* $4.6 million of adjusted net income in the fourth quarter or $0.18 adjusted earnings per diluted share * $11.9 million of adjusted net income for the year or $0.70 adjusted earnings per diluted share * $32.1 million net loss in the fourth quarter or $1.26 net loss per diluted share * $27.2 million net loss for the year or $1.65 net loss per diluted share * $2.0 billion of assets in managed loan portfolio, up $575 million from the third quarter * $234.6 million initial public offering completed on December 13, 2006 * Credit quality stable, no loans on non-accrual status, no charge offs
BOSTON, Feb. 21, 2007 (PRIME NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), today reported adjusted earnings for the fourth quarter 2006 of $4.6 million, or $0.18 per diluted share. Adjusted net income for the full year 2006 was $11.9 million, or $0.70 per diluted share. On a GAAP basis, the company reported a net loss of $32.1 million, or $1.26 per diluted share, for the fourth quarter and a net loss of $27.2 million for the year, or $1.65 per diluted share.
"Adjusted net income," "adjusted earnings," and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 4. We have provided a reconciliation between GAAP and adjusted (non-GAAP) measures in the attached financial tables.
"Our fourth quarter and full year results exceeded our expectations," said Tim Conway, Chairman and Chief Executive Officer. "NewStar continues to see strong growth across all business lines. Credit quality is stable and our credit statistics remain favorable as our portfolio continues to season. Our bankers continued to execute very well across the business and we ended the year with great momentum that has carried into the first quarter of 2007. We grew our managed assets by 39%, or $575 million, in the fourth quarter to over $2 billion and generated better than expected fee revenue from asset management and transaction activity."
On December 13, 2006, we completed our initial public offering, raising $234.6 million through the issuance of 13.8 million shares of common stock priced at $17.00 per share. We used the proceeds of the offering to repay and terminate corporate debt of $37.5 million. We also paid down certain revolving warehouse lines of credit by approximately $50 million and invested the balance in short-term money market instruments.
Strong Origination Volume
* Origination volume for the year was $1.4 billion, of which $158 million was syndicated, $248 million was sold to the New Star Credit Opportunities Fund (NCOF) and $1.0 billion was retained on NewStar's balance sheet. * Origination volume for the fourth quarter was $657 million, of which $68.4 million was syndicated, $141 million was sold to the NCOF and $447 million was retained on NewStar's balance sheet. * Corporate represented approximately 73% of volume in 2006, while Structured Products and Commercial Real Estate were 15% and 12%, respectively. * We continued to grow our proprietary direct origination platform in the fourth quarter, adding two new senior bankers and opening a new office in San Diego.
Growth in Loans and Investments
* Gross loans and investments in debt securities held on NewStar's balance sheet increased to $1.7 billion as of December 31, 2006, an increase of $450 million from $1.3 billion at September 30, 2006. * Managed loan portfolio increased to $2.0 billion as of December 31, 2006, an increase of $575 million from $1.5 billion at September 30, 2006. Assets managed for the NCOF increased from $159 million as of September 30, 2006 to $283 million at year-end. * Our business continues to be balanced across industry sectors and highly diversified across issuers. As of December 31, 2006, no single issuer represented more than 1.5% of our loan portfolio and the ten largest issuers comprised approximately 10% of the loan portfolio. * We continue to be highly selective and focus on senior debt products, with 78% of the loan portfolio invested in senior secured loans and senior debt investments.
Net Interest Income / Margin
* Net interest income before provision for credit losses was $15.5 million for the fourth quarter 2006 and $47.6 million for the year 2006 compared to $13.9 million for the third quarter 2006 and $15.2 million for the prior year. * Adjusted net interest margin was 4.50% for the fourth quarter 2006 and 4.48% for the full year 2006 compared to 4.55% for the third quarter 2006 and 3.84% for the year ended 2005. Net interest margin was 3.82% for the fourth quarter 2006 and 3.93% for the full year 2006 compared to 4.15% for the third quarter 2006 and 3.84% for the year ended 2005.
Revenue Growth
* Net interest income plus non-interest income was $19.6 million for the fourth quarter 2006, up $3.7 million, or 23%, from $15.9 million in the third quarter 2006, driven principally by higher balances of earning assets and a $1.9 million increase in fee revenue arising from better than expected transaction activity. * Non-interest income was $4.1 million for the fourth quarter 2006, an increase of $2.1 million from $2.0 million in the prior quarter. Non-interest income was $9.7 million for the year 2006, an increase of $6.5 million from $3.1 million in the prior year. The increase was due principally to an increase in asset management fees generated by the NCOF and an increase in fee revenue arising from transaction activity, partially offset by an impairment charge on debt investments of $0.6 million. * Total revenue after provision for credit losses was $13.6 million in the fourth quarter 2006 and $44.7 for the full year 2006.
Stable Credit Quality
* As of December 31, 2006, we did not have any impaired loans, loans on non-accrual status and had not experienced any loan charge offs. * As of December 31, 2006, we had an allowance for credit losses of $20.6 million, or 1.40% of loans compared to $14.6 million, or 1.36%, at September 30, 2006 and $8.0 million or 1.27% at December 31, 2005. The increase in the allowance for credit losses is due to higher loan balances and a slight shift in business mix and rating profile. * Provision expense was $5.9 million in the fourth quarter 2006 and $12.5 million for the full year 2006 compared to $2.4 million in the third quarter 2006 and $7.8 million for the year 2005. The increase in provision expense was driven principally by higher origination volumes and loan balances at December 31, 2006. * One of our loans with a principal amount of $8.4 million became delinquent in the fourth quarter 2006, representing a 0.57% delinquency rate. The loan remained delinquent as of December 31, 2006. * At December 31, 2006, debt investments were classified as available-for-sale and were carried at market/fair value. As of December 31, 2006, we had two debt investments with a combined carrying value of $6.2 million which our valuation methodologies determined to have other than temporary impairment.
Funding
* In December 2006, we raised $234.6 million in gross proceeds through an initial public offering. * We used a portion of the proceeds to terminate the corporate debt and to pay down a portion of the warehouse lines of credit.
Expenses
* Operating expenses were $51.6 million in the fourth quarter 2006 and $74.3 million for the full year 2006 compared to $8.6 million in the third quarter 2006 and $20.0 million for the prior year. The increase in operating expenses is primarily due to a $39.1 million non-cash compensation charge related to restricted stock grants made since our inception, including equity awards made in connection with the initial public offering. * Our adjusted efficiency ratio was 45.2% in the fourth quarter 2006 and 50.8% for the full year 2006. Our efficiency ratio was 263.6% in the fourth quarter 2006 and 129.7% for the full year 2006.
Conference Call and Webcast
We will host a webcast/conference call to discuss the results today at 10:00 am Eastern Standard Time. All interested parties are invited to participate via telephone or webcast, which will be hosted through the Investor Relations section of our 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 (800) 289-0544 approximately 5-10 minutes prior to the call. International callers should dial (913) 981-5533. All callers should reference "NewStar Financial, Inc."
For convenience, an archived replay of the call will be available through February 28, 2007 by dialing (888) 203-1112. International callers should call (719) 457-0820. For all replays, please use the passcode 601246. The audio replay will also be available through the Investor Relations section of our website at www.newstarfin.com.
About NewStar Financial
NewStar Financial is a specialized commercial finance company focused exclusively on meeting the complex financing needs of customers in the middle market through our corporate, commercial real estate, and structured products groups. Our senior banking teams call directly on customers to provide advice and finance a range of strategic transactions that may require some combination of senior secured, second lien and mezzanine financing. NewStar typically works with customers with financing needs of up to $150 million and cash flow as low as $5 million. We target 'hold' positions of up to $35 million, but may also underwrite or arrange transactions up to $100 million for syndications to other lenders.
We are headquartered in Boston MA, with regional offices in Darien CT, Chicago IL, San Francisco CA, San Diego CA, and Charleston SC. In December of 2006, NewStar completed an Initial Public Offering. The Company's shares trade on the NASDAQ under the ticker symbol, NEWS. Please visit our website at www.newstarfin.com for more detailed transaction and contact information.
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.
More detailed information about these factors is described in NewStar's filing with Securities and Exchange Commission (the "SEC"). 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. NewStar plans to file its Form 10-K with the SEC on or before March 31, 2007 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 share, respectively, as determined under GAAP, excluding the following items: (i) interest expense and amortization of deferred financing costs on corporate debt, (ii) the call premium and termination fee associated with the termination of our corporate debt, (iii) compensation expense related to restricted stock grants made since our inception, including equity awards made in connection with the initial public offering and (iv) general and administrative expense incurred related to the initial public offering. 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 interest expense and amortization of deferred financing costs on corporate debt and the call premium and termination fee associated with the termination of our corporate debt eliminates expenses that we do not anticipate incurring in the foreseeable future that make it difficult to assess our core performance and compare our period-over-period results. Excluding compensation expense related to restricted stock grants made since our inception, including equity awards made in connection with the initial public offering and general and administrative expense incurred related to our initial public offering, eliminates unique expenses 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 less annualized interest expense as determined under GAAP excluding interest expense and amortization of deferred financing costs on corporate debt, divided by average interest earning assets for the period.
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 (i) the call premium and termination fee associated with the termination of our corporate debt, (ii) compensation expense related to restricted stock grants made since our inception, including equity awards made in connection with the initial public offering and (iii) general and administrative expense incurred related to the initial public offering divided by net revenue. Adjusted cost of funds means adjusted interest expense divided by average interest bearing liabilities for the period less the average corporate debt outstanding for the period. 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)
---------------------------------------------------------------------
Dec. 31, Sept. 30, Dec. 31,
($ in thousands) 2006 2006 2005
---------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 103,269 $ 4,725 $ 1,423
Restricted cash 40,174 74,956 12,569
Investments in debt
securities,
available-for-sale 203,121 185,140 103,548
Loans held-for-sale 62,620 26,005 20,968
Loans, net 1,437,832 1,054,054 621,210
Deferred financing costs, net 11,614 13,979 10,572
Interest receivable 19,849 12,791 6,149
Property and equipment, net 961 998 1,007
Deferred income taxes, net 14,705 5,345 7,068
Other assets 21,047 11,507 4,938
---------- ---------- ----------
Total assets $1,915,192 $1,389,500 $ 789,452
=====================================================================
Liabilities:
Repurchase agreements $ 34,535 $ 36,359 $ 59,658
Credit facilities 625,910 354,610 246,800
Term debt 774,225 746,764 329,014
Corporate debt -- 37,500 37,500
Accrued interest payable 23,200 15,700 4,617
Accounts payable 4,315 220 518
Income tax payable 4,166 1,809 --
Other liabilities 25,426 27,193 14,387
---------- ---------- ----------
Total liabilities 1,491,777 1,220,155 692,494
Total stockholders' equity 423,415 169,345 96,958
---------- ---------- ----------
Total liabilities and
stockholders' equity $1,915,192 $1,389,500 $ 789,452
=====================================================================
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
---------------------------------------------------------------------
($ in
thousands, Three Months Ended Year Ended
except per ------------------------------- Dec. 31,
share Dec. 31, Sept. 30, Dec. 31, -------------------
amounts) 2006 2006 2005 2006 2005
------------ -------- -------- -------- -------- --------
Net interest
income:
Interest
income $ 39,243 $ 32,980 $ 14,764 $116,303 $ 33,883
Interest
expense 23,766 19,122 8,320 68,728 18,639
-------- -------- -------- -------- --------
Net interest
income 15,477 13,858 6,444 47,575 15,244
Provision for
credit losses 5,941 2,350 2,483 12,535 7,755
-------- -------- -------- -------- --------
Net interest
income
after
provision
for credit
losses 9,536 11,508 3,961 35,040 7,489
Non-interest
income:
Fee income 3,006 1,100 1,206 5,849 2,966
Asset
management
income 692 478 16 1,443 16
Gain on
derivatives 73 114 16 909 46
Other income 332 333 2 1,483 116
-------- -------- -------- -------- --------
Total non-
interest
income 4,103 2,025 1,240 9,684 3,144
Operating
expenses:
Compensation
and benefits 47,738 6,891 4,274 65,079 16,168
Occupancy and
equipment 486 476 335 1,758 1,124
General and
administrative
expenses 3,380 1,201 925 7,445 2,757
-------- -------- -------- -------- --------
Total
operating
expenses 51,604 8,568 5,534 74,282 20,049
-------- -------- -------- -------- --------
Income (loss)
before income
taxes (37,965) 4,965 (333) (29,558) (9,416)
Income tax
expense
(benefit) (5,911) 2,072 (125) (2,377) (3,517)
-------- -------- -------- -------- --------
Net income
(loss) (32,054) 2,893 (208) (27,181) (5,899)
After tax
adjustments:
Extinguish-
ment of
corporate
debt
expense(a) 2,805 783 -- 5,077 --
IPO related
compensation
and benefits
expense(b) 33,202 -- -- 33,202 --
IPO related
general
and admin-
istrative
expense(c) 621 97 -- 796 --
-------- -------- -------- -------- --------
Adjusted net
income (loss) $ 4,574 $ 3,773 $ (208) $ 11,894 $ (5,899)
======== ======== ======== ======== ========
Net income
(loss) per
share:
Basic $ (1.26) $ 0.18 $ (0.02) $ (1.65) $ (0.83)
Diluted $ (1.26) $ 0.18 $ (0.02) $ (1.65) $ (0.83)
Weighted average
shares out-
standing:(d)
Basic 25,376,446 15,821,992 9,358,156 16,480,836 7,110,363
Diluted 25,376,446 16,343,275 9,358,156 16,480,836 7,110,363
Adjusted net
income (loss)
per share:
Basic $ 0.18 $ 0.24 $ (0.02) $ 0.72 $ (0.83)
Diluted $ 0.18 $ 0.23 $ (0.02) $ 0.70 $ (0.83)
Adjusted weighted
average shares
outstanding:(d)
Basic 25,376,446 15,821,992 9,358,156 16,480,836 7,110,363
Diluted 25,910,522 16,343,275 9,358,156 17,005,343 7,110,363
(a) Includes interest expense for the 2006 periods, call premium,
termination fee and deferred finance costs associated with the
Company's corporate debt which was repaid on December 20, 2006.
(b) Non-cash compensation charge related to restricted stock grants
made since our inception, including equity awards made in
connection with the initial public offering.
(c) General and administrative expense related to the Company's
initial public offering.
(d) Weighted average shares for all periods reflect the conversions
and reverse split that occurred at the IPO.
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
---------------------------------------------------------------------
Three Months Ended Year Ended
-------------------------------- Dec. 31,
($ in Dec. 31, Sept. 30, Dec. 31, --------------------
thousands) 2006 2006 2005 2006 2005
------------- ---------- ---------- -------- ---------- --------
Performance
Ratios:
Return on
average
assets (7.83)% 0.86% (0.12)% (2.22)% (1.44)
Return on
average
equity (50.91) 7.09 (0.90) (15.85) (8.69)
Net interest
margin,
before
provision 3.82 4.15 3.86 3.93 3.84
Efficiency
ratio 263.57 53.94 72.02 129.73 109.03
Credit Quality
and Leverage
Ratios:
Delinquent
loan rate
(at period
end) 0.57 -- -- 0.57 --
Non-accrual
loan rate -- -- -- -- --
Net charge
off rate -- -- -- -- --
Allowance for
credit
losses
ratio
(at period
end) 1.40 1.36 1.27 1.40 1.27
Equity to
assets (at
period end) 22.11 12.19 12.29 22.11 12.29
Debt to
equity (at
period end) 3.39x 6.94x 6.94x 3.39x 6.94x
Average Balances:
Loans and
other debt
products,
gross $1,525,105 $1,229,989 $644,994 $1,150,111 $387,876
Interest
earning
assets 1,606,785 1,325,704 658,252 1,210,494 397,219
Total assets 1,623,952 1,338,928 672,017 1,224,744 409,623
Interest
bearing
liabilities 1,328,178 1,153,528 569,056 1,028,139 331,739
Equity 249,773 162,257 87,860 171,518 67,850
Allowance for
credit loss
activity:
Balance as of
beginning
of period $ 14,629 $ 12,279 $ 5,552 $ 8,035 $ 280
Provision
for credit
losses 5,941 2,350 2,483 12,535 7,755
Net charge
offs -- -- -- -- --
---------- ---------- -------- ---------- --------
Balance as
of end of
period $ 20,570 $ 14,629 $ 8,035 $ 20,570 $ 8,035
========== ========== ======== ========== ========
Supplemental
Data (at
period end):
Investments
in debt
securities,
gross $ 217,314 $ 196,084 $107,381 $ 217,314 $107,381
Loans held-
for-sale,
gross 63,277 26,290 21,118 63,277 21,118
Loans held-for-
investment,
gross 1,467,038 1,075,450 633,460 1,467,038 633,460
---------- ---------- -------- ---------- --------
Loans and
investments
in debt
securities,
gross 1,747,629 1,297,824 761,959 1,747,629 761,959
Unused lines
of credit 302,856 233,489 89,722 302,856 89,722
Standby
letters of
credit 6,990 5,042 3,682 6,990 3,682
---------- ---------- -------- ---------- --------
Total
funding
commitments $2,057,475 $1,536,355 $855,363 $2,057,475 $855,363
========== ========== ======== ========== ========
Loan portfolio $1,747,629 $1,297,824 $761,959 $1,747,629 $761,959
Loans owned
by NewStar
Credit
Opportunities
Fund 283,378 158,635 33,157 283,378 33,157
---------- ---------- -------- ---------- --------
Managed loan
portfolio $2,031,007 $1,456,459 $795,116 $2,031,007 $795,116
========== ========== ======== ========== ========
Loans held-
for-sale,
gross $ 63,277 26,290 21,118 63,277 21,118
Loans held-
for-investment,
gross 1,467,038 1,075,450 633,460 1,467,038 633,460
---------- ---------- -------- ---------- --------
Total loans,
