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8-K - FORM 8-K - CAPITALSOURCE INC | w79323be8vk.htm |
Exhibit 99.1
News
CapitalSource Inc.
CapitalSource Inc.
4445 Willard Avenue
Twelfth Floor
Chevy Chase, MD 20815
Twelfth Floor
Chevy Chase, MD 20815
FOR IMMEDIATE RELEASE
For information contact: |
||
Investor Relations:
|
Media Relations: | |
Dennis Oakes
|
Michael E. Weiss | |
Senior Vice President Investor Relations
|
Director of Communications | |
(212) 321-7212
|
(301) 841-2918 |
CAPITALSOURCE REPORTS SECOND QUARTER 2010 RESULTS
| Profitable Quarter with Net Income of $18 Million or $0.06 per Share | ||
| Substantial Reduction in Loan Loss Provision Compared to the Prior Quarter | ||
| New Funded Loans of $441 Million at CapitalSource Bank are Highest Quarterly Total in More Than Two Years | ||
| Net Lease Asset Sales Completed | ||
| $930 Million Real Estate Securitization Deconsolidated after Quarter Close |
Chevy Chase, MD., July 30, 2010 CapitalSource Inc. (NYSE:CSE) today announced financial results
for the second quarter of 2010. Net income for the quarter was $18 million, or $0.06 per diluted
share, compared to a net loss of $212 million or $0.66 per diluted share in the prior quarter and a
net loss of $247 million or $0.82 per diluted share in the second quarter of 2009.
Our profitability and overall performance in the second quarter represent a turning point for
CapitalSource and reflect the work we have done strategically and operationally over the last two
years. The significant decline in quarterly provisions to only $25 million reflects general
stabilization in the credit performance of our legacy loan portfolio and the effect of our
provisioning across the last several quarters, said John K. Delaney, CapitalSource Executive
Chairman. In addition, the sale of our remaining net lease assets during the quarter continued
the simplification of our non-Bank activities, while reducing debt and bolstering already strong
liquidity at the Parent.
We are very pleased that new funded loans increased this quarter to $441 million, which is the
highest level since the fourth quarter of 2007. New originations came from all of our business
groups. Healthcare, including asset-based, cash flow and real estate loans, accounted for nearly
30% of the total
and our security, technology, corporate asset finance, rediscount, commercial real estate and
multifamily segments also contributed meaningfully, commented James J. Pieczynski, CapitalSource
Co-CEO. During the quarter we completed the acquisition of our SBA lending business which
included the
purchase of $106 million of additional loans. Our new SBA team also closed on its
first loans during the quarter. The nations small businesses are critical to job growth and
economic recovery, so we look forward to expanding our SBA lending in future quarters.
In addition to net loan growth, the second quarter was solidly profitable for CapitalSource Bank.
The Bank further reduced its cost of funds in the quarter to 1.37% and continues to maintain
capital levels that are among the highest in the industry, said Steven A. Museles, CapitalSource
Co-CEO. The transaction completed earlier this month to deconsolidate our 2006A real estate
trust will result in the derecognition of approximately $930 million of gross loans, including approximately 45%
of our legacy commercial real estate portfolio, and reduce our non-recourse debt by $891 million.
The deconsolidation, which will be reflected in our third quarter results, further simplifies our
Parent Company balance sheet and accelerates the shift in relative assets between CapitalSource
Bank and the Parent, which are positive accomplishments for our plan to ultimately seek bank
holding company status, concluded Museles.
The securitization and bank credit facility debt of the Parent Company continued to pay down
rapidly in the second quarter declining by over $500 million. Completion of the sale of our net
lease assets, which resulted in additional debt reduction of $463 million and contributed nearly
$100 million to available Parent Company liquidity, also strengthened our balance sheet this
quarter, said Donald F. Cole, CapitalSource CFO. We indicated last quarter we had reached the
point where our loan loss reserves for the legacy loan portfolio would be sufficient to cover all
future anticipated charge-offs. Certain asset sales at or above our marks during the second
quarter and the general credit performance of our legacy portfolio, which showed signs of
stabilization in commercial real estate and relative improvement in other areas, have further
reinforced our view of the adequacy of the remaining reserves we are holding against the legacy
portfolio, concluded Cole.
CapitalSource Bank Segment
| Total loans held for investment and loans held for sale increased $280 million from the prior quarter to $3.5 billion. There were $572 million in new loan commitments closed at CapitalSource Bank during the quarter, of which $441 million funded at closing and the remaining $131 million are unfunded commitments. In addition, the Company acquired $106 million of small business loans in its April acquisition of MainStreet Lender. The acquisition added only $54 million net to commercial loans in the quarter, as CapitalSource Bank had previously financed a $52 million facility to MainStreet Lender that was paid off as part of the transaction. The yield on the commercial loan portfolio was 7.34% for the quarter, a decrease of 40 basis points from the prior quarter due to an increase in loans on non-accrual and lower loan discount accretion. |
| The A Participation Interest, net was $170 million at the end of the quarter, reflecting principal repayments of $160 million, partially offset by discount accretion of $2 million. Consistent with expectations, at the end of the quarter the A Participation Interest represented only 6% of the total $2.7 billion in underlying loan and property balances. |
| Investment securities, available-for-sale, which consist primarily of investments in Agency callable notes, Agency and Non-Agency MBS and Treasury bills, were generally unchanged from the prior quarter at $1.5 billion. |
| Investment securities, held-to-maturity, which consist primarily of investments in the most senior AAA-rated tranches of CMBS, decreased $14 million during the quarter to $205 million due to principal payments, partially offset by discount accretion. |
2
| Cash and cash equivalents, including restricted cash totaled $356 million at the end of the quarter, a decrease from $440 million at the end of the prior quarter as cash was redeployed into loans and investments. |
| Deposits at quarter end were flat compared to the prior quarter end at $4.6 billion. The average rate on new and renewed certificates of deposit was 1.16% for the quarter, compared to 1.28% for the prior quarter. For the quarter, the weighted average interest rate on deposits was 1.27%, a decrease of 14 basis points from the end of the prior quarter. |
