Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Donald Cole - Chief Financial Officer

Douglas Lowrey - Chief Executive Officer of CapitalSource Bank, President of CapitalSource Bank and Director of CapitalSource Bank

James Pieczynski - Co-Chief Executive Officer and Director

Steven Museles - Co-Chief Executive Officer and Director

John Delaney - Co-Founder, Executive Chairman and Member of Asset, Liability & Credit Policy Committee

Dennis Oakes - Senior Vice President of Investor Relations

Analysts

Douglas Harter - Crédit Suisse AG

Michael Taiano - Sandler O’Neill & Partners

Robert Napoli - Piper Jaffray Companies

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

Bruce Harting - Barclays Capital

Donald Fandetti - Citigroup Inc

John Stilmar - SunTrust Robinson Humphrey, Inc.

Henry Coffey - Sterne Agee & Leach Inc.

Steven Alexopoulos - JP Morgan Chase & Co

John Hecht - JMP Securities LLC

CapitalSource (CSE) Q4 2010 Earnings Call February 24, 2011 8:30 AM ET

Operator

Good morning, and welcome to the CapitalSource, Inc. Fourth quarter and Full Year 2010 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Dennis Oakes. Please go ahead, sir.

Dennis Oakes

Good morning, and thank you for joining the CapitalSource earnings call for the fourth quarter and the full year of 2010.

Joining me this morning are John Delaney, Executive Chairman; Co-Chief Executive Officers, Jim Pieczynski and Steve Museles; CapitalSource Bank CEO Tad Lowrey; and Chief Financial Officer, Don Cole.

This call is being webcast live on our website, and a recording will be available later this morning. Our earnings press release and website provide details on accessing that archived call. We have posted a presentation on our website this morning that provides additional detail on certain topics, which will be referred to during our prepared remarks.

Investors are urged to carefully read the forward-looking statements language in our earnings release, but essentially, it says 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. More detailed information about risk factors can be found in our reports with the SEC.

John will begin the prepared portion of the call, after which we will take your questions. John?

John Delaney

Thank you, Dennis. 2010 was a pivotal year in the company's transformation to a business model, which pairs an independent regional bank and a national lending platform. First evidence of this progress is the fact that 65% of total company assets were in CapitalSource Bank at December 31, 2010, compared to 46% one year earlier. The Bank Loan portfolio grew 25% during the year, while most of its peers struggle to add assets. We also acquired three new lending platforms, improved net interest margin and significantly lowered cost of funds at the bank. We achieved every important aspect of our 2010 plan, including the elimination of over $2.5 billion or 55% of Parent Company debt, reducing it from $4.5 billion at 12/31/2009 to $2 billion at the end of this past year. And we finished the year with $467 million of unrestricted cash at the Parent. Amending the Senior Secured Notes in December provided meaningful financial flexibility expanding our capacity to effectively utilize this cash, including for the redemption of the convertible debentures in July of 2011, which currently have an outstanding balance of $281 million. Our credit improved throughout the year. The quarterly loan loss provisions average less than $30 million for the final three quarters of 2010. In addition, our nonaccrual loan declined from $1.1 billion at the end of 2009 to $700 million at the end of 2010, a 35% drop. I also want to point out that January marked the one year anniversary of our new management structure, which includes Steve and Jim as co-CEOs, Tad as CEO of CapitalSource Bank and my role as Executive Chairman. This arrangement has worked extremely well. Jim is based on the West Coast, where he focuses on loan origination and coordination with the bank's executive management team. Steve, who is based here in Chevy Chase, has focused its attention on our regulatory relationships and shrinking the Parent Company's portfolio. They also are working together to reduce operating expenses and obviously work closely with Tad who has skillfully guided the bank through a highly successful year from a financial and regulatory perspective. Their collective focus on day-to-day operations allowed me to concentrate my efforts this past year on certain important strategic and financial initiatives, which is where my experience and personal context had the greatest impact and which we successfully completed. I want to touch briefly on the company's primary goals and objectives for the year ahead before turning the call over to Jim. Our first priority is to convert CapitalSource Bank to a commercial charter, and Steve will provide an update on our progress as it relates to that. Continuing to turn excess equity at the Parent into cash through normal loan payoffs and asset sales is a second priority. Doing so will permit us to reinvest excess cash in the bank or return it to shareholders. Our third objective is sustained net loan growth at CapitalSource Bank, of course. Achieving these priorities will substantially complete the transformation I spoke about earlier. Finally, our overriding goal is to grow our consolidated profitability, which is dependent upon loan growth, stable credit and reducing operating expenses. CapitalSource is well positioned to achieve these goals. It has a deep bench of talent, a super strong balance sheet and a valuable deposit in asset platform. The wind is now in the company's sails. In a fashion, we have not had the luxury of enjoying for several years, and I'm extremely proud of the work we have done through this important transition and want to personally thank everyone for their hard work and support across these last several years. Jim is up next and will focus his remarks on what an outstanding performance our loan origination teams had this year. Jim?

James Pieczynski

Thank you, John, and good morning, everyone. Our loan origination accelerated as 2010 closed. We funded a total of $536 million in new loans in the fourth quarter, which was a 32% increase over the prior quarter. New funded loans for the year topped $1.6 billion, and we's are expecting 10% to 15% growth in new originations during 2011, which we expect will take our yearly total to the $1.8 billion level. Quarterly production is likely to be uneven, but we expect it to be in the range of $400 million to $500 million per quarter. Based on the loans that have already closed in January and February combined with others that are in our pipeline, we are confident that the first quarter will meet our expectations. New loans in the fourth quarter were spread among most of our loan products with the largest concentration being in equipment finance from our corporate asset finance group. Technology cash flow, healthcare cash flow, multi-family and general commercial real estate were also substantial contributors. Throughout the year, it's important to point out that a different one of our 12 business groups had the highest loan production each quarter, which demonstrates the strength of our diverse national origination platform. Our Healthcare Asset-based Lending business led the first quarter, while our commercial real estate and healthcare real estate groups led the second and third quarters, respectively. As I just mentioned, our corporate asset finance team led the charge in the fourth quarter. Our productivity level in 2010 was a clear demonstration of the strong national lending franchise, which CapitalSource has built over the last decade. Total production was significantly strengthened more over by the addition of three new business segments during the year. The corporate asset finance, small business and professional practice lending groups together accounted for nearly 21% of our new funded loans. Our Multi-family business, which completed its first full year of operation, contributed an additional 14%. Our perennial strength in healthcare lending, including asset base, cash flow and healthcare real estate, were also evidence, contributing another 28% of the total. Result of this is that the bank experienced net loan growth of $143 million in the fourth quarter despite having $232 million of loan payoffs and an additional $89 million of principal payments. That growth was evenly balanced with 32% being asset-based loans, 37% being cash flow and 31% being real estate, which includes multi-family small business and healthcare real estate. We expect average contractual yields to tighten a bit during the course of 2011 due to a combination of increasing middle-market competition and the ongoing shift of our total portfolio to a higher overall percentage of relatively lower-yielding and small business, multi-family and equipment finance loans. Though in many cases those areas tend to produce lower all-in contractual yields, the capital requirements are lower for the multi-family loan and the guaranteed portion of the SDA loans. Because we have a depository platform with a relatively low cost of funds, we will still be able to maintain a very attractive net interest margin despite any decline in overall yields. Our entire originations, underwriting and closing teams did a spectacular job in 2010, and we anticipate an excellent 2011, as well. As we look forward to the year ahead, one of our key strategic goals for the company is to achieve meaningful net loan growth at CapitalSource Bank, while redeploying and reducing excess liquidity, while still maintaining our absolute underwriting discipline. We have the personnel in place to continue to grow our annual production, with an origination engine as strong as we have ever had. As the economy continues to improve, we expect our quarterly asset generation will continue to grow, as well. Steve will now provide details of some of the other key performance metrics for the bank last quarter and give an update on Parent loan sales and our efforts to obtain a Commercial Bank Charter. Steve?

