* $7.4 million of adjusted net income in the third quarter, or $0.20 adjusted earnings per diluted share * $10.8 million net loss on a GAAP basis in the third quarter, or $0.30 net loss per diluted share, including a $16.9 million after- tax loss from the write-down of a residual interest in securities sold in the second quarter * Entered into definitive agreements with institutional investors to raise approximately $125 million in a private placement of common stock * Completed a new $300 million term debt financing and renewed $400 million warehouse line * Credit quality metrics remain within expected parameters
BOSTON, Nov. 13, 2007 (PRIME NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a Boston-based specialty finance company, today reported adjusted net income for the third quarter of 2007 of $7.4 million, or $0.20 per diluted share. On a GAAP basis, the Company reported a net loss of $10.8 million, or $0.30 per diluted share, including a $16.9 million after-tax loss from the write-down of a retained residual interest in a securities portfolio sold in the second quarter, which included the vast majority of its RMBS holdings.
"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 core franchise continues to generate strong financial results," said Tim Conway, Chairman and Chief Executive Officer. "In the third quarter, we slowed our origination volume in anticipation of the lending environment shifting in our favor in terms of pricing and deal structures."
"Our priority was to ensure that we positioned our direct origination platform to be able to take advantage of the changing competitive landscape. We moved quickly to enhance our liquidity position and accelerated capital raising plans, adding lending capacity now and reducing our near term funding exposure to uncertain market conditions. Our access to multiple financing sources, and our ability to raise equity at a premium to the market from both new and existing investors, further demonstrates the quality of our franchise. As a result, I am increasingly optimistic about our ability to capitalize on developing opportunities."
Funding and Capital
* NewStar entered into a definitive agreement with five institutional investors to issue 12.5 million shares of the Company's common stock in a private placement at a price per share of $10.00, representing a 10.4% premium to yesterday's closing price. The gross proceeds from the offering will be $125 million. * NewStar also completed a $300 million term debt financing with Deutsche Bank. The transaction has an 18-month investment period during which the company can originate and fund new loans and use principal collections from repayments to invest in additional loan collateral. Following the expiry of the investment period, the transaction will amortize over a 3-year term. The facility has variable advance rates which are expected to be 80% or higher based on the diversification and average rating of the targeted loan collateral. It is pre-payable by the company at any time. * After giving effect to the transaction, NewStar will have approximately $565 million of undrawn commitments under its credit facilities and $210 million of additional capacity in its existing balance sheet CLOs. * NewStar also extended the final maturity of its $400 million three- year term credit facility with Citi to November 2010 and completed the annual renewal of the liquidity line that supports that transaction, extending its maturity to November 2008. * Total cash and equivalents as of September 30, 2007 were $193 million, of which $73 million was unrestricted.
Origination Volume
* Overall origination volume for the quarter was $403 million, of which $294 million was retained on NewStar's balance sheet, $100 million was sold to the NewStar Credit Opportunities Fund (NCOF) and $9 million was syndicated to others. * Middle Market Corporate generated approximately 93% of the new volume in the quarter, while Commercial Real Estate produced approximately 7%.
Managed Loan Portfolio
* Managed loan portfolio increased to $2.6 billion as of September 30, 2007, up 7% or $170 million from $2.5 billion at June 30, 2007, reflecting the net impact of $394 million of new origination, which was partially offset by repayments and ongoing amortization. The managed loan portfolio was $1.3 billion as of September 30, 2006. * Assets managed for the NCOF increased by $42 million, or 9%, to $491 million at September 30, 2007 from $449 million at June 30, 2007. * The portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of September 30, 2007, no single issuer represented more than 1% of total assets, excluding loans held-for-sale, and the ten largest issuers comprised approximately 11% of the loan portfolio. * The composition of the loan portfolio continued to reflect a focus on senior debt with 91% invested in senior secured loans and senior debt investments at September 30, 2007, up from 88% at June 30, 2007.
