##### 





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
  QUARTERLY REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended March 31, 2008
  Commission File
    No. 1-31753
  CapitalSource Inc.
 (Exact name of registrant as
    specified in its charter)
   Delaware(State of
    Incorporation)

35-2206895(I.R.S. Employer
    Identification No.)    4445 Willard Avenue, 12th Floor
    Chevy Chase, MD 20815
 (Address of Principal Executive
    Offices, Including Zip Code)
  (800) 370-9431
  (Registrants Telephone
    Number, Including Area Code)
   þ o
  Rule 12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 





TABLE OF
    CONTENTS
  PagePART I. FINANCIAL INFORMATIONItem 1.


Financial StatementsConsolidated Balance Sheets as of March 31, 2008
    (unaudited) and December 31, 2007


3Consolidated Statements of Income (unaudited) for the three
    months ended March 31, 2008 and 2007


4Consolidated Statement of Shareholders Equity (unaudited)
    for the three months ended March 31, 2008


5Consolidated Statements of Cash Flows (unaudited) for the three
    months ended March 31, 2008 and 2007


6Notes to the Unaudited Consolidated Financial Statements


7Item 2.


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


31Item 3.


Quantitative and Qualitative Disclosures about Market Risk


57Item 4.


Controls and Procedures


57PART II. OTHER INFORMATIONItem 1A.


Risk Factors


57Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


62Item 5.


Other Information


62Item 6.


Exhibits


64Signatures


65Index to Exhibits


66  2




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##### 



CapitalSource
    Inc.
 Consolidated
    Balance Sheets  March 31,


December 31,2008


2007(Unaudited)($ in thousands)ASSETSCash and cash equivalents

$
270,789


$
178,699Restricted cash


527,258



513,803Mortgage-related receivables, net


1,978,852



2,041,917Mortgage-backed securities pledged, trading


3,310,176



4,060,605Loans held for sale


37,989



94,327Loans:Loans


9,721,333



9,773,410Less deferred loan fees and discounts


(151,291
)


(147,089
)Less allowance for loan losses


(136,745
)


(138,930
)Loans, net


9,433,297



9,487,391Direct real estate investments, net


1,016,972



1,017,604Investments


270,481



231,776Other assets


855,624



414,227Total assets

$
17,701,438


$
18,040,349LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS
    EQUITYLiabilities:Repurchase agreements

$
3,427,856


$
3,910,027Credit facilities


2,373,106



2,207,063Term debt


7,021,686



7,255,675Other borrowings


1,574,994



1,594,870Other liabilities


605,586



444,997Total liabilities


15,003,228



15,412,632Noncontrolling interests


43,938



45,446Shareholders equity:Preferred stock (50,000,000 shares authorized; no shares
    outstanding)






Common stock ($0.01 par value, 500,000,000 shares
    authorized; 234,844,241 and 220,704,800 shares issued and
    outstanding, respectively)


2,348



2,207Additional paid-in capital


3,097,310



2,902,501Accumulated deficit


(455,041
)


(327,387
)Accumulated other comprehensive income, net


9,655



4,950Total shareholders equity


2,654,272



2,582,271Total liabilities, noncontrolling interests and
    shareholders equity

$
17,701,438


$
18,040,349    3




---



##### 



CapitalSource
    Inc.
 Consolidated
    Statements of Income  Three Months Ended March 31,2008


2007(Unaudited)($ in thousands, except pershare data)Net investment income:Interest income

$
308,325


$
289,554Fee income


33,641



50,027Total interest and fee income


341,966



339,581Operating lease income


27,690



20,288Total investment income


369,656



359,869Interest expense


188,945



186,649Net investment income


180,711



173,220Provision for loan losses


5,659



14,926Net investment income after provision for loan losses


175,052



158,294Operating expenses:Compensation and benefits


31,789



40,014Depreciation of direct real estate investments


8,916



6,762Other administrative expenses


26,804



18,546Total operating expenses


67,509



65,322Other (expense) income:Diligence deposits forfeited


647



862Gain on investments, net


1,141



6,163Loss on derivatives


(38,111
)


(2,255
)Loss on residential mortgage investment portfolio


(55,377
)


(5,698
)Other (expense) income, net


(4,699
)


6,977Total other (expense) income


(96,399
)


6,049Noncontrolling interests expense


1,297



1,330Net income before income taxes


9,847



97,691Income taxes


3,076



19,001Net income

$
6,771


$
78,690Net income per share:Basic

$
0.03


$
0.44Diluted

$
0.03


$
0.43Average shares outstanding:Basic


220,085,148



179,324,672Diluted


221,493,514



181,743,884Dividends declared per share

$
0.60


$
0.58    4




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##### 



CapitalSource
    Inc.
  Consolidated
    Statement of Shareholders Equity  AccumulatedAdditional





Other


TotalCommon


Paid-In


Accumulated


Comprehensive


ShareholdersStock


Capital


Deficit


Income, Net


Equity(Unaudited)($ in thousands)Total shareholders equity as of December 31, 2007

$
2,207


$
2,902,501


$
(327,387
)

$
4,950


$
2,582,271Net income










6,771







6,771Other comprehensive income:Unrealized gains, net of tax














4,705



4,705Total comprehensive income


















11,476Dividends paid






1,856



(134,425
)






(132,569
)Issuance of common stock, net


143



169,646











169,789Stock option expense






(613
)










(613
)Exercise of options


1



321











322Restricted stock activity


(3
)


1,748











1,745Beneficial conversion option on convertible debt






24,727











24,727Tax benefit on exercise of options






107











107Tax expense on vesting of restricted stock grants






(2,983
)










(2,983
)Total shareholders equity as of March 31, 2008

$
2,348


$
3,097,310


$
(455,041
)

$
9,655


$
2,654,272    5




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##### 



CapitalSource
    Inc.Consolidated Statements of Cash Flows
 Three Months Ended March 31,2008


2007(Unaudited)($ in thousands)Operating activities:Net income

$
6,771


$
78,690Adjustments to reconcile net income to net cash provided by
    operating activities:Stock option (benefit) expense


(613
)


2,392Restricted stock expense


7,127



8,320Amortization of deferred loan fees and discounts


(23,952
)


(24,814
)Paid-in-kind
    interest on loans


4,587



(6,103
)Provision for loan losses


5,659



14,926Amortization of deferred financing fees and discounts


17,490



8,078Depreciation and amortization


9,094



8,031Benefit for deferred income taxes


(6,765
)


(1,606
)Non-cash loss on investments, net


2,779



47Non-cash loss on property and equipment disposals


2,276



127Unrealized loss on derivatives and foreign currencies, net


46,189



329Unrealized loss on residential mortgage investment portfolio, net


12,012



5,207Net decrease in mortgage-backed securities pledged, trading


449,766



155,540Amortization of discount on residential mortgage investments


(6,464
)


(8,631
)Decrease (increase) in loans held for sale, net


64,344



(101,575
)(Increase) decrease in other assets


(79,701
)


11,468Increase in other liabilities


155,816



1,976Cash provided by operating activities


666,415



152,402Investing activities:(Increase) decrease in restricted cash


(13,455
)


105,354Decrease in mortgage-related receivables, net


57,945



60,003Decrease in receivables under reverse-repurchase agreements, net






25,577Decrease (increase) in loans, net


57,354



(699,761
)Acquisition of real estate, net of cash acquired


(10,440
)


(87,020
)Acquisition of investments, net


(48,882
)


(8,506
)Acquisition of property and equipment, net


(523
)


(2,800
)Cash provided by (used in) investing activities


41,999



(607,153
)Financing activities:Payment of deferred financing fees


(7,383
)


(2,097
)Repayments of repurchase agreements, net


(482,171
)


(201,209
)Borrowings on credit facilities, net


155,871



886,180Borrowings of term debt






40,000Repayments of term debt


(234,005
)


(429,075
)Borrowings of subordinated debt






36,593Proceeds from issuance of common stock, net of offering costs


87,641



134,151Proceeds from exercise of options


322



2,644Tax (expense) benefit on share-based payments


(2,876
)


7,596Payment of dividends


(133,723
)


(107,413
)Cash (used in) provided by financing activities


(616,324
)


367,370Increase (decrease) in cash and cash equivalents


92,090



(87,381
)Cash and cash equivalents as of beginning of period


178,699



396,151Cash and cash equivalents as of end of period

$
270,789


$
308,770Supplemental information:Noncash transactions from investing and financing activities:Proceeds from issuance of common stock, not yet received

