* Generated $7.1 million of adjusted net income in the
fourth quarter, or $0.18 adjusted earnings per diluted
share
* Earned $1.2 million of net income in the fourth quarter, or
$0.03 net income per diluted share on a GAAP basis, which
reflects $2.4 million pretax loss on the retained residual
interest in securities sold and $2.6 million pretax of
non-cash equity compensation expense
* Originated more than $700 million of new loan volume and
reached $3.0 billion of assets in the managed loan
portfolio as of 12/31/07
* Strengthened the balance sheet through $125 million private
placement of common equity and completion of $300 million
term debt financing
* Credit performance reflected natural seasoning of the
portfolio and remained within expected parameters
BOSTON, Feb. 20, 2008 (PRIME NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based specialty finance company, today reported adjusted net income for the fourth quarter of 2007 of $7.1 million, or $0.18 per diluted share. On a GAAP basis, the Company reported net income of $1.2 million, or $0.03 per diluted share, which reflects a $2.4 million pretax loss on the retained residual interest in securities sold in the second quarter of 2007 and $2.6 million pretax of non-cash equity compensation expense related to the 2006 IPO.
"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.
"Our fourth quarter reflects an increasingly favorable lending environment with better pricing and more conservative deal structures," said Tim Conway, Chairman and Chief Executive Officer. "The full benefit of that environment, however, is partially offset by continued dislocation in the credit markets which are driving marginal funding costs higher.
"While capital markets continue to be challenging and the credit outlook less certain, I believe we are well positioned to capitalize on this environment. Our defensive investment strategy emphasizing senior debt and diversification together with our balance sheet strength and continued access to capital will allow us to continue to build shareholder value."
Funding and Capital
* NewStar raised $125 million in a private placement of 12.5
million shares of common stock, which was priced at $10.00 per
share. The transaction was completed in two tranches with the
first closing occurring in the fourth quarter of 2007. The
second closing took place on January 18, 2008, following a
Special Meeting of Stockholders held on January 15, 2008 at
which the requisite stockholder approval was obtained.
* NewStar also completed a $300 million term debt financing with
Deutsche Bank and the NewStar Credit Opportunities Fund (NCOF)
completed a $560 million term securitization.
* The Company had approximately $623 million of available
borrowing capacity under its credit facilities and existing
term debt securitizations (CLOs) as of January 9, 2008. As
adjusted to include unlevered cash and the net proceeds from
the second tranche of the common equity raise, NewStar had in
excess of $700 million of funding capacity as of 1/09/08.
* Total cash and equivalents as of December 31, 2007 were $192
million, of which $76 million was unrestricted.
Origination Volume
* Overall origination volume for the quarter was $713 million, of
which $467 million was retained on NewStar's balance sheet,
$128 million was syndicated to others and $118 million was sold
to the NewStar Credit Opportunities Fund (NCOF).
* Middle Market Corporate generated approximately 92% of the new
volume in the quarter, while Commercial Real Estate represented
approximately 8%.
Managed and Owned Loan Portfolios
* Managed loan portfolio increased to $3.0 billion as of December
31, 2007, up 14% or $355 million from $2.6 billion at September
30, 2007, reflecting the net impact of $713 million of new
origination, which was partially offset by prepayments and
ongoing amortization. The managed loan portfolio was $1.9
billion as of December 31, 2006.
* Assets managed for the NCOF increased by $87 million, or 18%,
to $578 million at December 31, 2007 from $491 million at
September 30, 2007 and increased by $295 million or 104% from
$283 million as of December 31, 2006.
* The owned loan portfolio continued to be balanced across
industry sectors and highly diversified by issuer. As of
December 31, 2007, no single issuer represented more than 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 93% invested in senior
secured loans and debt investments at December 31, 2007, up
from 91% at September 30, 2007.
Net Interest Income/Margin
* Net interest income before provision for credit losses was
$24.8 million for the fourth quarter 2007 compared to $24.6
million for the third quarter 2007 and $15.5 million for the
fourth quarter 2006.
* Net interest margin was 3.98% for the fourth quarter 2007
compared to 4.29% for the third quarter 2007 and 3.82% for the
fourth quarter 2006.
