Capmark Financial Group Inc. Issues Quarterly Report as of and for the Period Ended September 30, 2012

HORSHAM, Pa.--()--Capmark Financial Group Inc. (the “Company”) today issued its Quarterly Report as of and for the period ended September 30, 2012. The Company had a consolidated net loss of $30.9 million in the three months ended September 30, 2012, which was driven by $43.3 million of noninterest expense and a $12.4 million net loss on the transfer of a portion of Capmark Bank’s brokered certificates of deposit (“Brokered CDs”), partially offset by $22.9 million of interest income primarily on loans. Noninterest expense included $7.6 million for long term incentive plans, $1.5 million for retention programs, $4.1 million of fees for restructuring and advisory professionals, a $7.8 million impairment on the Company’s headquarters located in Horsham, Pennsylvania and a $6.9 million increase to the liability for the amount expected to be paid under the Crystal Ball Settlement.

The Company had consolidated net income of $102.8 million in the nine months ended September 30, 2012, which was driven by $134.5 million of noninterest income primarily from net gains on loans held for sale and $93.8 million of interest income primarily from loans held for sale offset by $46.3 million of interest expense primarily on the Company’s secured notes (“Secured Notes”) and Capmark Bank’s Brokered CDs and $103.0 million of noninterest expense. Net gains on loans of $141.7 million included $124.8 million of realized gains on full or partial dispositions of loans held for sale and $12.8 million of net recapture of losses from the application of the lower of cost or fair value accounting (“LOCOM”) to loans held for sale.

Business Overview

Highlights from the three months ended September 30, 2012 included:

  • In late July and early August 2012, Capmark Bank distributed approximately $1.57 billion of assets to the Company (“Asset Distribution”). The distribution consisted of loans held for sale, real estate investments and related assets with an aggregate fair value of approximately $1.32 billion which were transferred to the North American Asset Management segment and approximately $250 million of cash.
  • The Company made a redemption of $120.4 million of the floating rate extendible B notes on August 1, 2012. On August 7, 2012, the Company deposited sufficient funds in trust with the trustee of the Secured Notes to satisfy and discharge the Secured Notes. The Secured Notes were fully repaid on September 5, 2012.
  • On August 30, 2012, Capmark Bank closed the previously announced transfer of $826.9 million (in aggregate principal amount) of Brokered CDs to another insured depository institution, which represented all of Capmark Bank’s Brokered CDs maturing in October 2013 or later (“Brokered CD Transaction”). The Company recognized a net pre-tax loss on the transfer of approximately $12.4 million which is included as a loss in noninterest income on the consolidated statement of operations in the three months ended September 30, 2012.
  • On August 31, 2012, Capmark Finance LLC closed the sale of a portfolio of 15 healthcare commercial mortgage loans held for sale with an aggregate unpaid principal balance of approximately $247 million to an unaffiliated institution.
  • On September 11, 2012, the Board of Directors of the Company declared a cash distribution of $6.00 per share to holders of the Company’s common stock. The aggregate distribution payable of $601.8 million was reflected as a liability on the consolidated balance sheet as of September 30, 2012.
  • In the three months ended September 30, 2012, the Company’s continuing operations generated $604.2 million of net proceeds from the monetization of assets (including the sales of the loan portfolio mentioned above) at prices slightly above their carrying value on a weighted average basis:

    • Prior to the Asset Distribution, Capmark Bank disposed of or collected on 10 assets for $82.4 million of proceeds which was 102% of the June 30, 2012 carrying value.
    • The North American Asset Management segment disposed of or collected on 47 assets for $451.8 million of proceeds which was 100% of the June 30, 2012 carrying value. This included $373.2 million of proceeds from the disposition and collection of assets which were part of the Asset Distribution.
    • In addition, the Capmark Bank and the North American Asset Management segments collected $35.2 million of payments on assets which the Company continues to hold.

