- Loan Growth – New funded loan volume was approximately $319 million in the second quarter compared to $147 million in the prior quarter and $205 million in the second quarter of the prior year.
- Revenue Growth – Consolidated revenue grew 11% from the prior quarter, but decreased on a risk-adjusted basis1 by 4% as the impact of wider margins was offset by higher provision expense.
- Net Interest Margin – Net interest margin widened to 4.68% for the second quarter from 4.11% in the prior quarter due primarily to recognition of deferred loan income in connection with the resolution of problem loans and higher deferred loan fee amortization associated with an elevated level of prepayments.
- Asset Quality – NPAs decreased by 33%, or almost $30 million from the prior quarter and non-accruing loans fell to 2.5% of consolidated loans due primarily to the resolution of legacy workouts. Provision for credit losses increased $3.6 million from the prior quarter, reflecting the impact of the resolution of certain problem loans.
- Funding – Refinanced $100 million of higher cost debt through new $200 million institutional term debt financing rated BB- by S&P.
- New Managed Fund - Formed a new managed credit fund to co-invest in middle-market commercial loans originated by NewStar. The fund is expected to be $300 million when fully invested and its financial results are now reported on a consolidated basis in NewStar's financial statements in accordance with GAAP2.
BOSTON, Aug. 7, 2013 (GLOBE NEWSWIRE) -- NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, today reported consolidated net income of $5.6 million, or $0.11 per diluted share for the second quarter of 2013. Net income excluding the results of the new Arlington Fund, a consolidated variable interest entity ("VIE"), was $5.7 million3. These results compare to net income of $6.2 million, or $0.12 per diluted share in the first quarter of 2013 and $5.6 million, or $0.11 per diluted share in the second quarter of 2012. Operating income before income taxes was $9.3 million for the second quarter of 2013 compared to $10.4 million in the first quarter of 2013 and $9.7 million in the second quarter of 2012.
"We made significant progress on our key objectives this quarter. New loan volume rebounded strongly as M&A activity picked up and our productivity improved with the addition of three new bankers. We expanded our asset management activities with the launch of a new credit fund and completed a $200 million debt financing. Although provision expense was higher this quarter, we also reduced NPAs by one-third and brought the non-accrual rate down to 2.5% of loans," said Tim Conway, NewStar's Chairman and Chief Executive Officer. "Revenue grew, margins widened and our stock has performed well as developments in the market reinforce the value of asset origination platforms like NewStar," he concluded.
New Managed Fund and its Impact on Financial Reporting
- In April 2013, NewStar formed a new managed credit fund, NewStar Arlington Fund LLC ("Arlington Fund" or the "Fund"), in partnership with an institutional investor, to co-invest in middle market commercial loans originated by NewStar's Leveraged Finance lending group. The Fund had $210 million of capital commitments from debt and equity investors at June 30, 2013 and is expected to grow to $300 million of assets under management after it is fully invested.
- NewStar retains a minority ownership interest in the Arlington Fund and manages the Fund's activities with full discretion over its investment decisions. NewStar also participates as a lender in a warehouse line of credit used by the fund to partially finance its loan investments.
- The Arlington Fund is treated as a variable interest entity ("VIE") under GAAP and NewStar is deemed its primary beneficiary. As a result, NewStar is required to consolidate the Fund's results of operations and financial position.
- NewStar's ownership interest and loan receivable due from the Arlington Fund are eliminated upon consolidation.
- Due to its treatment as a VIE, in addition to other facts and circumstances, the Arlington Fund's membership interests, representing equity ownership in the Fund, are characterized as debt in NewStar's consolidated financial statements under GAAP and the Fund's financial results include interest expense related to the membership interest debt based on an imputed interest rate.
- Loans managed for the benefit of the Arlington Fund and consolidated into NewStar's results were $85 million as of June 30, 2013. Borrowings under the Fund's warehouse credit facilities were approximately $51 million and the Fund's membership interests characterized as debt in accordance with GAAP were $22 million at June 30, 2013. The net results (after-tax) of the Fund included in NewStar's financial statements as a consolidated VIE were $0.1 million, or less than $0.01 per share in the second quarter of 2013.
Managed and Owned Loan Portfolios
- Total new funded loan volume was approximately $319 million in the second quarter compared to $147 million in the prior quarter and $205 million in the second quarter of the prior year. Higher volumes reflected an increase in demand for acquisition financing from financial sponsors amid a pickup in M&A activity following a slow first quarter.
