SAN MATEO, Calif.--(Business Wire)--
Capmark Financial Group Inc. ("Capmark" or "we") reported net
income of $11.5 million for the quarter ended June 30, 2008 compared
to net income of $89.5 million for the quarter ended June 30, 2007.
The operating results for the second quarter of 2008 were impacted by
fair value losses of $42.2 million on loans compared to losses of
$10.3 million for the same period a year ago and $28.1 million of
losses from joint venture and partnership investments compared to
$53.1 million of income for the same period a year ago, partially
offset by an income tax benefit of $29.0 million in the second quarter
of 2008.
Company Highlights
Capmark reduced debt and increased liquidity:
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-- We reduced consolidated indebtedness by $2.0 billion by using
proceeds from asset sales (including the previously announced $1.8
billion European loan sales) and loan repayments to partially pay
down the bridge loan, the revolving credit facility and certain
secured debt and to repurchase $100 million of our senior notes at
a discount.
-- We increased readily available cash (excluding restricted cash and
cash held by Capmark Bank) and borrowing capacity under our
revolving credit facility to $1.9 billion as of June 30, 2008 from
$0.9 billion as of March 31, 2008.
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Other highlights in the quarter include:
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-- Our North American loan originations were $2.7 billion during the
second quarter of 2008 compared to $6.1 billion in the same period
last year reflecting slowing demand in the marketplace and
liquidity management. North American loan sales and repayments
were $2.0 billion for the second quarter of 2008 compared to $1.9
billion for the same period last year.
-- Servicing grew its global portfolio to $373.2 billion as of June
30, 2008 compared to $350.6 billion as of June 30, 2007.
-- Our investments and funds management business completed raising a
new US value-add commercial real estate equity fund with aggregate
commitments of $540.5 million.
-- We have redeployed capital from the monetization of assets in our
European operations toward repayment of debt and funding of North
American lending activities.
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Consolidated Financial Review
Three Months Ended June 30, 2008
Net income totaled $11.5 million for the three months ended June
30, 2008 compared to $89.5 million for the three months ended June 30,
2007.
The year over year decline in net income was primarily
attributable to a $114.4 million reduction in fee and investment
income and increased net losses of $13.2 million on loans and other
investments. The change in fee and investment income was driven by a
decline of $81.2 million in income from joint ventures and
partnerships, a decline of $14.2 million in trust fees due to lower
prevailing interest rates and a drop in all other fee and investment
income of $19.0 million. The net losses on loans and other investments
resulted from fair value losses on loans of $42.2 million offset by
certain other gains. These declines were partially offset by an income
tax benefit of $29.0 million primarily due to operational losses and
tax credits generated through certain investments.
Six Months Ended June 30, 2008
We incurred a net loss of $201.4 million for the six months ended
June 30, 2008 compared to net income of $264.9 million for the six
months ended June 30, 2007.
Net losses totaled $361.6 million in the first half of 2008
compared to net gains of $180.6 million in the same period in 2007 due
to net losses on loans of $399.4 million in the first half of 2008
primarily resulting from losses on interests in European loans that
were sold in April 2008 compared to net gains on loans of $66.9
million for the six months ended June 30, 2007. In addition, there was
a $65.3 million non-recurring gain on the sale of a majority of our
affordable housing debt platform in 2007.
Fee and investment income declined $222.6 million in the first
half of 2008 compared to the same period in 2007 primarily due to a
decline in our equity in income of joint ventures and partnerships
resulting from current market conditions and lower performance-based
asset management fees.
Liquidity
In the second quarter of 2008, we continued to take actions to
maintain sufficient liquidity to support our business operations
including:
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-- managing the volume and mix of loan originations among product
types to emphasize products with better liquidity and lower
funding costs, including government-sponsored programs, loans
funded by Capmark Bank and third-party originations;
-- generating over $3.8 billion of cash from repayments of loans and
sales of loans and other investments, including $1.8 billion from
the European loan sales in April 2008 and sales to government
sponsored enterprises;
-- extending or refinancing over $580.0 million of previously
existing borrowing capacity on a committed basis (outside of
Capmark Bank);
-- obtaining additional funding of $1.4 billion at Capmark Bank with
maturities of one year or longer; and
-- amending the agreements governing our syndicated term loan and
revolving credit facility and our bridge loan to provide us with
additional flexibility with respect to certain types of secured
financing.
