10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

Commission File No. 1-31753

CapitalSource Inc.

(Exact name of registrant as specified in its charter)

Delaware	35-2206895
(State of Incorporation)	(I.R.S. Employer Identification No.)

633 West 5^th Street, 33rd Floor

Los Angeles, CA 90071

(Address of Principal Executive Offices, Including Zip Code)

(213) 443-7700

(Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

(Title of Each Class)	(Name of Exchange on Which Registered)
Common Stock, par value $0.01 per share	New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    þ  Yes     o  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o  Yes    þ  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    þ  Yes     o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ  Yes     o  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

þ Large accelerated filer		o Accelerated filer
o Non-accelerated filer	(Do not check if a smaller reporting company)	o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    o  Yes    þ  No

The aggregate market value of the Registrant's Common Stock, par value $0.01 per share, held by nonaffiliates of the Registrant, as of June 30, 2013 was $1,825,859,491.

As of February 26, 2014, the number of shares of the Registrant's Common Stock, par value $0.01 per share, outstanding was 196,869,521.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of CapitalSource Inc.'s Proxy Statement for the 2014 annual meeting of shareholders, a definitive copy of which will be filed with the SEC within 120 days after the end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.

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		Page
	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	78
	Management Report on Internal Controls Over Financial Reporting	79
	Report of Independent Registered Public Accounting Firm on Internal Controls Over Financial Reporting	80
Item 8.	Financial Statements and Supplementary Data	81
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	138
Item 9A.	Controls and Procedures	138
Item 9B.	Other Information	138
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	139
Item 11.	Executive Compensation	140
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	140
Item 13.	Certain Relationships and Related Transactions, and Director Independence	140
Item 14.	Principal Accountant Fees and Services	140
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	141
	Signatures	142
	Index to Exhibits	143

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PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K, including the footnotes to our audited consolidated financial statements included herein, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, strategies, goals, and projections and including statements about our expectations regarding the pending merger between the Parent Company and PacWest Bancorp (“PacWest”), CapitalSource Bank net interest margin (“NIM”), loan repayments, credit trends, funding of unfunded loan commitments, CapitalSource Bank and Parent Company liquidity, CapitalSource Bank tax payment to the Parent Company, realizing the allowed portion of the deferred tax asset, and interest rate risk management, all which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this Form 10-K that are not clearly historical in nature are forward-looking, and the words 'anticipate,' 'assume,' 'intend,' 'believe,' 'expect,' 'estimate,' 'forecast,' 'plan,' 'position,' 'project,' 'will,' 'should,' 'would,' 'seek,' 'continue,' 'outlook,' 'look forward,' and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding preliminary and future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including without limitation: the ability to complete the pending merger between the Parent Company and PacWest, including obtaining regulatory approvals, or any future transaction, successfully integrating the companies following completion of the merger or achieving expected beneficial synergies and/or operating efficiencies, in each case, within expected time frames or at all; the possibility that regulatory approvals may not be received on expected time frames or at all; the possibility that personnel changes in connection with the merger may not proceed as planned; the possibility that the cost of additional capital may be more than expected; changes in the Company’s stock price before completion of the merger, including as a result of the financial performance of PacWest prior to closing; the reaction to the merger by each of the company’s customers, employees and counterparties; change in interest rates and lending spreads; compression of spreads on newly originated loans; unfavorable changes in asset mix; higher than anticipated payoff levels; changes in our loan product could further compress NIM; deteriorations in credit and other markets; higher than anticipated credit losses; reserves and delinquencies; loan loss provisions; a borrower’s lack of financial strength to repay loans; continued or worsening credit losses; changes in economic or market conditions or investment or lending opportunities; competitive and other market pressures on product pricing and services; reduced demand for our services; loan repayments higher than expected; charge-offs; our inability to grow deposits and access wholesale funding sources; regulatory safety and soundness considerations; the success and timing of other business strategies and asset sales; drawdown of Parent Company unfunded commitments substantially in excess of historical drawings; lower than expected Parent Company's recurring tax basis income; lower than expected taxable income at CapitalSource Bank for which CapitalSource Bank has to reimburse the Parent Company for income tax expenses in accordance with the tax sharing agreement; higher than anticipated capital needs due to strategic or regulatory reasons; CapitalSource Bank dividend payment to the Parent Company is less than expected; changes in tax laws or regulations affecting our business; our inability to generate sufficient earnings; tax planning or disallowance of tax benefits by tax authorities; changes in the forward yield curve; increases or decreases in market interest rates; changes in the relationship between yields on investments and loans repaid and yields on assets reinvested; and other factors described in this Form 10-K and documents subsequently filed by CapitalSource with the Securities and Exchange Commission (the "SEC"). All forward-looking statements included in this Form 10-K 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 law.

The information contained in this section should be read in conjunction with our audited consolidated financial statements and related notes and the information contained elsewhere in this Form 10-K, including that set forth under Item 1A, Risk Factors.

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ITEM 1. BUSINESS

Overview

CapitalSource Inc., a Delaware corporation, is a commercial lender that provides financial products to small and middle market businesses nationwide and provides depository products and services to consumers in southern and central California, primarily through our wholly owned subsidiary, CapitalSource Bank. References to we, us, the Company or CapitalSource refer to CapitalSource Inc. together with its subsidiaries. References to CapitalSource Bank include its subsidiaries, and references to the Parent Company refer to CapitalSource Inc. and its subsidiaries other than CapitalSource Bank.

We offer a broad range of specialized senior secured, commercial loan products to small and middle-market businesses, and we offer our loan products on a nationwide basis. With a deposit gathering platform based in southern and central California, we believe our business model is well positioned to deliver a broad range of customized financial solutions to borrowers.

As of December 31, 2013, we had total assets of $8.9 billion, total loans of $6.8 billion, total deposits of $6.1 billion and stockholders' equity of $1.6 billion.

Our corporate headquarters is located in Los Angeles, California, and we have 21 retail bank branches located in southern and central California. Our loan origination efforts are conducted nationwide with key offices located in Chevy Chase, Maryland, Los Angeles, California, Denver, Colorado, Chicago, Illinois, and New York, New York. We also maintain a number of smaller lending offices throughout the country.

For the years endedDecember 31, 2013, 2012 and 2011, we operated as two reportable segments: CapitalSource Bank and Other Commercial Finance. The CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company. For additional information, see Note 20, Segment Data.

Current Developments

On July 23, 2013, the Parent Company announced that it had entered into a Merger Agreement (the "Merger") with PacWest Bancorp ("PacWest") pursuant to which the Parent Company will merge with and into PacWest. Under the terms of the Merger, stockholders of the Parent Company will receive $2.47 in cash and 0.2837 shares of PacWest common stock for each share of CapitalSource common stock. The total value of the per share merger consideration, based on the closing price of PacWest shares on July 19, 2013, is $11.64. On January 13, 2014, the Company's shareholders approved the merger; however, the transaction continues to be subject to customary conditions, including the approval of bank regulatory authorities.

Our business focus includes operating CapitalSource Bank and liquidating our remaining Parent Company assets. As of December 31, 2013 and 2012, CapitalSource Bank had $8.1 billion and $7.4 billion of assets, respectively. During 2013, CapitalSource Bank's loan portfolio grew by approximately $1.1 billion or 19.2%, while the loan portfolio of the Parent Company decreased by $0.4 billion or 83.4%; resulting in net loan growth of $0.7 billion. During 2012, CapitalSource Bank's loan portfolio grew by approximately $0.9 billion or 18.6%, while the loan portfolio of the Parent Company decreased by $0.4 billion or 45.8%; resulting in net loan growth of $0.5 billion. CapitalSource Bank's non-performing assets as of December 31, 2013 were $48.6 million, or 0.6% of total assets, a decrease of $0.3 million from December 31, 2012. CapitalSource Bank's allowance for loan losses as of December 31, 2013 was $109.5 million or 1.6% of loans compared to $98.9 million or 1.8% of loans as of December 31, 2012.

CapitalSource Bank's net interest margin for the three months ended December 31, 2013 decreased to 4.76% from the previous quarter as the loan portfolio yields declined, however, the margin was partially offset by loan portfolio growth. We anticipate that the net interest margin will remain relatively flat as compared to the fourth quarter. Net interest margin was 4.86%, 4.79%, 5.08%, and 4.84% for the three months ended September 30, 2013, June 30, 2013, March 31, 2013, and December 31, 2012, respectively.

Loan Products and Service Offerings

Senior Secured Loans

We make senior secured real estate and asset-based loans which have a first priority lien in the collateral securing the loan. We also make cash flow loans which are secured by the enterprise value of the borrowing entity. Asset-based loans are collateralized by specified assets of the borrower, generally its accounts/notes receivable, inventory and/or machinery. Real estate loans are secured by senior mortgages on real property. We make cash flow loans based on our assessment of a client's ability to generate cash flows sufficient to repay the loan and to maintain or increase its enterprise value during the term of the loan. Our cash flow loans are generally secured by a security interest in all or substantially all of a borrower's assets.

Our lending activities are primarily focused on the following sectors:

• Healthcare: real estate, asset-based and cash flow loans to healthcare providers;

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• Lender finance: loans to commercial finance companies with underlying portfolios of tax liens, loans secured by timeshare receivables, auto receivables, student loans and other consumer receivables;

• Multifamily real estate: mortgage loans on multifamily properties;

• Commercial real estate: mortgage loans on a variety of commercial property types;

• Equipment leasing and finance: equipment loans and leases collateralized by the specific equipment financed;

• Technology: loans to technology companies that provide critical product or service offerings, including wireless communication tower owner/operators, information technology hosting providers and managed service providers;

• Security: asset-based and cash flow loans to companies in the physical security, government security, and public safety sectors;

• Small business: loans guaranteed in part by the Small Business Administration (“SBA”) to small businesses; and

• Premium finance: traditional life insurance premium finance loans secured by the cash surrender value of life insurance policies and other liquid assets.

Depository Products and Services

Through CapitalSource Bank's 21 branches in southern and central California, our website and our borrower relationships, we provide savings and money market accounts, individual retirement accounts and certificates of deposit. These products are insured up to the maximum amounts permitted by the FDIC. As an industrial bank, we are not permitted to offer demand deposit accounts.

Financing

We depend on deposits and external financing sources to fund our operations. We employ a variety of financing arrangements, including term debt, subordinated debt and equity. As a member of the Federal Home Loan Bank of San Francisco (“FHLB SF”), one of 12 regional banks in the Federal Home Loan Bank (“FHLB”) system, CapitalSource Bank had financing availability with the FHLB SF as of December 31, 2013 equal to 35% of CapitalSource Bank's total assets, subject to pledging adequate collateral.

We have issued subordinated debt to statutory trusts (“TP Trusts”) that are formed for the purpose of issuing preferred securities to outside investors, which we refer to as Trust Preferred Securities (“TPS”). We generally retained 100% of the common securities issued by the TP Trusts, representing 3% of their total capitalization. The terms of the subordinated debt issued to the TP Trusts and the TPS issued by the TP Trusts are substantially identical.

Competition

We offer a number of loan and deposit products with many of the loan product offerings focused on niche sectors, such as timeshare lending, security lending, technology and healthcare lending, among others. Generally, our loan products are marketed nationwide while our depository activities occur in California. The primary competition for each of our loan products varies by product type. Our markets are competitive and characterized by varying competitive factors. We compete with a large number of financial services companies, including:

• commercial banks and thrifts that operate locally, regionally or nationally;

• specialty and commercial finance companies;

• private investment funds;

• insurance companies; and

• investment banks.

Competition is based on a number of factors, including: interest rates charged on loans and paid on deposits, the scope and type of banking and financial services offered, customer service and convenience, and regulatory constraints. Many of our competitors are large companies that have substantial capital, technological and marketing resources. Some of our competitors have substantial market positions and have access to a lower cost of capital or a less expensive source of funds. We believe we compete based on:

• in-depth knowledge of our borrowers' industries and their business needs based upon information received from our borrowers' key decision-makers, analysis by our experienced professionals and interaction between our borrowers' decision-makers and our experienced professionals;

• our breadth of loan product offerings and flexible and creative approach to structuring products that meet our borrowers' business and timing needs; and

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• our superior client service.

Supervision and Regulation

Our bank operations are subject to regulation by federal and state regulatory agencies. This regulation is intended primarily for the protection of depositors and the deposit insurance fund, and secondarily for the stability of the U.S. banking system. It is not intended for the benefit of stockholders of financial institutions. CapitalSource Bank is a California industrial bank and is subject to supervision and regular examination by the Federal Deposit Insurance Corporation ("FDIC") and the California Department of Business Oversight ("DBO"). CapitalSource Bank's deposits are insured by the FDIC up to the maximum amounts permitted by law.

Although the Parent Company is not directly regulated or supervised by the DBO, the FDIC, the Federal Reserve Board (“FRB”) or any other federal or state bank regulatory authority either as a bank holding company or otherwise, the Parent Company gave the FDIC authority pursuant to a contractual supervisory agreement (the “Parent Company Agreement”) to examine the Parent Company, the relationship and transactions between it and CapitalSource Bank and the effect of such relationship and transactions on CapitalSource Bank. The Parent Company is subject to regulation by other applicable federal and state agencies, such as the Securities and Exchange Commission ("SEC"). We are required to file periodic reports with these regulators and provide any additional information that they may require.

The following summary describes some of the more significant laws, regulations, and policies that affect our operations; it is not intended to be a complete listing of all laws that apply to us. From time to time, federal, state and foreign legislation is enacted and regulations are adopted which may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. We cannot predict whether or when potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations.

General

Like other banks, CapitalSource Bank must file reports in the ordinary course with applicable regulators concerning its activities and financial condition in addition to obtaining regulatory approvals prior to changing its approved business plan or entering into certain transactions such as mergers with, or acquisitions of, other financial institutions.

While CapitalSource Bank completed its initial three-year de novo period in July 2011, certain conditions contained in the FDIC Order remain in place pursuant to the continued existence of the Parent Company Agreement and the Capital Maintenance and Liquidity Agreement (the “CMLA”) until such time as we apply for and are granted relief by the FDIC from the requirements of these agreements. Under the provisions of the CLMA, the Parent Company has provided, and is required to continue to provide, a $150.0 million unsecured revolving credit facility that CapitalSource Bank may draw on at any time it or the FDIC deems necessary. This revolving credit facility has been in place since the formation of CapitalSource Bank and has not been drawn upon. Other remaining conditions are the requirement that CapitalSource Bank maintain a total risk-based capital ratio of not less than 15% and also maintain all other capital ratios of well-capitalized banks, to be supported by the Parent Company. CapitalSource Bank remains subject to bank safety and soundness requirements as well as to various regulatory capital requirements established by federal and state regulatory agencies, including any new conditions that our regulators may determine. Pursuant to the Parent Company Agreement, the Parent Company has consented to an examination of itself by the FDIC for purposes of monitoring compliance with the laws and regulations applicable to CapitalSource Bank and its affiliates.

In 2011, CapitalSource Bank filed a revised business plan pursuant to guidance issued by the FDIC for de novo institutions, with the plan covering the time period from July 1, 2011 through December 31, 2015. During this time period, CapitalSource Bank is subject to increased supervision that would otherwise not be applicable to a bank that has been in existence longer than three years, including enhanced FDIC supervision for compliance examinations and Community Reinvestment Act evaluations.

The FDIC and DBO conduct periodic examinations to evaluate CapitalSource Bank's safety and soundness and compliance with various regulatory requirements. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the regulators or Congress, could have a material adverse impact on our operations.

In addition, the investment, lending and branch operating authority of CapitalSource Bank is prescribed by state and federal laws, and CapitalSource Bank is prohibited from engaging in any activities not permitted by these laws.

California law provides limits on loans to one borrower. In general, a California bank may not make unsecured loans or extensions of credit to a single or related group of borrowers in excess of 15% of the sum of its shareholders' equity, allowance for loan losses, capital notes and debentures. An additional amount may be lent, equal to 10% of such sum of shareholders' equity and other amounts, if secured by specified readily marketable collateral. As of December 31, 2013, this limit on loans to one borrower was $202.0 million if unsecured and $337.0 million if secured by readily marketable collateral.

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The FDIC and DBO, as well as the other federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution that fails to comply with these standards may be subject to potential enforcement actions by the federal or state banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance for deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, or the issuance of removal and prohibition orders against institution-affiliated parties.

The international Basel Committee on Banking Supervision published the final text of Basel III on December 16, 2010, which introduced new minimum capital requirements. On July 9, 2013, the federal banking agencies issued final rules (the “Basel III Capital Rules”), which become effective on January 1, 2015 (subject to phase-in periods for certain provisions), establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules revise the definitions and components of regulatory capital, expand the scope of the deductions from and adjustments to capital, expand the number of risk-weighting categories and assign higher risk weights to certain assets and make other changes that affect the calculation of regulatory capital ratios. The Basel III Capital Rules also implement certain provisions of the Dodd-Frank Act, including the requirements to remove references to credit ratings from the federal agencies’ rules. These changes, and other regulatory initiatives in the United States, in the wake of the financial crisis, including provisions of the Dodd-Frank Act, are expected to result in higher regulatory capital standards and expectations for banking organizations.

The Basel III Capital Rules (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, and (iii) require that most deductions from and adjustments to capital be made to CET1 rather than to the other components of capital.

Under the Basel III Capital Rules, the minimum capital ratios as of January 1, 2015, will be: (1) 4.5% CET1 to risk-weighted assets; (2) 6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1 capital) to risk-weighted assets; (3) 8.0% total capital (i.e., Tier 1 capital plus Tier 2 capital ) to risk-weighted assets; and (4) 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (i.e., the “leverage ratio”). The Basel III Capital Rules also limit a banking organization’s ability to pay dividends, repurchase shares or pay discretionary bonus if a banking organization does not have a “capital conservation buffer,” comprised of CET1 capital, in an amount greater than 2.5% CET1 of risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. Phase-in of the capital conservation buffer requirements will begin on January 1, 2016 and must be fully phased-in by January 1, 2019.

Federal Home Loan Bank System

CapitalSource Bank is a member of the FHLB SF. Among other benefits, each FHLB serves its members within its assigned region and makes available loans to its members. Each FHLB is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system. As a member, CapitalSource Bank is required to purchase and maintain stock in the FHLB SF. As of December 31, 2013, CapitalSource Bank owned $31.3 million in par value of FHLB SF stock, which was in compliance with this requirement.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), an initiative directed at the financial services industry, represents a comprehensive overhaul of the financial services industry within the United States, establishes the new federal Bureau of Consumer Financial Protection (the “BCFP”), and will require the BCFP and other federal agencies, including the SEC, to undertake assessments and rulemaking. A number of the provisions in the Dodd-Frank Act are aimed at financial institutions that are larger than the Parent Company or CapitalSource Bank. Nonetheless, there are provisions with which we will have to comply both as a public company and a financial institution.

The Dodd-Frank Act imposes a number of significant regulatory and compliance changes in the banking and financial services industry. Many provisions of the Dodd-Frank Act must be implemented by regulations yet to be adopted by various government agencies. These regulations, and other changes in the regulatory regime, may include additional requirements, conditions, and limitations that may impact us. Certain provisions of the Dodd-Frank Act and implementing regulations that may have a material effect on our business are noted below.

• The Dodd-Frank Act required a study regarding the continued exemption of industrial banks from the Bank Holding Company Act of 1956, as amended, or BHC Act. As a state-chartered industrial bank, CapitalSource Bank is currently exempt from the definition of “bank” under the BHC Act. The required study, which has been completed by the General Accounting Office, did not state a definitive conclusion on this question but did report that the Treasury Department and the FRB believe that the current exemption poses risks to the financial system. If the current exemption

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is eliminated, in order to continue to own CapitalSource Bank, the Parent Company would be required to register as a bank holding company, or BHC. If we were unsuccessful in registering as a BHC or another exception does not become available to us, our continued ownership of CapitalSource Bank would not be permissible.

• The Dodd-Frank Act directs the federal banking agencies to issue regulations requiring that the parent company of any federally insured depository institution serve as a “source of financial strength” to its subsidiary depository institution. The source of strength requirement had historically applied only to BHCs and their subsidiary banks. Under the source of strength requirement, the Parent Company will be required to serve as a source of financial strength to CapitalSource Bank. The banking regulators could require the Parent Company to contribute additional capital to CapitalSource Bank or to take, or refrain from taking, other actions for the benefit of CapitalSource Bank.

• The Dodd-Frank Act restricted the acquisition of control of an industrial bank by a non-financial firm. For a period of three years beginning on July 21, 2010, the Dodd-Frank Act generally prohibited the banking regulators from approving any proposed change in control of an industrial bank, such as CapitalSource Bank, if the proposed acquirer was a “commercial firm.” Although that three-year moratorium period has expired, there is no certainty that the FDIC would approve the direct or indirect acquisition of control of CapitalSource Bank by a commercial firm.

• The Dodd-Frank Act requires the FRB to adopt regulations requiring increased capital requirements, minimum liquidity ratios, periodic stress testing and the establishment of board-level risk management committees for the largest banking institutions (those with assets greater than $50 billion or, in some case, greater than $10 billion), some or all of which requirements may become requirements, over time, for smaller institutions and for banking organizations not regulated by the FRB.

• The Dodd-Frank Act requires the federal financial agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain “unregistered investment companies” (defined as hedge funds and private equity funds). This statutory provision is commonly referred to as the “Volcker Rule.” In December 2013, five financial regulatory agencies, including the FDIC, adopted final rules implementing the Volcker Rule (the “Final Rules"). The Final Rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, or (ii) having certain ownership interests in and relationships with hedge funds or private equity funds (“covered funds”). The Final Rules are intended to provide greater clarity with respect to the extent of those prohibitions and the related exemptions and exclusions. Each regulated entity, including the Parent Company and CapitalSource Bank, is also required to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule. The Final Rules also include certain regulatory reporting requirements. We intend to adopt the Final Rules by the mandated April 1, 2014 date and expect to be fully compliant with the Final Rules by the conformity period on July 21, 2015. We are currently analyzing the effects of the Volcker Rule.

• Six financial regulatory federal agencies, including the FDIC, have proposed rules to implement the Dodd-Frank Act provisions requiring retention of credit risk by certain securitization participants through holding interests in securitization vehicles. The proposed rules would require a securitizer (or sponsor) to retain an economic interest equal to at least 5 percent of the aggregate credit risk of assets collateralizing an issuance of asset-backed securities, subject to certain exceptions for qualified residential mortgages and qualified commercial real estate mortgages, commercial loans and auto loans, which meet specified underwriting standards. Because these rules are not yet finalized or effective, the ultimate impact of these provisions on the CapitalSource Bank and the Parent Company are not known at this time. We will continue to monitor developments related to the implementation of these risk retention provisions of the Dodd-Frank Act.

Insurance of Accounts and Regulation by the FDIC

CapitalSource Bank's deposits are insured up to the maximum amounts permitted by the FDIC, currently $250,000. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. The FDIC may prohibit any FDIC insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the insurance fund. The FDIC also has the authority to initiate enforcement actions against insured institutions.

On October 7, 2008, the FDIC established a Restoration Plan to return the Depositors Insurance Fund ("DIF") to its statutorily mandated minimum reserve ratio of 1.15% within five years. In 2009, the Restoration Plan was amended to extend the restoration period to seven years and Congress subsequently amended the statute to allow the FDIC up to eight years to return the DIF reserve ratio to 1.15%, absent extraordinary circumstances. To meet this reserve ratio by the end of 2016, the FDIC amended its Restoration Plan and adopted a uniform 3 basis point increase in the initial assessment rates effective January 1, 2011.

The Dodd-Frank Act establishes a minimum designated reserve ratio (“DRR”) of 1.35% of estimated insured deposits, provides discretion to the FDIC to develop a new assessment base, mandates the FDIC adopt a restoration plan should the fund balance fall below 1.35%, and authorizes payment of dividends to the industry should the fund balance exceed 1.50%. The Dodd-Frank Act requires the DRR to be achieved by September 30, 2020. On February 7, 2011, the FDIC adopted a final rule that revised the assessment base and assessment rate schedule effective April 1, 2011, and, in lieu of dividends, provides for reduced assessment

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rates once the DRR exceeds 2.00% and again at 2.50%. Assessments generally will be calculated using an insured depository institution's average assets minus average tangible equity. The initial assessment rates range between 5 basis points for a low risk institution to 35 basis points for a high risk institution, with further rate adjustments for the level of unsecured debt and brokered deposits held by an institution.

A significant increase in FDIC assessment rates would have an adverse effect on the operating expenses and results of operations of CapitalSource Bank. We cannot predict what assessment rates will be in the future. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Prompt Corrective Action

The FDIC is required to take certain supervisory actions against undercapitalized banks, the severity of which depends upon the institution's degree of undercapitalization. Generally, an institution is considered to be “undercapitalized” if it has a core capital ratio of less than 4.0% (3.0% or less for institutions with the highest examination rating), a ratio of total capital to risk-weighted assets of less than 8.0%, or a ratio of Tier 1 capital to risk-weighted assets of less than 4.0%. An institution that has a core capital ratio that is less than 3.0%, a total risk-based capital ratio less than 6.0%, and a Tier 1 risk-based capital ratio of less than 3.0% is considered to be “significantly undercapitalized” and an institution that has a tangible capital ratio equal to or less than 2.0% of total assets is deemed to be “critically undercapitalized.” Subject to a narrow exception, the FDIC is required to appoint a receiver or conservator for a bank that is “critically undercapitalized.” Regulations also require that a capital restoration plan be filed with the FDIC within 45 days of the date an institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. “Significantly undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory actions. The FDIC also could take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Inadequate capital is also a basis for action, ultimately including receivership, by the FDIC.

The Basel III Capital Rules revise the prompt corrective action (“PCA”) regulations pursuant to section 38 of the Federal Deposit Insurance Act, which authorize and, under certain circumstances, require the federal banking agencies to take certain actions against banks that fail to meet their capital requirements, particularly those that are categorized as less than “adequately capitalized” (i.e., categorized as “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized”). The Basel III Capital rules revise the PCA regulations by: (1) introducing a CET1 ratio requirement at each PCA category (other than “critically undercapitalized”; (2) increasing the minimum Tier 1 capital ratio requirement for each category; and (3) eliminating the current provision that allows a bank with a composite supervisory rating of 1 to have a 3% leverage ratio and remain classified as “adequately capitalized.” The total risk-based capital ratio requirement for each PCA category remains unchanged. To qualify as “well capitalized” under the revised PCA regulations, a bank must meet the following capital ratio requirements: (1) 6.5% CET1 to risk-weighted assets; (2) 8.0% Tier 1 capital to risk-weighted assets; (3) 10.0% total capital to risk-weighted assets, and (4) 5.0% leverage ratio. The FDIC and other federal banking agencies have advised that they expect banking organizations to maintain capital ratios well above the minimum ratios necessary to be categorized as “well capitalized.”

To remain in compliance with the conditions imposed by the FDIC, CapitalSource Bank is required to maintain a total risk-based capital ratio of not less than 15% and must at all times be “well-capitalized,” which additionally requires CapitalSource Bank to have minimum Tier 1 risk-based capital ratio of 6% and Tier 1 leverage ratio of 5% in accordance with pre-Basel III Capital Rules. As of December 31, 2013, CapitalSource Bank had Tier 1 leverage, Tier 1 risked-based capital and total risk based capital ratios of 13.88%, 15.03%, and 16.29%, respectively, each in excess of the minimum percentage requirements for “well-capitalized” institutions. With regard to the Basel III Capital Rules, we are in the process of determining the impact of the new capital requirements on our capital ratios. For additional information, see Note 14, Bank Regulatory Capital, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

Limitations on Capital Distributions

The authority of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. Additionally, Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Institutions require the FDIC’s prior non-objection to material changes to a de novo institution’s business plan which includes the payment of dividends in excess of the CapitalSource Bank’s FDIC-approved Four Year Plan. For purposes of this guidance, CapitalSource Bank is still categorized as a de novo institution. The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") prohibits a bank from making capital distributions, including dividends, if, after such transaction, the bank would be undercapitalized.

In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank and the bank's net income for its

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last three fiscal years (less any distributions to shareholders during this period). If a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with appropriate regulatory approval in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year and the bank's net income for its current fiscal year. Simultaneously with the Merger with PacWest, CapitalSource Bank will pay a dividend to the Parent Company in an amount no more than CapitalSource Bank's retained earnings as of December 31, 2013.

The FDIC also has the authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.

Transactions with Affiliates

CapitalSource Bank's authority to engage in transactions with “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board's Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution, and includes the Parent Company as it relates to CapitalSource Bank. In general, transactions with affiliates must be on terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, specified types of transactions are restricted to an aggregate percentage of the institution's capital stock and surplus as defined by the regulators. Collateral in specified amounts must be provided by affiliates to receive extensions of credit from an institution. Federally insured banks are subject, with certain exceptions, to restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, these institutions are prohibited from engaging in specified tying arrangements in connection with any extension of credit or the providing of any property or service.

Community Reinvestment Act

Under the Community Reinvestment Act ("CRA"), every FDIC-insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with the examination of CapitalSource Bank, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment or closure of a branch, by CapitalSource Bank. The FDIC may use an unsatisfactory rating as the basis for the denial of an application. Due to the heightened attention being given to the CRA in the past few years, CapitalSource Bank may be required to devote additional funds for investment and lending in its local community, which comprises southern and central California. CapitalSource Bank received a rating of "Outstanding" from the FDIC on its most recent CRA evaluation.

Regulatory and Criminal Enforcement Provisions

The FDIC and DBO have primary enforcement responsibility over CapitalSource Bank and have the authority to bring action against all “institution-affiliated parties,” including stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance. The FDIC has the authority to assess civil money penalties for a wide range of violations, which can amount to $25,000 per day, or $1.1 million per day in especially egregious cases. Federal law also establishes criminal penalties for specific violations.

Environmental Issues Associated with Real Estate Lending

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), a federal statute, generally imposes strict liability on all prior and current “owners and operators” of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term “owner and operator” excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for clean-up costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Parent Company and CapitalSource Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Privacy Standards

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (“GLBA”) modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. CapitalSource Bank is subject to regulations implementing the privacy

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protection provisions of the GLBA. These regulations require CapitalSource Bank to disclose its privacy policy, including identifying with whom it shares “non-public personal information” to consumers at the time of establishing the customer relationship and annually thereafter. The State of California's Financial Information Privacy Act provides greater protection for consumer's rights under California Law to restrict affiliate data sharing.

Anti-Money Laundering and Customer Identification

As part of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”), Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (“IMLAFATA”). IMLAFATA amended the Bank Secrecy Act (“BSA”) and adopted additional measures that established or increased existing obligations of financial institutions, including CapitalSource Bank, to identify their customers, monitor and report suspicious transactions, respond to requests for information by federal banking regulatory authorities and law enforcement agencies, and, at the option of CapitalSource Bank, share information with other financial institutions. The U.S. Secretary of the Treasury has adopted several regulations to implement these provisions. Pursuant to these regulations, CapitalSource Bank is required to implement appropriate policies and procedures relating to anti-money laundering matters, including compliance with applicable regulations, suspicious activities, currency transaction reporting and customer due diligence. Our BSA compliance program is subject to federal regulatory review.

Other Laws and Regulations

We are subject to many other federal statutes and regulations, such as the Equal Credit Opportunity Act, the Truth in Savings Act, the Fair Credit Reporting Act, the Fair Housing Act, the National Flood Insurance Act and various federal and state privacy protection laws. These laws, rules and regulations, among other things, impose licensing obligations, limit the interest rates and fees that can be charged, mandate disclosures and notices to customers, mandate the collection and reporting of certain data regarding customers, regulate marketing practices and require the safeguarding of non-public information of customers. Violations of these laws could subject us to lawsuits and could also result in administrative penalties, including, fines and reimbursements. We are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.

In recent years, examination and enforcement by the state and federal banking agencies for non-compliance with the above-referenced laws and their implementing regulations have become more intense. Due to these heightened regulatory concerns, we may incur additional compliance costs or be required to expend additional funds for investments in our local community.

The federal government continues to evaluate possible new laws and regulations, which if enacted, could have a material impact on us, including among other things increased reporting obligations, restrictions on current lending activities, federal and state supervision and increased expenses to operate as a bank.

Regulation of Other Activities

Some other aspects of our operations are subject to supervision and regulation by governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things:

• regulate credit and lending activities, including establishing licensing requirements in some jurisdictions;

• establish the maximum interest rates, finance charges and other fees we may charge our borrowers;

• govern secured transactions;

• require specified information disclosures to our borrowers;

• set collection, foreclosure, repossession and claims handling procedures and other trade practices;

• regulate our borrowers' insurance coverage;

• prohibit discrimination in the extension of credit and administration of our loans; and

• regulate the use and reporting of certain borrower information.

In addition, many of our healthcare borrowers receive significant funding from governmental sources and are subject to licensure, certification and other regulation and oversight under the applicable Medicare and Medicaid programs. These regulations and governmental oversight, both on federal and state levels, indirectly affect our business in several ways as discussed below.

• Failure to comply with the applicable laws and regulation by our borrowers could result in loss of accreditation, denial of reimbursement, imposition of fines or corporate integrity agreements, suspension or decertification from federal and state health care programs, loss of license and closure of the facility.

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• With limited exceptions, the law prohibits payment of amounts owed to healthcare providers under the Medicare and Medicaid programs to be directed to any entity other than actual providers approved for participation in the applicable programs. Accordingly, while we lend money that is secured by pledges of Medicare and Medicaid receivables, if we were required to invoke our rights to the pledged receivables, we would be unable to collect receivables payable under these programs directly. We would need a court order to force collection directly against these governmental payers.

• Hospitals, nursing facilities and other providers of healthcare services are not always assured of receiving adequate Medicare and Medicaid reimbursements to cover the actual costs of operating the facilities and providing care to patients. In addition, modifications to reimbursement payment mechanisms, statutory and regulatory changes, retroactive rate adjustments, administrative rulings, policy interpretations, payment delays, and government funding restrictions could result in payment delays or alterations in reimbursements affecting providers' cash flows with possible material adverse effect on a borrower's liquidity.

• Many states are presently considering enacting, or have already enacted, reductions in the amount of funds appropriated to healthcare programs resulting in rate freezes or reductions to their Medicaid payment rates and often curtailments of coverage afforded to Medicaid enrollees. Most of our healthcare borrowers depend on Medicare and Medicaid reimbursements, and reductions in reimbursements, caused by modifications to reimbursement systems, payment cuts, census declines, staffing shortages, or other operational forces from these programs may have a negative impact on their ability to generate adequate revenues to satisfy their obligations to us. There are no assurances that payments from governmental payors will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for coverage under these programs.

• The impacts of Congressional healthcare reform, federal fiscal cliff impacts and related budget deficit initiatives, impacts of medicaid expansion participation by individual states where we conduct business, as well as individual state budgetary shortfalls may initiate significant reforms and alterations to the United States healthcare system, including potential material changes to the delivery of healthcare services including anticipated shifts to a higher utilization of managed care coverage, and the level of reimbursements paid to providers and the mechanisms for such payments by the government and other third party payors.

• For our borrowers to remain eligible to receive reimbursements under the Medicare and Medicaid programs, the borrowers must comply with a number of conditions of participation and other regulations imposed by these programs, and are subject to periodic federal and state surveys to ensure compliance with various clinical, life safety and operational covenants. A borrower's failure to comply with these covenants and regulations may cause the borrower to incur penalties and fines and other sanctions, or lose its eligibility to continue to receive reimbursements under the programs, which could result in the borrower's inability to make scheduled payments to us.

Employees

As of December 31, 2013, we employed 495 people. We believe that our relations with our employees are good.

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Executive Officers

Our executive officers and their ages and positions are as follows:

Name	Age	Position
James J. Pieczynski	51	Chief Executive Officer
Douglas H. (Tad) Lowrey	61	Chief Executive Officer - CapitalSource Bank
Laird M. Boulden	56	President
John A. Bogler	48	Chief Financial Officer
Mike A. Smith	47	Senior Vice President and Chief Accounting Officer
Bryan M. Corsini	52	Executive Vice President and Chief Administrative Officer - CapitalSource Bank
Christopher A. Scardelletti	44	Executive Vice President and Chief Credit Officer - CapitalSource Bank

_________________________

Biographies for our executive officers are as follows:

James J. Pieczynski, 51, has served as a director since January 2010 and as Chief Executive Officer since January 2012. Mr. Pieczynski has also served as President of CapitalSource Bank since January 2012 and as a member of the board of directors of CapitalSource Bank since January 2013. Mr. Pieczynski previously served as Co-Chief Executive Officer from January 2010 through December 2011, our President - Healthcare Real Estate Business from November 2008 until January 2010, and our Co-President - Healthcare and Specialty Finance from January 2006 until November 2008. Mr. Pieczynski received his undergraduate degree from the University of Illinois, Urbana-Champaign in 1984.

Douglas H. (Tad) Lowrey, 61, has served as Chairman of the Board of CapitalSource Bank since July 2012, and as the Chief Executive Officer of CapitalSource Bank since its formation on July 25, 2008 and served as President of CapitalSource Bank from his appointment through December 2011. Prior to his appointment, Mr. Lowrey served as Executive Vice President of Wedbush, Inc., a private investment firm and holding company, from January 2006 until June 2008. Mr. Lowrey is an elected director of the Federal Home Loan Bank of San Francisco and the California Bankers Association. He received his undergraduate degree from Arkansas Tech University and was licensed in 1977 in the state of Arkansas as a certified public accountant.

Laird M. Boulden, 56, has served as President since October 2011 and as the Chief Lending Officer of CapitalSource Bank since January 1, 2012. Mr. Boulden previously served as the President of the Company's Corporate Finance Group from May 2011 to October 2011 and President of the Company's Corporate Asset Finance Group from February 2010 to May 2011. Before joining the Company, Mr. Boulden was co-founder of Tygris Commercial Finance where he served as President of Tygris Asset Finance from March 2008 to December 2010 and was the founder and President of RBS Asset Finance (f/k/a RBS Lombard) from October 2001 until March 2008. Mr. Boulden received his undergraduate degree from the University of South Florida in 1979.

John A. Bogler, 48, has served as Chief Financial Officer since January 2012 and as Chief Financial Officer of CapitalSource Bank since its formation on July 25, 2008. Prior to his appointment, Mr. Bogler served as Chief Financial Officer of Affinity Financial Corporation from January 2008 until July 2008. Mr. Bogler served as a financial consultant specializing in bank acquisition and de novo activities from February 2005 until January 2008. Mr. Bogler received his undergraduate degree from Missouri State University in 1988, became a certified public accountant in the state of Missouri in 1991 and became a chartered financial analyst in 1998.

Mike A. Smith, 47, has served as our Chief Accounting Officer since March 2012 and as Chief Accounting Officer of CapitalSource Bank since October 2009. Previously, Mr. Smith served as Senior Vice President, Finance of CapitalSource Bank since its formation from July 2008 until September 2009. Mr. Smith served as Chief Accounting Officer of Fremont Investment & Loan from May 2004 until July 2008. Mr. Smith received his masters and undergraduate degrees from Brigham Young University in 1992, became a certified public accountant in the state of California in 1996, became a certified management accountant in 1997 and became a chartered global management accountant in 2012.

Bryan M. Corsini, 52, has served as the Executive Vice President and Chief Administrative Officer of CapitalSource Bank since October 2011. Mr. Corsini previously served as President, Credit Administration of CapitalSource Bank from July 2008 to October 2011 and as our Chief Credit Officer from our inception in 2000 until July 2008. He received his undergraduate degree from Providence College, Rhode Island. Mr. Corsini was licensed in 1986 in the state of Connecticut as a certified public accountant.

Christopher A. Scardelletti, 44, has served as the Executive Vice President and Chief Credit Officer of CapitalSource Bank since July 2008. Previously, Mr. Scardelletti served as Director of Credit in our Lender Finance Group from March 2003 to June 2008. Mr. Scardelletti received his undergraduate degree from the University of Maryland, College Park and was licensed in 1993 in the state of Maryland as a certified public accountant.

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Other Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.capitalsource.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission or by contacting CapitalSource Investor Relations, at (866) 876-8723 or investor.relations@capitalsource.com.

We also provide access on our website to our Principles of Corporate Governance, Code of Business Conduct and Ethics, the charters of our Audit, Compensation, Asset / Liability Committee, Risk Committee and Nominating and Corporate Governance Committee and other corporate governance documents. Copies of these documents are available to any shareholder upon written request made to our corporate secretary at our Chevy Chase, Maryland address. In addition, we intend to disclose on our website any changes to or waivers for our executive officers or directors from, our Code of Business Conduct and Ethics.

ITEM 1A. RISK FACTORS

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occur, our business, financial condition or results of operations could suffer, and the trading price of our securities could decline. The U.S. economy is still in the process of recovering from an economic recession, and a slow recovery may adversely impact on our business and operations, including, without limitation, the credit quality of our loan portfolio, our liquidity and our earnings. You should know that many of the risks described may apply to more than just the subsection in which we grouped them for the purpose of this presentation. As a result, you should consider all of the following risks, together with all of the other information in this Annual Report on Form 10-K, before deciding to invest in our securities.

Risks Related to the Pending Merger

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the other transactions contemplated by the Merger Agreement may be completed, the Company and PacWest must obtain approvals from the FRB, the FDIC, and the California Department of Business Oversight. Other approvals, waivers or consents from regulators may also be required. These regulators may impose conditions on the completion of the merger or the other transactions contemplated by the Merger Agreement or require changes to the terms of the merger or the other transactions contemplated by the Merger Agreement. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the other transactions contemplated by the Merger Agreement or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

PacWest and the Company have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on PacWest's ability to successfully combine the businesses of PacWest and the Company. To realize these anticipated benefits and cost savings, after the completion of the merger, PacWest expects to integrate the Company's business into its own. It is possible that the integration process could result in the loss of key employees, the disruption of each company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company's ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could have an adverse effect on PacWest's financial results and the value of its common stock, and therefore on the value of the merger consideration to be received by the Company's stockholders in the merger. If PacWest experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause PacWest and/or the Company to lose customers or cause customers to remove their accounts from PacWest and/or the Company and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of PacWest and the Company during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

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Termination of the Merger Agreement could negatively impact us.

If the Merger Agreement is terminated, there may be various consequences. For example, our businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of the Company's common stock could decline to the extent that the current market price reflects a market assumption that the merger will be completed. In addition, we have incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the transaction.

The Company and PacWest will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on PacWest or the Company as well as the combined organization. These uncertainties may impair the Company's or PacWest's ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with the Company or PacWest to seek to change existing business relationships with the Company or PacWest. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company or PacWest, the Company's business or PacWest's business could be harmed. Subject to certain exceptions, each of PacWest and the Company has agreed to operate its business in the ordinary and usual course prior to closing.

The Merger Agreement limits PacWest's and the Company's ability to pursue acquisition proposals.

The Merger Agreement prohibits the Company from initiating, soliciting, encouraging or facilitating certain third party acquisition proposals. In addition, the Merger Agreement provides that the Company must pay to PacWest a termination fee in the amount of $91 million under certain limited circumstances relating to third party acquisition transactions involving the Company. Thisprovision might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition.

Risks Related to Our Lending Activities

Our results of operations and financial condition would be adversely affected if our allowance for loan and lease losses is not sufficient to absorb actual losses.

Experience in the financial services industry indicates that a portion of our loans in all categories of our lending business will become delinquent or impaired, and some may only be partially repaid or may never be repaid at all. Our methodology for establishing the adequacy of the allowance for loan and lease losses depends in part on subjective determinations and judgments about our borrowers' ability to repay. Despite management's efforts to estimate future losses, ultimate resolutions of individual loans may result in actual losses that are greater than our allowance. Deterioration in general economic conditions and unforeseen risks affecting customers may have an adverse effect on our borrowers' capacity to repay their obligations, whether our risk ratings or valuation analyses reflect those changing conditions. Changes in economic and market conditions may increase the risk that our allowance for loan and lease losses would become inadequate if borrowers experience economic and other conditions adverse to their businesses. Maintaining the adequacy of our allowance for loan and lease losses may require that we make significant and unanticipated increases in our provisions for loan and lease losses, which would materially affect our results of operations and capital adequacy. Recognizing that many of our loans individually represent a significant percentage of our total allowance for loan and lease losses, adverse collection experience in a relatively small number of loans could require an increase in our allowance. Federal and State regulators, as an integral part of their respective supervisory functions, periodically review a portion of our loan portfolio. The regulatory agencies may require changes to our risk ratings on loans, which could lead to an increase in the allowance for loan and lease losses, increased provisions for loan and lease losses and as appropriate, recognition of further loan charge-offs based upon their judgments, which may be different from ours. Increases in the allowance for loan and lease losses required by these regulatory agencies could have a negative effect on our results of operations and financial condition.

We may not recover all amounts that are contractually owed to us by our borrowers.

The Parent Company is dependent primarily on loan collections and the proceeds of loan sales to fund its operations. A shortfall in loan proceeds may impair our ability to fund our operations or to repay our existing debt.

When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk. The credit quality of our portfolio can have a significant impact on our earnings. We expect to experience charge-offs and delinquencies on our loans in the future. Our clients may experience operational or financial problems or may perform below

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that which we expected when we originated a loan that, if not timely addressed, could result in a substantial impairment or loss of the value of our loan to the client. We may fail to identify problems because our client did not report them in a timely manner or, even if the client did report the problem, we may fail to address it quickly enough or at all. Even if clients provide us with full and accurate disclosure of all material information concerning their businesses, we may misinterpret or incorrectly analyze this information. Mistakes may cause us to make loans that we otherwise would not have made or, to fund advances that we otherwise would not have funded, or result in losses on one or more of our loans. As a result, we could suffer loan losses, which could have a material adverse effect on our revenues, net income and results of operations and financial condition, to the extent the losses exceed our allowance for loan and lease losses.

The collateral securing a loan may not be sufficient to protect us if we have not properly obtained or perfected a lien on such collateral or if the collateral value does not cover the loan.

Most of our loans are secured by a lien on specified collateral of the client and we may not obtain or properly perfect our liens or the value of the collateral securing any particular loan may not protect us from suffering a partial or complete loss if the loan becomes non-performing and we move to foreclose on the collateral. In such event, we could suffer loan losses, which could have a material adverse effect on our revenue, net income, financial condition and results of operations.

In particular, leveraged lending involves lending money to a client based primarily on the expected cash flow, profitability and enterprise value of a client rather than on the value of its assets. As of December 31, 2013, approximately 28% of the aggregate outstanding loan balance of our portfolio comprised leveraged loans. The value of the assets which we hold as collateral for these loans is typically substantially less than the amount of money we advance to a client under these loans. When a leveraged loan becomes non-performing, our primary recourse to recover some or all of the principal of our loan is to force the sale of the entire company as a going concern or restructure the company in a way we believe would enable it to generate sufficient cash flow over time to repay our loan. Neither of these alternatives may be an available or viable option or generate enough proceeds to repay the loan. Additionally, given recent and current economic conditions, many of our leveraged loan clients have and may continue to suffer decreases in revenues and net income, making them more likely to underperform and default on our loans and making it less likely that we could obtain sufficient proceeds from a restructuring or sale of the company.

Our concentration of loans to privately owned small and medium-sized companies and to a limited number of clients within particular industry or region could expose us to greater lending risk if the market sector, industry or region were to experience economic difficulties or changes in the regulatory environment.

Our portfolio consists primarily of commercial loans to small and medium-sized, privately owned businesses in a limited number of industries and regions primarily throughout the United States. In our normal course of business, we engage in lending activities with clients primarily throughout the United States. As of December 31, 2013, the single largest industry concentration in our outstanding loan balance was health care and social assistance, which represented approximately 22.2% of the outstanding loan portfolio. As of December 31, 2013, taken in the aggregate, lender finance (primarily timeshare) loans were our largest loan concentration by sector and represented approximately 16% of our loan portfolio. As of December 31, 2013, the largest loan to one borrower amounted to $83.7 million, or 1.2%, of our portfolio and the largest relationship with one borrower amounted to $104.1 million, or 1.5%, of our portfolio which was comprised of multiple loans.

Apart from the borrower industry concentrations, loans secured by real estate represented approximately 43% of our outstanding loan portfolio as of December 31, 2013. Within this area, the largest property type concentration was the multifamily category, comprising approximately 23% of total loans and 10% of loans secured by real estate. The largest geographical concentration was in California, comprising approximately 21% of total loans and 9% of loans secured by real estate.

If any particular industry or geographic region were to experience economic difficulties, the overall timing and amount of collections on our loans to clients operating in those industries or geographic regions may differ from what we expected, which could have a material adverse impact on our financial condition or results of operations.

Additionally, compared to larger, publicly owned firms, privately owned small and medium-sized companies generally have limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. These financial challenges may make it difficult for our clients to make scheduled payments of interest or principal on our loans. Accordingly, loans made to these types of clients entail higher risks than loans made to companies that are able to access a broader array of credit sources. The concentration of our portfolio in loans to these types of clients could amplify these risks.

Further, there is generally no publicly available information about the small and medium-sized privately owned companies to which we lend. Therefore, we underwrite our loans based on detailed financial information and projections provided to us by our clients and we must rely on our clients and the due diligence efforts of our employees to obtain the information relevant to

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making our credit decisions. We rely upon the management of these companies to provide full and accurate disclosure of material information concerning their business, financial condition and prospects. We may not have access to all of the material information about a particular client's business, financial condition and prospects, or a client's accounting records may be poorly maintained or organized. The client's business, financial condition and prospects may also change rapidly in the current economic environment. In such instances, we may not make a fully informed credit decision which may lead, ultimately, to a failure or inability to recover our loan in its entirety.

We are in a competitive business and may not be able to take advantage of attractive opportunities.

Our markets are competitive and characterized by varying competitive factors. We compete with a large number of companies, including:

• commercial banks and thrifts;

• specialty and commercial finance companies;

• private investment funds;

• insurance companies; and

• investment banks.

Some of our competitors have greater financial, technical, marketing and other resources and market positions than we do. They also have greater access to capital than we do and at a lower cost than is available to us. Furthermore, we would expect to face increased price competition on deposits if banks or other competitors seek to expand within or enter our target markets. Increased competition could cause us to reduce our pricing and lend greater amounts as a percentage of a client's eligible collateral or cash flows. Even with these changes, in an increasingly competitive market, we may not be able to attract and retain depositors or clients or maintain or grow our business and our market share and future revenues may decline. If our existing clients choose to use competing sources of credit to refinance their loans, the rate at which loans are repaid may increase, which could change the characteristics of our loan portfolio as well as cause our anticipated return on our existing loans to vary.

Risks Impacting Funding our Operations

Our ability to operate our business depends on our ability to raise sufficient deposits and in some cases other sources of funding.

CapitalSource Bank's ability to maintain or raise sufficient deposits may be limited by several factors, including:

• competition from a variety of competitors, many of which offer a greater selection of products and services have greater financial resources;

• as a California state-chartered bank, CapitalSource Bank is permitted to offer only savings, money market, and time deposit products, which limitations may adversely impact its ability to compete effectively; and

• depositors’ negative views of the Company could cause those depositors to withdraw their deposits or seek higher rates.

While we expect to maintain and continue to raise deposits at a reasonable rate of interest, there is no assurance that we will be able to do so successfully. If the ability of CapitalSource Bank to attract and retain suitable levels of deposits weakens, it would have a negative impact on our business, financial condition, results of operations and the market price of our common stock.

In addition, given the short average maturity of CapitalSource Bank's deposits relative to the maturity of its loans, the inability of CapitalSource Bank to raise or maintain deposits could compromise our ability to operate our business, impair our liquidity and threaten our solvency.

Aside from deposit funding, CapitalSource Bank may obtain back-up liquidity from the Parent Company pursuant to the $150.0 million revolving credit facility it has established with the Parent Company. The Parent Company may not have or maintain sufficient liquidity, in which case CapitalSource Bank may not be able to draw on the $150.0 million revolving credit facility.

CapitalSource Bank has borrowing facilities established with the FHLB SF and the FRB. Our access to borrowing from FHLB SF may be materially impacted should Congress alter or dissolve the Federal Home Loan Bank system. Our access to the FRB primary credit program may be materially impacted should the FRB modify its credit program and limit CapitalSource Bank's access to the program. The ability to borrow from each of the FHLB SF and the FRB is dependent upon the value of collateral pledged to these entities. These lenders could reduce the borrowing capacity of CapitalSource Bank, eliminate certain types of

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eligible collateral or could otherwise modify or even terminate their respective loan programs. Such changes or termination could have an adverse affect on our liquidity and profitability.

Our commitments to lend additional amounts to existing clients exceed our resources available to fund these commitments.

As of December 31, 2013, we had $1.1 billion of unfunded commitments to extend credit to our clients, of which $1.0 billion were commitments of CapitalSource Bank and $28.0 million were commitments of the Parent Company. Due to their nature, we cannot know with certainty the aggregate amounts we will be required to fund under these unfunded commitments. In many cases, our obligation to fund unfunded commitments is subject to our clients' ability to provide collateral to secure the requested additional funding, the collateral's satisfaction of eligibility requirements, our clients' ability to meet specified preconditions to borrowing, including compliance with the loan agreements, and/or our discretion pursuant to the terms of the loan agreements. In other cases, however, there are no such prerequisites to future funding by us, and our clients may draw on these unfunded commitments at any time. Clients may seek to draw on our unfunded commitments to improve their cash positions. We expect that these unfunded commitments will continue to exceed the Parent Company's available funds. Our failure to satisfy our full contractual funding commitment to one or more of our clients could create breach of contract and lender liability for us and irreparably damage our reputation in the marketplace, which would have a material adverse effect on our ability to continue to operate our business.

Fluctuating interest rates could adversely affect our net interest margins.

We raise short-term deposits at prevailing rates in our local retail consumer markets. We generally lend money at variable rates based on either prime or LIBOR indices. Our operating results and cash flow depend on the difference between the interest rates at which we borrow funds and raise deposits and the interest rates at which we lend these funds. Because prevailing interest rates are below many of the rate floors in our loans, upward movements in interest rates will not immediately result in additional interest income, although these movements would increase our cost of funds. Therefore, any upward movement in rates may result in a reduction of our net interest income. For additional information about interest rate risk, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Management.

In addition, changes in market interest rates, or in the relationships between short-term and long-term market interest rates, or between different interest rate indices, could affect the interest rates charged on interest earning assets differently than the interest rates paid on interest bearing liabilities, which could result in an increase in interest expense relative to our interest income. Additionally, changes in interest rates could adversely influence the growth rate of loans and deposits and the quality of our loan portfolio.

Risks Related to Our Operations

We are subject to extensive government regulation and supervision, which limit our flexibility and could result in adverse actions by regulatory agencies against us.

We are subject to extensive federal and state regulation and supervision that govern, limit or otherwise affect almost all aspects of our operations. Such regulation and supervision is intended primarily to protect customers, depositors and the FDIC Deposit Insurance Fund - not our shareholders. The laws and regulations to which we are subject, among other matters, establish minimum capital requirements, limit the business activities we can conduct, prohibit various business practices, limit the dividends or distributions CapitalSource Bank can pay, establish reporting requirements, require approvals or consent for many types of transactions or business changes, and establish standards for financial and managerial safety and soundness. Our state and federal regulators periodically conduct examinations of our business, including examination of our compliance with laws and regulations as well as the safety and soundness of our banking operations. Failure to comply with laws, regulations or policies pursuant to which we operate, or any regulatory order to which we are or may become subject, even if unintentional or inadvertent, could result in adverse actions by regulatory agencies against us. Such actions could result in higher capital requirements, higher deposit insurance premiums, additional limitations on our activities, civil monetary penalties and fines or, ultimately, termination of deposit insurance, or appointment of the FDIC as conservator or receiver for CapitalSource Bank. See the Supervision and Regulation section of Item 1, Business, above and, Item 8, Financial Statements and Supplementary Data, including Note 14, Bank Regulatory Capital, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

Changes in laws and regulations, including the enactment of the Dodd-Frank Act, may have a material effect on our operations.

We are currently facing increased regulation and supervision of our industry as a result of the financial crisis in the banking and financial markets. In addition, federal and state legislatures and regulatory agencies continually review banking laws, regulations and policies for possible changes for other reasons, including perceived needs for improvements in the provision of

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financial services, the elimination of inappropriate practices or a strengthening of risk management practices. Changes to banking laws or regulations, including changes in their interpretation or implementation, could materially affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit or restrict our ability to use capital for business purposes, limit the types of financial services and products we may offer or increase the ability of companies not subject to banking regulations to offer competing financial services and products, among other things, which may have a material adverse effect on our business, financial condition, results of operations or reputation.

The Dodd-Frank Act imposes a number of significant regulatory and compliance changes in the banking and financial services industry. Many provisions of the Dodd-Frank Act must be implemented by regulations yet to be adopted by various government agencies. These regulations, and other changes in the regulatory regime, may include additional requirements, conditions, and limitations that may impact us. Certain provisions of the Dodd-Frank Act and implementing regulations that may have a material effect on our business are noted below.

• The Dodd-Frank Act required a study regarding the continued exemption of industrial banks from the Bank Holding Company Act of 1956, as amended, or BHC Act. As a state-chartered industrial bank, CapitalSource Bank is currently exempt from the definition of “bank” under the BHC Act. The required study, which has been completed by the General Accounting Office, did not state a definitive conclusion on this question but did report that the Treasury Department and the Federal Reserve Board believe that the current exemption poses risks to the financial system. If the current exemption is eliminated, in order to continue to own CapitalSource Bank, the Parent Company would be required to register as a bank holding company, or BHC. If we were unsuccessful in registering as a BHC or another exception does not become available to us, our continued ownership of CapitalSource Bank would not be permissible.

• The Dodd-Frank Act directs the federal banking agencies to issue regulations requiring that the parent company of any federally insured depository institution serve as a “source of financial strength” to its subsidiary depository institution. The source of strength requirement had historically applied only to BHCs and their subsidiary banks. Under the source of strength requirement, the Parent Company will be required to serve as a source of financial strength to CapitalSource Bank. The banking regulators could require the Parent Company to contribute additional capital to CapitalSource Bank or to take, or refrain from taking, other actions for the benefit of CapitalSource Bank.

• The Dodd-Frank Act restricted the acquisition of control of an industrial bank by a non-financial firm. For a period of three years beginning on July 21, 2010, the Dodd-Frank Act generally prohibited the banking regulators from approving any proposed change in control of an industrial bank, such as CapitalSource Bank, if the proposed acquirer was a “commercial firm.” Although that three-year moratorium period has expired, there is no certainty that the FDIC would approve the direct or indirect acquisition of control of CapitalSource Bank by a commercial firm.

• The Dodd-Frank Act requires the FRB to adopt regulations requiring increased capital requirements, minimum liquidity ratios, periodic stress testing and the establishment of board-level risk management committees for the largest banking institutions (those with assets greater than $50 billion or, in some case, greater than $10 billion), some or all of which requirements may become requirements, over time, for smaller institutions and for banking organizations not regulated by the FRB.

• The Dodd-Frank Act requires the federal financial agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain “unregistered investment companies” (defined as hedge funds and private equity funds). This statutory provision is commonly referred to as the “Volcker Rule.” In December 2013, five financial regulatory agencies, including the FDIC, adopted final rules implementing the Volcker Rule (the “Final Rules”). The Final Rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, or (ii) having certain ownership interests in and relationships with hedge funds or private equity funds (“covered funds”). The Final Rules are intended to provide greater clarity with respect to the extent of those prohibitions and the related exemptions and exclusions. Each regulated entity, including the Parent Company and CapitalSource Bank, is also required to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule. The Final Rules also include certain regulatory reporting requirements. We intend to adopt the Final Rules by the mandated April 1, 2014 date and expect to be fully compliant with the Final Rules by the conformity period on July 21, 2015. We are currently analyzing the impact of the Final Rule.

Six financial regulatory federal agencies, including the FDIC, have proposed rules to implement the Dodd-Frank Act provisions requiring retention of credit risk by certain securitization participants through holding interests in securitization vehicles. The proposed rules would require a securitizer (or sponsor) to retain an economic interest equal to at least 5 percent of the aggregate credit risk of assets collateralizing an issuance of asset-backed securities, subject to certain exceptions for qualified residential mortgages and qualified commercial real estate mortgages, commercial loans and auto loans, which meet specified underwriting standards. Because these rules are not yet finalized or effective, the ultimate effect of these provisions on the CapitalSource Bank and the Parent Company are not known at this time. We will continue to monitor developments related to the implementation of these risk retention provisions of the Dodd-Frank Act.

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These rules and regulations, and other changes in the regulatory regime, may include additional requirements, conditions, and limitations that could increase our compliance costs and materially adversely affect our business, operations, financial results and the price of our common stock.

Federal bank regulators have adopted increased capital standards for banking organizations, including under the Basel III framework, which may have a material effect on our operations.

We are required to satisfy minimum regulatory capital standards. On December 16, 2010, the Basel Committee on Banking Supervision announced an international agreement among member country bank regulatory authorities to a heightened set of capital and liquidity standards, referred to as Basel III, for banking organizations around the world. On July 9, 2013, the federal banking agencies issued final rules (the “Basel III Capital Rules”), which will become effective on January 1, 2015 (subject to phase-in periods for certain provisions), establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules revise the definitions and components of regulatory capital, expand the scope of the deductions from and adjustments to capital, expand the number of risk-weighting categories and assign higher risk weights to certain assets and make other changes that affect the calculation of regulatory capital ratios. The Basel III Capital Rules also implement certain provisions of the Dodd-Frank Act, including the requirements to remove references to credit ratings from the federal agencies’ rules. These changes and other regulatory initiatives in the United States in the wake of the financial crisis, including provisions of the Dodd-Frank Act, are expected to result in higher regulatory capital standards and expectations for banking organizations.

The Basel III Capital Rules (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, and (iii) require that most deductions from and adjustments to capital be made to CET1 rather than to the other components of capital.

Under the Basel III Capital Rules, the minimum capital ratios as of January 1, 2015, will be: (1) 4.5% CET1 to risk-weighted assets; (2) 6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1 capital) to risk-weighted assets; (3) 8.0% total capital (i.e., Tier 1 capital plus Tier 2 capital ) to risk-weighted assets; and (4) 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (i.e., the “leverage ratio”). The Basel III Capital Rules also limit a banking organization’s ability to pay dividends, repurchase shares or pay discretionary bonus if a banking organization does not have a “capital conservation buffer,” comprised of CET1 capital, in an amount greater than 2.5% CET1 of risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

In addition, the Basel III Capital Rules revise the prompt corrective action (“PCA”) regulations pursuant to section 38 of the Federal Deposit Insurance Act, which authorize and, under certain circumstances, require the federal banking agencies to take certain actions against banks that fail to meet their capital requirements, particularly those that are categorized as less than “adequately capitalized” (i.e., categorized as “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized”). The Basel III Capital rules revise the PCA regulations by: (1) introducing a CET1 ratio requirement at each PCA category (other than “critically undercapitalized”; (2) increasing the minimum Tier 1 capital ratio requirement for each category; and (3) eliminating the current provision that allows a bank with a composite supervisory rating of 1 to have a 3% leverage ratio and remain classified as “adequately capitalized.” The total risk-based capital ratio requirement for each PCA category remains unchanged. To qualify as “well capitalized” under the revised PCA regulations, a bank must meet the following capital ratio requirements: (1) 6.5% CET1 to risk-weighted assets; (2) 8.0% Tier 1 capital to risk-weighted assets; (3) 10.0% total capital to risk-weighted assets, and (4) 5.0% leverage ratio. The FDIC and other federal banking agencies have advised that they expect banking organizations to maintain capital ratios well above the minimum ratios necessary to be categorized as “well capitalized.”

We are in the process of determining the impact of the new capital requirements on our capital ratios.

In general, however, increased regulatory capital and liquidity standards, or changes in the manner in which such standards are implemented, could adversely affect our financial results. We will continue to monitor developments relating to the implementation of the Basel III Capital Rules, the issuance of any additional capital and liquidity requirements and their potential impact on our operations.

We face risks in connection with our strategic undertakings and new businesses, products or services.

If appropriate opportunities present themselves, we may engage in strategic activities, which could include acquisitions, joint ventures, or other business growth initiatives or undertakings. There can be no assurance that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful.

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In order to finance future strategic undertakings, we might obtain additional equity or debt financing. Such financing might not be available on terms favorable to us, or at all. If obtained, equity financing could be dilutive and the incurrence of debt and contingent liabilities could have material adverse effect on our business, results of operations and financial condition.

Our ability to execute strategic activities successfully will depend on a variety of factors. These factors likely will vary on the nature of the activity but may include our success in integrating the operations, services, products, personnel and systems of an acquired company into our business, operating effectively with any partner with whom we elect to do business, retaining key employees, achieving anticipated synergies, meeting expectations and otherwise realizing the undertaking's anticipated benefits. Our ability to address these matters successfully cannot be assured. In addition, our strategic efforts may divert resources or management's attention from ongoing business operations and may subject us to additional regulatory scrutiny. If we do not successfully execute a strategic undertaking, it could adversely affect our business, financial condition, results of operations, reputation and growth prospects. In addition, if we were able to conclude that the value of an acquired business had decreased and that the related goodwill had been impaired, that conclusion would result in an impairment of goodwill charge to us, which would adversely affect our results of operations.

In addition, from time to time, we may develop and grow new lines of business or offer new products and services, within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.

Our risk management framework may not be effective in mitigating risks and/or losses to us.

We have implemented a risk management framework to manage our risk exposure. This framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, operational, financial, interest rate, legal and regulatory, compliance, strategic, reputation, fiduciary, and general economic risks. Our framework also includes financial or other modeling methodologies, which involves management assumptions and judgment. There is no assurance that our risk management framework will be effective under all circumstances or that it will adequately mitigate any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or prospects could be materially adversely affected. We may also be subject to potentially adverse regulatory consequences.

The change of control rules under Section 382 of the Internal Revenue Code may limit our ability to use net operating loss carryovers and other tax attributes to reduce future tax payments or our willingness to issue equity.

We have net operating loss carryforwards for federal and state income tax purposes that can be utilized to offset future taxable income. If we were to undergo a change in ownership of more than 50% of our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code, our ability to utilize our net operating loss carryforwards, certain built-in losses and other tax attributes recognized in years after the ownership change generally would be limited. The annual limit would equal the product of the applicable long term tax exempt rate and the value of the relevant taxable entity's capital stock immediately before the ownership change. These change of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more (the "5-Percent Shareholders") of a company's outstanding stock, including certain public groups of stockholders as set forth under Section 382, and those arising from new stock issuances and other equity transactions, which may limit our willingness and ability to issue new equity. The determination of whether an ownership change occurs is complex and not entirely within our control. No assurance can be given as to whether we have undergone, or in the future will undergo, an ownership change under Section 382 of the Internal Revenue Code.

In July 2013, the Board of Directors adopted a tax benefit preservation plan which was designed to preserve the net operating loss carryforwards and other tax attributes of the Company. The plan is intended to discourage persons from becoming 5-Percent Shareholders and existing 5-Percent Shareholders from increasing their beneficial ownership of shares.

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We are subject to claims and litigation which could adversely affect our cash flows, financial condition and results of operations, or cause significant reputational harm to us.

We may be involved, from time to time, in litigation pertaining to our lending activities. If such claims and legal actions, whether founded or unfounded, are not resolved in a manner favorable to us they may result in significant financial liability. Although we establish accruals for legal matters according to accounting requirements, the amount of loss ultimately incurred in relation to those matters may be substantially higher than the amounts accrued. Substantial legal liability could adversely affect our business, financial condition or results of operations or cause significant reputational harm, which could seriously harm our business.

Our systems may experience an interruption or breach in security which could subject us to increased operating costs as well as litigation and other liabilities.

We rely on the computer and telephone systems and network infrastructure that we use to conduct our business. These systems and infrastructure could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer and telephone equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an adverse effect on our clients. In addition, we must be able to protect the computer systems and network infrastructure utilized by us against physical damage, security breaches and service disruption caused by the internet or other users. Such break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our systems and network infrastructure, which may result in significant liability to us and deter potential clients. While we have systems, policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our systems and infrastructure, there can be no assurance that these measures will be successful and that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. In addition, the failure of our clients to maintain appropriate security for their systems also may increase our risk of loss in connection with business transactions with them. The occurrence of any failures, interruptions or security breaches of systems and infrastructure could damage our reputation, result in a loss of business and/or clients, result in losses to us or our clients, subject us to additional regulatory scrutiny, cause us to incur additional expenses, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our controls and procedures may fail or be circumvented.

We review and update our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition. In addition, if we identify material weaknesses in our internal control over financial reporting or are otherwise required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures and could lose investor confidence in the accuracy and completeness of our financial reports. This could have an adverse effect on our business, financial condition, results of operations and common stock price, and could potentially subject us to litigation.

Risks Related to Income Taxes

The Company and its subsidiaries are subject to examinations and challenges by taxing authorities.

In the normal course of business, the Company and its subsidiaries are routinely subjected to examinations and challenges from federal and state taxing authorities regarding tax positions taken by the Company and the determination of the amount of tax due. These examinations may relate to income, franchise, gross receipts, payroll, property, sales and use, or other tax returns filed, or not filed, by the Company. The challenges made by taxing authorities may result in adjustments to the amount of taxes due, and may result in the imposition of penalties and interest. If any such challenges are not resolved in the Company's favor, they could have a material adverse effect on the Company's financial condition, results of operations, and liquidity.

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The Company and its subsidiaries are subject to changes in federal and state tax laws and changes in interpretation of existing laws.

The Company's financial performance is impacted by federal and state tax laws. Given the current economic and political environment, and ongoing budgetary pressures, the enactment of new federal or state tax legislation may occur. The enactment of such legislation, or changes in the interpretation of existing law, including provisions impacting income tax rates, apportionment, consolidation or combination, income, expenses, and credits, may have a material adverse effect on the Company's financial condition, results of operations, and liquidity.

Risks Related to Our Common Stock

We may not pay dividends on our common stock.

Our board of directors, in its sole discretion, will determine the amount and frequency of dividends to our shareholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, regulatory stress tests, economic conditions, tax considerations, and other factors. If we change our dividend policy, our common stock price could be adversely affected.

Some provisions of Delaware law and our certificate of incorporation and bylaws as well as certain banking laws may deter third parties from acquiring us.

Our certificate of incorporation and bylaws provide for, among other things:

• a classified board of directors;

• restrictions on the ability of our shareholders to fill a vacancy on the board of directors;

• the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without shareholder approval; and

• advance notice requirements for shareholder proposals.

We also are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which restricts the ability of any shareholder that at any time holds more than 15% of our voting shares to acquire us without the approval of shareholders holding at least 66 2/3% of the shares held by all other shareholders that are eligible to vote on the matter.

Federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, which could inhibit a business combination and adversely affect the market price of our common stock.

These laws and anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions than you desire.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease office space in Los Angeles, California and Chevy Chase, Maryland, a suburb of Washington, D.C., under long-term operating leases. We also maintain smaller offices under operating leases in Arizona, California, Colorado, Connecticut, Georgia, Florida, Illinois, Massachusetts, Missouri, New York, North Carolina, Pennsylvania, Tennessee, Texas and Utah. We believe our leased facilities are adequate for us to conduct our business.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings. We do not believe that any currently pending or threatened proceeding, if determined adversely to us, would have a material adverse effect on our business, financial condition or results of operations, including our cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “CSE.” The high and low sales prices for our common stock as reported by the NYSE for the quarterly periods during 2013 and 2012 were as follows:

	High		Low
2013:
Fourth Quarter	$	14.72	$	12.98
Third Quarter	13.23		11.37
Second Quarter	12.26		8.85
First Quarter	9.86		8.03
2012:
Fourth Quarter	$	8.15	$	7.26
Third Quarter	7.93		6.56
Second Quarter	6.99		5.96
First Quarter	7.26		6.30

On February 26, 2014, the last reported sale price of our common stock on the NYSE was $14.41 per share.

Holders

As of February 26, 2014, there were 384 holders of record of our common stock. The number of holders does not include individuals or entities who beneficially own shares, but whose shares are held of record by a broker or clearing agency, and each such broker or clearing agency is included as one record holder. American Stock Transfer & Trust Company serves as transfer agent for our shares of common stock.

Dividend Policy

For the years endedDecember 31, 2013 and 2012, we declared and paid dividends as follows:

	Dividends Declared and Paid per Share
	2013		2012
Fourth Quarter	$	0.01	$	0.51
Third Quarter	0.01		0.01
Second Quarter	0.01		0.01
First Quarter	0.01		0.01
Total dividends declared and paid	$	0.04	$	0.54

For shareholders who held our shares for the entire year, the dividends declared and paid in 2013 and 2012 were classified for tax reporting purposes as dividend income.

Our Board of Directors (the "Board"), in its sole discretion, will determine the amount and frequency of dividends to be provided to our shareholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, and other factors. Per the Merger Agreement, our dividend is limited to $0.01 per share per quarter.

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

A summary of our common stock share repurchases for the three months endedDecember 31, 2013, was as follows:

	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Plans(2)
October 1 - October 31, 2013	22,206	$	12.89	—
November 1 - November 30, 2013	33,588	13.45		—
December 1 - December 31, 2013	102,741	14.16		—
Total	158,535	$	13.83	—	$	—

_________________________

(1) Represents the number of shares acquired as payment by employees of applicable statutory minimum withholding taxes owed upon vesting of restricted stock granted under our Third Amended and Restated Equity Incentive Plan.

(2) In December 2010, our Board authorized the repurchase of $150.0 million of our common stock over a period of up to 2 years. Subsequently, an additional $635.0 million was also authorized during the same period. In October 2012, the Board extended the program to include the period through December 31, 2013 and reset the authorization at $250.0 million. Collectively, we refer to these authorizations as the “Stock Repurchase Program.” All shares repurchased under the Stock Repurchase Program were retired upon settlement. As a result of entering into the Merger Agreement, the Stock Repurchase Program was suspended as of July 23, 2013. The Stock Repurchase Program was terminated as of December 31, 2013.

Performance Graph

The following graph compares the performance of our common stock during the five-year period beginning on December 31, 2008 to December 31, 2013, with the S&P 500 Index and the S&P 500 Financials Index. The graph depicts the results of investing $100 in our common stock, the S&P 500 Index, and the S&P 500 Financials Index at closing prices on December 31, 2008, assuming all dividends were reinvested. Historical stock performance during this period may not be indicative of future stock performance.

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Comparison of Cumulative Total Return

Source: SNL Financial LC, Charlottesville, VA

Company/Index	Base Period 12/31/08		Year Ended December 31,
			2009		2010		2011		2012		2013
CapitalSource Inc.	$	100	$	87.1	$	156.9	$	149.0	$	180.8	$	344.1
S&P 500 Index	100		126.5		145.5		148.6		172.4		228.2
S&P 500 Financials Index	100		117.2		131.4		109.0		140.4		190.5

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ITEM 6. SELECTED FINANCIAL DATA

You should read the data set forth below in conjunction with our audited consolidated financial statements and related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations and other financial information appearing elsewhere in this report. The following tables show selected portions of historical consolidated financial data as of and for the five years ended December 31, 2013. We derived our selected consolidated financial data as of and for the five years ended December 31, 2013, from our audited consolidated financial statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm.

	Year Ended December 31,
	2013		2012			2011			2010			2009
	($ in thousands, except per share and share data)
Results of operations:
Interest income	$	447,476	$	468,214		$	510,390		$	639,641		$	871,946
Interest expense	74,088		79,407			150,010			232,096			427,312
Net interest income	373,388		388,807			360,380			407,545			444,634
Provision for loan and lease losses	20,531		39,442			92,985			307,080			845,986
Net interest income (loss) after provision for loan and lease losses	352,857		349,365			267,395			100,465			(401,352		)
Non-interest income	82,550		49,846			92,694			71,662			(8,667		)
Non-interest expense	189,078		193,682			375,170			333,451			364,511
Net income (loss) from continuing operations before income taxes	246,329		205,529			(15,081		)	(161,324		)	(774,530		)
Income tax expense (benefit) (1)	82,037		(285,081		)	36,942			(20,802		)	136,314
Net income (loss) from continuing operations	164,292		490,610			(52,023		)	(140,522		)	(910,844		)
Net income from discontinued operations, net of taxes	—		—			—			9,489			49,868
Gain (loss) from sale of discontinued operations, net of taxes	—		—			—			21,696			(8,071		)
Net income (loss)	164,292		490,610			(52,023		)	(109,337		)	(869,047		)
Net loss attributable to noncontrolling interests	—		—			—			(83		)	(28		)
Net income (loss) attributable to CapitalSource Inc.	$	164,292	$	490,610		$	(52,023	)	$	(109,254	)	$	(869,019	)
Basic income (loss) per share:
From continuing operations	$	0.84	$	2.19		$	(0.17	)	$	(0.44	)	$	(2.97	)
From discontinued operations	—		—			—			0.10			0.14
Attributable to CapitalSource Inc.	$	0.84	$	2.19		$	(0.17	)	$	(0.34	)	$	(2.84	)
Diluted income (loss) per share:
From continuing operations	$	0.82	$	2.13		$	(0.17	)	$	(0.44	)	$	(2.97	)
From discontinued operations	—		—			—			0.10			0.14
Attributable to CapitalSource Inc.	$	0.82	$	2.13		$	(0.17	)	$	(0.34	)	$	(2.84	)
Average shares outstanding:
Basic	195,189,983		223,928,583			302,998,615			320,836,867			306,417,394
Diluted	200,451,899		230,154,989			302,998,615			320,836,867			306,417,394
Cash dividends declared per share	$	0.04	$	0.54		$	0.04		$	0.04		$	0.04
Dividend payout ratio attributable to CapitalSource Inc.	0.05		0.25			(0.24		)	(0.12		)	(0.01		)

________________________

(1) We provided for income tax expense (benefit) on the consolidated income earned or loss incurred based on effective tax rates of 33.3%, (138.7)%, (245)%, 12.9%, and (17.6)% in 2013, 2012, 2011, 2010 and 2009, respectively.

27

	Year Ended December 31,
	2013		2012		2011		2010		2009
	($ in thousands)
Balance sheet data:
Investment securities, available-for-sale	$	870,482	$	1,079,025	$	1,188,002	$	1,522,911	$	960,591
Investment securities, held-to-maturity	74,369		108,233		111,706		184,473		242,078
Commercial real estate “A” Participation Interest, net	—		—		—		—		530,560
Total loans(1)	6,663,969		6,044,676		5,729,537		5,922,650		7,549,215
Assets of discontinued operations, held for sale	—		—		—		—		624,650
Total assets	8,905,490		8,549,005		8,300,068		9,445,407		12,261,050
Deposits	6,127,690		5,579,270		5,124,995		4,621,273		4,483,879
Credit facilities	—		—		—		67,508		542,781
Term debt	—		177,188		309,394		979,254		2,956,536
Other borrowings	1,037,156		1,005,738		1,015,099		1,375,884		1,204,074
Total borrowings	1,037,156		1,182,926		1,324,493		2,422,646		4,703,391
Liabilities of discontinued operations	—		—		—		—		363,293
Total shareholders' equity	1,636,627		1,625,172		1,575,146		2,053,942		2,183,259
Total loan commitments	8,028,407		7,448,235		7,558,327		8,592,968		11,600,297
Average outstanding loan size	3,511		3,643		3,779		4,538		7,720
Average balance of loans(2)	6,369,520		6,013,799		5,816,760		7,375,775		9,028,580
Employees as of year end	495		543		564		625		665

________________________

(1) Includes loans held for sale and loans held for investment, net of deferred loan fees and discounts and the allowance for loan and lease losses.

(2) Excludes the impact of deferred loan fees and discounts and the allowance for loan and lease losses. Includes lower of cost or fair value adjustments on loans held for sale.

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	Year Ended December 31,
	2013		2012		2011		2010		2009
Performance ratios:
Return on average assets:
Income (loss) from continuing operations	1.90	%	5.80	%	(0.58	)%	(1.36	)%	(6.41	)%
Net income (loss)	1.90	%	5.80	%	(0.58	)%	(1.06	)%	(5.69	)%
Return on average equity:
Income (loss) from continuing operations	10.41	%	30.25	%	(2.64	)%	(6.97	)%	(43.86	)%
Net income (loss)	10.41	%	30.25	%	(2.64	)%	(5.42	)%	(31.96	)%
Yield on average interest-earning assets(1)	5.79	%	6.16	%	6.28	%	6.65	%	6.42	%
Cost of funds(1)	1.07	%	1.19	%	2.23	%	2.90	%	3.60	%
Net interest margin(1)	4.83	%	5.12	%	4.43	%	4.24	%	3.27	%
Operating expenses as a percentage of average total assets(2)	1.96	%	2.21	%	2.37	%	2.15	%	1.91	%
Core lending spread(1)	6.33	%	6.77	%	7.67	%	7.51	%	7.41	%
Efficiency ratio(3)	38.44	%	43.50	%	47.18	%	46.41	%	62.39	%
Credit quality ratios(4):
Loans 30-89 days contractually delinquent as a percentage of average loans (as of year end)	0.03	%	0.39	%	0.21	%	0.44	%	3.33	%
Loans 90 or more days delinquent as a percentage of average loans (as of year end)	0.41	%	0.66	%	1.61	%	5.03	%	5.50	%
Loans on non-accrual status as a percentage of average loans (as of year end)	1.49	%	1.98	%	4.72	%	10.99	%	12.89	%
Impaired loans as a percentage of average loans (as of year end)	1.49	%	3.32	%	7.15	%	14.65	%	15.10	%
Net charge offs (as a percentage of average loans)	0.27	%	1.27	%	4.62	%	5.78	%	7.30	%
Allowance for loan and lease losses as a percentage of loans receivable (as of year end)	1.78	%	1.91	%	2.67	%	5.35	%	7.08	%
Capital and leverage ratios:
Average equity to average assets(1)	18.25	%	19.18	%	22.01	%	19.49	%	14.61	%
Equity to total assets (as of year end)(1)	18.38	%	19.01	%	18.98	%	21.75	%	17.93	%

________________________

(1) Ratios calculated based on continuing operations.

(2) Operating expenses included compensation and benefits, professional fees, occupancy expense, FDIC fees and assessments, general depreciation and amortization and other administrative expenses.

(3) Efficiency ratio is defined as operating expense divided by net interest and non-interest income, less leased equipment depreciation.

(4) Credit ratios calculated based on average gross loans, which excludes deferred loan fees and discounts and the allowance for loan and lease losses.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

CapitalSource Inc., a Delaware corporation, is a commercial lender that provides financial products to small and middle market businesses nationwide and provides depository products and services to consumers in southern and central California, primarily through our wholly owned subsidiary, CapitalSource Bank (the "Bank"). References to we, us, the Company or CapitalSource refer to CapitalSource Inc. together with its subsidiaries. References to CapitalSource Bank include its subsidiaries, and references to the Parent Company refer to CapitalSource Inc. and its subsidiaries other than the Bank.

We offer a broad range of specialized senior secured, commercial loan products to small and middle-market businesses, and we offer our loan products on a nationwide basis. With a deposit gathering platform based in southern and central California, we believe our business model is well positioned to deliver a broad range of customized financial solutions to borrowers.

As of December 31, 2013, we had total assets of $8.9 billion, total loans of $6.8 billion, total deposits of $6.1 billion and stockholders' equity of $1.6 billion.

Our corporate headquarters is located in Los Angeles, California, and we have 21 retail bank branches located in southern and central California. Our loan origination efforts are conducted nationwide with key offices located in Chevy Chase, Maryland, Los Angeles, California, Denver, Colorado, Chicago, Illinois, and New York, New York. We also maintain a number of smaller lending offices throughout the country.

For the years endedDecember 31, 2013, 2012 and 2011, we operated as two reportable segments: the Bank and Other Commercial Finance. The Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company. For additional information, see Note 20, Segment Data.

Results of Operations

Consolidated

The significant factors influencing our consolidated results of operations for the year endedDecember 31, 2013, compared to the year endedDecember 31, 2012 include an increase in net income tax expense, a decrease in interest income, offset by an increase in non-interest income and a decrease in loan and lease loss provision. Consolidated income tax expense (benefit) for the year endedDecember 31, 2013 and 2012 was $82.0 million and $(285.1) million, respectively. The $367.1 million increase in income tax expense was primarily the result of the release of the deferred tax valuation allowance during the year endedDecember 31, 2012. Interest income decreased from $468.2 million during year endedDecember 31, 2012 to $447.5 million during the year endedDecember 31, 2013 due to lower yields on both our loan portfolio and investment securities available-for-sale portfolio. Non-interest income increased during the year endedDecember 31, 2013 primarily due to gains on investments arising from the sale of investment securities. The loan and lease loss provision decreased from $39.4 million for the year endedDecember 31, 2012 to $20.5 million for the year endedDecember 31, 2013 due to an improvement in our overall portfolio credit profile with reserve releases related to loans at the Parent Company.

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For the years ended December 31, 2013, 2012 and 2011, our consolidated average balances and the resulting average interest yields and rates were as follows:

	2013						2012						2011
	Average Balance		Interest Income / (Expense)		Yield / Rate		Average Balance		Interest Income / (Expense)		Yield / Rate		Average Balance		Interest Income / (Expense)		Yield / Rate
	($ in thousands)
Interest-earning assets:
Cash and cash equivalents	$	263,771	$	648	0.25	%	$	372,581	$	1,304	0.35	%	$	809,946	$	2,195	0.27	%
Investment securities	1,067,571		30,242		2.83	%	1,247,084		38,230		3.07	%	1,562,768		55,524		3.55	%
Loans(1)	6,369,520		415,375		6.52	%	5,952,699		428,397		7.20	%	5,732,172		452,607		7.90	%
Other assets	29,542		1,211		4.10	%	25,978		283		1.01	%	23,742		64		0.27	%
Total interest-earning assets	$	7,730,404	$	447,476	5.79	%	$	7,598,342	$	468,214	6.16	%	$	8,128,628	$	510,390	6.28	%
Interest-bearing liabilities:
Deposits	$	5,870,561	$	51,941	0.88	%	$	5,400,247	$	51,035	0.95	%	$	4,808,141	$	53,609	1.11	%
Other borrowings	1,051,639		22,147		2.11	%	1,253,237		28,372		2.26	%	1,911,613		96,401		5.04	%
Total interest-bearing liabilities	$	6,922,200	$	74,088	1.07	%	$	6,653,484	$	79,407	1.19	%	$	6,719,754	$	150,010	2.23	%
Net interest income/spread(2)			$	373,388	4.72	%			$	388,807	4.97	%			$	360,380	4.05	%
Net interest margin					4.83	%					5.12	%					4.43	%

_______________________

(1) Average loan balances are net of deferred fees and discounts on loans. Non-accrual loans have been included in the average loan balances for the purpose of this analysis.

(2) Net interest income is defined as the difference between total interest income and total interest expense which is calculated on a continuing operations basis. Net yield on interest-earning assets is defined as net interest-earnings divided by average total interest-earning assets.

For the years ended December 31, 2013 and 2012, changes in interest income, interest expense and net interest income as a result of changes in volume, changes in interest rates or both were as follows:

	2013 Compared to 2012									2012 Compared to 2011
	Due to Change in:(1)						Net Change			Due to Change in:(1)						Net Change
	Rate			Volume						Rate			Volume
	($ in thousands)
(Decrease) increase in interest income:
Cash and cash equivalents	(336		)	(321		)	(657		)	518			(1,409		)	(891		)
Investment securities, available-for-sale	(2,717		)	(5,204		)	(7,921		)	(865		)	(8,553		)	(9,418		)
Investment securities, held-to-maturity	(288		)	220			(68		)	(5,709		)	(2,166		)	(7,875		)
Loans	(41,816		)	28,794			(13,022		)	(41,156		)	16,946			(24,210		)
Other assets	911			17			928			207			13			220
Total (decrease) increase in interest income	(44,246		)	23,506			(20,740		)	(47,005		)	4,831			(42,174		)
(Decrease) increase in interest expense:
Deposits	(3,374		)	4,282			908			(8,726		)	6,153			(2,573		)
Credit facilities	—			—			—			(1,783		)	(1,783		)	(3,566		)
Long-term debt	2,555			(6,172		)	(3,617		)	(18,360		)	(18,154		)	(36,514		)
Other borrowings	(2,495		)	(115		)	(2,610		)	(19,806		)	(8,143		)	(27,949		)
Total decrease in interest expense	$	(3,314	)	$	(2,005	)	$	(5,319	)	$	(48,675	)	$	(21,927	)	$	(70,602	)
Net increase (decrease) in net interest income	$	(40,932	)	$	25,511		$	(15,421	)	$	1,670		$	26,758		$	28,428

_________________

(1) The change in interest due to both volume and rates has been allocated in proportion to the relationship of the absolute dollar amounts of the change in each.

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Our consolidated operating results for the year ended December 31, 2013, compared to the year ended December 31, 2012, and for the year ended December 31, 2012, compared to the year ended December 31, 2011, were as follows:

	Year Ended December 31,								2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013		2012			2011
	($ in thousands)
Interest income	$	447,476	$	468,214		$	510,390		(4.4	)%	(8.3	)%
Interest expense	74,088		79,407			150,010			(6.7	)%	(47.1	)%
Provision for loan and lease losses	20,531		39,442			92,985			(47.9	)%	(57.6	)%
Non-interest income	82,550		49,846			92,694			65.6	%	(46.2	)%
Non-interest expense	189,078		193,682			375,170			(2.4	)%	(48.4	)%
Income tax expense (benefit)	82,037		(285,081		)	36,942			128.8	%	(871.7	)%
Net income (loss)	164,292		490,610			(52,023		)	(66.5	)%	1,043.1	%

Income Taxes

We provide for income taxes as a “C” corporation on income earned from operations. We are subject to federal, foreign, state and local taxation in various jurisdictions.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences.

In 2009, we established a valuation allowance against a substantial portion of our net deferred tax assets where we determined that there was significant negative evidence with respect to our ability to realize such assets. Negative evidence we considered in making this determination included the history of operating losses and uncertainty regarding the realization of a portion of the deferred tax assets at future points in time. As of December 31, 2013 and 2012, the valuation allowance was $152.0 million and $128.6 million, respectively.

During 2012, we reversed $358.1 million of the valuation allowance, and such reversal was recorded as a benefit in our income tax expenses. Each of the deferred tax assets was evaluated based on our evaluation of the available positive and negative evidence with respect to our ability to realize the deferred tax asset, including considering their associated character and jurisdiction. The decision to reverse a large portion of the valuation allowance was based on our evaluation of all positive and negative evidence. A cumulative loss position, such as we had for the previous three-year period ended December 31, 2011, is generally considered significant negative evidence in assessing the realizability of a deferred tax asset. However, significant positive evidence had developed which overcame this negative evidence such that, during the year ended December 31, 2012, management determined that it is more likely than not that a portion of the deferred tax asset will be realized. This determination was made not based upon a single event or occurrence, but based upon the accumulation of all positive and negative evidence including recent trends in our earnings and taxable income. Other positive evidence included the projection of future taxable income based on a recent history of positive earnings at the Bank, improved asset performance trends, substantial decline in the Parent Company's operations and assets, and one-time losses included in the three-year cumulative pre-tax loss (i.e., debt extinguishment loss). Additionally, we are no longer in a cumulative pre-tax loss position since the end of 2012.

A valuation allowance of $152.0 million remains in effect as of December 31, 2013 with respect to deferred tax assets where we believe sufficient evidence does not exist at this time to support a reduction in the allowance. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.

2013 vs. 2012. Consolidated income tax expense for the year ended December 31, 2013 was $82.0 million, compared to an income tax benefit of $(285.1) million for the year ended December 31, 2012. The income tax expense of $82.0 million for the year ended December 31, 2013 was primarily due to the tax on pre-tax book income offset by the resolution of the 2006-2008 audit and the sale of capital assets. The income tax benefit of $(285.1) million for the year ended December 31, 2012 was primarily due to the release of valuation allowance.

2012 vs. 2011. Consolidated income tax benefit for the year ended December 31, 2012 was $(285.1) million, compared to income tax expense of $36.9 million for the year ended December 31, 2011. The income tax benefit of $(285.1) million for the

32

year ended December 31, 2012 was primarily due to the release of the valuation allowance. The tax expense of $36.9 million for the year ended December 31, 2011 was primarily due to the decrease in the net deferred tax assets of one of our corporate entities.

Comparison of the Years Ended December 31, 2013, 2012 and 2011

Certain amounts in the prior year's audited consolidated financial statements have been reclassified to conform to the current year presentation, including modifying the presentation of our audited consolidated statements of operations to include the caption of total operating expenses and the new line item of other administrative expenses being split apart from other non-interest expense. Accordingly, the reclassifications have been appropriately reflected throughout our audited consolidated financial statements. The discussion that follows differentiates our results of operations between our segments.

CapitalSource Bank Segment

Our CapitalSource Bank operating results for the year ended December 31, 2013, compared to December 31, 2012, and for the year ended December 31, 2012, compared to December 31, 2011, were as follows:

	Year Ended December 31,						2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013		2012		2011
	($ in thousands)
Interest income	$	418,885	$	393,083	$	368,964	6.6	%	6.5	%
Interest expense	62,685		62,096		62,802		0.9	%	(1.1	)%
Provision for loan and lease losses	16,866		16,192		27,539		4.2	%	(41.2	)%
Non-interest income	66,184		60,495		41,697		9.4	%	45.1	%
Non-interest expense	168,249		168,569		149,710		(0.2	)%	12.6	%
Income tax expense	96,593		84,054		57,996		14.9	%	44.9	%
Net income	140,676		122,667		112,614		14.7	%	8.9	%

Interest Income

2013 vs. 2012. Total interest income increased to $418.9 million for the year endedDecember 31, 2013 from $393.1 million for the year endedDecember 31, 2012, with an average yield on interest-earning assets of 5.72% and 5.90%, respectively. During the years endedDecember 31, 2013 and 2012, interest income on loans was $390.9 million and $359.2 million, respectively, yielding 6.41% and 7.01% on average loan balances of $6.1 billion and $5.1 billion, respectively. The 60 basis point decrease in loan yield is due to a 46 basis point decrease from lower loan and lease yields, a 17 basis point decrease due to amortization of premiums on purchased loans, a 15 basis point decrease due to the amortization of deferred loan fees, offset by a 15 basis point increase due to changes in prepayment speeds on loans, a 3 basis point increase due to changes in non-accrual interest and other factors.

Included in the lower loan yield analysis above, interest income of $4.7 million and $8.8 million during the years endedDecember 31, 2013 and 2012, respectively, was not recognized for loans on non-accrual status which negatively impacted the yield on loans by 0.08% and 0.17%, respectively. During the years endedDecember 31, 2013 and 2012, $0.4 million and $1.4 million of interest was collected on loans previously on non-accrual status and recognized in interest income, respectively.

During the years endedDecember 31, 2013 and 2012, interest income from our investments, including available-for-sale and held-to-maturity securities, was $26.4 million and $32.4 million, yielding 2.53% and 2.65% on average balances of $1.0 billion and $1.2 billion, respectively. The average balances of investment securities available-for-sale and held-to-maturity decreased as a result of sales and maturities of securities which we did not fully replace due to loan growth and associated liquidity needs. The investment yield change is primarily due to a 36 basis point decrease resulting from relatively higher yielding securities paying down, purchasing new securities at lower yields and adjustable rate bonds' coupons resetting lower, offset by an 8 basis point increase resulting from accelerated discount amortization of a held-to-maturity commercial mortgage-backed security ("CMBS") from its prepayment and a 16 basis point increase due to lower premium amortization attributable to slower projected prepayment speeds on our available-for-sale MBS. As a result, total interest income on investments decreased $6.0 million attributed to a $5.9 million and $0.1 million decrease in interest income from available-for-sale securities and held-to-maturity securities, respectively.

During the year endedDecember 31, 2013, we purchased $117.6 million of investment securities, available-for-sale and $47.9 million of held-to-maturity securities, while $318.8 million and $35.5 million of principal repayments and sales were made on our investment securities, available-for-sale and held-to-maturity, respectively. During the year endedDecember 31, 2012, we

33

purchased $287.1 million of investment securities, available-for-sale and no investment securities, held-to-maturity while $385.3 million and $5.1 million, respectively, of principal repayments were received.

During the years endedDecember 31, 2013 and 2012, interest income on cash and cash equivalents was $0.4 million and $1.2 million, respectively, yielding 0.29% and 0.40% on average balances of $150.1 million and $294.2 million, respectively.

2012 vs. 2011. Total interest income increased to $393.1 million for the year endedDecember 31, 2012 from $369.0 million for the year endedDecember 31, 2011, with an average yield on interest-earning assets of 5.90% for the year endedDecember 31, 2012 compared to 6.13% for the year ended December 31, 2011. During the years endedDecember 31, 2012 and 2011, interest income on loans was $359.2 million and $319.5 million, respectively, yielding 7.01% on average loan balances of $5.1 billion and $4.1 billion, respectively. Interest income of $15.7 million was not recognized for loans on non-accrual status which negatively impacted the yield on loans by 0.38% during the year endedDecember 31, 2011. In addition, $0.1 million of interest income was not recognized for loans on non-accrual status during the year ended December 31, 2011.

