Industry Presentation 14 th Annual Factoring Conference San Diego, CA. Milestone Advisors, LLC. Commercial Finance Industry Overview.

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1 Industry Presentation 14 th Annual Factoring Conference San Diego, CA April 9 12, 2008 MERGERS & ACQUISITIONS CORPORATE FINANCE MERCHANT BANKING Milestone Advisors, LLC Milestone Advisors, LLC ( Milestone ) is the financial advisory division of Milestone Merchant Partners, LLC. Milestone is a NASD licensed broker/dealer headquartered in Washington, DC with additional offices in Newport Beach, CA and Miami, FL Milestone was ranked the #1 M&A Advisor to Specialty Finance Companies for 2004 through 2007, based on number of transactions Milestone s core focus is providing investment banking services and capital to institutions and companies within the financial services sector We advise our clients on mergers, acquisitions, capital formation, business development, and other strategic alternatives WASHINGTON, DC 1775 I Street, NW Suite 800 Washington, DC P (202) F (202) MIAMI, FL NEWPORT BEACH, CA Harbour Centre 450 Newport Center Drive NE 29 Avenue, Suite 775 Suite 595 Aventura, FL Newport Beach, CA P (305) P (949) F (305) F (949) Key Trends Deal flow increasing for most independent factoring companies Banks beginning to exit the market Market awaiting further bank fallout Credit issues starting to multiply Access to senior financing for middle market factoring companies becoming increasingly challenging Continued intense competition from hedge funds and other finance companies Fragmented market Troubling market conditions should create an abundance of potential opportunities for welldisciplined commercial finance companies. 3

2 Liquidity Crisis May Demonstrate Far-Reaching Impact To date, most of the credit issues have been contained to the mortgage industry Now, some diversified financial services companies who have been impacted by the mortgage mess are changing their stance on other financial services products, such as consumer loans, credit cards, and auto loans Where will the impact be seen in commercial bank loan portfolios? Where will there be opportunities to take advantage of the current distress? 4 Impact to Factoring Companies Factoring companies borrowing from large banks who have been hit by mortgage losses Factoring companies who are seeking financing for acquisitions of portfolios or companies Willingness of lenders to offer terms and facility size consistent with levels has declined There is disconnect between factoring companies seeking financing and lenders offering financing. Lenders with appetite and capacity can capitalize on the opportunity. 5 Growth in C&I Loans Bank and Thrift C&I loan portfolios have experienced 4 straight years of sustained growth, and have grown at a compound annual growth rate of 8.5% since 2000 Commercial and Industrial Loan Outstandings Loans Outstanding ( Millions) 1,600,000 1,400,000 1,200,000 1,000, , , , , Source: SNL Financial 6

3 Credit Quality Reversing Course As the charts below indicate, credit quality among bank and thrift commercial portfolios has started to deteriorate Net Charge-Offs to Loans and Leases Commercial & Industrial - Net Charge-Offs to Loans and Leases Over Time Loan and Lease Loss Provisions to Net Charge-Offs Commercial & Industrial - Loan and Lease Loss Provisions to Net Charge- Offs Over Time * FDIC Insured institutions Only * FDIC Insured institutions Only Source: FDIC 7 Commercial Finance Industry M&A Transactions During 2007, 51 commercial finance M&A transactions (including leasing deals and portfolio acquisitions) were announced representing over 15.0 billion in total deal value (36 deals were announced in all of 2006) Some banks and thrifts remain interested in the high risk-adjusted returns of finance companies Large commercial finance companies continue to seek large portfolio opportunities or niche businesses providing potential growth Private equity firms have increased focus on M&A deals due to recognition of high risk-adjusted returns in ABL and factoring sectors Independent finance companies seeking growth continue to see heavy competition, resulting in further frustration and susceptibility for sale, but increased deal flow is on the way In the last few months, some liquidity issues have manifested themselves in non-mortgage finance companies. Will this impact the M&A market? 8 Commercial Finance Industry Strategic Buyers What Buyers are Seeking Strong credit quality Risk adjusted yield Scalable platform Experienced management Cost of funds arbitrage Interest and fee income diversification Back office consolidation 9

