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8-K - FORM 8-K FILING DOCUMENT - CAPITALSOURCE INCdocument.htm

EXHIBIT 99.1

CapitalSource Reports Fourth Quarter and Full Year 2012 Results

  • Fourth Quarter Net Income of $47 Million or $0.22 Per Share
  • 19% Annual Loan Growth at CapitalSource Bank Following 4Q Loan Production of $843 Million
  • Net Interest Margin at CapitalSource Bank of 4.84% in 4Q
  • 8 Million Shares Repurchased in 4Q - Outstanding Shares Reduced by 35% Since December 2010
  • $104 Million Special Dividend Paid in December 2012 ($0.50 Per Share) Increased Total Capital Returned to Shareholders to $919 Million Since December 2010

LOS ANGELES, Jan. 29, 2013 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE:CSE) today announced financial results for the fourth quarter of 2012. The Company reported net income for the quarter of $47 million or $0.22 per diluted share, which included $0.06 per diluted share of non-recurring tax benefits, compared to net income of $31 million or $0.14 per diluted share in the prior quarter and net income of $9 million or $0.03 per diluted share in the fourth quarter of 2011. Net income for the full year 2012 was $491 million or $2.13 per diluted share, compared to a net loss of $52 million or $0.17 per diluted share for the full year 2011.

"The fourth quarter concluded a year of substantial achievement on key financial metrics and important progress on our principal strategic objectives, including growing CapitalSource Bank, returning excess capital to shareholders, reversing a substantial portion of our deferred tax asset valuation allowance and significantly improving and stabilizing the overall credit profile of our loan portfolio," said James J. Pieczynski, CapitalSource CEO. "Our return of capital initiative continued in the fourth quarter, with payment of a $0.50 per share special dividend in December and eight million additional shares repurchased. Since December of 2010 we have returned over $900 million to shareholders in the form of dividends and share repurchases, while retiring 35% of our outstanding shares," concluded Pieczynski.

"We had another solid quarter at CapitalSource Bank to close out 2012: 4Q loan growth of $441 million (8%) resulted in annual growth of 19%, our net interest margin was 4.84% for the quarter and return on assets was 1.8%," said Tad Lowrey, CapitalSource Bank Chairman and CEO. "Pre-tax income for the full year was up 21% over the prior year. Total assets and deposits each increased by 9% and our credit profile improved significantly, as evidenced by total nonperforming assets of just 64 basis points at year-end. Looking ahead to 2013, we expect to achieve bank holding company status for the Parent and conversion to a state bank commercial charter for the Bank by year end," added Lowrey.

"Though the full economic benefit will not be evident until the first quarter of 2013, we successfully redeployed $296 million of excess liquidity at the Bank to fund a substantial portion of fourth quarter loan growth, which will provide a head start for 2013 earnings. We enter the new year with a very strong balance sheet, on both a consolidated and Bank only basis - with high capital levels, growing earnings, a solid credit profile and substantial capacity to continue returning excess Parent capital to shareholders," said John Bogler, CapitalSource CFO. "Strong Parent cash flow supported our capital management activities in the fourth quarter. We were able to return nearly $170 million to shareholders via dividends and share repurchases and still had unrestricted cash at the Parent of $117 million at quarter end."

CAPITALSOURCE BANK SEGMENT

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

Fourth Quarter 2012 Highlights

  • Net Income was $34 million, unchanged from the prior quarter.
  • Loans and Leases increased $441 million as funded loan and lease production of $843 million, compared to $623 million in the prior quarter, raised full year loan growth to $909 million. Total loans and leases were $5.8 billion at quarter end, an increase of 19% since December 31, 2011.
  • Net Interest Margin was 4.84%, a decrease of 13 basis points from the prior quarter, primarily due to lower yields on average balances for new loans and investments. Loan yield declined 15 bps in the quarter, but was partially offset by an increase in the average loan balance of $111 million. The full impact of the strong loan growth in 4Q will not be evident until 1Q'13, as a significant portion of the loan production occurred near year end.
  • Capital - The Tier 1 leverage ratio increased 24 basis points to 13.06%, while the total risk-based capital ratio decreased 19 basis points to 16.50% due to loan growth, funded in large part by liquid investments, which resulted in a shift in asset mix from lower risk weighted liquid assets to higher risk-weighted loans.
  • Credit Quality - Loan loss provision was $1.4 million, compared to $0.3 million in the prior quarter. The provision was positively impacted by recoveries of $8.1 million due to the resolution of previously charged off amounts, compared to $4.9 million of recoveries in the prior quarter. Net charge-offs were $1.0 million in the quarter, compared to $3.6 million in the prior quarter. Non-accrual loans decreased to $42 million or 0.74% of loans at quarter end, compared to $64 million or 1.21% of loans at the end of the prior quarter. Non-performing assets declined by $23 million to $47 million or 0.64% of total assets. The allowance for loan and lease losses was $99 million or 1.76% of loans at quarter end, compared to $98 million or 1.89% of loans at the end of the prior quarter.

Fourth Quarter Details

  Quarter Ended
        12/31/12 vs 09/30/12 12/31/12 vs 12/31/11
  12/31/2012 9/30/2012 12/31/2011 $ % $ %
($ in thousands)              
Interest income $98,544 $99,807 $94,497 $(1,263) (1)% $4,047 4%
Interest expense 15,122 15,521 15,998 399 3 876 5
Provision for loan losses 1,447 273 3,903 (1,174) (430) 2,456 63
Non-interest income 18,243 13,585 13,743 4,658 34 4,500 33
Non-interest expense 44,262 39,964 41,455 (4,298) (11) (2,807) (7)
Income tax expense 22,008 23,782 19,548 1,774 7 (2,460) (13)
Net income 33,948 33,852 27,336 96 6,612 24

Net Interest Margin was 4.84%, a decrease of 13 basis points from the prior quarter. Interest income was $99 million, a decrease of $1 million from the prior quarter primarily due to lower investment yield. NIM for the full year 2012 was 4.97%. Net interest income was $83 million, a decrease of $1 million from the prior quarter.

