Stable Margins and Credit Performance Drive Strong Earnings
* Generated $7.6 million of adjusted net income in the second
quarter, or $0.16 adjusted earnings per diluted share
* Earned $5.9 million of net income in the second quarter, or
$0.12 net income per diluted share on a GAAP basis, which
reflects $1.5 million after-tax non-cash equity compensation
expense
* Capitalized on compelling market opportunities, originating
$157 million of new loans with conservative credit profiles and
average yields greater than 5% above LIBOR
* Reinforced liquidity through early renewal of $400 million
warehouse line with Wachovia and renewal of $75 million warehouse
line with Natixis Financial Products
* Added to funding capacity by increasing existing term debt
facility with Deutsche Bank from $300 million to $400 million
* Managed credit performance within expected parameters reflected
by stable credit metrics
BOSTON, Aug. 6, 2008 (PRIME NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based commercial finance company, today reported adjusted net income for the second quarter of 2008 of $7.6 million, or $0.16 per diluted share. On a GAAP basis, the Company reported net income of $5.9 million, or $0.12 per diluted share, which reflects a $1.5 million after-tax non-cash equity compensation expense related to the 2006 IPO and a $0.2 million after-tax loss on the retained residual interest in securities sold in the second quarter of 2007.
"Adjusted net income" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 4. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
"NewStar delivered strong operating performance in the second quarter as we continued to capitalize on compelling opportunities in a favorable lending environment," said Tim Conway, Chairman and Chief Executive Officer. "I believe we are among the most active lenders in the middle market and have been building share since the dislocation in the credit markets began.
"From a credit perspective, we continue to be defensively positioned with a highly diversified portfolio focused on first lien senior debt. Our continued strong credit performance clearly reflects the benefits of our business model, which focuses on direct origination and disciplined credit management."
"NewStar delivered strong financial results in the second quarter led by stable margins and continued solid credit performance," said John Kirby Bray, Chief Financial Officer. "The balance sheet continued to reflect conservative leverage with liquidity and funding capacity sufficient to provide the flexibility to support increasing origination volumes."
Funding and Capital
* NewStar had $665 million of funding capacity, with approximately
$550 million of available borrowing capacity under its credit
facilities and existing term debt securitizations (CLOs) as of
June 30, 2008.
* Total cash and equivalents as of June 30, 2008 were $216 million,
of which $134 million was unrestricted.
* NewStar reinforced its liquidity through an early renewal of its
$400 million warehouse line with Wachovia and a renewal of its
$75 million warehouse line with Natixis Financial Products.
* NewStar added to its funding capacity by increasing its existing
term debt facility with Deutsche Bank from $300 million to
$400 million.
Origination Volume
* Overall origination volume for the second quarter of 2008 was
$157 million, of which $142 million was retained on NewStar's
balance sheet, $8 million was syndicated to others and $7 million
was sold to the NewStar Credit Opportunities Fund (NCOF).
* Credit spreads and amortizing fees on new loans originated in the
second quarter continued to improve, with average yields greater
than 5% above LIBOR, which is an increase of more than 150bps
from the second quarter of 2007.
* Corporate lending represented 100% of the new volume in the
quarter.
Managed and Owned Loan Portfolios
* Managed loan portfolio was $3.0 billion as of June 30, 2008,
equal to the level at March 31, 2008, reflecting the net impact
of $157 million of new origination, which was offset by
prepayments and ongoing amortization. Managed loan portfolio was
up 23% from $2.5 billion as of June 30, 2007.
* Assets managed for the NCOF were $593 million at June 30, 2008,
nearly equivalent to the level at March 31, 2008 and up 32% from
$449 million at June 30, 2007.
* The owned loan portfolio continued to be balanced across industry
sectors and highly diversified by issuer. As of June 30, 2008,
no single issuer represented more than approximately 1% of total
assets, excluding loans held-for-sale, and the ten largest
issuers comprised approximately 10% of the loan portfolio.
* The composition of the owned loan portfolio continued to reflect
a focus on senior debt with 94.6% invested in senior secured
loans and debt investments at June 30, 2008.
Net Interest Income / Margin
* Net interest income before provision for credit losses was
$26.5 million for the second quarter of 2008 compared to
$26.7 million for the first quarter of 2008 and $23.3 million for
the second quarter of 2007.
* Net interest margin was 4.17% for the second quarter of 2008
compared to 4.19% for the first quarter of 2008 and 4.22% for the
second quarter of 2007. As the benefit from the timing
difference between asset and liability repricing tied to LIBOR
diminished, increases in the marginal cost of funds were offset
by improvements in credit spreads on new origination volume.
Non-Interest Income
* Non-interest income was $1.6 million for the second quarter of
2008 compared to $3.2 million for the first quarter of 2008, and
$0.4 million for the second quarter of 2007.
* Adjusted non-interest income, excluding the impact of the write-
down on the retained residual interest, was $1.9 million in the
second quarter of 2008 compared to $3.5 million in the first
quarter of 2008 and $4.8 million in the second quarter of 2007,
reflecting lower capital market fees and a decline in fair value
of equity/securities positions.
* Adjusted non-interest income in the second quarter of 2008
consisted primarily of $1.5 million of asset management income,
$0.5 million of syndication and agency fees, $0.4 million of
amendment fees and $0.4 million of structuring and placement
fees.
Loan Credit Quality
* The provision for credit losses was $3.7 million in the second
quarter of 2008, down from $4.6 million in the first quarter of
2008.
* Allowance for credit losses was $38.2 million or 1.60% of loans
at June 30, 2008, compared to $36.8 million or 1.58% at March 31,
2008 and $25.4 million or 1.40% at June 30, 2007.
* Non-accrual loans were $10.1 million at June 30, 2008 compared to
$9.8 million at March 31, 2008. Additionally, the Company had
one $7.0 million loan at June 30, 2008 which was other real
estate owned ("OREO") as a result of a foreclosure on an impaired
loan.
* NewStar established $2.7 million specific reserves in the second
quarter of 2008 compared to $3.5 million in the first quarter of
2008.
* NewStar charged-off $2.3 million or 0.38% of loans on an
annualized basis in the second quarter of 2008 compared to
$3.4 million or 0.58% of loans on an annualized basis in the
prior quarter.
* Allowance for credit losses of $38.2 million at June 30, 2008 was
more than three times the non-accrual loans level of
$10.1 million at June 30, 2008.
Expenses
* Operating expenses decreased to $13.5 million in the second
quarter of 2008, which included $1.3 million of severance costs,
from $14.9 million in the first quarter of 2008, reflecting the
timing of employee benefits.
* Excluding severance costs of $1.3 million incurred in the second
quarter, expenses decreased by $2.7 million from the prior
quarter. The difference reflects a lower run-rate expense base
and the impact of the timing of certain annual employee benefit
and payroll tax expenses, which occurred in the first quarter.
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 877-675-4751 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4873. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through August 13, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3527674. 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, Chicago IL, San Diego CA, and Charleston SC. For more detailed transaction and contact information please visit www.newstarfin.com.
