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Big Beat for New Century

The subprime mortgage lender's shares jump after earnings top estimates.

New Century Financial

(NEW) - Get Free Report

, the country's largest publicly traded subprime mortgage lender, posted a big jump in fourth-quarter earnings and easily topped estimates.

The Irvine, Calif.-based real estate investment trust reported earnings of $116.6 million, or $2 a share, compared with $78.7 million, or $1.44 a share, a year earlier. The results included a charge totaling 14 cents a share related to Hurricane Katrina losses.

The results beat analysts' average forecast for earnings of $1.79 a share, according to Thomson First Call. Shares of the company jumped $2.96, or 7.8%, to $41.01 in early trading.

The company said it originated $15.7 billion in mortgage loans in the quarter. New Century primarily focuses on the subprime market, but does originate prime loans as well.

The company said its results were boosted by several factors. New Century got pricing power by increasing the coupon on its nonprime mortgage loans by more than 100 basis points since August. The company also decreased its percentage of interest-only loans to 21% in the fourth quarter, compared with 35% in the third quarter, in order to help sell off loans in the secondary market. Results were also helped by declining loan acquisition costs, which reached a record low of 1.65% in the quarter, the company said.

However, like other mortgage lenders such as

Countrywide Financial


, New Century faced pressure on its gain-on-sale margins, which dropped 35 basis points to 1.7%.

Net operating margin decreased to 0.51% in the fourth quarter from 0.61% in the prior quarter due to lower gains on sales, partially offset by increased net interest income and the reduction in loan acquisition costs.

Although the company declined to give earnings guidance for 2006, it did say it expects to pay an annual dividend of $7.30, a 7% increase from the current level. Analysts are expecting New Century to post EPS of $6.55 in 2006, down from $7.17 for 2005.

"We have elected not to provide EPS or loan production guidance for 2006 for two primary reasons," said Chief Executive Robert Cole in a statement. "The operating environment and secondary market conditions remain uncertain. Additionally, our business strategy and results are contingent on a variety of factors, including the capital market environment. However, we are comfortable reaffirming dividend guidance and will also provide broad insight into our operational outlook."

The company also announced that Brad Morrice, its current president and chief operating officer, will take on the CEO role in July. Morrice helped co-found the company in 1995. Cole will remain chairman.