Exhibit 99.1
FOR IMMEDIATE RELEASE
NEWSTAR REPORTS THIRD QUARTER RESULTS
Continued solid earnings generated from defensive balance sheet
| | • | | Earned $7.4 million of adjusted net income in the third quarter, or $0.15 of adjusted earnings per diluted share |
| | • | | On a GAAP basis, earned $7.6 million of net income in the third quarter, or $0.16 of net income per diluted share, increasing book value per share to $11.91 |
| | • | | Continued to capitalize on a favorable lending environment, originating $178 million of new loans with conservative credit profiles and average yields of greater than 540 bps above LIBOR |
| | • | | Extended maturity and received commitment for renewal of existing warehouse line with Citi, reducing size from $400 million to $300 million |
| | • | | Experienced moderate decline in credit performance, reflecting increased risks from slowing economic activity and continued constraints on credit availability |
Boston, November 5, 2008 – NewStar Financial, Inc. (NASDAQ: NEWS), a Boston-based commercial finance company, today reported adjusted net income for the third quarter of 2008 of $7.4 million, or $0.15 per diluted share. On a GAAP basis, the Company reported net income of $7.6 million, or $0.16 per diluted share, which reflected a $1.1 million after-tax non-cash equity compensation expense related to the 2006 IPO, offset by $1.3 million to reflect the tax impact of timing differences related to the recognition of losses on a prior asset sale.
“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.
“In a market environment as uncertain as we have just experienced, I am pleased to report another solid quarter of operating performance and financial results,” said Tim Conway, Chairman and Chief Executive Officer. “We continued to benefit from actions taken since the summer of 2007 to position the company defensively with a lower expense base, a liquid balance sheet and a funding platform with appropriate flexibility to support operations through a sustained period of stress in the capital markets. We will continue to manage cautiously to preserve liquidity and protect book value while the risk of prolonged weakness in the macro environment remains elevated.”
“NewStar delivered solid financial results in the third quarter led by continued widening in loan spreads, better fee income and strong expense management,” said John Kirby Bray, Chief Financial Officer. “The balance sheet continued to reflect conservative leverage with ample
liquidity. With a commitment from Citi to renew our warehouse credit facility at $300 million, we will continue to have sufficient funding capacity and financial flexibility to support our planned origination activity.”
Funding and Capital
| | • | | NewStar had $683 million of funding capacity, with approximately $530 million of available borrowing capacity under its credit facilities and existing term debt securitizations (CLOs) as of September 30, 2008. |
| | • | | Over 70% of loan assets were funded by term debt at attractive, locked-in spreads as of September 30, 2008. |
| | • | | Total cash and equivalents as of September 30, 2008 were $238 million, of which $133 million was unrestricted. |
| | • | | Extended maturity of existing warehouse line with Citi and received commitment for renewal subject to usual and customary conditions. In connection with the renewal, we will reduce the size of the credit facility from $400 million to $300 million. Other key terms of Citi’s commitment include changes in advance rates and pricing at levels that are consistent with terms of other recent comparable financing arrangements. |
Origination Volume
| | • | | Overall origination volume for the third quarter of 2008 was $178 million, of which $133 million was retained on NewStar’s balance sheet, $42 million was either syndicated or held for sale and $3 million was held for sale to the NewStar Credit Opportunities Fund (NCOF). |
