- Credit Performance Within Historical Range - GAAP Net Income of $0.25 per Diluted Share
CHEVY CHASE, Md., Aug. 5 /PRNewswire-FirstCall/ -- CapitalSource Inc.
(NYSE: CSE) today announced financial results for the second quarter 2008.
GAAP net income for the quarter was $60.1 million, or $0.25 per diluted share,
and Adjusted Earnings for the quarter was $29.1 million, or $0.12 per diluted
share.
(Logo: http://www.newscom.com/cgi-bin/prnh/20080728/NEM037LOGO )
"This is an exciting time for CapitalSource. Within the last 10 days we
have commenced operations at 22 branches of CapitalSource Bank in California
with $5.2 billion in deposits and started approving new loans in the Bank,"
said John K. Delaney, Chairman and CEO of CapitalSource. "We are now extremely
well positioned to grow our market leading commercial lending business inside
our new bank -- while maintaining our uncompromising and historically strong
credit standards," added Delaney.
"We are very pleased with the performance of our commercial lending
business, including our continued strong core lending spread," said Thomas A.
Fink, Chief Financial Officer. "We are also pleased with the credit
performance of our commercial loan portfolio this quarter. Our credit metrics
remain within our historical range, despite a modest decline in loan balance
over the past four quarters, and our newly established depository makes our
already strong balance sheet and liquidity even stronger," added Fink.
Commercial Finance Segment
-- Total commercial loans were approximately $9.4 billion at quarter end,
a decrease of approximately $331.4 million from the prior quarter, as loan
runoff outpaced loan growth.
-- Net investment income was $134.5 million for the quarter, a decrease of
$9.9 million from the prior quarter.
-- Interest income was $201.6 million for the quarter, a decrease of $22.8
million from the prior quarter, consistent with a decrease in short term
interest rates. In the second quarter weighted average LIBOR decreased by 71
basis points and the weighted average prime rate decreased by 114 basis
points. The negative impact of falling interest rates was partially offset by
interest rate floors in approximately 41% of the Company's commercial loans as
of June 30, 2008.
-- Yield on average interest-earning assets was 9.75% for the quarter, a
decrease of 51 basis points from the prior quarter.
-- Core lending spread, defined as loan yield less prepayment-related fee
income and average one-month LIBOR, was 7.05%, a decrease of 7 basis points
compared to the prior quarter.
-- Prepayment-related fee income was $10.8 million for the quarter and
contributed 43 basis points to yield, an increase of $7.3 million from the
prior quarter when prepayment-related fee income contributed only 14 basis
points to yield.
-- Cost of funds was 5.40% for the quarter, a decrease of 5 basis points
from the prior quarter primarily due to declining interest rates, but largely
offset by higher financing fees and higher credit spreads in the quarter.
Overall borrowing spread to average one-month LIBOR was 2.81%, an increase of
66 basis points from the prior quarter.
-- Leverage, as measured by the ratio of total debt-to-equity at the end
of the quarter, was 2.98x, a decrease from 4.37x at the end of the prior
quarter, primarily due to the underwritten equity offering the Company
completed during June.
-- Net finance margin, defined as net investment income divided by average
interest-earning assets, was 5.40% for the quarter, a decrease of 34 basis
points from the prior quarter primarily due to the increase in our borrowing
spread to LIBOR partially offset by higher prepayment-related fee income.
-- Provision for loan losses was $27.5 million for the quarter, bringing
the total allowance for loan losses to $141.1 million or 1.35% of total
commercial assets, an increase of 8 basis points from the prior quarter.
-- Adjusted earnings contributed by the Commercial Finance segment was
$60.1 million ($0.24 per diluted share), compared to $113.5 million in the
prior quarter. The lower adjusted earnings in the quarter was due primarily
to an increase in income taxes, an increase in charge-offs and realized losses
on derivatives.
Commercial Credit Metrics
-- Loans on non-accrual status, which the Company considers its primary
credit metric, increased by 37 basis points from the prior quarter to 1.99% of
commercial assets.
-- Loans 60 or more days contractually delinquent as a percentage of total
commercial assets increased 36 basis points to 1.05%.
-- Net charge-offs were $23.3 million, an increase of $18.2 million from
the prior quarter. As a percentage of average commercial assets, annualized
net charge-offs for the quarter were 90 basis points, which is within the
historical range.
-- Allowance for loan losses was $141.1 million, an increase of $4.4
million from the prior quarter. As a percentage of commercial assets at
quarter end, the allowance for loan losses was 1.35%, an increase of 8 basis
points from the prior quarter.
Healthcare Net Lease Segment
-- Direct real estate investments were consistent with the prior quarter
at approximately $1.0 billion, decreasing $9.3 million primarily due to
depreciation.
Residential Mortgage Investment Portfolio
-- Mortgage-backed securities declined from $3.31 billion to $1.60
billion, primarily due to the sale of approximately $1.5 billion of Agency MBS
and principal paydowns. There was a corresponding decrease in repurchase
agreements used to finance the Agency MBS from $3.43 billion to $1.54 billion.
-- Mortgage-related receivables declined from $1.98 billion to $1.91
billion, primarily due to paydowns during the quarter.
Consolidated Other Income
-- Gain (loss) on investments, net was ($4.8) million, a decrease from
$1.1 million in the prior quarter primarily due to write-downs on three cost
basis investments, partially offset by realized gains on investment sales and
dividends received.