Events subsequent to September 30, 2012 included:

  • The cash distribution to shareholders which was declared on September 11, 2012 by the Board of Directors of the Company was paid on October 12, 2012 to shareholders of record on October 5, 2012.
  • In early November 2012, Capmark Bank made a cash distribution to the Company of $109.9 million.
  • On November 14, 2012, Capmark Finance LLC closed the sale of 24 hospitality loans held for sale with an aggregate unpaid principal balance of approximately $439 million to an unaffiliated institution and expects to close the sale of an additional hospitality loan with an unpaid principal balance of approximately $45 million to the same unaffiliated institution on November 15, 2012.

Balance Sheet

The Company had consolidated assets of $4.5 billion and $8.6 billion as of September 30, 2012 and December 31, 2011, respectively. The assets were primarily comprised of a portfolio of loans, real estate and real estate-related assets and cash and cash equivalents, of which $1.6 billion and $6.2 billion were held at Capmark Bank as of September 30, 2012 and December 31, 2011, respectively. Assets associated with discontinued operations were $347.4 million and $381.9 million as of September 30, 2012 and December 31, 2011, respectively. The assets of Capmark Bank decreased compared to December 31, 2011 due primarily to asset dispositions and collections as well as the Asset Distribution and the repayment or transfer of Brokered CDs.

The Company had consolidated liabilities of $2.2 billion and $5.8 billion of liabilities as of September 30, 2012 and December 31, 2011, respectively. The liabilities included $1.2 billion and $4.3 billion at Capmark Bank, as of September 30, 2012 and December 31, 2011, respectively. Liabilities associated with discontinued operations were $135.9 million and $177.8 million as of September 30, 2012 and December 31, 2011, respectively. Capmark Bank’s liabilities were primarily comprised of $1.2 billion and $3.9 billion of Federal Deposit Insurance Corporation insured deposit liabilities as of September 30, 2012 and December 31, 2011, respectively. The deposit liabilities of Capmark Bank decreased compared to December 31, 2011 due to repayment of maturing deposits and the Brokered CD Transaction. The Non-Capmark Bank debt decreased due to the discharge and satisfaction of the Secured Notes and the determination that the Asian Operations met the criteria for inclusion in discontinued operations. The continuing operations of the Company included $202.4 million and $256.6 million of other borrowings recognized on the Company’s balance sheet as a result of accounting for certain transfers of financial assets as financings under Accounting Standards Codification 860, Transfers and Servicing as of September 30, 2012 and December 31, 2011, respectively.

Total stockholders’ equity was $2.2 billion and $2.7 billion at September 30, 2012 and December 31, 2011, respectively. The September 30, 2012 stockholders’ equity was reduced by the $601.8 million distribution to shareholders which was reflected as a liability on the September 30, 2012 balance sheet. Total equity of $2.2 billion and $2.8 billion as of September 30, 2012 and December 31, 2011, respectively, included $71.0 million and $179.0 million, respectively, of noncontrolling interests from which the Company does not expect to derive any material value.

Results of Operations

Capmark Bank

Capmark Bank had income from continuing operations before income taxes of $42.3 million in the three months ended September 30, 2012 primarily due to $54.2 million of net gains on loans and $6.7 million of net gains on investments and real estate, partially offset by a $12.4 million net loss on the Brokered CD Transaction and $8.8 million of noninterest expense. Net gains on loans and net gains on investments and real estate included a $51.3 million gain and a $7.5 million gain on the Asset Distribution, respectively, which are eliminated in the consolidated results of operations in the three months ended September 30, 2012. The assets in the Asset Distribution were transferred at fair value from Capmark Bank to the Company, however the realized gain recorded by Capmark Bank is eliminated in the Company’s consolidated results of operations as the Company continues to hold the assets at the LOCOM carrying values from prior to the Asset Distribution on the consolidated balance sheet. The $8.8 million of noninterest expense included $7.3 million of compensation and benefits costs, of which $5.5 million was for long term incentive plans and $0.3 million was for retention programs. The $3.4 million of interest expense for Capmark Bank was comprised of $17.9 million of contractual interest expense from deposit liabilities offset by $14.5 million from the accretion of the fresh start accounting premium for the deposit liabilities and FHLB borrowings.

