CapitalSource Investor Relations Package. Last updated 05/10/11

Transcription

1 CapitalSource Investor Relations Package Last updated 05/10/11

2 CapitalSource Investor FAQs 1Q'11 Earnings Release 1Q'11 Investor Presentation 1Q'11 10Q Click on each title to advance to that section. CapitalSource Investor Relations Package

3 Frequently Asked Questions Q: What is the main business of CapitalSource (CSE)? A: CapitalSource Inc. (NYSE: CSE) is a commercial lender that provides financial products to middle market businesses and depository products and services in southern and central California through its wholly owned subsidiary CapitalSource Bank. Click here for more detailed information. Q: When did CSE begin doing business? A: CSE was co-founded in 2000 by John Delaney who currently serves as Executive Chairman and Chairman of the Board of CapitalSource Inc. and CapitalSource Bank. Prior to CapitalSource, Mr. Delaney founded Healthcare Financial Partners (HFP) which was similar to CSE, but solely focused on Healthcare lending. HFP was sold to Heller Financial in 1999 and later sold to GE Capital. Q: When did CSE go public? A: The CSE IPO (Initial Public Offering) was August 6, ,300,000 shares were sold at $14.50 per share. Q: What is CSE s current corporate structure? A: Today CSE operates as a C-Corp, as it did prior to From January 2006 through December 2008 the Company operated as a Real Estate Investment Trust (REIT). Q: Where are CSE offices located? A: CSE has offices located across the U.S. For a listing please visit the office section of our website. Q: How many employees does the Company have? A: As of September 30, 2010, CSE had a total of 641 employees. Q: When does the CSE fiscal year end? A: CSE operates on a calendar year basis, so the fiscal year end is December 31st. Q: What is CapitalSource Bank (CSB)? How does it fit into CSE? A: CapitalSource formed CapitalSource Bank (CSB) in late July Access to deposit funding diversified CSE s funding sources. After forming a de novo California industrial bank, CapitalSource purchased $5.2 billion of deposits and certain assets, including 22 retail branches, from Fremont Investment & Loan. The operations of CapitalSource Bank commenced on July 28, At September 30, 2010, CSB had $3.7 billion in commercial loans and $4.6 billion of deposits. All new CSE loans are now being made in the Bank. For more information on CSB, please visit the website: Q: What makes CSE stand out as a lender? A: CSE has a national origination team with extensive industry experience in twelve specialized lending areas such as healthcare, security, technology and lender finance. CSE manages the loan process from beginning to end and a large part of the Company s success is built upon a demonstrated ability to understand borrower needs and to structure loans appropriately. The ability to generate high-quality information upon which to base credit decisions, utilizing an in-house accounting group, is also a key asset. In addition, customized credit and underwriting tools are crucial components of the CapitalSource underwriting process.

4 Q: How large is the CSE lending portfolio? A: $6.6 billion as of September 30, Q: Who is your target client? A: Our target client for most of our business segments is a company seeking a loan in the range of $5-$50 million, with our average loan under $8 million. Borrowers are usually seeking to finance acquisition, major equipment purchase or corporate growth. In addition, we make small business loans which are generally less than $2 million and multifamily loans which are typically less than $5 million. Q: What sectors does CSE lend in? A: Healthcare (real estate, credit and asset-based), security finance (security alarm and homeland security), lender finance (asset backed lending to finance companies), commercial real estate, timeshare and resort finance, corporate asset finance, including equipment finance, corporate finance (leveraged buyouts), multifamily real estate, small business ( SBA ) and professional practice lending. Q: How many loans does CSE have outstanding? A: As of September 30, 2010 CSE had 1,340 loans outstanding. Q: What is the typical duration of a CSE loan? A: Our commercial loans have stated maturities at origination that generally range from three to five years. Q: How does CapitalSource monitor its loans? A: CSE closely and proactively monitors the financial performance of its borrowers, utilizing in-house personnel, on a quarterly or more frequent basis. Q: How does CapitalSource measure the performance of its portfolio? A: CSE reports several credit metrics (e.g. delinquencies, charge offs, non-accruals and impaired loans) that indicate the quarterly credit performance of all loans on its books. Please visit the Financial and Credit Quality Data section of the website to view CSE s credit history. Q: What is the definition of a loan on non-accrual? A: We place loans on non-accrual status when we expect, based on judgment, that our borrower will not be able to fully meet its debt obligations. Q: What is the definition of an impaired loan? A: We consider a loan to be impaired when, based on current information, we determine that it is probable that we will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Q: What is the credit performance of CapitalSource over time? A: Please visit the Financial and Credit Quality Data page in order to see the historical credit metrics. Q: How does CapitalSource fund its business? A: Since the formation of CapitalSource Bank, CSE uses deposits to fund its new business. The majority of loans in the legacy loan book (pre-capitalsource Bank) are match-funded in securitizations, though some are in secured warehouse facilities. Q: Does CSE pay a dividend? A: Yes. CSE began paying dividends in 2006 following its REIT election. Please visit the dividend page of the Company s website for information on the most recent dividend paid and historical dividend information. Q: Why did CSE pay a special dividend of $2.50 in January 2006? A: The January 2006 Earnings & Profits (E&P) special dividend of $2.50 per share was issued to meet one of the requirements for REIT qualification. Specifically, earnings and profits attributable to tax years ending prior to January 1, 2006 had to be distributed to shareholders as a special dividend.

5 Q: Who should I call if I have not received my dividend or I received incorrect funds? A: If you hold your shares in record name, meaning you have the stock certificate, please contact our transfer agent, American Stock Transfer & Trust at If you hold your shares at a brokerage firm or use an online trading broker you will need to contact them directly. Q: What stock exchange is CSE stock listed on? A: CSE trades on the New York Stock Exchange (NYSE) under the ticker symbol CSE. Q: What is the CUSIP number for CSE? A: 14055X102 Q: How do I replace a lost CSE share certificate? A: You must contact our transfer agent, American Stock Transfer and Trust Company, at or consult their website at Q: Does CSE have a DRIP? A: No. As of March 1 st, 2010 CSE no longer offers a Dividend Reinvestment and Direct Stock Purchase Plan. Q: Who is the transfer agent for CSE stock? A: American Stock Transfer and Trust Company 59 Maiden Lane Plaza Level New York, NY Q: How do I obtain recent financial publications for CSE, such as the Annual Report? A: Recent publications can be viewed on the CSE website, or printed from the downloadable IR package. Hard copies can be requested by filling out the form on the information request page. Q: How do I change my address for dividend payments, transfer ownership of a stock certificate or to obtain a dividend check? A: You must contact the transfer agent, American Stock Transfer and Trust Company, at the following address and phone number or consult their website. American Stock Transfer and Trust Company 59 Maiden Lane Plaza Level New York, NY

6 News CapitalSource Inc Wisconsin Avenue Second Floor Chevy Chase, MD FOR IMMEDIATE RELEASE For information contact: Investor Relations: Media Relations: Dennis Oakes Michael Weiss Senior Vice President, Investor Relations Director of Communications (212) (301) CAPITALSOURCE REPORTS FIRST QUARTER 2011 RESULTS Net Income of $3 Million or $0.01 Per Share New Funded Loans of $627 Million at CapitalSource Bank CapitalSource Bank Net Interest Margin Increased to 5.43% Stable Credit Profile / Non-Accrual Loans Decline by 21% Parent Company Unrestricted Cash Tops $1 Billion after Quarter Close Chevy Chase, MD., April 29, 2011 CapitalSource Inc. (NYSE: CSE) today announced financial results for the first quarter Net income for the quarter was $3 million or $0.01 per diluted share, compared to net income in the prior quarter of $6 million or $0.02 per diluted share and a net loss of $212 million or $0.66 per diluted share in the first quarter Our financial results for the first quarter demonstrate growing profitability at CapitalSource Bank, ongoing progress on liquidation of the Parent Company legacy loan portfolio and a sustained pattern of stable credit performance, said John K. Delaney, CapitalSource Executive Chairman. Significant progress in each of these areas over the past four quarters has allowed us to reorient our short-term strategic focus from a defensive stance to an intensive, proactive and forward looking effort to both fund new loans at CapitalSource Bank and improve its profitability. New loans funded in the first quarter of $627 million represented the highest quarterly production since the formation of CapitalSource Bank in July The largest concentration of new loans in the quarter was multifamily, although our equipment finance and timeshare receivables businesses were also significant contributors, said James J. Pieczynski, CapitalSource Co-CEO. With such a solid start, we

