NewStar Reports Fourth Quarter 2012 Net Income Of $6.2 Million, Or $0.12 Per Diluted Share

References to "operating expenses, excluding non-cash equity compensation" mean operating expenses as determined under GAAP, excluding compensation expense related to restricted stock grants and option grants. GAAP requires that these items be included in operating expenses. NewStar management uses "operating expenses, excluding non-cash equity compensation" 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 compensation expense related to restricted stock grants and option grants eliminates unique amounts that make it difficult to assess our core performance and compare our period‑over‑period results. A reconciliation of operating expenses, excluding non-cash equity compensation to operating expenses is included on pages 11 and 12 of this release. 

¹ Risk-adjusted revenue is a non-GAAP measure calculated as the sum of net interest income after provision for credit losses and non-interest income. See "Non-GAAP Measurements" at the end of this press release and page 12 for reconciliation of non-GAAP to GAAP measurements.

² Operating expenses excluding non-cash equity compensation is a non-GAAP measure. See "Non-GAAP Measurements" at the end of this press release and page 12 for reconciliation of non-GAAP to GAAP measurements.

³ Efficiency ratio excluding non-cash equity compensation is a non-GAAP measure. See "Non-GAAP Measurements" at the end of this press release and page 12 for reconciliation of non-GAAP to GAAP measurements.

NewStar Financial, Inc.
Consolidated Balance Sheets
(unaudited)
	December 31,	September 30,	December 31,
($ in thousands)	2012	2012	2011
Assets:
Cash and cash equivalents	$ 27,212	$ 34,176	$ 18,468
Restricted cash	208,667	151,387	83,815
Investments in debt securities, available-for-sale	21,127	20,803	17,817
Loans held-for-sale, net	51,602	48,534	38,278
Loans and leases, net	1,720,789	1,761,391	1,699,187
Deferred financing costs, net	19,064	12,405	11,997
Interest receivable	9,003	8,917	9,857
Property and equipment, net	433	520	740
Deferred income taxes, net	42,463	46,436	47,902
Income tax receivable	4,311	--	293
Other assets	52,399	23,907	18,029
Total assets	$2,157,070	$ 2,108,476	$ 1,946,383
Liabilities:
Credit facilities	$ 229,941	$ 396,318	$ 214,711
Term debt	1,221,764	1,009,953	1,073,105
Repurchase agreements	30,583	40,778	64,868
Accrued interest payable	3,330	3,177	2,853
Accounts payable	404	228	430
Income tax payable	--	2,452	--
Other liabilities	76,231	68,934	26,654
Total liabilities	1,562,253	1,521,840	1,382,621
Total stockholders' equity	594,817	586,636	563,762
Total liabilities and stockholders' equity	$ 2,157,070	$ 2,108,476	$ 1,946,383

NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
	Three Months Ended
	December 31,	September 30,	December 31,
($ in thousands, except per share amounts)	2012	2012	2011
Net interest income:
Interest income	$ 33,000	$ 30,812	$ 30,877
Interest expense	8,984	9,074	7,371
Net interest income	24,016	21,738	23,506
Provision for credit losses	5,899	3,712	4,314
Net interest income after provision for credit losses	18,117	18,026	19,192
Non-interest income:
Fee income	1,221	1,074	1,563
Asset management income	796	718	684
Gain (loss) on derivatives	(57)	(57)	(35)
Gain on sale of loans	753	--	--
Other income (loss)	1,082	1,451	(318)
Total non-interest income	3,795	3,186	1,894
Operating expenses:
Compensation and benefits	8,038	7,832	7,823
General and administrative expenses	3,531	2,843	3,245
Total operating expenses	11,569	10,675	11,068
Income before income taxes	10,343	10,537	10,018
Income tax expense	4,131	4,471	3,650
Net income	$ 6,212	$ 6,066	$ 6,368
Net income per share:
Basic	$ 0.13	$ 0.13	$ 0.13
Diluted	$ 0.12	$ 0.11	$ 0.12
Weighted average shares outstanding:
Basic	47,407,192	47,379,468	47,442,907
Diluted	52,975,040	52,921,668	52,166,449

NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
	Year Ended December 31,
($ in thousands, except per share amounts)	2012	2011
Net interest income:
Interest income	$ 123,945	$ 115,680
Interest expense	35,591	34,953
Net interest income	88,354	80,727
Provision for credit losses	12,651	17,312
Net interest income after provision for credit losses	75,703	63,415
Non-interest income:
Fee income	4,619	3,070
Asset management income	2,984	2,635
Gain (loss) on derivatives	(315)	242
Gain on sale of loans	335	128
Other income (loss)	3,948	(2,008)
Total non-interest income	11,571	4,067
Operating expenses:
Compensation and benefits	31,139	30,144
General and administrative expenses	15,158	13,787
Total operating expenses	46,297	43,931
Income before income taxes	40,977	23,551
Income tax expense	17,000	9,403
Net income	$ 23,977	$ 14,148
Net income per share:
Basic	$ 0.51	$ 0.29
Diluted	$ 0.45	$ 0.27
Weighted average shares outstanding:
Basic	47,370,095	48,106,032
Diluted	52,733,552	52,925,924

NewStar Financial, Inc.
Selected Financial Data
(unaudited)
	Three Months Ended
	December 31,	September 30,	December 31,
($ in thousands)	2012	2012	2011
Performance Ratios:
Return on average assets	1.17%	1.16%	1.32%
Return on average equity	4.18	4.15	4.50
Net interest margin, before provision	4.58	4.22	4.77
Efficiency ratio	41.71	42.95	43.57
Portfolio yield	6.88	6.45	6.61
Credit Quality Ratios:
Delinquent loan rate for loans 60 days or more past due (at period end)	3.49%	3.48%	5.34%
Delinquent loan rate for accruing loans 60 days or more past due (at period end)	1.17	1.14	0.46
Non-accrual loan rate (at period end)	4.05	4.43	5.61
Non-performing asset rate (at period end)	4.77	5.13	5.61
Annualized net charge off rate (end of period loans)	3.38	(0.07)	2.89
Annualized net charge off rate (average period loans)	3.23	(0.06)	2.89
Allowance for credit losses ratio (at period end)	2.78	3.21	3.52
Capital and Leverage Ratios:
Equity to assets	27.58%	27.82%	28.96%
Debt to equity	2.49x	2.47x	2.40x
Book value per share	$ 12.06	$ 11.87	$ 11.42
Average Balances:
Loans and other debt products, gross	$ 1,904,385	$ 1,896,862	$ 1,852,525
Interest earning assets	2,086,945	2,051,456	1,954,471
Total assets	2,113,375	2,072,051	1,916,742
Interest bearing liabilities	1,430,521	1,416,689	1,328,051
Equity	591,570	580,934	561,825
Allowance for credit loss activity:
Balance as of beginning of period	$ 59,351	$ 55,334	$ 73,038
General provision for credit losses	(1,952)	(899)	3,918
Specific provision for credit losses	7,851	4,611	396
Net (charge offs) recoveries	(15,286)	305	(13,240)
Balance as of end of period	$ 49,964	$ 59,351	$ 64,112
Supplemental Data (at period end):
Investments in debt securities, gross	$ 25,298	$ 25,298	$ 25,298
Loans held-for-sale, gross	52,120	49,015	38,837
Loans held-for-investment, gross	1,796,845	1,848,318	1,820,193
Loans and investments in debt securities, gross	1,874,263	1,922,631	1,884,328
Unused lines of credit	245,483	256,696	252,288
Standby letters of credit	4,497	6,398	6,462
Total funding commitments	$ 2,124,243	$ 2,185,725	$ 2,143,078
Loan portfolio	$ 1,874,263	$ 1,922,631	$ 1,884,328
Loans owned by NewStar Credit Opportunities Fund	559,328	515,164	517,596
Managed loan portfolio	$ 2,433,591	$ 2,437,795	$ 2,401,924
Loans held-for-sale, gross	$ 52,120	$ 49,015	$ 38,837
Loans held-for-investment, gross	1,796,845	1,848,318	1,820,193
Total loans, gross	1,848,965	1,897,333	1,859,030
Deferred fees, net	(26,938)	(28,556)	(57,865)
Allowance for loan losses - general	(19,423)	(21,190)	(23,022)
Allowance for loan losses - specific	(30,213)	(37,662)	(40,678)
Total loans, net	$ 1,772,391	$ 1,809,925	$ 1,737,465

