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

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EXHIBIT 99.1

CapitalSource Reports Second Quarter 2012 Results

  • Second Quarter Net Income of $388 Million or $1.66 Per Share
  • Deferred Tax Asset Valuation Allowance of $347 Million Reversed
  • Net Loan Growth of $250 Million at CapitalSource Bank (+5% Over 1Q)
  • Net Interest Margin of 4.95% at CapitalSource Bank
  • 12 Million Shares Repurchased – Outstanding Shares Reduced by 30% Since December 2010
  • All Remaining Convertible Debt of $23 Million Redeemed After Quarter End

LOS ANGELES, July 30, 2012 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE:CSE) today announced financial results for the second quarter of 2012. The Company reported net income for the quarter of $388 million or $1.66 per diluted share, including $1.49 per diluted share resulting from reversal of $347 million of the Company's deferred tax asset valuation allowance. Excluding the reversal, net income for the quarter was $40 million or $0.17 per diluted share, compared to net income of $25 million or $0.10 per diluted share in the prior quarter and net income of $17 million or $0.05 per diluted share in the second quarter of 2011.

"Two years of sustained profitability and predictable earnings at CapitalSource Bank, the substantial decline in Parent Company loans over that period, and improved Parent Company credit performance permitted us to reverse $347 million of our deferred tax asset valuation allowance this quarter – six months earlier than expected. The reversal resulted in a tax benefit of $1.49 per share in the quarter and positively impacted the Company's tangible book value, which increased to $7.15 at quarter end," said James J. Pieczynski, CapitalSource CEO. "Our repurchase of twelve million shares in the quarter raises the total since inception of the buyback program in December of 2010 to over 102 million shares – which represents roughly a 30% net reduction of the shares outstanding since the return of capital initiative began."

"Our national lending franchise continued to produce at a high level in the second quarter - with $250 million of loan growth at the Bank, representing 5% growth in the quarter. Funded production of $596 million was in line with our projection, as was the net interest margin in the quarter at 4.95%," said Tad Lowrey, CapitalSource Bank Chairman and CEO. "Bank assets increased to $7.1 billion, while deposit costs declined by 7 basis points. Though several favorable one-time items in the first quarter and a higher loan loss provision in the second quarter make some linked quarter comparisons unfavorable, we are very pleased with the overall financial performance at CapitalSource Bank through the first half of 2012 and remain on track for significant year over year earnings and loan growth."

"Our Parent Company unrestricted cash increased to $168 million, pro forma for the July redemption of approximately $23 million of convertible debentures, as second quarter loan sales and payoffs came in higher than expected and more than offset $78 million of share repurchases. Projected incremental cash for the second half of the year of $60-70 million provides added flexibility to execute various liquidity management and capital deployment strategies, as we continue to position the Company to apply for bank holding company status," said John Bogler, CapitalSource CFO. "Consolidated operating expenses through the first half were $98 million, which is in line with our full-year target of $190-200 million and would represent a 5-10% reduction over 2011."

CAPITALSOURCE BANK SEGMENT

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

Second Quarter 2012 Highlights

  • Net Income was $23 million, a decrease of $9 million from the prior quarter primarily due to an $11 million increase in provision for loan losses. Total interest income decreased $3 million to $96 million, primarily due to non-recurring items in the prior quarter.
     
  • Loans and Leases increased $250 million or 5%, to $5.3 billion at quarter end. Total loans and leases have increased 9% in 2012 and 30% since June 30, 2011. Funded loan and lease production was $596 million, compared to $522 million in the prior quarter. During the quarter, the Bank introduced Premium Finance lending, adding another niche lending product to its existing business lines.
     
  • Net Interest Margin was 4.95%, a decrease of 17 basis points from the prior quarter, primarily due to non-recurring items in the prior quarter which added 13 basis points to the first quarter net interest margin.
     
  • Capital – The Tier 1 leverage ratio increased 30 basis points to 12.69%. The total risk-based capital ratio decreased 2 basis points to 16.20%.
     
  • Credit Quality - Loan loss provision was $13 million, compared to $2 million in the prior quarter. Net charge-offs were $7 million in the quarter, compared to a $0.1 million net recovery in the prior quarter. Non-accrual loans increased to $102 million or 1.94% of loans at quarter end, compared to $83 million or 1.64% of loans at the end of the prior quarter. The allowance for loan and lease losses was $102 million or 1.96% of loans at quarter end, compared to $97 million or 1.96% of loans at the end of the prior quarter.

Second Quarter 2012 Details

  Quarter Ended
Net Income        6/30/12 vs. 3/31/12 6/30/12 vs. 6/30/11
  6/30/2012 3/31/2012 6/30/2011 $ % $ %
               
($ in thousands)              
Interest income  $ 96,112  $ 98,620  $ 90,490  $ (2,508) (3)%  $ 5,622 6%
Interest expense  15,394  16,059  15,612  665  --  218  1
Provision for loan losses  12,569  1,903 (1,331) (10,666)  560 (13,900) (1,044)
Non-interest income  13,198  15,469  7,508 (2,271)  15  5,690  76
Non-interest expense  43,179  41,164  37,102 (2,015) (5) (6,077) (16)
Income tax expense  15,106  23,159  18,840  8,053  35  3,734  20
Net income   23,062  31,804  27,775 (8,742) (27) (4,713) (17)

Net Interest Margin was 4.95%, a decrease of 17 basis points from the prior quarter. Interest income was $96 million, a decrease of $3 million from the prior quarter. The decline in NIM was primarily due to two non-recurring items in the prior quarter: the collection of past due interest on a non-accrual loan which paid off and added 5 basis points to NIM; and a change in prepayment assumptions on MBS, due to interest rate movements, which added 8 basis points. Net interest income was $81 million, a decrease of $2 million from the prior quarter.

