NewStar Reports Net Income of $4.2 Million, or $0.10 per Diluted Share, for the Second Quarter of 2017 and Declares $0.02 Quarterly Dividend per Share


  • Acquisition – Completed previously announced acquisition of Fifth Street CLO Management LLC on July 20, 2017, adding approximately $726 million of AUM.

  • Investment Activity – New funded, middle-market credit investments totaled $460 million in the second quarter, up from $330 million last quarter and compared to $476 million in the same quarter last year. 

  • Managed Assets – Managed loans and credit investments at the end of the quarter decreased slightly from the prior quarter to $6.5 billion due to the amortization and redemption of older managed CLOs issued in 2006 and 2007, which was partly offset by growth in loans held-for-sale and investments in debt securities issued by managed funds to comply with risk retention requirements.

  • Net Interest Margin – The margin increased to 1.56% for the second quarter from 1.45% in the prior quarter due to a combination of rising index rates, higher deferred loan fee amortization and an increase in loans as a percentage of earning assets.

  • Revenue – Total revenue1 in the second quarter was consistent with the prior quarter at $20.2 million as higher net interest income, asset management fees and a gain on the sale of equity interests offset a decrease in fee income from capital markets activities and higher negative mark-to-market adjustments on loans held at fair value. 

  • Credit – Credit costs decreased $3.5 million from the prior period to $2.7 million due primarily to lower specific provision expense, while net charge-offs increased by $2.0 million from the prior period to $7.5 million in the second quarter. 

  • Expenses – Operating expenses decreased by $1.3 million, or 11.5%, from the prior period to $10.3 million as the company achieved planned cost saving targets.   

  • Capital Management – Returned approximately $7.3 million to stockholders in the second quarter through share repurchases and dividends.  Book value per share increased to $15.40 as of June 30, 2017, up $0.19 from the end of the prior quarter. 

  • Quarterly Dividend – Board of Directors declared a quarterly dividend of $0.02 per share of common stock payable on September 15, 2017 to shareholders of record on August 29, 2017.

BOSTON, Aug. 02, 2017 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (NASDAQ:NEWS) (“NewStar” or the “Company”), an internally-managed, middle market direct lender and credit-oriented asset manager, today announced financial results for its second quarter of 2017, reporting net income of $4.2 million, or $0.10 per diluted share. These results compare to net income of $1.4 million, or $0.03 per diluted share in the first quarter of 2017 and $5.2 million, or $0.11 per diluted share in the second quarter of 2016. Operating income before income taxes was $7.2 million for the second quarter of 2017 compared to $2.4 million for the first quarter of 2017 and $8.8 million in the second quarter of 2016.

Tim Conway, NewStar’s Chairman and Chief Executive Officer, commented on the Company’s performance: “Despite continued pricing pressure in the second quarter, our core earnings were solid on a cash basis, excluding negative marks totaling $3.2 million on our liquid credit portfolio.  Credit costs remained in check and we continued to reduce expenses, while also taking steps to accelerate growth in managed assets and execute our capital management programs.  We returned approximately $7.3 million to stockholders through accretive share repurchases and dividends.  We also acquired Fifth Street’s CLO business after the close of the quarter, adding $726 million to assets under management.  We now have nearly $7.3 billion of managed assets split evenly between the balance sheet and funds. The acquisition is consistent with our strategy to expand our asset management activities in ways that benefit our lending franchise and add to our value proposition by leveraging our core strengths in direct lending, securitization and credit management. It also provides an attractive way to diversify our business mix, adding to fee revenue and accelerating improvement in equity returns.” 

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

Acquisition

  • Completed the previously announced acquisition of Fifth Street CLO Management LLC (“FSCM”) from Fifth Street Holdings L.P., an affiliate of Fifth Street Asset Management, Inc. (“Fifth Street”) (NASDAQ:FSAM), a publicly-traded credit-focused asset management firm. 
     
  • Formed in 2015 by Fifth Street to manage its middle market CLO business, FSCM manages two CLOs backed by middle-market loans and holds certain interests in its sponsored CLOs primarily to comply with regulatory risk retention requirements.

