CIT: Voice of the Middle MarketPerspectives from the Heart of the U.S. Economy

Full Report of Survey Research Findings

October 2013

2

Objectives and Methodology 3

Research Objectives and Background 4

Methodology 5

Executive Summary 6

Detailed Findings 11

The Economic Landscape: At a Glance 12

The Economic Landscape: Middle Market in Focus 17

Political Climate in Context 23

Middle Market’s Perspective on Regulatory Environment 30

Growth Strategies and Obstacles for the Middle Market 36

Perspectives on Financing and Lending Environment 47

Middle Market Executives and the Secret to Their Success 52

Appendix 57

Respondent and Middle Market Profile 58

Additional Firmographics 66

Table of Contents

Objectives and Methodology

4

Research Objectives and Background

CIT partnered with KRC Research to conduct a survey of middle market executives and business leaders. This is the second year that KRC has conducted a middle market survey on behalf of CIT.

The main objective of this research is to position CIT as the go-to voice on the middle market for information, insight and expertise.

The survey aims to quantify views on the middle market economy and current economic events among executives and evaluate changes from the year before.

The following topics were covered in the survey and include:

Economic outlook;

Role of the middle market;

Growth strategies and obstacles; and

Perspectives on the political and regulatory environment.

5

Methodology

Numbers may not sum to exact totals due to rounding

Executive Summary

7

The Middle Market and the U.S. Economy in 2013

Many middle market executives offer a favorable assessment of their companies right now: the majority not only say they are in a strong position now but also that they are stronger than compared to a year ago.

Most believe the middle market has a major impact on the U.S. economy, with about three in four holding this opinion.

Still, only a minority believe the U.S. economy is doing well right now. They believe the global economy is even weaker.

There is optimism much closer to home, with a sizeable minority describing their local economy as strong.

This audience also proves optimistic about the direction of the U.S. economy: half expect it to be stronger in 12 months.

8

Views on Congress and Current Legislative Agenda

Views of the middle market track against the general public when it comes to Congress. In fact, nearly all disapprove of Congress. Further, two-thirds disapprove of both Congress and President Obama.

Most also think Congress pays too little attention to the middle market.

Contrary to their own opinions about how the middle market bolsters the economy, only a minority think Congress recognizes the middle market’s contribution to the U.S. economy.

Thinking about the current legislative agenda, middle market executives are most likely to say tax reform, balancing the budget and healthcare reform will significantly impact their businesses.

9

The Road Forward: Growth and Challenges Ahead

Across revenue categories, middle market executives are most likely to say they will be increasing the range of products and services offered in current markets.

Almost half are forecasting growth within other U.S. regions. International growth proves less common.

Middle market executives see many challenges ahead, however. Most are worried about continued economic uncertainty within the U.S. and internationally, tax increases and compliance with the Affordable Care Act.

There is widespread agreement that interest rates will rise in the coming year, and the majority think higher rates will negatively impact their companies.

Additionally, hiring and retaining talent remains a challenge for the majority of those surveyed.

10

The Middle Market: By the Numbers

THE MIDDLEMARKET AND

CONGRESS

U.S. ECONOMY AND THE MIDDLE

MARKET

IMPACT OF LEGISLATION AND

REGULATIONS

WORKFORCE: HIRING AND

RETAINING TALENT

83PERCENT SAYING THAT

CONGRESS IS DOING TOO LITTLE TO SUPPORT THE MIDDLE MARKET

74PERCENT SAYING MIDDLE MARKET

COMPANIES HAVE A MAJOR IMPACT ON U.S. ECONOMY

84PERCENT SAYING TAX REFORM

WILL HAVE A SIGNIFICANT IMPACT ON THEIR BUSINESS

60PERCENT SAYING THEY ARE

CONCERNED ABOUT HIRING TOP TALENT

45PERCENT SAYING THAT

CONGRESS IS DOING TOO MUCH TO SUPPORT BIG BUSINESSES

60PERCENT SAYING CURRENT STATE

OF THEIR COMPANY IS STRONG

80PERCENT SAYING BALANCING THE

FEDERAL BUDGET WILL HAVE A SIGINICANT IMPACT ON THEIR

BUSINESS

59PERCENT SAYING THEY ARE

CONCERNED ABOUT RETAINING TOP TALENT

95PERCENT WHO DISAPPROVE OF

CONGRESS

58PERCENT SAYING THEY STRONGLY

AGREE JOB GROWTH AMONG MIDDLE MARKET COMPANIES WILL HAVE A SIGNIFICANT IMPACT ON

STRENGTHENING THE U.S. ECONOMY

74PERCENT SAYING THAT

BALANCING THE FEDERAL BUDGET WILL HAVE A POSITIVE IMPACT ON THEIR CUSTOMERS’

ECONOMIC STABILITY

47PERCENT SAYING IT IS DIFFICULT

TO RETAIN TOP TALENT

Detailed Findings

The Economic Landscape:At a Glance

13

Today’s Economy and Looking Ahead

Middle market executives are most positive about the state of their local economy as compared to the U.S. and global economy.

