Market Overview

CapitalSource Reports Third Quarter 2012 Results and Announces New $250 Million Share Buyback Plan

Share:
  • Third Quarter Net Income of $31 Million or $0.14 Per Share
     
  • Strong Loan Production of $623 Million at CapitalSource Bank
     
  • Net Interest Margin of 4.97% at CapitalSource Bank
     
  • 10.2 Million Shares Repurchased in the Quarter – Outstanding Shares Reduced by 35% Since December 2010
     
  • Prior Repurchase Authorization Nearly Completed After Quarter Close / New $250 Million Buyback Plan Announced

LOS ANGELES, Oct. 30, 2012 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE: CSE) today announced financial results for the third quarter of 2012. The Company reported net income for the quarter of $31 million or $0.14 per diluted share, compared to net income of $388 million or $1.66 per diluted share in the prior quarter and a net loss of $81 million or $0.26 per diluted share in the third quarter of 2011. Net income in the prior quarter included $1.49 per diluted share resulting from the reversal of $347 million of the Company's deferred tax asset valuation allowance. The loss in the third quarter of 2011 was driven by a one-time charge of $114 million or $0.37 per share resulting from the early retirement of debt.

"In addition to strong operating results, we repurchased 10 million of our shares in the third quarter and an additional 5 million shares in October. Since inception of our buyback plan in December of 2010, we have reduced the total share count by approximately 36% and returned $766 million to shareholders," said James J. Pieczynski, CapitalSource CEO. "A higher than projected level of loan payoffs at the Parent Company provided added liquidity and permitted us to nearly complete the previous repurchase authorization this month. As a result, our Board has approved a new buyback plan with an initial authorization of $250 million."

"The third quarter at CapitalSource Bank was solid in all respects. Pre-tax pre-provision income was up 17% compared to the prior quarter, net interest margin of 4.97% was near the top end of our projected range, and after-tax return on assets (ROA) rose to 1.88%, assisted by a very low loan loss provision," said Tad Lowrey, CapitalSource Bank Chairman and CEO. "The combination of portfolio management activities, which reduced the loan portfolio by approximately $163 million, and an elevated level of loan payoffs largely offset strong loan production of $623 million in the quarter but year-to-date loan growth remains a healthy 10%."

"Cash generation at the Parent was ahead of expectations, as we ended the quarter with $156 million in unrestricted cash despite $75 million of share repurchases and $23 million spent to redeem the remaining convertible debentures in July," said John Bogler, CapitalSource CFO. "Consolidated operating expenses decreased meaningfully in the quarter as well, due largely to the continuing benefits of our internal consolidation efforts. Total consolidated operating expenses remain on track for a full year reduction of about 10%, compared to 2011."

CAPITALSOURCE BANK SEGMENT

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

Third Quarter 2012 Highlights

  • Net Income was $34 million, an increase of $11 million or 47% from the prior quarter primarily due to a lower loan loss provision. Total interest income rose 4% to $100 million.
     
  • Loans and Leases increased $24 million as funded loan and lease productionof $623 million, compared to $596 million in the prior quarter, was largely offset by $599 million of loan repayments, sales and other reductions. $163 million of those repayments and sales were the result of portfolio management activities designed to reduce hold sizes and limit credit exposure. Absent those portfolio management activities, loan growth would have been ~3.5% in the quarter. Total loans and leases were $5.4 billion at quarter end, a year-to-date increase of 10% and an 18% increase since September 30, 2011.
     
  • Net Interest Margin was 4.97%, an increase of 2 basis points from the prior quarter, primarily due to a more favorable asset mix and lower cost of funds.
     
  • Capital – The Tier 1 leverage ratio increased 13 basis points to 12.82%, and the total risk-based capital ratio increased 49 basis points to 16.69%.
     
  • Credit Quality – Loan loss provision was $0.3 million, compared to $13 million in the prior quarter. Net charge-offs were $4 million in the quarter, compared to $7 million in the prior quarter. Non-accrual loans decreased to $64 million or 1.21% of loans at quarter end, compared to $102 million or 1.94% of loans at the end of the prior quarter. The allowance for loan and lease losses was $98 million or 1.89% of loans at quarter end, compared to $102 million or 1.96% of loans at the end of the prior quarter.

Third Quarter 2012 Details

  Quarter Ended
        9/30/2012 vs. 6/30/2012 9/30/2012 vs. 9/30/2011
  9/30/2012 6/30/2012 9/30/2011 $ % $ %
($ in thousands)              
Interest income $ 99,807 $ 96,112 $ 92,173 $ 3,695 4% $ 7,634  8%
Interest expense  15,521  15,394  15,982  (127)  (1) 461  3
Provision for loan losses  273  12,569  13,725 12,296  98 13,452  98
Non-interest income  13,585  13,198  14,614  387  3 (1,029) (7)
Non-interest expense  39,964  43,179  35,345  3,215  7 (4,619) (13)
Income tax expense  23,782  15,106  16,513  (8,676)  (57)  (7,269)  (44)
Net income   33,852  23,062  25,222  10,790  47  8,630  34

Net Interest Margin was 4.97%, an increase of 2 basis points from the prior quarter. Interest income was $100 million, an increase of $4 million from the prior quarter. Net interest income was $84 million, an increase of $4 million from the prior quarter.

