updated 4/29/2011 6:20:55 AM ET 2011-04-29T10:20:55

  • Net Income of $3 Million or $0.01 Per Share
  • New Funded Loans of $627 Million at CapitalSource Bank
  • CapitalSource Bank Net Interest Margin Increased to 5.43%
  • Stable Credit Profile / Non-Accrual Loans Decline by 21%
  • Parent Company Unrestricted Cash Tops $1 Billion after Quarter Close

CHEVY CHASE, Md., April 29, 2011 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE:CSE) today announced financial results for the first quarter 2011. Net income for the quarter was $3 million or $0.01 per diluted share, compared to net income in the prior quarter of $6 million or $0.02 per diluted share and a net loss of $212 million or $0.66 per diluted share in the first quarter 2010.

"Our financial results for the first quarter demonstrate growing profitability at CapitalSource Bank, on-going progress on liquidation of the Parent Company legacy loan portfolio and a sustained pattern of stable credit performance," said John K. Delaney, CapitalSource Executive Chairman. "Significant progress in each of these areas over the past four quarters has allowed us to reorient our short-term strategic focus from a defensive stance to an intensive, proactive and forward looking effort to both fund new loans at CapitalSource Bank and improve its profitability."

"New loans funded in the first quarter of $627 million represented the highest quarterly production since the formation of CapitalSource Bank in July 2008. The largest concentration of new loans in the quarter was multifamily, although our equipment finance and timeshare receivables businesses were also significant contributors," said James J. Pieczynski, CapitalSource Co-CEO. "With such a solid start, we now see a reasonable chance for full year originations to exceed our previous guidance of $1.8-1.9 billion."

"The first quarter was a strong beginning to the new year for CapitalSource Bank. We had net loan growth of 4% despite a high level of pre-payments, deposit growth of 2%, margin expansion of 39 basis points to 5.43%, and improving credit performance," said Tad Lowrey, CapitalSource Bank President and CEO. "Our capital levels remain above industry norms, with risk-based capital at 18.80% and a Tier 1 leverage ratio of 13.47%."

"Converting CapitalSource Bank from a California industrial charter to a commercial charter and deploying excess capital at the Parent Company remain top strategic priorities," said Steven A. Museles, CapitalSource Co-CEO. "We are continuing to work on the optimal next steps for both of these objectives, while growing assets and profitability at CapitalSource Bank with the deposit franchise we operate today."

"Unrestricted cash at the Parent Company grew to $723 million at March 31, 2011 and increased to over $1 billion on April 1st when we received the Genesis loan pay-off," said Donald F. Cole, CapitalSource CFO. "At the Parent Company, we expect the loan portfolio will continue to generate cash throughout 2011, as we have fully repaid our secured credit facilities and the only recourse debt maturing during 2011 will be the mandatory redemption of $281 million of convertible debentures in July."

Revised Metrics and Earnings Presentation – We have made certain revisions to the format of our earnings press release in order to provide a presentation which is more consistent with our banking peers. This quarterly results release highlights the key drivers of our financial performance utilizing new roll forward tables and quarterly comparisons which are designed to enhance transparency and provide helpful analysis of the major factors impacting the quarter.

CAPITALSOURCE BANK SEGMENT

This segment includes our commercial lending and banking business activities in CapitalSource Bank.

First Quarter 2011 Highlights

  • Net Income was $32 million, an increase of $16 million from the prior quarter primarily due to higher interest income and lower tax expense.
     
  • Loan Production increased to $627 million during the quarter from $536 million in the prior quarter, driving a 4% increase in the loan portfolio balance. The three new origination platforms added in 2010 - equipment finance, small business and professional practice lending - accounted for 20% of the new production volume in the quarter.
     
  • Liquidity - Cash and investments was $2.0 billion, or nearly 32% of total assets, at quarter end, which we forecast will be sufficient liquidity to support projected net loan growth for the balance of 2011.
     
  • Net Interest Margin for the quarter was 5.43%, an increase of 39 basis points from the prior quarter primarily due to accelerated accretion of loan discounts and deferred loan fees from increased prepayment levels and a decrease in non-accrual loans.
     
  • Capital – Capital ratios increased with risk-based capital and Tier 1 leverage ratios of 18.80% and 13.47%, respectively, at quarter end, compared to 18.13% and 13.15%, respectively, at the end of the prior quarter.
     
  • Credit Quality - Loan loss provision was $11 million for the quarter, compared to $10 million in the prior quarter. Net charge-offs, including an $11 million recovery on a previously charged off real estate loan, were $3 million in the quarter, a decrease of $13 million from the prior quarter. Non-accrual loans decreased to $175 million, or 4.35% of loans, at quarter end, compared to $248 million, or 6.45% of loans, in the prior quarter. The allowance for loan losses increased to $133 million, or 3.31% of loans, as of March 31, 2011, compared to $125 million, or 3.25% of loans, at the end of the prior quarter.

