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NewStar Reports First Quarter 2013 Net Income Of $6.2 Million, Or $0.12 Per Diluted Share

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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 page 10 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 10 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 10 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 10 for reconciliation of non-GAAP to GAAP measurements.

NewStar Financial, Inc.      
Consolidated Balance Sheets      
(unaudited)      
       
 
  March 31, December 31, March 31,
($ in thousands) 2013 2012 2012
Assets:      
       
Cash and cash equivalents  $ 27,581  $ 27,212  $ 17,390
Restricted cash  140,969  208,667  104,951
Investments in debt securities, available-for-sale  21,546  21,127  19,038
Loans held-for-sale, net  59,517  51,602  37,945
Loans and leases, net  1,748,454  1,720,789  1,773,306
Deferred financing costs, net  17,858  19,064  13,880
Interest receivable  8,626  9,003  9,057
Property and equipment, net  345  433  715
Deferred income taxes, net  40,895  42,463  48,016
Income tax receivable  1,724  4,311  --
Other assets  28,251  52,399  23,653
Total assets  $ 2,095,766  $ 2,157,070 $ 2,047,951
       
Liabilities:      
       
Credit facilities  $ 213,859  $ 229,941  $ 319,652
Term debt  1,196,124  1,221,764  1,070,052
Repurchase agreements  30,194  30,583  62,687
Accrued interest payable  4,543  3,330  2,965
Accounts payable  1,186  404  379
Income tax payable  --  --  1,372
Other liabilities  47,207  76,231  20,249
Total liabilities  1,493,113  1,562,253  1,477,356
Total stockholders' equity  602,653  594,817  570,595
Total liabilities and stockholders' equity  $ 2,095,766  $ 2,157,070  $ 2,047,951
       
       
NewStar Financial, Inc.      
Consolidated Statements of Operations    
(unaudited)      
 
       
  Three Months Ended
  March 31, December 31, March 31,
($ in thousands, except per share amounts) 2013 2012 2012
Net interest income:      
Interest income  $ 30,140  $ 33,000  $ 29,522
Interest expense  9,187  8,984  8,353
Net interest income  20,953  24,016  21,169
Provision for credit losses  718  5,899  2,881
Net interest income after provision for credit losses  20,235  18,117  18,288
       
Non-interest income:      
Fee income  358  1,221  1,255
Asset management income  727  796  743
Loss on derivatives  (41)  (57)  (15)
Gain (loss) on sale of loans  27  753  (450)
Other income  2,032  1,082  1,252
Total non-interest income  3,103  3,795  2,785
Operating expenses:      
Compensation and benefits  8,880  8,038  7,202
General and administrative expenses  4,031  3,531  3,493
Total operating expenses  12,911  11,569  10,695
Income before income taxes  10,427  10,343  10,378
Income tax expense  4,273  4,131  4,296
Net income  $ 6,154  $ 6,212 $ 6,082
       
Net income per share:      
Basic $ 0.13 $ 0.13 $ 0.13
Diluted $ 0.12 $ 0.12 $ 0.12
       
Weighted average shares outstanding:    
Basic  47,357,495  47,407,192  47,373,668
Diluted  53,256,113  52,975,040  52,209,067
       
       
NewStar Financial, Inc.      
Selected Financial Data      
(unaudited)      
 
       
  Three Months Ended
  March 31, December 31, March 31,
($ in thousands) 2013 2012 2012
Performance Ratios:      
Return on average assets  1.18%  1.17%  1.24%
Return on average equity  4.17  4.18  4.30
Net interest margin, before provision  4.11  4.58  4.30
Efficiency ratio  53.67  41.71  44.77
Portfolio yield  6.50  6.88  6.39
       
Credit Quality Ratios:      
Delinquent loan rate for loans 60 days or more past due (at period end)  2.08%  3.59%  2.64%
Delinquent loan rate for accruing loans 60 days or more past due (at period end)  --   1.17  -- 
Non-accrual loan rate (at period end)  4.19  4.05  4.12
Non-performing asset rate (at period end)  4.87  4.77  4.60
Annualized net charge off rate (end of period loans)  1.15  3.38  0.62
Annualized net charge off rate (average period loans)  1.13  3.23  0.63
Allowance for credit losses ratio (at period end)  2.50  2.78  3.43
       
Capital and Leverage Ratios:    
Equity to assets  28.76%  27.58%  27.86%
Debt to equity  2.44x  2.49x  2.55x
Book value per share  $ 12.19  $ 12.06  $ 11.57
       