7 now see a reasonable chance for full year originations to exceed our previous guidance of $ billion. The first quarter was a strong beginning to the new year for CapitalSource Bank. We had net loan growth of 4% despite a high level of pre-payments, deposit growth of 2%, margin expansion of 39 basis points to 5.43%, and improving credit performance, said Tad Lowrey, CapitalSource Bank President and CEO. Our capital levels remain above industry norms, with risk-based capital at 18.80% and a Tier 1 leverage ratio of 13.47%. Converting CapitalSource Bank from a California industrial charter to a commercial charter and deploying excess capital at the Parent Company remain top strategic priorities. said Steven A. Museles, CapitalSource Co-CEO. We are continuing to work on the optimal next steps for both of these objectives, while growing assets and profitability at CapitalSource Bank with the deposit franchise we operate today. Unrestricted cash at the Parent Company grew to $723 million at March 31, 2011 and increased to over $1 billion on April 1 st when we received the Genesis loan pay-off, said Donald F. Cole, CapitalSource CFO. At the Parent Company, we expect the loan portfolio will continue to generate cash throughout 2011, as we have fully repaid our secured credit facilities and the only recourse debt maturing during 2011 will be the mandatory redemption of $281 million of convertible debentures in July. Revised Metrics and Earnings Presentation We have made certain revisions to the format of our earnings press release in order to provide a presentation which is more consistent with our banking peers. This quarterly results release highlights the key drivers of our financial performance utilizing new roll forward tables and quarterly comparisons which are designed to enhance transparency and provide helpful analysis of the major factors impacting the quarter. CAPITALSOURCE BANK SEGMENT This segment includes our commercial lending and banking business activities in CapitalSource Bank. First Quarter 2011 Highlights Net Income was $32 million, an increase of $16 million from the prior quarter primarily due to higher interest income and lower tax expense. Loan Production increased to $627 million during the quarter from $536 million in the prior quarter, driving a 4% increase in the loan portfolio balance. The three new origination platforms added in equipment finance, small business and professional practice lending - accounted for 20% of the new production volume in the quarter. Liquidity - Cash and investments was $2.0 billion, or nearly 32% of total assets, at quarter end, which we forecast will be sufficient liquidity to support projected net loan growth for the balance of Net Interest Margin for the quarter was 5.43%, an increase of 39 basis points from the prior quarter primarily due to accelerated accretion of loan discounts and deferred loan fees from increased prepayment levels and a decrease in non-accrual loans. 2

8 Capital Capital ratios increased with risk-based capital and Tier 1 leverage ratios of 18.80% and 13.47%, respectively, at quarter end, compared to 18.13% and 13.15%, respectively, at the end of the prior quarter. Credit Quality - Loan loss provision was $11 million for the quarter, compared to $10 million in the prior quarter. Net charge-offs, including an $11 million recovery on a previously charged off real estate loan, were $3 million in the quarter, a decrease of $13 million from the prior quarter. Nonaccrual loans decreased to $175 million, or 4.35% of loans, at quarter end, compared to $248 million, or 6.45% of loans, in the prior quarter. The allowance for loan losses increased to $133 million, or 3.31% of loans, as of March 31, 2011, compared to $125 million, or 3.25% of loans, at the end of the prior quarter. First Quarter 2011 Details Quarter Ended 3/31/11 vs. 12/31/10 3/31/11 vs. 3/31/10 Net Income (Loss) 3/31/11 12/31/10 3/31/10 $ % $ % Interest income $ 91,804 $ 87,033 $ 81,454 $ 4,771 5 % $ 10, % Interest expense 15,210 15,511 17, , Provision for loan losses 11,242 9,755 87,704 (1,487) (15) 76, Operating expenses 32,941 31,516 24,335 (1,425) (5) (8,606) (35) Other income 2,965 5,312 8,159 (2,347) (44) (5,194) (64) Income tax expense (benefit) 3,095 18,854 (56) 15, (3,151) (5,627) Net income (loss) 32,281 16,709 (39,671) 15, , Interest Income was $92 million, an increase of $5 million, or 5%, from the prior quarter due to loan portfolio growth, accelerated accretion of loan discounts and deferred loan fees from increased prepayment levels and a decrease in non-accrual loans. Quarter Ended 03/31/ /31/2010 Net Interest Margin Average Balance Interest Income Average Yield/Cost Average Balance Interest Income Average Yield/Cost Total loans $ 3,792,412 $ 76, % $ 3,650,091 $ 71, % Investment securities 1,596,615 14, ,684,987 14, Cash and other interest earning assets 334, , Total interest-earning assets 5,723,305 91, ,633,299 87, Deposits 4,673,752 13, ,613,309 13, Borrowings 373,278 1, ,337 1, Total interest-bearing liabilities $ 5,047,030 15, $ 4,930,646 15, Net interest spread $ 76, % $ 71, % Net interest margin 5.43 % 5.04 % 3

9 Cash and Investments declined by $103 million from the prior quarter as lower yielding cash and investments were redeployed to fund net loan growth. The portfolio yield at quarter end increased by 25 basis points and the overall duration increased to 2.6 years from 2.4 years. Cash and Investments 03/31/ /31/2010 Book Value Yield Duration Book Value Yield Duration Cash and cash equivalents $ 440, % - $ 377, % - Agency discount notes , % 0.3 Agency callable notes 164, % , % 4.3 Agency debt 76, % , % 1.0 Agency MBS 944, % , % 3.9 Non-agency MBS 97, % , % 2.8 CMBS 179, % , % 1.2 Corporate debt 4, % 0.7 4, % 0.9 Asset-back securities 21, % U.S. Treasury and agency securities 29, % , % 1.7 $ 1,959, % 2.6 2,061, % 2.4 Total Loans Held for Investment and Loans Held for Sale increased $164 million from the prior quarter as detailed below: Quarter Ended Loan Roll Forward 3/31/ /31/2010 3/31/2010 Beginning balance $ 3,848,511 $ 3,705,992 $ 3,061,426 New fundings 627, , ,031 Loans Principal repayments (428,426) (321,793) (92,312) Sales (17,373) (19,376) - Transfers to REO (2,013) (36,594) - Charge-offs (15,350) (15,881) (17,894) Ending balance $ 4,012,819 $ 3,848,511 $ 3,194,251 Quarter Ended Loan Portfolio Mix 3/31/ /31/2010 3/31/2010 General asset-based $ 756,851 $ 682,733 $ 670,468 Cash flow 835, , ,017 General commercial real estate 794, , ,821 4

10 Multifamily 587, , ,647 Healthcare real estate 428, , ,071 Healthcare asset-based 181, , ,227 Equipment finance 274, ,546 - Small business 154, ,037 - Total $ 4,012,819 $ 3,848,511 $ 3,194,251 Deposits were $4.7 billion at quarter end, an increase of $87 million from the end of the prior quarter. The weighted average interest rate on deposits was 1.15% at the end of the quarter, a decline of 3 basis points from the end of the prior quarter. FHLB Borrowings were $400 million, compared to $412 million at the end of the prior quarter. These borrowings are used primarily for interest rate risk management and short-term funding purposes. As of March 31, 2011, the weighted average rate and remaining maturities of FHLB borrowings were 2.01% and 2.9 years, respectively, compared to 1.67% and 2.3 years, respectively, at the end of the prior quarter. Allowance for Loan Losses was $133 million, or 3.31% of the loan portfolio, an increase of $8 million from the end of the prior quarter. Quarter Ended Allowance for Loan Losses 3/31/2011 General Specific Total % Loans Beginning balance $ 122,997 $ 1,881 $ 124, % Provision for loan losses 7,217 4,025 11,242 Charge-offs, net - (3,150) (3,150) 0.33% Ending balance $ 130,214 $ 2,756 $ 132, % Quarter Ended 12/31/2010 General Specific Total % Loans Beginning balance $ 114,940 $ 16,065 $ 131, % Provision for loan losses 8,057 1,698 9,755 Charge-offs, net - (15,882) (15,882) 1.70% Ending balance $ 122,997 $ 1,881 $ 124, % Non-Performing Assets were $308 million, a decline of $23 million, or 7%, from the prior quarter primarily due to decreases in non-accrual loans and REO assets, partially offset by an increase in troubled debt restructured loans due primarily to a $67 million real estate loan that was restructured. Non-performing Assets 3/31/ /31/2010 % of Total % of Total Loan Balance Assets Loan Balance Assets Non-accrual loans - current $ 116, % $ 174, % 5

11 Non-accrual loans - delinquent days 1, , Non-accrual loans - delinquent 90+ days 56, , Total non-accrual loans 174, % 248, % Accruing loans - delinquent 90+ days Accruing loans - restructured 102, , Total non-performing loans 277, % 284, % REO 30, , Total non-performing assets $ 307, % $ 331, % Operating Expenses were $33 million, which includes $2 million of additional costs related to the transfer of certain Parent Company support personnel to CapitalSource Bank in the quarter. Those costs were largely offset by reimbursements from the Parent Company which are reported in Other Income. Operating expenses also include $11 million in loan referral fees paid to the Parent Company, which was $1 million higher than the previous quarter due to increased loan production. Other income was $3 million, a 44% decrease from the prior quarter primarily due to losses from the sale of assets offset by fees from the Parent Company for shared services provided by CapitalSource Bank. Income Tax Expense was $3 million for the quarter, reflecting a $14 million tax expense related to pretax income, offset by a benefit of $11 million for the release of a valuation allowance that CapitalSource Bank maintained with respect to its state net deferred tax assets. OTHER COMMERCIAL FINANCE SEGMENT This segment includes the CapitalSource Inc. loan portfolio and other business activities at the Parent Company. Net Loss was $35 million, or $0.11 per share, compared to a net loss of $8 million, or $0.02 per share in the prior quarter. Interest Income was $48 million, a decrease of $19 million or 28% from the prior quarter primarily due to the continuing run-off of the Parent Company loan portfolio. Unrestricted Cash was $723 million, an increase of $256 million from the prior quarter primarily due to loan sales of $133 million related to the European portfolio, loan pay-offs and the disposition of nonperforming loans. Total Loans Held for Investment and Loans Held for Sale were $2.1 billion, a decrease of $437 million from the prior quarter primarily due to loan payoffs and sales of $361 million and loans charged off of $89 million. Quarter Ended Loan Roll Forward 3/31/ /31/2010 3/31/2010 Beginning balance $ 2,509,699 $ 2,921,715 $ 5,220,814 New fundings 12,925 21,852 44,195 Loans 6

12 Principal repayments (184,715) (301,089) (340,523) Sales (176,285) (49,857) (4,137) Transfers to REO - (9,823) (51,887) Charge-offs (88,720) (73,099) (101,549) Ending balance $ 2,072,904 $ 2,509,699 $ 4,766,913 Allowance for Loan Losses was $150 million, or 7.25% of the loan portfolio, a decline of $54 million from the end of the prior quarter. Net Charge-Offs were $88 million in the quarter an increase of $15 million from the prior quarter. Net charge-offs as a percentage of average loans for the twelve months ended March 31, 2011 were 8.20%, as compared to 7.17% for the twelve months ended December 31, Quarter Ended Allowance for Loan Losses 3/31/2011 General Specific Total % Loans Beginning balance $ 127,156 $ 77,088 $ 204, % Provision for loan losses (35,283) 68,850 33,567 Charge-offs, net - (87,507) (87,507) 14.97% Ending balance $ 91,873 $ 58,431 $ 150, % Quarter Ended 12/31/2010 General Specific Total % Loans Beginning balance $ 199,560 $ 63,077 $ 262, % Provision for loan losses (72,404) 86,756 14,352 Charge-offs, net - (72,745) (72,745) 10.08% Ending balance $ 127,156 $ 77,088 $ 204, % Non-Performing Assets were $578 million, a decline of $87 million, or 13%, from the prior quarter primarily due to a $76 million decrease in non-accrual loans. 46 loans totaling $164 million are considered impaired and on non-accrual, but are current as to payment status. All collections on these loans are applied to the outstanding principal balance. Non-performing Assets 3/31/ /31/2010 Loan Balance % of Total Assets Loan Balance % of Total Assets Non-accrual loans - current $ 163, % $ 231, % Non-accrual loans - delinquent days 31, , Non-accrual loans - delinquent 90+ days 178, , Total non-accrual loans 374, % 450, % Accruing loans - delinquent 90+ days 46, , Accruing loans - restructured 115, ,

13 Total non-performing loans 537, % 618, % REO 41, , Total non-performing assets $ 578, % $ 665, % Operating Expenses were $41 million, a decline of $1 million from prior quarter. Other income was $32 million for the quarter, compared to other expenses of $5 million for the prior quarter, primarily due to increased gains on sales of investments, lower expenses of real estate owned and other foreclosed assets, and the net loss on the European portfolio that we recognized in the prior quarter. CONSOLIDATED METRICS Net Income was $3 million, compared to $6 million from the prior quarter, as detailed below: Quarter Ended 3/31/11 vs. 12/31/10 3/31/11 vs. 3/31/10 3/31/11 12/31/10 3/31/10 $ % $ % Interest income $ 142,152 $ 150,377 $ 171,414 $ (8,225) (6) % $ (29,262) (17) % Interest expense 46,752 48,430 65,001 1, , Provision for loan losses 44,809 24, ,940 (20,702) (86) 174, Operating expenses 54,261 56,991 63,205 2, , Other income (expense) 17,991 (16,904) (22,275) 34, , Income tax expense (benefit) 11,162 (1,966) 21,006 (13,128) (668) 9, Net income (loss) 3,159 5,911 (211,690) 2, , Interest Income was $142 million, a decrease of $8 million, or 6%, from the prior quarter primarily due to loan portfolio run-off. Total Loans Held for Investment and Loans Held for Sale decreased $272 million from the prior quarter as detailed below: Loan Roll Forward 3/31/ /31/2010 3/31/2010 Beginning balance $ 6,358,210 $ 6,627,707 $ 8,282,240 New fundings 640, , ,226 Loans Principal repayments (613,141) (622,882) (432,835) Sales (193,658) (69,233) (4,137) Transfers to REO (2,013) (46,417) (51,887) Charge-offs (104,070) (88,980) (119,443) Ending balance $ 6,085,723 $ 6,358,210 $ 7,961,164 8

14 Allowance for Loan Losses was $283 million, or 4.65% of the loan portfolio, compared to $329 million or 5.17% at the end of the prior quarter. Net Charge-Offs were $91 million in the quarter, an increase of $2 million from the prior quarter. Net charge-offs as a percentage of average loans for the twelve months ended March 31, 2011 were 5.78%, which was consistent with the twelve months ended December 31, Quarter Ended Allowance for Loan Losses 3/31/2011 General Specific Total % Loans Beginning balance $ 250,153 $ 78,969 $ 329, % Provision for loan losses (28,066) 72,875 44,809 Charge-offs, net - (90,657) (90,657) 5.90% Ending balance $ 222,087 $ 61,187 $ 283, % Quarter Ended 12/31/2010 General Specific Total % Loans Beginning balance $ 314,500 $ 79,142 $ 393, % Provision for loan losses (64,347) 88,454 24,107 Charge-offs, net - (88,627) (88,627) 5.36% Ending balance $ 250,153 $ 78, , % Non-Performing Assets were $886 million, a decline of $111 million, or 11%, from the prior quarter primarily due to a $149 million decrease in non-accrual loans. 56 loans totaling $281 million were considered impaired and on non-accrual at the end of the quarter, but were current as to payment status. All collections on those loans are applied to the outstanding principal balance. Non-performing Assets 3/31/ /31/2010 Loan Balance % of Total Assets Loan Balance % of Total Assets Non-accrual loans - current $ 280, % $ 405, % Non-accrual loans - delinquent days 33, , Non-accrual loans - delinquent 90+ days 235, , Total non-accrual loans 549, % 698, % Accruing loans - delinquent 90+ days 47, ,

15 Accruing loans - restructured 217, , Total non-performing loans 814, % 902, % REO 71, , Total non-performing assets $ 885, % $ 996, % Operating Expenses were $54 million, a decrease of $3 million from the prior quarter, primarily due to a decrease in professional fees at the Parent Company. Quarter Ended Operating Expenses 3/31/ /31/2010 Compensation and benefits $ 30,379 $ 29,906 Professional fees 7,188 8,807 Other operating expenses 16,694 18,278 Total operating expenses $ 54,261 $ 56,991 Income Tax Expense was $11 million for the quarter, primarily related to the re-establishment of a valuation allowance at the consolidated group level with respect to CapitalSource Bank s net deferred tax assets. The valuation allowance was recorded in connection with our plan to reconsolidate our corporate entities for federal tax purposes in Valuation Allowance related to the Company s deferred tax assets at quarter end was $457 million, an increase of $43 million from the end of the prior quarter. The net deferred tax asset at quarter end, after subtracting the valuation allowance, was $63 million. The valuation allowance is a non-cash accounting charge that will exist until there is sufficient positive evidence to support its reduction or reversal. Book Value Per Share was $6.41 at the end of the quarter, an increase of $0.06 from the end of the prior quarter. Total shareholders equity was $2.1 billion at the end of the quarter, an increase of $17 million from the prior quarter primarily due to increases in accumulated other comprehensive income due to foreign currency translation and mark-to-market gains on available-for-sale securities. Average Diluted Shares Outstanding were million shares for the quarter, compared to million shares for the prior quarter. Total outstanding shares at March 31, 2011 were million. Quarterly Cash Dividend of $0.01 per common share was paid on March 31, 2011 to common shareholders of record on March 16, Conference Call Details 10