Steven Museles

Thanks, Jim, and good morning, everyone. In addition to loan originations, the fourth quarter demonstrated an all-around strong performance for CapitalSource Bank. Net interest margin increased by seven basis points to move above 5% as our cost of deposits declined further and nonaccruals decreased by $102 million, almost 30% below the prior quarter. New nonaccruals totaled only $12 million. In fact, all of the credit metrics at the bank improved again last quarter. The loan loss provision declined from $15 million to $10 million, charge-offs were significantly lower at $16 million compared to $48 million in the third quarter, and both short term and 90-plus day delinquencies declined meaningfully. The credit performance of loans made since the July 2008 inception of CapitalSource Bank highlights the fact that the bulk of credit issues at the bank are related to the bank's legacy loans rather than to those loans originated following formation. For example at year-end 2010, total loans at the bank were $3.8 billion with $2.4 billion or 62% of those loans originated following the bank's formation. Looking only at that group of post formation loans at December 31, 2010, we can see that $49.6 million or 2.1% were on nonaccrual, and only $32.2 million or 1.4% were greater than 30 days past due. Moving onto OpEx. Operating expenses at the bank were up about $3 million in the quarter, although approximately $2 million of the increase was attributable to incremental loan referral fees paid to the Parent due to the higher than anticipated level of loan production. On a consolidated basis, for the full year, we made substantial progress in our efforts to reduce total operating expenses. We saw a decline of nearly $50 million or approximately 17.5% in OpEx from 2009. Much of the savings comes from a significant reduction in outside professional fees and other expenses related to loan workouts. We also were able to create efficiencies internally by streamlining business functions, hang off debt and selling loans throughout the course of 2010. As a result, we reduced employee headcount by just over 5% last year despite adding nearly 55 people connected with our three new lending groups that Jim just mentioned. At year end, we had 622 total employees. For the full year 2010, net interest income at CapitalSource Bank increased by 35% as we brought down the bank's cost of funds by over 100 basis points to 1.34% and more than doubled new loan production. With this performance as a foundation and the projected loan originations, which Jim just discussed, CapitalSource Bank is extremely well positioned for another strong year of profitable growth in 2011. Based on the forward LIBOR curve, we expect our cost of funds at the bank to rise modestly during the year, but remain below 1.3% on a full year basis. We expect that net growth in the Loan portfolio, however, should permit us to maintain a 5% net interest margin for the full year. We expect the full year ROA at the bank to be in the 1.25% to 1.5% range. Turning next to our efforts to obtain a commercial banking charter for CapitalSource Bank. Although the existing charter does not present any barriers in terms of our projected growth and profitability in 2011, there are a number of longer term benefit to a commercial charter that we would like to pursue. We previously indicated that our plan was to file a bank holding company application with the Federal Reserve in the first quarter of this year in order to get the formal review process underway. Based on conversations with the Fed, however, we now understand that the process will involve more interaction with Fed staff before the application itself is filed. This should allow us to better tailor the application to meet regulatory requirements. We have been and continue to be engaged in active and ongoing on-site meetings and other productive discussions with the Federal Reserve staff, which will further clarify the actions we must take before application is filed. We look forward to their continued guidance as the Federal Reserve evaluates our readiness for bank holding company status. The profit is moving forward, and we still expect it will be concluded during the second half of this year. Before closing, I want to comment briefly on our efforts to sell loans from the Parent portfolio as we continue to reduce Parent Company assets, pay off debts and further strengthen our balance sheet. In addition to REO sales and some small individual loan sales during the quarter, we recently reached agreement for the sales of approximately $140 million of loans in our $275 million European portfolio at year end. A significant portion of the remaining loans in that portfolio are expected to payoff in the ordinary course during the first half of this year. Since the beginning of this year, we have also paid off all of the remaining bank debt on over $1.5 billion of loans held at the Parent outside of our securitizations. As market prices continue to improve for many of the assets in this portfolio, we will strongly consider the sale of additional loans. As loans pay down, pay off or sell, we expect our unrestricted cash will increase. Although we are disposing of assets at the Parent, excess cash and a strong capital position at the bank positions us to be a buyer of loans and portfolios in our areas of expertise. While we have routinely purchased loans in the past, there are now increasing opportunities to do so in many of our markets. To capitalize on these opportunities, we have recently moved one of our most senior executives in our Manhattan office into the full-time role of identifying loan portfolios available for purchase by CapitalSource Bank.

Don is up next, and he'll provide additional financial highlights from our first fourth quarter performance, particularly on a consolidated basis. Don?

