Servicing & Guaranty Recovery Presented by: Mary Wamsley and Lisa Preston Proprietary and Confidential. Do not Distribute without permission.

SBA Portfolio Management / Lender Portal Objectives SBA Portfolio Management / Lender Portal SBA SOP Guidance Regular Servicing Servicing Actions / Matrix Intensive Servicing / Liquidation SBA Lender Portal Proprietary and Confidential. Do not Distribute without permission.

SOPs are available on the SBA Website @ SOP 50 57 Version 2 SOP 50 57 2, Version 2 became effective Dec. 1, 2015 and provides clear policies and guidance for both 7(a) Loan Servicing and Liquidation related to loans that have been fully disbursed and are in “regular servicing” and “liquidation” status. The SOP provides guidance for lenders to resolve guaranty purchased 7(a) loans in a timely and commercially reasonable manner, and add consequences for when lender fails to comply with these policies SOPs are available on the SBA Website @ https://www.sba.gov/lender-documentation-tool/sops Proprietary and Confidential. Do not Distribute without permission.

SOP 50 57 Version 2 Performance Standards All Lenders must service and liquidate their SBA loans in a diligent, commercially reasonable manner that is free of conflicts of interest and Preferences, and is consistent with the Loan Authorization, Prudent Servicing and Prudent Liquidation practices, including the SBA Loan Program requirements in effect at the time the action is taken. (13 C.F.R. § 120.535) Proprietary and Confidential. Do not Distribute without permission.

Definitions What is 'Servicing‘? What is liquidation? Servicing is the administrative aspect of a loan from the time the proceeds are disbursed until the loan is paid off. This includes collecting monthly payments; maintaining records of payments and balances; ensuring taxes are paid, insurance and lien positions are current/correct; reviewing the loan annually; maintaining contact with the borrower, and following up on delinquencies. What is liquidation? The authority to foreclose and liquidate property and assets of a defaulted loan that was funded with the proceeds of a loan guaranteed by the SBA. Proprietary and Confidential. Do not Distribute without permission.

Regular Servicing Begins An SBA loan is considered to be in regular servicing when: Term loan - is closed and is fully disbursed Revolving lines of credit – when the loan is closed and the first disbursement is made Proprietary and Confidential. Do not Distribute without permission.

Regular Servicing The following is included in regular servicing: Collection of Payments Reporting and payment to the FTA (Colson Services) on a monthly basis for the SBA ongoing monthly fee or payment to the Secondary Market Proprietary and Confidential. Do not Distribute without permission.

Regular Servicing (Continued) Annual Credit Review Collection and analysis of financial information on an annual basis: Business Tax Return & most recent Interim Balance Sheet & Income Statement Personal Tax Return Updated PFS Updated Credit Report Proprietary and Confidential. Do not Distribute without permission.

Regular Servicing (Continued) Verification of lien position Verification proper insurance is in place Hazard Liability Personal Property Life Insurance Verification property taxes are current Proprietary and Confidential. Do not Distribute without permission.

Site Visit Requirements Site visits must be performed: Within 60 days of a payment default, or sooner if there are assets with significant value that could be moved or depleted If payment default does not exist, but an event has occurred which would cause the loan to be put in liquidation (i.e. liquidation, bankruptcy filing, business shutdown, or foreclosure by a prior lienholder) a site visit must be made with 15 days of the event NOTE: It is considered “Prudent Lending” to conduct a site visit on an annual basis for those loans that are in regular servicing. Proprietary and Confidential. Do not Distribute without permission.

Included in Servicing Prudent Servicing is also considered Portfolio Management. If you manage a commercial loan portfolio, you are probably already doing 75% of what is required for SBA Loan servicing. As part of portfolio management, you may be required to perform a Servicing Action, which must be reported to the SBA, in some cases. Proprietary and Confidential. Do not Distribute without permission.

What is a “Servicing Action”? Servicing Actions are considered to be any changes in the loan that will conflict with the original SBA Authorization, such as: Change in payment terms Changes in collateral Changes to guarantors Decreased loan amount Increased loan amount Extending the term Complete list of Servicing Actions can be found in the Servicing & Liquidation Actions 7(a) Lender Matrix published by SBA dated 07/20/2016, Version 13. (Handout provided) Note: For loans sold in the secondary market, prior written consent for changes to the original loan approval may be required before the lender approves the action and notified SBA. Proprietary and Confidential. Do not Distribute without permission.

Servicing Actions (aka Post Approval Actions) SBA outlines the approval requirements in the Servicing & Liquidations Actions 7(a) Lender Matrix which can be different for: Delegated vs Non Delegated Lenders Note: Version 14 in Final Clearance Proprietary and Confidential. Do not Distribute without permission.

Servicing and Liquidation Actions 7(a) Lender Matrix Proprietary and Confidential. Do not Distribute without permission.

(Unilateral Authority) Servicing Actions As shown in the previous slide, SBA has developed a Servicing & Liquidation Matrix that will outline what types of actions must be taken. The matrix includes actions that: Do not require notification or approval , i.e. (Unilateral Authority) Require notification, but do not require approval Require SBA approval Proprietary and Confidential. Do not Distribute without permission.