$
80,500


$
Beneficial conversion option on convertible debt


24,727



Real estate acquired through foreclosure


14,504



Conversion of noncontrolling interests into common stock


1,508



11,533    6




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Organization    
    First Mortgage Loans  Commercial loans that are
    secured by first mortgages on the property of the client;
    Senior Secured Asset-Based Loans  Commercial loans
    that are underwritten based on our assessment of the
    clients eligible collateral, including accounts
    receivable, real estate related receivables and inventory;
    Senior Secured Cash Flow Loans  Commercial loans that
    are underwritten based on our assessment of a clients
    ability to generate cash flows sufficient to repay the loan and
    maintain or increase its enterprise value during the term of the
    loan, thereby facilitating repayment of the principal at
    maturity;
    Direct Real Estate Investments  Investments in
    income-producing healthcare facilities that generally are leased
    through long-term,
    triple-net
    operating leases;
    Second Lien and Mezzanine Loans  Commercial loans,
    including subordinated mortgage loans, that come after a
    clients senior term loans in right of payment or upon
    liquidation;
    Equity Investments  Opportunistic equity investments,
    typically in conjunction with commercial financing relationships
    and on the same terms as other equity investors; and
    Residential Mortgage Investments  Investments in
    residential mortgage loans and residential mortgage-backed
    securities that constitute qualifying REIT assets.      Note 2.
    Summary
    of Significant Accounting Policies  Unaudited
    Interim Consolidated Financial Statements Basis of
    Presentation
  Form 10-Q Regulation S-X.
 7




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-K Form 10-K).
      Summary of Significant Accounting
    Policies Form 10-K.
  Fair
    Value Measurements
  Fair Value Measurements
              Note 3.
    New
    Accounting Pronouncements  SFAS 157-2, Effective Date of FASB Statement No. SFAS 157-2),
 8




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##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SFAS 157-2, SFAS 157-2
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards (EITF 06-11), EITF 06-11 EITF 06-11
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Disclosures about Derivative Instruments and Hedging
    Activities  An Amendment of FASB Statement
    No. 133 Accounting for Derivative instruments and Hedging Activities
 9




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4.
    Mortgage-Related
    Receivables and Related Owners
    Trust Securitizations  Consolidation of Variable
    Interest Entities  An Interpretation of ARB
    No. 51
        March 31,


December 31,2008


2007($ in thousands)Mortgage-related receivables whose underlying mortgage loans are
    90 or more days past due or were in the process of foreclosure

$
21,366


$
14,751Percentage of mortgage-related receivables


1.08
%(1)


0.72
%(1)Foreclosed assets

$
5,756


$
3,264Percentage of mortgage-related receivables


0.29
%


0.16
%     (1)
    
    By comparison, in their March 2008 Monthly Summary Reports
    (reflecting up to February 2008 performance), Fannie Mae and
    Freddie Mac reported
    single-family
    delinquency (SDQ) rates of 1.10% and 0.84%,
    respectively. The SDQ rates are based on loans 90 days or more
    delinquent or in foreclosure as of period end and in addition,
    the SDQ rate from Freddie Mac includes loans underlying their
    structured transactions. The comparable February statistic for
    mortgage-related receivables was 0.93%.   10




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5.
    Residential
    Mortgage-Backed Securities and Certain Derivative
    Instruments  Investments.
        Note 6.
    Commercial
    Loans and Credit Quality   11




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Credit
    Quality
    March 31,


December 31,Commercial Loan Asset Classification

2008


2007($ in thousands)Loans 60 or more days contractually delinquent

$
74,750


$
74,298Non-accrual loans(1)


174,472



170,522Impaired loans(2)


395,895



318,945Less: loans in multiple categories


(238,622)



(226,021)Total

$
406,495


$
337,744Total as a percentage of total loans


4.17%



3.42%     (1)
    
    Includes commercial loans with aggregate principal balances of
    $49.9 million and $55.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans 60 or more days contractually delinquent. As
    of March 31, 2008 and December 31, 2007, there were no
    loans classified as held for sale that were placed on
    non-accrual status.(2)
    
    Includes commercial loans with aggregate principal balances of
    $64.2 million and $55.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans 60 or more days contractually delinquent,
    and commercial loans with aggregate principal balances of
    $174.5 million and $170.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans on non-accrual status. The carrying values
    of impaired commercial loans were $390.6 million and
    $311.6 million as of March 31, 2008 and
    December 31, 2007, respectively.  Accounting by
    Creditors for Impairment of a Loan and/or
    Accounting for Debtors and Creditors
    for Troubled Debt Restructurings
 12




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Three Months Ended March 31,2008


2007($ in thousands)Balance as of beginning of period

$
138,930


$
120,575Provision for loan losses


2,971



14,926Charge offs, net


(5,156
)


(10,265
)Balance as of end of period

$
136,745


$
125,236   Note 7.
    Investments    March 31,


December 31,2008


2007($ in thousands)Investments carried at cost

$
126,385


$
127,183Investments carried at fair value:Investments available-for-sale


55,529



13,440Warrants


9,917



8,994Investments accounted for under the equity method


78,650



82,159Total

$
270,481


$
231,776   No. 99-20, Recognition of Interest Income on Purchased Beneficial
    Interests and Beneficial Interests that Continue to Be Held by a
    Transferor in Securitized Financial Assets.
  Note 8.  Guarantor
    Information
  Borrowings, Form 10-K,
 13




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##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Balance Sheet
    March 31, 2008
   CapitalSource Finance LLCCombined


Combined


Other Non-Non-Guarantor


Guarantor


Guarantor





ConsolidatedCapitalSource Inc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.(Unaudited)($ in thousands)AssetsCash and cash equivalents

$
558


$
128,690


$
114,482


$
27,059


$



$
270,789Restricted cash






73,630



104,194



349,434







527,258Mortgage-related receivables, net














1,978,852







1,978,852Mortgage-backed securities pledged, trading














3,310,176







3,310,176Loans held for sale






2,838



27,564



7,587







37,989Loans:Loans






4,114,510



605,724



5,001,103



(4
)


9,721,333Less deferred loan fees and discounts






(36,431
)


(55,820
)


(59,527
)


487



(151,291
)Less allowance for loan losses










(105,612
)


(31,133
)






(136,745
)Loans, net






4,078,079



444,292



4,910,443



483



9,433,297Direct real estate investments, net














1,016,972







1,016,972Investment in subsidiaries


3,965,974







892,445



1,276,594



(6,135,013
)


Intercompany note receivable


75,000



9



331,231



165,215



(571,455
)


Investments






118,413



37,632



114,650



(214
)


270,481Other assets


100,026



30,865



132,460



612,125



(19,852
)


855,624Total assets

$
4,141,558


$
4,432,524


$
2,084,300


$
13,769,107


$
(6,726,051
)

$
17,701,438Liabilities, noncontrolling interests and shareholders
    equityLiabilities:Repurchase agreements

$



$



$



$
3,427,856


$



$
3,427,856Credit facilities


710,000



858,905



58,639



745,562







2,373,106Term debt






2,522,021



3,151



4,496,512



2



7,021,686Other borrowings


758,758







532,965



283,271







1,574,994Other liabilities


18,314



112,115



48,223



446,792



(19,858
)


605,586Intercompany note payable






46,849



165,215



359,391



(571,455
)


Total liabilities


1,487,072



3,539,890



808,193



9,759,384



(591,311
)


15,003,228Noncontrolling interests






210







43,749



(21
)


43,938Shareholders equity:Preferred stock






















Common stock


2,348



















2,348Additional paid-in capital


3,097,310



275,528



81,139



3,403,103



(3,759,770
)


3,097,310(Accumulated deficit) retained earnings


(454,827
)


602,670



1,180,525



552,914



(2,336,323
)


(455,041
)Accumulated other comprehensive income, net


9,655



14,226



14,443



9,957



(38,626
)


9,655Total shareholders equity


2,654,486



892,424



1,276,107



3,965,974



(6,134,719
)


2,654,272Total liabilities, noncontrolling interests and
    shareholders equity

$
4,141,558


$
4,432,524


$
2,084,300


$
13,769,107


$
(6,726,051
)

$
17,701,438  14




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Balance Sheet
    December 31, 2007
  CapitalSource Finance LLCCombined


Combined


Other Non-Non-Guarantor


Guarantor


Guarantor





ConsolidatedCapitalSource Inc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.($ in thousands)AssetsCash and cash equivalents

$



$
151,511


$
19,005


$
8,183


$



$
178,699Restricted cash






80,782



168,928



264,093







513,803Mortgage-related receivables, net














2,041,917







2,041,917Mortgage-backed securities pledged, trading














4,060,605







4,060,605Loans held for sale






78,675



15,652











94,327Loans:Loans






4,215,031



488,166



5,070,770



(557
)


9,773,410Less deferred loan fees and discounts






(37,052
)