Conversely, half describe the global economy as weak.

Views on the U.S. economy more closely mirror the global economic assessment of this audience.

Still, half expect the U.S. economy to be stronger in 12 months. This exceeds levels of optimism among middle market executives in 2012.

The vast majority of middle market leaders say interest rates will rise in the coming year, with most saying they will rise slowly.

Interestingly, about one in five expect rising rates to have a positive effect on their business.

However, 54 percent say they expect higher rates to negatively impact them.

14

State of the Global, U.S. and Local Economy

Middle market leaders are most confident about the current state of their local economy.

Base: 301 ParticipantsQ7 How would you rate the current state of …

15

Future Strength of the U.S. Economy

A majority of respondents expect the economy to be stronger in 12 months. Overall, the share of positive responses in 2013 grew nine points from respondents in 2012.

Base: 301 Participants (2013), 300 Participants (2012)Q8 What do you expect the state of the U.S. economy to be 12 months from now?Stronger = Stronger/Significantly stronger; Weaker = Weaker/Significantly weaker

16

Interest Rates

Most say interest rates will rise, albeit slowly. Further, over half expect rising rates to have a negative effect on their company.

Base: 301 ParticipantsQ9 Over the next 12 months, do you expect interest rates to rise…Q10 If interest rates rise over the next 12 months, would you expect higher rates to have a positive or negative effect on your company?

The Economic Landscape:Middle Market in Focus

18

Putting the Middle Market in Context

About three in four middle market leaders say that their companies have a major impact on the U.S. economy, up six points since last year.

Similarly, most of this audience agrees that job growth within the middle market will also have significant impact on the U.S. economy.

These leaders are also upbeat about their own companies, with 55 percent saying they are better off compared to a year ago.

As in 2012, however, they are much more positive about the state of their own companies than their industries. Importantly, though, industry ratings – that is, the proportion describing their industry as strong – are up from a year ago.

19

Connecting the Middle Market to the U.S. Economy

Leaders believe the middle market will have a major impact on the U.S. economy.

Base: 301 Participants Q19 What impact do you think middle market companies, those with revenue between $25 million and $1 billion, have on the U.S. economy? Q20 Do you agree or disagree that job growth among middle market companies will have significant impact on strengthening the U.S. economy?

20

Leaders Feel Better About Business in 2013

A majority of middle market business leaders feel their company is better off compared to one year ago. Still, three in 10 report no noticeable change.

Base: 301Q13 Would you say your company is better off now compared to a year ago or are you worse off?

21

2012 and 2013: Industry Strength vs. Company Strength

As in 2012, middle market leaders are generally more positive about the strength of their own companies compared to their industry at-large. Industry confidence is up from last year.

Base: 301 Participants (2013), 300 Participants (2012)Q11 How would you rate the current state of your industry? Q12 How would you rate the current state of your company?

22

2013: Industry Strength vs. Company Strength

Generally speaking, feelings about company strength are correlated with feelings about industry strength.

Base: 301 ParticipantsQ11 How would you rate the current state of your industry? Q12 How would you rate the current state of your company?

Political Climate in Context

24

Politics and the Middle Market

Three in 10 approve of President Obama, and just five percent approve of Congress. In fact, half strongly disapprove of Congress.

Most middle market leaders say that Congress is not doing enough to support their businesses—the middle market—and small businesses.

Fully two-thirds disagree with the notion that Congress recognizes the contributions middle market businesses have on the economy.

Among the issues recently discussed in Congress, 85 percent agree that tax reform will have a significant impact on their business.

25

Washington Out of Favor with the Middle Market

Middle market executives are far more likely to approve of President Obama than Congress, with only five percent saying they approve of Congress compared to 30 percent saying they approve of Obama.

Base: 301 ParticipantsQ14 Do you approve or disapprove of President Barack Obama’s job performance?Q15 Do you approve or disapprove of Congress’ job performance?

26

Obama and Congress

Two-thirds disapprove of both the President and Congress.

Base: 301 ParticipantsQ14 Do you approve or disapprove of President Barack Obama’s job performance?Q15 Do you approve or disapprove of Congress’ job performance?