-- Gain (loss) on derivatives was $15.1 million, compared to ($38.1)
million in the prior quarter, primarily due to net realized and unrealized
gains in the fair value of interest rate swaps, used to hedge certain assets
and liabilities and, thereby, minimize the Company's exposure to interest rate
movements. In Adjusted Earnings for the quarter, the Company removes the
impact of unrealized gains and losses on derivatives and foreign currency (net
gain of approximately $33.1 million) which resulted in an adjusted earnings
loss of $18.0 million.
-- Gain (loss) on the Residential Mortgage Investment Portfolio, net was
$9.1 million compared to ($55.4) million in the prior quarter, primarily due
to derivative gains and losses in the Agency MBS portfolio. In Adjusted
Earnings for the quarter, the Company realized a net loss of $48.0 million
related to the residential mortgage investment portfolio, primarily due to
$35.0 million net losses incurred in connection with the sale of approximately
$1.5 billion of Agency MBS.
-- Other income (expense), net was $19.2 million compared to ($4.7)
million in the prior quarter, primarily due to a gain on extinguishment of
debt and equity earnings.
Funding and Liquidity
-- During the quarter, the Company raised $365.8 million in connection
with the issuance of 34.5 million shares in an underwritten equity offering.
-- During the quarter, the Company raised $64.7 million through the
issuance of approximately 4.7 million shares of common stock under its
Dividend Reinvestment and Stock Purchase Plan (DRIP). The Company does not
intend to accept direct purchase or waiver investments pursuant to the DRIP
program during the remainder of the third quarter of 2008.
-- After the quarter closed, CapitalSource Bank commenced operations with
approximately $5.2 billion of retail deposits, 22 retail bank branches in
Southern and Central California and approximately $5.2 billion in cash and
other assets. The Bank used a portion of its cash to purchase approximately
$2.1 billion in commercials loans from CapitalSource and began operations with
a total capital ratio of more than 15.6%.
-- The Company used the proceeds of the loan sale to CapitalSource Bank to
reduce its credit facility borrowings and certain securitizations by
approximately $1.6 billion and to fund approximately $500 million of the
initial Bank capitalization of $921 million.
Operating Expenses
-- Operating expenses as a percentage of average total assets (excluding
sale-leaseback depreciation) increased in the quarter to 1.56%, an increase of
25 basis points from the prior quarter due largely to a decline in average
asset balance, resulting from the sale of Agency MBS and the decrease in
commercial loan balance.
Income Tax Rate
-- Income taxes in the quarter were $37.2 million, compared to $3.1
million in the prior quarter, primarily due to significantly higher pre-tax
GAAP income. The full year projected tax rate is 35%.
Return on Equity
-- Consolidated return on average equity, was 8.66% for the quarter,
compared to 1.02% in the prior quarter.
Share Count
-- Weighted average dilutive shares outstanding were 236.4 million shares
for the quarter ended June 30, 2008, compared to 221.5 million shares at the
end of the prior quarter.
Dividends
-- A regular quarterly cash dividend of $0.60 per common share was paid on
June 30, 2008 to common shareholders of record on June 16, 2008.
CapitalSource will hold an analyst and investor conference call with a
simultaneous webcast on August 5, 2008 at 8:30 a.m. (Eastern Time) to discuss
the Company's second quarter 2008 results. To participate, analysts and
investors may call (888) 713-4218 from within United States or (617) 213-4870
from outside the United States, utilizing the pass code 67380064. Other
interested parties may access a webcast of the conference call at the Investor
Relations section of the CapitalSource website at www.capitalsource.com.
A telephonic replay will be available from approximately 10:30 a.m.
(Eastern Time) on August 5, 2008 through August 12, 2008. Please call
(888) 286-8010 from the United States or (617) 801-6888 from outside the
United States with the pass code 72241169. 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 5, 2008.
About CapitalSource
CapitalSource Inc. (NYSE: CSE) is a commercial lender offering focused
lending products serving clients in the middle market. CapitalSource Inc. and
its subsidiaries collectively managed total assets of approximately $17.3
billion as of June 30, 2008, including a commercial loan portfolio of $9.4
billion and a healthcare net lease portfolio of $1.0 billion. CapitalSource
operates principally through its CapitalSource Bank subsidiary, which had $5.2
billion in deposits and 22 retail banking branches as of July 25, 2008.