- The managed loan portfolio remained steady at $2.4 billion as of June 30, 2013 approximately equal to March 31, 2013 as new funded loan origination was largely offset by loan run-off from scheduled amortization and an elevated level of prepayments of existing loans.
- Consolidated loans increased by 1.2% from the prior quarter and 3.0% since the end of 2012, reflecting stronger new loan volume in the second quarter and the consolidation of managed fund assets, which was partially offset by an elevated level of pre-payments.
- Excluding the $85 million of loans in the Arlington Fund, the owned loan portfolio decreased slightly from the prior quarter to $1.8 billion as of June 30, 2013 as run-off from scheduled amortization and prepayments of existing loans exceeded new funded loan origination.
- The Leveraged Finance loan portfolio, excluding the $85 million of loans in the Arlington Fund, decreased by $32 million during the second quarter of 2013 to approximately $1.5 billion, while asset-based loans and leases in our Business Credit portfolio declined $3.6 million to $201 million.
- Assets managed for third party institutional investors, including the Arlington Fund, remained steady at $531 million at June 30, 2013 as the expected run-off of assets managed in the NewStar Credit Opportunities Fund was offset by growth in assets managed for the new Arlington Fund.
- Asset-based lending and equipment finance business lines originated approximately $9 million in the second quarter of 2013, or 3% of new loan volume retained on the balance sheet.
- Real estate loans decreased by $27 million, or 18.1%, during the quarter to $122 million, or 6.3% of consolidated loans.
- The owned loan portfolio (excluding the Arlington Fund) remained balanced across industry sectors and highly diversified by issuer. As of June 30, 2013, no outstanding borrowings by a single obligor represented more than 1.5% of total loans outstanding, and the ten largest obligors comprised approximately 10.3% of the loan portfolio.
Net Interest Income / Margin
- Net interest income increased by approximately $4.2 million to $25.2 million for the second quarter of 2013 compared to $21.0 million for the first quarter of 2013 and $21.4 million in the second quarter of 2012.
- The portfolio yield increased to 7.33% in the second quarter of 2013 compared to 6.50% in the prior quarter, and 6.35% in the second quarter of 2012. The increase to both net interest income and portfolio yield was due primarily to the recognition of deferred interest income on problem loans resolved during the quarter, higher amortization of deferred loan fees related to an elevated level of prepayments and the consolidation of interest income from the Arlington Fund.
- Adjusting for the negative impact of non-accruing loans on a non-GAAP basis, the loan portfolio yield would have been 23 bps higher, or 7.56%.
- Net interest margin widened to 4.68% for the second quarter of 2013 compared to 4.11% for the first quarter of 2013 as growth in interest income of $5.7 million in the quarter exceeded a $1.4 million increase in interest expense. As noted above, the growth in interest income was due primarily to higher amortization of deferred loan fees associated with the increase in loan prepayments during the second quarter and the recognition of deferred interest income, as well as growth in consolidated loans. The increase in interest expense reflected higher average borrowings due primarily to the completion of a new corporate debt issuance and the consolidation of the Arlington Fund's debt.
Non-Interest Income
- Non-interest income was $1.5 million for the second quarter of 2013, down from $3.1 million for the first quarter of 2013, and $1.8 million for the second quarter of 2012. The change from the first quarter was due primarily to a decline in value of an equity position retained in connection with a restructuring of an impaired loan. There were no gains on debt repurchases during the first six months of 2013, or in the second quarter of 2012.
- Other non-interest income in the second quarter of 2013 consisted primarily of $0.7 million of asset management income and $0.5 million of unused fees on revolving credit commitments. It also included approximately $0.6 million of revenue related to OREO currently being managed by the Company, which, prior to 2013, was reported net of related expenses and is now recognized on a gross basis in the Company's financial results.
Expenses
- Operating expenses decreased slightly by $0.1 million to $12.8 million in the second quarter of 2013 compared to $12.9 million in the first quarter of 2013 due to lower compensation, general and administrative expenses, partially offset by the recognition of $0.9 million of operating expense related to OREO currently being managed by the Company, which, prior to 2013, was 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 compensation4 were $11.6 million in the second quarter of 2013, or 2.1% of average assets on an annualized basis, compared to $11.3 million in the prior quarter.