16 A conference call to discuss the results will be hosted on Friday, April 29, 2011 at 8:30 a.m. EST. Interested parties may access the call via webcast on the Investor Relations section of the CapitalSource web site at An audio replay will also be available on the website from approximately 12 Noon EDT April 29, 2011 through July 29, CapitalSource Bank will file its Consolidated Reports of Condition and Income for A Bank With Domestic Offices Only FFIEC 041, for the quarter ended March 31, 2011 (the Call Report) with the Federal Deposit Insurance Corporation (FDIC) on April 29, The Call Report may be found on the FDIC s website at following CapitalSource Bank's filing with the FDIC. About CapitalSource CapitalSource Inc. (NYSE: CSE) is a commercial lender that provides financial products to middle market businesses and offers depository products and services in southern and central California through its wholly owned subsidiary CapitalSource Bank. As of March 31, 2011, CapitalSource had total assets of $9.3 billion and $4.7 billion in deposits. Visit for more information. 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 projected loan originations, our expectations regarding our application to become a bank holding company and convert CapitalSource Bank s charter to a commercial charter, liquidity position at the Parent Company, growing our business and assets, projected loan production levels, deployment of excess capital at the Parent Company, profitability, the maturities of our recourse debt, 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 forwardlooking 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 economic or market conditions or investment or lending opportunities; regulatory restrictions, restrictions imposed by our debt agreements; continued or worsening disruptions in credit and other markets; increase in interest rates and lending spreads; competitive and other market pressures on product pricing and services; reduced demand for our services; success and timing of other business strategies; and other factors described in CapitalSource's 2010 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. 11

17 CapitalSource First Quarter 2011 Financial Supplement Table of Contents Consolidated Balance Sheets Consolidated Statements of Income Segment Statements of Income Segment Balance Sheets.16 Selected Financial Data Credit Quality Data

18 CapitalSource First Quarter 2011 Financial Supplement CapitalSource Inc. Consolidated Balance Sheets March 31, December 31, (Unaudited) ASSETS Cash and cash equivalents...$ 1,151,495 $ 820,450 Restricted cash... 76, ,586 Investment securities: Available-for-sale, at fair value... 1,370,353 1,522,911 Held-to-maturity, at amortized cost , ,473 Total investment securities... 1,549,430 1,707,384 Loans: Loans held for sale... 17, ,334 Loans held for investment... 6,067,726 6,152,876 Less deferred loan fees and discounts... (93,513) (106,438) Less allowance for loan losses... (283,274) (329,122) Loans held for investment, net... 5,690,939 5,717,316 Total loans... 5,708,936 5,922,650 Interest receivable... 57,922 57,393 Other investments... 67,906 71,889 Goodwill , ,135 Other assets , ,920 Total assets... $ 9,273,338 $ 9,445,407 LIABILITIES AND SHAREHOLDERS EQUITY Liabilities: Deposits... $ 4,708,349 $ 4,621,273 Credit facilities ,508 Term debt , ,254 Other borrowings... 1,368,462 1,375,884 Other liabilities , ,546 Total liabilities... 7,201,902 7,391,465 Shareholders equity: Preferred stock (50,000,000 shares authorized; no shares outstanding) Common stock ($0.01 par value, 1,200,000,000 shares authorized; 323,345,312 and 323,225,355 shares issued and shares outstanding, respectively)... 3,233 3,232 Additional paid-in capital... 3,914,500 3,911,341 Accumulated deficit... (1,870,663) (1,870,572) Accumulated other comprehensive income, net... 24,366 9,941 Total shareholders equity... 2,071,436 2,053,942 Total liabilities and shareholders equity... $ 9,273,338 $ 9,445,407 13

19 CapitalSource First Quarter 2011 Financial Supplement CapitalSource Inc. Consolidated Statements of Income (Unaudited) ($ in thousands, except per share data) Three Months Ended March 31, December 31, March 31, Net interest income: (Unaudited) Interest income: Loans... $ 123,500 $ 133,259 $ 156,250 Investment securities... 18,352 16,830 14,591 Other Total interest income , , ,414 Interest expense: Deposits... 13,383 13,925 16,358 Borrowings... 33,369 34,505 48,643 Total interest expense... 46,752 48,430 65,001 Net interest income... 95, , ,413 Provision for loan losses... 44,809 24, ,940 Net interest income (loss) after provision for loan losses... 50,591 77,840 (112,527) Operating expenses: Compensation and benefits... 30,379 29,906 34,183 Professional fees... 7,188 8,807 10,370 Other administrative expenses... 16,694 18,278 18,652 Total operating expenses... 54,261 56,991 63,205 Other income (expense): Gain on investments, net... 23,515 7,780 6,079 (Loss) gain on derivatives... (1,878) 1,275 (4,337) Net expense of real estate owned and other foreclosed assets... (10,173) (19,775) (40,492) Other income (expense), net... 6,527 (6,184) 16,475 Total other income (expense)... 17,991 (16,904) (22,275) Net income (loss) from continuing operations before income taxes... 14,321 3,945 (198,007) Income tax expense (benefit)... 11,162 (1,966) 21,006 Net income (loss) from continuing operations... 3,159 5,911 (219,013) Net income from discontinued operations, net of taxes ,323 Net income (loss)... $ 3,159 $ 5,911 $ (211,690) Basic income (loss) per share: From continuing operations... $ 0.01 $ 0.02 $ (0.68) From discontinued operations... $ - $ - $ 0.02 Net income (loss) per share... $ 0.01 $ 0.02 $ (0.66) Diluted income (loss) per share: From continuing operations... $ 0.01 $ 0.02 $ (0.68) From discontinued operations... $ - $ - $ 0.02 Net income (loss) per share... $ 0.01 $ 0.02 $ (0.66) Average shares outstanding: Basic ,196, ,173, ,294,724 Diluted ,963, ,657, ,294,724 Dividends declared per share... $ 0.01 $ 0.01 $

20 CapitalSource Inc. Segment Statements of Income (Unaudited) Three Months Ended March 31, 2011 OTHER Net interest income: CAPITALSOURCE BANK COMMERCIAL FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED Interest income... $ 91,804 $ 47,614 $ 2,734 $ 142,152 Interest expense... 15,210 31,542-46,752 Net interest income... 76,594 16,072 2,734 95,400 Provision for loan losses... 11,242 33,567-44,809 Net interest income (loss) after provision for loan losses... 65,352 (17,495) 2,734 50,591 Compensation and benefits... 11,708 19,502 (831) 30,379 Professional fees ,824-7,188 Other operating expenses... 20,869 15,000 (19,175) 16,694 Total operating expenses... 32,941 41,326 (20,006) 54,261 Total other income... 2,965 32,354 (17,328) 17,991 Net income (loss) before income taxes... 35,376 (26,467) 5,412 14,321 Income tax expense... 3,095 8,067-11,162 Net income (loss)... $ 32,281 $ (34,534) $ 5,412 $ 3,159 Three Months Ended December 31, 2010 OTHER CAPITALSOURCE COMMERCIAL INTERCOMPANY Net interest income: BANK FINANCE ELIMINATIONS CONSOLIDATED Interest income... $ 87,033 $ 66,523 $ (3,179) $ 150,377 Interest expense... 15,511 32,919-48,430 Net interest income... 71,522 33,604 (3,179) 101,947 Provision for loan losses... 9,755 14,352-24,107 Net interest income after provision for loan losses... 61,767 19,252 (3,179) 77,840 Compensation and benefits... 10,773 19,133-29,906 Professional fees ,277-8,807 Other operating expenses... 20,213 15,322 (17,257) 18,278 Total operating expenses... 31,516 42,732 (17,257) 56,991 Total other income (expense)... 5,312 (5,226) (16,990) (16,904) Net income (loss) before income taxes... 35,563 (28,706) (2,912) 3,945 Income tax expense (benefit)... 18,854 (20,820) - (1,966) Net income (loss)... $ 16,709 $ (7,886) $ (2,912) $ 5,911 Three Months Ended March 31, 2010 OTHER CAPITALSOURCE COMMERCIAL INTERCOMPANY Net interest income: BANK FINANCE ELIMINATIONS CONSOLIDATED Interest income... $ 81,454 $ 92,333 $ (2,373) $ 171,414 Interest expense... 17,301 47,700-65,001 Net interest income... 64,153 44,633 (2,373) 106,413 Provision for loan losses... 87, , ,940 Net interest loss after provision for loan losses... (23,551) (86,603) (2,373) (112,527) Compensation and benefits... 11,120 23,063-34,183 Professional fees ,855-10,370 Other operating expenses... 12,700 17,589 (11,637) 18,652 Total operating expenses... 24,335 50,507 (11,637) 63,205 Total other income (expense)... 8,159 (18,978) (11,456) (22,275) Net loss from continuing operations before income taxes... (39,727) (156,088) (2,192) (198,007) Income tax (benefit) expense... (56) 21,062-21,006 Net loss from continuing operations... $ (39,671) $ (177,150) $ (2,192) $ (219,013) 15

