Correction: An earlier version of this story incorrectly said that CapitalSource Bank may apply for bank holding company status. It is CapitalSource that may apply for that designation, not its subsidiary. This version has also been corrected to reflect that 90 percent of the company’s entire portfolio is CapitalSource Bank, not 90 percent of its business this year.
CapitalSource is no stranger to transformation: It was established in 2000 as a lender for the small and mid-size businesses that many big banks were then ignoring. When the economy became shaky in 2008, it shifted its strategy by purchasing assets from Fremont Investment & Loan, a California community bank that was struggling under the weight of subprime mortgages.
Now, after a year in which the company liquidated more of its defaulted loans and returned millions to shareholders through buybacks, additional changes could be on the horizon. Founder and Chairman John K. Delaney won a U.S. House seat in Maryland earlier this month, leaving his future in its corporate governance uncertain.
Before he unseated Rep. Roscoe G. Bartlett (R-Md.), Delaney had already reduced his responsibilities at CapitalSource in order to focus on his election campaign.
Last week, Delaney declined to discuss plans for his role at CapitalSource in detail, but said that by the time he takes office in January, “everyone should assume that I’m not going to be in a position where I have any conflicts.”
A CapitalSource spokesman said a decision has not yet been made about Delaney’s future role with the company.
Other changes could come for CapitalSource if it applies to become a bank holding company. The company said that move is on track for 2013. If it is approved by the Federal Reserve, it could open up new paths for growing CapitalSource’s business.
CapitalSource Bank, the company’s fully-owned subsidiary, currently has an industrial bank charter, which allows it to offer a limited array of services and requires it to maintain a relatively high level of capital.
However, executives say switching to a commercial banking charter could benefit the company by giving it the option to expand its business through acquisitions and to offer commercial banking services and products.
The bank holding designation would also lower the company’s capital requirement.
“They’ll be able to improve profitability if they can bring down capital levels,” said Aaron Deer, managing director of equity research at Sandler O’Neill + Partners.
As it moves toward making a charter application, the company says it plans to continue with its strategy of growing CapitalSource Bank and gradually transforming CapitalSource into a shell company. The company says that 90 percent of its business portfolio is CapitalSource Bank, and all of its new business this year came from that entity.
And though defaulted loans have spelled troubled for CapitalSource in recent years, chief executive officer James J. Pieczynski said that they’ve continued to make progress in getting rid of those assets.
CapitalSource has trimmed its entire parent company portfolio to $700 million from $5 billion.
The rest, Pieczynski said, “should just kind of naturally fade out between now and the end of 2014.”
“It was a very good year for the company,” Deer said. “The company’s been in some kind of transition over the past few years, and they’re getting close to completing it.”
CapitalSource was founded in Chevy Chase and continues to have its largest office there, though its headquarters are now in Los Angeles. Still, executives say they plan to maintain a large presence in the Washington area.
Pieczynski said he has “no intention or desire” to move any of their operations out the Washington region.
“We’re very committed to the D.C. area. We’ve got a great infrastructure in place there,” Pieczynski said.
Washington Post staff writer Danielle Douglas contributed to this report.