During the years endedDecember 31, 2012 and 2011, interest income from our investments, including available-for-sale and held-to-maturity securities, was $32.4 million and $48.4 million, yielding 2.65% and 3.14% on average balances of $1.2 billion and $1.5 billion, respectively. The average balances of investment securities available-for-sale and held-to-maturity decreased as a result of principal paydowns and maturities of securities which we did not fully replace due to loan growth and associated liquidity needs. Additionally, the overall yield of the portfolio decreased in the declining interest rate environment experienced in 2012. As a result, during the year ended December 31, 2012, total interest income on investments decreased $16.0 million attributed to an $8.1 million decrease in interest income from available-for-sale securities and a $7.9 million decrease in interest income from held-to-maturity securities.

During the year endedDecember 31, 2011, we purchased $591.9 million of investment securities, available-for-sale, and $10.6 million of investment securities, held-to-maturity, while $702.9 million and $92.6 million of principal repayments were received, respectively.

During the years endedDecember 31, 2012 and 2011, interest income on cash and cash equivalents was $1.2 million and $1.1 million, yielding 0.40% and 0.35% on average balances of $294.2 million and $306.2 million, respectively.

Interest Expense

2013 vs. 2012. Total interest expense increased to $62.7 million for the year ended December 31, 2013 from $62.1 million for the year ended December 31, 2012. However, the cost of interest-bearing liabilities decreased from 1.04% for the year ended December 31, 2012 to 0.97% the year ended December 31, 2013. Average balances of interest-bearing liabilities were $6.5 billion and $6.0 billion as of December 31, 2013 and 2012, respectively, which consisted of deposits and borrowings. The lower cost of interest-bearing liabilities was the result of a lower interest rate environment as higher interest bearing rate liabilities were replaced at lower interest rates.

Our interest expense on deposits for the years ended December 31, 2013 and 2012 was $51.9 million and $51.0 million with an average cost of deposits of 0.88% and 0.95% on average balances of $5.9 billion and $5.4 billion, respectively. During the year ended December 31, 2013, $4.8 billion of our time deposits matured with a weighted average interest rate of 0.85% and $5.4 billion of new and renewed time deposits were issued at a weighted average interest rate of 0.90%. During the year ended December 31, 2012, $5.1 billion of our time deposits matured with a weighted average interest rate of 0.99%, and $5.8 billion of new and renewed time deposits were issued at a weighted average interest rate of 0.86%. Additionally, for the year ended December 31, 2013, our weighted average interest rate of our liquid account deposits, which include savings and money market accounts, declined from 0.51% at the beginning of the year to 0.46% at the end of the year.

During the year ended December 31, 2013, our interest expense on borrowings, consisting of FHLB SF borrowings, was $10.7 million with an average cost of 1.77% on an average balance of $606.1 million. The primary reason for using FHLB SF borrowings as a funding source is to manage interest rate risk and the secondary is to provide a source of liquidity. For the year ended December 31, 2013, there were $23.0 million term advances taken with a weighted average rate of 0.87% and $43.0 million term maturities with a weighted average rate of 1.35%. We maintained an average overnight advances balance of $12.1 million with a weighted average rate of 0.12%. For the year ended December 31, 2013, the weighted average rates for FHLB SF borrowings maturing within one year, one to five years, and greater than five years were 1.12%, 1.81% and 1.62%, respectively. Overall, the FHLB SF borrowing balance had a weighted-average-life of 2.3 years. For the year ended December 31, 2012, our interest expense on FHLB SF borrowings was $11.1 million with an average cost of 1.88% on an average balance of $587.3 million. For the year ended December 31, 2012, there were term advances of $98.0 million with related maturities of $53.0 million and no overnight advances and maturities.

2012 vs. 2011. Total interest expense decreased to $62.1 million for the year ended December 31, 2012 from $62.8 million for the year ended December 31, 2011. The decrease was primarily due to a decrease in the average cost of interest-bearing liabilities which was 1.04% and 1.19% for the years ended December 31, 2012 and 2011, respectively. The lower cost of interest-bearing

34

liabilities was the result of a lower interest rate environment as higher interest bearing rate liabilities were replaced at lower interest rates. Interest expense decreased despite an increase in average balances of interest-bearing liabilities of $6.0 billion and $5.3 billion as of December 31, 2012 and 2011, respectively which consisted of deposits and borrowings.

Our interest expense on deposits for the years ended December 31, 2012 and 2011 was $51.0 million and $53.6 million with an average cost of deposits of 0.95% and 1.11% on average balances of $5.4 billion and $4.8 billion, respectively. During the year ended December 31, 2012, $5.1 billion of our time deposits matured with a weighted average interest rate of 0.99%, and $5.8 billion of new and renewed time deposits were issued at a weighted average interest rate of 0.86%. During the year ended December 31, 2011, $3.8 billion of our time deposits matured with a weighted average interest rate of 1.04%, and $4.2 billion of new and renewed time deposits were issued at a weighted average interest rate of 0.94%. During the year ended December 31, 2012, our weighted average interest rate of our liquid account deposits, which include savings and money market accounts, declined from 0.75% at the beginning of the year to 0.51% at the end of the year.

For the year ended December 31, 2012, our interest expense on borrowings, consisting of FHLB SF borrowings, was $11.1 million with an average cost of 1.88% on an average balance of $587.3 million. During December 31, 2011, our interest expense on FHLB SF borrowings was $9.2 million with an average cost of 2.02% on an average balance of $455.1 million.

Net Interest Margin

The yields of income earning assets and the costs of interest-bearing liabilities in this segment for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013						2012						2011
	Weighted Average Balance		Net Interest Income		Average Yield/Cost		Weighted Average Balance		Net Interest Income		Average Yield/Cost		Weighted Average Balance		Net Interest Income		Average Yield/Cost
	($ in thousands)
Interest-earning assets:
Cash and cash equivalents	$	150,105	$	430	0.29	%	$	294,242	$	1,174	0.40	%	$	306,229	$	1,058	0.35	%
Investment securities	1,041,187		26,389		2.53	%	1,220,212		32,396		2.65	%	1,541,511		48,359		3.14	%
Loans (1)	6,096,284		390,858		6.41	%	5,121,261		359,233		7.01	%	4,145,130		319,485		7.71	%
Other assets	29,543		1,208		4.09	%	27,985		280		1.00	%	23,741		62		0.26	%
Total interest-earning assets(1)	7,317,119		418,885		5.72	%	6,663,700		393,083		5.90	%	6,016,611		368,964		6.13	%
Interest-bearing liabilities:
Deposits	5,870,561		51,941		0.88	%	5,400,247		51,035		0.95	%	4,808,141		53,609		1.11	%
Other borrowings	606,110		10,744		1.77	%	587,301		11,061		1.88	%	455,055		9,193		2.02	%
Total interest-bearing liabilities(2)	6,476,671		62,685		0.97	%	5,987,548		62,096		1.04	%	5,263,196		62,802		1.19	%
Net interest income/spread (2)			$	356,200	4.75	%			$	330,987	4.86	%			$	306,162	4.94	%
Net interest margin					4.87	%					4.97	%					5.09	%

________________________

(1) Interest-earning assets include cash and cash equivalents, investments, loans, and FHLB stock.

(2) Interest-bearing liabilities include deposits and borrowings.

Provision for Loan and Lease Losses

Our provision for loan and lease losses is based on our evaluation of the adequacy of the existing allowance for loan and lease losses in relation to total loan portfolio and our periodic assessment of the inherent risks relating to the loan portfolio resulting from our review of selected individual loans.

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Non-Interest Income

CapitalSource Bank services loans and other assets, which are owned by the Parent Company and third parties, for which it receives fees based on the number of loans or other assets serviced. Loans serviced by CapitalSource Bank for the benefit of others were $0.9 billion, $1.4 billion, and $2.5 billion as of December 31, 2013, 2012 and 2011, respectively, of which $87.0 million, $549.0 million, and $1.0 billion, respectively, were owned by the Parent Company. CapitalSource Bank also provides tax, credit, treasury and other similar services to the Parent Company for which it receives fees.

	Year Ended December 31,								2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013		2012			2011
	($ in thousands)
Loan fees	$	22,772	$	16,089		$	8,678		41.5	%	85.4	%
Leased equipment income	20,590		14,113			3,748			45.9	%	276.5	%
Gain (loss) on investments, net	208		(1		)	4,713			20,900.0	%	(100.0	)%
Gain (loss) on derivatives	1,068		(1,162		)	(312		)	191.9	%	(272.4	)%
Bank fees	187		193			203			(3.1	)%	(4.9	)%
Gain (loss) on sale of assets	2,402		516			(128		)	365.5	%	503.1	%
Loan servicing revenue	5,345		10,362			12,588			(48.4	)%	(17.7	)%
Intercompany shared service revenue	10,366		14,904			6,340			(30.4	)%	135.1	%
Other	3,246		5,481			5,867			(40.8	)%	(6.6	)%
Total	$	66,184	$	60,495		$	41,697		9.4	%	45.1	%

2013 vs. 2012

• Loan fees increased $6.7 million, or 41.5%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to increased termination fees due to early pay offs on loans and increased miscellaneous loans fees, such as late fees, penalties, unused line fees, and recurring fees.

• Leased equipment income increased $6.5 million, or 45.9%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to an increase in equipment on operating leases of $114.4 million as of December 31, 2012 to $132.1 million as of December 31, 2013. In addition, average balances on our leased equipment increased $39.2 million, or 43.4%, from $90.4 million as of December 31, 2012 to $129.6 million as of December 31, 2013, respectively.

• Gain on derivatives increased $2.2 million, or 191.9%, from the year ended December 31, 2012 to the year ended December 31, 2013 due to valuation changes in our foreign exchange rate contracts at December 31, 2013.

• Gain on sale of assets increased $1.9 million, or 365.5%, from the year ended December 31, 2012 to the year ended December 31, 2013 due to loan sales resulting in larger realized gains during the year ended December 31, 2013.

• Loan servicing revenue decreased $5.0 million, or 48.4%, from the year ended December 31, 2012 to the year ended December 31, 2013 as the number of Parent Company loans serviced by CapitalSource Bank declined with the runoff of the Parent Company loan portfolio.

• Intercompany shared service revenue decreased $4.5 million, or 30.4%, from the year ended December 31, 2012 to the year ended December 31, 2013 as the general services provided to the Parent Company decreased with the reduction in Parent Company operations and activities.

• Other income decreased $2.2 million, or 40.8%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to foreign currency translation adjustments on our loans denominated in a foreign currencies.

2012 vs. 2011

• Loan fees increased $7.4 million, or 85.4%, from the year ended December 31, 2011 to the year ended December 31, 2012 primarily due to increased termination fees due to early pay offs on loans and increased miscellaneous loans fees, such as late fees, penalties, unused line fees, and recurring fees.

• Leased equipment income increased $10.4 million from the year ended December 31, 2011 to the year ended December 31, 2012 primarily due to an increase in equipment on operating leases of $83.1 million as of December 31, 2011 to $114.4 million as of December 31, 2012. In addition, average balances on our leased equipment increased $65.5 million, or 380.2%, from $17.2 million as of December 31, 2011 to $82.7 million as of December 31, 2012, respectively.

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• Gain on investments, net, decreased $4.7 million from the year ended December 31, 2011 to the year ended December 31, 2012 due to less sale activity of securities during the year ended December 31, 2012.

• Loan servicing revenue decreased $2.2 million, or 17.7%, from the year ended December 31, 2011 to the year ended December 31, 2012 primarily due to decreases of Parent Company and third party loans serviced by CapitalSourceBank.

• Intercompany shared service revenue increased $8.6 million, or 135.1%, from the year ended December 31, 2011 to the year ended December 31, 2012 as CapitalSource Bank charges the Parent Company for shared services. Nearly all of the Parent Company employees were transferred to CapitalSource Bank beginning January 2012, resulting in an increase in services provided to the Parent Company and related shared services revenue.

Non-Interest Expense

Prior to 2012, CapitalSource Bank relied on the Parent Company to refer loans and to provide loan origination due diligence services. For these services, CapitalSource Bank paid the Parent Company fees based upon the commitment amount of each new loan funded by CapitalSource Bank during the period. CapitalSource Bank also paid the Parent Company to perform certain underwriting and other services. At the start of 2012, the origination function, and all related personnel, were transferred to CapitalSource Bank, as a result of which the loan referral fee ceased being paid while other operating expenses of CapitalSource Bank increased. There were no such fees in operating expense for the years ended December 31, 2013 and 2012; and $51.2 million for the year ended December 31, 2011. These fees have been eliminated in consolidation.

	Year Ended December 31,								2013 vs. 2012 % Change		2012 vs. 2011 % Change
	December 31, 2013			December 31, 2012			December 31, 2011
	($ in thousands)
Compensation and benefits	$	107,619		$	102,417		$	49,941	5.1	%	105.1	%
Professional fees	4,214			5,628			4,054		(25.1	)	38.8
Occupancy expenses	9,568			10,139			7,106		(5.6	)	42.7
FDIC fees and assessments	5,067			5,958			6,091		(15.0	)	(2.2	)
General depreciation and amortization	4,908			3,884			4,198		26.4		(7.5	)
Intercompany loan referral expense	—			—			45,078		—		(100.0	)
Loan servicing expense	1,504			5,903			6,167		(74.5	)	(4.3	)
Other administrative expenses	20,702			22,886			11,308		(9.5	)	102.4
Total operating expenses	153,582			156,815			133,943		(2.1	)	17.1
Leased equipment depreciation	14,427			9,919			2,720		45.4		264.7
Expense of real estate owned and other foreclosed assets, net	1,203			2,169			12,756		(44.5	)	(83.0	)
Other non-operating (gains) expenses	(963		)	(334		)	291		188.3		(214.8	)
Total	$	168,249		$	168,569		$	149,710	(0.2	)	12.6

2013 vs. 2012

• Compensation and benefits increased $5.2 million, or 5.1%, from the year ended December 31, 2012 to the year ended December 31, 2013, due to increases in base compensation, bonuses, and stock compensation.

• Professional fees decreased $1.4 million, or 25.1%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to decreases in other miscellaneous professional service accruals for the year ended December 31, 2013.

• Loan servicing expense decreased $4.4 million from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to a lower level of problem loans that required third party professional fees or special servicing, and increased reimbursements from borrowers on newly originated loans or performing loans.

• Other administrative expenses decreased $2.2 million, or 9.5%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to decreases in travel and franchise tax expenses.

• Leased equipment depreciation increased $4.5 million, or 45.4%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to an increase in equipment subject to operating leases issued by CapitalSource Bank. The equipment subject to operating leases increased $39.2 million, or 43.4%, from $90.4 million as of December 31, 2012 to $129.6 million as of December 31, 2013, respectively.

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• Expense of real estate owned and other foreclosed assets, net decreased $1.0 million, or 44.5%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to a $1.6 million reduction in impairment losses offset by greater realized gains of $0.6 million.    

2012 vs. 2011

• Compensation and benefits increased $52.5 million, or 105.1%, from the year ended December 31, 2011 to the year ended December 31, 2012, due to increases in base compensation, bonuses, and stock compensation which resulted from the transfer of Parent Company employees to the Bank on January 1, 2012.

• Professional fees increased $1.6 million, or 38.8%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to increases in audit, accounting fees and legal fees.

• Occupancy expenses increased $3.0 million, or 42.7%, from the year ended December 31, 2011 to the year ended December 31, 2012, as a result of transferring Parent Company employees to CapitalSource Bank.

• Intercompany loan referral fee decreased $45.1 million, or 100.0%, from the year ended December 31, 2011 to the year ended December 31, 2012, as the loan referral fees were no longer paid to the Parent Company as the Parent Company employees transferred to CapitalSource Bank.

• Leased equipment depreciation increased $7.2 million, or 264.7%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to an increase in equipment subject to operating leases issued by the Bank. The equipment subject to operating leases increased $31.3 million, or 37.6%, from $83.1 million as of December 31, 2011 to $114.4 million as of December 31, 2012. In addition, average balances on our leased equipment increased $70.9 million, or 230.4%, from $30.8 million as of December 31, 2011 to $101.7 million as of December 31, 2012, respectively.

• Expense of real estate owned and other foreclosed assets, net decreased $10.6 million, or 83.0%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to a $6.6 million decrease in realized losses on the sale of real estate owned during 2011, a $1.7 million decrease in unrealized impairment losses, and a $2.3 million overall decrease in related net operating expenses during 2012 as a result of our ongoing efforts to resolve real estate owned and other foreclosed assets.

Other Commercial Finance Segment

Our Other Commercial Finance operating results for the year ended December 31, 2013, compared to December 31, 2012, and for the year ended December 31, 2012, compared to December 31, 2011, were as follows:

	Year Ended December 31,									2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013			2012			2011
	($ in thousands)
Interest income	$	26,551		$	78,629		$	141,056		(66.2	)%	(44.3	)%
Interest expense	11,403			17,311			87,208			(34.1	)%	(80.1	)%
Provision for loan and lease losses	3,665			23,250			65,446			(84.2	)%	(64.5	)%
Non-interest income	33,263			14,522			123,951			129.1	%	(88.3	)%
Non-interest expense	37,470			51,344			300,652			(27.0	)%	(82.9	)%
Income tax benefit	(15,237		)	(370,209		)	(21,054		)	(95.9	)%	1,658.4	%
Net income (loss)	22,513			371,455			(167,245		)	(93.9	)%	322.1	%

Interest Income

2013 vs. 2012. Interest income decreased to $26.6 million for the year ended December 31, 2013 from $78.6 million for the year ended December 31, 2012, primarily due to a 55.7% decrease in average total interest-earning assets. During the year ended December 31, 2013, our average balance of interest-earning assets decreased by $0.5 billion, compared to the year ended December 31, 2012, due to the runoff of Parent Company loans. Additionally, since the Merger announcement, the Parent Company has been retaining all excess cash generated from operations, and investing those funds in short-term investments, thereby depressing the yield on the average interest-earning assets. During the years ended December 31, 2013 and 2012, the yield on average interest-earning assets was 6.43% and 8.42%, respectively.

2012 vs. 2011. Total interest income decreased to $78.6 million for the year ended December 31, 2012 from $141.1 million for the year ended December 31, 2011, primarily due to a 55.7% decrease in average total interest-earning assets. During the year ended December 31, 2012, the average balance of interest-earning assets decreased by $1.2 billion, compared to the year ended

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December 31, 2011, due to the continued runoff of Parent Company loans. During the years ended December 31, 2012 and 2011, the yield on average interest-earning assets was 8.42% and 6.69%, respectively.

Interest Expense

2013 vs. 2012. Interest expense decreased to $11.4 million for the year ended December 31, 2013 from $17.3 million for the year ended December 31, 2012, primarily due to a decrease of $220.4 million, or 33.1%, in average interest-bearing liabilities from $0.7 billion as of December 31, 2012 to $0.4 billion as of December 31, 2013. The decrease in interest-bearing liabilities was primarily driven by the early retirement of our term debt securitizations.

2012 vs. 2011. Interest expense decreased to $17.3 million for the year ended December 31, 2012 from $87.2 million for the year ended December 31, 2011, primarily due to a decrease in average interest-bearing liabilities from $1.5 billion as of December 31, 2011 to $0.7 billion as of December 31, 2012. The decrease in interest-bearing liabilities was primarily driven by the early retirement of our 12.75% Senior Secured Notes of $298.1 million.

Net Interest Margin

The yields of income earning assets and the costs of interest-bearing liabilities in this segment for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013						2012						2011
	Weighted Average Balance		Net Interest Income		Average Yield/Cost		Weighted Average Balance		Net Interest Income		Average Yield/Cost		Weighted Average Balance		Net Interest Income		Average Yield/Cost
	($ in thousands)
Interest-earning assets:
Cash and cash equivalents	$	113,666	$	221	0.19	%	$	76,333	$	133	0.17	%	$	503,717	$	72	0.01	%
Investment securities	26,384		3,853		14.60	%	26,872		5,834		21.71	%	21,257		7,165		33.71	%
Loans	273,102		22,477		8.23	%	830,316		72,662		8.75	%	1,583,594		132,752		8.38	%
Other assets	—		—		—	%	—		—		—	%	—		1,067		—	%
Total interest-earning assets(1)	413,152		26,551		6.43	%	933,521		78,629		8.42	%	2,108,568		141,056		6.69	%
Interest-bearing liabilities:
Borrowings	445,530		11,403		2.56	%	665,937		17,311		2.60	%	1,456,558		87,208		5.99	%
Total interest-bearing liabilities(2)	445,530		11,403		2.56	%	665,937		17,311		2.60	%	1,456,558		87,208		5.99	%
Net interest income/spread			$	15,148	3.87	%			$	61,318	5.82	%			$	53,848	0.70	%
Net interest margin					3.67	%					6.57	%					2.55	%

_________________________

(1) Interest-earning assets include cash and cash equivalents, restricted cash, mortgage-related receivables, loans and investments in debt securities.

(2) Interest-bearing liabilities include secured and unsecured credit facilities, term debt, convertible debt and subordinated debt.

39

Non-Interest Income

Prior to 2012, the Parent Company referred loans to CapitalSource Bank and provided loan origination due diligence services to CapitalSource Bank. For these services, CapitalSource Bank paid the Parent Company fees based upon the commitment amount of each new loan funded by CapitalSource Bank during the period. CapitalSource Bank also paid the Parent Company to perform certain underwriting and other services. At the start of 2012, the origination function, and all related personnel, were transferred into CapitalSource Bank, and as a result, the loan fees received by the Parent Company decreased.

	Year Ended December 31,								2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013			2012		2011
	($ in thousands)
Loan fees	$	774		$	2,472	$	7,556		(68.7	)%	(67.3	)%
Gain on investments, net	28,757			7,383		53,868			289.5		(86.3	)
(Loss) gain on derivatives	(7		)	338		(6,501		)	102.1		(105.2	)
Bank fees	—			—		63			—		(100.0	)
Gain on sale of assets	5,893			3,159		12,003			86.5		(73.7	)
Intercompany loan referral revenue	—			—		49,034			—		(100.0	)
Loan servicing revenue	14			121		6,167			(88.4	)	(98.0	)
Other	(2,168		)	1,049		1,761			(306.7	)	(40.4	)
Total	$	33,263		$	14,522	$	123,951		129.1		(88.3	)

2013 vs. 2012

• Loan fees decreased $1.7 million, or 68.7%, from the year ended December 31, 2012 to the year ended December 31, 2013, due to decreased unused line fees and letter of credit fees with the runoff of the Parent Company loan portfolio.

• Gains on investments, net increased $21.4 million, or 289.5%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to the sale of investment securities during the year ended December 31, 2013 resulting in a $23.0 million realized gain.

• Gain on sale of assets increased $2.7 million, or 86.5%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to gains on intercompany loan sales and third party commercial loan sales.

• All other non-interest income decreased $3.2 million, or 306.7%, from the year ended December 31, 2012 to the year ended December 31, 2013 primarily due to foreign currency translation losses on debt and decreases in other miscellaneous income.

2012 vs. 2011

• Loan fees decreased $5.1 million, or 67.3%, from the year ended December 31, 2011 to the year ended December 31, 2012, due to a $2.3 million decrease in due diligence fees, $2.0 million decrease in line of credit fees, and a $2.2 million decrease in unused line fees. The overall decrease in loan fees is primarily a result of transferring loan administration functions to CapitalSource Bank in early 2012, which was partially offset by a $1.4 million increase in legal, wire and late fees.

• Gains on investments, net decreased $46.5 million, or 86.3%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to a $19.6 million decrease in income related to investment securities measured on a cost-basis, a $14.4 million decrease from a combination of dividends and gains on disposal of equity investments, and a $12.5 million decrease related to valuation adjustments on available-for-sale securities.

• Loss on derivatives decreased $6.8 million, or 105.2%, from a loss of $6.5 million for the year ended December 31, 2011 to a gain of $0.3 million for the year ended December 31, 2012. This decrease is primarily due to a reduction in the total notional balance outstanding as $1.0 billion notional derivatives which were terminated in the first quarter 2012.

• Gain on sale of assets decreased $8.8 million, or 73.7%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to lower gains on sales of loans offset by valuation adjustments to existing loans held for sale.

• Intercompany loan referral revenue decreased $49.0 million from the year ended December 31, 2011 to the year ended December 31, 2012, due to loan origination and other administrative functions moving from the Parent Company to CapitalSource Bank.

• Loan servicing revenue decreased $6.0 million, or 98.0%, from the year ended December 31, 2011 to the year ended December 31, 2012, as the Parent Company had previously provided loan services to CapitalSource Bank and was compensated for those services.

40

Non-Interest Expense

	Year Ended December 31,								2013 vs. 2012 % Change		2012 vs. 2011 % Change
	2013			2012			2011
	($ in thousands)
Compensation and benefits	$	57		$	3,013		$	79,680	(98.1	)%	(96.2	)%
Professional fees	610			7,186			27,128		(91.5	)	(73.5	)
Occupancy expenses	5,580			7,274			8,947		(23.3	)	(18.7	)
General depreciation and amortization	1,913			2,539			3,171		(24.7	)	(19.9	)
Loan servicing expense	10,205			18,325			12,647		(44.3	)	44.9
Other administrative expenses	14,420			17,564			22,156		(17.9	)	(20.7	)
Total operating expenses	32,785			55,901			153,729		(41.4	)	(63.6	)
(Gain) expense of real estate owned and other foreclosed assets, net	(382		)	4,621			26,591		108.3		82.6
(Gain) loss on extinguishment of debt	—			(8,059		)	119,007		(100.0	)	106.8
Other non-operating expenses (income)	5,067			(1,119		)	1,325		552.8		(184.5	)
Total	$	37,470		$	51,344		$	300,652	(27.0	)	(82.9	)

2013 vs. 2012

• Compensation and benefits decreased $3.0 million, or 98.1%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to the transfer of Parent Company employees to CapitalSource Bank on January 1, 2012.

• Professional fees decreased $6.6 million, or 91.5%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to decreases in audit, accounting and legal fees as a result of the simplification and runoff of the Parent Company loan portfolio.

• Occupancy expense decreased $1.7 million, or 23.3%, from the year ended December 31, 2012 to the year ended December 31, 2013 due to the reduction in Parent Company operations.

• Loan servicing expenses decreased $8.1 million, or 44.3%, from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to a lower level of problem loans that required third party professional fees or special servicing, and increased reimbursements from borrowers on performing loans.

• Other administrative expenses decreased $3.1 million from the year ended December 31, 2012 to the year ended December 31, 2013, primarily due to certain loan administrative functions moving from the Parent Company to CapitalSource Bank and the runoff of the Parent Company loan portfolio.

• (Gain) expense of real estate owned and other foreclosed assets, net, increased $5.0 million, or 108.3%, from $(4.6) million for the year ended December 31, 2012 to $0.4 million for the year ended December 31, 2013, primarily due to a $2.0 million increase in realized gains, a $1.8 million reduction in impairment losses, and a $1.2 million reduction in related operating expenses.

• We had no gains on extinguishment of debt for the year ended December 31, 2013 compared to gains of $8.1 million during December 31, 2012. The gains during 2012 were attributable to the repurchase of debt related to our TP Trusts 2005-1 and 2006-4 which resulted in a $8.2 million gain offset by a $0.1 million loss related to the repurchase of our 7.25% Convertible Debentures.

• The increase in non-operating expense of $6.2 million, or 552.8% from the year ended December 31, 2012 to the year ended December 31, 2013 was primarily due to merger-related costs.

2012 vs. 2011

• Compensation and benefits decreased $76.7 million, or 96.2%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to the transfer of Parent Company employees to CapitalSource Bank on January 1, 2012.

• Professional fees decreased $19.9 million, or 73.5%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to an $11.1 million decrease in cost of services for loans, as a result of the servicing functions being transferred to CapitalSource Bank in early 2012. Audit, accounting, legal fees, and other such administrative fees decreased by approximately $8.8 million as the associated functions were transferred to CapitalSource Bank.

• Loan servicing expenses increased $5.7 million, or 44.9%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to increased loan servicing expenses reimbursable to CapitalSource Bank.

41

• Other administrative expenses decreased $4.6 million, or 20.7%, from the year ended December 31, 2011 to the year ended December 31, 2012, primarily due to certain loan administrative functions moving from the Parent Company to CapitalSource Bank.

• Expense of real estate owned and other foreclosed assets, net, decreased from $26.6 million for the year ended December 31, 2011 to $4.6 million for the year ended December 31, 2012, primarily due to a $14.9 million decrease in provision charge-offs and expenses related to foreclosed assets, $10.1 million decreases in unrealized losses and a $3.3 million decrease in operations and administrative expenses related to real estate owned properties. The overall decrease was partially offset by a $6.4 million increase in realized gains from real estate owned sales.

• Losses on extinguishment of debt were $119.0 million for the year ended December 31, 2011 compared to gains of $8.1 million for the year ended December 31, 2012. The gains during 2012 were attributable to the repurchase of debt related to our TP Trusts 2005-1 and 2006-4 which resulted in a $8.2 million gain offset by a $0.1 million loss related to the repurchase of our 7.25% Convertible Debentures. The losses during 2011 included a $111.8 million loss related to the repurchase of our 12.75% Senior Secured Notes and a $7.2 million loss related to the repurchase of our 7.25% Convertible Debentures.

• The decrease in non-operating expense of $2.4 million, or 184.5% from the year ended December 31, 2011 to the year ended December 31, 2012 was primarily due to a change in the allowance for unfunded commitments.

42

Financial Condition

Consolidated

As of December 31, 2013 and 2012, our consolidated balance sheet included:

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents(1)	$	514,452		$	403,130
Investment securities, available-for-sale	870,482			1,079,025
Investment securities, held-to-maturity	74,369			108,233
Loans held for sale	—			22,719
Loans held for investment, net(2)	6,784,489			6,139,230
Allowance for loan and lease losses	(120,520		)	(117,273		)
Interest receivable	26,068			29,112
Other investments(3)	52,124			60,363
Goodwill	173,135			173,135
Deferred tax assets, net	252,268			362,283
Other assets	278,623			289,048
Total	$	8,905,490		$	8,549,005
Liabilities:
Deposits	$	6,127,690		$	5,579,270
Borrowings	1,037,156			1,182,926
Other liabilities	104,017			161,637
Total	$	7,268,863		$	6,923,833

________________________

(1) As of December 31, 2013 and 2012, the amounts include restricted cash of $58.7 million and $104.0 million, respectively.

(2) Includes deferred loan fees and discounts.

(3) Includes investments carried at cost, investments carried at fair value and investments accounted for under the equity method.

Cash and Cash Equivalents

Cash and cash equivalents consist of amounts due from banks, short-term investments and commercial paper with an initial maturity of three months or less.

Investment Securities, Available-for-Sale and Held-to-Maturity

Included in investment securities, available-for-sale, were agency securities which included commercial and residential mortgage pass through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae ("Agency MBS"); asset-backed securities; investments in collateralized loan obligations ("CLOs"); residential mortgage-backed securities issued by non-government agencies (“Non-agency MBS”) and agency asset-backed securities issued by the Small Business Administration (“SBA ABS”). CapitalSource Bank pledges a portion of its investment securities, available-for-sale, as collateral to the Federal Reserve Bank of San Francisco Discount Window and to the State of California for deposits the state has with CapitalSource Bank as of December 31, 2013.

Investment securities, held-to-maturity, consists of non-agency commercial mortgage-backed securities rated AA+ or higher. CapitalSource Bank pledges a portion of its investment securities, held-to-maturity, to the FHLB SF and the FRB as collateral for current or future borrowings.

During 2013, we transferred certain investment securities, held-to-maturity, which consisted of collateralized loan obligations, to investment securities, available-for-sale. The CLOs were reclassified to available-for-sale due to the provisions of the Volcker Rule which prohibit banking entities from having ownership interests in "covered funds." As such, CapitalSource Bank would not be permitted to hold the CLOs to their contractual maturity.

43

For additional information on our investment securities, available-for-sale and held-to-maturity, see Note 4, Investments, in our accompanying consolidated financial statements for the year ended December 31, 2013.

	December 31,
	2013		2012
	($ in thousands)
Investment securities, available-for-sale:
Agency debt securities	$	784,240	$	983,521
Asset-backed securities	3,169		9,592
Collateralized loan obligations	47,337		26,250
Non-agency MBS	20,203		41,347
SBA asset-backed securities	15,533		18,315
Total investment securities, available-for-sale	$	870,482	$	1,079,025
Investment securities, held-to-maturity:
Commercial mortgage-backed securities	$	74,369	$	108,233

Investments by Maturity Dates

As of December 31, 2013, the carrying amounts, contractual maturities and weighted average yields of our investment securities were as follows:

	Due in One Year or Less			Due Between One and Five Years			Due Between Five and Ten Years(1)			Due after Ten Years(2)			Total
	($ in thousands)
Investment securities, available-for-sale:
Agency debt securities	$	—		$	5,009		$	16,860		$	762,371		$	784,240
Asset-backed securities	—			—			3,169			—			3,169
Collateralized loan obligations	—			—			24,662			22,675			47,337
Non-agency MBS	—			8,321			193			11,689			20,203
SBA asset-backed securities	—			—			—			15,533			15,533
Total investment securities, available-for-sale	$	—		$	13,330		$	44,884		$	812,268		$	870,482
Weighted average yield	—		%	4.60		%	3.43		%	2.31		%	2.40		%
Investment securities, held-to-maturity:
Commercial mortgage-backed securities	$	—		$	—		$	60,396		$	13,973		$	74,369
Weighted average yield(3)	—		%	—		%	1.63		%	5.17		%	2.30		%

________________________

(1) Includes Agency debt securities, Non-agency MBS, Non-agency ABS, Non-agency CMBS and CLO's with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41, and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(2) Includes Agency debt securities, SBA asset-backed securities, Non-agency MBS, Non-agency CMBS and CLO's with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66, and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

Actual maturities of these securities may differ from contractual maturity dates because issuers may have the right to call or prepay obligations.

44

Loan Portfolio Composition

The outstanding unpaid principal balance of loans in our loan portfolio by category as of December 31, 2013, 2012, 2011, 2010 and 2009 was as follows:

	December 31,
	2013		2012		2011		2010		2009
	($ in thousands)
Commercial	$	3,852,537	$	3,594,643	$	3,491,259	$	4,159,831	$	4,919,196
Real estate	2,865,976		2,499,567		2,133,210		1,804,087		2,005,247
Real estate - construction	65,976		45,020		65,678		287,854		1,211,468
Total loans(1)	$	6,784,489	$	6,139,230	$	5,690,147	$	6,251,772	$	8,135,911

_________________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

As of December 31, 2013, the largest loan to one borrower amounted to $83.7 million, or 1.2%, of our portfolio and the largest relationship with one borrower amounted to $104.1 million, or 1.5%, of our portfolio which was comprised of multiple loans.

As of December 31, 2013, we had a concentration of over 10% of our loan balances in two industries (as defined by the North American Industry Classification System, not underlying collateral). These industries and their respective percentage to total loans were as follows:

	Percentage of Total Loans
Health care and social assistance	22.2%
Real estate and rental and leasing	21.2%

The loans within these industries are to approximately 830 borrowers located throughout the United States (47 states and the District of Columbia).

Loan Balances by Maturities

As of December 31, 2013, the contractual maturities of our loan portfolio were as follows:

	Due in One Year or Less		Due After One to Five Years		Due After Five Years		Total
	($ in thousands)
Commercial	$	195,357	$	2,779,565	$	877,615	$	3,852,537
Real estate	196,855		1,722,799		946,322		2,865,976
Real estate - construction	10,069		28,755		27,152		65,976
Total(1)	$	402,281	$	4,531,119	$	1,851,089	$	6,784,489

_________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

45

Sensitivity in Loans to Changes in Interest Rates

As of December 31, 2013, the total amount of loans due after one year with predetermined interest rates and floating or adjustable interest rates were as follows:

	Loans with Predetermined Rates(1)		Loans with Floating or Adjustable Rates		Total
	($ in thousands)
Commercial	$	705,346	$	2,928,614	$	3,633,960
Real estate	803,109		1,857,184		2,660,293
Real estate - construction	—		55,905		55,905
Total loans(2)	$	1,508,455	$	4,841,703	$	6,350,158

________________________

(1) Represents loans for which the interest rate is fixed.

(2) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value and loans on non-accrual status.

As of December 31, 2013, approximately 78% of our accruing adjustable rate portfolio was subject to an interest rate floor. Due to low market interest rates as of December 31, 2013, substantially all loans with interest rate floors were bearing interest at such floors. The weighted average spread between the floor rate and the fully indexed rate on accruing loans was 0.94% as of December 31, 2013. To the extent the underlying indices subsequently increase, our interest yield on this portfolio will not rise as quickly due to the effect of the interest rate floors.

As of December 31, 2013, the composition of our loan balances by adjustable rate index and by loan type was as follows:

	Loan Type						Total		Percentage
	Commercial		Real Estate		Real Estate - Construction
	($ in thousands)
1-Month LIBOR	$	1,556,521	$	1,434,731	$	28,754	$	3,020,006	45	%
2-Month LIBOR	32,942		—		—		32,942		—
3-Month LIBOR	1,068,742		167,167		—		1,235,909		19
6-Month LIBOR	50,182		79,786		—		129,968		2
6-Month EURIBOR	—		4,010		—		4,010		—
Prime	325,404		228,337		27,152		580,893		9
Other	49,000		44,679		—		93,679		1
Treasuries	708		20,020		—		20,728		—
Total adjustable rate loans	3,083,499		1,978,730		55,906		5,118,135		76
Fixed rate loans(1)	715,832		849,682		—		1,565,514		23
Loans on non-accrual status	53,206		37,564		10,070		100,840		1
Total loans(2)	$	3,852,537	$	2,865,976	$	65,976	$	6,784,489	100	%

________________________

(1) Includes $655.9 million of loans that are in their introductory fixed rate period. For the majority of these loans, the fixed interest rate is higher than the fully indexed rate at December 31, 2013.

(2) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

Credit Quality and Allowance for Loan and Lease Losses

We maintain a comprehensive credit policy manual that is supplemented by specific loan product underwriting guidelines. Among other things, the credit policy manual sets forth requirements that meet the regulations enforced by both the FDIC and the DBO. Several examples of such requirements are the loan-to-value limitations for real estate secured loans, various real estate appraisal and other third-party reports standards, and collateral insurance requirements.

Our underwriting guidelines outline specific underwriting standards and minimum specific risk acceptance criteria for each lending product offered, including the use of interest reserves. For additional information, see Credit Risk Management within this section.

46

Real estate - construction loans

In prior years, real estate construction loans comprised a greater portion of our loan portfolio. At December 31, 2013, real estate construction loans were $66.6 million, or 1.0% of total loans. By comparison, at the end of 2010, real estate construction loans were $1.4 billion, or 14.8% of total loans. Loans secured by real estate construction projects generally have a greater degree of risk than real estate loans secured by improved property with in-place cash flows, and as such, loans secured by construction projects require an increased level of loan servicing and monitoring. Because of this, we are providing additional disclosure of the policies and procedures related to our real estate construction loan portfolio.

The objective of our servicing procedures for real estate construction loans is to maintain the proper relationship between the loan amount funded and the value of the collateral securing the loan. The primary servicing tasks include, but are not limited to:

• Monitoring construction of the project to evaluate the work in place, quality of construction (compliance with plans and specifications) and adequacy of the budget to complete the project. We generally use a third party consultant for this evaluation, but also maintain frequent contact with the borrower to obtain updates on the project.

• Monitoring, where applicable, the leasing or unit sales activity compared to market leasing or market unit sales and compared to the underwritten leasing or unit sales actively.

• Monitoring compliance with the terms and conditions of the loan agreement, which contains important construction and leasing provisions.

• Reviewing and approving advance requests per the loan agreement which establishes the frequency, conditions and process for making advances. Typically, each loan advance is conditioned upon funding only for work in place, certification by the construction consultant, and sufficient funds remaining in the loan budget to complete the project.

Most of our of real estate construction loans include an interest reserve that is established upon origination of the loan. We recognize interest income from the reserve during the construction period as long as the interest is deemed collectible. Our risk assessment policies and procedures require that the assignment of a risk rating consider whether the capitalization of interest may be masking other performance related issues. We consider the status of the construction project securing our loan, including its leasing or sales activity (where applicable), relative to our expectations for the status of the project during our initial underwriting. The adequacy of the interest reserve generally is evaluated each time a risk rating conclusion is required or rendered with particular attention paid to the underlying value of the collateral and its ongoing support of the transaction.

In considering the performing status of a real estate construction loan, the current payment of interest, whether in cash or through an interest reserve, is only one of the factors used in our analysis. Our impairment analysis generally considers the loan's maturity, the likelihood of a restructuring of the loan and if that restructuring constitutes a TDR, whether the borrower is current on interest and principal payments, the condition of underlying assets and the ability of the borrower to refinance the loan at market terms. Although an interest reserve may mitigate a delinquency that could cause impairment, other issues with the loan or borrower (for example, the project's progress compared to underwriting and the market in which the project is located) may lead to an impairment determination. Impairment is then measured based on a fair market or discounted cash flow value to assess the current value of the loan relative to the principal balance. If the valuation analysis indicates that repayment in full is doubtful, the loan will be placed on non-accrual status and designated as non-performing.

Obtaining updated third-party valuations is considered when significant negative variances to expected performance exist. Generally, our policy on updating appraisals is to obtain current appraisals subsequent to the impairment date if there are significant changes to the market conditions for the underlying assumptions from the most recent appraisal. Some factors that could cause significant changes include the passage of more than twelve months since the time of the last appraisal; the volatility of the local market; the availability of financing; the number of competing properties; new improvements to or lack of maintenance of the subject property or competing surrounding properties; a change in zoning; environmental contamination; or failure of the project to meet material assumptions of the original appraisal.

47

The following table presents the balance of non-performing real estate - construction loans and the cumulative capitalized interest on our real estate - construction loan portfolio as of the date of the balance sheet:

	December 31,
	2013(1)			2012
	($ in thousands, except percentages)
Total real estate - construction loans(2)(3)	$	66,646		$	45,315
Non-performing	10,400			11,317
% of total real estate - construction	15.6		%	25.0		%
Cumulative capitalized interest	$	11,086		$	10,890

_______________________________________

(1) As of December 31, 2013, three of the 30 loans that comprise our real estate construction portfolio have been extended, renewed or restructured since origination. These modifications have occurred for various reasons including, but not limited to, changes in business plans and/or work-out efforts that were best achieved via a restructuring.

(2) We recognized interest income on the real estate construction loan portfolio of $2.9 million and $1.9 million for the years ended December 31, 2013 and 2012, respectively.

(3) Excludes deferred loan fees and discounts of $0.7 million and $0.3 million as of December 31, 2013 and 2012, respectively.

Non-performing loans

The outstanding unpaid principal balances of non-performing loans in our consolidated loan portfolio as of December 31, 2013, 2012, 2011, 2010 and 2009 were as follows:

	December 31,
	2013		2012		2011		2010		2009
	($ in thousands)
Non-accrual loans
Commercial	$	53,206	$	79,400	$	144,651	$	353,673	$	393,774
Real estate	37,564		26,875		101,453		129,700		202,476
Real estate - construction	10,070		10,987		24,087		181,762		446,601
Total loans on non-accrual	$	100,840	$	117,262	$	270,191	$	665,135	$	1,042,851
Accruing loans contractually past-due 90 days or more
Commercial	$	—	$	—	$	—	$	3,244	$	42,968
Real estate	—		—		5,603		6,238		—
Real estate - construction	—		—		—		39,606		23,701
Total accruing loans contractually past-due 90 days or more	$	—	$	—	$	5,603	$	49,088	$	66,669
Total non-performing loans
Commercial	$	53,206	$	79,400	$	144,651	$	356,917	$	436,742
Real estate	37,564		26,875		107,056		135,938		202,476
Real estate - construction	10,070		10,987		24,087		221,368		470,302
Total non-performing loans(1)	$	100,840	$	117,262	$	275,794	$	714,223	$	1,109,520

_______________________________________  

(1) Includes deferred loan fees and discounts. Excludes loans held for sale at lower cost or fair value.

The decrease in the non-performing loan balance from December 31, 2012 to December 31, 2013 is primarily due to payoffs and sales of non-performing loans.

48

Additionally, certain loans within our portfolio have been identified as potential problem loans. Potential problem loans are impaired loans that have not been restructured in a TDR and are currently considered performing loans. Potential problem loans are loans where management is aware of information regarding potential credit problems of a borrower that leads to serious doubts as to the ability of such borrower to comply with the loan repayment terms. Such credit problems could eventually result in the loans being reclassified as non-performing loans. As of December 31, 2013 we had no potential problem loans. As of December 31, 2012, we had $1.9 million in potential problem loans related to six loans for which we have determined that it is probable that we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, but we have concluded that repayment in full of the loans is fully supported by existing collateral or an enterprise valuation of the borrower in accordance with our most recent valuation analysis.

Delinquent loans

The following table presents the balance of the non-accrual and accruing loans that are delinquent as of the date of the balance sheet:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual loans
30-89 days delinquent	$	1,417	$	20,313
90+ days delinquent	27,635		39,094
Total delinquent non-accrual loans(1)	$	29,052	$	59,407
Accruing loans
30-89 days delinquent	$	944	$	4,153
90+ days delinquent	—		—
Total delinquent accruing loans(1)	$	944	$	4,153

_______________________________________  

(1) Includes deferred loan fees and discounts.

49

Allowance for loan and lease losses

The activity in the allowance for loan and lease losses for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 was as follows:

	Year Ended December 31,
	2013			2012			2011			2010			2009
	($ in thousands)
Balance as of beginning of year	$	117,273		$	153,631		$	329,122		$	586,696		$	423,844
Charge offs:
Commercial	(5,631		)	(74,827		)	(162,577		)	(145,681		)	(308,554		)
Real estate	(2,576		)	(11,765		)	(50,878		)	(112,504		)	(76,919		)
Real estate - construction	(229		)	(9,784		)	(32,787		)	(126,912		)	(204,381		)
Total charge offs	(8,436		)	(96,376		)	(246,242		)	(385,097		)	(589,854		)
Recoveries
Commercial	5,533			9,145			5,693			827			11,299
Real estate	367			13,075			12,128			97			16
Real estate - construction	—			—			1,105			6			46
Total recoveries	5,900			22,220			18,926			930			11,361
Net charge offs	(2,536		)	(74,156		)	(227,316		)	(384,167		)	(578,493		)
Charge offs upon transfer to held for sale	(14,748		)	(1,644		)	(41,160		)	(42,353		)	(33,907		)
Deconsolidation of 2006-A Trust	—			—			—			(138,134		)	—
Loan and lease loss provision (recovery):
General	5,520			(16,393		)	(122,970		)	(128,164		)	775,252
Specific	15,011			55,835			215,955			435,244			—
Total loan and lease loss provisions	20,531			39,442			92,985			307,080			775,252
Balance as of end of year	$	120,520		$	117,273		$	153,631		$	329,122		$	586,696
Allowance for loan and lease losses ratio	1.8		%	1.9		%	2.7		%	5.3		%	7.2		%
Loan and lease loss provision as a percentage of average loans outstanding	0.3		%	0.7		%	1.6		%	4.2		%	9.4		%
Net charge offs as a percentage of average loans outstanding	0.3		%	1.3		%	4.6		%	5.8		%	7.3		%

The allowance for loan and lease losses allocated to each category of loans and the percentage of each category to our total loan portfolio as of December 31, 2013, 2012, 2011, 2010 and 2009 was as follows:

	December 31,
	2013			2012			2011			2010			2009
	($ in thousands)
Allocation by Category
Commercial	$	67,438		$	64,494		$	103,327		$	229,144		$	261,392
Real estate	46,852			50,526			50,103			78,572			138,575
Real estate - construction	6,230			2,253			201			21,406			186,729
Total allowance for loan and lease losses	$	120,520		$	117,273		$	153,631		$	329,122		$	586,696
Percentage of ALLL to Total Loan Portfolio by Category
Commercial	1.8		%	1.8		%	3.0		%	5.5		%	5.3		%
Real estate	1.6		%	2.0		%	2.3		%	4.4		%	6.9		%
Real estate - construction	9.4		%	5.0		%	0.3		%	7.4		%	15.4		%
Total	1.8		%	1.9		%	2.7		%	5.3		%	7.2		%

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Our allowance for loan and lease losses increased by $3.2 million to $120.5 million as of December 31, 2013 from $117.3 million as of December 31, 2012. This increase consisted of a $5.5 million increase in general reserves and a $2.3 million decrease in specific reserves on impaired loans. The increase in the general reserve is due to additional provisions relating to net loan growth. The decrease in the specific reserve resulted from charged off specific reserves that were previously in place exceeding new specific provisions for loan losses. The primary factors that influence increases and decreases in general reserves are the net loan portfolio increases or decreases from period to period and qualitative adjustments to the general reserve based on economic circumstances and our loan portfolio performance and composition trends.

Impaired loans

We employ a quarterly process to both identify impaired loans and record appropriate specific reserves based on available collateral and other borrower-specific information. 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. In this regard, impaired loans include those loans where we expect to encounter a significant delay in the collection of, and/or shortfall in the amount of contractual payments due to us as well as loans that we have assessed as impaired, but for which we ultimately expect to collect all payments. Each quarter, we determine each impaired loan's fair value. The fair value is either i) the present value of payments expected to be received discounted at the loan's effective interest rate, ii) the fair value of the collateral for collateral dependent loans, or iii) the impaired loan's observable market price. Each impaired loan's fair value is compared to the recorded investment in the impaired loan. If a shortfall exists, a specific reserve is established. The specific reserves in place at each period end are directly related to the population of impaired loans in place at each period end.

As of December 31, 2013 and 2012, our non-impaired and impaired loan balances was as follows:

	December 31,
	2013			2012
	($ in thousands)
Non-impaired loans
Unpaid principal balance	$	6,728,314		$	5,986,768
General reserves allocated	116,309			110,790
Effective reserve %	1.7		%	1.9		%
Impaired loans
Unpaid principal balance	$	102,205		$	206,090
Specific reserves allocated(1)	4,211			6,483
Original legal balance previously charged off(2)	85,392			162,462
Total cumulative charge offs and specific reserves	89,603			168,945
Legal balance	223,226			407,147
Expected total loss of the legal balance (%)	40.1		%	41.5		%

_______________________________________

(1) The decrease in specific reserves from December 31, 2012 to December 31, 2013 stems from the net effect of i) loan resolutions of impaired loans with existing specific reserves of$4.5 million, ii) reversals of specific reserves for loans impaired as of December 31, 2012 net of related charge offs of$1.0 million, and iii) new specific reserves net of related charge offs for loans new to impairment status during the year endedDecember 31, 2013 for $3.2 million. The specific reserves in place at December 31, 2013 and at December 31, 2012 reduce the carrying values of our impaired loans to the amounts we expect to collect.

(2) The original legal balance of that portfolio had been previously charged off as collection was deemed remote for portions of these loans.

51

Adversely Classified Items Coverage Ratio

The Adversely Classified Items Coverage Ratio is a common regulatory metric used to assess the credit risk profile of a bank. The ratio compares the sum of the loans rated Substandard or Doubtful (plus any associated unfunded commitments, REO, foreclosed assets and investments rated Substandard) to the sum of the Tier 1 regulatory capital plus the allowance for loan and lease losses. As of December 31, 2013 and 2012, the ratio was 15.7% and 32.1%, respectively.

	December 31,
	2013			2012
	($ in thousands)
Substandard loans and associated unfunded commitments	$	225,340		$	355,884
REO and foreclosed assets	12,824			11,796
Substandard investment securities	—			39,105
Total classified items	$	238,164		$	406,785
Tier 1 capital	$	1,391,726		$	1,150,770
Allowance for loan and lease losses	120,520			117,273
Total Tier 1 capital plus allowance for loan and lease losses	$	1,512,246		$	1,268,043
Adversely classified items coverage ratio	15.7		%	32.1		%

CapitalSource Bank Segment

As of December 31, 2013 and 2012, the CapitalSource Bank segment included:

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents(1)	$	87,312		$	230,305
Investment securities, available-for-sale	870,482			1,052,775
Investment securities, held-to-maturity	74,369			108,233
Loans held for investment, net(2)	6,698,093			5,618,810
Allowance for loan and lease losses	(109,469		)	(98,905		)
Interest receivable	25,787			24,598
Other investments(3)	21,913			22,795
Goodwill	173,135			173,135
Deferred tax assets, net	—			3,492
FHLB SF stock	31,255			28,200
Other assets	203,752			206,463
Total	$	8,076,629		$	7,369,901
Liabilities:
Deposits	$	6,127,690		$	5,579,270
FHLB SF borrowings	625,000			595,000
Other borrowings	81,877			85,179
Total	$	6,834,567		$	6,259,449

_______________________________________

(1) As of December 31, 2013 and 2012, the amounts include restricted cash of $42.6 million and $48.2 million, respectively.

(2) Includes deferred loan fees and discounts.

(3) Includes investments carried at cost, investments carried at fair value and investments accounted for under the equity method.

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Cash and Cash Equivalents

Cash and cash equivalents consist of amounts due from banks, short-term investments and commercial paper with an initial maturity of three months or less.

Investment Securities, Available-for-Sale

Investment securities, available-for-sale, consists of Agency MBS, Non-agency MBS and U.S. non-agency MBS, U.S. agency securities, and collateralized loan obligations. CapitalSource Bank pledges a portion of its investment securities, available-for-sale, to the Federal Reserve Bank of San Francisco's Discount Window and to the State of California as collateral for deposits the state has with CapitalSource Bank as of December 31, 2013. For additional information, see Note 4, Investments, in our accompanying consolidated financial statements for the year ended December 31, 2013.

Investment Securities, Held-to-Maturity

Investment securities, held-to-maturity, consists of non-agency commercial mortgage-backed securities rated AA+ or higher. CapitalSource Bank pledges a portion of its investment securities, held-to-maturity, to the FHLB SF and the FRB as a source of borrowing capacity.

During 2013, we transferred certain investment securities, held-to-maturity, which consisted of collateralized loan obligations, to investment securities, available-for-sale. The CLOs were reclassified to available-for-sale due to the provisions of the Volcker Rule which prohibit banking entities from having ownership interests in "covered funds." As such, CapitalSource Bank would not be permitted to hold the CLOs to their contractual maturity.

For additional information on our investment securities, held-to-maturity, see Note 4 Investments, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

CapitalSource Bank Loan Portfolio Composition

As of December 31, 2013 and 2012, the composition of CapitalSource Bank loan portfolio by loan type was as follows:

	December 31,
	2013				2012
	($ in thousands)
Commercial	$	3,792,844	57	%	$	3,137,863	56	%
Real estate	2,849,344		42	%	2,446,914		43	%
Real estate - construction	55,905		1	%	34,033		1	%
Total(1)	$	6,698,093	100	%	$	5,618,810	100	%

_______________________________________ 

(1) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

CapitalSource Bank Loan Balances by Maturities

As of December 31, 2013, the contractual maturities of CapitalSource Bank loan portfolio by loan type were as follows:

	Due in One Year or Less		Due After One to Five Years		Due After Five Years		Total
	($ in thousands)
Commercial	$	151,919	$	2,763,360	$	877,565	$	3,792,844
Real estate	181,192		1,721,948		946,204		2,849,344
Real estate - construction	—		28,754		27,151		55,905
Total loans(1)	$	333,111	$	4,514,062	$	1,850,920	$	6,698,093

_______________________________________  

(1) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

CapitalSource Bank Sensitivity in Loans to Changes in Interest Rates

As of December 31, 2013, approximately 78% of CapitalSource Bank's accruing adjustable rate portfolio was subject to an interest rate floor. Due to low market interest rates as of December 31, 2013, substantially all loans with interest rate floors were

53

bearing interest at such floors. The weighted average spread between the floor rate and the fully indexed rate on accruing loans was 0.93% as of December 31, 2013. To the extent the underlying indices subsequently increase, CapitalSource Bank's interest yield on this portfolio will not rise as quickly due to the effect of the interest rate floors.

As of December 31, 2013, the composition of CapitalSource Bank's loan balances by adjustable rate index and by loan type was as follows:

	Loan Type						Total		Percentage
	Commercial		Real Estate		Real Estate - Construction
	($ in thousands)
1-Month LIBOR	$	1,541,550	$	1,434,695	$	28,754	$	3,004,999	45	%
2-Month LIBOR	32,941		—		—		32,941		—	%
3-Month LIBOR	1,068,742		166,319		—		1,235,061		20	%
6-Month LIBOR	50,182		79,767		—		129,949		2	%
6-Month EURIBOR	—		4,010		—		4,010		—	%
Prime	309,188		228,328		27,151		564,667		8	%
Other	48,968		44,679		—		93,647		1	%
Treasuries	708		20,020		—		20,728		—	%
Total adjustable rate loans	3,052,279		1,977,818		55,905		5,086,002		76	%
Fixed rate loans(1)	715,815		849,682		—		1,565,497		23	%
Loans on non-accrual status	24,750		21,844		—		46,594		1	%
Total loans(2)	$	3,792,844	$	2,849,344	$	55,905	$	6,698,093	100	%

_______________________________________ 

(1) Includes $655.9 million of loans that are in their introductory fixed rate period. For the majority of these loans, the fixed interest rate is higher than the fully indexed rate at December 31, 2013. 

(2) Includes deferred loan fees and discounts. Excludes loans held for sale at lower of cost or fair value.

FHLB SF Stock

Investments in FHLB SF stock are recorded at historical cost. FHLB SF stock does not have a readily determinable fair value, but can generally be sold back to the FHLB SF at par value upon stated notice. The investment in FHLB SF stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through December 31, 2013.

54

Deposits

As of December 31, 2013 and 2012, a summary of CapitalSource Bank's deposits by product type and the maturities of the certificates of deposit were as follows:

	December 31,
	2013				2012
	Balance		Weighted Average Rate		Balance		Weighted Average Rate
	($ in thousands)
Interest-bearing deposits:
Money market	$	253,357	0.45	%	$	257,961	0.49	%
Savings	623,430		0.47	%	704,890		0.52	%
Certificates of deposit	5,250,903		0.97	%	4,616,419		0.94	%
Total interest-bearing deposits	$	6,127,690	0.90	%	$	5,579,270	0.87	%

	December 31, 2013
	Balance		Weighted Average Rate
	($ in thousands)
Remaining maturity of certificates of deposit:
0 to 3 months	$	997,709	0.86	%
4 to 6 months	1,039,969		0.88	%
7 to 9 months	1,747,035		0.99	%
10 to 12 months	909,687		1.00	%
Greater than 12 months	556,503		1.23	%
Total certificates of deposit	$	5,250,903	0.97	%

For the years ended December 31, 2013 and 2012, the average balances and the weighted average interest rates on deposit categories in excess of 10% of average total deposits were as follows:

	Year Ended December 31,
	2013				2012
	Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate
	($ in thousands)
Savings deposits	$	918,442	0.50	%	$	1,053,480	0.58	%
Time deposits	4,876,831		0.96	%	4,310,974		1.03	%
Total deposits	$	5,795,273	0.89	%	$	5,364,454	0.95	%

55

As of December 31, 2013, the composition of certificates of deposit in the amount of $100,000 or more and categorized by time remaining to maturity was as follows ($ in thousands):

0 to 3 months	$	561,420
4 to 6 months	585,091
7 to 12 months	1,670,324
Greater than 12 months	331,853
Total certificates of deposit in the amount of $100,000 or more	3,148,688
All other certificates of deposit	2,102,215
Total certificates of deposit	$	5,250,903

FHLB SF Borrowings

FHLB SF borrowings increased to $625.0 million as of December 31, 2013 from $595.0 million as of December 31, 2012. The primary reason for using FHLB borrowings as a funding source is to manage rate risk and the secondary reason is to provide a source of liquidly. The weighted-average remaining maturities of the borrowings were approximately 2.3 and 3.2 years as of December 31, 2013 and 2012, respectively.

As of December 31, 2013, the remaining maturity and the weighted average interest rate of FHLB SF borrowings were as follows:

	Balance		Weighted Average Rate
	($ in thousands)
Less than 1 year	$	135,000	1.12	%
After 1 year through 2 years	112,500		1.85	%
After 2 years through 3 years	204,000		1.93	%
After 3 years through 4 years	88,000		1.33	%
After 4 years through 5 years	78,000		1.74	%
After 5 years	7,500		1.62	%
Total	$	625,000	1.66	%

56

Credit Quality and Allowance for Loan and Lease Losses

Non-performing loans

The outstanding unpaid principal balances of non-performing loans in the CapitalSource Bank loan portfolio as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual loans
Commercial	$	24,750	$	32,187
Real estate	21,844		9,814
Real estate - construction	—		—
Total loans on non-accrual	$	46,594	$	42,001
Accruing loans contractually past-due 90 days or more
Commercial	$	—	$	—
Real estate	—		—
Real estate - construction	—		—
Total accruing loans contractually past-due 90 days or more	$	—	$	—
Total non-performing loans
Commercial	$	24,750	$	32,187
Real estate	21,844		9,814
Real estate - construction	—		—
Total non-performing loans	$	46,594	$	42,001

__________________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Certain loans within our portfolio have been identified as potential problem loans. Potential problem loans are impaired loans that have not been restructured in a TDR and are currently considered performing loans. Potential problem loans are loans where management is aware of information regarding potential credit problems of a borrower that leads to serious doubts as to the ability of such borrower to comply with the loan repayment terms. Such credit problems could eventually result in the loans being reclassified as non-performing loans. As of December 31, 2013, we had no potential problem loans. As of December 31, 2012, we had $1.9 million in potential problem loans related to six loans for which we have determined that it is probable that we would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreements, but we have concluded that repayment in full of the loans is fully supported by existing collateral or an enterprise valuation of the borrower in accordance with our most recent valuation analysis.

57

Delinquent loans

The following table presents the balance of the non-accrual and accruing loans that are delinquent as of the date of the balance sheet:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual loans
30-89 days delinquent	$	1,363	$	20,253
90+ days delinquent	1,899		6,907
Total delinquent non-accrual loans	$	3,262	$	27,160
Accruing loans
30-89 days delinquent	$	944	$	4,153
90+ days delinquent	—		—
Total delinquent accruing loans(1)	$	944	$	4,153

__________________________________

(1) Includes deferred loan fees and discounts.

Allowance for loan and lease losses

The activity in the allowance for loan and lease losses for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Balance as of beginning of year	$	98,905		$	94,650		$	124,878
Charge offs:
Commercial	(1,890		)	(17,349		)	(5,237		)
Real estate	(2,562		)	(8,592		)	(33,959		)
Real estate - construction	—			—			(11,530		)
Total charge offs	(4,452		)	(25,941		)	(50,726		)
Recoveries:
Commercial	392			1,081			604
Real estate	366			12,923			11,670
Real estate - construction	—			—			1,019
Total recoveries	758			14,004			13,293
Net charge offs	(3,694		)	(11,937		)	(37,433		)
Charge offs upon transfer to held for sale	(2,608		)	—			(20,334		)
Loan and lease loss provisions (recovery):
General	9,139			12,486			(38,410		)
Specific	7,727			3,706			65,949
Total loan and lease loss provisions	16,866			16,192			27,539
Balance as of end of year	$	109,469		$	98,905		$	94,650
Allowance for loan and lease losses ratio	1.6		%	1.8		%	2.0		%
Provision for loan and lease losses as a percentage of average loans outstanding	0.3		%	0.3		%	0.7		%
Net charge offs as a percentage of average loans outstanding	0.1		%	0.2		%	1.4		%

58

Our allowance for loan and lease losses increased by $10.6 million to $109.5 million as of December 31, 2013 from $98.9 million as of December 31, 2012. This increase was comprised of a $9.1 million increase in general reserves and a $1.5 million increase in specific reserves on impaired loans. The increase in the general reserve is due to additional provisions relating to net loan growth. The increase in the specific reserve is due to specific provisions for impaired loans during the period. The primary factors that influence increases and decreases in general reserves are the net loan portfolio increases or decreases from period to period and qualitative adjustments to the general reserve based on economic circumstances and our loan portfolio performance and composition trends.

Impaired loans

We employ a formal quarterly process to both identify impaired loans and record specific reserves in accordance with the Company policy. For additional information, see Credit Quality and Allowance for Loan and Lease Losses - Consolidated within this section.

As of December 31, 2013 and 2012, our non-impaired and impaired loan balances was as follows:

	December 31,
	2013			2012
	($ in thousands)
Non-impaired loans
Unpaid principal balance	$	6,696,369		$	5,607,591
General reserves allocated	106,213			97,074
Effective reserve %	1.6		%	1.7		%
Impaired loans
Unpaid principal balance	$	47,176		$	58,947
Specific reserves allocated(1)	3,256			1,831
Original legal balance previously charge off(2)	33,518			39,941
Total cumulative charge offs and specific reserves	36,774			41,772
Legal balance	84,321			103,936
Expected total loss of the legal balance (%)	43.6		%	40.2		%

__________________________________

(1) The increase in specific reserves from December 31, 2012 to December 31, 2013 stems from the net effect of i) loan resolutions of impaired loans with existing specific reserves of $0.8 million, ii) reversals of specific reserves for loans impaired as of December 31, 2012 net of related charge offs of$1.0 million, and iii) new specific reserves net of related charge offs for loans new to impairment status during the year endedDecember 31, 2013 for $3.2 million. The specific reserves in place at December 31, 2013 and at December 31, 2012 reduce the carrying values of our impaired loans to the amounts we expect to collect.

(2) The original legal balance of that portfolio had been previously charged off as collection was deemed remote for portions of these loans.

We believe the origination strategy and underwriting practices in place support a loan portfolio with normal, acceptable degrees of credit risk. We acknowledge, however, that some of our lending products have greater credit risk than others. The categories with more credit risk than others are those that have comprised a greater degree of our historical charge offs. As such, we believe commercial real estate loans, excluding healthcare real estate loans, originated prior to CapitalSource Bank's July 2008 inception have a higher degree of credit risk than other lending products in our portfolio. For the years ended December 31, 2011 and 2010, charge offs of commercial real estate loans, excluding healthcare real estate loans, originated prior to CapitalSource Bank's July 2008 inception comprised 71.0% and 93.0%, respectively, of those years' charge offs. There were no charge offs of commercial real estate loans, excluding healthcare real estate loans, originated prior to CapitalSource Bank's July 2008 inception during the years ended December 31, 2013 and December 31, 2012 primarily because of loan resolutions resulting in a small remaining balance of loans in this category. As of December 31, 2013 and 2012, commercial real estate loans, excluding healthcare real estate loans, originated prior to the Bank's July 2008 inception totaled $46.6 million and $53.7 million, respectively, or 0.7% and 1.0% of total loans, respectively.

Troubled Debt Restructurings

During the years ended December 31, 2013 and 2012, loans with an aggregate carrying value of $7.0 million and $135.7 million, respectively, as of their respective restructuring dates, were involved in troubled debt restructurings (“TDRs”). Loans involved in TDRs are classified as impaired upon closing on the TDR. Generally, a loan that has been involved in a TDR is no longer classified as impaired one year subsequent to the restructuring, assuming the loan performs under the restructured terms

59

and the restructured terms are commensurate with current market terms. In most cases, the restructured terms of loans involved in TDRs are not commensurate with current market terms. There were $0.7 million of specific reserves allocated to loans that were involved in TDRs as of December 31, 2013 and 2012, respectively.

Adversely Classified Items Coverage Ratio

The Adversely Classified Items Coverage Ratio is a common regulatory metric used to assess the credit risk profile of a bank. The ratio compares the sum of the loans rated Substandard or Doubtful (plus any associated unfunded commitments, REO, foreclosed assets and investments rated Substandard) to the sum of the Tier 1 regulatory capital plus the allowance for loan and lease losses.  As of December 31, 2013 and 2012, the ratio was 13.9% and 11.6%, respectively.

	December 31,
	2013			2012
	($ in thousands)
Substandard loans and associated unfunded commitments	$	164,103		$	113,682
REO and foreclosed assets	1,988			6,255
Total classified items	$	166,091		$	119,937
Tier 1 capital	$	1,088,870		$	933,837
Allowance for loan and lease losses	109,469			98,905
Total Tier 1 capital plus allowance for loan and lease losses	$	1,198,339		$	1,032,742
Adversely classified items coverage ratio	13.9		%	11.6		%

Other Commercial Finance Segment

As of December 31, 2013 and 2012, our consolidated balance sheet included:

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents(1)	$	427,140		$	172,825
Investment securities, available-for-sale	—			26,250
Loans held for sale	—			22,719
Loans held for investment, net(2)	86,396			520,420
Allowance for loan and lease losses	(11,051		)	(18,368		)
Interest receivable	281			4,514
Other investments(3)	30,211			37,568
Deferred tax assets, net	255,909			359,864
Other assets	48,834			52,719
Total	$	837,720		$	1,178,511
Liabilities and Shareholder's equity:
Borrowings	$	412,156		$	587,926
Other liabilities	34,256			78,672
Shareholders' equity	397,003			521,704
Total	$	843,415		$	1,188,302

_______________________________________  

(1) As of December 31, 2013 and 2012, the amounts include restricted cash of $16.0 million and $55.9 million, respectively.

(2) Includes deferred loan fees and discounts.

(3) Includes investments carried at cost, investments carried at fair value and investments accounted for under the equity method.

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Cash and Cash Equivalents

Cash and cash equivalents consist of amounts due from banks, short-term investments and commercial paper with an initial maturity of three months or less. As a result of entering into the Merger Agreement, the Parent Company has been building its cash position to settle the cash payout due upon the closing of the Merger.

Other Investments

The Parent Company has made investments in some of our borrowers in connection with the loans provided to them. These investments usually include equity interests such as common stock, preferred stock, limited liability company interests, limited partnership interests and warrants. Such equity interests are typically acquired on substantially similar terms as the private equity sponsors that invested in the borrower in part with our loan proceeds. The Parent Company has also made investments in private equity funds which are managed by firms that typically invested in one or more of our borrowers.

In December 2013, as a result of a change in regulatory requirements due to the issuance of the Final Rules of the Dodd-Frank Act, known as the Volcker Rule, banking entities became limited to the types and amounts of investments they may hold. Banking entities may need to dispose of or seek exemption for certain investments by July 21, 2015. As such, the Company is evaluating which of its investments are impacted.

Other Commercial Finance Loan Portfolio Composition

As of December 31, 2013 and 2012, the composition of the Other Commercial Finance loan portfolio by loan type was as follows:

	December 31,
	2013				2012
	($ in thousands)
Commercial	$	59,693	69	%	$	456,780	88	%
Real estate	16,632		19		52,653		10
Real estate - construction	10,071		12		10,987		2
Total(1)	$	86,396	100	%	$	520,420	100	%

_______________________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Other Commercial Finance Loan Balances by Maturities

As of December 31, 2013, the contractual maturities of the Other Commercial Finance loan portfolio by loan type were as follows:

	Due in One Year or Less		Due After One Year to Five Years		Due After Five Years		Total
	($ in thousands)
Commercial	$	43,438	$	16,205	$	50	$	59,693
Real estate	15,663		851		118		16,632
Real estate - construction	10,069		1		1		10,071
Total(1)	$	69,170	$	17,057	$	169	$	86,396

_______________________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Other Commercial Finance Sensitivity in Loans to Changes in Interest Rates

As of December 31, 2013, approximately 88% of the adjustable rate loan portfolio comprised loans that are subject to an interest rate floor and were accruing interest. Due to low market interest rates as of December 31, 2013, substantially all loans with interest rate floors were bearing interest at such floors. The weighted average spread between the floor rate and the fully indexed rate on accruing loans was 1.76% as of December 31, 2013. To the extent the underlying indices subsequently increase, the interest yield on these adjustable rate loans will not rise as quickly due to the effect of the interest rate floors.

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As of December 31, 2013, the composition of Other Commercial Finance loan balances by adjustable rate index and by loan type was as follows:

	Loan Type						Total		Percentage
	Commercial		Real Estate		Real Estate - Construction
	($ in thousands)
1-Month LIBOR	$	14,971	$	36	$	—	$	15,007	17	%
2-Month LIBOR	1		—		—		1		—
3-Month LIBOR	—		848		—		848		1
6-Month LIBOR	—		19		—		19		—
Prime	16,216		9		1		16,226		19
Other	32		—		—		32		—
Total adjustable rate loans	31,220		912		1		32,133		37
Fixed rate loans	17		—		—		17		—
Loans on non-accrual status	28,456		15,720		10,070		54,246		63
Total loans(1)	$	59,693	$	16,632	$	10,071	$	86,396	100	%

_______________________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Shareholders' Equity

Shareholders' equity decreased by $124.7 million from December 31, 2012 to December 31, 2013, primarily due to the repurchase of 15.0 million shares of our common stock pursuant to the Stock Repurchase Program at an average price of $9.18 per share for a total purchase price of $137.7 million during the year ended December 31, 2013. As a result of entering into the Merger Agreement, the Stock Repurchase Program was suspended as of July 23, 2013. The Stock Repurchase Program was later terminated as of December 31, 2013.

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Credit Quality and Allowance for Loan and Lease Losses

Non-performing loans

The outstanding unpaid principal balances of non-performing loans in Other Commercial Finance loan portfolio as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual loans
Commercial	$	28,456	$	47,213
Real estate	15,720		17,061
Real estate - construction	10,070		10,987
Total loans on non-accrual	$	54,246	$	75,261
Accruing loans contractually past-due 90 days or more
Commercial	$	—	$	—
Real estate	—		—
Real estate - construction	—		—
Total accruing loans contractually past-due 90 days or more	$	—	$	—
Total non-performing loans
Commercial	$	28,456	$	47,213
Real estate	15,720		17,061
Real estate - construction	10,070		10,987
Total non-performing loans	$	54,246	$	75,261

_______________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Certain loans within our portfolio have been identified as potential problem loans. Potential problem loans are impaired loans that have not been restructured in a TDR and are currently considered performing loans. Potential problem loans are loans where management is aware of information regarding potential credit problems of a borrower that leads to serious doubts as to the ability of such borrower to comply with the loan repayment terms. Such credit problems could eventually result in the loans being reclassified as non-performing loans.We had no potential problem loans as of December 31, 2013 and 2012.

Delinquent loans

The following table presents the balance of the non-accrual and accruing loans that are delinquent as of the date of the balance sheet:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual loans
30-89 days delinquent	$	54	$	60
90+ days delinquent	25,736		32,187
Total delinquent non-accrual loans	$	25,790	$	32,247
Accruing loans
30-89 days delinquent	$	—	$	—
90+ days delinquent	—		—
Total delinquent accruing loans	$	—	$	—

_______________________________________  

(1) Includes deferred loan fees and discounts.

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Allowance for loan and lease losses

The activity in the allowance for loan and lease losses for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Balance as of beginning of year	$	18,368		$	58,981		$	204,244
Charge offs:
Commercial	(3,741		)	(57,478		)	(157,340		)
Real estate	(14		)	(3,173		)	(16,919		)
Real estate - construction	(229		)	(9,784		)	(21,257		)
Total charge offs	(3,984		)	(70,435		)	(195,516		)
Recoveries:
Commercial	5,141			8,064			5,089
Real estate	1			152			458
Real estate - construction	—			—			86
Total recoveries	5,142			8,216			5,633
Net recovery (charge offs)	1,158			(62,219		)	(189,883		)
Charge offs upon transfer to held for sale	(12,140		)	(1,644		)	(20,826		)
Loan and lease loss provisions (recovery):
General	(3,619		)	(28,879		)	(84,560		)
Specific	7,284			52,129			150,006
Total loan and lease loss provisions	3,665			23,250			65,446
Balance as of end of year	$	11,051		$	18,368		$	58,981
Allowance for loan and lease losses ratio	12.9		%	3.5		%	6.1		%
Provision for loan and lease losses as a percentage of average loans outstanding	1.3		%	2.8		%	4.1		%
Net charge offs as a percentage of average loans outstanding	4.0		%	7.7		%	13.1		%

Our allowance for loan and lease losses decreased by $7.3 million to $11.1 million as of December 31, 2013 from $18.4 million as of December 31, 2012. This decrease comprised a $3.6 million decrease in general reserves and a $3.7 million decrease in specific reserves on impaired loans as further described below. The decrease in the general reserve resulted from having a lower amount of unimpaired loans at December 31, 2013 than at December 31, 2012. The decrease in the specific reserve is due to previously recorded specific provisions being charged off or reversed and a lower amount of new specific provisions.

Impaired loans

We employ a quarterly process to both identify impaired loans and record specific reserves in accordance with the Company policy. For additional information, see Credit Quality and Allowance for Loan and Lease Losses - Consolidated within this section.

As of December 31, 2013, our non-impaired and impaired loan balances were $31.9 million and $55.0 million, respectively, and total reserves were $11.1 million resulting in an effective reserve percent of 12.7%. Including legal balances previously charged off of $51.9 million, the expected total loss of the legal balance of non-impaired and impaired loans as of December 31, 2013 was 38.0%. As of December 31, 2012, our non-impaired and impaired loan balances were $379.2 million and $147.1 million, respectively, and total reserves were $18.4 million resulting in an effective reserve percent of 3.5%. Including legal balances previously charged off of $122.5 million, the expected total loss of the legal balance of non-impaired and impaired loans as of December 31, 2012 was 41.9%.

Troubled Debt Restructurings

During the years ended December 31, 2013 and 2012, loans with an aggregate carrying value of $87.0 million and $34.8 million, respectively, as of their respective restructuring dates, were involved in TDRs. Loans involved in TDRs are classified as impaired upon closing on the TDR. Generally, a loan that has been involved in a TDR is no longer classified as impaired one year subsequent to the restructuring, assuming the loan performs under the restructured terms and the restructured terms are

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commensurate with current market terms. In most cases, the restructured terms of loans involved in TDRs are not commensurate with current market terms. The specific reserves allocated to loans that were involved in TDRs were $0.9 million as of December 31, 2013 and 2012.

Liquidity and Capital Resources

The information contained in this section should be read in conjunction with, and is subject to and qualified by the information set forth under Item 1A, Risk Factors, and the Cautionary Note Regarding Forward Looking Statements in this Annual Report on Form 10-K.

We separately manage the liquidity of CapitalSource Bank and the Parent Company as required by regulation. Our liquidity management is based on our assumptions related to expected cash inflows and outflows that we believe are reasonable. These include our assumption that substantially all newly originated loans will be funded by CapitalSource Bank.

As of December 31, 2013, we had $1.1 billion of unfunded commitments to extend credit to our clients, of which $1.0 billion were commitments of CapitalSource Bank and $28.0 million were commitments of the Parent Company. Due to their nature, we cannot know with certainty the aggregate amounts we will be required to fund under these unfunded commitments. In many cases, our obligation to fund unfunded commitments is subject to our borrowers' ability to provide collateral to secure the requested additional funding, the collateral's satisfaction of eligibility requirements, our borrowers' ability to meet specified preconditions to borrowing, including compliance with the loan agreements, and/or our discretion pursuant to the terms of the loan agreements. In other cases, however, there are no such prerequisites or discretion to future funding by us, and our borrowers may draw on these unfunded commitments at any time. We forecast adequate liquidity to fund the expected borrower draws under these commitments.

CapitalSource Bank Liquidity

CapitalSource Bank's sources and uses of liquidity are as follows:

Liquidity Sources

• Deposits;

• Payments of principal and interest on loans and securities;

• Cash equivalents;

• Borrowings from the FHLB SF⁽¹⁾;

• State and Local Agency Deposits⁽¹⁾;

• Brokered Certificates of Deposit⁽¹⁾;

• Capital contributions⁽¹⁾;

• Borrowings from the Parent Company⁽¹⁾;

• Borrowings from banks or the FRB⁽¹⁾;

• Loan sales⁽¹⁾; and

• Issuance of debt securities⁽¹⁾.

Liquidity Uses

• Funding new and existing loans;

• Purchasing investment securities;

• Funding net deposit outflows;

• Operating expenses;

• Income taxes⁽²⁾; and

• Dividends.

__________________________________

(1)    Represents secondary sources of funding.

(2)    Paying income taxes is pursuant to our intercompany tax allocation arrangement.

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We intend to maintain sufficient liquidity at CapitalSource Bank to meet depositor demands and fund loan commitments and operations as well as to maintain liquidity ratios required by our regulators. CapitalSource Bank operates in accordance with the remaining conditions imposed and contractual agreements entered in connection with regulatory approvals obtained upon its formation, including requirements that CapitalSource Bank is required to maintain a total risk-based capital ratio of not less than 15%, capital levels required for a bank to be considered “well- capitalized” under relevant banking regulations. In addition, we have a policy to maintain 7.5% of CapitalSource Bank's assets in unencumbered cash, cash equivalents and available-for-sale investments. In accordance with regulatory guidance, we have identified, modeled and planned for the financial, capital and liquidity impact of various events, including stress scenarios that would cause a large outflow of deposits, a reduction in borrowing capacity, a material increase in loan funding obligations, a material increase in credit costs or any combination of these events. We anticipate that CapitalSource Bank would be able to maintain sufficient liquidity and ratios in excess of its required minimum ratios in these events and scenarios. CapitalSource Bank has a contingency funding plan which contains the steps the Company would take to mitigate a liquidity crisis.

CapitalSource Bank's primary source of liquidity is deposits, most of which are in the form of certificates of deposit. As of December 31, 2013, deposits at CapitalSource Bank were $6.1 billion. We utilize various product, pricing and promotional strategies in our deposit business, so that we are able to obtain and maintain sufficient deposits to meet our liquidity needs. For additional information, see Note 6, Deposits, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

CapitalSource Bank supplements its liquidity with borrowings from the FHLB SF. As of December 31, 2013, CapitalSource Bank had financing availability with the FHLB SF equal to 35.0% of CapitalSource Bank's total assets. The maximum financing available under this formula was $2.8 billion and $2.6 billion as of December 31, 2013 and 2012, respectively. The financing is subject to various terms and conditions including pledging acceptable collateral, satisfaction of the FHLB SF stock ownership requirement and certain limits regarding the maximum term of debt. As of December 31, 2013, securities collateral with an estimated fair value of $3.7 million and loans with an unpaid principal balance of $1.2 billion were pledged to the FHLB SF. Securities and loans pledged to the FHLB SF are subject to an advance rate in determining borrowing capacity.

As of December 31, 2013 and 2012, CapitalSource Bank had borrowing capacity with the FHLB SF based on pledged collateral as follows:

	December 31,
	2013			2012
	($ in thousands)
Borrowing capacity	$	1,012,361		$	841,309
Less: outstanding principal	(625,000		)	(595,000		)
Less: outstanding letters of credit	(150		)	(300		)
Unused borrowing capacity	$	387,211		$	246,009

CapitalSource Bank participates in the primary credit program of the FRB of San Francisco's discount window under which approved depository institutions are eligible to borrow from the FRB for periods of up to 90 days. As of December 31, 2013, investment securities with an estimated fair value of $70.6 million had been pledged to the FRB San Francisco and there were no borrowings outstanding. Additionally, CapitalSource Bank participates in the Borrower-In-Custody program at the FRB of San Francisco which allows the Bank to pledge qualifying loans and borrow against them. As of December 31, 2013, there were no loans pledged.

CapitalSource Bank also maintains a portfolio of investment securities. As of December 31, 2013, CapitalSource Bank had $44.7 million of unrestricted cash and cash equivalents and $843.0 million in unrestricted investment securities, available-for-sale. The investment portfolio primarily comprises highly liquid securities that can be sold and converted to cash if additional liquidity needs arise.

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Parent Company Liquidity

The Parent Company's liquidity sources and uses are as follows:

Liquidity Sources

• Cash and cash equivalents;

• Income tax payments from CapitalSource Bank⁽¹⁾;

• Payments of principal and interest on loans and securities;

• Asset sales;

• Dividends from CapitalSource Bank⁽²⁾;

• Bank borrowings⁽³⁾; and

• Issuance of debt and equity securities.

Liquidity Uses

• Interest and principal payments on subordinated debt;

• Tax payments;

• Operating expenses;

• Subordinated debt repurchases and repayments;

• Dividends; and

• Funding unfunded commitments.

__________________________________

(1)    Pursuant to our intercompany tax allocation arrangement.

(2)    As permitted by banking regulations and guidelines.

(3)    Represents secondary sources of funding.

Pursuant to agreements with our regulators, to the extent CapitalSource Bank independently is unable to do so, the Parent Company must maintain CapitalSource Bank's total risk-based capital ratio at not less than 15% and must maintain the capital levels of CapitalSource Bank at all times to meet the levels required for a bank to be considered “well-capitalized” under the relevant banking regulations. Additionally, pursuant to requirements of our regulators, the Parent Company has provided a $150.0 million unsecured revolving credit facility to CapitalSource Bank that CapitalSource Bank may draw on at any time it or the FDIC deems necessary. As of December 31, 2013, there were no amounts outstanding under this facility.

Between 2010 and 2013, the Company repurchased $930.6 million of its common stock at weighted average prices of $7.01 per share in 2010, $6.22 per share in 2011, $6.97 per share in 2012 and $9.18 per share in 2013. All shares purchased during this period were retired upon settlement. Currently, the Company is not authorized by the Board of Directors to purchase its common stock. Pursuant to the Merger Agreement, the Company is prohibited from purchasing it shares prior to the consummation of the transaction.

Special Purpose Entities

We evaluate all SPEs with which we are affiliated to determine whether such entities must be consolidated for financial statement purposes. If we determine that such entities represent variable interest entities, we consolidate these entities if we also determine that we are the primary beneficiary of the entity. For special purpose entities for which we determine we are not the primary beneficiary, we account for our economic interests in these entities in accordance with the nature of our investments.

Commitments, Guarantees and Contingencies

As of December 31, 2013 and 2012, we had committed lending arrangements to our borrowers of approximately $8.0 billion and $7.4 billion of which approximately $1.1 billion and $1.0 billion, respectively were unfunded. As of December 31, 2013 and 2012, $1.0 billion and $0.9 billion of the total unfunded commitments were extended by the CapitalSource Bank, respectively. As of December 31, 2013 and 2012, $28.0 million and $88.5 million, of the total unfunded commitments were extended by the Parent Company, respectively. Our failure to satisfy our full contractual funding commitment to one or more of our borrower's could

67

create a breach of contract and lender liability for us and damage our reputation in the marketplace, which could have a material adverse effect on our business.

We have non-cancelable operating leases for office space and office equipment, which expire over the next eleven years and contain provisions for certain annual rental escalations. We have committed to contribute up to an additional $3.8 million to 14 private equity funds.

We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. As of December 31, 2013 and 2012, we had issued $43.4 million and $54.2 million, respectively, in standby letters of credit which expire at various dates over the next six years. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have posted cash and investment securities as collateral with us under these arrangements.

From time to time we are party to legal proceedings. We do not believe that any currently pending or threatened proceeding, if determined adversely to us, would have a material adverse effect on our business, financial condition or results of operations, including our cash flows.

Additional information, see Note 15, Commitments and Contingencies, in our accompanying audited consolidated financial statements for the year ended December 31, 2013, and Liquidity and Capital Resources herein.

Contractual Obligations

In addition to our scheduled maturities on our debt, we have future cash obligations under various types of contracts. We lease office space and office equipment under long-term operating leases and we have committed to contribute up to an additional $3.8 million to 14 private equity funds. The contractual obligations under our debt are included in our audited consolidated balance sheet as of December 31, 2013. The expected contractual obligations under our certificates of deposit, debt, operating leases and commitments under non-cancelable contracts as of December 31, 2013, were as follows:

	Certificates of Deposit		Subordinated Debt(1)		FHLB Borrowings		Other(2)		Total
	($ in thousands)
2014	$	4,694,400	$	—	$	135,000	$	11,715	$	4,841,115
2015	432,770		—		112,500		9,154		554,424
2016	69,602		—		204,000		7,660		281,262
2017	26,459		—		88,000		6,738		121,197
2018	27,672		—		78,000		6,025		111,697
Thereafter	—		412,156		7,500		33,831		453,487
Total	$	5,250,903	$	412,156	$	625,000	$	75,123	$	6,363,182

______________________

(1) The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

(2) Includes operating leases and non-cancelable contracts.

We enter into derivative contracts under which we either receive cash or are required to pay cash to counterparties depending on changes in interest rates or foreign currency exchange rates. Derivative contracts are carried at fair value on our audited consolidated balance sheet as of December 31, 2013, with the fair value representing the net present value of expected future cash receipts or payments based on market rates as of the balance sheet date. The fair values of the contracts change daily as market interest rates change. Further discussion of derivative instruments is included in Note 2, Summary of Significant Accounting Policies and Note 17, Derivative Instruments, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

Enterprise Risk Management

We take an enterprise-wide approach to risk management designed to support our organizational and strategic objectives and to enhance shareholder value. Global risk oversight is conducted by senior management and overseen by the Board of Directors (the "Board"). As part of its oversight responsibilities, the Board monitors how management operates the Company and manages strategic, credit, liquidity, financial, market, regulatory, compliance, legal, fraud, reputation, compensation and operational risks. The involvement of the full Board in setting our business strategy is a fundamental part of its assessment and oversight of appropriate risk tolerances for the Company.

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Board Level Risk Oversight

While the full Board is responsible for risk oversight, the Risk Committee, the Audit Committee, the Asset/Liability Committee, the Compensation Committee and the CapitalSource Bank Credit Policy Committee provide direct oversight of risks arising from specific activities.

The Risk Committee monitors the organization's compliance with the Board-approved risk appetite statement and risk tolerance threshold as well as the organization's ongoing and potential exposure to other risks. Additionally, the Risk Committee oversees and approves company-wide risk management policies that assist the Board in (1) overseeing the executive team's identification and assessment of significant risks that the organization faces and establishment of a risk management infrastructure capable of addressing those risks; (2) overseeing and reviewing the risk-related responsibilities allocated among Board committees, while reviewing management's risk management practices to determine management's appropriate oversight of strategic, financial, credit, market, liquidity, security, property, IT, legal, regulatory, compliance, reputational and other emerging risks; and (3) approving the Company's enterprise wide risk management framework. In carrying out its duties and responsibilities, the Risk Committee has the authority to meet with and seek any information it requires from employees, officers, directors, or external parties.

As part of the Board's risk oversight responsibility, it periodically reviews management's capital and liquidity stress tests to evaluate possible outcomes in the event of adverse economic or market events. These stress tests have become a regular part of the Company's risk management and capital planning process.

The Audit Committee oversees financial and accounting risk, including internal controls. The Audit Committee reviews periodic risk assessment reports from our internal audit department assessing the primary accounting and financial risks facing CapitalSource and management's considerations for mitigating these risks. The Audit Committee also assesses the guidelines and policies that govern the processes for identifying and assessing significant financial and accounting risks and formulating and implementing steps to minimize such risks and exposures. The Audit Committee considers risks in the financial reporting and disclosure process and review policies on financial risk control assessment and accounting risk exposure. The Audit Committee meets with management, including our Chief Executive Officer, Chief Financial Officer, our internal audit department and our independent registered public accounting firm in executive sessions at least quarterly, and with our General Counsel as necessary from time to time.

The Audit Committee also supervises the internal audit function, which provides the Audit Committee with periodic assessments of our risk management processes and internal quality-control procedures. The Audit Committee periodically reviews our internal audit department, including its independence and reporting authority and obligations and the development and coordination of proposed audit plans for coming years. The Audit Committee receives notification of material adverse findings from internal audits and a progress report at least quarterly on the proposed internal audit plan, as appropriate, with explanations for changes from the original plan. The Audit Committee reviews with management and the internal audit department the adequacy of our internal control structure and procedures for financial reporting and the resolution of any identified material weaknesses or significant deficiencies in such internal control structure and procedures.

The Asset/Liability Committee meets periodically but no less frequently than quarterly and assists the Board in overseeing and reviewing our asset and liability strategies, including the significant policies, procedures and practices employed to manage these risks. The Asset/Liability Committee periodically reviews our liquidity and cash management.

The Compensation Committee monitors all of our compensation policies and practices, including our incentive compensation policies and practices, to ensure they are consistent with the Company's business strategies and in compliance with applicable laws and regulatory guidance. Management regularly assesses our compensation policies and practices to identify and mitigate compensation-related risks as appropriate.

The CapitalSource Bank Credit Policy Committee primarily oversees credit policy and credit risk management. The Credit Policy Committee of the CapitalSource Bank regularly assesses the effectiveness of credit policies and administration, reviews the methodology for determining the appropriate amount of allowance for loan losses, and monitors the performance of the credit portfolio.

Management Level Risk Oversight

While the Board has ultimate oversight responsibility for our risk management, we have utilized management level committees to actively assess and manage risks across the Company. The Board has established an enterprise-wide management level Enterprise Risk Management (“ERM”) infrastructure that aligns with bank regulatory guidance. The ERM infrastructure is governed by a Board approved ERM Policy and Plan and administered by a management ERM Committee (“ERMC”) chaired by our Chief Risk Officer. The ERMC comprises executive and senior level management and reports to the Board Risk Committee through the Chief Risk Officer on enterprise-wide risks and risk management. The ERMC is responsible for implementing risk identification, assessment and monitoring systems, where applicable, and has oversight responsibility for the processes that identify,

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measure, mitigate and report on the Company's risk categories, including strategic, credit, liquidity, financial, market, regulatory compliance, legal, fraud, reputation, compensation and operational risks.

Credit Risk Management

Credit risk is the risk of loss arising from adverse changes in a borrower's or counterparty's ability to meet its financial obligations under agreed-upon terms. Credit risk exists primarily in our loan, lease and derivative portfolios and certain portions of our investment portfolio that may include investments such as non-agency MBS, non-agency ABS, CMBS and CLOs. The degree of credit risk will vary based on many factors including the size of the asset or transaction, the credit characteristics of the borrower, the contractual terms of the agreement and the availability and quality of collateral. We manage credit risk of our derivatives and credit-related arrangements by limiting the total amount of arrangements outstanding with an individual counterparty, by obtaining collateral based on the nature of the lending arrangement and management's assessment of the borrower, and by applying uniform credit standards maintained for all activities with credit risk.

As appropriate, various committees evaluate and approve credit standards and oversee the credit risk management function related to our loans and other investments. These committees' primary responsibilities include ensuring the adequacy of our credit risk management infrastructure, overseeing credit risk management strategies and methodologies, monitoring economic and market conditions having an impact on our credit-related activities and evaluating and monitoring overall credit risk and monitoring our clients' financial condition and performance.

Substantially all new loans have been originated at CapitalSource Bank, and we maintain a comprehensive credit policy manual for all loans that is supplemented by specific loan product underwriting guidelines. Among other things, the credit policy manual sets forth requirements that meet the regulations enforced by both the FDIC and the DFI. Examples of such requirements include the loan to value limitations for real estate secured loans, standards for real estate appraisals and other third-party reports and collateral insurance requirements.

Our underwriting guidelines outline specific underwriting standards and minimum specific risk acceptance criteria for each lending product offered. Loan types defined within these guidelines have three broad categories, within our commercial, real estate and real estate construction loan portfolios. These categories include asset-based loans, cash flow loans and real estate loans, and each of these broad categories has specific subsections that define in detail the following:

• Loan structures, which includes the lien positions, amortization provisions and loan tenors;

• Collateral descriptions and appropriate valuation methods;

• Underwriting considerations which include recommended diligence and verification requirements; and

• Specific risk acceptance criteria which enumerate for each loan type the minimum acceptable credit performance standards. Examples of these criteria include maximum loan-to-value percentages for real estate loans, maximum advance rates for asset-based loans and minimum debt service coverage ratios for most loans.

We measure and document each loan's compliance with our specific risk acceptance criteria at underwriting. If at underwriting, there is an exception to these criteria, an explanation of the factors that mitigate this additional risk is considered before an approval is granted. Upon the amendment of any loan agreement, we also measure a loan's compliance with our specific risk acceptance criteria. A record of which loans have exceptions to our specific risk acceptance criteria at underwriting or upon modification is maintained and is reported to the CapitalSource Bank Board of Director's Credit Policy Committee.

We continuously monitor a borrower's ability to perform under its obligations. Additionally, we manage the size and risk profile of our loan portfolio by syndicating loan exposure to other lenders and selling loans.

Under our credit risk management process, each loan is assigned an internal risk rating that is based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on: the borrower's financial performance and financial standing, the borrower's ability to repay the loan, and the adequacy of the collateral securing the loan. Subsequent to loan origination, risk ratings are monitored and reassessed on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the borrower's financial condition, cash flow or financial position. We use loan aggregations by risk rating as one measure of credit risk within the loan portfolio. In addition to risk ratings, we consider the market trend of collateral values and loan concentrations by borrower industries and real estate property types (where applicable).

Concentrations of Credit Risk

In our normal course of business, we engage in lending activities with borrowers primarily throughout the United States. As of December 31, 2013, borrowers in the following industries comprised the following concentrations by loan balance: health care and social assistance; and real estate and rental and leasing, which represented approximately 22.2% and 21.2% of the outstanding loan portfolio, respectively.  As of December 31, 2013lender finance (primarily timeshare) loans were our largest loan concentration by sector and represented approximately 16% of our loan portfolio.

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Apart from the borrower industry concentrations, loans secured by real estate represented approximately 43% of our outstanding loan portfolio as of December 31, 2013. Within this area, the largest property type concentration was the multifamily category, comprising approximately 23% of total loans and 10% of loans secured by real estate. The largest geographical concentration was in California, comprising approximately 21% of total loans and 9% of loans secured by real estate.

We consider multiple loans as one borrower or one credit relationship when borrowers are under common majority ownership,

have a common guarantor, or may depend on each other to service our loans. Selected information pertaining to our largest credit relationship as of December 31, 2013 was as follows:

Loan Balance		% of Total Portfolio		Loan Type	Industry	Loan Commitment		Performing	Specific Reserves	Underlying Collateral(1)	Date of Last Collateral Appraisal	Amount of Last Appraisal
($ in thousands)
$	104,140	1.5	%	Commercial and Industrial and Real Estate	Health Care and Social Assistance	$	105,147	Yes	—	Senior care facilities	n/a	(2)
83,723		1.2	%	Commercial and Industrial	Finance and Insurance	85,000		Yes	—	Consumer receivables	n/a	(3)
$	187,863	2.7	%			$	190,147

______________________

(1) Represents the primary collateral supporting the loan. In certain cases, there may be additional types of collateral.

(2) The collateral that secures our loan balance of $104.1 million as of December 31, 2013 primarily consisted of real estate loans to senior care facility owners and operators and senior care facilities that had a total value of $181.0 million as of December 31, 2013. Total senior debt, including our loan balance, secured by the collateral was $134.9 million as of December 31, 2013.

(3) The collateral that secures our loan balance of $83.7 million as of December 31, 2013 consisted of consumer receivables that had an unpaid principal balance of $132.0 million as of December 31, 2013. Total senior debt, including our loan balance, secured by the collateral was $83.7 million as of December 31, 2013.

Non-performing loans include all loans on non-accrual status and accruing loans which are contractually past due 90 days or more as to principal or interest payments. There were 99 credit relationships in the non-performing portfolio as of December 31, 2013, and our largest non-performing credit relationship totaled $28.0 million and comprised 27.8% of our total non-performing loans.

Derivative Counterparty Credit Risk

Derivative financial instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures. We obtain collateral from certain counterparties and monitor all exposure and collateral requirements daily. We continually monitor the fair value of collateral received from counterparties and may request additional collateral from counterparties or return collateral pledged as deemed appropriate. Our agreements generally include master netting agreements whereby the counterparties are entitled to settle their derivative positions "net." As of December 31, 2013, the gross positive fair values of derivative financial instruments was $1.4 million, offset through master netting agreements by gross negative fair value of $0.5 million. As such, we had $0.9 million net exposure to counterparty risk as of December 31, 2013. As of December 31, 2012, our financial instruments had no gross positive fair values, and as such, we had no exposure to counterparty risk.

Market Risk Management

Market risk is the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions such as interest rate fluctuations. This risk is inherent in the financial instruments associated with our operations and/or activities, including loans, securities, short-term borrowings, long-term debt, trading account assets and liabilities and derivatives.

The primary market risk to which we are exposed is interest rate risk, which is inherent in the financial instruments associated with our operations, primarily including our loans and borrowings. Our traditional loan products are non-trading positions and are reported at amortized cost. Additionally, debt obligations that we incur to fund our business operations are recorded at historical cost. While GAAP requires a historical cost view of such assets and liabilities, these positions are still subject to changes in economic value based on varying market conditions.

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Interest Rate Risk Management

Interest rate risk refers to the timing and volume differences in the re-pricing of our rate-sensitive assets and liabilities, changes in the general level of market interest rates and changes in the shape and level of various indices, including LIBOR-based indices and the prime rate. We attempt to mitigate exposure to the earnings impact of the interest rate changes by conducting the majority of our loan and deposit activity using interest rate structures that resets on a periodic basis. The majority of our loan portfolio bears interest at a spread to the LIBOR rate or a prime-based rate with most of the remainder bearing interest at a fixed rate. The majority of the deposit portfolio is comprised of certificates of deposits that generally have an initial term between 3 and 18 months. Our investment and borrowings portfolios are used to offset a portion of the remaining re-pricing risk that exists between our loans and deposits.

The Company measures interest rate risk and the effect of changes in market interest rates using a net interest income ("NII") simulation analysis. The analysis incorporates forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. The analysis estimates the interest rate impact of parallel increases in interest rates over a twelve-month horizon.

The analysis below incorporates the Company's assumptions for the market yield curve, pricing sensitivities on loans and deposits, reinvestment of asset and liability cash flows, and prepayments on loans and securities. The simulation analysis includes management's projection for loan originations, investment and funding strategies. The new loans, investment securities, borrowings and deposits are assumed to have interest rates that reflect our forecast of prevailing market terms. We also assumed that LIBOR and prime rates do not fall below 0% for loans and borrowings. Parent Company loans, investment securities and borrowings are assumed to convert to cash as they run off. Actual results may differ from forecasted results due to changes in market conditions as well as changes in management strategies.

The estimated changes in net interest income for a twelve-month period based on changes in the interest rates applied to the combined portfolios of our segments as of December 31, 2013, were as follows ($ in thousands):

	Estimated Change in NII
Change in Market Interest Rate (basis points)	Amount			%
+200	$	47,655		13.3	%
+100	15,777			4.4	%
-100	(1,634		)	(0.5	)%
-200	(2,976		)	(0.8	)%

In addition to NII simulation, the Company measures the impact of market interest rate changes on our economic value of equity (“EVE”). EVE is defined as the market value of assets, less the market value of liabilities, adjusted for any off-balance sheet items.

The estimated changes in EVE in the following table are based on a discounted cash flow analysis which incorporates the impacts of changes in market interest rates. The model simulations and calculations are highly assumption-dependent and will change regularly as our asset/liability structure changes, as interest rate environments evolve, and as we change our assumptions in response to relevant market or business circumstances. These calculations do not reflect the changes that we anticipate or may make to reduce our EVE exposure in response to a change in market interest rates as a part of our overall interest rate risk management strategy. As with any method of measuring interest rate risk, certain limitations are inherent in the method of analysis presented in the preceding table. We are exposed to yield curve risk, prepayment risk and basis risk, which cannot be fully modeled and expressed using the above methodology. Accordingly, the results in the following table should not be relied upon as a precise indicator of actual results in the event of changing market interest rates. Additionally, the resulting changes in EVE and NII estimates are not intended to represent, and should not be construed to represent the underlying value.

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The estimated changes in EVE based on interest rates applied to the combined portfolio of our segments as of December 31, 2013, were as follows ($ in thousands):

	Estimated Change in EVE
Change in Market Interest Rate (basis points)	Amount			%
+200	$	(31,777	)	(2.5	)%
+100	(24,480		)	(1.9	)%
-100	43,239			3.4	%
-200	54,953			4.3	%

We develop remediation plans that would maintain residual risk within acceptable tolerances if our analysis indicates the NII or EVE will decrease by more than the Asset Liability Management Policy limits in response to an immediate increase or decrease in interest rates.

As of December 31, 2013, approximately 59% of the aggregate outstanding principal amount of our loans had interest rate floors and were accruing interest. Of the loans with interest rate floors and accruing interest, approximately 93% had contractual rates below the interest rate floor and the floor was providing a benefit to us. The loans with contractual interest rate floors as of December 31, 2013 were as follows:

	Amount Outstanding		Percentage of Total Portfolio
	($ in thousands)
Loans with contractual interest rates:
Below the interest rate floor	$	3,721,082	54.8	%
Exceeding the interest rate floor	1,185		—
At the interest rate floor	279,363		4.1
Loans with no interest rate floors	1,116,505		16.5
Total adjustable rate loans	5,118,135		75.4
Loans on non-accrual	100,840		1.5
Fixed rate loans(1)	1,565,514		23.1
Total	$	6,784,489	100.0	%

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(1) Includes $655.9 million of loans that are in their introductory fixed rate period. For the majority of these loans, the fixed interest rate is higher than the fully indexed rate at December 31, 2013.

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As of December 31, 2013, the outstanding unpaid principal balance of loans subject to interest rate floors by adjustable rate index and by the spread between the floor rate and the fully indexed rate were as follows:

	Above Floor		Basis Points								Total
			0-100		101-200		201-300		300+
	($ in thousands)
1-Month LIBOR	$	—	$	1,859,965	$	399,000	$	55,050	$	97,917	$	2,411,932
2-Month LIBOR	—		5,108		27,834		—		—		32,942
3-Month LIBOR	—		653,143		437,377		—		—		1,090,520
6-Month LIBOR	—		34,948		18,039		52,058		12,278		117,323
6-Month EURIBOR	—		—		2,758		1,251		—		4,009
Prime	1,144		62,231		102,498		83,873		14,534		264,280
Other	41		36,559		23,297		—		—		59,897
Treasuries	—		708		5,071		4,444		10,504		20,727
Total accruing adjustable rate loans	1,185		2,652,662		1,015,874		196,676		135,233		4,001,630
Non-accrual loans subject to interest rate floors	—		28,020		22,737		897		10,838		62,492
Total loans subject to interest rate floors	$	1,185	$	2,680,682	$	1,038,611	$	197,573	$	146,071	4,064,122
Loans not subject to interest rate floors(1)											2,720,367
Total loans											$	6,784,489

________________________

(1) Includes $655.9 million of loans that are in their introductory fixed rate period. For the majority of these loans, the fixed interest rate is higher than the fully indexed rate at December 31, 2013.

We enter into basis swap agreements to hedge basis risk between our LIBOR-based term debt and the prime-based loans pledged as collateral for that debt. These basis swaps modify our exposure to interest rate risk by synthetically converting prime rate loans to one-month LIBOR. Our basis swap agreements partially protect us from the risk that interest collected under prime rate loans will not be sufficient to service the interest due under the one-month LIBOR-based term debt.

We have also entered into relatively short-dated forward exchange agreements to minimize exposure to foreign currency risk arising from foreign currency denominated loans.

Critical Accounting Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. These policies relate to the allowance for loan and lease losses, fair value measurements, and income taxes. We have established detailed policies and procedures to ensure that the assumptions and judgments surrounding these areas are adequately controlled, independently reviewed and consistently applied from period to period. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board and the Audit Committee has reviewed our disclosures related to these estimates.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is management's estimate of probable losses inherent in the loan and lease portfolio. Management performs detailed reviews of the portfolio quarterly to determine if impairment has occurred and to assess the adequacy of the allowance for loan and lease losses, based on historical and current trends and other factors affecting loan and lease losses. Additions to the allowance for loan and lease losses are charged to current period earnings through the provision for loan and lease losses. Amounts determined to be uncollectible are charged directly against the allowance for loan and lease losses, while amounts recovered on previously charged-off accounts increase the allowance.

The loan portfolio includes balances with non-homogeneous exposures. These loans are evaluated individually, and are risk-rated based upon borrower, collateral and industry-specific information that management believes is relevant to determining the

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occurrence of a loss event and measuring impairment. Loans are then segregated by risk according to our internal risk rating scale. Higher risk loans are individually analyzed for impairment. Management establishes specific allowances for loans determined to be individually impaired. All impaired loans are valued to determine if a specific allowance is warranted. The valuation analysis for the specific allowance is based upon one of the three valuation methods (i) the present value of expected future cash flows discounted at the loan's initially contracted effective yield; (ii) the loan's observable market price; or (iii) the fair value of the collateral. The appropriate valuation methodology generally reflects the chosen loan resolution strategy being pursued to maximize the recovery of the loan. Estimated costs to sell are considered in the impairment valuation when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. Any guarantees provided by the borrower are typically not considered when determining our potential for specific loss.

In addition to the specific allowances for impaired loans, we maintain allowances that are based on an evaluation of inherent losses in our commercial loan portfolio. These allowances are based on an analysis of historical loss experience, current economic conditions and performance trends and any other pertinent information within specific portfolio segments.

As set forth in detail below, the process for determining the reserve factors and the related level of loan loss reserves is subject to numerous estimates and assumptions that require judgment about the timing, frequency and severity of credit losses that could materially affect the provision for loan and lease losses and, therefore, net income. Within this process, management is required to make judgments related, but not limited, to: (i) risk ratings for loans; (ii) market and collateral values and discount rates for individually evaluated loans; (iii) loss rates used for commercial loans; and (iv) adjustments made to assess certain factors, including overall credit and economic conditions.

Our allowance for loan and lease losses is sensitive to the risk ratings assigned to loans and to corresponding reserve factors that we use to estimate the allowance and that are reflective of historical losses. We assign reserve factors to the loans in our portfolio, which dictate the percentage of the total outstanding loan balance that we reserve. We review the loan portfolio information regularly to determine whether it is necessary for us to further revise our reserve factors. The reserve factors used in the calculation are determined by analyzing the following elements:

• the types of loans, for example, land, commercial real estate, healthcare receivables or cash flow;

• our historical losses with regard to the loan types;

• borrower industry;

• the relative seniority of our security interest;

• our expected losses with regard to the loan types; and

• the internal risk rating assigned to the loans.

We update these reserve factors periodically to capture actual and recent behavioral characteristics of the portfolios. We estimate the allowance by applying historical loss factors derived from loss tracking mechanisms associated with actual portfolio activity over a specified period of time. These estimates are adjusted when necessary based on additional analysis of long-term average loss experience, external loan loss data and other risks identified from current and expected credit market conditions and trends, including management's judgment for estimated inaccuracy and uncertainty.

We also consider the need for qualitative factors which we use to provide for uncertainties surrounding our estimation process including changes in the volume of our problem loans, changes in the value of collateral for our collateral dependent loans, and the existence of certain loan concentrations.

The sensitivity of our allowance for loan and lease losses to potential changes in our reserve factors (in terms of basis points) applied to our overall loan portfolio as of December 31, 2013, was as follows:

Change in Reserve Factors	Estimated Increase (Decrease) in the Allowance for Loan and Lease Losses
	($ in thousands)
+ 25	$	10,975
+ 10	4,390
- 10	(4,390		)
- 25	(10,975		)

These sensitivity analyses do not represent management's expectations of the deterioration, or improvement, in risk ratings, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for loan and lease losses to changes in key

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inputs. We believe the reserve factors currently in use are appropriate. The process of determining the level of allowance for loan and lease losses involves a high degree of judgment. If our internal risk ratings, reserve factors or specific reserves for impaired loans are not accurate, our allowance for loan and lease losses may be misstated. In addition, our operating results are sensitive to changes in the reserve factors utilized to determine our related provision for loan and lease losses.

We also consider whether losses might be incurred in connection with unfunded commitments to lend although, in making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a borrower or other terms and conditions. Any such allowance for unfunded commitments is included in other liabilities.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In accordance with GAAP, we prioritize the inputs into valuation techniques used to measure fair value. This hierarchy, consisting of three levels of inputs, prioritizes observable data from active markets and gives the lowest priority to unobservable inputs. Assets and liabilities that are actively traded in the marketplace or that have values based on readily available market value data require little, if any, subjectivity to be applied when determining the fair value. These are classified as either Level 1 or Level 2. Whether an asset or liability is classified as Level 1 or Level 2 depends largely on its similarity with other items in the marketplace and our ability to obtain corroborative data regarding whether the market in which the instrument trades is active. Fair value measurements on assets and liabilities that are based on prices or valuation techniques that require inputs that are both unobservable and are significant to the overall measurement are classified as level 3.

As of December 31, 2013, 9.8% and 0.01% of total assets and total liabilities, respectively, were recorded at fair value on a recurring basis. As of December 31, 2013, $870.5 million (99.8% of total assets measured on a recurring basis) were classified as Level 2 within the fair value hierarchy, while no assets were classified as Level 1 or Level 3 within the fair value hierarchy. From a liability perspective, $510.0 thousand (all of total liabilities measured on a recurring basis) were classified as Level 2, while no liabilities were classified as Level 1 or Level 3 within the fair value hierarchy.

It is our policy to maximize the use of observable market based inputs, when appropriate, to value our assets and liabilities carried at fair value on a recurring basis or to determine whether an adjustment to fair value is needed for assets and liabilities carried at fair value on a non-recurring basis. Given the nature of some of our assets carried at fair value, whether on a recurring or nonrecurring basis, clearly determinable market based valuation inputs are often not available. Therefore, the fair value measurements of these instruments utilize unobservable inputs and are classified as Level 3 within the fair value hierarchy. We may be required to apply significant judgments in determining our fair value estimates for these assets.

Due to the unavailability of observable inputs for our Level 3 assets, management assumptions used in the valuation models play a significant role in these fair value estimates. In times of severe market volatility and illiquidity, there may be more uncertainty and variability with lack of market data to use in the valuation process. An illiquid market is one in which little or no observable activity has occurred or one that lacks willing buyers. To factor in market illiquidity, management makes adjustments to certain inputs in the valuation models and makes other assumptions to ensure fair values are reasonable and reflect current market conditions.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measurement. Therefore, even when market assumptions are not readily available, management's own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. For additional information, see Note 19, Fair Value Measurements, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

The estimates of fair values reflect our best judgments regarding the appropriate valuation methods and assumptions that market participants would use in determining fair value. The amount of judgment involved in estimating the fair value of an asset or liability is affected by a number of factors, such as the type of instrument, the liquidity of the markets for the instrument and the contractual characteristics of the instrument. The selection of a method to estimate fair value for each type of financial instrument depends on the reliability and availability of relevant market data. Judgments in these cases include, but are not limited to:

• Selection of third-party market data sources;

• Evaluation of the expected reliability of the estimate;

• Reliability, timeliness and cost of alternative valuation methodologies; and

• Selection of proxy instruments, as necessary.

Due to the lack of observability of significant inputs, we must make assumptions in deriving our valuation inputs based on relevant empirical data surrounding interest rates, asset prices, timing of future cash flows and credit performance. In addition,

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assumptions must be made to reflect constraints on liquidity, counterparty credit quality and other unobservable factors. Imprecision surrounding our assumptions related to unobservable market inputs may impact the fair value of our assets and liabilities. Furthermore, use of different methods to derive the fair value of our assets and liabilities could result in different fair value estimates at the measurement date.

We record fair value adjustments on our loans held for investment when we have determined that it is necessary to record a specific reserve against the loans, and we measure impairment using the fair value of the loan collateral. During the year ended December 31, 2013, we recognized losses of $2.0 million related to our loans held for investment measured at fair value on a nonrecurring basis. These losses were attributable to an increased number of loans requiring a specific reserve during the year, as well as declines in the fair value of collateral for these loans.

Income Taxes

We are subject to the income tax laws of the United States, its states and municipalities and the foreign jurisdictions in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when, in the future, certain items will affect taxable income in the various tax jurisdictions, both domestic and foreign.

Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.

We provide for income taxes as a “C” corporation on income earned from operations. We are subject to federal, foreign, state and local taxation in various jurisdictions.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences.

In 2009, we established a valuation allowance against a substantial portion of our net deferred tax assets where we determined that there was significant negative evidence with respect to our ability to realize such assets. Negative evidence we considered in making this determination included the history of operating losses and uncertainty regarding the realization of a portion of the deferred tax assets at future points in time. As of December 31, 2013 and 2012, the valuation allowance was $152.0 million and $128.6 million, respectively.

During 2012, we reversed $358.1 million of the valuation allowance, and such reversal was recorded as a benefit in our income tax expenses. Each of the deferred tax assets was evaluated based on our evaluation of the available positive and negative evidence with respect to our ability to realize the deferred tax asset, including considering their associated character and jurisdiction. The decision to reverse a large portion of the valuation allowance was based on our evaluation of all positive and negative evidence which did not include any significant tax planning strategies. A cumulative loss position, such as we had for the previous three-year period ended December 31, 2011, is generally considered significant negative evidence in assessing the realizability of a deferred tax asset. However, subsequent to the establishment of the valuation allowance in 2009, significant positive evidence had developed which overcame this negative evidence such that, during the year ended December 31,2012, management determined that it is more likely than not that the deferred tax asset will be realized. This determination was made not based upon a single event or occurrence, but based upon the accumulation of all positive and negative evidence including recent trends in our earnings and taxable income. Other positive evidence included the projection of future taxable income based on strong CapitalSource Bank earnings, improved asset performance trends, substantial decline in the Parent Company's operations and assets, and one-time losses included in the three-year cumulative pre-tax loss (i.e., debt extinguishment loss). Additionally, we are no longer in a cumulative loss position at the end of 2012.

We have net operating loss carryforwards for federal and state income tax purposes that can be utilized to offset future taxable income. If we were to undergo a change in ownership of more than 50% of our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code (the “Code”), our ability to utilize our net operating loss carryforwards, certain built-in losses and other tax attributes recognized in years after the ownership change generally would be limited. The annual limit would equal the product of (a) the applicable long term tax exempt rate and (b) the value of the relevant taxable entity's capital stock immediately before the ownership change. These change of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more (the "5-Percent Shareholders") of a company's outstanding stock, including certain public groups of stockholders as set forth under Section 382 of the Code, and those arising from new stock issuances and other equity transactions. The determination of whether an ownership change occurs is complex and not entirely

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within our control. No assurance can be given as to whether in the future we will undergo an ownership change under Section 382 of the Code.

In July 2013, the Board of Directors adopted a tax benefit preservation plan which was designed to preserve the net operating loss carryforwards and other tax attributes of the Company. The plan is intended to discourage persons from becoming 5-Percent Shareholders and existing 5-Percent Shareholders from increasing their beneficial ownership of shares.

During the years ended December 31, 2013 and 2012, we recorded $82.0 million of income tax expense and $285.1 million of income tax benefit, respectively, with respect to our income from continuing operations. The effective income tax rate for these periods was 33.3% and (138.7)%, respectively.

We file income tax returns with the United States and various state, local and foreign jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2009 through 2012. We are currently under examination by certain state jurisdictions for the tax years 2006 to 2011.

ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, which are discussed in detail in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Market Risk Management section. In addition, for a detailed discussion of our derivatives, see Note 17, Derivative Instruments and Note 18, Credit Risk, in our accompanying audited consolidated financial statements for the year ended December 31, 2013.

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MANAGEMENT REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

The management of CapitalSource Inc. (“CapitalSource”) is responsible for establishing and maintaining adequate internal control over financial reporting. CapitalSource's internal control system was designed to provide reasonable assurance to CapitalSource's management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

CapitalSource's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework (COSO) in Internal Control - Integrated Framework. Based on such assessment management believes that, as of December 31, 2013, the Company's internal control over financial reporting is effective based on those criteria. CapitalSource's independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on the effectiveness of the Company's internal control over financial reporting. This report appears on page 80.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders of CapitalSource Inc.

We have audited CapitalSource Inc.'s (“CapitalSource” or the "Company") internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework (the COSO criteria). CapitalSource's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CapitalSource Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CapitalSource Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2013 of CapitalSource Inc. and our report datedFebruary 28, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Los Angeles, California

February 28, 2014

80

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

Report of Independent Registered Public Accounting Firm	82
Consolidated Balance Sheets as of December 31, 2013 and 2012	83
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011	84
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2012 and 2011	85
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011	86
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011	87
Notes to the Consolidated Financial Statements	88

81

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of CapitalSource Inc.

We have audited the accompanying consolidated balance sheets of CapitalSource Inc. (“CapitalSource”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of CapitalSource's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CapitalSource Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CapitalSource's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework and our report datedFebruary 28, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Los Angeles, California

February 28, 2014

82

CapitalSource Inc.

Consolidated Balance Sheets

	December 31,
	2013			2012
	($ in thousands, except share amounts)
ASSETS
Cash and due from banks	$	176,889		$	180,803
Interest-bearing deposits in other banks	15,391			108,285
Other short-term investments	263,519			9,998
Restricted cash (including $0 and $36.4 million, respectively, of cash that can only be used to settle obligations of consolidated VIEs)	58,653			104,044
Investment securities:
Available-for-sale, at fair value	870,482			1,079,025
Held-to-maturity, at amortized cost	74,369			108,233
Total investment securities	944,851			1,187,258
Loans held for sale	—			22,719
Loans held for investment, gross	6,830,519			6,192,858
Less net deferred loan fees and discounts	(46,030		)	(53,628		)
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	6,784,489			6,139,230
Less allowance for loan and lease losses	(120,520		)	(117,273		)
Total loans held for investment, net	6,663,969			6,021,957
Interest receivable	26,068			29,112
Other investments	52,124			60,363
Goodwill	173,135			173,135
Deferred tax assets, net	252,268			362,283
Other assets	278,623			289,048
Total assets	$	8,905,490		$	8,549,005
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	6,127,690		$	5,579,270
Term debt - obligations of consolidated VIEs for which there is no recourse to the general credit of CapitalSource Inc.	—			177,188
Other borrowings	1,037,156			1,005,738
Other liabilities	104,017			161,637
Total liabilities	7,268,863			6,923,833
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred stock (50,000,000 shares authorized; no shares outstanding)	—			—
Common stock ($0.01 par value, 1,200,000,000 shares authorized; issued and outstanding 196,855,283 and 209,551,674 shares issued/outstanding, respectively)	1,969			2,096
Additional paid-in capital	3,038,218			3,157,533
Accumulated deficit	(1,402,690		)	(1,559,107		)
Accumulated other comprehensive (loss) income, net	(870		)	24,650
Total shareholders' equity	1,636,627			1,625,172
Total liabilities and shareholders' equity	$	8,905,490		$	8,549,005

See accompanying notes.

83

CapitalSource Inc.

Consolidated Statements of Operations

	Year Ended December 31,
	2013		2012			2011
	($ in thousands, except per share data)
Net interest income:
Interest income:
Loans and leases	$	415,375	$	428,397		$	452,607
Investment securities	30,242		38,230			55,524
Other	1,859		1,587			2,259
Total interest income	447,476		468,214			510,390
Interest expense:
Deposits	51,941		51,035			53,609
Borrowings	22,147		28,372			96,401
Total interest expense	74,088		79,407			150,010
Net interest income	373,388		388,807			360,380
Loan and lease loss provision	20,531		39,442			92,985
Net interest income after loan and lease loss provision	352,857		349,365			267,395
Non-interest income:
Loan fees	23,546		18,561			16,234
Leased equipment income	20,590		14,113			3,748
Gain on investments, net	28,965		7,382			58,581
Gain (loss) on derivatives, net	1,061		(823		)	(6,813		)
Other non-interest income, net	8,388		10,613			20,944
Total non-interest income	82,550		49,846			92,694
Non-interest expense:
Compensation and benefits	107,676		105,430			125,665
Professional fees	4,824		12,814			31,182
Occupancy expenses	14,577		16,840			15,480
FDIC fees and assessments	5,068		5,957			6,091
General depreciation and amortization	6,261		5,934			6,879
Loan servicing expense	6,566		13,011			2,285
Other administrative expenses	24,754		26,499			24,898
Total operating expenses	169,726		186,485			212,480
Leased equipment depreciation	14,427		9,919			2,720
Expense of real estate owned and other foreclosed assets, net	821		6,790			39,347
(Gain) loss on extinguishment of debt	—		(8,059		)	119,007
Other non-interest expense, net	4,104		(1,453		)	1,616
Total non-interest expense	189,078		193,682			375,170
Net income (loss) before income taxes	246,329		205,529			(15,081		)
Income tax expense (benefit)	82,037		(285,081		)	36,942
Net income (loss)	$	164,292	$	490,610		$	(52,023	)
Basic income (loss) per share	$	0.84	$	2.19		$	(0.17	)
Diluted income (loss) per share	$	0.82	$	2.13		$	(0.17	)
Average shares outstanding:
Basic	195,189,983		223,928,583			302,998,615
Diluted	200,451,899		230,154,989			302,998,615

See accompanying notes.

84

CapitalSource Inc.

Consolidated Statements of Comprehensive Income (Loss)

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Net income (loss)	$	164,292		$	490,610		$	(52,023	)
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities, net of tax	(25,520		)	5,595			13,292
Unrealized loss on foreign currency translation, net of tax	—			(351		)	(3,827		)
Other comprehensive (loss) income, net of tax	(25,520		)	5,244			9,465
Comprehensive income (loss)	$	138,772		$	495,854		$	(42,558	)

See accompanying notes.

85

CapitalSource Inc.

Consolidated Statements of Shareholders' Equity

	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	($ in thousands)
Total shareholders' equity as of December 31, 2010	$	3,232		$	3,911,341		$	(1,870,572	)	$	9,941		$	2,053,942
Net loss							(52,023		)				(52,023		)
Other comprehensive income										9,465			9,465
Repurchase of common stock	(702		)	(438,125		)							(438,827		)
Dividends paid ($0.04 per share)				114			(12,137		)				(12,023		)
Stock option expense				5,933									5,933
Exercise of options	5			1,643									1,648
Restricted stock activity	26			7,005									7,031
Total shareholders' equity as of December 31, 2011	2,561			3,487,911			(1,934,732		)	19,406			1,575,146
Net income							490,610						490,610
Other comprehensive income										5,244			5,244
Repurchase of common stock	(491		)	(343,668		)							(344,159		)
Dividends paid ($0.54 per share)	2			1,679			(114,985		)				(113,304		)
Stock option expense				1,931									1,931
Exercise of options	16			6,337									6,353
Restricted stock activity	8			3,343									3,351
Total shareholders' equity as of December 31, 2012	2,096			3,157,533			(1,559,107		)	24,650			1,625,172
Net income							164,292						164,292
Other comprehensive loss										(25,520		)	(25,520		)
Repurchase of common stock	(150		)	(137,839		)							(137,989		)
Dividends paid ($0.04 per share)				95			(7,875		)				(7,780		)
Stock option expense				1,702									1,702
Exercise of options	18			5,851									5,869
Restricted stock activity	5			10,876									10,881
Total shareholders' equity as of December 31, 2013	$	1,969		$	3,038,218		$	(1,402,690	)	$	(870	)	$	1,636,627

See accompanying notes.

86

CapitalSource Inc.

Consolidated Statements of Cash Flows

	For the Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Operating activities:
Net income (loss)	$	164,292		$	490,610		$	(52,023	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock option expense	1,702			1,931			5,933
Restricted stock expense	12,039			11,835			9,722
(Gain) loss on extinguishment of debt	—			(8,059		)	119,007
Amortization of deferred loan fees and discounts	(31,370		)	(40,398		)	(64,260		)
Paid-in-kind interest on loans	5,951			10,109			31,941
Loan and lease loss provision	20,531			39,442			92,985
Amortization of deferred financing fees and discounts	1,089			1,633			18,473
Depreciation and amortization	22,452			20,319			6,944
Provision (benefit) for deferred income taxes	122,551			(316,382		)	56,940
Gain on investments, net	(28,412		)	(5,055		)	(55,630		)
(Gain) loss on foreclosed assets and other property and equipment disposals	(4,096		)	(3,455		)	24,232
Unrealized loss on derivatives and foreign currencies, net	2,463			349			7,850
Decrease in interest receivable	3,044			9,684			18,597
Decrease in loans held for sale, net	—			21,493			188,854
Decrease in other assets	28,990			165,286			100,260
Decrease in other liabilities	(58,122		)	(127,216		)	(102,117		)
Cash provided by operating activities	263,104			272,126			407,708
Investing activities:
Decrease (increase) in restricted cash	45,391			(38,560		)	63,102
Increase in loans held for investment, net	(615,775		)	(356,570		)	(73,390		)
Purchase of investment securities, available-for-sale	(117,580		)	(293,899		)	(591,863		)
Sale and maturity of investment securities, available-for-sale	358,742			383,597			976,300
Purchase of investment securities, held-to-maturity	(47,855		)	—			(10,631		)
Sale and maturity of investment securities, held-to-maturity	35,736			5,149			92,583
Reduction of other investments	8,627			22,655			2,317
Acquisition of property and equipment, net	(34,988		)	(45,243		)	(89,505		)
Cash (used in) provided by investing activities	(367,702		)	(322,871		)	368,913
Financing activities:
Deposits accepted, net of repayments	548,420			454,275			503,722
Repayments on credit facilities, net	—			—			(68,792		)
Repayments and extinguishment of term debt	(177,209		)	(132,247		)	(763,022		)
Proceeds (repayments) of other borrowings	30,000			15,931			(372,825		)
Repurchase of common stock	(137,989		)	(339,725		)	(427,231		)
Proceeds from exercise of options	5,869			6,353			1,648
Payment of dividends	(7,780		)	(113,304		)	(12,023		)
Cash provided by (used in) financing activities	261,311			(108,717		)	(1,138,523		)
Increase (decrease) in cash and cash equivalents	156,713			(159,462		)	(361,902		)
Cash and cash equivalents as of beginning of year	299,086			458,548			820,450
Cash and cash equivalents as of end of year	$	455,799		$	299,086		$	458,548
Supplemental information:
Cash paid during the year:
Interest	$	73,304		$	80,841		$	181,175
Income taxes, net	9,476			8,976			64,083
Noncash transactions from investing and financing activities:
Assets acquired through foreclosure	845			15,494			28,281

See accompanying notes.

87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

CapitalSource Inc., a Delaware corporation, is a commercial lender that provides financial products to small and middle market businesses nationwide and provides depository products and services to consumers in southern and central California, primarily through our wholly owned subsidiary, CapitalSource Bank. References to we, us, the Company or CapitalSource refer to CapitalSource Inc. together with its subsidiaries. References to CapitalSource Bank include its subsidiaries, and references to Parent Company refer to CapitalSource Inc. and its subsidiaries other than CapitalSource Bank.

For the years ended December 31, 2013 and 2012, we operated as two reportable segments: CapitalSource Bank and Other Commercial Finance. The CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company. For additional information, see Note 20, Segment Data.

On July 23, 2013, the Parent Company announced that it had entered into a Merger Agreement (the "Merger") with PacWest Bancorp ("PacWest") pursuant to which the Parent Company will merge with and into PacWest. Under the terms of the Merger, stockholders of the Parent Company will receive $2.47 in cash and 0.2837 shares of PacWest common stock for each share of CapitalSource common stock. The total value of the per share merger consideration, based on the closing price of PacWest shares on July 19, 2013, is $11.64. On January 13, 2014, the Company's shareholders approved the merger; however, the transaction continues to be subject to customary conditions, including the approval of bank regulatory authorities.

Note 2. Summary of Significant Accounting Policies

Our financial reporting and accounting policies conform to U.S. generally accepted accounting principles (“GAAP”).

Use of Estimates

The preparation of our audited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management has made significant estimates in certain areas, including valuing certain financial instruments and other assets, assessing financial instruments and other assets for impairment, assessing the realization of deferred tax assets and determining the allowance for loan and lease losses. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying financial statements reflect our consolidated accounts and those of other entities in which we have a controlling financial interest including our majority-owned subsidiaries and variable interest entities (“VIEs”) where we determined that we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

Fair Value Measurements

In accordance with GAAP, we prioritize the inputs into valuation techniques used to measure fair value. This hierarchy prioritizes observable data from active markets, placing measurements using those inputs in Level 1 of the fair value hierarchy, and gives the lowest priority to unobservable inputs and classifies these as Level 3 measurements. The three levels of the fair value hierarchy are described below:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;

Level 2 - Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or models for which all significant inputs are observable in the market either directly or indirectly; and

Level 3 - Valuations based on models that use inputs that are unobservable in the market and significant to the overall fair value measurement.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair value hierarchy classifications are reviewed on a quarterly basis. Changes related to the observability of inputs to a fair value measurement may result in a reclassification between hierarchy levels.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measurement. Therefore, even when market assumptions are not readily available, management's own assumptions attempt to reflect those that market participants would use in pricing the asset or liability at the measurement date.

88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less upon acquisition to be cash equivalents. Cash and cash equivalents include amounts due from banks, U.S. Treasury securities, short-term investments and commercial paper with an original maturity of three months or less. The cash is classified as unrestricted or restricted cash.

Unrestricted cash is invested in short term investment grade commercial paper which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch), and restricted cash is invested in a short-term money market fund which has ratings of AAAm (S&P) and Aaa (Moody's), as well as commercial paper, which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch).

Restricted cash includes principal and interest collections received from loans held in securitization trusts, loan-related escrow and reserve accounts, and cash that has been pledged as collateral supporting letters of credit and derivative liabilities.

Loans

Loans held for investment in our portfolio are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts received or premiums paid on purchased loans. Deferred costs or fees, discounts and premiums are amortized over the contractual term of the loan.

Loans held for sale are accounted for at the lower of cost or fair value, which is determined on an individual loan basis, and include loans we originated or purchased that we intend to sell, in whole or in part, in the secondary market. Direct loan origination costs or fees, discounts and premiums are deferred at origination of the loan and not amortized into income.

As part of our management of the loans held in our portfolio, we will occasionally transfer loans from held for investment to held for sale. Upon transfer, any associated allowance for loan and lease loss is charged off and the carrying value of the loans is adjusted to the estimated fair value. The loans are subsequently accounted for at the lower of cost or fair value, with valuation changes recorded in other non-interest income, net. Gains or losses on the sale of these loans are also recorded in other non-interest income, net. In certain circumstances, loans designated as held for sale may later be transferred back to the loan portfolio based upon our intent and ability to hold the loans for the foreseeable future. We transfer these loans to loans held for investment at the lower of cost or fair value.

Credit Quality

Credit risk within our loan portfolio is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. The degree of credit risk will vary based on many factors including the size of the asset or transaction, the credit characteristics of the client, the contractual terms of the agreement and the availability and quality of collateral.

We use a variety of tools to continuously monitor a client's ability to perform under its obligations. Additionally, we syndicate loan exposure to other lenders, sell loans and use other risk mitigation techniques to manage the size and risk profile of our loan portfolio.

Credit risk management for the loan portfolio begins with an assessment of the credit risk profile of a client based on an analysis of the client's payment performance, cash flow and financial position. As part of the overall credit risk assessment of a client, each commercial credit exposure is assigned an internal risk rating that is subject to approval based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on the same factors: financial performance, the ability to repay the loan and the collateral. Subsequent to loan origination, risk ratings are monitored on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the client's financial condition, cash flow or financial position. We use risk rating aggregations to measure and evaluate concentrations within the loan portfolio. In making decisions regarding credit, we consider risk rating, collateral, and industry concentration limits.

We believe the likelihood of not being paid according to the contractual terms of a loan is, in large part, dependent upon the assessed level of risk associated with the loan. The internal rating that is assigned to a loan provides a view as to the relative risk of each loan. We employ an internal risk rating scale to establish a view of the credit quality of each loan. This scale is based on the credit classifications of assets as prescribed by government regulations and industry standards.

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses represents management's estimate of incurred loan and lease losses inherent in our loan and lease portfolio as of the balance sheet date. The estimation of the allowance for loan and lease losses is based on a variety of factors, including past loan and lease loss experience, the current credit profile of our borrowers, adverse situations that have occurred that may affect the borrowers' ability to repay, the estimated value of underlying collateral and general economic conditions. Provisions for loan and lease losses are recognized when available information indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We perform quarterly and systematic detailed reviews of our loan portfolio to identify credit risks and to assess the overall collectability of the portfolio. The allowance on certain pools of loans with similar characteristics is estimated using reserve factors that are reflective of historical loss rates.

Our portfolio is reviewed regularly and, on a periodic basis, individual loans are reviewed and assigned a risk rating. Loans subject to individual reviews are analyzed and segregated by risk according to our internal risk rating scale. These risk ratings, in conjunction with an analysis of historical loss experience, current economic conditions, industry performance trends, and any other pertinent information, including individual valuations on impaired loans, are factored in the estimation of the allowance for loan and lease losses. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impairment on individual loans is measured based on the present value of payments expected to be received, observable market prices for the loan, or the estimated fair value of the collateral. If the recorded investment in an impaired loan exceeds the present value of payments expected to be received or the fair value of the collateral, a specific allowance is established as a component of the allowance for loan and lease losses.

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for loan and lease losses. To the extent we later collect amounts previously charged off, we will recognize a recovery by increasing the allowance for loan and lease losses for the amount received.

We also consider whether losses may have been incurred in connection with unfunded commitments to lend. In making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a client or other terms and conditions. Reserves for losses related to unfunded commitments are charged to other non-interest expense, net and included within other liabilities.

Foreclosed Assets

Foreclosed assets, includes foreclosed property and other assets received in full or partial satisfaction of a loan. We recognize foreclosed assets upon the earlier of the loan foreclosure event or when we take physical possession of the assets (i.e., through a deed in lieu of foreclosure transaction). Foreclosed assets are initially measured at their fair value less estimated costs to sell. We treat any excess of our recorded investment in the loan over the fair value less estimated cost to sell the asset as a charge off to the loan.

Real estate owned (“REO”) represents real property obtained through foreclosure. REO that we do not intend to sell is classified separately as held for use, depreciated and recorded in other assets. We report REO that we intend to sell, are actively marketing and that are available for immediate sale in their current condition as held for sale. These REO are reported at the lower of their carrying amount or fair value less estimated selling costs and are not depreciated. The fair value of our REO is determined by third party appraisals, when available. When third party appraisals are not available, we estimate fair value based on factors such as prices for similar properties in similar geographical areas and/or assessment through observation of such properties. We recognize any subsequent decline in the REO's fair value less its estimated costs to sell through a valuation allowance with an offsetting charge to expense of real estate owned and other foreclosed asset, net. A recovery is recognized for any subsequent increase in fair value less estimated costs to sell up to the cumulative loss previously recognized through the valuation allowance. We recognize REO operating costs and gains or losses on sales of REO through expense of real estate owned and other foreclosed assets, net.

Goodwill Impairment

Goodwill must be allocated to reporting units and tested for impairment. We test goodwill for impairment at least annually, and more frequently if events or circumstances, such as adverse changes in the business climate, indicate there may be justification for conducting an interim test. Impairment testing is performed at the reporting unit level.

In testing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In making this assessment, we consider all relevant events and circumstances. These include, but are not limited to, macroeconomic conditions, industry and market considerations and the reporting unit's overall financial performance. If we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of the reporting unit is at least equal to its carrying amount, then we presume that the goodwill of the reporting unit is not impaired and no further testing is performed. However, if we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we proceed with a two-step method to assess and measure impairment of the reporting unit's goodwill. At our option, we may, in any given period, bypass the qualitative assessment and proceed directly to the two step approach.

90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The two-step method begins with a comparison of the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, we then compare the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of a reporting unit's goodwill is measured as the excess of the fair value of the reporting unit over the aggregate fair values of all the reporting unit's assets and liabilities. If the implied fair value of the reporting unit's goodwill is less than its carrying amount, we record an impairment loss equal to that difference. If the fair value of the reporting unit exceeds its carrying amount or if the fair value of the reporting unit's goodwill exceeds the carrying amount of that goodwill, no impairment loss is recognized.

The balance of goodwill of $173.1 million as of both December 31, 2013 and 2012 was attributable to the formation of CapitalSource Bank. During the years ended December 31, 2013, 2012 and 2011, we did not record any goodwill impairment.

Investments in Debt Securities and Equity Securities That Have Readily Determinable Fair Values

All debt securities, as well as equity securities that have readily determinable fair values, are classified based on management's intention on the date of purchase. Debt securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities not classified as held-to-maturity or trading, as well as equity investments in publicly traded entities, are classified as available-for-sale and carried at fair value with net unrealized gains and losses included in accumulated other comprehensive income (loss) on an after-tax basis.

Investments in Equity Securities That Do Not Have Readily Determinable Fair Values

Investments in common stock or preferred stock that are not publicly traded and/or do not have a readily determinable fair value are accounted for pursuant to the equity method of accounting if we have the ability to significantly influence the operating and financial policies of an investee. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our share of earnings and losses in equity method investees is included in other non-interest income, net. If we do not have significant influence over the investee, the cost method is used to account for the equity interest.

For investments accounted for using the cost or equity method of accounting, management evaluates information such as budgets, business plans, and financial statements of the investee in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline in value include, but are not limited to, recurring operating losses and credit defaults. We compare the estimated fair value of each investment to its carrying value quarterly. For any of our investments in which the estimated fair value is less than its carrying value, we consider whether the impairment of that investment is other-than-temporary.

If we determine that an investment has sustained an other-than-temporary decline in its value, the equity interest is written down to its fair value through gain on investments, net and a new carrying value for the investment is established.

Realized gains or losses resulting from the sale of investments are calculated using the specific identification method and are included in gain on investments, net.

If we hold both a loan and an equity method investment in an investee, we will continue to apply our pro rata share of losses in the investee to the balance of the loan once the equity investment has been fully written down.

Transfers of Financial Assets

We account for transfers of loans and other financial assets to third parties or special purpose entities (“SPEs”) that we establish as sales if we determine that we have relinquished effective control over the transferred assets. In such transactions, we derecognize the transferred assets, recognize and measure at fair value any assets obtained and liabilities assumed, including servicing assets and liabilities and record a gain or loss on the sale based upon the difference between the fair value of the assets obtained and liabilities assumed and the carrying amount of the transferred assets. If we transfer a portion of a financial asset that qualifies as a participating interest, we allocate the previous carrying amount of the entire financial asset between the participating interests sold and the interest that we continue to hold based on their relative fair values at the transfer date.

We account for transfers of financial assets in which we receive cash consideration, but for which we determine that we have not relinquished control, as secured borrowings.

Deferred Financing Fees

Deferred financing fees represent fees and other direct incremental costs incurred in connection with our borrowings. These amounts are amortized into income as interest expense over the estimated life of the borrowing using the interest method.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the following estimated useful lives (equipment leased to others is depreciated on a straight-line basis over the term of the lease to its estimated salvage value):

Buildings and improvements	10 to 40 years
Leasehold improvements	Lesser of remaining lease term or estimated useful life
Computer software	3 years
Equipment	5 years
Furniture	7 years

Income Recognition on Loans

Interest income, including income on impaired loans, fees due at maturity and paid-in-kind (“PIK”) interest, is recorded on an accrual basis to the extent that such amounts are expected to be collected. Carrying value adjustments of revolving lines of credit are amortized into interest and fee income over the contractual life of a loan on a straight line basis, while carrying value adjustments of all other loans are amortized into earnings over the contractual life of a loan using the interest method. In applying the interest method, the effective yield on a loan is determined based on its contractual payment terms, adjusted for actual prepayments.

Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In connection with the prepayment of a loan, any remaining unamortized deferred fees for that loan are accelerated and, depending upon the terms of the loan, there may be an additional fee that is charged based upon the prepayment and recognized in the period of the prepayment.

We accrete any discount from purchased loans into interest income in accordance with our policies up to the amount of contractual interest and principal payments expected to be collected. Upon acquisition, if management assesses that a portion of contractual interest and principal payments are not expected to be collected, a portion of the discount will be deemed non-accretable (non-accretable difference).

We will place a loan on non-accrual status if there is substantial doubt about the borrower's ability to service its debt and other obligations or if the loan is 90 or more days past due and is not well-secured and in the process of collection. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan is discontinued until factors indicating doubtful collection no longer exist and the loan has been brought current. Payments received on non-accrual loans are generally first applied to principal. A loan may be returned to accrual status when its interest or principal is current, repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. Cash payments received from the borrower and applied to the principal balance of the loan while the loan was on non-accrual status are not reversed if a loan is returned to accrual status.

We continue to recognize interest income on loans that have been identified as impaired, but that have not been placed on non-accrual status. If the loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan will stop until factors indicating doubtful collection no longer exist and the loan has been brought current.

Income Recognition and Impairment Recognition on Securities

For our investments in debt securities, we use the interest method to amortize deferred items, including premiums, discounts and other basis adjustments, into interest income. For debt securities representing non-investment grade beneficial interests in securitizations, the effective yield is determined based on the estimated cash flows of the security. Changes in the effective yield of these securities due to changes in estimated cash flows are recognized on a prospective basis as adjustments to interest income in future periods. The effective yield on all other debt securities that have not experienced an other-than-temporary impairment is based on the contractual cash flows of the security.

Declines in the fair value of debt securities classified as available-for-sale or held-to-maturity are reviewed to determine whether the impairment is other-than-temporary. This review considers a number of factors, including the severity of the decline in fair value, current market conditions, historical performance of the security, risk ratings and the length of time the investment has been in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred. In assessing whether the entire amortized cost basis of the security will be recovered, we compare the present value of cash flows expected to be collected from the security with its amortized cost. The present value of cash flows is determined using a discount rate equal to the effective yield on the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, then the impairment is considered to

92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

be other-than-temporary. Determination of whether an impairment is other-than-temporary requires significant judgment surrounding the collectability of the investment including such factors as the financial condition of the issuer, expected prepayments and expected defaults.

When we have determined that an other-than-temporary impairment has occurred, we separate the impairment amount into a component representing the credit loss and a component representing all other factors. The credit loss component is recognized in earnings and is determined by discounting the expected future cash flows of the security by the effective yield of the security. The previous amortized cost basis less the credit component of the impairment becomes the new amortized cost basis of the security. Any remaining impairment, representing the difference between the new amortized cost of the security and its fair value is recognized through other comprehensive income. We also consider impairment of a security to be other-than-temporary if we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. In these situations, the entire amount of the impairment represents the credit component and is recognized through earnings.

In periods following the recognition of an other-than-temporary impairment, the difference between the new amortized cost basis and the cash flows expected to be collected on the security are accreted as interest income. Any subsequent changes to estimated cash flows are recognized as prospective adjustments to the effective yield of the security.

Derivative Instruments

We enter into derivative contracts primarily to manage the interest rate and foreign currency risk associated with certain assets, liabilities, or probable forecasted transactions. As of December 31, 2013 and 2012, all of our derivatives were held for risk management purposes, and none were designated as accounting hedges.

Our derivatives are recorded in other assets or other liabilities, as appropriate. The changes in fair value of our derivatives and the related interest accrued are recognized in gain (loss) on derivatives, net.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates for the periods in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the change.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences.

Net Income (Loss) per Share

Basic net income (loss) per share loss is based on the weighted average number of common shares outstanding during each period, plus common share equivalents computed for stock options, stock units, stock dividends declared, restricted stock and convertible debt. Diluted net income (loss) per share is adjusted for the effects of other potentially dilutive financial instruments only in the periods in which such effect is dilutive.

Bonuses

Bonuses are accrued ratably, pursuant to the underlying bonus plans over the annual performance period. On an annual basis, management recommends a bonus accrual based on the Company's bonus plans to the Compensation Committee of our Board of Directors.

Segment Reporting

We present financial and descriptive information about our reportable operating segments including a measure of segment profit or loss, certain specific revenue and expense items and segment assets. We designate components of our business as reportable operating segments if the component a) engages in business activities from which it may earn revenues and incur expenses, b) has operating results that are regularly reviewed by executive management to make business decisions about resources to be allocated to the segment and assess its performance and c) has available discrete financial information. We currently operate as two reportable segments: CapitalSource Bank and Other Commercial Finance. Our CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements

In February 2013, the FASB amended its guidance on the presentation of comprehensive income to improve the transparency of reporting amounts reclassified out of accumulated other comprehensive income. For significant items reclassified out of accumulated other comprehensive income in their entirety in the same reporting period, entities are required to present the effects on the line items of net income. For items that are not reclassified to net income in their entirety in the same reporting period, entities are required to cross-reference to other disclosures currently required. This guidance was effective for interim and annual periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013 and it did not have a material impact on our consolidated financial statements.

In December 2013, as a result of a change in regulatory requirements due to the issuance of the Final Rules of the Dodd-Frank Act, known as the Volcker Rule, banking entities became limited to the types and amounts of investments they may hold. Banking entities may need to dispose of or seek exemption for certain investments by July 21, 2015. As such, the Company is evaluating which of its investments are impacted.

Reclassifications

Certain amounts in the prior year's consolidated financial statements have been reclassified to conform to the current year presentation.

Note 3. Loans and Credit Quality

As of December 31, 2013 and 2012, our outstanding loan balance was $6.8 billion and $6.2 billion, respectively. These amounts include loans held for sale and loans held for investment. As of December 31, 2013 and 2012, interest and fee receivables relating to loans totaled $23.7 million and $26.0 million, respectively.

Loans held for sale are recorded at the lower of cost or fair value. We determine when to sell a loan on a loan-by-loan basis and consider several factors, including the credit quality of the loan, the potential sale price relative to our loan valuation, our liquidity needs, and the resources necessary to ensure an adequate recovery if we continued to hold the loan. When our analysis indicates that the proper strategy is to sell a loan, we initiate the sale process and designate the loan as held for sale.

Loans held for investment are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts received or premiums paid on purchased loans. We maintain an allowance for loan and lease losses for loans held for investment, which is calculated based on management's estimate of incurred loan and lease losses inherent in our loan and lease portfolio as of the balance sheet date. This methodology is used consistently to develop our allowance for loan and lease losses for all loans and leases held for investment in our loan portfolio.

During the years ended December 31, 2013, 2012 and 2011, we transferred loans with a carrying value of $188.9 million, $323.8 million and $374.4 million, respectively, which included $56.8 million, $57.4 million and $173.3 million of impaired loans, respectively, from held for investment to held for sale. These transfers were based on our decision to sell these loans as part of our overall portfolio management and workout strategies. We did not incur any losses due to lower of cost or fair value adjustments during the year ended December 31, 2013. We incurred $0.4 million and $1.4 million of losses due to lower of cost or fair value adjustments at the time of transfer during the years ended December 31,2012 and 2011, respectively, which is recorded within other non-interest expense, net on the Consolidated Statements of Operations. We did not reclassify any loans from held for sale to held for investment during the years ended December 31, 2013. We reclassified $5.5 million and $28.4 million of loans from held for sale to held for investment during the years ended December 31,2012 and 2011, respectively.

During the years ended December 31, 2013, 2012 and 2011, we recognized net gains on the sale of loans of $6.9 million, $4.7 million and $16.4 million, respectively. Included in these amounts, we sold a participating interest in two loans to Pacific Western Bank, a wholly-owned subsidiary of PacWest, with a carrying value $35.0 million and recognized a net gain of $84 thousand.

As of December 31, 2013, we had no loans held for sale. As of December 31,2012 and 2011, loans held for sale with an outstanding balance of $2.5 million, and $2.9 million, respectively, were classified as non-accrual. We did not record any fair value write-downs on non-accrual loans held for sale during the years ended December 31, 2013, 2012 and 2011.

During the years ended December 31, 2013, 2012 and 2011, we purchased loans held for investment with an outstanding principal balance at the time of purchase of $368.9 million, $487.9 million and $620.3 million, respectively.

As of December 31, 2013 and 2012, the Bank pledged loans held for investment with an unpaid principal balance of $1.2 billion and $0.7 billion, respectively, to the Federal Home Loan Bank of San Francisco (“FHLB SF”) as collateral for its financing facility.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, the outstanding carrying value of loans, by type of loan, was as follows:

	December 31,
	2013				2012
	($ in thousands)
Commercial	$	3,852,537	57	%	$	3,594,643	58	%
Real estate	2,865,976		42		2,499,567		41
Real estate - construction	65,976		1		45,020		1
Total(1)(2)	$	6,784,489	100	%	$	6,139,230	100	%

______________________

(1) Includes deferred loan fees and discounts.

(2) As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

Non-performing loans include all loans on non-accrual status and accruing loans which are contractually past due 90 days or more as to principal or interest payments. Our remediation efforts on these loans are based upon the characteristics of each specific situation and include, among other things, one of or a combination of the following:

• request that the equity owners of the borrower inject additional capital;

• require the borrower to provide us with additional collateral;

• request additional guaranties or letters of credit;

• request the borrower to improve cash flow by taking actions such as selling non-strategic assets or reducing operating expenses;

• modify the terms of the loan, including the deferral of principal or interest payments, where we will appropriately classify the modification as a TDR;

• initiate foreclosure proceedings on the collateral; or     

• sell the loan in certain cases where there is an interested third-party buyer.

As of December 31, 2013 and 2012, the carrying value of each class of loans held for investment, separated by performing and non-performing categories, was as follows:

	December 31,
	2013						2012
Class	Performing		Non-Performing		Total		Performing		Non-Performing		Total
	($ in thousands)
Asset-based	$	1,642,937	$	12,459	$	1,655,396	$	1,409,837	$	27,759	$	1,437,596
Cash flow	1,966,599		40,801		2,007,400		1,916,042		51,700		1,967,742
Healthcare asset-based	168,238		—		168,238		179,617		—		179,617
Healthcare real estate	765,246		15,666		780,912		665,058		17,001		682,059
Multi-family	776,320		1,052		777,372		899,963		1,961		901,924
Real estate	1,069,610		24,776		1,094,386		717,798		12,593		730,391
Small business	294,699		6,086		300,785		233,653		6,248		239,901
Total(1)	$	6,683,649	$	100,840	$	6,784,489	$	6,021,968	$	117,262	$	6,139,230

________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Credit Quality

Credit risk within our loan portfolio is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. The degree of credit risk will vary based on many factors, the credit characteristics of the borrower, the contractual terms of the agreement and the availability and quality of collateral. We continuously

95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

monitor a borrower's ability to perform under its obligations. Additionally, we manage the size and risk profile of our loan portfolio by syndicating loan exposure to other lenders and selling loans.

Under our credit risk management process, each loan is assigned an internal risk rating that is based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on: the borrower's financial performance and financial standing, the borrower's ability to repay the loan, and the adequacy of the collateral securing the loan. Subsequent to loan origination, risk ratings are monitored and reassessed on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the borrower's financial condition, cash flow or financial position. We use risk rating aggregations to measure credit risk within the loan portfolio. In addition to risk ratings, we consider the market trend of collateral values and loan concentrations by borrower industries and real estate property types (where applicable).

We believe that the likelihood of not being paid according to the contractual terms of a loan is, in large part, dependent upon the assessed level of risk associated with the loan, and we believe that our internal risk rating process provides a view as to the relative risk of each loan. This risk rating scale is based on a credit classification of assets as prescribed by government regulations and industry standards and is separated into the following groups:

• Pass - Loans with standard, acceptable levels of credit risk;

• Special mention - Loans that have potential weaknesses that deserve close attention, and which, if left uncorrected, may result in a loss or deterioration of our credit position;

• Substandard - Loans that are inadequately protected by the current worth and paying capacity of the obliger or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; and

• Doubtful - Loans that have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full improbable based on currently existing facts, conditions, and values.

As of December 31, 2013 and 2012, the carrying value of each class of loans by internal risk rating, was as follows:

	Internal Risk Rating
Class	Pass		Special Mention		Substandard		Doubtful		Total
	($ in thousands)
As of December 31, 2013:
Asset-based	$	1,602,564	$	25,420	$	15,261	$	12,151	$	1,655,396
Cash flow	1,823,926		108,242		64,996		10,236		2,007,400
Healthcare asset-based	108,196		45,911		14,131		—		168,238
Healthcare real estate	682,942		67,235		30,735		—		780,912
Multi-family	761,270		14,473		1,629		—		777,372
Real estate	1,011,565		25,521		57,300		—		1,094,386
Small business	293,630		1,066		6,089		—		300,785
Total(1)	$	6,284,093	$	287,868	$	190,141	$	22,387	$	6,784,489
As of December 31, 2012:
Asset-based	$	1,352,729	$	36,535	$	29,185	$	19,147	$	1,437,596
Cash flow	1,684,107		67,629		191,582		24,424		1,967,742
Healthcare asset-based	114,889		64,728		—		—		179,617
Healthcare real estate	607,382		57,676		17,001		—		682,059
Multi-family	857,667		41,709		2,548		—		901,924
Real estate	673,783		38,139		18,389		80		730,391
Small business	228,071		2,860		8,443		527		239,901
Total(1)	$	5,518,628	$	309,276	$	267,148	$	44,178	$	6,139,230

_________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Non-Accrual and Past Due Loans

We will place a loan on non-accrual status if there is substantial doubt about the borrower's ability to service its debt and other obligations or if the loan is 90 or more days past due and is not well-secured and in the process of collection. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan will stop until factors no longer indicate collection is doubtful and the loan has been brought current. Payments received on non-accrual loans are generally first applied to principal. A loan may be returned to accrual status when its interest or principal is current, repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. Cash payments received from the borrower and applied to the principal balance of the loan while the loan was on non-accrual status are not reversed if a loan is returned to accrual status.

If our non-accrual loans had performed in accordance with their original terms, interest income on the outstanding legal balance of these loans would have been $17.6 million, $32.6 million and $62.0 million higher for the years ending December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, the carrying value of non-accrual loans was as follows:

	December 31,
	2013		2012
	($ in thousands)
Asset-based	$	12,459	$	27,759
Cash flow	40,801		51,700
Healthcare real estate	15,666		17,001
Multi-family	1,052		1,961
Real estate	24,776		12,593
Small business	6,086		6,248
Total(1)	$	100,840	$	117,262

______________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, the delinquency status of loans in our loan portfolio was as follows:

	30-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Greater Than 90 Days Past Due and Accruing
	($ in thousands)
As of December 31, 2013:
Asset-based	$	54	$	—	$	54	$	1,655,342	$	1,655,396	$	—
Cash flow	878		99		977		2,006,423		2,007,400		—
Healthcare asset-based	—		—		—		168,238		168,238		—
Healthcare real estate	—		15,666		15,666		765,246		780,912		—
Multi-family	591		188		779		776,593		777,372		—
Real estate	—		10,326		10,326		1,084,060		1,094,386		—
Small business	839		1,356		2,195		298,590		300,785		—
Total(1)	$	2,362	$	27,635	$	29,997	$	6,754,492	$	6,784,489	$	—
As of December 31, 2012:
Asset-based	$	19,207	$	391	$	19,598	$	1,417,998	$	1,437,596	$	—
Cash flow	578		3,486		4,064		1,963,678		1,967,742		—
Healthcare asset-based	—		—		—		179,617		179,617		—
Healthcare real estate	—		17,001		17,001		665,058		682,059		—
Multi-family	656		999		1,655		900,269		901,924		—
Real estate	1,032		12,284		13,316		717,075		730,391		—
Small business	2,994		3,932		6,926		232,975		239,901		—
Total(1)	$	24,467	$	38,093	$	62,560	$	6,076,670	$	6,139,230	$	—

__________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Impaired Loans

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 in accordance with the contractual terms of the original loan agreement. In this regard, impaired loans include loans for which we expect to encounter a significant delay in the collection of and/or a shortfall in the amount of contractual payments due to us.

Assessing the likelihood that a loan will not be paid according to its contractual terms involves the consideration of all relevant facts and circumstances and requires a significant amount of judgment. For such purposes, factors that are considered include:

• the current performance of the borrower;

• the current economic environment and financial capacity of the borrower to preclude a default;

• the willingness of the borrower to provide the support necessary to preclude a default (including the potential for successful resolution of a potential problem through modification of terms); and

• the borrower's equity position in, and the value of, the underlying collateral, if applicable, based on our best estimate of the fair value of the collateral.

In assessing the adequacy of available evidence, we consider whether the receipt of payments is dependent on the fiscal health of the borrower or the sale, refinancing or foreclosure of the loan.

We continue to recognize interest income on loans that have been identified as impaired but have not been placed on non-accrual status.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, information pertaining to our impaired loans was as follows:

	December 31,
	2013							2012
	Carrying Value(1)		Legal Principal Balance(2)		Related Allowance			Carrying Value(1)		Legal Principal Balance(2)		Related Allowance
	($ in thousands)
With no related allowance recorded:
Asset-based	$	12,459	$	19,724				$	40,655	$	75,547
Cash flow	279		21,486					48,796		118,440
Healthcare asset-based	—		—					—		12,246
Healthcare real estate	15,666		21,668					17,001		18,286
Multi-family	1,052		1,414					1,961		2,108
Real estate	24,776		100,374					12,711		83,363
Small business	6,086		14,046					8,112		15,976
Total	60,318		178,712					129,236		325,966
With allowance recorded:
Asset-based	—		—		$	—		867		859		$	(412	)
Cash flow	40,522		44,513		(4,211		)	71,609		80,322		(6,072		)
Total	40,522		44,513		(4,211		)	72,476		81,181		(6,484		)
Total impaired loans	$	100,840	$	223,225	$	(4,211	)	$	201,712	$	407,147	$	(6,484	)

______________________

(1) Carrying value of impaired loans before applying specific reserves. Balances are net of deferred loan fees and discounts. Excludes loans held for sale.

(2) Represents the contractual amounts owed to us by borrowers. The difference between the carrying value and the contractual amounts owed relates to the previous recognition of charge offs and are net of deferred loan fees and discounts.

As of December 31, 2013 and 2012, the carrying value of impaired loans with no related allowance recorded was $60.3 million and $129.2 million, respectively. Of these amounts, $29.7 million and $41.6 million, respectively, related to loans that were charged off to their carrying values. These charge offs were primarily the result of collateral dependent loans for which ultimate collection depends solely on the sale of the collateral. The remaining $30.6 million and $87.6 million related to loans that had no recorded charge offs or specific reserves as of December 31, 2013 and 2012, respectively, based on our estimate that we ultimately will collect all principal and interest amounts due.

99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Average balances and interest income recognized on impaired loans, by loan class, for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013				2012				2011
	Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)
	($ in thousands)
No allowance recorded:
Asset-based	$	26,106	$	489	$	65,805	$	3,246	$	67,521	$	2,899
Cash flow	25,628		5,867		68,549		5,534		110,466		7,456
Healthcare asset-based	—		—		1,002		233		1,827		177
Healthcare real estate	16,717		—		24,118		—		23,010		165
Multi-family	1,583		161		1,432		17		5,770		—
Real estate	18,897		5		54,800		3,735		185,104		3,410
Small business	6,766		242		11,983		20		10,158		—
Total	95,697		6,764		227,689		12,785		403,856		14,107
With allowance recorded:
Asset-based	743		—		8,222		74		47,572		—
Cash flow	43,156		1,622		95,442		3,094		111,637		3,405
Healthcare asset-based	—		—		—		—		787		—
Healthcare real estate	—		—		604		—		5,006		—
Multi-family	—		—		—		—		414		—
Real estate	—		—		—		—		32,964		—
Small business	—		—		—		—		733		—
Total	43,899		1,622		104,268		3,168		199,113		3,405
Total impaired loans	$	139,596	$	8,386	$	331,957	$	15,953	$	602,969	$	17,512

_________________________

(1) We recognized no cash basis interest income on impaired loans during the years ended December 31, 2013 and 2012. We recognized $0.1 million cash basis interest income on impaired loans during the year ended December 31, 2011.

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses represents management's estimate of incurred losses inherent in our loan and lease portfolio as of the balance sheet date. The estimation of the allowance for losses is based on a variety of factors, including past loss experience, the current credit profile and financial position of our borrowers, adverse situations that have occurred that may affect the borrowers' ability to repay, the estimated value of underlying collateral and general economic conditions. Provisions for losses are recognized when available information indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We perform quarterly detailed reviews of our loan portfolio to identify credit risks and to assess the overall collectability of the portfolio. The allowance on certain pools of loans with similar characteristics is estimated using reserve factors derived from historical loss rates or published industry data if our lending history for a particular loan type is limited.

Each loan is assigned an internal risk rating that is based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on: the borrower's financial performance and financial standing, the borrower's ability to repay the loan, and the adequacy of the collateral securing the loan. Subsequent to loan origination, risk ratings are monitored and reassessed on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the borrower's financial condition, cash flow or financial position. We use risk rating aggregations to measure credit risk within the loan portfolio. In addition, we consider the market trend of collateral values and loan concentrations by borrower industries and real estate property types.

These risk ratings, analysis of historical loss experience (updated quarterly), current economic conditions, industry performance trends, and any other pertinent information, including individual valuations on impaired loans are all considered when estimating the allowance for loan and lease losses.

100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

If the recorded investment in an impaired loan exceeds the present value of payments expected to be received, the fair value of the collateral and/or the loan's observable market price, a specific allowance is established as a component of the allowance for losses.

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for losses. To the extent we later collect from the original borrower amounts previously charged off, we will recognize a recovery.

We also consider whether losses may have been incurred in connection with unfunded commitments to lend. In making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a borrower or other terms and conditions.

Activity in the allowance for loan and lease losses related to our loans held for investment for the years ended December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Allowance for loan and lease losses as of beginning of year	$	117,273		$	153,631		$	329,122
Charge offs	(8,436		)	(96,376		)	(246,242		)
Recoveries	5,900			22,220			18,926
Net charge offs	(2,536		)	(74,156		)	(227,316		)
Charge offs upon transfer to held for sale	(14,748		)	(1,644		)	(41,160		)
Loan and lease loss provision	20,531			39,442			92,985
Balance as of end of year	120,520			117,273			153,631
Allowance for credit losses on unfunded lending commitments at beginning of year	3,424			4,877			3,261
(Release) provision for unfunded lending commitments	(1,124		)	(1,453		)	1,616
Allowance for credit losses on unfunded lending commitments at end of year(1)	2,300			3,424			4,877
Total allowance for loan, lease and unfunded lending commitments	$	122,820		$	120,697		$	158,508

_________________________

(1) Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other Liabilities.Unfunded lending commitments totaled $1.1 billion, $1.0 billion and $1.4 billion at December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, the balances of the allowance for loan and lease losses and the carrying value of loans held for investment disaggregated by impairment methodology were as follows:

	December 31,
	2013					2012
	Loans		Allowance for Loan and Lease Losses			Loans		Allowance for Loan and Lease Losses
	($ in thousands)
Individually evaluated for impairment(1)	$	99,091	$	(4,211	)	$	198,856	$	(6,484	)
Other loans groups with unidentified incurred losses	6,683,649		(116,309		)	5,937,518		(110,789		)
Acquired loans with deteriorated credit quality	1,749		—			2,856		—
Total	$	6,784,489	$	(120,520	)	$	6,139,230	$	(117,273	)

_______________________________

(1) Loans individually evaluated for impairment are net of charge offs of $85.4 million and $162.5 million at December 31, 2013 and 2012, respectively.

Troubled Debt Restructurings

The types of concessions that are assessed to determine if modifications to our loans should be classified TDRs include, but are not limited to, interest rate and/or fee reductions, maturity extensions, payment deferrals, forgiveness of loan principal, interest, and/or fees, or multiple concessions comprised of a combination of some or all of these items. We also classify discounted loan payoffs and loan foreclosures as TDRs.

101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2013 and 2012, the aggregate carrying value of loans involved in TDRs were $94.0 million and $170.5 million, respectively, as of their respective restructuring dates. Aggregate carrying value includes principal, deferred fees and accrued interest. Loans involved in TDRs are classified as impaired upon closing the TDR. Generally, a loan that has been involved in a TDR is no longer classified as impaired one year subsequent to the restructuring, assuming the loan performs under the restructured terms and the restructured terms are commensurate with current market terms. In most cases, the restructured terms of loans involved in TDRs are not commensurate with current market terms.

As loans involved in TDRs are deemed to be impaired, such impaired loans, including those that subsequently experienced defaults, are individually evaluated in accordance with our allowance for loan and lease losses methodology under the same guidelines as non-TDR loans that are classified as impaired. Our evaluation of whether collection of interest and principal is reasonably assured is based on the facts and circumstances of each individual borrower and our assessment of the borrower's ability and intent to repay in accordance with the revised loan terms. We generally consider such factors as historical operating performance and payment history of the borrower, indications of support by sponsors and other interest holders, the terms of the TDR, the value of any collateral securing the loan and projections of future performance of the borrower as part of this evaluation.

The accrual status for loans involved in a TDR is assessed as part of the evaluation mentioned above. For a loan that accrues interest immediately after that loan is restructured in a TDR, we generally do not charge off a portion of the loan as part of the restructuring. If a portion of a loan has been charged off, we will not accrue interest on the remaining portion of the loan if the charged off portion is still contractually due from the borrower. However, if the charged off portion of the loan is legally forgiven through concessions to the borrower, then the restructured loan may be placed on accrual status if the remaining contractual amounts due on the loan are reasonably assured of collection. In addition, for certain TDRs, especially those involving a commercial real estate loan, we may split the loan into an A note and a B note, placing the performing A note on accrual status and charging off the B note. For loans involved in a TDR that have been classified as non-accrual, the borrower is required to demonstrate sustained payment performance for a minimum of six months to return to accrual status.

The aggregate carrying values of loans that had been restructured in TDRs as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual	$	55,460	$	62,815
Accruing	—		83,367
Total	$	55,460	$	146,182

The specific reserves related to these loans were $1.6 million as of December 31, 2013 and 2012. We had unfunded commitments related to these restructured loans of $7.6 million and $21.1 million as of December 31, 2013 and 2012, respectively.

The following table rolls forward the balance of loans modified in TDRs for the years ended December 31, 2013, 2012 and 2011:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Beginning balance of TDRs	$	146,182		$	309,003		$	555,113
New TDRs	3,896			45,353			143,963
Draws and pay downs on existing TDRs, net	(16,934		)	(18,087		)	(27,305		)
Loan sales and payoffs	(74,360		)	(157,954		)	(267,168		)
Charge offs post modification	(3,324		)	(32,133		)	(95,600		)
Ending balance of TDRs	$	55,460		$	146,182		$	309,003

102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The number and aggregate carrying values of loans involved in TDRs that occurred during the year ended December 31, 2013 were as follows:

	Year Ended December 31, 2013
	Number of Loans	Carrying Value Prior to TDR		Carrying Value Subsequent to TDR(2)
	($ in thousands)
Asset-based
Maturity extension	1	$	2,985	$	2,985
Discounted payoffs	2	10,006		—
Multiple concessions	2	9,398		9,398
	5	22,389		12,383
Cash flow
Maturity extension	2	32,547		32,547
Payment deferral	1	571		571
Discounted payoffs	3	16,942		—
Multiple concessions	7	17,840		17,840
	13	67,900		50,958
Multi-family
Discounted payoffs	1	425		—
Small business
Discounted payoffs	2	565		—
Foreclosures	3	786		—
Multiple concessions	4	1,955		1,955
	9	3,306		1,955
Total(1)	28	$	94,020	$	65,296

__________________________

(1) Includes deferred loan fees and discounts.

(2) Represents the carrying value immediately following the modification of the loan; does not represent the carrying value as of December 31, 2013.

During the year ending December 31, 2013, onesmall business loan experienced default after its initial restructuring within the previous 12 months. As of December 31, 2013, the carrying value of this loan was $38 thousand.

103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of concession types granted by loan type, including the accrual status of the loans as of December 31, 2013 and 2012, respectively, was as follows:

	December 31,
	2013						2012
	Non-accrual		Accrual		Total		Non-accrual		Accrual		Total
	($ in thousands)
Commercial
Maturity extension	$	—	$	—	$	—	$	14,166	$	59,513	$	73,679
Payment deferral	529		—		529		—		—		—
Multiple concessions	42,340		—		42,340		36,786		23,711		60,497
	42,869		—		42,869		50,952		83,224		134,176
Real estate
Interest rate and fee reduction	—		—		—		—		—		—
Maturity extension	54		—		54		59		—		59
Payment deferral	529		—		529		617		—		617
Multiple concessions	1,938		—		1,938		200		143		343
	2,521		—		2,521		876		143		1,019
Real estate - construction
Maturity extension	10,070		—		10,070		10,758		—		10,758
Multiple concessions	—		—		—		229		—		229
	10,070		—		10,070		10,987		—		10,987
Total	$	55,460	$	—	$	55,460	$	62,815	$	83,367	$	146,182

We have experienced losses incurred on some TDRs subsequent to their initial restructuring. These losses include both additional specific reserves and charge offs on the restructured loans. A majority of such losses has been incurred on our commercial loans and are primarily due to the borrowers' failure to consistently meet their financial forecasts that formed the bases for our restructured loans. Examples of circumstances that resulted in the borrowers not being able to meet their forecasts included acquisitions of other businesses that did not have the expected positive impact on financial results, significant delays in launching products and services, and continued deterioration in the pricing estimates of businesses and product lines that the borrower expected to sell to generate proceeds to repay the loan.

104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Losses incurred on TDRs since their initial restructuring by concession and loan type as of December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Commercial
Interest rate and fee reduction	$	—	$	—	$	18,727
Maturity extension	727		5,440		11,310
Payment deferral	144		252		10,968
Multiple concessions	6,360		20,281		48,912
	7,231		25,973		89,917
Real estate
Interest rate and fee reduction	—		—		9
Maturity extension	—		950		—
Payment deferral	—		—		11,162
Multiple concessions	363		23		402
	363		973		11,573
Real estate - construction
Maturity extension	—		4,709		19,408
Multiple concessions	229		958		—
	229		5,667		19,408
Total	$	7,823	$	32,613	$	120,898

Of the additional losses recognized on commercial loan TDRs since their initial restructuring for the years ended December 31, 2013, 2012 and 2011, 65.3%, 92.9% and 83.9%, respectively, related to loans that had additional modifications subsequent to their initial TDRs, and all related to loans that were on non-accrual status.  We recognized approximately $0.3 million, $0.1 million and $0.2 million of interest income for the years ended December 31, 2013, 2012 and 2011, respectively, on the commercial loans that experienced losses during those years.

Real Estate Owned and Other Foreclosed Assets ("REO")

When we foreclose on an asset that collateralizes a loan, we record the acquired asset at its estimated fair value less costs to sell at the time of foreclosure. Upon foreclosure, we evaluate the asset's fair value as compared to the loan's carrying amount and record a charge off when the carrying amount of the loan exceeds fair value less costs to sell. We may also write down or record allowances on the acquired asset subsequent to foreclosure if such assets experience additional deterioration. Any subsequent valuation adjustments are recorded as a component of net expense of real estate owned and other foreclosed assets.

Activity related to REO for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Balance as of beginning of year	$	23,791		$	69,698		$	163,329
Transfers from loans held for investment and other assets	845			15,494			28,281
Fair value adjustments	(2,025		)	(10,174		)	(28,274		)
Real estate sold	(9,787		)	(51,227		)	(93,638		)
Balance as of end of year	$	12,824		$	23,791		$	69,698

During the years ended December 31, 2013, 2012 and 2011, we recognized gains (losses) of $4.0 million, $2.7 million and $(0.7) million, respectively, on the sales of REO as a component of expense of real estate owned and other foreclosed assets, net.

105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Investments

Investment Securities, Available-for-Sale

As of December 31, 2013 and 2012, our investment securities, available-for-sale were as follows:

	December 31,
	2013									2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	($ in thousands)
Agency securities	$	785,511	$	10,909	$	(12,180	)	$	784,240	$	960,864	$	23,464	$	(807	)	$	983,521
Asset-backed securities	3,031		138		—			3,169		9,280		312		—			9,592
Collateralized loan obligations	47,863		—		(526		)	47,337		13,418		12,832		—			26,250
Non-agency MBS	19,897		329		(23		)	20,203		40,937		689		(279		)	41,347
SBA asset-backed securities	15,640		—		(107		)	15,533		17,632		683		—			18,315
Total	$	871,942	$	11,376	$	(12,836	)	$	870,482	$	1,042,131	$	37,980	$	(1,086	)	$	1,079,025

Included in investment securities, available-for-sale, were agency securities which included commercial and residential mortgage pass through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae ("Agency MBS"); asset-backed securities; investments in collateralized loan obligations ("CLOs"); residential mortgage-backed securities issued by non-government agencies (“Non-agency MBS”) and agency asset-backed securities issued by the Small Business Administration (“SBA ABS”).

Realized gains or losses resulting from the sale and maturities of investments are calculated using the specific identification method and included in gain on sales or calls of investments, net. During the year endedDecember 31, 2013, we had repayments on investment securities, available-for-sale of $358.7 million and $117.6 million in purchases, with a net amortized discount of $3.4 million. During the year endedDecember 31, 2012, we had repayments on investment securities, available-for-sale of $383.6 million and $293.9 million in purchases, with a net amortized discount of $6.1 million.

During the years endedDecember 31, 2013, 2012, and 2011, we recognized $(25.5) million, $5.6 million, and $13.3 million, respectively, of net unrealized after-tax (loss) gains as a component of accumulated other comprehensive income, net.

Other-than-temporary impairments (“OTTI”) on our investment securities, available-for-sale are included as a component of gain on investments, net. We recorded OTTI of $0.2 million, $1.4 million and $1.5 million relating to a decline in the fair value of our investment securities, available-for-sale on our collateralized loan obligations and municipal bond during the years endedDecember 31, 2013, 2012 and 2011, respectively.

The amortized cost and fair value of investment securities, available-for-sale pledged as collateral to the FHLB SF and government agencies as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	—	$	—	$	190,113	$	197,911
FRB	9,988		9,975		—		—
Government agencies(1)	17,246		17,436		5,390		5,439
Total	$	27,234	$	27,411	$	195,503	$	203,350

____________________________

(1) Represents the amounts pledged as collateral to secure funds deposited by government agencies.

106

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities, Held-to-Maturity

As of December 31, 2013 and 2012, investment securities, held-to-maturity consisted of non-agency commercial mortgage-backed securities rated AA+ or higher. The amortized cost, gross unrealized gains and losses, and estimated fair value of held-to-maturity securities were as follows:

	December 31,
	2013		2012
	($ in thousands)
Amortized Cost	$	74,369	$	108,233
Unrealized Gains	1,166		3,531
Unrealized Losses	—		(376		)
Fair Value	$	75,535	$	111,388

During the years endedDecember 31, 2013 and 2012, we recorded $4.3 million and $4.4 million, respectively, of interest income on investment securities, held-to-maturity which were recorded as a component of interest income in investment securities.

During the year endedDecember 31, 2013, we had repayments and purchases on investment securities, held-to-maturity of $35.7 million and $47.9 million, respectively, with a net amortized premium of $1.7 million.

During the year endedDecember 31, 2013, we transferred $47.9 million in investment securities, held-to-maturity, which consisted of collateralized loan obligations, with a fair value of $47.3 million and net unrealized losses of $526 thousand, to investment securities, available-for-sale. The CLOs were reclassified to available-for-sale due to the provisions of the Volcker Rule that prohibit banking entities from having ownership interests in "covered funds." As such, the Company would not be permitted to hold the CLOs to their contractual maturity. In addition, we sold one CMBS with a net carrying value of $6.2 million and realized a net gain of $0.2 million during the year endedDecember 31, 2013. We decided to sell the security as a result of evidence of significant deterioration in the issuer's creditworthiness.

During the year endedDecember 31, 2012, we had $5.1 million of principal repayments on investment securities, held-to-maturity with a net amortized premium of $1.7 million, and no purchases of investment securities, held-to-maturity.

The investment securities, held-to-maturity pledged as collateral as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	3,582	$	3,745	$	4,060	$	4,497
FRB	60,396		60,593		87,038		88,381
Total	$	63,978	$	64,338	$	91,098	$	92,878

107

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Unrealized Losses on Investment Securities

As of December 31, 2013 and 2012, the gross unrealized losses and fair values of investment securities that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, were as follows:

	Less Than 12 Months					12 Months or More					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	($ in thousands)
As of December 31, 2013
Investment Securities, Available-for-Sale:
Agency securities	$	(8,974	)	$	332,996	$	(3,206	)	$	59,738	$	(12,180	)	$	392,734
Collateralized loan obligations	(526		)	47,337		—			—		(526		)	47,337
SBA asset-backed securities	(107		)	15,533		—			—		(107		)	15,533
Non-agency MBS	(14		)	1,463		(9		)	690		(23		)	2,153
Total Investment Securities, Available-for-Sale	$	(9,621	)	$	397,329	$	(3,215	)	$	60,428	$	(12,836	)	$	457,757
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	—		$	—	$	—		$	—
As of December 31, 2012
Investment Securities, Available-for-Sale:
Agency securities	$	(807	)	$	115,447	$	—		$	—	$	(807	)	$	115,447
Non-agency MBS	(245		)	8,651		(34		)	1,175		(279		)	9,826
Total Investment Securities, Available-for-Sale	$	(1,052	)	$	124,098	$	(34	)	$	1,175	$	(1,086	)	$	125,273
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	(376	)	$	59,284	$	(376	)	59,284

Investment securities in unrealized loss positions are analyzed individually as part of our ongoing assessment of OTTI. As of December 31, 2013 and 2012, we do not believe that any unrealized losses included in the table above represent an OTTI. The unrealized losses are attributable to fluctuations in the market prices of the securities due to market conditions and interest rate levels. Agency securities have the highest debt rating and are backed by government-sponsored entities. As of December 31, 2013, each of the agency, Non-agency MBS, and CLOs with unrealized losses were well supported. Based on our analysis of each security in an unrealized loss position, we have the intent, ability to hold and no requirement to sell these securities, so we can expect to recover the entire amortized cost basis of the impaired securities.

Contractual Maturities

As of December 31, 2013, the contractual maturities of our available-for-sale and held-to-maturity investment securities were as follows:

	Investment Securities, Available-for-Sale				Investment Securities, Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	($ in thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	12,889		13,330		—		—
Due after five years through ten years(1)	44,241		44,884		60,396		60,593
Due after ten years(2)(3)	814,812		812,268		13,973		14,943
Total	$	871,942	$	870,482	$	74,369	$	75,536

__________________________________

(1) Includes Agency MBS, Non-agency MBS, Non-agency ABS, Non-agency CMBS, and CLOs with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41 and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(2) Includes Agency MBS, SBA ABS, Non-agency MBS, Non-agency CMBS, and CLOs with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66 and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(3) Includes securities with no stated maturity.

108

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other Investments

As of December 31, 2013 and 2012, our other investments were as follows:

	December 31,
	2013		2012
	($ in thousands)
Investments carried at cost	$	17,797	$	23,963
Investments accounted for under the equity method	34,327		36,400
Total	$	52,124	$	60,363

Proceeds and gains from sales of other investments for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Proceeds from sales	$	3,407	$	11,478	$	30,468
Gain from sales	3,385		5,874		22,915

During the years endedDecember 31, 2013 and 2012, we recorded $3.6 million and $7.1 million, respectively, of dividends which were recorded as a component of gain on investments, net.

During the years endedDecember 31, 2013, 2012 and 2011, we recorded OTTI of $1.6 million, $5.2 million and $1.4 million, respectively, relating to our investments carried at cost.

Note 5. Property and Equipment

We own property and equipment for use in our operations as well as equipment leased to others subject to operating lease agreements. As of December 31, 2013 and 2012, property and equipment included in other assets consisted of the following:

	December 31,
	2013			2012
	($ in thousands)
Land	$	125		$	125
Buildings	470			470
Equipment	179,544			149,345
Furniture and related equipment	10,479			10,266
Leasehold improvements	26,266			24,498
Accumulated depreciation and amortization	(63,809		)	(46,190		)
Total	$	153,075		$	138,514

During the years ended December 31, 2013 and 2012, we acquired $31.9 million and $40.8 million of equipment, respectively, which we lease to others for their use subject to operating lease agreements. During the years ended December 31, 2013 and 2012, income from these leases was $1.7 million and $1.1 million, respectively.

Depreciation of property and equipment totaled $14.4 million, $12.7 million and $9.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Note 6. Deposits

As of December 31, 2013 and 2012, the Bank had $6.1 billion and $5.6 billion, respectively, in deposits insured up to the maximum limit by the FDIC. As of December 31, 2013 and 2012, the Bank had $816.3 million and $597.8 million, respectively, of certificates of deposit in the amount of $250,000 or more and $3.1 billion and $2.6 billion, respectively, of certificates of deposit in the amount of $100,000 or more.

As of December 31, 2013 and 2012, the weighted average interest rates for savings and money market deposit accounts were 0.46% and 0.51%, respectively, and for certificates of deposit were 0.97% and 0.94%, respectively. The weighted average interest rates for all deposits as of December 31, 2013 and 2012 were 0.90% and 0.87%, respectively.

109

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, interest-bearing deposits at the Bank were as follows:

	December 31,
	2013				2012
	Balance		Weighted Average Rate		Balance		Weighted Average Rate
	($ in thousands)
Interest-bearing deposits:
Money market	$	253,357	0.45	%	$	257,961	0.49	%
Savings	623,430		0.47	%	704,890		0.52	%
Certificates of deposit	5,250,903		0.97	%	4,616,419		0.94	%
Total interest-bearing deposits	$	6,127,690	0.90	%	$	5,579,270	0.87	%

As of December 31, 2013, certificates of deposit at the Bank detailed by maturity were as follows:

	Amount		Weighted Average Rate
	($ in thousands)
Maturing by:
December 31, 2014	$	4,694,400	0.94	%
December 31, 2015	432,770		1.16	%
December 31, 2016	69,602		1.67	%
December 31, 2017	26,459		1.19	%
December 31, 2018	27,672		1.25	%
Total	$	5,250,903	0.97	%

For the years ended December 31, 2013, 2012 and 2011, interest expense on deposits was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Savings and money market	$	4,584		$	6,086		$	8,289
Certificates of deposit	47,591			45,165			45,547
Fees for early withdrawal	(234		)	(216		)	(227		)
Total interest expense on deposits	$	51,941		$	51,035		$	53,609

Note 7. Variable Interest Entities

Troubled Debt Restructurings

Certain of our loan modifications qualify as events that require reconsideration of our borrowers as VIEs. Through reconsideration, we determined that certain of our borrowers involved in TDRs did not hold sufficient equity at risk to finance their activities without subordinated financial support. As a result, we concluded that these borrowers were VIEs. We also determined that we should not consolidate these borrowers because we do not have a controlling financial interest in these borrowers. The equity investors of these borrowers have the power to direct the activities that will have the most significant impact on the economics of these borrowers. These equity investors' interests also provide them with rights to receive benefits in the borrowers that could be significant. As a result, we have determined that the equity investors should continue to have a controlling financial interest in the borrowers subsequent to the restructuring.

Our interest in borrowers qualifying as VIEs was $44.6 million and $115.4 million as of December 31, 2013 and 2012, respectively, and is included in loans held for investment. For certain of these borrowers, we have had obligations to fund additional amounts through either unfunded commitments or letters of credit issued to or on behalf of these borrowers. Consequently, our

110

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

maximum exposure to loss as a result of our involvement with these entities was $69.4 million and $151.9 million as of December 31, 2013 and 2012, respectively.

Term Debt Securitizations

In conjunction with our commercial term debt securitizations, we established and contributed loans to separate single purpose entities (collectively, referred to as the “Issuers”). The Issuers were structured to be legally isolated, bankruptcy remote entities. The Issuers issued notes and certificates that were collateralized by their underlying assets, which primarily comprised loans contributed to the securitizations. We serviced the underlying loans contributed to the Issuers and earned periodic servicing fees paid from the cash flows of the underlying loans. The Issuers have all of the legal obligations to repay the outstanding notes and certificates. During the year endedDecember 31, 2013, we called all of our remaining term debt securitizations and repaid the outstanding third-party debt of $177.2 million. We recognized no gain or loss on the extinguishment of debt. As a result, as of December 31, 2013, we had no remaining term debt securitizations. As of December 31, 2012, the total outstanding balance of the securitizations was $398.9 million. This amount included $221.7 million of notes and certificates that we held as of December 31, 2012.

Prior to the call and extinguishment of our term debt securitizations, we had determined that the Issuers were VIEs, subject to applicable consolidation guidance and concluded that the entities were designed to pass along risks related to the credit performance of the underlying loan portfolio. Except as set forth below, as a result of our power to direct the activities that most significantly impact the credit performance of the underlying loan portfolio and our economic interests in the Issuers, we had concluded that we were the primary beneficiary of each of the Issuers. Consequently, except as set forth below, we had been reporting the assets and liabilities of the Issuers in our consolidated financial statements, including the underlying loans and the issued notes and certificates held by third parties. Upon the extinguishment of our securitizations, we have no consolidated assets and liabilities related to the Issuers as of December 31, 2013. As of December 31, 2012, the carrying amount of the consolidated liabilities related to the Issuers was $177.4 million. This amount included term debt and represented obligations for which there was only legal recourse to the Issuers. As of December 31, 2012, the carrying amount of the consolidated assets related to the Issuers was $345.4 million. This amount primarily included loans held for investment, net and related assets that can only be used to settle obligations of the Issuers.

As of December 31, 2012, we held an interest in a term debt securitization trust (the "2006-A Trust"). As of December 31, 2013, we had no remaining interest in the 2006-A Trust. Due to the sale of our interest during the fourth quarter of 2013, we had $19.8 million in realized gains which was included as component of gains on investments, net. As of December 31, 2012, the fair value of our remaining interests in the 2006-A Trust that we had repurchased in the market subsequent to the initial securitization and held was $26.3 million, and was classified as investment securities, available-for-sale. We had no material commitments or other obligations related to these interests. Except for a guarantee provided to a swap counterparty of the 2006-A Trust, we did not provided any additional financial support to the 2006-A Trust since the deconsolidation. This swap exposure had a fair value to the counterparty of $9.2 million and $13.5 million as of December 31, 2013 and 2012. During the years ended December 31, 2013 and December 31, 2012, we recorded no unrealized gains or losses and $12.8 million in unrealized gains, respectively, which was included as a component of other comprehensive income, on the securities that we had held in the 2006-A Trust.

Note 8. Borrowings

As of December 31, 2013 and 2012, the composition of our outstanding borrowings was as follows:

	December 31,
	2013		2012
	($ in thousands)
Term debt - obligations of consolidated VIEs for which there was no recourse to the general credit of CapitalSource Inc (1)	$	—	$	177,188
Other borrowings:
Subordinated debt	412,156		410,738
FHLB SF borrowings	625,000		595,000
Total other borrowings	1,037,156		1,005,738
Total borrowings	$	1,037,156	$	1,182,926

______________________________

(1) Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

Term Debt

In conjunction with each of our commercial term debt securitizations, we established and contributed commercial loans to separate Issuers. The Issuers were structured to be legally isolated, bankruptcy remote entities. The Issuers issued notes and

111

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

certificates that were collateralized by the underlying assets of the Issuers, primarily comprising contributed loans. We serviced the underlying commercial loans contributed to the Issuers and earned periodic servicing fees paid from the cash flows of the underlying commercial loans. During the year ended December 31, 2013, we called the 2006-1, 2006-2 and 2007-1 term debt securitizations and repaid the outstanding third-party debt of $177.2 million; we recognized no gain or loss on the extinguishment of debt. As a result, as of December 31, 2013, we had no outstanding term debt securitizations.

Our outstanding term debt transactions in the form of asset securitizations held by third parties as of December 31, 2013 and 2012, were as follows:

	Amounts Issued	Outstanding Third Party Held Debt Balance as of December 31,				Interest Rate Spread(1)	Original Expected Maturity Date
		2013		2012
	($ in thousands)
2006-1
Class C	68,447	—		1,119		0.55%	September 20, 2010
Class D	52,803	—		24,371		1.30%	December 20, 2010
	121,250	—		25,490
2006-2
Class D(2)	101,250	—		84,597		1.52%	June 20, 2013
Class E	56,250	—		20,000		2.50%	June 20, 2013
	157,500	—		104,597
2007-1
Class C	84,000	—		19,448		0.65%	February 20, 2013
Class D	48,000	—		27,674		1.50%	September 20, 2013
	132,000	—		47,122
Total		$	—	$	177,209

____________________

(1) All of our term debt securitizations incurred interest based on one-month LIBOR, which was 0.21% as of December 31, 2012.

(2) We repurchased certain bonds from third party investors at fair market value. The tables reflect outstanding debt to third party investors, and therefore,

eliminate the portions of debt owned by us.

Convertible Debt

We have issued convertible debentures as part of our financing activities. Our 7.25% senior subordinated convertible debentures due 2037 (originally issued in July 2007) were repurchased in full during 2012 and extinguished, leaving no remaining convertible debentures.

For the years ended December 31, 2013, 2012 and 2011, the interest expense recognized on our Convertible Debentures and the effective interest rates on the liability components were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Interest expense recognized on:
Contractual interest coupon	$	—		$	1,006		$	21,112
Amortization of deferred financing fees	—			7			692
Amortization of debt discount	—			66			6,033
Total interest expense recognized	$	—		$	1,079		$	27,837
Effective interest rate on the liability component:
3.5% Senior Debentures due 2034(1)	—		%	—		%	7.25		%
4.0% Senior Subordinated Debentures due 2034(1)	—		%	—		%	7.68		%
7.25% Senior Subordinated Debentures due 2037(2)	—		%	7.79		%	7.79		%

____________________

(1) Repurchased in 2011.

(2) Repurchased in 2012.

112

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Subordinated Debt

We have issued subordinated debt to statutory trusts (“TP Trusts”) that are formed for the purpose of issuing preferred securities to outside investors, which we refer to as Trust Preferred Securities (“TPS”). We generally retained 100% of the common securities issued by the TP Trusts, representing 3% of their total capitalization. The terms of the subordinated debt issued to the TP Trusts and the TPS issued by the TP Trusts are substantially identical.

The TP Trusts are wholly owned indirect subsidiaries of CapitalSource. However, we have not consolidated the TP Trusts for financial statement purposes. We account for our investments in the TP Trusts under the equity method of accounting pursuant to relevant GAAP requirements.

In March 2012, we purchased an aggregate of $26.1 million of preferred securities from our TP Trusts 2005-1 and 2006-4 at a discount from liquidation value. As a result of this purchase, in June 2012, the related subordinated debt was exchanged and cancelled, and we recognized a related gain of $8.2 million on the extinguishment.

The carrying value of our subordinated debt was $412.2 million and $410.7 million as of December 31, 2013 and 2012, respectively.

TPS Series	Trust Formation Date	Debt Outstanding			Maturity Date	Date Callable(1)	Interest Rate as of December 31, 2013
		($ in thousands)
2005-1	November 2005	$	82,475		December 15, 2035	December 15, 2010	2.19	%	(2)
2005-2	December 2005	$	128,866		January 30, 2036	January 30, 2011	2.19	%	(2)
2006-1	February 2006	$	51,545		April 30, 2036	April 30, 2011	2.19	%	(2)
2006-2	September 2006	$	51,550		October 30, 2036	October 30, 2011	2.19	%	(2)
2006-3	September 2006	$	35,423	(4)	October 30, 2036	October 30, 2011	2.28	%	(3)
2006-4	December 2006	$	16,470		January 30, 2037	January 30, 2012	2.19	%	(2)
2006-5	December 2006	$	6,650		January 30, 2037	January 30, 2012	2.19	%	(2)
2007-2	June 2007	$	39,177		July 30, 2037	July 30, 2012	2.19	%	(2)

______________________

(1) The subordinated debt is callable by us in whole or in part at par at any time after the stated date.

