CAPITALSOURCE INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 30, 2012

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EXHIBIT 99.1

CapitalSource Reports First Quarter 2012 Results

  • First Quarter Net Income of $25 Million or $0.10 Per Share
  • Net Interest Margin of 5.12% at CapitalSource Bank
  • Net Loan Growth of $194 Million (4%) at CapitalSource Bank
  • Year to Date Share Repurchases of 24 Million / 96 Million Since Start of Program
  • Consolidated Credit Metrics Show Improvement

LOS ANGELES, April 30, 2012 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE:CSE) today announced financial results for the first quarter of 2012. The Company reported net income for the quarter of $25 million, or $0.10 per diluted share, compared to net income of $9 million, or $0.03 per diluted share in the prior quarter and net income of $3 million, or $0.01 per diluted share in the first quarter of 2011.

"Our financial performance in the first quarter exceeded our expectations and represents a solid beginning for 2012. CapitalSource Bank again demonstrated meaningful loan and revenue growth, a strong net interest margin and improved credit performance. Additionally, our strategy of consolidating operations has produced operating expense savings for the quarter consistent with our target of a 5-10% reduction from 2011, or total operating expense of $190-$200 million for the full year," said James J. Pieczynski, CapitalSource CEO. "We also continued to return Parent Company excess capital to shareholders in the form of share buybacks. Nineteen million shares were repurchased in the quarter and we purchased 5 million additional shares this month pursuant to a 10b5-1 plan, bringing total repurchases over the past 16 months to 95.6 million shares or approximately 30% of the 323 million shares outstanding when the program began in December of 2010," added Pieczynski.

"The new year is off to a great start at CapitalSource Bank – compared to the prior quarter, total interest income increased 4% to $99 million, net interest margin was 17 basis points higher at 5.12%, our loan and lease portfolio grew by $194 million or 4%, and pretax income was 17% above the prior quarter at $55 million," said Tad Lowrey, CapitalSource Bank CEO. "In addition to our growing profitability, we continue to add new deposits at very attractive rates. Deposits grew $224 million in the first quarter, bringing total deposits to $5.3 billion, while our total deposit cost declined by five basis points from the prior quarter. New and renewing time deposits in the first quarter averaged just 91 basis points," concluded Lowrey.

"Our credit metrics improved across the board in the first quarter – continuing a trend that we observed throughout 2011. On a consolidated basis, non-accruals declined by $42 million, or 15%; our quarterly loan loss provision declined slightly to $11 million; and net charge-offs were down dramatically at $13 million, compared to $66 million in the prior quarter," said John Bogler, CapitalSource CFO. "Consistent with our previous communications, we recorded a $22 million non-cash tax valuation charge in the first quarter. For the remainder of 2012, however, we expect to record quarterly tax expense of approximately $5 million prior to reversing the majority of our tax valuation allowance which is anticipated by year end," added Bogler.

CAPITALSOURCE BANK SEGMENT

This segment includes our commercial lending and banking business activities in CapitalSource Bank.

First Quarter 2012 Highlights

  • Net Income was $32 million, an increase of $4 million from the prior quarter primarily due to an increase in interest income and a decrease in quarterly loan loss provision. Total interest income rose 4% to $99 million.
  • Loans and Leases increased $194 million or 4%. Funded loan and lease productionwas $522 million, compared to $665 million in the prior quarter. Total loans and leases were $5.1 billion at quarter end.
  • Net Interest Margin was 5.12%, an increase of 17 basis points from the prior quarter, primarily due to non-recurring items.
  • Capital – The total risk-based capital ratio declined 121 basis points to 16.22% due to payment of an $80 million dividend to the Parent, partially offset by earnings in the quarter. The Tier 1 leverage ratio decreased 122 basis points to 12.39%.
  • Credit Quality - Loan loss provision was $2 million, compared to $4 million in the prior quarter. There was a $0.1 million net recovery in the quarter, compared to $28 million net charge-offs in the prior quarter. Non-accrual loans declined by 31% to $83 million or 1.64% of loans at quarter end, compared to $121 million or 2.47% of loans at the end of the prior quarter. The allowance for loan and lease losses was $97 million or 1.94% of loans at quarter end, compared to $95 million or 1.98% of loans at the end of the prior quarter.

First Quarter 2012 Details

Interest Income was $99 million, an increase of $4 million (4%) from the prior quarter primarily due to growth in interest-earning assets, a higher mix of loans and higher yield on investment securities.

               
  Quarter Ended
        3/31/12 vs. 12/31/11 3/31/12 vs. 3/31/11
  3/31/12 12/31/11 3/31/11 $ % $ %
               
($ in thousands)              
Interest income $ 98,620 $ 94,497 $ 91,804 $ 4,123 4% $ 6,816 7%
Interest expense  16,059 15,998 15,210 (61)  -- (849) (6)
Provision for loan losses  1,903 3,903 11,242 2,000 51 9,339 83
Non-interest income  15,469 13,743 5,832 1,726 13 9,637 165
Non-interest expense  41,164 41,455 35,808 291 1 (5,356) (15)
Income tax expense  23,159 19,548 3,095 (3,611) (18) (20,064) (648)
Net income   31,804 27,336 32,281 4,468 16 (477) (1)

Net Interest Margin was 5.12%, an increase of 17 basis points from the prior quarter as detailed below.