Capmark Bank had income from continuing operations before income taxes of $169.7 million in the nine months ended September 30, 2012 primarily due to $168.2 million of net gains on loans and $65.0 million of interest income primarily from loans held for sale, partially offset by $38.7 million of noninterest expense, $13.5 million of interest expense primarily on Brokered CDs and a $12.4 million net loss on the Brokered CD Transaction. Net gains on loans included a $51.3 million gain on the Asset Distribution which is eliminated in the consolidated results of operations in the nine months ended September 30, 2012. Net gains on loans also included $92.4 million of realized gains on full or partial dispositions of other loans held for sale and $24.5 million of recapture of losses from the application of LOCOM to loans held for sale. Capmark Bank had $38.7 million of noninterest expense which included $23.2 million of compensation and benefits costs, of which $9.8 million was for long term incentive plans and $2.1 million was for retention programs. Capmark Bank’s interest expense of $13.5 million was comprised of $75.2 million of contractual interest expense from deposit liabilities and FHLB borrowings offset by $61.7 million from the accretion of the fresh start accounting premium for the deposit liabilities and FHLB borrowings.

Non-Capmark Bank

The Company’s Non-Capmark Bank operations had a loss from continuing operations before income taxes of $13.9 million in the three months ended September 30, 2012 primarily due to $35.0 million of noninterest expense partially offset by $15.4 million of interest income on loans held for sale and investment securities available for sale and $8.9 million of noninterest income. Noninterest expense of $35.0 million included $9.8 million of compensation and benefits costs and $8.2 million of professional fees, of which $4.1 million was attributable to fees of restructuring and advisory professionals. Compensation and benefits costs in the three months ended September 30, 2012 included $2.1 million for long term incentive plans and $1.2 million was for retention programs. Noninterest expense also included a $6.9 million increase to the carrying amount of the estimated liability under the Crystal Ball Settlement, and a $7.8 million impairment recognized with respect to the carrying value of the Company’s headquarters. Based upon the Company’s current projections of future distributions, an additional $6.9 million is currently expected to be paid under the Crystal Ball Settlement and this amount was recognized in noninterest expense on the consolidated statement of operations. The noninterest income of $8.9 million included $11.1 million of equity in income of joint ventures and partnerships primarily due to gains on equity investments resulting from increases in the fair value of assets held by real estate investment funds and joint ventures. The $3.3 million of interest expense included $2.4 million of contractual interest expense for the Secured Notes and $0.4 million for the accretion of the fresh start accounting discount for the Secured Notes.

The Company’s Non-Capmark Bank operations had a loss from continuing operations before income taxes of $33.8 million in the nine months ended September 30, 2012 primarily due to $65.7 million of noninterest expense and $32.8 million of interest expense, partially offset by $36.0 million of noninterest income and $28.8 million of interest income on loans held for sale and investment securities available for sale. Noninterest expenses of $65.7 million included $24.0 million of compensation and benefits costs and $20.5 million of professional fees, of which $7.1 million was attributable to fees of restructuring and advisory professionals. Compensation and benefits costs in the nine months ended September 30, 2012 included $4.5 million for long term incentive plans and $2.7 million was for retention programs. Noninterest expense also included a $6.9 million increase to the carrying amount of the estimated liability under the Crystal Ball Settlement, and a $7.8 million impairment recognized with respect to the carrying value of the Company’s headquarters. Interest expense of $32.8 million included $23.4 million of contractual interest expense for the Secured Notes and $5.7 million for the accretion of the fresh start accounting discount for the Secured Notes. Noninterest income of $36.0 million included $30.2 million of realized gains on full or partial dispositions of loans held for sale and $6.3 million of gains due to the reduction of the estimate of potential losses on loans held for sale associated with the former new markets tax credits business partially offset by $11.7 million of losses from the application of LOCOM to loans held for sale. The noninterest income also included $16.6 million of equity in income of joint ventures and partnerships primarily due to gains on equity investments resulting from increases in the fair value of assets held by real estate investment funds and joint ventures.

Liquidity

As of September 30, 2012, the Company’s continuing operations had $2.3 billion in total cash and cash equivalents (including restricted cash), of which $1.5 billion was held by Capmark Bank and $751.3 million was held by its other subsidiaries.

