CASH 2018 Special Proxy Statement

Income Taxes For each of the years in the three-year period ended December 31, 2017, there has been a decline in Crestmark’s effective tax rate relative to the prior year. Crestmark reported income tax (benefit) expense of ($2.0) million in 2017, $2.6 million in 2016, and $5.4 million in 2015. This resulted in an effective tax rate of (7%), 11%, and 25% for the years ended December 31, 2017, 2016, and 2015, respectively. The decline in the effective tax rate in 2017 as compared to 2016 was primarily the result of an income tax benefit recorded due to the re-measurement of the net deferred tax liability. This re-measurement during 2017 approximated $5.7 million and was based upon the enactment of a change in the federal corporate tax rate from 35% to 21% by the TCJA. In addition, Crestmark has invested in energy related tax credits each of the past three years, which further reduced the effective tax rate. FINANCIAL CONDITION Balance Sheet Total assets increased $305.2 million, or 33.6%, from $908.2 million at December 31, 2016 to $1.2 billion as of December 31, 2017. Total securities increased $7.6 million, or 37.4%, at December 31, 2017 from December 31, 2016, reflecting an allocation of excess funds to earning assets while maintaining access to liquidity. Loans, leases and receivables net of the allowance increased $205.5 million, or 30.4%, to $882.2 million at December 31, 2017 from $676.7 million at December 31, 2016. When comparing December 31, 2017 and December 31, 2016 loan types, the largest change was an increase in lease receivables of $82.2 million to $201.4 million at December 31, 2017 from $119.1 million at December 31, 2016. In addition, commercial loans increased $71.1 million to $334.0 million at December 31, 2017 from $262.9 million at December 31, 2016. Increases in both leases and commercial loans represented 74.6% of the increase in loans, leases and receivables, net of allowance for the year ended December 31, 2017. Lease equipment inventory increased by $11.2 million, or 124.6%, at December 31, 2017 as compared to $9.0 million at December 31, 2016, in conjunction with the overall growth in Crestmark’s leasing business. Lease equipment inventory consists of both equipment inventory purchased by Crestmark Bank for future transfer to direct-financing, sales-type, and operating leases and equipment, net as well as lease equipment inventory returned to Crestmark Bank after lease termination. Premises, leasehold improvements, net increased $17.6 million at December 31, 2017 from $1.0 million at December 31, 2016 as Crestmark purchased its headquarters building in Troy, Michigan for $15.6 million in July 2017. The additional increase was due to furniture and equipment purchases at various locations, due to growth at Crestmark. Lastly, acquired lease residuals decreased $11.6 million to $2.9 million at December 31, 2017 from $14.5 million at December 31, 2016. The decrease was due to the acquired assets coming off lease and Crestmark Bank liquidating or re-leasing the assets. During the year ended December 31, 2017, Crestmark management continued to fund loan growth with both originated and brokered certificates of deposits. Certificates of deposit increased by $299.6 million, or 41.7%, from $719.2 million at December 31, 2016 to $1.0 billion as of December 31, 2017. From December 31, 2016 to December 31, 2017, federal funds purchased decreased $30.0 million as Crestmark Bank increased its reliance on brokered and originated certificate of deposits for funding. Additionally, other borrowings increased $12.0 million from December 31, 2016 to December 31, 2017 as Crestmark entered into an agreement with another financial institution in 2017 to provide additional liquidity and capital for Crestmark Bancorp, Inc. and Crestmark Bank to continue and support loan and lease growth, as well as pay-off the perpetual preferred stock associated with the Small Business Lending Fund program in March 2017. Total stockholders’ equity increased by $21.9 million, or 23.8%, from $92.0 million to $113.9 million for the years ending December 31, 2017 and 2016, respectively. The increase was due primarily to an increase in net income and the redemption of $8.25 million of preferred stock. 117