               
  Quarter Ended
  3/31/2012   12/31/2011
Net Interest Margin Average
Balance		 Interest
Income/Expense		 Average
Yield/Cost		   Average
Balance		 Interest
Income/Expense		 Average
Yield/Cost
               
($ in thousands)              
Loans and leases $ 4,934,215 $ 88,858  7.24% (1) $ 4,642,500 $ 84,806 7.25%
Investment securities  1,243,807  9,474  3.06    1,436,155  9,538 2.63
Cash and other interest-earning assets  303,537  288  0.38    207,929  153 0.29
Total interest-earning assets  6,481,559  98,620  6.12    6,286,584  94,497 5.96
Deposits  5,237,572  13,291  1.02    4,982,956  13,406 1.07
Borrowings  567,736  2,768  1.96    511,957  2,592  2.01
Total interest-bearing liabilities   $5,805,308  16,059  1.11   $ 5,494,913  15,998  1.16
Net interest spread    82,561  5.01%     $ 78,499  4.80%
Net interest margin      5.12%        4.95%
               
(1) Loan yield for the quarter included 65 basis points of fee and discount accretion, compared to 69 basis points in the prior quarter.

Non-interest Income was $15 million, an increase of $2 million from the prior quarter. Intercompany income for the period was $7 million, an increase of $3 million from the prior quarter, mainly due to fee income from the Parent Company for support provided by Bank employees. Certain of these employees are former Parent Company employees that transferred into the Bank on January 1, 2012.

Non-interest Expense was $41 million, unchanged from the prior quarter. An increase in compensation expense due to the transfer of Parent Company employees into the Bank on January 1, 2012 was offset by the elimination of loan referral fees paid to the Parent and lower REO expense.

Income Tax Expense was $23 million for the quarter, compared to $20 million in the prior quarter, primarily due to higher pre-tax income in the quarter.

Cash and Investments increased by $79 million to $1.7 billion. The portfolio yield at quarter end declined 18 basis points to 2.19%, primarily due to a higher mix of cash and cash equivalents.

 
Cash and Investments 3/31/2012 12/31/2011
($ in thousands) Balance Yield Duration
(Years)		 Balance Yield Duration
(Years)
Cash and cash equivalents and restricted cash $ 457,104 0.23%  0.1 $ 317,455 0.22% -- 
Agency callable notes  20,123 2.46%  3.8  37,318 2.43%  4.3 
Agency debt  24,262 1.98%  0.6  24,713 2.02%  0.9 
Agency MBS  966,293 2.66%  2.9  994,797 2.60%  2.5 
Non-agency MBS  55,818 4.33%  2.2  66,930 4.23%  1.6 
CMBS  111,076 4.04%  2.4  111,706 4.06%  4.1 
Asset-backed securities  13,909 11.34%  1.0  15,607 11.71%  0.9 
U.S. Treasury and agency securities  18,869 2.56%  6.3  19,754 2.77%  6.2 
  $ 1,667,454 2.19%  2.0  $ 1,588,280 2.37%  2.1 

Total Loans Held for Sale decreased $36 million from the prior quarter to $94 million, due to loan sales completed in the quarter.

Loans and Leases increased $194 million (4%) from the prior quarter as detailed below.

 
  Quarter Ended
Loan and Lease Roll Forward (1) 3/31/2012 12/31/2011 3/31/2011
($ in thousands)      
Beginning balance $ 4,894,292 $ 4,551,561 $ 3,834,310
New fundings  521,476  664,819  627,470
Existing loans and leases      
Principal repayments, net (320,550) (296,288) (440,688)
Leased equipment depreciation (2,288) (2,012)  --
Transfers to held for sale, net  5,000 (107,023) (3,110)
Transfers to foreclosed assets (9,567) (849) (2,013)
Net recoveries / (charge-offs)  63 (27,937) (3,150)
Intercompany sales  --  112,021  --
Ending balance  $ 5,088,426 $ 4,894,292 $ 4,012,819
       
(1) Includes operating leases and equity investments related to operating leases which are included in other assets and other investments, respectively, on our balance sheet. 
 
  Quarter Ended
Loan and Lease Portfolio Detail 3/31/2012 12/31/2011 3/31/2011
($ in thousands)      
Healthcare Asset Based $ 194,608 $ 213,047 $ 181,988
Equipment Finance (1)  417,854  441,821  276,009
Lender Finance & Timeshare  744,065  750,667  603,821
Other Asset Based  49,325  44,971  8,987
Total Asset Based  1,405,852  1,450,506  1,070,805
General Cash Flow  265,949  239,944  260,747
Technology Cash Flow  497,992  448,972  272,456
Security Cash Flow  293,182  306,533  255,421
Healthcare Cash Flow  293,876  286,057  168,832
Professional Practice  128,615  110,240  70,566
Total Cash Flow  1,479,613  1,391,746  1,028,022
General Real Estate  575,849  476,407  766,810
Multi Family  881,078  856,494  587,011
Healthcare Real Estate  560,053  554,645  428,322
Small Business  185,982  164,494  131,849
Total Real Estate  2,202,961  2,052,040  1,913,992
Total $ 5,088,426 $ 4,894,292 $ 4,012,819
       
(1) Includes $104 million of operating leases and related equity investments as of March 31, 2012 and $107 million as of December 31, 2011, which are included in other assets and other investments, respectively, on our balance sheet.

Deposits were $5.3 billion at quarter end, an increase of $224 million (4%) from the prior quarter. The weighted average interest rate on total deposits declined eight basis points to 0.98% at the end of the quarter. The weighted average rate of new and renewing time deposits in the quarter was 0.91%.

FHLB Borrowings were $587 million, an increase of $37 million from the prior quarter. FHLB borrowings are used primarily for interest rate risk management or short-term funding purposes. The weighted average rate of FHLB borrowings was 1.90% as of March 31, 2012, compared to 1.96% at the end of the prior quarter, and the average remaining maturity declined from 3.7 years to 3.6 years.

Allowance for Loan and Lease Losses was $97 million or 1.94% of the loan portfolio, an increase of $2 million from the prior quarter.

