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May 03, 2017

NewStar Reports Net Income of $1.4 Million, or $0.03 per Diluted Share, for the First Quarter of 2017 and Declares $0.02 Quarterly Dividend per Share

  • Investment Activity — New funded direct credit investments totaled $330 million in the first quarter, down from $628 million last quarter, but up 10% from $300 million in the same quarter last year. 
  • Managed Assets — Managed loans and credit investments decreased slightly from the prior quarter to $6.6 billion due to the amortization and redemption of older managed CLOs issued in 2006 and 2007, which was partly offset by growth in loans held-for-sale and assets managed in middle market direct lending funds.
  • Net Interest Margin — The margin narrowed to 1.45% for the first quarter from 1.96% in the fourth quarter as rising index rates and debt prepayment expenses drove the cost of funds higher and the yield on interest earning assets decreased due to lower deferred fee recognition on loan prepayments and an increase in low yielding liquid investments as a percentage of assets.    
  • Revenue — Total revenue[1] decreased by $20.3 million from the prior quarter to $20.1 million in the first quarter despite a $2.3 million increase in fee income from asset management and capital markets activities.  The change was due primarily to a $6.7 million decrease in net interest income and negative market value adjustments totaling $2.7 million in the first quarter.  Revenue in the prior quarter also included a $6.7 million gain on the sale of the equipment finance business and $9.6 million of positive mark-to market adjustments.    
  • Credit — Credit costs increased $3.5 million from the prior period to $6.1 million due primarily to specific provision expense on a single legacy loan in connection with an expected sale of the obligor, while net charge-offs decreased $13.4 million from the prior period to $5.5 million in the first quarter. 
  • Expenses — Operating expenses decreased by $7.8 million, or 40.2%, from the prior period to $11.6 million as the company achieved planned cost saving targets.   
  • Capital Management — Returned approximately $10 million to stockholders in the first quarter through share repurchases and dividends.  Book value per share increased to $15.21 as of March 31, 2017, up $0.09 from the end of the prior quarter. 
  • Quarterly Dividend — Board of Directors declared a quarterly dividend of $0.02 per share of common stock payable on June 15, 2017 to shareholders of record on May 30, 

BOSTON, May 03, 2017 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (NASDAQ:NEWS) ("NewStar" or the "Company"), an internally-managed, middle market direct lender and credit-oriented asset manager, today announced financial results for its first quarter of 2017, reporting net income of $1.4 million, or $0.03 per diluted share. These results compare to net income of $10.3 million, or $0.23 per diluted share in the fourth quarter of 2016 and $4.0 million, or $0.09 per diluted share in the first quarter of 2016. Operating income before income taxes was $2.4 million for the first quarter of 2017 compared to $18.4 million for the fourth quarter of 2016 and $6.9 million in the first quarter of 2016.

Tim Conway, NewStar's Chairman and Chief Executive Officer, commented on the Company's performance: "During the first quarter, we continued to make progress on the transition of our business model from a bank-styled, commercial lender to a hybrid asset manager focused on the credit markets.  We achieved our cost saving targets, reducing expenses by nearly a third in the first quarter.  We also capitalized on market conditions to refinance and reset CLOs, extending investment periods and lowering the cost of funding for investors, while launching marketing efforts for new managed funds employing middle market investment strategies.  We also continued to execute our capital management programs, returning nearly $10 million to stockholders through accretive share repurchases and dividends.  More importantly, we continue to explore other steps needed to accelerate the company's transition and unlock value for our shareholders." 

1 Total revenue is defined as the sum of net interest income and non-interest income

Dividend Policy

  • During the quarter, the Company's Board of Directors adopted a new dividend policy and declared the Company's first dividend, which was paid on March 17, 2017, to shareholders of record at the close of business on March 2, 2017.
  • On May 2, 2017, the Company's Board of Directors declared a quarterly dividend of $0.02 per share of common stock to be paid on June 15, 2017, to shareholders of record at the close of business on May 30, 2017.
  • The declaration and payment of future dividends will be subject to the board's approval. 