(61,492
)


(49,053
)


508



(147,089
)Less allowance for loan losses










(107,611
)


(31,319
)






(138,930
)Loans, net






4,177,979



319,063



4,990,398



(49
)


9,487,391Direct real estate investments, net














1,017,604







1,017,604Investment in subsidiaries


3,777,732







1,079,432



1,217,739



(6,074,903
)


Intercompany note receivable


75,000



9



286,101



207,806



(568,916
)


Investments






122,240



39,536



70,000







231,776Other assets


18,046



48,729



113,104



255,504



(21,156
)


414,227Total assets

$
3,870,778


$
4,659,925



2,040,821



14,133,849



(6,665,024
)

$
18,040,349Liabilities, noncontrolling interests and shareholders
    equityLiabilities:Repurchase agreements

$



$
12,674


$



$
3,897,353


$



$
3,910,027Credit facilities


480,237



932,195







794,631







2,207,063Term debt






2,570,125



6,114



4,679,987



(551
)


7,255,675Other borrowings


780,630







529,877



284,363







1,594,870Other liabilities


27,640



18,634



79,793



340,092



(21,162
)


444,997Intercompany note payable






46,849



207,806



314,261



(568,916
)


Total liabilities


1,288,507



3,580,477



823,590



10,310,687



(590,629
)


15,412,632Noncontrolling interests






34







45,430



(18
)


45,446Shareholders equity:Preferred stock






















Common stock


2,207



















2,207Additional paid-in capital


2,902,501



524,914



90,979



3,256,263



(3,872,156
)


2,902,501(Accumulated deficit) retained earnings


(327,387
)


549,305



1,120,817



516,216



(2,186,338
)


(327,387
)Accumulated other comprehensive income, net


4,950



5,195



5,435



5,253



(15,883
)


4,950Total shareholders equity


2,582,271



1,079,414



1,217,231



3,777,732



(6,074,377
)


2,582,271Total liabilities, noncontrolling interests and
    shareholders equity

$
3,870,778


$
4,659,925



2,040,821



14,133,849



(6,665,024
)

$
18,040,349  15




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Income
    Three Months Ended March 31, 2008
  CapitalSource Finance LLCCombined


Combined


OtherCapitalSource


Non-Guarantor


Guarantor


Non-Guarantor





ConsolidatedInc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.(Unaudited)($ in thousands)Net investment income:Interest income

$
1,194


$
106,756


$
12,337


$
189,233


$
(1,195
)

$
308,325Fee income






9,076



13,648



10,938



(21
)


33,641Total interest and fee income


1,194



115,832



25,985



200,171



(1,216
)


341,966Operating lease income














27,690







27,690Total investment income


1,194



115,832



25,985



227,861



(1,216
)


369,656Interest expense


19,263



43,301



11,927



115,648



(1,194
)


188,945Net investment (loss) income


(18,069
)


72,531



14,058



112,213



(22
)


180,711Provision for loan losses










3,157



2,502







5,659Net investment (loss) income after provision for loan losses


(18,069
)


72,531



10,901



109,711



(22
)


175,052Operating expenses:Compensation and benefits


255



2,634



28,900











31,789Depreciation on direct real estate investments














8,916







8,916Other administrative expenses


11,389



1,743



19,780



3,115



(9,223
)


26,804Total operating expenses


11,644



4,377



48,680



12,031



(9,223
)


67,509Other income (expense):Diligence deposits forfeited






92



555











647Gain (loss) on investments, net






575



1,174



(394
)


(214
)


1,141(Loss) gain on derivatives






(9,469
)


26,908



(55,550
)






(38,111
)Loss on residential mortgage investment portfolio














(55,377
)






(55,377
)Other income, net of expenses






(4,815
)


11,494



(2,155
)


(9,223
)


(4,699
)Earnings in subsidiaries


36,698







53,368



59,687



(149,753
)


Intercompany






(997
)


3,989



(2,992
)






Total other income (expense)


36,698



(14,614
)


97,488



(56,781
)


(159,190
)


(96,399
)Noncontrolling interests expense






175







1,125



(3
)


1,297Net income before income taxes


6,985



53,365



59,709



39,774



(149,986
)


9,847Income taxes














3,076







3,076Net income

$
6,985


$
53,365


$
59,709


$
36,698


$
(149,986
)

$
6,771  16




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Income
    Three Months Ended March 31, 2007
  CapitalSource Finance LLCCombined


Combined


Other Non-CapitalSource


Non-Guarantor


Guarantor


Guarantor





ConsolidatedInc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.(Unaudited)($ in thousands)Net investment income:Interest income

$
7,450


$
113,038


$
23,889


$
152,915


$
(7,738
)

$
289,554Fee income






22,749



18,839



8,439







50,027Total interest and fee income


7,450



135,787



42,728



161,354



(7,738
)


339,581Operating lease income














20,288







20,288Total investment income


7,450



135,787



42,728



181,642



(7,738
)


359,869Interest expense


10,266



54,688



14,662



114,771



(7,738
)


186,649Net investment (loss) income


(2,816
)


81,099



28,066



66,871







173,220Provision for loan losses










12,301



2,625







14,926Net investment (loss) income after provision for loan losses


(2,816
)


81,099



15,765



64,246







158,294Operating expenses:Compensation and benefits


637



5,333



34,044











40,014Depreciation of direct real estate investments














6,762







6,762Other administrative expenses


11,931



957



15,229



1,742



(11,313
)


18,546Total operating expenses


12,568



6,290



49,273



8,504



(11,313
)


65,322Other income (expense):Diligence deposits forfeited










862











862Gain on investments, net






6,095



68











6,163Loss on derivatives






(278
)


(1,915
)


(62
)






(2,255
)Loss on residential mortgage investment portfolio














(5,698
)






(5,698
)Other income, net of expenses






2,298



15,992







(11,313
)


6,977Earnings in subsidiaries


94,074







81,518



64,446



(240,038
)


Intercompany






(1,429
)


1,429











Total other income


94,074



6,686



97,954



58,686



(251,351
)


6,049Noncontrolling interests expense






(20
)






1,353



(3
)


1,330Net income before income taxes


78,690



81,515



64,446



113,075



(240,035
)


97,691Income taxes














19,001







19,001Net income

$
78,690


$
81,515


$
64,446


$
94,074


$
(240,035
)

$
78,690  17




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Cash flows
    Three Months Ended March 31, 2008
  CapitalSource Finance LLCCombined Non-


Combined


Other Non-Guarantor


Guarantor


Guarantor





ConsolidatedCapitalSource Inc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.(Unaudited)($ in thousands)Operating activities:Net income

$
6,985


$
53,365


$
59,709


$
36,698


$
(149,986
)

$
6,771Adjustments to reconcile net income to net cash (used in)
    provided by operating activities:Stock option expense






(181
)


(432
)










(613
)Restricted stock expense






690



6,437











7,127Amortization of deferred loan fees and discounts






(9,500
)


(7,582
)


(6,870
)






(23,952
)Paid-in-kind
    interest on loans






3,560



(2,662
)


3,689







4,587Provision for loan losses










3,158



2,501







5,659Amortization of deferred financing fees and discounts


6,651



5,108



124



5,607







17,490Depreciation and amortization






133



968



7,993







9,094Benefit for deferred income taxes














(6,765
)






(6,765
)Non-cash loss on investments, net






1,861



906



12







2,779Non-cash loss on property and equipment disposals






52



1,481



743







2,276Unrealized loss (gain) on derivatives and foreign currencies, net






17,525



(19,279
)


47,943







46,189Unrealized loss on residential mortgage investment portfolio, net














12,012







12,012Net decrease in mortgage-backed securities pledged, trading














449,766







449,766Amortization of discount on residential mortgage investments














(6,464
)






(6,464
)Decrease (increase) in loans held for sale, net






64,348







(4
)






64,344(Increase) decrease in intercompany note receivable










(45,130
)


42,591



2,539



(Increase) decrease in other assets


(488
)


2,170



22,386



(102,465
)


(1,304
)


(79,701
)(Decrease) increase in other liabilities


(10,073
)


94,228



(40,023
)


110,380



1,304



155,816Net transfers with subsidiaries


(182,886
)


(227,002
)


192,596



67,033



150,259



Cash (used in) provided by operating activities


(179,811
)


6,357



172,657



664,400



2,812



666,415Investing activities:Decrease (increase) in restricted cash






7,152



64,734



(85,341
)






(13,455
)Decrease in mortgage-related receivables, net














57,945







57,945Decrease (increase) in loans, net






138,376



(155,722
)


75,740



(1,040
)


57,354Acquisition of real estate, net of cash acquired














(10,440
)






