Gain on ABL Sale Boosts NewStar YTD Earnings

NewStar Financial announced Q2/16 net income of $5.2 million, up from $5.0 million in Q2/15. For the six month period ended June 30, 2016 net income of $9.25 million was up 22.7% compared to $7.54 million a year earlier. NewStar noted a gain of $22.5 million on the sale of its ABL business earlier in the year.

The following highlights were excerpted from the NewStar’s earnings release:

  • Total new funded credit investments were $476 million in Q2/16 compared to $1 billion in the same quarter last year. Investment activity in Q2/16 included $107 million of loans sourced for the Arch Street fund and reflected a modest pick-up in middle market sponsored lending activity compared to the prior quarter, but remained muted compared to last year. M&A activity continued to reflect a cautious market sentiment amid uncertainty about the future direction of the economy, including the potential impact of developing geopolitical events.
  • The leveraged finance loan portfolio increased by $85.6 million during the second quarter to $3.6 billion, while loans and leases in NewStar’s equipment finance portfolio decreased by $10.2 million to $165.2 million.
  • New equipment loan and lease volume was $11 million in Q2/16, down slightly from $13 million last quarter and down from $35 million in Q2/15.
  • Average yields on new middle market loans and other directly originated credit investments in the second quarter were 7.0%, down from 7.4% in the prior quarter due partly to the impact of competition for limited deal flow in the market, but up from 6.56% in Q2/15.
  • Managed loans and credit investments remained relatively unchanged from the prior quarter at $6.6 billion and increased $2.4 billion, or 57%, from the same period last year due to a combination of acquisitions and organic growth.
  • The net interest margin narrowed to 2.10% for the second quarter from 2.21% in the first quarter as asset yields remained stable and the cost of funds increased due primarily to the impact of the sale of the asset-based lending business, which drove a shift in the mix of debt.

“Our results in the second quarter reflected solid core operating trends, including an increase in investment activity, stable core revenue, improved credit performance and continued progress on our strategic goals. Although loan volumes remained below target levels through the first half of the year, investment activity improved in the second quarter. Loan demand from M&A activity remained weak, however, as continued uncertainty about the potential economic impacts of geopolitical events weighed on market sentiment,” said Tim Conway, NewStar’s chairman and CEO. “Overall, I was pleased with our financial results as earnings increased from last quarter and the comparable quarter last year. Core revenue remained steady at $25 million, excluding non-recurring items, despite the loss of revenue contributed by the asset-based lending (ABL) business, which we sold in the first quarter. Continued pressure on loan values, however, weighed on non-interest income in the quarter as we recognized additional unrealized losses on loans held for sale, which we could recover in future periods. Credit costs normalized in the second quarter as expected. We reduced non-performing assets by 16%. We also sold $34 million of real estate loans, accelerating the disposition of that portfolio. Our ability to take steps last quarter to accelerate certain workout strategies has positioned us well for the second half of the year.”

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Terry Mulreany
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