* Adjusted net interest margin was 3.98% for the fourth quarter
2007 compared to 4.16% for the third quarter 2007 and 4.37%
for the fourth quarter 2006. Lower yields on interest earning
assets contributed to modest margin compression.
Non-Interest Income
* The Company reported non-interest income of $4.0 million for
the fourth quarter 2007 compared to non-interest income of
($21.8) million for the third quarter 2007, which reflected a
$28.1 million pre-tax charge from the non-cash write-down of a
retained residual interest in securities sold in the second
quarter.
* Excluding the impact of the write-down on the retained residual
interest, adjusted non-interest income was $6.4 million in the
fourth quarter 2007, up from $6.3 million in the third quarter
2007.
* The adjusted non-interest income of $6.4 million in the fourth
quarter 2007 was comprised primarily of $3.3 million of
syndication and agency fees, $1.7 of structuring and placement
fees and $1.6 million of asset management income.
Commercial Loan Credit Quality
* Commercial loan credit performance reflected the natural
seasoning of the loan portfolio and continued to perform within
expected parameters.
* The Company charged-off $4.6 million in the fourth quarter
against the specific reserve established for a non-performing
loan in the third quarter.
* In the fourth quarter, the Company classified two of three
impaired loans as non-performing and placed them on non-accrual
status. Specific reserves totaling $4.6 million were
established to reflect potential credit losses on those loans.
* Inclusive of these specific reserves, the provision for credit
losses was $8.2 million in the fourth quarter 2007, up from
$6.6 million in the third quarter 2007.
* As of December 31, 2007, the allowance for credit losses was
$35.5 million or 1.58% of loans, compared to $31.9 million, or
1.62%, at September 30, 2007and $20.6 million or 1.40% at
December 31, 2006.
Expenses
* Operating expenses increased modestly to $14.7 million in the
fourth quarter 2007 from $14.3 million in the third quarter
2007 due principally to severance costs and expenses associated
with the equity issuance, which were mostly offset by lower
incentive compensation expense.
* The adjusted efficiency ratio improved to 35.7% in the fourth
quarter from 37.4% the third quarter 2007 as adjusted revenues
increased faster than expenses.
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 877-675-4749 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4888. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through February 27, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3761480. 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 Francisco, CA, 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 filing with the Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2006 Form 10-K as updated in our Quarterly Reports for the quarter ended June 30, 2007 and September 30, 2007. 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-K for December 31, 2007 with the SEC on or before March 17, 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) 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 as a private company, including equity awards made in connection with the initial public offering; iv) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest in these assets; and v) 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 interest and amortization of deferred financing costs on corporate debt, the call premium and termination fee associated with the termination of our corporate debt, 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, including equity awards made in connection with the initial public offering, eliminates unique amounts that make it difficult to assess our core performance and compare our period-over-period results. A reconciliation of adjusted net income to net income is included on pages 7 and 8 of this release.
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 2007 and the retained residual interest) less annualized interest expense as determined under GAAP (excluding interest and amortization of deferred financing costs on corporate debt and 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 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 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, 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; 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 less the average corporate debt outstanding 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 pages 11 and 12 of this release. NewStar's adjusted financial measures should not be considered as alternatives to financial measures determined in accordance with GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies.
NewStar Financial, Inc.