First Quarter 2011 Details

  Quarter Ended
        3/31/11 vs. 12/31/10 3/31/11 vs. 3/31/10
Net Income (Loss) 3/31/11 12/31/10 3/31/10 $ % $ %
 

($ in thousands)
 

 
 

 
         
Interest income $ 91,804   $ 87,033  $ 81,454  $ 4,771   5%  $ 10,350   13% 
Interest expense  15,210   15,511   17,301   301   2   2,091   12 
Provision for loan losses  11,242   9,755   87,704   (1,487)  (15)  76,462   87 
Operating expenses  32,941   31,516   24,335   (1,425)  (5)  (8,606)  (35)
Other income  2,965   5,312   8,159   (2,347)  (44)  (5,194)  (64)
Income tax expense (benefit)  3,095   18,854   (56)  15,759   84   (3,151)  (5,627)
Net income (loss)  32,281   16,709   (39,671)  15,572   93   71,952   181 

Interest Income was $92 million, an increase of $5 million, or 5%, from the prior quarter due to loan portfolio growth, accelerated accretion of loan discounts and deferred loan fees from increased prepayment levels and a decrease in non-accrual loans.

  Quarter Ended
  03/31/2011 12/31/2010
Net Interest Margin Average

Balance
Interest

Income
Average

Yield/Cost
Average

Balance
Interest

Income
Average

Yield/Cost
               
($ in thousands)              
Total loans  $ 3,792,412  $ 76,845   8.22%  $ 3,650,091  $ 71,951   7.82% 
Investment securities  1,596,615   14,723   3.74   1,684,987   14,769   3.48 
Cash and other interest earning assets  334,278   236   0.29   298,221   313   0.42 
Total interest-earning assets  5,723,305   91,804   6.51   5,633,299   87,033   6.13 
Deposits  4,673,752   13,383   1.16   4,613,309   13,925   1.20 
Borrowings  373,278   1,827   1.98   317,337   1,586   1.98 
Total interest-bearing liabilities $5,047,030   15,210   1.22  $ 4,930,646   15,511   1.25 
Net interest spread   $ 76,594   5.29%    $ 71,522   4.88% 
Net interest margin      5.43%       5.04% 

Cash and Investments declined by $103 million from the prior quarter as lower yielding cash and investments were redeployed to fund net loan growth. The portfolio yield at quarter end increased by 25 basis points and the overall duration increased to 2.6 years from 2.4 years.

Cash and Investments 03/31/2011 12/31/2010
     
($ in thousands) Book Value Yield Duration Book Value Yield Duration
Cash and cash equivalents $ 440,928  0.28%  --  $ 377,054  0.20%  -- 
Agency discount notes  --   --   --   164,917  0.30%  0.3 
Agency callable notes  164,223  1.79%  4.2   164,219  1.84%  4.3 
Agency debt  76,843  1.73%  1.0   102,263  1.46%  1.0 
Agency MBS  944,968  2.83%  3.9   860,441  3.04%  3.9 
Non-agency MBS  97,062  4.45%  2.7   112,917  4.57%  2.8 
CMBS  179,077  13.17%  1.0   184,473  12.71%  1.2 
Corporate debt  4,998  3.04%  0.7   4,998  3.04%  0.9 
Asset-back securities  21,398  10.73%  2.0   --   --   -- 
U.S. Treasury and agency securities  29,795  2.13%  4.2   90,587  0.95%  1.7 
  $ 1,959,292  3.23%  2.6   2,061,869  2.98%  2.4 

Total Loans Held for Investment and Loans Held for Sale increased $164 million from the prior quarter as detailed below:

  Quarter Ended
Loan Roll Forward 3/31/2011 12/31/2010 3/31/2010
       
($ in thousands)      
Beginning balance $ 3,848,511  $ 3,705,992  $ 3,061,426 
New fundings  627,470   536,163   243,031 
Loans      
Principal repayments  (428,426)  (321,793)  (92,312)
Sales  (17,373)  (19,376)  -- 
Transfers to REO  (2,013)  (36,594)  -- 
Charge-offs  (15,350)  (15,881)  (17,894)
Ending balance $ 4,012,819  $ 3,848,511  $ 3,194,251 
       
       
  Quarter Ended
Loan Portfolio Mix 3/31/2011 12/31/2010 3/31/2010
       
($ in thousands)      
General asset-based $ 756,851  $ 682,733  $ 670,468 
Cash flow  835,030   917,960   812,017 
General commercial real estate  794,345   853,442   953,821 
Multifamily  587,011   318,236   127,647 
Healthcare real estate  428,322   500,033   438,071 
Healthcare asset-based  181,988   201,524   192,227 
Equipment finance  274,669   234,546   -- 
Small business  154,603   140,037   -- 
Total $ 4,012,819  $ 3,848,511  $ 3,194,251 

Deposits were $4.7 billion at quarter end, an increase of $87 million from the end of the prior quarter. The weighted average interest rate on deposits was 1.15% at the end of the quarter, a decline of 3 basis points from the end of the prior quarter.

FHLB Borrowings were $400 million, compared to $412 million at the end of the prior quarter. These borrowings are used primarily for interest rate risk management and short-term funding purposes. As of March 31, 2011, the weighted average rate and remaining maturities of FHLB borrowings were 2.01% and 2.9 years, respectively, compared to 1.67% and 2.3 years, respectively, at the end of the prior quarter.

Allowance for Loan Losses was $133 million, or 3.31% of the loan portfolio, an increase of $8 million from the end of the prior quarter.

