Financial results continued to improve with adjusted net income of $10.1 million, or $0.19 per diluted share
GAAP net income was $9.4 million, or $0.18 per diluted share
New loan origination volume increased 62% to $235 million in the fourth quarter and $572 million for the year
Recognized $5.6 million pre-tax gain on the acquisition of asset-based lender and assumed a $225 million credit facility to fund related new lending activity
Launched new equipment finance business and added a new $75 million credit facility to fund new leasing activity
Increased book value per share to $10.96
BOSTON, Feb. 16, 2011 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, today reported adjusted net income for the fourth quarter of 2010 of $10.1 million, or $0.19 per diluted share. On a GAAP basis, the Company reported net income of $9.4 million, or $0.18 per diluted share, which reflected $0.7 million after-tax non-cash equity compensation expense related to the 2006 IPO. "Adjusted net income (loss)" and other non-GAAP financial measures used in this release are defined under "Non-GAAP Financial Measures" on page 5. Reconciliations between GAAP and adjusted (non-GAAP) measures can be found in the attached financial tables. "I am very pleased with our results in the fourth quarter as our operating performance continued to improve and we executed on important strategic initiatives that broadened our capabilities and strengthened our national origination franchise," said Tim Conway, Chairman and Chief Executive Officer. "The launch of our equipment finance business marked another important milestone for the company as we continue to execute our strategy to add specialized lending platforms in attractive market segments that are consistent with our core strengths and enhance our value proposition for customers. The value of our national direct origination platforms was evident in the gains we made in new loan origination throughout the year and our financial results in the quarter capped off what has been a very successful year for NewStar."
Acquisitions and New Business Initiatives
Purchased Core Business Credit, LLC, an asset-based lender, and its wholly owned subsidiaries for a purchase price of $25.3 million. Recognized a gain of $5.6 million in connection with the acquisition.
Launched equipment finance business in January 2011 to lease essential-use equipment for mid-sized companies.
Loan Credit Quality
The provision for credit losses decreased $1.9 million as the Company had an $0.8 million reversal of provision in the fourth quarter of 2010 compared to provision of $1.2 million in the third quarter of 2010.
Approximately $8.0 million of additional specific reserves were established in the fourth quarter of 2010, up $4.8 million, from $3.2 million in the third quarter of 2010.
The allowance for credit losses decreased to $84.8 million, or 4.99% of loans and 63% of NPLs, at December 31, 2010, compared to $91.5 million, or 5.20% of loans, at September 30, 2010.
Three new loans totaling $22.6 million were placed on non-accrual status in the fourth quarter of 2010.
At December 31, 2010, loans with an aggregate outstanding balance, net of charge-offs, of $135.6 million were on non-accrual status compared to loans with an aggregate outstanding balance, net of charge-offs, of $128.2 million at September 30, 2010. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $139.0 million, or 44% of their aggregate face amount, as of December 31, 2010.
Non-accrual loans with an outstanding balance of $106.0 million and an additional accruing loan with an outstanding balance of $8.4 million as of December 31, 2010 were also delinquent loans.
Net charge-offs were $5.9 million, or 1.38% of loans on an annualized basis, in the fourth quarter of 2010 compared to $10.4 million or 2.36% of loans on an annualized basis in the third quarter of 2010.
The Company owned an interest in one property valued at $3.4 million, which was included in other real estate owned ("OREO") as of December 31, 2010.
Funding and Capital
Assumed a $225 million credit facility with DZ Bank through CORE Business Credit acquisition, which is used to fund asset-based lending activity.
Added a $75 million credit facility with Wells Fargo to fund new equipment lease originations.
Approximately 89% of loans were funded by long term capital at December 31, 2010.
Approximately 74% of loans were funded by securitized term debt at attractive, locked-in spreads as of December 31, 2010. The ability to re-invest collections from repayments and amortization of certain of these loans represents a continuing source of funding.
Balance sheet leverage was 2.5x as of December 31, 2010, consistent since September 30, 2010, as repayments of advances under credit facilities and amortization of debt issued by CLO 2005-1 were offset by an increase in other borrowings.
Total cash and equivalents as of December 31, 2010 were $233 million, of which $54 million was unrestricted. Unrestricted cash increased from approximately $29 million at September 30, 2010 and restricted cash increased from approximately $155 million to $178 million.
