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10 Bank Stocks Turning the Credit Corner

3. CapitalSource

Shares of CapitalSource (CSE) of Chevy Chase, Md., closed at $6.25 Wednesday, down 12% year-to-date.

The company had $9.3 billion in total assets as of June 30, with a nonperforming assets ratio of 7.36%, declining from 9.04% the previous quarter. Nonperforming assets information was not available for Capital Source for June 2010.

CapitalSource earned $16.6 million during the second quarter, or five cents a share, declining from $18.3 million, or six cents a share, in the second quarter of 2010, when the company booked a $21.7 million gain on the sale of all of its direct real estate investments, including sold 103 long-term care facilities to Omega Healthcare Investors.

CapitalSource remains focused on lending to the healthcare industry, as well as on equipment finance, technology, multifamily lending, and a professional practice lending group, which finances the acquisition of dental and veterinary practices.

The second-quarter provision for loan loss reserves was $1.5 million, declining from $25.3 million a year earlier.

On Sept. 15, after the company gained the consent of investors holding senior notes due in 2014, to increase its share repurchase authorization to $385 million from $200 million, and Jeff Davis of Guggenheim Securities reiterated his neutral rating on the shares, with a price target of $6.75.

The shares trade for 15 times the consensus 2012 EPS estimate of 42 cents, among analysts polled by FactSet, and just above their June 30 tangible book value of $5.99, according to SNL.

Out of 10 analysts covering CapitalSource, seven rate the shares a buy, while the remaining analysts all have neutral ratings.

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