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Press release from GlobeNewswire (a Nasdaq OMX company)

CapitalSource Reports Second Quarter 2013 Results

Tuesday, July 23, 2013

CapitalSource Reports Second Quarter 2013 Results

05:00 EDT Tuesday, July 23, 2013
  • Net Income of $29 Million or $0.15 Per Share
  • Quarterly Loan Growth of $346 million (5.8%) at CapitalSource Bank, Not Including $58 Million of Loans Purchased from the Parent
  • Net Interest Income of $86 million at CapitalSource Bank is 6% Higher Than Prior Year Quarter
  • Net Interest Margin at CapitalSource Bank of 4.79%
  • All Remaining Securitization Debt Repaid

LOS ANGELES, July 23, 2013 (GLOBE NEWSWIRE) -- CapitalSource Inc. (NYSE:CSE) today announced financial results for the second quarter of 2013. The Company reported net income for the quarter of $29 million or $0.15 per diluted share compared to net income of $29 million or $0.14 per diluted share in the prior quarter and net income of $40 million or $0.17 per diluted share in the second quarter of 2012, not including the impact of the reversal of $347 million of the Company's deferred tax asset valuation allowance which added $1.49 per diluted share to net income in the second quarter of 2012.

"We are extremely pleased with loan growth in the second quarter totaling $346 million or 5.8% at CapitalSource Bank - based on very strong new loan production of $710 million," said James J. Pieczynski, CapitalSource Chief Executive Officer. "Though pricing pressure continued, its impact moderated significantly in recent months as we saw only a five basis point decline for the all-in yield on new loans written in the quarter. We continued to benefit from the diversity and national footprint of our specialty lending franchise, with significant production coming from our commercial real estate, multi-family, technology cash flow and equipment finance groups."

"The second quarter at CapitalSource Bank was in line with our expectations, as our growth and profitability metrics continue to outperform most of our peer banks of comparable size," said Tad Lowrey, CapitalSource Bank Chairman and Chief Executive Officer. "Our net interest margin was down from the prior quarter as we expected, but still above most peers at 4.79%. Our credit performance remained stable, our return on average assets at 1.6% was consistent with the last eight quarters which averaged 1.7% and our capital ratios remain well above industry norms with a Tier 1 leverage ratio of 13.51% at quarter end," concluded Lowrey.

"We made substantial progress again this quarter in both simplifying and strengthening the Parent balance sheet," said John Bogler, Chief Financial Officer. "We paid off the remaining securitization debt, completed a loan sale to CapitalSource Bank of $58 million and added significantly to unrestricted cash which totaled $167 million at quarter end. Loan sales and payoffs in the quarter reduced the total remaining loan balance at the Parent to $257 million, all of which are now unencumbered, and total Parent assets declined to $892 million including our $349 million deferred tax asset. The only remaining Parent debt is $410 million of trust preferred securities, which do not begin to mature until 2035," added Bogler.

CAPITALSOURCE BANK SEGMENT

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

Second Quarter 2013 Highlights

  • Net Income was $30 million, a decline of $5 million from the prior quarter, due to increased provision for loan loss related primarily to loan growth and non-interest expenses returning to a more normalized level.
     
  • Loans and Leases increased $404 million or 6.8%, including $58 million of loans purchased from the Parent. New funded loan and lease production was $710 million, excluding the Parent loan purchase, compared to $575 million in the prior quarter. Total loans and leases were $6.4 billion at quarter end, an increase of 20% from one year ago.
     
  • Net Interest Margin was 4.79%, a decrease of 29 basis points from the prior quarter, primarily due to decreases in loan yields and the absence of certain one-time items which contributed 15 bps to NIM in the first quarter. Loan yield declined 23 bps in the quarter to 6.45%, primarily due to repayments and re-pricing of existing loans and lower yields on new loans as pricing pressure continued. The ending loan balance was $324 million greater than the average loan balance for the quarter, so the full impact from the transition from lower yielding assets to loans will contribute favorably to NIM in the third quarter.
     
  • Capital - The Tier 1 leverage ratio increased 13 basis points to 13.51%, while the total risk-based capital ratio decreased 50 basis points to 16.18%.
     
  • Credit Quality - All credit quality metrics were within acceptable parameters. Loan loss provision was $7.1 million, compared to $3.2 million in the prior quarter, due primarily to provisions attributable to strong loan growth in the quarter. Non-performing assets increased by $26 million to $62 million or 0.80% of total assets, compared to 0.48% at the end of the prior quarter, but remained comfortably within an acceptable range below 1%. Net charge-offs were $1.9 million in the quarter, compared to $2.2 million in the prior quarter, and were 0.16% as a percentage of average loans for the twelve month period ended June 30, 2013, compared to 0.27% for the twelve month period ended March 31, 2013.

Second Quarter Details

  Quarter Ended
        6/30/13 vs 3/31/13 6/30/13 vs 6/30/12
  6/30/2013 3/31/2013 6/30/2012 $ % $ %
($ in thousands)              
Interest income $ 101,237 $ 102,356 $ 96,112 $ (1,119) (1)% $ 5,125 5%
Interest expense 15,430 14,791 15,394 (639) (4) (36)
Provision for loan losses 7,056 3,152 12,569 (3,904) (124) 5,513 44
Non-interest income 15,116 13,533 13,198 1,583 12 1,918 15
Non-interest expense 43,405 38,906 43,179 (4,499) (12) (226) (1)
Income tax expense 20,392 24,397 15,106 4,005 16 (5,286) (35)
Net income 30,070 34,643 23,062 (4,573) (13) 7,008 30

Net Interest Margin was 4.79%, a decrease of 29 basis points from the prior quarter due primarily to a 19 basis point impact from the decline in loan yields, a 7 basis point decline from generally non-recurring items in the investment portfolio and a 3 basis point decline due to holding higher cash and investments in anticipation of funding strong loan growth. With the ending loan portfolio balance $324 million higher than the average for the period, the favorable asset mix change will mitigate any spread compression in the next quarter.

