- Continued Strong and Stable Credit Performance
CHEVY CHASE, Md., May 6 /PRNewswire-FirstCall/ -- CapitalSource Inc. today announced financial results for the first quarter 2008. Adjusted Earnings for the quarter were $113.3 million or $0.51 per diluted share, and net income for the quarter was $6.8 million or $0.03 per diluted share.
"Our financial performance in the first quarter of 2008 was stable and profitable, despite ongoing capital markets disruption. I am particularly pleased with our credit metrics, which have been steady and at the low end of historic ranges over the past five quarters," said John K. Delaney, CapitalSource Chairman and CEO. "We believe the strength of our business will be enhanced by combining our commercial lending franchise with our new depository," added Delaney. "We have now filed our regulatory applications to form our California bank and look forward to working closely with our new regulators. Our agreement to acquire more than $5 billion in retail bank deposits is expected to close this summer."
"The renewal of two bank credit facilities in recent days secures important funding capacity. We were able to complete these renewals based upon the strength and quality of our business franchise," said Thomas A. Fink, CapitalSource Chief Financial Officer. "The performance of our core commercial finance business improved this quarter with increased loan yield relative to our benchmark of 30-day LIBOR, lower operating expenses as a percentage of assets, and increased Adjusted Return on Equity at 23.9%. Adjusted Earnings on a consolidated basis were negatively impacted by the sale of Agency securities in our residential mortgage investment portfolio," added Fink.
Assets Under Management
-- Assets under management were approximately $19.85 billion as of March
31, 2008, a decrease of $1.03 billion from the prior quarter, primarily
due an $813 million reduction in the Company's residential mortgage
portfolio to $5.3 billion. During the quarter ended March 31, 2008, the
Company sold approximately $591 million in Agency MBS and subsequent to
quarter-end completed an additional $1.5 billion in Agency MBS sales.
Commercial Finance Segment
-- Total commercial loans were approximately $9.8 billion at quarter end,
a decrease of approximately $108 million from the prior quarter, as
loan runoff outpaced loan growth.
-- Net investment income was $144.4 million for the quarter, a decrease of
$1.8 million from the prior quarter, primarily due to lower interest
and prepayment-related fee income, partially offset by lower interest
expense.
-- Interest income was $224.4 million for the quarter, a decrease of $18.2
million from the prior quarter, directionally consistent with the
decrease in LIBOR and prime rates during the quarter.
-- Yield on average interest-earning assets was 10.26% for the quarter, a
decrease of 86 basis points from the prior quarter. The decrease was
primarily due to a decrease in the average coupon rate of interest
charged on loans (resulting from the decrease in LIBOR and prime rates
during the quarter) and a decrease in prepayment-related fee income,
partially offset by an increased core lending spread.
-- Core lending spread, defined as loan yield less prepayment-related fee
income and average 30-day LIBOR, was 7.12%, an increase of 99 basis
points compared to the prior quarter.
-- Prepayment-related fee income was $3.5 million for the quarter and
contributed 14 basis points to yield, a decrease of $8.9 million or 35
basis points in contribution to yield from the prior quarter.
-- Provision for loan losses was $3.0 million for the quarter, bringing
the total allowance for loan losses to $136.7 million, or 1.27% of
total commercial assets, a decrease of 1 basis point from the prior
quarter.
-- Cost of funds was 5.45% for the quarter, a decrease of 99 basis points
from the prior quarter primarily due to declining interest rates.
Overall borrowing spread to average one-month LIBOR was 2.15%, an
increase of 62 basis points from the prior quarter, primarily due to
short-term funding market volatility and greater amortization of
deferred financing fees.
-- Leverage, as measured by the ratio of total debt-to-equity at the end
of the quarter, was 4.37x, a decrease from 4.39x at the end of the
prior quarter.
-- Net finance margin, defined as net investment income divided by average
interest-earning assets, was 5.74% for the quarter, a decrease of 5
basis points from the prior quarter, primarily due to a decrease in
yield on average interest-earning assets partially offset by lower
borrowing costs.
-- Adjusted earnings contributed by the Commercial Finance segment was
$113.5 million ($0.51 per diluted share), an increase of 28.3% compared
to $88.5 million in the prior quarter.
Commercial Credit Metrics
-- Loans on non-accrual status, which the Company considers its primary
credit metric, increased by 5 basis points from the prior quarter to
1.62% of commercial assets, below the average of 1.64% in the prior
four quarters.