  Quarter Ended
  9/30/2012   6/30/2012
Net Interest Margin Average
Balance
Interest
Income/Expense
Average
Yield/Cost
  Average
Balance
Interest
Income/Expense
Average
Yield/Cost
($ in thousands)              
Loans $ 5,231,242 $ 91,367 6.95%  (1) $ 4,973,262 $ 87,680 7.09%
Investment securities 1,206,868 8,123 2.68   1,238,781 8,029 2.61
Cash and other interest-earning assets 314,439 317 0.40   346,288 403 0.47
Total interest-earning assets 6,752,549 99,807 5.88   6,558,331 96,112 5.89
Deposits 5,469,501 12,738 0.93   5,334,190 12,640 0.95
Borrowings 597,674 2,783 1.85   585,791 2,754 1.89
Total interest-bearing liabilities $ 6,067,175 15,521 1.02   $ 5,919,981 15,394 1.05
Net interest income / spread   84,286 4.86%     $ 80,718 4.84%
Net interest margin     4.97%       4.95%
               
(1) Loan yield for the quarter included 70 basis points of fee and discount accretion, compared to 65 basis points in the prior quarter.

Non-interest Expense was $40 million, a decrease of $3 million from the prior quarter. Operating expenses were $37 million, a decrease of $3 million from the prior quarter due primarily to a $2 million decrease in loan servicing expenses. Non-operating expenses were unchanged at $3 million.

Income Tax Expense was $24 million for the quarter, compared to $15 million in the prior quarter, due to higher pre-tax income. The effective tax rate for the quarter was 41% compared to 40% in the prior quarter.

Cash and Investments increased by $177 million to $1.7 billion due to the high level of loan repayments and sales. The portfolio yield at quarter end decreased 34 basis points to 2.01%, primarily due to the higher mix of cash and cash equivalents.

Cash and Investments 9/30/2012 6/30/2012
($ in thousands) Balance Yield Duration
(Years)
Balance Yield Duration
(Years)
Cash and cash equivalents and restricted cash $ 508,862 0.26%  -- $ 275,456 0.29%  --
Agency callable notes 5,031 2.50% 3.1 5,053 2.50% 3.3
Agency debt 23,359 1.90% 0.1 23,810 1.94% 0.4
Agency MBS 966,856 2.51% 2.6 1,014,783 2.53% 2.8
Non-agency MBS 45,396 4.26% 2.0 50,785 4.31% 2.1
CMBS 108,066 4.00% 2.1 108,520 4.04% 2.3
Asset-backed securities 10,985 11.22% 0.9 12,453 11.38% 0.9
U.S. Treasury and agency securities 18,296 2.56% 6.1 19,165 2.56% 6.2
  $ 1,686,851 2.01% 1.8 $ 1,510,025 2.35% 2.2

Loans and Leases increased $24 million from the prior quarter as detailed below.

  Quarter Ended
Loan and Lease Roll Forward (1) 9/30/2012 6/30/2012 9/30/2011
($ in thousands)      
Beginning balance $ 5,338,673 $ 5,088,426 $ 4,202,073
New fundings  623,445  595,737  646,851
Existing loans and leases      
Principal repayments, net  (535,047)  (265,491)  (234,651)
Leased equipment depreciation  (2,307)  (2,288)  (668)
Transfers to held for sale, net  (13,260)  (31,519)  (30,092)
Loan sales  (44,285)  (38,615)  -- 
Transfers to foreclosed assets  (932)  (176)  (1,438)
Net charge-offs  (3,622)  (7,401)  (3,633)
Intercompany sales  --   --   (26,880)
Ending balance  $ 5,362,665 $ 5,338,673 $ 4,551,562
       
 (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 9/30/2012 6/30/2012 9/30/2011
($ in thousands)      
Healthcare Asset Based $ 155,444     $ 145,758     $ 203,370
Equipment Finance (1) 561,607 470,275 361,830
Lender Finance & Timeshare 763,144 761,310 583,683
Premium Finance 11,083 7,638  --
Other Asset Based 46,060 47,103 49,751
Total Asset Based 1,537,338 1,432,084 1,198,634
General Cash Flow 216,213 263,593 250,981
Technology Cash Flow 595,689 511,880 367,216
Healthcare Cash Flow 300,210 315,719 257,724
Security Cash Flow 272,531 323,414 295,628
Professional Practice 158,608 147,084 89,768
Total Cash Flow 1,543,251 1,561,690 1,261,317
General Real Estate 670,994 684,312 623,689
Multi Family 867,654 884,164 785,728
Healthcare Real Estate 519,042 570,888 533,608
Small Business 224,386 205,535 148,586
Total Real Estate 2,282,076 2,344,899 2,091,611
Total     $ 5,362,665     $ 5,338,673     $ 4,551,562
       
(1) Includes $102 million of operating leases and related equity investments as of September 30, 2012 and $102 million as of June 30, 2012, which are included in other assets and other investments, respectively, on our balance sheet.

Deposits were $5.5 billion at quarter end, an increase of $153 million from the prior quarter. The weighted average interest rate on total deposits declined 3 basis points to 0.91% at the end of the quarter. The weighted average rate of new and renewing time deposits in the quarter was 0.86%, compared to 0.83% in the prior quarter.

FHLB Borrowings were $600 million, an increase of $3 million from the prior quarter. The weighted average rate of FHLB borrowings was 1.81% as of September 30, 2012, compared to 1.83% at the end of the prior quarter and the average remaining maturity was 3.4 years, compared to 3.6 years at the end of the prior quarter.

Allowance for Loan and Lease Losses was $98 million or 1.89% of the loan portfolio, a decrease of $3 million from the prior quarter.