Utilizing cash from monetization activities, the Company redeemed $120.4 million of Secured Notes on August 1, 2012. On August 7, 2012, the Company deposited sufficient funds in trust with the indenture trustee to redeem the remaining $88.3 million of B Notes and satisfy and discharge the Secured Notes indenture. An additional $2.8 million and $2.2 million was paid to the holders of the Company’s former unsecured loans and unsecured notes pursuant to the Crystal Ball Settlement Agreement on July 16, 2012 and October 15, 2012, respectively.

The following table summarizes the cash, cash equivalents and restricted cash from continuing operations (in thousands):

 
Cash, Cash Equivalents and Restricted Cash   September 30, 2012   December 31, 2011
Capmark Bank:

Cash and cash equivalents

$ 1,544,495 $ 2,286,889
Non-Capmark Bank:
Cash and cash equivalents – Asian Operations (1) 90,778
Cash and cash equivalents – Other Non-Capmark Bank   704,021   355,749
Cash and cash equivalents – Total Non-Capmark Bank   704,021   446,527
Restricted cash   47,287   129,264
Total cash, cash equivalents and restricted cash attributable to continuing operations $ 2,295,803 $ 2,862,680
 

Note:

 
 
(1)

Management determined that the Asian Operations segment met the criteria for inclusion as discontinued operations as of June 30, 2012 and it is no longer reflected as a business segment of continuing operations.

 

In late July and early August 2012, Capmark Bank distributed approximately $1.57 billion of assets to the Company. The distribution consisted of loans held for sale, real estate investments and related assets with an aggregate fair value of approximately $1.32 billion and approximately $250 million of cash.

In August 2012, Capmark Finance LLC closed the sale of a portfolio of 15 healthcare commercial mortgage loans held for sale with an aggregate unpaid principal balance of approximately $247 million to an unaffiliated institution.

In September 2012, the Board of Directors of the Company declared a cash distribution of $6.00 per share to holders of the Company’s common stock. The distribution was paid on October 12, 2012 to shareholders of record on October 5, 2012.

The Company is considering making additional distributions to shareholders of cash in excess of working capital needs and expects that the next distribution will be made in December 2012; however the specific timing and amount of any distribution have not been determined.

In early November 2012, Capmark Bank distributed $109.9 million in cash to the Company.

The Company expects to generate sufficient liquidity to meet its needs for cash in its Non-Capmark Bank operations over the next 12 months, including paying its operating expenses. The Company also expects that Capmark Bank has sufficient liquidity to meet its needs for cash for the next 12 months, including paying its operating expenses and interest and principal due on maturing deposit liabilities and other liabilities.

The Company’s primary sources of liquidity are expected to be (1) principal and interest payments on loans, (2) proceeds from the sale of loans, including discounted payoffs received in connection with loan workout efforts, and (3) proceeds from the sale of real estate, equity investments and other assets in its portfolio. Capmark Bank has cash and cash equivalents in excess of all of its remaining deposit liabilities and other liabilities as well as its expected operating expenses over the next 12 months.

Supplemental Financial Information

The Company’s Quarterly Report as of and for the Period Ended September 30, 2012 and supplemental financial information as required by the Company’s Amended and Restated By-Laws may be found on the Company’s website (www.capmark.com) under the heading “Financial Reporting.”

Conference Call

The Company will hold a conference call for investors to be broadcast live over the Internet on November 19, 2012 at 4:00 p.m. Eastern Time regarding the topics addressed in this news release and the Quarterly Report as of and for the Period Ended September 30, 2012 and related supplemental financial information. To listen to the conference call, please go to the Company’s website (www.capmark.com) under the heading “Investor Relations” 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 website for a period of time. Investors who have questions for the Company’s management can participate in the conference call by dialing the following toll free number: (866) 618-6997.

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. Such forward-looking statements are made only as of the date of this release. The Company 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 the Company’s expectations with regard thereto or changes in events, conditions, or circumstances on which any such statement is based.