 
  Quarter Ended
Allowance for Loan and Lease Losses 3/31/2012
($ in thousands) General Specific Total  % Loans
Beginning balance  $ 84,587 $ 10,063 $ 94,650  
(Reserve release) / Provision (211)  2,114  1,903  
Recoveries, net  --  63  63  
Ending balance $ 84,376 $ 12,240 $ 96,616 1.94%
         
         
  Quarter Ended
  12/31/2011
  General Specific Total  % Loans
Beginning balance $ 108,916 $ 9,768 $ 118,684  
(Reserve release) / Provision (24,329)  28,232  3,903  
Charge-offs, net  -- (27,937) (27,937)  
Ending balance $ 84,587 $ 10,063 $ 94,650 1.98%

Non-performing Assets were $97 million, a decrease of $30 million (24%) from the prior quarter. Non-accrual loans were $83 million, a decrease of $38 million (31%) from the prior quarter.

         
Non-performing Assets 3/31/2012 12/31/2011
  Balance % of Total
Assets		 Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 58,815  0.84% $ 101,703  1.50%
Non-accrual loans - delinquent 30-89 days  13,697  0.19  1,910  0.03
Non-accrual loans - delinquent 90+ days  10,694  0.15  17,646  0.26
Total non-accrual loans  83,206  1.18%  121,259  1.78%
REO  13,698  0.20  5,902  0.09
Total non-performing assets $ 96,904  1.38% $ 127,161  1.87%

Troubled Debt Restructurings were $62 million, a decrease of $32 million from the prior quarter. TDRs on accrual status increased to $53 million from $36 million in the prior quarter. Of the total TDR balance, $23 million and $36 million as of March 31, 2012 and December 31, 2011, respectively, have been performing for 12 months or more in accordance with the revised contractual terms and are no longer considered impaired. Non-accruing TDRs were $9 million (included in the "Non-accrual loans" in the table above), though $8 million were current as to payment status, compared to $57 million in the prior quarter.

OTHER COMMERCIAL FINANCE SEGMENT

This segment includes the CapitalSource Inc. loan portfolio and other business activities at the Parent Company.

First Quarter 2012 Details

Net Loss was $6 million, compared to a loss of $18 million in the prior quarter. Prior quarter results included a $5 million loss on debt retirement and $5 million in severance charges. The Parent Company recorded a net tax expense of $3 million in the first quarter due to posting a valuation allowance on the Bank's remaining deferred tax asset, partially offset by a release of the valuation allowance due to current taxable income.

Interest Income was $23 million, a decrease of $1 million from the prior quarter primarily due to a decline in the average loan balance.

               
  Quarter Ended
        3/31/12 vs. 12/31/11 3/31/12 vs. 3/31/11
  3/31/12 12/31/11 3/31/11 $ % $ %
               
($ in thousands)              
Interest income $ 22,702 $ 24,088 $ 47,614 $ (1,386) (6)% $ (24,912) (52)%
Interest expense  4,799 6,965 31,542 2,166 31 26,743 85
Provision for loan losses  9,169 7,632 33,567 (1,537) (20) 24,398 73
Non-interest income  3,491 22,258 37,708 (18,767) (84) (34,217) (91)
Non-interest expense  15,560 49,772 46,680 34,212 69 31,120 67
Income tax expense  2,550 263 8,067 (2,287) (870) 5,517 68
Net loss (5,885) (18,286) (34,534) 12,401 68 28,649 83

Non-interest Income was $3 million, compared to $22 million for the prior quarter primarily due to the elimination of loan referral fees from CapitalSource Bank.

Non-interest Expense was $16 million, compared to $50 million in the prior quarter. The decline was due to several factors including: a $16 million decrease in compensation and benefits resulting from the transfer of Parent Company employees into the Bank on January 1, 2012; a $2 million decrease in professional fees; a $2 million decline in expense of real estate owned and other foreclosed assets; and a $4 million net decrease in other non-interest expense. In addition, the prior quarter included a $5 million loss on retirement of debt and $5 million in severance charges.

Unrestricted Cash at March 31st was $107 million, which was down approximately $35 million from the prior quarter. The principal uses of cash in the quarter were share repurchases of $129 million and ordinary operations. The two largest sources of cash were the $80 million dividend received from the Bank in February and $33 million in loan payments from the non-securitized loan portfolio. 

Total Loans Held for Sale declined by $1 million from the prior quarter to $62 million.

Loans and Leases decreased by $72 million from the prior quarter as detailed below. Securitized loan balances were $463 million, a decrease of $40 million from the prior quarter. Non-securitized loan balances, which include loans held for sale, were $500 million, a decrease of $33 million from the prior quarter.

       
  Quarter Ended
Loan and Lease Roll Forward 3/31/2012 12/31/2011 3/31/2011
($ in thousands)      
Beginning balance $ 971,601 $ 1,284,101 $ 2,318,566
Existing loans and leases      
Principal repayments, net (46,634) (97,350) (176,667)
Transfers to held for sale, net (10,557) (62,930)  515
Transfers to foreclosed assets (1,710) (1,880)  --
Charge-offs, net (12,864) (38,319) (87,507)
Intercompany sales  -- (112,021)  --
Ending balance $ 899,836 $ 971,601 $ 2,054,907

Allowance for Loan and Lease Losses was $55 million, or 6.14% of the loan portfolio, a decline of $4 million from the prior quarter as detailed below. 

         
  Quarter Ended
Allowance for Loan and Lease Losses 3/31/2012
($ in thousands) General Specific Total  % Loans
Beginning balance $ 42,596 $ 16,385 $ 58,981  
(Reserve release) / Provision (5,434)  14,603  9,169  
Charge-offs, net  -- (12,864) (12,864)  
Ending balance  $ 37,162 $ 18,124 $ 55,286 6.14%
         
  Quarter Ended
  12/31/2011
  General Specific Total  % Loans
Beginning balance  $ 70,006 $ 19,662 $ 89,668  
(Reserve release) / Provision (27,410)  35,042  7,632  
Charge-offs, net  -- (38,319) (38,319)  
Ending balance $ 42,596 $ 16,385 $ 58,981 6.07%

Non-performing Assets were $175 million, a decline of $9 million (5%) from the prior quarter as detailed below. As of March 31, 2012, $92 million of non-accrual loans were current as to payment status. All collections on those loans are applied to the outstanding principal balance.