gross 1,530,315 1,101,740 654,578 1,530,315 654,578
Deferred
fees, net (10,468) (7,944) (4,790) (10,468) (4,790)
Allowance
for loan
losses (19,395) (13,737) (7,610) (19,395) (7,610)
---------- ---------- -------- ---------- --------
Total loans,
net $1,500,452 $1,080,059 $642,178 $1,500,452 $642,178
========== ========== ======== ========== ========
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
------------------------------------
Adjusted
------------------------------ ------------------------------------
Three Months Ended
----------------------- Year Ended
Dec. 31, Sept. 30, Dec. 31,
($ in thousands) 2006 2006 2006
------------------------------ ---------- ---------- ----------
Performance Ratios:
Return on average assets 1.12% 1.12% 0.97%
Return on average equity 7.27 9.24 6.93
Efficiency ratio 45.19 48.77 50.78
Net interest margin, before
provision 4.50 4.55 4.48
Cost of funds 6.44 6.32 6.26
Average Balances:
Interest bearing liabilities $1,328,178 $1,153,528 $1,028,139
Less: corporate debt 33,016 37,500 36,370
---------- ---------- ----------
Adjusted interest bearing
liabilities $1,295,162 $1,116,028 $ 991,769
========== ========== ==========
Consolidated Statement of
Operations Adjustments(a):
Interest expense $ 23,766 $ 19,122 $ 68,728
Less: interest & amortization
related to corporate debt 2,728 1,344 6,662
---------- ---------- ----------
Adjusted interest expense $ 21,038 $ 17,778 $ 62,066
========== ========== ==========
Operating expenses $ 51,604 $ 8,568 $ 74,282
Less:
Corporate debt prepayment fees 1,425 -- 1,425
IPO related compensation and
benefits expense(b) 39,129 -- 39,129
IPO related general and
administrative expense(c) 968 167 1,268
---------- ---------- ----------
Adjusted operating expenses $ 10,082 $ 8,401 $ 32,460
========== ========== ==========
(a) Adjustments are pre-tax.
(b) Non-cash compensation charge related to restricted stock grants
made since our inception, including equity awards made in
connection with the initial public offering.
(c) General and administrative expense related to the Company's
initial public offering.
NewStar Financial, Inc.
Portfolio Data
(unaudited)
---------------------------------------------------------------------
($ in
thousands) Dec. 31, 2006 Sept. 30, 2006 Dec. 31, 2005
----------- ----------------- ----------------- ---------------
Portfolio
Data:
First
mortgage $ 216,888 12.4% $ 138,674 10.7% $ 90,997 11.9%
Senior
secured
asset-
based 56,631 3.2 46,817 3.6 35,162 4.6
Senior
secured
cash flow 1,082,048 61.9 783,754 60.3 438,919 57.6
Senior
subord-
inated
asset-
based 237,312 13.6 198,148 15.3 93,261 12.2
Senior
subord-
inated
cash flow 39,240 2.3 37,882 2.9 19,000 2.5
Second lien 70,875 4.1 46,376 3.6 37,000 4.9
Subord-
inated 43,916 2.5 45,457 3.5 47,620 6.3
Mezzanine 719 -- 716 0.1 -- --
---------- ----- ---------- ----- -------- -----
Total $1,747,629 100.0% $1,297,824 100.0% $761,959 100.0%
========== ===== ========== ===== ======== =====
Corporate $1,183,107 67.7% $ 859,039 66.2% $502,581 66.0%
Structured
Products 333,787 19.1 286,237 22.0 163,381 21.4
Commercial
Real
Estate 230,735 13.2 152,548 11.8 95,997 12.6
---------- ----- ---------- ----- -------- -----
Total $1,747,629 100.0% $1,297,824 100.0% $761,959 100.0%
========== ===== ========== ===== ======== =====