21 CapitalSource Inc. Segment Balance Sheets (Unaudited) ASSETS CAPITALSOURCE BANK OTHER COMMERCIAL FINANCE March 31, 2011 December 31, 2010 OTHER INTERCOMPANY CAPITALSOURCE COMMERCIAL ELIMINATIONS CONSOLIDATED BANK FINANCE INTERCOMPANY ELIMINATIONS CONSOLIDATED Cash and cash equivalents and restricted cash...$ 440,928 $ 787,144 $ - $ 1,228,072 $ 377,054 $ 571,982 $ - $ 949,036 Investment securities: Available-for-sale... 1,348,771 21,582-1,370,353 1,510,384 12,527-1,522,911 Held-to-maturity , , , ,473 Loans... 3,947,080 2,037,692 7,438 5,992,210 3,777,975 2,471,506 2,291 6,251,772 Allowance for loan losses... (132,970) (150,304) - (283,274) (124,878) (204,244) - (329,122) Loans, net of allowance for loan losses... 3,814,110 1,887,388 7,438 5,708,936 3,653,097 2,267,262 2,291 5,922,650 Receivables due from affiliates... 2,547 40,811 (43,358) - 1,265 87,972 (89,237) - Other assets , ,042 (3,790) 786, , ,154 (3,912) 866,337 Total assets... $ 6,180,081 $ 3,132,967 $ (39,710) $ 9,273,338 $ 6,117,368 $ 3,418,897 $ (90,858) $ 9,445,407 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits... $ 4,708,349 $ - $ - $ 4,708,349 $ 4,621,273 $ - $ - $ 4,621,273 Borrowings ,000 1,832,261-2,232, ,000 2,010,646-2,422,646 Balance due to affiliates... 40,811 2,547 (43,358) - 87,972 1,265 (89,237) - Other liabilities... 73, ,638 (5,810) 261,292 71, ,733 (5,667) 347,546 Total liabilities... 5,222,624 2,028,446 (49,168) 7,201,902 5,192,725 2,293,644 (94,904) 7,391,465 Shareholders' equity: Common stock ,000 3,233 (921,000) 3, ,000 3,232 (921,000) 3,232 Additional paid-in capital/retained earnings/deficit... 30,767 1,076, ,148 2,043,837 (2,381) 1,112, ,070 2,040,769 Accumulated other comprehensive income, net... 5,690 24,366 (5,690) 24,366 6,024 9,941 (6,024) 9,941 Total shareholders' equity ,457 1,104,521 9,458 2,071, ,643 1,125,253 4,046 2,053,942 Total liabilities and shareholders' equity... $ 6,180,081 $ 3,132,967 $ (39,710) $ 9,273,338 $ 6,117,368 $ 3,418,897 $ (90,858) $ 9,445,407 Book value per outstanding share... $ 2.96 $ 3.42 $ 0.03 $ 6.41 $ 2.86 $ 3.48 $ 0.01 $

22 CapitalSource Bank Segment: CapitalSource First Quarter 2011 Financial Supplement CapitalSource Inc. Selected Financial Data (Unaudited) (1) Applicable ratios have been calculated on a continuing operations basis. Three Months Ended March 31, December 31, March 31, Performance ratios: Return on average assets % 1.12% (2.78%) Return on average equity % 7.17% (18.38%) Yield on average interest earning assets % 6.13% 5.98% Cost of interest bearing liabilities % 1.25% 1.47% Deposits % 1.20% 1.45% Borrowings % 1.98% 1.84% Borrowing spread % 0.99% 1.24% Net interest margin % 5.04% 4.71% Operating expenses as a percentage of average total assets % 2.10% 1.71% Core lending spread % 7.56% 7.61% Loan yield % 7.82% 7.84% Capital ratios: Tier 1 leverage % 13.15% 11.78% Total risk-based capital % 18.13% 17.35% Tangible common equity to tangible assets % 12.61% 11.94% Average balances : Average loans... $ 3,792,412 $ 3,650,091 $ 3,041,549 Average assets... 6,046,033 5,942,619 5,780,554 Average interest earning assets... 5,723,305 5,633,299 5,524,348 Average deposits... 4,673,752 4,613,309 4,564,010 Average borrowings , , ,289 Average equity , , ,198 Other Commercial Finance Segment: Performance ratios: Return on average assets... (4.21%) (0.86%) (12.42%) Return on average equity... (12.40%) (2.64%) (62.45%) Yield on average interest earning assets % 8.96% 6.97% Cost of interest bearing liabilities % 6.21% 4.48% Borrowing spread % 5.95% 4.25% Net interest margin % 4.53% 3.37% Operating expenses as a percentage of average total assets % 4.69% 3.54% Core lending spread % 8.71% 7.14% Loan yield % 8.97% 7.37% Leverage ratios: Total debt to equity (as of period end) x 1.79x 3.90x Equity to total assets (as of period end) % 32.91% 19.49% Average balances : Average loans... $ 2,331,652 $ 2,850,705 $ 5,060,833 Average assets... 3,327,142 3,617,207 5,783,958 Average interest earning assets... 2,565,261 2,944,676 5,372,395 Average borrowings... 1,901,770 2,104,012 4,315,838 Average equity... 1,129,542 1,183,331 1,150,372 Consolidated CapitalSource Inc.: (1) Performance ratios: Return on average assets % 0.25% (7.74%) Return on average equity % 1.13% (44.29%) Yield on average interest earning assets % 6.98% 6.39% Cost of interest bearing liabilities % 2.73% 2.91% Borrowing spread % 2.47% 2.68% Net interest margin % 4.73% 3.97% Operating expenses as a percentage of average total assets % 2.39% 2.23% Leverage ratios: Total debt to equity (as of period end) x 3.43x 4.77x Equity to total assets (as of period end) % 21.75% 16.90% Tangible common equity to tangible assets % 20.27% 15.52% Average balances : Average loans... 6,126,161 6,473,048 8,081,642 Average assets... 9,319,796 9,475,846 11,481,309 Average interest earning assets... 8,290,663 8,550,228 10,876,004 Average borrowings... 2,275,048 2,421,349 4,503,139 Average deposits... 4,673,752 4,613,309 4,564,010 Average equity... 2,069,960 2,081,134 2,005,639 17

23 CapitalSource Inc. Credit Quality Data (Unaudited) March 31, 2011 December 31, 2010 September 30, 2010 June 30, 2009 March 31, 2010 Loans days contractually delinquent: As a % of total loans (1) % 0.44 % 0.86 % 1.43 % 3.27 % Loans days contractually delinquent... $ 46.6 $ 27.8 $ 56.8 $ $ Loans 90 or more days contractually delinquent: As a % of total loans % 5.03 % 5.47 % 5.98 % 5.46 % Loans 90 or more days contractually delinquent... $ $ $ $ $ Loans on non-accrual: (2) As a % of total loans % % % % % Loans on non-accrual... $ $ $ $ 1,126.4 $ 1,140.1 Impaired loans: (3) As a % of total loans % % % % % Impaired loans... $ $ $ $ 1,469.0 $ 1,390.6 Allowance for loan losses: As a % of total loans % 5.17 % 5.94 % 7.54 % 8.58 % Allowance for loan losses... $ $ $ $ $ Net charge offs (last twelve months): As a % of total average loans % 5.78 % 6.78 % 7.43 % 7.50 % Net charge offs (last twelve months)... $ $ $ $ $ (1) Includes loans held for investment and loans held for sale. Excludes deferred loan fees and discounts and the allowance for loan losses. (2) Includes loans with an aggregate principal balance of $235.3 million, $270.5 million, $354.3 million, $371.9 million, and $402.1 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, 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 $11.5 million, $14.7 million, $37.5 million, $51.4 million, and $15.6 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively. (3) Includes loans with an aggregate principal balance of $243.8 million, $265.3 million, $340.0 million, $423.2 million, and $416.4 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively, that were also classified as loans 90 or more days contractually delinquent, and loans with an aggregate principal balance of $549.4 million, $684.1 million, $787.9 million, $1,075.0 million, and $1,124.6 million as of March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, and March 31, 2010, respectively, that were also classified as loans on non-accrual status. 18

24 1Q 2011 Investor Presentation April 29, 2011

25 Forward Looking Statements This presentation 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 growing our business and our assets, quarterly loan production levels, deployment of excess capital at the Parent Company, our expectations regarding our application to become a bank holding company and convert CapitalSource Bank s charter to a commercial charter, the timing of our ability to file a consolidated tax return; the maturities of our recourse debt, all which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this presentation that are not clearly historical in nature are forward-looking, and the words "anticipate," "assume," "intend," "believe," "expect," "estimate," "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 economic or market conditions or investment or lending opportunities; continued or worsening disruptions in credit and other markets; increase in interest rates and lending spreads; our ability to successfully grow CapitalSource Bank's deposits and commercial loan assets or deploy its capital in favorable lending transactions; competitive and other market pressures on product pricing and services; reduced demand for our services; significant decline in market interest rate spreads; regulatory restrictions, restrictions imposed by our debt agreements; success and timing of other business strategies including deployment of excess capital at the Parent Company and conversion of the CapitalSource Bank charter to a commercial charter; changes in tax laws or regulations affecting our business; and other factors described in CapitalSource's 2010 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 presentation are based on information available at the time of the presentation. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forwardlooking statements, whether as a result of new information, future events or otherwise except as required by applicable law. 1Q 2011 Investor Presentation April 29, 2011 p. 2