The NewStar Financial, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4044
Forward-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, plans, objectives, future performance and business. As such, they are subject to material risks and uncertainties, including our limited operating history; the fact that we have yet to be profitable; the rapid expansion of our business since inception; 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 factors is described in NewStar's filings with the Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2007 Annual Report on Form 10-K. 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 June 30, 2008 with the SEC on or before August 11, 2008 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; ii) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest in these assets; and iii) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and 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 assets sold during the second quarter and 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 assets sold in the second quarter of 2007 and the retained residual interest) less annualized interest expense as determined under GAAP (excluding interest expense incurred from the assets sold in the second quarter of 2007), divided by average interest earning assets (excluding the assets sold in the second quarter of 2007 and 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 assets sold in the second quarter of 2007 and 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; ii) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest; and iii) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and the change in fair value of the residual interest. Adjusted cost of funds means adjusted interest expense divided by average interest bearing liabilities for the period and the credit facility funding for the assets sold in the second quarter of 2007. 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 9 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)
---------------------------------------------------------------------
June 30, March 31, December 31, June 30,
($ in thousands) 2008 2008 2007 2007
---------------------------------------------------------------------
Assets:
Cash and cash
equivalents $ 134,017 $ 165,220 $ 76,155 $ 79,297
Restricted cash 81,676 67,456 115,807 166,120
Residual interest in
securitization -- 308 631 29,677
Investments in debt
securities,
available-for-sale 4,619 30,805 35,498 41,446
Loans held-for-sale 15,508 65,287 112,944 132,908
Loans, net 2,340,410 2,271,030 2,201,442 1,778,437
Deferred financing
costs, net 19,398 18,081 18,399 15,956
Interest receivable 11,549 13,215 14,120 12,967
Property and
equipment, net 1,412 1,461 1,593 1,683
Deferred income
taxes, net 10,987 13,051 13,355 8,531
Income tax receivable 3,229 -- 4,635 7,683
Other assets 34,174 42,030 28,186 15,086
---------- ---------- ---------- ----------
Total assets $2,656,979 $2,687,944 $2,622,765 $2,289,791
=====================================================================
Liabilities:
Repurchase agreements $ -- $ -- $ 63 $ 6,448
Credit facilities 511,800 553,800 677,739 604,172
Term debt 1,540,225 1,519,725 1,364,725 1,198,225
Accrued interest
payable 10,092 11,000 17,537 20,014
Accounts payable 388 749 197 285
Income tax payable -- 668 -- --
Other liabilities 26,157 41,636 59,814 26,180
---------- ---------- ---------- ----------
Total liabilities 2,088,662 2,127,578 2,120,075 1,855,324
Total stockholders'
equity 568,317 560,366 502,690 434,467
---------- ---------- ---------- ----------
Total liabilities
and stockholders'
equity $2,656,979 $2,687,944 $2,622,765 $2,289,791
=====================================================================
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
---------------------------------------------------------------------
Three Months Ended
($ in thousands, --------------------------------------------------
except per share June 30, March 31, December 31, June 30,
amounts) 2008 2008 2007 2007
----------- ----------- ----------- -----------
Net interest income:
Interest income $ 46,034 $ 51,988 $ 55,606 $ 50,575
Interest expense 19,583 25,324 30,826 27,269
----------- ----------- ----------- -----------
Net interest
income 26,451 26,664 24,780 23,306
Provision for
credit losses 3,723 4,611 8,155 2,490
----------- ----------- ----------- -----------
Net interest
income after
provision for
credit losses 22,728 22,053 16,625 20,816
Non-interest income:
Fee income 1,395 1,532 5,620 4,290
Asset management
income 1,476 1,651 1,618 1,251
Gain (loss) on
derivatives (11) 56 289 270
Gain (loss) on sale
of loans and debt
securities 47 (786) (359) (4,342)
Loss on investments
in debt securities (667) (258) (1,976) (1,486)
Loss on residual
interest in
securitization (308) (323) (2,420) --
Other income (339) 1,284 1,185 449
----------- ----------- ----------- -----------
Total non-interest
income 1,593 3,156 3,957 432
Operating expenses:
Compensation and
benefits 9,580 11,500 11,169 12,494
Occupancy and
equipment 938 835 835 610
General and
administrative
expenses 2,972 2,564 2,667 2,497
----------- ----------- ----------- -----------
Total operating
expenses 13,490 14,899 14,671 15,601
----------- ----------- ----------- -----------
Income before income
taxes 10,831 10,310 5,911 5,647
Income tax expense 4,908 4,168 4,677 2,229
----------- ----------- ----------- -----------
Net income $ 5,923 $ 6,142 $ 1,234 $ 3,418
=========== =========== =========== ===========
After tax
adjustments to
net income:
IPO related
compensation and
benefits
expense (1) 1,512 1,193 1,654 2,641
Loss on assets
sold and retained
residual
interest (2) 169 192 4,240 2,601
Net interest
income earned on
assets sold and
retained residual
interest (3) -- -- -- (1,013)
----------- ----------- ----------- -----------
Adjusted net
income $ 7,604 $ 7,527 $ 7,128 $ 7,647
=========== =========== =========== ===========
Net income per share:
Basic $ 0.12 $ 0.13 $ 0.03 $ 0.09
Diluted $ 0.12 $ 0.13 $ 0.03 $ 0.09
Weighted average
shares outstanding:
Basic 48,532,542 47,787,965 38,812,358 36,258,021
Diluted 48,532,542 47,787,965 38,812,358 36,677,437
Adjusted net
income per share:
Basic $ 0.16 $ 0.16 $ 0.18 $ 0.21
Diluted $ 0.16 $ 0.16 $ 0.18 $ 0.21
Adjusted weighted
average shares
outstanding:
Basic 48,532,542 47,787,965 38,812,358 36,258,021
Diluted 48,532,542 47,787,965 38,812,358 36,677,437
(1) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
(2) Loss and expenses incurred in connection with the sale of assets
comprised of 50 debt securities and two loans during Q2 2007,
permanent impairments on these assets, the change in fair value
of the residual interest in these assets, and the impact on the
effective tax rate. The change in effective tax rate was applied
retrospectively.