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Our consolidated debt reduction of $2.0 billion reflected a $2.6
billion reduction outside of Capmark Bank offset by an approximately
$600.0 million increase in total Capmark Bank debt. Our liquidity
management actions included the following:
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-- repayment of $600.0 million on our bridge loan, leaving an
outstanding balance of $1.1 billion as of June 30, 2008;
-- reduction of our revolving credit facility balance by $879.2
million to $1.0 billion at June 30, 2008;
-- repayment of $770.0 million of secured debt;
-- repurchase of $100.0 million of outstanding floating rate senior
notes due 2010 at a discount; and
-- other miscellaneous debt reductions of approximately $200.0
million.
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Cash and available borrowing capacity of Capmark Bank was
approximately $2.0 billion as of June 30, 2008. In addition, escrow
funds held in trust as of June 30, 2008 that were eligible for deposit
in Capmark Bank were $1.1 billion.
Asset Quality
As of June 30, 2008, Capmark's held for investment loan portfolio
was $7.5 billion, which reflects an allowance for loan losses totaling
$37.8 million and fair value and other adjustments totaling $90.1
million as a result of prior valuation adjustments on loans
transferred from held for sale.
As of June 30, 2008, Capmark's held for sale loan portfolio was
carried at a fair value of $5.9 billion representing an aggregate
discount of approximately $383.4 million to the portfolio's aggregate
unpaid principal balance of $6.3 billion.
As of June 30, 2008, total reserves (including allowance for loan
losses and fair value and other adjustments) were 3.8% of the unpaid
principal balance of the loan portfolio.
Selected portfolio information:
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-- As of June 30, 2008, Capmark's loan portfolio totaled $13.5
billion, down from $14.7 billion as of December 31, 2007 largely
due to the European loan sale.
-- The ratio of Capmark's originated non-performing assets to total
assets was 1.1% as of June 30, 2008 compared to 0.9% as of
December 31, 2007.
-- As of June 30, 2008, 95.8% of Capmark's loan portfolio was
comprised of first lien commercial mortgage loans with an average
loan size of $9.4 million.
-- The weighted average loan-to-value ratio of Capmark's loan
portfolio was 67.2% as of June 30, 2008 compared to 70.4% as of
December 31, 2007.
-- As of June 30, 2008, Capmark had:
-- land loan exposure of approximately $431.3 million, or 2.0% of
total assets;
-- total loans outstanding to condominium projects of approximately
$176.3 million, or 0.8% of total assets;
-- approximately $129.7 million of fixed rate U.S. loans originated
specifically for CMBS securitizations; and
-- approximately $80 million, or 0.4% of total assets, of
investment securities collateralized by U.S. residential mortgage
loans, inclusive of all subprime exposure.
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Segment Condensed Financial Results
The following tables present unaudited selected summary financial
information for each of our six business segments and corporate and
other (amounts in millions):
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(unaudited) (unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
2008 2007 2008 2007
--------- -------- -------- --------
Net Revenue:
North American Lending and
Mortgage Banking $ 121.6 $ 132.6 $ 120.0 $ 304.6
North American Investments and
Funds Management (26.9) 80.6 (8.8) 179.1
North American Servicing 72.3 103.2 147.3 199.5
Asian Operations 13.1 28.1 21.0 103.9
European Operations (29.7) 69.0 (268.4) 107.1
North American Affordable Housing (1.3) 3.4 1.5 47.1
--------- -------- -------- --------
Subtotal 149.1 416.9 12.6 941.3
Corporate and Other 9.1 (103.7) 5.9 (106.9)
--------- -------- -------- --------
Consolidated $ 158.2 $ 313.2 $ 18.5 $ 834.4
========= ======== ======== ========
(Loss) Income Before Income
Taxes:
North American Lending and
Mortgage Banking $ 80.0 $ 61.5 $ 39.0 $ 169.0
North American Investments and
Funds Management (21.0) 53.1 (20.5) 117.0
North American Servicing 26.4 50.4 49.7 94.4
Asian Operations (13.1) 4.7 (32.2) 54.0
European Operations (44.7) 48.1 (291.3) 76.4
North American Affordable Housing (11.1) (4.3) (16.9) 23.9
--------- -------- -------- --------
Subtotal 16.5 213.5 (272.2) 534.7
Corporate and Other (34.0) (66.1) (78.2) (110.5)
--------- -------- -------- --------
Consolidated $ (17.5) $ 147.4 $(350.4) $ 424.2
========= ======== ======== ========
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(unaudited) (unaudited)
June 30, 2008 December 31, 2007
---------------- ------------------
Total Assets:
North American Lending and
Mortgage Banking $ 12,815.7 $ 12,159.8
North American Investments and
Funds Management 1,041.2 1,050.6
North American Servicing 899.8 894.3
Asian Operations 2,852.3 2,789.0
European Operations 822.9 3,068.1
North American Affordable Housing 951.0 1,084.8
---------------- ------------------
Subtotal 19,382.9 21,046.6
Corporate and Other 1,968.5 2,217.8
---------------- ------------------
Consolidated $ 21,351.4 $ 23,264.4
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Segment Analysis
North American Lending and Mortgage Banking
Our North American Lending and Mortgage Banking segment earned
pre-tax income of $80.0 million for the three months ended June 30,
2008 compared to $61.5 million for the three months ended June 30,
2007. The $18.5 million increase was driven primarily by higher net
interest income and lower noninterest expense partially offset by
lower noninterest income.
Net interest income totaled $84.8 million for the three months
ended June 30, 2008 compared to $58.8 million for the three months
ended June 30, 2007. The $26.0 million increase was partially the
result of an increase in average interest-earning assets, an increase
in accretion income on loans held for investment that were previously
classified as held for sale, and an increase in portfolio yields
partially attributed to the impact of loans structured with interest
rate floors that are currently above contractual benchmark rates.
Noninterest income was $44.9 million for the three months ended
June 30, 2008 compared to $73.7 million for the three months ended
June 30, 2007. The $28.8 million decline was driven by a decrease in
placement fees and investment banking fees partially offset by an
increase in net gains.
Noninterest expense totaled $47.7 million for the three months
ended June 30, 2008 compared to $75.9 million for the three months
ended June 30, 2007. The $28.2 million decrease was primarily driven
by a $22.0 million decline in compensation and benefits due to a
reduction in incentive compensation related to a decline in placement
fees and lower operating results.
North American Investments and Funds Management
Our North American Investments and Funds Management segment
incurred a pre-tax loss of $21.0 million for the three months ended
June 30, 2008 compared to pre-tax income of $53.1 million for the
three months ended June 30, 2007. The $74.1 million decrease was due
to lower noninterest income partly offset by lower noninterest
expense.
Noninterest income was a negative $27.6 million for the three
months ended June 30, 2008 compared to a positive $79.1 million for
the three months ended June 30, 2007. The decrease of $106.7 million
was due to a decrease in equity in income of joint ventures and
partnerships resulting from declines in the market value of assets
held through such joint ventures and partnerships, fewer proceeds from
asset sales executed through our joint venture holdings and fair value
charges on investment securities and loans reflecting continued
adverse market conditions.
Noninterest expense totaled $7.1 million for the three months
ended June 30, 2008 compared to $19.4 million for the three months
ended June 30, 2007. The $12.3 million decrease was primarily due to a
reduction in incentive compensation expense of $11.0 million related
to the decline in operating results.
Real estate-related assets under management in our North American
Investments and Funds Management business were approximately $10.1
billion as of June 30, 2008, compared to $10.3 billion as of December
31, 2007.
North American Servicing
Our North American Servicing segment had pre-tax income totaling
$26.4 million for the three months ended June 30, 2008 compared to
$50.4 million for the three months ended June 30, 2007. The $24.0
million decrease was primarily driven by lower noninterest income
partly offset by lower noninterest expense.
Noninterest income totaled $76.0 million for the three months
ended June 30, 2008 compared to $107.5 million for the three months
ended June 30, 2007. The $31.5 million decrease was driven by lower
trust fees, mortgage servicing fees, other fees, and net gains. Trust
fees decreased $17.4 million due to the lower interest rate
environment. Mortgage servicing fees decreased $5.3 million primarily
as a result of a lower weighted average service fee on our North
American servicing portfolio and lower assumption fees. Other fees
declined $4.9 million primarily as a result of lower defeasance fees.
Net gains declined $5.3 million primarily due to the gain recognized
on the sale of our former technology subsidiary, EnableUS, Inc., in
April 2007.
Noninterest expense totaled $45.9 million for the three months
ended June 30, 2008 compared to $52.8 million for the three months
ended June 30, 2007. The $6.9 million decrease was primarily driven by
lower incentive compensation.
Asian Operations
Our Asian Operations segment incurred a pre-tax loss of $13.1
million for the three months ended June 30, 2008 compared to pre-tax
income of $4.7 million for the three months ended June 30, 2007. The
$17.8 million decrease was driven by a reduction in net interest
income and an increase in provision for loan losses and minority
interest expense.
Net interest income totaled $2.1 million for the three months
ended June 30, 2008 compared to $13.3 million for the three months
ended June 30, 2007. The $11.2 million decrease was attributable to a
reduction in the balance of acquired non-performing loans and an
increase in real estate investments that are not interest-earning
assets.
The provision for loan losses totaled $2.6 million for the three
months ended June 30, 2008 compared to a recovery of $(0.1) million
for the three months ended June 30, 2007 due to difficult market
conditions for Asian real estate assets.