  • The purchase price was approximately $16 million in cash, net of $13 million of assumed indebtedness.

  • The acquisition adds approximately $726 million to NewStar’s assets under management, increasing total AUM to approximately $7.25 billion.  The transaction closed July 20, 2017.

Dividend Declaration

  • On July 31, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.02 per share of common stock to be paid on September 15, 2017, to shareholders of record at the close of business on August 29, 2017.

  • The declaration and payment of future dividends will be subject to the board’s approval. 

Managed and Owned Investment Portfolios

  • Total new funded, middle-market credit investments were $460 million in the second quarter of 2017 compared to $330 million in the prior quarter and $476 million in the same quarter last year.  The change from the prior quarter reflected an increase in demand for acquisition financing derived from middle market leverage buyout activity amid an increase in M&A activity.  The impact of higher loan demand was tempered somewhat by an increase in market liquidity. 

  • Total new liquid credit investments (rated, broadly syndicated loans) held by the Arch Street CLO and held for sale to other managed funds were $157 million in the second quarter compared to $189 million in the prior quarter.  

  • Balance sheet runoff from scheduled amortization, prepayments and loan sales totaled approximately $461 million in the second quarter, or 12.7% of loan and investment balances at the beginning of the period, up from $366 million in the prior quarter.  Runoff in the second quarter included $242 million of prepayments, $170 million of loan sales and $48 million of contractual amortization compared to prepayments of $296 million, loan sales of $34 million and amortization of $37 million in the prior quarter. 

  • Average yields on new middle-market loans and other directly originated credit investments in the second quarter were 6.8%, up from 6.6% in the prior quarter, but down from 7.0% in the comparable quarter last year. 

  • Loans and other investments outstanding, excluding assets managed for third parties, were consistent with the prior quarter at $3.6 billion.  Compared to the second quarter of 2016, loans and investments decreased by $153 million, or 4.1%, due to the sale of $165 million of equipment finance assets and a $30.8 million decrease in commercial real estate loans, which was partly offset by growth in Leveraged Finance loans.

  • The Leveraged Finance loan portfolio totaled approximately $3.6 billion at the end of the second quarter, which was consistent with the prior quarter and up $43 million from the prior year.   Commercial real estate loans were less than $11 million at the end of the second quarter consistent with the prior quarter and compared to $42 at the same time last year.

  • Assets held in managed funds decreased by $79 million in the second quarter to approximately $3.3 billion and were up $327 million from the same time last year.  The decrease from the prior quarter was due to expected amortization and redemption of CLOs backed by broadly syndicated loans that were past their re-investment periods. 

  • The owned loan portfolio remained defensively positioned - balanced across industry sectors and highly diversified by issuer. As of June 30, 2017, no outstanding borrowings by a single obligor represented more than 1.2% of total loans outstanding, and the ten largest obligors comprised approximately 8.4% of the loan portfolio.

Net Interest Income / Margin

  • Net interest income increased by $1.0 million to $15.0 million in the second quarter compared to $14.0 million in the prior quarter.  Compared to the second quarter of last year, net interest income decreased by $5.9 million, or 28.2%.  The decrease was due primarily to a decrease in average loan balances and higher cost of funds driven partly by rising LIBOR index rates.  

  • The portfolio yield was 6.43% in the second quarter up from 6.29% in the prior quarter and 6.28% in the comparable period in the prior year. 

  • Funding costs were 5.08% in the second quarter, up from 4.99% in the first quarter and 4.65% in the comparable period in the prior year due to increasing LIBOR index rates, changes in the mix of debt and higher average cost of funds for new CLO issuance. 

  • As a result, the net interest margin widened to 1.56% for the second quarter of 2017 compared to 1.45% for the prior quarter and 2.10% in the second quarter of 2016.   

