Capmark Financial Group Inc. (the “Company”) today issued its
Quarterly Report as of and for the period ended June 30, 2012. The
Company had consolidated net income of $133.8 million in the six
months ended June 30, 2012, which was driven by $136.4 million of
noninterest income primarily from net gains on loans held for sale
and $70.9 million of interest income primarily from loans held for
sale and offset by $39.7 million of interest expense primarily on
the Company’s secured notes (the “Secured Notes”) and Capmark
Bank’s brokered certificates of deposit (“Brokered CDs”) and $59.6
million of noninterest expense. Net gains on loans of $137.9
million included $117.1 million of realized gains on full or
partial dispositions of loans held for sale and $18.7 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 year-to-date include:
- In late July and early August, Capmark
Bank distributed approximately $1.57 billion of assets to Capmark
Financial Group Inc. 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. This reduced Capmark Bank’s shareholders’ equity
from approximately $2.0 billion to approximately $400 million.
- The Company redeemed an additional
$141.2 million, $125.0 million and $120.4 million of its floating
rate first lien extendible B notes (“B Notes”) on May 1, 2012, June
29, 2012 and August 1, 2012, respectively. The Company will be
making an optional redemption of the remaining outstanding balance
of the B Notes of approximately $88.3 million on September 5, 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.
- On April 25, 2012, Capmark Bank entered
into a definitive agreement pursuant to which another Federal
Deposit Insurance Corporation (“FDIC”)-insured bank will assume
approximately $834.0 million (in aggregate principal amount) of
Capmark Bank’s Brokered CDs, which represent all of Capmark Bank’s
Brokered CDs maturing in October 2013 or later. The transfer and
assumption is subject to regulatory approvals and other customary
closing conditions. The Company expects the transaction to close in
the third quarter of 2012. The Company also expects that Capmark
Bank will have approximately $1.1 billion (in aggregate principal
amount) of Brokered CDs as of September 30, 2012, following the
closing of the transaction and taking into account the expected
Brokered CD maturities in the third quarter of 2012.
- In June 2012, two subsidiaries of the
Company completed the sale of two portfolios of loans held for sale
to an unaffiliated financial institution. The aggregate unpaid
principal balance of these portfolios was approximately $911
million for 54 loans held for sale. Approximately 97% of the
aggregate portfolio was owned by Capmark Bank. The Company
recognized a pre-tax gain on sale of approximately $53.1 million in
the three and six months ended June 30, 2012, which is included in
the net gains on loans amount discussed above.
- In the three months ended June 30,
2012, the Company’s continuing operations generated $1.6 billion of
net proceeds from the monetization of assets (including the sales
of the loan portfolios mentioned above) at prices slightly above
their carrying value on a weighted average basis:
- Capmark Bank disposed of or collected
on 92 assets for $1.4 billion of proceeds which was 108% of the
March 31, 2012 carrying value.
- The North American Asset Management
segment disposed of or collected on 20 assets for $125.5 million of
proceeds which was 110% of the March 31, 2012 carrying value.
- In addition, Capmark Bank collected
$37.5 million and the North American Asset Management segment
collected $4.4 million of payments on assets which they continue to
hold.
- In the six months ended June 30, 2012,
the Company’s continuing operations generated $2.1 billion of net
proceeds from the monetization of assets at prices slightly above
their carrying value on a weighted average basis:
- Capmark Bank disposed of or collected
on 121 assets for $1.8 billion of proceeds which was 106% of the
carrying value of the assets in the quarter prior to disposal.
- The North American Asset Management
segment disposed of or collected on 29 assets for $184.0 million of
proceeds which was 109% of the carrying value of the assets in the
quarter prior to disposal.
- In addition, Capmark Bank collected
$80.2 million and the North American Asset Management segment
collected $8.8 million of payments on assets which they continue to
hold.
- Capmark Bank repaid $816.9 million and
$1.5 billion of matured deposit liabilities in the three and
six months ended June 30, 2012, respectively.
- Capmark Bank fully repaid all
borrowings with the Federal Home Loan Bank of Seattle (“FHLB”) in
the first six months of 2012.