  Quarter Ended
Allowance for Loan and Lease Losses 9/30/2012
($ in thousands) General Specific Total  % Loans
Beginning balance  $ 87,912 $ 13,872 $ 101,784  
Provision / (Reserve release)  2,242  (1,969)  273  
Charge-offs, net  --   (3,622)  (3,622)  
Ending balance $ 90,154  $ 8,281 $ 98,435 1.89%
         
         
  Quarter Ended
  6/30/2012
  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%

Non-performing Assets were $70 million or 0.96% of total assets, a decrease of $37 million (35%) from the prior quarter. Non-accrual loans were $64 million, a decrease of $38 million (37%) from the prior quarter. REO increased by $0.4 million (7%).

Non-performing Assets 9/30/2012 6/30/2012
  Balance % of Total
Assets
Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 26,836 0.37% $ 80,571 1.14%
Non-accrual loans - delinquent 30-89 days 29,948 0.41 59 -- 
Non-accrual loans - delinquent 90+ days 7,462 0.10 21,360 0.31
Total non-accrual loans 64,246 0.88% 101,990 1.45%
REO 6,050 0.08 5,644 0.08
Total non-performing assets $ 70,296 0.96% $ 107,634 1.53%

Troubled Debt Restructurings were $66 million, a decrease of $9 million from the prior quarter. TDRs on accrual status decreased to $20 million from $69 million in the prior quarter. Non-accruing TDRs were $45 million (included in the "Non-accrual loans" in the table above), $16 million of which were current as to payment status, compared to $7 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.

Third Quarter 2012 Details

Net Loss was $2 million, compared to net income of $365 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 and an $8 million gain on early retirement of debt.

  Quarter Ended
        9/30/2012 vs. 6/30/2012 9/30/2012 vs. 9/30/2011
  9/30/2012 6/30/2012 9/30/2011 $ % $ %
               
($ in thousands)              
Interest income  $ 16,899  $ 22,978  $ 28,653  $ (6,079)  (26)%  $ (11,754)  (41)%
Interest expense  3,992  4,770  18,506  778  16  14,514  78
Provision for loan losses  8,686  (2,033)  21,393  (10,719)  (527)  12,707  59
Non-interest income  1,439  1,594  35,015  (155)  (10)  (33,576)  (96)
Non-interest expense  13,037  11,629  158,305  (1,408)  (12)  145,268  92
Income tax benefit  (5,779)  (355,123)  (27,793)  (349,344)  (98)  (22,014)  (79)
Net (loss) income   (1,598)  365,329  (106,743)  (366,927)  (100)  105,145  99

Interest Income was $17 million, a decrease of $6 million from the prior quarter due primarily to a lower average loan balance.

Non-interest Expense was $13 million, compared to $12 million in the prior quarter. Operating expenses were $11 million, a decrease of $7 million from the prior quarter due primarily to expenses in the prior quarter related to the establishment of a $2 million lease abandonment charge for excess office space and higher third party loan workout expenses. Non-operating expenses were $2 million compared to non-operating income of $6 million in the prior quarter, due primarily to an $8 million gain on debt extinguishment in the prior quarter.

Unrestricted Cash at quarter end was $156 million, a decrease of $35 million from the prior quarter. 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. The principal uses of cash in the quarter were share repurchases totaling $75 million and the redemption of $23 million of the Company's outstanding 7.25% convertible debentures.

Loans decreased by $114 million from the prior quarter as detailed below.Securitized loan balances were $411 million, a decrease of $8 million from the prior quarter. The non-securitized loan balance was $316 million, including $40 million of loans held for sale, a decrease of $65 million from the prior quarter.

  Quarter Ended
Loan and Lease Roll Forward 9/30/2012 6/30/2012 9/30/2011
($ in thousands)      
Beginning balance $ 801,127 $ 899,836 $ 1,399,910
Existing loans and leases      
Principal repayments, net  (46,939)  (56,857)  (111,693)
Transfers to held for sale, net  (39,930)  --   (8,648)
Loan sales  (14,616)  (20,174)  -- 
Transfers to foreclosed assets  --   --   (77)
Net charge-offs  (12,066)  (21,678)  (22,271)
Intercompany sales  --   --   26,880
Ending balance $ 687,576 $ 801,127 $ 1,284,101

Allowance for Loan and Lease Losses was $28 million, or 4.15% of the loan portfolio, a decline of $3 million from the prior quarter as detailed below.

  Quarter Ended
Allowance for Loan and Lease Losses 9/30/2012
($ in thousands) General Specific Total  % Loans
Beginning balance $ 24,647 $ 6,928 $ 31,575  
(Reserve 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%
         
  Quarter Ended
  6/30/2012
  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%

Non-performing Assets were $109 million, a decline of $5 million (5%) from the prior quarter, due to declines in both non-accruals and REO, as detailed below. As of September 30, 2012, $61 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 9/30/2012 6/30/2012
  Balance % of Total
Assets
Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 60,576 4.31% $ 58,907 4.03%
Non-accrual loans - delinquent 30-89 days 58 --  460 0.03
Non-accrual loans - delinquent 90+ days 38,085 2.70 41,744 2.86
Total non-accrual loans 98,719 7.01% 101,111 6.92%
Accruing loans - delinquent 90+ days  --  --  --  -- 
REO 10,264 0.73 13,303 0.92
Total non-performing assets $ 108,983 7.74% $ 114,414 7.84%

Troubled Debt Restructurings were $154 million, a decrease of $19 million from the prior quarter. TDRs on accrual status decreased by $7 million to $109 million. Non-accruing TDRs were $45 million (included in the "Non-accrual loans" in the table above), though $30 million were current as to payment status compared to $57 million in the prior quarter.