Non-Interest Income

  • Non-interest income decreased by $1.0 million to $5.2 million for the second quarter of 2017 compared to $6.2 million in the prior quarter and $4.4 million in the same period last year. The change reflected a $1.0 million decrease in capital markets-related fee income and negative mark to market adjustments totaling $3.2 million compared to negative adjustments of $2.8 million in the prior quarter offset by differences in other miscellaneous income.

  • Other non-interest income items in the second quarter of 2017 were centered in asset management fees of $3.8 million and $1.8 million of other income. 

Credit Performance

  • Provision expense was $2.7 million in the second quarter, down from $6.1 million in the prior quarter, and down from $3.6 million in the same quarter last year.        

  • Total net specific provision expense decreased by approximately $3.0 million in the second quarter to $3.3 million compared to $6.3 million in the prior quarter and $2.4 million in the same quarter last year.  Provisioning activity in the second quarter included a $2.0 million specific charge in connection with the expected sale of a borrower in connection with the resolution of a long-term work-out. 

  • Net charge-offs in the second quarter of 2017 were $7.5 million compared to $5.5 million in the prior quarter.

  • The allowance for credit losses was $47.3 million, or 1.75% of consolidated loans and approximately 49.7% of non-performing loans (NPLs), at June 30, 2017, compared to $52.1 million, or 1.85% of consolidated loans and approximately 50.7% of NPLs, at March 31, 2017. 

  • Non-performing loans decreased by $7.7 million to $95.1 million, or 3.06% of loans held for investment at June 30, 2017, compared to $102.8 million or 3.18% of loans held for investment at the end of the prior quarter due primarily to charge-off activity.  

Expenses

  • Total operating expenses for the second quarter decreased by $1.3 million to $10.3 million compared to $11.6 million in the prior quarter, reflecting targeted cost savings from actions taken over the last twelve months to streamline operations. 

  • As a result, expenses as a percentage of average assets under management decreased to 0.64% in the second quarter compared to 0.68% in the prior quarter.

  • Adjusted operating expenses, which excludes non-cash equity compensation and severance costs, were $9.4 million in the second quarter down from $10.8 million during the first quarter. 

  • The Company had 66 full-time employees at June 30, 2017 compared to 69 full-time employees at March 31, 2017 and 90 employees at June 30, 2016.  The reduction in staffing levels during 2016 reflects the sale of the asset-based lending and equipment finance businesses, as well as other related strategic initiatives to streamline operations. 

Income Taxes

  • Deferred income taxes decreased $3.7 million to $36.9 million as of June 30, 2017.  The decrease was driven primarily by charge-off activity in the allowance for credit losses and timing differences related to compensation expense recognition.  

  • Approximately $23.7 million and $6.7 million of the net deferred tax asset as of June 30, 2017 were related to our allowance for credit losses and incentive compensation, respectively.

Funding and Capital

  • Total cash and equivalents as of June 30, 2017, were $273.0 million, of which $49.7 million was unrestricted.

  • Unrestricted cash increased to $49.7 million at June 30, 2017, from $15.4 million at the end of the prior quarter due primarily to cash management activities.  Total available liquidity was $67.3 million at June 30, 2017, including unrestricted cash and $17.6 million of collateralized availability under credit facilities. 

  • Restricted cash decreased by $86.1 million to $223.3 million at June 30, 2017 due primarily to cash collections on assets held in CLOs and other special purpose vehicles (SPVs) ahead of settlement dates, when restricted cash is disbursed to various stakeholders, including the Company.

  • Advances under credit facilities increased by $22.0 million to $396.1 million during the second quarter due primarily to lending activity and discretionary cash management activities.

  • Term debt securitization balances decreased from the prior quarter by $44.5 million to $2.1 billion at June 30, 2017.

  • As a result, total debt increased slightly to $3.2 billion at June 30, 2017 and leverage stayed the same at 5.0x for the end of the second quarter.

Equity

  • Book value per share increased by $0.19 to $15.40 at the end of the second quarter compared to $15.21 at the end of the prior quarter due primarily to accretive share repurchases and retained earnings. 

  • Average diluted shares outstanding totaled 41.3 million for the quarter, down from 41.8 million for the prior quarter, and total outstanding shares at June 30, 2017 were 41.8 million compared to 42.3 million at March 31, 2017.