   
  Quarter Ended
  6/30/2013   3/31/2013
Net Interest Margin Average Balance Interest Income/Expense Average Yield/Cost   Average Balance Interest Income/Expense Average Yield/Cost
($ in thousands)              
Loans $ 5,895,895 $ 94,784 6.45% (1) $ 5,659,939 $ 93,295 6.68%
Investment securities 1,026,601 6,048 2.36   1,116,772 8,772 3.19
Cash and other interest-earning assets 263,520 405 0.62   214,485 289 0.55
Total interest-earning assets 7,186,016 101,237 5.65   6,991,196 102,356 5.94
Deposits 5,784,433 12,747 0.88   5,638,528 12,106 0.87
Borrowings 601,868 2,683 1.79   599,278 2,685 1.82
Total interest-bearing liabilities 6,386,301 15,430 0.97   6,237,806 14,791 0.96
Net interest income / spread   $ 85,807 4.68%     $ 87,565 4.98%
Net interest margin     4.79%       5.08%
 
(1) Loan yield for the quarter included 46 basis points of fee and discount accretion, compared to 55 basis points in the prior quarter
   
  Quarter Ended
  6/30/2013 3/31/2013
Items Impacting NIM Increase in NIM
     
MBS prepayment speed benefit 0.02% 0.09%
CMBS prepayment discount accretion 0.00 0.05
Collection of non-accrual interest 0.00 0.01
Total 0.02% 0.15%

Non-interest Expense was $43 million, an increase of $4 million from the prior quarter due primarily to increases in incentive compensation and loan servicing expenses. The prior quarter reflected a $1.2 million reversal of over accrued 2012 incentive compensation while the current quarter includes $1.4 million of increased incentive compensation expense for the current year's performance relative to plan. Third party expenses and loan servicing expense also declined in the prior quarter, but these expenses were higher this quarter and fluctuate from period to period.

Income Tax Expense was $20 million for the quarter, compared to $24 million in the prior quarter. The effective tax rate for the quarter was 40.4%, compared to 41.3% in the prior quarter.

Cash and Investments decreased by $122 million to $1.2 billion. The portfolio yield increased by 19 basis points, primarily due to a lower mix of cash and cash equivalents.

     
Cash and Investments 6/30/2013 3/31/2013
($ in thousands)
Balance

Yield
Duration
(Years)

Balance

Yield
Duration
(Years)
Cash and cash equivalents and restricted cash $ 158,026 0.19% 0.0 $ 309,943 0.23% 0.0
Agency MBS 911,472 2.29% 3.5 887,593 2.33% 2.9
Non-agency MBS 25,435 4.75% 1.9 37,285 4.20% 2.1
CMBS 74,713 2.49% 1.3 80,815 2.55% 1.9
CLO 47,857 2.75% 6.0 22,868 3.18% 7.7
Asset-backed securities 4,088 11.62% 1.0 4,597 11.65% 1.0
U.S. Treasury and agency securities 16,807 3.14% 5.8 17,431 2.19% 5.9
  $ 1,238,398 2.14% 3.0 $ 1,360,532 1.95% 2.3

Loans and Leases increased $404 million (6.8%) from the prior quarter, including $58 million of loans purchased from the Parent. Excluding the loan purchase, loans and leases increased $346 million or 5.8%.

   
  Quarter Ended
Loan and Lease Roll Forward (1) 6/30/2013 3/31/2013 6/30/2012
($ in thousands)      
Beginning balance $ 6,006,817 $ 5,803,690 $ 5,088,426
New loans or commitment increases funded 709,964 574,616 595,737
Existing loans and leases      
Principal repayments, net (2) (346,973) (402,306) (265,491)
Leased equipment depreciation (3,527) (3,400) (2,288)
Transfers to held for sale, net (19,676) (31,519)
Loan sales (3) (11,977) (10,253) (38,615)
Transfers to foreclosed assets (728) (176)
Net charge-offs (1,916) (2,218) (7,401)
Loans purchased from the Parent 58,010 67,092
Ending balance - Net principal $ 6,410,398 $ 6,006,817 $ 5,338,673
Deferred fees and discounts (44,340) (45,117) (51,813)
Ending balance - Net book $ 6,366,058 $ 5,961,700 $ 5,286,860
       
(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
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), increases in existing term loans and other organic changes within the loan portfolio
(3) Consists of loans that were both transferred to HFS and sold within the period reported
   
  Quarter Ended
Loan and Lease Portfolio Detail 6/30/2013 3/31/2013 6/30/2012
($ in thousands)      
Healthcare Asset Based $ 138,058 $ 143,190 $ 145,758
Equipment Finance(1) 676,225 622,158 470,275
Lender Finance & Timeshare 867,942 868,865 761,310
Insurance Premium Finance 25,696 22,075 7,638
Other Asset Based 55,009 60,153 47,103
Total Asset Based 1,762,930 1,716,441 1,432,084
General Cash Flow 243,970 161,246 263,593
Technology Cash Flow 686,878 619,120 511,880
Healthcare Cash Flow 447,688 422,028 315,719
Security Cash Flow 341,094 336,890 323,414
Professional Practice 166,537 176,806 147,084
Total Cash Flow 1,886,167 1,716,090 1,561,690
General Commercial Real Estate 807,295 727,741 684,312
Multi Family 1,009,485 913,246 884,164
Healthcare Real Estate 679,971 677,612 570,888
Small Business 264,550 255,687 205,535
Total Real Estate 2,761,301 2,574,286 2,344,899
Total - Net Principal 6,410,398 6,006,817 5,338,673
Deferred fees and discounts (44,340) (45,117) (51,813)
Total - Net Book $ 6,366,058 $ 5,961,700 $ 5,286,860
       
(1) Includes $147 million of operating leases and related equity investments as of June 30, 2013 and $141 million as of March 31, 2013, which are included in Other Assets and Other Investments, respectively

Deposits were $5.9 billion at quarter end, an increase of $129 million (2.2%) from the prior quarter. The weighted average interest rate on total deposits increased 1 basis point to 0.89% at quarter end. The weighted average rate of new and renewing time deposits in the quarter was 0.88%, compared to 0.87% in the prior quarter.

