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"During the quarter and shortly thereafter we extended or paid off all of our credit facilities including our large syndicated bank facility, completing a critical phase of our 2009 strategy to extend the duration of our liabilities to better match the duration of parent company assets," said John K. Delaney, CapitalSource Chairman and CEO. "After a successful debt offering in July, we reduced the $900 million syndicated bank facility to $600 million and extended its term to 2012. For the remainder of 2009, we can now turn our attention to aggressively managing our credit book and growing assets at CapitalSource Bank," concluded Delaney.
"Our capital position, both at the parent company and at CapitalSource Bank, remains strong and liquidity is adequate to meet anticipated needs," commented CapitalSource Chief Financial Officer, Donald F. Cole. "The amendment and extension of our syndicated bank facility has significantly reduced our debt maturities in 2009 - 2010. Despite continued deterioration in the credit performance of our commercial real estate portfolio, it is encouraging to see signs of stabilization or slight improvement across the rest of our assets," added Cole.
"Our loan production this quarter is reflective of the continuing slow pace of market transactions which drive new loan opportunities. We do have a strong pipeline, however, as demonstrated by an additional $286 million of loans that were approved but not closed as of the end of the second quarter," said Tad Lowrey, President and CEO of CapitalSource Bank. "Our tangible common equity to tangible assets ratio is 12.49%, which is among the highest in the industry. At quarter end, we also had a total risk-based capital ratio of 16.77%," concluded Lowrey.
CapitalSource Bank Segment
-- Commercial loans, including accrued interest, decreased $45 million from
the prior quarter to $2.9 billion. There were approximately $211
million in loans closed at CapitalSource Bank during the quarter,
including $22 million of maturing parent company loans that were
underwritten as new loans at CapitalSource Bank.
-- The "A" Participation Interest, net was $888 million at the
end of the quarter, reflecting principal repayments of $193 million,
partially offset by discount accretion of $3 million. At the end of the
quarter, the "A" Participation Interest represented 23% of the
total underlying loan and property balances, a decrease from 27% 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 the
Company's position remains well secured by the total underlying
collateral pool, which was $3.8 billion at the end of the quarter.
Management expects the "A" Participation Interest will be paid
off in 2010.
-- Cash and cash equivalents totaled $800 million at the end of the
quarter, an increase from $616 million at the end of the prior quarter.
The increase was primarily due to the maturities of Agency discount
notes and principal repayments on the "A" Participation
Interest which were invested in cash equivalents.
-- Investment securities, available-for-sale, which consist primarily of
investments in Agency discount notes and Agency and Non-Agency MBS, were
$816 million at the end of the quarter, a decrease from $1.0 billion at
the end of the prior quarter primarily due to the maturities of Agency
discount notes and prepayments on Non-Agency MBS.
-- Investment securities, held-to-maturity increased $127 million during
the quarter to $219 million due to purchases of an additional $129
million of AAA-rated CMBS during the quarter with an expected yield of
7.03%. CapitalSource Bank focuses on the most senior AAA-rated CMBS
tranches with substantial credit support, including cash defeasance.
-- Deposits were $4.5 billion at the end of the quarter, a decrease of $179
million from the prior quarter primarily due to managing our cost of
funds. Average rates on new and renewed certificates of deposit were
1.78% for the quarter, compared to 1.89% for the prior quarter.
-- Interest income was $67 million for the quarter, a decrease of $6
million from the prior quarter, primarily due to reduced discount
accretion on the "A" Participation Interest as a result of
expected slower rates of repayment.
-- Net finance margin for the quarter was 3.01% compared to 2.69% in the
prior quarter, primarily due to our cost of funds decreasing more
rapidly than asset yields.
-- Yield on average interest earning assets was 5.19% for the quarter, a
decrease of 16 basis points from the prior quarter primarily due to
reduced discount accretion on the "A" Participation Interest.
Excluding the "A" Participation Interest, yield increased to
5.64% for the quarter from 5.26% in the prior quarter.
-- Cost of interest-bearing liabilities, which includes deposits and FHLB
borrowings, was 2.58% for the quarter compared to 3.16% for the prior
quarter. The cost of deposits was 2.60% for the quarter, a decrease of
56 basis points from the prior quarter primarily due to re-pricing
higher rate maturing certificates of deposit, along with continued
reductions in deposit rates offered. The cost of FHLB borrowings was
1.93% during the quarter.
