CASH 2018 Special Proxy Statement

Asset Quality The following table sets forth information regarding Crestmark’s non-performing assets, accruing restructured loans, levels of the allowance for credit losses, and certain ratios associated with these amounts (dollars in thousands): At December 31, 2017 2016 2015 2014 2013 Non-performing loans: Non-accruing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,727 $ 3,268 $ 4,783 $ 5,278 $10,266 Loans 90 days or more past due, still accruing interest . . . . . 3,828 612 1,787 3,142 1,654 Total non-performing loans . . . . . . . . . . . . . . . . . . . . . . . . . . 6,555 3,881 6,570 8,420 11,920 Repossessed collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,087 3,855 — — — Total non-performing assets . . . . . . . . . . . . . . . . . . . . $ 8,642 $ 7,736 $ 6,570 $ 8,420 $11,920 Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . $10,377 $10,220 $ 9,651 $10,038 $12,972 Accruing restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1,197 40 5,295 322 — Total non-performing loans to total loans . . . . . . . . . . . . . . . 0.70% 0.55% 1.14% 1.61% 2.77% Total non-performing assets to total assets . . . . . . . . . . . . . . 0.71% 0.85% 0.84% 1.21% 2.37% Allowance for credit losses to non-performing loans . . . . . . 158.30% 263.35% 146.90% 119.22% 108.82% Non-performing loans consist of non-accrual loans and loans 90 days or greater past due but still accruing. Crestmark management continuously monitors the loans, leases and receivables for credit risk by analyzing relevant information about the borrower’s ability to service their debt such as: current financial information, historical payment performance, repayment probability based on the liquidation value of the collateral pledged, credit documentation, and current economic trends and other relevant factors. While improvements in the overall economy have been evident in the last five years, Crestmark management believes future performance of the portfolio may be limited by macroeconomic events such as continued increases to interest rates that could adversely affect Crestmark’s totals for non-performing assets. Loans, leases and receivables that may not be able to service the debt instruments in accordance with the loan agreements are placed under close management supervision. These loans are assessed for non-accrual status and adjustments to the allowance for credit losses. Should a loan be placed on non-accrual status, any interest previously accrued but not yet collected is reversed against interest income in the current year. Payments received on non-accrual loans are generally accounted for on the cash-basis or cost recovery method until qualifying for return to accrual status. Borrowers that are unable to have their loan returned to accrual status generally proceed toward foreclosure and ultimate repossession of collateral. These assets are initially recorded at the fair value, less costs to sell, when acquired, establishing a new cost basis. The valuation of repossessed assets is evaluated regularly to ensure the recorded amount is supported by its current fair value. If the fair value of the asset declines, a valuation allowance is recorded in the consolidated statement of income. Year-end non-performing assets, which include non-accrual loans, loans 90 days or more past due, renegotiated debt, non-accrual securities, and other real estate owned, increased $0.9 million, or 11.7%, from December 31, 2016 to December 31, 2017. Non-performing assets as a percent of total assets at year-end decreased from 0.85% in 2016 to 0.71% in 2017. 120