  Quarter Ended
Allowance for Loan Losses 3/31/2011
($ in thousands) General Specific Total % Loans
Beginning balance $ 122,997  $ 1,881  $ 124,878  3.25%
Provision for loan losses  7,217   4,025   11,242   
Charge-offs, net  --   (3,150)  (3,150) 0.33%
Ending balance $ 130,214  $ 2,756  $ 132,970  3.31%
         
         
  Quarter Ended
  12/31/2010
  General Specific Total % Loans
Beginning balance $ 114,940  $ 16,065  $ 131,005  3.53%
Provision for loan losses  8,057   1,698   9,755   
Charge-offs, net  --   (15,882)  (15,882) 1.70%
Ending balance $ 122,997  $ 1,881  $ 124,878  3.25%

Non-performing Assets were $308 million, a decline of $23 million, or 7%, from the prior quarter primarily due to decreases in non-accrual loans and REO assets, partially offset by an increase in troubled debt restructured loans due primarily to a $67 million real estate loan that was restructured. 

Non-performing Assets 3/31/2011 12/31/2010
 

Loan Balance
% of Total

Assets


Loan Balance
% of Total

Assets
($ in thousands)        
Non-accrual loans - current $ 116,568   1.89%  $ 174,559   2.85% 
Non-accrual loans - delinquent 30-89 days  1,688   0.03   3,945   0.06 
Non-accrual loans - delinquent 90+ days  56,338   0.91   69,793   1.14 
Total non-accrual loans  174,594   2.83%   248,297   4.06% 
Accruing loans - delinquent 90+ days  186  --   272  -- 
Accruing loans - restructured  102,343   1.66   35,689   0.58 
Total non-performing loans  277,123   4.48%   284,258   4.65% 
REO  30,416   0.49   46,750   0.76 
Total non-performing assets $ 307,539   4.98%  $ 331,008   5.41% 

Operating Expenses were $33 million, which includes $2 million of additional costs related to the transfer of certain Parent Company support personnel to CapitalSource Bank in the quarter. Those costs were largely offset by reimbursements from the Parent Company which are reported in Other Income. Operating expenses also include $11 million in loan referral fees paid to the Parent Company, which was $1 million higher than the previous quarter due to increased loan production.

Other income was $3 million, a 44% decrease from the prior quarter primarily due to losses from the sale of assets offset by fees from the Parent Company for shared services provided by CapitalSource Bank.

Income Tax Expense was $3 million for the quarter, reflecting a $14 million tax expense related to pre-tax income, offset by a benefit of $11 million for the release of a valuation allowance that CapitalSource Bank maintained with respect to its state net deferred tax assets.

OTHER COMMERCIAL FINANCE SEGMENT

This segment includes the CapitalSource Inc. loan portfolio and other business activities at the Parent Company.

Net Loss was $35 million, or $0.11 per share, compared to a net loss of $8 million, or $0.02 per share in the prior quarter.

Interest Income was $48 million, a decrease of $19 million or 28% from the prior quarter primarily due to the continuing run-off of the Parent Company loan portfolio.

UnrestrictedCash was $723 million, an increase of $256 million from the prior quarter primarily due to loan sales of $133 million related to the European portfolio, loan pay-offs and the disposition of non-performing loans.

Total Loans Held for Investment and Loans Held for Sale were $2.1 billion, a decrease of $437 million from the prior quarter primarily due to loan payoffs and sales of $361 million and loans charged off of $89 million.

  Quarter Ended
Loan Roll Forward 3/31/2011 12/31/2010 3/31/2010
($ in thousands)      
Beginning balance $ 2,509,699  $ 2,921,715  $ 5,220,814 
New fundings  12,925   21,852   44,195 
Loans      
Principal repayments  (184,715)  (301,089)  (340,523)
Sales  (176,285)  (49,857)  (4,137)
Transfers to REO  --   (9,823)  (51,887)
Charge-offs  (88,720)  (73,099)  (101,549)
Ending balance $ 2,072,904  $ 2,509,699  $ 4,766,913 

Allowance for Loan Losses was $150 million, or 7.25% of the loan portfolio, a decline of $54 million from the end of the prior quarter. 

Net Charge-Offs were $88 million in the quarter an increase of $15 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve months ended March 31, 2011 were 8.20%, as compared to 7.17% for the twelve months ended December 31, 2010.

  Quarter Ended
Allowance for Loan Losses 3/31/2011
($ in thousands) General Specific Total % Loans
Beginning balance $ 127,156  $ 77,088  $ 204,244  8.14%
Provision for loan losses  (35,283)  68,850   33,567   
Charge-offs, net  --   (87,507)  (87,507) 14.97%
Ending balance $ 91,873  $ 58,431  $ 150,304  7.25%
         
  Quarter Ended
  12/31/2010
  General Specific Total % Loans
Beginning balance $ 199,560  $ 63,077  $ 262,637  8.99%
Provision for loan losses  (72,404)  86,756   14,352   
Charge-offs, net  --   (72,745)  (72,745) 10.08%
Ending balance $ 127,156  $ 77,088  $ 204,244  8.14%

Non-Performing Assets were $578 million, a decline of $87 million, or 13%, from the prior quarter primarily due to a $76 million decrease in non-accrual loans. 46 loans totaling $164 million are considered impaired and on non-accrual, but are current as to payment status.  All collections on these loans are applied to the outstanding principal balance. 

