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SMALL BUSINESS
CapitalSource Reports Third Quarter 2009 Results
PR Newswire
posted: 25 DAYS 8 HOURS AGO
CHEVY CHASE, Md., Nov. 2 /PRNewswire-FirstCall/ -- CapitalSource Inc. (NYSE: CSE) today announced financial results for the third quarter of 2009. Net loss for the quarter was $274 million, or $0.87 per diluted share, compared to a net loss of $247 million, or $0.82 per diluted share in the prior quarter and net income of $14 million, or $0.05 per diluted share in the third quarter of 2008.
"Despite declining charge-offs, we increased our general provision for commercial loan losses this quarter in light of continuing stress in our commercial real estate portfolio. Total commercial loan loss provisions of $204 million were higher than the second quarter, but the $48 million in loan loss provisions at CapitalSource Bank were roughly one half of the prior quarter's level. Included in this quarter's loan loss provision is an approximate $50 million judgmental reserve we added on commercial real estate, which is another example of our efforts to put credit issues from our legacy portfolio behind us. Directionally, our credit book performed as anticipated, with charge-offs and loan loss provisions concentrated in commercial real estate," said John K. Delaney, CapitalSource Chairman and CEO. "We expect elevated credit charges to continue into 2010, but remain comfortable with the cumulative loss assumptions we outlined for our legacy loan portfolio in August of this year. In fact, for most non commercial real estate categories, which comprise 80% of the legacy portfolio, we are already at or near the mid-point of our range for cumulative credit charges, and for commercial real estate we have already charged off, or reserved for, 23% of the legacy loan balance," concluded Delaney.
"Our sale of senior secured notes and common stock offering as well as the successful extension of our syndicated bank facility to 2012, all of which occurred early in the third quarter, enhanced liquidity and strengthened our balance sheet. Those actions, combined with a $300 million pay down of our syndicated bank facility, accomplished one of our primary strategic goals for 2009 which was substantial reduction of 2009-2010 debt maturities," commented CapitalSource Chief Financial Officer, Donald F. Cole. "Our quarter end liquidity position at the Parent Company was stronger than at June 30. Sources and uses of cash, including unfunded commitments, were consistent with our expectations. We took an additional non-cash accounting charge of $149 million, as we added to the valuation allowance for the deferred tax asset established last quarter," added Cole.
"All key indicators of our capital strength remained at high levels and our net interest margin increased again this quarter, as we experienced improvements in both asset yield and cost of deposits," said Tad Lowrey, President and CEO of CapitalSource Bank. "In addition, we have seen an increase in lending market activity in recent months, which is reflected in a strengthening pipeline and increases in loan commitments closed and funded by the Bank during the quarter. We also recently completed our first full year regulatory exam and continue to maintain an excellent working relationship with our banking regulators," concluded Lowrey.
.
CapitalSource Bank Segment
- Commercial loans and loans held for sale, including accrued interest, increased $123 million from the prior quarter to $3.0 billion. There were approximately $350 million in new loan commitments closed at CapitalSource Bank during the quarter of which $228 million funded.
- The "A" Participation Interest, net was $714 million at the end of the quarter, reflecting principal repayments of $180 million, partially offset by discount accretion of $7 million. The Company's position remains significantly over-collateralized by the total underlying collateral pool. At the end of the quarter, the "A" Participation Interest represented 20% of the total $3.6 billion in underlying loan and property balances, a decrease from 23% at the end of the prior quarter and 38% at acquisition in July 2008. Under the "A" Participation Interest structure, the Company receives 70% of all principal collections on the underlying loans and properties. Payments on the "A" Participation Interest are current and management expects the "A" Participation Interest will be fully repaid in 2010.
- Cash and cash equivalents, including restricted cash totaled $801 million at the end of the quarter, a decrease from $817 million at the end of the prior quarter.
- Investment securities, available-for-sale, which consist primarily of investments in Agency callable notes and Agency and Non-Agency MBS, were $701 million at the end of the quarter, a decrease from $816 million at the end of the prior quarter primarily due to the maturities of Agency debt instruments partially offset by purchases of Agency MBS.
- Investment securities, held-to-maturity increased $31 million during the quarter to $250 million due to CMBS purchases. CapitalSource Bank focuses on the most senior AAA-rated CMBS tranches with substantial credit support, including cash defeasance.
- Deposits were $4.4 billion at the end of the quarter, a decrease of $157 million, or 3%, from the prior quarter, primarily due to continued efforts to lower cost of funds at CapitalSource Bank. Average rates on new and renewed certificates of deposit were 1.47% for the quarter, compared to 1.78% for the prior quarter. At quarter end, the weighted average interest rate on deposits at CapitalSource Bank was 1.85%, a decrease of 0.40% from the prior quarter and 1.57% from the prior year end.
- Interest income was $72 million for the quarter, an increase of $5 million from the prior quarter, primarily due to increased yield on the "A" Participation Interest from higher accretion of discount during the quarter.
- Net finance margin for the quarter was 4.04% compared to 3.01% in the prior quarter, primarily due to higher asset yields and lower cost of funds.
- Yield on average interest earning assets was 5.77% for the quarter, an increase of 58 basis points from the prior quarter primarily due to higher yields on the "A" Participation Interest and the commercial loan portfolio. Yield on average interest earnings assets, excluding the "A" Participation Interest, increased to 5.86% for the quarter from 5.64% in the prior quarter. In addition, yield on the commercial loan portfolio was 7.79%, an increase of 46 basis points from the prior quarter.
