Exhibit 99.1
FOR IMMEDIATE RELEASE
NEWSTAR REPORTS FOURTH QUARTER RESULTS
Record origination volume drives strong operating performance
as managed assets reach $3 billion
| | • | | Generated $7.1 million of adjusted net income in the fourth quarter, or $0.18 adjusted earnings per diluted share |
| | • | | Earned $1.2 million of net income in the fourth quarter, or $0.03 net income per diluted share on a GAAP basis, which reflects $2.4 million pretax loss on the retained residual interest in securities sold and $2.6 million pretax of non-cash equity compensation expense |
| | • | | Originated more than $700 million of new loan volume and reached $3.0 billion of assets in the managed loan portfolio as of 12/31/07 |
| | • | | Strengthened the balance sheet through $125 million private placement of common equity and completion of $300 million term debt financing |
| | • | | Credit performance reflected natural seasoning of the portfolio and remained within expected parameters |
Boston, February 20, 2007 – NewStar Financial, Inc. (NASDAQ: NEWS), a Boston-based specialty finance company, today reported adjusted net income for the fourth quarter of 2007 of $7.1 million, or $0.18 per diluted share. On a GAAP basis, the Company reported net income of $1.2 million, or $0.03 per diluted share, which reflects a $2.4 million pretax loss on the retained residual interest in securities sold in the second quarter of 2007 and $2.6 million pretax of non-cash equity compensation expense related to the 2006 IPO.
“Adjusted net income” and other non-GAAP financial measures used in this release are defined under “Non-GAAP Financial Measures” on page 4. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables.
“Our fourth quarter reflects an increasingly favorable lending environment with better pricing and more conservative deal structures,” said Tim Conway, Chairman and Chief Executive Officer. “The full benefit of that environment, however, is partially offset by continued dislocation in the credit markets which are driving marginal funding costs higher.”
“While capital markets continue to be challenging and the credit outlook less certain, I believe we are well positioned to capitalize on this environment. Our defensive investment strategy emphasizing senior debt and diversification together with our balance sheet strength and continued access to capital will allow us to continue to build shareholder value.”
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Funding and Capital
| | • | | NewStar raised $125 million in a private placement of 12.5 million shares of common stock, which was priced at $10.00 per share. The transaction was completed in two tranches with the first closing occurring in the fourth quarter of 2007. The second closing took place on January 18, 2008, following a Special Meeting of Stockholders held on January 15, 2008 at which the requisite stockholder approval was obtained. |
| | • | | NewStar also completed a $300 million term debt financing with Deutsche Bank and the NewStar Credit Opportunities Fund (NCOF) completed a $560 million term securitization. |
| | • | | The Company had approximately $623 million of available borrowing capacity under its credit facilities and existing term debt securitizations (CLOs) as of January 9, 2008. As adjusted to include unlevered cash and the net proceeds from the second tranche of the common equity raise, NewStar had in excess of $700 million of funding capacity as of 1/09/08. |
| | • | | Total cash and equivalents as of December 31, 2007 were $192 million, of which $76 million was unrestricted. |
Origination Volume
| | • | | Overall origination volume for the quarter was $713 million, of which $467 million was retained on NewStar’s balance sheet, $128 million was syndicated to others and $118 million was sold to the NewStar Credit Opportunities Fund (NCOF). |
| | • | | Middle Market Corporate generated approximately 92% of the new volume in the quarter, while Commercial Real Estate represented approximately 8%. |
Managed and Owned Loan Portfolios
| | • | | Managed loan portfolio increased to $3.0 billion as of December 31, 2007, up 14% or $355 million from $2.6 billion at September 30, 2007, reflecting the net impact of $713 million of new origination, which was partially offset by prepayments and ongoing amortization. The managed loan portfolio was $1.9 billion as of December 31, 2006. |
| | • | | Assets managed for the NCOF increased by $87 million, or 18%, to $578 million at December 31, 2007 from $491 million at September 30, 2007 and increased by $295 million or 104% from $283 million as of December 31, 2006. |
| | • | | The owned loan portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of December 31, 2007, no single issuer represented more than 1% of total assets, excluding loans held-for-sale, and the ten largest issuers comprised approximately 10% of the loan portfolio. |
| | • | | The composition of the owned loan portfolio continued to reflect a focus on senior debt with 93% invested in senior secured loans and debt investments at December 31, 2007, up from 91% at September 30, 2007. |
Net Interest Income / Margin
| | • | | Net interest income before provision for credit losses was $24.8 million for the fourth quarter 2007 compared to $24.6 million for the third quarter 2007 and $15.5 million for the fourth quarter 2006. |
| | • | | Net interest margin was 3.98% for the fourth quarter 2007 compared to 4.29% for the third quarter 2007 and 3.82% for the fourth quarter 2006. |
| | • | | Adjusted net interest margin was 3.98% for the fourth quarter 2007 compared to 4.16% for the third quarter 2007 and 4.37% for the fourth quarter 2006. Slightly higher leverage, lower yields on interest earning assets due to a higher percentage of senior debt and higher warehouse funding costs contributed to modest margin compression. |
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Non-Interest Income
| | • | | The Company reported non-interest income of $4.0 million for the fourth quarter 2007 compared to non-interest income of ($21.8) million for the third quarter 2007, which reflected a $28.1 million pre-tax charge from the non-cash write-down of a retained residual interest in securities sold in the second quarter. |
| | • | | Excluding the impact of the write-down on the retained residual interest, adjusted non-interest income was $6.4 million in the fourth quarter 2007, up from $6.3 million in the third quarter 2007. |