-- Loans 60 or more days contractually delinquent increased 1 basis point
from the prior quarter to 0.69% of commercial assets, below the average
of 0.77% in the prior four quarters.
-- Net charge-offs were $5.2 million, a decrease of $0.7 million from the
prior quarter. As a percentage of average commercial assets,
annualized net charge-offs for the quarter were 22 basis points,
unchanged from the prior quarter.
-- Allowance for loan losses was $136.7 million, a decrease of $2.2
million from the prior quarter. As a percentage of commercial loans at
quarter end, loan loss reserves were 1.40%, a decrease of 1 basis point
from the prior quarter.
Healthcare Net Lease Segment
-- Direct real estate investments were consistent with the prior quarter
at approximately $1.02 billion, decreasing $0.6 million from the prior
quarter due primarily to depreciation, partially offset by the purchase
of one property.
-- Operating lease income was approximately $27.7 million for the quarter,
an increase of $0.6 million from the prior quarter.
-- Adjusted earnings contributed by the Healthcare Net Lease segment was
approximately $13.9 million ($0.06 per diluted share), an increase of
6.9% compared to $13.0 million in the prior quarter.
Consolidated Other Income
-- Gain (loss) on investments, net was $1.1 million in the first quarter,
improved from a loss of ($0.2) million in the prior quarter primarily
due to realized gains of $1.9 million on certain cost based investments
and dividends received of $1.0 million, partially offset by write-downs
of $2.2 million on other cost based investments.
-- Other (expense) income, net was ($4.7) million compared to $4.3 million
in the prior quarter, primarily due to foreign currency losses
partially offset by gains on asset sales and third party management
fees.
-- Loss on the residential mortgage investment portfolio was $55.4 million
or 105 basis points of the portfolio, compared to $25.4 million in the
prior quarter, primarily due to the net change in fair value of Agency
MBS and related derivatives. In Adjusted Earnings for the quarter, the
Company realized a loss of $28.0 million related to the residential
mortgage investment portfolio, primarily due to a $20.6 million
realized loss as a result of the sale of Agency MBS during the quarter.
-- Loss on derivatives was $38.1 million, compared to $31.6 million in the
prior quarter. These net unrealized losses were primarily due to the
unrealized net change in the fair value of interest rate swaps used in
hedging certain assets and liabilities to minimize the Company's
exposure to interest rate movements. Hedge accounting is not applied
to these interest rate swaps. As a result, movements in the net fair
value of hedging instruments are reported in Other (Expense) Income,
while changes in the fair value of hedged exposures are not.
Funding and Liquidity
-- During the quarter, the Company raised $169.3 million through the
issuance of approximately 14.06 million shares of common stock under
its Dividend Reinvestment and Stock Purchase Plan (DRIP).
-- Following the quarter end, the Company renewed two credit facilities
with five participating lenders totaling approximately $1.2 billion,
including:
-- A $1 billion facility to finance real estate loans and real estate-
related asset based loans was renewed on April 25, 2008 and matures
on April 23, 2010.
-- A $220 million facility to finance commercial loans was renewed on
April 30, 2008 and matures on April 29, 2009.
-- Total committed credit facility capacity at April 30, 2008 was $4.6
billion.
Operating Expenses
-- Operating expenses as a percentage of average total assets declined in
the quarter to 1.51%, an improvement of 7 basis points from 4Q '07.
Head count of 535 at March 31, 2008 was down from 562 at December 31,
2007.
Income Tax Rate
-- The overall effective tax rate in the quarter, expressed as a
percentage of consolidated pre-tax GAAP net income, was 31.2%.
Adjusted Return on Equity
-- Consolidated adjusted return on average equity, defined as Adjusted
Earnings divided by average GAAP equity, was 16.48% for the quarter, an
increase of 13 basis points from the prior quarter. The accompanying
Financial Supplement provides a detailed reconciliation of GAAP net
income to Adjusted Earnings.
Share Count
-- Weighted average shares outstanding, dilutive to Adjusted Earnings,
were 221.5 million shares for the quarter ended March 31, 2008,
compared to 211.6 million shares at the end of the prior quarter.
Dividends
-- A regular quarterly cash dividend of $0.60 per common share was paid on
March 31, 2008 to common shareholders of record as of March 17, 2008.