  Quarter Ended
  12/31/2012 9/30/2012
Net Interest Margin Average
Balance
Interest
Income/Expense
Average
Yield/Cost
Average
Balance
Interest
Income/Expense
Average
Yield/Cost
($ in thousands)        
Loans 5,342,683 91,328 6.80%(1) 5,231,242 91,367 6.95%
Investment securities 1,191,851 6,770 2.26 1,206,868 8,123 2.68
Cash and other interest-earning assets 324,703 446 0.55 314,439 317 0.40
Total interest-earning assets 6,859,237 98,544 5.72 6,752,549 99,807 5.88
Deposits 5,557,241 12,366 0.89 5,469,501 12,738 0.93
Borrowings 597,772 2,756 1.83 597,674 2,783 1.85
Total interest-bearing liabilities 6,155,013 15,122 0.98 6,067,175 15,521 1.02
Net interest income / spread   83,422 4.74%   84,286 4.86%
Net interest margin     4.84%     4.97%
 
(1) Loan yield for the quarter included 51 basis points of fee and discount accretion, compared to 70 basis points in the prior quarter

Non-interest Expense was $44 million, an increase of $4 million from the prior quarter. Operating expenses were $41 million, an increase of $4 million from the prior quarter due primarily to year-end incentive compensation accruals and a return to more normal servicing expense levels compared to the prior quarter.

Income Tax Expense was $22 million for the quarter, compared to $24 million in the prior quarter. The effective tax rate for the quarter was 39% compared to 41% in the prior quarter.

Cash and Investments decreased by $296 million to $1.4 billion as available liquidity was redeployed to fund net loan growth. The portfolio yield at quarter end increased 20 basis points to 2.21%, primarily due to a lower mix of cash and cash equivalents, partially offset by lower yields on our investment portfolio.

 

Cash and Investments 12/31/2012 9/30/2012
($ in thousands)
Balance

Yield
Duration
(Years)

Balance

Yield
Duration
(Years)
Cash and cash equivalents and restricted cash 230,305 0.17% 0.0 508,862 0.26% -- 
Agency callable notes 5,008 2.48% 2.8 5,031 2.50% 3.1
Agency debt 0.0 23,359 1.90% 0.1
Agency MBS 978,513 2.32% 2.7 966,856 2.51% 2.6
Non-agency MBS 41,347 4.21% 2.1 45,396 4.26% 2.0
CMBS 108,233 4.00% 1.9 108,066 4.00% 2.1
Asset-backed securities 9,592 11.19% 0.8 10,985 11.22% 0.9
U.S. Treasury and agency securities 18,315 2.38% 6.0 18,296 2.56% 6.1
  1,391,313 2.21% 2.2 1,686,851 2.01% 1.8

Loans and Leases increased $441 million (8.2%) from the prior quarter. For the full year 2012, loans and leases increased $909 million (18.6%) as detailed below.

  Quarter Ended
Loan and Lease Roll Forward(1) 12/31/2012 9/30/2012 12/31/2011
($ in thousands)      
Beginning balance 5,362,665 5,338,673 4,551,561
New fundings 843,208 623,445 664,819
Existing loans and leases      
Principal repayments, net (381,240) (535,047) (296,289)
Leased equipment depreciation (3,036) (2,307) (2,012)
Transfers to held for sale, net (13,260) (100,611)
Loan sales (15,810) (44,285) (6,411)
Transfers to foreclosed assets (1,120) (932) (849)
Net charge-offs (977) (3,622) (27,937)
Loans purchased from the Parent 112,021
Ending balance 5,803,690 5,362,665 4,894,292
 
(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 12/31/2012 9/30/2012 12/31/2011
($ in thousands)      
Healthcare Asset Based 159,143 155,444 213,047
Equipment Finance(1) 609,350 561,607 441,773
Lender Finance & Timeshare 844,776 763,144 750,667
Insurance Premium Finance 17,236 11,083
Other Asset Based 63,501 46,060 44,970
Total Asset Based 1,694,006 1,537,338 1,450,457
General Cash Flow 187,637 216,213 239,944
Technology Cash Flow 612,892 595,689 448,971
Healthcare Cash Flow 377,694 300,210 286,057
Security Cash Flow 306,134 272,531 306,533
Professional Practice 176,480 158,608 110,240
Total Cash Flow 1,660,837 1,543,251 1,391,745
General Commercial Real Estate 634,561 670,994 476,407
Multi Family 903,048 867,654 856,494
Healthcare Real Estate 671,060 519,042 554,645
Small Business 240,178 224,386 164,544
Total Real Estate 2,448,847 2,282,076 2,052,090
Total 5,803,690 5,362,665 4,894,292
 
(1) Includes $137 million of operating leases and related equity investments as of December 31, 2012 and $102 million as of September 30, 2012, which are included in other assets and other investments, respectively, on our balance sheet

Deposits were $5.6 billion at quarter end, an increase of $44 million from the prior quarter. The weighted average interest rate on total deposits declined 4 basis points to 0.87% at quarter end. The weighted average rate of new and renewing time deposits in the quarter was 0.84%, compared to 0.86% in the prior quarter.

FHLB Borrowings were $595 million, a decrease of $5 million from the prior quarter. The weighted average rate of FHLB borrowings was 1.80% as of December 31, 2012, compared to 1.81% at the end of the prior quarter and the average remaining maturity was 3.2 years, compared to 3.4 years at the end of the prior quarter.

Allowance for Loan and Lease Losses was $99 million or 1.76% of the loan portfolio, an increase of $0.5 million from the prior quarter as detailed below.