(10,440
)Disposal (acquisition) of investments, net






838



3,135



(53,069
)


214



(48,882
)Disposal (acquisition) of property and equipment, net






234



(757
)










(523
)Cash provided by (used in) provided by investing activities






146,600



(88,610
)


(15,165
)


(826
)


41,999Financing activities:Payment of deferred financing fees


(4,788
)


(1,143
)


(242
)


(1,210
)






(7,383
)(Decrease) increase in intercompany note payable










(42,591
)


45,130



(2,539
)


Repayments of repurchase agreeements, net






(12,674
)






(469,497
)






(482,171
)Borrowings on (repayments of) credit facilities, net


229,763



(78,010
)


54,279



(50,161
)






155,871Borrowings of term debt






(553
)










553



Repayments of term debt






(83,398
)


(16
)


(150,591
)






(234,005
)Proceeds from issuance of common stock, net of offering costs


87,641



















87,641Proceeds from exercise of options


322



















322Tax expense on share based payments














(2,876
)






(2,876
)Payment of dividends


(132,569
)










(1,154
)






(133,723
)Cash provided by (used in) financing activities


180,369



(175,778
)


11,430



(630,359
)


(1,986
)


(616,324
)Increase (decrease) in cash and cash equivalents


558



(22,821
)


95,477



18,876







92,090Cash and cash equivalents as of beginning of period






151,511



19,005



8,183







178,699Cash and cash equivalents as of end of period

$
558


$
128,690


$
114,482


$
27,059


$



$
270,789  18




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Cash Flows
    Three Months Ended March 31, 2007
  CapitalSource Finance LLCCombined


Combined


Other Non-Non-Guarantor


Guarantor


Guarantor





ConsolidatedCapitalSource Inc.


Subsidiaries


Subsidiaries


Subsidiaries


Eliminations


CapitalSource Inc.(Unaudited)($ in thousands)Operating activities:Net income

$
78,690


$
81,515


$
64,446


$
94,074


$
(240,035
)

$
78,690Adjustments to reconcile net income to net cash (used in)
    provided by operating activities:Stock option expense






176



2,216











2,392Restricted stock expense






1,340



6,980











8,320Amortization of deferred loan fees and discounts






(7,411
)


(11,171
)


(6,232
)






(24,814
)Paid-in-kind
    interest on loans






1,920



(6,126
)


(1,897
)






(6,103
)Provision for loan losses










12,301



2,625







14,926Amortization of deferred financing fees and discounts


880



3,049



109



4,040







8,078Depreciation and amortization






40



782



7,209







8,031Benefit for deferred income taxes














(1,606
)






(1,606
)Non-cash (gain) loss on investments, net






(188
)


235











47Non-cash loss on property and equipment disposals






95



32











127Unrealized loss (gain) on derivatives and foreign currencies, net






336



(270
)


263







329Unrealized loss on residential mortgage investment portfolio, net














5,207







5,207Net decrease in mortgage-backed securities pledged, trading














155,540







155,540Amortization of discount on residential mortgage investments














(8,631
)






(8,631
)Increase in loans held for sale, net






(65,701
)


(35,874
)










(101,575
)Decrease in intercompany note receivable






2,137



1,234







(3,371
)


(Increase) decrease in other assets


(5,910
)


(696
)


(14,260
)


15,133



17,201



11,468Increase (decrease) in other liabilities


7,489



(13,219
)


(2,670
)


24,293



(13,917
)


1,976Net transfers with subsidiaries


(154,733
)


(79,790
)


125,225



(130,737
)


240,035



Cash (used in) provided by operating activities


(73,584
)


(76,397
)


143,189



159,281



(87
)


152,402Investing activities:Decrease in restricted cash






41,284



59,928



4,142







105,354Decrease in mortgage-related receivables, net














60,003







60,003Decrease in receivables under reverse-repurchase agreements, net






25,577















25,577Increase in loans, net


(1,560
)


(51,819
)


(267,506
)


(376,084
)


(2,792
)


(699,761
)Acquisition of real estate, net of cash acquired














(87,020
)






(87,020
)Acquisition of investments, net






(5,403
)


(1,403
)


(1,700
)






(8,506
)Acquisition of property and equipment, net






(483
)


(2,317
)










(2,800
)Cash (used in) provided by investing activities


(1,560
)


9,156



(211,298
)


(400,659
)


(2,792
)


(607,153
)Financing activities:Payment of deferred financing fees


(59
)


(772
)


(1,079
)


(187
)






(2,097
)Decrease in intercompany note payable






(3,370
)


(1
)






3,371



Repayments of repurchase agreeements, net






(24,881
)






(176,328
)






(201,209
)Borrowings on credit facilities, net


44,315



418,583



42,098



381,184







886,180Borrowings of term debt






492







40,000



(492
)


40,000Repayments of term debt






(368,621
)


(177
)


(60,277
)






(429,075
)Borrowings of subordinated debt










36,593











36,593Proceeds from issuance of common stock, net of offering costs


134,151



















134,151Proceeds from exercise of options


2,644



















2,644Tax benefits on share based payments














7,596







7,596Payment of dividends


(106,064
)










(1,349
)






(107,413
)Cash provided by financing activities


74,987



21,431



77,434



190,639



2,879



367,370(Decrease) increase in cash and cash equivalents


(157
)


(45,810
)


9,325



(50,739
)






(87,381
)Cash and cash equivalents as of beginning of period


157



238,224



46,723



111,047







396,151Cash and cash equivalents as of end of period

$



$
192,414


$
56,048


$
60,308


$



$
308,770  19




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 9.
    Direct
    Real Estate Investments  triple-net
  March 31,


December 31,2008


2007($ in thousands)Land

$
107,197


$
106,620Buildings


910,301



902,863Furniture and equipment


51,814



51,545Accumulated depreciation


(52,340
)


(43,424
)Total

$
1,016,972


$
1,017,604   Note 10.
    Borrowings  Borrowings Form 10-K.
  Repurchase
    Agreements
    Credit
    Facilities
       20




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Term
    Debt
  series 2004-1
  Other
    Borrowings
    March 31,


December 31,2008


2007($ in thousands)Convertible debt, net(1)

$
758,758


$
780,630Subordinated debt


532,965



529,877Mortgage debt


283,271



284,363Total

$
1,574,994


$
1,594,870     (1)
    
    Amounts presented are net of $41.8 million and
    $19.7 million in beneficial conversion options, net of
    amortization, as of March 31, 2008 and December 31,
    2007, respectively.  Note 11.
    Shareholders
    Equity  Common
    Stock Shares Outstanding
    Outstanding as of December 31, 2007


220,704,800Issuance of common stock


14,135,804Exercise of options


47,390Restricted stock and other stock grants, net


(43,753
)Outstanding as of March 31, 2008


234,844,241   Dividend
    Reinvestment and Stock Purchase Plan
    Note 12.
    Income
    Taxes   21




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Note 13.  Comprehensive
    Income
    Three Months Ended March 31,2008


2007($ in thousands)Net income

$
6,771


$
78,690Unrealized loss on available-for-sale securities, net of tax


(4,303
)


(2,704
)Unrealized gain on foreign currency translation, net of tax


9,762



620Loss on cash flow hedges, net of tax


(754
)


(328
)Comprehensive income

$
11,476


$
76,278     March 31,


December 31,2008


2007($ in thousands)Unrealized loss on available-for-sale securities, net of tax

$
(4,692
)

$
(389
)Unrealized gain on foreign currency translation, net of tax


14,111



4,349Unrealized gain on cash flow hedge, net of tax


236



990Accumulated other comprehensive income, net

$
9,655


$
4,950  22




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 14.
    Net
    Income per Share    Three Months EndedMarch 31,2008


2007($ in thousands, except share data)Basic net income per share:Net income

$
6,771


$
78,690Average shares  basic


220,085,148



179,324,672Basic net income per share

$
0.03


$
0.44Diluted net income per share:Net income

$
6,771


$
78,690Average shares  basic


220,085,148



179,324,672Effect of dilutive securities:Option shares


93,502



641,556Unvested restricted stock


1,227,632



1,570,909Stock units


87,232



26,331Conversion premium on the Debentures(1)






180,416Average shares  diluted


221,493,514



181,743,884Diluted net income per share

$
0.03


$
0.43     (1)
    
    For the three months ended March 31, 2007, the conversion
    premiums on the 1.25% Debentures represent the dilutive
    shares based on conversion prices of $24.61.    Three Months Ended March 31,2008