| | • | | Credit spreads and amortizing fees on new loans originated in the third quarter continued to improve, with average yields greater than 540 bps above LIBOR, which is an increase of more than 195bps from the third 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 September 30, 2008, equal to the level at June 30, 2008, reflecting the net impact of $178 million of new origination, which was offset by prepayments and scheduled amortization of existing loans. Managed loan portfolio was up 14% from $2.6 billion as of September 30, 2007. |
| | • | | Assets managed for the NCOF were $570 million at September 30, 2008, down from $593 million at June 30, 2008 and up 16% from $491 million at September 30, 2007. |
| | • | | The owned loan portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of September 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 95% invested in 1st lien senior secured loans and debt investments at September 30, 2008. |
Net Interest Income / Margin
| | • | | Net interest income before provision for credit losses was $25.0 million for the third quarter of 2008 compared to $26.5 million for the second quarter of 2008 and $24.6 million for the third quarter of 2007. |
| | • | | Net interest margin decreased 27 bps to 3.90% for the third quarter of 2008 compared to 4.17% for the second quarter of 2008 and 4.29% for the third quarter of 2007 due principally to the impact of declining LIBOR rates. The benefit from the timing difference between asset and liability repricing tied to LIBOR continued to diminish in the third quarter. The contribution from earnings on excess cash also declined due to both the |
| | lower rate environment, as well as management’s decision to limit investments of excess cash to lower risk asset classes such as US Treasury securities. |
Non-Interest Income
| | • | | Non-interest income was $5.5 million for the third quarter of 2008 compared to $1.6 million for the second quarter of 2008, and $(21.8) million for the third quarter of 2007. |
| | • | | Adjusted non-interest income, excluding the impact of the write-down on the retained residual interest in prior periods, was $5.5 million in the third quarter of 2008 compared to $1.9 million in the second quarter of 2008 and $6.3 million in the third quarter of 2007. |
| | • | | Adjusted non-interest income in the third quarter of 2008 consisted primarily of $1.7 million of asset management income, $1.0 million of syndication related revenue recorded in gain on sale of loans, $0.7 million gain on rate protection products sold to clients, $0.3 million of structuring and placement fees, $0.2 million of syndication and agency fees, and $0.2 million of amendment fees. |
Loan Credit Quality
| | • | | The provision for credit losses was $12.0 million in the third quarter of 2008, up from $3.7 million in the second quarter of 2008. |
| | • | | Allowance for credit losses was $44.9 million or 1.87% of loans at September 30, 2008, compared to $38.2 million or 1.60% at June 30, 2008 and $31.9 million or 1.62% at September 30, 2007. |
| | • | | Non-accrual loans consisted of three loans with an aggregate outstanding balance of $26.4 million at September 30, 2008 compared to two loans with an aggregate outstanding balance of $10.1 million at June 30, 2008. Additionally, the Company had one $7.1 million asset at September 30, 2008 which was other real estate owned (“OREO”) as a result of a foreclosure on an impaired loan. |
| | • | | There were no delinquent loans as of September 30, 2008 |
| | • | | NewStar established $11.5 million specific reserves in the third quarter of 2008 compared to $2.7 million in the second quarter of 2008. |
| | • | | NewStar had net charged-offs of $5.3 million or 0.87% of loans on an annualized basis in the third quarter of 2008 compared to $2.3 million or 0.38% of loans on an annualized basis in the prior quarter. |
Expenses