(3) Net interest income earned on the assets sold during Q2 2007 and
the residual interest in these assets.
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
---------------------------------------------------------------------
Six Months Ended June 30,
------------------------
($ in thousands, except per share amounts) 2008 2007
---------------------------------------------------------------------
Net interest income:
Interest income $ 98,022 $ 96,063
Interest expense 44,907 50,806
----------- -----------
Net interest income 53,115 45,257
Provision for credit losses 8,334 4,802
----------- -----------
Net interest income after provision
for credit losses 44,781 40,455
Non-interest income:
Fee income 2,927 6,843
Asset management income 3,127 2,215
Gain on derivatives 45 354
Loss on sale of loans and debt securities (739) (4,267)
Loss on investments in debt securities (925) (16,348)
Loss on residual interest in securitization (631) --
Other income 945 918
----------- -----------
Total non-interest income 4,749 (10,285)
Operating expenses:
Compensation and benefits 21,080 23,026
Occupancy and equipment 1,773 1,102
General and administrative expenses 5,536 4,436
----------- -----------
Total operating expenses 28,389 28,564
----------- -----------
Income before income taxes 21,141 1,606
Income tax expense 9,076 634
----------- -----------
Net income $ 12,065 $ 972
=========== ===========
After tax adjustments to net income:
IPO related compensation and
benefits expense (1) 2,705 5,282
Loss on assets sold and retained
residual interest (2) 361 10,158
Net interest income earned on assets sold
and retained residual interest (3) -- (2,258)
----------- -----------
Adjusted net income $ 15,131 $ 14,154
=========== ===========
Net income per share:
Basic $ 0.25 $ 0.03
Diluted $ 0.25 $ 0.03
Weighted average shares outstanding:
Basic 48,160,254 36,257,806
Diluted 48,160,254 36,765,552
Adjusted net income per share:
Basic $ 0.31 $ 0.39
Diluted $ 0.31 $ 0.38
Adjusted weighted average shares outstanding:
Basic 48,160,254 36,257,806
Diluted 48,160,254 36,765,552
(1) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
(2) Loss and expenses incurred in connection with the sale of assets
comprised of 50 debt securities and two loans during Q2 2007,
permanent impairments on these assets, the change in fair value
of the residual interest in these assets, and the impact on the
effective tax rate. The change in effective tax rate was applied
retrospectively.
(3) Net interest income earned on the assets sold during Q2 2007 and
the residual interest in these assets.