CapitalSource is headquartered in Chevy Chase, MD. For more information about
CapitalSource, visit 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 growing
our commercial lending business and maintaining our credit standards, the
strength of our balance sheet and liquidity and our intention not to accept
direct purchase or waiver investments pursuant to our DRIP program during the
remainder of the third quarter of 2008, 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," "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 recently completed bank transaction; changes
in economic conditions; continued or worsening disruptions in credit and other
markets; movements in interest rates and lending spreads; our ability to
successfully and cost effectively operate CapitalSource Bank; our ability to
successfully grow CapitalSource Bank's deposits or deploy its capital in
favorable lending transactions or acquire assets in accordance with our
strategic plan; 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 REITs, 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)
June 30,March 31,June 30,
2008 2008 2007
ASSETS
Cash and cash equivalents $169,667 $270,789 $271,492
Restricted cash 428,955 527,258 221,650
Mortgage-related receivables, net 1,907,2291,978,8522,162,715
Mortgage-backed securities pledged,
trading 1,606,4753,310,1764,290,965
Receivables under reverse-
repurchase agreements-- 26,237
Loans held for sale 98,817 37,989 154,229
Loans:
Loans 9,329,0689,721,3338,761,127
Less deferred loan fees and
discounts (169,954)(151,291)(128,785)
Less allowance for loan losses (141,128)(136,745)(127,547)
Loans, net 9,017,9869,433,2978,504,795
Direct real estate investments, net 1,007,6991,016,9721,032,838
Investments 289,943 270,481 197,543
Other assets366,832 855,624 299,226
Total assets$14,893,603 $17,701,438 $17,161,690
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase agreements $1,541,795 $3,427,856 $4,217,086
Credit facilities 1,687,2422,373,1063,671,041
Term debt 6,562,8417,021,6865,652,228
Other borrowings1,669,1951,574,9941,082,176
Other liabilities 357,765 605,586 214,806
Total liabilities 11,818,838 15,003,228 14,837,337
Noncontrolling interests 15,246 43,938 44,871
Shareholders' equity:
Preferred stock (50,000,000 shares
authorized; no shares outstanding) ---
Common stock ($0.01 par value,
1,200,000,000, 500,000,00 and
500,000,000 shares authorized;
276,139,152, 234,844,241
and 191,877,813 shares issued and
shares outstanding, respectively)2,7612,3481,918
Additional paid-in capital 3,586,0963,097,3102,361,158
Accumulated deficit (538,619)(455,041) (85,978)
Accumulated other comprehensive
income, net9,2819,6552,384
Total shareholders' equity 3,059,5192,654,2722,279,482
Total liabilities, noncontrolling
interests and shareholders'
equity $14,893,603 $17,701,438 $17,161,690
CapitalSource Inc.
Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
June 30, March 31,June 30,
2008 2008 2007
Net investment income:
Interest income $254,222 $308,325 $311,184
Fee income 41,267 33,641 45,056
Total interest and fee income 295,489 341,966 356,240
Operating lease income 24,210 27,690 22,118
Total investment income 319,699 369,656 378,358
Interest expense 160,083 188,945 200,291
Net investment income 159,616 180,711 178,067
Provision for loan losses31,6745,659 17,410
Net investment income after
provision for loan losses 127,942 175,052 160,657
Operating expenses:
Compensation and benefits 37,808 31,789 38,615
Depreciation of direct real estate
investments8,9908,9167,390
Other administrative expenses 23,844 26,804 20,438
Total operating expenses 70,642 67,509 66,443
Other income (expense):
Diligence deposits forfeited1,714 6471,813
(Loss) gain on investments, net(4,827) 1,141 17,002
Gain (loss) on derivatives 15,098 (38,111) 3,153
Gain (loss) on residential mortgage
investment portfolio 9,060 (55,377) (13,846)
Other income (expense), net19,241 (4,699) 12,957
Total other income (expense) 40,286 (96,399) 21,079
Noncontrolling interests expense2831,2971,272
Net income before income taxes 97,3039,847 114,021
Income taxes 37,2433,076 29,693
Net income $60,060 $6,771 $84,328
Net income per share:
Basic $0.26$0.03$0.45
Diluted $0.25$0.03$0.45
Adjusted earnings per share:
Diluted $0.12$0.51$0.68
Average shares outstanding:
Basic 235,076,287 220,085,148 185,371,033
Diluted 236,445,230 221,493,514 187,428,430
Dividends declared per share $0.60$0.60$0.60
Six Months Ended June 30,
2008 2007
Net investment income:
Interest income $562,547 $600,738
Fee income74,90895,083
Total interest and fee income637,455 695,821
Operating lease income51,90042,406
Total investment income 689,355 738,227
Interest expense 349,028 386,940
Net investment income 340,327 351,287
Provision for loan losses 37,33332,336
Net investment income after provision
for loan losses 302,994 318,951
Operating expenses:
Compensation and benefits 69,59778,629
Depreciation of direct real estate
investments 17,90614,152
Other administrative expenses 50,64838,984
Total operating expenses 138,151 131,765
Other income (expense):
Diligence deposits forfeited 2,361 2,675
(Loss) gain on investments, net (3,686) 23,165
Gain (loss) on derivatives (23,013) 898
Gain (loss) on residential mortgage
investment portfolio(46,317) (19,544)
Other income (expense), net 14,54219,934
Total other income (expense) (56,113) 27,128
Noncontrolling interests expense 1,580 2,602
Net income before income taxes 107,150 211,712
Income taxes 40,31948,694
Net income $66,831 $163,018
Net income per share:
Basic $0.29 $0.89
Diluted$0.29 $0.88
Adjusted earnings per share:
Diluted$0.60 $1.31
Average shares outstanding:
Basic227,580,584 182,274,147
Diluted 228,969,238 184,512,451
Dividends declared per share $1.20 $1.18
CapitalSource Inc.
