CapitalSource Inc. in Chevy Chase, Md., reported Thursday that it swung to a $247 million loss in the second quarter, from a profit of $62 million a year earlier, as credit quality continued to worsen.

The net loss at the company's CapitalSource Bank in Pasadena, Calif., widened to $70.8 million, from $94,000 in the first quarter, after it booked a $90.4 million provision for loan losses.

Overall, the company's provision for loan losses totaled $203.8 million.

The bank had $85 million in nonaccrual loans at the end of the quarter, up 270% from the first quarter and making up 2.26% of its assets.

The parent company had nonaccruals of $884 million, or 8.91% of total assets.

The bank was started last summer with $5.6 billion of deposits, 22 branches and some assets bought from an industrial loan bank owned by Fremont General Corp. in Brea, Calif. According to data from the Federal Deposit Insurance Corp., the bank had $5.7 billion of assets at the end of the second quarter.

Despite the increased credit costs, the bank reported exceedingly high capital levels at the end of the quarter; its total risk-based capital ratio was 16.77% and Tier 1 leverage ratio 12.46%.

The $15.1 billion-asset company's second-quarter results were also hurt by a $137 million valuation allowance against its deferred tax asset.

The company did not give an update about its application to convert to a bank holding company.

A call to the company was not immediately returned.

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