About Capmark®:

Capmark is a real estate finance company focused on the management of its commercial real estate-related assets and businesses with a view to maximizing their value. Capmark is headquartered in Horsham, Pennsylvania and operates principally in North America.

For more information, visit www.capmark.com

   
CAPMARK FINANCIAL GROUP INC.
Consolidated Balance Sheet (unaudited)
(in thousands, except share amounts)
 
September 30, 2012 December 31, 2011
Assets
Cash and cash equivalents (1) $ 2,248,516 $ 2,733,416
Restricted cash (1) 47,287 129,264
Accounts and other receivables (1) 89,215 106,888
Investment securities available for sale 16,144 595,647
Loans held for sale (1) 1,178,331 3,550,269
Real estate investments (1) 239,498 672,660
Equity investments 282,384 322,600
Other assets (1) 21,478 106,112
Assets of discontinued operations (1)   347,413     381,946  
Total assets $ 4,470,266   $ 8,598,802  
Liabilities and Equity
Liabilities:
Debt $ $ 807,869
Other borrowings (1) 204,731 652,598
Deposit liabilities 1,162,557 3,860,332
Distribution payable 601,777
Other liabilities (1) 134,316 261,813
Liabilities of discontinued operations (1)   135,889     177,796  
Total liabilities   2,239,270     5,760,408  
Commitments and Contingent Liabilities
Equity:
Common stock, $.001 par value; authorized — 110,000,000 shares; shares issued and outstanding — 100,296,242 at September 30, 2012 and 100,052,475 at December 31, 2011

 

100

100
Capital paid in excess of par value 2,093,550 2,692,602
Retained earnings (accumulated deficit) 71,184 (31,651 )
Accumulated other comprehensive (loss) income, net of tax   (4,879 )   (1,617 )
Total Capmark Financial Group Inc. stockholders’ equity 2,159,955 2,659,434
Noncontrolling interests   71,041     178,960  
Total equity   2,230,996     2,838,394  
Total liabilities and equity $ 4,470,266   $ 8,598,802  
 
 
(1) The following table presents assets of consolidated variable interest entities (“VIEs”) included in each balance sheet line item that can be used only to settle the obligations of the consolidated VIE and liabilities of the consolidated VIE included in each balance sheet line item for which creditors or other interest holders do not have recourse to the general credit of Capmark Financial Group Inc. and its subsidiaries.
 
         
September 30, 2012 December 31, 2011 September 30, 2012 December 31, 2011
Assets Liabilities
Cash and cash equivalents $ $ 2,949 Other borrowings $ 2,300 $ 6,079
Restricted cash 29,184 72,626 Other liabilities 3,133 12,315
Accounts and other receivables 1,078 4,757 Liabilities of discontinued operations   17,093   73,482
Loans held for sale 214,651 266,779 Total liabilities $ 22,526 $ 91,876
Real estate investments 44,908 115,850
Other assets 1,479 3,362
Assets of discontinued operations   78,306   240,062
Total assets $ 369,606 $ 706,385
 
 
CAPMARK FINANCIAL GROUP INC.
Consolidated Statement of Comprehensive Income (Loss) (unaudited)
(in thousands, except per share data)
   
Three months ended
September 30, 2012
Nine months ended
September 30, 2012
Net Interest Income
Interest income $ 22,921 $ 93,777
Interest expense 6,656 46,325
Net interest income 16,265 47,452
Noninterest Income
Net gains on loans 3,827 141,687
Net losses on investments and real estate (3,703) (8,267)
Other losses, net (8,625) (11,410)
Equity in income of joint ventures and partnerships 10,335 10,776
Fee revenue 359 3,291
Net real estate investment and other income (4,084) (1,551)
Total noninterest income (1,891) 134,526
Net revenue 14,374 181,978
Noninterest Expense
Compensation and benefits 17,168 47,145
Professional fees 8,370 22,916
Occupancy and equipment 5,492 7,885
Other expenses 12,312 25,019
Total noninterest expense 43,342 102,965
(Loss) income from continuing operations before income tax benefit (28,968) 79,013
Income tax benefit (819) (2,008)
(Loss) income from continuing operations after income tax benefit (28,149) 81,021