| | • | | The adjusted non-interest income of $6.4 million in the fourth quarter 2007 was comprised primarily of $3.3 million of syndication and agency fees, $1.7 of structuring and placement fees and $1.6 million of asset management income. |
Commercial Loan Credit Quality
| | • | | Commercial loan credit performance reflected the natural seasoning of the loan portfolio and continued to perform within expected parameters. |
| | • | | The Company charged-off $4.6 million in the fourth quarter against the specific reserve established for a non-performing loan in the third quarter. |
| | • | | In the fourth quarter, the Company classified two of three impaired loans as non-performing and placed them on non-accrual status. Specific reserves totaling $4.6 million were established to reflect potential credit losses on those loans. |
| | • | | Inclusive of these specific reserves, the provision for credit losses was $8.2 million in the fourth quarter 2007, up from $6.6 million in the third quarter 2007. |
| | • | | As of December 31, 2007, the allowance for credit losses was $35.5 million or 1.58% of loans, compared to $31.9 million, or 1.62%, at September 30, 2007 and $20.6 million or 1.40% at December 31, 2006. |
Expenses
| | • | | Operating expenses increased modestly to $14.7 million in the fourth quarter 2007 from $14.3 million in the third quarter 2007 due principally to severance costs and expenses associated with the equity issuance, which were mostly offset by lower incentive compensation expense. |
| | • | | The adjusted efficiency ratio improved to 35.7% in the fourth quarter from 37.4% the third quarter 2007 as adjusted revenues increased faster than expenses. |
Conference Call and Webcast
NewStar will host a webcast/conference call to discuss the results today at 10:00 am Eastern Time. All interested parties are invited to participate via telephone or webcast, which will be hosted through the Investor Relations section at www.newstarfin.com. Please visit the website to register for the webcast and test your connection prior to the call. You can also access the conference call by dialing 877-675-4749 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4888. All callers should reference “NewStar Financial.”
For convenience, an archived replay of the call will be available through February 27, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3761480. The audio replay will also be available through the Investor Relations section at www.newstarfin.com.
About NewStar Financial
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NewStar Financial (NASDAQ:NEWS) is a specialized commercial finance company focused on meeting the complex financing needs of companies and private investors in the middle markets. The Company specializes in providing senior secured debt financing for the acquisition or recapitalization of mid-sized companies and commercial real estate. NewStar originates loans directly through a team of experienced, senior bankers organized around key industry and market segments. The Company targets ‘hold’ positions of up to $20 million and selectively underwrites or arranges larger transactions for syndication to other lenders.
NewStar is headquartered in Boston MA and has regional offices in Darien CT, Chicago IL, San Francisco CA, San Diego CA, and Charleston SC. For more detailed transaction and contact information please visitwww.newstarfin.com.
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, including our limited operating history; the fact that we have yet to be profitable; the rapid expansion of our business since inception; our ability to compete effectively in a highly competitive industry; and the impact of federal, state and local laws and regulations that govern non-depository commercial lenders and businesses generally.
More detailed information about these factors is described in NewStar’s filing with the Securities and Exchange Commission (the “SEC”), including Item 1A (“Risk Factors”) of our 2006 Form 10-K as updated in our Quarterly Reports for the quarter ended June 30, 2007 and September 30, 2007. NewStar is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. NewStar plans to file its Form 10-K for December 31, 2007 with the SEC on or before March 17, 2008 and urges its shareholders to refer to that document for more complete information concerning NewStar’s financial results.
Non-GAAP Financial Measures
References to “adjusted net income” and “adjusted earnings per share” mean net income or earnings per diluted share, respectively, as determined under GAAP, excluding the following items: i) interest expense and amortization of deferred financing costs on corporate debt, ii) the call premium and termination fee associated with the termination of our corporate debt, iii) compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering; iv) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest in these assets; and v) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and the change in fair value of the residual interest, including the impact on our effective tax rate. GAAP requires
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that these items be included in net income. NewStar management uses “adjusted net income” and “adjusted earnings per share” to make operational and investment decisions, and NewStar believes that they provide useful information to investors in their evaluation of our financial performance and condition. Excluding interest and amortization of deferred financing costs on corporate debt, the call premium and termination fee associated with the termination of our corporate debt, the financial results and expenses incurred in connection with the assets sold during the second quarter and the compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering, eliminates unique amounts that make it difficult to assess our core performance and compare our period-over-period results. A reconciliation of adjusted net income to net income is included on pages 7 and 8 of this release.
References to “adjusted net interest margin” mean annualized interest income as determined under GAAP (excluding interest income generated from the assets sold in the second quarter 2007 and the retained residual interest) less annualized interest expense as determined under GAAP (excluding interest and amortization of deferred financing costs on corporate debt and interest expense incurred from the assets sold in the second quarter of 2007), divided by average interest earning assets (excluding the assets sold in the second quarter and the retained residual interest) for the period.