| Interest income was $78 million for the quarter, a decrease of $3 million from the prior quarter, primarily due to an increase in loans on non-accrual and lower loan discount accretion. |
| Net finance margin for the quarter was 4.44% compared to 4.63% in the prior quarter, primarily due to an increase in loans on non-accrual and lower loan discount accretion, partially offset by lower deposit cost of funds. |
| Yield on average interest earning assets was 5.59% for the quarter, a decrease of 28 basis points from the prior quarter, due primarily to an increase in loans on non-accrual and lower loan discount accretion. |
| Cost of interest-bearing liabilities, which includes deposits and FHLB borrowings, was 1.37% for the quarter compared to 1.47% for the prior quarter. The cost of deposits, which averaged $4.6 billion during the quarter, was 1.33%, a decrease of 12 basis points from the prior quarter due to continued deposit rate deductions. The cost of FHLB borrowings, which averaged $244 million during the quarter, was 1.97%, an increase of 9 basis points from the prior quarter. |
| Non-interest income was $6 million for the quarter, a decrease of $1 million from the prior quarter, primarily due to lower fees earned for servicing loans for the Parent Company as a result of its declining portfolio. |
| Total operating expenses were $29 million, an increase of $5 million from the prior quarter, primarily due to a $5 million increase in the loan sourcing expense paid to the Parent Company as a result of the strong loan production in the quarter. Operating expenses as a percentage of average total assets were 2.04%, an increase of 33 basis points from the prior quarter. |
| Total Risk-Based Capital Ratio was 17.69% at the end of the quarter compared to 17.35% at the end of the prior quarter. |
| Tier 1 Leverage Ratio at the end of the quarter was 12.54% compared to 11.78% at the end of the prior quarter. |
| Tangible Common Equity to Tangible Assets at the end of the quarter was 12.54% compared to 11.94% at the end of the prior quarter. |
| Loans on non-accrual were $392 million at the end of the quarter, an increase from $326 million at the end of the prior quarter primarily due to the addition of one legacy loan purchased from the Parent Company at the inception of CapitalSource Bank. As a percentage of core loans (core loans excludes the A Participation Interest), loans on non-accrual were 11.30% compared to 10.15% at the end of the prior quarter. |
3
| Loans 30-89 days delinquent were $15 million at the end of the quarter, an increase from $1 million at the end of the prior quarter. CapitalSource Bank had 16 loans that were 30-89 days delinquent at the end of the quarter compared to two loans at the end of the prior quarter. Included in these loans were 14 delinquent small business loans, with a total balance of $11 million, acquired during the quarter as part of the MainStreet Lender acquisition. As a percentage of core loans, loans 30-89 days delinquent were 0.42%, compared to 0.02% at the end of the prior quarter. |
| Loans 90 or more days delinquent were $64 million at the end of the quarter, an increase from $62 million at the end of the prior quarter. CapitalSource Bank had 23 loans that were 90 or more days delinquent at the end of the quarter, compared to four loans at the end of the prior quarter. Included in these loans were 17 delinquent small business loans, with a total balance of $9 million, acquired during the quarter as part of the MainStreet Lender acquisition. As a percentage of core loans, loans 90 or more days delinquent were 1.85%, compared to 1.93% at the end of the prior quarter. |
| Net charge-offs were $63 million in the quarter, an increase from $18 million in the prior quarter. As a percentage of average core loans, net charge-offs for the 12 months ended June 30, 2010 were 4.48% compared to 4.13% for the 12 months ended March 31, 2010. |
| Provision for loan losses was $5 million for the quarter, a decrease from $88 million in the prior quarter. |
| Allowance for loan losses was $165 million at the end of the quarter, a decrease from $222 million at the end of the prior quarter. As a percentage of core loans, allowance for loan losses was 4.74%, compared to 6.92% at the end of the prior quarter. |
Other Commercial Finance Segment
| Total loans held for investment and loans held for sale, were $4.2 billion at the end of the quarter, a decrease from $4.8 billion at the end of the prior quarter, primarily due to loan payoffs of $401 million, loans charged-off and loan foreclosures. Loan yield was 7.92% for the quarter, an increase of 34 basis points from the prior quarter. |
| Cash and cash equivalents were $376 million at the end of the quarter, an increase from $281 million at the end of the prior quarter, primarily due to $95 million of cash consideration received from the net lease sales and proceeds of $20 million from the sale of a portion of the Omega stock received as part of the net lease sales, partially off-set by the purchase of $17 million of the Companys 4% convertible debentures. |
| Restricted cash was $145 million at the end of the quarter, compared to $106 million at the end of the prior quarter. |
| Interest income was $88 million for the quarter, a decrease of $5 million from the prior quarter primarily due to a decrease in the outstanding balance of commercial loans and an increase in non-accrual loans, partially offset by one additional calendar day in the quarter. |
| Yield on average interest-earning assets was 7.28% for the quarter, an increase of 28 basis points from the prior quarter, primarily due to an increase in loan yield. |
4
| Cost of funds was 4.78% for the quarter, an increase of 21 basis points from the prior quarter primarily due to higher deferred financing fee amortization as a result of reductions in commitments under the syndicated bank credit facility in the quarter. Borrowing spread to average one-month LIBOR increased 13 basis points to 4.47%. |
| Total operating expenses were $39 million in the quarter, a decrease from $49 million in the prior quarter primarily due to decreases in compensation and benefits and asset workout related expenses. Operating expenses as a percentage of average total assets were 3.10% for the quarter, a decrease of 31 basis points from the prior quarter. |
| Loans on non-accrual were $734 million at the end of the quarter, a decrease of $80 million from the end of the prior quarter. As a percentage of loans, loans on non-accrual were 17.48% compared to 17.00% at the end of the prior quarter. |
| Loans 30-89 days delinquent were $95 million at the end of the quarter, a decrease from $261 million at the end of the prior quarter. As a percentage of loans, loans 30-89 days delinquent were 2.26% compared to 5.45% at the end of the prior quarter. |