Segment Data
(Unaudited)
($ in thousands)
Three Months Ended June 30, 2008
Health- Residential
Commercial care Net Mortgage Consolidated
FinanceLease Investment Total
Net investment income:
Interest income $201,626$347 $52,249$254,222
Fee income 41,260 7 -41,267
Total interest and fee
income 242,886 35452,249 295,489
Operating lease income-24,210 -24,210
Total investment income 242,886 24,56452,249 319,699
Interest expense 108,425 10,85940,799 160,083
Net investment income 134,461 13,70511,450 159,616
Provision for loan losses27,465 - 4,209 31,674
Net investment income after
provision for loan losses 106,996 13,705 7,241 127,942
Other operating expenses 57,843 11,380 1,419 70,642
Total other income (expense) 33,880 (1,416)7,822 40,286
Noncontrolling interests
expense (369)652 - 283
Net income (loss) before
income taxes83,402 25713,644 97,303
Income taxes 37,243 - -37,243
Net income (loss) $46,159$257 $13,644 $60,060
Three Months Ended March 31, 2008
Health- Residential
Commercial care Net Mortgage Consolidated
FinanceLease 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 49383,460 341,966
Operating lease income-27,690 -27,690
Total investment income 258,013 28,18383,460 369,656
Interest expense 113,643 10,79664,506 188,945
Net investment income 144,370 17,38718,954 180,711
Provision for loan losses 2,971 - 2,688 5,659
Net investment income after
provision for loan losses 141,399 17,38716,266 175,052
Other operating expenses 53,137 11,173 3,199 67,509
Total other income (expense)(39,757)- (56,642)(96,399)
Noncontrolling interests
expense (117) 1,414 - 1,297
Net income (loss) before
income taxes48,622 4,800 (43,575) 9,847
Income taxes3,076 - - 3,076
Net income (loss) $45,546 $4,800 $(43,575) $6,771
Six Months Ended June 30, 2008
Health- Residential
Commercial care Net Mortgage Consolidated
FinanceLease Investment Total
Net investment income:
Interest income $426,009$829 $135,709$562,547
Fee income 74,890 18 -74,908
Total interest and fee
income 500,899 847 135,709 637,455
Operating lease income-51,900 -51,900
Total investment income 500,899 52,747 135,709 689,355
Interest expense 222,068 21,655 105,305 349,028
Net investment income 278,831 31,09230,404 340,327
Provision for loan losses30,436 - 6,897 37,333
Net investment income after
provision for loan losses 248,395 31,09223,507 302,994
Other operating expenses110,980 22,553 4,618 138,151
Total other (expense) income (5,877) (1,416) (48,820)(56,113)
Noncontrolling interests
expense (486) 2,066 - 1,580
Net income (loss) before
income taxes 132,024 5,057 (29,931)107,150
Income taxes 40,319 - -40,319
Net income (loss) $91,705 $5,057 $(29,931)$66,831
Six Months Ended June 30, 2007
Health- Residential
Commercial care Net Mortgage Consolidated
FinanceLease Investment Total
Net investment income:
Interest income $436,155$294 $164,289$600,738
Fee income 95,083 - -95,083
Total interest and fee
income 531,238 294 164,289 695,821
Operating lease income-42,406 -42,406
Total investment income 531,238 42,700 164,289 738,227
Interest expense 214,616 19,148 153,176 386,940
Net investment income 316,622 23,55211,113 351,287
Provision for loan losses32,336 - -32,336
Net investment income after
provision for loan losses 284,286 23,55211,113 318,951
Other operating expenses110,265 18,520 2,980 131,765
Total other (expense) income 46,672 - (19,544) 27,128
Noncontrolling interests
expense (457) 3,059 - 2,602
Net income (loss) before
income taxes 221,150 1,973 (11,411)211,712
Income taxes 48,694 - -48,694
Net income (loss) $172,456 $1,973 $(11,411) $163,018
CapitalSource Inc.
Adjusted Earnings
(Unaudited)
We evaluate our performance based on several measures, including adjusted
earnings. Management views adjusted earnings and the related per share
measures as useful and appropriate supplements to net income and earnings per
share. These measures serve as an additional measure of our operating
performance because they facilitate evaluation of the company without the
effects of certain adjustments in accordance with U.S. generally accepted
accounting principles ("GAAP") that may not necessarily be indicative of
current operating performance. We define adjusted earnings as net income as
determined in accordance with GAAP, adjusted for certain items, including real
estate depreciation, amortization of deferred financing fees, non-cash equity
compensation, certain realized and unrealized gains and losses on residential
mortgage investments held in our portfolio as of the balance sheet date and
related derivatives, unrealized gains and losses on other derivatives and
foreign currencies, net unrealized gains and losses on investments, provision
for loan losses, charge offs, recoveries, nonrecurring items and the
cumulative effect of changes in accounting principles.