-- Non-interest income, which consists primarily of loan servicing fee
income earned by servicing loans for the parent company, was $8 million
for the quarter, unchanged from the prior quarter.
-- Total operating expenses were $26 million in the quarter, an increase of
$2 million from the prior quarter primarily due to a $2.5 million FDIC
special assessment paid by CapitalSource Bank to the FDIC's Deposit
Insurance Fund, which was part of a required payment for all insured
institutions. During the quarter, $3 million of loan sourcing expense
was paid to the parent company. Operating expenses as a percentage of
average total assets were 1.83%, an increase of 21 basis points from the
prior quarter.
-- Total Risk-Based Capital Ratio was 16.77% at the end of the quarter
compared to 17.24% at the end of the prior quarter.
-- Tier 1 Leverage Ratio at the end of the quarter was 12.46% compared to
12.87% at the end of the prior quarter.
-- Tangible Common Equity to Tangible Assets at the end of the quarter was
12.49% compared to 13.12% at the end of the prior quarter.
Other Commercial Finance Segment
-- Total commercial loans and loans held for sale, including accrued
interest, were $6.2 billion at the end of the quarter, a decrease from
$6.4 billion at the end of the prior quarter, primarily due to scheduled
loan repayments and charge-offs.
-- Cash and cash equivalents were $199 million at the end of the quarter,
an increase from $148 million at the end of the prior quarter.
-- Restricted cash was $168 million at the end of the quarter, an increase
from $143 million at the end of the prior quarter. The increase was
primarily due to higher collections on securitized loans.
-- Interest income was $133 million for the quarter, a decrease of $18
million from the prior quarter, primarily due to lower interest income
on the residential mortgage assets and a decrease in loan yield.
Excluding the legacy residential mortgage portfolio, interest income was
$113 million for the quarter, compared to $120 million in the prior
quarter.
-- Yield on average interest-earning assets was 7.84% for the quarter, a
decrease of 49 basis points from the prior quarter, primarily due to
lower prepayment related fee income, which accounted for 40 basis points
of the decrease. Excluding the legacy residential mortgage portfolio,
yield on average interest-earnings assets would have been 8.78% for the
quarter compared to 9.68% in the prior quarter. Loan yield was 9.05%
for the quarter, a decrease of 57 basis points from the prior quarter.
-- Prepayment-related fee income on loans was $1 million for the quarter, a
decrease from $7 million in the prior quarter. Prepayment-related fee
income contributed 8 basis points to yield.
-- Cost of funds was 4.23% for the quarter, a decrease of 2 basis points
from the prior quarter, and funding spread to average one-month LIBOR
decreased 4 basis points to 3.86%.
-- Total operating expenses were $51 million in the quarter, a decrease
from $56 million in the prior quarter primarily due to a decrease in
professional fees. Operating expenses as a percentage of average total
assets were 2.27% for the quarter, a 2 basis point increase from the
prior quarter.
Healthcare Net Lease Segment
-- Direct real estate investments, net were $959 million at the end of the
quarter, a decrease of $16 million from the prior quarter, primarily due
to depreciation and the sale of three properties during the quarter.
-- Operating lease income was $27 million, a decrease of $1 million from
the prior quarter.
-- Three properties were sold during the quarter at a 7.91% capitalization
rate of underlying lease payments. The total gain associated with the
sales was $1 million.
Consolidated Metrics
Assets
-- Total commercial lending assets (including loans, loans held for sale,
the "A" Participation Interest and related accrued interest)
were $9.9 billion at the end of the quarter compared to $10.5 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
funded at CapitalSource Bank.
Credit
-- Loans on non-accrual were $884 million at the end of the quarter, an
increase from $615 million at the end of the prior quarter. As a
percentage of commercial lending assets, non-accruals were 8.91%.
Non-accruals in CapitalSource Bank were $85 million at the end of the
quarter compared to $23 million at the end of the prior quarter. As a
percentage of commercial lending assets in CapitalSource Bank,
non-accruals were 2.26%.
-- Loans 30-89 days delinquent were $118 million at the end of the quarter,
a decrease from $126 million at the end of the prior quarter. As a
percentage of commercial lending assets loans 30-89 days delinquent were
1.19%. CapitalSource Bank did not have any loans 30-89 days delinquent
at the end of the quarter.