| Loans 90 or more days delinquent were $395 million at the end of the quarter, an increase from $375 million at the end of the prior quarter. As a percentage of loans, loans 90 or more days delinquent were 9.40% compared to 7.83% at the end of the prior quarter. |
| Net charge-offs were $70 million, a decrease from $101 million in the prior quarter. As a percentage of average loans, net commercial charge-offs for the 12 months ended June 30, 2010 were 9.18% compared to 9.27% for the 12 months ended March 31, 2010. |
| Provision for loan losses was $20 million for the quarter, compared to a provision of $131 million in the prior quarter. |
| Allowance for loan losses was $414 million at the end of the quarter, a decrease from $464 million at the end of the prior quarter. As a percentage of loans, the allowance for loan losses was 9.86% compared to 9.69% at the end of the prior quarter. |
Healthcare Net Lease Segment
| During the quarter, the Company sold all of its remaining direct real estate investments pursuant to the securities purchase agreement between CapitalSource Inc. and Omega Healthcare Investors Inc. (NYSE:OHI) executed in November 2009. In two separate transactions, the Company sold 103 long-term care facilities and received approximately $95 million in cash and $3 million of Omega stock, and $463 million of debt related to the purchased assets was either assumed by Omega or paid off at closing. CapitalSource received approximately $15 million of additional Omega stock as consideration for certain escrow amounts transferred to Omega at closing. The Company recognized a pre-tax gain of $22 million on the sales. The financial condition and results of operations of assets within the Companys Healthcare Net Lease segment are presented as discontinued operations for all periods presented. |
5
Consolidated Metrics
Assets
| Total commercial lending assets (including loans, loans held for sale and the A Participation Interest) were $7.8 billion at the end of the quarter compared to $8.3 billion at the end of the prior quarter. The decrease was primarily due to loan repayments, principal payments on the A Participation Interest and charge-offs, partially offset by new loans closed. |
Credit
| Loans on non-accrual were $1.13 billion at the end of the quarter, a decrease of $14 million from the end of the prior quarter. As a percentage of lending assets, non-accruals were 14.36% compared to 13.69% at the end of the prior quarter. |
| Loans 30-89 days delinquent were $110 million at the end of the quarter, a decrease from $261 million at the end of the prior quarter. As a percentage of lending assets, loans 30-89 days delinquent were 1.40% compared to 3.14% at the end of the prior quarter. |
| Loans 90 or more days delinquent were $459 million at the end of the quarter, an increase from $437 million at the end of the prior quarter. As a percentage of lending assets, loans 90 or more days delinquent were 5.85% compared to 5.24% at the end of the prior quarter. |
| Net charge-offs were $133 million, an increase from $119 million in the prior quarter. As a percentage of average commercial lending assets, net commercial charge-offs for the 12 months ended June 30, 2010 were 6.73% compared to 6.48% for the 12 months ended March 31, 2010. |
| Provision for loan losses was $25 million for the quarter, a decrease from $219 million in the prior quarter. |
| Allowance for loan losses was $579 million at the end of the quarter, a decrease from $686 million at the end of the prior quarter. As a percentage of commercial lending assets, the allowance for loan losses was 7.38% compared to 8.24% at the end of the prior quarter. |
Other Income/(Expense)
| Gain on investments was $10 million for the quarter primarily due to gains on the sale of certain cost-based investments and the receipt of dividends. Gain on investments was $6 million in the prior quarter. |
| Loss on derivatives, net was $4 million for the quarter, consistent with the prior quarter. |
| Net expense of real estate owned (REO) and other foreclosed assets was $43 million for the quarter primarily due to write downs of loans receivable, impairments on REO held for use, unrealized losses on REO held for sale and expenses related to REO held for sale. Net expense of REO and other foreclosed assets was $40 million in the prior quarter. |
6
| Other (expense) income, net was a $1 million expense for the quarter primarily due to foreign currency gains and a gain related to the acquisition of the Companys SBA lending business, partially offset by valuation adjustments on loans held for sale. Other income, net was $12 million in the prior quarter. |
Income Taxes
| The valuation allowance related to the Companys deferred tax assets at quarter end was $511 million, compared to $477 million at the end of the prior quarter. The net deferred tax asset at quarter end, after subtracting the valuation allowance, was $73 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 sustained period of positive pre-tax income for those entities for which an allowance has been established. |
| Income tax benefit in the quarter of $4 million was primarily the result of adjustments in the deferred tax valuation allowance. |
Book Value
| Book Value per share was $6.10 at the end of the quarter, an increase from $6.08 at the end of the prior quarter, primarily due to the net income during the quarter. Total shareholders equity was $2.0 billion at the end of the quarter, an increase of $3 million from the prior quarter primarily due to the net income during the quarter, partially offset by the quarterly dividend payment of $0.01 per share made to shareholders. |
Share Count
| Average diluted shares outstanding were 320.8 million shares for the quarter, compared to 320.3 million shares for the prior quarter. Total outstanding shares at June 30, 2010 were 322.5 million. |
Dividends
| A quarterly cash dividend of $0.01 per common share was paid on June 30, 2010 to common shareholders of record on June 16, 2010. |
A conference call to discuss the results will be hosted on Friday July 30, 2010 at 8:30 a.m. EDT.
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 pass code 8969179. 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 EDT July 30, 2010 through
August 15, 2010. Please call (877) 344-7529 from the United States or (412) 317-0088 from outside
the United States with pass code 442809. An audio replay will also be available on the Investor
Relations section of the CapitalSource website.
7
CapitalSource Bank will file its Consolidated Reports of Condition and Income for A Bank With
Domestic Offices Only FFIEC 041, for the quarter ended June 30, 2010 (the Call Report) with the
Federal Deposit Insurance Corporation (FDIC) on July 30, 2010. The Call Report may be found on
the FDICs website at http://cdr.ffiec.gov/Public/ following CapitalSource Banks filing
with the FDIC.