- Cost of interest-bearing liabilities, which includes deposits and FHLB borrowings, was 2.01% for the quarter compared to 2.58% for the prior quarter. The cost of deposits was 2.02% for the quarter, a decrease of 58 basis points from the prior quarter primarily due to re-pricing higher rate maturing certificates of deposit and continued reductions in deposit rates offered. The cost of FHLB borrowings was 1.84% during the quarter, compared to 1.93% for the prior quarter.
- Non-interest income, which consists primarily of loan servicing fee income earned by servicing loans for the Parent Company, was $7 million for the quarter, a decrease of $1 million from the prior quarter. Loan servicing fees are expected to continue to decline as the size of the Parent Company's legacy portfolio winds down.
- Total operating expenses were $25 million in the quarter, a decrease of $1 million from the prior quarter. Operating expense in the prior quarter included a $2.5 million FDIC special assessment paid by CapitalSourceBank to the FDIC's Deposit Insurance Fund, which was part of a required payment for all insured institutions. During the current quarter, $5 million of loan sourcing expense was paid to the Parent Company, an increase of $2 million from the prior quarter due to an increase in loans closed. Operating expenses as a percentage of average total assets were 1.79%, a decrease of 4 basis points from the prior quarter.
- Total Risk-Based Capital Ratio was 16.75% at the end of the quarter compared to 16.77% at the end of the prior quarter.
- Tier 1 Leverage Ratio at the end of the quarter was 12.52% compared to 12.46% at the end of the prior quarter.
- Tangible Common Equity to Tangible Assets at the end of the quarter was 12.71% compared to 12.49% at the end of the prior quarter.
Other Commercial Finance Segment
- Total commercial loans and loans held for sale, including accrued interest, were $5.7 billion at the end of the quarter, a decrease from $6.2 billion at the end of the prior quarter, primarily due to scheduled loan repayments and charge-offs.
- Cash and cash equivalents were $302 million at the end of the quarter, an increase from $199 million at the end of the prior quarter, primarily due to proceeds from the July equity offering, limited loan sales, principal balance reductions and loan payoffs.
- Restricted cash was $137 million at the end of the quarter, a decrease from $168 million at the end of the prior quarter.
- Interest income was $121 million for the quarter, a decrease of $12 million from the prior quarter, primarily due to the decrease in commercial loans and an increase in non-accrual loans. Excluding the legacy residential mortgage portfolio, interest income was $102 million for the quarter compared to $113 million in the prior quarter.
- Yield on average interest-earning assets was 7.70% for the quarter, a decrease of 14 basis points from the prior quarter, primarily due to an increase in the loans on non-accrual. Excluding the legacy residential mortgage portfolio, yield on average interest-earnings assets would have been 8.68% for the quarter compared to 8.78% in the prior quarter. Loan yield was 8.97% for the quarter, a decrease of 8 basis points from the prior quarter.
- Prepayment-related fee income on loans was $0.8 million for the quarter, a decrease from $1 million in the prior quarter. Prepayment-related fee income contributed 6 basis points to yield.
- Cost of funds was 4.57% for the quarter, an increase of 34 basis points from the prior quarter primarily due to higher pricing on our syndicated bank credit facility and the new senior secured notes, and the acceleration of deferred finance fees as credit facility balances have amortized. Borrowing spread to average one-month LIBOR increased 44 basis points to 4.30%.
- Total operating expenses were $49 million in the quarter, a decrease from $51 million in the prior quarter primarily due to a decrease in compensation and benefits, partially offset by an increase in professional fees. Operating expenses as a percentage of average total assets were 2.29% for the quarter, a 4 basis point increase from the prior quarter.
Healthcare Net Lease Segment
- Direct real estate investments, net were $946 million at the end of the quarter, a decrease of $13 million from the prior quarter, primarily due to depreciation.
- Operating lease income was $27 million, consistent with the prior quarter.
Consolidated Metrics
Assets
- Total commercial lending assets (including loans, loans held for sale, the "A" Participation Interest and related accrued interest) were $9.4 billion at the end of the quarter compared to $9.9 billion at the end of the prior quarter. The decrease was primarily due to the net reduction in the "A" Participation Interest, loan repayments, charge-offs, loan sales and foreclosures, partially offset by loans closed at CapitalSource Bank.
Credit
- Loans on non-accrual were $994 million at the end of the quarter, an increase from $884 million at the end of the prior quarter. As a percentage of commercial lending assets, non-accruals were 10.53%. Of the non-accruals at the Parent Company, $530 million were current. Non-accruals in CapitalSource Bank were $184 million at the end of the quarter, compared to $85 million at the end of the prior quarter. As a percentage of core loans in CapitalSource Bank, which excludes the "A" Participation Interest, non-accruals were 6.12%. Of the non-accruals at the Bank, $151 million were current.
- Loans 30-89 days delinquent were $132 million at the end of the quarter, an increase from $118 million at the end of the prior quarter. As a percentage of commercial lending assets, loans 30-89 days delinquent were 1.39%. As a percentage of core loans in CapitalSource Bank, which excludes the "A" Participation Interest, loans 30-89 days delinquent were 1.25%. CapitalSource Bank had three loans totaling $38 million that were 30-89 days delinquent at the end of the quarter compared to no loans that were 30-89 days delinquent at the end of the prior quarter.
- Loans 90 or more days delinquent were $396 million at the end of the quarter, a decrease from $412 million at the end of the prior quarter. As a percentage of commercial lending assets, loans 90 or more days delinquent were 4.19%. CapitalSource Bank had three loans totaling $13 million that were 90 or more days delinquent at the end of the quarter, equal to 0.44% of core loans which exclude the "A" Participation Interest.