FHLB Borrowings were $675 million, an increase of $75 million from the prior quarter. The ending balance includes $80 million of overnight advances used to fund strong loan growth near the end of the quarter. The overnight advances are expected to be repaid with future deposit growth. Excluding the overnight advances, the weighted average rate of FHLB borrowings was 1.78% as of June 30, 2013, compared to 1.77% at the end of the prior quarter and the average remaining maturity was 2.9 years, compared to 3.1 years at the end of the prior quarter.

Allowance for Loan and Lease Losses was $105 million or 1.69% of the loan portfolio as detailed below.

   
  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2013
($ in thousands) General Specific Total % Loans
Beginning balance $ 98,512 $ 1,327 $ 99,839  
Provision 5,485 1,571 7,056  
Charge-offs, net (1,916) (1,916)  
Ending balance $ 103,997 $ 982 $ 104,979 1.69%
         
         
  Quarter Ended
  3/31/2013
  General Specific Total % Loans
Beginning balance $ 97,073 $ 1,832 $ 98,905  
Provision 1,439 1,713 3,152  
Charge-offs, net (2,218) (2,218)  
Ending balance $ 98,512 $ 1,327 $ 99,839 1.72%

Non-performing Assets increased by $26 million to $62 million, though one $15 million loan added to non-accruals in the quarter was sold early in the third quarter at a small after-tax loss.

Non-performing Assets 6/30/2013 3/31/2013
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current $ 53,902 0.69% $ 24,169 0.32%
Non-accrual loans - delinquent 30-89 days 404 0.01 2,567 0.03
Non-accrual loans - delinquent 90+ days 3,767 0.05 3,725 0.05
Total non-accrual loans 58,073 0.75 30,461 0.40
REO and foreclosed assets 4,181 0.05 5,545 0.08
Total non-performing assets $ 62,254 0.80% $ 36,006 0.48%

Troubled Debt Restructurings were $19 million, all of which were on non-accrual and $0.1 million of which were delinquent. At March 31, 2013 troubled debt restructurings were $22 million, all of which were on non-accrual and $0.1 million of which were delinquent.

OTHER COMMERCIAL FINANCE SEGMENT

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

Second Quarter 2013 Details

Net Loss was $2 million, compared to a net loss of $5 million in the prior quarter.

  Quarter Ended
        6/30/13 vs. 3/31/13 6/30/13 vs. 6/30/12
  6/30/2013 3/31/2013 6/30/2012 $ % $ %
($ in thousands)              
Interest income $ 5,910 $ 9,966 $ 22,978 $ (4,056)  (41)% $ (17,068) (74)%
Interest expense 3,044 3,372 4,770 328 10 1,726 36
Provision for loan losses (2,224) 9,353 (2,033) 11,577 124 (191) (9)
Non-interest income 628 5,242 1,594 (4,614) (88) (966) (61)
Non-interest expense 11,231 10,653 11,629 (578) (5) 398 3
Income tax benefit (3,063) (2,755) (355,123) 308 11 (352,060) (99)
Net (loss) income (2,450) (5,415) 365,329 2,965 55 (367,779) (101)

Interest Income was $6 million, a decrease of $4 million from the prior quarter due primarily to a lower average loan balance as the Parent loan portfolio continues to liquidate.

Non-interest Income was $1 million compared to $5 million in the prior quarter, due to a $3.4 million decline in gain on the sale of assets. The equity investments on the Parent's balance sheet which produced higher capital gains and dividends in the prior quarter are legacy assets and any future gains or dividends are not predictable.

Non-interest Expense was $11 million, unchanged from the prior quarter.

Unrestricted Cash at quarter end was $167 million, an increase of $96 million from the prior quarter. The largest sources of cash were loan sales and principal collections of $93 million, which includes proceeds from the sale of $58 million of loans from the Parent to the Bank, and tax payments from the Bank to the Parent of $18 million. The principal use of cash in the quarter was the repayment of outstanding securitization debt, which is now fully repaid.

Loans decreased by $92 million from the prior quarter to $257 million as detailed below, including $58 million of loans sold to CapitalSource Bank. There were no remaining securitized loans at the end of the quarter, as all remaining securitized debt was paid off, compared to $226 million at the end of the prior quarter.

   
  Quarter Ended
Loan and Lease Roll Forward 6/30/2013 3/31/2013 6/30/2012
($ in thousands)      
Beginning balance $ 351,397 $ 526,319 $ 899,836
Existing loans and leases      
Principal repayments, net (1) (27,269) (42,389) (56,857)
Transfers to held for sale, net (8,299)
Loan sales (2) (6,038) (47,875) (20,174)
Transfers to foreclosed assets
Net charge-offs (716) (9,267) (21,678)
Intercompany sales (58,010) (67,092)
Ending balance - Net principal $ 259,364 $ 351,397 $ 801,127
Deferred fees and discounts (2,165) (1,978) (10,261)
Ending Balance - Net book $ 257,199 $ 349,419 $ 790,866
       
(1) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), increases in existing term loans and other organic changes within the loan portfolio
(2) Consists of loans that were both transferred to HFS and sold within the period reported

Allowance for Loan and Lease Losses was $16 million. The allowance for loan and lease losses ratio increased from 5.28% to 6.03% as the Parent loan portfolio declined from $349 million to $257 million.

  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2013
($ in thousands) General Specific Total % Loans
Beginning balance $ 10,423 $ 8,031 $ 18,454  
(Release) / Provision (1,877) (347) (2,224)  
Charge-offs, net (716) (716)  
Ending balance $ 8,546 $ 6,968 $ 15,514 6.03%
         
  Quarter Ended
  3/31/2013
  General Specific Total % Loans
Beginning balance $ 13,717 $ 4,651 $ 18,368  
(Release) / Provision (3,294) 12,647 9,353  
Charge-offs, net (9,267) (9,267)  
Ending balance $ 10,423 $ 8,031 $ 18,454 5.28%

Non-performing Assets were $110 million, a decline of $24 million from the prior quarter due primarily to a $20 million decline in non-accrual loans. All collections on non-accrual loans are applied to the outstanding principal balance.