- The efficiency ratio excluding non-cash equity compensation5 in the second quarter of 2013 was 43.9% compared to 47.1% in the prior quarter.
- The Company had 103 full-time employees as of June 30, 2013, equal to March 31, 2013.
Income Taxes
- Deferred income taxes decreased to $32.1 million as of June 30, 2013 compared to $40.9 million as of March 31, 2013 due primarily to the vesting of performance-based equity awards and a decrease in the allowance for credit losses, as well as the related timing differences of when credit costs are recognized according to GAAP and when they are excluded for income tax.
- Approximately $20.4 million and $8.3 million of the deferred tax asset as of June 30, 2013 were related to our allowance for credit losses and equity compensation, respectively.
Loan Credit Quality
- Total credit costs (including provision for credit losses and losses on OREO or interests retained in connection with workouts of impaired loans) in the second quarter of 2013 increased by $5.5 million to $6.2 million from $0.7 million in the prior quarter.
- Specific provision expense was approximately $6.5 million in the second quarter of 2013, up from $0.4 million in the first quarter of 2013. The establishment of a new specific reserve for one loan resulted in a corresponding $2 million reduction in the general allowance for credit losses.
- The allowance for credit losses was $39.0 million, or 2.07% of consolidated loans and approximately 83% of NPLs, at June 30, 2013, compared to $45.5 million, or 2.50% of loans and approximately 60% of NPLs, at March 31, 2013.
- Non-performing assets decreased by $29.2 million, or 33%, from the prior quarter. Three assets totaling $26.1 million returned to performing status, two legacy loans totaling $8.6 million were placed on non-accrual status, and charge-offs on non-performing assets totaled $8.8 million.
- At June 30, 2013, loans with an aggregate outstanding balance of $46.9 million (net of charge-offs), or 2.49% of consolidated loans, were on non-accrual status compared to loans with an aggregate outstanding balance of $76.3 million (net of charge-offs), or 4.19% of loans at March 31, 2013. Non-performing assets, net of charge-offs, specific reserves and other adjustments were $60.1 million, or 3.17% of consolidated loans and 44% of their aggregate face amount, as of June 30, 2013.
Funding and Capital
- Refinanced $100 million of existing corporate debt through a new $200 million institutional term loan by amending and restating key terms of the existing note agreement on May 13, 2013 to reduce cost, extend maturity and provide additional capital. The loan was syndicated among a group of institutional lenders.
- The loan was rated BB- by Standard & Poor's and NewStar was assigned a BB- corporate rating with a Stable outlook in connection with the transaction.
- Balance sheet leverage increased to 2.73x as of June 30, 2013 from 2.44x at March 31, 2013 due primarily to the corporate debt issuance and the consolidation of the Arlington Fund's debt.
- Added substantial liquidity with total cash and equivalents as of June 30, 2013 of $313.3 million, of which $83.4 million (excluding cash at the Arlington Fund) was unrestricted. Unrestricted cash increased from approximately $27.6 million at June 30, 2013 and restricted cash increased from approximately $141.0 million to $228.3 million due primarily to timing differences. Cash at the Arlington Fund totaled $1.6 million.
Book Value
- Book value per share was $12.39 at the end of the second quarter of 2013, up $0.20 from $12.19 at the end of the prior quarter and up $0.70 from $11.69 at the end of the second quarter of 2012 primarily due to net income, the forfeiture of employee restricted shares to satisfy their personal tax liability upon vesting, and the amortization of equity compensation into stockholders' equity. During the second quarter of 2013, employees forfeited 0.9 million shares to satisfy their tax liability in connection with the vesting of restricted shares.
Share Count
- Average diluted shares outstanding were 52.6 million shares for the quarter, which was down from 53.3 million shares for the prior quarter. Total outstanding shares at June 30, 2013 were 48.6 million, down from 49.3 million as of March 31, 2013.
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 August 14, 2013 by dialing 855-859-2056. International callers should call 404-537-3406. For all replays, please use the passcode 21816080. 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, Atlanta GA, Chicago IL, Dallas TX, Los Angeles CA, New York, NY, Philadelphia, PA, Portland OR and San Francisco CA. 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. 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, including with respect to expected assets under management in the Arlington Fund. 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 2012 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 with the SEC on or before August 9, 2013 and urges its shareholders to refer to that document for more complete information concerning NewStar's financial results.