Net Interest Income / Margin
* Net interest income before provision for credit losses was $24.6 million for the third quarter 2007 compared to $23.3 million for the second quarter 2007 and $13.9 million for the third quarter 2006. * Net interest margin was 4.29% for the third quarter 2007 compared to 4.22% for the second quarter 2007 and 4.15% for the third quarter 2006. * Adjusted net interest margin was 4.16% for the third quarter 2007 compared to 4.29% for the second quarter 2007 and 4.49% for the third quarter 2006. Declines in funding costs largely offset a lower portfolio yield for the quarter and higher leverage contributed to modest margin compression.
Non-Interest Income
* The Company reported non-interest income of ($21.8) million for the third quarter 2007, reflecting 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, compared to non-interest income of $0.4 million for the second quarter 2007, which reflected the impairment in the RMBS portfolio and a loss on securities sold. * Excluding the impact of the write-down on the retained residual interest, adjusted non-interest income was $6.3 million in the third quarter 2007, up 30% from $4.8 million in the second quarter 2007. * The adjusted non-interest income of $6.3 million in the third quarter 2007 was comprised primarily of $3.3 million of fee income, $1.5 million of asset management income, $0.8 million of prepayment fees and $0.5 million of net fair value adjustments to balance sheet assets.
Commercial Loan Credit Quality
* Commercial loan credit quality continued to perform within expected parameters. In the third quarter 2007, a $7.3 million loan with an original balance of $17.5 million was placed on non-accrual status and a specific reserve of $4.4 million was established as part of the allowance for credit losses. This was the Company's first non- accrual loan and reflects the ongoing seasoning of the loan portfolio. * Inclusive of this specific reserve, the provision for credit losses was $6.6 million in the third quarter 2007, up from $2.5 million in the second quarter 2007. * As of September 30, 2007, the allowance for credit losses was $31.9 million or 1.62% of loans, up from $25.4 million, or 1.40%, at June 30, 2007and $14.6 million or 1.36% at September 30, 2006.
Expenses
* Operating expenses decreased to $14.3 million in the third quarter 2007 from $15.6 million in the second quarter 2007, due principally to lower compensation expense. Operating expenses were $8.6 million in the third quarter 2006. * The adjusted efficiency ratio improved to approximately 37.4% in the third quarter 2007 from 44.5% the second quarter 2007.
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 (888) 208-1625 approximately 5-10 minutes prior to the call. International callers should dial (913) 312-1455. All callers should reference "NewStar Financial."
For convenience, an archived replay of the call will be available through November 20, 2007 by dialing 888-203-1112. International callers should call (719) 457-0820. For all replays, please use the passcode 4453174. The audio replay will also be available through the Investor Relations section of our website at www.newstarfin.com.
The securities offered in this placement have not been registered under the Securities Act of 1933, as amended, or state securities laws, and cannot be offered or sold in the United States absent registration with the Securities and Exchange Commission or an applicable exemption from the registration requirements. As part of the transaction, NewStar has agreed to file a registration statement with the SEC covering the resale of the shares of common stock to be issued in the offering. This press release is neither an offer to sell nor a solicitation of an offer to buy any of the securities discussed herein and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.
About NewStar Financial
NewStar Financial is a specialized commercial finance company focused principally 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.
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.