-- Loans 90 or more days delinquent were $412 million at the end of the
quarter, an increase from $292 million at the end of the prior quarter.
As a percentage of commercial lending assets, loans 90 or more days
delinquent were 4.15%. CapitalSource Bank had two loans totaling $5
million that were 90 or more days delinquent at the end of the quarter,
equal to 0.14% of commercial lending assets.
-- Net commercial charge-offs were $167 million, an increase of $48 million
from the prior quarter. As a percentage of average commercial lending
assets, net charge-offs for the trailing 12 months ended June 30, 2009,
were 5.40%. CapitalSource Bank had $70 million in charge-offs in the
quarter, relating principally to two loans. As a percentage of average
commercial lending assets in CapitalSource Bank, net charge-offs for the
trailing 12 months ended June 30, 2009, were 2.12%.
-- Provision for commercial loan losses was $169 million for the quarter,
an increase of $29 million from the prior quarter. CapitalSource Bank
added $90 million to its provision for loan losses in the quarter, an
increase of $65 million from the prior quarter.
-- Allowance for loan losses was $448 million at the end of the quarter, a
net increase of $3 million from the prior quarter. As a percentage of
commercial lending assets, the allowance for loan losses was 4.51%.
CapitalSource Bank's allowance for loan losses increased from $71
million to $92 million, or 2.43% of commercial lending assets.
-- Provision for loan losses on the mortgage-related receivables portion of
the Other Commercial Finance segment increased to $35 million from $14
million in the prior quarter, due to the credit performance of the
residential loans held in the Owner Trusts.
-- Net charge-offs on the mortgage-related receivables portion of the Other
Commercial Finance segment increased to $19 million from $5 million in
the prior quarter, due to the credit performance of the residential
loans held in the Owner Trusts.
Other Income/(Expense)
-- Loss on investments, net was $5 million for the quarter primarily due to
write-downs on certain cost-based investments and realized losses on
sales. Loss on investments was $16 million for the prior quarter.
-- Loss on derivatives, net was $1 million for the quarter primarily due to
lower interest rates having an adverse impact on our pay fixed swaps.
Loss on derivatives, net was $0.7 million for the prior quarter.
-- Gain/loss on extinguishment of debt was a $5 million gain for the
quarter primarily due to the gain on extinguishment of term debt
recognized in the quarter. Loss on extinguishment of debt for the
prior quarter, which reflected a loss related to a convertible debt
exchange, was $57 million.
-- Other income/loss, net was an $11 million loss for the quarter primarily
due to adjustments on loans held for sale and losses on REO, partially
offset by gains from healthcare property sales. Other loss, net was $15
million for the prior quarter.
Income Taxes
-- Due to continuing operating losses in the second quarter at some of our
taxable entities, we are required by GAAP to establish a valuation
allowance against a portion of our deferred tax assets. During the
quarter, we recorded a valuation allowance totaling $137 million, or
$0.46 per diluted share. The remaining net deferred tax asset totaled
$142 million at the end of the quarter. 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.
Prior to a reversal, the Company will not recognize tax expense or
benefit for those entities with an allowance.
Book Value
-- Book Value per share was $8.60 at the end of the quarter a decrease from
$9.33 at the end of the prior quarter, primarily due to the current
quarter loss. Total shareholder equity was $2.6 billion at the end of
the quarter, a decrease of $209 million from the prior quarter primarily
due to the loss during the quarter and the dividend payment made to
shareholders during the quarter.
-- Tangible book value per share at the end of the quarter was $7.98
compared to $8.70 at the end of prior quarter, primarily due to the
current quarter loss. Tangible equity was $2.4 billion at the end of the
quarter, a decrease of $208 million from the prior quarter.
Subsequent Events
-- In July, we issued $300 million of 12.75% senior secured notes due July
2014 at an issue price of 93.966% in a private offering to
"qualified institutional buyers" as defined in Rule 144A under
the Securities Act of 1933 (the "Securities Act"), and outside
the United States in reliance on Regulation S under the Securities Act.
In July, we also sold 20.1 million shares of our common stock in an
underwritten public offering at a price of $4.10 per share, including
2.6 million shares purchased by the underwriters pursuant to their
over-allotment option. We received aggregate net proceeds of $351
million from these transactions, which were used to reduce our
syndicated bank credit facility by $300 million and for general
corporate purposes.