Managed and Owned Investment Portfolios

  • Total new funded direct credit investments were $330 million in the first quarter of 2017 compared to $628 million in the prior quarter and $300 million in the same quarter last year.  The pace of investment compared to the fourth quarter reflected a typical seasonal pattern and was up 10% from the comparable prior quarter as demand for acquisition financing derived from middle market leverage buyout activity improved amid an increase in M&A activity.  The impact of higher loan demand was tempered somewhat by an increase in market liquidity. 
  • Balance sheet runoff from scheduled amortization, prepayments and loan sales totaled approximately $366 million in the first quarter, or 10.2% of loan and investment balances at the beginning of the period, down from $405 million in the prior quarter.  Runoff in the first quarter included $296 million of prepayments, $34 million of loan sales and $37 million of contractual amortization compared to prepayments of $303 million, loan sales of $19 million and amortization of $82 million in the prior quarter. 
  • Average yields on new middle market loans and other directly originated credit investments in the first quarter were 6.6%, consistent with the prior two quarters. 
  • Loans and other investments outstanding, excluding assets managed for third parties, increased by $29 million, or 0.8%, from the prior quarter.  Compared to the first quarter of 2016, loans and investments decreased by $114 million, or 3.1%, due primarily to the sales of the asset-based lending and equipment finance businesses in the first and fourth quarters of 2016, respectively.
  • The Leveraged Finance loan portfolio increased by $28.5 million during the first quarter to $3.6 billion due primarily to an increase in loans-held-for-sale targeted for managed funds, and was up $130 million from the prior year as new investment activity outpaced run-off.  Commercial real estate loans were less than $11 million at the end of the first quarter compared to $79 at the same time last year.
  • Assets held in managed funds decreased by $168 million in the first quarter to approximately $3.4 billion and were up $409 million from the same time last year.  The decrease from the prior quarter was due to expected amortization and redemption of CLOs backed by broadly syndicated loans that were past their re-investment periods. 
  • The owned loan portfolio remained defensively positioned - balanced across industry sectors and highly diversified by issuer. As of March 31, 2017, no outstanding borrowings by a single obligor represented more than 1.0% of total loans outstanding, and the ten largest obligors comprised approximately 7.9% of the loan portfolio.
  • During the first quarter, the Company completed refinancings of two managed CLOs for investors, capitalizing on favorable market conditions to reduce the cost of funding. 
  • After quarter-end, NewStar also completed another refinancing of a CLO and what is known as a "reset" of an existing $500 million managed CLO called Longfellow Place in a transaction that extended the investment period by four years among other things.

Net Interest Income / Margin

  • Net interest income decreased by $6.7 million to $14.0 million in the first quarter compared to $20.7 million in the prior quarter.  Compared to the first quarter of last year, net interest income decreased by $8.5 million, or 37.9%.  The decrease was due primarily to lower interest income resulting from a decrease in average loan balances and portfolio yields and higher cost of funds driven by rising LIBOR index rates.  
  • The portfolio yield was 6.29% in the first quarter compared to 6.53% in the prior quarter and 6.28% in the comparable period in the prior year. 
  • Funding costs were 4.99% in the first quarter, up from 4.83% in the fourth quarter and 4.56% in the comparable period in the prior year due to increasing LIBOR index rates, acceleration of capitalized financing fees in connection with early debt retirement and higher average cost of funds for new CLO issuance. 
  • As a result, the net interest margin narrowed to 1.45% for the first quarter of 2017 compared to 1.96% for the prior quarter and 2.21% in the first quarter of 2016.   