Donald Cole

Thank you, Steve, and good morning, everyone. The fourth quarter and the full year 2010 presented a story of declining debt, improving credit and increasing liquidity. The bank had a terrific year, as Steve just indicated, but on a consolidated basis, there were many positive signs, as well. Pretax, pre-provision, pre other income for the fourth quarter improved $45 million from $40.5 million in the prior quarter. This was driven by higher loan yields, a reduction in interest expense and relatively stable operating expenses. The quarterly loan loss provision also declined from $39 million in the third quarter to $24 million, the lowest level since the first quarter of 2008. This resulted in an improvement in our net interest income less provision and operating expenses from under $2 million in the third quarter to nearly $21 million this quarter. Our overall profitability in the fourth quarter was hurt, however, by REO losses and expenses of $20 million and mark-to-market losses of $20 million on loans we sold or intend to sell, as we continue to trim the Parent Company portfolio and dispose of assets. $11.5 million of the loss related to loan sales was attributable to the pending sale of a $140 million of European loan assets that Steve described. Our ultimate loss on the sale of these loans will be closer to $8 million, and some of the loans will be sold at a gain that will be recognized during the first quarter when the transaction is complete. This net loss is very much in line with the level of reserves maintained against that portfolio as of September 30. Both the REO losses and losses on the sale of loans are reported in the other income portion of our income statement. That section is comprised largely of nonrecurring items and was biggest driver of the change in earnings per share from the third quarter as it moved from $41 million of income to $17 million of net expense. As you may recall, in the third quarter, other income included a onetime gain of $17 million resulting from the deconsolidation of the 2006-A securitization and $30 million from gains on equity investment. REO expense was also $13 million lower in the prior quarter. Turning to the balance sheet. As John indicated, during 2010, we reduced Parent Company debt substantially, including the healthcare net lease debt that was outstanding as of December 31, 2009, Parent Company debt was reduced from $5 billion at the beginning of 2010 to just over $2 billion at the end of the year. Subsequent to year end, we have paid off and terminated all of the remaining short-term credit facilities with the exception of our syndicated bank facility. That facility continues to have a zero balance, and we expect to terminate it at some point during the next several weeks. The term securitizations continue to pay down as well, with approximately $167 million of collections in the fourth quarter, reducing total third-party debt in those deals to $694 million. Our net equity in the four remaining securitizations was approximately $246 million at quarter end. As John mentioned, liquidity continue to strengthen at the Parent as our unrestricted cash position increased to $467 million at year end. The repayment of all of our secured credit facilities will only further enhance the cash position of the Parent as less of the principal and interest collections on loans will be required to be applied to debt amortization. The amendments to the Senior Secured Notes, which was approved by note holders in December, substantially increased our financial flexibility. The biggest immediate benefit is our expanded capacity to use available cash to redeem the 2011 and 2012 convertible debentures. The amendment also significantly increased our capacity to repurchase stock and/or pay increased dividends. I mentioned the reduction in the quarter of our loan loss provision. As John touched on, our other credit metrics on a consolidated basis improved as well. Nonaccruals decreased by $89 million from the third quarter level of $788 million, and the rate of new nonaccruals also decreased. Both short term and 90-plus day delinquencies declined as did impaired loans. Our capital levels at the Parent in the Bank remained high. At December 31, cash and investments to the bank were $2.1 billion, and total risk-based capital was over 18%. Due to the anticipated profitability of the bank, we expect our risk-based capital levels will remain well in excess of our current regulatory minimum throughout 2011, despite our expectation for significant loan growth. Before closing, I want to touch on taxes for the fourth quarter and for the year ahead, as well as our DTA valuation allowance. In the fourth quarter, we recorded a small net tax benefit on a consolidated basis. The bank recorded tax expense based on its standalone profitability in the fourth quarter. Net bank tax expense was offset by anticipated tax benefit recorded at the Parent. Looking forward to 2011, as we have indicated, we will be come eligible to file a consolidated U.S. federal tax return. This means that we will be able to utilize losses from some entities to offset income and other profitable entities, principally the bank. Ultimately, until such time as our DTA valuation allowance is reversed, our GAAP tax expense will look much like the fourth quarter with bank tax expense based upon profitability offset by Parent Benefit. The key difference in 2011, however, will be that instead of paying a tax liability to the IRS, as it will for 2010, the bank will pay its tax liability to the parent under our existing tax sharing agreement. As we expect to continue to be profitable on a consolidated basis, the utilization of Parent losses by the bank for GAAP purposes will slowly reduce our valuation allowance. As we have indicated previously, for a significant reduction of the valuation allowance that will likely result in a large net tax benefit on our income statement, we will need to have demonstrated a sustained period of positive pretax income. There is not a bright line test in the accounting literature for making this determination, but we do not expect to reach that point before the end of 2011. The importance of demonstrating a sustained period of profitability for GAAP purposes is that it allows us to consider our expected future taxable earnings as a source to utilize our DTAs. As we move closer to that time, it is important to consider how our expected taxable earnings will match up against our current DTA.

The gross DTA at December 31 was approximately $510 million. The largest portion representing over 40% of the balance comes from net operating loss carryforwards. We expect to use these carryforward against future taxable income. A much smaller portion of the gross DTA, approximately 10%, is from capital loss carryforwards. Capital loss carryforwards can only be used to offset capital gains, therefore, we may maintain some valuation allowance against this portion of our DTA until we can clearly forecast capital gains within the statutory time period. The remainder of our DTA is comprised of GAAP losses that have not yet been triggered for tax purposes. The largest single component of that comes from our loan loss allowance. However, smaller amounts come from GAAP write-downs on assets, that if realized, would likely result in capital losses. Similar to the existing capital loss carryforwards, these would need to be utilized to offset capital gains during the statutory period though that clock has not yet started to run on these items. It is also likely that some portion of these unrealized losses will not ultimately be realized as certain GAAP mark should reverse over time. The tax area is clearly very complex, so I'll be happy to address any remaining questions in the Q&A portion of the call.

At this point, I will turn the call back to Jim for some concluding remarks.

James Pieczynski

Thanks, John. In summary, we believe the fourth quarter was positive with $536 million of loan production, significant loan growth at the bank and a continued delevering at the Parent. We are moving closer to filing our bank holding company application. We are projecting our ROA at the bank to be in the 1.25% to 1.5% range for 2011. We also expect to continue to delever the Parent as loans are paid off or are sold.

With this, we are very excited for our prospects in 2011. Operator, we are now ready for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Hecht of JMP Securities.

John Hecht - JMP Securities LLC

First of all, it's a little bit related to the disposition of the European NPAs coming through Q1. Looking forward, we have a pipeline of potential other large REO or NPA assets. I guess, it's come out of North America now. Is there a pipeline you can refer to for that to give us an idea of when the REO and NPA levels might drop further and what would that mean to REOs spent in the near term quarters, particularly relating to the European distribution?

Steven Museles

Let me clarify one thing. The European Loan portfolio is a Performing Loan portfolio. There is no NPAs or other problem loans in that portfolio. So it was just kind of a non-core to our business going forward, which is why we determined to dispose that portfolio.

John Delaney

And as far as the pipeline, I think we are actively trying to outplace our REO and our nonperforming assets, that I would view as the sort of call it significant pipeline. We've seen just from the numbers coming down, we've had some success there. As the new situation is rolling in there reduce, that number should hopefully come down even more rapidly, but I would think that that is where our pipeline is. That's where our focus is.