-- In July, lenders holding $778 million of indebtedness under our $900
million senior secured syndicated bank facility consented to amend and
extend the facility until March 31, 2012, upon satisfaction of certain
payment conditions and on July 27, 2009, we reduced commitments under
this facility from $900 million to $600 million, in conjunction with the
issuance of the Notes, satisfying the payment preconditions for
extending the facility. The non-extending lenders' commitments are
approximately $122 million and mature on March 13, 2010.
Share Count
-- Average diluted shares outstanding were 299.5 million shares for the
quarter, compared to 290.1 million shares for the prior quarter,
primarily due to the full quarter impact of the issuance of 19.8 million
shares in February for the convertible debt exchange. Total outstanding
shares at June 30, 2009 were 303.3 million.
Dividends
-- A quarterly cash dividend of $0.01 per common share was paid on June 30,
2009 to common shareholders of record on June 16, 2009.
A conference call to discuss the results will be hosted on Thursday, August 6, 2009 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 passcode 1338893. 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 August 6, 2009 through August 14, 2009. Please call (877) 344-7529 from the United States or (412) 317-0088 from outside the United States with passcode 432668. 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 August 6, 2009.
Supplemental financial tables and 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 | Quote | Chart | News | PowerRating) 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, 2009, CapitalSource had total commercial assets of $10.9 billion and $4.5 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, managing our credit book, the impact of the U.S. economy on our business, our expectations regarding future credit performance, our liquidity and capital position, the performance and payment of the "A" Participation Interest, match funding our portfolio, 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; continued or worsening disruptions in the economy and credit and other markets; movements in interest rates and lending spreads; continued or worsening charge-offs, reserves and delinquencies; our ability to successfully and cost effectively operate our business, including CapitalSource Bank; our ability to successfully grown 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)
June 30, December 31,
2009 2008
---------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents $1,002,407 $1,338,563
Restricted cash 202,920 419,383
Investment securities:
Available-for-sale, at fair value 829,326 679,551
Held-to-maturity, at amortized cost 219,154 14,389
Total investment securities 1,048,480 693,940
Mortgage-backed securities pledged, trading - 1,489,291
Mortgage-related receivables, net 1,626,387 1,801,535
Commercial real estate "A" participation
interest, net 887,569 1,396,611
Loans:
Loans held for sale 59,460 8,543
Loans held for investment 8,884,252 9,396,751
Less deferred loan fees and discounts (155,924) (174,317)
Less allowance for loan losses (447,728) (423,844)
Loans held for investment, net 8,280,600 8,798,590
Total loans 8,340,060 8,807,133
Interest receivable 104,703 117,516
Direct real estate investments, net 958,909 989,716
Other investments 106,673 127,746
Goodwill 173,135 173,135
Other assets 654,988 1,065,063
Total assets $15,106,231 $18,419,632
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $4,547,939 $5,043,695
Repurchase agreements - 1,595,750
Credit facilities 1,249,698 1,445,062
Term debt 4,770,352 5,338,456
Other borrowings 1,598,141 1,573,813
Other liabilities 330,661 592,136
Total liabilities 12,496,791 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; 303,306,840 and
282,804,211 shares issued and shares
outstanding, respectively) 3,033 2,828
Additional paid-in capital 3,818,943 3,686,765
Accumulated deficit (1,224,344) (868,425)
Accumulated other comprehensive income, net 11,185 9,095
Total CapitalSource Inc. shareholders'
equity 2,608,817 2,830,263
Noncontrolling interests 623 457
Total shareholders' equity 2,609,440 2,830,720
Total liabilities and shareholders' equity $15,106,231 $18,419,632
CapitalSource Inc.
Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
-------- --------- -------- -------- --------
Net investment
income:
Interest income:
Loans $183,093 $199,392 $222,118 $382,485 $468,619
Investment
securities 13,469 20,553 29,417 34,022 86,757
Other 913 1,742 2,687 2,655 7,171
Total interest
income 197,475 221,687 254,222 419,162 562,547
Fee income 24,906 31,396 41,267 56,302 74,908
Total interest
and fee income 222,381 253,083 295,489 475,464 637,455
Operating lease
income 27,406 27,880 24,210 55,286 51,900
Total investment
income 249,787 280,963 319,699 530,750 689,355
Interest expense:
Deposits 29,959 38,387 - 68,346 -
Borrowings 80,906 92,648 158,115 173,554 348,587
Total interest
expense 110,865 131,035 158,115 241,900 348,587
Net investment
income 138,922 149,928 161,584 288,850 340,768
Provision for
loan losses 203,847 155,267 31,674 359,114 37,333
Net investment
(loss) income after
provision for loan
losses (64,925) (5,339) 129,910 (70,264) 303,435
Operating expenses:
Compensation and
benefits 34,808 35,037 37,808 69,845 69,597
Depreciation of
direct real
estate
investments 8,838 8,964 8,990 17,802 17,906
Professional
fees 11,860 17,420 8,989 29,280 21,923
Other
administrative
expenses 22,254 16,858 14,855 39,112 28,725
Total operating
expenses 77,760 78,279 70,642 156,039 138,151
Other income
(expense):
Loss on
investments,
net (4,967) (16,127) (4,961) (21,094) (3,993)
(Loss) gain on
derivatives (1,333) (686) 15,098 (2,019) (23,013)
Gain (loss) on
residential
mortgage
investment
portfolio - 15,311 9,060 15,311 (46,317)
Gain (loss) on
extinguishment
of debt 4,565 (57,128) 12,725 (52,563) 12,725
Other (expense)
income, net (10,970) (15,497) 8,364 (26,467) 4,485
Total other
(expense) income (12,705) (74,127) 40,286 (86,832) (56,113)
Net (loss) income
before income
taxes (155,390) (157,745) 99,554 (313,135) 109,171
Income tax
expense
(benefit) 91,179 (53,425) 37,243 37,754 40,319
Net (loss)
income (246,569) (104,320) 62,311 (350,889) 68,852
Net (loss) income
attributable to
noncontrolling
interests (22) (16) 283 (38) 1,580
Net (loss) income
attributable to
CapitalSource
Inc $(246,547) $(104,304) $62,028 $(350,851) $67,272
Net (loss) income
per share
attributable to
CapitalSource Inc.:
Basic $(0.82) $(0.36) $0.26 $(1.19) $0.30
Diluted $(0.82) $(0.36) $0.26 $(1.19) $0.29
Average shares
outstanding:
Basic 299,452,870 290,098,800 235,076,287 294,818,311 227,580,584
Diluted 299,452,870 290,098,800 236,445,230 294,818,311 228,969,238
Dividends
declared
per share $0.01 $0.01 $0.60 $0.02 $1.20
CapitalSource Inc.
Segment Data
(Unaudited)
($ in thousands)
Three Months Ended June 30, 2009
OTHER HEALTHCARE
Net investment CAPITALSOURCE COMMERCIAL NET INTERCOMPANY CONSOL-
income: BANK FINANCE LEASE ELIMINATIONS 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 (loss)
income 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 loss
attributable to
noncontrolling
interests - (22) - - (22)
Net (loss)
income
attributable to
CapitalSource Inc $(70,844) $(188,434) $14,612 $(1,881) $(246,547)
Three Months Ended March 31, 2009
OTHER HEALTHCARE
Net investment CAPITALSOURCE COMMERCIAL NET INTERCOMPANY CONSOL-
income: BANK FINANCE LEASE ELIMINATIONS IDATED
------------- ---------- ------- ------------ -------
Interest income $72,867 $151,133 $85 $(2,398) $221,687
Fee income 4,557 27,327 - (488) 31,396
Total interest and
fee income 77,424 178,460 85 (2,886) 253,083
Operating lease
income - - 27,880 - 27,880
Total investment
income 77,424 178,460 27,965 (2,886) 280,963
Interest expense 38,413 89,263 5,757 (2,398) 131,035
Net investment
income 39,011 89,197 22,208 (488) 149,928
Provision for
loan losses 24,991 130,276 - - 155,267
Net investment (loss)
income after
provision for
loan losses 14,020 (41,079) 22,208 (488) (5,339)
Compensation and 10,954 23,807 276 - 35,037
benefits
Depreciation of direct
real estate
investments - - 8,964 - 8,964
Professional fees 595 16,614 211 - 17,420
Other operating