Adjusted earnings should not be considered as an alternative to net income
or cash flows from operating activities (each computed in accordance with
GAAP). Instead, adjusted earnings should be reviewed in connection with net
income and cash flows from operating, investing and financing activities in
our consolidated financial statements, to help analyze how our business is
performing. Adjusted earnings and other supplemental performance measures are
defined in various ways throughout the REIT industry. Investors should
consider these differences when comparing our adjusted earnings to other
REITs.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ in thousands, except per share data)
Reconciliation of our reported net income to adjusted earnings for the
three months ended June 30, 2008, March 31, 2008 and June 30, 2007, and the
six months ended June 30, 2008 and 2007 was as follows:
Three Months Ended
June 30, March 31,June 30,
2008 2008 2007
Net income (loss) $60,060 $6,771 $84,328
Add:
Real estate depreciation and
amortization (1)8,4598,7607,896
Amortization of deferred financing
fees (2) 26,810 11,9536,823
Non-cash equity compensation12,0306,5149,859
Net realized and unrealized (gains)
losses on residential mortgage
investment portfolio including
related derivatives (3) (57,022) 27,394 15,846
Unrealized (gain) loss on
derivatives and foreign
currencies, net (33,140) 47,634 (1,287)
Unrealized loss on investments, net 4,4754,6571,170
Provision for loan losses 32,0285,659 17,410
Recoveries (4)(356) --
Less:
Charge offs 24,2376,076 13,625
Non-recurring items---
Adjusted earnings $29,107 $113,266 $128,420
Net income per share:
Basic - as reported$0.26$0.03$0.45
Diluted - as reported $0.25$0.03$0.45
Average shares outstanding:
Basic - as reported 235,076,287 220,085,148 185,371,033
Diluted - as reported236,445,230 221,493,514 187,428,430
Adjusted earnings per share:
Basic $0.12$0.51$0.69
Diluted (5)$0.12$0.51$0.68
Average shares outstanding:
Basic235,076,287 220,085,148 185,371,033
Diluted (6) 236,445,230 221,493,514 189,425,285
Six Months Ended
June 30, 2008 June 30, 2007
Net income (loss) $66,831 $163,018
Add:
Real estate depreciation and
amortization (1) 17,21914,658
Amortization of deferred financing
fees (2) 38,76312,332
Non-cash equity compensation18,54420,571
Net realized and unrealized (gains)
losses on residential mortgage
investment portfolio including related
derivatives (3) (29,628) 23,381
Unrealized (gain) loss on derivatives
and foreign currencies, net14,492 (959)
Unrealized loss on investments, net 9,132 1,217
Provision for loan losses 37,68932,336
Recoveries (4)(356) -
Less:
Charge offs 30,31323,876
Non-recurring items- -
Adjusted earnings $142,373 $242,678
Net income per share:
Basic - as reported$0.29 $0.89
Diluted - as reported $0.29 $0.88
Average shares outstanding:
Basic - as reported 227,580,584 182,274,147
Diluted - as reported228,969,238 184,512,451
Adjusted earnings per share:
Basic $0.63 $1.33
Diluted (5)$0.62 $1.31
Average shares outstanding:
Basic227,580,584 182,274,147
Diluted (6) 228,969,238 186,737,699
(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 and $2.6 million for the three and six months
ended June 30, 2007, respectively, to adjusted earnings due to the
application of the if-converted method on non-managing member units,
which are considered dilutive to adjusted earnings per share, but are
antidilutive to GAAP net income per share for this period.
(6) Adjusted to include average non-managing member units of 1,996,855
and 2,225,248 for the three and six months ended June 30, 2007,
respectively, which are considered dilutive to adjusted earnings per
share, but are antidilutive to GAAP net income per share for this
period.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ 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 June 30, 2008 and March 31, 2008,
were as follows:
Three Months Ended June 30, 2008
Residential
Commercial HealthcareMortgage Consolidated
Finance Net Lease Investment Total
Net income $46,160 $257 $13,643 $60,060
Add:
Real estate
depreciation and
amortization (1)- 8,459 - 8,459
Amortization of
deferred financing
fees (2) 26,432 145 233 26,810
Non-cash equity
compensation 12,030 -- 12,030
Net realized and
unrealized gains on
residential mortgage
investment
portfolio including
related derivatives(3) --(57,022) (57,022)
Unrealized gain on
derivatives and
foreign currencies,
net (33,140) --(33,140)
Unrealized loss on
investments, net 4,475 -- 4,475
Provision for loan
losses 27,819 - 4,209 32,028
Recoveries (4) (356) -- (356)
Less:
Charge offs 23,325 -912 24,237
Non-recurring items ----
Adjusted earnings$60,095 $8,861 $(39,849) $29,107
Net income per share:
Basic - as reported $0.20 $- $0.06$0.26
Diluted - as reported$0.19 $- $0.06$0.25
Average shares
outstanding:
Basic - as
reported 235,076,287 235,076,287 235,076,287 235,076,287
Diluted - as
reported 236,445,230 236,445,230 236,445,230 236,445,230
Adjusted earnings per
share:
Basic$0.25$0.04 $(0.17) $0.12
Diluted $0.25$0.04 $(0.17) $0.12
Average shares
outstanding:
Basic 235,076,287 235,076,287 235,076,287 235,076,287
Diluted236,445,230 236,445,230 236,445,230 236,445,230
Three Months Ended March 31, 2008
Residential
Commercial HealthcareMortgage Consolidated
Finance Net Lease Investment Total
Net income
Add: $45,546 $4,800 $(43,575) $6,771
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 gains on
residential mortgage
investment
portfolio including
related derivatives(3) -- 27,394 27,394
Unrealized gain on
derivatives and
foreign currencies,
net 47,634 -- 47,634
Unrealized loss on
investments, net 4,657 -- 4,657
Provision for loan
losses2,971 - 2,6885,659
Recoveries (4) ----
Less:
Charge offs5,155 -9216,076
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) $0.51
Average shares
outstanding:
Basic 220,085,148 220,085,148 220,085,148 220,085,148
Diluted221,493,514 221,493,514 221,493,514 221,493,514
(1) Depreciation and amortization for direct real estate investments only.
Excludes depreciation for corporate leasehold improvements, fixed
assets and other non-real estate items.
(2) Includes amortization of deferred financing fees and other non-cash
interest expense.
(3) Includes adjustments to reflect certain realized and unrealized gains
and losses on residential mortgage investments held in our portfolio
as of the balance sheet date and related derivative instruments.
(4) Includes all recoveries on loans during the period.
CapitalSource Inc.