(2) Bears interest at a floating interest rate equal to three-month LIBOR plus 1.95%, resetting quarterly at various dates.

(3) Bears interest at a floating interest rate equal to three-month EURIBOR plus 2.05%, resetting quarterly.

(4) Denomination is in Euros with a value of €25.8 million.

The subordinated debt described above is unsecured and ranks subordinate and junior in right of payment to all of the Parent Company's indebtedness.

FHLB SF Borrowings and FRB Credit Program

As a member of the FHLB SF, CapitalSource Bank had financing availability with the FHLB SF as of December 31, 2013 equal to 35% of the Bank's total assets. The maximum financing available under this formula was $2.8 billion and $2.6 billion as of December 31, 2013 and 2012, respectively. The financing is subject to various terms and conditions including pledging acceptable collateral, satisfaction of the FHLB SF stock ownership requirement and certain limits regarding the maximum term of debt. As of December 31, 2013, securities collateral with an estimated fair value of $3.7 million and loans with an unpaid principal balance of $1.2 billion were pledged to the FHLB SF.

As of December 31, 2013 and 2012, CapitalSource Bank had borrowing capacity with the FHLB SF based on pledged collateral as follows:

	December 31,
	2013			2012
	($ in thousands)
Borrowing capacity	$	1,012,361		$	841,309
Less: outstanding principal	(625,000		)	(595,000		)
Less: outstanding letters of credit	(150		)	(300		)
Unused borrowing capacity	$	387,211		$	246,009

The Bank is an approved depository institution under the primary credit program of the FRB of San Francisco's discount window eligible to borrow from the FRB for short periods, generally overnight. As of December 31, 2013 and 2012, investment

113

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

securities with amortized costs of $70.4 million and $87.0 million, respectively, and fair values of $70.6 million and $88.4 million, respectively, had been pledged as collateral this program. As of December 31, 2013 and 2012, there were no borrowings outstanding. Additionally, the Bank participates in the Borrower-In-Custody program at the FRB of San Francisco, which allows the Bank to pledge qualifying loans. As of December 31, 2013, there were no loans pledged.

Debt Maturities

The contractual maturities of our obligations under the subordinated debt and FHLB SF borrowings as of December 31, 2013, were as follows:

	Other Borrowings				Total
	Subordinated Debt(1)		FHLB SF Borrowings
	($ in thousands)
2014	$	—	$	135,000	$	135,000
2015	—		112,500		112,500
2016	—		204,000		204,000
2017	—		88,000		88,000
2018	—		78,000		78,000
Thereafter	412,156		7,500		419,656
Total	$	412,156	$	625,000	$	1,037,156

______________________

(1) The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

Interest Expense

The weighted average interest rates on all of our borrowings, including amortization of deferred financing costs, for the years ended December 31, 2013, 2012 and 2011 were 1.1%, 1.2% and 2.2%, respectively.

Deferred Financing Fees

As of December 31, 2013 and 2012, deferred financing fees of $10.7 million and $11.8 million, respectively, net of accumulated amortization of $3.2 million and $31.3 million, respectively, were included in other assets.

Debt Covenants

The Parent Company is subject to financial and non-financial covenants under our indebtedness, including, those with respect to engaging in a merger, sale or consolidation. If we were to default under our indebtedness by violating these covenants or otherwise, our investors' remedies would include the ability to, among other things, foreclose on collateral, and/or accelerate payment of all amounts payable under such indebtedness. We believe that we are in compliance with all covenants under our indebtedness.

114

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Shareholders' Equity

Common Stock Shares Outstanding

Common stock share activity for the years ended December 31, 2013, 2012 and 2011 was as follows:

Outstanding as of December 31, 2010	323,225,355
Repurchase of common stock	(70,208,500	)
Exercise of options	475,709
Restricted stock and other stock activities	2,619,641
Outstanding as of December 31, 2011	256,112,205
Repurchase of common stock	(49,270,260	)
Exercise of options	1,694,429
Restricted stock and other stock activities	1,015,300
Outstanding as of December 31, 2012	209,551,674
Repurchase of common stock	(15,002,800	)
Exercise of options	1,774,824
Restricted stock and other stock activities	531,585
Outstanding as of December 31, 2013	196,855,283

Stock Repurchase Program

Between 2010 and 2013, the Company repurchased $930.6 million of its common stock at weighted average prices of $7.01 per share in 2010, $6.22 per share in 2011, $6.97 per share in 2012 and $9.18 per share in 2013. All shares purchased during this period were retired upon settlement. As a result of entering into the Merger Agreement, the Stock Repurchase Program was suspended as of July 23, 2013. The Stock Repurchase Program was later terminated as of December 31, 2013.

115

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive loss, net

Accumulated other comprehensive loss, net, as of December 31, 2013 and 2012 was as follows:  

	December 31, 2013
	Unrealized Loss on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax		Accumulated Other Comprehensive Loss, Net
	($ in thousands)
Beginning balance as of January 1, 2013	$	24,650		$	—	$	24,650
Other comprehensive loss before reclassifications, net of tax benefit of $10.2 million (1)	(10,367		)	—		(10,367		)
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $2.3 million (2)	(15,153		)	—		(15,153		)
Other comprehensive loss, net of tax benefit of $12.5 million	(25,520		)	—		(25,520		)
Ending balance as of December 31, 2013	$	(870	)	$	—	$	(870	)

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

	December 31, 2012
	Unrealized Gain on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax			Accumulated Other Comprehensive Income, Net
	($ in thousands)
Beginning balance as of January 1, 2012	$	19,055		$	351		$	19,406
Other comprehensive income before reclassifications, net of tax benefit of $1.5 million (1)	7,303			—			7,303
Amounts reclassified from accumulated other comprehensive income, net of tax (benefit) expense of $(0.7) million and $350.5 thousand, respectively (2)	(1,708		)	(351		)	(2,059		)
Other comprehensive income (loss), net of tax (benefit) expense of $(2.2) million and $350.5 thousand, respectively	5,595			(351		)	5,244
Ending balance as of December 31, 2012	$	24,650		$	—		$	24,650

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

Note 10. Employee Benefit Plan

Our employees are eligible to participate in the CapitalSource 401(k) Plan (“401(k) Plan”), a defined contribution plan in accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended. During the years ended December 31, 2013, 2012 and 2011, we contributed $1.8 million, $2.1 million and $1.8 million, respectively, in matching contributions to the 401(k) Plan.

Note 11. Income Taxes

We provide for income taxes as a “C” corporation on income earned from operations. We are subject to federal, foreign, state and local taxation in various jurisdictions.

In 2009, we established a valuation allowance against a substantial portion of our net deferred tax assets where we determined that there was significant negative evidence with respect to our ability to realize such assets. Negative evidence we considered in making this determination included the history of operating losses and uncertainty regarding the realization of a portion of the deferred tax assets at future points in time. As of December 31, 2013 and 2012, the valuation allowance was $152.0 million and $128.6 million, respectively.

116

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During 2012, we reversed $358.1 million of the valuation allowance, and such reversal was recorded as a benefit in our income tax expenses. Each of the deferred tax assets was evaluated based on our evaluation of the available positive and negative evidence with respect to our ability to realize the deferred tax asset, including considering their associated character and jurisdiction. The decision to reverse a large portion of the valuation allowance was based on our evaluation of all positive and negative evidence. A cumulative loss position, such as we had for the previous three-year period ended December 31, 2011, is generally considered significant negative evidence in assessing the realizability of a deferred tax asset. However, significant positive evidence had developed which overcame this negative evidence such that, during the year ended December 31, 2012, management determined that it is more likely than not that a portion of the deferred tax asset will be realized. This determination was made not based upon a single event or occurrence, but based upon the accumulation of all positive and negative evidence including recent trends in our earnings and taxable income. Other positive evidence included the projection of future taxable income based on a recent history of positive earnings at the Bank, improved asset performance trends, substantial decline in the Parent Company's operations and assets, and one-time losses included in the three-year cumulative pre-tax loss (i.e., debt extinguishment loss). Additionally, we are no longer in a cumulative pre-tax loss position since the end of 2012.

A valuation allowance of $152.0 million remains in effect as of December 31, 2013 with respect to deferred tax assets where we believe sufficient evidence does not exist at this time to support a reduction in the allowance. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Current:
Federal	$	(52,836	)	$	21,467		$	(8,844	)
State	5,575			5,501			4,916
Foreign	22			237			(2,482		)
Total current	(47,239		)	27,205			(6,410		)
Deferred:
Federal	123,150			(306,065		)	32,785
State	6,126			(6,221		)	5,053
Foreign	—			—			5,514
Total deferred	129,276			(312,286		)	43,352
Income tax expense (benefit)	$	82,037		$	(285,081	)	$	36,942

For the year ended December 31, 2013 and 2012, we had $246.3 million and $205.5 million, respectively, of pre-tax income relating to our domestic operations. For the year ended December 31, 2011, we had $16.9 million of pre-tax income and $32.0 million of pre-tax loss that was attributable to foreign and domestic operations, respectively.

The reconciliations of the effective income tax rate and the federal statutory corporate income tax rate for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013		2012		2011
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	4.5		4.1		7.1
Foreign income/Repatriation	—		—		93.4
Valuation allowance	8.4		(186.8	)	(672.9	)
State rate change	(12.6	)	8.1		180.9
Other	(2.0	)	0.9		111.5
Effective income tax rate	33.3	%	(138.7	)%	(245.0	)%

117

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement and income tax purposes. The components of deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013			2012
	($ in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	47,314		$	38,922
Net unrealized losses on investments	30,274			62,557
Net unrealized losses on other real estate owned	5,608			7,720
Net operating losses - federal	187,733			166,624
Net operating losses - state, net of federal tax benefit	65,844			46,094
Capital losses - federal and state	38,649			23,813
Foreign tax credit	28,616			28,616
Share-based compensation awards	7,841			7,915
Non-accrual interest	8,832			50,899
Other	18,174			114,046
Total deferred tax assets	438,885			547,206
Valuation allowance	(151,980		)	(128,568		)
Total deferred tax assets, net of valuation allowance	286,905			418,638
Deferred tax liabilities:
Mark-to-market on loans	4,649			16,074
Other	29,988			40,281
Total deferred tax liabilities	34,637			56,355
Net deferred tax assets	$	252,268		$	362,283

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences.

We have net operating loss carryforwards for federal and state income tax purposes that can be utilized to offset future taxable income. If we were to undergo a change in ownership of more than 50% of our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code (the “Code”), our ability to utilize our net operating loss carryforwards, certain built-in losses and other tax attributes recognized in years after the ownership change generally would be limited. The annual limit would equal the product of (a) the applicable long term tax exempt rate and (b) the value of the relevant taxable entity's capital stock immediately before the ownership change. These change of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more (the "5-Percent Shareholders") of a company's outstanding stock, including certain public groups of stockholders as set forth under Section 382 of the Code, and those arising from new stock issuances and other equity transactions. The determination of whether an ownership change occurs is complex and not entirely within our control. No assurance can be given as to whether in the future we will undergo an ownership change under Section 382 of the Code.

In July 2013, the Board of Directors adopted a tax benefit preservation plan which was designed to preserve the net operating loss carryforwards and other tax attributes of the Company. The plan is intended to discourage persons from becoming 5-Percent Shareholders and existing 5-Percent Shareholders from increasing their beneficial ownership of shares.

As of December 31, 2013 and 2012, we had net operating loss carryforwards of $546.2 million and $487.8 million, respectively, for federal tax purposes, which are available to offset future taxable income. If not used, these carryforwards will begin to expire in 2029 and would fully expire in 2031. To the extent net operating loss carryforwards, when realized, relate to non-qualified stock option and restricted stock deductions, the resulting benefits will be credited to stockholders' equity. As of December 31, 2013 and 2012, we had state net operating loss carryforwards of $1.2 billion and $0.7 billion, respectively, which will expire in varying amounts beginning in 2013 through 2033.

118

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, we had capital loss carryforwards of $94.1 million and $60.7 million, respectively, for federal tax purposes which are available to offset future capital gains. If not used, these carryforwards will begin to expire in 2015 and will fully expire in 2018.

As of December 31, 2013 and 2012, we have foreign tax credit carryforwards of $28.6 million for federal tax purposes, which are available to offset future federal income tax. If not used, these carryforwards will begin to expire in 2016 and would fully expire in 2021.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012, are as follows:

	Year Ended December 31,
	2013			2012
	($ in thousands)
Balance as of the beginning of year	$	108,101		$	75,445
Additions for tax positions of prior years	13,715			34,698
Reductions for tax positions of prior years	(31,985		)	(97		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(557		)	(1,945		)
Reductions for tax positions as a result of settlements	(71,588		)	—
Balance as of the end of year	$	17,686		$	108,101

As of December 31, 2013 and 2012, our unrecognized tax benefit that may affect the effective tax rate was $2.1 million and $2.7 million, respectively, in each period. Due to potential for resolution of federal and state examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by as much as $1.8 million; however, we have sufficient net operating losses and other adjustments to offset these potential tax liabilities.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. For the years ended December 31, 2013, 2012 and 2011, we recognized $(1.0) million, $1.8 million and $0.5 million in interest (benefit) expense and penalties, respectively. We had $2.6 million and $3.6 million accrued for the payment of interest and penalties as of December 31, 2013 and 2012, respectively.

We file income tax returns with the United States and various state, local and foreign jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2009 through 2012. We are currently under examination by certain state jurisdictions for the tax years 2006 to 2011.

Note 12. Net Income (Loss) Per Share

The computations of basic and diluted net income (loss) per share attributable to CapitalSource Inc. for the years ended December 31, 2013, 2012 and 2011, respectively, were as follows:

	Year Ended December 31,
	2013	2012	2011
	($ in thousands, except per share data)
Net income (loss):
Net income (loss)	164,292	490,610	(52,023	)
Average shares - basic	195,189,983	223,928,583	302,998,615
Effect of dilutive securities:
Option shares	2,565,037	2,465,061	—
Stock units and unvested restricted stock	2,696,879	3,761,345	—
Average shares - diluted	200,451,899	230,154,989	302,998,615
Basic net income (loss) per share	0.84	2.19	(0.17	)
Diluted net income (loss) per share	0.82	2.13	(0.17	)

119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The weighted average shares that have an antidilutive effect in the calculation of diluted net income (loss) per share attributable to CapitalSource Inc. and have been excluded from the computations above were as follows:

	Year Ended December 31,
	2013	2012	2011
Stock units	—	1,858	2,956,796
Stock options	473,666	1,256,195	7,242,390
Shares issuable upon conversion of convertible debt	—	—	1,069,517
Unvested restricted stock	—	52,552	4,781,650

Note 13. Stock-Based Compensation

Equity Incentive Plan

A total of 66.0 million shares of common stock have been reserved for issuance under the CapitalSource Inc. Third Amended and Restated Equity Incentive Plan (the “Plan”). Any shares that may be issued under the Plan to any person pursuant to an option or stock appreciation right (an “SAR”) are counted against this limit as one share for every one share granted. Any shares that may be issued under the Plan to any person, other than pursuant to an option or SAR, are counted against this limit as one and one-half shares for every one share granted.

As of December 31, 2013, there were 7.7 million shares subject to outstanding grants and 23.2 million shares remaining available for future grants under the Plan. The Plan will expire on the earliest of (1) the date as of which the Board, in its sole discretion, determines that the Plan shall terminate, (2) following certain corporate transactions such as a merger or sale of our assets if the Plan is not assumed by the surviving entity, (3) at such time as all shares of common stock that may be available for purchase under the Plan have been issued or (4) April 29, 2020. The Plan is intended to give eligible employees, members of the Board, and our consultants and advisors awards that are linked to the performance of our common stock.

Total compensation cost recognized in income pursuant to the Plan was $38.3 million, $34.1 million and $15.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock Options

Stock option activity for the year ended December 31, 2013 was as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
						($ in thousands)
Outstanding as of December 31, 2012	6,364,661		$	5.41	5.67	$	19,626
Granted	—		—
Exercised	(1,774,824	)	3.31
Expired	(154,686	)	15.59
Forfeited	—		—
Outstanding as of December 31, 2013	4,435,151		5.90		6.23	39,606
Vested as of December 31, 2013	3,673,901		5.78		5.85	33,582
Exercisable as of December 31, 2013	3,673,901		5.78		5.85	33,582

For the years ended December 31, 2013, no options were granted. For the years ended December 31, 2012 and 2011, the weighted average grant date fair values of options granted were $7.58 and $4.18, respectively. The total intrinsic values of options exercised during the years ended December 31, 2013, 2012 and 2011, were $11.4 million, $6.1 million and $1.5 million, respectively. As of December 31, 2013 and 2012, the total unrecognized compensation cost related to unvested options granted pursuant to the Plan was $0.9 million and $2.7 million, respectively. This cost is expected to be recognized over a weighted average period of 0.63 and 1.56 years, respectively.

120

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For awards containing only service and/or performance based vesting conditions, we use the Black-Scholes option-pricing model to estimate the fair value of each option grant on its grant date. The assumptions used in this model for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013	2012	2011
Dividend yield	0.28%	0.53%	0.57%
Expected volatility	33.06%	63.83%	87.80%
Risk-free interest rate	1.18%	0.52%	1.50%
Expected life	3.8 years	3.9 years	4.0 years

The dividend yield is computed based on annualized ordinary dividends and the average share price for the period. The expected volatility is based on the historical volatility of CapitalSource Inc.'s stock price in the most recent period that is equal to the expected term of the options being valued. The risk-free interest rate is the U.S. Treasury yield curve in effect at the time of grant based on the expected life of the options. The expected life of our options granted represents the period of time the options are expected to be outstanding.

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards for the year ended December 31, 2013, were as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2012	3,781,731		$6.44
Granted	1,294,388		9.68
Vested	(1,699,284	)	6.37
Forfeited	(77,514	)	6.67
Outstanding as of December 31, 2013(1)	3,299,321		7.74

______________________

(1) Includes 0.8 million and 0.2 million vested and unvested restricted stock units, respectively.

The fair value of unvested restricted stock awards and restricted stock units is determined based on the closing trading price of our common stock on the grant date, in accordance with the Plan. The weighted average grant date fair value of restricted stock awards and restricted stock units granted during the years ended December 31, 2013, 2012 and 2011 was $9.68, $6.99 and $6.30, respectively.

The total fair value of restricted stock awards and restricted stock units that vested during the years ended December 31, 2013, 2012 and 2011 was $20.3 million, $30.4 million and $8.9 million, respectively. As of December 31, 2013 and 2012, the total unrecognized compensation cost related to unvested restricted stock awards and restricted stock units granted pursuant to the Plan was $13.7 million and $18.0 million, respectively, which is expected to be recognized over a weighted average period of 1.42 and 1.80 years, respectively.

Note 14. Bank Regulatory Capital

The Bank is subject to various regulatory capital requirements established by federal and state regulatory agencies. Failure to meet minimum capital requirements can result in regulatory agencies initiating certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets and liabilities as calculated under regulatory accounting practices. The Bank's capital amounts and other requirements are also subject to qualitative judgments by its regulators about risk weightings and other factors.

121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Under prompt corrective action regulations, a “well-capitalized” bank must have a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a Tier 1 leverage ratio of 5%. Under its approval order from the FDIC, the Bank must be “well-capitalized” and at all times have a minimum total risk-based capital ratio of 15%, a minimum Tier-1 risk-based capital ratio of 6% and a minimum Tier 1 leverage ratio of 5%. the Bank's ratios and the minimum requirements as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013								2012
	Actual				Minimum Required				Actual				Minimum Required
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
Tier-1 Leverage	$	1,088,870	13.88	%	$	393,342	5.00	%	$	933,837	13.06	%	$	357,443	5.00	%
Tier-1 Risk-Based Capital	1,088,870		15.03		434,562		6.00		933,837		15.24		367,651		6.00
Total Risk-Based Capital	1,179,666		16.29		1,086,405		15.00		1,010,746		16.50		919,128		15.00

Note 15. Commitments and Contingencies

We have non-cancelable operating leases for office space and office equipment. The leases expire over the next eleven years and contain provisions for certain annual rental escalations.

As of December 31, 2013, future minimum lease payments under non-cancelable operating leases, including leases held at the Bank, were as follows ($ in thousands):

2014	$	11,715
2015	9,154
2016	7,660
2017	6,738
2018	6,025
Thereafter	33,831
Total(1)	$	75,123

______________________

(1) Minimum lease payments have not been reduced by minimum sublease rentals of $16.1 million due in the future under non-cancelable subleases.

Occupancy expense was $14.6 million, $16.8 million and $15.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, we had committed credit facilities to our borrowers of approximately $8.0 billion and $7.4 billion of which approximately $1.1 billion and $1.0 billion were unfunded, respectively. As of December 31, 2013 and 2012, $1.0 billion and $0.9 billion of the total unfunded commitments were extended by the Bank, respectively. As of December 31, 2013 and 2012, $28.0 million and $88.5 million, of the total unfunded commitments were extended by the Parent Company, respectively. Our failure to satisfy our full contractual funding commitment to one or more of our borrower's could create a breach of contract and lender liability for us and damage our reputation in the marketplace, which could have a material adverse effect on our business.

We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. As of December 31, 2013 and 2012, we had issued $43.4 million and $54.2 million, respectively, in stand-by letters of credit which expire at various dates over the next six years. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation and would seek repayment of that financial obligation from the borrower, and we have posted cash and investments securities as collateral under these arrangements.

From time to time we are party to legal proceedings. We do not believe that any currently pending or threatened proceeding, if determined adversely to us, would have a material adverse effect on our business, financial condition or results of operations, including our cash flows.

Note 16. Related Party Transactions

We have from time to time in the past, and expect that we may from time to time in the future, enter into transactions with companies in which our directors, executive officers, nominees for directors, 5% or more beneficial owners or certain of their affiliates have material interests. Our Board, or a committee of disinterested directors, is charged with considering and approving

122

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

these types of transactions. Management believes that each of our related party loans have been, and will continue to be, subject to the same due diligence, underwriting and rating standards as the loans that we make to unrelated third parties.

As of December 31, 2013 and 2012, we had no loans committed or outstanding to such entities. For the year ended December 31, 2013, we recognized no interest and fees from these loans. For the years ended December 31, 2012 and 2011, we recognized $0.1 million and $0.6 million, respectively, in interest and fees from these loans.

Note 17. Derivative Instruments

We are exposed to certain risks related to our ongoing business operations. The primary risks managed through the use of derivative instruments are interest rate risk and foreign exchange risk. We do not enter into derivative instruments for speculative purposes. As of December 31, 2013 and 2012, none of our derivatives were designated as hedging instruments pursuant to GAAP.

We have entered into forward exchange contracts to hedge foreign currency denominated loans we originate against foreign currency fluctuations. The objective is to manage the uncertainty of future foreign exchange rate fluctuations. These forward exchange contracts provide for a fixed exchange rate which has the effect of reducing or eliminating changes to anticipated cash flows to be received from foreign currency-denominated loan transactions as the result of changes to exchange rates.

In connection with our term debt securitizations which were extinguished as of September 30, 2013, we had entered into basis swaps to eliminate risk between our LIBOR-based securitizations and the prime-based loans pledged as collateral for that debt. Those basis swaps modified our exposure to interest rate risk by converting our prime rate loans to a one-month LIBOR rate. The objective of that swap activity was to protect us from risk that interest collected under the prime rate loans was not sufficient to service the interest due under the one-month LIBOR-based term debt.

Derivative instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk exposure consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures. We obtain collateral from certain counterparties and monitor all exposure and collateral requirements daily. We continually monitor the fair value of collateral received from counterparties and may request additional collateral from counterparties or return collateral pledged as deemed appropriate. Our agreements generally include master netting agreements whereby we are entitled to settle our individual derivative positions with the same counterparty on a net basis upon the occurrence of certain events. As of December 31, 2013, the gross positive fair value of derivative financial instruments was $1.4 million. As a result of our master netting arrangements, our exposure was reduced to $0.9 million as of December 31, 2013.

We report our derivatives at fair value on a gross basis irrespective of our master netting arrangements. We held no collateral against our derivatives in asset positions as of December 31, 2013 and 2012. For derivatives that were in a liability position, we had posted no collateral as of December 31, 2013 and $1.5 million collateral as of December 31, 2012. As of December 31, 2013, we also posted collateral of $10.0 million related to counterparty requirements for foreign exchange contracts at the Bank.

During the year endedDecember 31, 2013, we had $4.7 million of interest rate swaps that were terminated in conjunction with calling the two remaining securitizations.

123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2013 and 2012, the notional amounts and fair values of our various derivative instruments as well as their locations in our consolidated balance sheets were as follows:

	December 31,
	2013						2012
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Other Assets		Other Liabilities				Other Assets		Other Liabilities
	($ in thousands)						($ in thousands)
Interest rate contracts	$	—	$	—	$	—	$	6,712	$	—	$	11
Foreign exchange contracts	54,121		1,379		510		34,553		—		471
Total	$	54,121	$	1,379	$	510	$	41,265	$	—	$	482

The gains and losses on our derivative instruments recognized during the years ended December 31, 2013, 2012 and 2011 as well as the locations of such gains and losses in our audited consolidated statements of operations were as follows:

	Location	Gain (Loss) Recognized in Income in Year Ended December 31,
		2013			2012			2011
		($ in thousands)
Interest rate contracts	Gain (loss) on derivatives, net	$	(10	)	$	338		$	(6,120	)
Foreign exchange contracts	Gain (loss) on derivatives, net	(286		)	(1,162		)	(693		)
Total		$	(296	)	$	(824	)	$	(6,813	)

Note 18. Credit Risk

In the normal course of business, we utilize various financial instruments to manage our exposure to interest rate and other market risks. These financial instruments, which consist of derivatives and credit-related arrangements, involve, to varying degrees, elements of credit and market risk in excess of the amounts recorded on our audited consolidated balance sheets in accordance with applicable accounting standards.

Credit risk is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. Market risk is the possibility that a change in market prices may cause the value of a financial instrument to decrease or become more costly to settle. The contract or notional amounts of financial instruments, which are not included in our audited consolidated balance sheets, do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments.

We manage credit risk of our derivatives and credit-related arrangements by limiting the total amount of arrangements outstanding by an individual counterparty, by obtaining collateral based on management's assessment of the client and by applying uniform credit standards maintained for all activities with credit risk.

124

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Contract or notional amounts and the credit risk amounts for derivatives and credit-related arrangements as of December 31, 2013 and 2012, were as follows:

	December 31,
	2013				2012
	Contract or Notional Amount		Credit Risk Amount		Contract or Notional Amount		Credit Risk Amount
			($ in thousands)
Derivatives:
Interest rate contracts	$	—	$	—	$	6,712	$	—
Foreign exchange contracts	54,121		870		34,553		—
Total derivatives	$	54,121	$	870	$	41,265	$	—
Credit-related arrangements:
Commitments to extend credit	$	1,062,669	$	17,938	$	1,019,920	$	14,153
Commitments to extend letters of credit	59,926		7,433		95,927		8,737
Total credit-related arrangements	$	1,122,595	$	25,371	$	1,115,847	$	22,890

Derivatives

Derivative instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk exposure consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures. We obtain collateral from certain counterparties and monitor all exposure and collateral requirements daily. We continually monitor the fair value of collateral received from counterparties and may request additional collateral from counterparties or return collateral pledged as deemed appropriate. Our agreements generally include master netting agreements whereby we are entitled to settle our individual derivative positions with the same counterparty on a net basis upon the occurrence of certain events. As of December 31, 2013, the gross positive fair value of derivative financial instruments was $1.4 million.

We report our derivatives at fair value on a gross basis irrespective of our master netting arrangements. We held no collateral against our derivatives in asset positions as of December 31, 2013 and 2012, respectively. We posted no collateral for derivatives that were in a liability position as of December 31, 2013. For derivatives that were in a liability position, we posted collateral of $1.5 million as of December 31, 2012. As of December 31, 2013, we also posted collateral of $10.0 million related to counterparty requirements for foreign exchange contracts at the Bank.

During the year ended December 31, 2013, we terminated interest rate swaps of $9.8 million which were in a liability position. As a result of these terminations, we received $0.3 million, net of collateral held and posted.

Credit-Related Arrangements

In our normal course of business, we engage in lending activities with borrowers primarily throughout the United States. As of December 31, 2013, the single largest industry concentration in our outstanding loan balance was health care and social assistance, which represented approximately 22.2% of the outstanding loan portfolio. As of December 31, 2013, taken in the aggregate, lender finance (primarily timeshare) loans were our largest loan concentration by sector and represented approximately 16% of our loan portfolio.

As of December 31, 2013, real estate and real estate - construction loans represented approximately 43% of our outstanding loan portfolio. Among real estate and real estate - construction loans, the largest property type concentration was the multifamily category, comprising approximately 10%, and the largest geographical concentration was in California, comprising approximately 9% of this loan portfolio.

Note 19. Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain of our assets and liabilities and to determine fair value disclosures. Investment securities, available-for-sale, warrants and derivatives are recorded at fair value on a recurring basis. In addition, we may be required, in specific circumstances, to measure certain of our assets at fair value on a nonrecurring basis, including investment securities, held-to-maturity, loans held for sale, loans held for investment, REO and certain other investments.

Fair value is based on quoted market prices or by using market based inputs where available. Given the nature of some of our assets and liabilities, clearly determinable market based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to many of our valuation estimates used, the fair values we have disclosed may not equal prices that we may ultimately realize if the assets are sold or the liabilities settled with third parties.

125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Below is a description of the valuation methods for our assets and liabilities recorded at fair value on either a recurring or nonrecurring basis. While we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets and liabilities could result in a different estimate of fair value at the measurement date.

Assets and Liabilities

Cash

Cash and cash equivalents and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market.

Investment Securities, Available-for-Sale

Investment securities, available-for-sale, consist of Agency MBS, Non-agency MBS, agency asset-backed securities, non-agency asset-backed securities and CLOs that are carried at fair value on a recurring basis and classified as available-for-sale securities. Fair value adjustments on these investments are generally recorded through other comprehensive income. However, if impairment on an investment, available-for-sale is deemed to be other-than-temporary, all or a portion of the fair value adjustment may be reported in earnings. The securities are valued using quoted prices from external market participants, including pricing services. If quoted prices are not available, the fair value is determined using quoted prices of securities with similar characteristics or independent pricing models, which utilize observable market data such as benchmark yields, reported trades and issuer spreads. These securities are primarily classified within Level 2 of the fair value hierarchy. No other available-for-sale securities were transferred from or into Level 3 during the years ending December 31, 2013 or 2012.

Investment Securities, Held-to-Maturity

Investment securities, held-to-maturity consists of CMBS. These securities are generally recorded at amortized cost, but are recorded at fair value on a non-recurring basis to the extent we record an OTTI on the securities. Fair value measurements are determined using quoted prices from external market participants, including pricing services. If quoted prices are not available, the fair value is determined using quoted prices of securities with similar characteristics or independent pricing models, which utilize observable market data such as benchmark yields, reported trades and issuer spreads.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value, with fair value adjustments recorded on a nonrecurring basis. The fair value is determined using actual market transactions when available. In situations when market transactions are not available, we use the income approach through internally developed valuation models to estimate the fair value. This requires the use of significant judgment surrounding discount rates and the timing and amounts of future cash flows. Key inputs to these valuations also include costs of completion and unit settlement prices for the underlying collateral of the loans. Fair values determined through actual market transactions are classified within Level 2 of the fair value hierarchy, while fair values determined through internally developed valuation models are classified within Level 3 of the fair value hierarchy.

Loans Held for Investment

Loans held for investment are recorded at outstanding principal, net of any deferred fees and unamortized purchase discounts or premiums and net of an allowance for loan and lease losses. We may record fair value adjustments on a nonrecurring basis when we have determined that it is necessary to record a specific reserve against a loan and we measure such specific reserve using the fair value of the loan's collateral. To determine the fair value of the collateral, we may employ different approaches depending on the type of collateral.

In cases where our collateral is a fixed or other tangible asset, our determination of the appropriate method to use to measure fair value depends on several factors including the type of collateral that we are evaluating, the age of the most recent appraisal performed on the collateral, and the time required to obtain an updated appraisal. Typically, we obtain an updated third-party appraisal from an external valuation specialist or use prior or pending transactions to estimate fair value. We may or may not adjust these amounts based on our own internally developed judgments and estimates. These adjustments typically include discounts for lack of marketability and foreign property discounts. We may also utilize industry valuation benchmarks such as revenue multiples for operating commercial properties. Significant decreases to any of these inputs would result in decreases in the fair value measurements. For certain loans collateralized by residential real estate, we utilize discounted cash flow techniques to determine the fair value of the underlying collateral. Significant unobservable inputs used in these fair value measurements include recovery rates and marketability discounts. Significant decreases in recovery rates or significant increases in marketability discounts would result in significant decreases in the fair value measurements.

An impaired loan is considered collateral dependent if repayment of the loan is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.

126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For impaired collateral dependent commercial real estate loans, we typically obtain an updated appraisal as of the date the loan is deemed impaired to measure the amount of impairment. In situations where we are unable to obtain a timely updated appraisal, we perform internal valuations which utilize assumptions and calculations similar to those customarily utilized by third party appraisers and consider relevant property specific facts and circumstances. In certain instances, our internal assessment of value may be based on adjustments to outdated appraisals by analyzing the changes in local market conditions and asset performance since the appraisals were performed. The outdated appraisal values may be discounted by percentages that are determined by analyzing changes in local market conditions since the dates of the appraisals as well as by consulting databases, comparable market sale prices, brokers' opinions of value and other relevant data. We do not make adjustments that increase the values indicated by outdated appraisals by using higher recent sale comparisons.

Impaired collateral dependent commercial real estate loans for which ultimate collection depends solely on the sale of the collateral are charged off to the estimated fair value of the collateral less estimated costs to sell. For certain of these loans, we charged off to an amount different than the value indicated by the most recent appraisal; this was primarily the result of the appraisal being outdated. As of December 31, 2013 and 2012, we charged off an additional $30.2 million, net, and $32.2 million, net, respectively, in loan balances compared with amounts that would have been charged off based on the most recent appraised values of the collateral.

Our policy on updating appraisals related to these originated impaired collateral dependent commercial real estate loans generally is to obtain current appraisals subsequent to the impairment date if there are significant changes to the underlying assumptions from the most recent appraisal. Some factors that could cause significant changes include the passage of more than twelve months since the time of the last appraisal; the volatility of the local market; the availability of financing; the inventory of competing properties; new improvements to, or lack of maintenance of, the subject property or competing surrounding properties; a change in zoning; environmental contamination; or failure of the project to meet material assumptions of the original appraisal. This policy for updating appraisals does not vary by commercial real estate loan type. We generally consider appraisals to be current if they are dated within the past twelve months. However, we may obtain an updated appraisal on a more frequent basis if in our determination there are significant changes to the underlying assumptions from the most recent appraisal.

As of December 31, 2013, $31.9 million of our collateral dependent loans had an appraisal older than twelve months. The fair value of the collateral for these loans was determined through inputs outside of appraisals, including actual and comparable sales transactions, broker price opinions and other relevant data.

We continue to monitor collateral values on partially charged-off impaired collateral dependent commercial real estate loans and may record additional charge offs upon receiving updated appraisals. We do not return such partially charged-off loans to performing status, except in limited circumstances when such loans have been formally restructured and have met key performance criteria including compliance with restructured payment terms. We do not return such partially charged-off loans to performing status based solely on the results of appraisals.

In cases where our collateral is not a fixed or tangible asset, we typically use industry valuation benchmarks such as Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") multiples to determine the value of the asset or the underlying enterprise. Decreases in these benchmarks would result in significant decreases in the fair value measurements.

When fair value adjustments are recorded on loans held for investment, we typically classify them in Level 3 of the fair value hierarchy.

We determine the fair value estimates of loans held for investment for fair value disclosures primarily using external valuation specialists. These valuation specialists group loans based on risk rating and collateral type, and the fair value is estimated utilizing discounted cash flow techniques. The valuations take into account current market rates of return, contractual interest rates, maturities and assumptions regarding expected future cash flows. Within each respective loan grouping, current market rates of return are determined based on quoted prices for similar instruments that are actively traded, adjusted as necessary to reflect the illiquidity of the instrument. This approach requires the use of significant judgment surrounding current market rates of return, liquidity adjustments and the timing and amounts of future cash flows.

Other Investments

Other investments accounted for under the cost or equity methods of accounting are carried at fair value on a nonrecurring basis to the extent that they are determined to be other-than-temporarily impaired during the period. As there is rarely an observable price or market for such investments, we determine fair value using internally developed models. Our models utilize industry valuation benchmarks, such as multiples of net revenue or EBITDA, to determine a value for the underlying enterprise. Significant decreases to these valuation benchmarks would result in significant decreases in the fair value measurements. We reduce this value by the value of debt outstanding to arrive at an estimated equity value of the enterprise. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Fair value measurements related to these investments are typically classified within Level 3 of the fair value hierarchy.

127

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FHLB SF Stock

Our investment in FHLB SF stock is recorded at historical cost. FHLB SF stock does not have a readily determinable fair value, but may be sold back to the FHLB SF at its par value with stated notice. The investment in FHLB SF stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB SF and its overall financial condition. No impairment losses on our investment in FHLB SF stock have been recorded through December 31, 2013.

Derivative Assets and Liabilities

Derivatives are carried at fair value on a recurring basis and primarily relate to interest rate swaps, caps, floors and forward exchange contracts which we enter into to manage interest rate risk and foreign exchange risk. Our derivatives are principally traded in over-the-counter markets where quoted market prices are not readily available. Instead, the fair value of derivatives is measured using market observable inputs such as interest rate yield curves, volatilities and basis spreads. We also consider counterparty credit risk in valuing our derivatives. We typically classify our derivatives in Level 2 of the fair value hierarchy.

Real Estate Owned and Other Foreclosed Assets ("REO")

REO is initially recorded at its estimated fair value less costs to sell at the time of foreclosure if the related REO is classified as held for sale. REO held for sale is carried at the lower of its carrying amount or fair value subsequent to the date of foreclosure, with fair value adjustments recorded on a nonrecurring basis. REO held for use is recorded at its carrying amount, net of accumulated depreciation, with fair value adjustments recorded on a nonrecurring basis if the carrying amount of the real estate is not recoverable and exceeds its fair value. When available, the fair value of REO is determined using actual market transactions. When market transactions are not available, the fair value of REO is typically determined based upon recent appraisals by third parties. We may or may not adjust these third party appraisal values based on our own internally developed judgments and estimates. These adjustments typically include discounts for lack of marketability and foreign property discounts. Significant increases to these inputs would result in significant decreases in the fair value measurements. To the extent that market transactions or third party appraisals are not available, we use the income approach through internally developed valuation models to estimate the fair value. This requires the use of significant judgment surrounding discount rates and the timing and amounts of future cash flows. Fair values determined through actual market transactions are classified within Level 2 of the fair value hierarchy while fair values determined through third party appraisals and through internally developed valuation models are classified within Level 3 of the fair value hierarchy.

Deposits

Deposits are carried at historical cost. The carrying amounts of deposits for savings and money market accounts and brokered certificates of deposit are deemed to approximate fair value as they either have no stated maturities or short-term maturities. Certificates of deposit are grouped by maturity date, and the fair value is estimated utilizing discounted cash flow techniques. The interest rates applied are rates currently being offered for similar certificates of deposit within the respective maturity groupings.

Term Debt

Term debt comprised our term debt securitizations as of December 31, 2012. For disclosure purposes, the fair values of our securitizations were determined based on actual prices from recent third party purchases of our debt when available and based on indicative price quotes received from various market participants when recent transactions have not occurred.

Other Borrowings

Our other borrowings comprise subordinated debt and FHLB borrowings. For disclosure purposes, the fair value of our subordinated debt is determined based on recent third party purchases of our debt when available and based on indicative price quotes received from market participants when recent transactions have not occurred. The carrying value of our FHLB borrowings is deemed to approximate fair value.

Off-Balance Sheet Financial Instruments

Loan Commitments and Letters of Credit

Loan commitments and letters of credit generate ongoing fees at our current pricing levels, which are recognized over the term of the commitment period. For disclosure purposes, the fair value is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current creditworthiness of the counterparties and current market conditions. In addition, for loan commitments, the market rates of return utilized in the valuation of the loans held for investment as described above are applied to this analysis to reflect current market conditions.

128

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Carried at Fair Value on a Recurring Basis

Assets and liabilities have been grouped in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2013 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	784,240	$	—	$	784,240	$	—
Assets-backed securities	3,169		—		3,169		—
Collateralized loan obligation	47,337		—		47,337		—
Non-agency MBS	20,203		—		20,203		—
SBA asset-backed securities	15,533		—		15,533		—
Total Investment securities, available-for-sale	870,482		—		870,482		—
Derivative assets	1,380		—		1,380		—
Total assets	$	871,862	$	—	$	871,862	$	—
Liabilities
Derivative liabilities	$	510	$	—	$	510	$	—

Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2012 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	983,521	$	—	$	983,521	$	—
Asset-backed securities	9,592		—		9,592		—
Collateralized loan obligation	26,250		—		—		26,250
Non-agency MBS	41,347		—		41,347		—
SBA asset-backed securities	18,315		—		18,315		—
Total assets	$	1,079,025	$	—	$	1,052,775	$	26,250
Liabilities
Derivative liabilities	$	482	$	—	$	482	$	—

129

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of the changes in the fair values of assets carried at fair value for the year ended December 31, 2013 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt		Collateralized Loan Obligation			Municipal Bonds		Non-agency MBS		Total			Warrants		Total Assets
	($ in thousands)
Balance as of January 1, 2013	$	—	$	26,250		$	—	$	—	$	26,250		$	—	$	26,250
Realized and unrealized gains (losses):
Included in income	—		56,242			—		—		56,242			—		56,242
Included in other comprehensive income, net	—		(12,832		)	—		—		(12,832		)	—		(12,832		)
Total realized and unrealized gains (losses)	—		43,410			—		—		43,410			—		43,410
Transfers to/from Level 3:
Transfers into Level 3	—		—			—		—		—			—		—
Transfers out of Level 3	—		—			—		—		—			—		—
Total Level 3 transfers	—		—			—		—		—			—		—
Sales and settlements:
Sales	—		(66,673		)	—		—		(66,673		)	—		(66,673		)
Settlements	—		(2,987		)	—		—		(2,987		)	—		(2,987		)
Total sales and settlements	—		(69,660		)	—		—		(69,660		)	—		(69,660		)
Balance as of December 31, 2013	$	—	$	—		$	—	$	—	$	—		$	—	$	—

A summary of the changes in the fair values of assets carried fair value for the year ended December 31, 2012 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt			Collateralized Loan Obligation			Municipal Bonds (1)			Non-agency MBS			Total			Warrants			Total Assets
	($ in thousands)
Balance as of January 1, 2012	$	700		$	17,763		$	3,235		$	—		$	21,698		$	193		$	21,891
Realized and unrealized gains (losses):
Included in income	11			2,954			(1,246		)	1,353			3,072			5			3,077
Included in other comprehensive income, net	(45		)	6,985			—			—			6,940			—			6,940
Total realized and unrealized gains (losses)	(34		)	9,939			(1,246		)	1,353			10,012			5			10,017
Transfers to/from Level 3
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	(666		)	—			—			—			(666		)	—			(666		)
Total Level 3 transfers	(666		)	—			—			—			(666		)	—			(666		)
Sales and issuances:
Sales	—			—			—			—			—			(198		)	(198		)
Settlements	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	—			(4,794		)
Total sales and issuances	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	(198		)	(4,992		)
Balance as of December 31, 2012	$	—		$	26,250		$	—		$	—		$	26,250		$	—		$	26,250

______________________

(1) In September 2012, the municipal bond was settled as the Company secured the collateral; the collateral was transferred to other assets at its fair value less cost of sales of $2.0 million.

130

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Realized and unrealized gains and losses on assets and liabilities classified in Level 3 of the fair value hierarchy included in income for the year ended December 31, 2013 and 2012, reported in interest income and (loss) gain on investments, net were as follows:

	Interest Income				(Loss) Gain on Investments, Net
	Year Ended December 31,
	2013		2012		2013		2012
	($ in thousands)
Total gains (losses) included in earnings for the period	$	3,036	$	4,498	$	53,205	$	(1,421	)
Unrealized gains (losses) relating to assets still held at reporting date	—		3,134		—		(180		)

Assets Carried at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write downs of individual assets. The table below provides the fair values of those assets, excluding related transaction costs, for which nonrecurring fair value adjustments were recorded as of December 31, 2013 and 2012, classified by their position in the fair value hierarchy.

	December 31,
	2013								2012
	Fair Value Measurement as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)								($ in thousands)
Assets
Loans held for sale	$	—	$	—	$	—	$	—	$	1,000	$	—	$	1,000	$	—
Loans held for investment	1,883		—		—		1,883		9,287		—		—		9,287
Investments carried at cost	1,311		—		1,311		—		597		—		571		26
Real estate owned	1,793		—		1,315		478		6,178		—		1,844		4,334
Total assets	$	4,987	$	—	$	2,626	$	2,361	$	17,062	$	—	$	3,415	$	13,647

The following table presents the net losses of the above assets resulting from nonrecurring fair value adjustments for the year ended December 31, 2013 and 2012:

	December 31,
	2013		2012
	($ in thousands)
Assets
Loans held for sale	$	—	$	198
Loans held for investment	2,041		25,981
Investments carried at cost	189		5,486
Real estate owned	1,365		5,681
Total net loss from nonrecurring measurements	$	3,595	$	37,346

131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Significant Unobservable Inputs and Valuation Techniques of Level 3 Fair Value Measurements

For our fair value measurements classified in Level 3 of the fair value hierarchy as of December 31, 2013 a summary of the significant unobservable inputs and valuation techniques is as follows:

	Fair Value Measurement as of December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	($ in thousands)
Assets
Loans held for investment
Services	754		Income Approach	Capitalization Rate	40.0%
Commercial Real Estate	1,129		Market and Income Approach	Price Per Square Foot	$22 - $195 ($41)
				Room Revenue Multiple	2.00x - 2.25x (2.05x)
				Marketability Discount	10% - 51% (21%)
				Capitalization Rate	9.0%
Total loans held for investment	1,883
Real estate owned	478		Market Approach	Marketability Discount	18% - 44% (42%)
				Price Per Square Foot	$47.50
				Room Revenue Multiple	1.75x
Total assets as of December 31, 2013	$	2,361

132

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of our financial instruments are described above.

The table below provides fair value estimates for our financial instruments as of December 31, 2013 and 2012, excluding financial assets and liabilities which are recorded at fair value on a recurring basis.

	December 31,
	2013										2012
	Carrying Value		Fair Value								Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total
	($ in thousands)
Assets:
Cash and cash equivalents	$	455,799	$	455,799	$	—	$	—	$	455,799	$	299,086	$	299,086	$	—	$	—	$	299,086
Restricted cash	58,653		58,653		—		—		58,653		104,044		104,044		—		—		104,044
Loans held for sale	—		—		—		—		—		22,719		—		22,723		—		22,723
Loans held for investment, net	6,663,969		—		—		6,654,877		6,654,877		6,021,957		—		—		5,953,226		5,953,226
Investments carried at cost	17,797		—		2,375		40,599		42,974		23,963		—		—		61,742		61,742
Investments accounted for under the equity method	34,327		—		12,414		22,500		34,914		36,400		1,087		12,372		24,055		37,514
Investment securities, held-to-maturity	74,369		—		75,535		—		75,535		108,233		—		111,388		—		111,388
Liabilities:
Deposits	6,127,690		876,788		5,257,729		—		6,134,517		5,579,270		962,851		4,626,715		—		5,589,566
Term debt	—		—		—		—		—		177,188		—		—		146,548		146,548
FHLB Borrowings	625,000		—		634,438		—		634,438		595,000		—		614,063		—		614,063
Subordinated debt	412,156		—		308,262		—		308,262		410,738		—		273,141		—		273,141
Loan commitments and letters of credit	—		—		—		24,359		24,359		—		—		—		21,559		21,559

133

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Segment Data

For the years ended December 31, 2013 and 2012, we operated as two reportable segments: the Bank and Other Commercial Finance. Our the Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company.

The financial results of our operating segments as of and for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31, 2013
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	418,885	$	26,551		$	2,040		$	447,476
Interest expense	62,685		11,403			—			74,088
Loan and lease loss provision	16,866		3,665			—			20,531
Non-interest income	66,184		33,263			(16,897		)	82,550
Non-interest expense	168,249		37,470			(16,641		)	189,078
Income tax expense (benefit)	96,593		(15,237		)	681			82,037
Net income	$	140,676	$	22,513		$	1,103		$	164,292
Total assets as of December 31, 2013	$	8,078,746	$	845,532		$	(18,788	)	$	8,905,490

	Year Ended December 31, 2012
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	393,083	$	78,629		$	(3,498	)	$	468,214
Interest expense	62,096		17,311			—			79,407
Loan and lease loss provision	16,192		23,250			—			39,442
Non-interest income	60,495		14,522			(25,171		)	49,846
Non-interest expense	168,569		51,344			(26,231		)	193,682
Income tax expense (benefit)	84,055		(370,209		)	1,073			(285,081		)
Net income	$	122,666	$	371,455		$	(3,511	)	$	490,610
Total assets as of December 31, 2012	$	7,371,643	$	1,190,044		$	(12,682	)	$	8,549,005

	Year Ended December 31, 2011
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	368,964	$	141,056		$	370		$	510,390
Interest expense	62,802		87,208			—			150,010
Loan and lease loss provision	27,539		65,446			—			92,985
Non-interest income	41,697		123,951			(72,954		)	92,694
Non-interest expense	149,710		300,652			(75,192		)	375,170
Income tax expense (benefit)	57,996		(21,054		)	—			36,942
Net income (loss)	$	112,614	$	(167,245	)	$	2,608		$	(52,023	)
Total assets as of December 31, 2011	$	6,793,496	$	1,534,698		$	(28,126	)	$	8,300,068

The accounting policies of each of the individual operating segments are the same as those described in Note 2, Summary of Significant Accounting Policies. Currently, substantially all of our business activities occur within the United States of America; therefore, no additional geographic disclosures are necessary.

134

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Intercompany Eliminations

The intercompany eliminations consist of eliminations for intercompany activity among the segments. Such activities primarily include services provided by the Parent Company to CapitalSource Bank and by CapitalSource Bank to the Parent Company, and daily loan collections received at CapitalSource Bank for Parent Company loans and daily loan disbursements paid at the Parent Company for CapitalSource Bank loans.

Note 21. Parent Company Information

As of December 31, 2013 and 2012, the Parent Company condensed financial information was as follows:

Condensed Balance Sheets

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents	$	675		$	1,698
Investment in subsidiaries:
Bank subsidiary	1,235,903			1,100,847
Non-Bank subsidiaries	153,971			326,811
Total investment in subsidiaries	1,389,874			1,427,658
Other assets	246,712			200,577
Total assets	$	1,637,261		$	1,629,933
Liabilities and Shareholders' Equity:
Other liabilities	$	634		$	4,761
Shareholders' Equity:
Common stock	1,969			2,096
Additional paid-in capital	3,038,218			3,157,533
Accumulated deficit	(1,402,690		)	(1,559,107		)
Accumulated other comprehensive income, net	(870		)	24,650
Total shareholders' equity	1,636,627			1,625,172
Total liabilities and shareholders' equity	$	1,637,261		$	1,629,933

135

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Operations

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Net interest loss:
Interest income	$	—		$	—		$	28,850
Interest expense	69			1,190			65,077
Net interest loss	(69		)	(1,190		)	(36,227		)
Non-interest income:
Loan fees	—			—			(363		)
Earnings in Bank subsidiary	140,677			122,666			112,091
Earnings (loss) in non-Bank subsidiaries	(4,986		)	107,012			(20,002		)
Other non-interest income	—			60			89
Total non-interest income	135,691			229,738			91,815
Non-interest expense:
Compensation and benefits	849			752			1,352
Professional fees	54			1,606			7,140
Other non-interest expenses	8,779			4,075			123,749
Total non-interest expense	9,682			6,433			132,241
Net income (loss) before income taxes	125,940			222,115			(76,653		)
Income tax expense (benefit)	(37,607		)	(268,495		)	(24,630		)
Net income (loss)	$	163,547		$	490,610		$	(52,023	)

Condensed Statements of Cash Flows

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Cash provided by operating activities:	$	138,877		$	464,825		$	863,487
Cash provided by investing activities:	—			—			—
Financing activities:
Repurchase of common stock	(137,989		)	(339,725		)	(427,231		)
Payment of dividends	(7,780		)	(113,304		)	(12,023		)
Repayments of other borrowings	—			(29,069		)	(507,877		)
Other	5,869			6,353			1,648
Cash used in financing activities:	(139,900		)	(475,745		)	(945,483		)
Decrease in cash and cash equivalents	(1,023		)	(10,920		)	(81,996		)
Cash and cash equivalents as of beginning of year	1,698			12,618			94,614
Cash and cash equivalents as of end of year	$	675		$	1,698		$	12,618

The Parent Company did not receive a dividend from the Bank during 2013. Simultaneously with the Merger with PacWest, CapitalSource Bank will pay a dividend to the Parent Company in an amount no more than CapitalSource Bank's retained earnings as of December 31, 2013.

136

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Unaudited Quarterly Information

Unaudited quarterly information for each of the three months in the years ended December 31, 2013 and 2012, was as follows:

	Three Months Ended
	December 31,		September 30,			June 30,		March 31,
	2013		2013			2013		2013
	($ in thousands, except per share data)
Interest income	$	113,258	$	112,718		$	108,405	$	113,095
Interest expense	18,807		18,644			18,474		18,163
Net interest income	94,451		94,074			89,931		94,932
Loan and lease loss provision (recovery)	4,263		(1,069		)	4,832		12,505
Net interest income after provision for loan and lease losses	90,188		95,143			85,099		82,427
Non-interest income	42,076		15,708			11,548		13,218
Non-interest expense	46,114		47,614			50,695		44,655
Income tax expense	28,227		14,839			17,329		21,642
Net income	$	57,923	$	48,398		$	28,623	$	29,348
Basic income per share	$	0.30	$	0.25		$	0.15	$	0.15
Diluted income per share	$	0.29	$	0.24		$	0.15	$	0.14

	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
	2012		2012		2012			2012
	($ in thousands, except per share data)
Interest income	$	114,921	$	115,234	$	117,982		$	120,077
Interest expense	18,872		19,513		20,164			20,858
Net interest income	96,049		95,721		97,818			99,219
Loan and lease loss provision	8,875		8,959		10,536			11,072
Net interest income after provision for loan and lease losses	87,174		86,762		87,282			88,147
Non-interest income	20,549		9,297		8,450			11,550
Non-interest expense	49,423		47,009		48,200			49,050
Income tax expense (benefit)	11,224		18,003		(340,017		)	25,709
Net income	$	47,076	$	31,047	$	387,549		$	24,938
Basic income per share	$	0.23	$	0.14	$	1.71		$	0.10
Diluted income per share	$	0.23	$	0.14	$	1.66		$	0.10

137

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM  9A. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2013. There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Reference is made to the Management Report on Internal Controls over Financial Reporting on page 79.

ITEM  9B. OTHER INFORMATION

None.

138

PART III

ITEM  10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A listing of our executive officers and their biographies are included under Item 1, Business, in the section entitled “Executive Officers” on page 13 of this Form 10-K.

The members of our Board of Directors, their principal occupations and the Board committees on which they serve are as follows:

William G. Byrnes

Chairman

Andrew B. Fremder^(1)(3)(4)(5)

President, East Bay College Fund

Sara Grootwassink Lewis^(1)(2)(3)

Private Investor

C. William Hosler^(1)(2)(4)

Chief Financial Officer, Catellus Development Corp.

Timothy M. Hurd⁽²⁾⁽³⁾

President and CIO, BlueSpruce Investments, LP

Joseph C. Mello^(2)(3)(5)

Private Investor and Management Consultant

Steven A. Museles⁽⁵⁾

Executive Officer, Alliance Partners LLC

James J. Pieczynski⁽⁴⁾

Chief Executive Officer

____________________

(1) Audit Committee

(2) Compensation Committee

(3) Nominating and Corporate Governance Committee

(4) Asset / Liability Committee

(5) Risk Committee

Biographies for our non-management directors and additional information pertaining to directors and executive officers and our corporate governance as well as the remaining information called for by this item are incorporated herein by reference to Election of Directors, Corporate Governance, Board of Directors and Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance and other sections in our definitive proxy statement for our 2014 Annual Meeting of Stockholders which will be filed within 120 days of the end of our fiscal year ended December 31, 2013 (the “2013 Proxy Statement”).

Our Chief Executive Officer and Chief Financial Officer have delivered, and we have filed with this Form 10-K, all certifications required by rules of the SEC and relating to, among other things, the Company's financial statements, internal controls and the public disclosures contained in this Form 10-K. In addition, on May 21, 2013, our Chief Executive Officer certified to the New York Stock Exchange (the “NYSE”) that he was not aware of any violations by the Company of the NYSE's corporate governance listing standards and, as required by the rules of the NYSE. We expect our Chief Executive Officer to provide a similar certification following the 2014 Annual Meeting of Stockholders.

139

ITEM 11. EXECUTIVE COMPENSATION

Information pertaining to executive compensation is incorporated herein by reference to Executive Compensation in the 2013 Proxy Statement with respect to our 2014 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATERS

Information pertaining to security ownership of management and certain beneficial owners of the registrant's Common Stock is incorporated herein by reference to Voting Securities and Principal Holders Thereof and other sections of the 2013 Proxy Statement with respect to our 2014 Annual Meeting of Stockholders.

ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information pertaining to certain relationships and related transactions and director independence is incorporated herein by reference to Corporate Governance and Compensation Committee Interlocks and Insider Participation and other sections of the 2013 Proxy Statement with respect to our 2014 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information pertaining to principal accounting fees and services is incorporated herein by reference to Report of the Audit Committee of the 2013 Proxy Statement with respect to our 2014 Annual Meeting of Stockholders.

140

PART IV

ITEM  15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

15(a)(1) Financial Statements

The audited consolidated financial statements of the registrant as listed in the “Index to Consolidated Financial Statements” included in Item 8, Financial Statements and Supplementary Data, on page 81 of this report, are filed as part of this report.

15(a)(2) Financial Statement Schedules

Consolidated financial statement schedules have been omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedules, or because the required information is provided in our audited consolidated financial statements or notes thereto.

15(a)(3) Exhibits

The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

141

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CAPITALSOURCE INC.
Date: February 28, 2014	/s/  JAMES J. PIECZYNSKI
	James J. Pieczynski Director and Chief Executive Officer (Principal Executive Officer)
Date: February 28, 2014	/s/  JOHN A. BOGLER
	John A. Bogler Chief Financial Officer (Principal Financial Officer)
Date: February 28, 2014	/s/  Mike A. Smith
	Mike A. Smith Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2014.

/ s/  WILLIAM G. BYRNES	/s/  STEVEN A. MUSELES
William G. Byrnes, Chairman of the Board of Directors	Steven A. Museles, Director
/s/  C. WILLIAM HOSLER	/s/  ANDREW B. FREMDER
C. William Hosler, Director	Andrew B. Fremder, Director
/s/  TIMOTHY M. HURD	/s/  SARA GROOTWASSINK LEWIS
Timothy M. Hurd, Director	Sara Grootwassink Lewis, Director
/s/  JOSEPH C. MELLO
Joseph C. Mello, Director

142

INDEX TO EXHIBITS

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of July 22, 2013, by and between PacWest Bancorp and CapitalSource Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed by CapitalSource on July 26, 2013).
2.1.1	Amendment No. 1 to Agreement and Plan of Merger, dated as of December 20, 2013, by and between PacWest Bancorp and CapitalSource Inc. (incorporated by referenced to Exhibit 2.1 to the Form 8-K filed by CapitalSource on December 20, 2013).
3.1	Second Amended and Restated Certificate of Incorporation (composite version; reflects all amendments through May 1, 2008) (incorporated by reference to exhibit 3.1 to the Form 10-Q filed by CapitalSource on May 12, 2008).
3.2	Amended and Restated Bylaws (composite version; reflects all amendments through February 16, 2011) (incorporated by reference to exhibit 3.1 to the Form 8-K filed by CapitalSource on February 18, 2011).
3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of CapitalSource Inc. (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by CapitalSource on July 23, 2013).
4.1	Tax Benefit Preservation Plan, dated as of July 22, 2013, between CapitalSource Inc. and American Stock Transfer and Trust Company, LLC (incorporated by referenced to Exhibit 4.1 to the Form 8-K filed by CapitalSource on July 23, 2013).
10.1	Capital Maintenance and Liquidity Agreement dated as of July 25, 2008, among CapitalSource Inc., CapitalSource TRS LLC (formerly CapitalSource TRS Inc.), CapitalSource Finance LLC, CapitalSource Bank and the FDIC (incorporated by reference to exhibit 10.1 to the Form 8-K filed by CapitalSource on July 28, 2008).
10.2	Parent Company Agreement dated as of July 25, 2008, among CapitalSource Inc., CapitalSource TRS LLC (formerly CapitalSource TRS Inc.), CapitalSource Finance LLC, CapitalSource Bank and the FDIC (incorporated by reference to exhibit 10.2 to the Form 8-K filed by CapitalSource on July 28, 2008).
10.3	Office Lease Agreement dated April 27, 2007 by and between Wisconsin Place Office LLC and CapitalSource Finance LLC (incorporated by reference to exhibit 10.4 to the Form 10-K filed by CapitalSource on March 2, 2009).
10.3.1	Amendment No. 1 to Lease dated August 25, 2008 by and between Wisconsin Place Office LLC and CapitalSource Finance LLC (incorporated by reference to exhibit 10.6 to the Form 10-Q filed by CapitalSource on August 10, 2009).
10.3.2	Amendment No. 2 to Lease dated February 17, 2009 by and between Wisconsin Place Office LLC and CapitalSource Finance LLC (incorporated by reference to exhibit 10.7 to the Form 10-Q filed by CapitalSource on August 10, 2009).
10.3.3	Amendment No. 3 to Lease dated April 8, 2010 by and between Wisconsin Place Office LLC and CapitalSource Finance LLC (incorporated by reference to exhibit 10.3.3 to the Form 10-K filed by CapitalSource on February 28, 2012).
10.3.4	Sublease of Office Lease Agreement dated as of September 1, 2010 by and between CapitalSource Finance LLC and Brown Investment Advisory and Trust Company (incorporated by reference to exhibit 10.1 to the Form 10-Q filed by CapitalSource on November 4, 2010).
10.3.5	Sublease of Office Lease Agreement dated as of August 24, 2011 by and between CapitalSource Finance LLC and Manchester United LTD (incorporated by reference to exhibit 10.3.5 to the Form 10-K filed by CapitalSource on February 28, 2012).
10.3.6	Sublease of Office Lease Agreement dated as of July 17, 2012, by and between CapitalSource Finance LLC and DANAC, LLC (incorporated by reference to exhibit 10.1 to the Form 10-Q filed by CapitalSource on November 6, 2012).
10.3.7	Sublease of office lease agreement dated as of July 29, 2013 by and between CapitalSource Finance LLC and PKH Enterprises, LLC.†

143

10.3.8	Sublease of office lease agreement dated of November 15, 2013 by and between CapitalSource Finance LLC and Abacus Technology Corporation.†
10.3.9	Sublease of office lease agreement dated as of December 11, 2013 by and between CapitalSource Finance LLC and Battle Resources Management, Inc.†
10.4	Office Lease dated November 5, 2008, by and between Providence 130 State College Brea, LLC and CapitalSource Bank (incorporated by reference to exhibit 10.1 to the Form 10-Q filed by CapitalSource on May 11, 2009).
10.5*	Third Amended and Restated Equity Incentive Plan (composite version; reflects all amendments through April 29, 2010) (incorporated by reference to exhibit 10.1 to the Registration Statement on Form S-8 filed by CapitalSource on May 3, 2010).
10.6.1	Form of Non-Qualified Option Agreement (2005) (incorporated by reference to exhibit 10.1 to the Form 8-K filed by CapitalSource on January 31, 2005).
10.6.2	Form of Non-Qualified Option Agreement (2007) (incorporated by reference to exhibit 10.81 to the Form 10-Q filed by CapitalSource on August 8, 2007).
10.6.3	Form of Non-Qualified Option Agreement (2008) (incorporated by reference to exhibit 10.8 to the Form 10-Q filed by CapitalSource on August 11, 2008).
10.6.4	Form of Non-Qualified Option Agreement (2010) (incorporated by reference to exhibit 10.32.4 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.6.5	Form of Non-Qualified Option Agreement (July 2010) (incorporated by reference to exhibit 10.5 to the Form 10-Q filed by CapitalSource on August 3, 2010).
10.7.1	Form of Non-Qualified Option Agreement for Directors (2005) (incorporated by reference to exhibit 10.2 to the Form 8-K filed by CapitalSource on January 31, 2005).
10.7.2	Form of Non-Qualified Option Agreement for Directors (2007) (incorporated by reference to exhibit 10.78 to the Form 10-Q filed by CapitalSource on August 8, 2007).
10.7.3	Form of Non-Qualified Option Agreement for Directors (2008) (incorporated by reference to exhibit 10.18.3 to the Form 10-K filed by CapitalSource on February 29, 2008).
10.7.4	Form of Non-Qualified Option Agreement for Directors (2010) (incorporated by reference to exhibit 10.33.4 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.8.1	Form of Restricted Stock Agreement (2005) (incorporated by reference to exhibit 10.3 to the Form 8-K filed by CapitalSource on January 31, 2005).
10.8.2	Form of Restricted Stock Agreement (2007) (incorporated by reference to exhibit 10.79 to the Form 10-Q filed by CapitalSource on August 8, 2007).
10.8.3	Form of Restricted Stock Agreement (2008) (incorporated by reference to exhibit 10.6 to the Form 10-Q filed by CapitalSource on August 11, 2008).
10.8.4	Form of Restricted Stock Agreement (2009) (incorporated by reference to exhibit 10.7 to the Form 10-Q filed by CapitalSource on May 11, 2009).
10.8.5	Form of Restricted Stock Agreement (2010) (incorporated by reference to exhibit 10.34.5 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.8.6	Form of Restricted Stock Agreement (April 2010) (incorporated by reference to exhibit 10.7 to the Form 10-Q filed on May 5, 2010).
10.8.7	Form of Restricted Stock Agreement (July 2010) (incorporated by reference to exhibit 10.6 to the Form 10-Q filed on August 3, 2010).
10.9.1	Form of Restricted Stock Agreement for Directors (2007) (incorporated by reference to exhibit 10.76 to the Form 10-Q filed by CapitalSource on August 8, 2007).

144

10.9.2	Form of Restricted Stock Agreement for Directors (2008) (incorporated by reference to exhibit 10.20.2 to the Form 10-K filed by CapitalSource on February 29, 2008).
10.9.3	Form of Restricted Stock Agreement for Directors (2009) (incorporated by reference to exhibit 10.8 to the Form 10-Q filed by CapitalSource on May 11, 2009).
10.9.4	Form of Restricted Stock Agreement for Directors (2010) (incorporated by reference to exhibit 10.36.4 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.9.5	Form of Restricted Stock Agreement for Directors (April 2010) (incorporated by reference to exhibit 10.8 to the Form 10-Q filed by CapitalSource on May 5, 2010).
10.10.1	Form of Restricted Unit Agreement (2007) (incorporated by reference to exhibit 10.70 to the Form 8-K filed by CapitalSource on March 13, 2007).
10.10.2	Form of Restricted Stock Unit Agreement (2007) (incorporated by reference to exhibit 10.80 to the Form 10-Q filed by CapitalSource on August 8, 2007).
10.10.3	Form of Restricted Stock Unit Agreement (2008) (incorporated by reference to exhibit 10.7 to the Form 10-Q filed by CapitalSource on August 11, 2008).
10.10.4	Form of Restricted Stock Unit Agreement (2010) (incorporated by reference to exhibit 10.9 to the Form 10-Q filed by CapitalSource on May 5, 2010).
10.10.5	Form of Restricted Stock Unit Agreement (April 2010) (incorporated by reference to exhibit 10.9 to the Form 10-Q filed by CapitalSource on May 5, 2010).
10.10.6	Form of Restricted Stock Unit Agreement (July 2010) (incorporated by reference to exhibit 10.7 to the Form 10-Q filed by CapitalSource on August 3, 2010).
10.11.1	Form of Restricted Stock Unit Agreement for Directors (2007) (incorporated by reference to exhibit 10.77 to the Form 10-Q filed by CapitalSource on August 8, 2007).
10.11.2	Form of Restricted Stock Unit Agreement for Directors (2008) (incorporated by reference to exhibit 10.22.2 to the Form 10-K filed by CapitalSource on February 29, 2008).
10.11.3	Form of Restricted Stock Unit Agreement for Directors (2010) (incorporated by reference to exhibit 10.37.3 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.11.4	Form of Restricted Stock Unit Agreement for Directors (April 2010) (incorporated by reference to exhibit 10.10 to the Form 10-Q filed by CapitalSource on May 5, 2010).
10.12*	CapitalSource Inc. Amended and Restated Deferred Compensation Plan effective October 26, 2011 (incorporated by reference to exhibit 10.16 to the Form 10-K filed by CapitalSource on February 28, 2012).
10.13*	Summary of Non-employee Director Compensation (incorporated by reference to exhibit 10.1 to the Form 10-Q filed by CapitalSource on May 3, 2013).
10.14*	CapitalSource Bank Compensation for Non-Employee Directors (incorporated by reference to exhibit 10.40 to the Form 10-K filed by CapitalSource on March 1, 2010).
10.15*	Form of Indemnification Agreement between CapitalSource Inc. and each of its non-employee directors (incorporated by reference to exhibit 10.4 to the Form 10-Q filed by CapitalSource on November 7, 2003).
10.16*	Form of Indemnification Agreement between CapitalSource Inc. and each of its employee directors (incorporated by reference to exhibit 10.5 to the Form 10-Q filed by CapitalSource on November 7, 2003).
10.17*	Amended and Restated Employment Agreement dated September 28, 2012 between CapitalSource Inc., CapitalSource Bank and James J. Pieczynski (incorporated by reference to exhibit 10.1 to the Form 8-K filed by CapitalSource on October 2, 2012).
10.17.1*	Amended and Restated Employment Agreement dated January 1, 2013 between CapitalSource Inc., CapitalSource Bank and James J. Pieczynski (incorporated by reference to exhibit 10.22.1 to the Form 10-K filed by CapitalSource on February 25, 2013).

145

10.18*	Amended and Restated Employment Agreement dated September 28, 2012 between CapitalSource Bank and Douglas Hayes Lowrey (incorporated by reference to exhibit 10.2 to the Form 8-K filed by CapitalSource on October 2, 2012).
10.19*	Employment Agreement dated October 26, 2011 by and between CapitalSource Inc., CapitalSource Bank and John A. Bogler (incorporated by reference to exhibit 10.1 to the Form 10-Q filed by CapitalSource on November 1, 2011).
10.20*	Employment Agreement dated October 26, 2011 by and between CapitalSource Inc., CapitalSource Bank and Laird M. Boulden (incorporated by reference to exhibit 10.2 to the Form 10-Q filed by CapitalSource on November 1, 2011).
10.21*	Amended and Restated Employment Agreement dated as of October 26, 2011 between CapitalSource Bank and Bryan M. Corsini (incorporated by reference to exhibit 10.3 to the Form 10-Q filed by CapitalSource on November 1, 2011).
10.22*	2013 Executive Compensation Program.†
10.23*	2013 Chief Accounting Officer Compensation Program.†
12.1	Ratio of Earnings to Fixed Charges.†
21.1	List of Subsidiaries.†
23.1	Consent of Ernst & Young LLP.†
31.1	Rule 13a - 14(a) Certification of Chief Executive Officer.†
31.2	Rule 13a - 14(a) Certification of Chief Financial Officer.†
32	Section 1350 Certifications.†
99.1	Federal Deposit Insurance Corporation in Re: CapitalSource Bank (In Organization) Pasadena, California, Applications for Federal Deposit Insurance and Consent to Purchase Certain Assets and Assume Certain Liabilities and Establish 22 Branches - Order Granting Deposit Insurance, Approving a Merger, and Consenting to the Establishment of Branches dated June 17, 2008 (incorporated by reference to exhibit 99.1 to the Form 8-K filed by CapitalSource on June 18, 2008)
99.2	Form of Voting Agreement, dated July 22, 2013, between CapitalSource Inc. and certain stockholders of PacWest Bancorp (incorporated by reference to Exhibit 99.3 to the Form 8-K filed by CapitalSource on July 23, 2013).
99.3	Form of Voting Agreement, dated July 22, 2013, between PacWest Bancorp and certain stockholders of CapitalSource Inc. (incorporated by reference to Exhibit 99.4 to the Form 8-K filed by CapitalSource on July 23, 2013).
101.INS	XBRL Instance Document†
101.SCH	XBRL Taxonomy Extension Schema Document†
101.CAL	XBRL Taxonomy Calculation Linkbase Document†
101.LAB	XBRL Taxonomy Label Linkbase Document†
101.PRE	XBRL Taxonomy Presentation Linkbase Document†
101.DEF	XBRL Taxonomy Definition Document†

† Filed herewith.

* Management contract or compensatory plan or agreement.

The registrant agrees to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt that does not exceed 10% of the total consolidated assets of the registrant.

146

EX-10.28

EXHIBIT 10.22

2013 Executive Compensation Program

Approved by CapitalSource Inc. Board of Directors March 22, 2013

This compensation program for Executive Officers (comprising the CEOs of the Bank and Parent, the Chief Financial Officer of the Parent and Bank, and each of the Chief Administrative Officer, Chief Lending Officer, and Chief Credit Officer of the Bank) is designed to reflect a comprehensive view of company performance. The Program combines the Primary Goals identified below with the discretion of the Compensation Committee of the Parent Board of Directors and the Compensation Committee of the Bank Board of Directors (collectively, the “Committees”) to determine short-term incentive compensation. The Program will be adjusted on an annual basis, and compensation will be paid based on the achievement of certain factors. The five Primary Goals follow, along with their designated weightings.

Primary Goals

• Achieve Bank pretax income of $215 million – (35%)

• Manage Parent operating expenses to $34 million or less, exclusive of asset write-off or lease abandonment charges – (10%)

• Achieve Bank net loan growth of 12% with the weighted average risk rating at the date of origination, for all 2013 originations, of less than 2.75 – (20%)

• Credit

a.Manage post 2008 originations as they season to less than 1% of lifetime credit losses – (15%)

b.Manage the consolidated classified asset ratio¹ to 35% or less as of each quarter end – (20%)

Opportunity Level

For each of the covered Executive Officers, the 2013 target level of bonus opportunity is 100% of base salary. Final payouts under the plan will be commensurate with the executive officer’s actual level of performance attainment.

The Committees may use their discretion to adjust the aforementioned opportunity level and to determine whether the Primary Goals have been achieved to the extent there are judgments to be employed or mitigating factors exist. In exercising their discretion, the Committees will also consider whether the Company has:

• Grown retail deposits to meet asset funding needs;

• Continued to identify operational improvements;

• Obtained Bank Holding Company status and converted the Bank to a commercial charter;

• Operated the Bank in a safe and sound manner;

• Maintained strong relations with regulators;

EXHIBIT 10.22

• Continued to strengthen a culture that fosters the Company’s ability to attract and retain talented professionals as well as provided opportunities for continued career development and advancement; and,

• Continued to progress on refining the Company’s business model such that the consolidated return on equity grows over time toward the top of the Company’s peer group.

In exercising discretion to adjust the opportunity level on an individual basis, the Committees will determine the extent to which each Executive Officer has exemplified excellent individual performance to include collaborating effectively, communicating effectively, driving for results, entrepreneurial thinking, leveraging business opportunities, making accurate judgments and decisions, and supporting organizational goals.

Stock Ownership Guidelines

Executive Officers are expected to accumulate and hold CSE shares² with a value equal to a multiple of base salary: 3x base salary for the CEO of CapitalSource and the CEO of CapitalSource Bank and 2x base salary for the other Executive Officers. Prior to meeting the guideline, Executive Officers are required to retain 50% of the after-tax shares acquired from vesting of restricted stock, exercise of stock options, or earnout of performance shares. This “retention ratio” ensures that Executive Officers are making progress toward meeting the guideline. Executive Officers will have five years to meet the ownership guideline starting January 2012.

EXHIBIT 10.22

¹ The classified ratio is: total classified assets divided by the sum of the ALLL and regulatory Tier 1 capital

² CSE Shares includes shares directly owned and the in the money value on an after tax basis of vested options on CSE shares.

EX-10.29

EXHIBIT 10.23

2013 Chief Accounting Officer Compensation Program

Approved by CapitalSource Inc. Board of Directors March 22, 2013

This compensation program for the Company’s Chief Accounting Officer is designed to reflect the performance of CapitalSource Inc. and CapitalSource Bank (collectively referred to herein as the “Company”). The Program combines the Financial Goals, Performance Goals, and Competency Measures identified below with the discretion of the Compensation Committee of the Parent Board of Directors and the Compensation Committee of the Bank Board of Directors (collectively, the “Committees”) to determine the Chief Accounting Officer’s short-term incentive compensation. The Program will be adjusted on an annual basis, and compensation will be paid based on the achievement of certain factors. The Financial Goals, Performance Goals, and Competency Measures follow, along with their designated weightings.

Financial Goals

• Achieve Bank pre-tax income of $215million – (25%)

• Achieve departmental expenses equal to or less than the level specified in the 2013 departmental Business Plan – (10%)

Performance Goals

• Convert the accounting platform to Oracle version R12 and ensure no material internal control deficiencies – (25%)

◦ May – Create business requirements and project plan

◦ Aug – Define business processes and re-engineer as appropriate

◦ Sep – Convert general ledger data

◦ Oct – Develop subsystem interfaces

◦ Oct – Conduct user training and acceptance testing

◦ Nov – Go live

• Support the development of the data warehouse tool and, to the extent finalized and available, utilize it to facilitate financial reporting – (5%)

• Ensure timely filing of all required Call Reports, SEC 10-K/Q reports, and Y-9 reports, with each filed prior to or on the required due date – (5%)

• Appropriately, and in a timely fashion, support the BHC and bank charter change applications – (10%)

Facts and circumstances regarding a delayed go-live date due to regulatory, SOX, or other factors may be considered by the Committees.

1

EXHIBIT 10.23

Competency Measures

• Discretionary based upon the annual competency evaluation; the Competency Measures used to assess performance will be the same as those applicable to all Company managers - (20%)

Opportunity Level

For the Chief Accounting Officer, the 2013 target level of bonus opportunity is 60% of base salary, and the payout may be as much as 90% of base salary, all dependent upon the level of success of achieving the Financial Goals, Performance Goals, and Competency Measures. Payment above or below 60% of base salary will be dependent upon the level of variance from Plan for each of the Financial Goals, the timeliness and ability to adjust to unexpected events surrounding the Performance Goals, and overall success relative to the Competency Measures. The final payout under the Plan will be commensurate with the Chief Accounting Officer’s actual level of performance attainment.

The Committees may use their discretion to adjust the aforementioned opportunity level and to determine whether the Financial Goals, Performance Goals, and Competency Measures have been achieved to the extent there are judgments to be employed or mitigating factors exist. In exercising their discretion, the Committees will also consider whether the Company has:

• Operated the Bank in a safe and sound manner;

• Continued to strengthen a culture that fosters the Company’s ability to attract and retain talented professionals as well as provided opportunities for continued career development and advancement; and,

• Continued to progress on refining the Company’s business model such that the consolidated return on equity grows over time toward the top of the Company’s peer group.

2

EX-10.3.7

SUBLEASE

THIS SUBLEASE (this “Sublease”) is made and entered into as of the 29^th day of July, 2013, by and between CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (“Sublandlord”), and PKH ENTERPRISES, LLC, a Maryland limited liability company (“Subtenant”).

W I T N E S S E T H:

WHEREAS, by that certain Office Lease Agreement dated as of the 27th day of April, 2007, as amended by Amendment No. 1 to Lease dated as of August 25, 2008, Amendment No. 2 to Lease dated as of February 17, 2009, and Amendment No. 3 to Lease dated as of April 8, 2010 (collectively and together with any other amendments thereto, the “Prime Lease”), Wisconsin Place Office LLC (“Landlord”) leases to Sublandlord certain premises (the “Master Premises”) in the building known as Wisconsin Place and located at 5404 Wisconsin Avenue, Chevy Chase, Maryland (the “Building”); and

WHEREAS, subject to the consent of Landlord, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, a portion of the Master Premises consisting of approximately 6,300 square feet of rentable area of the third (3^rd) floor of the Building, as depicted on Exhibit A hereto (hereinafter referred to as the “Subleased Premises”), all upon the terms and subject to the conditions and provisions hereinafter set forth;

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Sublandlord and Subtenant hereby agree as follows:

1.Demise; Use. Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord the Subleased Premises for the term and rental and upon the other terms and conditions hereinafter set forth, to be used and occupied by Subtenant solely for general office use and for no other purpose.

2.Term; Sublease Year; Termination Option.

(a) The term of this Sublease shall commence on the date Sublandlord delivers beneficial occupancy of the Subleased Premises to Subtenant with the Subleasehold Improvements (defined below) substantially complete (the “Commencement Date”), and unless sooner terminated pursuant to the provisions hereof, shall terminate on May 25, 2024 or any earlier date as of which the Prime Lease may be terminated (the “Expiration Date”). If Sublandlord receives a written notice of termination of the Prime Lease from Landlord during the term of this Sublease, Sublandlord shall promptly provide a copy of such notice to Subtenant.

(b) A “Sublease Year” shall be (i) the period beginning on the Commencement Date and ending on the last day of the twelfth (12) full calendar month following the Commencement Date, and (ii) each twelve (12) calendar month period thereafter through the Expiration Date.

(c) Tenant shall have a one-time right to terminate the Lease (the “Termination Option”) on the last day of the sixtieth (60^th) full calendar month following the Commencement Date (the “Termination Date”) by providing Sublandlord with written notice of its election to exercise the Termination Option no later than twelve (12) months prior to the Termination Date; provided, however, that (i) both as of the date Tenant delivers the aforesaid notice and as of the Termination Date no default has occurred and continued beyond the expiration of any applicable notice and cure period, and (ii) Tenant delivers the Termination Fee (as hereinafter defined) to Sublandlord on or before the earlier of (A) that date that is thirty (30) days following Sublandlord’s delivery to Subtenant of Sublandlord’s calculation of the Termination Fee, and (B) the Termination Date. Time is of the essence with respect to the foregoing. The term “Termination Fee” shall mean the amount equal to the then unamortized portion of the Leasing Costs (as hereinafter defined) assuming such costs have been amortized in equal monthly installments over the initial term of this Sublease at eight percent (8%) per annum simple interest. The term “Leasing Cost” shall include the amount of all Base Rent abated pursuant to Section 3(c), all costs incurred by Sublandlord in connection with the Subleasehold Improvements or any other alterations to the Subleased Premises, and all brokerage and/or leasing commissions associated with this Sublease. If Sublandlord and Subtenant amend this Sublease in the future, the Leasing Costs shall be appropriately adjusted. The Termination Option is personal to Subtenant, may not be exercised by any other party, and shall become null and void upon the occurrence of an assignment of the Sublease or a sublet of all of the Subleased Premises.

3.Base Rent.

(a) Subtenant shall pay to Sublandlord base rental (“Base Rent”) for the Subleased Premises as follows:

Sublease Year	Annual Base Rent per Rentable Square Foot
1	$42.50
2	$43.78
3	$45.09
4	$46.44
5	$47.83
6	$49.27
7	$50.75
8	$52.27
9	$53.84
10	$55.45
11	$57.12

Base Rent shall be due and payable in equal monthly installments. Each such installment shall be due and payable in advance on the first day of each calendar month of the term hereof. If the term of this Sublease commences on a day other than the first day of a month or ends on a day other than the last day of a month, Base Rent for such month shall be prorated; prorated Base Rent for any such partial first month of the term hereof shall be paid on the date on which the term commences. Concurrently with its execution of this Sublease, Subtenant shall pay to Sublandlord the installment of Base Rent due for the first full calendar month within the term of this Sublease following the abatement period described in Section 3(c) below that falls within the first (1^st) Sublease Year.

(b) All Base Rent and additional rent shall be paid without any notice, setoff or deduction whatsoever, and shall be paid to Sublandlord at its address set forth in Section 15 below or at such other place as Sublandlord may designate by notice to Subtenant.

(c) Notwithstanding anything to the contrary set forth above, so long as Subtenant is not in default hereunder beyond any applicable notice and cure period, Base Rent payable by Subtenant to Sublandlord as provided above shall be abated with respect to (i) the first two (2) full calendar months following the Commencement Date, and (ii) the first two (2) calendar months of each of the second (2^nd) through the fifth (5^th) Sublease Year (collectively, the “Abated Rent”). If Subtenant shall fail to timely make any payments due hereunder more than two (2) times in any twelve (12) month period, then, in addition to any other remedies available to Sublandlord, Subtenant shall not be entitled to any Abated Rent from and after such second payment default.

(d) Sublandlord and Subtenant stipulate that the rentable square footage of the Subleased Premises shall be 6,300 for all purposes of this Sublease and, notwithstanding any provision of the Prime Lease to the contrary, shall not be subject to remeasurement.

4.Additional Rent; Payments; Interest.

(a) In addition to the Base Rent described above, commencing on January 1, 2015, Subtenant shall pay to Sublandlord additional rent with respect to the Subleased Premises on account of Operating Expenses and Real Estate Taxes in accordance with the provisions of the Prime Lease; provided, however, that Subtenant shall be liable only for increases in Operating Expenses and Real Estate Taxes above a calendar year 2014 base year. Subtenant’s share of the Operating Expenses and Real Estate Taxes shall be determined in accordance with Section 4.1(b) of the Prime Lease, except that the term “Premises” as used therein shall be deemed to refer to the Subleased Premises.

(b) Subtenant shall pay to Sublandlord all other amounts payable by Sublandlord under the Prime Lease which are attributable to the Subleased Premises (as distinguished from the Master Premises generally) or attributable to Subtenant, its agents, employees, customers or invitees. By way of example and not by way of limitation, charges by Landlord for furnishing air conditioning or heating to the Subleased Premises at times in addition to those certain times specified in the Prime Lease, charges by Landlord for supplemental heating, ventilating and air conditioning equipment or the use thereof, costs incurred by Landlord in repairing damage to the Building caused by an employee of Subtenant, increased insurance premiums due as a result of Subtenant’s use of the Subleased Premises, and amounts expended or incurred by Landlord on account of any default by Subtenant which gives rise to a default under the Prime Lease would be amounts payable by Subtenant pursuant to this Section 4(b).

(c) Each amount due pursuant to Section 4(a) and 4(b) above and each other amount payable by Subtenant hereunder, unless a date for payment of such amount is provided for elsewhere in this Sublease, shall be due and payable on the tenth day following the date on which Landlord or Sublandlord has given notice to Subtenant of the amount thereof, but in no event later than the date on which any such amount is due and payable under the Prime Lease.

(d) All amounts other than Base Rent payable to Sublandlord under this Sublease shall be deemed to be additional rent due under this Sublease. All past due installments of Base Rent and additional rent shall bear interest from the date due until paid at the rate per annum equal to three (3) percentage points in excess of any interest rate that is applicable to late payments pursuant to the Prime Lease, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged. All past due installments of Base Rent and additional rent shall be subject to the same late charges as are applicable to late payments under the Prime Lease.

(e) Subtenant shall pay directly to Landlord on or before the applicable due dates for all services requested by Subtenant that are billed by Landlord directly to Subtenant rather than through Sublandlord.

5. Condition of Subleased Premises and Construction of Improvements.

(a) Subtenant accepts the Subleased Premises in their current “as-is” condition; provided, however, that prior to the Commencement Date, Sublandlord, at its cost, will build-out the Subleased Premises in accordance with the scope of work attached hereto as Exhibit B (the “Subleasehold Improvements”).

(b) Subtenant’s taking possession of the Subleased Premises shall be conclusive evidence as against Subtenant that the Subleased Premises were in good order and satisfactory condition when Subtenant took possession (other than remaining punchlist items as mutually agreed upon by Subtenant and Sublandlord) . Upon the expiration of the term hereof, or upon any earlier termination of the term hereof or of Subtenant’s right to possession, Subtenant shall surrender the Subleased Premises in at least as good condition as at the commencement of the term hereof, ordinary wear and tear excepted.

6.The Prime Lease.

(a) This Sublease and all rights of Subtenant hereunder and with respect to the Subleased Premises are subject and subordinate to the terms, conditions and provisions of the Prime Lease. Subtenant hereby assumes and agrees to perform faithfully and be bound by, with respect to the Subleased Premises, all of Sublandlord’s obligations, covenants, agreements and liabilities under the Prime Lease and all terms, conditions, provisions and restrictions contained in the Prime Lease except:

(i) for the payment of rent in amounts other than as set forth in this Sublease;

(ii) that Subtenant shall not have any obligation or right to construct or install leasehold improvements except as may be expressly provided herein; and

(iii) that the following provisions of the Prime Lease do not apply to this Sublease: any provisions in the Prime Lease allowing or purporting to allow Sublandlord any rent concessions or abatements or construction allowances and any provisions of the Prime Lease granting Sublandlord any expansion options, renewal options, termination options, or rights of first offer or first refusal.

(b) Without limitation of the foregoing:

(i) Subtenant shall not make any changes, alterations or additions in or to the Subleased Premises except as otherwise expressly provided herein;

(ii) If Subtenant desires to take any other action and the Prime Lease would require that Sublandlord obtain the consent of Landlord before undertaking any action of the same kind, Subtenant shall not undertake the same without the prior written consent of Sublandlord. Sublandlord may condition its consent on the consent of Landlord being obtained and may require Subtenant to contact Landlord directly for such consent;

(iii) All rights given to Landlord and its agents and representatives by the Prime Lease to enter the Master Premises shall inure to the benefit of Sublandlord and its agents and representatives with respect to the Subleased Premises;

(iv) Sublandlord shall also have all other rights, privileges, options, reservations and remedies granted or allowed to or held by Landlord under the Prime Lease;

(v) Subtenant shall maintain insurance of the kinds and in the amounts required to be maintained by Sublandlord under the Prime Lease. All policies of liability insurance shall name as additional insureds Landlord and Sublandlord and their respective officers, directors or partners, as the case may be, and the respective agents and employees of each of them. All policies of insurance maintained by Subtenant in connection with this Sublease or the Subleased Premises be written as primary policy coverage and not contributing to or in excess of any coverage which Landlord and/or Sublandlord may carry. Simultaneously with the execution of this Sublease and thereafter not later than thirty (30) days before any scheduled date of expiration of such insurance, Subtenant shall furnish Sublandlord with certificates of insurance evidencing that Subtenant is carrying the insurance required to be carried by Subtenant hereunder; and

(vi) Subtenant shall not do anything or suffer or permit anything to be done which could result in a default under the Prime Lease or permit the Prime Lease to be cancelled or terminated.

(c) Notwithstanding anything contained herein or in the Prime Lease that may appear to be to the contrary, Sublandlord and Subtenant hereby agree as follows:

(i) Subtenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or any interest of Subtenant in this Sublease, by operation of law or otherwise, or permit the use of the Subleased Premises or any part thereof by any persons other than Subtenant and Subtenant’s employees, or sublet the Subleased Premises or any part thereof, without the prior written consent of Prime Landlord and Sublandlord (which consent of Sublandlord shall not be unreasonably withheld, conditioned or delayed);

(ii) Neither rental nor other payments hereunder shall abate by reason of any damage to or destruction of the Subleased Premises, the Master Premises or the Building or any part thereof, unless, and then only to the extent that, rental and such other payments actually abate under the Prime Lease with respect to the Subleased Premises on account of such event;

(iii) Subtenant shall not have any right to any portion of the proceeds of any award for a condemnation or other taking, or a conveyance in lieu thereof, of all or any portion of the Building, the Master Premises or the Subleased Premises;

(iv) Subtenant shall not have any right to exercise or have Sublandlord exercise any option under the Prime Lease, including, without limitation, any option to extend the term of the Prime Lease or lease additional space; and

(v) Subject to Section 6(a) above, as between Sublandlord and Subtenant, in the event of any conflict between the terms, conditions and provisions of the Prime Lease and of this Sublease, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control.

(d) It is expressly understood and agreed that Sublandlord does not assume and shall not have any of the obligations or liabilities of Landlord under the Prime Lease and that Sublandlord is not making the representations or warranties, if any, made by Landlord in the Prime Lease. With respect to work, services, repairs and restoration or the performance of other obligations required of Landlord under the Prime Lease, Sublandlord’s sole obligation with respect thereto shall be to request the same, upon written request from Subtenant, and to use reasonable efforts to obtain the same from Landlord, at no expense to Sublandlord. Sublandlord shall not be liable in damages, nor shall rent abate hereunder, for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease.

(e) Nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord, except the agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and then only to the extent of the same.

7.Default by Subtenant.

(a) Upon the happening of any of the following:

(i) Subtenant fails to pay any Base Rent within five (5) days after the date such payment is due;

(ii) Subtenant fails to pay any other amount due from Subtenant hereunder and such failure continues for five (5) days after notice thereof from Sublandlord to Subtenant;

(iii) Subtenant fails to perform or observe any other covenant or agreement set forth in this Sublease and such failure continues for fifteen (15) days after notice thereof from Sublandlord to Subtenant; or

(iv) any other event occurs which involves Subtenant or the Subleased Premises and which would constitute a default under the Prime Lease if it involved Sublandlord or the Master Premises;

Subtenant shall be deemed to be in default hereunder, and Sublandlord may exercise, without limitation of any other rights and remedies available to it hereunder or at law or in equity, any and all rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Sublandlord thereunder.

(b) In the event Subtenant fails or refuses to make any payment or perform any covenant or agreement to be performed hereunder by Subtenant, Sublandlord may make such payment or undertake to perform such covenant or agreement (but shall not have any obligation to Subtenant to do so). In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs, expenses and attorneys’ fees incurred by Sublandlord in connection therewith, together with interest on all of the foregoing at the rate specified in Section 4(d) above as applicable to late payments of rent, shall be due as additional rent hereunder.

8.Nonwaiver. Failure of Sublandlord to declare any default or delay in taking any action in connection therewith shall not waive such default. No receipt of moneys by Sublandlord from Subtenant after the termination in any way of the term or of Subtenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the term or affect any notice given to Subtenant or any suit commenced or judgment entered prior to receipt of such moneys.

9.Cumulative Rights and Remedies. All rights and remedies of Sublandlord under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law.

10.Indemnity. Subtenant agrees to indemnify, defend and hold harmless Landlord, Sublandlord and the managing agent of the Building and each of their respective officers, directors, partners, agents and employees, from and against any and all claims, demands, costs and expenses of every kind and nature, including attorneys’ fees and litigation expenses, arising from Subtenant’s occupancy of the Subleased Premises, Subtenant’s construction of any leasehold improvements in the Subleased Premises, any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease, or any act or neglect of Subtenant or its agents, officers, employees, guests, servants, invitees or customers in or about the Subleased Premises. Sublandlord agrees to indemnify, defend and hold harmless Subtenant and its officers, directors, partners, agents and employees from and against any and all claims, demands, costs and expenses of every kind and nature, including reasonable attorneys’ fees and litigation expenses, arising from any breach or default on the part of Sublandlord in the performance of any agreement or covenant of Sublandlord to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease. In case any such proceeding is brought against any of said indemnified parties, the indemnifying party covenants, if requested by indemnified party, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to the indemnified party.

11.Waiver of Subrogation. Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant each hereby waives any and all rights of recovery, claims, actions or causes of action against the other and the officers, directors, partners, agents and employees of each of them, and Subtenant hereby waives any and all rights of recovery, claims, actions or causes of action against Landlord and its agents and employees, for any loss or damage that may occur to the Subleased Premises or the Master Premises, or any improvements thereto, or any personal property of any person therein or in the Building, by reason of fire, the elements or any other cause insured against (or required by the Prime Lease or this Sublease to be insured against) under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law.

12.Brokerage Commissions. Each party hereby represents and warrants to the other that it has had no dealings with any real estate broker or agent in connection with this Sublease, excepting only Larsen Commercial Real Estate Services, Inc. and Strongbow Solutions (whose commission shall be paid by Sublandlord pursuant to the terms of a separate written agreement), and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Each party agrees to protect, defend, indemnify and hold the other harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finder’s or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties.

13.Successors and Assigns. This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Sublandlord and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved, Subtenant’s assigns.

14.Entire Agreement. This Sublease contains all the terms, covenants, conditions and agreements between Sublandlord and Subtenant relating in any manner to the rental, use and occupancy of the Subleased Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect. The terms, covenants and conditions of this Sublease cannot be altered, changed, modified or added to except by a written instrument signed by Sublandlord and Subtenant.