         
Non-performing Assets 3/31/2012 12/31/2011
  Balance % of Total
Assets		 Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 91,901  6.94% $ 84,462  5.50%
Non-accrual loans - delinquent 30-89 days  61 --  2,407  0.16
Non-accrual loans - delinquent 90+ days  63,055  4.76  72,547  4.73
Total non-accrual loans  155,017  11.70%  159,416  10.39%
Accruing loans - delinquent 90+ days  --  --  5,603  0.37
REO  20,274  1.53  19,165  1.25
Total non-performing assets  $ 175,291  13.23% $ 184,184  12.00%

Troubled Debt Restructurings were $194 million, a decrease of $23 million from the prior quarter. TDRs on accrual status decreased by $22 million to $120 million. Non-accruing TDRs were $74 million (included in the "Non-accrual loans" in the table above), though $55 million were current as to payment status, compared to $75 million in the prior quarter.

CONSOLIDATED

First Quarter 2012 Details

Net Income was $25 million or $0.10 per diluted share, compared to net income of $9 million, or $0.03 per diluted share, in the prior quarter as detailed below.

               
  Quarter Ended
        3/31/12 vs. 12/31/11 3/31/12 vs. 3/31/11
  3/31/12 12/31/11 3/31/11 $ % $ %
               
($ in thousands)              
Interest income $ 120,077 $ 119,337 $ 142,152 $ 740 1% $ (22,075) (16)%
Interest expense  20,858  22,963  46,752 2,105 9 25,894 55
Provision for loan and lease losses  11,072  11,535  44,809 463 4 33,737 75
Non-interest income  11,550  16,201  26,212 (4,651) (29) (14,662) (56)
Non-interest expense  49,050  72,293  62,482 23,243 32 13,432 21
Income tax expense  25,709  19,811  11,162 (5,898) (30) (14,547) (130)
Net income  24,938  8,936  3,159 16,002 179 21,779 689

Interest Income was $120 million, an increase of $1 million (1%).

Non-Interest Expense was $49 million, a decrease of $23 million from the prior quarter as detailed below. Compensation and benefits in the prior quarter included $5 million in severance charges. The current quarter decline in compensation also reflects the benefits of staffing consolidation.

       
  Quarter Ended
Non-Interest Expense 3/31/2012 12/31/2011 % Change
($ in thousands)      
Compensation and benefits $ 26,416 $ 35,141  25%
Professional fees  3,600  4,750  24
Occupancy expenses  3,759  3,817  2
FDIC fees and assessments  1,449  1,385 (5)
General depreciation and amortization  1,695  1,596 (6)
Other administrative expenses  9,620  10,330  7
Total operating expenses  46,539  57,019  18
Leased equipment depreciation  2,288  2,012 (14)
Expense of real estate owned and other foreclosed assets, net  450  5,223  91
Loss on extinguishment of debt  83  5,328  98
Other non-interest (income) expense, net (310)  2,711  111
Total non-interest expense $ 49,050 $ 72,293  32%

Income Tax Expense was $26 million, due primarily to posting of a $22 million non-cash tax valuation allowance on the Bank's remaining deferred tax asset.

Total Loans Held for Sale decreased $37 million from the prior quarter to $156 million, primarily due to $38 million in loan sales during the quarter.

Loans and Leases increased $122 million from the prior quarter as detailed below:

       
  Quarter Ended
Loan and Lease Roll Forward (1) 3/31/2012 12/31/2011 3/31/2011
($ in thousands)      
Beginning balance $ 5,865,893 $ 5,835,662 $ 6,152,876
New fundings   521,476  664,819  627,470
Existing loans and leases      
Principal repayments, net (367,184) (393,638) (617,355)
Leased equipment depreciation (2,288) (2,012)  -- 
Transfers to held for sale, net (5,557) (169,953) (2,595)
Transfers to foreclosed assets (11,277) (2,729) (2,013)
Charge-offs, net (12,801) (66,256) (90,657)
Ending balance  $ 5,988,262 $ 5,865,893 $ 6,067,726
       
(1) Includes operating leases and equity investments related to operating leases which are included in Other Assets and Other Investments on our balance sheet. 

Allowance for Loan and Lease Losses was $152 million, or 2.58% of the loan portfolio, compared to $154 million, or 2.67% at the end of the prior quarter.

Net Charge-offs were $13 million, a decrease of $53 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve month period ended March 31, 2012 were 3.31%, compared to 4.62% for the twelve month period ended December 31, 2011. 

         
  Quarter Ended
Allowance for Loan and Lease Losses 3/31/2012
($ in thousands) General Specific Total  % Loans
Beginning balance $ 127,183 $ 26,448 $ 153,631  
(Reserve release) / Provision (5,645)  16,717  11,072  
Charge-offs, net  -- (12,801) (12,801)  
Ending balance $ 121,538 $ 30,364 $ 151,902 2.58%
         
  Quarter Ended
  12/31/2011
  General Specific Total  % Loans
Beginning balance  $ 178,922 $ 29,430 $ 208,352  
(Reserve release) / Provision (51,739)  63,274  11,535  
Charge-offs, net  -- (66,256) (66,256)  
Ending balance $ 127,183 $ 26,448 $ 153,631 2.67%

Non-performing Assets were $272 million, a decline of $39 million (13%) from the prior quarter primarily due to a $42 million decrease in non-accrual loans. As of March 31, 2012, $151 million of non-accrual loans were current as to payment status. All collections on those loans are applied to the outstanding principal balance. 