CapitalSource will hold an analyst and investor conference call with a simultaneous webcast on May 6, 2008 at 8:30 a.m. (Eastern Time) to discuss the Company's first quarter 2008 results. To participate, analysts and investors may call (888) 713-4209 from within United States or (617) 213-4863 from outside the United States, utilizing the pass code 70731217. Other interested parties may access a webcast of the conference call at the Investor Relations section of the CapitalSource website at http://www.capitalsource.com/.
A telephonic replay will be available from approximately 10:30 a.m. (Eastern Time) on May 6, 2008 through May 13, 2008. Please call (888) 286- 8010 from the United States or (617) 801-6888 from outside the United States with the pass code 48893891. 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 May 6, 2008.
About CapitalSource
CapitalSource is a leading commercial lending, investment and asset management business focused on the middle market. CapitalSource manages an asset portfolio, which as of March 31, 2008 was approximately $19.85 billion. Headquartered in Chevy Chase, Maryland, the Company had 535 employees as of March 31, 2008 in offices across the U.S. and in Europe.
For more information, visit http://www.capitalsource.com/.
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 our proposed bank formation and asset purchase and liability assumption, 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," "believe," "expect," "estimate," "plan," "will," "look forward," 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: the proposed bank transaction, including the asset purchase and liability assumption, may not be approved by the regulators or completed on the proposed terms and schedule or at all; changes in economic conditions; continued disruptions in credit and other markets; movements in interest rates; competitive pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions and reforms; extended disruption of vital infrastructure; and other factors described in CapitalSource's 2007 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.
CapitalSource Inc.
Consolidated Balance Sheets
(Unaudited)
($ in thousands)
March 31, December 31, March 31,
2008 2007 2007
ASSETS
Cash and cash equivalents $270,789 $178,699 $308,770
Restricted cash 527,258 513,803 135,550
Mortgage-related receivables, net 1,978,852 2,041,917 2,239,257
Mortgage-backed securities pledged,
trading 3,310,176 4,060,605 3,372,329
Receivables under reverse-
repurchase agreements - - 26,315
Loans held for sale 37,989 94,327 156,650
Loans:
Loans 9,721,333 9,773,410 8,455,570
Less deferred loan fees and
discounts (151,291) (147,089) (124,380)
Less allowance for loan losses (136,745) (138,930) (125,236)
Loans, net 9,433,297 9,487,391 8,205,954
Direct real estate investments, net 1,016,972 1,017,604 805,650
Investments 270,481 231,776 185,710
Other assets 855,624 414,227 228,148
Total assets $17,701,438 $18,040,349 $15,664,333
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase agreements $3,427,856 $3,910,027 $3,309,559
Credit facilities 2,373,106 2,207,063 3,137,838
Term debt 7,021,686 7,255,675 5,423,317
Other borrowings 1,574,994 1,594,870 1,327,635
Other liabilities 605,586 444,997 202,852
Total liabilities 15,003,228 15,412,632 13,401,201
Noncontrolling interests 43,938 45,446 44,797
Shareholders' equity:
Preferred stock (50,000,000
shares authorized; no shares
outstanding) - - -
Common stock ($0.01 par value,
500,000,000 shares authorized;
234,844,241, 220,704,800 and
189,538,383 shares issued,
respectively; 234,844,241,
220,704,800 and 188,238,383
shares outstanding,
respectively) 2,348 2,207 1,882
Additional paid-in capital 3,097,310 2,902,501 2,302,393
Accumulated deficit (455,041) (327,387) (56,067)
Accumulated other comprehensive
income, net 9,655 4,950 53
Treasury stock, at cost - - (29,926)
Total shareholders' equity 2,654,272 2,582,271 2,218,335
Total liabilities, noncontrolling
interests and shareholders'
equity $17,701,438 $18,040,349 $15,664,333
CapitalSource Inc.
Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Net investment income:
Interest income $308,325 $333,122 $289,554
Fee income 33,641 37,974 50,027
Total interest and fee income 341,966 371,096 339,581
Operating lease income 27,690 27,079 20,288
Total investment income 369,656 398,175 359,869
Interest expense 188,945 227,547 186,649
Net investment income 180,711 170,628 173,220
Provision for loan losses 5,659 33,952 14,926
Net investment income after
provision for loan losses 175,052 136,676 158,294
Operating expenses:
Compensation and benefits 31,789 40,818 40,014
Depreciation of direct real
estate investments 8,916 8,924 6,762
Other administrative expenses 26,804 21,351 18,546
Total operating expenses 67,509 71,093 65,322
Other (expense) income:
Diligence deposits forfeited 647 681 862
Gain (loss) on investments,
net 1,141 (195) 6,163
Loss on derivatives (38,111) (31,554) (2,255)
Loss on residential mortgage
investment portfolio (55,377) (25,395) (5,698)
Other (expense) income, net (4,699) 4,312 6,977
Total other (expense) income (96,399) (52,151) 6,049
Noncontrolling interests expense 1,297 1,154 1,330
Net income before income taxes 9,847 12,278 97,691
Income taxes 3,076 27,312 19,001
Net income (loss) $6,771 $(15,034) $78,690
Net income (loss) per share:
Basic $0.03 $(0.07) $0.44
Diluted $0.03 $(0.07) $0.43
Average shares outstanding:
Basic 220,085,148 210,021,621 179,324,672
Diluted 221,493,514 210,021,621 181,743,884
Dividends declared per share $0.60 $0.60 $0.58
CapitalSource Inc.
Segment Data
(Unaudited)
($ in thousands)
Three Months Ended March 31, 2008
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net investment income:
Interest income $224,383 $482 $83,460 $308,325
Fee income 33,630 11 - 33,641
Total interest and
fee income 258,013 493 83,460 341,966
Operating lease income - 27,690 - 27,690
Total investment income 258,013 28,183 83,460 369,656
Interest expense 113,643 10,796 64,506 188,945
Net investment income 144,370 17,387 18,954 180,711
Provision for loan losses 2,971 - 2,688 5,659
Net investment income after
provision for loan losses 141,399 17,387 16,266 175,052
Other operating expenses 53,137 11,173 3,199 67,509
Total other (expense) income (39,757) - (56,642) (96,399)
Noncontrolling interests
expense (117) 1,414 - 1,297
Net income (loss) before
income taxes 48,622 4,800 (43,575) 9,847
Income taxes 3,076 - - 3,076
Net income (loss) $45,546 $4,800 $(43,575) $6,771
Three Months Ended December 31, 2007
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net investment income:
Interest income $242,550 $581 $89,991 $333,122
Fee income 37,974 - - 37,974
Total interest and
fee income 280,524 581 89,991 371,096
Operating lease income - 27,079 - 27,079
Total investment income 280,524 27,660 89,991 398,175
Interest expense 134,395 10,891 82,261 227,547
Net investment income 146,129 16,769 7,730 170,628
Provision for loan losses 33,302 - 650 33,952
Net investment income after
provision for loan losses 112,827 16,769 7,080 136,676
Other operating expenses 57,502 11,921 1,670 71,093
Total other (expense)
income (27,612) 856 (25,395) (52,151)
Noncontrolling interests
expense (304) 1,458 - 1,154
Net income (loss) before
income taxes 28,017 4,246 (19,985) 12,278
Income taxes 27,312 - - 27,312
Net income (loss) $705 $4,246 $(19,985) $(15,034)
Three Months Ended March 31, 2007 (1)
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net investment income:
Interest income $208,558 $96 $80,900 $289,554
Fee income 50,027 - - 50,027
Total interest and
fee income 258,585 96 80,900 339,581
Operating lease income - 20,288 - 20,288
Total investment income 258,585 20,384 80,900 359,869
Interest expense 102,763 8,488 75,398 186,649
Net investment income 155,822 11,896 5,502 173,220
Provision for loan losses 14,926 - - 14,926
Net investment income after
provision for loan losses 140,896 11,896 5,502 158,294
Other operating expenses 55,184 9,037 1,101 65,322
Total other income (expense) 11,747 - (5,698) 6,049
Noncontrolling interests
expense (271) 1,601 - 1,330
Net income (loss) before
income taxes 97,730 1,258 (1,297) 97,691
Income taxes 19,001 - - 19,001
Net income (loss) $78,729 $1,258 $(1,297) $78,690
(1) Beginning with our fourth quarter 2007 results, the Company
initiated the separate reporting of its Healthcare Net Lease segment
due to the significant growth and development of this business. The
Healthcare Net Lease segment is similar to other publicly traded
healthcare property REITs and is in the business of investing in
income-producing healthcare facilities, principally long-term care
facilities. CapitalSource has reclassified comparative segment
information for the quarter ended March 31, 2007 to reflect the
separate reporting of the Healthcare Net Lease segment.