  Quarter Ended
  6/30/2012   3/31/2012
Net Interest Margin Average Balance Interest Income/Expense Average Yield/Cost   Average Balance Interest Income/Expense Average Yield/Cost
               
($ in thousands)              
Loans  $ 4,973,262  $ 87,680 7.09% (1)  $ 4,934,215  $ 88,858 7.24%
Investment securities  1,238,781  8,029  2.61    1,243,807  9,474  3.06
Cash and other interest-earning assets  346,288  403  0.47    303,537  288  0.38
Total interest-earning assets  6,558,331  96,112  5.89    6,481,559  98,620  6.12
Deposits  5,334,190  12,640  0.95    5,237,572  13,291  1.02
Borrowings  585,791  2,754  1.89    567,736  2,768  1.96
Total interest-bearing liabilities  $ 5,919,981  15,394  1.05    $ 5,805,308  16,059  1.11
Net interest income / spread   80,718 4.84%      $ 82,561 5.01%
Net interest margin     4.95%       5.12%
               
(1) Loan yield for the quarter included 65 basis points of fee and discount accretion, unchanged from the prior quarter.

Non-interest Income was $13 million, a decrease of $2 million from the prior quarter due primarily to lower fees for servicing Parent Company loans as the Parent portfolio continues to decline.

Non-interest Expense was $43 million, an increase of $2 million from the prior quarter. Operating expenses were $40 million, an increase of $1 million from the prior quarter. Non-operating expenses were $3 million, an increase of $1 million from the prior quarter, primarily due to an increase in REO disposition expenses.

Cash and Investments decreased by $157 million to $1.5 billion, as cash was redeployed to fund new loans. The portfolio yield at quarter end increased 16 basis points to 2.35%, primarily due to a lower mix of cash and cash equivalents.

Cash and Investments 6/30/2012 3/31/2012
($ in thousands) Balance Yield Duration (Years) Balance Yield Duration (Years)
Cash and cash equivalents and restricted cash  $ 275,456 0.29%  --  $ 457,104 0.23%  0.1
Agency callable notes  5,053 2.50%  3.3  20,123 2.46%  3.8
Agency debt  23,810 1.94%  0.4  24,262 1.98%  0.6
Agency MBS  1,014,783 2.53%  2.8  966,293 2.66%  2.9
Non-agency MBS  50,785 4.31%  2.1  55,818 4.33%  2.2
CMBS  108,520 4.04%  2.3  111,076 4.04%  2.4
Asset-backed securities  12,453 11.38%  0.9  13,909 11.34%  1.0
U.S. Treasury and agency securities  19,165 2.56%  6.2  18,869 2.56%  6.3
   $ 1,510,025 2.35%  2.2  $ 1,667,454 2.19%  2.0

Loans and Leases increased $250 million (5%) from the prior quarter as detailed below.

    Quarter Ended
Loan and Lease Roll Forward (1)   6/30/2012 3/31/2012 6/30/2011
($ in thousands)        
Beginning balance    $ 5,088,426  $ 4,894,292  $ 4,012,819
New fundings   595,737 521,476  548,346
Existing loans and leases        
Principal repayments, net   (265,491) (320,550) (326,273)
Leased equipment depreciation   (2,288) (2,288) (40)
Transfers to held for sale, net   (31,519)  5,000 (108,529)
Loan sales   (38,615)  --  --
Transfers to foreclosed assets   (176) (9,567) (3,573)
Net (charge-offs) / recoveries   (7,401)  63 (23,046)
Ending balance     $ 5,338,673  $ 5,088,426  $ 4,099,704
         
(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 and excludes loans held for sale. 
    Quarter Ended
Loan and Lease Portfolio Detail   6/30/2012 3/31/2012 6/30/2011
($ in thousands)        
Healthcare Asset Based    $ 145,758  $ 194,608  $ 195,479
Equipment Finance (1)   470,275 417,854 289,236
Lender Finance & Timeshare   761,310 744,065 612,194
Other Asset Based   47,103 49,325 28,865
Premium Finance   7,638 -- --
Total Asset Based   1,432,084 1,405,852 1,125,774
General Cash Flow   263,593 265,931 209,065
Technology Cash Flow   511,880 497,992 282,459
Healthcare Cash Flow   315,719 293,876 203,880
Security Cash Flow   323,414 293,135 281,955
Professional Practice   147,084 128,615 74,827
Total Cash Flow   1,561,690 1,479,548 1,052,186
General Real Estate   684,312 575,851 569,345
Multi Family   884,164 881,078 726,582
Healthcare Real Estate   570,888 560,053 485,377
Small Business   205,535 186,044 140,440
Total Real Estate   2,344,899 2,203,026 1,921,744
Total    $ 5,338,673  $ 5,088,426  $ 4,099,704
         
(1) Includes $102 million of operating leases and related equity investments as of June 30, 2012 and $104 million as of March 31, 2012, which are included in other assets and other investments, respectively, on our balance sheet.

Deposits were $5.4 billion at quarter end, an increase of $33 million from the prior quarter. The weighted average interest rate on total deposits declined 4 basis points to 0.94% at the end of the quarter. The weighted average rate of new and renewing time deposits in the quarter was 0.83%, compared to 0.91% in the prior quarter.

FHLB Borrowings were $597 million, an increase of $10 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 1.83% as of June 30, 2012, compared to 1.90% at the end of the prior quarter and the average remaining maturity was unchanged at 3.6 years.

Allowance for Loan and Lease Losses was $102 million or 1.96% of the loan portfolio, an increase of $5 million from the prior quarter.

  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2012
($ in thousands) General Specific Total % Loans
Beginning balance   $ 84,376  $ 12,240  $ 96,616  
Provision 3,536 9,033 12,569  
Charge-offs, net -- (7,401) (7,401)  
Ending balance  $ 87,912  $ 13,872  $ 101,784 1.96%
         
         
  Quarter Ended
  3/31/2012
  General Specific Total % Loans
Beginning balance  $ 84,587 10,063  $ 94,650  
(Reserve release) / Provision (211) 2,114 1,903  
Charge-offs, net -- 63 63  
Ending balance  $ 84,376  $ 12,240  $ 96,616 1.96%

Non-performing Assets were $108 million, an increase of $11 million (11%) from the prior quarter. Non-accrual loans were $102 million, an increase of $19 million (22%) from the prior quarter. REO declined by $8 million (59%) due to sales and charge-offs.