The Company is considering making distributions to shareholders
of cash in excess of working capital needs. The timing, amount and
form of any distribution have not been determined.1
Balance Sheet
The Company had consolidated assets of $5.9 billion and $8.6
billion as of June 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 $4.3 billion and $6.2 billion were held at
Capmark Bank as of June 30, 2012 and December 31, 2011,
respectively. Assets associated with discontinued operations were
$422.3 million and $381.9 million as of June 30, 20122 and December
31, 2011, respectively. Assets of the continuing operations also
included $64.8 million and $129.3 million of restricted cash, as of
June 30, 2012 and December 31, 2011, respectively.
The Company had consolidated liabilities of $3.1 billion and
$5.8 billion as of June 30, 2012 and December 31, 2011,
respectively. The liabilities included $2.4 billion and $4.3
billion at Capmark Bank as of June 30, 2012 and December 31, 2011,
respectively. Liabilities associated with discontinued operations
were $158.4 million and $177.8 million as of June 30, 2012 and
December 31, 2011, respectively. Capmark Bank’s liabilities were
primarily comprised of $2.3 billion and $3.9 billion of
FDIC-insured deposit liabilities as of June 30, 2012 and December
31, 2011, respectively. The continuing operations of the Company
included $208.4 million and $733.2 million of debt obligations
under the Secured Notes as of June 30, 2012 and December 31, 2011,
respectively.
Total stockholders’ equity was $2.8 billion and $2.7 billion at
June 30, 2012 and December 31, 2011, respectively. Total equity of
$2.9 billion and $2.8 billion included $79.7 million and $179.0
million of noncontrolling interests from which the Company does not
expect to derive any material value as of June 30, 2012 and
December 31, 2011, respectively.
Results of Operations
Capmark Bank
Capmark Bank had income from continuing operations before income
taxes of $102.2 million in the three months ended June 30, 2012
primarily due to $101.7 million of net gains on loans and $26.5
million of interest income primarily from loans held for sale,
partially offset by $15.1 million of noninterest expense. Net gains
on loans of $101.7 million included $80.6 million of realized gains
on full or partial dispositions of loans held for sale and $21.1
million of recapture of losses from the application of LOCOM to
loans held for sale. The $15.1 million of noninterest expense
included $8.3 million of compensation and benefits costs. Capmark
Bank had $4.7 million of interest expense comprised of $25.5
million of contractual interest expense from deposit liabilities
and FHLB borrowings offset by $20.8 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 $127.4 million in the six months ended June 30, 2012
primarily due to $114.0 million of net gains on loans and $57.5
million of interest income primarily from loans held for sale,
partially offset by $29.8 million of noninterest expense. Net gains
on loans of $114.0 million included $90.2 million of realized gains
on full or partial dispositions of loans held for sale and $23.8
million of recapture of losses from the application of LOCOM to
loans held for sale. Capmark Bank had $29.8 million of noninterest
expense which included $15.8 million of compensation and benefits
costs. Capmark Bank’s $10.1 million of interest expense was
comprised of $57.3 million of contractual interest expense from
deposit liabilities and FHLB borrowings offset by $47.2 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 $1.2 million in the
three months ended June 30, 2012 primarily due to $15.0 million of
interest expense and $14.9 million of noninterest expense,
substantially offset by $22.7 million of noninterest income and
$6.0 million of interest income on loans held for sale and
investment securities available for sale. Interest expense of $15.0
million included $8.6 million of contractual interest expense for
the Secured Notes and $4.5 million for the accretion of the fresh
start accounting discount for the Secured Notes. Noninterest
expense of $14.9 million included $6.9 million of compensation and
benefits costs and $6.8 million of professional fees, of which $1.8
million was attributable to fees of restructuring professionals.
Noninterest income for the Non-Capmark Bank operations of $22.7
million included $16.2 million of realized gains on full or partial
dispositions of loans held for sale and $5.2 million of gains
associated with foreign currency remeasurement adjustments
principally associated with the former Asian Operations
segment.
