Irvine-based New Century Financial Corp. said Thursday its income before taxes fell 42% in the first quarter from a year ago. But the subprime mortgage company still came out ahead of what analysts were expecting on net income.
New Century earned about $91 million in the first quarter before taxes, down from $156 million a year ago amid higher costs for hiring, administration, marketing and other factors.
Last year, New Century converted to a real estate investment trust. The move cut the company’s tax bill in the quarter to about 10% of what it was a year ago.
The company’s after-tax profits were down slightly to $85 million.
New Century’s loan production increased 22% to $10.3 billion in the first quarter versus a year earlier. The company makes loans to borrowers with imperfect credit.
The company’s shares closed slightly lower on Thursday after first heading downward during New Century’s conference call with analysts.
Executives said New Century should pay out a yearly dividend of $6.50 per share or more, reaffirming what the company previously had forecast.
Chief Executive Robert Cole offered some cautionary notes:
“While we recognize that 2005 has been and will continue to be a challenging year due to rising interest rates, moderating home-price appreciation and the competitive landscape, we believe our business model strategically positions the company to continue delivering solid returns to our stockholders,” Cole said in a release.
Amid higher competition for borrowers, subprime lenders, such as New Century, Orange-based Ameriquest Capital Corp. and Calabasas-based Countrywide Financial Corp., are making loans with lower profits, industry sources said.
As short-term interest rates rise, subprime lenders face weakening demand for their loans, which are pooled and sold to investors as bonds. Investors tend to move to less risky short-term bonds from ones made up of subprime loans when short-term rates rise faster than long-term rates.