Non-performing Assets 3/31/2011 12/31/2010
 

Loan Balance
% of Total

Assets


Loan Balance
% of Total

Assets
($ in thousands)        
Non-accrual loans - current $ 163,974   5.23%  $ 231,362   6.77% 
Non-accrual loans - delinquent 30-89 days  31,853   1.02   18,467   0.54 
Non-accrual loans - delinquent 90+ days  178,946   5.71   200,660   5.87 
Total non-accrual loans  374,773   11.96%   450,489   13.18% 
Accruing loans - delinquent 90+ days  46,885   1.50   49,016   1.43 
Accruing loans - restructured  115,427   3.68   118,988   3.48 
Total non-performing loans  537,085   17.14%   618,493   18.09% 
REO  41,053   1.31   46,934   1.37 
Total non-performing assets $ 578,138   18.45%  $ 665,427   19.46% 

Operating Expenses were $41 million, a decline of $1 million from prior quarter.

Other income was $32 million for the quarter, compared to other expenses of $5 million for the prior quarter, primarily due to increased gains on sales of investments, lower expenses of real estate owned and other foreclosed assets, and the net loss on the European portfolio that we recognized in the prior quarter.

CONSOLIDATED METRICS

Net Income was $3 million, compared to $6 million from the prior quarter, as detailed below:

  Quarter Ended
        3/31/11 vs. 12/31/10 3/31/11 vs. 3/31/10
  3/31/11 12/31/10 3/31/10 $ % $ %
               
($ in thousands)              
Interest income $ 142,152  $ 150,377  $ 171,414  $ (8,225)  (6)% $ (29,262)  (17)%
Interest expense  46,752   48,430   65,001   1,678   3   18,249   28 
Provision for loan losses  44,809   24,107   218,940   (20,702)  (86)  174,131   80 
Operating expenses  54,261   56,991   63,205   2,730   5   8,944   14 
Other income (expense)  17,991   (16,904)  (22,275)  34,895   206   40,266   181 
Income tax expense (benefit)  11,162   (1,966)  21,006   (13,128)  (668)  9,844   47 
Net income (loss)  3,159   5,911   (211,690)  2,752   47   214,849   101 

Interest Income was $142 million, a decrease of $8 million, or 6%, from the prior quarter primarily due to loan portfolio run-off.

Total Loans Held for Investment and Loans Held for Sale decreased $272 million from the prior quarter as detailed below:

       
Loan Roll Forward 3/31/2011 12/31/2010 3/31/2010
($ in thousands)      
Beginning balance $ 6,358,210  $ 6,627,707  $ 8,282,240 
New fundings  640,395   558,015   287,226 
Loans      
Principal repayments  (613,141)  (622,882)  (432,835)
Sales  (193,658)  (69,233)  (4,137)
Transfers to REO  (2,013)  (46,417)  (51,887)
Charge-offs  (104,070)  (88,980)  (119,443)
Ending balance $ 6,085,723  $ 6,358,210  $ 7,961,164 
       

Allowance for Loan Losses was $283 million, or 4.65% of the loan portfolio, compared to $329 million or 5.17% at the end of the prior quarter. 

Net Charge-Offs were $91 million in the quarter, an increase of $2 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve months ended March 31, 2011 were 5.78%, which was consistent with the twelve months ended December 31, 2010. 

  Quarter Ended
Allowance for Loan Losses 3/31/2011
($ in thousands) General Specific Total % Loans
Beginning balance $ 250,153  $ 78,969  $ 329,122  5.17%
Provision for loan losses  (28,066)  72,875   44,809   
Charge-offs, net  --   (90,657)  (90,657) 5.90%
Ending balance $ 222,087  $ 61,187  $ 283,274  4.65%
         
  Quarter Ended
  12/31/2010
  General Specific Total % Loans
Beginning balance $ 314,500  $ 79,142  $ 393,642  5.94%
Provision for loan losses  (64,347)  88,454   24,107   
Charge-offs, net  --   (88,627)  (88,627) 5.36%
Ending balance $ 250,153  $ 78,969   329,122  5.17%

Non-Performing Assets were $886 million, a decline of $111 million, or 11%, from the prior quarter primarily due to a $149 million decrease in non-accrual loans. 56 loans totaling $281 million were considered impaired and on non-accrual at the end of the quarter, but were current as to payment status.  All collections on those loans are applied to the outstanding principal balance.

Non-performing Assets 3/31/2011 12/31/2010
 

Loan Balance
% of Total

Assets


Loan Balance
% of Total

Assets
($ in thousands)        
Non-accrual loans - current $ 280,542   3.03%  $ 405,921   4.30% 
Non-accrual loans - delinquent 30-89 days  33,541   0.36   22,412   0.24 
Non-accrual loans - delinquent 90+ days  235,284   2.54   270,453   2.86 
Total non-accrual loans  549,367   5.92%   698,786   7.40% 
Accruing loans - delinquent 90+ days  47,071   0.51   49,288   0.52 
Accruing loans - restructured  217,770   2.35   154,677   1.64 
Total non-performing loans  814,208   8.78%   902,751   9.56% 
REO  71,469   0.77   93,684   0.99 
Total non-performing assets $ 885,677   9.55%  $ 996,435   10.55% 

Operating Expenses were $54 million, a decrease of $3 million from the prior quarter, primarily due to a decrease in professional fees at the Parent Company.