15.Notices. Notices and demands required or permitted to be given by either party to the other with respect hereto or to the Subleased Premises shall be in writing and shall be served either by personal delivery with a receipt requested, by overnight air courier service or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Sublandlord:     

CapitalSource Finance LLC

5404 Wiconsin Avenue, Second Floor

Chevy Chase, MD 20815

Attn: General Counsel

If to Subtenant (prior to occupancy of the Subleased Premises):     

PKH Enterprises, LLC

4641 Montgomery Avenue, Suite 300

Bethesda, Maryland 20814

Attn: Patricia K. Hammar

Notices and demands shall be deemed to have been given two (2) days after mailing, if mailed, or, if made by personal delivery or by overnight air courier service, then upon such delivery. Either party may change its address for receipt of notices by giving notice to the other party.

16.Authority, etc. Each party represents and warrants to the other that this Sublease has been duly authorized, executed and delivered by and on behalf of such party and constitutes its valid, enforceable and binding agreement.

17.Security Deposit.

(a) Concurrently with its execution of this Sublease, Subtenant shall deposit with Sublandlord an amount equal to Forty-Four Thousand Six Hundred Twenty-Five Dollars ($44,625), in immediately available federal funds, as security for the full and faithful performance of every provision of this Sublease to be performed by Subtenant. If Subtenant defaults with respect to any provision of this Sublease, including, but not limited to, the provisions relating to the payment of rent, Sublandlord may use, apply or retain all or any part of said security deposit for the payment of any rent and any other sum in default, or for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default or to compensate Sublandlord for any other loss or damage which Sublandlord may suffer by reason of Subtenant’s default. If any portion of said security deposit is so used or applied, Subtenant shall, within five (5) days after written demand therefor, deposit cash with Sublandlord in an amount sufficient to restore the security deposit to its original amount, and Subtenant’s failure to do so shall be a material breach of this Sublease. Except to the extent required by law, Sublandlord shall not be required to keep said security deposit separate from its general funds, and Subtenant shall not be entitled to interest on any security deposit. If Subtenant shall fully and faithfully perform every provision of this Sublease to be performed by it, said security deposit or any balance thereof shall be returned to Subtenant (or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder) within thirty (30) days after the expiration of the term and Subtenant’s vacation of the Subleased Premises. Nothing herein shall be construed to limit the amount of damages recoverable by Sublandlord or any other remedy to the security deposit.

(b) At Subtenant’s election, the security deposit may take the form either of cash or of an unconditional, irrevocable letter of credit (the “Letter of Credit”) from a U.S. banking institution reasonably acceptable to Sublandlord, insured by a federal insurance agency (“Issuer”). The Letter of Credit shall (i) meet the requirements of the “Uniform Customs and Practice for Documentary Credits,” ICC No. 500 (1993 Edition), (ii) name Sublandlord as beneficiary, (iii) be in the amount of the security deposit required hereunder, (iv) be payable in full or partial draws against Sublandlord’s sight draft, (v) include an “evergreen” provision which provides that the Letter of Credit shall be renewed automatically on an annual basis unless the Issuer delivers thirty (30) days prior written notice of cancellation to Sublandlord, (vi) have an initial expiration date no earlier than one year from the date of issue, and (vii) otherwise be in form and substance satisfactory to Sublandlord. In the event the Letter of Credit is ever not renewed when required hereunder, Sublandlord shall have the right to draw upon the Letter of Credit and hold the proceeds thereof as a cash security deposit.

18.Parking. During the term of this Sublease, Subtenant shall have the right to purchase two (2) monthly parking permits in the Building’s parking garage for each 1,000 square feet of rentable area in the Subleased Premises, upon the terms and conditions set forth in Article XXIV of the Prime Lease. Sublandlord shall, at no additional cost, expense or liability to Sublandlord, use commercially reasonable efforts to assist Subtenant in procuring parking vouchers at prevailing rates for the use of the Building’s parking garage by Subtenant’s invitees. Subtenant shall coordinate payment, parking permits, and parking vouchers directly with Landlord or the operator of the Building’s parking garage.

19.Furniture. Throughout the term of this Sublease, Subtenant shall be permitted to use the furniture located in the Subleased Premises on the date of this Sublease (the “Furniture”), which furniture is described on Exhibit C hereto. The Furniture is provided in its “as-is” condition upon delivery of the Subleased Premises. Subtenant shall maintain the Furniture in good condition and repair, ordinary wear and tear excepted, and shall leave the Furniture in the Subleased Premises upon the expiration or earlier termination of this Sublease. Sublandlord shall have no liability for moving the Furniture or any of Subtenant’s own personal property.

20.Signs. Subject to Landlord’s approval, Subtenant, at its sole expense, (i) may install one (1) Building-standard suite entry sign at the main entrance to the Subleased Premises that identifies “PKH Enterprises” and “PKHammar Legal” as occupants of the Subleased Premises, and (ii) shall be entitled to two (2) listings on the Building directory in the main lobby of the Building (one of which may identify “PKH Enterprises” and the other “PKHammar Legal” as occupants of the Subleased Premises.

21.Modifications. Sublandlord shall not amend the Prime Lease with respect to any provision that would affect Subtenant’s rights or obligations hereunder without the Subtenant’s prior written consent.

22.No Breach of Prime Lease. Sublandlord shall not do or permit to be done any act which may constitute a breach or violation of any term, covenant or condition of the Prime Lease and which is not cured within any cure period granted under the Prime Lease.

23.Consent of Landlord. The obligations of Sublandlord and Subtenant under this Sublease are conditioned and contingent upon Landlord consenting hereto by executing and delivering a counterpart of this Sublease or a separate instrument signifying its consent. In the event Landlord’s consent is not obtained within thirty (30) days after the date hereof, this Sublease shall be null and void, and neither Sublandlord nor Subtenant shall have any further obligations or liability hereunder or to each other with respect to the Subleased Premises.

24.Examination. Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of or option for the Subleased Premises or in any manner bind Sublandlord, and no lease, sublease or obligation of Sublandlord shall arise until this instrument is signed and delivered by Sublandlord and Subtenant and the consent of Landlord is obtained as described in Section 23 above.

[REMAINDER OF PAGE BLANK; SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date aforesaid.

ATTEST/WITNESS:	Sublandlord: CAPITALSOURCE FINANCE LLC
By: ______________________________	By: ___/s/ John A. Bogler    John A. Bogler Its: ___CFO__________________________
	Subtenant: PKH ENTERPRISES, LLC
By: ___/s/ Philip Hammar_____________	By: _/s/ Patricia K. Hammar Its: Managing Member

EXHIBIT A

Subleased Premises

{to be attached}

EXHIBIT B

Subleasehold Improvements

{to be attached}

DEMOLITION

1. G.C. shall coordinate demolition with existing and new walls shown in the space plan.

CEILINGS

2. Existing lighting, ceiling grid and tile and GWB ceiling to be reused throughout space. G.C. to patch and repair at locations of demolition. Lighting layout to be reconfigured to accommodate new partition layout.

3. G.C. to provide and install new square downlights and linear diffusers to match existing at Reception.

4. G.C. to provide separate line item pricing for two (2) wall washers at reception glass wall.

5. G.c. to provide separate line item pricing for under cabinet light fixtures at new Pantry.

FINISHES

6. G.C. shall provide ceramic tile floor at $ /SF at Reception.

7. G.C. shall provide new wall paint through out and new accent walls at each existing Office.

8. G.C. shall provide and install new luxury vinyl tile at $ /SF at Pantry.

9. G.C. shall provide and install new VCT at Server Room.

10. At Conference, G.C. to provide and install new manual Modernfold partition with COM fabric, coordinate structural steel reinforcement.

11. G.C. shall patch and match existing finishes and ceiling at areas of new work and demolition. G.C. to coordinate public corridor finishes with Capital Source Bank.

MILLWORK

12. At Pantry; G.C shall provide and install new plastic laminate upper and lower cabinets with 2’-0” deep solid surface counter top. G.C. shall provide and install new 2’-0” deep solid surface counter top at new bar top table at Pantry, counter top to waterfall down to the floor.

13. At Reception; G.C shall provide and install new wood plastic laminate reception desk with 2’-6” deep plastic laminate countertop with grommets, plastic laminate box/box/file, and 10” deep stone transaction ledge.

14. At Coffee Station; G.C. shall provide and install wood plastic laminate lower cabinets with 2’-0” stone countertop and backsplash.

15. At Conference Room; G.C. shall provide and install new wood plastic credenza with lower cabinets and 2’-0” stone countertop.

16. At Coats; G.C. to provide and install new melamine coat rod and shelf.

MECHANICAL/ENGINEERING

17. G.C. shall provide an air balance report for full suite upon completion of construction.

18. The building is fully sprinklered. Modify sprinkler head location as required.

19. Configure the existing base building HVAC as necessary to accommodate the new plan and meet code.

20. G.C. shall provide and install exhaust fan with operable switch at Pantry.

21. G.C. shall provide and install exhaust fan and louver in door at Server Room to properly cool tenant equipment.

DOORS

22. G.C. to provide new 3’-0”x8’-0” paint grade doors with painted frames to match existing at all areas of new work.

23. At Main Suite Entry; G.C shall provide and install new 3’-0” full height single glass herculite doors to match other tenants on the floor at with butt-glaz glass panels to the right of the door.

24. G.C to provide and install new butt-glaz glass walls at Conference, glass detail to match existing glass sidelights.

25. G.C. to relocate existing glass office panels behind Reception desk. Provide film product for tenant logo in color or contrasting finish to existing panels.

26. G.C. to provide and install new 3’-0”x8’-0” stain grade suite entry door to match building standard, at back of tenant suite..

POWER

27. Existing power to be reused. Existing tele/data will need to be terminated back to panel in existing Floor Telecom Room. New tele/data to be pulled by tenant vendor.

28. New one (1) card reader to be installed at all each suite entry door. G.C to coordinate with tenant security vendor.

29. At Conference;G.C. to provide and install two (2) new floor boxes for power/data/VGA and cable at powered tables. New power/data/cable to be provided at new tenant provided TV locations above new credenza.

PLUMBING

30. At Pantry; G.C shall provide and install new stainless steel dishwasher, microwave and refrigerator with water dispenser. Along with a new sink with disposal and waterline for tenant provided coffee maker.

31. At Coffee Station, G.C. shall provide and install new waterline for tenant provided coffee maker.

WALLS

32. G.C shall relocate existing panel offices, existing power and furniture to new location of interior offices.

33. G.C shall provide and install new slab to slab demising partition at public corridor extension, Files , Storage and Server.

34. At Conference; G.C. shall provide and install new slab to slab sound insulated partitions, unless otherwise noted. At Movable Partition pocket, walls to be slab to ceiling.

EXHIBIT C

Furniture

• 20 office desk sets

• 10 workstations

• 43 ergonomic chairs

• 20 bookcases

• File Cabinets

◦ 12- 2 drawer file cabinets

◦ 4- 3 drawer file cabinets

◦ 7- 4 drawer file cabinets

1

GENBUS/937547.1

EX-10.3.8

SUBLEASE

THIS SUBLEASE (this “Sublease”) is made and entered into as of the 15th day of November, 2013, by and between CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (“Sublandlord”), and ABACUS TECHNOLOGY CORPORATION, a Delaware corporation (“Subtenant”).

W I T N E S S E T H:

WHEREAS, by that certain Office Lease Agreement dated as of April 27, 2007, as amended by Amendment No. 1 to Lease dated as of August 25, 2008, Amendment No. 2 to Lease dated as of February 17, 2009, and Amendment No. 3 to Lease dated as of April 8, 2010 (collectively and together with any other amendments thereto, the “Prime Lease”), Wisconsin Place Office LLC (“Landlord”) leases to Sublandlord certain premises (the “Master Premises”) in the building known as Wisconsin Place and located at 5404 Wisconsin Avenue, Chevy Chase, Maryland (the “Building”); and

WHEREAS, subject to the consent of Landlord, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, a portion of the Master Premises consisting of approximately 16,220 square feet of rentable area of the eleventh (11^th) floor of the Building, in the space identified as “Tenant #1” on Exhibit A hereto (hereinafter referred to as the “Subleased Premises”), all upon the terms and subject to the conditions and provisions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Sublandlord and Subtenant hereby agree as follows:

1.Demise; Use. Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord the Subleased Premises for the term and rental and upon the other terms and conditions hereinafter set forth, to be used and occupied by Subtenant solely for general office use and for no other purpose.

2.Term; Sublease Year; Termination Option.

(a) The “Effective Date” of the Sublease shall be the date upon which the last of the following occurs: (i) each of Subtenant and Sublandlord have executed and delivered this Sublease and (ii) Landlord has delivered its consent to this Sublease, as required under Section 23 hereof.

(b) The term of this Sublease shall commence on the May 1, 2014 (the “Commencement Date”), and unless sooner terminated pursuant to the provisions hereof, shall terminate on May 25, 2024 or any earlier date as of which the Prime Lease may be terminated.

(c) Early Entry.

(i) As soon as practicable following the Effective Date, Sublandlord shall permit Subtenant and its contractors to enter the Subleased Premises for the exclusive purpose of measuring the Subleased Premises and performing other planning activities that are necessary as a precursor to the Subtenant Work (as hereinafter defined). The scheduling and coordination of Subtenant’s contractors will be subject to regulation by Sublandlord to avoid interferences with labor employed by Sublandlord.

(ii) Upon written request from Subtenant delivered after completion of the Sublandlord Work, Sublandlord may elect (which election must be in writing), in its sole discretion, to permit Subtenant and its contractors and workmen to enter the Sublease Premises for the exclusive purposes of coordinating and performing the Subtenant Work (as hereinafter defined) and relocating its services and equipment within the Subleased Premises. The license permitted under this subsection (ii) shall be subject to (A) Subtenant’s providing Sublandlord with evidence of commercial general liability insurance in amounts reasonably required by Sublandlord, the requirements of subsection (iii) below, and such other terms and conditions as Sublandlord may impose in its sole discretion.

(iii) The licenses to enter prior to the Commencement Date (but after the Effective Date) set forth in subparagraphs (i) and (ii) above, however, are conditioned upon Subtenant’s contractors working in harmony and not interfering with the labor employed by Sublandlord. Any such entry before the Commencement Date shall be subject to all terms of this Sublease, except the covenant to pay Base Rent; provided, that no such early entry shall be deemed to constitute occupancy by Subtenant or change the Commencement Date. Subtenant shall indemnify and hold harmless Sublandlord, Sublandlord’s affiliates, and any of their respective agents, employees, licensees, servants, invitees, or contractors from any damage to the Building, the Subleased Premises or any persons caused by Subtenant or Subtenant’s agents, employees, licensees, servants, invitees, or contractors during such period of early entry or otherwise in connection with the Subtenant Work.

(d) Subtenant shall have a one-time right to terminate the Lease (the “Termination Option”) on the last day of the sixtieth (60^th) full calendar month following the Commencement Date (the “Termination Date”) by providing Sublandlord with written notice of its election to exercise the Termination Option no later than ten (10) months prior to the Termination Date; provided, however, that (i) both as of the date Subtenant delivers the aforesaid notice and as of the Termination Date no Event of Default has occurred, and (ii) Subtenant delivers the Termination Fee (as hereinafter defined) to Sublandlord on or before that date that is twenty (20) days following Sublandlord’s delivery to Subtenant of Sublandlord’s calculation of the Termination Fee. Time is of the essence with respect to the foregoing. The term “Termination Fee” shall mean the amount equal to the then unamortized portion of the Leasing Costs (as hereinafter defined) with (for purposes of such calculation) such costs being amortized in equal monthly installments over the period commencing on the Commencement Date and expiring on May 25, 2024 at three percent (3%) per annum simple interest. The term “Leasing Cost” shall include the amount of all Base Rent abated pursuant to Section 3(c), all costs incurred by Sublandlord in connection with any alterations to the Subleased Premises other than the Subtenant Work, the Sublandlord’s Contribution, and all brokerage and/or leasing commissions associated with this Sublease. If Sublandlord and Subtenant amend this Sublease in the future, the Leasing Costs shall be appropriately adjusted. Notwithstanding the foregoing, the term Leasing Cost shall not include those costs incurred by Sublandlord solely in connection with the Sublandlord Work. The Termination Option is personal to Subtenant, may not be exercised by any other party, and shall become null and void upon the occurrence of an assignment of the Sublease or a sublet of all or a part of the Subleased Premises.

3.Base Rent.

(a) Subtenant shall pay to Sublandlord base rental (“Base Rent”) for the Subleased Premises as follows:

Period	Annual Base Rent per Rentable Square Foot
5/1/14 – 4/30/15	$45.00
5/1/15 – 4/30/16	$46.13
5/1/16 – 4/30/17	$47.28
5/1/17 – 4/30/18	$48.46
5/1/18 – 4/30/19	$49.67
5/1/19 – 4/30/20	$50.91
5/1/20 – 4/30/21	$52.19
5/1/21 – 4/30/22	$53.49
5/1/22 – 4/30/23	$54.83
5/1/23 – 4/30/24	$56.20
5/1/24 – 5/25/24	$57.60

Base Rent shall be due and payable in equal monthly installments. Except as provided in Section 3(c) below, each such installment shall be due and payable in advance on the first day of each calendar month of the term hereof. If the term of this Sublease commences on a day other than the first day of a month or ends on a day other than the last day of a month, Base Rent for such month shall be prorated; prorated Base Rent for any such partial first month of the term hereof shall be paid on the date on which the term commences. Concurrently with its execution of this Sublease, Subtenant shall pay to Sublandlord the installment of Base Rent due for the first full calendar month within the term of this Sublease following the abatement period described in Section 3(c) below, which sum is $60,825.00.

(b) All Base Rent and additional rent shall be paid without any notice, setoff or deduction whatsoever, and shall be paid to Sublandlord at its address set forth in Section 15 below or at such other place as Sublandlord may designate by notice to Subtenant.

(c) Notwithstanding anything to the contrary set forth above, so long as no Event of Default has occurred, Base Rent payable by Subtenant to Sublandlord as provided above shall be abated with respect to the period commencing on the Commencement Date and expiring on January 31, 2015 (the “Rent Abatement Period”).

(d) Sublandlord and Subtenant stipulate that the rentable square footage of the Subleased Premises shall be 16,220 for all purposes of this Sublease and, notwithstanding any provision of the Prime Lease to the contrary, shall not be subject to remeasurement.

4.Additional Rent; Payments; Interest.

(a) In addition to the Base Rent described above, commencing on January 1, 2015, Subtenant shall pay to Sublandlord, as additional rent, Operating Expenses and Real Estate Taxes with respect to the Subleased Premises in accordance with the provisions of the Prime Lease; provided, however, that Subtenant shall be liable only for increases in Operating Expenses and Real Estate Taxes above a calendar year 2014 base year, as shown on the statement submitted by Landlord to Sublandlord for calendar year 2014 and each calendar year thereafter, which statements shall be submitted by Sublandlord to Subtenant, along with a computation of Subtenant’s share of any such increase. Subtenant’s share of increases in the Operating Expenses and Real Estate Taxes shall be determined in accordance with Section 4.1(b) of the Prime Lease, except that the term “Premises” as used therein shall be deemed to refer to the Subleased Premises. Sublandlord estimates, as of the date of this Sublease, that Subtenant shall be responsible for 12.03% of Sublandlord’s share of increases in Operating Expenses and Real Estate Taxes.

(b) Subtenant shall pay to Sublandlord all other amounts payable by Sublandlord under the Prime Lease to the extent attributable to the Subleased Premises (as distinguished from the Master Premises generally) or attributable to Subtenant, its agents, employees, customers or invitees. By way of example and not by way of limitation, charges by Landlord for furnishing air conditioning or heating to the Subleased Premises at times in addition to those certain times specified in the Prime Lease, charges by Landlord for supplemental heating, ventilating and air conditioning equipment or the use thereof, costs incurred by Landlord in repairing damage to the Building caused by an employee of Subtenant, increased insurance premiums due as a result of Subtenant’s use of the Subleased Premises, and amounts expended or incurred by Landlord on account of any default by Subtenant which gives rise to a default under the Prime Lease would be amounts payable by Subtenant pursuant to this Section 4(b).

(c) Each amount due pursuant to Section 4(a) and 4(b) above and each other amount payable by Subtenant hereunder, unless a date for payment of such amount is provided for elsewhere in this Sublease, shall be due and payable on the tenth day following the date on which Landlord or Sublandlord has given notice to Subtenant of the amount thereof, but in no event later than the date on which any such amount is due and payable under the Prime Lease.

(d) All amounts other than Base Rent payable to Sublandlord under this Sublease shall be deemed to be additional rent due under this Sublease. All past due installments of Base Rent and additional rent shall bear interest from the date due until paid at the rate per annum that is applicable to late payments pursuant to the Prime Lease, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged. All past due installments of Base Rent and additional rent shall be subject to the same late charges as are applicable to late payments under the Prime Lease.

(e) Subtenant shall pay directly to Landlord on or before the applicable due dates for all services requested by Subtenant that are billed by Landlord directly to Subtenant rather than through Sublandlord.

5. Condition of Subleased Premises; Sublandlord Work; Subtenant Work.

(a) Subtenant accepts the Subleased Premises in their current “as-is” condition; provided, however, that prior to the Commencement Date, Sublandlord, at its cost, will (collectively, the “Sublandlord Work”) (i) build-out the cross-hatched area shown on Exhibit B attached hereto (“Corridor Improvement Area”) as necessary to convert the eleventh (11^th) floor of the Building from a single tenant floor to a multiple tenant floor, as shown on Exhibit B, substantially in accordance with the specifications shown on Exhibits B and B-1 attached hereto, and (ii) finishing of the demising walls to be installed in the Corridor Improvement Area that face the Subleased Premises and repairs/paint to certain walls within the Subleased Premises substantially in accordance with the specifications shown on Exhibits B and B-1 attached hereto.

(b) Subtenant, at its sole cost and expense (subject to Landlord’s Contribution), shall be responsible for the full performance of the Subtenant Work described on Exhibit C attached hereto and made a part hereof. Upon the substantial completion of the Subtenant Work, Subtenant shall deliver to Sublandlord complete “as built” computer aided design files for the Subleased Premises.

(c) Subtenant’s taking possession of the Subleased Premises shall be conclusive evidence as against Subtenant that the Subleased Premises were in good order and satisfactory condition when Subtenant took possession. Upon the expiration of the term hereof, or upon any earlier termination of the term hereof or of Subtenant’s right to possession, Subtenant shall surrender the Subleased Premises in at least as good condition as at the commencement of the term hereof, ordinary wear and tear excepted. Notwithstanding the foregoing, if Subtenant takes possession of the Subleased Premises prior to the substantial completion of the Sublandlord Work, then Landlord shall remain obligated to complete any Punch List Work. “Punch List Work” shall mean minor adjustments or repairs to the Sublandlord Work and/or items of incomplete Sublandlord Work that do not prevent the Subtenant from occupying the Subleased Premises for the normal conduct of its business. If the Sublandlord Work is not substantially complete by the Commencement Date such that Subtenant is not able to occupy the Subleased Premises for the normal conduct of its business, then the expiration of the Rent Abatement Period provided for in Section 3(c) shall be extended by the number of days that Subtenant is unable to occupy the Subleased Premises for the normal conduct of its business due to a delay in the substantial completion of the Sublandlord Work. For example, if due to the Sublandlord Work not being substantially complete, Subtenant were unable to occupy the Subleased Premises for the normal conduct of its business until May 6, 2014 (five (5) days after the Commencement Date), then the Rent Abatement Period would then expire on February 5, 2015.

(d) Upon substantial completion of the Sublandlord Work, Sublandlord or its representative shall prepare a detailed list of Punch List Work to be corrected; and Sublandlord shall deliver a copy of the detailed punch list to Subtenant at its address for notices in this Sublease. Sublandlord and Subtenant shall schedule a Punch List Work walk through at which Sublandlord or its representative and Subtenant or its representative shall be present to discuss the list of Punch List Work. All Punch List Work shall be completed promptly following the Punch List Work walk through.

6.The Prime Lease.

(a) This Sublease and all rights of Subtenant hereunder and with respect to the Subleased Premises are subject and subordinate to the terms, conditions and provisions of the Prime Lease. Subtenant hereby assumes and agrees to perform faithfully and be bound by, with respect to the Subleased Premises, all of Sublandlord’s obligations, covenants, agreements and liabilities under the Prime Lease and all terms, conditions, provisions and restrictions contained in the Prime Lease except:

(i) for the payment of Base Rent, Operating Expenses, and Real Estate Taxes in amounts other than as set forth in this Sublease;

(ii) that Subtenant shall not have any obligation or right to construct or install leasehold improvements except as may be expressly provided herein; and

(iii) that the following provisions of the Prime Lease do not apply to this Sublease: (A) any provisions in the Prime Lease allowing or purporting to allow Sublandlord any rent concessions or abatements or construction allowances, (B) any provisions of the Prime Lease granting Sublandlord any expansion options, renewal options, termination options, or rights of first offer or first refusal, and (C) any provisions in the Prime Lease that relate solely to the portion of the Master Premises that does not include the Subleased Premises or any other rights granted to Subtenant hereunder.

(b) Without limitation of the foregoing:

(i) Subtenant shall not make any changes, alterations or additions in or to the Subleased Premises, except the Subtenant Work or as otherwise expressly provided herein, without the prior written consent of Sublandlord, which consent shall not be unreasonably withheld, conditioned, or delayed;

(ii) If Subtenant desires to take any other action and the Prime Lease would require that Sublandlord obtain the consent of Landlord before undertaking any action of the same kind, Subtenant shall not undertake the same without the prior written consent of Sublandlord. Sublandlord may condition its consent on the consent of Landlord being obtained and may require Subtenant to contact Landlord directly for such consent;

(iii) All rights given to Landlord and its agents and representatives by the Prime Lease to enter the Master Premises shall inure to the benefit of Sublandlord and its agents and representatives with respect to the Subleased Premises;

(iv) Sublandlord shall also have all other rights, privileges, options, reservations and remedies granted or allowed to or held by Landlord under the Prime Lease;

(v) With respect to the insurance required to be maintained under clause (2) of Section 13.3(a) of the Prime Lease, Subtenant’s obligations shall be limited to maintaining all-risk property insurance for the full replacement value of the Furniture and Subtenant’s fixtures and personal property located within the Subleased Premises (“Subtenant’s Property Insurance”). Subtenant shall otherwise maintain insurance of the kinds and in the amounts required to be maintained by Sublandlord under the Prime Lease. All policies of liability insurance shall name as additional insureds Landlord and Sublandlord and their respective officers, directors or partners, as the case may be, and the respective agents and employees of each of them. All policies of insurance maintained by Subtenant in connection with this Sublease or the Subleased Premises will be written as primary policy coverage and not contributing to or in excess of any coverage which Landlord and/or Sublandlord may carry. Upon the earlier of the Commencement Date or Subtenant’s entry into the Subleased Premises to perform the Subtenant Work and thereafter not later than thirty (30) days before any scheduled date of expiration of such insurance, Subtenant shall furnish Sublandlord with certificates of insurance evidencing that Subtenant is carrying the insurance required to be carried by Subtenant hereunder. If Sublandlord elects to reconstruct the Subleased Premises following a casualty in accordance with the Prime Lease, Subtenant shall use any available proceeds of Subtenant’s Property Insurance to reconstruct, repair, and replace Subtenant’s fixtures and personal property located within the Subleased Premises;

(vi) Subtenant shall not do anything or suffer or permit anything to be done which could result in a default under the Prime Lease or permit the Prime Lease to be cancelled or terminated; and

(vii) Sublandlord shall promptly deliver to Subtenant any notice of default received by Sublandlord from Landlord; and Subtenant shall promptly deliver to Sublandlord any notice of default received by Subtenant from Landlord.

(c) Notwithstanding anything contained herein or in the Prime Lease that may appear to be to the contrary, Sublandlord and Subtenant hereby agree as follows:

(i) Subtenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or any interest of Subtenant in this Sublease, by operation of law or otherwise, or permit the use of the Subleased Premises or any part thereof by any persons other than Subtenant and Subtenant’s employees, or sublet the Subleased Premises or any part thereof, without the prior written consent of Landlord and Sublandlord (which consent of Sublandlord shall not be unreasonably withheld, conditioned or delayed);

(ii) Neither rental nor other payments hereunder shall abate by reason of any damage to or destruction of the Subleased Premises, the Master Premises or the Building or any part thereof, unless, and then only to the extent that, rental and such other payments actually abate under the Prime Lease with respect to the Subleased Premises on account of such event;

(iii) Subtenant shall not have any right to any portion of the proceeds of any award for a condemnation or other taking, or a conveyance in lieu thereof, of all or any portion of the Building, the Master Premises or the Subleased Premises;

(iv) Subtenant shall not have any right to exercise or have Sublandlord exercise any option under the Prime Lease, including, without limitation, any option to extend the term of the Prime Lease or lease additional space; and

(v) Subject to Section 6(a) above, as between Sublandlord and Subtenant, in the event of any conflict between the terms, conditions and provisions of the Prime Lease and of this Sublease, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control.

(d) It is expressly understood and agreed that Sublandlord does not assume and shall not have any of the obligations or liabilities of Landlord under the Prime Lease and that Sublandlord is not making the representations or warranties, if any, made by Landlord in the Prime Lease. With respect to work, services, repairs and restoration or the performance of other obligations required of Landlord under the Prime Lease, Sublandlord’s sole obligation with respect thereto shall be to request the same, upon written request from Subtenant, and to use reasonable efforts to obtain the same from Landlord (including taking such reasonable actions as may necessary to enforce Sublandlord’s rights under the Prime Lease), at no expense to Sublandlord. Sublandlord shall not be liable in damages, nor shall rent abate hereunder, for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease.

(e) Nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord, except the agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and then only to the extent of the same.

7.Default by Subtenant.

(a) Upon the happening of any of the following (each, an “Event of Default”):

(i) Subtenant fails to pay any Base Rent within five (5) days after written notice to Subtenant; provided, however, that Sublandlord shall only be required to provide written notice of such failure to pay Base Rent when due two (2) times in any eighteen (18) month period and on the third time in such eighteen (18) month period that an installment of Base Rent remains unpaid when due, it shall be an Event of Default without notice;

(ii) Subtenant fails to pay any other amount when due from Subtenant hereunder and such failure continues for five (5) days after written notice thereof from Sublandlord to Subtenant;

(iii) Subtenant fails to perform or observe any other covenant or agreement set forth in this Sublease and such failure continues for fifteen (15) days after written notice thereof from Sublandlord to Subtenant; however, if such failure is not capable of being cured within such fifteen (15) day period, then provided that Subtenant commences curative action within such fifteen (15) day period and proceeds diligently and in good faith thereafter to cure such failure, such cure period shall be extended for the period necessary to complete such cure, but not to exceed sixty (60) days; or

(iv) any other event occurs which involves Subtenant or the Subleased Premises and which would constitute a default under the Prime Lease if it involved Sublandlord or the Master Premises;

Subtenant shall be deemed to be in default hereunder, and Sublandlord may, without limitation of any other rights and remedies available to it hereunder or at law or in equity and exercise any and all other rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Sublandlord thereunder.

(b) In the event Subtenant fails or refuses to make any payment or perform any covenant or agreement to be performed hereunder by Subtenant, Sublandlord may make such payment or undertake to perform such covenant or agreement (but shall not have any obligation to Subtenant to do so). In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs, expenses and reasonable attorneys’ fees incurred by Sublandlord in connection therewith, together with interest on all of the foregoing at the rate specified in Section 4(d) above as applicable to late payments of rent, shall be due as additional rent hereunder.

8.Nonwaiver. Failure of Sublandlord to declare any default or delay in taking any action in connection therewith shall not waive such default. No receipt of moneys by Sublandlord from Subtenant after the termination in any way of the term or of Subtenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the term or affect any notice given to Subtenant or any suit commenced or judgment entered prior to receipt of such moneys.

9.Cumulative Rights and Remedies. All rights and remedies of Sublandlord under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law.

10.Indemnity. Subtenant agrees to indemnify, defend and hold harmless Landlord, Sublandlord and the managing agent of the Building and each of their respective officers, directors, partners, agents and employees, from and against any and all claims, demands, costs and expenses of every kind and nature, including reasonable attorneys’ fees and litigation expenses, arising from Subtenant’s occupancy of the Subleased Premises, Subtenant’s construction of any leasehold improvements in the Subleased Premises, any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease, or any act or neglect of Subtenant or its agents, officers, employees, guests, servants, invitees or customers in or about the Subleased Premises, except to the extent that such claims, demands, costs and expenses arise from the gross negligence or willful misconduct of Sublandlord. Sublandlord agrees to indemnify, defend and hold harmless Subtenant and its officers, directors, partners, agents and employees from and against any and all claims, demands, costs and expenses of every kind and nature, including reasonable attorneys’ fees and litigation expenses, arising from any breach or default on the part of Sublandlord in the performance of any agreement or covenant of Sublandlord to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease. In case any such proceeding is brought against any of said indemnified parties, the indemnifying party covenants, if requested by an indemnified party, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to the indemnified party.

11.Waiver of Subrogation. Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant each hereby waives any and all rights of recovery, claims, actions or causes of action against the other and the officers, directors, partners, agents and employees of each of them, and Subtenant hereby waives any and all rights of recovery, claims, actions or causes of action against Landlord and its agents and employees, for any loss or damage that may occur to the Subleased Premises or the Master Premises, or any improvements thereto, or any personal property of any person therein or in the Building, by reason of fire, the elements or any other cause insured against (or required by the Prime Lease or this Sublease to be insured against) under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law.

12.Brokerage Commissions. Each party hereby represents and warrants to the other that it has had no dealings with any real estate broker or agent in connection with this Sublease, excepting only Larsen Commercial Real Estate Services, Inc. and Transwestern Commercial Services, whose commissions shall be paid by Sublandlord pursuant to the terms of a separate written agreement, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Each party agrees to protect, defend, indemnify and hold the other harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finder’s or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties.

13.Successors and Assigns. This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Sublandlord and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved, Subtenant’s assigns.

14.Entire Agreement. This Sublease contains all the terms, covenants, conditions and agreements between Sublandlord and Subtenant relating in any manner to the rental, use and occupancy of the Subleased Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect. The terms, covenants and conditions of this Sublease cannot be altered, changed, modified or added to except by a written instrument signed by Sublandlord and Subtenant.

15.Notices. Notices and demands required or permitted to be given by either party to the other with respect hereto or to the Subleased Premises shall be in writing and shall be served either by personal delivery with a receipt requested, by overnight air courier service or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Sublandlord:     

CapitalSource Finance LLC

5404 Wisconsin Avenue

Second Floor

Chevy Chase, MD 20815

Attn: General Counsel

If to Subtenant prior to the Commencement Date:     

Abacus Technology Corporation

5454 Wisconsin Avenue

Suite 1100

Chevy Chase, MD 20815

Attn: Dennis J. Yee, President

If to Subtenant from and after the Commencement Date:     

Abacus Technology Corporation

5404 Wisconsin Avenue

Chevy Chase, MD 20815

Attn: Dennis J. Yee, President

Notices and demands shall be deemed to have been given two (2) days after mailing, if mailed, or, if made by personal delivery or by overnight air courier service, then upon such delivery. Either party may change its address for receipt of notices by giving written notice to the other party.

Subtenant may contact Jevell Branch (301/841-2758), or such other party designated from time to time by Sublandlord, with respect to requests related to the daily management of the Subleased Premises; provided, however, that (i) such party may not bind Sublandlord, and (ii) any notices or requests required pursuant to this Sublease shall not be deemed given or effective unless delivered to Sublandlord at its address for notices above.

16.Authority, etc. Each party represents and warrants to the other that this Sublease has been duly authorized, executed and delivered by and on behalf of such party and constitutes its valid, enforceable and binding agreement.

17.Security Deposit.

(a) Concurrently with its execution of this Sublease, Subtenant shall deposit with Sublandlord One Hundred Twenty-One Thousand Six Hundred Fifty and No/100 Dollars ($121,650.00) as security for the full and faithful performance of every provision of this Sublease to be performed by Subtenant. If an Event of Default has occurred (which default shall include, but shall not be limited to, the provisions relating to the payment of rent), Sublandlord may use, apply or retain all or any part of said security deposit for the payment of any rent and any other sum in default, or for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default or to compensate Sublandlord for any other loss or damage which Sublandlord may suffer by reason of Subtenant’s default (which may include making a partial draw upon any Letter of Credit provided by Subtenant pursuant to Section 17(b) hereof). If any portion of said security deposit is so used or applied, Subtenant shall, within five (5) days after written demand therefor, deposit cash with Sublandlord in an amount sufficient to restore the security deposit to its original amount, and Subtenant’s failure to do so shall be a material breach of this Sublease. Except to the extent required by law, Sublandlord shall not be required to keep said security deposit separate from its general funds, and Subtenant shall not be entitled to interest on any security deposit. If Subtenant shall fully and faithfully perform every provision of this Sublease to be performed by it, said security deposit or any balance thereof shall be returned to Subtenant (or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder) within forty-five (45) days after the expiration of the term and Subtenant’s vacation of the Subleased Premises. Nothing herein shall be construed to limit the amount of damages recoverable by Sublandlord or any other remedy to the security deposit.

(b) At Subtenant’s election, the security deposit may take the form either of cash or of an unconditional, irrevocable letter of credit (the “Letter of Credit”) from a U.S. banking institution reasonably acceptable to Sublandlord, insured by a federal insurance agency (“Issuer”). The Letter of Credit shall (i) meet the requirements of the “Uniform Customs and Practice for Documentary Credits,” ICC No. 500 (1993 Edition), (ii) name Sublandlord as beneficiary, (iii) be in the amount of the security deposit required hereunder, (iv) be payable in full or partial draws against Sublandlord’s sight draft, (v) include an “evergreen” provision which provides that the Letter of Credit shall be renewed automatically on an annual basis unless the Issuer delivers thirty (30) days prior written notice of cancellation to Sublandlord, (vi) have an initial expiration date no earlier than one year from the date of issue, and (vii) otherwise be in form and substance satisfactory to Sublandlord. In the event the Letter of Credit is ever not renewed when required hereunder, Sublandlord shall have the right to draw upon the Letter of Credit and hold the proceeds thereof as a cash security deposit. Provided that Subtenant is not then in default of any of its obligations hereunder and no act, omission, fact, circumstance, condition or event that with the giving of notice or the passage of time or both would constitute a default hereunder exists, Sublandlord shall return the Letter of Credit to Subtenant within forty-five (45) days after the expiration of this Sublease and Subtenant’s vacation of the Subleased Premises.

18.Parking. During the term of this Sublease, Subtenant shall have the right to purchase two (2) monthly parking permits in the Building’s parking garage for each 1,000 square feet of rentable area in the Subleased Premises, upon the terms and conditions set forth in Article XXIV of the Prime Lease. Sublandlord shall, at no additional cost, expense or liability to Sublandlord, use commercially reasonable efforts to assist Subtenant in procuring parking vouchers at prevailing rates for the use of the Building’s parking garage by Subtenant’s invitees. Subtenant shall coordinate payment, parking permits, and parking vouchers directly with Landlord or the operator of the Building’s parking garage.

19.Furniture; Telephone and Data.

(a) Throughout the term of this Sublease, Subtenant shall be permitted to use the furniture located in the Subleased Premises on the date of this Sublease and listed on Exhibit D attached hereto (the “Furniture”) at no additional charge to Subtenant. The Furniture is provided in its “as-is” condition upon delivery of the Subleased Premises. Subtenant shall maintain the Furniture in good condition and repair, ordinary wear and tear excepted, and shall leave the Furniture in the Subleased Premises upon the expiration or earlier termination of this Sublease. Sublandlord shall have no liability for moving the Furniture or any of Subtenant’s own personal property.

(b) Sublandlord may remove any and all telephone and data equipment that is located in the Subleased Premises as of the Effective Date. The data and phone cabling located in the Subleased Premises is provided in its “as-is” condition upon delivery of the Subleased Premises. Subtenant may install its own data and phone cabling in the Subleased Premises as part of the Subtenant Work. Subtenant shall (i) coordinate its installation of the data and phone cabling to avoid interferences with labor employed by Sublandlord, (ii) coordinate its installation of, and maintain during the term of this Sublease, the data and phone cabling in order to avoid interference with the existing data and phone cabling and the use thereof by Sublandlord and other tenants and subtenants of the Building.

(c) At Sublandlord’s option, Subtenant shall remove, at Subtenant’s sole cost and expense, all cabling and equipment installed by or on behalf of Subtenant from the Risers by no later than the expiration or earlier termination of this Sublease. If Subtenant is unable (after using reasonable good faith efforts or because Subtenant continues to use and occupy the Subleased Premises until sufficiently late in the term of this Sublease that the removal cannot reasonably be completed by the last day of the term of this Sublease) to remove such equipment prior to the expiration or earlier termination of this Lease, Subtenant shall pay to Sublandlord, prior to such expiration or earlier termination of the Sublease, an amount reasonably estimated by Sublandlord for the cost of such removal (and Sublandlord shall be entitled to withhold such amount from the Security Deposit if Subtenant’s failure to pay such amount prior to the expiration or earlier termination of this Sublease). All damages and injury to the Risers, the Subleased Premises, the Master Premises, or the Building caused by such removal (except for any negligence on the party of Sublandlord’s contractors, if applicable) shall be repaired by Subtenant, at Subtenant’s sole expense and in a manner approved by Sublandlord. If the Sublease terminates contemporaneously with the term of the Prime Lease, Subtenant may negotiate with Landlord to obtain Landlord’s consent to Subtenant’s cabling and equipment remaining in the Subleased Premises and the Risers; provided, however, (i) that Subtenant shall indemnify and hold Sublandlord harmless from any cost or expense related to such cabling and equipment or such negotiations with Landlord, and (ii) if such consent is not obtained from Landlord, then Subtenant shall immediately remove such cabling and equipment in accordance with this subsection (c) and all other provisions of this Sublease.

20.Signs. Subject to Landlord’s approval, Subtenant, at its sole expense, (i) may install one (1) Building-standard suite entry sign at the main entrance to the Subleased Premises, and (ii) shall be entitled to one (1) listing on the Building directory in the main lobby of the Building.

21.Modifications. Sublandlord shall not amend the Prime Lease with respect to any provision that would affect Subtenant’s rights or obligations hereunder without the Subtenant’s prior written consent.

22.No Breach of Prime Lease. Sublandlord shall not do or permit to be done any act which may constitute a breach or violation of any term, covenant or condition of the Prime Lease and which is not cured within any cure period granted under the Prime Lease.

23.Consent of Landlord. The obligations of Sublandlord and Subtenant under this Sublease are conditioned and contingent upon Landlord consenting hereto by executing and delivering a separate instrument signifying its consent. In the event Landlord’s consent is not obtained within thirty (30) days after the date hereof, this Sublease shall be null and void, and neither Sublandlord nor Subtenant shall have any further obligations or liability hereunder or to each other with respect to the Subleased Premises.

24.Examination. Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of or option for the Subleased Premises or in any manner bind Sublandlord, and no lease, sublease or obligation of Sublandlord shall arise until this instrument is signed and delivered by Sublandlord and Subtenant and the consent of Landlord is obtained as described in Section 23 above.

25.Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Prime Lease.

[REMAINDER OF PAGE BLANK; SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date aforesaid.

ATTEST/WITNESS:	Sublandlord: CAPITALSOURCE FINANCE LLC
By: __/s/_Sima Parsa_______________	By: __/s/___John Bogler_________________ Its: __CFO__________________________
	Subtenant: ABACUS TECHNOLOGY CORPORATION
By: ___/s/ Jane C. Cross___________	By: __/s/ Dennis J. Yee_______________ Its: ___President_____________________

EXHIBIT A

Subleased Premises

{see attached}

EXHIBIT B

Sublandlord Improvements

{see attached}

EXHIBIT B-1

Notes to Sublandlord Improvement Drawing

The following notes correspond to the numbers on the drawing in Exhibit B hereinabove:

1.     Existing glass double door and hardware to be relocated at Subtenant suite entry.

2. Existing glass double and hardware to be removed and saved for new potential tenant reuse. Door shall be removed from current location to provide free egress for all tenants to access the stairwells.

3.     All finishes to remain throughout the Subleased Premises.

4.     All subtenant demising walls to be slab to slab sound insulated.

Additional terms related to the drawing in Exhibit B hereinabove:

• All work shall be done in the quality and finishes as performed by Sublandlord for the Danac Inc. (subtenant on Floor 3).

• Installation of drywall, taped, blocked, skimmed and painted with a baseboard. Demising Wall to be slab to slab and sound insulated where drywall is used (not where glass is used).

• All new walls shall be constructed and finished (including molding and painting) in the same manner as was performed on the 3rd floor.

• Two (2) additional glass side panels shall be installed (one on each side of glass entry door) such that entire entrance to reception area shall be glass (approximately 37” side panels) in same manner as was done for subtenant on Floor 3.

• Further, existing side corridor glass doors and hardware shall be re-used at either end of the new general corridor.

• The parties acknowledge that the existing wall which will become the demising wall of the Subleased Premises is currently comprised of the following:  when facing the reception area, to the left of the reception area the wall is drywall with glass doors and to the right of the reception area it is drywall and glass offices and cubicles.  Notwithstanding anything contained in this Sublease to the contrary, to the extent possible, subject to the Landlord’s consent and applicable building code, the existing drywall and glass door will be relocated to the end of the corridor, the double glass doors at the elevator lobby will be relocated to the entrance to the Subleased Premises, the glass offices will be moved to the extent necessary to be used as part of the demising wall with the remainder to be drywall.  Further, Sublandlord will install locks on all demising wall glass and wood doors; glass doors to be locked with magnetic locks similar to currently existing exterior door lock (except for upgraded glass door and lock mentioned above which lock is at Subtenant's expense).  Sublandlord will provide Subtenant with Corridor Improvement Area construction plans for its review prior to the plans being submitted to Landlord for approval; provided, however, that any material alterations or revisions to the Corridor Improvement Area construction plans (including any resulting modifications to the scope of the Sublandlord Work) requested by Subtenant shall be subject to Sublandlord’s reasonable approval and, unless such revisions are merely to correct manifest errors, shall be at Subtenant’s sole cost and expense.

Repairs to offices where whiteboards are removed by Sublandlord:

• In offices where Sublandlord removes whiteboards from the Subleased Premises, Sublandlord will, as part of Sublandlord Work, in each such office, patch the holes, repair the wall and paint the wall on which the whiteboard was hung to match the remainder of the office walls, or, if unable to match the paint, shall repaint the entire office.

EXHIBIT C

Subtenant Work

ARTICLE 1
DEFINITIONS

The terms defined in Article 1 of this Exhibit C, for all purposes of this Exhibit C, shall have the meanings herein specified, and, in addition to the terms defined herein, the definitions in the Sublease shall also apply to this Exhibit C.

1.01. “Architectural Plans” shall mean full and complete, accurate architectural working drawings and specifications for the Subtenant Work (as defined below), including, as applicable, all architectural dimension plans showing wall layouts, wall and door locations, power and telephone locations and reflected ceiling plans, and other elevations, details, specifications and schedules, which comply with all applicable building codes and are prepared by Subtenant’s Architect according to accepted standards of The American Institute of Architects (“AIA”).

1.02. “Completion of the Subtenant Work” shall mean the following state: (i) the Subtenant Work has been completed in accordance with the requirements of the Plans and Subtenant’s General Contractor’s contracts, (ii) all necessary inspections and other acts generally performed by contractors in Montgomery County, Maryland have been performed to enable a tenant to obtain all approvals necessary to occupy the Subleased Premises, and (iii) a certificate of occupancy for the Subleased Premises has been issued with no exceptions or requirements, if required.

1.03.    “MEP Plans” shall mean the mechanical, electrical, plumbing and/or fire protection and life safety plans, including related working and shop drawings, schedules and specifications, for construction and installation of the Subtenant Work, which are prepared by Subtenant’s MEP Engineers in accordance and compliance with all applicable building, mechanical, plumbing, electrical, fire protection and life safety codes and the requirements of each authority having jurisdiction over or with respect to such plans, schedules and specifications, and are complete, accurate, consistent and fully coordinated with, and implement and carry out, the Architectural Plans.

1.04. “Plans” shall mean the Architectural Plans, the MEP Plans, and if applicable, the Structural Plans.

1.05. “Structural Plans” shall mean structural plans, schedules and specifications, if any, for the Subtenant Work, which are prepared by Subtenant’s Structural Engineers in accordance and in compliance with the requirements of each authority having jurisdiction over or with respect to such plans, schedules and specifications, and are complete, accurate, consistent and fully coordinated with, and implement and carry out, the Architectural Plans.

1.06. “Sublandlord’s Contribution” shall have the meaning set forth in Section 4.01 of this Exhibit C.

1.07. “Subtenant’s Architect” shall mean the reputable, properly licensed architect engaged by Subtenant and reasonably approved by Sublandlord to prepare the Architectural Plans.

1.08. “Subtenant’s General Contractor” shall mean the reputable duly licensed contractor selected by Subtenant and reasonably approved by Sublandlord and engaged by Subtenant to supervise the performance of the Subtenant Work.

1.09. “Subtenant’s MEP Engineers” shall mean the reputable, duly licensed engineers designated by Subtenant (and reasonably acceptable to Sublandlord) and engaged by Subtenant to prepare the MEP Plans.

1.10. “Subtenant’s Structural Engineers” shall mean the reputable, duly licensed engineers designated by Subtenant (and reasonably acceptable to Sublandlord) and engaged by Subtenant to prepare the Structural Plans.

1.11. “Subtenant Work” shall mean all work Subtenant intends to perform within the Subleased Premises in accordance with the Plans, subject to Sublandlord’s approval, as provided in this Exhibit C.

ARTICLE 2
PREPARATION AND APPROVAL OF PLANS

2.01. The Subtenant Work shall be performed in accordance with the provisions of this Exhibit C. Upon Subtenant’s request, Sublandlord will furnish Subtenant a copy of any building plans and any “as built” plans and drawings pertaining to the Subleased Premises that are in Sublandlord’s possession or control to assist Subtenant in preparing the Plans. Sublandlord does not warrant the accuracy of such building plans, and Sublandlord shall not have any liability to Subtenant, or anyone claiming through Subtenant, as a result of any use of such building plans. Subtenant shall perform a field verification to independently determine the specifications and dimensions of the Subleased Premises.

2.02. Within ten (10) business days after Sublandlord’s receipt of the Plans or other information requiring Sublandlord’s approval pursuant to this Exhibit C, Sublandlord shall provide Subtenant with Sublandlord’s notice of approval or disapproval of the same. Any notice of disapproval delivered by Sublandlord to Subtenant shall set forth with reasonable particularity the reasons for such disapproval. Dennis J. Yee shall manage the construction process on behalf of Subtenant. Subtenant shall reimburse Sublandlord for (i) any amounts charged to Sublandlord or due from Sublandlord under the Prime Lease in connection with the Subtenant Work, and (ii) any and all other out of pocket expenses incurred by Sublandlord (including, without limitation, the fees and costs of engineers, consultants, and attorneys) in connection with the Subtenant Work.

2.03. Subtenant shall complete the Subtenant Work in accordance with the Plans which have been approved by Sublandlord. If Subtenant desires to install or construct any Subtenant Work other than in accordance with final working and final shop drawings that Sublandlord has approved, each such proposed change must receive the prior written approval of Sublandlord (which approval shall not be unreasonably withheld, conditioned or delayed, and with respect to which Sublandlord shall provide Subtenant written notice of approval or disapproval within ten (10) business days of Sublandlord’s receipt of Subtenant’s written request for approval), and in the event of Sublandlord’s approval of any proposed change to final working or final shop drawings, Subtenant, upon completion of the installation and construction of the Subtenant Work to which such change pertains, shall furnish Sublandlord with accurate “as built” plans and drawings of such Subtenant Work as constructed and/or installed if Subtenant has made alterations to, or installed new, walls, ductwork, electrical lines or systems, or plumbing lines or systems.

2.04. Under no circumstances will Subtenant, or any person acting on behalf or for Subtenant, alter or modify or in any manner disturb any system or installation of the Building, including, but not limited to, Base Building plumbing system, Base Building electrical system, Base Building heating, ventilating, and air conditioning systems, Base Building fire protection and life safety systems, Base Building maintenance systems, Base Building structural systems, elevators, located within the central core or other public areas of the Building without Sublandlord’s prior written consent (which consent shall be given or withheld within ten (10) business days after Sublandlord’s receipt of Subtenant’s request for approval), except in accordance with Plans approved in writing by Sublandlord and permitted pursuant to Article XXVI of the Prime Lease. Sublandlord, at Subtenant’s cost and expense, shall take all reasonable actions that may be necessary to permit Subtenant access to the Building’s risers and telecommunications closets in order for Subtenant to install the information technology systems permitted pursuant to this Sublease. Only pursuant to Sublandlord’s express written permission and under direct supervision of Sublandlord or Sublandlord’s authorized representative shall Subtenant, or any person acting on behalf of or for Subtenant, alter or modify or in any manner disturb any system or installation of the Building which is located wholly or partially within the Subleased Premises, including, but not limited to, the electrical, plumbing, heating, ventilating, and air conditioning systems, and fire protection and life safety systems. For the purposes of this Section 2.04, “Base Building” shall mean that portion of any building system or component which is within the core and/or any public area of the Building and/or is common to and/or serves or exists for the benefit of other Subtenants in or systems of the Building.

2.05. Except as may be otherwise expressly provided in this Exhibit C, nothing in this Exhibit C shall relieve Subtenant of any obligation or duty that Subtenant has under any provision of the Sublease, including, without limitation, Section 6 thereof. The Plans shall conform to the requirements of applicable building, plumbing, electrical, fire protection and life safety codes and all other requirements of any authority having jurisdiction over, or with respect to, any work to be done pursuant to the Plans. Subtenant alone shall be responsible for ensuring that all Plans, and work to be done pursuant to the Plans, conform to all such requirements, and notwithstanding that Sublandlord and/or its consultants may have reviewed and/or consented to any Plans and/or joined in any permit-application relating thereto, Sublandlord shall have no obligation or liability to Subtenant or any third party in the event any such Plans, or the design, installation or construction of any Subtenant Work fail to conform to such requirements.

ARTICLE 3
CONSTRUCTION OF SUBTENANT WORK

3.01. The design of all Subtenant Work shall be performed at Subtenant’s sole cost and expense, subject to the provisions of Section 4.01 of this Exhibit C. All Subtenant Work shall be carried out by Subtenant in accordance with the terms of this Exhibit C, and Subtenant shall be responsible for maintaining harmonious labor relations at all times.

3.02. All Subtenant Work shall be performed and completed in compliance with such rules and regulations as Sublandlord may reasonably make and in accordance with all applicable laws, orders, regulations and requirements of all applicable authorities, Sublandlord’s insurance carriers, and the board of fire underwriters having jurisdiction over the Building. Subtenant shall cause each of Subtenant’s contractors and subcontractors to comply with the Rules and Procedures set forth in Exhibit C-1 attached hereto, and Subtenant shall be responsible for any violations thereof.

3.03. Prior to commencing the construction of Subtenant Work, Subtenant shall submit the following to Sublandlord:

1. Names, addresses, telephone numbers and emergency contacts for all contractors and subcontractors engaged by Subtenant to perform the Subtenant Work;

2. Subtenant insurance coverage (which shall be in form and amount reasonably satisfactory to Sublandlord);

3. Copies of all required building permits; and

4. The construction schedule for the Subtenant Work.

Sublandlord shall have the right to approve each of Subtenant’s subcontractors, which approval shall not be unreasonably withheld or conditioned, and which shall be given or withheld within five (5) business days after a written request therefor by Subtenant. Sublandlord or its designee shall be given the opportunity to submit a bid for the Subtenant Work.

3.04. Upon Completion of the Subtenant Work, Subtenant shall cause Subtenant’s General Contractor to deliver to Sublandlord a release of liens in the AIA standard form or such other form acceptable to Sublandlord, executed by all contractors and subcontractors who have performed Subtenant Work and materialmen who have provided supplies for the same.

3.05. As part of the Subtenant Work, Subtenant shall have the right to install additional (package) air-conditioning equipment to provide after-hours heating, ventilating and air-conditioning for the Subleased Premises. The cost of operating, maintaining and repairing such equipment shall be the sole responsibility of Subtenant, and Subtenant shall enter into a service contract throughout the term of the Sublease for the maintenance of such equipment.

3.06. Sublandlord shall, at Subtenant’s sole cost and expense, maintain, repair and/or replace any approved special installations (i.e., finishes, equipment and/or other facilities, including, without limitation, special plumbing, electrical or heating, ventilating and air-conditioning equipment or systems) required for Subtenant’s use and occupancy of the Subleased Premises (whether or not such special items are located within the Subleased Premises). All such systems and/or equipment shall be shown on the Plans approved by Sublandlord in accordance with this Exhibit C.

ARTICLE 4
SUBLANDLORD’S CONTRIBUTION

4.01. Sublandlord shall provide Subtenant in accordance with this Article 4 an allowance (“Sublandlord’s Contribution”) of up to $200,000.00. No more than $30,000.00 of Sublandlord’s Contribution shall be used to reimburse Subtenant for the actual, out-of-pocket hard costs incurred by Subtenant for (i) upgrades to and the installation of Subtenant’s information technology systems to be located within the Subleased Premises and (ii) newly acquired furniture for the Subleased Premises. The remainder of Sublandlord’s Contribution shall be used exclusively to reimburse Subtenant for the actual, out-of-pocket hard and soft costs incurred by Subtenant related directly to the Subtenant Work, including any architectural and engineering fees, construction management fees, and costs for upgrades to the heating, ventilating and air conditioning system exclusively serving the Subleased Premises. Sublandlord’s Contribution shall be paid to Subtenant only as set forth below.

4.02. Sublandlord shall reimburse Subtenant from Sublandlord’s Contribution for all items described in Section 4.01 no later than thirty (30) days following (i) Completion of the Subtenant Work and (ii) Subtenant’s delivery of a written request for payment to Sublandlord stating the amount to be reimbursed from Sublandlord’s Contribution (the “Payment Request”), accompanied by the following, each reasonably acceptable to Sublandlord: (a) copies of invoices by Subtenant’s architects, engineers, general contractor, consultants, contractors and subcontractors for services and supplies provided after the date of the Sublease, but prior to the Commencement Date, for items which constitute improvements to the Subleased Premises, including, without limitation, architectural and engineering fees, construction management fees, and permit fees, (b) a detailed description of the work performed, or services rendered in connection with the Subtenant Work, (c) proof of payment to Subtenant’s contractors, subcontractors and materialmen, and (d) lien waivers and releases on the standard AIA forms.

4.03. No payment provided for by Section 4.02 shall be due and payable if as of the date for payment (i) the Sublease shall not be in full force and effect, (ii) a default by Subtenant of its obligations under the Sublease shall have occurred and shall be continuing (provided, however, that such amounts shall be paid to Subtenant following the cure of all defaults), or (iii) any installment of Base Rent or additional rent (or any portion thereof) is then due and owing under the Sublease.

4.04. All amounts of Sublandlord’s Contribution that are unused as of December 31, 2014 shall be forfeited by Subtenant.

EXHIBIT C-1

Rules and Procedures for Contractors

The following rules and procedures are to be followed by contractors and subcontractors when working in or around the Subleased Premises or Building and materialmen and suppliers providing material for use or installation in the Subleased Premises:

I.    BUILDING FACILITIES

A.    Elevators

The general contractor will be responsible for crating and/or protecting the designated construction elevator to the satisfaction of the Sublandlord’s representative and any representatives of Sublandlord and Landlord. The general contractor and/or its subcontractors will not have exclusive use of the construction elevator, and the use of such elevator must be scheduled in advance with the Sublandlord’s representative and any representative of Landlord. The use of the Building’s passenger elevators by construction personnel is prohibited.

B. Material Delivery

Material and equipment must be delivered through the loading dock during hours (“Normal Business Hours”) established by Landlord, but in no event outside the hours of 8:00 a.m. through 6:00 p.m. Only the designated/protected construction elevator will be available for deliveries or relocation of construction materials. Subtenant and Subtenant’s general contractor shall be responsible for protecting all areas of the Building utilized for deliveries and by its personnel. Carpet mats are to be placed in front of the construction elevator and along a path leading to work areas to avoid tracking dirt in finished spaces.

C.    Coordination

Work that Sublandlord determines would interfere with the Building systems must be scheduled after Normal Business Hours or on weekends and coordinated with an individual that Sublandlord may from time to time designate for such purpose (“Sublandlord’s Designee”). All work performed outside of Normal Business Hours must be coordinated with the Sublandlord’s Designee. No one will be allowed access to the Building without prior permission.

D.    Slab Penetrations

All slab penetrations must be reviewed and approved by Sublandlord’s Designee (or any other individual that Sublandlord may from time to time designate for such purpose) prior to being performed. All penetrations must be performed prior to 7:30 a.m. or after 6:00 p.m. Monday through Friday and Saturdays and Sundays as scheduled with Sublandlord’s Designee.

E.    Rest Rooms

Sublandlord’s Designee will designate the only rest rooms that may be used by construction personnel.

II.    TRASH REMOVAL

Trash removal must be coordinated with Sublandlord’s Designee. Removal of trash from the Subleased Premises will have the same restrictions as delivery of materials. It is essential that food debris be contained and removed daily.

III.    GENERAL

A. The construction contract will be substantially on the AIA A101 form.

B. The general contractor shall obtain building permits and all inspections and the certificates of occupancy (if required).

C. Particularly noisy or disruptive work (such as chopping, drilling with electrical or electronic devices, or any other activity that can be heard or felt outside the Subleased Premises, etc.) must be scheduled prior to 8:00 a.m. Monday through Friday and be coordinated with Sublandlord’s Designee.

D. Every effort must be made to avoid disturbance of any other tenant’s normal business operations. If an operation underway proves disturbing to a tenant it must be discontinued immediately and performed outside Normal Business Hours.

EXHIBIT D

Furniture

{see attached}

AFDOCS/5942001.11

EX-10.3.9

SUBLEASE

THIS SUBLEASE (this “Sublease”) is made and entered into as of the 11th day of December, 2013, by and between CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (“Sublandlord”), and BATTLE RESOURCES MANAGEMENT, INC., a Maryland corporation (“Subtenant”).

W I T N E S S E T H:

WHEREAS, by that certain Office Lease Agreement dated as of the 27th day of April, 2007, as amended by Amendment No. 1 to Lease dated as of August 25, 2008, Amendment No. 2 to Lease dated as of February 17, 2009, and Amendment No. 3 to Lease dated as of April 8, 2010 (collectively and together with any other amendments thereto, the “Prime Lease”), Wisconsin Place Office LLC (“Landlord”) leases to Sublandlord certain premises (the “Master Premises”) in the building known as Wisconsin Place and located at 5404 Wisconsin Avenue, Chevy Chase, Maryland (the “Building”); and

WHEREAS, subject to the consent of Landlord, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, a portion of the Master Premises consisting of approximately 6,377 square feet of rentable area of the third (3^rd) floor of the Building, as depicted on Exhibit A hereto (hereinafter referred to as the “Subleased Premises”), all upon the terms and subject to the conditions and provisions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Sublandlord and Subtenant hereby agree as follows:

1.Demise; Use. Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord the Subleased Premises for the term and rental and upon the other terms and conditions hereinafter set forth, to be used and occupied by Subtenant solely for general office use and for no other purpose.

2.Term; Sublease Year; Termination Option.

(a) The term of this Sublease shall commence the earlier of (i) seven (7) days following the date Sublandlord tenders beneficial occupancy of the Subleased Premises to Subtenant with the Subleasehold Improvements (defined below) substantially complete, or (ii) the date Subtenant occupies the Subleased Premises for purposes of commencing business operations (the “Commencement Date”), and unless sooner terminated pursuant to the provisions hereof, shall terminate on the last day of the sixty-second (62^nd) full calendar month thereafter or any earlier date as of which the Prime Lease may be terminated (the “Expiration Date”). Notwithstanding the foregoing, if Sublandlord has not tendered beneficial occupancy of the Subleased Premises to Subtenant with the Subleasehold Improvements substantially complete on or before June 1, 2014, then until such time as Sublandlord tenders beneficial occupancy of the Subleased Premises to Subtenant with the Subleasehold Improvements substantially complete, either Sublandlord or Subtenant shall have the option to terminate this Sublease by delivering written notice of such election. Following delivery of such notice, all prepaid sums by the Subtenant (including prepaid rent and security deposit) shall be returned to Subtenant, this Sublease shall immediately terminate and the parties shall have no further obligations hereunder.

(b) A “Sublease Year” shall be (i) the period beginning on the Commencement Date and ending on the last day of the twelfth (12^th) full calendar month following the Commencement Date, and (ii) each twelve (12) calendar month period thereafter through the Expiration Date.

3.Base Rent.

(a) Subtenant shall pay to Sublandlord base rental (“Base Rent”) for the Subleased Premises as follows:

Sublease Year	Annual Base Rent per Rentable Square Foot
1	$43.50
2	$44.81
3	$46.15
4	$47.53
5	$48.96
6	$50.43

Base Rent shall be due and payable in equal monthly installments. Each such installment shall be due and payable in advance on the first day of each calendar month of the term hereof. If the term of this Sublease commences on a day other than the first day of a month or ends on a day other than the last day of a month, Base Rent for such month shall be prorated; prorated Base Rent for any such partial first month of the term hereof shall be paid on the date on which the term commences. Concurrently with its execution of this Sublease, Subtenant shall pay to Sublandlord the installment of Base Rent due for the first full calendar month within the term of this Sublease following the abatement periods described in Section 3(c) below that falls within the first (1^st) Sublease Year (i.e., $23,116.63), which amount shall be applied to the installment of Base Rent due for the first full calendar month within the term of this Sublease following the abatement periods described in Section 3(c).

(b) All Base Rent and additional rent shall be paid without any notice, setoff or deduction whatsoever, and shall be paid to Sublandlord at its address set forth in Section 15 below or at such other place as Sublandlord may designate by notice to Subtenant.

(c) Notwithstanding anything to the contrary set forth above, so long as Subtenant is not in default hereunder beyond any applicable notice and cure period, Base Rent payable by Subtenant to Sublandlord as provided above shall be abated with respect to (i) the first four (4) full calendar months following the Commencement Date, and (ii) one-half (1/2) of the fifth (5^th) full calendar month following the Commencement Date (i.e., the installment of Base Rent payable for that month shall be $11,558.31).

(d) Sublandlord and Subtenant stipulate that the rentable square footage of the Subleased Premises shall be 6,377 for all purposes of this Sublease and, notwithstanding any provision of the Prime Lease to the contrary, shall not be subject to remeasurement.

4.Additional Rent; Payments; Interest.

(a) In addition to the Base Rent described above, commencing on March 1, 2014, Subtenant shall pay to Sublandlord additional rent with respect to the Subleased Premises on account of Operating Expenses and Real Estate Taxes in accordance with the provisions of the Prime Lease; provided, however, that Subtenant shall be liable only for increases in Operating Expenses and Real Estate Taxes above a calendar year 2013 base year. Subtenant’s share of the Operating Expenses and Real Estate Taxes shall be determined in accordance with Section 4.1(b) of the Prime Lease, except that the term “Premises” as used therein shall be deemed to refer to the Subleased Premises.

(b) Subtenant shall pay to Sublandlord all other amounts payable by Sublandlord under the Prime Lease to the extent the same are attributable to the Subleased Premises (as distinguished from the Master Premises generally) or attributable to Subtenant, its agents, employees, customers or invitees. By way of example and not by way of limitation, charges by Landlord for furnishing air conditioning or heating to the Subleased Premises at times in addition to those certain times specified in the Prime Lease, charges by Landlord for supplemental heating, ventilating and air conditioning equipment or the use thereof, costs incurred by Landlord in repairing damage to the Building caused by an employee of Subtenant, increased insurance premiums due as a result of Subtenant’s use of the Subleased Premises, and amounts expended or incurred by Landlord on account of any default by Subtenant which gives rise to a default under the Prime Lease would be amounts payable by Subtenant pursuant to this Section 4(b).

(c) Each amount due pursuant to Section 4(a) and 4(b) above and each other amount payable by Subtenant hereunder, unless a date for payment of such amount is provided for elsewhere in this Sublease, shall be due and payable on the tenth (10^th) day following the date on which Landlord or Sublandlord has given notice to Subtenant of the amount thereof, but in no event later than the date on which any such amount is due and payable under the Prime Lease.

(d) All amounts other than Base Rent payable to Sublandlord under this Sublease shall be deemed to be additional rent due under this Sublease. All past due installments of Base Rent and additional rent shall bear interest from the date due until paid at the rate per annum equal to three (3) percentage points in excess of any interest rate that is applicable to late payments pursuant to the Prime Lease, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged. All past due installments of Base Rent and additional rent shall be subject to the same late charges as are applicable to late payments under the Prime Lease.

(e) Subtenant shall pay directly to Landlord on or before the applicable due dates for all services requested by Subtenant that are billed by Landlord directly to Subtenant rather than through Sublandlord. All amounts charged by Landlord to consent to this Sublease and to approve the Subleasehold Improvements will be paid by Sublandlord without reimbursement by Subtenant.

5. Condition of Subleased Premises and Construction of Improvements.

(a) Subtenant accepts the Subleased Premises in their current “as-is” condition; provided, however, that prior to the Commencement Date, Sublandlord, at its cost, will build-out the Subleased Premises in accordance with the space plan attached hereto as Exhibit B and the scope of work attached hereto as Exhibit B-1 (the “Subleasehold Improvements”).

(b) Subtenant’s taking possession of the Subleased Premises shall be conclusive evidence as against Subtenant that the Subleased Premises were in good order and satisfactory condition when Subtenant took possession. Upon the expiration of the term hereof, or upon any earlier termination of the term hereof or of Subtenant’s right to possession, Subtenant shall surrender the Subleased Premises in at least as good condition as at the commencement of the term hereof, ordinary wear and tear and (subject to the terms of this Sublease) damage by casualty and condemnation excepted. Notwithstanding the foregoing, Landlord shall remain obligated to complete any Punch List Work. “Punch List Work” shall mean minor adjustments or repairs to the Subleasehold Improvements and/or items of incomplete Subleasehold Improvements that do not prevent the Subtenant from occupying the Subleased Premises for the normal conduct of its business.

(c)    Upon substantial completion of the Subleasehold Improvements, Sublandlord or its representative shall prepare a detailed list of Punch List Work to be corrected; and Sublandlord shall deliver a copy of the detailed punch list to Subtenant at its address for notices in this Sublease. Sublandlord and Subtenant shall schedule a Punch List Work walk through at which Sublandlord or its representative and Subtenant or its representative shall be present to discuss the list of Punch List Work. All Punch List Work shall be completed promptly following the Punch List Work walk through.

6.The Prime Lease.

(a) This Sublease and all rights of Subtenant hereunder and with respect to the Subleased Premises are subject and subordinate to the terms, conditions and provisions of the Prime Lease. Subtenant hereby assumes and agrees to perform faithfully and be bound by, with respect to the Subleased Premises, all of Sublandlord’s obligations, covenants, agreements and liabilities under the Prime Lease and all terms, conditions, provisions and restrictions contained in the Prime Lease except:

(i) for the payment of rent in amounts other than as set forth in this Sublease;

(ii) that Subtenant shall not have any obligation or right to construct or install leasehold improvements except as may be expressly provided herein; and

(iii) that the following provisions of the Prime Lease do not apply to this Sublease: any provisions in the Prime Lease allowing or purporting to allow Sublandlord any rent concessions or abatements or construction allowances and any provisions of the Prime Lease granting Sublandlord any expansion options, renewal options, termination options, or rights of first offer or first refusal.

(b) Without limitation of the foregoing:

(i) Subtenant shall not make any changes, alterations or additions in or to the Subleased Premises except as otherwise expressly provided herein;

(ii) If Subtenant desires to take any other action and the Prime Lease would require that Sublandlord obtain the consent of Landlord before undertaking any action of the same kind, Subtenant shall not undertake the same without the prior written consent of Sublandlord. Sublandlord may condition its consent on the consent of Landlord being obtained and may require Subtenant to contact Landlord directly for such consent;

(iii) All rights given to Landlord and its agents and representatives by the Prime Lease to enter the Master Premises shall inure to the benefit of Sublandlord and its agents and representatives with respect to the Subleased Premises;

(iv) Sublandlord shall also have all other rights, privileges, options, reservations and remedies granted or allowed to or held by Landlord under the Prime Lease;

(v) Subtenant shall maintain insurance of the kinds and in the amounts required to be maintained by Sublandlord under the Prime Lease. All policies of liability insurance shall name as additional insureds Landlord and Sublandlord and their respective officers, directors or partners, as the case may be, and the respective agents and employees of each of them. All policies of insurance maintained by Subtenant in connection with this Sublease or the Subleased Premises be written as primary policy coverage and not contributing to or in excess of any coverage which Landlord and/or Sublandlord may carry. Simultaneously with the execution of this Sublease and thereafter not later than thirty (30) days before any scheduled date of expiration of such insurance, Subtenant shall furnish Sublandlord with certificates of insurance evidencing that Subtenant is carrying the insurance required to be carried by Subtenant hereunder; and

(vi) Subtenant shall not do anything or suffer or permit anything to be done which could result in a default under the Prime Lease or permit the Prime Lease to be cancelled or terminated.

(c) Notwithstanding anything contained herein or in the Prime Lease that may appear to be to the contrary, Sublandlord and Subtenant hereby agree as follows:

(i) Subtenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or any interest of Subtenant in this Sublease, by operation of law or otherwise, or permit the use of the Subleased Premises or any part thereof by any persons other than Subtenant and Subtenant’s employees, or sublet the Subleased Premises or any part thereof, without the prior written consent of Landlord and Sublandlord (which consent of Sublandlord shall not be unreasonably withheld, conditioned or delayed);

(ii) Neither rental nor other payments hereunder shall abate by reason of any damage to or destruction of the Subleased Premises, the Master Premises or the Building or any part thereof, unless, and then only to the extent that, rental and such other payments actually abate under the Prime Lease with respect to the Subleased Premises on account of such event;

(iii) Subtenant shall not have any right to any portion of the proceeds of any award for a condemnation or other taking, or a conveyance in lieu thereof, of all or any portion of the Building, the Master Premises or the Subleased Premises;

(iv) Subtenant shall not have any right to exercise or have Sublandlord exercise any option under the Prime Lease, including, without limitation, any option to extend the term of the Prime Lease or lease additional space; and

(v) Subject to Section 6(a) above, as between Sublandlord and Subtenant, in the event of any conflict between the terms, conditions and provisions of the Prime Lease and of this Sublease, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control.

(d) It is expressly understood and agreed that Sublandlord does not assume and shall not have any of the obligations or liabilities of Landlord under the Prime Lease and that Sublandlord is not making the representations or warranties, if any, made by Landlord in the Prime Lease. With respect to work, services, repairs and restoration or the performance of other obligations required of Landlord under the Prime Lease, Sublandlord’s sole obligation with respect thereto shall be to promptly request the same, upon written request from Subtenant, and to use reasonable efforts to obtain the same from Landlord, at no expense to Sublandlord. Sublandlord shall not be liable in damages, nor shall rent abate hereunder, for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease.

(e) Nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord, except the agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and then only to the extent of the same.

7.Default by Subtenant.

(a) Upon the happening of any of the following:

(i) Subtenant fails to pay any Base Rent within five (5) days after the date such payment is due;

(ii) Subtenant fails to pay any other amount due from Subtenant hereunder and such failure continues for five (5) days after notice thereof from Sublandlord to Subtenant;

(iii) Subtenant fails to perform or observe any other covenant or agreement set forth in this Sublease and such failure continues for fifteen (15) days after notice thereof from Sublandlord to Subtenant; or

(iv) any other event occurs which involves Subtenant or the Subleased Premises and which would constitute a default under the Prime Lease if it involved Sublandlord or the Master Premises;

Subtenant shall be deemed to be in default hereunder, and Sublandlord may exercise, without limitation of any other rights and remedies available to it hereunder or at law or in equity, any and all rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Sublandlord thereunder.

(b) In the event Subtenant fails or refuses to make any payment or perform any covenant or agreement to be performed hereunder by Subtenant, Sublandlord may make such payment or undertake to perform such covenant or agreement (but shall not have any obligation to Subtenant to do so). In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs, expenses and attorneys’ fees incurred by Sublandlord in connection therewith, together with interest on all of the foregoing at the rate specified in Section 4(d) above as applicable to late payments of rent, shall be due as additional rent hereunder.

8.Nonwaiver. Failure of Sublandlord to declare any default or delay in taking any action in connection therewith shall not waive such default. No receipt of moneys by Sublandlord from Subtenant after the termination in any way of the term or of Subtenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the term or affect any notice given to Subtenant or any suit commenced or judgment entered prior to receipt of such moneys.

9.Cumulative Rights and Remedies. All rights and remedies of Sublandlord under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law.

10.Indemnity. Subtenant agrees to indemnify, defend and hold harmless Landlord, Sublandlord and the managing agent of the Building and each of their respective officers, directors, partners, agents and employees, from and against any and all claims, demands, costs and expenses of every kind and nature, including attorneys’ fees and litigation expenses, arising from Subtenant’s occupancy of the Subleased Premises, Subtenant’s construction of any leasehold improvements in the Subleased Premises, any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease, or any act or neglect of Subtenant or its agents, officers, employees, guests, servants, invitees or customers in or about the Subleased Premises. Sublandlord agrees to indemnify, defend and hold harmless Subtenant and its officers, directors, partners, agents and employees from and against any and all claims, demands, costs and expenses of every kind and nature, including reasonable attorneys’ fees and litigation expenses, arising from any breach or default on the part of Sublandlord in the performance of any agreement or covenant of Sublandlord to be performed or performed by it under this Sublease or pursuant to the terms of this Sublease. In case any such proceeding is brought against any of said indemnified parties, the indemnifying party covenants, if requested by an indemnified party, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to the indemnified party.

11.Waiver of Subrogation. Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant each hereby waives any and all rights of recovery, claims, actions or causes of action against the other and the officers, directors, partners, agents and employees of each of them, and Subtenant hereby waives any and all rights of recovery, claims, actions or causes of action against Landlord and its agents and employees, for any loss or damage that may occur to the Subleased Premises or the Master Premises, or any improvements thereto, or any personal property of any person therein or in the Building, by reason of fire, the elements or any other cause insured against (or required by the Prime Lease or this Sublease to be insured against) under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law.

12.Brokerage Commissions. Each party hereby represents and warrants to the other that it has had no dealings with any real estate broker or agent in connection with this Sublease, excepting only Larsen Commercial Real Estate Services, Inc. and Donohoe Real Estate Advisors (whose commissions shall be paid by Sublandlord pursuant to the terms of separate written agreements), and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Each party agrees to protect, defend, indemnify and hold the other harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finder’s or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties.

13.Successors and Assigns. This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Sublandlord and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved, Subtenant’s assigns.

14.Entire Agreement. This Sublease contains all the terms, covenants, conditions and agreements between Sublandlord and Subtenant relating in any manner to the rental, use and occupancy of the Subleased Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect. The terms, covenants and conditions of this Sublease cannot be altered, changed, modified or added to except by a written instrument signed by Sublandlord and Subtenant.

15.Notices. Notices and demands required or permitted to be given by either party to the other with respect hereto or to the Subleased Premises shall be in writing and shall be served either by personal delivery with a receipt requested, by overnight air courier service or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Sublandlord:     

CapitalSource Finance LLC

5404 Wisconsin Avenue, Second Floor

Chevy Chase, MD 20815

Attn: General Counsel

If to Subtenant prior to the Commencement Date:

Battle Resources Management, LLC

10 G Street, NE

Washington, DC 20002

Attn: Eric Crowe, Chief Financial Officer

If to Subtenant after the Commencement Date:

At the Subleased Premises

Attn: Eric Crowe, Chief Financial Officer

Notices and demands shall be deemed to have been given two (2) days after mailing, if mailed, or, if made by personal delivery or by overnight air courier service, then upon such delivery. Either party may change its address for receipt of notices by giving notice to the other party.

16.Authority, etc. Each party represents and warrants to the other that this Sublease has been duly authorized, executed and delivered by and on behalf of such party and constitutes its valid, enforceable and binding agreement.

17.Security Deposit.

(a) Concurrently with its execution of this Sublease, Subtenant shall deposit with Sublandlord Twenty-Three Thousand One Hundred Sixteen Thousand and 63/100 Dollars ($23,116.63) as security for the full and faithful performance of every provision of this Sublease to be performed by Subtenant. If Subtenant defaults with respect to any provision of this Sublease, including, but not limited to, the provisions relating to the payment of rent, Sublandlord may use, apply or retain all or any part of said security deposit for the payment of any rent and any other sum in default, or for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default or to compensate Sublandlord for any other loss or damage which Sublandlord may suffer by reason of Subtenant’s default. If any portion of said security deposit is so used or applied, Subtenant shall, within five (5) days after written demand therefor, deposit cash with Sublandlord in an amount sufficient to restore the security deposit to its original amount, and Subtenant’s failure to do so shall be a material breach of this Sublease. Except to the extent required by law, Sublandlord shall not be required to keep said security deposit separate from its general funds, and Subtenant shall not be entitled to interest on any security deposit. If Subtenant shall fully and faithfully perform every provision of this Sublease to be performed by it, said security deposit or any balance thereof shall be returned to Subtenant (or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder) within thirty (30) days after the expiration of the term and Subtenant’s vacation of the Subleased Premises. Nothing herein shall be construed to limit the amount of damages recoverable by Sublandlord or any other remedy to the security deposit.

(b) At Subtenant’s election, the security deposit may take the form either of cash or of an unconditional, irrevocable letter of credit (the “Letter of Credit”) from a U.S. banking institution reasonably acceptable to Sublandlord, insured by a federal insurance agency (“Issuer”). The Letter of Credit shall (i) meet the requirements of the “Uniform Customs and Practice for Documentary Credits,” ICC No. 500 (1993 Edition), (ii) name Sublandlord as beneficiary, (iii) be in the amount of the security deposit required hereunder, (iv) be payable in full or partial draws against Sublandlord’s sight draft, (v) include an “evergreen” provision which provides that the Letter of Credit shall be renewed automatically on an annual basis unless the Issuer delivers thirty (30) days prior written notice of cancellation to Sublandlord, (vi) have an initial expiration date no earlier than one year from the date of issue, and (vii) otherwise be in form and substance satisfactory to Sublandlord. In the event the Letter of Credit is ever not renewed when required hereunder, Sublandlord shall have the right to draw upon the Letter of Credit and hold the proceeds thereof as a cash security deposit.

18.Parking. During the term of this Sublease, Subtenant shall have the right to purchase two (2) monthly parking permits in the Building’s parking garage for each 1,000 square feet of rentable area in the Subleased Premises, upon the terms and conditions set forth in Article XXIV of the Prime Lease. Sublandlord shall, at no additional cost, expense or liability to Sublandlord, use commercially reasonable efforts to assist Subtenant in procuring parking vouchers at prevailing rates for the use of the Building’s parking garage by Subtenant’s invitees. Subtenant shall coordinate payment, parking permits, and parking vouchers directly with Landlord or the operator of the Building’s parking garage.

19.Furniture; Telephone and Data.

(a) Throughout the term of this Sublease, Subtenant shall be permitted to use the furniture located in the Subleased Premises on the date of this Sublease (the “Furniture”), which furniture is described on Exhibit C hereto, at no additional charge or fee to Subtenant. The Furniture is provided in its “as-is” condition upon delivery of the Subleased Premises. Subtenant shall maintain the Furniture in good condition and repair, ordinary wear and tear excepted, and shall leave the Furniture in the Subleased Premises upon the expiration or earlier termination of this Sublease. Sublandlord shall have no liability for moving the Furniture or any of Subtenant’s own personal property.

(b) Sublandlord may remove any and all telephone and data equipment that is located in the Subleased Premises as of the Effective Date. The data and phone cabling located in the Subleased Premises is provided in its “as-is” condition upon delivery of the Subleased Premises.

20.Signs. Subject to Landlord’s approval, Subtenant, at its sole expense, (i) may install one (1) Building-standard suite entry sign at the main entrance to the Subleased Premises, and (ii) shall be entitled to one (1) listing on the Building directory in the main lobby of the Building.

21.Modifications. Sublandlord shall not amend the Prime Lease with respect to any provision that would affect Subtenant’s rights or obligations hereunder without the Subtenant’s prior written consent.

22.No Breach of Prime Lease. Sublandlord shall not do or permit to be done any act which may constitute a breach or violation of any term, covenant or condition of the Prime Lease and which is not cured within any cure period granted under the Prime Lease.

23.Consent of Landlord. The obligations of Sublandlord and Subtenant under this Sublease are conditioned and contingent upon Landlord consenting hereto by executing and delivering a counterpart of this Sublease or a separate instrument signifying its consent. If Landlord’s consent is not obtained within thirty (30) days after the date hereof, this Sublease shall be null and void, all amounts prepaid by Subtenant to Sublandlord under this Sublease (including, without limitation, any security seposit and prepaid Base Rent) shall be promptly returned to Subtenant, and thereafter neither Sublandlord nor Subtenant shall have any further obligations or liability hereunder or to each other with respect to the Subleased Premises.

24.Examination. Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of or option for the Subleased Premises or in any manner bind Sublandlord, and no lease, sublease or obligation of Sublandlord shall arise until this instrument is signed and delivered by Sublandlord and Subtenant and the consent of Landlord is obtained as described in Section 23 above.

25.Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Prime Lease.

[REMAINDER OF PAGE BLANK; SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date aforesaid.

ATTEST/WITNESS:	Sublandlord: CAPITALSOURCE FINANCE LLC
By: ______________________________	By: ____/s/ John Bogler__________________ Its: ________CFO_______________________
	Subtenant: BATTLE RESOURCES MANAGEMENT, INC.
By: _____________________________	By: ____/s/ Michael Battle________________ Its: __________CEO_____________________

EXHIBIT A

Subleased Premises

{attached}

EXHIBIT B

Space Plan for Subleasehold Improvements

{see attached}

EXHIBIT B-1

Scope of Work for Subleasehold Improvements

{to be attached}

MEMORANDUM

FROM:    Anne Regan

DBI Architects, Inc.

DATE:    November 5, 2013

RE:    BRMI

3rd Floor 5404 Wisconsin Ave. Chevy Chase, MD

SUBJECT: Scope of Work – Pricing Memo

Please find below the scope of work pricing memo that references the space plan completed on 09.09.13 for the above referenced tenant.

1. Existing lighting, ceiling grid and tile and GWB ceiling to be reused throughout space, unless otherwise noted. G.C. to patch and repair at locations of demolition.

2. Reuse existing glass double doors at elevator lobby with stainless steel pulls for new tenant suite entry. Existing doors should be on site as part of previous tenant demo. G.C. to provide and install butt glaze glass panels to left and right of reused doors. Panels to have three sided 2”aluminum frame with metal trim at base. If doors are no longer existing, G.C. to match door and sidelight of already existing tenant on the floor. Provide in-wall blocking for tenant logo on wall directly adjacent to Danac suite entry doors.

3. At Reception G.C. to provide and install the following: existing acoustical ceiling tile to remain (patch and repair as necessary) with square downlights to match existing and linear diffusers. New Stone Source Q-stone color: natural gray porcelain 12”x24” tile floor to be installed throughout Reception. G.C. to provide and install in-wall blocking in the plan east wall of reception for tenant provided tv monitor, provide conduit for AV, power and cable.

4. At Conference G.C. to provide and install the following: new 3'-0"x8'-0" glass door and butt glaz glass wall system at front of the conference room. New carpet to be installed, hold allowance for $38/square foot carpet. Existing ceiling tile , grid and lighting to be reused and reconfigured to the room layout,

October 8, 2013 Page 2

G.C. to patch and repair as necessary. All lighting to match existing in space. G.C. to provide core drill and wiremold RC7 poke thru for tenant powered table (inclusive of electrical wiring and data ring and string). G.C. to provide and install projection screen by plan south wall.

5. Existing offices to have lighting, finishes and electrical to remain.

6. At existing offices that are being made larger. Additional glass to be installed to match existing glass partitions. Doors to be reused where possible and finishes to be patched and repaired to match existing.

7. At Relocated offices quantity of two (2), existing furniture offices from previous Capital Source space to be reused for BRMI tenant. Power, furniture and etc to be relocated. Existing ceiling tile, grid and lighting to be reconfigured for new layout.

8. At existing Copy/Pantry all equipment, finishes and millwork to remain. G.C. to provide and install new stainless steel dishwasher, existing millwork to be modified to fit new equipment. Existing flooring in Copy/Pantry to be removed. G.C. to provide and install Amtico vinyl tile floor throughout area.

9. At new team room G.C. to provide and install Wink writeable wall paint at plan east wall. Existing carpet, ceiling tile, grid and lighting to remain. Lighting to be reconfigured to room layout. G.C. to provide in-wall blocking for tenant provided TV, exact location to be determined by client. G.C. to provide core drill and wiremold RC7 poke thru for tenant powered table (inclusive of electrical wiring and data ring and string), location to be determined.

10. At Collaboration area, G.C. to provide and install in-wall blocking in the plan east wall of reception for tenant provided tv monitor, provide conduit for AV, power and cable

11. At new Lan Room provide and install the following: VCT flooring, acoustical ceiling tile with 1’x4’ light fixture (to match existing), slab to slab partitions with sound attenuation, exhaust fan for tenant provided rack and louver within new door with storeroom function hardware and closer.

October 8, 2013 Page 3

12. The building is fully sprinklered. Modify sprinkler head locations as required.

Strobes to be relocated and new provided as required to meet County requirements.

13. Configure the existing base building HVAC as necessary to accommodate the new plan and new demising walls.

14. Existing power to be reused. Existing tele/data will need to be terminated back to panel in existing Lan Room. New tele/data to be pulled by tenant Vendor .

15. New demising partitions to be slab to slab sound insulated, all other new walls to be slab to ceiling. Existing partitions at demising partition locations to be built up to slab and filled with insulation.

16. G.C. to provide and install one (1) new 3’-0”x8’-0” single stain grade suite entry doors to match base building door stain.

17. G.C. patch and match existing finishes as necessary for construction or public corridor demising partitions.

18. Paint accent walls.

EXHIBIT C

Furniture

1)  (8) complete office set ups. Desk and bookcase (see pictures)

2)  (1) conference room table , approx 4' x 8 '

3)  (1) 6- drawer lateral file cabinet

4)  (7) Cubicle/workstations, approx 7' x 9'

5)  (2) Glass cubicle offices with furniture / work surfaces

6)  (24) Padded chairs (see picture)

7)  (18) Mesh chairs (see picture)

8)  (7) 3 - drawer lateral file cabinets

1

EX-12.1

Exhibit 12.1

Computation of Ratio of Earnings to Fixed Charges
		Years Ended December 31,
		2013		2012		2011			2010			2009			2008
		($ in thousands)
Fixed charges(1):
	Total interest expense	$	74,088	$	79,407	$	150,010		$	232,096		$	427,312		$	677,707
	Interest capitalized	—		—		—			—			—			—
	Interest portion of rental expense	2,092		3,047		2,596			3,060			3,250			1,994
Total fixed charges		$	76,180	$	82,454	$	152,606		$	235,156		$	430,562		$	679,701
Earnings:
	Net income (loss) income from continuing operations before income taxes	$	246,329	$	205,529	$	(15,081	)	$	(161,324	)	$	(774,530	)	$	(458,714	)
	Fixed charges	76,180		82,454		152,606			235,156			430,562			679,701
	Less: Interest capitalized	—		—		—			—			—			—
Total earnings before fixed charges		$	322,509	$	287,983	$	137,525		$	73,832		$	(343,968	)	$	220,987
Ratio of earnings to fixed charges(2)		4.2x		3.5x		0.9x			0.3x			-0.8x			0.3x

______________________

(1) Excludes interest related to the application of accounting for uncertain tax positions in accordance with the Income Taxes Topic of the Accounting Standards Codification.

(2) The earnings for the years endedDecember 31, 2013 and 2012 were sufficient to cover fixed charges. However, the earnings for the years ended December 31, 2011, 2010, 2009 and 2008 were inadequate to cover fixed charges. The coverage deficiencies for total fixed charges for the years ended December 31, 2011, 2010, 2009 and 2008 were $15.1 million, $161.3 million, $774.5 million and $458.7 million, respectively.

EX-21.1

EXHIBIT 21.1

CAPITALSOURCE INC.

SUBSIDIARY LIST AS OF FEBRUARY 28, 2014

NAME OF ENTITY

75 North Main Street SBL LLC

825 Spring Garden SBL LLC

ACL (7/11) [formerly GATX/ACL I]

CapitalSource Bahamas LLC

CapitalSource Bank

CapitalSource CF LLC

CapitalSource Europe Limited

CapitalSource Finance II LLC

CapitalSource Finance LLC

CapitalSource Funding LLC

CapitalSource International LLC

(formerly CapitalSource International Inc.)

CapitalSource Real Estate Loan LLC, 2006-A

CapitalSource TRS LLC

CapitalSource Trust Preferred Securities 2005-1

CapitalSource Trust Preferred Securities 2005-2

CapitalSource Trust Preferred Securities 2006-1

CapitalSource Trust Preferred Securities 2006-2

CapitalSource Trust Preferred Securities 2006-3

CapitalSource Trust Preferred Securities 2006-4

CapitalSource Trust Preferred Securities 2006-5

CapitalSource Trust Preferred Securities 2007-2

Cheron Holdings LLC (f/k/a Five Points Realty LLC)

CS Capital Advisors LLC

CS CF Equity I LLC

CS Citrus LLC

CS Equity II LLC

CS Equity III LLC

CS Equity Investments LLC

CS Gull Lake Holdings LLC

CS Jackson Trust

CS Linton Oaks Holdings LLC

CS MainStreet Real Estate Holdings LLC

CS Mississippi Trust

CS Radio Trust

CS SBA Servicing LLC

CS URSUB LC LLC

CS Utica Holdings LLC

CSB 1937 North 17th Avenue DPC Holdings LLC

EXHIBIT 21.1

NAME OF ENTITY

CSB 2222 West 6th Street DPC Holdings LLC

CSB 3525 East Carpenter Road DPC Holdings LLC

CSB 465 US Highway 31 DPC Holdings LLC

CSB 6401 North Oracle Road DPC Holdings LLC

CSB 710 Sublet Road DPC Holdings LLC

CSB HG [Trust]

CSB International Intermediate LLC

CSB International SUB Inc.

CSB Modern Luxury DPC Holdings LLC

CSB SBL 12 Oak Ridge Road DPC Holdings LLC

CSB SBL 1470 North Airport Boulevard DPC Holdings LLC

CSB SBL 2161 Bessemer Road DPC Holdings LLC

CSB SBL 24 Red Hill Road DPC Holdings LLC

CSB SBL 380 Route 303 DPC Holdings LLC

CSB SBL 400 West 53rd Street DPC Holdings LLC

CSB SBL 53750 Highway 97 DPC Holdings LLC

CSB SBL 90 South Liberty Street DPC Holdings LLC

CSE Equity Holdings LLC

CSE Highland Village I LLC

CSE Highland Village II LLC

CSE IC Lender Liquidating Trust LLC

CSE International Holdings LLC

CSE Mortgage LLC

CSE Owned LLC

GE TF Trust

Jackson Broadcasting LLC

Mexico Realty Del Sur Funding

October 15, 1999 Trust [formerly GATX/ACL II]

Queen Cities Broadcasting LLC

Vaimanika

Vicksburg Broadcasting LLC

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-177562) of CapitalSource Inc.,

(2) Registration Statement (Form S-8 Nos. 333-107725, 333-117422, 333-134377, and 333-166482) of CapitalSource Inc.;

of our reports dated February 28, 2014, with respect to the consolidated financial statements of CapitalSource Inc. and the effectiveness of internal control over financial reporting of CapitalSource Inc. included in this Annual Report (Form 10-K) of CapitalSource Inc. for the year ended December 31, 2013.