  • The Company repurchased 629,997 shares at an average cost of $10.29, or approximately $6.5 million, and paid dividends totaling $0.8 million in the second quarter.    

  • Pre-tax returns on average equity increased to 4.5% in the second quarter from 1.5% in the prior quarter.  On an after-tax basis, returns on average equity increased to 2.6% in the second quarter from 0.9% from the prior 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 Events & Presentations under News & Noteworthy section at www.newstarfin.com. Please visit the website to register for the webcast and test your connection prior to the call. You can also access the conference call by dialing 877-755-7419 approximately 5-10 minutes prior to the call.  International callers should dial 973-200-3080. All callers should reference “NewStar Financial.”   

For convenience, an archived replay of the call will be available through August 10, 2017 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 54313007. The audio replay will also be available through the News & Noteworthy section at www.newstarfin.com.            

About NewStar Financial

NewStar Financial Inc. (NASDAQ:NEWS) is an internally-managed, commercial finance company with $6.5 billion of assets at June 30, 2017, managed across two complementary business lines – middle market direct lending and asset management.  The Company’s direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options.  Credit investments are originated directly through teams of experienced, senior bankers with expertise in key industry sectors. Through its asset management platforms, NewStar offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit. The Company manages approximately $1.3 billion of assets in a series of private credit funds and separate accounts that co-invest in middle market loans originated through its established leveraged finance lending platform and its strategic relationship with GSO Capital, the credit division of The Blackstone Group. Through its wholly-owned subsidiary, NewStar Capital, the Company also has more than $2 billion of assets managed across a series of CLOs that invest primarily in broadly syndicated, non-investment grade loans, as well as other sponsored funds and managed accounts that invest across various asset classes, including non-investment grade loans and bonds. 

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

Forward-Looking Statements

This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future performance, our expectations regarding our ability to support continued future asset growth or expense reductions and the declaration of future dividends.  All statements other than statements of historical fact included in this release are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, strategic plans (including those relating to the transition to a hybrid asset manager), the market price for NewStar’s stock prevailing from time to time, the nature of other investment opportunities presented to NewStar from time to time, objectives, future performance, financing plans and restrictive covenants in our debt instruments. As such, they are subject to material risks and uncertainties, including our ability to leverage new and future assets to support growth, the continued success of our strategic relationships; the general state of the economy; our ability to compete effectively in a highly competitive industry; our ability to integrate acquired businesses; and the impact of federal, state and local laws and regulations that govern non-depository commercial lenders and businesses generally.

More detailed information about these risk factors can be found in NewStar’s filings with the Securities and Exchange Commission (the “SEC”), including Item 1A (“Risk Factors”) of our 2016 Annual Report on Form 10-K, and as supplemented by any Risk Factors contained in our Quarterly Reports on Form 10‑Q.  NewStar is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. NewStar plans to file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 with the SEC on or before August 9, 2017 and urges its shareholders to refer to that document for more complete information concerning NewStar’s financial results.

Non-GAAP Financial Measures

References to “total revenue” refer to net interest income plus non-interest income.  “Adjusted operating expenses” refers to operating expenses, excluding severance costs and compensation expense related to restricted stock grants that are required to be included under GAAP.  NewStar management uses adjusted operating expenses to analyze performance in support of operational and investment decisions, and NewStar believes that these measurements provide useful information to investors in their evaluation of our financial performance and condition.  Excluding non-recurring items from revenue measures and excluding expenses incurred in connection with severance costs and compensation expense related to equity awards each eliminate unique amounts that make it difficult to assess our core performance and compare our period over period results. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measures are included on page 10 of this release.

