NewStar Reports Third Quarter 2009 Results
* Loss narrowed despite continued difficult credit conditions
* Provision for loan losses remained elevated to boost reserves
as charge-offs increased
* Negative migration trend in credit performance moderated as
non-performing assets increased slightly from second quarter
* Net interest income and margin continued to improve despite
decline in earning assets and drag from non-performing loans
* Expenses decreased by approximately $2 million from second
quarter levels, excluding severance costs associated with
* Reduced debt and extended only material short-term debt
maturity to November 2010
BOSTON, Nov. 4, 2009 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based commercial finance company, today reported an adjusted net loss for the third quarter of 2009 of $9.3 million, or $0.19 per diluted share. On a GAAP basis, the Company reported a net loss of $10.3 million, or $0.21 per diluted share, which reflected $0.9 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" on page 5. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"We continued to focus on protecting the balance sheet and managing credit performance in the third quarter as we reduced headcount and cut costs, while also paying down debt and extending short-term debt maturities into 2010. Although credit costs remain elevated, increases in non-performing assets moderated and we added significantly to allowance for loan losses," said Tim Conway, Chairman and Chief Executive Officer. "Given the sustained rally across the loan, high yield bond and securitization markets, I am optimistic that our access to capital will also begin to improve."
"We continued to make progress on our funding strategy by renewing our warehouse line with Citi and generating investor interest in several potential debt financing options. We now have 90% of our assets funded with long-term capital and expect to bolster our liquidity position through the issuance of new corporate debt," added John Bray, NewStar's Chief Financial Officer.
Loan Credit Quality
* The provision for credit losses was $32.6 million in the
third quarter of 2009 compared to $36.2 million in the second
quarter of 2009.
* Approximately $33.3 million of new specific reserves were
established in the third quarter of 2009 compared to $32.4
million in the second quarter of 2009.
* The allowance for credit losses increased to $101.1 million,
or 4.69% of loans, at September 30, 2009, compared to $86.3
million, or 3.86%, at June 30, 2009 and $44.9 million or
1.87% at September 30, 2008.
* Five loans totaling $22.5 million as of September 30, 2009
were placed on non-accrual status in the third quarter of 2009.
* One of the five loans placed on non-accrual status in the
third quarter of 2009 was a $5.7 million commercial real
estate loan as of September 30, 2009. The other four loans
were to companies operating in the manufacturing, publishing,
energy, and automotive industry sectors.
* At September 30, 2009, loans to 22 borrowers were on
non-accrual status with an aggregate outstanding balance of
$147.6 million compared to 19 loans with an aggregate
outstanding balance of $149.5 million at June 30, 2009.
* Sixteen of the non-accrual loans with an outstanding balance
of $112.6 million and three additional accruing loans with
an aggregate outstanding balance of $36.5 million as of
September 30, 2009 were also delinquent loans.
* Net charge-offs increased slightly to $17.8 million, or
3.31% of loans on an annualized basis, in the third quarter
of 2009 compared to $14.9 million or 2.66% of loans on an
annualized basis in the second quarter of 2009.
* The Company owned an interest in a single property valued
at $5.6 million (net of a non-controlling interest), which
was included in other real estate owned ("OREO") as of
September 30, 2009.
Funding and Capital
* Reduced debt by nearly $100 million in the third quarter
of 2009 and approximately $370 million since September 30,
* Amended an existing credit facility with Citi to extend the
maturity date to November 2010, reduce the size of the
facility from $300 million to $150 million (with
approximately $117 million currently drawn), and reduce the
advance rate, while maintaining pricing terms, and the
Company's ability to fund advances under approximately $125
million of revolving credit and delayed draw term loans
* Approximately 90% of assets are now funded by long term
* Approximately 64% of loan assets continued to be funded by
existing securitized term debt at attractive, locked-in
spreads as of September 30, 2009. 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 3.1x as of September 30, 2009,
down slightly from 3.2x at June 30, 2009 due principally
to repayment of advances under credit facilities.
* Total cash and equivalents as of September 30, 2009 were
$141 million, of which $31 million was unrestricted.
Unrestricted cash decreased from approximately $46 million
at June 30, 2009 and restricted cash decreased from
approximately $113 million to $110 million.
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 September
* Total origination volume for the third quarter of 2009 was
nominal, which reflected the Company's preference to preserve
liquidity given the severity of recent economic conditions
and the uncertainty around the future course of the U.S.
* The managed loan portfolio was $2.7 billion as of September
30, 2009 (down from $2.8 billion at June 30, 2009), reflecting
the net impact of prepayments and scheduled amortization
of existing loans, as well as, charge-offs, which was offset
by modest new loan origination. Managed loan portfolio was
down from $3.0 billion at September 30, 2008.
* Assets managed for the NCOF were $544 million at September
30, 2009, down slightly from June 30, 2009 and down from
$570 million at September 30, 2008.
* The owned loan portfolio was $2.2 billion as of September
30, 2009 down slightly from June 30, 2009.
* The owned loan portfolio continued to be balanced across
industry sectors and highly diversified by issuer. As of
September 30, 2009, no outstanding borrowings by a single
issuer represented more than 1.2% of total loans outstanding,
and the ten largest issuers comprised approximately 7.7% of
the loan portfolio.
Net Interest Income / Margin
* Net interest income before provision for credit losses
was $24.5 million for the third quarter of 2009 compared
to $23.6 million for the second quarter of 2009.
* Net interest margin increased 26 bps to 4.16% for the third
quarter of 2009 compared to 3.90% for the second quarter of
2009 and 3.90% for the third 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 $0.1 million for the third quarter
of 2009 compared to a $0.2 million loss for the second
quarter of 2009, and $5.5 million of income for the
third quarter of 2008.
* Non-interest income in the third quarter of 2009 consisted
primarily of a $1.2 million gain on repurchase of debt,
$0.8 million of asset management income, $0.6 million of
unused fees and $0.2 million of agency fees, which was
substantially offset by the impact of a valuation adjustment
on other real estate owned (OREO).
* Operating expenses decreased by approximately $2 million
(net of severance costs of approximately $0.9 million) to
$10 million ($10.9 million including severance costs)
in the third quarter of 2009 compared to $12.0 million
in the second quarter of 2009 due principally to lower
workout expenses and other costs related to the bank
* Headcount was reduced from 82 as of June 30, 2009 to 68
as of September 30, 2009 and then to 66 shortly after
quarter end, which is expected to generate annual run-rate
costs savings of approximately $1.5 million. Headcount
has been reduced by approximately 52% from its peak of
137 as of January 2008.
* The Company terminated its agreement to acquire Southern
Commerce Bank, N.A. and withdrew its related regulatory
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 888-428-9498 approximately 5-10 minutes prior to the call. International callers should dial 719-325-2235. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through November 11, 2009 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 7246092. 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 and Chicago IL. 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, financing plans and business. As such, they are subject to material risks and uncertainties, including 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.
More detailed information about these risk factors can be found 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 September 30, 2009 with the SEC on or before November 9, 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 7 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 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.
NewStar Financial, Inc.
Consolidated Balance Sheets
Sept. 30, June 30, Dec. 31, Sept. 30,
($ in thousands) 2009 2009 2008 2008
Cash and cash