(RTTNews) - CapitalSource Inc. (CSE: News ), a specialized finance company, reported Monday a loss for the third quarter compared to a profit last year, reflecting significantly higher provision for loan losses due to continuing stress in its commercial real estate loan portfolio.

For the third quarter, net loss attributable to the Chevy Chase, Maryland-based company was $274.25 million or $0.87 per share, compared to net income of $13.7 million or $0.05 per share in the previous year.

On average, 11 analysts polled by Thomson Reuters expected the company to report a loss of $0.26 per share for the quarter. Analysts' estimates typically exclude special items.

Net investment income for the quarter dropped to $135.71 million from $157.28 million in the same quarter last year.

Segment-wise, net investment income from CapitalSource Bank was $55.18 million for the quarter. Net investment income from Other Commercial Finance was $62.24 million. Healthcare Net Lease segment posted net investment income of $20.29 million.

Total operating expenses increased to $73.34 million from $61.52 million in the comparable quarter a year ago.

Provision for loan losses significantly increased to $221.38 million from $110.26 million in the earlier year.
John Delaney, CapitalSource chairman and chief executive officer said, "Despite declining charge-offs, we increased our general provision for commercial loan losses this quarter in light of continuing stress in our commercial real estate portfolio. Total commercial loan loss provisions of $204 million were higher than the second quarter, but the $48 million in loan loss provisions at CapitalSource Bank were roughly one half of the prior quarter's level."

"We expect elevated credit charges to continue into 2010, but remain comfortable with the cumulative loss assumptions we outlined for our legacy loan portfolio in August of this year," added Delaney.

According to the company, the valuation allowance related to deferred tax assets increased by $149 million or $0.47 per share during the quarter to $286 million. The increase was due to the establishment of an allowance for the deferred tax assets of a subsidiary that continued to incur operating losses during the quarter.

For the nine-month period, net loss attributable to the company was $625.1 million or $2.07 per share, compared to net income of $80.97 million or $0.33 per share in the same period last year. Net investment income for the period declined to $424.56 million from $498.04 million in the preceding year.

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