  Quarter Ended
Allowance for Loan and Lease Losses 12/31/2012
($ in thousands) General Specific Total % Loans
Beginning balance 90,154 8,281 98,435  
Provision / (Release) 6,919 (5,472) 1,447  
Charge-offs, net (977) (977)  
Ending balance 97,073 1,832 98,905 1.76%
         
         
  Quarter Ended
  9/30/2012
  General Specific Total % Loans
Beginning balance 87,912 13,872 101,784  
Provision / (Release) 2,242 (1,969) 273  
Charge-offs, net (3,622) (3,622)  
Ending balance 90,154 8,281 98,435 1.89%

Non-performing Assets were $47 million or 0.64% of total assets, a decrease of $23 million (33%) from the prior quarter and a decrease of $80 million (63%) from one year ago. Non-accrual loans were $42 million, a decrease of $22 million (35%) from the prior quarter and a decrease of $79 million (65%) from one year ago.

Non-performing Assets 12/31/2012 9/30/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current 15,477 0.21% 26,836 0.37%
Non-accrual loans - delinquent 30-89 days 20,210 0.27 29,948 0.41
Non-accrual loans - delinquent 90+ days 6,330 0.09 7,462 0.10
Total non-accrual loans 42,017 0.57 64,246 0.88
REO 5,135 0.07 6,050 0.08
Total non-performing assets 47,152 0.64% 70,296 0.96%

Troubled Debt Restructurings were $46 million, a decrease of $20 million (30%) from the prior quarter. For the full year 2012, TDRs declined $47 million (51%). TDRs on accrual status decreased to $15 million from $20 million in the prior quarter. Non-accruing TDRs were $31 million (included in the "Non-accrual loans" in the table above), $12 million of which were current as to payment status, compared to $16 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.

Fourth Quarter 2012 Details

Net Income was $14 million, compared to a net loss of $2 million in the prior quarter. On a pretax basis, earnings increased $9 million due to higher investment income and lower REO related expenses as summarized below. 

  Quarter Ended
        12/31/12 vs. 9/30/12 12/31/12 vs. 12/31/11
  12/31/2012 9/30/2012 12/31/2011 $ % $ %
($ in thousands)              
Interest income 16,050 16,899 24,088 (849) (5)% (8,038) (33)%
Interest expense 3,750 3,992 6,965 242 6 3,215 46
Provision for loan losses 7,428 8,686 7,632 1,258 14 204 3
Non-interest income 7,998 1,439 22,372 6,559 456 (14,374) (64)
Non-interest expense 11,118 13,037 49,886 1,919 15 38,768 78
Income tax (benefit) expense (11,857) (5,779) 263 6,078 105 12,120 4,608
Net income (loss) 13,609 (1,598) (18,286) 15,207 952 31,895 174

Interest Income was $16 million, a decrease of $1 million from the prior quarter due primarily to a lower average loan balance. Interest income for the full year 2012 declined by $62 million (44%) as total loans declined by 46% over the period.

Non-interest Income was $8 million compared to $1.4 million in the prior quarter. The current quarter included a $1.5 million gain on the sale of loans and gains of $6.7 million on the sale of equity investments and dividend income on equity investments. The equity investments on the Parent Company balance sheet which produced capital gains and dividends in the fourth quarter are legacy assets and any future gains or dividends are not predictable.

Non-interest Expense was $11 million, compared to $13 million in the prior quarter. Operating expenses were $12 million, an increase of $1 million from the prior quarter due primarily to higher professional fees. Non-operating expenses resulted in income of $1 million, a net expense decrease of $3 million from the prior quarter, due to $4.3 million of gains on the sale of foreclosed assets.

Unrestricted Cash at quarter end was $117 million, a decrease of $39 million from the prior quarter. The largest sources of cash were loan sales and principal collections of $138 million related to non-securitized loans. The principal uses of cash in the quarter were share repurchases totaling $61 million and a special dividend totaling $104 million.

Loans decreased by $161 million from the prior quarter as detailed below. The securitized loan balance was $355 million, a decrease of $56 million from the prior quarter. The non-securitized loan balance was $171 million, a decrease of $105 million from the prior quarter. For the full year 2012, loans decreased by $445 million (46%). 

  Quarter Ended
Loan and Lease Roll Forward 12/31/2012 9/30/2012 12/31/2011
($ in thousands)      
Beginning balance 687,576 801,127 1,284,101
Existing loans and leases      
Principal repayments, net (58,285) (46,939) (97,348)
Transfers to held for sale, net (22,698) (39,930) (62,932)
Loan sales (63,019) (14,616)
Transfers to foreclosed assets (1,880)
Net charge-offs (17,255) (12,066) (38,319)
Intercompany sales (112,021)
Ending balance 526,319 687,576 971,601

Allowance for Loan and Lease Losses was $18 million, or 3.53% of the loan portfolio, a decline of $10 million from the prior quarter primarily due to charge-offs as detailed below. 

  Quarter Ended
Allowance for Loan and Lease Losses 12/31/2012
($ in thousands) General Specific Total % Loans
Beginning balance 16,663 11,532 28,195  
(Release) / Provision (2,946) 10,374 7,428  
Charge-offs, net (17,255) (17,255)  
Ending balance 13,717 4,651 18,368 3.53%
         
  Quarter Ended
  9/30/2012
  General Specific Total % Loans
Beginning balance 24,647 6,928 31,575  
(Release) / Provision (7,984) 16,670 8,686  
Charge-offs, net (12,066) (12,066)  
Ending balance 16,663 11,532 28,195 4.15%

Non-performing Assets were $83 million, a decline of $26 million (24%) from the prior quarter due to declines in both non-accruals and REO as detailed below. For the full year 2012, non-performing assets declined $101 million (55%). As of December 31, 2012, $46 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 12/31/2012 9/30/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans current 46,304 3.89% 60,576 4.31%
Non-accrual loans - delinquent 30-89 days 56 58
Non-accrual loans - delinquent 90+ days 35,002 2.95 38,085 2.70
Total non-accrual loans 81,362 6.84 98,719 7.01
Accruing loans - delinquent 90+ days --  --  --  -- 
REO 1,844 0.15 10,264 0.73
Total non-performing assets 83,206 6.99% 108,983 7.74%

Troubled Debt Restructurings were $101 million, a decrease of $53 million from the prior quarter. For the full year 2012, TDRs declined $116 million (53%). TDRs on accrual status decreased by $41 million to $68 million. Non-accruing TDRs were $33 million (included in the "Non-accrual loans" in the table above), though $21 million were current as to payment status compared to $30 million in the prior quarter.

