CASH 2018 Special Proxy Statement

Risk Category of Loans Crestmark regularly analyzes the loan, leases and receivables and assigns certain risk grades as further described in Note 4 of the consolidated financial statements of Crestmark included in this joint proxy statement/ prospectus. The following table sets forth the aggregate principal amount based on the risk category of loans at the dates indicated (dollars in thousands): At December 31, 2017 2016 2015 Pass Special Mention Substandard Total Pass Special Mention Substandard Total Pass Special Mention Substandard Total Commercial loans . . . . . . . . . $264,975 $ 60,486 $ 8,538 $ 333,999$200,951$ 47,800 $14,121 $262,872$171,754 $ 56,160 $13,653 $241,567 Consumer loans . . . 49,920 — — 49,920 38,781 — — 38,781 34,917 — — 34,917 Leases . . . . . . . . . . 110,553 85,339 5,508 201,400 86,255 28,924 3,983 119,162 57,189 15,354 1,778 74,321 Factoring receivables (1) . . . 376,196 47,458 5,025 428,679 344,403 30,968 6,843 382,214 283,709 42,070 9,392 335,171 Total . . . . . . .$801,644 $193,283 $19,071 $1,013,998 $670,390$107,692 $24,947 $803,029$547,569 $113,584 $24,823 $685,976 (1) Balance is gross of contingency reserve Risk rating categories of special mention and substandard loans, leases and receivables totaled $213.6 million at December 31, 2017, up from $132.6 million, or 61.0%, at December 31, 2016. The primary reason for this increase was the inclusion of $56.4 million of leases in special mention due to naturally occurring growth in the lease portfolio as well as Crestmark’s efforts to diversify from Fortune 1000 technology sector leases to more collateral reliant, equipment-based leases to middle market customers. Crestmark Equipment Finance (“CEF”) experienced the majority of the growth in lease balances in 2017. Crestmark’s internal monitoring mechanism does not reflect any specific weakness in these lease transactions but is used to monitor and identify this new customer base. These equipment leases originated at CEF have been underwritten to standards that would result in a pass classification in the Corporation’s non-lease portfolio. Performance is monitored and measured by the same qualifying pass standards. Crestmark management has implemented a rigorous credit monitoring program for all loans and leases including the use of lock box agreements with borrowers to control customer cash receipts, attentive portfolio management, and established credit limits for borrowers. All special mention loans and leases were performing as of December 31, 2017. Special mention and substandard loans, leases and receivables decreased $5.8 million, or 4.2%, from $138.4 million at December 31, 2015 to $132.6 million at December 31, 2016. This decrease was attributable to the continued positive economic growth noted in Crestmark’s targeted industries of lending focus. Allowance for Credit Losses The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent Crestmark’s single largest concentration of risk. The allowance for credit losses is Crestmark’s estimation of incurred losses within the existing loan and lease portfolio. Crestmark allocates the allowance for credit losses throughout the loan and lease portfolio based on its assessment of the underlying risks associated with each loan segment. Crestmark’s assessments include allocations based on specific impairment valuation allowances, historical charge-offs, internally assigned credit risk ratings, and past due and non-accrual balances. A portion of the allowance for credit losses is not allocated to any one loan segment, but is instead a reflection of other qualitative risks that reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. 121