BOSTON, Aug. 03, 2016 (GLOBE NEWSWIRE) — NewStar Financial, Inc. (NASDAQ:NEWS) (“NewStar†or the “Companyâ€), an internally-managed, middle market direct lender and credit-oriented asset manager, today announced financial results for its second quarter of 2016, reporting net income of $5.2 million, or $0.11 per diluted share. These results compare to net income of $4.0 million, or $0.09 per diluted share in the first quarter of 2016 and $5.0 million, or $0.10 per diluted share in the second quarter of 2015. Operating income before income taxes was $8.8 million for the second quarter of 2016 compared to $6.9 million for the first quarter of 2016 and $8.6 million in the second quarter of 2015.
Tim Conway, NewStar’s Chairman and Chief Executive Officer, commented on the Company’s performance: “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.
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.Importantly, book value per share also increased considerably due to accretive share repurchases and earnings retention.Â
We also continued to make progress on key priorities in the quarter as we worked to streamline the business, and focus on higher margin segments, including middle market direct lending and asset management.Expenses decreased by 25% from the prior quarter due to the sale of the ABL business and we have identified additional opportunities that we expect to generate a considerable reduction in total run-rate expenses by the end of 2016.â€Â
Managed and Owned Investment Portfolios
- Total new funded credit investments were $476 million in the second quarter of 2016 compared to $300 million in the prior quarter and $1 billion in the same quarter last year.Investment activity in the second quarter of 2016 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.Â
- Balance sheet runoff from scheduled amortization, prepayments and loan sales totaled approximately $343 million, or 9.5% of the loan balances at the beginning of the period, up from $170 million, or 4.5% of balances in the prior quarter.Runoff in the second quarter included $190 million of prepayments, $102 million of loan sales and $51 million of contractual amortization compared to prepayments of $80 million, loan sales of $49 million and amortization of $41 million in the prior quarter.Â
- 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 the second quarter of last year.Â
- Loans and other investments outstanding, excluding assets managed for third parties, increased by $37.8 million, or 1%, from the prior quarter. Net loan growth in the second quarter was driven by lending activity generated through our Leveraged Finance group. Compared to the second quarter of 2015, loans and investments increased $548 million, or 17%, due to a combination of acquisition activity and organic growth, which was partially offset by the sale of the ABL business.Â
- The Leveraged Finance loan portfolio increased by $85.6 million during the second quarter to $3.6 billion, while loans and leases in our Equipment Finance portfolio decreased by $10.2 million to $165.2 million.Commercial real estate loans decreased by 47% in the second quarter to less than $42 million due to the sale of commercial mortgage loans as part of an accelerated disposition of that portfolio.A commercial real estate loan totaling $23.8 million was also reclassified as held-for-sale during the quarter in connection with a strategy to further reduce exposure to this asset class.
- New equipment loan and lease volume was $11 million in the second quarter, down slightly from $13 million last quarter and down from $35 million in the second quarter of 2015,  Â
- Assets held in managed funds increased slightly to approximately $3.0 billion as of June 30, 2016 as a decrease in assets managed in amortizing CLOs was offset by an increase in assets managed in the new Arch Street fund. Â
- The owned loan portfolio remained defensively positioned – balanced across industry sectors and highly diversified by issuer. Exposure to energy sectors was less than 2%, down slightly from the prior quarter.As of June 30, 2016, no outstanding borrowings by a single obligor represented more than 1.2% of total loans outstanding, and the ten largest obligors comprised approximately 9.6% of the loan portfolio.