Non-performing Assets 6/30/2012 3/31/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current  $ 80,571 1.14%  $ 58,815 0.84%
Non-accrual loans - delinquent 30-89 days 59 -- 13,697 0.19
Non-accrual loans - delinquent 90+ days 21,360 0.31 10,694 0.15
Total non-accrual loans 101,990 1.45% 83,206 1.18%
REO 5,644 0.08 13,698 0.2
Total non-performing assets  $ 107,634 1.53%  $ 96,904 1.38%

Troubled Debt Restructurings were $75 million, an increase of $14 million from the prior quarter. TDRs on accrual status increased to $69 million from $53 million in the prior quarter. Of the total TDR balance, $23 million as of June 30, 2012 and March 31, 2012 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 $7 million (included in the "Non-accrual loans" in the table above), all of which were current as to payment status, compared to $9 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.

Second Quarter 2012 Details

Net Income was $365 million, compared to a loss of $6 million in the prior quarter. Second quarter results included a tax benefit of $347 million related to the release of a portion of the deferred tax asset valuation allowance.

  Quarter Ended
Net Income       6/30/12 vs. 3/31/12 6/30/12 vs. 6/30/11
  6/30/2012 3/31/2012 6/30/2011 $ % $ %
               
($ in thousands)              
Interest income  $ 22,978  $ 22,702  $ 40,701  $ 276 1%  $ (17,723) (44)%
Interest expense 4,770 4,799 30,195 29 1 25,425 84
Provision for loan losses (2,033) 9,169 2,854 11,202 122 4,887 171
Non-interest income 1,594 3,491 27,450 (1,897) (54) (25,856) (94)
Non-interest expense 11,629 15,560 44,375 3,931 25 32,746 74
Income tax (benefit) expense (355,123) 2,550 (1,591) 357,673 14,026 353,532 22,221
Net income (loss) 365,329 (5,885) (7,682) 371,214 6,308 373,011 4,856

Interest Income was $23 million, which was unchanged from the prior quarter.

Non-interest Income was $2 million, compared to $3 million for the prior quarter. The net decline was primarily due to a $2 million write-off of tenant improvements associated with abandoning a lease on excess office space.

Non-interest Expense was $12 million, compared to $16 million in the prior quarter. Operating expenses were $18 million, an increase of $3 million from the prior quarter due primarily to the establishment of a $2 million lease abandonment accrual for excess office space and higher third party loan workout expenses, offset by lower compensation costs. Non-operating expenses resulted in income of $6 million, a net expense decrease of $7 million from the prior quarter, due to an $8 million gain on debt extinguishment that was partially offset by a $1 million increase in REO and foreclosed asset expenses.

Unrestricted Cash at quarter end was $191 million, an increase of $84 million from the prior quarter. Pro forma for the redemption of $23 million of the Company's outstanding 7.25% convertible debentures in July, unrestricted cash was $168 million. The largest sources of cash were principal collections related to non-securitized loans, and a quarterly tax payment from the Bank to the Parent Company pursuant to the tax sharing arrangement between the parties. The principal use of cash in the quarter was share repurchases totaling $78 million.

Loans decreased by $99 million from the prior quarter as detailed below. Securitized loan balances were $419 million, a decrease of $43 million from the prior quarter. The non-securitized loan balance was $382 million, a decrease of $56 million from the prior quarter, net of the sale of $62 million of loans previously moved to held for sale.

  Quarter Ended
Loan and Lease Roll Forward 6/30/2012 3/31/2012 6/30/2011
($ in thousands)      
Beginning balance  $ 899,836  $ 971,601  $ 2,054,907
Existing loans and leases      
Principal repayments, net (56,857) (46,634) (569,389)
Transfers to held for sale, net -- -- (10,162)
Loan sales (20,174) (10,557) (16,735)
Transfers to foreclosed assets -- (1,710) (7,235)
Net charge-offs (21,678) (12,864) (62,613)
Ending balance  $ 801,127  $ 899,836  $ 1,388,773

Allowance for Loan and Lease Losses was $32 million, or 3.99% of the loan portfolio, a decline of $24 million from the prior quarter as detailed below. The decline was due to a $13 million release of general reserves stemming from loan payoffs and the charge-off of existing and newly recorded specific reserves.

  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2012
($ in thousands) General Specific Total % Loans
Beginning balance  $ 37,162  $ 18,124  $ 55,286  
(Reserve release) / Provision (12,515) 10,482 (2,033)  
Charge-offs, net -- (21,678) (21,678)  
Ending balance  $ 24,647  $ 6,928  $ 31,575 3.99%
         
  Quarter Ended
  3/31/2012
  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 6.24%

Non-performing Assets were $114 million, a decline of $61 million (35%) from the prior quarter, due to declines in both non-accruals and REO, as detailed below. As of June 30, 2012, $59 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 6/30/2012 3/31/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current  $ 58,907 4.03%  $ 91,901 6.94%
Non-accrual loans - delinquent 30-89 days 460 0.03 61 --
Non-accrual loans - delinquent 90+ days 41,744 2.86 63,055 4.76
Total non-accrual loans 101,111 6.92% 155,017 11.70%
REO 13,303 0.92 20,274 1.53
Total non-performing assets  $ 114,414 7.84%  $ 175,291 13.23%

Troubled Debt Restructurings were $173 million, a decrease of $21 million from the prior quarter. TDRs on accrual status decreased by $4 million to $116 million. Non-accruing TDRs were $57 million (included in the "Non-accrual loans" in the table above), though $42 million were current as to payment status compared to $74 million in the prior quarter.