Minority interest expense was $3.6 million for the three months
ended June 30, 2008 compared to minority interest income of $0.7
million for the three months ended June 30, 2007. The $4.3 million
variance was due to the sale of certain Japanese real estate
investments in 2008 that were held in a joint venture resulting in
minority interest expense equal to the joint venture partner's share
of the gain.
We are currently focusing our Asian Operations on management of
our existing loan and investment portfolios and our fee for services
activities. We have reduced staffing levels in our Asia segment to
reflect the decreased level of lending and investment activity.
European Operations
Our European Operations segment incurred a pre-tax loss of
$44.7 million for the three months ended June 30, 2008 compared to
pre-tax income of $48.1 million for the three months ended June 30,
2007. The $92.8 million decrease was primarily due to a decline in
noninterest income resulting from continuing downward changes in fair
value recognized on our portfolio of loans held for sale in Europe.
We curtailed our European lending activities starting in the
fourth quarter of 2007 and sold a large portion of our European loan
portfolio in April 2008. We have reduced staff in our European segment
to reflect the smaller loan portfolio and reduced activity level. We
are currently focusing our efforts on managing and monetizing our
remaining loan assets and enhancing our fee for services activities.
North American Affordable Housing
Our North American Affordable Housing segment incurred a pre-tax
loss of $11.1 million for the three months ended June 30, 2008
compared to a pre-tax loss of $4.3 million for the three months ended
June 30, 2007. The $6.8 million decrease was primarily attributable to
a decrease in noninterest income and an increase in noninterest
expense.
Noninterest income was a negative $4.4 million for the three
months ended June 30, 2008 compared to a positive $1.5 million for the
three months ended June 30, 2007. The decrease of $5.9 million was
primarily attributable to a decrease in net gains of $10.5 million
related to the sale of properties to LIHTC funds during the three
months ended June 30, 2007, partially offset by a $5.2 million
reduction in losses relating to LIHTC yield guarantees.
Noninterest expense totaled $9.8 million for the three months
ended June 30, 2008 compared to $7.7 million for the three months
ended June 30, 2007. The $2.1 million increase was driven primarily by
an increase in legal costs associated with LIHTC fund and property
disposition activity.
Conference Call and Supplemental Financial Information
Capmark will hold a conference call for investors to be broadcast
live over the Internet on August 12, 2008 at 12:00 noon Eastern
Daylight Time regarding the topics addressed in this news release and
the related financial supplement. Investors can access a webcast
(listen only) of the conference call via Capmark's Web site by
selecting "About Us" near the top center of the home page then
"Investor Relations" from the drop-down menu and clicking on the
second quarter webcast link. To listen to the conference call, please
go to the Web site at least fifteen minutes prior to the scheduled
start time to download and install any necessary audio software. For
those who are unable to listen to the live broadcast, an archived
replay will be available on the Web site under "Investor Relations" in
the drop-down menu "About Us" for a limited period of time. Investors
who have questions for Capmark management can participate in the
conference call by dialing in to one of the following numbers:
-- Toll Free: 877-407-0778
-- International: 201-689-8565
The related financial supplement to accompany the conference call
remarks may be found on the Web site under "Investor Relations" in the
drop-down menu "About Us."
About Capmark(R):
Capmark is a diversified company that provides a broad range of
financial services to investors in commercial real estate-related
assets. Capmark has three core businesses: lending and mortgage
banking, investments and funds management, and loan servicing. Capmark
operates in North America, Europe and Asia.
Forward-Looking Statements
Certain statements in this release may constitute forward-looking
statements. These statements are based on management's current
expectations and beliefs but are subject to a number of factors and
uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. These risks
and uncertainties include, among others, adverse changes in debt and
capital markets conditions, which may adversely impact Capmark's
access to capital on acceptable terms or the value or salability of
our real estate related investments; interest rate and credit spread
fluctuations; adverse changes in commercial real estate markets;
changes in general economic and business conditions, which will, among
other things, affect the amount Capmark may earn on products and
services and the availability and credit worthiness of its customers;
changes in applicable laws and regulations; risks posed by
competition; currency risks and other risks associated with
international markets.
Such forward-looking statements are made only as of the date of
this release. Capmark expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in
Capmark's expectations with regard thereto or changes in events,
conditions, or circumstances on which any such statement is based.
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CAPMARK FINANCIAL GROUP INC.