/s/ ERNST & YOUNG LLP

Los Angeles, California

February 28, 2014

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, James J. Pieczynski, certify that:

1. I have reviewed this quarterly report on Form 10-K of CapitalSource Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2014

/s/ James J. Pieczynski

James J. Pieczynski

Director and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, John A. Bogler, certify that:

1. I have reviewed this quarterly report on Form 10-K of CapitalSource Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2014

/s/ John A. Bogler

John A. Bogler

Chief Financial Officer

(Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CapitalSource Inc. (the “Company”) on Form 10-K for the annual period ending December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, James J. Pieczynski, as Director and Chief Executive Officer of the Company, and John A. Bogler as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: February 28, 2014

/s/ James J. Pieczynski

James J. Pieczynski

Director and Chief Executive Officer

(Principal Executive Officer)

Date: February 28, 2014

/s/ John A. Bogler

John A. Bogler

Chief Financial Officer

(Principal Financial Officer)

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Components of income tax (benefit) expense from continuing operations

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Current:
Federal	$	(52,836	)	$	21,467		$	(8,844	)
State	5,575			5,501			4,916
Foreign	22			237			(2,482		)
Total current	(47,239		)	27,205			(6,410		)
Deferred:
Federal	123,150			(306,065		)	32,785
State	6,126			(6,221		)	5,053
Foreign	—			—			5,514
Total deferred	129,276			(312,286		)	43,352
Income tax expense (benefit)	$	82,037		$	(285,081	)	$	36,942

Reconciliations of effective income tax rate and federal statutory corporate income tax rate

The reconciliations of the effective income tax rate and the federal statutory corporate income tax rate for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013		2012		2011
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	4.5		4.1		7.1
Foreign income/Repatriation	—		—		93.4
Valuation allowance	8.4		(186.8	)	(672.9	)
State rate change	(12.6	)	8.1		180.9
Other	(2.0	)	0.9		111.5
Effective income tax rate	33.3	%	(138.7	)%	(245.0	)%

Components of deferred tax assets and liabilities

The components of deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013			2012
	($ in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	47,314		$	38,922
Net unrealized losses on investments	30,274			62,557
Net unrealized losses on other real estate owned	5,608			7,720
Net operating losses - federal	187,733			166,624
Net operating losses - state, net of federal tax benefit	65,844			46,094
Capital losses - federal and state	38,649			23,813
Foreign tax credit	28,616			28,616
Share-based compensation awards	7,841			7,915
Non-accrual interest	8,832			50,899
Other	18,174			114,046
Total deferred tax assets	438,885			547,206
Valuation allowance	(151,980		)	(128,568		)
Total deferred tax assets, net of valuation allowance	286,905			418,638
Deferred tax liabilities:
Mark-to-market on loans	4,649			16,074
Other	29,988			40,281
Total deferred tax liabilities	34,637			56,355
Net deferred tax assets	$	252,268		$	362,283

Unrecognized tax benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012, are as follows:

	Year Ended December 31,
	2013			2012
	($ in thousands)
Balance as of the beginning of year	$	108,101		$	75,445
Additions for tax positions of prior years	13,715			34,698
Reductions for tax positions of prior years	(31,985		)	(97		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(557		)	(1,945		)
Reductions for tax positions as a result of settlements	(71,588		)	—
Balance as of the end of year	$	17,686		$	108,101

XML

Derivative Instruments (Textuals) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Credit Derivatives [Line Items]
Derivative Asset, Fair Value, Gross Asset	$ 1,379,000	$ 0
Gross Derivative Counterparty Exposure	1,400,000
Derivative, Collateral, Right to Reclaim Cash	0
Derivative, Collateral, Obligation to Return Cash	0	1,500,000
Collateral Already Posted, Aggregate Fair Value	10,000,000
Designated as Hedging Instrument [Member]
Credit Derivatives [Line Items]
Derivative Instruments and Hedges, Assets	0
Foreign Exchange Contract [Member]
Credit Derivatives [Line Items]
Derivative Asset, Fair Value, Gross Asset	1,379,000	0
Gross Derivative Counterparty Exposure	868,000
Interest rate contracts [Member]
Credit Derivatives [Line Items]
Derivative Asset, Fair Value, Gross Asset	0	0
Fair value of terminated derivative instruments	$ 4,700,000

XML

Loans and Credit Quality (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	$ 6,784,489	[1],[2],[3]	$ 6,139,230	[1],[2],[3]
Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,655,396		1,437,596
Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	2,007,400		1,967,742
Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	168,238		179,617
Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	780,912		682,059
Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	777,372		901,924
Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,094,386		730,391
Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	300,785		239,901
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	190,141	[1]	267,148	[1]
Substandard [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	15,261		29,185
Substandard [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	64,996		191,582
Substandard [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	14,131		0
Substandard [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	30,735		17,001
Substandard [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,629		2,548
Substandard [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	57,300		18,389
Substandard [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	6,089		8,443
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	287,868	[1]	309,276	[1]
Special Mention [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	25,420		36,535
Special Mention [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	108,242		67,629
Special Mention [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	45,911		64,728
Special Mention [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	67,235		57,676
Special Mention [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	14,473		41,709
Special Mention [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	25,521		38,139
Special Mention [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,066		2,860
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	6,284,093	[1]	5,518,628	[1]
Pass [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,602,564		1,352,729
Pass [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,823,926		1,684,107
Pass [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	108,196		114,889
Pass [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	682,942		607,382
Pass [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	761,270		857,667
Pass [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,011,565		673,783
Pass [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	293,630		228,071
Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	6,683,649	[1]	6,021,968	[1]
Performing Financing Receivable [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,642,937		1,409,837
Performing Financing Receivable [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,966,599		1,916,042
Performing Financing Receivable [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	168,238		179,617
Performing Financing Receivable [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	765,246		665,058
Performing Financing Receivable [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	776,320		899,963
Performing Financing Receivable [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,069,610		717,798
Performing Financing Receivable [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	294,699		233,653
Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	100,840	[1]	117,262	[1]
Nonperforming Financing Receivable [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	12,459		27,759
Nonperforming Financing Receivable [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	40,801		51,700
Nonperforming Financing Receivable [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	0		0
Nonperforming Financing Receivable [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	15,666		17,001
Nonperforming Financing Receivable [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	1,052		1,961
Nonperforming Financing Receivable [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	24,776		12,593
Nonperforming Financing Receivable [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	6,086		6,248
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	22,387	[1]	44,178	[1]
Doubtful [Member] | Asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	12,151		19,147
Doubtful [Member] | Cash flow [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	10,236		24,424
Doubtful [Member] | Healthcare asset-based [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	0		0
Doubtful [Member] | Healthcare real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	0		0
Doubtful [Member] | Multi-family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	0		0
Doubtful [Member] | Real Estate Other Class [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	0		80
Doubtful [Member] | Small business [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	$ 0		$ 527

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

XML

Parent Company Information (Tables)

12 Months Ended

Dec. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Parent company condensed financial information

As of December 31, 2013 and 2012, the Parent Company condensed financial information was as follows:

Condensed Balance Sheets

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents	$	675		$	1,698
Investment in subsidiaries:
Bank subsidiary	1,235,903			1,100,847
Non-Bank subsidiaries	153,971			326,811
Total investment in subsidiaries	1,389,874			1,427,658
Other assets	246,712			200,577
Total assets	$	1,637,261		$	1,629,933
Liabilities and Shareholders' Equity:
Other liabilities	$	634		$	4,761
Shareholders' Equity:
Common stock	1,969			2,096
Additional paid-in capital	3,038,218			3,157,533
Accumulated deficit	(1,402,690		)	(1,559,107		)
Accumulated other comprehensive income, net	(870		)	24,650
Total shareholders' equity	1,636,627			1,625,172
Total liabilities and shareholders' equity	$	1,637,261		$	1,629,933

Condensed Statements of Operations

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Net interest loss:
Interest income	$	—		$	—		$	28,850
Interest expense	69			1,190			65,077
Net interest loss	(69		)	(1,190		)	(36,227		)
Non-interest income:
Loan fees	—			—			(363		)
Earnings in Bank subsidiary	140,677			122,666			112,091
Earnings (loss) in non-Bank subsidiaries	(4,986		)	107,012			(20,002		)
Other non-interest income	—			60			89
Total non-interest income	135,691			229,738			91,815
Non-interest expense:
Compensation and benefits	849			752			1,352
Professional fees	54			1,606			7,140
Other non-interest expenses	8,779			4,075			123,749
Total non-interest expense	9,682			6,433			132,241
Net income (loss) before income taxes	125,940			222,115			(76,653		)
Income tax expense (benefit)	(37,607		)	(268,495		)	(24,630		)
Net income (loss)	$	163,547		$	490,610		$	(52,023	)

Condensed Statements of Cash Flows

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Cash provided by operating activities:	$	138,877		$	464,825		$	863,487
Cash provided by investing activities:	—			—			—
Financing activities:
Repurchase of common stock	(137,989		)	(339,725		)	(427,231		)
Payment of dividends	(7,780		)	(113,304		)	(12,023		)
Repayments of other borrowings	—			(29,069		)	(507,877		)
Other	5,869			6,353			1,648
Cash used in financing activities:	(139,900		)	(475,745		)	(945,483		)
Decrease in cash and cash equivalents	(1,023		)	(10,920		)	(81,996		)
Cash and cash equivalents as of beginning of year	1,698			12,618			94,614
Cash and cash equivalents as of end of year	$	675		$	1,698		$	12,618

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Fair Value Measurements (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Fair Value Disclosures [Abstract]
proceeds from sale of asset collateralizing municipal bond security		$ 2,000,000
Fair Value, Available for sale securities, Level 3 Transfer in and out of hierarchy	0
Amount charged off in loan balances as Compared to Amount that would have been Charged Based on Appraised Value of Collateral	30,200,000	32,200,000
Collateral dependent loans with Stale-Dated Appraisals	31,900,000
Impairment losses related to FHLB SF stock	$ 0

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Investments Investments (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity, at amortized cost	$ 74,369	$ 108,233
Held-to-maturity Securities, Unrecognized Holding Gain	1,166	3,531
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses	0	(376)
Fair Value	75,536
Fair Value [Member] | Fair Value, Measurements, Recurring [Member]
Schedule of Held-to-maturity Securities [Line Items]
Fair Value	$ 75,535	$ 111,388

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Parent Company Information (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Total interest income	$ 113,258	$ 112,718	$ 108,405	$ 113,095	$ 114,921	$ 115,234	$ 117,982	$ 120,077	$ 447,476	$ 468,214	$ 510,390
Net interest income:
Interest expense	18,807	18,644	18,474	18,163	18,872	19,513	20,164	20,858	74,088	79,407	150,010
Net interest income (loss)	94,451	94,074	89,931	94,932	96,049	95,721	97,818	99,219	373,388	388,807	360,380
Non-interest income:
Loan fees									23,546	18,561	16,234
Other non-interest income									8,388	10,613	20,944
Total non-interest income	42,076	15,708	11,548	13,218	20,549	9,297	8,450	11,550	82,550	49,846	92,694
Non-interest expense:
Compensation and benefits									107,676	105,430	125,665
Professional fees									4,824	12,814	31,182
Other non-interest expenses									4,104	(1,453)	1,616
Total non-interest expense	46,114	47,614	50,695	44,655	49,423	47,009	48,200	49,050	189,078	193,682	375,170
Net income (loss) before income taxes									246,329	205,529	(15,081)
Income tax (benefit) expense	28,227	14,839	17,329	21,642	11,224	18,003	(340,017)	25,709	82,037	(285,081)	36,942
Net loss									164,292	490,610	(52,023)
CS Inc. [Member]
Condensed Financial Statements, Captions [Line Items]
Total interest income									0	0	28,850
Net interest income:
Interest expense									69	1,190	65,077
Net interest income (loss)									(69)	(1,190)	(36,227)
Non-interest income:
Loan fees									0	0	(363)
Earnings in Bank subsidiary									140,677	122,666	112,091
Earnings (loss) in non-Bank subsidiaries									(4,986)	107,012	(20,002)
Other non-interest income									0	60	89
Total non-interest income									135,691	229,738	91,815
Non-interest expense:
Compensation and benefits									849	752	1,352
Professional fees									54	1,606	7,140
Other non-interest expenses									8,779	4,075	123,749
Total non-interest expense									9,682	6,433	132,241
Net income (loss) before income taxes									125,940	222,115	(76,653)
Income tax (benefit) expense									(37,607)	(268,495)	(24,630)
Net loss									$ 163,547	$ 490,610	$ (52,023)

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Loans and Credit Quality (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	$ 100,840	[1]	$ 117,262	[1]
Asset-based [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	12,459		27,759
Cash flow [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	40,801		51,700
Healthcare real estate [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	15,666		17,001
Multi-family [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	1,052		1,961
Real Estate Other Class [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	24,776		12,593
Small business [Member]
Non-Accrual and Past Due Loans
Non-accrual loans at carrying value	$ 6,086		$ 6,248

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

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Property and Equipment (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property and Equipment (Textual) [Abstract]
Income from lease of equipment	$ 20,590,000	$ 14,113,000	$ 3,748,000
Depreciation of property and equipment	14,400,000	12,700,000	9,200,000
Equipment [Member]
Property and Equipment (Textual) [Abstract]
Equipment acquired during the period	31,900,000	40,800,000
Income from lease of equipment	$ 1,700,000	$ 1,100,000

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Stock-Based Compensation (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012	Dec. 31, 2011
Restricted stock awards and restricted stock units
Shares, Outstanding as of December 31, 2012	3,781,731
Shares Granted	1,294,388
Shares Vested	(1,699,284)
Shares Forfeited	(77,514)
Shares, Outstanding as of December 31, 2013	3,299,321	[1]	3,781,731
Weighted Average Grant Date Fair Value, Outstanding as of December 31, 2012	$ 6.44
Weighted Average Grant-Date Fair Value, Granted	$ 9.68		$ 6.99	$ 6.30
Weighted Average Grant-Date Fair Value, Vested	$ 6.37
Weighted Average Grant-Date Fair Value, Forfeited	$ 6.67
Weighted Average Grant Date Fair Value, Outstanding as of December 31, 2013	$ 7.74		$ 6.44

[1] Includes 0.8 million and 0.2 million vested and unvested restricted stock units, respectively.

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Assets and Liabilities Carried at Fair Value on Recurring Basis

Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2013 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	784,240	$	—	$	784,240	$	—
Assets-backed securities	3,169		—		3,169		—
Collateralized loan obligation	47,337		—		47,337		—
Non-agency MBS	20,203		—		20,203		—
SBA asset-backed securities	15,533		—		15,533		—
Total Investment securities, available-for-sale	870,482		—		870,482		—
Derivative assets	1,380		—		1,380		—
Total assets	$	871,862	$	—	$	871,862	$	—
Liabilities
Derivative liabilities	$	510	$	—	$	510	$	—

Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2012 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	983,521	$	—	$	983,521	$	—
Asset-backed securities	9,592		—		9,592		—
Collateralized loan obligation	26,250		—		—		26,250
Non-agency MBS	41,347		—		41,347		—
SBA asset-backed securities	18,315		—		18,315		—
Total assets	$	1,079,025	$	—	$	1,052,775	$	26,250
Liabilities
Derivative liabilities	$	482	$	—	$	482	$	—

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

A summary of the changes in the fair values of assets carried at fair value for the year ended December 31, 2013 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt		Collateralized Loan Obligation			Municipal Bonds		Non-agency MBS		Total			Warrants		Total Assets
	($ in thousands)
Balance as of January 1, 2013	$	—	$	26,250		$	—	$	—	$	26,250		$	—	$	26,250
Realized and unrealized gains (losses):
Included in income	—		56,242			—		—		56,242			—		56,242
Included in other comprehensive income, net	—		(12,832		)	—		—		(12,832		)	—		(12,832		)
Total realized and unrealized gains (losses)	—		43,410			—		—		43,410			—		43,410
Transfers to/from Level 3:
Transfers into Level 3	—		—			—		—		—			—		—
Transfers out of Level 3	—		—			—		—		—			—		—
Total Level 3 transfers	—		—			—		—		—			—		—
Sales and settlements:
Sales	—		(66,673		)	—		—		(66,673		)	—		(66,673		)
Settlements	—		(2,987		)	—		—		(2,987		)	—		(2,987		)
Total sales and settlements	—		(69,660		)	—		—		(69,660		)	—		(69,660		)
Balance as of December 31, 2013	$	—	$	—		$	—	$	—	$	—		$	—	$	—

A summary of the changes in the fair values of assets carried fair value for the year ended December 31, 2012 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt			Collateralized Loan Obligation			Municipal Bonds (1)			Non-agency MBS			Total			Warrants			Total Assets
	($ in thousands)
Balance as of January 1, 2012	$	700		$	17,763		$	3,235		$	—		$	21,698		$	193		$	21,891
Realized and unrealized gains (losses):
Included in income	11			2,954			(1,246		)	1,353			3,072			5			3,077
Included in other comprehensive income, net	(45		)	6,985			—			—			6,940			—			6,940
Total realized and unrealized gains (losses)	(34		)	9,939			(1,246		)	1,353			10,012			5			10,017
Transfers to/from Level 3
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	(666		)	—			—			—			(666		)	—			(666		)
Total Level 3 transfers	(666		)	—			—			—			(666		)	—			(666		)
Sales and issuances:
Sales	—			—			—			—			—			(198		)	(198		)
Settlements	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	—			(4,794		)
Total sales and issuances	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	(198		)	(4,992		)
Balance as of December 31, 2012	$	—		$	26,250		$	—		$	—		$	26,250		$	—		$	26,250

______________________

(1) In September 2012, the municipal bond was settled as the Company secured the collateral; the collateral was transferred to other assets at its fair value less cost of sales of $2.0 million.

Fair Value, Measured on Recurring Basis, Gain (Loss) Included in Earnings [Table Text Block]

Realized and unrealized gains and losses on assets and liabilities classified in Level 3 of the fair value hierarchy included in income for the year ended December 31, 2013 and 2012, reported in interest income and (loss) gain on investments, net were as follows:

	Interest Income				(Loss) Gain on Investments, Net
	Year Ended December 31,
	2013		2012		2013		2012
	($ in thousands)
Total gains (losses) included in earnings for the period	$	3,036	$	4,498	$	53,205	$	(1,421	)
Unrealized gains (losses) relating to assets still held at reporting date	—		3,134		—		(180		)

Assets carried at fair value on a nonrecurring basis

The table below provides the fair values of those assets, excluding related transaction costs, for which nonrecurring fair value adjustments were recorded as of December 31, 2013 and 2012, classified by their position in the fair value hierarchy.

	December 31,
	2013								2012
	Fair Value Measurement as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)								($ in thousands)
Assets
Loans held for sale	$	—	$	—	$	—	$	—	$	1,000	$	—	$	1,000	$	—
Loans held for investment	1,883		—		—		1,883		9,287		—		—		9,287
Investments carried at cost	1,311		—		1,311		—		597		—		571		26
Real estate owned	1,793		—		1,315		478		6,178		—		1,844		4,334
Total assets	$	4,987	$	—	$	2,626	$	2,361	$	17,062	$	—	$	3,415	$	13,647

Net Losses (Gains) on Nonrecurring Assets [Table Text Block]

The following table presents the net losses of the above assets resulting from nonrecurring fair value adjustments for the year ended December 31, 2013 and 2012:

	December 31,
	2013		2012
	($ in thousands)
Assets
Loans held for sale	$	—	$	198
Loans held for investment	2,041		25,981
Investments carried at cost	189		5,486
Real estate owned	1,365		5,681
Total net loss from nonrecurring measurements	$	3,595	$	37,346

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

For our fair value measurements classified in Level 3 of the fair value hierarchy as of December 31, 2013 a summary of the significant unobservable inputs and valuation techniques is as follows:

	Fair Value Measurement as of December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	($ in thousands)
Assets
Loans held for investment
Services	754		Income Approach	Capitalization Rate	40.0%
Commercial Real Estate	1,129		Market and Income Approach	Price Per Square Foot	$22 - $195 ($41)
				Room Revenue Multiple	2.00x - 2.25x (2.05x)
				Marketability Discount	10% - 51% (21%)
				Capitalization Rate	9.0%
Total loans held for investment	1,883
Real estate owned	478		Market Approach	Marketability Discount	18% - 44% (42%)
				Price Per Square Foot	$47.50
				Room Revenue Multiple	1.75x
Total assets as of December 31, 2013	$	2,361

Fair Value, by Balance Sheet Grouping [Table Text Block]

The table below provides fair value estimates for our financial instruments as of December 31, 2013 and 2012, excluding financial assets and liabilities which are recorded at fair value on a recurring basis.

	December 31,
	2013										2012
	Carrying Value		Fair Value								Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total
	($ in thousands)
Assets:
Cash and cash equivalents	$	455,799	$	455,799	$	—	$	—	$	455,799	$	299,086	$	299,086	$	—	$	—	$	299,086
Restricted cash	58,653		58,653		—		—		58,653		104,044		104,044		—		—		104,044
Loans held for sale	—		—		—		—		—		22,719		—		22,723		—		22,723
Loans held for investment, net	6,663,969		—		—		6,654,877		6,654,877		6,021,957		—		—		5,953,226		5,953,226
Investments carried at cost	17,797		—		2,375		40,599		42,974		23,963		—		—		61,742		61,742
Investments accounted for under the equity method	34,327		—		12,414		22,500		34,914		36,400		1,087		12,372		24,055		37,514
Investment securities, held-to-maturity	74,369		—		75,535		—		75,535		108,233		—		111,388		—		111,388
Liabilities:
Deposits	6,127,690		876,788		5,257,729		—		6,134,517		5,579,270		962,851		4,626,715		—		5,589,566
Term debt	—		—		—		—		—		177,188		—		—		146,548		146,548
FHLB Borrowings	625,000		—		634,438		—		634,438		595,000		—		614,063		—		614,063
Subordinated debt	412,156		—		308,262		—		308,262		410,738		—		273,141		—		273,141
Loan commitments and letters of credit	—		—		—		24,359		24,359		—		—		—		21,559		21,559

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Loans and Credit Quality (Tables)

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Outstanding Unpaid Principal Balance of Loans in Portfolio

As of December 31, 2013 and 2012, the outstanding carrying value of loans, by type of loan, was as follows:

	December 31,
	2013				2012
	($ in thousands)
Commercial	$	3,852,537	57	%	$	3,594,643	58	%
Real estate	2,865,976		42		2,499,567		41
Real estate - construction	65,976		1		45,020		1
Total(1)(2)	$	6,784,489	100	%	$	6,139,230	100	%

______________________

(1) Includes deferred loan fees and discounts.

(2) As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

CV of Loans Held for Investment by class by performing and nonperforming

As of December 31, 2013 and 2012, the carrying value of each class of loans held for investment, separated by performing and non-performing categories, was as follows:

	December 31,
	2013						2012
Class	Performing		Non-Performing		Total		Performing		Non-Performing		Total
	($ in thousands)
Asset-based	$	1,642,937	$	12,459	$	1,655,396	$	1,409,837	$	27,759	$	1,437,596
Cash flow	1,966,599		40,801		2,007,400		1,916,042		51,700		1,967,742
Healthcare asset-based	168,238		—		168,238		179,617		—		179,617
Healthcare real estate	765,246		15,666		780,912		665,058		17,001		682,059
Multi-family	776,320		1,052		777,372		899,963		1,961		901,924
Real estate	1,069,610		24,776		1,094,386		717,798		12,593		730,391
Small business	294,699		6,086		300,785		233,653		6,248		239,901
Total(1)	$	6,683,649	$	100,840	$	6,784,489	$	6,021,968	$	117,262	$	6,139,230

________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

CV of Loans HFI by Internal Risk Rating

As of December 31, 2013 and 2012, the carrying value of each class of loans by internal risk rating, was as follows:

	Internal Risk Rating
Class	Pass		Special Mention		Substandard		Doubtful		Total
	($ in thousands)
As of December 31, 2013:
Asset-based	$	1,602,564	$	25,420	$	15,261	$	12,151	$	1,655,396
Cash flow	1,823,926		108,242		64,996		10,236		2,007,400
Healthcare asset-based	108,196		45,911		14,131		—		168,238
Healthcare real estate	682,942		67,235		30,735		—		780,912
Multi-family	761,270		14,473		1,629		—		777,372
Real estate	1,011,565		25,521		57,300		—		1,094,386
Small business	293,630		1,066		6,089		—		300,785
Total(1)	$	6,284,093	$	287,868	$	190,141	$	22,387	$	6,784,489
As of December 31, 2012:
Asset-based	$	1,352,729	$	36,535	$	29,185	$	19,147	$	1,437,596
Cash flow	1,684,107		67,629		191,582		24,424		1,967,742
Healthcare asset-based	114,889		64,728		—		—		179,617
Healthcare real estate	607,382		57,676		17,001		—		682,059
Multi-family	857,667		41,709		2,548		—		901,924
Real estate	673,783		38,139		18,389		80		730,391
Small business	228,071		2,860		8,443		527		239,901
Total(1)	$	5,518,628	$	309,276	$	267,148	$	44,178	$	6,139,230

_________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Non-Accrual and Past Due Loans

As of December 31, 2013 and 2012, the carrying value of non-accrual loans was as follows:

	December 31,
	2013		2012
	($ in thousands)
Asset-based	$	12,459	$	27,759
Cash flow	40,801		51,700
Healthcare real estate	15,666		17,001
Multi-family	1,052		1,961
Real estate	24,776		12,593
Small business	6,086		6,248
Total(1)	$	100,840	$	117,262

______________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Delinquent loans in loan portfolio

As of December 31, 2013 and 2012, the delinquency status of loans in our loan portfolio was as follows:

	30-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Greater Than 90 Days Past Due and Accruing
	($ in thousands)
As of December 31, 2013:
Asset-based	$	54	$	—	$	54	$	1,655,342	$	1,655,396	$	—
Cash flow	878		99		977		2,006,423		2,007,400		—
Healthcare asset-based	—		—		—		168,238		168,238		—
Healthcare real estate	—		15,666		15,666		765,246		780,912		—
Multi-family	591		188		779		776,593		777,372		—
Real estate	—		10,326		10,326		1,084,060		1,094,386		—
Small business	839		1,356		2,195		298,590		300,785		—
Total(1)	$	2,362	$	27,635	$	29,997	$	6,754,492	$	6,784,489	$	—
As of December 31, 2012:
Asset-based	$	19,207	$	391	$	19,598	$	1,417,998	$	1,437,596	$	—
Cash flow	578		3,486		4,064		1,963,678		1,967,742		—
Healthcare asset-based	—		—		—		179,617		179,617		—
Healthcare real estate	—		17,001		17,001		665,058		682,059		—
Multi-family	656		999		1,655		900,269		901,924		—
Real estate	1,032		12,284		13,316		717,075		730,391		—
Small business	2,994		3,932		6,926		232,975		239,901		—
Total(1)	$	24,467	$	38,093	$	62,560	$	6,076,670	$	6,139,230	$	—

__________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Impaired loans

As of December 31, 2013 and 2012, information pertaining to our impaired loans was as follows:

	December 31,
	2013							2012
	Carrying Value(1)		Legal Principal Balance(2)		Related Allowance			Carrying Value(1)		Legal Principal Balance(2)		Related Allowance
	($ in thousands)
With no related allowance recorded:
Asset-based	$	12,459	$	19,724				$	40,655	$	75,547
Cash flow	279		21,486					48,796		118,440
Healthcare asset-based	—		—					—		12,246
Healthcare real estate	15,666		21,668					17,001		18,286
Multi-family	1,052		1,414					1,961		2,108
Real estate	24,776		100,374					12,711		83,363
Small business	6,086		14,046					8,112		15,976
Total	60,318		178,712					129,236		325,966
With allowance recorded:
Asset-based	—		—		$	—		867		859		$	(412	)
Cash flow	40,522		44,513		(4,211		)	71,609		80,322		(6,072		)
Total	40,522		44,513		(4,211		)	72,476		81,181		(6,484		)
Total impaired loans	$	100,840	$	223,225	$	(4,211	)	$	201,712	$	407,147	$	(6,484	)

______________________

(1) Carrying value of impaired loans before applying specific reserves. Balances are net of deferred loan fees and discounts. Excludes loans held for sale.

(2) Represents the contractual amounts owed to us by borrowers. The difference between the carrying value and the contractual amounts owed relates to the previous recognition of charge offs and are net of deferred loan fees and discounts.

Impaired Financing Receivables, Average Balances And Interest Income Recognized

Average balances and interest income recognized on impaired loans, by loan class, for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013				2012				2011
	Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)
	($ in thousands)
No allowance recorded:
Asset-based	$	26,106	$	489	$	65,805	$	3,246	$	67,521	$	2,899
Cash flow	25,628		5,867		68,549		5,534		110,466		7,456
Healthcare asset-based	—		—		1,002		233		1,827		177
Healthcare real estate	16,717		—		24,118		—		23,010		165
Multi-family	1,583		161		1,432		17		5,770		—
Real estate	18,897		5		54,800		3,735		185,104		3,410
Small business	6,766		242		11,983		20		10,158		—
Total	95,697		6,764		227,689		12,785		403,856		14,107
With allowance recorded:
Asset-based	743		—		8,222		74		47,572		—
Cash flow	43,156		1,622		95,442		3,094		111,637		3,405
Healthcare asset-based	—		—		—		—		787		—
Healthcare real estate	—		—		604		—		5,006		—
Multi-family	—		—		—		—		414		—
Real estate	—		—		—		—		32,964		—
Small business	—		—		—		—		733		—
Total	43,899		1,622		104,268		3,168		199,113		3,405
Total impaired loans	$	139,596	$	8,386	$	331,957	$	15,953	$	602,969	$	17,512

_________________________

(1) We recognized no cash basis interest income on impaired loans during the years ended December 31, 2013 and 2012. We recognized $0.1 million cash basis interest income on impaired loans during the year ended December 31, 2011.

Allowance for Loan Losses

Activity in the allowance for loan and lease losses related to our loans held for investment for the years ended December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Allowance for loan and lease losses as of beginning of year	$	117,273		$	153,631		$	329,122
Charge offs	(8,436		)	(96,376		)	(246,242		)
Recoveries	5,900			22,220			18,926
Net charge offs	(2,536		)	(74,156		)	(227,316		)
Charge offs upon transfer to held for sale	(14,748		)	(1,644		)	(41,160		)
Loan and lease loss provision	20,531			39,442			92,985
Balance as of end of year	120,520			117,273			153,631
Allowance for credit losses on unfunded lending commitments at beginning of year	3,424			4,877			3,261
(Release) provision for unfunded lending commitments	(1,124		)	(1,453		)	1,616
Allowance for credit losses on unfunded lending commitments at end of year(1)	2,300			3,424			4,877
Total allowance for loan, lease and unfunded lending commitments	$	122,820		$	120,697		$	158,508

_________________________

(1) Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other Liabilities.Unfunded lending commitments totaled $1.1 billion, $1.0 billion and $1.4 billion at December 31, 2013, 2012 and 2011, respectively.

Allowances for loan losses and carrying value of loans held for investment

As of December 31, 2013 and 2012, the balances of the allowance for loan and lease losses and the carrying value of loans held for investment disaggregated by impairment methodology were as follows:

	December 31,
	2013					2012
	Loans		Allowance for Loan and Lease Losses			Loans		Allowance for Loan and Lease Losses
	($ in thousands)
Individually evaluated for impairment(1)	$	99,091	$	(4,211	)	$	198,856	$	(6,484	)
Other loans groups with unidentified incurred losses	6,683,649		(116,309		)	5,937,518		(110,789		)
Acquired loans with deteriorated credit quality	1,749		—			2,856		—
Total	$	6,784,489	$	(120,520	)	$	6,139,230	$	(117,273	)

_______________________________

(1) Loans individually evaluated for impairment are net of charge offs of $85.4 million and $162.5 million at December 31, 2013 and 2012, respectively.

Troubled Debt Restructurings on Financing Receivables

The aggregate carrying values of loans that had been restructured in TDRs as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual	$	55,460	$	62,815
Accruing	—		83,367
Total	$	55,460	$	146,182

Roll Forward of Balance of Loans Modified in TDRs

The following table rolls forward the balance of loans modified in TDRs for the years ended December 31, 2013, 2012 and 2011:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Beginning balance of TDRs	$	146,182		$	309,003		$	555,113
New TDRs	3,896			45,353			143,963
Draws and pay downs on existing TDRs, net	(16,934		)	(18,087		)	(27,305		)
Loan sales and payoffs	(74,360		)	(157,954		)	(267,168		)
Charge offs post modification	(3,324		)	(32,133		)	(95,600		)
Ending balance of TDRs	$	55,460		$	146,182		$	309,003

Carrying value of troubled debt restructurings

The number and aggregate carrying values of loans involved in TDRs that occurred during the year ended December 31, 2013 were as follows:

	Year Ended December 31, 2013
	Number of Loans	Carrying Value Prior to TDR		Carrying Value Subsequent to TDR(2)
	($ in thousands)
Asset-based
Maturity extension	1	$	2,985	$	2,985
Discounted payoffs	2	10,006		—
Multiple concessions	2	9,398		9,398
	5	22,389		12,383
Cash flow
Maturity extension	2	32,547		32,547
Payment deferral	1	571		571
Discounted payoffs	3	16,942		—
Multiple concessions	7	17,840		17,840
	13	67,900		50,958
Multi-family
Discounted payoffs	1	425		—
Small business
Discounted payoffs	2	565		—
Foreclosures	3	786		—
Multiple concessions	4	1,955		1,955
	9	3,306		1,955
Total(1)	28	$	94,020	$	65,296

__________________________

(1) Includes deferred loan fees and discounts.

(2) Represents the carrying value immediately following the modification of the loan; does not represent the carrying value as of December 31, 2013.

Summary of Conessions Granted by Loan Type, Including Accrual Status

A summary of concession types granted by loan type, including the accrual status of the loans as of December 31, 2013 and 2012, respectively, was as follows:

	December 31,
	2013						2012
	Non-accrual		Accrual		Total		Non-accrual		Accrual		Total
	($ in thousands)
Commercial
Maturity extension	$	—	$	—	$	—	$	14,166	$	59,513	$	73,679
Payment deferral	529		—		529		—		—		—
Multiple concessions	42,340		—		42,340		36,786		23,711		60,497
	42,869		—		42,869		50,952		83,224		134,176
Real estate
Interest rate and fee reduction	—		—		—		—		—		—
Maturity extension	54		—		54		59		—		59
Payment deferral	529		—		529		617		—		617
Multiple concessions	1,938		—		1,938		200		143		343
	2,521		—		2,521		876		143		1,019
Real estate - construction
Maturity extension	10,070		—		10,070		10,758		—		10,758
Multiple concessions	—		—		—		229		—		229
	10,070		—		10,070		10,987		—		10,987
Total	$	55,460	$	—	$	55,460	$	62,815	$	83,367	$	146,182

Troubled Debt Restructurings On Financing Receivables, Subsequent Default

Losses incurred on TDRs since their initial restructuring by concession and loan type as of December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Commercial
Interest rate and fee reduction	$	—	$	—	$	18,727
Maturity extension	727		5,440		11,310
Payment deferral	144		252		10,968
Multiple concessions	6,360		20,281		48,912
	7,231		25,973		89,917
Real estate
Interest rate and fee reduction	—		—		9
Maturity extension	—		950		—
Payment deferral	—		—		11,162
Multiple concessions	363		23		402
	363		973		11,573
Real estate - construction
Maturity extension	—		4,709		19,408
Multiple concessions	229		958		—
	229		5,667		19,408
Total	$	7,823	$	32,613	$	120,898

Schedule Of Real Estate Owned Held For Sale RollForward

Activity related to REO for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Balance as of beginning of year	$	23,791		$	69,698		$	163,329
Transfers from loans held for investment and other assets	845			15,494			28,281
Fair value adjustments	(2,025		)	(10,174		)	(28,274		)
Real estate sold	(9,787		)	(51,227		)	(93,638		)
Balance as of end of year	$	12,824		$	23,791		$	69,698

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Deposits (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Interest-bearing deposits:
Money market	$ 253,357	$ 257,961
Weighted Average Rate Domestic Deposit, Savings	0.45%	0.49%
Weighted Average Rate Domestic Deposit Savings and Money Market Deposit	0.47%	0.52%
Savings	623,430	704,890
Certificates of deposit	5,250,903	4,616,419
Weighted Average Rate Domestic Deposit, Certificates of Deposit	0.97%	0.94%
Total interest-bearing deposits	$ 6,127,690	$ 5,579,270
Weighted Average Rate Domestic Deposit Savings and Money Market Deposit	0.90%	0.87%

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Fair Value Measurements (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	$ 2,361
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0	1,000
Loans held for investment	1,883	9,287
Investments carried at cost	1,311	597
Real estate owned	1,793	6,178
Total assets	4,987	17,062
Gains Losses for Loans Held for Sale	0	(198)
Loans And Leases Receivable Gross Unrealized Gain Loss	(2,041)	(25,981)
Cost Method Investments Aggregate Unrealized Gain Loss	(189)	(5,486)
Real Estate Owned Unrealized Gain Loss	(1,365)	(5,681)
Total Net Gain (Loss) from Nonrecurring Assets	(3,595)	(37,346)
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0	0
Loans held for investment	0	0
Investments carried at cost	0	0
Real estate owned	0	0
Total assets	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0	1,000
Loans held for investment	0	0
Investments carried at cost	1,311	571
Real estate owned	1,315	1,844
Total assets	2,626	3,415
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0	0
Loans held for investment	1,883	9,287
Investments carried at cost	0	26
Real estate owned	478	4,334
Total assets	$ 2,361	$ 13,647

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Unaudited Quarterly Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Quarterly Financial Information Disclosure [Abstract]
Interest income	$ 113,258	$ 112,718	$ 108,405	$ 113,095	$ 114,921	$ 115,234	$ 117,982	$ 120,077	$ 447,476	$ 468,214	$ 510,390
Interest expense	18,807	18,644	18,474	18,163	18,872	19,513	20,164	20,858	74,088	79,407	150,010
Net interest income	94,451	94,074	89,931	94,932	96,049	95,721	97,818	99,219	373,388	388,807	360,380
Provision for loan and lease losses	4,263	(1,069)	4,832	12,505	8,875	8,959	10,536	11,072	20,531	39,442	92,985
Net interest income after provision for loan and lease losses	90,188	95,143	85,099	82,427	87,174	86,762	87,282	88,147	352,857	349,365	267,395
Non-interest income	42,076	15,708	11,548	13,218	20,549	9,297	8,450	11,550	82,550	49,846	92,694
Non-interest expense	46,114	47,614	50,695	44,655	49,423	47,009	48,200	49,050	189,078	193,682	375,170
Net income (loss) from continuing operations before income taxes									246,329	205,529	(15,081)
Income tax expense (benefit)	28,227	14,839	17,329	21,642	11,224	18,003	(340,017)	25,709	82,037	(285,081)	36,942
Net income (loss)	$ 57,923	$ 48,398	$ 28,623	$ 29,348	$ 47,076	$ 31,047	$ 387,549	$ 24,938	$ 164,292	$ 490,610	$ (52,023)
Basic income (loss) per share:
Basic net income (loss) per share	$ 0.30	$ 0.25	$ 0.15	$ 0.15	$ 0.23	$ 0.14	$ 1.71	$ 0.10	$ 0.84	$ 2.19	$ (0.17)
Diluted income (loss) per share
Diluted net income (loss) per share	$ 0.29	$ 0.24	$ 0.15	$ 0.14	$ 0.23	$ 0.14	$ 1.66	$ 0.10	$ 0.82	$ 2.13	$ (0.17)

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Investments (Details 5) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Investment Securities, Available-for-Sale, Amortized Cost
Due in one year or less	$ 0
Due after one year through five years	12,889
Due after five years through ten years	44,241	[1]
Due after ten years	814,812	[2],[3]
Amortized Cost	871,942		1,042,131
Investment Securities, Available-for-Sale, Estimated Fair Value
Due in one year or less	0
Due after one year through five years	13,330
Due after five years through ten years	44,884	[1]
Due after ten years	812,268	[2],[3]
Fair Value	870,482		1,079,025
Investment Securities, Held-to-Maturity, Amortized Cost
Due in one year or less	0
Due after one year through five years	0
Due after five years through ten years	60,396	[1]
Due after ten years	13,973	[2],[3]
Amortized Cost	74,369		108,233
Investment Securities, Held-to-Maturity, Estimated Fair Value
Due in one year or less	0
Due after one year through five years	0
Due after five years through ten years	60,593	[1]
Due after ten years	14,943	[2],[3]
Fair Value	$ 75,536

[1] Includes Agency MBS, Non-agency MBS, Non-agency ABS, Non-agency CMBS, and CLOs with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41 and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

[2] Includes Agency MBS, SBA ABS, Non-agency MBS, Non-agency CMBS, and CLOs with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66 and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

[3] Includes securities with no stated maturity.

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Borrowings (Details 5) (USD $)	Dec. 31, 2013		Dec. 31, 2012
On-balance sheet contractual obligations
2013	$ 135,000,000
2014	112,500,000
2015	204,000,000
2016	88,000,000
2017	78,000,000
Thereafter	419,656,000
Long-term Debt, Gross	1,037,156,000
Secured Debt [Member]
On-balance sheet contractual obligations
Long-term Debt, Gross	0		177,209,000
Subordinated Debt [Member]
On-balance sheet contractual obligations
2013	0	[1]
2014	0	[1]
2015	0	[1]
2016	0	[1]
2017	0	[1]
Thereafter	412,156,000	[1]
Long-term Debt, Gross	412,156,000	[1]	410,700,000
FHLB SF [Member]
On-balance sheet contractual obligations
2013	135,000,000
2014	112,500,000
2015	204,000,000
2016	88,000,000
2017	78,000,000
Thereafter	7,500,000
Long-term Debt, Gross	$ 625,000,000

[1] The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

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Loans and Credit Quality (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 60,318	$ 129,236
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	178,712	325,966
Carrying Value	100,840	201,712
Legal Principal Balance	223,225	407,147
Related Allowance	(4,211)	(6,484)
Impaired Financing Receivable, with Related Allowance, Recorded Investment	40,522	72,476
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	44,513	81,181
Asset-based [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	12,459	40,655
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	19,724	75,547
Related Allowance	0	(412)
Impaired Financing Receivable, with Related Allowance, Recorded Investment	0	867
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	0	859
Cash flow [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	279	48,796
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	21,486	118,440
Related Allowance	(4,211)	(6,072)
Impaired Financing Receivable, with Related Allowance, Recorded Investment	40,522	71,609
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	44,513	80,322
Healthcare asset-based [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	0	0
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	0	12,246
Healthcare real estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	15,666	17,001
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	21,668	18,286
Multi-family [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,052	1,961
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	1,414	2,108
Real Estate Other Class [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	24,776	12,711
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	100,374	83,363
Small business [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	6,086	8,112
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	$ 14,046	$ 15,976

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Commitments and Contingencies (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Long-term Purchase Commitment [Line Items]
Operating Leases, Future Minimum Payments Due, Future Minimum Sublease Rentals		$ 16,100,000
Occupancy, Net	14,577,000	16,840,000	15,480,000
Line Of Credit Facility Amount Committed	8,000,000,000	7,400,000,000
Loans and Leases Receivable, Commitments to Purchase or Sell	1,100,000,000	1,000,000,000	1,400,000,000
Letters Of Credit, Amount Outstanding	43,400,000	54,200,000
Expiration Of StandBy Letters Of Credit	6 years
Subsidiaries [Member]
Long-term Purchase Commitment [Line Items]
Loans and Leases Receivable, Commitments to Purchase or Sell	1,035,000,000	922,400,000
CapitalSource Inc. [Member]
Long-term Purchase Commitment [Line Items]
Loans and Leases Receivable, Commitments to Purchase or Sell	$ 28,000,000	$ 88,500,000

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Investments (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Available-for-sale Securities [Line Items]
Proceeds from Sale and Maturity of Available-for-sale Securities	$ 358,742,000		$ 383,597,000	$ 976,300,000
Payments to Acquire Available-for-sale Securities	117,580,000		293,899,000	591,863,000
Other comprehensive loss, net of tax benefit	(25,520,000)		5,595,000	13,292,000
Other than temporary impairments "OTTI" on investment securities, available-for-sale	200,000		1,400,000	1,500,000
Interest Income, Securities, Operating, Held-to-maturity	4,300,000		4,400,000
Proceeds from Maturities, Prepayments and Calls of Held-to-maturity Securities	35,736,000		5,149,000	92,583,000
Payments to Acquire Held-to-maturity Securities	47,855,000		0	10,631,000
Held-to-maturity Securities, Transferred Security, at Carrying Value	47,900,000
Held-to-maturity securities, Transferred Security, At Fair Value	47,300,000
Held-to-maturity Securities, Transferred Security, Unrealized Gain (Loss)	(526,000)
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	44,884,000	[1]
Held-to-maturity Securities, Debt Maturities, Year Six Through Ten, Fair Value	60,593,000	[1]
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	812,268,000	[2],[3]
Held-to-maturity Securities, Debt Maturities, after Ten Years, Fair Value	14,943,000	[2],[3]
Proceeds from Equity Method Investment, Dividends or Distributions	3,600,000		7,100,000
Recorded OTTI relating to our investments carried at cost	1,600,000		5,200,000		1,400,000
Commercial Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Held-to-maturity Securities, Debt Maturities, Year Six Through Ten, Fair Value	60,600,000
Held-to-maturity_Weighted-average maturities with six to ten years	0.41
Held-to-maturity Securities, Debt Maturities, after Ten Years, Fair Value	14,900,000
Held-to-maturity_Weighted-average maturities after ten years	2.66
Collateralized loan obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	24,700,000
Available-for-sale_Weighted-average maturities with six to ten years	4.43
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	22,700,000
Available-for-sale_Weighted-average maturities after ten years	7.07
Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	16,900,000
Available-for-sale_Weighted-average maturities with six to ten years	1.94
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	762,400,000
Available-for-sale_Weighted-average maturities after ten years	4.06
SBA asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	15,500,000
Available-for-sale_Weighted-average maturities after ten years	6.70
Non-agency MBS [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	200,000
Available-for-sale_Weighted-average maturities with six to ten years	1.83
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	11,700,000
Available-for-sale_Weighted-average maturities after ten years	2.01
Asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	3,200,000
Available-for-sale_Weighted-average maturities with six to ten years	1.59
Available-for-sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Proceeds from Sale and Maturity of Available-for-sale Securities	358,742,000		383,597,000
Payments to Acquire Available-for-sale Securities	117,580,000		293,899,000
Accretion (Amortization) of Discounts and Premiums, Investments	3,437,000		6,143,000
Held-to-maturity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Accretion (Amortization) of Discounts and Premiums, Investments	(1,700,000)		(1,700,000)
Proceeds from Maturities, Prepayments and Calls of Held-to-maturity Securities	35,736,000		5,149,000
Payments to Acquire Held-to-maturity Securities	47,855,000		0
Held-to-maturity Securities [Member] | Commercial Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Held-to-maturity Securities, Sold Security, at Carrying Value	6,200,000
Held-to-maturity Securities, Sold Security, Realized Gain (Loss), Excluding Other than Temporary Impairments	$ 200,000

[1] Includes Agency MBS, Non-agency MBS, Non-agency ABS, Non-agency CMBS, and CLOs with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41 and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

[2] Includes Agency MBS, SBA ABS, Non-agency MBS, Non-agency CMBS, and CLOs with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66 and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

[3] Includes securities with no stated maturity.

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Borrowings (Details 2) (Convertible Debt [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Three Point Five Percent Senior Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2012 Three Point Five Percent Senior Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2011 Three Point Five Percent Senior Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2013 Four Point Zero Percent Senior Subordinated Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2012 Four Point Zero Percent Senior Subordinated Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2011 Four Point Zero Percent Senior Subordinated Convertible Debentures Due Two Zero Three Four [Member]		Dec. 31, 2013 7.25% Senior Subordinated Convertible Debentures due 2037 [Member]		Sep. 30, 2013 7.25% Senior Subordinated Convertible Debentures due 2037 [Member]	Dec. 31, 2012 7.25% Senior Subordinated Convertible Debentures due 2037 [Member]		Dec. 31, 2011 7.25% Senior Subordinated Convertible Debentures due 2037 [Member]
Debt Instrument [Line Items]
Interest rate spread						3.50%						4.00%						0.00%
Interest expense recognized on:
Contractual interest coupon	$ 0	$ 1,006	$ 21,112
Amortization of deferred financing fees	0	7	692
Amortization of debt discount	0	66	6,033
Total interest expense recognized	$ 0	$ 1,079	$ 27,837
Debt Instrument, Interest Rate, Effective Percentage				0.00%	[1]	0.00%	[1]	7.25%	[1]	0.00%	[1]	0.00%	[1]	7.68%	[1]	0.00%	[1]		7.79%	[1]	7.79%	[1]

[1] (2)Repurchased in 2012.

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Deposits (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest expense on deposits
Savings and money market	$ 4,584	$ 6,086	$ 8,289
Certificates of deposit	47,591	45,165	45,547
Fees for early withdrawal	(234)	(216)	(227)
Total interest expense on deposits	$ 51,941	$ 51,035	$ 53,609

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Borrowings (Details 3) (Subordinated Debt [Member], USD $) In Thousands, unless otherwise specified		12 Months Ended
	Mar. 31, 2012	Dec. 31, 2013 TPS Series 2005-1 [Member]		Dec. 31, 2013 Trust Preferred Securities Two Thousand Six Series Five [Member]		Dec. 31, 2013 Trust Preferred Securities Two Thousand Six Series Four [Member]		Dec. 31, 2013 Trust Preferred Securities Two Thousand Six Series Three [Member]		Dec. 31, 2013 Trust Preferred Securities Two Thousand Six Series Two [Member]		Dec. 31, 2013 TPS Series 2005-2 [Member]		Dec. 31, 2013 Trust Preferred Securities Two Thousand Six Series One [Member]		Dec. 31, 2013 TPS Series 2007-2 [Member]		Dec. 31, 2013 Trust Preferred Securities, All Except 2006-3 [Member]
Debt Instrument [Line Items]
Trust Formation Date		November 2005		December 2006		December 2006		September 2006		September 2006		December 2005		February 2006		June 2007
Convertible debt principal	$ 26,100	$ 82,475		$ 6,650		$ 16,470		$ 35,423	[1]	$ 51,550		$ 128,866		$ 51,545		$ 39,177
Maturity Date		Dec. 15, 2035		Jan. 30, 2037		Jan. 30, 2037		Oct. 30, 2036		Oct. 30, 2036		Jan. 30, 2036		Apr. 30, 2036		Jul. 30, 2037
Date Callable		Dec. 15, 2010	[2]	Jan. 30, 2012	[2]	Jan. 30, 2012	[2]	Oct. 30, 2011	[2]	Oct. 30, 2011	[2]	Jan. 30, 2011	[2]	Apr. 30, 2011	[2]	Jul. 30, 2012	[2]
Interest Rate		2.19%	[3]	2.19%	[3]	2.19%	[3]	2.28%	[4]	2.19%	[3]	2.19%	[3]	2.19%	[3]	2.19%	[3]
Debt Instrument, Description of Variable Rate Basis								three-month EURIBOR plus 2.05%										three-month LIBOR plus 1.95%

[1] (4)Denomination is in Euros with a value of €25.8 million.

[2] (1)The subordinated debt is callable by us in whole or in part at par at any time after the stated date.

[3] (2)Bears interest at a floating interest rate equal to three-month LIBOR plus 1.95%, resetting quarterly at various dates.

[4] (3)Bears interest at a floating interest rate equal to three-month EURIBOR plus 2.05%, resetting quarterly.

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Summary of property and equipment included in other assets
Land	$ 125	$ 125
Buildings and Improvements, Gross	470	470
Machinery and Equipment, Gross	179,544	149,345
Furniture and Fixtures, Gross	10,479	10,266
Leasehold Improvements, Gross	26,266	24,498
Accumulated depreciation and amortization	(63,809)	(46,190)
Total	$ 153,075	$ 138,514

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Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 63,978	$ 91,098
Fair Value	64,338	92,878
FHLB SF [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	3,582	4,060
Fair Value	3,745	4,497
FRB [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	60,396	87,038
Fair Value	$ 60,593	$ 88,381

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Derivative Instruments

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Note 17. Derivative Instruments

We are exposed to certain risks related to our ongoing business operations. The primary risks managed through the use of derivative instruments are interest rate risk and foreign exchange risk. We do not enter into derivative instruments for speculative purposes. As of December 31, 2013 and 2012, none of our derivatives were designated as hedging instruments pursuant to GAAP.

We have entered into forward exchange contracts to hedge foreign currency denominated loans we originate against foreign currency fluctuations. The objective is to manage the uncertainty of future foreign exchange rate fluctuations. These forward exchange contracts provide for a fixed exchange rate which has the effect of reducing or eliminating changes to anticipated cash flows to be received from foreign currency-denominated loan transactions as the result of changes to exchange rates.

In connection with our term debt securitizations which were extinguished as of September 30, 2013, we had entered into basis swaps to eliminate risk between our LIBOR-based securitizations and the prime-based loans pledged as collateral for that debt. Those basis swaps modified our exposure to interest rate risk by converting our prime rate loans to a one-month LIBOR rate. The objective of that swap activity was to protect us from risk that interest collected under the prime rate loans was not sufficient to service the interest due under the one-month LIBOR-based term debt.

Derivative instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk exposure consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures. We obtain collateral from certain counterparties and monitor all exposure and collateral requirements daily. We continually monitor the fair value of collateral received from counterparties and may request additional collateral from counterparties or return collateral pledged as deemed appropriate. Our agreements generally include master netting agreements whereby we are entitled to settle our individual derivative positions with the same counterparty on a net basis upon the occurrence of certain events. As of December 31, 2013, the gross positive fair value of derivative financial instruments was $1.4 million. As a result of our master netting arrangements, our exposure was reduced to $0.9 million as of December 31, 2013.

We report our derivatives at fair value on a gross basis irrespective of our master netting arrangements. We held no collateral against our derivatives in asset positions as of December 31, 2013 and 2012. For derivatives that were in a liability position, we had posted no collateral as of December 31, 2013 and $1.5 million collateral as of December 31, 2012. As of December 31, 2013, we also posted collateral of $10.0 million related to counterparty requirements for foreign exchange contracts at the Bank.

During the year endedDecember 31, 2013, we had $4.7 million of interest rate swaps that were terminated in conjunction with calling the two remaining securitizations.

As of December 31, 2013 and 2012, the notional amounts and fair values of our various derivative instruments as well as their locations in our consolidated balance sheets were as follows:

	December 31,
	2013						2012
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Other Assets		Other Liabilities				Other Assets		Other Liabilities
	($ in thousands)						($ in thousands)
Interest rate contracts	$	—	$	—	$	—	$	6,712	$	—	$	11
Foreign exchange contracts	54,121		1,379		510		34,553		—		471
Total	$	54,121	$	1,379	$	510	$	41,265	$	—	$	482

The gains and losses on our derivative instruments recognized during the years ended December 31, 2013, 2012 and 2011 as well as the locations of such gains and losses in our audited consolidated statements of operations were as follows:

	Location	Gain (Loss) Recognized in Income in Year Ended December 31,
		2013			2012			2011
		($ in thousands)
Interest rate contracts	Gain (loss) on derivatives, net	$	(10	)	$	338		$	(6,120	)
Foreign exchange contracts	Gain (loss) on derivatives, net	(286		)	(1,162		)	(693		)
Total		$	(296	)	$	(824	)	$	(6,813	)

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Organization (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 reportable_segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of Reportable Segments	2
Stock Repurchase Program, End Date	Jul. 23, 2013
Acquiring Entity, PACW	PacWest Bancorp
Payments to Acquire Businesses, Gross, Per Share	$ 2.47
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	0.2837
Business Acquisition, Share Price	$ 11.64

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Bank Regulatory Capital (Tables)

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Capital ratios and the minimum requirements

Bank's ratios and the minimum requirements as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013								2012
	Actual				Minimum Required				Actual				Minimum Required
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
Tier-1 Leverage	$	1,088,870	13.88	%	$	393,342	5.00	%	$	933,837	13.06	%	$	357,443	5.00	%
Tier-1 Risk-Based Capital	1,088,870		15.03		434,562		6.00		933,837		15.24		367,651		6.00
Total Risk-Based Capital	1,179,666		16.29		1,086,405		15.00		1,010,746		16.50		919,128		15.00

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Investments (Details 7) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Investments, Debt and Equity Securities [Abstract]
Proceeds From Sales	$ 3,407	$ 11,478	$ 30,468
Gain from sales	$ 3,385	$ 5,874	$ 22,915

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Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets:
Allowance for loan and lease losses	$ 47,314	$ 38,922
Net unrealized losses on investments	30,274	62,557
Net unrealized losses on other real estate owned	5,608	7,720
Net operating losses - federal	187,733	166,624
Net operating losses - state, net of federal tax benefit	65,844	46,094
Capital losses - federal and state	38,649	23,813
Foreign tax credit	28,616	28,616
Share-based compensation awards	7,841	7,915
Non-accrual interest	8,832	50,899
Other	18,174	114,046
Total deferred tax assets	438,885	547,206
Valuation allowance	(151,980)	(128,568)
Total deferred tax assets, net of valuation allowance	286,905	418,638
Deferred tax liabilities:
Mark-to-market on loans	4,649	16,074
Other	29,988	40,281
Total deferred tax liabilities	34,637	56,355
Net deferred tax assets	$ 252,268	$ 362,283

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Composition of outstanding borrowings

As of December 31, 2013 and 2012, the composition of our outstanding borrowings was as follows:

	December 31,
	2013		2012
	($ in thousands)
Term debt - obligations of consolidated VIEs for which there was no recourse to the general credit of CapitalSource Inc (1)	$	—	$	177,188
Other borrowings:
Subordinated debt	412,156		410,738
FHLB SF borrowings	625,000		595,000
Total other borrowings	1,037,156		1,005,738
Total borrowings	$	1,037,156	$	1,182,926

______________________________

(1) Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

Schedule of debt transactions in the form of asset securitizations held by third parties

Our outstanding term debt transactions in the form of asset securitizations held by third parties as of December 31, 2013 and 2012, were as follows:

	Amounts Issued	Outstanding Third Party Held Debt Balance as of December 31,				Interest Rate Spread(1)	Original Expected Maturity Date
		2013		2012
	($ in thousands)
2006-1
Class C	68,447	—		1,119		0.55%	September 20, 2010
Class D	52,803	—		24,371		1.30%	December 20, 2010
	121,250	—		25,490
2006-2
Class D(2)	101,250	—		84,597		1.52%	June 20, 2013
Class E	56,250	—		20,000		2.50%	June 20, 2013
	157,500	—		104,597
2007-1
Class C	84,000	—		19,448		0.65%	February 20, 2013
Class D	48,000	—		27,674		1.50%	September 20, 2013
	132,000	—		47,122
Total		$	—	$	177,209

____________________

(1) All of our term debt securitizations incurred interest based on one-month LIBOR, which was 0.21% as of December 31, 2012.

(2) We repurchased certain bonds from third party investors at fair market value. The tables reflect outstanding debt to third party investors, and therefore,

eliminate the portions of debt owned by us.

Interest expense recognized on convertible debentures and effective interest rates on the liability components

For the years ended December 31, 2013, 2012 and 2011, the interest expense recognized on our Convertible Debentures and the effective interest rates on the liability components were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Interest expense recognized on:
Contractual interest coupon	$	—		$	1,006		$	21,112
Amortization of deferred financing fees	—			7			692
Amortization of debt discount	—			66			6,033
Total interest expense recognized	$	—		$	1,079		$	27,837
Effective interest rate on the liability component:
3.5% Senior Debentures due 2034(1)	—		%	—		%	7.25		%
4.0% Senior Subordinated Debentures due 2034(1)	—		%	—		%	7.68		%
7.25% Senior Subordinated Debentures due 2037(2)	—		%	7.79		%	7.79		%

____________________

(1) Repurchased in 2011.

(2) Repurchased in 2012.

Subordinated debt transactions outstanding

The carrying value of our subordinated debt was $412.2 million and $410.7 million as of December 31, 2013 and 2012, respectively.

TPS Series	Trust Formation Date	Debt Outstanding			Maturity Date	Date Callable(1)	Interest Rate as of December 31, 2013
		($ in thousands)
2005-1	November 2005	$	82,475		December 15, 2035	December 15, 2010	2.19	%	(2)
2005-2	December 2005	$	128,866		January 30, 2036	January 30, 2011	2.19	%	(2)
2006-1	February 2006	$	51,545		April 30, 2036	April 30, 2011	2.19	%	(2)
2006-2	September 2006	$	51,550		October 30, 2036	October 30, 2011	2.19	%	(2)
2006-3	September 2006	$	35,423	(4)	October 30, 2036	October 30, 2011	2.28	%	(3)
2006-4	December 2006	$	16,470		January 30, 2037	January 30, 2012	2.19	%	(2)
2006-5	December 2006	$	6,650		January 30, 2037	January 30, 2012	2.19	%	(2)
2007-2	June 2007	$	39,177		July 30, 2037	July 30, 2012	2.19	%	(2)

______________________

(1) The subordinated debt is callable by us in whole or in part at par at any time after the stated date.

(2) Bears interest at a floating interest rate equal to three-month LIBOR plus 1.95%, resetting quarterly at various dates.

(3) Bears interest at a floating interest rate equal to three-month EURIBOR plus 2.05%, resetting quarterly.

(4) Denomination is in Euros with a value of €25.8 million.

Borrowing capacity of CapitalSource Bank with FHLB SF based on pledged collateral

As of December 31, 2013 and 2012, CapitalSource Bank had borrowing capacity with the FHLB SF based on pledged collateral as follows:

	December 31,
	2013			2012
	($ in thousands)
Borrowing capacity	$	1,012,361		$	841,309
Less: outstanding principal	(625,000		)	(595,000		)
Less: outstanding letters of credit	(150		)	(300		)
Unused borrowing capacity	$	387,211		$	246,009

On-balance sheet contractual obligations

The contractual maturities of our obligations under the subordinated debt and FHLB SF borrowings as of December 31, 2013, were as follows:

	Other Borrowings				Total
	Subordinated Debt(1)		FHLB SF Borrowings
	($ in thousands)
2014	$	—	$	135,000	$	135,000
2015	—		112,500		112,500
2016	—		204,000		204,000
2017	—		88,000		88,000
2018	—		78,000		78,000
Thereafter	412,156		7,500		419,656
Total	$	412,156	$	625,000	$	1,037,156

______________________

(1) The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

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Summary of Significant Accounting Policies (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 reportable_segment	Dec. 31, 2012	Dec. 31, 2011
Payments to Acquire Businesses, Gross, Per Share	$ 2.47
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	0.2837
Goodwill	$ 173,135	$ 173,135
Goodwill impairment	$ 0	$ 0	$ 0
Percentage owe in limited partnership to influence operating and financial policies of investee	5.00%
Number of Reportable Segments	2
Business Acquisition, Share Price	$ 11.64
Minimum [Member]
Percentage owe in corporation to influence operating and financial policies of an investee	20.00%
Maximum [Member]
Percentage owe in corporation to influence operating and financial policies of an investee	50.00%

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Loans and Credit Quality (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Impaired [Line Items]
Loans And Leases Receivable, Gross, Including Held For Sale	$ 6,830,519,000		$ 6,215,577,000
Interest and fee receivables	23,700,000		26,000,000
Carrying value of loans held for investment transferred to loans held for sale	188,900,000		323,800,000		374,400,000
Losses due to valuation adjustments from transfers of loans to loans held for sale	0		400,000		1,400,000
Loans transferred from held to sale to held for investment	0		5,500,000		28,400,000
Recognized net pre-tax gain (loss) on the sale of loans	6,900,000		4,700,000		16,400,000
Unpaid principal balance of purchased loans held for investment	368,900,000		487,900,000		620,300,000
Loans held for investment pledged to the FHLB as collateral for financing facility	1,200,000,000		724,100,000
Loans and Leases Receivable, Deferred Income	46,030,000		53,628,000
Loans and Leases Receivable, Net of Deferred Income	6,784,489,000	[1],[2],[3]	6,139,230,000	[1],[2],[3]
Loans held for sale classified as non accrual loans	0		2,500,000		2,900,000
Fair value write-downs on non-accrual loans held for sale	0		0		0
Interest income on non accrual impaired loans	17,600,000		32,600,000		62,000,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	60,318,000		129,236,000
Impaired Financing Receivable, Interest Income, Cash Basis Method	0		0		100,000
Loans and Leases Receivable, Commitments to Purchase or Sell	1,100,000,000		1,000,000,000		1,400,000,000
Financing Receivable, Allowance for Credit Losses, Write-downs	8,436,000		96,376,000		246,242,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment	94,020,000	[2]	170,500,000	[2]
Specific reserves related to restructured loans	4,211,000		6,484,000
Financing Receivable, Modifications, Recorded Investment	55,460,000		146,182,000		309,003,000	555,113,000
Percentage Of Losses On TDR Having Additional Modification	65.30%		92.90%		83.90%
(Loss) on the sales of REO held for sale	4,000,000		2,726,000		(700,000)
Impaired Loans [Member]
Financing Receivable, Impaired [Line Items]
Carrying value of loans held for investment transferred to loans held for sale	56,800,000		57,400,000		173,300,000
Troubled Debt Restructurings [Member]
Financing Receivable, Impaired [Line Items]
Specific reserves related to restructured loans	1,600,000		1,600,000
Loans and Leases Receivable, Impaired, Commitment to Lend	7,600,000		21,100,000
Interest Income On Loans That Experienced Losses	324,000		74,000		200,000
Small Business [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	3,306,000
Financing Receivable, Modifications, Recorded Investment	38,000
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Loans and Leases Receivable, Deferred Income	29,100,000		38,400,000
Loans and Leases Receivable, Net of Deferred Income	3,852,537,000		3,594,643,000
Financing Receivable, Modifications, Recorded Investment	42,869,000		134,176,000
Real estate [Member]
Financing Receivable, Impaired [Line Items]
Loans and Leases Receivable, Deferred Income	16,200,000		14,900,000
Loans and Leases Receivable, Net of Deferred Income	2,865,976,000		2,499,567,000
Financing Receivable, Modifications, Recorded Investment	2,521,000		1,019,000
Real estate - construction [Member]
Financing Receivable, Impaired [Line Items]
Loans and Leases Receivable, Deferred Income	700,000		300,000
Loans and Leases Receivable, Net of Deferred Income	65,976,000		45,020,000
Financing Receivable, Modifications, Recorded Investment	10,070,000		10,987,000
Impaired Loans Charged Off To Carrying Value [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	29,700,000		41,600,000
Impaired Loans Not Charged Off To Carrying Value [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	30,600,000		87,600,000
Individually Evaluated for Impairment [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Allowance for Credit Losses, Write-downs	85,400,000		162,500,000
PacWestBancorp [Member]
Financing Receivable, Impaired [Line Items]
Recognized net pre-tax gain (loss) on the sale of loans	84,000
Financing Receivable, Number of Contracts	2
Loans and Leases Receivable, Net of Deferred Income	$ 35,000,000

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

XML

Derivative Instruments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Derivatives, Fair Value [Line Items]
Derivative instruments, Notional Amount	$ 54,121	$ 41,265
Other Assets, Fair Value	1,379	0
Other Liability, Fair Value	510	482
Derivative, Gain (Loss) on Derivative, Net	(296)	(824)	(6,813)
Interest rate contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments, Notional Amount	0	6,712
Other Assets, Fair Value	0	0
Other Liability, Fair Value	0	11
Derivative, Gain (Loss) on Derivative, Net	(10)	338	(6,120)
Foreign Exchange Contract [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments, Notional Amount	54,121	34,553
Other Assets, Fair Value	1,379	0
Other Liability, Fair Value	510	471
Derivative, Gain (Loss) on Derivative, Net	$ (286)	$ (1,162)	$ (693)

XML

Loans and Credit Quality (Details 8) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Receivables [Abstract]
Non-accrual	$ 55,460	$ 62,815
Accruing	0	83,367
Total	$ 55,460	$ 146,182	$ 309,003	$ 555,113

XML

Segment Data (Tables)

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Continuing operations of operating segments

The financial results of our operating segments as of and for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31, 2013
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	418,885	$	26,551		$	2,040		$	447,476
Interest expense	62,685		11,403			—			74,088
Loan and lease loss provision	16,866		3,665			—			20,531
Non-interest income	66,184		33,263			(16,897		)	82,550
Non-interest expense	168,249		37,470			(16,641		)	189,078
Income tax expense (benefit)	96,593		(15,237		)	681			82,037
Net income	$	140,676	$	22,513		$	1,103		$	164,292
Total assets as of December 31, 2013	$	8,078,746	$	845,532		$	(18,788	)	$	8,905,490

	Year Ended December 31, 2012
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	393,083	$	78,629		$	(3,498	)	$	468,214
Interest expense	62,096		17,311			—			79,407
Loan and lease loss provision	16,192		23,250			—			39,442
Non-interest income	60,495		14,522			(25,171		)	49,846
Non-interest expense	168,569		51,344			(26,231		)	193,682
Income tax expense (benefit)	84,055		(370,209		)	1,073			(285,081		)
Net income	$	122,666	$	371,455		$	(3,511	)	$	490,610
Total assets as of December 31, 2012	$	7,371,643	$	1,190,044		$	(12,682	)	$	8,549,005

	Year Ended December 31, 2011
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	368,964	$	141,056		$	370		$	510,390
Interest expense	62,802		87,208			—			150,010
Loan and lease loss provision	27,539		65,446			—			92,985
Non-interest income	41,697		123,951			(72,954		)	92,694
Non-interest expense	149,710		300,652			(75,192		)	375,170
Income tax expense (benefit)	57,996		(21,054		)	—			36,942
Net income (loss)	$	112,614	$	(167,245	)	$	2,608		$	(52,023	)
Total assets as of December 31, 2011	$	6,793,496	$	1,534,698		$	(28,126	)	$	8,300,068

XML

Organization

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Note 1. Organization

CapitalSource Inc., a Delaware corporation, is a commercial lender that provides financial products to small and middle market businesses nationwide and provides depository products and services to consumers in southern and central California, primarily through our wholly owned subsidiary, CapitalSource Bank. References to we, us, the Company or CapitalSource refer to CapitalSource Inc. together with its subsidiaries. References to CapitalSource Bank include its subsidiaries, and references to Parent Company refer to CapitalSource Inc. and its subsidiaries other than CapitalSource Bank.

For the years ended December 31, 2013 and 2012, we operated as two reportable segments: CapitalSource Bank and Other Commercial Finance. The CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company. For additional information, see Note 20, Segment Data.

On July 23, 2013, the Parent Company announced that it had entered into a Merger Agreement (the "Merger") with PacWest Bancorp ("PacWest") pursuant to which the Parent Company will merge with and into PacWest. Under the terms of the Merger, stockholders of the Parent Company will receive $2.47 in cash and 0.2837 shares of PacWest common stock for each share of CapitalSource common stock. The total value of the per share merger consideration, based on the closing price of PacWest shares on July 19, 2013, is $11.64. On January 13, 2014, the Company's shareholders approved the merger; however, the transaction continues to be subject to customary conditions, including the approval of bank regulatory authorities.

XML

Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	$ 870,482		$ 1,079,025
Significant Unobservable Inputs (Level 3) [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	26,250		21,891
Realized and unrealized gains (losses):
Included in income	56,242		3,077
Included in other comprehensive income, net	(12,832)		6,940
Total realized and unrealized gains (losses)	43,410		10,017
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		(666)
Total Level 3 Transfers, Net	0		(666)
Sales, issuances and settlements:
Sales	(66,673)		(198)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	(2,987)		(4,794)
Total sales, issuances and settlements	(69,660)		(4,992)
Ending balance	0		26,250
Significant Unobservable Inputs (Level 3) [Member] | Warrants [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	0		193
Realized and unrealized gains (losses):
Included in income			5
Included in other comprehensive income, net			0
Total realized and unrealized gains (losses)	0		5
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		0
Total Level 3 Transfers, Net	0		0
Sales, issuances and settlements:
Sales	0		(198)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	0		0
Total sales, issuances and settlements	0		(198)
Ending balance	0		0
Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	26,250		21,698
Realized and unrealized gains (losses):
Included in income	56,242		3,072
Included in other comprehensive income, net	(12,832)		6,940
Total realized and unrealized gains (losses)	43,410		10,012
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		(666)
Total Level 3 Transfers, Net	0		(666)
Sales, issuances and settlements:
Sales	(66,673)		0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	(2,987)		(4,794)
Total sales, issuances and settlements	(69,660)		(4,794)
Ending balance	0		26,250
Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member] | Corporate debt [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	0		700
Realized and unrealized gains (losses):
Included in income	0		11
Included in other comprehensive income, net	0		(45)
Total realized and unrealized gains (losses)	0		(34)
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		(666)
Total Level 3 Transfers, Net	0		(666)
Sales, issuances and settlements:
Sales	0		0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	0		0
Total sales, issuances and settlements	0		0
Ending balance	0		0
Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member] | Collateralized Loan Obligations [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	26,250		17,763
Realized and unrealized gains (losses):
Included in income	56,242		2,954
Included in other comprehensive income, net	(12,832)		6,985
Total realized and unrealized gains (losses)	43,410		9,939
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		0
Total Level 3 Transfers, Net	0		0
Sales, issuances and settlements:
Sales	(66,673)		0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	(2,987)		(1,452)
Total sales, issuances and settlements	(69,660)		(1,452)
Ending balance			26,250
Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member] | Municipal bonds [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	0	[1]	3,235	[1]
Realized and unrealized gains (losses):
Included in income	0		(1,246)	[1]
Included in other comprehensive income, net	0		0	[1]
Total realized and unrealized gains (losses)	0		(1,246)	[1]
Transfers to/from Level 3:
Transfers into Level 3	0		0	[1]
Transfers out of Level 3	0		0	[1]
Total Level 3 Transfers, Net	0		0	[1]
Sales, issuances and settlements:
Sales	0		0	[1]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	0		(1,989)	[1]
Total sales, issuances and settlements	0		(1,989)	[1]
Ending balance	0		0	[1]
Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member] | Non-agency MBS [Member]
Summary of the changes in the fair values of assets and liabilities classified in Level 3 of the fair value hierarchy
Beginning balance	0		0
Realized and unrealized gains (losses):
Included in income	0		1,353
Included in other comprehensive income, net	0		0
Total realized and unrealized gains (losses)	0		1,353
Transfers to/from Level 3:
Transfers into Level 3	0		0
Transfers out of Level 3	0		0
Total Level 3 Transfers, Net	0		0
Sales, issuances and settlements:
Sales	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	0		(1,353)
Total sales, issuances and settlements	0		(1,353)
Ending balance	0		0
Market Approach Valuation Technique [Member] | Significant Unobservable Inputs (Level 3) [Member] | Available-for-sale Securities [Member] | Collateralized Loan Obligations [Member]
Sales, issuances and settlements:
Ending balance	0
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	870,482
Fair Value, Measurements, Recurring [Member] | Collateralized Loan Obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	47,337		26,250
Fair Value, Measurements, Recurring [Member] | Non-agency MBS [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	20,203		41,347
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Collateralized Loan Obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	0		0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-agency MBS [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	0		0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	870,482
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Collateralized Loan Obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	47,337		0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Non-agency MBS [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	20,203		41,347
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Collateralized Loan Obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	0		26,250
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Non-agency MBS [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available-for-sale Securities	$ 0		$ 0

[1] (1)In September 2012, the municipal bond was settled as the Company secured the collateral; the collateral was transferred to other assets at its fair value less cost of sales of $2.0 million.

XML

Loans and Credit Quality (Details 9) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Modifications, Recorded Investment [Roll Forward]
Beginning balance of TDRs	$ 146,182	$ 309,003	$ 555,113
New TDRs	3,896	45,353	143,963
Draws and pay downs on existing TDRs, net	(16,934)	(18,087)	(27,305)
Loan sales and payoffs	(74,360)	(157,954)	(267,168)
Charge offs post modification	(3,324)	(32,133)	(95,600)
Ending balance of TDRs	$ 55,460	$ 146,182	$ 309,003

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Future minimum lease payments under non-cancelable operating leases

As of December 31, 2013, future minimum lease payments under non-cancelable operating leases, including leases held at the Bank, were as follows ($ in thousands):

2014	$	11,715
2015	9,154
2016	7,660
2017	6,738
2018	6,025
Thereafter	33,831
Total(1)	$	75,123

______________________

(1) Minimum lease payments have not been reduced by minimum sublease rentals of $16.1 million due in the future under non-cancelable subleases.

XML

Parent Company Information

12 Months Ended

Dec. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Parent Company Information

Note 21. Parent Company Information

As of December 31, 2013 and 2012, the Parent Company condensed financial information was as follows:

Condensed Balance Sheets

	December 31,
	2013			2012
	($ in thousands)
Assets:
Cash and cash equivalents	$	675		$	1,698
Investment in subsidiaries:
Bank subsidiary	1,235,903			1,100,847
Non-Bank subsidiaries	153,971			326,811
Total investment in subsidiaries	1,389,874			1,427,658
Other assets	246,712			200,577
Total assets	$	1,637,261		$	1,629,933
Liabilities and Shareholders' Equity:
Other liabilities	$	634		$	4,761
Shareholders' Equity:
Common stock	1,969			2,096
Additional paid-in capital	3,038,218			3,157,533
Accumulated deficit	(1,402,690		)	(1,559,107		)
Accumulated other comprehensive income, net	(870		)	24,650
Total shareholders' equity	1,636,627			1,625,172
Total liabilities and shareholders' equity	$	1,637,261		$	1,629,933

Condensed Statements of Operations

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Net interest loss:
Interest income	$	—		$	—		$	28,850
Interest expense	69			1,190			65,077
Net interest loss	(69		)	(1,190		)	(36,227		)
Non-interest income:
Loan fees	—			—			(363		)
Earnings in Bank subsidiary	140,677			122,666			112,091
Earnings (loss) in non-Bank subsidiaries	(4,986		)	107,012			(20,002		)
Other non-interest income	—			60			89
Total non-interest income	135,691			229,738			91,815
Non-interest expense:
Compensation and benefits	849			752			1,352
Professional fees	54			1,606			7,140
Other non-interest expenses	8,779			4,075			123,749
Total non-interest expense	9,682			6,433			132,241
Net income (loss) before income taxes	125,940			222,115			(76,653		)
Income tax expense (benefit)	(37,607		)	(268,495		)	(24,630		)
Net income (loss)	$	163,547		$	490,610		$	(52,023	)

Condensed Statements of Cash Flows

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Cash provided by operating activities:	$	138,877		$	464,825		$	863,487
Cash provided by investing activities:	—			—			—
Financing activities:
Repurchase of common stock	(137,989		)	(339,725		)	(427,231		)
Payment of dividends	(7,780		)	(113,304		)	(12,023		)
Repayments of other borrowings	—			(29,069		)	(507,877		)
Other	5,869			6,353			1,648
Cash used in financing activities:	(139,900		)	(475,745		)	(945,483		)
Decrease in cash and cash equivalents	(1,023		)	(10,920		)	(81,996		)
Cash and cash equivalents as of beginning of year	1,698			12,618			94,614
Cash and cash equivalents as of end of year	$	675		$	1,698		$	12,618

The Parent Company did not receive a dividend from the Bank during 2013. Simultaneously with the Merger with PacWest, CapitalSource Bank will pay a dividend to the Parent Company in an amount no more than CapitalSource Bank's retained earnings as of December 31, 2013.

XML

Segment Data

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Segment Data

Note 20. Segment Data

For the years ended December 31, 2013 and 2012, we operated as two reportable segments: the Bank and Other Commercial Finance. Our the Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company.

The financial results of our operating segments as of and for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31, 2013
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	418,885	$	26,551		$	2,040		$	447,476
Interest expense	62,685		11,403			—			74,088
Loan and lease loss provision	16,866		3,665			—			20,531
Non-interest income	66,184		33,263			(16,897		)	82,550
Non-interest expense	168,249		37,470			(16,641		)	189,078
Income tax expense (benefit)	96,593		(15,237		)	681			82,037
Net income	$	140,676	$	22,513		$	1,103		$	164,292
Total assets as of December 31, 2013	$	8,078,746	$	845,532		$	(18,788	)	$	8,905,490

	Year Ended December 31, 2012
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	393,083	$	78,629		$	(3,498	)	$	468,214
Interest expense	62,096		17,311			—			79,407
Loan and lease loss provision	16,192		23,250			—			39,442
Non-interest income	60,495		14,522			(25,171		)	49,846
Non-interest expense	168,569		51,344			(26,231		)	193,682
Income tax expense (benefit)	84,055		(370,209		)	1,073			(285,081		)
Net income	$	122,666	$	371,455		$	(3,511	)	$	490,610
Total assets as of December 31, 2012	$	7,371,643	$	1,190,044		$	(12,682	)	$	8,549,005

	Year Ended December 31, 2011
	CapitalSource Bank		Other Commercial Finance			Intercompany Eliminations			Consolidated Total
	($ in thousands)
Total interest income	$	368,964	$	141,056		$	370		$	510,390
Interest expense	62,802		87,208			—			150,010
Loan and lease loss provision	27,539		65,446			—			92,985
Non-interest income	41,697		123,951			(72,954		)	92,694
Non-interest expense	149,710		300,652			(75,192		)	375,170
Income tax expense (benefit)	57,996		(21,054		)	—			36,942
Net income (loss)	$	112,614	$	(167,245	)	$	2,608		$	(52,023	)
Total assets as of December 31, 2011	$	6,793,496	$	1,534,698		$	(28,126	)	$	8,300,068

The accounting policies of each of the individual operating segments are the same as those described in Note 2, Summary of Significant Accounting Policies. Currently, substantially all of our business activities occur within the United States of America; therefore, no additional geographic disclosures are necessary.

Intercompany Eliminations

The intercompany eliminations consist of eliminations for intercompany activity among the segments. Such activities primarily include services provided by the Parent Company to CapitalSource Bank and by CapitalSource Bank to the Parent Company, and daily loan collections received at CapitalSource Bank for Parent Company loans and daily loan disbursements paid at the Parent Company for CapitalSource Bank loans.

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Net Income (Loss) Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Earnings Per Share [Abstract]
Net income (loss)	$ 57,923	$ 48,398	$ 28,623	$ 29,348	$ 47,076	$ 31,047	$ 387,549	$ 24,938	$ 164,292	$ 490,610	$ (52,023)
Average shares - basic									195,189,983	223,928,583	302,998,615
Effect of dilutive securities:
Option shares									2,565,037	2,465,061	0
Stock units and unvested restricted stock									2,696,879	3,761,345	0
Average shares - diluted									200,451,899	230,154,989	302,998,615
Basic income (loss) per share:
Basic net income (loss) per share	$ 0.30	$ 0.25	$ 0.15	$ 0.15	$ 0.23	$ 0.14	$ 1.71	$ 0.10	$ 0.84	$ 2.19	$ (0.17)
Diluted income (loss) per share
Diluted net income (loss) per share	$ 0.29	$ 0.24	$ 0.15	$ 0.14	$ 0.23	$ 0.14	$ 1.66	$ 0.10	$ 0.82	$ 2.13	$ (0.17)

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Loans and Credit Quality (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Delinquent loans in loan portfolio
30-89 Days Past Due	$ 2,362	[1]	$ 24,467	[1]
Greater Than 90 Days Past Due	27,635	[1]	38,093	[1]
Total Past Due	29,997	[1]	62,560	[1]
Current	6,754,492	[1]	6,076,670	[1]
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	6,784,489	[1],[2],[3]	6,139,230	[1],[2],[3]
Greater than 90 Days Past Due and Accruing	0	[1]	0	[1]
Asset-based [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	54		19,207
Greater Than 90 Days Past Due	0		391
Total Past Due	54		19,598
Current	1,655,342		1,417,998
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	1,655,396		1,437,596
Greater than 90 Days Past Due and Accruing	0		0
Cash flow [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	878		578
Greater Than 90 Days Past Due	99		3,486
Total Past Due	977		4,064
Current	2,006,423		1,963,678
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	2,007,400		1,967,742
Greater than 90 Days Past Due and Accruing	0		0
Healthcare asset-based [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	0		0
Greater Than 90 Days Past Due	0		0
Total Past Due	0		0
Current	168,238		179,617
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	168,238		179,617
Greater than 90 Days Past Due and Accruing	0		0
Healthcare real estate [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	0		0
Greater Than 90 Days Past Due	15,666		17,001
Total Past Due	15,666		17,001
Current	765,246		665,058
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	780,912		682,059
Greater than 90 Days Past Due and Accruing	0		0
Multi-family [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	591		656
Greater Than 90 Days Past Due	188		999
Total Past Due	779		1,655
Current	776,593		900,269
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	777,372		901,924
Greater than 90 Days Past Due and Accruing	0		0
Real Estate Other Class [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	0		1,032
Greater Than 90 Days Past Due	10,326		12,284
Total Past Due	10,326		13,316
Current	1,084,060		717,075
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	1,094,386		730,391
Greater than 90 Days Past Due and Accruing	0		0
Small business [Member]
Delinquent loans in loan portfolio
30-89 Days Past Due	839		2,994
Greater Than 90 Days Past Due	1,356		3,932
Total Past Due	2,195		6,926
Current	298,590		232,975
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	300,785		239,901
Greater than 90 Days Past Due and Accruing	$ 0		$ 0

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

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Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair value and notional amount of various derivative instruments

As of December 31, 2013 and 2012, the notional amounts and fair values of our various derivative instruments as well as their locations in our consolidated balance sheets were as follows:

	December 31,
	2013						2012
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Other Assets		Other Liabilities				Other Assets		Other Liabilities
	($ in thousands)						($ in thousands)
Interest rate contracts	$	—	$	—	$	—	$	6,712	$	—	$	11
Foreign exchange contracts	54,121		1,379		510		34,553		—		471
Total	$	54,121	$	1,379	$	510	$	41,265	$	—	$	482

Gain and losses on derivative instruments

The gains and losses on our derivative instruments recognized during the years ended December 31, 2013, 2012 and 2011 as well as the locations of such gains and losses in our audited consolidated statements of operations were as follows:

	Location	Gain (Loss) Recognized in Income in Year Ended December 31,
		2013			2012			2011
		($ in thousands)
Interest rate contracts	Gain (loss) on derivatives, net	$	(10	)	$	338		$	(6,120	)
Foreign exchange contracts	Gain (loss) on derivatives, net	(286		)	(1,162		)	(693		)
Total		$	(296	)	$	(824	)	$	(6,813	)

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Unaudited Quarterly Information

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information

Note 22. Unaudited Quarterly Information

Unaudited quarterly information for each of the three months in the years ended December 31, 2013 and 2012, was as follows:

	Three Months Ended
	December 31,		September 30,			June 30,		March 31,
	2013		2013			2013		2013
	($ in thousands, except per share data)
Interest income	$	113,258	$	112,718		$	108,405	$	113,095
Interest expense	18,807		18,644			18,474		18,163
Net interest income	94,451		94,074			89,931		94,932
Loan and lease loss provision (recovery)	4,263		(1,069		)	4,832		12,505
Net interest income after provision for loan and lease losses	90,188		95,143			85,099		82,427
Non-interest income	42,076		15,708			11,548		13,218
Non-interest expense	46,114		47,614			50,695		44,655
Income tax expense	28,227		14,839			17,329		21,642
Net income	$	57,923	$	48,398		$	28,623	$	29,348
Basic income per share	$	0.30	$	0.25		$	0.15	$	0.15
Diluted income per share	$	0.29	$	0.24		$	0.15	$	0.14

	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
	2012		2012		2012			2012
	($ in thousands, except per share data)
Interest income	$	114,921	$	115,234	$	117,982		$	120,077
Interest expense	18,872		19,513		20,164			20,858
Net interest income	96,049		95,721		97,818			99,219
Loan and lease loss provision	8,875		8,959		10,536			11,072
Net interest income after provision for loan and lease losses	87,174		86,762		87,282			88,147
Non-interest income	20,549		9,297		8,450			11,550
Non-interest expense	49,423		47,009		48,200			49,050
Income tax expense (benefit)	11,224		18,003		(340,017		)	25,709
Net income	$	47,076	$	31,047	$	387,549		$	24,938
Basic income per share	$	0.23	$	0.14	$	1.71		$	0.10
Diluted income per share	$	0.23	$	0.14	$	1.66		$	0.10

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

The preparation of our audited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management has made significant estimates in certain areas, including valuing certain financial instruments and other assets, assessing financial instruments and other assets for impairment, assessing the realization of deferred tax assets and determining the allowance for loan and lease losses. Actual results could differ from those estimates.

Principles of Consolidation

Principles of Consolidation

The accompanying financial statements reflect our consolidated accounts and those of other entities in which we have a controlling financial interest including our majority-owned subsidiaries and variable interest entities (“VIEs”) where we determined that we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

Fair Value Measurements

Fair Value Measurements

In accordance with GAAP, we prioritize the inputs into valuation techniques used to measure fair value. This hierarchy prioritizes observable data from active markets, placing measurements using those inputs in Level 1 of the fair value hierarchy, and gives the lowest priority to unobservable inputs and classifies these as Level 3 measurements. The three levels of the fair value hierarchy are described below:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;

Level 2 - Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or models for which all significant inputs are observable in the market either directly or indirectly; and

Level 3 - Valuations based on models that use inputs that are unobservable in the market and significant to the overall fair value measurement.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair value hierarchy classifications are reviewed on a quarterly basis. Changes related to the observability of inputs to a fair value measurement may result in a reclassification between hierarchy levels.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measurement. Therefore, even when market assumptions are not readily available, management's own assumptions attempt to reflect those that market participants would use in pricing the asset or liability at the measurement date.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less upon acquisition to be cash equivalents. Cash and cash equivalents include amounts due from banks, U.S. Treasury securities, short-term investments and commercial paper with an original maturity of three months or less. The cash is classified as unrestricted or restricted cash.

Unrestricted cash is invested in short term investment grade commercial paper which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch), and restricted cash is invested in a short-term money market fund which has ratings of AAAm (S&P) and Aaa (Moody's), as well as commercial paper, which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch).

Restricted cash includes principal and interest collections received from loans held in securitization trusts, loan-related escrow and reserve accounts, and cash that has been pledged as collateral supporting letters of credit and derivative liabilities.

Loans

Loans

Loans held for investment in our portfolio are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts received or premiums paid on purchased loans. Deferred costs or fees, discounts and premiums are amortized over the contractual term of the loan.

Loans held for sale are accounted for at the lower of cost or fair value, which is determined on an individual loan basis, and include loans we originated or purchased that we intend to sell, in whole or in part, in the secondary market. Direct loan origination costs or fees, discounts and premiums are deferred at origination of the loan and not amortized into income.

As part of our management of the loans held in our portfolio, we will occasionally transfer loans from held for investment to held for sale. Upon transfer, any associated allowance for loan and lease loss is charged off and the carrying value of the loans is adjusted to the estimated fair value. The loans are subsequently accounted for at the lower of cost or fair value, with valuation changes recorded in other non-interest income, net. Gains or losses on the sale of these loans are also recorded in other non-interest income, net. In certain circumstances, loans designated as held for sale may later be transferred back to the loan portfolio based upon our intent and ability to hold the loans for the foreseeable future. We transfer these loans to loans held for investment at the lower of cost or fair value.

Credit Quality

Credit Quality

Credit risk within our loan portfolio is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. The degree of credit risk will vary based on many factors including the size of the asset or transaction, the credit characteristics of the client, the contractual terms of the agreement and the availability and quality of collateral.

We use a variety of tools to continuously monitor a client's ability to perform under its obligations. Additionally, we syndicate loan exposure to other lenders, sell loans and use other risk mitigation techniques to manage the size and risk profile of our loan portfolio.

Credit risk management for the loan portfolio begins with an assessment of the credit risk profile of a client based on an analysis of the client's payment performance, cash flow and financial position. As part of the overall credit risk assessment of a client, each commercial credit exposure is assigned an internal risk rating that is subject to approval based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on the same factors: financial performance, the ability to repay the loan and the collateral. Subsequent to loan origination, risk ratings are monitored on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the client's financial condition, cash flow or financial position. We use risk rating aggregations to measure and evaluate concentrations within the loan portfolio. In making decisions regarding credit, we consider risk rating, collateral, and industry concentration limits.

We believe the likelihood of not being paid according to the contractual terms of a loan is, in large part, dependent upon the assessed level of risk associated with the loan. The internal rating that is assigned to a loan provides a view as to the relative risk of each loan. We employ an internal risk rating scale to establish a view of the credit quality of each loan. This scale is based on the credit classifications of assets as prescribed by government regulations and industry standards.

Allowance for Loan and Lease Losses

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses represents management's estimate of incurred loan and lease losses inherent in our loan and lease portfolio as of the balance sheet date. The estimation of the allowance for loan and lease losses is based on a variety of factors, including past loan and lease loss experience, the current credit profile of our borrowers, adverse situations that have occurred that may affect the borrowers' ability to repay, the estimated value of underlying collateral and general economic conditions. Provisions for loan and lease losses are recognized when available information indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We perform quarterly and systematic detailed reviews of our loan portfolio to identify credit risks and to assess the overall collectability of the portfolio. The allowance on certain pools of loans with similar characteristics is estimated using reserve factors that are reflective of historical loss rates.

Our portfolio is reviewed regularly and, on a periodic basis, individual loans are reviewed and assigned a risk rating. Loans subject to individual reviews are analyzed and segregated by risk according to our internal risk rating scale. These risk ratings, in conjunction with an analysis of historical loss experience, current economic conditions, industry performance trends, and any other pertinent information, including individual valuations on impaired loans, are factored in the estimation of the allowance for loan and lease losses. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impairment on individual loans is measured based on the present value of payments expected to be received, observable market prices for the loan, or the estimated fair value of the collateral. If the recorded investment in an impaired loan exceeds the present value of payments expected to be received or the fair value of the collateral, a specific allowance is established as a component of the allowance for loan and lease losses.

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for loan and lease losses. To the extent we later collect amounts previously charged off, we will recognize a recovery by increasing the allowance for loan and lease losses for the amount received.

We also consider whether losses may have been incurred in connection with unfunded commitments to lend. In making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a client or other terms and conditions. Reserves for losses related to unfunded commitments are charged to other non-interest expense, net and included within other liabilities.

Foreclosed Assets

Foreclosed Assets

Foreclosed assets, includes foreclosed property and other assets received in full or partial satisfaction of a loan. We recognize foreclosed assets upon the earlier of the loan foreclosure event or when we take physical possession of the assets (i.e., through a deed in lieu of foreclosure transaction). Foreclosed assets are initially measured at their fair value less estimated costs to sell. We treat any excess of our recorded investment in the loan over the fair value less estimated cost to sell the asset as a charge off to the loan.

Real estate owned (“REO”) represents real property obtained through foreclosure. REO that we do not intend to sell is classified separately as held for use, depreciated and recorded in other assets. We report REO that we intend to sell, are actively marketing and that are available for immediate sale in their current condition as held for sale. These REO are reported at the lower of their carrying amount or fair value less estimated selling costs and are not depreciated. The fair value of our REO is determined by third party appraisals, when available. When third party appraisals are not available, we estimate fair value based on factors such as prices for similar properties in similar geographical areas and/or assessment through observation of such properties. We recognize any subsequent decline in the REO's fair value less its estimated costs to sell through a valuation allowance with an offsetting charge to expense of real estate owned and other foreclosed asset, net. A recovery is recognized for any subsequent increase in fair value less estimated costs to sell up to the cumulative loss previously recognized through the valuation allowance. We recognize REO operating costs and gains or losses on sales of REO through expense of real estate owned and other foreclosed assets, net.

Goodwill Impairment

Goodwill Impairment

Goodwill must be allocated to reporting units and tested for impairment. We test goodwill for impairment at least annually, and more frequently if events or circumstances, such as adverse changes in the business climate, indicate there may be justification for conducting an interim test. Impairment testing is performed at the reporting unit level.

In testing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In making this assessment, we consider all relevant events and circumstances. These include, but are not limited to, macroeconomic conditions, industry and market considerations and the reporting unit's overall financial performance. If we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of the reporting unit is at least equal to its carrying amount, then we presume that the goodwill of the reporting unit is not impaired and no further testing is performed. However, if we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we proceed with a two-step method to assess and measure impairment of the reporting unit's goodwill. At our option, we may, in any given period, bypass the qualitative assessment and proceed directly to the two step approach.

The two-step method begins with a comparison of the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, we then compare the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of a reporting unit's goodwill is measured as the excess of the fair value of the reporting unit over the aggregate fair values of all the reporting unit's assets and liabilities. If the implied fair value of the reporting unit's goodwill is less than its carrying amount, we record an impairment loss equal to that difference. If the fair value of the reporting unit exceeds its carrying amount or if the fair value of the reporting unit's goodwill exceeds the carrying amount of that goodwill, no impairment loss is recognized.

The balance of goodwill of $173.1 million as of both December 31, 2013 and 2012 was attributable to the formation of CapitalSource Bank. During the years ended December 31, 2013, 2012 and 2011, we did not record any goodwill impairment.

Investments in Debt Securities and Equity Securities That Have Readily Determinable Fair Values

Investments in Debt Securities and Equity Securities That Have Readily Determinable Fair Values

All debt securities, as well as equity securities that have readily determinable fair values, are classified based on management's intention on the date of purchase. Debt securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities not classified as held-to-maturity or trading, as well as equity investments in publicly traded entities, are classified as available-for-sale and carried at fair value with net unrealized gains and losses included in accumulated other comprehensive income (loss) on an after-tax basis.

Investments in Equity Securities That Do Not Have Readily Determinable Fair Values

Investments in Equity Securities That Do Not Have Readily Determinable Fair Values

Investments in common stock or preferred stock that are not publicly traded and/or do not have a readily determinable fair value are accounted for pursuant to the equity method of accounting if we have the ability to significantly influence the operating and financial policies of an investee. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our share of earnings and losses in equity method investees is included in other non-interest income, net. If we do not have significant influence over the investee, the cost method is used to account for the equity interest.

For investments accounted for using the cost or equity method of accounting, management evaluates information such as budgets, business plans, and financial statements of the investee in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline in value include, but are not limited to, recurring operating losses and credit defaults. We compare the estimated fair value of each investment to its carrying value quarterly. For any of our investments in which the estimated fair value is less than its carrying value, we consider whether the impairment of that investment is other-than-temporary.

If we determine that an investment has sustained an other-than-temporary decline in its value, the equity interest is written down to its fair value through gain on investments, net and a new carrying value for the investment is established.

Realized gains or losses resulting from the sale of investments are calculated using the specific identification method and are included in gain on investments, net.

If we hold both a loan and an equity method investment in an investee, we will continue to apply our pro rata share of losses in the investee to the balance of the loan once the equity investment has been fully written down.

