Daily News: May 1, 2012

CapitalSource Q1 Earnings Rise on Loan Growth, Higher Margins

CapitalSource reported first-quarter 2012 net income of $25 million compared to net income of $9 million in the prior quarter and net income of $3 million in the first quarter of 2011.

The company said loans and leases increased $194 million or 4% at CapitalSource Bank. Funded loan and lease production was $522 million, compared to $665 million in the prior quarter and $628 million in the same quarter in 2011. Total loans and leases were $5.1 billion at quarter end compared to $4.9 billion sequentially and $4.0 billion at the end of the same period in 2011. The equipment finance portfolio rose to $417.9 at quarter end versus $276.0 million at the end of the same quarter 2011.

The loan loss provision was $2 million, compared to $4 million in the prior quarter. There was a $0.1 million net recovery in the quarter, compared to $28 million net charge-offs in the prior quarter. Non-accrual loans declined by 31% to $83 million or 1.64% of loans at quarter end, compared to $121 million or 2.47% of loans at the end of the prior quarter. The allowance for loan and lease losses was $97 million or 1.94% of loans at quarter end, compared to $95 million or 1.98% of loans at the end of the prior quarter.

“Our financial performance in the first quarter exceeded our expectations and represents a solid beginning for 2012. CapitalSource Bank again demonstrated meaningful loan and revenue growth, a strong net interest margin and improved credit performance. Additionally, our strategy of consolidating operations has produced operating expense savings for the quarter consistent with our target of a 5-10% reduction from 2011, or total operating expense of $190-$200 million for the full year,” said James J. Pieczynski, CapitalSource CEO.

“The new year is off to a great start at CapitalSource Bank – compared to the prior quarter, total interest income increased 4% to $99 million, net interest margin was 17 basis points higher at 5.12%, our loan and lease portfolio grew by $194 million or 4%, and pretax income was 17% above the prior quarter at $55 million,” said Tad Lowrey, CapitalSource Bank CEO. “In addition to our growing profitability, we continue to add new deposits at very attractive rates. Deposits grew $224 million in the first quarter, bringing total deposits to $5.3 billion, while our total deposit cost declined by five basis points from the prior quarter. New and renewing time deposits in the first quarter averaged just 91 basis points,” concluded Lowrey.

“Our credit metrics improved across the board in the first quarter – continuing a trend that we observed throughout 2011. On a consolidated basis, non-accruals declined by $42 million, or 15%; our quarterly loan loss provision declined slightly to $11 million; and net charge-offs were down dramatically at $13 million, compared to $66 million in the prior quarter,” said John Bogler, CapitalSource CFO. “Consistent with our previous communications, we recorded a $22 million non-cash tax valuation charge in the first quarter. For the remainder of 2012, however, we expect to record quarterly tax expense of approximately $5 million prior to reversing the majority of our tax valuation allowance which is anticipated by year end,” added Bogler.

To read the full CapitalSource news release click here.