Non-GAAP Financial Measures
Net income excluding the Arlington Fund ("Managed VIEs") is a non‑GAAP performance measure that we use to assess our business without giving effect to the consolidation of the Arlington Fund. Although, we consolidate all of the assets and liabilities of the Arlington Fund in accordance with GAAP, our maximum exposure to loss is limited to our investments in membership interests in Arlington Fund as well as our loan receivable and any accrued management fees receivable by us from the Arlington Fund. Since these items that define our economic relationship with Arlington Fund are eliminated upon consolidation, management uses net income excluding managed VIEs to assess its core economic performance. In addition, we manage the assets of the Arlington Fund solely for the benefit of its investors and lenders. If we were to liquidate, the assets of the Arlington Fund would not be available to our general creditors, and as a result, we do not consider the assets of the Arlington Fund to be part our assets. Conversely, the investors in the debt of Arlington Fund have no recourse to our general assets. Therefore, the Arlington Fund's debt is not considered the Company's obligation.
References to "risk-adjusted revenue" mean the sum of net interest income after provision for credit losses as determined under GAAP and non-interest income as determined under GAAP. NewStar management uses "risk adjusted revenue" to make operational and investment decisions, and NewStar believes that it provides useful information to investors in their evaluation of our financial performance and condition. A calculation of risk-adjusted revenue is included on page 13 of this release.
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 13 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 13 for reconciliation of non-GAAP to GAAP measurements.
2 The Arlington Fund is a variable interest entity ("VIE") for which NewStar is deemed to be the primary beneficiary. As a result, these interim condensed consolidated financial statements include the financial statements of NewStar and the Arlington Fund in accordance with GAAP.
3 Net Income excluding the results of the new Arlington Fund is a non-GAAP measure. See "Non-GAAP Measurements " at the end of this press release and page 13 for reconciliation to GAAP net income.
4 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 13 for reconciliation of non-GAAP to GAAP measurements.
5 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 13 for reconciliation of non-GAAP to GAAP measurements.
| NewStar Financial, Inc. | ||||
| Consolidated Balance Sheets | ||||
| (unaudited) | ||||
| June 30, | March 31, | December 31, | June 30, | |
| ($ in thousands) | 2013 | 2013 | 2012 | 2012 |
| Assets: | ||||
| Cash and cash equivalents | $83,390 | $27,581 | $27,212 | $28,394 |
| Restricted cash | 228,330 | 140,969 | 208,667 | 126,943 |
| Investments in debt securities, available-for-sale | 21,099 | 21,546 | 21,127 | 18,335 |
| Loans held-for-sale, net | 20,894 | 59,517 | 51,602 | 52,527 |
| Loans and leases, net | 1,743,163 | 1,748,454 | 1,720,789 | 1,746,803 |
| Deferred financing costs, net | 19,527 | 17,858 | 19,064 | 13,526 |
| Interest receivable | 8,547 | 8,626 | 9,003 | 8,506 |
| Property and equipment, net | 334 | 345 | 433 | 636 |
| Deferred income taxes, net | 32,144 | 40,895 | 42,463 | 45,237 |
| Income tax receivable | 10,722 | 1,724 | 4,311 | 2,948 |
| Other assets | 25,761 | 28,251 | 52,399 | 20,802 |
| Subtotal | 2,193,911 | 2,095,766 | 2,157,070 | 2,064,657 |