         
Non-performing Assets 3/31/2012 12/31/2011
  Balance % of Total
Assets		 Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 150,716  1.81% $ 186,165  2.24%
Non-accrual loans - delinquent 30-89 days  13,758  0.17  4,317  0.05
Non-accrual loans - delinquent 90+ days  73,749  0.89  90,193  1.09
Total non-accrual loans  238,223  2.87%  280,675  3.38%
Accruing loans - delinquent 90+ days  --  --  5,603  0.07
REO  33,972  0.41  25,069  0.30
Total non-performing assets $ 272,195  3.28% $ 311,347  3.75%

Troubled Debt Restructurings were $256 million, a decrease of $55 million from the prior quarter. TDRs on accrual status decreased by $5 million to $173 million. Of the total TDR balance, $23 million and $36 million as of March 31, 2012 and December 31, 2011, respectively, have been performing for 12 months or more in accordance with the revised contractual terms and are no longer considered impaired. Non-accruing TDRs were $82 million (included in the "Non-accrual loans" in the table above), though $63 million were current as to payment status, compared to $132 million in the prior quarter.

Valuation Allowance related to the Company's deferred tax assets was $514 million, a decrease of $1 million from the end of the prior quarter. The net deferred tax asset at quarter end after subtracting the valuation allowance was $22 million, a decrease of $23 million from the prior quarter.  The valuation allowance is a non-cash accounting charge which will exist until there is sufficient positive evidence to support its reduction or reversal. Approximately 60% of the valuation allowance is expected to reverse by the fourth quarter of 2012.

Book Value Per Share was $6.21 at the end of the quarter, an increase of $0.06 from the end of the prior quarter. Total shareholders' equity was $1.5 billion at the end of the quarter, a decrease of $103 million from the prior quarter primarily due to share repurchases of $129 million in the quarter partially offset by net income.

Share Repurchases during the quarter totaled19 million shares at a total cost of $129 million. Subsequent to quarter end, the Company repurchased 5 million additional shares pursuant to a 10b5-1 plan at a total cost of $33 million. As a result, the remaining authority for share repurchases as of April 27, 2012 was $176 million. Since inception of the share buyback program the Company has repurchased 95.6 million shares, or approximately 30% of the December of 2010 starting balance of 323 million shares, at an average purchase price of $6.37 per share.

Any share repurchases made pursuant to the Company's stock repurchase program will be made through open market purchases or privately negotiated transactions from time to time until December 2012 – two years from initiation of the program in December 2010. The amount and exact timing of any repurchases will depend upon market conditions and other factors. There are no assurances the Company will repurchase any shares during the period and the plan may be suspended or discontinued at any time.

Average Diluted Shares Outstanding were 247.6 million shares for the quarter, compared to 271.3 million shares for the prior quarter. Total outstanding shares at March 31, 2012 were 237.1 million.

Quarterly Cash Dividend of $0.01 per common share was paid on March 30, 2012 to common shareholders of record on March 15, 2012.

Conference Call Details

A conference call to discuss the results will be hosted on Monday, April 30, 2012 at 2:30 p.m. PDT / 5:30 p.m. EDT. Interested parties may access the call via webcast on the Investor Relations section of the CapitalSource web site at http://ir.capitalsource.com. An audio replay will also be available on the website from approximately 6:00 p.m. PDT / 9:00 p.m. EDT April 30, 2012 through July 30, 2012.

CapitalSource Bank Call Report

CapitalSource Bank will file its Consolidated Reports of Condition and Income for a Bank With Domestic Offices Only-FFIEC 041, for the quarter ended March 31, 2012 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on April 30, 2012. The Call Report will subsequently be posted by the FDIC on its website at http://cdr.ffiec.gov/Public/.

About CapitalSource

CapitalSource Inc. (NYSE:CSE), through its wholly owned subsidiary CapitalSource Bank, makes commercial loans to small and middle-market businesses nationwide and offers depository products and services in 21 retail branches in southern and central California. CapitalSource, headquartered in Los Angeles, CA, had total assets of $8.3 billion and total deposits of $5.3 billion as of March 31, 2012. For more information, visit www.capitalsource.com.

Forward Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, strategies, goals, and projections and including statements about our consolidated tax expense, and the timing of the DTA valuation allowance reversal, all which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words 'anticipate,' 'assume,' 'intend,' 'believe,' 'expect,' 'estimate,' 'forecast,' 'plan,' 'position,' 'project,' 'will,' 'should,' 'would,' 'seek,' 'continue,' 'outlook,' 'look forward,' and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding preliminary and future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including without limitation: changes in tax laws or regulations affecting our business, our inability to generate sufficient earnings, tax planning or disallowance of tax benefits by tax authorities, and other factors described in CapitalSource's 2011 Annual Report on Form 10-K and documents subsequently filed by CapitalSource with the Securities and Exchange Commission. All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by applicable law.

 
CapitalSource First Quarter 2012 – Financial Supplement
 
CapitalSource Inc.
Consolidated Balance Sheets
 ($ in thousands)
     
  March 31, December 31,
  2012  2011 
  (Unaudited) (Audited)
     
ASSETS
Cash and cash equivalents  $ 521,405 $ 458,548
Restricted cash   99,554  65,484
Investment securities:     
Available-for-sale, at fair value   1,139,509  1,188,002
Held-to-maturity, at amortized cost   111,076  111,706
Total investment securities   1,250,585  1,299,708
Loans:    
Loans held for sale   156,021  193,021
Loans held for investment   5,884,226  5,758,990
Less deferred loan fees and discounts  (67,809) (68,843)
Less allowance for loan and lease losses  (151,902) (153,631)
Loans held for investment, net   5,664,515  5,536,516
Total loans   5,820,536  5,729,537
Interest receivable   41,235  38,796
Other investments   76,394  81,245
Goodwill   173,135  173,135
Other assets   323,812  453,615
Total assets  $ 8,306,656 $ 8,300,068
     