Managed and Owned Loan Portfolios
Total origination volume for the fourth quarter of 2010 was $235 million, which reflected improving demand for loans and increased M&A activity.
The composition of the owned loan portfolio continued to reflect a focus on senior debt with 97% invested in 1 st lien senior secured loans at December 31, 2010.
The managed loan portfolio was $2.2 billion as of December 31, 2010 (down from $2.3 billion at September 30, 2010), reflecting the net impact of prepayments and scheduled amortization of existing loans, as well as charge-offs, which was partially offset by new loan origination.
Assets managed for the NCOF were $452 million at December 31, 2010, down 10% from September 30, 2010.
The owned loan portfolio was $1.7 billion as of December 31, 2010 down slightly from September 30, 2010.
The owned loan portfolio continued to be balanced across industry sectors and highly diversified by issuer. As of December 31, 2010, no outstanding borrowings by a single issuer represented more than 1.5% of total loans outstanding, and the ten largest issuers comprised approximately 10% of the loan portfolio.
Net Interest Income / Margin
Net interest income before provision for credit losses was $19.4 million for the fourth quarter of 2010 compared to $17.8 million for the third quarter of 2010.
Net interest margin increased 38 bps to 4.01% for the fourth quarter of 2010 compared to 3.63% for the third quarter of 2010 due principally to increase in net interest spread from new origination and repricings, as well as the accelerated amortization of certain deferred financing fees.
Adjusting for the impact of non-performing loans, the portfolio yield would have been 56 bps higher and net interest margin would have been 4.57%.
Non-Interest Income
Non-interest income was $6.9 million for the fourth quarter of 2010 compared to $2.5 million for the third quarter of 2010.
Non-interest income in the fourth quarter of 2010 consisted primarily of a $5.6 million gain on the acquisition of Core, $0.7 million of asset management income, $0.4 million of unused fees on revolving credit commitments and $0.4 million of structuring fees.
Expenses
Operating expenses increased to $11.2 million in the fourth quarter of 2010 compared to $10.0 million in the third quarter of 2010 due principally to the inclusion of expenses of CORE Business Credit which was acquired as of November 1, 2010.
The Company had 82 employees as of December 31, 2010.
Income Taxes
Deferred tax asset declined to $48.1 million as of December 31, 2010 from $50.2 million as of September 30, 2010. At December 31, 2010, the deferred tax asset was driven principally by differences in the timing of when credit costs and equity compensation expenses are recognized according to GAAP and when they are deductible for income tax.
Approximately $34 million and $12 million of the deferred tax asset as of December 31, 2010 was related to our allowance for credit losses and equity compensation, respectively.
Book Value
Book value per share was $10.96 at the end of the fourth quarter up from $10.74 at the end of the prior quarter primarily due to net income for the quarter.
Share Count
Average diluted shares outstanding were 52.7 million shares for the quarter compared to 50.3 million shares for the prior quarter. Total outstanding shares at December 31, 2010 were 50.6 million compared to 50.9 million at September 30, 2010.
Completed the repurchase of $10.0 million of our common stock. Repurchased 400,228 shares of common stock at an average price of $8.19 during the fourth quarter and a total of 1,372,300 shares of common stock at an average price of $7.26 for the entire stock repurchase program.
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 877-755-7419 approximately 5-10 minutes prior to the call. International callers should dial 973-200-3080. All callers should reference "NewStar Financial." For convenience, an archived replay of the call will be available through February 19, 2011 by dialing 800-642-1687. International callers should call 706-645-9291. For all replays, please use the passcode 39605367. 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 market. The Company specializes in providing senior secured debt financing options to mid-sized companies to fund working capital, growth strategies, acquisition and recapitalization, as well as, equipment purchases. NewStar originates loans and leases directly through a team of experienced, senior bankers and marketing officers organized around key industry and market segments. The Company targets 'hold' positions of up to $35 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, Dallas TX, Houston TX, Los Angeles CA and Atlanta GA. For more detailed transaction and contact information, please visit our website at www.newstarfin.com .
