NewStar Financial, Inc.
May 3, 2017
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NewStar Reports Net Income of $1.4 Million, or $0.03 per Diluted Share, for the First Quarter of 2017 and Declares $0.02 Quarterly Dividend per Share

BOSTON, May 03, 2017 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (NASDAQ:NEWS) ("NewStar" or the "Company"), an internally-managed, middle market direct lender and credit-oriented asset manager, today announced financial results for its first quarter of 2017, reporting net income of $1.4 million, or $0.03 per diluted share. These results compare to net income of $10.3 million, or $0.23 per diluted share in the fourth quarter of 2016 and $4.0 million, or $0.09 per diluted share in the first quarter of 2016. Operating income before income taxes was $2.4 million for the first quarter of 2017 compared to $18.4 million for the fourth quarter of 2016 and $6.9 million in the first quarter of 2016.

Tim Conway, NewStar's Chairman and Chief Executive Officer, commented on the Company's performance: "During the first quarter, we continued to make progress on the transition of our business model from a bank-styled, commercial lender to a hybrid asset manager focused on the credit markets.  We achieved our cost saving targets, reducing expenses by nearly a third in the first quarter.  We also capitalized on market conditions to refinance and reset CLOs, extending investment periods and lowering the cost of funding for investors, while launching marketing efforts for new managed funds employing middle market investment strategies.  We also continued to execute our capital management programs, returning nearly $10 million to stockholders through accretive share repurchases and dividends.  More importantly, we continue to explore other steps needed to accelerate the company's transition and unlock value for our shareholders." 

1 Total revenue is defined as the sum of net interest income and non-interest income

Dividend Policy

Managed and Owned Investment Portfolios

Net Interest Income / Margin

Non-Interest Income

Credit Performance

Expenses

Income Taxes

Funding and Capital

Equity

Other

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 Events & Presentations under News & Noteworthy 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 May 11, 2017 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 8405117. The audio replay will also be available through the News & Noteworthy section at www.newstarfin.com.            

About NewStar Financial

NewStar Financial Inc. (NASDAQ:NEWS) is an internally-managed, commercial finance company with $6.6 billion of assets managed across two complementary business lines — middle market direct lending and asset management.  The Company's direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options.  Credit investments are originated directly through teams of experienced, senior bankers with expertise in key industry sectors. Through its asset management platforms, NewStar offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit. The Company manages approximately $1.3 billion of assets in a series of private credit funds and separate accounts that co-invest in middle market loans originated through its established leveraged finance lending platform and its strategic relationship with GSO Capital, the credit division of The Blackstone Group. Through its wholly-owned subsidiary, NewStar Capital, the Company also has more than $2 billion of assets managed across a series of CLOs that invest primarily in broadly syndicated, non-investment grade loans, as well as other sponsored funds and managed accounts that invest across various asset classes, including non-investment grade loans and bonds. 

NewStar is headquartered in Boston MA and has regional offices in Chicago, IL, Darien, CT, and New York, NY. For more detailed information, please visit our website at www.newstarfin.com

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future performance, our expectations regarding our ability to support continued future asset growth or expense reductions and the declaration of future dividends. 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 (including those relating to the transition to a hybrid asset manager), the market price for NewStar's stock prevailing from time to time, the nature of other investment opportunities presented to NewStar from time to time, objectives, future performance, financing plans and restrictive covenants in our debt instruments. As such, they are subject to material risks and uncertainties, including our ability to leverage new and future assets to support growth, the continued success of our strategic relationships; the general state of the economy; our ability to compete effectively in a highly competitive industry; our ability to integrate acquired businesses; 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 2016 Annual Report on Form 10-K, and as supplemented by any 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 with the SEC on or before May 10, 2017 and urges its shareholders to refer to that document for more complete information concerning NewStar's financial results.

