Boston May 3, 2007 NewStar Financial, Inc. (NASDAQ: NEWS), today reported adjusted net income for the first quarter of 2007 of $0.2 million, or adjusted earnings of $0.01 per diluted share. On a GAAP basis, the company reported a net loss of $2.4 million, or $0.07 per diluted share. Positive operating results were offset by a $14.9 million pre-tax charge ($9.0 million after-tax) to recognize impairment in the company's residential mortgage-backed securities portfolio ("RMBS").
The company also announced that it would discontinue its investment activity in this asset class and manage the disposition of its current portfolio over time to optimize its economic value.
"A severe correction in the RMBS market offset an otherwise strong quarter for our core lending franchise," said Tim Conway, Chairman and Chief Executive Officer. "By writing down our portfolio, discontinuing further investment in this asset class and managing the portfolio to maximize recoveries over time, we believe we are taking appropriate action to reduce our risk, while maximizing the economic value of our holdings. As a result, we will be better positioned for the future. Although we are not pleased by the overall results in Q1, the growth in our core business is encouraging. Excluding the write-down, revenue was up 29% from the prior quarter driven by growth in interest income and fee revenue from asset management and syndications. Volume was strong as we grew our managed assets to nearly $2.3 billion. Commercial credit quality is performing well within expected parameters as our loan portfolio continues to season."
"Adjusted net income" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 5. We have provided a reconciliation between GAAP and adjusted (non-GAAP) measures in the attached financial tables.
Residential Mortgage-backed Securities Portfolio
Strong Origination Volume
Growth in Loans and Investments
Net Interest Income / Margin
Stable Commercial Loan Credit Quality
Conference Call and Webcast
We will host a webcast/conference call to discuss the results today at 5:00 pm Eastern Standard Time. All interested parties are invited to participate via telephone or webcast, which will be hosted through the Investor Relations section of our website at www.newstarfin.com. Please visit the website to register for the webcast and test your connection prior to the call. You can also access the conference call by dialing (800) 765-0709 approximately 5-10 minutes prior to the call. International callers should dial (913) 981-5564. All callers should reference "NewStar Financial, Inc."
For convenience, an archived replay of the call will be available through May 10, 2007 by dialing (888) 203-1112. International callers should call (719) 457-0820. For all replays, please use the passcode # 3471739. The audio replay will also be available through the Investor Relations section of our website at www.newstarfin.com.
About NewStar Financial
NewStar Financial is a specialized commercial finance company focused principally on meeting the complex financing needs of customers in the middle market through our corporate, commercial real estate, and structured products groups. Our senior banking teams call directly on customers to provide advice and finance a range of strategic transactions that may require some combination of senior secured, second lien and mezzanine financing. NewStar typically works with customers with financing needs of up to $150 million and cash flow as low as $5 million. We target 'hold' positions of up to $35 million, but may also underwrite or arrange transactions up to $100 million for syndications to other lenders.
We are headquartered in Boston MA, with regional offices in Darien CT, Chicago IL, San Francisco CA, San Diego CA, and Charleston SC. In December of 2006, NewStar completed an Initial Public Offering. The Company's shares trade on the NASDAQ under the ticker symbol, NEWS. Please visit our website at www.newstarfin.com for more detailed transaction and contact information.
Robert K. Brown
500 Boylston Street, Suite 1600
Boston, MA 02116
This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this release are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. As such, they are subject to material risks and uncertainties.
More detailed information about these factors is described in NewStar's filing with Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2006 Form 10-K. NewStar is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. NewStar plans to file its Form 10-Q with the SEC on or before May 15, 2007 and urges its shareholders to refer to that document for more complete information concerning NewStar's financial results.
Non-GAAP Financial Measures
References to "adjusted net income" and "adjusted earnings per share" mean net income or earnings per diluted share, respectively, as determined under GAAP, excluding the following items: (i) interest expense and amortization of deferred financing costs on corporate debt, (ii) the call premium and termination fee associated with the termination of our corporate debt, (iii) compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering and (iv) general and administrative expense incurred related to the initial public offering. GAAP requires that these items be included in net income. NewStar management uses "adjusted net income" and "adjusted earnings per share" to make operational and investment decisions, and NewStar believes that they provide useful information to investors in their evaluation of our financial performance and condition. Excluding interest expense and amortization of deferred financing costs on corporate debt and the call premium and termination fee associated with the termination of our corporate debt eliminates expenses that we do not anticipate incurring in the foreseeable future that make it difficult to assess our core performance and compare our period over period results. Excluding compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering and general and administrative expense incurred related to our initial public offering, eliminates unique expenses that make it difficult to assess our core performance and compare our period over period results. A reconciliation of adjusted net income to net income is included on page 7 of this release.
References to "adjusted net interest margin" mean annualized interest income as determined under GAAP less annualized interest expense as determined under GAAP excluding interest expense and amortization of deferred financing costs on corporate debt, divided by average interest earning assets for the period.
Adjusted return on average assets means adjusted net income divided by average assets for the period. Adjusted return on average equity means adjusted net income divided by average equity for the period. Adjusted efficiency ratio means operating expenses determined in accordance with GAAP less (i) the call premium and termination fee associated with the termination of our corporate debt, (ii) compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering and (iii) general and administrative expense incurred related to the initial public offering divided by net revenue. Adjusted cost of funds means adjusted interest expense divided by average interest bearing liabilities for the period less the average corporate debt outstanding for the period. The adjusted ratios exclude unique expenses that make it difficult to assess our core performance and compare our period-over-period results.
A reconciliation of our adjusted financial measures to their GAAP equivalents is included on page 9 of this release. NewStar's adjusted financial measures should not be considered as alternatives to financial measures determined in accordance with GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies.