Exhibit 99.1
FOR IMMEDIATE RELEASE
NEWSTAR REPORTS SECOND QUARTER RESULTS
Stable margins and credit performance drive strong earnings
| | • | | Generated $7.6 million of adjusted net income in the second quarter, or $0.16 adjusted earnings per diluted share |
| | • | | Earned $5.9 million of net income in the second quarter, or $0.12 net income per diluted share on a GAAP basis, which reflects $1.5 million after-tax non-cash equity compensation expense |
| | • | | Capitalized on compelling market opportunities, originating $157 million of new loans with conservative credit profiles and average yields greater than 5% above LIBOR |
| | • | | Reinforced liquidity through early renewal of $400 million warehouse line with Wachovia and renewal of $75 million warehouse line with Natixis Financial Products |
| | • | | Added to funding capacity by increasing existing term debt facility with Deutsche Bank from $300 million to $400 million |
| | • | | Managed credit performance within expected parameters reflected by stable credit metrics |
Boston, August 6, 2008 – NewStar Financial, Inc. (NASDAQ: NEWS), a Boston-based commercial finance company, today reported adjusted net income for the second quarter of 2008 of $7.6 million, or $0.16 per diluted share. On a GAAP basis, the Company reported net income of $5.9 million, or $0.12 per diluted share, which reflects a $1.5 million after-tax non-cash equity compensation expense related to the 2006 IPO and a $0.2 million after-tax loss on the retained residual interest in securities sold in the second quarter of 2007.
“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.
“NewStar delivered strong operating performance in the second quarter as we continued to capitalize on compelling opportunities in a favorable lending environment,” said Tim Conway, Chairman and Chief Executive Officer. “I believe we are among the most active lenders in the middle market and have been building share since the dislocation in the credit markets began.”
“From a credit perspective, we continue to be defensively positioned with a highly diversified portfolio focused on first lien senior debt. Our continued strong credit performance clearly reflects the benefits of our business model, which focuses on direct origination and disciplined credit management.”
“NewStar delivered strong financial results in the second quarter led by stable margins and continued solid credit performance,” said John Kirby Bray, Chief Financial Officer. “The balance sheet continued to reflect conservative leverage with liquidity and funding capacity sufficient to provide the flexibility to support increasing origination volumes.”
Funding and Capital
| | • | | NewStar had $665 million of funding capacity, with approximately $550 million of available borrowing capacity under its credit facilities and existing term debt securitizations (CLOs) as of June 30, 2008. |
| | • | | Total cash and equivalents as of June 30, 2008 were $216 million, of which $134 million was unrestricted. |
| | • | | NewStar reinforced its liquidity through an early renewal of its $400 million warehouse line with Wachovia and a renewal of its $75 million warehouse line with Natixis Financial Products. |
| | • | | NewStar added to its funding capacity by increasing its existing term debt facility with Deutsche Bank from $300 million to $400 million. |
Origination Volume
| | • | | Overall origination volume for the second quarter of 2008 was $157 million, of which $142 million was retained on NewStar’s balance sheet, $8 million was syndicated to others and $7 million was sold to the NewStar Credit Opportunities Fund (NCOF). |
| | • | | Credit spreads and amortizing fees on new loans originated in the second quarter continued to improve, with average yields greater than 5% above LIBOR, which is an increase of more than 150 bps from the second quarter of 2007. |
| | • | | Corporate lending represented 100% of the new volume in the quarter. |
Managed and Owned Loan Portfolios
| | • | | Managed loan portfolio was $3.0 billion as of June 30, 2008, equal to the level at March 31, 2008, reflecting the net impact of $157 million of new origination, which was offset by prepayments and ongoing amortization. Managed loan portfolio was up 23% from $2.5 billion as of June 30, 2007. |
| | • | | Assets managed for the NCOF were $593 million at June 30, 2008, nearly equivalent to the level at March 31, 2008 and up 32% from $449 million at June 30, 2007. |
| | • | | The owned loan portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of June 30, 2008, no single issuer represented more than approximately 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 94.6% invested in senior secured loans and debt investments at June 30, 2008. |
Net Interest Income / Margin
| | • | | Net interest income before provision for credit losses was $26.5 million for the second quarter of 2008 compared to $26.7 million for the first quarter of 2008 and $23.3 million for the second quarter of 2007. |
| | • | | Net interest margin was 4.17% for the second quarter of 2008 compared to 4.19% for the first quarter of 2008 and 4.22% for the second quarter of 2007. As the benefit from the timing difference between asset and liability repricing tied to LIBOR diminished, increases in the marginal cost of funds were offset by improvements in credit spreads on new origination volume. |
Non-Interest Income
| | • | | Non-interest income was $1.6 million for the second quarter of 2008 compared to $3.2 million for the first quarter of 2008, and $0.4 million for the second quarter of 2007. |
| | • | | Adjusted non-interest income, excluding the impact of the write-down on the retained residual interest, was $1.9 million in the second quarter of 2008, compared to $3.5 million in the first quarter of 2008 and $4.8 million in the second quarter of 2007, reflecting lower capital market fees and a decline in fair value of equity/security positions. |
| | • | | Adjusted non-interest income in the second quarter of 2008 consisted primarily of $1.5 million of asset management income, $0.5 million of syndication and agency fees, $0.4 million of amendment fees and $0.4 million of structuring and placement fees. |
Loan Credit Quality
| | • | | The provision for credit losses was $3.7 million in the second quarter of 2008, down from $4.6 million in the first quarter of 2008. |
| | • | | Allowance for credit losses was $38.2 million or 1.60% of loans at June 30, 2008, compared to $36.8 million or 1.58% at March 31, 2008 and $25.4 million or 1.40% at June 30, 2007. |
| | • | | Non-accrual loans were $10.1 million at June 30, 2008 compared to $9.8 million at March 31, 2008. Additionally, the Company had one $7.0 million loan at June 30, 2008 which was other real estate owned (OREO) as a result of a foreclosure on an impaired loan. |
| | • | | NewStar established $2.7 million specific reserves in the second quarter of 2008 compared to $3.5 million in the first quarter of 2008. |
| | • | | NewStar charged-off $2.3 million or 0.38% of loans on an annualized basis in the second quarter of 2008 compared to $3.4 million or 0.58% of loans on an annualized basis in the prior quarter. |
| | • | | Allowance for credit losses of $38.2 million at June 30, 2008 was more than three times the non-accrual loans level of $10.1 million at June 30, 2008. |
Expenses
| | • | | Operating expenses decreased to $13.5 million in the second quarter of 2008, which included $1.3 million of severance costs, from $14.9 million in the first quarter of 2008, reflecting the timing of employee benefits. |
| | • | | Excluding severance costs of $1.3 million incurred in the second quarter, expenses decreased by $2.7 million from the prior quarter. The difference reflects a lower run-rate expense base and the impact of the timing of certain annual employee benefit and payroll tax expenses, which occurred in the first quarter. |
Conference Call and Webcast
NewStar will host a webcast/conference call to discuss the results today at 10:00 am Eastern Time. All interested parties are invited to participate via telephone or webcast, which will be hosted through the 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 877-675-4751 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4873. All callers should reference “NewStar Financial.”
For convenience, an archived replay of the call will be available through August 13, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 3527674. The audio replay will also be available through the Investor Relations section at www.newstarfin.com.
About NewStar Financial
NewStar Financial (NASDAQ:NEWS) is a specialized commercial finance company focused on meeting the complex financing needs of companies and private investors in the middle markets. The Company specializes in providing senior secured debt financing for the acquisition or recapitalization of mid-sized companies and commercial real estate. NewStar originates loans directly through a team of experienced, senior bankers organized around key industry and market segments. The Company targets ‘hold’ positions of up to $20 million and selectively underwrites or arranges larger transactions for syndication to other lenders.
NewStar is headquartered in Boston MA and has regional offices in Darien CT, Chicago IL, San 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 filings with the Securities and Exchange Commission (the “SEC”), including Item 1A (“Risk Factors”) of our 2007 Annual Report on Form 10-K. 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 the quarter ended June 30, 2008 with the SEC on or before August 11, 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) 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 in these assets; 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, including the impact on our effective tax rate. GAAP requires that these items be included in net income. NewStar management uses “adjusted net income” and “adjusted earnings per share” to make operational and investment decisions, and NewStar believes that they provide useful information
to investors in their evaluation of our financial performance and condition. Excluding 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, 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 page 7 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 of 2007 and the retained residual interest) less annualized interest expense as determined under GAAP (excluding 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 of 2007 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 of 2007 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; 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 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 page 9 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)
| | | | | | | | | | | | |
($ in thousands) | | June 30,
2008 | | March 31,
2008 | | December 31,
2007 | | June 30,
2007 |
Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 134,017 | | $ | 165,220 | | $ | 76,155 | | $ | 79,297 |
Restricted cash | | | 81,676 | | | 67,456 | | | 115,807 | | | 166,120 |
Residual interest in securitization | | | — | | | 308 | | | 631 | | | 29,677 |
Investments in debt securities, available-for-sale | | | 4,619 | | | 30,805 | | | 35,498 | | | 41,446 |
Loans held-for-sale | | | 15,508 | | | 65,287 | | | 112,944 | | | 132,908 |
Loans, net | | | 2,340,410 | | | 2,271,030 | | | 2,201,442 | | | 1,778,437 |
Deferred financing costs, net | | | 19,398 | | | 18,081 | | | 18,399 | | | 15,956 |
Interest receivable | | | 11,549 | | | 13,215 | | | 14,120 | | | 12,967 |
Property and equipment, net | | | 1,412 | | | 1,461 | | | 1,593 | | | 1,683 |
Deferred income taxes, net | | | 10,987 | | | 13,051 | | | 13,355 | | | 8,531 |
Income tax receivable | | | 3,229 | | | — | | | 4,635 | | | 7,683 |
Other assets | | | 34,174 | | | 42,030 | | | 28,186 | | | 15,086 |
| | | | | | | | | | | | |
Total assets | | $ | 2,656,979 | | $ | 2,687,944 | | $ | 2,622,765 | | $ | 2,289,791 |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Repurchase agreements | | $ | — | | $ | — | | $ | 63 | | $ | 6,448 |
Credit facilities | | | 511,800 | | | 553,800 | | | 677,739 | | | 604,172 |
Term debt | | | 1,540,225 | | | 1,519,725 | | | 1,364,725 | | | 1,198,225 |
Accrued interest payable | | | 10,092 | | | 11,000 | | | 17,537 | | | 20,014 |
Accounts payable | | | 388 | | | 749 | | | 197 | | | 285 |
Income tax payable | | | — | | | 668 | | | — | | | — |
Other liabilities | | | 26,157 | | | 41,636 | | | 59,814 | | | 26,180 |
| | | | | | | | | | | | |
Total liabilities | | | 2,088,662 | | | 2,127,578 | | | 2,120,075 | | | 1,855,324 |
Total stockholders’ equity | | | 568,317 | | | 560,366 | | | 502,690 | | | 434,467 |
| | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,656,979 | | $ | 2,687,944 | | $ | 2,622,765 | | $ | 2,289,791 |
| | | | | | | | | | | | |
6
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands, except per share amounts) | | June 30,
2008 | | | March 31,
2008 | | | December 31,
2007 | | | June 30,
2007 | |
Net interest income: | | | | | | | | | | | | | | | | |
Interest income | | $ | 46,034 | | | $ | 51,988 | | | $ | 55,606 | | | $ | 50,575 | |
Interest expense | | | 19,583 | | | | 25,324 | | | | 30,826 | | | | 27,269 | |
| | | | | | | | | | | | | | | | |
Net interest income | | | 26,451 | | | | 26,664 | | | | 24,780 | | | | 23,306 | |
Provision for credit losses | | | 3,723 | | | | 4,611 | | | | 8,155 | | | | 2,490 | |
| | | | | | | | | | | | | | | | |
Net interest income after provision for credit losses | | | 22,728 | | | | 22,053 | | | | 16,625 | | | | 20,816 | |
| | | | |
Non-interest income: | | | | | | | | | | | | | | | | |
Fee income | | | 1,395 | | | | 1,532 | | | | 5,620 | | | | 4,290 | |
Asset management income | | | 1,476 | | | | 1,651 | | | | 1,618 | | | | 1,251 | |
Gain (loss) on derivatives | | | (11 | ) | | | 56 | | | | 289 | | | | 270 | |
Gain (loss) on sale of loans and debt securities | | | 47 | | | | (786 | ) | | | (359 | ) | | | (4,342 | ) |
Loss on investments in debt securities | | | (667 | ) | | | (258 | ) | | | (1,976 | ) | | | (1,486 | ) |
Loss on residual interest in securitization | | | (308 | ) | | | (323 | ) | | | (2,420 | ) | | | — | |
Other income | | | (339 | ) | | | 1,284 | | | | 1,185 | | | | 449 | |
| | | | | | | | | | | | | | | | |
Total non-interest income | | | 1,593 | | | | 3,156 | | | | 3,957 | | | | 432 | |
| | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 9,580 | | | | 11,500 | | | | 11,169 | | | | 12,494 | |
Occupancy and equipment | | | 938 | | | | 835 | | | | 835 | | | | 610 | |
General and administrative expenses | | | 2,972 | | | | 2,564 | | | | 2,667 | | | | 2,497 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 13,490 | | | | 14,899 | | | | 14,671 | | | | 15,601 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 10,831 | | | | 10,310 | | | | 5,911 | | | | 5,647 | |
Income tax expense | | | 4,908 | | | | 4,168 | | | | 4,677 | | | | 2,229 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 5,923 | | | $ | 6,142 | | | $ | 1,234 | | | $ | 3,418 | |
| | | | | | | | | | | | | | | | |
After tax adjustments to net income: | | | | | | | | | | | | | | | | |
IPO related compensation and benefits expense(1) | | | 1,512 | | | | 1,193 | | | | 1,654 | | | | 2,641 | |
Loss on assets sold and retained residual interest(2) | | | 169 | | | | 192 | | | | 4,240 | | | | 2,601 | |
Net interest income earned on assets sold and retained residual interest(3) | | | — | | | | — | | | | — | | | | (1,013 | ) |
| | | | | | | | | | | | | | | | |
Adjusted net income | | $ | 7,604 | | | $ | 7,527 | | | $ | 7,128 | | | $ | 7,647 | |
| | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.12 | | | $ | 0.13 | | | $ | 0.03 | | | $ | 0.09 | |
Diluted | | $ | 0.12 | | | $ | 0.13 | | | $ | 0.03 | | | $ | 0.09 | |
| | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 48,532,542 | | | | 47,787,965 | | | | 38,812,358 | | | | 36,258,021 | |
Diluted | | | 48,532,542 | | | | 47,787,965 | | | | 38,812,358 | | | | 36,677,437 | |
| | | | |
Adjusted net income per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.16 | | | $ | 0.16 | | | $ | 0.18 | | | $ | 0.21 | |
Diluted | | $ | 0.16 | | | $ | 0.16 | | | $ | 0.18 | | | $ | 0.21 | |
| | | | |
Adjusted weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 48,532,542 | | | | 47,787,965 | | | | 38,812,358 | | | | 36,258,021 | |
Diluted | | | 48,532,542 | | | | 47,787,965 | | | | 38,812,358 | | | | 36,677,437 | |
| (1) | 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. |
| (2) | 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. |
| (3) | Net interest income earned on the assets sold during Q2 2007 and the residual interest in these assets. |
7
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | |
| | | Six Months Ended June 30, | |
($ in thousands, except per share amounts) | | 2008 | | | 2007 | |
Net interest income: | | | | | | | | |
Interest income | | $ | 98,022 | | | $ | 96,063 | |
Interest expense | | | 44,907 | | | | 50,806 | |
| | | | | | | | |
Net interest income | | | 53,115 | | | | 45,257 | |
Provision for credit losses | | | 8,334 | | | | 4,802 | |
| | | | | | | | |
Net interest income after provision for credit losses | | | 44,781 | | | | 40,455 | |
| | |
Non-interest income: | | | | | | | | |
Fee income | | | 2,927 | | | | 6,843 | |
Asset management income | | | 3,127 | | | | 2,215 | |
Gain on derivatives | | | 45 | | | | 354 | |
Loss on sale of loans and debt securities | | | (739 | ) | | | (4,267 | ) |
Loss on investments in debt securities | | | (925 | ) | | | (16,348 | ) |
Loss on residual interest in securitization | | | (631 | ) | | | — | |
Other income | | | 945 | | | | 918 | |
| | | | | | | | |
Total non-interest income | | | 4,749 | | | | (10,285 | ) |
| | |
Operating expenses: | | | | | | | | |
Compensation and benefits | | | 21,080 | | | | 23,026 | |
Occupancy and equipment | | | 1,773 | | | | 1,102 | |
General and administrative expenses | | | 5,536 | | | | 4,436 | |
| | | | | | | | |
Total operating expenses | | | 28,389 | | | | 28,564 | |
| | | | | | | | |
Income before income taxes | | | 21,141 | | | | 1,606 | |
Income tax expense | | | 9,076 | | | | 634 | |
| | | | | | | | |
Net income | | $ | 12,065 | | | $ | 972 | |
| | | | | | | | |
After tax adjustments to net income: | | | | | | | | |
IPO related compensation and benefits expense(1) | | | 2,705 | | | | 5,282 | |
Loss on assets sold and retained residual interest(2) | | | 361 | | | | 10,158 | |
Net interest income earned on assets sold and retained residual interest(3) | | | — | | | | (2,258 | ) |
| | | | | | | | |
Adjusted net income | | $ | 15,131 | | | $ | 14,154 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.25 | | | $ | 0.03 | |
Diluted | | $ | 0.25 | | | $ | 0.03 | |
| | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | | 48,160,254 | | | | 36,257,806 | |
Diluted | | | 48,160,254 | | | | 36,765,552 | |
| | |
Adjusted net income per share: | | | | | | | | |
Basic | | $ | 0.31 | | | $ | 0.39 | |
Diluted | | $ | 0.31 | | | $ | 0.38 | |
| | |
Adjusted weighted average shares outstanding: | | | | | | | | |
Basic | | | 48,160,254 | | | | 36,257,806 | |
Diluted | | | 48,160,254 | | | | 36,765,552 | |
| (1) | 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. |
| (2) | 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. |
| (3) | Net interest income earned on the assets sold during Q2 2007 and the residual interest in these assets. |
8
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands, except per share amounts) | | June 30,
2008 | | | March 31,
2008 | | | December 31,
2007 | | | June 30,
2007 | |
Performance Ratios: | | | | | | | | | | | | | | | | |
Return on average assets | | | 0.91 | % | | | 0.94 | % | | | 0.19 | % | | | 0.62 | % |
Return on average equity | | | 4.22 | | | | 4.53 | | | | 1.05 | | | | 3.22 | |
Net interest margin, before provision | | | 4.17 | | | | 4.19 | | | | 3.98 | | | | 4.22 | |
Efficiency ratio | | | 48.10 | | | | 49.96 | | | | 51.05 | | | | 65.73 | |
Loan portfolio yield | | | 7.52 | | | | 8.44 | | | | 9.28 | | | | 9.65 | |
| | | | |
Credit Quality and Leverage Ratios: | | | | | | | | | | | | | | | | |
Delinquent loan rate (at period end) | | | 0.97 | % | | | 0.14 | % | | | — | % | | | — | % |
Non-accrual loan rate (at period end) | | | 0.42 | | | | 0.42 | | | | 0.97 | | | | — | |
Net charge off rate | | | 0.09 | | | | 0.14 | | | | 0.19 | | | | — | |
Annualized net charge off rate | | | 0.38 | | | | 0.58 | | | | 0.81 | | | | — | |
Allowance for credit losses ratio (at period end) | | | 1.60 | | | | 1.58 | | | | 1.58 | | | | 1.40 | |
Equity to assets (at period end) | | | 21.39 | | | | 20.85 | | | | 19.17 | | | | 18.97 | |
Debt to equity (at period end) | | | 3.61 | x | | | 3.70 | x | | | 4.06 | x | | | 4.16 | x |
| | | | |
Average Balances: | | | | | | | | | | | | | | | | |
Loans and other debt products, gross | | $ | 2,403,327 | | | $ | 2,429,392 | | | $ | 2,304,028 | | | $ | 2,018,218 | |
Interest earning assets | | | 2,553,025 | | | | 2,562,405 | | | | 2,471,037 | | | | 2,214,635 | |
Total assets | | | 2,624,658 | | | | 2,633,221 | | | | 2,522,382 | | | | 2,187,828 | |
Interest bearing liabilities | | | 1,973,580 | | | | 1,993,106 | | | | 1,992,228 | | | | 1,746,340 | |
Equity | | | 564,811 | | | | 545,588 | | | | 466,266 | | | | 426,211 | |
| | | | |
Allowance for credit loss activity: | | | | | | | | | | | | | | | | |
Balance as of beginning of period | | $ | 36,763 | | | $ | 35,487 | | | $ | 31,925 | | | $ | 22,882 | |
General provision for credit losses | | | 1,061 | | | | 1,083 | | | | 3,563 | | | | 2,490 | |
Specific provision for credit losses | | | 2,662 | | | | 3,528 | | | | 4,592 | | | | — | |
Net charge offs | | | (2,263 | ) | | | (3,335 | ) | | | (4,593 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Balance as of end of period | | $ | 38,223 | | | $ | 36,763 | | | $ | 35,487 | | | $ | 25,372 | |
| | | | | | | | | | | | | | | | |
Supplemental Data (at period end): | | | | | | | | | | | | | | | | |
Investments in debt securities, gross | | $ | 6,918 | | | $ | 33,118 | | | $ | 38,787 | | | $ | 45,556 | |
Loans held-for-sale, gross | | | 16,168 | | | | 67,277 | | | | 115,055 | | | | 133,337 | |
Loans held-for-investment, gross | | | 2,396,107 | | | | 2,321,357 | | | | 2,248,480 | | | | 1,812,361 | |
| | | | | | | | | | | | | | | | |
Loans and investments in debt securities, gross | | | 2,419,193 | | | | 2,421,752 | | | | 2,402,322 | | | | 1,991,254 | |
Unused lines of credit | | | 364,855 | | | | 404,054 | | | | 454,837 | | | | 442,330 | |
Standby letters of credit | | | 26,680 | | | | 24,615 | | | | 20,382 | | | | 11,770 | |
| | | | | | | | | | | | | | | | |
Total funding commitments | | $ | 2,810,728 | | | $ | 2,850,421 | | | $ | 2,877,541 | | | $ | 2,445,354 | |
| | | | | | | | | | | | | | | | |
Loan portfolio | | $ | 2,419,193 | | | $ | 2,421,752 | | | $ | 2,402,322 | | | $ | 1,991,254 | |
Loans owned by NewStar Credit Opportunities Fund | | | 593,396 | | | | 591,571 | | | | 578,272 | | | | 449,147 | |
Loans owned by ArcTurus | | | — | | | | — | | | | — | | | | 15,430 | |
| | | | | | | | | | | | | | | | |
Managed loan portfolio | | $ | 3,012,589 | | | $ | 3,013,323 | | | $ | 2,980,594 | | | $ | 2,455,831 | |
| | | | | | | | | | | | | | | | |
Loans held-for-sale, gross | | $ | 16,168 | | | $ | 67,277 | | | $ | 115,055 | | | $ | 133,337 | |
Loans held-for-investment, gross | | | 2,396,107 | | | | 2,321,357 | | | | 2,248,480 | | | | 1,812,361 | |
| | | | | | | | | | | | | | | | |
Total loans, gross | | | 2,412,275 | | | | 2,388,634 | | | | 2,363,535 | | | | 1,945,698 | |
Deferred fees, net | | | (19,187 | ) | | | (17,405 | ) | | | (15,762 | ) | | | (10,771 | ) |
Allowance for loan losses | | | (31,986 | ) | | | (30,127 | ) | | | (28,795 | ) | | | (23,581 | ) |
Specific reserve | | | (5,184 | ) | | | (4,785 | ) | | | (4,592 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total loans, net | | $ | 2,355,918 | | | $ | 2,336,317 | | | $ | 2,314,386 | | | $ | 1,911,346 | |
| | | | | | | | | | | | | | | | |
Book value per share | | $ | 11.71 | | | $ | 11.54 | | | $ | 11.58 | | | $ | 11.99 | |
9
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | |
| | | Six Months Ended June 30, | |
($ in thousands, except per share amounts) | | 2008 | | | 2007 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | 0.93 | % | | | 0.09 | % |
Return on average equity | | | 4.38 | | | | 0.46 | |
Net interest margin, before provision | | | 4.18 | | | | 4.35 | |
Efficiency ratio | | | 49.06 | | | | 81.68 | |
Loan portfolio yield | | | 7.99 | | | | 9.71 | |
| | |
Credit Quality Ratio: | | | | | | | | |
Net charge off rate | | | 0.23 | % | | | — | % |
Annualized net charge off rate | | | 0.47 | | | | — | |
| | |
Average Balances: | | | | | | | | |
Loans and other debt products, gross | | $ | 2,415,998 | | | $ | 1,917,872 | |
Interest earning assets | | | 2,557,601 | | | | 2,097,162 | |
Total assets | | | 2,620,510 | | | | 2,073,259 | |
Interest bearing liabilities | | | 1,982,107 | | | | 1,633,532 | |
Equity | | | 554,461 | | | | 424,984 | |
| | |
Allowance for credit loss activity: | | | | | | | | |
Balance as of beginning of period | | $ | 35,487 | | | $ | 20,570 | |
General provision for credit losses | | | 2,144 | | | | 4,802 | |
Specific provision for credit losses | | | 6,190 | | | | — | |
Net charge offs | | | (5,598 | ) | | | — | |
| | | | | | | | |
Balance as of end of period | | $ | 38,223 | | | $ | 25,372 | |
| | | | | | | | |
10
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Adjusted | |
| | | Three Months Ended | |
($ in thousands) | | June 30,
2008 | | | March 31,
2008 | | | December 31,
2007 | | | June 30,
2007 | |
Performance Ratios: | | | | | | | | | | | | | | | | |
Return on average assets | | | 1.17 | % | | | 1.15 | % | | | 1.12 | % | | | 1.54 | % |
Return on average equity | | | 5.41 | | | | 5.55 | | | | 6.07 | | | | 7.20 | |
Efficiency ratio | | | 42.02 | | | | 43.46 | | | | 35.65 | | | | 44.50 | |
Net interest margin, before provision | | | 4.17 | | | | 4.19 | | | | 3.98 | | | | 4.29 | |
Yield on interest earning assets | | | 7.25 | | | | 8.16 | | | | 8.93 | | | | 9.24 | |
Cost of funds | | | 3.99 | | | | 5.11 | | | | 6.14 | | | | 6.27 | |
| | | | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | | | | | | | | | |
Equity to assets | | | 21.39 | | | | 20.85 | | | | 19.17 | | | | 19.22 | |
| | | | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | | | | | | | | | |
Interest income | | $ | 46,034 | | | $ | 51,988 | | | $ | 55,606 | | | $ | 50,575 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | — | | | | — | | | | — | | | | 4,038 | |
| | | | | | | | | | | | | | | | |
Adjusted interest income | | $ | 46,034 | | | $ | 51,988 | | | $ | 55,606 | | | $ | 46,537 | |
| | | | | | | | | | | | | | | | |
Interest expense | | $ | 19,583 | | | $ | 25,324 | | | $ | 30,826 | | | $ | 27,269 | |
Less: interest expense related to assets sold(2) | | | — | | | | — | | | | — | | | | 2,324 | |
| | | | | | | | | | | | | | | | |
Adjusted interest expense | | $ | 19,583 | | | $ | 25,324 | | | $ | 30,826 | | | $ | 24,945 | |
| | | | | | | | | | | | | | | | |
Non-interest income | | $ | 1,593 | | | $ | 3,156 | | | $ | 3,957 | | | $ | 432 | |
Plus: loss on assets sold and retained residual interest(2) | | | 308 | | | | 323 | | | | 2,420 | | | | 4,400 | |
| | | | | | | | | | | | | | | | |
Adjusted non-interest income | | $ | 1,901 | | | $ | 3,479 | | | $ | 6,377 | | | $ | 4,832 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | $ | 13,490 | | | $ | 14,899 | | | $ | 14,671 | | | $ | 15,601 | |
Less: | | | | | | | | | | | | | | | | |
IPO related compensation and benefits expense(3) | | | 1,576 | | | | 1,798 | | | | 2,632 | | | | 3,843 | |
Expenses resulting from sale of assets(2) | | | — | | | | — | | | | 931 | | | | — | |
| | | | | | | | | | | | | | | | |
Adjusted operating expenses | | $ | 11,914 | | | $ | 13,101 | | | $ | 11,108 | | | $ | 11,758 | |
| | | | | | | | | | | | | | | | |
Average Balances: | | | | | | | | | | | | | | | | |
Assets | | $ | 2,624,658 | | | $ | 2,633,221 | | | $ | 2,522,382 | | | $ | 2,187,828 | |
Less: assets sold and residual interest(2) | | | 308 | | | | 631 | | | | 1,841 | | | | 193,795 | |
| | | | | | | | | | | | | | | | |
Adjusted assets | | $ | 2,624,350 | | | $ | 2,632,590 | | | $ | 2,520,541 | | | $ | 1,994,033 | |
| | | | | | | | | | | | | | | | |
Interest earning assets | | $ | 2,553,025 | | | $ | 2,562,405 | | | $ | 2,471,037 | | | $ | 2,214,635 | |
Less: assets sold and residual interest(2) | | | 308 | | | | 631 | | | | 1,841 | | | | 193,795 | |
| | | | | | | | | | | | | | | | |
Adjusted interest earning assets | | $ | 2,552,717 | | | $ | 2,561,774 | | | $ | 2,469,196 | | | $ | 2,020,840 | |
| | | | | | | | | | | | | | | | |
Interest bearing liabilities | | $ | 1,973,580 | | | $ | 1,993,106 | | | $ | 1,992,228 | | | $ | 1,746,340 | |
Less: credit facility funding for assets sold(2) | | | — | | | | — | | | | — | | | | 150,323 | |
| | | | | | | | | | | | | | | | |
Adjusted interest bearing liabilities | | $ | 1,973,580 | | | $ | 1,993,106 | | | $ | 1,992,228 | | | $ | 1,596,017 | |
| | | | | | | | | | | | | | | | |
Consolidated Balance Sheet Adjustments | | | | | | | | | | | | | | | | |
Assets | | $ | 2,656,979 | | | $ | 2,687,944 | | | $ | 2,622,765 | | | $ | 2,289,791 | |
Less: assets sold and residual interest(2) | | | — | | | | 308 | | | | 631 | | | | 29,677 | |
| | | | | | | | | | | | | | | | |
Adjusted assets | | $ | 2,656,979 | | | $ | 2,687,636 | | | $ | 2,622,134 | | | $ | 2,260,114 | |
| | | | | | | | | | | | | | | | |
| (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. |
11