The NewStar Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4044Forward-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, strategic plans, objectives, future performance, financing plans and business. As such, they are subject to material risks and uncertainties, including our limited operating history; the general state of the economy; 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 risk factors can be found in NewStar's filings with the Securities and Exchange Commission (the "SEC"), including Item 1A ("Risk Factors") of our 2009 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 Annual Report on Form 10-K for the year ended December 31, 2010 with the SEC on or before March 16, 2011 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: 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; 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 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.
Adjusted return on average assets means adjusted net income divided by average assets for the period. 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. 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 11 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)
December 31,
September 30,
December 31,
($ in thousands)
2010
2010
2009
Assets:
Cash and cash equivalents
$ 54,365
$ 29,360
$ 39,848
Restricted cash
178,364
154,505
136,884
Investments in debt securities, available-for-sale
4,014
4,036
4,183
Loans held-for-sale, net
41,386
21,302
15,736
Loans, net
1,590,331
1,646,891
1,878,978
Deferred financing costs, net
15,504
17,683
18,557
Interest receivable
6,797
6,873
7,949
Property and equipment, net
879
760
976
Deferred income taxes, net
48,093
50,178
56,449
Income tax receivable
5,435
11,850
7,260
Other assets
29,798
20,868
33,252
Total assets
$ 1,974,966
$ 1,964,306
$ 2,200,072
Liabilities:
Credit facilities
$ 108,502
$ 57,823
$ 91,890
Term debt
1,278,868
1,309,162
1,523,052
Accrued interest payable
4,014
2,893
2,774
Accounts payable
242
240
645
Other liabilities
29,161
47,334
31,591
Total liabilities
1,420,787
1,417,452
1,649,952
NewStar Financial, Inc. stockholders' equity
554,179
546,854
546,062
Noncontrolling interest
--
--
4,058
Total stockholders' equity
554,179
546,854
550,120
Total liabilities and stockholders' equity
$ 1,974,966
$ 1,964,306
$ 2,200,072
NewStar Financial, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended
December 31,
September 30,
December 31,
($ in thousands, except per share amounts)
2010
2010
2009
Net interest income:
Interest income
$ 28,483
$ 27,022
$ 31,943
Interest expense
9,092
9,257
7,553
Net interest income
19,391
17,765
24,390
Provision for credit losses
(768)
1,176
39,032
Net interest income (loss) after provision for credit losses
20,159
16,589
(14,642)
Non-interest income:
Fee income
983
702
415
Asset management income
664
876
716
Gain (loss) on derivatives
(92)
(23)
41
Loss on sale of loans
(3)
--
--
Gain on acquisition
5,649
--
--
Other income
(343)
949
3,274
Total non-interest income
6,858
2,504
4,446
Operating expenses:
Compensation and benefits
7,495
6,357
6,512
Occupancy and equipment
543
457
791
General and administrative expenses
3,192
3,233
2,257
Total operating expenses
11,230
10,047
9,560
Income (loss) before income taxes
15,787
9,046
(19,756)
Income tax expense (benefit)
6,414
3,583
(6,405)
Net income (loss) before noncontrolling interest
9,373
5,463
(13,351)
Net income attributable to noncontrolling interest
--
--
(54)
Net income (loss)
$ 9,373
$ 5,463
$ (13,405)
After tax adjustments to net income (loss):
IPO related compensation and benefits expense (1)
711
519
1,872
Adjusted net income (loss)
$ 10,084
$ 5,982
$ (11,533)
Net income (loss) per share:
Basic
$ 0.19
$ 0.11
$ (0.27)
Diluted
$ 0.18
$ 0.11
$ (0.27)
Weighted average shares outstanding:
Basic
48,745,084
49,305,989
49,349,508
Diluted
52,749,213
50,323,951
49,349,508
Adjusted net income (loss) per share:
Basic
$ 0.21
$ 0.12
$ (0.23)
Diluted
$ 0.19
$ 0.12
$ (0.23)
Adjusted weighted average shares outstanding:
Basic
48,745,084
49,305,989
49,349,508
Diluted
52,749,213
50,323,951
49,349,508
(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.
NewStar Financial, Inc.