Obviously, as we've said, if we can trim some of the Parent company assets based on current market and get acceptable prices, we will continue to consider that. But really, the European is almost an identifiable standalone we pointed out to people before just because it is a, call it, non-core and non-U.S. and therefore has some additional expenses with operating in the Europe associated with it. And just to remind, I think as Steve pointed out in his remarks, the sale is about half of that portfolio, but we suspect a very significant remainder of that portfolio will actually just pay off based upon its own either terms or natural prepayments within the portfolio in the next few months.

John Hecht - JMP Securities LLC

And can you give us a sense of what OpEx is for that total portfolio that might move off of the balance sheet in the next few months?

John Delaney

I don't have that specific number. It kind of gets embedded in a lot of areas where it's sort of tax expenses, tax compliance expenses in the U.S., so it's a little bit spread out. The actual European expenses, there's not that many people over there at this point. So I wouldn't call it a material number that necessarily next quarter you'd see drop out of the income statement.

John Hecht - JMP Securities LLC

Can you remind us when you put your de novo charter and what kind of flexibility that will present to you, guys? And then is there any maneuvering with the Fed you have in getting an updated charter that has to do with the de novo status as well?

John Delaney

Tad, you want to take that question?

Douglas Lowrey

The situation is that we believe that the entire order based upon the bank by both the FDIC and DFI expires at the end of July in this year. So all the items in the order, such as prohibition of paying dividends, specific capital requirements to the bank and a number of other management and structural issues would go away. We are not far along enough with the Fed to have engaged in any discussions with them about any type of order restrictions that they would place on either the holding company or the bank. So we really view those on two separate paths.

Operator

Our next question comes from Don Fandetti from Citigroup.

Donald Fandetti - Citigroup Inc

John, you had mentioned that the company has the wind at your sales, and I was just curious, obviously, there was a Wall Street Journal article suggesting that maybe you're looking to sell the company. I'm not sure if you're in a position to talk about that or refute it, and we'll start there.

John Delaney

You know what our answer is on any of these things, Don, which is we don't comment on rumors at any level. But I do think that the wind is at the company sails, so I'll certainly take this opportunity to make that point again. We think things are going great for the business, and it's got a very bright future.

Donald Fandetti - Citigroup Inc

I know there's also has been some talk that you're involved in potentially another private company. I didn't know if you are going to ultimately take some kind of people role there or that sort of one of many type investments situation.

John Delaney

Again, kind of consistent with the theme of my prior remark, which this is CapitalSource call, so I will not discuss other personal or professional things that I'm engaged in on the call. But I'd be happy to chat with you offline about it.

Donald Fandetti - Citigroup Inc

And then on the business, if I recall you have a pretty decent size Genesis healthcare loan that's unencumbered. I was just curious, there was some talk about that getting refinanced. Do you think that's still a possibility?

John Delaney

I'll refer it to Jim. There was a specific article which you are probably referring to where -- in the commercial mortgage alert, I think it was. But, Jim, why don't you provide some more detail?

James Pieczynski

We've read the article, and we've certainly been talking to our borrower. Obviously, the loan still has a -- what we have in terms of our uncumbered assets is the large mezzanine loan that we have. And we know that the asset values in the skilled nursing space is certainly increased over the years. We believe there is significant equity over and above our mezz debt. Also with the change in the market, we think that the possibility of them either doing a financing or an outright sale of those assets is a very reasonable likely outcome. As for the timing of that, I don't know when that would happen, but the summary is, we feel very good where we're at in the asset.

Donald Fandetti - Citigroup Inc

Steve, I mean, do you thank you can get bank holding company status by year end, I believe, is the statement? What's your confidence level there? I mean, obviously, some things have slipped a little bit in terms of how the process works. Any reason why you feel so confident on that specific date or should we lean somewhere [indiscernible]?

Steven Museles

Yes. First half all, I feel very confident that we can get the bank holdings status. I think nothing has changed in terms of our ultimate timing to becoming a bank holding company. And we always said it would be towards the second half of the year. What's changed is filing the application after we have more conversations and visits with the Federal Reserve staff in order that once we file it, it will not on file for as long as it would've been had we filed it and then started engaging in conversations with them. So that's really the rationale for, kind of, the change in order. They were always planning on coming in and talking to us several times, and obviously doing the examination at some point. So this is just again switching the order around but not changing the ultimate timing. So we feel very good about our chances based on conversations with them and based on what we understand we need to do to become a bank holding company.

Operator

Our next question comes from Steven Alexopoulos from JPMorgan.

Steven Alexopoulos - JP Morgan Chase & Co

Could you guys talk about the expected amount of loan pay offs and pay downs? Do you think it's reasonable in 2011?

Donald Fandetti - Citigroup Inc

We get that question a lot. It's obviously always difficult to forecast exactly what those are because it's based upon a bunch of things. One of which is just natural market activity, which I would say if I just look back at 2010 was more active than we thought. So I think our pay down is just that normal loans were faster. The second is actually our active efforts to remove loans, which this European facility sort of came about in the fourth quarter bleeding into this first quarter. So I would hesitate to give too much on loan payouts. We just talked about a little bit about this Genesis assets, and it's somewhat unknown as to when that will pass, but it's still a little bit chucky. So I don't think I'll give a specific number. I would say, the 2010 pace, well-above what we expected, is probably representative of where we think things will continue in 2011.

Steven Museles

I think the answer is we certainly expect to have continued significant loan growth at the bank. Now that the iStar loan participation is paid off with the originations, we're going to do -- we will have significant loan growth. But as Don pointed out, there are lot of loans they can pay off that we really don't have any control over, so it is somewhat difficult to forecast what happens there.

John Delaney

At the risk of just repeating what everyone said here, I think our general view is the corporate credit market is somewhere between normal and hot. And historically when you go to the company's portfolio in these kind of periods, you saw a pretty active prepayments. So that would be a reasonable assumption for 2011.

Steven Alexopoulos - JP Morgan Chase & Co

I have a couple of questions on OREO. First, what was the amount of OREO that was sold in the quarter? And could you give the OREO balance at year end? How are you thinking about OREO expense? Is that at a $110 million for the full year? Is that how we should think about this again in 2011?

John Delaney

I'll answer that question first. I would say the answer is no. Included in that line are both the expenses of operating OREO, which we try not to have it on the books for too long, and also marks for further markdowns after something has been for close upon, I think, throughout the year as values continue to climb certainly in the first half. And I think some of that was concentrated, I would say, in the first or second quarters. We had some incremental marks there. So I would say our expectation that will stabilize some and certainly not run at that same level. And so let me just give you the sense of -- the book value of our REO at the end of the fourth quarter was just over $90 million. And the sales proceeds in that quarter were about $25 million. So we have some new stuff roll in. We sold $25 million, and we ended it with about $90 million.