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
---------------------------------------------------------------------
Three Months Ended
($ in thousands, --------------------------------------------------
except per share June 30, March 31, December 31, June 30,
amounts) 2008 2008 2007 2007
------------------------------ ----------- ----------- -----------
Performance Ratios:
Return on average
assets 0.91% 0.94% 0.19% 0.62%
Return on average
equity 4.22 4.53 1.05 3.22
Net interest
margin, before
provision 4.17 4.19 3.98 4.22
Efficiency ratio 48.10 49.96 51.05 65.73
Loan portfolio
yield 7.52 8.44 9.28 9.65
Credit Quality and
Leverage Ratios:
Delinquent loan
rate (at period
end) 0.97% 0.14% --% --%
Non-accrual loan rate
(at period end) 0.42 0.42 0.97 --
Net charge off rate 0.09 0.14 0.19 --
Annualized net
charge off rate 0.38 0.58 0.81 --
Allowance for
credit losses
ratio (at period
end) 1.60 1.58 1.58 1.40
Equity to assets
(at period end) 21.39 20.85 19.17 18.97
Debt to equity
(at period end) 3.61x 3.70x 4.06x 4.16x
Average Balances:
Loans and other
debt products,
gross $ 2,403,327 $ 2,429,392 $ 2,304,028 $ 2,018,218
Interest earning
assets 2,553,025 2,562,405 2,471,037 2,214,635
Total assets 2,624,658 2,633,221 2,522,382 2,187,828
Interest bearing
liabilities 1,973,580 1,993,106 1,992,228 1,746,340
Equity 564,811 545,588 466,266 426,211
Allowance for
credit loss
activity:
Balance as of
beginning of
period $ 36,763 $ 35,487 $ 31,925 $ 22,882
General provision
for credit losses 1,061 1,083 3,563 2,490
Specific provision
for credit losses 2,662 3,528 4,592 --
Net charge offs (2,263) (3,335) (4,593) --
----------- ----------- ----------- -----------
Balance as of end
of period $ 38,223 $ 36,763 $ 35,487 $ 25,372
=========== =========== =========== ===========
Supplemental Data
(at period end):
Investments in
debt securities,
gross $ 6,918 $ 33,118 $ 38,787 $ 45,556
Loans
held-for-sale,
gross 16,168 67,277 115,055 133,337
Loans
held-for-
investment, gross 2,396,107 2,321,357 2,248,480 1,812,361
----------- ----------- ----------- -----------
Loans and
investments in
debt securities,
gross 2,419,193 2,421,752 2,402,322 1,991,254
Unused lines
of credit 364,855 404,054 454,837 442,330
Standby letters
of credit 26,680 24,615 20,382 11,770
----------- ----------- ----------- -----------
Total funding
commitments $ 2,810,728 $ 2,850,421 $ 2,877,541 $ 2,445,354
=========== =========== =========== ===========
Loan portfolio $ 2,419,193 $ 2,421,752 $ 2,402,322 $ 1,991,254
Loans owned by
NewStar Credit
Opportunities
Fund 593,396 591,571 578,272 449,147
Loans owned
by ArcTurus -- -- -- 15,430
----------- ----------- ----------- -----------
Managed loan
portfolio $ 3,012,589 $ 3,013,323 $ 2,980,594 $ 2,455,831
=========== =========== =========== ===========
Loans
held-for-sale,
gross $ 16,168 $ 67,277 $ 115,055 $ 133,337
Loans held-for-
investment, gross 2,396,107 2,321,357 2,248,480 1,812,361
----------- ----------- ----------- -----------
Total loans, gross 2,412,275 2,388,634 2,363,535 1,945,698
Deferred fees, net (19,187) (17,405) (15,762) (10,771)
Allowance for
loan losses (31,986) (30,127) (28,795) (23,581)
Specific reserve (5,184) (4,785) (4,592) --
----------- ----------- ----------- -----------
Total loans, net $ 2,355,918 $ 2,336,317 $ 2,314,386 $ 1,911,346
=========== =========== =========== ===========
Book value
per share $ 11.71 $ 11.54 $ 11.58 $ 11.99
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
---------------------------------------------------------------------
Six Months Ended June 30,
------------------------
($ in thousands, except per share amounts) 2008 2007
------------------------------------------- ----------- -----------
Performance Ratios:
Return on average assets 0.93% 0.09%
Return on average equity 4.38 0.46
Net interest margin, before provision 4.18 4.35
Efficiency ratio 49.06 81.68
Loan portfolio yield 7.99 9.71
Credit Quality Ratio:
Net charge off rate 0.23% --%
Annualized net charge off rate 0.47 --