| Assets of Consolidated Variable Interest Entity (VIE): | ||||
| Cash and cash equivalents | 457 | |||
| Restricted cash | 1,160 | |||
| Loans, net | 84,329 | |||
| Deferred financing costs, net | 1,067 | |||
| Interest receivable | 459 | |||
| Other assets | 252 | |||
| Total assets of Consolidated VIE | 87,724 | |||
| Total assets | $2,281,635 | $2,095,766 | $2,157,070 | $2,064,657 |
| Liabilities: | ||||
| Credit facilities | $249,717 | $213,859 | $229,941 | $363,129 |
| Term debt | 1,295,079 | 1,196,124 | 1,221,764 | 1,045,749 |
| Repurchase agreements | 27,761 | 30,194 | 30,583 | 41,480 |
| Accrued interest payable | 7,467 | 4,543 | 3,330 | 3,564 |
| Accounts payable | 1,023 | 1,186 | 404 | 378 |
| Income tax payable | -- | -- | -- | -- |
| Other liabilities | 24,917 | 47,207 | 76,231 | 33,318 |
| Subtotal | 1,605,964 | 1,493,113 | 1,562,253 | 1,487,618 |
| Liabilities of Consolidated VIE: | ||||
| Credit facilities | 51,185 | |||
| Interest payable - credit facilities | 292 | |||
| Subordinated debt - Fund membership interest | 21,791 | |||
| Interest payable - Fund membership interest | 349 | |||
| Accounts payable | 247 | |||
| Other liabilities | 71 | |||
| Total liabilities of Consolidated VIE: | 73,935 | |||
| Total liabilities | 1,679,899 | 1,493,113 | 1,562,253 | 1,487,618 |
| NewStar Financial, Inc. stockholders' equity | 601,601 | 602,653 | 594,817 | 577,039 |
| Retained earnings of Consolidated VIE | 135 | |||
| Total stockholders' equity | 601,736 | 602,653 | 594,817 | 577,039 |
| Total liabilities and stockholders' equity | $2,281,635 | $2,095,766 | $2,157,070 | $2,064,657 |
| NewStar Financial, Inc. | ||||
| Consolidated Statements of Operations | ||||
| (unaudited) | ||||
| Three Months Ended | ||||
| June 30, | March 31, | December 31, | June 30, | |
| ($ in thousands, except per share amounts) | 2013 | 2013 | 2012 | 2012 |
| Net interest income: | ||||
| Interest income | $34,891 | $30,140 | $33,000 | $30,611 |
| Interest expense | 9,908 | 9,187 | 8,984 | 9,180 |
| Net interest income | 24,983 | 20,953 | 24,016 | 21,431 |
| Provision for credit losses | 4,330 | 718 | 5,899 | 159 |
| Net interest income after provision for credit losses | 20,653 | 20,235 | 18,117 | 21,272 |
| Non-interest income: | ||||
| Fee income | 1,183 | 358 | 1,221 | 1,069 |
| Asset management income | 652 | 727 | 796 | 727 |
| Loss on derivatives | (45) | (41) | (57) | (186) |
| Gain on sale of loans | 45 | 27 | 753 | 32 |
| Other income (loss) | (374) | 2,032 | 1,082 | 163 |
| Total non-interest income | 1,461 | 3,103 | 3,795 | 1,805 |
| Operating expenses: | ||||
| Compensation and benefits | 8,735 | 8,880 | 8,038 | 8,067 |
| General and administrative expenses | 4,034 | 4,031 | 3,531 | 5,291 |
| Total operating expenses | 12,769 | 12,911 | 11,569 | 13,358 |
| Operating income before income taxes | 9,345 | 10,427 | 10,343 | 9,719 |
| Results of Consolidated VIE | ||||
| Interest income | 900 | |||
| Interest expense - credit facilities | 334 | |||
| Interest expense - Fund membership interest | 349 | |||
| Other income | 16 | |||
| Operating expenses | 4 | |||
| Net results from Consolidated VIE | 229 | |||
| Income before income taxes | 9,574 | 10,427 | 10,343 | 9,719 |
| Income tax expense | 3,930 | 4,273 | 4,131 | 4,102 |
| Net income | $5,644 | $6,154 | $6,212 | $5,617 |
| Non-GAAP after tax adjustments to net income: | ||||
| Net results of Consolidated VIE | (135) | |||
| Interest income from loan to Consolidated VIE (1) | 109 | |||
| Interest income from Fund membership interest (2) | 34 | |||
| VIE management fee (3) | 49 | |||
| Net income excluding managed VIE | $5,701 | |||