CONSOLIDATED

Third Quarter 2012 Details

Net Income was $31 million or $0.14 per diluted share, compared to net income of $388 million, or $1.66 per diluted share, in the prior quarter as detailed below. Net income in the prior quarter 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 $49 million compared to $48 million in the prior quarter.

  Quarter Ended
        9/30/2012 vs. 6/30/2012 9/30/2012 vs. 9/30/2011
  9/30/2012 6/30/2012 9/30/2011 $ % $ %
($ in thousands)              
Interest income  $ 115,234 $ 117,982 $ 121,476 $ (2,748)  (2)% $ (6,242)  (5)%
Interest expense  19,513  20,164  34,488  651  3  14,975  43
Provision for loan and lease losses  8,959  10,536  35,118  1,577  15  26,159  74
Non-interest income  9,297  8,450  32,484  847  10  (23,187)  (71)
Non-interest expense  47,009  48,200  176,346  1,191  2  129,337  73
Income tax expense (benefit)  18,003  (340,017)  (11,280)  (358,020)  (105)  (29,283)  (260)
Net income (loss)  31,047  387,549  (80,712)  (356,502)  (92)  111,759  138

Interest Income was $115 million, a decrease of $3 million from the prior quarter.

Net Interest Margin was 4.99%, a decrease of 21 basis points from the prior quarter. Net interest income was $96 million, a decrease of $2 million from the prior quarter.

Non-Interest Expense was $47 million, a decrease of $1 million from the prior quarter as detailed below.

  Quarter Ended
Non-Interest Expense 9/30/2012 6/30/2012 % Change
($ in thousands)      
Compensation and benefits $ 25,523 $ 25,408  (0)%
Professional fees  2,469  3,089  20
Occupancy expenses  3,422  6,221  45
FDIC fees and assessments  1,507  1,463  (3)
General depreciation and amortization  1,330  1,511  12
Other administrative expenses  7,660  13,622  44
Total operating expenses  41,911  51,314  18
Leased equipment depreciation  2,307  2,288  (1)
Expense of real estate owned and other foreclosed assets, net  2,308  3,821  40
(Gain) loss on extinguishment of debt  --   (8,142)  100
Other non-interest expense, net  483  (1,081)  145
Total non-interest expense $ 47,009 $ 48,200  2%

Income Tax Expense was $18 million, compared to a tax benefit of $340 million in the prior quarter as a result of the reversal of a portion of the Company's deferred tax asset valuation allowance. Utilization of the Federal Net Operating Loss Carry Forward portion of the Company's deferred tax asset, however, reduced the Company's cash tax liability to $3 million.

Loans and Leases decreased $90 million from the prior quarter as detailed below:

  Quarter Ended
Loan and Lease Roll Forward (1) 9/30/2012 6/30/2012 9/30/2011
($ in thousands)      
Beginning balance $ 6,139,800 $ 5,988,262 $ 5,601,983
New fundings   623,445  595,737  646,851
Existing loans and leases      
Principal repayments, net  (581,985)  (322,348)  (346,344)
Leased equipment depreciation  (2,307)  (2,288)  (668)
Transfers to held for sale, net  (53,190)  (31,519)  (38,740)
Loan sales  (58,902)  (58,789)  -- 
Transfers to foreclosed assets  (932)  (176)  (1,515)
Net charge-offs  (15,688)  (29,079)  (25,904)
Ending balance  $ 6,050,241 $ 6,139,800 $ 5,835,663
       
(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 $127 million, or 2.15% of the loan portfolio, compared to $133 million, or 2.23% at the end of the prior quarter.

Net Charge-offs were $16 million, a decrease of $13 million from the prior quarter.  Net charge-offs as a percentage of average loans for the twelve month period ended September 30, 2012 were 2.09%, compared to 2.30% for the twelve month period ended June 30, 2012. 

  Quarter Ended
Allowance for Loan and Lease Losses 9/30/2012
($ in thousands) General Specific Total  % Loans
Beginning balance $ 112,559 $ 20,800 $ 133,359  
(Reserve 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%
         
   Quarter Ended 
   6/30/2012 
   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%

Non-performing Assets were $179 million, a decline of $43 million (19%) from the prior quarter primarily due to a $40 million decrease in non-accrual loans. As of September 30, 2012, $87 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 9/30/2012 6/30/2012
  Balance % of Total
Assets
Balance % of Total
Assets
($ in thousands)        
Non-accrual loans - current $ 87,412 1.00% $ 139,478 1.64%
Non-accrual loans - delinquent 30-89 days 30,006 0.35 519 0.01
Non-accrual loans - delinquent 90+ days 45,547 0.53 63,104 0.74
Total non-accrual loans 162,965 1.88% 203,101 2.39%
Accruing loans - delinquent 90+ days  --  --  --  --
REO 16,314 0.19 18,947 0.22
Total non-performing assets $ 179,279 2.07% $ 222,048 2.61%

Troubled Debt Restructurings were $219 million, a decrease of $29 million from the prior quarter. TDRs on accrual status decreased by $56 million to $129 million. Non-accruing TDRs were $90 million (included in the "Non-accrual loans" in the table above), though $46 million were current as to payment status, compared to $64 million in the prior quarter.

Valuation Allowance related to the Company's deferred tax assets was $159 million, a decrease of $7 million from the end of the prior quarter, primarily due to the utilization of capital loss carry forwards. The net deferred tax asset at quarter end after subtracting the valuation allowance was $371 million, a decrease of $14 million from the prior quarter, primarily due to the utilization of $20 million Federal Net Operating Loss Carry Forwards in the quarter.