| | • | | Operating expenses decreased to $8.5 million in the third quarter of 2008 from $13.5 million in the second quarter of 2008, reflecting a lower expense base, no severance expense in the third quarter and lower compensation expense. |
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 877-681-3377 approximately 5-10 minutes prior to the call. International callers should dial 719-325-4839. All callers should reference “NewStar Financial.”
For convenience, an archived replay of the call will be available through November 12, 2008 by dialing 888-203-1112. International callers should call 719-457-0820. For all replays, please use the passcode 4420840. 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:
| | |
| Colleen M. Banse | | Brian J. Fischesser |
| 500 Boylston St., Suite 1600 | | 500 Boylston St., Suite 1600 |
| Boston, MA 02116 | | Boston, MA 02116 |
| P. 617.848.2502 | | P. 617.848.2512 |
| F. 617.848.4390 | | F. 617.848.4398 |
| cbanse@newstarfin.com | | bfischesser@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 current dislocation in the credit markets and the general state of the economy; 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, as supplemented by the Risk Factors contained in our Quarterly Reports on Form 10-Q. NewStar is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. NewStar plans to file its Form 10-Q for the quarter ended September 30, 2008 with the SEC on or before November 10, 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 of 2007 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 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 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) | | September 30,
2008 | | June 30,
2008 | | December 31,
2007 | | September 30,
2007 |
Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 132,853 | | $ | 134,017 | | $ | 76,155 | | $ | 73,420 |
Restricted cash | | | 105,231 | | | 81,676 | | | 115,807 | | | 119,572 |
Residual interest in securitization | | | — | | | — | | | 631 | | | 3,051 |
Investments in debt securities, available-for-sale | | | 4,166 | | | 4,619 | | | 35,498 | | | 37,636 |
Loans held-for-sale | | | 18,562 | | | 15,508 | | | 112,944 | | | 117,528 |
Loans, net | | | 2,342,186 | | | 2,340,410 | | | 2,201,442 | | | 1,933,469 |
Deferred financing costs, net | | | 19,181 | | | 19,398 | | | 18,399 | | | 15,868 |
Interest receivable | | | 11,629 | | | 11,549 | | | 14,120 | | | 14,501 |
Property and equipment, net | | | 1,261 | | | 1,412 | | | 1,593 | | | 1,668 |
Deferred income taxes, net | | | 29,374 | | | 10,987 | | | 13,355 | | | 11,421 |
Income tax receivable | | | — | | | 3,229 | | | 4,635 | | | 12,355 |
Other assets | | | 31,078 | | | 34,174 | | | 28,186 | | | 10,590 |
| | | | | | | | | | | | |
Total assets | | $ | 2,695,521 | | $ | 2,656,979 | | $ | 2,622,765 | | $ | 2,351,079 |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Repurchase agreements | | $ | — | | $ | — | | $ | 63 | | $ | 545 |
Credit facilities | | | 540,030 | | | 511,800 | | | 677,739 | | | 705,401 |
Term debt | | | 1,532,425 | | | 1,540,225 | | | 1,364,725 | | | 1,165,725 |
Accrued interest payable | | | 10,168 | | | 10,092 | | | 17,537 | | | 26,629 |
Income tax payable | | | 1,261 | | | — | | | — | | | — |
Accounts payable | | | 176 | | | 388 | | | 197 | | | 643 |
Other liabilities | | | 33,712 | | | 26,157 | | | 59,814 | | | 25,042 |
| | | | | | | | | | | | |
Total liabilities | | | 2,117,772 | | | 2,088,662 | | | 2,120,075 | | | 1,923,985 |
Total stockholders’ equity | | | 577,749 | | | 568,317 | | | 502,690 | | | 427,094 |
| | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,695,521 | | $ | 2,656,979 | | $ | 2,622,765 | | $ | 2,351,079 |
| | | | | | | | | | | | |
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands, except per share amounts) | | September 30,
2008 | | | June 30,
2008 | | | December 31,
2007 | | | September 30,
2007 | |
Net interest income: | | | | | | | | | | | | | | | | |