CapitalSource Inc.
Adjusted Earnings
(Unaudited)
We evaluate our performance based on several measures, including adjusted earnings. Management views adjusted earnings and the related per share measures as useful and appropriate supplements to net income and earnings per share. These measures serve as an additional measure of our operating performance because they facilitate evaluation of the company without the effects of certain adjustments in accordance with U.S. generally accepted accounting principles ("GAAP") that may not necessarily be indicative of current operating performance. We define adjusted earnings as net income as determined in accordance with GAAP, adjusted for certain items, including real estate depreciation, amortization of deferred financing fees, non-cash equity compensation, certain realized and unrealized gains and losses on residential mortgage investments held in our portfolio as of the balance sheet date and related derivatives, unrealized gains and losses on other derivatives and foreign currencies, net unrealized gains and losses on investments, provision for loan losses, charge offs, recoveries, nonrecurring items and the cumulative effect of changes in accounting principles.
Adjusted earnings should not be considered as an alternative to net income or cash flows from operating activities (each computed in accordance with GAAP). Instead, adjusted earnings should be reviewed in connection with net income and cash flows from operating, investing and financing activities in our consolidated financial statements, to help analyze how our business is performing. Adjusted earnings and other supplemental performance measures are defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted earnings to other REITs.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ in thousands, except per share data)
Reconciliation of our reported net income to adjusted earnings for the
three months ended March 31, 2008, December 31, 2007 and March 31, 2007,
were as follows:
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Net income (loss) $6,771 $(15,034) $78,690
Add:
Real estate depreciation and
amortization (1) 8,760 8,557 6,762
Amortization of deferred
financing fees (2) 11,953 9,961 5,508
Non-cash equity compensation 6,514 12,581 10,712
Net realized and unrealized losses
on residential mortgage investment
portfolio including related
derivatives (3) 27,394 25,571 7,180
Unrealized loss on derivatives and
foreign currencies, net 47,634 35,728 328
Unrealized loss on investments,
net 4,657 2,946 47
Provision for loan losses 5,659 33,952 14,926
Recoveries (4) - - -
Less:
Charge offs 6,076 6,008 10,250
Non-recurring items - - -
Adjusted earnings $113,266 $108,254 $113,903
Net income (loss) per share:
Basic - as reported $0.03 $(0.07) $0.44
Diluted - as reported $0.03 $(0.07) $0.43
Average shares outstanding:
Basic - as reported 220,085,148 210,021,621 179,324,672
Diluted - as reported 221,493,514 210,021,621 181,743,884
Adjusted earnings per share:
Basic $0.51 $0.52 $0.64
Diluted (5) $0.51 $0.51 $0.63
Average shares outstanding:
Basic 220,085,148 210,021,621 179,324,672
Diluted (6) 221,493,514 211,609,633 184,200,063
(1) Depreciation and amortization for direct real estate investments only.
Excludes depreciation for corporate leasehold improvements, fixed
assets and other non-real estate items.
(2) Includes amortization of deferred financing fees and other non-cash
interest expense.
(3) Includes adjustments to reflect certain realized and unrealized gains
and losses on residential mortgage investments held in our portfolio
as of the balance sheet date and related derivative instruments.
(4) Includes all recoveries on loans during the period.
(5) Adjusted to reflect the impact of adding back noncontrolling interests
expense of $1.3 million for the three months ended March 31, 2007, to
adjusted earnings due to the application of the if-converted method on
non-managing member units, which are considered dilutive to adjusted
earnings per share, but are antidilutive to GAAP net income per share
for this period.