Non-Interest Income

  • Non-interest income decreased by $13.6 million to $6.2 million for the first quarter of 2017 compared to $19.8 million in the prior quarter and $19.2 million in the same period last year. The change reflected a $7.9 million decrease in net unrealized gains on loans held for sale and negative mark to market adjustments totaling $2.8 million compared to positive adjustments of $1.8 million in the prior quarter, which was partially offset by a $2.3 increase in fee and asset management income.  The decrease also reflected the impact of a $6.7 million gain recognized in the prior quarter on the sale of the equipment finance platform and related assets. 
  • Other non-interest income items in the first quarter of 2017 were centered in asset management fees of $3.6 million and $3.2 million of capital markets-related fees. 

Credit Performance

  • Provision expense was $6.1 million in the first quarter, up from $2.6 million in the prior quarter, but down from $17.7 million in the same quarter last year.        
  • Total net specific provision expense increased by approximately $3.8 million in the first quarter to $6.3 million compared to $2.5 million in the prior quarter and $16.6 million in the same quarter last year.  Provisioning activity in the first quarter included a $4.5 million specific charge in connection with the expected sale of a borrower in connection with the resolution of a long-term work-out. 
  • Net charge-offs in the first quarter of 2017 were $5.5 million compared to $18.9 million in the prior quarter. 
  • The allowance for credit losses was $52.1 million, or 1.85% of consolidated loans and approximately 50.7% of non-performing loans (NPLs), at March 31, 2017, compared to $51.4 million, or 1.76% of consolidated loans and approximately 51.8% of NPLs, at December 31, 2016. 
  • Non-performing loans increased slightly to $102.8 million, or 3.18% of loans held for investment at March 31, 2017, compared to $99.2 million or 2.99% of loans held for investment at the end of the prior quarter.  

Expenses

  • Total operating expenses for the first quarter decreased by $7.8 million to $11.6 million compared to $19.5 million in the prior quarter, reflecting targeted cost savings despite elevated transaction-related expenses recognized in connection with the reset of the 2013-1 CLO. 
  • As a result, expenses as a percentage of average assets under management decreased to 0.68% in the fourth quarter compared to 1.15% in the prior quarter.
  • Adjusted operating expenses, which excludes non-cash equity compensation and severance costs, were $10.8 million in the first quarter down from $15.0 million during the fourth quarter. 
  • The Company had 68 full-time employees at March 31, 2017 compared to 69 full-time employees at December 31, 2016 and 95 employees at March 31, 2016.  The reduction in staffing levels during 2016 reflects the sale of the asset-based lending and equipment finance businesses, as well as other related strategic initiatives to streamline operations. 

Income Taxes

  • Deferred income taxes decreased $0.2 million to $40.6 million as of March 31, 2017.  The decrease was driven primarily by timing differences related to compensation expense recognition and changes in available for sale securities, which was partly offset by activity in the allowance for credit losses.  
  • Approximately $25.9 million and $7.6 million of the net deferred tax asset as of March 31, 2017 were related to our allowance for credit losses and incentive compensation, respectively.

Funding and Capital

  • Total cash and equivalents as of March 31, 2017 were $324.7 million, of which $15.4 million was unrestricted.
  • Unrestricted cash decreased to $15.4 million at March 31, 2017 from $154.5 million at the end of the prior quarter due primarily to cash management activities, including discretionary repayment of advances under credit facilities and temporary investments in liquid loans.  Total available liquidity was $118 million at March 31, 2017, including unrestricted cash and $102.5 million of collateralized availability under credit facilities. 
  • Restricted cash increased by $46.7 million to $309.4 million at March 31, 2017 due primarily to cash collections on assets held in CLOs and other special purpose vehicles (SPVs) ahead of settlement dates, when restricted cash is disbursed to various stakeholders, including the Company.
  • Advances under credit facilities decreased by $71.4 million to $374.1 million during the first quarter due primarily to discretionary repayments in connection with cash management activities.
  • The Company completed a new $400 million term debt securitization known as 2017-1 CLO, which issued replacement notes to refinance the existing 2013-1 CLO and extended the investment period by two years to March 2019 in what is known as a "reset" transaction.
  • Term debt securitization balances decreased from the prior quarter by $53.1 million to $2.1 billion at March 31, 2017.
  • As a result, total debt decreased by approximately $119.3 million to $3.2 billion at March 31, 2017 and leverage decreased to 5.0x compared to 5.1x at the end of the prior quarter.