CONSOLIDATED

Second Quarter 2012 Details

Net Income was $388 million or $1.66 per diluted share, compared to net income of $25 million, or $0.10 per diluted share, in the prior quarter as detailed below. Net income included the impact of the reversal of the Company's deferred tax asset valuation allowance of $347 million or $1.49 per diluted share. Pre-tax income was $48 million compared to $51 million in the prior quarter.

  Quarter Ended
Net Income        6/30/2012 vs. 3/31/2012 6/30/12 vs. 6/30/11
  6/30/2012 3/31/2012 6/30/2011 $ % $ %
               
($ in thousands)              
Interest income  $ 117,982  $ 120,077  $ 127,425  $ (2,095) (2)%  $ (9,443) (7)%
Interest expense 20,164 20,858 45,807 694 3 25,643 56
Provision for loan and lease losses 10,536 11,072 1,523 536 5 (9,013) (592)
Non-interest income 8,450 11,550 16,277 (3,100) (27) (7,827) (48)
Non-interest expense 48,200 49,050 62,529 850 2 14,329 23
Income tax (benefit) expense (340,017) 25,709 17,249 365,726 1,423 357,266 2,071
Net income 387,549 24,938 16,594 362,611 1,454 370,955 2,235

Interest Income was $118 million, a decrease of $2 million from the prior quarter.

Net Interest Margin was 5.20%, a decrease of 7 basis points from the prior quarter. Net interest income was $98 million, a decrease of $1 million from the prior quarter.

Non-Interest Income was $8 million, a decrease of $3 million from the prior quarter.

Non-Interest Expense was $48 million, a decrease of $1 million from the prior quarter as detailed below.

  Quarter Ended
Non-Interest Expense 6/30/2012 3/31/2012 % Change
($ in thousands)      
Compensation and benefits  $ 25,408  $ 26,416 4%
Professional fees 3,089 3,600 14
Occupancy expenses 6,221 3,759 (65)
FDIC fees and assessments 1,463 1,449 (1)
General depreciation and amortization 1,511 1,695 11
Other administrative expenses 13,622 9,620 (42)
Total operating expenses 51,314 46,539 (10)
Leased equipment depreciation 2,288 2,288 --
Expense of real estate owned and other foreclosed assets, net 3,821 450 (749)
(Gain) loss on extinguishment of debt (8,142) 83 9,910
Other non-interest expense, net (1,081) (310) (249)
Total non-interest expense  $ 48,200  $ 49,050 2%

Income Tax Expense was a net benefit of $340 million, due primarily to the $347 million release of a portion of the deferred tax asset valuation allowance.

Loans and Leases increased $152 million from the prior quarter as detailed below:

    Quarter Ended
Loan and Lease Roll Forward (1)   6/30/2012 3/31/2012 6/30/2011
($ in thousands)        
Beginning balance    $ 5,988,262  $ 5,865,893  $ 6,067,726
New fundings   595,737 521,476 548,346
Existing loans and leases        
Principal repayments, net   (322,348) (367,184) (895,661)
Leased equipment depreciation   (2,288) (2,288) (40)
Transfers to held for sale, net   (31,519) 5,000 (118,691)
Loan sales   (58,789) (10,557) (16,735)
Transfers to foreclosed assets   (176) (11,277) (10,808)
Net (charge-offs) / recoveries   (29,079) (12,801) (85,659)
Ending balance    $ 6,139,800  $ 5,988,262  $ 5,488,478
         
(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 $133 million, or 2.23% of the loan portfolio, compared to $152 million, or 2.61% at the end of the prior quarter.

Net Charge-offs were $29 million, an increase of $16 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve month period ended June 30, 2012 were 2.30%, compared to 3.31% for the twelve month period ended March 31, 2012. 

  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2012
($ in thousands) General Specific Total % Loans
Beginning balance  $121,538  $ 30,364  $151,902  
(Reserve release) / Provision (8,979) 19,515 10,536  
Charge-offs, net -- (29,079) (29,079)  
Ending balance  $112,559  $ 20,800  $133,359 2.23%
         
  Quarter Ended
  3/31/2012
  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 2.61%

Non-performing Assets were $222 million, a decline of $50 million (18%) from the prior quarter primarily due to a $35 million decrease in non-accrual loans. As of June 30, 2012, $139 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 6/30/2012 3/31/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current  $ 139,478 1.64%  $ 150,716 1.81%
Non-accrual loans - delinquent 30-89 days 519 0.01 13,758 0.17
Non-accrual loans - delinquent 90+ days 63,104 0.74 73,749 0.89
Total non-accrual loans 203,101 2.39% 238,223 2.87%
REO 18,947 0.22 33,972 0.41
Total non-performing assets  $ 222,048 2.61%  $ 272,195 3.28%

Troubled Debt Restructurings were $248 million, a decrease of $8 million from the prior quarter. TDRs on accrual status increased by $11 million to $185 million. Of the total TDR balance, $23 million as of June 30, 2012 and March 31, 2012 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 $64 million (included in the "Non-accrual loans" in the table above), though $49 million were current as to payment status, compared to $82 million in the prior quarter.

Valuation Allowance related to the Company's deferred tax assets was $166 million, a decrease of $347 million from the end of the prior quarter. The net deferred tax asset at quarter end after subtracting the valuation allowance was $385 million, an increase of $363 million from the prior quarter. 

Book Value Per Share was $7.92 at the end of the quarter, an increase of $1.71 from the end of the prior quarter. Total shareholders' equity was $1.8 billion at the end of the quarter, including intangible assets of $173 million, which was an increase of $310 million from the prior quarter primarily due to the $347 million valuation allowance reversal and net income in the quarter, partially offset by share repurchases of $78 million.

Tangible Book Value Per Share was $7.15 at the end of the quarter, an increase of $1.67 from the end of the prior quarter primarily due to the deferred tax asset valuation allowance reversal and net income in the quarter, partially offset by share repurchases.