NewStar Financial, Inc.         
Consolidated Balance Sheets         
(unaudited)         
          
          
  June 30, March 31, December 31, June 30, 
($ in thousands) 2017 2017 2016 2016 
Assets:         
          
Cash and cash equivalents $49,721 $15,374 $154,480 $34,634 
Restricted cash  223,268  309,368  262,643  207,394 
Cash collateral on deposit with custodians  7,564  7,564  7,564  7,564 
Investments in debt securities, available-for-sale  151,426  127,543  119,307  91,400 
Loans held-for-sale, net  346,626  255,961  144,060  440,099 
Loans and leases, net  3,037,363  3,148,767  3,239,191  3,113,061 
Interest receivable  13,536  13,724  14,622  15,059 
Property and equipment, net  239  254  274  366 
Deferred income taxes, net  36,863  40,582  40,807  30,443 
Income tax receivable  3,764  4,334    8,346 
Goodwill  17,884  17,884  17,884  17,884 
Identified intangible asset, net  405  488  572  738 
Other assets  42,736  43,858  39,188  24,873 
Total assets  $3,931,395 $3,985,701 $4,040,592 $3,991,861 
          
Liabilities:         
          
Credit facilities, net $396,139 $374,116 $445,493 $565,799 
Term debt securitizations, net  2,097,459  2,141,949  2,195,064  2,009,184 
Senior notes, net  374,830  374,374  373,919  373,006 
Subordinated notes, net  245,082  243,236  241,390  237,696 
Repurchase agreements, net  79,269  57,973  55,046  64,625 
Accrued interest payable  20,230  32,652  21,319  19,664 
Income tax payable      12,562   
Other liabilities  75,144  118,394  48,377  63,164 
Total liabilities  3,288,153  3,342,694  3,393,170  3,333,138 
Total stockholders' equity  643,242  643,007  647,422  658,723 
Total liabilities and stockholders’ equity $3,931,395 $3,985,701 $4,040,592 $3,991,861 
          

 

NewStar Financial, Inc.         
Consolidated Statements of Operations         
(unaudited)         
          
         
 Three Months Ended 
 June 30, March 31, December 31, June 30, 
($ in thousands, except per share amounts)2017 2017 2016 2016 
Net interest income:        
Interest income$56,913  $55,082  $64,217  $59,392  
Interest expense 41,905   41,094   43,529   38,486  
Net interest income 15,008   13,988   20,688   20,906  
Provision for credit losses 2,698   6,149   2,635   3,623  
Net interest income after provision for credit losses 12,310   7,839   18,053   17,283  
       
Non-interest income (loss):        
Asset management income 3,826   3,647   3,062   3,543  
Fee income 2,161   3,193   1,442   1,697  
Loss on derivatives, net       (153)  (11) 
Gain (loss) on sale of loans, net 511   696   (2,131)  162  
Other miscellaneous income 1,848   1,498   1,327   1,114  
Mark to market adjustment on fair value loans  (3,181)  (2,769)  1,830   373  
Net unrealized (loss) gain on loans held-for-sale  14   (114)  7,751   (2,519) 
Gain on sale of Business Credit and Equipment Finance assets       6,655     
Total non-interest income 5,179   6,151   19,783   4,359  
Operating expenses:        
Compensation and benefits 6,747   7,437   10,704   8,827  
General and administrative expenses 3,552   4,200   8,758   4,013  
Total operating expenses 10,299   11,637   19,462   12,840  
Income from operations before income taxes 7,190   2,353   18,374   8,802  
Income tax expense 3,038   971   8,044   3,561  
Net income $4,152  $1,382  $10,330  $5,241  
         
Earnings per share:        
Basic EPS$0.10  $0.03  $0.23  $0.11  
Diluted EPS $0.10  $0.03  $0.23  $0.11  
         
Weighted average shares outstanding:        
Basic 41,216,013   41,789,915   43,732,133   46,010,918  
Diluted  41,283,296   41,827,138   43,780,606   46,010,918  
          
Dividends declared per common share$0.02  $0.02  $  $  
          

 

NewStar Financial, Inc.     
Consolidated Statements of Operations     
(unaudited)     
      
  For the Six Months Ended June 30, 
($ in thousands, except per share amounts) 2017 2016 
Net interest income:     
Interest income $111,995  $121,344  
Interest expense  82,999   77,919  
Net interest income  28,996   43,425  
Provision for credit losses  8,847   21,336  
Net interest income after provision for credit losses  20,149   22,089  
      