CONSOLIDATED

Fourth Quarter 2012 Details

Net Income was $47 million or $0.22 per diluted share, which included $0.06 per diluted share of non-recurring tax benefits, compared to net income of $31 million or $0.14 per diluted share in the prior quarter as detailed below. Pre-tax income was $58 million compared to $49 million in the prior quarter. 

  Quarter Ended
        12/31/12 vs. 9/30/12 12/31/12 vs. 12/31/11
  12/31/2012 9/30/2012 12/31/2011 $ % $ %
($ in thousands)              
Interest income 114,921 115,234 119,337 (313) (4,416) (4)%
Interest expense 18,872 19,513 22,963 641 3 4,091 18
Provision for loan and lease losses 8,875 8,959 11,535 84 1 2,660 23
Non-interest income 20,549 9,297 16,315 11,252 121 4,234 26
Non-interest expense 49,423 47,009 72,407 (2,414) (5) 22,984 32
Income tax expense 11,224 18,003 19,811 6,779 38 8,587 43
Net income 47,076 31,047 8,936 16,029 52 38,140 427

Interest Income was $115 million, unchanged from the prior quarter. Interest income for the full year 2012 was $468 million, compared to $510 million in 2011.

Net Interest Margin was 5.00%, an increase of 1 basis point from the prior quarter due primarily to recovery of non-accrual interest. Net interest income was $96 million, unchanged from the prior quarter. Net interest income for the full year increased 8% to $389 million, compared to $360 million in 2011.

Non-interest Income was $21 million compared to $9 million in the prior quarter. The current quarter included a $2.5 million gain on the sale of loans and $6.7 million of gains on the sale of equity investments and dividend income on equity investments. The equity investments on the Company's balance sheet which produced capital gains and dividends in the fourth quarter are legacy assets and any future gains or dividends are not predictable.

Non-Interest Expense was $49 million, an increase of $2 million from the prior quarter as detailed below. Total operating expenses were $47 million, compared to $42 million in the prior quarter due to higher incentive compensation expense and professional fees. Non-operating expenses were $3 million, compared to $5 million in the prior quarter due to $4.3 million of non-recurring gains on the sale of foreclosed assets. For the full year 2012, total operating expenses declined $25.6 million (12%) to $186 million.

  Quarter Ended
Non-Interest Expense 12/31/2012 9/30/2012 % Change
($ in thousands)      
Compensation and benefits $28,083 $25,523 (10)%
Professional fees 3,656 2,469 (48)
Occupancy expenses 3,438 3,422
FDIC fees and assessments 1,538 1,507 (2)
General depreciation and amortization 1,398 1,330 (5)
Other administrative expenses 8,608 7,660 (12)
Total operating expenses 46,721 41,911 (11)
Leased equipment depreciation 3,036 2,307 (32)
Expense of real estate owned and other foreclosed assets, net 211 2,308 91
Other non-interest expense, net (545) 483 213
Total non-interest expense $49,423 $47,009 (5)%

Loans and Leases increased $280 million from the prior quarter as detailed below. For the full year loans and leases increased by $464 million (8%).

  Quarter Ended
Loan and Lease Roll Forward (1) 12/31/2012 9/30/2012 12/31/2011
($ in thousands)      
Beginning balance 6,050,241 6,139,800 5,835,662
New fundings 843,208 623,445 664,819
Existing loans and leases      
Principal repayments, net (439,525) (581,985) (393,637)
Leased equipment depreciation (3,036) (2,307) (2,012)
Transfers to held for sale, net (22,698) (53,190) (163,543)
Loan sales (78,829) (58,902) (6,411)
Transfers to foreclosed assets (1,120) (932) (2,729)
Net charge-offs (18,232) (15,688) (66,256)
Ending balance 6,330,009 6,050,241 5,865,893
 
(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 $117 million, or 1.91% of the loan portfolio, compared to $127 million, or 2.15% at the end of the prior quarter.

Net Charge-offs were $18 million, an increase of $3 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve month period ended December 31, 2012 were 1.27%, compared to 2.09% for the twelve month period ended September 30, 2012 and 4.62% for the period ending December 31, 2011.

  Quarter Ended
Allowance for Loan and Lease Losses 12/31/2012
($ in thousands) General Specific Total % Loans
Beginning balance 106,817 19,813 126,630  
Provision 3,973 4,902 8,875  
Charge-offs, net (18,232) (18,232)  
Ending balance 110,790 6,483 117,273 1.91%
         
  Quarter Ended
  9/30/2012
  General Specific Total % Loans
Beginning balance 112,559 20,800 133,359  
(Release) / Provision (5,742) 14,701 8,959  
Charge-offs, net (15,688) (15,688)  
Ending balance 106,817 19,813 126,630 2.15%

Non-performing Assets were $130 million, a decline of $49 million (27%) from the prior quarter primarily due to a $40 million decrease in non-accrual loans. For the full year 2012, non-performing assets declined $181 million (58%). As of December 31, 2012, $62 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 12/31/2012 9/30/2012
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current 61,781 0.72% 87,412 1.00%
Non-accrual loans - delinquent 30-89 days 20,266 0.24 30,006 0.35
Non-accrual loans - delinquent 90+ days 41,332 0.48 45,547 0.53
Total non-accrual loans 123,379 1.44 162,965 1.88
Accruing loans - delinquent 90+ days --  --  --  -- 
REO 6,979 0.08 16,314 0.19
Total non-performing assets 130,358 1.52% 179,279 2.07%

Troubled Debt Restructurings were $147 million, a decrease of $72 million from the prior quarter. For the full year 2012, TDRs declined $163 million (53%). TDRs on accrual status decreased by $46 million to $83 million. Non-accruing TDRs were $64 million (included in the "Non-accrual loans" in the table above), though $33 million were current as to payment status, compared to $46 million in the prior quarter.