- Net commercial charge-offs were $135 million, a decrease of $32 million from the prior quarter. As a percentage of average commercial lending assets, net commercial charge-offs for the trailing 12 months ended September 30, 2009, were 5.74%. CapitalSource Bank had $13 million in charge-offs in the quarter compared to $70 million in the prior quarter. As a percentage of average core loans in CapitalSource Bank, which excludes the "A" Participation Interest, net charge-offs for the trailing 12 months ended September 30, 2009 were 3.29%.
- Provision for commercial loan losses was $204 million for the quarter, an increase of $35 million from the prior quarter. The provision for commercial loan losses at CapitalSource Bank was $48 million for the quarter, compared to $90 million for the prior quarter.
- Allowance for loan losses was $517 million at the end of the quarter, a net increase of $69 million from the prior quarter. As a percentage of commercial lending assets, the allowance for loan losses was 5.48%. CapitalSource Bank's allowance for loan losses increased from $92 million at the end of the prior quarter to $127 million at the end of the current quarter, or 4.21% of core loans, which excludes the "A" Participation Interest.
- Provision for loan losses on the mortgage-related receivables in the Other Commercial Finance segment was $17 million compared $35 million in the prior quarter.
- Net charge-offs on the mortgage-related receivables in the Other Commercial Finance segment were $17 million compared to $19 million in the prior quarter.
Other Income/(Expense)
- Loss on investments, net was $8 million for the quarter primarily due to write-downs on certain cost-based investments and realized losses on sales. Loss on investments was $5 million for the prior quarter.
- Loss on derivatives, net was $10 million for the quarter primarily due to lower interest rates having an adverse impact on our pay fixed swaps, partially offset by realized gains. Loss on derivatives, net was $1 million for the prior quarter.
- Gain on extinguishment of debt was $11 million for the quarter primarily due to debt repurchases. Gain on extinguishment of debt for the prior quarter was $5 million.
- Other income/loss, net was a $10 million loss for the quarter primarily due to losses on REO and foreign currency translation losses. Other income/loss, net was a $11 million loss for the prior quarter.
Income Taxes
- The valuation allowance related to our deferred tax assets increased during the quarter by $149 million or $0.47 per share, to a total of $286 million. The increase was caused primarily by the establishment of an allowance for the deferred tax assets of a subsidiary that continued to incur operating losses during the quarter. The net deferred tax asset at quarter end, after subtracting the valuation allowance, was $44 million. The valuation allowance is a non-cash accounting charge that will exist until there is sufficient positive evidence to support its reduction or reversal. Such evidence would include a period of positive pre-tax income for those entities for which an allowance has been established.
Book Value
- Book Value per share was $7.51 at the end of the quarter, a decrease from $8.60 at the end of the prior quarter, primarily due to the current quarter loss and the shares issued in the July public equity offering. Total shareholders' equity was $2.4 billion at the end of the quarter, a decrease of $182 million from the prior quarter primarily due to the current quarter loss and the dividend payment of $0.01 per share made to shareholders during the quarter, partially offset by the net proceeds of $77 million received from the July 2009 public equity offering.
- Tangible Book Value per share at the end of the quarter was $6.93 compared to $7.98 at the end of prior quarter, primarily due to the current quarter loss and the shares issued in the July public equity offering. Tangible equity was $2.2 billion at the end of the quarter, a decrease of $181 million from the prior quarter.
Share Count
- Average diluted shares outstanding were 315.6 million shares for the quarter, compared to 299.5 million shares for the prior quarter, primarily due to the impact of the issuance of shares in the July public equity offering. Total outstanding shares at September 30, 2009 were 323.1 million.
Dividends
- A quarterly cash dividend of $0.01 per common share was paid on September 30, 2009 to common shareholders of record on September 16, 2009.
A conference call to discuss the results will be hosted on Monday November 2, 2009 at 8:30 a.m. EST. Analysts and investors interested in participating are invited to call (866) 843-0890 from within the United States or (412) 317-9250 from outside the United States, with passcode 9995126. A webcast of the call will be available on the Investor Relations section of the CapitalSource web site at http://www.capitalsource.com.
A telephonic replay will also be available from approximately 12 noon EST November 2, 2009 through February 3, 2010. Please call (877) 344-7529 from the United States or (412) 317-0088 from outside the United States with passcode 434898. An audio replay will also be available on the Investor Relations section of the CapitalSource website.
A transcript of the earnings conference call will also be posted to the Investor Relations section of the CapitalSource website on November 2, 2009.
A slide presentation that may be referred to on the conference call will be posted to the Investor Relations homepage of the CapitalSource website prior to the call at the following address: http://www.capitalsource.com/investor_relations.
About CapitalSource
CapitalSource Inc. (NYSE: CSE) is a commercial lender that provides financial products to middle market businesses and offers depository products and services in southern and central California through its wholly owned subsidiary CapitalSource Bank. As of September 30, 2009, CapitalSource had total commercial assets of $10.4 billion and $4.4 billion in deposits. The Company is headquartered in Chevy Chase, MD. Visit www.capitalsource.com for more information.
Forward Looking Statements
This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections and including statements about growing our business and our assets, loan servicing fees and our legacy portfolio, managing our credit book, the impact of the U.S. economy on our business, our expectations regarding future credit performance, charge-offs and provisions for loan losses, our capital levels and our liquidity and capital positions, the performance, security and payment of the "A" Participation Interest, and our valuation allowance against a portion of our deferred tax assets, all of which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words "anticipate," "assume," "intend," "believe," "expect," "estimate," "plan," "goal," "will," "outlook," "continue," "look forward," "should," and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including without limitation: changes in economic or market conditions or investment or lending opportunities; continued or worsening recession in the overall economy or disruptions in credit and other markets; movements in interest rates and lending spreads; continued or worsening credit losses, charge-offs, reserves and delinquencies; our ability to successfully and cost effectively operate our business, including CapitalSource Bank; our ability to successfully grow deposits and commercial loan assets or deploy capital in favorable lending transactions; competitive and other market pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions and reforms; changes in tax laws or regulations affecting our business; and other factors described in CapitalSource's 2008 Annual Report on Form 10-K and documents subsequently filed by CapitalSource with the Securities and Exchange Commission. All forward-looking statements included in this news release are based on information available at the time of the release. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
CapitalSource Inc.
