CASH 2018 Special Proxy Statement

Contractual Obligations Crestmark has various financial obligations that may require future cash payments. The ability to generate sufficient liquidity to fund these obligations is primarily dependent upon Crestmark management being able to purchase funds at favorable rates. Additional sources of liquidity available to Crestmark include, but are not necessarily limited to, loan payments received, sales of investment securities, and borrowings on established lines of credit. The following table presents, as of December 31, 2017, significant fixed and determinable contractual obligations to third parties by payment date (dollars in thousands): As of December 31, 2017 Less than More than Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . $1,018,829 $831,716 $176,015 $11,098 Non-recourse notes payable . . . . . . . . . . . . . . . . . . . . . 30,766 14,829 14,365 1,572 Minimum lease payments . . . . . . . . . . . . . . . . . . . . . . 2,241 969 723 549 Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 7,714 1,428 2,858 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,063,836 $855,228 $192,531 $16,077 $— Off-Balance Sheet Financing Arrangements At December 31, 2017, Crestmark had available balances on lines of credit of $363,631 and standby letters of credit of $1,613. For discussion of Crestmark’s off-balance sheet financing arrangements, see Note 11 of “Notes to Audited Consolidated Financial Statements,” on page F-29. Depending on the extent to which the commitments or contingencies described in Note 11 occur, the effect on Crestmark’s capital and net income could be significant. Capital Ratios Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for Crestmark Bank on January 1, 2015 with full compliance with all of the requirements including a capital conservation buffer being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The capital conservation buffer is being phased in from 0.00% in 2015 to 2.50% by 2019. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Under the Basel III capital requirements, in order to be considered well-capitalized, Crestmark Bank must have a common equity tier 1 (CET1) ratio of 7.0%, a Tier 1 ratio of 8.5%, a total risk-based capital ratio of 10.5% and a leverage ratio of 5.0%. When fully phased in on January 1, 2019, the Basel III Capital Rules would require Crestmark to maintain the following: • A minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation). • A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation). • A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (resulting in a minimum total capital ratio of 10.5% upon full implementation). • A minimum leverage ratio of 5%, calculated as the ratio of Tier 1 capital to average assets. 125