| Net income per share: | ||||
| Basic | $0.12 | $0.13 | $0.13 | $0.12 |
| Diluted | $0.11 | $0.12 | $0.12 | $0.11 |
| Net income excluding managed VIE per share: | ||||
| Basic | $0.12 | |||
| Diluted | $0.11 | |||
| Weighted average shares outstanding: | ||||
| Basic | 47,965,873 | 47,357,495 | 47,407,192 | 47,320,839 |
| Diluted | 52,599,708 | 53,256,113 | 52,975,040 | 52,644,476 |
| (1) Interest income earned by NewStar from the $10.0 million B Note with Arlington Fund which is eliminated in consolidation of the VIE. | ||||
| (2) Interest income earned by NewStar from its membership interest in Arlington Fund which is characterized as debt for consolidation and eliminated in consolidation of the VIE. | ||||
| (3) Management fee earned by NewStar which is eliminated in consolidation of the VIE. | ||||
| NewStar Financial, Inc. | ||
| Consolidated Statements of Operations | ||
| (unaudited) | ||
| Six Months Ended June 30, | ||
| ($ in thousands, except per share amounts) | 2013 | 2012 |
| Net interest income: | ||
| Interest income | $65,031 | $60,133 |
| Interest expense | 19,095 | 17,533 |
| Net interest income | 45,936 | 42,600 |
| Provision for credit losses | 5,048 | 3,040 |
| Net interest income after provision for credit losses | 40,888 | 39,560 |
| Non-interest income: | ||
| Fee income | 1,541 | 2,324 |
| Asset management income | 1,379 | 1,470 |
| Loss on derivatives | (86) | (201) |
| Gain (loss) on sale of loans | 72 | (418) |
| Other income | 1,658 | 1,415 |
| Total non-interest income | 4,564 | 4,590 |
| Operating expenses: | ||
| Compensation and benefits | 17,615 | 15,269 |
| General and administrative expenses | 8,065 | 8,784 |
| Total operating expenses | 25,680 | 24,053 |
| Operating income before income taxes | 19,772 | 20,097 |
| Results of Consolidated VIE | ||
| Interest income | 900 | |
| Interest expense - credit facilities | 334 | |
| Interest expense -- [Fund membership interest characterized as debt] | 349 | |
| Other income | 16 | |
| Operating expenses | 4 | |
| Net results from Consolidated VIE | 229 | |
| Income before income taxes | 20,001 | 20,097 |
| Income tax expense | 8,203 | 8,398 |
| Net income | $11,798 | $11,699 |
| Non-GAAP after tax adjustments to net income: | ||
| Net results of Consolidated VIE | (135) | |
| Interest income from loan to Consolidated VIE (1) | 109 | |
| Interest income from Fund membership interest (2) | 34 | |
| VIE management fee (3) | 49 | |
| Net income excluding managed VIE | $11,855 | $11,699 |
| Net income per share: | ||
| Basic | $0.25 | $0.25 |
| Diluted | $0.22 | $0.22 |
| Net income excluding managed VIE per share: | ||
| Basic | $0.25 | $0.25 |
| Diluted | $0.22 | $0.22 |
| Weighted average shares outstanding: | ||
| Basic | 47,663,365 | 47,347,253 |
| Diluted | 52,931,260 | 52,416,523 |
| (1) Interest income earned by NewStar from the $10.0 million B Note with Arlington Fund which is eliminated in consolidation of the VIE | ||
| (2) Interest income earned by NewStar from its membership interest in Arlington Fund which is characterized as debt for consolidation and eliminated in consolidation of the VIE. | ||
| (3) Management fee earned by NewStar which is eliminated in consolidation of the VIE. | ||
| NewStar Financial, Inc. | ||||
| Selected Financial Data | ||||
| (unaudited) | ||||
| Three Months Ended | ||||
| June 30, | March 31, | December 31, | June 30, | |
| ($ in thousands) | 2013 | 2013 | 2012 | 2012 |
| Performance Ratios: | ||||
| Return on average assets | 1.04% | 1.18% | 1.17% | 1.10% |
| Return on average equity | 3.74 | 4.17 | 4.18 | 3.93 |