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 Report for the quarter ended June 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-Q for September 30, 2007 with the SEC on or before November 14, 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 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 on the asset sale in the second quarter of 2007 and the change in fair value of the residual interest. 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 of 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, the retained residual interest and annualized interest expense as determined under GAAP) less i) interest and amortization of deferred financing costs on corporate debt and ii) 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 on 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)
---------------------------------------------------------------------
Sept. 30, June 30, Dec. 31, Sept. 30,
($ in thousands) 2007 2007 2006 2006
---------------------------------------------------------------------
Assets:
Cash and cash
equivalents $ 73,420 $ 79,297 $ 103,269 $ 4,725
Restricted cash 119,572 166,120 40,174 74,956
Residual interest in
securitization 3,051 29,677 -- --
Investments in debt
securities, available
-for-sale 37,636 41,446 203,121 185,140
Loans held-for-sale 117,528 132,908 62,620 26,005
Loans, net 1,933,469 1,778,437 1,437,832 1,054,054
Deferred financing
costs, net 15,868 15,956 11,614 13,979
Interest receivable 14,501 12,967 19,849 12,791
Property and equipment,
net 1,668 1,683 961 998
Deferred income taxes,
net 11,421 8,531 14,705 5,345
Income tax receivable 12,355 7,683 -- --
Other assets 10,590 15,086 21,047 11,507
---------- ---------- ---------- ----------
Total assets $2,351,079 $2,289,791 $1,915,192 $1,389,500
=====================================================================
Liabilities:
Repurchase agreements $ 545 $ 6,448 $ 34,535 $ 36,359
Credit facilities 705,401 604,172 625,910 354,610
Term debt 1,165,725 1,198,225 774,225 746,764
Corporate debt -- -- -- 37,500
Accrued interest
payable 26,629 20,014 23,200 15,700
Accounts payable 643 285 4,315 220
Income tax payable -- -- 4,166 1,809
Other liabilities 25,042 26,180 25,426 27,193
---------- ---------- ---------- ----------
Total liabilities 1,923,985 1,855,324 1,491,777 1,220,155
Total stockholders'
equity 427,094 434,467 423,415 169,345
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $2,351,079 $2,289,791 $1,915,192 $1,389,500
=====================================================================
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
--------------------------------------------------------------------
Three Months Ended
---------------------------------------------------
($ in thousands,
except per September 30, June 30, December 31, September 30,
share amounts) 2007 2007 2006 2006
---------------- ----------- ----------- ----------- -----------
Net interest
income:
Interest income $ 52,626 $ 50,575 $ 39,243 $ 32,980
Interest
expense 28,071 27,269 23,766 19,122
----------- ----------- ----------- -----------
Net interest
income 24,555 23,306 15,477 13,858
Provision for
credit losses 6,553 2,490 5,941 2,350
----------- ----------- ----------- -----------
Net interest
income after
provision
for credit
losses 18,002 20,816 9,536 11,508
Non-interest
income:
Fee income 3,334 4,290 3,006 1,100
Asset management
income 1,471 1,251 692 478
Gain on
derivatives 134 270 73 114
Gain (loss) on
sale of loans
and debt
securities 11 (4,342) 695 --
Loss on investments
in debt
securities (1,979) (1,486) (846) --
Loss on residual
interest in
securitization (28,136) -- -- --
Other income 3,317 449 483 333
----------- ----------- ----------- -----------
Total non-
interest
income
(21,848) 432 4,103 2,025
Operating
expenses:
Compensation and
benefits 11,169 12,494 47,738 6,891
Occupancy and
equipment 781 610 486 476
General and
administrative
expenses 2,309 2,497 3,380 1,201
----------- ----------- ----------- -----------
Total
operating
expenses
14,259 15,601 51,604 8,568
----------- ----------- ----------- -----------
Income (loss)
before income
taxes (18,105) 5,647 (37,965) 4,965
Income tax
expense
(benefit) (7,260) 2,229 (5,911) 2,072
----------- ----------- ----------- -----------
Net income (loss) (10,845) 3,418 (32,054) 2,893
After tax
adjustments:
Extinguishment
of corporate
debt
expense (a) -- -- 2,805 783
IPO related
compensation
and benefits
expense (b) 1,969 2,684 33,202 --
IPO related
general and
administrative
expense (c) -- -- 621 97
Loss on assets
sold and
retained
residual
interest (d) 16,854 2,662 -- --
Net interest
income
earned on
assets
sold and
retained
residual
interest (e) (611) (1,037) (2,258) (1,614)
----------- ----------- ----------- -----------
Adjusted net
income $ 7,367 $ 7,727 $ 2,316 $ 2,159
=========== =========== =========== ===========
Net income (loss) per
share:
Basic $ (0.30) $ 0.09 $ (1.26) $ 0.18
Diluted $ (0.30) $ 0.09 $ (1.26) $ 0.18
Weighted average
shares outstanding:
(f)
Basic 36,253,628 36,258,021 25,376,446 15,821,992
Diluted 36,253,628 36,677,437 25,376,446 16,343,275
Adjusted net
income per
share:
Basic $ 0.20 $ 0.21 $ 0.09 $ 0.14
Diluted $ 0.20 $ 0.21 $ 0.09 $ 0.13
Adjusted weighted
average shares
outstanding: (f)
Basic 36,253,628 36,258,021 25,376,446 15,821,992
Diluted 36,400,569 36,677,437 25,910,522 16,343,275
(a) 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.