Non-GAAP Financial Measures

References to "total revenue" refer to net interest income plus non-interest income.  "Adjusted operating expenses" refers to operating expenses, excluding severance costs and compensation expense related to restricted stock grants that are required to be included under GAAP.  NewStar management uses adjusted operating expenses to analyze performance in support of operational and investment decisions, and NewStar believes that these measurements provide useful information to investors in their evaluation of our financial performance and condition.  Excluding non-recurring items from revenue measures and excluding expenses incurred in connection with severance costs and compensation expense related to equity awards each eliminate unique amounts that make it difficult to assess our core performance and compare our period over period results. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measures are included on page 10 of this release. 


NewStar Financial, Inc.       
Consolidated Balance Sheets       
(unaudited)       
        
        
  March 31, December 31, March 31,  
($ in thousands) 2017 2016 2016 
Assets:       
        
Cash and cash equivalents $15,374 $154,480 $150,657 
Restricted cash  309,368  262,643  155,346 
Cash collateral on deposit with custodians  7,564  7,564  19,442 
Investments in debt securities, available-for-sale  127,543  119,307  89,687 
Loans held-for-sale, net  255,961  144,060  468,443 
Loans and leases, net  3,148,767  3,239,191  3,029,315 
Interest receivable  13,724  14,622  13,269 
Property and equipment, net  254  274  405 
Deferred income taxes, net  40,582  40,807  33,653 
Income tax receivable  4,334    6,398 
Goodwill  17,884  17,884  17,884 
Identified intangible asset, net  488  572  822 
Other assets  43,858  39,188  22,623 
Total assets  $3,985,701 $4,040,592 $4,007,944 
        
Liabilities:       
        
Credit facilities, net $374,116 $445,493 $538,512 
Term debt securitizations, net  2,141,949  2,195,064  2,044,931 
Senior notes, net  374,374  373,919  372,560 
Subordinated notes, net  243,236  241,390  235,855 
Repurchase agreements, net  57,973  55,046  94,785 
Accrued interest payable  32,652  21,319  30,333 
Income tax payable    12,562   
Other liabilities  118,394  48,377  31,552 
Total liabilities  3,342,694  3,393,170  3,348,528 
Total stockholders' equity  643,007  647,422  659,416 
Total liabilities and stockholders' equity $3,985,701 $4,040,592 $4,007,944 


NewStar Financial, Inc.      
Consolidated Statements of Operations      
(unaudited)      
       
      
 Three Months Ended
 March 31, December 31, March 31, 
($ in thousands, except per share amounts) 2017   2016   2016 
Net interest income:     
Interest income$  55,082  $  64,217  $  61,952 
Interest expense   41,094     43,529     39,433 
Net interest income   13,988     20,688     22,519 
Provision for credit losses   6,149     2,635     17,713 
Net interest income after provision for credit losses   7,839     18,053     4,806 
    
Non-interest income (loss):     
Asset management income   3,647     3,062     3,441 
Fee income   3,193     1,442     1,193 
Loss on derivatives, net —      (153)    (7)
Gain (loss) on sale of loans, net   696     (2,131)    (107)
Other miscellaneous income    1,498     1,327     1,955 
Mark to market adjustment on fair value loans    (2,769)    1,830     (105)
Loss on total return swap —    —      (6,062)
Net unrealized (loss) gain on loans held-for-sale    (114)    7,751     (3,667)
Gain on sale of Business Credit and Equipment Finance assets —      6,655     22,511 
Total non-interest income    6,151     19,783     19,152 
Operating expenses:     
Compensation and benefits   7,437     10,704     10,638 
General and administrative expenses   4,200     8,758     6,430 
Total operating expenses   11,637     19,462     17,068 
Income from operations before income taxes   2,353     18,374     6,890 
Income tax expense    971     8,044     2,881 
Net income $  1,382  $  10,330  $  4,009 
      
Earnings per share:     
Basic EPS $  0.03  $  0.23  $  0.09 
Diluted EPS $  0.03  $  0.23  $  0.09 
      