Adjusted Earnings Reconciliations
(Unaudited)
($ 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 June 30, 2007, were as follows:
Three Months Ended June 30, 2007
Residential
Commercial HealthcareMortgage Consolidated
Finance Net Lease Investment Total
Net income (loss)$93,727 $715 $(10,114) $84,328
Add:
Real estate
depreciation and
amortization (1)- 7,896 - 7,896
Amortization of
deferred financing
fees (2) 6,063 438 3226,823
Non-cash equity
compensation 9,859 -- 9,859
Net realized and
unrealized losses on
residential mortgage
investment
portfolio including
related derivatives(3) -- 15,846 15,846
Unrealized gain on
derivatives and
foreign currencies,
net (1,287) -- (1,287)
Unrealized loss on
investments, net 1,170 -- 1,170
Provision for loan
losses 17,410 -- 17,410
Recoveries (4) ----
Less:
Charge offs 13,625 -- 13,625
Non-recurring items ----
Adjusted earnings $113,317 $9,049 $6,054 $128,420
Net income per share:
Basic - as reported $0.51 $- $(0.06) $0.45
Diluted - as reported$0.50 $- $(0.05) $0.45
Average shares
outstanding:
Basic - as
reported 185,371,033 185,371,033 185,371,033 185,371,033
Diluted - as
reported 187,428,430 187,428,430 187,428,430 187,428,430
Adjusted earnings per
share:
Basic$0.61$0.05$0.03$0.69
Diluted (5) $0.60$0.05$0.03$0.68
Average shares
outstanding:
Basic 185,371,033 185,371,033 185,371,033 185,371,033
Diluted (6)189,425,285 189,425,285 189,425,285 189,425,285
(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 $1.3 million to adjusted earnings due to the application of
the if-converted method on non-managing member units, which are
considered dilutive to adjusted earnings per share, but are
antidilutive to GAAP net income per share for this period.
(6) Adjusted to include average non-managing member units of 1,996,855
which are considered dilutive to adjusted earnings per share, but are
antidilutive to GAAP net income per share for this period.
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
June 30, March 31,June 30,
200820082007
Commercial Finance Segment:
Performance ratios:
Return on average assets 1.78% 1.74% 4.06%
Return on average equity 8.83% 9.58% 21.76%
Adjusted return on average assets 2.32% 4.34% 4.91%
Adjusted return on average equity11.49% 23.87% 26.31%
Yield on average interest earning
assets 9.75% 10.26% 12.08%
Cost of funds 5.40% 5.45% 6.12%
Net finance margin5.40% 5.74% 7.12%
Operating expenses as a percentage
of average total assets 2.24% 2.03% 2.39%
Efficiency ratio (operating expenses
/ net investment income and other
income) 34.36% 50.79% 28.14%
Core lending spread 7.05% 7.12% 6.44%
Leverage ratios:
Total debt to equity (as of period end) 2.98x 4.37x 4.51x
Equity to total assets (as of period
end)24.79% 18.07% 17.97%
Average balances ($ in thousands):
Average loans$9,715,111 $9,848,101 $8,708,240
Average assets 10,376,831 10,487,426 9,262,898
Average interest earning assets 9,992,540 10,082,728 9,053,082
Average income earning assets 9,992,540 10,082,728 9,053,082
Average borrowings8,053,850 8,366,784 7,327,650
Average equity2,097,063 1,906,553 1,727,297
Healthcare Net Lease Segment:
Performance ratios:
Return on average assets 0.10% 1.76% 0.31%
Return on average equity 0.28% 5.47% 0.80%
Adjusted return on average assets 3.29% 5.07% 3.95%
Adjusted return on average equity 9.68% 15.82% 10.18%
Yield on average income earning assets9.08% 10.41% 10.16%
Cost of funds 7.16% 7.07% 7.11%
Net finance margin5.02% 6.32% 5.18%
Operating expenses as a percentage
of average total assets 4.23% 4.09% 4.13%
Operating expenses (excluding direct
real estate depreciation) as a
percentage of average total assets 0.89% 0.83% 0.91%
Efficiency ratio (operating expenses
/ net investment income and other
income) 92.60% 64.26% 81.36%
Efficiency ratio (operating expenses
excluding direct real estate
depreciation) / net investment income
and other income) 19.45% 12.98% 17.95%
Leverage ratios:
Total debt to equity (as of period end) 1.63x 1.57x 1.54x
Equity to total assets (as of period
end)34.69% 35.75% 36.33%
Average balances ($ in thousands):
Average assets $1,079,855 $1,096,445$919,839
Average interest earning assets 26,652 35,296 29,937
Average income earning assets 1,095,916 1,102,592 902,906
Average borrowings 608,298 612,468 601,463
Average equity 367,297 351,756 356,522
Six Months Ended June 30,
2008 2007
Commercial Finance Segment:
Performance ratios:
Return on average assets 1.76% 3.89%
Return on average equity 9.19%19.96%
Adjusted return on average assets 3.34% 4.80%
Adjusted return on average equity17.39%24.61%
Yield on average interest earning assets 10.01%12.27%
Cost of funds 5.42% 6.09%
Net finance margin5.57% 7.31%
Operating expenses as a percentage
of average total assets 2.13% 2.49%
Efficiency ratio (operating expenses / net
investment income and other income) 40.66%30.35%
Core lending spread 7.08% 6.48%
Leverage ratios:
Total debt to equity (as of period end) 2.98x 4.51x
Equity to total assets (as of period end)24.79%17.97%
Average balances ($ in thousands):
Average loans$9,781,606$8,413,903
Average assets 10,432,128 8,935,328
Average interest earning assets 10,037,634 8,731,605
Average income earning assets10,037,634 8,731,605
Average borrowings8,210,315 7,108,002
Average equity2,001,808 1,742,379
Healthcare Net Lease Segment:
Performance ratios:
Return on average assets 0.93% 0.45%
Return on average equity 2.82% 1.37%
Adjusted return on average assets 4.19% 3.94%
Adjusted return on average equity12.68%11.90%
Yield on average income earning assets9.74%10.30%
Cost of funds 7.12% 7.92%
Net finance margin5.67% 5.54%
Operating expenses as a percentage
of average total assets 4.16% 4.25%
Operating expenses (excluding
direct real estate depreciation) as a
percentage of average total assets 0.86% 1.00%
Efficiency ratio (operating expenses / net
investment income and other income) 76.00%78.63%
Efficiency ratio (operating expenses
excluding direct real estate depreciation)
/ net investment income and other income) 15.66%18.55%
Leverage ratios:
Total debt to equity (as of period end) 1.63x 1.54x
Equity to total assets (as of period end)34.69%36.33%
Average balances ($ in thousands):
Average assets $1,088,150 $878,692
Average interest earning assets 30,97427,127
Average income earning assets 1,099,254 857,162
Average borrowings 610,384 487,628
Average equity 359,527 290,915
CapitalSource Inc.
