicate functions in wholesale and retail support divisions
17
Cost Reductions Initiatives
Wholesale Restructuring
• Eliminated 100 positions in wholesale channel
• Closing Parsippany, New Jersey and Deerfield, Florida wholesale centers
• Total annual savings implemented: $10 million
• Anticipated 1st Quarter 2006 Charge of $2 million
Other Cost Initiatives
• Identified additional $10 million in annual savings
• Anticipated realizing cuts in next two quarters
18
Leverage Target
• Will increase leverage target temporarily
• Retained earnings will reduce leverage ratio over time
• Anticipated growth of loan portfolio
• Captive REIT may be used to raise REIT preferred stock to support portfolio
• Longer term leverage target higher as a C Corp than as a REIT
• Investment Portfolio/Equity
19
Summary
• 4th quarter cleaned up carried over loans held for sale
• Retained higher value loans to add to portfolio
• Addressing market challenges through cost reduction initiatives and corporate reorganization
• C Corp status will retain capital and support portfolio growth
• Focused on lowered cost to originate and higher portfolio earnings
20