(b) 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.
(c) General and administrative expense related to the Company's
initial public offering.
(d) Loss incurred in connection with the sale of assets comprised
of 50 debt securities and two loans during Q2 2007, permanent
impairments on these assets, and the change in fair value of
the residual interest in these assets.
(e) Net interest income earned on the assets sold during Q2 2007
and the residual interest in these assets.
(f) 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)
---------------------------------------------------------------------
Nine Months Ended
September 30,
--------------------------
($ in thousands, except per share amounts) 2007 2006
----------------------------------------- ------------ ------------
Net interest income:
Interest income $ 148,689 $ 77,060
Interest expense 78,877 44,962
------------ ------------
Net interest income 69,812 32,098
Provision for credit losses 11,355 6,594
------------ ------------
Net interest income after provision for
credit losses 58,457 25,504
Non-interest income:
Fee income 10,177 2,843
Asset management income 3,686 751
Gain on derivatives 488 836
Gain (loss) on sale of loans and debt
securities (4,256) 24
Loss on investments in debt securities (18,327) --
Loss on residual interest in
securitization (28,136)
Other income 4,235 1,127
------------ ------------
Total non-interest income (32,133) 5,581
Operating expenses:
Compensation and benefits 34,195 17,341
Occupancy and equipment 1,883 1,272
General and administrative expenses 6,745 4,065
------------ ------------
Total operating expenses 42,823 22,678
------------ ------------
Income (loss) before income taxes (16,499) 8,407
Income tax expense (benefit) (6,626) 3,534
------------ ------------
Net income (loss) (9,873) 4,873
After tax adjustments:
Extinguishment of corporate debt
expense (a) -- 2,273
IPO related compensation and benefits
expense (b) 7,335 --
IPO related general and administrative
expense (c) -- 174
Loss on assets sold and retained
residual interest (d) 27,252 --
Net interest income earned on assets
sold and retained residual interest (e) (2,922) (3,615)
------------ ------------
Adjusted net income $ 21,792 $ 3,705
============ ============
Net income (loss) per share:
Basic $ (0.27) $ 0.34
Diluted $ (0.27) $ 0.33
Weighted average shares outstanding: (f)
Basic 36,256,398 14,190,145
Diluted 36,256,398 14,711,428
Adjusted net income per share:
Basic $ 0.60 $ 0.26
Diluted $ 0.59 $ 0.25
Adjusted weighted average shares
outstanding: (f)
Basic 36,256,398 14,190,145
Diluted 36,667,149 14,711,428
(a) 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.
(b) 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.
(c) General and administrative expense related to the Company's
initial public offering.
(d) Loss incurred in connection with the sale of assets comprised of
50 debt securities and two loans during Q2 2007, permanent
impairments on these assets, and the change in fair value of the
residual interest in these assets.
(e) Net interest income earned on the assets sold during Q2 2007 and
the residual interest in these assets.