     
Non-performing Assets 6/30/2013 3/31/2013
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans current $ 51,457 5.77% $ 40,371 4.26%
Non-accrual loans - delinquent 30-89 days 38,578 4.07
Non-accrual loans - delinquent 90+ days 46,547 5.22 39,238 4.15
Total non-accrual loans 98,004 10.99 118,187 12.48
Accruing loans - delinquent 90+ days
REO and foreclosed assets 12,379 1.39 15,787 1.67
Total non-performing assets $ 110,383 12.38% $ 133,974 14.15%

Troubled Debt Restructurings were $85 million, $78 million of which were on non-accrual and $27 million of which were delinquent as to payment status. At March 31, 2013 troubled debt restructurings were $98 million, $89 million of which were on non-accrual and $53 million of which were delinquent as to payment status.

CONSOLIDATED

Second Quarter 2013 Details

Net Income was $29 million or $0.15 per diluted share compared to net income of $29 million or $0.14 per diluted share in the prior quarter, as detailed below. Pretax income declined to $46 million compared to $51 million in the prior quarter, primarily due to a decline in interest income and an increase in non-interest expense.

  Quarter Ended
        6/30/13 vs. 3/31/13 6/30/13 vs. 6/30/12
  6/30/2013 3/31/2013 6/30/2012 $ % $ %
($ in thousands)              
Interest income $ 108,405 $ 113,095 $ 117,982 $ (4,690) (4)% $ (9,577) (8)%
Interest expense 18,474 18,163 20,164 (311) (2) 1,690 8
Provision for loan and lease losses 4,832 12,505 10,536 7,673 61 5,704 54
Non-interest income 11,548 13,218 8,450 (1,670) (13) 3,098 37
Non-interest expense 50,695 44,655 48,200 (6,040) (14) (2,495) (5)
Income tax expense (benefit) 17,329 21,642 (340,017) 4,313 20 (357,346) (105)
Net income 28,623 29,348 387,549 (725) (2) (358,926) (93)

Interest Income was $108 million, a decrease of $5 million from the prior quarter, due to a $3 million decline in interest income on investments, primarily due to one-time events, and a $2 million decline in interest income on loans driven by declining yields.

Net Interest Margin was 4.74%, a decrease of 37 basis points from the prior quarter due primarily to declining loan yields and certain non-recurring items in the prior quarter. Net interest income was $90 million, a decrease of $5 million from the prior quarter.

Non-interest Income was $12 million compared to $13 million in the prior quarter, due to a $2 million decline in gain on the sale of assets.

Non-Interest Expense was $51 million, an increase of $6 million from the prior quarter due primarily to increased incentive compensation and higher real estate owned expenses. For the full year, operating expenses are projected to total $180-190 million and non-operating expenses are projected to total approximately $20 million. 

   
  Quarter Ended
Non-Interest Expense 6/30/2013 3/31/2013
($ in thousands)    
Compensation and benefits $ 27,725 $ 24,982
Professional fees 1,757 1,468
Occupancy expenses 3,239 4,215
FDIC fees and assessments 1,582 1,554
General depreciation and amortization 1,571 1,526
Loan servicing expense 2,743 1,469
Other administrative expenses 6,056 6,810
Total operating expenses 44,673 42,024
Leased equipment depreciation 3,527 3,400
Expense of real estate owned and other foreclosed assets, net 1,972 (62)
Other non-interest expense, net 523 (707)
Total non-interest expense $ 50,695 $ 44,655

Loans and Leases increased $313 million from the prior quarter as detailed below.

   
  Quarter Ended
Loan and Lease Roll Forward (1) 6/30/2013 3/31/2013 6/30/2012
($ in thousands)      
Beginning balance $ 6,358,214 $ 6,330,009 $ 5,988,262
New loans or commitment increases funded 709,964 574,616 595,737
Existing loans and leases      
Principal repayments, net (2) (374,242) (444,695) (322,348)
Leased equipment depreciation (3,527) (3,400) (2,288)
Transfers to held for sale, net (27,975) (31,519)
Loan sales (3) (18,015) (58,128) (58,789)
Transfers to foreclosed assets (728) (176)
Net charge-offs (2,632) (11,485) (29,079)
Ending balance - Net principal 6,669,762 6,358,214 6,139,800
Deferred fees and discounts (46,099) (47,426) (61,115)
Ending balance - Net book $ 6,623,663 $ 6,310,788 $ 6,078,685
       
(1) Includes operating leases and equity investments related to operating leases which are included in Other Assets and Other Investments
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), increases in existing term loans and other organic changes within the loan portfolio
(3) Consists of loans that were both transferred to HFS and sold within the period reported

Allowance for Loan and Lease Losses was $120 million, or 1.86% of the loan portfolio, compared to $118 million, or 1.92% at the end of the prior quarter. Net charge-offs as a percentage of average loans for the twelve month period ended June 30, 2013 were 0.79%, compared to 1.24% for the twelve month period ended March 31, 2013.

   
  Quarter Ended
Allowance for Loan and Lease Losses 6/30/2013
($ in thousands) General Specific Total % Loans
Beginning balance $ 108,935 $ 9,358 $ 118,293  
Provision 3,608 1,224 4,832  
Charge-offs, net (2,632) (2,632)  
Ending balance $ 112,543 $ 7,950 $ 120,493 1.86%
         
  Quarter Ended
  3/31/2013
  General Specific Total % Loans
Beginning balance $ 110,790 $ 6,483 $ 117,273  
(Release) / Provision (1,855) 14,360 12,505  
Charge-offs, net (11,485) (11,485)  
Ending balance $ 108,935 $ 9,358 $ 118,293 1.92%

Non-performing Assets were $173 million, an increase of $3 million from the prior quarter primarily due to a $7 million increase in non-accrual loans partially offset by a $5 million decline in REO and other foreclosed assets. All collections on non-accrual loans are applied to the outstanding principal balance.