Consolidated Balance Sheets
($ in thousands)
Sept. 30, Dec. 31,
2009 2008
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents $1,037,818 $1,338,563
Restricted cash 227,185 419,383
Investment securities:
Available-for-sale, at fair value 710,312 679,551
Held-to-maturity, at amortized cost 250,222 14,389
------- ------
Total investment securities 960,534 693,940
Mortgage-backed securities pledged, trading - 1,489,291
Mortgage-related receivables, net 1,529,795 1,801,535
Commercial real estate "A" participation
interest, net 714,238 1,396,611
Loans:
Loans held for sale 32,743 8,543
Loans held for investment 8,587,607 9,396,751
Less deferred loan fees and discounts (150,300) (174,317)
Less allowance for loan losses (517,405) (423,844)
-------- --------
Loans held for investment, net 7,919,902 8,798,590
--------- ---------
Total loans 7,952,645 8,807,133
Interest receivable 113,541 117,516
Direct real estate investments, net 946,459 989,716
Other investments 96,229 127,746
Goodwill 173,135 173,135
Other assets 488,262 1,065,063
------- ---------
Total assets $14,239,841 $18,419,632
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $4,390,486 $5,043,695
Repurchase agreements - 1,595,750
Credit facilities 826,611 1,445,062
Term debt 4,733,273 5,338,456
Other borrowings 1,547,037 1,573,813
Other liabilities 315,232 592,136
------- -------
Total liabilities 11,812,639 15,588,912
Shareholders' equity:
Preferred stock (50,000,000 shares
authorized; no shares outstanding) - -
Common stock ($0.01 par value,
1,200,000,000 shares
authorized; 323,100,000 and 282,804,211
shares issued and shares outstanding,
respectively) 3,231 2,828
Additional paid-in capital 3,899,604 3,686,765
Accumulated deficit (1,501,669) (868,425)
Accumulated other comprehensive income,
net 25,910 9,095
------ -----
Total CapitalSource Inc. shareholders'
equity 2,427,076 2,830,263
Noncontrolling interests 126 457
--- ---
Total shareholders' equity 2,427,202 2,830,720
--------- ---------
Total liabilities and shareholders' equity $14,239,841 $18,419,632
=========== ===========
CapitalSource Inc.
Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
------------------
Sept. 30, June 30, Sept. 30,
2009 2009 2008
---- ---- ----
Net investment income:
Interest income:
Loans $173,980 $183,093 $239,294
Investment securities 13,421 13,469 24,739
Other 1,126 913 9,979
----- --- -----
Total interest income 188,527 197,475 274,012
Fee income 25,281 24,906 29,974
------ ------ ------
Total interest and fee income 213,808 222,381 303,986
Operating lease income 27,247 27,406 28,140
------ ------ ------
Total investment income 241,055 249,787 332,126
Interest expense:
Deposits 22,674 29,959 32,178
Borrowings 82,672 80,906 142,672
------ ------ -------
Total interest expense 105,346 110,865 174,850
------- ------- -------
Net investment income 135,709 138,922 157,276
Provision for loan losses 221,385 203,847 110,261
------- ------- -------
Net investment (loss) income
after provision for loan
losses (85,676) (64,925) 47,015
Operating expenses:
Compensation and benefits 29,339 34,808 29,473
Depreciation of direct real
estate investments 8,713 8,838 8,898
Professional fees 15,263 11,860 7,839
Other administrative expenses 20,026 22,254 15,309
------ ------ ------
Total operating expenses 73,341 77,760 61,519
Other (expense) income:
Loss on investments, net (8,472) (4,967) (30,010)
(Loss) gain on derivatives (10,298) (1,333) 2,659
(Loss) gain on residential
mortgage investment
portfolio (3) - (26,956)
Gain (loss) on extinguishment
of debt 11,472 4,565 70,057
Other (expense) income, net (9,725) (10,970) 12,413
------ ------- ------
Total other (expense) income (17,026) (12,705) 28,163
------- ------- ------
Net (loss) income before
income taxes (176,043) (155,390) 13,659
Income tax expense 98,193 91,179 58
------ ------ --
Net (loss) income (274,236) (246,569) 13,601
Net income (loss)
attributable to
noncontrolling interests 10 (22) (100)
-- --- ----
Net (loss) income
attributable to
CapitalSource Inc $(274,246) $(246,547) $13,701
========= ========= =======
Net (loss) income per share
attributable to
CapitalSource Inc.:
Basic $(0.87) $(0.82) $0.05
Diluted $(0.87) $(0.82) $0.05
Average shares outstanding:
Basic 315,604,434 299,452,870 272,005,048
Diluted 315,604,434 299,452,870 272,585,479
Dividends declared per share $0.01 $0.01 $0.05
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
2009 2008
---- ----
Net investment income:
Interest income:
Loans $556,465 $707,913
Investment securities 47,443 111,496
Other 3,781 17,150
----- ------
Total interest income 607,689 836,559
Fee income 81,583 104,882
------ -------
Total interest and fee income 689,272 941,441
Operating lease income 82,533 80,040
------ ------
Total investment income 771,805 1,021,481
Interest expense:
Deposits 91,020 32,178
Borrowings 256,226 491,259
------- -------
Total interest expense 347,246 523,437
------- -------
Net investment income 424,559 498,044
Provision for loan losses 580,499 147,594
------- -------
Net investment (loss) income after
provision for loan losses (155,940) 350,450
Operating expenses:
Compensation and benefits 99,184 99,070
Depreciation of direct real estate
investments 26,515 26,804
Professional fees 44,543 29,762
Other administrative expenses 59,138 44,034
------ ------
Total operating expenses 229,380 199,670
Other (expense) income:
Loss on investments, net (29,566) (34,003)
(Loss) gain on derivatives (12,317) (20,354)
(Loss) gain on residential mortgage
investment portfolio 15,308 (73,273)
Gain (loss) on extinguishment of debt (41,091) 82,782
Other (expense) income, net (36,192) 16,898
------- ------
Total other (expense) income (103,858) (27,950)
-------- -------
Net (loss) income before income taxes (489,178) 122,830
Income tax expense 135,947 40,377
------- ------
Net (loss) income (625,125) 82,453
Net income (loss) attributable to
noncontrolling interests (28) 1,480
--- -----
Net (loss) income attributable to
CapitalSource Inc $(625,097) $80,973
========= =======
Net (loss) income per share
attributable to CapitalSource Inc.:
Basic $(2.07) $0.33
Diluted $(2.07) $0.33
Average shares outstanding:
Basic 301,823,130 242,495,601
Diluted 301,823,130 243,614,848
Dividends declared per share $0.03 $1.25
CapitalSource Inc.
