NewStar Reports Fourth Quarter Results
Positive Financial Results Amid Weakening Credit Conditions
* Earned $5.1 million of adjusted net income in the fourth quarter,
or $0.11 of adjusted earnings per diluted share
* On a GAAP basis, earned $2.8 million of net income in the fourth
quarter, or $0.06 of net income per diluted share, increasing book
value per share to $12.00
* Completed an important step in our depository strategy, entering
into a definitive agreement to acquire Southern Commerce Bank, N.A.
* Amended the terms of certain credit facilities which had the effect
of extending maturities, reducing advance rates and the size of the
facilities, as well as increasing pricing and certain concentration
* Continued to make new loans to customers with conservative credit
profiles and attractive yields
* Increased loan loss reserves due to deterioration in credit
performance reflected in higher levels of non-performing assets
BOSTON, Feb. 18, 2009 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based commercial finance company, today reported adjusted net income for the fourth quarter of 2008 of $5.1 million, or $0.11 per diluted share. On a GAAP basis, the Company reported net income of $2.8 million, or $0.06 per diluted share, which reflected $2.1 million after-tax non-cash equity compensation expense related to the 2006 IPO and $0.3 million to reflect the tax impact of timing differences related to the recognition of losses on a prior asset sale.
"Adjusted net income" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 5. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"While I am pleased with our operating results and continued strong financial position, the fourth quarter was challenging for our industry as credit conditions worsened amid a sharp decline in the economy," said Tim Conway, Chairman and Chief Executive Officer. "Constraints on credit availability and continued dislocation in the credit markets also tested the resilience of our funding model as we completed a series of amendments to our credit facilities that required us to reduce leverage, limiting some of our financial flexibility.
"Despite these headwinds, we continued to benefit from a funding platform with continuing capacity and actions we have taken to position the company to withstand significant economic stress. We also completed an important first step in our depository strategy. Following the expected completion of our acquisition of Southern Commerce Bank, we believe we will be positioned well for the future as the financial services landscape continues to be reshaped."
Funding and Capital
* Entered into a definitive agreement to acquire Southern Commerce
Bank, N.A., a nationally chartered commercial bank with
approximately $235 million of assets and $200 million of deposits
as of December 31, 2008. The acquisition is subject to regulatory
approval; NewStar has filed an application with the Federal Reserve
for approval of the acquisition and to become a bank holding
* Renewed existing warehouse credit facility with Citi, reducing the
size from $400 million to $300 million (November 2008). Other key
terms amended include an increase in pricing and a reduction in
* Amended existing warehouse credit facility with Wachovia reducing
the size from $400 million to $350 million (December 2008). Other
key terms amended include an increase to certain industry
* Amended existing term credit facility with Deutsche Bank reducing
the size from $400 million to $250 million (January 2009).
* Other key terms amended in both the Wachovia and Deutsche Bank
facilities include increases in pricing and concentration levels,
and decreases in advance rates that were consistent with terms of
other recent comparable financing arrangements.
* Approximately 70% of loan assets continued to be match-funded by
existing securitized term debt at attractive, locked-in spreads as
of December 31, 2008. The ability to re-invest collections from
repayments and amortization of certain of these loans represents
a continuing source of funding.
* Balance sheet leverage was modest at 3.3x as of December 31, 2008
compared to 3.6x as of September 30, 2008. The decrease in leverage
was due principally to repayment of advances under credit
* Total cash and equivalents as of December 31, 2008 were $134
million, of which $50 million was unrestricted. Unrestricted
cash decreased from approximately $133 million at September 30,
2008 due principally to the repayment of advances under the credit
facilities and restricted cash decreased from approximately $105
million to $84 million.
* Total origination volume for the fourth quarter of 2008 was $44
million, of which $42 million was retained on NewStar's balance
sheet and $2 million was sold to the NewStar Credit Opportunities
* Credit spreads and amortizing fees on new loans originated in the
third quarter continued to improve, with average yields of greater
than 660 bps above LIBOR, which is an increase of more than 235bps
from the fourth quarter of 2007.
* Corporate lending represented 100% of the new loan volume in the
Managed and Owned Loan Portfolios
* Managed loan portfolio was $3.0 billion as of December 31, 2008
(equal to the level at September 30, 2008), reflecting the net
impact of $44 million of new origination, which was offset by
prepayments and scheduled amortization of existing loans. Managed
loan portfolio was nearly equal to the level at December 31, 2007.
* Assets managed for the NCOF were $561 million at December 31, 2008,
compared to $570 million at September 30, 2008 and $578 million at
December 31, 2007.