NewStar Financial, Inc.
Selected Financial Data
(unaudited)
	Year Ended December 31,
($ in thousands)	2012	2011
Performance Ratios:
Return on average assets	1.17%	0.75%
Return on average equity	4.14	2.52
Net interest margin, before provision	4.34	4.28
Efficiency ratio	46.46	51.81
Portfolio yield	6.54	6.50
Credit Quality Ratios:
Annualized net charge off rate (end of period loans)	1.49	2.09
Annualized net charge off rate (average period loans)	1.43	2.15
Average Balances:
Loans and other debt products, gross	$ 1,893,571	$ 1,776,195
Interest earning assets	2,036,526	1,886,165
Total assets	2,051,565	1,885,407
Interest bearing liabilities	1,414,967	1,286,256
Equity	579,083	560,617
Allowance for credit loss activity:
Balance as of beginning of period	$ 64,112	$ 84,781
General provision for credit losses	(4,002)	(1,470)
Specific provision for credit losses	16,653	18,782
Net charge offs	(26,799)	(37,981)
Balance as of end of period	$ 49,964	$ 64,112

NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
	Adjusted
	Three Months Ended
	December 31,	September 30,	December 31,
($ in thousands)	2012	2012	2011
Performance Ratios:
Efficiency ratio	35.03%	36.09%	35.00%
Consolidated Statement of Operations Adjustments(1):
Operating expenses	$ 11,569	$ 10,675	$ 11,068
Less: non-cash equity compensation expense (2)	1,827	1,680	2,179
Adjusted operating expenses	$ 9,742	$ 8,995	$ 8,889
(1) Adjustments are pre-tax.
(2) Non-cash compensation charge related to restricted stock grants and option grants.
	Three Months Ended
	December 31,	September 30,	December 31,
	2012	2012	2011
Risk-adjusted revenue
Net interest income after provision for credit losses	$ 18,117	$ 18,026	$ 19,192
Non-interest income (loss)	3,795	3,186	1,894
Risk-adjusted revenue	$ 21,912	$ 21,212	$ 21,086

NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
	Adjusted
	Year Ended
	December 31,	December 31,
($ in thousands)	2012	2011
Performance Ratios:
Efficiency ratio	39.14%	41.29%
Consolidated Statement of Operations Adjustments(1):
Operating expenses	$ 46,297	$ 43,931
Less: non-cash equity compensation expense (2)	7,190	8,919
Adjusted operating expenses	$ 39,107	$ 35,012
(1) Adjustments are pre-tax.
(2) Non-cash compensation charge related to restricted stock grants and option grants.

NewStar Financial, Inc.
Portfolio Data
(unaudited)
($ in thousands)	December 31, 2012		September 30, 2012		December 31, 2011
Portfolio Data:
First mortgage	$ 177,462	9.5%	$ 205,207	10.7%	$ 252,927	13.4%
Senior secured asset-based	201,219	10.7	199,247	10.4	114,585	6.1
Senior secured cash flow	1,448,182	77.3	1,465,568	76.2	1,439,181	76.4
Other	47,400	2.5	52,609	2.7	77,635	4.1
Total	$ 1,874,263	100.0%	$ 1,922,631	100.0%	$ 1,884,328	100.0%
Leveraged Finance	$ 1,499,833	80.0%	$ 1,520,601	79.1%	$ 1,501,175	79.7%
Business Credit	196,952	10.5	196,824	10.2	111,772	5.9
Real Estate	177,478	9.5	205,206	10.7	271,381	14.4
Total	$ 1,874,263	100.0%	$ 1,922,631	100.0%	$ 1,884,328	100.0%

CONTACT: Colleen M. Banse
         500 Boylston St., Suite 1250
         Boston, MA 02116
         P. 617.848.2502
         F. 617.848.4390
         [e-mail]
         
         Brian J. Fischesser
         500 Boylston St., Suite 1250
         Boston, MA 02116
         P. 617.848.2512
         F. 617.848.4398
         [e-mail]

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