Steven Alexopoulos - JP Morgan Chase & Co

So how should we think about the marks on what you sold, like the further write-downs needed to sell?

John Delaney

On the stuff that's sold this quarter, it was very close to the actual marks. There were a few things that didn't sell that contributed to the marks I indicated during my part of the remarks. But the stuff that sold was right about the marks that they had been at at the prior quarter end.

Steven Museles

It was the result of those marks that caused us to take kind of further valuation allowance relative to the rest of it based on where we thought everything was going to be coming out. So that's why you're seeing that write-down that we have in the fourth quarter is largely a function of -- it's not a result of the assets that were sold. It's more a function of the assets that are remaining and getting new appraisal information.

Steven Alexopoulos - JP Morgan Chase & Co

I know you've commented already a couple of times on the application for the bank charter being pushed from the first quarter to the second half of the year. But can you give us a sense where are you most focused in order to get the application filed? Is it just on a higher profitability level? Is it credit quality? Is it getting the bank to a certain level of company assets? Any color there would be helpful.

John Delaney

Ask the question one more time. Sorry, I missed the beginning of it.

Steven Alexopoulos - JP Morgan Chase & Co

So just regarding the application process for you to apply for the bank charter, I'm curious where you guys are most focused now in order to get this process moving, is it moving profitability levels higher? Is it getting credit quality to a certain level? Or is it just getting the bank to represent a bigger portion of the overall company? Just wondering where you're focusing.

John Delaney

I think we're pretty happy where we are already on all those things. I think, for us, it's simply working with the Fed to understand more procedurally what they want the Parent Company to have in place to look and feel like a regulated entity. Obviously, we know how to do that given the bank and the bank's performance. But the parent hasn't been regulated before, and so we just need to put -- it's a lot of policies, a lot of procedures. I think on the substantive issues that you've mentioned, we've made a significant process since we first tried this a couple of years ago, and I think we've proven ourselves on all those issues -- profitability, asset quality, liquidity, et cetera, earnings even. So again, it's just a matter of procedures.

Operator

Our next question comes from Sameer Gokhale with KBW.

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

John, I know you didn't want to go into a lot of details or discuss your involvement bank alliance, but I think it would be helpful to me, as well, to hear your thoughts on that, at some point, given that I think investors are pretty focused on this issue and how important you've been to CapitalSource over the years. So I think it would be helpful to me, as well, to get your thoughts on that at some point.

In terms of a question, just a few here. The loan portfolio, there was an increase in the yield at the Parent, and I was wondering if there were more details, specifically what that was due to because it seems like there was an uptick in the nonaccrual rates as such. It didn't seem like credit improvement was necessarily responsible for that. So could you give me some clarity on the yield improvement of the Parent on the Loan portfolio?

John Delaney

In the press release, we talked about yield on loan improvement and the yield on insuring assets improving. I'll touch on the loans first. Included in interest income is both the ongoing coupon people pay, but it's also any amortization of upfront fees when things prepay. So as we mentioned, there was a significant amount of prepay activity on performing loans in the quarter, so there was a fair amount of that fee amortization that contributed to that yield improvement.

And then the second thing I would say, there's a little bit of a mix even in the coupon area where a lot of the loans that are prepaying are in the corporate loan market. There are lot of loans we originated, '05, '06, '07, when spreads were somewhat tighter. So we're having a little bit of improvement from mix shift, but I think it's principally the effect of the accelerated amortization of some of the fees and expense

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

Can you give us a sense for how much they contributed to the yield this quarter versus the last quarter? You used to provide that one point in time in the past.

John Delaney

The Parent, and I don't have that number in front me, it probably was an uptick of about 50 basis points of yield of the quarter from running a roughly 50 in the third quarter to just over a point in the fourth quarter.

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

And then in terms of the new nonaccruals, I know you had given the $99 million new nonaccrual, I believe, that was at the Parent. But could you give us a sense of what that number was on a consolidated basis both this quarter and last quarter, if you have that handy?

John Delaney

I don't have it handy. I'm not sure I recall the $99 million new nonaccrual numbers. Is that in the press release, Dennis?

Dennis Oakes

Yes, it was in the press release.

John Delaney

Yes I think -- it's largely and sort of, I would say, the commercial loans base as a Parent. I think we can dig some stuff and give you that info offline, Sameer.

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

The net charge-offs at the Parent, you had some assets on your balance sheet, the assets held for sale seem to be up pretty significantly compared to last quarter. And I was wondering if any of those items flowed through the charge-offs at the Parent, which kind of contributed to the high dollar amount of charge-offs, if you could just clarify that and provide some more detail there.

John Delaney

The answer to that is no. The loans held for sale, most of that or the maturity of that is the European assets. There's a couple of other performing loans, so those are largely performing loans. And so any marks we took to sell them at discounts principally not credit-related discounts were in that below-the-line area I discussed. So those wouldn't contribute to the charge-offs in any material way.

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

So was there any sort of other acceleration of charge-offs in that line item in the quarter because it does seem that the Parent, there was pretty meaningful increase in the dollar charge-offs?

John Delaney

I wouldn't call it acceleration. I mean, I think, in our package, you can see which categories it was, I think a little bit more in our commercial and less real estate. I think we said we have very high provision reserves in that commercial book or that cash flow book. So I wouldn't say it's anything any unexpected acceleration.

Operator

Our next question comes from Bob Napoli from Piper Jaffray.

Robert Napoli - Piper Jaffray Companies

Just to clarify, the guidance for 1.25% to 1.5% far away at the bank in 2011, what tax rate does that assume for the bank?

Steven Museles

For the bank that assumes the full tax rate.

Robert Napoli - Piper Jaffray Companies

Which, I mean, in the fourth quarter was like 50% tax rate.

Steven Museles

We're typically going to be using a 40% all-in tax rate.

John Delaney

Not to get into too much tax because I love discussing the topic. As I mentioned, the bank doesn't have sort of a federal deferred tax asset allowance but has some state items. And so the reason why the rate was a little higher this quarter is for state purposes, some of the things they put on increased. Those state TTAs add a little more tax expense. But that shouldn't continue in the long term. So we forecasted it that closer to the statutory rate, as Jim indicated.

Robert Napoli - Piper Jaffray Companies

And on the Parent or the non-bank portion of CapitalSource, what is -- I mean, you did have some losses there. You talked about the one-time items, but you expect the non bank to -- you would think that it would be profitable, going forward, given the reserve levels, but do you expect to generate profits out of the non-bank as that business continues to liquidate?