Consolidated Balance Sheets
(unaudited)
---------------------------------------------------------------------
December 31, September 30, December 31,
($ in thousands) 2007 2007 2006
---------------------------------------------------------------------
Assets:
Cash and cash
equivalents $ 76,155 $ 73,420 $ 103,269
Restricted cash 115,807 119,572 40,174
Residual interest in
securitization 631 3,051 --
Investments in debt
securities,
available-for-sale 35,498 37,636 203,121
Loans held-for-sale 112,944 117,528 62,620
Loans, net 2,201,442 1,933,469 1,437,832
Deferred financing
costs, net 18,399 15,868 11,614
Interest receivable 14,120 14,501 19,849
Property and equipment, net 1,593 1,668 961
Deferred income taxes, net 13,355 11,421 14,705
Income tax receivable 4,635 12,355 --
Other assets 28,186 10,590 21,047
---------- ---------- ----------
Total assets $2,622,765 $2,351,079 $1,915,192
=====================================================================
Liabilities:
Repurchase agreements $ 63 $ 545 $ 34,535
Credit facilities 677,739 705,401 625,910
Term debt 1,364,725 1,165,725 774,225
Accrued interest payable 17,537 26,629 23,200
Accounts payable 197 643 4,315
Income tax payable -- -- 4,166
Other liabilities 59,814 25,042 25,426
---------- ---------- ----------
Total liabilities 2,120,075 1,923,985 1,491,777
Total stockholders'
equity 502,690 427,094 423,415
---------- ---------- ----------
Total liabilities and
stockholders' equity $2,622,765 $2,351,079 $1,915,192
=====================================================================
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
---------------------------------------------------------------------
Three Months Ended
----------------------------------
December September December
($ in thousands, except per 31, 30, 31,
share amounts) 2007 2007 2006
--------------------------------- ----------------------------------
Net interest income:
Interest income $ 55,606 $ 52,626 $ 39,243
Interest expense 30,826 28,071 23,766
---------- ---------- ----------
Net interest income 24,780 24,555 15,477
Provision for credit losses 8,155 6,553 5,941
---------- ---------- ----------
Net interest income after
provision for credit losses 16,625 18,002 9,536
Non-interest income:
Fee income 5,620 3,334 3,006
Asset management income 1,618 1,471 692
Gain on derivatives 289 134 73
Gain (loss) on sale of loans
and debt securities (359) 11 695
Loss on investments in debt
securities (1,976) (1,979) (846)
Loss on residual interest in
securitization (2,420) (28,136) --
Other income 1,185 3,317 483
---------- ---------- ----------
Total non-interest income 3,957 (21,848) 4,103
Operating expenses:
Compensation and benefits 11,169 11,169 47,738
Occupancy and equipment 835 781 486
General and administrative
expenses 2,667 2,309 3,380
---------- ---------- ----------
Total operating expenses 14,671 14,259 51,604
---------- ---------- ----------
Income (loss) before income taxes 5,911 (18,105) (37,965)
Income tax expense (benefit) 4,677 (7,260) (5,911)
---------- ---------- ----------
Net income (loss) $ 1,234 $ (10,845) $ (32,054)
========== ========== ==========
After tax adjustments to net
income (loss):
Extinguishment of corporate
debt expense (1) -- -- 2,805
IPO related compensation and
benefits expense (2) 1,654 1,946 33,202
IPO related general and
administrative expense (3) -- -- 621
Loss on assets sold and
retained residual
interest (4) 4,240 16,627 328
Net interest income earned on
assets sold and retained
residual interest (5) -- (602) (1,418)
---------- ---------- ----------
Adjusted net income $ 7,128 $ 7,126 $ 3,484
========== ========== ==========
Net income (loss) per share:
Basic $ 0.03 $ (0.30) $ (1.26)
Diluted $ 0.03 $ (0.30) $ (1.26)
Weighted average shares
outstanding: (6)
Basic 38,826,567 36,253,628 25,376,446
Diluted 38,826,567 36,253,628 25,376,446
Adjusted net income per share:
Basic $ 0.18 $ 0.20 $ 0.14
Diluted $ 0.18 $ 0.20 $ 0.13
Adjusted weighted average shares
outstanding: (6)
Basic 38,826,567 36,253,628 25,376,446
Diluted 38,826,567 36,400,569 25,910,522
(1) Includes interest expense, call premium, termination fee and
deferred finance costs associated with the Company's corporate
debt which was repaid on December 20, 2006.
(2) 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.
(3) General and administrative expense related to the Company's
initial public offering.
(4) 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.
(5) Net interest income earned on the assets sold
during Q2 2007 and the residual interest in these assets.
(6) Weighted average shares for all periods reflect the conversions
and reverse split that occurred at the IPO.