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 June 30, 2010, CapitalSource had
total assets of
$10.7 billion and $4.6 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 expanding loan product lines, managing our legacy portfolio, our
portfolios credit trends, expected losses, our anticipated charge-offs, adequacy of reserves and
delinquencies, our expectations regarding future credit performance, credit charges, charge-offs,
loss assumptions and provisions for loan losses, 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, would, and
similar expressions are generally intended to identify forward-looking statements. All
forward-looking statements (including statements regarding future financial and operating 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 disruptions in
credit and other markets; movements in interest rates and lending spreads; continued or worsening
credit losses, charge-offs, reserves and delinquencies; competitive and other market pressures on
product pricing and services; and other factors described in CapitalSources 2009 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.
8
CapitalSource Second Quarter 2010 Financial Supplement
Table of Contents
Consolidated Balance Sheets |
10 | |||
Consolidated Statements of Operations |
11 | |||
Segment Data |
12 | |||
Selected Financial Data |
13 | |||
Credit Quality Data |
14 |
9
CapitalSource Inc.
Consolidated Balance Sheets
($ in thousands)
Consolidated Balance Sheets
($ in thousands)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 720,925 | $ | 1,171,195 | ||||
Restricted cash |
156,117 | 168,468 | ||||||
Investment securities: |
||||||||
Available-for-sale, at fair value |
1,521,962 | 960,591 | ||||||
Held-to-maturity, at amortized cost |
204,551 | 242,078 | ||||||
Total investment securities |
1,726,513 | 1,202,669 | ||||||
Commercial real estate A Participation Interest, net |
170,458 | 530,560 | ||||||
Loans: |
||||||||
Loans held for sale |
58,444 | 670 | ||||||
Loans held for investment |
7,614,262 | 8,281,570 | ||||||
Less deferred loan fees and discounts |
(128,228 | ) | (146,329 | ) | ||||
Less allowance for loan losses |
(578,633 | ) | (586,696 | ) | ||||
Loans held for investment, net |
6,907,401 | 7,548,545 | ||||||
Total loans |
6,965,845 | 7,549,215 | ||||||
Interest receivable |
68,073 | 87,647 | ||||||
Other investments |
84,469 | 96,517 | ||||||
Goodwill |
173,135 | 173,135 | ||||||
Other assets |
633,684 | 656,994 | ||||||
Assets of discontinued operations, held for sale |
| 624,650 | ||||||
Total assets |
$ | 10,699,219 | $ | 12,261,050 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Liabilities: |
||||||||
Deposits |
$ | 4,570,466 | $ | 4,483,879 | ||||
Credit facilities |
316,007 | 542,781 | ||||||
Term debt |
2,262,573 | 2,956,536 | ||||||
Other borrowings |
1,233,702 | 1,204,074 | ||||||
Other liabilities |
349,683 | 363,293 | ||||||
Liabilities of discontinued operations |
| 527,228 | ||||||
Total liabilities |
8,732,431 | 10,077,791 | ||||||
Shareholders equity: |
||||||||
Preferred stock (50,000,000 shares authorized; no shares outstanding) |
| | ||||||
Common stock ($0.01 par value, 1,200,000,000 shares
authorized; 322,519,449 and 323,042,613 shares issued
and outstanding, respectively) |
3,225 | 3,230 | ||||||
Additional paid-in capital |
3,916,050 | 3,909,364 | ||||||
Accumulated deficit |
(1,948,306 | ) | (1,748,822 | ) | ||||
Accumulated other comprehensive (loss) income, net |
(4,181 | ) | 19,361 | |||||
Total CapitalSource Inc. shareholders equity |
1,966,788 | 2,183,133 | ||||||
Noncontrolling interests |
| 126 | ||||||
Total shareholders equity |
1,966,788 | 2,183,259 | ||||||
Total liabilities and shareholders equity |
$ | 10,699,219 | $ | 12,261,050 | ||||
10
CapitalSource Inc.
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share data)
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share data)
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||
2010 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Net investment income: |
||||||||||||||||||||
Interest income: |
||||||||||||||||||||
Loans |
$ | 146,559 | $ | 154,384 | $ | 200,157 | $ | 300,943 | $ | 423,355 | ||||||||||
Investment securities |
15,619 | 14,591 | 13,469 | 30,210 | 34,022 | |||||||||||||||
Other |
304 | 573 | 913 | 877 | 2,655 | |||||||||||||||
Total interest income |
162,482 | 169,548 | 214,539 | 332,030 | 460,032 | |||||||||||||||
Fee income |
5,663 | 6,442 | 5,808 | 12,105 | 11,667 | |||||||||||||||
Total investment income |
168,145 | 175,990 | 220,347 | 344,135 | 471,699 | |||||||||||||||
Interest expense: |
||||||||||||||||||||
Deposits |
15,279 | 16,358 | 29,959 | 31,637 | 68,346 | |||||||||||||||
Borrowings |
46,277 | 49,572 | 77,807 | 95,849 | 167,270 | |||||||||||||||
Total interest expense |
61,556 | 65,930 | 107,766 | 127,486 | 235,616 | |||||||||||||||
Net investment income |
106,589 | 110,060 | 112,581 | 216,649 | 236,083 | |||||||||||||||
Provision for loan losses |
25,262 | 218,940 | 203,847 | 244,202 | 359,114 | |||||||||||||||
Net investment income (loss) after provision for loan losses |
81,327 | (108,880 | ) | (91,266 | ) | (27,553 | ) | (123,031 | ) | |||||||||||