John Delaney

You know, I would say, I wouldn't expect we would create material profits off that. I mean, if you think about that, the asset pool is shrinking fairly rapidly. For the consolidated enterprise, there's still a fair amount of the expenses contained in the Parent. And we still have some of the debt that has the longest maturities as the highest cost. So we don't view that the Parent on a standalone, if you look at our segment financials, will be a material earner. As I sort of mentioned in the agreement, that sort of thinking about it on a pretax basis because the parents tax will be able to actually generate the benefit off the bank expenses. But on a pretax basis, I don't think we view it as a material income producer. It's really largely concentrated in the bank.

Steven Museles

Obviously, the consolidated [indiscernible] profitability but an important subsidiary to the parent is to run it, to liquidate it because then we think that cash can be reinvested either in the bank or return to shareholders at a high rate of return. So we're clearly not taking active steps to enhance to enhance profitability of the Parent on the revenue side. We are taking active steps to enhance the profitability of the Parent on the expense side. But on the revenue side, if we want to maximize revenue's of Parent, we would keep the Parent invested, and that's not our goal. Our goal is to reduce the Parent. It's a little bit of a one-step back to go, we think, three or four steps forward because you give up a little profitability of the Parent to get a lot of cash, which you can reinvest at a higher rate.

Robert Napoli - Piper Jaffray Companies

And would you expect to start repurchasing stock in the near term or are you going to continue to build cash balance, make sure you have the capital to pay that requirements this year and next first? Or I mean are you far enough along that you would start buying back stocks?

John Delaney

Well, clearly, debt requirement is the number priority of the company, obviously. And so those will be taken care. We do have stock buyback program in place, but again we don't talk about how we are going to use it et cetera. We probably don't want spend a lot of time speculating how well do you use the program, but we do have one in place.

Robert Napoli - Piper Jaffray Companies

And if you do get the bank holding company status, are there significant expense saves? I mean, essentially you're running two entities today. I mean are there material expense saves? And can you quantify that to some extent?

James Pieczynski

This is Jim. I think the way that we look at it is I don't know if I would say there are going to be material expense saves, but I think there's going to be just a general level of efficiency that we don't have the luxury of having right now. I think we end up going through kind of dual underwriting process from a credit function. We have separate accounting departments. We have separate IT departments. We have separate HR departments. And so I think to the extent, we will be able to kind of consolidate those departments and make them more efficient and more effective. That's going to make us more efficient. I don't know if I would say there is going to be significant savings associated with that though.

John Delaney

The only thing I would add to that, as you can see, our year-over-year OpEx from 2009 to 2010, there was a fairly sizable reduction, about $50 million, and so I would say there is more saves we think in total OpEx even advanced of a bank holding company that are unrelated to that process, including to push down our professional fees and loan workout fees et cetera. So we felt like there's room to run even excluding the benefits of a bank holding company status.

Robert Napoli - Piper Jaffray Companies

Now, we're about two-thirds of the way through the first quarter. What are you expecting as far as the dollar amount of NPAs as we move into the first quarter and through 2011? Are you seeing signs? I mean, give us a little clear outlook.

John Delaney

I guess I'll say what I said before. We've seen the NPAs and the [indiscernible] and all these credit stats improve. We expect those to continue to improve throughout the year. The pace of new problems have slowed. We expect to continue to work through the existing problems and certainly on a percentage basis as we work to grow the bank loan portfolio, those things should improve.

Operator

Our next question comes from Mike Taiano from Sandler O'Neill.

Michael Taiano - Sandler O’Neill & Partners

I guess, first, I want to make sure I understand the geography of where some of the marks came, I guess on the euro loans, I think you said it was a $9 million mark, is that falling through the other income line, the $6 million loss in the quarter?

John Delaney

Yes, the mark in the euro loans in the fourth quarter actually was $11.5 million. And I think I tried to touch on it on my remarks without putting on too much details. When we sold these loans, we negotiate a price, we mark each one individually. Some of the loans have losses, a few have gains. Unfortunately, the way GAAP makes you treat them is you take all the losses now and you take the gains later. So the Mark was $11.5 million in that other income line for Europe, and we'll get, as I mentioned, about $3 million or a little more than that back when the whole thing closes in the first quarter.

Michael Taiano - Sandler O’Neill & Partners

Any losses on loans that you sold during the quarter with those that flowed through the $20 million REO expense line?

John Delaney

If it was an REO, yes. If it was a loan, I mentioned of that $20 million, $11.5 million was Europe. We did sell a few other loans that contributed from going from the $11.5 million to $20 million on total marks on loans that were sold. As I mentioned with Europe, we do have general reserves allocated to those pools, and our marks came in that situation very close of that as with some of these other loan sales, that's the same thing. So we feel good about the levels at which we're selling, although we do take some of these marks because we're selling -- some of these things have fairly low yields and long-term. So there is a little bit of a discount at the sale point.

Michael Taiano - Sandler O’Neill & Partners

And I guess on that topic come, I mean you obviously are generating a lot of cash at this point. But do you consider selling nonaccrual loans if you think that the cash proceeds -- if there is pretty good returns out there in new loans, even if you take a loss, do you think about just taking it now so that you can redeploy that cash into higher yielding assets?

John Delaney

Yes, I mean we absolutely consider selling nonaccruals and nonperformers. You know, obviously we will consider the bids. We are not going to take bids that are sort of firesale prices that we think that we can do better by holding a little bit of time. But our goal is to move those things out as quickly as sensibly or make sense for us to do. And we have done that, and that's part of the reason why some of the nonperforming assets number has gotten better as we have worked through some of those. But we will continue to work hard to move those out even if it means small incremental marks. But we are not going to, like I said, take firesale prices versus what we think ultimately an asset is worth.

I mean, if there's an organized effort across both the Parent and the bank to manage that process, as well.

Michael Taiano - Sandler O’Neill & Partners

Just to make sure that I understand the margin guidance for the bank. So you're basically saying the yield is likely to come down because of mix shift and the deposit cost will be relatively stable. So I guess, is the reason why the 5% margin is expected to stable. Is that just because the loans that are running off in the bank are lower margins loans relative to what you're putting on?

Steven Museles

Yes, I think there is a combination of all of that. I mean, we look at where our net interest margin was at the bank for the fourth quarter, which was at the 5% level, and we believe that although we are going -- one of the benefits we have is although we are going to have somewhat of a declining yield on the loans, our cost of deposits is also stabilized as well, too. So I think when you take into account the addition of the loans coupled with the loan growth that that results in, that's what's going to get us to the point where we will be able to maintain that net interest margin.

Douglas Lowrey

This is Tad. There's one other factor that I am not sure you mention and that is, so we do expect the investment portfolio, which consists of a lot of short-term cash, to run down substantially in 2011, and that the yield on that is almost nothing, and that will be replaced with loans in the 6% to 7% yields. So it's a mix improvement as well.