| Net interest margin, before provision | 4.68 | 4.11 | 4.58 | 4.21 |
| Efficiency ratio | 47.77 | 53.67 | 41.71 | 57.65 |
| Portfolio yield | 7.33 | 6.50 | 6.88 | 6.35 |
| Credit Quality Ratios: | ||||
| Delinquent loan rate for loans 60 days or more past due (at period end) | 1.15% | 2.08% | 3.59% | 2.08% |
| Delinquent loan rate for accruing loans 60 days or more past due (at period end) | 0.65 | -- | 1.17 | -- |
| Non-accrual loan rate (at period end) | 2.49 | 4.19 | 4.05 | 4.22 |
| Non-performing asset rate (at period end) | 3.17 | 4.87 | 4.77 | 4.66 |
| Annualized net charge off rate (end of period loans) | 2.32 | 1.15 | 3.38 | 1.97 |
| Annualized net charge off rate (average period loans) | 2.25 | 1.13 | 3.23 | 1.88 |
| Allowance for credit losses ratio (at period end) | 2.07 | 2.50 | 2.78 | 3.02 |
| Capital and Leverage Ratios: | ||||
| Equity to assets | 26.37% | 28.76% | 27.58% | 27.95% |
| Debt to equity | 2.73x | 2.44x | 2.49x | 2.51x |
| Book value per share | $ 12.39 | $ 12.19 | $ 12.06 | $ 11.69 |
| Average Balances: | ||||
| Loans and other debt products, gross | $ 1,958,041 | $ 1,876,273 | $ 1,904,385 | $ 1,936,689 |
| Interest earning assets | 2,159,458 | 2,069,667 | 2,086,945 | 2,045,907 |
| Total assets | 2,176,675 | 2,110,816 | 2,113,375 | 2,060,119 |
| Interest bearing liabilities | 1,522,542 | 1,451,092 | 1,430,521 | 1,447,422 |
| Equity | 605,059 | 599,061 | 591,570 | 574,324 |
| Allowance for credit loss activity: | ||||
| Balance as of beginning of period | $ 45,499 | $ 49,964 | $ 59,351 | $ 64,129 |
| General provision for credit losses | (2,120) | 301 | (1,952) | (2,464) |
| Specific provision for credit losses | 6,450 | 417 | 7,851 | 2,623 |
| Net (charge offs) recoveries | (10,870) | (5,183) | (15,286) | (8,954) |
| Balance as of end of period | $ 38,959 | $ 45,499 | $ 49,964 | $ 55,334 |
| Supplemental Data (at period end): | ||||
| Investments in debt securities, gross | $ 25,298 | $ 25,298 | $ 25,298 | $ 25,298 |
| Loans held-for-sale, gross | 21,028 | 60,114 | 52,120 | 53,258 |
| Loans held-for-investment, gross | 1,882,769 | 1,820,369 | 1,796,845 | 1,830,208 |
| Loans and investments in debt securities, gross | 1,929,095 | 1,905,781 | 1,874,263 | 1,908,764 |
| Unused lines of credit | 263,874 | 260,590 | 245,483 | 261,663 |
| Standby letters of credit | 5,443 | 5,438 | 4,497 | 6,506 |
| Total funding commitments | $ 2,198,412 | $ 2,171,809 | $ 2,124,243 | $ 2,176,933 |
| Loans held-for-sale, gross | $ 21,028 | $ 60,114 | $ 52,120 | $ 53,258 |
| Loans held-for-investment, gross | 1,882,769 | 1,820,369 | 1,796,845 | 1,830,208 |
| Total loans, gross | 1,903,797 | 1,880,483 | 1,848,965 | 1,883,466 |
| Deferred fees, net | (16,982) | (27,356) | (26,938) | (29,198) |
| Allowance for loan losses - general | (17,682) | (19,916) | (19,423) | (21,887) |
| Allowance for loan losses - specific | (20,747) | (25,240) | (30,213) | (33,051) |
| Total loans, net | $ 1,848,386 | $ 1,807,971 | $ 1,772,391 | $ 1,799,330 |
| NewStar Financial, Inc. | ||
| Selected Financial Data | ||
| (unaudited) | ||
| Six Months Ended June 30, | ||
| ($ in thousands) | 2013 | 2012 |
| Performance Ratios: | ||
| Return on average assets | 1.11% | 1.17% |
| Return on average equity | 3.95 | 4.12 |
| Net interest margin, before provision | 4.44 | 4.26 |
| Efficiency ratio | 50.57 | 51.11 |
| Portfolio yield | 6.98 | 6.38 |
| Credit Quality Ratios: | ||
| Annualized net charge off rate (end of period loans) | 1.72 | 1.30 |
| Annualized net charge off rate (average period loans) | 1.72 | 1.27 |
| Average Balances: | ||