Operating expenses: |
||||||||||||||||||||
Compensation and benefits |
29,423 | 34,183 | 34,808 | 63,606 | 69,845 | |||||||||||||||
Professional fees |
8,497 | 10,370 | 11,661 | 18,867 | 28,870 | |||||||||||||||
Other administrative expenses |
15,671 | 18,652 | 21,690 | 34,323 | 38,529 | |||||||||||||||
Total operating expenses |
53,591 | 63,205 | 68,159 | 116,796 | 137,244 | |||||||||||||||
Other expense: |
||||||||||||||||||||
Gain (loss) on investments, net |
10,257 | 6,079 | (4,967 | ) | 16,336 | (21,094 | ) | |||||||||||||
Loss on derivatives |
(3,614 | ) | (4,337 | ) | (1,333 | ) | (7,951 | ) | (2,019 | ) | ||||||||||
Gain on residential mortgage investment portfolio |
| | | | 15,311 | |||||||||||||||
Gain (loss) on extinguishment of debt |
398 | 698 | 4,565 | 1,096 | (52,563 | ) | ||||||||||||||
Net expense of real estate owned and other foreclosed assets |
(43,175 | ) | (40,492 | ) | (4,731 | ) | (83,667 | ) | (23,479 | ) | ||||||||||
Other (expense) income, net |
(1,298 | ) | 12,130 | (5,219 | ) | 10,832 | (1,438 | ) | ||||||||||||
Total other expense |
(37,432 | ) | (25,922 | ) | (11,685 | ) | (63,354 | ) | (85,282 | ) | ||||||||||
Net loss from continuing operations before income taxes |
(9,696 | ) | (198,007 | ) | (171,110 | ) | (207,703 | ) | (345,557 | ) | ||||||||||
Income tax (benefit) expense |
(4,174 | ) | 21,006 | 89,441 | 16,832 | 34,100 | ||||||||||||||
Net loss from continuing operations |
(5,522 | ) | (219,013 | ) | (260,551 | ) | (224,535 | ) | (379,657 | ) | ||||||||||
Net income from discontinued operations, net of taxes |
2,166 | 7,323 | 13,045 | 9,489 | 26,624 | |||||||||||||||
Net gain from sale of discontinued operations, net of taxes |
21,696 | | 937 | 21,696 | 2,144 | |||||||||||||||
Net income (loss) |
18,340 | (211,690 | ) | (246,569 | ) | (193,350 | ) | (350,889 | ) | |||||||||||
Net loss attributable to noncontrolling interests |
| | (22 | ) | | (38 | ) | |||||||||||||
Net
income (loss) attributable to CapitalSource Inc. |
$ | 18,340 | $ | (211,690 | ) | $ | (246,547 | ) | $ | (193,350 | ) | $ | (350,851 | ) | ||||||
Basic (loss) income per share: |
||||||||||||||||||||
From continuing operations |
$ | (0.02 | ) | $ | (0.68 | ) | $ | (0.87 | ) | $ | (0.70 | ) | $ | (1.29 | ) | |||||
From discontinued operations |
$ | 0.08 | $ | 0.02 | $ | 0.05 | $ | 0.10 | $ | 0.10 | ||||||||||
Attributable to CapitalSource Inc. |
$ | 0.06 | $ | (0.66 | ) | $ | (0.82 | ) | $ | (0.60 | ) | $ | (1.19 | ) | ||||||
Diluted (loss) income per share: |
||||||||||||||||||||
From continuing operations |
$ | (0.02 | ) | $ | (0.68 | ) | $ | (0.87 | ) | $ | (0.70 | ) | $ | (1.29 | ) | |||||
From discontinued operations |
$ | 0.08 | $ | 0.02 | $ | 0.05 | $ | 0.10 | $ | 0.10 | ||||||||||
Attributable to CapitalSource Inc. |
$ | 0.06 | $ | (0.66 | ) | $ | (0.82 | ) | $ | (0.60 | ) | $ | (1.19 | ) | ||||||
Average shares outstanding: |
||||||||||||||||||||
Basic |
320,802,358 | 320,294,724 | 299,452,870 | 320,547,818 | 294,818,311 | |||||||||||||||
Diluted |
320,802,358 | 320,294,724 | 299,452,870 | 320,547,818 | 294,818,311 | |||||||||||||||
Dividends declared per share |
$ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.02 |
11
CapitalSource Inc.
Segment Data
(Unaudited)
($ in thousands)
Segment Data
(Unaudited)
($ in thousands)
Three Months Ended June 30, 2010 | Three Months Ended March 31, 2010 | ||||||||||||||||||||||||||||||||||||||||
OTHER | OTHER | ||||||||||||||||||||||||||||||||||||||||
CAPITALSOURCE | COMMERCIAL | HEALTHCARE | INTERCOMPANY | CAPITALSOURCE | COMMERCIAL | HEALTHCARE | INTERCOMPANY | ||||||||||||||||||||||||||||||||||
BANK | FINANCE | NET LEASE | ELIMINATIONS | CONSOLIDATED | BANK | FINANCE | NET LEASE | ELIMINATIONS | CONSOLIDATED | ||||||||||||||||||||||||||||||||
Net investment income: |
|||||||||||||||||||||||||||||||||||||||||
Interest income |
$ | 78,108 | $ | 88,195 | $ | 109 | $ | (3,930 | ) | $ | 162,482 | $ | 80,732 | $ | 93,419 | $ | 81 | $ | (4,684 | ) | $ | 169,548 | |||||||||||||||||||
Fee income |
2,072 | 3,591 | | | 5,663 | 1,780 | 4,662 | | | 6,442 | |||||||||||||||||||||||||||||||
Total investment income |
80,180 | 91,786 | 109 | (3,930 | ) | 168,145 | 82,512 | 98,081 | 81 | (4,684 | ) | 175,990 | |||||||||||||||||||||||||||||
Interest expense |
16,476 | 45,080 | 2,391 | (2,391 | ) | 61,556 | 17,323 | 48,607 | 2,311 | (2,311 | ) | 65,930 | |||||||||||||||||||||||||||||
Net investment income |
63,704 | 46,706 | (2,282 | ) | (1,539 | ) | 106,589 | 65,189 | 49,474 | (2,230 | ) | (2,373 | ) | 110,060 | |||||||||||||||||||||||||||
Provision for loan losses |
5,094 | 20,168 | | | 25,262 | 87,704 | 131,236 | | | 218,940 | |||||||||||||||||||||||||||||||
Net investment income (loss) after provision for loan losses |
58,610 | 26,538 | (2,282 | ) | (1,539 | ) | 81,327 | (22,515 | ) | (81,762 | ) | (2,230 | ) | (2,373 | ) | (108,880 | ) | ||||||||||||||||||||||||
Compensation and benefits |
11,018 | 17,561 | 844 | | 29,423 | 11,120 | 22,089 | 974 | | 34,183 | |||||||||||||||||||||||||||||||
Professional fees |
482 | 8,015 | | | 8,497 | 515 | 9,855 | | | 10,370 | |||||||||||||||||||||||||||||||
Other operating expenses |