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | |
| | | Adjusted | |
| | | Six Months Ended June 30, | |
($ in thousands) | | 2008 | | | 2007 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | 1.16 | % | | | 1.55 | % |
Return on average equity | | | 5.49 | | | | 6.84 | |
Efficiency ratio | | | 42.76 | | | | 43.19 | |
Net interest margin, before provision | | | 4.18 | | | | 4.39 | |
Yield on interest earning assets | | | 7.71 | | | | 9.28 | |
Cost of funds | | | 4.56 | | | | 6.28 | |
| | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | |
Interest income | | $ | 98,022 | | | $ | 96,063 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | — | | | | 8,439 | |
| | | | | | | | |
Adjusted interest income | | $ | 98,022 | | | $ | 87,624 | |
| | | | | | | | |
Interest expense | | $ | 44,907 | | | $ | 50,806 | |
Less: interest expense related to assets sold(2) | | | — | | | | 4,620 | |
| | | | | | | | |
Adjusted interest expense | | $ | 44,907 | | | $ | 46,186 | |
| | | | | | | | |
Non-interest income | | $ | 4,749 | | | $ | (10,285 | ) |
Plus: loss on assets sold and retained residual interest(2) | | | 631 | | | | 17,187 | |
| | | | | | | | |
Adjusted non-interest income | | $ | 5,380 | | | $ | 6,902 | |
| | | | | | | | |
Operating expenses | | $ | 28,389 | | | $ | 28,564 | |
Less: IPO related compensation and benefits expense(3) | | | 3,374 | | | | 7,684 | |
| | | | | | | | |
Adjusted operating expenses | | $ | 25,015 | | | $ | 20,880 | |
| | | | | | | | |
Average Balances: | | | | | | | | |
Assets | | $ | 2,620,510 | | | $ | 2,073,259 | |
Less: assets sold and residual interest(2) | | | 466 | | | | 192,725 | |
| | | | | | | | |
Adjusted assets | | $ | 2,620,044 | | | $ | 1,880,534 | |
| | | | | | | | |
Interest earning assets | | $ | 2,557,601 | | | $ | 2,097,162 | |
Less: assets sold and residual interest(2) | | | 466 | | | | 192,725 | |
| | | | | | | | |
Adjusted interest earning assets | | $ | 2,557,135 | | | $ | 1,904,437 | |
| | | | | | | | |
Interest bearing liabilities | | $ | 1,982,107 | | | $ | 1,633,532 | |
Less: credit facility funding for assets sold(2) | | | — | | | | 150,422 | |
| | | | | | | | |
Adjusted interest bearing liabilities | | $ | 1,982,107 | | | $ | 1,483,110 | |
| | | | | | | | |
| (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. |
12
NewStar Financial, Inc.
Portfolio Data
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | June 30, 2008 | | | March 31, 2008 | | | December 31, 2007 | | | June 30, 2007 | |
Portfolio Data: | | | | | | | | | | | | | | | | | | | | | | | | |
First mortgage | | $ | 385,535 | | 15.9 | % | | $ | 398,700 | | 16.5 | % | | $ | 353,755 | | 14.7 | % | | $ | 304,596 | | 15.3 | % |
Senior secured asset-based | | | 45,861 | | 1.9 | | | | 54,547 | | 2.2 | | | | 56,988 | | 2.4 | | | | 80,431 | | 4.0 | |
Senior secured cash flow | | | 1,857,847 | | 76.8 | | | | 1,808,177 | | 74.7 | | | | 1,829,734 | | 76.2 | | | | 1,375,165 | | 68.9 | |
Senior subordinated asset-based | | | 80,889 | | 3.3 | | | | 108,052 | | 4.5 | | | | 110,719 | | 4.6 | | | | 121,321 | | 6.1 | |
Senior subordinated cash flow | | | 9,789 | | 0.4 | | | | 13,746 | | 0.6 | | | | 14,352 | | 0.6 | | | | 33,126 | | 1.7 | |
Second lien | | | 32,546 | | 1.4 | | | | 32,048 | | 1.3 | | | | 32,295 | | 1.3 | | | | 65,585 | | 3.3 | |
Mezzanine/subordinated | | | 6,726 | | 0.3 | | | | 6,482 | | 0.2 | | | | 4,479 | | 0.2 | | | | 11,030 | | 0.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,419,193 | | 100.0 | % | | $ | 2,421,752 | | 100.0 | % | | $ | 2,402,322 | | 100.0 | % | | $ | 1,991,254 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Middle Market Corporate | | $ | 2,006,708 | | 82.9 | % | | $ | 1,996,073 | | 82.4 | % | | $ | 2,021,559 | | 84.1 | % | | $ | 1,659,595 | | 83.3 | % |
Commercial Real Estate | | | 412,485 | | 17.1 | | | | 425,679 | | 17.6 | | | | 380,763 | | 15.9 | | | | 331,659 | | 16.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,419,193 | | 100.0 | % | | $ | 2,421,752 | | 100.0 | % | | $ | 2,402,322 | | 100.0 | % | | $ | 1,991,254 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
13