Selected Financial Data
(Unaudited)
Three Months Ended
June 30, March 31, June 30,
200820082007
Consolidated CapitalSource Inc.:
Performance ratios:
Return on average assets 1.52% 0.15% 2.06%
Return on average equity 8.66% 1.02% 14.66%
Adjusted return on average assets 0.74% 2.53% 3.14%
Adjusted return on average equity 4.20% 17.05% 22.33%
Yield on average interest earning
assets 8.43% 8.41% 9.51%
Cost of funds 5.10% 5.14% 5.87%
Net finance margin4.23% 4.17% 4.49%
Operating expenses as a percentage
of average total assets 1.78% 1.51% 1.63%
Operating expenses (excluding direct
real estate depreciation) as a
percentage of average total assets 1.56% 1.31% 1.44%
Efficiency ratio (operating expenses
/ net investment income and other
income) 35.34% 80.07% 33.36%
Efficiency ratio (operating expenses
excluding direct real estate
depreciation) / net investment income
and other income) 30.84% 69.50% 29.65%
Leverage ratios:
Total debt to equity (as of period end) 3.75x 5.42x 6.42x
Equity to total assets (as of period
end)20.54% 14.99% 13.28%
Average balances ($ in thousands):
Average loans$9,715,111 $9,848,101 $8,708,240
Average assets 15,881,032 17,936,953 16,392,440
Average interest earning assets 14,066,691 16,302,258 15,028,300
Average income earning assets15,135,956 17,369,554 15,901,269
Average borrowings 12,595,070 14,753,537 13,691,403
Average equity2,782,676 2,664,986 2,306,554
Six Months Ended June 30,
2008 2007
Consolidated CapitalSource Inc.:
Performance ratios:
Return on average assets 0.79% 2.07%
Return on average equity 4.92%14.61%
Adjusted return on average assets 1.69% 3.09%
Adjusted return on average equity 10.48%21.74%
Yield on average interest earning assets 8.42% 9.60%
Cost of funds 5.12% 5.88%
Net finance margin 4.20% 4.59%
Operating expenses as a percentage
of average total assets 1.64% 1.68%
Operating expenses (excluding
direct real estate depreciation) as a
percentage of average total assets1.43% 1.50%
Efficiency ratio (operating expenses / net
investment income and other income) 48.61%34.82%
Efficiency ratio (operating expenses
excluding direct real estate
depreciation) / net investment income and
other income)42.31%31.08%
Leverage ratios:
Total debt to equity (as of period end)3.75x 6.42x
Equity to total assets (as of period end) 20.54%13.28%
Average balances ($ in thousands):
Average loans $9,781,606$8,413,903
Average assets16,908,99215,848,296
Average interest earning assets 15,184,47514,620,118
Average income earning assets 16,252,75515,450,153
Average borrowings13,674,30313,278,448
Average equity 2,723,831 2,250,658
CapitalSource Inc.
Commercial Asset Portfolio
(Unaudited)
($ in thousands)
June 30, 2008 March 31, 2008
Composition of portfolio by type:
Senior secured loans (1) $5,475,50052% $5,702,771 53%
First mortgage loans (1) 2,720,814262,858,991 27
Subordinate loans (1) 1,231,571121,197,560 11
Direct real estate investments1,007,699101,016,9729
Total commercial assets $10,435,584 100% $10,776,294 100%
Composition of portfolio by
business:
Corporate Finance$2,783,69427% $2,940,112 28%
Healthcare and Specialty Finance 3,879,318373,960,284 36
Structured Finance3,772,572363,875,898 36
Total commercial assets $10,435,584 100% $10,776,294 100%
June 30, 2007
Composition of portfolio by type:
Senior secured loans (1) $5,365,138 54%
First mortgage loans (1)2,864,816 29
Subordinate loans (1) 711,6397
Direct real estate investments 1,032,838 10
Total commercial assets $9,974,431 100%
Composition of portfolio by business:
Corporate Finance $2,609,451 26%
Healthcare and Specialty Finance3,830,840 39
Structured Finance 3,534,140 35
Total commercial assets $9,974,431 100%
(1) "Loans" include loans, loans held for sale and receivables under
reverse-repurchase agreements.