Average Balances:
Loans and other debt products, gross $ 2,415,998 $ 1,917,872
Interest earning assets 2,557,601 2,097,162
Total assets 2,620,510 2,073,259
Interest bearing liabilities 1,982,107 1,633,532
Equity 554,461 424,984
Allowance for credit loss activity:
Balance as of beginning of period $ 35,487 $ 20,570
General provision for credit losses 2,144 4,802
Specific provision for credit losses 6,190 --
Net charge offs (5,598) --
----------- -----------
Balance as of end of period $ 38,223 $ 25,372
=========== ===========
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
---------------------------------------------------------------------
Adjusted
----------------------------------------------
Three Months Ended
----------------------------------------------
June 30, March 31, Dec. 31, June 30,
($ in thousands) 2008 2008 2007 2007
--------------------- ---------- ---------- ---------- ----------
Performance Ratios:
Return on average
assets 1.17% 1.15% 1.12% 1.54%
Return on average
equity 5.41 5.55 6.07 7.20
Efficiency ratio 42.02 43.46 35.65 44.50
Net interest margin,
before provision 4.17 4.19 3.98 4.29
Yield on interest
earning assets 7.25 8.16 8.93 9.24
Cost of funds 3.99 5.11 6.14 6.27
Credit Quality and
Leverage Ratios (at
period end):
Equity to assets 21.39 20.85 19.17 19.22
Consolidated Statement
of Operations
Adjustments(1):
Interest income $ 46,034 $ 51,988 $ 55,606 $ 50,575
Less: interest income
earned on assets sold
and retained residual
interest(2) -- -- -- 4,038
---------- ---------- ---------- ----------
Adjusted interest
income $ 46,034 $ 51,988 $ 55,606 $ 46,537
========== ========== ========== ==========
Interest expense $ 19,583 $ 25,324 $ 30,826 $ 27,269
Less: interest expense
related to assets
sold(2) -- -- -- 2,324
---------- ---------- ---------- ----------
Adjusted interest
expense $ 19,583 $ 25,324 $ 30,826 $ 24,945
========== ========== ========== ==========
Non-interest income $ 1,593 $ 3,156 $ 3,957 $ 432
Plus: loss on assets
sold and retained
residual interest(2) 308 323 2,420 4,400
---------- ---------- ---------- ----------
Adjusted non-interest
income $ 1,901 $ 3,479 $ 6,377 $ 4,832
========== ========== ========== ==========
Operating expenses $ 13,490 $ 14,899 $ 14,671 $ 15,601
Less:
IPO related
compensation and
benefits expense(3) 1,576 1,798 2,632 3,843
Expenses resulting
from sale of
assets(2) -- -- 931 --
---------- ---------- ---------- ----------
Adjusted operating
expenses $ 11,914 $ 13,101 $ 11,108 $ 11,758
========== ========== ========== ==========
Average Balances:
Assets $2,624,658 $2,633,221 $2,522,382 $2,187,828
Less: assets sold and
residual interest(2) 308 631 1,841 193,795
---------- ---------- ---------- ----------
Adjusted assets $2,624,350 $2,632,590 $2,520,541 $1,994,033
========== ========== ========== ==========
Interest earning
assets $2,553,025 $2,562,405 $2,471,037 $2,214,635
Less: assets sold and
residual interest(2) 308 631 1,841 193,795
---------- ---------- ---------- ----------
Adjusted interest
earning assets $2,552,717 $2,561,774 $2,469,196 $2,020,840
========== ========== ========== ==========
Interest bearing
liabilities $1,973,580 $1,993,106 $1,992,228 $1,746,340
Less: credit facility
funding for assets
sold(2) -- -- -- 150,323
---------- ---------- ---------- ----------
Adjusted interest
bearing liabilities $1,973,580 $1,993,106 $1,992,228 $1,596,017
========== ========== ========== ==========
Consolidated Balance
Sheet Adjustments
Assets $2,656,979 $2,687,944 $2,622,765 $2,289,791
Less: assets sold and
residual interest(2) -- 308 631 29,677
---------- ---------- ---------- ----------
Adjusted assets $2,656,979 $2,687,636 $2,622,134 $2,260,114
========== ========== ========== ==========
(1) Adjustments are pre-tax.
(2) On June 29, 2007, the Company completed the sale of assets
comprised of 50 debt securities and two loans and retained a
residual interest in these assets. The adjustment represents the
financial impact of the sold assets and residual interest.
