NewStar Reports Third Quarter 2011 Results
Net income of $3.4 million, or $5.1 million before impact of early retirement of CLO 2009-1 bonds
Adjusted net income was $3.6 million, or $0.07 per diluted share
New funded loan volume of $190 million drove net loan growth of $50 million, or 11% annualized
Net interest margin before the impact of early debt retirement increased to 4.61% as loan yields continued to improve
Credit costs decreased to $4.6 million from $6.3 million in prior quarter and NPAs declined 7% to 6% of loans
Book value per share increased $0.12 to $11.27 and Board authorized another $10 million share repurchase program
BOSTON, Nov. 2, 2011 (GLOBE NEWSWIRE) --NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, today reported adjusted net income for the third quarter of 2011 of $3.6 million, or $0.07 per diluted share. On a GAAP basis, the Company reported net income of $3.4 million, or $0.06 per diluted share, which reflected $0.2 million after-tax 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 5. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"I am pleased with our results in the third quarter. We maintained our momentum despite significant volatility - especially in the debt capital markets. Our results reflected strength in new business volume, as well as steady improvement in our credit performance and earnings capacity. We generated $190 million of new funded loan volume at very attractive spreads and net loan growth was 11% on an annualized basis," said Tim Conway, NewStar's Chairman and Chief Executive Officer. "Our credit performance also improved as credit costs and NPAs both declined. Loan growth and improving margins are also driving top line revenue gains and increasing our earnings power. Book value per share increased another $0.12 in the quarter to $11.27 as we continued to allocate capital to accretive share repurchases and opportunistic debt retirement."Managed and Owned Loan Portfolios
Total funded loan origination volume for the third quarter of 2011 was $190 million compared to $250 million in the second quarter.
Asset-based lending and equipment finance businesses originated $11 million, or 8.5% of new loan volume retained on the balance sheet.
The owned loan portfolio increased 3% to $1.8 billion as of September 30, 2011 compared to June 30, 2011.
The composition of the owned loan portfolio continued to reflect a focus on senior debt with 96% invested in 1st lien senior secured loans at September 30, 2011.
The owned loan portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of September 30, 2011, no outstanding borrowings by a single issuer represented more than 1.7% of total loans outstanding, and the ten largest issuers comprised approximately 11% of the loan portfolio.
The managed loan portfolio was $2.3 billion as of September 30, 2011 reflecting the net impact of new loan origination, partially offset by prepayments and scheduled amortization of existing loans, as well as charge-offs.
Assets managed for the NCOF were approximately $500 million at September 30, 2011, up slightly from June 30, 2011.Net Interest Income / Margin
Net interest income before provision for credit losses decreased to $18.8 million for the third quarter of 2011 compared to $20.0 million for the second quarter of 2011.
Net interest margin narrowed to 3.98% for the third quarter of 2011 compared to 4.28% for the second quarter of 2011 due primarily to the accelerated amortization of deferred financing fees and unamortized discount related to the early retirement of bonds issued by the 2009-1 CLO. The net interest margin was 4.61% before the impact of the early retirement of CLO bonds.
Adjusting for the impact of non-performing loans, the loan portfolio yield would have been 45 bps higher and net interest margin would have been 4.23%, or 4.90% before the impact of early debt retirement. Non-Interest Income
Non-interest income was $3.4 million for the third quarter of 2011 compared to a loss of $0.8 million for the second quarter of 2011.
Non-interest income in the third quarter of 2011 consisted primarily of a $2.1 million gain on the repurchase of debt, $0.7 million of asset management income, $0.4 million of unused fees on revolving credit commitments, partially offset by a $0.6 million loss on certain equity interests retained in connection with various workouts.Expenses
Operating expenses increased to $11.9 million in the third quarter of 2011 compared to $10.8 million in the second quarter of 2011 due primarily to higher professional fees.
The Company had 88 full-time employees as of September 30, 2011.Income Taxes
Deferred tax asset decreased to $47.1 million as of September 30, 2011 from $48.5 million as of June 30, 2011. The decrease in the deferred tax asset was driven primarily by differences in the timing of when credit costs and equity compensation expenses are recognized according to GAAP and when they are deductible for income tax.