LIABILITIES AND SHAREHOLDERS' EQUITY
     
Liabilities:    
Deposits  $ 5,348,790 $ 5,124,995
Term debt   273,615  309,394
Other borrowings   1,049,124  1,015,099
Other liabilities   163,046  275,434
Total liabilities   6,834,575  6,724,922
     
     
Shareholders' equity:    
Preferred stock (50,000,000 shares authorized; no shares outstanding)   --  --
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 237,119,534 and 256,112,205 shares issued and outstanding, respectively)   2,372  2,561
Additional paid-in capital   3,361,404  3,487,911
Accumulated deficit  (1,912,197) (1,934,732)
Accumulated other comprehensive income, net   20,502  19,406
Total shareholders' equity   1,472,081  1,575,146
Total liabilities and shareholders' equity  $ 8,306,656 $ 8,300,068
 
 
CapitalSource First Quarter 2012 – Financial Supplement
 
CapitalSource Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, except per share data)
       
  Three Months Ended
  March 31, December 31, March 31,
  2012  2011  2011 
Net interest income:      
Interest income:      
Loans and leases  $ 109,070 $ 108,299   $ 123,500
Investment securities   10,717  10,849   18,352
Other   290  189   300
Total interest income   120,077  119,337   142,152
Interest expense:      
Deposits   13,291  13,406   13,383
Borrowings   7,567  9,557   33,369
Total interest expense   20,858  22,963   46,752
Net interest income   99,219  96,374   95,400
Provision for loan and lease losses   11,072  11,535   44,809
Net interest income after provision for loan and lease losses   88,147  84,839   50,591
       
Non-interest income:      
Loan fees   4,668  4,799   4,604
Leased equipment income   3,258  2,774   --
(Loss) gain on investments, net  (307)  7,200   23,515
Loss on derivatives, net  (103) (2,551) (1,878)
Other non-interest income, net   4,034  3,979  (29)
Total non-interest income   11,550  16,201   26,212
       
Non-interest Expense:      
Compensation and benefits   26,416  35,141  30,379
Professional fees   3,600  4,750  3,570
Occupancy expenses   3,759  3,817  3,954
FDIC fees and assessments   1,449  1,385  1,990
Leased equipment depreciation   2,288  2,012  --
General depreciation and amortizations   1,695  1,596  1,843
Expense of real estate owned and other foreclosed assets, net   450  5,223  10,333
Loss on extinguishment of debt   83  5,328  --
Other non-interest expense, net   9,310  13,041  10,413
Total non-interest expense   49,050  72,293  62,482
       
Net income before income taxes   50,647  28,747  14,321
Income tax expense   25,709  19,811  11,162
Net income   24,938  8,936  3,159
       
Other comprehensive income, net of tax      
Unrealized gain (loss) on available-for-sale securities, net of tax   1,447 (7,927)  4,843
Unrealized (loss) gain on foreign currency translation, net of tax  (351) (4,492)  9,582
Other comprehensive income   1,096 (12,419)  14,425
Comprehensive income  $ 26,034  $ (3,483) $ 17,584
       
Net income per share:      
Basic  $ 0.10  $ 0.03 $ 0.01
Diluted  $ 0.10  $ 0.03 $ 0.01
Average shares outstanding:      
Basic   241,078,624   264,836,221  320,196,690
Diluted   247,598,531   271,272,855  326,963,738
       
Dividends declared per share  $ 0.01  $ 0.01 $ 0.01
 
 
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
                 
  March 31, 2012 December 31, 2011
  CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED
ASSETS                
                 
Cash and cash equivalents and restricted cash  $ 457,104 $ 163,855 $ -- $ 620,959 $ 317,455 $ 206,577 $ -- $ 524,032
Investment securities:                
Available-for-sale   1,099,274  40,235  --  1,139,509  1,159,119  28,883  --  1,188,002
Held-to-maturity   111,076  --  --  111,076  111,706  --  --  111,706
Loans:                
Loans   5,024,167  946,204  2,067  5,972,438  4,864,416  1,015,440  3,312  5,883,168
Allowance for loan and lease losses  (96,616) (55,286)  --  (151,902) (94,650) (58,981)  -- (153,631)
Loans, net of allowance for loan and lease losses   4,927,551  890,918  2,067  5,820,536  4,769,766  956,459  3,312  5,729,537
Receivables due from affiliates   1,845  29,474 (31,319)  --  959  16,650 (17,609)  --
Other assets   432,957  200,434 (18,815)  614,576  434,491  326,129 (13,829)  746,791
Total assets  $ 7,029,807 $ 1,324,916  $ (48,067) $ 8,306,656 $ 6,793,496 $ 1,534,698  $ (28,126) $ 8,300,068
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                 
Deposits  $ 5,348,790 $ -- $ -- $ 5,348,790 $ 5,124,995 $ -- $ -- $ 5,124,995
Borrowings   587,000  735,739  --  1,322,739  550,000  774,493  --  1,324,493
Balance due to affiliates   29,470  1,849 (31,319)  --  16,650  959 (17,609)  --
Other liabilities   58,902  126,043 (21,899)  163,046  51,548  240,534 (16,648)  275,434
Total liabilities   6,024,162  863,631 (53,218)  6,834,575  5,743,193  1,015,986 (34,257)  6,724,922
                 
Shareholders' equity:                
Common stock   921,000  2,372 (921,000)  2,372  921,000  2,561 (921,000)  2,561
Additional paid-in capital/retained earnings/deficit   68,398  438,411  942,398  1,449,207  113,673  496,745  942,761  1,553,179
Accumulated other comprehensive income, net   16,247  20,502 (16,247)  20,502  15,630  19,406 (15,630)  19,406
Total shareholders' equity   1,005,645  461,285  5,151  1,472,081  1,050,303  518,712  6,131  1,575,146
                 