(6) Adjusted to include average non-managing member units of 2,456,179 for
the three months ended March 31, 2007, which are considered dilutive
to adjusted earnings per share, but are antidilutive to GAAP net
income per share for this period.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ in thousands, except per share data)
For our Commercial Finance segment, Healthcare Net Lease segment and
Residential Mortgage segment, reconciliations of reported net income to
adjusted earnings for the three months ended March 31, 2008 and
December 31, 2007, were as follows:
Three Months Ended March 31, 2008
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net income (loss) $45,546 $4,800 $(43,575) $6,771
Add:
Real estate
depreciation and
amortization (1) - 8,760 - 8,760
Amortization of
deferred financing
fees (2) 11,316 312 325 11,953
Non-cash equity
compensation 6,514 - - 6,514
Net realized and
unrealized losses
on residential
mortgage investment
portfolio including
related
derivatives (3) - - 27,394 27,394
Unrealized loss on
derivatives and
foreign currencies,
net 47,634 - - 47,634
Unrealized loss on
investments, net 4,657 - - 4,657
Provision for loan
losses 2,971 - 2,688 5,659
Recoveries (4) - - - -
Less:
Charge offs 5,155 - 921 6,076
Non-recurring items - - - -
Adjusted earnings $113,483 $13,872 $(14,089) $113,266
Net income per share:
Basic - as reported $0.21 $0.02 $(0.20) $0.03
Diluted - as
reported $0.21 $0.02 $(0.20) $0.03
Average shares
outstanding:
Basic - as
reported 220,085,148 220,085,148 220,085,148 220,085,148
Diluted - as
reported 221,493,514 221,493,514 221,493,514 221,493,514
Adjusted earnings per
share:
Basic $0.51 $0.06 $(0.06) $0.51
Diluted $0.51 $0.06 $(0.06) $0.51
Average shares
outstanding:
Basic 220,085,148 220,085,148 220,085,148 220,085,148
Diluted 221,493,514 221,493,514 221,493,514 221,493,514
Three Months Ended December 31, 2007
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net income (loss) $706 $4,245 $(19,985) $(15,034)
Add:
Real estate
depreciation and
amortization (1) - 8,557 - 8,557
Amortization of
deferred financing
fees (2) 9,007 172 782 9,961
Non-cash equity
compensation 12,581 - - 12,581
Net realized and
unrealized losses
on residential
mortgage investment
portfolio including
related
derivatives (3) - - 25,571 25,571
Unrealized loss on
derivatives and
foreign currencies,
net 35,728 - - 35,728
Unrealized loss on
investments, net 2,946 - - 2,946
Provision for loan
losses 33,302 - 650 33,952
Recoveries (4) - - - -
Less:
Charge offs 5,818 - 190 6,008
Non-recurring items - - - -
Adjusted earnings $88,452 $12,974 $6,828 $108,254
Net income per share:
Basic - as reported $0.00 $0.02 $(0.09) $(0.07)
Diluted - as
reported $0.00 $0.02 $(0.09) $(0.07)
Average shares
outstanding:
Basic - as
reported 210,021,621 210,021,621 210,021,621 210,021,621
Diluted - as
reported 210,021,621 210,021,621 210,021,621 210,021,621
Adjusted earnings per
share:
Basic $0.42 $0.06 $0.04 $0.51
Diluted $0.42 $0.06 $0.03 $0.51
Average shares
outstanding:
Basic 210,021,621 210,021,621 210,021,621 210,021,621
Diluted 211,609,633 211,609,633 211,609,633 211,609,633
(1) Depreciation and amortization for direct real estate investments only.
Excludes depreciation for corporate leasehold improvements, fixed
assets and other non-real estate items.
(2) Includes amortization of deferred financing fees and other non-cash
interest expense.
(3) Includes adjustments to reflect certain realized and unrealized gains
and losses on residential mortgage investments held in our portfolio
as of the balance sheet date and related derivative instruments.
(4) Includes all recoveries on loans during the period.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ in thousands, except per share data)
For our Commercial Finance segment, Healthcare Net Lease segment and
Residential Mortgage segment, reconciliations of reported net income to
adjusted earnings for the three months ended March 31, 2007, were as
follows:
Three Months Ended March 31, 2007
Residential
Commercial Healthcare Mortgage Consolidated
Finance Net Lease Investment Total
Net income (loss) $78,729 $1,258 $(1,297) $78,690
Add:
Real estate
depreciation and
amortization (1) - 6,762 - 6,762
Amortization of
deferred financing
fees (2) 4,863 95 550 5,508
Non-cash equity
compensation 10,712 - - 10,712
Net realized and
unrealized losses
on residential
mortgage investment
portfolio including
related
derivatives (3) - - 7,180 7,180
Unrealized loss on
derivatives and
foreign currencies,
net 328 - - 328
Unrealized loss on
investments, net 47 - - 47
Provision for loan
losses 14,926 - - 14,926
Recoveries (4) - - - -
Less:
Charge offs 10,250 - - 10,250
Non-recurring items - - - -
Adjusted earnings $99,355 $8,115 $6,433 $113,903
Net income per share:
Basic - as reported $0.44 $0.01 $(0.01) $0.44
Diluted - as reported $0.43 $0.01 $(0.01) $0.43
Average shares
outstanding:
Basic - as
reported 179,324,672 179,324,672 179,324,672 179,324,672
Diluted - as
reported 181,743,884 181,743,884 181,743,884 181,743,884
Adjusted earnings per
share:
Basic $0.55 $0.05 $0.04 $0.64
Diluted (5) $0.55 $0.05 $0.03 $0.63
Average shares
outstanding:
Basic 179,324,672 179,324,672 179,324,672 179,324,672
Diluted (6) 184,200,063 184,200,063 184,200,063 184,200,063
(1) Depreciation and amortization for direct real estate investments only
Excludes depreciation for corporate leasehold improvements, fixed
assets and other non-real estate items.