* The owned loan portfolio continued to be balanced across industry
sectors and highly diversified by issuer. As of December 31, 2008,
no single issuer represented more than 1% of total assets, and the
ten largest issuers comprised approximately 10% of the loan
* The composition of the owned loan portfolio continued to reflect a
focus on senior debt with 95% invested in 1st lien senior secured
loans and debt investments at December 31, 2008.
Net Interest Income / Margin
* Net interest income before provision for credit losses was $24.4
million for the fourth quarter of 2008 compared to $25.0 million
for the third quarter of 2008 and $24.8 million for the fourth
quarter of 2007.
* Net interest margin decreased 11 bps to 3.79% for the fourth
quarter of 2008 compared to 3.90% for the third quarter of 2008
and 3.98% for the fourth quarter of 2007 due principally to non-
payment of interest income from non-performing assets that was
partially offset by an increase in credit spreads on new loans
and re-pricing of existing loans.
* Non-interest income was $8.6 million for the fourth quarter of 2008
compared to $5.5 million for the third quarter of 2008, and $4.0
million for the fourth quarter of 2007.
* Adjusted non-interest income, excluding the impact of the write-
down on the retained residual interest in prior periods, was $8.6
million in the fourth quarter of 2008 compared to $5.5 million in
the third quarter of 2008 and $6.4 million in the fourth quarter of
* Adjusted non-interest income in the fourth quarter of 2008
consisted primarily of a $4.5 million gain on repurchase of debt,
$1.5 million of asset management income, $1.4 million gain on rate
protection products sold to clients, $0.3 million of structuring
and placement fees, $0.4 million of syndication and agency fees,
and $0.1 million of amendment fees.
Loan Credit Quality
* The provision for credit losses was $17.9 million in the fourth
quarter of 2008, up from $12.0 million in the third quarter of 2008.
* Allowance for credit losses was $54.0 million or 2.25% of loans at
December 31, 2008, compared to $44.9 million or 1.87% at September
30, 2008 and $35.5 million or 1.58% at December 31, 2007.
* Non-accrual loans consisted of six loans with an aggregate
outstanding balance of $60.6 million at December 31, 2008 compared
to three loans with an aggregate outstanding balance of $26.4
million at September 30, 2008. Additionally, the Company had $7.4
million of other real estate owned ("OREO") comprised of a single
property as of December 31, 2008.
* Two of the non-accrual loans with an aggregate outstanding balance
of $16.6 million as of December 31, 2008 were also delinquent loans.
* NewStar established $13.2 million of new specific reserves in the
fourth quarter of 2008 compared to $11.5 million in the third
quarter of 2008.
* NewStar had net charge-offs of $8.9 million or 1.47% of loans on
an annualized basis in the fourth quarter of 2008 compared to $5.3
million or 0.87% of loans on an annualized basis in the prior
quarter. Actual net charge-offs in 2008 were 0.82% of loans.
* Operating expenses decreased to $7.9 million in the fourth quarter
of 2008 from $8.5 million in the third quarter of 2008 due
principally to lower compensation expense, which was partially
offset by higher professional fees related to the proposed
acquisition of Southern Commerce Bank.
* The efficiency ratio for the fourth quarter of 2008 was 24.04%.
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 877-857-6150 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4811. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through February 27, 2009 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 6456261. 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 Diego CA, and Charleston SC. For more detailed transaction and contact information please visit www.newstarfin.com.
The NewStar Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4044
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, strategic plans, objectives, future performance and business, including our proposed acquisition of Southern Commerce Bank and application to become a bank holding company. As such, they are subject to material risks and uncertainties, including receipt of required regulatory approvals to become a bank holding company and acquire Southern Commerce Bank; our limited operating history; the current dislocation in the credit markets and the general state of the economy; 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, including increased regulation by the FDIC and OCC if we become a bank holding company.
More detailed information about these factors is described in NewStar's filings with the Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2007 Annual Report on Form 10-K, as supplemented by the Risk Factors contained in our Quarterly Reports on Form 10-Q. 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 the year ended December 31, 2008 with the SEC on or before March 16, 2009 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 the retained residual interest in these assets; 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, 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 the financial results and expenses incurred in connection with the assets sold during the second quarter of 2007 and the compensation expense related to restricted stock grants made since our inception as a private company, 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 page 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 of 2007 and the retained residual interest) less annualized interest expense as determined under GAAP (excluding 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 of 2007 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 of 2007 and the retained residual interest. Adjusted return on average equity means adjusted net income divided by average equity for the perio