| Loans and other debt products, gross | $ 1,901,328 | $ 1,894,331 |
| Interest earning assets | 2,097,311 | 2,011,397 |
| Total assets | 2,150,600 | 2,014,538 |
| Interest bearing liabilities | 1,487,041 | 1,399,413 |
| Equity | 601,976 | 571,677 |
| Allowance for credit loss activity: | ||
| Balance as of beginning of period | $ 49,964 | $ 64,112 |
| General provision for credit losses | (1,820) | (1,151) |
| Specific provision for credit losses | 6,868 | 4,191 |
| Net charge offs | (16,053) | (11,818) |
| Balance as of end of period | $ 38,959 | $ 55,334 |
| NewStar Financial, Inc. | ||||
| Non-GAAP Selected Financial Data Excluding Managed VIE | ||||
| (unaudited) | ||||
| Three Months Ended | ||||
| June 30, | March 31, | December 31, | June 30, | |
| ($ in thousands) | 2013 | 2013 | 2012 | 2012 |
| Performance Ratios: | ||||
| Efficiency ratio | 43.85 | 47.05 | 35.03 | 49.50 |
| Consolidated Statement of Operations Adjustments (1): | ||||
| Operating expenses | $ 12,773 | $ 12,911 | $ 11,569 | $ 13,358 |
| Less: non-cash equity compensation expense (2) | 1,178 | 1,597 | 1,827 | 1,856 |
| Adjusted operating expenses | $ 11,595 | $ 11,314 | $ 9,742 | $ 11,502 |
| Three Months Ended | ||||
| June 30, | March 31, | December 31, | June 30, | |
| 2013 | 2013 | 2012 | 2012 | |
| Risk-adjusted revenue | ||||
| Net interest income after provision for credit losses | $ 20,870 | $ 20,235 | $ 18,117 | $ 21,272 |
| Non-interest income | 1,477 | 3,103 | 3,795 | 1,805 |
| Risk-adjusted revenue | $ 22,347 | $ 23,338 | $ 21,912 | $ 23,077 |
| (1) Adjustments are pre-tax. | ||||
| (2) Non-cash compensation charge related to restricted stock grants and option grants. | ||||
| NewStar Financial, Inc. | ||
| Non-GAAP Selected Financial Data Excluding Managed VIE | ||
| (unaudited) | ||
| Six Months Ended June 30, | ||
| ($ in thousands) | 2013 | 2012 |
| Performance Ratios: | ||
| Efficiency ratio | 45.36 | 51.11 |
| Consolidated Statement of Operations Adjustments(1): | ||
| Operating expenses | $ 25,684 | $ 24,053 |
| Less: non-cash equity compensation expense (2) | 2,775 | 3,683 |
| Adjusted operating expenses | $ 22,909 | $ 20,370 |
| (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) | June 30, 2013 | March 31, 2013 | December 31, 2012 | June 30, 2012 | ||||
| Portfolio Data: | ||||||||
| First mortgage | $121,982 | 6.3% | $148,867 | 7.8% | $177,462 | 9.5% | $210,683 | 11.0% |
| Senior secured asset-based | 207,808 | 10.8 | 210,774 | 11.1 | 201,219 | 10.7 | 184,303 | 9.7 |
| Senior secured cash flow | 1,533,999 | 79.5 | 1,493,156 | 78.3 | 1,448,182 | 77.3 | 1,460,507 | 76.5 |
| Other | 65,306 | 3.4 | 52,984 | 2.8 | 47,400 | 2.5 | 53,271 | 2.8 |
| Total | $1,929,095 | 100.0% | $1,905,781 | 100.0% | $1,874,263 | 100.0% | $1,908,764 | 100.0% |
| Leveraged Finance | $1,606,029 | 83.3% | $1,552,249 | 81.5% | $1,499,833 | 80.0% | $1,515,257 | 79.4% |
| Business Credit | 201,084 | 10.4 | 204,649 | 10.7 | 196,952 | 10.5 | 182,809 | 9.6 |
| Real Estate | 121,982 | 6.3 | 148,883 | 7.8 | 177,478 | 9.5 | 210,698 | 11.0 |
| Total | $1,929,095 | 100.0% | $1,905,781 | 100.0% | $1,874,263 | 100.0% | $1,908,764 | 100.0% |
| Managed loan portfolio | ||||||||
| NewStar Financial, Inc. Loan portfolio | $1,844,068 | $1,905,781 | $1,874,263 | $1,908,764 | ||||
| Loans owned by NewStar Credit | ||||||||
| Opportunities Fund | 446,377 | 531,499 | 559,328 | 497,750 | ||||
| Loans owned by Arlington Fund (1) | 85,027 | -- | -- | |||||
| Total | $2,375,472 | $2,437,280 | $2,433,591 | $2,406,514 | ||||
| (1) Consolidated as a Variable Interest Entity | ||||||||