Interest income | | $ | 44,903 | | | $ | 46,034 | | | $ | 55,606 | | | $ | 52,626 | |
Interest expense | | | 19,864 | | | | 19,583 | | | | 30,826 | | | | 28,071 | |
| | | | | | | | | | | | | | | | |
Net interest income | | | 25,039 | | | | 26,451 | | | | 24,780 | | | | 24,555 | |
Provision for credit losses | | | 11,960 | | | | 3,723 | | | | 8,155 | | | | 6,553 | |
| | | | | | | | | | | | | | | | |
Net interest income after provision for credit losses | | | 13,079 | | | | 22,728 | | | | 16,625 | | | | 18,002 | |
| | | | |
Non-interest income: | | | | | | | | | | | | | | | | |
Fee income | | | 725 | | | | 1,395 | | | | 5,620 | | | | 3,334 | |
Asset management income | | | 1,699 | | | | 1,476 | | | | 1,618 | | | | 1,471 | |
Gain (loss) on derivatives | | | 746 | | | | (11 | ) | | | 289 | | | | 134 | |
Gain (loss) on sale of loans and debt securities | | | 1,022 | | | | 47 | | | | (359 | ) | | | 11 | |
Loss on investments in debt securities | | | (6 | ) | | | (667 | ) | | | (1,976 | ) | | | (1,979 | ) |
Loss on residual interest in securitization | | | — | | | | (308 | ) | | | (2,420 | ) | | | (28,136 | ) |
Other income | | | 1,350 | | | | (339 | ) | | | 1,185 | | | | 3,317 | |
| | | | | | | | | | | | | | | | |
Total non-interest income | | | 5,536 | | | | 1,593 | | | | 3,957 | | | | (21,848 | ) |
| | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 5,161 | | | | 9,580 | | | | 11,169 | | | | 11,169 | |
Occupancy and equipment | | | 795 | | | | 938 | | | | 835 | | | | 781 | |
General and administrative expenses | | | 2,500 | | | | 2,972 | | | | 2,667 | | | | 2,309 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 8,456 | | | | 13,490 | | | | 14,671 | | | | 14,259 | |
| | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 10,159 | | | | 10,831 | | | | 5,911 | | | | (18,105 | ) |
Income tax expense (benefit) | | | 2,580 | | | | 4,908 | | | | 4,677 | | | | (7,260 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 7,579 | | | $ | 5,923 | | | $ | 1,234 | | | $ | (10,845 | ) |
| | | | | | | | | | | | | | | | |
After tax adjustments to net income (loss): | | | | | | | | | | | | | | | | |
IPO related compensation and benefits expense(1) | | | 1,131 | | | | 1,512 | | | | 1,654 | | | | 1,945 | |
Loss on assets sold and retained residual interest(2) | | | (1,298 | ) | | | 169 | | | | 4,240 | | | | 16,628 | |
Net interest income earned on assets sold and retained residual interest(3) | | | — | | | | — | | | | — | | | | (602 | ) |
| | | | | | | | | | | | | | | | |
Adjusted net income | | $ | 7,412 | | | $ | 7,604 | | | $ | 7,128 | | | $ | 7,126 | |
| | | | | | | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.16 | | | $ | 0.12 | | | $ | 0.03 | | | $ | (0.30 | ) |
Diluted | | $ | 0.16 | | | $ | 0.12 | | | $ | 0.03 | | | $ | (0.30 | ) |
| | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 48,525,154 | | | | 48,532,542 | | | | 38,812,358 | | | | 36,253,628 | |
Diluted | | | 48,525,154 | | | | 48,532,542 | | | | 38,812,358 | | | | 36,253,628 | |
| | | | |
Adjusted net income per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.15 | | | $ | 0.16 | | | $ | 0.18 | | | $ | 0.20 | |
Diluted | | $ | 0.15 | | | $ | 0.16 | | | $ | 0.18 | | | $ | 0.20 | |
| | | | |
Adjusted weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 48,525,154 | | | | 48,532,542 | | | | 38,812,358 | | | | 36,253,628 | |
Diluted | | | 48,525,154 | | | | 48,532,542 | | | | 38,812,358 | | | | 36,400,569 | |
| (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. |
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
| | | | | | | | |
| | | Nine Months Ended September 30, | |
($ in thousands, except per share amounts) | | 2008 | | | 2007 | |
Net interest income: | | | | | | | | |
Interest income | | $ | 142,925 | | | $ | 148,689 | |
Interest expense | | | 64,771 | | | | 78,877 | |
| | | | | | | | |
Net interest income | | | 78,154 | | | | 69,812 | |
Provision for credit losses | | | 20,294 | | | | 11,355 | |