Adjusted return on average assets means adjusted net income divided by average assets for the period excluding the assets sold in the second quarter and the retained residual interest. Adjusted return on average equity means adjusted net income divided by average equity for the period. Adjusted efficiency ratio means operating expenses determined in accordance with GAAP less i) compensation expense related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering; ii) earnings generated from the assets sold in the second quarter of 2007 and the retained residual interest; and iii) the loss and expenses incurred in connection with the asset sale in the second quarter of 2007 and the change in fair value of the residual interest. Adjusted cost of funds means adjusted interest expense divided by average interest bearing liabilities for the period less the average corporate debt outstanding for the period and the credit facility funding for the assets sold in the second quarter of 2007. The adjusted ratios exclude unique expenses that make it difficult to assess our core performance and compare our period-over-period results.
A reconciliation of our adjusted financial measures to their GAAP equivalents is included on pages 11 and 12 of this release. NewStar’s adjusted financial measures should not be considered as alternatives to financial measures determined in accordance with GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies.
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NewStar Financial, Inc.
Consolidated Balance Sheets
(unaudited)
| | | | | | | | | |
($ in thousands) | | December 31,
2007 | | September 30,
2007 | | December 31,
2006 |
Assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 76,155 | | $ | 73,420 | | $ | 103,269 |
Restricted cash | | | 115,807 | | | 119,572 | | | 40,174 |
Residual interest in securitization | | | 631 | | | 3,051 | | | — |
Investments in debt securities, available-for-sale | | | 35,498 | | | 37,636 | | | 203,121 |
Loans held-for-sale | | | 112,944 | | | 117,528 | | | 62,620 |
Loans, net | | | 2,201,442 | | | 1,933,469 | | | 1,437,832 |
Deferred financing costs, net | | | 18,399 | | | 15,868 | | | 11,614 |
Interest receivable | | | 14,120 | | | 14,501 | | | 19,849 |
Property and equipment, net | | | 1,593 | | | 1,668 | | | 961 |
Deferred income taxes, net | | | 13,355 | | | 11,421 | | | 14,705 |
Income tax receivable | | | 4,635 | | | 12,355 | | | — |
Other assets | | | 28,186 | | | 10,590 | | | 21,047 |
| | | | | | | | | |
Total assets | | $ | 2,622,765 | | $ | 2,351,079 | | $ | 1,915,192 |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Repurchase agreements | | $ | 63 | | $ | 545 | | $ | 34,535 |
Credit facilities | | | 677,739 | | | 705,401 | | | 625,910 |
Term debt | | | 1,364,725 | | | 1,165,725 | | | 774,225 |
Accrued interest payable | | | 17,537 | | | 26,629 | | | 23,200 |
Accounts payable | | | 197 | | | 643 | | | 4,315 |
Income tax payable | | | — | | | — | | | 4,166 |
Other liabilities | | | 59,814 | | | 25,042 | | | 25,426 |
| | | | | | | | | |
Total liabilities | | | 2,120,075 | | | 1,923,985 | | | 1,491,777 |
Total stockholders’ equity | | | 502,690 | | | 427,094 | | | 423,415 |
| | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,622,765 | | $ | 2,351,079 | | $ | 1,915,192 |
| | | | | | | | | |
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NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands, except per share amounts) | | December 31,
2007 | | | September 30,
2007 | | | December 31,
2006 | |
Net interest income: | | | | | | | | | | | | |
Interest income | | $ | 55,606 | | | $ | 52,626 | | | $ | 39,243 | |
Interest expense | | | 30,826 | | | | 28,071 | | | | 23,766 | |
| | | | | | | | | | | | |
Net interest income | | | 24,780 | | | | 24,555 | | | | 15,477 | |
Provision for credit losses | | | 8,155 | | | | 6,553 | | | | 5,941 | |
| | | | | | | | | | | | |
Net interest income after provision for credit losses | | | 16,625 | | | | 18,002 | | | | 9,536 | |
Non-interest income: | | | | | | | | | | | | |
Fee income | | | 5,620 | | | | 3,334 | | | | 3,006 | |
Asset management income | | | 1,618 | | | | 1,471 | | | | 692 | |
Gain on derivatives | | | 289 | | | | 134 | | | | 73 | |
Gain (loss) on sale of loans and debt securities | | | (359 | ) | | | 11 | | | | 695 | |
Loss on investments in debt securities | | | (1,976 | ) | | | (1,979 | ) | | | (846 | ) |
Loss on residual interest in securitization | | | (2,420 | ) | | | (28,136 | ) | | | — | |
Other income | | | 1,185 | | | | 3,317 | | | | 483 | |
| | | | | | | | | | | | |
Total non-interest income | | | 3,957 | | | | (21,848 | ) | | | 4,103 | |
Operating expenses: | | | | | | | | | | | | |
