NewStar Q1 Earnings Down on Lower Net Interest Income

NewStar Financial reported Q1/15 net income of $2.5 million was down from net income of $6.2 million in Q1/14. NewStar noted net interest income, after provision for credit losses, was $10.4 million, down 30% from $14.8 million a year earlier.

Tim Conway, NewStar’s chairman and CEO commented on the company’s quarterly performance: “Our earnings this quarter continued to reflect the dilutive impact of the investment we have made in the company’s future, while our operating results were highlighted by strong loan growth and increased market share as we continued to capitalize on our strategic relationships to deliver more for our core customers and expand our asset management platform. Origination volume more than doubled compared to the same period last year, putting us on pace to reach our volume targets. Assets held in managed funds were nearly $1 billion, up more than $750 million compared to the same time last year. With continued regulatory pressure on banks and other recent market developments, we are seeing what I expect will be lasting changes in the competitive landscape. I am excited about how the company is positioned to take advantage of these trends. We are strategically aligned with world-class partners with complementary capabilities and objectives. With our recent note offering, we have positioned the balance sheet to support significant growth. We have a clear pathway to building the scale needed to generate better returns and, now, we also have favorable tailwinds in the market.”

The following highlights were excerpted from the news release:

  • Total new funded loan volume was approximately $609 million in the first quarter of 2015, up 121% from $275 million in the first quarter of the prior year, but down from $775 million in the prior quarter, reflecting a typical seasonal pattern. Higher loan volumes compared to the comparable prior quarter were driven by demand for acquisition financing derived from new middle market LBO activity and co-lending activity through our strategic relationships, combined with our emphasis on providing larger credit commitments.
  • New equipment loan and lease volume was $21 million in the first quarter, up significantly from $12 million in the first quarter of last year, but down slightly from $25 million last quarter, while asset-based lending activity totaling $9 million decreased somewhat from $12 million in the comparable prior quarter and was down materially from $39 million last quarter. Equipment finance and asset-based lending activity represented 9% of new loan volume retained on the balance sheet in the first quarter.
  • The Leveraged Finance loan portfolio increased by $185.6 million during the first quarter to more than $2.8 billion, while asset-based loans in our Business Credit portfolio decreased 8% to $265 million, and loans and leases in our Equipment Finance portfolio increased 18% to almost $114 million.
  • The portfolio yield increased to 6.00% in Q1/15 compared to 5.97% in the prior quarter due to higher yields on new loans originated in the prior quarter, but was down from 6.18% in Q1/14.
  • Net interest margin narrowed to 2.51% for Q1/15 compared to 2.90% for prior quarter as the cost of funds increased to 4.11% in the first quarter from 3.53% in Q4/14 due to the issuance of the subordinated notes at the end of the fourth quarter and higher leverage resulting from the issuance of a new $496 million CLO.
  • Average yields on new loans and investments in Q1/15 were 6.07%, down slightly from 6.16% in the prior quarter due primarily to the impact of lower yielding notes retained in connection with the Clarendon Fund CLO, a managed fund closed in January.
  • Completed eleventh loan securitization and tapped unsecured debt markets in April through a debut offering of senior unsecured notes, positioning the balance sheet to support anticipated loan growth.

To view the full NewStar Financial news release, click here.

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