(f) 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
----------------------------------------------
Sept. 30, June 30, Dec. 31, Sept. 30,
($ in thousands) 2007 2007 2006 2006
--------------------- ---------- ---------- ---------- ----------
Performance Ratios:
Return on average
assets (1.87)% 0.62% (7.83)% 0.86%
Return on average
equity (9.91) 3.22 (50.91) 7.09
Net interest margin,
before provision 4.29 4.22 3.82 4.15
Efficiency ratio 526.87 65.73 263.57 53.94
Credit Quality and
Leverage Ratios (at
period end):
Delinquent loan rate 0.37 -- 0.57 --
Non-accrual loan rate 0.37 -- -- --
Net charge off rate -- -- -- --
Allowance for credit
losses ratio 1.62 1.40 1.40 1.36
Equity to assets 18.17 18.97 22.11 12.19
Debt to equity 4.38x 4.16x 3.39x 6.94x
Average Balances:
Loans and other debt
products, gross $2,040,217 $2,018,218 $1,525,105 $1,229,989
Interest earning
assets 2,272,435 2,214,635 1,606,785 1,325,704
Total assets 2,302,288 2,187,828 1,623,952 1,338,928
Interest bearing
liabilities 1,808,174 1,746,340 1,328,178 1,153,528
Equity 434,196 426,211 249,773 162,257
Allowance for credit
loss activity:
Balance as of
beginning of period $ 25,372 $ 22,882 $ 14,629 $ 12,279
Provision for credit
losses 2,153 2,490 5,941 2,350
Specific reserve 4,400 -- -- --
Net charge offs -- -- -- --
---------- ---------- ---------- ----------
Balance as of end of
period $ 31,925 $ 25,372 $ 20,570 $ 14,629
========== ========== ========== ==========
Supplemental Data (at
period end):
Investments in debt
securities, gross $ 41,608 $ 45,556 $ 217,314 $ 196,084
Loans held-for-sale,
gross 117,755 133,337 63,277 26,290
Loans held-for-
investment, gross 1,973,793 1,812,361 1,467,038 1,075,450
---------- ---------- ---------- ----------
Loans and
investments in debt
securities, gross 2,133,156 1,991,254 1,747,629 1,297,824
Unused lines of
credit 412,168 442,330 302,856 233,489
Standby letters of
credit 12,904 11,770 6,990 5,042
---------- ---------- ---------- ----------
Total funding
commitments $2,558,228 $2,445,354 $2,057,475 $1,536,355
========== ========== ========== ==========
Loan portfolio $2,133,156 $1,991,254 $1,747,629 $1,297,824
Loans owned by
NewStar Credit
Opportunities Fund 491,436 449,147 283,378 158,635
Loans owned by
ArcTurus -- 15,430 -- --
Less: assets sold (a) -- -- 179,979 140,875
---------- ---------- ---------- ----------
Managed loan
portfolio $2,624,592 $2,455,831 $1,851,028 $1,315,584
========== ========== ========== ==========
Loans held-for-sale,
gross $ 117,755 $ 133,337 $ 63,277 $ 26,290
Loans held-for-
investment, gross 1,973,793 1,812,361 1,467,038 1,075,450
---------- ---------- ---------- ----------
Total loans, gross 2,091,548 1,945,698 1,530,315 1,101,740
Deferred fees, net (10,179) (10,771) (10,468) (7,944)
Allowance for loan
losses (25,972) (23,581) (19,395) (13,737)
Specific reserve (4,400) -- -- --
---------- ---------- ---------- ----------
Total loans, net $2,050,997 $1,911,346 $1,500,452 $1,080,059
========== ========== ========== ==========
Book value per share $ 11.78 $ 11.99 $ 11.68 $ 10.46
(a) Outstanding par value of the assets sold on June 29, 2007.