expenses 12,191 15,723 2,136 (13,192) 16,858
Total operating
expenses 23,740 56,144 11,587 (13,192) 78,279
Total other income
(expense) 9,561 (71,765) 1,365 (13,288) (74,127)
Net (loss) income
before income taxes (159) (168,988) 11,986 (584) (157,745)
Income tax
expense (benefit) (65) (58,023) 4,663 - (53,425)
Net (loss) income (94) (110,965) 7,323 (584) (104,320)
Net loss attributable to
noncontrolling interests - (16) - - (16)
Net (loss) income
attributable to
CapitalSource Inc $(94) $(110,949) $7,323 $(584) $(104,304)
Six Months Ended June 30, 2009
OTHER HEALTHCARE
Net investment CAPITALSOURCE COMMERCIAL NET INTERCOMPANY CONSOL-
income: BANK FINANCE LEASE ELIMINATIONS IDATED
------------- ---------- ------- ------------ -------
Interest income $139,611 $284,192 $182 $(4,823) $419,162
Fee income 10,609 47,956 - (2,263) 56,302
Total interest and
fee income 150,220 332,148 182 (7,086) 475,464
Operating lease
income - - 55,286 - 55,286
Total investment
income 150,220 332,148 55,468 (7,086) 530,750
Interest expense 68,964 166,478 11,281 (4,823) 241,900
Net investment income 81,256 165,670 44,187 (2,263) 288,850
Provision for loan
losses 115,461 243,653 - - 359,114
Net investment (loss)
income after
provision for
loan losses (34,205) (77,983) 44,187 (2,263) (70,264)
Compensation and
benefits 21,959 46,986 900 - 69,845
Depreciation of direct
real estate
investments - - 17,802 - 17,802
Professional fees 1,210 27,660 410 - 29,280
Other operating
expenses 26,773 32,070 4,152 (23,883) 39,112
Total operating
expenses 49,942 106,717 23,263 (23,883) 156,039
Total other income
(expense) 17,925 (83,042) 2,370 (24,085) (86,832)
Net (loss) income
before income taxes (66,222) (267,742) 23,294 (2,465) (313,135)
Income tax expense 4,716 31,679 1,359 - 37,754
Net (loss) income (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 $(70,938) $(299,383) $21,935 $(2,465) $(350,851)
Six Months Ended June 30, 2008
OTHER HEALTHCARE
Net investment CAPITALSOURCE COMMERCIAL NET INTERCOMPANY CONSOL-
income: BANK FINANCE LEASE ELIMINATIONS IDATED
------------- ---------- ------- ------------ -------
Interest income $- $568,153 $829 $(6,435) $562,547
Fee income - 74,890 18 - 74,908
Total interest and
fee income - 643,043 847 (6,435) 637,455
Operating lease
income - - 51,900 - 51,900
Total investment
income - 643,043 52,747 (6,435) 689,355
Interest expense - 333,367 21,655 (6,435) 348,587
Net investment income - 309,676 31,092 - 340,768
Provision for
loan losses - 37,333 - - 37,333
Net investment (loss)
income after provision
for loan losses - 272,343 31,092 - 303,435
Compensation and
benefits - 68,622 975 - 69,597
Depreciation of direct
real estate investments - - 17,906 - 17,906
Professional fees - 21,476 447 - 21,923
Other operating expenses - 25,500 3,225 - 28,725
Total operating expenses - 115,598 22,553 - 138,151
Total other income
(expense) - (54,697) (1,416) - (56,113)
Net (loss) income
before income taxes - 102,048 7,123 - 109,171
Income tax expense - 40,319 - - 40,319
Net (loss) income - 61,729 7,123 - 68,852
Net loss attributable
to noncontrolling
interests - (486) 2,066 - 1,580
Net (loss) income
attributable to
CapitalSource Inc $- $62,215 $5,057 $- $67,272
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
-------- --------- -------- -------- --------
CapitalSource Bank Segment:
Performance ratios:
Return on average
assets (4.94%) (0.01%) N/A (2.45%) N/A
Return on average
equity (30.84%) (0.04%) N/A (15.45%) N/A
Yield on average
interest earning
assets 5.19% 5.35% N/A 5.27% N/A
Cost of funds 2.58% 3.16% N/A 2.87% N/A
Net finance margin 3.01% 2.69% N/A 2.85% N/A
Operating expenses
as a percentage of
average total assets 1.83% 1.62% N/A 1.72% N/A
Core lending spread 6.96% 6.81% N/A 6.85% N/A
Loan yield 7.33% 7.29% N/A 7.28% N/A
Capital ratios:
Tier 1 leverage 12.46% 12.87% N/A 12.46% N/A
Total risk-based
capital 16.77% 17.24% N/A 16.77% N/A
Tangible common equity
to tangible assets 12.49% 13.12% N/A 12.49% N/A
Average balances
