NewStar Reports Second Quarter Results
Boosts Allowance for Credit Losses and Extends Maturities of Credit Facilities
* Reported a $14.7 million adjusted net loss in the second quarter,
or $0.30 adjusted loss per diluted share, driven by a $36.2
million provision for credit losses
* On a GAAP basis, the net loss was $15.6 million, or $0.32 net loss
per diluted share
* Boosted allowance for credit losses to 3.86% from 2.81% in prior
quarter as charge-offs increased slightly to 2.66% and
non-performing loans increased to 6.68%
* Converted credit facility with Wachovia/Wells Fargo to long-term
debt, extending maturity to 2012 and renewed a short-term
seasoning facility with Natixis Financial Products
* Continued to work on regulatory approvals for acquisition of
Southern Commerce Bank amid difficult policy environment
BOSTON, Aug. 5, 2009 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based commercial finance company, today reported adjusted net loss for the second quarter of 2009 of $14.7 million, or $0.30 per diluted share. On a GAAP basis, the Company reported net loss of $15.6 million, or $0.32 per diluted share, which reflected $1.0 million after-tax non-cash equity compensation expense related to the 2006 IPO.
"Adjusted net income (loss)" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures." Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"The second quarter remained challenging for lenders as continued weak economic conditions weighed on credit performance across most markets and asset classes," said Tim Conway, Chairman and Chief Executive Officer. "Our credit metrics for the second quarter reflected the compounding impact of declining asset values and sustained weakness in the economy on the financial performance of our borrowers, particularly in the commercial real estate markets. Despite the severity of this recession, however, we continue to believe that we will benefit from a defensive balance sheet, which provides us important flexibility to protect book value.
"During the quarter, we also continued to work with federal banking regulators on our proposed acquisition on Southern Commerce Bank to satisfy requirements for regulatory approval on terms acceptable to the Company in a difficult policy environment."
"We continued to make progress on our funding strategy in the second quarter by converting the Wachovia line to a three year term debt facility and completing the renewal of our warehouse line with Natixis. We now have 87% of our assets funded with long-term capital," added John Bray, NewStar's Chief Financial Officer.
Loan Credit Quality
* The provision for credit losses was $36.2 million in the second
quarter of 2009, up from $25.3 million in the first quarter of 2009.
* Approximately $32.4 million of the provision for credit losses was
used to establish new specific reserves in the second quarter of
2009 compared to $26.7 million in the first quarter of 2009.
* The allowance for credit losses increased to $86.3 million, or
3.86%, of loans at June 30, 2009, compared to $65.0 million, or
2.81%, at March 31, 2009 and $38.2 million or 1.60% at June 30,
* Nine loans totaling $78.2 million as of June 30, 2009 were placed
on non-accrual status in the second quarter of 2009.
* Four of the nine loans placed on non-accrual status in the second
quarter of 2009 were commercial real estate loans totaling $38.9
million as of June 30, 2009. The other five loans were to
companies operating in the building materials, publishing,
restaurant and financial services industry sectors.
* At June 30, 2009, loans to 19 borrowers were on non-accrual with an
aggregate outstanding balance of $149.5 million compared to ten
loans with an aggregate outstanding balance of $88.9 million at
March 31, 2009.
* Eleven of the non-accrual loans with an outstanding balance of
$94.9 million and three additional accruing loans with an aggregate
outstanding balance of $33.0 million as of June 30, 2009 were also
* Net charge-offs were up slightly to $14.9 million, or 2.66% of
loans on an annualized basis, in the second quarter of 2009
compared to $14.3 million or 2.50% of loans on an annualized basis
in the first quarter of 2009.
* $7.4 million of net charge-offs were on commercial real estate
loans in the second quarter of 2009.
* NewStar sold a property classified as other real estate owned
("OREO") for $4.6 million during the quarter and recognized a loss
of $1.9 million.
Funding and Capital
* Total cash and equivalents as of June 30, 2009 were $160 million,
of which $46 million was unrestricted. Unrestricted cash decreased
from approximately $58 million at March 31, 2009 and restricted
cash increased from approximately $109 million to $113 million.
