CapitalSource Reports Third Quarter Results - Earned pro forma net
income of $23.5 million and pro forma diluted net income per share
of $0.21 - Grew funded loan portfolio to $1.99 billion, an increase
of $246 million, or 14%, from last quarter - Increased and
diversified funding sources by $700 million through two new credit
facilities, bringing total committed credit facility capacity to
$1.5 billion. CHEVY CHASE, Md., Oct. 27 /PRNewswire-FirstCall/ --
CapitalSource Inc. today reported pro forma net income of $23.5
million, or $0.21 per diluted share, for the quarter ended
September 30, 2003. The pro forma adjustments reflect the
conversion of CapitalSource from a limited liability company to a
"C" corporation in connection with the company's August 2003
initial public offering and the impact of corporate income tax on
the pre-IPO periods. The company's third quarter 2003 earnings
compare with pro forma net income of $17.4 million, or $0.17 per
diluted share, for the second quarter 2003. Third quarter pro forma
returns on average assets and average equity were 4.55% and 12.92%,
respectively. For the second quarter 2003, pro forma returns on
average assets and average equity were 3.91% and 12.45%,
respectively. A reconciliation between net income on a GAAP basis
and pro forma net income is provided in a table immediately
following the Consolidated Statements of Income. Loan Portfolio --
Gross loans increased to $1,987 million as of September 30, 2003,
up $246 million or 14% from $1,741 million as of June 30, 2003.
This compares to a $157 million increase in gross loans during the
second quarter 2003. Net Interest Margin / Yield / Cost of Funds --
Net interest margin was 10.10% for the third quarter 2003, a 30
basis point increase from 9.80% for the second quarter 2003. The
increase is primarily due to continued strong yield performance, a
decrease in our cost of funds and the pay down of certain credit
facilities using the proceeds from the initial public offering. --
Yield on average interest earning assets was 12.10% for the third
quarter 2003, an increase of 4 basis points from 12.06% for the
second quarter 2003. As in the second quarter, yield for the third
quarter was enhanced by unusually high prepayment-related fee
income. -- Cost of funds was 3.12% for the third quarter 2003, a
decrease of 21 basis points from 3.33% for the second quarter 2003.
This decrease resulted primarily from a lower level of short term
interest rates in the third quarter 2003 compared to the second
quarter 2003. Credit Quality -- Allowance for loan losses was $15.1
million as of September 30, 2003, a $3.6 million increase from
$11.5 million as of June 30, 2003. This increase resulted from an
increase in reserves in accordance with our loan loss methodology.
Allowance for loan losses as a percentage of gross loans was 0.76%
as of September 30, 2003, an increase of 10 basis points from 0.66%
as of June 30, 2003. -- As of September 30, 2003, 0.24% of our
total loan portfolio was 60 or more days delinquent compared with
0.28% as of June 30, 2003. Expenses -- Total operating expenses
were $17.3 million for the third quarter 2003, an increase of $2.3
million from $15.0 million for the second quarter 2003. The
increase is a result of costs associated with the addition of new
employees, costs associated with being a public company and other
one-time costs. -- Operating expenses as a percentage of average
total assets were 3.36% for the third quarter 2003, a decrease of 1
basis point from 3.37% for the second quarter 2003. -- As of
September 30, 2003, employees totaled 269, an increase of 30 from
June 30, 2003. Other Income -- Other income was $6.7 million for
the third quarter 2003, an increase of $4.8 million from $1.9
million for the second quarter 2003. This increase is primarily due
to the increase in unrealized gains on our investments in equity
interests. Income Taxes -- CapitalSource provided for income taxes
on the income earned from August 7, 2003 through September 30, 2003
based on a 38% effective tax rate. Prior to its reorganization as a
"C" corporation on August 6, 2003, CapitalSource operated as a
limited liability company and all income taxes were paid by the
members. At the reorganization date, CapitalSource recorded a $4.0
million net deferred tax asset and a corresponding deferred tax
benefit, which lowered the effective tax rate for the quarter.
Funding and Liquidity -- During the third quarter 2003,
CapitalSource entered into a $400 million credit facility with an
affiliate of Citigroup Global Markets Inc. This credit facility
permits CapitalSource to obtain financing of up to 75% of the
outstanding principal balance of commercial loans that it
originates. -- During the third quarter 2003, CapitalSource entered
into a $300 million repurchase agreement with an affiliate of
Credit Suisse First Boston LLC to finance healthcare mortgage
loans. This facility allows CapitalSource to obtain financing of up
to 70% of the outstanding principal balance of healthcare mortgage
loans that the company originates. Subsequent Event -- In October
2003, CapitalSource sold an investment in equity interest and
received a cash payment of $15.1 million generating a pretax gain
of $10.8 million. Conference Call and Webcast CapitalSource will
host a conference call on Tuesday, October 28, 2003 at 11:00 a.m.
