lehman brothers global financial services … brothers global financial services conference l...

Lehman Brothers Global Financial Services ConferenceJohn K. Delaney

Chairman & CEO

September 10, 2008

Lehman Brothers Global Financial Services Conference l September 10, 2008 l p. 2

Forward Looking Statements

This presentation contains "forward-looking statements" within the meaning of the Private SecuritiesLitigation Reform Act of 1995, including certain plans, expectations, goals, and projections and includingstatements about our near and longer term strategies, growing CapitalSource Bank and its depositbase, the A Participation Interest, general economic conditions, market conditions for senior loans,securitization markets, loan yields, credit statistics, our proposed healthcare REIT IPO, our dividends,financial performance and the outlook for our commercial finance business and possible acquisitions,which are subject to numerous assumptions, risks, and uncertainties. All statements contained in thisrelease that are not clearly historical in nature are forward-looking, and the words "anticipate,""assume," "believe," "expect," “projected,” transform,” “become,” "estimate," "plan," "will,“ “should,” "lookforward," and similar expressions are generally intended to identify forward-looking statements. Allforward-looking statements (including statements regarding future financial and operating results andfuture transactions and their results) involve risks, uncertainties and contingencies, many of which arebeyond our control which may cause actual results, performance, or achievements to differ materiallyfrom anticipated results, performance or achievements. Actual results could differ materially from thosecontained or implied by such statements for a variety of factors, including without limitation: the recentlycompleted bank transaction; our ability to originate new loans and to grow our commercial financebusiness; changes in economic conditions; continued disruptions in credit and other markets;movements in interest rates; competitive pressures on product pricing and services; success and timingof other business strategies; the nature, extent, and timing of governmental actions and reforms;extended disruption of vital infrastructure; and other factors described in CapitalSource's 2007 AnnualReport on Form 10- K, and documents subsequently filed by CapitalSource with the Securities andExchange Commission. All forward-looking statements included in this presentation are based oninformation available at the time of the release. We are under no obligation to (and expressly disclaimany such obligation to) update or alter our forward-looking statements, whether as a result of newinformation, future events or otherwise.


Agenda

• CapitalSource Overview

• The Strategic Evolution of CapitalSource

• The Transition to CapitalSource Bank

• A Diversified Commercial Lending & Lease Portfolio

• The Market Opportunity for Commercial Lending

• Maintaining Strong Credit Performance

• Key Financial Drivers

• Strategy and Outlook

• Conclusion


CapitalSource Overview

Leading U.S. middle market commercial lending franchise

Large scale, broad-based middle market lending platform

Market leadership position in three major business lines

Significant California-based depository

22 retail branches with 65,000 customers throughout southernCalifornia(1)

Pursuing IPO and carve-out of our healthcare net leasebusiness

Diverse portfolio and proprietary, direct origination capability

24 offices throughout the U.S.

Over $12 billion in commercial lending and lease assets(2)

Loan portfolio includes 1,117 loans to 669 clients(3)

(1) As of July 28, 2008(2) As of June 30, 2008 pro forma for formation of CapitalSource Bank(3) As of June 30, 2008


CapitalSource Overview (cont’d)

Focused asset strategy

Multiple lending groups compete on service, expertise andindustry insight

Non-commodity products

Superior risk adjusted returns and superior credit outcomes

Diversified funding platform

Deposits, Secured and Unsecured funding sources

Investment grade ratings

Seasoned, proven management team

Strong shareholder alignment

Management, directors and certain of their affiliates beneficiallyown approximately 32% of outstanding shares(1)

(1) As of June 30, 2008


Fast growthDisciplined growthFast growthGrowthProfile

Transform commercial lendingbusiness into a large scale,“clean” banking business

Rapidly shift assets to theBank and increase deposits asa percentage of total funding

Rebuild ROE

Lower REIT tax rate allowed forcontinued focus on senior lending &avoidance of pressure to chase yieldat the expense of risk management

Leveraged market-leadinghealthcare platform to createhealthcare net lease business

Continued pursuit of and attaineddeposit based funding

Created market leadingcommercial lending platform

Maintained prudentleverage and multiple,diverse funding sources

Became the market leadingissuer of middle marketCLOs

Began pursuit of depositbased funding

Action Items

CapitalSourceStrategy

MarketContext

Focus

Leverage stability of newdepository to focus on growth

Focus on structural efficiencies (e.g.,tax) in light of intense marketcompetition

