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, Nov. 5, 2008 (GLOBE NEWSWIRE) -- 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 of 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 U.S. 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 visit www.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)
--------------------------------------------------------------------
September 30, June 30, December 31, September 30,
($ in thousands) 2008 2008 2007 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 stock-
holders' 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 September 30, June 30, December 31, September 30,
share amounts) 2008 2008 2007 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 September 30, June 30, December 31, September 30,
share amounts) 2008 2008 2007 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) 3.59x 3.61x 4.06x 4.38x
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
-------------------------------------------------
September 30, June 30, December 31, September 30,
($ in thousands) 2008 2008 2007 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
----------------------- ------------------- -------------------
Portfolio Data:
First mortgage $ 365,758 15.0% $ 385,535 15.9%
Senior secured
asset-based 42,830 1.8 45,861 1.9
Senior secured cash
flow 1,905,906 78.4 1,857,847 76.8
Senior subordinated
asset-based 70,075 2.9 80,889 3.3
Senior subordinated
cash flow 8,183 0.3 9,789 0.4
Second lien 32,888 1.3 32,546 1.4
Mezzanine/subordinated 6,779 0.3 6,726 0.3
---------- ----- ---------- -----
Total $2,432,419 100.0% $2,419,193 100.0%
========== ===== ========== =====
Middle Market
Corporate $2,044,945 84.1% $2,006,708 82.9%
Commercial Real Estate 387,474 15.9 412,485 17.1
---------- ----- ---------- -----
Total $2,432,419 100.0% $2,419,193 100.0%
========== ===== ========== =====
($ in thousands) December 31, 2007 September 30, 2007
----------------------- ------------------- -------------------
Portfolio Data:
First mortgage $ 353,755 14.7% $ 289,426 13.6%
Senior secured
asset-based 56,988 2.4 65,200 3.1
Senior secured cash
flow 1,829,734 76.2 1,582,636 74.2
Senior subordinated
asset-based 110,719 4.6 115,566 5.4
Senior subordinated
cash flow 14,352 0.6 26,162 1.2
Second lien 32,295 1.3 53,440 2.5
Mezzanine/subordinated 4,479 0.2 726 --
---------- ----- ---------- -----
Total $2,402,322 100.0% $2,133,156 100.0%
========== ===== ========== =====
Middle Market
Corporate $2,021,559 84.1% $1,818,329 85.3%
Commercial Real Estate 380,763 15.9 314,827 14.7
---------- ----- ---------- -----
Total $2,402,322 100.0% $2,133,156 100.0%
========== ===== ========== =====