Condensed Consolidated Statement of Operations (Unaudited)
(in millions, except per share data)
Three
Three months months
ended ended
June
30,
June 30, 2008 2007
----------------------
Net Interest Income
Interest income $ 236.8 $281.3
Interest expense 184.2 206.3
----------------------
Net interest income 52.6 75.0
Provision for loan losses 10.4 5.4
----------------------
Net interest income after provision for loan
losses 42.2 69.6
----------------------
Noninterest Income
Net (losses) gains (11.9) 1.3
Fee and investment income 127.9 242.3
----------------------
Total noninterest income 116.0 243.6
----------------------
Net Revenue 158.2 313.2
----------------------
Noninterest Expense
Compensation and benefits 76.4 88.5
Other expenses 123.5 100.6
----------------------
Total noninterest expense 199.9 189.1
----------------------
(Loss) income before minority interest and
income tax (benefit) provision (41.7) 124.1
Minority interest income 24.2 23.3
----------------------
(Loss) income before income tax (benefit)
provision (17.5) 147.4
Income tax (benefit) provision (29.0) 57.9
----------------------
Net Income $ 11.5 $ 89.5
======================
Basic net income per share:
Net income per share $ 0.03 $ 0.21
Weighted average shares outstanding 432.3 432.2
Diluted net income per share:
Net income per share $ 0.03 $ 0.21
Weighted average shares outstanding 434.5 432.2
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CAPMARK FINANCIAL GROUP INC.
Condensed Consolidated Statement of Operations (Unaudited)
(in millions, except per share data)
Six months ended Six months ended
June 30, 2008 June 30, 2007
---------------------------------
Net Interest Income
Interest income $ 513.8 $578.7
Interest expense 400.1 420.2
---------------------------------
Net interest income 113.7 158.5
Provision for loan losses 18.0 11.7
---------------------------------
Net interest income after provision
for loan losses 95.7 146.8
---------------------------------
Noninterest Income
Net (losses) gains (361.6) 180.6
Fee and investment income 284.4 507.0
---------------------------------
Total noninterest income (77.2) 687.6
---------------------------------
Net Revenue 18.5 834.4
---------------------------------
Noninterest Expense
Compensation and benefits 166.1 208.5
Other expenses 242.4 216.5
---------------------------------
Total noninterest expense 408.5 425.0
---------------------------------
(Loss) income before minority
interest and income tax (benefit)
provision (390.0) 409.4
Minority interest income 39.6 14.8
---------------------------------
(Loss) income before income tax
(benefit) provision (350.4) 424.2
Income tax (benefit) provision (149.0) 159.3
---------------------------------
Net (Loss) Income $(201.4) $264.9
=================================
Basic and diluted net (loss) income
per share:
Net (loss) income per share $ (0.47) $ 0.61
Weighted average shares
outstanding 432.6 432.5
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CAPMARK FINANCIAL GROUP INC.
Condensed Consolidated Balance Sheet (Unaudited)
(in millions, except share amounts)
June 30, 2008 December 31, 2007
-----------------------------------
Assets
Cash, cash equivalents, and
restricted cash $ 926.0 $ 1,436.8
Investment securities:
Trading 157.9 185.7
Available for sale 925.2 949.7
Loans held for sale 5,893.4 7,783.8
Loans held for investment, net of
allowance for loan losses of
$37.8 million as of June 30, 2008
and $28.8 million as of December
31, 2007 7,531.6 6,891.7
Real estate investments 1,811.9 1,748.6
Equity investments 1,866.7 1,984.1
Other assets 2,238.7 2,284.0
-----------------------------------
Total assets $21,351.4 $23,264.4
===================================
Liabilities and Stockholders'
Equity
Liabilities:
Short-term borrowings $ 3,758.7 $ 3,832.6
Long-term borrowings 8,305.5 8,307.7
Deposit liabilities 4,455.4 5,552.6
Real estate syndication proceeds
and related liabilities 1,412.7 1,563.2
Other liabilities 736.1 1,069.0
-----------------------------------
Total liabilities 18,668.4 20,325.1
-----------------------------------
Commitments and Contingent
Liabilities -- --
Minority Interest 300.3 330.2
Mezzanine Equity 95.8 102.4
Stockholders' Equity:
Preferred Stock -- --
Common Stock 0.4 0.4
-----------------------------------
Other stockholders' equity 2,286.5 2,506.3
-----------------------------------
Total stockholders' equity 2,286.9 2,506.7
-----------------------------------
Total liabilities and
stockholders' equity $21,351.4 $23,264.4
===================================
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Capmark Financial Group Inc.
Media Contact:
Joyce Patterson
215-328-3842
Joyce.Patterson@capmark.com
or
Investor Relations Contact:
Bob Sullivan
215-328-1329
Investor.relations@capmark.com
Copyright Business Wire 2008