Loss from discontinued operations, net of tax (includes gain on sale of $8.4 million for the three months and $34.6 million for the nine months)

(13,776) (27,428)
Net (loss) income (41,925) 53,593
Plus: Net loss attributable to noncontrolling interests 10,999 49,242
Net (loss) income attributable to Capmark Financial Group Inc. $ (30,926) $ 102,835
Other comprehensive income (loss) (1,440) (3,262)
Comprehensive income (loss) attributable to Capmark Financial Group Inc. $ (32,366) $ 99,573
 
Basic and diluted (loss) income from continuing operations per share $ (0.17) $ 1.31
Basic and diluted (loss) income per share attributable to Capmark Financial Group Inc. $ (0.31) $ 1.03
 
 
CAPMARK FINANCIAL GROUP INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
(in thousands)
 
Nine months ended
September 30, 2012
Common Stock
Balance at beginning of period $ 100  
Balance at end of period   100  
Capital Paid in Excess of Par Value
Balance at beginning of period 2,692,602
Distribution payable (601,777 )
Stock-based compensation expense   2,725  
Balance at end of period   2,093,550  
Retained Earnings (Accumulated Deficit)
Balance at beginning of period (31,651 )
Net income attributable to Capmark Financial Group Inc.   102,835  
Balance at end of period   71,184  
Accumulated Other Comprehensive (Loss) Income, net of tax
Balance at beginning of period (1,617 )
Other comprehensive (loss) income   (3,262 )
Balance at end of period   (4,879 )
Total Capmark Financial Group Inc. Stockholders’ Equity   2,159,955  
Noncontrolling Interests
Balance at beginning of period 178,960
Net loss attributable to noncontrolling interests (49,242 )
Other comprehensive (loss) income attributable to noncontrolling interests
Other (includes impact of sale of discontinued operations assets)   (58,677 )
Balance at end of period   71,041  
Total Equity $ 2,230,996  
 
 

CAPMARK FINANCIAL GROUP INC.

Consolidated Statement of Cash Flows (unaudited)
(in thousands)
 
  Nine months ended
September 30, 2012
Net Cash Provided By Operating Activities of Continuing Operations $ 2,451,113  
Investing Activities of Continuing Operations
Net decrease in restricted cash 81,977
Proceeds from sales of investment securities classified as available for sale 7,183
Repayments of investment securities classified as available for sale 570,336
Proceeds from sales of real estate investments 208,148
Proceeds from sales of/capital distributions from equity investments 52,298
Other investing activities, net   (2,159 )
Net cash provided by investing activities of continuing operations   917,783  
Financing Activities of Continuing Operations
Repayments of debt (738,958 )
Repayments of other borrowings (392,744 )
Transfer of deposit liabilities (874,026 )
Repayment of deposit liabilities (1,774,907 )
Noncontrolling interests proceeds   47,719  
Net cash used in financing activities of continuing operations   (3,732,916 )
Effect of Foreign Exchange Rates on Cash   (304 )
Discontinued Operations
Net cash used in operating activities of discontinued operations (5,724 )
Net decrease in restricted cash of discontinued operations (27,425 )
Net cash provided by other investing activities of discontinued operations 51,539
Net cash used in financing activities of discontinued operations   (43,252 )
Net cash used in discontinued operations (24,862 )
Net increase in Cash and Cash Equivalents (389,186 )
Cash and Cash Equivalents, Beginning of Period(1)   2,737,811  
Cash and Cash Equivalents, End of Period(2) $ 2,348,625  
 
Supplemental Disclosures of Cash Flow Information:
Income taxes refunded, net $ 11,020
Interest paid 134,725
 
 

Notes:

 
(1) Cash and cash equivalents exclude restricted cash of $232.7 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $4.4 million, respectively as of December 31, 2011.
 
(2) Cash and cash equivalents exclude restricted cash of $124.1 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $100.1 million, respectively as of September 30, 2012.
 

Contacts

Capmark Financial Group Inc.
Thomas L. Fairfield, 215-328-1555

Recent Stories

RSS feed for Capmark Financial Group Inc.