The Company’s Non-Capmark Bank operations had a loss from
continuing operations before income taxes of $19.4 million in the
six months ended June 30, 2012 primarily due to $29.8 million of
noninterest expense and $29.5 million of interest expense,
partially offset by $26.6 million of noninterest income and $13.3
million of interest income on loans held for sale and investment
securities available for sale. Noninterest expenses of $29.8
million included $14.1 million of compensation and benefits costs
and $11.4 million of professional fees, of which $3.0 million was
attributable to fees of restructuring professionals. Interest
expense of $29.5 million included $21.0 million of contractual
interest expense for the Secured Notes and $5.3 million for the
accretion of the fresh start accounting discount for the Secured
Notes. Noninterest income of $26.6 million included $21.6 million
of realized gains on full or partial dispositions of loans held for
sale and $5.3 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 $5.1
million of losses from the application of LOCOM to loans held for
sale.
Liquidity
As of June 30, 2012, the Company’s continuing operations had
$3.0 billion in total cash and cash equivalents (including
restricted cash), of which $2.8 billion was held by Capmark Bank
and $206.1 million was held by its other subsidiaries. Of the
$206.1 million in cash and cash equivalents held by the Non-Capmark
Bank subsidiaries, $64.8 million was restricted under contractual
arrangements.
Utilizing cash from monetization activities, the Company
redeemed an additional $141.2 million, $125.0 million and $120.4
million of Secured Notes on May 1, 2012, June 29, 2012 and August
1, 2012, respectively. 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 $7.1 million and $2.8
million was paid to the holders of the Company’s former unsecured
loans and unsecured notes pursuant to the Crystal Ball Settlement
Agreement on April 16, 2012 and July 16, 2012, respectively.
The following table summarizes the cash, cash equivalents and
restricted cash from continuing operations (in thousands):
Cash, Cash Equivalents and Restricted Cash
June 30, 2012 December 31, 2011 Capmark Bank: Cash
and cash equivalents $ 2,838,382 $ 2,286,889 Non-Capmark Bank: Cash
and cash equivalents – Asian Operations (1) — 90,778 Cash and cash
equivalents – Other Non-Capmark Bank 141,346 355,749
Cash and cash equivalents – Total Non-Capmark Bank 141,346
446,527 Restricted cash 64,790 129,264 Total
cash, cash equivalents and restricted cash attributable to
continuing operations $ 3,044,518 $ 2,862,680
Note:
(1) Management determined that the Asian Operations segment
met the criteria for inclusion as discontinued operations in the
three months ended June 30, 2012 and it is no longer reflected as a
business segment of continuing operations.
The following table summarizes the components of restricted cash
from continuing operations (in thousands):
Restricted Cash June 30, 2012
December 31, 2011 Cash from consolidated VIEs $ 46,014 $
72,626 Secured Notes interest reserve — 25,000 Bankruptcy disputed
administrative, priority and convenience class claims escrow 9,435
18,499 Other 9,341 13,139 Restricted cash from
continuing operations $ 64,790 $ 129,264
On April 11, 2012, the Company received $9.0 million of cash
from the reserves for disputed administrative and priority claims.
This amount represents certain disputed administrative and priority
claims that were resolved in favor of the Company from the
effective date of the plan of reorganization through March 31,
2012.
In June 2012, two subsidiaries of the Company completed the sale
of two portfolios of loans held for sale to an unaffiliated
financial institution. The aggregate unpaid principal balance of
these two portfolios was approximately $911 million for 54 loans
held for sale. The majority of the aggregate portfolio was owned by
Capmark Bank.
In late July and early August, 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.
The FDIC and the Utah Department of Financial Institutions (the
“UDFI”) expressed no objection to the distribution. Subsequent to
the distribution, Capmark Bank’s assets consist primarily of $2.6
billion of cash, while deposits are approximately $2.2 billion and
shareholders’ equity is approximately $400 million.
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 and fully
satisfying all obligations under the Secured Notes. 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. Capmark Bank is prohibited under the cease and
desist orders with the FDIC and the UDFI from declaring or paying
dividends or making any other form of payment representing a
reduction in capital to the Company without their prior written
consent.
Supplemental Financial Information
The Company’s Quarterly Report as of and for the Period Ended
June 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 “Indenture
Reporting.”
Conference Call
The Company will hold a conference call for investors to be
broadcast live over the Internet on August 16, 2012 at 1:00 p.m.