Share Repurchases during the quarter totaled12 million shares at a total cost of $77.9 million. As a result, the remaining authority for share repurchases as of June 30, 2012 was $131 million. Since inception of the share buyback program the Company has repurchased 102.6 million shares, reducing the December of 2010 starting balance of 323 million shares by approximately 30%, 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 233.0 million shares for the quarter, compared to 247.6 million shares for the prior quarter. Total outstanding shares at June 30, 2012 were 225.0 million.

Quarterly Cash Dividend of $0.01 per common share was paid on June 30, 2012 to common shareholders of record on June 14, 2012.

Conference Call Details

A conference call to discuss the results will be hosted on Monday, July 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 October 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 June 30, 2012 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on July 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 $8.6 billion and total deposits of $5.4 billion as of June 30, 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 loan and lease growth at CapitalSource Bank, loan and lease production at CapitalSource Bank, earnings growth at CapitalSource Bank, Parent Company liquidity, return of excess capital at the Parent Company to shareholders, consolidated operating expenses, and our expectations regarding our application to become a bank holding company, 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: continued or worsening credit losses, charge-offs, reserves and delinquencies; changes in economic or market conditions or investment or lending opportunities; continued or worsening disruptions in credit and other markets; competitive and other market pressures on product pricing and services; reduced demand for our services; loan repayments higher than expected; our inability to grow deposits and access wholesale funding sources; regulatory safety and soundness considerations; higher than anticipated increases in operating expenses; all anticipated synergies expected from moving Parent Company employees to CapitalSource Bank may not be achieved; CapitalSource Bank's inability to adjust expenses as part of the consolidation effort; we may not receive the regulatory approvals needed to become a bank holding company within our expected timeframe or at all; the success and timing of other business strategies and asset sales; lower than anticipated liquidity; drawdown of Parent Company unfunded commitments substantially in excess of historical drawings; lower than expected Parent Company's recurring tax basis income; lower than expected taxable income at CapitalSource Bank for which CapitalSource Bank has to reimburse the Parent Company for income tax expenses in accordance with the tax sharing agreement; the need to retain capital for strategic or regulatory reasons including the implementation of Basel III standards; 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 Second Quarter 2012 – Financial Supplement
 
CapitalSource Inc.
Consolidated Balance Sheets
 ($ in thousands)
     
  June 30, December 31,
  2012  2011 
  (Unaudited)  
     
ASSETS
Cash and cash equivalents  $ 416,021  $ 458,548
Restricted cash  75,523  65,484
Investment securities:    
Available-for-sale, at fair value  1,148,042  1,188,002
Held-to-maturity, at amortized cost  108,520  111,706
Total investment securities  1,256,562  1,299,708
Loans:    
Loans held for sale  31,519  193,021
Loans held for investment  6,038,091  5,758,990
Less deferred loan fees and discounts (61,115) (68,843)
Less allowance for loan and lease losses (133,359) (153,631)
Loans held for investment, net  5,843,617  5,536,516
Total loans  5,875,136  5,729,537
Interest receivable  30,296  38,796
Other investments  72,669  81,245
Goodwill  173,135  173,135
Other assets  670,317  453,615
Total assets  $ 8,569,659  $ 8,300,068
     
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:    
Deposits  $ 5,382,012  $ 5,124,995
Term debt  214,059  309,394
Other borrowings  1,029,606  1,015,099
Other liabilities  162,295  275,434
Total liabilities  6,787,972  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; 224,999,706 and 256,112,205 shares issued    
and outstanding, respectively)  2,250  2,561
Additional paid-in capital  3,286,833  3,487,911
Accumulated deficit (1,526,938) (1,934,732)
Accumulated other comprehensive income, net  19,542  19,406
Total shareholders' equity  1,781,687  1,575,146
Total liabilities and shareholders' equity  $ 8,569,659  $ 8,300,068
 
CapitalSource Second Quarter 2012 – Financial Supplement
           
CapitalSource Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, except per share data)
           
  Three Months Ended Six Months Ended
  June 30, March 31, June 30, June 30, June 30,
  2012  2012  2011  2012  2011 
Net interest income:  (Unaudited)
Interest income:          
Loans and leases $ 108,301 $ 109,070 $ 113,647 $ 217,371 $ 237,147
Investment securities  9,236  10,717  12,688  19,953  31,040
Other  445  290  1,090  735  1,390
Total interest income  117,982  120,077  127,425  238,059  269,577
Interest expense:          
Deposits  12,640  13,291  13,398  25,931  26,781
Borrowings  7,524  7,567  32,409  15,091  65,778
Total interest expense  20,164  20,858  45,807  41,022  92,559
Net interest income  97,818  99,219  81,618  197,037  177,018
Provision for loan and lease losses  10,536  11,072  1,523  21,608  46,332
Net interest income after provision for loan and lease losses  87,282  88,147  80,095  175,429  130,686
           
Non-interest income:          
Loan fees  3,057  4,668  3,410  7,725  8,014
Leased equipment income  3,258  3,258  73  6,516  73
(Loss) gain on investments, net (620) (307)  8,725 (927)  32,240
Gain (loss) on derivatives, net  432 (103) (271)  329 (2,149)
Other non-interest income, net  2,323  4,034  4,340  6,357  4,311
Total non-interest income  8,450  11,550  16,277  20,000  42,489
           
Non-interest Expense:          
Compensation and benefits  25,408  26,416  29,098  51,824  59,477
Professional fees  3,089  3,600  6,318  6,689  9,888
Occupancy expenses  6,221  3,759  4,019  9,980  7,973
FDIC fees and assessments  1,463  1,449  1,341  2,912  3,331
General depreciation and amortizations  1,511  1,695  1,778  3,206  3,621
Other administrative expenses  13,622  9,620  10,367  23,242  20,758
Total operating expenses  51,314  46,539  52,921  97,853  105,048
Leased equipment depreciation  2,288  2,288  40  4,576  40
Expense of real estate owned and other foreclosed assets, net  3,821  450  10,956  4,271  21,289
(Gain) loss on extinguishment of debt (8,142)  83  -- (8,059)  --
Other non-interest expense, net (1,081) (310) (1,388) (1,391) (1,366)
Total non-interest expense  48,200  49,050  62,529  97,250  125,011
           