Established platform &infrastructure to capitalizeon market inefficiencies andlack of liquidity

Lack of liquidityAbundant liquidity through mid-2007Lack of liquidity

Become the premiercommercially oriented bankserving the middle-market

REIT election for commercial lendingbusiness, start Healthcare Net Leasebusiness

Start up and buildcommercial lendingbusiness

A Strategic Evolution: Increased Efficiencies and Capital Market Independence

2000 - 2005 2006 - 2008 2009 & beyond2009 & beyond

The Transition is Underway


CapitalSource Bank - A Transformational Achievement

CapitalSource Bank commenced operations on July 25th with 22 retailbranches in Southern and Central California De novo California Industrial Bank “Clean” asset purchase of deposits and branches

Realization of a well-planned strategy to pair our stellar commerciallending business with a robust depository Meaningful scale (>$5 billion in retail deposits) without legacy asset quality issues Significant liquidity now and ability to meaningfully grow deposits in the future

CapitalSource is positioned to maximize unparalleled investment andlending opportunities The leading middle-market asset origination platform Proprietary underwriting and expert diligence resources in focused markets Proven credit experience and concentration in recession resistant businesses

(particularly healthcare and rediscount) further strengthens credit profile Excellent liquidity and capital position, with deposits at CapitalSource Bank and

ample committed borrowing capacity and investment grade ratings atCapitalSource Inc.

A seasoned management team

At inception, CapitalSource Bank held approximately 35% of theCompany’s commercial lending assets(1)

(1) Commercial lending assets are loans plus A Participation Interest


The Initial CapitalSource Bank Balance Sheet

$5.9 billion in high-quality commercial assets(1)

$2.0 billion cash and liquid short-term investments $2.1 billion diversified portfolio of loans acquired from CapitalSource $1.8 billion A Participation Interest, purchased at 97% of par

Average monthly amortization since July 2007 has beenapproximately $190 million

$921 million of Tier 1 risk-based capital(capital ratio = ~ 15.6%)

A Very Clean and Highly Liquid Balance SheetA Very Clean and Highly Liquid Balance Sheet

(1) Data as of 7/25/08


Note: Commercial lending segment debt and other liabilities, including deposits, pro forma for formation of CapitalSource Bank

62%

16% 22%

11%

33%

11%

45%

DepositsCredit Facilities Term Debt Other Borrowings

6/30/08$7.5 billion

6/30/08 pro forma forCapitalSource Bank

$11.6 billion

CapitalSource’s Improved Funding Mix with CapitalSource Bank


Looking Ahead: The Growth of CapitalSource Bank

We expect most new loans to be originated inCapitalSource Bank

We have excess liquidity in CapitalSource Bank today,plus the ability to grow deposits as needed $2.0 billion cash and investment portfolio Expect $1.8 billion A Participation Interest to fully amortize over 12-15

months No need to grow deposits near term, but existing branch network had

over $8.4 billion in retail deposits at March 31, 2007

Looking out three years we estimate that over 80% of ourcommercial lending assets could be in CapitalSource Bank

and over 80% of our funding could come from deposits

Looking out three years we estimate that over 80% of ourcommercial lending assets could be in CapitalSource Bank

and over 80% of our funding could come from deposits


Our Commercial Lending Business:A Diversified Portfolio

Primary Business GroupsCorporate FinanceHealthcare & Specialty FinanceStructured Finance

Commercial Lending & Lease Portfolio


Overview of Business Groups and Areas of Lending

Asset-Based & CorporateLending to Security,

Homeland Defense & PublicSafety Companies

Security FinanceSecurity Finance

First Mortgage Debt Securedby All Real Estate Asset

Types

Commercial Real EstateCommercial Real Estate

Asset-Based Lending toMiddle Market Finance

Companies

Rediscount FinanceRediscount Finance

Senior Secured Debtto Finance Leveraged

Buy-Outs

Corporate FinanceCorporate Finance Healthcare CreditHealthcare Credit

Asset-Based & CorporateLending to

Healthcare Companies

First Mortgage Debt,Mezzanine Debt

and Sale Leasebackson Healthcare Properties

Healthcare Real EstateHealthcare Real Estate


Portfolio Review

(1) Pro Forma for A Participation interest obtained in connection with formation of CapitalSource Bank