Operator

Our next question comes from Henry Coffey from Sterne Agee.

Henry Coffey - Sterne Agee & Leach Inc.

Don, can you help simplify the tax situation for us. You obviously pay taxes at the bank. You then have an offsetting credit at the finance company or the holding company level. Does that equal zero taxes for every quarter or a low sort of 20%, 25% tax rate on a combined basis for every quarter? I was wondering if you could help us with the math a little bit.

Donald Cole

I think the forecasted view is that it should stay close to the zero level. And obviously, there is a lot of complexities embedded in. But the simple way to look at it going forward to 2011 is, now that the bank and most of the Parent entities will be treated as a consolidated federal tax filer, basically,as the bank generates income, it can then use -- Parent carry over losses any incremental Parent losses to offset its income. So we'll look at the -- for purposes of GAAP Texas, we look at it as one consolidated unit. So the expectation would be that consolidated taxes on a tax expense basis should run close to zero. Obviously, there's state tax auditees. In some states, we don't file the consolidated filer, so there's going to be some noise in there, but I wouldn't say I'd expect it to be up in the 20% range. I expect it to be down in that closer to the 0% range, but it will bop around that number some during the year. And then ultimately when we get to the point where we can reverse more, the DTA will have obviously a big sort of negative tax expense or tax benefit in one of the quarters.

Henry Coffey - Sterne Agee & Leach Inc.

I just didn't hear exactly how you put it. Reversing the DTA as a 2011 event or beyond 2011?

Donald Cole

I think The way I put it was probably not before the end of 2011. So again, as I tried to say and i tried to say before, the rules aren't exactly clear. We tried to forecast on our profitability. The way we got to this was looking back twelve quarters and saying we we're [indiscernible]at a loss position. At the end of 2011, we'll be looking at 2009, 2010 and 2011. We lost a lot of money in 2009. We had a net loss at 2010. So it's going to be a while before on a pretax basis we kind of dig ourselves out of that hole from a bright-line test. Again we said we think it's something before that, it's possible, but it's hard to forecast it being anything before sort of thinking out the end of this year.

Henry Coffey - Sterne Agee & Leach Inc.

You wouldn't want to see how that they'll simplify the tax code on you. It's probably just be "pay everything."

Donald Cole

We can be hopeful, corporate tax rate might go down, but we certainly don't forecast for those items.

Henry Coffey - Sterne Agee & Leach Inc.

I know that there's been a lot of discussion about this whole " strategic alternatives" et cetera. As you sort of look forward, you're building up a lot of cash. You certainly have the resources to pay off the converts and the high yield debt. Is there a trigger point where during the course of 2011 you work out some situation with the high-yield debt holders and just pay it off, absorb the fees, the makeholds, et cetera. Just given the cost of that note versus your cash accumulation. Was that really something you wouldn't think about it doing until we got past paying off both converts in 2011 and 2012?

Steven Museles

I'm sure we're joined on the call by some of our high-yield holders, so we don't probably want to speculate too much about what we'll do with their bonds. But these things are, these decisions are part mathematically based, right? So we'll look at our highest use of cash. We have lots of alternatives: invest in the bank, return to shareholders or buy back debt. I mean, that's a very -- I'm sure I'm avoiding your very specific question there, Henry, but all I can do is talk about how we would kind of frame our analysis.

Operator

Our next question comes from John Stilmar from SunTrust Robinson Humphrey.

John Stilmar - SunTrust Robinson Humphrey, Inc.

I'd like to focus for a second, it seems, with regards to the origination franchise or portfolio acquisitions at the bank that you seem to be targeting. Any more color that you can provide there on the types of portfolio that you're looking at? I know you've done a great job in the past year of acquiring platforms. Is this more of a platform acquisition or is this more of a portfolio acquisition? And can you just kind of think a little bit finer of abreast in the comments that you made in the prepared remarks?

Steven Museles

Sure. We talked about our originations for the year which is roughly $1.6 billion, that did not include the acquisition of MainStreet Lender, which was our small business platform that we acquired. So if you add -- kind of, putting that aside, that was about $100 million portfolio that we acquired in connection with the acquisition. So when we talk about our numbers, we didn't count that acquisition as a funding during the year in our $1.6 billion number. In terms of the areas where a large part of our portfolio acquisitions was in the multi-family area this year. And then there were other areas as well. I think if you kind of sit there and look at it and say what percent of our total portfolio, of our total originations were portfolio purchases, it was like in the 25% to 30% zone. So we, quite frankly, view direct origination and portfolio purchases the same when we think about it from an origination perspective. And we think there are good opportunities out there for us. In terms of what are we looking at going forward, obviously, multi-family is an area that we'll continue to look at and has been a source of a lot of our portfolio acquisitions. But in addition to that, when you look at our other specialty areas, such as in the rediscount area or in our equipment finance area, that's an area that we'd also be looking to acquire portfolios. So I think anything that would fit into our specialty lending groups now is something -- is a portfolio we are interested in acquiring. But in addition to that, we're also looking at lending platforms, so that if we acquire a portfolio in addition to bringing in a team, we're certainly willing to entertain that as well.

John Delaney

And those could be tuck ins under existing businesses or new platforms that are in areas that we don't lend in right now.

John Stilmar - SunTrust Robinson Humphrey, Inc.

If you were to were to prioritize, is it more on portfolios or more on portfolios?

John Delaney

You know, I wouldn't say we prioritize one over the other. We recognize that direct origination is a critical aspect of what we do. But we also recognize that to the extent of our portfolio is out there and we can get a nice chunk of performing loans in one fell swoop. We absolutely want to do that. We go through the same level of diligence on the portfolio as we would on a direct origination. However, let's face it, with portfolios, you can get some built-in economies of scale by looking at a large portfolio coming out of the box. So the answer is we'll look at both. The more meaningful way to move originations is through portfolio purchases, but we're just as committed to direct origination as we are to portfolio purchases.

John Stilmar - SunTrust Robinson Humphrey, Inc.

And then with regards to pricing, the pricing environment. You talked about top line yield being in the 6% to 7% range. What would your guidance -- what would that number have been last quarter? How much of it is due to a more conscious decision to choose to originate certain types of assets versus how much of it is due to competition? You alluded to both, but I was wondering if you could give as some clarity around the magnitude of each of those.

John Delaney

Well, I think if you sit there and say what was the all-in yield that we had during the fourth quarter? We were roughly at a 7% level. So when I talk about, kind of, a narrowing going forward, the way I think about it is if you look at it relative to the spreads that we're charging on loans, we've got different products. So they're all going to be based differently. So for example, if you look at our SDA and our multi-family businesses, the spread that we are going to have on there is a generally going to be in the 275 to 325 zone, but that's also an area where we have lower capital requirement, and as a result, we can still get a strong ROE. Relative to the other areas that we're in, you are probably going to be seeing spreads in the 4% to 5% type range, maybe as high as 5.50%, but that's probably lower than the 5% to 6% spread range that we were at earlier this year.