Net income before income taxes  47,532  50,647  33,843  98,179  48,164
Income tax (benefit) expense (340,017)  25,709  17,249 (314,308)  28,411
Net income  387,549  24,938  16,594  412,487  19,753
           
Other comprehensive (loss) income, net of tax          
Unrealized (loss) gain on available-for-sale securities, net of tax (960)  1,447  20,454  487  25,297
Unrealized (loss) gain on foreign currency translation, net of tax  -- (351)  1,878 (351)  11,460
Other comprehensive (loss) income (960)  1,096  22,332  136  36,757
Comprehensive income $ 386,589 $ 26,034 $ 38,926 $ 412,623 $ 56,510
           
Net income per share:          
Basic $ 1.71 $ 0.10 $ 0.05 $ 1.76 $ 0.06
Diluted $ 1.66 $ 0.10 $ 0.05 $ 1.72 $ 0.06
Average shares outstanding:          
Basic  226,373,991  241,078,624  320,426,484  233,726,308  320,311,588
Diluted  232,939,444  247,598,531  327,087,717  240,268,989  327,025,588
           
Dividends declared per share $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.02
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
                 
  June 30, 2012 March 31, 2012
  CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED
ASSETS                
                 
Cash and cash equivalents and restricted cash  $ 275,456  $ 216,088  $ --  $ 491,544  $ 457,104  $ 163,855  $ --  $ 620,959
Investment securities:                
Available-for-sale 1,126,049 21,993 -- 1,148,042 1,099,274 40,235 -- 1,139,509
Held-to-maturity 108,520 -- -- 108,520 111,076 -- -- 111,076
Loans 5,216,670 790,866 959 6,008,495 5,024,167 946,204 2,067 5,972,438
Allowance for loan and lease losses (101,784) (31,575) -- (133,359) (96,616) (55,286) -- (151,902)
Loans, net of allowance for loan and lease losses 5,114,886 759,291 959 5,875,136 4,927,551 890,918 2,067 5,820,536
Receivables due from affiliates 4,743 (1,827) (2,916) -- 1,845 29,474 (31,319) --
Other assets 429,806 521,055 (4,444) 946,417 432,957 200,434 (18,815) 614,576
Total assets  $ 7,059,460  $ 1,516,600  $ (6,401)  $ 8,569,659  $ 7,029,807  $ 1,324,916  $ (48,067)  $ 8,306,656
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                
Deposits  $ 5,382,012  $ --   $ --  $ 5,382,012  $ 5,348,790  $ --   $ --  $ 5,348,790
Borrowings 597,000 646,665 -- 1,243,665 587,000 735,739 -- 1,322,739
Balance due to affiliates (1,827) 4,743 (2,916) -- 29,470 1,849 (31,319) --
Other liabilities 51,546 118,543 (7,794) 162,295 58,902 126,043 (21,899) 163,046
Total liabilities 6,028,731 769,951 (10,710) 6,787,972 6,024,162 863,631 (53,218) 6,834,575
                 
Shareholders' equity:                
Common stock 921,000 2,250 (921,000) 2,250 921,000 2,372 (921,000) 2,372
Additional paid-in capital/retained earnings/deficit 94,129 724,857 940,909 1,759,895 68,398 438,411 942,398 1,449,207
Accumulated other comprehensive income, net 15,600 19,542 (15,600) 19,542 16,247 20,502 (16,247) 20,502
Total shareholders' equity 1,030,729 746,649 4,309 1,781,687 1,005,645 461,285 5,151 1,472,081
                 
Total liabilities and shareholders' equity  $ 7,059,460  $ 1,516,600  $ (6,401)  $ 8,569,659  $ 7,029,807  $ 1,324,916  $ (48,067)  $ 8,306,656
                 
Book value per outstanding share  $ 4.58  $ 3.32  $ 0.02  $ 7.92  $ 4.24  $ 1.95  $ 0.02  $ 6.21
Tangible book value per outstanding share  $ 3.81  $ 3.32  $ 0.02  $ 7.15  $ 3.51  $ 1.95  $ 0.02  $ 5.48
CapitalSource Inc.
Segment Statements of Operations
(Unaudited)
($ in thousands)
                 
  Three Months Ended June 30, 2012 Three Months Ended March 31, 2012
Net interest income: CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED
Interest income:                
Loans and leases 87,680 21,729 (1,108) 108,301 88,858 21,457 (1,245) 109,070
Investment securities 8,029 1,207 -- 9,236 9,474 1,243 -- 10,717
Other 403 42 -- 445 288 2 -- 290
Total interest income  $ 96,112  $ 22,978  $ (1,108)  $ 117,982  $ 98,620  $ 22,702  $ (1,245)  $ 120,077
Interest expense:                
Deposits 12,640 -- -- 12,640 13,291 -- -- 13,291
Borrowings 2,754 4,770 -- 7,524 2,768 4,799 -- 7,567
Total interest expense 15,394 4,770 -- 20,164 16,059 4,799 -- 20,858
Net interest income 80,718 18,208 (1,108) 97,818 82,561 17,903 (1,245) 99,219
Provision for loan and lease losses 12,569 (2,033) -- 10,536 1,903 9,169 -- 11,072
Net interest income after provision for loan and lease losses 68,149 20,241 (1,108) 87,282 80,658 8,734 (1,245) 88,147
                 
Non-interest income:                
Loan fees 2,759 298 -- 3,057 3,337 1,331 -- 4,668
Leased equipment income 3,258 -- -- 3,258 3,258 -- -- 3,258
Other non-interest income, net 7,181 1,296 (6,342) 2,135 8,874 2,160 (7,410) 3,624
Total non-interest income, net 13,198 1,594 (6,342) 8,450 15,469 3,491 (7,410) 11,550
                 