Approximately $29.3 million and $14.2 million of the deferred tax asset as of September 30, 2011 were related to our allowance for credit losses and equity compensation, respectively.Loan Credit Quality
Credit costs decreased to $4.6 million in the third quarter of 2011 from $6.3 million in the second quarter as an increase in provision expense was more than offset by lower losses on equity interests retained in connection with workouts of impaired loans.
The provision for credit losses increased to $4.4 million in the third quarter of 2011 compared to $2.3 million in the second quarter of 2011.
Approximately $6.3 million of additional specific reserves were established in the third quarter of 2011, up slightly from $6.0 million in the second quarter of 2011.
The allowance for credit losses decreased to $73.0 million, or 4.10% of loans and 70% of NPLs, at September 30, 2011, compared to $78.0 million, or 4.46% of loans, at June 30, 2011.
One loan with a balance of $12.1 million as of September 30, 2011 was placed on non-accrual status in the third quarter of 2011.
Non-performing assets decreased 7% from the second quarter of 2011 due to a 5% decline in non-accruing loans and the sale of an interest in one property, which was included in other real estate owned ("OREO"). At September 30, 2011, loans with an aggregate outstanding balance of $103.8 million, net of charge-offs, were on non-accrual status compared to loans with an aggregate outstanding balance of $109.0 million, net of charge-offs, at June 30, 2011. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $103.8 million, or 40% of their aggregate face amount, as of September 30, 2011.
Non-accrual loans with an outstanding balance of $75.7 million and an additional $8.4 million of loans as of September 30, 2011 were also delinquent loans.
Net charge-offs were $9.4 million, or 2.10% of loans on an annualized basis, in the third quarter of 2011 compared to $10.0 million, or 2.30% of loans on an annualized basis, in the second quarter of 2011.
The Company sold its interest in one property, which was included in OREO for a loss of $0.2 million. Funding and Capital
Amended a credit facility with Wells Fargo as of July 12, 2011, increasing the size from $75 million to $125 million and extending the effective maturity by approximately three years.
Called the Class B notes of our 2009-1 CLO as of August 1, 2011 as the Class A notes fully amortized early due to higher than expected loan collateral prepayments.
Balance sheet leverage remained steady at 2.4x as of September 30, 2011.
Total cash and equivalents as of September 30, 2011 were $102.2 million, of which $27.6 million was unrestricted. Unrestricted cash decreased from approximately $49.4 million at June 30, 2011 and restricted cash decreased from approximately $109.9 million to $74.6 million.Book Value
Book value per share was $11.27 at the end of the third quarter 2011 up from $11.15 at the end of the prior quarter primarily due to net income for the quarter, share repurchases and the amortization of equity compensation into stockholders' equity.Share Count
Average diluted shares outstanding were 52.6 million shares for the quarter down from 53.3 million for prior quarter. Total outstanding shares at September 30, 2011 were 49.5 million compared to 50.4 million at June 30, 2011.
Repurchased 855,381 shares of common stock at an average price of $9.63 during the third quarter of 2011. 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 877-755-7419 approximately 5-10 minutes prior to the call. International callers should dial 973-200-3080. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through November 5, 2011 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 15692131. 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 market. The Company specializes in providing senior secured debt financing options to mid-sized companies to fund working capital, growth strategies, acquisition and recapitalization, as well as, equipment purchases. NewStar originates loans and leases directly through a team of experienced, senior bankers and marketing officers organized around key industry and market segments. The Company targets 'hold' positions of up to $35 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, Dallas TX, Los Angeles CA, and Philadelphia, PA. For more detailed transaction and contact information, please visit our website at www.newstarfin.com.
The NewStar Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4044Forward-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, 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 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 2010 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 with the SEC on or before November 9, 2011 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: 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 the related 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.
Adjusted return on average assets means adjusted net income divided by average assets for the period. 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 compensation expense related to restricted stock grants made since our inception as a private company. 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 7 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
September 30,June 30,December 31,September 30,
($ in thousands)2011201120102010Assets:
Cash and cash equivalents
Investments in debt securities, available-for-sale
Loans held-for-sale, net
Loans and leases, net
Deferred financing costs, net
Property and equipment, net
Deferred income taxes, net
Income tax receivable