Consolidated Statements of Operations
Year Ended December 31,
($ in thousands, except per share amounts)
2010
2009
Net interest income:
(unaudited)
Interest income
$ 112,826
$ 136,569
Interest expense
40,558
41,927
Net interest income
72,268
94,642
Provision for credit losses
32,997
133,093
Net interest income (loss) after provision for credit losses
39,271
(38,451)
Non-interest income:
Fee income
2,409
1,657
Asset management income
2,872
2,934
Gain on derivatives
28
533
Loss on sale of loans
(116)
--
Gain on acquisition
5,649
--
Other income
7,854
5,529
Total non-interest income
18,696
10,653
Operating expenses:
Compensation and benefits
26,418
26,403
Occupancy and equipment
2,094
3,121
General and administrative expenses
12,101
12,911
Total operating expenses
40,613
42,435
Income (loss) before income taxes
17,354
(70,233)
Income tax expense (benefit)
6,935
(24,353)
Net income (loss) before noncontrolling interest
10,419
(45,880)
Net loss (income) attributable to noncontrolling interest
(187)
1,620
Net income (loss)
$ 10,232
$ (44,260)
After tax adjustments to net income (loss):
IPO related compensation and benefits expense (1)
2,449
5,800
Adjusted net income (loss)
$ 12,681
$ (38,460)
Net (income) loss per share:
Basic
$ 0.21
$ (0.90)
Diluted
$ 0.19
$ (0.90)
Weighted average shares outstanding:
Basic
49,449,314
49,119,285
Diluted
52,548,104
49,119,285
Adjusted net income (loss) per share:
Basic
$ 0.26
$ (0.78)
Diluted
$ 0.24
$ (0.78)
Adjusted weighted average shares outstanding:
Basic
49,449,314
49,119,285
Diluted
52,548,104
49,119,285
(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.
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
Three Months Ended
December 31,
September 30,
December 31,
($ in thousands)
2010
2010
2009
Performance Ratios:
Return on average assets
1.93%
1.11%
(2.36)%
Return on average equity
6.76
3.97
(9.52)
Net interest margin, before provision
4.01
3.63
4.31
Efficiency ratio
42.78
49.57
33.22
Loan portfolio yield
6.33
5.87
5.98
Credit Quality Ratios:
Delinquent loan rate (at period end)
6.74%
6.21%
6.15%
Delinquent loan rate for accruing loans 60 days
or more past due (at period end)
0.50
0.48
0.99
Non-accrual loan rate (at period end)
7.98
7.29
8.08
Non-performing asset rate (at period end)
8.17
7.47
8.55
Annualized net charge off rate (end of period loans)
1.38
2.36
5.06
Annualized net charge off rate (average period loans)
1.32
2.29
4.82
Allowance for credit losses ratio (at period end)
4.99
5.20
5.68
Capital and Leverage Ratios:
Equity to assets
28.06%
27.84%
24.87%
Debt to equity
2.50 x
2.50 x
2.96 x
Book value per share
$ 10.96
$ 10.74
$ 10.92
Average Balances:
Loans and other debt products, gross
$ 1,782,540
$ 1,819,729
$ 2,116,423
Interest earning assets
1,917,295
1,943,908
2,244,964
Total assets
1,930,917
1,958,294
2,253,274
Interest bearing liabilities
1,327,025
1,368,784
1,648,877
Equity
549,830
545,768
558,570
Allowance for credit loss activity:
Balance as of beginning of period
$ 91,468
$ 100,729
$ 101,117
General provision (credit) for credit losses
(8,763)
(1,991)
(1,002)
Specific provision for credit losses
7,995
3,167
40,034
Net charge offs
(5,919)
(10,437)
(25,679)
Balance as of end of period
$ 84,781
$ 91,468
$ 114,470
Supplemental Data (at period end):
Investments in debt securities, gross
$ 6,468
$ 6,509
$ 6,635
Loans held-for-sale, gross
42,228
21,679
15,990
Loans held-for-investment, gross
1,698,238
1,757,958
2,013,588
Loans and investments in debt securities, gross
1,746,934
1,786,146
2,036,213
Unused lines of credit
270,793
181,892
230,838
Standby letters of credit
8,737
9,929
18,771
Total funding commitments
$ 2,026,464
$ 1,977,967
$ 2,285,822
Loan portfolio
$ 1,746,934
$ 1,786,146
$ 2,036,213
Loans owned by NewStar Credit Opportunities Fund
451,929
499,886
542,504
Managed loan portfolio
$ 2,198,863
$ 2,286,032
$ 2,578,717
Loans held-for-sale, gross
$ 42,228
$ 21,679
$ 15,990
Loans held-for-investment, gross
1,698,238
1,757,958
2,013,588
Total loans, gross
1,740,466
1,779,637
2,029,578
Deferred fees, net
(24,247)
(20,926)
(20,999)
Allowance for loan losses - general
(24,432)
(32,242)
(38,485)
Allowance for loan losses - specific
(60,350)
(58,276)
(75,380)
Total loans, net
$ 1,631,437
$ 1,668,193
$ 1,894,714
NewStar Financial, Inc.