Non-interest expense:                
Compensation and benefits 24,981 427 -- 25,408 24,583 1,833 -- 26,416
Professional fees 1,844 1,245 -- 3,089 1,367 2,233 -- 3,600
Leased equipment depreciation 2,288 -- -- 2,288 2,288 -- -- 2,288
Expense of real estate owned and other foreclosed assets, net 1,616 2,205 -- 3,821 (298) 748 -- 450
(Gain) loss on extinguishment of debt -- (8,142) -- (8,142) -- 83 -- 83
Other non-interest expense, net 12,450 15,894 (6,608) 21,736 13,224 10,663 (7,674) 16,213
Total non-interest expense, net 43,179 11,629 (6,608) 48,200 41,164 15,560 (7,674) 49,050
                 
Net income (loss) before income taxes 38,168 10,206 (842) 47,532 54,963 (3,335) (981) 50,647
Income tax expense (benefit) 15,106 (355,123) -- (340,017) 23,159 2,550 -- 25,709
Net income (loss)  $ 23,062  $ 365,329  $ (842)  $ 387,549  $ 31,804  $ (5,885)  $ (981)  $ 24,938
                 
  Six Months Ended June 30, 2012 Six Months Ended June 30, 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 176,538 43,186 (2,353) 217,371 155,333 82,846 (1,032) 237,147
Investment securities 17,503 2,450 -- 19,953 26,322 4,718 -- 31,040
Other 691 44 -- 735 639 751 -- 1,390
Total interest income  $ 194,732  $ 45,680  $ (2,353)  $ 238,059  $ 182,294  $ 88,315  $ (1,032)  $ 269,577
Interest expense:                
Deposits 25,931 -- -- 25,931 26,781 -- -- 26,781
Borrowings 5,522 9,569 -- 15,091 4,041 61,737 -- 65,778
Total interest expense 31,453 9,569 -- 41,022 30,822 61,737 -- 92,559
Net interest income 163,279 36,111 (2,353) 197,037 151,472 26,578 (1,032) 177,018
Provision for loan and lease losses 14,472 7,136 -- 21,608 9,911 36,421 -- 46,332
Net interest income (loss) after provision for loan and lease losses 148,807 28,975 (2,353) 175,429 141,561 (9,843) (1,032) 130,686
                 
Non-interest income:                
Loan fees 6,096 1,629 -- 7,725 3,569 4,445 -- 8,014
Leased equipment income 6,516 -- -- 6,516 73 -- -- 73
Other non-interest income, net 16,055 3,456 (13,752) 5,759 9,698 60,713 (36,009) 34,402
Total non-interest income, net 28,667 5,085 (13,752) 20,000 13,340 65,158 (36,009) 42,489
                 
Non-interest expense:                
Compensation and benefits 49,564 2,260 -- 51,824 23,634 37,261 (1,418) 59,477
Professional fees 3,211 3,478 -- 6,689 607 9,281 -- 9,888
Leased equipment depreciation 4,576 -- -- 4,576 40 -- -- 40
Expense of real estate owned and other foreclosed assets, net 1,318 2,953 -- 4,271 8,815 12,474 -- 21,289
Gain on extinguishment of debt -- (8,059) -- (8,059) -- -- -- --
Other non-interest expense, net 25,674 26,557 (14,282) 37,949 39,814 32,039 (37,536) 34,317
Total non-interest expense, net 84,343 27,189 (14,282) 97,250 72,910 91,055 (38,954) 125,011
                 
Net income (loss) before income taxes 93,131 6,871 (1,823) 98,179 81,991 (35,740) 1,913 48,164
Income tax expense (benefit) 38,265 (352,573) -- (314,308) 21,935 6,476 -- 28,411
Net income (loss)  $ 54,866  $ 359,444  $ (1,823)  $ 412,487  $ 60,056  $ (42,216)  $ 1,913  $ 19,753
 
 
CapitalSource Second Quarter 2012 – Financial Supplement
 
CapitalSource Inc.
Selected Financial Data
(Unaudited)
 
  Three Months Ended Six Months Ended
  June 30, March 31, June 30, June 30, June 30,
  2012 2012 2011 2012 2011
           
CapitalSource Bank Segment:          
           
Performance ratios:          
Return on average assets 1.33% 1.85% 1.78% 1.59% 1.97%
Return on average equity 9.15% 12.36% 11.46% 10.77% 12.69%
Return on average tangible equity 11.03% 14.84% 13.94% 12.96% 15.50%
Yield on average interest earning assets 5.89% 6.12% 6.13% 6.01% 6.31%
Cost of interest bearing liabilities 1.05% 1.11% 1.21% 1.08% 1.22%
Deposits 0.95% 1.02% 1.13% 0.99% 1.15%
Borrowings 1.89% 1.96% 2.08% 1.93% 2.04%
Net interest spread 4.84% 5.01% 4.92% 4.93% 5.09%
Net interest margin 4.95% 5.12% 5.07% 5.04% 5.24%
Operating expenses as a percentage of average total assets 2.29% 2.26% 2.09% 2.28% 2.13%
Efficiency ratio (1) 43.96% 41.27% 39.64% 42.58% 39.80%
Loan yield 7.09% 7.24% 7.98% 7.17% 8.10%
           
Capital ratios:          
Tier 1 leverage 12.69% 12.39% 13.47% 12.69% 13.47%
Total risk-based capital 16.20% 16.22% 18.67% 16.20% 18.67%
Tangible common equity to tangible assets 12.45% 12.14% 13.26% 12.45% 13.26%
           
Average balances ($ in thousands):          
Average loans $ 4,973,262 $ 4,934,215 $ 3,943,136 $ 4,953,739 $ 3,868,190
Average assets 6,963,062 6,910,757 6,261,685 6,936,910 6,154,455
Average interest earning assets 6,558,331 6,481,559 5,925,269 6,519,945 5,824,845
Average deposits 5,334,190 5,237,572 4,738,233 5,285,881 4,706,171
Average borrowings 585,791 567,736 426,484 576,764 400,028
Average equity 1,013,953 1,034,854 972,310 1,024,404 954,492
           