($ in millions) Count % Balance %

Corporate 508 38% 2,784$ 23%Healthcare 383 28% 2,872 23%Structured 226 17% 3,773 31%Total Loans 1,117 83% 9,428$ 77%

A Participation Interest 167 12% 1,821 15%

Healthcare Net Lease 63 5% 1,046 8%

Total Portfolio 1,347 100% 12,295$ 100%

Commercial Lending and Lease Portfolio at 6/30/08 (1)


The Market Opportunity for Commercial Lending


The Market Opportunity - Commercial Lending

This dislocation is creating “oncein a lifetime” lendingopportunities for those fewinstitutions, like CapitalSource,able to combine lendingexpertise, capital and liquidity

Portfolio and businessacquisitions are also veryattractive

Economic downturns and theirimmediate aftermath havealways been good times to makenew loans, as higher spreadsmore than offset higher creditcosts

This dislocation is creating “oncein a lifetime” lendingopportunities for those fewinstitutions, like CapitalSource,able to combine lendingexpertise, capital and liquidity

Portfolio and businessacquisitions are also veryattractive

Economic downturns and theirimmediate aftermath havealways been good times to makenew loans, as higher spreadsmore than offset higher creditcosts

The U.S. is in the midst of themost serious financial crisissince the Depression

There is an unprecedented lackof liquidity in all markets

Most banks and financial servicecompanies world-wide areunder-capitalized, de-leveragingand on the defensive

The U.S. is in the midst of themost serious financial crisissince the Depression

There is an unprecedented lackof liquidity in all markets

Most banks and financial servicecompanies world-wide areunder-capitalized, de-leveragingand on the defensive

Current Market Situation Effect on CapitalSource


Maintaining Strong Credit Performance:

A Closer Look


Key Credit Metrics as a Percentage of Commercial Loans

Indicates low since 1Q 2006 Indicates high since 1Q 2006

As a %of Loans: 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08

Average of10 qtrs

(1Q'06 -2Q'08)

60 day deliquent loans 0.66% 1.31% 0.84% 1.12% 0.85% 1.09% 0.74% 0.75% 0.77% 1.16% 0.93%

Non-accrual loans 2.24% 2.01% 2.39% 2.34% 1.78% 1.97% 1.76% 1.73% 1.79% 2.20% 2.02%

Annualized charge-offs 0.02% 0.74% 1.22% 0.66% 0.51% 0.63% 1.15% 0.25% 0.25% 1.00% 0.64%

Rolling 12 month charge-offs 0.25% 0.34% 0.57% 0.69% 0.78% 0.75% 0.76% 0.64% 0.57% 0.66% 0.60%

Consistent and Strong Credit PerformanceConsistent and Strong Credit Performance


Charge-Offs

Life to date charge-offs have been 0.83% of total originations(only 0.58%, if two discontinued business lines are excluded)

No current business lines have demonstrated systemic losses

Business# of Loans& Leases

FundedOrginations Charge-Offs

Charge-Off%

Charge-OffImpact

Corporate Finance Business 953 6,748,806,551 81,183,398 1.20% SomeHealthcare Real Estate 281 3,574,883,016 2,080,878 0.06% None

Healthcare Credit 257 1,860,025,004 8,350 0.00% NoneCommercial Real Estate 247 2,618,260,117 16,301,526 0.62% Some

Rediscount 250 1,427,784,988 5,848,002 0.41% NoneSecurity Lending 104 735,778,639 4,141 0.00% None

Other 304 1,225,450,210 - 0.00% N/AOngoing Business Subtotal 2,396 18,190,988,525 105,426,295 0.58%

Enhanced Mezzanine 55 165,199,375 11,258,220 6.81% Exited 2Q05

Business Credit 128 743,020,771 41,424,542 5.58% Exited 4Q06Exited Business Subtotal 183 908,220,146 52,682,762 5.80%

