4. CapitalSource, Inc.

Company Profile

Share of CapitalSource ( CSE) of Montgomery, Md. have risen 74% year-to-date, closing at $6.85 Wednesday.

CapitalSource has been transitioning away from investments in healthcare facilities, having sold 103 long-term care facilities to Omega Healthcare Investors during the second quarter. The company still focuses on healthcare real estate financing, as well as other specialty credit offerings, including equipment finance, technology, multifamily lending, as well as its new professional practice lending group, which focuses on financing the acquisition of dental and veterinary practice.

Following the company's announced on Thursday that its board of directors had authorized the repurchase of up to $150 million in common shares over the next two years, Sterne Agee analyst Henry Coffey reiterated his buy rating on the shares, with a price target of $8.75, but on Monday, Michael Taiano of Sandler O'Neill lowered his firm's rating on the shares to a hold, "primarily on valuation, given that the shares are nearing our $7 price target."

Income Statement

For the third quarter, CapitalSource reported net income of $78.2 million, or 24 cents a share, compared to a net loss of $274.3 million, or 90 cents a share, in the third quarter of 2009, when the company reported a $221.4 million provision for loan losses to cover anticipated losses on commercial real estate loans.

The third-quarter provision for loan losses was $15 million, and earnings were also boosted by a tax benefit of $37 million, or 11 cents a share. The third-quarter ROA was 3.20% according to SNL Financial, making CapitalSource the only company listed here to manage an ROA over 1% for the third quarter.

A bright spot for the third quarter was $405 million in loan originations and a 7.83% yield on the company's commercial loan portfolio, "an increase of 49 basis points from the prior quarter primarily due to the impact of declining non-accruals and the full benefit of a growing balance of high yielding loans."

Balance Sheet

Total assets were $9.6 billion as of September 30. Because of differences in the way CapitalSource reports from the other nine banks listed here, we have calculated an NPA ratio including just nonaccrual loans held in the portfolio and repossessed assets, which was 8.9% as of September 30. The net charge-off ratio for the third quarter was 3.35% and reserves covered 6.04% of loan losses reserves as of September 30, according to SNL Financial.

CapitalSource didn't participate in TARP. As of September 30, the company's Tier 1 leverage ratio was 13.03% and its total risk-based capital ratio was 18.26%. The company reported a tangible common equity ratio of 12.85%, although SNL Financial estimates that CapitalSource's ratio of tangible common equity to tangible assets was 20.22% as of September 30. Either way, CapitalSource had the highest TEC ratio as of September 30 among this group of bank holding companies.

Stock Ratios

The shares trade for 1.2 times tangible book value and 17.6 times the consensus earnings estimate of 39 cents a share for 2011. The forward P/E declines to 13.2 based on the consensus earnings estimate for 2012 of 52 cents a share.

Analyst Ratings

Analyst sentiment for CapitalSource is pretty strong considering the 74% year-to-date return on the shares, with nine analysts rating the shares a buy and the other four recommending investors hold the shares.

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