EST to discuss its third quarter results. This will be the first
scheduled quarterly call with analysts and investors since
CapitalSource completed its initial public offering on August 12,
2003. If you wish to participate, please call (877) 346-4093 (pass
code: 1348904) approximately 10 minutes in advance. The call will
also be webcast on the Investor Relations page of the CapitalSource
website, http://www.capitalsource.com/ . A telephonic replay will
be available from approximately 2:00 p.m. EST October 28, 2003 and
will run through November 5, 2003. Please call (800) 642-1687 or
(706) 645-9291 (pass code: 1348904). An audio replay also will be
available on the Investor Relations page of CapitalSource's
website. Forward-Looking Statements This release contains
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All forward-looking
statements (including statements regarding future financial and
operating results) involve risks, uncertainties and contingencies,
many of which are beyond CapitalSource's control, which may cause
actual results, performance, or achievements to differ materially
from anticipated results, performance, or achievements. All
statements contained in this release that are not clearly
historical in nature are forward-looking, and the words
"anticipate," "believe," "expect," "estimate," "plan," and similar
expressions are generally intended to identify forward-looking
statements. Economic, business, funding, market, competitive and/or
regulatory factors, among others, affecting CapitalSource's
business are examples of factors that could cause actual results to
differ materially from those described in the forward-looking
statements. More detailed information about these factors is
contained in CapitalSource's filings with the SEC, including the
sections captioned "Risk Factors" and "Business" in our final
prospectus dated August 6, 2003, as filed with the SEC pursuant to
Rule 424(b) on August 7, 2003. CapitalSource is under no obligation
to (and expressly disclaims any such obligation to) update or alter
its forward-looking statements, whether as a result of new
information, future events or otherwise. About CapitalSource
CapitalSource is a specialized commercial finance company offering
asset-based, senior, cash flow and mezzanine financing to small and
mid-sized borrowers through three focused lending groups: Corporate
Finance, Healthcare Finance, and Structured Finance. By offering a
broad array of financial products, CapitalSource has issued more
than $3 billion in loan commitments. Headquartered in Chevy Chase,
MD, CapitalSource has a national network of offices in Atlanta,
Boston, Buffalo, Chicago, Dallas, Los Angeles, Nashville, New York,
Philadelphia, and San Francisco. CapitalSource has more than 260
employees. Middle market lending involves a certain degree of
credit risk which CapitalSource believes will correlate into credit
losses in its portfolio. For more information, visit
http://www.capitalsource.com/ or call toll free at (866) 876-8723.
CapitalSource Inc. Consolidated Balance Sheets ($ in thousands)
September 30, December 31, 2003 2002 (Unaudited) ASSETS Cash and
cash equivalents $109,922 $49,806 Restricted cash 39,780 28,873
Loans: Loans 1,987,089 1,073,680 Less deferred fees and discounts
(54,645) (30,316) Less allowance for loan losses (15,149) (6,688)
Loans, net 1,917,295 1,036,676 Investments in equity interests
39,135 23,670 Deferred financing fees, net 16,343 11,214 Property
and equipment, net 7,000 5,087 Other assets 9,872 5,279 Total
assets $2,139,347 $1,160,605 LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: Repurchase obligations $53,016 $- Credit facilities
619,743 240,501 Term debt 600,788 428,585 Accounts payable and
other liabilities 31,086 15,803 Due diligence deposits 1,223 2,034
Total liabilities 1,305,856 686,923 Shareholders' equity: Members'
equity (101,000,000 units authorized and no units and 99,289,800
shares outstanding, respectively) - 473,765 Common stock ($0.01 par
value, 500,000,000 shares authorized; 117,643,100 and no shares
outstanding, respectively) 1,176 - Additional paid-in capital