Servicing Actions Requiring Approval SBA formally used Form 2237 to request certain types of servicing actions. That form was recently discontinued. To request approval for a Servicing Action, the lender must email: Fresno: FSC.Servicing@sba.gov Little Rock: LRSC.Servicing@sba.gov Include the borrower name, SBA name, SBA loan number and an explanation of the servicing action being requested and the center will get back to the lender with a decision. Proprietary and Confidential. Do not Distribute without permission.

E-Tran Servicing Since February 1, 2015, the lender is required to notify the SBA via E-Tran for a number of unilateral actions: Cancel SBA Guaranty Extend Maturity Change from revolving to non-revolving Adding a Guarantor Classify loan in liquidation If a loan is sold in the secondary market, the lender is sometimes required to get approval from the secondary market prior to any modification. Check with Colson Services to find out if a servicing action will need Secondary Market approval. Proprietary and Confidential. Do not Distribute without permission.

Colson Reporting (aka 1502 Reporting) Every lender is responsible for reporting to Colson Services, Fiscal Transfer Agent, for SBA on a monthly basis all activity in the lenders SBA portfolio. Three Components to the 1502 Reporting: 1. Guaranty Loan Status Information 2. SBA Ongoing Servicing Fee 3. Secondary Market Payments Proprietary and Confidential. Do not Distribute without permission.

Colson Reporting Lender is required to remit to Colson: the ongoing SBA Fee if the loan is held in the portfolio the guaranty portion of principal and the guaranty portion of interest for payment to the secondary market on all sold loans NOTE: There are specific training classes dedicated to Colson Reporting Proprietary and Confidential. Do not Distribute without permission.

Credit Bureau Reporting Lenders are required to report the borrower(s), not the guarantor(s) of an SBA loan to the commercial credit reporting agencies following initial disbursement. Lenders should continue to report to the commercial credit bureau reporting agencies information concerning the extension of credit, including servicing, liquidation, and charge-off activities throughout the life-cycle of the loan Note 1: Appendix 3 of the Guide to the Federal Credit Bureau Program (“GFCBP”) lists the designated credit reporting agencies for commercial accounts Note 2: SOP 50 57 2 provides guidance on credit bureau reporting requirements. (Chapter 3 – Lender Responsibility and Authority – pages 28-29) Proprietary and Confidential. Do not Distribute without permission.

Liquidation Status An SBA Loan moves from regular servicing to liquidation status if the loan is in default and has been classified in liquidation pursuant to Chapter 14 of SOP 50 57 2 Lenders do not have a legal right to accelerate, make demand, or liquidate the collateral unless there has been a default on the Note (Specifically the lender’s rights in the event of a default are outlined on the Note used to document the loan – SBA Form 147) Proprietary and Confidential. Do not Distribute without permission.

Prudent Liquidation Prudent Liquidation means Lenders must liquidate and conduct debt collection litigation for 7(a) loans in their portfolio: no less diligently than for their non-SBA portfolio consistent with prudent lending standards in accordance with Loan Program Requirements Proprietary and Confidential. Do not Distribute without permission.

When is a Loan Considered in “Liquidation”? Default on Loan / Lender Accelerates the Note Payment Default (60 days) Borrower closes Business Borrower files Bankruptcy Borrower begins Selling Collateral Other Default Provisions in the Note Proprietary and Confidential. Do not Distribute without permission.

Moving an SBA Loan from Liquidation Status (Return to Regular Servicing) An SBA loan can be removed from Liquidation Status: When the borrower agrees to resume regular payments pursuant to the workout agreement, bankruptcy plan, reaffirmation agreement, or any agreement that provides for resumption of regular payments. Paid in full – When the debt is satisfied Charged off by SBA Proprietary and Confidential. Do not Distribute without permission.

Monitoring Portfolio Performance (SBA Lender Portal) SBA provides information on your SBA loan portfolio: Dun & Bradstreet https://sbalenderportal.dnb.com/Account/Login?ReturnUrl=%2FFirs For general inquiries on Portal, contact: SBA OCRM Lender.Portal@sba.gov SBAOne Proprietary and Confidential. Do not Distribute without permission.

SBA Lender Portal Various information provided: Lender Risk Rating/Lender Purchase Rating Ratios Comparisons to Peer Group / SBA Loan Portfolio Scorecard SBPS Score Loan Level Detail Data SBPS Risk Ranges Flags Proprietary and Confidential. Do not Distribute without permission.

SBPS Ranges 5 Ranges of Risk for SBA 7(a) Higher Risk: 140 – 159 Highest Risk: 1 – 139 Higher Risk: 140 – 159 Moderate Risk: 160 – 179 Lower Risk: 180 – 199 Lowest Risk: 200 – 300 Current Quarter vs Previous Quarters Proprietary and Confidential. Do not Distribute without permission.

FLAGS Early Warning Signs: Industry / Other Concentrations Sold on 2nd Market Franchises Loan Agents/Brokers Loan Growth Acquired Loan Growth Loans ˃ $2 million Early Defaults Proprietary and Confidential. Do not Distribute without permission.

Strategic Banking Partners, Inc. Contact Information: Lisa Preston President The Preston Group, LLC lpreston@the-preston-group.com Mary Wamsley Strategic Banking Partners, Inc. Mary.Wamsley@sbp-online.com Proprietary and Confidential. Do not Distribute without permission.

THANK YOU! Proprietary and Confidential. Do not Distribute without permission.