show menu
close menu
LinkedIn icon

NewStar Reports Second Quarter Results

Download pdf Download PDF


Core Lending Business Drives Solid Operating Performance



  • $7.7 million of adjusted net income in the second quarter or $0.21 adjusted earnings per diluted share
  • $3.4 million net income in the second quarter or $0.09 net income per diluted share on a GAAP basis
  • $2.5 billion of assets in the managed loan portfolio, up 18% from the first quarter
  • Credit quality stable, no loan charge offs as of June 30, 2007
  • $900 million of committed incremental funding capacity and $190 million of liquidity



Boston - August 8, 2007 - NewStar Financial, Inc. (NASDAQ: NEWS), today reported adjusted net income for the second quarter of 2007 of $7.7 million, or adjusted earnings of $0.21 per diluted share. On a GAAP basis, the company reported net income of $3.4 million, or $0.09 per diluted share, including the $2.7 million after-tax loss on the previously announced sale of securities and loan assets.



"Adjusted net income" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 4. We have provided a reconciliation between GAAP and adjusted (non-GAAP) measures in the attached financial tables.



"The strength of our second quarter earnings was driven by the solid performance in our core lending business. I believe the value of our direct origination platform will be even more evident in this challenging market environment," said Tim Conway, Chairman and Chief Executive Officer. "With a liquid balance sheet and significant funding capacity we are well-positioned to capitalize on opportunities in the second half of 2007."



Strong Origination Volume



  • Overall origination volume for the quarter was $685 million, of which $121 million was syndicated to others, $143 million was sold to the NewStar Credit Opportunities Fund (NCOF), $52 million was originated for the managed ArcTurus CLO and $369 million was retained on NewStar's balance sheet.
  • Middle Market Corporate generated approximately 75% of the new volume in the quarter, while Commercial Real Estate and Structured Products produced 17% and 8%, respectively.
  • We continued to grow our proprietary direct origination platform, adding two new senior bankers in the second quarter.



Growth in Managed Loan Portfolio



  • Managed loan portfolio increased to $2.5 billion as of June 30, 2007, up 18% or $380 million from $2.1 billion at March 31, 2007, which excludes the assets sold. Assets managed for the NCOF increased by $67 million, or 17%, from $382 million as of March 31, 2007 to $449 million at June 30, 2007.
  • Our business continues to be balanced across industry sectors and highly diversified across issuers. As of June 30, 2007, no single issuer represented more than 1% of our total assets excluding loans held-for-sale and the ten largest issuers comprised approximately 10% of the loan portfolio.
  • We continue to be highly selective and focused on senior debt products, with 88% of the loan portfolio invested in senior secured loans and senior debt investments, up from 78% in the first quarter 2007.



Net Interest Income / Margin



  • Net interest income before provision for credit losses was $23.3 million for the second quarter 2007 compared to $22.0 million for the first quarter 2007 and $10.3 million for the second quarter 2006.
  • Net interest margin was 4.22% for the second quarter 2007 compared to 4.50% for the first quarter 2007 and 3.81% for the second quarter 2006. Adjusted net interest margin was 4.29% for the second quarter 2007 compared to 4.51% for the first quarter 2007 and 4.20% for the second quarter 2006.



Non-Interest Income



  • Non-interest income was $0.4 million for the second quarter 2007, up from the $10.7 million loss for the first quarter 2007, reflecting the impairment in the RMBS portfolio and the loss on securities sold during the second quarter 2007. Non-interest income was $2.0 million for the second quarter 2006.
  • Adjusted non-interest income was $4.8 million for the second quarter 2007 compared to $2.1 million for the first quarter 2007 and $2.0 million for the second quarter 2006.



Stable Commercial Loan Credit Quality



  • As of June 30, 2007, we did not have any impaired loans and had not experienced any loan charge offs.
  • As of June 30, 2007, we had an allowance for credit losses of $25.4 million, or 1.40% of loans compared to $22.9 million, or 1.40%, at March 31, 2007and $12.3 million or 1.27% at June 30, 2006.
  • Provision expense was $2.5 million in the second quarter 2007 compared to $2.3 million in the first quarter 2007 and $2.8 million in the second quarter of 2006.



Funding/Capital



  • During the second quarter, we diversified our funding through a $600 million term debt securitization and added $400 million of new warehouse line capacity.
  • Total cash and equivalents as of June 30, 2007 were $245 million, of which $79 million was unrestricted.
  • Committed funding capacity exceeded $900 million as of June 30, 2007 and liquidity was approximately $190 million, including unrestricted cash and restricted cash available in CLOs for reinvestment in new loan production.
  • Total stockholders' equity increased by 4% to $434 million over first quarter levels, which included the reversal of unrealized losses previously recorded as temporary impairment on the assets sold.
  • Book value per share of $11.99 increased by 4% from $11.50 for the first quarter 2007.



Expenses



  • Operating expenses were $15.6 million in the second quarter 2007 compared to $13.0 million in the first quarter 2007, due primarily to an increase in compensation and benefits as a result of higher incentive accruals and continued build out of our direct origination and asset platforms. Operating expenses were $7.1 million for the second quarter 2006.
  • Our adjusted efficiency ratio was 45% in the second quarter 2007.



Conference Call and Webcast



We will host a webcast/conference call to discuss the results today at 10:00 am Eastern 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 (866) 316-1368 approximately 5-10 minutes prior to the call. International callers should dial (913) 312-6678. All callers should reference "NewStar Financial."



For convenience, an archived replay of the call will be available through August 15, 2007 by dialing (888) 203-1112. International callers should call (719) 457-0820. For all replays, please use the passcode # 7734185. 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.



Contact:

Robert K. Brown

500 Boylston Street, Suite 1600

Boston, MA 02116

P 617.848.2558

F 617.848.4399

rbrown@newstarfin.com



Forward-Looking Statements



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, except as required by law. NewStar plans to file its Form 10-Q with the SEC on or before August 14, 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) 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; ii) earnings generated from the assets sold in the second quarter of 2007; and iii) the loss on the asset sale in the second quarter of 2007. 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 the financial results of the assets sold during the second quarter and the 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, eliminates unique amounts 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 pages 6 and 7 of this release.



References to "adjusted net interest margin" mean annualized interest income as determined under GAAP (excluding interest income generated from the assets sold in the second quarter 2007 and annualized interest expense as determined under GAAP) less i) excluding interest and amortization of deferred financing costs on corporate debt and ii) interest expense incurred from the assets sold in the second quarter of 2007, divided by average interest earning assets excluding the assets sold in the second quarter for the period.



Adjusted return on average assets means adjusted net income divided by average assets for the period excluding the assets sold in the second quarter. 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) 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; ii) earnings generated from the assets sold in the second quarter of 2007; and iii) the loss on the asset sale in the second quarter of 2007. 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 and the credit facility funding for the assets sold in the second quarter of 2007. 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 pages 10 and 11 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.
















Hex divider blue

Copyright 2017 NewStar Financial, Inc. All Rights Reserved. Terms of use.