     
Non-performing Assets 6/30/2013 3/31/2013
  Balance % of Total Assets Balance % of Total Assets
($ in thousands)        
Non-accrual loans - current $ 105,359 1.21% $ 64,540 0.76%
Non-accrual loans - delinquent 30-89 days 404 41,145 0.49
Non-accrual loans - delinquent 90+ days 50,314 0.59 42,963 0.50
Total non-accrual loans 156,077 1.80 148,648 1.75
Accruing loans - delinquent 90+ days
REO and foreclosed assets 16,560 0.19 21,332 0.25
Total non-performing assets $ 172,637 1.99% $ 169,980 2.00%

Troubled Debt Restructurings were $104 million, $97 million of which were on non-accrual and $27 million of which were delinquent as to payment status. At March 31, 2013 troubled debt restructurings were $120 million, $111 million of which were on non-accrual and $53 million of which were delinquent as to payment status.

Valuation Allowance related to the Company's deferred tax assets was $125 million, a decrease of $3 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 $333 million, a decrease of $13 million from the prior quarter.

Consolidated Tax Expense was $17 million, which equates to an effective tax rate of 37.7%. The current quarter includes a $0.6 million benefit from the final settlement of a state tax audit and a $0.4 million reversal of a valuation allowance related to capital gains recognized during the quarter. Excluding these two items, the effective tax rate was 39.8%.

Book Value Per Share was $7.89 at the end of the quarter, an increase of $0.14 from the prior quarter. Total shareholders' equity was $1.6 billion at the end of the quarter, an increase of $33 million from the prior quarter.

Tangible Book Value Per Share was $7.01 at the end of the quarter, an increase of $0.14 from the end of the prior quarter.

Average Diluted Shares Outstanding were 197.3 million shares for the quarter, compared to 206.2 million shares for the prior quarter. Total outstanding shares at June 30, 2013 were 196.7 million.

No Share Repurchases were made during the quarter. From December 2010 through June 30, 2013, the Company repurchased 135.9 million shares, or approximately 42% of the December of 2010 starting balance of 323 million shares, at an average purchase price of $6.83 per share.

Quarterly Cash Dividend of $0.01 per common share was paid on June 28, 2013 to common shareholders of record on June 17, 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 June 30, 2013 (the "Call Report") with the Federal Deposit Insurance Corporation ("FDIC") on or before July 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 $8.7 billion and total deposits of $5.9 billion as of June 30, 2013. 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 interest spread and asset yield, CapitalSource Bank net interest margin, consolidated operating expenses, and deposit growth, all which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words 'anticipate,' 'assume,' 'intend,' 'believe,' 'expect,' 'estimate,' 'forecast,' 'plan,' 'position,' 'project,' 'will,' 'should,' 'would,' 'seek,' 'continue,' 'outlook,' 'look forward,' and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding preliminary and future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including without limitation: changes in interest rates and lending spreads; competitive and other market pressures on product pricing and services; unfavorable changes in asset mix; changes in loan repayment levels due to negative impact of rate changes to discounts and premiums; compression of spreads on newly originated loans; higher than anticipated payoff levels; changes in our loan product could further compress NIM; higher than anticipated increases in operating expenses; increased litigation, asset workout or loan servicing expenses; higher compensation costs and professional fees to retain and/or incent employees; changes in economic or market conditions or investment or lending opportunities; reduced demand for our services due to strategic or regulatory reasons; and other factors described in CapitalSource's 2012 Annual Report on Form 10-K and documents subsequently filed by CapitalSource with the Securities and Exchange Commission. All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by applicable law.

CapitalSource Second Quarter 2013 - Financial Supplement

Table of Contents

Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income

Segment Balance Sheets

Segment Statements of Operations

Selected Financial Data

Credit Quality Data

 
 
CapitalSource Second Quarter 2013 - Financial Supplement
     
CapitalSource Inc.
Consolidated Balance Sheets
 ($ in thousands)
     
     
  June 30, December 31,
  2013 2012
  (Unaudited)  
     
ASSETS
Cash and cash equivalents $ 174,364 $ 178,880
Interest-bearing deposits in other banks 70,498 110,208
Other short-term investments 35,000 9,998
Restricted cash 62,287 104,044
Investment securities:    
Available-for-sale, at fair value 989,780 1,079,025
Held-to-maturity, at amortized cost 122,570 108,233
Total investment securities 1,112,350 1,187,258
Loans held for sale 22,719
Loans held for investment 6,523,168 6,192,858
Less deferred loan fees and discounts (46,099) (53,628)
Total loans held for investment 6,477,069 6,139,230
Less allowance for loan and lease losses (120,493) (117,273)
Total loans held for investment, net 6,356,576 6,021,957
Interest receivable 25,362 29,112
Other investments 55,388 60,363
Goodwill 173,135 173,135
Deferred tax asset, net 333,164 362,283
Other assets 280,582 289,048
Total assets $ 8,678,706 $ 8,549,005
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:    
Deposits $ 5,861,497 $ 5,579,270
Term debt 177,188
Other borrowings 1,085,266 1,005,738
Other liabilities 180,298 161,637
Total liabilities 7,127,061 6,923,833
     
     
Shareholders' equity:    
Preferred stock (50,000,000 shares authorized; no shares outstanding)
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 196,696,797 and 209,551,674 shares issued and outstanding, respectively) 1,967 2,096
Additional paid-in capital 3,031,572 3,157,533
Accumulated deficit (1,505,080) (1,559,107)
Accumulated other comprehensive income, net 23,186 24,650
Total shareholders' equity 1,551,645 1,625,172
Total liabilities and shareholders' equity $ 8,678,706 $ 8,549,005
 
 
CapitalSource Second Quarter 2013 - Financial Supplement
           
CapitalSource Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, except per share data)
           