Eastern Time regarding the topics addressed in this news release
and the Quarterly Report as of and for the Period Ended June 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 in to one of the following numbers:
- Toll Free: 877-407-8035
- International: 201-689-8035
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
1
For U.S. federal income tax purposes, any distribution by the
Company to its shareholders will be characterized as a dividend to
the extent of the Company’s current or cumulative earnings and
profits. The Company currently estimates that earnings and profits
available for distribution in 2012 will not be significant.
Distributions made in excess of earnings and profits are next
treated as a return of capital to the extent of the shareholder’s
basis. The actual amount of the Company’s 2012 earnings and profits
cannot be determined until the 2012 year is complete, and actual
amounts may be significantly different than estimates. If the
Company makes a distribution to shareholders in 2012, the Company
intends to communicate information regarding the characterization
of the distribution in early 2013. The Company does not provide
advice on tax matters to its shareholders or to broker/nominees who
hold the Company’s shares on behalf of their customers. The
information above is provided for information purposes only, is
subject to change as more definitive information is obtained by the
Company, and does not constitute tax advice. Holders of the
Company’s common shares and broker/nominees who hold shares on
behalf of such holders are strongly urged to consult with their own
tax advisors with regard to the U.S. federal income tax
consequences of any distribution that may be paid by the Company.
This information is not intended to, and cannot, be used by any
taxpayer to avoid penalties that may be imposed under U.S. federal
income tax law. 2 Management determined that the Asian
Operations segment met the criteria for inclusion as discontinued
operations in the three months ended June 30, 2012 and it is no
longer reflected as a business segment of continuing operations.
CAPMARK FINANCIAL GROUP INC.
Consolidated Balance Sheet (unaudited) (in thousands,
except share amounts) June 30, 2012 December
31, 2011 Assets Cash and cash equivalents (1) $
2,979,728 $ 2,733,416 Restricted cash (1) 64,790 129,264 Accounts
and other receivables (1) 134,101 106,888 Investment securities
available for sale 20,073 595,647 Loans held for sale (1) 1,660,603
3,550,269 Real estate investments (1) 300,406 672,660 Equity
investments 313,043 322,600 Other assets (1) 29,178 106,112 Assets
of discontinued operations (1) 422,301 381,946
Total assets $ 5,924,223 $ 8,598,802
Liabilities and Equity Liabilities: Debt $ 208,392 $
807,869 Other borrowings (1) 198,385 652,598 Deposit liabilities
2,335,785 3,860,332 Other liabilities (1) 151,290 261,813
Liabilities of discontinued operations (1) 158,447
177,796 Total liabilities 3,052,299
5,760,408
Commitments and Contingent
Liabilities Equity: Common stock, $.001 par value;
110,000,000 shares authorized; 100,052,475 shares issued and
outstanding as of June 30, 2012 and December 31, 2011
100
100 Capital paid in excess of par value 2,693,502 2,692,602
Retained earnings (accumulated deficit) 102,110 (31,651 )
Accumulated other comprehensive (loss) income, net of tax
(3,439 ) (1,617 ) Total Capmark Financial Group Inc.
stockholders’ equity 2,792,273 2,659,434 Noncontrolling interests
79,651 178,960 Total equity
2,871,924 2,838,394 Total liabilities and
equity $ 5,924,223 $ 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.