2007Stock options


8,727,748



18,038Non-managing member units


1,979,078



2,456,179Shares subject to a written call option


7,401,420



7,401,420     3.5% Senior Convertible Debentures due 2034

$
22.481.25% Senior Convertible Debentures due 2034


21.504.0% Senior Subordinated Convertible Debentures due 2034


22.481.625% Senior Subordinated Convertible Debentures due 2034


21.507.25% Senior Subordinated Convertible Debentures due 2037


27.09  23




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 15.
    Stock-Based
    Compensation        Stock-Based Compensation Form 10-K.
  Note 16.
    Commitments
    and Contingencies  Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others.
   24




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for Conditional Asset Retirement
    Obligations  An Interpretation of FASB
    No. 143
    Note 17.
    Derivative
    Instruments  Residential
    Mortgage-Backed Securities and Certain Derivative
    Instruments,
  Note 18.
    Fair
    Value Measurements  New Accounting
    Pronouncements
  Fair
    Value Determination
      Assets
    and Liabilities
  Residential
    Mortgage-Backed Securities
  Investments in Debt and Equity
 25




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Securities
  Investments
    The Equity Method of
    Accounting for Investments in Common Stock
  Warrants
    Derivative
    Assets and Liabilities
    Loans
    Held for Investment
   26




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Assets
    and Liabilities Carried at Fair Value on a Recurring
    Basis
    Fair Value


Quoted Prices in


Significant Other


SignificantMeasurement as of


Active Markets for


Observable


UnobservableMarch 31, 2008


Identical Assets (Level 1)


Inputs (Level 2)


Inputs (Level 3)($ in thousands)AssetsMortgage-backed securities pledged, trading

$
3,310,176


$



$
3,310,176


$
Investments carried at fair value:Investments available-for-sale


55,529







445



55,084Warrants


9,917











9,917Other assets held at fair value:Derivative assets


140,333







140,333



Total assets

$
3,515,955


$



$
3,450,954


$
65,001LiabilitiesOther liabilities held at fair value:Derivative liabilities

$
338,653


$



$
325,370


$
13,283     Realized and Unrealized Gains (Losses)Total


Purchases,Realized


Sales,Included in


and


Issuances,








UnrealizedBalance as of





Other


Unrealized


and


Transfers


Balance as of


GainsJanuary 1,


Included in


Comprehensive


Gains


Settlements,


In (Out)


March


(Losses)2008


Income


Income, Net


(Losses)


net


of Level 3


31, 2008


(1)($ in thousands)AssetsInvestments carried at fair value:Investments available-for-sale

$
13,106


$
1,234


$
(7,109
)

$
(5,875
)

$
47,853


$



$
55,084


$
(6,923
)Warrants


8,994



939



(16
)


923











9,917



923Total assets

$
22,100


$
2,173


$
(7,125
)

$
(4,952
)

$
47,853


$



$
65,001


$
(6,000
)LiabilitiesOther liabilities held at fair value:Derivative liabilities

$
(5,074
)

$
(8,209
)

$



$
(8,209
)

$



$



$
(13,283
)

$
(8,209
)     (1)
    
    Represents unrealized gains (losses) relating to
    assets/liabilities held as of March 31, 2008. 27




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Gain(Loss) onInterest

Gain on

Residential Mortgage

Loss onIncome

Investments, net

Investment Portfolio

Derivatives($ in thousands)Total gains (losses) included in earnings for the period

$
2,067


$
766


$
(660
)

$
(8,209
)Unrealized gains (losses) relating to assets still held at
    reporting date


1,019



766



(660
)


(8,209
)   Assets
    Carried at Fair Value on a Nonrecurring Basis
    Quoted Prices inFair Value


Active Markets


Significant Other


SignificantMeasurement as


for Identical


Observable Inputs


Unobservable


Totalof March 31, 2008


Assets (Level 1)


(Level 2)


Inputs (Level 3)


Losses($ in thousands)AssetsLoans held for investment(1)

$
95,952


$



$



$
95,952


$
(4,730
)Investments carried at cost


2,984











2,984



(1,974
)Total assets

$
98,936


$



$



$
98,936


$
(6,704
)     (1)
    
    Represents impaired loans held for investment measured at fair
    value of the loans collateral less transaction costs as
    required by SFAS No. 114. Transaction costs were not
    significant as of the balance sheet date.  Note 19.
    Segment
    Data  Disclosures about Segments of an
    Enterprise and Related Information,
 28




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months Ended March 31, 2008ResidentialCommercial


Healthcare


Mortgage


ConsolidatedFinance


Net Lease


Investment


Total($ in thousands)Total interest and fee income

$
258,013


$
493


$
83,460


$
341,966Operating lease income






27,690







27,690Interest expense


113,643



10,796
(1)


64,506



188,945Provision for loan losses


2,971







2,688



5,659Operating expenses(2)


53,137



11,173



3,199



67,509Other income (expense)(3)


(39,757
)






(56,642
)


(96,399
)Noncontrolling interests (income) expense


(117
)


1,414







1,297Net income (loss) before income taxes


48,622



4,800



(43,575
)


9,847Income taxes


3,076











3,076Net income (loss)

$
45,546


$
4,800


$
(43,575
)

$
6,771Total assets as of March 31, 2008

$
10,687,691


$
1,087,644


$
5,926,103


$
17,701,438   Three Months Ended March 31, 2007ResidentialCommercial


Healthcare


Mortgage


ConsolidatedFinance


Net Lease


Investment


Total($ in thousands)Total interest and fee income

$
258,585


$
96


$
80,900


$
339,581Operating lease income






20,288







20,288Interest expense


102,763



8,488
(1)


75,398



186,649Provision for loan losses


14,926











14,926Operating expenses(2)


55,184



9,037



1,101



65,322Other income (expense)(3)


11,747







(5,698
)


6,049Noncontrolling interests (income) expense


(271
)


1,601







1,330Net income (loss) before income taxes


97,730



1,258



(1,297
)


97,691Income taxes


19,001











19,001Net income (loss)

$
78,729


$
1,258


$
(1,297
)

$
78,690Total assets as of December 31, 2007

$
10,609,306


$
1,098,287


$
6,332,756


$
18,040,349     (1)
    
    Interest expense in our Healthcare Net Lease segment includes
    interest on its secured credit facility and mortgage debt as
    well as an allocation of interest on its allocated intercompany
    debt. 29




---



##### 



CapitalSource
    Inc.
  NOTES TO
    THE UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (2)
    
    Operating expenses of our Healthcare Net Lease segment include
    depreciation of direct real estate investments, professional
    fees, an allocation of overhead expenses (including compensation
    and benefits) and other direct expenses. In our Residential
    Mortgage Investment Segment, operating expenses include an
    allocation of overhead expenses, compensation and benefits,
    professional fees paid to our investment manager and other
    direct expenses.(3)
    
    Other (expense) income for our Residential Mortgage Investment
    segment includes the net of interest income and expense accruals
    related to certain of our derivatives along with the changes in
    fair value of our Agency MBS and related derivatives.  Summary of Significant Accounting Policies.
  Note 20.
    Subsequent
    Events      2007-A
  2007-A 2007-A,
 30




---



##### 



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-Q, Form 10-Q Form 10-Q, Form 10-K Form 10-K) Form 10-Q
    Form 10-Q.
  Overview
    and Highlights
    Segment Data
    triple-net
 31




---



##### 



and/or
    
    Corporate Finance, which generally provides senior and
    subordinate loans through direct origination and participation
    in widely syndicated loan transactions;
    Healthcare and Specialty Finance, which, including our
    Healthcare Net Lease segment activities, generally provides
    first mortgage loans, asset-based revolving lines of credit, and
    other cash flow loans to healthcare businesses and a broad range
    of other companies and makes investments in income-producing
    healthcare facilities, particularly long-term care
    facilities; and
    Structured Finance, which generally engages in commercial
    and residential real estate finance and also provides
    asset-based lending to finance companies.    Deposit
    Based Funding
     32




---



##### 



Impact
    of Recent Market Conditions
          Consolidated
    Results of Operations
      Explanation
    of Reporting Metrics
  Interest Income.
 33




---



##### 



Fee Income.
  Operating Lease Income.
  Interest Expense.
  Provision for Loan Losses.
  Other Income.
  Operating Expenses.
  Income Taxes.
 34




---



##### 



Adjusted Earnings.
  Operating
    Results for the Three Months Ended March 31,
    2008
    
    Mark to market losses on our Residential Mortgage Investment
    Portfolio;
    Losses on derivatives and other investments in our Commercial
    Finance segment;
    Increased balance of our commercial loan portfolio;
    Increased borrowings;
    Decreased provision for loan losses;
    Increased operating lease income related to our direct real
    estate investments;
    Decreased operating expenses as a percentage of average assets;
    Increased lending spreads;
    Increased borrowing spreads; and
    Reduced prepayment-related fee income and reduced gains on
    equity sales.    Three MonthsEnded March 31,2008