Segment Data
(Unaudited)
($ in thousands)
Three Months Ended September 30, 2009
-------------------------------------
INTER-
Net CAPITAL- OTHER HEALTH- COMPANY
investment SOURCE COMMERCIAL CARE ELIMI- CONSOL-
income: BANK FINANCE NET LEASE NATIONS IDATED
-------- ----------- --------- -------- -------
Interest
income $71,673 $120,798 $107 $(4,051) $188,527
Fee income 7,112 20,171 - (2,002) 25,281
----- ------ - ------ ------
Total
interest and
fee income 78,785 140,969 107 (6,053) 213,808
Operating
lease income - - 27,247 - 27,247
- - ------ - ------
Total
investment
income 78,785 140,969 27,354 (6,053) 241,055
Interest
expense 23,602 78,729 7,066 (4,051) 105,346
------ ------ ----- ------ -------
Net
investment
income 55,183 62,240 20,288 (2,002) 135,709
Provision for
loan losses 48,451 172,934 - - 221,385
------ ------- - - -------
Net
investment
income
(loss) after
provision
for loan
losses 6,732 (110,694) 20,288 (2,002) (85,676)
Compensation
and benefits 11,410 17,345 584 - 29,339
Depreciation
of direct
real estate
investments - - 8,713 - 8,713
Professional
fees 575 14,411 277 - 15,263
Other
operating
expenses 13,380 16,880 1,719 (11,953) 20,026
------ ------ ----- ------- ------
Total
operating
expenses 25,365 48,636 11,293 (11,953) 73,341
Total other
income
(expense) 7,409 (7,987) (4,833) (11,615) (17,026)
----- ------ ------ ------- -------
Net (loss)
income
before
income taxes (11,224) (167,317) 4,162 (1,664) (176,043)
Income tax
expense
(benefit) 3,925 93,807 461 - 98,193
----- ------ --- - ------
Net (loss)
income (15,149) (261,124) 3,701 (1,664) (274,236)
Net income
(loss)
attributable to
noncontrolling
interests - 10 - - 10
- -- - - --
Net (loss)
income
attributable to
CapitalSource
Inc $(15,149) $(261,134) $3,701 $(1,664) $(274,246)
======== ========= ====== ======= =========
Three Months Ended June 30, 2009
--------------------------------
INTER-
CAPITAL- OTHER HEALTH- COMPANY
Net investment SOURCE COMMERCIAL CARE ELIMI- CONSOL-
income: BANK FINANCE NET LEASE NATIONS IDATED
-------- ----------- --------- -------- -------
Interest
income $66,744 $133,059 $97 $(2,425) $197,475
Fee income 6,052 20,629 - (1,775) 24,906
----- ------ - ------ ------
Total
interest
and fee
income 72,796 153,688 97 (4,200) 222,381
Operating
lease income - - 27,406 - 27,406
- - ------ - ------
Total
investment
income 72,796 153,688 27,503 (4,200) 249,787
Interest
expense 30,551 77,215 5,524 (2,425) 110,865
------ ------ ----- ------ -------
Net investment
income 42,245 76,473 21,979 (1,775) 138,922
Provision for
loan losses 90,470 113,377 - - 203,847
------ ------- - - -------
Net
investment
income
(loss) after
provision
for loan
losses (48,225) (36,904) 21,979 (1,775) (64,925)
Compensation
and benefits 11,005 23,179 624 - 34,808
Depreciation
of direct
real estate
investments - - 8,838 - 8,838
Professional
fees 615 11,046 199 - 11,860
Other
operating
expenses 14,582 16,347 2,016 (10,691) 22,254
------ ------ ----- ------- ------
Total
operating
expenses 26,202 50,573 11,676 (10,691) 77,760
Total other
income
(expense) 8,364 (11,277) 1,005 (10,797) (12,705)
----- ------- ----- ------- -------
Net (loss)
income before
income taxes (66,063) (98,754) 11,308 (1,881) (155,390)
Income tax
expense
(benefit) 4,781 89,702 (3,304) - 91,179
----- ------ ------ - ------
Net (loss)
income (70,844) (188,456) 14,612 (1,881) (246,569)
Net income (loss)
attributable to
noncontrolling
interests - (22) - - (22)
- --- - - ---
Net (loss)
income
attributable
to
CapitalSource
Inc $(70,844) $(188,434) $14,612 $(1,881) $(246,547)
======== ========= ======= ======= =========
Nine Months Ended September 30, 2009
------------------------------------
INTER-
CAPITAL- OTHER HEALTH- COMPANY
Net investment SOURCE COMMERCIAL CARE ELIMI- CONSOL-
income: BANK FINANCE NET LEASE NATIONS IDATED
-------- ----------- --------- -------- -------
Interest income $211,284 $404,990 $289 $(8,874) $607,689
Fee income 17,721 68,127 - (4,265) 81,583
------ ------ - ------ ------
Total interest
and fee income 229,005 473,117 289 (13,139) 689,272
Operating lease
income - - 82,533 - 82,533
- - ------ - ------
Total investment
income 229,005 473,117 82,822 (13,139) 771,805
Interest expense 92,566 245,207 18,347 (8,874) 347,246
------ ------- ------ ------ -------
Net investment
income 136,439 227,910 64,475 (4,265) 424,559
Provision for
loan losses 163,912 416,587 - - 580,499
------- ------- - - -------
Net investment
(loss) income
after
provision for