Selected Financial Data
(unaudited)
Year Ended December 31,
($ in thousands)
2010
2009
Performance Ratios:
Return on average assets
0.51%
(1.85)%
Return on average equity
1.87
(7.73)
Net interest margin, before provision
3.60
3.98
Efficiency ratio
44.74
39.69
Loan portfolio yield
6.02
6.03
Credit Quality Ratios:
Annualized net charge off rate (end of period loans)
3.69
3.61
Annualized net charge off rate (average period loans)
3.36
3.22
Average Balances:
Loans and other debt products, gross
$ 1,870,178
$ 2,258,237
Interest earning assets
2,007,908
2,379,622
Total assets
2,016,264
2,397,468
Interest bearing liabilities
1,430,526
1,782,105
Equity
546,974
572,417
Allowance for credit loss activity:
Balance as of beginning of period
$ 114,470
$ 53,977
General provision (credit) for credit losses
(14,698)
619
Specific provision for credit losses
47,695
132,474
Net charge offs
(62,686)
(72,600)
Balance as of end of period
$ 84,781
$ 114,470
NewStar Financial, Inc.
Non-GAAP Data
(unaudited)
Adjusted
Three Months Ended
December 31,
September 30,
December 31,
($ in thousands)
2010
2010
2009
Performance Ratios:
Return on average assets
2.07%
1.21%
(2.03)%
Return on average equity
7.28
4.35
(8.19)
Efficiency ratio
39.74
45.33
28.21
Consolidated Statement of Operations Adjustments(1):
Operating expenses
$ 11,230
$ 10,047
$ 9,560
Less: IPO related compensation and benefits expense (2)
798
860
1,440
Adjusted operating expenses
$ 10,432
$ 9,187
$ 8,120
(1) Adjustments are pre-tax.
(2) 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
Year Ended December 31,
($ in thousands)
2010
2009
Performance Ratios:
Return on average assets
0.63%
(1.60)%
Return on average equity
2.32
(6.72)
Efficiency ratio
40.72
34.58
Consolidated Statement of Operations Adjustments(1):
Operating expenses
$ 40,613
$ 42,435
Less: IPO related compensation and benefits expense (2)
3,647
5,465
Adjusted operating expenses
$ 36,966
$ 36,970
(1) Adjustments are pre-tax.
(2) 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)
December 31, 2010
September 30, 2010
December 31, 2009
Portfolio Data:
First mortgage
$264,156
15.1%
$270,029
15.1%
$306,075
15.0%
Senior secured asset-based
73,764
4.2
7,006
0.4
26,463
1.3
Senior secured cash flow
1,356,805
77.7
1,443,526
80.8
1,621,816
79.6
Senior subordinated asset-based
20,752
1.2
28,077
1.6
40,810
2.0
Senior subordinated cash flow
1,757
0.1
3,357
0.2
--
--
Second lien
28,991
1.7
33,442
1.9
33,680
1.7
Mezzanine/subordinated
709
--
709
--
7,369
0.4
Total
$1,746,934
100.0%
$1,786,146
100.0%
$2,036,213
100.0%
Leveraged Finance
$1,396,934
80.0%
$1,502,588
84.1%
$1,715,554
84.3%
Real Estate
282,610
16.2
283,558
15.9
320,659
15.7
Business Credit
67,390
3.8
--
--
--
--
Total
$1,746,934
100.0%
$1,786,146
100.0%
$2,036,213
100.0%
CONTACT: Colleen M. Banse 500 Boylston St., Suite 1250 Boston, MA 02116 P. 617.848.2502 F. 617.848.4390 cbanse@newstarfin.com Brian J. Fischesser 500 Boylston St., Suite 1250 Boston, MA 02116 P. 617.848.2512 F. 617.848.4398 bfischesser@newstarfin.com