2007


$ Change


% Change($ in thousands)Interest income

$
308,325


$
289,554


$
18,771



6
%Fee income


33,641



50,027



(16,386
)


(33
)Operating lease income


27,690



20,288



7,402



36Interest expense


188,945



186,649



2,296



1Provision for loan losses


5,659



14,926



(9,267
)


(62
)Depreciation of direct real estate investments


8,916



6,762



2,154



32Other operating expenses


58,593



58,560



33



Other (expense) income


(96,399
)


6,049



(102,448
)


(1,694
)Noncontrolling interests expense


1,297



1,330



(33
)


(2
)Income taxes


3,076



19,001



(15,925
)


(84
)Net income


6,771



78,690



(71,919
)


(91
)  35




---



##### 



Three Months Ended March 31,2008


2007Weighted


Net


Average


Weighted


Net


AverageAverage


Investment


Yield/


Average


Investment


Yield/Balance


Income


Cost


Balance


Income


Cost($ in thousands)Interest earning assets:Interest income





$
308,325



7.59
%





$
289,554



8.27
%Fee income






33,641



0.83







50,027



1.43Total interest earning assets(1)

$
16,302,258



341,966



8.42


$
14,207,472



339,581



9.70Total direct real estate investments


1,067,296



27,690



10.41



786,623



20,288



10.46Total income earning assets


17,369,554



369,656



8.54



14,994,095



359,869



9.73Total interest bearing liabilities(2)


14,753,537



188,945



5.14



12,860,904



186,649



5.89Net finance spread





$
180,711



3.40
%





$
173,220



3.84
%Net finance margin










4.17
%










4.69
%     (1)
    
    Interest earning assets include cash, restricted cash,
    mortgage-related receivables, RMBS, loans, and investments in
    debt securities.(2)
    
    Interest bearing liabilities include repurchase agreements,
    secured and unsecured credit facilities, term debt, convertible
    debt and subordinated debt.  Operating
    Expenses
    Income
    Taxes
   36




---



##### 



Adjusted
    Earnings
    March 31,2008


2007($ in thousands, exceptper share data)Net income

$
6,771


$
78,690Add:Real estate depreciation and amortization(1)


8,760



6,762Amortization of deferred financing fees(2)


11,953



5,508Non-cash equity compensation


6,514



10,712Net realized and unrealized losses on residential mortgage
    investment portfolio, including related derivatives(3)


27,394



7,180Unrealized losses on derivatives and foreign currencies, net


47,634



328Unrealized losses on investments, net


4,657



47Provision for loan losses


5,659



14,926Recoveries(4)






Less:Charge offs


6,076



10,250Nonrecurring items






Adjusted earnings

$
113,266


$
113,903Net income per share:Basic  as reported

$
0.03


$
0.44Diluted  as reported

$
0.03


$
0.43Average shares outstanding:Basic  as reported


220,085,148



179,324,672Diluted  as reported


221,493,514



181,743,884Adjusted earnings per share:Basic

$
0.51


$
0.64Diluted(5)

$
0.51


$
0.63Average shares outstanding:Basic


220,085,148



179,324,672Diluted(6)


221,493,514



184,200,063     (1)
    
    Depreciation and amortization for direct real estate investments
    only. Excludes depreciation for corporate leasehold
    improvements, fixed assets and other non-real estate items.(2)
    
    Includes amortization of deferred financing fees and other
    non-cash interest expense.(3)
    
    Includes adjustments to reflect realized and unrealized gains
    and losses related to residential mortgage investments held in
    our portfolio as of the balance sheet date and related
    derivative instruments.(4)
    
    Includes all recoveries on loans during the period.(5)
    
    Adjusted to reflect the impact of adding back noncontrolling
    interests expense totaling $1.3 million for the three
    months ended March 31, 2007, to adjusted earnings due to
    the application of the if-converted method on non-managing
    member units, which are considered dilutive to adjusted earnings
    per share, but are antidilutive to GAAP net income per share.(6)
    
    Adjusted to include average non-managing member units of
    2,456,179 for the three months ended March 31, 2007, which
    were considered dilutive to adjusted earnings per share, but are
    antidilutive to GAAP net income per share. 37




---



##### 



Comparison
    of the Three Months Ended March 31, 2008 and
    2007
    Commercial
    Finance Segment
    Three Months Ended March 31,2008


2007


$ Change


% Change($ in thousands)Interest income

$
224,383


$
208,558


$
15,825



8
%Fee income


33,630



50,027



(16,397
)


(33
)Interest expense


113,643



102,763



10,880



11Provision for loan losses


2,971



14,926



(11,955
)


(80
)Operating expenses


53,137



55,184



(2,047
)


(4
)Other (expense) income


(39,640
)


12,018



(51,658
)


(430
)Income taxes


3,076



19,001



(15,925
)


(84
)Net income


45,546



78,729



(33,183
)


(42
)   Interest
    Income
    Fee
    Income
    Interest
    Expense
   38




---



##### 



Net
    Finance Margin
      Three Months Ended March 31,2008


2007Weighted


Net


Average


Weighted


Net


AverageAverage


Investment


Yield/


Average


Investment


Yield/Balance


Income


Cost


Balance


Income


Cost($ in thousands)Interest earning assets:Interest income





$
224,383



8.93
%





$
208,559



10.06
%Fee income






33,630



1.34







50,027



2.41Total interest earning assets(1)

$
10,082,728



258,013



10.27


$
8,406,627



258,586



12.47Total interest bearing liabilities(2)


8,366,784



113,643



5.45



6,775,031



102,764



6.15Net finance spread





$
144,370



4.82
%





$
155,822



6.32
%Net finance margin










5.74
%










7.52
%     (1)
    
    Interest earning assets include cash, restricted cash, loans and
    investments in debt securities.(2)
    
    Interest bearing liabilities include repurchase agreements,
    secured and unsecured credit facilities, term debt, convertible
    debt and subordinated debt.  Provision
    for Loan Losses
    Operating
    Expenses
    Other
    (Expense) Income
   39




---



##### 



Healthcare
    Net Lease Segment
    Three Months Ended March 31,2008


2007


$ Change


% Change($ in thousands)Interest income

$
482


$
96


$
386



402
%Fee income


11







11



N/AOperating lease income


27,690



20,288



7,402



36Interest expense


10,796



8,488



2,308



27Depreciation of direct real estate investments


8,916



6,762



2,154



32Other operating expenses


2,257



2,275



(18
)


(1
)Noncontrolling interests expense


1,414



1,601



(187
)


(12
)Net income


4,800



1,258



3,542



282   Operating
    Lease Income
  triple-net
  Interest
    Expense
    Net
    Finance Margin
    Depreciation
    of Direct Real Estate Investments
   40




---



##### 



Residential
    Mortgage Investment Segment
    Three Months Ended March 31,2008


2007


$ Change


% Change($ in thousands)Interest income

$
83,460


$
80,900


$
2,560



3
%Interest expense


64,506



75,398



(10,892
)


(14
)Provision for loan losses


2,688







2,688



N/AOperating expenses


3,199



1,101



2,098



191Other expense


56,642



5,698



50,944



894Net loss


(43,575
)


(1,297
)


(42,278
)


(3,260
)   Interest
    Income
    Interest
    Expense
    Operating
    Expenses
    Other
    (Expense) Income
   41




---



##### 



Financial
    Condition
  Commercial
    Finance Segment
  Portfolio
    Composition
    March 31,


December 31,2008


2007($ in thousands)Commercial loans, net

$
9,759,322


$
9,867,737Equity investments


266,113



227,144Total

$
10,025,435


$
10,094,881   Commercial
    Lending Portfolio Composition
    March 31, 2008


December 31, 2007($ in thousands)Composition of loan portfolio by loan type:Senior secured loans(1)

$
5,702,771



59
%

$
5,695,167



58
%First mortgage loans(1)


2,858,991



29



2,995,048



30Subordinate loans


1,197,560



12



1,177,522



12Total

$
9,759,322



100
%

$
9,867,737



100
%Composition of loan portfolio by business:Corporate Finance

$
2,940,112



30
%

$
2,979,241



30
%Healthcare and Specialty Finance


2,943,312



30



2,934,666



30Structured Finance


3,875,898



40



3,953,830



40Total

$
9,759,322



100
%

$
9,867,737



100
%     (1)
    
    Includes Term B loans.    Number


Average


Number of


Average Loanof Loans


Loan Size


Clients


Size per Client($ in thousands)Composition of loan portfolio by business:Corporate Finance