Equity

  • Book value per share increased by $0.09 to $15.21 at the end of the first quarter compared to $15.12 at the end of the prior quarter due primarily to accretive share repurchases and retained earnings. 
  • Average diluted shares outstanding totaled 41.8 million for the quarter, down from 43.8 million for the prior quarter, and total outstanding shares at March 31, 2017 were 42.3 million compared to 42.8 million at December 31, 2016.
  • The Company repurchased 896,841 shares at an average cost of $9.80, or approximately $9 million, and paid dividends totaling $0.9 million in the first quarter.    
  • Pre-tax returns on average equity decreased to
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Apr 19, 2017

NEWSTAR SCHEDULES RELEASE OF RESULTS FOR THE FIRST QUARTER OF 2017

Boston, April 19, 2017 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. ("NewStar") (NASDAQ:NEWS) announced today that it will report financial results for the first quarter of 2017 on Wednesday, May 3, 2017 before the markets open.

NewStar will also host a webcast/conference call to discuss the results on Wednesday, May 3, 2017 at 10:00am Eastern Time.  All interested parties are invited to participate via telephone or webcast, which will be hosted through the News & Noteworthy section of the company's website 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 11, 2017 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 8405117. The audio replay will also be available through the News & Noteworthy section of our website at www.newstarfin.com

About NewStar Financial, Inc.:

NewStar Financial, Inc. (Nasdaq:NEWS) is an internally-managed commercial finance company with $6.7 billion of assets managed across two complementary business lines — middle market direct lending and asset management. The Company's direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options to fund working capital, growth strategies, acquisitions and recapitalizations. Through its asset management platforms, NewStar also offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit.

NewStar is headquartered in Boston MA and has regional offices in Chicago IL, Darien CT, and New York NY. Please visit our website at www.newstarfin.com for more detailed information. 

CONTACT: NewStar Financial Robert K. Brown 617.848.2558 rbrown@newstarfin.com
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Feb 14, 2017

NewStar Adopts New Dividend Policy and Declares First Quarterly Dividend

BOSTON, Feb. 14, 2017 (GLOBE NEWSWIRE) -- NewStar Financial Inc. (Nasdaq:NEWS), a specialized commercial finance company, announced today that its Board of Directors adopted a new dividend policy and declared a quarterly dividend of $0.02 per share of common stock.  The dividend is expected to be paid on March 17, 2017, to shareholders of record at the close of business on March 2, 2017.  This marks the first dividend paid to stockholders in the company's history.  The declaration and payment of future dividends will be subject to the board's approval. 

The dividend policy is intended to provide more balance to the company's strategy to return capital to its shareholders, which, to date, has focused on share repurchases.  The company returned $43 million of capital to shareholders in 2016 through share repurchases and the board previously authorized another buyback program for 2017 for up to $30 million.   

Commenting on the dividend, NewStar CEO Tim Conway said, "The board's decision to adopt a quarterly dividend policy in addition to its previous authorization of a buyback program reflects our strong belief in the intrinsic value of the company and demonstrates our commitment to improving the investment value of our stock as we continue to capitalize on strategic market opportunities."

