Glossary

“A” Participation Interest

The “A” Participation Interest was acquired as part of the asset and bank branch purchase made by CapitalSource from Fremont Investment & Loan in July 2008. The “A” Participation was acquired for $1.8 billion at 97% of par and bears interest at one-month LIBOR plus 150 basis points. The interest represents a 70% senior interest in a commercial real estate loan portfolio previously originated by Fremont Investment & Loan. CapitalSource Bank is entitled to receive 70% of all principal payments on the loans. Please view our most recent earnings release or 10Q / 10K for the most recent disclosures on the “A” Participation Interest.

Accrual

Accounting for income or expenses as earned or incurred, even though they may not be received or actually paid in cash.

Adjusted Earnings

A calculation used by Real Estate Investment Trusts (REITs) in order to show earnings without deducting non-cash items such as real estate depreciation. Adjusted earnings is calculated taking net income as determined in accordance with U.S. generally accepted accounting principles (“GAAP”), and adjusting for certain items. CapitalSource will not report adjusted earnings after 4Q'08, since the Company revoked its REIT status as of January 1, 2009.

Allowance for Loan Losses

Management's estimate of probable losses inherent in the loan portfolio.

Amortization

Gradual reduction of an amount over time.

Analysts

Individuals working for a research or brokerage firm that make forecasts about a company's future earnings, revenues, growth rates, and stock price (price target) as well as overall recommendations regarding buying, selling, or holding a particular stock, based on their research on the company and their knowledge of the sector.

Asset-Based Loan

Loans secured by specified assets of a borrower, usually accounts receivable and/or inventory.

Beneficial Owner/“Street Name”

A shareholder whose securities are registered in the name of a broker or nominee and held at such firm. His name is not registered on the books of the issuing company, and his securities are said to be carried in a “street name.”.

“Buy” Recommendation

An analyst recommendation to purchase a stock, generally indicating that the stock should outperform other comparable stocks.

CapitalSource Bank

CapitalSource Bank is an indirect wholly owned subsidiary of CapitalSource Inc. It commenced operations on July 28, 2008. For current information on CapitalSource Bank, view our most recent earnings release, 10Q/10K, or visit capitalsourcebank.com.

CapitalSource Bank Segment

The company's commercial lending and banking activities conducted in CapitalSource Bank.

Cash Flow Loan

Loans are made based on the cash flow of a business.

Charge Off

When a company makes a determination that a loan or other debt is uncollectible it is charged off against an allowance for loan losses. To view CapitalSource's historic charge offs, please visit the credit page of our website.

Commercial Lending Assets

CapitalSource's commercial lending assets include: loans, loans held for sale, receivables under reverse-repurchase agreements, the “A” Participation Interest, and related accrued interest.

Common Stock

The most frequently issued class of stock issued by public companies. Usually provides a voting right and, in certain cases, the right to dividends; however, it is secondary to preferred stock in dividend and liquidation rights.

Convertible Bonds

A debenture that may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue. For information on CapitalSource's convertible debt, please visit our convertible debt page.

Cost of Funds

The cost of capital used to fund a company’s business.

Debt

Money, goods, or services owed by an individual or company to another individual or company. Monetary debt can be represented by a loan note, bond, mortgage, or other form stating repayment terms and, if applicable, interest payments to be made. All forms of debt imply intent to repay an amount owed by a specific date.

Deposits

Deposits at CapitalSource Bank include: savings accounts, money market accounts, and certificates of deposit.

Depreciation

Charges against earnings to write off the cost, less salvage value, of an asset over its estimated useful life.

Direct Real Estate Investments

CapitalSource owns income-producing healthcare facilities (primarily skilled nursing facilities), in its Healthcare & Specialty Finance business, and leases the facilities back to experienced operators. These transactions are typically triple net lease in nature, which means CapitalSource owns the property and the operator is responsible for all maintenance fees and facility operations. CapitalSource reports its direct real estate investments in its Healthcare Net Lease segment.

Dividend Reinvestment Plan (“DRIP”)

A plan enabling shareholders to reinvest cash dividends (for additional stock), and/or make optional cash purchases. For more information on our DRIP, please visit our DRIP page.

Downgrades

When an analyst reduces a recommendation for a stock. Examples include changing a “buy” recommendation to a “hold,” or a “hold” recommendation to a “sell.”

Due Diligence

Research, investigation, or audit work done on a potential investment or transaction with the intent to confirm all material facts in connection with an investment or transaction.

Earnings

The net income or profit for a company. This amount consists of revenues minus all costs (including taxes).

Earnings Estimates/Forecasts

An analyst's prediction about a particular company's earnings for a future quarter or year based on their research on the company and knowledge of the sector. It is an estimate of whether a company will increase, decrease, or remain flat in its operating income and overall profitability.

Ex-Dividend Date

The date on which the stock begins to trade “without the dividend.” If one buys a stock “ex-dividend” one will not receive the recently declared dividend. Every dividend is payable on a fixed date to all shareholders recorded on the books of the company as of a record date. For example, a dividend may be declared as payable to holders of record of the company on a given Friday. Since three business days are required for delivery of stock in a normal transaction on a major exchange (e.g., NYSE), the exchange would declare the stock “ex-dividend” as of the opening of the market on the preceding Wednesday. That means anyone who bought it on and after Wednesday would not be entitled to that dividend because the trade would not close until after the record date.

Exchange

A registered marketplace where securities are traded. Securities exchanges include the New York Stock Exchange, the NASDAQ, the American Stock Exchange, and regional exchanges such as the Philadelphia Stock Exchange and the Pacific Stock Exchange. Stocks trading on an exchange are referred to as listed securities. CapitalSource is listed on the New York Stock Exchange (“NYSE”).