Weighted average shares outstanding:     
Basic   41,789,915     43,732,133     46,447,008 
Diluted    41,827,138     43,780,606     46,447,008 
       
Dividends declared per common share$  0.02  $  —  $  — 


NewStar Financial, Inc.        
Selected Financial Data        
(unaudited)        
         
         
  Three Months Ended 
  March 31,  December 31, March 31,   
($ in thousands)  2017   2016   2016   
Performance Ratios:        
Return on average assets  0.14%  0.98%  0.40%  
Return on average equity    0.87     6.26     2.46   
Pre-tax return on average equity (ROAE)    1.47     11.14     4.23   
Net interest margin, before provision    1.45     1.96     2.21   
Operating expenses as a percentage of average AUM    0.68     1.15     1.00   
Operating expenses as a percentage of average total assets    1.19     1.84     1.68   
Efficiency ratio    57.78     48.09     40.96   
Portfolio yield    6.29     6.53     6.28   
         
Credit Quality Ratios:        
Delinquent loan rate for loans 60 days or more        
past due (at period end)  0.65%  0.64%  0.60%  
Delinquent loan rate for accruing loans 60 days        
or more past due (at period end)  —    —    —    
Non-accrual loan rate (at period end)    3.18     2.99     3.62   
Non-performing asset rate (at period end)    3.65     3.45     3.63   
Annualized net charge off (recovery) rate (end of period loans)    0.69     2.26     0.93   
Annualized net charge off (recovery) rate (average period loans)    0.65     1.98     0.76   
Allowance for credit losses ratio (at period end)    1.85     1.76     2.19   
         
Capital and Leverage Ratios:        
Equity to assets  16.13%  16.02%  16.45%  
Debt to equity     4.96     5.11     4.98   
Book value per share $  15.21  $  15.12  $  13.84   
         
Average Balances:        
Loans and other debt products, gross $  3,541,036  $  3,904,115  $  3,963,680   
Interest earning assets    3,916,700     4,192,123     4,099,105   
Total assets    3,979,213     4,196,793     4,079,168   
Interest bearing liabilities    3,338,294     3,588,650     3,475,454   
Equity    647,598     656,282     655,422   
Assets under management (AUM)    6,948,574     6,758,842     6,883,009   
         
Allowance for credit loss activity:        
Balance as of beginning of period $  51,408  $  66,366  $  58,726   
General provision for credit losses    (115)    1,430     1,071   
Specific provision for credit losses    6,264     2,498     16,642   
Net (charge offs) recoveries    (5,476)    (18,886)    (7,328)  
Reclass of Equipment Finance to Assets held-for-sale  —    —      (1,819)  
Balance as of end of period $  52,081  $  51,408  $  67,292   
         
         
  Three Months Ended 
  March 31,  December 31, March 31,  
($ in thousands)  2016   2016   2016   
Supplemental Data (at period end):        
Investments in debt securities $  133,803  $  126,050  $  96,288   
Loans, held-for-sale     258,430     145,966     475,383   
Loans held-for-investment    3,227,895     3,319,550     3,162,571   
Loans and investments in debt securities    3,620,128     3,591,566     3,734,242   
Deferred fees, net    (36,278)    (38,072)    (79,929)  
Allowance for loan losses - general    (31,020)    (31,165)    (29,533)  
Allowance for loan losses - specific    (20,559)    (19,771)    (37,335)  
Total loans and investments in debt securities, net $  3,532,271  $  3,502,558  $  3,587,445   
         
         
Unused lines of credit    313,712     326,051     280,283   
Standby letters of credit    8,053     8,239     8,745   
Total unfunded commitments $  321,765  $  334,290  $  289,028   
         


NewStar Financial, Inc.       
Non-GAAP Selected Financial Data       
(unaudited)       
        
        
  Three Months Ended
  March 31,  December 31, March 31,  
($ in thousands)  2017   2016   2016  
Performance Ratios:       
Adjusted operating expenses as a percentage of average total assets  1.10%  1.42%  1.59% 
        