  Three Months Ended Six Months Ended
  June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Net interest income:          
Interest income:          
Loans and leases $ 100,946 $ 102,889 $ 108,301 $ 203,835 $ 217,371
Investment securities 7,040 9,893 9,236 16,933 19,953
Other 419 313 445 732 735
Total interest income 108,405 113,095 117,982 221,500 238,059
Interest expense:          
Deposits 12,747 12,106 12,640 24,853 25,931
Borrowings 5,727 6,057 7,524 11,784 15,091
Total interest expense 18,474 18,163 20,164 36,637 41,022
Net interest income 89,931 94,932 97,818 184,863 197,037
Provision for loan and lease losses 4,832 12,505 10,536 17,337 21,608
Net interest income after provision for loan and lease losses 85,099 82,427 87,282 167,526 175,429
Non-interest income:          
Loan fees 4,266 3,112 3,057 7,378 7,725
Leased equipment income 5,020 4,825 3,258 9,845 6,516
Gain (loss) on investments, net 1,104 1,878 (620) 2,982 (927)
Gain on derivatives, net 978 814 432 1,792 329
Other non-interest income, net 180 2,589 2,323 2,769 6,357
Total non-interest income 11,548 13,218 8,450 24,766 20,000
Non-interest Expense:          
Compensation and benefits 27,725 24,982 25,408 52,707 51,824
Professional fees 1,757 1,468 3,089 3,225 6,689
Occupancy expenses 3,239 4,215 6,221 7,454 9,980
FDIC fees and assessments 1,582 1,554 1,463 3,136 2,912
General depreciation and amortizations 1,571 1,526 1,511 3,097 3,206
Loan servicing expense 2,743 1,469 6,274 4,212 10,045
Other administrative expenses 6,056 6,810 7,348 12,866 13,197
Total operating expenses 44,673 42,024 51,314 86,697 97,853
Leased equipment depreciation 3,527 3,400 2,288 6,927 4,576
Expense of real estate owned and other foreclosed assets, net 1,972 (62) 3,821 1,910 4,271
Loss on extinguishment of debt (8,142) (8,059)
Other non-interest expense, net 523 (707) (1,081) (184) (1,391)
Total non-interest expense 50,695 44,655 48,200 95,350 97,250
Net income before income taxes 45,952 50,990 47,532 96,942 98,179
Income tax expense (benefit) 17,329 21,642 (340,017) 38,971 (314,308)
Net income 28,623 29,348 387,549 57,971 412,487
           
Other comprehensive income (loss), net of tax          
Unrealized gain (loss) on available-for-sale securities, net of tax 165 (1,629) (960) (1,464) 487
Unrealized loss on foreign currency translation, net of tax (351)
Other comprehensive income (loss) 165 (1,629) (960) (1,464) 136
Comprehensive income $ 28,788 $ 27,719 $ 386,589 $ 56,507 $ 412,623
           
Net income per share:          
Basic $ 0.15 $ 0.15 $ 1.71 $ 0.29 $ 1.76
Diluted $ 0.15 $ 0.14 $ 1.66 $ 0.29 $ 1.72
Average shares outstanding:          
Basic 192,422,552 201,408,526 226,532,286 196,915,539 233,805,456
Diluted 197,287,617 206,240,213 233,097,739 201,763,915 240,348,137
Dividends declared per share $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.02
 
 
CapitalSource Inc.
Segment Balance Sheets
(Unaudited)
($ in thousands)
                 
  June 30, 2013 March 31, 2013
 
CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE
INTERCOMPANY ELIMINATIONS


CONSOLIDATED

CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE
INTERCOMPANY ELIMINATIONS


CONSOLIDATED
ASSETS                
                 
Cash and cash equivalents and restricted cash $ 158,026 $ 184,123 $ — $ 342,149 $ 309,943 $ 129,358 $ — $ 439,301
Investment securities:                
Available-for-sale 957,802 31,978 989,780 946,906 25,514 972,420
Held-to-maturity 122,570 122,570 103,683 103,683
Loans 6,219,463 257,200 406 6,477,069 5,840,160 357,682 (332) 6,197,510
Allowance for loan and lease losses (104,979) (15,514) (120,493) (99,839) (18,454) (118,293)
Loans, net of allowance for loan and lease losses 6,114,484 241,686 406 6,356,576 5,740,321 339,228 (332) 6,079,217
Receivables due from affiliates 2,927 7,866 (10,793) 1,738 11,069 (12,807)
Other assets 456,337 425,938 (14,644) 867,631 453,508 441,975 (7,427) 888,056
Total assets $ 7,812,146 $ 891,591 $ (25,031) $ 8,678,706 $ 7,556,099 $ 947,144 $ (20,566) $ 8,482,677
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Liabilities:                
Deposits $ 5,861,497 $ — $ — $ 5,861,497 $ 5,732,950 $ — $ — $ 5,732,950
Borrowings 675,000 410,266 1,085,266 600,000 483,941 1,083,941
Balance due to affiliates 7,866 2,927 (10,793) 11,069 1,738 (12,807)
Other liabilities 103,914 94,365 (17,981) 180,298 75,834 82,271 (10,500) 147,605
Total liabilities 6,648,277 507,558 (28,774 7,127,061 6,419,853 567,950 (23,307) 6,964,496
                 
Shareholders' equity:                
Common stock 921,000 1,967 (921,000) 1,967 921,000 1,958 (921,000) 1,958
Additional paid-in capital/retained earnings/deficit 235,913 358,880 931,699 1,526,492 202,726 354,215 936,261 1,493,202
Accumulated other comprehensive income, net 6,956 23,186 (6,956) 23,186 12,520 23,021 (12,520) 23,021
Total shareholders' equity 1,163,869 384,033 3,743 1,551,645 1,136,246 379,194 2,741 1,518,181
                 
Total liabilities and shareholders' equity $ 7,812,146 $ 891,591 $ (25,031) $ 8,678,706 $ 7,556,099 $ 947,144 $ (20,566) $ 8,482,677
 
 
CapitalSource Inc.
Segment Statements of Operations
(Unaudited)
($ in thousands)
                 
  Three Months Ended June 30, 2013 Three Months Ended March 31, 2013
Net interest income:
CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE
INTERCOMPANY ELIMINATIONS


