CASH 2018 Special Proxy Statement

Act. Proposals to modify existing regulations in light of the new core principles are under consideration by various federal regulatory agencies, including the CFPB. There can be no assurance that any such legislation will be enacted, or that changes in existing regulations will be adopted to implement the new core principles. Thus, the effect of financial services legislation and regulations remains uncertain. The implementation, amendment, or repeal of federal financial services laws or regulations may limit Crestmark’s business opportunities, impose additional costs on Crestmark, impact Crestmark’s revenues or the value of its assets, or otherwise adversely affect Crestmark’s business. Crestmark’s credit losses could increase and its allowance may not be adequate to cover actual loan losses. The risk of nonpayment of loans and leases is inherent in lending and leasing activities, and nonpayment, when it occurs, may have a materially adverse effect on Crestmark’s earnings and overall financial condition, as well as the value of its common stock. Crestmark’s focus on asset-based loans subjects Crestmark to the potential for fraud by borrowers regarding the value of underlying collateral. As a result, Crestmark may assume different or greater lending risks than other banks. Crestmark makes various assumptions and judgments about the collectability of Crestmark’s loan portfolio and provides an allowance for losses based on several factors. If Crestmark’s assumptions are wrong, Crestmark’s allowance may not be sufficient to cover Crestmark’s losses, which would have an adverse effect on Crestmark’s operating results. The actual amounts of future provisions for loan losses cannot be determined at this time and may exceed the amounts of past provisions. Additions to Crestmark’s allowance decrease Crestmark’s net income. Crestmark relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations. Crestmark is dependent upon the services of its management team, including its executive officers and its other senior managers. The unanticipated loss of Crestmark’s executive officers, or any of its other senior managers, could have an adverse effect on its growth and performance. In addition, Crestmark depends on Crestmark’s key sales managers. Several of Crestmark’s sales managers are responsible, or share responsibility, for generating and managing a significant portion of Crestmark’s loan and leasing portfolio. Crestmark’s success can be attributed in large part to the relationships these individuals, as well as members of Crestmark’s management team, have developed and are able to maintain with Crestmark’s customers as Crestmark continues to implement Crestmark’s community banking philosophy. The loss of any of these sales managers could adversely affect Crestmark’s portfolio and performance, and Crestmark’s ability to generate new loans. Many of Crestmark’s key employees have signed agreements with Crestmark agreeing not to compete with Crestmark in one or more of Crestmark’s markets for specified time periods if they leave employment with Crestmark. However, Crestmark may not be able to effectively enforce such agreements. Some of the other financial institutions in Crestmark’s markets also require their key employees to sign agreements that preclude or limit their ability to leave their employment and compete with them or solicit their customers. These agreements make it more difficult for Crestmark to hire sales managers with experience in Crestmark’s markets who can immediately solicit their former or new customers on Crestmark’s behalf. Crestmark’s business is subject to operational risks. Crestmark, like most financial institutions, is exposed to many types of operational risks, including the risk of fraud by borrowers, employees or outsiders, unauthorized transactions by employees or operational errors. Operational errors may include clerical or recordkeeping errors or those resulting from faulty or disabled computer or telecommunications systems. Given Crestmark’s volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully corrected. Crestmark’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. 26