| | | | | | | | |
Net interest income after provision for credit losses | | | 57,860 | | | | 58,457 | |
| | |
Non-interest income: | | | | | | | | |
Fee income | | | 3,652 | | | | 10,177 | |
Asset management income | | | 4,826 | | | | 3,686 | |
Gain on derivatives | | | 791 | | | | 488 | |
Loss on sale of loans and debt securities | | | 283 | | | | (4,256 | ) |
Loss on investments in debt securities | | | (931 | ) | | | (18,327 | ) |
Loss on residual interest in securitization | | | (631 | ) | | | (28,136 | ) |
Other income | | | 2,295 | | | | 4,235 | |
| | | | | | | | |
Total non-interest income | | | 10,285 | | | | (32,133 | ) |
| | |
Operating expenses: | | | | | | | | |
Compensation and benefits | | | 26,241 | | | | 34,195 | |
Occupancy and equipment | | | 2,568 | | | | 1,883 | |
General and administrative expenses | | | 8,036 | | | | 6,745 | |
| | | | | | | | |
Total operating expenses | | | 36,845 | | | | 42,823 | |
| | | | | | | | |
Income (loss) before income taxes | | | 31,300 | | | | (16,499 | ) |
Income tax expense (benefit) | | | 11,656 | | | | (6,626 | ) |
| | | | | | | | |
Net income (loss) | | $ | 19,644 | | | $ | (9,873 | ) |
| | | | | | | | |
After tax adjustments to net income (loss): | | | | | | | | |
IPO related compensation and benefits expense(1) | | | 3,836 | | | | 7,227 | |
Loss on assets sold and retained residual interest(2) | | | (937 | ) | | | 26,786 | |
Net interest income earned on assets sold and retained residual interest(3) | | | — | | | | (2,860 | ) |
| | | | | | | | |
Adjusted net income | | $ | 22,543 | | | $ | 21,280 | |
| | | | | | | | |
Net income (loss) per share: | | | | | | | | |
Basic | | $ | 0.41 | | | $ | (0.27 | ) |
Diluted | | $ | 0.41 | | | $ | (0.27 | ) |
| | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | | 48,282,775 | | | | 36,256,398 | |
Diluted | | | 48,282,775 | | | | 36,256,398 | |
| | |
Adjusted net income per share: | | | | | | | | |
Basic | | $ | 0.47 | | | $ | 0.59 | |
Diluted | | $ | 0.47 | | | $ | 0.58 | |
| | |
Adjusted weighted average shares outstanding: | | | | | | | | |
Basic | | | 48,282,775 | | | | 36,256,398 | |
Diluted | | | 48,282,775 | | | | 36,667,149 | |
| (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. |
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
($ in thousands, except per share amounts) | | September 30,
2008 | | | June 30,
2008 | | | December 31,
2007 | | | September 30,
2007 | |
Performance Ratios: | | | | | | | | | | | | | | | | |
Return on average assets | | | 1.15 | % | | | 0.91 | % | | | 0.19 | % | | | (1.87 | )% |
Return on average equity | | | 5.26 | | | | 4.22 | | | | 1.05 | | | | (9.91 | ) |
Net interest margin, before provision | | | 3.90 | | | | 4.17 | | | | 3.98 | | | | 4.29 | |
Efficiency ratio | | | 27.66 | | | | 48.10 | | | | 51.05 | | | | 526.87 | |
Loan portfolio yield | | | 7.32 | | | | 7.52 | | | | 9.28 | | | | 9.72 | |
| | | | |
Credit Quality and Leverage Ratios: | | | | | | | | | | | | | | | | |
Delinquent loan rate (at period end) | | | — | % | | | 0.97 | % | | | — | % | | | 0.37 | % |
Non-accrual loan rate (at period end) | | | 1.10 | | | | 0.42 | | | | 0.97 | | | | 0.37 | |
Annualized net charge off rate | | | 0.87 | | | | 0.38 | | | | 0.81 | | | | — | |
Allowance for credit losses ratio (at period end) | | | 1.87 | | | | 1.60 | | | | 1.58 | | | | 1.62 | |
Equity to assets (at period end) | | | 21.43 | | | | 21.39 | | | | 19.17 | | | | 18.17 | |
Debt to equity (at period end) | | | 3.59 | x | | | 3.61 | x | | | 4.06 | x | | | 4.38 | x |
| | | | |
Average Balances: | | | | | | | | | | | | | | | | |
Loans and other debt products, gross | | $ | 2,398,212 | | | $ | 2,403,327 | | | $ | 2,304,028 | | | $ | 2,040,217 | |
Interest earning assets | | | 2,551,689 | | | | 2,553,025 | | | | 2,471,037 | | | | 2,272,435 | |
Total assets | | | 2,628,428 | | | | 2,624,658 | | | | 2,522,382 | | | | 2,302,288 | |