Non-interest income (loss):     
Asset management income  7,473   6,984  
Fee income  5,354   2,890  
Loss on derivatives, net  -   (18) 
(Loss) gain on sale of loans, net  1,207   55  
Other miscellaneous income  3,346   2,696  
Mark to market adjustment on fair value loans  (5,950)  268  
Loss on total return swap  -   (6,062) 
Unrealized gain (loss) on loans held-for-sale, net  (100)  (5,813) 
Gain on sale of divested business and assets  -   22,511  
Total non-interest income  11,330   23,511  
Operating expenses:     
Compensation and benefits  14,184   19,465  
General and administrative expenses  7,752   10,443  
Total operating expenses  21,936   29,908  
Income from operations before income taxes  9,543   15,692  
Income tax expense  4,009   6,442  
Net income  $5,534  $9,250  
      
Earnings per share:     
Basic EPS $0.13  $0.20  
Diluted EPS $0.13  $0.20  
      
Weighted average shares outstanding:     
Basic  41,507,113   46,157,363  
Diluted  41,567,028   46,157,363  
      

 

NewStar Financial, Inc.         
Selected Financial Data         
(unaudited)         
          
          
  Three Months Ended 
  June 30,  March 31,  December 31, June 30, 
($ in thousands) 2017 2017 2016 2016 
Performance Ratios:         
Return on average assets  0.42%  0.14%  0.98%  0.53% 
Return on average equity  2.60   0.87   6.26   3.19  
Pre-tax return on average equity (ROAE)  4.50   1.47   11.14   5.36  
Net interest margin, before provision  1.56   1.45   1.96   2.10  
Operating expenses as a percentage of average AUM  0.64   0.68   1.15   0.78  
Operating expenses as a percentage of average total assets  1.05   1.19   1.84   1.29  
Efficiency ratio  51.02   57.78   48.09   50.82  
Portfolio yield  6.43   6.29   6.53   6.28  
          
Credit Quality Ratios:         
Delinquent loan rate for loans 60 days or more         
past due (at period end)  0.45%  0.65%  0.64%  0.07% 
Delinquent loan rate for accruing loans 60 days         
or more past due (at period end)           -  
Non-accrual loan rate (at period end)  3.06   3.18   2.99   2.97  
Non-performing asset rate (at period end)  3.04   3.65   3.45   2.98  
Annualized net charge off (recovery) rate (end of period loans)  0.97   0.69   2.26   0.86  
Annualized net charge off (recovery) rate (average period loans)  0.88   0.65   1.98   0.75  
Allowance for credit losses ratio (at period end)  1.75   1.85   1.76   2.09  
          
Capital and Leverage Ratios:         
Equity to assets  16.36%  16.13%  16.02%  16.50% 
Debt to equity  4.96   4.96   5.11   4.93  
Book value per share $15.40  $15.21  $15.12  $14.12  
          
Average Balances:         
Loans and other debt products, gross $3,541,958  $3,541,036  $3,904,115  $3,789,878  
Interest earning assets  3,869,500   3,916,700   4,192,123   3,997,586  
Total assets  3,931,395   3,979,213   4,196,793   3,992,135  
Interest bearing liabilities  3,306,672   3,338,294   3,588,650   3,328,485  
Equity  643,242   647,598   656,282   660,997  
Assets under management (AUM)  6,503,448   6,948,574   6,758,842   6,612,840  
          
Allowance for credit loss activity:         
Balance as of beginning of period $52,081  $51,408  $66,366  $67,292  
General provision for credit losses  (600)  (115)  1,430   1,207  
Specific provision for credit losses  3,298   6,264   2,498   2,416  
Net (charge offs) recoveries  (7,494)  (5,476)  (18,886)  (6,872) 
Reclass of Equipment Finance to Assets held-for-sale           -  
Balance as of end of period $47,285  $52,081  $51,408  $64,043  
          
          
          