About NewStar Financial, Inc.:

NewStar Financial Inc. (NASDAQ:NEWS) is an internally-managed, commercial finance company with $6.7 billion of assets managed across two complementary business lines — middle market direct lending and asset management.  The Company's direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options.  Credit investments are originated directly through teams of experienced, senior bankers and marketing officers organized around key industry and market segments. Through its asset management platforms, NewStar offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit. The Company manages approximately $1.3 billion of assets in a series of private credit funds and separate accounts that co-invest in middle market loans originated through its established leveraged finance lending platform and its strategic relationship with GSO Capital, the credit division of The Blackstone Group. Through its wholly-owned subsidiary, NewStar Capital, the Company also has more than $2 billion of assets managed across a series of CLOs that invest primarily in broadly syndicated, non-investment grade loans, as well as other sponsored funds and managed accounts that invest across various asset classes, including non-investment grade loans and bonds. 

NewStar is headquartered in Boston MA and has regional offices in Chicago, IL, Darien, CT, and New York, NY. For more detailed information, please visit our website at www.newstarfin.com.

Forward-looking Statements

Statements in this press release regarding the company's intention to pay quarterly dividends on its common stock from time to time as part of a new dividend policy are forward looking statements.  There are a number of important factors that could cause actual events to differ materially from those suggested or indicated by such forward-looking statements.  These include, among others, the market price of the company's stock prevailing from time to time, the company's cash flows from operations, general economic conditions, the application of restrictive covenants in the company's debt instruments and other factors identified in the company's Annual Report on Form 10‑K and most recent Quarterly Reports on Form 10-Q filed with the SEC.

Corporate Inquiries: NewStar Financial Robert K. Brown (617) 848-2558
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Feb 14, 2017

NewStar Reports Net Income of $10.3 Million, or $0.23 per Diluted Share, for the Fourth Quarter and $28.2 Million, or $0.61 per Diluted Share, for FY 2016

 

  • Divestiture — Sold equipment finance platform and related assets for $105 million in cash, or approximately 1.2x allocated book value, net of debt repayment, transactions fees and other retained liabilities.  The transaction generated a gain of approximately $6.7 million in the fourth quarter.
  • Investment Activity — New funded credit investments totaled $671 million in the fourth quarter and $1.9 billion for the full year, compared to $427 million last quarter and $3 billion for the full year in 2015.
  • Managed Assets — Managed loans and credit investments increased by 1.3% from the prior quarter to more than $6.7 billion as growth in managed funds offset the impact of the equipment finance asset sale during the quarter. Excluding the impact of ABL and equipment finance divestitures in 2016, managed loans and credit investments increased $306 million, or 4.8%, from the same period last year due to new fund formation and growth in balance sheet lending programs. 
  • Revenue — Total revenue  increased by $4.2 million, or 11.7%, from the prior quarter to $40.5 million in the fourth quarter due primarily to a gain recognized on the sale of the equipment finance platform and related assets, as well as favorable mark-to-market adjustments. Total revenue for the full year increased by $44.5 million, or 44.9%, to $143.6 million compared to $99.1 million in 2015 due primarily to gains recognized on the sales of the asset-based lending and equipment finance businesses, as well as a significant increase in asset management fee revenue and favorable mark-to-market adjustments. 
  • Net Interest Margin — The margin narrowed to 1.96% for the fourth quarter from 2.50% in the third quarter and 2.19% for 2016, down from 2.39% in the prior year as an increase in portfolio yield was outpaced by higher interest expense due primarily to debt prepayment expenses, increases in LIBOR index rates and wider credit spreads on new CLO issuance.  
  • Credit — Credit costs decreased $0.9 million from the prior period to $2.6 million and were up $9.2 million for the full year compared to 2015.  Net charge-offs for fourth quarter were $18.9 million due primarily to a planned restructuring of a legacy loan, which was also placed on non-accrual status.  Net charge-offs for the year were $33.0 million compared to $3.4 million for 2015 as several long-term work-outs were resolved and charge-offs were applied against previously established reserves.
  • Expenses — Cost saving targets were achieved in the fourth quarter as run-rate operating expenses were reduced to $11.3 million, excluding $4.7 million of operating and transaction expenses related to the equipment finance business and $3.5 million of severance expense related to cost saving initiatives. 
  • Capital Management — Returned $43.0 million of capital to shareholders in 2016 through accretive share repurchases, including $34.1 million in the fourth quarter. Book value per share increased to $15.12 as of December 31, 2016, up $0.74 from the end of the prior quarter and $0.95 from the end of last year.  Subsequent to year-end, NewStar also adopted a new quarterly dividend policy and declared a $0.02 dividend payable on March 17, 2017 to holders of record on March 2, 2017, marking the first dividend paid to stockholders in the company's history. 