loan losses (27,473) (188,677) 64,475 (4,265) (155,940)
Compensation and
benefits 33,369 64,331 1,484 - 99,184
Depreciation of
direct real
estate
investments - - 26,515 - 26,515
Professional
fees 1,785 42,071 687 - 44,543
Other operating
expenses 40,153 48,951 5,870 (35,836) 59,138
------ ------ ----- ------- ------
Total operating
expenses 75,307 155,353 34,556 (35,836) 229,380
Total other
income (expense) 25,334 (91,029) (2,463) (35,700) (103,858)
------ ------- ------ ------- --------
Net (loss) income
before income
taxes (77,446) (435,059) 27,456 (4,129) (489,178)
Income tax
expense 8,641 125,486 1,820 - 135,947
----- ------- ----- - -------
Net (loss) income (86,087) (560,545) 25,636 (4,129) (625,125)
Net (loss) income
attributable to
noncontrolling
interests - (28) - - (28)
- --- - - ---
Net (loss)
income
attributable to
CapitalSource
Inc $(86,087) $(560,517) $25,636 $(4,129) $(625,097)
======== ========= ======= ======= =========
Nine Months Ended September 30, 2008
------------------------------------
INTER-
CAPITAL- OTHER HEALTH- COMPANY
Net investment SOURCE COMMERCIAL CARE ELIMI- CONSOL-
income: BANK FINANCE NET LEASE NATIONS IDATED
-------- ----------- --------- -------- -------
Interest income $64,887 $780,819 $944 $(10,091) $836,559
Fee income 1,665 102,589 239 389 104,882
----- ------- --- --- -------
Total interest and
fee income 66,552 883,408 1,183 (9,702) 941,441
Operating lease
income - - 80,040 - 80,040
- - ------ - ------
Total investment
income 66,552 883,408 81,223 (9,702) 1,021,481
Interest expense 32,178 468,871 32,479 (10,091) 523,437
------ ------- ------ ------- -------
Net investment
income 34,374 414,537 48,744 389 498,044
Provision for loan
losses 3,535 144,059 - - 147,594
----- ------- - - -------
Net investment
(loss) income
after provision
for loan losses 30,839 270,478 48,744 389 350,450
Compensation and
benefits 8,496 88,947 1,627 - 99,070
Depreciation of
direct real estate
investments - - 26,804 - 26,804
Professional fees 569 28,677 516 - 29,762
Other operating
expenses 10,041 39,225 5,161 (10,393) 44,034
------ ------ ----- ------- ------
Total operating
expenses 19,106 156,849 34,108 (10,393) 199,670
Total other income
(expense) 4,573 (11,868) (1,309) (19,346) (27,950)
----- ------- ------ ------- -------
Net (loss) income
before income taxes 16,306 101,761 13,327 (8,564) 122,830
Income tax expense 6,576 33,801 - - 40,377
----- ------ - - ------
Net (loss) income 9,730 67,960 13,327 (8,564) 82,453
Net (loss) income
attributable to
noncontrolling
interests - (640) 2,120 - 1,480
- ---- ----- - -----
Net (loss) income
attributable to
CapitalSource Inc $9,730 $68,600 $11,207 $(8,564) $80,973
====== ======= ======= ======= =======
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
------------------
September 30, June 30, September 30,
2009 2009 2008
---- ---- ----
CapitalSource Bank
Segment:
Performance ratios:
Return on average assets (1.07%) (4.94%) 0.85%
Return on average equity (6.89%) (30.84%) 5.69%
Yield on average interest
earning assets 5.77% 5.19% 5.97%
Cost of funds 2.01% 2.58% 3.38%
Net finance margin 4.04% 3.01% 3.08%
Operating expenses as a
percentage of average
total assets 1.79% 1.83% 1.67%
Core lending spread 7.50% 6.96% 4.99%
Loan yield 7.79% 7.33% 7.61%
Capital ratios:
Tier 1 leverage 12.52% 12.46% 12.65%
Total risk-based capital 16.75% 16.77% 16.12%
Tangible common equity to
tangible assets 12.71% 12.49% 12.77%
Average balances ($ in
thousands):
Average loans $2,910,820 $2,947,753 $1,655,256
Average assets 5,614,879 5,748,682 4,548,271
Average interest earning assets 5,414,942 5,626,428 4,423,854
Average deposits 4,459,800 4,629,352 3,774,541
Average borrowings 200,011 123,033 N/A
Average equity 872,325 921,405 678,594
Other Commercial
Finance Segment:
Performance ratios:
Return on average assets (12.28%) (8.37%) 0.20%
Return on average equity (78.47%) (49.69%) 1.23%
Yield on average interest
earning assets 7.70% 7.84% 8.15%
Cost of funds 4.57% 4.23% 5.26%
Net finance margin 3.40% 3.90% 3.55%
Operating expenses as a
percentage of average
total assets 2.29% 2.25% 1.31%
Core lending spread 8.64% 8.59% 7.16%
Loan yield 8.97% 9.05% 9.97%
Leverage ratios:
Total debt to equity (as of
period end) 5.56x 5.65x 6.37x
Equity to total assets (as
of period end 14.81% 14.59% 13.28%
Average balances ($ in
thousands):
Average loans $5,980,896 $6,405,635 $7,731,635
Average assets 8,437,236 9,034,419 12,517,048
Average interest earning assets 7,264,436 7,856,362 11,705,776
