NewStar Q4/FY Earnings Hurt by Higher Provision Charges

NewStar Financial reported Q4/14 net income of $1.2 million compared to net income of $6.4 million in Q4/13. Consolidated net income for 2014 was $10.6 million, down 57% from $24.6 million a year earlier. Earnings were hurt by lower net interest income and higher provision charges.

NewStar noted that provision charges in Q4/14 and full year 2014 of $5.3 million and $27.1 million, respectively were up from $2.3 million and $9.7 million for the same year earlier periods. The company said the 2014 provision expense increase of $17.4 million from the prior year was due primarily to specific charges recognized in connection with the resolution of legacy loans in the second quarter and strong growth in the second half of the year.

The following highlights were excerpted from the NewStar news release:

  • Strategic Relationship – Closed a new $400 million managed credit fund with an anchor investment from funds sponsored by Franklin Square Capital Partners and sub-advised by Blackstone’s GSO Capital and completed the initial closing of their strategic investment in the company.
  • New Loan Volume – Total new funded loan volume was $775 million in the fourth quarter, up from $409 million in the prior quarter and $549 million in the fourth quarter of the prior year (including a $218 million portfolio purchase). Loan volume was approximately $1.8 billion for the full year, up 38% from $1.3 billion in 2013. NewStar said higher volumes were driven partly 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. The company’s asset-based lending and equipment finance platforms also continued to make meaningful contributions to volumes.
  • Leveraged Finance Portfolio – Increased by $372 million during the fourth quarter to more than $2.1 billion, while asset-based loans in our Business Credit portfolio increased 27% to $287 million, and loans and leases in our Equipment Finance portfolio increased 28% to almost $100 million.
  • Net Interest Margin – Margin narrowed to 2.90% for the fourth quarter from 3.24% in the prior quarter, and 3.17% for 2014, down from 3.90% for the prior year due primarily to increased leverage and higher cost of funds.
  • Net Interest Income – Net interest income in Q4/14 and full year 2014 of $18.5 million and $78.4 million, respectively were down from $20.1 million and $84.7 million a year earlier.

Tim Conway, NewStar’s chairman and CEO commented on the company’s quarterly results: “In the fourth quarter, we marked several important milestones in the company’s history as we continued to make progress on key strategies to improve stockholder returns. We announced a transformational strategic relationship with world class partners and have already begun to see benefits. We nearly doubled origination volume and increased assets under management by 30% to $3.8 billion in the quarter. Importantly, we also continued to differentiate our credit performance with a disciplined credit strategy that significantly under-weighted exposure to energy sectors and is expected to provide appropriate balance to our growth objectives.”

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

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Terry Mulreany
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