NewStar Reports Fourth Quarter 2011 Results
Strong Loan Origination Drives Revenue and Earnings Growth
Net income was $6.4 million, or $0.12 per diluted share in the quarter and $14.2 million, or $0.27 per diluted share for 2011
New funded loan volume exceeded $250 million in the quarter and $850 million for the year, driving annual net loan growth of 8%
Weighted average yield on new loans was 7.5% in the quarter
Net interest margin increased to 4.77% in the quarter from 3.98%, or 4.61% adjusted for the impact of early debt retirement, in the third quarter
Credit costs were consistent with the prior quarter at $4.7 million and the NPA rate declined to 5.6% from 5.8% of loans
Book value per share increased $0.15 to $11.42
BOSTON, Feb. 15, 2012 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, today reported net income of $6.4 million, or $0.12 per diluted share for the fourth quarter of 2011. On an adjusted basis, net income was $6.6 million, or $0.13 per diluted share, which reflected $0.2 million after-tax non-cash equity compensation expense related to the 2006 IPO.
The Company also reported that net income for 2011 increased 38% to $14.2 million, or $0.27 per diluted share, compared to $10.2 million, or $0.19 per diluted share in 2010.
"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 excited about the company's performance in the fourth quarter. We finished 2011 in a strong position with solid results across all aspects of the business. We also continued to gain momentum with customers in the marketplace and added balance sheet capacity to meet increasing loan demand," said Tim Conway, NewStar's Chairman and Chief Executive Officer. "Our financial results reflected strong new business volume and further improvement in our credit performance. Increased loan volume drove loan growth of 8% despite high levels of run-off during the year," he added. "With solid loan growth, improving margins and credit costs approaching more normalized levels, we generated a 38% increase in net income for 2011. I am pleased with our results and optimistic about 2012 because I believe that we are beginning to once again, demonstrate our earnings capacity and the value of our
specialized lending franchise," he concluded.Managed and Owned Loan Portfolios
Total funded loan origination volume was $257 million in the fourth quarter and $858 million for the full year compared to $190 million in the third quarter and $572 million in 2010.
Net loan growth was 3% in the fourth quarter and 8% for the full year as the owned loan portfolio increased to approximately $1.9 billion as of December 31, 2011 from $1.8 billion as of September 30, 2011 and $1.7 billion as of December 31, 2010.
Asset-based lending and equipment finance businesses originated $29 million in the fourth quarter, or 15% of new loan volume retained on the balance sheet.
The owned loan portfolio remained balanced across industry sectors and highly diversified by issuer. As of December 31, 2011, no outstanding borrowings by a single obligor represented more than 1.5% of total loans outstanding, and the ten largest obligors comprised approximately 10% of the loan portfolio.
The managed loan portfolio increased 3% in the fourth quarter and 9% for the full year 2011 to $2.4 billion as of December 31, 2011 reflecting the net impact of new loan origination, which was partially offset by prepayments and scheduled amortization of existing loans.
Assets managed for third party institutional investors increased 4% in the fourth quarter and 15% for the year to approximately $518 million at December 31, 2011 compared to $500 million at September 30, 2011 and $452 million at December 31, 2010.Net Interest Income / Margin
Net interest income before provision for credit losses increased to $23.5 million for the fourth quarter of 2011 compared to $18.8 million for the third quarter of 2011. Approximately $3 million of the improvement was due to the impact of the early retirement of debt in the third quarter and the balance was attributable to growth in interest income driven by net loan growth and an increase in the yield on the loan portfolio.
Net interest margin widened to 4.77% for the fourth quarter of 2011 compared to 3.98% for the third quarter of 2011. The net interest margin for the third quarter of 2011 reflected 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 for the third quarter of 2011 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 52 bps higher and net interest margin would have been 5.29%. Non-Interest Income
Non-interest income was $1.9 million for the fourth quarter of 2011 compared to $3.4 million for the third quarter of 2011.