Valuation Allowance related to the Company's deferred tax assets was $129 million, a decrease of $30 million from the end of the prior quarter, primarily due to changes in DTA balances for which we maintain a full valuation allowance. The net deferred tax asset at quarter end after subtracting the valuation allowance was $362 million, a decrease of $9 million from the prior quarter.

Consolidated GAAP Tax Expense was $11 million, which equates to an effective tax rate of 19.3%.  The reduction from a more normalized rate of 40-41% was caused primarily by adjustments to the tax valuation allowance for actual and expected use of capital loss carry forwards, a true-up of prior quarter state taxes in connection with the annual process for revising state apportionment factors, and a reduction in the state FIN 48 liability.

Book Value Per Share was $7.75 at the end of the quarter, a decrease of $0.34 from the end of the prior quarter due primarily to the special dividend of $0.50 per share paid partially offset by net income. Total shareholders' equity was $1.6 billion at the end of the quarter, including intangible assets of $173 million, which was a decrease of $118 million or $0.34 per share from the prior quarter.

Tangible Book Value Per Share was $6.93 at the end of the quarter, a decrease of $0.36 from the end of the prior quarter due primarily to the special dividend of $0.50 per share partially offset by net income.

Average Diluted Shares Outstanding were 213.5 million shares for the quarter, compared to 226.4 million shares for the prior quarter. Average diluted shares for the full year 2012 were 230.2 million. Total outstanding shares at December 31, 2012 were 209.6 million.

Share Repurchases during the quarter totaled 8 million shares at a total cost of $61 million. Total share repurchases during 2012 were $343 million. Since December 2010 through December 31, 2012, the Company repurchased 120.9 million shares, at an average purchase price of $6.53 per share, resulting in a net reduction in outstanding shares of 35%. The remaining authority for share repurchases under the Board approved share buyback program as of December 31, 2012 was $226.4 million.

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 2013. 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.

Quarterly Cash Dividend of $0.01 per common share was paid on December 26, 2012 to common shareholders of record on December 20, 2012.

Special Cash Dividend of $0.50 per common share was paid on December 26, 2012 to common shareholders of record on December 20, 2012.

Conference Call Details

A conference call to discuss the Company's fourth quarter and full year 2012 results will be hosted on Tuesday, January 29, 2013 at 2:30 p.m. PST / 5:30 p.m. EST. 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 5:00 p.m. PST / 8:00 p.m. EST January 29, 2013 through July 30, 2013.

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 December 31, 2012 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on January 30, 2013. 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 $8.5 billion and total deposits of $5.6 billion as of December 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 expectations regarding converting CapitalSource Bank's charter to a commercial charter, 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: we may not receive the regulatory approvals needed to become a bank holding company within our expected timeframe or at all and alternative approaches to charter conversion may be unavailable or may not succeed; 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 Fourth Quarter 2012 - Financial Supplement
 
CapitalSource Inc.
Consolidated Balance Sheets
($ in thousands)
 
  December 31,
  2012 2011
  (Unaudited)  
     
ASSETS
Cash and cash equivalents $178,880 $231,701
Interest-bearing deposits in other banks 110,208 186,868
Other short-term investments 9,998 39,979
Restricted cash 104,044 65,484
Investment securities:    
Available-for-sale, at fair value 1,079,025 1,188,002
Held-to-maturity, at amortized cost 108,233 111,706
Total investment securities 1,187,258 1,299,708
Loans held for sale 22,719 193,021
Loans held for investment 6,192,858 5,758,990
Less deferred loan fees and discounts (53,628) (68,843)
Total loans held for investment 6,139,230 5,690,147
Less allowance for loan and lease losses (117,273) (153,631)
Total loans held for investment, net 6,021,957 5,536,516
Interest receivable 29,112 38,796
Other investments 60,363 81,245
Goodwill 173,135 173,135
Deferred tax asset, net 362,283 45,445
Other assets 289,048 408,170
Total assets $8,549,005 $8,300,068
     
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:    
Deposits 5,579,270 5,124,995
Term debt 177,188 309,394
Other borrowings 1,005,738 1,015,099
Other liabilities 161,637 275,434
Total liabilities 6,923,833 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; 209,551,674 and 256,112,205 shares issued and outstanding, respectively) 2,096 2,561
Additional paid-in capital 3,157,533 3,487,911
Accumulated deficit (1,559,107) (1,934,732)
Accumulated other comprehensive income, net 24,650 19,406
Total shareholders' equity 1,625,172 1,575,146
Total liabilities and shareholders' equity 8,549,005 8,300,068
 
 
CapitalSource Fourth Quarter 2012 - Financial Supplement
           
CapitalSource Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, except per share data)
           