Average borrowings 6,841,000 7,329,372 10,226,049
Average equity 1,320,307 1,521,013 2,065,944
Nine Months Ended
-----------------
September 30, September 30,
2009 2008
---- ----
CapitalSource Bank
Segment:
Performance ratios:
Return on average assets (2.00%) 0.85%
Return on average equity (12.68%) 5.69%
Yield on average interest
earning assets 5.43% 5.97%
Cost of funds 2.59% 3.38%
Net finance margin 3.24% 3.08%
Operating expenses as a percentage
of average total assets 1.75% 1.67%
Core lending spread 7.06% 4.77%
Loan yield 7.44% 7.61%
Capital ratios:
Tier 1 leverage 12.52% 12.65%
Total risk-based capital 16.75% 16.12%
Tangible common equity to
tangible assets 12.71% 12.77%
Average balances ($ in
thousands):
Average loans $2,883,770 $555,779
Average assets 5,767,924 1,527,157
Average interest earning assets 5,636,690 1,485,382
Average deposits 4,669,281 1,267,364
Average borrowings 110,062 N/A
Average equity 907,881 227,849
Other Commercial Finance
Segment:
Performance ratios:
Return on average assets (8.15%) 0.61%
Return on average equity (50.41%) 3.95%
Yield on average interest
earning assets 7.97% 8.41%
Cost of funds 4.38% 5.09%
Net finance margin 3.84% 3.95%
Operating expenses as a percentage
of average total assets 2.26% 1.40%
Core lending spread 8.53% 7.18%
Loan yield 9.11% 10.29%
Leverage ratios:
Total debt to equity (as of
period end) 5.56x 6.37x
Equity to total assets (as of
period end 14.81% 13.28%
Average balances ($ in
thousands):
Average loans $6,370,674 $9,093,295
Average assets 9,191,510 14,886,828
Average interest earning assets 7,933,583 13,996,134
Average borrowings 7,488,183 12,275,617
Average equity 1,486,570 2,314,568
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
------------------
September 30, June 30, September 30,
2009 2009 2008
---- ---- ----
Healthcare Net
Lease Segment:
Performance
ratios:
Return on average assets 1.43% 5.63% 2.28%
Return on average equity 3.01% 11.83% 6.50%
Yield on average income
earning assets 10.27% 10.37% 10.44%
Cost of funds 5.71% 4.72% 7.12%
Net finance margin 7.51% 8.18% 6.44%
Operating expenses as a
percentage of average
total assets 4.36% 4.50% 4.28%
Operating expenses
(excluding direct real
estate depreciation)
as a percentage of
average total assets 1.00% 1.09% 0.98%
Leverage ratios:
Total debt to equity
(as of period end) 1.30x 0.93x 1.58x
Equity to total assets
(as of period end) 40.62% 48.37% 35.55%
Average balances
($ in thousands):
Average assets $1,027,314 $1,040,676 $1,070,651
Average interest earning
assets 18,739 17,394 17,931
Average income earning
assets 1,071,438 1,077,872 1,086,955
Average borrowings 491,039 469,284 602,809
Average equity 488,410 495,576 375,014
Consolidated
CapitalSource
Inc.:
Performance
ratios:
Return on average assets (7.34%) (6.35%) 0.30%
Return on average equity (40.79%) (33.79%) 1.74%
Yield on average interest
earning assets 6.68% 6.61% 7.47%
Cost of funds 3.53% 3.58% 4.83%
Net finance margin 3.92% 3.83% 3.62%
Operating expenses as a
percentage of average
total assets 1.96% 2.00% 1.37%
Operating expenses
(excluding direct real
estate depreciation)
as a percentage of
average total assets 1.73% 1.77% 1.17%
Leverage ratios:
Total debt and deposits to
equity (as of period end) 4.74x 4.66x 5.42x
Equity to total assets
(as of period end) 17.05% 17.27% 15.30%
Tangible common equity to
tangible assets 15.94% 16.22% 14.37%
Average balances
($ in thousands):
Average loans $8,891,741 $9,352,814 $9,387,006
Average assets 14,831,438 15,577,640 17,839,831
Average interest earning
assets 12,698,143 13,499,610 16,147,676
Average income earning
assets 13,750,841 14,560,088 17,216,700
Average borrowings 7,366,511 7,780,606 10,581,114
Average deposits 4,459,800 4,629,352 3,774,541
Average equity 2,667,621 2,926,463 3,129,503
Nine Months Ended
-----------------
September 30, September 30,
2009 2008
---- ----
Healthcare Net Lease
Segment:
Performance ratios:
Return on average assets 3.29% 1.38%
Return on average equity 6.83% 3.88%
Yield on average income earning assets 10.40% 9.98%
Cost of funds 5.14% 7.12%
Net finance margin 8.00% 5.93%
Operating expenses as a percentage
of average total assets 4.44% 4.20%
Operating expenses (excluding
direct real estate depreciation) as a
percentage of average total assets 1.03% 0.90%
Leverage ratios:
Total debt to equity (as of period end) 1.30x 1.58x
Equity to total assets (as of period end) 40.62% 35.55%
Average balances ($ in
thousands):
Average assets $1,040,360 $1,082,274
Average interest earning assets 17,116 26,594
