Managed and Owned Loan Portfolios
- Total new funded loan volume was approximately $147 million in the first quarter compared to $401 million in the prior quarter and $241 million in the first quarter of the prior year. Lower volumes reflected a significant fall-off in demand for acquisition financing from financial sponsors amid a slowdown in M&A activity.
- The owned portfolio increased by approximately 2% from the prior quarter, or 7% on an annualized basis, to $1.9 billion as of March 31, 2013 as new funded loan origination exceeded run-off from scheduled amortization and prepayments of existing loans by $31 million. Net loan growth, excluding planned reductions in real estate loans, in the first quarter of 2013 was 3.5%, or 14% on an annualized basis. Real estate loans decreased by $29 million, or 16.1%, during the quarter to $149 million.
- The managed loan portfolio remained steady at $2.4 billion as of March 31, 2013 approximately equal to December 31, 2012 as new funded loan origination was largely offset by loan run-off from scheduled amortization and prepayments of existing loans.
- The Leveraged Finance loan portfolio increased by $51 million during the first quarter of 2013 to approximately $1.6 billion, while asset-based loans and leases in our Business Credit portfolio increased by $7.7 million to $205 million.
- Assets managed for third party institutional investors decreased by 5% in the first quarter of 2013 to approximately $531 million at March 31, 2013 compared to $559 million at December 31, 2012 as the CLO used to partially fund loans owned by the NewStar Credit Opportunities Fund entered its amortization period.
- Asset-based lending and equipment finance business lines originated approximately $13 million in the first quarter of 2013, or more than 9% of new loan volume retained on the balance sheet.
- The owned loan portfolio remained balanced across industry sectors and highly diversified by issuer. As of March 31, 2013, no outstanding borrowings by a single obligor represented more than 1.5% of total loans outstanding, and the ten largest obligors comprised approximately 10.5% of the loan portfolio.
Net Interest Income / Margin
- Net interest income decreased to $21.0 million for the first quarter of 2013 compared to $24.0 million for the fourth quarter of 2012 and $21.2 million in the first quarter of 2012.
- The portfolio yield decreased to 6.50% in the first quarter of 2013 compared to 6.88% in the prior quarter, but was up from 6.39% in the first quarter of 2012. The sequential decline was due primarily to the impact of slower prepayments and the related decrease in the amortization of deferred loan fees.
- Adjusting for the negative impact of non-performing loans on a non-GAAP basis, the loan portfolio yield would have been 30 bps higher, or 6.80%.
- Net interest margin narrowed to 4.11% for the first quarter of 2013 compared to 4.58% for the fourth quarter of 2012 due primarily to lower amortization of deferred loan fees associated with the decrease in loan prepayments during the first quarter.
- Non-interest income was $3.1 million for the first quarter of 2013, down from $3.8 million for the fourth quarter of 2012, but up from $2.8 million for the first quarter of 2012. The change from the fourth quarter was due primarily to lower miscellaneous fees and the $0.8 million gain on sale of a loan in the prior quarter. There were no gains on debt repurchases during the first quarter of 2013, which was down from $0.5 million in the fourth quarter of 2012.
- Other non-interest income in the first quarter of 2013 consisted primarily of $0.7 million of asset management income and $0.4 million of unused fees on revolving credit commitments. It also included approximately $0.7 million of revenue related to OREO currently being managed by the Company, which was previously reported net of related expenses and is now recognized on a gross basis in the Company's financial results.
- Operating expenses increased by $1.3 million to $12.9 million in the first quarter of 2013 compared to $11.6 million in the fourth quarter of 2012 due to higher compensation and general and administrative expenses, as well as the recognition of $1.4 million of operating expense related to OREO currently being managed by the Company, which was previously reported net of related revenue as part of non-interest income and is now recognized as an expense on a gross basis in the Company's financial results.
- Operating expenses excluding non-cash equity compensation 2 were $11.3 million in the first quarter of 2013, or 2.1% of average assets an annualized basis, compared to $9.7 million in the prior quarter.
- The efficiency ratio excluding non-cash equity compensation 3 in the first quarter of 2013 was 47.1% compared to 35.0% in the prior quarter.
- The Company had 103 full-time employees as of March 31, 2013, down slightly from 104 employees as of December 31, 2012.
- Deferred income taxes decreased to $40.9 million as of March 31, 2013 compared to $42.5 million as of December 31, 2012 due primarily to a decrease in the allowance for credit losses and related timing differences of when credit costs are recognized according to GAAP and when they are excluded for income tax.
- Approximately $23.0 million and $14.6 million of the deferred tax asset as of March 31, 2013 were related to our allowance for credit losses and equity compensation, respectively.
- Total credit costs (including provision for credit losses and losses on OREO or interests retained in connection with workouts of impaired loans) in the first quarter of 2013 decreased by $5.2 million to $0.7 million from $5.9 million in the prior quarter.
- Specific provision expense was approximately $0.4 million in the first quarter of 2013, down from $7.9 million in the fourth quarter of 2012.
- The allowance for credit losses was $45.5 million, or 2.50% of loans and approximately 60% of NPLs, at March 31, 2013, compared to $50.0 million, or 2.78% of loans and approximately 69% of NPLs, at December 31, 2012.
- Non-performing assets increased by $3.6 million from the prior quarter. One new loan was placed on non-accrual status and charge-offs on non-performing assets totaled $5.2 million.
- At March 31, 2013, loans with an aggregate outstanding balance of $76.3 million, net of charge-offs, were on non-accrual status compared to loans with an aggregate outstanding balance of $72.7 million, net of charge-offs, at December 31, 2012. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $89.3 million, or 55% of their aggregate face amount, as of March 31, 2013.
- Non-accrual loans with an outstanding balance of $37.9 million as of March 31, 2013 were also delinquent.
- Formed a new managed credit fund, NewStar Arlington Fund LLC, in partnership with an institutional investor to co-invest in middle market commercial loans originated by NewStar. The fund had $210 million of capital commitments from debt and equity investors at its formation on April 4, 2013 and is expected to grow to $300 million of assets under management after it is fully invested.
- Balance sheet leverage decreased slightly to 2.44x as of March 31, 2013 from 2.49x at December 31, 2012 due primarily to CLO debt amortization and repayment of advances under a commercial real estate mortgage repurchase agreement.
- Maintained ample liquidity with total cash and equivalents as of March 31, 2013 of $168.6 million, of which $27.6 million was unrestricted. Unrestricted cash increased slightly from approximately $27.2 million at December 31, 2012 and restricted cash decreased from approximately $208.7 million to $141.0 million due primarily to timing differences.
- Book value per share was $12.19 at the end of the first quarter 2013 up $0.13 from $12.06 at the end of the prior quarter and up $0.62 from $11.57 at the end of the first quarter of 2012 primarily due to net income and the amortization of equity compensation into stockholders' equity.
- Average diluted shares outstanding were 53.3 million shares for the quarter, which was up slightly from the prior quarter. Total outstanding shares at March 31, 2013 were 49.4 million, consistent with outstanding shares as of December 31, 2012.
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