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
---------------------------------------------------------------------
Year Ended December 31,
----------------------
($ in thousands, except per share amounts) 2007 2006
--------------------------------------------- ---------- ----------
Net interest income:
Interest income $ 204,295 $ 116,303
Interest expense 109,703 68,728
---------- ----------
Net interest income 94,592 47,575
Provision for credit losses 19,510 12,535
---------- ----------
Net interest income after provision for
credit losses 75,082 35,040
Non-interest income:
Fee income 15,797 5,849
Asset management income 5,304 1,443
Gain on derivatives 777 909
Gain (loss) on sale of loans and debt
securities (4,615) 474
Loss on investments in debt
securities (20,303) (597)
Loss on residual interest in securitization (30,556) --
Other income 5,420 1,606
---------- ----------
Total non-interest income (28,176) 9,684
Operating expenses:
Compensation and benefits 45,364 65,079
Occupancy and equipment 2,718 1,758
General and administrative expenses 9,412 7,445
---------- ----------
Total operating expenses 57,494 74,282
---------- ----------
Loss before income taxes (10,588) (29,558)
Income tax benefit (1,949) (2,377)
---------- ----------
Net loss $ (8,639) $ (27,181)
========== ==========
After tax adjustments to net loss:
Extinguishment of corporate debt
expense (1) -- 5,078
IPO related compensation and benefits
expense (2) 8,882 33,202
IPO related general and administrative
expense (3) -- 795
Loss on assets sold and retained residual
interest (4) 31,026 328
Net interest income earned on assets
sold and retained residual interest (5) (2,860) (3,688)
---------- ----------
Adjusted net income $ 28,409 $ 8,534
========== ==========
Net loss per share:
Basic $ (0.23) $ (1.65)
Diluted $ (0.23) $ (1.65)
Weighted average shares outstanding: (6)
Basic 36,904,222 16,480,836
Diluted 36,904,222 16,480,836
Adjusted net income per share:
Basic $ 0.77 $ 0.52
Diluted $ 0.76 $ 0.50
Adjusted weighted average shares
outstanding: (6)
Basic 36,904,222 16,480,836
Diluted 37,217,658 17,005,343
(1) Includes interest expense, call premium, termination fee and
deferred finance costs associated with the Company's corporate
debt which was repaid on December 20, 2006.
(2) 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.
(3) General and administrative expense related to the Company's
initial public offering.
(4) 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.
(5) Net interest income earned on the assets sold during Q2 2007 and
the residual interest in these assets.
(6) 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
----------------------------------
December September December
31, 30, 31,
($ in thousands) 2007 2007 2006
-------------------------------- ---------- ---------- ----------
Performance Ratios:
Return on average assets 0.19% (1.87)% (7.83)%
Return on average equity 1.05 (9.91) (50.91)
Net interest margin, before
provision 3.98 4.29 3.82
Efficiency ratio 51.05 526.87 263.57
Loan portfolio yield 9.28 9.72 10.00
Credit Quality and Leverage Ratios
(at period end):
Delinquent loan rate -- 0.37 0.57
Non-accrual loan rate 0.97 0.37 --
Net charge off rate 0.19 -- --
Allowance for credit losses ratio 1.58 1.62 1.40
Equity to assets 19.17 18.17 22.11
Debt to equity 4.06x 4.38x 3.39x
Average Balances:
Loans and other debt products,
gross $2,304,028 $2,040,217 $1,525,105
Interest earning assets 2,471,037 2,272,435 1,606,785
Total assets 2,522,382 2,302,288 1,623,952
Interest bearing liabilities 1,992,228 1,808,174 1,328,178
Equity 466,266 434,196 249,773
Allowance for credit loss
activity:
Balance as of beginning of
period $ 31,925 $ 25,372 $ 14,629
General provision for credit
losses 3,563 2,153 5,941
Specific provision for credit
losses 4,592 4,400 --
Net charge offs (4,593) -- --
---------- ---------- ----------
Balance as of end of period $ 35,487 $ 31,925 $ 20,570
========== ========== ==========
Supplemental Data (at period end):
Investments in debt securities,
gross $ 38,787 $ 41,608 $ 217,314
Loans held-for-sale, gross 115,055 117,755 63,277
Loans held-for-investment,
gross 2,248,480 1,973,793 1,467,038
---------- ---------- ----------
Loans and investments in debt
securities, gross 2,402,322 2,133,156 1,747,629
Unused lines of credit 454,837 412,168 302,856
Standby letters of credit 20,382 12,904 6,990
---------- ---------- ----------
Total funding commitments $2,877,541 $2,558,228 $2,057,475
========== ========== ==========
Loan portfolio $2,402,322 $2,133,156 $1,747,629
Loans owned by NewStar Credit
Opportunities Fund 578,272 491,436 283,378
Less: assets sold (1) -- -- 179,979
---------- ---------- ----------
Managed loan portfolio $2,980,594 $2,624,592 $1,851,028
========== ========== ==========
Loans held-for-sale, gross $ 115,055 $ 117,755 $ 63,277
Loans held-for-investment,
gross 2,248,480 1,973,793 1,467,038
---------- ---------- ----------
Total loans, gross 2,363,535 2,091,548 1,530,315
Deferred fees, net (15,762) (10,179) (10,468)
Allowance for loan losses (28,795) (25,972) (19,395)
Specific reserve (4,592) (4,400) --
---------- ---------- ----------
Total loans, net $2,314,386 $2,050,997 $1,500,452
========== ========== ==========
Book value per share $ 11.58 $ 11.78 $ 11.68
(1) Outstanding par value of the assets sold on June 29, 2007.
