NewStar Financial — Q1 2007 Earnings Presentation
26 slides from NewStar Financial's earnings presentation, May 4, 2007
Slide 1: Q1 2007 Earnings Call
Exhibit 99.1 * * * * Q1 2007 Earnings Call * May 3, 2007 *
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements. These statements include, without limitation, information with respect to future events or our future financial performance, results of operations and businesses and our future financial condition. These forward lookin
Slide 3: Management Participants
Management Participants Timothy J. Conway Chairman and Chief Executive Officer Peter A. Schmidt-Fellner Chief Investment Officer John K. Bray Chief Financial Officer 2
Slide 4: Timothy J. Conway
Timothy J. Conway Chairman and Chief Executive Officer 3
Slide 5: Summary of Q1 2007 Results
Summary of Q1 2007 Results $0.2 million Adjusted Net Income, or $0.01 Earnings Per Diluted Share for Q1 2007 $2.4 million Net Loss, or $0.07 Per Diluted Share on a GAAP basis Took $9.0 million after-tax impairment in residential mortgage-backed securities (RMBS) portfolio $2.3 billion of managed ass
Slide 6: Actions Taken on RMBS Holdings
Actions Taken on RMBS Holdings Recognized $14.9 million ($9.0 million after-tax) of impairment write- downs against our RMBS holdings through the income statement Amount of charge was based on fair market value indications from third party dealers on securities that we determined to have adverse cha
Slide 7: Fundamentals of Core Business Franchise Remain Positive
Fundamentals of Core Business Franchise Remain Positive Origination volume was $519 million Backlog remains robust, including an active syndications pipeline Revenue, excluding impact of recognized losses, was $26.1 million, up 29% from $20.2 million in Q4 2006 Fee revenue was strong Continued to bu
Slide 8: Stable Credit Quality in Loan Portfolio
Stable Credit Quality in Loan Portfolio Loan Credit Quality Commercial credit quality within expected parameters No loan charge-offs since inception Update on Credit Issues Subsequent to quarter-end, an $8.4 million delinquent loan became current as a result of restructuring efforts Credit issue ide
Slide 9: Peter A. Schmidt-Fellner
Peter A. Schmidt-Fellner Chief Investment Officer 8
Slide 10: Original RMBS Portfolio Strategy
Original RMBS Portfolio Strategy Residential Mortgage-Backed Securities investment had been part of our strategy since inception – Large part of structured products market – Provided diversification for planned Structured Products term debt financing Targeted securities that met our risk parameters
Slide 11: RMBS Portfolio Strategy
RMBS Portfolio Strategy As of March 31, 2007 (unaudited; based on NewStar internal data) $ in thousands Amortized Adjusted # of Par Cost1 Cost2 Type of Investment Securities Amount Basis Basis st 1 Mortgage Securities 14 $51,267 $47,819 $45,426 nd Closed End 2 Mortgage Securities (“CES”) 9 37,902 35
Slide 12: RMBS Portfolio Composition
RMBS Portfolio Composition As of March 31, 2007 (adjusted cost basis; unaudited; based on NewStar internal data) 1 By Average Credit Score Sub-Prime 23% Prime 27% Mid-Prime / Alt-A 50% 2 By Rating By Collateral Vintage 2002 1H 3 1% 2003 2H 2004 1H CCC NR A/A- NA 2% 4% 3% 2% 6% 2% 2006 2H 2004 2H 15%
Slide 13: RMBS Q1 2007 Mark-to-Market Summary
RMBS Q1 2007 Mark-to-Market Summary As of March 31, 2007 (unaudited; based on NewStar internal data) $ in thousands Amortized Cost Adjusted Carrying Value, # of Basis Before Total Permanent Cost Temporary net of All 1 2 Category (Avg FICO Range) Securities Impairment Impairment Impairment Basis Impa
Slide 14: Methodology to Determine Permanent Impairment