Compensation and benefits | | | 11,169 | | | | 11,169 | | | | 47,738 | |
Occupancy and equipment | | | 835 | | | | 781 | | | | 486 | |
General and administrative expenses | | | 2,667 | | | | 2,309 | | | | 3,380 | |
| | | | | | | | | | | | |
Total operating expenses | | | 14,671 | | | | 14,259 | | | | 51,604 | |
| | | | | | | | | | | | |
Income (loss) before income taxes | | | 5,911 | | | | (18,105 | ) | | | (37,965 | ) |
Income tax expense (benefit) | | | 4,677 | | | | (7,260 | ) | | | (5,911 | ) |
| | | | | | | | | | | | |
Net income (loss) | | $ | 1,234 | | | $ | (10,845 | ) | | $ | (32,054 | ) |
| | | | | | | | | | | | |
After tax adjustments to net income (loss): | | | | | | | | | | | | |
Extinguishment of corporate debt expense(1) | | | — | | | | — | | | | 2,805 | |
IPO related compensation and benefits expense(2) | | | 1,654 | | | | 1,946 | | | | 33,202 | |
IPO related general and administrative expense(3) | | | — | | | | — | | | | 621 | |
Loss on assets sold and retained residual interest(4) | | | 4,240 | | | | 16,627 | | | | 328 | |
Net interest income earned on assets sold and retained residual interest(5) | | | — | | | | (602 | ) | | | (1,418 | ) |
| | | | | | | | | | | | |
Adjusted net income | | $ | 7,128 | | | $ | 7,126 | | | $ | 3,484 | |
| | | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | |
Basic | | $ | 0.03 | | | $ | (0.30 | ) | | $ | (1.26 | ) |
Diluted | | $ | 0.03 | | | $ | (0.30 | ) | | $ | (1.26 | ) |
Weighted average shares outstanding:(6) | | | | | | | | | | | | |
Basic | | | 38,826,567 | | | | 36,253,628 | | | | 25,376,446 | |
Diluted | | | 38,826,567 | | | | 36,253,628 | | | | 25,376,446 | |
Adjusted net income per share: | | | | | | | | | | | | |
Basic | | $ | 0.18 | | | $ | 0.20 | | | $ | 0.14 | |
Diluted | | $ | 0.18 | | | $ | 0.20 | | | $ | 0.13 | |
Adjusted weighted average shares outstanding:(6) | | | | | | | | | | | | |
Basic | | | 38,826,567 | | | | 36,253,628 | | | | 25,376,446 | |
Diluted | | | 38,826,567 | | | | 36,400,569 | | | | 25,910,522 | |
| (1) | Includes interest expense, call premium, termination fee and deferred finance costs associated with the Company’s corporate debt which was repaid on December 20, 2006. |
| (2) | Non-cash compensation charge related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering. |
| (3) | General and administrative expense related to the Company’s initial public offering. |
| (4) | Loss and expenses incurred in connection with the sale of assets comprised of 50 debt securities and two loans during Q2 2007, permanent impairments on these assets, the change in fair value of the residual interest in these assets, and the impact on the effective tax rate. The change in effective tax rate was applied retrospectively. |
| (5) | Net interest income earned on the assets sold during Q2 2007 and the residual interest in these assets. |
| (6) | Weighted average shares for all periods reflect the conversions and reverse split that occurred at the IPO. |
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NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | |
| | | Year Ended December 31, | |
($ in thousands, except per share amounts) | | 2007 | | | 2006 | |
Net interest income: | | | | | | | | |
Interest income | | $ | 204,295 | | | $ | 116,303 | |
Interest expense | | | 109,703 | | | | 68,728 | |
| | | | | | | | |
Net interest income | | | 94,592 | | | | 47,575 | |
Provision for credit losses | | | 19,510 | | | | 12,535 | |
| | | | | | | | |
Net interest income after provision for credit losses | | | 75,082 | | | | 35,040 | |
| | |
Non-interest income: | | | | | | | | |
Fee income | | | 15,797 | | | | 5,849 | |
Asset management income | | | 5,304 | | | | 1,443 | |
Gain on derivatives | | | 777 | | | | 909 | |
Gain (loss) on sale of loans and debt securities | | | (4,615 | ) | | | 474 | |
Loss on investments in debt securities | | | (20,303 | ) | | | (597 | ) |
Loss on residual interest in securitization | | | (30,556 | ) | | | — | |
Other income | | | 5,420 | | | | 1,606 | |
| | | | | | | | |
Total non-interest income | | | (28,176 | ) | | | 9,684 | |
Operating expenses: | | | | | | | | |
Compensation and benefits | | | 45,364 | | | | 65,079 | |
Occupancy and equipment | | | 2,718 | | | | 1,758 | |
General and administrative expenses | | | 9,412 | | | | 7,445 | |
| | | | | | | | |
Total operating expenses | | | 57,494 | | | | 74,282 | |
| | | | | | | | |
Loss before income taxes | | | (10,588 | ) | | | (29,558 | ) |
Income tax benefit | | | (1,949 | ) | | | (2,377 | ) |
| | | | | | | | |
Net loss | | $ | (8,639 | ) | | $ | (27,181 | ) |
| | | | | | | | |
After tax adjustments to net loss: | | | | | | | | |
Extinguishment of corporate debt expense(1) | | | — | | | | 5,078 | |