CapitalSource Inc.
Credit Quality Data
(Unaudited)
June 30, March 31, December 31,
200820082007
Loans 60 or more days contractually
delinquent:
As a % of total Commercial Assets(1) 1.05% 0.69% 0.68%
As a % of total Commercial Loans(2)1.16% 0.77% 0.75%
Loans on non-accrual (3) :
As a % of total Commercial Assets 1.99% 1.62% 1.57%
As a % of total Commercial Loans 2.20% 1.79% 1.73%
Impaired loans(4) :
As a % of total Commercial Assets 4.88% 3.67% 2.93%
As a % of total Commercial Loans 5.40% 4.06% 3.23%
Total (excluding assets in
multiple categories):
As a % of total Commercial Assets 5.14% 3.77% 3.10%
As a % of total Commercial Loans 5.69% 4.17% 3.42%
Allowance for Loan Loss:
As a % of total Commercial Assets 1.35% 1.27% 1.28%
As a % of total Commercial Loans 1.50% 1.40% 1.41%
Net Charge Offs (three months
annualized):
As a % of total Average Commercial
Assets0.90% 0.22% 0.22%
As a % of total Average Commercial
Loans 1.00% 0.25% 0.25%
SeptemberJune 30, March 31,
30, 2007 20072007
Loans 60 or more days contractually
delinquent:
As a % of total Commercial Assets(1) 0.67% 0.97% 0.77%
As a % of total Commercial Loans(2)0.74% 1.09% 0.85%
Loans on non-accrual (3) :
As a % of total Commercial Assets 1.59% 1.77% 1.63%
As a % of total Commercial Loans 1.76% 1.97% 1.78%
Impaired loans(4) :
As a % of total Commercial Assets 3.12% 3.50% 2.97%
As a % of total Commercial Loans 3.46% 3.91% 3.24%
Total (excluding assets in
multiple categories):
As a % of total Commercial Assets 3.30% 3.72% 3.16%
As a % of total Commercial Loans 3.66% 4.15% 3.46%
Allowance for Loan Loss:
As a % of total Commercial Assets 1.05% 1.28% 1.33%
As a % of total Commercial Loans 1.16% 1.43% 1.45%
Net Charge Offs (three months
annualized):
As a % of total Average Commercial
Assets1.04% 0.57% 0.47%
As a % of total Average Commercial
Loans 1.15% 0.63% 0.51%
December 31, SeptemberJune 30,
2006 30, 2006 2006
Loans 60 or more days contractually
delinquent:
As a % of total Commercial Assets(1) 1.03% 0.81% 1.27%
As a % of total Commercial Loans(2)1.12% 0.84% 1.31%
Loans on non-accrual (3) :
As a % of total Commercial Assets 2.14% 2.31% 1.94%
As a % of total Commercial Loans 2.34% 2.39% 2.01%
Impaired loans(4) :
As a % of total Commercial Assets 3.28% 3.50% 3.18%
As a % of total Commercial Loans 3.58% 3.63% 3.28%
Total (excluding assets in
multiple categories):
As a % of total Commercial Assets 3.76% 3.70% 3.78%
As a % of total Commercial Loans 4.11% 3.83% 3.91%
Allowance for Loan Loss:
As a % of total Commercial Assets 1.41% 1.35% 1.36%
As a % of total Commercial Loans 1.54% 1.40% 1.41%
Net Charge Offs (three months
annualized):
As a % of total Average Commercial
Assets0.63% 1.18% 0.72%
As a % of total Average Commercial
Loans 0.66% 1.22% 0.74%
(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 $58.3 million,
$49.9 million, $55.5 million, $21.0 million, $31.0 million, $41.5
million, $47.0 million, $46.9 million and $49.4 million as of June
30, 2008, March 31, 2008, December 31, 2007, September 30, 2007, June
30, 2007, March 31, 2007, December 31, 2006, September 30, 2006 and
June 30, 2006, respectively, that were also classified as loans 60 or
more days contractually delinquent. Also includes non-accrual loans
held for sale with an aggregate principal balance of $14.9 million as
of June 30, 2008 and $3.0 million as of September 30, 2007 and June
30, 2007.
(4) Includes loans with an aggregate principal balance of $81.7 million,
$64.2 million, $55.5 million, $55.1 million, $78.7 million, $54.4
million, $47.0 million, $46.9 million and $49.4 million, as of June
30, 2008, March 31, 2008, December 31, 2007, September 30, 2007, June
30, 2007, March 31, 2007, December 31, 2006, September 30, 2006 and
June 30, 2006, respectively, that were also classified as loans 60 or
more days contractually delinquent, and loans with an aggregate
principal balance of $192.4 million, $174.5 million, $170.5 million,
$166.4 million, $173.1 million, $153.8 million, $183.5 million,
$175.8 million and $143.8 million as of June 30, 2008, March 31,
2008, December 31, 2007, September 30, 2007, June 30, 2007, March 31,
2007, December 31, 2006, September 30, 2006 and June 30, 2006,
respectively, that were also classified as loans on non-accrual
status.
SOURCE CapitalSource Inc.