John Stilmar - SunTrust Robinson Humphrey, Inc.

And there's probably some upfront and other types of fees with that or is that just the all-in?

John Delaney

Correct. When we talk about the all-in yield -- I know most of the world is used to kind of thinking about spreads, but when we add in the amortization of our commitment fees and our exit fees and the like, that's how we were able to get our yield up there.

John Stilmar - SunTrust Robinson Humphrey, Inc.

Just a point on operating expenses for the consolidated company. When should we start to expect progress on some of the opportunities on a dollar basis? Certainly, you've alluded to the opportunities on a dollar basis going forward, as well as the pure organic operating margin from a rehabilitated portfolio. But when should we start to expect progress? And can you give us any kind of clarity about the magnitudes that may not be significant but is there anything that you can point towards or maybe narrow down for dollars of expense savings in the coming couple of quarters?

John Delaney

In terms of when you say when can we expect to find progress? I think we've had significant progress this year. If you look at where we were at the end of OpEx in 2009 versus 2010, we had a decline of roughly $49 million on an OpEx basis. I think we've taken a lot of expenses out of the business. I certainly think we have more expenses that we're going to be able to take out. And as Don alluded to, a lot of that is going to be largely in the professional and work out fees. I think in terms of where we ultimately hoping to migrate to, I tend to think of OpEx as a percentage of our overall assets. And when you sit there and say, where do we want to be? Our goal is to be getting somewhere in that 1.50% to 2% range. I think we're going to be -- we'll be getting closer to the 2% range originally. But I think as we are able to accelerate our growth with the platform that we have, I don't see us really needing to increase our expenses significantly. And so as a result, I expect us to be continuing migrating closer and closer towards that 2% and lower level. It's also important to note, and Steve mentioned this when he was talking as well, too, is if you look at what we did from a headcount perspective this year, we actually had a reduction in our staffing level this year, but that was despite adding 55 people that were there for the new platforms that we had. So I think you're going to have, to the extent we are going to make investments in bringing in teams, we certainly want to be able to do that.

Operator

Our next question comes from Douglas Harter from Credit Suisse.

Douglas Harter - Crédit Suisse AG

I was wondering if you could help reconcile the guidance with the cost of funds that the bank would go up with the comment that the deposits you're renewing are, sort of, under 100 basis points?

Douglas Lowrey

Yes, this is Tad. There's two things going on there. One is, our guidance is based on the four deal curve [ph] . There's an expectations that rates will go up and we will have to pay more for maturing CDs. We also are forecasting significant deposit growth as we finally outstrip our liquidity. And so there is a slight premium built in for that, whereas our deposits are roughly flat today, and we're paying down, if you will.

Douglas Harter - Crédit Suisse AG

What type of maturities are you targeting on your deposit growth?

Douglas Lowrey

We're offering between six and 24 months. And we're having some success recently with getting depositors to go out as long as 18 months. We have about 20% of our new monies and rollovers that is coming in at 18 months, which of course, we view as favorably based on our rate forecast. But consumers are -- they read the newspapers as well, and as the great majority of our deposits are in the CDs or in the six to eight months range.

Douglas Harter - Crédit Suisse AG

And then just switching to topics to the securitizations. You seem to continue pay down there. When do you expect that those will start contribute cash to the Parent company?

John Delaney

I think it's a ways out. If you look at the slide, it's in our investor presentation, you can see they're all very different. The largest one, the 2006-2 securitization is still fairly highly levered and in turbo mode. That is not any near-term cash return. The 2007-2, when it's paid down rather quickly, we have lower leverage. Depending on [indiscernible] repayment, that could be an earlier one, but we don't view that as a material source of liquidity, certainly in the near term.

Operator

We have time for one more question. And that question will come from Bruce Harting from Barclays Capital.

Bruce Harting - Barclays Capital

If we're sitting here a year from now, looking at your progress for 2011, it just seems like there is a lot on the come here that is pretty positive. So can you talk a little bit more about the bank strategy? I mean, a year from now, are we spending a lot more time on the call talking about retail, growth strategies for deposit gathering or -- in your thoughts, I mean could you do an acquisition right now, a fill-in acquisition in your core retail market or your banking market or anywhere over the next 12 months to grow deposits? I'm just curious, Jim, the last company that you had, national healthcare, what did that trade for as a percentage of book or earnings, if you don't mind, just the historical fact? If you can, what are you seeing out there in the M&A environment?

James Pieczynski

So the multiple of earnings that my last company traded at, I honestly don't remember because it was at this point 12, 13 years ago. But the multiple of the book, I think, we sold the business for 2.5x the book value to Heller Financial. And it traded at multiples higher than that and lower than that at different times. So that was the final multiple. And the business generated kind of a mid-teens ROE, so we can do the math on the PE there. So that's kind of an specific answer to your question. I think generally speaking, the environment for M&A I would probably describe as people are still very cautious other than doing deals that are very much kind of fit in acquisitions in footprints they're trying to fill out our deals that they view as existed or highly attractive from a financial perspective. But it's generally still cautious on what I would consider larger strategic M&A.

I would expect that to change, though, as we continue to transition from our a world that was shocked to a world that's feeling more normal. And obviously, the business is changing quite a bit. There is a lot of very large drivers going on there changing the landscape, deleveraging and shortages of assets and shift from non-banks to banks, et cetera. So not a particularly well-crafted answer there, but those are kind of my high-level views. Now Tad can give you a very well-crafted answer to your first few questions.

Douglas Lowrey

Bruce, there was a series of questions there. Let me start with the M&A question, and that is, we don't expect to do any M&A this year. We don't expect to be eligible to do M&A absent a charter change. We think that charter change will occur late in the year, which would then allow us to talk about the different retail strategies.

But for this year, we don't need to do an M&A to raise the deposits that we need. And absent some major change in interest rates, we think we can raise deposits not only cheaply from an interest expense, but cheaply from an OpEx. So we really have our hands full for 2011. If we execute on the strategy that we laid out and can get that ROA of 1.5% with the operating structure that we have now. We can look towards 2012 to expand those products and services and to see what that new charter might bring us. But we really think we can achieve our targets in 2011 absent any of those changes.

Dennis Oakes

Thank you, everyone. Just a reminder that the replay of this call will be available later today. Thanks for listening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CapitalSource's CEO Discusses Q4 2010 Results - Earnings Call Transcript
This Transcript
All Transcripts