  Quarter Ended
Operating Expenses 3/31/2011 12/31/2010
($ in thousands)    
Compensation and benefits $ 30,379  $ 29,906 
Professional fees  7,188   8,807 
Other operating expenses  16,694   18,278 
Total operating expenses $ 54,261  $ 56,991 

Income Tax Expense was $11 million for the quarter, primarily related to the re-establishment of a valuation allowance at the consolidated group level with respect to CapitalSource Bank's net deferred tax assets. The valuation allowance was recorded in connection with our plan to reconsolidate our corporate entities for federal tax purposes in 2011.

Valuation Allowance related to the Company's deferred tax assets at quarter end was $457 million, an increase of $43 million from the end of the prior quarter. The net deferred tax asset at quarter end, after subtracting the valuation allowance, was $63 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.

Book Value Per Share was $6.41 at the end of the quarter, an increase of $0.06 from the end of the prior quarter. Total shareholders' equity was $2.1 billion at the end of the quarter, an increase of $17 million from the prior quarter primarily due to increases in accumulated other comprehensive income due to foreign currency translation and mark-to-market gains on available-for-sale securities.

Average Diluted Shares Outstanding were 327.0 million shares for the quarter, compared to 326.7 million shares for the prior quarter. Total outstanding shares at March 31, 2011 were 323.3 million.

Quarterly Cash Dividend of $0.01 per common share was paid on March 31, 2011 to common shareholders of record on March 16, 2011.

Conference Call Details

A conference call to discuss the results will be hosted on Friday, April 29, 2011 at 8:30 a.m. EDT. Interested parties may access the call via webcast on the Investor Relations section of the CapitalSource web site at http://www.capitalsource.com/investor_relations . An audio replay will also be available on the website from approximately 12 Noon EDT April 29, 2011 through July 29, 2011.

CapitalSource Bank will file its Consolidated Reports of Condition and Income for A Bank With Domestic Offices Only FFIEC 041, for the quarter ended March 31, 2011 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on April 29, 2011. The Call Report may be found on the FDIC's website at http://cdr.ffiec.gov/Public/ following CapitalSource Bank's 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 March 31, 2011, CapitalSource had total assets of $9.3 billion and $4.7 billion in deposits. 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, strategies, goals, and projections and including statements about projected loan originations, our expectations regarding our application to become a bank holding company and convert CapitalSource Bank's charter to a commercial charter, liquidity position at the Parent Company, growing our business and assets, projected loan production levels, deployment of excess capital at the Parent Company, profitability, the maturities of our recourse debt, all 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,' 'forecast,' 'plan,' 'position,' 'project,' 'will,' 'should,' 'would,' 'seek,' 'continue,' 'outlook,' 'look forward,' and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding preliminary and 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; regulatory restrictions, restrictions imposed by our debt agreements; continued or worsening disruptions in credit and other markets; increase in interest rates and lending spreads; competitive and other market pressures on product pricing and services; reduced demand for our services; success and timing of other business strategies; and other factors described in CapitalSource's 2010 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 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.

Table of Contents

  • Consolidated Balance Sheets
  • Consolidated Statements of Income
  • Segment Statements of Income
  • Segment Balance Sheets
  • Selected Financial Data
  • Credit Quality Data
 
CapitalSource Inc.
Consolidated Balance Sheets
($ in thousands)
 
  March 31, December 31,
  2011  2010 
  (Unaudited)  
     
ASSETS
Cash and cash equivalents $ 1,151,495  $ 820,450 
Restricted cash  76,577   128,586 
Investment securities:    
Available-for-sale, at fair value  1,370,353   1,522,911 
Held-to-maturity, at amortized cost  179,077   184,473 
Total investment securities  1,549,430   1,707,384 
Loans:    
Loans held for sale  17,997   205,334 
Loans held for investment  6,067,726   6,152,876 
Less deferred loan fees and discounts  (93,513)  (106,438)
Less allowance for loan losses  (283,274)  (329,122)
Loans held for investment, net  5,690,939   5,717,316 
Total loans  5,708,936   5,922,650 
Interest receivable  57,922   57,393 
Other investments  67,906   71,889 
Goodwill  173,135   173,135 
Other assets  487,937   563,920 
Total assets $ 9,273,338  $ 9,445,407 
     
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:    
Deposits $ 4,708,349  $ 4,621,273 
Credit facilities  --   67,508 
Term debt  863,799   979,254 
Other borrowings  1,368,462   1,375,884 
Other liabilities  261,292   347,546 
Total liabilities  7,201,902   7,391,465 
     
Shareholders' equity:    
Preferred stock (50,000,000 shares authorized; no shares outstanding)  --   -- 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 323,345,312 and 323,225,355 shares issued and shares outstanding, respectively)  3,233   3,232 
Additional paid-in capital  3,914,500   3,911,341 
Accumulated deficit  (1,870,663)  (1,870,572)
Accumulated other comprehensive income, net  24,366   9,941 
Total shareholders' equity  2,071,436   2,053,942 
Total liabilities and shareholders' equity $ 9,273,338  $ 9,445,407 
 
