Presented by:

Justin Barr | BankDATAWORKS.com

Michael Iannaccone | MDI Investments

Jon Winick | Clark Street Capital

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Justin Barr, President. Mr. Barr is widely recognized as an expert on the community banking industry and is often quoted by leading financial industry media outlets. Mr. Barr is a third generation Chicago banker and second generation commercial lender and bank turnaround expert. Mr. Barr also manages a C&I lending focused bank partnership program for BankDATAWORKS’ parent company Franklin Capital Network, a national commercial finance company.

Michael Iannaccone, Member-Advisory Committee. Mr. Iannaccone, founder and President of MDI Investments, Inc., is a seasoned investment banker who is widely recognized as an expert on the community banking industry and is regularly quoted by leading financial media outlets.

Jon Winick, Member-Advisory Committee. Mr. Winick, founder and President of Clark Street Capital Management, LLC, is a nationally recognized expert on the SBA 7(a) and 504 lending programs and currently serves as Chairman of SomerCor 504, a leading originator of SBA 504 loans in Chicago and Illinois.

U.S. ECONOMIC OVERVIEW

U.S. BANKING SECTOR OVERVIEW ◦ REVENUE AND EARNINGS PERFORMANCE

◦ LENDING ENVIRONMENT

NICHE C&I LENDING STRATEGIES ◦ ACCOUNTS RECEIVABLE FACTORING

CASE STUDY: CRESTMARK BANK

◦ SBA 7(a) LENDING

CASE STUDY: LIVE OAK BANKING COMPANY

◦ BUY / BUILD / JOINT VENTURE ALTERNATIVES

U.S. economy continues to grow, but at a sluggish pace.

Nearly three years into the recovery, gross domestic product (GDP) is about 7 percent above its recession trough but barely above its pre-recession level.

Employment growth has been uneven in 2012 and remains below expectations.

Economic outlook is uncertain due to: ◦ Continued labor market weakness.

◦ Ongoing Eurozone crisis.

◦ Slowing in emerging markets.

◦ U.S. fiscal situation.

• Consensus private sector forecast suggests unemployment will remain above normal through 2013.

• Slow recovery implies slow growth in spending and loan activity.

Revenues remain relatively flat. ◦ YTD Gross Revenue ↓0.9% YOY @ 9/30/2012

Net income improving, at same levels as in 2005 and 2006, driven by lower provisions and charge-offs. ◦ YTD Net Income ↑13.7% YOY @ 9/30/2012

◦ YTD ALLL Provision ↓23.2% YOY @ 9/30/2012

◦ YTD Net Income ↓25.6% YOY @ 9/30/2012

ROA and ROE improving but well below long-term averages.

Net interest margin remains under pressure, but for larger banks is higher today than in 2007. ◦ Low interest rate environment likely to persist.

◦ As older, higher margin assets mature or default, they are replaced by lower yielding instruments.

Loan to deposit ratios at historic lows.

Loan portfolios remain real estate heavy. ◦ 54% of total loans @ 9/30/2012

Real estate loan growth remains relatively weak. ◦ ↑1.1% YOY @ 9/30/2012

C&I loans showing strong growth. ◦ ↑14.7% YOY @ 9/30/2012

◦ Growth centered on loans over $1MM.

Loan demand from larger businesses is growing.

Loan demand from small businesses continues to lag.

Banking Sector Overview Lending Environment

C&I loan competition intense and increasing.

C&I loan underwriting standards easing. ◦ Net easing for 8 consecutive quarters

C&I loan rate spreads decreasing. ◦ 60% of bankers surveyed report ↓ spreads for loans

to larger businesses.

◦ 46% of bankers surveyed report ↓ spreads for loans to small businesses.

Regulatory authorities increasing exam scrutiny of C&I lending practices.