27

Congress and the Middle Market

Leaders do not think Congress is doing enough to support the middle market. Importantly, few think Congress recognizes their contributions to the economy.

Base: 301 ParticipantsQ16 In your opinion, do you think Congress is doing too much, too little or a sufficient amount to support …?Q17 Do you agree or disagree with the following statement: Congress recognizes the contributions that middle market businesses make to the U.S. economy?

28

Perceived Impact of Select Issues

Healthcare reform, tax reform and balancing the budget are likely to have significant impact on the middle market. Fewer feel similarly about sequestration or immigration reform.

Base: 301 ParticipantsQ18 Now, thinking about specific issues that Congress has been discussing recently and that could impact your business, please indicate whether you agree or disagree that each of the following issues will have a significant impact on your business.

29

Regulation and Its Perceived Impact on Middle Market Customers

Sizeable majorities say that balancing the budget, tax reform and immigration reform will have a positive or very positive impact on the economic stability of their companies’ customer bases.

Base: 301 ParticipantsQ26 The next questions focus on specific federal legislation or proposed legislation and the possible impact of the legislation on the economic stability of your customers. Please indicate the impact you think each of the following will have on the economic stability of your company’s customer base.

Middle Market’s Perspectiveon Regulatory Environment

31

Perspectives on the Regulatory Environment

When asked to weigh in on any legislation that will have a significant impact on their company, a few words stand out: “healthcare” and “reform.”

Nearly two-thirds expressed words and phrases mentioning health, healthcare legislation or the Affordable Care Act. Tax reform and immigration followed, but in much smaller numbers.

A large majority of middle market executives say these regulations that impact their company will impede growth, while less than 10 percent of respondents feel that regulations support growth.

Similarly to 2012, a small but sizeable minority believe federal legislation and regulations can both support and impede growth.

32

Legislation Impacting the Middle Market

Words related to healthcare reform dominate the forum on federal legislation or regulations impacting the middle market.

Base: 301 Participants Q23 What existing or pending federal legislation and/or regulations have the greatest impact on your company?

33

Regulatory Concerns: A Closer Look

Base: 301 Participants Q23 What existing or pending federal legislation and/or regulations have the greatest impact on your company?

34

How Regulations Play Out

On the whole, legislation and regulations are perceived as having an unfavorable impact.

Base: 223 Participants that follow legislation and/or regulationsQ24 Thinking about the federal legislation and/or regulations that you said have the greatest impact on your company, would you say the impact to your company is favorable, unfavorable, both or neither? (Sums to >100% due to aggregated responses for more than one question)

35

Perceived Impact of Legislation and Regulations

About three in four believe that regulations impede growth, but a sizable minority believe they have the ability to support as well as impede growth.

9% SAY THESE REGULATIONS SUPPORT

74% SAY THESE

REGULATIONS IMPEDE

Gro

wth

G

row

th

17% SAY REGULATIONS

CAN DO BOTH

Reduced Base: 223 Participants that follow legislation and/or regulationsQ25 Thinking about federal legislation and/or regulations that have the most impact on your industry, would you say these policies mostly impede your company’s growth, support your company’s growth or both?

Growth Strategies and Obstaclesfor the Middle Market

37

Growth Strategies and Obstacles

Middle market executives expect to grow over the next year; they intend to do so through a combination of horizontal growth, vertical growth and diversification.

A majority say they plan to increase their range of products and services or expand into adjacent markets.

Nearly half expect to enter other regions within the U.S., though fewer anticipate growing globally.

Economic uncertainty (at home and abroad), tax increases and healthcare reform are the top obstacles to growth concerning middle market leaders.

Hiring and retaining talent are also concerns.

Middle market leaders are most likely to say current economic conditions affect their ability to hire.

Forty-seven percent say retaining top talent is difficult.

38

Indexing Growth in the Next Year

Growth is on the horizon, with a plurality indicating they are likely to undertake a minimum of three to five growth strategies in the next year.

Base: 301 ParticipantsQ21 Here is a list of different types of growth that may occur at companies like yours. How likely is each of the following types of growth to occur at your company over the next 12 months?

39

Indexing Growth in the Next Year by Region

Leaders in the Midwest and South lead in growth expectations.

Base: 301 ParticipantsQ21 Here is a list of different types of growth that may occur at companies like yours. How likely is each of the following types of growth to occur at your company over the next 12 months?

40

Growth and Diversification Strategies

Base: 301 ParticipantsQ21 Here is a list of different types of growth that may occur at companies like yours. How likely is each of the following types of growth to occur at your company over the next 12 months?

41

Obstacles to Growth and Continued Challenges

Economic uncertainty (at home and abroad), tax increases and healthcare reform are the top concerns for middle market leaders. Hiring and retaining top talent is also on their radar.