(2) Includes amortization of deferred financing fees and other non-cash
interest expense.
(3) Includes adjustments to reflect certain realized and unrealized gains
and losses on residential mortgage investments held in our portfolio
as of the balance sheet date and related derivative instruments.
(4) Includes all recoveries on loans during the period.
(5) Adjusted to reflect the impact of adding back noncontrolling interests
expense of $1.3 million for the three months ended March 31, 2007, to
adjusted earnings due to the application of the if-converted method on
non-managing member units, which are considered dilutive to adjusted
earnings per share, but are antidilutive to GAAP net income per share
for this period.
(6) Adjusted to include average non-managing member units of 2,456,179 for
the three months ended March 31, 2007, which are considered dilutive
to adjusted earnings per share, but are antidilutive to GAAP net
income per share for this period.
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Commercial Finance Segment:
Performance ratios:
Adjusted return on average assets 4.34% 3.39% 4.68%
Adjusted return on average equity 23.87% 18.00% 23.90%
Yield on average interest earning
assets 10.26% 11.12% 12.47%
Cost of funds 5.45% 6.44% 6.15%
Net finance margin 5.74% 5.79% 7.52%
Operating expenses as a percentage
of average total assets 2.03% 2.20% 2.60%
Efficiency ratio (operating expenses
/ net investment income and other
income) 50.79% 48.52% 32.93%
Leverage ratios:
Total debt to equity (as of period
end) 4.37x 4.39x 4.16x
Equity to total assets (as of period
end) 18.07% 18.20% 19.18%
Core lending spread 7.12% 6.13% 5.13%
Average balances ($ in thousands):
Average loans $9,848,101 $9,658,941 $8,116,297
Average assets 10,487,426 10,347,669 8,603,621
Average interest earning
assets 10,082,728 10,005,790 8,406,627
Average income earning assets 10,082,728 10,005,790 8,406,627
Average borrowings 8,366,784 8,278,134 6,775,031
Average equity 1,906,553 1,949,243 1,686,186
Healthcare Net Lease Segment:
Performance ratios:
Adjusted return on average assets 5.07% 4.64% 3.93%
Adjusted return on average equity 15.82% 14.59% 11.14%
Yield on average income earning
assets 10.41% 10.11% 10.46%
Cost of funds 7.07% 7.07% 7.12%
Net finance margin 6.32% 6.02% 5.95%
Operating expenses as a percentage
of average total assets 4.09% 4.27% 4.38%
Operating expenses (excluding direct
real estate depreciation) as a
percentage of average total assets 0.83% 1.07% 1.10%
Efficiency ratio (operating expenses
/ net investment income and other
income) 64.26% 67.64% 75.97%
Efficiency ratio (operating expenses
excluding direct real estate
depreciation) / net investment
income and other income) 12.98% 16.98% 19.13%
Leverage ratios:
Total debt to equity (as of period
end) 1.57x 1.54x 1.42x
Equity to total assets (as of period
end) 35.75% 36.21% 39.01%
Average balances ($ in thousands):
Average assets $1,096,445 $1,108,478 $837,087
Average interest earning
assets 35,296 42,014 24,287
Average income earning assets 1,102,592 1,104,748 810,909
Average borrowings 612,468 611,333 483,411
Average equity 351,756 352,839 295,522
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Consolidated CapitalSource Inc.:
Performance ratios:
Adjusted return on average assets 2.45% 2.40% 3.02%
Adjusted return on average equity 16.48% 16.35% 21.05%
Yield on average interest earning
assets 8.41% 8.98% 9.69%
Cost of funds 5.14% 6.08% 5.89%
Net finance margin 4.17% 3.88% 4.69%
Operating expenses as a percentage
of average total assets 1.51% 1.58% 1.73%
Operating expenses (excluding direct
real estate depreciation) as a
percentage of average total assets 1.31% 1.38% 1.55%
Efficiency ratio (operating expenses
/ net investment income and other
income) 80.07% 60.01% 36.44%
Efficiency ratio (operating expenses
excluding direct real estate
depreciation) / net investment income
and other income) 69.50% 52.47% 32.67%
Leverage ratios:
Total debt to equity (as of period
end) 5.42x 5.80x 5.95x
Equity to total assets (as of period
end) 14.99% 14.31% 14.16%
Average balances ($ in thousands):
Average loans $9,848,101 $9,658,941 $8,116,297
Average assets 17,936,953 17,884,309 15,298,106
Average interest earning assets 16,302,258 16,392,353 14,207,472
Average income earning
assets 17,369,554 17,455,086 14,994,095
Average borrowings 14,753,537 14,856,622 12,860,904
Average equity 2,664,986 2,627,612 2,194,140
CapitalSource Inc.