BOSTON, Feb. 14, 2017 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (NASDAQ:NEWS) ("NewStar" or the "Company"), an internally-managed, middle market direct lender and credit-oriented asset manager, today announced financial results for its fourth quarter of 2016, reporting net income of $10.3 million, or $0.23 per diluted share. These results compare to net income of $8.6 million, or $0.19 per diluted share in the third quarter of 2016 and $4.2 million, or $0.09 per diluted share in the fourth quarter of 2015. Operating income before income taxes was $18.4 million for the fourth quarter of 2016 compared to $14.6 million for the third quarter of 2016 and $7.1 million in the fourth quarter of 2015.

The company also announced financial results for its fiscal year, reporting net income of $28.2 million, or $0.61 per diluted share for 2016 compared to $16.9 million, or $0.35 per diluted share in 2015.  Income from operations before income taxes was $48.7 million for 2016 compared to $28.8 million in 2015. 

Tim Conway, NewStar's Chairman and Chief Executive Officer, commented on the Company's performance: "We made significant progress on our key priorities in 2016 as we took important steps to streamline operations, reduce costs and reposition NewStar as a credit-oriented asset manager, while also returning a meaningful amount of capital to our shareholders.   We sold two non-core businesses at substantial premiums, increasing our liquidity and financial flexibility.  We reduced baseline expenses by 33% on a run-rate basis as of the fourth quarter, improving profitability.  And, we continued to expand our asset management activities with the launch of two new credit funds and a separate account with target investment portfolios of approximately $1 billion.  More than 53% of our credit investments are now held in managed funds and we doubled our management fee income in 2016." 

"Our financial results reflected the progress we are making as pre-tax returns on equity exceeded 11% in the quarter.  Revenue was up nearly 12% over last quarter and 46% from the same quarter last year. Credit costs remained within expected ranges.  Loan demand from M&A activity rebounded and our investment pace returned to expected levels.  Importantly, we returned $43 million, or 6.5% of our average equity capital, to investors in 2016 and recently declared our first quarterly dividend.  The board's decision to adopt a quarterly dividend policy was intended to provide more balance to our capital management strategy, reflecting our commitment to improve the investment value of our stock."

Sale of Equipment Finance platform and related assets

  • On December 1, 2016, the Company sold its equipment finance platform and related assets to Boston-based Radius Bank for $105 million in cash, net of debt repayment, transaction fees and certain retained liabilities. 
  • NewStar's equipment finance business was an independent provider of flexible equipment financing solutions to middle market companies nationwide. NewStar launched the business in 2011 and expanded it significantly over the last five years.
  • The purchase price reflected a premium of approximately 5% of NewStar's net investment in receivables, totaling approximately $133 million, and was approximately 1.2x book value, based on allocated equity capital of 30% of net receivables.
  • The sale generated a gain of approximately $6.7 million in the fourth quarter.  Total transaction costs of $4.3 million were included in operating expenses.

Dividend Policy

  • On February 10, 2017, the Company's Board of Directors adopted a new dividend policy and declared a quarterly dividend of $0.02 per share of common stock. 
  • The dividend is expected to be paid on March 17, 2017, to shareholders of record at the close of business on March 2, 2017. 
  • This marks the first dividend paid to stockholders in the company's history.  The declaration and payment of future dividends will be subject to the board's approval. 