532


$
5,527



260


$
11,308Healthcare and Specialty Finance


402



7,322



278



10,587Structured Finance


245



15,819



197



19,675Overall loan portfolio


1,179


$
8,278



735


$
13,278  42




---



##### 



Due in


Due inOne Year


One to


Due Afteror Less


Five Years


Five Years


Total($ in thousands)Scheduled maturities by loan type:Senior secured loans(1)

$
594,352


$
4,712,026


$
396,393


$
5,702,771First mortgage loans(1)


1,105,343



1,649,747



103,901



2,858,991Subordinate loans


43,126



494,701



659,733



1,197,560Total

$
1,742,821


$
6,856,474


$
1,160,027


$
9,759,322     (1)
    
    Includes Term B loans.    Adjustable


FixedRates


Rates


Total($ in thousands)Composition of loan portfolio by loan type:Senior secured loans(1)

$
5,667,676


$
35,095


$
5,702,771First mortgage loans(1)


2,555,757



303,234



2,858,991Subordinate loans


1,054,655



142,905



1,197,560Total

$
9,278,088


$
481,234


$
9,759,322Percentage of total loan portfolio


95%



5%



100%     (1)
    
    Includes Term B loans.    Credit
    Quality and Allowance for Loan Losses
    March 31,


December 31,2008


2007($ in thousands)Loans 60 or more days contractually delinquent

$
74,750


$
74,298Non-accrual loans(1)


174,472



170,522Impaired loans(2)


395,895



318,945Less: loans in multiple categories


(238,622)



(226,021)Total

$
406,495


$
337,744Total as a percentage of total loans


4.17%



3.42%     (1)
    
    Includes commercial loans with aggregate principal balances of
    $49.9 million and $55.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans 60 or more days contractually delinquent. As
    of March 31, 2008 and December 31, 2007, there were no
    loans classified as held for sale that were placed on
    non-accrual status. 43




---



##### 



(2)
    
    Includes commercial loans with aggregate principal balances of
    $64.2 million and $55.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans 60 or more days contractually delinquent,
    and commercial loans with aggregate principal balances of
    $174.5 million and $170.5 million as of March 31,
    2008 and December 31, 2007, respectively, which were also
    classified as loans on non-accrual status. The carrying values
    of impaired commercial loans were $390.6 and $311.6 million
    as of March 31, 2008 and December 31, 2007,
    respectively.  Accounting by Creditors for
    Impairment of a Loan and/or
  Accounting for Debtors and Creditors
    for Troubled Debt Restructurings
    Investments
      Healthcare
    Net Lease Segment
  Direct
    Real Estate Investments
  triple-net triple-net
 44




---



##### 



Residential
    Mortgage Investment Segment
  Portfolio
    Composition
    March 31,


December 31,2008


2007($ in thousands)Mortgage-related receivables(1)

$
1,978,852


$
2,041,917Residential mortgage-backed securities:Agency(2)


3,310,176



4,060,605Non-Agency(2)


4,368



4,632Total

$
5,293,396


$
6,107,154     (1)
    
    Represents secured receivables that are backed by
    adjustable-rate residential prime mortgage loans.(2)
    
    See following paragraph for a description of these securities.    Mortgage-Related
    Receivables and Related Owner Trust Securitizations
   45




---



##### 



Credit
    Quality and Allowance for Loan Losses
    March 31,


December 31,2008


2007($ in thousands)Mortgage-related receivables whose underlying mortgage loans are
    90 or more days past due or were in the process of foreclosure

$
21,366


$
14,751Percentage of mortgage-related receivables


1.08
%(1)


0.72
%(1)Foreclosed assets

$
5,756


$
3,264Percentage of mortgage-related receivables


0.29
%


0.16
%     (1)
    
    By comparison, in their March 2008 Monthly Summary Reports
    (reflecting up to February 2008 performance), Fannie Mae and
    Freddie Mac reported single-family delinquency (SDQ)
    rates of 1.10% and 0.84%, respectively. The SDQ rates are based
    on loans 90 days or more delinquent or in foreclosure as of
    period end and in addition, the SDQ rate from Freddie Mac
    includes loans underlying their structured transactions. The
    comparable February statistic for mortgage-related receivables
    was 0.93%.    Financing
      Market Risk Management
  Liquidity
    and Capital Resources
   46




---



##### 



Cash
    and Cash Equivalents
     47




---



##### 



Sources
    and Uses of Cash
        Borrowings
  Borrowings Form 10-K Borrowings
      Repurchase
    Agreements
   48




---



##### 



Credit
    Facilities
      Principal


Interest

MaturityCommitment


Outstanding


Rate(1)

Date($ in thousands)Secured Credit Facilities:CS Funding III

$
220,000


$
120,203


LIBOR + 2.00%

April 29, 2009CS Funding VII


1,000,000
(2)(3)


499,500


CP + 2.25%

March 31, 2009CS Funding VIII


54,360



54,360


CP + 0.75%

July 19, 2010CSE QRS Funding I


1,000,000
(3)


370,593


CP/LIBOR + 2.00%

April 24, 2009CSE QRS Funding II


380,000
(2)(3)


196,940


CP + 2.25%

March 31, 2009CS Europe(4)


385,000



176,669


EURIBOR + 1.00%(5)

September 30, 2010Total Secured Credit Facilities


3,039,360



1,418,265
(6)Unsecured Credit Facilities:CS Inc.


1,070,000



748,002


LIBOR + 1.125%(7)

March 13, 2010Total credit facilities

$
4,109,360


$
2,166,267     (1)
    
    As of May 8, 2008, the one-month LIBOR was 2.59%; the one-month
    EURIBOR was 4.39%; the CP rate for CS Funding VIII was 2.87%;
    and the blended CP/LIBOR rate for CSE QRS Funding I was 2.56%;
    the CP rates for CS Funding VII and CSE QRS Funding II were
    approximately 2.46%.(2)
    
    The commitment amount is subject to a combined aggregate maximum
    commitment amount of $2.2 billion from the lender under CS
    Funding VII, CSE QRS Funding II, and CapitalSource Commercial
    Real Estate Loan
    2007-A,
    which steps down to an aggregate of $1.25 billion.(3)
    
    Upon termination of the revolving period, there is an
    amortization period of up to one year.(4)
    
    CS Europe is a 250 million facility and the amounts
    presented were translated to United States Dollars
    (USD) using the spot rate as of May 8, 2008.(5)
    
    Borrowings in Euro or British Pounds Sterling (GBP)
    are at EURIBOR or GBP LIBOR + 1.00%, respectively, and
    borrowings in USD are at LIBOR + 1.00%.(6)
    
    The aggregate outstanding collateral balance pledged to our
    secured credit facilities as of May 8, 2008 was
    $2.3 billion.(7)
    
    LIBOR + 1.125% or at an alternative base rate, which is the
    greater of the prime rate for USD borrowings or the Federal
    Funds Rate + 0.50%, or for foreign currency borrowings, at the
    prevailing EURIBOR rate + 1.125% or GBP LIBOR + 1.125%. 49




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##### 



Term
    Debt
    Owner
    Trust Term Debt
    Convertible
    Debt
    Subordinated
    Debt
    Mortgage
    Debt
    Debt
    Covenants
  and/or
  Equity
    Commitments,
    Guarantees & Contingencies
   50




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##### 



Commitments and
    Contingencies
  Commitments and Contingencies
  Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities
    Credit
    Risk Management
  agreed-upon
   51




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##### 



Commercial
    Finance Segment
      Residential
    Mortgage Investment Segment
    Concentrations
    of Credit Risk
    Derivative
    Counterparty Credit Risk
   52




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##### 



Market
    Risk Management
  and/or
  Derivative Instruments
  Interest
    Rate Risk Management  Commercial Finance
    Segment & Healthcare Net Lease Segment
    12-month
  Estimated (Decrease)Increase inRate Change

Net Interest Income(Basis Points)

Over 12 Months($ in thousands)−100

$
8,760−50


3,960+ 50


(2,640
)+ 100


(600
)    53




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##### 



Amount


Percentage ofOutstanding


Total Portfolio($ in thousands)Loans with contractual interest rates:Exceeding the interest rate floor

$
651,116



7
%At the interest rate floor


56,814



1Below the interest rate floor


3,016,701



31Loans with no interest rate floor


6,034,691



61Total

$
9,759,322



100
%         Interest
    Rate Risk Management  Residential Mortgage Investment
    Segment
        Estimated (Decrease)Rate Change

Increase


Percentage of Total(Basis Points)

in Fair Value


Segment Assets($ in thousands)−100

$
6,495



0.11
%−50


2,900



0.05+ 50


(1,339
)


(0.02
)+ 100


(2,040
)