June 30, 2012 December 31, 2011 June 30, 2012
December 31, 2011 Assets Liabilities Cash and
cash equivalents $ — $ 2,949 Other borrowings $ 6,505 $ 6,079
Restricted cash 46,014 72,626 Other liabilities 4,174 12,315
Accounts and other receivables
550 4,757 Liabilities of discontinued operations 23,578
73,482 Loans held for sale 228,560 266,779 Total liabilities
$ 34,257 $ 91,876 Real estate investments 55,428 115,850 Other
assets 1,171 3,362 Assets of discontinued operations 108,888
240,062 Total assets $ 440,611 $ 706,385
CAPMARK FINANCIAL GROUP INC. Consolidated
Statement of Comprehensive Income (unaudited) (in thousands,
except per share data) Three months Six
months ended ended June 30, 2012 June
30, 2012 Net Interest Income Interest income $ 32,583 $
70,856 Interest expense 19,669 39,669
Net interest income 12,914 31,187
Noninterest Income Net gains on loans 116,579 137,860 Net
gains on investments and real estate (1,765 ) (4,564 ) Other
losses, net 5,033 (2,785 ) Equity in income of joint ventures and
partnerships (3,190 ) 441 Fee revenue 1,055 2,932 Net real estate
investment and other income 489 2,533
Total noninterest income 118,201 136,417
Net revenue 131,115 167,604
Noninterest Expense Compensation and benefits 15,199 29,977
Professional fees 8,698 14,546 Occupancy and equipment 980 2,393
Other expenses 5,186 12,707 Total
noninterest expense 30,063 59,623
Income from continuing operations before income tax benefit 101,052
107,981 Income tax benefit (845 ) (1,189 ) Income
from continuing operations after income tax benefit 101,897 109,170
Income (loss) from discontinued operations, net of tax (includes
gain on sale of $13.3 million for the three months and $25.8
million for the six months) (2,433 ) (13,652 ) Net
loss 99,464 95,518 Plus: Net loss attributable to noncontrolling
interests 11,296 38,243
Net income
attributable to Capmark Financial Group Inc. $ 110,760 $
133,761 Other comprehensive income (loss) 1,510
(1,822 )
Comprehensive income attributable to
Capmark Financial Group Inc. $ 112,270 $ 131,939
Basic income from continuing operations per share $ 1.14 $
1.48 Diluted income from continuing operations per share 1.13 1.48
Basic and diluted net income per share attributable to Capmark
Financial Group Inc. 1.11 1.34
CAPMARK FINANCIAL
GROUP INC. Consolidated Statement of Changes in
Stockholders’ Equity (unaudited) (in thousands)
Six months ended June 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 Stock-based compensation
expense 900 Balance at end of period 2,693,502
Retained Earnings (Accumulated Deficit) Balance at beginning
of period (31,651) Net income attributable to Capmark Financial
Group Inc. 133,761 Balance at end of period 102,110
Accumulated Other Comprehensive (Loss) Income, net of tax
Balance at beginning of period (1,617) Other comprehensive (loss)
income (1,822) Balance at end of period (3,439)
Total Capmark Financial Group Inc. Stockholders’
Equity 2,792,273
Noncontrolling Interests
Balance at beginning of period 178,960 Net loss attributable to
noncontrolling interests (38,243) Other comprehensive (loss) income
attributable to noncontrolling interests — Other (includes impact
of sale of discontinued operations assets) (61,066) Balance
at end of period 79,651
Total Equity $ 2,871,924
CAPMARK FINANCIAL GROUP INC. Consolidated
Statement of Cash Flows (unaudited) (in thousands)
Six months ended June 30, 2012 Net
Cash Provided By Operating Activities of Continuing Operations
$ 1,981,255
Investing Activities of Continuing Operations
Net decrease in restricted cash 64,474 Proceeds from sales of
investment securities classified as available for sale 4,058
Repayments of investment securities classified as available for
sale 569,629 Proceeds from sales of real estate investments 152,033
Proceeds from sales of/capital distributions from equity
investments 11,841 Other investing activities, net (677) Net
cash provided by investing activities of continuing operations
801,358
Financing Activities of Continuing Operations
Repayments of debt (530,169) Repayments of other borrowings
(405,969) Decrease in deposit liabilities (1,477,872) Net
cash used in financing activities of continuing operations
(2,414,010)
Effect of Foreign Exchange Rates on Cash
(579)
Discontinued Operations Net cash used in operating
activities of discontinued operations (11,080) Net decrease in
restricted cash of discontinued operations (26,869) Net cash
provided by other investing activities of discontinued operations
31,430 Net cash used in financing activities of discontinued
operations (25,833)
Net increase in Cash and Cash
Equivalents 335,672
Cash and Cash Equivalents, Beginning of
Period(1) 2,737,811
Cash and Cash Equivalents, End of
Period(2) $ 3,073,483
Supplemental Disclosures of
Cash Flow Information: Income taxes refunded, net $ 9,247
Interest paid 95,535
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 $142.1 million from
continuing and discontinued operations and include non-restricted
cash of discontinued operations of $93.8 million, respectively as
of June 30, 2012.
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