26 Presentation Outline Section Page(s) First Quarter 2011 Key Messages 4 CapitalSource Bank 1Q 11 Highlights and Key Metrics 5-17 Parent Company - Funding and Liabilities / Balance Sheet Strengthening Consolidated Credit Q 2011 Investor Presentation April 29, 2011 p. 3

27 First Quarter 2011 Key Messages Loan Growth Tops Expected Range New funded loans in 1Q were $627 million with expected quarterly run rate production in the $400 $500 million range for the balance of the year 4.3% net loan growth at CapitalSource Bank in 1Q Balance Sheet Strengthening Continued Ongoing Credit Improvement $723 million of unrestricted cash at the Parent Company at 3/31/11 Over $1 billion in unrestricted cash with Genesis loan payoff after quarter end Total loans on non-accrual declined by $149.3 million (21%) to $549.4 million New non-accruals of $24 million compared to $111 million in the prior quarter Balancing Plans for Commercial Bank Charter and Deployment of Excess Parent Capital Discussions with the Federal Reserve staff result in a clear understanding of the actions required for consideration for bank holding company status Balancing priorities may result in course of action taking longer than originally planned for charter conversion and capital deployment Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 4

28 CapitalSource Bank 1Q 11 Highlights and Key Metrics 1Q 2011 Investor Presentation April 29, 2011 p. 5

29 CapitalSource Bank First Quarter 2011 Highlights Growing Expanding Improving Quarterly funded new loan production of $627million in 1Q 17% higher than the previous quarter, expanding the loan portfolio by 4.3% net of payoffs The percentage of CapitalSource assets at the Bank increased to 66% at quarter end, compared to 49% one year earlier Multifamily, timeshare receivables and equipment finance were three largest contributors in the quarter NIM at 5.43% in 1Q was 39 bps higher than 4Q 10 Average cost of interest bearing liabilities, including FHLB borrowing, was 1.22% for 1Q 25 bps lower than 1Q 10 Net interest income increased from $64 million to $77 million (+19%) compared to 1Q 10 Total non-performing assets declined by $23 million or 7% to $308 million Loans on non-accrual decreased by $74 million or 30%. Net charge-offs declined from $16 million to $3 million from the prior quarter New non-accruals were related to two loans and totaled only $0.2 million Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 6

30 CapitalSource Bank Increasing Loan Production 17% Higher Than Prior Quarter $627 $536 $441 $405 $243 $228 $213 $243 $122 ($ in millions) 1Q '09 2Q '09 3Q '09 4Q '09 1Q '10 2Q '10 3Q '10 4Q '10 1Q '11 1Q 11 Production Was Highest Since Formation of CapitalSource Bank 1Q 2011 Investor Presentation April 29, 2011 p. 7

31 CapitalSource Bank Strong Loan Production Drives Portfolio Growth $2.9 $2.9 $2.2 $2.2 $3.0 $3.1 $2.1 $2.0 $3.2 $2.0 $3.5 $1.8 $3.7 $1.7 $3.8 $1.5 $4.0 $1.2 $0.7 $0.7 $0.9 $1.0 $1.2 $1.7 $2.0 $2.4 $2.8 Q Q Q Q Q Q Q Q Q CSB Legacy ($ in billions) Loan portfolio grew 26% from one year ago Data as of quarter end Note : Chart excludes A Participation Interest which fully paid off in 4Q 10 1Q 2011 Investor Presentation April 29, 2011 p. 8

32 CapitalSource Bank A Diversified Loan Portfolio General Commercial Real Estate, 19% Multifamily, 15% Cash Flow, 21% Healthcare Real Estate, 11% Small Business, 4% General Asset- Based, 18% Equipment Finance, 7% Healthcare Asset- Based, 5% ($ in millions) Legacy (5) CS Bank (6) Total % Asset-Based: General $ 345 $ 412 $ % Equipment Finance % Healthcare Asset-Based % Total Asset-Based (1) ,214 30% Cash Flow (2) % General Commercial Real Estate (3) % Multifamily % Healthcare Real Estate % Small Business (4) % Total $ 1,248 $ 2,765 $ 4, % Data as of March 31, 2011 (1) Includes security, lender finance and other ABL (2) Includes healthcare, technology, professional practice and other cash flow lending (3) Includes hospitality, resort/club and other commercial real estate (4) All small business loans were secured by real estate, including $57 million of loans guaranteed by the SBA (5) Legacy loans were made at CapitalSource Inc. prior to formation of CapitalSource Bank and sold to the Bank after its formation (6) CS Bank loans are loans underwritten and funded after formation of CapitalSource Bank 1Q 2011 Investor Presentation April 29, 2011 p. 9

33 CapitalSource Bank Margin Expansion from Yield Improvement and Funding Cost Reduction 5.35% 3.16% 2.66% 5.17% 2.98% 2.58% 5.65% 3.94% 3.64% 6.15% 5.98% 4.74% 4.71% 4.51% 4.49% 5.66% 4.48% 4.30% 6.10% 6.13% 4.97% 5.04% 4.80% 4.88% 6.51% 5.43% 5.32% 2.19% 2.59% 2.01% 1.66% 1.47% 1.36% 1.30% 1.25% 1.22% Q Q Q Q Q Q Q Q Q 2011 Spread Yield on Interest Earning Assets Cost of Funds Net Interest Margin 1Q 11 Net Interest Margin of 5.43% 1Q 2011 Investor Presentation April 29, 2011 p. 10

34 CapitalSource Bank Net Interest Margin Improved to 5.43% in 1Q Average Balance 1Q '11 4Q '10 Interest Average Average Interest Income Yield/Cost Balance Income Average Yield/Cost Total loans Commercial real estate "A" Participation Investment securities Cash and other interest earning assets Total interest-earning assets Deposits Borrowings Total interest-bearing liabilities Net interest spread Net interest margin $ 3,792,412 $ 76, % $ 3,650,091 $ 71, % 1,596,615 14, ,684,987 14, , , ,723,305 91, ,633,299 87, ,673,752 13, ,613,309 13, ,278 1, ,337 1, $ 5,047,030 15, $ 4,930,646 15, $ 76, % $ 71, % 5.43 % 5.04 % Data as of quarter end 1Q 2011 Investor Presentation April 29, 2011 p. 11

35 CapitalSource Bank High Tier 1 Capital Level = Well Positioned for Growth $ % $695.4 $ % 16.75% $699.3 $ % 17.35% $ % $739.2 $ % 18.13% $ % 12.87% 12.46% 12.52% 12.80% 11.78% 12.54% 13.03% 13.15% 13.47% Q Q Q Q Q Q Q Q Q 2011 $ in millions (1) (2) Tier 1 Capital Risk-Based Capital Ratio Tier 1 Leverage Ratio Data as of quarter end (1) Ratio of total risk-based capital to total risk-weighted assets. Minimum 15% risk-based capital is required by FDIC (2) Ratio of Tier 1 capital to average total assets for leverage capital purposes 1Q 2011 Investor Presentation April 29, 2011 p. 12

36 CapitalSource Bank High Capital Ratios are Above Most Other Banks Tangible Common Equity/ Tangible Assets (1) Total Risk-Based Capital Ratio (2) 6% is generally considered the well capitalized level (4) 13.08% 10% is generally considered the regulatory well capitalized level (3) (3) 15.98% 16.04% (4) 18.80% (3) 14.61% (3) 6.93% (3) 8.36% (3) 7.50% Banks $1-5B Assets Banks $5-10B Assets Banks >$10B Assets CapitalSource Bank Banks $1-5B Assets Banks $5-10B Assets Banks >$10B Assets CapitalSource Bank (1) The percentages compared are based on reported GAAP numbers (2) The percentages compared are based on reported regulatory numbers (3) Most recent quarter available as of April 26, 2011 in SNL Financial for banks traded on the NYSE or NASDAQ. There were 150 banks with $1-5B in assets, 31 banks with $5-10B in assets and 53 banks with>$10b in assets (4) Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 13

37 CapitalSource Bank Deposits Growing Despite Declining CD Costs ($ in millions) CD Pricing Trend Deposit Flows $75 1.5% $50 $25 1.0% $0 0.5% ($25) ($50) Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar % Retail Deposit Flow New & Renewed CD Rate Deposit COF WAIR for Deposits was 1.15% at March 31, 2011 Data as of month end 1Q 2011 Investor Presentation April 29, 2011 p. 14