Total liabilities and shareholders' equity  $ 7,029,807 $ 1,324,916  $ (48,067) $ 8,306,656 $ 6,793,496 $ 1,534,698  $ (28,126) $ 8,300,068
                 
Book value per outstanding share  $ 4.24 $ 1.95 $ 0.02 $ 6.21 $ 4.10 $ 2.03 $ 0.02 $ 6.15
 
 
CapitalSource Inc.
Segment Statements of Operations
(Unaudited)
($ in thousands)
                 
  Three Months Ended March 31, 2012 Three Months Ended December 31, 2011
Net interest income: CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED
Interest income:                
Loans and leases   88,858  21,457 (1,245)  109,070  84,806  22,741  752  108,299
Investment securities   9,474  1,243  --  10,717  9,538  1,311  --  10,849
Other   288  2  --  290  153  36  --  189
Total interest income  $ 98,620 $ 22,702 $ (1,245) $ 120,077 $ 94,497 $ 24,088 $ 752 $ 119,337
Interest expense:                
Deposits   13,291  --  --  13,291  13,406  --  --  13,406
Borrowings   2,768  4,799  --  7,567  2,592  6,965  --  9,557
Total interest expense   16,059  4,799  --  20,858  15,998  6,965  --  22,963
Net interest income   82,561  17,903 (1,245)  99,219  78,499  17,123  752  96,374
Provision for loan and lease losses   1,903  9,169  --  11,072  3,903  7,632  --  11,535
Net interest income after provision for loan and lease losses   80,658  8,734 (1,245)  88,147  74,596  9,491  752  84,839
                 
Non-interest income:                
Loan fees   3,337  1,331  --  4,668  3,305  1,494  --  4,799
Leased equipment income   3,258  --  --  3,258  2,774  --  --  2,774
Other non-interest income, net   8,874  2,160 (7,410)  3,624  7,664  20,764 (19,800)  8,628
Total non-interest income, net   15,469  3,491 (7,410)  11,550  13,743  22,258 (19,800)  16,201
                 
Non-interest expense:                
Compensation and benefits   24,583  1,833  --  26,416  13,122  23,222 (1,203)  35,141
Professional fees   1,367  2,233  --  3,600  619  4,131  --  4,750
Leased equipment depreciation   2,288  --  --  2,288  2,012  --  --  2,012
Expense of real estate owned and other foreclosed assets, net  (298)  748  --  450  2,531  2,692  --  5,223
Loss on extinguishment of debt   --  83  --  83  --  5,328  --  5,328
Other non-interest expense, net   13,224  10,663 (7,674)  16,213  23,171  14,399 (17,731)  19,839
Total non-interest expense, net   41,164  15,560 (7,674)  49,050  41,455  49,772 (18,934)  72,293
                 
Net income (loss) before income taxes   54,963 (3,335) (981)  50,647  46,884 (18,023) (114)  28,747
Income tax expense   23,159  2,550  --  25,709  19,548  263  --  19,811
Net income (loss)  $ 31,804 $ (5,885) $ (981) $ 24,938 $ 27,336 $ (18,286) $ (114) $ 8,936
                 
  Three Months Ended March 31, 2011  
Net interest income: CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED        
Interest income:                
Loans and leases   76,845  43,921  2,734  123,500            
Investment securities   14,723  3,629  --  18,352            
Other   236  64  --  300            
Total interest income  $ 91,804 $ 47,614 $ 2,734 $ 142,152            
Interest expense:                
Deposits   13,383  --  --  13,383            
Borrowings   1,827  31,542  --  33,369            
Total interest expense   15,210  31,542  --  46,752            
Net interest income   76,594  16,072  2,734  95,400            
Provision for loan and lease losses   11,242  33,567  --  44,809            
Net interest income (loss) after provision for loan and lease losses   65,352 (17,495)  2,734  50,591            
                 
Non-interest income:                
Loan fees   2,144  2,460  --  4,604            
Other non-interest income, net   3,688  35,248 (17,328)  21,608            
Total non-interest income, net   5,832  37,708 (17,328)  26,212            
                 
Non-interest expense:                
Compensation and benefits   11,708  19,502 (831)  30,379            
Professional fees   265  3,305  --  3,570            
Expense of real estate owned and other foreclosed assets, net   2,919  7,414  --  10,333            
Other non-interest expense, net   20,916  16,459 (19,175)  18,200            
Total non-interest expense, net   35,808  46,680 (20,006)  62,482            
                 
Net income (loss) before income taxes   35,376 (26,467)  5,412  14,321            
Income tax expense   3,095  8,067  --  11,162            
Net income (loss) from continuing operations  $ 32,281 $ (34,534) $ 5,412 $ 3,159            
 
 
CapitalSource First Quarter 2012 – Financial Supplement
 
CapitalSource Inc.
Selected Financial Data
(Unaudited)
       
   Three Months Ended
   March 31, December 31, March 31,
   2012  2011  2011 
        
CapitalSource Bank Segment:       
       
Performance ratios:       
Return on average assets   1.85% 1.63% 2.17%
Return on average equity   12.36% 10.38% 13.98%
Yield on average interest earning assets   6.12% 5.96% 6.51%
Cost of interest bearing liabilities   1.11% 1.16% 1.22%
Deposits   1.02% 1.07% 1.16%
Borrowings   1.96% 2.01% 1.98%
Net interest spread   5.01% 4.80% 5.29%
Net interest margin   5.12% 4.95% 5.43%
Operating expenses as a percentage of average total assets   2.28% 2.12% 2.21%
Loan yield   7.24% 7.25% 8.22%
        
Capital ratios:      
Tier 1 leverage   12.39% 13.61% 13.47%
Total risk-based capital   16.22% 17.43% 18.80%
Tangible common equity to tangible assets   12.14% 13.25% 13.06%
        