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
---------------------------------------------------------------------
Year Ended December 31,
----------------------
($ in thousands) 2007 2006
--------------------------------------------- ---------- ----------
Performance Ratios:
Return on average assets (0.39)% (2.22)%
Return on average equity (1.97) (15.85)
Net interest margin, before provision 4.23 3.93
Efficiency ratio 86.57 129.73
Loan portfolio yield 9.63 9.89
Credit Quality and Leverage Ratios (at
period end):
Delinquent loan rate -- 0.57
Non-accrual loan rate 0.97 --
Net charge off rate 0.19 --
Allowance for credit losses ratio 1.58 1.40
Equity to assets 19.17 22.11
Debt to equity 4.06x 3.39x
Average Balances:
Loans and other debt products, gross $2,038,678 $1,150,111
Interest earning assets 2,234,916 1,210,494
Total assets 2,243,524 1,224,744
Interest bearing liabilities 1,767,993 1,028,139
Equity 439,650 171,518
Allowance for credit loss activity:
Balance as of beginning of period $ 20,570 $ 8,035
General provision for credit losses 10,518 12,535
Specific provision for credit losses 8,992 --
Net charge offs (4,593) --
---------- ----------
Balance as of end of period $ 35,487 $ 20,570
========== ==========
Supplemental Data (at period end):
Investments in debt securities, gross $ 38,787 $ 217,314
Loans held-for-sale, gross 115,055 63,277
Loans held-for-investment, gross 2,248,480 1,467,038
---------- ----------
Loans and investments in debt securities,
gross 2,402,322 1,747,629
Unused lines of credit 454,837 302,856
Standby letters of credit 20,382 6,990
---------- ----------
Total funding commitments $2,877,541 $2,057,475
========== ==========
Loan portfolio $2,402,322 $1,747,629
Loans owned by NewStar Credit Opportunities
Fund 578,272 283,378
Less: assets sold (1) -- 179,979
---------- ----------
Managed loan portfolio $2,980,594 $1,851,028
========== ==========
Loans held-for-sale, gross $ 115,055 $ 63,277
Loans held-for-investment, gross 2,248,480 1,467,038
---------- ----------
Total loans, gross 2,363,535 1,530,315
Deferred fees, net (15,762) (10,468)
Allowance for loan losses (28,795) (19,395)
Specific reserve (4,592) --
---------- ----------
Total loans, net $2,314,386 $1,500,452
========== ==========
Book value per share $ 11.58 $ 11.68
(1) Outstanding par value of the assets sold on June 29, 2007.