IPO related compensation and benefits expense(2) | | | 8,882 | | | | 33,202 | |
IPO related general and administrative expense(3) | | | — | | | | 795 | |
Loss on assets sold and retained residual interest(4) | | | 31,026 | | | | 328 | |
Net interest income earned on assets sold and retained residual interest(5) | | | (2,860 | ) | | | (3,688 | ) |
| | | | | | | | |
Adjusted net income | | $ | 28,409 | | | $ | 8,534 | |
| | | | | | | | |
Net loss per share: | | | | | | | | |
Basic | | $ | (0.23 | ) | | $ | (1.65 | ) |
Diluted | | $ | (0.23 | ) | | $ | (1.65 | ) |
| | |
Weighted average shares outstanding:(6) | | | | | | | | |
Basic | | | 36,904,222 | | | | 16,480,836 | |
Diluted | | | 36,904,222 | | | | 16,480,836 | |
| | |
Adjusted net income per share: | | | | | | | | |
Basic | | $ | 0.77 | | | $ | 0.52 | |
Diluted | | $ | 0.76 | | | $ | 0.50 | |
| | |
Adjusted weighted average shares outstanding:(6) | | | | | | | | |
Basic | | | 36,904,222 | | | | 16,480,836 | |
Diluted | | | 37,217,658 | | | | 17,005,343 | |
| (1) | Includes interest expense, call premium, termination fee and deferred finance costs associated with the Company’s corporate debt which was repaid on December 20, 2006. |
| (2) | Non-cash compensation charge related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering. |
| (3) | General and administrative expense related to the Company’s initial public offering. |
| (4) | Loss and expenses incurred in connection with the sale of assets comprised of 50 debt securities and two loans during Q2 2007, permanent impairments on these assets, the change in fair value of the residual interest in these assets, and the impact on the effective tax rate. |
| (5) | Net interest income earned on the assets sold during Q2 2007 and the residual interest in these assets. |
| (6) | Weighted average shares for all periods reflect the conversions and reverse split that occurred at the IPO. |
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NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands) | | December 31,
2007 | | | September 30,
2007 | | | December 31,
2006 | |
Performance Ratios: | | | | | | | | | | | | |
Return on average assets | | | 0.19 | % | | | (1.87 | )% | | | (7.83 | )% |
Return on average equity | | | 1.05 | | | | (9.91 | ) | | | (50.91 | ) |
Net interest margin, before provision | | | 3.98 | | | | 4.29 | | | | 3.82 | |
Efficiency ratio | | | 51.05 | | | | 526.87 | | | | 263.57 | |
Loan portfolio yield | | | 9.28 | | | | 9.72 | | | | 10.00 | |
| | | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | | | | | |
Delinquent loan rate | | | — | | | | 0.37 | | | | 0.57 | |
Non-accrual loan rate | | | 0.97 | | | | 0.37 | | | | — | |
Net charge off rate | | | 0.19 | | | | — | | | | — | |
Allowance for credit losses ratio | | | 1.58 | | | | 1.62 | | | | 1.40 | |
Equity to assets | | | 19.17 | | | | 18.17 | | | | 22.11 | |
Debt to equity | | | 4.06 | x | | | 4.38 | x | | | 3.39 | x |
| | | |
Average Balances: | | | | | | | | | | | | |
Loans and other debt products, gross | | $ | 2,304,028 | | | $ | 2,040,217 | | | $ | 1,525,105 | |
Interest earning assets | | | 2,471,037 | | | | 2,272,435 | | | | 1,606,785 | |
Total assets | | | 2,522,382 | | | | 2,302,288 | | | | 1,623,952 | |
Interest bearing liabilities | | | 1,992,228 | | | | 1,808,174 | | | | 1,328,178 | |
Equity | | | 466,266 | | | | 434,196 | | | | 249,773 | |
| | | |
Allowance for credit loss activity: | | | | | | | | | | | | |
Balance as of beginning of period | | $ | 31,925 | | | $ | 25,372 | | | $ | 14,629 | |
General provision for credit losses | | | 3,563 | | | | 2,153 | | | | 5,941 | |
Specific provision for credit losses | | | 4,592 | | | | 4,400 | | | | — | |
Net charge offs | | | (4,593 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Balance as of end of period | | $ | 35,487 | | | $ | 31,925 | | | $ | 20,570 | |
| | | | | | | | | | | | |
Supplemental Data (at period end): | | | | | | | | | | | | |
Investments in debt securities, gross | | $ | 38,787 | | | $ | 41,608 | | | $ | 217,314 | |
Loans held-for-sale, gross | | | 115,055 | | | | 117,755 | | | | 63,277 | |
Loans held-for-investment, gross | | | 2,248,480 | | | | 1,973,793 | | | | 1,467,038 | |
| | | | | | | | | | | | |
Loans and investments in debt securities, gross | | | 2,402,322 | | | | 2,133,156 | | | | 1,747,629 | |
Unused lines of credit | | | 454,837 | | | | 412,168 | | | | 302,856 | |
Standby letters of credit | | | 20,382 | | | | 12,904 | | | | 6,990 | |
| | | | | | | | | | | | |
Total funding commitments | | $ | 2,877,541 | | | $ | 2,558,228 | | | $ | 2,057,475 | |
| | | | | | | | | | | | |
Loan portfolio | | $ | 2,402,322 | | | $ | 2,133,156 | | | $ | 1,747,629 | |
Loans owned by NewStar Credit Opportunities Fund | | | 578,272 | | | | 491,436 | | | | 283,378 | |