Other Commercial Finance Segment:          
           
Performance ratios:          
Return on average assets 120.00% (1.65%) (1.00%) 54.35% (2.66%)
Return on average equity 331.24% (5.05%) (2.78%) 158.46% (7.61%)
Yield on average interest earning assets 9.20% 8.45% 6.30% 8.81% 6.91%
Cost of interest bearing liabilities 2.78% 2.57% 6.89% 2.67% 6.80%
Net interest spread 6.42% 5.88% (0.59%) 6.14% 0.11%
Net interest margin 7.29% 6.66% 1.63% 6.96% 2.08%
Operating expenses as a percentage of average total assets 5.90% 4.21% 5.15% 4.99% 4.94%
Loan yield 9.91% 8.61% 9.91% 9.22% 8.56%
           
Average balances ($ in thousands):          
Average loans $ 881,960 $ 1,002,024 $ 1,575,556 $ 941,992 $ 1,951,515
Average assets 1,224,451 1,435,297 3,077,378 1,329,874 3,201,570
Average interest earning assets 1,004,777 1,080,508 2,592,896 1,042,642 2,579,155
Average borrowings 690,928 752,330 1,758,963 721,629 1,829,972
Average equity 443,584 468,752 1,108,506 456,168 1,118,966
           
Consolidated CapitalSource Inc.: (2)          
           
Performance ratios:          
Return on average assets 18.99% 1.20% 0.72% 10.04% 0.43%
Return on average equity 106.31% 6.64% 3.19% 55.75% 1.92%
Return on average tangible equity 120.60% 7.51% 3.48% 63.14% 2.09%
Yield on average interest earning assets 6.27% 6.38% 6.00% 6.33% 6.47%
Cost of interest bearing liabilities 1.23% 1.28% 2.65% 1.25% 2.69%
Net interest spread 5.04% 5.10% 3.35% 5.08% 3.78%
Net interest margin 5.20% 5.27% 3.84% 5.24% 4.25%
Operating expenses as a percentage of average total assets 2.50% 2.24% 2.29% 2.37% 2.27%
           
Leverage ratios:          
Equity to total assets (as of period end) 20.79% 17.72% 22.66% 20.79% 22.66%
Tangible common equity to tangible assets 19.15% 15.97% 21.17% 19.15% 21.17%
           
Average balances ($ in thousands):          
Average loans $ 5,856,981 $ 5,939,263 $ 5,524,326 $ 5,898,122 $ 5,823,581
Average assets 8,206,790 8,323,937 9,289,804 8,265,363 9,304,717
Average interest earning assets 7,564,867 7,565,089 8,523,800 7,564,978 8,407,875
Average borrowings 1,276,719 1,320,066 2,185,447 1,298,393 2,230,000
Average deposits 5,334,190 5,237,572 4,738,233 5,285,881 4,706,171
Average equity 1,466,177 1,509,560 2,088,562 1,487,869 2,079,313
 
(1) Efficiency ratio is defined as operating expense (non-interest expense less REO expense, early debt term expense, provision for unfunded commitments and lease depreciation) divided by net interest and non-interest income, less leased equipment depreciation.
(2) Applicable ratios have been calculated on a continuing operations basis.
 
CapitalSource Inc.
Credit Quality Data
(Unaudited)
 
     June 30, 2012 March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011
 
  		          
 
  		          
Loans 30-89 days contractually delinquent:          
As a % of total loans(1) 0.01% 0.23% 0.21% 0.27% 0.07%
Loans 30-89 days contractually delinquent $ 0.5 $ 13.8 $ 12.7 $ 15.7 $ 3.9
 
  		          
Loans 90 or more days contractually delinquent:          
As a % of total loans(1) 1.04% 1.22% 1.61% 2.51% 3.48%
Loans 90 or more days contractually delinquent $ 63.1 $ 73.7 $ 95.8 $ 145.9 $ 195.0
 
  		          
Loans on non-accrual:(2)          
As a % of total loans(1) 3.35% 3.94% 4.72% 5.72% 8.50%
Loans on non-accrual $ 203.1 $ 238.2 $ 280.7 $ 332.8 $ 476.3
 
  		          
Impaired loans:(3)          
As a % of total loans(1) 6.03% 6.51% 7.15% 7.93% 8.69%
Impaired loans $ 365.7 $ 393.4 $ 425.3 $ 461.8 $ 486.6
 
  		          
Allowance for loan and lease losses:          
As a % of total loans(4) 2.23% 2.61% 2.70% 3.64% 3.68%
As a % of non-accrual loans 65.66% 63.76% 54.74% 62.60% 41.81%
Allowance for loan and lease losses   $ 133.4 $ 151.9 $ 153.6 $ 208.4 $ 199.1
 
  		          
Net charge offs (last twelve months):          
As a % of total average loans 2.30% 3.31% 4.62% 4.87% 5.55%
Net charge offs (last twelve months) $ 134.0 $ 190.6 $ 268.5 $ 290.8 $ 350.5
 
(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 $63.1 million, $73.7 million, $90.2 million, $144.7 million, and $155.0 million as of June 30, 2012, March 31, 2012, December 31, 2011, September 30, 2011, and June 30, 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, and $118.7 million as of December 31, 2011, September 30, 2011, and June 30, 2011, respectively. As of June 30, 2012 and March 31, 2012 there were no non-performing loans classified as held for sale.
 
(3) Includes loans with an aggregate principal balance of $63.1 million, $73.7 million, $94.9 million, $142.8 million, and $153.3 million as of June 30, 2012, March 31, 2012, December 31, 2011, September 30 2011, and June 30, 2011, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $203.1 million, $238.2 million, $277.8 million, $329.7 million, and $357.6 million as of June 30, 2012, March 31, 2012, December 31, 2011, September 30, 2011, and June 30, 2011, respectively, that were also classified as loans on non-accrual status.
 
(4) Includes loans held for investment and deferred loan fees and discounts. Excludes 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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