buying and selling portfolios Nefa funding symposium 2016 buying and selling portfolios Presentation with Mike Coon, Mikki Henkelman and Jaimie Haver

Agenda Introduction Building your portfolio Portfolio from the Buyer’s Perspective Managing your portfolio Q & A

Who Are We and What Do We Know? Mike Coon - Axis Capital, Inc. Mike Coon has over 25 years of experience in banking and equipment finance, most recently as Vice President of Syndications at Axis Capital, one of the nation’s largest independent equipment finance companies. He has worked in most areas of the industry including credit, collections, marketing and funding and is a member of the Executive Committee of the NEFA.

Who Are We and What Do We Know? Mikki Henkelman, CLFP – Stearns Bank, N.A. Mikki Henkelman is the Syndication Specialist at Stearns Bank N.A. and has been in the Equipment Leasing and Finance industry for 9 years. Stearns Bank is active in both buying and selling portfolios in a variety of industries. Mikki facilitates the buy and sell process as well as manages back end portfolio relationships. In addition to Syndications, she is active in Credit and Underwriting at Stearns Bank.

Who Are We and What Do We Know? Jaimie Haver, CLFP – Banc of California, N.A. Jaimie began her career in commercial equipment leasing in 1987. She has had opportunities to learn each facet of transaction management, from sales, credit, documentation, funding, accounting, servicing, reporting, portfolio sale and acquisition and default management. In 2012, Jaimie joined the team to build the commercial specialty finance group with Banc of California, N.A., where they have built a team of 17 professionals, manage a portfolio of nearly $300M with close to 6,000 contracts. Jaimie oversees bank compliance for the department and contract fulfillment and management.

Building Your Portfolio Overview Pool Concept Build pools based on lessor’s capacity and lender’s appetite Discount pools to take-out lender(s) on periodic basis Develop relationships, credit policies, review documents, negotiate agreements and negotiate pricing/structure PERFORM!

Building Your Portfolio Considerations for the Lessor: Sales and Marketing Credit Policies and Adjudication Documentation Policies and Requirements Funding Policies and Procedures Interim Financing Take-out funding Servicing and Reporting*

Building Your Portfolio Sales and Marketing Sell what you can sell Sales training Marketing Decisions: Geographical Industries Assets Credit Profiles Disciplined sales strategy/checks and balances

Building Your Portfolio Credit Policy and Adjudication Credit policies should match take-out lender’s policies Complete reporting suite: CBRs, PayNet, D & B, Lexis Nexis Lending authorities and committees Exceptions and overrides Conservative approach-get lender’s confidence Fraud prevention

Building Your Portfolio Documentation Policies and Requirements Documentation policies should match take-out lender’s policies Exceptions and waivers Complete, accurate; titles/insurance Legal counsel

Building Your Portfolio Funding Policies and Procedures Documentation audit Fraud prevention Compliance check Accounting and booking functions

Building Your Portfolio Interim Financing Warehouse line, cash, private investment Size, advance rate, structure and terms Covenants and restrictions Reporting: financial and portfolio Aging: permanent, warehouse, short term bridge funding Documentation custodian

Building Your Portfolio Take-out funding Pre-arranged relationship Pricing Structure: recourse, limited recourse, non-recourse Credit and documentation policies Volume commitments-offering sizes, annual volume expectations Portfolio management, remarketing and delinquency assistance Pool Offering Data template Credit/documentation files Approval process

Building Your Portfolio Take-out funding (con’t) Purchase price calculation(s) Doc review Closing documents Funding Payoff interim funding lender(s) Chattel Accounting Servicing/Reporting

Portfolio from Buyer’s Perspective Overview Increasing Efficiency Marketing of Portfolios Presentation of Sale Documentation Working Toward Completion of Sale Follow Up

Portfolio from Buyer’s Perspective Increasing Efficiency Understanding complete life cycle of a portfolio Start Small Finding the right fit Communication Learn from one another Providing Correct Information Playing to your Strengths Servicing: Pros & Cons of Keeping or Relinquishing

Portfolio from Buyer’s Perspective Marketing Portfolio Reasons for selling Industry, collateral, location, origination, or individual guarantor concentration Presentation of Sale Data Tape Diligence Contracts Institution Procedures Departmental Compliance

Portfolio from Buyer’s Perspective Documentation Legal Counsel Reps & Warrants Working Toward Completion of Sale Servicing: Line up Servicing (or backup if lessor retaining) Internal Capabilities Funding: Internal Raising Funds

Portfolio from Buyer’s Perspective Follow Up Buyer Servicing Customer Notifications Responsibilities to Seller Seller Servicing Differentiate Contracts Responsibilities to Buyer

Managing Your Portfolio Overview of Management Considerations Loan Loss Reserve In house capabilities vs. out sourcing Infrastructure and platform Disaster recovery plan Reporting capabilities Insurance follow up Sales and Use tax per jurisdiction Property tax reporting Collection department Asset management Jurisdiction Servicing to term or to sell On-going cost, internal and external On-going name recognition for future opportunities and options Representations and warranties to customer / vendor

Managing Your Portfolio Loan Loss Reserve What percentage of pool (can be on transaction level) is reasonable to set aside for potential losses? Dependent on your credit quality Industry type Geographic considerations Asset Setting a reasonable reserve will be crucial to sustaining in downturn in portfolio performance. Depending on your expected losses (Net investment -FMV of Asset + Collection and Remarketing fees + legal = Gain / Loss) will determine the amount you should set aside and re-evaluate on at least a quarterly basis for loss reserve.

Managing Your Portfolio In house capabilities vs. out-sourcing Accounting experience for booking correct entries for accurate on-going reporting Invoicing accurately with accounting policy for timely payment posting Customer service department Billing inquiries Insurance issues, including losses Assumptions Payment relief Fixed cost of operations vs size of portfolio Opinion: Utilizing the services of a Third Party Servicer allows the Lessor to continue to grow business and rely on the Servicer to manage all aspects of the portfolio and provide you with on-going monthly reports that you reconcile to against the cash you receive. On-going name recognition for future opportunities and options can be managed with private label servicing.

Managing Your Portfolio Infrastructure and platform Disaster recovery plan Back-up data for all accounting and customer notes Customer confidentiality and protection of data Reporting capabilities Monthly lease pool data reports Cash reconciliation Delinquency detail Insurance Initial Renewals Cancellations Outsource or keep internal Sales and Use tax per jurisdiction Registration Remittance Returns Property tax reporting Jurisdiction Billing / collecting from customer Disputes

Managing Your Portfolio Collection department Effective collection manager Demonstrate collection efforts were done in accordance to law; documentation and Collection Policy Know when to see counsel for initial demand or full legal pursuit Platform for keeping history of collection notes and recording of collection calls Asset management Evaluations for Loss Recovery projections Securing asset (s) Recording asset in your inventory Property tax on any asset in your inventory Insurance on your new property Remarketing your asset Jurisdiction HUGE consideration is jurisdiction in documentation; in order to sell portfolio, jurisdiction language should include roaming option at sole discretion of Lessor or whomever holds security interest

Closing Thank you for taking the time to be with us during this presentation and for allowing us to share some of our experiences, opinions and recommendations in portfolio management. We hope you were able to take something meaningful away from the discussion and please reach out to any one of us with any additional comments or questions. Mike, Mikki and Jaimie