Consolidated Statement of Operations  Adjustments (1):       
Operating expenses $  11,637  $  19,462  $  17,068  
Less: non-cash equity compensation expense (2)    857     921     951  
Less: severance expenses  —      3,519   —   
Adjusted operating expenses $  10,780  $  15,022  $  16,117  
        
  Three Months Ended
  March 31,  December 31, March 31,  
   2017   2016   2016  
Risk-adjusted revenue       
Net interest income after provision for credit losses $  7,839  $  18,053  $  4,806  
Non-interest income    6,151     19,783     19,152  
Risk-adjusted revenue $  13,990  $  37,836  $  23,958  
        
(1) Adjustments are pre-tax, unless otherwise noted. 
(2) Non-cash compensation charge related to restricted stock grants.  

 

 

 

NewStar Financial, Inc.                
Portfolio Data                
(unaudited)                
                 
  March 31,  December 31,  March 31,   
($ in thousands) 2017  2016  2016  
                 
Portfolio Data: (Balance Sheet AUM)                
Leveraged Finance $3,609,467 99.7%$3,580,942 99.7%$3,479,738 93.2%
Real Estate  10,661 0.3   10,624 0.3   78,998 2.1  
Equipment Finance          175,506 4.7  
Total $3,620,128 100.0%$3,591,566 100.0%$3,734,242 100.0%
                 
Managed Portfolio (AUM)                
Commercial Lending                
Loans held-for-investment (1) $2,821,316 42.8%$2,915,805 43.3%$3,073,327$46.8%
Loans held-for-sale (1)  258,430 3.9   145,966 2.1   475,383 6.7  
Total Commercial Lending $3,079,746 46.7%$3,061,771 45.4%$3,548,710 53.5% 
                 
Asset Management                
Middle Market Direct Lending                
Investments in debt securities (1) $133,803 2.0%$126,050 1.9%$96,288 1.5% 
Arlington Program (2)  403,860 6.1   402,762 6.0   401,901 6.1  
Berkeley Fund (2)  502,203 7.6   502,245 7.4    6.1  
Clarendon Fund (2)  400,196 6.1   399,022 5.9   401,366 -  
Credit Opportunities Fund (2)  10,559 0.2   10,661 0.2   15,360 0.2  
Global Atlantic SMA  4,092           
Sub-total Middle Market Direct Lending  1,454,713 22.0% 1,440,740 21.4% 914,915 13.9% 
Liquid/Tradeable Credit                
Arch Street (2)  406,579 6.2% 403,745 6.0% 89,244 1.3  
Avery Street (2)      51,556 0.8   108,697 1.6  
Emerson Place (2)  43,227 0.7   82,660 1.2   156,147 2.4  
Hull Street (2)  494,927 7.5   495,684 7.3   500,717 7.6  
Lime Street (2)  191,760 2.9   241,145 3.6   250,904 3.8  
Longfellow Place (2)  499,091 7.6   500,080 7.4   502,182 7.6  
Staniford Street (2)  398,618 6.0   398,329 5.9   400,803 6.1  
Other (2)  29,066 0.4   64,153 1.0   147,590 2.2  
Sub-total Liquid/Tradeable Credit  2,063,268 31.3% 2,237,352 33.2% 2,156,284 32.6% 
  Total Managed Assets $   6,597,727    100.0 %$   6,739,863    100.0 %$   6,619,909    100.0 % 
                 
(1) Managed assets owned by NewStar Financial Inc. include investments in debt securities, loans held-for-sale (LHFS), assets held-for-sale, and loans held-for-investment.  Cash and other consolidated assets of NewStar Financial Inc. are excluded. 
(2) Managed assets include loans, cash and other investments held by funds and managed by NewStar Financial and its affiliates. 


For additional information contact:

Robert K. Brown
500 Boylston Street, Suite 1250
Boston, MA 02116
617.848.2558
rbrown@newstarfin.com