Transfers of Financial Assets

Transfers of Financial Assets

We account for transfers of loans and other financial assets to third parties or special purpose entities (“SPEs”) that we establish as sales if we determine that we have relinquished effective control over the transferred assets. In such transactions, we derecognize the transferred assets, recognize and measure at fair value any assets obtained and liabilities assumed, including servicing assets and liabilities and record a gain or loss on the sale based upon the difference between the fair value of the assets obtained and liabilities assumed and the carrying amount of the transferred assets. If we transfer a portion of a financial asset that qualifies as a participating interest, we allocate the previous carrying amount of the entire financial asset between the participating interests sold and the interest that we continue to hold based on their relative fair values at the transfer date.

We account for transfers of financial assets in which we receive cash consideration, but for which we determine that we have not relinquished control, as secured borrowings.

Deferred Financing Fees

Deferred Financing Fees

Deferred financing fees represent fees and other direct incremental costs incurred in connection with our borrowings. These amounts are amortized into income as interest expense over the estimated life of the borrowing using the interest method.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the following estimated useful lives (equipment leased to others is depreciated on a straight-line basis over the term of the lease to its estimated salvage value):

Buildings and improvements	10 to 40 years
Leasehold improvements	Lesser of remaining lease term or estimated useful life
Computer software	3 years
Equipment	5 years
Furniture	7 years

Income Recognition on Loans

Income Recognition on Loans

Interest income, including income on impaired loans, fees due at maturity and paid-in-kind (“PIK”) interest, is recorded on an accrual basis to the extent that such amounts are expected to be collected. Carrying value adjustments of revolving lines of credit are amortized into interest and fee income over the contractual life of a loan on a straight line basis, while carrying value adjustments of all other loans are amortized into earnings over the contractual life of a loan using the interest method. In applying the interest method, the effective yield on a loan is determined based on its contractual payment terms, adjusted for actual prepayments.

Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In connection with the prepayment of a loan, any remaining unamortized deferred fees for that loan are accelerated and, depending upon the terms of the loan, there may be an additional fee that is charged based upon the prepayment and recognized in the period of the prepayment.

We accrete any discount from purchased loans into interest income in accordance with our policies up to the amount of contractual interest and principal payments expected to be collected. Upon acquisition, if management assesses that a portion of contractual interest and principal payments are not expected to be collected, a portion of the discount will be deemed non-accretable (non-accretable difference).

We will place a loan on non-accrual status if there is substantial doubt about the borrower's ability to service its debt and other obligations or if the loan is 90 or more days past due and is not well-secured and in the process of collection. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan is discontinued until factors indicating doubtful collection no longer exist and the loan has been brought current. Payments received on non-accrual loans are generally first applied to principal. A loan may be returned to accrual status when its interest or principal is current, repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. Cash payments received from the borrower and applied to the principal balance of the loan while the loan was on non-accrual status are not reversed if a loan is returned to accrual status.

We continue to recognize interest income on loans that have been identified as impaired, but that have not been placed on non-accrual status. If the loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan will stop until factors indicating doubtful collection no longer exist and the loan has been brought current.

Income Recognition and Impairment Recognition on Securities

Income Recognition and Impairment Recognition on Securities

For our investments in debt securities, we use the interest method to amortize deferred items, including premiums, discounts and other basis adjustments, into interest income. For debt securities representing non-investment grade beneficial interests in securitizations, the effective yield is determined based on the estimated cash flows of the security. Changes in the effective yield of these securities due to changes in estimated cash flows are recognized on a prospective basis as adjustments to interest income in future periods. The effective yield on all other debt securities that have not experienced an other-than-temporary impairment is based on the contractual cash flows of the security.

Declines in the fair value of debt securities classified as available-for-sale or held-to-maturity are reviewed to determine whether the impairment is other-than-temporary. This review considers a number of factors, including the severity of the decline in fair value, current market conditions, historical performance of the security, risk ratings and the length of time the investment has been in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred. In assessing whether the entire amortized cost basis of the security will be recovered, we compare the present value of cash flows expected to be collected from the security with its amortized cost. The present value of cash flows is determined using a discount rate equal to the effective yield on the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, then the impairment is considered to be other-than-temporary. Determination of whether an impairment is other-than-temporary requires significant judgment surrounding the collectability of the investment including such factors as the financial condition of the issuer, expected prepayments and expected defaults.

When we have determined that an other-than-temporary impairment has occurred, we separate the impairment amount into a component representing the credit loss and a component representing all other factors. The credit loss component is recognized in earnings and is determined by discounting the expected future cash flows of the security by the effective yield of the security. The previous amortized cost basis less the credit component of the impairment becomes the new amortized cost basis of the security. Any remaining impairment, representing the difference between the new amortized cost of the security and its fair value is recognized through other comprehensive income. We also consider impairment of a security to be other-than-temporary if we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. In these situations, the entire amount of the impairment represents the credit component and is recognized through earnings.

In periods following the recognition of an other-than-temporary impairment, the difference between the new amortized cost basis and the cash flows expected to be collected on the security are accreted as interest income. Any subsequent changes to estimated cash flows are recognized as prospective adjustments to the effective yield of the security.

Derivative Instruments

Derivative Instruments

We enter into derivative contracts primarily to manage the interest rate and foreign currency risk associated with certain assets, liabilities, or probable forecasted transactions. As of December 31, 2013 and 2012, all of our derivatives were held for risk management purposes, and none were designated as accounting hedges.

Our derivatives are recorded in other assets or other liabilities, as appropriate. The changes in fair value of our derivatives and the related interest accrued are recognized in gain (loss) on derivatives, net.

Income Taxes

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates for the periods in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the change.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences.

Net Income (Loss) per Share

Net Income (Loss) per Share

Basic net income (loss) per share loss is based on the weighted average number of common shares outstanding during each period, plus common share equivalents computed for stock options, stock units, stock dividends declared, restricted stock and convertible debt. Diluted net income (loss) per share is adjusted for the effects of other potentially dilutive financial instruments only in the periods in which such effect is dilutive.

Bonuses

Bonuses

Bonuses are accrued ratably, pursuant to the underlying bonus plans over the annual performance period. On an annual basis, management recommends a bonus accrual based on the Company's bonus plans to the Compensation Committee of our Board of Directors.

Segment Reporting

Segment Reporting

We present financial and descriptive information about our reportable operating segments including a measure of segment profit or loss, certain specific revenue and expense items and segment assets. We designate components of our business as reportable operating segments if the component a) engages in business activities from which it may earn revenues and incur expenses, b) has operating results that are regularly reviewed by executive management to make business decisions about resources to be allocated to the segment and assess its performance and c) has available discrete financial information. We currently operate as two reportable segments: CapitalSource Bank and Other Commercial Finance. Our CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company.

New Accounting Pronouncements

New Accounting Pronouncements

Reclassifications

Reclassifications

Certain amounts in the prior year's consolidated financial statements have been reclassified to conform to the current year presentation.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating activities:
Net income (loss)	$ 164,292	$ 490,610	$ (52,023)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock option expense	1,702	1,931	5,933
Restricted stock expense	12,039	11,835	9,722
(Gain) loss on extinguishment of debt	0	(8,059)	119,007
Amortization of deferred loan fees and discounts	31,370	40,398	64,260
Paid-in-kind interest on loans	5,951	10,109	31,941
Provision for loan losses	20,531	39,442	92,985
Amortization of deferred financing fees and discounts	1,089	1,633	18,473
Depreciation and amortization	22,452	20,319	6,944
(Benefit) provision for deferred income taxes	122,551	(316,382)	56,940
Gain on investments, net	(28,412)	(5,055)	(55,630)
(Gain) loss on foreclosed assets and other property and equipment disposals	(4,096)	(3,455)	24,232
Unrealized loss (gain) on derivatives and foreign currencies, net	2,463	349	7,850
Decrease in interest receivable	3,044	9,684	18,597
Decrease in loans held for sale, net	0	21,493	188,854
Decrease in other assets	28,990	165,286	100,260
Decrease in other liabilities	(58,122)	(127,216)	(102,117)
Cash provided by operating activities	263,104	272,126	407,708
Investing activities:
Decrease in restricted cash	45,391	(38,560)	63,102
(Increase) decrease in loans, net	(615,775)	(356,570)	(73,390)
Purchase of investment securities, available-for-sale	(117,580)	(293,899)	(591,863)
Sale and maturity of investment securities, available-for-sale	358,742	383,597	976,300
Purchase of investment securities, held-to-maturity	(47,855)	0	(10,631)
Sale and maturity of investment securities, held-to-maturity	35,736	5,149	92,583
Reduction of other investments, net	8,627	22,655	2,317
Acquisition of property and equipment, net	(34,988)	(45,243)	(89,505)
Cash (used in) provided by investing activities	(367,702)	(322,871)	368,913
Financing activities:
Deposits accepted, net of repayments	548,420	454,275	503,722
Repayments on credit facilities, net	0		(68,792)
Repayments and extinguishment of term debt	(177,209)	(132,247)	(763,022)
Proceeds (repayments) of other borrowings	30,000	15,931	(372,825)
Repurchase of common stock	(137,989)	(339,725)	(427,231)
Proceeds from exercise of options	5,869	6,353	1,648
Payment of dividends	(7,780)	(113,304)	(12,023)
Cash used in financing activities	261,311	(108,717)	(1,138,523)
Decrease in cash and cash equivalents	156,713	(159,462)	(361,902)
Cash and cash equivalents as of beginning of year	299,086	458,548	820,450
Cash and cash equivalents as of end of year	455,799	299,086	458,548
Cash paid (received) during the year:
Interest	73,304	80,841	181,175
Income taxes, net	9,476	8,976	64,083
Noncash transactions from investing and financing activities:
Real Estate Owned Transfers from Loans Held for Investment	$ 845	$ 15,494	$ 28,281

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Property plant and equipment estimated useful life

Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the following estimated useful lives (equipment leased to others is depreciated on a straight-line basis over the term of the lease to its estimated salvage value):

Buildings and improvements	10 to 40 years
Leasehold improvements	Lesser of remaining lease term or estimated useful life
Computer software	3 years
Equipment	5 years
Furniture	7 years

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Variable Interest Entities (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Variable Interest Entity [Line Items]
Gains (Losses) on Extinguishment of Debt	$ 0	$ 8,059,000	$ (119,007,000)
Troubled Debt Restructurings [Member]
Variable Interest Entity [Line Items]
Interests in borrowers qualifying as variable interest entities	44,600,000	115,400,000
Variable Interest Entity, Reporting Entity Involvement, Maximum Loss Exposure, Amount	69,400,000	151,900,000
Term Debt Securitizations [Member]
Variable Interest Entity [Line Items]
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities		177,400,000
Variable Interest Entity Outstanding Balance Total		398,900,000
Variable Interest Entity, Outstanding Balance, Reporting Entity, Amount		221,700,000
Variable Interest Entity, Consolidated, Carrying Amount, Assets	0	345,400,000
Variable Interest Entity, Fair Value	0	26,300,000
Variable Interest Entity, Fair Value, Swap	9,200,000	13,500,000
Variable Interest Entity, Unrealized Gain Loss Included In Other Comprehensive Income			12,800,000
Secured Debt [Member] | Term Debt Securitizations [Member]
Variable Interest Entity [Line Items]
Gains (Losses) on Extinguishment of Debt	0
2007-1 [Member] | Secured Debt [Member] | Term Debt Securitizations [Member]
Variable Interest Entity [Line Items]
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities	$ 177,200,000

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Credit Risk (Details Textual) (USD $)			12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Healthcare and social assistance [Member]	Dec. 31, 2013 Lender finance loans [Member]	Dec. 31, 2013 Real Estate and Real Estate Construction [Member]	Dec. 31, 2013 Multi-family [Member]	Dec. 31, 2013 California [Member]	Dec. 31, 2013 Foreign Exchange Contracts [Member]
Derivative [Line Items]
Gross Derivative Counterparty Exposure	$ 1,400,000							$ 868,000
Collateral against derivative instruments, assets position	0
Collateral against derivative instruments, liability position	0	1,500,000
Collateral related to counterparty requirements	10,000,000
Derivative Asset, Fair Value, Gross Liability	9,800,000
Derivative Asset, Fair Value, Net	$ 300,000
Concentration Risk, Percentage			22.00%	16.00%	43.00%	10.00%	9.00%

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Net Income (Loss) Per Share (Tables)

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

The computations of basic and diluted net income (loss) per share attributable to CapitalSource Inc. for the years ended December 31, 2013, 2012 and 2011, respectively, were as follows:

	Year Ended December 31,
	2013	2012	2011
	($ in thousands, except per share data)
Net income (loss):
Net income (loss)	164,292	490,610	(52,023	)
Average shares - basic	195,189,983	223,928,583	302,998,615
Effect of dilutive securities:
Option shares	2,565,037	2,465,061	—
Stock units and unvested restricted stock	2,696,879	3,761,345	—
Average shares - diluted	200,451,899	230,154,989	302,998,615
Basic net income (loss) per share	0.84	2.19	(0.17	)
Diluted net income (loss) per share	0.82	2.13	(0.17	)

Antidilutive effect of diluted net income (loss) per share

The weighted average shares that have an antidilutive effect in the calculation of diluted net income (loss) per share attributable to CapitalSource Inc. and have been excluded from the computations above were as follows:

	Year Ended December 31,
	2013	2012	2011
Stock units	—	1,858	2,956,796
Stock options	473,666	1,256,195	7,242,390
Shares issuable upon conversion of convertible debt	—	—	1,069,517
Unvested restricted stock	—	52,552	4,781,650

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Loans and Credit Quality (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	$ 6,784,489	[1],[2],[3]	$ 6,139,230	[1],[2],[3]
Loans And Leases Receivable Net Of Deferred Income Percentage	100.00%		100.00%
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	3,852,537		3,594,643
Loans And Leases Receivable Net Of Deferred Income Percentage	57.00%		58.00%
Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	2,865,976		2,499,567
Loans And Leases Receivable Net Of Deferred Income Percentage	42.00%		41.00%
Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Net of Deferred Income	$ 65,976		$ 45,020
Loans And Leases Receivable Net Of Deferred Income Percentage	1.00%		1.00%

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

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Investments (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Investment Securities, Available-for-Sale:
Gross Unrealized Losses, Less Than 12 Months	$ (9,621)	$ (1,052)
Fair Value, Less than 12 Months	397,329	124,098
Gross Unrealized Losses, 12 Months or More	(3,215)	(34)
Fair Value, 12 Months or More	60,428	1,175
Gross Unrealized Losses, Total	(12,836)	(1,086)
Fair Value, Total	457,757	125,273
Held-to-maturity Securities, Classified [Abstract]
Held-to-maturity securities continuous unrealized loss position less than 12 months, Gross Unrealized Losses	0	0
Held-to-maturity securities continuous unrealized loss position less than 12 months, Fair Value	0	0
Held-to-maturity securities continuous unrealized loss position 12 months or more, Gross Unrealized Losses	0	(376)
Held-to-maturity securities continuous unrealized loss position 12 months or more, Fair Value	0	59,284
Held-to-maturity securities continuous unrealized loss position, Gross Unrealized Losses	0	(376)
Held-to-maturity securities, continuous unrealized loss position, Fair Value, Total	0	59,284
Agency Securities [Member]
Investment Securities, Available-for-Sale:
Gross Unrealized Losses, Less Than 12 Months	(8,974)	(807)
Fair Value, Less than 12 Months	332,996	115,447
Gross Unrealized Losses, 12 Months or More	(3,206)	0
Fair Value, 12 Months or More	59,738	0
Gross Unrealized Losses, Total	(12,180)	(807)
Fair Value, Total	392,734	115,447
Collateralized Loan Obligations [Member]
Investment Securities, Available-for-Sale:
Gross Unrealized Losses, Less Than 12 Months	(526)
Fair Value, Less than 12 Months	47,337
Gross Unrealized Losses, 12 Months or More	0
Fair Value, 12 Months or More	0
Gross Unrealized Losses, Total	(526)
Fair Value, Total	47,337
SBA asset-backed securities [Member]
Investment Securities, Available-for-Sale:
Gross Unrealized Losses, Less Than 12 Months	(107)
Fair Value, Less than 12 Months	15,533
Gross Unrealized Losses, 12 Months or More	0
Fair Value, 12 Months or More	0
Gross Unrealized Losses, Total	(107)
Fair Value, Total	15,533
Non-agency MBS [Member]
Investment Securities, Available-for-Sale:
Gross Unrealized Losses, Less Than 12 Months	(14)	(245)
Fair Value, Less than 12 Months	1,463	8,651
Gross Unrealized Losses, 12 Months or More	(9)	(34)
Fair Value, 12 Months or More	690	1,175
Gross Unrealized Losses, Total	(23)	(279)
Fair Value, Total	$ 2,153	$ 9,826

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
ASSETS
Cash and due from banks	$ 176,889		$ 180,803
Interest-bearing deposits in other banks	15,391		108,285
Other Short-term Investments	263,519		9,998
Restricted cash (including $0 and $36.4 million, respectively, of cash that can only be used to settle obligations of consolidated VIEs)	58,653		104,044
Investment securities:
Available-for-sale, at fair value	870,482		1,079,025
Held-to-maturity, at amortized cost	74,369		108,233
Total investment securities	944,851		1,187,258
Loans held for sale	0		22,719
Loans held for investment, gross	6,830,519		6,192,858
Less deferred loan fees and discounts	(46,030)		(53,628)
Loans held for investment, net (including $0 and $340.0 million, respectively, of loans that can only be used to settle obligations of consolidated VIEs)	6,784,489	[1],[2],[3]	6,139,230	[1],[2],[3]
Less allowance for loan and lease losses	(120,520)		(117,273)
Total loans held for investment, net	6,663,969		6,021,957
Interest receivable	26,068		29,112
Other investments	52,124		60,363
Goodwill	173,135		173,135
Deferred tax assets, net	252,268		362,283
Other assets	278,623		289,048
Total assets	8,905,490		8,549,005
Liabilities:
Deposits	6,127,690		5,579,270
Term debt - obligations of consolidated VIEs for which there is no recourse to the general credit of CapitalSource Inc.	0		177,188	[4]
Other borrowings	1,037,156		1,005,738
Other liabilities	104,017		161,637
Total liabilities	7,268,863		6,923,833
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred stock (50,000,000 shares authorized; no shares outstanding)	0		0
Common stock ($0.01 par value, 1,200,000,000 shares authorized; issued and outstanding 196,855,283 and 209,551,674 shares issued/outstanding, respectively)	1,969		2,096
Additional paid-in capital	3,038,218		3,157,533
Accumulated deficit	(1,402,690)		(1,559,107)
Accumulated other comprehensive income, net	(870)		24,650
Total shareholders' equity	1,636,627		1,625,172
Total liabilities and shareholders' equity	$ 8,905,490		$ 8,549,005

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

[4] Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

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Credit Risk (Tables)

12 Months Ended

Dec. 31, 2013

Credit Risk [Abstract]

Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements

Contract or notional amounts and the credit risk amounts for derivatives and credit-related arrangements as of December 31, 2013 and 2012, were as follows:

	December 31,
	2013				2012
	Contract or Notional Amount		Credit Risk Amount		Contract or Notional Amount		Credit Risk Amount
			($ in thousands)
Derivatives:
Interest rate contracts	$	—	$	—	$	6,712	$	—
Foreign exchange contracts	54,121		870		34,553		—
Total derivatives	$	54,121	$	870	$	41,265	$	—
Credit-related arrangements:
Commitments to extend credit	$	1,062,669	$	17,938	$	1,019,920	$	14,153
Commitments to extend letters of credit	59,926		7,433		95,927		8,737
Total credit-related arrangements	$	1,122,595	$	25,371	$	1,115,847	$	22,890

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Income Taxes (Details 1)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Reconciliations of effective income tax rate and federal statutory corporate income tax rate
Federal statutory rate	35.00%	35.00%	35.00%
State income taxes, net of federal tax benefit	4.50%	4.10%	7.10%
Foreign income/Repatriation	0.00%	0.00%	93.40%
Valuation allowance	8.40%	(186.80%)	(672.90%)
State rate change	(12.60%)	8.10%	180.90%
Other	(2.00%)	0.90%	111.50%
Effective income tax rate	33.30%	(138.70%)	(245.00%)

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Credit Risk (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Derivative [Line Items]
Derivative Liability, Fair Value, Gross Liability	$ 510	$ 482
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Derivative instruments, Notional Amount	54,121	41,265
Derivative Asset, Fair Value, Gross Asset	1,379	0
Credit Related Arrangements [Member]
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Credit Related Arrangements, Notional Amount	1,122,595	1,115,847
Credit Risk Amount	25,371	22,890
Commitments to Extend Credit [Member]
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Credit Related Arrangements, Notional Amount	1,062,669	1,019,920
Credit Risk Amount	17,938	14,153
Commitments To Extend Letters Of Credit [Member]
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Credit Related Arrangements, Notional Amount	59,926	95,927
Credit Risk Amount	7,433	8,737
Derivative [Member]
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Derivative instruments, Notional Amount	54,121	41,265
Credit Risk Amount	870	0
Interest Rate Contract [Member]
Derivative [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	11
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Derivative instruments, Notional Amount	0	6,712
Credit Risk Amount	0	0
Derivative Asset, Fair Value, Gross Asset	0	0
Foreign Exchange Contracts [Member]
Derivative [Line Items]
Derivative Liability, Fair Value, Gross Liability	510	471
Contract or notional amounts and credit risk amounts for derivatives and credit related arrangements
Derivative instruments, Notional Amount	54,121	34,553
Credit Risk Amount	870	0
Derivative Asset, Fair Value, Gross Asset	$ 1,379	$ 0

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Consolidated Statement of Comprehensive Income (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax	$ (10,200,000)	$ (1,500,000)
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax	(2,300,000)	(700,000)
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax	(12,500,000)	(2,200,000)
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax	0	350,500
Other Comprehensive Income (Loss), Foreign Currency Translation Gain (Loss) Arising During Period, Tax	0	350,500
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax	0	0
Other Comprehensive Income (Loss), Tax	$ 0	$ 0

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Employee Benefit Plan (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Defined Contribution Plan, Cost Recognized	$ 1.8	$ 2.1	$ 1.8

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Loans and Credit Quality (Details 6) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Loans and Leases Receivable, Allowance	$ 117,273		$ 153,631		$ 329,122
Charge offs	(8,436)		(96,376)		(246,242)
Recoveries	5,900		22,220		18,926
Allowance for Loan and Lease Losses Write-offs, Net	2,536		74,156
Net charge offs					(227,316)
Charge offs upon transfer to held for sale	(14,748)		(1,644)		(41,160)
Provision for loan and lease losses	(20,531)		(39,442)		(92,985)
Loans and Leases Receivable, Allowance	120,520		117,273		153,631
Allowance for credit losses on unfunded lending commitments at beginning of year	3,424	[1]	4,877	[1]	3,261
(Release) provision for unfunded lending commitments	(1,124)		(1,453)		1,616
Allowance for credit losses on unfunded lending commitments at end of year	2,300	[1]	3,424	[1]	4,877	[1]
Total allowance for loan, lease and unfunded lending commitments	$ 122,820		$ 120,697		$ 158,508

[1] Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other Liabilities. Unfunded lending commitments totaled $1.1 billion, $1.0 billion and $1.4 billion at December 31, 2013, 2012 and 2011, respectively.

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Income Taxes (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating Loss Carryforwards [Line Items]
Deferred Tax Assets, Valuation Allowance	$ 151,980,000	$ 128,568,000
Valuation Allowance, Deferred Tax Asset, Change in Amount		358,100,000
Income (Loss) from Continuing Operations before Income Taxes, Foreign	246,300,000	205,500,000	16,900,000
Income (Loss) from Continuing Operations before Income Taxes, Domestic			(32,000,000)
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	2,100,000	2,700,000
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Estimated Range of Change, Upper Bound	1,800,000
Unrecognized Tax (Benefit) Expense, Income Tax Penalties and Interest Expense	(1,000,000)	(1,800,000)	(500,000)
Unrecognized Tax (Benefits) Expense, Income Tax Penalties and Interest Accrued	2,600,000	3,600,000
Internal Revenue Service (IRS) [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	546,200,000	487,800,000
State and Local Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	1,198,000,000	744,900,000
Capital Loss Carryforward [Member]
Operating Loss Carryforwards [Line Items]
Other Tax Carryforward, Gross Amount	94,100,000	60,700,000
Foreign Country [Member]
Operating Loss Carryforwards [Line Items]
Other Tax Carryforward, Gross Amount	$ 28,600,000	$ 28,600,000

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Summary of property and equipment included in other assets

As of December 31, 2013 and 2012, property and equipment included in other assets consisted of the following:

	December 31,
	2013			2012
	($ in thousands)
Land	$	125		$	125
Buildings	470			470
Equipment	179,544			149,345
Furniture and related equipment	10,479			10,266
Leasehold improvements	26,266			24,498
Accumulated depreciation and amortization	(63,809		)	(46,190		)
Total	$	153,075		$	138,514

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Loans and Credit Quality Loans and Credit Quality (Details 12) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	$ 7,823	$ 32,613	$ 120,898
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	7,231	25,973	89,917
Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	363	973	11,573
Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	229	5,667	19,408
Interest Rate And Fee Reduction [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	0	0	18,727
Interest Rate And Fee Reduction [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	0	0	9
Maturity Extension [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	727	5,440	11,310
Maturity Extension [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	0	950	0
Maturity Extension [Member] | Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	0	4,709	19,408
Payment Deferral [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	144	252	10,968
Payment Deferral [Member] | Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	0	0	11,162
Multiple Concessions [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	6,360	20,281	48,912
Multiple Concessions [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	363	23	402
Multiple Concessions [Member] | Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Losses incurred on TDRs since thier initial restructuring	$ 229	$ 958	$ 0

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Bank Regulatory Capital

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Bank Regulatory Capital

Note 14. Bank Regulatory Capital

The Bank is subject to various regulatory capital requirements established by federal and state regulatory agencies. Failure to meet minimum capital requirements can result in regulatory agencies initiating certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets and liabilities as calculated under regulatory accounting practices. The Bank's capital amounts and other requirements are also subject to qualitative judgments by its regulators about risk weightings and other factors.

Under prompt corrective action regulations, a “well-capitalized” bank must have a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a Tier 1 leverage ratio of 5%. Under its approval order from the FDIC, the Bank must be “well-capitalized” and at all times have a minimum total risk-based capital ratio of 15%, a minimum Tier-1 risk-based capital ratio of 6% and a minimum Tier 1 leverage ratio of 5%. the Bank's ratios and the minimum requirements as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013								2012
	Actual				Minimum Required				Actual				Minimum Required
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
Tier-1 Leverage	$	1,088,870	13.88	%	$	393,342	5.00	%	$	933,837	13.06	%	$	357,443	5.00	%
Tier-1 Risk-Based Capital	1,088,870		15.03		434,562		6.00		933,837		15.24		367,651		6.00
Total Risk-Based Capital	1,179,666		16.29		1,086,405		15.00		1,010,746		16.50		919,128		15.00

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Deposits (Tables)

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Summary of interest-bearing deposits

As of December 31, 2013 and 2012, interest-bearing deposits at the Bank were as follows:

	December 31,
	2013				2012
	Balance		Weighted Average Rate		Balance		Weighted Average Rate
	($ in thousands)
Interest-bearing deposits:
Money market	$	253,357	0.45	%	$	257,961	0.49	%
Savings	623,430		0.47	%	704,890		0.52	%
Certificates of deposit	5,250,903		0.97	%	4,616,419		0.94	%
Total interest-bearing deposits	$	6,127,690	0.90	%	$	5,579,270	0.87	%

Certificates of deposit detailed by maturity

As of December 31, 2013, certificates of deposit at the Bank detailed by maturity were as follows:

	Amount		Weighted Average Rate
	($ in thousands)
Maturing by:
December 31, 2014	$	4,694,400	0.94	%
December 31, 2015	432,770		1.16	%
December 31, 2016	69,602		1.67	%
December 31, 2017	26,459		1.19	%
December 31, 2018	27,672		1.25	%
Total	$	5,250,903	0.97	%

Interest expense on deposits

For the years ended December 31, 2013, 2012 and 2011, interest expense on deposits was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Savings and money market	$	4,584		$	6,086		$	8,289
Certificates of deposit	47,591			45,165			45,547
Fees for early withdrawal	(234		)	(216		)	(227		)
Total interest expense on deposits	$	51,941		$	51,035		$	53,609

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Income Taxes (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Unrecognized tax benefits
Balance as of the beginning of year	$ 108,101	$ 75,445
Additions for tax positions of prior years	13,715	34,698
Reductions for tax positions of prior years	(31,985)	(97)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(557)	(1,945)
Balance as of the end of year	$ 17,686	$ 108,101

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Parent Company Information (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 455,799	$ 299,086	$ 458,548	$ 820,450
Investment in subsidiaries:
Other assets	278,623	289,048
Total assets	8,905,490	8,549,005	8,300,068
Liabilities and Shareholders' Equity:
Other borrowings	1,037,156	1,005,738
Other liabilities	104,017	161,637
Total liabilities	7,268,863	6,923,833
Shareholders' equity:
Common stock	1,969	2,096
Additional paid-in capital	3,038,218	3,157,533
Accumulated deficit	(1,402,690)	(1,559,107)
Accumulated other comprehensive income, net	(870)	24,650	19,406
Total shareholders' equity	1,636,627	1,625,172	1,575,146	2,053,942
Total liabilities and shareholders' equity	8,905,490	8,549,005
CS Inc. [Member]
Assets
Cash and cash equivalents	675	1,698	12,618	94,614
Investment in subsidiaries:
Bank subsidiary	1,235,903	1,100,847
Non-Bank subsidiaries	153,971	326,811
Total investment in subsidiaries	1,389,874	1,427,658
Other assets	246,712	200,577
Total assets	1,637,261	1,629,933
Liabilities and Shareholders' Equity:
Other liabilities	634	4,761
Shareholders' equity:
Common stock	1,969	2,096
Additional paid-in capital	3,038,218	3,157,533
Accumulated deficit	(1,402,690)	(1,559,107)
Accumulated other comprehensive income, net	(870)	24,650
Total shareholders' equity	1,636,627	1,625,172
Total liabilities and shareholders' equity	$ 1,637,261	$ 1,629,933

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Related Party Transactions

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Note 16. Related Party Transactions

We have from time to time in the past, and expect that we may from time to time in the future, enter into transactions with companies in which our directors, executive officers, nominees for directors, 5% or more beneficial owners or certain of their affiliates have material interests. Our Board, or a committee of disinterested directors, is charged with considering and approving these types of transactions. Management believes that each of our related party loans have been, and will continue to be, subject to the same due diligence, underwriting and rating standards as the loans that we make to unrelated third parties.

As of December 31, 2013 and 2012, we had no loans committed or outstanding to such entities. For the year ended December 31, 2013, we recognized no interest and fees from these loans. For the years ended December 31, 2012 and 2011, we recognized $0.1 million and $0.6 million, respectively, in interest and fees from these loans.

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Investments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Investment Securities, Available-for-sale
Amortized Cost	$ 871,942	$ 1,042,131
Gross Unrealized Gains	11,376	37,980
Gross Unrealized Losses	(12,836)	(1,086)
Fair Value	870,482	1,079,025
Agency Securities [Member]
Investment Securities, Available-for-sale
Amortized Cost	785,511	960,864
Gross Unrealized Gains	10,909	23,464
Gross Unrealized Losses	(12,180)	(807)
Fair Value	784,240	983,521
Asset-backed securities [Member]
Investment Securities, Available-for-sale
Amortized Cost	3,031	9,280
Gross Unrealized Gains	138	312
Gross Unrealized Losses	0	0
Fair Value	3,169	9,592
Collateralized loan obligations [Member]
Investment Securities, Available-for-sale
Amortized Cost	47,863	13,418
Gross Unrealized Gains	0	12,832
Gross Unrealized Losses	(526)	0
Fair Value	47,337	26,250
Non-agency MBS [Member]
Investment Securities, Available-for-sale
Amortized Cost	19,897	40,937
Gross Unrealized Gains	329	689
Gross Unrealized Losses	(23)	(279)
Fair Value	20,203	41,347
SBA asset-backed securities [Member]
Investment Securities, Available-for-sale
Amortized Cost	15,640	17,632
Gross Unrealized Gains	0	683
Gross Unrealized Losses	(107)	0
Fair Value	$ 15,533	$ 18,315

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Future minimum lease payments under non-cancelable operating leases
2014	$ 11,715
2015	9,154
2016	7,660
2017	6,738
2018	6,025
Thereafter	33,831
Total	$ 75,123	[1]

[1] (1)Minimum lease payments have not been reduced by minimum sublease rentals of $16.1 million due in the future under non-cancelable subleases.

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Consolidated Statement of Shareholders' Equity (USD $) In Thousands, except Per Share data	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income [Member]
Stockholders' Equity - Beginning Balance at Dec. 31, 2010	$ 2,053,942
Net income (loss)	(52,023)			(52,023)
Other comprehensive income (loss)	9,465				9,465
Repurchase of common stock	(438,827)	(702)	(438,125)
Dividends paid	(12,023)		(114)	(12,137)
Stock option expense	5,933		5,933
Exercise of options	1,648	5	1,643
Restricted stock activity	7,031	26	7,005
Dividends paid per share	$ 0
Stockholders' Equity - Ending balance at Dec. 31, 2011	1,575,146	2,561	3,487,911	(1,934,732)	19,406
Net income (loss)	490,610			490,610
Other comprehensive income (loss)	5,244				5,244
Repurchase of common stock	(344,159)	(491)	(343,668)
Dividends paid	(113,304)	(2)	(1,679)	(114,985)
Stock option expense	1,931		1,931
Exercise of options	6,353	16	6,337
Restricted stock activity	3,351	8	3,343
Dividends paid per share	$ 0
Stockholders' Equity - Ending balance at Dec. 31, 2012	1,625,172	2,096	3,157,533	(1,559,107)	24,650
Repurchase of common stock		(150)
Dividends paid				(7,875)
Stockholders' Equity - Ending balance at Sep. 30, 2013
Stockholders' Equity - Beginning Balance at Dec. 31, 2012	1,625,172	2,096	3,157,533	(1,559,107)	24,650
Net income (loss)	164,292			164,292
Other comprehensive income (loss)	(25,520)				(25,520)
Repurchase of common stock	(137,989)		(137,839)
Dividends paid	(7,780)		(95)
Stock option expense	1,702		1,702
Exercise of options	5,869	18	5,851
Restricted stock activity	10,881	5	10,876
Dividends paid per share	$ 0
Stockholders' Equity - Ending balance at Dec. 31, 2013	$ 1,636,627	$ 1,969	$ 3,038,218	$ (1,402,690)	$ (870)

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2013 Variable Interest Entity	Mar. 31, 2013 Variable Interest Entity	Dec. 31, 2012 Variable Interest Entity
Restricted cash	$ 58,653		$ 104,044		$ 0		$ 36,400
Loans and Leases Receivable, Net of Deferred Income	6,784,489	[1],[2],[3]	6,139,230	[1],[2],[3]	0		340,000
Term debt	$ 0		$ 177,188	[4]	$ 0	$ 74,200	$ 177,200
Preferred stock, shares authorized	50,000,000		50,000,000
Preferred stock, shares outstanding	0		0
Common stock, par value	$ 0.01		$ 0.01
Common stock, shares authorized	1,200,000,000		1,200,000,000
Common stock, shares issued	196,855,283		209,551,674
Common stock, shares outstanding	196,855,283		209,551,674

[1] Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

[2] Includes deferred loan fees and discounts.

[3] As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

[4] Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

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Shareholders' Equity

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Shareholders' Equity

Note 9. Shareholders' Equity

Common Stock Shares Outstanding

Common stock share activity for the years ended December 31, 2013, 2012 and 2011 was as follows:

Outstanding as of December 31, 2010	323,225,355
Repurchase of common stock	(70,208,500	)
Exercise of options	475,709
Restricted stock and other stock activities	2,619,641
Outstanding as of December 31, 2011	256,112,205
Repurchase of common stock	(49,270,260	)
Exercise of options	1,694,429
Restricted stock and other stock activities	1,015,300
Outstanding as of December 31, 2012	209,551,674
Repurchase of common stock	(15,002,800	)
Exercise of options	1,774,824
Restricted stock and other stock activities	531,585
Outstanding as of December 31, 2013	196,855,283

Stock Repurchase Program

Between 2010 and 2013, the Company repurchased $930.6 million of its common stock at weighted average prices of $7.01 per share in 2010, $6.22 per share in 2011, $6.97 per share in 2012 and $9.18 per share in 2013. All shares purchased during this period were retired upon settlement. As a result of entering into the Merger Agreement, the Stock Repurchase Program was suspended as of July 23, 2013. The Stock Repurchase Program was later terminated as of December 31, 2013.

Accumulated other comprehensive loss, net

Accumulated other comprehensive loss, net, as of December 31, 2013 and 2012 was as follows:  

	December 31, 2013
	Unrealized Loss on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax		Accumulated Other Comprehensive Loss, Net
	($ in thousands)
Beginning balance as of January 1, 2013	$	24,650		$	—	$	24,650
Other comprehensive loss before reclassifications, net of tax benefit of $10.2 million (1)	(10,367		)	—		(10,367		)
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $2.3 million (2)	(15,153		)	—		(15,153		)
Other comprehensive loss, net of tax benefit of $12.5 million	(25,520		)	—		(25,520		)
Ending balance as of December 31, 2013	$	(870	)	$	—	$	(870	)

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

	December 31, 2012
	Unrealized Gain on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax			Accumulated Other Comprehensive Income, Net
	($ in thousands)
Beginning balance as of January 1, 2012	$	19,055		$	351		$	19,406
Other comprehensive income before reclassifications, net of tax benefit of $1.5 million (1)	7,303			—			7,303
Amounts reclassified from accumulated other comprehensive income, net of tax (benefit) expense of $(0.7) million and $350.5 thousand, respectively (2)	(1,708		)	(351		)	(2,059		)
Other comprehensive income (loss), net of tax (benefit) expense of $(2.2) million and $350.5 thousand, respectively	5,595			(351		)	5,244
Ending balance as of December 31, 2012	$	24,650		$	—		$	24,650

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

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Stock-Based Compensation (Details 1)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Assumptions used to estimate the fair value of each option grant
Dividend yield	0.28%	0.53%	0.57%
Expected volatility	33.06%	63.83%	87.80%
Risk-free interest rate	1.18%	0.52%	1.50%
Expected life	3 years 10 months 1 day	3 years 10 months 24 days	4 years

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Shareholders' Equity (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended				48 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2013
Equity [Abstract]
Repurchase of common stock	(15,002,800)	(49,270,260)	(70,208,500)
Repurchase of common stock per share	$ 9.18	$ 6.97	$ 6.22	$ 7.01
Aggregate price of common stock shares repurchased					$ 930.6
Stock Repurchase Program, End Date	Jul. 23, 2013

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Shareholders' Equity (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2013
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Outstanding shares, Beginning of year	209,551,674	256,112,205	323,225,355	196,855,283
Repurchase of common stock	(15,002,800)	(49,270,260)	(70,208,500)
Exercise of options	1,774,824	1,694,429	475,709
Restricted stock and other stock activities	531,585	1,015,300	2,619,641
Outstanding shares, End of year	196,855,283	209,551,674	256,112,205	196,855,283

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Segment Data (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013 reportable_segment	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of Reportable Segments									2
Continuing operations of operating segments
Total interest income	$ 113,258	$ 112,718	$ 108,405	$ 113,095	$ 114,921	$ 115,234	$ 117,982	$ 120,077	$ 447,476	$ 468,214	$ 510,390
Interest expense	18,807	18,644	18,474	18,163	18,872	19,513	20,164	20,858	74,088	79,407	150,010
Provision for loan and lease losses	4,263	(1,069)	4,832	12,505	8,875	8,959	10,536	11,072	20,531	39,442	92,985
Non-interest income	42,076	15,708	11,548	13,218	20,549	9,297	8,450	11,550	82,550	49,846	92,694
Non-interest expense	46,114	47,614	50,695	44,655	49,423	47,009	48,200	49,050	189,078	193,682	375,170
Net income (loss) from continuing operations before income taxes									246,329	205,529	(15,081)
Income tax expense (benefit)	28,227	14,839	17,329	21,642	11,224	18,003	(340,017)	25,709	82,037	(285,081)	36,942
Net income (loss)	57,923	48,398	28,623	29,348	47,076	31,047	387,549	24,938	164,292	490,610	(52,023)
Net income (loss) from continuing operations											(52,023)
Total assets	8,905,490				8,549,005				8,905,490	8,549,005	8,300,068
CapitalSource Bank [Member]
Continuing operations of operating segments
Total interest income									418,885	393,083	368,964
Interest expense									62,685	62,096	62,802
Provision for loan and lease losses									16,866	16,192	27,539
Non-interest income									66,184	60,495	41,697
Non-interest expense									168,249	168,569	149,710
Income tax expense (benefit)									96,593	84,055	57,996
Net income (loss)									140,676	122,666
Net income (loss) from continuing operations											112,614
Total assets	8,078,746				7,371,643				8,078,746	7,371,643	6,793,496
Other Commercial Finance [Member]
Continuing operations of operating segments
Total interest income									26,551	78,629	141,056
Interest expense									11,403	17,311	87,208
Provision for loan and lease losses									3,665	23,250	65,446
Non-interest income									33,263	14,522	123,951
Non-interest expense									37,470	51,344	300,652
Income tax expense (benefit)									(15,237)	(370,209)	(21,054)
Net income (loss)									22,513	371,455
Net income (loss) from continuing operations											(167,245)
Total assets	845,532				1,190,044				845,532	1,190,044	1,534,698
Intercompany Eliminations [Member]
Continuing operations of operating segments
Total interest income									2,040	(3,498)	370
Interest expense									0	0	0
Provision for loan and lease losses									0	0	0
Non-interest income									(16,897)	(25,171)	(72,954)
Non-interest expense									(16,641)	(26,231)	(75,192)
Income tax expense (benefit)									681	1,073	0
Net income (loss)									1,103	(3,511)
Net income (loss) from continuing operations											2,608
Total assets	$ (18,788)				$ (12,682)				$ (18,788)	$ (12,682)	$ (28,126)

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Fair Value Measurements Fair Value Measurements (Details 4) (Significant Unobservable Inputs (Level 3) [Member], USD $) In Thousands, unless otherwise specified					12 Months Ended
	Dec. 31, 2013	Dec. 31, 2013 Loans Held For Investment Services [Member]	Dec. 31, 2013 Loans Held For Investment [Member]	Dec. 31, 2013 Real Estate Investment [Member]	Dec. 31, 2013 Minimum [Member] Loans Held For Investment Services [Member]	Dec. 31, 2013 Minimum [Member] Loans Held For Investment Commercial Real Estate Member]	Dec. 31, 2013 Minimum [Member] Real Estate Investment [Member]	Dec. 31, 2013 Minimum [Member] Loans Held For Investment Residential Real Estate [Member]	Dec. 31, 2013 Minimum [Member] Cost-method Investments [Member]	Dec. 31, 2013 Weighted Average [Member] Loans Held For Investment Services [Member]	Dec. 31, 2013 Weighted Average [Member] Loans Held For Investment Commercial Real Estate Member]	Dec. 31, 2013 Weighted Average [Member] Real Estate Investment [Member]	Dec. 31, 2013 Weighted Average [Member] Loans Held For Investment Residential Real Estate [Member]	Dec. 31, 2013 Weighted Average [Member] Cost-method Investments [Member]	Dec. 31, 2013 Maximum [Member] Loans Held For Investment Services [Member]	Dec. 31, 2013 Maximum [Member] Loans Held For Investment Commercial Real Estate Member]	Dec. 31, 2013 Maximum [Member] Real Estate Investment [Member]	Dec. 31, 2013 Maximum [Member] Loans Held For Investment Residential Real Estate [Member]	Dec. 31, 2013 Maximum [Member] Cost-method Investments [Member]	Sep. 30, 2013 Market Approach Valuation Technique [Member] Loans Held For Investment Commercial Real Estate Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Revenue Multiple						2.00	0.00				2.05	1.75				2.25	0.00
Fair Value Inputs, Earnings before Interest, Taxes, Depreciation, and Amortization Multiple					0.0				0.0	0.0				0.0	0.0				0.0
Fair Value Inputs, Discount for Lack of Marketability					0.00%	10.00%	0.00%			0.00%	21.00%	0.00%			0.00%	51.00%	0.00%
Fair Value Inputs, Illiquidity Discount						0.00%	0.00%		0.00%		0.00%	0.00%		0.00%		0.00%	0.00%		0.00%
Fair Value Inputs, Cap Rate					0.00%	0.00%				40.00%	9.00%	0.00%			0.00%	0.00%
Fair Value Inputs, Price Per Square Foot						22.00	0.00				41.00	47.50				195.00	0.00
Fair Value Inputs, Discount Rate								0.00%					0.00%					0.00%
Total Assets	$ 2,361	$ 754		$ 478																$ 1,129
Loans Held for Investment, Fair Value Disclosure			$ 1,883

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Feb. 26, 2014	Jun. 30, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	CAPITALSOURCE INC
Entity Central Index Key	0001241199
Document Period End Date	Dec. 31, 2013
Entity Filer Category	Large Accelerated Filer
Document Type	10-K
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		196,869,521
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 1,825,859,491

XML

Parent Company Information (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Cash provided by (used in) operating activities:	$ 263,104	$ 272,126	$ 407,708
Cash provided by investing activities:	(367,702)	(322,871)	368,913
Financing activities:
Payments for Repurchase of Common Stock	(137,989)	(339,725)	(427,231)
Payment of dividends	(7,780)	(113,304)	(12,023)
(Repayments of) credit facilities, net	0		(68,792)
Repayments of other borrowings	30,000	15,931	(372,825)
Cash used in financing activities	261,311	(108,717)	(1,138,523)
Decrease in cash and cash equivalents	156,713	(159,462)	(361,902)
Cash and cash equivalents as of beginning of year	299,086	458,548	820,450
Cash and cash equivalents as of end of year	455,799	299,086	458,548
CS Inc. [Member]
Condensed Financial Statements, Captions [Line Items]
Cash provided by (used in) operating activities:	138,877	464,825	863,487
Cash provided by investing activities:	0	0	0
Financing activities:
Payments for Repurchase of Common Stock	(137,989)	(339,725)	(427,231)
Payment of dividends	(7,780)	(113,304)	(12,023)
Repayments of other borrowings	0	(29,069)	(507,877)
Other	5,869	6,353	1,648
Cash used in financing activities	(139,900)	(475,745)	(945,483)
Decrease in cash and cash equivalents	(1,023)	(10,920)	(81,996)
Cash and cash equivalents as of beginning of year	1,698	12,618	94,614
Cash and cash equivalents as of end of year	$ 675	$ 1,698	$ 12,618

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Employee Benefit Plan

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plan

Note 10. Employee Benefit Plan

Our employees are eligible to participate in the CapitalSource 401(k) Plan (“401(k) Plan”), a defined contribution plan in accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended. During the years ended December 31, 2013, 2012 and 2011, we contributed $1.8 million, $2.1 million and $1.8 million, respectively, in matching contributions to the 401(k) Plan.

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Deposits (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Maturing by:
December 31, 2014	$ 4,694,400
December 31, 2015	432,770
December 31, 2016	69,602
December 31, 2017	26,459
December 31, 2018	27,672
Total, Amount	$ 5,250,903	$ 4,616,419
December 31, 2014, Weighted Average Rate	0.94%
December 31, 2015, Weighted Average Rate	1.16%
December 31, 2016, Weighted Average Rate	1.67%
December 31, 2017, Weighted Average Rate	1.19%
December 31, 2018, Weighted Average Rate	1.25%
Weighted Average Rate Domestic Deposit, Certificates of Deposit	0.97%	0.94%

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Borrowings (Details Textual) (USD $)	12 Months Ended									3 Months Ended	12 Months Ended				12 Months Ended			12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 FHLB SF [Member]	Dec. 31, 2012 FHLB SF [Member]	Dec. 31, 2013 FRB [Member]	Dec. 31, 2012 FRB [Member]	Dec. 31, 2013 Secured Debt [Member]	Dec. 31, 2012 Secured Debt [Member]	Jun. 30, 2012 Subordinated Debt [Member]	Dec. 31, 2013 Subordinated Debt [Member]		Dec. 31, 2012 Subordinated Debt [Member]	Mar. 31, 2012 Subordinated Debt [Member]	Dec. 31, 2013 Subordinated Debt [Member] Trust Preferred Securities, All Except 2006-3 [Member]	Dec. 31, 2013 2007-1 [Member] Secured Debt [Member]	Dec. 31, 2012 2007-1 [Member] Secured Debt [Member]	Dec. 31, 2012 London Interbank Offered Rate (LIBOR) [Member] Secured Debt [Member]	Dec. 31, 2012 Term Debt Securitizations [Member]	Dec. 31, 2013 Term Debt Securitizations [Member] Secured Debt [Member]	Dec. 31, 2013 Term Debt Securitizations [Member] 2007-1 [Member] Secured Debt [Member]
Debt Instrument [Line Items]
Debt Instrument, Unamortized Discount									$ 21,000
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities																			177,400,000		177,200,000
Gain (loss) on extinguishment of debt	0	8,059,000	(119,007,000)							8,160,000										0
Debt Instrument, Basis Spread on Variable Rate																		0.21%
Percentage of common stock retained by company											100.00%
Percentage of overall capitalization											3.00%
Outstanding principal balance														26,100,000		132,000,000
Gains (Losses) on Extinguishment of Debt	0	8,059,000	(119,007,000)							8,160,000										0
Carrying value	1,037,156,000							0	177,209,000		412,156,000	[1]	410,700,000			0	47,122,000
Debt Instrument, Description of Variable Rate Basis															three-month LIBOR plus 1.95%
Percentage of financing availability				35.00%
Maximum amount available under facility				2,800,000,000	2,600,000,000
Securities held as collateral, at fair value				3,700,000
Amortized cost of collateral pledged to Federal Reserve Bank						70,400,000	87,000,000
Fair value of collateral pledged to Federal Reserve Bank						70,600,000	88,400,000
Short-term Debt						0
Debt, weighted average interest rate	1.10%	1.20%	2.20%
Deferred Finance Costs, Net	10,700,000	11,800,000
Accumulated amortization, deferred finance costs	$ 3,200,000	$ 31,300,000

[1] The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest income:
Loans and leases	$ 415,375	$ 428,397	$ 452,607
Investment securities	30,242	38,230	55,524
Other	1,859	1,587	2,259
Total interest income	447,476	468,214	510,390
Interest expense:
Deposits	51,941	51,035	53,609
Borrowings	22,147	28,372	96,401
Total interest expense	74,088	79,407	150,010
Total interest income	373,388	388,807	360,380
Provision for loan and lease losses	20,531	39,442	92,985
Net interest income after loan and lease loss provision	352,857	349,365	267,395
Non-interest income:
Loan fees	23,546	18,561	16,234
Leased equipment income	20,590	14,113	3,748
Gain on investments, net	28,965	7,382	58,581
Gain (loss) on derivatives, net	1,061	(823)	(6,813)
Other non-interest income, net	8,388	10,613	20,944
Total non-interest income	82,550	49,846	92,694
Non-interest expense:
Compensation and benefits	107,676	105,430	125,665
Professional fees	4,824	12,814	31,182
Occupancy expenses	14,577	16,840	15,480
FDIC fees and assessments	5,068	5,957	6,091
General depreciation and amortization	6,261	5,934	6,879
Loan servicing expense	6,566	13,011	2,285
Other administrative expenses	24,754	26,499	24,898
Total operating expenses	169,726	186,485	212,480
Leased equipment depreciation	14,427	9,919	2,720
Expense of real estate owned and other foreclosed assets, net	821	6,790	39,347
(Gain) loss on extinguishment of debt	0	(8,059)	119,007
Other non-interest expense, net	4,104	(1,453)	1,616
Total non-interest expense	189,078	193,682	375,170
Net income (loss) from continuing operations before income taxes	246,329	205,529	(15,081)
Income tax (benefit) expense	82,037	(285,081)	36,942
Net income (loss) from continuing operations			(52,023)
Net income (loss)	164,292	490,610	(52,023)
Net income (loss) attributable to CapitalSource Inc.	$ 164,292	$ 490,610	$ (52,023)
Basic income (loss) per share:
From continuing operations	$ 0.84	$ 2.19	$ (0.17)
Basic net income (loss) per share	$ 0.84	$ 2.19	$ (0.17)
Diluted income (loss) per share:
From continuing operations	$ 0.82	$ 2.13	$ (0.17)
Diluted net income (loss) per share	$ 0.82	$ 2.13	$ (0.17)
Average shares outstanding:
Basic	195,189,983	223,928,583	302,998,615
Diluted	200,451,899	230,154,989	302,998,615

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Investments

12 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Investments

Note 4. Investments

Investment Securities, Available-for-Sale

As of December 31, 2013 and 2012, our investment securities, available-for-sale were as follows:

	December 31,
	2013									2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	($ in thousands)
Agency securities	$	785,511	$	10,909	$	(12,180	)	$	784,240	$	960,864	$	23,464	$	(807	)	$	983,521
Asset-backed securities	3,031		138		—			3,169		9,280		312		—			9,592
Collateralized loan obligations	47,863		—		(526		)	47,337		13,418		12,832		—			26,250
Non-agency MBS	19,897		329		(23		)	20,203		40,937		689		(279		)	41,347
SBA asset-backed securities	15,640		—		(107		)	15,533		17,632		683		—			18,315
Total	$	871,942	$	11,376	$	(12,836	)	$	870,482	$	1,042,131	$	37,980	$	(1,086	)	$	1,079,025

Included in investment securities, available-for-sale, were agency securities which included commercial and residential mortgage pass through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae ("Agency MBS"); asset-backed securities; investments in collateralized loan obligations ("CLOs"); residential mortgage-backed securities issued by non-government agencies (“Non-agency MBS”) and agency asset-backed securities issued by the Small Business Administration (“SBA ABS”).

Realized gains or losses resulting from the sale and maturities of investments are calculated using the specific identification method and included in gain on sales or calls of investments, net. During the year endedDecember 31, 2013, we had repayments on investment securities, available-for-sale of $358.7 million and $117.6 million in purchases, with a net amortized discount of $3.4 million. During the year endedDecember 31, 2012, we had repayments on investment securities, available-for-sale of $383.6 million and $293.9 million in purchases, with a net amortized discount of $6.1 million.

During the years endedDecember 31, 2013, 2012, and 2011, we recognized $(25.5) million, $5.6 million, and $13.3 million, respectively, of net unrealized after-tax (loss) gains as a component of accumulated other comprehensive income, net.

Other-than-temporary impairments (“OTTI”) on our investment securities, available-for-sale are included as a component of gain on investments, net. We recorded OTTI of $0.2 million, $1.4 million and $1.5 million relating to a decline in the fair value of our investment securities, available-for-sale on our collateralized loan obligations and municipal bond during the years endedDecember 31, 2013, 2012 and 2011, respectively.

The amortized cost and fair value of investment securities, available-for-sale pledged as collateral to the FHLB SF and government agencies as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	—	$	—	$	190,113	$	197,911
FRB	9,988		9,975		—		—
Government agencies(1)	17,246		17,436		5,390		5,439
Total	$	27,234	$	27,411	$	195,503	$	203,350

____________________________

(1) Represents the amounts pledged as collateral to secure funds deposited by government agencies.

Investment Securities, Held-to-Maturity

As of December 31, 2013 and 2012, investment securities, held-to-maturity consisted of non-agency commercial mortgage-backed securities rated AA+ or higher. The amortized cost, gross unrealized gains and losses, and estimated fair value of held-to-maturity securities were as follows:

	December 31,
	2013		2012
	($ in thousands)
Amortized Cost	$	74,369	$	108,233
Unrealized Gains	1,166		3,531
Unrealized Losses	—		(376		)
Fair Value	$	75,535	$	111,388

During the years endedDecember 31, 2013 and 2012, we recorded $4.3 million and $4.4 million, respectively, of interest income on investment securities, held-to-maturity which were recorded as a component of interest income in investment securities.

During the year endedDecember 31, 2013, we had repayments and purchases on investment securities, held-to-maturity of $35.7 million and $47.9 million, respectively, with a net amortized premium of $1.7 million.

During the year endedDecember 31, 2013, we transferred $47.9 million in investment securities, held-to-maturity, which consisted of collateralized loan obligations, with a fair value of $47.3 million and net unrealized losses of $526 thousand, to investment securities, available-for-sale. The CLOs were reclassified to available-for-sale due to the provisions of the Volcker Rule that prohibit banking entities from having ownership interests in "covered funds." As such, the Company would not be permitted to hold the CLOs to their contractual maturity. In addition, we sold one CMBS with a net carrying value of $6.2 million and realized a net gain of $0.2 million during the year endedDecember 31, 2013. We decided to sell the security as a result of evidence of significant deterioration in the issuer's creditworthiness.

During the year endedDecember 31, 2012, we had $5.1 million of principal repayments on investment securities, held-to-maturity with a net amortized premium of $1.7 million, and no purchases of investment securities, held-to-maturity.

The investment securities, held-to-maturity pledged as collateral as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	3,582	$	3,745	$	4,060	$	4,497
FRB	60,396		60,593		87,038		88,381
Total	$	63,978	$	64,338	$	91,098	$	92,878

Unrealized Losses on Investment Securities

As of December 31, 2013 and 2012, the gross unrealized losses and fair values of investment securities that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, were as follows:

	Less Than 12 Months					12 Months or More					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	($ in thousands)
As of December 31, 2013
Investment Securities, Available-for-Sale:
Agency securities	$	(8,974	)	$	332,996	$	(3,206	)	$	59,738	$	(12,180	)	$	392,734
Collateralized loan obligations	(526		)	47,337		—			—		(526		)	47,337
SBA asset-backed securities	(107		)	15,533		—			—		(107		)	15,533
Non-agency MBS	(14		)	1,463		(9		)	690		(23		)	2,153
Total Investment Securities, Available-for-Sale	$	(9,621	)	$	397,329	$	(3,215	)	$	60,428	$	(12,836	)	$	457,757
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	—		$	—	$	—		$	—
As of December 31, 2012
Investment Securities, Available-for-Sale:
Agency securities	$	(807	)	$	115,447	$	—		$	—	$	(807	)	$	115,447
Non-agency MBS	(245		)	8,651		(34		)	1,175		(279		)	9,826
Total Investment Securities, Available-for-Sale	$	(1,052	)	$	124,098	$	(34	)	$	1,175	$	(1,086	)	$	125,273
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	(376	)	$	59,284	$	(376	)	59,284

Investment securities in unrealized loss positions are analyzed individually as part of our ongoing assessment of OTTI. As of December 31, 2013 and 2012, we do not believe that any unrealized losses included in the table above represent an OTTI. The unrealized losses are attributable to fluctuations in the market prices of the securities due to market conditions and interest rate levels. Agency securities have the highest debt rating and are backed by government-sponsored entities. As of December 31, 2013, each of the agency, Non-agency MBS, and CLOs with unrealized losses were well supported. Based on our analysis of each security in an unrealized loss position, we have the intent, ability to hold and no requirement to sell these securities, so we can expect to recover the entire amortized cost basis of the impaired securities.

Contractual Maturities

As of December 31, 2013, the contractual maturities of our available-for-sale and held-to-maturity investment securities were as follows:

	Investment Securities, Available-for-Sale				Investment Securities, Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	($ in thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	12,889		13,330		—		—
Due after five years through ten years(1)	44,241		44,884		60,396		60,593
Due after ten years(2)(3)	814,812		812,268		13,973		14,943
Total	$	871,942	$	870,482	$	74,369	$	75,536

__________________________________

(1) Includes Agency MBS, Non-agency MBS, Non-agency ABS, Non-agency CMBS, and CLOs with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41 and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(2) Includes Agency MBS, SBA ABS, Non-agency MBS, Non-agency CMBS, and CLOs with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66 and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(3) Includes securities with no stated maturity.

Other Investments

As of December 31, 2013 and 2012, our other investments were as follows:

	December 31,
	2013		2012
	($ in thousands)
Investments carried at cost	$	17,797	$	23,963
Investments accounted for under the equity method	34,327		36,400
Total	$	52,124	$	60,363

Proceeds and gains from sales of other investments for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Proceeds from sales	$	3,407	$	11,478	$	30,468
Gain from sales	3,385		5,874		22,915

During the years endedDecember 31, 2013 and 2012, we recorded $3.6 million and $7.1 million, respectively, of dividends which were recorded as a component of gain on investments, net.

During the years endedDecember 31, 2013, 2012 and 2011, we recorded OTTI of $1.6 million, $5.2 million and $1.4 million, respectively, relating to our investments carried at cost.

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Loans and Credit Quality

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Loans and Credit Quality

Note 3. Loans and Credit Quality

As of December 31, 2013 and 2012, our outstanding loan balance was $6.8 billion and $6.2 billion, respectively. These amounts include loans held for sale and loans held for investment. As of December 31, 2013 and 2012, interest and fee receivables relating to loans totaled $23.7 million and $26.0 million, respectively.

Loans held for sale are recorded at the lower of cost or fair value. We determine when to sell a loan on a loan-by-loan basis and consider several factors, including the credit quality of the loan, the potential sale price relative to our loan valuation, our liquidity needs, and the resources necessary to ensure an adequate recovery if we continued to hold the loan. When our analysis indicates that the proper strategy is to sell a loan, we initiate the sale process and designate the loan as held for sale.

Loans held for investment are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts received or premiums paid on purchased loans. We maintain an allowance for loan and lease losses for loans held for investment, which is calculated based on management's estimate of incurred loan and lease losses inherent in our loan and lease portfolio as of the balance sheet date. This methodology is used consistently to develop our allowance for loan and lease losses for all loans and leases held for investment in our loan portfolio.

During the years ended December 31, 2013, 2012 and 2011, we transferred loans with a carrying value of $188.9 million, $323.8 million and $374.4 million, respectively, which included $56.8 million, $57.4 million and $173.3 million of impaired loans, respectively, from held for investment to held for sale. These transfers were based on our decision to sell these loans as part of our overall portfolio management and workout strategies. We did not incur any losses due to lower of cost or fair value adjustments during the year ended December 31, 2013. We incurred $0.4 million and $1.4 million of losses due to lower of cost or fair value adjustments at the time of transfer during the years ended December 31,2012 and 2011, respectively, which is recorded within other non-interest expense, net on the Consolidated Statements of Operations. We did not reclassify any loans from held for sale to held for investment during the years ended December 31, 2013. We reclassified $5.5 million and $28.4 million of loans from held for sale to held for investment during the years ended December 31,2012 and 2011, respectively.

During the years ended December 31, 2013, 2012 and 2011, we recognized net gains on the sale of loans of $6.9 million, $4.7 million and $16.4 million, respectively. Included in these amounts, we sold a participating interest in two loans to Pacific Western Bank, a wholly-owned subsidiary of PacWest, with a carrying value $35.0 million and recognized a net gain of $84 thousand.

As of December 31, 2013, we had no loans held for sale. As of December 31,2012 and 2011, loans held for sale with an outstanding balance of $2.5 million, and $2.9 million, respectively, were classified as non-accrual. We did not record any fair value write-downs on non-accrual loans held for sale during the years ended December 31, 2013, 2012 and 2011.

During the years ended December 31, 2013, 2012 and 2011, we purchased loans held for investment with an outstanding principal balance at the time of purchase of $368.9 million, $487.9 million and $620.3 million, respectively.

As of December 31, 2013 and 2012, the Bank pledged loans held for investment with an unpaid principal balance of $1.2 billion and $0.7 billion, respectively, to the Federal Home Loan Bank of San Francisco (“FHLB SF”) as collateral for its financing facility.

As of December 31, 2013 and 2012, the outstanding carrying value of loans, by type of loan, was as follows:

	December 31,
	2013				2012
	($ in thousands)
Commercial	$	3,852,537	57	%	$	3,594,643	58	%
Real estate	2,865,976		42		2,499,567		41
Real estate - construction	65,976		1		45,020		1
Total(1)(2)	$	6,784,489	100	%	$	6,139,230	100	%

______________________

(1) Includes deferred loan fees and discounts.

(2) As of December 31, 2013, includes deferred loans fees and discounts of $29.1 million, $16.2 million and $0.7 million for commercial, real estate and real estate - construction loans, respectively. As of December 31, 2012, includes deferred loans fees and discounts of $38.4 million, $14.9 million and $0.3 million for commercial, real estate and real estate - construction loans, respectively.

Non-performing loans include all loans on non-accrual status and accruing loans which are contractually past due 90 days or more as to principal or interest payments. Our remediation efforts on these loans are based upon the characteristics of each specific situation and include, among other things, one of or a combination of the following:

• request that the equity owners of the borrower inject additional capital;

• require the borrower to provide us with additional collateral;

• request additional guaranties or letters of credit;

• request the borrower to improve cash flow by taking actions such as selling non-strategic assets or reducing operating expenses;

• modify the terms of the loan, including the deferral of principal or interest payments, where we will appropriately classify the modification as a TDR;

• initiate foreclosure proceedings on the collateral; or     

• sell the loan in certain cases where there is an interested third-party buyer.

As of December 31, 2013 and 2012, the carrying value of each class of loans held for investment, separated by performing and non-performing categories, was as follows:

	December 31,
	2013						2012
Class	Performing		Non-Performing		Total		Performing		Non-Performing		Total
	($ in thousands)
Asset-based	$	1,642,937	$	12,459	$	1,655,396	$	1,409,837	$	27,759	$	1,437,596
Cash flow	1,966,599		40,801		2,007,400		1,916,042		51,700		1,967,742
Healthcare asset-based	168,238		—		168,238		179,617		—		179,617
Healthcare real estate	765,246		15,666		780,912		665,058		17,001		682,059
Multi-family	776,320		1,052		777,372		899,963		1,961		901,924
Real estate	1,069,610		24,776		1,094,386		717,798		12,593		730,391
Small business	294,699		6,086		300,785		233,653		6,248		239,901
Total(1)	$	6,683,649	$	100,840	$	6,784,489	$	6,021,968	$	117,262	$	6,139,230

________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Credit Quality

Credit risk within our loan portfolio is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. The degree of credit risk will vary based on many factors, the credit characteristics of the borrower, the contractual terms of the agreement and the availability and quality of collateral. We continuously monitor a borrower's ability to perform under its obligations. Additionally, we manage the size and risk profile of our loan portfolio by syndicating loan exposure to other lenders and selling loans.

Under our credit risk management process, each loan is assigned an internal risk rating that is based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on: the borrower's financial performance and financial standing, the borrower's ability to repay the loan, and the adequacy of the collateral securing the loan. Subsequent to loan origination, risk ratings are monitored and reassessed on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the borrower's financial condition, cash flow or financial position. We use risk rating aggregations to measure credit risk within the loan portfolio. In addition to risk ratings, we consider the market trend of collateral values and loan concentrations by borrower industries and real estate property types (where applicable).

We believe that the likelihood of not being paid according to the contractual terms of a loan is, in large part, dependent upon the assessed level of risk associated with the loan, and we believe that our internal risk rating process provides a view as to the relative risk of each loan. This risk rating scale is based on a credit classification of assets as prescribed by government regulations and industry standards and is separated into the following groups:

• Pass - Loans with standard, acceptable levels of credit risk;

• Special mention - Loans that have potential weaknesses that deserve close attention, and which, if left uncorrected, may result in a loss or deterioration of our credit position;

• Substandard - Loans that are inadequately protected by the current worth and paying capacity of the obliger or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; and

• Doubtful - Loans that have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full improbable based on currently existing facts, conditions, and values.

As of December 31, 2013 and 2012, the carrying value of each class of loans by internal risk rating, was as follows:

	Internal Risk Rating
Class	Pass		Special Mention		Substandard		Doubtful		Total
	($ in thousands)
As of December 31, 2013:
Asset-based	$	1,602,564	$	25,420	$	15,261	$	12,151	$	1,655,396
Cash flow	1,823,926		108,242		64,996		10,236		2,007,400
Healthcare asset-based	108,196		45,911		14,131		—		168,238
Healthcare real estate	682,942		67,235		30,735		—		780,912
Multi-family	761,270		14,473		1,629		—		777,372
Real estate	1,011,565		25,521		57,300		—		1,094,386
Small business	293,630		1,066		6,089		—		300,785
Total(1)	$	6,284,093	$	287,868	$	190,141	$	22,387	$	6,784,489
As of December 31, 2012:
Asset-based	$	1,352,729	$	36,535	$	29,185	$	19,147	$	1,437,596
Cash flow	1,684,107		67,629		191,582		24,424		1,967,742
Healthcare asset-based	114,889		64,728		—		—		179,617
Healthcare real estate	607,382		57,676		17,001		—		682,059
Multi-family	857,667		41,709		2,548		—		901,924
Real estate	673,783		38,139		18,389		80		730,391
Small business	228,071		2,860		8,443		527		239,901
Total(1)	$	5,518,628	$	309,276	$	267,148	$	44,178	$	6,139,230

_________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Non-Accrual and Past Due Loans

We will place a loan on non-accrual status if there is substantial doubt about the borrower's ability to service its debt and other obligations or if the loan is 90 or more days past due and is not well-secured and in the process of collection. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan will stop until factors no longer indicate collection is doubtful and the loan has been brought current. Payments received on non-accrual loans are generally first applied to principal. A loan may be returned to accrual status when its interest or principal is current, repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. Cash payments received from the borrower and applied to the principal balance of the loan while the loan was on non-accrual status are not reversed if a loan is returned to accrual status.

If our non-accrual loans had performed in accordance with their original terms, interest income on the outstanding legal balance of these loans would have been $17.6 million, $32.6 million and $62.0 million higher for the years ending December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, the carrying value of non-accrual loans was as follows:

	December 31,
	2013		2012
	($ in thousands)
Asset-based	$	12,459	$	27,759
Cash flow	40,801		51,700
Healthcare real estate	15,666		17,001
Multi-family	1,052		1,961
Real estate	24,776		12,593
Small business	6,086		6,248
Total(1)	$	100,840	$	117,262

______________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

As of December 31, 2013 and 2012, the delinquency status of loans in our loan portfolio was as follows:

	30-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Greater Than 90 Days Past Due and Accruing
	($ in thousands)
As of December 31, 2013:
Asset-based	$	54	$	—	$	54	$	1,655,342	$	1,655,396	$	—
Cash flow	878		99		977		2,006,423		2,007,400		—
Healthcare asset-based	—		—		—		168,238		168,238		—
Healthcare real estate	—		15,666		15,666		765,246		780,912		—
Multi-family	591		188		779		776,593		777,372		—
Real estate	—		10,326		10,326		1,084,060		1,094,386		—
Small business	839		1,356		2,195		298,590		300,785		—
Total(1)	$	2,362	$	27,635	$	29,997	$	6,754,492	$	6,784,489	$	—
As of December 31, 2012:
Asset-based	$	19,207	$	391	$	19,598	$	1,417,998	$	1,437,596	$	—
Cash flow	578		3,486		4,064		1,963,678		1,967,742		—
Healthcare asset-based	—		—		—		179,617		179,617		—
Healthcare real estate	—		17,001		17,001		665,058		682,059		—
Multi-family	656		999		1,655		900,269		901,924		—
Real estate	1,032		12,284		13,316		717,075		730,391		—
Small business	2,994		3,932		6,926		232,975		239,901		—
Total(1)	$	24,467	$	38,093	$	62,560	$	6,076,670	$	6,139,230	$	—

__________________________

(1) Includes deferred loan fees and discounts. Excludes loans held for sale carried at lower of cost or fair value.

Impaired Loans

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 in accordance with the contractual terms of the original loan agreement. In this regard, impaired loans include loans for which we expect to encounter a significant delay in the collection of and/or a shortfall in the amount of contractual payments due to us.

Assessing the likelihood that a loan will not be paid according to its contractual terms involves the consideration of all relevant facts and circumstances and requires a significant amount of judgment. For such purposes, factors that are considered include:

• the current performance of the borrower;

• the current economic environment and financial capacity of the borrower to preclude a default;

• the willingness of the borrower to provide the support necessary to preclude a default (including the potential for successful resolution of a potential problem through modification of terms); and

• the borrower's equity position in, and the value of, the underlying collateral, if applicable, based on our best estimate of the fair value of the collateral.

In assessing the adequacy of available evidence, we consider whether the receipt of payments is dependent on the fiscal health of the borrower or the sale, refinancing or foreclosure of the loan.

We continue to recognize interest income on loans that have been identified as impaired but have not been placed on non-accrual status.

As of December 31, 2013 and 2012, information pertaining to our impaired loans was as follows:

	December 31,
	2013							2012
	Carrying Value(1)		Legal Principal Balance(2)		Related Allowance			Carrying Value(1)		Legal Principal Balance(2)		Related Allowance
	($ in thousands)
With no related allowance recorded:
Asset-based	$	12,459	$	19,724				$	40,655	$	75,547
Cash flow	279		21,486					48,796		118,440
Healthcare asset-based	—		—					—		12,246
Healthcare real estate	15,666		21,668					17,001		18,286
Multi-family	1,052		1,414					1,961		2,108
Real estate	24,776		100,374					12,711		83,363
Small business	6,086		14,046					8,112		15,976
Total	60,318		178,712					129,236		325,966
With allowance recorded:
Asset-based	—		—		$	—		867		859		$	(412	)
Cash flow	40,522		44,513		(4,211		)	71,609		80,322		(6,072		)
Total	40,522		44,513		(4,211		)	72,476		81,181		(6,484		)
Total impaired loans	$	100,840	$	223,225	$	(4,211	)	$	201,712	$	407,147	$	(6,484	)

______________________

(1) Carrying value of impaired loans before applying specific reserves. Balances are net of deferred loan fees and discounts. Excludes loans held for sale.

(2) Represents the contractual amounts owed to us by borrowers. The difference between the carrying value and the contractual amounts owed relates to the previous recognition of charge offs and are net of deferred loan fees and discounts.

As of December 31, 2013 and 2012, the carrying value of impaired loans with no related allowance recorded was $60.3 million and $129.2 million, respectively. Of these amounts, $29.7 million and $41.6 million, respectively, related to loans that were charged off to their carrying values. These charge offs were primarily the result of collateral dependent loans for which ultimate collection depends solely on the sale of the collateral. The remaining $30.6 million and $87.6 million related to loans that had no recorded charge offs or specific reserves as of December 31, 2013 and 2012, respectively, based on our estimate that we ultimately will collect all principal and interest amounts due.

Average balances and interest income recognized on impaired loans, by loan class, for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013				2012				2011
	Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)		Average Balance		Interest Income Recognized(1)
	($ in thousands)
No allowance recorded:
Asset-based	$	26,106	$	489	$	65,805	$	3,246	$	67,521	$	2,899
Cash flow	25,628		5,867		68,549		5,534		110,466		7,456
Healthcare asset-based	—		—		1,002		233		1,827		177
Healthcare real estate	16,717		—		24,118		—		23,010		165
Multi-family	1,583		161		1,432		17		5,770		—
Real estate	18,897		5		54,800		3,735		185,104		3,410
Small business	6,766		242		11,983		20		10,158		—
Total	95,697		6,764		227,689		12,785		403,856		14,107
With allowance recorded:
Asset-based	743		—		8,222		74		47,572		—
Cash flow	43,156		1,622		95,442		3,094		111,637		3,405
Healthcare asset-based	—		—		—		—		787		—
Healthcare real estate	—		—		604		—		5,006		—
Multi-family	—		—		—		—		414		—
Real estate	—		—		—		—		32,964		—
Small business	—		—		—		—		733		—
Total	43,899		1,622		104,268		3,168		199,113		3,405
Total impaired loans	$	139,596	$	8,386	$	331,957	$	15,953	$	602,969	$	17,512

_________________________

(1) We recognized no cash basis interest income on impaired loans during the years ended December 31, 2013 and 2012. We recognized $0.1 million cash basis interest income on impaired loans during the year ended December 31, 2011.

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses represents management's estimate of incurred losses inherent in our loan and lease portfolio as of the balance sheet date. The estimation of the allowance for losses is based on a variety of factors, including past loss experience, the current credit profile and financial position of our borrowers, adverse situations that have occurred that may affect the borrowers' ability to repay, the estimated value of underlying collateral and general economic conditions. Provisions for losses are recognized when available information indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We perform quarterly detailed reviews of our loan portfolio to identify credit risks and to assess the overall collectability of the portfolio. The allowance on certain pools of loans with similar characteristics is estimated using reserve factors derived from historical loss rates or published industry data if our lending history for a particular loan type is limited.

Each loan is assigned an internal risk rating that is based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on: the borrower's financial performance and financial standing, the borrower's ability to repay the loan, and the adequacy of the collateral securing the loan. Subsequent to loan origination, risk ratings are monitored and reassessed on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the borrower's financial condition, cash flow or financial position. We use risk rating aggregations to measure credit risk within the loan portfolio. In addition, we consider the market trend of collateral values and loan concentrations by borrower industries and real estate property types.

These risk ratings, analysis of historical loss experience (updated quarterly), current economic conditions, industry performance trends, and any other pertinent information, including individual valuations on impaired loans are all considered when estimating the allowance for loan and lease losses.

If the recorded investment in an impaired loan exceeds the present value of payments expected to be received, the fair value of the collateral and/or the loan's observable market price, a specific allowance is established as a component of the allowance for losses.

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for losses. To the extent we later collect from the original borrower amounts previously charged off, we will recognize a recovery.

We also consider whether losses may have been incurred in connection with unfunded commitments to lend. In making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a borrower or other terms and conditions.

Activity in the allowance for loan and lease losses related to our loans held for investment for the years ended December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Allowance for loan and lease losses as of beginning of year	$	117,273		$	153,631		$	329,122
Charge offs	(8,436		)	(96,376		)	(246,242		)
Recoveries	5,900			22,220			18,926
Net charge offs	(2,536		)	(74,156		)	(227,316		)
Charge offs upon transfer to held for sale	(14,748		)	(1,644		)	(41,160		)
Loan and lease loss provision	20,531			39,442			92,985
Balance as of end of year	120,520			117,273			153,631
Allowance for credit losses on unfunded lending commitments at beginning of year	3,424			4,877			3,261
(Release) provision for unfunded lending commitments	(1,124		)	(1,453		)	1,616
Allowance for credit losses on unfunded lending commitments at end of year(1)	2,300			3,424			4,877
Total allowance for loan, lease and unfunded lending commitments	$	122,820		$	120,697		$	158,508

_________________________

(1) Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other Liabilities.Unfunded lending commitments totaled $1.1 billion, $1.0 billion and $1.4 billion at December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, the balances of the allowance for loan and lease losses and the carrying value of loans held for investment disaggregated by impairment methodology were as follows:

	December 31,
	2013					2012
	Loans		Allowance for Loan and Lease Losses			Loans		Allowance for Loan and Lease Losses
	($ in thousands)
Individually evaluated for impairment(1)	$	99,091	$	(4,211	)	$	198,856	$	(6,484	)
Other loans groups with unidentified incurred losses	6,683,649		(116,309		)	5,937,518		(110,789		)
Acquired loans with deteriorated credit quality	1,749		—			2,856		—
Total	$	6,784,489	$	(120,520	)	$	6,139,230	$	(117,273	)

_______________________________

(1) Loans individually evaluated for impairment are net of charge offs of $85.4 million and $162.5 million at December 31, 2013 and 2012, respectively.

Troubled Debt Restructurings

The types of concessions that are assessed to determine if modifications to our loans should be classified TDRs include, but are not limited to, interest rate and/or fee reductions, maturity extensions, payment deferrals, forgiveness of loan principal, interest, and/or fees, or multiple concessions comprised of a combination of some or all of these items. We also classify discounted loan payoffs and loan foreclosures as TDRs.

During the years ended December 31, 2013 and 2012, the aggregate carrying value of loans involved in TDRs were $94.0 million and $170.5 million, respectively, as of their respective restructuring dates. Aggregate carrying value includes principal, deferred fees and accrued interest. Loans involved in TDRs are classified as impaired upon closing the TDR. Generally, a loan that has been involved in a TDR is no longer classified as impaired one year subsequent to the restructuring, assuming the loan performs under the restructured terms and the restructured terms are commensurate with current market terms. In most cases, the restructured terms of loans involved in TDRs are not commensurate with current market terms.

As loans involved in TDRs are deemed to be impaired, such impaired loans, including those that subsequently experienced defaults, are individually evaluated in accordance with our allowance for loan and lease losses methodology under the same guidelines as non-TDR loans that are classified as impaired. Our evaluation of whether collection of interest and principal is reasonably assured is based on the facts and circumstances of each individual borrower and our assessment of the borrower's ability and intent to repay in accordance with the revised loan terms. We generally consider such factors as historical operating performance and payment history of the borrower, indications of support by sponsors and other interest holders, the terms of the TDR, the value of any collateral securing the loan and projections of future performance of the borrower as part of this evaluation.

The accrual status for loans involved in a TDR is assessed as part of the evaluation mentioned above. For a loan that accrues interest immediately after that loan is restructured in a TDR, we generally do not charge off a portion of the loan as part of the restructuring. If a portion of a loan has been charged off, we will not accrue interest on the remaining portion of the loan if the charged off portion is still contractually due from the borrower. However, if the charged off portion of the loan is legally forgiven through concessions to the borrower, then the restructured loan may be placed on accrual status if the remaining contractual amounts due on the loan are reasonably assured of collection. In addition, for certain TDRs, especially those involving a commercial real estate loan, we may split the loan into an A note and a B note, placing the performing A note on accrual status and charging off the B note. For loans involved in a TDR that have been classified as non-accrual, the borrower is required to demonstrate sustained payment performance for a minimum of six months to return to accrual status.

The aggregate carrying values of loans that had been restructured in TDRs as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013		2012
	($ in thousands)
Non-accrual	$	55,460	$	62,815
Accruing	—		83,367
Total	$	55,460	$	146,182

The specific reserves related to these loans were $1.6 million as of December 31, 2013 and 2012. We had unfunded commitments related to these restructured loans of $7.6 million and $21.1 million as of December 31, 2013 and 2012, respectively.

The following table rolls forward the balance of loans modified in TDRs for the years ended December 31, 2013, 2012 and 2011:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Beginning balance of TDRs	$	146,182		$	309,003		$	555,113
New TDRs	3,896			45,353			143,963
Draws and pay downs on existing TDRs, net	(16,934		)	(18,087		)	(27,305		)
Loan sales and payoffs	(74,360		)	(157,954		)	(267,168		)
Charge offs post modification	(3,324		)	(32,133		)	(95,600		)
Ending balance of TDRs	$	55,460		$	146,182		$	309,003

The number and aggregate carrying values of loans involved in TDRs that occurred during the year ended December 31, 2013 were as follows:

	Year Ended December 31, 2013
	Number of Loans	Carrying Value Prior to TDR		Carrying Value Subsequent to TDR(2)
	($ in thousands)
Asset-based
Maturity extension	1	$	2,985	$	2,985
Discounted payoffs	2	10,006		—
Multiple concessions	2	9,398		9,398
	5	22,389		12,383
Cash flow
Maturity extension	2	32,547		32,547
Payment deferral	1	571		571
Discounted payoffs	3	16,942		—
Multiple concessions	7	17,840		17,840
	13	67,900		50,958
Multi-family
Discounted payoffs	1	425		—
Small business
Discounted payoffs	2	565		—
Foreclosures	3	786		—
Multiple concessions	4	1,955		1,955
	9	3,306		1,955
Total(1)	28	$	94,020	$	65,296

__________________________

(1) Includes deferred loan fees and discounts.

(2) Represents the carrying value immediately following the modification of the loan; does not represent the carrying value as of December 31, 2013.

During the year ending December 31, 2013, onesmall business loan experienced default after its initial restructuring within the previous 12 months. As of December 31, 2013, the carrying value of this loan was $38 thousand.

A summary of concession types granted by loan type, including the accrual status of the loans as of December 31, 2013 and 2012, respectively, was as follows:

	December 31,
	2013						2012
	Non-accrual		Accrual		Total		Non-accrual		Accrual		Total
	($ in thousands)
Commercial
Maturity extension	$	—	$	—	$	—	$	14,166	$	59,513	$	73,679
Payment deferral	529		—		529		—		—		—
Multiple concessions	42,340		—		42,340		36,786		23,711		60,497
	42,869		—		42,869		50,952		83,224		134,176
Real estate
Interest rate and fee reduction	—		—		—		—		—		—
Maturity extension	54		—		54		59		—		59
Payment deferral	529		—		529		617		—		617
Multiple concessions	1,938		—		1,938		200		143		343
	2,521		—		2,521		876		143		1,019
Real estate - construction
Maturity extension	10,070		—		10,070		10,758		—		10,758
Multiple concessions	—		—		—		229		—		229
	10,070		—		10,070		10,987		—		10,987
Total	$	55,460	$	—	$	55,460	$	62,815	$	83,367	$	146,182

We have experienced losses incurred on some TDRs subsequent to their initial restructuring. These losses include both additional specific reserves and charge offs on the restructured loans. A majority of such losses has been incurred on our commercial loans and are primarily due to the borrowers' failure to consistently meet their financial forecasts that formed the bases for our restructured loans. Examples of circumstances that resulted in the borrowers not being able to meet their forecasts included acquisitions of other businesses that did not have the expected positive impact on financial results, significant delays in launching products and services, and continued deterioration in the pricing estimates of businesses and product lines that the borrower expected to sell to generate proceeds to repay the loan.

Losses incurred on TDRs since their initial restructuring by concession and loan type as of December 31, 2013, 2012 and 2011, respectively, was as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Commercial
Interest rate and fee reduction	$	—	$	—	$	18,727
Maturity extension	727		5,440		11,310
Payment deferral	144		252		10,968
Multiple concessions	6,360		20,281		48,912
	7,231		25,973		89,917
Real estate
Interest rate and fee reduction	—		—		9
Maturity extension	—		950		—
Payment deferral	—		—		11,162
Multiple concessions	363		23		402
	363		973		11,573
Real estate - construction
Maturity extension	—		4,709		19,408
Multiple concessions	229		958		—
	229		5,667		19,408
Total	$	7,823	$	32,613	$	120,898

Of the additional losses recognized on commercial loan TDRs since their initial restructuring for the years ended December 31, 2013, 2012 and 2011, 65.3%, 92.9% and 83.9%, respectively, related to loans that had additional modifications subsequent to their initial TDRs, and all related to loans that were on non-accrual status.  We recognized approximately $0.3 million, $0.1 million and $0.2 million of interest income for the years ended December 31, 2013, 2012 and 2011, respectively, on the commercial loans that experienced losses during those years.

Real Estate Owned and Other Foreclosed Assets ("REO")

When we foreclose on an asset that collateralizes a loan, we record the acquired asset at its estimated fair value less costs to sell at the time of foreclosure. Upon foreclosure, we evaluate the asset's fair value as compared to the loan's carrying amount and record a charge off when the carrying amount of the loan exceeds fair value less costs to sell. We may also write down or record allowances on the acquired asset subsequent to foreclosure if such assets experience additional deterioration. Any subsequent valuation adjustments are recorded as a component of net expense of real estate owned and other foreclosed assets.

Activity related to REO for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Balance as of beginning of year	$	23,791		$	69,698		$	163,329
Transfers from loans held for investment and other assets	845			15,494			28,281
Fair value adjustments	(2,025		)	(10,174		)	(28,274		)
Real estate sold	(9,787		)	(51,227		)	(93,638		)
Balance as of end of year	$	12,824		$	23,791		$	69,698

During the years ended December 31, 2013, 2012 and 2011, we recognized gains (losses) of $4.0 million, $2.7 million and $(0.7) million, respectively, on the sales of REO as a component of expense of real estate owned and other foreclosed assets, net.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 15. Commitments and Contingencies

We have non-cancelable operating leases for office space and office equipment. The leases expire over the next eleven years and contain provisions for certain annual rental escalations.

As of December 31, 2013, future minimum lease payments under non-cancelable operating leases, including leases held at the Bank, were as follows ($ in thousands):

2014	$	11,715
2015	9,154
2016	7,660
2017	6,738
2018	6,025
Thereafter	33,831
Total(1)	$	75,123

______________________

(1) Minimum lease payments have not been reduced by minimum sublease rentals of $16.1 million due in the future under non-cancelable subleases.

Occupancy expense was $14.6 million, $16.8 million and $15.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, we had committed credit facilities to our borrowers of approximately $8.0 billion and $7.4 billion of which approximately $1.1 billion and $1.0 billion were unfunded, respectively. As of December 31, 2013 and 2012, $1.0 billion and $0.9 billion of the total unfunded commitments were extended by the Bank, respectively. As of December 31, 2013 and 2012, $28.0 million and $88.5 million, of the total unfunded commitments were extended by the Parent Company, respectively. Our failure to satisfy our full contractual funding commitment to one or more of our borrower's could create a breach of contract and lender liability for us and damage our reputation in the marketplace, which could have a material adverse effect on our business.

We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. As of December 31, 2013 and 2012, we had issued $43.4 million and $54.2 million, respectively, in stand-by letters of credit which expire at various dates over the next six years. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation and would seek repayment of that financial obligation from the borrower, and we have posted cash and investments securities as collateral under these arrangements.

From time to time we are party to legal proceedings. We do not believe that any currently pending or threatened proceeding, if determined adversely to us, would have a material adverse effect on our business, financial condition or results of operations, including our cash flows.

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

We provide for income taxes as a “C” corporation on income earned from operations. We are subject to federal, foreign, state and local taxation in various jurisdictions.

In 2009, we established a valuation allowance against a substantial portion of our net deferred tax assets where we determined that there was significant negative evidence with respect to our ability to realize such assets. Negative evidence we considered in making this determination included the history of operating losses and uncertainty regarding the realization of a portion of the deferred tax assets at future points in time. As of December 31, 2013 and 2012, the valuation allowance was $152.0 million and $128.6 million, respectively.

During 2012, we reversed $358.1 million of the valuation allowance, and such reversal was recorded as a benefit in our income tax expenses. Each of the deferred tax assets was evaluated based on our evaluation of the available positive and negative evidence with respect to our ability to realize the deferred tax asset, including considering their associated character and jurisdiction. The decision to reverse a large portion of the valuation allowance was based on our evaluation of all positive and negative evidence. A cumulative loss position, such as we had for the previous three-year period ended December 31, 2011, is generally considered significant negative evidence in assessing the realizability of a deferred tax asset. However, significant positive evidence had developed which overcame this negative evidence such that, during the year ended December 31, 2012, management determined that it is more likely than not that a portion of the deferred tax asset will be realized. This determination was made not based upon a single event or occurrence, but based upon the accumulation of all positive and negative evidence including recent trends in our earnings and taxable income. Other positive evidence included the projection of future taxable income based on a recent history of positive earnings at the Bank, improved asset performance trends, substantial decline in the Parent Company's operations and assets, and one-time losses included in the three-year cumulative pre-tax loss (i.e., debt extinguishment loss). Additionally, we are no longer in a cumulative pre-tax loss position since the end of 2012.

A valuation allowance of $152.0 million remains in effect as of December 31, 2013 with respect to deferred tax assets where we believe sufficient evidence does not exist at this time to support a reduction in the allowance. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Current:
Federal	$	(52,836	)	$	21,467		$	(8,844	)
State	5,575			5,501			4,916
Foreign	22			237			(2,482		)
Total current	(47,239		)	27,205			(6,410		)
Deferred:
Federal	123,150			(306,065		)	32,785
State	6,126			(6,221		)	5,053
Foreign	—			—			5,514
Total deferred	129,276			(312,286		)	43,352
Income tax expense (benefit)	$	82,037		$	(285,081	)	$	36,942

For the year ended December 31, 2013 and 2012, we had $246.3 million and $205.5 million, respectively, of pre-tax income relating to our domestic operations. For the year ended December 31, 2011, we had $16.9 million of pre-tax income and $32.0 million of pre-tax loss that was attributable to foreign and domestic operations, respectively.

The reconciliations of the effective income tax rate and the federal statutory corporate income tax rate for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013		2012		2011
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	4.5		4.1		7.1
Foreign income/Repatriation	—		—		93.4
Valuation allowance	8.4		(186.8	)	(672.9	)
State rate change	(12.6	)	8.1		180.9
Other	(2.0	)	0.9		111.5
Effective income tax rate	33.3	%	(138.7	)%	(245.0	)%

Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement and income tax purposes. The components of deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013			2012
	($ in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	47,314		$	38,922
Net unrealized losses on investments	30,274			62,557
Net unrealized losses on other real estate owned	5,608			7,720
Net operating losses - federal	187,733			166,624
Net operating losses - state, net of federal tax benefit	65,844			46,094
Capital losses - federal and state	38,649			23,813
Foreign tax credit	28,616			28,616
Share-based compensation awards	7,841			7,915
Non-accrual interest	8,832			50,899
Other	18,174			114,046
Total deferred tax assets	438,885			547,206
Valuation allowance	(151,980		)	(128,568		)
Total deferred tax assets, net of valuation allowance	286,905			418,638
Deferred tax liabilities:
Mark-to-market on loans	4,649			16,074
Other	29,988			40,281
Total deferred tax liabilities	34,637			56,355
Net deferred tax assets	$	252,268		$	362,283

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences.

We have net operating loss carryforwards for federal and state income tax purposes that can be utilized to offset future taxable income. If we were to undergo a change in ownership of more than 50% of our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code (the “Code”), our ability to utilize our net operating loss carryforwards, certain built-in losses and other tax attributes recognized in years after the ownership change generally would be limited. The annual limit would equal the product of (a) the applicable long term tax exempt rate and (b) the value of the relevant taxable entity's capital stock immediately before the ownership change. These change of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more (the "5-Percent Shareholders") of a company's outstanding stock, including certain public groups of stockholders as set forth under Section 382 of the Code, and those arising from new stock issuances and other equity transactions. The determination of whether an ownership change occurs is complex and not entirely within our control. No assurance can be given as to whether in the future we will undergo an ownership change under Section 382 of the Code.

In July 2013, the Board of Directors adopted a tax benefit preservation plan which was designed to preserve the net operating loss carryforwards and other tax attributes of the Company. The plan is intended to discourage persons from becoming 5-Percent Shareholders and existing 5-Percent Shareholders from increasing their beneficial ownership of shares.

As of December 31, 2013 and 2012, we had net operating loss carryforwards of $546.2 million and $487.8 million, respectively, for federal tax purposes, which are available to offset future taxable income. If not used, these carryforwards will begin to expire in 2029 and would fully expire in 2031. To the extent net operating loss carryforwards, when realized, relate to non-qualified stock option and restricted stock deductions, the resulting benefits will be credited to stockholders' equity. As of December 31, 2013 and 2012, we had state net operating loss carryforwards of $1.2 billion and $0.7 billion, respectively, which will expire in varying amounts beginning in 2013 through 2033.

As of December 31, 2013 and 2012, we had capital loss carryforwards of $94.1 million and $60.7 million, respectively, for federal tax purposes which are available to offset future capital gains. If not used, these carryforwards will begin to expire in 2015 and will fully expire in 2018.

As of December 31, 2013 and 2012, we have foreign tax credit carryforwards of $28.6 million for federal tax purposes, which are available to offset future federal income tax. If not used, these carryforwards will begin to expire in 2016 and would fully expire in 2021.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012, are as follows:

	Year Ended December 31,
	2013			2012
	($ in thousands)
Balance as of the beginning of year	$	108,101		$	75,445
Additions for tax positions of prior years	13,715			34,698
Reductions for tax positions of prior years	(31,985		)	(97		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(557		)	(1,945		)
Reductions for tax positions as a result of settlements	(71,588		)	—
Balance as of the end of year	$	17,686		$	108,101

As of December 31, 2013 and 2012, our unrecognized tax benefit that may affect the effective tax rate was $2.1 million and $2.7 million, respectively, in each period. Due to potential for resolution of federal and state examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by as much as $1.8 million; however, we have sufficient net operating losses and other adjustments to offset these potential tax liabilities.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. For the years ended December 31, 2013, 2012 and 2011, we recognized $(1.0) million, $1.8 million and $0.5 million in interest (benefit) expense and penalties, respectively. We had $2.6 million and $3.6 million accrued for the payment of interest and penalties as of December 31, 2013 and 2012, respectively.

We file income tax returns with the United States and various state, local and foreign jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2009 through 2012. We are currently under examination by certain state jurisdictions for the tax years 2006 to 2011.

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Borrowings (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
Term debt	$ 0	$ 177,188	[1]
Other borrowings:
Subordinated debt	412,156	410,738
Advances from Federal Home Loan Banks	625,000	595,000
Total other borrowings	1,037,156	1,005,738
Total borrowings	$ 1,037,156	$ 1,182,926

[1] Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

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Variable Interest Entities

12 Months Ended

Dec. 31, 2013

Variable Interest Entities [Abstract]

Variable Interest Entities

Note 7. Variable Interest Entities

Troubled Debt Restructurings

Certain of our loan modifications qualify as events that require reconsideration of our borrowers as VIEs. Through reconsideration, we determined that certain of our borrowers involved in TDRs did not hold sufficient equity at risk to finance their activities without subordinated financial support. As a result, we concluded that these borrowers were VIEs. We also determined that we should not consolidate these borrowers because we do not have a controlling financial interest in these borrowers. The equity investors of these borrowers have the power to direct the activities that will have the most significant impact on the economics of these borrowers. These equity investors' interests also provide them with rights to receive benefits in the borrowers that could be significant. As a result, we have determined that the equity investors should continue to have a controlling financial interest in the borrowers subsequent to the restructuring.