Total 2,579 19,099,208,671 158,109,057 0.83%

EconomicHeadwind

YesNo

Life to Date Performance through 6/30/08

N/A

NoYes

YesNo


Credit: Our Macro View

Despite the challenging economy, we expect CapitalSource credit statisticsto trend modestly higher but stay within historical ranges because:

The U.S. economy is in recession - challenges affecting financial institutionsare impacting both businesses and consumers

Deterioration is likely to continue for the next 12-18 months

The economic downturn has begun to impact commercial, as well asconsumer credit performance

The U.S. economy is in recession - challenges affecting financial institutionsare impacting both businesses and consumers

Deterioration is likely to continue for the next 12-18 months

The economic downturn has begun to impact commercial, as well asconsumer credit performance

The way we built our business:• Specialized expertise in focused markets• A diverse portfolio anchored in recession resistant sectors, such as healthcare• Senior debt orientation

The way we manage our business:• Direct origination focus• End-to-end control of the lending / credit process, including forensic accounting group• Credit-first approach and intense underwriting discipline

The way we built our business:• Specialized expertise in focused markets• A diverse portfolio anchored in recession resistant sectors, such as healthcare• Senior debt orientation

The way we manage our business:• Direct origination focus• End-to-end control of the lending / credit process, including forensic accounting group• Credit-first approach and intense underwriting discipline


Key Financial Drivers


Key Financial Drivers

Asset growth Very attractive lending and loan purchase environment should allow

CapitalSource to grow its balance sheet in a highly profitable way Originating new, senior loans underwritten to 600-800 bps over LIBOR

Cost of Funds Migration of the balance sheet to CapitalSource Bank will drive down the

cost of funds

Operating Expenses Balance sheet growth will leverage fixed cost investments in lending and

retail banking platforms to drive efficiencies

Credit Some worsening, though not material, is expected based on the

economic environment Balance sheet growth should contribute to relative stability in credit

metrics


Strategy and Outlook

• Near-Term

• Longer-Term


CapitalSource: Near-Term Strategy

1. Carefully manage our existing book of business, in light of negativeeconomic outlook

2. Aggressively grow the commercial lending business insideCapitalSource Bank -- originating safe new loans while maintaininguncompromising credit standards

3. Opportunistically pursue portfolio or business acquisitions consistentwith areas of historical expertise

4. Rapidly shift the commercial lending funding mix to deposits andunsecured, creating an even stronger balance sheet

5. Pay dividends at a "bank like" level, in order to retain capital to investat high ROEs

6. Complete the initial public offering of CapitalSource Healthcare REITcommon shares

CapitalSource is poised to be a clear winnerin the midst of unprecedented market dislocation

CapitalSource is poised to be a clear winnerin the midst of unprecedented market dislocation


Longer-Term Strategy (18-36 months)

1. Explore opportunities to enhance the banking franchise,including modifications to the charter to enable a broaderrange of retail and commercial banking services

2. Continue to aggressively originate commercial loans, as longas risk-adjusted yields remain attractive

3. When liquidity ultimately returns: maintain credit discipline,scale back lending and invest excess capital to optimizebalance sheet leverage

4. With the integration of CapitalSource Bank and future depositgrowth, realize new operating leverage efficiencies from a fullybuilt-out CapitalSource infrastructure


Conclusion:

CapitalSource is Uniquely Positioned to Thrive,Despite Challenging Market Conditions


CapitalSource “Has It All” to Capitalize on Market Opportunity

The liquidity crisis has created market opportunities for CapitalSourcewhich are the most attractive in its history

The addition of CapitalSource Bank uniquely positions the Company toattack the current market with strengths few others have, including:

Access to a robust depository to complement an historically strong balance sheet

Excellent liquidity and available capital, sufficient to support $10 -15 billion of newloans and/or portfolio acquisitions over the next three years

A proven asset strategy and the leading middle market commercial lendingplatform in the United States including: proprietary underwriting, expert diligenceresources and a seasoned management team

A consistent and long-term record of solid credit performance and high ROEs,paired with a steadfast commitment to maintain the discipline that has producedthat record

We expect steady progress, over the next three years, toward targetedafter-tax ROEs of 16%

Creating Long-Term Shareholder ValueCreating Long-Term Shareholder Value


Questions & Answers

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