17,748 | 13,887 | 85 | (16,049 | ) | 15,671 | 12,700 | 16,981 | 608 | (11,637 | ) | 18,652 | |||||||||||||||||||||||||||||
Total operating expenses |
29,248 | 39,463 | 929 | (16,049 | ) | 53,591 | 24,335 | 48,925 | 1,582 | (11,637 | ) | 63,205 | |||||||||||||||||||||||||||||
Total other income (expense) |
5,858 | (27,078 | ) | (29 | ) | (16,183 | ) | (37,432 | ) | 7,123 | (21,890 | ) | 301 | (11,456 | ) | (25,922 | ) | ||||||||||||||||||||||||
Net income (loss) from continuing operations before income taxes |
35,220 | (40,003 | ) | (3,240 | ) | (1,673 | ) | (9,696 | ) | (39,727 | ) | (152,577 | ) | (3,511 | ) | (2,192 | ) | (198,007 | ) | ||||||||||||||||||||||
Income tax (benefit) expense |
(2,463 | ) | (1,711 | ) | | | (4,174 | ) | (56 | ) | 21,062 | | | 21,006 | |||||||||||||||||||||||||||
Net income (loss) income from continuing operations |
37,683 | (38,292 | ) | (3,240 | ) | (1,673 | ) | (5,522 | ) | (39,671 | ) | (173,639 | ) | (3,511 | ) | (2,192 | ) | (219,013 | ) | ||||||||||||||||||||||
Net income from discontinued operations, net of taxes |
| | 2,166 | | 2,166 | | | 7,323 | | 7,323 | |||||||||||||||||||||||||||||||
Net gain from sale of discontinued operations, net of taxes |
| | 21,696 | | 21,696 | | | | | | |||||||||||||||||||||||||||||||
Net income (loss) attributable to CapitalSource Inc |
$ | 37,683 | $ | (38,292 | ) | $ | 20,622 | $ | (1,673 | ) | $ | 18,340 | $ | (39,671 | ) | $ | (173,639 | ) | $ | 3,812 | $ | (2,192 | ) | $ | (211,690 | ) | |||||||||||||||
Six Months Ended June 30, 2010 | Six Months Ended June 31, 2009 | ||||||||||||||||||||||||||||||||||||||||
OTHER | OTHER | ||||||||||||||||||||||||||||||||||||||||
CAPITALSOURCE | COMMERCIAL | HEALTHCARE | INTERCOMPANY | CAPITALSOURCE | COMMERCIAL | HEALTHCARE | INTERCOMPANY | ||||||||||||||||||||||||||||||||||
BANK | FINANCE | NET LEASE | ELIMINATIONS | CONSOLIDATED | BANK | FINANCE | NET LEASE | ELIMINATIONS | CONSOLIDATED | ||||||||||||||||||||||||||||||||
Net investment income: |
|||||||||||||||||||||||||||||||||||||||||
Interest income |
$ | 158,840 | $ | 181,614 | $ | 190 | $ | (8,614 | ) | $ | 332,030 | $ | 146,970 | $ | 319,966 | $ | 182 | $ | (7,086 | ) | $ | 460,032 | |||||||||||||||||||
Fee income |
3,852 | 8,253 | | | 12,105 | 3,250 | 8,417 | | | 11,667 | |||||||||||||||||||||||||||||||
Total investment income |
162,692 | 189,867 | 190 | (8,614 | ) | 344,135 | 150,220 | 328,383 | 182 | (7,086 | ) | 471,699 | |||||||||||||||||||||||||||||
Interest expense |
33,799 | 93,687 | 4,702 | (4,702 | ) | 127,486 | 68,964 | 166,478 | 4,997 | (4,823 | ) | 235,616 | |||||||||||||||||||||||||||||
Net investment income |
128,893 | 96,180 | (4,512 | ) | (3,912 | ) | 216,649 | 81,256 | 161,905 | (4,815 | ) | (2,263 | ) | 236,083 | |||||||||||||||||||||||||||
Provision for loan losses |
92,798 | 151,404 | | | 244,202 | 115,461 | 243,653 | | | 359,114 | |||||||||||||||||||||||||||||||
Net investment income (loss) after provision for loan losses |
36,095 | (55,224 | ) | (4,512 | ) | (3,912 | ) | (27,553 | ) | (34,205 | ) | (81,748 | ) | (4,815 | ) | (2,263 | ) | (123,031 | ) | ||||||||||||||||||||||
Compensation and benefits |
22,138 | 39,650 | 1,818 | | 63,606 | 21,959 | 46,986 | 900 | | 69,845 | |||||||||||||||||||||||||||||||
Professional fees |
997 | 17,870 | | | 18,867 | 1,210 | 27,660 | | | 28,870 | |||||||||||||||||||||||||||||||
Other operating expenses |
30,448 | 30,868 | 693 | (27,686 | ) | 34,323 | 26,773 | 32,071 | 3,568 | (23,883 | ) | 38,529 | |||||||||||||||||||||||||||||
Total operating expenses |
53,583 | 88,388 | 2,511 | (27,686 | ) | 116,796 | 49,942 | 106,717 | 4,468 | (23,883 | ) | 137,244 | |||||||||||||||||||||||||||||
Total other income (expense) |
12,981 | (48,968 | ) | 272 | (27,639 | ) | (63,354 | ) | 17,925 | (79,277 | ) | 155 | (24,085 | ) | (85,282 | ) | |||||||||||||||||||||||||
Net loss from continuing operations before income taxes |
(4,507 | ) | (192,580 | ) | (6,751 | ) | (3,865 | ) | (207,703 | ) | (66,222 | ) | (267,742 | ) | (9,128 | ) | (2,465 | ) | (345,557 | ) | |||||||||||||||||||||
Income tax (benefit) expense |
(2,519 | ) | 19,351 | | | 16,832 | 4,716 | 31,679 | (2,295 | ) | | 34,100 | |||||||||||||||||||||||||||||
Net loss from continuing operations |
(1,988 | ) | (211,931 | ) | (6,751 | ) | (3,865 | ) | (224,535 | ) | (70,938 | ) | (299,421 | ) | (6,833 | ) | (2,465 | ) | (379,657 | ) | |||||||||||||||||||||
Net income from discontinued operations, net of taxes |
| | 9,489 | | 9,489 | | | 26,624 | | 26,624 | |||||||||||||||||||||||||||||||
Net gain from sale of discontinued operations, net of taxes |
| | 21,696 | | 21,696 | | | 2,144 | | 2,144 | |||||||||||||||||||||||||||||||
Net (loss) income |
(1,988 | ) | (211,931 | ) | 24,434 | (3,865 | ) | (193,350 | ) | (70,938 | ) | (299,421 | ) | 21,935 | (2,465 | ) | (350,889 | ) | |||||||||||||||||||||||
Net loss attributable to noncontrolling interests |
| | | | | | (38 | ) | | | (38 | ) | |||||||||||||||||||||||||||||
Net (loss) income attributable to CapitalSource Inc |
$ | (1,988 | ) | $ | (211,931 | ) | $ | 24,434 | $ | (3,865 | ) | $ | (193,350 | ) | $ | (70,938 | ) | $ | (299,383 | ) | $ | 21,935 | $ | (2,465 | ) | $ | (350,851 | ) | |||||||||||||
12
CapitalSource Inc.