CONSOLIDATED

CAPITALSOURCE BANK
OTHER COMMERCIAL FINANCE
INTERCOMPANY ELIMINATIONS


CONSOLIDATED
Interest income:                
Loans and leases $ 94,784 $ 4,904 $ 1,258 $ 100,946 $ 93,295 $ 8,821 $ 773 $102,889
Investment securities 6,048 992 7,040 8,772 1,121 9,893
Other 405 14 419 289 24 313
Total interest income 101,237 5,910 1,258 108,405 102,356 9,966 773 113,095
Interest expense:                
Deposits 12,747 12,747 12,106 12,106
Borrowings 2,683 3,044 5,727 2,685 3,372 6,057
Total interest expense 15,430 3,044 18,474 14,791 3,372 18,163
Net interest income 85,807 2,866 1,258 89,931 87,565 6,594 773 94,932
Provision for loan and lease losses 7,056 (2,224) 4,832 3,152 9,353 12,505
Net interest income (loss) after provision for loan and lease losses 78,751 5,090 1,258 85,099 84,413 (2,759) 773 82,427
Non-interest income:                
Loan fees 4,071 195 4,266 2,944 168 3,112
Leased equipment income 5,020 5,020 4,825 4,825
Other non-interest income, net 6,025 433 (4,196) 2,262 5,764 5,074 (5,557) 5,281
Total non-interest income, net 15,116 628 (4,196) 11,548 13,533 5,242 (5,557) 13,218
Non-interest expense:                
Compensation and benefits 26,984 741 27,725 24,568 414 24,982
Professional fees 1,208 549 1,757 1,003 465 1,468
Leased equipment depreciation 3,527 3,527 3,400 3,400
Expense of real estate owned and other foreclosed assets, net (3) 1,975 1,972 (12) (50) (62)
Other non-interest expense, net 11,689 7,966 (3,941) 15,714 9,947 9,824 (4,904) 14,867
Total non-interest expense, net 43,405 11,231 (3,941) 50,695 38,906 10,653 (4,904) 44,655
Net income (loss) before income taxes 50,462 (5,513) 1,003 45,952 59,040 (8,170) 120 50,990
Income tax expense (benefit) 20,392 (3,063) 17,329 24,397 (2,755) 21,642
Net income (loss) $ 30,070 $ (2,450) $ 1,003 $ 28,623 $ 34,643 $ (5,415) $ 120 $ 29,348
                 
                 
  Six Months Ended June 30, 2013 Six 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 $ 188,079 $ 13,725 $ 2,031 $ 203,835 $ 176,538 $ 43,186 $ (2,353) $ 217,371
Investment securities 14,820 2,113 16,933 17,503 2,450 19,953
Other 694 38 732 691 44 735
Total interest income 203,593 15,876 2,031 221,500 194,732 45,680 (2,353) 238,059
Interest expense:                
Deposits 24,853 24,853 25,931 25,931
Borrowings 5,368 6,416 11,784 5,522 9,569 15,091
Total interest expense 30,221 6,416 36,637 31,453 9,569 41,022
Net interest income 173,372 9,460 2,031 184,863 163,279 36,111 (2,353) 197,037
Provision for loan and lease losses 10,208 7,129 17,337 14,472 7,136 21,608
Net interest income after provision for loan and lease losses 163,164 2,331 2,031 167,526 148,807 28,975 (2,353) 175,429
Non-interest income:                
Loan fees 7,015 363 7,378 6,096 1,629 7,725
Leased equipment income 9,845 9,845 6,516 6,516
Other non-interest income, net 11,789 5,507 (9,753) 7,543 16,055 3,456 (13,752) 5,759
Total non-interest income, net 28,649 5,870 (9,753) 24,766 28,667 5,085 (13,752) 20,000
Non-interest expense:                
Compensation and benefits 51,552 1,155 52,707 49,564 2,260 51,824
Professional fees 2,211 1,014 3,225 3,211 3,478 6,689
Leased equipment depreciation 6,927 6,927 4,576 4,576
Expense of real estate owned and other foreclosed assets, net (15) 1,925 1,910 1,318 2,953 4,271
Loss on extinguishment of debt (8,059) (8,059)
Other non-interest expense, net 21,636 17,790 (8,845) 30,581 25,674 26,557 (14,282) 37,949
Total non-interest expense, net 82,311 21,884 (8,845) 95,350 84,343 27,189 (14,282) 97,250
Net income (loss) before income taxes 109,502 (13,683) 1,123 96,942 93,131 6,871 (1,823) 98,179
Income tax expense (benefit) 44,789 (5,818) 38,971 38,265 (352,573) (314,308)
Net income (loss) $ 64,713 $ (7,865) $ 1,123 $ 57,971 $ 54,866 $ 359,444 $ (1,823) $ 412,487
 
 
CapitalSource Inc.
Selected Financial Data
(Unaudited)
           
  Three Months Ended Six Months Ended
  June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
CapitalSource Bank Segment:          
           
Performance ratios:          
Return on average assets 1.58% 1.89% 1.33% 1.73% 1.59%
Return on average equity 10.46% 12.61% 9.15% 11.51% 10.77%
Return on average tangible equity 12.30% 14.92% 11.03% 13.58% 12.96%
Yield on average interest earning assets 5.65% 5.94% 5.89% 5.79% 6.01%
Cost of interest bearing liabilities 0.97% 0.96% 1.05% 0.97% 1.08%
Deposits 0.88% 0.87% 0.95% 0.88% 0.99%
Borrowings 1.79% 1.82% 1.89% 1.80% 1.93%
Net interest spread 4.68% 4.98% 4.84% 4.82% 4.93%
Net interest margin 4.79% 5.08% 4.95% 4.93% 5.04%
Operating expenses as a percentage of average total assets 2.08% 1.95% 2.29% 2.01% 2.28%
Efficiency ratio (1) 40.59% 37.06% 43.49% 38.82% 42.14%
Loan yield 6.45% 6.68% 7.09% 6.56% 7.17%
Capital ratios:          
Tier 1 leverage 13.51% 13.38% 12.69% 13.51% 12.69%
Total risk-based capital 16.18% 16.68% 16.20% 16.18% 16.20%
Tangible common equity to tangible assets 12.97% 13.05% 12.45% 12.97% 12.45%
Average balances ($ in thousands):          
Average loans $ 5,895,895 $ 5,659,939 $ 4,973,262 $ 5,778,569 $ 4,953,739
Average assets 7,618,652 7,443,015 6,963,062 7,531,319 6,936,910
Average interest earning assets 7,186,016 6,991,196 6,558,331 7,089,144 6,519,945
Average deposits 5,784,433 5,638,528 5,334,190 5,711,884 5,285,881
Average borrowings 601,868 599,278 585,791 600,580 576,764
Average equity 1,153,504 1,114,577 1,013,953 1,134,148 1,024,404
           