  June 30,  March 31,  December 31, June 30,  
($ in thousands) 2017 2017 2016 2016 
Supplemental Data (at period end):         
Investments in debt securities $159,248  $133,803  $126,050  $97,837  
Loans, held-for-sale  349,757   258,430   145,966   446,462  
Loans held-for-investment  3,110,072   3,227,895   3,319,550   3,227,799  
Loans and investments in debt securities  3,619,077   3,620,128   3,591,566   3,772,098  
Deferred fees, net  (36,851)  (36,278)  (38,072)  (64,003) 
Allowance for loan losses - general  (30,449)  (31,020)  (31,165)  (30,655) 
Allowance for loan losses - specific  (16,363)  (20,559)  (19,771)  (32,880) 
Total loans and investments in debt securities, net $3,535,414  $3,532,271  $3,502,558  $3,644,560  
          
          
Unused lines of credit  306,113   313,712   326,051   283,802  
Standby letters of credit  6,825   8,053   8,239   6,339  
Total unfunded commitments $312,938  $321,765  $334,290  $290,141  
          

 

NewStar Financial, Inc.     
Selected Financial Data     
(unaudited)     
      
      
  Six Months Ended June 30,  
($ in thousands) 2017 2016 
Performance Ratios:     
Return on average assets  0.28%  0.46% 
Return on average equity  1.73   2.83  
Net interest margin, before provision  1.43   2.16  
Operating expenses as a percentage of average total assets  1.11   1.49  
Operating expenses as a percentage of average AUM  0.66   0.89  
Efficiency ratio  54.40   44.68  
Portfolio yield  5.81   6.29  
      
Credit Quality Ratios:     
Annualized net charge off (recovery) rate (end of period loans)  0.84   0.88  
Annualized net charge off (recovery) rate (average period loans)  0.70   0.76  
      
Average Balances:     
Loans and other debt products, gross $3,871,931  $3,870,980  
Interest earning assets  4,081,983   4,049,018  
Total assets  3,970,657   4,039,606  
Interest bearing liabilities  3,472,392   3,405,268  
Equity  646,110   658,037  
Assets under management (AUM)  6,744,338   6,766,031  
      
Allowance for credit loss activity:     
Balance as of beginning of period $51,408  $58,726  
General provision for credit losses  (715)  2,278  
Specific provision for credit losses  9,562   19,058  
Net charge offs  (12,970)  (14,200) 
Reversal due to sale of Business Credit  -   (1,819) 
Balance as of end of period $47,285  $64,043  
      

 

NewStar Financial, Inc.         
Non-GAAP Selected Financial Data         
(unaudited)         
          
          
  Three Months Ended 
  June 30, March 31 December 31, June 30,  
($ in thousands) 2017 2017 2016 2016 
Performance Ratios:         
          
Consolidated Statement of Operations  Adjustments (1):         
Operating expenses $10,299  $11,637  $19,462  $12,840 
Less: non-cash equity compensation expense (2)  870   857   921   913 
Less: severance expenses        3,519    
Adjusted operating expenses $9,429  $10,780  $15,022  $11,927 
          
Adjusted operating expenses as a percentage of average total assets  0.96%  1.10%  1.42%  1.20.
          
  June 30, March 31 December 31, June 30,  
  2017 2017 2016 2016 
Risk-adjusted revenue         
Net interest income after provision for credit losses $12,310  $7,839  $18,053  $17,283 
Non-interest income  5,179   6,151   19,783   4,359 
Risk-adjusted revenue $17,489  $13,990  $37,836  $21,642 
          
(1) Adjustments are pre-tax, unless otherwise noted.   
(2) Non-cash compensation charge related to restricted stock grants.   
          

