Boston, February 20, 2007 - NewStar Financial, Inc. (NASDAQ: NEWS), a Boston-based specialty finance company, today reported adjusted net income for the fourth quarter of 2007 of $7.1 million, or $0.18 per diluted share. On a GAAP basis, the Company reported net income of $1.2 million, or $0.03 per diluted share, which reflects a $2.4 million pretax loss on the retained residual interest in securities sold in the second quarter of 2007 and $2.6 million pretax of non-cash equity compensation expense related to the 2006 IPO.
"Adjusted net income" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 4. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"Our fourth quarter reflects an increasingly favorable lending environment with better pricing and more conservative deal structures," said Tim Conway, Chairman and Chief Executive Officer. "The full benefit of that environment, however, is partially offset by continued dislocation in the credit markets which are driving marginal funding costs higher."
"While capital markets continue to be challenging and the credit outlook less certain, I believe we are well positioned to capitalize on this environment. Our defensive investment strategy emphasizing senior debt and diversification together with our balance sheet strength and continued access to capital will allow us to continue to build shareholder value."
Conference Call and Webcast
NewStar 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 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 877-675-4749 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4888. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through February 27, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3761480. The audio replay will also be available through the Investor Relations section at www.newstarfin.com.
About NewStar Financial
NewStar Financial (NASDAQ:NEWS) is a specialized commercial finance company focused on meeting the complex financing needs of companies and private investors in the middle markets. The Company specializes in providing senior secured debt financing for the acquisition or recapitalization of mid-sized companies and commercial real estate. NewStar originates loans directly through a team of experienced, senior bankers organized around key industry and market segments. The Company targets 'hold' positions of up to $20 million and selectively underwrites or arranges larger transactions for syndication to other lenders.
NewStar is headquartered in Boston MA and has regional offices in Darien CT, Chicago IL, San Francisco CA, San Diego CA, and Charleston SC. For more detailed transaction and contact information please visit www.newstarfin.com.
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, including our limited operating history; the fact that we have yet to be profitable; the rapid expansion of our business since inception; our ability to compete effectively in a highly competitive industry; and the impact of federal, state and local laws and regulations that govern non-depository commercial lenders and businesses generally.
More detailed information about these factors is described in NewStar's filing with the Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2006 Form 10-K as updated in our Quarterly Reports for the quarter ended June 30, 2007 and September 30, 2007. 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-K for December 31, 2007 with the SEC on or before March 17, 2008 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; iv) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest in these assets; and v) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and the change in fair value of the residual interest, including the impact on our effective tax rate. 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 and amortization of deferred financing costs on corporate debt, the call premium and termination fee associated with the termination of our corporate debt, the financial results and expenses incurred in connection with 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 7 and 8 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 the retained residual interest) less annualized interest expense as determined under GAAP (excluding interest and amortization of deferred financing costs on corporate debt and 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 and the retained residual interest) 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 and the retained residual interest. 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 the retained residual interest; and iii) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and the change in fair value of the residual interest. 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