  Three Months Ended Year Ended
  December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Net interest income:          
Interest income:          
Loans and leases 105,960 105,066 108,299 428,397 452,607
Investment securities 8,493 9,784 10,849 38,230 55,524
Other 468 384 189 1,587 2,259
Total interest income 114,921 115,234 119,337 468,214 510,390
Interest expense:          
Deposits 12,366 12,738 13,406 51,035 53,609
Borrowings 6,506 6,775 9,557 28,372 96,401
Total interest expense 18,872 19,513 22,963 79,407 150,010
Net interest income 96,049 95,721 96,374 388,807 360,380
Provision for loan and lease losses 8,875 8,959 11,535 39,442 92,985
Net interest income after provision for loan and lease losses 87,174 86,762 84,839 349,365 267,395
Non-interest income:          
Loan fees 6,662 4,174 4,799 18,561 16,234
Leased equipment income 4,298 3,299 2,774 14,113 3,748
Gain on investments, net 6,453 1,856 7,200 7,382 58,581
Loss on derivatives, net (174) (978) (2,551) (823) (6,813)
Other non-interest income, net 3,310 946 4,093 10,613 20,944
Total non-interest income 20,549 9,297 16,315 49,846 92,694
Non-interest Expense:          
Compensation and benefits 28,083 25,523 35,141 105,430 125,665
Professional fees 3,656 2,469 7,777 12,814 31,182
Occupancy expenses 3,438 3,422 3,817 16,840 15,480
FDIC fees and assessments 1,538 1,507 1,385 5,957 6,091
General depreciation and amortizations 1,398 1,330 1,596 5,934 6,879
Other administrative expenses 8,608 7,660 7,417 39,510 27,183
Total operating expenses 46,721 41,911 57,133 186,485 212,480
Leased equipment depreciation 3,036 2,307 2,012 9,919 2,720
Expense of real estate owned and other foreclosed assets, net 211 2,308 5,223 6,790 39,347
Loss (gain) on extinguishment of debt 5,328 (8,059) 119,007
Other non-interest expense, net (545) 483 2,711 (1,453) 1,616
Total non-interest expense 49,423 47,009 72,407 193,682 375,170
Net income (loss) before income taxes 58,300 49,050 28,747 205,529 (15,081)
Income tax expense (benefit) 11,224 18,003 19,811 (285,081) 36,942
Net income (loss) 47,076 31,047 8,936 490,610 (52,023)
           
Other comprehensive income (loss), net of tax          
Unrealized gain (loss) on available-for-sale securities, net of tax 2,793 2,315 (7,927) 5,595 13,292
Unrealized loss on foreign currency translation, net of tax (4,492) (351) (3,827)
Other comprehensive income (loss) 2,793 2,315 (12,419) 5,244 9,465
Comprehensive income (loss) 49,869 33,362 (3,483) 495,854 (42,558)
           
Net income per share:          
Basic  $ 0.23  $ 0.14  $ 0.03  $ 2.19  $ (0.17) 
Diluted  $ 0.22  $ 0.14  $ 0.03  $ 2.13  $ (0.17) 
Average shares outstanding:          
Basic 208,438,784 219,664,637 264,836,221 223,928,583 302,998,615
Diluted 213,482,389 226,441,293 271,272,855 230,154,989 302,998,615
Dividends declared per share 0.51 0.01 0.01 0.22 0.04
 
 
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
                 
  December 31, 2012 September 30, 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  $ 230,305  $ 172,825  $ —  $ 403,130  $ 508,862  $ 178,045 $ —  $ 686,907
Investment securities:                
Available-for-sale 1,052,775 26,250 1,079,025 1,069,923 24,147 1,094,070
Held-to-maturity 108,233 108,233 108,066 108,066
Loans 5,618,810 543,325 (186) 6,161,949 5,259,524 720,084 (513) 5,979,095
Allowance for loan and lease losses (98,905) (18,368) (117,273) (98,435) (28,195) (126,630)
Loans, net of allowance for loan and lease losses 5,519,905 524,957 (186) 6,044,676 5,161,089 691,889 (513) 5,852,465
Receivables due from affiliates 1,742 11,347 (13,089) 3,755 15,622 (19,377)
Other assets 458,683 454,665 593 913,941 434,258 502,540 (1,005) 935,793
Total assets  $ 7,371,643  $ 1,190,044 $ (12,682)   $ 8,549,005  $ 7,285,953  $ 1,412,243 $ (20,895)  $ 8,677,301
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                
Deposits  $ 5,579,270  $ —  $ —  $ 5,579,270  $ 5,535,482  $ —  $ —  $ 5,535,482
Borrowings 595,000 587,926 1,182,926 600,000 613,187 1,213,187
Balance due to affiliates 11,347 1,742 (13,089) 15,622 3,755 (19,377)
Other liabilities 85,179 78,672 (2,214) 161,637 69,211 120,580 (4,619) 185,172
Total liabilities 6,270,796 668,340 (15,303) 6,923,833 6,220,315 737,522 (23,996) 6,933,841
                 
Shareholders' equity:                
Common stock 921,000 2,096 (921,000) 2,096 921,000 2,152 (921,000) 2,152
Additional paid-in capital/retained earnings/deficit 165,398 494,958 938,070 1,598,426 129,197 650,712 939,542 1,719,451
Accumulated other comprehensive income, net 14,449 24,650 (14,449) 24,650 15,441 21,857 (15,441) 21,857
Total shareholders' equity 1,100,847 521,704 2,621 1,625,172 1,065,638 674,721 3,101 1,743,460
                 
Total liabilities and shareholders' equity  $ 7,371,643  $ 1,190,044 $ (12,682)   $ 8,549,005  $ 7,285,953  $ 1,412,243 $ (20,895)   $ 8,677,301
 