38 CapitalSource Bank Low Cost Operating Model 51.8% 1.83% 1.79% 1.77% 40.5% 1.71% 2.04% 42.0% 1.94% 2.10% 2.21% 41.0% 41.4% 37.0% 33.5% 33.7% Q Q Q Q Q Q Q Q Efficiency Ratio (1) Expense Ratio (2) (1) Efficiency Ratio is equal to Non-interest Expense divided by Total Revenue (net interest and non-interest income) (2) Expense Ratio is equal to Non-interest Expense divided by Average Total Assets 1Q 2011 Investor Presentation April 29, 2011 p. 15

39 CapitalSource Bank Credit Trends Improved CapitalSource Bank Loan Portfolio: $4.0 billion $ in millions 1Q 11 4Q 10 Non-Accrual Loans $175 million 4.35% of total loans (51% were current) Loan loss provision $11 million $10 million $248 million 6.45% of total loans (68% were current) Total Loan Loss Allowance $133 million 3.31% of total loans $125 million 3.25% of total loans Charge-offs, net $3 million (1) $16 million days delinquent $5 million 0.13% of total loans $9 million 0.24% of total loans 90+ days delinquent $56 million 1.40% of total loans $70 million 1.82% of total loans Data as of quarter end (1) Includes an $11 million recovery on a previously charged off real estate loan 1Q 2011 Investor Presentation April 29, 2011 p. 16

40 CapitalSource Bank Credit Performance Trend Loans ($B) ALLL Ratio % % 8.0% % % 4.96% 4.74% % 3.17% 3.53% 3.25% 3.31% 4.0% % - 1Q '09 2Q '09 3Q '09 4Q '09 1Q '10 2Q '10 3Q '10 4Q '10 1Q '11 Loans ALLL Ratio 0.0% Data as of quarter end 1Q 2011 Investor Presentation April 29, 2011 p. 17

41 Parent Company Funding and Liabilities Balance Sheet Strengthening 1Q 2011 Investor Presentation April 29, 2011 p. 18

42 Parent Company Funding & Liabilities Substantial Debt Reduction Over The Past Two Years Total Parent Company debt reduced by 71% from $6.3 billion at 12/31/08 to $1.8 billion at 3/31/11 $6,282 $2,141 $5,831 $1,925 $5,471 $1,828 $5,037 $1,759 $4,503 $1,534 $4,075 $1,417 $3,547 $4,141 $3,906 $3,642 $3,279 $2,969 $2,658 $1,387 $2,161 $2,199 $1,257 $2,011 $1,247 $1,829 $1,252 $942 $764 $577 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 Total Recourse Debt Total Non-Recourse Debt $ in millions Data as of quarter end Note: Numbers exclude the RMIP portfolio and the discontinued Healthcare Net Lease segment 1Q 2011 Investor Presentation April 29, 2011 p. 19

43 ($ in millions) Parent Company Funding & Liabilities Recourse Debt Maturities Are Easily Manageable $500 $450 $439 $400 $350 $300 $250 $281 $250 $300 Trust Preferred $200 $150 $ % & 4.0% Convertible Debentures 7.25% Convertible Debentures Senior Secured Notes $50 $- (1) >2034 // Data as of March 31, 2011 Balances are stated as gross principal balances before discounts (1) There was no outstanding balance on the syndicated bank facility as of 3/31/11. The facility was terminated on April 12, Q 2011 Investor Presentation April 29, 2011 p. 20

44 Parent Company Funding & Liabilities Only 34% of Total Loans Now Held at the Parent Company Loan Balances by Category and Funding Source Collateral Distribution Other Commercial Finance Bank Total General Asset-Based $ % $ % $1, % Cash Flow % % 1, % General Commercial Real Estate % % 1, % Multifamily 9 0.4% % % Healthcare Real Estate % % % Healthcare Asset-Based % % % Equipment Finance - 0.0% % % Small Business - 0.0% % % Total $2, % $4, % $6, % $ in millions Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 21

45 Parent Company Funding & Liabilities Total Debt Continued to Decline During 1Q $ in millions 3/31/2011 Change from Change from % of Total 12/31/2010 % of Total 3/31/2010 (1) % of Total Balance 4Q'10 1Q' Non-Recourse Debt Structured Facilities $ - 0.0% $ % $ (68) $ % $ (258) Securitizations % % (117) 2, % (1,820) Other - 0.0% 2 0.1% (2) % (3) Total Non-Recourse Debt $ % $ % $ (187) $ 2, % $ (2,081) - Recourse Debt Syndicated Bank Credit Facility (2) $ - 0.0% $ - 0.0% $ - $ % $ (150) Convertible Debt (3) % % % (19) Trust Preferred Securities % % % 1 Senior Secured Notes (3) % % % 3 Total Recourse Debt $ 1, % $ 1, % $ 5 - $ 1, % $ (165) Total Parent Company Debt $ 1, % $ 2, % $ (182) $ 4, % $ (2,246) Data as of quarter end (1) March 31, 2010 excludes the discontinued Healthcare Net Lease Segment mortgage debt (2) There was no outstanding balance on the Syndicated Bank Facility as of 3/31/2011. Balance excludes $11 million and $21 million of outstanding Letters of Credit as of 3/31/2011 and 12/31/2010, respectively (3) Balance net of discounts 1Q 2011 Investor Presentation April 29, 2011 p. 22

46 Parent Company Funding & Liabilities Parent Securitizations Detail $116 Million Debt Reduction in 1Q $ in millions Total Change from 4Q Loan Collateral $70.9 $530.2 $152.2 $142.3 $895.6 $(80.6) Other Assets (22.3) Debt Outstanding - Third Party Held (116.3) Debt Outstanding - CSE Held CSE Junior Equity Before Reserves Reserves (36.9) CSE Net Equity $33.2 $153.8 $10.8 $98.0 $295.8 $50.3 Number of Loans Collateral Distribution Cash Flow (1) $17.6 $292.0 $95.0 $107.5 $512.1 $(50.6) Health-care Asset-Based (12.0) Asset-Based (2) (18.0) Total $70.9 $530.2 $152.2 $142.3 $895.6 $(80.6) Number of States Lien Position Senior (3) $70.8 $453.6 $120.4 $95.7 $740.5 $(77.7) Subordinate (2.9) Total $70.9 $530.2 $152.2 $142.3 $895.6 $(80.6) WA Remaining Term Pool Yield 10.23% 8.20% 8.43% 7.53% WA Debt Spread 1.00% 0.91% 0.63% 1.75% Data as of March 31, 2011 (1) Represents loan principal balance net of GAAP charge-offs, but excludes foreclosed-upon collateral (2) Represents cash, foreclosed assets, deferred financing fees, and other assets net of deferred loan fees (3) Represents CSE equity less ownership of outstanding debt balances 1Q 2011 Investor Presentation April 29, 2011 p. 23

47 Parent Company Funding & Liabilities Non-Securitized Loan Detail $ in Millions Non-securitized Loans Change from 4Q Loan Collateral $1,177.2 ($356.7) Committed Capacity 40.0 (130.7) Debt Outstanding - (70.7) Number of Loans 211 Collateral Distribution Commercial Real Estate (23.7) Cash Flow (263.4) Health Care Asset Based 39.4 (25.9) Healthcare Real Estate (0.8) Asset Based (42.7) Multifamily 8.7 (0.2) Lien Position Senior (1) (151.8) Subordinate (204.9) Total $1,177.2 ($356.7) WA Remaining Term 2.3 (2) (3) Data as of March 31, 2011 (1) Includes Senior B Loans (2) Committed capacity for the Syndicated Bank Facility which was terminated after the quarter close (3) Includes the $325 million Genesis loan which paid off on 4/1/11. 1Q 2011 Investor Presentation April 29, 2011 p. 24

48 Parent Company Balance Sheet Strengthening Strong and Growing Liquidity At The Parent Company Unrestricted cash of $723 million at 3/31/11, compared to $467 million at 12/31/10 $325 million Genesis loan pay-off received on April 1 st With aggregate principal balances paid off and bank credit facilities terminated in 1Q, all interest and principal payments collected on approximately $850 million of Parent Company loans (excludes the $325 million loan pay-off from Genesis on April 1 st ) will add to liquidity Redemption of $281 million of convertible debentures puttable in July is the only scheduled cash use over and above normal operating expenses during Q 2011 Investor Presentation April 29, 2011 p. 25