Methodology to Determine Permanent Impairment Applied appropriate accounting standards (EITF 99-20) Security-by-security analysis Developed updated estimate of cash flows since last measurement date based on performance to date and forward looking assumptions relating to losses, prepayments and othe
Slide 15: Structured Products Strategy Going Forward
Structured Products Strategy Going Forward Discontinue RMBS investment strategy Manage disposition of existing portfolio over time – Expect run-off of approximately $20 million by year-end – Accelerate via selective liquidations – Explore structured term-debt financing alternatives Focus on direct o
Slide 16: John K. Bray
John K. Bray Chief Financial Officer 15
Slide 17: Summary of Financial Results
Summary of Financial Results $ in thousands, except per share amounts Three Months Ended March 31, December 31, March 31, ($ in thousands, except per share amounts) 2007 2006 2006 Net income (loss) $ (2,446) $ (32,054) $ 641 Adjusted net income 236 4,574 1,443 Net income (loss) per share: Basic $ (0
Slide 18: Solid Core Business Performance
Solid Core Business Performance $ in millions Growing Managed Loan Portfolio Increasing Revenue 130% YoY Growth 175% YoY Growth $2,400 $2,278 1 12% Sequential Qtr Growth $27 29% Sequential Qtr Growth $26.1 $2,100 $2,031 $24 $383 $4.1 1 $283 $20.2 $1,800 $21 $1,456 $1,500 $18 $4.7 $15.9 $1,251 $159 $
Slide 19: Origination and Revenue Composition
Origination and Revenue Composition As of 3/31/2007 $ in millions 227 Total Clients Q1 2007 Total Origination Volume: $519 million $5MM – $100MM Commitment $11 million $80 million $278 million $150 million NewStar Credit Managed CLO NewStar Financial, Inc. Syndication Opportunities Fund Underwrite o
Slide 20: Increased Funding Capacity and Lowered Costs
Increased Funding Capacity and Lowered Costs Demonstrated Access to Capital Diversified Funding Sources Total: $2.4 billion Increased warehouse funding capacity by $200 million in Q1 2007 Equity Equity 17% Warehouse 1 17% $417 million Reduced warehouse funding costs Credit Facilities by 10 bps in Q1
Slide 21: Loan and Investment Portfolio (NewStar Balance Sheet)
Loan and Investment Portfolio (NewStar Balance Sheet) As of 3/31/2007 1 Total Loans and Other Debt Products : $1.9 billion (227 Obligors) Commercial Real Estate Consumer / Retail 14% Industrial 17% 2% (35 Obligors) Other 2% Retail 2% Media 10% Multi-Family 2% Office 7% Commercial Mortgage <1% Middle
Slide 22: Income Statement
Income Statement Three Months Ended March 31, December 31, March 31, ($ in thousands, except per share amounts) 2007 2006 2006 Net interest income: Interest income $ 45,488 $ 39,243 $ 18,916 Interest expense 23,537 23,766 10,966 Net interest income 21,951 15,477 7,950 Provision for credit losses 2,3
Slide 23: Timothy J. Conway
Timothy J. Conway Chairman and Chief Executive Officer 22
Slide 24: 2007 Guidance and Long Term Targets
2007 Guidance $ in millions Adjusted Net Income¹ $ 22-24 GAAP Net Income $ 13-15 Total Managed Portfolio $ 3,500 – NewStar balance sheet $ 3,000 – NewStar Credit Opportunities Fund $ 500 Credit Costs – Net Charge-offs / Impairments 50 bps in FY 2007 $10.2 Long Term Targets Efficiency ratio 25% ROE (
Slide 25: Growth in Asset Management - Managed CLO
Growth in Asset Management - Managed CLO Completed build out of Managed Assets Under Management (AUM) $ in thousands CLO platform in Q1 $3,000 $2,500 Expect to build assets through $2,500 2007 and issue first in a series of $2,000 CLOs in Q4 $1,500 $1,500 2,200 Asset management is an important $1,00
Slide 26: Key Themes
Key Themes Solid core business performance offset by negative impact of write down of RMBS portfolio Acting to reduce risk and overhang on our outlook from RMBS exposure Continuing to successfully build direct origination platform Maintaining selectivity in a liquid loan market Commercial credit qua