* Amended an existing credit facility with Wachovia Bank NA, a Wells
Fargo Company, to extend the maturity date to July 2012 and reduce
the size of the facility from $200 million to $146 million.
* Amended an existing short-term seasoning credit facility with
Natixis Financial Products to extend the maturity date to May 2010
and reduce the size of the facility from $75 million to $50 million.
* Approximately 87% of assets are now funded by long term capital.
* Approximately 62% of loan assets continued to be term-funded by
existing securitized term debt at attractive, locked-in spreads as
of June 30, 2009. The ability to re-invest collections from
repayments and amortization of certain of these loans represents a
continuing source of funding.
* NewStar reduced debt by $81.6 million in the second quarter of 2009
and by more than $250 million since June 30, 2008.
* Balance sheet leverage was 3.2x as of June 30, 2009, down slightly
from 3.3x at March 31, 2009 due principally to repayment of
advances under credit facilities.
Managed and Owned Loan Portfolios
* The composition of the owned loan portfolio continued to reflect a
focus on senior debt with 96% invested in 1st lien senior secured
loans and debt investments at June 30, 2009.
* Total origination volume for the second quarter of 2009 was nominal,
which reflected the Company's preference to preserve liquidity
given the severity of recent economic conditions and the heightened
level of uncertainty around the future course of the U.S. economy.
* The managed loan portfolio was $2.8 billion as of June 30, 2009
(down from $2.9 billion at March 31, 2009), reflecting the net
impact of $12 million of new origination, which was offset by
prepayments and scheduled amortization of existing loans, as well
as charge-offs. Managed loan portfolio was down from $3.0 billion
at June 30, 2008.
* Assets managed for the NCOF were $544 million at June 30, 2009,
compared to $557 million at March 31, 2009 and $593 million at June
* The owned loan portfolio was $2.3 billion as of June 30, 2009 down
slightly from March 31, 2009.
* The owned loan portfolio continued to be balanced across industry
sectors and highly diversified by issuer. As of June 30, 2009, no
single issuer represented more than 1% of total loans outstanding,
and the ten largest issuers comprised approximately 10% of the loan
Net Interest Income / Margin
* Net interest income before provision for credit losses was $23.6
million for the second quarter of 2009 compared to $22.2 million
for the first quarter of 2009.
* Net interest margin increased 32 bps to 3.90% for the second
quarter of 2009 compared to 3.58% for the first quarter of 2009 and
4.17% for the second quarter of 2008 due principally to an increase
in credit spreads through the re-pricing of existing loans, which
was partially offset by the impact of higher non-performing loans.
* Non-interest income was $(0.2) million for the second quarter of
2009 compared to $6.3 million for the first quarter of 2009, and
$1.6 million for the second quarter of 2008.
* Non-interest income in the second quarter of 2009 consisted
primarily of a $1.9 million loss on the sale of OREO partially
offset by $0.7 million of asset management income, $0.6 million of
unused fees and $0.4 million of agency fees.
* Operating expenses were $12.0 million in the second quarter of 2009
compared to $9.9 million in the first quarter of 2009, and $13.5
million in the second quarter of 2008. The increase in the second
quarter of 2009 compared to the first quarter of 2009 was due
principally to higher loan workout and compensation expenses.
* The Company remains in discussion with Dickinson Financial
Corporation regarding potential amendments to the stock purchase
and sale agreement related to the proposed acquisition of Southern
Commerce Bank, N.A. As of July 31, 2009, the existing agreement
lapsed, giving each party the right to terminate. Neither party
has elected to terminate.
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 888-461-2011 approximately 5-10 minutes prior to the call. International callers should dial 719-325-2209. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through August 12, 2009 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3245559. 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 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 2008 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-Q for the quarter ended June 30, 2009 with the SEC on or before August 10, 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; and ii) the losses incurred in connection with 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 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 8 of this release.
References to "adjusted net interest margin" mean annualized interest income as determined under GAAP (excluding interest income generated from the retained residual interest) less annualized interest expense as determined under GAAP, divided by average interest earning assets (excluding 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 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 and ii) the change in fair value of the residual interest. 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 12 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.
NewStar Financial, Inc.
Consolidated Balance Sheets
June 30, March 31, Dec. 31, June 30,
($ in thousands) 2009 2009