(0.03
)  54




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##### 



Critical
    Accounting Estimates
  Managements Discussion and Analysis of Financial
    Condition and Results of Operations Summary of Significant Accounting Policies Critical Accounting Estimates Managements Discussion and Analysis of Financial
    Condition and Results of Operations Form 10-K
  Fair
    Value Measurements
    Fair Value Measurements ,
     55




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##### 




    Selection of third-party market data sources;
    Evaluation of the expected reliability of the estimate;
    Reliability, timeliness and cost of alternative valuation
    methodologies; and
    Selection of proxy instruments, as necessary.     56




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##### 



ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Managements Discussion and
    Analysis of Financial Condition and Results of Operations Market Risk Management Form 10-Q Form 10-K. Derivative Instruments Credit Risk Form 10-K.
  ITEM 4.
    CONTROLS
    AND PROCEDURES  Rule 13a-15
 PART II.
    OTHER INFORMATION  ITEM 1A.
    RISK
    FACTORS  Our business faces many risks. The risks described below may
    not be the only risks we face. Additional risks that we do not
    yet know of or that we currently believe are immaterial may also
    impair our business operations. If any of the events or
    circumstances described in the following risks actually occur,
    our business, financial condition or results of operations could
    suffer, and the trading price of our securities could decline.
    As a result, you should consider all of the following risks,
    together with all of the other Risk Factors set forth in our
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007 as filed with the
    Securities and Exchange Commission on February 29, 2008
    (the
    Form 10-K)
    and the other information in this Quarterly Report on
    Form 10-Q,
    the
    Form 10-K
    and our future filings with the Securities and Exchange
    Commission before deciding to invest in our securities.
  Overview
   57




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##### 



Form 8-K
    Reasons
    for the Acquisition
    Risk
    Factors
  We
    must obtain regulatory approvals to complete the acquisition,
    which, if delayed, not granted, or granted with unacceptable
    conditions, may jeopardize or postpone the completion of the
    acquisition, result in additional expenditures of money and
    resources or reduce the anticipated benefits of the
    acquisition.
    Other
    conditions to closing of the asset acquisition may not be
    satisfied.
    
    the approval of the shareholders of FILs ultimate parent,
    Fremont General Corporation (FGC) or, in the
    alternative, a bankruptcy court;
    FILs deposits at closing being at least equal the net book
    value of the Participation Interest;
    FIL having sufficient cash and assets to offset its
    liabilities; and
    FIL remaining a going concern and not being seized by the FDIC.   58




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##### 



We may
    fail to realize all of the anticipated benefits of the
    acquisition.
    and/or
  The
    loan that may be made by an affiliate of ours to enable FIL to
    close the transaction may not be repaid.
    The
    Participation Interest may not pay down to the extent necessary
    to avoid losses for the new bank.
    Compliance
    with applicable regulations could be more costly than expected
    and could negatively impact the business of the new bank
    following the acquisition.
   59




---



##### 



California
    Law
    Federal
    Law
    Safety
    and Soundness Standards
     60




---



##### 



Capital
    Standards
          Limitations
    on Dividends
    Other
    Regulation
   61




---



##### 



The
    acquisition may require us to acquire additional real estate
    assets to comply with REIT requirements.
    Our
    cash dividends are not guaranteed and may fluctuate; we could
    reduce or eliminate dividends on our common stock.
  Managements Discussion and
    Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Form 10-Q,
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    Shares Purchased


Maximum NumberTotal Number


Average


as Part of Publicly


of Shares that Mayof Shares


Price Paid


Announced Plans


Yet be PurchasedPurchased(1)


per Share


or Programs


Under the PlansJanuary 1  January 31, 2008


97,977


$
17.60







February 1  February 29, 2008


166,352



16.32







March 1  March 31, 2008


54,403



14.22







Total


318,732


$
16.35     (1)
    
    Represents the number of shares acquired as payment by employees
    of applicable statutory minimum withholding taxes owed upon
    vesting of restricted stock granted under our Third Amended and
    Restated Equity Incentive Plan.  ITEM 5.
    OTHER
    INFORMATION  Amendment
    and Restatement of Existing Term Securitization
  2007-A (2007-A), 2007-A, 2007-A
 62




---



##### 




    increased the interest payable on the sold notes by 0.75% to
    2.25% above the floating commercial paper rate;
    reduced the maximum overall advance rate for the aggregate loans
    pledged under the term securitization by 5% to 70%;
    provided a mandatory call when the borrowing base is reduced to
    15% of its balance as of the time the term securitization began
    to amortize;
    provided that the term securitization is cross-defaulted to each
    of our other debt and repurchase facilities in excess of
    $10.0 million subject to certain exceptions described in
    the Agreement;
    provided for a renewal fee in accordance with prevailing market
    rates; and
    modified circumstances under which we can remove assets from the
    term securitization.    and/or
    New
    Credit Facility
     63




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##### 




    maturity date of March 31, 2009 as compared to
    August 1, 2008;
    provided an amortization period of one year upon termination of
    the revolving period as compared to maturity upon such
    termination;
    increased the program fee charged on borrowings under the
    facility by 135 basis points to be 225 basis points;
    reduced the overall maximum advance rate for the aggregate loans
    pledged under the facility by 5% to 70%, with advance rates on
    certain loans specified in the Agreement being subject to
    mark-to-market provisions;
    provided that the new facility is cross-defaulted to each of our
    other debt and repurchase facilities in excess of
    $10.0 million subject to certain exceptions described in
    the Sale and Servicing Agreement;
    modified circumstances under which we can remove assets from the
    facility;
    increased the unused line and renewal fees in accordance with
    prevailing market rates; and
    provided a mandatory call when the borrowing base is reduced to
    15% of its balance as of the time the facility begins to
    amortize.  and/or and/or
    Termination
    of a Credit Facility
    ITEM 6.
    EXHIBITS     64




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##### 



Signatures      Date: May 9, 2008

/s/  JOHN
    K. DELANEYJohn
    K. Delaney
    Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)Date: May 9, 2008

/s/  THOMAS
    A. FINKThomas
    A. Fink
    Chief Financial Officer
    (Principal Financial Officer)Date: May 9, 2008

/s/  DONALD
    F. COLEDonald
    F. Cole
    Chief Accounting Officer
    (Principal Accounting Officer)  65




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##### 



INDEX TO
    EXHIBITS  ExhibitNo

Description3
.1

Second Amended and Restated Certificate of Incorporation
    (composite version; reflects all amendments through May 1,
    2008).3
.2

Amended and Restated Bylaws (composite version; reflects all
    amendments through October 30, 2007) (incorporated by
    reference to exhibit 3.2 to the
    Form 10-Q
    filed by CapitalSource on November 9, 2007).10
.1

Amended and Restated Sale and Servicing Agreement, dated as of
    April 28, 2006, by and among CSE QRS Funding I LLC, as the
    seller, CSE Mortgage LLC, as the Originator and as the Servicer,
    each of the Purchasers and Purchaser Agents from time to time
    party thereto, Wachovia Capital Markets, LLC, as the
    Administrative Agent and as the WBNA Agent, and Wells Fargo
    Bank, National Association, as the Backup Servicer and as the
    Collateral Custodian (composite version; reflects all amendments
    through April 24, 2008).10
.2

Second Amended and Restated Sale and Servicing Agreement, dated
    as of June 30, 2006, as Amended and Restated as of
    July 28, 2006, and as further Amended and Restated as of
    May 8, 2008, by and among CSE QRS Funding II LLC, as
    the Seller, CSE Mortgage LLC, as the Servicer and Originator,
    the Issuers from time to time party thereto, the Liquidity Banks
    from time to time party thereto, Citicorp North America, Inc.,
    as the Administrative Agent and Wells Fargo Bank, National
    Association, as the Backup Servicer and as the Collateral
    Custodian (composite version; reflects all amendments through
    May 8, 2008).10
.3

Sale and Servicing Agreement, dated as of May 8, 2008, by
    and among CS Funding VII Depositor LLC, as the Seller,
    CapitalSource Finance LLC, as the Servicer and Originator, the
    Issuers from time to time party thereto, the Liquidity Banks
    from time to time party thereto, Citicorp North America, Inc.,
    as the Administrative Agent and Wells Fargo Bank, National
    Association, as the Backup Servicer and as the Collateral
    Custodian.10
.4*

Third Amended and Restated Equity Incentive Plan (composite
    version; reflects
    all          amendments
    through May 1, 2008).12
.1

Ratio of Earnings to Fixed Charges.31
.1

Rule 13a  14(a) Certification of Chairman of the
    Board and Chief Executive Officer.31
.2

Rule 13a  14(a) Certification of Chief Financial
    Officer.32


Section 1350 Certifications.     
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement.   66