Book Value Per Share was $8.09 at the end of the quarter, an increase of $0.17 from the end of the prior quarter. Total shareholders' equity was $1.7 billion at the end of the quarter, including intangible assets of $173 million, which was a decrease of $38 million from the prior quarter primarily due to share repurchases of $75 million in the quarter.

Tangible Book Value Per Share was $7.29 at the end of the quarter, an increase of $0.14 from the end of the prior quarter.

Share Repurchases during the quarter totaled 10.2 million shares at a total cost of $74.8 million. As a result, the remaining authority for share repurchases as of September 30, 2012 was $56.4 million. Since inception of the share buyback program through September 30, 2012, the Company repurchased 112.8 million shares, or approximately 35% of the December of 2010 starting balance of 323 million shares, at an average purchase price of $6.46 per share.

Subsequent to quarter end, the Company repurchased an additional 5 million shares, reducing the remaining authorization for share repurchases to $18 million. The CapitalSource Board of Directors approved a new buyback plan on October 26, 2012, scheduled to expire in December of 2013, with an initial authorization of $250 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.

Average Diluted Shares Outstanding was 226.4 million shares for the quarter, compared to 233.1 million shares for the prior quarter. Total outstanding shares at September 30, 2012 were 215.2 million.

Quarterly Cash Dividend of $0.01 per common share was paid on September 28, 2012 to common shareholders of record on September 14, 2012.

Conference Call Details

A conference call to discuss the results will be hosted on Tuesday, October 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 October 30, 2012 through April 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 September 30, 2012 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on October 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 $8.7 billion and total deposits of $5.5 billion as of September 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 consolidated operating expenses, 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: higher than anticipated increases in operating expenses; increased asset workout and loan servicing expenses; higher compensation costs to retain and/or incent employees; 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; 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 Third Quarter 2012 – Financial Supplement
CapitalSource Inc.
Consolidated Balance Sheets
 ($ in thousands)
     
  September 30, December 31,
  2012  2011 
  (Unaudited)  
     
ASSETS    
Cash and cash equivalents   $ 615,495   $ 458,548  
Restricted cash   71,412    65,484  
Investment securities:     
Available-for-sale, at fair value   1,094,070    1,188,002  
Held-to-maturity, at amortized cost   108,066    111,706  
Total investment securities   1,202,136    1,299,708  
Loans held for sale   84,883    193,021  
Loans held for investment   5,948,119    5,758,990  
Less deferred loan fees and discounts   (53,907)  (68,843)
Total loans held for investment   5,894,212    5,690,147  
Less allowance for loan and lease losses   (126,630)  (153,631)
Total loans held for investment, net   5,767,582    5,536,516  
Interest receivable   31,894    38,796  
Other investments   66,791    81,245  
Goodwill   173,135    173,135  
Deferred tax asset, net   370,577    45,445  
Other assets   293,396    408,170  
Total assets  $ 8,677,301   $ 8,300,068  
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Liabilities:    
Deposits  $ 5,535,482   $ 5,124,995  
Term debt   203,307    309,394  
Other borrowings   1,009,880    1,015,099  
Other liabilities   185,172    275,434  
Total liabilities   6,933,841    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; 215,238,561 and 256,112,205 shares issued    
and outstanding, respectively)   2,152    2,561  
Additional paid-in capital   3,217,582    3,487,911  
Accumulated deficit   (1,498,131)  (1,934,732)
Accumulated other comprehensive income, net   21,857    19,406  
Total shareholders' equity   1,743,460    1,575,146  
Total liabilities and shareholders' equity  $ 8,677,301   $ 8,300,068  
 
 
CapitalSource Third Quarter 2012 – Financial Supplement
CapitalSource Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, except per share data)
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
  2012  2012  2011  2012  2011 
Net interest income: (Unaudited)
Interest income:          
Loans and leases  $ 105,066 $ 108,301 $ 107,161 $ 322,437 $ 344,308
Investment securities   9,784  9,236  13,635  29,737  44,675
Other   384  445  680  1,119  2,070
Total interest income   115,234  117,982  121,476  353,293  391,053
Interest expense:          
Deposits   12,738  12,640  13,422  38,669  40,203
Borrowings   6,775  7,524  21,066  21,866  86,844
Total interest expense   19,513  20,164  34,488  60,535  127,047
Net interest income   95,721  97,818  86,988  292,758  264,006
Provision for loan and lease losses   8,959  10,536  35,118  30,567  81,450
Net interest income after provision for loan and lease losses   86,762  87,282  51,870  262,191  182,556
           
Non-interest income:          
Loan fees   4,174  3,057  3,421  11,899  11,435
Leased equipment income   3,299  3,258  901  9,815  974
Gain (loss) on investments, net   1,856  (620)  19,141  929  51,381
(Loss) gain on derivatives, net   (978)  432  (2,113)  (649)  (4,262)
Other non-interest income, net   946  2,323  11,134  7,303  15,445
Total non-interest income   9,297  8,450  32,484  29,297  74,973
           
Non-interest Expense:          
Compensation and benefits   25,523  25,408  31,047  77,347  90,524
Professional fees   2,469  3,089  3,097  9,158  12,985
Occupancy expenses   3,422  6,221  3,690  13,402  11,663
FDIC fees and assessments   1,507  1,463  1,375  4,419  4,706
General depreciation and amortizations   1,330  1,511  1,662  4,536  5,283
Other administrative expenses   7,660  13,622  8,023  30,902  28,780
Total operating expenses   41,911  51,314  48,894  139,764  153,941
Leased equipment depreciation   2,307  2,288  668  6,883  708
Expense of real estate owned and other foreclosed assets, net   2,308  3,821  12,835  6,579  34,124
(Gain) loss on extinguishment of debt   --   (8,142)  113,679  (8,059)  113,679
Other non-interest expense, net   483  (1,081)  270  (908)  (1,095)
Total non-interest expense   47,009  48,200  176,346  144,259  301,357
           
