CASH 2018 Special Proxy Statement

Significant declines in economic conditions may stress the financial health of Crestmark’s borrowers and decrease the value of Crestmark’s collateral more significantly than traditional banks. Crestmark provides business-to-business working capital solutions, equipment leasing and asset-based lending services that are outside the realm of what traditional banks typically offer. These services include customizable business lines of credit, machinery and equipment financing, term loans, working capital acquisition funding and expansion financing, discount factoring and traditional factoring. Crestmark typically provides these services to customers who are not “bankable” under traditional lending standards and Crestmark’s loans are based in large part on the value of and control over the borrower’s collateral. Stressed economic conditions may reduce the ability of Crestmark’s borrowers to make loan and lease payments or cause the value of Crestmark’s collateral to decline. The effect of a downturn in general economic conditions may be more significant for Crestmark’s business than for traditional banks due to the specialized nature of its financial products and collateral. Changes in pricing, availability or regulation of brokered deposits and listing services as sources of capital could have a negative impact on Crestmark’s business. Crestmark is a non-cash bank and does not maintain a traditional retail branch or deposit network. Crestmark primarily relies upon brokered deposits and internet listing services as sources of capital, which are supplemented by internet-based retail and commercial deposits. If brokered deposits or funds from listing services become more expensive or otherwise more difficult to obtain and Crestmark is unable to replace them with suitable sources of liquidity, Crestmark’s net interest margin, liquidity, profitability and results of operations could suffer. Crestmark’s future success is dependent on its ability to compete effectively in the highly competitive banking industry. Crestmark faces substantial competition in all phases of its operations from a variety of different competitors, and its future growth and success depends on its ability to compete effectively in this highly competitive environment. Crestmark competes for loans, leases and other financial services with numerous national and regional banks, thrifts, credit unions and other financial institutions, as well as other entities that provide financial services, including specialty lenders, securities firms and mutual funds. Some of the financial institutions and financial service organizations with which Crestmark competes are not subject to the same degree of regulation as Crestmark. Many of Crestmark’s competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than Crestmark does, offer larger branch networks than Crestmark and offer other services which Crestmark does not, including trust and international banking services. Most of these entities have greater capital and other resources than Crestmark does, which, among other things, may allow them to price their services at levels more favorable to customers and to provide larger credit facilities than Crestmark does. This competition may limit Crestmark’s growth or earnings. Under specified circumstances (that have been modified by the Dodd-Frank Act), securities firms and insurance companies that elect to become financial holding companies under the BHCA may acquire banks and other financial institutions. The financial services industry may also become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. Crestmark’s risk management systems may fall short of their intended objectives. Crestmark seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While Crestmark employs risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes, which may result in Crestmark incurring losses. 24