Banking Sector Overview Lending Environment (continued)

RESIDENTIAL REAL

ESTATE, 24.9%

COMMERCIAL REAL

ESTATE, 14.0%

CONSTRUCTION AND

DEVELOPMENT REAL

ESTATE, 2.8%

RESIDENTIAL REAL ESTATE

- HOME EQUITY LOANS,

7.5% MULTI-FAMILY REAL

ESTATE, 3.0% FAMLAND, 0.9% OTHER REAL ESTATE, 0.8%

COMMERCIAL AND

INDUSTRIAL, 19.2%

CONSUMER, 17.1%

AGRICULTURAL

PRODUCTION,

0.9%

DEPOSITORY

INSTITUTIONS, 1.4%

GOVERNMENTS, 1.2% ALL OTHER, 4.9% LEASE FINANCING

RECEIVABLES, 1.4%

52% 53% 55%

59% 59% 62% 62% 61%

59% 61%

58% 56%

54%

23% 22% 19%

17% 16% 16% 16%

18% 19% 17%

16% 17%

19%

0%

10%

20%

30%

40%

50%

60%

70%

REAL ESTATE SECURED LOANS

COMMERCIAL & INDUSTRIAL LOANS

CONSUMER LOANS

FARM LOANS

OTHER LOANS

LEASES

The real estate meltdown has made clear the need for diversified credit risk and cash flows.

In response, many banks have moved to balance real estate loan concentrations through C&I loan growth but face considerable challenges, including: ◦ Intensifying competition, causing tightening

spreads and loosening structures. ◦ Weak loan demand from qualifying borrowers. ◦ Regulatory scrutiny of new C&I loan business,

especially for new market entrants.

Niche C&I Lending Strategies The Challenge

ACCOUNTS RECEIVABLE FACTORING

Lending Strategy focused on accounts receivable factoring.

Established in 1996. Privately held.

Headquartered in Troy, MI. ◦ Single deposit taking location.

Financial Snapshot 9/30/2012: ◦ Total Assets: $407.1MM ◦ Total Loans: $367.9MM (∧13.6% YOY) C&I Loans: $344.2MM (93.5%)

◦ YTD Net Income: $8.8MM ◦ Annualized, YTD ROA: 3.0% ◦ Annualized YTD ROE: 24.7% ◦ Well capitalized (all ratios)

0.46%

1.53%

2.86%

3.20%

2.99%

0.24%

-0.03%

0.34%

0.61%

1.02%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2008 2009 2010 2011 3Q 2012

Crestmark Bank ROA

Average ROA (All FDIC Insured Banks)

3.72%

12.40%

22.97%

26.92%

24.67%

2.45%

-1.27%

1.26% 1.89%

9.03%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2008 2009 2010 2011 3Q 2012

Crestmark Bank ROE

Average ROE (All FDIC Insured Banks)

Ownership of and control over the A/R portfolio and cash ◦ Account debtors notified to pay lender pursuant to UCC9-406(a). ◦ A/R payments sent directly to lender lockbox or P.O. box. ◦ A/R excluded from company’s estate in the context of bankruptcy.

Funding decisions predicated on in-depth, real-time, verified A/R data ◦ Each individual invoice is ledgered in and tracked by specialized

MIS. ◦ Invoices with supporting documents evidencing delivery sent to

lender by borrower. ◦ 70-80% of invoices directly verified with account debtors. ◦ Lender creates real-time, verified eligibility schedules and

borrowing base certificates.

Niche C&I Lending Strategies: A/R Factoring Key Attributes to Lender

Strong A/R liquidation outcomes due to relationships with individual account debtors, verifications and credit limits. ◦ Lender has outsourced A/R department and develops

relationships with account debtor A/P personnel. ◦ Hard to dispute an invoice that’s been verified as good. ◦ Initial and ongoing underwriting of individual account debtors. Establishment of credit limits where appropriate.

Extraordinary insight into integrity of operations of borrower.

Applicable to a significantly underserved market segment with yields significantly in excess of traditional C&I lending.

Niche C&I Lending Strategies: A/R Factoring Key Attributes to Lender (continued)

Immediate access to greater working capital.