Commercial Asset Portfolio
(Unaudited)
($ in thousands)
March 31, 2008 December 31, 2007 March 31, 2007
Composition of
portfolio by
type:
Senior secured
loans (1) $5,702,771 53% $5,695,167 52% $5,110,099 54%
First mortgage
loans (1) 2,858,991 27 2,995,048 28 2,814,286 30
Subordinate
loans (1) 1,197,560 11 1,177,522 11 714,150 7
Direct real
estate
investments 1,016,972 9 1,017,604 9 805,650 9
Total
commercial
assets $10,776,294 100% $10,885,341 100% $9,444,185 100%
Composition of
portfolio by
business:
Corporate
Finance $2,940,112 28% $2,979,241 28% $2,470,651 26%
Healthcare and
Specialty
Finance 3,960,284 36 3,952,270 36 3,592,443 38
Structured
Finance 3,875,898 36 3,953,830 36 3,381,091 36
Total
commercial
assets $10,776,294 100% $10,885,341 100% $9,444,185 100%
(1) "Loans" include loans, loans held for sale and receivables under
reverse-repurchase agreements.
CapitalSource Inc.
Credit Quality Data
(Unaudited)
March 31, December 31, March 31,
2008 2007 2007
Loans 60 or more days contractually
delinquent:
As a % of total Commercial Assets(1) 0.69% 0.68% 0.77%
As a % of total Commercial Loans(2) 0.77% 0.75% 0.85%
Loans on non-accrual(3):
As a % of total Commercial Assets 1.62% 1.57% 1.63%
As a % of total Commercial Loans 1.79% 1.73% 1.78%
Impaired loans(4):
As a % of total Commercial Assets 3.67% 2.93% 2.97%
As a % of total Commercial Loans 4.06% 3.23% 3.24%
Total (excluding assets in multiple
categories):
As a % of total Commercial Assets 3.77% 3.10% 3.16%
As a % of total Commercial Loans 4.17% 3.42% 3.46%
Allowance for Loan Loss:
As a % of total Commercial Assets 1.27% 1.28% 1.33%
As a % of total Commercial Loans 1.40% 1.41% 1.45%
Net Charge Offs (annualized):
As a % of total average Commercial
Assets 0.22% 0.22% 0.47%
As a % of total average Commercial
Loans 0.25% 0.25% 0.51%
(1) Includes commercial loans, loans held for sale, receivables under
reverse-repurchase agreements and direct real estate investments.
(2) Includes commercial loans, loans held for sale and receivables under
reverse-repurchase agreements.
(3) Includes loans with an aggregate principal balance of $49.9 million,
$55.5 million and $41.5 million as of March 31, 2008, December 31,
2007 and March 31, 2007, respectively, that were also classified as
loans 60 or more days contractually delinquent.
(4) Includes loans with an aggregate principal balance of $64.2 million,
$55.5 million and $54.4 million, as of March 31, 2008, December 31,
2007 and March 31, 2007, respectively, that were also classified as
loans 60 or more days contractually delinquent, and loans with an
aggregate principal balance of $174.5 million, $170.5 million and
$153.8 million as of March 31, 2008, December 31, 2007 and March 31,
2007, respectively, that were also classified as loans on non-accrual
status.
CapitalSource