Less: assets sold(1) | | | — | | | | — | | | | 179,979 | |
| | | | | | | | | | | | |
Managed loan portfolio | | $ | 2,980,594 | | | $ | 2,624,592 | | | $ | 1,851,028 | |
| | | | | | | | | | | | |
Loans held-for-sale, gross | | $ | 115,055 | | | $ | 117,755 | | | $ | 63,277 | |
Loans held-for-investment, gross | | | 2,248,480 | | | | 1,973,793 | | | | 1,467,038 | |
| | | | | | | | | | | | |
Total loans, gross | | | 2,363,535 | | | | 2,091,548 | | | | 1,530,315 | |
Deferred fees, net | | | (15,762 | ) | | | (10,179 | ) | | | (10,468 | ) |
Allowance for loan losses | | | (28,795 | ) | | | (25,972 | ) | | | (19,395 | ) |
Specific reserve | | | (4,592 | ) | | | (4,400 | ) | | | — | |
| | | | | | | | | | | | |
Total loans, net | | $ | 2,314,386 | | | $ | 2,050,997 | | | $ | 1,500,452 | |
| | | | | | | | | | | | |
Book value per share | | $ | 11.58 | | | $ | 11.78 | | | $ | 11.68 | |
| (1) | Outstanding par value of the assets sold on June 29, 2007. |
9
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | |
| | | Year Ended December 31, | |
($ in thousands) | | 2007 | | | 2006 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | (0.39 | )% | | | (2.22 | )% |
Return on average equity | | | (1.97 | ) | | | (15.85 | ) |
Net interest margin, before provision | | | 4.23 | | | | 3.93 | |
Efficiency ratio | | | 86.57 | | | | 129.73 | |
Loan portfolio yield | | | 9.63 | | | | 9.89 | |
| | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | |
Delinquent loan rate | | | — | | | | 0.57 | |
Non-accrual loan rate | | | 0.97 | | | | — | |
Net charge off rate | | | 0.19 | | | | — | |
Allowance for credit losses ratio | | | 1.58 | | | | 1.40 | |
Equity to assets | | | 19.17 | | | | 22.11 | |
Debt to equity | | | 4.06 | x | | | 3.39 | x |
| | |
Average Balances: | | | | | | | | |
Loans and other debt products, gross | | $ | 2,038,678 | | | $ | 1,150,111 | |
Interest earning assets | | | 2,234,916 | | | | 1,210,494 | |
Total assets | | | 2,243,524 | | | | 1,224,744 | |
Interest bearing liabilities | | | 1,767,993 | | | | 1,028,139 | |
Equity | | | 439,650 | | | | 171,518 | |
| | |
Allowance for credit loss activity: | | | | | | | | |
Balance as of beginning of period | | $ | 20,570 | | | $ | 8,035 | |
General provision for credit losses | | | 10,518 | | | | 12,535 | |
Specific provision for credit losses | | | 8,992 | | | | — | |
Net charge offs | | | (4,593 | ) | | | — | |
| | | | | | | | |
Balance as of end of period | | $ | 35,487 | | | $ | 20,570 | |
| | | | | | | | |
Supplemental Data (at period end): | | | | | | | | |
Investments in debt securities, gross | | $ | 38,787 | | | $ | 217,314 | |
Loans held-for-sale, gross | | | 115,055 | | | | 63,277 | |
Loans held-for-investment, gross | | | 2,248,480 | | | | 1,467,038 | |
| | | | | | | | |
Loans and investments in debt securities, gross | | | 2,402,322 | | | | 1,747,629 | |
Unused lines of credit | | | 454,837 | | | | 302,856 | |
Standby letters of credit | | | 20,382 | | | | 6,990 | |
| | | | | | | | |
Total funding commitments | | $ | 2,877,541 | | | $ | 2,057,475 | |
| | | | | | | | |
Loan portfolio | | $ | 2,402,322 | | | $ | 1,747,629 | |
Loans owned by NewStar Credit Opportunities Fund | | | 578,272 | | | | 283,378 | |
Less: assets sold(1) | | | — | | | | 179,979 | |
| | | | | | | | |
Managed loan portfolio | | $ | 2,980,594 | | | $ | 1,851,028 | |
| | | | | | | | |
Loans held-for-sale, gross | | $ | 115,055 | | | $ | 63,277 | |
Loans held-for-investment, gross | | | 2,248,480 | | | | 1,467,038 | |
| | | | | | | | |
Total loans, gross | | | 2,363,535 | | | | 1,530,315 | |
Deferred fees, net | | | (15,762 | ) | | | (10,468 | ) |
Allowance for loan losses | | | (28,795 | ) | | | (19,395 | ) |
Specific reserve | | | (4,592 | ) | | | — | |
| | | | | | | | |
Total loans, net | | $ | 2,314,386 | | | $ | 1,500,452 | |
| | | | | | | | |
Book value per share | | $ | 11.58 | | | $ | 11.68 | |
| (1) | Outstanding par value of the assets sold on June 29, 2007. |
10
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | | | | | |
| | | Adjusted | |
| | | Three Months Ended | |
($ in thousands) | | December 31,
2007 | | | September 30,
2007 | | | December 31,
2006 | |
Performance Ratios: | | | | | | | | | | | | |
Return on average assets | | | 1.12 | % | | | 1.24 | % | | | 0.94 | % |
Return on average equity | | | 6.07 | | | | 6.51 | | | | 5.53 | |
Efficiency ratio | | | 35.65 | | | | 37.39 | | | | 49.01 | |
Net interest margin, before provision | | | 3.98 | | | | 4.16 | | | | 4.37 | |
Yield on interest earning assets | | | 8.93 | | | | 9.12 | | | | 9.63 | |
Cost of funds | | | 6.14 | | | | 6.16 | | | | 6.48 | |
| | | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | | | | | |
Equity to assets | | | 19.17 | | | | 18.19 | | | | 24.40 | |
Debt to equity | | | 4.06 | x | | | 4.38 | x | | | 2.98 | x |
| | | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | | | | | |
Interest income | | $ | 55,606 | | | $ | 52,626 | | | $ | 39,243 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | — | | | | 1,019 | | | | 4,136 | |
| | | | | | | | | | | | |
Adjusted interest income | | $ | 55,606 | | | $ | 51,607 | | | $ | 35,107 | |
| | | | | | | | | | | | |
Interest expense | | $ | 30,826 | | | $ | 28,071 | | | $ | 23,766 | |
Less: | | | | | | | | | | | | |
Interest expense related to assets sold(2) | | | — | | | | — | | | | 1,878 | |
Interest & amortization related to corporate debt | | | — | | | | — | | | | 2,728 | |
| | | | | | | | | | | | |
Adjusted interest expense | | $ | 30,826 | | | $ | 28,071 | | | $ | 19,160 | |
| | | | | | | | | | | | |
Non-interest income | | $ | 3,957 | | | $ | (21,848 | ) | | $ | 4,103 | |
Plus: loss on assets sold and retained residual interest(2) | | | 2,420 | | | | 28,136 | | | | 522 | |
| | | | | | | | | | | | |
Adjusted non-interest income | | $ | 6,377 | | | $ | 6,288 | | | $ | 4,625 | |
| | | | | | | | | | | | |
Operating expenses | | $ | 14,671 | | | $ | 14,259 | | | $ | 51,604 | |
Less: | | | | | | | | | | | | |
Corporate debt prepayment fees | | | — | | | | — | | | | 1,425 | |
IPO related compensation and benefits expense(3) | | | 2,632 | | | | 3,108 | | | | 39,129 | |
IPO related general and administrative expense(4) | | | — | | | | — | | | | 968 | |
Expenses resulting from sale of assets(2) | | | 931 | | | | — | | | | — | |
| | | | | | | | | | | | |
Adjusted operating expenses | | $ | 11,108 | | | $ | 11,151 | | | $ | 10,082 | |
| | | | | | | | | | | | |
Average Balances: | | | | | | | | | | | | |
Assets | | $ | 2,522,382 | | | $ | 2,302,288 | | | $ | 1,623,952 | |
Less: assets sold and residual interest(2) | | | 1,841 | | | | 26,955 | | | | 160,083 | |
| | | | | | | | | | | | |
Adjusted assets | | $ | 2,520,541 | | | $ | 2,275,333 | | | $ | 1,463,869 | |
| | | | | | | | | | | | |
Interest earning assets | | $ | 2,471,037 | | | $ | 2,272,435 | | | $ | 1,606,785 | |
Less: assets sold and residual interest(2) | | | 1,841 | | | | 26,955 | | | | 160,083 | |
| | | | | | | | | | | | |
Adjusted interest earning assets | | $ | 2,469,196 | | | $ | 2,245,480 | | | $ | 1,446,702 | |
| | | | | | | | | | | | |
Interest bearing liabilities | | $ | 1,992,228 | | | $ | 1,808,174 | | | $ | 1,328,178 | |
Less: | | | | | | | | | | | | |
Credit facility funding for assets sold(2) | | | — | | | | — | | | | 121,650 | |
Corporate debt | | | — | | | | — | | | | 33,016 | |
| | | | | | | | | | | | |
Adjusted interest bearing liabilities | | $ | 1,992,228 | | | $ | 1,808,174 | | | $ | 1,173,512 | |
| | | | | | | | | | | | |
Consolidated Balance Sheet Adjustments | | | | | | | | | | | | |
Assets | | $ | 2,622,765 | | | $ | 2,351,079 | | | $ | 1,915,192 | |
Less: assets sold and residual interest(2) | | | 631 | | | | 3,051 | | | | 179,979 | |
| | | | | | | | | | | | |
Adjusted assets | | $ | 2,622,134 | | | $ | 2,348,028 | | | $ | 1,735,213 | |
| | | | | | | | | | | | |
Debt | | $ | 2,042,527 | | | $ | 1,871,671 | | | $ | 1,434,670 | |
Less: credit facility funding for assets sold(2) | | | — | | | | — | | | | 174,510 | |
| | | | | | | | | | | | |
Adjusted debt | | $ | 2,042,527 | | | $ | 1,871,671 | | | $ | 1,260,160 | |
| | | | | | | | | | | | |
| (1) | Adjustments are pre-tax. |
| (2) | On June 29, 2007, the Company completed the sale of assets comprised of 50 debt securities and two loans and retained a residual interest in these assets. The adjustment represents the financial impact of the sold assets and residual interest. |
| (3) | Non-cash compensation charge related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering. |
| (4) | General and administrative expense related to the Company’s initial public offering. |
11
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | |
| | | Adjusted | |
| | | Year Ended December 31, | |
($ in thousands) | | 2007 | | | 2006 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | 1.33 | % | | | 0.77 | % |
Return on average equity | | | 6.46 | | | | 4.98 | |
Efficiency ratio | | | 39.46 | | | | 55.42 | |
Net interest margin, before provision | | | 4.21 | | | | 4.39 | |
Yield on interest earning assets | | | 9.14 | | | | 9.59 | |
Cost of funds | | | 6.21 | | | | 6.28 | |
| | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | |
Equity to assets | | | 19.17 | | | | 24.40 | |
Debt to equity | | | 4.06 | x | | | 2.98 | x |
| | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | |
Interest income | | $ | 204,295 | | | $ | 116,303 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | 9,458 | | | | 10,738 | |