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
---------------------------------------------------------------------
Nine Months Ended
September 30,
-------------------------
($ in thousands) 2007 2006
------------------------------------------ ----------- -----------
Performance Ratios:
Return on average assets (0.62)% 0.60%
Return on average equity (3.09) 4.65
Net interest margin, before provision 4.33 4.02
Efficiency ratio 113.65 60.19
Credit Quality and Leverage Ratios (at
period end):
Delinquent loan rate 0.37 --
Non-accrual loan rate 0.37 --
Net charge off rate -- --
Allowance for credit losses ratio 1.62 1.36
Equity to assets 18.17 12.19
Debt to equity 4.38x 6.94x
Average Balances:
Loans and other debt products, gross $ 1,950,180 $ 1,014,884
Interest earning assets 2,156,401 1,067,966
Total assets 2,142,736 1,081,537
Interest bearing liabilities 1,692,391 919,975
Equity 427,748 139,999
Allowance for credit loss activity:
Balance as of beginning of period $ 20,570 $ 8,035
Provision for credit losses 6,955 6,594
Specific reserve 4,400 --
Net charge offs -- --
----------- -----------
Balance as of end of period $ 31,925 $ 14,629
=========== ===========
Supplemental Data (at period end):
Investments in debt securities, gross $ 41,608 $ 196,084
Loans held-for-sale, gross 117,755 26,290
Loans held-for-investment, gross 1,973,793 1,075,450
----------- -----------
Loans and investments in debt securities,
gross 2,133,156 1,297,824
Unused lines of credit 412,168 233,489
Standby letters of credit 12,904 5,042
----------- -----------
Total funding commitments $ 2,558,228 $ 1,536,355
=========== ===========
Loan portfolio $ 2,133,156 $ 1,297,824
Loans owned by NewStar Credit
Opportunities Fund 491,436 158,635
Less: assets sold (a) -- 140,875
----------- -----------
Managed loan portfolio $ 2,624,592 $ 1,315,584
=========== ===========
Loans held-for-sale, gross $ 117,755 $ 26,290
Loans held-for-investment, gross 1,973,793 1,075,450
----------- -----------
Total loans, gross 2,091,548 1,101,740
Deferred fees, net (10,179) (7,944)
Allowance for loan losses (25,972) (13,737)
Specific reserve (4,400) --
----------- -----------
Total loans, net $ 2,050,997 $ 1,080,059
=========== ===========
Book value per share $ 11.78 $ 10.46
(a) Outstanding par value of the assets sold on June 29, 2007.
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
----------------------------------------------
Adjusted
----------------------------------------------
Three Months Ended
----------------------------------------------
Sept. 30, June 30, Dec. 31, Sept. 30,
($ in thousands) 2007 2007 2006 2006
--------------------- ---------- ---------- ---------- ----------
Performance Ratios:
Return on average
assets 1.28% 1.55% 0.63% 0.71%
Return on average
equity 6.73 7.27 3.68 5.28
Efficiency ratio 37.39 44.50 49.01 53.81
Net interest margin,
before provision 4.16 4.29 4.37 4.49
Yield on interest
earning assets 9.12 9.24 9.63 9.88
Cost of funds 6.16 6.27 6.48 6.33
Credit Quality and
Leverage Ratios:
Equity to assets (at
period end) 18.19 18.97 24.40 13.56
Debt to equity (at
period end) 4.38x 4.16x 2.98x 6.10x
Consolidated Statement
of Operations
Adjustments(a):
Interest income $ 52,626 $ 50,575 $ 39,243 $ 32,980
Less: interest income
earned on assets
sold and retained
residual interest
(b) 1,019 4,038 4,136 3,044
---------- ---------- ---------- ----------
Adjusted interest
income $ 51,607 $ 46,537 $ 35,107 $ 29,936
========== ========== ========== ==========
Interest expense $ 28,071 $ 27,269 $ 23,766 $ 19,122
Less:
Interest expense
related to assets
sold (b) -- 2,324 1,878 1,429
Interest &
amortization related
to corporate debt -- -- 2,728 1,344
---------- ---------- ---------- ----------
Adjusted interest
expense $ 28,071 $ 24,945 $ 19,160 $ 16,349
========== ========== ========== ==========
