First Eagle Private Credit (NEWS) Inactive
Filed: 13 Nov 07, 12:00am
Exhibit 99.1
FOR IMMEDIATE RELEASE
NEWSTAR REPORTS THIRD QUARTER RESULTS
Continued strength in core business and new capital
position company for attractive lending environment
| • | $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, November 13, 2007 – 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 proceed 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. |
| • | 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, 2007 and $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 atwww.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 atwww.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.
Contact:
Anne G. Bork
500 Boylston Street, Suite 1600
Boston, MA 02116
P 617.848.4318
F 617.848.4399
abork@newstarfin.com
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)
| September 30, | June 30, | December 31, | September 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 | ||||||||||||||||
| September 30, | June 30, | December 31, | September 30, | |||||||||||||
($ in thousands, except per 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 (1) | — | — | 2,805 | 783 | ||||||||||||
IPO related compensation and benefits expense (2) | 1,969 | 2,684 | 33,202 | — | ||||||||||||
IPO related general and administrative expense (3) | — | — | 621 | 97 | ||||||||||||
Loss on assets sold and retained residual interest (4) | 16,854 | 2,662 | — | — | ||||||||||||
Net interest income earned on assets sold and retained residual interest (5) | (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: (6) | ||||||||||||||||
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: (6) | ||||||||||||||||
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 | ||||||||||||
| (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 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. |
| (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)
| 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 (1) | — | 2,273 | ||||||
IPO related compensation and benefits expense (2) | 7,335 | — | ||||||
IPO related general and administrative expense (3) | — | 174 | ||||||
Loss on assets sold and retained residual interest (4) | 27,252 | — | ||||||
Net interest income earned on assets sold and retained residual interest (5) | (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: (6) | ||||||||
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: (6) | ||||||||
Basic | 36,256,398 | 14,190,145 | ||||||
Diluted | 36,667,149 | 14,711,428 | ||||||
| (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 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. |
| (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 | ||||||||||||||||
| September 30, | June 30, | December 31, | September 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 | 4.38 | x | 4.16 | x | 3.39 | x | 6.94 | x | ||||||||
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 (1) | — | — | 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 | ||||||||
| (1) | 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 | 4.38 | x | 6.94 | x | ||||
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 (1) | — | 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 | ||||
| (1) | Outstanding par value of the assets sold on June 29, 2007. |
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| Adjusted | ||||||||||||||||
| Three Months Ended | ||||||||||||||||
| September 30, | June 30, | December 31, | September 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) | 4.38 | x | 4.16 | x | 2.98 | x | 6.10 | x | ||||||||
Consolidated Statement of Operations Adjustments(1): | ||||||||||||||||
Interest income | $ | 52,626 | $ | 50,575 | $ | 39,243 | $ | 32,980 | ||||||||
Less: interest income earned on assets sold and retained residual interest (2) | 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 (2) | — | 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 (2) | 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 (3) | 3,108 | 3,843 | 39,129 | — | ||||||||||||
IPO related general and administrative expense (4) | — | — | 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 (2) | 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 (2) | 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 (2) | — | 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 (2) | 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 (2) | — | — | 174,510 | 104,513 | ||||||||||||
Corporate debt | — | — | — | 37,500 | ||||||||||||
Adjusted debt | $ | 1,871,671 | $ | 1,808,845 | $ | 1,260,160 | $ | 1,033,220 | ||||||||
| (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 | ||||||||
| 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) | 4.38 | x | 6.10 | x | ||||
Consolidated Statement of Operations Adjustments(1): | ||||||||
Interest income | $ | 148,689 | $ | 77,060 | ||||
Less: interest income earned on assets sold and retained residual interest (2) | 9,458 | 6,601 | ||||||
Adjusted interest income | $ | 139,231 | $ | 70,459 | ||||
Interest expense | $ | 78,877 | $ | 44,962 | ||||
Less: | ||||||||
Interest expense related to assets sold (2) | 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 (2) | 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 (3) | 10,792 | — | ||||||
IPO related general and administrative expense (4) | — | 300 | ||||||
Adjusted operating expenses | $ | 32,031 | $ | 22,378 | ||||
Average Balances: | ||||||||
Assets | $ | 2,142,736 | $ | 1,081,537 | ||||
Less: assets sold and residual interest (2) | 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 (2) | 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 (2) | 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 (2) | 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 (2) | — | 104,513 | ||||||
Corporate debt | — | 37,500 | ||||||
Adjusted debt | $ | 1,871,671 | $ | 1,033,220 | ||||
| (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) | September 30, 2007 | June 30, 2007 | December 31, 2006 | September 30, 2006 | ||||||||||||||||||||
Portfolio Data: | ||||||||||||||||||||||||
First mortgage | $ | 289,426 | 13.6 | % | $ | 304,596 | 15.3 | % | $ | 216,888 | 12.4 | % | $ | 138,674 | 10.7 | % | ||||||||
Senior secured asset-based | 65,200 | 3.1 | 80,431 | 4.0 | 50,566 | 2.9 | 46,817 | 3.6 | ||||||||||||||||
Senior secured cash flow | 1,582,636 | 74.2 | 1,375,165 | 68.9 | 1,082,048 | 61.9 | 783,754 | 60.3 | ||||||||||||||||
Senior subordinated asset-based | 115,566 | 5.4 | 121,321 | 6.1 | 247,456 | 14.2 | 198,148 | 15.3 | ||||||||||||||||
Senior subordinated cash flow | 26,162 | 1.2 | 33,126 | 1.7 | 35,161 | 2.0 | 37,882 | 2.9 | ||||||||||||||||
Second lien | 53,440 | 2.5 | 65,585 | 3.3 | 70,875 | 4.1 | 46,376 | 3.6 | ||||||||||||||||
Mezzanine | 726 | — | 723 | — | 719 | — | 716 | 0.1 | ||||||||||||||||
Subordinated | — | — | 10,307 | 0.7 | 43,916 | 2.5 | 45,457 | 3.5 | ||||||||||||||||
Total | $ | 2,133,156 | 100.0 | % | $ | 1,991,254 | 100.0 | % | $ | 1,747,629 | 100.0 | % | $ | 1,297,824 | 100.0 | % | ||||||||
Middle Market Corporate | $ | 1,663,247 | 78.0 | % | $ | 1,488,819 | 74.8 | % | $ | 1,183,107 | 67.7 | % | $ | 859,039 | 66.0 | % | ||||||||
Commercial Real Estate | 314,827 | 14.7 | 331,659 | 16.6 | 230,735 | 13.2 | 152,548 | 12.6 | ||||||||||||||||
Structured Products | 155,082 | 7.3 | 170,776 | 8.6 | 333,787 | 19.1 | 286,237 | 21.4 | ||||||||||||||||
Total | $ | 2,133,156 | 100.0 | % | $ | 1,991,254 | 100.0 | % | $ | 1,747,629 | 100.0 | % | $ | 1,297,824 | 100.0 | % | ||||||||