NewStar Reports First Quarter 2012 Net Income of $6.1 Million, or $0.12 Per Diluted Share
Origination and Credit Performance Highlight Solid Operating ResultsStrong Loan Growth - New funded loan volume exceeded $240 million, driving 16% annualized net growth in managed assets
Increased Lending Capacity - Added new $150 million credit facility to support continued loan growth
Attractive Margins - Margin increased as compared to Q1 2011, but narrowed sequentially from 4.77% in Q4 2011 to 4.30% in Q1 2012 due to slower loan prepayments
Continued Positive Credit Trends - Provision expense, net charge-offs and additions to non-accruals declined sequentially and from the same period in the prior year
Lower NPAs - NPAs fell by 15% to $86.5 million, or 4.6% of loans from 5.6% at year-end
Operating Efficiency — Adjusted operating expenses, excluding non‑cash equity compensation, were 1.78% of average assets, or 37.1% of revenue
Building Book Value - Book value per share increased $0.15 to $11.57
BOSTON, May 2, 2012 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, today reported net income of $6.1 million, or $0.12 per diluted share for the first quarter of 2012. These results compare to net income of $0.9 million, or $0.02 in the first quarter of 2011 and $6.4 million in the prior quarter. Income before income taxes (pre-tax income) was $10.4 million for the first quarter of 2012, up from $10.0 million in the prior quarter and $1.6 million in the first quarter of 2011.
"I am pleased to report another solid quarter highlighted by strong loan growth, improving credit performance and a 3.6% increase in pre-tax income," said Tim Conway, NewStar's Chairman and Chief Executive Officer. "More than $240 million of loan volume drove 16% annualized growth in our managed assets. Credit performance also continued to improve this quarter as provision expense, charge-offs and additions to non-accruals all declined, while we reduced NPAs by 15%," he added "I am pleased with our results in the quarter and continue to be optimistic about 2012. With a lending staff that now totals more than 60 professionals, I believe that our national specialized lending platforms are well-positioned to meet customers' needs and continue to gain market share," he concluded.Managed and Owned Loan Portfolios
Total new funded loan origination volume was $241 million in the first quarter compared to $257 million in the prior quarter and $160 million in the first quarter of the prior year.
The managed loan portfolio grew at a 16% annualized rate in the first quarter to $2.5 billion as of March 31, 2012, reflecting the net impact of continued strong new loan origination, which was partially offset by scheduled amortization and prepayments of existing loans.
Net loan growth in the owned portfolio was 11% on an annualized basis in the first quarter as the loan portfolio increased to $1.94 billion as of March 31, 2012 from $1.88 billion as of December 31, 2011. Loan growth was driven by a 4% increase in Leveraged Finance loans, or 16% on an annualized basis, and a 35% increase in the Business Credit loan portfolio, which was partially offset by an 18%, or $48.7 million, decrease in Real Estate loans.
Assets managed for third party institutional investors increased almost 9% in the first quarter to approximately $563 million at March 31, 2012 compared to $518 million at December 31, 2011.
Asset-based lending and equipment finance businesses originated $30 million in the first 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 March 31, 2012, no outstanding borrowings by a single obligor represented more than 1.4% of total loans outstanding, and the ten largest obligors comprised approximately 9.8% of the loan portfolio.Net Interest Income / Margin
Net interest income before provision for credit losses decreased to $21.2 million for the first quarter of 2012 compared to $23.5 million for the fourth quarter of 2011, but increased from $18.4 million in the first quarter of last year. Approximately $1.4 million of the sequential decrease was due to lower deferred fee income as prepayments slowed in the quarter and approximately $1.0 was due to higher interest expense associated with increased debt levels.
Net interest margin narrowed to 4.30% for the first quarter of 2012 compared to 4.77% for the fourth quarter of 2011, but increased from 4.03% in the first quarter of last year.
Adjusting for the impact of non-performing loans, the loan portfolio yield would have been 38 bps higher and net interest margin would have been 4.68%. Non-Interest Income
Non-interest income was $2.8 million for the first quarter of 2012 compared to $1.9 million for the fourth quarter of 2011.
Non-interest income in the first quarter of 2012 consisted primarily of a $0.9 million gain on the repurchase of debt, $0.8 million of loan syndication fees, $0.7 million of asset management income, and $0.4 million of unused fees on revolving credit commitments, which was partially offset by a $0.5 million loss on the sale of loans.Expenses
Operating expenses decreased to $10.7 million in the first quarter of 2012 compared to $11.1 million in the fourth quarter of 2011 due primarily to lower compensation expense and professional fees.
Adjusted operating expenses, excluding non-cash equity compensation, were $8.9 in the first quarter of 2012, or 1.78% of average assets an annualized basis.