Faster over-line decisions due to robust, real time collateral information and insight into operations of borrower.

Enhanced customer credit information and decision making.

Enhanced monitoring and collection of A/R portfolio resulting in declination of days sales outstanding.

Niche C&I Lending Strategies: A/R Factoring Key Attributes to ‘Borrower’

Most asset based loans to small and mid-size companies should be structured as factoring accommodations. • Traditional, company prepared borrowing base

certificate data is not real-time and is generally inaccurate.

• If assets of most small to mid-size companies were marked-to-market, companies would have a negative tangible net worth.

• Current market pricing for bankable ABL deals is not (at all) commensurate with risks.

Business-to-business companies that otherwise do not qualify for traditional bank financing or require financing in excess of what is available through such financing. ◦ Early stage companies ◦ Companies outgrowing their capital base ◦ Companies in a turnaround mode

Small & midsize companies with unconditional sales and verifiable invoices, except: ◦ Because of progress payments, construction industry not

eligible ◦ Medical receivables for services to patients not eligible

Niche C&I Lending Strategies: A/R Factoring Target Markets

SBA 7(a) Loan Program

Lending strategy exclusively focused on SBA 7(a). In 2012, 4th largest 7(a) lender nationally having originated 489 new 7(a) loans during the year with an aggregate principal balance of $463MM.

Established in 2008. Privately held.

Headquartered in Wilmington, NC. ◦ Single deposit taking location.

Financial Snapshot @ 9/30/2012: ◦ Total Assets: $320.7MM ◦ Total Loans: $230.8MM (↑25.6% YOY) C&I Loans: $79.4MM (34.6%)

◦ YTD Net Income: $11.6MM ◦ Annualized, YTD ROA: 5.3% ◦ Annualized, YTD ROE: 44.1% ◦ Well capitalized (all ratios)

1.84%

4.62%

6.16%

5.29%

-0.03%

0.34% 0.61%

1.02%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2009 2010 2011 3Q 2012

Live Oak Banking Company ROA

Average ROA (All FDIC Insured Banks)

20.11%

51.99%

57.38%

44.11%

-1.27% 1.26% 1.89%

9.03%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2009 2010 2011 3Q 2012

Live Oak Banking Company ROE

Average ROE (All FDIC Insured Banks)

Largest SBA lending program.

Designed to finance businesses that otherwise would not qualify for bank financing through 75% SBA guaranty.

Loan volume statistics 2007 – 2011:

Niche C&I Lending Strategies: SBA 7(a) Overview

$14.3 $12.7 $9.2

$12.4

$19.6

$46.1 $47.7 $48.6 $50.8

$55.2

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2007 2008 2009 2010 2011

B

I

L

L

I

O

N

S

7(a) Loans Approved

7(a) Loans Outstanding

Reduce loan portfolio risk, while increasing profitability. ◦ Reduce Risk. 75% guaranty of the outstanding

loan balance by the US Federal Government.

◦ Increase Profitability. The guaranteed portion of an SBA loan (75%) can be sold into an active secondary market at a substantial premium.

Improve capital ratios. ◦ Bank only needs to pledge reserves against the

unguaranteed portion of the loan (25%).

Niche C&I Lending Strategies: SBA 7(a) Key Attributes to Bank

Increase Eligible Loan Size ◦ Only the unguaranteed portion of the loan (25%)

needs to be counted against the Bank’s legal lending limit to one borrower rule.

Reduce Concentration Exposure and/or Exposure to Stressed C&I Credits ◦ Existing performing C&I loans that meet certain

criteria can be refinanced and 75% guaranteed portion sold at a substantial premium, regardless of collateral coverage.

Longer terms with lower payments.

Fully amortizing: no calls or balloons.

Full collateral coverage is not required.

Lower equity contributions.

No prepayment penalty for loans with a maturity of <15 years.