Managed and Owned Investment Portfolios

  • Total new funded credit investments were $671 million in the fourth quarter of 2016 compared to $427 million in the prior quarter and $700 million in the same quarter last year.  The pace of investment accelerated somewhat in the fourth quarter as demand for acquisition financing derived from middle market leverage buyout activity improved amid an increase in M&A activity.
  • New funded credit investments were approximately $1.9 billion for the full year compared to $3 billion in 2015 and $1.8 billion in 2014.  The decrease in investment activity reflected credit selectivity and slack demand for acquisition financing due to a weaker M&A activity in the first three quarters of the year. 
  • Balance sheet runoff from scheduled amortization, prepayments and loan sales (excluding the sale of the equipment finance business) totaled approximately $405 million in the fourth quarter, or 10.2% of loan and investment balances at the beginning of the period, up from $226 million, or 5.7% of balances in the prior quarter.  Runoff in the fourth quarter included $303 million of prepayments, $19 million of loan sales and $82 million of contractual amortization compared to prepayments of $148 million, loan sales of $27 million and amortization of $51 million in the prior quarter. 
  • Average yields on new middle market loans and other directly originated credit investments in the fourth quarter were 6.65%, consistent with the prior quarter.  Average yields for the full year were 6.91% compared to 6.54% in 2015. 
  • Loans and other investments outstanding, excluding assets managed for third parties, decreased by $381 million, or 9.6%, from the prior quarter.  The decrease was due primarily to the sale of $158 million of equipment finance loans and leases (gross) and the transfer of $485 million of loans-held-for-sale into a new managed fund during the fourth quarter.  Compared to the fourth quarter of 2015, loans and investments decreased by $239 million, or 6.2%, due to the sale of the ABL business in the first quarter of 2016, the sale of the equipment finance portfolio in the fourth quarter and the transfer of loans to managed funds which was partly offset by growth in the Leveraged Finance loan portfolio. 
  • The Leveraged Finance loan portfolio decreased by $215 million during the fourth quarter to $3.6 billion due primarily to the transfer of loans-held-for-sale to a new manage fund, but was up $367 million from the prior year due as new investment activity outpaced run-off.  Commercial real estate loans decreased by 40% in the fourth quarter and by 90% for the year to less than $11 million compared to $101 at the end of 2015. The sale of equipment finance related assets reduced gross loans and leases by $158.3 million.
  • Assets held in managed funds increased by $483 million, or 16%, in the fourth quarter to approximately $3.6 billion at year-end due to the formation of a new $500 million managed fund.  For the full year, assets held in managed funds increased by 14% as growth in AUM from new fund formation assets more than offset a decrease in assets managed in funds past their investment periods.    
  • The owned loan portfolio remained defensively positioned - balanced across industry sectors and highly diversified by issuer. As of December 31, 2016, no outstanding borrowings by a single obligor represented more than 0.8% of total loans outstanding, and the ten largest obligors comprised approximately 7.6% of the loan portfolio.

Net Interest Income / Margin

  • Net interest income decreased by $4.6 million to $20.7 million in the fourth quarter compared to $25.3 million in the prior quarter due primarily to $3.2 million of previously unrecorded interest income recognized during the third quarter in connection with the pay-off of a nonperforming loan at par.  Compared to the fourth quarter of last year, net interest income decreased by $3.7 million, or 15.1%.
  • For the full year, net interest income increased $8.6 million, or 10.6% due primarily to higher average balances and improvement in the portfolio yield. 
  • The portfolio yield was 6.53% in the fourth quarter compared to 6.77% the prior quarter and 6.33% in the comparable period in the prior year.  The decrease in yield from the prior quarter was due primarily to the non-recurring income recognized during the third quarter in connection with the pay-off of a non-performing loan at par and an increase in deferred fee amortization related to prepayments.  The increase from the prior year reflects the impact of higher yielding new credit investments. 
  • Funding costs were 4.83% in the fourth quarter, which was relatively consistent with 4.67% in the third quarter, but up from 4.32% in the comparable period in the prior year due to acceleration of capitalized financing fees in connection with early debt retirement, increasing LIBOR index rates and higher average cost of funds for new CLO issuance. 
  • As a result, the net interest margin narrowed to 1.96% for the fourth quarter of 2016 compared to 2.50% for the prior quarter and 2.45% in the fourth quarter of 2015.  The net interest margin was 2.19% for the full year compared to 2.39% last year. 