Average income earning assets 1,077,765 1,095,125
Average borrowings 477,096 607,841
Average equity 501,488 384,971
Consolidated CapitalSource
Inc.:
Performance ratios:
Return on average assets (5.31%) 0.63%
Return on average equity (28.98%) 3.68%
Yield on average interest earning assets 6.78% 8.09%
Cost of funds 3.69% 5.02%
Net finance margin 3.88% 4.00%
Operating expenses as a percentage
of average total assets 1.95% 1.54%
Operating expenses (excluding
direct real estate depreciation) as a
percentage of average total assets 1.72% 1.34%
Leverage ratios:
Total debt and deposits to equity (as of
period end) 4.74x 5.42x
Equity to total assets (as of period end) 17.05% 15.30%
Tangible common equity to tangible assets 15.94% 14.37%
Average balances ($ in
thousands):
Average loans $9,254,140 $9,649,113
Average assets 15,753,478 17,221,544
Average interest earning assets 13,587,085 15,508,148
Average income earning assets 14,647,734 16,576,678
Average borrowings 7,926,017 12,635,714
Average deposits 4,669,281 1,267,364
Average equity 2,884,010 2,930,729
CapitalSource Inc.
Credit Quality Data
(Unaudited)
Sept. June March Dec. Sept.
30, 30, 31, 31, 30,
2009 2009 2009 2008 2008
Loans 30-89 days contractually
delinquent:
As a % of total commercial
lending assets(1 1.39% 1.19% 1.21% 2.75% 0.39%
Loans 90 or more days
contractually delinquent:
As a % of total
commercial lending
assets 4.19% 4.15% 2.79% 1.30% 1.72%
Loans on non-accrual (2) :
As a % of total
commercial lending
assets 10.53% 8.91% 5.88% 4.03% 2.39%
Impaired loans(3) :
As a % of total
commercial lending
assets 13.85% 12.11% 8.24% 6.35% 6.35%
Allowance for loan losses:
As a % of total
commercial lending
assets 5.48% 4.51% 4.26% 3.89% 1.48%
Net charge offs (last twelve
months):
As a % of total average
commercial lending assets 6.16% 5.40% 3.95% 2.89% 1.22%
June March December Sept.
30, 31, 31, 30,
2008 2008 2007 2007
Loans 30-89 days
contractually delinquent:
As a % of total commercial
lending assets(1) 0.74% 1.12% 0.85% 0.22%
Loans 90 or more days
contractually delinquent:
As a % of total commercial
lending assets 1.17% 0.59% 0.59% 0.71%
Loans on non-accrual (2) :
As a % of total commercial
lending assets 2.20% 1.79% 1.73% 1.76%
Impaired loans(3) :
As a % of total commercial
lending assets 5.40% 4.06% 3.23% 3.46%
Allowance for loan losses:
As a % of total commercial
lending assets 1.50% 1.40% 1.41% 1.16%
Net charge offs (last twelve months):
As a % of total average commercial
lending assets 0.66% 0.57% 0.64% 0.76%
(1) Includes commercial loans, loans held for sale, commercial real
estate "A" participation interest and related accrued interest.
(2) Includes loans with an aggregate principal balance of $359.6
million, $295.3 million, $115.2 million, $110.3 million, $96.3
million, $58.3 million, $47.2 million, $55.5 million, and $17.7
million as of September 30, 2009, June 30, 2009, March 31, 2009,
December 31, 2008, September 30, 2008, June 30, 2008, March 31,
2008, December 31, 2007 and September 30, 2007, respectively, that
were also classified as loans 90 or more days contractually
delinquent. Also includes non-performing loans held for sale that
had an aggregate principal balance of $25.1 million, $13.8 million,
$14.0 million, $14.5 million, $14.5 million, $14.9 million and $3.0
million as of September 30, 2009, June 30, 2009, March 31, 2009,
December 31, 2008, September 30, 2008, June 30, 2008 and September
30, 2007, respectively. As of March 31, 2008 and December 31, 2007
there were no non-performing loans classified as held for sale.
(3) Includes loans with an aggregate principal balance of $366.1
million, $390.3 million, $179.3 million, $128.9 million, $163.8
million, $81.7 million, $47.2 million, $55.5 million and $57.4
million as of September 30, 2009, June 30, 2009, March 31, 2009,
December 31, 2008, September 30, 2008, June 30, 2008, March 31,
2008, December 31, 2007 and September 30, 2007, respectively, that
were also classified as loans 90 or more days contractually
delinquent, and loans with an aggregate principal balance of $968.5
million, $870.6 million, $601.1 million, $423.4 million, $249.4
million, $192.4 million, $174.5 million, $170.5 million and $166.4
million as of September 30, 2009, June 30, 2009, March 31, 2009,
December 31, 2008, September 30, 2008, June 30, 2008, March 31,
2008, December 31, 2007 and September 30, 2007, respectively, that
were also classified as loans on non-accrual status.
SOURCE CapitalSource Inc.