($ in thousands):
Average loans $2,947,753 $2,791,350 N/A $2,870,021 N/A
Average assets 5,748,682 5,943,750 N/A 5,845,714 N/A
Average interest
earning assets 5,626,428 5,872,004 N/A 5,748,737 N/A
Average deposits 4,629,352 4,923,789 N/A 4,775,757 N/A
Average borrowings 123,033 5,000 N/A 64,343 N/A
Average equity 921,405 930,552 N/A 925,953 N/A
Other Commercial
Finance Segment:
Performance ratios:
Return on average
assets (8.37%) (4.44%) 1.64% (6.31%) 0.78%
Return on average
equity (49.69%) (29.00%) 10.25% (39.41%) 5.28%
Yield on average
interest earning
assets 7.84% 8.33% 8.55% 8.10% 8.51%
Cost of funds 4.23% 4.25% 4.96% 4.29% 5.02%
Net finance margin 3.90% 4.27% 4.22% 4.04% 4.10%
Operating expenses
as a percentage
of average
total assets 2.25% 2.25% 1.58% 2.25% 1.44%
Core lending spread 8.59% 8.68% 7.07% 8.47% 7.11%
Loan yield 9.05% 9.62% 10.11% 9.18% 10.36%
Leverage ratios:
Total debt to equity
(as of period end) 5.65x 5.32x 4.15x 5.65x 4.15x
Equity to total assets
(as of period end) 14.59% 15.40% 19.01% 14.59% 19.01%
Average balances
($ in thousands):
Average loans $6,405,635 $6,733,765 $9,715,111 $6,568,794 $9,781,606
Average assets 9,034,419 10,125,135 15,067,109 9,574,897 16,084,727
Average interest
earning assets 7,856,362 8,692,688 14,040,040 8,272,665 15,153,501
Average
borrowings 7,329,372 8,310,324 12,234,515 7,817,138 13,311,662
Average equity 1,521,013 1,551,346 2,416,071 1,531,820 2,364,971
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
-------- --------- -------- -------- --------
Healthcare Net Lease Segment:
Performance ratios:
Return on average
assets 5.63% 2.82% 0.10% 4.22% 0.93%
Return on average
equity 11.83% 5.85% 0.27% 8.74% 2.60%
Yield on average
income earning
assets 10.37% 10.58% 9.08% 10.47% 9.74%
Cost of funds 4.72% 4.77% 7.16% 4.84% 7.12%
Net finance margin 8.18% 8.31% 5.02% 8.24% 5.67%
Operating expenses as
a percentage of
average total assets 4.50% 4.46% 4.23% 4.48% 4.16%
Operating expenses
(excluding direct real
estate depreciation)
as a percentage of
average total assets 1.09% 1.01% 0.89% 1.05% 0.86%
Leverage ratios:
Total debt to equity
(as of period end) 0.93x 0.96x 1.63x 0.93x 1.63x
Equity to total
assets (as of
period end) 48.37% 47.65% 34.69% 48.37% 34.69%
Average balances
($ in thousands):
Average assets $1,040,676 $1,053,377 $1,079,855 $1,046,992 $1,088,150
Average interest
earning assets 17,394 15,175 26,652 16,291 30,974
Average income
earning assets 1,077,872 1,084,124 1,095,916 1,080,981 1,099,254
Average borrowings 469,284 474,497 608,298 470,009 610,384
Average equity 495,576 507,863 383,841 505,962 390,004
Consolidated
CapitalSource Inc.:
Performance ratios:
Return on average
assets (6.35%) (2.51%) 1.57% (4.36%) 0.80%
Return on average
equity (33.79%) (14.20%) 8.89% (23.96%) 4.90%
Yield on average
interest earning
assets 6.61% 7.04% 8.43% 6.83% 8.42%
Cost of funds 3.58% 3.92% 5.04% 3.76% 5.11%
Net finance margin 3.83% 3.89% 4.28% 3.86% 4.20%
Operating expenses
as a percentage of
average total assets 2.00% 1.88% 1.78% 1.94% 1.64%
Operating expenses
(excluding direct
real estate
depreciation) as a
percentage of average
total assets 1.77% 1.67% 1.56% 1.72% 1.43%
Leverage ratios:
Total debt and
deposits to equity (as
of period end) 4.66x 4.48x 3.76x 4.66x 3.76x
Equity to total assets
(as of period end) 17.27% 17.85% 20.48% 17.27% 20.48%
Tangible common equity
to tangible assets 16.22% 16.85% 20.25% 16.22% 20.25%
Average balances
($ in thousands):
Average loans $9,352,814 $9,524,747 $9,715,111 $9,438,343 $9,781,606
Average assets 15,577,640 16,873,725 15,881,032 16,222,139 16,908,992
Average interest
earning assets 13,499,610 14,579,500 14,066,691 14,037,222 15,184,475
Average income
earning assets 14,560,088 15,648,449 15,135,956 15,101,912 16,252,755
Average borrowings 7,780,606 8,644,983 12,595,070 8,210,407 13,674,303
Average deposits 4,629,352 4,923,789 N/A 4,775,757 N/A
Average equity 2,926,463 2,978,957 2,799,913 2,952,565 2,754,975
CapitalSource Inc.