Selected Financial Data
(Unaudited)
($ in thousands)
Selected Financial Data
(Unaudited)
($ in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||
2010 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
CapitalSource Bank Segment: |
||||||||||||||||||||
Performance ratios: |
||||||||||||||||||||
Return on average assets |
2.63 | % | (2.78 | %) | (4.94 | %) | (0.07 | %) | (2.45 | %) | ||||||||||
Return on average equity |
17.85 | % | (18.38 | %) | (30.84 | %) | (0.47 | %) | (15.45 | %) | ||||||||||
Yield on average interest earning assets |
5.59 | % | 5.87 | % | 5.14 | % | 5.74 | % | 5.24 | % | ||||||||||
Cost of funds |
1.37 | % | 1.47 | % | 2.58 | % | 1.42 | % | 2.87 | % | ||||||||||
Net finance margin |
4.44 | % | 4.63 | % | 2.98 | % | 4.55 | % | 2.84 | % | ||||||||||
Operating expenses as a percentage of average
total assets |
2.04 | % | 1.71 | % | 1.83 | % | 1.87 | % | 1.72 | % | ||||||||||
Core lending spread |
7.03 | % | 7.51 | % | 6.81 | % | 7.29 | % | 6.78 | % | ||||||||||
Loan yield |
7.34 | % | 7.74 | % | 7.18 | % | 7.56 | % | 7.20 | % | ||||||||||
Capital ratios: |
||||||||||||||||||||
Tier 1 leverage |
12.54 | % | 11.78 | % | 12.46 | % | 12.54 | % | 12.46 | % | ||||||||||
Total risk-based capital |
17.69 | % | 17.35 | % | 16.77 | % | 17.69 | % | 16.77 | % | ||||||||||
Tangible common equity to tangible assets |
12.54 | % | 11.94 | % | 12.49 | % | 12.54 | % | 12.49 | % | ||||||||||
Average balances ($ in thousands): |
||||||||||||||||||||
Average loans |
$ | 3,340,833 | $ | 3,137,263 | $ | 2,946,688 | $ | 3,227,657 | $ | 2,869,122 | ||||||||||
Average assets |
5,750,509 | 5,780,554 | 5,748,682 | 5,765,303 | 5,845,714 | |||||||||||||||
Average interest earning assets |
5,753,858 | 5,705,452 | 5,680,573 | 5,717,835 | 5,773,768 | |||||||||||||||
Average deposits |
4,595,065 | 4,564,010 | 4,629,352 | 4,579,623 | 4,775,757 | |||||||||||||||
Average borrowings |
244,286 | 208,289 | 123,033 | 226,381 | 64,343 | |||||||||||||||
Average equity |
846,691 | 875,198 | 921,405 | 860,758 | 925,953 | |||||||||||||||
Other Commercial Finance Segment: |
||||||||||||||||||||
Performance ratios: |
||||||||||||||||||||
Return on average assets |
(3.03 | %) | (12.11 | %) | (8.37 | %) | (7.80 | %) | (6.31 | %) | ||||||||||
Return on average equity |
(14.67 | %) | (64.40 | %) | (49.69 | %) | (37.39 | %) | (39.41 | %) | ||||||||||
Yield on average interest earning assets |
7.28 | % | 7.00 | % | 7.21 | % | 7.12 | % | 7.57 | % | ||||||||||
Cost of funds |
4.78 | % | 4.57 | % | 4.23 | % | 4.64 | % | 4.29 | % | ||||||||||
Net finance margin |
3.71 | % | 3.53 | % | 3.54 | % | 3.61 | % | 3.73 | % | ||||||||||
Operating expenses as a percentage of average
total assets |
3.10 | % | 3.41 | % | 2.25 | % | 3.25 | % | 2.25 | % | ||||||||||
Core lending spread |
7.61 | % | 7.35 | % | 7.73 | % | 7.47 | % | 7.95 | % | ||||||||||
Loan yield |
7.92 | % | 7.58 | % | 8.10 | % | 7.74 | % | 8.37 | % | ||||||||||
Leverage ratios: |
||||||||||||||||||||
Total debt to equity (as of period end) |
3.25 | x | 3.74 | x | 5.65 | x | 3.25 | x | 5.65 | x | ||||||||||
Equity to total assets (as of period end) |
21.97 | % | 20.16 | % | 14.59 | % | 21.97 | % | 14.59 | % | ||||||||||
Average balances ($ in thousands): |
||||||||||||||||||||
Average loans |
$ | 4,520,667 | $ | 5,110,314 | $ | 6,322,091 | $ | 4,813,861 | $ | 6,485,447 | ||||||||||
Average assets |
5,111,228 | 5,815,111 | 9,034,419 | 5,483,028 | 9,574,897 | |||||||||||||||
Average interest earning assets |
5,056,036 | 5,686,483 | 8,437,866 | 5,377,169 | 8,753,361 | |||||||||||||||
Average borrowings |
3,779,755 | 4,315,838 | 7,329,372 | 4,073,172 | 7,817,138 | |||||||||||||||
Average equity |
1,054,735 | 1,093,506 | 1,521,013 | 1,144,396 | 1,531,820 | |||||||||||||||
Consolidated CapitalSource Inc.:(1) |
||||||||||||||||||||
Performance ratios: |
||||||||||||||||||||
Return on average assets |
(0.21 | %) | (7.74 | %) | (7.20 | %) | (4.09 | %) | (5.05 | %) | ||||||||||