Other Commercial Finance Segment:          
           
Performance ratios:          
Yield on average interest earning assets 5.57% 7.49% 9.20% 6.64% 8.81%
Cost of interest bearing liabilities 2.71% 2.67% 2.78% 2.69% 2.67%
Net interest spread 2.86% 4.82% 6.42% 3.95% 6.14%
Net interest margin 2.70% 4.95% 7.29% 3.96% 6.96%
Loan yield 5.72% 8.17% 9.91% 7.08% 9.22%
Average balances ($ in thousands):          
Average loans $ 344,136 $ 437,784 $ 881,960 $ 390,701 $ 941,992
Average assets 933,295 1,084,606 1,224,451 1,008,533 1,329,874
Average interest earning assets 425,389 539,980 1,004,777 482,368 1,042,642
Average borrowings 449,933 511,270 690,928 480,432 721,629
Average equity 383,888 479,661 443,584 431,510 456,168
           
Consolidated CapitalSource Inc.: (2)          
           
Performance ratios:          
Return on average assets 1.35% 1.40% 18.99% 1.37% 10.04%
Return on average equity 7.46% 7.45% 106.31% 7.45% 55.75%
Return on average tangible equity 8.40% 8.36% 120.59% 8.38% 63.13%
Yield on average interest earning assets 5.71% 6.09% 6.27% 5.90% 6.33%
Cost of interest bearing liabilities 1.08% 1.09% 1.23% 1.09% 1.25%
Net interest spread 4.63% 5.00% 5.04% 4.81% 5.08%
Net interest margin 4.74% 5.11% 5.20% 4.92% 5.24%
Efficiency ratio (1) 45.61% 40.12% 49.35% 42.77% 46.06%
Operating expenses as a percentage of average total assets 2.10% 1.98% 2.50% 2.04% 2.37%
Leverage ratios:          
Equity to total assets (as of period end) 17.88% 17.90% 20.79% 17.88% 20.79%
Tangible common equity to tangible assets 16.20% 16.18% 19.15% 16.20% 19.15%
Average balances ($ in thousands):          
Average loans $ 6,239,609 $ 6,097,633 $ 5,856,981 $ 6,169,013 $ 5,898,122
Average assets 8,528,821 8,509,511 8,206,790 8,519,220 8,265,363
Average interest earning assets 7,610,983 7,531,086 7,564,867 7,571,255 7,564,978
Average borrowings 1,051,801 1,110,547 1,276,719 1,081,012 1,298,393
Average deposits 5,784,433 5,638,528 5,334,190 5,711,884 5,285,881
Average equity 1,539,984 1,597,024 1,466,177 1,568,346 1,487,869
           
(1)  Efficiency ratio is defined as operating expense (non-interest expense less REO expense, early debt term expense, provision for unfunded commitments and lease depreciation) divided by net interest and non-interest income, less leased equipment depreciation.
(2)  Applicable ratios have been calculated on a continuing operations basis.
 
 
CapitalSource Inc.
Credit Quality Data
(Unaudited)
           
  June 30, 2013 March 31, 2013 December 31, 2012 September 30, 2012 June 30, 2012
           
Loans 30-89 days contractually delinquent:          
As a % of total loans(1) 0.01% 0.71% 0.40% 0.51% 0.01%
Loans 30-89 days contractually delinquent $ 0.4 $ 43.7 $ 24.5 $ 30.3 $ 0.7
           
Loans 90 or more days contractually delinquent:          
As a % of total loans(1) 0.78% 0.69% 0.63% 0.72% 1.00%
Loans 90 or more days contractually delinquent $ 50.3 $ 43.0 $ 39.1 $ 43.2 $ 60.2
           
Loans on non-accrual:(2)          
As a % of total loans(1) 2.41% 2.40% 1.94% 2.66% 3.26%
Loans on non-accrual $ 156.1 $ 148.6 $ 119.7 $ 158.8 $ 196.0
           
Impaired loans:(3)          
As a % of total loans(4) 2.51% 2.41% 3.29% 4.51% 5.98%
Impaired loans $ 162.4 $ 148.9 $ 201.7 $ 266.1 $ 357.5
           
Allowance for loan and lease losses:          
As a % of total loans(4) 1.86% 1.92% 1.91% 2.15% 2.23%
As a % of non-accrual loans 77.20% 79.58% 97.96% 79.75% 68.02%
Allowance for loan and lease losses $ 120.5 $ 118.3 $117.3 $126.6 $ 133.4
           
Net charge offs (last twelve months):          
As a % of total average loans 0.79% 1.24% 1.27% 2.09% 2.30%
Net charge offs (last twelve months) $48.2  $74.4 $75.8 $123.7 $ 134.0
           
(1)  Includes loans held for investment, loans held for sale and deferred loan fees and discounts. Excludes allowance for loan and lease losses.
(2)  Includes loans with an aggregate principal balance of $50.3 million, $43.0 million, $39.1 million, $43.2 million, and $60.2 million as of June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, 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 $8.3 million and $2.4 million, as of March 31, 2013 and December 31, 2012, respectively. As of June 30, 2013, September 30, 2012, and June 30, 2012 there were no non-performing loans classified as held for sale.
(3)  Includes loans with an aggregate principal balance of $50.3 million, $43.0 million, $38.1 million, $43.2 million, and $60.2 million as of June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $156.1 million, $140.4 million, $117.3 million, $158.8 million, and $196.0 million as of June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, 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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