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
----------------------------------
Adjusted
-------------------------------- ----------------------------------
Three Months Ended
----------------------------------
December September December
31, 30, 31,
($ in thousands) 2007 2007 2006
-------------------------------- ---------- ---------- ----------
Performance Ratios:
Return on average assets 1.12% 1.24% 0.94%
Return on average equity 6.07 6.51 5.53
Efficiency ratio 35.65 37.39 49.01
Net interest margin, before
provision 3.98 4.16 4.37
Yield on interest earning assets 8.93 9.12 9.63
Cost of funds 6.14 6.16 6.48
Credit Quality and Leverage Ratios
(at period end):
Equity to assets 19.17 18.19 24.40
Debt to equity 4.06x 4.38x 2.98x
Consolidated Statement of
Operations
Adjustments(1):
Interest income $ 55,606 $ 52,626 $ 39,243
Less: interest income earned on
assets sold and retained
residual interest (2) -- 1,019 4,136
---------- ---------- ----------
Adjusted interest income $ 55,606 $ 51,607 $ 35,107
========== ========== ==========
Interest expense $ 30,826 $ 28,071 $ 23,766
Less:
Interest expense related to
assets sold (2) -- -- 1,878
Interest & amortization related
to corporate debt -- -- 2,728
---------- ---------- ----------
Adjusted interest expense $ 30,826 $ 28,071 $ 19,160
========== ========== ==========
Non-interest income $ 3,957 $ (21,848) $ 4,103
Plus: loss on assets sold and
retained residual interest (2) 2,420 28,136 522
---------- ---------- ----------
Adjusted non-interest income $ 6,377 $ 6,288 $ 4,625
========== ========== ==========
Operating expenses $ 14,671 $ 14,259 $ 51,604
Less:
Corporate debt prepayment fees -- -- 1,425
IPO related compensation and
benefits expense (3) 2,632 3,108 39,129
IPO related general and
administrative expense (4) -- -- 968
Expenses resulting from sale of
assets (2) 931 -- --
---------- ---------- ----------
Adjusted operating expenses $ 11,108 $ 11,151 $ 10,082
========== ========== ==========
Average Balances:
Assets $2,522,382 $2,302,288 $1,623,952
Less: assets sold and residual
interest (2) 1,841 26,955 160,083
---------- ---------- ----------
Adjusted assets $2,520,541 $2,275,333 $1,463,869
========== ========== ==========
Interest earning assets $2,471,037 $2,272,435 $1,606,785
Less: assets sold and residual
interest (2) 1,841 26,955 160,083
---------- ---------- ----------
Adjusted interest earning assets $2,469,196 $2,245,480 $1,446,702
========== ========== ==========
Interest bearing liabilities $1,992,228 $1,808,174 $1,328,178
Less:
Credit facility funding for
assets sold (2) -- -- 121,650
Corporate debt -- -- 33,016
---------- ---------- ----------
Adjusted interest bearing
liabilities $1,992,228 $1,808,174 $1,173,512
========== ========== ==========
Consolidated Balance Sheet
Adjustments
Assets $2,622,765 $2,351,079 $1,915,192
Less: assets sold and residual
interest (2) 631 3,051 179,979
---------- ---------- ----------
Adjusted assets $2,622,134 $2,348,028 $1,735,213
========== ========== ==========
Debt $2,042,527 $1,871,671 $1,434,670
Less: credit facility funding
for assets sold (2) -- -- 174,510
---------- ---------- ----------
Adjusted debt $2,042,527 $1,871,671 $1,260,160
========== ========== ==========
(1) Adjustments are pre-tax.
(2) On June 29, 2007, the Company completed the sale of assets
comprised of 50 debt securities and two loans and retained a
residual interest in these assets. The adjustment represents
the financial impact of the sold assets and residual interest.
(3) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
(4) General and administrative expense related to the Company's
initial public offering.