Non-interest income in the fourth quarter of 2011 consisted primarily of a $0.6 million gain on the repurchase of debt, $0.7 million of asset management income, and $0.4 million of unused fees on revolving credit commitments, which was partially offset by a $1.5 million loss on certain equity interests retained in connection with various workouts.Expenses
Operating expenses decreased to $11.1 million in the fourth quarter of 2011 compared to $11.9 million in the third quarter of 2011 due primarily to lower professional fees and loan workout costs.
The Company had 88 full-time employees as of December 31, 2011.Income Taxes
Deferred income taxes increased modestly to $47.9 million as of December 31, 2011 from $47.1 million as of September 30, 2011. The increase 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 $26.0 million and $13.0 million of the deferred tax asset as of December 31, 2011 were related to our allowance for credit losses and equity compensation, respectively.Loan Credit Quality
Credit performance continued to normalize as key credit metrics improved in the fourth quarter of 2011.
Total credit costs (including provision for credit losses and losses on interests retained in connection with workouts of impaired loans) in the fourth quarter were consistent with the prior quarter at $4.7 million.
Provision for credit losses to establish additional specific reserves were approximately $0.4 million in the fourth quarter of 2011, down significantly from $6.3 million in the third quarter of 2011.
Total provision expense was $4.3 million in the quarter compared to $4.6 million in the third quarter of 2011.
The allowance for credit losses decreased to $64.1 million, or 3.52% of loans and 63% of NPLs, at December 31, 2011, compared to $73.0 million, or 4.10% of loans, at September 30, 2011.
Two loans with an aggregate balance of $23.9 million as of December 31, 2011 were placed on non-accrual status in the fourth quarter of 2011.
Non-performing assets decreased by $37.7 million, or 27%, in 2011 to $102.2 million as of December 31, 2011 and the NPA rate declined from 8.17% to 5.61%.
Non-performing assets decreased 2% from the third quarter of 2011. At December 31, 2011, loans with an aggregate outstanding balance of $102.2 million, net of charge-offs, were on non-accrual status compared to loans with an aggregate outstanding balance of $103.8 million, net of charge-offs, at September 30, 2011. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $102.2 million, or 42.8% of their aggregate face amount, as of December 31, 2011.
Non-accrual loans with an outstanding balance of $88.8 million and an additional $8.4 million of loans as of December 31, 2011 were also delinquent.
Net charge-offs were $13.2 million, or 2.89% of loans on an annualized basis, in the fourth quarter of 2011 compared to $9.4 million, or 2.10% of loans on an annualized basis, in the third quarter of 2011.Funding and Capital
Increased the size of a warehouse credit facility with Wells Fargo from $125 million to $150 million.
Increased available liquidity by $25 million through an amendment of a credit facility with Fortress Credit Corp. effective January 27, 2012, increasing the size from $100 million to $125 million and extending the effective maturity by two years.
Extended the maturity of a seasoning warehouse credit facility with NATIXIS to May 19, 2012.
Maintained balance sheet leverage at 2.4x as of December 31, 2011.
Maintained ample liquidity with total cash and equivalents as of December 31, 2011 of $102.3 million, of which $18.5 million was unrestricted. Unrestricted cash decreased from approximately $27.6 million at September 30, 2011 and restricted cash increased from approximately $74.6 million to $83.8 million.Book Value
Book value per share was $11.42 at the end of the fourth quarter 2011 up from $11.27 at the end of the prior quarter primarily due to net income for the quarter and the amortization of equity compensation into stockholders' equity.
Book value per share increased $0.46 in 2011. Share Count
Average diluted shares outstanding were 52.2 million shares for the quarter down from 52.6 million for prior quarter. Total outstanding shares at December 31, 2011 were 49.3 million compared to 49.5 million at September 30, 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 February 18, 2012 by dialing 800-585-8367. International callers should call 404-537-3406. For all replays, please use the passcode 49012850. 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, Philadelphia, PA, San Francisco CA, and Portland OR. 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 Annual Report on Form 10-K for the year ended December 31, 2011 with the SEC on or before March 15, 2012 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 pages 7 and 8 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 pages 7, 11 and 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 (unaudited)
December 31,September 30,December 31,
($ in thousands)201120112010Assets:
Cash and cash equivalents
Investments in debt securities, available-for-sale