Interest bearing liabilities | | | 1,958,274 | | | | 1,973,580 | | | | 1,992,228 | | | | 1,808,174 | |
Equity | | | 573,642 | | | | 564,811 | | | | 466,266 | | | | 434,196 | |
| | | | |
Allowance for credit loss activity: | | | | | | | | | | | | | | | | |
Balance as of beginning of period | | $ | 38,223 | | | $ | 36,763 | | | $ | 31,925 | | | $ | 25,372 | |
General provision for credit losses | | | 499 | | | | 1,061 | | | | 3,563 | | | | 2,153 | |
Specific provision for credit losses | | | 11,461 | | | | 2,662 | | | | 4,592 | | | | 4,400 | |
Net charge offs | | | (5,250 | ) | | | (2,263 | ) | | | (4,593 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Balance as of end of period | | $ | 44,933 | | | $ | 38,223 | | | $ | 35,487 | | | $ | 31,925 | |
| | | | | | | | | | | | | | | | |
Supplemental Data (at period end): | | | | | | | | | | | | | | | | |
Investments in debt securities, gross | | $ | 6,887 | | | $ | 6,918 | | | $ | 38,787 | | | $ | 41,608 | |
Loans held-for-sale, gross | | | 19,012 | | | | 16,168 | | | | 115,055 | | | | 117,755 | |
Loans held-for-investment, gross | | | 2,406,520 | | | | 2,396,107 | | | | 2,248,480 | | | | 1,973,793 | |
| | | | | | | | | | | | | | | | |
Loans and investments in debt securities, gross | | | 2,432,419 | | | | 2,419,193 | | | | 2,402,322 | | | | 2,133,156 | |
Unused lines of credit | | | 370,704 | | | | 364,855 | | | | 454,837 | | | | 412,168 | |
Standby letters of credit | | | 32,079 | | | | 26,680 | | | | 20,382 | | | | 12,904 | |
| | | | | | | | | | | | | | | | |
Total funding commitments | | $ | 2,835,202 | | | $ | 2,810,728 | | | $ | 2,877,541 | | | $ | 2,558,228 | |
| | | | | | | | | | | | | | | | |
Loan portfolio | | $ | 2,432,419 | | | $ | 2,419,193 | | | $ | 2,402,322 | | | $ | 2,133,156 | |
Loans owned by NewStar Credit Opportunities Fund | | | 569,612 | | | | 593,396 | | | | 578,272 | | | | 491,436 | |
| | | | | | | | | | | | | | | | |
Managed loan portfolio | | $ | 3,002,031 | | | $ | 3,012,589 | | | $ | 2,980,594 | | | $ | 2,624,592 | |
| | | | | | | | | | | | | | | | |
Loans held-for-sale, gross | | $ | 19,012 | | | $ | 16,168 | | | $ | 115,055 | | | $ | 117,755 | |
Loans held-for-investment, gross | | | 2,406,520 | | | | 2,396,107 | | | | 2,248,480 | | | | 1,973,793 | |
| | | | | | | | | | | | | | | | |
Total loans, gross | | | 2,425,532 | | | | 2,412,275 | | | | 2,363,535 | | | | 2,091,548 | |
Deferred fees, net | | | (21,241 | ) | | | (19,187 | ) | | | (15,762 | ) | | | (10,179 | ) |
Allowance for loan losses - general | | | (32,148 | ) | | | (31,986 | ) | | | (28,795 | ) | | | (25,972 | ) |
Allowance for loan losses - specific | | | (11,395 | ) | | | (5,184 | ) | | | (4,592 | ) | | | (4,400 | ) |
| | | | | | | | | | | | | | | | |
Total loans, net | | $ | 2,360,748 | | | $ | 2,355,918 | | | $ | 2,314,386 | | | $ | 2,050,997 | |
| | | | | | | | | | | | | | | | |
Book value per share | | $ | 11.91 | | | $ | 11.71 | | | $ | 11.58 | | | $ | 11.78 | |
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
| | | | | | | | |
| | | Nine Months Ended
September 30, | |
($ in thousands, except per share amounts) | | 2008 | | | 2007 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | 1.00 | % | | | (0.62 | )% |
Return on average equity | | | 4.68 | | | | (3.09 | ) |
Net interest margin, before provision | | | 4.09 | | | | 4.33 | |
Efficiency ratio | | | 41.66 | | | | 113.65 | |
Loan portfolio yield | | | 7.76 | | | | 9.76 | |
| | |
Credit Quality Ratio: | | | | | | | | |
Annualized net charge off rate | | | 0.81 | % | | | — | % |
| | |
Average Balances: | | | | | | | | |
Loans and other debt products, gross | | $ | 2,411,604 | | | $ | 1,950,180 | |
Interest earning assets | | | 2,554,199 | | | | 2,156,401 | |
Total assets | | | 2,620,030 | | | | 2,142,736 | |
Interest bearing liabilities | | | 1,978,561 | | | | 1,692,391 | |
Equity | | | 560,748 | | | | 427,748 | |
| | |
Allowance for credit loss activity: | | | | | | | | |
Balance as of beginning of period | | $ | 35,487 | | | $ | 20,570 | |