 

NewStar Financial, Inc.     
Non-GAAP Selected Financial Data     
(unaudited)     
      
      
  Six Months Ended June 30, 
($ in thousands) 2017 2016 
Performance Ratios:     
      
Consolidated Statement of Operations  Adjustments(1):     
Operating expenses $21,936  $29,908  
Less: non-cash equity compensation expense (2)  1,727   1,863  
Less: severance costs       
Adjusted operating expenses $20,209  $28,045  
      
Adjusted operating expenses as a percentage of average total assets  1.03%  1.41% 
      
  Six Months Ended June 30, 
  2017 2016 
Risk-adjusted revenue     
Net interest income after provision for credit losses $20,149  $22,089  
Non-interest income  11,330   23,511  
Risk-adjusted revenue $31,479  $45,600  
      
(1) Adjustments are pre-tax. 
(2) Non-cash compensation charge related to restricted stock grants. 
      

 

NewStar Financial, Inc.                     
Portfolio Data                     
(unaudited)                     
                      
  June 30, March 31, December 31, June 30, 
($ in thousands) 2017 2017 2016 2016 
                      
Portfolio Data: (Balance Sheet AUM)                     
Leveraged Finance $3,608,404 99.7%$3,609,467 99.7% $3,580,942 99.7% $3,565,363 94.5% 
Real Estate  10,673 0.3   10,661 0.3   10,624 0.3   41,501 1.1  
Equipment Finance              165,234 4.4  
Total $3,619,077 100.0%$3,620,128 100.0% $3,591,566 100.0% $3,772,098 100.0% 
                      
Managed Portfolio (AUM)                     
Commercial Lending                     
Loans held-for-investment (1) $2,706,944 41.5%$2,821,316 42.8% $2,915,805 43.3% $3,060,601 46.6% 
Loans held-for-sale (1)  349,757 5.4   258,430 3.9   145,966 2.1   446,462 6.8  
Total Commercial Lending $3,056,701 46.9%$3,079,746 46.7% $3,061,771 45.4% $3,507,063 53.4% 
                      
Asset Management                     
Middle Market Direct Lending                     
Investments in debt securities (1) $159,248 2.4% $133,803 2.0% $126,050 1.9% $97,837 1.5% 
Arlington Program (2)  402,002 6.2   403,860 6.1   402,762 6.0   397,932 6.2  
Berkeley Fund (2)  501,199 7.7   502,203 7.6   502,245 7.4    -  
Clarendon Fund (2)  400,191 6.1   400,196 6.1   399,022 5.9   401,078 6.0  
Credit Opportunities Fund (2)  10,068 0.2   10,559 0.2   10,661 0.2   11,611 0.2  
Global Atlantic SMA  4,092 0.1   4,092           
Sub-total Middle Market Direct Lending  1,476,800 22.6%  1,454,713 22.0%  1,440,740 21.4%  908,458 13.9% 
Liquid/Tradeable Credit                     
Arch Street (2)  403,128 6.2%  406,579 6.2%  403,745 6.0   167,198 2.5  
Avery Street (2)   0.0       51,556 0.8   98,043 1.5  
Emerson Place (2)   0.0   43,227 0.7   82,660 1.2   142,691 2.1  
Hull Street (2)  494,969 7.6   494,927 7.5   495,684 7.3   501,195 7.6  
Lime Street (2)  168,197 2.6   191,760 2.9   241,145 3.6   245,775 3.7  
Longfellow Place (2)  499,153 7.7   499,091 7.6   500,080 7.4   500,319 7.6  
Staniford Street (2)  397,990 6.1   398,618 6.0   398,329 5.9   398,442 6.0  
Other (2)  24,474 0.4   29,066 0.4   64,153 1.0   114,074 1.7  
Sub-total Liquid/Tradeable Credit  1,987,911 30.5%  2,063,268 31.3%  2,237,352 33.2%  2,167,737 32.7% 
  Total Managed Assets $6,521,412  100.0% $6,597,727  100.0 % $6,739,863  100.0 % $6,583,258  100.0 % 
                      
(1) Managed assets owned by NewStar Financial Inc. include investments in debt securities, loans held-for-sale (LHFS), assets held-for-sale, and loans held-for-investment.  Cash and other consolidated assets of NewStar Financial Inc. are excluded. 
(2) Managed assets include loans, cash and other investments held by funds and managed by NewStar Financial and its affiliates. 
      

            

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