49 Consolidated Credit Continued Improvement in 1Q 1Q 2011 Investor Presentation April 29, 2011 p. 26

50 Consolidated Credit Highlights of 1Q 11 Credit Performance Non-Performing Assets Non-performing assets declined by 11% to $886 million, compared to $996 million in 4Q 10 Non-Accrual Loans Total loans on non-accrual decreased by $149 million, a decline of 21% 51% of non-accrual loans ($281 million) were current at quarter end New non-accruals declined to $24 million from $111 million in 4Q 10 Allowance for Loan Losses Total allowance declined to $283 million or 4.65% of loans, compared to $329 million or 5.17% of loans in 4Q 10. Quarterly provision increased from $24 million in 4Q to $45 million Net Charge-Offs Net charge-offs were $91 million, compared to $89 million in 4Q 10 Troubled Loans and REO REO assets and troubled loans resolved in the quarter resulted in total proceeds of $101 million or 116% of our 12/31/10 book value Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 27

51 Consolidated Credit Most Portfolio Credit Trends Are Improving Total Allowance % of Loans Quarterly Provision for Commercial Loan Losses 4.97% 5.96% 7.09% 8.58% 7.54% 5.94% 5.17% 4.65% $204 $221 $265 $219 $25 $39 $24 $45 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 Non-accrual Loans % of Loans 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 Allowance for Loan Losses % of Non-accrual Loans 9.83% 11.45% 12.89% 14.25% 14.68% 11.89% 10.99% 9.03% 50.6% 52.1% 55.0% 60.2% 51.4% 50.0% 47.1% 51.6% 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 Data as of quarter end 1Q 2011 Investor Presentation April 29, 2011 p. 28

52 Consolidated Credit Charge-offs were Consistent with the Prior Quarter $181 $167 $191 $82 $119 $135 $119 $133 $86 $89 $91 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 ($ in millions) Trailing Twelve Month Charge-offs Declined by 7% Data as of quarter end 1Q 2011 Investor Presentation April 29, 2011 p. 29

53 Consolidated Credit Reserves Lower as Legacy Loans Declined By $493 Million ($ in millions) 1Q'10 2Q'10 3Q'10 (1) 4Q'10 1Q'11 Change From Prior Quarter General $494.5 $426.5 $314.5 $250.1 $ % Specific % Total $686.2 $578.6 $393.6 $329.1 $ % 1Q'10 2Q'10 3Q'10 (1) 4Q'10 1Q'11 Loan Category $ % $ % $ % $ % $ % Asset-Based $ % $ % $ % $ % $ % Cash Flow % % % % % Commercial Real Estate % % % % % Other (2) % - 0.0% % % % Total $ % $ % $ % $ % $ % Data as of quarter end (1) Includes the impact of deconsolidation of the 2006-A securitization trust which reduced specific reserves by $46 million and general reserves by $92 million (2) Includes multifamily and small business 1Q 2011 Investor Presentation April 29, 2011 p. 30

54 Consolidated Credit 1Q 11 Analysis Charge-offs Concentrated in Cash Flow Portfolio Non-Accrual Delinquency Impaired Reserves 1Q Charge-Offs % of % of % of % of % of % of ($ in millions) Loans Balance Loans Balance Port. Loans Balance Port. Loans Balance Port. Spec. Genl. Total Port. Non-Acc. Delq. Amount Total Asset-Based 308 $ 1, $ % 10 $ % 34 $ % $ 6.9 $ 32.8 $ % 47.3% 123.7% $ % Cash Flow 480 1, % % % $ % 66.1% 186.5% % CRE 130 1, % % % $ % 40.9% 63.4% % Other (1) % % % $ % 70.6% 84.6% % Total 1,564 $ 6, $ % 70 $ % 151 $ % $ 61.2 $ $ % 51.6% 100.3% $ % Only 16% of 1Q 11 Charge-offs were Legacy Commercial Real Estate Data as of March 31, 2011 (1) Includes multifamily and small business 1Q 2011 Investor Presentation April 29, 2011 p. 31

55 Consolidated Credit Quarterly Charge-off Trend by Category 1Q'10 2Q'10 3Q'10 ($ in millions) $ % $ % $ % $ % $ % $ % Asset-Based $ % $ % $ - 0.0% $ % $ % $ % Cash Flow $ % % % % % % Commercial Real Estate $ % % % % % % Other (1) $ - 0.0% - 0.0% - 0.0% 2 2.2% 1 1.1% 3 0.6% Total $ % $ % $ % $ % $ % $ % 4Q'10 1Q'11 Total Data as of quarter end (1) Includes multifamily and small business 1Q 2011 Investor Presentation April 29, 2011 p. 32

56 Consolidated Credit Credit Performance Trends Show Steady Improvement CapitalSource Loans ($ in millions) (1) 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 (2) 4Q'10 1Q'11 4Q'10 1Q' Days Delinquent $132 $276 $261 $110 $57 $28 $47 $19 % of Loans 1.40% 3.33% 3.27% 1.43% 0.86% 0.44% 0.77% 0.33% 90+ Days Delinquent $396 $455 $437 $459 $363 $320 $282 ($38) % of Loans 4.21% 5.15% 5.46% 5.98% 5.47% 5.03% 4.64% -0.39% Loans on Non-accrual Status $994 $1,068 $1,140 $1,126 $788 $699 $549 ($150) % of Loans 10.58% 12.89% 14.25% 14.68% 11.89% 10.99% 9.03% -1.96% Impaired Loans $1,307 $1,250 $1,391 $1,469 $977 $931 $741 ($190) % of Loans 15.07% 15.10% 17.38% 19.15% 14.75% 14.65% 12.17% -2.48% Total Ending Allowance $517 $587 $686 $579 $394 $329 $283 ($46) % of Loans 5.97% 7.09% 8.58% 7.54% 5.94% 5.17% 4.65% -0.52% Trailing 12month Charge-offs $645 $659 $655 $623 $536 $426 $398 ($28) % of Loans 6.17% 6.78% 7.50% 7.43% 6.78% 5.78% 5.78% 0.00% Loan Balances ($ millions) 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 4Q'10 1Q'11 Ending Loans $8,674 $8,282 $7,961 $7,673 $6,628 $6,358 $6,086 ($272) Quarterly Loan Charge-offs $135 $191 $119 $133 $86 $89 $91 $2 Quarterly Provision for Loan Loss $204 $264 $219 $25 $39 $24 $45 $21 Data as of quarter end (1) Loans includes loans held for sale and loans held for investment (2) Includes the impact of deconsolidation of the 2006-A securitization trust which reduced day delinquencies by $59 million, 90+ day delinquencies by $173 million, non-accrual loans by $262 million, impaired loans by $389 million and total ending allowance by $138 million (3) Includes the impact of deconsolidation of the 2006-A securitization trust which reduced loans by $887 million 1Q 2011 Investor Presentation April 29, 2011 p. 33 (3)

57 Consolidated Credit Non-Performing Assets Declined Non-Performing Assets ($ in millions) 1Q 11 4Q 10 Non-accrual Loans Days Delinquent $33.5 $22.4 Non-accrual Loans 90+ Days Delinquent Non-accrual Loans Current Total Non-accrual Loans $549.3 $698.8 Accruing Loans 90+ Days Delinquent Accruing Loans - Restructured Total Non-performing Loans $814.2 $902.8 REO Total Non-performing Assets $885.7 $996.4 Data as of quarter end 1Q 2011 Investor Presentation April 29, 2011 p. 34

58 Consolidated Credit Non-Accrual Loans Declined Loans are Days Delinquent $33.5M 7 Loans Loans are 90+ Days Delinquent $235.3M 66 Loans Loans are Current $280.6M 56 Loans Loans are Days Delinquent $22.4 M 5 Loans Loans are 90+ Days Delinquent $270.4M 73 Loans Loans are Current $405.9M 56 Loans 1Q Q 2010 What is a Non-Accrual Loan? We place loans on non-accrual status when we expect, based on judgment, that our borrower will not be able to fully meet its debt obligations Non-Accrual Loans 129 loans $549.4 million 21.4% decline from 4Q New non-accruals were $24 million, compared to $111 million in 4Q 10 7 of the 9 loans added to non-accruals were current as of 3/31/11 39 loans have specific reserves of $58.3M $549.4M 129 Loans $698.8M 134 Loans Data as of March 31, Q 2011 Investor Presentation April 29, 2011 p. 35

59 Consolidated Credit Understanding the Deferred Tax Asset (DTA) Valuation Allowance What is the valuation allowance related to the DTA? A valuation allowance was recorded for CapitalSource taxable entities with a recent history of 3-year cumulative GAAP losses The allowance totaled $457 million at 3/31/11 The net deferred tax asset at 3/31/11, after subtracting the valuation allowance, was $63 million CapitalSource plans to consolidate tax entities for 2011, so current year taxable income in one entity (e.g. CapitalSource Bank) can be offset against losses in other entities Reversal of the valuation allowance will require a sustained period of consolidated pre-tax income for most of our deferred tax assets and an expectation of generating future capital gains to match the character of another portion of our deferred tax assets Reversal of the valuation allowance is not expected before the end of Q 2011 Investor Presentation April 29, 2011 p. 36

60 1Q 2011 Investor Presentation April 29, 2011 p. 37