General provision for credit losses | | | 2,643 | | | | 6,955 | |
Specific provision for credit losses | | | 17,651 | | | | 4,400 | |
Net charge offs | | | (10,848 | ) | | | — | |
| | | | | | | | |
Balance as of end of period | | $ | 44,933 | | | $ | 31,925 | |
| | | | | | | | |
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Adjusted | |
| | | Three Months Ended | |
($ in thousands) | | September 30,
2008 | | | June 30,
2008 | | | December 31,
2007 | | | September 30,
2007 | |
Performance Ratios: | | | | | | | | | | | | | | | | |
Return on average assets | | | 1.12 | % | | | 1.17 | % | | | 1.12 | % | | | 1.24 | % |
Return on average equity | | | 5.14 | | | | 5.41 | | | | 6.07 | | | | 6.51 | |
Efficiency ratio | | | 22.70 | | | | 42.02 | | | | 35.65 | | | | 37.39 | |
Net interest margin, before provision | | | 3.90 | | | | 4.17 | | | | 3.98 | | | | 4.16 | |
Yield on interest earning assets | | | 7.00 | | | | 7.25 | | | | 8.93 | | | | 9.12 | |
| | | | |
Credit Quality and Leverage Ratios (at period end): | | | | | | | | | | | | | | | | |
Equity to assets | | | 21.43 | | | | 21.39 | | | | 19.17 | | | | 18.19 | |
| | | | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | | | | | | | | | |
Interest income | | $ | 44,903 | | | $ | 46,034 | | | $ | 55,606 | | | $ | 52,626 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | — | | | | — | | | | — | | | | 1,019 | |
| | | | | | | | | | | | | | | | |
Adjusted interest income | | $ | 44,903 | | | $ | 46,034 | | | $ | 55,606 | | | $ | 51,607 | |
| | | | | | | | | | | | | | | | |
Non-interest income | | $ | 5,536 | | | $ | 1,593 | | | $ | 3,957 | | | $ | (21,848 | ) |
Plus: loss on assets sold and retained residual interest(2) | | | — | | | | 308 | | | | 2,420 | | | | 28,136 | |
| | | | | | | | | | | | | | | | |
Adjusted non-interest income | | $ | 5,536 | | | $ | 1,901 | | | $ | 6,377 | | | $ | 6,288 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | $ | 8,456 | | | $ | 13,490 | | | $ | 14,671 | | | $ | 14,259 | |
Less: | | | | | | | | | | | | | | | | |
IPO related compensation and benefits expense(3) | | | 1,517 | | | | 1,576 | | | | 2,632 | | | | 3,108 | |
Expenses resulting from sale of assets(2) | | | — | | | | — | | | | 931 | | | | — | |
| | | | | | | | | | | | | | | | |
Adjusted operating expenses | | $ | 6,939 | | | $ | 11,914 | | | $ | 11,108 | | | $ | 11,151 | |
| | | | | | | | | | | | | | | | |
Average Balances: | | | | | | | | | | | | | | | | |
Assets | | $ | 2,628,428 | | | $ | 2,624,658 | | | $ | 2,522,382 | | | $ | 2,302,288 | |
Less: assets sold and residual interest(2) | | | — | | | | 308 | | | | 1,841 | | | | 26,955 | |
| | | | | | | | | | | | | | | | |
Adjusted assets | | $ | 2,628,428 | | | $ | 2,624,350 | | | $ | 2,520,541 | | | $ | 2,275,333 | |
| | | | | | | | | | | | | | | | |
Interest earning assets | | $ | 2,551,689 | | | $ | 2,553,025 | | | $ | 2,471,037 | | | $ | 2,272,435 | |
Less: assets sold and residual interest(2) | | | — | | | | 308 | | | | 1,841 | | | | 26,955 | |
| | | | | | | | | | | | | | | | |
Adjusted interest earning assets | | $ | 2,551,689 | | | $ | 2,552,717 | | | $ | 2,469,196 | | | $ | 2,245,480 | |
| | | | | | | | | | | | | | | | |
Consolidated Balance Sheet Adjustments | | | | | | | | | | | | | | | | |
Assets | | $ | 2,695,521 | | | $ | 2,656,979 | | | $ | 2,622,765 | | | $ | 2,351,079 | |
Less: assets sold and residual interest(2) | | | — | | | | — | | | | 631 | | | | 3,051 | |
| | | | | | | | | | | | | | | | |
Adjusted assets | | $ | 2,695,521 | | | $ | 2,656,979 | | | $ | 2,622,134 | | | $ | 2,348,028 | |
| | | | | | | | | | | | | | | | |
| (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. |
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
| | | | | | | | |
| | | Adjusted | |
| | | Nine Months Ended September 30, | |
($ in thousands) | | 2008 | | | 2007 | |
Performance Ratios: | | | | | | | | |
Return on average assets | | | 1.15 | % | | | 1.42 | % |
