UPDATE 2-CapitalSource posts Q3 loss, may turn profitable in '10

* Q3 loss/shr $0.87 vs EPS $0.05 year ago

* Loan loss provisions double to $221.4 mln

* Says may return to profitability in H1 of 2010

* Sees elevated credit charges continuing in 2010

* Shares fall 10 pct (Adds analyst's comments, conference call details; updates share movement)

By Abhinav Sharma

BANGALORE, Nov 2 (Reuters) - Commercial lender CapitalSource Inc (CSE.N) posted a third-quarter loss of $274 million, hurt mainly by a two-fold rise in bad loan provisions and an accounting charge, and said it may return to profitability as early as the first half of 2010.

"We are aggressively managing our commercial real estate credit book to mitigate losses so that we can reach as soon as possible our inflection point of future charge-offs as compared to reserves," Chief Executive John Delaney said on a conference call with analysts.

Analyst Robert Napoli of Piper Jaffray said the company has enough capital and he expects it to turn profitable by the second quarter of 2010.

"They have a $600 million reserve waiting for charge-offs. So, the charge-offs will still go up but the provisions they need to fund those charge-offs will go down," Napoli said.

The analyst expects another hefty reserve-build in the fourth quarter, but said the provisions will fall in the first half of 2010.

The Chevy Chase, Maryland-based company, which expects elevated credit charges to continue into 2010, said it will experience most of its commercial real-estate losses by the end of next year.

Land loans are the most stressed portion of their portfolio, Napoli added.

Net loss for the quarter was 87 cents a share, compared with a profit of $13.7 million, or 5 cents a share, last year.

Analysts on average expected a loss of 26 cents a share for the quarter, according to Thomson Reuters I/B/E/S.

CapitalSource, which transformed itself from a real estate investment trust to a bank in January, said provision for loan losses rose to $221.4 million from $110.3 million, last year.

During the quarter, CapitalSource also recorded a $149 million accounting charge relating to a valuation allowance on deferred tax assets.

CapitalSource joins a host of other U.S. commercial banks that have seen their profits slip as they increase provision for bad loans amidst rising defaults.

Net investment income fell about 14 percent to $135.7 million.

Shares of the company were trading down 9 percent at $3.23 Monday midday on the New York Stock Exchange. (Reporting by Abhinav Sharma in Bangalore; Editing by Maju Samuel, Anne Pallivathuckal)