4 Commercial Finance Industry Strategic Buyers The robust banking environment over the last few years had allowed banks and thrifts to exploit highly valued stock prices in M&A transactions P/E multiples were at all-time highs Opportunity to reduce funding costs Nearly double earnings Day 1 Banks and thrifts have the greatest ability to pay for a factoring company, but many are not interested in the asset class given their deteriorating credit quality 10 Commercial Finance Industry Strategic Buyers ( in 000) Stand Alone Owned by Bank Capital Structure Senior Debt 20,000 22,500 Subordinated Debt 2,000 - Common Equity 3,000 2,500 Total Funding 25,000 25,000 Senior Leverage Total Leverage Debt Pricing Senior Debt (LIBOR down to LIBOR) 4.60% 2.60% Subordinated Debt 15.00% 0.00% Blended Cost of Funds 5.55% 2.60% Interest Expense Senior Debt (LIBOR + 200) Subordinated Debt 300 Total Interest Expense 1, Assumed Interest Income Yield 25.00% 25.00% Income Statement Impact Interest Income 6,250 6,250 (585) Interest Expense (1,220) Net Interest Income 5,030 5,665 Accretion to Pretax Income: Commercial Finance Industry Strategic Buyers Transactions large and small have dominated the commercial finance landscape over the last year: Crestmark Bank / Commercial Capital Lending Resource Management Partners & Aquent, LLC / Carrier Finance First Community Bancorp / BFI Business Finance Capital Corp. of the West / Bay View Funding Crestmark Bank / TPG Commercial Finance Bibby Financial Services / Account Funding, Inc. Gulf Coast Business Credit / State Bank s Factoring Operations Wintrust Financial / Broadway Premium Funding Corp. Wells Fargo & Co. / Evergreen Funding Corp. GE / Merrill Lynch Capital 12

5 Commercial Finance Industry Capital Markets Private equity and hedge fund investment transactions typically have the following characteristics: Investors seeking: 30 40% IRRs 20%+ earnings growth 3-5 year investment horizon Ownership clawbacks: Minority Interest Majority Interest Management carry Governance provisions Opportunity for further capital investment 13 Commercial Finance Industry Capital Markets Financial investors including hedge funds and private equity funds have increased participations in factoring and asset based loan transactions, but have also entered the commercial finance sector through some prominent acquisitions and investments: American Capital / Core Business Credit (Start Up) American Capital / First Capital Corp. (Financing) Allied Capital / Direct Capital Cerberus Capital Management / United Rentals, Inc. Cerberus Capital Management / Capital Services Raymond James Financial Inc. / Pine Creek Healthcare Light Year Capital / Neff Corporation 14 Commercial Finance Industry Valuation Metrics After-Tax Earnings Multiple: Bank buyers historically have driven up average multiples to 10x to 15x after tax income (6x to 9x pretax income) but multiples may decline in this environment. Factoring Companies: shorter asset duration and less bank interest than asset based lender and leasing companies results in lower average multiples 8x to 11x after tax income (5x to 8x pretax income). Book Value Multiple: Multiples have averaged a slight premium to book value over the last few years. However, top businesses have sold for upwards of 200.0% of book value or more. Number of M&A Transactions Price/Earnings Price/Earnings & Price/Book Multiples 235% % 195% % 155% 135% % 95% 6 75% Price/Book % Price/Earnings Price/Book Source: SNL Financial 15

6 Commercial Finance Industry Valuation Metrics Price to Net Receivables and Price to Total Assets After some larger deals skewed the average asset-based valuations in 2000 through 2004, valuations tied to net receivables and assets have stabilized in the 40.0% to 50.0% range. Factoring Companies: Again, slightly lower ratios due to shorter asset duration and less bank interest than in asset based lenders and leasing companies 35.0% to 45.0%. Price/Net Receivables & Price/Assets Price/Net Receivables Price/Total Assets Source: SNL Financial 16 Commercial Finance Industry Summary of Key Value Drivers CONSIDERATION Credit Quality VALUE DRIVERS Strong credit quality with minimal charge-offs and no big hits Scalability Leverage Highly developed and institutionalized infrastructure which can easily be grown or duplicated, resulting in economies of scale Leverage at less than 4:1 with diversified capital structure of debt, mezzanine, and equity Track Record Management Concentrations Portfolio Management Sales Force Track record of earnings and asset growth, credit quality and stability Deep, experienced management team with substantial industry expertise Minimal debtor concentrations with no single debtor representing more than 8-10% of outstandings Detailed policies and procedures manual and organized credit files, consistently updated Experienced and diversified sales force without dependence on any one sales person or any one origination channel Factoring companies are valued based on their own individual characteristics and merits 17 Contact Information WASHINGTON, DC 1775 I Street, NW Suite 800 Washington, DC MIAMI, FL Harbour Centre NE 29th Avenue, Suite 775 Aventura, FL NEWPORT BEACH, CA 450 Newport Center Drive Suite 595 Newport Beach, CA P (202) F (202) P (305) F (305) P (949) F (949) Timothy W. Stute Managing Director (202) tstute@milestonecap.com MERGERS & ACQUISITIONS CORPORATE FINANCE MERCHANT BANKING 18