 
CapitalSource Inc.
Segment Statements of Operations
(Unaudited)
($ in thousands
                 
  Three Months Ended December 31, 2012 Three Months Ended September 30, 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  $ 91,328  $ 14,305  $ 327  $ 105,960  $ 91,367  $ 15,171 $ (1,472)  $ 105,066
Investment securities 6,770 1,723 8,493 8,123 1,661 9,784
Other 446 22 468 317 67 384
Total interest income 98,544 16,050 327 114,921 99,807 16,899 (1,472) 115,234
Interest expense:                
Deposits 12,366 12,366 12,738 12,738
Borrowings 2,756 3,750 6,506 2,783 3,992 6,775
Total interest expense 15,122 3,750 18,872 15,521 3,992 19,513
Net interest income 83,422 12,300 327 96,049 84,286 12,907 (1,472) 95,721
Provision for loan and lease losses 1,447 7,428 8,875 273 8,686 8,959
Net interest income after provision for loan and lease losses 81,975 4,872 327 87,174 84,013 4,221 (1,472) 86,762
Non-interest income:                
Loan fees 6,524 138 6,662 3,469 705 4,174
Leased equipment income 4,298 4,298 3,299 3,299
Other non-interest income, net 7,421 7,860 (5,692) 9,589 6,817 734 (5,727) 1,824
Total non-interest income, net 18,243 7,998 (5,692) 20,549 13,585 1,439 (5,727) 9,297
Non-interest expense:                
Compensation and benefits 27,599 484 28,083 25,254 269 25,523
Professional fees 1,013 2,643 3,656 1,404 1,065 2,469
Leased equipment depreciation 3,036 3,036 2,307 2,307
Expense of real estate owned and other foreclosed assets, net 835 (624) 211 16 2,292 2,308
Other non-interest expense, net 11,779 8,615 (5,957) 14,437 10,983 9,411 (5,992) 14,402
Total non-interest expense, net 44,262 11,118 (5,957) 49,423 39,964 13,037 (5,992) 47,009
Net income (loss) before income taxes 55,956 1,752 592 58,300 57,634 (7,377) (1,207) 49,050
Income tax expense (benefit) 22,008 (11,857) 1,073 11,224 23,782 (5,779) 18,003
Net income (loss)  $ 33,948  $ 13,609 $ (481)  $ 47,076  $ 33,852 $ (1,598) $ (1,207)  $ 31,047
                 
  Year Ended December 31, 2012 Year 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  $ 359,233  $ 72,662 $ (3,498)  $ 428,397  $ 319,485  $ 132,752  $ 370  $ 452,607
Investment securities 32,396 5,834 38,230 48,359 7,165 55,524
Other 1,454 133 1,587 1,120 1,139 2,259
Total interest income 393,083 78,629 (3,498) 468,214 368,964 141,056 370 510,390
Interest expense:                
Deposits 51,035 51,035 53,609 53,609
Borrowings 11,061 17,311 28,372 9,193 87,208 96,401
Total interest expense 62,096 17,311 79,407 62,802 87,208 150,010
Net interest income 330,987 61,318 (3,498) 388,807 306,162 53,848 370 360,380
Provision for loan and lease losses 16,192 23,250 39,442 27,539 65,446 92,985
Net interest income (loss) after provision for loan and lease losses 314,795 38,068 (3,498) 349,365 278,623 (11,598) 370 267,395
Non-interest income:                
Loan fees 16,089 2,472 18,561 8,678 7,556 16,234
Leased equipment income 14,113 14,113 3,748 3,748
Other non-interest income, net 30,293 12,050 (25,171) 17,172 29,271 116,395 (72,954) 72,712
Total non-interest income, net 60,495 14,522 (25,171) 49,846 41,697 123,951 (72,954) 92,694
Non-interest expense:                
Compensation and benefits 102,417 3,013 105,430 49,941 79,680 (3,956) 125,665
Professional fees 5,628 7,186 12,814 4,054 27,128 31,182
Leased equipment depreciation 9,919 9,919 2,720 2,720
Expense of real estate owned and other foreclosed assets, net 2,169 4,621 6,790 12,756 26,591 39,347
(Gain) loss on extinguishment of debt (8,059) (8,059) 119,007 119,007
Other non-interest expense, net 48,436 44,583 (26,231) 66,788 80,239 48,246 (71,236) 57,249
Total non-interest expense, net 168,569 51,344 (26,231) 193,682 149,710 300,652 (75,192) 375,170
Net income (loss) before income taxes 206,721 1,246 (2,438) 205,529 170,610 (188,299) 2,608 (15,081)
Income tax expense (benefit) 84,055 (370,209) 1,073 (285,081) 57,996 (21,054) 36,942
Net income (loss)  $ 122,666  $ 371,455 $ (3,511)  $ 490,610  $ 112,614 $ (167,245)  $ 2,608 $ (52,023)
 
 
CapitalSource Inc.
Selected Financial Data
(Unaudited)
 
  Three Months Ended Year Ended
  December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
CapitalSource Bank Segment:          
           
Performance ratios:          
Return on average assets 1.84% 1.88% 1.63% 1.73% 1.77%
Return on average equity 12.53% 12.75% 10.38% 11.73% 11.36%
Return on average tangible equity 14.93% 15.25% 12.44% 14.06% 13.76%
Yield on average interest earning assets 5.72% 5.88% 5.96% 5.90% 6.13%
Cost of interest bearing liabilities 0.98% 1.02% 1.16% 1.04% 1.19%
Deposits 0.89% 0.93% 1.07% 0.95% 1.11%
Borrowings 1.83% 1.85% 2.01% 1.88% 2.02%
Net interest spread 4.74% 4.86% 4.80% 4.86% 4.94%
Net interest margin 4.84% 4.97% 4.95% 4.97% 5.09%
Operating expenses as a percentage of average total assets 2.22% 2.07% 2.14% 2.21% 2.11%
Efficiency ratio (1) 41.32% 38.83% 39.43% 41.10% 38.88%
Loan yield 6.80% 6.95% 7.25% 7.01% 7.71%
Capital ratios:          
Tier 1 leverage 13.06% 12.82% 13.61% 13.06% 13.61%
Total risk-based capital 16.50% 16.69% 17.43% 16.50% 17.43%
Tangible common equity to tangible assets 12.89% 12.55% 13.25% 12.89% 13.25%
Average balances ($ in thousands):          
Average loans  $ 5,342,683  $ 5,231,242  $ 4,642,500  $ 5,121,261  $ 4,145,130
Average assets 7,327,136 7,174,140 6,643,685 7,094,631 6,356,036
Average interest earning assets 6,859,237 6,752,549 6,286,584 6,663,700 6,016,613
Average deposits 5,557,241 5,469,501 4,982,956 5,400,247 4,808,141
Average borrowings 597,772 597,674 511,957 587,301 455,055
Average equity 1,077,507 1,056,261 1,044,969 1,045,760 991,485
           