Credit Quality Data
(Unaudited)
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2009 2009 2008 2008 2008 2008
-------- --------- -------- --------- -------- ---------
Loans 30-89 days
contractually
delinquent:
As a % of total
commercial lending
assets(1) 1.19% 1.21% 2.75% 0.39% 0.74% 1.12%
Loans 90 or more
days contractually
delinquent:
As a % of total
commercial lending
assets 4.15% 2.79% 1.30% 1.72% 1.17% 0.59%
Loans on
non-accrual (2):
As a % of total
commercial lending
assets 8.91% 5.88% 4.03% 2.39% 2.20% 1.79%
Impaired loans(3) :
As a % of total
commercial lending
assets 12.11% 8.24% 6.35% 6.35% 5.40% 4.06%
Allowance for loan losses:
As a % of total
commercial lending
assets 4.51% 4.26% 3.89% 1.48% 1.50% 1.40%
Net charge offs
(last twelve months):
As a % of total average
commercial lending
assets 5.40% 3.95% 2.89% 1.22% 0.66% 0.57%
Dec. 31, 2007 Sept. 30, 2007 June 30, 2007
------------- -------------- -------------
Loans 30-89 days contractually
delinquent:
As a % of total commercial
lending assets(1) 0.85% 0.22% 0.44%
Loans 90 or more days contractually
delinquent:
As a % of total commercial
lending assets 0.59% 0.71% 0.88%
Loans on non-accrual (2) :
As a % of total commercial
lending assets 1.73% 1.76% 1.97%
Impaired loans(3) :
As a % of total commercial
lending assets 3.23% 3.46% 3.91%
Allowance for loan losses:
As a % of total commercial
lending assets 1.41% 1.16% 1.43%
Net charge offs (last
twelve months):
As a % of total average
commercial lending assets 0.64% 0.76% 0.75%
(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 $295.3 million,
$115.2 million, $110.3 million, $96.3 million, $58.3 million, $47.2
million, $55.5 million, $17.7 million and $31.1 million as of June 30,
2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30,
2008, March 31, 2008, December 31, 2007, September 30, 2007 and June
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 $13.8
million, $14.0 million, $14.5 million, $14.5 million, $14.9 million
and $3.0 million as of 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, December 31, 2007 and June 30,
2007 there were no non-performing loans classified as held for sale.
(3) Includes loans with an aggregate principal balance of $390.3 million,
$179.3 million, $128.9 million, $163.8 million, $81.7 million,
$47.2 million, $55.5 million, $57.4 million and $76.2 million as of
June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008,
June 30, 2008, March 31, 2008, December 31, 2007, September 30, 2007
and June 30, 2007, respectively, that were also classified as loans
90 or more days contractually delinquent, and loans with an aggregate
principal balance of $870.6 million, $601.1 million, $423.4 million,
$249.4 million, $192.4 million, $174.5 million, $170.5 million,
$166.4 million and $173.1 million as of June 30, 2009, March 31, 2009,
December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008,
December 31, 2007, September 30, 2007 and June 30, 2007,
respectively, that were also classified as loans on non-accrual
status.
SOURCE CapitalSource Inc.
http://www.capitalsource.com
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