 
CapitalSource Inc.
Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
 
  Three Months Ended
  March 31, December 31, March 31,
  2011  2010  2010 
Net interest income:   (Unaudited)  
Interest income:      
Loans $ 123,500  $ 133,259  $ 156,250 
Investment securities  18,352   16,830   14,591 
Other  300   288   573 
Total interest income  142,152   150,377   171,414 
Interest expense:      
Deposits  13,383   13,925   16,358 
Borrowings  33,369   34,505   48,643 
Total interest expense  46,752   48,430   65,001 
Net interest income  95,400   101,947   106,413 
Provision for loan losses  44,809   24,107   218,940 
Net interest income (loss) after provision for loan losses  50,591   77,840   (112,527)
Operating expenses:      
Compensation and benefits  30,379   29,906   34,183 
Professional fees  7,188   8,807   10,370 
Other administrative expenses  16,694   18,278   18,652 
Total operating expenses  54,261   56,991   63,205 
Other income (expense):      
Gain on investments, net  23,515   7,780   6,079 
(Loss) gain on derivatives  (1,878)  1,275   (4,337)
Net expense of real estate owned and other foreclosed assets  (10,173)  (19,775)  (40,492)
Other income (expense), net  6,527   (6,184)  16,475 
Total other income (expense)  17,991   (16,904)  (22,275)
       
Net income (loss) from continuing operations before income taxes  14,321   3,945   (198,007)
Income tax expense (benefit) 11,162 (1,966) 21,006
Net income (loss) from continuing operations  3,159   5,911   (219,013)
Net income from discontinued operations, net of taxes  --   --   7,323 
Net income (loss) $ 3,159  $ 5,911  $ (211,690)
       
Basic income (loss) per share:      
From continuing operations $ 0.01  $ 0.02  $ (0.68)
From discontinued operations $ --  $ --  $ 0.02 
Net income (loss) per share $ 0.01  $ 0.02  $ (0.66)
Diluted income (loss) per share:      
From continuing operations $ 0.01  $ 0.02  $ (0.68)
From discontinued operations $ --  $ --  $ 0.02 
Net income (loss) per share $ 0.01  $ 0.02  $ (0.66)
Average shares outstanding:      
Basic  320,196,690   321,173,379   320,294,724 
Diluted  326,963,738   326,657,654   320,294,724 
       
Dividends declared per share $ 0.01  $ 0.01  $ 0.01 
 
 
CapitalSource Inc.
Segment Statements of Income
(Unaudited)
($ in thousands)
 
  Three Months Ended March 31, 2011
Net interest income:

CAPITALSOURCE

BANK
OTHER

COMMERCIAL

FINANCE


INTERCOMPANY

ELIMINATIONS




CONSOLIDATED
Interest income $ 91,804  $ 47,614  $ 2,734  $ 142,152 
Interest expense  15,210   31,542   --   46,752 
Net interest income  76,594   16,072   2,734   95,400 
Provision for loan losses  11,242   33,567   --   44,809 
Net interest income (loss) after provision for loan losses  65,352   (17,495)  2,734   50,591 
Compensation and benefits  11,708   19,502   (831)  30,379 
Professional fees  364   6,824   --   7,188 
Other operating expenses  20,869   15,000   (19,175)  16,694 
Total operating expenses  32,941   41,326   (20,006)  54,261 
Total other income  2,965   32,354   (17,328)  17,991 
Net income (loss) before income taxes  35,376   (26,467)  5,412   14,321 
Income tax expense  3,095   8,067   --   11,162 
Net income (loss) $ 32,281  $ (34,534) $ 5,412  $ 3,159 
         
  Three Months Ended December 31, 2010
Net interest income:

CAPITALSOURCE

BANK
OTHER

COMMERCIAL

FINANCE


INTERCOMPANY

ELIMINATIONS




CONSOLIDATED
Interest income $ 87,033  $ 66,523  $ (3,179) $ 150,377 
Interest expense  15,511   32,919   --   48,430 
Net interest income  71,522   33,604   (3,179)  101,947 
Provision for loan losses  9,755   14,352   --   24,107 
Net interest income after provision for loan losses  61,767   19,252   (3,179)  77,840 
Compensation and benefits  10,773   19,133   --   29,906 
Professional fees  530   8,277   --   8,807 
Other operating expenses  20,213   15,322   (17,257)  18,278 
Total operating expenses  31,516   42,732   (17,257)  56,991 
Total other income (expense)  5,312   (5,226)  (16,990)  (16,904)
Net income (loss) before income taxes  35,563   (28,706)  (2,912)  3,945 
Income tax expense (benefit)  18,854   (20,820)  --   (1,966)
Net income (loss) $ 16,709  $ (7,886) $ (2,912) $ 5,911 
         
  Three Months Ended March 31, 2010
Net interest income:

CAPITALSOURCE

BANK
OTHER

COMMERCIAL

FINANCE


INTERCOMPANY

ELIMINATIONS




CONSOLIDATED
Interest income $ 81,454  $ 92,333  $ (2,373) $ 171,414 
Interest expense  17,301   47,700   --   65,001 
Net interest income  64,153   44,633   (2,373)  106,413 
Provision for loan losses  87,704   131,236   --   218,940 
Net interest loss after provision for loan losses  (23,551)  (86,603)  (2,373)  (112,527)
Compensation and benefits  11,120   23,063   --   34,183 
Professional fees  515   9,855   --   10,370 
Other operating expenses  12,700   17,589   (11,637)  18,652 
Total operating expenses  24,335   50,507   (11,637)  63,205 
Total other income (expense)  8,159   (18,978)  (11,456)  (22,275)
Net loss from continuing operations before income taxes  (39,727)  (156,088)  (2,192)  (198,007)
Income tax (benefit) expense  (56)  21,062   --   21,006 
Net loss from continuing operations $ (39,671) $ (177,150) $ (2,192) $ (219,013)
 
 
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
 
  March 31, 2011 December 31, 2010
 

CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE

INTERCOMPANY ELIMINATIONS




CONSOLIDATED


CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE

INTERCOMPANY ELIMINATIONS




CONSOLIDATED
ASSETS                
                 
Cash and cash equivalents and restricted cash $ 440,928  $ 787,144  $ --  $ 1,228,072  $ 377,054  $ 571,982  $ --  $ 949,036 
Investment securities:                
Available-for-sale  1,348,771   21,582   --   1,370,353   1,510,384   12,527   --   1,522,911 
Held-to-maturity  179,077   --   --   179,077   184,473   --   --   184,473 
Loans  3,947,080   2,037,692   7,438   5,992,210   3,777,975   2,471,506   2,291   6,251,772 
Allowance for loan losses  (132,970)  (150,304)  --   (283,274)  (124,878)  (204,244)  --   (329,122)
Loans, net of allowance for loan losses  3,814,110   1,887,388   7,438   5,708,936   3,653,097   2,267,262   2,291   5,922,650 
Receivables due from affiliates  2,547   40,811   (43,358)  --   1,265   87,972   (89,237)  -- 
Other assets  394,648   396,042   (3,790)  786,900   391,095   479,154   (3,912)  866,337 
Total assets $ 6,180,081  $ 3,132,967  $ (39,710) $ 9,273,338  $ 6,117,368  $ 3,418,897  $ (90,858) $ 9,445,407 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                
Deposits $ 4,708,349  $ --  $ --  $ 4,708,349  $ 4,621,273  $ --  $ --  $ 4,621,273 
Borrowings  400,000   1,832,261   --   2,232,261   412,000   2,010,646   --   2,422,646 
Balance due to affiliates  40,811   2,547   (43,358)  --   87,972   1,265   (89,237)  -- 
Other liabilities  73,464   193,638   (5,810)  261,292   71,480   281,733   (5,667)  347,546 
Total liabilities  5,222,624   2,028,446   (49,168)  7,201,902   5,192,725   2,293,644   (94,904)  7,391,465 
                 
Shareholders' equity:                
Common stock  921,000   3,233   (921,000)  3,233   921,000   3,232   (921,000)  3,232 
Additional paid-in capital/retained earnings/deficit  30,767   1,076,922   936,148   2,043,837   (2,381)  1,112,080   931,070   2,040,769 
Accumulated other comprehensive income, net  5,690   24,366   (5,690)  24,366   6,024   9,941   (6,024)  9,941 
Total shareholders' equity  957,457   1,104,521   9,458   2,071,436   924,643   1,125,253   4,046   2,053,942 
                 
Total liabilities and shareholders' equity $ 6,180,081  $ 3,132,967  $ (39,710) $ 9,273,338  $ 6,117,368  $ 3,418,897  $ (90,858) $ 9,445,407 
                 
Book value per outstanding share $ 2.96  $ 3.42  $ 0.03  $ 6.41  $ 2.86  $ 3.48  $ 0.01  $ 6.35 
 
 
CapitalSource Inc.
Selected Financial Data
(Unaudited)
 
   Three Months Ended
   March 31, December 31, March 31,
  2011  2010  2010 
CapitalSource Bank Segment:      
       
Performance ratios:      
 Return on average assets 2.17% 1.12% (2.78%)
 Return on average equity 13.98% 7.17% (18.38%)
 Yield on average interest earning assets 6.51% 6.13% 5.98%
 Cost of interest bearing liabilities 1.22% 1.25% 1.47%
  Deposits 1.16% 1.20% 1.45%
  Borrowings 1.98% 1.98% 1.84%
 Borrowing spread 0.96% 0.99% 1.24%
 Net interest margin   5.43% 5.04% 4.71%
 Operating expenses as a percentage of average total assets 2.21% 2.10% 1.71%
 Core lending spread 7.96% 7.56% 7.61%
 Loan yield 8.22% 7.82% 7.84%
       
Capital ratios:      
 Tier 1 leverage 13.47% 13.15% 11.78%
 Total risk-based capital 18.80% 18.13% 17.35%
 Tangible common equity to tangible assets 13.06% 12.61% 11.94%
       
Average balances ($ in thousands):      
 Average loans  $3,792,412  $ 3,650,091   $3,041,549 
 Average assets    6,046,033   5,942,619   5,780,554 
 Average interest earning assets  5,723,305   5,633,299   5,524,348 
 Average deposits    4,673,752   4,613,309   4,564,010 
 Average borrowings  373,278   317,337   208,289 
 Average equity  936,476   923,969   875,198 
       
Other Commercial Finance Segment:      
       