Non-interest income $ (21,848) $ 432 $ 4,103 $ 2,025
Plus: loss on assets
sold and retained
residual interest
(b) 28,136 4,400 522 --
---------- ---------- ---------- ----------
Adjusted non-
interest income $ 6,288 $ 4,832 $ 4,625 $ 2,025
========== ========== ========== ==========
Operating expenses $ 14,259 $ 15,601 $ 51,604 $ 8,568
Less:
Corporate debt
prepayment fees -- -- 1,425 --
IPO related
compensation and
benefits expense (c) 3,108 3,843 39,129 --
IPO related general
and administrative
expense (d) -- -- 968 167
---------- ---------- ---------- ----------
Adjusted operating
expenses $ 11,151 $ 11,758 $ 10,082 $ 8,401
========== ========== ========== ==========
Average Balances:
Assets $2,302,288 $2,187,828 $1,623,952 $1,338,928
Less: assets sold and
residual interest
(b) 26,955 193,795 160,083 124,148
---------- ---------- ---------- ----------
Adjusted assets $2,275,333 $1,994,033 $1,463,869 $1,214,780
========== ========== ========== ==========
Interest earning
assets $2,272,435 $2,214,635 $1,606,785 $1,325,704
Less: assets sold and
residual interest
(b) 26,955 193,795 160,083 124,148
---------- ---------- ---------- ----------
Adjusted interest
earning assets $2,245,480 $2,020,840 $1,446,702 $1,201,556
========== ========== ========== ==========
Interest bearing
liabilities $1,808,174 $1,746,340 $1,328,178 $1,153,528
Less:
Credit facility
funding for assets
sold (b) -- 150,323 121,650 91,897
Corporate debt -- -- 33,016 37,500
---------- ---------- ---------- ----------
Adjusted interest
bearing liabilities $1,808,174 $1,596,017 $1,173,512 $1,024,131
========== ========== ========== ==========
Consolidated Balance
Sheet Adjustments
Assets $2,351,079 $2,289,791 $1,915,192 $1,389,500
Less: assets sold and
residual interest
(b) 3,051 -- 179,979 140,875
---------- ---------- ---------- ----------
Adjusted assets $2,348,028 $2,289,791 $1,735,213 $1,248,625
========== ========== ========== ==========
Debt $1,871,671 $1,808,845 $1,434,670 $1,175,233
Credit facility
funding for assets
sold (b) -- -- 174,510 104,513
Corporate debt -- -- -- 37,500
---------- ---------- ---------- ----------
Adjusted debt $1,871,671 $1,808,845 $1,260,160 $1,033,220
========== ========== ========== ==========
(a) Adjustments are pre-tax.
(b) On June 29, 2007, the Company completed the sale of assets
comprised of 50 debt securities and two loans and retained a
residual interest in these assets. The adjustment represents
the financial impact of the sold assets and residual interest.
(c) Non-cash compensation charge related to restricted stock
grants made since our inception as a private company,
including equity awards made in connection with the initial
public offering.
(d) General and administrative expense related to the Company's
initial public offering.
NewStar Financial, Inc.
Non-GAAP Data
(unaudited) -------------------------
Adjusted
-------------------------
Nine Months Ended
September 30,
-------------------------
($ in thousands) 2007 2006
---------------------------------------- ----------- -----------
Performance Ratios:
Return on average assets 1.45% 0.50%
Return on average equity 6.81 3.54
Efficiency ratio 40.98 58.89
Net interest margin, before provision 4.30 4.44
Yield on interest earning assets 9.22 9.66
Cost of funds 6.23 6.24
Credit Quality and Leverage Ratios:
Equity to assets (at period end) 18.19 13.56
Debt to equity (at period end) 4.38x 6.10x
Consolidated Statement of Operations
Adjustments (a):
Interest income $ 148,689 $ 77,060
Less: interest income earned on assets
sold and retained residual interest (b) 9,458 6,601
----------- -----------
Adjusted interest income $ 139,231 $ 70,459
=========== ===========
Interest expense $ 78,877 $ 44,962
Less:
Interest expense related to assets
sold (b) 4,620 2,986
Interest & amortization related to