| | | | | | | | |
Adjusted interest income | | $ | 194,837 | | | $ | 105,565 | |
| | | | | | | | |
Interest expense | | $ | 109,703 | | | $ | 68,728 | |
Less: | | | | | | | | |
Interest expense related to assets sold(2) | | | 4,620 | | | | 4,865 | |
Interest & amortization related to corporate debt | | | — | | | | 6,662 | |
| | | | | | | | |
Adjusted interest expense | | $ | 105,083 | | | $ | 57,201 | |
| | | | | | | | |
Non-interest income | | $ | (28,176 | ) | | $ | 9,684 | |
Plus: loss on assets sold and retained residual interest(2) | | | 47,743 | | | | 522 | |
| | | | | | | | |
Adjusted non-interest income | | $ | 19,567 | | | $ | 10,206 | |
| | | | | | | | |
Operating expenses | | $ | 57,494 | | | $ | 74,282 | |
Less: | | | | | | | | |
Corporate debt prepayment fees | | | — | | | | 1,425 | |
IPO related compensation and benefits expense(3) | | | 13,424 | | | | 39,129 | |
IPO related general and administrative expense(4) | | | — | | | | 1,268 | |
Expenses resulting from sale of assets(2) | | | 931 | | | | — | |
| | | | | | | | |
Adjusted operating expenses | | $ | 43,139 | | | $ | 32,460 | |
| | | | | | | | |
Average Balances: | | | | | | | | |
Assets | | $ | 2,243,524 | | | $ | 1,224,744 | |
Less: assets sold and residual interest(2) | | | 103,248 | | | | 109,779 | |
| | | | | | | | |
Adjusted assets | | $ | 2,140,276 | | | $ | 1,114,965 | |
| | | | | | | | |
Interest earning assets | | $ | 2,234,916 | | | $ | 1,210,494 | |
Less: assets sold and residual interest(2) | | | 103,248 | | | | 109,779 | |
| | | | | | | | |
Adjusted interest earning assets | | $ | 2,131,668 | | | $ | 1,100,715 | |
| | | | | | | | |
Interest bearing liabilities | | $ | 1,767,993 | | | $ | 1,028,139 | |
Less: | | | | | | | | |
Credit facility funding for assets sold(2) | | | 74,667 | | | | 80,580 | |
Corporate debt | | | — | | | | 36,370 | |
| | | | | | | | |
Adjusted interest bearing liabilities | | $ | 1,693,326 | | | $ | 911,189 | |
| | | | | | | | |
Consolidated Balance Sheet Adjustments | | | | | | | | |
Assets | | $ | 2,622,765 | | | $ | 1,915,192 | |
Less: assets sold and residual interest(2) | | | 631 | | | | 179,979 | |
| | | | | | | | |
Adjusted assets | | $ | 2,622,134 | | | $ | 1,735,213 | |
| | | | | | | | |
Debt | | $ | 2,042,527 | | | $ | 1,434,670 | |
Credit facility funding for assets sold(2) | | | — | | | | 174,510 | |
| | | | | | | | |
Adjusted debt | | $ | 2,042,527 | | | $ | 1,260,160 | |
| | | | | | | | |
| (1) | Adjustments are pre-tax. |
| (2) | On June 29, 2007, the Company completed the sale of assets comprised of 50 debt securities and two loans and retained a residual interest in these assets. The adjustment represents the financial impact of the sold assets and residual interest. |
| (3) | Non-cash compensation charge related to restricted stock grants made since our inception as a private company, including equity awards made in connection with the initial public offering. |
| (4) | General and administrative expense related to the Company’s initial public offering. |
12
NewStar Financial, Inc.
Portfolio Data
(unaudited)
| | | | | | | | | | | | | | | | | | |
($ in thousands) | | December 31, 2007 | | | September 30, 2007 | | | December 31, 2006 | |
Portfolio Data: | | | | | | | | | | | | | | | | | | |
First mortgage | | $ | 353,755 | | 14.7 | % | | $ | 289,426 | | 13.6 | % | | $ | 216,888 | | 12.4 | % |
Senior secured asset-based | | | 56,988 | | 2.4 | | | | 65,200 | | 3.1 | | | | 50,566 | | 2.9 | |
Senior secured cash flow | | | 1,829,734 | | 76.2 | | | | 1,582,636 | | 74.2 | | | | 1,082,048 | | 61.9 | |
Senior subordinated asset-based | | | 110,719 | | 4.6 | | | | 115,566 | | 5.4 | | | | 247,456 | | 14.2 | |
Senior subordinated cash flow | | | 14,352 | | 0.6 | | | | 26,162 | | 1.2 | | | | 35,161 | | 2.0 | |
Second lien | | | 32,295 | | 1.3 | | | | 53,440 | | 2.5 | | | | 70,875 | | 4.1 | |
Mezzanine | | | 729 | | 0.0 | | | | 726 | | — | | | | 719 | | — | |
Subordinated | | | 3,750 | | 0.2 | | | | — | | — | | | | 43,916 | | 2.5 | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 2,402,322 | | 100.0 | % | | $ | 2,133,156 | | 100.0 | % | | $ | 1,747,629 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | |
Middle Market Corporate | | $ | 1,879,797 | | 78.2 | % | | $ | 1,663,247 | | 78.0 | % | | $ | 1,183,107 | | 67.7 | % |
Commercial Real Estate | | | 380,763 | | 15.9 | | | | 314,827 | | 14.7 | | | | 230,735 | | 13.2 | |
Structured Products | | | 141,762 | | 5.9 | | | | 155,082 | | 7.3 | | | | 333,787 | | 19.1 | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 2,402,322 | | 100.0 | % | | $ | 2,133,156 | | 100.0 | % | | $ | 1,747,629 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | |
13