Net income (loss) before income taxes   49,050  47,532  (91,992)  147,229  (43,828)
Income tax expense (benefit)   18,003  (340,017)  (11,280)  (296,305)  17,131
Net income (loss)   31,047  387,549  (80,712)  443,534  (60,959)
           
Other comprehensive income (loss), net of tax          
Unrealized gain (loss) on available-for-sale securities, net of tax   2,315  (960)  (4,078)  2,802  21,219
Unrealized (loss) gain on foreign currency translation, net of tax   --   --   (10,795)  (351)  665
Other comprehensive income (loss)   2,315  (960)  (14,873)  2,451  21,884
Comprehensive income (loss)  $ 33,362 $ 386,589 $ (95,585) $ 445,985 $ (39,075)
           
Net income per share:          
Basic  $ 0.14 $ 1.71 $ (0.26) $ 1.94 $ (0.19)
Diluted  $ 0.14 $ 1.66 $ (0.26) $ 1.88 $ (0.19)
Average shares outstanding:          
Basic   219,664,637  226,532,286  306,535,063  229,091,849  315,719,413
Diluted   226,441,293  233,097,740  306,535,063  235,712,522  315,719,413
           
Dividends declared per share  $ 0.01 $ 0.01 $ 0.01 $ 0.03 $ 0.03
 
 
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
                 
  September 30, 2012 June 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  $ 508,862     $ 178,045     $ --      $ 686,907     $ 275,456     $ 216,088     $ --      $ 491,544
Investment securities:                
Available-for-sale   1,069,923  24,147  --   1,094,070  1,126,049  21,993  --   1,148,042
Held-to-maturity   108,066  --   --   108,066  108,520  --  --   108,520
Loans   5,259,524  720,084  (513)  5,979,095  5,216,670  790,866  959  6,008,495
Allowance for loan and lease losses   (98,435)  (28,195)  --   (126,630)  (101,784)  (31,575)  --   (133,359)
Loans, net of allowance for loan and lease losses   5,161,089  691,889  (513)  5,852,465  5,114,886  759,291  959  5,875,136
Receivables due from affiliates   3,755  15,622  (19,377)  --   4,743  (1,827)  (2,916)  -- 
Other assets   434,258  502,540  (1,005)  935,793  429,806  521,055  (4,444)  946,417
Total assets      $ 7,285,953      1,412,243    (20,895)     8,677,301      7,059,460     1,516,600      (6,401)      8,569,659
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                 
Deposits      $ 5,535,482     $ --      $ --      $ 5,535,482     $ 5,382,012     $ --      $ --      $ 5,382,012
Borrowings   600,000  613,187  --   1,213,187  597,000  646,665  --   1,243,665
Balance due to affiliates   15,622  3,755  (19,377)  --   (1,827)  4,743  (2,916)  -- 
Other liabilities   69,211  120,580  (4,619)  185,172  51,546  118,543  (7,794)  162,295
Total liabilities   6,220,315  737,522  (23,996)  6,933,841  6,028,731  769,951  (10,710)  6,787,972
                 
Shareholders' equity:                
Common stock   921,000  2,152  (921,000)  2,152  921,000  2,250  (921,000)  2,250
Additional paid-in capital/retained earnings/deficit   129,197  650,712  939,542  1,719,451  94,129  724,857  940,909  1,759,895
Accumulated other comprehensive income, net   15,441  21,857  (15,441)  21,857  15,600  19,542  (15,600)  19,542
Total shareholders' equity   1,065,638  674,721  3,101  1,743,460  1,030,729  746,649  4,309  1,781,687
                 
Total liabilities and shareholders' equity      $ 7,285,953      1,412,243      (20,895)      8,677,301      7,059,460      1,516,600      (6,401)     8,569,659
                 
Book value per outstanding share      $ 4.95 3.13 0.01 8.09 4.58 3.32 0.02 7.92
Tangible book value per outstanding share      $ 4.15 3.13 0.01 7.29 3.81 3.32 0.02 7.15
 
 
CapitalSource Inc.
Segment Statements of Operations
(Unaudited)
($ in thousands)
                 
  Three Months Ended September 30, 2012 Three Months Ended June 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   91,367  15,171  (1,472)  105,066  87,680  21,729  (1,108)  108,301
Investment securities   8,123  1,661  --   9,784  8,029  1,207  --   9,236
Other   317  67  --   384  403  42  --   445
Total interest income  $ 99,807  $16,899 $ (1,472) $ 115,234 $ 96,112 $ 22,978 $ (1,108) $ 117,982
Interest expense:                
Deposits   12,738  --   --   12,738  12,640  --   --   12,640
Borrowings   2,783  3,992  --   6,775  2,754  4,770  --   7,524
Total interest expense   15,521  3,992  --   19,513  15,394  4,770  --   20,164
Net interest income   84,286  12,907  (1,472)  95,721  80,718  18,208  (1,108)  97,818
Provision for loan and lease losses   273  8,686  --   8,959  12,569  (2,033)  --   10,536
Net interest income after provision for loan and lease losses   84,013  4,221  (1,472)  86,762  68,149  20,241  (1,108)  87,282
                 
Non-interest income:                
Loan fees   3,469  705  --   4,174  2,759  298  --   3,057
Leased equipment income   3,299  --   --   3,299  3,258  --   --   3,258
Other non-interest income, net   6,817  734  (5,727)  1,824  7,181  1,296  (6,342)  2,135
Total non-interest income, net   13,585  1,439  (5,727)  9,297  13,198  1,594  (6,342)  8,450
                 