Non-Interest Income

  • Non-interest income increased by $8.8 million to $19.8 million for the fourth quarter of 2016 compared to $11.0 million in the prior quarter and $3.3 million in the same period last year. The increase reflected a $6.7 million gain recognized on the sale of the equipment finance platform and related assets as well as an increase of $7.3 million in net unrealized gains on loans held for sale. 
  • Other non-interest income items in the fourth quarter of 2016 were centered in asset management fees of $3.1 million and $1.4 million of capital markets-related fees. 
  • Non-interest income increased by $35.9 million to $54.3 million for the full year of 2016 compared to $18.4 million last year.  The increase reflected $29.2 million of gains recognized on divestitures and an increase of $6.7 million of asset management fees. 

Credit Performance

  • Provision expense remained within expected ranges in the fourth quarter at $2.6 million, down from $3.6 million in the prior quarter and $3.7 million in the same quarter last year.
  • Total provision expense for 2016 was $27.5 million, or 0.71% of average loans and investments during the year, up from $18.4 million, or 0.57% of average loans and investments in 2015 due primarily to the accelerated disposition of certain commercial real estate loans and the resolution of legacy impaired loans in the first quarter of 2016. 
  • Total net specific provision expense decreased by approximately $0.7 million in the fourth quarter of 2016 to $2.5 million compared to $3.2 million in the prior quarter and $2.4 million in the same quarter last year.  Specific provision expense was $24.8 million for the full year compared to $9.5 million last year. 
  • Net charge-offs in the fourth quarter of 2016 were $18.9 million compared to a small recovery in the prior quarter.  Charge-off activity in the fourth quarter was due primarily to the restructuring of a legacy impaired loan for which specific reserves had previously been established to cover the charge-off.  Although the remaining $12.7 million balance of the restructured loan was performing, it was placed on non-accrual status on a discretionary basis until the company demonstrates further progress on its turnaround strategy.  Net charges-offs for the year were $33.0 million, or 0.88% of average loans compared to $3.4 million, or 0.11% of average loans in 2015.
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Jan 31, 2017

NEWSTAR SCHEDULES RELEASE OF RESULTS FOR THE FOURTH QUARTER AND FISCAL YEAR OF 2016

Boston, Massachusetts, Jan. 31, 2017 (GLOBE NEWSWIRE) --

NewStar Financial, Inc. ("NewStar") (NASDAQ:NEWS) announced today that it will report financial results for the fourth quarter and fiscal year of 2016 on Tuesday, February 14, 2017 before the markets open.

NewStar will also host a webcast/conference call to discuss the results on Tuesday, February 14, 2017 at 10:00am Eastern Time.  All interested parties are invited to participate via telephone or webcast, which will be hosted through the Investor Relations section of the company's website 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 22, 2017 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 56986355. The audio replay will also be available through the Investor Relations section of our website at www.newstarfin.com

About NewStar Financial, Inc.:

NewStar Financial, Inc. (Nasdaq:NEWS) is an internally-managed commercial finance company with more than $6 billion of assets managed across two complementary business lines — middle market direct lending and asset management. The Company's direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options to fund working capital, growth strategies, acquisitions and recapitalizations. Through its asset management platforms, NewStar also offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit.

NewStar is headquartered in Boston MA and has regional offices in Chicago IL, Darien CT, and New York NY. Please visit our website at www.newstarfin.com for more detailed information. 

NewStar Financial Inc. Robert K. Brown 617.848.2558 rbrown@newstarfin.com

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