Return on average equity | | | 5.37 | | | | 6.65 | |
Efficiency ratio | | | 35.88 | | | | 40.98 | |
Net interest margin, before provision | | | 4.09 | | | | 4.30 | |
Yield on interest earning assets | | | 7.48 | | | | 9.22 | |
Cost of funds | | | 4.37 | | | | 6.23 | |
| | |
Consolidated Statement of Operations Adjustments(1): | | | | | | | | |
Interest income | | $ | 142,925 | | | $ | 148,689 | |
Less: interest income earned on assets sold and retained residual interest(2) | | | — | | | | 9,458 | |
| | | | | | | | |
Adjusted interest income | | $ | 142,925 | | | $ | 139,231 | |
| | | | | | | | |
Interest expense | | $ | 64,771 | | | $ | 78,877 | |
Less: interest expense related to assets sold(2) | | | — | | | | 4,620 | |
| | | | | | | | |
Adjusted interest expense | | $ | 64,771 | | | $ | 74,257 | |
| | | | | | | | |
Non-interest income | | $ | 10,285 | | | $ | (32,133 | ) |
Plus: loss on assets sold and retained residual interest(2) | | | 631 | | | | 45,323 | |
| | | | | | | | |
Adjusted non-interest income | | $ | 10,916 | | | $ | 13,190 | |
| | | | | | | | |
Operating expenses | | $ | 36,845 | | | $ | 42,823 | |
Less: IPO related compensation and benefits expense(3) | | | 4,891 | | | | 10,792 | |
| | | | | | | | |
Adjusted operating expenses | | $ | 31,954 | | | $ | 32,031 | |
| | | | | | | | |
Average Balances: | | | | | | | | |
Assets | | $ | 2,620,030 | | | $ | 2,142,736 | |
Less: assets sold and residual interest(2) | | | 310 | | | | 137,422 | |
| | | | | | | | |
Adjusted assets | | $ | 2,619,720 | | | $ | 2,005,314 | |
| | | | | | | | |
Interest earning assets | | $ | 2,554,199 | | | $ | 2,156,401 | |
Less: assets sold and residual interest(2) | | | 310 | | | | 137,422 | |
| | | | | | | | |
Adjusted interest earning assets | | $ | 2,553,889 | | | $ | 2,018,979 | |
| | | | | | | | |
Interest bearing liabilities | | $ | 1,978,561 | | | $ | 1,692,391 | |
Less: credit facility funding for assets sold(2) | | | — | | | | 99,829 | |
| | | | | | | | |
Adjusted interest bearing liabilities | | $ | 1,978,561 | | | $ | 1,592,562 | |
| | | | | | | | |
| (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. |
NewStar Financial, Inc.
Portfolio Data
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | September 30, 2008 | | | June 30, 2008 | | | December 31, 2007 | | | September 30, 2007 | |
Portfolio Data: | | | | | | | | | | | | | | | | | | | | | | | | |
First mortgage | | $ | 365,758 | | 15.0 | % | | $ | 385,535 | | 15.9 | % | | $ | 353,755 | | 14.7 | % | | $ | 289,426 | | 13.6 | % |
Senior secured asset-based | | | 42,830 | | 1.8 | | | | 45,861 | | 1.9 | | | | 56,988 | | 2.4 | | | | 65,200 | | 3.1 | |
Senior secured cash flow | | | 1,905,906 | | 78.4 | | | | 1,857,847 | | 76.8 | | | | 1,829,734 | | 76.2 | | | | 1,582,636 | | 74.2 | |
Senior subordinated asset-based | | | 70,075 | | 2.9 | | | | 80,889 | | 3.3 | | | | 110,719 | | 4.6 | | | | 115,566 | | 5.4 | |
Senior subordinated cash flow | | | 8,183 | | 0.3 | | | | 9,789 | | 0.4 | | | | 14,352 | | 0.6 | | | | 26,162 | | 1.2 | |
Second lien | | | 32,888 | | 1.3 | | | | 32,546 | | 1.4 | | | | 32,295 | | 1.3 | | | | 53,440 | | 2.5 | |
Mezzanine/subordinated | | | 6,779 | | 0.3 | | | | 6,726 | | 0.3 | | | | 4,479 | | 0.2 | | | | 726 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,432,419 | | 100.0 | % | | $ | 2,419,193 | | 100.0 | % | | $ | 2,402,322 | | 100.0 | % | | $ | 2,133,156 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Middle Market Corporate | | $ | 2,044,945 | | 84.1 | % | | $ | 2,006,708 | | 82.9 | % | | $ | 2,021,559 | | 84.1 | % | | $ | 1,818,329 | | 85.3 | % |
Commercial Real Estate | | | 387,474 | | 15.9 | | | | 412,485 | | 17.1 | | | | 380,763 | | 15.9 | | | | 314,827 | | 14.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,432,419 | | 100.0 | % | | $ | 2,419,193 | | 100.0 | % | | $ | 2,402,322 | | 100.0 | % | | $ | 2,133,156 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