Non-interest expense:                
Compensation and benefits   25,254  269  --   25,523  24,981  427  --   25,408
Professional fees   1,404  1,065  --   2,469  1,844  1,245  --   3,089
Leased equipment depreciation   2,307  --   --   2,307  2,288  --   --   2,288
Expense of real estate owned and other foreclosed assets, net   16  2,292  --   2,308  1,616  2,205  --   3,821
Gain on extinguishment of debt   --   --   --   --   --   (8,142)  --   (8,142)
Other non-interest expense, net   10,983  9,411  (5,992)  14,402  12,450  15,894  (6,608)  21,736
Total non-interest expense, net   39,964  13,037  (5,992)  47,009  43,179  11,629  (6,608)  48,200
                 
Net income (loss) before income taxes   57,634  (7,377)  (1,207)  49,050  38,168  10,206  (842)  47,532
Income tax expense (benefit)   23,782  (5,779)  --   18,003  15,106  (355,123)  --   (340,017)
Net income (loss)  $ 33,852 $ (1,598) $ (1,207) $ 31,047 $ 23,062 $ 365,329 $ (842) $ 387,549
                 
  Nine Months Ended September 30, 2012 Nine Months Ended September 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   267,905  58,357  (3,825)  322,437  234,679  110,011  (382)  344,308
Investment securities   25,626  4,111  --   29,737  38,821  5,854  --   44,675
Other   1,008  111  --   1,119  967  1,103  --   2,070
Total interest income  $ 294,539 $ 62,579 $ (3,825) $ 353,293 $ 274,467 $ 116,968 $ (382) $ 391,053
Interest expense:                
Deposits   38,669  --   --   38,669  40,203  --   --   40,203
Borrowings   8,305  13,561  --   21,866  6,601  80,243  --   86,844
Total interest expense   46,974  13,561  --   60,535  46,804  80,243  --   127,047
Net interest income   247,565  49,018  (3,825)  292,758  227,663  36,725  (382)  264,006
Provision for loan and lease losses   14,745  15,822  --   30,567  23,636  57,814  --   81,450
Net interest income (loss) after provision for loan and lease losses   232,820  33,196  (3,825)  262,191  204,027  (21,089)  (382)  182,556
                 
Non-interest income:                
Loan fees   9,565  2,334  --   11,899  5,373  6,062  --   11,435
Leased equipment income   9,815  --   --   9,815  974  --   --   974
Other non-interest income, net   22,872  4,190  (19,479)  7,583  21,607  94,111  (53,154)  62,564
Total non-interest income, net   42,252  6,524  (19,479)  29,297  27,954  100,173  (53,154)  74,973
                 
Non-interest expense:                
Compensation and benefits   74,818  2,529  --   77,347  36,819  56,458  (2,753)  90,524
Professional fees   4,615  4,543  --   9,158  1,107  11,878  --   12,985
Leased equipment depreciation   6,883  --   --   6,883  708  --   --   708
Expense of real estate owned and other foreclosed assets, net   1,334  5,245  --   6,579  10,225  23,899  --   34,124
(Gain) loss on extinguishment of debt   --   (8,059)  --   (8,059)  --   113,679  --   113,679
Other non-interest expense, net   36,657  35,968  (20,274)  52,351  59,396  43,446  (53,505)  49,337
Total non-interest expense, net   124,307  40,226  (20,274)  144,259  108,255  249,360  (56,258)  301,357
                 
Net income (loss) before income taxes   150,765  (506)  (3,030)  147,229  123,726  (170,276)  2,722  (43,828)
Income tax expense (benefit)   62,047  (358,352)  --   (296,305)  38,448  (21,317)  --   17,131
Net income (loss)  $ 88,718 $ 357,846 $ (3,030) $ 443,534 $ 85,278 $ (148,959) $ 2,722 $ (60,959)
 
 
CapitalSource Third Quarter 2012 – Financial Supplement
CapitalSource Inc.
Selected Financial Data
(Unaudited)
           
   Three Months Ended Nine Months Ended
   September 30, June 30, September 30, September 30, September 30,
   2012  2012  2011  2012  2011 
CapitalSource Bank Segment:           
            
Performance ratios:           
Return on average assets   1.88% 1.33% 1.55% 1.69% 1.82%
Return on average equity   12.75% 9.15% 9.90% 11.45% 11.71%
Return on average tangible equity   15.42% 11.03% 12.08% 13.75% 14.25%
Yield on average interest earning assets   5.88% 5.89% 5.97% 5.96% 6.19%
Cost of interest bearing liabilities   1.02% 1.05% 1.19% 1.06% 1.21%
Deposits   0.93% 0.95% 1.10% 0.97% 1.13%
Borrowings   1.85% 1.89% 2.01% 1.90% 2.02%
Net interest spread   4.86% 4.84% 4.78% 4.90% 4.98%
Net interest margin   4.97% 4.95% 4.94% 5.01% 5.14%
Operating expenses as a percentage of average total assets   2.07% 2.29% 2.05% 2.21% 2.10%
Efficiency ratio (1) 38.83% 43.49% 36.68% 41.02% 38.69%
Loan yield   6.95% 7.09% 7.51% 7.09% 7.89%
            
Capital ratios:           
Tier 1 leverage   12.82% 12.69% 13.50% 12.82% 13.50%
Total risk-based capital   16.69% 16.20% 18.13% 16.69% 18.13%
Tangible common equity to tangible assets   12.55% 12.45% 13.40% 12.55% 13.40%
            