Niche C&I Lending Strategies: SBA 7(a) Key Attributes to Borrower

Guarantee Percentage: ◦ 75% guarantee on loans over $150,000

Rate: ◦ Max. floating rate of P+ 2.75% on loans <$150,000

Maturity: ◦ Intangibles (working capital, goodwill) – 10 yrs.

◦ Equipment – 10 yrs. (can be longer given useful life appraisal)

◦ Real Estate – 25 years

Amortization: ◦ Fully amortizing, no calls or balloons

Niche C&I Lending Strategies: SBA 7(a) Loan Terms

Prepayment Penalty (retained by SBA): ◦ Term <15 years – None ◦ Term >15 years – 5/3/1

Collateral Advance Rates: ◦ N/A. But lender must take all ‘available’ collateral using

advance rates at the bank from similar sized conventional loans.

◦ An assignment of life insurance is required on all loans that are not fully collateralized by commercial real estate (M&E under some circumstances)

◦ Junior lien on personal residence required on all loans that are not fully collateralized and where the residence has equity.

Personal Guarantees: ◦ Full and unlimited personal guarantees from all owners

of 20%+.

Niche C&I Lending Strategies: SBA 7(a) Loan Terms

Business Acquisition: ◦ Requires 3rd party valuation. ◦ Generally requires 25% equity. Equity can be in the form of cash

from the buyer (funds may not be borrowed) or seller financing. If seller note is being used as equity, then it must be on full standby for at least 2-years (i.e. subordinated w/ PIK interest).

Real Estate: Purchase, Refinance or Construction: ◦ All transactions with CRE taken as collateral require 3rd party

appraisal and applicable environmental study.

Refinance: ◦ Any business related debt, other than shareholder notes

Equipment: Purchase or Refinance ◦ Term can exceed 10-yrs. if supported by 3rd party appraisal.

Working Capital

Must be a legal, for profit entity .

Based in the U.S.

A Small Business (<$3.5 million income and <$15 million net worth) .

Commercial real estate must be 51% owner occupied (60% for new construction).

Principals must be of “good character” and legal U.S. citizens or residents.

Per the SBA, ‘prudent’ lending standards govern SBA 7(a) loan underwriting. The guarantee cannot be used to replace the reasonable credit judgment and prudent underwriting policies that would be used on similar size conventional loans by the bank. ◦ No minimum debt service coverage ratios, but the

primary source of repayment on the loan must be the cash flow of the business and not liquidation of collateral or personal resources of guarantor.

◦ Financial covenants and reporting requirements should be included as necessary. However, a loan may generally only be accelerated for payment default.

◦ No required minimums on FICO scores. However, it is imperative that the bank follow prudent lending standards.

BUY

◦ Benefits:

Immediate market impact.

Predictable performance metrics.

Meets regulatory mandates regarding control processes, systems and human resource talent.

◦ Risks:

Significant up-front cost, including likely goodwill.

Permanent.

Potential for culture clash.

BUILD

◦ Benefits:

Control.

Ability to ensure cultural consistency.

◦ Risks:

Delayed and uncertain market impact.

Significant up-front cost to acquire systems and human resource talent.

Potential regulatory issues regarding lack institutional business line experience.

JOINT VENTURE ◦ Benefits: Immediate market impact.

Variable cost.

Improves efficiency ratio.

Ability to test effectiveness of business model.

Bridge to building in-house capability.

Meets regulatory mandates regarding control processes, systems and human resource talent.

◦ Risks: Reputation of J/V partner has potential to taint that of

bank.

Exclusivity not necessarily ensured.

Justin Barr, BankDATAWORKS.com ◦ (888) 701-1500 | Jbarr@BankDATAWORKS.com

Michael Iannaccone, MDI Investments ◦ (708) 445-7238 | Michael@MDIinvestments.com

Jon Winick, Clark Street Capital ◦ (312) 662-1500 | Jon.Winick@ClarkStCapital.com

Sageworks, Inc. ◦ (919) 851-7474 x619 | Billy.Burnet@SageworksInc.com