CapitalSource loan loss, reserves lead to 1Q loss

CapitalSource Inc., a commercial lender to middle-market businesses, said Thursday it fell to a first-quarter loss as it wrote off loan losses, set aside cash to cover additional troubled loans and converted some debt.

The company reported a loss of $104.3 million, or 36 cents per share, compared with profit of $5.2 million, or 2 cents a share, a year ago.

Analysts surveyed by Thomson Reuters had expected a loss of 25 cents per share, on average.

CapitalSource's shares fell 7 percent, or 28 cents, to $3.62 in afternoon trading.

For the quarter, the company recorded $124 million in net charge-offs for loans written off as not being repaid, a decrease of $60 million compared with the fourth quarter.

CapitalSource's provision for loan losses shrank to $155 million from $445 million in the prior quarter.

Also, the company recorded a $16 million loss on investments for the latest quarter, and a $700,000 loss on credit derivatives.

The company boosted its reserves for future loan losses to $445 million as of March 31, a net increase of $21 million from the fourth quarter.

The company streamlined the business in the quarter and managed liquidity and credit, said Chief Executive John K. Delaney.

"Credit performance remains an area of intense focus, so we were pleased to see certain components of our loan portfolio stabilize this quarter," he said. "Charge-offs and additions to provision levels were substantially lower than the prior quarter, and our capital levels at the parent company and at CapitalSource Bank continue to be very strong, significantly exceeding regulatory requirements at CapitalSource Bank."

He said the demand for loans in a credit market that remains restrictive creates lending opportunities for the company, however, he added: "our outlook remains cautious as this environment also causes significant portfolio stress."

The company revised its annual outlook of earnings upward from its February estimate to a range of $1 billion to $1.1 billion for the year including interest expense, up from the earlier range of $925 milliion to $975 million.