Investing in Equipment Portfolios: Strategies and Management

1. Nefa funding symposium 2016 buying and selling portfolios Presentation with Mike Coon, MikkiHenkelman and Jaimie Haver

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

3. 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.

4. 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.

5. 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.

6. 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!

7. 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*

8. 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

9. 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

10. 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

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

12. 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

13. 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

14. 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

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

16. 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

17. 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

18. 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

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

20. 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

21. 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.

22. 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.

23. 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

24. 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

25. 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