The adjusted efficiency ratio, excluding non-cash equity compensation, in the first quarter of 2012 was 37.1%
The Company had 92 full-time employees as of March 31, 2012.Income Taxes
Deferred income taxes were relatively consistent at $48.0 million as of March 31, 2012 compared to $47.9 million as of December 31, 2011. The slight increase reflected an increase in the difference in the timing of when equity compensation expenses are recognized according to GAAP and when they are deductible for income tax.
Approximately $26.0 million and $13.6 million of the deferred tax asset as of March 31, 2012 were related to our allowance for credit losses and equity compensation, respectively.Loan Credit Quality
Credit performance continued to normalize as most key credit metrics improved in the first quarter of 2012.
Total credit costs (including provision for credit losses and losses on OREO or interests retained in connection with workouts of impaired loans) in the first quarter decreased to $2.9 million from $4.3 million in the prior quarter.
Provision expense of $2.9 million in the quarter was 0.63% of average loans on an annualized basis.
The component of provision expense used to establish additional specific reserves was approximately $1.6 million in the first quarter of 2012, up from $0.4 million in the fourth quarter of 2011.
The allowance for credit losses was $64.1 million, or 3.43% of loans and 83.1% of NPLs, at March 31, 2012, compared to $64.1 million, or 3.52% of loans, at December 31, 2011.
No new loans were placed on non-accrual status in the first quarter of 2012.
Non-performing assets decreased by $15.6 million, or 15%, from the end of 2011. Approximately $11.5 million of the decrease was due to the final resolution of three troubled credits and approximately $1.2 million was related to loan repayment activity. The remaining $2.9 million of the reduction reflected the impact of net charge-offs.
At March 31, 2012, loans with an aggregate outstanding balance of $77.1 million, net of charge-offs, were on non-accrual status compared to loans with an aggregate outstanding balance of $102.2 million, net of charge-offs, at December 31, 2011. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $86.5 million, or 55.4% of their aggregate face amount, as of March 31, 2012.
Non-accrual loans with an outstanding balance of $49.4 million as of March 31, 2012 were also delinquent.
Net charge-offs were $2.9 million, or 0.62% of loans on an annualized basis, in the first quarter of 2012 compared to $13.2 million, or 2.89% of loans on an annualized basis, in the fourth quarter of 2011.Funding and Capital
Entered into a new $150 million warehouse credit facility due February 2017 with an affiliate of Natixis Financial Products LLC, which increased total warehouse borrowing capacity to $650 million.
Increased available liquidity by $25 million through an amendment of a credit facility with Fortress Credit Corp., increasing the size of the facility from $100 million to $125 million and extending the effective maturity by two years.
Increased balance sheet leverage to 2.55x as of March 31, 2012 from 2.40x at December 31, 2011 due primarily to increased borrowings under warehouse lines to fund new loan origination and $25 million of additional corporate debt advanced under our credit facility with Fortress Credit Corp.
Maintained ample liquidity with total cash and equivalents as of March 31, 2012 of $122.3 million, of which $17.4 million was unrestricted. Unrestricted cash decreased from approximately $18.5 million at December 31, 2011 and restricted cash increased from approximately $83.8 million to $105.0 million.Book Value
Book value per share was $11.57 at the end of the first quarter 2012 up from $11.42 at the end of the prior quarter primarily due to net income for the quarter and the amortization of equity compensation into stockholders' equity.Share Count
Average diluted shares outstanding were 52.2 million shares for the quarter, which was approximately equal to the prior quarter. Total outstanding shares at March 31, 2012 were 49.3 million, which was consistent with outstanding shares as of December 31, 2011.
Repurchased 181,723 shares of common stock at an average price of $10.05 during the first quarter of 2012. 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 May 9, 2012 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 72740596. 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, Atlanta GA, Chicago IL, Dallas TX, Los Angeles CA, Philadelphia, PA, San Francisco CA, and Portland OR. For more detailed 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 2011 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 March 31, 2012 with the SEC on or before May 10, 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 "operating expenses, excluding non-cash equity compensation" mean operating expenses as determined under GAAP, excluding compensation expense related to restricted stock grants and option grants. GAAP requires that these items be included in operating expenses. NewStar management uses "operating expenses, excluding non-cash equity compensation" 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 and option grants eliminates unique amounts that make it difficult to assess our core performance and compare our period‑over‑period results. A reconciliation of operating expenses, excluding non-cash equity
compensation to operating expenses is included on page 9 of this release.NewStar Financial, Inc.
Consolidated Balance Sheets
March 31,December 31,March 31,
($ in thousands)201220112011Assets:
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