CASH 2018 Special Proxy Statement

The following table presents the allowance for credit losses by allocation to the various segments of the portfolio (dollars in thousands): Allowance by Loan Category At December 31, 2017 2016 2015 2014 2013 % of % of % of % of % of Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Commercial loans . . . . . $ 4,772 37% $ 4,674 38% $3,714 42% $ 3,928 41% $ 5,362 35% Consumer loans . . . . . 250 6% 198 6% 184 6% 507 6% 390 5% Leases . . . . . . 1,606 23% 806 17% 629 13% 803 9% 318 5% Factoring receivables . 3,749 34% 4,542 39% 5,124 39% 4,800 44% 6,902 55% Total . . . $10,377 100% $10,220 100% $9,651 100% $10,038 100% $12,972 100% In each period, the provision for loan losses in Crestmark’s statement of operations is derived from the combination of an estimate by Crestmark of loan and lease losses that occurred during such period and the ongoing adjustment of prior estimates of losses. The provision for credit losses increases the allowance for credit losses, a valuation account which appears on Crestmark’s consolidated statements of condition. As the specific customer and amount of a loan loss is confirmed, including by gathering additional information and taking collateral in full or partial settlement of the loan, and bankruptcy of the borrower, the loan is charged off, reducing the allowance for loan losses. If, subsequent to a charge off, Crestmark Bank is able to collect additional amounts from the customer or sell collateral worth more than earlier estimated, a recovery is recorded. At December 31, 2017, the allowance for credit losses of $10.4 million consisted of general reserves of $9.2 million and specific reserves on $1.2 million of individually evaluated impaired loans of $19.3 million. At December 31, 2016, the allowance for credit losses of $10.2 million consisted of general reserves of $8.9 million and specific reserves on $1.3 million of individually evaluated impaired loans of $24.8. For further discussion on the allocation of the allowance for loan and lease losses, see Note 4 of the audited consolidated financial statements of Crestmark included in this joint proxy statement/prospectus. Although Crestmark management believes the general and specific components of the allowance for credit losses have been measured in accordance with U.S. GAAP, actual losses are ultimately dependent upon future events and, as such, further provision for credit losses may become necessary. Source of Funds Crestmark’s ability to fund operations, meet depositor withdrawals, meet loan demand, and to meet maturing obligations and existing commitments depends on the cash flows generated from operations. Certificates of deposits, borrowings, loan and investment repayments and payments, and proceeds from the sale of securities and loans are the primary sources of funds for Crestmark. Crestmark continually monitors its cash position and borrowing capacity as part of its liquidity management process. Crestmark has the ability to borrow from the Federal Reserve Bank and through various correspondent banks in the form of federal funds purchased lines of credit. These funding sources require Crestmark to pledge assets, typically in the form of available for sale securities or loans as collateral. As of December 31, 2017, Crestmark had available lines of credit of $152.0 million. 123