(3) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
---------------------------------------------------------------------
Adjusted
----------------------
Six Months Ended
June 30,
----------------------
($ in thousands) 2008 2007
--------------------------------------------- ---------- ----------
Performance Ratios:
Return on average assets 1.16% 1.55%
Return on average equity 5.49 6.84
Efficiency ratio 42.76 43.19
Net interest margin, before provision 4.18 4.39
Yield on interest earning assets 7.71 9.28
Cost of funds 4.56 6.28
Consolidated Statement of Operations
Adjustments(1):
Interest income $ 98,022 $ 96,063
Less: interest income earned on assets sold
and retained residual interest(2) -- 8,439
---------- ----------
Adjusted interest income $ 98,022 $ 87,624
========== ==========
Interest expense $ 44,907 $ 50,806
Less: interest expense related to assets
sold(2) -- 4,620
---------- ----------
Adjusted interest expense $ 44,907 $ 46,186
========== ==========
Non-interest income $ 4,749 $ (10,285)
Plus: loss on assets sold and retained
residual interest(2) 631 17,187
---------- ----------
Adjusted non-interest income $ 5,380 $ 6,902
========== ==========
Operating expenses $ 28,389 $ 28,564
Less: IPO related compensation and benefits
expense(3) 3,374 7,684
---------- ----------
Adjusted operating expenses $ 25,015 $ 20,880
========== ==========
Average Balances:
Assets $2,620,510 $2,073,259
Less: assets sold and residual interest(2) 466 192,725
---------- ----------
Adjusted assets $2,620,044 $1,880,534
========== ==========
Interest earning assets $2,557,601 $2,097,162
Less: assets sold and residual interest(2) 466 192,725
---------- ----------
Adjusted interest earning assets $2,557,135 $1,904,437
========== ==========
Interest bearing liabilities $1,982,107 $1,633,532
Less: credit facility funding for assets
sold(2) -- 150,422
---------- ----------
Adjusted interest bearing liabilities $1,982,107 $1,483,110
========== ==========
(1) Adjustments are pre-tax.
(2) On June 29, 2007, the Company completed the sale of assets
comprised of 50 debt securities and two loans and retained a
residual interest in these assets. The adjustment represents the
financial impact of the sold assets and residual interest.
(3) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
NewStar Financial, Inc.
Portfolio Data
(unaudited)
--=------------------------------------------------------------------
($ in thousands) June 30, 2008 March 31, 2008
------------------------------ ----------------- -----------------
Portfolio Data:
First mortgage $ 385,535 15.9% $ 398,700 16.5%
Senior secured asset-based 45,861 1.9 54,547 2.2
Senior secured cash flow 1,857,847 76.8 1,808,177 74.7
Senior subordinated asset-based 80,889 3.3 108,052 4.5
Senior subordinated cash flow 9,789 0.4 13,746 0.6
Second lien 32,546 1.4 32,048 1.3
Mezzanine/subordinated 6,726 0.3 6,482 0.2
---------- ----- ---------- -----
Total $2,419,193 100.0% $2,421,752 100.0%
========== ===== ========== =====
Middle Market Corporate $2,006,708 82.9 % $1,996,073 82.4%
Commercial Real Estate 412,485 17.1 425,679 17.6
---------- ----- ---------- -----
Total $2,419,193 100.0% $2,421,752 100.0%
========== ===== ========== =====
---------------------------------------------------------------------
($ in thousands) December 31, 2007 June 30, 2007
------------------------------ ----------------- -----------------
Portfolio Data:
First mortgage $ 353,755 14.7% $ 304,596 15.3%
Senior secured asset-based 56,988 2.4 80,431 4.0
Senior secured cash flow 1,829,734 76.2 1,375,165 68.9
Senior subordinated asset-based 110,719 4.6 121,321 6.1
Senior subordinated cash flow 14,352 0.6 33,126 1.7
Second lien 32,295 1.3 65,585 3.3
Mezzanine/subordinated 4,479 0.2 11,030 0.7
---------- ----- ---------- -----
Total $2,402,322 100.0% $1,991,254 100.0%
========== ===== ========== =====
Middle Market Corporate $2,021,559 84.1% $1,659,595 83.3%
Commercial Real Estate 380,763 15.9 331,659 16.7
---------- ----- ---------- -----
Total $2,402,322 100.0% $1,991,254 100.0%
========== ===== ========== =====