Average balances ($ in thousands):           
Average loans   $ 5,231,242 $ 4,973,262 $ 4,192,610 $ 5,046,915 $ 3,977,519
Average assets   7,174,140 6,963,062 6,464,975 7,016,564 6,259,099
Average interest earning assets   6,752,549 6,558,331 6,123,923 6,598,045 5,925,633
Average deposits   5,469,501 5,334,190 4,833,941 5,347,534 4,749,229
Average borrowings   597,674 585,791 506,413 583,785 435,879
Average equity   1,056,261 1,013,953 1,010,782 1,035,100 973,461
            
Other Commercial Finance Segment:           
            
Performance ratios:           
Return on average assets   (0.43%) 120.00% (16.79%) 34.65% (6.70%)
Return on average equity   (0.86%) 331.24% (41.11%) 86.57% (18.29%)
Yield on average interest earning assets   7.66% 9.20% 5.67% 8.47% 6.56%
Cost of interest bearing liabilities   2.56% 2.78% 5.70% 2.63% 6.51%
Net interest spread   5.10% 6.42% (0.03%) 5.83% 0.05%
Net interest margin   5.85% 7.29% 2.01% 6.63% 2.06%
Operating expenses as a percentage of average total assets   2.92% 5.90% 5.40% 4.25% 5.08%
Loan yield   7.91% 9.91% 8.58% 8.84% 8.57%
            
Average balances ($ in thousands):           
Average loans    $ 763,361 $ 881,960 $ 1,256,049 $ 882,013 $ 1,717,145
Average assets   1,477,940 1,224,451 2,522,401 1,379,590 2,972,692
Average interest earning assets   877,722 1,004,777 2,003,654 987,268 2,385,213
Average borrowings   621,371 690,928 1,288,807 687,966 1,647,602
Average equity   742,001 443,584 1,030,100 552,141 1,089,019
            
Consolidated CapitalSource Inc.: (2)          
            
Performance ratios:           
Return on average assets   1.43% 18.99% (3.59%) 7.06% (0.89%)
Return on average equity   6.85% 106.31% (15.65%) 37.18% (3.94%)
Return on average tangible equity   7.58% 120.60% (17.12%) 41.73% (4.31%)
Yield on average interest earning assets   6.01% 6.27% 5.93% 6.22% 6.29%
Cost of interest bearing liabilities   1.16% 1.23% 2.06% 1.22% 2.49%
Net interest spread   4.85% 5.04% 3.87% 5.00% 3.80%
Net interest margin   4.99% 5.20% 4.24% 5.15% 4.25%
Efficiency ratio (1) 40.81% 49.35% 36.68% 44.34% 38.69%
Operating expenses as a percentage of average total assets   1.94% 2.50% 2.23% 2.22% 2.26%
            
Leverage ratios:           
Equity to total assets (as of period end)   20.09% 20.79% 20.41% 20.09% 20.41%
Tangible common equity to tangible assets   18.47% 19.15% 18.71% 18.47% 18.71%
            
Average balances ($ in thousands):           
Average loans   $ 5,995,021 $ 5,856,981 $ 5,451,395 $ 5,930,657 $ 5,698,155
Average assets   8,648,882 8,206,790 8,924,852 8,394,136 9,176,704
Average interest earning assets   7,630,690 7,564,867 8,130,313 7,587,042 8,314,338
Average borrowings   1,219,045 1,276,719 1,795,220 1,271,751 2,083,481
Average deposits   5,469,501 5,334,190 4,833,941 5,347,534 4,749,229
Average equity   1,802,085 1,466,177 2,045,996 1,593,372 2,068,085
           
(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)
           
  September 30,2012 June 30,2012 March 31,2012 December 31,2011 September 30,2011
           
Loans 30-89 days contractually delinquent:           
As a % of total loans(1) 0.50% 0.01% 0.31% 0.21% 0.27%
Loans 30-89 days contractually delinquent  $30.2 $0.7 $19.0 $12.7 $15.7
           
Loans 90 or more days contractually delinquent:           
As a % of total loans(1) 0.75% 1.04% 1.22% 1.61% 2.51%
Loans 90 or more days contractually delinquent  $45.5 $63.1 $73.8 $95.8 $145.9
           
Loans on non-accrual:(2)          
As a % of total loans(1) 2.70% 3.35% 3.94% 4.72% 5.72%
Loans on non-accrual  $163.0 $203.1 $238.2 $280.7 $332.8
           
Impaired loans:(3)          
As a % of total loans(1) 4.50% 6.03% 6.51% 7.15% 7.93%
Impaired loans  $271.2 $365.7 $393.4 $425.3 $461.8
           
Allowance for loan and lease losses:           
As a % of total loans(4) 2.15% 2.23% 2.61% 2.70% 3.64%
As a % of non-accrual loans  77.70% 65.66% 63.76% 54.74% 62.60%
Allowance for loan and lease losses   $126.6 $133.4 $151.9 $153.6 $208.4
           
Net charge offs (last twelve months):           
As a % of total average loans  2.09% 2.30% 3.31% 4.62% 4.87%
Net charge offs (last twelve months)  $123.7 $134.0 $190.6 $268.5 $290.8
           
(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 $45.5 million, $63.1 million, $73.7 million, $90.2 million, and $144.7 million as of September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 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 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 $45.5 million, $63.1 million, $73.7 million, $94.9 million, and $142.8 million as of September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30 2011, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $163.0 million, $203.1 million, $238.2 million, $277.8 million, and $329.7 million as of September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, September 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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