Return on average equity |
(1.18 | %) | (44.29 | %) | (45.76 | %) | (22.82 | %) | (33.14 | %) | ||||||||||
Yield on average interest earning assets |
6.24 | % | 6.26 | % | 6.26 | % | 6.25 | % | 6.54 | % | ||||||||||
Cost of funds |
2.89 | % | 2.95 | % | 3.58 | % | 2.92 | % | 3.76 | % | ||||||||||
Net finance margin |
3.95 | % | 3.91 | % | 3.20 | % | 3.94 | % | 3.27 | % | ||||||||||
Operating expenses as a percentage of average
total assets |
2.01 | % | 2.23 | % | 1.88 | % | 2.12 | % | 1.83 | % | ||||||||||
Leverage ratios: |
||||||||||||||||||||
Total debt and deposits to equity (as of period end) |
4.26 | x | 4.77 | x | 5.96 | x | 4.26 | x | 5.96 | x | ||||||||||
Equity to total assets (as of period end) |
18.38 | % | 16.90 | % | 14.03 | % | 18.38 | % | 14.03 | % | ||||||||||
Tangible common equity to tangible assets |
17.02 | % | 15.52 | % | 16.22 | % | 17.02 | % | 16.22 | % | ||||||||||
Average balances ($ in thousands): |
||||||||||||||||||||
Average loans |
$ | 7,861,634 | $ | 8,247,577 | $ | 9,268,180 | $ | 8,041,586 | $ | 9,354,081 | ||||||||||
Average assets |
10,691,819 | 11,481,309 | 14,514,718 | 11,084,237 | 15,159,217 | |||||||||||||||
Average interest earning assets |
10,810,028 | 11,407,322 | 14,117,840 | 11,095,072 | 14,542,931 | |||||||||||||||
Average borrowings |
3,949,041 | 4,503,139 | 7,430,295 | 4,224,554 | 7,860,096 | |||||||||||||||
Average deposits |
4,595,065 | 4,564,010 | 4,629,352 | 4,579,623 | 4,775,757 | |||||||||||||||
Average equity |
1,879,498 | 2,005,639 | 2,283,975 | 1,984,219 | 2,310,077 |
(1) | Applicable ratios have been calculated on a continuing operations basis. |
13
CapitalSource Inc.
Credit Quality Data
(Unaudited)
Credit Quality Data
(Unaudited)
June 30, 2010 | March 31, 2010 | December 31, 2009 | September 30, 2009 | June 30, 2009 | ||||||||||||||||
Loans 30-89 days contractually delinquent: |
||||||||||||||||||||
As a % of total commercial lending assets(1) |
1.40 | % | 3.14 | % | 3.12 | % | 1.40 | % | 1.19 | % | ||||||||||
Loans 90 or more days contractually delinquent: |
||||||||||||||||||||
As a % of total commercial lending assets |
5.85 | % | 5.24 | % | 5.14 | % | 4.21 | % | 4.17 | % | ||||||||||
Loans on non-accrual (2) : |
||||||||||||||||||||
As a % of total commercial lending assets |
14.36 | % | 13.69 | % | 12.06 | % | 10.58 | % | 8.95 | % | ||||||||||
Impaired loans(3) : |
||||||||||||||||||||
As a % of total commercial lending assets |
18.73 | % | 16.69 | % | 14.12 | % | 13.92 | % | 12.16 | % | ||||||||||
Allowance for loan losses: |
||||||||||||||||||||
As a % of total commercial lending assets |
7.38 | % | 8.24 | % | 6.63 | % | 5.51 | % | 4.53 | % | ||||||||||
Net charge offs (last twelve months): |
||||||||||||||||||||
As a % of total average commercial lending assets |
6.99 | % | 6.93 | % | 6.63 | % | 6.17 | % | 5.40 | % |
(1) | Includes loans held for investments, loans held for sale, and commercial real estate A participation interest. | |
(2) | Includes loans with an aggregate principal balance of $371.9 million, $402.1 million, $356.6 million, $359.6 million and $295.3 million as of June 30, 2010, March 31, 2010, December 31, 2009, September 30, 2009 and June 30, 2009, 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 $51.4 million, $15.6 million, $2.4 million, $25.1 million and $13.8 million as of June 30, 2010, March 31, 2010, December 31, 2009, September 30, 2009 and June 30, 2009, respectively. | |
(3) | Includes loans with an aggregate principal balance of $423.2 million, $416.4 million, $422.7 million, $366.1 million and $390.3 million as of June 30, 2010, March 31, 2010, December 31, 2009,September 30, 2009 and June 30, 2009, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $1,075.0 million, $1,124.6 million, $1,065.1 million, $968.5 million and $870.6 million as of June 30, 2010, March 31,2010, December 31, 2009, September 30, 2009 and June 30, 2009, respectively, that were also classified as loans on non-accrual status. |
14