Our interest in borrowers qualifying as VIEs was $44.6 million and $115.4 million as of December 31, 2013 and 2012, respectively, and is included in loans held for investment. For certain of these borrowers, we have had obligations to fund additional amounts through either unfunded commitments or letters of credit issued to or on behalf of these borrowers. Consequently, our maximum exposure to loss as a result of our involvement with these entities was $69.4 million and $151.9 million as of December 31, 2013 and 2012, respectively.

Term Debt Securitizations

In conjunction with our commercial term debt securitizations, we established and contributed loans to separate single purpose entities (collectively, referred to as the “Issuers”). The Issuers were structured to be legally isolated, bankruptcy remote entities. The Issuers issued notes and certificates that were collateralized by their underlying assets, which primarily comprised loans contributed to the securitizations. We serviced the underlying loans contributed to the Issuers and earned periodic servicing fees paid from the cash flows of the underlying loans. The Issuers have all of the legal obligations to repay the outstanding notes and certificates. During the year endedDecember 31, 2013, we called all of our remaining term debt securitizations and repaid the outstanding third-party debt of $177.2 million. We recognized no gain or loss on the extinguishment of debt. As a result, as of December 31, 2013, we had no remaining term debt securitizations. As of December 31, 2012, the total outstanding balance of the securitizations was $398.9 million. This amount included $221.7 million of notes and certificates that we held as of December 31, 2012.

Prior to the call and extinguishment of our term debt securitizations, we had determined that the Issuers were VIEs, subject to applicable consolidation guidance and concluded that the entities were designed to pass along risks related to the credit performance of the underlying loan portfolio. Except as set forth below, as a result of our power to direct the activities that most significantly impact the credit performance of the underlying loan portfolio and our economic interests in the Issuers, we had concluded that we were the primary beneficiary of each of the Issuers. Consequently, except as set forth below, we had been reporting the assets and liabilities of the Issuers in our consolidated financial statements, including the underlying loans and the issued notes and certificates held by third parties. Upon the extinguishment of our securitizations, we have no consolidated assets and liabilities related to the Issuers as of December 31, 2013. As of December 31, 2012, the carrying amount of the consolidated liabilities related to the Issuers was $177.4 million. This amount included term debt and represented obligations for which there was only legal recourse to the Issuers. As of December 31, 2012, the carrying amount of the consolidated assets related to the Issuers was $345.4 million. This amount primarily included loans held for investment, net and related assets that can only be used to settle obligations of the Issuers.

As of December 31, 2012, we held an interest in a term debt securitization trust (the "2006-A Trust"). As of December 31, 2013, we had no remaining interest in the 2006-A Trust. Due to the sale of our interest during the fourth quarter of 2013, we had $19.8 million in realized gains which was included as component of gains on investments, net. As of December 31, 2012, the fair value of our remaining interests in the 2006-A Trust that we had repurchased in the market subsequent to the initial securitization and held was $26.3 million, and was classified as investment securities, available-for-sale. We had no material commitments or other obligations related to these interests. Except for a guarantee provided to a swap counterparty of the 2006-A Trust, we did not provided any additional financial support to the 2006-A Trust since the deconsolidation. This swap exposure had a fair value to the counterparty of $9.2 million and $13.5 million as of December 31, 2013 and 2012. During the years ended December 31, 2013 and December 31, 2012, we recorded no unrealized gains or losses and $12.8 million in unrealized gains, respectively, which was included as a component of other comprehensive income, on the securities that we had held in the 2006-A Trust.

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Loans and Credit Quality (Details 7) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2010
Allowance for loan and lease losses and carrying value of loans held for investment
Loans, individually evaluated for impairment	$ 99,091	[1]	$ 198,856	[1]
Allowance for loan and lease losses, individually evaluated for impairment	(4,211)	[1]	(6,484)	[1]
Loans, collectively evaluated for impairment	6,683,649		5,937,518
Allowance for loan and lease losses, collectively evaluated for impairment	(116,309)		(110,789)
Loans, acquired loans with deteriorated credit quality	1,749		2,856
Allowance for loan and lease losses, acquired loans with deteriorated credit quality	0		0
Loans held for investment	6,784,489		6,139,230
Loans and Leases Receivable, Allowance	$ 120,520		$ 117,273		$ 153,631	$ 329,122

[1] Loans individually evaluated for impairment are net of charge offs of $85.4 million and $162.5 million at December 31, 2013 and 2012, respectively.

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Related Party Transactions (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Related Party Transactions [Abstract]
Minimum Required Rate Of Beneficial Owners With Material Interests For Related Party Transactions	5.00%
Revenue from Related Parties	$ 0	$ 0.1	$ 0.6

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Property and Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property and Equipment

Note 5. Property and Equipment

We own property and equipment for use in our operations as well as equipment leased to others subject to operating lease agreements. As of December 31, 2013 and 2012, property and equipment included in other assets consisted of the following:

	December 31,
	2013			2012
	($ in thousands)
Land	$	125		$	125
Buildings	470			470
Equipment	179,544			149,345
Furniture and related equipment	10,479			10,266
Leasehold improvements	26,266			24,498
Accumulated depreciation and amortization	(63,809		)	(46,190		)
Total	$	153,075		$	138,514

During the years ended December 31, 2013 and 2012, we acquired $31.9 million and $40.8 million of equipment, respectively, which we lease to others for their use subject to operating lease agreements. During the years ended December 31, 2013 and 2012, income from these leases was $1.7 million and $1.1 million, respectively.

Depreciation of property and equipment totaled $14.4 million, $12.7 million and $9.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.

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Deposits

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

Deposits

Note 6. Deposits

As of December 31, 2013 and 2012, the Bank had $6.1 billion and $5.6 billion, respectively, in deposits insured up to the maximum limit by the FDIC. As of December 31, 2013 and 2012, the Bank had $816.3 million and $597.8 million, respectively, of certificates of deposit in the amount of $250,000 or more and $3.1 billion and $2.6 billion, respectively, of certificates of deposit in the amount of $100,000 or more.

As of December 31, 2013 and 2012, the weighted average interest rates for savings and money market deposit accounts were 0.46% and 0.51%, respectively, and for certificates of deposit were 0.97% and 0.94%, respectively. The weighted average interest rates for all deposits as of December 31, 2013 and 2012 were 0.90% and 0.87%, respectively.

As of December 31, 2013 and 2012, interest-bearing deposits at the Bank were as follows:

	December 31,
	2013				2012
	Balance		Weighted Average Rate		Balance		Weighted Average Rate
	($ in thousands)
Interest-bearing deposits:
Money market	$	253,357	0.45	%	$	257,961	0.49	%
Savings	623,430		0.47	%	704,890		0.52	%
Certificates of deposit	5,250,903		0.97	%	4,616,419		0.94	%
Total interest-bearing deposits	$	6,127,690	0.90	%	$	5,579,270	0.87	%

As of December 31, 2013, certificates of deposit at the Bank detailed by maturity were as follows:

	Amount		Weighted Average Rate
	($ in thousands)
Maturing by:
December 31, 2014	$	4,694,400	0.94	%
December 31, 2015	432,770		1.16	%
December 31, 2016	69,602		1.67	%
December 31, 2017	26,459		1.19	%
December 31, 2018	27,672		1.25	%
Total	$	5,250,903	0.97	%

For the years ended December 31, 2013, 2012 and 2011, interest expense on deposits was as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Savings and money market	$	4,584		$	6,086		$	8,289
Certificates of deposit	47,591			45,165			45,547
Fees for early withdrawal	(234		)	(216		)	(227		)
Total interest expense on deposits	$	51,941		$	51,035		$	53,609

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Borrowings

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Borrowings

Note 8. Borrowings

As of December 31, 2013 and 2012, the composition of our outstanding borrowings was as follows:

	December 31,
	2013		2012
	($ in thousands)
Term debt - obligations of consolidated VIEs for which there was no recourse to the general credit of CapitalSource Inc (1)	$	—	$	177,188
Other borrowings:
Subordinated debt	412,156		410,738
FHLB SF borrowings	625,000		595,000
Total other borrowings	1,037,156		1,005,738
Total borrowings	$	1,037,156	$	1,182,926

______________________________

(1) Amount presented is net of debt discounts of $21 thousand as of December 31, 2012.

Term Debt

In conjunction with each of our commercial term debt securitizations, we established and contributed commercial loans to separate Issuers. The Issuers were structured to be legally isolated, bankruptcy remote entities. The Issuers issued notes and certificates that were collateralized by the underlying assets of the Issuers, primarily comprising contributed loans. We serviced the underlying commercial loans contributed to the Issuers and earned periodic servicing fees paid from the cash flows of the underlying commercial loans. During the year ended December 31, 2013, we called the 2006-1, 2006-2 and 2007-1 term debt securitizations and repaid the outstanding third-party debt of $177.2 million; we recognized no gain or loss on the extinguishment of debt. As a result, as of December 31, 2013, we had no outstanding term debt securitizations.

Our outstanding term debt transactions in the form of asset securitizations held by third parties as of December 31, 2013 and 2012, were as follows:

	Amounts Issued	Outstanding Third Party Held Debt Balance as of December 31,				Interest Rate Spread(1)	Original Expected Maturity Date
		2013		2012
	($ in thousands)
2006-1
Class C	68,447	—		1,119		0.55%	September 20, 2010
Class D	52,803	—		24,371		1.30%	December 20, 2010
	121,250	—		25,490
2006-2
Class D(2)	101,250	—		84,597		1.52%	June 20, 2013
Class E	56,250	—		20,000		2.50%	June 20, 2013
	157,500	—		104,597
2007-1
Class C	84,000	—		19,448		0.65%	February 20, 2013
Class D	48,000	—		27,674		1.50%	September 20, 2013
	132,000	—		47,122
Total		$	—	$	177,209

____________________

(1) All of our term debt securitizations incurred interest based on one-month LIBOR, which was 0.21% as of December 31, 2012.

(2) We repurchased certain bonds from third party investors at fair market value. The tables reflect outstanding debt to third party investors, and therefore,

eliminate the portions of debt owned by us.

Convertible Debt

We have issued convertible debentures as part of our financing activities. Our 7.25% senior subordinated convertible debentures due 2037 (originally issued in July 2007) were repurchased in full during 2012 and extinguished, leaving no remaining convertible debentures.

For the years ended December 31, 2013, 2012 and 2011, the interest expense recognized on our Convertible Debentures and the effective interest rates on the liability components were as follows:

	Year Ended December 31,
	2013			2012			2011
	($ in thousands)
Interest expense recognized on:
Contractual interest coupon	$	—		$	1,006		$	21,112
Amortization of deferred financing fees	—			7			692
Amortization of debt discount	—			66			6,033
Total interest expense recognized	$	—		$	1,079		$	27,837
Effective interest rate on the liability component:
3.5% Senior Debentures due 2034(1)	—		%	—		%	7.25		%
4.0% Senior Subordinated Debentures due 2034(1)	—		%	—		%	7.68		%
7.25% Senior Subordinated Debentures due 2037(2)	—		%	7.79		%	7.79		%

____________________

(1) Repurchased in 2011.

(2) Repurchased in 2012.

Subordinated Debt

We have issued subordinated debt to statutory trusts (“TP Trusts”) that are formed for the purpose of issuing preferred securities to outside investors, which we refer to as Trust Preferred Securities (“TPS”). We generally retained 100% of the common securities issued by the TP Trusts, representing 3% of their total capitalization. The terms of the subordinated debt issued to the TP Trusts and the TPS issued by the TP Trusts are substantially identical.

The TP Trusts are wholly owned indirect subsidiaries of CapitalSource. However, we have not consolidated the TP Trusts for financial statement purposes. We account for our investments in the TP Trusts under the equity method of accounting pursuant to relevant GAAP requirements.

In March 2012, we purchased an aggregate of $26.1 million of preferred securities from our TP Trusts 2005-1 and 2006-4 at a discount from liquidation value. As a result of this purchase, in June 2012, the related subordinated debt was exchanged and cancelled, and we recognized a related gain of $8.2 million on the extinguishment.

The carrying value of our subordinated debt was $412.2 million and $410.7 million as of December 31, 2013 and 2012, respectively.

TPS Series	Trust Formation Date	Debt Outstanding			Maturity Date	Date Callable(1)	Interest Rate as of December 31, 2013
		($ in thousands)
2005-1	November 2005	$	82,475		December 15, 2035	December 15, 2010	2.19	%	(2)
2005-2	December 2005	$	128,866		January 30, 2036	January 30, 2011	2.19	%	(2)
2006-1	February 2006	$	51,545		April 30, 2036	April 30, 2011	2.19	%	(2)
2006-2	September 2006	$	51,550		October 30, 2036	October 30, 2011	2.19	%	(2)
2006-3	September 2006	$	35,423	(4)	October 30, 2036	October 30, 2011	2.28	%	(3)
2006-4	December 2006	$	16,470		January 30, 2037	January 30, 2012	2.19	%	(2)
2006-5	December 2006	$	6,650		January 30, 2037	January 30, 2012	2.19	%	(2)
2007-2	June 2007	$	39,177		July 30, 2037	July 30, 2012	2.19	%	(2)

______________________

(1) The subordinated debt is callable by us in whole or in part at par at any time after the stated date.

(2) Bears interest at a floating interest rate equal to three-month LIBOR plus 1.95%, resetting quarterly at various dates.

(3) Bears interest at a floating interest rate equal to three-month EURIBOR plus 2.05%, resetting quarterly.

(4) Denomination is in Euros with a value of €25.8 million.

The subordinated debt described above is unsecured and ranks subordinate and junior in right of payment to all of the Parent Company's indebtedness.

FHLB SF Borrowings and FRB Credit Program

As a member of the FHLB SF, CapitalSource Bank had financing availability with the FHLB SF as of December 31, 2013 equal to 35% of the Bank's total assets. The maximum financing available under this formula was $2.8 billion and $2.6 billion as of December 31, 2013 and 2012, respectively. The financing is subject to various terms and conditions including pledging acceptable collateral, satisfaction of the FHLB SF stock ownership requirement and certain limits regarding the maximum term of debt. As of December 31, 2013, securities collateral with an estimated fair value of $3.7 million and loans with an unpaid principal balance of $1.2 billion were pledged to the FHLB SF.

As of December 31, 2013 and 2012, CapitalSource Bank had borrowing capacity with the FHLB SF based on pledged collateral as follows:

	December 31,
	2013			2012
	($ in thousands)
Borrowing capacity	$	1,012,361		$	841,309
Less: outstanding principal	(625,000		)	(595,000		)
Less: outstanding letters of credit	(150		)	(300		)
Unused borrowing capacity	$	387,211		$	246,009

The Bank is an approved depository institution under the primary credit program of the FRB of San Francisco's discount window eligible to borrow from the FRB for short periods, generally overnight. As of December 31, 2013 and 2012, investment securities with amortized costs of $70.4 million and $87.0 million, respectively, and fair values of $70.6 million and $88.4 million, respectively, had been pledged as collateral this program. As of December 31, 2013 and 2012, there were no borrowings outstanding. Additionally, the Bank participates in the Borrower-In-Custody program at the FRB of San Francisco, which allows the Bank to pledge qualifying loans. As of December 31, 2013, there were no loans pledged.

Debt Maturities

The contractual maturities of our obligations under the subordinated debt and FHLB SF borrowings as of December 31, 2013, were as follows:

	Other Borrowings				Total
	Subordinated Debt(1)		FHLB SF Borrowings
	($ in thousands)
2014	$	—	$	135,000	$	135,000
2015	—		112,500		112,500
2016	—		204,000		204,000
2017	—		88,000		88,000
2018	—		78,000		78,000
Thereafter	412,156		7,500		419,656
Total	$	412,156	$	625,000	$	1,037,156

______________________

(1) The contractual obligations for subordinated debt are computed based on the legal maturities, which are between 2035 and 2037.

Interest Expense

The weighted average interest rates on all of our borrowings, including amortization of deferred financing costs, for the years ended December 31, 2013, 2012 and 2011 were 1.1%, 1.2% and 2.2%, respectively.

Deferred Financing Fees

As of December 31, 2013 and 2012, deferred financing fees of $10.7 million and $11.8 million, respectively, net of accumulated amortization of $3.2 million and $31.3 million, respectively, were included in other assets.

Debt Covenants

The Parent Company is subject to financial and non-financial covenants under our indebtedness, including, those with respect to engaging in a merger, sale or consolidation. If we were to default under our indebtedness by violating these covenants or otherwise, our investors' remedies would include the ability to, among other things, foreclose on collateral, and/or accelerate payment of all amounts payable under such indebtedness. We believe that we are in compliance with all covenants under our indebtedness.

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Loans and Credit Quality Loans and Credit Quality (Details 11) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	$ 55,460	$ 62,815
Accrual	0	83,367
Total	55,460	146,182	309,003	555,113
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	42,869	50,952
Accrual	0	83,224
Total	42,869	134,176
Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	2,521	876
Accrual	0	143
Total	2,521	1,019
Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	10,070	10,987
Accrual	0	0
Total	10,070	10,987
Interest Rate And Fee Reduction [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	0	0
Accrual	0	0
Total	0	0
Maturity Extension [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	0	14,166
Accrual	0	59,513
Total	0	73,679
Maturity Extension [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	54	59
Accrual	0	0
Total	54	59
Maturity Extension [Member] | Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	10,070	10,758
Accrual	0	0
Total	10,070	10,758
Payment Deferral [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	529	0
Accrual	0	0
Total	529	0
Payment Deferral [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	529	617
Accrual	0	0
Total	529	617
Multiple Concessions [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	42,340	36,786
Accrual	0	23,711
Total	42,340	60,497
Multiple Concessions [Member] | Real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	1,938	200
Accrual	0	143
Total	1,938	343
Multiple Concessions [Member] | Real estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual	0	229
Accrual	0	0
Total	$ 0	$ 229

XML

Fair Value Measurements Fair Value Measurements (Details 5) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities, held-to-maturity	$ 75,536
Fair Value, Measurements, Recurring [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	455,799	299,086
Restricted Cash	58,653	104,044
Loans held for sale	0	22,719
Loans acquired through foreclosure, net	6,663,969	6,021,957
Investments carried at cost	17,797	23,963
Investments accounted for under the equity method	34,327	36,400
Investment securities, held-to-maturity	74,369	108,233
Deposits	6,127,690	5,579,270
Term debt	0	177,188
Federal Home Loan Bank Borrowings, Fair Value Disclosure	625,000	595,000
Subordinated debt	412,156	410,738
Loan commitments and letters of credit	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	455,799	299,086
Restricted Cash	58,653	104,044
Loans held for sale	0	22,723
Loans acquired through foreclosure, net	6,654,877	5,953,226
Investments carried at cost	42,974	61,742
Investments accounted for under the equity method	34,914	37,514
Investment securities, held-to-maturity	75,535	111,388
Deposits	6,134,517	5,589,566
Term debt	0	146,548
Federal Home Loan Bank Borrowings, Fair Value Disclosure	634,438	614,063
Subordinated debt	308,262	273,141
Loan commitments and letters of credit	24,359	21,559
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Portion at Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	455,799	299,086
Restricted Cash	58,653	104,044
Loans held for sale	0	0
Loans acquired through foreclosure, net	0	0
Investments carried at cost	0	0
Investments accounted for under the equity method	0	1,087
Investment securities, held-to-maturity	0	0
Deposits	876,788	962,851
Term debt	0	0
Federal Home Loan Bank Borrowings, Fair Value Disclosure	0	0
Subordinated debt	0	0
Loan commitments and letters of credit	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Portion at Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	0	0
Restricted Cash	0	0
Loans held for sale	0	22,723
Loans acquired through foreclosure, net	0	0
Investments carried at cost	2,375	0
Investments accounted for under the equity method	12,414	12,372
Investment securities, held-to-maturity	75,535	111,388
Deposits	5,257,729	4,626,715
Term debt	0	0
Federal Home Loan Bank Borrowings, Fair Value Disclosure	634,438	614,063
Subordinated debt	308,262	273,141
Loan commitments and letters of credit	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Portion at Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	0	0
Restricted Cash	0	0
Loans held for sale	0	0
Loans acquired through foreclosure, net	6,654,877	5,953,226
Investments carried at cost	40,599	61,742
Investments accounted for under the equity method	22,500	24,055
Investment securities, held-to-maturity	0	0
Deposits	0	0
Term debt	0	146,548
Federal Home Loan Bank Borrowings, Fair Value Disclosure	0	0
Subordinated debt	0	0
Loan commitments and letters of credit	$ 24,359	$ 21,559

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Borrowings (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 1,037,156
Secured Debt [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	0		177,209
Secured Debt [Member] | 2006-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	121,250
Long-term Debt, Gross	0		25,490
Secured Debt [Member] | 2006-2 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	157,500
Long-term Debt, Gross	0		104,597
Secured Debt [Member] | 2007-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	132,000
Long-term Debt, Gross	0		47,122
Secured Debt [Member] | Class C [Member] | 2006-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	68,447
Long-term Debt, Gross	0		1,119
Interest rate spread	0.55%	[1]
Original Expected Maturity Date	Sep. 20, 2010
Secured Debt [Member] | Class C [Member] | 2007-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	84,000
Long-term Debt, Gross	0		19,448
Interest rate spread	0.65%	[1]
Original Expected Maturity Date	Feb. 20, 2013
Secured Debt [Member] | Class D [Member] | 2006-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	52,803
Long-term Debt, Gross	0		24,371
Interest rate spread	1.30%	[1]
Original Expected Maturity Date	Dec. 20, 2010
Secured Debt [Member] | Class D [Member] | 2006-2 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	101,250
Long-term Debt, Gross	0	[2]	84,597	[2]
Interest rate spread	1.52%	[1]
Original Expected Maturity Date	Jun. 20, 2013
Secured Debt [Member] | Class D [Member] | 2007-1 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	48,000
Long-term Debt, Gross	0		27,674
Interest rate spread	1.50%	[1]
Original Expected Maturity Date	Sep. 20, 2013
Secured Debt [Member] | Class E [Member] | 2006-2 [Member]
Debt Instrument [Line Items]
Outstanding principal balance	56,250
Long-term Debt, Gross	$ 0		$ 20,000
Interest rate spread	2.50%	[1]
Original Expected Maturity Date	Jun. 20, 2013

[1] (1)All of our term debt securitizations incurred interest based on one-month LIBOR, which was 0.21% as of December 31, 2012.

[2] (2)We repurchased certain bonds from third party investors at fair market value. The tables reflect outstanding debt to third party investors, and therefore,eliminate the portions of debt owned by us.

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Loans and Credit Quality (Details 13) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Real Estate Owned Held for Sale [Roll Forward]
Balance as of beginning of year	$ 23,791	$ 69,698	$ 163,329
Transfers from loans held for investment and other assets	845	15,494	28,281
Fair value adjustments	(2,025)	(10,174)	(28,274)
Real estate sold	(9,787)	(51,227)	(93,638)
Balance as of end of year	$ 12,824	$ 23,791	$ 69,698

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Stock option activity
Options, Outstanding, Beginning Balance	6,364,661
Options Granted		0
Options Exercised	(1,774,824)
Options Expired	(154,686)
Options Forfeited	0
Options, Outstanding, Ending Balance	4,435,151	6,364,661
Exercisable as of December 31, 2013	3,673,901
Options, Outstanding, Weighted Average Exercise Price, Beginning of Period	$ 5.41
Weighted Average Exercise Price, Granted		$ 0.00
Weighted Average Exercise Price, Exercised	$ 3.31
Weighted Average Exercise Price, Expired	$ 15.59
Weighted Average Exercise Price, Forfeited	$ 0.00
Options, Outstanding, Weighted Average Exercise Price, Ending of Period	$ 5.90	$ 5.41
Weighted Average Exercise Price, Exercisable as of December 31, 2013	$ 5.78
Weighted Average Remaining Contractual Life, Outstanding as of December 31, 2012	6 years 2 months 23 days	5 years 7 months 31 days
Weighted Average Remaining Contractual Life, Outstanding as of December 31, 2013	6 years 2 months 23 days	5 years 7 months 31 days
Weighted Average Remaining Contractual Life, Exercisable as of December 31, 2013	5 years 10 months 5 days
Aggregate Intrinsic Value, Outstanding as of December 31, 2012	$ 19,626
Aggregate Intrinsic Value, Outstanding as of December 31, 2013	39,606	19,626
Aggregate Intrinsic Value, Exercisable as of December 31, 2013	$ 33,582

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Loans and Credit Quality (Details 10) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 Contract		Dec. 31, 2012
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	28
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 94,020	[1]	$ 170,500	[1]
Financing Receivable, Modifications, Post-Modification Recorded Investment	65,296	[1],[2]
Asset-based [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	5
Financing Receivable, Modifications, Pre-Modification Recorded Investment	22,389
Financing Receivable, Modifications, Post-Modification Recorded Investment	12,383	[2]
Asset-based [Member] | Maturity Extension [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	2,985
Financing Receivable, Modifications, Post-Modification Recorded Investment	2,985	[2]
Asset-based [Member] | Discounted payoffs [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	10,006
Financing Receivable, Modifications, Post-Modification Recorded Investment	0	[2]
Asset-based [Member] | Multiple Concessions [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	9,398
Financing Receivable, Modifications, Post-Modification Recorded Investment	9,398	[2]
Cash flow [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	13
Financing Receivable, Modifications, Pre-Modification Recorded Investment	67,900
Financing Receivable, Modifications, Post-Modification Recorded Investment	50,958	[2]
Cash flow [Member] | Maturity Extension [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	32,547
Financing Receivable, Modifications, Post-Modification Recorded Investment	32,547	[2]
Cash flow [Member] | Payment Deferral [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	571
Financing Receivable, Modifications, Post-Modification Recorded Investment	571	[2]
Cash flow [Member] | Discounted payoffs [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	3
Financing Receivable, Modifications, Pre-Modification Recorded Investment	16,942
Financing Receivable, Modifications, Post-Modification Recorded Investment	0	[2]
Cash flow [Member] | Multiple Concessions [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	7
Financing Receivable, Modifications, Pre-Modification Recorded Investment	17,840
Financing Receivable, Modifications, Post-Modification Recorded Investment	17,840	[2]
Multi-family [Member] | Discounted payoffs [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	425
Financing Receivable, Modifications, Post-Modification Recorded Investment	0
Small business [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	9
Financing Receivable, Modifications, Pre-Modification Recorded Investment	3,306
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,955	[2]
Small business [Member] | Discounted payoffs [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	565
Financing Receivable, Modifications, Post-Modification Recorded Investment	0	[2]
Small business [Member] | Foreclosures [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	3
Financing Receivable, Modifications, Pre-Modification Recorded Investment	786
Financing Receivable, Modifications, Post-Modification Recorded Investment	0	[2]
Small business [Member] | Multiple Concessions [Member]
Carrying value of troubled debt restructurings
Financing Receivable, Modifications, Number of Contracts	4
Financing Receivable, Modifications, Pre-Modification Recorded Investment	1,955
Financing Receivable, Modifications, Post-Modification Recorded Investment	$ 1,955	[2]

[1] Includes deferred loan fees and discounts.

[2] Represents the carrying value immediately following the modification of the loan; does not represent the carrying value as of December 31, 2013.

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Shareholders' Equity Shareholders' Equity (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Unrealized gain on available-for-sale securities, net of tax, Beginning balance	$ 24,650		$ 19,055
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, before Reclassification Adjustments, Net of Tax	(10,367)	[1]	7,303	[1]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Net of Tax	(15,153)	[2]	(1,708)	[2]
Other comprehensive loss, net of tax benefit	(25,520)		5,595		13,292
Unrealized gain on available-for-sale securities, net of tax, Ending balance	(870)		24,650		19,055
Unrealized gain on foreign currency translation, net of tax, Beginning balance	0		351
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Gain (Loss) Arising During Period, Net of Tax	0	[1]	0	[1]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment from AOCI, Realized upon Sale or Liquidation, Net of Tax	0	[2]	(351)	[2]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax, Portion Attributable to Parent	0		(351)		(3,827)
Unrealized gain on foreign currency translation, net of tax, Ending balance	0		0		351
Accumulated other comprehensive income, net, Beginning balance	24,650		19,406
Other Comprehensive Income (Loss), before Reclassifications, Net of Tax	(10,367)	[1]	7,303	[1]
Other Comprehensive Income (Loss) Reclassification Adjustment, Net Of Tax	(15,153)	[2]	(2,059)	[2]
Other comprehensive income (loss)	(25,520)		5,244		9,465
Accumulated other comprehensive income, net, Ending balance	$ (870)		$ 24,650		$ 19,406

[1] Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

[2] Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

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Investments (Tables)

12 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Investment securities, available-for-sale

As of December 31, 2013 and 2012, our investment securities, available-for-sale were as follows:

	December 31,
	2013									2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	($ in thousands)
Agency securities	$	785,511	$	10,909	$	(12,180	)	$	784,240	$	960,864	$	23,464	$	(807	)	$	983,521
Asset-backed securities	3,031		138		—			3,169		9,280		312		—			9,592
Collateralized loan obligations	47,863		—		(526		)	47,337		13,418		12,832		—			26,250
Non-agency MBS	19,897		329		(23		)	20,203		40,937		689		(279		)	41,347
SBA asset-backed securities	15,640		—		(107		)	15,533		17,632		683		—			18,315
Total	$	871,942	$	11,376	$	(12,836	)	$	870,482	$	1,042,131	$	37,980	$	(1,086	)	$	1,079,025

Amortized costs and estimated fair values of investment securities, available-for-sale pledged as collateral

The amortized cost and fair value of investment securities, available-for-sale pledged as collateral to the FHLB SF and government agencies as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	—	$	—	$	190,113	$	197,911
FRB	9,988		9,975		—		—
Government agencies(1)	17,246		17,436		5,390		5,439
Total	$	27,234	$	27,411	$	195,503	$	203,350

____________________________

(1) Represents the amounts pledged as collateral to secure funds deposited by government agencies.

Held-to-maturity Securities [Table Text Block]

As of December 31, 2013 and 2012, investment securities, held-to-maturity consisted of non-agency commercial mortgage-backed securities rated AA+ or higher. The amortized cost, gross unrealized gains and losses, and estimated fair value of held-to-maturity securities were as follows:

	December 31,
	2013		2012
	($ in thousands)
Amortized Cost	$	74,369	$	108,233
Unrealized Gains	1,166		3,531
Unrealized Losses	—		(376		)
Fair Value	$	75,535	$	111,388

Amortized costs and estimated fair values of investment securities, held-to-maturity pledged as collateral

The investment securities, held-to-maturity pledged as collateral as of December 31, 2013 and 2012 were as follows:

	December 31,
	2013				2012
Source	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
FHLB SF	$	3,582	$	3,745	$	4,060	$	4,497
FRB	60,396		60,593		87,038		88,381
Total	$	63,978	$	64,338	$	91,098	$	92,878

Unrealized losses on investment securities

As of December 31, 2013 and 2012, the gross unrealized losses and fair values of investment securities that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, were as follows:

	Less Than 12 Months					12 Months or More					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	($ in thousands)
As of December 31, 2013
Investment Securities, Available-for-Sale:
Agency securities	$	(8,974	)	$	332,996	$	(3,206	)	$	59,738	$	(12,180	)	$	392,734
Collateralized loan obligations	(526		)	47,337		—			—		(526		)	47,337
SBA asset-backed securities	(107		)	15,533		—			—		(107		)	15,533
Non-agency MBS	(14		)	1,463		(9		)	690		(23		)	2,153
Total Investment Securities, Available-for-Sale	$	(9,621	)	$	397,329	$	(3,215	)	$	60,428	$	(12,836	)	$	457,757
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	—		$	—	$	—		$	—
As of December 31, 2012
Investment Securities, Available-for-Sale:
Agency securities	$	(807	)	$	115,447	$	—		$	—	$	(807	)	$	115,447
Non-agency MBS	(245		)	8,651		(34		)	1,175		(279		)	9,826
Total Investment Securities, Available-for-Sale	$	(1,052	)	$	124,098	$	(34	)	$	1,175	$	(1,086	)	$	125,273
Total Investment Securities, Held-to-Maturity	$	—		$	—	$	(376	)	$	59,284	$	(376	)	59,284

Investments Classified by Contractual Maturity Date

As of December 31, 2013, the contractual maturities of our available-for-sale and held-to-maturity investment securities were as follows:

	Investment Securities, Available-for-Sale				Investment Securities, Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	($ in thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	12,889		13,330		—		—
Due after five years through ten years(1)	44,241		44,884		60,396		60,593
Due after ten years(2)(3)	814,812		812,268		13,973		14,943
Total	$	871,942	$	870,482	$	74,369	$	75,536

__________________________________

(1) Includes Agency MBS, Non-agency MBS, Non-agency ABS, Non-agency CMBS, and CLOs with fair values of $16.9 million, $0.2 million, $3.2 million, $60.6 million and $24.7 million, respectively, and weighted average expected maturities of approximately 1.94, 1.83, 1.59, 0.41 and 4.43 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(2) Includes Agency MBS, SBA ABS, Non-agency MBS, Non-agency CMBS, and CLOs with fair values of $762.4 million, $15.5 million, $11.7 million, $14.9 million, and $22.7 million, respectively, and weighted average expected maturities of approximately 4.06, 6.70, 2.01, 2.66 and 7.07 years, respectively, based on interest rates and expected prepayment speeds as of December 31, 2013.

(3) Includes securities with no stated maturity.

Other investments

As of December 31, 2013 and 2012, our other investments were as follows:

	December 31,
	2013		2012
	($ in thousands)
Investments carried at cost	$	17,797	$	23,963
Investments accounted for under the equity method	34,327		36,400
Total	$	52,124	$	60,363

Proceeds and net pre-tax gains from sales of other investments

Proceeds and gains from sales of other investments for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year Ended December 31,
	2013		2012		2011
	($ in thousands)
Proceeds from sales	$	3,407	$	11,478	$	30,468
Gain from sales	3,385		5,874		22,915

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Summary of Significant Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2013
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Estimated Useful Life	Lesser of remaining lease term or estimated useful life
Computer software [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Useful Life	3 years
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Useful Life	5 years
Furniture [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Useful Life	7 years
Minimum [Member] | Building improvements [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Useful Life	10 years
Maximum [Member] | Building improvements [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Useful Life	40 years

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Note 13. Stock-Based Compensation

Equity Incentive Plan

A total of 66.0 million shares of common stock have been reserved for issuance under the CapitalSource Inc. Third Amended and Restated Equity Incentive Plan (the “Plan”). Any shares that may be issued under the Plan to any person pursuant to an option or stock appreciation right (an “SAR”) are counted against this limit as one share for every one share granted. Any shares that may be issued under the Plan to any person, other than pursuant to an option or SAR, are counted against this limit as one and one-half shares for every one share granted.

As of December 31, 2013, there were 7.7 million shares subject to outstanding grants and 23.2 million shares remaining available for future grants under the Plan. The Plan will expire on the earliest of (1) the date as of which the Board, in its sole discretion, determines that the Plan shall terminate, (2) following certain corporate transactions such as a merger or sale of our assets if the Plan is not assumed by the surviving entity, (3) at such time as all shares of common stock that may be available for purchase under the Plan have been issued or (4) April 29, 2020. The Plan is intended to give eligible employees, members of the Board, and our consultants and advisors awards that are linked to the performance of our common stock.

Total compensation cost recognized in income pursuant to the Plan was $38.3 million, $34.1 million and $15.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock Options

Stock option activity for the year ended December 31, 2013 was as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
						($ in thousands)
Outstanding as of December 31, 2012	6,364,661		$	5.41	5.67	$	19,626
Granted	—		—
Exercised	(1,774,824	)	3.31
Expired	(154,686	)	15.59
Forfeited	—		—
Outstanding as of December 31, 2013	4,435,151		5.90		6.23	39,606
Vested as of December 31, 2013	3,673,901		5.78		5.85	33,582
Exercisable as of December 31, 2013	3,673,901		5.78		5.85	33,582

For the years ended December 31, 2013, no options were granted. For the years ended December 31, 2012 and 2011, the weighted average grant date fair values of options granted were $7.58 and $4.18, respectively. The total intrinsic values of options exercised during the years ended December 31, 2013, 2012 and 2011, were $11.4 million, $6.1 million and $1.5 million, respectively. As of December 31, 2013 and 2012, the total unrecognized compensation cost related to unvested options granted pursuant to the Plan was $0.9 million and $2.7 million, respectively. This cost is expected to be recognized over a weighted average period of 0.63 and 1.56 years, respectively.

For awards containing only service and/or performance based vesting conditions, we use the Black-Scholes option-pricing model to estimate the fair value of each option grant on its grant date. The assumptions used in this model for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013	2012	2011
Dividend yield	0.28%	0.53%	0.57%
Expected volatility	33.06%	63.83%	87.80%
Risk-free interest rate	1.18%	0.52%	1.50%
Expected life	3.8 years	3.9 years	4.0 years

The dividend yield is computed based on annualized ordinary dividends and the average share price for the period. The expected volatility is based on the historical volatility of CapitalSource Inc.'s stock price in the most recent period that is equal to the expected term of the options being valued. The risk-free interest rate is the U.S. Treasury yield curve in effect at the time of grant based on the expected life of the options. The expected life of our options granted represents the period of time the options are expected to be outstanding.

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards for the year ended December 31, 2013, were as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2012	3,781,731		$6.44
Granted	1,294,388		9.68
Vested	(1,699,284	)	6.37
Forfeited	(77,514	)	6.67
Outstanding as of December 31, 2013(1)	3,299,321		7.74

______________________

(1) Includes 0.8 million and 0.2 million vested and unvested restricted stock units, respectively.

The fair value of unvested restricted stock awards and restricted stock units is determined based on the closing trading price of our common stock on the grant date, in accordance with the Plan. The weighted average grant date fair value of restricted stock awards and restricted stock units granted during the years ended December 31, 2013, 2012 and 2011 was $9.68, $6.99 and $6.30, respectively.

The total fair value of restricted stock awards and restricted stock units that vested during the years ended December 31, 2013, 2012 and 2011 was $20.3 million, $30.4 million and $8.9 million, respectively. As of December 31, 2013 and 2012, the total unrecognized compensation cost related to unvested restricted stock awards and restricted stock units granted pursuant to the Plan was $13.7 million and $18.0 million, respectively, which is expected to be recognized over a weighted average period of 1.42 and 1.80 years, respectively.

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	$ 870,482	$ 1,079,025
Significant Observable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Value	0	26,250	21,891
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	870,482
Derivative Assets	1,380
Assets, Fair Value Disclosure, Recurring	871,862	1,079,025
Derivative Liabilities	510	482
Fair Value, Measurements, Recurring [Member] | Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	784,240	983,521
Fair Value, Measurements, Recurring [Member] | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	3,169	9,592
Fair Value, Measurements, Recurring [Member] | Collateralized loan obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	47,337	26,250
Fair Value, Measurements, Recurring [Member] | Non-agency MBS [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	20,203	41,347
Fair Value, Measurements, Recurring [Member] | SBA asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	15,533	18,315
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0
Derivative Assets	0
Assets, Fair Value Disclosure, Recurring	0	0
Derivative Liabilities	0	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Collateralized loan obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-agency MBS [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | SBA asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	870,482
Derivative Assets	1,380
Assets, Fair Value Disclosure, Recurring	871,862	1,052,775
Derivative Liabilities	510	482
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) | Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	784,240	983,521
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	3,169	9,592
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) | Collateralized loan obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	47,337	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) | Non-agency MBS [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	20,203	41,347
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) | SBA asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	15,533	18,315
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0
Derivative Assets	0
Assets, Fair Value Disclosure, Recurring	0	26,250
Derivative Liabilities	0	0
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3) | Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3) | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3) | Collateralized loan obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	26,250
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3) | Non-agency MBS [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Significant Observable Inputs (Level 3) | SBA asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	$ 0	$ 0

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Credit Risk

12 Months Ended

Dec. 31, 2013

Credit Risk [Abstract]

Credit Risk

Note 18. Credit Risk

In the normal course of business, we utilize various financial instruments to manage our exposure to interest rate and other market risks. These financial instruments, which consist of derivatives and credit-related arrangements, involve, to varying degrees, elements of credit and market risk in excess of the amounts recorded on our audited consolidated balance sheets in accordance with applicable accounting standards.

Credit risk is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. Market risk is the possibility that a change in market prices may cause the value of a financial instrument to decrease or become more costly to settle. The contract or notional amounts of financial instruments, which are not included in our audited consolidated balance sheets, do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments.

We manage credit risk of our derivatives and credit-related arrangements by limiting the total amount of arrangements outstanding by an individual counterparty, by obtaining collateral based on management's assessment of the client and by applying uniform credit standards maintained for all activities with credit risk.

Contract or notional amounts and the credit risk amounts for derivatives and credit-related arrangements as of December 31, 2013 and 2012, were as follows:

	December 31,
	2013				2012
	Contract or Notional Amount		Credit Risk Amount		Contract or Notional Amount		Credit Risk Amount
			($ in thousands)
Derivatives:
Interest rate contracts	$	—	$	—	$	6,712	$	—
Foreign exchange contracts	54,121		870		34,553		—
Total derivatives	$	54,121	$	870	$	41,265	$	—
Credit-related arrangements:
Commitments to extend credit	$	1,062,669	$	17,938	$	1,019,920	$	14,153
Commitments to extend letters of credit	59,926		7,433		95,927		8,737
Total credit-related arrangements	$	1,122,595	$	25,371	$	1,115,847	$	22,890

Derivatives

Derivative instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk exposure consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures. We obtain collateral from certain counterparties and monitor all exposure and collateral requirements daily. We continually monitor the fair value of collateral received from counterparties and may request additional collateral from counterparties or return collateral pledged as deemed appropriate. Our agreements generally include master netting agreements whereby we are entitled to settle our individual derivative positions with the same counterparty on a net basis upon the occurrence of certain events. As of December 31, 2013, the gross positive fair value of derivative financial instruments was $1.4 million.

We report our derivatives at fair value on a gross basis irrespective of our master netting arrangements. We held no collateral against our derivatives in asset positions as of December 31, 2013 and 2012, respectively. We posted no collateral for derivatives that were in a liability position as of December 31, 2013. For derivatives that were in a liability position, we posted collateral of $1.5 million as of December 31, 2012. As of December 31, 2013, we also posted collateral of $10.0 million related to counterparty requirements for foreign exchange contracts at the Bank.

During the year ended December 31, 2013, we terminated interest rate swaps of $9.8 million which were in a liability position. As a result of these terminations, we received $0.3 million, net of collateral held and posted.

Credit-Related Arrangements

In our normal course of business, we engage in lending activities with borrowers primarily throughout the United States. As of December 31, 2013, the single largest industry concentration in our outstanding loan balance was health care and social assistance, which represented approximately 22.2% of the outstanding loan portfolio. As of December 31, 2013, taken in the aggregate, lender finance (primarily timeshare) loans were our largest loan concentration by sector and represented approximately 16% of our loan portfolio.

As of December 31, 2013, real estate and real estate - construction loans represented approximately 43% of our outstanding loan portfolio. Among real estate and real estate - construction loans, the largest property type concentration was the multifamily category, comprising approximately 10%, and the largest geographical concentration was in California, comprising approximately 9% of this loan portfolio.

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Current:
Federal									$ (52,836)	$ 21,467	$ (8,844)
State									5,575	5,501	4,916
Foreign									22	237	(2,482)
Total current									(47,239)	27,205	(6,410)
Deferred:
Federal									123,150	(306,065)	32,785
State									6,126	(6,221)	5,053
Foreign									0	0	5,514
Total deferred									129,276	(312,286)	43,352
Income tax expense (benefit)	$ 28,227	$ 14,839	$ 17,329	$ 21,642	$ 11,224	$ 18,003	$ (340,017)	$ 25,709	$ 82,037	$ (285,081)	$ 36,942

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Unaudited Quarterly Information Unaudited Quaterly Information (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

Unaudited quarterly information for each of the three months in the years ended December 31, 2013 and 2012, was as follows:

	Three Months Ended
	December 31,		September 30,			June 30,		March 31,
	2013		2013			2013		2013
	($ in thousands, except per share data)
Interest income	$	113,258	$	112,718		$	108,405	$	113,095
Interest expense	18,807		18,644			18,474		18,163
Net interest income	94,451		94,074			89,931		94,932
Loan and lease loss provision (recovery)	4,263		(1,069		)	4,832		12,505
Net interest income after provision for loan and lease losses	90,188		95,143			85,099		82,427
Non-interest income	42,076		15,708			11,548		13,218
Non-interest expense	46,114		47,614			50,695		44,655
Income tax expense	28,227		14,839			17,329		21,642
Net income	$	57,923	$	48,398		$	28,623	$	29,348
Basic income per share	$	0.30	$	0.25		$	0.15	$	0.15
Diluted income per share	$	0.29	$	0.24		$	0.15	$	0.14

	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
	2012		2012		2012			2012
	($ in thousands, except per share data)
Interest income	$	114,921	$	115,234	$	117,982		$	120,077
Interest expense	18,872		19,513		20,164			20,858
Net interest income	96,049		95,721		97,818			99,219
Loan and lease loss provision	8,875		8,959		10,536			11,072
Net interest income after provision for loan and lease losses	87,174		86,762		87,282			88,147
Non-interest income	20,549		9,297		8,450			11,550
Non-interest expense	49,423		47,009		48,200			49,050
Income tax expense (benefit)	11,224		18,003		(340,017		)	25,709
Net income	$	47,076	$	31,047	$	387,549		$	24,938
Basic income per share	$	0.23	$	0.14	$	1.71		$	0.10
Diluted income per share	$	0.23	$	0.14	$	1.66		$	0.10

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Stock-Based Compensation (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance			66,000,000
Common shares subject to outstanding grants			7,700,000
Common shares available for future grants			23,200,000
Compensation cost recognized in income	$ 38.3		$ 34.1	$ 15.7
Weighted average grant date fair values of options granted	$ 0.00		$ 7.58	$ 4.18
Total intrinsic values of options exercised	11.4		6.1	1.5
Vested and unvested restricted stock units	3,299,321	[1]	3,781,731
Weighted average grant date fair value of restricted stock awards and restricted stock units granted	$ 9.68		$ 6.99	$ 6.30
Total fair value of restricted stock awards and restricted stock units that vested	20.3		30.4	8.9
Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost related to unvested options granted	0.9		2.7
Expected weighted average period	0 years 0 months 230 days		1 year 6 months 22 days
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost related to unvested options granted	$ 13.7		$ 18.0
Expected weighted average period	1 year 5 months 3 days		1 year 9 months 18 days
Vested Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested and unvested restricted stock units	800,000
Unvested Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested and unvested restricted stock units	200,000

[1] Includes 0.8 million and 0.2 million vested and unvested restricted stock units, respectively.

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock option activity

Stock option activity for the year ended December 31, 2013 was as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
						($ in thousands)
Outstanding as of December 31, 2012	6,364,661		$	5.41	5.67	$	19,626
Granted	—		—
Exercised	(1,774,824	)	3.31
Expired	(154,686	)	15.59
Forfeited	—		—
Outstanding as of December 31, 2013	4,435,151		5.90		6.23	39,606
Vested as of December 31, 2013	3,673,901		5.78		5.85	33,582
Exercisable as of December 31, 2013	3,673,901		5.78		5.85	33,582

Assumptions used to estimate the fair value of each option grant

For awards containing only service and/or performance based vesting conditions, we use the Black-Scholes option-pricing model to estimate the fair value of each option grant on its grant date. The assumptions used in this model for the years ended December 31, 2013, 2012 and 2011, were as follows:

	Year Ended December 31,
	2013	2012	2011
Dividend yield	0.28%	0.53%	0.57%
Expected volatility	33.06%	63.83%	87.80%
Risk-free interest rate	1.18%	0.52%	1.50%
Expected life	3.8 years	3.9 years	4.0 years

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards for the year ended December 31, 2013, were as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2012	3,781,731		$6.44
Granted	1,294,388		9.68
Vested	(1,699,284	)	6.37
Forfeited	(77,514	)	6.67
Outstanding as of December 31, 2013(1)	3,299,321		7.74

______________________

(1) Includes 0.8 million and 0.2 million vested and unvested restricted stock units, respectively.

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Bank Regulatory Capital (Details Textual)	Dec. 31, 2013	Dec. 31, 2012
Banking and Thrift [Abstract]
Total risk-based capital ratio required under prompt corrective action regulations	10.00%
Tier-1 Risk-Based Capital ratio required under prompt corrective action regulations	6.00%
Tier-1 leverage capital ratio required under prompt corrective action regulations	5.00%
Total Risk-Based Capital, Minimum Required - Ratio	15.00%	15.00%
Tier-1 Risk-Based Capital, Minimum Required - Ratio	6.00%	6.00%
Tier-1 Leverage, Minimum Required - Ratio	5.00%	5.00%

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Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Other comprehensive (loss) income, net of tax:	$ 164,292	$ 490,610	$ (52,023)
Unrealized (loss) gain on available-for-sale securities, net of tax	(25,520)	5,595	13,292
Unrealized loss on foreign currency translation, net of tax	0	(351)	(3,827)
Other comprehensive (loss) income, net of tax	(25,520)	5,244	9,465
Comprehensive income (loss)	$ 138,772	$ 495,854	$ (42,558)

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Borrowings (Details 4) (FHLB SF [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
FHLB SF [Member]
Debt Instrument [Line Items]
Debt Instrument, Borrowing Capacity, Amount	$ 1,012,361	$ 841,309
Federal Home Loan Bank Borrowings, Outstanding	(625,000)	(595,000)
Debt Instrument, Letters of Credit, Outstanding	(150)	(300)
Debt Instrument, Unused Borrowing Capacity, Amount	$ 387,211	$ 246,009

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Our financial reporting and accounting policies conform to U.S. generally accepted accounting principles (“GAAP”).

Use of Estimates

The preparation of our audited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management has made significant estimates in certain areas, including valuing certain financial instruments and other assets, assessing financial instruments and other assets for impairment, assessing the realization of deferred tax assets and determining the allowance for loan and lease losses. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying financial statements reflect our consolidated accounts and those of other entities in which we have a controlling financial interest including our majority-owned subsidiaries and variable interest entities (“VIEs”) where we determined that we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

Fair Value Measurements

In accordance with GAAP, we prioritize the inputs into valuation techniques used to measure fair value. This hierarchy prioritizes observable data from active markets, placing measurements using those inputs in Level 1 of the fair value hierarchy, and gives the lowest priority to unobservable inputs and classifies these as Level 3 measurements. The three levels of the fair value hierarchy are described below:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;

Level 2 - Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or models for which all significant inputs are observable in the market either directly or indirectly; and

Level 3 - Valuations based on models that use inputs that are unobservable in the market and significant to the overall fair value measurement.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair value hierarchy classifications are reviewed on a quarterly basis. Changes related to the observability of inputs to a fair value measurement may result in a reclassification between hierarchy levels.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measurement. Therefore, even when market assumptions are not readily available, management's own assumptions attempt to reflect those that market participants would use in pricing the asset or liability at the measurement date.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less upon acquisition to be cash equivalents. Cash and cash equivalents include amounts due from banks, U.S. Treasury securities, short-term investments and commercial paper with an original maturity of three months or less. The cash is classified as unrestricted or restricted cash.

Unrestricted cash is invested in short term investment grade commercial paper which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch), and restricted cash is invested in a short-term money market fund which has ratings of AAAm (S&P) and Aaa (Moody's), as well as commercial paper, which is rated by at least two of the three major rating agencies (S&P, Moody's or Fitch) and has a rating of A1 (S&P), P1 (Moody's) or F1 (Fitch).

Restricted cash includes principal and interest collections received from loans held in securitization trusts, loan-related escrow and reserve accounts, and cash that has been pledged as collateral supporting letters of credit and derivative liabilities.

Loans

Loans held for investment in our portfolio are recorded at the principal amount outstanding, net of deferred loan costs or fees and any discounts received or premiums paid on purchased loans. Deferred costs or fees, discounts and premiums are amortized over the contractual term of the loan.

Loans held for sale are accounted for at the lower of cost or fair value, which is determined on an individual loan basis, and include loans we originated or purchased that we intend to sell, in whole or in part, in the secondary market. Direct loan origination costs or fees, discounts and premiums are deferred at origination of the loan and not amortized into income.

As part of our management of the loans held in our portfolio, we will occasionally transfer loans from held for investment to held for sale. Upon transfer, any associated allowance for loan and lease loss is charged off and the carrying value of the loans is adjusted to the estimated fair value. The loans are subsequently accounted for at the lower of cost or fair value, with valuation changes recorded in other non-interest income, net. Gains or losses on the sale of these loans are also recorded in other non-interest income, net. In certain circumstances, loans designated as held for sale may later be transferred back to the loan portfolio based upon our intent and ability to hold the loans for the foreseeable future. We transfer these loans to loans held for investment at the lower of cost or fair value.

Credit Quality

Credit risk within our loan portfolio is the risk of loss arising from adverse changes in a client's or counterparty's ability to meet its financial obligations under agreed-upon terms. The degree of credit risk will vary based on many factors including the size of the asset or transaction, the credit characteristics of the client, the contractual terms of the agreement and the availability and quality of collateral.

We use a variety of tools to continuously monitor a client's ability to perform under its obligations. Additionally, we syndicate loan exposure to other lenders, sell loans and use other risk mitigation techniques to manage the size and risk profile of our loan portfolio.

Credit risk management for the loan portfolio begins with an assessment of the credit risk profile of a client based on an analysis of the client's payment performance, cash flow and financial position. As part of the overall credit risk assessment of a client, each commercial credit exposure is assigned an internal risk rating that is subject to approval based on defined credit review standards. While rating criteria vary by product, each loan rating focuses on the same factors: financial performance, the ability to repay the loan and the collateral. Subsequent to loan origination, risk ratings are monitored on an ongoing basis. If necessary, risk ratings are adjusted to reflect changes in the client's financial condition, cash flow or financial position. We use risk rating aggregations to measure and evaluate concentrations within the loan portfolio. In making decisions regarding credit, we consider risk rating, collateral, and industry concentration limits.

We believe the likelihood of not being paid according to the contractual terms of a loan is, in large part, dependent upon the assessed level of risk associated with the loan. The internal rating that is assigned to a loan provides a view as to the relative risk of each loan. We employ an internal risk rating scale to establish a view of the credit quality of each loan. This scale is based on the credit classifications of assets as prescribed by government regulations and industry standards.

Allowance for Loan and Lease Losses

Our allowance for loan and lease losses represents management's estimate of incurred loan and lease losses inherent in our loan and lease portfolio as of the balance sheet date. The estimation of the allowance for loan and lease losses is based on a variety of factors, including past loan and lease loss experience, the current credit profile of our borrowers, adverse situations that have occurred that may affect the borrowers' ability to repay, the estimated value of underlying collateral and general economic conditions. Provisions for loan and lease losses are recognized when available information indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We perform quarterly and systematic detailed reviews of our loan portfolio to identify credit risks and to assess the overall collectability of the portfolio. The allowance on certain pools of loans with similar characteristics is estimated using reserve factors that are reflective of historical loss rates.

Our portfolio is reviewed regularly and, on a periodic basis, individual loans are reviewed and assigned a risk rating. Loans subject to individual reviews are analyzed and segregated by risk according to our internal risk rating scale. These risk ratings, in conjunction with an analysis of historical loss experience, current economic conditions, industry performance trends, and any other pertinent information, including individual valuations on impaired loans, are factored in the estimation of the allowance for loan and lease losses. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impairment on individual loans is measured based on the present value of payments expected to be received, observable market prices for the loan, or the estimated fair value of the collateral. If the recorded investment in an impaired loan exceeds the present value of payments expected to be received or the fair value of the collateral, a specific allowance is established as a component of the allowance for loan and lease losses.

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for loan and lease losses. To the extent we later collect amounts previously charged off, we will recognize a recovery by increasing the allowance for loan and lease losses for the amount received.

We also consider whether losses may have been incurred in connection with unfunded commitments to lend. In making this assessment, we exclude from consideration those commitments for which funding is subject to our approval based on the adequacy of underlying collateral that is required to be presented by a client or other terms and conditions. Reserves for losses related to unfunded commitments are charged to other non-interest expense, net and included within other liabilities.

Foreclosed Assets

Foreclosed assets, includes foreclosed property and other assets received in full or partial satisfaction of a loan. We recognize foreclosed assets upon the earlier of the loan foreclosure event or when we take physical possession of the assets (i.e., through a deed in lieu of foreclosure transaction). Foreclosed assets are initially measured at their fair value less estimated costs to sell. We treat any excess of our recorded investment in the loan over the fair value less estimated cost to sell the asset as a charge off to the loan.

Real estate owned (“REO”) represents real property obtained through foreclosure. REO that we do not intend to sell is classified separately as held for use, depreciated and recorded in other assets. We report REO that we intend to sell, are actively marketing and that are available for immediate sale in their current condition as held for sale. These REO are reported at the lower of their carrying amount or fair value less estimated selling costs and are not depreciated. The fair value of our REO is determined by third party appraisals, when available. When third party appraisals are not available, we estimate fair value based on factors such as prices for similar properties in similar geographical areas and/or assessment through observation of such properties. We recognize any subsequent decline in the REO's fair value less its estimated costs to sell through a valuation allowance with an offsetting charge to expense of real estate owned and other foreclosed asset, net. A recovery is recognized for any subsequent increase in fair value less estimated costs to sell up to the cumulative loss previously recognized through the valuation allowance. We recognize REO operating costs and gains or losses on sales of REO through expense of real estate owned and other foreclosed assets, net.

Goodwill Impairment

Goodwill must be allocated to reporting units and tested for impairment. We test goodwill for impairment at least annually, and more frequently if events or circumstances, such as adverse changes in the business climate, indicate there may be justification for conducting an interim test. Impairment testing is performed at the reporting unit level.

In testing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In making this assessment, we consider all relevant events and circumstances. These include, but are not limited to, macroeconomic conditions, industry and market considerations and the reporting unit's overall financial performance. If we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of the reporting unit is at least equal to its carrying amount, then we presume that the goodwill of the reporting unit is not impaired and no further testing is performed. However, if we conclude, based on our qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we proceed with a two-step method to assess and measure impairment of the reporting unit's goodwill. At our option, we may, in any given period, bypass the qualitative assessment and proceed directly to the two step approach.

The two-step method begins with a comparison of the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, we then compare the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of a reporting unit's goodwill is measured as the excess of the fair value of the reporting unit over the aggregate fair values of all the reporting unit's assets and liabilities. If the implied fair value of the reporting unit's goodwill is less than its carrying amount, we record an impairment loss equal to that difference. If the fair value of the reporting unit exceeds its carrying amount or if the fair value of the reporting unit's goodwill exceeds the carrying amount of that goodwill, no impairment loss is recognized.

The balance of goodwill of $173.1 million as of both December 31, 2013 and 2012 was attributable to the formation of CapitalSource Bank. During the years ended December 31, 2013, 2012 and 2011, we did not record any goodwill impairment.

Investments in Debt Securities and Equity Securities That Have Readily Determinable Fair Values

All debt securities, as well as equity securities that have readily determinable fair values, are classified based on management's intention on the date of purchase. Debt securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt securities not classified as held-to-maturity or trading, as well as equity investments in publicly traded entities, are classified as available-for-sale and carried at fair value with net unrealized gains and losses included in accumulated other comprehensive income (loss) on an after-tax basis.

Investments in Equity Securities That Do Not Have Readily Determinable Fair Values

Investments in common stock or preferred stock that are not publicly traded and/or do not have a readily determinable fair value are accounted for pursuant to the equity method of accounting if we have the ability to significantly influence the operating and financial policies of an investee. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our share of earnings and losses in equity method investees is included in other non-interest income, net. If we do not have significant influence over the investee, the cost method is used to account for the equity interest.

For investments accounted for using the cost or equity method of accounting, management evaluates information such as budgets, business plans, and financial statements of the investee in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline in value include, but are not limited to, recurring operating losses and credit defaults. We compare the estimated fair value of each investment to its carrying value quarterly. For any of our investments in which the estimated fair value is less than its carrying value, we consider whether the impairment of that investment is other-than-temporary.

If we determine that an investment has sustained an other-than-temporary decline in its value, the equity interest is written down to its fair value through gain on investments, net and a new carrying value for the investment is established.

Realized gains or losses resulting from the sale of investments are calculated using the specific identification method and are included in gain on investments, net.

If we hold both a loan and an equity method investment in an investee, we will continue to apply our pro rata share of losses in the investee to the balance of the loan once the equity investment has been fully written down.

Transfers of Financial Assets

We account for transfers of loans and other financial assets to third parties or special purpose entities (“SPEs”) that we establish as sales if we determine that we have relinquished effective control over the transferred assets. In such transactions, we derecognize the transferred assets, recognize and measure at fair value any assets obtained and liabilities assumed, including servicing assets and liabilities and record a gain or loss on the sale based upon the difference between the fair value of the assets obtained and liabilities assumed and the carrying amount of the transferred assets. If we transfer a portion of a financial asset that qualifies as a participating interest, we allocate the previous carrying amount of the entire financial asset between the participating interests sold and the interest that we continue to hold based on their relative fair values at the transfer date.

We account for transfers of financial assets in which we receive cash consideration, but for which we determine that we have not relinquished control, as secured borrowings.

Deferred Financing Fees

Deferred financing fees represent fees and other direct incremental costs incurred in connection with our borrowings. These amounts are amortized into income as interest expense over the estimated life of the borrowing using the interest method.

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the following estimated useful lives (equipment leased to others is depreciated on a straight-line basis over the term of the lease to its estimated salvage value):

Buildings and improvements	10 to 40 years
Leasehold improvements	Lesser of remaining lease term or estimated useful life
Computer software	3 years
Equipment	5 years
Furniture	7 years

Income Recognition on Loans

Interest income, including income on impaired loans, fees due at maturity and paid-in-kind (“PIK”) interest, is recorded on an accrual basis to the extent that such amounts are expected to be collected. Carrying value adjustments of revolving lines of credit are amortized into interest and fee income over the contractual life of a loan on a straight line basis, while carrying value adjustments of all other loans are amortized into earnings over the contractual life of a loan using the interest method. In applying the interest method, the effective yield on a loan is determined based on its contractual payment terms, adjusted for actual prepayments.

Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In connection with the prepayment of a loan, any remaining unamortized deferred fees for that loan are accelerated and, depending upon the terms of the loan, there may be an additional fee that is charged based upon the prepayment and recognized in the period of the prepayment.

We accrete any discount from purchased loans into interest income in accordance with our policies up to the amount of contractual interest and principal payments expected to be collected. Upon acquisition, if management assesses that a portion of contractual interest and principal payments are not expected to be collected, a portion of the discount will be deemed non-accretable (non-accretable difference).

We will place a loan on non-accrual status if there is substantial doubt about the borrower's ability to service its debt and other obligations or if the loan is 90 or more days past due and is not well-secured and in the process of collection. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan is discontinued until factors indicating doubtful collection no longer exist and the loan has been brought current. Payments received on non-accrual loans are generally first applied to principal. A loan may be returned to accrual status when its interest or principal is current, repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. Cash payments received from the borrower and applied to the principal balance of the loan while the loan was on non-accrual status are not reversed if a loan is returned to accrual status.

We continue to recognize interest income on loans that have been identified as impaired, but that have not been placed on non-accrual status. If the loan is placed on non-accrual status, accrued and unpaid interest is reversed and the recognition of interest and fee income on that loan will stop until factors indicating doubtful collection no longer exist and the loan has been brought current.

Income Recognition and Impairment Recognition on Securities

For our investments in debt securities, we use the interest method to amortize deferred items, including premiums, discounts and other basis adjustments, into interest income. For debt securities representing non-investment grade beneficial interests in securitizations, the effective yield is determined based on the estimated cash flows of the security. Changes in the effective yield of these securities due to changes in estimated cash flows are recognized on a prospective basis as adjustments to interest income in future periods. The effective yield on all other debt securities that have not experienced an other-than-temporary impairment is based on the contractual cash flows of the security.

Declines in the fair value of debt securities classified as available-for-sale or held-to-maturity are reviewed to determine whether the impairment is other-than-temporary. This review considers a number of factors, including the severity of the decline in fair value, current market conditions, historical performance of the security, risk ratings and the length of time the investment has been in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred. In assessing whether the entire amortized cost basis of the security will be recovered, we compare the present value of cash flows expected to be collected from the security with its amortized cost. The present value of cash flows is determined using a discount rate equal to the effective yield on the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, then the impairment is considered to be other-than-temporary. Determination of whether an impairment is other-than-temporary requires significant judgment surrounding the collectability of the investment including such factors as the financial condition of the issuer, expected prepayments and expected defaults.

When we have determined that an other-than-temporary impairment has occurred, we separate the impairment amount into a component representing the credit loss and a component representing all other factors. The credit loss component is recognized in earnings and is determined by discounting the expected future cash flows of the security by the effective yield of the security. The previous amortized cost basis less the credit component of the impairment becomes the new amortized cost basis of the security. Any remaining impairment, representing the difference between the new amortized cost of the security and its fair value is recognized through other comprehensive income. We also consider impairment of a security to be other-than-temporary if we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. In these situations, the entire amount of the impairment represents the credit component and is recognized through earnings.

In periods following the recognition of an other-than-temporary impairment, the difference between the new amortized cost basis and the cash flows expected to be collected on the security are accreted as interest income. Any subsequent changes to estimated cash flows are recognized as prospective adjustments to the effective yield of the security.

Derivative Instruments

We enter into derivative contracts primarily to manage the interest rate and foreign currency risk associated with certain assets, liabilities, or probable forecasted transactions. As of December 31, 2013 and 2012, all of our derivatives were held for risk management purposes, and none were designated as accounting hedges.

Our derivatives are recorded in other assets or other liabilities, as appropriate. The changes in fair value of our derivatives and the related interest accrued are recognized in gain (loss) on derivatives, net.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates for the periods in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the change.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if a valuation allowance is necessary. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All evidence, both positive and negative, is evaluated when making this determination. Items considered in this analysis include the ability to carry back losses to recoup taxes previously paid, the reversal of temporary differences, tax planning strategies, historical financial performance, expectations of future earnings and the length of statutory carryforward periods. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences.

Net Income (Loss) per Share

Basic net income (loss) per share loss is based on the weighted average number of common shares outstanding during each period, plus common share equivalents computed for stock options, stock units, stock dividends declared, restricted stock and convertible debt. Diluted net income (loss) per share is adjusted for the effects of other potentially dilutive financial instruments only in the periods in which such effect is dilutive.

Bonuses

Bonuses are accrued ratably, pursuant to the underlying bonus plans over the annual performance period. On an annual basis, management recommends a bonus accrual based on the Company's bonus plans to the Compensation Committee of our Board of Directors.

Segment Reporting

We present financial and descriptive information about our reportable operating segments including a measure of segment profit or loss, certain specific revenue and expense items and segment assets. We designate components of our business as reportable operating segments if the component a) engages in business activities from which it may earn revenues and incur expenses, b) has operating results that are regularly reviewed by executive management to make business decisions about resources to be allocated to the segment and assess its performance and c) has available discrete financial information. We currently operate as two reportable segments: CapitalSource Bank and Other Commercial Finance. Our CapitalSource Bank segment comprises our commercial lending and banking business activities, and our Other Commercial Finance segment comprises our loan portfolio and other business activities in the Parent Company.

New Accounting Pronouncements

In February 2013, the FASB amended its guidance on the presentation of comprehensive income to improve the transparency of reporting amounts reclassified out of accumulated other comprehensive income. For significant items reclassified out of accumulated other comprehensive income in their entirety in the same reporting period, entities are required to present the effects on the line items of net income. For items that are not reclassified to net income in their entirety in the same reporting period, entities are required to cross-reference to other disclosures currently required. This guidance was effective for interim and annual periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013 and it did not have a material impact on our consolidated financial statements.

In December 2013, as a result of a change in regulatory requirements due to the issuance of the Final Rules of the Dodd-Frank Act, known as the Volcker Rule, banking entities became limited to the types and amounts of investments they may hold. Banking entities may need to dispose of or seek exemption for certain investments by July 21, 2015. As such, the Company is evaluating which of its investments are impacted.

Reclassifications

Certain amounts in the prior year's consolidated financial statements have been reclassified to conform to the current year presentation.

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Loans and Credit Quality (Details 5) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 139,596		$ 331,957		$ 602,969
Impaired Financing Receivable, Interest Income, Accrual Method	8,386	[1]	15,953	[1]	17,512	[1]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	43,899		104,268		199,113
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	1,622	[1]	3,168	[1]	3,405	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	95,697		227,689		403,856
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	6,764	[1]	12,785	[1]	14,107	[1]
Asset-based [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	743		8,222		47,572
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	74	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	26,106		65,805		67,521
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	489	[1]	3,246	[1]	2,899	[1]
Cash flow [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	43,156		95,442		111,637
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	1,622	[1]	3,094	[1]	3,405	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	25,628		68,549		110,466
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	5,867	[1]	5,534	[1]	7,456	[1]
Healthcare asset-based [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0		0		787
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	0		1,002		1,827
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	0	[1]	233	[1]	177	[1]
Healthcare real estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0		604		5,006
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	16,717		24,118		23,010
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	165	[1]
Multi-family [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0		0		414
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	1,583		1,432		5,770
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	161	[1]	17	[1]	0	[1]
Real Estate Other Class [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0		0		32,964
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	18,897		54,800		185,104
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	5	[1]	3,735	[1]	3,410	[1]
Small business [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0		0		733
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	0	[1]	0	[1]	0	[1]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	6,766		11,983		10,158
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	$ 242	[1]	$ 20	[1]	$ 0	[1]

[1] (1)We recognized no cash basis interest income on impaired loans during the years ended December 31, 2013 and 2012. We recognized $0.1 million cash basis interest income on impaired loans during the year ended December 31, 2011

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Deposits (Details Textual) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Deposits (Textual) [Abstract]
Interest-bearing Deposit Liabilities	$ 6,127,690,000	$ 5,579,270,000
Certificates of deposit in the amount of $250,000 or more	816,300,000	597,800,000
Certificates of deposit in the amount of $100,000 or more	$ 3,100,000,000	$ 2,600,000,000
Weighted-average interest rates for savings and money market deposit accounts	0.46%	0.51%
Weighted-average interest rates for certificates of deposit	0.97%	0.94%
Weighted-average interest rates for all deposits	0.90%	0.87%

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Bank Regulatory Capital (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Banking and Thrift [Abstract]
Tier-1 Leverage, Actual	$ 1,088,870	$ 933,837
Tier One Leverage Capital to Average Assets	13.88%	13.06%
Tier-1 Leverage, Minimum Required	393,342	357,443
Tier-1 Leverage, Minimum Required - Ratio	5.00%	5.00%
Tier-1 Risk-Based Capital, Actual	1,088,870	933,837
Tier-1 Risk-Based Capital, Actual - Ratio	15.03%	15.24%
Tier-1 Risk-Based Capital, Minimum Required	434,562	367,651
Tier-1 Risk-Based Capital, Minimum Required - Ratio	6.00%	6.00%
Total Risk-Based Capital, Actual	1,179,666	1,010,746
Total Risk-Based Capital, Actual - Ratio	16.29%	16.50%
Total Risk-Based Capital, Minimum Required	$ 1,086,405	$ 919,128
Total Risk-Based Capital, Minimum Required - Ratio	15.00%	15.00%

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Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Available For Sale Securities Pledged As Collateral Amortized Cost	$ 27,234		$ 195,503
Available-for-sale Securities Pledged as Collateral	27,411		203,350
FHLB SF [Member]
Schedule of Available-for-sale Securities [Line Items]
Available For Sale Securities Pledged As Collateral Amortized Cost	0		190,113
Available-for-sale Securities Pledged as Collateral	0		197,911
FRB [Member]
Schedule of Available-for-sale Securities [Line Items]
Available For Sale Securities Pledged As Collateral Amortized Cost	9,988		0
Available-for-sale Securities Pledged as Collateral	9,975		0
Government Agencies
Schedule of Available-for-sale Securities [Line Items]
Available For Sale Securities Pledged As Collateral Amortized Cost	17,246	[1]	5,390	[1]
Available-for-sale Securities Pledged as Collateral	$ 17,436	[1]	$ 5,439	[1]

[1] Represents the amounts pledged as collateral to secure funds deposited by government agencies.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 19. Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain of our assets and liabilities and to determine fair value disclosures. Investment securities, available-for-sale, warrants and derivatives are recorded at fair value on a recurring basis. In addition, we may be required, in specific circumstances, to measure certain of our assets at fair value on a nonrecurring basis, including investment securities, held-to-maturity, loans held for sale, loans held for investment, REO and certain other investments.

Fair value is based on quoted market prices or by using market based inputs where available. Given the nature of some of our assets and liabilities, clearly determinable market based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to many of our valuation estimates used, the fair values we have disclosed may not equal prices that we may ultimately realize if the assets are sold or the liabilities settled with third parties.

Below is a description of the valuation methods for our assets and liabilities recorded at fair value on either a recurring or nonrecurring basis. While we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets and liabilities could result in a different estimate of fair value at the measurement date.

Assets and Liabilities

Cash

Cash and cash equivalents and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market.

Investment Securities, Available-for-Sale

Investment securities, available-for-sale, consist of Agency MBS, Non-agency MBS, agency asset-backed securities, non-agency asset-backed securities and CLOs that are carried at fair value on a recurring basis and classified as available-for-sale securities. Fair value adjustments on these investments are generally recorded through other comprehensive income. However, if impairment on an investment, available-for-sale is deemed to be other-than-temporary, all or a portion of the fair value adjustment may be reported in earnings. The securities are valued using quoted prices from external market participants, including pricing services. If quoted prices are not available, the fair value is determined using quoted prices of securities with similar characteristics or independent pricing models, which utilize observable market data such as benchmark yields, reported trades and issuer spreads. These securities are primarily classified within Level 2 of the fair value hierarchy. No other available-for-sale securities were transferred from or into Level 3 during the years ending December 31, 2013 or 2012.

Investment Securities, Held-to-Maturity

Investment securities, held-to-maturity consists of CMBS. These securities are generally recorded at amortized cost, but are recorded at fair value on a non-recurring basis to the extent we record an OTTI on the securities. Fair value measurements are determined using quoted prices from external market participants, including pricing services. If quoted prices are not available, the fair value is determined using quoted prices of securities with similar characteristics or independent pricing models, which utilize observable market data such as benchmark yields, reported trades and issuer spreads.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value, with fair value adjustments recorded on a nonrecurring basis. The fair value is determined using actual market transactions when available. In situations when market transactions are not available, we use the income approach through internally developed valuation models to estimate the fair value. This requires the use of significant judgment surrounding discount rates and the timing and amounts of future cash flows. Key inputs to these valuations also include costs of completion and unit settlement prices for the underlying collateral of the loans. Fair values determined through actual market transactions are classified within Level 2 of the fair value hierarchy, while fair values determined through internally developed valuation models are classified within Level 3 of the fair value hierarchy.

Loans Held for Investment

Loans held for investment are recorded at outstanding principal, net of any deferred fees and unamortized purchase discounts or premiums and net of an allowance for loan and lease losses. We may record fair value adjustments on a nonrecurring basis when we have determined that it is necessary to record a specific reserve against a loan and we measure such specific reserve using the fair value of the loan's collateral. To determine the fair value of the collateral, we may employ different approaches depending on the type of collateral.

In cases where our collateral is a fixed or other tangible asset, our determination of the appropriate method to use to measure fair value depends on several factors including the type of collateral that we are evaluating, the age of the most recent appraisal performed on the collateral, and the time required to obtain an updated appraisal. Typically, we obtain an updated third-party appraisal from an external valuation specialist or use prior or pending transactions to estimate fair value. We may or may not adjust these amounts based on our own internally developed judgments and estimates. These adjustments typically include discounts for lack of marketability and foreign property discounts. We may also utilize industry valuation benchmarks such as revenue multiples for operating commercial properties. Significant decreases to any of these inputs would result in decreases in the fair value measurements. For certain loans collateralized by residential real estate, we utilize discounted cash flow techniques to determine the fair value of the underlying collateral. Significant unobservable inputs used in these fair value measurements include recovery rates and marketability discounts. Significant decreases in recovery rates or significant increases in marketability discounts would result in significant decreases in the fair value measurements.

An impaired loan is considered collateral dependent if repayment of the loan is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.

For impaired collateral dependent commercial real estate loans, we typically obtain an updated appraisal as of the date the loan is deemed impaired to measure the amount of impairment. In situations where we are unable to obtain a timely updated appraisal, we perform internal valuations which utilize assumptions and calculations similar to those customarily utilized by third party appraisers and consider relevant property specific facts and circumstances. In certain instances, our internal assessment of value may be based on adjustments to outdated appraisals by analyzing the changes in local market conditions and asset performance since the appraisals were performed. The outdated appraisal values may be discounted by percentages that are determined by analyzing changes in local market conditions since the dates of the appraisals as well as by consulting databases, comparable market sale prices, brokers' opinions of value and other relevant data. We do not make adjustments that increase the values indicated by outdated appraisals by using higher recent sale comparisons.

Impaired collateral dependent commercial real estate loans for which ultimate collection depends solely on the sale of the collateral are charged off to the estimated fair value of the collateral less estimated costs to sell. For certain of these loans, we charged off to an amount different than the value indicated by the most recent appraisal; this was primarily the result of the appraisal being outdated. As of December 31, 2013 and 2012, we charged off an additional $30.2 million, net, and $32.2 million, net, respectively, in loan balances compared with amounts that would have been charged off based on the most recent appraised values of the collateral.

Our policy on updating appraisals related to these originated impaired collateral dependent commercial real estate loans generally is to obtain current appraisals subsequent to the impairment date if there are significant changes to the underlying assumptions from the most recent appraisal. Some factors that could cause significant changes include the passage of more than twelve months since the time of the last appraisal; the volatility of the local market; the availability of financing; the inventory of competing properties; new improvements to, or lack of maintenance of, the subject property or competing surrounding properties; a change in zoning; environmental contamination; or failure of the project to meet material assumptions of the original appraisal. This policy for updating appraisals does not vary by commercial real estate loan type. We generally consider appraisals to be current if they are dated within the past twelve months. However, we may obtain an updated appraisal on a more frequent basis if in our determination there are significant changes to the underlying assumptions from the most recent appraisal.

As of December 31, 2013, $31.9 million of our collateral dependent loans had an appraisal older than twelve months. The fair value of the collateral for these loans was determined through inputs outside of appraisals, including actual and comparable sales transactions, broker price opinions and other relevant data.

We continue to monitor collateral values on partially charged-off impaired collateral dependent commercial real estate loans and may record additional charge offs upon receiving updated appraisals. We do not return such partially charged-off loans to performing status, except in limited circumstances when such loans have been formally restructured and have met key performance criteria including compliance with restructured payment terms. We do not return such partially charged-off loans to performing status based solely on the results of appraisals.

In cases where our collateral is not a fixed or tangible asset, we typically use industry valuation benchmarks such as Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") multiples to determine the value of the asset or the underlying enterprise. Decreases in these benchmarks would result in significant decreases in the fair value measurements.

When fair value adjustments are recorded on loans held for investment, we typically classify them in Level 3 of the fair value hierarchy.

We determine the fair value estimates of loans held for investment for fair value disclosures primarily using external valuation specialists. These valuation specialists group loans based on risk rating and collateral type, and the fair value is estimated utilizing discounted cash flow techniques. The valuations take into account current market rates of return, contractual interest rates, maturities and assumptions regarding expected future cash flows. Within each respective loan grouping, current market rates of return are determined based on quoted prices for similar instruments that are actively traded, adjusted as necessary to reflect the illiquidity of the instrument. This approach requires the use of significant judgment surrounding current market rates of return, liquidity adjustments and the timing and amounts of future cash flows.

Other Investments

Other investments accounted for under the cost or equity methods of accounting are carried at fair value on a nonrecurring basis to the extent that they are determined to be other-than-temporarily impaired during the period. As there is rarely an observable price or market for such investments, we determine fair value using internally developed models. Our models utilize industry valuation benchmarks, such as multiples of net revenue or EBITDA, to determine a value for the underlying enterprise. Significant decreases to these valuation benchmarks would result in significant decreases in the fair value measurements. We reduce this value by the value of debt outstanding to arrive at an estimated equity value of the enterprise. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Fair value measurements related to these investments are typically classified within Level 3 of the fair value hierarchy.

FHLB SF Stock

Our investment in FHLB SF stock is recorded at historical cost. FHLB SF stock does not have a readily determinable fair value, but may be sold back to the FHLB SF at its par value with stated notice. The investment in FHLB SF stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB SF and its overall financial condition. No impairment losses on our investment in FHLB SF stock have been recorded through December 31, 2013.

Derivative Assets and Liabilities

Derivatives are carried at fair value on a recurring basis and primarily relate to interest rate swaps, caps, floors and forward exchange contracts which we enter into to manage interest rate risk and foreign exchange risk. Our derivatives are principally traded in over-the-counter markets where quoted market prices are not readily available. Instead, the fair value of derivatives is measured using market observable inputs such as interest rate yield curves, volatilities and basis spreads. We also consider counterparty credit risk in valuing our derivatives. We typically classify our derivatives in Level 2 of the fair value hierarchy.

Real Estate Owned and Other Foreclosed Assets ("REO")

REO is initially recorded at its estimated fair value less costs to sell at the time of foreclosure if the related REO is classified as held for sale. REO held for sale is carried at the lower of its carrying amount or fair value subsequent to the date of foreclosure, with fair value adjustments recorded on a nonrecurring basis. REO held for use is recorded at its carrying amount, net of accumulated depreciation, with fair value adjustments recorded on a nonrecurring basis if the carrying amount of the real estate is not recoverable and exceeds its fair value. When available, the fair value of REO is determined using actual market transactions. When market transactions are not available, the fair value of REO is typically determined based upon recent appraisals by third parties. We may or may not adjust these third party appraisal values based on our own internally developed judgments and estimates. These adjustments typically include discounts for lack of marketability and foreign property discounts. Significant increases to these inputs would result in significant decreases in the fair value measurements. To the extent that market transactions or third party appraisals are not available, we use the income approach through internally developed valuation models to estimate the fair value. This requires the use of significant judgment surrounding discount rates and the timing and amounts of future cash flows. Fair values determined through actual market transactions are classified within Level 2 of the fair value hierarchy while fair values determined through third party appraisals and through internally developed valuation models are classified within Level 3 of the fair value hierarchy.

Deposits

Deposits are carried at historical cost. The carrying amounts of deposits for savings and money market accounts and brokered certificates of deposit are deemed to approximate fair value as they either have no stated maturities or short-term maturities. Certificates of deposit are grouped by maturity date, and the fair value is estimated utilizing discounted cash flow techniques. The interest rates applied are rates currently being offered for similar certificates of deposit within the respective maturity groupings.

Term Debt

Term debt comprised our term debt securitizations as of December 31, 2012. For disclosure purposes, the fair values of our securitizations were determined based on actual prices from recent third party purchases of our debt when available and based on indicative price quotes received from various market participants when recent transactions have not occurred.

Other Borrowings

Our other borrowings comprise subordinated debt and FHLB borrowings. For disclosure purposes, the fair value of our subordinated debt is determined based on recent third party purchases of our debt when available and based on indicative price quotes received from market participants when recent transactions have not occurred. The carrying value of our FHLB borrowings is deemed to approximate fair value.

Off-Balance Sheet Financial Instruments

Loan Commitments and Letters of Credit

Loan commitments and letters of credit generate ongoing fees at our current pricing levels, which are recognized over the term of the commitment period. For disclosure purposes, the fair value is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current creditworthiness of the counterparties and current market conditions. In addition, for loan commitments, the market rates of return utilized in the valuation of the loans held for investment as described above are applied to this analysis to reflect current market conditions.

Assets and Liabilities Carried at Fair Value on a Recurring Basis

Assets and liabilities have been grouped in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2013 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	784,240	$	—	$	784,240	$	—
Assets-backed securities	3,169		—		3,169		—
Collateralized loan obligation	47,337		—		47,337		—
Non-agency MBS	20,203		—		20,203		—
SBA asset-backed securities	15,533		—		15,533		—
Total Investment securities, available-for-sale	870,482		—		870,482		—
Derivative assets	1,380		—		1,380		—
Total assets	$	871,862	$	—	$	871,862	$	—
Liabilities
Derivative liabilities	$	510	$	—	$	510	$	—

Assets and liabilities carried at fair value on a recurring basis on the balance sheet as of December 31, 2012 were as follows:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets
Investment securities, available-for-sale:
Agency securities	$	983,521	$	—	$	983,521	$	—
Asset-backed securities	9,592		—		9,592		—
Collateralized loan obligation	26,250		—		—		26,250
Non-agency MBS	41,347		—		41,347		—
SBA asset-backed securities	18,315		—		18,315		—
Total assets	$	1,079,025	$	—	$	1,052,775	$	26,250
Liabilities
Derivative liabilities	$	482	$	—	$	482	$	—

A summary of the changes in the fair values of assets carried at fair value for the year ended December 31, 2013 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt		Collateralized Loan Obligation			Municipal Bonds		Non-agency MBS		Total			Warrants		Total Assets
	($ in thousands)
Balance as of January 1, 2013	$	—	$	26,250		$	—	$	—	$	26,250		$	—	$	26,250
Realized and unrealized gains (losses):
Included in income	—		56,242			—		—		56,242			—		56,242
Included in other comprehensive income, net	—		(12,832		)	—		—		(12,832		)	—		(12,832		)
Total realized and unrealized gains (losses)	—		43,410			—		—		43,410			—		43,410
Transfers to/from Level 3:
Transfers into Level 3	—		—			—		—		—			—		—
Transfers out of Level 3	—		—			—		—		—			—		—
Total Level 3 transfers	—		—			—		—		—			—		—
Sales and settlements:
Sales	—		(66,673		)	—		—		(66,673		)	—		(66,673		)
Settlements	—		(2,987		)	—		—		(2,987		)	—		(2,987		)
Total sales and settlements	—		(69,660		)	—		—		(69,660		)	—		(69,660		)
Balance as of December 31, 2013	$	—	$	—		$	—	$	—	$	—		$	—	$	—

A summary of the changes in the fair values of assets carried fair value for the year ended December 31, 2012 that have been classified in Level 3 of the fair value hierarchy was as follows:

	Investment Securities, Available-for-Sale
	Corporate Debt			Collateralized Loan Obligation			Municipal Bonds (1)			Non-agency MBS			Total			Warrants			Total Assets
	($ in thousands)
Balance as of January 1, 2012	$	700		$	17,763		$	3,235		$	—		$	21,698		$	193		$	21,891
Realized and unrealized gains (losses):
Included in income	11			2,954			(1,246		)	1,353			3,072			5			3,077
Included in other comprehensive income, net	(45		)	6,985			—			—			6,940			—			6,940
Total realized and unrealized gains (losses)	(34		)	9,939			(1,246		)	1,353			10,012			5			10,017
Transfers to/from Level 3
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	(666		)	—			—			—			(666		)	—			(666		)
Total Level 3 transfers	(666		)	—			—			—			(666		)	—			(666		)
Sales and issuances:
Sales	—			—			—			—			—			(198		)	(198		)
Settlements	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	—			(4,794		)
Total sales and issuances	—			(1,452		)	(1,989		)	(1,353		)	(4,794		)	(198		)	(4,992		)
Balance as of December 31, 2012	$	—		$	26,250		$	—		$	—		$	26,250		$	—		$	26,250

______________________

(1) In September 2012, the municipal bond was settled as the Company secured the collateral; the collateral was transferred to other assets at its fair value less cost of sales of $2.0 million.

Realized and unrealized gains and losses on assets and liabilities classified in Level 3 of the fair value hierarchy included in income for the year ended December 31, 2013 and 2012, reported in interest income and (loss) gain on investments, net were as follows:

	Interest Income				(Loss) Gain on Investments, Net
	Year Ended December 31,
	2013		2012		2013		2012
	($ in thousands)
Total gains (losses) included in earnings for the period	$	3,036	$	4,498	$	53,205	$	(1,421	)
Unrealized gains (losses) relating to assets still held at reporting date	—		3,134		—		(180		)

Assets Carried at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write downs of individual assets. The table below provides the fair values of those assets, excluding related transaction costs, for which nonrecurring fair value adjustments were recorded as of December 31, 2013 and 2012, classified by their position in the fair value hierarchy.

	December 31,
	2013								2012
	Fair Value Measurement as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)								($ in thousands)
Assets
Loans held for sale	$	—	$	—	$	—	$	—	$	1,000	$	—	$	1,000	$	—
Loans held for investment	1,883		—		—		1,883		9,287		—		—		9,287
Investments carried at cost	1,311		—		1,311		—		597		—		571		26
Real estate owned	1,793		—		1,315		478		6,178		—		1,844		4,334
Total assets	$	4,987	$	—	$	2,626	$	2,361	$	17,062	$	—	$	3,415	$	13,647

The following table presents the net losses of the above assets resulting from nonrecurring fair value adjustments for the year ended December 31, 2013 and 2012:

	December 31,
	2013		2012
	($ in thousands)
Assets
Loans held for sale	$	—	$	198
Loans held for investment	2,041		25,981
Investments carried at cost	189		5,486
Real estate owned	1,365		5,681
Total net loss from nonrecurring measurements	$	3,595	$	37,346

Significant Unobservable Inputs and Valuation Techniques of Level 3 Fair Value Measurements

For our fair value measurements classified in Level 3 of the fair value hierarchy as of December 31, 2013 a summary of the significant unobservable inputs and valuation techniques is as follows:

	Fair Value Measurement as of December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	($ in thousands)
Assets
Loans held for investment
Services	754		Income Approach	Capitalization Rate	40.0%
Commercial Real Estate	1,129		Market and Income Approach	Price Per Square Foot	$22 - $195 ($41)
				Room Revenue Multiple	2.00x - 2.25x (2.05x)
				Marketability Discount	10% - 51% (21%)
				Capitalization Rate	9.0%
Total loans held for investment	1,883
Real estate owned	478		Market Approach	Marketability Discount	18% - 44% (42%)
				Price Per Square Foot	$47.50
				Room Revenue Multiple	1.75x
Total assets as of December 31, 2013	$	2,361

Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of our financial instruments are described above.

The table below provides fair value estimates for our financial instruments as of December 31, 2013 and 2012, excluding financial assets and liabilities which are recorded at fair value on a recurring basis.

	December 31,
	2013										2012
	Carrying Value		Fair Value								Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total
	($ in thousands)
Assets:
Cash and cash equivalents	$	455,799	$	455,799	$	—	$	—	$	455,799	$	299,086	$	299,086	$	—	$	—	$	299,086
Restricted cash	58,653		58,653		—		—		58,653		104,044		104,044		—		—		104,044
Loans held for sale	—		—		—		—		—		22,719		—		22,723		—		22,723
Loans held for investment, net	6,663,969		—		—		6,654,877		6,654,877		6,021,957		—		—		5,953,226		5,953,226
Investments carried at cost	17,797		—		2,375		40,599		42,974		23,963		—		—		61,742		61,742
Investments accounted for under the equity method	34,327		—		12,414		22,500		34,914		36,400		1,087		12,372		24,055		37,514
Investment securities, held-to-maturity	74,369		—		75,535		—		75,535		108,233		—		111,388		—		111,388
Liabilities:
Deposits	6,127,690		876,788		5,257,729		—		6,134,517		5,579,270		962,851		4,626,715		—		5,589,566
Term debt	—		—		—		—		—		177,188		—		—		146,548		146,548
FHLB Borrowings	625,000		—		634,438		—		634,438		595,000		—		614,063		—		614,063
Subordinated debt	412,156		—		308,262		—		308,262		410,738		—		273,141		—		273,141
Loan commitments and letters of credit	—		—		—		24,359		24,359		—		—		—		21,559		21,559

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Fair Value Measurements (Details 2) (Significant Unobservable Inputs (Level 3) [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total gains (losses) included in earnings for the period, Gain on Investments, Net	$ 56,242	$ 3,077
Gain (loss) on investment income [Domain]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total gains (losses) included in earnings for the period, Gain on Investments, Net	53,205	(1,421)
Unrealized gains (losses) relating to assets still held at reporting date, Gain on Investments, Net	0	(180)
Interest Income [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total gains (losses) included in earnings for the period, Interest Income	3,036	4,498
Unrealized gains (losses) relating to assets still held at reporting date, Interest Income	$ 0	$ 3,134

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Parent Company Information Parent Company Information (Textuals) (Details) (CS Inc. [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
CS Inc. [Member]
Condensed Financial Statements, Captions [Line Items]
Cash Dividends Paid to Parent Company by Consolidated Subsidiaries	$ 0

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Investments (Details 6) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Other investments
Investments carried at cost	$ 17,797	$ 23,963
Investments accounted for under the equity method	34,327	36,400
Total	$ 52,124	$ 60,363

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Common stock share activity

Common stock share activity for the years ended December 31, 2013, 2012 and 2011 was as follows:

Outstanding as of December 31, 2010	323,225,355
Repurchase of common stock	(70,208,500	)
Exercise of options	475,709
Restricted stock and other stock activities	2,619,641
Outstanding as of December 31, 2011	256,112,205
Repurchase of common stock	(49,270,260	)
Exercise of options	1,694,429
Restricted stock and other stock activities	1,015,300
Outstanding as of December 31, 2012	209,551,674
Repurchase of common stock	(15,002,800	)
Exercise of options	1,774,824
Restricted stock and other stock activities	531,585
Outstanding as of December 31, 2013	196,855,283

Schedule of accumulated other comprehensive Income, net

Accumulated other comprehensive loss, net, as of December 31, 2013 and 2012 was as follows:  

	December 31, 2013
	Unrealized Loss on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax		Accumulated Other Comprehensive Loss, Net
	($ in thousands)
Beginning balance as of January 1, 2013	$	24,650		$	—	$	24,650
Other comprehensive loss before reclassifications, net of tax benefit of $10.2 million (1)	(10,367		)	—		(10,367		)
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $2.3 million (2)	(15,153		)	—		(15,153		)
Other comprehensive loss, net of tax benefit of $12.5 million	(25,520		)	—		(25,520		)
Ending balance as of December 31, 2013	$	(870	)	$	—	$	(870	)

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

	December 31, 2012
	Unrealized Gain on Investment Securities, Available-for-Sale, net of tax			Unrealized Gain on Foreign Currency Translation, net of tax			Accumulated Other Comprehensive Income, Net
	($ in thousands)
Beginning balance as of January 1, 2012	$	19,055		$	351		$	19,406
Other comprehensive income before reclassifications, net of tax benefit of $1.5 million (1)	7,303			—			7,303
Amounts reclassified from accumulated other comprehensive income, net of tax (benefit) expense of $(0.7) million and $350.5 thousand, respectively (2)	(1,708		)	(351		)	(2,059		)
Other comprehensive income (loss), net of tax (benefit) expense of $(2.2) million and $350.5 thousand, respectively	5,595			(351		)	5,244
Ending balance as of December 31, 2012	$	24,650		$	—		$	24,650

____________________

(1) Gross amount included in Investment securities interest income, with related tax impact included in Deferred tax assets, net.

(2) Gross amounts included in Gain on investments, net, and Other non-interest income, net, respectively. Related tax impact amounts are included in Income tax (benefit) expense and Other non-interest income, net, respectively.

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Net Income (Loss) Per Share

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Note 12. Net Income (Loss) Per Share

The computations of basic and diluted net income (loss) per share attributable to CapitalSource Inc. for the years ended December 31, 2013, 2012 and 2011, respectively, were as follows:

	Year Ended December 31,
	2013	2012	2011
	($ in thousands, except per share data)
Net income (loss):
Net income (loss)	164,292	490,610	(52,023	)
Average shares - basic	195,189,983	223,928,583	302,998,615
Effect of dilutive securities:
Option shares	2,565,037	2,465,061	—
Stock units and unvested restricted stock	2,696,879	3,761,345	—
Average shares - diluted	200,451,899	230,154,989	302,998,615
Basic net income (loss) per share	0.84	2.19	(0.17	)
Diluted net income (loss) per share	0.82	2.13	(0.17	)

The weighted average shares that have an antidilutive effect in the calculation of diluted net income (loss) per share attributable to CapitalSource Inc. and have been excluded from the computations above were as follows:

	Year Ended December 31,
	2013	2012	2011
Stock units	—	1,858	2,956,796
Stock options	473,666	1,256,195	7,242,390
Shares issuable upon conversion of convertible debt	—	—	1,069,517
Unvested restricted stock	—	52,552	4,781,650

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Net Income (Loss) Per Share (Details 1)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock units [Member]
Antidilutive effect of diluted net loss per share
Antidilutive effect of diluted net loss per share	0	1,858	2,956,796
Stock options [Member]
Antidilutive effect of diluted net loss per share
Antidilutive effect of diluted net loss per share	473,666	1,256,195	7,242,390
Shares issuable upon conversion of convertible debt [Member]
Antidilutive effect of diluted net loss per share
Antidilutive effect of diluted net loss per share	0	0	1,069,517
Unvested restricted stock [Member]
Antidilutive effect of diluted net loss per share
Antidilutive effect of diluted net loss per share	0	52,552	4,781,650