Average Balances:      
Loans and other debt products, gross  $ 1,876,273  $ 1,904,385  $ 1,855,671
Interest earning assets  2,069,667  2,086,945  1,981,785
Total assets  2,110,816  2,113,375  1,977,310
Interest bearing liabilities  1,451,092  1,430,521  1,363,318
Equity  599,061  591,570  568,760
       
Allowance for credit loss activity:    
Balance as of beginning of period  $ 49,964  $ 59,351  $ 64,112
General provision for credit losses  301  (1,952)  1,313
Specific provision for credit losses  417  7,851  1,568
Net (charge offs) recoveries  (5,183)  (15,286)  (2,864)
Balance as of end of period  $ 45,499  $ 49,964  $ 64,129
       
Supplemental Data (at period end):    
Investments in debt securities, gross  $ 25,298  $ 25,298  $ 25,298
Loans held-for-sale, gross  60,114  52,120  38,317
Loans held-for-investment, gross  1,820,369  1,796,845  1,871,579
Loans and investments in debt securities, gross  1,905,781  1,874,263  1,935,194
Unused lines of credit  260,590  245,483  253,501
Standby letters of credit  5,438  4,497  6,929
Total funding commitments  $ 2,171,809  $ 2,124,243  $ 2,195,624
       
Loan portfolio  $ 1,905,781  $ 1,874,263  $ 1,935,194
Loans owned by NewStar Credit Opportunities Fund  531,499  559,328  563,253
Managed loan portfolio  $ 2,437,280  $ 2,433,591  $ 2,498,447
       
Loans held-for-sale, gross  $ 60,114  $ 52,120  $ 38,317
Loans held-for-investment, gross  1,820,369  1,796,845  1,871,579
Total loans, gross  1,880,483  1,848,965  1,909,896
Deferred fees, net  (27,356)  (26,938)  (34,969)
Allowance for loan losses - general  (19,916)  (19,423)  (24,294)
Allowance for loan losses - specific  (25,240)  (30,213)  (39,382)
Total loans, net  $ 1,807,971  $ 1,772,391  $ 1,811,251
     
     
NewStar Financial, Inc.    
Non-GAAP Data      
(unaudited)      
 
  Adjusted
  Three Months Ended
  March 31, December 31, March 31,
($ in thousands) 2013 2012 2012
Performance Ratios:    
Efficiency ratio  47.05%  35.03%  37.12%
       
Consolidated Statement of Operations Adjustments(1):
Operating expenses  $ 12,911  $ 11,569  $ 10,695
Less: non-cash equity compensation expense (2)  1,597  1,827  1,827
Adjusted operating expenses  $ 11,314  $ 9,742  $ 8,868
       
(1) Adjustments are pre-tax.    
(2) Non-cash compensation charge related to restricted stock grants and option grants. 
       
  Three Months Ended
  March 31, December 31, March 31,
  2013 2012 2012
Risk-adjusted revenue    
Net interest income after provision for credit losses  $ 20,235  $ 18,117  $ 18,288
Non-interest income (loss)  3,103  3,795  2,785
Risk-adjusted revenue  $ 23,338  $ 21,912  $ 21,073
             
             
NewStar Financial, Inc.            
Portfolio Data            
(unaudited)            
 
             
($ in thousands) March 31, 2013 December 31, 2012 March 31, 2012
             
Portfolio Data:            
   $ 148,867  7.8%  $ 177,462  9.5% $ 222,667  11.5%
First mortgage  210,774  11.1  201,219  10.7  153,437  7.9
Senior secured asset-based  1,493,156  78.3  1,448,182  77.3  1,500,061  77.5
Senior secured cash flow  52,984  2.8  47,400  2.5  59,029  3.1
Other  $ 1,905,781  100.0%  $ 1,874,263  100.0% $ 1,935,194  100.0%
Total            
             
Leveraged Finance  $ 1,552,249  81.5% $ 1,499,833  80.0%  $ 1,561,681  80.7%
Business Credit  204,649  10.7  196,952  10.5  150,829  7.8
Real Estate  148,883  7.8  177,478  9.5  222,684  11.5
Total  $ 1,905,781  100.0% $ 1,874,263  100.0%  $ 1,935,194  100.0%
CONTACT: Robert K. Brown
         500 Boylston St., Suite 1250
         Boston, MA 02116
         P. 617.848.2558
         F. 617.848.4390
         rbrown@newstarfin.com
         
         Brian J. Fischesser
         500 Boylston St., Suite 1250
         Boston, MA 02116
         P. 617.848.2512
         F. 617.848.4398
         bfischesser@newstarfin.com

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