Other Commercial Finance Segment:          
           
Performance ratios:          
Return on average assets 4.05% (0.43)% (4.17)% 27.14% (6.28)%
Return on average equity 8.65% (0.86)% (11.33)% 65.09% (17.14)%
Yield on average interest earning assets 8.17% 7.66% 7.42% 8.40% 6.69%
Cost of interest bearing liabilities 2.49% 2.56% 3.11% 2.60% 5.99%
Net interest spread 5.68% 5.10% 4.31% 5.80% 0.70%
Net interest margin 6.26% 5.85% 5.28% 6.55% 2.55%
Operating expenses as a percentage of average total assets 3.57% 2.92% 9.32% 4.08% 7.70%
Loan yield 8.41% 7.91% 7.60% 8.75% 8.38%
Average balances ($ in thousands):          
Average loans  $ 676,349  $ 763,361  $ 1,187,295  $ 830,316  $ 1,583,594
Average assets 1,335,561 1,477,940 1,741,678 1,368,522 2,662,409
Average interest earning assets 781,428 877,722 1,287,652 935,527 2,108,568
Average borrowings 600,328 621,371 889,659 665,937 1,456,558
Average equity 625,945 742,001 640,193 570,693 975,890
           
Consolidated CapitalSource Inc.: (2)          
           
Performance ratios:          
Return on average assets 2.17% 1.43% 0.43% 5.80% (0.58)%
Return on average equity 10.97% 6.85% 2.10% 30.25% (2.64)%
Return on average tangible equity 12.23% 7.58% 2.10% 33.89% (2.64)%
Yield on average interest earning assets 5.98% 6.01% 6.25% 6.16% 6.28%
Cost of interest bearing liabilities 1.11% 1.16% 1.43% 1.19% 2.23%
Net interest spread 4.87% 4.85% 4.82% 4.97% 4.05%
Net interest margin 5.00% 4.99% 5.05% 5.12% 4.43%
Efficiency ratio (1) 41.14% 40.81% 58.29% 43.50% 47.18%
Operating expenses as a percentage of average total assets 2.16% 1.94% 2.74% 2.21% 2.37%
Leverage ratios:          
Equity to total assets (as of period end) 19.01% 20.09% 18.98% 19.01% 18.98%
Tangible common equity to tangible assets 17.33% 18.47% 17.23% 17.33% 17.23%
Average balances ($ in thousands):          
Average loans  $ 6,018,343  $ 5,995,021  $ 5,833,113  $ 5,952,699  $ 5,732,172
Average assets 8,642,344 8,648,882 8,330,008 8,456,527 8,963,290
Average interest earning assets 7,639,977 7,630,690 7,577,554 7,600,348 8,128,628
Average borrowings 1,198,100 1,219,045 1,401,616 1,253,237 1,911,613
Average deposits 5,557,241 5,469,501 4,982,956 5,400,247 4,808,141
Average equity 1,706,761 1,802,085 1,691,123 1,621,874 1,973,070
           
(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)
 
  December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011
           
Loans 30-89 days contractually delinquent:          
As a % of total loans(1) 0.39% 0.50% 0.01% 0.31% 0.21%
Loans 30-89 days contractually delinquent $24.6 $30.2 $0.7 $19.0 $12.7
           
Loans 90 or more days contractually delinquent:          
As a % of total loans(1) 0.66% 0.75% 1.04% 1.22% 1.61%
Loans 90 or more days contractually delinquent $41.3 $45.5 $63.1 $73.8 $95.8
           
Loans on non-accrual:(2)          
As a % of total loans(1) 1.98% 2.70% 3.35% 3.94% 4.72%
Loans on non-accrual $123.4 $163.0 $203.1 $238.2 $280.7
           
Impaired loans:(3)          
As a % of total loans(1) 3.32% 4.50% 6.03% 6.51% 7.15%
Impaired loans $206.1 $271.2 $365.7 $393.4 $425.3
           
Allowance for loan and lease losses:          
As a % of total loans(4) 1.91% 2.15% 2.23% 2.61% 2.70%
As a % of non-accrual loans 95.05% 77.70% 65.66% 63.76% 54.74%
Allowance for loan and lease losses $117.3 $126.6 $133.4 $151.9 $153.6
           
Net charge offs (last twelve months):          
As a % of total average loans 1.27% 2.09% 2.30% 3.31% 4.62%
Net charge offs (last twelve months) $75.8 $123.7 $134.0 $190.6 $268.5
 
(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 $41.3 million, $45.5 million, $63.1 million, $73.7 million, and $90.2 million as of December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012, and December 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 $2.4 million, $2.9 million, $3.1 million, and $118.7 million as of December 31, 2012, December 31, 2011, September 30, 2011, and June 30, 2011, respectively. As of September 30, 2012, 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 $40.3 million, $45.5 million, $63.1 million, $73.7 million, and $94.9 million as of December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012, and December 31, 2011, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $120.9 million, $163.0 million, $203.1 million, $238.2 million, and $277.8 million as of December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012, and December 31, 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