Performance ratios:      
 Return on average assets (4.21%) (0.86%) (12.42%)
 Return on average equity (12.40%) (2.64%) (62.45%)
 Yield on average interest earning assets 7.53% 8.96% 6.97%
 Cost of interest bearing liabilities 6.73% 6.21% 4.48%
 Borrowing spread 6.47% 5.95% 4.25%
 Net interest margin   2.54% 4.53% 3.37%
 Operating expenses as a percentage of average total assets 5.04% 4.69% 3.54%
 Core lending spread 7.38% 8.71% 7.14%
 Loan yield 7.64% 8.97% 7.37%
       
Leverage ratios:      
 Total debt to equity (as of period end) 1.66x 1.79x 3.90x
 Equity to total assets (as of period end) 35.25% 32.91% 19.49%
       
Average balances ($ in thousands):      
 Average loans $2,331,652  $2,850,705   $5,060,833 
 Average assets    3,327,142   3,617,207   5,783,958 
 Average interest earning assets  2,565,261   2,944,676   5,372,395 
 Average borrowings  1,901,770   2,104,012   4,315,838 
 Average equity  1,129,542   1,183,331   1,150,372 
       
Consolidated CapitalSource Inc.: (1)      
       
Performance ratios:      
 Return on average assets 0.14% 0.25% (7.74%)
 Return on average equity 0.62% 1.13% (44.29%)
 Yield on average interest earning assets 6.95% 6.98% 6.39%
 Cost of interest bearing liabilities 2.73% 2.73% 2.91%
 Borrowing spread 2.47% 2.47% 2.68%
 Net interest margin   4.67% 4.73% 3.97%
 Operating expenses as a percentage of average total assets 2.36% 2.39% 2.23%
       
Leverage ratios:      
 Total debt to equity (as of period end) 3.35x 3.43x 4.77x
 Equity to total assets (as of period end) 22.34% 21.75% 16.90%
 Tangible common equity to tangible assets 20.84% 20.27% 15.52%
       
Average balances ($ in thousands):      
 Average loans  6,126,161   6,473,048   8,081,642 
 Average assets    9,319,796   9,475,846   11,481,309 
 Average interest earning assets  8,290,663   8,550,228  10,876,004 
 Average borrowings  2,275,048   2,421,349   4,503,139 
 Average deposits  4,673,752   4,613,309   4,564,010 
 Average equity    2,069,960   2,081,134   2,005,639 
 
(1) Applicable ratios have been calculated on a continuing operations basis.
 
CapitalSource Inc.
Credit Quality Data
(Unaudited)
 
  March 31, 2011 December 31, 2010 September 30, 2010 June 30, 2009 March 31, 2010
Loans 30-89 days contractually delinquent:  

 
 

 
 

 
       
As a % of total loans(1) 0.77 % 0.44 % 0.86 % 1.43 % 3.27 %
Loans 30-89 days contractually delinquent $ 46.6 $ 27.8 $ 56.8 $ 109.7 $ 261.3
           
Loans 90 or more days contractually delinquent:          
As a % of total loans 4.64 % 5.03 % 5.47 % 5.98 % 5.46 %
Loans 90 or more days contractually delinquent $ 282.4 $ 319.7 $ 362.6 $ 459.2 $ 436.8
           
Loans on non-accrual:(2)          
As a % of total loans 9.03 % 10.99 % 11.89 % 14.68 % 14.25 %
Loans on non-accrual $ 549.4 $ 698.7 $ 787.9 $ 1,126.4 $ 1,140.1
           
Impaired loans:(3)          
As a % of total loans 12.17 % 14.65 %  14.75 % 19.15 % 17.38 %
Impaired loans $ 740.6 $ 931.2 $ 977.5 $ 1,469.0 $ 1,390.6
           
Allowance for loan losses:          
As a % of total loans 4.65 % 5.17 % 5.94 % 7.54 % 8.58 %
Allowance for loan losses: $283.3 $329.1 $393.6 $578.6 $686.2
           
Net charge offs (last twelve months):            
As a % of total average loans 5.78% 5.78% 6.78% 7.43% 7.50%
Net charge offs (last twelve months) $ 397.6 $ 426.5   $ 535.6   $ 623.3   $ 654.8  
 
(1) Includes loans held for investment and loans held for sale. Excludes deferred loan fees and discounts and the allowance for loan losses.
 
(2) Includes loans with an aggregate principal balance of $235.3 million, $270.5 million, $354.3 million, $371.9 million, and $402.1 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, 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 $11.5 million, $14.7 million, $37.5 million, $51.4 million, and $15.6 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively.
 
(3) Includes loans with an aggregate principal balance of $243.8 million, $265.3 million, $340.0 million, $423.2 million, and $416.4 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $549.4 million, $684.1 million, $787.9 million, $1,075.0 million, and $1,124.6 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively, that were also classified as loans on non-accrual status.
CONTACT: Investor Relations:
         Dennis Oakes
         Senior Vice President, Investor Relations
         (212) 321-7212
         doakes@capitalsource.com
         
         Media Relations:
         Michael Weiss
         Director of Communications
         (301) 841-2918
         mweiss@capitalsource.com

© Copyright 2012, GlobeNewswire, Inc. All Rights Reserved

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