754,509 - Retained earnings 78,574 - Deferred compensation (768) -
Accumulated other comprehensive loss - (83) Total shareholders'
equity 833,491 473,682 Total liabilities and shareholders' equity
$2,139,347 $1,160,605 CapitalSource Inc. Consolidated Statements of
Income (Unaudited) ($ in thousands, except per share data) Three
Months Ended Nine Months Ended September 30, September 30, 2003
2002 2003 2002 Net interest and fee income: Interest $47,336
$20,279 $121,372 $48,389 Fee income 15,105 4,415 35,238 12,369
Total interest and fee income 62,441 24,694 156,610 60,758 Interest
expense 10,304 4,148 27,409 9,251 Net interest and fee income
52,137 20,546 129,201 51,507 Provision for loan losses 3,687 -
8,461 - Net interest and fee income after provision for loan losses
48,450 20,546 120,740 51,507 Operating expenses: Compensation and
benefits 11,553 5,448 30,618 14,060 Other administrative expenses
5,761 3,155 14,884 7,699 Total operating expenses 17,314 8,603
45,502 21,759 Other income (expense): Diligence deposits forfeited
230 371 2,224 1,029 Gain (loss) on equity interests 4,985 (30)
5,099 2,934 Gain (loss) on derivatives 431 (705) (68) (784) Other
income 1,077 600 2,231 660 Total other income 6,723 236 9,486 3,839
Net income before income taxes 37,859 12,179 84,724 33,587 Income
taxes 6,564 - 6,564 - Net income $31,295 $12,179 $78,160 $33,587
Net income per share: Basic $0.29 $0.12 $0.77 $0.34 Diluted $0.28
$0.12 $0.75 $0.34 Average shares outstanding: Basic 108,969,401
97,666,383 101,751,387 97,637,290 Diluted 110,824,452 99,765,632
103,600,367 99,679,930 CapitalSource Inc. Pro Forma Financial
Information (Unaudited) ($ in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, June 30,
September 30, September 30, 2003 2003 2002 2003 2002 Net income
$31,295 $28,573 $12,179 $78,160 $33,587 Income taxes (a) 7,822
11,143 4,628 25,631 12,763 Pro forma net income $23,473 $17,430
$7,551 $52,529 $20,824 Pro forma net income per share: Basic $0.22
$0.18 $0.08 $0.52 $0.21 Diluted $0.21 $0.17 $0.08 $0.51 $0.21
Average shares outstanding: Basic 108,969,401 98,100,029 97,666,383
101,751,387 97,637,290 Diluted 110,824,452 99,912,866 99,765,632
103,600,367 99,679,930 Pro forma return on average assets (a) 4.55%
3.91% 3.73% 4.03% 4.34% Pro forma return on average equity (a)
12.92% 12.45% 8.24% 11.78% 9.31% (a) Adjusted to reflect results
from our reorganization as a "C" corporation. As a limited
liability company prior to the August 6, 2003 reorganization, all
income taxes were paid by the members. As a "C" corporation,
CapitalSource Inc. is responsible for the payment of all federal
and state corporate income taxes. The unaudited pro forma net
income, pro forma basic net income per share, and pro forma diluted
net income per share includes provision for income taxes with a
combined federal and state effective tax rate of 38%. CapitalSource
Inc. Selected Financial Data (Unaudited) Three Months Ended Nine
Months Ended September 30, June 30, September 30, September 30,
2003 2003 2002 2003 2002 Performance Ratios: Pro forma return on
average assets 4.55% 3.91% 3.73% 4.03% 4.34% Pro forma return on
average equity 12.92 12.45 8.24 11.78 9.31 Net interest margin
10.10 9.80 10.21 9.91 10.81 Operating expenses as a percentage of
average total assets 3.36 3.37 4.25 3.49 4.54 Efficiency ratio
(operating expenses / net interest and fee income) 33.2 34.4 41.9
35.2 42.2 Credit quality and leverage ratios: 60 or more days
contractual delinquencies as a percentage of loans (at period end)
0.24% 0.28% 0.00% 0.24% 0.00% Net charge offs as a percentage of
average loans 0.00 0.00 0.00 0.00 0.00 Allowance for loan losses as
a percentage of loans (at period end) 0.76 0.66 0.00 0.76 0.00
Total debt to equity (at period end) 1.53x 2.38x 0.91x 1.53x 0.91x
Equity to total assets (at period end) 39.0% 29.3% 51.4% 39.0%
51.4% DATASOURCE: CapitalSource Inc. CONTACT: Investor Relations,
Tony Skarupa, Director of Finance, +1-301-841-2847, or , or Media
Relations, Paul Wardour, Director of Marketing, +1-301-841-2745, or
, both of CapitalSource Inc. Web site:
http://www.capitalsource.com/
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