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Q3 2012 Earnings Call
October 30, 2012 5:30 pm ET
Dennis Oakes - Senior Vice President of Investor Relations
James J. Pieczynski - Chief Executive Officer, Director, Member of Asset, Liability & Credit Policy Committee and President of Capitalsource Bank
Douglas H. Lowrey - Chief Executive Officer of CapitalSource Bank, President of CapitalSource Bank and Director of CapitalSource Bank
John A. Bogler - Chief Financial Officer, Chief Financial Officer - Capitalsource Bank and Executive Vice President - Capitalsource Bank
Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division
Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division
Mark C. DeVries - Barclays Capital, Research Division
Henry J. Coffey - Sterne Agee & Leach Inc., Research Division
Daniel Furtado - Jefferies & Company, Inc., Research Division
Scott Valentin - FBR Capital Markets & Co., Research Division
Previous Statements by CSE
» CapitalSource Management Discusses Q2 2012 Results - Earnings Call Transcript
» CapitalSource's CEO Discusses Q1 2012 Results - Earnings Call Transcript
» CapitalSource's CEO Discusses Q4 2011 Results - Earnings Call Transcript
Thank you, Amy. Good afternoon, and welcome to the CapitalSource Third Quarter 2012 Earnings Call. With me today are CapitalSource CEO, Jim Pieczynski; CapitalSource Bank Chairman and CEO, Tad Lowrey; and John Bogler, our Chief Financial Officer.
This call is being webcast live on the company website and a recording will be available later this evening. Our earnings press release and website provide details on accessing the archived call. We have also posted a presentation on the website, which provides additional detail on certain topics, which we will be covering during our prepared remarks, though we will not be making specific references to that presentation.
Investors are urged to carefully read the forward-looking statements' language in our earnings release and investor presentation; but essentially, they say the following: Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements, including statements regarding future financial operating results, involve risks, uncertainties and contingencies, many of which are beyond the control of CapitalSource and which may cause actual results to differ materially from anticipated results.
CapitalSource is under no obligation to update or alter our forward-looking statements whether as a result of new information, future events or otherwise, and we expressly disclaim any obligation to do so. And finally, more detailed information about risk factors can be found in our reports filed with the SEC.
Jim is up first, and as usual, we will take questions following our prepared remarks. Jim?
James J. Pieczynski
Thank you, Dennis, and good afternoon, everyone. First and foremost, I want to extend my thoughts and prayers to those people on the East Coast who have had to deal with the impact of Hurricane Sandy, I know it's been difficult for people there and we do think of you.
I would now like to focus on our quarterly results. Our third quarter included earnings per share of $0.14 and once again, demonstrated the earnings power of CapitalSource Bank. Tad will provide greater detail on the bank's performance but we were pleased with the new loan production of $623 million, a net interest margin of just below 5%, an ROA of just under 1.9%, a negligible loan loss provision and significantly higher pretax pre-provisioned income.
Our consolidated credit metrics also improved meaningfully as our deliberate action to move or sell troubled loans continues. Our specialty lending platforms continue to produce at a high level, new lending in the third quarter was broadly spread among our business groups. But the largest concentrations were in equipment finance, technology and health care cash flow and our health care and general real estate group.
Despite the solid level of loan production, our net loan growth at the bank in the quarter was only $24 million. This was due principally to $470 million of loan repayments which were high, but that was combined with planned portfolio management action that further reduced loan growth by just over $160 million. Tad will provide more detail on those activities.
At the parent company, we generated free cash of approximately $63 million in the third quarter, which allowed us to continue our stock buyback program. We repurchased 10 million shares at a cost of $75 million during the quarter, and then subsequent to quarter end, we purchased an additional 5 million shares at a cost of $38 million. We have now returned almost $770 million to shareholders in the form of share repurchases, while we reduced the outstanding share count by 36% since December of 2010.
With the previous plan nearly completed earlier than expected, our Board of Directors last week approved the new share buyback program to run through the end of 2013 with authority for $250 million of new share repurchases. Based on our liquidity forecast, we can complete that program over the next 14 months, though stock price, stress testing, dividends and the timing of our bank holding company application will be additional factors in our buyback decision over that period. The new buyback plan is consistent with our frequently discussed objective of prudently returning excess parent capital to our shareholders. While such share buybacks have been the primary means of returning excess capital, and we expect to continue them subject to market conditions and other developments, we are also considering other mechanisms to return additional capital in the short term, such as increasing our ordinary dividend, instituting a variable dividend and/or issuing a special dividend.