Average balances ($ in thousands):       
Average loans    $ 4,934,215  $ 4,642,500  $ 3,792,412 
Average assets    6,910,757   6,643,685   6,046,033 
Average interest earning assets    6,481,559   6,286,584   5,723,305 
Average deposits    5,237,572   4,982,956   4,673,752 
Average borrowings    567,736   511,957   373,278 
Average equity    1,034,854   1,044,969   936,476 
        
Other Commercial Finance Segment:       
       
Performance ratios:       
Return on average assets   (1.65%) (4.17%) (4.21%)
Return on average equity   (5.05%) (11.33%) (12.40%)
Yield on average interest earning assets   8.45% 7.42% 7.53%
Cost of interest bearing liabilities   2.57% 3.11% 6.73%
Net interest spread   5.88% 4.31% 6.47%
Net interest margin   6.66% 5.28% 2.54%
Operating expenses as a percentage of average total assets   4.23% 9.24% 4.82%
Loan yield   8.61% 7.60% 7.64%
        
Leverage ratios:       
Total debt to equity (as of period end)   1.59x 1.49x 1.66x
Equity to total assets (as of period end)   34.82% 33.80% 35.25%
        
Average balances ($ in thousands):       
Average loans    $ 1,002,024   $ 1,187,295   $ 2,331,652 
Average assets    1,435,297   1,741,678   3,327,142 
Average interest earning assets    1,080,508   1,287,652   2,565,261 
Average borrowings    752,330   889,659   1,901,770 
Average equity    468,752   640,193   1,129,542 
        
Consolidated CapitalSource Inc.: (1)      
       
Performance ratios:       
Return on average assets   1.20% 0.43% 0.14%
Return on average equity   6.64% 2.10% 0.62%
Yield on average interest earning assets   6.38% 6.25% 6.95%
Cost of interest bearing liabilities   1.28% 1.43% 2.73%
Net interest spread   5.10% 4.82% 2.47%
Net interest margin   5.27% 5.05% 4.67%
Operating expenses as a percentage of average total assets   2.25% 2.72% 2.28%
        
Leverage ratios:       
Equity to total assets (as of period end)   17.72% 18.98% 22.34%
Tangible common equity to tangible assets   15.97% 17.23% 20.84%
        
Average balances ($ in thousands):       
Average loans    5,939,263   5,833,113   6,126,161 
Average assets    8,323,937   8,330,008   9,319,796 
Average interest earning assets    7,565,089   7,577,554   8,290,663 
Average borrowings    1,320,066   1,401,616   2,275,048 
Average deposits    5,237,572   4,982,956   4,673,752 
Average equity    1,509,560   1,691,123   2,069,960 
       
(1) Applicable ratios have been calculated on a continuing operations basis.
 
CapitalSource Inc.
Credit Quality Data
(Unaudited)
             
     March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011
              
              
Loans 30-89 days contractually delinquent:           
As a % of total loans(1)   0.31% 0.21% 0.27% 0.07% 0.77%
Loans 30-89 days contractually delinquent     $19.0 $12.7 $15.7 $3.9 $46.6
              
Loans 90 or more days contractually delinquent:           
As a % of total loans(1)   1.22% 1.61% 2.51% 3.48% 4.64%
Loans 90 or more days contractually delinquent     $73.8 $95.8 $145.9 $195.0 $282.4
              
Loans on non-accrual:(2)          
As a % of total loans(1)   3.95% 4.72% 5.72% 8.50% 9.03%
Loans on non-accrual     $238.2 $280.7 $332.8 $476.3 $549.4
              
Impaired loans:(3)          
As a % of total loans(1)   6.51% 7.15% 7.93% 8.69% 12.17%
Impaired loans     $393.4 $425.3 $461.8 $486.6 $740.6
              
Allowance for loan and lease losses:           
As a % of total loans(4)   2.58% 2.67% 3.60% 3.63% 4.67%
Allowance for loan and lease losses     $151.9 $153.6 $208.4 $199.1 $283.3
              
Net charge offs (last twelve months):           
As a % of total average loans     3.31% 4.62% 4.87% 5.55% 5.78%
Net charge offs (last twelve months)     $190.6 $268.5 $290.8 $350.5 $397.6
             
(1) Includes loans held for investment and loans held for sale. Excludes deferred loan fees and discounts and the allowance for loan and lease losses.
(2) Includes loans with an aggregate principal balance of $73.7 million, $90.2 million, $144.7 million, $155.0 million, and $235.3 million as of March 31, 2012, December 31, 2011, September 30, 2011, June 30, 2011, and March 31, 2011, respectively, that were also classified as loans 90 or more days contractually delinquent. Also includes non-performing loans held for sale that had an aggregate principal balance of $2.9 million, $3.1 million, $118.7 million, and $11.5 million as of December 31, 2011, September 30, 2011, June 30, 2011, and March 31, 2011, respectively. As of March 31, 2012 there were no non-performing loans classified as held for sale.
(3) Includes loans with an aggregate principal balance of $73.7 million, $94.9 million, $142.8 million, $153.3 million, and $243.8 million as of March 31, 2012, December 31, 2011, September 30 2011, June 30, 2011, and March 31, 2011, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $238.2 million, $277.8 million, $329.7 million, $357.6 million, and $549.4 million as of March 31, 2012, December 31, 2011, September 30, 2011, June 30, 2011, and March 31, 2011, respectively, that were also classified as loans on non-accrual status. 
(4) Includes loans held for investment. Excludes deferred loan fees and discounts and the allowance for loan and lease losses. 
CONTACT: Investor Relations:
         Dennis Oakes
         Senior Vice President, Investor Relations
         & Corporate Communications
         (212) 321-7212
         doakes@capitalsource.com

         Media Relations:
         Michael Weiss
         Director of Communications
         (301) 841-2918
         mweiss@capitalsource.com

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