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
----------------------
Adjusted
--------------------------------------------- ----------------------
Year Ended December 31,
----------------------
($ in thousands) 2007 2006
--------------------------------------------- ---------- ----------
Performance Ratios:
Return on average assets 1.33% 0.77%
Return on average equity 6.46 4.98
Efficiency ratio 39.46 55.42
Net interest margin, before provision 4.21 4.39
Yield on interest earning assets 9.14 9.59
Cost of funds 6.21 6.28
Credit Quality and Leverage Ratios (at
period end):
Equity to assets 19.17 24.40
Debt to equity 4.06x 2.98x
Consolidated Statement of Operations
Adjustments (1):
Interest income $ 204,295 $ 116,303
Less: interest income earned on assets
sold and retained residual interest (2) 9,458 10,738
---------- ----------
Adjusted interest income $ 194,837 $ 105,565
========== ==========
Interest expense $ 109,703 $ 68,728
Less:
Interest expense related to assets sold (2) 4,620 4,865
Interest & amortization related to
corporate debt -- 6,662
---------- ----------
Adjusted interest expense $ 105,083 $ 57,201
========== ==========
Non-interest income $ (28,176) $ 9,684
Plus: loss on assets sold and retained
residual interest (2) 47,743 522
---------- ----------
Adjusted non-interest income $ 19,567 $ 10,206
========== ==========
Operating expenses $ 57,494 $ 74,282
Less:
Corporate debt prepayment fees -- 1,425
IPO related compensation and benefits
expense (3) 13,424 39,129
IPO related general and administrative
expense (4) -- 1,268
Expenses resulting from sale of assets (2) 931 --
---------- ----------
Adjusted operating expenses $ 43,139 $ 32,460
========== ==========
Average Balances:
Assets $2,243,524 $1,224,744
Less: assets sold and residual interest (2) 103,248 109,779
---------- ----------
Adjusted assets $2,140,276 $1,114,965
========== ==========
Interest earning assets $2,234,916 $1,210,494
Less: assets sold and residual interest (2) 103,248 109,779
Adjusted interest earning assets $2,131,668 $1,100,715
========== ==========
Interest bearing liabilities $1,767,993 $1,028,139
Less:
Credit facility funding for assets sold (2) 74,667 80,580
Corporate debt -- 36,370
---------- ----------
Adjusted interest bearing liabilities $1,693,326 $ 911,189
========== ==========
Consolidated Balance Sheet Adjustments
Assets $2,622,765 $1,915,192
Less: assets sold and residual interest (2) 631 179,979
---------- ----------
Adjusted assets $2,622,134 $1,735,213
========== ==========
Debt $2,042,527 $1,434,670
Credit facility funding for assets sold (2) -- 174,510
---------- ----------
Adjusted debt $2,042,527 $1,260,160
========== ==========
(1) Adjustments are pre-tax.
(2) On June 29, 2007, the Company completed the sale of assets
comprised of 50 debt securities and two loans and retained a
residual interest in these assets. The adjustment represents the
financial impact of the sold assets and residual interest.
(3) Non-cash compensation charge related to restricted stock grants
made since our inception as a private company, including equity
awards made in connection with the initial public offering.
(4) General and administrative expense related to the Company's
initial public offering.
NewStar Financial, Inc.
Portfolio Data
(unaudited)
---------------------------------------------------------------------
($ in
thousands) December 31, 2007 September 30, 2007 December 31, 2006
---------- ----------------- ----------------- -----------------
Portfolio
Data:
First
mortgage $ 353,755 14.7% $ 289,426 13.6% $ 216,888 12.4%
Senior
secured
asset-
based 56,988 2.4 65,200 3.1 50,566 2.9
Senior
secured
cash
flow 1,829,734 76.2 1,582,636 74.2 1,082,048 61.9
Senior
subordinated
asset-
based 110,719 4.6 115,566 5.4 247,456 14.2
Senior
subordinated
cash flow 14,352 0.6 26,162 1.2 35,161 2.0
Second lien 32,295 1.3 53,440 2.5 70,875 4.1
Mezzanine 729 0.0 726 -- 719 --
Subordinated 3,750 0.2 -- -- 43,916 2.5
---------- ----- ---------- ----- ---------- -----
Total $2,402,322 100.0% $2,133,156 100.0% $1,747,629 100.0%
========== ===== ========== ===== ========== =====
Middle
Market
Corporate $1,879,797 78.2% $1,663,247 78.0% $1,183,107 67.7%
Commercial
Real Estate 380,763 15.9 314,827 14.7 230,735 13.2
Structured
Products 141,762 5.9 155,082 7.3 333,787 19.1
---------- ----- ---------- ----- ---------- -----
Total $2,402,322 100.0% $2,133,156 100.0% $1,747,629 100.0%
========== ===== ========== ===== ========== =====