First Mortgage Loans

A real estate loan that gives the lender a primary lien against a specified property. A primary lien has precedence over all other mortgages in case of default.

Fiscal Year

A 12-month period designated as a year by a particular company, used for financial reporting and tax purposes. The majority of companies follow a calendar year for their fiscal year.

Healthcare Net Lease

The CapitalSource reporting segment that includes the direct real estate investments. See Direct Real Estate Investments definition.

“Hold” Recommendation

The recommendation from an analyst that investors maintain their current position in a stock. This generally indicates that the stock should perform similarly to other comparable stocks.

Impaired Loans

Loans are considered impaired when, based on current information, the company determines that it is probable that the company will be unable to collect all amounts due in accordance with the contractual terms of the original loan agreement. To see our impaired loan statistics, please visit the credit statistics page.

LIBOR

London Interbank Offered Rate (“LIBOR”), an interest rate fixed on a daily basis by the British Bankers’ Association and derived from a filtered average of the world’s most creditworthy banks’ interbank deposit rates for larger loans.

Loan

An agreement under which an owner of cash assets (the lender) allows another entity (the borrower) to use the assets for a specified time period. In return, the borrower agrees to pay the lender a payment (interest) and return the cash at the end of the agreed upon time period.

Loan Origination

Refers to the process of sourcing and underwriting a loan for a borrower.

Loan-to-Value (LTV)

Ratio of money borrowed to fair market value. Loans are often times unwritten, in part, on an LTV basis.

Market Capitalization (Market Cap)

The market value of all of the stock in a company. This equals the price per share, multiplied by the number of shares outstanding.

Net Finance Margin

Defined at CapitalSource as net investment income divided by the sum of average interest earning assets and average direct real estate investments.

Non-accruals

Loans on non-accrual are loans which the company believes there is a probability of delay in payment or loss and thus stops accruing for the interest payments due on the loan. For the Company’s non-accrual statistics, please visit the credit metrics page.

P/E Ratio

Price to Earnings ratio (P/E ratio) shows the relationship between a stock's price and a company's earnings. The P/E ratio is calculated by dividing the current price of the stock by the earnings per share (either the company's trailing annual earnings per share or the company's expected earnings per share in the coming year). This is used to compare the relative value of different stocks. The P/E ratio is also called the earnings multiple.

Prepayment

A payment made by the borrower to the lender in advance of when it is due. Loans often carry prepayment fees, and thus, the company receives additional income with the prepayment of loans.

Price Target

A stock price that an analyst forecasts will be reached by some future date.

Prime Rate

A commonly used, short-term interest rate that banks in the United States use in pricing commercial loans.

Provision for Loan Losses

A noncash expense charged against earnings when adding to the allowance fee loan losses.

Quarter

A three-month period designated as a quarter (of a year) by a particular company, used for financial reporting and tax purposes.

REIT

Real Estate Investment Trust (“REIT”) is a company that invests in real estate directly, either through properties or mortgages, receiving special tax considerations and typically offering high yields to investors as REIT rules require a 90% pay out of earnings.

Recommendation

Analyst statements regarding the future prospects of a particular stock based on their research on the company and their knowledge of the sector, usually in the form of “buy,” “hold,” or “sell” recommendation.

Record Date

The date on which one must be registered as a shareholder on the stock book of a company in order to receive a dividend or to vote on company affairs. See also “Ex-Dividend Date.”

Residential Mortgage Investment Portfolio

Previously, the CapitalSource reporting segment that included the high-quality residential mortgage assets the Company invested in, beginning in 2006, to facilitate compliance with REIT rules. CapitalSource revoked REIT status in 2009 and a portion of the residential mortgage investment portfolio (RMIP) was sold in early 2009. Beginning in 2009, the Residential Mortgage Investment Portfolio will no longer be reported as a separate segment and has been merged into the Commercial Banking segment.

“Sell” Recommendation

An analyst recommendation to sell a stock based on their research or knowledge of the sector, generally indicating that the stock should underperform other comparable stocks.

Senior Loan

A loan that gives the lender first priority (as the senior lender) in the collateral securing the loan.

Shares Outstanding

The number of shares issued by a company, net of any shares repurchased by the company.

Subordinate Loan

A loan that receives payment after senior loans are satisfied and may have no security interest or a junior security interest in any of the client’s assets.

Tax

A contribution for the support of a government required of persons, groups, or businesses within the domain of that government. Corporations generally pay federal taxes as well as state and local taxes in the jurisdiction in which they operate their business.

Term Debt

Borrowing for a fixed term. Usually, matching the duration of the underlying asset pool securing the loan.

Tier 1 Ratio

A term used to describe the capital adequacy of a bank. Tier 1 capital is core capital and includes equity capital and disclosed reserves.

Total Risk-Based Capital Ratio

Net income divided by the total risk-based capital, which includes qualifying subordinated debt and allowance for loan loss and excludes goodwill and other intangible assets.

Transfer Agent

Financial institution that maintains a company’s records of investors, account balances, transactions, holds shareholder certificates, and manages other shareholder-related issues.

Underwriting

The process of evaluating a borrower and the terms of a particular loan in order to assess whether it is economically prudent to issue credit to a particular borrower.

Unsecured Credit Facilities

A credit facility without collateral on any guarantee of payment or performance from the recipient. The lender has no security interest against which to collect if the borrower defaults.

Upgrade

When an analyst improves a recommendation for a stock. Examples include changing a “hold” recommendation to a “buy” or a “sell” to a “hold” recommendation.

Volume

The number of shares traded for a particular stock on a particular trading day or over a period of time.

Yield

The income return on an investment or loan. Interest or dividends received from an investment or loan usually expressed as a percentage based on the investment's or loan's cost.