Base: 301 ParticipantsQ22 Thinking about the next 12 months, how concerned are you about each of the following?

42

Index of Obstacles and Challenges

Overall, most middle market executives are facing a considerable number of challenges as they plan for the future.

Base: 301 ParticipantsQ22 Thinking about the next 12 months, how concerned are you about each of the following?

43

Index of Obstacles and Challenges: By Revenue

Levels of concern are consistent across revenue categories, revealing that middle market companies, as a group, face a similar number of obstacles and challenges.

Base: 301 ParticipantsQ22 Thinking about the next 12 months, how concerned are you about each of the following?

44

Workforce Size: A Closer Look

Base: 301 ParticipantsQ32 Over the next 12 months, do you expect the size of your workforce to change?

45

Obstacles to Hiring: A Closer Look

Current economic conditions and the quality of the applicant pool are top hiring obstacles.

Base: 301 ParticipantsQ33 Which of the following has the greatest impact on your company’s ability to hire?

46

Talent Retention: A Closer Look

Almost half say it is difficult to retain the most talented employees.

Base: 301 ParticipantsQ34 How easy or difficult is it for your company to retain the most talented employees?

Perspectives on Financing and Lending Environment

48

Perspectives on Financing and Lending Environment

Not much has changed in the last 12 months and the middle market’s attitude toward financing: a substantial majority agree that they are satisfied with their access, cost and financing alternatives.

Types of financing vary by revenue. Overall, the most common types of financing include secured loans and internal sources of funding.

Middle market executives are most likely to say they will use financing for working capital, followed by plant and equipment investments.

Fewer say they will make investments in R&D or training and development.

49

Attitudes on Financing

Middle market leaders prove satisfied with access, cost and financing alternatives.

Base: 301 ParticipantsQ29 Here are some different statements about financing. Thinking about your own company, please indicate whether you agree or disagree with each statement.

50

Financing Types and Planned Use

Companies are most likely to use secured loans, followed by internal sources of funding.

Base: 301 ParticipantsQ27 Which of the following types of financing does your company plan to use over the next 12 months?

51

Expected Purpose of Financing

Middle market companies are most likely to say they will use financing for working capital and plant and equipment investments. Three in ten expect to use it for acquisitions.

Base: 301 ParticipantsQ28 What do you expect financing will be used for at your company over the next 12 months?

Middle Market Executives and theSecret to their Success

53

What Explains Middle Market Leaders’ Success?

By a wide margin, middle market executives are most likely to say their success is due to hard work over many years.

In a second tier, these executives credit deep industry expertise.

The company you keep – whether it be mentors, being surrounded by smart people or teamwork – is valued as well.

When thinking about advice to pass on to small businesses looking to grow, middle market leaders emphasize employee relationships over other factors.

54

Success and Advice

Base: 301 ParticipantsQ35 The secret to my success is …

55

Middle Market Execs: Advice in Their Own Words

Base: 301 ParticipantsQ36 What advice would you share with a small business that was looking to grow and become a middle market business?

56

Advice to Small Businesses

Answers related to developing and focusing on employee relationships top the list of advice.

Base: 301 ParticipantsQ36 What advice would you share with a small business that was looking to grow and become a middle market business?

Appendix

Respondent and Middle Market Profile

59

Gender Distribution

Base: 301 ParticipantsQ1 Are you…?

60

Current Title

Base: 301 ParticipantsQ2 Which of the following best describes your current title?

61

Current Title

Base: 301 ParticipantsQ2 Which of the following best describes your current title?

62

Represented Industries

Base: 301 ParticipantsQ3 Which of the following best describes your company’s industry?

63

Revenue

Base: 301 ParticipantsQ4 What is your company’s annual revenue?

64

Percentage of Employees in U.S.

Base: 301 ParticipantsQ5 What percentage of your employees is based in the United States?

65

HQ Location

Base: 301 ParticipantsQ6 Geographic Location

Additional Firmographics

67

Size of Current Workforce

Base: 301 ParticipantsQ30 What is the size of your current workforce?

68

Size of Workforce Comparison

Base: 301 ParticipantsQ31 And how does this compare to 2011 and 2012? What was the size of your workforce in previous years?

69

Revenue in Past Years

Base: 301 ParticipantsQ37 What was your annual revenue in 2010 and 2011?

70

Ownership Structure

Base: 301 ParticipantsQ38 Which of the following best describes your company’s ownership structure?

71

Degree of Internationalization

Base: 301ParticipantsQ39 Which of the following best describes the degree of internationalization at your company?