corporate debt -- 3,934
----------- -----------
Adjusted interest expense $ 74,257 $ 38,042
=========== ===========
Non-interest income $ (32,133) $ 5,581
Plus: loss on assets sold and retained
residual interest (b) 45,323 --
----------- -----------
Adjusted non-interest income $ 13,190 $ 5,581
=========== ===========
Operating expenses $ 42,823 $ 22,678
Less:
Corporate debt prepayment fees -- --
IPO related compensation and benefits
expense (c) 10,792 --
IPO related general and administrative
expense (d) -- 300
----------- -----------
Adjusted operating expenses $ 32,031 $ 22,378
=========== ===========
Average Balances:
Assets $ 2,142,736 $ 1,081,537
Less: assets sold and residual
interest (b) 137,422 92,389
----------- -----------
Adjusted assets $ 2,005,314 $ 989,148
=========== ===========
Interest earning assets $ 2,156,401 $ 1,067,966
Less: assets sold and residual
interest (b) 137,422 92,389
----------- -----------
Adjusted interest earning assets $ 2,018,979 $ 975,577
=========== ===========
Interest bearing liabilities $ 1,692,391 $ 919,975
Less:
Credit facility funding for assets
sold (b) 99,829 66,825
Corporate debt -- 37,500
----------- -----------
Adjusted interest bearing liabilities $ 1,592,562 $ 815,650
=========== ===========
Consolidated Balance Sheet Adjustments
Assets $ 2,351,079 $ 1,389,500
Less: assets sold and residual
interest (b) 3,051 140,875
----------- -----------
Adjusted assets $ 2,348,028 $ 1,248,625
=========== ===========
Debt $ 1,871,671 $ 1,175,233
Credit facility funding for assets
sold (b) -- 104,513
Corporate debt -- 37,500
----------- -----------
Adjusted debt $ 1,871,671 $ 1,033,220
=========== ===========
(a) Adjustments are pre-tax.
(b) 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.
(c) 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.
(d) General and administrative expense related to the Company's
initial public offering.
NewStar Financial, Inc.
Portfolio Data
(unaudited)
------------------------------------------------------------------
September 30, June 30,
($ in thousands) 2007 2007
--------------------------- ----------------- -----------------
Portfolio Data:
First mortgage $ 289,426 13.6% $ 304,596 15.3%
Senior secured asset-based 65,200 3.1 80,431 4.0
Senior secured cash flow 1,582,636 74.2 1,375,165 68.9
Senior subordinated asset
-based 115,566 5.4 121,321 6.1
Senior subordinated cash
flow 26,162 1.2 33,126 1.7
Second lien 53,440 2.5 65,585 3.3
Mezzanine 726 -- 723 --
Subordinated -- -- 10,307 0.7
---------- ----- ---------- -----
Total $2,133,156 100.0% $1,991,254 100.0%
========== ===== ========== =====
Middle Market Corporate $1,663,247 78.0% $1,488,819 74.8%
Commercial Real Estate 314,827 14.7 331,659 16.6
Structured Products 155,082 7.3 170,776 8.6
---------- ----- ---------- -----
Total $2,133,156 100.0% $1,991,254 100.0%
========== ===== ========== =====
------------------------------------------------------------------
December 31, September 30,
($ in thousands) 2007 2006
--------------------------- ----------------- -----------------
Portfolio Data:
First mortgage $ 216,888 12.4% $ 138,674 10.7%
Senior secured asset-based 50,566 2.9 46,817 3.6
Senior secured cash flow 1,082,048 61.9 783,754 60.3
Senior subordinated
asset-based 247,456 14.2 198,148 15.3
Senior subordinated cash
flow 35,161 2.0 37,882 2.9
Second lien 70,875 4.1 46,376 3.6
Mezzanine 719 -- 716 0.1
Subordinated 43,916 2.5 45,457 3.5
---------- ----- ---------- -----
Total $1,747,629 100.0% $1,297,824 100.0%
========== ===== ========== =====
Middle Market Corporate $1,183,107 67.7% $ 859,039 66.0%
Commercial Real Estate 230,735 13.2 152,548 12.6
Structured Products 333,787 19.1 286,237 21.4
---------- ----- ---------- -----
Total $1,747,629 100.0% $1,297,824 100.0%
========== ===== ========== =====