Daily News: August 7, 2014

NewStar Reports Q2 Net Loss on Higher Provision Charges

NewStar Financial reported a Q2/14 consolidated net loss of $1.9 million compared to net income of $5.6 million in Q2/13. Operating income (loss) before income taxes was $(3.1) million for Q2/14 compared with $9.3 million in the second quarter of 2013.

NewStar said its provision for credit losses of $12.7 million increased $8.4 million from $4.3 million in Q2/13 primarily due to $9.2 million of additional specific charges taken in connection with the final resolution of three impaired loans. As a result, charge-offs were also elevated in the quarter at $13.1 million, up from $8.1 million in the prior quarter.

“Credit costs were higher than expected this quarter due to the resolution of a handful of legacy impaired loans, which required us to take some higher than usual charges. Although those costs weighed on our financial performance, resulting in a small loss for the quarter, it allowed us to conclude several long term workouts,” said Tim Conway, NewStar’s chairman and chief executive officer. “Loan demand remained strong, however, and origination volume was up sharply from last quarter driven largely by loan demand derived from continued middle market M&A activity,” he added.

The following highlights were excerpted from the news release:

  • Originated new funded loan volume totaling $326 million, up $51 million or 19% from the prior quarter and up slightly from $319 million in the same period last year. Higher volumes reflected somewhat higher demand for acquisition financing from financial sponsors compared to the prior quarter and increasing contributions from the company’s asset-based lending and leasing business units.
  • Asset-based lending originated approximately $35 million and the equipment finance business originated approximately $20 million in the second quarter of 2014, or 17% of new loan volume retained on the balance sheet.
  • The leveraged finance loan portfolio, excluding loans in the Arlington Fund, was down 3% from the first quarter of 2014 at $1.8 billion, while asset-based loans and leases in our Business Credit portfolio increased 16% to $279 million.
  • Asset Quality — NPA balances remained flat at $90.4 million at the end of the second quarter, while the NPA rate increased to 4.3% from the prior quarter due primarily to a $203 million decrease in the loan portfolio resulting from the deconsolidation of the Arlington Fund.
  • Net Interest Margin — Margin narrowed to 3.04% for the second quarter from 3.50% due primarily to the accelerated recognition of deferred financing costs in connection with the repayment of the Arlington Fund’s credit facility in the second quarter and higher cost of funds from the term debt securitization completed in April 2014.

To read the entire NewStar news release, click here.